On Constant Taxation

There are many ways of measuring the effect of property taxes on the residents of a municipality. All too often, news media use the budget bottom line, dollars, as their sole measure and feel impelled to describe it as a tax increase, ignoring population change, inflation and long term debt.

Currently, the City of Ottawa (Ontario Canada) defines a constant municipal tax as one which nominally results in the same number of dollars paid by the same taxpayers. When the value of all properties rises the same amount, taxes do not change. When the number of assessable properties increases, total dollar taxes go up in proportion of the assessed value of new properties to existing ones. However, all changes to existing properties that require a building permit are treated as improvements (for example, repairs following a fire), allowing a small increase in 'constant' property taxes. This formula is not provincially mandated, but nonetheless is commonly agreed upon by most Ontario municipalities. It allows 'constant' taxes to go up at a slightly greater rate than that of population. But, there is no allowance for inflation or change in long term debt in this model.

Longer ago than I care to remember, I chaired the Recreation & Parks Board of the Township of Cumberland. When it came to establishing a baseline for the R&P budget for the Township, I made the following proposal: that the best measure of municipal 'constant tax' is the portion of tax of the total income of all residents of the township. The reason: even though municipal taxes are based upon the capital value of property, people in fact pay taxes out of income, not capital. This page applies that philosophy to the amalgamated City of Ottawa.

In Canada, Revenue Canada provided the aggregate taxable income of all residents reporting from a postal address. (In Cumberland's case, these were then half of Orleans, Cumberland (village), Sarsfield, Navan and Vars.) This measure was established by an agency distinct and separate from the municipality. All residents of Canadian municipalities file an income tax return in order to obtain tax credits. So, it took into account local population changes, local employment changes, and local inflation. Today, the data is assembled and published by the Conference Board of Canada.

Here are the numbers for the amalgamated City of Ottawa:

yearpopulationper capita
income
final tax
billing ($,000)
net long
term debt
debt
change
effective
taxation
real tax
change
200078590733505745774pre-amalgamation
2001 796800 +1.8%33640 +0.4%777858 415700 0+4.3%+2.1% 
2002814195+2.033806+0.58054844229007200+4.5+2.0
2003828461+1.534086+0.88304844285005600+2.9+0.5
2004839566+1.635263+3.5864495409200-19300+1.1-3.9
2005854333+1.536761+4.291977447740068200+16.9+11.1
2006865554+1.338181+3.995965452125843858+3.9*-1.3
2007877300+1.340077+5.0984039469028-52230-7.1-13.4
4.5% reduction since amalgamation
2008888850+1.241738+4.1105073355323184203+21.8+16.5
2009898150+1.141709-0.1113119659904245811+3.7+2.7
2010908389+1.143446+4.21191959835160236118+21.3+16.1
38.8% increase since 2007
2011917550+1.043243+1.812439211091273256113+5.0+2.2
2012927118+0.944319+0.212970871435911344638+9.5+8.3
2013935073+0.944926+1.413504321650292214381-4.7-6.9
2014943258+0.946222+2.913839671559170-91092-17.4-21.1
2015951727+0.946624+0.91414937162189662700+14.3+12.5
8.6% decrease since 2010
20169607561710431
2017968580

So, until 2007 the amalgamated city was maintaining its financial health and reducing effective taxation, fulfilling the promise that amalgamation would bring efficiencies compared to a dozen separate municipalities. What's more, the province of Ontario downloaded additional expenses to municipalities during this period by increasingly underfunding provincially-mandated programs. For example, in 2001 provincial grants funded almost 31% of social housing expenditures; by 2005, this had decreased to 24%. The total funding gap between such provincially mandated programs and provincial funding totalled about $16 million in 2006, 1.7% in taxes. The amalgamated city was actually able to reduce tax expenditure under its control by about 6.2%.

That improvement ceased in 2008: the city then embarked on a spending spree. The overall result by 2011: the city, partly by doubling its long term debt, increased effective taxes by almost 40% as measured by the incomes of its residents. Clearly, municipal expenditures here rose far faster than the means of its residents over this period.

Since the current mayor, Jim Watson, gained control of city finances in 2011, there has been an overall real tax decrease of 8.6%. However, LRT capital expenditures are still to come...

John Sankey
other notes on community matters

Notes:
- The final tax billing excludes education which is not under City control, but includes fire and police costs and transit subsidies.
- Effective taxation equals final tax billing plus the change in long term debt over the year.
- Populations are estimates by the City planning department as of 31 December the previous year; an official census is held only every 5 years.
- The per capita income data from the Conference Board of Canada includes an estimate of the 'underground' economy, the income not declared to Revenue Canada. Their model changed in 2014, resulting in a 6.2% increase in estimated income for the overlap period, 2013. I have therefore decreased their estimates for 2014-16 by this amount to keep them approximately consistent with prior years while I look for a more consistent measure of the incomes of Ottawa residents.
- Percentages are rounded to the nearest 0.1%. Remember that changes compound: a 10% increase followed by another 10% increase is 1.1*1.1=1.21, a 21% overall increase.
* The 20999,000 cost of curbside garbage pickup was moved from the general tax bill to a special levy paid only by those who receive the service for 2006. This is accounted for by including this amount when calculating the tax change for this year.
- The city financial statements for 2001-5 net long term debt position included the mortgages and forgivable loans on housing properties owned by Ottawa Community Housing Corporation. These are the responsibility of the Province of Ontario and involve no direct or indirect obligation to the City, so the above figures omit them.
 
Calculation example: during the calendar year 2000 the average population of the City was 791354 ((785907+796800)/2); during 2001, 805498. The average population during 2001 was thus 1.8% higher. During 2001 the per capita income was 33640, an increase of 0.4% over the 33505 of 2000. Therefore, the income-neutral property tax for 2001 would have been 2.2% higher than for 2000. In fact the tax levied in 2001 was 4.3% higher, 2.1% more than population plus per capita income changes.
 
I thank the Conference Board of Canada and the City of Ottawa Finance Department for generous assistance in providing and interpreting the data.