A New Year of Tax Fraud

 

Municipalities will be ringing in the New Year by ringing the cash registers, once again collecting their revenue from one slice of citizens, and using it to subsidize another. Their New Year’s resolution should be to stop this fraudulent practice, and bring tax fairness to forms of urban development that are economically and environmentally sustainable.

This practice was highlighted at a recent conference held in Toronto, called “Retrofitting and Planning Sustainable Suburbs”. Although the conference was short on answers, a presentation by Peter Katz (Director of Smart Growth for Sarasota Florida) on long-term fiscal stability for communities was most revealing. In it, Katz compared tax revenue to urban density, with surprising results.

Both our regional and local governments generate their revenue, and incur their expenses, across a specific geography. A local comparison of three different properties in this landscape shows the subsidy from higher density to lower.

The three properties?

1) A 14 storey Downtown Kitchener condo (66 units, .7 acre including its associated street area, located on a street corner used by many of us)

2) a 7 storey historic and well-kept rental property (36 units, .5 acre including its street area, 90 feet of frontage along a street used by many of us)

3) a typical suburban home (1 unit, .12 acre, 45 feet of frontage, along a street used by only its inhabitants)

The typical suburban property is valued at about $200,000, and generates $2,250 of revenue for City and Region (ie., provincial education taxes excluded).The condo property carries $9.9 million of assessment on the municipal rolls, and generates $110,000.The rental building is valued at $2.55 million, but by virtue of its more than double tax rate relative to condo and single family home assessment, that $2.5 million generates $55,000 of revenue for the City and Region.

By comparing the revenue to the area of property and street necessitated by each, we can begin to see the enormous disparity, and the size of the suburban subsidy. The suburban home sends about $14,000 per acre to City Hall. Astonishingly, the condo sends $160,000 per acre even when the corner streets are used in the calculation. That’s more than 10 times the revenue of suburban development. The rental units cough up $115,000 per acre, taken in large part from citizens with little or no savings or net worth.

Multiply these numbers over and over, and you get the picture. Katz, in his presentation of numbers for his community, shows a similar effect on the commercial side. Strip malls and local suburban malls, with their massive parking and wasteful use of adjoining streets, generate about the same tax revenue per acre for Sarasota as suburban residences. No more.

What do our local condo owner or renters get for their tax bill? Garbage and recycling pickup, like the suburban homeowner? No. They pay extra for that, on top of their tax bill. Given that about 50% of municipal expenses are dependent on response times and density (25% of Kitchener’s costs are related to fire coverage alone over its network of streets), the tax bill could be seen as a fraud perpetrated upon sustainable development by suburban voters. Worse, the 36 unit rental property requires snow plowing, police drive-by, asphalt repairs and replacement, for only 90 feet of street. Its equivalent in the suburbs, on a dollar for dollar revenue basis, requires 1200 feet. Worse, that thirteen times length of infrastructure, paid for with utility rates common to all electricity, water and gas users, is maintained by all users equally. In addition to that subsidy, the renters must maintain their private pipes common to the units within the building, through their rent.

We’ve known for a long time that municipal property taxes transfer money from those without the means to pay to suburban voters with net worth, and the Ontario Government has directed municipalities years ago to end this practice. This directive has for the most part been ignored. Now, to grind salt into the wound, let’s add the subsidy: from sustainable, walkable, transit-friendly existing or new development to unsustainable existing and the suburbs-to-come, paid year after year. Properties generating $100,000 or more per acre are paying for municipal services for other areas of the city that incur the costs, yet generate only about $14,000 per acre. In business terms, it makes no sense whatsoever.

And what is the attitude of suburban voters to this largesse? On transit investment to support densification, or quality downtown urban infrastructure? Don’t do it. On taxes? We need relief. On municipal services? We don’t get our fair share. On change to allow density and a greater variety of uses? Don’t touch us!

Given that “Smart Growth” apparently means 40% residential development within built-up areas, and 60% outside it, and given that commercial and employment development can go where it wishes to chew more farmland, our municipal leadership will continue to massively subsidize low density development with capital and operating dollars, while talking a good game.

For this New Year, let’s resolve to end this fraud. It’s not enough to promote sustainable development. We’ve got to stop penalizing it.

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