I
wrote about this tax issue in the Pass Herald in 2011, but I think this is a subject worth revisiting, especially now at municipal tax time. Previously, I called this “Our municipal tax predicament,” today this problem appears more like “Our municipal tax trap.”
This is not something that has just occurred; people in the housing and development industry have been watching our assessment with alarm for the past two years. The predicament is not that the assessment has decreased; rather, that the assessment has decreased significantly for one group of homes and not for others.
If we look at the $25,000,000 residential decrease in 2012 from 2011 and the $50,000,000 decrease in 2013 we should not be surprised because the $50 million includes almost $20 million in commercial and in what is called Special Purpose assessment, such as equipment and machinery, which has declined here substantially with the closure of the Devon gas plan. So the residential decrease of plus or minus $30 million is within the trend which we have been observing.
Looking at the assessment data, we can see that values have retreated at a much higher rate for homes which were assessed at the median rate and lower. The median assessment rate is the rate at the middle range of our entire assessment. This means that 50 percent of homes are assessed at a rate less than the median, while the other 50 percent are assessed at a rate which is higher.
I know reading about this tax issue is similar to ancient Chinese Water Torture, but please bear with me because writing on this topic is about the same amount of fun as well.
Nevertheless, if we don’t understand the problems we are facing, we may not understand the cause and effect of the tax decisions which are being proposed and made on our behalf. Oftentimes, not looking at a problem from a few different sides can lead to bad decisions and have unintended consequences. So, here we go back to the slow drip.
The median for 2011 was $195,000, in 2012 it was $189,830 and for 2013 the median is $177,820.00. Looking at the assessment data for these years tells us that homes assessed at less than these amounts have retreated in value at a higher rate than homes assessed higher than these amounts. This is also consistent with my own data and experience.
As we move to assessments of $270,000 or higher, values have retreated at even lower rates. Once we get to the highest 10 percentile, which represents our newest and most desirable housing stock, the prices have been relatively stable. As an example, a newer home which sold for $426,000 at the height of our market in 2007 - resold just recently for $395,000 in a distress sale.
Our more expensive newer housing stock has held its value quite well for the past few years simply because these homes have always been priced well relatively to the prices of similar homes in the rest of Alberta or just across the border in BC. This was the case even at the height of our market in 2007.
When it comes to taxation and assessment, Crowsnest Pass poses a challenge unlike most other communities in Alberta. In Calgary, Medicine Hat, Red Deer, Pincher Creek, Edmonton, Athabasca, Lethbridge, and even in Canmore, real estate values generally move up or down, across different price ranges, in a more or less uniform rate.
This does not mean there are no differences, but what it means is the differences are not so large as to punish one particular price group when a council raises or lowers the mill rate to generate tax revenue.
In most urban centers assessment areas can be clearly defined and assessed values within specific neighborhoods are predictable and usually do not deviate dramatically from one another. This does not mean that there are no what we call statistical outliners which deviate from the neighborhood assessed norm, but there is not enough of these outliners to skew the entire assessment of a given group.
Because of the relative homogeneity of the neighborhoods, a city like Calgary can produce what they call an “Assessment Map” and update this map each year prior to the budget process. This map divides the city into neighborhoods and shows whether assessment values went up or down, in a specific neighborhood during the assessment year.
This type of data is very useful during the budget process as well as having the added benefit of residents being able to observe in advance of the tax notices whether or not their assessment is going up or down.
Under optimum circumstances, when a council raises city taxes by 3%, most properties will see a 3% rise. While there will be some variations, the goal is to be as uniform as possible.
This is possible because administration can create what some call a “revenue neutral mill” number to start with. This is a mill rate that will raise the same amount of revenue as in previous years, taking into account what happened with the assessed values, whether these went up or down.
Last year’s tax levy number divided by this year’s assessment will give this revenue neutral rate. This is a simplified version because different assessment groups, such as commercial and residential, have different mill rates, and this would have to be adjusted for.
If we used this number to raise taxes this year, we will raise the same amount of tax dollars as last year no matter what the change was in the assessed values. If we need more tax dollars than last year, we will adjust the tax rate, which is effectively the mill rate, to raise the additional dollars which we may need.
What this tax verbiage means is that a taxing authority usually starts with a revenue neutral base and raises the mill rate from there to get their required revenue. If the tax districts were adjusted for the market values and the adjustment was more or less uniform across the districts, the resulting tax increase should hit everyone reasonably the same.
Today in the Crowsnest Pass, because of the way our assessment decreased substantially and unevenly across different assessment groups, even a revenue neutral tax rate adjustment will see a significant increase in taxes for the top 25 percentile of properties.
Our assessment problem is compounded here because we have only a few neighborhoods which are relatively homogeneous for assessment purposes, Upper Pineview, Blairmore East Hill, and Bellevue Mohawk Meadows, to name a few. The vast majority of residential assessment is not located in homogeneous neighborhoods.
In Bellevue, for example, we have a newer two story family home for $399,000 which is located right next door to a single wide forty year old mobile home which would command perhaps $60,000 in today’s market. This type of neighborhood disparity is hard to find in other communities.
We have newer homes, older homes; homes with basements, homes without basements, homes with foundations, homes without foundations and homes on 25’ lots located next to homes on 50’ lots, located next to homes on 37.5’ lots, and so on. These homes are mixed up in all neighborhoods from one end of the Pass to the other.
Therefore, producing a uniform and useful district assessment map for the Crowsnest Pass is very difficult. Nonetheless, there are tools which may be helpful.
In Alberta, as in most North American jurisdictions, the assessment data is not protected by the Privacy Act. This means, aside from the personal or company information of the tax roll owner, all other tax roll assessment information must be made available to the taxpayers of a given locality.
In Calgary or Lethbridge, for example, this information is available on the web. All you need to know is an address or a legal description and you can access assessment data. The benefit of this system is that the residents, over time, can police themselves by keeping an eye on the assessment levels of their own neighborhoods.
Back to our Municipal Tax Trap. I think that a proposition most of us agree with is that we need more new development to increase our tax base. Some will say, - here he goes again, a realtor arguing in his own self interest.
I say not so fast, I am a small business person and a taxpayer raising a family in our community who is arguing that if we don’t increase our tax base, we are all going to suffer. The list of everyone who benefits from new construction in our community is very long and includes almost every taxpayer here, whether they realize it or not.
This year is beginning with very robust real estate activity with newer homes being in high demand and selling well. Personally, I have not seen this much activity this early in at least four years. The homes which are most desirable at this time are also the homes which are most at risk if we don’t get our tax situation right.
All decisions we make have a cause and effect and sometimes the effect is not the one which we desire the most. As the mill rate is being contemplated, it would be good to know that there is a robust and informed debate about the possible different outcomes which our new tax rate will have on our future.
The situation we find ourselves in today was predictable and as we work our way through this dilemma, one should guard against the temptation to say that the ground work laid today will bear fruit and solve our problems in the future.
We have a serious revenue problem at this time and saying that it will resolve itself in the future brings to mind an old and famous economic dictum: “in the long run, we are all dead.”
