| Creating
A
Fair
Taxation System in Regina Submission to the Regina City Council By the Regina Area Group, New Green Alliance November 18, 2004 In 1984 the Progressive Conservative government of Grant Devine appointed the Local Government Finance Commission to examine options in preparation for the updating of the Saskatchewan system of local government taxation and property assessment. The Commission concluded that the guiding principles of the tax system should be "equity and fairness." As we all know, the proposed re-assessment for 2005, plus the possibility of the introduction of either a base or minimum residential property tax, has produced concern in Regina, particularly among those individuals and families who have to exist on low incomes and seniors who are on fixed incomes. While Grant Devine's Commission warned about over-reliance on property taxes, this has been the policy ever since. This process is also taking place while the City of Regina is considering greatly expanding the boundaries of the city. Suburban sprawl development has been the rule in Regina since the existing city plan was adopted in 1961, and the new Long Term Residential Growth Strategy is clearly based on a continuation of this policy. The Ecological Footprint study by the Federation of Canadian Municipalities, covering the 20 largest cities in Canada, found that Regina and Saskatoon had the worst ranking for land use for built area at 0.44 ha per capita. (FCM, 2004) The alternative approach of "smart urban growth," now being widely adopted across North America, has been rejected. But is the Regina expansion plan the right way to go in the era of global warming and climate change, the disappearance of natural gas as a fuel for heating homes, and the peak in world oil production? There is also an important equity issue here. As numerous studies across North America show, suburban sprawl, and development centered around large shopping centres and box stores, requires a major hidden subsidy from the older sectors of the city and people with lower incomes and results in rising taxes. The Regina Area Group of the New Green Alliance would like to recommend a different approach to local government taxation and urban development. (1) Restore provincial grants to municipalities and school boards. The root cause of high property taxes is the reduction of provincial grants to local governments and school districts. During the NDP government of Allan Blakeney (1978-82), provincial grants provided around 60% of the financing for local governments and school boards. This has been steadily reduced by the governments of Grant Devine, Roy Romanow and Lorne Calvert to only 40% of local financing. Today Saskatchewan has a highest reliance on property taxation for local government finance of any province in Canada. The Saskatchewan Local Government Finance Commission (1986) suggested that we should look at a goal of 75% provincial financing for local governments and school boards. This makes good sense. The Regina City government and City Council should push hard to have the Calvert government move back at least to the level of 60% financing through provincial grants. This is an equity question. Property taxes are regressive taxes, which fall heaviest on those least able to pay. Property taxes do not take into consideration the income or wealth of the owners of a property. All studies in Canada show that those in the lowest income brackets devote the highest percentage of their income to property taxes. This is one tax that low income earners cannot escape. (2) Introduce a new business tax based on gross revenues. Traditionally, all provinces in Canada have had a business tax at the municipal level and required this on a province-wide basis. This is also true in the United States and Europe. There are good reasons for this. (Schwartz, 2004; Swanick, 1980) A business is in operation to earn a profit; it is not there to perform a public service. If it does not make a profit, it soon ceases to operate. When a large box store like Wal Mart opens in Regina, it is here to try to maximize profits. That is the nature of the economic system. When a business establishes in a community it takes advantage of the existing infrastructure, the services, and the well-developed market for its products or services. It hires people trained by the local schools and universities. A business tax is a way of meeting its obligation to support and financially contribute to the local community. When Roy Romanow's government changed the legislation on municipal taxation in 1997 it made the business tax optional. It was well understood that once one city abolished the tax the others would follow in order to remain competitive. The abolition of the business tax in Regina has mainly benefitted the large corporations which are owned and controlled outside the province, many outside the country. Business taxes take many forms. Those based on rental value, square footage used, or a tax which is a percentage of the commercial property tax of the building used have proven to be inequitable. They are not related to the revenues or profits earned by the business. The Regina Area Group of the New Green Alliance would propose a new business tax based on business revenues. This is widely used in Europe, the United States, and in Canada it has been used in Newfoundland. In the United States it is commonly one or two percent of gross revenues. (Kitchen, 1984; Hellerstein and Hellerstein, 2001) In Europe business taxes are significant at the local government level. For example, in Frankfurt, Germany the business tax is a tax on corporate profits, assessed by the central government. Around two-thirds of all the city revenues in Frankfurt come from this tax. Another 15% comes from individual income taxes. (Hobson and St. Hilaire, 1996) We would like to propose the introduction of a progressive business revenue tax. There would be no tax for the first $1 million in gross revenues, one percent on the next $1 million in revenues, and two percent on all revenues over $2 million. A tax structured this way would benefit small business which normally has close ties to the community and place the primary burden of the business tax on the large corporations which take all of their profits out of the local community, the province and even the country. (3) A property tax based on equity. The Regina Area Group of the New Green Alliance recognizes that we will most likely always have property taxes. But they should be as equitable as possible. Within a market economy, the only fair taxation is based on market value of a property. The old replacement value system of assessment of property was grossly unfair as it did not reflect the economic circumstances of the neighbourhood or the individual location of the property. The standard across North America is an ad valorem tax applied to the assessed value of a property. The ad valorem system is much preferable to the user fee tax system. Unfortunately, user taxes or fees are rising at a rapid pace in Regina and Saskatchewan, as the provincial government off loads its costs to other jurisdictions. User fees hit hardest on those with low incomes and fixed incomes. For example, low income residents in the North Central area of Regina pay for the construction of city recreational facilities through taxes on their properties or taxes included in the rent they pay. Thus they have paid for the construction of the Sportplex and continue to pay for its maintenance. But many cannot use the facility because they cannot afford the user tax. This is grossly unfair. The Regina Area Group of the New Green Alliance is also strongly opposed to the introduction of a base or minimum tax. Both would result in higher taxes for lower valued property than would be the case in an ad valorem system. Both involve the shifting of the property tax burden from higher valued property to lower valued property. This is the "reverse Robin Hood" approach, taking from the poor to give to the rich. We would also like to see the Regina City Council introduce a low income property tax credit to help low income home owners. This was recommended by Grant Devine's Local Government Finance Commission. In the United States these are commonly referred to as "property tax circuit breakers." (ITEP, 2004) Another alternative that could be introduced is the homeowner grant. This would require action by the provincial government. These have been used in British Columbia for years. A flat grant would greatly help our citizens surviving on low incomes who own their own homes, but it would do nothing for those who rent. In British Columbia there is an additional homeowner grant for senior citizens. (4) Establish an independent review of the full costs of urban sprawl development and the promotion of box store "centres of power." Since the 1950s residential housing development in North America has concentrated on suburban expansion of single family houses on relatively large lots. As many studies have shown, the "hectarage fees" charged by cities for lot development do not begin to cover the costs of new roads, water and sewer, telephone and power, public transit, garbage collection, schools, libraries, police, fire and other public services. The reality is that the older areas of the city normally subsidize suburban sprawl development. They do this through higher than necessary taxes. (Ewing, 2002; Hulsey, 2000; Litman, 2004; Muro, 2004) In addition, other costs are externalized to this form of residential development. Suburban homes use much more in materials and resources in the construction, devour much more valuable arable land, require much higher uses of energy, and result in greater automobile use. People travel much farther to work, school, shops and services, traffic deaths and injuries increase, and automobile use results in air pollution causing illness and early death. Noise pollution increases. A new study by the Rand Corporation has found a direct link between suburban sprawl and the incidence of many chronic health aliments. None of these costs are factored into development plans or are paid by those who choose to live or site their businesses in suburban areas. (Rand, 2004; Sorensen, 1998; Burchell, 2003; CEDS, 2004) The social costs of this type of development are seen across North America and found in Regina as well. Those with higher incomes have been moving out to the suburbs, leaving those with lower incomes to the inner city. The socially disadvantaged have gathered in the inner city where rents and the price of houses is lower. Social inequalities are intensified. Services are poorer in the inner city. Crime rates tend to be higher. The downtown centres of cities are hollowed out. These social costs of suburban sprawl are passed on to the public at large. (Gerckens, 2000; Burchell and Mukherji, 2003; Sierra Club, 2004) As we all know very well, recent suburban growth in Regina has centered on the development of the two box store "power complexes" on the east end of Victoria Ave. and the Pasqua St./Rochdale Blvd. area in the northwest. This development is based on automobile transportation, large parking lots, and large warehouse type stores backed by national and international chain stores. As numerous studies have shown, these stores destroy more jobs than they create, drive locally owned businesses to the wall, and drive down wages in the wholesale and retail sectors. They are huge black holes which suck capital out of the local economy. They receive large hidden subsidies, particularly for parking space. While they pay some property taxes they result in an overall decline in taxes, as property values in the older shopping areas falls. (New Rules, 2004; NRDC, 2004) The Regina Group of the New Green Alliance calls on the Regina City Council to create an independent commission to study the true costs of suburban sprawl development, using the full cost pricing system now used in the United States. The commission should also look at the costs of urban "smart growth" as the logical alternative. Only when we have this information can we make educated choices on local development and taxation policy. We believe that allocating the full costs of development to suburban development and corporate businesses would encourage the re-development of our inner cities. We also believe that this is the right choice to make in the new era of global warming and climate change. Presented by John W. Warnock Secretary, Regina Area Group, New Green Alliance References Burchell, Robert W. and Sahan Mukherji. 2003. "Conventional Development Versus Managed Growth: The Costs of Urban Sprawl. American Journal of Public Health, Vol. 93, No. 9, September, pp. 1534-1540. Community and Environmental Defense Services. 2004. Traffic and Neighborhood Quality of Life. Owings Mills, Maryland. http://www.ceds.org Ewing, Reid, Rolf Pendall and Don Chen. 2002. Measuring Sprawl and Its Impacts. Smart Growth America. http:// www.smartgrowthamerica.org. Federation of Canadian Municipalities. 2004. The FCM Ecological Footprint Analysis. Ottawa: Federation of Canadian Municipalities. http://www.fcm.org Gerckens, Laurence C. 2000. "Ten Failures that Shaped the 20th Century American City." Planning Commissioners Journal, No. 38, Spring, pp. 3a-9a. Hellerstein, Jerome R. and Walter Hellerstein. 2001. State and Local Taxation. Philadelphia: West Group, Seventh Edition. Hobson, Paul A. R. and France St. Hilaire. 1996. Urban Governance and Finance; A Question of Who Does What. Montreal: Institute for Research on Public Policy. Hulsey, Brett. 2000. Sprawl Costs Us All: How Your Taxes Fuel Suburban Sprawl. Sierra Club. http://www.sierraclub.org/sprawl.report00 Institute on Taxation and Economic Policy. 2004. Property Tax Circuit Breakers. Policy Brief #10, May. Washington, D.C. http://www.itepnet.org International City/County Management Association. 1998. Why Smart Growth: A Primer. Smart Growth Network and the U.S. Environmental Protection Agency. http://www.epa.gov/smartgrowth Kitchen, Harry M. 1984. 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The Hometown Advantage; Reviving Locally Owned Business. Economic Impact of Urban Sprawl Development. http://www.newrules.org The New Rules. 2004. Lancaster, California Distance-based Impact Fees. Lancaster Planning Commission. http://www.newrules.org Rand Corporation. 2004. Suburban Sprawl and Physical and Mental Health. September. http://www.rand.org Regina. City of Regina. 2004. Long Term Residential Growth Strategy. Memorandum to the Regina Planning Commission, November 10. Regina. City of Regina. 2004. Reassessment 2005; Tax Policy Report and Appendices. Regina, 2004. Saskatchewan. 1986. Final Report; Local Government Finance Commission. Regina: Queen's Printer. Schwartz, Amy Ellen. 2004. City Taxes, City Spending. New York: Edward Elgar Publishing. Sierra Club. 2004. Global Warming: Sprawling Across the Nation. http://www.sierraclub.org Sierra Club, Prairie Chapter. 2004. Economic, Social, Health and Environmental Costs of Suburban Sprawl. http://www.sierraclub.ca/prairie Sorensen, Ann and J. Dixon Esseks. 1998. Living on the Edge; The Costs and Risks of Scatter Development. Washington, D.C.: American Farmland Trust, March. http://farm.fic.niu.edu Swanick, Eric L. 1980. Municipal Taxation in Canada. Toronto: Vance Bibliographies. Swenson, Charles W. et al. 2003. State and Local Taxation. Boca Raton, Fla: J. Ross Publishing. NOTE: Drafted and presented by John W. Warnock |