Property tax rates for Edmonton homeowners have increased 70 per cent in the last decade and some are saying that’s too much.
The tax hikes coincided with 10 years of infrastructure catch-up, as city council boosted spending to try to fix crumbling roads and build new recreation centres as Edmonton’s population exploded.
“Does the city really think we can absorb this every year endlessly?” asked Allyson Lyne, one of three home and business owners who revealed their property tax records to illustrate the trend.
“Salaries don’t go up that much, pensions don’t go up that much,” said Lyne, 56, who worries she’ll have to move out of her Fulton Place neighbourhood to retire. She moved into her $391,000 bungalow in 2005.
While the overall residential tax rate in Edmonton increased by 70 per cent, the average impact on homeowners, city officials say, was closer to a 55 per cent increase over the decade because tax bills are calculated both by tax rate and the assessed value of a property. Average property values actually fell eight percent between 2008 and 2017.
Council debates next year’s tax increase Wednesday as part of its 2018 budget debate, an increase currently slated for 3.6 per cent. It’s the last year of a three-year operating budget.
Postmedia spoke to city tax policy adviser Anton Szabo and budget planning director Mike Dowler to help understand the proposed budget, its tax implications and how that fits with the last decade of city spending.
Q: What drove the tax increases in the last 10 years?
A: The biggest tax driver was council’s growth agenda: medium-sized projects such as recreation centres, roadway interchanges, park upgrades and fire halls. Each of those isn’t just a one-time construction expense, it also adds significant ongoing staff and maintenance costs.
For example, said Dowler, a firehall costs about $20 million to build. Then it costs $4 million annually to staff. The city built five fire halls in the last 10 years.
In some ways, the pressures balance. A growing population meant more people and properties helped shoulder the tax burden. But it wasn’t enough. Growth-related projects were responsible for 47 per cent of the 10-year tax increase.
The other big impact on property taxes was inflation and staff wages. The City of Edmonton saw large salary settlements in 2008 and 2009. The budgets also included increases for inflation, but Dowler said they’re trying to be more strict on that. Departments have to justify every increase now, not just submit an estimate.
The city lumps both wages and inflation in the base budget category. That was responsible for 40 per cent of the increase in the last decade.
The final driver was neighbourhood renewal. Normally, city officials only report how much the annual increase in neighbourhood renewal is going to cost. But that adds to a base payment, which continues year after year. That means a homeowner like Lyne paid $214 to fix streets and sidewalks in mature neighbourhoods last year.
That figure is set to increase once more in 2018, then hold steady. It’s worth 12 per cent of the 10-year increase.
Q: Why do businesses pay so much more than homeowners?
A: Some retail outlets are struggling to pay Edmonton’s rising property taxes as they cope with the economic downturn and with the rise of online competitors. Business leaders say some businesses are relocating to the surrounding counties to avoid Edmonton taxes.
But Edmonton doesn’t have a policy on how much of the tax burden residents and business should pay.
It’s just always been about 50-50 for as far back as staff can remember, said Szabo. Council decides how much they need in taxes, then collect half of that from businesses and half from residential. Prior to 2008, businesses also paid a business tax, but that was phased out between 2008 and 2011. Szabo said that shifted close to $120 million in taxes from the business tax to non-residential property, which explains part of the increase.
Since Edmonton has so many more residential properties than business properties, the smaller number of businesses end up with much higher bills. In 2017, they paid a property tax rate 2.8 times what homeowners paid.
That could change. City officials are planning to bring a policy paper forward next spring for debate.
On the one hand, businesses get to write off property taxes and pass the cost on to consumers. That means they can afford to pay more, said Szabo. But on the other hand, the tax each group pays should also reflect the cost to serve them. “That’s the debate that goes back and forth.”
Q. How does the city deal with concerns homeowners and businesses might not be able to keep paying for increases?
A: Dowler said he met with developers recently and heard this question. Now he’s trying to find a better way to track how many businesses might be moving because of the tax.
They also try to watch pressures on homeowners by looking at property tax as a percentage of gross household income.
It was about 1.4 per cent in 2008 and has gone up since then to about 1.7 per cent, said Dowler, citing the latest stats they have from 2015. Ultimately, it’s a political question how much to raise taxes, he said. “The decision is up to council.”
Q: What’s the biggest myth about property taxes?
A: That the city raises the assessed value of properties to get more money, said Szabo. It doesn’t work that way.
Council first sets its budget, knowing the total amount of money it wants to raise from taxes. Based on the property assessments already sent out, it sets a tax rate that will generate that sum.
Basically, if the value of your home increases more than your neighbour’s, you pay more than your neighbour does. But the city gets the same overall amount from property taxes.
The average residential property dropped in value by 8.1 per cent over the past 10 years, said Szabo. (That 10-year span doesn’t include a major jump seen across the city in 2007.)
Businesses, on the other hand, saw their assessments increase an average 31 per cent over the last 10 years.
Editor’s note: The headline on this story has been corrected to reflect that the residential property tax rate has increased by 70 per cent in a decade. The story has been updated to include information that the average impact to homeowners in that time frame was a 55 per cent increase to property taxes. It also explains that the city’s business tax was phased out between 2008 and 2011.