editorial viewpoint
City’s Tax Freeze Record Doesn’t Impress Business By Alan Halberstadt If you would like to comment on my article, please post it under my column in the CITY section of BizXmagazine.com
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offer this as a heads up to certain City of Windsor Mayors and Councillors who have dislocated shoulders thumping themselves on the back for delivering eight consecutive property tax freezes. The Canadian Federation of Independent Business (CFIB) is gearing up for release of another possibly damaging report, right before the next municipal election, highlighting the gap between the city’s residential and commercial property taxes. Just prior to the last election in 2014, the CFIB unveiled a report on the tax gaps of 230 municipalities. Windsor had the fifth worst gap in the country, which was a headline grabber in these parts. Final 2013 property tax rates were used, which exposed Windsor as levying small business double the residential rate, a discrepancy described by the CFIB as distorted and unfair. Windsor commercial property owners, on average, paid 2.00 times the residential rate of 1.00, outlined the 2014 report. With City Council set to consider its annual review of tax ratios this April, I can report that the 2-to-1 ratio approximately remains the same. Unfortunately, I would be surprised if anything changes. City Councillors know that home owners vastly outnumber business owners who vote in municipal elections. They are thus terrified of shifting a small portion of the tax burden, even if it was phased in over a number of years, onto the residential class. Still, the city is loath to talk about ratios. When I asked for them, the communications department sent me instead a graph comparing the cost per square foot of Windsor commercial properties compared to 23 other municipalities in Ontario with populations greater than 100,000. Windsor, as you might imagine, fares very well in the square footage measurements, as compiled in 2016 by the BMA Management Consulting firm. In fact, it finished the lowest in the office buildings class at $2.17 per square foot and in the neighbourhood shopping category at $3.40 per square foot. To arrive at the actual taxes paid, you have to multiply the assessed value of the property, as set by the Municipal Property
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Assessment Corporation (MPAC), by the tax rate set by the municipal council. Since Windsor property values are among the lowest in the province, the city sets its tax rates high to garner enough revenue to pay for the bureaucracy and services it claims it needs. Chief Administrative Officer Onorio Colucci has taken pains over the years to explain this to taxpayers who rail about the city’s high tax rates, notably the commercial occupied class saddled with a 0.03300265 rate compared to the residential rate of 0.0168447. Since those kind of decimals are difficult to digest, I asked a few local property owners and realtors if they felt Windsor’s commercial taxes are fair, or detrimental to a thriving small business community. I received mixed reviews. Lou Mikhail, Co-Owner of the CIBC building on Ouellette Avenue, says Windsor’s commercial office taxes “are in line with a lot of municipalities.” He says it is impossible to compare our rates to Toronto. In Windsor the fair market value for a 114,000 square feet office tower is $8 million whereby the same structure in Toronto can be worth $80 million. That’s not comparing apples to apples, says Mikhail, who pins Windsor’s struggles to keep the commercial taxes low on a lack of assessment growth in that thinly populated sector. “Lowering commercial taxes would help some, but it’s not the deciding factor,” says Mikhail of the fix required to jump start stagnant commercial development in the downtown core. BMA reports that Mississauga, the model of assessment growth, has a commercial tax ratio of 1.47 to one. The Ontario average is 1.67 although older urban areas like Hamilton (1.98) and London (1.95) rival Windsor. Alfie Morgan, Business Professor Emeritus at the University of Windsor, recognizes the structural and political barriers to lowering the commercial tax ratios. Ultimately, he says, the problem rests with those City Councillors who are more wrapped up in getting re-elected than doing what is right for the city. They fail to grasp that lowering the B IZ X M A G A Z IN E • F E B R U A R Y 2 0 1 7
commercial tax ratio for small business would be good for the economy which will in turn generate growth in the residential tax class. By stubbornly refusing to budge on the 2-to-1 ratio, Council is “cooking the golden goose,” says Morgan. Larry Horwitz, Chairperson of the Downtown Windsor Business Improvement Association and landlord of a number of commercial and residential properties in the core, says the way the city presents its tax information is confusing. The bottom line, he says, is that a business property evaluated at $200,000 in the city core, by example, pays $9,400 a year in taxes. Horwitz mentions that the BMA numbers accentuated by the city do not include the 1% hospital levy and the education taxes. Now the city is planning to take away 30% rebates for empty business space, which he suspects is a tax grab. “Commercial tax rates are way too high and make it difficult to attract and retain new businesses,” he remarks. Jim Williams, a leading commercial development Realtor, credits the city with modifying commercial taxes over the last several years, but notes that accelerated costs of energy, in fairness mostly attributed to the province, and municipal fees for service like building permits, have offset any easing of property taxes. Inordinate delays in processing City Hall approvals for building construction and renovations have driven up the cost of doing business in other ways, prompting Williams and others to accuse the city of engaging in “smoke and mirrors.” Alas, there is another villain. I’m told there is no rhyme or reason to how MPAC arrives at the assessed values of different properties. “Commercial tax rates in Windsor seem inconsistent and I don’t believe they encourage small business” says Joan Charette, a Realtor who has witnessed investors run for the hills when they learn the annual property taxes on a building or business for sale. In many cases the monthly tax expense rivals the interest on a mortgage of 8 to 10 percent. Getting back to the CFIB’s 2014 gap report. “We have yet to confirm when we will update the report; however, we are considering preparing a new one in time for the next municipal election in October 2018,” says Julie Kwiecinski, CFIB’s Director of Provincial Affairs. Too bad the city doesn’t have an independent Auditor General who could crunch the numbers and give voters a true and transparent appraisal of the cost of doing business in Windsor. Not one that leaves your head spinning.