City considers more user fees to relieve industrial, commercial tax burdens

Should people from surrounding communities be allowed to skate or play hockey at the Essar Centre?

Ward 5 councillor Frank Fata has a big problem with out-of-towners using our arena.

"That's got to be addressed," Fata was saying last night at a City Council meeting.

"If people in Sault Ste. Marie are paying to build the Essar Centre and the people who live in Prince or Aweres Township, all they do is pay the same fees to use that facility, that's totally unfair."

Shelley Schell, the city's chief financial officer, says it's complicated.

"If you have a child that lives in Prince Township that's playing ice hockey, we rent to the hockey team that's in the city," Schell says. "So you would almost have to put the burden onto them to say how many kids are from the city and not. It's very difficult to administer."

It will be difficult, but Schell told Fata last night that she's willing to consider the Essar Centre user-fee issue.

"It is something that we can look at, to see if there are fees out there that are easily identifable."

User fees - the Sault's next big thing

Schell is definitely looking for new user fees that can be imposed, or existing fees that can be hiked up, to solve Sault Ste. Marie's problem with property tax ratios.

What's a tax ratio, you ask?

A tax ratio defines the relationship between rates of taxation for different property classes, as compared to the residential property class.

If commercial property is taxed at four per cent and residential property at one per cent, your ratio for commercial properties is four.

Residential properties, by definition, always have a tax ratio of one.

Tax ratios have been around since 1998.

Balancing the tax burden

SInce 2009, Sault Ste. Marie has used revenue-neutral ratios in an effort to balance the tax burden between property classes.

"Revenue-neutral tax ratios maintain the property tax impact on each property class and primarily prevent shifting the tax burden from the commercial and industrial property classes to the residential class," Schell said in a report presented last night to Mayor Christian Provenzano and city councillors.

The Sault's industrial and commercial tax ratios are now among the highest in the province - so high that the province imposes a levy increase restriction on both those property classes.

"Staff recognizes that continuing to adopt revenue-neutral tax ratios on an annual basis will become unsustainable," Schell says.

Industrial growth fixes everything

She argues that the surest way to achieve balanced property tax ratios is ensure continued industrial growth.

"Growth in the industrial sector will reduce the tax ratio without shifting between classes," Schell says.

"It should be noted that assessment decrease in industrial and commercial classes was the root cause of the tax ratio inequity. The solution to the problem is growth in these sectors.

"So it is recommended that the long-term tax policy objectives focus on this goal. Staff is recommending a review on the feasibility of implementing an industrial community improvement plan to encourage growth in the sector."

But industrial growth is currently in short supply in the Sault and Schell definitely has her short-term eye on user fees.

The trick, she says, is to use them to reduce unfair ratios without imposing significant tax levy shifts on other property classes.

The case for user fees

"User fees decrease taxes to the non-residential class for services it does not use. Identifiable beneficiaries would bear the cost of the services."

"Staff is recommending that the user-fee model be updated and the feasibility of full cost recovery be reviewed," Schell says.

Ward 1 councillor Paul Christian is in full agreement.

"We're struggling with growth," Christian says. "In the absence of finding untapped money and growth, I think we have to do what's fair to everybody and that is start charging fees for things that people are using above and beyond their basic services."

"It's not a good thing to do, but it's the only reasonable thing we can do under the current circumstances. If somebody's using a facility, perhaps they should be shouldering more of that burden because there are people that don't use it at all. And yet they're paying taxes for that, I'm in full support of taking a good hard look at user fees and coming up with some aggressive suggestion," the Ward 1 councillor says.

Property taxes aren't everything

Schell is quick to point out that property tax rates are not the sole determinant, or even the main factor, of a city's economy and competitiveness.

Other factors, she says, may include budgeting, policy decisions and infrastructure investment.

"Economic conditions are the product of longer-term factors, such as education levels of residents, the industry mix, geographic location and links to international trade networks."

And the Sault's distance from major markets continues to create barriers to economic growth.

"These factors influence Sault Ste. Marie's growth significantly more than the property taxes and thus economic growth will likely not be realized by lower industrial and commercial tax ratios alone."

22-percent drop in large industrial assessment

Since 2009, the Sault's large industrial assessment has dropped 22 per cent.

"If tax ratios were not adjusted, there would have been a significant tax burden shift to the residential class."

"Councils, past and present, have tried to keep as much of the tax burden away from the residential class using revenue-neutral ratios, which inevitably increased the industrial and commercial classes. The preliminary assessment figures for 2017 reflect an additional decrease of 51 per cent in the class from 2016, which once again will require council making a decision regarding the tax burden shift to the residential class."

"It should be noted that assessment decrease in industrial and commercial classes was the root cause of the tax ratio inequity. The solution to the problem is growth in these sectors."

Wait five years

Schell wants to hold back for a few years before making direct adjustments to the unfair tax ratios.

City Council agreed last night to wait five years until the next reassessment year, 2021, before deciding whether the assessment base has sufficiently stabilized to commence directed tax ratio reduction to the industrial and commercial property classes.

"The significant decrease in industrial and commercial assessment since 2007 has led to inequitable tax ratios for those classes. Until the assessment base stabilizes and significant decreases are no longer experienced, staff is not recommending directed reductions to industrial and commercial tax ratios."

"Staff is recommending that the municipal revenue associated with overall real assessment growth over one per cent (approximate average growth since 2007) be directed to reduce the industrial and commercial class tax ratios. The long-term goal is for the tax ratio to be equal to the provincial threshold levels of industrial 2.63 and commercial 1.98."

"Institution of an industrial community improvement plan will defer additional taxation revenue over the course of the plan. Unless the city experiences negative real net growth, there will not be an increase to the levy."