Monday, October 9, 2006

What happens to property taxes when assessment growth slows down?

This post from June 26, 2006 bears repeating with an impending deflation of the housing bubble and a civic election on the horizon at the same time. Despite an increasing assessment base, property tax rates in London have still been much higher than the rate of inflation during the last four years to fund a budget commitment that reached $862.7 million in 2006 on top of a $371.1 million civic debt — an aggregate obligation of almost $4,000 per man, woman and child in London.

Local politicians frequently like to remind Londoners of their achievements in expanding the city's assessment base. On the face of it, this would appear to be a credit to sound financial management, but consider that those revenues from assessment growth have actually mitigated property tax rate increases of 5.9, 6.63 and 2.95 per cent from 2004 to 2006 respectively, well above the rate of inflation. For example, the city's budgeted property tax revenue for 2006 is actually five per cent higher than in 2005, of which 2.08 per cent is the result of assessment growth and 2.95 per cent comes from the rate increase. In other words, municipal spending has increased at higher rates than the property tax rate hikes would themselves suggest. Residents might be surprised, then, to credit the municipal government with sound financial management when they consider that, without assessment growth, property tax rates would have risen further still.

Yet despite the deterrent effect of preposterously increased taxes in the past few years, London still does boast of expansion in the assessment base. But contrary to the suggestion of local politicians, who by citing the fact insinuate credit for it, the growth has been no achievement of theirs — it has occurred in spite of their policies. Credit for the growth in the assessment base in London is owed mostly to:
  • the prohibitory expense of and artificial legal restrictions on development in the Toronto area;
  • the large surrounding area of annexed land around London that the city does not service but from which collects disproportionate taxes — a method of stealth taxation that will continue to be expedited through annexations and amalgamations in Ontario; and
  • a monetary policy that has created low interest rates fuelling an artificial boom in property investment, development and speculation.
Should Londoners then continue to expect an expansion of the assessment base to blunt the effects of the city's spending on their own taxes? The province may continue to step in with more artificial devices to subsidize the urban beneficiaries of promiscuous municipal program growth at the expense of rural taxpayers, but a politically acceptable limit to this strategy will eventually be met in an inevitable downturn in economic and real estate fortunes. In this event, residents must hope that the city will curtail and reduce its spending to avoid even larger future increases in property tax. How likely is this? Inevitably, government programs once begun or funded at certain levels are almost irrevocably entrenched. Councillors are hounded either by their own conscience or by an army of program dependents not to rob people of their new inheritances. When the economy slows down or the real estate boom ends, taxpayers will find both the programs and the municipal debt obligations in place, leading to demands for even higher property tax increases, in turn damaging local economic prospects even more.

The political solution to woes that the city already anticipates without telling you is found in municipal demands for greater and more diverse taxation powers and for redistributions of cash between various levels of government for the purpose of evening out the flow of blame. Looks good to one candidate or another at any given election time, but it's still an outflow of tax dollars from London residents in one form or another or redirected through different jurisdictions. The only demonstrable solution for the taxpayer is for the city to cut spending immediately.
This is an important time to ask your candidates how they plan to reconcile the city's spending commitments with the devaluation of an assessment base during an economic downturn without penalizing property owners even more than they do now. Aside from blithe assurances of financial "responsibility" or "accountability" — the familiar and, as demonstrated, meaningless cant of inflation-based tax increases supposes that the 25 per cent increase in property taxes since 2001 is justified — only two of the fifty-nine candidates in the upcoming election has ever articulated even an acknowledgement of the precarious situation of taxpayers in London, let alone a solution: Paul Van Meerbergen, councillor for ward seven and candidate in ward ten, and Arthur Majoor, candidate for mayor.

In 2005, Van Meerbergen produced a plan to cut spending by $104.6 million and reduce property taxes by an average of $650 per household by focusing on the core services of fire and police protection, garbage collection, and roads spending, with an eye to a further reduction to an average decrease of $1,000 in property taxes per household. And Arthur Majoor's platform includes "[r]educing spending by $100 million dollars to focus on the core aspects of civic governance" and "broad based property tax cut, to put money back into the productive economy."

Anyone else?

Update: Ward twelve candidate Tom Foster's platform includes targeting "a zero tax increase, controlled spending, zero based budgeting & assessing true staffing needs are some ways to accomplish this."

2 comments:

matt said...

I am just starting to plow throught he various councillors websites and would be interested in TLF's list of candidates for board and council they would support. I would like your thought s to back up my own when lobbying friends an colleagues who to vote for in Nov.

MapMaster said...

Thanks for the comment, Matt. We will be publishing endorsements towards the end of the month, as we are still researching the candidates and attending debates ourselves. Feel free to send us an email at thelondonfog@hotmail.com and I'll make sure to send you a copy of the list when it is ready, as well as confiding the short list as it has been prepared so far.

Regards,
MapMaster