Sunday, January 28, 2007

Over the board: 4.6% tax increase in store

Three days of deliberations by board of control last week on London's 2007 budget have produced so few departures from the original recommendations of city management in its draft budget proposals that the exercise of the board's oversight powers seemed on the whole at least a partial vindication of the criticisms of proponents of its elimination. Board of control substantially approved the $739 million draft operating budget "with few cuts" and, per the recommendation of chief administrative officer Jeff Fielding, gave additional approval to funding some service growth initiatives from assessment growth revenue, including:

  • $128,000 to the London Public Library to hire a literacy coordinator and to expand collections,
  • $170,000 to hire two new planners,
  • $200,000 for garbage collection, and
  • $100,000 for an education program to support the 2008 ban on pesticides.
The $142 million draft capital budget was also approved by the board "with only minor tinkering," but with the approval of motions to extend capital grants to:
  • the Palace Theatre, $100,000 over four years for a facelift,
  • the Grand Theatre, $400,000 over four years instead of the requested $500,000 over two to renovate the main stage, and
  • the Salvation Army Village Day Nursery, $200,000 over four years.
Of the $8.1 million in surplus or over-collection of taxes and fees from last year, board of control made the recommendation to return only $600,000 to taxpayers for the purpose of reducing this year's tax levy increase, and appropriated the rest as municipal assets, recommending:
  • $3.7 million to pay for projects instead of adding debt,
  • $500,000 for "downtown parking initiatives" instead of the $2.5 million for a parking garage suggested by budget chief Tom Gosnell, but leaving the question, what are "parking initiatives" and who administers the funds?
  • $1 million to replace portable radios for police,
  • $500,000 to establish a "severe weather stabilization fund," presumably in deference to alarmist climate change scenarios — again, though, what is this fund, and who is in charge of it?
  • $200,000 to plant trees,
  • $300,000 for up to three new buses for the LTC, and
  • $1.2 million for roads.
Board of control's recommendations amount to an increase of approximately $7 million in tax revenue for the city above the amount proposed in the draft budgets, or an increase from last year of about 4.6 per cent instead of 4.3 per cent. What explains, then, the curious headline from Friday's London Free Press in the wake of the board's deliberations announcing that the tax hike is "down to 2.8%"?

When budget deliberations began, the tax hike stood at 4.3 per cent…
…reports Joe Belanger of the Free Press. But the Free Press is playing games with the numbers to make city hall's demands look comparatively benign. While the draft budget called for an increase of 4.3 per cent in tax revenue, it also called for 1.7 of the anticipated 2.0 per cent increase in assessment growth revenue to be applied as part of that revenue, bringing the increase on the property tax rate on assessed values to 2.6 per cent. Instead, as a result of the board's deliberations, that figure now stands at 2.8 per centup, rather than down. Moreover, the overall tax hike now stands at 4.6 per cent instead of 4.3 per cent; the favourable headline serves to excuse the board of its profligacy.

Confused? I shouldn't wonder… numbers are crunched in a manner designed to delude simple grasp and to obscure the real growth in taxes. In fact, municipal governments benefit in the exercise of public relations from the compartmentalization inherent in a value-based property tax system, as well as from the default expropriation of surplus revenues and the blurring of jurisdictional boundaries of revenue collection and distribution. During the course of its deliberations, the board found itself the beneficiary of an additional $615,679 in assessment growth revenue and $850,000 in provincial grants, allowing an extra $1.465 million in spending at one fell swoop without having to even blink at the constraints implied in the draft budgets. As well, surplus revenue from last year is allowed to stand as municipal assets for spending outside proposed spending increases outlined in the draft budgets, despite the fact that that revenue is nothing less than overtaxation by the city above and beyond what it needed to spend to meet its obligations, from which the board of control allowed itself $3.8 million for additional spending. From these sources, $5.25 million were obtained for additional spending over and above proposed spending. Nevertheless, the board's recommendations call for an increase of approximately $7 million in spending — some of which, it should be noted, are operational expenses that will be expected to be funded in future years as well.

Allowing these incidental increases in revenue to count against the reported property tax increase of 2.8 per cent, however, is itself grossly misleading. Growth in assessment revenue, 2.1 per cent up from the anticipated 2.0 per cent, is by itself a tax increase since even applying the existing property tax rates to higher assessed values results in an average increase in taxes to property owners. The 2.8 per cent increase in the property tax rate is applied on top of increased assessed values, leading to a much larger average increase in property tax paid by property owners. The net result of a 4.6 per cent increase in tax revenue is, of course, an average of roughly 4.6 per cent in property taxes paid by property owners, although a small percentage of that increase is deferred to new property owners, and the net increase will vary considerably according to the change in assessed values. In fact, the one-time growth in revenue is actually about 4.9 per cent, although the increase passed on to property owners in the form of assessment growth and property tax rate hikes is offset in part by taxes collected in advance — the "surplus" — and by provincial grants. The fact should not be neglected, however, that surplus revenue and provincial grants also come, in the long run, from the pockets of the same taxpayers who are being called upon now to fund the city's direct revenue collection increase of 4.6 per cent.