Higher Property Taxes?

Commentary, Taxation, Peter Holle

Let’s commend Winnipeg city council for not raising property tax rates for the last seven years. It should stay the course.

Rising property values by themselves raise taxes. Because property taxes are calculated by multiplying a mill rate by a property’s assessed value, the tax collected rises automatically when market value increases. The rates used to be adjusted to keep revenues neutral, but that’s not the case in recent years.

Property taxes remain the largest revenue source for Canadian cities. When they’re high, they depress property values. They encourage urban sprawl by penalizing the dense development typically found in central cities. Parking lots are valued and taxed less than a multi-storied building, so we end up with more parking lots downtown. The system effectively subsidizes commuters who live outside the city but use services paid for by local property owners.

The path to a robust, denser city requires alternatives to property taxes for funding services. We should pursue the thoughts that emerged from the “New Deal” tax discussions led by former Mayor Glen Murray. We can shift to fully cost-recovered user fees wherever possible, a responsible, “green” policy that encourages conservation. Like many cities, Winnipeg should implement a hotel tax to capture revenues from visitors. On a higher government level, grants-in-lieu of property tax on all provincial properties paid to the city should be raised to normal rates. Finally, if higher levels of government harmonized the GST and PST and gave cities a two-percent cut of the action, growth and development would become a benefit – not a problem.

Changing the City of Winnipeg Act to mandate high-performance local government would create a financial windfall. If the City exposed most of its operations to competition, the scope for savings is substantial, according to Geoffrey Segal, the Director of Government Reform at the Reason Foundation. “Managed competition” means that in-house service providers submit internal bids against outside suppliers. A rule of thumb says about half a city’s spending can be “competed,” which typically produces a 30% saving. Applied to Winnipeg’s $721 million budget, the competitive model would generate $108 million in annual savings, without any reductions in service.

Second, if all city departments paid a capital charge on assets, including thousands of properties, they would be inventoried properly. That would force the sale of surplus or redundant assets and generate tens of millions in one-time revenues, ideally re-invested in our crumbling road infrastructure. These changes would create a rapid slim-down in overheads, and make the City’s use of capital more intensive and efficient.

What muddies the waters most is that over half of the property tax bill collected by the city goes to school boards to help fund education. The province should dump this antiquated system – and the unaccountable operating model that comes with it – and bring in a student-based payment system funded by general revenues, not property tax. That would immediately boost values and revenues for the city.

More property taxes? Only if you like sprawl, inefficient services, dead capital, low property values and runaway school spending.