Tag: Taxes

Budget 2022

Posted on . by Patrick Johnstone. Leave a comment.

One of the changes we have made in the City in recent years is moving the budgeting period up a little, meaning we are able to get the 5-year Financial Plan bylaw through Council in January, where we used to do it a little later in the spring. The true deadline for us to get this work done is the annual financial reporting deadline to the province that comes in May, but it is better practice for us to do this work earlier in the year so that staff can more easily develop annual work plans around an approved budget, which will hopefully lead to some efficiencies and make it easier to get things done in City Hall.

Council gave first readings to the 5-year financial plan last meeting, which means the budget is, effectively, passed. The headline (4.4% tax increase) has already been told, but I promised to write a bit more the Budget and how we got there. The 2022 budget part of the 5-Year Financial Plan looks like this:

On the revenue side, we are anticipating an overall 8.9% increase in revenues over the 2021 budget, with the increase in property tax revenue at 4.4% (after all, only about 37% of the City’s revenue comes from property taxes). As has been much discussed, New West is unique in having an electrical utility, so that $50+ Million in annual revenue always makes it look like our revenue per capita or per household is higher than other cities in the lower mainland, when we are usually about average after adjusting for the Electrical revenues, but that’s a topic for another blog post.

On the expenses side, this is where the City is spending that money. 2022 Expenses are about 4.8% higher than last year:

The biggest change this year in our General Fund (the part property taxes go toward) is to insurance rates. As always, we are subject to inflation on everything we buy, and inflation was high this year for the things cities like to buy, from fuel to lumber (our “basket of goods” is quite a bit different than the CPI). So a tax increase equaling 2.7% (out of the total 4.4%) is a combination of negotiated wage increases in the 2% range and inflationary increases in the cost of the business of running a City. On top of that, the same global insurance market situation that has caused your Condo and/or house insurance to skyrocket is also impacting the City. We will be paying $1.5 Million more on insurance in 2022 than 2021, which adds another 1.6% to the tax increase on that line item alone. We had a few service enhancements adding up to the equivalent of about another 0.8% increase, but saved some money in not operating the CGP and staff found some other savings in internal functions, meaning we effectively offset most of that 0.8% with savings.

On the utility side, we are seeing a continued trend toward increases higher than CPI, driven by increases in regional utility service costs and our need to keep the local assets maintained. I wrote about how our Utility funds work with some flow charts to show where the money goes a few years ago here, and though the numbers have gone up a bit, the effect is the same. Notably, both in the Water and Sewer we are a little ahead in both capital spending and building up our reserves than we were back when I drew those diagrams, so the financial health of the utilities is improving faster than expected, which I hope translates to a moderation in rate increases in the years ahead.

With $262M in Revenues and $216M in Expenses, we end up with a budgeted $46M increase in financial equity. But it would be premature to call that profit, because diligent readers will remember my constantly talking about our aggressive Capital Plan, which requires us to be converting that equity into capital assets, better translated as “building stuff”. The big number to note in the reconciliation of assets part of the table is the $170M in Capital expenses. it bears repeating that this is the big year for a couple of capital projects. We are budgeting $54M in 2022 towards the təməsew̓txʷ Aquatic Centre, almost $43M in upgrades to the electrical grid (including a new substation in Q’boro and replacing all of our meters), $7M in road rehab and $6M in new mobility lanes. If you want details on everything, look at the tables of planned capital expenses starting on page 64 of this report (warning – it’s a big download). It’s all there. More graphically, the $170M 2022 budgeted capital pan looks like this (with the black square representing $1M):

So, the City may plan to put $46M into reserves this year, but we also plant to take $76M out of reserves to pay for about half of that capital plan. This is based on a strategy that balances between drawing from reserves (“spending our savings”), borrowing against the asset value with long-term debt (“securing a mortgage”), and getting others to pay for it (grants form senior governments, money from developers through DCCs, etc.). I’ve written about how municipalities approach this balance in this older blog post. In practice, the balance looks like this:

So to wrap up, the City of New West is once again somewhere in the middle in the region as far as tax rate increases, has weathered the economic uncertainty of the pandemic, and is moving ahead aggressively with some long-awaited capital improvements.

Assessment stress

Posted on . by Patrick Johnstone. Leave a comment.

The first week of January is when the BC Assessment Authority releases their annual report on property values, including your personal assessment and regional trend data. More often than not, this is followed by some hyperventilation on line and in the media: How the hell does this keep happening? How unaffordable can housing get? What can be done? I’ll avoid those topics in this post* and let the media and pundits answer those in the way that serves their interests best. I just want to talk about New West, assessments, and taxes, since Council is going to be talking annual property tax increases on Monday.

The City is working towards a budget with a 4.4% tax increase. I’ve written about how we got to that number, and will write more after next week’s meeting, but until then I am going to assume that is what Council is going to vote for, and use that number as a placeholder to talk about the below.

A 4.4% tax increase does NOT mean your property tax bill will go up 4.4%. It might, but it is more likely to go up a little more or a little less than that, depending on what type of home you are paying taxes on, and how its assessment compares to the average across the City.
Here are the numbers from the BC Assessment authority for the “average” property in New West:All residential properties went up 13.1 %, but Single Family Detached houses went up more than this (21%) and Condos went us much less (8.2%).Since tax increases are based on the average value, this means taxes will be going up more for most SFD, and less for most Condos. Indeed, at the current proposed rate, the average Condo may not see any increase at all.

I’m going to use fake numbers to demonstrate how this works, because that level of detail is unnecessary to make clear how this works, and complicated math makes explanation complicated. This really isn’t that complicated. However, I note there are two confounding factors I need to mention here, because they matter. The City adjusts its tax rate based on all assessed land values, and I am only dealing with residential here, and am ignoring commercial and industrial. Also, I am only dealing with the part of your property tax bill (63%) that the City sets and collects, the blue part in this pie chart:

The rest is set by the province, and the City neither has control of it nor sees the money, so I can’t talk too much about them except to note they are there.

Ok, with those caveats aside let’s imagine the City collected $100 Million in taxes last year, and the combined value of all the properties in the City was $10 Billion. The City would need to set a tax rate (called a “mill rate”) of 10 to collect those taxes. This is the math:

($10 Billion in properties) / $1000 = 10 Million;
($100 Million in taxes) / 10 Million = (mill rate of 10)

As a property owner who owns, say, a $100,000 home, you use the mill rate like this:

($100,000 property value) / 1000 = 100;
100 x (mill rate of 10) = ($1,000 in taxes)

So lets then lets assume the next year the City Council decided it needed $104.4 Million to run the City, and therefore property taxes have to go up 4.4%. If the property values didn’t change at all, this would be simple, as the Mill rate will go up 4.4%:

($10 Billion in properties) / 1000 = 10 Million.
($104.4 Million in taxes) / 10 Million = (mill rate of 10.44)

But lets imagine, instead, that the City gets a report from the BC Assessment Authority that says the combined value of all properties in the City went up by 10% over that year. That changes the math:

($11 Billion in properties) / 1000 = 11 Million.
(104.4 Million in taxes) / 11 Million = (mill rate of 9.49).

Taxes went up, but the mill rate went down, because the inflation in property tax was lower than the inflation in property values. This will be the case in New West in 2021 where average values went up 13%, but taxes are only projected to go up 4.4%).

Now, we can talk about how that change in mill rate impact individual properties, becasue they do not all go up in value the same as the average. If in the last example (average property increase of 10%, tax increase of 4.4%) the property you own increases in value the same as the average, then the mill rate applies to you exactly as it does to the average, and you end up paying 4.4% more taxes. But what if your house goes up 2x as much as the average, and your neighbour’s house doesn’t go up at all? You end up paying a different amount of tax:

(remember, I’m using pretend numbers to make it easy to spot trends. Really, a typical home in New West was a little over $1 Million last year, the mill rate was 2.829, meaning a little under $3,000 in Municipal property taxes were paid on that home)

This will happen across New West this year. As the BC Assessment report that I mentioned in the opening showed that SFD houses went up 8% more than average of all city wide residential property values, so the 4.4% tax increase for the average SFD will be in the order of 12%. At the same time, the average Condo value increased 5% less than average, meaning that property taxes for the “average” condo should go down a little bit. If that doesn’t seem fair to you, all I can say is I didn’t invent the system, I just report it.

*(supply and demand; very unaffordable because the most comfortable are being made more comfortable through this; we can start building differently)

Addendum: The New West Record points out that the BC Assessment news release says the “typical” SFD home in New West went up 24% in value, which is a different number than the 21% they have in their Market Trends table or their interactive map (where my table above is from). Not sure what that is about, maybe a typo, maybe a mean-mode-median thing. Anyway, take the exact numbers with a grain of salt?

Ask Pat: Vacant Land Tax

Posted on . by Patrick Johnstone. 1 Comment.

Boy, its been a while since I did one of these, and there are a few in the queue. Sorry, folks, I really mean to be more timely with these, but to paraphrase Pascal, I don’t have enough time to write shorter notes. No Council meeting this week, so maybe I’ll try to knock a couple off. This was a fun one:

T J asks—

Has anyone proposed some kind of empty lot tax to encourage developers or property holders to activate the properties into some kind of use? Prime example corner of 5th Ave & 12th St but many others throughout downtown we noticed over a weekend walk.

Yes, people have proposed it, but it currently isn’t legal.

Municipalities in BC are pretty limited in how they can apply property taxes. For the most part, we are permitted to create tax rates for each of the 8 property classes assessed by the BC Assessment Authority (Residential, Industrial, Commercial, Farm, etc.), and all properties that fall within a class are assessed the same rate. That means Condos, rental apartments, townhouses and houses pay the same mill rate because they all fall under Residential Class, and big box multinational retailers pay the same mill rate as your favourite mom & pop haberdashery. Local Governments aren’t permitted to pick and choose preferential tax rates within those categories to, say, favour Mom & Pop over the Waltons, or favour Rentals over Condos, or favour improved lands over vacant lands.

Since the tax you pay is based on the assessed value, owners actually pay less tax on vacant land than on “improved” land, because the assessed value of the land is a combination of the value of the land and the value of the buildings upon it. Playing around in the BC assessment website, you can see sometimes the building is worth as much as the land, in some cases the building value is close enough to zero that tax essentially only relates to bare land value. Therefore, investing in land improvement on vacant or derelict properties increases the assessed value, and increases property taxes. In a sense, the current property tax system incentivizes keeping an investment property unimproved.

Best I can tell, the Provincial Speculation and Vacancy Tax does not apply to vacant or derelict properties – but don’t take that as legal advice (this is a blog post, not official communications from a tax professional), though the BC gov’t website is a little vague on this specific point. Maybe you will have more luck than me getting clarity from the legalese.

Interestingly, the City of Vancouver’s Empty Homes Tax does apply to vacant properties that are designated for residential use. Vancouver was given that ability through an amendment to the Vancouver Charter, so it is not applicable to municipalities regulated by the Community Charter like New West, and the province doesn’t seem interested in expanding it to other cities (see below). Regardless, as this tax is designed to incent owners to bring vacant residential property in to use, it would also not work to encourage the activation of the commercial properties like you mention in Downtown New West.

But your question was whether anyone has proposed this? The way Local Government leaders would propose this is to send a resolution to the UBCM meeting asking the Provincial government to change the legislation to make it possible. If the majority of Local Gov’t elected types at the UBCM convention vote to endorse this resolution, it becomes an endorsed resolution – an “official ask” of government. My quick review of just some recent UBCM resolution sessions turns up resolutions in 2016 (“B3- Vacant Land Taxation”), 2017 (”B91 Tax on Vacant & Derelict Residential Properties”), 2018 (“A3 Modify Speculation Tax: Local Government Vacancy Levy”), and 2019 ( “B19 Extension of Vacancy Taxation Authority to Local Governments”) all asking for some form of taxation power for vacant land, all endorsed by the membership of the UBCM.

Every year, the Provincial government responds to these resolutions, usually with some form of “we’ll think about it”. This excerpt is from their response to the 2019 resolution:

So, yeah, don’t hold your breath.

That said, as the Provincial Government notes, Local Governments do have some ability to fine derelict or unsightly property owners, though it is a somewhat onerous and staff-time-consuming process to demonstrate nuisance, and the Bylaw does not extend to our ability to say one must build a building on a lot. You are entitled to own an empty grass field or an empty gravel parking lot, as long as it doesn’t constitute a nuisance. Any attempt to use this Bylaw authority as a de facto tax would surely not survive a court challenge.

New Westminster does have one special power, though, and it is found in a unique piece of Provincial Legislation called the New Westminster Redevelopment Act, 1989. I would call your attention to Section 3 of the Act, as it is a bit of a Mjolnir-like piece of legislation. But that is probably best saved for a follow-up blog post as we talk about the current situation in Downtown New Westminster.

Assessments 2021

Posted on . by Patrick Johnstone. Leave a comment.

Assessments are here. For those who own homes, this means a letter arrived in the mail telling you what the assessed value of your property was on July 1, 2019. It also tells you what the assessed value was over the previous three years. Some people are very upset to find their property has gone up in value, which means their property taxes are going up. Others are very upset that their assessed value has gone down, and their investment is losing value. At least, that is what I glean from Social Media, but maybe I need to get out more.

I have written before about the relationship between property assessment and property taxes, and about how the assessment process works, so this will be a bit of an update/summary of those posts. A bit of redundancy, but with new numbers.

First off, your assessment does impact your property taxes, but not as directly as you may think. The City has not passed a 2021 budget, so I do not yet know what the 2021 Property Tax rates will be, but in our last discussions, we seemed to be settling towards something like a 4.9% increase over 2020. I will round that up to 5.0% for the purposes of this discussion as long as we can all agree that is speculative and the numbers may change between now and when you get the bill.

That 5% means the amount of revenue the City will receive in property taxes from existing taxpayers will go up 5%, but it does not mean the cheque you write in July will necessarily be 5% higher than the one you wrote in 2020. First off, it only impacts the portion of property taxes that the City gets to keep. Last year, your residential Property Tax Bill looked like this:

So 58% of your property tax goes to the City, 35% to the provincial government through the School Tax, and about 7% to other agencies regulated by the provincial government. Everything else I talk about below here relates only to that to-the-City portion of the tax bill. To find out how the School Tax is set or how the BC Assessment Authority spends it’s 1%, you need to go to someone else’s blog. All this to say if the City put your municipal property taxes up by 5%, the amount of money you pay only goes up about 2.9% (that is, 5% of 58%).

If you look at your Property Assessment letter, you will note that the average change in property values in the City of New Westminster was a 3% increase. Because the City calculates its property tax rate based on this average value, a 5% increase will be based on this value. If your house went up in value by the average, then a 5% tax increase means the municipal portion of your property tax bill will go up 5%. The relationship between these two numbers is linear, so to calculate your potential increase, subtract the average value increase from your own value increase, and add the 5% increase the City is proposing:

My assessment (1940 SFD on a 5,300sqft lot in the Brow) actually went down by 11% since last year. So my Municipal taxes would go down by (-11)-(3)+5=  –9%.

My friend in Sapperton (1920 SFD on a 4,000sqft lot) saw her assessment go up by 20% over last year, so her Municipal taxes would go up by (20)-(3)+5= 22%.  Yikes.

Assessment is a dark science, and every year there are weird local effects of property values in one neighbourhood going up or down relative to others, and it is not always clear what the causes of these changes are. A recent example is the Heritage Conservation Area in Queens Park which was either going to cause housing prices to go through the roof and make the neighbourhood forever inaccessible to young families, or was going to crater the value of the houses dooming young families to inescapable debt, again depending on which Social Media account you followed. The reality is, it had little perceptible effect when compared to similar properties in Glenbrook North or the West End over the last 5 years. The market is bigger than one neighbourhood.

Properties actually sell “above assessed value” or “below assessed value”, a metric that is often used as an indicator of a market trend, since assessments are always at least 6 months old. However, it is important to remember that, in aggregate, things just don’t shift as much as they do in one-off conditions. If the person up your street who spent $50,000 on a new kitchen sells their house, they are likely to get more than the neighbour who has a black mold farm in the basement, even though both houses may look the same from the outside. Assessments are approximations of how the “typical” or median house of the size, age, and lot dimensions in your neighbourhood should be valued, not an evaluation of your wainscoting. Individual results may vary.

If you think your increase or decrease this year is unfair, there is a process to appeal your assessment, but you can’t dawdle. Local governments have to know the official assessed values by April so we can set our tax rates and get those cheery bills into the mail, so the Assessment Authority has to provide official numbers by the end of March. Therefore you only have until February 1st to file an appeal, but if you think you might want to do so, you should contact BC Assessment immediately and get the details about what you need in order to make that appeal. The important part is that the onus is on you to provide evidence that the appeal is wrong, not vice versa.

Budget 2021 – part 2

Posted on . by Patrick Johnstone. 3 Comments.

I wrote a bit about last week’s Council Workshop on the Capital Budget a few days ago, complete with some ugly pies. This post I am going to write about the second half of that presentation – the draft utility budgets for 2021.

As I have mentioned before, the City has more than one budget. The General Fund is all of the stuff we do to provide general City services, from parks and recreation to police and fire services to fixing potholes and supporting arts. The General Fund has a few funding sources including senior government contributions and fees related to permits or parking or fitness classes, but the bulk of it comes from property taxes. In that sense, it is the big fund that Council has close-to-unlimited authority to spend on providing a suite of services.

The Utility Funds are different, and are accounted differently. Outside of occasional senior government grant programs, all of what you pay for water, sewer, or solid waste, goes directly to paying to provide those services. No property tax is used to pay for providing those services, and paying for those services does not offset property taxes. (I am purposely putting our Electrical Utility aside, because it is unique in New West, as I’ve talked about before).

Utility rates are going up faster than property taxes. This is not because of Council largesse or pet projects, but because the cost of delivering these services is going up. To be more accurate, the cost for delivering these services *sustainably* is going up. More on that below.

I did some posts a couple of years ago that used a type of flow diagram to show what happens to the money you spend on your water, sewer, and solid waste bills. The numbers have gotten a little larger, but the proportions have stayed about the same, so the diagrams are still useful even if I don’t have the time or energy to update them right now.

Keep in mind that like all of our budgeting, the law tells us to create a 5-year budget plan. We update this plan every year, so even though we are currently looking to approve 2021-2025 budgets, we are really only approving the 2021 rate increases. The future rate increases are projected in order to inform our planning, but the rate increases in 2022 and beyond are really up to the discretion of future Councils. With that in mind, here is where we see the budgets going.

Water
We foresee collecting just under $15 Million in water fees this year, compared to $13.7M in last year’s budget. That is about a 10% increase. Part of that will come from selling more water (the City is growing), and the rest from a 7% increase in water rates. Here’s where the money is projected to go:

Water is the money we pay Metro Vancouver for the water in the pipes. Operations is the cost of running the utility day to day (staff, materials, power, water quality testing, etc.). Capital is the cost of replacing or building new pipes, valves, meters, hydrants, and all the hard parts that keep water flowing. Transfers are the exchange of money between the Water Utility and the General budget of the City. The “City” buys water from the Utility to run city hall, arenas, the pools, watering flowers, etc. At the same time, the Water Utility uses City equipment and personnel to do some of their work – from billing to road crews, and because the Utility by law must be separate from the General fund, these transfers must be accounted for. Every year, the Utility uses a little more City services than it collects from us in water charges. Finally, Reserves are the money the Utility puts aside in a reserve fund for a variety of purposes, which I will talk about below.

Sewers
We foresee collecting just over $24 Million in sewer fees this year, compared to about $22.5 Million in 2020. That is about a 7% increase. We are also projecting to collect another $3.6 Million in DCC money and capital grants (I talk about how that works here). That will predominantly come from a 7% increase in sewer rates. Here is where we expect that money to go:

With the same categories as water above (instead of paying for water, we are charged by volume by Metro Vancouver for the treatment of our waste water), you can see it is a little different. We are budgeting for a much bigger capital expenditure in 2021 for sewers, and we are actually going to dip a bit into our reserves to pay for that – which is why I put the blue box with the arrow above the line there to show the offset of costs from dipping into reserves.

Solid Waste
We foresee collecting $3.74M in users fees this year, compared to $3.35 Million last year (we also collect other revenue of a little under a million dollars in this utility) the utility rate increase works out to about 12%. Here’s where the money is projected to go:

You can see the solid waste utility works different that water and sewer. Though the per-tonne “tipping cost” of depositing waste at Metro Vancouver and private facilities is significant and going up, there is much more operational and transfer costs than other utilities. This is because of the nature of the work – we have collection trucks running 5 days a week that need crews and fuel. Also unique here is the fact we are running with a deficit in our reserves for solid waste, which will hopefully turn around by 2022, and this is not unrelated to why the rates are increasing so much.

I want to wrap this up by talking about our reserves. This is the money that each of these utilities have “in the bank” (well, Solid Waste has a deficit in the bank, but follow me here). We often talk about the main reason our utility rates are going up is because the cost of operating them is going up, but that is only partly true. We are also raising rates to build up our reserves.

The reason we have reserves is because they work like a buffer on the system. If we have an unexpected cost like extensive emergency repairs, a catastrophic loss, or have an opportunity to get a big matching fund grant from senior government that requires we are able to pay our half, a healthy reserve gives us that flexibility. Healthy reserves make our utilities *sustainable*. Currently, our reserves are in the order of 2-3% of the value of our assets. With increased awareness of the infrastructure gap so many communities are suffering, the current best practice is to keep reserves between 5% and 10% of the asset value. For this reason, we are continuing to build reserves in each of our Utility funds with an aim to get to that level.

This was a conversation we had in the workshop, and part of our finance staff’s work plan is to do a thorough analysis of our reserves situation as the City’s Asset Management plan is updated.

Overall, a typical household in New West can expect to see their annual utility rates for water, sewer, and solid waste go up by $132 next year, or about $11 more dollars a month.

Budget Survey

Posted on . by Patrick Johnstone. Leave a comment.

The City’s Budget is something everyone has an opinion on, even those who don’t think of it in that way. When people say “the City should fix the sidewalks”, “do more about homelessness”, “get back to the basics” or “extend the Hume Pool season”, they are making comments about the budget. However, few discussions around services put budget at the centre of the item, except at the time of the year when the Council is asked to set a tax rate for the year ahead.

We have always asked people to comment on the budget, and every year there is a public report and Opportunity to be Heard on the final budget decisions (always framed around “next year’s tax increase”), but this is commonly after all of the heavy lifting of putting the budget together has happened, and the details of how we got there are not transparent enough for meaningful input.

The result of this, as I have previously joked, is that the community spends 11 months asking the City (and Council) to do more things, then spends a month telling us to not raise taxes to fund those things. Local governments really aren’t able to operate at deficits, so this form of feedback is not particularly useful for guiding policy. Part of that is because much of how the City’s budget works is arcane, and we need to change this.

One effort the City has undertaken in the last couple of years has been to try to make our budgeting process less arcane. Followers of this Blog (hi Mom!) know this is an interest of mine – I spend probably more time than is useful talking about taxes and busting some of the myths about how New Westminster taxes compare to our cohort. Past of that effort was my own research to better understand how our budget works so I can make more informed decisions about it. Thing is, Municipal finance is a complicated thing.

This was identified a few years ago as an area where the City should improve its Public Engagement efforts, and over the last couple of budget cycles we have been changing how we ask for input to the budget. Doing it sooner, adding an education component to guide more useful feedback, and trying to get a more diverse group of residents and stakeholders involved in the conversation.

We are at the beginning phases of the 2021 budget process. It starts around now and works towards a final budget being prepared in early May. This is obviously a different year than most, as both our revenues and our expenses were very different than we projected prior to the pandemic. Rectifying that in our 2021 budget, and understanding how to project forward with an uncertain pandemic recovery is going to be a challenge. However, we are still ramping up our public engagement on this topic. If you are the kind of person who read this far into this blog, you probably are the kind of person who has feedback to the City on the budget process.

Here is what you can do:

Go to the city’s Budget Engagement website. There you will see links to background information you may want. You will also find links to:

Watch the webinar and/or read the power point deck, again to provide a bit more background, and to hear a Q&A session with residents asking questions you may have had.

Most importantly, fill out the survey! There is a relatively quick survey to get your initial feedback about how the City should prioritize spending in the year ahead, and to see how the public feels about that services/costs balance that the City is always trying to manage.

As I mentioned above, the City is really trying to get a wider variety of feedback on this stuff. I know there are a few people out there who fill out every public engagement opportunity the City has (sit down, Brad!), but I am hoping those of you who are reluctant to spend 5 minutes on an online survey will take the time, or that you vocal types will, after filling it out yourself, pass this on to some other people in your household or social circle to add diversity to the voices we hear from. The survey is open until October 18th, so this is a great family Thanksgiving activity!

Taxes 2020 part 2

Posted on . by Patrick Johnstone. Leave a comment.

The conversation about property taxes is always loudest not at tax time, but when the annual tax rates are announced. Early in the new year, every City Council in BC gets to the part of the annual budgeting process where tax increases enter the conversation.

Most of the rest of the year, Council talks about things they want to do. People come to Council and ask the City to do things. Any reduction in the base level of service is treated as an affront to all that is good. Reluctance to take on new tasks is seen as not supporting the incredible community benefits those tasks will support. Ten months of the year Council is asked to do more; two months of the year, we are told to spend less. That is not a complaint, it is an observation of how democratic government works. It’s the job I applied for.

As a result, discussion of taxes is rarely separated from discussion of ever increasing taxes. It does little to tell people that federal and provincial taxes have been steadily going down in Canada and BC for several decades as more tasks are downloaded to local governments. Property taxes are going up faster than inflation, and some people don’t like it.

Following on my last post, and in my continued quest to compare us to our cohort, I got to digging into the data again. We can again compare the New Westminster experience to the rest of Greater Vancouver through the BC Government stats on property taxes that are available as far back as 2005 here in “Schedule 707”. I will continue to argue (until someone gives me a good reason to think otherwise) that taxes collected per capita is the best comparator of taxes paid across the region. So how does New West compare to the other 20 Greater Vancouver Municipalities in tax per capita of the last 15 years? It’s a bit messy, but here we are:

There are two outliers: West Van has always been highest, Surrey has been lowest. New West is somewhere in the middle, increasing slightly less (by my eye) than average over the decade and a half. The big tends if I try to parse them: Delta and Port Moody rising faster than most (likely related to higher industrial land use and resultant industrial tax “windfalls”); the small communities (Anmore, Bowen, Lions Bay, Belcarra) all seeing recent significant rises since ~2013 (I would suggest they are coming to grips with infrastructure renewal costs they cannot offset with growth); Vancouver bucking the trend a bit, and the rest of us pretty tightly clustered together. If there are reasons for municipal tax increases, they don’t seem to track with politically left or right councils, rich or poor cities, or any imagined east-west or north-south divide.

Using the same BC Government Schedule 707 tables, you can look at how each city has changed in the 15 years between 2005 and 2019. There are three related growth numbers I think are fun to compare: population, value of residential land per capita, and the residential taxes collected per capita:

For the fun of it, I sorted this data by the rate of population growth. Despite what I said just two paragraphs ago, you can see Anmore was the surprisingly-fastest growing municipality over that 15 years increasing by 57%, even faster than Surrey. New West population rose 29% over that time (from just under 60,000 to just under 77,000), which makes us one of the faster growing communities. Lions Bay and Belcarra both lost population over this time. This chart, however, doesn’t show any clear trend relating the rate of growth to the rate of property value increases or tax increases.

This second view is the same data, but sorted by the increase in residential property taxes per capita. New Westminster is slightly below average in increase, as the per capita tax rate has gone up 76% over 15 years, compared to 78% for the average municipality (a tie between Langley Township and Port Coquitlam). New West residential land values have gone up quite a bit more than the average, though. In 2005, there was $84,000 worth of residential property per person, in 2019 that number is $276,000 – more than a tripling in value.

Just for the fun of it, I did the math to create a totally meaningless idea. If there was a (statistically-unlikely) person in New Westminster who owned a proportionate value of land for those 15 years, they would have paid about $7,700 in property taxes over that time, and earned about $192,000 in increased land value. Of course this is only property taxes to the municipality, not to the province (School taxes) to regional government (GVRD taxes), and doesn’t include the fee-for service money the City collects for utilities. Still, I think it argues against the sometimes-proffered idea that municipal taxes have been a significant driver of housing affordability challenges in the region over the last decade and a half.

Taxes 2020

Posted on . by Patrick Johnstone. 4 Comments.

I am returning to a common theme here in the blog, because I like to look at data, and have recently had a resurgence of folks suggesting to me that New Westminster is the highest taxed city in Christendom. Well, maybe only in British Columbia. Recently, I noticed a Councilor in another municipality puffing his own tires about how prudent the tax regime in his City was by calling out New Westminster as specifically worse tax- & spend-thrifts. Which allotted me the excuse for the following subtweet:

That the City that Councillor represented was well to the left of New West in the graph above was left unsaid, as were his name and that of his community, because I really don’t think it is a competition. Moreover, the problem with graphs like above is that they are one simplified analysis, and as I have tried to demonstrate in many blog posts like this over the years (Here with 2019 numbers, Here from 2015, Here where I compared taxes and utility rates, etc, etc. ) there are various ways to compare property taxes between Cities, and any comparison is useless without context. Some more useless than others.

Cities primarily provide services to people. This is why we generally rank the “size” of a City by population, not by square kilometers. The cost of providing services also most closely tracks with population. So when we talk about tax burden, certainly in the sense that our nameless Councillor was talking about it, we are talking about how much you pay for taxes as a resident of the City, which is easily measured by the taxes collected per capita:

The BC Government collects these stats every year, and report out on “tax burden” on a spreadsheet they call Schedule 707. You can read it here. The table above was generated by dividing the 2019 “Total Municipal Taxes” from each City by the population (2018 estimate, because that is what is on the Schedule). New West collected just under $84M in taxes a population of just over 76,000 people, for a per capita tax of $1093. This puts us right in the middle of Lower Mainland municipalities. The average of these per capita numbers is $1123 (New West is a little lower), but the average tax burden is actually $1042 (New West is a little higher).  This makes sense based on the different ways you can calculate the average, but fair to say New West is pretty firmly in the middle of the region.

This first chart compares all municipal taxes, though, and residential property tax – that collected from homeowners and landlords of rental properties – is only a portion of this. We also collect taxes from businesses and industries and utilities and such. Fortunately, Schedule 707 also break taxes down by property class. New Westminster collected just under $52M in residential taxes from those 76,000 residents, which works out to $675 per capita:

As you can see, that puts New Westminster just below average across the region. You will also note the municipalities that leap to the left side of the graph tend to be residential communities with limited commercial and industrial properties. Without those businesses to prop up the expense of the running the City, residential property owners have to pay more. Here is the commercial and industrial taxes collected per capita in 2019:

In this red is “Major Industry” like the Kruger paper plant or big industrial areas like Annacis and Mitchell Islands. Purple is “light industry” like the type of warehouses you drive by on the Mary Hill Bypass or in Port Kells. Green is “commercial”, which means retail, restaurants, malls and office buildings.

As you can see the distribution of this type of development is unequal across the region. Vancouver is the commercial centre of the region, and has oodles of office and retail space downtown and along the Broadway corridor. Delta has Annacis Island and the River Road corridor, that huge industrial reservoir allows them to keep their residential taxes low. As a proportion of property tax collected, New Westminster gets about 38% of its tax revenue from commercial and industrial properties and 62% from residential, which again puts it somewhere in the middle:

Unfortunately, commercial and industrial taxes are much harder to compare across the region. “Per Capita”, as I have used here, feels wrong. Raw numbers or rates are hard to compare because the value of commercial real estate in Downtown Vancouver is very different then the same office space in Langley, with New West somewhere in the middle. The pressures, costs, and relative utility of industrial land varies even more widely across the region. I will try to dig more into that in a follow-up post, because there are a few ways to look at business taxes in New West that make it look like we may be a little out of the ordinary.

But when ti comes to residential taxes, it is clear that New West is neither high or low taxed relative to the rest of the region. And there is a good case to be made that the Lower Mainland of BC has among the lowest residential property taxes in North America. But I’ll let someone else make that case.

Budget 2020!

Posted on . by Patrick Johnstone. Leave a comment.

This week in Council we are going to be talking about the Budget, and are asking people to once again provide us some feedback on budget issues. Providing this feedback is difficult for many people, or it is hard to understand how your feedback will be incorporated, because municipal finance is a little bit arcane. So I thought before the meeting, with the reports and tables on line here, I would give you a bit of a run-down of how the budget process works.

We have already had some lengthy discussions about the capital budget. This is the budget we use to pay for things like buildings and vehicles and computers. These are (mostly) one-time items, though most need periodic replacement, and (mostly) tangible objects, though we can use capital funds to fund planning for tangible objects, like hiring a consultant to develop an Urban Forest Strategy that will result in capital expenses to buy and maintain trees.

The City is required to balance its budget over a five-year financial plan, so when we talk about “Budget2020”, we are talking about an excerpt of the overall 2020-2024 Financial Plan. Following from this, our 2020 Capital Budget is part of a 5-year Capital Plan, which makes sense because most large infrastructure works cannot be planned, financed, completed and paid for in a single year.

Our draft budget has a 5-year capital plan to spend ~$468 Million on new buildings, infrastructure and equipment, with a some of that representing a few major projects: The ~$100M Canada Games Pool, $54M for a district energy utility, a ~$40M electrical substation in Queensborough, ~$17M to fix up the Massey Theatre, $20M in road paving, etc. This includes the Utility capital investments ($123M for Electrical, $50M for Sewer, $25M for water, and $1.6M for solid waste). In 2020, we are budgeting to spend ~$140 Million of that total.

The City has three options to pay for any capital expenditure: reserves, debt or revenue. Reserves are the monies we have in the bank, some to assure financial solvency, some earmarked specifically for projects, like the money we have put aside for the Canada Games Pool replacement. If there is a reserve fund appropriate for the spending we plan, then drawing from those reserves make sense, though we have to be cautious about drawing those accounts too low because they provide us some financial resiliency, and improve the rates we get from banks when we borrow. Borrowing to pay for infrastructure makes sense for a recreation centre much the way it makes sense to get a mortgage for your house: the people using it pay for its use while it is being used. We have a *lot* of debt room in the City as far as regulations and good financial planning are concerned, but we have to address the public tolerance to take on debt (through a public process when we take out loans), and of course manage the cost of borrowing. The third option is to draw from revenues in the year we have the expense, be those revenues in the form of a grant from senior government or through raising taxes. These both, of course, have limits.

The part of the annual budget that directly impacts your tax rates is the Operational Budget. It is from this budget that we pay staff and buy paper and diesel. Sometimes a pundit in town will chagrin “most of the City’s spending goes directly to salaries!”, to which my only retort is “Yeah, and?” The City provides services more than we build widgets. Widget ore is not as big and expense as delivery of those services, which are delivered by people, from lifeguards to librarians to police officers. Sure, we buy asphalt and pipes, and firefighters need firetrucks, but most of our budget is service delivered by people.

We spend most of the year operating the City based on the operating budget set in the previous spring. As the year goes along, staff, Council and the public identify places where the City can do things differently, where our service is not meeting demands, or where new services are being pondered. Some small things may get done as staff find space in their existing budget to make them happen (or stop doing other things to make the room). But some things are more costly or need more staff time to manage, so managers put forward an “enhancement request” – they ask for more money.

Part of the task of our senior management team is to review all of these enhancement requests, and decide what is reasonable and what isn’t, then set some priorities. Council is not directly involved in that process, but the priority-setting is based on a framework of Strategic Planning created by Council. One of the questions staff need to ask themselves and each other at this stage is – does this enhancement meet a strategic goal of the Council? Then ask if we can afford it. Which is where Council comes in.

Before these enhancement requests, the draft 2020 budget sees costs equaling a 3.9% tax increase already baked into our 5-year financial plan. These are things like increased debt servicing, annual salary increases, inflationary pressures and financing of earlier enhancement commitments already made by Council in previous budgets. Staff have brought forward new enhancement requests equaling just under another 2% of taxes. They then recommended that about half of these enhancements be included in the 2020 budget, and the other half deferred to a future year. This equals out to a draft 4.9% tax increase.

There is an interaction between the Capital and Operational budget. The interest we earn on our reserves is a revenue that is included in our operational budget, so draw those reserves down and we have less revenue. Similarly, the interest we pay on our loans is an operational expense. There is also an operational impact to many capital projects: the NWACC will cost money to heat and light, and will need to be staffed. It will also bring in revenues. Those numbers will be different for the NWACC as they are for the current CGP. These changes have to be budgeted towards.

Since we have a regulatory requirement to balance the budget at the end of the year, if we pull in more revenue (through taxes, charges for services like parking and permits, grants from senior governments, investment income, etc.) in a year than we spend (on salaries, supplies, grants, etc.) that extra money (“profit!”) goes into our reserves and helps offset future capital budget costs. The corollary to this, of course, is that a large capital budget requires us to raise taxes a bit to keep these reserves at a stable level and to pay debt servicing costs.

(I have almost completely skipped utilities in this discussion, I talked a bit about them, with fancy coloured diagrams to show how those work in this blog post from a couple of years ago)

So, this week Council will be asked in two meetings (Monday AND Tuesday nights) to review the budget, review the results of the public consultations that occurred around the budget, and provide one more public meeting where people can come and address council with their concerns regarding the budget. We will review the capital budget commitments for 2020, and will review the recommended and non-recommended enhancements. Council will then make recommendations on any changes, and staff will take those away and work on putting together the necessary Bylaws to make the budget a reality. By the end of the Tuesday special meeting, we should have a pretty good idea what our budget increase will look like for 2020, but looking at the reports, it will likely be something around 5%.

Taxes 2019

Posted on . by Patrick Johnstone. Leave a comment.

If you own a home in New West, you should have received your annual tax bill in the mail in recent weeks. If your assessment went up by the city-wide average of 9.03%, then your tax bill went up over last year by 5.28%. If your assessment went up by more than 9.03%, then your tax bill went up more. Conversely, if your assessment went up by less than 3.7%, or if it went down, then your tax bill this year is lower than it was last year. I tried to show how this works in this blog post from a couple of years ago (with the numbers from a couple of years ago, mind you).

It seems an appropriate time for me to update some of my older posts comparing New West tax rates to others around the region. I’ve done this a few times in a few different ways for several years on this blog (here, here, and here, for example), and no matter what type of analysis you do, it is clear that some local pundits continue to perpetuate terminological inexactitudes when they claim that New Westminster has the highest taxes in BC, or Canada.

Recognizing my own suspicion of bias, all of the data below comes from the BC Government reports that annually compare tax rates and burdens across all local governments, and have been doing so for a while. Of course, this data is from 2018 (Cities are only now submitting 2019 budget numbers to them), but this is the best source to compare numbers across the province. You can read them all here and make your own comparisons if you don’t like my ham-fisted Excel skills.

I am going to reiterate a point I have made before: there are many ways to compare taxes between jurisdictions. Vancouver and Surrey collect more tax overall than New West, because they are much larger. West Vancouver has lower mil rates because their average house price is much higher, Creston has a much higher mil rate because its average house value is much lower. Even the use of “typical house value” to compare taxes is biased, because some cities like New West have more people living in rental and condo buildings than some others, so a “typical house” is much larger and more expensive than the median or average household occupies. So to answer the primary question: do New Westminsterites pay more municipal taxes than residents of other municipalities, I think the fairest comparison is taxes collected per capita:

Source: BC Government statistics, Schedule 703_2018

Of the 161 Municipalities in BC, ranked from highest taxes to lowest, New Westminster (orange bar above) is ranked #71, between Parksville (#70) and Saanich (#72). In 2018 we collected $77.7 Million in taxes from just under 74,000 people, making our per capita tax rate $1,051. Province-wide, $4.76 Billion in municipal taxes was collected from 4.3 Million people, making the province-wide average about $1,150 (red dashed line above). So New Westminster residents paid $100 less per year, almost 10% less, than the average resident of BC. Our tax increase in 2019 will eat into this gap, pushing us up by about $50, but at the same time, almost every other Municipality in the province increased their taxes at a rate between 2 and 7%, so our position will not shift substantially.

Naturally, there are massive differences across the province on the proportion of taxes paid by industry and businesses, and the level of services provided by the Municipality. The Lower Mainland is a bit different than the rest of the province in the level of services we supply and the cost of delivering those services, so it may be fairer to only compare New West to our Metro Vancouver cohort:

Source: BC Government statistics, Schedule 703_2018

New Westminster ranks 13th out of 21 GVRD municipalities in taxes collected per capita. The GVRD Municipalities collect about $2.6 Billion in Municipal taxes from 2.56 Million people, for an average of $1019 per person (the red dashed line). New Westminster collects slightly more (3% more) than this average. This has changed over the last couple of years for two main reasons: New Westminster’s Capital Levy we are using to fund our aggressive capital renewal plan (lead by the replacement of the Canada Games Pool) and the regional trend where there is a much higher rate of population growth in the relatively low-tax municipalities of Surrey and Maple Ridge compared to slower growth in Vancouver and (especially) the North Shore. We can talk about correlation/causation here, because it might not be what you think…