Feature Article October 23, 2003
LAND O' LAKES NewsWeb HomeMunicipal and Education TaxesMany of us have seen significant property tax increases this year. As we approach the upcoming election, a general review of municipal and educational taxes and the roles of the various levels of government is worthwhile.
The services provided by municipal governments and school boards, and the ways in which they are administered and funded, are dictated by the province. Municipal governments and school boards receive their income from the province, user fees and property taxes. They may also have access to other funding for special purposes. We contribute to the provincial grants when we pay our income and sales taxes, but we're usually more aware of the user fees and municipal taxes that we pay directly.
User fees are often charged when it is possible to determine the costs of services, such as water, sewers, waste disposal and building permits. This reduces property taxes. Seasonal residents and those making little use of these services pay less than if they were funded by taxes.
Property taxes are based on the class (commercial, industrial or residential) and the market value of a property. School support (public or separate) is also a factor, but usually makes little difference to the taxes paid. A property's class and market value are determined by the Municipal Property Assessment Corporation (MPAC), which receives its mandate from the Province.
Tax rates are calculated for each property class and local taxation authority (Township, County and School Board) using the MPAC data and the taxation authorities revenue requirements. The township then calculates total taxes for each property and sends out the tax bills.
Changes in the tax we pay are the result of changes to both the tax rate and the assessed property value. If the tax rate is increased 4% and the average assessed value increases by 11%, the average property tax increase is just over 15%. Individual tax changes may be higher or lower, depending on MPAC's view of property values. Property improvements increase the taxes paid by a few owners but usually have little effect on the average property tax.
It has been claimed that MPAC has overvalued some properties. However, we should not blame faulty assessments for all above-average property tax increases. Property values are heavily dependent on location and can change significantly as people's tastes and requirements change. The cost of water front property has increased faster than that of other properties due to a high demand and a diminishing supply. If, as some real estate experts predict, this trend continues, we can expect taxes on these properties to continue increasing at a higher than average rate.
We normally think of the services provided by municipal governments and school boards as being municipal or educational; however, we can better understand the issues related to their funding by thinking of them as "property" and "people" services. "Property" services are related primarily to the construction, operation and maintenance of property, they include building permits, waste disposal and the fire service. "People" services are related primarily to people, they include education, welfare, roads, recreational facilities and police. "People" services consume most of our property taxes.
Presumably, the province considers that a property's class and value reflect the owners ability to pay. Unfortunately, some are losing this ability as the value of their property increases faster than their income. What can be done to help them? Tax capping was used in the early days of market value assessment, but is neither fair nor sustainable. Will this problem escalate as more people reach retirement age with fixed or limited incomes?
Should property taxes fund only "property" services? Should some or all of the "people" services be funded through a system of taxation that better reflects an individual's ability to pay?
Seasonal residents often feel that, because they are paying city taxes, they should pay only for the services they actually use at the cottage. This argument is difficult to support because most of our property taxes fund "people" services. The person with a home and a cottage can expect to pay taxes on both, just as the owner of an expensive city property pays more than the owner of a less valuable property. The province does not allow a distinction to be made between a permanent residence and a seasonally occupied residence.
Municipalities and school boards have very limited scope in which to address these issues; however, we can expect them to operate in the most cost-effective manner and to tap every available source of funding. We can also require MPAC to provide accurate value assessments. If basic changes to the taxation system and funding formulae are required, we must look to the province.
Cities are placing more and more pressure on the provincial and federal governments to support their roads, water, sewer and other services, citing the inability of their citizens to pay. Our rural municipalities must ensure that we are not forgotten.
