This series of posts was stimulated by a question posed by friends of ours in McDougall during a dinner discussion. The host asked me why it would be in the interest of McDougall residents to consider amalgamation. My immediate response was that it wouldn’t be. Amalgamation I imagined would lead to a property tax increase of about 10-20% for McDougall residents. But that was a wild assed guess.
I have not seen any numbers on how amalgamation might impact the various municipalities. It is generally understood that amalgamation would benefit Town of Parry Sound residents but not the residents of the other municipalities. But there are no detailed numbers to look at. I wondered if I could do a rough pro forma estimate of the impact of amalgamation on property taxes based on the publicly available data. It turned out that I can, without too much difficulty. The results are surprising.
But as my wife would say, why get to the conclusion when there is a good story to tell. In this case I will present some of the background related to local municipal taxes. It really is hard to properly understand how amalgamation will impact the various municipalities without understanding where they are now in terms of tax rates and expenses.
Warning: if you don’t aren’t comfortable with numbers don’t venture further. There are lots of numbers and assumptions. Wait until the next post where there will be fewer numbers and some interpretation of what the numbers suggest.
Baseline Assumptions and Important Concepts
- The analysis of amalgamation tax rates includes: the Town of Parry Sound (Parry Sound), the Municipality of McDougall (McDougall), the Township of Seguin (Seguin), the Township of Carling (Carling) and the Township of McKellar (McKellar). The Township of the Archipelago (Archipelago) is not included. As a municipality the Archipelago is quite different than the five listed above. I also figure that they have enough old money in the municipality to wield an unreasonable amount of influence in Queen’s Park. Our local MPP has already gone on record as not supporting the Archipelago being part of any amalgamation. I have also not included the Township of Whitestone or the Township of McMurrich/Monteith because they are not only quite distant, but have better things to worry about.
- The tax rates used in this analysis are based on published 2017 figures. While the 2018 tax rates are public, the corresponding financial statements for the various municipalities are not yet available. Using 2017 as a basis provides relevant figures. For the most part tax rates have only increased a couple of percent in each of the municipalities.
- The assessment values for the various municipalities are Weighted Assessments. These are figures that are publicly disclosed, although not easy to find, and are based on 2017 values.
- From a tax rate calculation perspective the most important figure to consider is the Property Taxes collected by each of the municipalities. This is not the same figure as the budget figure for total revenue/expenses. The total revenue figure is the sum of property taxes collected plus grants (Provincial, Federal and other) plus revenues from charged services (building permits, water services and other). A municipality totes up all of the revenue it expects to receive from all sources other than Property Taxes and calculates the shortfall in revenue versus expenses. For example, the total municipality budget might be $18 million with $10 million coming from Grants, Charged Services and Other. That means the $8 million shortfall is collected from residents as Property Tax. This Property Tax is then assessed to property owners on the basis of the property assessed value and the tax rate. Each municipality has a variety of tax rates by property class. Residential property enjoys a lower tax rate for the same assessed property value than commercial or industrial properties. In total then the tax rate is adjusted in each municipality to bring in the needed revenue. In the example above this would amount to $8 million. This is why the Province’s cut in municipal grants has a major impact on tax rates. Any reduction in these grants obliges a municipality to either raise the Tax Rate, reduce expenses, or take on debt, to address the shortfall.
- A note about assessed property values. Property values are assessed by MPAC according to metrics that are supposed to be common for all municipalities in the province. A property with a 5,000 square foot home, two acres of land and 500 feet of waterfront should have the same general assessed value whether it is in the Archipelago, Seguin or on Lake Simcoe. There may be additional factors to consider but the idea is that there should be parity in property values based on inherent value of the property. This is important when setting tax rates. In the past it was possible for municipalities to play with both property assessments and tax rates. Currently municipalities have no control over what properties are valued at and can only adjust tax rates to meet their budget needs. This is particularly important for district type expenses, for example education and social services. These services are generally charged at the same rate, regardless of municipal tax rates, in each municipality based on MPAC assessed values. That means the Town of Parry Sound and Seguin and McKellar all have the same education tax rate for residential properties. There is however some difference in the tax rate according to class of property, for example residential, commercial and industrial. These numbers are shared in the analysis for the purpose of completeness.
Current (2017) Tax Rates for Select West Parry Sound Municipalities
This section is divided into three sections. Section One provides a summary of the 2017 Tax Rates for each of the municipalities. While there are a number of tax rate categories only the three most relevant categories are included. The full rates for each municipality can be easily found online. This section also provides the Education rates for each of the municipalities. This is relevant for the the third section where pro forma taxes by property value are presented for each of the municipalities. Tax Rates for the Archipelago are included for the purpose of comparison even though this municipality is not being considered in the standard amalgamation scenario.
Section Two summarizes the Weighted Assessments for each of the municipalities. Information on the Assessments by tax category is not readily available.
Section Three summarizes sample taxes for a variety of different property values for each of the municipalities and residential, commercial and industrial properties.
Section One – Current (2017) Tax Rates
Table 1 provides a summary of the tax rates by municipality and includes Property Tax and Education Tax Rates.
Table 1- 2017 Tax Rates by Municipality
Section Two – Weighted Assessments and Property Tax Collected (2017)
Table 2 – 2017 Weighted Assessments and Average Property Tax Rates
Weighted Assessments are sourced from Belvedere Heights 2019 Levy Apportionment letter to Town of Parry Sound, February 27, 2019. Confirmed with Province of Ontario 2017 FIR Data by Year. (https://efis.fma.csc.gov.on.ca/fir/MultiYearReport/MYCIndex.html)
- Property Tax Collected figures were sourced from the individual municipality Financial Statements for 2017 as posted on their websites. These figures do not include Education Taxes. (Note: the Township of McDougall did not have their 2016 or 2017 Financial Statements posted online as of 2019-02-28 and had not posted the statements at the time of this post after being contacted about the oversight. Estimates were made on the basis of the posted 2015 and 2016 financial statements and posted budget information.)
- The effective tax rates were calculated by dividing the Property Tax collected by the total weighted assessments for each municipality. This total does not include Education Taxes.
Section Three- Pro Forma 2017 Taxes by Property Assessment
The tables below provide a summary of sample Property Tax, Education Tax and Total taxes for properties in the municipalities. A selected number of assessments have been chosen for the sake of simpleness. Calculating other values is as simple as multiplying one of the defined figures by the appropriate factor. For example, a $200,000 assessment in Carling would have a Total Tax of $1,232 ((200,000/25000) x $1,540). Property and Education Taxes unlike income taxes are not progressive. The values chosen reflect a variety of real world assessment values. While there are no $1 million or $5 million residential properties in Parry Sound there are commercial and industrial properties with valuations on this order. In contrast there are a limited number of commercial properties with these valuations in McDougall, Seguin and Carling, but there certainly are numerous residential properties.
Table 3 – Residential Property Taxes for Defined Assessment Values (Pro Forma)
Table 4 – Commercial Property Taxes for Defined Assessment Values (Pro Forma)
Table 5 – Industrial Property Taxes for Defined Assessment Values (Pro Forma)
Reflections and Next Steps
As promised, there are lots of numbers. Getting a handle on these figures, which represent the current taxation situation, is critical to understanding where taxes and tax rates might head in the case of amalgamation.
The next post will provide some comments on the numbers presented in this post regarding the apparent similarities and differences in taxation approaches taken by the municipalities. The next post will also take a look brief look at Muskoka and what types of ‘flexibility’ there might be with regards to amalgamation taxes.
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