Did Taxes Go Down? And How Do Taxes Get Set?

in 2019, Council’s budget delivered a 4.1% decrease to an average residential property.

However, there is a problem with averages: most people fall above or below them.

I heard from a number of people who were grateful to see their tax bills go down. But Council also heard from a number of people who said something like “my taxes didn’t go down- what the heck!?”

To help ourselves and the community get a better picture of what happened with tax changes, Council asked for more information about how many properties received increases and decreases. This report was received on Tuesday. You can read it here.

Following is some of the information Council received about the changes in tax bills. I’m also including information about how your tax bill gets set.

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What happened to residential taxes?

The average residential property paid 4.1% less taxes in 2019 than it did in 2018.

This decrease does not refer to the RATE set on properties. It refers to the AMOUNT of tax they paid. You might hear someone say “sure, they lowered taxes, but they just raised assessments to make up for it.” That isn’t how our taxes work. The 4.1% decrease takes assessment changes into account.

From 2018 to 2019, the average residential property’s assessment went up by 2.35%. All properties that saw a 2.35% increase in their assessment saw a 4.1% decrease in their taxes.

However, as with any average: few properties would’ve seen a change in assessment of exactly 2.35%. Some would’ve seen their assessment grow by less or go down, which means they would’ve seen a larger tax decrease. And some would’ve seen their assessment grow more than 2.35%, which means they would’ve seen a smaller tax decrease than 4.1% or even an increase.

So, how many properties were above and below the average tax decrease of 4.1%? The following graphs show that.

Municipal Tax Change Based on Market Change Only

The province sets how property tax is determined. And, under provincial rules, tax is based on property value. This means that if you do something that increases the value of your property (major renovations, adding a new building, etc…), you pay more in taxes.

This first graph examines what happened to tax bills if the effects of new construction or renovations are removed. In other words, it shows how people’s bills changed from 2018 to 2019 if they made no physical improvements to their property.

The horizontal axis shows ranges of tax changes. The vertical axis shows how many properties fell into each range.

Total Municipal Tax Change

This next graph is the most relevant one. It shows what was actually reflected in the property tax bills sent out. It reflects all growth in municipal taxes, including growth due to improvements made to properties. However, it only includes the taxes charged by the City.

Total Change Including Non-Municipal Taxes

The City isn’t the only entity which issues property taxes.

The province also issues property taxes to help fund education. It requires municipalities to collect this tax on its behalf.

In 2019, the province is collecting $29,820,732 from Grande Prairie properties. This is equivalent to ~25% of the total taxes collected by the City. And the amount being collected for the province went up by 3.5% in 2019.

In addition, property tax bills include a requisition for the Grande Spirit Foundation. This went up by 2% in 2019. However, it is a small requisition ($455,678 total from all properties), so its impact is very minimal.

When Provincial taxes and the Grande Spirit requisition were added to tax bills, the tax decrease for an average property (with an assessment increase of 2.35%) went from 4.1% to 2.6%. Accounting for these provincial and Grande Spirit changes, our graph looks like this:

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How a Property Tax Bill Gets Set

A number of people have said something like “stop monkeying around with averages: everyone deserved a decrease.”

I completely understand this viewpoint. In many ways, it would’ve made lots of sense for Council to give every single property the exact same percentage decrease. However, Council has no legal ability to do that.

How property taxes are set and collected is determined by the province. It is the same process across the Alberta, and Councils receive very little discretion in how they follow it.

Here is how it works:

Step 1: Total Tax Levy Determined

Council sets its budget for the year.

After the budget is set, all the expenses are added together. From this amount, all projected non-tax revenue (fees, charges, franchise contracts, grants, Aquatera dividends, etc… ) is subtracted. This determines how much total revenue the City needs to collect from property taxes.

Step 2: Determine Assessments

Every property in the City is given an assessed value. This assessment process is very heavily regulated by the province. City assessments also receive regular statistical audits by the province to ensure they are treating all properties equitably and that they are satisfactorily matching actual market conditions.

Provincial legislation is very clear that Council is to be hands off with this process. Local Councils don’t set the parameters that go into assessments, and they have no legal ability to change individual assessments.

Step 3: Determine Municipal Mill Rate

Within the City, there are several different classes of property.

Council determines how much of the total tax levy should be taken from each class of property. This is divided by the total assessment worth of all the properties within that class to get a tax rate. For example:

In 2019, Council decided to levy a total of $60,506,789 from Low Density Residential properties.

In 2019, the assessment value of all Low Density Residential properties added together was $6,325,588,990.

This allows a Low Density Residential tax rate to be calculated like this:

This means that for every $1 of value a Low Density Residential property has, it will be required to pay $0.009564 in taxes.

For convenience, this number gets multiplied by 1000 to set a “mill rate": how much each property will pay per $1000 in value. In 2019, the Low Density Residential Mill Rate is 9.5654

Step 4: Determine Total Mill Rate

The City isn’t the only entity which has a mill rate. The province and Grande Spirit Foundation also set mill rates.

In 2019, the province’s mill rate for Grande Prairie residential properties was 2.6270 (~25% the rate of the City). Grande Spirit’s mill rate was 0.0456.

These get added to the City’s mill rate. For Low Density Residential properties, this adds up to a total of 12.238.

Step 5: Calculate Tax Bills

Every property has its tax bill determined by multiplying its assessed value by its mill rate, then dividing by 1000.

In 2019, an average Low Density Residential property is assessed at $316,800 and has a mill rate of 12.238. This means that its total property tax bill is $3877:

316,800 x 12.238 / 1000 = 3877

However, it is important to remember that this $3877 includes provincial and Grande Spirit taxes. If these are removed, the mill rate goes down to 9.5654 and the total tax bill is reduced by over $846 to a total of $3030:

316,800 x 9.5654 / 1000 = 3030

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What Council Controls (and Doesn’t Control)

Council can change the total tax levy the City collects. However, it cannot change how assessments are determined or the provincial and Grande Spirit levies.

The process outlined above is set out by provincial legislation. Council cannot change it: only the province can.

A big challenge with this system: each property’s tax bill is determined by its assessment, and properties have their assessments change at different rates. This means that, year over year, properties see different percentage changes to their tax bills.

When setting taxes, Council has no legal ability to direct a single percentage change happen to all properties. It can only change the total amount of taxes it will collect.

When Council sets its budget, it knows what impact spending will have on an average property. However, it also has to accept that individual properties will see variable impacts.

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Change the Province Should Consider

There is a relatively simple change the province could make to greatly improve this system.

Currently, the province dictates that a property’s assessed value needs to be based on what it was worth the previous June 30th. The problem with this: year-to-year, your property’s change in value is unlikely to precisely match the average change across Grande Prairie. This means that your tax impact becomes somewhat unpredictable. Council can tell you what impact the budget has on an average bill, but you are likely to be above or below that average impact every year.

I’d love to see assessments change to become a rolling average. The assessed value of properties should be based on what they were worth on average over the past five June 30s. If we are looking at a five year average, the change in value your property saw is a lot more likely to closely align with the average change across Grande Prairie. When Council sets its budget, you would have a lot more confidence in what it would mean for your tax bill.

Moving to a 5 year rolling assessment would create more work (and therefore more expense) in Assessment and Taxation departments. It would especially create challenges for assessing brand new properties. However, I think the certainty it gives taxpayers and Councils would be worth the effort.

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There is a look at what happened with 2019 taxes, as well as a crash course in how municipal property taxes work.

This is a very complex topic. I’ve also tried to be as brief as possible. This might mean there are some confusing parts to this post.

If you have questions: please let me know. I’d love to help you understand this process. I’d also love to learn how I can better explain it in the future.

And, of course, I also welcome any concerns, pushback, or ideas you might have. I’m happy to talk online, over the phone, or to meet for a coffee.

You can find me on my Facebook page, in the GP Round Table Facebook group, at dbressey@cityofgp.com, or at 780-402-4166.

Thanks for reading!

-Dylan