Are taxes really going down?

I’ve had a few people over the past week say something like “my taxes went up, I thought they were going down, what’s up with that!?”

So to be clear: the tax rate for 2019 has not been set yet. But we are still projecting that the municipal portion of property taxes owed by an average property will go down. The target reduction is 4.1% for residential properties. This target was set in November and I am not aware of anyone from the City thinking it should change.

So then, what is going on here? Why are people’s taxes apparently going up?

People I’m talking to are seeing their assessments and/or monthly Tax Installment Payment Plan (TIPP) payments going up. However, these going up does not necessarily mean that someone will be paying more in 2019 than they did in 2018.

Below is some information about why we do taxes the way we do. After that I explain why assessments and TIPP payments don’t tell the full story.

Note: any mistakes or opinions expressed here are my own, not those of Council or City staff.

HOW BUDGETS, ASSESSMENTS, AND TAX BILLS ARE MADE

How the City undertakes its core operations, including setting budgets and taxes, is governed by the Municipal Government Act (MGA). This is a provincial piece of legislation. We need to conform to it but have no control over it.

The MGA requires us to set a budget prior to a new calendar year. This needs to lay out all of our projected expenses. Council passed the 2019 budget in December.

The problem with being required to do our budgeting then: the MGA doesn’t allow us to set our tax rate at the same time. Property taxes are based on the assessed value of a property. However, the MGA says that we need to base assessments for 2019 taxes on the condition of properties as of December 31st, 2018.

This meant that the City had to wait until January to finalize assessments. Which is awkward because we had to pass our budget in December. That made it impossible to set a tax rate at the same time as we approved operational and capital plans.

However, when we were talking about budgets we had a good estimate about where assessments would be. That allowed us to project the impact our budget would have on taxes. Our projection then was that, to generate the revenue needed for the 2019 budget as it is currently set, we would be able to charge an average property 4.1% less in 2019 than it was charged in 2018.

Now that December 31st is past, we can start turning that projection into reality. Our staff are finalizing assessments and adding them up to calculate the total tax base of Grande Prairie. Once they have done that, they will figure out what tax rates need to be charged to that tax base in order to raise the money needed to achieve the budget Council approved.

If assessment estimates were off there is a chance that the rates needed to fund all the currently approved spending will not equal the 4.1% decrease currently projected. However, I have had no indications that is the case. And if it is, Council would have the option to direct further cuts to expenses in order to maintain a tax decrease. When it comes time to set rates, I am very committed to opposing any motions that go against Council’s goal of reducing the tax burden in 2019.

I do want to acknowledge that some might object to the order that budgets, assessments, and tax rates are set. I find it challenging myself- I don’t like setting expenses months before revenue sources are solidified. However, I also want to point out that this process is driven by provincial legislation. Every municipality in Alberta is mandated to use it.

I hope this brings some clarity to the City’s tax and budget processes. However, it doesn’t explain why so many apparently see tax increases while I’m saying the average tax bill is projected to go down by 4.1%. So, about assessments and TIPP payments….

“MY ASSESSMENT WENT UP!”

Many people have noted that their assessments went up. Some assume that means their tax bill will go up too. That is not necessarily the case.

Again, the Municipal Government Act (MGA) dictates how we allocate taxes to properties. It says that the bill needs to be based on assessed value. The City generates this value based on the condition of the building as of December 31st and based on actual sales of comparable properties in our community.

Assessments are carried out by City of Grande Prairie employees. However, their processes are governed by the MGA and a number of accompanying provincial regulations. The province also regularly runs City assessments through a statistical comparison to actual sales to make sure they are being done properly.

Now, here is the key part of assessments: assessments get set before a tax rate gets set. In fact, the tax rate is set based on assessments.

Some misunderstand our process to look something like this:

Untitled.png

Some think that their tax bill is based on their assessed value. Therefore if their assessed value goes up, their taxes must go up. But that isn’t the case. Instead, the process looks more like this:

Untitled.png

The City doesn’t assess your property then figure out what it will tax it based on that value. It figures out the total it needs to tax your property first. Then an assessment is made and a rate that will achieve the needed taxes is set.

What this means: increased assessments don’t lead to more taxes being taken. The same total taxes will be taken no matter what happens to assessments. Instead, increased assessments lead to lower rates to achieve the budget already set by Council.

Knowing what an assessed value is tells you nothing about your tax bill. You can only know your tax bill when you also have a tax rate. And that rate will not be set until the spring. However, we already know what the total amount of taxes needed for 2019. We will use the assessed values to set a rate which accomplishes the budget already in place. And those rates are projected to deliver a 4.1% decrease to the average bill.

Just because your assessment went up doesn’t mean your taxes are going up. But I do have a big “however” for you.

The MGA requires that taxes be based on assessed values. But properties across the City change at different rates. Some values will go up a little, some down a little, Some will go up a lot, some down a lot. And some will stay the same. There is no way to apply the same assessment value change to all properties while still complying with MGA requirements.

Unfortunately, this means that people will have different changes to their tax bills.

An Important Note: On average we are projecting a 4.1% decrease. But you will only see this if your property value changed at the exact average rate of properties across Grande Prairie. If your value went up by more than the average, you likely won’t achieve that 4.1% savings. On the other hand, if your value didn’t go up as much as the average, you will save more than 4.1%.

“MY MONTHLY PAYMENT WENT UP”

My explanation regarding how assessments going up does not mean taxes are going up may sound all right. That is, until you see someone holding up a bill and saying “but my my taxes went up in January!”

If this is you: I totally understand how frustrating it must be to be expecting a decrease and instead seeing an bigger bill. I get why you might be mad! But I hope this helps…

The Municipal Government Act (MGA) assumes that people will pay their taxes once a year after assessments are done and Council has set a tax rate. This is an orderly way to pay because you know exactly what you owe when you write a cheque. However, some people would rather make monthly payments.

For their convenience, we have a Tax Installment Payment Plan (TIPP). This allows people to contribute to their tax bill monthly. It helps property owners with their cash flow. However, it has one fundamental flaw that is unavoidable under the MGA: at the beginning of January we need to set payments. But we don’t yet know what your property’s assessed value or tax rates are. We can only give you our best estimate.

TIPP payments from January - May are based on estimates City staff made at the end of last year. They added up your projected 2019 tax bill, divided it by twelve, then let you know what you owe. However, this number could change if your assessment or the tax rate Council sets are different than the estimates.

In May, the City will have a final calculation of your tax bill. At that time TIPP payments for the rest of the year will be reset so that by the end of 2019 you will have paid the exact right amount.

A challenge with this system: last year a lot of TIPP estimates were off. When it set the 2018 budget Council projected a 2% average increase. However, more savings than expected were found between when the budget was approved and rates were set. So Council decided to only increase residential taxes by 0.8% on average. This meant that from January - May, many people overpaid through the TIPP program. To make up for this, their June - December payments were not simply 1/12 of their total tax bill. They were lower than that to make up for the extra they paid earlier in the year.

The challenge with this is that some people will see their monthly bill go up in January. Even if your total taxes in 2019 end up being the same as your total taxes in 2018, your January 2019 bill might be bigger than your December 2018 bill if you overpaid at the beginning of 2018. And even if your total taxes go down by 4.1% in 2019 over 2018, you might not see a 4.1% drop when comparing your January to December bill.

Comparing your last two TIPP bills does not tell you what is happening to your 2019 taxes. The December bill might not be an accurate reflection of your total taxes in 2018. And your January bill might not be an accurate reflection of your 2019 taxes (after tall, they haven’t actually been set by Council yet).

I know this can be frustrating. However, the process laid out by the MGA was designed for taxes to be paid once per year. We want to offer people the convenience of monthly payments, but the MGA was not designed for that. So our TIPP program is a bit more complicated than it would ideally be.

AN IMPORTANT NOTE: I use “might” a lot above. Everyone’s situation and property is different and I know nothing about your particular one. Here I am pointing out that your TIPP bill may not tell the whole story of your 2019 taxes. But for some people it might end up being an accurate reflection.

PROVINCIAL TAXES

When I am discussing a projected decrease, I am only discussing the municipal portion of your tax bill. I am committed to advocating for the City to decrease the burden it imposes.

However, your bill doesn’t just include City taxes. The City is also required to collect education taxes on behalf of the province. And the province has not yet announced what their tax rate will be. There is a chance that the province will decide to increase its rate. If that is the case, you may not see a 4.1% decrease on your total bill even if the City fulfills its promise to lower its taxes by that amount.

I’ve talked to both our MLAs and a few Cabinet Ministers about our taxes. I’ve expressed that lowering taxes is a priority in our community, Council is working hard to do that, and we would hate to see them work against us by raising the provincial portion of property taxes. If you have an opportunity to talk to elected provincial officials I’d encourage you to share the same thoughts.

I hope this post has provided some clarity for you. I’m happy to spend more time explaining if that is helpful. More importantly: I am happy to spend even more time listening to any concerns you might still have.

You can comment below, call me at 780-402-4166, email me at dbressey@cityofgp.com, or find me in the GP Round Table Group on Facebook.

I know that some reading this will still be skeptical that we will deliver a tax decrease. I totally understand that. Seeing is believing, and you haven’t actually seen a tax bill yet. But I hope that when you do receive your bill in the spring you are satisfied with our efforts to spend and target your money better. While you are waiting for that bill, I’d encourage you to checkout some of the service enhancements being made in 2019.

Finally I want to let you know about my next COFFEE WITH DYLAN event. It will be on Tuesday, February 12th at 7:00pm in the Ernie Radbourne Pavilion. This is an informal time open to anyone to ask questions and share thoughts they have about our community. We’ll spend about 45 minutes talking about affordable, social, and supportive housing. After that I’ll stick around to talk about anything the group wants to discuss. I hope you can come.

Thanks for reading this far. I know taxes and assessments aren’t fun topics. But they are important.

-Dylan

Guest UsertaxesComment