Screen cap of CFO Jane Fraser's final slide, recommending the 1.9% property tax increase.
Budget Committee

Property tax rate going up by 1.9%, maybe

Won’t someone think of the economy!?
 | January 13, 2021

Budget Committee, Jan. 13, 2021

Meeting recap (the important stuff):

Budget season is off to a flying start with council approving a motion to set the property tax rate at 1.9 per cent. Before you panic that taxes are going up, this is nowhere close to the final step in the process. 

The vote today was to give city staff a starting point so the city’s various business units (Libraries, Halifax Transit) have an idea of how much funding they have to work with. Over the next couple of weeks, they’ll present to councillors what they can do and what they have to cut based on the proposed tax rate. At that point, council will decide if they want to accept the cuts, provide or cut more services, and those discussions will determine the final rate. For households assessed at $250,000, this would be an increase of $38.

The debate was lively, with councillors discussing the merits of lowering commercial tax rates to help small businesses, initially proposed by Councillor Sean Cleary. Most of the other councillors pointed out that this cut would hurt residential taxes. And since small business owners live in Halifax, any savings they might get from their commercial taxes they’d pay back in property taxes. Councillor Pam Lovelace pointed out that businesses (like Committee Trawler), with no brick and mortar shop, wouldn’t benefit from a tax cut like this. Councillor Sam Austin pointed out that large corporate businesses like Superstore would reap this benefit and since Galen Weston doesn’t live in Halifax, he wouldn’t have to contribute to the increased property taxes. 

There was also a concern that lowering the commercial tax rate wouldn’t actually help small business owners with brick and mortar stores because they usually rent or lease. Deputy Mayor Outhit said when he was a commercial renter his landlord would change the rent based on expenses. Adjusting common area expenses is something that landlords should do year to year, but isn’t required, and doesn’t usually have a significant impact on rent. 

Councillor Paul Russell brought up that he was uncomfortable with the city having debt. Saying businesses take on debt to get into business and then work to pay it off. Governments, he says, tend to stay in debt forever. Which is wild (author bias alert) because it’s almost like businesses exist to make money whereas governments exist to serve people! The city’s Chief Financial Officer later in the meeting explained the difference between good borrowing and bad borrowing, noting that going into debt properly for capital projects is good for the city.  

And finally, late in the meeting Councillor Becky Kent rallied to once again bring up the priorities of the city. She wondered why tourism would be a priority if the city’s own Chief Administrative Officer was still hesitant to eat in restaurants downtown. She hammered home the point that street safety is a huge priority and there’s a lot of flexibility this year to actually make it happen. 

The motion passed unanimously, with Councillor Patty Cuttell and Deputy Mayor Outhit absent from the vote.  

Who said what (paraphrased): 

Russell: No one signed up to speak, so I’ll be handing this off to Jane Fraser. 

Jane Fraser: This is a very detailed presentation, this is to help new councillors, and also it’s more complicated this year due to COVID. This framework is a detailed look at the plan for the HRM’s money, and we’re here looking for guidance. Here are our economic assumptions for this budget. We don’t see the HRM recovering from COVID until 2024-2025. Strong population growth and federal income supports mean the HRM is on a positive track. Disposable income is responsible for 73 per cent of GDP growth. Inflation has fallen with COVID, we are cautiously optimistic for population growth in the HRM. We expected house sales to fall with COVID, but it turns out people are seeing real estate as a safe investment, so it’s red hot. We expect the housing market to correct in 12-16 months. We expect commercial real estate growth to be slow. There’s a risk to pension funds. Our assumptions are conservative. 

Fraser: Our fiscal outlook, this is for planning purposes only. We’re asking for a 1.9 per cent tax increase today. Our mandatory provincial contribution eats into the amount we can earn by raising taxes since it’s going up year over year. Onto the operating budget, compensation is the largest expenditure, as 52 per cent ($432.3 million) of our budget. Property tax is the biggest revenue stream 69.9 per cent of our revenue ($578.1 million). The RCMP will cost the city an additional $1.5 million this year. The living wage policy is costing the city $125,000, so not a big impact. Pensions are costing us a lot of money. Taxes will be going up by 1.9 per cent for residential properties, this will increase people’s taxes by $38 plus the mandatory provincial contribution. If your house is assessed at $250,000 your taxes will go up by $38. For businesses, the average real increase in taxes would be $817. 

Russell: On to speakers!

Cleary: (Reads the motion for agenda item 5 as written) At the high level I’m supportive of all of this. Normally there’s a graph of residential vs commercial property taxes, it’s about a 40/60 split normally. Usually, it’s going up for residential because they’re the ones who are getting the services. The small businesses are struggling with taxes, but the big boxes are fine. What is the proportion currently and what’s the projection? What I’m leading up to is, what would it look like if we flattened commercial taxes? 

Fraser: If we keep commercial where it is and increased residential, the average residential increase would go from $38 to $66. 

Bruce Fisher: The share of commercial taxes was 38 per cent, we don’t have this year’s change yet. 

Cleary: I’m planting the seed here, in a pandemic and with small businesses hurting, can we just flatten small business taxes? If we were to not increase commercial taxes then we’d be helping 99 per cent of our businesses since 99 per cent of businesses in the HRM are small or medium businesses. We can’t give money to private businesses in our charter, but this could be a way to take less from them. 

Blackburn: Are we expecting any more federal or provincial money? 95 per cent of taxes have been paid, is that normal for non-COVID times? Do we have an infographic that deconstructs the tax bill? (City budget on the ‘Gram?

Fraser: Nothing on more money from other governments. In non-COVID times normally property tax payment is 97 per cent so that’s on par. Tax bills have a breakdown, but it’s boring. I like the infographic idea. 

Lovelace: Can the public have access to the Canmac report? 

Fraser: Yes, I’d recommend the executive summary as opposed to the full detailed breakdown because of some proprietary information. 

Lovelace: Everyone’s aware of the housing crisis, but one thing I didn’t see was the shifting demographics because that’ll have a huge impact. With the shifting demographics and shifting needs of housing, and the uncertainty of the future, I’m not super comfortable raising taxes on people. We’re not budgeting enough to take care of our buildings. We’re talking about houses and businesses, what I’m missing in all of this is, where are the people?  

Fraser: We gather demographic information from StatsCan and Canmac. There are a lot of moving parts to try and guess, if the growth is denser then service costs aren’t as high. It’s hard for us to think in terms of demographics because our tax revenue comes from property tax. 

Fisher: The demographic shifts are critical and affect the settlement patterns, and you can see that in the tax forecast. You can see that in the growth of rentals and condos. There’s also a shift in demands on services, so we are trying to chase and understand the demographics.

Mancini: Downtown is a ghost town, and people are expecting this to continue due to the prominence of work from home. Prior to COVID, we didn’t have enough space, and now we have too much space. Are there conversations or plans to address this? 

Dubé: There have been higher level conversations with business associations and internally. Right now we’re telling people to work from home, and we’re reviewing it almost weekly. We do expect businesses’ footprints downtown to shrink. That’s going to make building owners re-evaluate their properties and they may have to repurpose buildings, but that would take one or two years. So, yes, we’re having conversations. 

Mancini: Has each business unit been given a (cash) envelope to work with?   

Fraser: Yes. 

Mancini: How we spend the money is up to us, but everything has a tradeoff. Are we using the same plan as last year? 

Fraser: Yes, each business unit will give presentations and you’ll vote on it. We’ll make sure the process is clear. 

Dubé: When business units come in and present they’ll tell you what’s in and what’s out and you can change it when they make their presentations. But we don’t normally reduce service because people tend to like services. 

Savage: We’ve held the line of taxes better than other cities, except Quebec City. That said, we set our own path. We’re planning on spending $872 million? 

Fraser: Yes. 

Savage: Down from last year’s pre-COVID budget?

Fraser: Yes. 

Savage: Of the $46 million we got from the fed, $15 million went into the current budget 2021, and $31 million is going into the budget we’re looking at today? 

Fraser: Yes.

Savage: It’s going to reduce costs for things like transit, where ridership is down? 

Fraser: Yes, that’s how we have to spend it. 

Savage: We haven’t seen the dividend of investment in commercial growth, but the surpluses are coming from the deed transfer tax? 

Fraser: Yes. 

Savage: The support for hospitality from the province has been helpful. On the debt, we’ve managed it very well. We should use the debt for big projects, like transit. I support something like what Cleary is talking about. When we amalgamated, we used to get our tax money 50/50 commercial/residential. If we want to impact the economy making business operating easier should be important. We need to hold the line on taxes. I’d rather not be at 1.9 per cent taxes, but I don’t want to go up. 

Outhit: The 95 per cent of taxes being paid, can you give us a breakdown? Commercial vs residential? Sectors? The loan from the province, we haven’t used it, but we’ve earmarked money to pay it back, am I confusing our debts? We can’t gradually increase commercial taxes, but this report says ‘small property’ can we target commercial taxes at the size of the building? I am concerned that we’re spending a lot on state of good repair, but things in my district are in good shape, but we don’t have enough parks for the people who are here. We have to do a better job of understanding the needs of growth. I’m intrigued by Cleary’s comments, roughly two thirds of our businesses are small, not 95-98 per cent. I want to help small businesses, but I do not want to help the big companies. The 1.9 per cent tax increase is still flexible.

Fraser: The breakdown of taxes paid; residential there’s $22.4 million outstanding, 95 per cent, there’s $7.4 million outstanding for commercial. Hotels paid 98 per cent of their bill. We’re budgeting like we’ve taken the loan out, even though we haven’t yet. If we don’t have to borrow the money, my recommendation would be to not and free up that $20 million. The ‘small property’ line is poorly titled, that’s not what it is. 

*Technical difficulties, CFO kicked out of the virtual meeting*

Fraser: I’m back. 

Hendsbee: You froze up during tax structure, can we change our tax structure? We want a service-based tax system, when can we expect a change in the tax structure? The capital funds, there are a lot of community groups that can’t fundraise right now, will the money be there to help them? 

Fraser: Service-based tax isn’t changing the tax structure, it’s changing the spending. We don’t have the legislative authority, and it’s not really good tax policy. We can’t treat commercial businesses differently, the tax policy that needs to be looked at in my opinion is what’s the appropriate split? We could change the tax structure, but it’d be a big initiative. Capital funds can be there if council wants it. 

Mason: The presentation is $20 million a slide! I don’t support raising residential taxes to give businesses a break. Unemployment is up, thousands of people don’t have work, I don’t think it’ll do what we want it to do. It’s a small and conservative budget, which is appropriate given COVID. I see this budget as an opportunity to see how COVID shakes out, and if it works out we’ll have more money in our reserves to do things like the Integrated Mobility Plan. We may want to do a debt chart of debt per capita because we have more people now, we’re doing great. When Detroit when bankrupt, Halifax would have needed to borrow $8 billion to hit the same debt per capita. We’re growing, we need to build roads, transit and rec centres. What is the plan to bring to council for commercial tax rates? 

Fraser: On the commercial tax rate, the report is pretty much written, but we were waiting until March, but we can bring it now. The debt vs debt per capita, it’s about debt affordability. 

Austin: I wasn’t looking forward to the cuts that would be necessary with 1.9 per cent, but I’m more optimistic now after reading this report. I doubt we’ll see 1.9 by the end of this. On Cleary’s idea about businesses, I don’t think I can support this, shifting the burden onto residents. The province worked hard to provide business with tax relief, but then walked away from it, and gave other relief. We can’t target relief. If 98 per cent of our businesses are small it doesn’t really matter because they don’t pay 98 per cent of our taxes. Reducing small business taxes means those owners pay the higher residential taxes. Mr. Weston (owner of Superstore) would get the commercial tax cut, but wouldn’t have to pay property taxes. Where are we on pension reform? 

Fraser: Pension Committee is having conversations. 

Dubé: There are conversations ongoing, and we’re going to bring a report to council within a month to six weeks. 

Austin: Regarding debt — 

Russell: You’re over time, break for lunch? 

*Breaking for lunch*

Russell: And we’re back. 

Purdy: I’m coming at this like a non-politician because this is my first budget. About the commercial tax rate, do we have the power to change the tax rate? 

Fraser: Council has power over the rate.

Purdy: Have we ever considered changing the commercial tax to be more like income tax, i.e. progressive? I’m thinking mainly of restaurants, who are being hit hard. It seems wrong to increase tax rates when the restaurants have had to operate at 50 per cent capacity. It also doesn’t seem right that we’re asking residential tax rates to go up when we’re in an affordable housing crisis. It seems like council has done a lot of big thinking forward planning, but we have an acute problem we need to fix with COVID. We can’t cut services, I know my residents will be upset with weekly green bin collection not coming back (welcome to rural organic collection life, rest of HRM).

Fraser: The acute problem analogy is a good one. We have control over the rate of commercial taxation, but we don’t have a lot of control over what the base is, i.e. what the tax rate is based on. Depending on the type of building they do look at revenue. There are things we can do, but it’s mostly between urban, suburban and rural, and we can’t give business a benefit. The rate is recommended based on what council wants to do. 

Fisher: We have extra power to level commercial taxes on frontage, size of the building and where it is in the city. There are some things we can’t do, like differentiating between Walmart and restaurant, and we can’t tax lessees at different rates, we have to tax the building owner. There are no silver bullets here, even though we have more levers we can pull. 

Dubé: The advance capital budget from yesterday, you can put less money in it, but we don’t recommend it because you’ll have to spend less or take on more debt. It’s a separate line item even if it’s part of the same budget. But there is some flexibility between capital and operating (capital was yesterday’s meeting, operations is today’s meeting, it’s a lot of meetings, welcome to budget season!). We haven’t settled on short-term funding, we have the $100 million loan available for cash flow, to reduce the taxes or funding other things.  

Cuttell: Over the last few years we’ve had a lot of growth and made aspirational projects based on that growth. In the growth, we didn’t take care of the basics. All of that growth means increased demand. We need to focus on the basic things for the people who live here today and have been living here. With the 8 per cent growth in apartment assessments, the affordable housing issue is happening mostly in apartments. Can someone comment on how the growth in apartment assessment will impact affordable housing? The commercial tax reform originated in massive growth in some parts of the city. In 2016, a small business on Agricola saw a $40-60 thousand increase in assessment and Costco got a $1000 decrease, that’s where the assistance to small business comes from, but I think this is a different scenario. What different options exist? How would we define small businesses? CRA defines it as less than $350,000/year. 

Fraser: Growth in apartments is based on development, taxed at the residential rate. Apartment buildings aren’t capped, as the market changes they’re going up. As for its impact on rent, taxes are a small part, but it’s important. We have to work with non-profits on this because we don‘t have the same levers as the province. Most of the apartments being built are ‘condo quality’, so very well built. One of the challenges is the definition of small businesses, there will always be winners and losers as soon as you define it. The locations small businesses are in, they’re renting or leasing, and they aren’t paying them. How do we ensure their landlords are passing along the benefit to the small business? We can’t really. 

Fisher: We don’t have the ability to levee taxes based on quality of the apartment, we have to do the property. 

Deagle-Gammon: I’m comforted by the fact that the 1.9 per cent increase is not set in stone, thanks for the clarification around that. I’m concerned that $6 million is being cut from business units and we talked yesterday about the amount of investment we need. Is there a way to see what has been gained or lost since the last budget? How are the reserves funded, and what are the criteria to use them? I would like to support small business, but not at the expense of residents. I’d like to better understand our jurisdictional role. If we don’t spend the loan, that’s a savings of $21 million? 

Fraser: For context on the business unit budgets, they also aren’t set in stone, they’ll explain how they’re spending the money when they present over the next weeks. And they’ll explain what it’ll do to their services. Every reserve has a business case (aka what it can be used for) it’s in the back of the budget book, some are legislated so we have no flexibility; parks, closing dumps, the four pads. As for jurisdiction, it comes down to legislation. (Cities are creatures of the province. If the city can’t do something you think it should, write your MLA, not your councillor)

Morse: Can you highlight what you can do with the new tax IT system? Can there be targeted incentives that would support our social goals? Affordable rent? Energy efficiency? 

Fraser: Our new tax system will allow (tax system as in software, not taxation structure) means we can run the city on a real software system instead of Excel. It’ll be very easy to do analysis (it’s like municipal advanced stats if you’re a sports fan). It’ll allow us to better track procurement and do inventory management. Just generally having more information to make more detailed decisions and analysis. If you ask what’s the commercial/residential split, you can just click on it. I’m really passionate about this (we are too!) Our ability to target incentives is pretty narrow, we can’t do much. It’s limited to what we have power over. 

Kent: The 1.9 increase is less than what was projected last year? The tax rate for this year was supposed to be higher? 

Savage: I’m out of order, but our total expenditures planned for this year are less than last year.

Fraser: Correct. 

Kent: I think Cleary’s on the right track, sort of, I don’t think we should tax property owners to give benefits to large businesses. I don’t want to see small businesses heavily burdened, but I don’t want to change the tax rate, especially if it’s helping those who don’t need it. Mancini, thanks for clarifying this process for us. Today’s motion, wherever we land, is a motion in Budget Committee and then to be ratified in council? Yeah? Okay. So can we change it when it comes to council? Yes? Okay. I don’t want to be making these decisions without all the detail that we’re going to be getting in the next couple of weeks. I was uncomfortable with setting a tax rate today. I think this year is the year we need to make a difference in road safety. We don’t get to decide how money is spent in the police budget, we get to influence, but not decide. I just want to make sure we have the right priorities. Why is tourism a priority this year? We’re asking people to stay home! People don’t want to travel and we don’t know how long this will last, so I think people will tolerate spending less on tourism this year. I think this year we can shift things around, and I think this year we can do it. I don’t think people can accept a tax increase. 

Russell: That’s time.

Kent: That goes fast.

Fraser: This is just the starting point of the process. The business units will brief you on what they have to do to meet their target, the $6 million cut. And if you’re not comfortable with the cuts or decisions, you make a motion, and then when we come back at the end of the process there’s a huge debate about cuts and funding and the impact on the tax rate. And then after that debate, we give recommendations on how to make your will a reality. That end piece happens in March. 

Stoddard: Do we table this meeting until the next meeting or do we make a decision today? I’m not sure about increasing personal taxes to help small businesses. Has anyone taken into account the impact of the other government relief on small businesses? 

Russell: I don’t think we can defer or delay the decision to start the budget, but after today we can move a lot around. 

Fraser: We don’t have a mechanism to gauge the impact of other relief, but it makes our city and economy more vibrant. 

Russell: One of the things we’ve talked about a bunch is splitting commercial rates, so I’m giving notice of motion that I’m going to be asking the province for this power. I’m in favour of us, government, not having debt. Debt is used when a business wants to get into business, but then they get out of debt. I’ve never seen a government out of debt (bias of author alert: it’s almost like businesses exist to make money and governments exist to serve people). Debt continues to grow. Have the reserves met their criteria to be spent? One of the recommendations in the presentation is the establishment of a new tax to cover the provincial contributions? I’m happy to see that it’s cheaper for office space in Halifax than in Sydney and Moncton. 

Fraser: On the reserves, the way the money can move back and forth is in the Audit and Finance Committee unless it’s a legislated, then we have to use it for that. The reserve review in June is when we’re planning to look at this. The mandatory provincial contributions have been ongoing for as long as I’ve been here, adding this is a matter of transparency. It’s just showing that we need $827 million to run HRM, and we have to also raise $170 million for the province. 

Russell: The rate for the mandatory provincial contributions has gone down this year. 

Outhit: It’s interesting to hear the new councillors bring up things that we’ve been talking about for years. The intention was to always make sure the small business relief stays within the commercial tax system. We don’t want to shift the burden to property owners, we want it to go to the big box. When we are worried about commercial tax cuts not trickling down to the lessees, I can assure you it’s not because of my personal experience. When I was a commercial renter when taxes went up my rent went up, when I used less power my rent went down (this is anecdotal and not indicative of everyone’s experience). We’re going to need to be leaders in defining small business since no one else is willing to do it. When did we get permission from the province to change our commercial taxes? What do they do in Toronto with their commercial taxes? 

Fisher: The problem isn’t defining small business, it’s making sure the taxation benefit goes to the small businesses. Because we have to tax the landowner. What they do in Toronto isn’t much different than what we’re doing with stepped rates. We’ve had the power to change commercial taxes for a couple of years. 

Mancini: Unlike other governments, we can’t cut a cheque to our citizens. The way we grow is by making sure we invest in capital projects. We may need to sacrifice projects in our districts to get a larger capital project or increased police funding. 

Lovelace: The tax rate comparison across the country, we have municipalities that are raising taxes. Calgary isn’t a good example to use, they have in-house social workers and community services we could only dream of at this point. I think it’s important to think about what services we are providing and maybe get creative with our solution. We’re talking about commercial businesses and small businesses, and those are not the same thing. We’ve welcomed Uber and we’re not taxing them. We have businesses that have gotten rid of their commercial space and are working from home (in our PJs no less, it’s great!). The elephant in the room is that we’re not taxing small businesses, we’re taxing businesses with brick and mortar stores. I don’t think decreasing the commercial tax rate will help small businesses if they also own homes. 

Austin: Debt, you’re coming back with an overall view of debt in June? 

Fraser: Yes, for the long term stuff. 

Austin: Rapid transit? HalifACT? 

Fraser: Yes, we don’t have quite enough money to do the stuff we’re currently doing and the new big project stuff. 

Austin: When that comes back in June, would future tax rate changes be part of that mix? 

Fraser: Not really, since they’re a couple of years away. *Technical difficulties* The idea is to build up *technical difficulties* — 

Fisher: The idea is to have the reserves build up funds, it’s saving for future spending, so we can pay off debt without raising taxes. 

Savage: Councillor Lovelace mentioned Calgary does things that we don’t do, but we do things much better than they do, like snow clearing, if we did it to their standards we could save millions (respectfully disagree)! Don’t get hung up too much on the tax rate, it’ll change a lot. Biden said don’t tell me what you value, show me your budget and I’ll tell you what you value. We all have different points of view, every single person will see something they want to add or adjust in the budget over the next couple of months. This council is not a family, but it is a team. We will have different points of view and we won’t all get what we want, but if we all work together we’ll get a budget that reflects the people we represent. 

Deagle-Gammon: I have 15 pages of notes! One of the things that has me a little worried is the $31 million from the feds allows for a balanced budget, but the budget gap is growing in future years without it. When do we see the changes that those numbers indicate is coming? 

Fraser: They’re planning numbers, it’s more for context, but they are assumptions. We’ll continue to refine these. They’re big numbers, but they’re manageable. 

Austin: Second half of my debt question, we’re mapping a long-term strategy, philosophically where are we going with routine debt spending? If we’re borrowing money to do routine stuff I don’t think that’s the best reason to take on debt. 

Fraser: Current debt numbers? 

Austin: Yes.

Fraser: It’s in the capital budget, I don’t have specifics, because we haven’t done it yet. But I agree with you, routine capital purchases should not be reasons to take on debt (i.e. if you’re a homeowner, you shouldn’t be borrowing money for minor home repairs, but major renovations that increase the value of the house are generally okay). We also need to match the term of the debt servicing to the life cycle of the asset. If we’re borrowing for something that’ll last 40 years, the debt should be paid by the people who use it in 25 or 30 years. But busses, if those busses last 14 years we shouldn’t borrow over 20 years for them, which we don’t do.

M/S/C – Vote – Aye – Deagle-Gammon, Hendsbee, Kent, Purdy, Austin, Mancini, Mason, Smith, Cleary, Morse, Stoddard, Lovelace, Blackburn, Russell, Savage – Absent – Cuttell, Outhit

*Meeting adjourned*

Present:

Councillor Paul Russell, Chair (District 15)

Mayor Mike Savage

Councillor Kathy Deagle-Gammon (District 1)

Councillor David Hendsbee (District 2)

Councillor Becky Kent (District 3)

Councillor Trish Purdy (District 4)

Councillor Sam Austin (District 5)

Councillor Tony Mancini (District 6)

Councillor Waye Mason (District 7)

Councillor Lindell Smith (District 8)

Councillor Shawn Cleary (District 9)

Councillor Kathryn Morse (District 10)

Councillor Patty Cuttell (District 11)

Councillor Iona Stoddard (District 12)

Councillor Pam Lovelace (District 13)

Councillor Lisa Blackburn (District 14)

Councillor Tim Outhit (District 16)

Absent: 

N/A

Interviews:

N/A – COVID

Previous meeting minutes and current agenda:

Previous meeting

Current agenda


A former Naval Officer turned journalist, Matt Stickland is committed to empowering his community to ensure that everyone has access to the information they need to make their city a better place.

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