THE BLOG

Straight Talk on Taxes and the City's Budget

10/03/2013 04:34 EDT | Updated 01/23/2014 06:58 EST

There's been a lot of talk about the City's budget and your property taxes. I want to set the record straight about the budget and your taxes over the last three years, as well as what you get in return.

Bear with me; it can be challenging to explain the City's budget, but I hope by reading through this blog post, you'll be able to gain a clearer understanding of property taxes and how the City uses your money.

Your property tax bill

The typical household will pay $2,592 per year in property taxes. This is about 8% of the taxes you pay; the other 92% goes to the federal and provincial governments. Of this amount, a little over half goes to the City primarily for its operating budget. The balance, a little under half, goes to the Province to fund public education. So, of your total property tax bill, $1,374 goes to the City and $1,218 goes to the Province.

Share of Property Tax Share of Property Tax

calgary budget

Recent property tax increases

Some people have thrown around numbers as high as 30% as your property tax increase. Over the past 3 years, the actual increase in the property taxes that you pay to the City and the Province was 4.4% in 2011, 6% in 2012, and 5.5% in 2013. As you can see, that is nowhere close to being a 30% increase.

The other way to explain changes to property tax over time is to look at how much you actually had to pay out of your pocket. Let's say your home had an assessed value of $400,000. So in 2010 you would have paid $2,348 in property taxes. In 2013, that figure had increased to $2,528. This is a 7.7% increase over a three-year period assuming no increase in the value of your home. Of course, the value of your home is assessed every year, so your actual increase could be higher or lower depending on the market value of your home.

Property taxes rates (per $100,000 of assessed value)

calgary taxes Source: The City of Calgary

How does Calgary compare to other Canadian cities?

Regardless, everyone can agree that Calgary has the lowest property taxes of any major city in Canada. The most recent survey was in 2012, and showed that Calgary placed very well compared to other large cities. See chart below.

Municipal Property Tax for a Representative Single Family House in 2012

calgary municipal taxez

We do have higher utility fees than other cities, however (we'll discuss how that relates to the "sprawl subsidy" in the next weeks).

What your property taxes pay for

The City has an operating budget, which pays for everyday City services such as road maintenance, transit, parks maintenance, recreation services, police, fire, waste and recycling and a multitude of others services. Property taxes, including residential and non-residential, make up just 41% of the City's operating revenue; the rest comes from user fees, business tax, and other sources.

Funding for the Operating Budget, 2012-2014

calgary operating budget

What about the capital budget?

The City's capital budget pays to build capital projects like roads, recreation centres, transit lines and life-cycle maintenance. The City relies almost entirely on grants from the provincial and federal governments to fund the capital budget. Unfortunately, the Province has cut our capital grants, which has left Calgary with a significant shortfall to meet our capital needs. This is why the City has used "tax room".

Is the City being responsible with my tax dollars?

Absolutely! While I would like to see even more efficiencies in our operating budget, we have moved forward significantly. In this last budget cycle, we were able to reduce the operating budget by $108 million without deep cuts to frontline services. We can do better, though.

Some of this stuff is unmanageable - for example, the price of fuel has increased significantly - according to calgarygasprices.com, from an average of $0.92 cents per litre when I was elected in 2010 to a high of $1.318 earlier this summer. That's a 43 per cent increase. Imagine how many tanks (police cars, fire trucks, garbage trucks, busses) the City has to fill each day.

But we can be more efficient yet. That's why we've undertaken a zero-based budgeting across the City, with Roads and Parks as the next departments to undergo the process.

What is this conversation about "tax room" and the famous $52 million?

The City's share of the overall property tax has increased because the City has taken "tax room" left by the Province to fund capital expenditures that used to be funded by the Province.

What is tax room?

Remember that half of your property taxes go to the Province for education. When the City sets its budget in November for the following year, it sets the tax rate to derive the amount of revenue required to meet both its operating needs and the Province's needs for education. The problem is that the City has to guess how much the Province will require for education because the Province does not set its budget until the following spring. In the past 3 years, the Province hasn't taken as much of the tax increase as we thought they would, leaving a revenue surplus, which is called "tax room".

City Council has a policy to use tax room to offset the shortfall in the capital budget caused by lack of funding from the provincial government. When the City does this, the City is increasing its share of the total property tax collected, but it is NOT using that money to increase the operating budget.

Projects funded by tax room include:

2011: $42 million annually created the Community Investment Fund, which is funding the new Central Library, 4 new regional recreation centres in NW and SE Calgary, 3 new library branches and maintenance and upgrades to parks, arenas, swimming pools, and other recreation facilities across the city.

2012: $10.2 million annually was distributed to five areas: $2 million for sidewalks (replaces the 50% resident share for sidewalk replacements), $2 million to improve transit system reliability, $2 million for targeted traffic congestion solutions, $2 million for lifecycle maintenance of City buildings, and $2.2 million for enhancing community facilities like community halls.

2013: $52 million for flood recovery (repairing things like bridges, roadways that the City will not recover from insurance or provincial or federal disaster recovery programs). Future allocation of this annual tax room amount is yet to be decided by Council.

The key point here is that tax room is not used for the operating budget; it is explicitly used only for capital projects and debt reduction - the things the Province normally funds, but has been cutting its funding recently. None of the projects listed above - projects which citizens have told us are important investments - would have occurred if Council had not used the tax room to fund them.

So what's going to happen in the future?

I have long maintained that the property tax is an awful tax. It's regressive, it's unfair, particularly to seniors, and it taxes wealth (the value of your house) instead of income or consumption. The problem is that it's all we've got. Municipalities in Alberta are only allowed to raise revenue through property tax and user fees.

The key is for the City is to negotiate a better revenue sharing deal with the provincial government. Calgary taxpayers send $4 billion more to the provincial government than we get back in services. That number is $10 billion for the federal government. When I go asking the provincial and federal governments for stable and predictable funding, I am not asking for new taxes - I am asking for a rebate on the taxes we already pay. Negotiating a new deal for Calgary will be a key priority for me if I am re-elected this fall.

-- Naheed