In 2014 the City of Calgary set out a four year budget plan. As part of this budget plan, Calgarians were expecting to see a 4.7% increase to their property taxes for 2016.
On Monday City Council will deliberate on a reduction to that increase for 2016. The recommendation that Council will be facing will suggest that the increase can be reduced by upwards of 30%. The new proposed increase for Calgarians would be 3.5%.
There are a few key factors that have allowed for City Council to consider this proposal:
- Current economic realities in Calgary have put many Calgarians in a very vulnerable position. By reducing the tax rate increase, we can provide Calgarians with a bit of relief during this period of economic uncertainty.
- The City of Calgary is able to draw on existing savings to partially fund some important infrastructure projects. The City of Calgary will also be able to find savings and efficiencies within City departments.
Lowering the increase to 3.5% will save home owners roughly $4.90 per month on their property taxes. A 1.2% reduction in taxes is a revenue reduction of $18 million for the City of Calgary. This $18 million gap will need to be covered by identifying savings and efficiencies within City departments.
A reduction in the tax increase is a positive thing for Calgarians, especially during these difficult economic times. That being said, the City of Calgary still has an expectation to provide important services and programs to Calgarians. Despite the early stages of an economic downturn, Calgary still saw more than 35,000 people move to the city over the last year. According to The Economist Calgary ranks as the 5th most livable city in the world. Global recognition will still attract thousands of people from around the world to move to this wonderful city.
Economic difficulties aside, Alberta is still seeing a growing job market. According to Statistics Canada the province gained 4,700 jobs from July to August of this year and has gained 41,000 since August of last year. This steady growth requires that more resources are dedicated to the services and programs that the City offers in order to keep up.
Some have suggested that the City of Calgary should only increase the property tax rate at the level of inflation. While this certainly makes sense, it is important that the appropriate form of inflation is considered. The City of Calgary measures inflation through Municipal Price Index (MPI) where the inflation for consumer/household spending is done through the Consumer Price Index (CPI). You can see how the two forms of inflation are calculated below:
In more simple terms, there is a drastic difference between what a household purchases and what your municipal government purchases. The City of Calgary focuses on expenditures like pre-negotiated salaries with unions, materials for construction projects and maintenance of equipment. Below is a chart that shows the various inflation rates as well as population growth rates in Calgary:
When we consider the two different forms of inflation, it would be difficult, if not impossible, for the City of Calgary to only apply CPI as the measurement for property tax increases. Those that are advocating that the City of Calgary only increase property taxes by the inflation rate should must consult the appropriate inflation index. By only focusing on CPI we ignore the dramatic differences between government spending and household spending.
Consider the chart below that shows the difference between the City of Calgary revenues vs the City of Calgary expenditures:
A large percentage of the City of Calgary’s expenditures fall under the category of salaries, wages and benefits. Wages and benefits are often negotiated through collective bargaining and include a percentage increase over a number of years. This percentage is typically above the projected CPI% increase.
There is certainly a debate that could be taken forward on the value for money on things like salaries, wages and benefits. With that being said, the current agreement is the reality that we are living with for the next number of years. If the City of Calgary were to consider lowering property taxes below the proposed 3.5% increase it would need to be done at the expense of critical services and programs.
I am a big believer in maximizing value for taxpayer dollars. Tax payers are investors, and Council has an obligation to maximize the value of their investment. I am encouraged that Administration has made a recommendation that we can explore lowering our tax increase for 2016 by 1.3%. I will continue to push the City of Calgary to identify ways to save tax payers more on their property taxes, but NOT at the expense of critical services and programs that Calgarians depend on. A balanced approach that keeps taxes low but still offers the critical programs and services that Calgarians need is the direction that should be taken by the City of Calgary.