The “80/20” debate has been an ongoing challenge in St. Albert since it was first adopted in the city’s Economic Development Master Plan 2004-2024 that was approved by council in July 2004.
At the time, the St. Albert economic development advisory committee (SAEDAC) and city staff were challenged to come up with a long-term economic development strategy to chart the future growth of business and industry to keep the community sustainable.
One of the primary motivators for the plan was the city’s high dependence on the residential tax base, and the city needed to look for opportunities to diversify and grow the tax base so residents would not be burdened with the high cost of providing the city’s services. The Economic Development Master Plan had only one goal – to increase the non-residential tax assessment to 20 per cent of the total municipal tax assessment, while doubling the local employment to 20,000 residents working in St. Albert. Your taxes are made up of two components: your assessment, or the market value of your property, and the mill rate set by the city. Typically, commercial and industrial facilities are taxed at a higher rate than residential homes, thus, the more industry and commercial assessment, the lower or more sustainable residential taxes become.
Ever since the plan was adopted, debate has raged on, with the current council still questioning the validity of, or even the ability to ever reach such a lofty goal. When the goal was first developed, members of SAEDAC (including elected officials) and city administration looked around the region to study what other municipalities had for residential and non-residential tax assessment ratios. At the time, the city had a residential/non-residential assessment ratio of 90/10, meaning that only 10 per cent of the city’s assessment came from non-residential properties. In looking for a target to achieve over the 20-year span of the master plan, SAEDAC chose the 80/20 ratio. This was simply based on St. Albert achieving the same assessment ratio as Spruce Grove, which at the time had an assessment ratio of 80/20 and was one of the lowest assessment ratios in the region. St. Albert was simply striving to be on par with the lowest non-residential assessment in the Capital Region, and set a 20-year horizon to reach this goal.
However, achieving the 80/20 assessment split has been difficult, and many people do not even understand what is being contemplated in reaching this goal. As many factors impact the ability to achieve the 80/20 assessment split, let’s take a closer look at this goal.
The 80/20 assessment goal was based on improving St. Albert’s non-residential assessment figures. Again, this is not tax revenues, but the actual value of non-residential buildings located within the city. It is also not as simple as just adding more non-residential buildings, as market value plays an important role in determining assessment.
In 2010, the city had a total of $116.7 million in building permit values. At $34.4 million, non-residential building permits accounted for close to 30 per cent of the total building permit values. However, the residential to non-residential assessment remained constant at 89.1 per cent residential and 10.9 per cent non-residential. At the same time, tax revenues from non-residential properties in St. Albert increased the city coffers by $1.14 million over the amount collected from non-residential properties in 2010.
How could that be? Assessment is different from taxes but they are intricately tied together. Assessment is the market value of all property as of July of the previous year. Even though tax notices come out in the spring, the assessed value is determined on what the property was expected to sell for on July 1 of the previous year. Even if no new buildings were constructed, assessment values will fluctuate based on the current property values. In the boom years, the rapid rise in residential property values meant a corresponding increase in the residential assessments. Non-residential property values did not climb as fast as the residential values, and assessment ratios for non-residential properties continued to spiral downward.
Assessments are used by municipalities to set their tax rates each year. Based on the annual budget, and the amount the city determines it needs each year to operate, they apply a mill rate to the assessment value for the entire city. Therefore, property taxes are calculated in proportion to the value of the real estate you own. The mill rate, multiplied by the total assessment, will equal the city’s budget for revenues from the tax base. In 2012, the city anticipates getting 65 per cent of all its revenues from municipal taxes, with the balance coming from sales and user fees (licenses, development fees, permits and the like) and from government grants (which make up only three per cent of the city’s total operating budget).
Further complicating a clear understanding of how all this works, the city can use different mill rates for different property classes. In St. Albert, residential mill rates for 2011 were set at 9.95 (which include levies for Servus Place, the province’s education requisition and other levies) while non-residential property had a rate of 15.9. In fact, non-residential properties paid approximately a 60 per cent premium on assessed values based on the city tax rates for 2011.
Although the assessment ratio in St. Albert is 89/11 residential to non-residential, actual tax revenues for the city are closer to 82/17, meaning that although non-residential properties make up only 11 per cent of the assessed value, they contribute 17 per cent of the city’s tax revenues.
Even though many believe the goal of 80/20 is not achievable, it is important to continue to try as it was noted in the city’s 2012 annual budget presentation; St. Albert derives only 11 per cent of its property tax assessment from commercial and industrial properties, while the average for cities in Alberta is approximately 28 per cent.
In future articles, we will discuss why the 80/20 goal is so important to the city and how it contributes to the city’s overall sustainability and, more importantly, your annual tax bill.