Municipal politicians have to be sensitive to the impact property taxes have on their electorate, particularly during a recession.
The property tax is a wealth tax.
Unlike the personal income tax paid to the provincial and federal governments, the property taxes paid to municipalities do not rise or fall as personal income rises or falls.
Rising property taxes are an issue for individuals on fixed incomes and those that have experienced a decrease in income due to the loss of a job or a business or reduced hours of work.
A curious phenomena has arisen during the current municipal election campaign. The annual property tax and utility charge survey produced by the City of Edmonton shows St. Albert had the highest municipal property taxes in the Alberta Capital Region in 2009.
A number of candidates have concluded high taxes result in high costs being imposed on the owners of residential property within the city. A number of policies have been proposed for curbing or cutting municipal spending.
Interestingly enough, the Edmonton survey actually shows homeowners of comparable properties in high tax St. Albert have lower homeownership costs than their Edmonton counterparts.
The following points should be noted:
• Significant differences in the market value of comparable residential properties located in different municipal jurisdictions will result in significant differences in the mortgage payments made by the purchasers of the properties.
• Differences in mortgage payments must be combined with differences in property taxes in order to determine the difference in the net costs of home ownership in different municipalities.
• The City of Edmonton survey did not set out the difference that exists in the market value of the three-bedroom bungalows it used in making intermunicipal tax comparisons among Alberta Capital Region municipalities. Only the property tax and utility charge differences were shown.
• The table below shows how the value of the standard three-bedroom bungalows used in the Edmonton survey is derived.
Edmonton St. Albert
Municipal Taxes $1,419 $2,152
Residential Mill Rate 3.9587 6.7882
Assessment Value $358,451 $317,021
• The St. Albert bungalow is valued at $317,120 versus $358,451 in Edmonton, a difference of $41,430.
• The difference in property taxes amounts to $733 per annum in favour of Edmonton.
• A variety of different assumptions can be made, however, if a 25-year amortization period is chosen and a minimum down payment is assumed, it can be shown after a variety of interest rate options are explored that the lower mortgage payments on the standard St. Albert bungalow off-sets the Edmonton tax advantage by a very large margin.
• The favourable cost position enjoyed by the St. Albert homeowner vis-Ă -vis its Edmonton counterpart is improved once utility charges are introduced into the analysis since St. Albert utility charges are relatively low and Edmonton’s are relatively high (St. Albert’s more limited use of franchise fees is a factor in holding utility costs down).
• The introduction of provincial school taxes to the analysis further widens the cost gap in favour of the St. Albert property owner since the provincial education levy is higher on the Edmonton bungalow.
• The more inclusive the coverage (all the tax components and utility charges plus the mortgage payments), the greater the cost advantage enjoyed by the St. Albert bungalow owner.
• The foregoing discussion has focused on the role property taxes, utility charges and mortgage payments play in affecting homeownership costs. Attention needs to be directed towards a myriad of other factors ranging from intermunicipal differences in the quality and quantity of municipal services, commuting time and travel costs and environmental factors such as air quality and noise levels.
Richard Plain, St. Albert
