Halifax has a “world-class” urban sprawl problem
Afterthought: The taxman doesn’t play fairBy Paul MacKinnon | Nov 3, 2011
Tags: downtown Halifax, urban sprawl
Why do businesses that stay downtown pay larger tax rates that subsidize their competition?
Think of the Chinese restaurant King’s Palace (great egg rolls!) on Quinpool Road. Now picture Costco, in Bayers Lake. Did you know that King’s Palace pays almost five times more per square foot in taxes than Costco? Is that fair? Just keep that in mind and read on.
“Tax reform” is now a dirty phrase at City Hall. It became so through the ultimately nasty residential tax reform process that made its way to HRM Council, which seemed to pit residents in some areas against residents in others. Ultimately, it was defeated and there is little appetite to dredging it back up.
And we don’t need to because commercial taxes could be the salvation of this city. Commercial taxes actually subsidize all services (being several times higher than residential) and contribute just as much as residential ones do to the municipal pot. If you, as a resident, want better roads, community centres, parks or emergency services, commercial tax will pay for half of it.
Now that there seems to be some appetite for investment in signature projects in the downtown (witness HRM’s investments in the library and the convention centre), we don’t seem to also have money for deferred maintenance. Downtown streetscaping projects are on hold.
But look at the cracked sidewalks, outdated amenities and pockmarked asphalt. Downtown needs work. But if there’s no money, how do we pay? HRM’s budget, 80 per cent of which comes from property taxes, is already strapped.
Business groups, given a chance at a sound bite, often cry “lower taxes!” or “cut the fat!” Those are small measures that don’t address the ongoing problem. Cutting only gets you so far. To make a serious dent, HRM would need to cut core services, and no one wants to see that.
So, back to commercial taxes. The tax a business pays is simply a function of the assessment (set by the assessment department) multiplied by the tax rate (set by Council). In the example I gave, King’s Palace pays the same rate as Costco. But assessments vary significantly. Costco is 39 times the size of King’s Palace but only assessed 16 times higher.
Assessment is derived by some combination of business income, land value, market value, development potential and other factors. Outside of the downtown, assessments per square foot are lower, probably due to cheaper land, lower construction costs and lack of alternate development potential.
Not that King’s Palace has a lot of development potential; it’s in a four-storey height zone. But you could get four storeys of high-end condos, I suppose. If you bulldoze Costco, what could you put there other than a slightly bigger Costco? Big-box areas don’t lend themselves well to redevelopment. It’s easier just to build new elsewhere, which is why we’re seeing development in Dartmouth Crossing and Bedford Common.
Unlike many municipalities, Halifax can’t blame our lack of funds on lack of growth or a shrinking population. For decades, Halifax has grown in population and development. So services should have increased or taxes should have decreased, right? But neither happened. We’ve grown in all of the wrong places.
In our system, the downtown (and traditional town centres and main streets) yields the highest taxes. They’re also the cheapest areas to service because of density and existing infrastructure. (If you replace King’s Palace with a four-storey condo building, you wouldn’t need to add a dime of new services. Transit, snowplowing, fire, police, schools are all there).
But we have had several decades where virtually all of the growth has happened outside the downtown, moving where taxes are lower and new services are needed. A lot of this shift has accommodated multinational businesses rather than local entrepreneurs. (But that’s a whole other story.) We, as a city, direct our growth to where we’re lucky if the taxes we bring in exceed the additional servicing costs. The fact that we’re running out of money despite steady growth testifies to the folly of that strategy.
We can’t do anything about the past. We have little choice but to service what we’ve already built. But the way we’ve gone is not sustainable economically or environmentally. You can’t claim to be a world-class city if you don’t have a vibrant and viable downtown.
Our best hope is to drive more development into the downtown. The market is not there, so Halifax must once again reset the market (as we’ve done for decades by subsidizing sprawl). Enticing developers downtown can do this, rather than encouraging them to build in areas that cost us more to service than they provide in tax revenue. Last year, an Altus Group study that the Downtown Halifax Business Commission co-commissioned, estimated that if the development that’s already planned for downtown just got going, it would mean an additional $30 million to $40 million annually in municipal taxes.
How do we get it going? How about a temporary tax break for downtown developers? How about charging developers the full costs of the additional services HRM needs to provide in new areas? How about a preferential downtown tax rate to compensate for the difference in assessments?
Whether or not you care about a vibrant downtown, everyone should care about the quality of life and the municipal services they enjoy, wherever they live. The quality of life you have now simply cannot be maintained with the current commercial tax system. Either you pay more, or Costco does.