Comment
Mind the steaming mound
Across Ontario, farmland prices are rising— up about 16 per cent on average last year and about 65 per cent since 2012. Despite generally lower commodity prices and a killing drought in some regions across the province, farmland values are higher than they were four years ago. In some cases, much higher. Closer to home, the Municipal Property Assessment Corporation (MPAC), the provincial agency charged with tracking property values, reports that farm prices in this region were up 30 per cent in 2012, 16 per cent in 2013 and 14 per cent in 2014.
While this added value improves farm balance sheets—making it easier for these landowners to borrow and more lucrative to sell—farmers complain it means they will be paying a larger share of the municipal tax bill.
A large delegation visited council chambers late in December to press for relief from the impact of rising property taxes resulting from increasing land values. Many around the council table will be eager to help—eager to lop off another share of the tax burden and put it on residents. It’s a mistake. Here’s why.
Farmland is already taxed at a favourable rate compared to other classes of land. In fact, farms are taxed at 25 per cent the rate of residential homes. The rationale is that farmland demands less of County resources than does a similar tract of homes. Roads are used less, bridges, parks, libraries, etc.. The same argument might be made, however, for other types of commercial and industrial land yet these landowners pay a much greater share of the municipal tax pie. The claim becomes downright flimsy when one considers the amount of time and money spent by the County’s planning department alone related to farming and farmland. Just building a simple home on a rural road requires complex calculations to determine the appropriate distance from nearby barns to adhere to Minimum Distance Separation rules.
John Thompson is a particularly effective advocate for farmers and the agricultural sector in the County. He notes that farmers currently pay 1.8 per cent of property taxes in this municipality. He calculates that without council intervention, the share of the tax load will increase to 3.4 per cent. He has asked council to cap farmer’s share of County property taxes at 1.8 per cent— in effect, exempting this class of landowners from current value assessment model and asking council to ignore the fact that the value of this class of land has increased.
MPAC’s timing is bad. The agency reassesses every four years. While farmland prices have risen, last year was a tough one for many farmers. But it is a mistake for council to look only at farmers’ annual profit and loss statements and ignore the balance sheet. It is a mistake for local councils to begin tinkering with market mechanics or current market value assessment in reaction to one class of landowner. It inevitably leads to unfortunate unintended and unforeseen consequences.
But if council is bound and determined to upend the current value assessment model; if it is keen to set one class of landowner apart, to shield them from rising land prices, while ignoring the pleas of others, then, at the very least, it should get something in return. If council believes it is in their scope of responsibility to apportion the tax levy as they see fit, they need to extract something in exchange.
Here is one method they could consider.
Borrowing a concept from the financial derivatives sector, participating farmland owners seeking to freeze land values (and the portion the tax levy they are required to pay), could split out the pre-2012 value of their land in one share and create a second share equal to the increase in the value of their land. Then they could exchange this share with the municipality for the right to pay taxes only on the pre-2012 valuation.
For example, let’s say a certain class of farmland land was worth $3,000 in 2012, but is now valued at more than $7,000. This means a significant hike in assessment and taxes this year and for the next three years. To avoid this, farmland owners could strip out the increase in value in exchange for lower taxes. The County would get the notional increase in value— $4,000—as well as the risk that it rises or falls. I expect in time a market would form and the municipality could trade these shares for cash or other securities.
It is a workable plan. Farmers get what they want— the means to lock in the share of taxes they are responsible for paying, removing an element of uncertainty. They keep the deed to their land and lock in pre-2012 value on their balance sheet. In exchange, the municipality accepts all the upside and downside risk of land appreciation. It is better than nothing—which is currently all that is on the table.
John Thompson wants this protection, and he wants to retain all the benefit of rising land valuations without giving anything in return. To do this, council will have to impose more taxes on one class of taxpayer— residential—to reduce it for another.
It is a bad idea for council to be picking winners and losers among classes of County landowners. This is not Council’s problem to fix. There are good reasons County staff have cautioned against wandering down this path.
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