Redistribution

Council increases homeowners taxes to pay for reduction to farmland owners

Andrew Stronach, heir to the Magna auto parts empire, owns several thousand acres of farmland in South Marysburgh. He and other wealthy landholders are the big winners in council’s decision last week to reduce his property tax bill and raise those of County homeowners.

The Thomson family—the richest family in Canada—are also the beneficiaries of County council’s bout of generosity. So too is Bob Hunter, with thousands of acres in Hillier. Hunter lives a in a magnificent home on about 10 acres overlooking Lake Ontario west of Wellington—with a stunning view of the sandbanks.

Neither Stronach, Hunter or Thomson spoke to the committee of council last week that approved the redistribution of property taxes they pay onto residential homeowners in the County. Instead, Prince Edward Federation of Agriculture head, John Thompson, orchestrated a procession of young farmers to the podium at Shire Hall.

The land they own or rent is worth more than it was in 2012—in some cases considerably more. Under other circumstances, rising land value would be seen as a good thing. The problem here is that property taxes are allocated based on the value of the land—the more valuable the land, the more taxes one pays. Every four years, a provincial agency, the Municipal Property Tax Corporation (MPAC), tabulates the increase in value and phases it in over four years. Each municipality uses this data to allocate its tax levy between land classes and individual properties.

A few years ago, the value of waterfront property surged higher. Overnight, these landowners were faced with massive property tax increases as a greater share of the County tax burden fell on their shoulders.

Now it is farmland that has increased in value relative to other property classes. In many cases, the assessed value of farmland has increased much more than residential land—at least in the last four-year span. Some farmland owners say it means a doubling in taxes payable to the municipality.

Many of the folks filling the seats at Shire Hall last Thursday told council the rise in property taxes threatened their ability to farm and to grow their business. Some said rising land values and taxes discouraged young people from getting into the business, predicting that when the existing generation retired, farming might disappear in the County.

It was an appealing argument. While some councillors knew instinctively that tinkering with the tax rate and taking tax money from one class of landowner and giving it to another was likely a bad idea—the stern, mostly young, faces in the gallery in Shire Hall made a compelling case for council to act in their favour.

Some council members, however clearly didn’t understand the solution being proposed. Some, lacking a solid grounding in how property taxes work, were easily led. Others simply couldn’t face the idea of turning down the assembled group of voters.

John Thompson was exceptionally skillfull in laying down a path for council to follow.

THE ARGUMENT
Registered farmland owners represent about 10 per cent of all landowners in the County, but pay about 1.6 per cent of the County tax levy. This is mostly because farmland is taxed at a quarter of the rate of residential land, and is generally valued lower than residential land. The province limits municipalities from taxing farmland to no more than 25 per cent the rate of residential landowners. This is done to reflect the fact that farmland commands fewer municipal services than does residential land.

It has worked pretty well. That is until farmland values began to rise across North America.

Thompson pointed out that if council stuck with the current tax rate, the farmland owner share of the County tax levy would rise from 1.6 to 2.9 per cent. In an inspired bit of salesmanship, Thompson argued that reducing farmland taxes wasn’t a tax break (it is), but merely maintained the farmland owner share of the tax levy closer to 1.6 per cent, where it had been before land prices increased. To do this, however, Thompson had to persuade council to reject the principle of current market assessment—a principle of municipal taxation employed across the province for three decades—for this single class of land in Prince Edward County.

Thompson did it well. Some councillors awkwardly mimicked his arguments, either overlooking or not fully understanding what they meant.

North Marysburgh councillor David Harrison suggested, most bizarrely, that farmers weren’t asking for a reduction, that “there is no redistribution. That this keeps everything status quo.”

That is neither accurate nor what Thompson said. Thompson knows this is redistribution. He knows that residential homeowners will pay for this tax reduction to farmland owners—but he argues that the impact on this land class will be small. Reducing the burden for a few, increasing it on many.

Other councillors simply saw the opportunity to reward and assist an important constituency. Others displayed a poor understanding of economic development suggesting that taking from one land class and giving to another was equivalent to the investment in County’s economy.

Councillor Janice Maynard led this tack. Maynard pointed to list of initiatives the municipality has undertaken aimed at spurring investment and growth. She suggested shifting the tax burden between tax classes was a way to balance the ledger.

“I’m not afraid of setting a precedent,” said Maynard. “This is a real deal.”

She cautioned that council should avoid pitting farmland owners against urban dwellers—while doing precisely that.

THE UNREAD REPORT
It was unclear how many, if any, council members had actually read the report prepared by Chief Administrative Officer James Hepburn. It is thorough (12 pages) and clear in its recommendation that council reject the proposed redistribution.

Hepburn offered a general note of caution that council should avoid shifting the tax burden between classes as principle—that it is likely to stir up the newly burdened class and indeed would set a precedent for other land classes seeking similar relief

Hepburn noted, too, that while Council had the power to shift the portion of the tax burden collected for the municipality—it could do the same for the education portion.

He explained that MPAC has improved its assessment methods and that a better route for farmland owners was to appeal significant increases to the agency.

Hepburn noted that farmland owners already receive a 75 per cent discount relative to residential homeowners and that according to a position paper prepared by the Eastern Ontario County Treasurers, the farm tax ratio should remain unchanged.

But Hepburn’s report got little mention in the long debate.

PRETZEL LOGIC
One councillor voted in favour, not because he believed it was a good idea, but rather as a means for council to maintain “community cohesion”. Treat Hull changed his vote during the debate to show empathy to the assembled landowner and farm tenants.

“It’s a small token,” said Hull. “It’s a way to show we are all on the same team.”

Sophiasburgh councillor Bill Roberts was sympathetic to the plight of young farmers. As Thompson had argued, farming is a generational business—that gains made in land values don’t help cash flow. That faced with higher taxes, farmers—particularly younger farmers—would find it difficult to stay in the business or grow.

But Roberts worried about using tax ratios to address this issue. He worried aloud that the large farmland holders would be the big winners in this decision.

It was Picton councillor Lenny Epstein who would stake this ground most firmly. Epstein argued for establishing a fund to target young farmers facing the most acute difficulty.

“I don’t want to give it to mega farmers who already have a huge tax break,” said Epstein. “I want to show we can target assistance to young farmers.”

His suggestion got no traction.

LEADERLESS
Despite conversations with other municipal leaders in Eastern Ontario, most of whom were unwilling to tinker with tax ratios, in addition to the report from the County’s CAO, Mayor Robert Quaiff timidly tiptoed around the debate.

He listed a variety of reasons why council should leave tax ratios alone—then he went along with the herd.

“It’s going to be delicate,” Quaiff told council and the assembled farmland owners.

In the end, Mayor Quaiff and 12 councillors voted— against their most senior staff’s recommendation—to reduce the portion of the tax levy payable by the farmland class to 20 percent, from 25 per cent, for this year and next. When the final vote came however, Epstein too appeared to raise his hand in support, making it unanimous. Councillors Kevin Gale and Steve Graham had already left when the vote was called.

The decision will come back to council on January 24 for ratification before becoming a bylaw. It’s unlikely the Stronachs or Thomsons will be there to offer their thanks. There may be a few homeowners, however.