Municipal Tax Base

Several of the biggest frustrations many people have with government are related to taxes. When they’re collected, it can feel arbitrary and forced: we all have to pay them. Then, it isn’t clear where they go: government accounting is always available for us to examine, but that doesn’t mean that it’s clear or easy to understand (or even easy to find!). Then, when we hear about government expenditures, it’s hard for us to contextualize them: we hear about a six-figure expense that we disagree with, and it feels like it’s a waste of our money, even though it probably only cost us pennies as individuals; meanwhile, major expenditures often go unnoticed and unexamined. When we don’t understand how they’re collected and where they go, taxes can feel like someone is taking from us, rather than all of us contributing to shared services.

Even for those who make an effort to look at how much they’re taxed and how much government spends, it isn’t always easy to contextualize how taxes are collected. One of the most common complaints I hear from Brighton residents, particularly those who’ve moved to Brighton from larger cities, is that taxes here are very high. Compared to neighbouring municipalities, our taxes are actually quite low! But compared to larger cities that have higher density and higher shares of commercial and industrial properties in their tax base, our taxes are much higher. The mix of properties in the “tax base” changes everything.

The Tax Bill

The “tax base” in this case refers to the properties that are subject to municipal property taxes. Municipalities can’t tax residents’ incomes, or take a portion of all purchases, as provincial and federal governments can; instead, they tax properties within the municipal boundary. Each property is taxed according to its type, with different rates for residential/farm, commercial, industrial, multi-residential, and more. You can see Brighton’s tax bylaw for 2022 here. Here’s a screenshot:

I’ve only pasted the first four “classes” of property here, the most common types. There are 23 classes listed in the bylaw, reflecting many different types of property, often adjusted for whether or not the property is developed or vacant, for whether a commercial or industrial operation is small- or large-scale, etc.

To calculate how much a given property owner has to pay, simply multiply the “mill rate” listed here (for residential, it’s 0.01290039) by the assessed value of your property.

Assessed Value

Assessed value is something I deal with regularly in real estate, because people often (and understandably) get confused when comparing assessed value and market value. The market value of your home is how much we can expect your home to sell for today. The assessed value of your home is determined by MPAC, the Municipal Property Assessment Corporation. It is almost always lower – often significantly lower – than market value. That’s a good thing, because it means that your taxes will be lower.

In part, it’s much lower than market value because MPAC tends to reassess homes every 4 years or so, and markets can increase a lot over that time. The next time MPAC assesses our homes, our assessed values will probably increase significantly. (I believe we were already due for a reassessment, but it was delayed by COVID.) While assessed value is not determined solely by market value, it still plays a role.

Here’s a video that shows how tax rates are determined:

Progressive Taxation

One of the benefits of taxing residents by their property value is that it helps to ensure that our taxes are “progressive” – i.e., that people are taxed to an extent that aligns with how much money they have. Income taxes have rates that increase over certain thresholds, so that someone who makes a higher amount of money pays a higher amount of taxes. Property taxes are similar: because they’re calculated based on the value of your home, those with more valuable homes will pay more taxes, even though their tax rate (or mill rate) is the same.

For example, take two hypothetical homes. One is assessed at $200,000 (a common amount for Brighton assessments) while the other is assessed at $600,000 (probably worth over $1M in market value). Both will pay the same mill rate of 0.01290039:

$200,000 x 0.01290039 = $2,580.08/year
$600,000 x 0.01290039 = $7,740.23/year

It is still sometimes the case that someone can be “house rich” and “cash poor” at the same time, particularly with a quickly-rising market like we’ve experienced for the past few years. But for the most part the size and value of our homes reflect our finances in general, and the municipality automatically collects property taxes in installments so that nobody gets hit with a huge bill each year.

Residential Tax Base

Brighton’s tax base is mostly residential. That has a major impact on our municipality in a few ways. For starters, the municipality has an incentive toward expensive homes that are kept in good condition. That’s one of the reasons for the Property Standards bylaw: properties that fall into severe disrepair or become overgrown reduce property values for that property and all neighbouring properties. That’s bad for those neighbours, but also for the tax base.

But most importantly, residential property taxes don’t pay for all of the needs of residents! The infrastructure that we all depend upon, such as roads and water and sewer, are very expensive to build and maintain. Recreation facilities are tremendously expensive to build and run, and even parkland maintenance and snow and waste removal adds up. We take these things for granted, but their value is much more than the $3-7k/year we pay in taxes. We offset those costs with some user fees, like our water and sewer bills or garbage bag tags, but municipalities have no other way of raising funds. If we need more money we either need to raise property taxes or add new user fees. Or…broaden our tax base.

Mixed Tax Base

Single-family detached dwellings, or “houses”, are most people’s preferred form of shelter. But from a municipal standpoint, they’re incredibly inefficient. They have the lowest mill rate of any common class of property. Look again at the four most common property classes:

The Commercial mill rate is more than double that of a residential property, and the Industrial rate is almost triple. So let’s look at three hypothetical properties, each assessed at $200,000 but in different classes:

Residential: $200,000 x 0.01290039 = $2,580.08/year
Commercial: $200,000 x 0.02585559 = $5,171.12/year
Industrial: $200,000 x 0.03267782 = $6,535.56/year

Industrial properties are usually much larger than residential properties, so they may be less efficient in terms of value per acre, but they’re also often worth much more than residential properties, which means they’re still worth a lot to the municipality when their high value is multiplied by the high mill rate. This is why councillors keep talking about filling up the industrial park: we could sure use those tax dollars, not to mention the local jobs! Likewise for Commercial properties: the value of having a business in town goes far beyond its property taxes, but they’re nothing to sneeze at either.

But even mixed residential types is important. The rate for multi-residential is much higher than the rate for residential. Consider that the typical residential lot in urban Brighton is about 0.2 acres. Assuming that each property is assessed at about $200,000, as per our example, property taxes at residential mill rates generate around $13,000/acre/year ($2,580 x 5 = $12,900). Now consider that a multi-residential property takes up around 1.5 acres, but can fit dozens of units on that space. An apartment building assessed at $1,700,000 on a 1.5 acre lot can generate $27,644/acre/year; more than double the revenue from houses.

Density Matters

Even staying within the normal Residential class of property, higher density makes a huge difference. Imagine a condo building with six units on a 0.5 acre lot. Each of those units is assessed at slightly lower value than the typical single-family detached dwelling (i.e., house), around $180,000. Instead of 5 houses per acre, there are 12 condos per acre, bringing in $2,322 each, for a total of $27,864/acre/year. That’s again more than double the tax revenue per acre as compared to houses.

All in all, more people on the same amount of land means that everyone pays less and the municipality gets more. That’s a good thing!

The Path to Lower Taxes

So if you’re concerned about taxes being too high, or if you want more services for the same tax rate, we need to talk about two things: higher density housing, and non-housing development (i.e., commercial and industrial development).

Industrial development will take place in the industrial park, which still has open lots and room to expand. Bringing industrial development to Brighton is no simple task, and is worthy of a blog post or two itself (and I still have much to learn about it!).

Commercial properties are currently all full: as I write this, two thrift stores are looking for commercial rental, and there’s none available. That’s both a problem and an opportunity, and worth a post or two as well!

For now, suffice it to say that I’m definitely in favour of both industrial and commercial development in Brighton, provided that they are right for our community. We cannot live on residential alone, and if we want the types of services and infrastructure that I keep hearing about from residents, we need to pay for it somehow. If we want to do that without raising tax rates, we need to diversify our tax base and increase our density.

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