Finding solutions to Calgary's $300M downtown tax hole won't be easy

In just three years, the value of Calgary's downtown office towers dropped by more than $12 billion, plunging city tax revenues by $300 million.

That has some business leaders and others suggesting it's time to shift the burden onto Calgary's residential property owners. Others say the city should run a short-term deficit to make up for the shortfall.

City manager Jeff Fielding describes the problem as the "most vexing" issue he's ever faced.

The drop in commercial property values has resulted in higher tax bills for non-residential owners outside the core.

The city has already dipped into its savings to help ease the burden, taking $86 million over the past two years to cap the business property tax increase at five per cent.

But businesses say that's a short-term solution. They'd like to see a longer term strategy to ease the stress and anxiety, as a rise in downtown office values appears years away.

The Calgary Chamber of Commerce says this is a big problem with no easy solutions.

"We've seen vibrancy stripped from the downtown core as a result of the economic downturn and tens of thousands of jobs leaving the core," said Mark Cooper, a spokesperson for the chamber.

He says the property tax shift to the suburbs is hurting suburban companies and their ability to do business in Calgary.

"We're talking about some big property tax hikes for small business at probably one of the worst times you can imagine," added Richard Truscott with the Canadian Federation of Independent Business.

Truscott says unless city council does something to help small businesses, two-thirds of them will face a double-digit property tax increase — along with many more potentially damaging consequences.

"Dropping this onto the shoulders of business owners is going to cause a lot of frustration, a lot of anger and may ultimately lead to so many of these business owners just giving up, and quitting and going away," said Truscott.

He says some will consider moving to smaller centres outside the city, or, if possible, they'll move to an online-only presence.

Time for homeowners to pay more?

With all of the ups and downs in Alberta's economy over the decades, city council should have seen this issue coming, says Truscott.

He says now is the time to ease the burden on business and spread some of the pain onto homeowners.

"City residents have not been paying the cost of the services that they receive. They've been heavily subsidized by the business community, including the big oil and gas companies, and the chickens have come home to roost," he said.

Truscott says it's a question the city needs to consider, along with spending cuts.

"I think that a lot of residents need to wake up and realize that the cost of running the city is not what they've been paying through property taxes. And once they see the real value, or the real cost, of running the city, it's going to be a big shock."

The Chamber of Commerce says the tax imbalance between business owners and homeowners needs to be addressed.

"The non-residential to residential ratio is one of the highest in Canada. Now it's certainly the highest in Alberta," said Cooper.

"So we've always felt like there needs to be some solution to shrink that ratio. And we do think that it is possible — and it doesn't necessarily mean a sharp increase in property taxes for homeowners."

Cooper says if the city finds more "efficiencies," it could pass along those savings to help businesses.

Time for change

While the debate rages over who is going to pick up the cost of falling office values, at least one expert says it may be time for a new, "more innovative" property tax system.

"[One] where the tax rates between businesses and residential properties are tied together and fixed so that council doesn't pick how many dollars it wants from each tax base but really does spread the pain when downtown assessments do drop," said Trevor Tombe, associate professor of economics at the University of Calgary.

Tombe says residential property taxes have been able to be low because of a larger amount of dollars flowing in from "pretty high" downtown assessments.

But he says it may be time to make a change, especially if lower downtown assessments are the "new normal." And he points out the city's rainy day fund will eventually run dry.

"We have seen during this past recession that our current property tax system really doesn't perform very well in this kind of boom, bust environment," he said.

Tombe suggests, under the new city charters, Calgary could even go into deficit to help finance the shortfall — but only on a short-term basis.

"Now we can run deficits, so long as we make them up within the overall four-year [budget] cycle, for example," he said.

Hopeful for another 5% cap

In the meantime, businesses are pushing for an extension of the tax relief program. They're hoping to see a five per cent cap.

"We'd like to see it lower — five per cent at most. Let's not forget this is a very difficult economy, and those small businesses operate on very thin margins in very competitive markets and are struggling," said Truscott.

"Asking them to even pay five per cent more in property taxes going to be a very difficult pill to swallow. So 10 per cent and anything above that is just — I mean, that's catastrophic for a small business," he said.

"Ten per cent or potentially even higher? That's just absolutely not acceptable," said the chamber's Mark Cooper.

The city has said a 10 per cent cap will cost taxpayers $45 million.

Council has asked administration to recommend various solutions before the tax rate is finalized in April.

Bryan Labby is an enterprise reporter with CBC Calgary. If you have a good story idea or tip, you can reach him at bryan.labby@cbc.ca or on Twitter at @CBCBryan.