CITY OF WATERLOO PROPERTY TAXATION & BUDGET STUDY PREPARED FOR COUNCIL DECEMBER 09, 2013

Transcription

1 CITY OF WATERLOO PROPERTY TAXATION & BUDGET STUDY PREPARED FOR COUNCIL DECEMBER 09, 2013

2 Agenda MBA Consulting Team Faculty Review Panel Objective & Scope Background Methodology Analysis o Comparable Analysis o Tax Rate Methodology o Citizen Affordability o Infrastructure Deficits o Budget Process & Public Engagement Recommendations 2

3 Laurier MBA Consulting Team Danny Persaud, P.Eng., Stations Engineer, Waterloo North Hydro Henry Lau, National Retail Analyst, Dare Foods John Angkaw, Risk Management Director, Grand River Hospital Yiming Tang, Logistics Supervisor, APOTEX Danielle Eastman, Brand Manager, BASF Canada William Khuu, Chemist, Arcelor-Mittal Faculty Advisor Dr. Ruth Cruikshank, Associate MBA Director & Associate Professor 3

4 Faculty Review Panel Dr. Ruth Cruikshank, Associate MBA Director & Associate Professor Dr. Steffen Ziss, Chair, Department of Economics & Associate Professor Dr. Tammy Schirle, Associate Professor, Economics Dr. Detlev Nitsch, Assistant Professor, Policy October 22, 2013 (Initial) November 8, 2013 (Final) 4

5 Objective & Scope 1. To conduct a study that will gain a further understanding on the prevalence and utilization of MPI in establishing property taxes. Specifically, the study will involve: o Conducting comparison study; o Identify best practices for setting property tax increases taking into account citizen affordability; o Establish plan council engagement during budget process; o Identify strategies to address infrastructure deficit and growth; o Highlight how selected Canadian cities/municipalities convey performance measures. 2. To identify and assess selected factors that would differentiate each city/municipality. 5

6 Background 2006 o Council issued directive to generate a Municipal Price Index. o MPI has been a valuable tool used in the budget process o The Citizen s Budget Task Force was established. o Advises council on development, implementation, evaluation. o Recommended a study to: o Develop alternatives to the use of the MPI for setting annual property taxes o Investigate a more broad-based method of setting tax rates, taking into account citizen affordability measures 2013 o WLU MBA team were commissioned to conduct study. 6

7 Methodology Primary Comparison Study o Participants: 31 municipalities were invited to participate. o Instrument: 34 item survey, 5 item survey o 65% Response Rate (n=19) Secondary Data Study o Major Industries o Income Level o Employment o Age Distribution o Level of Education o Housing Pricing o Family Structure o % Home Owners Index Qualitative vs. Quantitative Approach

8 What is MPI? The MPI (Municipal Price Index) is comprised of variables that represent Waterloo s basket of goods There are 2 main parts to the MPI calculation: 1. the weightings of the expenditure categories 2. inflation factor used for each component MPI policy states: The property tax increase in any given year will be no greater than the Municipal Price Index. 8

9 City of Waterloo - MPI Calculation Item Salaries and Benefits Hydro and Water Natural Gas Transfer to Capital Budget Annual Facility Maintenance Insurance Bituminous Road Work Vehicle Fuel Repairs & Licensing Items not subject to inflation Debt subject to inflation Library General Expenditures subject to CPI Percentage of Expenses (%) Rate of Increase (%) Weighted Average Total Source: City of Waterloo 2014 MPI Report

10 Comparison of MPI Rate of Increase Expenditure Categories Salary, Wages & Benefits City of Waterloo 12 month average rate of public sector wage settlements (Ontario) Municipality 1 Known, Estimates for City Contracts Municipality 2 Known, Estimates for City Contracts Municipality 3 Known, Estimates for City Contracts Fuel & Equipment Charges (Fleet) Energy Information Association forecasts & CPIX for Repairs and Licensing StatCan Transportation Index CBC Autos & Parts Forecast Known trends and CPI Energy (incl. Electricity, water & gas) Waterloo North Hydro forecast, City of Waterloo Water & Sewer rates, Contracts StatCan Energy Index CCBC LDC, regional information, contracts Transfers to Capital StatCan Non-Residential Building Construction Price Index (Composite Federal) StatCan Non-Residential Building Construction Price Index Approved Budget Rates StatCan Non-Residential Building Construction Price Index, CPI Insurance Costs Insurance pool contract Not Available Not Available Estimated increase Road Work Ontario Hot Mix Producers Not Available Not Available Ontario Hot Mix Producers Association AC Index Association AC Index All other costs StatCan CPIX (Core) StatCan CPI Not Available StatCan CPI

11 What is CPI? The Consumer Price Index (CPI) is an indicator of changes in consumer prices experienced by Canadians. It is obtained by comparing, over time, the cost of a fixed basket of goods and services purchased by consumers. There are 3 main types of CPI: 1. All Items CPI Canada (CPI-Canada) 2. All Items CPI Ontario (CPI-Ontario) 3. Core CPI (CPIX) Removes 8 most volatile items Indexed to a base year 11

12 CPI Variations 3.5 CPI Canada, CPI Ontario, CPIX Canada, 2012 % Rate CPI - All Items Canada CPIX - Canada CPI - All Item Ont Average-CPI All Items Canada

13 MPI vs. CPI vs. CPIX 13

14 Property Tax Rate Increases vs. Inflation Percentage Change Percentage Change Property Tax Rate Increase vs. All Items Canada 5% 4% 3% 2% 1% 0% Avg of 2009 Avg of 2010 Avg of 2011 Avg of 2012 Avg of 2013 London Toronto CPIX 8% 6% 4% 2% Property Tax Rate Increase vs. Core CPI Percentage Change 6% 5% 4% 3% 2% 1% 0% Property tax rates difficult to keep under inflation rates Property Tax Rate Increase vs. All Item Ontario Avg of 2009 Avg of 2010 Avg of 2011 Avg of 2012 Avg of 2013 Aurora Clarington Kitchener CPI - Ont 0% 14 Avg of 2009 Avg of 2010 Avg of 2011 Avg of 2012 Avg of 2013 Oakville Waterloo CPI - Core

15 Property Tax Rates vs. CPIX & CPI Please note Only validated survey responses were used for this comparison.

16 Comparable Analysis Source: Standard Deviation, 16

17 Tax Rate Methodologies No highly prevalent method of determining property tax rate increases Most common method: Staff driven, line by line comparison to variety of internal, economic & social indicators, while not calculating an MPI CPI was a dominant indicator Few municipalities surveyed approve of the MPI method Most municipalities have not used nor considered using an MPI Comparable municipalities considered MPI but disqualified due to promoting inefficiency, lack of consistency & credibility, self-serving and circular. The benefits of the MPI method are overshadowed by a lack of standardization by an independent body 17

18 Understanding Citizen Affordability Most (incl. comparable) municipalities consider citizen affordability in their budgeting decisions Most prevalent drivers include: 1. CPI 2. Household Income 1. eg. Property taxes as a percentage of household income shall not exceed x % 3. Unemployment Rate 4. Citizen Surveys 1. Level of service vs. willingness to pay 5. Neighboring municipalities 18 RECALL: Comparable Municipalities are: Barrie, Cambridge, Guelph & Abbotsford

19 Infrastructure Deficits: Deficit Distribution by Municipality 53% of Municipalities Do Not Know the Size of their Infrastructure Deficit 50% of Large Municipalities use an Infrastructure Levy 3 Municipalities Reported No Infrastructure Deficits municipalities that reported deficit = 15, municipalities do not know the exact size of their deficit = 8/15 or 53%

20 Infrastructure Deficits: Deficit Distribution per Citizen Abbotsford Barrie Cambridge Waterloo (Citizens Only) Waterloo (with Students) $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 Deficit per Citizen * Only includes roads and facilities

21 Infrastructure Deficits: Deficit Resolution Timeline City/Municipality Plan Resolution Timeline Calgary Mississauga Ottawa Toronto Barrie Petition government for more grant money Use Infrastructure levy Significantly increase capital reserve fund on annual basis for budgets moving forward Increase allocation of funds from future capital budgets to service deficit Use reserve funds Unknown 20+ years 2022 (est. pending property tax increases) Reduce to $1.3 B by 2023 Unknown 21

22 Budget Process & Public Engagement The City of Waterloo s time period for the budget process is consistent with moderate-large municipalities. Comparable municipalities utilize a Q2 to Q4 budget timeframe. The City of Waterloo s practice of involving council throughout the process is consistent with the majority of survey participants. The City of Waterloo has variable public engagement tools and timing from budget year to year, and consistently involves the public at the end stages, which is in line with other municipalities. RECALL: Comparable Municipalities are: Barrie, Cambridge, Guelph & Abbotsford

23 23 Recommendations

24 Recommendations Tax Rate Policies 1. Continue internal use of the MPI in the financial decision making process. MPI accurately represents City s basket of goods and is a fiscally responsible methodology. Use as a tool to indicate areas of improvement such as process automation or investing in equipment to increase productivities. 2. Discontinue external use of MPI in setting property tax rate increases 24 Suffers from negative public perceptions and issues with consistency. Does not promote transparency in justification for property tax increase. MPI can be reconsidered for public use if measure becomes published by a standardized body.

25 Recommendations Tax Rate Policies 3. Revise tax policy to reflect use of CPIX for existing service levels. Tax policy should be revised to The property tax increase in any given year shall be in line with CPIX-Canada inflation for existing service levels. Encourages a competitive City: By allowing City to increase taxes beyond CPIX in periods of higher demand for services, increased service levels & implementation of infrastructure and other levies. If deemed acceptable by most stakeholders through public engagement. Maintain costs to taxpayers within the consumer s basket of goods. Promotes high degree of transparency due to ease of understanding. Continues to promote discovery of efficiencies in periods of higher external stresses on City costs. 25

26 Recommendations Tax Rate Policies 4. Continue to find areas to implement user fees and find efficiencies. 5. Conduct ongoing research into new trends in property tax policies. 26

27 Recommendations Engagement & Communication 1. Continue exploring opportunities to develop comprehensive engagement & communication planning 2. Conduct analysis on citizen affordability factors in the consideration of property tax changes 3. Conduct further research into new trends in public engagement in the budget process 27

28 Recommendations Infrastructure Deficit 1. Introduce Infrastructure Levy only after creation of an Asset Management Plan: a. Need comprehensive Asset Management plan to determine how to properly use revenue collected to manage City assets b. See Region of Peel and City of Markham s Long Term Financial and Asset Management Plans 28

29 Recommendations Infrastructure Deficit 2. An Asset Management plan / model should: 29 a. Make use of qualitative inspection data and quantitative probability data to be able to predict failures and useful life b. Be able to determine cost-benefit relationships (i.e. : cheaper to replace than repair) c. Prioritize asset maintenance projects above new capital projects d. Maintain all assets in a state of good repair

30 Questions? 30

31 CITY OF WATERLOO PROPERTY TAXATION & BUDGET STUDY APPENDICES

32 Appendices Appendix A Survey Instrument Appendix B List of participating municipalities Appendix C Population by City Appendix D MPI Background (3 slides) Appendix E Tax increases vs. Inflation (2 slides) Appendix F Understanding Citizen Affordability (2 slides) Appendix G Funding Future Growth Appendix H Budget Process and Public Engagement (5 slides) 32

33 Appendix A: Survey Instrument Laurier MBA: City of Waterloo Budget Survey Please indicate your municipality. Municipal Price Index Does the municipality calculate a Municipal Price Index (MPI)? 1. Yes, go to question No, go to question 8. Yes, the municipality calculates MPI: How does the municipality calculate MPI? Identify all factors that are considered. How is the MPI utilized to the budgeting process? How long has the municipality been using MPI? What factors supported the use of the MPI? What other taxation policies were considered prior to the implementation of the current policy? No, the municipality does not calculate MPI: Has the municipality ever considered using an MPI? If not, why? Has the municipality ever used this methodology and abandoned it previously? 1. Yes, go to question No, go to question 11. What were the main reasons for canceling it? How are cost increases calculated in the annual budgeting process and how do they inform property tax increases? What factors (eg. Employment rate, income level etc.) if any, are considered in the setting of your tax rate? Annual Budget What are the steps and timing of the municipalities annual budget process? How does the budget team involve Council in the budget review and approval of the tax increase? How does the municipality engage the public in the budgeting process? Does the municipality experience surpluses or deficits typically at year end? Are there specific factors that drive the surplus or deficit? Does the municipality include in budget presentations information on past performance, i.e. actuals vs. budget? How many person-hours does your municipality allocate to the budgeting process? How much cost is incurred during the budgeting process? Infrastructure Deficits Is the municipality managing an infrastructure deficit? If yes, how large is the current deficit? What components are included in the infrastructure deficit water, sewer, roads, and buildings? What strategies does the municipality have in place to fund this deficit? Does the municipality have an infrastructure levy? If so, what is the rate %? How long will it take to resolve the current deficit? Is the municipality setting aside additional budget for extreme weather events in the future? If so, how much? Funding Future Growth What fiscal strategies are in place to fund future growth? Citizen Affordability Is tax payer affordability considered before implementing a tax increase? No, go to question 31. What factors are considered to inform the affordability decision? How long has this been in practice at the municipality? How does the municipality balance citizen affordability with infrastructure deficits and funding future growth? Population Growth How do you see the population growing in your municipality over the next 10 years? How do you think this population growth will affect your growth in assessment revenue? Return to Appendices List

34 Appendix B: Participating Municipalities 1. Abbotsford 2. Aurora 3. Barrie 4. Belleville 5. Brampton 6. Brantford 7. Brockville 8. Burlington 9. Calgary 10. Cambridge 11. Clarington 12. Durham 13. Edmonton 14. Greater Sudbury 15. Guelph 16. Halton 17. Kingston 18. Kitchener 19. London 20. Markham 21. Milton 22. Mississauga 23. Oakville 24. Ottawa 25. Peel Region 26. Peterborough 27. Pickering 28. Region of Waterloo 29. Richmond Hill 30. St. Catharine's 31. Toronto Return to Appendices List 34 Participating municipalities are in RED

35 Appendix C: Population by City City Population Statistics Brockville 21,870 Mean Aurora 53,203 SD Peterborough 78,698 Milton 84, SD Waterloo 98,780-1 SD Guelph 121,688 Cambridge 126,748 Abbotsford 133,497 Barrie 135,711 Oakville 182,520 Kitchener 219,153 Markham 301,709 London 366,151 Mississauga 713,443 Ottawa 883,391 Calgary 1,096,833 Toronto 2,615, ,436 46, ,327 76,545 Included in comparative analysis. Excluded in comparative, due to City/Municipality size. Return to Appendices List

36 Appendix D: MPI Background Consideration of MPI for Taxation N % No, MPI is not the only factor Yes, issues with inefficiency, consistency, lack of credibility, subjectivity Yes, no explanation provided Yes, council did not approve 2 11 Yes, cost to contract with Stats Canada beyond budget. 1 5 N/A, currently using MPI Previous utilization of MPI N % No Yes Return to Appendices List

37 MPI - Opportunities Municipalities have different spending patterns than those of other sectors and differ than the basket of goods included in the CPI Ability to project cost scenarios into the future rather than reflecting past experience A price index (CPI) that does not reflect the municipal purchasing structure does not truly reflect changes in the cost experience, and thus the purchasing power of local governments 37 Return to Appendices List

38 MPI - Challenges Would be more widely accepted if a standardized method was used and if it were calculated by an independent body With labour being the major cost component, the MPI calculation is somewhat circular The City of Waterloo s uses Ontario Public Sector Bargaining Agreement rates regardless of their own internal wage settlements Issue in calculating price changes has always been defining the contents of the basket of purchases. 38 Return to Appendices List

39 Appendix E:Tax Increases vs. Inflation 41 Inflation Rates Core Inflation Rate (CPIX) 1.93% 1.73% 1.51% 2.01% 1.27% All Items Canada (CPI) 1.31% 0.97% 2.58% 2.28% 0.96% All Items Ontario (CPI) 0.20% 3.40% 2.70% 1.00% 1.20% Return to Appendices List

40 Comparison of All Items CPI, Core CPI and MPI Various CPIs used by Municipalities (N=14) N % Core CPI All Items Canada All Items Province All Items City N\A or Did Not Reply 5 36 CPI average vs. point in time (N=14) N % Point In Time 3 21 N\A 2 14 Average Return to Appendices List

41 Appendix F: Understanding Citizen Affordability Consideration Informing Citizen Affordability N % Yes, household income, unemployment rate, service level vs. willingness to pay (citizen surveys), taxes in neighboring municipalities, CPI Yes, CPI, unemployment rate, utility rates, taxes in neighboring municipalities. Yes, primarily household income, taxes in neighboring municipalities. No, citizen affordability is not considered formally. Council driven Yes, unemployment rate, business growth & closures. 1 5 Yes, no explicit factors. Professional judgment. 1 5 Yes, framework outlining guiding principles for financial sustainability. 1 5 Yes, primarily taxes in neighboring municipalities. 1 5 N/A Return to Appendices List

42 Factors Considered in Setting Tax Rate Factors N % T Taxes in in neighboring municipalities, citizen citizen affordability affordability (household in (household come, employment income, employment level), level of level), service level required, of service investment required, gr investment owth, reserves growth, and reserves asset mgmt. and asset mgmt. Political. Direction from council based on performance of local economy Only look at expenditure categories 2 11 Overall tax and rate impact 1 5 No data 1 5 Not applicable (using MPI) Return to Appendices List

43 Appendix G: Funding Future Growth Primarily funded through development charges. Other sources of include: Debt reserve funds Taxation and consideration of a special tax levy (not yet implemented) Allocating more property tax money Applying for government grants Utilizing operating surplus Asset monetization Use of debt to fund capital projects Return to Appendices List

44 Appendix H: Budget Process & Public Engagement City Size Classification Moderate: 100,000 to 200,000 Moderate-Large: 200,000 to 500,000 Large: > 500,000 City of Waterloo considered a moderate sized city. 44 Return to Appendices List

45 Time Period for Budget Process 5 4 Number of Cities Q1 to Q4 12 Q2 to Q4 12Q1 to 13Q1 12Q2 to 13Q1 Moderate Moderate - Large Large 45 Return to Appendices List

46 Council Engagement in Budget Process Number of Municipalities B = Beginning Phase M = Mid-Phase E = En d-phase 1 0 BME B E M E E B 46 NOTE: Return to Appendices List Yellow indicates: Green indicates: City of Waterloo Position Comparable Municipalities Position (Barrie, Cambridge, Guelph, Abbotsford)

47 Public Engagement During Budget Process Number of Municipalities B = Beginning Phase M = Mid-Phase E = End-Phase 1 0 BME B E M E E B 47 NOTE: Return to Appendices List Yellow indicates: Green indicates: City of Waterloo Position Comparable Municipalities Position (Barrie, Cambridge, Guelph, Abbotsford)

48 Calgary s Public Involvement Example Phase I- Everybody's Business Invited Calgary's citizens to provide input on what measures the city should implement Phase II- Understanding Values and Priorities Focused on understanding the values and priorities of the community Phase III- Making Choices That Matter Dialogue about values and priorities and encouraging citizens to consider the costs, benefits and tradeoffs with the city services desired. 48 Return to Appendices List