Take the following headline at face value and you might think companies are deliberately pulling the rug out from under cash-strapped municipalities:
This Globe and Mail article by Greg Keenan references the plight of Espanola, Ont., a community unable to foot the bill for a new $2-million fire hall. Why? Because the once mighty engine of the local economy, a pulp and paper mill now owned by Domtar, has fallen on hard times and no longer pays the municipal taxes it once did.
It’s one example among many, as small communities across Canada, reliant on a few or even a single anchor employer, see their fortunes wane with the decline of domestic manufacturing and industrial output.
Municipalities with rising operating costs and overdue infrastructure projects in need of additional revenue are seeing their tax bases decline. Their only option is to shift that burden on to residential taxpayers, who are ill-prepared to absorb the added cost. Not to mention the fact that, in some communities with employment opportunities drying up, people are bound to relocate in search of work, leaving fewer taxpayers to shoulder the added burden.
It’s a dire scenario. Some municipalities referenced in the article are mounting appeals to claw back the tax cuts awarded to these corporate citizens by Ontario’s Municipal Property Assessment Corporation (MPAC).
While these losses are extremely hard on a town and its residents, it’s also a tough pill for a company to swallow. Going out of business isn’t the first choice for any business.
Passing the test of fairness
Having said that, it’s critical to remember that property tax is a tax on unrealized real estate wealth. It’s not a tax on services delivered, but a tax based on the estimated market value of a property. While companies won’t want to spend more than they have to, they’ll pay what’s fair.
Fairness in the case of property tax is determined by having an assessment that meets the tests for fairness applicable in a province. As Keenan notes in his article, it’s far easier to arrive at a fair assessment of a residential property versus an industrial property that may be one of a kind.
MPAC has been using production from a plant as one way to establish the value of an industrial property. If that production slumps for a protracted period of time, MPAC and the Assessment Review Board have determined that it’s only fair to reduce the assessed value and, by association, the property taxes that the owners of that property are required to pay.
After all, if an industrial property was built to fulfil a specific purpose and market conditions have proven that purpose is no longer financially viable in that area, it only makes sense that assessment be adjusted in response.
But this of course leaves communities hostage to volatile global markets and corporate executives desperate to slash costs.
Suffering in the absence of an industrial policy
If only Canada had some kind of intelligent industrial policy.
I’ve written before about the need for Canada to look beyond its financial services sector, resource industries and reliance on building this elusive “knowledge-based” economy. We must make a strategic effort to repatriate the good old-fashioned manufacturing jobs that have been lost overseas.
With the value of our loonie having returned to its historic and, as many economists would say, normal trading levels, now is the time to act. Canadian-made goods are once again cost-competitive on global markets.
It starts with the provincial and federal levels of government, which have the power to create regulatory environments more responsive to changing needs and create incentives that encourage companies to move in and set up shop in the industrial properties left idle by others.
As I’ve said before, a sound industrial policy isn’t about trusting bureaucrats to pick winners and bolster losers in specific industry verticals. At best, that strategy is hit and miss. What we do need is a concerted effort to repatriate all those various tiers of manufacturing jobs in any number of industries that have been lost overseas. It doesn’t matter if they’re low-skilled, semi-skilled or highly skilled if they represent an opportunity for gainful employment where none currently exists.
It’s something to think about as we head into an epic federal election campaign. Now is the opportunity to start the process of restoring our manufacturing base, and we need the various party leaders to step up to the plate on job creation and the economy.
To discuss this or any other valuation topic in the context of your property, please contact me at email@example.com. I’m also interested in your feedback and suggestions for future articles.