HALIFAX, WEDNESDAY, NOVEMBER 27, 2002
STANDING COMMITTEE ON PUBLIC ACCOUNTS
Mr. William Estabrooks
Mr. James DeWolfe
MR. JON CAREY (Chairman): Welcome to the Public Accounts Committee. I will be acting as chairman this morning. My name is Jon Carey, I represent Kings West. We welcome our witnesses and the tradition that we follow is for the members to introduce themselves.
[The committee members introduced themselves.]
MR. CHAIRMAN: Also with us this morning, from the Auditor General's office, is the Auditor General, Mr. Salmon and his Assistant Auditor General, Mr. Horgan. The witnesses this morning are from Service Nova Scotia and Municipal Relations. We welcome you, and ask that your presentation be somewhere in the range of 12 to 15 minutes for your opening, then we will carry on with questions at that point. Would you like to introduce yourelves and proceed with your presentation.
MR. JOHN MACKAY: My name is John MacKay. I am the Director of Assessment.
MR. DAVID DARROW: My name is David Darrow. I am the Executive Director of Municipal Services.
MR. CHAIRMAN: Feel free to start.
MR. DARROW: I'm going to pass things over to John to start. We flipped outside and John won the toss, so I will pass things over to him.
MR. MACKAY: I have just a few opening remarks, Mr. Chairman. First of all, I wish to thank the committee for the invitation and for the opportunity to discuss Property Assessment Services for the Province of Nova Scotia. I occupy a position that is defined in the Nova Scotia Assessment Act as the Director of Assessment. In that capacity, within the Act, I have responsibility for the administration of the Nova Scotia Assessment Act, and to ensure that property assessment is done in compliance with the Act and in accordance with case law.
The Act defines property that is assessable in the Province of Nova Scotia. The Act goes on to identify, also, property that is taxable, as well as property that is exempt from taxation in the Province of Nova Scotia. The Assessment Act provides three classifications of property. All property within the Province of Nova Scotia falls into three categories. It's either residential property, resource property or commercial property, or partly one and partly another, with the respective values and classifications being recorded on the assessment roll.
As you are aware, the province is responsible for the assessment of all properties pursuant to the Nova Scotia Assessment Act. Municipalities in the province are responsible for setting the municipal tax rates and collecting the tax rates. The assessment roll for the Province of Nova Scotia, for the 55 municipalities, is the primary source of revenue for Nova Scotia municipalities. The Act further defines that upon completion of the annual assessment
roll, notices must be mailed to property owners once a year. That usually occurs in January of each year. The Act requires that the rolls must be delivered to each of the 55 municipalities on or before December 31st of each year. The Act also defines an assessment appeal mechanism.
The Act further requires that properties are to be valued at market value. The valuation standard in Nova Scotia is market value. The Act describes that as the value which, in the opinion of the assessor, would be paid if it were sold on a date prescribed by the director in the open market by a willing seller to a willing buyer. That section of the Act further goes on to define uniformity. Uniformity stipulates, or states in the Act, that the assessor, in forming his opinion, shall have regard to the assessments of other properties in the municipality, so as to ensure that taxation falls in a uniform manner upon all residential property and resource property and in a uniform manner upon all commercial property.
The fair application of the valuation standard to all taxpayers is the essence of the job for the assessors. The courts have defined that the uniformity feature of Section 42 of the Act is the prevailing or predominant feature of that section of the Act, in the uniformity distribution of the property tax.
The Act requires an assessment appeal process. With the annual notice of assessment that's delivered in January of each year, the Act provides for a 21-day appeal period. The appeal process, briefly; once an appeal is filed - the stages of the appeal - first there is a review by the director; second, the appeal may proceed to the regional assessment appeal
court; third, it may be appealed to the Nova Scotia Utility and Review Board. The Utility and Review Board will be the final arbiter of the facts as to the value. Facts of law or issues of law will be appealed to the Nova Scotia Court of Appeal.
Just to give you a profile on the dimensions of the assessment file, we have approximately 550,000 accounts in the Province of Nova Scotia. The total assessed value for the year 2002 assessment roll is about $48 billion; $32.1 billion is residential, $13 billion of that is commercial property assessment, and the balance is between business occupancy assessment and machinery and equipment, for a total of $48 billion.
We have five regional offices throughout the province and two sub-offices. We have a staff complement of 160 people. With that, I conclude my remarks, Mr. Chairman. I look forward to the questions that, hopefully, I will be able to further inform, rather than confuse, on the matter of property assessment. Thank you.
MR. CHAIRMAN: Thank you very much. It is now 8:09 a.m. Is there another presenter? You're sharing duties this morning.
MR. DARROW: I have the duty, Mr. Chairman, to speak about municipal equalization and municipal taxation. It's a pretty broad field, but I will try to focus in on the salient features of each. First, I would like to talk about the equalization grant. The municipal equalization formula has been in place since 1980. It is authorized in the Municipal Grants Act. The formula has remained pretty much the same for the last 20 years. We made some relatively minor modifications which came into effect on April 1st of this year.
The budget for the equalization program, at the present time, is $31 million. That includes a $1.5 million foundation grant program for towns. The underlying premise behind the equalization program is to assist municipalities with the funding of standard services, based on their ability to pay for those services. The grant is provided annually to those the formula determines to be in greatest need.
Why do we provide equalization funding? The primary purpose is to close the fiscal gap between revenues and annual expenditure requirements for municipalities and to ensure that minimum service delivery standards can be met across the province. It enhances revenues for those municipalities with a weak tax base and a lower than average ability to pay. It recognizes the independent role of the autonomy of local government in the sense that the funding can be used for any municipal purpose, it's not stipulated in the legislation what municipalities can spend that money on.
The key parameters of the equalization grant program are its classification structure. The municipalities in the province, for the purpose of equalization, are divided into two classifications, urban and rural. The urban classification would include the towns and the regional municipalities and the rural classification would include the rural municipalities. The
other parameters that are taken into consideration in the formula are the number of dwelling units per municipal unit, the uniform assessment of each municipal unit, standard expenditures, and something called the standard tax rate.
The formula itself takes into account both the ability to pay and the cost of delivering services. I've provided a snapshot of the formula in my handout. The calculation is simply one where you would calculate the expenditure need of each municipality, you calculate its ability to pay, you subtract ability to pay from expenditure need and that leaves you with the equalization entitlement for that municipality.
In more detail, the expenditure need is equal to, in the formula, the number of dwelling units times the standard expenditure of that class. From that we subtract uniform assessment, times the standard tax rate, to give an equalization entitlement. I have included a couple of slides that provide some details of how this calculation is done for a couple of municipalities in the province, I won't go into detail on those.
The equalization grant - I will go down to the "how" slide. A municipality's equalization grant may increase if the standard expenditure of its class increases; its uniform assessment decreases; its ability to pay has decreased, therefore its equalization grant will increase; if the number of dwelling units increases then the municipality has a greater service requirement and its equalization grant, accordingly, will increase to reflect that.
A municipality's equalization grant may decrease if the standard expenditure of its class decreases; if its uniform assessment increases then its ability to pay is deemed to have increased and hence, its equalization grant will decrease; and if the number of dwelling units decreases then the equalization grant will decrease as well.
As I mentioned there are two classes, urban and rural. There are two standard expenditures that are calculated for urban and rural classifications. Over the last year, leading up to the Spring, we consulted with municipalities on the formula by way of a joint municipal-provincial committee. A number of refinements were made to the formula. The items that are included in the calculation of standard expenditure, there were some relatively minor changes and the classification structure was changed as well. Prior to April 1st of this year there were four classes of municipalities and now there are two classes. On April 1st we introduced the new foundation grant for towns, which works out to $50,000 per town. Also, when we implemented the changes to the equalization formula, so as not to have that result in some municipalities losing money, we red-circled any municipality that would lose money at last year's level.
The impact of the formula change. This year, for regional municipalities the impact was very minor. The towns, their per cent of the equalization fund went from 18 per cent to 24 per cent, and rural municipalities went from 25 per cent to 21 per cent. The budget for the
equalization program in 1997-98 was $16.3 million and that budget has increased steadily to the point now where it's at $31 million.
The formula that we use in Nova Scotia is unique in Canada in the sense that it takes into account both the ability to pay and the cost of delivering a standard package of services. The other provinces have operating grants of one form or another - block grants, revenue deficiency grants, or conditional grants - but Nova Scotia is the only province that takes into account the ability to pay and expenditure need.
So much for the equalization program. I will quickly walk you through some highlights of the property tax system in Nova Scotia. Its authority is contained in the Municipal Government Act and is based on two components. Your municipal taxes are based on your assessment and your tax rate. The assessments are compiled by the Assessment Services Division and are based on market values, as John indicated. Tax rates are set by municipalities and are based on estimated annual expenditure requirements, less revenues from other sources such as provincial and federal grants in lieu of taxes.
The property tax system is based on a number of principles. It's not a perfect system but it is based on principles of equitability, horizontal equity, in the sense that property owners with similar assessments will pay similar taxes within a municipality. There's vertical equity in the sense that property owners with higher assessments pay more in taxes. The system is considered to be transparent in the sense that it is easy for a taxpayer to obtain an understanding of how their taxes are calculated. It's a simple system to administer and cost-effective to administer, and there is a certain amount of predictability - taxpayers have reasonable certainty of what the tax impact is going to be year to year.
The Municipal Government Act gives municipalities a number of tools to use in the area of taxation. The legislation gives municipalities the ability to set different tax rates for residential and commercial properties; set different tax rates for urban, suburban, and rural areas; to levy area rates for any municipal purpose; to provide tax exemptions and tax deferals for those on low income; and to set a minimum tax on dwelling units.
I have provided a bit of a profile of the tax rates currently in effect in the province.
The total annual municipal expenditures are $967 million; the annual municipal tax revenue is about two-thirds of that, $625 million. The average residential tax rate in towns is $1.72, over the past five years that has dropped by 10 cents, or 5.8 per cent. The average residential tax rate in rural municipalities is almost less than half of that and that has changed over the past five years, it has dropped by 11 cents or decreased by 11.7 per cent. The average commercial tax rate in towns is $3.25 per $100 of assessment, that has increased slightly, by 1.8 per cent over the past five years. The average commercial tax rate for rural municipalities, at $1.69, reflects a decrease of a little over 7 per cent in the last five years.
The highest residential tax rate in the province is the Town of Pictou at $2.13. The highest commercial rate is the Town of Trenton at $5.50 per $100 of assessment. Guysborough, having come into some recent wealth, in the area of offshore gas, has now the lowest tax rate in the province at 60 cents per $100 of assessment and the lowest commercial tax rate is the Municipality of West Hants at $1.27.
One final slide. The property tax burden, on average, in Nova Scotia has been historically lower than most of the rest of the country, in both absolute dollars and as a percentage of household income. Property taxes on average represent approximately 2.1 per cent of household income in Nova Scotia versus approximately 3 per cent of household income for average Canadian households. Thank you, Mr. Chairman.
MR. CHAIRMAN: Thank you for your presentation. It is now 8:21 a.m. and we will start with the NDP caucus, questions for 20 minutes.
MR. WILLIAM ESTABROOKS: Mr. Chairman, I thank our witnesses for being here. I would like to direct the first number of questions that I have to Mr. MacKay. Mr. Darrow, I was keeping track of the number of times that the term "market value" was used. I can assure you that that terminology literally infuriates Nova Scotians. Your definition, Mr. MacKay, was very interesting to listen to when you said the willing seller to the willing buyer. The concern that has been brought to the floor of this House on a number of occasions is that there are sellers not willing to sell their property but have to sell their property. I personally have brought examples to this House, to the Premier, to the minister, of exceptions of people who have grave concerns about the one way to assess property in this province is the stand-pat, status quo, we use market value.
That's preaching from the sermon that never changes; yet the minister, over the past number of months, introduced a bill. We had Voluntary Planning tour the province, we were going to get different legislation, the Premier gave commitments there would be changes, the rock and roll of one extreme to another as we patiently wait for another way to assess certain properties in this province.
So I guess my question would come down to the fact - I would ask you because, as you know, we're coming up to the one-year anniversary, it was this Friday a year ago that Don Connolly from CBC said on this issue that this problem isn't going to go away. Well, for once I will agree with the St. F.X. graduate, Don Connolly, it isn't going away. It isn't going away because of the lack of flexibility from this department and perhaps from this government and perhaps it reflects the stubbornness, the intransigence of the Premier himself on this issue that it is constantly tied to the very easily brought out, trotted out time after time after time again we do assessments based on market value. Could you describe for me what is a hot market when it comes to assessments?
MR. MACKAY: I'm not sure I can describe a hot market. I can only reiterate what the legislation requires us to do with regard to assessment in the Province of Nova Scotia. The market value standard is well accepted in most, if not all, North American jurisdictions in terms of property assessments regime; the concept of the willing buyer, willing seller, is well entrenched in law of properties that are exposed and advertised in the open market. The obligation and requirement of the assessor is to analyze all those transactions that take place in the marketplace. We investigate approximately 18,000 to 20,000 sales a year. On that analysis, the assessors make the determinations as to what is an appropriate estimate of market value for that property at a specific period of time for assessment purposes.
How the assessors will respond, depending on what the valuations are in the segregation of neighbourhoods or locations or communities within the province, whatever those transactions are occurring for, and if they are arm's-length transactions between the willing seller and the willing buyer, and if the assessor, in terms of making those determinations, will reflect that on the assessment file. I'm not sure, in terms of the definition, Mr. Estabrooks, of a hot market.
MR. ESTABROOKS: Well, your answer disappoints me, because I'm no expert in assessment but I can tell you what a hot real estate market is. I can take you to the Back Bay in Terence Bay, I can take you to Kingsport, I can take you to areas all across this province. Voluntary Planning says it, Kell Antoft says it, Nova Scotians are saying it, but when we bring it up in this House at times, the members of the Third Party, and the members of the government call us various names or me personally these names, it's a non-resident issue.
Could you identify the fact that the non-resident purchase of property at exorbitant rates does, in certain portions of this province, particularly coastal areas of this province, drive the assessments up?
MR. MACKAY: I can't say that it's a non-resident issue. In terms of the market environment, as you described, it takes both the willing seller and the willing buyer for that transaction. Regardless of where we may go throughout the province, coastal areas and waterfront properties typically attract higher value when those properties are transacting on the marketplace. I think in the Lunenburg area, I'm not sure of the distribution in terms of the ownership, where that resides, if it's foreign ownership or non-resident to the community or non-resident to the province.
At one point - and I stand to be corrected - I think 60-some-odd per cent of the transactions were from Canada. I stand to be corrected on that. I think the water property and access to water typically attracts higher values. People want to locate there. On the assessment side in terms of the requirements for the assessor, we will track those transactions over a period of time and then reflect to ensure that there aren't not any anomalies within those values, but what these transactions say is what that real estate is worth at this point in time.
MR. ESTABROOKS: Sometimes listening to Jamie Muir, the Minister of Health, when you speak from the same clause time after time, it disappoints me. I understand the legislation, I understand your job and it's a tough one. The assessors are working within the bounds that they have. The concern that comes down, we can point to examples from our own communities, particularly if we represent seniors who have what we call homestead properties that these particular older Nova Scotians are looking forward to passing on, to keeping within their family as a part of the inheritance of the tradition of the Slauenwhites or the Meisners or the Wentzells or, of course, the Creasers. You know some of those names, you've heard of some of those cases.
Has there been any direction within your department to look at the exception, to look at the uniqueness of certain homestead properties and to include a clause that will provide for a different form of assessment for that sort of Nova Scotian?
MR. MACKAY: David might get ready for me to defer a part of the response to him on this, Mr. Estabrooks. Purely coming from the position of the assessment side, I think the principle of market value for what the assessors are required to do, as I've said, is a standard practice of value in assessment jurisdictions throughout North America. It is pure. It's one that people can easily relate to and understand in terms of what that assessment standard is.
Purely from an assessment, while we may be sympathetic to the individuals and those you have raised, in terms of a concern of suddenly finding themselves with very valuable real estate, and yet may have the challenge of income because of the increase in the property tax burdens. I think the department is looking at options where purely from the director of assessment's position, my opinion would be to maintain the integrity of the assessment process and maintain a respect for the market value standard. David may wish to add on the options that the department is considering.
MR. DARROW: Mr. Chairman, over the course of the last four months we have been working with three municipalities in the province, looking at the issue of taxation of waterfront properties, or taxation of properties whose assessment has increased by a large margin in a short period of time. We recently prepared a discussion paper that looks at a variety of approaches to dealing with this issue. One of the options has a homestead, in fact a couple of the options have homestead features in them. That discussion paper has been circulated recently to three municipalities: the Municipality of Lunenburg, the Municipality of Chester and the Municipality of Victoria.
At the Spring workshop of the Union of Nova Scotia Municipalities, my minister committed that we would work with those three municipalities, by virtue of the fact that those three municipalities are the areas of the province where this is the most significant issue. The minister committed that we would work with those three municipalities and see if we could
come up with an option of dealing with the problem that would be acceptable, then we would refer that on to the Union of Nova Scotia Municipalities.
As I indicated, we just recently, within the last couple of weeks, circulated a discussion paper on the issue and we will be meeting with representatives of those three municipalities within the next few weeks, following which we will recommend something or I guess forward something to the Union of Nova Scotia Municipalities. If we're unable to come to a consensus with the three municipalities on the preferred option, then we will present a number of options to the Union of Nova Scotia Municipalities and seek their input on the issue, before we move further with it.
MR. ESTABROOKS: Mr. Chairman, through you, I would ask if it would be appropriate if a copy of the discussion paper could be made available to committee members at an appropriate time. I'm pleased to see that there are some discussions taking place because working with municipal councillors closely, they, on occasion, feel out of the loop. I can tell your minister might say, well we've picked those three municipalities but the patchwork quilt that results means - in a completely self-serving manner - the MLA for a coastal community, that's fine that Lunenburg, Chester and Victoria are having some say but our situation in the St. Margarets Bay region or our situation from the Sambro Loop or whatever example I can bring forward.
I've heard this before that it's the standard and we have to have the integrity, which is sort of an oxymoron, if I can use that term when it comes to this standard, the integrity of it makes little or no sense. I want to share with you some e-mails and concerns that were brought forward.
I have an e-mail here, actually it's a clip out of the Bridgewater Bulletin. I received the e-mail and then the Bridgewater Bulletin followed up on it, and it comes from Patricia Parker of Northwest Cove. Her quote included in it - and I can provide you with a copy of it if you wish, if the lighting and my one eye work well here - Tie our land taxes to the cost of living index. Market value should only be a factor when the property is sold. Mr. MacKay, what do you think of that suggestion?
MR. MACKAY: I think we have heard several suggestions along that same pattern throughout the past year of freezing the assessments at the Consumer Price Index. It would only increase at the rate of CPI and only properties which have transacted on the marketplace have those assessments reflected at that market value and then only add additional improvements. Purely from my experience within the assessment field and although we might dispute it, I think the market value standard has withstood the test of time in assessment jurisdictions throughout the country. It is the benchmark that individuals can readily relate to in terms of whether that assessed value that they are in receipt of is a fair representation of value and that base ensures, in terms of the further requirement of the Act, that the property tax base is uniformly distributed amongst all ratepayers.
What happens, and I think it may be worthy, we would have a look at the practices across Canada over the last number of years. We only have to go as far as Ontario to look at the major reform that took place in the Province of Ontario in the 1990s and resulted in the creation of a new assessment agency in the province moving to the market value standard and the reasons why the change took place in the Province of Ontario were the inequities in the assessment process that many of the bases, Mr. Estabrooks, that you refer to, assessments were frozen at 1950 rates and new assessments as they transacted were coming up. This created major problems for the community such as the greater Toronto area and other jurisdictions within the province, and the province in the mid-1990s, late 1990s, moved to the full market value standard.
What takes place in terms of assessments being frozen, or only those, creates an inequity in the property tax distribution of the burden. It will mean that the properties that are probably increasing in value may pay a lesser tax rate than those properties that don't have the same degree of increase in value. Any time that the assessment base is adjusted in the matter of tax policy, it's going to redistribute the burden to somebody else and I think that's where the inequities are inherent within the changing of the market value as a standard. So it may give relief on one component, it creates redistribution to others.
MR. CHAIRMAN: Mr. Estabrooks, you have approximately two minutes.
MR. ESTABROOKS: Mr. Chairman, every time I bring this example up, I hear it from all sides of the House, Laurence Mawhinney, a knowledgeable municipal politician, the Mayor of Lunenburg, has said in correspondence to me, and I assume copies to everyone else, a similar system to P.E.I.'s property tax credit system for resident property owners is advocated by Lunenburg. Little Prince Edward Island, from personal experience, I can tell you has a different system in place. Laurence Mawhinney says it's an example that Lunenburg endorses. How do you feel about P.E.I.'s example?
MR. MACKAY: Well, I think we're talking on two different streams here. Prince Edward Island property assessment is based on market value. That is the standard throughout Canada and so how P.E.I. conducts the property assessment is no different than the Province of Nova Scotia. The taxation regime is somewhat different in Prince Edward Island, and what they have - and I stand to be corrected on it - is one rate that applies in terms of residential property. As long as you are a resident within the Province of P.E.I. then you will get a rebate of an amount of your taxes, which is essentially getting to if you are a non-resident you pay a higher property tax than residents.
MR. ESTABROOKS: I know all that, but what's your opinion?
MR. CHAIRMAN: Your time has expired, Mr. Estabrooks. Perhaps you can get him the next time around. The next 20 minutes will be dedicated to the Liberal caucus. Mr. MacKinnon.
MR. RUSSELL MACKINNON: Thank you Mr. Chairman. We'll have to forgive our socialist colleague, because his philosophy is rather obvious, what's his is his and what's yours is ours. So that would give you a better understanding of why he has problems with fair market value.
That having been said, my first question is with regard to the transfer of responsibilities on the issue of assessment to municipalities. How much money does the Department of Service Nova Scotia and Municipal Relations anticipate it will save by transferring that responsibility to the municipalities?
MR. DARROW: Mr. Chairman, we are recovering $12 million; in the past fiscal year we recovered $12 million from municipalities for that service and we don't anticipate that it will change significantly in the current fiscal year.
MACKINNON: How do you define "significantly"?
MR. DARROW: I don't expect it to go above $12 million in this current fiscal year.
MR. MACKINNON: So I want to be clear. You are transferring this responsibility to the municipalities, I am trying to get my head around what is the rationale? You know they already have the responsibility for property taxation. It would appear to me a bit of a conflict to have them do the assessment in the taxation unless there's some other driving force or motivation to it from a provincial perspective.
MR. DARROW: I think the motivation is and I appreciate the perception of a potential conflict of interest, I don't deny that - that the assessment base is used by municipalities. The province uses the assessment base for one primary purpose, that is to calculate grants to municipalities. Other than that, the assessment role issued by municipalities to set their tax rate, to determine what their revenues are going be. So municipalities are the primary beneficiaries of the assessment system, if you will. And I guess there is an appeal process in place - and John can speak to that better than I can - that will ensure that conflicts of interest are taken care of, if you will, in the sense that homeowners who don't believe that they have been assessed fairly have the ability to appeal their taxes. Those appeals are heard in the court of law and ruled on in that fashion. I think as long as that safety net is in place, the perception of a conflict of interest may only be that - as a perception of a conflict of interest.
MR. MACKINNON: Looking at the present structure, the province insures that arm's-length relationship, that's point number 1; point number 2 is that the province is in a better position presently to define what the value of that transfer of dollars is to each individual municipality. That will disappear once that transfer of responsibility takes place. How is the province going to react when a municipality comes back and says our assessment
hasn't increased, it has actually decreased, and the province is saying no, no that's not correct, and everything is log-jammed.
MR. DARROW: I would first of all like to indicate that the service is still being delivered by the provincial government. A decision has not been made with respect to who will be the delivery agent for that service. We have had an indication recently from the Union of Nova Scotia Municipalities that they're happy with the way the service is being delivered at the present time; maybe happy would be a bit of an overstatement, but they're content with the way the service is being delivered. So we haven't certainly made a final decision to turn this over to municipalities, but even if the responsibility for the delivery of the service were to be turned over to municipalities, the province would maintain responsibility for a couple of things. One is the legislation governing how assessments are done, and the other is standards for the assessment service and how assessments are done.
So, as I say, if the service were turned over to municipalities, the provincial government, at a minimum, would have to have the capacity to monitor the provision of this service and ensure that it meets certain standards and if those standards aren't met, then action would be taken accordingly. I don't know what that action might look like at the present time, we haven't discussed those details. As I say, there is a safety net of the appeal system if a taxpayer or a group of taxpayers feel that their assessment is incorrect and then have that ability to appeal to a quasi-judicial body.
MR. MACKINNON: Mr. Darrow, through you, Mr. Chairman, let's fast-forward over the roles and responsibilities platform. As I hear, what you're saying is, for such a transfer to take place - and that decision hasn't been made, correct . . .
MR. DARROW: Correct.
MR. MACKINNON: . . . there would have to be some type of legislation to accompany that transfer to ensure all these issues that you've just outlined, correct?
MR. DARROW: Yes.
MR. MACKINNON: I was a little surprised when I heard you say about the high tax rates in Pictou County. I know that the various municipal units there, some are doing well and some aren't, but as I understand, the Municipality of the County of Pictou is sitting on a sizeable surplus, somewhere in the vicinity of $20 million. I'm a little perplexed as to why, when we talk about utilities, such as Nova Scotia Power or Aliant or even the pipeline going through Pictou County and other adjoining municipalities, that is not identified as a provincial issue rather than just a local issue for assessment purposes for the distribution of revenue.
MR. DARROW: Mr. Chairman, through you to the member, for as long as I am aware of, the property tax base in Nova Scotia has been the exclusive domain of municipalities. I think I understand what you're suggesting, that it could be argued that this is a resource that belongs to all Nova Scotians, hence all Nova Scotians should benefit from that. That's certainly, I think, a valid argument.
MR. MACKINNON: Do you believe that it is?
MR. DARROW: It's an argument. I think it's . . .
MR. MACKINNON: No, in your capacity as a senior director do you believe that it is?
MR. DARROW: Well, I think it's an argument that could be made. I think the other compelling argument is that the property tax base has been the exclusive domain of municipalities. I think you really have these two competing principles, if you will, and that's a pretty compelling argument as well, that this is a source of revenue that belongs to municipalities and, hence, the provincial government should not dictate how it's shared among the municipalities. Therefore you have the situation in Pictou County, as you say, where the municipality is very secure financially and the town is stable but has to cope with high tax rates. If we are going to accept that principle that municipalities will have the exclusive domain of the property tax system, which we have and I support that, then those are the kinds of issues that you're going to be left with. That's one reason we have an equalization system in the province that helps to address those inequities, if you will.
MR. MACKINNON: You heard the old saying about getting stung twice? The first time it's not your fault, the second time it is. That speaks to the issue of the exchange of services and that transfer of responsibilities. Let's not be naive, municipalities are forced to set their tax rate based on the assessed value that's handed to them. It's kind of a cat and mouse situation, every budget that comes up. The municipality conveniently blames the province for the high assessments and the province blames the municipality for raising the rates because of certain issues there. That's always been the issue.
I will make one final comment and I will turn it over to my colleague. With regard to the services which you have indicated, I think we would be remiss if we didn't make the observation that the exchange of services was, in the final analysis, to the exclusive benefit of the province more so than it was to the municipalities, particularly with rural Nova Scotia. I don't want to go into history too much, but I think the evidence shows that presently, and that's having an impact on assessed values.
MR. CHAIRMAN: Thank you. Mr. Downe, you have approximately seven minutes.
MR. DONALD DOWNE: I'm going to continue on the issue of the municipal exchange. As I understand it, the assessors are now under a Crown Corporation which is - no? That hasn't happened yet? Okay. Is that going to happen?
MR. DARROW: I have no idea.
MR. DOWNE: That's still on ice.
MR. DARROW: Exactly.
MR. DOWNE: Okay. Is it the intent of the government, if that moves forward, that the computer controls would still be the responsibility of the Province of Nova Scotia, with regard to understanding and logging what the values are across the province?
MR. MACKAY: If I understand your question, Mr. Downe, if the assessment should form as a Crown Corporation, or an assessment agency independent of the province, and the province would maintain responsibility for the computerized assessment system? I think in the planning, no, that the Crown Corporation would take the responsibility for the delivery of that information technology system and support that's required for the administration of the assessment in terms of preparation of the tax rolls, the generation of the values.
MR. DOWNE: There's some concern at the municipal and town levels that this is another downloading and that's what they're concerned about, that the province would actually still control all the values and what's going on, but at the same time the municipalities would be the ones paying the bill for it.
MR. MACKAY: I think what David had indicated a little earlier, the province would maintain the responsibility for the legislative control and the standards that the agency would be required to operate at, but the full functioning of the assessment would be the responsibility of the agency.
MR. DOWNE: Is the department taking a look at the request by the Federation of Agriculture to have zero taxation on farm buildings - not their homes, but on farm buildings. Has that been looked at recently or is that - as it is, it's currently being done in other provinces in Canada. Is the department looking at that now?
MR. DARROW: That's not something that we have been asked to look at recently. We continue to provide the farm acreage grant in lieu of tax program which costs us $1.2 million a year so that represents a cost offset, if you will, to farmers across the province.
MR. DOWNE: I want to go back to the issue that we spent a lot of time on last year - actually, this year in the Spring - and that was on the whole issue of assessments and oceanfront properties and oceanview properties and the effect it has on individuals on the South Shore. Basically, the government's solution was to allow the municipalities to come up with their own ability to impose and find a solution. I know that, for example, in the Municipality of the District of Lunenburg, Warden Jack Wentzell is working with the Riverport Board of Trade trying to find a solution.
In some ways, is that not just a - the problem isn't going to go away, we still have a huge problem out there. We put a band-aid on it for now. You are talking, but the department hasn't seemed to be able to come up with a solution, other than staying with market-driven values and whether the issues of grandfathering, there were a number of solutions that we brought forward to the minister - pardon me? (Interruptions) Grandparenting, how's that? Does that make it politically correct? Good.
In all those areas that we brought forward, the department has not come out with any solution other than saying to the municipality, there, you go do it and figure out some option. Why hasn't the department been able to come up with a program that will meet the requirements of individuals that were experiencing 400 or 500 per cent increases in their assessed values, people who lived in those communities all their lives are being forced to leave, or sell, because of the fact that they couldn't afford to pay the taxes. Why couldn't the department come up with a solution to that?
MR. DARROW: Mr. Chairman, through you, the decision to work with municipalities in addressing this issue was made last Spring and since that time we have been working with municipalities on the issue. I think it's important to recognize that at the end of the day municipalities have a greater stake in this than the province does in many respects because the property tax base is their major source of revenue. I think it's important that they be involved in the process of determining how this issue should be addressed.
The commitment that we made, as I indicated previously, was that we would work with these three municipalities - Lunenburg, Chester and Victoria - and we have been working with them over the past months to see if we could come up to with an approach to this issue that we could recommend to the Union of Nova Scotia Municipalities. We're engaged in that process. Part of the arrangement that we made with those municipalities is that they would undertake to do something to address the issue in the short term. Under the provisions of the Municipal Government Act as it now exists, and indeed the Municipality of Lunenburg has done that, but that was intended to be a short-term arrangement until we had a more permanent solution in place.
MR. DOWNE: One of the concerns with the residents is that they're not in that loop. Albeit it's important to work with the municipal units as I concur, there's a third component - those are the people who pay the taxes. Why aren't they brought into that process? They
requested that the minister do that, they requested the department to make sure that they were part of that process. Why have they been told by the minister and the department, we don't want you at the table, we only want to deal with the municipality. The taxpayers have a responsibility, they have a right to be there, to bring their issues forward. Why were they rejected?
MR. DARROW: I think the jury is still out in terms of what extent taxpayers will be involved in that process. What I can say is that at this point in time we're working with the municipalities. I don't know what process might come into play in coming months in terms of consultations beyond the municipal unit.
MR. DOWNE: But, if I may, if you're going to report back after you have the discussion with the municipal units and report back to UNSM, where does the consultation take place? Why wouldn't that process involve the individual ratepayers? The Riverport Board of Trade is a case in point which has been a champion of this issue and trying to be involved in a process and the Matt Durnfords of the world, wanting to be a part of finding a solution. Why are they being, basically, left out of the loop? If you go to the UNSM and UNSM agrees with this proposal, without having them involved, they're going to be told what the outcome is and do you, as a member of the department, feel that that's fair?
MR. DARROW: First of all I don't think these individuals have been left out in the cold. We have had meetings and I think we have a clear understanding of what their suggestions are for dealing with the issue and those suggestions are being taken into consideration, I can assure you, as we proceed through our deliberations with municipalities on the issue.
MR. CHAIRMAN: Thank you, Mr. Downe, your time has expired. We now move to the next 20 minutes with the Progressive Conservative caucus. Mr. Barnet.
MR. BARRY BARNET: Thank you, Mr. Chairman. Mr. MacKay, the mandate of this committee is to examine value for money and we haven't really stuck very closely to our mandate here this morning. I want to bring us back to that particular mandate and talk specifically about the assessment process and whether or not there is value for money. Before I do that I want to inform you that I do have a significant background in real estate evaluation through the real estate business, so I do have some information with respect to the industry.
The approach that we use in the province to value properties, am I correct in assuming that it's the comparative approach to value, is that right?
MR. MACKAY: Depending on the type of property that you are valuing. There is generally recognized, if you are familiar with the real estate industry, there are three approaches; cost, market, and income, and that the assessment deploys the appropriate approach, depending on the property that it's valuing.
MR. BARNET: Right. On a residential property it would be, for the most part, a comparative approach to value?
MR. MACKAY: Yes.
MR. BARNET: With respect to tracking the performance of the department and I guess the only way you could really track the performance of the department is to have a sample size, or a random sample, to determine whether or not the assessment department is doing well, or you could track appeals and the success or failure of appeals. Does the department track that?
MR. MACKAY: Yes.
MR. BARNET: In what direction are the appeals going in recent years?
MR. MACKAY: In the first year, 1997, we moved to the introduction of an annual reassessment. Prior to that we were on a three-year assessment cycle. Each third year of introducing a reassessment on a third year, we would end up with approximately 6 per cent of our file, if not more, under appeal, which would amount to about 30,000 to 35,000 appeals and these would take us the next three years to process and then get ready for another reassessment.
Since the introduction of the annual reassessment in 1997, in our first year of introducing it we had 27,000 appeals. We are currently - on an annual basis - this year, we were in about 9,800 or 9,900 appeals. So the appeals have significantly declined as a result of the introduction of the annual.
MR. BARNET: In addition to the phenomenon of appeals declining, is it safe to assume - my other experience was with municipal government, I was a municipal councillor for HRM for a number of years - too, that municipalities are better able to plan with respect to their revenue source? I recall clearly in 1997, when HRM was faced with a variance between the commercial and residential assessments where, for the first time in a number of years, the commercial assessment compared to residential assessment had declined. It left HRM in a situation, as a municipality, of trying to find alternative arrangements on how they could structure their tax rates to be fair and reasonable. Has this annualized assessment helped municipalities, in your view?
MR. MACKAY: We believe, I guess, significantly we made improvements to the process and in delivering the assessment file to the municipalities. When we introduced the first annual assessment in 1997, we had given the municipalities, as well as the ratepayers in the Province of Nova Scotia, six months advance notice of what that proposed assessment was going to be. It enabled us not only to provide the municipalities with a heads-up as to what their next fiscal assessment roll may look like, but they also had a clear understanding of where the growth and changes may be happening within their own municipal unit. It further, in terms of getting the information out to the property owner earlier, helped us to give the property owners in each municipality a heads-up as to where the proposed assessment was coming from. We have encouraged the property owners to come in to our offices and talk to our assessors. So if there are any errors or omissions or things wrong, we can correct those prior to the filing of the formal assessment roll and issue the notice.
I think those improvements went a long way in terms of improving the accuracy and reliability of that assessment file to the Nova Scotia municipalities. You make a reference to your previous experience with council as well as within the real estate, one of the concerns, typically over the period of time when we were on the three-year cycle, what was unsettling for municipalities was the reliability of the assessment base. If we had a significant number of appeals outstanding for a period of time, they weren't sure what that margin may be in terms of that assessment base, of protecting it and ensuring there was accuracy and that when they set their rates they could have a reliability that the majority of that was going to be defended and supported by the assessment and confirmed.
MR. BARNET: The municipalities are required to annually budget for an amount of revenue that would potentially be impacted by assessment appeals. Have they been allowed to, or have they, over the past number of years, reduced that amount of budget item? Because it's more accurately reflected in the assessment rate in the beginning, obviously there would be a lesser demand for that.
MR. MACKAY: I can't comment on what the practice of the municipal budgeting requirements may be, if they are setting aside a reserve for potential appeal allowance. I can say from the provincial assessment side, we have a standard, internally, that the adjustment on the file would be no more than 1 per cent of what we had filed. I'm not sure how municipalities may account for the budgeting. Maybe David can best respond to that.
MR. DARROW: I could speak to that issue, Mr. Chairman. The municipalities are required, on their budgeting, to provide for a valuation allowance, which covers such things as uncollectable taxes. That would be the case if there were significant adjustments in the assessments over the course of the year. I can tell you that over the course of the past couple of years, we have made some changes in the calculation evaluation allowance to the effect that municipalities are able to decrease the size of that budget allocation. In part, I think that's related to the fact that there's been greater stability in the property assessment base.
MR. BARNET: I have a couple of other questions with respect to that, but in the interest of time, so I make sure I get to the questions of most importance, I want to switch a little bit to equalization. Does the department have in place some form of performance criteria to ensure that funds that are received through equalization are best utilized or are utilized to the best ability of municipal units? One of the complaints that I heard from municipal units was that the system that we have in place now just simply allows, as a matter of course, that municipal units get this amount of money, and that there has been nothing in place to determine whether or not, first of all, they need it and, second of all, that the money is being best used. Do we have in place some form of performance criteria or something?
MR. DARROW: We have in place a system that we refer to as municipal indicators. In that system, we collect information annually on the performance of municipalities on a whole variety of parameters.
The ones that I think relate are the parameters relating to the municipality's financial condition, parameters relating to community and economic performance, parameters relating to governance.
The ones that may be most relevant in respect of how a municipality is doing relative to other municipalities and are they worthy, if you will, of the equalization allocation that they receive annually. We have a whole series of performance measures, administrative costs per capita, police services costs per $1,000 of assessment, police services costs per capita, fire services costs per $1,000 of assessment, and so on, storm and sewer costs per capita. There's a wide range of them. They're published on our Web site. If you wish, you can go into that system and you can take one municipality and compare it to all other municipalities in the province. You can quickly see where there are anomalies.
To this point in time we have not set hard and fast benchmarks of performance that municipalities must meet in order to get their equalization allocation. We wanted to put the system in place. It's been in place now for less than a year. We want it put it in place, collect some information over a period of two or three years and then we would look at the issue of benchmarks and what process we might put in place to ensure that municipalities are at least meeting those benchmarks or at least are able to explain why they're not meeting those benchmarks, or have credible reasons why they're not meeting those benchmarks.
The short answer - I've given you a long answer - is that we have a system in place. We don't have hard and fast benchmarks to this point in time. We will have to collect information for two or three years in order to put us in the position to do that.
MR. BARNET: That seems reasonable. Assessment is only one factor; obviously the tax rate is the other. You combine the two and you get the bill. One of the interesting things that I've noticed, and my math may not be exactly correct, is that since 1995, the time of amalgamation for HRM, when you factor these two equations together and you look at the
time that has passed, the actual total revenue that HRM now receives to pay its bills is up by 25 per cent from the tax component of their revenue.
It would seem to me that that would be the kind of information that the taxpayers, the ratepayers, would be more interested in, rather than their rate or their assessment. Yet, they never seem to be able to get that or it's not widely talked about. The media is quick to talk about, and we are, as legislators, the assessment. Municipal councillors are quick to talk about the rate, because often the rate doesn't go up, yet the tax bill goes up. It would seem in the best interest of all Nova Scotians to somewhere, in some succinct form or format, put forward that information so people can look to see how their municipal unit is faring out with respect to their total tax bill, because assessment means nothing if you apply a higher or lower rate to it. Is there anything the department does to make those figures public so that the public can access that?
MR. DARROW: We have two things. We have published a municipal statistics book, annually, which is a very comprehensive document reporting on a whole array of financial parameters respecting the operations of municipalities in the province. The second thing is the municipal indicators system that I mentioned. Although we haven't gone to great lengths to advertise that system, it is on-line, you can go on to the department's Web site and you can
access these parameters including, things like taxes as a per cent of revenue, residential tax burden, expenditures per dwelling unit. So I think there's a whole array of parameters there that can be accessed by taxpayers very easily over the Internet. If we've fallen down in any area, it's that we haven't advertised that and it has been up and running only for a few months. We wanted to work out the bugs and I think once we're satisfied that the bugs have been worked out, we may take steps to further broadcast the fact that it does exist and it's easily accessible and very user friendly.
MR. BARNET: Well, that's the kind of information I believe the taxpayers would be interested in. My final question before I pass it over is just to move back to assessment. Does the department have direct access, or reasonably direct access, to building permit information? The reason that I ask that, obviously, with new construction, with renovations and additions, there's an increase in value and it would seem to me that to make sure there's a very accurate reflection of that value there would be some need to have direct access to that information. Is that the case?
MR. DARROW: Yes. Each municipality within the province, we receive from them on a monthly, if not bi-monthly, basis all the permits that were released within that municipality and then the assessors will investigate and record any changes, alterations or improvements as a result of those permits. That's a critical piece of the work and we reconcile permits that we received at year end with the municipalities to ensure that we have properly reflected those improvements on the new assessment roll.
MR. BARNET: I'm going to pass the rest of my time over to the member for Kings North.
MR. CHAIRMAN: Mr. Parent, you have approximately four minutes.
MR. MARK PARENT: Mr. Chairman, unlike my colleague who has expertise in this area, I have very little. God may assess us, but we cheerfully ignore God's assessments. I do have a question that arises out of the riding which I represent and that's a riding that is sharply divided, at least in terms of tax rates, between the rural municipality and the Town of Kentville. The changes in 2001 are probably too early to see how it has affected towns and whether it has helped to even out the tax burden, but perhaps already you can begin to see some effect of the changes made in 2001 and some ideas because I continually get comments from the town that their tax burden is very high - there are certain towns I think affected more than others - but in Kentville I see the growth right on the edges of the town in New Minas, which is part of the rural municipality of Kings, and in Coldbrook and in North Kentville. It's a constant problem in my particular riding so I just want some thoughts on that.
MR. DARROW: Thank you for the question, through you, Mr. Chairman. In some respects it is a little too early to tell what impact the changes will have although we do know that collectively towns are this year about $5.25 million better off, if you will, in terms of transfers from the provincial government than they were last year. That sounds like a lot of money. It represents almost 5 per cent of own-source worth revenues. To this point we haven't seen major reductions in tax rates. I think what the municipalities have done, and I'm only speculating at this point, is that they've taken that additional revenue and it has enabled them to do some capital projects that they heretofore haven't been able to tackle. So they've opted to use the money in that fashion and there's no doubt that there's an outstanding need for investment in infrastructure. So I think they've opted to use the additional revenue in those areas as opposed to actually reducing their tax rates.
There's no doubt that this urban/rural, as I indicated in my presentation, the tax rates in towns tend to be on average almost twice the tax rates in the rural areas of the province and in many cases you can obtain the same services in the fringe outside of a town that you can in the town but pay half the taxes. As I say, we've made a step to address that issue in the changes that we made to the equalization program and the foundation grant program. It's recognized that it's not the ultimate, but it is a step in that direction.
MR. PARENT: Do I have time for one quick question?
MR. CHAIRMAN: Time has expired. The next round will be approximately 11 minutes and to the NDP caucus.
MR. ESTABROOKS: Mr. Chairman, where was I? May 7, 2002, a letter from Mayor Mawhinney to the Premier said, we implore your government to also address the inequities
created by non-resident property ownership price spikes. A system similar to P.E.I.'s property tax system for resident property owners is advocated by Lunenburg. The provincial government must realize that all of our natural resources, including land and the buildings located thereon, are highly coveted in the international marketplace. Mr. MacKay, what do you think of P.E.I.'s example?
MR. MACKAY: Well, where I have to answer is with regard to the market value standard. If you're asking for their taxation policy, I don't know if I can adequately, or even fairly, make a comment with respect to that's the appropriate system that may be required for Nova Scotia. It apparently works for P.E.I. I'm not sure if . . .
MR. ESTABROOKS: Maybe I should put it this way - I would assume that in your position you're in contact with, through annual meetings or through some formal gatherings of similar people in your position throughout this country, have you had this discussion in any way with someone from Prince Edward Island of a comparable position to yours?
MR. MACKAY: Well, when we come together on an annual basis on the various assessment jurisdictions across the country, our focus is on the delivery of the property assessment function. I cannot recall us ever getting into the discussion and dialogue about property taxation policy.
MR. ESTABROOKS: I would like to turn to the example - and I've heard everyone say well, you know, the standard example is this and we do market value for that and that's sticking to the script, that's where after all you've come from, and I can tell you that the bureaucrats, reputation of advocating policy, I find it almost criminal that the human factor at times isn't considered here - I point to the example of California. Proposition 13 was brought forward almost two decades ago. I have, in fact, a constituent by the name of Debbie Darrah who has brought it to my attention says that - and I can give you Ms. Darrah's address and telephone number, she's willing to talk to anyone about this and you know these are the sorts of people we get to hear from on these issues - I know my family's property - this is the family's property in California - will not increase dramatically until the property is sold.
Now, that's grassroots democracy. That's the title of Kell Antoft's latest text on municipal government in Nova Scotia - Grassroots Democracy: Local Government in the Maritimes. Proposition 13, that was brought forward in California, obviously is working. Do you know anything of the situation in California or in Florida where there's a similar problem with coastal properties? Those two American examples, I'm trying to find out more about them and I'm wondering what you can tell me about them.
MR. MACKAY: We're familiar with the California example in terms of Proposition 13. We are familiar I think with the issue, or resolution of an issue in counties in Florida with regard to homestead and how they may treat those. I think that is information which we have provided to the department. I think Proposition 13, it is well worth the effort to look at the consequences for municipalities in the State of California where Proposition 13 wasn't posed, and the consequences both on municipal revenues and the equitable distribution of the property tax burden amongst ratepayers owning equal property, I think it's worth looking at the implications that it had on municipal infrastructure.
We've had contacts with the State of California and authors who have written some text with regard to that form of taxation policy. I think, purely from the property administration side, the experiences, particularly in the State of California, are things that, purely from an assessment jurisdiction and administration side, probably from a municipal level of government side, increases significant levels of an equity within the distribution of the property tax burden and their capacity to be able to generate revenue to support those services. I would be happy to share that information, in terms of looking at it from another perspective. My advice, typically, is to say that before we leap into changing a tried-and-true market value standard and the practice within the Province of Nova Scotia, that we look at the experiences of other jurisdictions that have changed the market value standard.
You referenced me in terms of my remarks of the bureaucrat and maintaining the script, what I have to say with respect to that is that as the director of assessment, responsible for the administration of the Act, I have to be faithful to the Act. What the Act requires us to do is to value property. You had also referenced that sometimes on the compassionate side we are blind to the people and how that practice may impact, but the Act does not, and I think appropriately so, give that discretion to the director of assessment. I think we would have a much different debate and discussion if the director had that capacity to assess value and determine it on who owned particular types of property.
What the standard is, we believe, is a completely objective review of what property is worth at a certain point in time. As a result of that review, we issue a notice of assessment, we encourage people to come in so we can explain the process, we stand the test in terms of the various appeal mechanisms, to be held accountable for how we have applied that Assessment Act and said yes, we have been faithful to what that Act requires.
MR. ESTABROOKS: I'm pleased to see that you know of the situation in California. I hope you've brought that to the minister's attention, and I hope you will continue to show the initiative that this could be the direction in which we should proceed in this province. The close-mindedness and the stubbornness, when it comes to the fact that this is the way the system works and this is what we're sticking to, is the wrong message to send to Nova Scotians. They are frustrated and they're upset. They're concerned about the fact that they're not being treated fairly.
We've heard from these Nova Scotians. They've spoken to us. We bring them in the forum that we are involved in publicly. It's not a personal situation here but, after all, let's talk about the fact that when we deal with the people who contact our office with the concerns that they have - to quote Mr. Connolly, from CBC, again - the issue is not going to go away. I believe that you people, in your situation, have a responsibility to make sure that the senior bureaucrats in your department, the minister specifically, is aware of the fact that there are other examples in other jurisdictions, and we are looking at them. Hopefully those discussions will take place between a senior bureaucrat and person in your particular position.
But I have to come back to this issue and it concerns me to the degree that we talk about people who are consulted and listened to. We can talk about the Riverport Board of Trade, but Kell Antoft is a personal friend of mine, he's someone I have turned to numerous times in the past on other issues because of his experience in the college system. He has written a wonderful book called Grassroots Democracy. So, Mr. MacKay or Mr. Darrow, have you had discussions with Kell Antoft on some of his ideas when it comes to the very issues that you have to put in practice?
MR. CHAIRMAN: Could your answer perhaps be a yes or no? Our time has expired.
MR. MACKAY: No.
MR. ESTABROOKS: That's unfortunate.
MR. CHAIRMAN: The next 10 minutes to the Liberal caucus, Mr. Downe.
MR. DOWNE: California Proposition 13 is basically limiting the value of growth of the property or the assessed value of the property to either a fixed level of increase or CPI is what one of the communities, the meetings I had in our local areas. Then there's a provision in there for renovations. That's basically California Proposition 13. I understand that there's been some discussion with the municipalities of the District of Lunenburg, Chester and Victoria. You brought a proposal back to them just a couple of weeks ago and in that proposal you have a number of options. My question to you is, the proposal around California Proposition 13 and the homestead proposal, are they part of the proposals that these three units are looking at? These are short snappers and I don't have a lot of time, so just yes or no.
MR. DARROW: We've established some principles and one of the principles is that we will not compromise the fundamental basis of market value assessment. We don't have an option that looks exactly like the California Proposition 13, but we have a variety of options that do a variety of things, different things, to address the issue. But we do not have one that looks like California Proposition 13.
MR. DOWNE: As I understand it, in the proposals that you brought to the Municipality of the District of Lunenburg, there's nothing in there that talks about consulting with the Riverport Board of Trade or the concerned citizens of the South Shore with regard to these proposals that you have. Is that accurate?
MR. DARROW: There's no reference to a consultation at all in that document.
MR. DOWNE: My question earlier, the taxpayers, the ratepayers who are paying the bills, when do they get involved in the process?
MR. DARROW: Well, as I indicated previously, I think we are certainly well aware of the solutions that have been put forward by citizens' groups. We've listened to them, we've met with them and we have reflected some of the suggestions that have been made and the options that we have identified. I don't know. Once we have gone through that process of consultation with municipalities, I have no idea what the consultation might look like beyond that point in time. It could very well . . .
MR. DOWNE: In your discussions with these three groups, there's been no discussion from either side that the public and the concerned citizens who have brought these issues forward will be consulted?
MR. DARROW: We have not talked about that to this point in time.
MR. DOWNE: From this point, I guess it was just a couple of weeks ago that the proposals - 10 days ago - landed on these three municipal units' desks. You've been with this now for a long time, you had discussions, I think, in the summer and it's just now landing on the desks. So this will not be handled this year, it will be next year before we get any solution. From the three units, if they do find an agreement, then it goes to the UNSM, is that accurate?
MR. DARROW: That's correct.
MR. DOWNE: So how is this going to work in regard to having some sort of uniformity across the province, then, if you're looking at different options now for these three units?
MR. DARROW: Our hope is that we can reach a consensus that we would put back to the UNSM. I would make a prediction at this point that we probably will not be able to reach a consensus because I do know that in the discussions we've had with these three units to date, there's not agreement among them on how to approach this problem. One unit says that it's an assessment issue and needs to be addressed by changing the assessment rules, another unit says that it's a taxation issue and needs to be addressed through changes to the
taxation rules. We haven't a consensus there. It's hard to tell at this stage what the legislation might look like in terms of any amendments.
MR. DOWNE: One of the difficulties you're going to have - if I may interrupt - is the formula is going to be based on uniform assessment, the formulae for roads and education and everything else. So here lies the box that you're in. You have a problem in that you're forcing people off their land because they cannot afford to pay 500 per cent increases in their taxation, assessment values in the properties, and we have proposals that are going before these groups without consultation with the public that are paying the bill and, from that, you have every one of those disagreeing with the concept of what they're asking you to look at. You want to stay with the market-driven assessment and then you're going to go to UNSM to try to get them to agree with it. This will not be resolved, from what you're telling me you're not going to find a solution to this matter without the minister sitting down with the communities and the people who are being affected, besides the municipal units, and finding that solution.
MR. DARROW: I think the primary objective of this exercise is to find a means of ensuring that property owners do not have to lose their properties as a result of high increases in taxation. I have every confidence that we will be able to find a mechanism to do that.
MR. DOWNE: Just for your information, back home they came out with a tax rebate to help some of those people with - well, there were 13 who applied, eight got it, for a total of $4,300. Out of that eight, one of them received half of the $4,300. So it has not been a big help for those people in Lunenburg County who have had huge increases on their assessments. So a lot more work needs to be done. I just wanted to make that clear. I will turn it over to my colleague.
MR. CHAIRMAN: You have approximately four minutes, Mr. MacKinnon.
MR. MACKINNON: Mr. Chairman, I wanted to go back to this transfer of responsibility to the municipalities. Has anyone in your department been commissioned to draft legislation with regard to the transfer of this responsibility on assessment?
MR. MACKAY: No, not as yet. Currently, the way the Assessment Act provides, is that the minister by a regulation can first set a board or a different delivery mechanism of how assessment may be delivered.
MR. MACKINNON: No, no, I'm talking about the transfer of responsibility from the provincial?
MR. MACKAY: No.
MR. MACKINNON: The answer is no?
MR. MACKAY: No.
MR. MACKINNON: So, in all likelihood, there will not be a change of process going into the next budget, am I correct, given the lateness?
MR. MACKAY: Well, purely from the assessment side, I would remain optimistic that we would be able to see a transition of an assessment agency, whether it's a Crown Corporation or . . .
MR. MACKINNON: Aside from your optimism, let's be realistic, it's not going to happen before the next budget, is it? Yes or no.
MR. DARROW: I would say it's unlikely to happen, and I would also like to point out that we have recent correspondence from the Union of Nova Scotia Municipalities which says we're content with the province continuing to deliver that service under the present arrangement.
MR. MACKINNON: Now, just on a local issue. With regard to the loss of economies, the industrial economy in CBRM, the loss of revenue from Sydney Steel, what is the province doing to address that loss of revenue for CBRM, or are they forcing CBRM to generate revenues through other taxation means?
MR. DARROW: I believe the grant in lieu of taxes for Sysco is being maintained for the current year. The other thing that I would point out is that . . .
MR. MACKINNON: What about for next year?
MR. DARROW: I don't know whether there has been a decision made on what will happen next year. What I can tell you is that under the new equalization and NSPI taxation arrangements that we introduced last year, and the final lift, if you will, of the social services cost exchange, the Cape Breton Regional Municipality, their financial position relating to transfers from the province and NSPI, saw a net gain of $3.7 million last year.
MR. MACKINNON: You may want to check with their opinion on that, because they see a different opinion in terms of revenues and NSPI.
MR. DARROW: Well there's no question as far as those numbers are concerned, because we calculate the equalization and the equalization number has gone up by about $2.9 million year-over-year and their grant in lieu of taxes for NSPI has gone up . . .
MR. MACKINNON: Mr. Darrow, I know my time is just about expired, but if you apply the same factors as you did in the pipeline in Pictou County as you did for the assets of NSPI, CBRM would receive significantly more because 50 percent of their asset base is
in industrial Cape Breton. Am I correct? Yes or no . . .
MR. DARROW: Not 50 percent.
MR. MACKINNON: Well close to it.
MR. CHAIRMAN: Thank you, your time has expired, Mr. MacKinnon, and the next 10 minutes belongs to the PC Caucus, Mr. Parent.
MR. PARENT: This comes out of - as I say - I have an interesting riding, half town, half rural and I have to question it on the town side. I can see how the fair market value works well when you have a significant number of houses being bought and sold or properties being bought and sold. In rural areas sometimes you have very little turnover. How does it work in that case where you don't have a lot of comparisons to make, because you don't have a lot of property turnover? So for example, in one particular instance, a couple from Montreal paid double what they should have paid really for this property. It affects the assessments of everyone else, and because there's not a lot of turnover, that anomaly becomes quite significant. So, how do you even those out?
MR. MACKAY: Well, I'll say first that the one sale does not make the market of how
we may do that interpretation. We have been investigating sales for a good many years and we would average somewhere within the vicinity of 18,000 to 20,000 sale transactions throughout the province on an annual basis. So what the assessors are consistently doing, are billing market trends within the neighbourhoods as those sales occur. And the basis for the assessment which your colleague had asked on a previous question, was the approach that we use to value.
What the assessors are required to do is first to determine an estimate of value for the land if the land was vacant, determine a replacement cost for the structure that's on in terms of the home and any improvements that may reside upon the property. And then, make the determinations as to the extent of the transactions' market values that have taken place within the area if that conclusion represents a reasonable estimated market value at that point in time. So what they will have a tendency to do, is look at the sales within that particular neighbourhood within the rural municipality. If there's a limited number there, they will expand it into what we refer to as a macro neighbourhood, to go a little bit further and to look for similar transactions of similar properties to make sure that the estimate they're going to place on the property is a reasonable estimate at that point in time.
MR. CHAIRMAN: The honourable member for Preston.
MR. HENDSBEE: I have a series of questions in a very limited time, so I'll probably ask them on a short snapper format. First of all, PIDs, does that stand for property information data or . . .
MR. MACKAY: It is a property identification number.
MR. HENDSBEE: Now in regard to the accuracy or the pinpointing of data in regard to our data banks, how accurate is our assessment account numbers to a PID? Are all properties identified and if they are not, how many properties are out there that don't have a corresponding tax file?
MR. MACKAY: I don't think that's an easy answer and I'm not sure of the 18 counties that we have in the province as to what the percentage of match is.
MR. HENDSBEE: In regard to the data banks, I'm familiar with our GeoNOVA that we have in Amherst and stuff. What data bank does the department use in regard to keeping its information most current and updated, does GeoNOVA use its own database or are there shared information systems?
MR. MACKAY: The GeoNOVA, I think, is in terms of the concept of geographic information systems of land and what's on the land throughout the province. We maintain
on the assessment side, an oasis system, a computer system, master appraisal system. On the geographic side, the Nova Scotia property record database maintains their own database with regard to land mapping, the registration of the property owner, the location of that property, and what we feed to them in terms of shared database is the assessed value for those accounts. People subscribing to the Nova Scotia property database can get a record of who owns the property, the types of transactions that have been recorded, they can see a map of the location of the property, and they can see what the assessment is recorded on that property.
MR. HENDSBEE: Business occupancy tax is one of those issues that is very hard for a business owner, and an occupant of that same property, to justify in regard to that. It's probably one of the most problematic collectible accounts that the municipalities are faced with. What's the status of the business occupancy tax discussions with municipalities, with the elimination of it?
MR. MACKAY: I think that's best answered by David.
MR. DARROW: Thank you for that question. We have been working with municipalities over the last year to identify a means of eliminating that tax. I think we all agree that the elimination of the tax is a goal that we should embrace. As you have indicated, it's costly to administer and it's impossible to collect all of the business occupancy tax that is assessed. We all agree that we would like to see the business occupancy tax done away with, and we have been working on a process for doing that. The business occupancy taxation system is complicated in the sense that there are a number of classifications of property; some
properties pay 25 per cent business occupancy now; some pay 50 per cent; some pay 75 per cent; and some, such as charitable organizations, do not pay business occupancy tax.
We are trying to find a way that we can eliminate that tax without having negative impacts on groups of property owners, and it has turned out to be a little more of a challenge than we had anticipated. We continue to work at it, and we're hopeful that we will be able to come up with a system that will mitigate the significant negative impacts, and when we've done that we will proceed with the legislation.
MR. HENDSBEE: With those negative impacts, you're afraid of what that may cause to the commercial rate or the residential tax burden? Will there be a shift of taxation amounts because of the loss of revenues from other sources?
MR. DARROW: Ultimately I think municipalities will have some say. You don't wipe out a source of tax revenue without replacing it in some fashion, and whether municipalities replace that lost revenue by increasing commercial rates - I expect that would be the most common way that they would do it, but as I said, in the process of doing that there are groups of property owners such as non-profit organizations that are presently exempt from business occupancy tax. We're looking at a way that would enable us to do away with the tax that wouldn't have a negative impact on non-profit organizations and there are other property classifications as well.
MR. HENDSBEE: In regard to some of the comments about Proposition 13 in California and someone didn't bring up the example perhaps of rent control in New York City and stuff, in regard to residential properties, what are some of the negative impacts that Proposition 13 has had on municipal revenues, as in California, and has there been an inequitable shift of the tax burden?
MR. MACKAY: Do you want a short snapper?
MR. HENDSBEE: I have less than a minute to go.
MR. MACKAY: The response is it has had a negative impact on municipal revenues and it has caused inequity in the distribution of the property tax burdens in terms of what individuals, side-by-side, may pay for similar services. I think the impact has been significant.
MR. HENDSBEE: My last question. In regard to recreational lands, is there a policy in place in the province for a tax break or an acreage exemption for recreational park lands, for example, golf courses, of any sort?
MR. MACKAY: What the Act requires on recreational property - and I forget the specifics in terms of the detail - I think up to three to five acres plus the buildings are treated as a commercial property, and the balance of the acreage is treated as recreational property.
They have paid a fixed amount on a per-acre basis, and I think it was escalating over a period of time.
MR. CHAIRMAN: Our time has expired. We now have a few minutes, if the witnesses desire to have any closing remarks, this would be the opportunity.
MR. MACKAY: If I may, I do appreciate the opportunity to come and discuss the property assessment and the requirements that we have within the Nova Scotia Assessment Act. I hope the information that we shared was useful, that we are able to build a mutual understanding of what the legislation requires us to do, and for considerations with regard to the coastal property assessment piece, as to the discussions that will take place within the department, that we canvass the totality of that issue and the impact of what decisions may be with regard to that. I appreciate the opportunity of having appeared. Thank you.
MR. CHAIRMAN: Mr. Darrow, do you have any concluding comments?
MR. DARROW: I want to thank you for the opportunity to appear. I know this equalization information and taxation information is pretty dry at times, but it's our bread and butter, if you will. I appreciate having the opportunity to tell you a little bit about what we do in our shop. Thank you very much.
MR. CHAIRMAN: Thank you very much for appearing today. The next meeting of the Public Accounts Committee will be Wednesday, January 15th. It will be an in camera session with the Auditor General.
We are adjourned.
[The committee adjourned at 9:53 a.m.]