Full Implementation of New Requirements for Municipal Financial Plans

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Full Implementation of New Requirements for Municipal Financial Plans

Circular No. 09:13
ARCS File#: 195-20

April 9, 2009

To: All Municipal Financial Administrators

Re: Full Implementation of New Requirements for Municipal Financial Plans

This circular deals with the full implementation of changes to the Community Charter in relation to the financial plan (Section 165) and annual property tax bylaw (Section 197).

What are the full revenue and tax policy disclosure requirements?

This year marks the full implementation of requirements for revenue and tax policy disclosure within municipal five-year financial plans. As added by Bill 35 (Miscellaneous Statutes Amendment Act (No.2) 2007), Section 165(3.1) of the Community Charter now requires all municipal five-year financial plans to include a more explicit form of revenue and tax policy disclosure. In 2009, municipalities are required to include in the five-year financial plan, explicit objectives and policies regarding each of the following:

the proportion of total revenue that comes from each of the funding sources described in Section 165(7) of the
Community Charter;
the distribution of property taxes among the property classes; and
the use of permissive tax exemptions (such as revitalization tax exemptions).

In addition, before adopting annual property tax rate bylaws, all municipalities must, under Section 197(3.1) of the Community Charter, consider the proposed tax rates for each property class in conjunction with the objectives and policies as set out under Section of 165(3.1)(b) [the distribution of property taxes among property classes] of the Community Charter.

Parallel legislative requirements in the Vancouver Charter also require the City of Vancouver to undertake a more explicit form of revenue and tax policy disclosure.

What is required for 2009 Financial Plans?

In 2008, financial plans were required to include explicit statements about each of the three areas (funding sources, distribution of property taxes, and permissive tax exemptions). In 2009, Councils will need to build on the statements that were developed for 2008 and construct explicit objectives and policies in each of the three areas. Councils are required to provide more detail about their rationale in making choices on each of the three matters, the direction they are heading and how they are going to get there. Essentially, 2009 is an opportunity to develop both a short-term and a long-term vision about revenue and taxation policies.

What is meant by objectives? What is meant by policies?

There are no legislated definitions for the terms “objective” and “policy”. As a general guideline, an objective can be viewed as a specific goal or purpose that one is interested in achieving (if possible, within a specified timeframe), and a policy, as a course of action or a set of actions that are to be used to achieve that objective. As there will inevitably be overlap between the two terms, do not be overly concerned with “what is an objective” and “what is a policy”, rather, focus on the content and substance of the objectives and policies, and the process involved in developing them.

How should municipalities go about developing explicit objectives and policies for 2009?

When completing the full revenue and tax policy disclosure requirements for 2009 (and beyond), examine and evaluate existing revenue and taxation policies by reviewing, for example, current bylaws, formal policy documents and past meeting minutes. In addition, undertake discussions with the public, through a process of public engagement. Councils should also look outwards, beyond their own municipality, to understand the context within which their revenue and taxation objectives and policies fit (e.g., relative to other municipalities and the province as a whole). Generally, effective objectives and policies can be achieved through a combination of inward and outward reflection and a consideration of short and long-term vision

What specific questions should municipalities ask themselves when developing objectives and policies? Are there examples of what objectives and policies could look like?

The following provides an overview of some of the specific considerations that should be taken into account when developing objectives and policies in relation to each of the three areas. Some examples of objectives and policies are also provided below. Note, the policies under each section are not necessarily linked with the objectives in that section - each bullet is a separate example.

(a) Objectives & Policies: Funding Sources

To develop objectives and policies regarding the proportion of total revenue that comes from each of the funding sources described in Section 165(7) of the Community Charter, ask yourself the following types of questions:

Are we comfortable with the current mix of funding sources?
In the next 2 years, do we want to maintain the current proportions of funding sources?
What about the next 3, 5 or 10 years?
Are there funding sources that could be developed further to gain more revenue?
Are the funding sources sustainable in the short and long-term? If not, what is our plan for transitioning to more sustainable funding sources?
How could additional funding sources be pursued? On what timeline?

Examples of possible objectives for this requirement include:

Over the next five years, increase the total proportion of user fees by 2 percent above the current levels.
Over time, decrease the city's reliance on property taxes and focus instead on increasing our percent of total revenue received from user fees and charges.
Over the next year, increase the amount of revenue received from government grants by at least one percent.

Examples of possible policies for this requirement include:

Mitigate the impact on property taxes by pursuing non-property taxes whenever possible through applying for government grants and charging user fees at appropriate levels.
Ensure that fees and charges are increased on a regular basis in line with inflation while ensuring that services remain affordable and competitive.
Attempt to keep the proportional share of revenue from property taxes at a level similar to the average of comparable municipalities.
Pursue cost recovery for water, sewer and other municipal services through appropriate user fees.
Hire an additional staff member whose primary responsibility will be to seek out, apply for, and manage provincial and federal government grants.

(b) Objectives & Policies: Distribution of Property Taxes

For the requirement of providing objectives and policies regarding the distribution of property taxes among the property classes, ask yourself the following types of questions:

What choices have led us to the current distribution of property tax rates?
Why have these choices been made? What impact are our current choices having?
Are we happy with the current situation? Is our current situation acceptable? Is it sustainable and resilient, or does it require change?
How are our property taxation policies impacting the various groups of taxpayers within our community?
What are the property taxation policies of our neighbouring jurisdictions? Similar-sized municipalities? Others throughout the Province?
What effects do our property taxation policies have on the property taxation system as a whole? Are these the intended effects and if not, how should we be changing?
What is our short and long-term vision for the distribution of property tax rates? How do we want to change and what will this change look like?
What principles should we be using when developing objectives and policies around the distributions of property taxes? Fairness? Equity?
What level of engagement have we had from the public, the business community, Council, etc., in relation to our current and future policies around the distribution of property taxes?

Examples of possible objectives for this requirement include:

Reduce the proportion of total property tax paid by non-residential property classes from 35 percent to 30 percent over the next four years.
In the long-term, ensure that business and light industry property tax rates are aligned with those of other competitive municipalities in British Columbia.

Examples of possible policies for this requirement include:

Setting property tax rates will take into account factors such as significant new or loss of investment in the community, maintenance of economic initiatives, and the promotion of specific sectors for investment in the community.
Set property tax rates that are based on principles of equity and responsiveness to economic goals.
City Council recognizes that residential tax payers are the predominant users of city services and, therefore, should bear a larger portion of the tax burden.
Ensure that property tax rates are in line with the larger community goals and policies, such as those specified within the Official Community Plan and the Regional Growth Strategy.
Set-up a property tax commission to review the city’s distribution of tax rates among the property classes, particularly in relation to business and light industry.

(c) Objectives & Policies: Permissive Tax Exemptions

When considering policies and objectives in terms of the use of permissive tax exemptions (such as revitalization tax exemptions), ask yourself the following types of questions:

What goals and objectives would Council like to support and encourage in the community through permissive tax exemptions?
Is the financial loss of a permissive tax exemption equivalent to the social benefit?
Is there evidence of long-term benefit from revitalization tax exemptions?
Who will benefit, directly and indirectly, from the permissive tax exemption?
Have we reviewed all of the relevant considerations, factors and other advice and information that is available in relation to permissive tax exemptions from the Ministry of Community Development?
In the case of revitalization tax exemptions, have we reviewed the Primer on such exemptions?

Examples of possible objectives for this requirement include:

Over the next five years, the city will continue to provide revitalization and heritage tax exemptions for properties located within the downtown core.
To encourage development that will meet our Climate Charter commitments, focus solely on providing revitalization tax exemptions that enhance environmental sustainability.
Over the next five years, provide permissive tax exemptions that promote economic development within the community.

Examples of possible policies for this requirement include:

Permissive tax exemptions will be considered to encourage activities that: (a) are consistent with the quality of life (economic, social, cultural) objectives of the municipality; (b) provide direct access and benefit to the public; and (c) would otherwise be provided by the municipality.
Attract new investment to all property classes through coordination of zoning, economic development and revitalization tax exemptions.
Revise the city’s existing economic development plan to determine where opportunities for permissive tax exemptions may be available.

What resources are available to municipalities in implementing the full requirements for 2009 (and beyond)?
To develop effective and comprehensive revenue and taxation objectives and policies, municipalities can consult the Ministry's "Local Government Statistics" site for a comprehensive and range of municipal statistics, and CivicInfo BC’s "Surveys & Statistics"; searchable database, for municipal tax rates and other financial indicators.

Previous circulars also provide more information on the revenue and tax policy disclosure requirements - see Circular No.07:14 and Circular No. 08:10.

Also attached, is a sample financial bylaw of a fictitious municipality which illustrates the full implementation of the revenue and tax policy disclosure requirements.

Original signed by:

Talitha Soldera, CGA
Director

Attachment

Full Implementation of New Requirements for Municipal Financial Plans

Circular No. 09:13 ARCS File#: 195-20

Circular No. 09:13
ARCS File#: 195-20