BANFF – A new report calls on the Town of Banff to abide by provincial legislation that caps the commercial-residential tax rate split in a bid to help struggling businesses recover from the devastating economic fallout of the COVID-19 pandemic.
The Municipal Government Act (MGA) caps the mill rate split – which determines the relative level of taxation between non-residential and residential properties – at a 5:1 ratio, meaning the municipal tax rate levied on businesses can’t exceed fives times that charged on residences.
The report was commissioned by Banff and Lake Louise Hospitality Association, which is concerned that the municipality’s failure to abide by the 5:1 split under the MGA represents “an unmitigated financial risk” to all ratepayers in Banff.
“This is occurring at a time when there is substantial economic uncertainty presenting across the entire commercial ecosystem,” said Darren Reeder, executive director of Banff and Lake Louise Hospitality Association (BLLHA).
The new report prepared by Nichols Applied Management Ic. for BLLHA examines the magnitude of the drop in economic activity and explores municipal policy options that could be used to support local businesses through recovery from the pandemic.
The COVID-19 crisis resulted in a dramatic drop in visitation – particularly international visitors who have not returned in full force despite the border opening – which led to a drop in economic activity and widespread unemployment.
The authors of the report say the hit to tourism, coupled with a shift in the spending pattern by these visitors, has led to a drop in overall economic activity in Banff from an estimated $780 million in 2019 to $290 million in 2020.
“Stakeholders across the tourism industry reported revenue decreases anywhere from 40 per cent to 90 per cent as compared to a typical year,” according to the report.
While it is typical for municipalities across the country to levy a higher tax rate on commercial properties than on residential properties, one of the key recommendations in the Nichols report is revaluation of the tax rates to align with the 5:1 tax split governed by the MGA.
With respect to the tax burden in Banff, 80 per cent of municipal tax revenue is contributed by non-residential properties. By comparison, the report notes that 59 per cent of Jasper’s tax revenues come from non-residential properties and in Canmore, 42 per cent.
The average non-residential tax bill in Banff is slightly below that of Jasper and well above Canmore.
“Although property taxes alone may not represent a critical line-item in the budget of local businesses, the general attitude of town council towards business is viewed, by many, as unfavourable,” the report states.
“This sentiment relates in large part to the failure of council to align current taxation levels with guidance from the provincial government which, per the Municipal Government Act, stipulates that the ratio of non-residential to residential mill rates be no greater that 5:1.”
Banff’s 2020 financial plan gives guidance to set the commercial-residential municipal tax split at a level that shares the overall percentage tax increase equally between the two sectors. The target split is between 6:1 and 3:1.
The municipal tax rate on commercial properties in Banff from 1990 to 2006 was typically five times higher than the residential tax rate, with the commercial properties accounting for about 80 per cent of the municipal tax revenue.
Over time, council has deviated from the 5:1 municipal tax rate split in order to offset the impact of disproportional shifts in the assessed value of commercial and residential properties, thereby protecting both sectors from extraordinary tax increases in a given year.
Banff’s latest financial plan goes on to say that exceptional circumstances could see council deviate from this range with consideration of tax increases or decreases being shared equally between the commercial and residential sectors.
Following amendment to the MGA in 2016, the province is allowing non-conforming municipalities to comply with the tax rate split cap over time, which for most municipalities is within five years.
The Town of Banff initially asked that this section of the MGA not apply to the municipality because it would significantly increase taxes to residents; however, that request was denied and the new legislation will apply.
Because Banff’s incorporation agreement, which outlines what authorities lie with the municipality, provincial and federal government, the federal justice department still needs to sign off on articles of entrustment.
“The article will specify alignment would be required within five years,” said Jason Darrah, the communications director for the Town of Banff. “We expect the signed articles will occur within days or weeks, but we have no indication when.”
Several candidates in the Oct. 18 municipal election have weighed in on the contentious issue.
Kaylee Ram said affordability is a topic of concern that is repeatedly emphasized and brought up, for good reason.
Prior to COVID-19, she said the business sector had always remained consistently strong and bountiful for residents to count on absorbing a large portion of the tax ratio.
“With our tourism sector being hit as hard as it has, this will result in our residents getting hit harder with taxes in the upcoming years,” she said.
“Keeping our tax ratio flexible will support our residents when our recovering economy inevitably regains its strength,” she added.
“Until then, being fiscally diligent in our capital spending and operation budgets will play a pivotal role in supporting our residents in the meantime.”
Jessia Arsenio said the issue is hard because there are industry players of different sizes with different needs.
He said mid-sized conglomerates do not appear to be in dire financial states, with some continuing to develop or acquire properties.
“The expected crush on smaller businesses is hard to deny, though,” he said, adding he doesn’t believe the answer is to shift more of the tax burden onto renters and homeowners.
“We should be making our needs clear to our provincial and federal partners. Without more expansive supports or progressive tax revenue options, we're left feeling like we have to choose between people rather than supporting everyone.”
Council candidate Allan Buckingham, who is taking another run at a council seat after coming up short in the 2017 election, said he believes the provincial government telling municipalities what their tax split should be is heavy-handed.
He said he would like to see council rethink its budget process, particularly over the next few years.
“Rather than looking at what level of service we want and how much that costs, I’d like to see council looking at how much is reasonable to ask for in taxes and then what can we do with that revenue,” he said.
“Hard choices are going to have to be made. Residents and businesses have a limit as to how much money they have access to.”
Hugh Pettigrew, who is seeking a seat on council seat after losing the 2017 mayoral race, said the non-residential assessments will not bounce back overnight.
“I am very concerned the residents are in for a rough ride until our full economy returns,” he said.
Pettigrew said he will also propose to redirect some funding towards tax stabilization.
"Perhaps new funding sources like the new pay parking revenues need to go to such stabilization until full recovery,” he said. “To me, all options need to be on the table.”
Council hopeful Kerry-lee Schultheis said had the current ratio of taxation between non-residential and residential been 5:1, it would have created a $900,000 shortfall in revenue from businesses and a $900,000 increase to the residential sector.
“The mill rate is based on the property’s assessment, which is pretty straightforward for residences, but commercial property assessments are based on the businesses’ last three years of revenues,” she said.
“All Banff non-residential property assessments have decreased over the COVID period. This added to putting in place the new proposed mill rate of 5:1 will create an even greater revenue shortfall to the town.”
Schultheis said residential taxes have increased significantly over the past number of years due to the increase in actual property value, coupled with a general increase in taxes.
“Personally, this has resulted in just under a 400 per cent increase in my taxes over the last 20 years.” she said.
“Yes, the value of your house is going up, but the gains are only realized once you sell your home."
Mark Walker said Banff is a town where cost-of-living is high and average incomes are relatively low, adding it’s a bad idea to place more tax burden on residents for these reasons.
“As a councillor, I will lobby the provincial and federal governments for additional funding in recognition of the fact that we generate more than our fair share of revenue for those governments,” he said.
Former Banff town councillor Shawn Rapley, who is once again seeking a seat at the council table, supports the town’s approach to lower the gap to the mandated 5:1 split over time, but said the next council must decrease overall spending to lower the impact on residential taxpayers.
“With the financial declines felt over the pandemic by residents and businesses alike, it is crucial that the next council is highly vigilant on all spending on present day operations and projects and future financial commitments while we all recover,” he said.
Barb Pelham said she supports a phase-in for this transition to 5:1 split over four to five years so it’s not as dramatic of an increase for residential taxpayers, while Lesley Young noted the sooner Banff falls in line with the MGA the better.
Stephanie Ferracuti said she would consider re-evaluating the taxes to align with the proposed 5:1 ratio.
“My biggest concern around this type of support is to make sure we’re still mindful of the many residents and working class folks who have already been feeling the challenges of affordability for quite some time,” Ferracuti said.
She added there is an obvious disconnect of living wages paid and cost of living in Banff.
“I would consider re-evaluating the tax ratio if the onus was not on our residents to finance the difference,” she said.
Dana Humbert said his interpretation of the MGA on the 5:1 tax split is non-negotiable so he will look to find efficiencies and structure changes that support the community.
“I will work to have the least amount of tax increases and budget cuts possible while still meeting the needs of residents and businesses of Banff alike,” he said.
Incumbent Chip Olver said the 5:1 split will notably shift the tax burden to residential property owners, noting she believes the Town of Banff needs to find ways to mitigate this.
“One method to reduce the tax burden on both commercial and residential properties would be increasing other revenue by continued lobbying for resort municipality status,” she said.
“Another method would be if the province shifted collection of education taxes from the municipal tax bill to a more equitable method of collection,” she said, noting education taxes make up about 35 per cent of municipally collected taxes.
Incumbent Ted Christensen said he believes Banff should be allowed to exceed the 5:1 ratio with due diligence and debate.
“This should allow a greater margin of affordability for homeowners,” he said.
Incumbent Grant Canning said the challenge surrounding the recommended 5:1 split is only one part of the much bigger issue around the shift in taxation that will happen next year.
In Banff, 80 per cent of municipal taxes come from the commercial sector, he noted, and of that, about 60 per cent comes from the hotels. As a result, he said approximately 50 per cent of the overall municipal taxation in Banff comes from the hotel community.
“Hotel taxation is based on how much revenue those properties generate,” he said. “Given the pandemic and the impacts it has had on our hotel industry, revenues will be down dramatically,” he said.
“When that happens the scales shift and the other sectors – residential, industrial and other commercial – will need to make up that shortfall. The 5:1 matters when determining how much those scales shift and to who.”
If the province does require a maximum 5:1 split this year, Canning said it will cap how much and where that shift can occur, which may require the residential sector to absorb even more, leading to even larger tax increases for residents.
“The Town of Banff needs to lobby the provincial government to delay this change and allow the municipality more time to implement the 5:1 cap,” he said.
“This will give the municipality some time for the hotel sector to recover and give council some flexibility with the tax increases.”
Noting compliance with the 5:1 ratio must be adhered to, mayoral candidate Karen Thomas said COVID-19 has devastated both the commercial and residential populations through decreased visitation and unemployment.
Thomas said mitigating the effects of this tax change on residents and businesses must be addressed by pursuing a return to a brand new format for negotiating with the province for municipal resort status.
“After 13 years of ongoing work and attempts by previous councils, a new approach is required for success on this critical goal,” she said. “Residents and businesses can no longer cover the infrastructure costs of four million annual visitors.”
Mayoral hopeful Brian Standish said over the last 31 years, council has deviated from the 5:1 municipal tax rate split eight times in order to offset the impact of disproportional shifts in the assessed value of non-residential and residential properties.
“While we don't have a choice when it comes to the MGA and the requirement for the Town of Banff to align with a 5:1 mill rate, what we do have in our favour is we will have a five-year phase-in period in which to come into compliance,” he said.
“What a 5:1 ratio means is that in the future it will limit our ability to be flexible in order to share the overall tax increase equally between the non-residential and residential sector. This flexibility will be incredibly important over the next few years as we battle our way out of an economic collapse.”
Mayor Corrie DiManno said Banff has historically stayed within the mill rate split adopted by council in Banff’s financial plan, noting the current split is due to an economic contraction unlike anything the community has ever seen.
Moving out of the pandemic, she said council will need to begin to adjust the mill rate to align as mandated by the MGA.
“In a typical year, the 5:1 cap is not as challenging for our municipality, but our commercial tax base has been significantly impacted by COVID,” she said.
“We will need a combination of short-term fiscal restraint and a redirection of revenues to navigate the move toward the new cap in order to protect residential taxpayers.”
Mayoral hopeful Garry Gilmour could not be reached.