Please allow me to apologize for being ill-prepared for my presentation to your Budget Committee and for my rambling and blustery deputation before you on the concept of a Municipal Land Transfer Tax
After being alerted of the meeting by TREB, I read the City Manager's Sept 19/12 report just that morning and had not the time to organize my disparate approaches to the issue into a cohesive whole.
What I should have said:
What a blessed opportunity this meeting offers ratepayers in Mississauga, Toronto and all of the Large Urban Municipalities in Ontario.
Extension of the power to assess a Municipal Land Transfer Tax, if granted to Large Urban Municipalities, offers the Province and all participating municipalities the opportunity to correct the structure of ALL Land Transfer Taxes.
I am confident that a collective proposal by Mississauga and other Municipalities/Regions would be approved by the Province since it has no "extra" money to pass onto you.
I will start "at the end" -with my recommendation -and then back-fill with my reasons.
When you consider your resolution at the LUMCO consider wording the Bill, to specify that the MLTT may be paid by either the Buyer or the Seller, arranged by negotiation between those parties to the real estate transaction's Agreement of Purchase and Sale and detailed in the transaction's Statement of Adjustments.
FAIR ATTRIBUTION and FLEXIBILITY
The Toronto LTT follows the lead of the provincial LTT and assesses the tax on the Buyer, as a "surcharge" or "entry fee" to property acquisition in the jurisdiction. In my opinion this was an arbitrary continuation of an imperfect assessment method.
A "Land Transfer" requires both a Buyer AND a Seller and notwithstanding the past ~15 years when Sellers' Market conditions prevailed (and buyers were put in a position to "pay or go away", while Sellers didn't feel they had to “give” much in the course of a negotiation), most people agree that we should anticipate a Balanced or Buyer’s Market in the near future.
In those future conditions, the real property agreements that lead up to the TRANSFERS that will generate the tax revenue will require give and take by both buyer and seller.
If Large Urban Municipalities need to bolster their Infrastructure reserves, and if , as the City Manager's report indicates the proceeds of a MLTT "could" be dedicated to the $70 million annual Infrastructure deficit, then perhaps the "past users" who weren't assessed enough property tax to cover the repair/replacement of the infrastructure are just as worthy a source of these funds as are the "new users" who currently, in all existing LTT's are the only parties to the land transfer that are "allow(ed) ...to contribute to a state of good repair for Infrastructure" Pg 5 para 2.
If the funds generated are indeed dedicated to "infrastructure" then both arguments are valid and I look to the changes implemented in the Condominium Act to draw an analogy.
For the first three decades of condominium tenure in Ontario, Condo Corporation Budgets had no mandatory contribution regulations for repairs and replacements of the condo's Common Elements - they just did what was right in their own eyes and what they deemed would be acceptable to the unit-owners in terms of Maintenance Fees.
Under that regime, it was possible (and frequent) for huge expense items to be ignored or deferred and then only repaired/replaced when safety, health or emergency brought the repair to the forefront. When this happened, the Condo Corp borrowed the repair-money and a Special Assessment on each Unit was implemented to retire the debt - in either a lump payment or as a series of installments over as few years.
If a Unit is sold during the "series of installments" period, the Buyer and Seller had to agree on terms of assumption or discharge of that Special Assessment in their Agreement of Purchase and Sale and the actual payment was detailed in the Statement of Adjustments.
Similarly if a Local Improvement Charge has been levied on a particular property and the property is sold during the "series of installments" period, the Buyer and Seller work out an assumption or discharge arrangement.
Based on the widely-agreed view that "real estate market conditions ...fluctuate over time" page 4 para 4, it might be prudent to have all the LTT's be flexible enough to adjust to those fluctuating market conditions.
IMPLICATIONS UPON "TRANSACTIONS"
The "worst aspect" of all LTT's is that it takes CASH out of the Buyers' hands for down payment on closing. In most "land transfers" a mortgage is involved - real estate is most often a leveraged financial investment. In the case of a 50% mortgaged transaction, cash is leveraged by a factor of 2, in a 95% hi-ratio mortgage, by a factor of 20.
The current Double LT Tax on non-first-time buyers in 416 amounts to 1.9% of a $300K Purchase Price ($5,700) , 2.44% on $500K ($12,200), 3.03% on $800K ($24,200) and 3.35% on $1.2 Million ($40,200) - this is the CASH that cannot be leveraged, because it is an unavoidable "cost" for the buyer paid on closing.
Currently, disposition/deployment of that CASH is rarely negotiated as "part" of the transaction because rarely does anyone think about including it in the negotiations - if the legislation specially allowed for the possibility, this would change.
If some or all of these two taxes could be (optionally) "built-into" the financing of the purchase, the money would still be current revenue for the city, but it's repayment spread over time.
To me, if the funds are "dedicated" to restoring infrastructure reserves and/or performing deferred infrastructure repairs, the optional ability for a "new user" to pay for "what someone else used" over time, or, to collect that money FROM the Seller by way of an adjustment in the distribution of the transaction's proceeds only make sense.
If Mississauga implemented a "to be negotiated" Payer system, they could (for a time anyway) continue to present an(other) advantage to Buyers deciding between 416 & Paradise in Peel.
ULTIMATE CAUSE AND REMEDY - An Ontario Municipal "dilemma"
As was stressed at the Budget meeting, Mississauga is NOT IMPLEMENTING a MLTT, it is simply considering the options and potential "tools" available from the province and the population that might help balance the operating budgets and restore reserves to sustainable levels.
It was also stressed, that the discussion now should be on much more than a potential LTT and or who should pay it - an MLTT is just one possible source of revenue, that might become "general" revenue or might become "dedicated to infrastructure"
I agree, the debate and study now should be focused on finding a path out of a problem that has been building for many years, here in Mississauga, in the GTA and across Canada, at every level of government:
"How can we boost revenue/cut spending enough (balance the budget) to enable our jurisdiction
to be able to pay for the programs/services/reserves/debt charges we are providing each year (without getting turfed from office)"
and then
"Once we get our annual budget out-of-deficit, how can we get taxpayers/ratepayers to agree
to pay MORE for the programs/services/reserves we "didn't charge enough for in the past",
given that accruing annual interest charges would wholly ruin our just-balanced budget all over again
if interest rates rose by 2-4% (which everyone predicts WILL happen in 2-7 years)"
In addition to Madame Mayor's explanation that "we built the infrastructure with development charges, but now have to repair it with property taxes" the root of the problem (in addition to the truth that in property development, like in stock/bond markets "the trees don't grow to the sky") is the double-whammy of past, Double, Down-Loading from the ConFederal and Provincial Orders of government.
The (undeservedly semi-legendary) Hon. Paul Martin Jr solved his budget problem (temporarily) by cutting transfer to the provinces (they agreed to take less because it would come with "no strings attached") and then our non-GTA Pals at the Pink Palace solved their budget problem (temporarily) by cutting transfers to municipalities and re-jigging the "who does what" formula.
In reality, EVERYTHING has been screwed up on EVERY order of government in Canada since the demographic assumptions that included a perpetual baby-boom (that fuelled the pay-as-you-go "social" programs of the sixties) were proven incorrect.
The unlimited demand by Canadians for programs "paid for by someone else" has gobbled up income tax revenue that had previously been allocated to "equalization and supplementation" between have/have-not provinces, regions and municipalities, Sadly as times changed, the ConFeds withdrew the quantity and quality of their fiscal supports, then the provinces did the same but public expectations/demands remained the same.
The ONLY solution for Canadian municipalities (particularly urban ones with a high tenant constituency) is a piece of the Provincial Income Tax.
The ONLY solution for the Golden Horseshoe-inside-the-Greenbelt municipalities is to gain control of MOST of the Provincial Income Tax.
This revenue will not be surrender easily, nor will the alternative (an additional Income Tax levied by Municipalities) sit well with voters.
UNLESS it's proved to be the only solution.
Mississauga and others in Durham, York, Peel et al in the Greater Toronto commuter/drainage watershed are examining the City of Toronto Act in hopes of being granted already-established type of "new" revenue, or "new" ways to dedicate specific costs to specific users, as well as "new" efficiencies in delivering/servicing/protecting/enhancing the lifestyle that constituents have become accustomed to enjoying.
The above-noted busted baby-boom was one factor, exacerbated in Southern Ontario by a fundamental change in Canada's a) inter-provincial share-the-wealth "Social Contract" and b) "National Policy" regarding international trade and commerce.
Southern Ontario was the manufacturing centre of Canada until all the underpinning rules changed under the Managed/Free Trade Agreement with the USA (AFTA). Previously Canadians "paid a little too much" for goods manufactured in Southern Ontario and we agreed to "pay a little too much tax" from the good-waged Branch Plant jobs that every little town and region was blessed with in order to support the rest of Ontario and Canada - our customers.
When the Branch Plants closed, the game was over .... but none of the "pay a little too much tax" rules changed.
All orders of government struggled under the new rules, often by borrowing-in-the-meantime, but never with enough "growth to pay for growth " PLUS never quite enough growth-in-tax-revenue to pay for growth-in-expenditures WHILE SIMULTANEOUSLY maintaining viable reserves AND trying to service the growing interest costs.
It's a mess. But it's here and delaying only makes it worse ... never mind if future lowered credit ratings and/or higher borrowing rates come into play AND never mind that nobody wants to hear the bad news.
We must approach it like we've got a "cancer" that's eating us alive, or a self-destructive, behavioural compulsion that we're not even aware of having.
Smart-aleck commentators say governments are "addicted to taxes", but I say "Canadians are addicted to programs paid-for by somebody else, while governments are addicted to borrowing money to fund programs that don't pay for themselves"
If either or both are true, then the first step is "admitting that (collectively) we have no desire to control our addiction(s) to free/subsidized gov't programs paid-for by somebody else"
The problem is first-worldwide - we cannot deal with that. Although our problem is truly Canada-wide and 4-Orders deep - we can only hope to devise and implement a "new model" here & now (and soon) that other jurisdictions in Canada can examine, apply and perhaps improve.
OUR SOLUTION - open for application elsewhere
The Greater Golden Horseshoe-inside-the-Greenbelt (GGHiG perhaps) is well populated and produces more than enough ConFederal + Provincial, Personal + Corporate Income Tax (and I imagine a great sum in net Harmonized PST/GST) to pay for all of it's constituents' wildest civic/social dreams AND STILL have some leftover to share with other less-have-than-itself areas within Ontario and other provinces.
But the GGHiG never sees even it's proportionate share this revenue it generates - it's all goes to some vote-worthy project or supplementary/support system somewhere else.
What are the possible solutions to retaining more of our own Income Taxes & Sales Taxes:
Get more broke and qualify for more transfers? No.
Secede from Ontario and establish Sovereignty-Association with Canada? No.
Become a Province? - Yes.
I think we must gain recognition from Ontario, the other Provinces & the Confederal governments that the GGHiG is a special case - a mostly urban "community of communities" near Toronto that is being denied the highest and best governance model for its size, population, density, GDP -everything, by being divided into umpteen, suburban/exurban "nations" warring in the bosom of a single Ecological & Economic Watershed.
The unification of "everything" inside the Greenbelt/Oak Ridges Moraine into one "new" provincial jurisdiction (I might settle for a special Eco-Eco zone within Ontario if the existing legislative & executive powers and Confederal representation were equal and prorated-by-population, if, and only if, it was a necessary, interim, "non-consti-pational" stepping-stone).
The difference in "life" between people lining in Large-Urban vs Small-town/Rural agglomerations is today's "two solitudes".
Trying to govern these two with one set of rules is inefficient, ineffective and unsustainable - one or the other solitude will revolt when the whole theory of everything that's wrong "reality-crunch" that Mississauga is contemplating becomes the order-of-the-day with no deferral or delay possible.
To be sure, other Large Urban municipalities in other regions/provinces will follow ... and the resulting subsidiarity will much better reflect the reality than the patchwork subsidies, special deals, criss-cross financing and make-work projects of that now attempt to pretend-to-equalize our blatantly un-equal provinces
Your "problem" is every municipality's problem ... but you have have the strength and power to initiate the solution.
"All truth passes through three stages: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident." -Schopenhauer (1788–1860)
Yours truly,
rce
