Software Vault: The Gold Collection/Software Vault - The Gold Collection (American Databankers) (1993).ISO/cdr11/neiss.zip/R14

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SECTION 7:  TAXATION & LEVIES

INTRODUCTION

The review of taxation and levies was directed both towards
the City (looking at the flow of revenues) and at business
(looking at the impact of taxes and levies).  In conducting
this, we have attempted to measure the impact of current and
proposed tax policy in the overall market and its role in
business decisions in attracting and maintaining business and
industry.  (Also see Section 5, Survey)

GREATER TORONTO AREA (G.T.A.)

Tax revenues from the commercial and industrial sector are
viewed as part of a larger revenue collection system in the
Greater Toronto Area (G.T.A.).  Due to major inconsistencies
determined by provincial policies, the G.T.A. is broken into
two distinct market areas with distinctive taxation
structures:
              1. Metropolitan Toronto;
              2. all other areas beyond Metropolitan Toronto.

The tax load is skewed to Metropolitan Toronto with the result
that an economic barrier is clearly defined by the
Metropolitan Toronto boundary which places all lands in
Metropolitan Toronto under a significant tax burden in
comparison to all other lands beyond.  In real dollars, this
burden amounts to an average of $1.50/s.f. penalty to
Metropolitan Toronto industrial properties when business and
realty taxes are combined.  Commercial properties carry a
similar combined realty and business tax burden of $3.00/s.f.
These tax penalties amount to an annual cost penalty of 20% to
30% to occupants of comparable properties in Etobicoke,
compared to nearby communities.

Metropolitan Toronto financially supports a network of social
services, transportation and education that, in many respects,
benefits all of the G.T.A., but Metro lacks a mechanism to
distribute the costs over this larger area.  The economic
market at one time was dominated geographically by
Metropolitan Toronto.  It now spreads from Burlington to
Whitby and north to Barrie.  Detailed review of the tax
distribution system is contained in the Economic Development
Advisory Committee report to Council (September, 1991).
This tax imbalance is the largest single factor influencing
the migration of businesses and industry from Etobicoke to the
outlying municipalities.  It is strong enough to outweigh the
traditional building blocks of industry, such as
transportation, access to markets and employment base.  The
lack of competitiveness in taxes between similarly developed
lands lying on either side of the Mississauga/Etobicoke border
is a typical condition that must be addressed.

Under existing legislation, municipalities are prohibited from
introducing tax relief or incentives as a means of stimulating
development (Section 112 of the Municipal Act).

ETOBICOKE & METROPOLITAN TORONTO

The tax system in Metropolitan Toronto is based on the
principal that business and industrial taxes have historically
supported the residential sector.  During the unprecedented
growth period of the past 30 years, industrial and commercial
expansion fueled by inflation (which grew at approximately 6%
annually) built out over 95% of the available land in North
Etobicoke.  The market generally was able to absorb the
increased tax burdens that accrued over that time.  With the
abrupt end of the growth cycle in 1988/89, a tremendous over-
supply of unoccupied buildings (old and new) were left in the
market.  Business losses and migration of industry have
diminished the tax base through the loss of direct business
taxes and the reversion of the empty buildings to the
residential rate.

Real revenues for the City peaked in 1988/89 when the 43
million s.f. of inventory was operating at 95% occupancy.

The current vacancy rate is 6 million s.f. or 3 times greater
than in the balanced condition, where 5% vacancy was
considered to be a healthy norm.  This vacancy represents 16%
of all industrial buildings and is higher than other
comparable Metropolitan Toronto areas.  The decline continues
with losses out-distancing occupancies at a 2:1 ratio as
measured during our study period.

During the period November 27, 1991 to March 10, 1992, we have
recorded 1,058,000 s.f. of new vacancies, with absorbtion of
500,000 s.f.

BUSINESS LOSS IMPACT - FALLING REVENUES

While municipalities are generally guaranteed realty taxes, a
business loss translates into a non-recoverable tax loss
measured by:

    1. 15% drop in realty taxes
    2. 100% of the business tax (pegged at 60% of realty tax).

While in many instances, distressed companies go into arrears
on business taxes prior to bankruptcy, the municipality in
this case is an unsecured creditor if the business defaults.
The recovery of this portion is at risk.

A brief review of major business in the study area shows the
following further business tax losses in addition to those
already reported by the City (measured in 1991 dollars) for
1992 and 1993:

       Current 12-month period . . . $2.00 million
       Next 12 month period. . . . . $0.62 million

These losses are generally known in the marketplace, but are
not monitored directly by the City.  As far as we can
determine, these projected revenue losses are not accounted
for in the budget process but recognized only as shortfalls
when they fail to show the following year.  The City can
anticipate further decline in revenues and some extraordinary,
single, non-recoverable losses, most likely in the
hotel/hospitality sector.

OTHER CONDITIONS

Notwithstanding the business losses that have occurred, the
impact of high realty taxes on vacant buildings is compounded
on outdated buildings (as evidenced on Rexdale Blvd.).  The
economic benefit to landlords of starting to "warehouse land"
by demolishing the buildings is very real in this area.  The
cost of demolition, when spread over a few tax years, will be
easily offset through the taxes saved.

While this situation has not yet occurred, we feel it is
imminent in certain areas.  The City faces a real threat of
'wasteland' areas fronting on major arterial roads while
owners exercise prudent management of assets until the market
recovers.

These buildings will be retained only if a supportive climate
for re-use of the lands exist.  The current time-lines for
rezoning (and the potential for O.M.B. appeal) act against
retention of buildings.  The real estate market will act
positively where signals for positive change are perceived;
it will act with cautious measures until a change is
signalled.

BUSINESS TRENDS

As a comparative exercise, we have reviewed the performance of
the 15 largest corporate tax payers in North Etobicoke in 1990
(all paying more than $1 million in taxes).  This group is
typical of the overall mix in the area today, with
representation from manufacturing, processed foods,
hospitality and warehousing.  As a group, the tax revenues
contributed were approximately $30 million in 1990.  Tax
distribution among the group was as follows:

               SECTOR            %
               Warehousing      30%
               Processed foods  29%
               Hotels           26%
               Manufacturing    13%   ____
                                       98%

When looked at in 1992, the same group of companies
demonstrate conditions which underline the critical nature of
the business and industrial base.  12 of the 15 companies, or
75% are impacted.
   ■   4 have significantly downsized (at least 30%)
   ■   1 has ceased operation outright
   ■   1 actively pursuing relocation outside Metropolitan Toronto
   ■   the 4 hotels, as a group, are in arrears on taxes, with
       one owing $6.5 million
   ■   1 warehouse/distributor has located a major operation
       outside Metro

CONCLUSION

The poor tax performance of the industrial and commercial
sectors is creating revenue shortfalls which continue to grow.
These shortfalls will very quickly impact the residential
sector, as there are no other revenue sources.  The once
secure balance has been lost and continues to deteriorate and
the City must look to non-industrial sources to re-develop
where opportunities exist.

MARKET VALUE ASSESSMENT

Based on our understanding of taxation and its impact on the
industrial and business markets, we can surmise that any
change which would cause an increased tax burden on any sector
should be viewed as dangerous and detrimental to stability.
The looming spectre of M.V.A. as currently proposed by
Metropolitan Toronto proposes the worst possible mix of these
conditions.

This tax re-structuring plan will further undermine the
already precarious status of Etobicoke industrial commercial
tax base.  Based on impact studies conducted in Etobicoke, 61%
of industries and 57% of commercial properties would
experience tax increases.  While industrial increases would be
capped at 25%, over 20% of commercial properties would
experience increases greater than 100%.  These represent
enormous additional burdens on land owners and users.

Our review of M.V.A. indicates that there is little
fundamental understanding of the background situation by the
decision-makers.  Financial impact studies must be reviewed by
each municipality before 'buying-in' to any M.V.A. proposal.
As we see it, the M.V.A. deal will directly benefit the
municipalities of Mississauga, Markham and Richmond Hill at
the expense of Metropolitan Toronto.