31 May 2021
Hon. Daniel Allain
MLA Moncton East, Minister of Local Government and Local Governance Reform
Moncton East 75 Shediac Road
Moncton, New Brunswick
Via email: VibrantNBDynamique@gnb.ca
Dear Minister Allain:
Re: Local Governance Reform
I am writing today on behalf of the Fredericton Chamber of Commerce and our 1,000+ members in response to the Government of New Brunswick’s ongoing local governance reform consultations. Thank you for engaging New Brunswickers over the past few months to take a close look at the current state of our local government. This is a very challenging file politically and policy-wise, but it is important for New Brunswick’s future that we move on from our system that reflected life in the province in the 1960s.
Our submission will focus on three key areas that are important to our members:
- Taxation, service funding and sprawl
- Assessments, classifications and appeals
- Moving forward: building on existing infrastructure
- Taxation, Service Funding and Sprawl
Our foundational position regarding taxation and services is that the people/communities receiving a service should be the ones to fund it. Under the current system, City of Fredericton residents pay for core services, primarily through property tax. Residents of surrounding unincorporated areas consume these services, causing urban taxes to rise (either through rates or assessments), while other areas remain artificially low.
These circumstances incentivize urban sprawl, depriving urban communities of the very tax base needed to provide the services being consumed. With more people gravitating towards suburban areas, we can expect this situation to be exacerbated year-over-year.
As the Atlantic Institute for Market Studies recently reported in New Brunswick: Atlantic Canada’s Most Urban Province1:
“New Brunswickers are increasingly moving to the big three urban areas, reflecting available job opportunities and greater convenience. Policy makers should not be distressed by this trend, for it reflects larger economic and historical forces that tend towards greater urbanization. What should strike them, however, is that urbanization proceeds despite costly, and ultimately failed, efforts to artificially prop up rural New Brunswick and its traditional economic activities.”
New Brunswick’s evolving urbanization will continue to create challenges for rural communities. A
shrinking tax base will make paying for the upkeep of infrastructure increasingly difficult, leaving local
entities with the choice of reducing services or increasing property taxes.
From our perspective, the larger inequity is with urban and suburban communities (not urban and rural communities). Suburban communities are receiving the benefits of urban services without paying a proportional share of the cost. By way of comparison, the residential tax rate in Fredericton is $1.4211 per $100 assessment, whereas local service districts and rural communities are on average $0.919/ $100. Similarly, the tax rate paid by recreation services agreement (per $100 assessment): Fredericton resident = $0.126; New Maryland = $0.04; LSDs/Hanwell = $0.03. Of course, we are not experts in calculating what the actual rates should be, but as a principle there shouldn’t be a gap in services paid for versus services received.
Of course, suburban residents contribute greatly to urban life – they work, shop and recreate in the cities, which is benefits our local economy. However, the same came be said of urban resident that also have the additional burden of higher taxes.
Taxing Non-Owner-Occupied Property
Taxation on non-owner-occupied residential properties, or as it’s unaffectionately known in the province, “double taxation” on properties, has long been a source of contention for the business community. The government is keen to claim there is no double taxation, which, while technically true, the effects on property tax bills are the same, leaving New Brunswick in an uncompetitive position vis-a-vis other provinces:
We agree with the position of the NB Real Estate Association, which has stated: “Resolving the issue of “double taxation” remains critical for municipal financial reform, and for property owners and investors. In 2020, the legislature passed a budget that began the elimination of double taxation on non-owner-occupied residential properties. The initiative was stopped because of projected budget pressures caused by COVID issues. Elimination of the double property tax must remain a priority and must be incorporated in any transition of tax revenue generation to local civic entities.
This is essential in promoting the development of rental housing in New Brunswick. As The New Brunswick Apartment Owners Association has pointed out, property tax is by far the single largest annual expense for every landlord in New Brunswick, and it is a cost that gets passed on directly to the tenants. Statistics from the Apartment Owners Association shows the tax collected on rental properties generates less than 1 per cent of government revenues but it impacts 33 per cent of the population.”
Land Transfer Tax
The land transfer tax rate in the province has jumped from 0.25% to 1.0% over the past decade. Worse, the tax is applied to either (a) the sale price of a property; or (b) its assessed value – whichever is higher. This further compounds the costs of purchasing property and exacerbates any problems with assessments. For example, according to the New Brunswick Real Estate Association, in the last fiscal year, 55% of homes sold in Moncton were purchased below the assessed value. Other goods and services are taxed at the actual sale price, why not real property? This would mean that the tax charged is responsive to actual market conditions, not an assessment that might be dated, inaccurate, the result of an imputed formula or phantom upgrades.
- Assessments, Classifications and Appeals
Currently there is no mechanism for a property owner to appeal assessments on the basis of the assessment of a similar property, nor does current legislation obligate the assessment authority to assess two like properties in the same way. This results in situations where two similar properties may be assessed differently and there is no mechanism to seek a remedy.
Similarly, there is no existing mechanism to challenge a classification of a property as residential or non-residential. This in itself is problematic and doesn’t align with the rule of law but will be exacerbated if reforms are implemented to give municipalities authority to create new classifications.
We agree with the Canadian Property Tax Association: “This is unusual in most (if not all) assessment jurisdictions in Canada where a property owner is able to dispute classification. In contrast, in NB it cannot be “questioned or reviewed in any court” so evidently the taxpayer is once again disadvantaged. We are unaware of any assessment authority in Canada with said language and cannot understand what the motivation for such a clause in any assessment system could be. This is a major shortcoming in NB’s assessment legislation and one we believe to be highly prejudicial. One risk is that the lack of recourse gets amplified with some of the proposed changes.”
- Moving Forward: Building on What Works
Today, 85% of NB population lives within a 50km radius of New Brunswick’s 8 Cities. Despite this, New Brunswick still has 104 municipalities, 7 rural communities and 242 local service districts for a total of 353 administrative units providing local services to a population of just 770,000 residents. As a comparison, Nova Scotia has only 52 municipalities providing local. This suggests that more services and infrastructure could be centralized, providing sustainable and more efficient services to most New Brunswickers.
This doesn’t mean leaving rural areas behind – far from it. Increasing provincial wealth through the high-growth-potential urban areas and efficiencies realized through centralized services will also allow regional/rural areas to focus on particular niches, traditional areas of strength and natural resource development. Increased strategic infrastructure may be needed in rural areas if we are able to foster development in individualized areas of strength. But we have to get away from the ‘one-size fits all approach’ and honestly examine and accept the relative strengths of each part of the province.
This would further stabilize urban areas, which are the economic engines of the province and given them fuel to grow the economy to the benefit of all areas. To this end, we recommend that reforms build on existing service infrastructure that is working very well. In the Greater Fredericton Area, for example, Ignite Fredericton (our economic development agency) and Fredericton Tourism are highly effective organizations that could formally become regional entities with increased funding.
We commend the government for its intention to tackle local government reform in a serious manner. The Finn Report is now 13 years old and the last serious reforms were more than half a century ago. There is not much agreement on what reform should look like, but there is general consensus that reform is needed – the current system is not meeting the needs of New Brunswickers in any area of the province.
We ask the government to view reforms through (amongst others) an economic development lens that leverages strengths in each area of the province – benefitting both rural and urban areas. Urban areas in New Brunswick (and throughout the world) are the economic engines and this should be recognized in local governance if the province is to maximize its potential and provide the services that citizens deserve. Urban areas also have extensive experience in delivering services of all types and in the case of Fredericton (and others) is functioning quite efficiently and sustainably. We caution the government against a one-size-fits-all approach that would jeopardize this stability. Instead, the province should build on these strengths and view urban areas as central to future planning, investment and service delivery.
Krista Ross, CEO
Fredericton Chamber of Commerce