The overwhelming legacy of the Mike Harris government in Queen’s Park is one of wholesale change in the way Ontario and its municipalities function. The most dramatic impact of this long overdue change is about to be felt by 25,000 property owners in the City of Cornwall and by extension the 47,000 people who call this city home. Our community is facing a very real fiscal crisis that has the potential to see an unfair tax burden placed on certain property owners, drastic cuts to municipal services, or perhaps the most likely scenario, a combination of both. The fact that other Ontario municipalities are facing the same crisis is of little comfort. If Cornwall is to remain a good place to live and do business, then the entire community must address this issue and find viable solutions.

In 1998 the municipal tax system in Cornwall will drastically change. Properties have already been reassessed under the new system and the City's finance department is projecting an 8 million dollar shortfall due in part to the exchange in costs between the Province and the City, a process better known as downloading. Brought to light by this process is the fact that the community's tax burden has been unevenly distributed for years, with commercial, industrial and multi-res property owners paying more than their fair share. Even more alarming is the indication that the tax burden in general is too high, when compared to other municipalities of a similar size.

Several years ago, a number of real estate brokers and real estate appraisers prepared a report for City Council that indicated that residential property taxes in Cornwall were higher than most, if most if not all other municipalities of similar size. At that time Council instructed Administration, with the assistance of the Regional Assessment Department, to provide it with their own report. A couple of years ago, a change to a 1992 base year for assessment drew a lot of confused and disinterested responses from both the business community and Council - until those changes arbitrarily and dramatically raised taxation levels of certain properties. New business and residential investors often comment that taxation levels in Cornwall seem high, yet this may be, as the City's Manager of Finance recently pointed out, because Cornwall taxpayers get extra value for their dollar. Again the limited research done to date seems contradictory and incomplete at best.

Are taxes in Cornwall too high? Will the new tax system be fair? Will Cornwall suddenly become unattractive to business investment?

These are questions that need to be answered now, and need to be answered objectively and thoroughly. Councillor Denis Carr wants a new study completed to make sure residents are not paying more taxes than residents in other cities. Administration is empowered to determine this and they are to utilize their appraisal agent, the Provincial Assessment Department.

Obviously the Chamber of Commerce has an obligation to its members to provide Council with its views on taxation. Councillor Carr is right to ask for a report. However, a report from a committee set up without hands on input and involvement of the private sector, including representation from, residential, commercial and industrial sectors, the process is the wrong approach and will be perceived to be biased from the start.

If the purpose is to provide a fair and balanced report which can be accepted by all residents in the City, then representation from all sectors should be involved and they should be provided with the funds needed to do the job.

With a new Council, a new Act and a new Valuation Date, and a Chamber of Commerce willing to help, this Council has an opportunity to provide a report on municipal property taxation which is fair and balanced and most of all accepted by the community. It must take the opportunity.

The job is not easy. To start with the appraisal methodologies employed by the Province to establish the "Actual Value" of properties are anything but fair to all tax payers. I have attempted to explain some of the built in inequities with the discussion below.

The Residential Sector

Residential tax payers seem more or less happy with the results of their Assessment notices. But should they be? Most of the people whom I have spoken with feel the Actual Values assigned to their properties are slightly lower than what they assume the Fair Market Value to be. This is likely true since the average residential property value has increased slightly between Valuation Day, June 30, 1996 and March 5, 1998, almost two years later. Personally, I think that most of the residential Actual Property Values are close, but if home owners truly want to know if the value assigned to their property is fair, they must compare the value assigned to their home with that of comparable properties in their neighbourhood or similar neighbourhoods. By the way, it won't be that easy to do. The Preliminary Roll, ( a "public" document) is not available to the public and won't likely be until its struck on April 30, 1998. Today, the information is only available from an Assessor. A two day open house will be held for all Cornwall property owners in late March.

Industrial, Commercial and Multi-res (apartment buildings over 7 units) property owners have much more to be concerned about.

The Industrial Sector

The Industrial base seems to have been reduced somewhat this year, with the reclassification of some formerly Industrial uses to the Commercial sector. Unless there are adjustments to the Class Transition Rates, this will likely mean increases in property taxes even without a change in assessment or tax rate.

Most industrial properties are valuated using a form of the Depreciated Replacement Cost method with market adjustment factor (MAF) applied. This methodology, unlike the Direct Sales Comparison method used for most residential properties, often has little bearing on the true market value of the real estate. After both types of properties are valuated and property class totals determined, transition ratios are established by the municipality between these and all other property classes. All properties are compared to the Residential class of property regardless of the appraisal technique used to value the property. As a result disparities in "value" exists. While, the values given for the Residential class of property are likely close to or at true market value, often the same cannot be said for the Industrial Class. It's easy to find an example of the disparity. One property in the Industrial Park has an Actual Value for assessment purposes of approximately $1,200,000, while at the same time, the same property has a fair market value in the order of $450,000, as evidenced by an offer made on the property in 1996. To be fair, there are also examples where the appraisal process is almost dead on.

Assessment staff suggest that there are not enough comparable sales to value these properties by the same approach used to value homes, but, when asked to list and sell these same properties, real estate agents and private fee appraisers place most weight on the Direct Sales Comparison Approach to value these properties with success and accuracy.

The Commercial Sector

Commercial Class properties are valuated using a number of methodologies. Assessment Department staff can use any of three methodologies; the Direct Sales Comparison Approach, the Income Approach or the Depreciated Replacement Cost Approach. To the Commercial rate payer this means that even within the Commercial Property Class the choice of methodology is not consistent. As I understand the system, if the Assessor feels the Income Approach should be used it will be and if the Depreciated Replacement Cost method reveals a number which is more satisfactory to the Assessor in his/her opinion, then that methodology seems to be employed. Although, I'm not sure how often the Direct Sales Comparison Approach is used my understanding is that it is not the preferred methodology.

Once again, as with the Industrial Class, the Commercial class of property is compared to the Residential property when the Transition Ratios are set.

Multi-Res

Apartment buildings in the Multi-Res property class are assessed for the most part using the Income Approach to value. Multi-Res class property owners and tenants have, in my opinion, been abused for years by an assessment system which has owners and by extension tenants of these properties paying far more than their fair share of property taxes when compared to the residential rate payer. From the 1998 Preliminary Transition Ratios released it would appear that this trend will continue.

How are the property classes related?

Preliminary Transition Ratios for the major property classes have been established as follows:

Residential	Multi-Res.	Commercial	Industrial
1.0000	2.3675	1.9761	3.6254

Final Transition Ratios will be set by the Ministry of Finance, once all of the information sessions have been completed. The preliminary numbers given have been calculated by the Province based on last year's Assessment Roll and 1992 Section 58 Factors with adjustments for the changes in the new Act. As I understand these numbers, the easiest way to explain the effect of these numbers is to say that for every $1.00 of Residential taxes raised, there are $2.37 of taxes is raised in the Multi-Res class and so on down the line. Assuming there were no changes between last year and this year, the transition ratio would be equivalent to the Tax Rate, which is set by the Municipal Council. Council has the right to make changes when it sets the Tax Rate later this year.

For its part the Province has stated that councils are to work towards a Transition ratio closer to 1 for all property classes. The Province acknowledges the unfairness.

Without discussing the merits of raising different amounts of taxes from different property classes, there is little doubt that if the appraisal methodology used is not consistent both within and between all property classes, the potential for disparities and unfairness exists. If, as in the case of some Industrial properties, the Actual Value is as much as double the Market Value, the effect on the rate payer is staggering. I'm not saying this is always the case but if there is one example, I'm sure there are others. The same argument concerning consistent appraisal methodology can be used for the Commercial and Multi-Res property classes as well.

In order to accurately determine the effect we must have the numbers. I have asked senior staff at City Hall to release the preliminary Actual Value totals in the Roll, including those totals for each property class. As of this date I have not received the numbers. If Council really wants to provide credible answers to the questions of taxation, then we must have the facts.

Is it right to employ different valuation methodologies to properties in different classes and then use the values determined in each property class as the basis for comparisons between the classes? Are we paying too much in Property tax? Are Cornwall's property taxes higher than other municipalities of similar size? Are the Transition Ratios fair?

To determine the answers to the foregoing and other questions, we must have the facts. All of the facts. We must be allowed to draw our own conclusions and make our own determinations as to whether we the tax payer are paying a fair tax or not. To have the tax collector and the tax collector's appraisal agent tell us we are getting a good deal is not good enough. This time tax payers must be involved. If enough tax payers say, and repeatedly say, "we are getting a raw deal", then someone had better believe we are getting a raw deal. It's hard enough to get industry and business to come to Cornwall. Tax payers within Cornwall and potential tax payers from outside Cornwall have for years argued that property taxes are too high. There is a basis in fact for these arguments and I'm afraid that Council may once again fail to see the writing on the wall.

Council has some very tough choices to make about its future. One thing is should be very clear to them by now. Cornwall City Council and Administration will never be able to convince the majority of Commercial, Industrial and Multi-Res rate payers let alone the Residential rate payer that they are getting good value for their tax dollar if they fail to involve the tax payer in the process.

Terry Landon is Vice President and the Broker of Record of RE/MAX Cornwall Realty Inc., Real Estate Brokerage, a founding Director of the Real Estate Council of Ontario, Past President of the Cornwall and District Real Estate Board and a proud member of Team Cornwall.

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