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6. INTERVENer STATUS IN PROCEEDINGS OF INTEREST
INVOLVING BANK TOWERS ASSESSMENT REVIEW BOARD APPEAL QUALITÉ D’INTERVENANT DANS LES INSTANCES D'INTÉRÊT
CONCERNANT L'APPEL DE LA COMMISSION DE RÉVISION DE L'ÉVALUATION FONCIÈRE SUR
LES TOURS DE BANQUES |
Committee Recommendations
That
Council:
1. Receive, for information, this report on the
City’s participation in an application for intervener status along with other
Ontario municipalities in an appeal before the Ontario Divisional Court of the
Assessment Review Board’s decision regarding Toronto’s Bank Towers; and
2. Recommend
Council support the Municipal Property Assessment Corporation’s request that
the provincial government implement the necessary legislative amendments to the
Assessment Act to support the Municipal Property Assessment
Corporation’s current methodology for assessing income-producing properties.
RECOMMENDATIONS DU COMITÉ
Que le Conseil:
1. prenne connaissance du présent rapport sur la participation de la Ville à une demande en qualité d'intervenant, avec d'autres municipalités de l'Ontario, dans un appel devant la Cour divisionnaire de l'Ontario à propos de la décision de la Commission de révision de l'évaluation foncière concernant les tours de banques de Toronto; et
2. recommande au Conseil de soutenir la demande
de la Société d'évaluation foncière des municipalités au gouvernement
provincial de mettre en place les modifications législatives nécessaires à la Loi
sur l'évaluation foncière, afin d'appuyer la méthodologie actuelle de la
Société d’évaluation foncière des municipalités en matière d'évaluation des
biens productifs.
DOCUMENTATION
1. City
Treasurer’s report dated 9 February (ACS2008-CMR-FIN-0006).
Report to/Rapport au :
Corporate Services and
Economic Development Committee
Comité des services organisationnels et du développement économique
and Council / et au Conseil
9 February 2009 / le 9 février 2009
Submitted by/Soumis par : Marian Simulik, City Treasurer / Trésorière
Contact Person/Personne ressource : Ken Hughes, Manager of Revenue /
Gestionnaire, Recettes
Financial
Services/Services financiers
(613)
580-2424 x 13485, Ken.Hughes@ottawa.ca
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SUBJECT: |
INTERVENer STATUS IN
PROCEEDINGS OF INTEREST INVOLVING BANK TOWERS ASSESSMENT REVIEW BOARD APPEAL |
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OBJET : |
QUALITÉ
D’INTERVENANT DANS LES INSTANCES D'INTÉRÊT CONCERNANT L'APPEL DE LA
COMMISSION DE RÉVISION DE L'ÉVALUATION FONCIÈRE SUR LES TOURS DE BANQUES |
REPORT RECOMMENDATIONS
That the Corporate
Services and Economic Development Committee:
1. Receive, for information, this report
on the City’s participation in an application for intervener status along with
other Ontario municipalities in an appeal before the Ontario Divisional Court
of the Assessment Review Board’s decision regarding Toronto’s Bank Towers; and
2. Recommend Council support the Municipal
Property Assessment Corporation’s request that the provincial government
implement the necessary legislative amendments to the Assessment Act to
support the Municipal Property Assessment Corporation’s current methodology for
assessing income-producing properties.
RECOMMANDATIONS DU
RAPPORT
Que le Comité des services organisationnels et
du développement économique :
1. prenne connaissance du
présent rapport sur la participation de la Ville à une demande en qualité
d'intervenant, avec d'autres municipalités de l'Ontario, dans un appel devant
la Cour divisionnaire de l'Ontario à propos de la décision de la Commission de
révision de l'évaluation foncière concernant les tours de banques de Toronto;
et
2. recommande au Conseil de
soutenir la demande de la Société d'évaluation foncière des municipalités au
gouvernement provincial de mettre en place les modifications législatives
nécessaires à la Loi sur l'évaluation foncière, afin d'appuyer la
méthodologie actuelle de la Société d’évaluation foncière des municipalités en
matière d'évaluation des biens productifs.
BACKGROUND
On November
14, 2008, the City of Toronto and Municipal Property Assessment Corporation
(MPAC) obtained leave to appeal to the Divisional Court the decision of the
Assessment Review Board (“ARB’’) relating to the assessment of income producing
properties in the City of Toronto. The
ARB’s landmark decision referred to as “the Bank Towers decision” was made on
February 22, 2008.
The Bank Towers decision directly favoured the property owners of BCE Place, Commerce Court, First Canadian Place, Royal Bank Plaza, Scotia Plaza and the Toronto Dominion Centre and if upheld could result in a substantial reduction in the assessed value of the properties along with a correspondingly substantial reduction in property taxes.
Revenue Division staff has determined that the City of
Ottawa may lose substantial revenue if the Board’s decision is upheld on
appeal. In an effort to provide additional evidence and perspective to the
case, Ontario municipalities are seeking to intervene in the appeal under the
coordination of Muncipal Tax Equity Paralegal Professional Corporation (MTE)
and their designated legal counsel.
DISCUSSION
This appeal is significant not only because of the total annual assessment at risk for the specific properties under appeal but also because there are new and broad implications for the assessment and taxation of property everywhere else in Ontario, including Ottawa. Based on information currently available, it is estimated that the property assessment at risk in Ottawa amounts to approximately $4.3 billion corresponding to potentially $100 million in property taxes.
In the Bank Towers decision, the ARB focused on the
interpretation of “current value” as defined in the Assessment Act and
how the term applies to properties whose market values are largely determined
by projected rental income. The ARB
concluded that the tenant’s interest (lease) is to be considered as personal
property interest and therefore should not be part of the overall property
assessment attributable to the owner. Contrary to current practice, the ARB
also concluded that tenant improvements (although very expensive at times)
should not add value and, thus, be excluded from property assessment. It was
held that tenant improvements do not contribute to the “value in exchange”,
which is the value the improvements may have for a new tenant who would be
willing to pay a premium for them, in the rent. The decision, if upheld on appeal, would significantly change
what was previously considered to be an appropriate and generally accepted
method of assessment and valuation.
If this decision is extended to all properties
assessed with market values largely determined by projected income, assessments
may be reduced for an extensive list of properties found in Ottawa that
includes office towers, multi-residential buildings, traditional and big-box
shopping centres and other commercial retail and service buildings and some of
the federal properties (where payment in lieu of taxes is applicable).
Due to the potentially significant revenue
implications of this decision for municipalities, and the longstanding role
that MTE has played in protecting and representing the interests of
municipalities in these types of proceedings, MTE is coordinating and leading a
broad municipal effort to seek leave to intervene as parties in the appeal of
the Bank Towers decision. Subject to
the instructions of the City of Ottawa and other muncipalities, MTE will
present evidence and arguments supporting a reversal of the ARB decision,
bringing to the court the perspectives of municipalities other than the City of
Toronto.
The City Solicitor has authority under the Delegation
of Authority By-law (By-law 2005 - 503) Schedule E, s. 27 to conduct litigation
before the courts subject to instruction issued by Council or Corporate
Services and Economic Development Committee.
Alternatively, where time constraints or other circumstances do not
allow for the required authority granting procedures to be followed in a legal
matter, s. 35 of Schedule E gives the City Solicitor authority to take
appropriate action and then report the action to Council at the earliest
opportunity.
This report serves as notice that City staff has taken
the appropriate action to participate in the application for intervener status
in this appeal.
Due to the importance of the issue Provincial government intervention is necessary to avoid lenghty and unpredictable appeal litigation and financial uncertainty for municipalites. Staff further recommends that Council support MPAC’s request for legislative amendments to the Assessment Act. MPAC’s letter to the Mayor dated December 12, 2008 has been attached as Document 1.
CONSULTATION
No
public consultation of this action is required under the Assessment Act
or any other legislation.
Legal Services and Revenue Division have worked together closely on this matter since learning that it was before the ARB and will continue to do so.
LEGAL/RISK MANAGEMENT IMPLICATIONS:
Co-operation with other municipalities on this appeal by the City of Toronto will demonstrate the importance of this issue to municipalities in Ontario and there are no legal/risk management impediments to implementing the recommendation in this Report.
FINANCIAL IMPLICATIONS
Should the Bank Towers decision be upheld,
income-approach properties could have their assessments significantly reduced.
Financial impacts will depend on the timing and manner in which assessments are
updated to reflect the outcome of this decision.
While it is not possible to precisely determine the revenue loss for the City of Ottawa, it is estimated that affected properties could have their assessments reduced by as much as 25% resulting in millions of dollars in lost tax revenue, unless compensated by increases in property tax rates. A 10% increase in tax rates would be required to compensate for the tax revenue loss.
MTE has asked the City of Ottawa for its support in
the effort and to participate in sharing the costs of the project. In a formula recognizing the participants’
size, costs are shared amongst all participating municipalities on an equitable
basis. The City of Ottawa’s share of
the costs is currently estimated at $50,000 which will be covered by the
Revenue’s Divison’s budget.
SUPPORTING DOCUMENTATION
Document 1 – MPAC’s Letter to Mayor O’Brien requesting support for provincial government intervention.
DISPOSITION
That the
City Clerk and Solicitor forward Council’s disposition of this report to MPAC
and the Minister of Finance for the province.
