Monday, May 19, 2014

Problem 4: An Unequal Playing Field to Attract Development

For the better part of the past century, it was the urban centres in Alberta who attracted the lion's share of development in the Peace Country.  A couple of decades ago that began to change.  Rural municipalities have now taken a more active role in developing their lands...and I can't blame them.  Every municipality wants to provide the best services possible while keeping taxes as low as they can.  To do this, we compete with each other to attract development in order to increase our tax base and achieve economies of scale.

So what, Rory?  Municipalities all over the world compete with one another.  What's the problem?

What's the Problem?

Anywhere there is competition, I believe all the competitors need to be playing on an even playing field.  The problem is that in Alberta, this is not the case.  The problem is exacerbated in the Grande Prairie region.

Right now, the County has an upper hand when it comes to attracting development.  There are several reasons for this:

  • Availability of land
  • Location of land
  • Development costs
  • Property taxes

Availability of Land

Quite simply, the County has large swaths of land that they can allow to develop which the urban centres do not.  This has given them the flexibility to offer a wide variety of development options, in a number of places.

Location of Land

Proximity to key transportation corridors is a prime factor for industrial and commercial development.  Proximity to major service centres is another key factor.  The County is in a position where they can capitalize on both.  And they have.  You can find many industrial/commercial developments surrounding the City along every major roadway.

Development costs

The County has traditionally had lower development standards than the City which cost developers less.  The City has brought some of our standards in line with the County to be more competitive.  For example, sidewalks are no longer required in rural industrial areas.  On others, we have chosen to not lower our standards, particularly on the engineering side.  We feel that our higher standards (for road composition for example) will ensure longer-term value for the City and taxpayers (because it'll be taxpayers on the hook when the roads start to crumble).

While there may still be areas that we can relax standards, there are others where we feel the race to the bottom for short-term gain is ill-advised.

Property Taxes

The County is able to offer lower property tax rates than the urban municipalities.  Obviously, this provides an incentive to develop there. 

So why are the City's taxes higher?  You could go with the oft-heard response that City Councillors all spend like drunken sailors...but I like to think that the answer is a little more nuanced than that.

So does the City spend more?  Well yes, it did spend about $288 million more than the County between 2009 and 2012.  But how does that break down per person?  Over that time period, the City spent about $9,400 per City resident while the County spent $11,200 per County resident. 

So if the County is spending more per person than the City, why are our taxes so much higher?  Well it largely gets back to the data I presented in Problem #1.  The County has a significant number of additional revenue sources that the urban centres do not have access to.  These revenues significantly reduce the tax burden on commercial and residential properties.

An important note: just because we are disadvantaged in this area, it does not mean that we can just sit back idly blaming the system for everything.  We always need to be cognizant of the tax burden and make wise financial decisions with that in mind.

So all together, the County has quite the leg up when it comes to attracting development. 

What's wrong with an uneven playing field?

The problem that this uneven playing field has lead to is that the County has been able to attract development at a much greater rate than the urban municipalities, mostly in non-residential developments.  Ten years ago, the value of the City's residential and business assessment* (excluding linear and M&E) was $2.2 billion and composed 68% of the region's assessment.  The County's was $0.8 billion and composed 27% of the region.

Flash forward to 2013, the City's assessment has grown by 96% and is now worth $6.9 billion.  That's impressive in its own right.  However, the County has seen a staggering 343% increase and now has an assessment value of $3.9 billion.

Municipality Assessment Value (2003) Assessment Value (2013) Percent Increase
City of GP $2.2 billion $6.9 billion 96%
County of GP $0.8 billion $3.9 billion 343%

Municipality Share of Region's Assessment (2003) Share of Region's Assessment (2013)
City of GP 68% 61%
County of GP 27% 34%
 Note: Changes in the share of the regional population have been negligible over this time. County's share in 2003: 25%, City's share: 65%; 2013, County: 25%, City: 67%

In only 10 years, the County has seen its share of regional assessment increase from just over a quarter to just over a third.

Now don't get me wrong, this growth has been great for the region.  Jobs are aplenty up here, wages are among the top in the country and entrepreneurs can flourish regardless of which municipality they live in.

But here's the issue: as a municipality's assessment grows at a greater rate than neighbouring municipalities, so does their tax revenues.  If the additional tax revenue is not needed to pay for increased services, taxes can be kept low.  Lower taxes make it more attractive for development, which increases assessment...and the cycle goes on.

Much to the delight of all my family and friends who live in the County, businesses and residents there have seen very minimal tax increases in the last few years. 

Without changes to the system, these inequalities will continue to persist and worsen.  Luckily, there are many solutions to this problem.

 Next post ----> Solutions

*Note: I've lumped residential and business assessment together in this analysis for simplicity sake.  There is value in looking at them separately as they each provide different types of revenue and the costs associated with servicing each class are different.  It is often noted that the cost of servicing residential areas are much higher than servicing businesses.  I believe further study would show that this highlights further inequality.

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