OUR ILLEGAL TAXATION POLICY
by Hubert Hogle
The Town of Greater Napanee has an illegal taxation policy. I say this without reservation. Moreover, it is known to be illegal. By-law No. 2020-0027 (A By-law to Establish Tax Rates and to Provide for the Collection of Taxes for the Year 2020) purports to create two separate mill rates, 0.00586712 for urban and 0.00533535 for rural. Rural 9% lower than urban. Nowhere are the words “urban” and “rural” defined.
That 9% discount is illegal just like every by-law since 2000 has been illegal.
Section 307 of the Municipal Act, 2001 provides that, in general taxes are to be levied on all property equally.
307 (1) All taxes shall, unless expressly provided otherwise, be levied upon the whole of the assessment for real property or other assessments made under the Assessment Act according to the amounts assessed and not upon one or more kinds of property or assessment or in different proportions. 2001, c. 25, s. 307 (1).
There are three exceptions:
Under s.326 of the Municipal Act, 2001, a surcharge can be imposed for a service that is provided in one area of the municipality but not others. For example, Loyalist imposes a 2% surcharge on Amherstview residents for transit which is only available in Amherstview.
Under s.107 of the Municipal Act the municipality can make grants out of general funds to a certain defined class of taxpayers.
Where a restructuring order so provides the municipality may impose different rates in accordance therewith.
The 2000 illegal “rural discount”
The Town of Napanee and four neighbouring municipalities were amalgamated by a restructuring order of the Minister of Municipal Affairs and Housing dated January 7, 1997. The order took effect on January 1, 1998.
At the time of the order, Towns were responsible for policing, but Townships received OPP policing for free. Napanee had at one time maintained it’s own force, but at the time of amalgamation contracted with and paid the OPP to provide police services. The order allowed Area Rating of Police Services in the Old Town of Napanee. The restructuring order provided:
8.1(1) The new Corporation of the Town of Greater Napanee may provide for a special mill rate adjustment to apply to the taxpayers of the former Town of Napanee for the purposes of police services in the area which now forms part of the new municipality, on or after January 1, 1998.
It is important to note is that, under the Restructuring Order, area rating could only be done for policing and only in the old geographic Town of Napanee.
Following amalgamation, taxpayers in the Townships claimed their taxes had gone up and pressed council for relief. On May 8, 2000, resolution 619/00 was passed adopting a tax policy “whereby the rural area pays a rate of approximately one-third less than the … area … within the water and sewer boundaries”. By-law 00-31 adopted the tax rates and contains a map of the boundary between the urban and rural area.
The water and sewer boundary extended well beyond the boundary of the old Town of Napanee and the differential tax rate was not permitted by the restructuring order nor was it permitted by any other section of the Municipal Act.
Amazingly, no one outside of Town Hall seemed to notice this for many years. But, I came to believe it was understood within Town Hall.
During the lead-up to the 2010 election, I looked into the legality of this tax policy. I could find no authority to support it but felt I must be missing something. I was busy and did not follow up. During the lead-up to the 2014 election I again looked at it and concluded not only that it was illegal but it was well know to be illegal and staff were trying to find a way to fix it quietly.
The 2% reduction of the discount; Staff fails to follow council direction.
On April 28, 2011 a motion by Shaune Lucas passed 4-3 reducing the rural rate from 66% of urban to 68%. This led to a storm of protest from the Rural Ratepayers who sent contingents to visit several councillors. On May 10, 2011, in a process that clearly had been choreographed in advance, a resolution passed 6-1 to place the 2% in a reserve fund designated to be used specifically for upcoming rural projects.
Amazingly, staff ignored the c;lear direction of council to create the reserve fund. The 2% was simply left in the unallocated surplus and no council member or member of the public (urban or rural) noticed. In 2014, after I was unable to locate the reserve fund in the Town’s audited financial statements, I e-mailed the Treasurer and asked where the money had gone. At first, he did not give me a straight answer but he evnetually acknowledged that the 2% was in the general surplus. That e-mail exchange is found here.
Council refuses to fix the error in the map.
The 2000 map defining the boundaries between the urban and rural area was inaccurate in the area of Vanluven Road and elsewhere. This was pointed out several times by two residents one Vanluven road who were billed the urban rate but were not served by water and sewer on their street. But their complaints were ignored.
Staff decide to change the map without council authorization.
The water and sewer system was extended over the years and new water-sewer users were billed the urban rate even though the map of the area receiving the rural discount was never changed. It took my direct question of the CAO at a public meeting to extract a confession that this was done by staff without council authorization.
The public clues in. Staff start to squirm.
By mid-2013, the legality of the taxation policy was being openly questioned by me and others. It is apparent that the staff were getting nervous. The Treasurer proposed a “Service Delivery Review” (SDR) at the September 10, 2013 meeting obviously with the intent of prodding council to legalize the illegal taxation policy by bringing it u nder s.326 of the Municipal Act (surcharges for special services). The CAO gave the following cryptic comment that led me to believe that staff were well aware of the legality issue.
“The legislation on which the town operates has changed considerably since 1998 when we amalgamated this municipality. The decisions that were made in 1998-2000 were based on legislative requirements and legislative direction at that point in time. That was the best framework we had. This review would also take a look at the changes in these legislative requirements and incorporate them into some recommendations as well.”
Councillor Lucas kept pressing for a legal opinion. The CAO gave a number of vague and unsatisfactory answers. On August 8, the CAO reported:
“Unfortunately, the first step [providing Council with the framework of the legislative limitations that tax policy must be developed within] has become very arduous, as there are a number of complicating factors of overlapping legislation passed by a succession of governments. Our lawyers have spent a great deal of time on research and interpretation, with no case law to provide guidance.”
Possibly the lawyers simply called up and said “it’s complicated.” It would be strange if they only sent a bill for their hours of research with no report on their findings.
On August 8, 2014 Councillor Lucas (Ward 5) sent a letter to the CAO asking, “In general or specific terms is the present urban/rural levy legal and consistent with current provincial legislation?” On September 23, 2014 Councillor Lucas received a two page written response from the CAO,
“The basis of our tax policy comes from the work completed in 2000 by staff. The original urban/rural difference was based on a basic differential in the cost of policing. This differential was accommodated under tax policy based on a section of the Minister’s Order that authorized the terms and conditions of amalgamation. No further legal review was done prior to setting taxation policy between the implementation of the program and 2014. A succession of Councils, other than one small adjustment to the rate structure, has been opposed to any adjustment to the rate structure. With over ten years of legislation passed, changes to policing formulas and changes to the services provided within the community,staff fully support a complete review of all legislation and that the lawyer work in conjunction with the successful bidder on the RFP for Service Delivery Review… In verbal conversation with our legal consultant, no case law exists in Ontario where a municipality has been challenged on their tax policy based on the legislative framework that exists in the province.”
It’s hardly a satisfying answer. And, if there’s no case law, perhaps it’s because there’s no ambiguity in what the Municipal Act requires and other municipalities understand that and comply.
Council finally takes a stand.
At it’s first meeting in December 2014, council voted unanimously to cancel the SDR. this was done on its own initiative and against the advice of staff. Reportedly, staff were unhappy and shortly after there was talk of re-activating it under a new name, a Cost of Services Study (CSS). One of the service areas which the CAO wanted to review was “livestock kills” which led to a lot of mocking and brochures with graphics of dead cows.
Council gets a legal opinion at a secret meeting — and then shreds it.
On April 21, on a 4-2 vote, council requested a legal opinion. Amazingly, councillors Schenk & Kaiser voted against the motion. To me this indicated, as nothing else could, that they knew the answer but did not want the public to know.
On June 9, 2015, Tax Policy – Legal Opinion appeared on the agenda. The Mayor said this would be dealt with later in closed session. Councillor Lucas moved that the legal opinion be dealt with in open session and Councillor Harvey seconded it. The acting CAO, Jim Timlin stated (incorrectly) that legal opinions must be dealt with in closed session. In fact, under s. 239 of the Municipal Act, it’s optional. The motion was defeated 5-2. In effect council voted that there are some things you are better off not knowing.
The legal opinion, apparently was not presented on June 9 but rather at a secret, unpublicized, meeting on June 17 when Tony Fleming, a lawyer with Cunningham Swan, attended. Council is entitled to hold a closed session to receive legal advice but must first meet in open session and resolve itself into closed session and state the reason for doing so. Such meetings must be publicized in advance. None of this was done. Minutes of the open portion of the meeting must be made public but no record of the meeting having been held appears on the Town website. The legal opinion was reportedly given to council to read and they were then required to hand it back for shredding.
Councillors have not revealed what the lawyer told them, although mayor Schermerhorn did blurt out his take on it in an unscripted outburst later.
But it is not hard to figure out.
Staff fail to clarify confusion about effect of taxation policy.
There was huge confusion, particularly in the rural wards, as to the real effect of removing area rating. Many rural taxpayers seem to believe that their overall taxes would rise 32% if area rating were removed when in fact the number was 8.9% which I calculated from available data. GNRA director, John Stinson, attended council on May 12 and asked that the exact number be confirmed and publicized. He was promised an answer but received no response. On May 26, 2015, Councillor Lucas made a notice of motion that the Treasurer provide the correct number and that the report/results be posted/forwarded on the Town’s social media web site and appropriate local media outlets. The motion came up on June 9 and was passed 6-1. Amazingly, the mayor voted against the motion. Obviously, he was happy that the rural ratepayers continue to believe that their taxes might rise 32%. The number, 8.9% was finally confirmed by the Treasurer in a June 16 Report to Council but, despite the resolution of council, the result wasn’t published. On June 23, councillor Lucas asked about the non-publication. Staff advised that they intended to announce the result at the June 29 meeting on tax policy. Even the mayor came on board and directed that the result be posted on the website right away. But the result still wasn’t posted on the website (other than by an obsure link to the Treasurer’s report in the agenda archives), nor was it published in either newspaper, or on the Town’s facebook page.
This is just another example of staff failing to follow the clear directions of council.
MY-FM carried incorrect information on the morning of the July 29 meeting on tax policy. Here’s what MY-FM reported:
Urban property owners in Greater Napanee, your taxes could be lower if the rural rebate was a thing of the past. According to the treasurer’s calculations based on the Average Phazed-In Assessment for a residential property of just over $226,000, urban taxes would drop by 16.6%. For rural taxpayers, it would mean an increase of 22.6%. Tax rates will be the focus of tonight’s special council meeting and on how best to conduct an independent study of the process. While the meeting doesn’t start until 7:00, you may want to get there early so you can get a seat.
Clearly, someone in Town Hall was hell-bent on making sure that the rural ratepayers kept believing that their taxes were about to rise 32%.
By now it was obvious that council had to act. On September 22, 2015 council passed a resolution to form a Taxation Policy Review Committee consisting of 3 citizens from each region. On October 8, a formal by-law was passed to establish the committee. On October 22, from 8 applicants, in closed session and by secret ballot, council selected a committee of six citizens to review tax policy and recommend change.
Chairman: Gary Scandlan, Watson & Co. Economists, Mississauga
Rural Members: Ted Davie, Axel Thesberg, Les Howell
Urban Members: Robert Marriott, Hans Bichsel, Hubert Hogle
Council liaison is Charles McDonald
Over the next year, six meetings of the TPRC were held. Details are reported here. In the end, Mr. Scandlan of Watson and Associates recommended that the majority of the rural discount be phased out over a 5-year period. That recommendation was accepted by council in a motion made by councillor, Max Kaiser, and passed 6-1 on August 22, 2016. There was a bit of confusion and the result was incorrectly reported in the August 25 Beaver but corrected in the next edition.
In the end, council voted 6-1 to implement the report of the Tax Policy Review Committee with one amendment which extends the phase-in of the changes recommended by the committee from 4 to 5 years.
Amazingly, everyone at SPC (which was packed) cheered the result and the issue soon faded from public attention. The effect of the change was to increase overall rural taxes about 1.25% per year for five years while reducing urban taxes by the same amount but still leaving urban residents paying about 3% more than rural (for sidewalks, street lights and fire hydrants) after the phase-in is complete.
The Committee envisioned a series of special surcharges under s.326 for sidewalks, streetlights and fire hydrants which would amount to about 3% surcharge on urban residents. The intention was that only taxpayers who were located within a block of sidewalks or streetlights pay for them. Staff objected that this would take too long to implement and simply presented council with a by-law reducing the illegal rural discount in phases to approximate the intent of the resolution of council.
The first 4 increments of the 5-year phase-in took effect in 2016, 2017, 2018 and 2019. The remaining increments would have taken effect in 2020 but Max Kaiser (now deputy mayor) and new councillor for ward 5, John McCormack, had other idieas.
New rural councillors decide to give the pot another stir.
Max Kaiser’s motion, creating the new tax policy contained a rider:
…that we seek dialogue with the OPP and/or the Province to find a clear and final decision as to whether or not the “calls for service” for the OPP can be area-rated within a given municipality; and that we seek that decision within this term of Council.
The CAO spent the remainder of the last term of council trying to get an answer to this. Gary Scandlan has stated unequivocally that this was not permitted under s. 326 of the Municipal Act since policing is provided in all areas of the Town at the same level of service.
In the end, the CAO reported to council that the province could not provide any different answer, nor could they even provide a way to measure the cost of service in different areas (another requirement of s.326).
Not deterred, on March 10, 2019, RESOLUTION #158/20 (Moved by John McCormack and seconded by Max Kaiser was passed;
That Council accept the proposal from Axel Thesberg outlined in correspondence received at the Special Session of Council on December 9, 2019 to end the five year phase in of Method 4 from the Watson report in 2019, which would result in a rural discount rate for policing costs of 9%, which is 5.5% over the 3.5% for the area rating of sidewalks, streetlights and fire response; And further that this decision be reviewed during the next term of Council. Councillor Norrie requested a recorded vote. Yeas: McCormack, Richardson, Isbester and Kaiser Nays: Norrie and Pinnell Absent: Johnson Yeas: 4 Nays: 2 Absent: 1 As a result of the recorded vote, the resolution was declared…………………….CARRIED.
No by-law has been passed creating a special surcharge under s.326 of the Municipal Act. No by-law has been passed creating a grant under s.107. The resolution is a return to the rural discount, now reduced from 32% to 9%. the rural discount was illegal in 2000 and it’s still illegal. So is the bylaw imposing the 2020 levy.
Why did 4 of our 7 councillors choose to stir the pot on this long dormant issue after spending a year and $100,000 getting an objective report from an outstanding expert?
You tell me.
last updated June 21, 2020.