Commercial properties are central to Toronto’s efforts to find more cash as the city government considers how to address massive budget shortfalls projected for 2024 and into the future. A list of proposed measures was released last week to launch a consultation on approaches to procure $1.5 billion to plug the current operating deficit and an additional $46.5 billion to adequately cover Toronto’s forecasted operating and capital needs over the next 10 years.
“These targeted solutions are an important start, but we cannot do this alone. We need our partners — the Government of Canada and the Province of Ontario — to also meet this challenge and step up for people of Toronto, the region, province and country,” submits Toronto Mayor Olivia Chow.
A special levy on commercial parking spaces has been flagged as one of five initiatives recommended for the first round of action. However, in the coming weeks, Toronto councillors will be considering about 30 potential revenue sources and 10 operating cost reductions.
That package of proposals also includes the imposition of fines for non-compliance with building performance benchmarks and the cancellation of various business incentives, fee exemptions and property tax credits among mechanisms the City now has the authority to implement. Other contemplated measures that would likely have impacts for commercial ratepayers could only be possible if the Ontario government agrees and/or passes enabling legislation.
It’s estimated that revenue-generating mechanisms currently within Toronto Council’s control could generate from $289 million to $662 million annually, depending on the rates charged, while the full package of cost-reduction items could trim $479 million to $604 million from the annual operating budget. Another 22 revenue options that would first require provincial approval are touted to collectively garner between $2.6 billion and $6.1 billion annually.
All options for new revenue generation are identified in a third-party report, prepared by Ernst & Young LLP, which City staff has further refined into recommendations based on each option’s earning power, ease of implementation and fit with City priorities. The public will be given an opportunity to voice their opinions at a special meeting of Council’s executive committee on August 24, and the full Council will consider the measures and other potential updates to the long-term financial plan at a special meeting on September 6.
To begin, residential properties are identified as one of the most straightforward opportunities for additional revenue. City staff recommend introducing five gradients of incrementally higher land transfer tax rates on high-value transactions, climbing from 3.5 per cent of the purchase price on sales in the $3- to $4-million range to 7.5 per cent of the purchase price of homes trading for $20 million or more. If Council approves, it’s proposed this could be enacted beginning January 1, 2024.
An additional land transfer levy for homebuyers who are not permanent residents of Canada is also proposed as one of the initial five actions. However, it could not practically be collected until 2025 since current federal legislation prevents non-residents from purchasing single-family homes or condominium units in Canada during the period from January 1, 2023 to December 31, 2024. Toronto’s levy would be on top of the 25 per cent surcharge the Ontario government already imposes on foreign buyers through the provincial land transfer tax.
Commercial properties figure in two proposals for early, implementable actions
The Ernst & Young (EY) analysis estimates a new levy on commercial parking spaces could generate about $173 million per year at a low-end charge of $0.50 per parking space or up to about $490 million annually if the rate is set at $1.50 per space. This is based on the levy being applied on all paid and unpaid commercial parking spaces, including the parking lots that the Toronto Parking Authority and Toronto Transit Commission operate.
It would be collected on subject ratepayers’ property tax bills and is forecasted to cost about $2.5 million annually to administer. The levy could be imposed under existing municipal authority, and it is aligned with two of the City’s five stated key objectives — easing mobility and responding to climate change. However, the EY assessment foresees it will be time-consuming to enforce and will likely result in flow-through extra costs for parking consumers.
Two other major Canadian cities currently have commercial parking levies, but generate more modest revenue than Toronto is targeting. Montreal raises about $23 million annually through a tax that is applied per metre of parking space located in scoped geographical areas, while Vancouver employs a sales tax on commercial parking fees that garnered about $64 million last year. Nevertheless, the EY report points to other potential spinoff benefits.
“If Toronto implemented a variable parking tax similar to Montreal where the most expensive areas are in the central downtown core and financial district, this may encourage people to use other forms of environmentally sustainable transport on their commute to work,” it states.
If Toronto Council opts to explore the measure further, City staff will prepare a report on the implementation logistics, which would then be considered during the 2024 budget process and deliberations. It’s envisioned that the commercial parking levy could be implemented in 2025.
The other proposed revenue-generating measure with repercussions for commercial building owners/managers would require more preparatory work on the City’s part, but it’s categorized as feasible in the somewhat near term. The EY analysis estimates that monetary penalties attached to exceeding an allowable threshold for greenhouse gas (GHG) emissions could raise about $93 million annually. First, though, the City would need a bylaw to put those thresholds in place.
Under the proposed schedule, City staff will present Council with informed advice on a bylaw to mandate the reporting of building-level data on energy and water use and GHG emissions in the fall of 2023. That would be followed in 2024 with the framework for a bylaw to require existing buildings to meet specified GHG emissions standards.
It’s believed that the City should be able to levy fines for non-compliance once an enabling bylaw is enacted. “The City has legal authority to implement a bylaw requiring building owners to meet a performance standard; the permissibility of imposing a charge will depend on the specific design of the tool,” the EY analysis states.
In turn, it’s recommended that revenue collected through such a fine should be reinvested in supporting climate change resiliency in the buildings sector. “While the review of revenue tools has primarily focused on revenue generating opportunities to reduce the City’s fiscal pressures, there is also an opportunity to advance tools which align with the City’s corporate strategic priorities,” states the report and recommendations to Council’s executive committee.
Other proposed early actions projected to raise more modest levels of revenue
Looking at other revenue-generating measures recommended for the early rounds of Council action, it’s estimated that a monthly surcharge for access to 911 emergency calling could raise about $27 million annually. Such levies are already charged in all Canadian provinces except Ontario and Manitoba, and municipalities in British Columbia have flexibility to determine their own rates. The EY analysis deems it would be “relatively easy” to implement since telephone service providers would pass through the charge and remit it to the City.
Some of the contemplated operating cost reductions could also have impacts for commercial real estate. These include: withdrawing development charge exemptions, thus extracting an estimated extra $190 million to $210 million from the industry annually; suspending the yet-to-be-rolled-out Imagination, Manufacturing, Innovation and Technology property tax credit, which could save participating ratepayers up to $300 million in collective property taxes over the next 15 years; and reducing the Heritage Property Tax Rebate, equating to $500,000 to $1.4 million annually.
Meanwhile, the City will be scrutinizing its own real estate assets. “Staff are recommending further and ongoing review of City-wide surplus and underutilized real estate assets and will report back with any recommendations for disposition or change in use of specific assets in advance of the 2024 budget process as required, in order to ensure the greatest value for the City,” the report to the executive committee confirms.
