PROPERTY ASSESSMENT/PROPERTY TAXATION

Since Proposition 13 was first introduced in California over 30 years ago, most US states have implemented some form of limit on property tax rates, tax revenues, or property tax increases arising from reassessments (assessment limits). What if Ontario had implemented a limit on assessment increases thirty years ago along the lines of Proposition 13? Who would be the winners today? Who would be the losers?

This report evaluates the impact of assessment limits on property taxpayers and identifies some of the potential unintended consequences of imposing these limits (even for properties that are supposed to be protected by the limits). The evaluation is based, to some extent, on the experience and analysis of assessment limits in the US but, more significantly, on the results of a simulation of the impact on Ontario property taxpayers if assessment capping had been introduced in this province in 1980.

The analysis of assessment limits in Ontario estimates the impact of a 5 percent cap, a 10 percent cap, and a cap based on the rate of inflation (all of which are imposed until the time of sale) on assessed values for residential properties across the province. The results, which are consistent with the evidence in the US literature, suggest that the change in assessed value arising from capping favours some property owners over others. In particular:

• property owners with high property values and high incomes are favoured at the expense of owners with lower property values and lower incomes;
• seniors are favoured at the expense of young homeowners; 
• owners of waterfront and recreational properties are favoured at the expense of owners of single-family homes and condominiums;
• properties that sold a long time ago are favoured at the expense of properties that sold more recently.

Examples of the impact of assessment limits on selected properties in selected cities also shows that these limits can result, in some cases, in higher taxes on properties that have enjoyed a decrease in assessment.

Current value assessment may have its problems, particularly in the face of market volatility, but as the evidence in this report shows, efforts to cure some of these problems may only make matters worse. Assessment limits help those who are being made wealthier by the market at the expense of those whose property values have not changed. Capping may also have unintended consequences by helping those who need it least and increasing taxes for those it is designed to help.

Although a strong case can be made to mitigate tax increases on those who cannot afford them, this mitigation is best done through property tax credits, tax deferrals, and phase-ins rather than assessment capping. Property tax credits and deferrals, in particular, are targeted to those taxpayers that can least afford the property tax increases. It is better to assist the taxpayers most in need than to tamper with assessment base.

Read AMO’s paper, Assessment Limits for Ontario: Could We Live with the Consequences?, released in June 2010 and authored by Dr. Enid Slack, one of Canada’s foremost experts in municipal finance.