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Federal Payments-in-Lieu of Taxes (PILT)

Backgrounder August 11, 2022

Municipalities Caught in a Dispute over Federal Payments-in-Lieu of Taxes

On August 5th, 2022, AMO President Jamie McGarvey received a deeply concerning letter from federal Minister of Public Services and Procurement, the Honourable Filomena Tassi. The letter was in reply to letters the AMO President sent in February and May of this year, identifying a $20 million shortfall in federal payments-in-lieu of taxes (PILTs) made to Ontario municipalities for 2021. The Minister’s letter suggests that the shortfall in PILT payments to municipalities was a result of the Ontario provincial government’s 2021 decision to provide a reduction in business education tax rates for taxable business properties which then created an inconsistency between the treatment of taxable and federal payments in lieu of taxes properties within the province. 

The federal government subsequently made PILT payments to municipalities based on the lower PILT education rate applicable to taxable properties rather than the specifically prescribed rate for federal PILT properties.  While the provincially prescribed education rates for federal payment-in-lieu of tax properties would not have required the federal government to pay any more PILTs than it had paid in the previous year, the federal government’s decision to apply the lower education rate in calculating federal PILT payments has resulted in revenue shortfalls in PILT revenues for municipalities across Ontario.

In short, provincial action to reduce business education taxes has created a windfall of $20 million for the federal government annually which has left municipal budgets short. To date, the federal government has declined to make supplementary payments to keep municipal budgets whole or pay at the provincially prescribed rate.

This unresolved federal dispute presents many municipalities and property taxpayers with ongoing fiscal challenges for 2021, 2022, and into the future as a result of a decrease in federal PILT revenues. The local and practical impact of this situation is deeply problematic for municipalities caught in the middle. As the nation’s capital hosting many federal facilities, the City of Ottawa faces the most impact, an annual shortfall in excess of $10 million. The Town of Petawawa hosts the federal Canadian Forces Base Petawawa. The town faces a $1 million annual hit to its budget and a property tax increase of at least 10% to make up the difference. For Deep River, the gap creates a 5% property tax increase, for the City of Kingston it is a $1.2 million annual hit. The list goes on and on and includes 282 municipalities in total. Any property tax increase to make up for the shortfall affects residents and businesses negatively in a time of financial uncertainty and historic inflation.

Municipalities have been carrying forward the 2021 loss in anticipation of a favourable reply by the federal government. Actual tax rate increases may need to be even higher than those listed above to cover the accumulated shortfall for 2021 and 2022. With no federal or provincial relief, this fiscal instability means difficult choices ahead including future tax rate increases or service reductions. This will affect the population at large, including businesses and federal government employees that reside in these communities.

AMO seeks a meeting with federal and provincial officials to identify a resolution to this issue. As it stands now, municipalities and property taxpayers are caught in the middle of this dispute initiated by tax measures introduced with the best of intentions. Now is the time for cooperation. AMO stands ready to convene a resolution.

Contact:

Bridget Cherry
Senior Advisor