The City of Sault Ste. Marie’s official industrial municipal tax rates are now among the highest in the province. Even with tax capping to spread out the immediate impact of an increase or decrease in taxation or Municipal Property Assessment Corporation (MPAC) valuations, industrial property owners that SaultOnline spoke to are concerned about the potential negative impact on expansion opportunities and economic diversification.
They see this as a huge election issue.
Richard Palarchio, owner of Rico’s Catering Limited/Good old Dad Food Products Inc., and Robert Cohen, owner of Soo Foundry & Machine Ltd., hope to see a thorough review of those tax rates under a new municipal council following the October 22, 2018 municipal election.
Palarchio, who has been at his 185 Industrial Court location since 1980, and Cohen, who moved into his 215 Drive In Rd. in 1982 both have years of experience in the small-scale industrial sector.
Despite being a small group of local taxpayers, small-scale industrial manufacturers are economically important in our community. Cohen told SaultOnline, “We provide good wages, meaningful employment, stable jobs with pensions and benefits. I alone have 50 full-time employees. Those are the kinds of jobs you want, so people can build families and homes in our community.”
Both business owners – and many like them across the board – provide employment in the skilled trades for youth and apprentices, in addition to exporting products all over the province as well as to the U.S.A and other parts of Canada, ultimately bringing valuable spinoffs and dollars into the Sault’s economy.
So in 2018, how does our official municipal tax rate applied to small-scale industrial facilities compare among the five major cities in Northern Ontario?
- Sault Ste. Marie: 6.387%
- Sudbury: 4.967%
- Timmins: 4.264%
- Thunder Bay: 3.548%
- North Bay: 1.799%
It is also important to note that the current official municipal tax rate applied to small-scale Industrial Occupied facilities in Sault Ste. Marie even exceeds the current Large Industrial Occupied tax rates the other four Northern Ontario cities apply to their large-scale industrial facilities.
- Sault Ste. Marie Large Industrial Rate: 11.345%
- Sault Ste. Marie Small Industrial Rate: 6.387%
- Thunder Bay Large Industrial Rate: 5.881%
- Sudbury Large Industrial Rate: 5.63%
- Timmins Large Industrial Rate: 4.264%
- North Bay Large Industrial Rate: 1.799%
The industrial taxation base in the Sault over the past number of years has been declining in the Large Industrial tax class, as major impacts came with the bankruptcy and closure of St. Mary’s Paper, as well as Algoma Steel’s recent reassessment by MPAC, which dropped their assessed value by over 50%. In the case of the Algoma Steel reassessment, the City increased the rate on the Large Industrial class from 7.446% in 2016 to 11.666% in 2017. The reason often given for the rate increase is the significant decline in the assessed value of that particular industrial property within that tax class. This rate increase, it is said, would offset the decline in the value assessment in the overall Large Industrial tax class, which in turn would enable the city to keep collecting roughly the same amount of tax revenue from that tax class. In 2018, the Large Industrial municipal tax rate dipped slightly to 11.345%.
But, when it comes to the separate tax class of small-scale Industrial Occupied properties, the official municipal tax rate for those properties also rose in 2017 from 4.192% in 2016 to 6.568% without a seemingly similar or significant decline in assessment values for that separate tax class. For this tax class, on the surface, or on paper, the new industrial municipal tax rates for 2017 amounted to a 56% increase in the rate or on the property taxes paid for every dollar or every $100,000 of property value assessment. However, provincial law required that significant property tax rate increases be phased in over a period of several years through what’s known as tax-capping.
Palarchio and Cohen believe that council wanted to find a solution, but without spreading out the tax burden, without keeping the increase within the same tax class, without seeing where they could make cuts or gains within the municipal organization, and without waiting for the settlement of Algoma’s CCAA filing. As such, the majority of city council decided to put the full amount of the burden on both the Large and Standard Industrial Occupied tax classes.
As explained by Ward Five Councillor (running for Ward Four in the upcoming election) Marchy Bruni, “On April 24th, 2017, the majority of city council voted to raise the municipal tax rate from 7.4% to 11.6% on Large Industrial facilities and from 4.7% to 6.6% for Small Industrial facilities. This amounts to roughly 55% increase in the amount paid for every dollar of assessment. I believe this major increase was very unfair.”
That being said, Cohen and Palarchio both acknowledge that the City is trying to take measures to reduce short-term taxes for companies in this class by offering tax reductions for the first three years of new construction, and offering some incentives for new capital equipment purchases. “I don’t want to burden the residential or commercial tax classes,” Palarchio stated, “the situation (with Algoma) did seem pretty dire. I just think it’s more complex than that.”
Cohen agreed, “We are simply asking for a more thoughtful response based on the finances right now, not based on last year or two years ago.” He continued, “Even though the impact is spread out over the course of ten years, people need to think long-term… These are band-aid solutions…”
These stakeholders believe this action was taken without any regard for the wider economic impact, or its impact on attracting new industrial and manufacturing investment, and there needs to be a more innovative solution.
“People need to feel like they can make money here and hire here. If you are competing with other areas in northern Ontario, we should be lower (in terms of taxes) or at least the same to make it enticing to come here,” Palarchio explained. “If you see our tax rates and you are choosing where to go, you would question why you should come here instead of another city.”
“From an economic standpoint, you are doing major damage to the local economy. You are essentially telling people ‘you better think twice before moving here, you better think twice before expanding your business,’” said Palarchio.
Palarchio also highlighted the stark reality that, as proprietors get older, it will continue to get more difficult to sell their businesses if there is a heavy tax burden attached to it. “Where is the continuity?” He is asking.
So what could help? Where is the future of this ‘economic diversification’ that so many of our councillors and candidates have been touting?
Ward Three incumbent Matthew Shoemaker believes there is a way that this can be accomplished. But, as stated by Cohen and Palarchio, it is complex. “An increase on what Algoma has to pay has an indirect impact on others. When Algoma was reassessed, if we were to raise residential taxes, people wouldn’t have been able to afford it. It would have been a huge hit to them,” Shoemaker explained to SaultOnline. “It was a decision made by council on the recommendation of staff. Spending responsibly is the only way to fix it. We need to make sure any cost savings that can be found can be put toward making the tax ratio better. Whether it’s from the administrative side, the clerk’s department, City Council’s budget, parks, recreation, any funds found have to be directed toward bringing down the industrial tax rates.”
According to Shoemaker, this is why decisions like looking private management for the GFL Memorial Gardens or reviewing the garbage collection contract may seem like small decisions, but every little bit of savings helps to bring the tax ratios down.
Ward Five incumbent Frank Fata did not hesitate to tell SaultOnline what he thinks needs to happen. “A balance, I believe, must take place between reducing industrial tax rates and reviewing the cost of running city hall. Reducing staff, through attrition, has got to be the number one consideration that’s on the table. But all department heads must be on board for this to work effectively. Sure, this dilemma is no easy task, but we really must address these industrial tax concerns. But, of course, the will of council must be on board to accomplish this.”
This will no doubt become an important election issue as the municipal election campaign takes shape. Candidates, both new and incumbent, will be asked if this type of approach to industrial property taxation is beneficial to fostering broad-based local economic growth and attracting new industrial investment, and whether the particular tax rate increase on small-scale Industrial Occupied properties, approved by the majority of City Council in April of 2017, should be immediately repealed once a new council is sworn-in after October 22nd.