The following blog is a summary of the section “Limitations of Property Tax” from the fiscal gap report put together by City Administration. The full report can be found here:

https://pub-edmonton.escribemeetings.com/filestream.ashx?DocumentId=236515

Municipalities in Alberta have no autonomous ability for revenue generation, under the Municipal Government Act, Alberta limits municipal taxing authority primarily to property tax.

As a result, Edmonton has a heavy reliance on property taxes. Residential and non-residential property tax is the most predominant revenue-raising tool used by the City, comprising 59% of operating revenues in 2024.

Additional operating revenues are raised through:

Use fees, fines and permits (11%)
Franchise fees (6%)
EPCOR dividends (6%)
Transit revenue (3%)
Reserve transfers (4%)
Other Revenue - Downtown Arena, external debt recovery, local improvements, and other taxation revenues (4%)
Grants 4%
Investments earning and dividends for capital financing (3%)

Source: City of Edmonton 2024 Approved Operating Budget, as of Spring 2024 Supplementary Operating Budget

Source: City of Edmonton Operating Budgets. Note: Approved budget as of Spring 2024 Supplementary Operating Budget Adjustment shown for 2024; Adjusted budget shown for 2023; Actuals shown for 2000 to 2022.

In 2000, property taxes comprised 46% of revenues and has grown to 59% in 2024.

The shift in property tax as a share of revenues has occurred for two reasons:

1. Property tax growth has occurred at relatively high rates; and

2. Non-tax revenue growth has occurred at relatively low rates, and has not kept pace with expenditure growth.

A heavy reliance on a singular revenue source presents sustainability challenges for the City. If the public’s tax tolerance reduces significantly for sustained durations of time, the City’s principal revenue tool will be constrained, as will its ability to deliver services

Perspectives on Property Tax

Varying perspectives on property taxes play a big role in the decision-making process. The following four subsections summarize the four main areas:

Strengths of Property Tax
Equity Concerns with Property Tax
Economic Concerns with Property Tax
Impediments of Raising Property Tax

Strengths of Property Tax are as follows:

Stable and Reliable: Income and consumption tax revenues at the provincial and federal levels, typically shrink during economic downturns. Property taxes, on the other hand, follow a budget-based approach. Regardless of fluctuations in property market values, overall tax revenues remain stable

Efficient and Transparent: Property tax is a transparent tax, amounts owing are clearly shown on a single notice
Alignment with Benefit Principle for Residential Properties: Municipalities deliver services that provide benefits closely aligned with housing consumption (owning and renting). Such as roads, sidewalks, parks, and fire rescue.
Less Impacted by Demographic Shift: As the Baby Boomer demographic ages and retires, the country’s income tax may be negatively impacted over time. Property tax will be less affected by this as an individual’s property tax burden is not subject to income level
Residential Property Taxes Are Less Harmful to Economic Growth: The Organisation for Economic Co-operation and Development (OECD) ranks property taxes as the least harmful to economic growth compared to other taxes. In its analysis of four common tax types, the OECD finds corporate taxes to be the most detrimental to growth, followed by personal income taxes, with consumption taxes being less harmful than the first two

Tolerances on Tax Increases

Tax tolerance is the level of property tax that property owners are willing to pay. This tolerance varies based on property owners' financial situations. Business owners may face fluctuating revenues or losses, while residential owners may experience reduced or fixed incomes. In both cases, they must still pay property taxes, leading to low tolerance for tax increases during tough financial times.

Tax tolerance can also change with the economy. When the economy is strong and incomes rise, tolerance for taxes generally increases. Conversely, during economic downturns, such as the COVID-19 pandemic, tolerance decreases. Unlike property taxes, income and consumption taxes automatically adjust based on financial circumstances; lower income means lower income taxes, and reduced spending leads to lower consumption taxes.

In a low tax tolerance environment, raising property taxes to support budget growth is difficult. During tight financial times, there is less flexibility for budget increases to cover inflation or population growth, making it hard to fund new or enhanced services.

For example, during the pandemic, many Edmonton property owners saw significant income reductions. Originally, the city planned to increase taxes by 2.6% each year from 2019 to 2022, but these were reduced to 1.3% in 2020, a 0.3% decrease in 2021, and a 1.9% increase in 2022 due to lower tax tolerance. Those increases were the lowest in 25 years.

Speaking of those lowest in 25 year tax increases, from 1993 to 1997, the City Council approved zero tax increases for five years. This led to a decline in services as inflation eroded the budget’s purchasing power. Prolonged zero increases, combined with regular population growth, can harm the city’s infrastructure funding, contributing to a growing infrastructure deficit and deteriorating public facilities.

Whether property tax growth is responsive to economic growth depends on which time period is examined.

Over the long term (1993-2022), the compounded cumulative effects of both real tax growth and tax increases grew the tax levy in line with economic growth, albeit slightly below provincial GDP growth rates.

In more recent years (2007-2022), Edmonton’s property tax growth has been significantly higher than economic growth rates, though this may be partly due to relatively low GDP growth from three deep recessions within these 15 years.

These 15 years was marked by three significant economic constraints:

The Great Recession that began in late 2008 that affected all of Canada;
The COVID-19 pandemic that began in 2020 that also affected all of Canada; and
The 2015 to 2016 oil price recession that affected Alberta.

With property tax growth rates being higher than economic growth from 2007-2022, the property tax burden of a typical Edmonton household has also increased.

City property taxes increased in share of each dollar paid in taxes to all three orders of government from 3.8 cents in 2000 to 6.8 cents in 2021.

Municipal utility fees’ share of a tax dollar increased from 1.4 cents in 2000, to 2.5 cents in 2017, at which point the City transferred its drainage utility to EPCOR, reducing the utility share to 1.5 cents in 2019 and 2021. Property owners still pay for drainage utility services to EPCOR, but these revenues are not considered City revenues after the drainage transfer.

City forecasts of tax share from 2022 to 2024 indicate that City property taxes may increase to 7.6 cents of every tax dollar in 2024, while municipal utility fees will decrease to 1.4 cents; total payments to the City of Edmonton are forecast to grow to 9% of all taxes paid in 2024

Source: Statistics Canada Survey of Household Spending (SHS) for Edmonton CSD 2000-2021; Statistics Canada Table 11-10-0028-01; City of Edmonton Tax Bylaws 2000-2021; Forecast by City of Edmonton; Calculations by City of Edmonton. Note: Municipal tax share is for a typical two-income, owner-occupied Edmonton household with house value equivalent to the median value for each year; the SHS methodology changed to every second year beginning in 2017, thus there is no data for 2018, 2020, 2022.

Property tax in Edmonton has grown as a relative share of the tax burden for Edmonton households. In 2000, property tax was the sixth largest tax paid to the government sector by a typical, owner-occupied household surpassing GST and Employment Insurance (EI) Premiums.

Property taxes are an imperfect way to fund the services and infrastructure that municipalities provide. With that said, it doesn’t look like this model will change anytime soon. Therefore, we need to better respond to this reality and the fiscal gaps report in Part 2 of the 2025 Budget blog provides us with a path forward.

BUDGET BLOG PART 1: https://andrewknack.ca/blog/budget2025part1

BUDGET BLOG PART 2: https://andrewknack.ca/blog/budget2025part2

BUDGET SURVEY:

Limitations of Property Tax

Infrastructure Funding Challenges

Introduction to the Fiscal Gap