Building new developments downtown is not economically viable and expanding property tax exemptions can’t make it viable, according to a consultant report presented to city council on Monday.
In December the city contracted Neilson-Welch Consulting and Leftside Partners Inc. to analyse the impact of expanding the city’s property tax exemption for downtown development. Currently downtown property owners can apply to have the property tax on new construction or renovations waived for five years, with a possible five-year extension.
“Would a 10-year exemption make construction feasible? The short answer is no.’ The tax portion of developer costs is simply too small,” consultant Allan Neilson-Welch said. “The profitability simply isn’t there.”
In the case of residential development or office space, even if the land was free the developers couldn’t make a reasonable return, he said.
Consultants were asked to examine the impact of extending property tax exemptions beyond the 10 years allowed under the B.C. Community Charter, based on recommendations by the Mayor’s Task Force for a Better Downtown.
“The lack of significant investment in downtown Prince George has more to do with the current marketplace, not the current exemption system,” Neilson-Welch said. “If the market is here, we don’t need a 20- to 30-year exemption. If the market isn’t here, than the 20- to 30-year exemption won’t bring it.”
Winnipeg is the only jurisdiction in North America with a property tax exemption of longer than 10 years. A longer than 10-year exemption may simply make the city look desperate, and actually be counterproductive, Neilson-Welch said.
A 10-year tax exemption could encourage renovations and facade improvements to existing buildings downtown, he said.
New or upgraded residential development in the downtown core the area zoned C1 should be totally exempt from property taxes for 10 years. Multi-family residential development in the Crescents area should be 50 per cent exempt.
New commercial development and facade improvements should be 60 per cent exempt from property taxes and green’ upgrades to buildings should be 40 per cent.
In all cases, the minimum construction value to qualify should be $20,000 and the exemption should never exceed the amount invested by the property owner, Neilson-Welch said.
Providing a tax exemption of the added value of renovations is not effective because property owners may not see their assessed value go up, given the weak market for downtown properties, he said.
No research has been done on the effectiveness of property tax exemptions to encourage development in B.C., Neilson-Welch said. Results of studies done in the U.S. are, “not particularly encouraging,” he added.
In places like Langley and Surrey tax exemption programs have been used to drive particular types of development in their downtown areas.
“There is money to be made is Surrey. They know the development is there, they’re just shaping it.”
The report drew an emotional response from city councillors.
“It’s so bleak. I feel like … why don’t we just shut the lights out?” said Coun. Shari Green, who owns a business in the downtown core. “It’s time to do something different. If we want to keep having what we’ve got, let’s keep doing what we’re doing.”
The outlook in the report is counter to the recent study by KPMG which named Prince George the most cost-effective city in the Pacific Northwest to do business, she said.
“This report has done exactly what it wasn’t supposed to do: cloud the issue,” Coun. Dave Wilbur said. “You can’t shoot the messenger, but this report has effectively put an end to this.”
To extend the tax exemption beyond 10 years would require the support of the Union of B.C. Municipalities and the provincial government, Wilbur said. This report makes that support unlikely.
Coun. Don Bassermann said council got exactly what it asked for: an impartial, third-party review of the proposal.
“Now we’ve got something to talk about,” Bassermann said. “(But) at some point we have to embrace something. I’d like to see that happen before I retire from this position.”
The city will be seeking public input on the report, then city staff will bring the report back for further consideration by city council.
Go online to www.city.pg.bc.ca to view the report and provide your thoughts.