Tax Base Challenges
The following blog is a summary of the section “Tax Base Challenges” 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
As a critical funding source for essential services and infrastructure, the tax base faces threats from several factors including slow economic diversification, demographic shifts, and rising service demands.
As the centre city, Edmonton is the economic heart of its metropolitan region. Because the Edmonton Region functions as an interconnected economy, when one large partner (the City of Edmonton) provides regional infrastructure such as freeways, arterial road capacity, social supports, or large cultural infrastructure, smaller municipalities face fewer comparative obligations.
This creates inequity as the City bears a disproportionate cost of regional infrastructure and surrounding municipalities have fewer obligations to create infrastructure, relying instead on proximity to the centre city.
The expenditure responsibilities of big cities are also significantly higher than small cities, towns and counties.
The City’s two largest services, police and transit, comprised 28% of its 2024 operating budget.
Many Edmonton Metropolitan Regional Board municipalities do not provide transit service and the ones that do have significantly smaller, less complex, and less costly systems than Edmonton.
Edmonton is also the only municipality in the region with a standalone police service, wholly responsible for its policing costs.
When one municipality in a region has greater expenditure responsibilities, a greater tax burden gets apportioned to its tax base, which can drive up its tax rates relative to neighbouring municipalities, making it less attractive for development.
Edmonton’s property tax revenues heavily depend on a mix of residential, commercial, and industrial properties. However, the slow growth in the commercial and industrial sectors poses a major hurdle. Businesses grappling with economic uncertainty and industries transitioning from traditional resource-based activities lead to stagnant and declining contributions.
As Edmonton grows, its population bring a wide array of needs, from housing to transportation and community services. While residential tax contributions have been steady, they often fail to keep pace with the rising costs of public services. This imbalance creates additional strain on the tax base.
Balancing the tax rates to ensure fairness while maintaining competitiveness is another challenge. High tax rates can deter businesses and residents, impacting the city’s ability to attract new investments and talent. However, lowering tax rates to boost appeal risks underfunding critical services.
Understanding and addressing these tax base pressures is crucial for our city to meet the needs of our growing population while maintaining financial stability.
Collaborative efforts with other orders of government and within our region are also essential for securing essential funding and creating policies to support a resilient tax base.
Properties owned by higher orders of governments are technically exempt from taxation, however it has been a long standing practice of both the federal and provincial governments to compensate municipalities by paying a grant in lieu of property taxes on some of the properties they own.
These grants are discretionary programs and not tax payments. The federal and provincial governments can increase, decrease, or eliminate these grant funding amounts at their own discretion.
The total inflation-adjusted PILT from the federal government has fluctuated throughout the years, averaging $4.3 million annually from 2000 to 2023
From 2019 to 2020, the Government of Alberta reduced its GIPOT payments by 50% to levels observed from 2000 to 2008
The reduction to GIPOT was particularly impactful to Edmonton, as two-thirds of the total grant program accrue to the City, owing to Edmonton being the provincial capital city and having a large number of provincial buildings.
The cuts to GIPOT resulted in an average annual operating revenue loss of $13.2 million. In 2024, the loss was closer to $15.5 million.
If government buildings were taxable and not subject to discretionary grant programs that have the potential to change according to the budgetary constraints of other orders of government, City revenues would be more stable.
