RECOMMENDED MOTION:

THAT:

The Council of the County of Huron receives the report by Michael Blumhagen, Treasurer and Director of Corporate Services, dated April 15, 2020, titled Farmland Ratio Analysis, as presented for information.

On March 4, 2020, a delegation by the Huron County Federation of Agriculture and the Ontario Federation of Agriculture requested that the County of Huron reduce the farmland tax ratio from 0.25 to 0.217 as a result of the significant increase in current value assessments of farmland. The increase in value of farmland is currently increasing at a greater rate than the other tax classes, and as a result, there is a shift in taxation onto the farm class from the other classifications.

During the last two assessment cycles, 2012 and 2016, farmland has seen a significant increase in its current assessment valuation. This is due to the farmland valuation methodologies being used by MPAC under the current valuation assessment regime in place, which has been in effect since 1998.

As seen in the attached document from MPAC, farmland valuation is based on farmer to farmer sales and also the land’s productive capability, climate and location. Future development opportunities are not factored in. Based on this methodology, farmland has seen a significant increase in value, which directly impacts the current assessment valuation.

Current value assessment is the amount of money a property would realize if sold at arm’s length by a willing seller to a willing buyer. The current assessment valuation date is January 1, 2016, with the phase in period over the 2017-2020 property tax years.

Based on recent announcements from the Province and MPAC, the assessment for 2021, will be based on the fully phased-in January 1, 2016 values. This will prevent any additional shifts for the various property classes that we have been seeing for 2021. 

Current Tax Ratios

In 1998, the province introduced a new property tax regime which included tax ratios. Tax ratios represent how tax rates of property classes compare to the residential tax class. The residential class tax ratio is always equal to 1.0.

The following represents the range of fairness as established by the Province:

Residential – 1

Commercial – 0.6 to 1.1

Industrial – 0.6 to 1.1

Multi Residential - 0.6 to 1.1

Farmland – 0.25

While some municipalities have rates significantly higher than the province’s range of fairness for the Commercial, Industrial, and Multi-Residential, the County of Huron established the ratios at the upper end of the range at 1.1.

The following represents the ratio’s that have been in effect since 1998 in the County of Huron:

Residential – 1

Commercial – 1.1

Industrial – 1.1

Multi Residential -1.1

Farmland – 0.25

Since the implementation of the current tax ratio scheme, there have been ebbs and flows in the current valuation assessments amongst property classes, causing taxation shifts where increases in valuations outpace the overall average change.

Farm Tax Rebate

Prior to 1998, properties that were assessed as farmland paid 100% of their assessed property taxes and then made an application to the province for a 75% rebate. Since the Local Service Realignment in 1998, farmland now has a tax ratio of 0.25, meaning that the rebate for the farmland is paid by the local tax base.

All other properties in Huron County are now sharing in the cost of the farm tax rebate. Under the previous regime, the cost of the Province’s cheap food and agricultural production policies was shared province wide through income taxes.

The shift in costs of County upper tier taxes onto the residential taxpayer for the farmland subsidy is $434 per household, or approximately 38% of their upper tier tax bill. This has resulted in significant costs in the residential tax class due to the high concentration of farmland in Huron County. The current upper tier County farmland subsidy being funded by the residential class is $11.6 million, and $13.2 million overall for all classes other than farmland.

Ontario Municipal Partnership Fund

The cost of the farmland rebate was intended to be offset by the old Community Reinvestment Fund (CRF) grant, which has since been replaced by the Ontario Municipal Partnership Fund (OMPF). Recent changes in the OMPF structure has shifted funding away from farmland to transitional assistance and as a result funding has been drastically reduced in Huron County as a result of that shift.

County wide OMPF funding had averaged $19.9 million per year from 2006-2012. That support has been eroded to $11.05 million in 2020. A portion of that total is transitional assistance and it is at risk due to the on-going phase out of this non-core grant portion of the OMPF envelope. For example, the current level of County OMPF is $1.249 million and that will be phased out in the next few years. There is minimal support included for rural communities with respect to the farm tax rebates. This reduction in funding further exacerbates the pressure on the County residential tax payer.

Impact of Changing Farm Ratio – County Levy

The following table identifies the impact to the distribution of the County levy in reducing the farmland ratio to 0.217 from 0.25.

The chart shows that reducing the ratio would shift $966,405 in County upper tier taxes from farmland onto the other tax classes. The majority of that would shift onto residential at an increase of $844,181. This does not factor in the tax shift that would happen with the lower tier taxes, however, the same shifts will apply.

In 2020, farmland now accounts for 51% of the total value of land in Huron County. To determine the tax burden for the farmland class, one must apply the 0.25 ratio on the current value assessment to calculate the weighted assessment. Based on current weighted assessment, farmland shares in 20% of the overall taxation. With the farmland representing such a significant portion of value in Huron County, the 75% rebate presents a significant challenge for the other classes.

While there have been a number of municipalities having reduced their farmland tax ratio, many of those do not have such a high proportion of farmland as a total of overall assessment. Unfortunately, as compared to many other municipalities, Huron County does not have a strong commercial and industrial base to assist in offsetting the tax burden for the residential tax payer.

County Taxes – Average by Property Type

The following table highlights the median current value assessment and County portion of taxes paid by major property class:

County Levy – History of Tax Distribution

The table below shows the County levy distribution for 2006, 2012, 2018 and 2020. The shift in taxes onto farmland is evident after the 2012 assessment cycle where valuations for farmland increased significantly however, each class (except industrial) has also seen a significant increase in taxes being levied as the overall levy has increased. The ongoing burden to the residential taxpayer remains significant in the County due to a low commercial and industrial base and the high value of farmland.

Information provided by the OFA has shown that the assessment per acre of farmland has increased from $3,807 per acre in 2016 to $6,710 per acre in 2020. Applying the farm tax rates for each year, the County portion of tax per farm acre was $4.70 in 2016 and $7.67 in 2020.

As the County's tax rate by-law has already been ratified, any change to the ratio's for 2020 would require that by-law to be repealed.

There are no financial implications in receiving this report.