Provincial Responsibility for Education Property Tax Collection
NOW THEREFORE BE IT RESOLVED THAT the Alberta Urban Municipalities Association call upon the provincial government to eliminate the Provincial Education Property Tax.
WHEREAS the Municipal Government Act and the School Act require municipalities to collect the education property tax on behalf of the Alberta Provincial Government;
WHEREAS the Government of Alberta is the taxing authority for the purpose of applying the education property tax;
WHEREAS municipalities do not have full control over the ongoing significant reliance on property taxes to fund education by the Government of Alberta;
WHEREAS municipalities rely on property taxes to generate revenue at the local level due to limited tools and resources at their disposal;
WHEREAS municipalities may need to adjust their yearly budget and reduce their level of service to their citizens to mitigate the impact of the education property tax on the individual property taxes;
WHEREAS municipalities are often criticized for unduly raising taxes due to the fluctuation in the education mil rate that can significantly impact the overall tax payer’s rate applied to property assessments;
WHEREAS municipalities act as collection agents for the provincial government with the responsibility to remit full payment of the education property taxes prior to full collection at the local level;
WHEREAS municipalities that default on the education property tax payments may lose their ability to access grant funding earmarked for services to their citizens other than education; and
WHEREAS education is a provincial responsibility and all of society benefits from it.
Both the Municipal Government Act and the School Act have historically required municipalities
in Alberta to collect education property taxes on behalf of the Province in one form or another.
This is reflected in the following comments offered in 2011 by the Government to AUMA regarding education and taxes: “An accessible, quality education system is a priority for the government, and for all Albertans. All Albertans benefit from a quality basic kindergarten-to-grade-12 education system. About two thirds of the funding for Alberta’s basic education system comes from provincial general revenues. The remainder comes from the provincial education property tax requisition. Property taxes have been used to help fund education in Alberta since the early 1900s. Prior to 1994, school boards received education funds from both the provincial government and from local property taxes.” (3)
The collection of the education property tax is based on the following model: The Province calculates how much money each municipality must contribute towards the public education system, based on the municipality’s equalized assessment. The amount residents are required to pay into the education system is based on the assessed value of their property and the education tax rate established by the Province. Once the municipality collects the education property tax, it is forwarded on to the Province and into the Alberta School Foundation Fund (ASFF).
The 2013-2014 provincial budget saw the following changes (4): “The Government of Alberta has now standardized the education property tax; it is now set at 32 per cent of education operating costs. In Government’s view, basing this tax on the cost of funding for education will achieve greater transparency, fairness and equity. In addition we will be removing the mitigation measures, ensuring the equitable distribution of the tax across the province so that similarly valued properties of the same classification pay similar amounts of taxes, no matter where they’re located. Each municipality’s 2013 education requisition will be determined by applying the provincial uniform tax rates to its 2013 equalized assessments.”
In consequence, the changes in percentage from 2012-13 to 2013-14 budget is for the Fiscal year, 2.1% for residential and 7.3% for Non-Residential and for the Calendar Year 2% increase in 2013 for residential and 7.2% for Non-residential.
Although, the standardized formula might offer more predictability, it restores a connection between education spending and property taxes removing incentives for School Boards to have a conservative approach when negotiating salary contracts or when establishing their annual budgets. As former Municipal Affairs Minister Doug Griffiths astutely said in an interview with the Calgary Herald (5) “If you increase the education funding because there are salary demands — through the roof — well, 32 per cent of that will come on to your tax bill.” Logic would say that if municipalities need to sharpen their pencils so should all organizations that require tax dollar moneys to operate and sustain themselves.
Municipalities have limited sources to financially sustain their operations: property taxes, grants, levies, fees and fines. Citizens are expecting a certain amount of services and programs for their tax dollars. When municipalities establish their budgets, they don’t know the true impact on the tax payer until the property assessments, the education property tax requisition and the senior housing requisition have been factored in . All things being equal, what is certain is that a small fluctuation in the education mil rate has a significant impact on the overall taxes for a tax payer, residential and/ or non-residential. In consequence, to keep taxes at an affordable level, municipalities may need to adjust their yearly budget to soften the impact of the education property tax on the individual property taxes.
For the Alberta taxpayers, the present system of education property tax collection blurs the lines of accountability and transparency and leads to misconception in regard to municipal government taxation policy and responsibility.
Under the current system, municipalities are required to be collection agents for the Provincial Government and to make quarterly payments for education property taxes that may not yet have been collected in full at the local level prior to remittance to the Government. Furthermore, it leaves the municipalities to assume the full responsibility and lengthy process of collection of default education property tax accounts, money that could be allocated towards other programs and services.
But, if municipalities fail to remit the Education Property Tax as per the prescribed schedule, then Section 175 of the School Act (2) may be activated by the Government with serious short and long term financial consequences to the municipality: “ Where a municipality defaults in making a payment required under this Division, the Minister may pay into the Alberta School Foundation Fund to the credit of the municipality any grants payable to that municipality for that year or any succeeding year until the amount owing by the municipality has been received.”
Education is a provincial responsibility. The assumed reasoning behind this system of tax collection is that the municipality, being the level of government closest to the people, is best suited to collect taxes based on property assessment and because municipalities possess the information to collect the taxes in the most efficient manner. This belief should be demystified and changes to the MGA and Education Act should be actively pursued.
Response from 2015: The province will not eliminate the education property tax as it provides $2.1 billion dollars in required funding to support the education system. Funding a portion of the education costs through the property tax is a practice in most North America jurisdictions.
Response from 2016: The Minister stated that the Government of Alberta will continue to collect education property tax from municipalities that are already collecting from their ratepayers, and removing education tax is not something that government is considering as it provides funds required for operating the provincial education system.
As the Minister’s response makes it clear that the province is not contemplating removing the education property tax requisition, AUMA is "rejecting" the response.