The changing of tax ratios will affect the percentage of the overall levy that is collected from each tax class.
While there may be a tendency to equate or compare tax ratios to other municipalities, strong caution should be used to not assume that a higher ratio automatically results in higher taxes. As indicated earlier in this report, total taxes result from both the impact of property assessment and property tax rates. According to the 2019 BMA Study, Windsor’s tax ratios and rates were higher than our peer municipalities (populations over 100,000) however the overall tax burden as paid by taxpayers was at or lower than our peers in 9 out of 12 categories (Appendix A).
Starting Ratios & Ratio Movement
Starting ratios reflect the results of policy decisions made in the prior year and form the “status quo” or “baseline” scenario for further ratio movements. Tax ratios were introduced in 1998 and were a reflection of the tax distribution amongst property classes immediately prior to the new legislation. At that time, the Province established “Ranges of Fairness” which were to be used as a guideline for the setting of tax ratios (Appendix B). The expectation by the Province was that municipalities would lower tax ratios over time to fall within the ranges of fairness. However this goal, as established by the Province, has been unachievable largely due to constant fluctuations in property assessment values and valuation methods/programs, fluctuating economic conditions (recessionary periods) which preclude an ability for any one class of property owner to absorb significant tax increases that may result, and other Provincial policy announcements which mandate certain tax policy for select property classes and establishment of new property classes.
When assessment value fluctuations have been factored into tax ratio equations, the ability to reach the ranges of fairness has been severely compromised. Administration has demonstrated in past reports through tax scenario modelling that the negative consequences due to the shifting of property taxes from one class outweighed the benefits of the lower tax ratio. In other words, Administration has shown that a downward movement of a tax ratio for one class does cause a shift of the relative share of taxes being paid by that class onto the other tax classes. Conversely, as a result of significant assessment value decreases, taxes may be shifted from one class onto another. In this case tax ratios may need to be moved upwards in order to maintain the distribution of property taxes amongst the classes. Caution must always be used when moving tax ratios upwards or downwards as there is the possibility of unintended consequences.
Further to this, Provincial Thresholds were also put into place that set a ceiling on where tax ratios should be. In other words, municipalities were generally precluded from increasing tax ratios. However where an increase was allowed, if a tax ratio were to exceed the threshold, the class would be considered “levy restricted” (discussed below)