Provincial-Local Finance Division Ministry of Finance. November 6th, RICS & IPTI Annual Breakfast Seminar

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1 Provincial-Local Finance Division Ministry of Finance November 6th, 2013 RICS & IPTI Annual Breakfast Seminar

2 The 2013 Ontario Budget announced a review of property assessment processes and the property tax system in Ontario Led by Steven Del Duca, Parliamentary Assistant. Secretariat within Ministry of Finance has been established to support the Review. The review will focus on areas where municipalities and taxpayer representatives have expressed an interest in working with the Province including: clarifying and refining the assessment methodologies applied to specialpurpose business properties, including mills, industrial lands in redevelopment areas, landfills, and billboards; looking at the assessment of farm properties; reviewing the timelines for the assessment appeal process; and considering other opportunities to strengthen MPAC. With respect to the assessment methodology issues, the review will be dealing with specialized and unique types of business properties that often involve complex assessment methodologies. Residential property assessments are not within the scope of this review. Ministry of Finance 2

3 Consultations Issue specific Working Groups have been constituted in a targeted fashion to include interest groups and municipalities that have been impacted by particular assessment issues. Objective: discuss valuation methodologies and suggest an approach that results in fair, accurate, and predictable treatment of properties. Consultations are still underway, and future events include: Toronto-Ontario Cooperation and Consultation Agreement (TOCCA) Municipal Finance Officers Association webinar Municipal focus groups Regional Treasurers meetings A Governance Symposium with representatives from specific issue working groups as well as broader stakeholders will focus on: Feedback on description of future state and current challenges Validation of proposed solutions Identification of implementation risks and challenges Ministry of Finance 3

4 Previous Initiatives & Existing Efforts The 2006 Ombudsmen s Report attempted to address particular concerns raised, generally pertaining to the assessment of residential properties. The 2010 Auditor General s report assessed whether MPAC had adequate systems and procedures in place to ensure the accuracy and cost efficiency of its operations, primarily related to residential properties. MPAC s Strategic Plan suggests a number of reforms to corporate image, business operations, and functions. In April 2013, the ARB introduced a new Streaming Strategy to resolve the majority of its current and new caseload within the next four-year assessment cycle. Ministry of Finance 4

5 Differentiating SPBPAR These prior and existing efforts focussed on improvements to the assessment of residential properties and have increased efficiencies in the system. Some operational issues were addressed, but issues associated with special purpose business properties and the broader assessment system were not specifically identified or addressed. It is evident through our consultations process that there are fundamental challenges within MPAC and across the assessment system. Echoes of issues raised in Ombudsman Report regarding MPAC s superiority complex. SPBPAR seeks to identify and address novel assessment process and governance issues which have been highlighted as a result of particular complexities associated with assessing special purpose business properties. Ministry of Finance 5

6 What we have heard: Overall Governance Tensions arise out of MPAC s mandate to represent the interests of multiple parties (i.e. municipalities, Province, MPAC Board of Directors, taxpayers). There is lack of clarity and agreement about MPAC s accountability in establishing and defending assessment values. There is room for improvement in terms of communication between the various parties involved in the property assessment and tax system. Development and implementation of assessment methodology does not always consider the assessment policy objectives or implementation realities. Opportunity to review the roles and responsibilities of all parties to ensure efficient and effective operation of the property assessment system. Ministry of Finance 6

7 What we have heard: Business Operations Lack of communication and service between municipalities and MPAC regarding the process for establishing values and risk involved (particularly through the appeal process). Concerns have been raised about lack of documented and transparent assessment methodologies and processes and application of global/macro approach to specific sites. Questions about assessment expertise and capacity at MPAC and the need for other parties to hire experts. Need for accurate values and data that can be relied on (predictable for both taxpayer and municipality). Ministry of Finance 7

8 What we have heard: Assessment Appeals Concerns have been expressed about appeal timelines and process E.g. delays in appeals process create retroactive pressures for municipalities. The appeal process appears to have become an unavoidable element of the assessment valuation process for special purpose properties. This appears to be unlike other jurisdictions such as B.C. and Quebec. Consider mechanisms that would help to decrease number of appeals. Municipalities need to consider adopting financial risk management strategies to mitigate against potential assessment/appeal losses. The ARB has implemented policy directives in an effort to address the appeals backlog and concerns regarding timelines, e.g. through its 2013 Streaming Strategy. Ministry of Finance 8

9 Desired Future Mode of Operation (FMO) of Assessment System and Process Assessment methodologies which are reflective of best practices or industry standard. Assessment methodologies which are based on sound reasoning and can be justified in an objective manner. Application of assessment methodologies to specific types of properties in a defensible and predictable manner. Sensitivity to sudden or unexpected shifts in property values of special purpose business properties, which cannot be substantiated by market variance. Assessment valuation that not only results in accurate values, but is also sensitive and responsive to tax policy implications of assessment policy changes. Communication of future assessment policy changes, value changes, and other related changes to affected parties with sufficient advance notice. Acknowledgment and mitigation strategies for conflicts of interests which may arise out of the assessment authority s need to protect the interests of multiple parties. Assessment process, including appeals, occurs in a timely fashion. Recognition that the goal of the appeals process is to ensure fairness in assessment, as opposed to winning every appeal. Ensuring sufficient capacity and competency exists to handle the assessment of special purpose business properties. Cohesive interaction between all arms and entities within the property tax and assessment system, with the ultimate goal of ensuring a fair, predictable, and accurate process and system. Ministry of Finance 9

10 Identifying Solutions Efforts have been made to identify potential solutions based on research to date, and feedback heard through the extensive review consultations process. The proposed solutions have been categorized into three main categories as per what has been heard. Governance; Business Operations; and Appeals System. While there are three main categories, there are some solutions which address multiple concerns. Focussing the discussion: Solutions need to address root causes as opposed to just symptoms. The solutions included are entirely based on consultations and research to-date. Solutions presented are not conclusive or final will be continued consultation. - Looking for reactions; - Validation of what we have heard. Ministry of Finance 10

11 Solutions to Explore: Governance Modernize relationships within the property tax and assessment system. Consider issues related to MPAC s board structure. - E.g., board composition (representative vs. expert), and board member profiles. Update existing MOU between MPAC and MOF to clarify roles and responsibilities, and ensure assessment methodology implementation is consistent with policy goals of market value assessment. Develop a new arrangement between MPAC, MOF, and AMO to establish service level agreements, parameters of services, and support provided by MPAC to municipalities. Work with stakeholders (e.g. municipalities, taxpayers, ARB) to develop and refine performance measures and standards, including customer service and operations-focused key performance indicators. Ministry of Finance 11

12 Solutions to Explore: Business Operations Increased communication and consultation with stakeholders. Mandated stakeholder discussions and consultations. Preparation of detailed assessment methodology guides. Establish improved customer service protocols at MPAC and create service level agreements between MPAC and municipalities. Improved information disclosure mechanisms. Advance disclosure requirements for assessed values. Develop assessment policy change disclosure protocol (including additional documentation in advance for high value properties, properties that undergo significant value or methodology change, and properties that have been assessed using an approach that does not conform to agreed assessment methodology). Ensure competency and capacity of assessment authority. Review MPAC succession planning and hiring practices. Review assessment valuation approvals processes. Ensure assessor accreditation is consistent with international standards. Improve data quality assurance. Improve data integrity, in-year changes, reporting and advance tracking of assessed values, which experience significant change that will impact the assessment base with appropriate documentation to communicate the rationale for the change Assess data checking mechanisms. Ministry of Finance 12

13 Solutions to Explore: Appeals System Increased awareness and education of parties. Educate all parties about roles and responsibilities in the valuation and appeal processes. Develop tools to support municipalities through the appeals process. Encourage greater engagement, consultation and communication in appeals process. Establish consistent protocols for MPAC to engage municipalities prior to ARB processes and support any settlement processes. Improve MPAC s reporting and tracking of pending appeals to municipalities. Create protocol for MPAC assessors and legal counsel to adequately prepare for and consult with parties prior to and as part of ARB hearings. Alter existing legal authorities and policy directives. Consider legislative amendments or regulations to strengthen assessment methodology and process (e.g. advance disclosure requirements that may reduce the number of appeals). Modify ARB streaming process to prioritize appeals with greatest impact on municipal assessment base. Consider implementing mitigation strategies: Consider need for municipalities to maintain reserves in case of significant assessment appeal losses. Ministry of Finance 13

14 Questions for discussion Do you have any observations that have not yet been captured by the review? Do you have any proposed solutions which have not been identified through the review? Do you agree with the description of the future mode of operation? Do you feel that the proposed solutions will help us achieve the proposed future mode of operation? Will the proposed solutions help us achieve the review objectives of a fair, accurate and predictable property tax system and assessment process? Ministry of Finance 14