The new Brookfield Place being built in downtown Calgary, Alberta, March 31, 2017. Cenovus Energy has announced it will delay its move into the soon to be completed Brookfield Place. Photograph by Todd Korol/The Globe and MailTodd Korol/The Globe and Mail
Kelly Doody is still reeling a week after she learned the property tax bill on the Calgary building where she operates her business is set to increase at the start of July from $1,356 to $6,425 a month.
She isn’t alone. Five years after the price of Alberta oil tanked and the provincial economy went into a tailspin, the fallout from waves of layoffs in past years is continuing to reverberate in the capital of Canada’s energy industry through a sudden uptick in property taxes.
Ms. Doody and her small business, which teaches digital marketing to entrepreneurs, are among the latest victims of Alberta’s oil crash. More than 8,000 businesses are facing double-digit property tax increases at the end of the month as the city’s tax burden shifts from vacant towers to properties in the ring of gentrifying neighbourhoods surrounding downtown. The value of dozens of gleaming towers in Calgary’s downtown has undergone a crash with little precedent in Canadian history.
“We survived the flood in 2013, we survived the economy since 2015, we survived significant hikes to the minimum wage, but this is the worst we’ve experienced and it comes from our own city council,” Ms. Doody said. With the hike, her property taxes would be higher than the rent she pays. “Come hell or high taxes, we are going to make this work, but it isn’t okay.”
A number of small business owners are now planning a tax protest as council has scrambled to respond to a sudden outburst of anger from a city exiting one of its worst economic slowdowns in decades. Led by Mayor Naheed Nenshi, council is preparing to vote early Monday morning on whether to spend $71-million to cap non-residential tax increases at 0.55 per cent this year.
The municipal government’s last-minute approach to the situation has left business leaders scratching their heads. The city’s property assessments were compiled months ago and councillors were warned that plummeting downtown values would require substantial increases elsewhere – the city is legally required to balance its annual budget. Along with a residential tax hike, the small business increases have largely offset decreases downtown, keeping the city’s budget largely stable.
“Frustration isn’t the right word. There’s a point of incompetence at this stage,” said Sandip Lalli, the president of the Calgary Chamber of Commerce. No issue has troubled the city’s businesses more during the past half-decade of economic hardship than the sudden hike in tax bills, she said.
A request from the city to Premier Jason Kenney’s government for financial aid was bluntly rejected last week. Live within your means, Mr. Kenney told the council.
Ms. Lalli has called on the city to reduce its costs and review its operations as tax revenue shrinks. “We’re going to find ourselves in the exact same situation next year. Monday’s vote is just a Band-Aid solution. There are proposals in front of city council. This is an issue of leadership,” she said.
According to Mr. Nenshi, the city’s total tax take from businesses is going down by three per cent this year. Along with small businesses reporting large tax increases, Mr. Nenshi said some partially vacant downtown buildings are seeing their taxes fall by 75 per cent.
“They are outliers, but there are lots of them,” he said of people such as Ms. Doody. “That is why it’s such a problem. There are roughly 8,000 businesses that are looking at an increase of 10 per cent or above this year. And then a much smaller number is looking at giant increases of 30 per cent or more.”
According to Mr. Nenshi, Calgary’s problem isn’t the level of taxes, which he said is among the lowest for large Canadian cities, but rather it is an issue with how the taxes are distributed.
After Monday’s vote, the mayor said council will need to look at deeper structural changes to the city’s tax program, which could require shifting more of the tax burden on homes. Council approved a 3.45-per-cent hike on residential property taxes this year.
The scale of Calgary’s problem can be seen three kilometres west of Ms. Doody’s business at Fifth Avenue Place downtown. The two-tower complex is an ocean of blue glass and was the headquarters of Imperial Oil until recently. Its market value, and consequently its property tax bill, has plummeted according to data from the city. In the single year before 2019, the municipal assessment for the complex fell by 46 per cent from $429-million to $231-million.
When oil prices began to slide in 2015, the city pegged the value of Fifth Avenue Place at $916-million.
Fifteen floors in the complex are listed as either fully or partially vacant. Brookfield, the property’s owner, did not respond to a request for comment.
Across the street from Fifth Avenue Place, Bow Valley Square saw the second-largest decline in assessment over the past year among the city’s 20 most valuable properties. Worth just shy of $900-million in 2015, the building’s value has plummeted to $236-million in 2019.
“It’s no secret that Calgary is experiencing an extremely challenging office market that has impacted values for owners across the city," said Daniel O'Donnell, a spokesman for building owner Oxford. He said the vacancy rate at Bow Valley Square is currently 10 per cent below the downtown's average vacancy rate.
Stuart Barron, Cushman & Wakefield's national research director, has never observed building values drop by as much as they have in Calgary in recent years. A quarter of Calgary’s downtown office space is currently empty, he said. With new buildings under construction, the vacancy rate is expected to stay stubbornly high through the next decade.
“You could put all the available space in downtown Toronto, Montreal, Vancouver and Ottawa inside of Calgary’s available space and you’d have space to spare. That’s an incredible story, which highlights the impact of the oil crunch. No one expected the depth and length of this depressed cycle,” Mr. Barron said.
The average value of a commercial property in Calgary’s core plunged from $50.2-million to $18-million in the five years before 2019, a 64-per-cent fall, according to data analyzed by The Globe and Mail.
With a report from Chen Wang.