2010: Reversal of fortunes

The image of Hamilton as an industrial juggernaut and Burlington as a sleepy suburb is decades out of date. The difference between then and now shows us a lot about finances and poverty in each city

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Side by side these cities exist, so close yet so different in many ways.

One is Hamilton, one is Burlington.

One has a substantial industrial tax base that far outstrips the provincial average and the other is a bedroom community that is overly reliant on residential property taxes

If you think you know which is which, you’re likely mistaken.

Or maybe 40 years behind the times.

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An examination of tax competitiveness across Ontario shows that residential property owners in Hamilton shoulder a massive burden of the city’s overall taxation base.

Nearly 88 per cent of Hamilton’s municipal tax assessment base comes from residential assessment, which includes residential and multi-residential property owners.

Residential property taxes in the amalgamated city of Hamilton are significantly higher than those paid by residential property owners next door in Burlington.

What’s worse, Hamilton also has one of the highest rates of property taxes as a proportion of household income in all of Ontario.

“Of the major municipalities, we have one of the highest reliances now on residential taxes and we used to be quite the opposite, ” said Rob Rossini, the city’s general manager of finance.

“How do I grow my non-residential assessment base? That’s one of our corporate priorities — as well as increasing the number of good jobs, living-wage jobs.

“We need to rebuild the non-residential tax base and that’s going to take time, ” Rossini added.

When The Spectator launched the landmark Code Red mapping project in April, the series highlighted in grim detail the shocking differences in health that exist between Hamilton’s richest and poorest neighbourhoods.

A second instalment of Code Red in June showed the heartbreaking effects of poverty on the performance of students and schools across the city.

This is a new Code Red.

It’s a Code Red for the city itself, one that laments the gaping disparities in financial health that exist not just between Hamilton and its neighbouring municipality but also within the city of Hamilton.

“Because of depressed property values and destabilized neighbourhoods, we have not only a human cost but we have a financial cost and that’s borne by everybody else who pays property tax in the city, ” said Terry Cooke, president and CEO of the Hamilton Community Foundation.

But there’s also a social justice component to be considered, Cooke argued.

“Property taxes are regressive; they don’t respect ability to pay, ” he said.

“In Hamilton, where incomes are substantially lower on average than in neighbouring municipalities, the burden of high property taxes is particularly a hardship for too many of our families.”

■  ■  ■

Here’s a sobering comparison that begins to illustrate the distinction between Hamilton and Burlington.

On Sept. 2, there were 42 single detached houses for sale in Hamilton with an asking price of less than $100,000, according to Canada’s Multiple Listing Service.

Not counting a fire-damaged house on Francis Street that was for sale for $29,900, the lowest-priced single detached house in Hamilton that day, on Sanford near Barton, had an asking price of $54,900.

Meanwhile, on the same day, the lowest-priced single detached house for sale in Burlington had an asking price of $264,900.

Using that same day as a reference point, The Spectator then conducted a comparison of residential property taxes between municipalities.

Using the MLS listings, three houses each were selected at random from Burlington, Ancaster, Stoney Creek and the former city of Hamilton. Each house had an asking price of as close as possible to $500,000.

Property tax figures were then obtained for each of the 12 properties.

For the former city of Hamilton’s three properties, taxes averaged $6,332 per year.

For Ancaster, the three properties paid an average of $5,839 in taxes.

For Stoney Creek, the average was $5,119.

In Burlington, by contrast, the average property taxes were $3,833 — a difference of $2,500 a year from the houses in the former city of Hamilton.

Turn the equation around and you’d find a five-bedroom house for sale for $849,000 on Burlington’s prestigious North Shore Boulevard, between LaSalle Park and the Burlington Golf and Country Club, with annual property taxes of $6,145 — still below the average of the three Hamilton houses listed for just under $500,000 in The Spectator’s mini-survey.

“We have to be conscious that somebody can make a choice to buy a property five miles away and live in a high-quality neighbourhood and pay virtually half the tax burden that they might pay in Hamilton, ” Cooke said.

“That has to be something that we concern ourselves with as a priority, because it’s happening.”

Retaining and growing a stable middle class in Hamilton is particularly important, Cooke noted, for a variety of reasons.

“These are people who are potential job creators, they are neighbourhood and community leaders, they’re people who volunteer and give back, ” Cooke said.

“To the extent that exorbitantly high property taxes encourage middle-class people to make judgments about locating elsewhere in terms of where they live, it obviously siphons talent and opportunity out of Hamilton.”

So why are there such noticeable differences between Hamilton and Burlington when it comes to property taxes?

There are two main reasons and neither one has to do with inefficiencies in municipal spending, according to numbers contained in the annual tax competitiveness study of 81 Ontario municipalities compiled by Hamilton-based BMA Management Consulting Inc.

The BMA annual study — which weighs in at more than 400 pages — is considered the bible of municipal tax information for Ontario’s towns and cities. One of the study’s principal authors is Jim Bruzzese, a former city manager for Hamilton turned consultant.

On a per capita basis, according to the BMA study, Hamilton’s tax levy was $1,231 last year, close to the provincial average of almost $1,170. Burlington’s tax levy per capita last year of $1,193 was just slightly less than Hamilton’s.

What that means is Hamilton isn’t really spending much more on a per person basis compared with Burlington, or many other Ontario communities, for that matter.

In fact, the BMA study breaks down spending into a long list of categories — from recreation to roads to policing and fire protection to social services — and in most cases, Hamilton’s spending on a per capita basis is around the average for the 81 municipalities studied.

But switch the view slightly to each municipality’s tax levy per $100,000 of assessment and the differences between Hamilton and Burlington become much more apparent.

While Hamilton needed to collect $1,541 for every $100,000 of tax assessment, Burlington only needed to collect $940 for the same amount of assessment.

In plain language, it means Burlington has a far bigger assessment base proportionally to draw upon when collecting taxes, primarily because property values in Burlington are higher.

With a larger assessment base, Burlington can keep taxes proportionally lower.

By contrast, Hamilton has lower property values, and in the case of the inner city, those property values are significantly lower. But the costs of providing services still have to be absorbed by the city, regardless of the value of the house or the taxes collected from that property.

“When you look at the whole of Hamilton, there are many depressed areas that have very low assessed values, ” Bruzzese explained. “So you’re spreading those costs to those houses as well as the $500,000 houses.

“In Burlington, you don’t have those pockets. You’re spreading it across a higher tax base throughout the whole city.”

To make matters worse, the average household incomes in Hamilton are much lower than they are in Burlington.

According to the 2009 BMA study, Hamilton’s average residential property taxes were $4,005 and the average household income was $77,000.

It means property taxes carved a 5.2 per cent chunk out of the average Hamilton household’s income, the third-highest rate in all of Ontario.

By contrast, Burlington’s average residential property taxes were $3,745 last year with an average household income of $111,300 — a rate of 3.4 per cent, the 15th-lowest proportion of the 81 municipalities surveyed.

It’s a cruel double whammy, noted Rossini.

“That’s almost perverse because it has a dual impact, ” Rossini explained. “Your incomes are low, so when I have to tax you, you’re paying more of your income to taxes.

“But because incomes are low, it drives a lot of our needs in spending, whether it be in policing, ambulance, fire protection or recreation programs … as well as our health and social services costs.

“Those are huge issues to deal with and wrestle with, ” he said.

The second reason for the disparity between Hamilton and Burlington is reflected in the industrial tax base.

Here’s where perceptions are ripped apart.

Hamilton is Canada’s steelmaker, a manufacturing hub, home of industry and the hard-hat-and-lunch-bucket brigade, right?

Not really, as it turns out.

The city is actually below the provincial average for the rate of industrial tax assessment as a proportion of total tax assessment.

Just 2.1 per cent of Hamilton’s tax assessment comes from industrial properties, below the provincial average of 2.8 per cent.

In fact, 48 of the 81 cities and towns in the study, including Burlington, had a higher industrial tax assessment component than Hamilton.

Meanwhile, Burlington — perceived to be a suburban bedroom community — has a proportion of industrial tax assessment nearly twice as large as Hamilton.

Nearly 4 per cent of Burlington’s tax assessment comes from the industrial class, the 19th-highest proportion in Ontario.

“Unfortunately, the economic perception of what sustains Hamilton’s economic base and what sustains Burlington’s is probably 30 years out of date, ” Cooke said. “The updated picture of, really, how our industrial base has diminished is something we all have to come to grips with, and that doesn’t just involve elected officials.

“It’s people running businesses here, people who are residents here, ” he noted. “It affects everyone’s ability to sustain what they do.”

For commercial tax assessment, Hamilton’s proportion of 9.9 per cent is also below the provincial average of 10.7 per cent. By contrast, 13.6 per cent of Burlington’s tax assessment comes from the commercial class.

A healthy industrial and commercial tax base is important because those two classes are taxed at higher rates, meaning they bring in proportionally more than residential property taxes.

Compounding Hamilton’s challenge is that it has a large stock of old-style heavy-industry land along the waterfront. As those traditional businesses have either evaporated or adapted, their taxation levels have changed.

“Those industries are leaving and they’re not coming back, ” Rossini said. “Steel has been in decline for years, and a lot of the appliance manufacturing that we had here has moved offshore.

“It’s the global restructuring of economics, ” he added. “The older industrial manufacturing centres like Hamilton, like Cleveland, like Buffalo, have just really, really not fared well.

“There are places in Michigan that have never recovered, like Flint, for example.”

Fifteen years ago, according to Rossini, the city collected about $25 million in property taxes from the former Stelco, now U.S. Steel Canada. Today, that amount has been cut in half to $12 million. ArcelorMittal Dofasco’s taxes have dropped by between 30 and 40 per cent.

“The facilities have shrunk, they’ve taken down buildings, obsolescent buildings have been written off, ” Rossini said. “At one time, those two companies used to employ 30,000 people. Now they’re down to 7,000.

“As they’ve been shrinking the workforce, they’ve been decommissioning older buildings so the assessment goes off, ” Rossini added. “The property values of those kinds of properties themselves have not been increasing.

“There’s a big challenge right there.”

Meanwhile, Burlington’s industrial properties tend to be cleaner, greener and newer, which means higher assessment values, as well.

“The new style of development — they don’t want to go in the North End of Hamilton, ” Rossini said. “They don’t want to go next to a rail line and burned-out shells of buildings.

“Where do they want to be? They want to be in airport business parks, in and around Pearson (airport). They’re huge, they want to have highway frontage.

“The new industrial is a much greener-looking industrial, ” Rossini added.

“So when you go down to the industrial sites and drive around in Burlington or Mississauga, they’re very different than the North End.”

■  ■  ■

The differences between Hamilton and Burlington are large, it’s clear.

The economic differences within Hamilton, however, are even larger.

A Spectator analysis of taxation and housing statistics shows just how gaping the disparities are between Hamilton’s have and have-not areas.

Take a look at Wards 3 and 12, for instance.

Ward 3 runs from the water’s edge to the escarpment, from Ottawa Street to Wellington Street, with a little jog over to Wentworth Street south of Main Street.

According to census data from 2005, the average household income was $45,500 and one of every three people in Ward 3 was living in poverty.

Ancaster’s Ward 12, on the other hand, had an average household income of $126,700, and just 6 per cent of its 30,000 residents lived below the poverty line.

When it comes to residential property taxes, the differences between the two wards are staggering.

Based on 2010 figures as of Sept. 1, Ward 3’s residential and multi-residential taxes amounted to $26.3 million.

On average, each single residence in Ward 3 generates $1,969 in residential property taxes.

Ward 12’s residential and multi-residential taxes amounted to $53.3 million, just over twice as much as Ward 3.

On average, each single residence in Ward 12 generates $5,063 in property taxes, more than 2½  times as much as Ward 3.

Here’s another way to look at it. The city collects $2,409 in residential property taxes for each registered voter in Ward 12 compared with $1,098 for each registered voter in Ward 3.

Seen in that light, Bruzzese said, it can be considered a form of income redistribution.

“Ward 3 is probably underpaying and Ward 12 is probably overpaying based on the true cost of servicing a house, ” Bruzzese said. “Income redistribution shouldn’t be done on property taxes; that should be a function of income taxes.”

But there’s more to the story than just the amount of residential property taxes collected from each ward. There’s also the issue of the types of housing available.

In Ward 3, there are just over 11,000 single residences and 1,385 of them have been converted into multiple dwellings, ranging anywhere from duplexes to six-plexes.

In other words, one in eight houses has been converted into multiple residences in Ward 3 — not counting any the city doesn’t know about.

In Ward 12, there are almost 10,500 single residences. Thirteen are duplexes, one is a triplex and one is a four-plex.

Fifteen conversions to multiple residences in Ward 12 in total; 1,385 in Ward 3.

Clearly that has an impact on property values.

But here’s where the social justice component enters the picture, explains Al Fletcher, a manager in the city’s planning and economic development department responsible for strategic projects.

“How aggressive do you want us to be when it comes to enforcing the zoning?” Fletcher asks rhetorically.

It’s a trickier question than you might think.

Yes, houses converted legally or illegally to duplexes and triplexes and four-plexes, with absentee landlords, can keep property values lower. Yes, converting those properties back to single-family, owner-occupied homes could help raise property values — and tax assessment for the city, which can then help spread the burden more equitably across all homes.

But those inner-city duplexes and triplexes and four-plexes also provide a large supply of low-cost housing in a city with disturbing levels of poverty.

“Where do these people go?” Fletcher asks.

“And that’s a problem.”

■  ■  ■

There is a solution to some of these taxation issues, said Rossini, the city’s straight-talking general manager of finance. But it’s not an answer that appeals to everyone, he readily admits.

Hamilton needs to grow.

“I know a lot of people like to say big, bad growth, ” Rossini said with a sigh, “but there are some benefits to that growth.

“It brings incomes, it brings renewal.

“Yes, there are costs to growing, but when I stick my head out the window and I take a look at what’s going on in Ontario, who are the affluent communities?” Rossini asks.

“Are they the Mississaugas, the Oakvilles, Burlington, Richmond Hill, Vaughan — that are growing? Are they the Hamiltons, the Sudburys, the Windsors — that aren’t growing?”

Rossini said new industries and commercial developments want to locate in places such as the proposed airport industrial park, the new North Glanbrook park and along the highway in Stoney Creek and Ancaster.

“Whether you agree with it or not, that’s the market, ” Rossini said, matter-of-factly. “That’s where new industrial developments want to be. It’s very difficult to attract them to older areas.

“We have, I think, some of the most aggressive and forward policies and incentives to attract downtown redevelopment and brownfield redevelopment, but if the market doesn’t want to go there, it won’t go there.”

There are signs of hope, Rossini said, pointing to the renewed interest around Hamilton’s waterfront, where property values are a bargain compared with other communities along the water.

“We keep hearing that Hamilton is on the cusp, ” he added.

“I’m an eternal optimist.”



Hamilton: $6,332

Ancaster: $5,839

Stoney Creek: $5,119

Burlington: $3,833

SOURCE: MLS.ca., City of Burlington and City of Hamilton All information current as of Sept. 2.