Cover Story - Property Tax: Does The Assessment System Treat Farmers Fairly?
Wednesday, May 5, 2010
After a major investigation by the provincial ombudsman, the Municipal Property Assessment Corporation went through a major overhaul. But, say some farmers, it still inflates or miscalculates land values and it still lacks transparency
by SUSAN MANN
When Ontario Ombudsman André Marin investigated the Municipal Property Assessment Corporation (MPAC) four years ago, he received an avalanche of complaints.
In fact, never in the Ombudsman office's 30-year history had it received so many complaints in such a short time about any agency as it did about MPAC, a non-profit corporation that's responsible for assessing and classifying properties in Ontario. (See sidebar on page 16.)
More than 3,700 people and several groups voiced their concerns, including the Ontario Federation of Agriculture (OFA). Ontarians didn't just come forward "because they had a forum for complaining about their taxes," Marin wrote in his March 2006 report, Getting It Right. "They complained because they see MPAC's assessment practices as fundamentally unfair."
Today, the complaints have slowed to a trickle, with just 349 received in 2009. But, on the farm property side, concerns remain. During the initial investigation, the OFA outlined problems farmers had in trying to figure out how the corporation assessed their property's value.
"Sometimes, it is very difficult for the farmer to determine whether MPAC is basing the assessed value on the farmland's true characteristics, such as soil type and drainage, or whether the recorded square footages of the buildings are accurate," the OFA says in a November 2005 written submission to the Ombudsman.
That concern about lack of transparency is still valid now. Federation president Bette Jean Crews says MPAC launched a section on its website called "About My Property," where property owners can get details about their properties. But that feature isn't available for farm properties.
"Our first focus was on the residential side," explains Carl Isenburg, MPAC president and chief administrative officer. Information about farm and other properties will eventually be added to the "About My Property" section.
"I'd like to see the day when it doesn't matter what property you own, you can come into our site and look at that information for yourself."
Henry Stevens, president of the Christian Farmers Federation of Ontario, says that in 2007 he was concerned about property values when his Palmerston-area farm was reassessed. "I couldn't understand how they arrived at the values."
Stevens says he asked for a specific breakdown of the value on each building and on the land. During his inquiry, Stevens discovered he was still being assessed for two buildings he had torn down after getting a demolition permit. "If I hadn't asked for that review,
I would still be paying taxes for them today."Crews says there should be more transparency on the forms from the corporation. She explains that assessment forms are only sent out if there is a change. "Most people don't know that." And she says MPAC should explain better why there is a change.
For example, if someone owns a farm and rents it out, MPAC may assess most of the land as farm but then classify a five-acre woodland patch as rural residential. No one really notices that small change. Property owners get their assessment notice and see the assessment has gone up a bit, but there isn't an explanation for the increase. "There needs to be some information there as to what they've done and why."
Land wrongly classified
Former vegetable and berry farmer Murray Brown agrees. When you get your assessment notice, you don't get a map on the back showing where the land classes are, he says. "They should give the farmer that. A farmer is entitled to know the land classes on his property."
MPAC says Brown has about 32 acres of Class 2 land on his 102.3-acre farm near Pefferlaw, north of Markham. But, he says, there is no Class 2 land on the farm and there never has been. The federal Canada Land Inventory mapping and the provincial soil mapping confirm this. LEAR (Land Evaluation Area Review) mapping, which the province and some regions have done, also shows there isn't any Class 2 land.
The Browns have been on the farm since 1984. They farmed until 1999, including seven to eight years with difficulty, before giving it up because of flooding. In 2003, they launched a $1.3 million lawsuit against two municipalities and a sod farm who they claim are responsible for the severe economic losses they've suffered due to flooding. The lawsuit is still ongoing today.
Most of the rest of the farm was considered to be Class 4 land, but because of third-party flooding Brown says that should be changed to Class 5. There are also 22 acres tied up in berms, drains, levies and grass waterways. Those areas are now permanently disturbed soils, he says.
Since 2004 Murray and his wife, Sylviette, have been trying to convince the corporation to change the "assessment to reflect what's going on with the land and with the farm buildings." But so far they have been unsuccessful.
The corporation's assessors assign classes of land to a farm but they don't have a pedologist (soil scientist) or anybody else to do this correctly, says Brown. However, MPAC says it doesn't have any current plans to hire a pedologist. "At this stage, we do not have an express requirement, in the sense of requiring expert testimony and/or significant challenges to our classifications," Isenburg says.
Brown has concluded that, for a large percentage of the farms in Ontario, MPAC has inflated the values by way of classification so municipalities can collect taxes to which they're not entitled. He doesn't have a dollar figure, but he estimates classes have been upped by at least one category.
But, says Kathryn Kaufman, MPAC's evaluation manager for farm properties and incentive programs, "We do not inflate land for the municipalities.
We are truly trying to ensure we are administering the legislation fairly and equitably for all property owners."
In the Assessment Act, it states that MPAC must use farmer-to-farmer sales when determining farmland values.
"By using farmer-to-farmer sales only, we're trying to capture that productive value," says Kaufman.
There are a number of factors used to assess a farm's current value, including the farmland, residence, residence site, farm outbuildings and other buildings. The farmland is assessed according to its ability to produce crops or maintain livestock. Land productivity rates are established using factors, such as soil texture, topography, drainage and bedrock depth.
MPAC doesn't use the Canada Land Inventory system to classify land. Instead, it has its own system that's a blend of the federal inventory system and provincial soil maps, Kaufman says. The corporation's system has classes from one to six, with Class 1 being the most productive soil and Class 6 the worst. The Canada Land Inventory has seven classes with the best soils in Class 1 and unproductive soils in Class 7. (See sidebar on page 20.)
Inflated land values
How does MPAC ensure it's using only farmer-to-farmer sales to value farmland? Kaufman says they have a variety of methods to keep track of sales, including getting information from the Land Registry office, doing property inspections, contacting buyers by mail or phone to determine their motives, and talking to real estate boards about what's occurring in the farming community.
Kaufman adds that "we ask questions to determine what the motivators were for that sale." She says they do this for every farm property that's sold, but some people don't complete the questionnaires, so they follow up with a phone call or a property inspection.
Bruce Pearse, spokesman for the Land Use Council, a group of property rights organizations and some federations of agriculture in the Halton and Peel area, says that, even though MPAC looks at farmer-to-farmer sales to set value, there are cases when land values are inflated.
The Council's website says that it is pursuing stand-alone land ownership legislation. It also analyzes government laws that inhibit privately-owned land use, mortgage worth and market value. Pearse says the Council has been in place for about a year and a half.
Farmers who need more land to meet nutrient management requirements have to buy to maintain the livestock numbers they want to have. That, says Pearse, "makes land values go up for a reason other than growing a crop. It's a pressure to buy the same as someone would have a pressure to sell for financial distress."
Farmers in supply-managed sectors who need land to meet nutrient management requirements are "very capable of out-bidding the poor guy who is handling beef cattle and pork," Pearse says.
Both he and Peterborough-area real estate agent Garry Otten, who recently retired from the executive of both the Peterborough County and Ontario landowners associations, say there's some truth to Brown's assertion about inflated farmland classifications.
Otten says he's also concerned because MPAC's staff doesn't seem to have the knowledge or background to value agricultural property.
During a private meeting with Isenburg in late February 2009 in Pickering, Otten and Pearse both say he told them that the system has flaws and the corporation's staff makes mistakes. Otten says he pointed out that people have to move because they can't afford their property taxes any longer. Otten says Isenburg replied there's not much MPAC can do about it.
But Isenburg denies being so callous. "Where we do screw up, we're obligated to get it right," he says.
While they'd like to have a perfect record, with 4.7 million properties to assess in Ontario and more than two billion pieces of information "that's a challenge," he adds.
Pat Vanini, executive director of the Association of Municipalities of Ontario, says she can't comment on Brown's conclusion about inflated farmland values because she's not an assessment expert. "I don't have access to the information."
The Association wants to see changes to Ontario's tax policy so support for farmers is provided directly from the provincial government and not through the farmland tax class.
MPAC may assess a property as a farm, but it is taxed at the residential rate unless it's placed in the farm property tax class by the provincial agriculture ministry.
Vanini says that, in the 1990s, the then provincial government of Mike Harris changed tax policy. Before the change, the Ontario government gave rebates to farmers. Now, if someone is in the farmland tax class, the policy states the municipality can only charge them 25 per cent of the residential tax rate. Thus there's a cross-subsidization from non-farm to farm by virtue of the provincial government's tax policy, she says. The Association's position is that cross subsidization isn't a good principle. "People should be paying taxes for the services which they're using or are assessed."
Farmland is important to the economy, the strength of Ontario and rural communities, Vanini says. That's why the Association has repeatedly told the government that support for farmers should actually be paid by the province, and not through the property tax system. "That's stuff that should be paid through more robust taxation."
Providing support to farmers as an economic driver in Ontario is similar to the province helping other sectors of the economy, such as manufacturing or the auto industry. "Take it out of the realm of the property tax base," she says.
Cut-throat corporation
Since his report was issued, Marin and his office have kept tabs on MPAC as it implemented all 22 of his recommendations. None of the recommendations dealt specifically with farm properties.
But the most important concern in the investigation – the lack of transparency in the property assessment process – was raised by both residential property owners and the OFA. "When we started, MPAC was basically refusing to give people any kind of information about how their properties were assessed and why," says Linda Williamson, spokesperson for the Ombudsman's Office. "They acted like a cut-throat corporation instead of a public service."
MPAC "pretty much overhauled the whole system," Williamson says. The most important change is that the onus is now on the corporation to substantiate its assessments when they are challenged by property owners.
Williamson says they're still taking complaints about assessment problems, but the number has dropped off considerably. For farm property assessments, she says there have been very few complaints during the past couple of years. If farmers do have problems, she says they should contact the Ombudsman's Office and they'll investigate.
Williamson says that, even though the corporation has now implemented all of the recommendations, her office will continue to keep an eye on it.
But did the Ombudsman's get it right? Pearse doesn't think so. Even though the Ombudsman says all 22 of his recommendations have been implemented, Pearse asks if anyone considered whether the recommendations were adequate to correct the problems.
He also questions why there wouldn't be a new review now, considering the large number of complaints before the first review, to ensure that the plan "to rectify the problem has been sufficient to meet the need."
Brown also thinks the Ombudsman missed the boat. "What they should have concentrated on was the behaviour of MPAC and how they do assessments."
Another of the Ontario Federation's concerns that hasn't been resolved is the need for a definition of "farm purposes." In the Assessment Act, it states that farmland or buildings used only for farm purposes are assessed at farm rates. The Federation has been asking for this definition since 1998.
"In the absence of a statutory definition, the words should be interpreted with their plain and ordinary meaning," Finance Ministry spokesman Scott Blodgett says in the email. "Where there is an ambiguity, lack of clarity,
or inconsistency in the property class definitions, we will continue to address individual issues as they arise." BF
Sidebars
MPAC's task: assessing property worth $1.7 trillion
The Municipal Property Assessment Corporation (MPAC) is a non-profit corporation, funded by all 445 Ontario municipalities, whose job is to assess and classify properties across the province.
There are seven major property classes – residential, multi-residential, commercial, industrial, pipeline, farm and managed forests – and several sub-classes for properties with unique characteristics.
MPAC has 1,540 employees in 33 provincial field offices, a customer contact centre/processing facility in Toronto and a head office in Pickering. In all, MPAC employees assess nearly 4.7 million properties in Ontario, more than any other assessment jurisdiction in North America, with an estimated total value of $1.7 trillion.
About 200,000 Ontario farm properties are assessed with an estimated total value of about $62 billion.
The corporation's website (at www.mpac.ca) says Ontario's province-wide assessment updates of property values have all exceeded international standards of accuracy. BF
A seven-class system for classifying farmland
Many people think of the Canada Land Inventory rating system when it comes to classifying farmland into classes.
The Inventory project, done in the mid-1960s, was an attempt to develop capability rating systems for agriculture, forestry, recreational land and wildlife habitat, says David Kroetsch, an Ottawa-based soil specialist with Agriculture and Agri-Food Canada.
The whole concept for agriculture was to define capability based on the amount of effort "required for a farmer to work the land," he explains.
It's a seven-class system with Class 1 having the best soil and virtually no limits for agricultural production except the climate. Classes 1, 2 and 3 are defined as prime agricultural land, while Classes 4, 5, and 6 are called marginal land. Class 7 land is unsuitable for agriculture and can't be used to grow crops. While Class 1 land is the best farmland available in each province, it doesn't mean it has the same capability because climate limits the crops that can be grown.
Before the Canada Land Inventory classifications were developed, each province and municipality had its own methodology to determine the best agricultural land. "This was a project to standardize it nationally," Kroetsch says.
The seven-class system is still valid today, Kroetsch says. It's used at the county level for official planning, by realtors to value land, and by agrologists to determine if the soil in an area is suitable to introduce a new crop.
Kroetsch says Ontario has taken the original Inventory soil classifications and further refined them because of changes in available data and in the way the data is seen.
Eric Wilson, land resource specialist with Ontario's agricultural ministry, says one example of how Ontario refined the soil classifications has to do with soil erosion research in the 1970s and 1980s by Agriculture Canada. The research showed that, on cash crop soils with slopes of two to five per cent, there were significant erosion losses. Soil with these gentle slopes that were previously in Class 1 became Class 2.
"There were surprising losses of topsoil just off these gentle slopes," he explains. BF