Calgary's Gravy Boat Has Sailed: Penny Tax vs Sales Tax

With this week's uproar by both the business community and home owners over property tax increases, Everyday Tourist looks at an alternative to property tax for raising funds for special projects that benefit a broad spectrum of the Calgarians. 

With Province and City’s free fall in revenues from loss of oil and gas tax revenue, as well as the loss of income tax revenue from rapidly increasing number of unemployed or part-time workers, and loss of business tax from all the empty office floors in downtown, the idea of a god-forbid Alberta Sales Tax has been suggested by many as a way to replace the lost dollars. 

I am pretty sure everyone knows what a sales tax is, but I doubt there are many who know what a penny tax is. Back in 2011, Calgary businessman George Brookman, CEO West Canadian Industries and Brian Felesky a founding partner in Felesky Flynn law firm, who now server on numerous corporate Boards, championed the idea of one penny tax on all goods and service, however unlike a sales tax the money raised must be used for specific projects. And the voters get to approve which projects it is used for and there is a limited time that the tax is in place, usually around five years. 

It was businessmen, not politicians who were suggesting the idea of a penny tax to pay for capital projects that would benefit a broad sector of the public - things like recreation centres, libraries, parks, transit, roads and museums.  

In 2011, with the energy sector generating billions of tax dollars every year, the idea of any new taxes just seemed like a tax grab.  Alberta and Calgary’s world has changed dramatically since 2011 and perhaps it is time to rethink the idea of a penny tax.

Calgary Stampede is currently developing its new Youth Campus as part of its master plan.  The next phase is the expansion of the BMO trade show building into a multi-purpose event centre. 

Oklahoma City Case Study

In 1993, Oklahoma City 54% of the voters decided to turn around their struggling city by approving a tax on themselves.  The program was called MAPS (Metropolitan Area Projects Plan) and it generated $350 million towards nine projects that took ten years to complete. 

The projects included:

  • Renovations to the Civic Centre Music Hall
  • Renovations to the Cox Convention Centre
  • Renovations to the Oklahoma State Fairgrounds
  • Construction of the Chickasaw Bricktown Ballpark
  • Construction of the Chesapeake Energy Arena
  • Construction of the Bricktown Canal (transformation of former warehouse district into and entertainment and recreational district)
  • Construction of Riverfront improvements including recreational dams, Boathouse district and headquarters for USA Canoe/Kayak and Rowing teams.
  • Construction of a new library
  • Development of the Oklahoma Spirit Trolley Network

Oklahoma City's Bricktown Ballpark

The program was such a success that in 2001 a MAPs for Kids was developed to raise $700 million over 10 years for initiatives to pay for repairs to 100 schools as well as to add new gyms. 

A third MAPS was approved in 2010 to raise $770 million from 2010 to 2017 to be used for:

  • New Convention Centre
  • New Downtown Festival Park
  • New streetcar system
  • New Senior Health and Wellness Centers in various buildings around the city.
  • Upgrades to the river train facilities
  • Fairground improvements
  • Expansion of trail system
  • Expansion of neighbourhood sidewalk (many communities in American cities have no sidewalks)

Festival Park in downtown Oklahoma City. 

Governance

 The MAPS revenue does not get lumped into the city’s tax revenue and managed by City bureaucrats but rather is collected and held independently.  The projects are managed a Board that consists of The Mayor, three bureaucrats, three Councillors and three citizens at larger. 

A better model for Calgary, might be the Calgary Municipal Land Corporation, which has a board of Director’s appointed by Council, but that includes no bureaucrats, and the Mayor is the only elected official, all of the members are citizens-at-large chosen because they have the experience and knowledge needed to manage the projects.  Similarly ENMAX, which is owned by the City of Calgary, has a Board of Directors, with just two Councillors and no bureaucrats.

Crowchild Trail expansion concept for 16th Ave NW and Crowchild Trail, part of a mega makeover from 24th St. NW to 17th Ave SW. One of the concepts is for a tunnel for part of the Crowchild Trail. Crowchild Trail is a key corridor as it links two universities, three hospitals and three new urban villages. Currently this project is not funded. (City of Calgary Crowhchild Trail Expansion link)

Opponents Say….

Some economists and public officials oppose sales taxes because they are considered regressive. That means they tend to have a disproportionately large impact on the poor, who spend a bigger portion of their income at the grocery store and retail establishments.  In response to this criticism, it is possible that the tax is not applied to groceries, low-end children’s clothing and certain other items.

Others will say, “I don’t favour anything that gives the city another revenue stream that is under their control, as they have proven to me they are incapable of managing taxpayers resources. The City has a long history of exceeding budgets on capital projects, likely more so than we will ever know.”

As one senior private sector accountant said,  “The present property tax system is broken, with substantial funding each year into reserves rather than actual expenditures, which can then be disbursed at a future date so they look like heroes. If you want an exercise in frustration, look at the cities financials and see the reserves that are sitting on the books.  Some may consider it prudence, but in reality it is over-taxation and manipulation.  A corporation would never be able to get away with it.”

“I would have a hard time with a project like the Green Line being on the list of Penny Tax problems.  We are about to see a massive tax implemented in Alberta that is supposed to be in part directed at public transportation. We should be holding the government's feet to the fire to ensure that it is spent in that fashion, and not just another tax for general revenues and pet political projects,” says a long time Calgary business owner.

“Each project should be voted on separately so if project was turned down on the plebiscite, it should also some weight on the city's future decision to proceed on their own. For example, if a new arena were voted down, it should be a dead issue.  The city would not turn around and fund it after the public has spoken,” says a Calgary cultural champion.

Editor's Note: After posting this blog, BL wrote: 
Your article begins with the assumption that Calgary has a revenue problem. Perhaps that assumption should be studied more thoroughly. In fact, Calgary's revenues and spending have been growing faster than the average cost of living for a number of years. The City of Calgary does not have a revenue problem. They have a spending problem.
They do not need new sources of revenue for, in fact, there is only one source: the taxpayer. They need to spend more wisely.
There was an interesting article in the Herald this week about a "pilot project" in which the Fire department used SUV's equipped with minor medical equipment, instead of fire engines, to attend to medical emergencies. Guess what? They saved money. Wasn't that a pretty obvious, perhaps a foregone, conclusion.
The city abounds with examples like this in almost every department. Just see what happens when someone proposes that private sector contractors be hired on a competitive basis to clean bus shelters instead of unionized transit workers. All hell breaks loose at City Hall!
Let's not look for more avenues to use to fleece the taxpayer. Let's look for more effective use of the funds already at hand.

A Penny Tax could be applied to help convert Calgary's old science centre into a civic art gallery. 

Champions say…

There are lots of people who believe that there should be no taxes at all and often the wealthier they are, the more they resent paying taxes.  In my own mind, one of the reasons that we are in the pickle that we find ourselves in today is the fact that for too many years, the Conservatives drew on the Heritage Trust Fund instead of raising the tax base. 

Brookman thinks, “The strength of ‘The Penny Tax’ is that projects are selected by public plebiscite and the revenues are administered outside of the normal bureaucracy/political world.‎    For me, there has to be a combination of three projects with broad appeal. Arts and culture: Sports and transportation.

A Penny Tax in Calgary would collect about $300 million per annum. Thus a fixed term of five years would generate $1.5 billion.”

What would $1.5 billion buy Calgarians over the next five years!

A Penny Tax could help fund the development of a new fieldhouse and upgrade to existing McMahon Stadium which are both currently not funded. 

The City of Calgary’s contribution to:

  • $250M Green Line Tunnel downtown
  • $250M McMahon Stadium/Fieldhouse development 
  • $250M Stampede Expansion (Trade Show/Convention Centre Facility)   
  • $500M Crowchild Trail Expansion 
  • $250M Upgrade existing recreational, public spaces across the city 

One suggestion was the Penny Tax not fund the entire projects but be seed money for projects.  Other funding should come from existing tax revenue (municipal, provincial and federal), fundraising by user groups and naming sponsorships. Everybody should have skin in the game. However, with this structure the Penny Tax Board would not be in control of the project, which is one of the key selling features of the tax.

In the future, a Penny Tax could be applied to build new recreation centres like Rocky Ridge Recreation Centre or to upgrade and expand existing recreation centres.  

Last Word

“It may be worth considering, but only if managed by a project committee that is totally outside of city control and outside of their power to decide on the membership. It would also have to be outside their project management and procurement – in other words totally separated from their bureaucracy. And that will never happen,” shared one Everyday Tourist blog external reviewer.

Personally I am all for experimenting with new ideas for city building.  Calgary was the first city in Canada to use the American TIF (tax increment financing) program to kick-start the development of East Village.  With a civic election in 2017, perhaps it is time to ask the taxpayers what they want to do.

Is it time for the city to again experiment a with new tax ideas as our gravy boat has sailed? 

If you like this blog, you might like:

Calgary can have it all for less than $5 billion?

Calgary Wants vs Needs: Convention Centre, Arena, Stadium

Do we really need all of this public art?

Infill Development Levies: Don't Cook The Golden Goose