“Enter into discussions with the Katz Group of Companies and Northlands on a framework for the financing, not including an increase in current property taxes, and operations of a potential downtown arena and entertainment project.”
—Motion passed by Edmonton City Council on July 21, 1010
“Council’s direction expressly provided that the funding model must not increase current property taxes.”
—Background handout for CoE’s downtown arena public consultations
“I’ve said it a hundred times and I’ll say it another hundred times, we’re not going to raise taxes to pay for this.”
—Mayor Stephen Mandel, March 26, 2008
All bolds mine.
Is the CRL a tax?
Yes. CRL stands for “Community Revitalization Levy.” In the United States, a similar procedure is known as a TIF (Tax Increment Financing). In both cases, a government collects (levies) property taxes in a designated area and uses them to pay off the debt incurred on a new development or project. In this case, the CRL would be used to pay off a taxpayer-funded downtown arena for the Edmonton Oilers.
Is the CRL a property tax?
Yes. Municipalities in Canada collect the majority of their revenues through property taxes. With property tax revenues, the City of Edmonton finances services such as road maintenance, parks, swimming pools and recreation centres, public libraries, garbage collection and police services.
Is the CRL a new tax?
Yes and no. When the CRL is created, the City draws a line around an area and labels it as a Community Revitalization Levy Zone. In this instance, that zone will be around the downtown arena and the projected downtown arena district. The City then determines what it currently collects in property taxes in that area, and guesses what it will collect from the new development that is supposed to occur alongside the arena. The difference between these two amounts is what the City will then use to pay off the debt it incurred in financing the downtown arena.
But as both Councillor Don Iveson and Scott Hennig of the Canadian Taxpayers Federation have pointed out, the taxes collected in the CRL zone are not new taxes. It is not bonus money. It is merely redirected money. Consumers do not spend extra money with the addition of new businesses in a city. They merely shift their spending habits from one business to another. Instead of going for a beer and a burger at Coliseum Steak and Pizza on game night, for example, or for Mac-N-Cheese at Blue Plate Diner, they will go for wings and pizza at the new Boston Pizza near the new arena. Spending that occurs around the downtown arena doesn’t occur in addition to spending in the rest of the city, therefore. It occurs instead of spending in the rest of the city. The same goes for development. If, for example, a new hotel goes up downtown, it means that a new hotel doesn’t go up in the west end. It also means that another hotel, say a hotel around the current Rexall Place, loses business, which means they shut down, which means the City no longer collects those property taxes. In the end, the CRL is zero-sum. The gain of new taxes in the CRL Zone will be offset by the loss of taxes outside of the CRL Zone.
Will the CRL lead to an increase in property taxes?
Assuredly. The taxes collected with a CRL aren’t just redirected taxes. They are also taxes that are now locked into paying for only one thing: the debt on the downtown arena. The City still has to pay for things like potholes, police, snow removal, community hockey rinks and libraries. Except it now has less tax revenue to draw from, as taxes have been redirected and locked into paying off the arena debt. This means that shortfalls in revenue from the creation of the CRL have to come from another place. Since the City can only tax property, it really only has one choice: property tax increases.
Are there other issues with the CRL?
Yes. They include:
- The line the City draws in creating the Community Revitalization Levy Zone is completely arbitrary. It can be as small or as large as the City wishes it to be. The danger here is that the City can make the CRL Zone larger, likely as a result of insufficient tax revenue from around the arena district itself, and cut even further into tax revenue available for the City’s core services. The City has already admitted as much, in fact, noting that the size of the CRL Zone will in part be determined by “the funding requirements for the arena.”
- If the City borrows the money to pay for the downtown arena, and there is a shortfall in CRL revenues from a lack of development and “revitalizing,” it is on the hook for that shortfall. That means the taxpayer is on the hook for that shortfall. During the July 21st meeting between City Council and the Katz Group, several Councillors asked the Katz Group what guarantees they could make about development in the arena district, and what role they would play in covering any shortfall in tax revenue in the CRL Zone. The Katz Group would not guarantee anything other than the $100 million that Mr. Katz has pledged to put towards the development of the district, and would not agree to cover any shortfall in tax revenues in the CRL Zone. Ultimately, even if the Katz Group guarantees development the CRL is still just a tax shift, but there is an added risk of even more debt for the City, and therefore taxpayers, without it.
- Establishing another CRL could put a strain on the City of Edmonton’s ability to offer core services. The Province recently approved the establishment of a Community Revitalization Levy for the Quarters District in the east part of downtown. Yet it has the same issues as the arena CRL: it’s a tax that’s going to be redirected and locked into one single development project. Without property tax increases, that’s yet another drain on the City’s ability to offer core services. It is a dangerous game for cities to get into the habit of utilizing CRLs. It is not free money, without consequence. One only has to look at the City of Chicago to see tax-increment financing gone wild.
- In allowing the City of Edmonton to institute the arena CRL, the Province of Alberta will be letting the incremental increase in education property taxes in the CRL Zone go to the City to help pay off the arena debt. Unless the Province subsequently raises its own taxes, that means less money is going into the Alberta School Foundation Fund (ASFF), less money is going to school boards, and less money is being used educate students.
Conclusion
The City of Edmonton’s proposed Community Revitalization Levy is money that is coming out of the public purse. It is a tax. It is also a tax that will lead to property tax increases for the citizens of Edmonton. To deny this is to deny economic theory so thoroughly established that one might as well be denying that the world is round. If Council decides to pursue this option in financing an arena for the 721st richest man in the world, it should at least be honest with Edmontonians about what it is in fact doing. It is taxing them to pay off the debt incurred in the building of a downtown arena for Daryl Katz and the Edmonton Oilers. Mr. Katz will receive all of the revenues from the arena, as well as the increased value of the team that will come with this sweetheart of a deal. In addition to being taxed, residents will take on the further risk that comes with downtown development and “revitalization” being nothing other than an optimistic guess.
These are the realities of the Community Revitalization Levy. Council is on the record saying that a funding model for a new downtown arena must not include an increase in current property taxes. Since the word “current” could be used to justify property tax increases a day after an arena CRL is approved, let’s hope that Council isn’t being cute with their language. The majority of Edmontonians do not want their tax dollars being used to fund a downtown arena, either now or in the future. The Mayor has been all over the map when it comes to the use of taxpayer dollars to finance a downtown arena. Hopefully his colleagues on City Council will take the more honest, straightforward approach.
Why Downtown? 