City Council is about to debate our first ever three-year operating budget starting next month. As we consider this budget and future budgets, it is time to elevate the conversation on Council and among citizens about the importance of non-residential taxes. We have an opportunity to build our industrial tax base, innovate our economy, and reduce tax increases for residents while still keeping up with core service demands and our ambitious city building agenda.
It may not get as much air time as issues like transit, bike lanes, or housing, but the non-residential tax base is a key part of Edmonton’s success, a part which has historically been slightly overlooked, and this Council is looking to change that. Non-residential development can have enormous tax benefits for residents of the City by requiring smaller tax increases, as well as many other more hidden benefits - but I’ll touch on those later.
When we say non-residential tax base, what we really mean is business and industry. The City of Edmonton has a fair amount of designated industrial land - a look at the map below will show you the key areas of zoned industrial in the City.
While we have some land designated as industrial, a good deal of that land (5353 ha to be precise) lacks adequate servicing. Much like when we build new neighbourhoods, there are high costs associated with introducing services like roads and water to vacant industrial land, not to mention additional servicing that might be required to meet the needs of industrial users.
The City has been using a ‘developer-pay’ model to facilitate the servicing of vacant land. In the ‘developer-pay’ model, the cost to put in services in largely borne by the private sector. While this model has been effective for developing some of our industrial land, it doesn’t work well in cases that involve large upfront costs and longer return on investment timelines, or in areas where there are currently partial rural services and diverse ownership of the land, which is the case for the Edmonton Energy and Technology Park in the north of the City.
The Edmonton Energy and Technology Park (EETP) is our greatest untapped resource of industrial land - 4810 ha of the total 5353 ha of vacant industrial land are in the EETP. If we are going to improve our attractiveness to industry, we’ll need to get on servicing this land in pretty short order so that industry can flourish there.
Funding the Servicing for Industrial Land
The City has already taken some steps in the right direction, such as starting the Revolving Industrial Servicing Fund (RISF) in 2009. The RISF is a fund that helps to subsidize the servicing of industrial land for private owners who are participating in the developer pay model. Since 2009, the RISF has generated an incremental increase in annual tax revenue to the tune of $2.4 million. To keep building on this growth and to meet some of the challenges of servicing the EETP, an additional $45 million investment in the RISF may be required, depending on market conditions.
$45 million is a big chunk of money, and some people may balk at cost, particularly because for many Edmontonians, industrial land doesn’t play a very visible role in their day to day life. But where it does play a role, quietly, is in your pocket.
Right now, non-residential tax comprises 25% of our annual assessments, and 49% of the annual revenue from taxation, adding up to just over $650 million dollars. As hefty as this sounds, the percentage of revenue is actually low when compared to our neighbouring municipalities. For example, Fort Saskatchewan’s non-residential tax made up 60% of their annual revenue in 2013.
If we can draw more investment into our vacant industrial lands, we can increase the non-residential revenue, which means that over the long run, we’ll need less money from residential property owners to cover the operational costs of the City. That means smaller increases to property taxes year over year for residents.
Increasing industrial land servicing and uptake will require upfront investment, but it’s short term pain for long term gain. Not only does servicing and marketing our industrial land lower the property tax burden on residents, but it can attract new and growing industries to our City, which diversifies the economy and adds jobs for Edmontonians.
There is also a regional piece to this puzzle. Right now, we are competing with our regional partners for much of the same business. This ‘every municipality for themselves’ strategy might yield some wins to certain municipalities in the short term, but in the longer term it’s more important to have a region that can compete as a whole with other areas for industrial investment. Getting on the same team with our regional partners will make both Edmonton and the region as a whole more competitive and attractive to business.
Increased revenue from industrial land doesn’t just benefit this city and it’s residents either. It also has larger impacts on the overall provincial economy. The potential return on investment for the province when providing assistance in upgrading and managing our supply of industrial land could be enormous in terms of economic output, job growth, provincial diversification, and corporate tax potential. It also boosts our post-secondary institutions, who’ll get more access to research and placement opportunities through partnership with start-ups and industrial entrepreneurs.
At Executive Committee, we were presented with the Industrial Transformation Roadmap, a guide for the steps we need to take to accelerate the servicing and development of our vacant industrial areas. There is more work to be done of this - a full implementation plan of the roadmap is forthcoming. I’m excited to see where this renewed focus on smart, sustainable industrial development will take us, and for all the benefits that it may bring to making our city more financially sustainable in the coming years.