Provincial Responsibility for Education Property Tax Collection

Both the Municipal Government Act and the School Act have historically required municipalities

in Alberta to collect education property taxes on behalf of the Province in one form or another.

This is reflected in the following comments offered in 2011 by the Government to AUMA regarding education and taxes:  “An accessible, quality education system is a priority for the government, and for all Albertans. All Albertans benefit from a quality basic kindergarten-to-grade-12 education system. About two thirds of the funding for Alberta’s basic education system comes from provincial general revenues. The remainder comes from the provincial education property tax requisition. Property taxes have been used to help fund education in Alberta since the early 1900s. Prior to 1994, school boards received education funds from both the provincial government and from local property taxes.” (3)

The collection of the education property tax is based on the following model: The Province calculates how much money each municipality must contribute towards the public education system, based on the municipality’s equalized assessment. The amount residents are required to pay into the education system is based on the assessed value of their property and the education tax rate established by the Province. Once the municipality collects the education property tax, it is forwarded on to the Province and into the Alberta School Foundation Fund (ASFF).

The 2013-2014 provincial budget saw the following changes (4): “The Government of Alberta has now standardized the education property tax; it is now set at 32 per cent of education operating costs. In Government’s view, basing this tax on the cost of funding for education will achieve greater transparency, fairness and equity. In addition we will be removing the mitigation measures, ensuring the equitable distribution of the tax across the province so that similarly valued properties of the same classification pay similar amounts of taxes, no matter where they’re located. Each municipality’s 2013 education requisition will be determined by applying the provincial uniform tax rates to its 2013 equalized assessments.”

In consequence, the changes in percentage from 2012-13 to 2013-14 budget is for the  Fiscal year, 2.1% for residential and 7.3% for Non-Residential and for the Calendar Year 2% increase in 2013 for residential  and 7.2% for Non-residential.

Although, the standardized formula might offer more predictability, it restores a connection between education spending and property taxes removing incentives for School Boards to have a conservative approach when negotiating salary contracts or when establishing their annual budgets. As former Municipal Affairs Minister Doug Griffiths astutely said in an interview with the Calgary Herald (5) “If you increase the education funding because there are salary demands — through the roof — well, 32 per cent of that will come on to your tax bill.”  Logic would say that if municipalities need to sharpen their pencils so should all organizations that require tax dollar moneys to operate and sustain themselves.

Municipalities have limited sources to financially sustain their operations: property taxes, grants, levies, fees and fines. Citizens are expecting a certain amount of services and programs for their tax dollars.  When municipalities establish their budgets, they don’t know the true impact on the tax payer until the property assessments, the education property tax requisition  and the senior housing requisition have been factored in . All things being equal, what is certain is that a small fluctuation in the education mil rate has a significant impact on the overall taxes for a tax payer, residential and/ or non-residential.  In consequence, to keep taxes at an affordable level, municipalities may need to adjust their yearly budget to soften the impact of the education property tax on the individual property taxes.

For the Alberta taxpayers, the present system of education property tax collection blurs the lines of accountability and transparency and leads to misconception in regard to municipal government taxation policy and responsibility.

Under the current system, municipalities are required to be collection agents for the Provincial Government and to make quarterly payments for education property taxes that may not yet have been collected in full at the local level prior to remittance to the Government. Furthermore, it leaves the municipalities to assume the full responsibility and lengthy process of collection of default education property tax accounts, money that could be allocated towards other programs and services.

But,  if municipalities fail to remit the Education Property Tax as per the prescribed schedule, then Section 175 of the School Act (2) may be activated by the Government with serious short and long term financial consequences to the municipality: “ Where a municipality defaults in making a payment required under this Division, the Minister may pay into the Alberta School Foundation Fund to the credit of the municipality any grants payable to that municipality for that year or any succeeding year until the amount owing by the municipality has been received.”

Education is a provincial responsibility. The assumed reasoning behind this system of tax collection is that the municipality, being the level of government closest to the people, is best suited to collect taxes based on property assessment and because municipalities possess the information to collect the taxes in the most efficient manner. This belief should be demystified and changes to the MGA and Education Act should be actively pursued.