How are municipalities funded?
Consistent and predictable revenue sources are vital to building strong municipalities. The Municipal Government Act (MGA) outlines a variety of ways Alberta municipalities may fund programs and services for their communities.
Property assessment and taxation
Property taxes are the most significant source of municipal revenue. The MGA outlines assessment and taxation processes within Alberta communities based on property assessment classes, which include:
- Non-residential (such as industrial or commercial property)
- Farm land
- Machinery and equipment (such as equipment used for industrial manufacturing or processing)
Residential property assessment
In Alberta, residential properties are assessed based on their market value, or the price they might sell for on the open market. Municipalities follow a specific process to accurately assess the value of these properties.
The province audits market value assessments to ensure they are compliant with the legislated rules.
Non-residential property assessment
Similar to residential property assessment, most non-residential properties are also assessed using market value.
One exception is linear property (e.g., gas and oil wells, pipelines, telecommunications and cable property) and railway, which are assessed using regulated assessment. This is because linear property is difficult to assess using market value based assessment because:
- They seldom trade in the marketplace and when they do trade, the sale price usually include non-assessable items that are difficult to separate from the sale price;
- They cross municipalities and municipal boundaries; and,
- They are of a unique nature.
Regulated assessment uses rates and procedures to calculate the assessed value of a property. These rates and procedures are developed on the basis of the property’s project cost, use and/or production capability.
Farm property assessment
Farm property values are calculated using regulated assessment for the farm land and market value for the farm buildings and residences. Under the MGA, three elements of farm properties are assessed to determine their value:
- Farm buildings used for farming operations
- Farm residence(s)
- Land that is used exclusively for farming operations
Machinery and equipment property assessment
Like linear property, machinery and equipment property values are calculated using regulated assessment rates and procedures. Assessment is based on the value of the property’s physical components (or equipment). The value of the business is not part of the assessment.
How tax rates are determined
Municipalities set tax rates for each type of property assessment classification. Municipalities determine how much revenue they need and then do a calculation to figure out the tax rate. Tax rates may differ among property classes and differ amongst municipalities across the Province.
Assessment and tax exemptions
While most property owners in Alberta must pay property taxes, there are some exemptions. Exemptions are achieved in two ways:
- Through assessment exemptions (properties are not assessed)
- Through taxation exemptions (although properties are assessed, they are not tax liable or are partially tax liable)
Property assessment and tax exemptions in Alberta fall under several broad categories:
- Constitutional (e.g., municipalities cannot levy taxes on federal government property)
- Traditional (e.g., places of worship, such as churches, temples, mosques, and cemeteries)
- Public or quasi-public organizations (e.g., hospitals and schools, libraries, nursing homes, non-profit organizations such as youth hostels and veterans’ associations and other organizations that are funded by government or receive grants)
- Public Infrastructure (e.g., roads, bridges and monuments)
- Business incentives (e.g., exemptions designed to encourage economic development)
The practice of exempting property is worldwide. Exemptions typically include “property owned or used by organizations providing services related to government, education, charity, religion, culture, and historic preservation.” (International Association of Assessing Officers, Assessment Administration (Chicago: International Association of Assessing Officers, 2003)).
Every year, the province determines the revenue needed for education, which is funded in part through education taxes. Under the MGA, municipalities administer and collect education taxes on behalf of the province. The municipality collects the education taxes, but the province is responsible for education.
The total assessment of all property in a municipality is used to calculate that municipality’s share of the education tax. The province notifies municipalities of the amount they need to collect through education property tax requisitions. Each municipality then collects the education tax on behalf of the province.
Fees and levies
Fees and levies help fund municipal infrastructure, programs and services.
A fee is a charge to users of a service provided by municipalities. Some examples of fees municipalities may collect include:
- Licences and permits
- Planning and development matters
- Fees to utility providers who operate within a municipality’s boundaries (these are identified on consumer utility bills)
Levies may be charged by municipalities to recover the cost of services for developers or property owners in a specific area. Levies fund a specific improvement, such as road or sewer improvements.
A municipality may apply for a variety of grants from the Province to help finance its capital projects and some aspects of its operations.
Through these multiple revenue sources, Alberta municipalities can deliver programs and services for their citizens.