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Presto! Property tax cure on the horizon

As sneaky taxes go, franchise fees are devious. They’re a win-win for cash-strapped cities, but pretty lousy for taxpayers who often don’t know who to blame for their hidden tax.

As sneaky taxes go, franchise fees are devious. They’re a win-win for cash-strapped cities, but pretty lousy for taxpayers who often don’t know who to blame for their hidden tax.

Most people don’t realize when they’re paying their gas or electric bill that municipalities often take a cut. It’s not a direct payment — utility providers pay municipalities a percentage through franchise fee agreements as compensation for building underground lines on municipal land. The utility companies in turn recoup the costs from customers.

For cities, franchise fees are an easy revenue stream, sometimes in the millions depending on the percentage rate a council sets and whether there are agreements for natural gas, electricity or both. All a municipality has to do, really, is sign on the dotted line.

St. Albert has chosen to forgo collecting on its electrical franchise fee agreement, but greatly depends on dollars from natural gas, to the tune of $1.7 million this year, according to new terms city councillors endorsed Monday at the committee level. The deal, which will cost $78 per household annually, changes how the fees are calculated, restoring the city’s revenue levels to where they were before natural gas prices tanked a few years back.

The best part, from a city perspective, is perception. This is revenue the city receives but does not collect directly so it does not show up on property tax notices. Consumers might notice their gas bill has gone up but any anger or frustration is likely directed toward the utility provider, not city hall. Pretty sneaky.

Of course the bean counters would tell you it’s not sneaky at all. Council signs off on these agreements in public. Franchise fees have even been called less “regressive” than property taxes because the fees are based on an user pay model, that is the less energy you burn the less you pay. The only control you have with your property tax bill is the size of home you decide to purchase and where.

While that may be true there’s no hiding that franchise fees are nothing more than a smoke-and-mirrors tax, which explains the appeal in St. Albert. If the city did not collect gas franchise fees, council would either have to cut $1.7 million in spending or raise property taxes by about 2.4 per cent. When the city last had deals for both gas and electric fees in the late 1990s the revenue stream allowed past councils to artificially hold the line on property taxes, and in some cases approve decreases. Perception is everything, especially in a city with the highest property taxes in Alberta.

Given that dubious distinction it’s no surprise that city hall has spent a growing amount of time in the past few years looking for alternate revenue streams. The finance committee’s decision to re-up gas franchise fees follows earlier ‘coaching’ sessions on electric fees and using debt for utility projects, previous political no-nos in St. Albert. Neither went anywhere but council gave both subjects more pause than anyone has seen in years.

Property taxes only go so far and provincial and federal grants, though more plentiful in recent years, are inadequate for the needs of growing urban areas. For years cities, which only get about eight per cent of all tax dollars, were forced to raise property taxes while the province and Ottawa were awash in surpluses. Municipalities, including ours, have been highly critical of this passing of the buck, but don’t see the problem with hiding behind franchise fees. Pretty sneaky if you ask me.

Bryan Alary is an editor at the Gazette. Read his Civic Matters blog at www.stalbertgazette.com.

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