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Urban taxpayers pay the bills: 
More examples of free riders

November 23, 2016
​

It's a fair and general principle that those who benefit from a service should pay for that service. In the realm of municipal services there are 'externalities'.  An externality is a benefit (or cost) that affects a party who did not choose to incur that cost or benefit. Economists often urge governments to adopt policies that "internalize" an externality, so that costs and benefits will affect mainly parties who choose to incur them.

In Greater Victoria, for example, this applies when residents from one community travel on roads and bridges of an adjoining community. A majority of the capital and operating costs for Greater Victoria arts, cultural, and sports facilities are paid for by the residents of Victoria and Saanich, but the facilities are used by residents from 9 other municipalities.

Another common experience is when residents of rural areas travel downtown or to the inner harbour to enjoy celebrations, events and festivals, where local residents fund extra police and services to spectators. This is often referred to as 'free rider' problem – a market failure that occurs when people take advantage of being able to use a common resource, or collective good, without paying for it, as is the case when citizens of one municipality utilize public goods of another without paying their fair share in taxes.

But another subsidy is not so self-evident, and relates to community, social service and charitable agencies that offer public services to all regional residents.

In Canada, various health, social, community agencies, charities and churches may apply for and receive property tax exemptions for their buildings and real estate.

If property tax exemption is granted, the assessed values of the properties are removed from the tax rolls and the cost of providing municipal services to them is added to all other taxpayers in that municipality.
​

Recently both Victoria and Saanich have met the requirement to post public notice of all properties and agencies that have been granted tax exemptions by those councils.

A quick review of the tax exempt properties reveals that the City of Victoria has over 120 properties with exemptions totalling nearly $1.6 million of foregone revenue to the City (1.3% of tax levy). Of these, 50 properties are owned by churches and another 68 by various cultural, arts, sports, youth, health services and charitable groups. The majority of the public health and charitable agencies are located in the City, plus some large churches. Consider that the list includes such groups as St. Johns Ambulance, Red Cross, Salvation Army, BC Cancer Agency, Native Friendship Society, Girl Guides, Craigdarroch Castle, Victoria Art Gallery and dozens of others.

In Saanich, the numbers are greater because of its larger physical size and population. The 2015 Saanich annual financial report lists permissive tax exemptions (foregone revenue) of $2.7 million. The majority of tax exemptions are for suburban churches ($440,000), private schools ($400,200) and community housing organizations ($414,000).

What do these all have in common? Collectively they provide a wide range of valuable services that are available to all residents of Greater Victoria, which means the taxpayers of Victoria and Saanich are once again providing a free ride for other residents.

This is not a comment on the merits of providing tax exemptions as part of contributions to provide a benefit to those organizations that serve the community.  Rather, the purpose is to show that 150,000 residents from the other 11 municipalities are free to access these charitable and health services, attend downtown churches, parades and festivals etc. without contributing to costs of providing these services.  

- Jim Anderson

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