Small Business

Taxes and Death (…of small businesses in Vancouver)

Vacant storefronts plague some of Vancouver’s commercial corridors, current tax policies play a major role in this trend

Wednesday September 25th the City’s recently reconvened Property Tax Review Commission will be holding a public panel at the VanDusen Gardens, BMO Great Hall (5251 Oak Street at West 37th Avenue, 6:00 – 9:00pm). It’s not just small business owners who should be raising their voices and asking questions of the Commission there, anyone who cares about the affordability and livelihoods of our neighbourhoods in general should be interested in how this discussion continues to unfold. Anyone concerned about the impacts of gentrification in low-income communities should also consider being there. This is one of those issues that has been slowly simmering behind the scenes for years now and hasn’t garnered nearly as much attention as it should considering just how much it has directly impacted the way our city has developed over the past decade or more.

Vancouver feels like it’s approaching a watershed moment. For years, concerns over a rising cost of living, access to affordable housing, child poverty and a stagnant median income have persisted. Recently, as investors and developers have searched for the increasingly limited space in Vancouver to build on, the patterns of development have crept eastward, not entirely but noticeably. Some perhaps see the East Side of town as terra nullis or tabula rasa, others might be inspired to retain heritage assets, some just probably can’t make the numbers work anywhere else in town right now. There are a range of factors. With this though has come a surge in tensions between residents, developers, new businesses and City Hall in Grandview Woodlands, Mt. Pleasant and the Downtown Eastside whose areas have seen an influx of a new income earners and culture, taller buildings and higher end businesses. All this while concerns about the city becoming a glorified resort town for the wealthy (or as Andy Yan puts it a Zombie City) have cropped up time and time again in the past decade.

In essence there’s a feeling that has been hovering around for years now that we’re losing our city. It’s disappearing before our eyes as Vancouver Vanishes, a popular Facebook Page aptly captures. The fact is, cities change. Sometimes this happens slowly but sometimes this happens rapidly. In the case of Vancouver it’s the latter, and that makes it more contentious. The factors driving that rapid change are related to an assortment of complex inputs, the emergence of the global financial and real estate markets and increases in foreign direct investment, immigration and shifting demographics (the greying of our population for example) a global urban migration and other trends that involve different levels of government or processes that are well beyond our control. More simply put, cities develop according to classic capitalist principles of accumulation, profit and creative destruction (see Logan and Molotch, see David Harvey). This is what cities are, what cities do, but in the past 100 or so years they’ve learned to race to the top or come crashing to the bottom at rapidly increasingly speeds thanks to globalization. Vancouver’s experience is the former, let’s hope it’s never the latter. This aside, there are some simple nuts and bolts fixes that could potentially go a long way in changing the course that Vancouver is on. Municipal tax reform is one of them. Better connecting our built form to local economic development is another.

Cause and Effect

There’s a web of cause and effect between speculation, livability, affordability, taxes and density in this city. While it has been argued by successive city councils and academics alike that density is more environmentally preferable to sprawl, increasing density also causes speculation, lifts property values and thus taxes and rents. The fact is cities receive 8 cents per dollar of income tax collected by the Federal Government yet are home to 80% of the country’s citizens. We are an urban country, but you wouldn’t be able to tell that based on how we spend our tax dollars at the national scale. Local governments are badly in need of revenues to make up for pressures put on them by Federal and Provincial devolution (downloading of responsibilities without corresponding shares of taxes gathered to pay for services) and on paper real estate development appears an attractive option as this particular tax imbalance persists. Some local governments have also become accustomed to leveraging development for a number of amenities or community benefits in the process. While it may seem that cities, eager for an increase in property taxes and funding for amenities, would benefit from this it is also potentially entropic as far as the local economy is concerned; construction jobs aside (and that’s a big aside I’ll grant). Paul Sullivan, former Co-Chair of the Fair Tax Coalition, pointed this out to Vancouver’s City Council when his number crunching revealed that the replacement of commercial corridors with condos actually netted a financial loss for the city.

In short, we need to rethink highest best use.

Healthy cities are constantly in a state of development, when a city reaches stasis that’s not a particularly good sign, but development doesn’t necessarily mean growth, nor does it need to result in constantly rising property values. Development is the process of the city becoming itself, reinventing itself and sustaining itself. Part of Vancouver’s current challenges come from the fact that there has been a lopsided focus on high density residential development and that has caused speculative hot spots where a spot rezoning or the anticipation of increasing profitability have sent shocks to local streets and neighbourhoods. When we have built we haven’t built for jobs. Not in our industrial lands, not in our commercial corridors, and where commercial development has happened in a pedestal or podium we’ve too often seen a large floor plate with a large franchise, well capitalized restaurant group or other corporate entity take up the street front after completion. Because of the way we build and the way we tax, those types of businesses are made more feasible, plain and simple. The kicker is that the mom and pop store just down the street from that new development gets taxed as if it were the same higher density mixed development, even when it isn’t. And that’s where your runaway train of displacement, or creative destruction, really starts moving.

Increasing density and floor plates can be indicative of a false economy, if not at least an unsustainable one. Because of increased residential density many businesses assume, not always correctly, that there is a growing market for their goods or services. Witness the phenomenon of “cold harbor” though, where businesses eventually discovered that the thousands of potential customers they had banked on frequenting their establishments only lived in these glass towers two months out of the year. The moral of the story is that it is easy to see new towers going up and new drug stores and new restaurant chains moving in and assume that these are signs of a healthy economy, but they also indicate some troubling trends about a city’s dependence on property taxes for services, about who is able to own a home, who is able to open a business etc.  Locally owned homes, like locally owned businesses are crucial to a strong local economy. Ownership does matter. But back to taxes again.

Businesses, whether they are profitable or not, represent 8% of Vancouver’s property tax base and yet they are paying 50% of the total property taxes. Let me repeat that first part, as dumfounding as the percentages may be. Businesses are not taxed based on how profitable they are, they are taxed based on the value of the commercial property they are in. Speculation, spot rezonings and other things that raise property values sharply can have sudden repercussions on businesses that have become an integral part of a neighbourhood’s culture. Not too mention sell stuff that we genuinely want or need. So if you’re concerned about your mom and pop stores disappearing this is a very important factor to consider and it’s also why those who are concerned about gentrification or displacement in low-income communities should be onside with tax reform as well as questions of built form in Vancouver.

We should tax businesses for what they are, not what the buildings they are in could be.

A Business by any other name

With businesses in Vancouver paying significantly more than businesses in adjacent municipalities it’s more likely that a corporate chain can weather the thin margins, rising leases and rising taxes than a small independently owned business. Recent research by LOCO BC, UBC and the Columbia Institute has shown that locally owned SMEs pump significantly more money directly back into our local economy than large corporate chains, particularly multinational ones. So don’t increase density and floor plate sizes along commercial corridors without clearly considering the impacts, if anything consider decreasing them, down-zoning. This creates more affordable, human scale business spaces and ensures more local ownership. The built form, local ownership, tax revenues, affordability and neighbourhood character can all be mutually beneficial, but currently they are at odds with one another in Vancouver. We need to change this.  We need to better connect built form to local economic development just like we need to better connect our crushingly lopsided business taxes to local economic development. Not just local economic development but the very nature of our community’s numerous retail corridors, our social gathering spaces. Once again, we need to rethink “highest best use” and what this means in the broader context of our communities.

With two experienced and sharp as a tack BIA Executive Directors, Claudia Laroye and Sharon Townsend, taking over the helm of the Fair Tax Coalition from Paul Sullivan and Ed Des Roches the discussion on tax policy and the effect it has on our city will continue to evolve, and with particular focus on our retail corridors and small businesses. The coalition has done some great work to date but the shift needs to continue if we are to see Vancouver remain competitive and vibrant in our region. We also need to get our heads around hot spots and the rabid speculation that this city has endured for the better half of two decades.

Attending the Tax Commission’s open meeting on September 25th is important to anyone who cares about the way our city is evolving, and the future direction it will take. The more of us who show up on the 25th to raise our concerns about the changing nature of our commercial streets and the future viability of our retail corridors the more we can continue to push for tax policies and other measures that will improve affordability and enable independent small businesses to flourish in communities we feel true ownership of and a sense of belonging in.

 

 

 

One Response to “Taxes and Death (…of small businesses in Vancouver)”

  1. March 04, 2016 at 9:25 pm, Adiatma said:

    I had no idea all of those things were inecudld in the income tax. I especially find it interesting that a single person, with a lower wage and no children, has to more than a person who makes a higher income. Granted the higher income option had children in the equation, but still. Crazy I would be spending more in taxes than a family. Interesting little evaluation tool.

    Reply

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