Business owner Bernie Dombowsky is frustrated with how commercial properties are assessed in Moose Jaw and believes the new model used to determine assessment rates is broken.
Dombowsky — owner of Charlotte’s Catering — appeared before city council on Sept. 12 and presented his research into assessment values and market capitalization rates of several community businesses, including his own.
He highlighted that he plans to focus on growing his business in Regina because of the assessment issues here.
The Saskatchewan Assessment Management Agency (SAMA) sets the market capitalization rates — or “cap rates” — and operates on a four-year assessment cycle. Its past cycle was 2017 to 2021, while its current cycle is 2021 to 2025.
SAMA’s previous cap rate for Moose Jaw was 6.61 per cent for all property types, Dombowsky said. However, the current cycle has a different cap rate model, resulting in “multiple stratification groups.”
This means warehouses of various sizes have four cap rates, while general retail, convenience stores, halls, large commercial venues, restaurants, banks, funeral homes, high-rise office buildings, medical centres and low-rise offices have two cap rates for 17 total new property classifications.
Conversely, Regina only has one cap rate for all property types.
Increase in property taxes
Small businesses now have a lower cap rate than larger businesses, which means the former have higher assessment values and face higher increases in property taxes, said Dombowsky. The cap rate for Charlotte’s Catering is 3.09 per cent, which is worse than the 9.3 per cent for other businesses in the general retail category.
He pointed out that his business is not closing, but they want to sell the building. However, they can’t because the property taxes are too high.
“When property taxes are raised, the rent has to be raised, and then you lose tenants. When you lose tenants on a block, the traffic flow to other businesses diminishes, and you eventually get a ghost lot,” he stated.
Dombowsky compared eight businesses to illustrate the problem: the former Cranberry Consignment venue versus Chow and McLeod Law Office on High Street West, Rings & Things versus Aspen Dental Clinic, Charlotte’s Catering versus Fifth Avenue Collection and Charlotte’s Catering versus Sun Life Financial.
The former Cranberry Consignment location, Rings & Things, and Charlotte’s Catering all saw their taxes increase last year while the other four businesses — larger by total market rent — saw their property taxes decline.
For Charlotte’s Catering, under the previous cap rate of 6.61 per cent, it paid $4,475 in property taxes in 2020. Under the new cap rate of 3.09 per cent, its taxes increased last year to $7,843.
Meanwhile, Sun Life Financial’s property taxes two years ago were $11,613 under the standard cap rate. Under the new cap rate of 9.30 per cent, its property taxes last year dropped to $5,807, even though its total market rent is double Charlotte’s.
“It just shows you the injustice that has been created by SAMA’s new model that stratified the cap rate. Basically, what is happening is smaller retailers … now are subsidizing the property taxes of the banks, the law office, medical centres, (and) vet clinics,” said Dombowsky.
Loss of taxes
In his report to council, Dombowsky — who wrote that SAMA’s new model is broken — noted that these changes affect how much property taxes city hall receives. He presented eight businesses — somewhat different from the others above — that paid $178,665 in property taxes two years ago under the old cap rates. Under the new rates, their taxes dropped to $111,746, a loss in municipal tax revenue of $67,189.
“The bottom line is, as a small business, it’s a hopeless situation, almost. Once you start losing businesses, they’re gone,” Dombowsky added.
Many council members admitted they did not have good knowledge of cap rates but agreed that changes were needed.
“It’s a complicated system, but there are things that look like they need to be fixed or adjusted,” said Coun. Dawn Luhning.
Luhning is a member of the SAMA board and said they “don’t get into the nitty-gritty” about the cap rates in Moose Jaw or Regina. However, she promised to research the issue and bring her results to council.
“I am listening and I’m taking it very seriously. And I want to be able to try and represent you guys as property owners and also, as an elected official … I’m trying to do my best to hear what you have to say,” she added.
Coun. Heather Eby appreciated Dombowsky’s report to council — which contained pictures of the businesses and their assessment numbers — since it illustrated his points better.
“… I’ll be honest, the cap rate is over my head. I don’t understand how they do that. We’ve had SAMA present to us and I still can’t understand it all,” she said. “I feel the part missing is common sense, and I don’t understand how they can put out these assessed values and not understand that it doesn’t make sense.”
Eby added that addressing property assessment issues was important to her during the 2021 municipal election campaign and is something she wants to address before her term ends.
Supporting the community
“It’s a real shame that (this is) causing you to take your business elsewhere because you have been a long-standing businessperson in our city,” said Coun. Crystal Froese. “Charlotte’s is a well-loved business that supports many organizations.”
The pandemic negatively affected businesses, but for them to face different cap rates and “drastic swings in assessment” afterward is unsustainable, she added. There is a weakness in the model that needs to be addressed.
City administration is taking this issue seriously and reviewing the information Dombowsky provided, while they will meet with SAMA and attempt to find future solutions, said Mayor Clive Tolley. He encouraged companies to submit their business report forms to SAMA so it could make better decisions about property assessments.
What concerned Coun. Kim Robinson was that, while Dombowsky was telling his tale, there were likely eight to 10 other businesses closing and leaving because of this problem. He hoped to see this issue addressed soon.
The next city council meeting is Monday, Sept. 26.