Some city councillors are concerned with the “extreme swings” in numerical percentages with SAMA’s updated 2023 cap rate model and believe the changes will negatively affect even more businesses.
Nancy Wollner, manager of the Saskatchewan Assessment Management Agency’s Moose Jaw office, spoke to city council during its March 27 regular meeting about those changes and then attempted to members’ questions.
‘Wildly different’
SAMA uses predicted net rents and sale prices to determine businesses’ cap rates, but the predicted net rent could be “wildly different” from the actual rent, said Coun. Jamey Logan.
Even though SAMA asks owners to fill out income and expense forms, the agency’s numbers could be “way off” until it receives the data. He wondered how that problem could be corrected.
When conducting mass appraisals, SAMA reviews businesses’ market values using the current four-year cycle base date of Jan. 1, 2019, said Wollner. It takes that information, develops the rent model and applies it to the properties. It will create a new rent model after that cycle finishes.
“Personally, I think that’s part of the problem that a lot of folks are seeing,” said Logan. “The four-year cycle needs to be addressed … and in my opinion, make it a two-year cycle so the market rent is updated more often.”
“It’s in the legislation,” Wollner replied.
“To a lot of people in this room (council chambers), that’s seen as the problem,” said Logan.
Logan then wondered what was causing the “extreme swings” in cap rate values since, for example, some warehouse categories have increased by 50 per cent and others have decreased by 30 per cent.
Those percentages were based on the 2022 model and, along with successful appeals last year and new case law, helped SAMA develop a new model, said Wollner.
Logan thought the agency should allow owners to submit individual appraisals for their properties’ assessments. He also wondered why the agency combined some property groups to reduce the number of cap rates to 11 from 14, and how the organization accounted for warehouse mezzanines.
Some provinces allow single-property appraisals, but Saskatchewan has written mass appraisal into legislation, Wollner said.
Meanwhile, SAMA reduced the number of cap rates because it looked at sales changes via the appeal process and reviewed recent case law that said it could group properties differently.
Also, the agency looks at mezzanines as either office or storage space and values the office-type space similar to the main floor, she added. However, it values storage spaces if they are built like an office.
A weak system
Coun. Kim Robinson thought the weak point with SAMA’s income capitalization rate approach to valuing properties was it lacked sufficient sales data to make accurate assessments.
This was best illustrated, he continued, with some property classes increasing in value by almost 70 per cent and some decreasing by 60 per cent under the new model, which would create new winners and losers in the business community.
“For my money, I don’t think we should rely on a tax system that says, ‘While you got stung this year, but better luck next year (when you) roll the dice,’” Robinson said to applause from the crowd.
If a business’ income changes during the four-year cycle, the agency uses that new data for the next cycle, which is why SAMA performs retrospective appraisals under the legislation, said Wollner.
Robinson understood that and that SAMA’s goal was to become more accurate. However, he thought a more reasonable system was needed since he felt the current one was broken. He pointed to Yorkton, which was experiencing similar problems.
“I’m looking for solutions. I’ve had it justified three or four times why SAMA does what it does. The numbers just don’t make sense to me,” he continued. “… In this day and age with the speed of data, why are we four years behind on data?”
A shorter cycle
Coun. Dawn Luhning — a SAMA board member — told council that the big city mayors’ caucus with the Saskatchewan Urban Municipal Association (SUMA) has requested changes to the assessment process, including shortening the revaluation cycle since other provinces have one- and two-year cycles.
She acknowledged that shortening the cycle may solve issues for only some property owners.
“The unfortunate part in all this is whatever changes do come, it will be four to eight years before we see the changes implemented into the system,” she said. “And I know that will not make anybody here happy, but it’s legislated by the province.”
Luhning also suggested part of the problem was business owners declined to submit survey information that SAMA needed to make accurate assessments.
A hairdresser or retailer cannot wait four to eight years for changes, said Robinson.
“I really don’t agree with Coun. Luhning’s comments that it’s your fault that you didn’t fill out the survey … ,” he added. “I think it can be fixed in under four years.”
A bizarre situation
Coun. Doug Blanc hoped that SAMA’s updated cap rate model improved the issue but realized a new group of frustrated business owners would likely appear before council next year due to these changes.
He compared the situation to someone buying a new truck and someone buying a 20-year-old car, with the car owner expected to pay more insurance than the top-notch truck owner.
“That would be bizarre. (But) that is what’s happening here,” Blanc said.
Blanc then wondered how SAMA determined the rent for a property class if several businesses had similar buildings but only one owner submitted survey information.
“This is something that has to be dealt with,” he added. “I hope it can be fixed and remedied in a timely manner.”
SAMA compiles all the submitted information and, even if business owners submit nothing, it applies the new rent model to those delinquent owners, said Wollner. So, owners should submit their data so the agency has a clear picture of the market in Moose jaw for different rental properties.
SAMA does consider the building’s location when creating the rent model, she added. The model determines whether a building is downtown, on Thatcher Drive, on High Street, on the services roads, or elsewhere.
An intolerable situation
Coun. Crystal Froese was concerned that these large valuation swings made it difficult for businesses to plan from year to year. She wondered whether SAMA could make yearly adjustments to soften those large swings.
The legislation anticipated that big percentage swings could occur during revaluation years, so the province gave municipalities tax tools to mitigate those issues, said Wollner. This year’s numbers are bigger than previously, but typically SAMA doesn’t see such large figures.
“We’re following the same process every year. Every provider does the same thing,” she added.
“I don’t doubt that,” said Froese. “But a large swing isn’t tolerable for some businesses.”
Unclear problem
Coun. Heather Eby admitted that she didn’t understand the issue when business owner Bernie Dombowsky initially presented his data about how SAMA’s cap rate model had affected businesses’ property values. However, seeing the agency’s formulas clarified the situation.
“I understand the legislation and the process, but it’s that part … I really have a hard time understanding,” she said, noting people will be displeased with this year’s cap rate model updates.
This is a complex subject, but the legislation regulates and bounds SAMA, said Wollner. She invited councillors to visit the office so agency officials could further explain the process.
“We’re beyond being explained (to),” remarked Robinson. “We need some solutions.”
The next regular council meeting is Monday, April 10.
