Tuesday, March 12, 2013

You can lead a country to value, but you can't make it tax


February’s post comes to us from Gary Laughton, an individual well known locally and in Latin America for high quality and high profile valuation assignments.  I have known Gary for over 17 years.  During this time he has become a friend, a mentor and a colleague.  I have also been on a trip to Belize with Gary.  That however, is another story. 

Consistent with our theme, ‘Real Estate in a Canadian Context’, this post follows KimberleyPlayer’s article on Honduras, and how Canadians are having an impact on it’s real estate environment. Gary takes us right next door to Belize where he was instrumental in improving their real property assessment program.  

I have titled this post ‘you can lead a country to value, but you can’t make it tax’.  A future post will expand on our property taxation system and compare it with countries you would expect to be much more similar to Canada than Belize.  Look for that article later this year.  And now a word from Gary…


I have been actively involved in Belize since the early 1990s. In the early days my trips were purely for vacation.  At some point on these trips however, I would find myself visiting with the assessors at the local property assessment offices.  For personal and professional reasons, and like a busman's holiday, I would talk shop largely about the valuation profession and the state of valuation in Belize, while comparing methodologies from British Columbia.  I guess when you like real estate and its valuation, you take it with you wherever you go.

Belize is a former British colony and is currently a British protectorate.  Like Canada, a significant level of Belize’s legal system (British Common Law), commerce and real estate was founded predominantly on English precedents and systems. British Columbia and Belize both utilize the Robert Torrens land registry system. Although developed in Australia, the British adopted the Torrens system of land registration and either implemented it or influenced its use in many nations.

In the 1990’s there was very little in the form of formal valuation training or real estate education in Belize - most assessors who worked for the Lands Department had some sort of construction experience.  A great background if you are undertaking a quantity survey for a property but not very helpful from an overall valuation perspective.

My relationship with the local assessors grew to the point that each year I went down to Belize I would bring basic valuation textbooks with me and provide them to those that seemed most interested.  On each of my subsequent visits however, I would find that the books that I had given in the previous year had moved to Belmopan (Belize’s capital city). Most often this was due to a court case or a serious valuation issue where the texts were required for sourcing or references.  This was definitely an eye opener as to the state of their educational resources….

After a few years of replacing the books, and many holidays later, I finally realized that the assessors needed something more than textbooks. I ended up discussing the need for more in-depth training with the assessment management.  Having caught an enthusiastic ear, I was asked to develop a valuation-training program for the Government of Belize to consider. 

Being delighted with the opportunity, I spent the next month working with the University of British Columbia’s Real EstateDivision at the Sauder School of Business, and the Appraisal Institute of Canada to develop a modest nine-day programme that would provide a basic valuation framework for the Lands Department.

After presenting the proposal - I waited - first one month, then two months, without response. A ‘tardy’ response is not unusual in this part of the world. Nonetheless, I contacted a senior person within the Lands Department only to be told that although our program had been budgeted, they no longer had the money to proceed.  Not wanting to hurt my feelings given the efforts we had gone to, they had continued to ‘consider my proposal’ rather than advise that they did not have the funds - an interesting and valuable lesson in Belizean philosophy and diplomacy!

Three years later, I was asked to reactivate the training programme.  They had received some funding from the Inter-American development bank and our training program commenced.  We trained not only all the assessors in the Lands Department, but were also able to train five representatives from local banks as well.

Our training complete, we left Belize knowing we had made a strong contribution to their real property assessment program.  Unfortunately, a tool is only as effective as the person who wields it.  While we knew that information with respect to real estate values should now be more effective and market based, we did not know how this information was to be used. 

Our real property assessment efforts here in British Columbia are principally used to create an efficient platform for fair property taxation and to derive revenues for government services.  As an appraiser our interest is in seeing real estate valuations being conducted according to generally accepted principles, and of course in reaching a value conclusion that is market based.  The next step of the process is the processing of actually levying taxes. We provided Belize the ability to more accurately assess their taxable assets, but did it help?

Belize has an incredibly low rate of taxation for real property.  Often when talking to expats about their properties in Belize, the running joke at dinner is that the evening’s bar tab will far exceed the annual tax for a property in Belize. Comparing the taxes for a $500,000 home in Vancouver relative to a similarly valued property in Belize is pointless.  Property taxes in Belize might as well be non-existent.  I guess you get what you pay for. Very low taxation, very limited services.  Which is precisely what you get in Belize.

So how does our property taxation system work?  According to some, not as well as it should.

According to the Federation of Canadian Municipalities:

“Unfortunately, much of the way forward is uphill. Canada’s tax system takes too much from our communities, and puts too little back. Without access to revenues that grow with the economy, and without long-term investment from other levels of government, municipalities continue to face a gap between their responsibilities and their ability to pay.

Our current system, in which municipalities collect just eight cents of every tax dollar, is not sustainable. Nor is it realistic in a world where cities function as economic engines and centers of innovation.

This fiscal imbalance erodes Canada’s competitiveness, while placing a growing burden on property taxpayers, straining local services, and forcing municipalities to delay essential infrastructure projects.”

Did you see that? Eight percent (8%) of your property tax actually goes to the municipality in which you live. 

If this is true in Canada – it has even more impact in Belize where the very low level of property taxation constrains and restricts the development of a reasonable service base for the residents in municipalities. It also makes municipalities more vulnerable to possible political manipulation by more senior governments due to the lack of independent revenue sources, particularly in a country where that type of action has historically been more prevalent.

While it is acknowledged that the Government of Belize has had considerable financial difficulties of its own recently (with the renegotiation of the 550 million dollar Superbond with the bond holders) now that this is resolved – it may provide an opportunity for municipalities to enter into fresh negotiations with the senior government. An affiliation with the Federation of Canadian Municipalities could provide considerable technical and moral support to Belizean municipalizes in their search for more permanent and stable tax revenues.  

While a larger share of tax revenue might be appropriate for municipalities, we must also consider that a balanced tax base ideally leads to more balanced communities as opposed to communities that receive a significantly greater level of services vis-à-vis others with lower property values, and a lower ability to pay. 

Real Property Assessment is an extremely important component of our everyday lives here in Canada, impacting our education, infrastructure, and community services.  Belize now has a much stronger system to assess real estate, which might one day lead to a refined property tax system.  With so many wealthy non-resident owners (by comparison), Belize has an excellent opportunity to increase their standard of living.  Thanks to Gary Laughton, Belize now has the right tools; they just need to expand the process accordingly.

Friday, March 8, 2013

Squamish LNG Plant

February's post is somewhat tardy, but it is still in the works.  It's a great piece about Belize and how one man from Vancouver put the tiny Caribbean nation of Belize on the track to effective Real Property Assessment. Exciting stuff indeed!  Before that however, I wanted to discuss the recently reported proposed LNG Plant at Western Forest Products' former Woodfibre mill.

A prominent feature in Howe Sound, the former Woodfibre mill sits on a 200+ acre waterfront site just west of Squamish.  The mill is easily visible from the Sea-to-Sky highway, occupying this location for over 100 years (well before the highway was built).  Owned by Western Forest Products, the former pulp mill was an integral part of the Squamish community and economy with over 750 employees at its peak operation back in the 50's.  Like many operations of its kind, the mill property was its own town with housing, recreational facilities, and the like.  It was so big, the mill had its own version of a small BC Ferry to service it, the MV Garibaldi II. 

Unfortunately pulp mills have not done so well over the last 20 years.  Increasing production overseas, higher local costs, and much needed capital requirements and upgrades (these are old facilities remember) have forced a lot of these facilities to close.  WFP closed Woodfibre in 2006.  

Catalyst Paper's Elk Falls mill in Campbell River was finally closed in 2009/2010 after experiencing a number of production level changes over the years.  Opened in 1952, this property sits on 400 acres and is one of the reasons Campbell River exists (Forestry did indeed build most of the communities on the coast).  Although there have been success stories like Nanaimo's Harmac mill which was purchased out of financial distress by an employee group a few years ago, most of these large industrial properties are lying vacant and are in some sort of limbo waiting to be reborn. These are large (100 acre plus) sites that are typically located in regions where industrial demand is considerably more limited than we have here in Vancouver. Absorption of these properties is only really feasible with one or two large industrial users.  Anyone who comes along and tells you they have a master plan for these sites (like Harold Jahn), is fooling themselves and everyone else who listens.  These properties need a similar use to the one that preceded them. 

Liquefied Natural Gas is one of these uses and the Woodfibre mill is one of these sites.  A former industrial property that lay vacant and will now be reborn.  And reborn clean.  Part of the deal between WFP and the new purchaser is that the site must be delivered with a clean environmental status.  Remediation is currently being undertaken, a task that is very welcome news to anyone.  

If an LNG facility is built at Woodfibre, the major benefit is that Squamish is going to gain an incredible amount of jobs for its community.  A community that seems to be developing more and more into a bedroom community of Vancouver for people escaping the high housing costs here.  Of course, not everyone will share this sentiment.  

There are at least a dozen planned LNG facilities in BC.  This is a natural resource that, unlike trees, you can't really add value to.  As far as I know, there really isn't much in the way of secondary processing that can take place to create, say a 2x4, versus exporting the raw log, with respect to natural gas.  Natural gas is natural gas.  Furthermore,  an LNG plant is a far cleaner option for the site than a pulp mill, particularly if it is using technology from 1954.  

New industrial developments are being built with technology and processes that give much more consideration to the environment than ever before.  Furthermore, an LNG plant in Canada will be that much better for the planet than any comparable facility built outside of the western world, in a country such as Indonesia, China etc.

Woodfibre will likely always be known as Woodfibre.  As far as industrial development, economic revitalization and this former industrial site's environmental condition are concerned, an LNG plant at this location is good news as it breathes new life into Squamish, facilitates the remediation of a former industrial use property, and bring with it jobs and opportunity.  On the global environmental side, natural gas is a far better energy alternative to most other fossil fuels.  Even with the production of LNG and its transportation to Asian markets, there is a net reduction in emissions as it reduces the use of coal for energy production. While greenhouse gas production is greenhouse gas production, less greenhouse gas production is, in my opinion, a benefit.  

Some links regarding the WFP sale: