Oilpatch downturn has cost Calgary $300M in tax revenue from downtown offices now sitting empty

For years, Calgarians could relyon the sky-high value of theirbusydowntown office towers to help cover a healthy chunkof municipal tax revenue.

But with the downturn and thousands of layoffs emptying out oilpatch officesthe value of the core's non-residential properties fellby more than $12 billion inthree years,sinking city tax revenues by $300 million.

Big dropsin property assessments mean fewer tax dollars flowing fromdowntown officetowers, but the city still has the same revenue demands.

That shortfallneeds to be made up andthat'sputting political heatonlocal councillors and creating concern for businesses outside the corenow facedwithpicking up the slack.

More than half of business property owners in Calgary are facing property tax hikes higher than10 per cent this year.

If there was still any hope that a bounce in downtown office vacancies might provide asalve one that could help city councilkick the issue down the road a little longer that is looking likewishful thinking.

Experts are not forecastinga sharp reboundeven with things movingin a more positive direction recently.

"We're looking at very, very, very conservative [economic]growthover the next, certainly, five years," said Greg Kwong, Alberta regional managing director of CBRE, a real estate brokerage company.

"We don't see a huge drop in vacancy, although we do believe that the worst is behind us."

• Nenshi says rebates could virtually freeze business property taxes this year

The "worst" was pretty ugly,though.

When the oil boom was still rocking Calgaryin the fall of 2012, thesame downtown vacancy rate was reported to be hoveringaroundfour per centand under.

CBRE reporteddowntown office vacancies approached28 per centat theirpeak last year.

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It appearstheratehas come off last year's highs but downtown offices have still been pegged at roughly 20 to26per centvacant, depending on who you ask.

It's a reflection of the economicand some arguepolitical outlook for the city and the oilpatch.

"The question is, 'How fast is the expectation for the economy to rebound in Alberta?'" said Roelofvan Dijk, adirector of market analyticsatCoStar Group, in an interview from Toronto.

Van Dijk notes forecasts for sloweconomic growth in Alberta this year,ongoing issues with getting pipelines built and continuedemployment challenges. Some outlooks call for a rebound next year, he said.

But van Dijk saidit could still take "a long time"before a returnto the kind of market Calgarians saw at the start of the decade. For one, Alberta will still have to contend with external factors, like trade disputes and growing U.S. oil production, which mightalso alter the province's economic outlook.

Kwong believes the biggest challenge affecting the downtown has been "bad politics," which haveimpeded the energy sector by either making no decisions or bad ones.

He said a lot of people will be watching to see what the federal government decides to do with the Trans Mountain pipeline expansion, a decision expected to come later this month.

• Finding solutions to Calgary's $300M downtown tax hole won't be easy

Regardless, city council faces some difficultdecisions.

On Monday, itwill debate a property tax rebate package for business property owners outside the core whoare facing large tax hikes as the tax burden shifts away from the downtown.

Mayor Naheed Nenshi said if council approves the initiative, which will use $70.9 million for rebates to business properties,it will result in a virtual tax freeze this year for business property owners.

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It follows council's decision the past two years touserebates to limit tax increases on businesses.

The problem isn't new. Even worse, it doesn't appearto begoing anywhere.

In recent years, the city councilhas made cuts and found savings to the tune of hundreds of millions of dollars. There havebeen hundreds of layoffs; jobs have gone unfilled.

• City hall seeks relief from large tax hike for business property owners

Now, with downtown facing a long climb back, council could be pushed to gofurther to reduce taxes. There's talk about the need for a deeper discussion about structural change that shakes up the city's four-year budget plans and could lead to cuts in jobs and services.

That talk may be inevitable becauseafter years of leaning on thedowntown for tax revenues, it appears it will beyears again before the city can do so once more.