HomeMy WebLinkAboutFIN-19-029 - 2019 Development Charges Priorities and Rate OptionsREPORT TO: Council
DATE OF MEETING: April 1, 2019
SUBMITTED BY: Ryan Hagey, Director of Financial Planning, 519-741-2200 x 7353
PREPARED BY: Ryan Hagey, Director of Financial Planning, 519-741-2200 x 7353
WARD (S) INVOLVED: All
DATE OF REPORT:March 6, 2019
REPORT NO.: FIN-19-029
SUBJECT: 2019Development Charges Priorities & Rate Options
___________________________________________________________________________
RECOMMENDATION: For Discussion
Staff are seeking Council’s initial feedback with respect to whether or not future
development charge rates should be set at the maximum allowable charge per the
development charge legislation, or at some lower amount.If the consensus is that the
draft development charge rates should be set at an amount lower than the maximum
allowable charge, Council members are asked to identify projects that could potentially
be reduced or removed from the capital program (Appendix A) due to the reduced
funding available for projects.This feedback will guide staff in the finalization of a draft
development charges background study for public input.
BACKGROUND:
The Development Charges Act and its associated regulation allow municipalities to impose
development charges to pay for growth-related capital costs to service new development.
In order to do so, under the terms of the Act, municipalities must prepare a development charge
background study and pass a bylaw to determine the development charges, taking the following
into account:
A forecast of the amount, type and location of development anticipated in the municipality
for which development charges can be imposed.
The average capital service levels provided by the municipality in the 10-year period
immediately preceding the preparation of the background study.
A review of future capital projects, including analysis of gross expenditures, funding
sources and net expenditures incurred or to be incurred by the municipality, to provide
for the expected development.
An examination of the long term capital and operating costs for capital infrastructure for
each service to which the development charges relate.
Development charge (DC) bylaws have a maximum term of five years. Kitchener’s DC bylaw
expires on July 1,2019. In order to update the bylaw, a background study must be published,
and at least one public meeting must be held.
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Council has already provided direction to publish a background study and schedule a statutory
public meeting.The direction provided by Council today will inform the content of the
background study, which is planned to be published no later than April 25, with the statutory
public meeting scheduled for the Committee meetings on May 13.
The purpose of this report is to inform Council of the maximum calculated DC rate increase, to
provide options for a lower rate increase, and outline the potential impact on DC funded capital
projects if a lower than maximum rate is chosen.
REPORT:
Development Charge (DC) Rate Calculation
The DC Act and associated regulation prescribe how DC rates are calculated. One of the slides
th
from the February 25DC presentation showed the methodology of a DC process, with the end
goal of calculating DC rates for residential and non-residential properties. This graphic is shown
below.
DC Study Process
Informs
Growth ForecastGrowth-Related Capital Needs
Amount, type and locationWhat will we need to build?
10-Year Historical Service Levels
How much can be funded from
DCs?
Capital Needs Eligible to be
Operating and Replacement
funded from DCs
Cost Analysis, including Asset
Remainder funded from other
Management Plans – for
sources
informationLegislated Reductions
Grants, other contributions,
benefit to existing, available DC
reserves ,post-period benefit,
required discount
Costs Eligible for DC Recovery
Residential Sector
Non-Residential Sector
(per m2 of GFA)
(per unit)
The three highlighted boxes in the graphic show three major bodies of work that influence DC
rates. Each of these steps in the process is described in more detail below.
1.Growth Forecast
The growth forecast estimates the amount, type, and location of development that will
happen within the City. For instance, the growth forecast would project the number of single
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detached homes that will be built in the suburban areas versus how many apartment units
are going to be built in the central neighbourhoods.
For the 2019 DC Study, the City’s growth forecast is largely based on the Region’s
“moderate” growth forecast, which sees the Region reach its provincially established Places
to Growgrowth targets by 2041. The City’s growth forecast also layers on specific trends
and variations being experienced in Kitchener to adjust the region-wide forecast.
2.Growth-Related Capital Needs
The need for capital infrastructure is informedby the growth forecast. If the City is going to
grow quickly, it means there will be a higher demand for growth related infrastructure, so the
City’s capital costs will be higher over the next 10 years. It also means there will be more
new development amongst which the costs can be spread.
Growth related infrastructure includes “hard” services like roads, water, and sewer, as well
as “soft” services like indoor & outdoor recreation facilities and libraries. Typically “hard”
infrastructure has to be in place before development occurs (the roads, watermains, and
sewers must be built before a subdivision can develop), but “soft” infrastructure can occur
after development has already been constructed. Waiting too long to build “soft”
infrastructure amenities has negative impacts on residents though, as it means they do not
have the same kind of amenities in their neighbourhoods as many other Kitchener residents.
Later portions of this report will describe the maximum DC rate increase allowed based on
DC legislation and provide options for how that increase could be reduced. But any option
that reduces the DCrate increase from the maximum allowable charge will require a
reduction/delay in the construction of growth related capital infrastructure.
3.10-Year Historic Service Levels
DC legislation limits the funding envelope available to build new infrastructure based on the
infrastructure that has been in place for the past 10 years (the historic service level). In order
to calculate the historic service level, the City has to quantify the infrastructure it has had
over that time period (e.g. number of parks, square footage of community centres, kilometres
of roads) and what it is worth (e.g. $/park, $/square foot, $/kilometre).
For the 2019 DC Study, fundingenvelopes in many areas have gone up significantly due to
a number of factors, including:
More comprehensive inventory listings based on better asset management data
Full project costing for facilities (not just construction costs)
Capital project costs increasing faster than indexing or base inflation
Increasing land values
Larger funding envelopes, based on the City’s historic service levels, means there could be
more funding available to construct new growth-related infrastructure. But it also means
significant increases to DC rates.
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Scenario 1 - Maximum Development Charge Rates
As shown in the graphic earlier in this report, DC rates are calculated for both residential growth
(per unit) and non-residential growth (per square metreof gross floor area). The residential and
non-residential rates are determined by adding up the total amount of DC eligible costs by
service, and then dividing those costs by the amount of forecasted growth. Kitchener further
subdivides these rate increases by geography, into the suburban area and central
neighbourhood area. The central neighbourhood area includes the downtown and expands out
to the Expressway (on the east and south), Westmount Road (on the west) and the City of
Waterloo (on the north).The typical focus on DC discussions has traditionally been on the
increase to suburban residential rates, but rate increases for the others are also provided.
Based on the calculation methodology noted above, the maximum DC rate increase for a single
detached home would increase by 92%, from $11,572 to $22,201. This rate increase would
fund the City’s entire “hard” and “soft” growth-related capital program, leaving nothing unfunded
in the DC Background Study. Further, this level of rate increase would also allow provisions in
some areas for works not yet known or specifically identified.
The table below shows the draft maximum development charge for single detached properties
in the suburban and central neighbourhoods, as well as the non-residential charges.The non-
residential charges are decreasing, or not increasing as drastically for the following reasons:
1.Non-residential does not contribute towards some of the “soft” services, as they are deemed
to only be a benefit to residential growth. This means the overall cost pool to be funded by
non-residential development is smaller than the residential cost pool. And for this DC Study,
the largest increases are in Indoor Recreation and Outdoor Recreation, which are residential
only services.
Library, Indoor recreation, Outdoor recreation, Cemeteries are residential only
Non-residential contributes towards Fire, Public Works, Parking, and Studies
2.The growth projection for this DC Study includes increased non-residential growth compared
to the previous study, especially in the central neighbourhoods. This means the cost pool
for non-residential growth is spread over more development, which drives down the rate
increase compared to residential growth.
Scenario 1 – Draft Maximum Development Charge Rate Changes
Current Calculated
Charge TypeLocation% Change
RateRate
Residential (Single)Suburban$11,572$22,20192%
Residential (Single)Central Neighbourhood$6,030$14,585142%
22
Non-ResidentialSuburban$59.60/m$68.31/m13%
22
Non-ResidentialCentral Neighbourhood$18.01/m$16.64/m-8%
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While the rate increases to the residential DC rates are substantial, the DCs are still a relatively
minor portion of the total cost of a new home. As was noted by Hemson (the City’s DC
consultant) during the previous presentation, there is almost no correlation between DCs and
house prices.In other words, the price for a new house is dictated by what the market will bear,
and the market price doesn’t increase or decrease if DC rates go up or down.This position is
echoed by the Municipal Officers Association (MFOA) of Ontario in their recently produced
document “Who Pays For Growth?” (attached to this report).
That being said, it is important to have buy-in from the development community whenapproving
new DC rates, as the ratescould be appealed. Thebasis of the appeal cannot simply be due to
the amount of the increase, but must relate to methodology or assumptions used to calculate
the rates. Staff are confident the City is using proven and reasonable methodology/assumptions
to calculate the new DCrates, but is also mindful of the magnitude of the increase.
Given the size of the maximum rate increases, staff have prepared two alternate rate increase
scenarios. To achieve rate increases below the maximum charge, parts of the “soft” capital
program have been delayed to be outside the 10-year DC capital forecast. None of the “hard”
capital program has been affected as these services need to be installed in order for
development to proceed.
Scenario 2 caps the suburban residential rate increase at50%, with associated reductions in
each of the other rates as well. Scenario 3 caps the suburban residential rate increase at 25%.
The tables below showthe revised rates for residentialand non-residential properties under
each of these scenarios. An appendix to this report outlines the specific projects that have been
delayed or reduced to achieve these scenariosand provides the rationale for why those projects
were reduced.
Scenario 2 – 50% Development Charge Rate Change for Suburban Residential
Current Calculated
Charge TypeLocation% Change
RateRate
Residential (Single)Suburban$11,572$17,30350%
Residential (Single)Central Neighbourhood$6,030$10,30171%
22
Non-ResidentialSuburban$59.60/m$54.04/m-10%
22
Non-ResidentialCentral Neighbourhood$18.01/m$5.98/m-67%
Scenario 3 – 25% Development Charge Rate Change for Suburban Residential
Current Calculated
Charge TypeLocation% Change
RateRate
Residential (Single)Suburban$11,572$14,47925%
Residential (Single)Central Neighbourhood$6,030$7,87431%
22
Non-ResidentialSuburban$59.60/m$50.53/m-18%
22
Non-ResidentialCentral Neighbourhood$18.01/m$4.84/m-73%
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The graph below providessome contextabout residential DCsin Ontario’s largest cities
(population > 100,000). This information comes from the 2018 BMA Consultants Municipal
Study, the same Study that is used to present comparative taxation information to Council during
the annual budget process.
The graph shows Kitchener’s total DCs for a single detached home are around $35,000, which
is well below the group average of $47,000. (Please note that the graph below plots total DCs
including upper tier regional DCs where applicable, whereas the tables shown earlier in the
report only include Kitchener’s portion of DCs.)
Under the 25% scenario, Kitchener’s total DCs would rise to $38,000, or would increase to
$41,000 under the 50% scenario. Even if the maximum rate increase scenario was chosen by
Council, Kitchener’s total DCs would come in at $46,000, justbelow the group averageof
$47,000.
Residential DC Rates for Ontario’s Largest Cities (population > 100,000)
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Looking to Kitchener’s local comparators, Cambridge is currently in the process of updating their
DCratesand has recently published their draft DC Study. Cambridge’sproposed rate increase
is very similar to Kitchener’s maximum rate increase.Waterloo’s bylaw expires on a different
timeframe, so they will be updating their rates within the next year.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
Strategic Priority:Effective and Efficient City Services
Strategy:5.4 – Ensure the responsible stewardship of public funds within a supportive policy
framework.
Strategic Action:#CS41 Development Charges Background Study (2019)
FINANCIAL IMPLICATIONS:
Decisions made about the development charge rates will determine the amount of funding
available to build growth related infrastructure. As shown in Appendix A, at the maximum rate
increase all identified growth projects could be funded. Moving to the 50% or 25% scenario
reducesthe projects that can be funded.The final development charge rates approved by
Council in June (and the supporting DCcapital forecast) will be used to populate the City’s 10-
year capital budget in 2020.
COMMUNITY ENGAGEMENT:
INFORM – This report has been posted to the City’s website with the agenda in advance of the
council / committee meeting.
As noted in the report, a public meetingrelating to development charges is required by
legislation. This meeting is currently planned to be held as part of a Committee meeting on May
13, 2019.
In addition to the statutory public meeting required by the Development Charges Act, staff have
already provided a brief DC update to the Waterloo Region Homebuilders Association (WRHBA)
and committed to providing DC information to that group as it becomes available. Some
information (e.g. Engineering project sheets) has already been provided to the WRHBA with
more planned to be shared inthe coming weeks.
Further, staff will beengaging a cross-section of industry stakeholders to solicittheir feedback
in advance of Council passing the DC bylaw.
ACKNOWLEDGED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services
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Appendix – Summary of DC Funded Projects
Legend:
Full funding for this project is included in the 10-year DC capital forecast
Reduced funding for this project is included in the 10-year DC capital forecast
Further reduced funding for this project is included in the 10-year DC capital forecast
No funding for this project is included in the 10-year DC capital forecast
Max 50% 25%
Project$ Estimate
RatesRateRate
Library
South End Community Library$10,000,000
Materials, Furniture & Equipment$550,000
Customer Needs Survey$110,000
Technology Upgrades$2,800,000
Recovery for Central Library$6,500,000
Fire
New Vehicle$900,000
Radio System Upgrade$100,000
New Technology$1,200,000
Provision for Fire Protection$5,300,000
Indoor Recreation
Studies (e.g. Facilities Master Plan)$950,000
Huron Brigadoon Community Centre$2,900,000
Indoor Pool (RBJ Schlegel Park)$22,000,000
Indoor Turf (RBJ Schlegel Park)$13,000,000
Mill-Courtland Community Centre$4,300,000
Rosenberg Community Centre$6,000,000
Forest Heights Community Centre$5,200,000
Provision for Indoor Recreation$23,000,000
Outdoor Recreation
Studies (e.g. Open Space Strategy)$265,000
Trails$7,750,000
Sportsfields (RBJ Schlegel Park)$9,750,000
Neighbourhood Parks & Playgrounds$9,650,000
Sportsfields$4,000,000
Citywide Parks –Annual Allocation$4,000,000
Citywide Parks –Special Rehabilitation$5,600,000
Provision for Outdoor Recreation$10,000,000
Public Works
Equipment Acquisitions & Upgrades$8,250,000
Recovery for Operations Facility (KOF)$13,500,000
Provision for Additional Equipment$1,000,000
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Max 50% 25%
Project$ Estimate
RatesRateRate
Parking
Recovery for Charles & Benton$1,000,000
Recovery for Civic District$7,000,000
Provision for Additional Parking$18,000,000
Cemetery
Mount Hope (91 Moore)$2,000,000
Additional Facilities/Expansion$3,000,000
Cemeteries Strategic Plan$150,000
Outdoor Columbarium$120,000
Growth Related Studies
Development Charges Studies$300,000
Growth-Related Planning Studies$4,100,000
Heritage Impact Assessments$110,000
Development Process Review$100,000
Rationale for Reductions
As noted earlier in the report, to reduce the rate increase, a reduction is required to the DC
capital forecast. In going from the maximum rate scenario to the 50% rate scenario the
following reductions are proposed:
1.Eliminate all Provisions
These provisions are in a number of the service areas and are for capital works that have
not yet been specifically identified. Eliminating these projects will not directly impact any
work that has already been planned or begun.
2.Reduce Recoveries
The City is still recovering funds from four oversized facilities that have already been built
(Central Library, Kitchener Operations Facility, Charles & Benton parking garage,and Civic
District parking garage). Instead of recovering the remaining costs of these facilities in the
next 10 years, the City will only recover 50% over the next 10 years.
3.Reduce Citywide Parks – Special Rehabilitation
This funding is for a new program to rehabilitate two of the four citywide parks (Victoria,
McLennan, Kiwanis, and Huron Natural Area) within the next 10 years. This reduction still
provides funding for one of the citywide parks in the next 10 years. Citywide Parks were
the lowest ranked Outdoor Recreation priority in the Leisure Facilities Masterplan.
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In order to reduce the rate increase from 50% to 25%,additional reductions are proposed
including:
1.Further Reduce Recoveries
Instead of recovering 50% of the remaining costs of these facilities in the next 10 years, the
City will only recover 20% over the next 10 years.
2.Eliminate/Reduce Community Centres
Funding for the Forest Heights and Rosenberg community centres would be removed from
the DC Studyand would not proceed in the near future. Planning funding for the Mill-
Courtland community centre and a portion of the construction funding would be within the
next 10 years, but the majority of the construction funding would not be included in the DC
Study. These community centres were the lowest ranked Indoor Recreation priorities in the
Leisure Facilities Masterplan.
3.EliminateCitywide Parks – Special Rehabilitation
Instead of providing funding for one citywide park in the next 10 years, this funding is totally
removed from the DC Study.
4.ReduceCitywide Parks – Annual Allocation, Sportsfields, and Neighbourhood Parks
Funding for the three projects noted above would beincluded for the first 5 years of the DC
Study, but would beeliminated for the last 5 years of the DC Study. This would allow work
to be completedin the immediate future, but then it would have to be revisited during the
next DC Study update in 2024.
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City of Kitchener
Development Charges Study
City Council Information Session
st
, 2019
Monday, April 1
Today we will discuss...
Development Charges
Overview of Study Process
Rate Scenarios
Changes in DC Rates
Council and Stakeholder Engagement
Next Steps
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What Are Development Charges?
Fees imposed on development to fund
Ñgrowth-relatedÒ capital costs
Pays for new infrastructure and facilities to
maintain service levels
Principle is Ñgrowth pays for growthÒ so that
financial burden is not borne by existing
tax/rate payers
In reality, development charges cannot fully
fund growth due to statutory limitations
Overview of Study Process
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Services Included in
2019 DC Study
DCs are Increasing
DCs rates in many municipalities have increased
over the last two years
Construction cost increasing faster than indexing or
base inflation
Increased land values
Devaluation of Canadian dollar
More robust inventory analysis
Comprehensive capital planning
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Scenario 1 ÏMaximum Allowable
Scenario 2 Ï50% Increase
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Scenario 3 Ï25% Increase
Impact Including Regional Rates
Rates for Single/Semi Detached Dwellings
Current2019 Calc. DifferenceDifference
RateRate($)(%)
Regional Rate (City) Jan
$22,659$00%
1 2019
CityRate (Suburban
$11,572$22,201$10,62992%
Area)
Total Rate*$34,231$44,860$10,62924%
*Excluding Education DCs
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Impact of Reducing the Rates
Appendix in Staff Report details which
projects would not receive funding if a
lower rate than Scenario 1 is passed
Costs not covered through DC
charges are paid for by property taxes
Rate Increase Comparison
Source: Hemson Consulting
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House Prices and DC Rate Increases
House prices are largely influenced by
a variety of market forces
Not a strong correlation between DC
rate changes and house prices
Increasing DCs increasing house prices
Decreasing DCs decreasing house
prices
Proposed Project Timeline
Prepare Compile Calculate
Prepare Capital
Development historical service Funding
Complete
Programs
ForecastlevelsEnvelopes
February 25
Finalize DC Policy Stakeholder
Council
Draft DC Rates
ReviewSession
Information
Session #1
April 1April 25
Prepare DC
Council Release DC
Background
April
Information Background
Study
Session #2Study
May 13June 24
Statutory Public Passage of DC
May/ June
MeetingBy-law
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