HomeMy WebLinkAboutFIN-19-038 - 2019 Development Charges Public InputREPORT TO:Finance and Corporate Services Committee
DATE OF MEETING:May 13, 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:April 26, 2019
REPORT NO.:FIN-19-038
SUBJECT:2019Development Charges Public Input
___________________________________________________________________________
RECOMMENDATION:
THAT the Finance and Corporate Services meeting datedMay 13, 2019 be deemed as the
statutory public meeting for the 2019 Development Charges By-law update and it is
determined that no further public meetings will be held in respect to the passage of the
by-law; and further
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.
Develo
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.
Council has already provided direction to publish a background study, which was posted to the
th
.In addition, Council has also provided direction to schedule a
statutory public meetingwhich is the main focus of the time dedicated to this report on the May
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13Committee agenda.
to the DC Study and bylaw, followed by an opportunity for stakeholders to provide theirinput.
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Council will consider this input prior to approving the 2019 DC Study and Bylaw (and all
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supporting documentation) on June 24.
The purpose of this report is to:
Provide the calculated DC rates
Outline the financial consideration of a balanced cash flow
Identify changes to the DC bylaw
REPORT:
Calculated DC Rates(pages 24 & 25 of linked DC Background Study)
In an earlier report, staff provided multiple rate options for Council to choose from and noted the
associated impacts on the growth related capital program for each scenario. Council ultimately
provided dire
draft DC Study and Bylaw. The table below shows the proposed rate increases.
Proposed Development Charge Rate Changes
Current Calculated
Charge TypeLocation%Change
RateRate
Residential (Single)Suburban$11,572$19,64870%
Residential (Single)Central Neighbourhood$6,030$12,331104%
22
Non-ResidentialSuburban$59.60/m$63.79/m7%
22
Non-ResidentialCentral Neighbourhood$18.01/m$19.36/m7%
As shown in the table, DC rates are calculated for both residential growth (per unit) and non-
residential growth (per square metre of 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).
As can be seen in the table, the non-residential charges arenot increasing as muchas the
residential charges. This is primarily due to the following reasons:
1.Non-
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.The lists below outline the services included in the residential and non-
residential cost pools.
Residential cost pool includes:
o Library, Fire, Indoor recreation, Outdoor recreation, Public Works, Parking,
Cemeteries, Development Related Studies, Sanitary, Roads & Related, Water,
Engineering Studies, Stormwater, Intensification Allowance
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Non-residential cost pool includes:
o Fire, Public Works, Parking, Development Related Studies, Sanitary, Roads &
Related, Water, Engineering Studies, Stormwater, Intensification Allowance
2.The growth projection for this DC Study includes increased non-residential growthcompared
to the previous study. This means the cost pool for non-residential growth is spread over
more development, which drives down the rate increase compared to residential growth.
Financial Consideration of a Balanced Cash Flow
When preparing the DC background study, staff were mindful of moving forward with priority
capital projects, but also having adequate funding to complete these projects.
financial consideration in preparing the DC background study was to have a balanced cash flow
and avoid deficits in the DC reserve funds. As shown in the graph below, this has been achieved
in the first 5 years of the forecast period, and at the end of the planning DC period(2036).
Projected DC Reserve Fund Balance (in $000s)
The DC reserve funds are projected to be just above break even in 2023, which corresponds
with the term of this DC Study and bylaw. From 2024 to 2036 the DC reserve funds are projected
to be in deficit, sometimes significantly (e.g. 2028 shows a projecteddeficit of $60M). The deficit
isa result of costlyinfrastructure investments related to both recreational facilities as well as
engineered infrastructuresuch as roads and sewers. Recreation projects reflect the priorities
approved by Council through the Leisure Facilities Masterplan and engineering projects reflect
the priorities identified in the Kitchener Growth Management Plan.
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The DC reserve funds then improve starting in 2029before ending the forecast period of 2036
in a balanced position. The cash flow forecast for the 2019 DC study is similar to the 2014 DC
study which forecasted deficit DC reserve fund balances of up to $40M in 2025 before ending
the forecast period of 2031 in a balanced position.
It is more important that the cash flow be balanced in the short-term than the long-term, as the
City will have the opportunity to update the revenue projections and the timing/costing of capital
projects in future iterations of the DC background study to reflect actual growth patterns and
project costs. The commitment of the current background study and bylaw is to 2023 (at the
latest), so staff have focused on being at a breakeven point the next time the DC study would
typically be updated. This has been achieved, and there is minimal capacityto advance any
other capital projects and still maintain a balanced cash flow at 2023.
During the next DC Study,balancing cash flow beyond 2023will likelybe a significant topic of
consideration. Council may have to decide whether they would prefer deferring capital projects
or issuing debt to fund projectednegative DC reserve balances.
Changes to the DC Bylaw
The majority of the content for the 2019 DC bylawis similar to the 2014DC bylaw. Staff have
made some minor wording changes to better clarify some sections, and have also tried to better
align wording with the Regional bylaw so people paying DCs are treated the same way by the
City and the Region. That being said there are three changes to the bylaw to which staff believe
it is worth drawing attention (note: all page numbers refer to the linked 2019 DC bylaw)
1.Existing Industrial Building Definition(p. 246)
Updated date in definition from June1, 2014 to July 1, 2019. Qualifying industrial buildings
willbe able to expand their July 1, 2019 footprint by up to 50% without paying DCs.
2.Indexing of DC Rates(clause 7.2, p. 257)
DC rates are indexed annually by the City of Kitchener and many othermunicipalities. As
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part of the 2019 DC bylaw, the indexing date is being moved from January 1to December
st
1. All of the municipalities in the Region have agreed to standardize their date of indexing
st
to December 1to help avoid rushes on building permit issuance at the end of the year
when Building departments often have many staff off on vacation.
3.Redevelopment Allowances(clauses 6.8 to 6.11, pages 255-256)
When an existing building is demolished, developers qualify for a redevelopment allowance
(RA) equal to the value of the DCs for the building that was demolished. As part of the 2019
DC bylaw, the City proposes to implement time limits for RAs,which is the practice ofall
other municipalities in the region. The City iscurrently an outlier within the region as it has
no time limits for RAs, which can cause confusion with the development industry and makes
record keeping very difficult. Timing for RAs in the 2019 DC bylaw (clause 6.10 a) matches
the Region of Waterloo and is split based on existing use:
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Residential = 5 years from building permit issuance
Non-Residential = 10 years from building permit issuance
In addition, staff heard some initial feedback from the Waterloo Region Homebuilders
Associationthat there should consideration given to some sort of grandfathering provision
bylaw does this by doubling the time limits for RAs on these properties(clause 6.10b).The
timeframes for grandfathered properties are:
Residential = 10 years from building permit issuance
Non-Residential = 20 years from building permit issuance
Further, the Waterloo Region Homebuilders Associationalso asked for considerationon
properties that have environmental sensitivities and require a record of site condition. The
time limit for RAs by up to an additional 10 years in these situations.
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:
Development charges are used to fund growth related capital infrastructure, with the specific
projects and timing detailed in the DC Study. The proposedrates are summarized earlier in this
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report and will be formally set by Council on June 24. Once approved, the 2020-2029 Capital
Budget and Forecast will be updated to reflect the approved capital program to be funded by the
new DC rates.
COMMUNITY ENGAGEMENT:
INFORM
council / committee meeting.
As noted in the report, the mandatory public meeting relatedto development charges will happen
on May 13, 2019.
In addition to the statutory public meeting required by the Development Charges Act, staff met
twice with the Waterloo Region Homebuilders Association (WRHBA) Liaison committee. Once
in January to provide a generalupdate about the DC process timelines, and again in April once
Council had provided direction about rate increases. At the April meeting, staff provided draft
versions of the DC rate tables, growth projections, historicalservice levels, and capital forecasts
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(two weeks in advance of the statutory 60-day requirement). As well, staff provided theWRHBA
draft versions of the Engineering project sheets in January.
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Further, staff organized a meeting with industry stakeholders for the morning of May 2to
provide an overview of the 2019 DC Study and bylaw, clarify the assumptions used in the Study,
answer questions, and solicit their feedback in advance of public meeting and prior to Council
passing the DC bylaw.
PREVIOUS CONSIDERATION OF THIS MATTER:
Two previous reports about the 2019 Development Charges process have already been
provided to Council. They are:
FIN-19-013,2019 Development Charges Overview(February 25, 2019)
FIN-19-029, 2019 Development Charges Priorities & Rate Options (April 1, 2019)
ACKNOWLEDGED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services
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