Loading...
HomeMy WebLinkAboutFIN-2022-189 - 2022 DC Study & Bylaw Public Input Financial Services Department www.kitchener.ca REPORT TO: Finance and Corporate Services Committee DATE OF MEETING: April 25, 2022 SUBMITTED BY: Ryan Hagey, Director of Financial Planning & Reporting, 519-741-2200 ext. 7353 PREPARED BY: Ryan Hagey, Director of Financial Planning & Reporting, 519-741-2200 ext. 7353 WARD(S) INVOLVED: All Wards DATE OF REPORT: April 11, 2022 REPORT NO.: FIN-2022-189 SUBJECT: 2022 Development Charges (DC) Study & Bylaw Public Input RECOMMENDATION: THAT the Finance and Corporate Services meeting dated April 25, 2022 be deemed as the statutory public meeting for the 2022 Development Charges Bylaw update and it is determined that no further public meetings will be held in respect to the passage of the bylaw. REPORT HIGHLIGHTS: The purpose of this report is to provide information about the update to the 2022 development charges background study & bylaw, and hold the statutory public meeting. The key finding of this report is DC rates are increasing by a relatively modest amount. The financial implications are development charges are used to fund growth related infrastructure and must conform to Provincial legislation. Community engagement included an information session with the development industry, and the statutory public meeting accompanying this report. This report supports the delivery of core services. 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. *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. 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. bylaw was passed in 2019 and expires in 2024, but is being updated early due to Provincial legislative changes which have been covered in previous budget presentations and staff reports. 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, March 31, 2022. In addition, Council has also provided direction to schedule a statutory public meeting which is the main focus of the time dedicated to this report on the April 25 e a brief presentation related to the DC study and bylaw, followed by an opportunity for stakeholders to provide their input. Council will consider this input prior to approving the 2022 DC Study and Bylaw (and all supporting documentation) on May 30, 2022. The purpose of this report is to: Provide the calculated DC rates cities and consider affordability Show the projected DC reserve balance & discuss the need for DC debt Identify changes to the DC bylaw REPORT: Calculated DC Rates The rate changes calculated based on updated DC legislation are relatively modest and are summarized in the table below. Proposed Development Charge Rate Changes (from Table 9 & 10 in DC Study) Current Calculated Charge Type Location % Change Rate Rate Residential (Single) Suburban $20,945 $24,212 16% Residential (Single) Central Neighbourhood $14,033 $16,612 18% 22 Non-Residential Suburban $64.45/m $72.48/m 12% 22 Non-Residential Central Neighbourhood $23.24/m $25.08/m 8% As can be seen in the table, all the charges are increasing by a similar percentage. Non- residential rate increases are slightly smaller since they do not contribute to recreational services. 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 changes by geography, into the suburban area and central neighbourhood area. The central neighbourhood area includes the downtown core and expands out to the Expressway (on the east and south), Westmount Road (on the west) and the City of Waterloo (on the north). DC Rates with Other Cities and Affordability Considerations large Ontario cities (population over 100,000). The graph below illustrates the total DC rates (including upper-tier, education, and lower-tier) for a detached house in each of the cities, but a similar pattern holds true for apartment units and non-residential development as well. As can be seen in the graph, the line with local comparators like Cambridge, Waterloo and Guelph. Comparison of Ontario Large City DCs (Single Detached Units) city. But it should also be noted that failure to levy the proposed DC rates in an attempt to be more affordable to new development will instead shift costs to the tax base or utility rates. This Council would be making things less affordable for existing residents. In addition to having affordable DC rates compared to other Ontario cities, Kitchener has also taken the added step to pass a DC waiver policy for non-profit housing development. This policy will see 100% of City DCs waived for qualifying units. Projected DC Reserve Balance & Need for DC Debt The 2019 DC study showed a deficit in the DC reserve starting in 2024 and worsening until 2028 before returning to a balanced position in 2036. The updated DC reserve forecast for the 2022 DC study follows a very similar trend as shown in the graph below. Projected DC Reserve Fund Balance (in $000s) The largest deficit in the 2022 DC study is just over $80M in 2026, and is larger than the $60M deficit expected through the previous study. The City has been seeing higher prices for capital projects due to scarcity of materials & labour, as well as increasing inflationary pressures. This has been reflected in the updated project costs included in the 2022 DC study. In addition, in the next 5 years, the City has some rather large and expensive growth related capital projects that will be built before all the funds are collected to pay for them. Examples include: Downtown Fire station (station 8) Aquatics facility & indoor turf facility at Schlegel Park Upper Hidden Valley sewage facility Huron Road improvements & watermain Staff have reviewed all the projects included in the DC study for cost and timing and believe the proposed study is the best reflection of what is required to meet the demands of growth. Therefore, staff advise against delaying projects to try and balance out the DC cash flow which will be problematic and to do so would require significant delays to valued projects like the ones highlighted above. Instead, staff advise issuing debt to pay for DC projects during the term of the next DC bylaw. DC legislation does not prohibit DC reserves from being negative, but a deficit of the size projected over the next few years is well beyond something that could be internally borrowed from another City reserve. While it has not be projects, it is a common practice amongst many growing municipalities and has regularly been done locally by the Region of Waterloo. Any DC debt would be approved by Council through the annual budget process and would reflect the borrowing required based on actual DC collections and project costs. It should be noted the interest charges related to the debt would be fully covered by future DC rates (i.e. there would be no impact to the tax rates or utility rates). Changes to the DC Bylaw There are relatively few amendments to the DC bylaw and the majority are being made to reflect changes to the DC Act and regulation since the previous DC bylaw was passed in 2019. The only updates that do not fall into this category are: 1. Existing Industrial Building Definition Updated date in definition from July 1, 2019 to July 1, 2022. Qualifying industrial buildings will be able to expand their July 1, 2022 footprint by up to 50% without paying DCs. 2. Redevelopment Allowances on exempt properties (clause 6.12) 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. A clause has been added to clarify that no RA will be provided if the building being demolished is exempt under STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. FINANCIAL IMPLICATIONS: Development charges are used to fund growth related capital infrastructure, with the specific projects and timing detailed in the 2022 DC Study. The proposed rates are summarized earlier in this report and will be formally set by Council on May 30, 2022 and will come into effect July 1, 2022. Once approved, the 2023-2032 Capital Budget and Forecast will be updated to reflect the approved capital program based on the updated DC rates. As was noted in a prior report, there are two significant changes to the DC legislation will have a financial impact on the City. Some services have been removed from DC legislation (e.g. cemetery, parking), effective September 2022. Funds already collected could still be used, but no new amounts could be collected under a DC bylaw. Amounts allocated for these services in the 2022 capital budget total just over $12M and will need to be funded by rate payers (taxes for Cemetery services and parking for Parking services). The removal of the mandatory 10% reduction for non-engineering services. For indoor and outdoor recreation projects, this change totals nearly $9M and means that once the bylaw is updated these costs will be borne by development instead of existing rate payers. COMMUNITY ENGAGEMENT: INFORM This report has been council / committee meeting. CONSULT A consultation meeting was held virtually with the development industry on March on), there were more than 20 attendees from the development industry. The meeting included a presentation of the Draft 2022 DC Study content (which had been emailed to the attendees on March 11, 2022) and an opportunity for questions from the development industry. In addition to the industry meeting, the mandatory public meeting related to development April 25, 2022. PREVIOUS REPORTS/AUTHORITIES: FIN-2022-066 2022 Development Charges Study Initiation FIN-2022-158 Affordable Housing Development Charge (DC) Waiver Policy FIN-2022-179 Affordable Housing Development Charge Waiver Policy - REVISED Development Charges Act APPROVED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services ATTACHMENTS: The draft DC Study & Bylaw are both posted on the City website under the Development Charges page.