HomeMy WebLinkAboutDSD-2021-162 - Brownfield Financial Incentive Program ReviewREPORT TO:Finance and Corporate Services Committee
DATE OF MEETING:November 8, 2021
SUBMITTED BY:Bennett, Brian, Manager, Business Development,
519-741-2200 X 7230
PREPARED BY:Morgan, Rob, Capital Investment Advisor,
519-741-2200 X 7734
WARD(S) INVOLVED:All
DATE OF REPORT:September 16, 2021
REPORT NO.:DSD-2021-162
SUBJECT:Brownfield Financial Incentive Program Review
RECOMMENDATION:
That the Brownfield Financial Incentive Program be amended by eliminating the 10%
allowance for indirect costs, as described in Report DSD-2021-162.
REPORT HIGHLIGHTS:
The purpose of this report is to obtain approval of the recommended refinement to the
Brownfield FinancialIncentive Program detailed within this report.
The key finding of this report is that the current joint Tax Increment Grant program is a
successful, mutually beneficial program that encourages private investment in
brownfield sites. The proposed elimination of the 10% allowance for indirect costs still
results in an attractive incentive program.
The financial implications involve the removal of the allowance for indirect costs
currently set at 10% of eligible remediation costs payable to the developer.
Community engagement included a review of the proposed changes with the major
users of the Brownfield Program, a letter to key stakeholders outlining the proposed
changes and a link to the public meeting date.
This report supports the delivery of core services.
BACKGROUND:
The City of Kitchener has a long history of Industrial and Commercial developmentwhich
has seen different types of companies over time..As a result, there are properties
throughout the community that sit vacant, are underutilized or have been abandoned due
to environmental contamination from former uses.
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These contaminated lands are referred to as “brownfields” and were often overlooked for
redevelopment due to the significant financial costs, timing uncertainties and liability
associated with clean up. For municipalities, this equates to a loss in property tax revenue,
inefficiencies in use of existing infrastructure and greater pressure to expand services to
the outlying areas.
In 2004, the City of Kitchener launched its Brownfield Financial Incentive Program (BFIP)
in the form of a Tax Increment Grant (TIG) and in 2006 the Regional Municipality of
Waterloo implemented a BFIP which included a joint TIG component with the City of
Kitchener, as well as a grant for Phase Two Environmental Site Assessments and a
Regional Development Charge Exemption.
The joint TIG is a grant provided by the City and Region that reimburses the developer for
up to 100% of eligible remediation costs plus a 10% provision for soft/indirect remediation
costs from the increase in property taxes payable as a result of the redevelopment of the
property.
The TIG is equal to up to the full amount, or a portion of the amount of the tax increase (or
increment) in the City and Regional property taxes after the property is reassessed post
redevelopment.The proportional breakdown of taxes is approximately 60% Region and
40% City.
Regional BFIP Program Review
In the spring of 2019 Regional Council approved revisions to their Brownfield Program.
The previous Regional BFIP consisted of three incentives:
1.Phase Two Environmental Site Assessment (ESA) Grant (up to $40,000)
2.Joint Tax Increment Grant (TIG)
o A joint TIG is a grant provided by the Region and Area Municipality that
reimburses the developer for up to 100% of eligible remediation costs plus a
10% provision for indirect remediation costs from the increase in property
taxes payable.
3.Regional Development Charge (RDC) Exemption
o The RDC exemption for brownfield sites allows a developer to recover 100%
of eligible remediation costs plus a 20% provision for indirect remediation
costs up to a maximum amount of the cost of their Regional Development
Charges.
The Region’s changes to their program:
1.Removal of the Phase Two ESA Grant
2.Removal of the 10% allowance provision for indirect remediation costs from the
Regional share of the TIG. Indirect costs can include Planning fees, legal costs,
insurance premiums and assessment estimates
3.Regional Development Charge Exemption changes:
o Removal of the 20% allowance provision for indirect remediation costs.
o Reduction in the RDC exemption to 100% of eligible costs up to $1,000,000
if the required RSC has been issued by December 31, 2021; and
o Reduction in the RDC exemption to 50% of eligible remediation costs up to
$1,000,000 if the RSC has been issued between January 1, 2022 and July
31, 2024.
o The RDC exemption will be completely phased out by August 1, 2024.
REPORT:
The City’s program consists of the Joint Tax Increment Grant (TIG). Which, as noted in the
background, is a joint program provided by the City of Kitchener and the Region of
Waterloo that reimburses the developer up to 100% of eligible remediation costs plus a
10% provision for indirect remediation costs from the increase in property taxes payable.
The 10% indirect costs (soft costs) include costs such as planning fees, legal costs,
insurance premiums and assessment estimates all related to the remediation of the
subject property.
Review of Kitchener’s BFIP Program
Kitchener’s Brownfield Financial Incentive Program has beena successful and effective
incentive program. Since its inception in 2004 City Council has approved 14 applications
contributing to the remediation and redevelopment of approximately 124 acres of
contaminated land. These developments, some of which are complete and some of which
are currently being redeveloped, are anticipated to result in over 3,000 new residential
units, over 1,500,000 square feet of new non-residential floor area and over $800Min
increased assessment value. To achieve these benefits, Council has invested $15M
through the BFIP program to assist in the remediation of the brownfield properties. The
average time it takes for the City’s investment in the TIG Program to be fully reimbursed is
5.5 years.
Once these properties are fully redeveloped and reassessed by MPAC they are estimated
to collectively pay $4Mmoreannuallyin City taxes than the pre-remediation properties
did. As such, the collective program to date has produced a 3.75-yearreturn-on-
investment. Over a ten-year period, for example, by foregoing $15Mof tax revenue over
3.75 years will result in $25Min new tax revenue over the balance of the 6.25 years.
Without the program in place, it is likely that the new revenue would not have been created
and the sites would continue to sit underused and contaminated.
Table 1
Benefits of brownfield redevelopment
Contaminated lands are often vacant, underutilized or abandoned. Remediating these
properties help create attractive, thriving neighbourhoods that result in far reaching
community benefits related to theenvironmental, economyand society.
Environmental Benefits
Removes source of land, water and air contamination
Helps conserve greenfield land
Renews undesirable land in desirable locations,allowing for smart growth and
urban intensification
Economic Benefits
Create new development opportunities, new employment
Makes use of existing infrastructure and services such as transit, waste collection,
as well as storm water and sanitary infrastructure
Increases property values and municipal tax revenue
Social Benefits
Preservation of historic buildings and heritage architecture
Enhance neighbourhood appearance, aesthetics, and community pride
Increaseshousingsupplyand commercial opportunities
Comparisons to Other Municipalities
An environmental scan was completed relative to similar sized municipalitiesthroughout
Southern Ontario. It was determined that the majority have a Brownfield Incentive Program
and that the Region/City’s program is fulsome and competitive with other municipalities.
Impacts if Kitchener’s BFIP was Eliminated
While the profitability of the development market in Kitchener has grown significantly since
the inception of the program, the risks associated with developing contaminated lands
remain. In particular, the full extent of site remediation costs are often not known until a
site is under construction. This typically occurs after a property has been brought to
market and pre-sales (in the case of residential) have been completed. As such,
elimination of the program would likely result in the following:
a)While some property ownersmay still proceed with redevelopment in the absence
of an incentive, the added risks would be passed down to the purchaser/tenants,
further exacerbating the lack of affordability in the current housing market. This
would only further reduce the likelihood of achieving mixed income developments
with a proportion of affordable units;
b)Reduced development interests along the ION central transit corridor in favour of
greenfield lands;
c)Greater urban development pressure on lands which are unlikely to have
contamination. In the Central Neighbourhoods, this could lead to more
consolidation of single detached dwelling lots including more Official Plan
Amendment and Zone Change applications on the fringes/arterials of established
neighbourhoods; and,
d)Less likelihood of development on former urban industrial lands where
intensification is preferable, perpetuating the environmental risk of these lands
remaining contaminated.
Stakeholder Input
The Region of Waterloo held stakeholder consultations in 2018 with Area Municipal staff,
environmental consultants and the development industry. The feedback indicated that the
incentives offered by the Region and Cities provided a level of financial certainty for
property ownersseeking to redevelop contaminated sites. It was acknowledged that
redevelopment of brownfield sites can be costly and complicated and the BFIP has been
an instrumental tool in the redevelopment of contaminated sites that may not have
otherwise occurred.
To developers and their financial partners, the TIG signals a strong financial commitment
on the part of the City and Region to support the actual remediation and redevelopment of
contaminated sites. Without this financial commitment, contaminated sites may not be
financially viable for remediation and redevelopment.
Key Findings
Through this process it was also recognized that the brownfield redevelopment industry
has matured since the inception of the program, with many experienced developers and
consultants now familiar with how to successfully redevelop a brownfield site.
The existing TIG incentive allows for indirect costs to be reimbursed up to a maximum of
10% of eligible direct remediation costs. Given the maturity of the brownfield
redevelopment industry, it is recommended that only 100% of direct eligible remediation
costs should be reimbursed, and the 10% provision to reimburse the indirect costs be
discontinued. Indirect costs can vary widely from project to project. To date, the costs have
ranged from a low of $20,000 for a townhouse development to a high of $325,000 for the
remediation of the former Kitchener Frame property at 1011 Homer Watson Boulevard.
During the consultation with stakeholders undertaken by the Region in 2018, developers
understood the rationale for removing the 10% indirect costs and stated that the balance
of the TIG remained an important financial incentive.
Approval of the proposed refinement to the Brownfield Financial Incentive Program would
bring Kitchener’s program into alignment with the Region and the Cities of Waterloo and
Cambridge who recently removed the 10% allowance for indirect costs from their
programs.
The wording of the Brownfield CIP allows for changes to the program of this nature without
the need to change the CIP.
Conclusion & Effective Date
Based on the foregoing, staff recommend continuing Kitchener’s BFIP in its current state
while removing the 10% allowance for indirect costs. The change to the TIG program,if
approved by Council,would be effective November 22, 2021. There are a number of BFIP
applications that have been deemed complete and are currently under review. It is
intended that these applications be eligible for consideration under the terms of the current
program. Any applications received after the date of Council approval would be subject to
the new terms.
STRATEGIC PLAN ALIGNMENT:
This report supports the delivery of core services.
FINANCIAL IMPLICATIONS:
Capital Budget –Funding for theseapplicationsareaccounted for in the Brownfield Capital
Account.The source of funding for these grants is ultimately the new tax assessment growth
that will result from redevelopment.
Operating Budget –The recommendation has no impact on the Operating Budget.
COMMUNITY ENGAGEMENT:
INFORM –This report has been posted to the City’s website with the agenda in advance
of the council / committee meeting. Additionally, the proposed changes were reviewed with
major users of the Brownfield Program, and a letter was emailed to stakeholders advising
them of the potential change to Kitchener’s program as well as the date of the Committee
Meeting. The stakeholder group is made up of developers, remediation experts and
consultants.
PREVIOUS REPORTS/AUTHORITIES:
There are no previous reports/authorities related to this matter.
APPROVED BY: Justin Readman, General Manager, Development Services