HomeMy WebLinkAboutFIN-09-064 - Development Charges - Downtown Core Exemption-Phase In-Example Agmts
REPORT
REPORT TO:
Councillor B. Vrbanovic, Chair, and Members of the Finance
and Corporate Services Committee
DATE OF MEETING:
June 1, 2009
SUBMITTED BY:
Dan Chapman, General Manager of Financial Services and
City Treasurer
PREPARED BY:
John Sonser, Senior Financial Analyst
WARD(S) INVOLVED:
All
DATE OF REPORT:
May 27, 2009
REPORT NO.: FIN 09-064
SUBJECT:
DEVELOPMENT CHARGES MATTERS - DOWNTOWN
CORE EXEMPTION, NON-RESIDENTIAL RATE PHASE-IN
AND CREDIT/REFUND AGREEMENT EXAMPLES
RECOMMENDATION:
For information
BACKGROUND:
This report serves to respond to questions from Committee Members arising from the May 11
presentation of the City’s new Development Charge (DC) Background Study Appendices and
Policy Whitepaper.
In particular, Council requested further information on three issues:
financial impact to the City of continuing with the Downtown Core Exemption
impacts of phasing in the new non-residential DC rates; and
examples of recent DC credit/refund agreements
This report has been prepared for information purposes. It would be appropriate for Committee
to give direction with respect to specific exemptions and/or phase-ins subsequent to the June 15
statutory public meeting.
REPORT:
Downtown Core Exemption
The City currently exempts all development in the downtown core from payment of development
charges. The policy is mirrored by the Region of Waterloo which similarly exempts all
downtown Regional development charges where a lower-tier exemption exists. There are three
sound reasons for the City to continue with the exemption for the term of the new development
charges by-law:
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as an economic development incentive, the exemption supports the City’s objectives to
encourage knowledge clusters and a wide range of development forms in the downtown
core;
no significant direct growth-related capital costs have been identified as being required
to service development in the downtown core in the short-term; and
the exemption aligns with Council’s commitment to the Economic Development
Investment Fund which extends to 2013, one year prior to the expiry of the new by-law
The revenue shortfall resulting from the downtown core exemption cannot be made up from
development charges on other development in the City. With this in mind, the estimated annual
development charge revenue loss of the downtown core exemption is $238,232 from residential
development and $242,437 from non-residential development, translating to a total loss of $2.4
million over the 5 year term of the new by-law. Even if the exemption were to be eliminated, the
City may be obligated under certain development agreements to refund the cost of the
development charge payable in the downtown.
The estimate of revenue loss due to the downtown core exemption is illustrated in the table
below:
TABLE 1
ESTIMATE OF REVENUE LOSS DUE TO DOWNTOWN CORE EXEMPTION 2009-2013
RESIDENTIAL
Assumptions
Downtown population growth 2009-2013 50%of Central Neighbourhoods growth
Central Neighbourhoods growth 2009-2013 719apartments
Downtown growth 2009-2013 360apartments
Calculated Central Neighbourhoods Apartment DC $3,313per unit
Estimated revenue loss 2009-2013 $1,191,187
Estimated annual revenue loss $238,237
NON-RESIDENTIAL
Assumptions
Downtown GFA growth 2009-2013* 82%of Central Neighbourhoods growth
Central Neighbourhoods growth 2009-2013 69,014sq.m.
Downtown growth 56,591sq.m.
Calculated Central Neighbourhoods Non-Residential DC $21.42per sq.m.
Estimated revenue loss 2009-2013 $1,212,183
Estimated annual revenue loss $242,437
* Based on ratio of downtown GFA to Central Neighbourhood GFA added 2004-2007.
TOTAL ESTIMATED REVENUE LOSS
2009-2013 $2,403,370
Annual$480,674
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Non-Residential DC Rate Phase-In
While residential DC rates are forecast to decline modestly upon passing of the new DC By-law,
non-residential rates are forecast to increase significantly, primarily in the suburban area. A
range of options for phasing in the newly calculated non-residential rate is presented below for
Council’s consideration, including the following:
1. Implement the fully calculated rate (table 2)
2. Implement 50% of the increase on July 1, 2009 and delay implementation of the full rate
to January 1, 2010.
3. Maintain the current rate for the whole of 2009 and defer implementation of the full rate
increase to January 1, 2010
4. Maintain the current rate for the whole of 2009, implement 50% of the increase on
January 1, 2010, and delay implementation of the full rate increase to July 1, 2010
5. Defer implementation of the full rate increase to July 1, 2010
6. Phase-in the new rate increase by 20% of the increase each year over the five-year term
of the by-law, starting July 1, 2009.
Council should be aware that if a decision is made to implement a deferral or phase-in of the
new non-residential rate the cost shortfall must be made up from the property tax base and user
rate base if the growth-related projects are to be constructed as set out in the Background
Study. To that end, table 3 estimates the cost shortfall for each of the rate implementation
options. It should be noted that annual indexing of the DC rate would apply regardless of any
phase-in scenario.
By implementing the fully calculated non-residential rate Council would uphold the principle that
“growth pays for growth”. On the other hand, phasing in the non-residential rate would
recognize the difficulties created by the current recession, align with the City’s economic
development priorities and provide relief to developments that are advanced in their planning
phases.
In response to the specific question posed by Committee related to phasing in a non-residential
rate and recovering the shortfall in later years through DC rates, staff can advise that this is not
permitted under the DC Act. Specifically, the legislation says:
“If a development charge by-law will exempt a type of development, phase in a development
charge, or otherwise provide for a type of development to have a lower development charge
than is allowed, the rules for determining development charges may not provide for any
resulting shortfall to be made up through higher development charges for other development”
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TABLE 2
CITY OF KITCHENER
2009 DEVELOPMENT CHARGES BACKGROUND STUDY
COMPARISION OF CURRENT AND CALCULATED DEVELOPMENT CHARGES
Residential Non-Residential
Calculated %
CurrentCurrent
ChargeDifference
ChargeCharge
% Difference
Calculated
(1 Jan (1 Jan
Charge
2009)2009)
122
Service ($/sdu)($/sdu) ($/m)($/m)
LIBRARY $314$846169%$0.00$0.00n/a
FIRE PROTECTION $433$173-60%$3.09$1.18-62%
INDOOR RECREATION $2,541$1,972-22%$0.00$0.00n/a
OUTDOOR RECREATION $615$68511%$0.00$0.00n/a
PUBLIC WORKS - BUILDINGS AND FLEET $478$5025%$3.57$3.40-5%
PARKING $0$1,129n/a$0.00$8.58n/a
GROWTH-RELATED STUDIES $27$102272%$0.19$0.77307%
SANITARY $2,743$1,426-48%$3.77$10.16169%
STORM/WATERCOURSE $99$72-28%$1.98$0.38-81%
WATERMAINS $368$126-66%$2.01$0.89-56%
ENGINEERING STUDIES $189$117-38%$1.35$0.83-39%
ROADS
$296$0-100%$0.92$0.00-100%
Central Neighbourhoods
$2,244$2,120-6%$1.01$17.501641%
Suburban Areas
INTENSIFICATION ALLOWANCE $2,355$1,114-53%$14.74$12.07-18%
TOTAL DEVELOPMENT CHARGE
Central Neighbourhoods $6,069$5,848-4%$15.84$21.4235%
Suburban Areas $10,051$9,269-8%$16.97$43.69157%
1. sdu = single detached unit
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TABLE 3
CITY OF KITCHENER
2009 DEVELOPMENT CHARGES BACKGROUND STUDY
ESTIMATED COST OF DEFERRAL OF CALCULATED NON-RESIDENTIAL DC RATE
NON-RESIDENTIAL DC REVENUE
20092010201120122013Total
2
Growth in m 2009-2013 (City) 72,69974,16275,65663,29664,728350,541
2
Growth in m 2009-2013 (Suburban Areas) 57,42658,65059,90352,19253,356281,527
2
Growth in m 2009-2013 (Central
Neighbourhoods) 15,27415,51215,75311,10411,37169,014
1
Revenue at Full Calculated Rate$1,969,995$2,779,719$2,837,189$2,415,814$2,470,138$12,472,855
Revenue at Deferred Rates
50% increase on 1 Jul, 2009; full rate at 1
$1,503,134$2,779,719$2,837,189$2,415,814$2,470,138$12,005,994
Jan, 2010
$1,216,455$2,779,719$2,837,189$2,415,814$2,470,138$11,719,314
Deferral to 1 Jan, 2010
50% increase on 1 Jan, 2010; full rate at 1
$1,216,455$2,303,107$2,837,189$2,415,814$2,470,138$11,242,702
Jul, 2011
$1,216,455$2,010,360$2,837,189$2,415,814$2,470,138$10,949,955
Deferral to 1 Jul, 2011
$1,223,018$1,445,204$1,864,007$1,914,275$2,299,209$8,745,713
Equal Annual Phase in to 2013
Revenue Loss
No Deferral or Phase-In $0$0$0$0$0$0
50% increase on 1 Jul, 2009; full rate at 1
($466,861) $0$0$0$0($466,861)
Jan, 2010
Deferral to 1 Jan, 2010 ($753,540) $0$0$0$0($753,540)
50% increase on 1 Jan, 2010; full rate at
($753,540) ($476,613) $0$0$0($1,230,153)
1 Jul, 2010
Deferral to 1 Jul, 2010 ($753,540) ($769,360) $0$0$0($1,522,900)
Equal Annual Phase in to 2013 ($746,977) ($1,334,515) ($973,182) ($501,539) ($170,928) ($3,727,142)
Note: 1. Revenue in 2009 estimated at 1/2 year at current rate and 1/2 year at full calculated rate.
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Examples of Credit/Refund Agreements
In response to the Committee’s request for examples of DC recent credit/refund agreements,
staff have prepared a synopsis of three such agreements.
Community Trails
Current Development Charge Credit Agreements related to community trails generally provide
only for a credit against development charges payable in respect of each lot within the
Developer’s plan of subdivision for which the works are being completed and/or funded by a
Developer. The subdivision agreement with that Developer provides the authority for a
development charge credit agreement for the construction of specified community trails. The
credit is equal to the soft services portion of the development charge and because the cost of
such works is generally small, full reimbursement is available through credits.
The agreements include an estimate of the total cost to construct the trails with the proviso that
it may be adjusted once the works are tendered and completed such that the Developer would
provide any additional funds needed and their development charge credits would be increased
to reimburse any such additional amount. In the event the Developer is constructing the
community trails the agreement provides that all such construction shall be completed to the
City’s specifications and to the City’s satisfaction.
Lyndale
The Zeller Drive pumping station and associated forcemain were included in the City’s 1999
Development Charges Background Study as a 100% growth-related expenditure. In order to
allow its development to proceed ahead of the schedule laid out in the 1999 Background Study,
Lyndale Estates paid $5.6 million to the City so that the timing of construction of the pumping
station and forcemain could be advanced to 2004. The City agreed to repay the money to
Lyndale on the following terms:
Lyndale received a credit equal to 100% of the development charges owing from
development on its lands;
any outstanding monies (i.e. over and above the value of the credit) were paid out to
Lyndale semi-annually from development charges collected from development adjoining
the Lyndale estates; and
when the development charge payments from adjoining lands amounted to less than
$200,000 per year the City made a commitment to repay Lyndale at least $200,000 per
year from other revenue sources.
Under the agreement the City was not required to pay any interest charges on the total cost
owing to Lyndale. The agreement was signed in April 2004 and was registered on Lyndale’s title
to its lands.
Activa
The City’s 2004 Development Charges Background Study included the Strasburg Creek
Sanitary Sewer in its growth-related capital program. The sewer was required in order for lands
owned by Activa Holdings Inc. and Werner Brummond to develop. In 2004, through its
subdivision agreement with the City, Activa agreed to pay for the cost of the sewer should it
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wish to proceed with its development before the City had allocated sufficient development
charge revenue to fund the project.
Accordingly, in 2008 Activa paid $1.6 million to the City for the cost of the sewer (now called the
Middle Strasburg Trunk Sanitary Sewer) and received a development charge credit equivalent
to its payment. Provision was made for Activa to make an additional payment should the project
cost exceed $1.6 million.
The value of development charge credit was set to be equal to the Engineering Services portion
of the total development charges due on the Activa’s lands (i.e. not just the Sanitary Sewer
service component of the charge). As the total project cost of $1.6 million exceeded the value
of the credit by about $431,000 the City agreed to grant an additional development charge credit
for that amount to other landowners who were benefitting from the sewer. These landowners,
Eastforest and Decora, also separately agreed to reimburse Activa for the $431,000.
The value of the development charge credit to which Activa was entitled to was indexed at the
same rate and the same time that the development charge rates were indexed. The City agreed
to provide Activa with an annual financial statement providing details on the status of the credit.
The credit agreement between Activa and the City was registered on Activa’s title to its lands.
FINANCIAL IMPLICATIONS:
The cost of the downtown core exemption and non-residential DC rate phase-in options range in
estimate from $2.9 million to $6.1 million over the five-year term of the new DC by-law. This
cost, if approved, would need to be incorporated and funded through a non-DC funding source
such as the City’s tax-supported capital budget or Economic Development Investment Fund.
ACKNOWLEDGED BY:
Dan Chapman, General Manager of Financial Services and City
Treasurer
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