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HomeMy WebLinkAboutFin & Corp Svcs - 2009-06-15FINANCE & CORPORATE SERVICES COMMITTEE MINUTES JUNE 15, 2009 CITY OF KITCHENER The Finance & Corporate Services Committee met in special session this date commencing at 3:35 p. m. Present: Councillor J. Smola -Vice-Chair Mayor C. Zehr and Councillors B. Vrbanovic, J. Gazzola, K. Galloway and C. Weylie. Staff: D. Chapman, General Manager, Financial Services & City Treasurer T. Speck, General Manager, Corporate Services J. Willmer, Interim General Manager, Development & Technical Services R. Regier, Executive Director, Economic Development M . Selling, Director, Building Services A. Pinard, Interim Director of Planning M . May, Director, Communications /Marketing F. McCrea, Assistant City Solicitor B. Korah, Manager, Development Engineering B. Sloan, Sr. Project Manager, Official Plan J. Sonser, Senior Financial Analyst C. Goodeve, Committee Administrator FIN-09-076- 2009 DEVELOPMENT STUDY & PROPOSED DEVELOPMENT CHARGES BY-LAW The Committee considered Financial Services Department report FIN-09-076, dated June 10, 2009, regarding the City's Development Charges (DC) Background Study and proposed By- law, prepared by Hemson Consulting Ltd. In addition, the Committee was in receipt this date of correspondence from Mr. Paul Britton, MHBC Planning, outlining his comments on three matters arising from the DC Background Study. Further, the Committee was in receipt this date of correspondence from Ms. Martha George, President, Grand Valley Construction Association (GVCA), encouraging aphase-in approach and/or delaying the implementation of any changes to the DC rates. Mr. Stefan Kreczenowicz, Hemson Consulting Ltd., presented an overview of the DC Background Study and advised that DC charges are levied against new development, and are a primary source for funding growth-related capital expenditures. The principle behind development charges is that 'growth pays for growth' so that the financial burden of servicing new development is not borne by existing taxpayers; however, in reality DC charges cannot fully fund growth-related capital due to statutory limitations. He stated that the rules for calculating a DC charge include preparation of a growth forecast delineating amount, type and location of development; a 10 year historic average service level for soft and hard services to establish a maximum allowable cap; preparation of a growth related capital forecast indicating intent to undertake capital works and costs subjected to benefits tests and discounted; and, an estimate of capital and operating cost impact. He reviewed the following capital services included in the DC Background Study: library, fire protection, indoor recreation, outdoor recreation, parking, growth-related studies, sanitary servicing, roads and related watermains, engineering studies, intensification allowance, and storm/watercourse. Mr. Kreczenowicz outlined that since the Background Study was released there has been a slight increase in the maximum DC rate due to the follow three changes: revised cost estimates for Huron Road and Huron Road widening; revised allocation of costs/benefits of Wabanaki Drive trunk sewer and Block Line Road watermains; and, a recent grant for the McLennan Park project. He noted that since the agenda was published additional changes have been implemented related to four sanitary sewer projects. One pertaining to a double costing which has since been corrected and the remaining three resulting in the following increases to the maximum DC rate: residential rate now $9,887. per single detached unit (sdu) (up from $9,675. per sdu) in suburban areas; and, non-residential rate now $49.66 per m2 (up from $48.20 per m2) in suburban areas. Mr. Kreczenowicz advised that a comparison of the draft residential rates to the current rates shows an overall decrease of 4% in central neighbourhoods and suburban areas; while, non- residential rates show an increase of 35% and 184% respectively. He outlined that one of the reasons the DC rate has changed since the 2004 Background Study relates to changes in the growth forecast, governed by the Provincial Growth Plan for the Greater Golden Horseshoe. FINANCE & CORPORATE SERVICES COMMITTEE MINUTES JUNE 15, 2009 -104 - CITY OF KITCHENER FIN-09-076- 2009 DEVELOPMENT STUDY & PROPOSED DEVELOPMENT CHARGES BY-LAW (CONT'D) In addition, the rates have also changed due to service level increases, larger/smaller capital programs, charge for parking services and an allocation of greater benefit to non-residential sector than in the prior study. In comparing upper tier and lower tier municipal DC rates per sdu, Mr. Kreczenowicz indicated that the new calculated rate for Kitchener, combined with the recommended Regional DC rate, ranked 7th on the list at $22,370. per unit. He advised that while Kitchener's rates are moving from the lower range to mid-range, they remain below the rates for the Cities of Cambridge and Waterloo. Mayor C. Zehr requested clarification as to whether there was a fundamental difference in the methodology used by the City of Toronto to calculate its rate of $11,082. per sdu. Mr. Kreczenowicz advised that Toronto differs in terms of the services that will be needed to accommodate their anticipated level of growth. He added that Toronto did not impose the maximum permissible charge, noting that the DC rate put forward in their background study was considerably more then what was eventually approved. Councillor J. Gazzola questioned the value derived from the DC rate comparison and Mr. Kreczenowicz confirmed that while the comparison is valuable from an economic development perspective; it does not convey any information regarding service standards or capital program needs. Referring to the capital and operating cost impact, Mr. Kreczenowicz advised that of the $350M 2009 to 2018 net capital forecast, approximately $120M will need to be financed from non-development charge sources over the next ten years. This includes an estimated $9M for the mandatory 10% discount required by the Development Charges Act for soft services; and, $111 M for shares of projects related to capital replacement and for non-growth shares of projects that provide benefit to the existing community. For instance, the growth-related capital program for Public Works includes the construction of the Consolidated Maintenance Facility (CMF) to replace the existing Public Works buildings and associated lands and expand the capacity of the Public Works functions. He stated that approximately $30M of this project's total cost is considered a replacement share and has been removed from consideration for development charge recovery. At the request of Councillor Gazzola, Mr. Kreczenowicz agreed to provide additional information concerning the City's net tax supported operating costs, which are estimated to increase approximately $12M by 2018. Councillor B. Vrbanovic entered the meeting at this time. Mr. Kreczenowicz advised that stakeholder meetings have been held and where appropriate revisions to the rates were made, adding that the City was committed to providing all information well in advance of the legislated requirements. He stated that the next steps include consideration of the final report along with the DC By-law at the June 22, 2009 Finance and Corporate Services Committee meeting. Ms. Martha George, GVCA, addressed the Committee in opposition to the proposed DC rate increase. She stated that it's unfortunate that when DC charges were initially introduced, municipalities either exempted or charged artificially low DC rates for industrial and commercial lands to stimulate growth in these areas. She added that this is a 30 year old problem and in her opinion it is wrong to penalize the current industry for the mistakes of the past. She questioned if the proposed increases were intended to create new infrastructure to support new development, or to repair deferred maintenance of old infrastructure. She expressed concern that the proposed increase would halt future construction projects and could stifle growth in the City. She encouraged consideration of a phase-in approach and/or delaying the implementation of any changes, to help keep her industry at full employment. Mayor Zehr requested clarification concerning the question of funding deferred maintenance. Mr. D. Chapman advised that no funding has been identified in the Background Study for deferred maintenance, adding that the capital program is outlined therein and in all cases clearly identifies the benefit to existing development and the growth-related portion. Ms. George commented that the concerns regarding the use of DC funds for deferred maintenance were noted to her by members of the GVCA. Mayor Zehr encouraged Ms. George to identify FINANCE & CORPORATE SERVICES COMMITTEE MINUTES JUNE 15, 2009 -105 - CITY OF KITCHENER FIN-09-076- 2009 DEVELOPMENT STUDY & PROPOSED DEVELOPMENT CHARGES BY-LAW (CONT'D) to staff the specific projects where she suspects this has occurred prior to the June 22, 2009 Finance and Corporate Services Committee meeting. Mr. Art Sinclair, Vice-President, Greater Kitchener Waterloo Chamber of Commerce addressed the Committee in opposition to the proposed 184% increase to the non-residential DC rate. He noted that the Region of Waterloo has been reviewing their DC charges and in response to concerns from the development industry agreed to lowered their rates. In addition, the Region has indicated that they would freeze their rates until January 1, 2010 and asked that the City consider doing the same. He also requested that the City implement aphase-in approach to soften any additional costs, which would provide time for the industry to make the necessary adjustments. Councillor Gazzola inquired if the delegation knew of any projects that could be deferred by the City to accommodate his request and was advised that this is a challenge given the aim of federal and provincial stimulus packages toward infrastructure development. Mr. Sinclair suggested that the City could examine some of the soft service projects for ways to mitigate the need for the proposed increase. He added that alternative long-term funding options, other than property taxes, could be pursued to accommodate the implementation of a phase-in approach and/or freeze in the rates. He noted that given the current economic climate, the business community is limited in its capacity to absorb any additional costs. Councillor Gazzola commented that if these costs are not covered by the business community, then the burden would be borne by the general tax levy. Ms. Lyn Townsend, Mattamy Development Corporation, advised that she is leading a team reviewing development charges in every jurisdiction where Mattamy owns lands. She indicated that their aim is to ensure DC rates are as accurate as possible when the maximum allowable charge is established. She stated that the formula for calculating DC's leaves room for interpretation into what goes into establishing the maximum allowable charge. She commented that there are very few home buyers at this time and their challenge is to stimulate purchases in the current economy. She added that land costs cannot be adjusted for much of what is awaiting development and price point cannot be adjusted given the economic climate; therefore, Mattamy is looking for every possible means that is legitimately available to keep house prices at a number that will attract buyers. Ms. Townsend outlined that one of the suggestions they have made to a number of municipalities is to allow them to return in a year or six months and if the economy has rebounded they are prepared to re-examine any concessions made by the City. She added that if Mattamy can continue to deliver its product then that helps to maintain the flow of DC revenues and decreases pressure on the local tax base. She reviewed the year to date comparison of building permits over the last five years, and estimated that at the current rate of issuance the City will experience a shortfall in projected DC revenues. Ms. Townsend stated the she has a difference of opinion in how to calculate the DC rate using a formula where capital works cost are the numerator and growth is the denominator. She noted that the Development Charges Act does not finely prescribe the parameters for establishing the rate, adding that a number of factors can be used. She stated that these factors can be considered somewhat subjective and she disagrees with staff on some of the inputs they have used to calculate the proposed rate. She advised that the largest area of disagreement pertains to growth and questioned the degree to which the population has changed since 2004 to justify the increased charge. She pointed out that comparing the 2004 and the 2009 Background Studies to the Places to Grow allocation from the Region, shows only a marginal difference in population; accordingly, the denominator should remain almost constant. She noted that due to the methodology used by Hemson Consulting to calculate the proposed rate the denominator has not stayed the same. She stated that this change is the effect of using gross population verses net population, which only accounts for the growth from new population. She stated that this impacts the amount that would be charged and is compounded further when gross population is used with net employment. Ms. Townsend then spoke to the following issues regarding the changes in the capital works cost used to calculate the proposed DC rate: FINANCE & CORPORATE SERVICES COMMITTEE MINUTES JUNE 15, 2009 -106 - CITY OF KITCHENER FIN-09-076- 2009 DEVELOPMENT STUDY & PROPOSED DEVELOPMENT CHARGES BY-LAW (CONT'D) • 40% added to cost of work for engineering and contingencies, which could be picked up through other fee increases for permits and planning applications and would have allowed contingencies to remain at the 2004 level of 12%; • inclusion of the City Hall parking structure, which was not included in the previous Background Study and may not be eligible; and, • growth related shared project costs, particularly instances where the previous ratio was 60:40 and now almost 100% is being attributed to new growth. In response to questions, Ms. Townsend advised that Mattamy has expressed their concerns to staff, but they have been unable to come to an agreement. She stated that the methodology for calculating the DC rate currently included in the Background Study has been put forward by Hemson Consulting in every municipality in which they have done these studies. She added that last week the Building Industry Land Development Association decided to appeal the use of this methodology in another municipality in order to put this matter before the Ontario Municipal Board (OMB). She advised that if her proposed methodology were used, it would equate to a reduction of $1661. per residential unit and confirmed that this would result in a residential decrease greater than the currently projected 4%. Councillor Gazzola requested clarification regarding the cost savings that could be realized through contingencies and Ms. Townsend advised that project contingencies were increased to 20%, which was attributed to costs associated with staff time. She stated that these costs could be covered through other fee increases, which would allow the contingencies to return to their 2004 level. Staff were requested to circulated a copy of Ms. Townsend's presentation to the Committee prior to the June 22, 2009 Finance and Corporate Services Committee meeting. Ms. Jennifer Voss, Manager of Planning, Activa Group, requested that the timeline for project 8.1.12 (Ottawa /Trussler Area Sewage Facility) currently proposed for 2019, be advanced to 2012. She commented that this facility would service Activa's Trussler North development, which was assigned a priority 'B' rating in the Kitchener Growth Management Strategy (KGMS). She stated that advancing this project to 2012 would allow it to better align with the new priority rating provide by the KGMS. Mr. Brian Blackmere, President, Waterloo Region Home Builders' Association addressed the Committee in support of the proposal put forward by Ms. Townsend. He commented that the summation of government imposed charges on new homes accounts for almost 30% of its price, which is approaching a threshold that the consumer is not able to accommodate. Concerning the DC Policy White Paper's advanced financing proposal, he commented that he would prefer to see that remain at the status quo, with reimbursements continuing to occur as a credit to DC's payable at the building permit stage with the credit being applied to the related service category; such as hard services. He stated that Letters of Credit and other securities secured dollar for dollar with the banks, freezes capital for new projects and financing for existing projects. He expressed concerns with the amount of time it currently takes to get those monies reimbursed, adding that he opposes any administrative changes that would exasperate this issue. In reference to the non-residential rate, Mr. Blackmere stated that given the substantial increase, he supports aphased-in approach to allow business owners time to adjust their financial planning. Mr. Paul Britton, MHBC Planning, reviewed the circulated correspondence and requested that consideration be given to shortening the gap between the two phases of the Strasburg Road extension. In addition, he requested that the current approach to advanced financing of infrastructure remain as per past practice. Specifically, that reimbursement continues to occur as a credit against DC's payable at the building permit stage with the credit relating to the service category, rather than a specific service. He expressed concern with the proposed DC rate increase, noting that the introduction of the parking services category accounts for 18% of FINANCE & CORPORATE SERVICES COMMITTEE MINUTES JUNE 15, 2009 -107 - CITY OF KITCHENER FIN-09-076- 2009 DEVELOPMENT STUDY & PROPOSED DEVELOPMENT CHARGES BY-LAW (CONT'D) the non-residential charge. He commented that the City provides parking services benefiting an area beyond its boundary, while DC charges are to directly relate to growth which occurs within the City. Mr. Britton echoed the requests of previous delegations that consideration be given to phasing-in the non-residential charge. In response to questions regarding a potential source of funding to accommodate the proposed phase-in, Mr. Britton suggested that an examination could be undertaken of the allocation between residential and non-residential charges. He cited as an example the sanitary sewer component, which appears to primarily benefit residential areas; as most of the non-residential growth will occur in areas where sanitary sewers for the macro infrastructure are already available. He added that given the state of the current economy, the amount of DC revenue which might be lost due to the new rates should also be assessed. He noted that a phase-in approach to the non-residential charge over the timeframe of the by-law could be used as a local economic stimulus tool to encourage development. Mr. D. Chapman advised that the study team will consider the issues raised this date and report back to the June 22, 2009 Finance and Corporate Services Committee meeting. He noted that any recommendation arising from that meeting is anticipated to be forwarded for consideration to the special Council meeting to be held later that same date. ADJOURNMENT On motion, the meeting adjourned at 5:23 p.m C. Goodeve Committee Administrator