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HomeMy WebLinkAboutPD-15-97DN:PD -15.97 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON REPORT Meeting: General Purpose and Administrative Committee File # /� 2 I. - Date: Monday, January 20, 1997 Res. #t-40 Report #: PD -15 -97 File #: By -law # Subject: BILL 98 - DEVELOPMENT CHARGES ACT Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report PD -15 -97 be received for information. 1. BACKGROUND: On November 25, 1996, Bill 98 - The Development Charges Act, 1996, (DCA) was introduced into the Ontario Legislature. Upon receiving Royal Accent in the spring of 1997, Bill 98 will replace the Development Charges Act enacted in 1989. 2. PURPOSE: The purpose of this Report is to advise Council of a number of significant differences between the present and proposed Development Charges Act and to highlight the potential impacts to the Municipality. A summary table is attached to provide for easy referencing between the old and new Act. 3. KEY ELEMENTS: THE DEVELOPMENT CHARGES ACT, 1996 The following identifies some of the key elements in the new Development Charges Act as well as indicating for comparison purposes the current practices of the Municipality. Comments and observations with respect to the potential impact of various changes in the new Act are also provided. • REPORT .D PAGE 2 3.1 Reducing the Scope of Eligible Services Municipalities will no longer be able to impose development charges for administrative headquarters (ie: city halls), cultural and entertainment facilities (eg: art galleries, performing arts centres and museums), hospitals, tourism facilities, or parkland acquisition. Municipalities may still choose to provide these services, however, they will be required to use alternative sources of financing to do so. Development Charges for other services, as prescribed by regulation may also be prohibited. Until the regulations are released by the Province, a definite list of "other services" is not available at this time. In our last development charges study, Staff and Council have been reasonable in its approach by not charging many items which are now included in the new Act as ineligible. Of all the ineligible services, only parkland acquisition is presently a chargeable item under the Municipality's Development Charges By- law. This item represents the cost of land for any parkland acquisition above and beyond the neighbourhood parks. For example, the Clarington Official Plan designates several community park sites in the urban areas of Courtice, Bowmanville and Newcastle Village to service the future population growth. Should parkland acquisition become an ineligible service, the Municipality will have to rely on other sources of funding to acquire parkland. The most likely scenario will require the Municipality to set aside tax dollars on an annual basis to accomplish this. The actual dollar impact would not be known until the new development charges study is completed. However, it should be noted that the cost for parkland acquisition in our current 10 year capital work (1992 -2001) is $3.2 million. One can conclude that in order to provide for parkland to accommodate the new growth, a shortfall of a minimum of $3.2 million would not be collectable assuming the same requirement of parkland acquisition applied to the next 10 year period. ONE REPORT The Municipality currently includes a component in the development charges for animal control facility and vehicles. The new legislation does not specify these as ineligible charges. However, staff are of the opinion that when the detailed regulations are released, they will most likely be declared as ineligible. Under the current development charges 10 year capital program, the Municipality provided for $164,000. in capital costs to be financed from development charges to provide these services. 3.2 Co- Payment by Municipality The new Development Charges Act, 1996 still gives the Municipality the capability and flexibility to recover the costs of a wide variety of services and facilities needed by new residents and new businesses. However, growth - related capital costs for all eligible services will have to be funded from a combination of development charges revenues and other general municipal revenues. Under the new act, ten percent (10 %) of growth related capital costs for the following services must be funded from other general municipal revenue sources: • water and sewer (including sanitary and storm) • roads and transit • waste management • fire protection and police • electrical power services For other eligible services such as park development, libraries, community centres, the co- payment by the Municipality to finance the capital works is 30 %. The Municipality's present by -law generally allowed for a minimum of 10% municipal contribution for hard services except storm sewer which is 100% developer's cost. For soft services such as library, park development etc., 5% to 10% municipal contribution are used. The noticeable impact here is the co- payment by the Municipality for soft services which increases municipal contribution to 30% from our current practice of 5% to •r REPORT O 10 %. The difference is equivalent to about $3.4 million assuming the same requirements apply in the next 10 year capital works program. 3.3 Calculating the Costs of New Services Three significant changes are proposed under the new Act: a) Municipalities will be required to include the unused net capacity of existing services and facilities already in the community in calculating development charges. For example, when Courtice Community Centre is built, a study presumably would be required to determine it's excess capacity. When that is done, the excess capacity, expressed in number of persons will have to be accounted for in the calculation in the determination of the need for the next community centre(s) in the development charges study. Staff generally agree with the principle expressed. However, it will be a very onerous exercise to determine excess capacities for all services. b) The new Act requires calculations of costs to be based on the average level of a particular service standard rather than based on the peak service level during the past ten (10) years. Unlike other municipalities in the Greater Toronto Area, Clarington chose "average standard" in our last development charges study. Therefore, this issue is of little concern to Clarington. However this issue is apparently a major concern to some municipalities in the Greater Toronto Area which have been singled out by the Urban Development Institute as having gold - plated standards. c) Last, but not least, municipalities must reduce the capital cost estimate by any applicable grants, subsidies or contributions to the municipality. In addition, should the municipality choose not to charge commercial/ industrial development, the charges that would otherwise be collectable cannot be passed on to the residential portion in the calculation. For •i• REPORT moli example, if a road project is estimated at 1 million dollars, the financing scenario under the new Act could be as follows: Total Project Cost $1,000,000. Less: Municipal contribution from all 100,000. sources including Provincial Grant Less: Municipal contribution in lieu of 140,000. not charging comm /ind. development Net Cost attributable to 760,000. Development Charge calculation Less: Municipal Co- payment 10% 76,000. Chargeable Amount from Developers $684,000. 4. OTHER IMPORTANT ELEMENTS OF NEW DEVELOPMENT CHARGES ACT 4.1 Background Study Municipal councils will also have to ensure that a background study is completed supporting their plans for using development charges to fund new services. As part of the study, the long term capital and operating costs of any facilities being considered for development charge financing will have to be examined. Most municipalities including Clarington have prepared studies prior to adopting Development Charges By -laws. The New Act now makes it a mandatory requirement. The detailed study methodology and ground rules will be specified through subsequent regulations. In addition, the municipality is also required to prepare an operational study to determine it's ability to operate the facilities to be built under development charges. It is noted that a development charge contribution to the municipality's operating cost is not allowed. We are of the opinion that the operational study requirement may be too onerous and does not serve any useful purpose. ia REPORT PD-15-97 4.2 Exemption to Industrial Development The new Act includes new measures to facilitate the expansion of existing industrial facilities. Most notably, it exempts from development charges any expansion up to fifty (50 %) percent of the existing gross floor area for industrial development. Currently, there are no development charges for industrial and commercial development in Clarington. When staff commence the Development Charge Study, this matter will be examined to determine whether or not it's financially feasible for the Municipality to continue such a practice. 4.3 Reserve Funds Under the new Act, reserve funds established for facilitates which are no longer eligible (e.g. parkland acquisition, animal control facilities) must be established as a separate capital reserve fund and can be used to finance those services for which the reserve fund was initially established or may be allocated to any eligible development charge reserve fund (e.g. roads). Clarington currently has $360,000., and $21,000. in the parkland acquisition and animal control reserve funds respectively. If, at the end of five years, these funds or whatever amounts remain, the municipality must transfer such funds to eligible development charge reserve funds. It therefore appears that the Municipality should exhaust this fund prior to the 5 year limit or stands to lose it in subsidizing other development charges reserve funds. In any event, the use of these reserve funds will be subject to detail review when regulations are made available. 4.4 Credits Credits issued for services provided in lieu of development charges since 1989 which are owed to developers for services which are no longer eligible must be refunded. REPORT PD-15-97 PAGE 7 This provision does not appear to affect Clarington as the Municipality have not implemented credit system for any developer for any ineligible services. The new Act also provides for the Municipality to give credit to development charges (i.e. at a reduced rate) to developers who wish to accelerate developments by paying for the services which otherwise is the responsibility of the Municipality. Staff have no difficulty with this provision. If and when a developer makes such a request, staff will address it on a 'case by case' basis and report to Council accordingly. 4.5 Debt: Where a municipality has incurred debt (ie: issued a debenture) relating to eligible services, the municipality may include the cost of servicing the debt, as permitted by the new Act. However, only 70% is eligible as the 30% co- payment by the Municipality is required. As the debenture amount for the Courtice Community Centre is $1,055,000., the 30% municipal co- payment for the borrowing cost would be $316,500. which most likely would have to come from general tax revenue. 4.6 Front End Financing Front - ending is a method of financing capital works or services whereby a municipality and a developer agree to accelerate development in an area not necessarily covered by the municipality's development charges by -law. It permits the front -end developer to build and /or oversize municipal capital facilities in areas not yet scheduled for municipal capital outlay and to be reimbursed by benefitting property owners at a later date. The risk of this type of financing is taken on entirely by the front -end developer. The changes between the old and the new Acts are relative minor as related to front -end financing. However, we noted that the new Act is silent on the issue of co- payment by the Municipality. Would the Municipality have to contribute 10% and 30% under such arrangement? It is In REPORT obvious that if the 10% - 30% co- payment rule applies, the Municipality should not be party to any front - ending agreement. We understand the Provincial Government will clarify this. At this time, it is noted that the new Act has made front -end financing permissive as opposed to mandatory. 4.7 Timelines Municipalities will have up to 18 months from the date of proclamation of the new Act to establish a new development charges by -law. All development charge by- laws passed under the old legislation will expire no later than 18 months after the date of proclamation of the new Act. This transition period will give municipalities time to prepare capital and operational background studies for development charge by -laws required under the new Act, adjust their capital forecasts, redeem credits owed to developers if any, for services which are no longer eligible, and clarify existing debt on facilities which are no longer eligible. It is important to note that if the new by -law is not in place in 18 months, the Municipality will not be able to collect any development charges. The consequence for delay on the part of the Municipality to enact a new by -law could be enormous. 5. G.T.A. MAYOR - DEVELOPMENT CHARGES TASK FORCE 5.1 At its meeting held on December 6, 1996, the Greater Toronto Area Mayors and Regional Chairs endorsed the following principles in response to the new Development Act. new growth must continue to pay for itself • municipalities should have the right to establish, but be required to defend, reasonable, sustainable and cost - effective levels of service and to set the appropriate development charges to pay for those services 692 REPORT • development charges should be based on reasonably anticipated future levels of service and expenditures as determined by appropriate underlying studies development charge practices inconsistent with the spirit of the legislation are not supported by municipalities and should be dealt with accordingly development charge legislation must achieve a high degree of administrative simplicity which is not apparent in the new legislation • permissive legislation should enable municipalities to grant exemptions to development charges rather than legislating exemptions • there should be an attempt to ensure equity amongst taxpayers so that those who have had to bear the growth - related costs in the past are not now having to cross - subsidize further new growth • any savings that accrue as a result of reductions in development charges should be passed onto end users • municipalities are willing to review the issue of service standards and how best to address any concerns together with the Province and the development industry 5.2 In addition, the Mayors and Regional Chairs have established a task Force to articulate the municipal positions for future meetings with the Province and the Urban Development Institute. 5.3 The Task Force, chaired by mayor D. Cousens of Markham, has met several times and the three sub - working groups have been working on the details with the goal of establishing consensus among the Greater Toronto Area municipalities. The Director of Planning has been working with the Task Force members for the last few weeks. 5.4 The Task Force will be reporting to the Mayors and the Regional Chairs within the next couple weeks. The tentative timetable calls for sitting down with the Province and the Urban Development Institute in late January to discuss the municipal REPORT NO. 1 position and /or suggestions for changes to the new Development Charges Act. At the time of writing of this report, the recommendations of the Task Force is still being formulated. Nevertheless, it is reasonable to assume that the concerns raised in the Report are common to those of the other Greater Toronto Area municipalities. The Director will continue to participate in the Task Force works and will report back to Council in due course. There is no doubt that the new Development Charges Act will have significant ramifications to Clarington. The financial impacts discussed in this Report represent our preliminary observations. Actual financial impact would not be known until detail regulations are made available and that the new development charges studies are completed. Further, certain parts of the Act may be changed depending on the lobbying efforts of the municipalities. Staff will continue to monitor the matter and convey our concern to the Province through the Greater Toronto Area Mayor Task Force and will report to Council as events unfold. Respectfully submitted, j/ �- `- Franklin Wu, R.P.P., M.C.I.P. Director of Planning and Development FW *lip January 14, 1997 Reviewed by, f� W.H. Stockwell, Chief Administrative Officer Attachment No. 1 - Summary Table Comparing the Key Elements between the Old and New Act M . .....__._.. KEY DIFFERENCES BETWEEN THE 1989 AND THE 1996 DEVELOPMENT CHARGES ACT ISSUES OLD ACT NEW ACT COMMENTS Eligible • hard and soft services • exclude soft services such as city • of all exclusion, parkland acquisition are Services halls, museum, hospital, theatres, chargeable by Clarington tourism facilities and parkland acquisition, and other services to • animal control and borrowing interest may not be be prescribed in regulations chargeable • not allowed to charge for parkland acquisition could be significant Municipal • not specific • 10% for water, sewer, roads, • cannot determine which "other services" are Contribution transit, hydro, fire and police considered ineligible until detailed regulation is • existing by -law generally made available allows for 10% municipal • 30% for other eligible services contribution for hard services Including library and recreational • 30% municipal contribution is a major concern and 5% for soft services facilities Calculating • level of service can be based • average level for past 10 years • have used the average approach in our last the Cost of on the highest standard Development Charge Study New Services within last ten years • no specific provided for • must take into account of unused • research required to determine unused capacity, unused capacity of facilities capacity could be a onerous exercise and services • no specific regulation in • capital cost must be reduced by • represents substantial financial impact determining capital cost any capital grant/subsidies, and municipal contributions • method of calculation will be detailed in regulations Background • no specific requirement • requires study to justify charges • will continue to prepare a study Study Required • requires study to examine • operational study is too onerous operational impact Exemption to • at Municipal discretion • can exempt from payment of • currently no charge applied for industrial or industrial charges commercial development. This issue will be development reviewed. • can phase in or defer payment • require exemption of payment for industrial expansion of 50% of existing gross floor area Transitional Measures a) Reserve • not applicable • certain rules are spelled out in • see report Funds terms of dealing with reserve accounts, credits, existing debts etc. (e.g. Reserve funds for ineligible service will be rolled into eligible service reserve funds if not used in 5 years) b) Debt • not specific • if municipality has incurred debt • see report on an eligible service, the cost of financing the debt is chargeable but municipality must pay its share of either 10 or 30% Front -end • contains certain provisions • scope wider to allow accelerated ® It's unclear if 10 and 30% municipal contribution is Financing development, risk to be taken on applicable by the front -end developer