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HomeMy WebLinkAboutFSD-027-26Staff Report If this information is required in an alternate accessible format, please contact the Accessibility Coordinator at 905-623-3379 ext. 2131. Report To: Special Council Date of Meeting: June 12, 2026 Report Number: FSD-027-26 Submitted By: Trevor Pinn, Deputy CAO/Treasurer, Finance and Technology Reviewed By: Mary-Anne Dempster, CAO By-law Number: Resolution Number: File Number: Report Subject: Development Charge Reduction Program Recommendations: 1.That Report FSD-027-26, and any related delegations or communication items, be received; 2.That Staff be directed to submit an application with project costs of at least $50 million and a commitment to reduce development charges by 50% and provide 10% funding from the Municipality to the Development Charges Reduction Program; and 3.That all interested parties listed in Report FSD-027-26, be advised of Council’s decision. C-158-26 Municipality of Clarington Page 2 Report FSD-027-26 Report Overview The Province, the Government of Canada and the Municipality of Clarington have all recognized the importance of facilitating housing starts to address housing need, affordability as well as an increasing number of unhoused individuals within our communities. The Province and the Government of Canada will be contributing up to 90 per cent of eligible project costs to approved infrastructure projects provided that the Municipality puts in at least 10 per cent of project costs and lowers development charges by at least 30 to 50 per cent for at least three years. Staff have reviewed the 2025 Development Charges Background Study to determine eligible projects for which to apply. The goal of the program is to accelerate housing starts and improve housing affordability; a result of participation will be that the Municipality offsets growth related capital costs by a minimum of 10 per cent. Staff are recommending participation in the program, subject to understanding the value of approved projects by the Province, recognizing that there is a cost to the Municipality, however there will be non-property tax benefits to the Municipality such as increased employment, increased housing, reduced homelessness and positive inter governmental relations with the Province and Government of Canada. 1. Background Canada-Ontario Partnership 1.1 On March 30, 2026, the governments of Canada and Ontario announced the Canada- Ontario Partnership to Build (COPB), in support of shared goals including building more homes faster to make housing more affordable, getting shovels in the ground on key transit projects and supporting economic development. 1.2 On June 1, 2026, Canada and Ontario announced the Development Charge Reduction Program (DCRP) to provide $8.8 billion in capital funding to support housing-enabling infrastructure in municipalities that reduce development charges (DCs) by at least 30 per cent to 50 per cent, or more, and maintain those reductions for at least three years. Program Guidelines 1.3 The program is application based with a deadline of June 19, 2026, at 10:00am Eastern Daylight Savings Time. It is expected that Transfer Payment Agreements (TPAs) will be signed by August 15, 2026. 1.4 Projects will be assessed based on the following three criteria: Municipality of Clarington Page 3 Report FSD-027-26 1.4.1. Percentage of committed DC rate reduction (minimum 30-50 per cent). 1.4.2. Number of homes projected to be built because of the proposed DC relief. 1.4.3. The Municipality’s financial contribution (at least ten per cent of project costs) 1.5 The eligible project asset types include: 1.5.1. Potable water 1.5.2. Stormwater 1.5.3. Wastewater 1.5.4. Fixed transportation (maintenance and storage facilities, roads, bridges, tunnels, public transit) 1.5.5. Transportation rolling stock (heavy railcars, commuter rail, public transit) 1.5.6. Public Safety and Emergency Services (fire, police, paramedics) 1.5.7. Community Infrastrastructure (community centres, arenas, libraries, youth centres, senior centres and performing arts centre) 1.6 Of the project asset types included above, only Fixed Transportation (excluding public transit), Public Safety and Emergency Services (fire) and Community Infrastructure would be applicable asset types in Clarington’s DC Background study. Stormwater systems are not an asset type that is funded by DCs in Clarington. 1.7 In the guidelines, the Province indicates clearly “…projects that are housing-enabling (i.e. water, wastewater, stormwater, roads and transit) will be prioritized over community-building projects for DCRP funding.” 1.8 Projects must be identified in the most recent development charge background study as a project that will begin no later than July 31, 2030, and be complete by October 31, 2035. The Municipality’s last study is the 2025 Development Charges Background Study which was approved in December 2025. 1.9 Applicants can submit more than one application and may apply jointly with other municipalities. The Province encourages no more than five eligible projects, and smaller inter-related projects may be bundled into larger project submissions. 1.10 Payments will be provided on a milestone basis at increments of approximately ten per cent of total eligible costs over eight milestones. The first payment will be once the Municipality has taken all actions necessary to authorize the execution of the agreement Municipality of Clarington Page 4 Report FSD-027-26 (including the reduction of the DC rates back to March 30, 2026) and final payment will be upon the acceptance of the Final report. 2. Proposed Project Identification 2.1 Based on the program guidelines, Staff have focused their review of proposed projects to roads projects within the 2025 Development Charges Background Study. This is a key asset category that enables housing, versus community-building infrastructure like parks, and best meets the criteria of the program. 2.2 Staff first reviewed the list of roads projects to determine which projects met the timing requirements set out in the program guidelines. Staff then determined if the work would be housing-enabling infrastructure and estimated the number of housing units that would be impacted by the project. 2.3 The following tables outline the priority projects that are being proposed to be included in the application. These projects represent infrastructure needs in areas such as Brookhill, North Newcastle, Marlin Springs, East Bowmanville, South East Courtice, Courtice Transit-Oriented Community, Northglen, Soper Springs, Soper Hills, and Courtice Waterfront. Bridge Structure Works Municipality of Clarington Page 5 Report FSD-027-26 Culvert Works Intersection Works Railroad Crossing Improvements – Lights, Traffic Arms, etc. Municipality of Clarington Page 6 Report FSD-027-26 Road Works – Rural to Urban Collector Municipality of Clarington Page 7 Report FSD-027-26 Road Works – Rural Upgrade/Rural Redevelopment Road Works – Semi Urban to Urban Collector Road Works – New 4-lane Urban Arterial The Courtice waterfront underpass modification was not in the 2025 DC Background Study; however, staff recommend pursuing this as a project due to its housing-enabling function that meets all of the other criteria and will unlock approximately 2,500 units. 2.4 If approved by Council, Staff will take the above projects and through the application process, once available, include the projects in appropriate “bundles” to put forward to the Province. The identified projects represent over $55.9 million of infrastructure projects that will enable growth throughout the Municipality. 2.5 In addition to the priority projects, there are 28 secondary projects, related to similar areas of the priority projects, in the 2025 DC Background Study worth $35.3 million which may be included once staff are able to review the application and create the required “bundles” for submission. Municipality of Clarington Page 8 Report FSD-027-26 3. Financial Considerations Historical Development Charges Collections 3.1 Development Charges collections will vary from year to year based on the timing of development, the types of development, and changes to the DC legislation. 3.2 Over the past five years, which is more reflective of the existing DC regime than prior to 2021, DC collections peaked in 2022 at $11.3mil and fell to $3.8mil in 2024. The following chart shows the DC collections for 2021 to 2024: Forecasted Development Charges Collections 3.3 The Municipality forecasts DC collections on an annual basis to create three scenarios, a fourth scenario utilizes the Hemson DC projections which assumed that the Municipality met its housing targets over the next ten years. The last two years, the Municipality, and many other municipalities, missed those housing targets. 2021 2022 2023 2024 2025 Historical $10,444,068 $11,307,984 $6,637,804 $3,772,513 $7,040,377 $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 DC Collections 2021 to 2025 Municipality of Clarington Page 9 Report FSD-027-26 3.4 The following chart shows the projected DC revenue under the four scenarios for the period 2026 to 2034 (the end of the DC study period) 3.5 While this is a forecast, and actual results may differ due to economic factors outside of the control of the Municipality, it would be expected that a 50 per cent reduction in DCs would accelerate the number of units being built somewhere between the “high forecast” and the DC study. Staff have focused their projections on these two models to determine a reasonable estimate for Council’s consideration. 3.6 Based on the high forecast, which assumes an average of 363 units per year, the total DC revenue is approximately $13.7 million per year. This means that the projected 50 per cent reduction would be approximately $6.9 million per year in DCs. 3.7 The DC study assumes an average of 1,111 homes between 2026 and 2028, with average DC revenue of $52.1 million per year. If this housing number is met, the projected 50 per cent reduction would be approximately $26.0 million per year. It should be noted that this level of new units would be an outlier based on historical building numbers. 3.8 Staff are estimating, for a conservative number, that the likely units are between the high forecast and the DC study. This would be approximately 740 units per year for three years and approximately $16.5 million in annual foregone DC revenue ($49.3 million over three years). $- $20,000,000 $40,000,000 $60,000,000 $80,000,000 2026 2027 2028 2029 2030 2031 2032 2033 2034 Comparison of DC Revenue Projections 2026 to 2034 Low Forecast Base Forecast High Forecast DC Study Municipality of Clarington Page 10 Report FSD-027-26 3.9 The following table summarizes the projections for 2026 to 2028: Scenario Average Units/Year Average Annual DC Revenue Foregone (rounded) Total Three-Year DC Revenue Foregone Low Forecast 96 $2,202,700 $6,608,100 Baseline Forecast 217 $4,332,500 $12,997,500 High Forecast 363 $6,856,915 $20,570,700 DC Forecast 1,111 $26,052,900 $78,158,700 Average of High and DC Forecast 737 $16,454,900 $49,364,700 3.10 Projects put forward target a total of $55.9 which is reasonable based on the foregone revenue. To ensure that the Municipality is only responsible for 10 per cent, the projects proposed need to be at least $49.3 million in value. If the grant is less than $49.3 million there is a strong possibility that the Municipality would be required to fund the deficit of the reduced DCs. These projects would support approximately 42,000 new units throughout the Municipality in a variety of secondary plans. Funding the Municipal Portion 3.11 The Municipality is responsible for 10 per cent of the project costs. The municipal portion may be from a variety of sources including tax levy, user fees, and grants (where stacking is allowed). 3.12 Financing the projects would need to be addressed through the 2027 budget process and may include utilizing reserve and reserve funds, short-term borrowing, or long-term borrowing. The determination of financing will be determined once the projects and timing are approved to maximize financial flexibility and reduce financing costs. 3.13 Funding the projects will require approximately $5.0 million based on the application total of $50.0 million. Staff are suggesting that a portion of the real growth assessment Municipality of Clarington Page 11 Report FSD-027-26 be used, net of the growth-related operating costs, to fund the Municipal portion. This would operate like a Tax Increment Grant. 3.14 While it is not possible at this time to provide a precise estimate of potential new taxation revenue (as the actual mix of new units is not reasonably estimated), based on a current average residential assessment of approximately $405,000 and 2,211 new units, there will be approximately $12.7 million in local property taxation revenue. 3.15 Growth brings variable costs to the Municipality; however, those costs are not perfectly linear, they occur like a step. Historically, new growth costs have not been segregated in our budget and have gone to the overall levy. By taking the value of the new assessment, reducing it by the increase in growth expenses, and using that portion to repay the 10 per cent, we can repay the reserve funds that were used to fund the Municipal portion of the projects. General Financial Comments 3.16 By receiving the grant funds, projects can proceed knowing that funds are available to cover the costs. This reduces the need for debenture financing, which reduces interest costs and the overall cost of the project. A reduction of debenture financing also provides flexibility to the Municipality on other projects to utilize debt financing, the debt ceiling. 3.17 An added benefit to participation is that by moving projects ahead, if possible, we are mitigating impacts on inflation. This will remove the project from the list of eligible projects in the future, which will mitigate DC charge increases in the next DC study. 3.18 The actual housing starts is dependent on much more than just development charges. Other inflationary pressures, such as material costs, labour capacity, and interest rates all impact the housing market and are beyond the control of the Municipality. 4. Strategic Plan 4.1 Priority L.2.4: Advocate for funding from upper levels of government and other partners is met by the application to the DCRP as we are applying for grant funding opportunities. 5. Climate Change Not Applicable. Municipality of Clarington Page 12 Report FSD-027-26 6. Concurrence This report has been reviewed by the Deputy CAO of Planning and Infrastructure who concurs with the recommendations. 7. Conclusion It is respectfully recommended that Council direct Staff to apply to the Development Charges Reduction Program. If successful, Staff intend to bring a further report to Council to facilitate execution of necessary grant agreements and DC By-law changes. Staff Contact: Trevor Pinn, CPA, CA, Deputy CAO/Treasurer, tpinn@clarington.net. Attachments: Not Applicable Interested Parties: There are no interested parties to be notified of Council's decision.