HomeMy WebLinkAboutPD-69-89 AmendedDN: 7.
TOWN OF NEWCASTLE
REPORT File # C Co,.
Res. #0. /J- �` +
By -Law #
MEETING: General Purpose and Administration Committee
HATE: Monday, March 6, 1989
REPORT #: PD- 69• -89 (AHENDED) FILE #:
SUBJECT: SUBMISSION BY THE TOWN OF NEWCASTLE TO THE
INTERMINISTERIAL COMMITTEE REGARDING THE
GREEN PAPER ON FINANCING GROWTH RELATED CAPITAL NEEDS
RECOMMENDATIONS:
It is respectfully reconnended that the General Purpose and Administration
Committee recommend to Council the following:
1. THAT Report PD -69 -89 be received; and
2. THAT a copy of Report PD-69-89 be forwarded to the Interministerial
Committee on Financing Growth Related Capital Needs as the Town's submission
on the Green Paper on Financing Growth Related Capital Needs; and
3. THAT a copy of this Report be forwarded to the Association of Municipalities
of Ontario, Region of Durham, the Public School Board and the Separate
School Board for their information.
1. BACKGROUND
1.1 On December 12, 1988, Honourable Robert E. Nixon, Treasurer of Ontario and
Minister of Economics tabled a green paper describing approaches of
assisting municipalities and school boards with the financing of
growth- related capital needs. These approaches intend to create a
consistent framework for municipal lot levies, enable school boards to
establish education lot levies and explore other innovative means of
financinag capital expenditures.
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REPORT NO.: PD -69 -89
PAGE 2
1.2 The Ontario Government anticipates introducing legislation on the
approved approaches early in the next session and have invited briefs
regarding possible improvements to these approaches before March 1,
1989.
1.3 The Town of Newcastle has not been circulated a copy of the Green
Paper. However, Staff obtained a copy indirectly in early February and
have proceeded immediately to review the Green Paper which appears to
have a significant impact on the Town. A letter has been sent to the
Interministerial Committee of Financing requesting time extension for
submission of the Town's brief.
2. SUMMARIES OF GREEN PAPER ON POSSIBLE APPROACHES OF FINANCING
GROWTH- RELATED CAPITAL NEEDS
The approaches suggested by the Green Paper area
2.1 Enable municipalites to use lot levies to recover from the various
classes of residential, commercial and industrial property up to 100
per cent of net growth - related capital costs.
2.2 Enable school boards to use lot levies to recover from the various
classes of residential property up to 100 per cent of net growth -
related capital costs (i.e., new pupil places).
2.3 Limit the municipal and education levies on affordable houses to a
maximum of 60 per cent of the levies on other houses.
2.4 Lever a greater amount of school construction from current Provincial
grant levels by decreasing the average Provincial rate of support on
approved school capital from 75 per cent to 60 per cent.
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REPORT 0O.: pD-69-89 PAGE 3
__________________________
2.5 Reduce school board borrowing costs, particularly for smaller school
boards, by providing them with access to Canada Pension Plan funds for
approved capital projects. Priority access would be given to those
boards facing the highest borrowing coats, the existing policy,
allowing the use of debentures for capital needs, will be maintained.
2.6 Encourage boards to pursue alternative o*eauo of financing. Boards
could negotiate with developers to provide payment in kind (e.g.,
facilities or laud) instead of paying lot levies.
2.7 Provide legislative authority for municipalities to establish
front-end financing arrangements at their discretion, and to reimburse
developers for building oversized sewerf water and road services.
3. REVIEW AND DISCUSSION
Each of the above proposed approaches was reviewed within the context
of implication to the Town and the following concerns, comments and
recommendations are identified.
3.1 Approach No. 1
"Enable municipalities to use lot levies to recover from the various
classes of residential, commercial and industrial property op to 100
percent of net growth-related capital costs."
Comment
The Town is currently charging lot levies for all types of residential
developments in order to finance growth related capital coots. The
Town would welcome the introduction of legislation to formalize such
arrangement. However, the legislative changes must be comprehensive
and most enable the municipality to charge levy no Drezoued land and on
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REPORT NO.: PAGE 4
any application involving increase in residential density. In
addition, the growth related capital costs must be net cost, that is
minus any government grants, current levy reserve, and developer's
voluntary contribution.
3.2 �proach No. 2
"Enable school boards to use lot levies to recover from the various
classes of residential property up to 100 per cent of net growth -
related capital costs (i.e., new pupil places)."
Comment
The Green Paper proposed a discretionary power to the school board to
impose an educational lot levy which would fund all or part of the
growth - related capital costs, net of Provincial Grant, for school
capital projects to be approved by ministry of Education. However,
the collection of the education levy will be through the local
municipality which will have to enact a school board levy by -law and
transfer the levy funds to a joint account held in trust by the
co- terminous school boards.
The Town does not support the principle of establishing an education
levy.
3.3 Approach No. 3
"Limit the municipal and education levies on affordable houses to a
maximum of 60 percent of the levies on other houses."
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REPORT 00.: PD-59-89
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Comment
PAGE 5
The Tuvmz nIpx>seo this approach since the municipality will end oD
subsidizing the production of affordable housing from its local tax
revenue. We believe that housing, affordable or not, will generate new
residents who will be requiring municipal services. The Town can be
supportive of the Provincial initiative on affordable housing provided
that their is no financial impact on the municipality and its
taxpayers.
3.4 Approaches No. 4 and No. 5
"Lever agreater amount of school construction from current
Provincial grant levels by decreasing the average Provincial rate of
support on approved school capital from 75 percent to 60 percent."
"Reduce school board borrowing cnoba/ particularly for smaller aobouI
boards, by providing them with aooeaa to Canada Pension Plan foods for
approved capital projects. Priority access would be given to those
boards facing the highest borrowing costs. The existing policy,
allowing the use of debentures for capital needs, will be maintained."
Cmnmeo
The Town does not support the reduction from 75% to 60% of the capital
subsidy by the Province.
3.5 Approach No. 6
"Encourage boards to pursue alternative means of financing. Boards
could negotiate with developers to provide payment in kind (e.g.,
facilities or land) instead of paying lot levies."
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REPORT 0O.: PD-69-89 9&GD 6
Com-neu
We support the principle of providing alternative to educational levy.
We feel that the IotermioisteriaI Committee abooId give serious
consideration to the approach similar to the five (5) percent parkland
dedication provision in the Planning Act.
3.6 Approach No. 7
Provide legislative authority for municipalities to establish
front-end financing arrangements at their discretion, and to reimburse
developers for building oversized sewer, water and road services.
Comment
Since the concerns raised in the Association of municipalities of
Ontario's discussion paper have not been resolved, the Town cannot
support the provision of legislative authority for municipalities to
establish front-end financing arrangements at this time.
3.7 Other Proposed Changes
The Green Paper also makes reference to several DzVpooeIs that might
impact the municipality. Staff review these proposals and mould offer
the following comments.
3.7.1 The Green Paper suggests that until a Bill is introduced,
municipalities are asked to hold lot levies at their current levels.
Staff does not agree with holding the lot levies at the current
levels. u.
REPORT 0O.: DD-69-89 PAGE 7
___-________________-_____-___________________________-________-_____________-_
3.7.2 The Green Paper also suggests that upper tier levy (regional levy) be
collected through local municipality. We cannot support such an
approach. Major changes to the Town's subdivision agreement will be
required and this places tremendous onus on the Town in terms of
administration and accounting.
3~7.3 Indexing of levies in accordance with SouthamConotructiou Price Index
is proposed in the Green Paper. We agree with this proposal provided
it does not remove the right of the municipality to review and adjust
its levy as frequent so it deems necessary.
3.7.4 The Green Paper requires municipalities to inform all new home
puzobaoezo in areas subject to lot levies of the levy aun000to and
their intended uses. We feel that the principle of informing the
public has merits but the method of informing is still unclear. We
suggest that once e lot levy by-law is passed by the Town, a one time
advertisement in local newspapers abooId suffice.
4. C00CLOGI00
& copy of the Green Paper is attached herein to assist Committee and
Council's deliberation of this matter.
Staff respectfully recommend Committee and Council to endorse the
content of this report as the Town's brief to be submitted to the
IotermioistezioI Committee on Financing Growth-Related Capital Needs.
Respectfully submitted,
_
Franklin Wu, M.C.I.D.
Director of DIaooiog 6 Development
FW* 'iD
^^^^~`^^~
February 17, 1989
Recommended for presentation
to the Committee
Md ____________
Lawrence eff
tive Officer
FINANCING GROWTH- RELATED CAPITAL NEEDS
Ontario Ministry of Treasury and Economics
December 12, 1988
11
FINANCING GROWTH - RELATED CAPITAL NEEDS
I. INTRODUCTION
Parts of Ontario are experiencing rapid growth. This growth has
placed much pressure on the Province, municipalities and school
boards to expand services and related capital infrastructure such
as sewer, water and road systems, public transportation and
schools. The various demands on the Province limit its ability to
address these needs on its own. New ways to help finance capital
infrastructure must be explored.
For example, in 1984 -85, the Province provided $72.1 million for
education capital. Since that time, Provincial support for
school related capital has increased more than 300 per cent. In
the May, 1988 Budget, the Province made a commitment to provide
$300 million annually for the next three years for education
capital. Of that amount, 91 per cent of the 1988 allocation went
to growth- related projects. There are approximately 6800
portable classrooms in Ontario which should be replaced by new
school buildings or additions.
Ontarians also have a $17 billion investment in aging school
capital facilities. If steps are not taken to address the needed
renovation of these facilities, the public is in danger of losing
this investment.
This paper outlines some proposed directions to finance growth -
related capital needs in the province. The paper examines lot
levies and other means of financing capital expenditures. It
also provides suggestions for improving the structure and
accountability of existing municipal lot levies and front -end
financing.
An interministerial committee including representatives from
Municipal Affairs, Treasury and Economics, Education and Housing
has been established. Briefs outlining suggestions on proposed
directions and /or suggestions for alternative methoda of
financing capital expenditures, should be forwarded to the
Interministerial- _Committe_e__on_ Financing Growth - Related Capital
_ _
Needs, by -- March- .1,- 1-989-.,-
Oblectiveo
The objectives for financing capital growth are to:
provide structure and accountability for existing municipal
lot levies;
ensure a uniform approach to municipal front -end financing;
accelerate the rate of school capital construction to reduce
the backlog and accommodate new growth;
Provide increased responsibility for capital to school
boards by moving their share from the current 25 per cent to
40 per cent on average, coupled with new revenue sources and
financing options;
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support the Provincial policy on affordable housing;
ensure that new development shoulder some of the burden of
the capital costs associated with that growth; and
provide flexibility in-financing arrangements.
Possible Approach
1. Enable municipalities to use lot levies to recover from the
various classes of residential, commercial and industrial
property up to 100 per cent of net growth- related capital
costs.
2. Enable school boards to use lot levies to recover from the
various classes of residential property up to. 100 per cent
of net growth - related capital costs (i.e., new pupil
places) .
3. Limit the municipal and education levies on affordable
houses to a maximum of 60 per cent of the levies on other
houses.
4. Lever a greater amount of school construction from current
Provincial grant levels by decreasing the average Provincial
rate of support on approved school capital from 75 per cent
to 60 per cent.
5. Reduce school board borrowing costs, particularly for
smaller school boards, by providing them with access to
Canada Pension Plan funds for approved capital projects.
Priority access would be given to those boards facing the
highest borrowing costs. The existing policy, allowing the
use of debentures for capital needs, will be maintained.
6. Encourage boards to pursue alternative means of financing.
Boards could negotiate with developers to provide payment in
kind (e.g., faciliti or land) instead of paying lot
levies.
7. Provide legislative authority for municipalities to
establish front -end financing arrangements at their
discretion, and to reimburse developers for building
oversized sewer, water and road services.
Legislative Implication9
A Development Charges Act would be required to provide the
authority for municipalities to establish and adopt lot levy by-
laws for their own purposes and for school board purposes. Lot
levies would be introduced at the option of the municipality or
school board, the school board doing so by way of a request to a
municipality. All lot levy by -laws would be subject to appeal at
the Ontario Municipal Board. The .Act would also be required to
provide the authority for municipalities to establish front -end
financing arrangements.
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Timing of Implementation
The Government plans to introduce legislation to implement a
strategy during the next session of the Legislature. The timing
of implementation, including whether legislation should be
effective from introduction of the Bill or on Royal Assent, is
subject to consultation. Until a Bill is introduced,
municipalities are asked to hold lot levies at their current
levels to provide certainty to all parties.
II. MUNICIPAL LOT LEVIES
The Establishment of Municipal Lot Levy By Laws
Some municipalities have introduced lot levies. The current
system has been ad hoc in nature. Municipalities have faced
uncertainty with respect to their legal authority to impose lot
levies. In addition, the methods used to introduce, set and
amend lot levies have varied considerably. This has caused
confusion for developers and builders.
A number of suggestions for improving the structure and
accountability of municipal lot levies-,are outlined below.
Certainty
In the interest of certainty and stability, an unamended by -law
should have a duration no longer than five years. To remain in
force after five years, a new by -law must be enacted to give the
municipality legal authority to collect lot levies.
Right of Appeal
The Ontario Municipal Board (OMB) has been the avenue of appeal
for the developer who fails to reach an acceptable agreement with
the municipality. When a developer appeals, the municipality can
prevent the developer from proceeding with the proposed
- subdivision until the FMB - - has — made a decision. While many
developers have- -chosen -this route in the past, it is both time
consuming and costly. Smaller developers may not have the
resources to mount an effective appeal. Consequently, appeals
are not always a practical alternative-
Under the proposed system of appealing lot levy by -laws, anyone
who disagreed with the by -law could appeal to the OMB within 20
days of its adoption. The OMB would have the authority to alter
the lot levy amount, based on evidence presented. This would
ensure that the municipality prepares its case thoughtfully and
thoroughly with regard to the intent of the legislated framework.
Once the appeal period had elapsed, no further appeals would be
permitted, with the exception of appeals on by -law amendments,
until a new by -law has been established.
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During an appeal, developers could proceed with construction
without delay, by paying the lot levy set out in the by -law. Any
amounts in excess of those allowed by the OMB would be refunded
with interest.
Phase -In Provisions
The concept of a phase -in period for new lot levy by -laws has
been unanimously supported by the Urban Development Institute,
the Ontario Home Builders' Association and the Association of
Municipalities of Ontario. A maximum of one year would be
granted for municipalities' by -laws to conform with the
legislation. In the interim, the existing lot levy policy would
be in effect. After the phase -in period, no lot levy charges
could be collected until a new lot levy by -law was adopted.
Eligible Cost
Municipalities would be permitted to recover up to 100 per cent
of the growth related capital costs of all services (both hard,
e.g. sewers, and soft, e.g, arenas). It is proposed that capital
would be defined as land, buildings and associated financing and
acquisition costs. Capital would not include expenditures
required to maintain the ongoing operations of the facility or to
acquire rolling stock, furniture, fixtures or equipment. This
definition of capital cost is simple and verifiable by the OMB.
It has been estimated that these capital costs represent 80 to 90
per cent of the total cost of establishing most new municipal
service facilities.
In the determination of the capital cost for each facility, the
municipality would calculate the present value of the capital
expenditure, net of any government grants, previous contributions
and any and all reserves specifically earmarked for that capital
expenditure.
Methods of Calculating Lo_ t Levy Charges
December 19_, _,1985-, in -- response -to the- petition to Cabinet on
the OMB decision regarding Mod -Aire v. Bradford 1984, Cabinet
issued the following guidelines.
a) It is within the power of a municipality to establish
uniform lot levies, provided that there is a reasonable
relationship between the proposed levies and the overall
costs to the municipality attributable to growth with
respect to the services covered by the levies; and
b) There need not be a direct relationship between the
additional cost incurred by the municipality and the
utilization of any given service that is the subject of the
levy. A lot levy may be a combination of a uniform levy for
average costed services and any additional amounts for other
services financed as directly attributable to the
subdivision proposed to be charged.
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The primary rationale for introducing a lot levy is that a
municipal council should be able to require new development to
pay the capital costs associated with servicing growth.
Therefore, only those capital expenditures incurred or expected
to be incurred by the municipality within a reasonable time
frame, that specifically serve or benefit new development, would
be included in the determination of the lot levy charge.
Municipalities that have no existing lot levy policy
relatively insignificant one, and that have outstandir
commitments attributable to recent growth, would not it
amounts related to previous development in lot levy calc
There are two commonly used methods in which to measur
level standards. The first method is by quantity per pc
or per number of households. The second method is by '
standards which relate to the cost per facility based
existing programming requirements. Methods would be descrxut�u in
detail in the guidelines to be provided by the Government.
Credit for Works Constructed by Developers
A developer may be required by the municipality to construct
external capital facilities in order for a particular development
to proceed. These works may form part of the overall municipal
service system, be installed with the consent or at the request
of the municipality and be included in determining the lot levy
charge. If so, the developer should receive credit against the
lot levies. Developers who are dissatisfied with the
compensation may appeal to the OMB with all pertinent
information.
,Indexation of Levies
Municipalities would be permitted
charges on an annual or semi- annual
Southam Construction Price Index or
ensure that lot levy charges keep
years between reviews.
Timing of Payments
to increase their lot• levy
basis in accordance w_�th the
any other index. This would
abreast of inflation for the
Lot levy charges would be payable by the developer when the
building permit is granted. This is adequate for municipal
funding requirements because the majority of the services
financed by the lot levy (with the possible exception of roads,
sewer and water costs) are installed after much of the growth has
occurred. Municipalities and developers may agree to prepayment
of a portion of the levies to facilitate the early construction
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of major works. Corresponding adjustments would be made to the
final levy amounts. Conversely municipalities could choose to
allow developers to pay at a later date, such as when the first
lots are sold.
Collection of Upper Tier Levies
All development must be processed through the lower tier. It
would be reasonable if the responsibility for collection for all
local governments rested with the lower tier. The upper tier's
lot levy would be credited to its account within 90 days of
collection, unless an extension was agreed to by the upper tier.
If an upper tier believes that special circumstances warrant
collecting part of its levy at an earlier or later stage of
development, the responsibility for negotiating an acceptable
agreement with the developer rests solely with the upper tier.
Municipal lot levies might be charged on commercial and
industrial as well as residential development, subject to the
requirement that the levies charged against commercial and
industrial or residential development only recover the growth -
related capital costs of that particular class.
Accounting and Disclosure Requirements
There is strong support for the concept of full accountability
with respect to the accumulation and utilization of lot levy
receipts.
A municipality that adopts a lot levy by -law should establish, as +
a minimum, one reserve fund to account for all lot levy receipts.
In addition, the Treasurer of each municipality should submit
annually to the Council of the municipality, a statement of
continuity for each reserve fund established for the year ended
December 31st.
Each statement of reserve fund continuity would include an
addendum which indicates, on a_._project -by- project basis, the
intended application of the amounts transferred to the capital
fund. Municipalities would be obliged to inform all new
homebuyers in areas subject to lot levies, of the levy amounts
and their intended uses. This would further enhance the
accountability of the municipality. Where lot levy funds
initially transferred to the capital fund are reallocated during
the year to a project that is functionally different, this
realignment should also be noted. The intent is that each
municipality would institute an internal structure of
accountability that would readily permit it to respond to
concerns that might be subsequently raised regarding the
application or appropriateness of the lot levies imposed.
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III. SCHOOL PURPOSE LOT LEVIES
Authority
School purpose lot levies would require establishment in
legislation and follow a similar process to that governing the
municipal lot levy.
Like municipalities, school boards would have discretionary
authority to implement an educational lot levy. The public
consultation process used to ensure accountability would be
similar to that established for municipal lot levies. If a
school board chose to implement a school purpose lot levy, after
consultation, it would have to pass a resolution to that effect
requesting the municipality(s) to collect the levies. The
municipality would then enact the school board lot levy by -law.
School boards' lot levies could fund all or part of the growth -
related capital costs, net of Provincial grants, for school
capital projects approved by the Ministry of Education. The
appeals process would parallel that for municipalities.
Lot Levv Collection and Trust Account
The levy would be paid by the developer or builder to the local
municipality when the building permit is issued and the funds
would be transferred to a joint account held in trust by the co-
terminous school boards.
The Ministry of Education would authorize payments out of the
trust account at the time of final approval of the capital
project(s) for which the levies were imposed.
Method of Calculation
Information from the Multi -Year Capital Expenditure Forecast on
projected school needs for growth would be used to determine
projects eligible for education lot levies. Projected housing
- _.__ . _ .,__— -- -- ------ -
starts for the next five years in each municipality would be
determined for the school boards' jurisdiction. The Board could
opt_to designate areas as non--growth areas and therefore exempt
them from the -lot levy. The school boards and the Ministry would
determine the physical facilities and lands required to best
service the growth. Existing Ministry guidelines and practices
regarding eligibility of pupil places to receive grants would
continue. The approved cost of the facilities, based upon the
Ministry of Education Capital Grant Plan, would be calculated.
The school board's rate of grant would be applied against the
approved cost. The difference between the approved cost and the
Provincial grant would be eligible for inclusion in the education
lot levy calculation.
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Public Input
Once the education lot levy has bee
passing of the Board's resolution,
establish a school purpose lot levy
meeting to inform the public about
levy charge and its application.
By -Law ProcegR
n determined, and prior to the
each school board intending to
would, as a minimum, hold one
the determination of the lot
In the event that at least one of the co- terminous school boards
wished to implement an educational lot levy, that board would
request the appropriate municipalities, by resolution, to adopt
an education lot levy by -law, stating the amounts to be levied on
all new residential development and remitted to a joint trust
fund. It would be in the interest of the other co- terminous
board to participate in the lot levy process, otherwise its
ratepayers would pay all of the local share through their
property taxes.
1.
The by -law would be in force for a period of up to five
years.
2.
Appeals to the
OMB would be allowed on the original lot levy
'
by -laws during
the allotted 20 day period.
3.
If an appeal
were requested, the OMB would be given the
power to alter
the lot levy charges proposed in the lot levy
by -laws on the
basis of the evidence presented.
4.
School boards,
like municipalities, would be permitted to
index lot levy
charges on an annual or semi - annual basis.
5.
The collection
of school board lot levy charges would be the
responsibility
of the lower tier municipality and, unless
agreed to by
the school board, the full amount of -the
education lot
levy receipts would be forwarded within 90
days after the
levies were paid.
—6: - -------
Unce a municipality adopted an education lot levy by -law, a
joint trust
account would be established by the
participating co- terminous school boards. The utilization
of the trust fund would be subject to the approval- of the
Ministry of Education.
7. Each year, the participating school boards would account for
the status and utilization of the trust fund. The
participating school boards would publish annually, as part
of their financial statements, a statement of continuity for
the trust fund for the year ended December 31.
8. Each trust fund continuity statement prepared would include
an addendum which would indicate on a project -by- project
basis, the application of the amounts transferred.
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9. The amount of the lot levy would be provided to prospective
home buyers for their information.
IV. TREATMENT OF AFFORDABLE HOUSING
In keeping with the Province's commitment to affordable housing,
the lot levies on such homes would be capped at a maxi-mum of 60
per cent of the levies on other housing. Definitions of
affordable housing will be forthcoming in the Government's policy
statement on housing. The draft policy statement is currently
out for public consultation.
The expected revenues from lot levies would in no case exceed 100
per cent of the net growth- related capital costs at the projected
mix of affordable and other housing in the jurisdiction.
The levels of each levy would be determined by the jurisdiction
(upper or lower tier, school board) imposing the levies.
V. PROVINCIAL SUPPORT FOR SCHOOL CAPITAL CONSTRUCTION
In order to increase the amount of school construction, the
Provincial rate of support on approved school construction costs
would be reduced from the current average rate of 75 per cent to
an average of 60 per cent. Thus, the Province's three -year
commitment of $300 million per year would lever $500 million per
year in approved school construction, up from the current $400
million. This would have the effect of increasing the local
share to 40 per cent on average. School board lot levies would
partially or fully offset this, and the impact on education -
purpose mill rates would be minimized.
School projects, including the backlog, that are not subject to
the lot levy provision would continue to be funded through a
combination of Provincial grants and school - purpose property'
taxes.
VI. ACCESS TO CANADA PENSION PLAN FUNDS FOR SCHOOL BOARDS
Canada Pension_Plan __(CPP) funds loaned to the Province would be - --
made available to permit school boards to borrow at near
Government of Canada rates.
This would reduce the debt service and administrative costs of
borrowing, particularly for the smaller boards, thus minimizing
the impact of school construction on school - purpose mill rates.
CPP funds are available to the Province in the form of
loan with 'all principal due at maturity. Interest
semi - annually at a rate based on the Federal bond rate
the lowest rate available for a 20 -year term).
6nn 47
a 20 -year
is payable
(generally
10 - ._.._... -. -
Since some large school boards can borrow in the market at close
to Provincial rates, they should probably not be permitted to
crowd out smaller borrowers who would be required to pay higher
rates. A queuing strategy would offer available funds first to
the smaller borrowers with the greater expansion requirements.
The balloon payment of principal at maturity is not a desirable
feature of CPP financing. Annual principal payments are
frequently considered to be more suitable. A school board could
put the difference between the annual servicing costs of the two
types of loan into a sinking fund. However, if the school board
were unable to achieve a rate comparable to the CPP rate on
sinking fund money, additional funds would be required to meet
the final payment.
School boards would retain their right to borrow from
conventional sources to finance capital growth.
VII. PAYMENTS IN KIND AS AN ALTERNATIVE TO LOT LEVIES
In some circumstances, developers may prefer to offer land or
other payments in kind, as an alternative to lot levies. This
should be encouraged, subject to the condition that construction
standards are met.
VIII. FRONT -END FINANCING ARRANGEMENTS FOR MUNICIPALITIES AND
DEVELOPERS
A long standing issue with the development industry has been the
reimbursement of front -end financing. Developers often provide
or pay up -front for facilities beyond the requirements of a
particular subdivision. The facilities have normally included
only major infrastructure such as sewer, water and road works. A
common excess requirement is an oversized sewer pipe within a
subdivision or the extension of a pipe past undeveloped parcels
to connect a subdivision.
Many municipalities have established policies of providing credit
to developers for oversizing on -site works. In the case of major
_off-site fact l tiese s-ome.have . agreed to reimburse the initial
developer by levies collected from subsequent developers.
Generally, this is under a "best efforts clause in the
subdivision-agreement.-The municipality is only obligated to pay
if 7 and when the- money -is `collected.
By entering this type of agreement, the developer
some risk. Subsequent development may occur at a
rate than projected or may not take place at
municipality may fail to collect from the later
because of uncertainty surrounding lot levies.
developers may or may not be assured of receiving
substantial sums of money which may be tied up
periods of time.
•11 �,
is assuming
much slower
all. The
developments
In addition,
interest on
for extended
E
Since the legality of this issue has never been clear, the
development industry has pressed for express municipal authority
for front - ending reimbursement. Legislation would be required to
clarify a municipality's ability to levy, collect and refund
charges of this nature. Such legislation could be introduced and
integrated with any general lot levy legislation which would be
permissive. Front -end financing arrangements would be confirmed
for sewer, water and road services, as they currently exist. A
key element would be the authority to demand payment from
subsequent developers. The obligation to reimburse would still
be conditional on receipt of the revenues.
Under a front - ending agreement, the municipality would either
leave the particular capital work(s) in its lot levy calculations
and agree to repay the initial developer from subsequent lot levy
collections or remove the capital work(s) from its lot levy
calculation. In this case, the system -wide lot levy would be
reduced and a benefitting area for the capital ,work (s) would be
established. Additional charges would be collected from future
development within that area and refunded to the initial
developer.
In light of this, a municipality would have the authority to
define the lands which may benefit from the construction of the
"front -end" capital facility. The municipality would calculate a
unit charge to recover the appropriate share of the costs
refundable to the initial developer. The agreement establishing
the benefitting area and unit charge would also include a
provision to adjust the unit charge over time, in conjunction
with a generally available construction cost in This is
consistent with the philosophy inherent in the lot levy framework
and would ensure that the initial developer receives a fair
refund. Front -end payments could be made in money or by the
provision of services or facilities in lieu of money.
The municipality would be required to give notice of the front -
ending agreement to all owners within the benefitting area,
explaining the nature and purpose of the agreement. The
agreement would be available in the municipal offices for viewing
during normal business hours. Any owner, except a party to the
agreement, could object to the agreement by notifying the
municipality in writing within an allotted period of time.
If no objection was received within that time, the agreement
would be deemed to have come into force. If there were
objections, the municipality would pass the objection to the
Ontario Municipal Board, which would hold a hearing to decide the
issue.
The municipality would place all monies received from the parties
to an agreement in a special account, and would use the funds
only for the purposes for which they were collected. Further,
the municipality would provide annually to the parties of the
front - ending agreement a statement indicating the payments that
had been made to or from the account, the account balance and any
further payments, if any, required from the parties pursuant to
•11 �•
12 -
the agreement. If the municipality failed to collect the agreed -
to amounts from subsequent developers, the front - ending developer
would have the right to appeal to the OMB and the Board could
compel the municipality to reimburse the front - ending developer.
Briefs should be sent to:
Interministerial Committee on Financing
Growth- Related Capital Needs
5th Floor, Frost-Building South
7 Queen's Park Crescent
Toronto, Ontario
M7A 1Y7
600 50