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Staff Report
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Report To: General Government Committee
Date of Meeting: November 30, 2020 Report Number: FND-047-20
Submitted By: Trevor Pinn, Director of Financial Services/Treasurer
Reviewed By:
File Number:
Andrew C. Allison, CAO
Resolution#: GG-452-20
By-law Number:
Report Subject: Interest Rates on Development Charge Deferrals
Recommendations:
1. That Report FND-047-20 be received; and
2. That the Draft Policy attached to Report FND-047-20, as attachment 1, be approved.
Municipality of Clarington
Report FND-047-20
Report Overview
Page 2
Effective January 1, 2020, several key legislative changes occurred to the collection of
development charges including mandatory deferral for certain development types and
freezing of rates between site plan / zoning bylaw amendment and building permit dates.
The Municipality is currently undergoing a review of the Development Charges By-law and
these regulatory changes will be incorporated, however a policy is required to set the
foundation for the way in which we want to handle deferrals as well as the freezing period.
1. Background
Bill 108 - More Choice More Homes Act and Bill 138 Plan to Build Ontario Together Act
1.1 Bill 108, More Homes, More Choice Act, 2019 received Royal Assent on June 6, 2019.
While it has received Royal Assent, the Act is not fully proclaimed and enacted. The
Province of Ontario released two proposed regulations on June 21, 2019
December 2019 Regulations Coming into Force January 1, 2020
1.2 In late December 2019, certain sections of the More Choice More Homes Act (MCMH)
and the Plan to Build Ontario Together Act (PBOT) were proclaimed and came into
force on January 1, 2020 with no transition period.
1.3 Development Charges (DCs) for rental housing and institutional developments are to be
paid in six equal installments over five years with non-profit housing developments to
pay DCs in 21 installments over 20 years, both commencing the earlier of issuance of
the occupancy permit or the date of occupancy. Prior to January 1, 2020 there were no
mandatory deferrals for DCs.
1.4 Development charge rates for rental housing and institutional developments identified
above will be frozen at the date of site plan or zoning by-law amendment application for
those applications received on or after January 1, 2020. The rates will be frozen for two
years after approval of the site plan or zoning by-law amendment application. Prior to
January 1, 2020, the rates used were those in effect at the time of building permit
issuance.
1.5 The freezing of DC provisions also applies to commercial, industrial and residential
developments if they go through the site plan application or a zoning by-law amendment
application process.
1.6 The exemption of secondary units has been broadened to apply to units that are
detached from the existing unit but on the same property.
Municipality of Clarington Page 3
Report FND-047-20
1.7 Regulation 454/19 provided definitions for the amendments to the Development
Charges Act (DCA) as follows:
a. Rental housing development means development of a building or structure with four
or more dwelling units, all of which are intended for use as rented residential
premises
b. Institutional development includes long-term care and retirement homes,
universities, colleges, hospices, and a memorial home, clubhouse, or athletic
grounds by an Ontario branch of the Royal Canadian Legion
c. Non-profit housing development means development of a building or structure
intended for use as a residential premise by:
• A non-profit housing co-operative in good standing under the Co-operative
Corporations Act;
• A corporation without share capital to which the Corporations Act applies that is
in good standing under the Act and whose primary object is to provide housing;
and
A corporation without share capital to which the Canada Not -for -profit
Corporations Act applies, that is in good standing under that Act and whose
primary object is to provide housing
1.8 Municipalities can charge interest to recover the costs associated with the development
charge deferral and / or the freezing of development charges. The Province may
prescribe a maximum interest rate; however, at this time there is no indication that the
Province will be prescribing a maximum rate.
2. Financial Implications of Changes
2.1 The changes effective January 1, 2020 for deferral of development charges for certain
types of development will result in the delay of collection of those development charges
which could put pressure on the Municipality to fund growth related capital
infrastructure. The timing of the receipt of development charges as a result of the
deferral could be at least three studies later, which means that the projects that the
funds were charged for could be completed prior to the final collection of the
development charges paid. This could result in an increased reliance on debt financing,
which increases the cost of development.
2.2 The delay in timing also represents an opportunity cost as the Municipality is not able to
earn interest on those funds to offset the need for development charges in the future.
Municipality of Clarington
Report FND-047-20
Page 4
Interest earned on the DC Reserve Funds is deposited back into the fund to be used to
fund growth related capital investment.
2.3 The freezing of development charges similarly impacts the Municipality's ability to fund
growth related infrastructure as the charge is locked for two years. This could span
studies which may result in the developer not paying for infrastructure that they
otherwise would fund. At a minimum the annual indexation would be lost, which
represents the time value of money.
3. Establishment of Development Charge Interest Policy
3.1 While the framework for interest rates and other changes to the Development Charges
Act will be implemented through the new 2020 Development Charges Study and By-law,
there is a need to establish a policy currently as the legislation is already in effect. This
policy would form the basis for future Development Charges By-laws.
3.2 There are two times at which the Municipality may charge interest, the first being on the
"freeze period" between the site plan or zoning by-law application date and the building
permit issuance, the other date being the deferral period for qualifying developments.
Interest During the "Freeze Period"
3.3 With the new legislation, the developer can lock -in their DC rate at the time of site plan
application or zoning by-law application for a period of two years. This provides an
incentive for the developer to proceed through the development process without
indefinitely locking -in the development charge rate.
3.4 The Municipality currently indexes development charges annually on January 15 by the
Statistics Canada Quarterly, Construction Price Statistics (catalogue number 62-007)
based on the November month end. It is suggested that the interest on the "freeze
period" be equal to this indexation.
3.5 Charging interest at the same rate as the indexation ensures that the Municipality does
not lose development charges during the freeze period; however it does protect the
developer if there was a significant change in development charges resulting from a by-
law amendment or a study update. Developers are no worse off by charging interest at
this rate.
Interest During Deferral Period
3.6 The new legislation aims to incent certain types of institutional and residential
development by allowing the development charges to be paid over a longer period of
time allowing for better cash flowing of the development project
Municipality of Clarington
Report FND-047-20
Page 5
3.7 As money is collected based on a past value, the time value of money would result in
the buying power of the deferred amount being lower. By charging interest, the
Municipality is able to stay whole in its purchasing ability, although the cash flow may
still require borrowing.
3.8 A theoretical argument could be made that the proper interest rate to charge would be
the Municipality's borrowing rate, as the Municipality would have to borrow for any cash
shortage caused by the deferral of development charges.
3.9 An alternate theory, Staff's proposed solution, is that the interest rate should be tied to
the Municipality's investment rate as the Municipality's opportunity cost is the amount of
interest that could otherwise be earned had we received the money. Funds can be
borrowed internally to make up for any short -fall; however the DC Reserve Funds would
be unable to earn interest on any deferred amount outstanding.
3.10 It is suggested that the interest rate charged on outstanding deferred development
charges be set at the Municipality's bank interest rate + one percent as at January 1
every year. The additional one percent recognizes the spread that could be earned on
long-term investments, recognizing that the Municipality invests in GICs, bonds and
other eligible investments to earn revenue for the reserve fund.
Reduced Rate for Affordable Housing Projects
3.11 It is suggested, based on the existing policy direction of Council, that qualifying
affordable housing projects receive an interest rate of 0% for the deferred development
charges. This is consistent with treatment of Parkview, which is a qualifying affordable
housing project through receiving funding from the Region of Durham. Affordable
housing, for the purposes of the reduced interest rate, is defined to be those projects
which are receiving funding from the Region of Durham for affordable housing (including
Provincial and Federal programs administered by the Region).
3.12 As the legislation stands, there is no preference for affordable housing versus other
"Non-profit Housing". Council's strategic priority specifically addresses affordable
housing, therefore it is felt appropriate that qualifying affordable housing projects could
qualify for the reduced interest rate. Further, by linking the lower rate with funding from
the Region of Durham we would be assured that if the project no longer qualifies as
affordable housing that we would be notified without having to commit municipal
resources to administration.
Municipality of Clarington
Report FND-047-20
Recommended Process
Page 6
3.13 While the above highlights that there are alternative ways to justify the determination of
interest, municipalities in Durham Region have adopted a different approach. The Town
of Whitby has established an interest rate of five per cent with delegated authority to the
Treasurer to adjust this rate as warranted. The City of Pickering has established a rate
of bank prime + two percent, the Town of Ajax uses the Bank of Canada bank rate + two
percent; however, it is revised twice per year at December 31 and June 30 of each year.
3.14 It is recommended that a specific interest rate is not desirable as interest rates will
change each year and the interest charged does not relate to any index, it is arbitrary.
The determination of interest rates twice per year allows the interest to remain current
and reflective of prevailing economic conditions. The use of the Bank of Canada rate is
an independent and easily verifiable rate which is publicly available.
3.15 The Municipality's policy utilizes the Bank of Canada's bank rate at June 30 and
December 31 each year. This is consistent with the Town of Ajax, but also is consistent
with other municipalities in that it is a variable rate tied to an economic index.
4. Concurrence
This report has been reviewed by the Municipal Solicitor and the Acting Director of
Planning and Development Services who concur with the recommendations.
5. Conclusion
It is respectfully recommended that that attached draft policy for Development Charge
Interest be adopted.
Staff Contact: Trevor Pinn, CPA, CA, Director of Financial Services / Treasurer, 905-623-3379
x.2602 or tpinn@clarington.net.
Attachments:
Attachment 1 — Draft Policy — Development Charge Interest Policy
Interested Parties:
There are no interested parties to be notified of Council's decision.
Corporate Policy
Attachment 1 to Report FND-047-20
ciff;woon
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POLICY TYPE:
SUBSECTION:
POLICY TITLE:
POLICY #:
POLICY APPROVED BY:
EFFECTIVE DATE:
REVISED:
APPLICABLE TO:
1. Purpose
Financial
Development Charges Interest Policy
Council
January 1, 2021
1.1 The purpose of this policy is to establish the rules and practices for charging
interest, as permitted under sections 26.1 and 26.2 of the Development Charges
Act, 1997.
1.2 This policy will support the Municipality's ability to build growth -related
infrastructure in a way that is financially sustainable and will help achieve the
following outcomes:
a. Good government providing reliable programs and services
b. Continued delivery of complete communities in a fiscally sustainable way
1.3 Fair and equitable treatment of all stakeholders involved in delivering housing
supply including residents, businesses and developers.
2. Scope
2.1 This policy applies to the charging of interest, as permitted under sections 26.1
and 26.2 of the Development Charges Act, 1997. This includes all types of
development in the Municipality of Clarington:
a. That are eligible for instalment payments under section 26.1 of the
Development Charges Act, 1997
b. Under section 26.2 of the Development Charges Act, 1997, where an
application for approval of development in a site plan control area under
subsection 41(4) of the Planning Act, 1990 has been made, or where an
application for an approval of a development in a site plan control area under
subsection 41(4) of the Planning Act has not been made, but where an
application has been made for an amendment to a bylaw passed under
section 34 of the Planning Act, 1990.
3. Definitions
3.1 Act — The Development Charges Act, 1997, as amended, revised, re-enacted, or
consolidated from time to time, and any successor statute.
3.2 Affordable Housing Development —For the purpose of this policy affordable
housing developments shall qualify for, and receive funding from, the Regional
Municipality of Durham specifically for the provision of affordable housing
development.
3.3 Development —The construction, erection or placing of one or more buildings or
structures on land. This includes the making of an addition or alteration to a
building or structure that has the effect of increasing the size or changing the use
from non-residential to residential or from residential to non-residential and
includes redevelopment.
3.4 Development Charge(s) — The Municipality of Clarington's development charges.
3.5 Total Accrued Amount — Equal to the total of the development charges and interest
which has accrued.
4. Regulatory Framework
4.1 Under the Act, development charges shall be paid in equal annual installments,
beginning at the earlier of first occupancy or occupancy permit under the Building
Code, Act, 1992 for:
a. Rental housing development that is not non-profit housing development
b. Institutional development
c. Non-profit housing development
Policy Number/Name Page 2 of 5
4.2 Subsection 26.1 (7) of the Development Charges Act, 1997 allows a municipality
to charge interest on the instalments from the date of the development charges
would have been payable under section 26 of the Act, to the date the instalment is
paid, at a rate not to exceed a prescribed maximum rate.
4.3 Subsection 26.2 (1) of the Act states that the total amount of a development
charge is determined on:
a. The day an application for an approval of development under subsection 41
(4) of the Planning Act was made, or
b. If clause (a) does not apply, the day an application for an amendment to a
bylaw passed under section 34 of the Planning Act was made.
4.4 Under subsection 26.2 (3) of the Act, a municipality may charge interest on the
development charge, at a rate not exceeding the prescribed maximum interest
rate, from the date of application referred to in paragraph 4.3 to the date the
development charge is payable.
4.5 The Act allows a municipality to charge interest on the development charge at a
rate not exceeding the prescribed maximum interest rate.
5. Policy
5.1 For deferred development charges per paragraph 4.1 the interest rate shall be set
annually on June 30, for the period July 1 to December 31, and December 31 for
the period January 1 to June 30 of the following year based on the Bank of
Canada's daily bank rate + 2 per cent.
5.2 Notwithstanding section 5.1, for affordable housing development, the interest rate
shall be 0%.
5.3 Notwithstanding section 5.1, for hospices qualifying for the deferral of development
charges, the interest rate shall be 0%.
5.4 A development shall be charged interest in accordance with paragraph 5.1 on any
unpaid development charges from the date that it no longer qualifies as an
affordable housing development or a hospice.
5.5 The interest rate for development charges qualifying under paragraph 4.3 and 4.4
shall be set in the same manner as paragraph 5.1.
Policy Number/Name Page 3 of 5
5.6 In the event the interest rate is amended or revised, the new interest rate shall
apply to the total accrued amount, prorated from the date of the interest rate
change to:
a. The date the total accrued amount is fully paid, or
b. The date of a subsequent change in the interest rate
5.7 All interest shall be compounded annually and shall accrue from the date of the
applicable application until the date the total accrued amount is fully paid. For the
purposes of proration, a calendar year is 365 days
5.8 If a subsequent application(s) is made for a development:
a. The date the subsequent application is made will become the new date under
which the total amount of the development charge is determined;
b. All interest that had accrued prior to the subsequent application shall be
deemed to be $0;
c. Interest will be compounded annually and begin to accrue from the date the
subsequent application is made; and
d. The amount of the development charges will be calculated as of the date of
the subsequent application.
5.9 If a development was one of the eligible types of development for instalment
payments under section 26.1 of the Act, the total accrued amount shall continue to
accrue interest from the date of the issuance of a building permit. Interest shall
accrue on the outstanding balance until the total accrued amount has been fully
paid.
6. Effective Date and Transition
6.1 This policy shall take effect on the date it is approved by Council.
6.2 This policy may be repealed and/or modified by Council at any time
6.3 To allow for a transition period, this policy does not apply to any development
where:
Policy Number/Name Page 4 of 5
a. An application under sections 34 or 41 (4) of the Planning Act is not required,
but:
Still qualifies for instalment payments under section 26.1 of the Act,
and
ii. Has been issued a building permit for development by the Municipality
prior to July 1, 2020
b. An application under subsection 41 (4) of the Planning Act is:
Made after January 1, 2020, and
ii. Has been issued a building permit for development by the Municipality
prior to July 1, 2020
c. An application for an amendment to a bylaw passed under section 34 of the
Planning Act is:
Made after January 1, 2020, and
ii. Has been issued a building permit for development by the Municipality
prior to July 1, 2020
Policy Number/Name Page 5 of 5