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Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee April 13 th , 2015 1

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Page 1: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Introduction to

Development Charges (DCs)

Strategic Priorities and Policy Committee

April 13th, 2015

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Page 2: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Agenda • What are Development Charges &

what do they pay for? • DC rate setting process • Payment of DCs and incentives • Why DCs are controversial • Council’s role regarding DCs

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Page 3: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

What are Development Charges (DCs)? Why are they important?

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Page 4: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

• The City charges a fee – a development charge - for recovery of growth costs.

• The province of Ontario has provided the legislated framework – the Development Charges Act (DCA),1997 :

“to pay for increased capital costs required because of increased needs for services arising from development of the area to which the by-law applies”

What are Development Charges?

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Page 5: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Build new infrastructure supporting growth

Pay down existing debt for past growth works

Avoid taxpayers paying for costs that serve growth

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Page 6: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

What do Development Charges pay for?

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Page 7: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Local Servicing Developer Cost

Primary Collector Road Cost Sharing

DEVELOPER-FUNDED SERVICES VS.

DC-FUNDED SERVICES

Oversized Servicing Cost Sharing

Existing arterial road

Existing 2 lane road District Park

DC Funded Cost

Stormwater Management

Facility DC Funded Cost

Local Road Developer Cost

Arterial Road Upgrade DC Funded Cost

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Page 8: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Local Servicing Developer Cost

Primary Collector Road Cost Sharing

DEVELOPER-FUNDED SERVICES VS.

DC-FUNDED SERVICES

Oversized Servicing Cost Sharing

Existing arterial road

Existing 2 lane road District Park

DC Funded Cost

Stormwater Management

Facility DC Funded Cost

Local Road Developer Cost

Arterial Road Upgrade DC Funded Cost

Trunk Services DC Funded Cost

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Page 9: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Local Servicing Developer Cost

Primary Collector Road Cost Sharing

DEVELOPER-FUNDED SERVICES VS.

DC-FUNDED SERVICES

Oversized Servicing Cost Sharing

Existing arterial road

Existing 2 lane road

Trunk Services DC Funded Cost

Stormwater Management

Facility DC Funded Cost

Local Road Developer Cost

Arterial Road Upgrade DC Funded Cost

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Page 10: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Local Servicing Developer Cost

Primary Collector Road Cost Sharing

DEVELOPER-FUNDED SERVICES VS.

DC-FUNDED SERVICES

Oversized Servicing Cost Sharing

Existing arterial road

Recreation Centre DC Funded Cost

Trunk Services DC Funded Cost

District Park DC Funded Cost

Stormwater Management

Facility DC Funded Cost

Local Road Developer Cost

Arterial Road Upgrade DC Funded Cost

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Page 11: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Local Servicing Developer Cost

Primary Collector Road Cost Sharing

DEVELOPER-FUNDED SERVICES VS.

DC-FUNDED SERVICES

Oversized Servicing Cost Sharing

Existing arterial road

Recreation Centre DC Funded Cost

Trunk Services DC Funded Cost

District Park DC Funded Cost

Stormwater Management

Facility DC Funded Cost

Local Road Developer Cost

Arterial Road Upgrade DC Funded Cost

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Page 12: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

How are the DC rates determined?

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Page 13: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

2014 DC Process – Overview

Policy Decisions

Background Study

Rate Calculations

Stakeholder Engagement

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Page 14: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Growth Allocations

• Growth projections prepared by demographic consultant • Staff estimate where growth will occur in specific locations city-wide (i.e.,

timing of build-out for new development areas)

Engineering Modelling

• Growth allocations used to determine amount of population and employment for a given area

• Engineering consultants use standard assumptions to determine project requirements to service the new population and employment

• Infrastructure project timing based on anticipated development of new development areas

Cost Estimates

• Generally, past experience used to ascribe costs to projects (e.g., tenders) • Comparison with other municipalities cost assumptions • Inclusion of contingencies for unanticipated cost escalations (e.g., fuel)

How are DC Project Costs and Timing Determined?

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Page 15: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Total DC Capital – 20 yr Plan ($millions)

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Page 16: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Deductions Impacting Rate Calculations

Gross DC Cost $$$ Less: Previous funding from past budgets $ Less: Federal/Provincial grants $ Less: Post period benefit (“future benefit”) $ Less: Benefit to existing development (“non-growth”) $ Less: 10% Statutory deduction $ Less: Service standard limitation $ Net DCs Recoverable $$

Opening balance of reserve fund is also subtracted from total net recovery

Soft Services

Hard Services

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Page 17: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

DC Capital Plan by Type of Growth ($millions)

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Page 18: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Net Projects ($)

Growth = DC Rates

Population or Square metres

Development Charges Rate Calculation • Number of projects • Timing of projects • Post Period Benefit

• Splits by type of development

• Amount of forecasted units and space

• Scope of DC recovery • Cash flow • Amount of future recovery

• Recovery for share of costs • Growth triggering projects 18

Page 19: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Who are the stakeholders involved in DC rate setting? What are their priorities?

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Page 20: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Finance and Corporate Services

Environmental and

Engineering Services

MASTER PLAN SERVICES & IMPLEMENT PROJECTS

Planning Services

GROWTH PROJECTIONS & INCENTIVES FOR TARGETED GROWTH

Development and

Compliance Services

Internal Stakeholders

FACILITATE DEVELOPMENT APPLICATIONS & COLLECT DEVELOPMENT CHARGES AT BUILDING PERMIT

Service Providers

-Library, Fire, Police, Parks

and Recreation, Transit

PLAN SERVICE NEEDS & IMPLEMENT PROJECTS

ADMINISTER FUNDS & COORDINATE STUDIES

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Page 21: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Development Community

• Balance timing • Affordable DC rates • Fair interpretation of

legislation

Urban League of

London

• “Growth pays for growth” • Sustainable capital

program • Affordable incentives • Consistent with DC Act

London Economic

Development

Corporation

• Development of new industrial areas

• Competitive DC incentives

General Public/Other

Interests (Taxpayers)

External Stakeholders

• Affordability of rates for small business

• Avoid expensive lifecycle costs

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Page 22: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Who pays Development Charges?

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Page 23: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

DC Reserve Funds

RESIDENTIAL COMMERCIAL INSTITUTIONAL INDUSTRIAL

• NEW BUILDINGS • EXPANDED BUILDINGS • CONVERTED BLDGS

(change of use)

$$$

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Page 24: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

50% discount for institutions Schools and municipal buildings exempted by DC Act

LONDON DC INCENTIVE PROGRAMS Downtown/ Old East Village Residential DC Grant

Commercial DC Rate Phase-in

Industrial DC Grant

DC Reserve Funds

RESIDENTIAL COMMERCIAL INSTITUTIONAL INDUSTRIAL

$

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Page 25: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

• DCA s5(6)2.: “it is not necessary that the amount of the development charge for a particular development be limited to the increase in capital costs, if any, that are attributable to that particular development”

DC’s – an averaging of growth costs applied equally to all development

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Page 26: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Area Rate Approach Average Rate Approach $avg /unit

$ x /unit

$ y /unit

$ z /unit

‘Area Rates’ vs. ‘Average Rate’ Approach

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Page 27: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Comparison of DC Recovery Alternatives Area Rating

Pros: - Improved link between DC

payable and service provided - Cited as a potential incentive for

intensification/infill - Use as a strategic tool for

growth management

Cons: - Justification of area rate

“networked” services – eg. roads, wastewater treatment

- Multiple DC by-laws to administer

- Potential for high costs to develop certain areas

- Transitional complexity

Average Cost Pros: - Everyone pays the same rate - Avoids “winners” and “losers” - Easier to administer – simpler

calculation Cons: - Perceived issues re: fairness - Potential to pay for services you

don’t benefit from - Less strategic

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Page 28: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Why are Development Charges so controversial?

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Page 29: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

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“Affordability!”

“Growth pays for growth!” “True cost accounting!”

“Locally competitive!” “No winners and losers!”

“Too much subsidy with DC Act deductions!”

“I’m ready to go tomorrow!”

“Keep administration requirements/resources low!” “Avoid low cost estimates!”

“The cost assumptions are too high!”

“Can’t a smaller pipe be DC claimable?!” “My business should be

exempted from DCs!”

“DCs are the reason I can’t build my building!”

“My property is already serviced!”

“We need contingency projects!”

“Only recovery for development requirements, not growth impacts!”

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Page 30: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

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2015 GMIS Requests would have increased DCs by $193 per single family and $2.20 per m2 commercial

“DC rates are too high”

“Advance services needed for my

project”

With an ‘accommodating’ Growth Plan….. ….. comes higher DC rates.

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Page 31: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

How is Council involved with DCs? What does Administration need from Council?

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Page 32: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Approval of Development Charges Background Study – established 20 year growth program and cost recovery (approved, summer, 2014)

Yearly DC Monitoring – examines DC revenues and project cost actuals vs. estimates (assess need to trigger a DC Study update)

Annual GMIS Updates – opportunity to adjust project timing to reflect ability to pay for projects and market conditions

Future DC Study – tweaks to previous DC Study and adding an additional 5 years of growth

Council Role in DC-Related Items

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Page 33: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Other Council Activities Related to Development Charges

Subdivision Reports

Project Approvals & Sources

of Financing

Landowner Proposals

• Developer oversizing claims (subdivision agreements)

• Estimated Costs and Revenues Schedule – the notes are very important

• DC funds applied to funding: • Environmental

Assessments • Detailed design work • Servicing studies • Project construction

• DCs are not “profit” to the City

for development of land • “Apples-to-apples” comparisons

important when considering DC revenues and expenditures

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Page 34: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Key Messages

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Page 35: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

DCs pay for growth infrastructure projects and past investments in growth.

DCs only pay for the initial capital cost of major growth-related services identified in the DC Background Study – not local services, ongoing operating costs, or lifecycle renewal costs.

DCs are determined by an established legislated process that identifies the servicing needs and costs for future development.

Development Charges:

Key Messages

1

2

3

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Page 36: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

Multiple internal and external stakeholders are involved in the DC rate setting process. Each has unique perspectives and goals regarding DCs.

DCs are paid by individuals constructing buildings. Certain forms/areas of development are exempted (DC paid by taxpayers). DC rates are charged uniformly throughout the City.

Development Charges:

Key Messages

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5

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Page 37: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

DC rate setting involves consideration of “affordability” and “flexibility.” Affordability is about keeping the cost of growth down by minimizing DC rates. Flexibility is about maximizing development opportunities by extending municipal services in numerous locations. The two ideals often conflict. Council is ultimately tasked with balancing the desire for development with the increased investment required to facilitate growth.

Development Charges:

Key Messages

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7

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Page 38: Introduction to Development Charges (DCs) · Introduction to Development Charges (DCs) Strategic Priorities and Policy Committee . ... • Project construction • DCs are not “profit”

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