introduction to development charges (dcs) · introduction to development charges (dcs) strategic...
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Introduction to
Development Charges (DCs)
Strategic Priorities and Policy Committee
April 13th, 2015
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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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What are Development Charges (DCs)? Why are they important?
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• 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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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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What do Development Charges pay for?
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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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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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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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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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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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How are the DC rates determined?
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2014 DC Process – Overview
Policy Decisions
Background Study
Rate Calculations
Stakeholder Engagement
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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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Total DC Capital – 20 yr Plan ($millions)
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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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DC Capital Plan by Type of Growth ($millions)
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Net Projects ($)
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
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Who are the stakeholders involved in DC rate setting? What are their priorities?
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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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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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Who pays Development Charges?
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DC Reserve Funds
RESIDENTIAL COMMERCIAL INSTITUTIONAL INDUSTRIAL
• NEW BUILDINGS • EXPANDED BUILDINGS • CONVERTED BLDGS
(change of use)
$$$
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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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• 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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Area Rate Approach Average Rate Approach $avg /unit
$ x /unit
$ y /unit
$ z /unit
‘Area Rates’ vs. ‘Average Rate’ Approach
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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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Why are Development Charges so controversial?
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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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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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How is Council involved with DCs? What does Administration need from Council?
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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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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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Key Messages
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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
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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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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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