Report to/Rapport au :
Planning and Environment Committee
Comité de l’urbanisme et de l’environnement
and Council / et au Conseil
17 February 2009 / le 17 février
2009
Submitted
by/Soumis par : Nancy
Schepers, Deputy City Manager
Directrice municipale adjointe
Infrastructure Services and Community
Sustainability
Services d’infrastructure et Viabilité des
collectivités
Contact
Person/Personne-ressource : Rob Mackay, Acting Director/Directeur intérimaire,
Community Sustainability Services/Services de viabilité des collectivités
(613)
580-2424 x22632, Rob.Mackay@ottawa.ca
|
|
Ref N°: ACS2009-ICS-CSS-0002
|
SUBJECT:
|
2009 DEVELOPMENT CHARGES BY-LAW
REVIEW: POLICY FRAMEWORK
|
|
|
|
OBJET :
|
EXAMEN DE
2009 DU RÈGLEMENT MUNICIPAL SUR LES REDEVANCES D'AMÉNAGEMENT : CADRE
STRATÉGIQUE
|
REPORT
RECOMMENDATIONS
That the Planning and
Environment Committee recommend Council approve the policy framework underlying
the update of the Development Charges Background Study as detailed in this
report.
1. That Development Charge By-law be used to recover the full
costs of eligible infrastructure;
2. That the costs continue to be allocated on a city-wide and
area specific basis per Document 1 of this report;
3. That the distribution of arterial and collector road
servicing costs be allocated based on Vehicle Kilometres Travelled (VKT);
4. That non-statutory exemptions, unless they promote smart
growth or affordable housing, be
discontinued two-years after the passage of the by-law;
5. That the annual indexing of the various dc rates be adjusted
to correspond to the date of the new Development Charge By-law adoption in
2009;
6. That the transition period for applying the new DC rates to
building permits, that have been filed with the City prior to passage of the
new by-law, be extended to December 31, 2009;
7. That going forward with the new Development Charges By-law,
a cash-flow analysis be undertaken to determine the residential and
non-residential charges;
8. That the repayment of front-ended projects be based on the
schedule of timing identified in the cash-flow analysis;
9. That redevelopment credits expire five years after the
issuance of a demolition permit.
RECOMMANDATIONS DU RAPPORT
Que le Comité de l’urbanisme et de l’environnement recommande
au Conseil d’approuver le cadre stratégique sous-tendant la mise à jour de
l’étude préliminaire sur les redevances d’aménagement, comme il est expliqué en
détail dans le présent rapport :
1. que le Règlement
municipal sur les redevances d'aménagement serve à recouvrer la totalité des
coûts des aménagements admissibles;
2. que les coûts continuent
d'être répartis en fonction de l'ensemble de la ville et des secteurs particuliers,
conformément au document 1 du présent rapport;
3. que la répartition des
coûts de soutien des artères et des routes collectrices principales soit basée
sur le nombre de véhicules-kilomètres;
4. que les exemptions non
législatives, sauf celles qui favorisent la croissance intelligente ou le
logement abordable, soient supprimées deux ans après l'adoption du règlement
municipal;
5. que l'indexation
annuelle des divers tarifs de redevances d'aménagement soit ajustée de manière
à concorder avec la date d'adoption du nouveau Règlement municipal sur les
redevances d'aménagement en 2009;
6. que la période de
transition pour l'application des nouveaux tarifs de redevances d'aménagement
aux permis de construire demandés à la Ville avant l'adoption du nouveau
règlement municipal soit prolongée jusqu'au 31 décembre 2009;
7. que dorénavant, le
Règlement sur les redevances d'aménagement exige qu'une analyse des flux
d'encaisse soit effectuée afin de déterminer les redevances d'aménagement
résidentiel et non résidentiel;
8. que le remboursement des
projets financés par anticipation soit basé sur le calendrier établi dans
l'analyse des flux d'encaisse;
9. que les crédits au
réaménagement expirent cinq ans après la délivrance du permis de démolir.
BACKGROUND
The Development
Charges Act, 1997 (DCA) received Royal Assent December 8, 1997. According to the Act, when municipalities
adopt a development charge by-law, it must be supported by a background study
that estimates the amount, type and location of development; includes a
calculation for each municipal service included in the development charge
(e.g. growth/non-growth split, residential/non-residential split, capacity
in existing systems), and an examination, for each service, of the long-term
capital and operating costs for the capital infrastructure required and other
information that is deemed relevant.
The DCA also states that municipalities, wanting to impose development
charges, must update and complete a new background study to determine
development charges within a five-year period of the existing by‑law
in-force date. Therefore, the City of
Ottawa must pass new development charge by-laws by July 2009 when its various
by-laws expire. The upcoming adoption
of the City’s revised Official Plan and related Transportation and
Infrastructure Master Plans will establish a new vision for determining capital
priorities based on current growth projections.
DISCUSSION
This report is designed to initiate the policy
discussion required in producing a revised development charges background study
and by-law. Staff and the consultant
have established various components of the policy framework and calculation
methodology proposed to be incorporated into the revised study. The following outlines several of the key
principles and approaches required in calculating the new set of charges that
are tailored to the City’s specific requirements.
Calculation Framework
a) The
Development Charge (DC) By-law will be used to recover the full costs of
anticipated development.
One of the Guiding Principles passed as part of the
Fiscal Framework-2007 is that growth should pay for itself to the full extent
allowed by legislation and not be subsidized by property taxes and utility
rates. Staff, as part of the completion
of the DC background study, will undertake a review of the quantum of both the
residential and non-residential development charge rates based on the Council
approved growth forecast (population/employment projections). The overall goal will be to collect
development charges to fund the forecasted total growth-related capital program
for the provision of eligible services.
The City's list of categories of services includes: Roads, Sanitary Sewers,
Water, Stormwater, Fire, Police, Public Transit, Parks, Recreation, Libraries,
Child Care, Paramedic Services, Public Works, and Studies. In addition, a new service category has been
included for the provision of Social Housing.
Municipal services which continue to be ineligible for DC funding
include cultural facilities e.g. museums, theatres and art galleries; tourism
facilities e.g. convention centres; parkland acquisition, including woodlots
and environmentally sensitive areas; hospitals; waste management services; and
general administrative headquarters.
In 2006, the Province of Ontario amended the DCA to
allow the Region of York and City of Toronto to increase the DC funding
available to offset the costs of Toronto/York Subway Extension. The two innovative financing strategies granted
by the Province were: basing the planned level of service on future
requirements rather than on the average level of service in the ten years prior
to the study and exempting the Toronto/York Subway Extension from the
requirement for a 10 per cent mandatory municipal contribution. In the fall of 2008, the Province of Ontario
decided not to amend the DCA to also allow other municipalities the ability to
use these financial strategies to increase the amount of DC funding associated
with implementing similar transit service expansions.
b) The
study will incorporate objectives contained in the Official Plan update,
Transportation, and Infrastructure Master Plan reviews to be completed in early
2009.
The structure of the development charge by-law(s) will
continue to be used to contribute to the implementation of policies such as the
encouragement of compact development, use of existing infrastructure,
encouragement of mixed-use development, and concentration of rural growth in
villages. The master plans will also
contain updated estimates of project timing and detailed construction costs.
Although in the recently completed analysis by Hemson Consulting it suggests
there is a municipal deficit in servicing village development, staff believe
this represents good land use planning that prevents ribbon development, etc.
c) The
calculation methodology will continue to align the servicing characteristic and
geography of Ottawa (Document 1), which are as follows:
i. Implement city-wide cost allocation for those
service areas that are appropriately funded by all new development.
Some growth-related services
provide benefit throughout the Ottawa service area. These often provide benefit to the entire Ottawa area from a
single location (sewage treatment) or the growth-related benefit is diffuse and
cannot be assigned to a specific geographic location. Other examples are: water purification, major road network, and
child care. The growth component of
these facilities should be cost-shared at a uniform rate in one part of the
city as another.
ii. Implement specific "large area
rates" for services that can be assigned to general geographic
distribution areas.
Wherever possible and reasonable,
charges should be amalgamated to a higher geographic area to spread the cost
over the area of development being served; to reduce administrative error and
cost; to increase stakeholder community understanding; to avoid penalizing
development unnecessarily for particular geographic features; and to maintain
some consistency between charges for growth-related municipal services,
property taxation and user fee practices.
With fewer area-specific charges,
the City is better able to determine its servicing priorities; to use funding
more flexibly within service accounts; to better respond to factors impacting
municipal decisions; and to be more strategic in its service provision. Monies collected for services in relation to
development charges cannot be used for another purpose. Therefore care must be taken in the definition
of areas. If areas are defined too
finely, it may remove users of the service from the requirement to pay (those
locating outside of the defined area).
For example, with a recreation facility, if the area of users were too
narrowly defined, future users from other growth areas would not be required to
pay, even though they are users of the facility. Narrowly defined areas can lead to a reduction in flexibility for
the municipality as monies collected can only be spent for the specific
services in the specific area. In
addition, it would reduce the City's ability to determine its servicing
priorities. In effect, individual
developers would determine the priority of the infrastructure that gets
built. With the definition of specific
areas at an appropriately high level, these concerns can be greatly mitigated.
Therefore, to implement the
general direction of the revised Official Plan and to reflect principles of
equity, most services would be assessed with a large area approach: Inside the Greenbelt, Outside the Greenbelt,
and Rural. For example, staff are
proposing that the arterials and collectors within the Roads service category
be allocated based on the additional Vehicle Kilometres Travelled (VKT)
generated from each area. This distribution
takes into account the increase in trip internalization from the three large
geographic areas. This results in the
following allocation of future Road costs: eight per cent to Inside the
Greenbelt, 65 per cent to Outside the Greenbelt, and 27 per cent to the Rural
Area.
The current Official Plan and
existing by-laws provide that particular portions of the city are not within
the service area for some municipal services.
As a result, residents outside of the defined boundary have not shared
in the cost of providing sanitary, water and transit services. This practice will be reviewed as part of
the by-law update.
iii. Implement specific area rates for services
that clearly benefit only a definable client group.
Some growth-related servicing projects
are required solely for the benefit of a localized and definable service area,
for example, the construction of a storm water management infrastructure that
provides a service to specific lands not previously serviced. Such costs can be segregated and allocated
to specific benefiting areas. This
practice would be continued where a clear case can be made that it is the most
equitable practice. It also encourages
landowners to address servicing and infrastructure requirements by entering
into front-ending agreements with the City.
d) Undertake a review
of the current list of discretionary or non-statutory exemptions.
Development charges are based upon the estimated
capital needs attributable to growth-related municipal services. Where charges for categories of uses are
exempted or reduced, some other means of funding or offsetting the capital
costs must be found. Exemptions are
most effective when they represent the difference between a project proceeding
and not proceeding by funding the gap to make the project financially
feasible. Therefore, certain
non-statutory exemptions (Document 2) are proposed to be discontinued unless
they promote transit use, smart growth and environmental stewardship such as
the use of existing infrastructure (redevelopment of brownfield areas) and are
considered sufficiently desirable (non-profit housing) to warrant a tax-based
subsidy. There will be a two-year
phase-out period, starting on date of the passage of the by-law, in which
organizations will be able to continue to apply for an exemption under the
current by-law provisions. After the
two-year grace period, all of the exemptions listed in Document #2 to be
discontinued, are proposed to be eliminated.
e) Continue to use the
Infrastructure Construction Price Index.
In March 2003, Council adopted a
Statistics Canada Infrastructure Development Charges Price Index to replace the
use of the Statistics Canada Construction Price Index that is prescribed by the
Development Charges Act, 1997. The new inflation factor was considered by
the City and industry to better reflect the localized benchmark costs for
Ottawa. The new index has increased 17
per cent (2002-2006) versus 24 per cent to 25 per cent for the prescribed
(Toronto) DC Index over the same timeframe.
Currently, indexing takes place annually on April 1 but will be adjusted
to correspond to the date of by-law adoption. The development industry has
requested this change to better reflect their construction cycle.
f) Provide
for post-adoption implementation requirements to allow landowners with
in-stream planning applications to receive the benefit of the existing lower
development charges (if applicable).
During the last by-law review several landowners
challenged the City on the lack of transition provisions as grounds for
appealing the by-law. There is no
legislative requirement for such provisions; however, many municipalities
currently provide a transition program.
In the last by-law the transition time frame was extended to December
1. Staff are recommending an extension
to the end of the year. The cost of
phasing in the charges under the current by-law was approximately $8 million.
g) Review
existing by-law definitions.
The proposed
definition changes to the by-law will help provide greater clarity regarding
the application and implementation of various provisions and rates, therefore,
assisting staff in the day-to-day administration of the documents.
h) Undertake
a cash-flow analysis to determine the quantum of the residential and non-residential
charges.
The final step in determining the new rates will be an
annualized cash-flow analysis of the growth-related net capital program for
each service category. This methodology
will take into account the forecasted timing of projects, receipt of payments,
interest earnings, reserve fund balances (for both hard and possibly soft
services) and carrying costs. In many
instances, expenditures are required for roads, water, and sewer projects well
in advance of the collection of fees.
The City will, therefore, experience financial challenges because cash
flows may not be at optimal levels.
This will require the assistance of the development community to help
facilitate the construction of certain projects. Staff will work with developers to establish a viable financing
plan that will provide the necessary funding to undertake infrastructure works
in a timely sequence. Such funding
arrangements could include the prepayment of development charges, front-ending
agreements, and credits (services-in-lieu) for all or a portion of fees payable
given in exchange for performing the work.
It is anticipated that there will be minor timing changes made to the
capital forecast as part of the City’s annual capital budget process. Repayment of front-ended projects will be
based on the schedule of timing identified in the background study.
i) Update
redevelopment credits (demolition credits).
Redevelopment credits are provided in recognition that
a pre-existing residential and non-residential building or structure, that has
been demolished, had an existing demand on services allocated to the
property. Staff are recommending the
imposition of a five-year time limit, which is common municipal practice,
between the issuance of a demolition permit and the granting of a building
permit for preserving the credit. Any
demolitions that take place after the passage of the new by-law will be subject
to the five-year redevelopment credit expiry period. Demolition allowances would continue to be based on the rate in
effect in the active by-law with the overall development charge reduction not
exceeding the amount otherwise payable.
A credit would not apply, after a two-year transition period, if a
building type were exempt under the by-law i.e. former school sites. Finally, credits would remain with the
property and would not be transferable to another parcel of land.
j) Timetable for the
Development Charges Study.
The development of a new background study will be lead
by Community Sustainability Services Branch with input and assistance from the
various City departments. Consulting
services have been retained for specific areas of work. An Advisory Committee has been established
for the study, consisting of managers and directors from many areas of the
corporation. This committee is intended to ensure that there is corporate-wide
understanding and concurrence with the development charges review process. A
Stakeholders' Group has been formed to provide input into the process and
feedback at key stages of the review. A
timetable for the development charges review is provided for information in
Document 3.
The critical points in the review include: the timing of the adoption of the new
by-law, the formal public consultation process that will take place in the spring
of 2009 and the preparation of the information for the public consultation
process.
CONSULTATION
Before passing a
development charge by-law, Council is required to hold at least one public
meeting to review the Development Charges Background Report, Council report and
proposed Development Charges By-law. The timelines of the Development Charges
Review Study work plan foresees this meeting to be held at the Corporate
Services and Economic Development Committee at the end of May 2009. A minimum of 20 days notice of the
meeting(s) is required and the proposed by-law and background study are to be
made available to the public at least two weeks prior to the meeting. Public
notice may be given by publication in a newspaper with sufficiently general circulation.
Any person who
attends a meeting may make representations relating to the proposed
by-law. If a proposed by-law is changed
following a meeting, Council shall determine whether a further meeting is
necessary. Such a determination is
final and not subject to review by a court or the Ontario Municipal Board.
Prior to the
formal public consultation, a Development Charges Stakeholders’ Group has been
established. The Stakeholders’ Group is comprised of interested representatives
of the residential and non-residential development community, GOHBA and BOMA,
and citizen groups. The Stakeholders’ Group is intended to provide an informal
forum for input, liaison and feedback at key stages of the preparation of the
development charges by-law.
LEGAL/RISK MANAGEMENT IMPLICATIONS
The Development Charges Act provides for a five-year time period
for the duration of development charges by-laws. The current by-laws were enacted on 14 July 2004; therefore the
next by-laws must be enacted no later than 13 July 2009.
To the extent that persons are of the view that the City does not follow
the process set forth in the act and regulation with respect to the content of
the background study and the by-law, they are able to appeal the by-law to the
Ontario Municipal Board. The Board does
not have the power to increase a development charge but may only provide for a
decrease. Where the Board does so,
affected persons are entitled to a refund with interest.
FINANCIAL IMPLICATIONS
The fiscal framework is the City’s high-level
“roadmap” to sustainable finances. It
is a Council-endorsed “financial constitution”, which will guide all financial
decisions and will be the primary instrument to measure the City’s financial
condition. One of the ten key financial
elements listed under Growth is that the DC by-law will be used to recover the
costs of growth to the full extent permitted by legislation (thereby minimizing
the financial burden of the costs of growth on existing residents).
SUPPORTING DOCUMENTATION
Document 1 - Summary of Proposed Geographic Recovery
Areas
Document 2 - List of Discretionary Exemptions
Document 3 - Development Charges Update - Timetable
Document 4 - Development Charge Issue Paper
DISPOSITION
City staff to carry out the direction of Council with
regards to the preparation of the Development Charges Study.
