Development Charges
The Strategic Policies and Priorities Committee recommends the adoption of the following
report (March 12, 1998) from the Chief Financial Officer and Treasurer:
Purpose:
To seek Council authorization to commence the requisite background studies and policy
formulation
leading up to the introduction of a comprehensive development charges by-law for the City of
Toronto.
Funding Sources, Financial Implications and Impact Statement:
Development charges are used as a mechanism to recover costs of infrastructure improvements
necessary to accommodate new development. The philosophy behind these charges is based on
the concept that growth ought to pay for itself and that development related costs should not fall
on the tax base.
At present, development charges are not applied uniformly as a capital financing tool in the City
of Toronto. The quantum of the charges, the policies governing exemptions, credits and timing
of collection and the alternative methods of exacting development related contributions vary
substantially across the new City. As a result, two identical development proposals in different
areas of the city are likely to be faced with vastly differing municipal financial requirements.
The provincial government has introduced a new Development Charges Act, which comes into
force on March 1, 1998. The enactment of this new legislation is timely in that it provides us the
opportunity to comprehensively review the capital needs of the new City of Toronto with a view
to both fully utilizing this source of financing and standardizing the myriad of rates and practices
across the City.
The amount of work leading up to the implementation of a new development charges by-law is
substantial. The process is lengthy, requiring a multitude of background studies, justification of
the levies, formulation of policy and consultation with stakeholders. By-laws are subject to
appeal to the Ontario Municipal Board.
It is proposed that the requisite background studies be funded from an existing development
charge reserve fund specifically established for this purpose. No other funding is required and
there are no immediate financial implications on the operating or capital budgets.
Recommendations:
It is recommended that:
(1) The Chief Financial Officer and Treasurer be authorized to utilize appropriate staff
resources and funds of up to $300,000.00 from the North York Development Charges
Reserve Fund - Capital Growth Studies to undertake the requisite background studies
pursuant to the Development Charges Act, 1997;
(2) The Chief Financial Officer be authorized to hire, where necessary, the appropriate
consultants to assist with these studies; and
(3) Chief Financial Officer proceed as per the attached Schedule A, with a view to ensuring
the appropriate by-laws are in place within the 18 months window provided by the
legislation.
Council Reference / Background / History:
N/A
Comments and / or Discussion and / or Justification:
What are "development charges"?
Municipalities have traditionally required that developers either build, or pay for infrastructure
services that may be required as a result of new development and re-development. In the past,
there has been wide disparity among municipalities in the methodology and practices of
recovering capital costs from development. These practices have ranged from the use of lot
levies, sewage impost charges, S.37 of the Planning Act (bonus zoning) agreements, secondary
plan policies and conditions of zoning or site plan approval.
"Development charges" has a very specific meaning as per the legislation, and in this report is
used within that context. Development charges are charges imposed against the development or
redevelopment of land to pay for growth-related infrastructure. The Development Charges Act
specifies the types of costs that may be included in a charge, and the requirements which must
be satisfied for a municipality to be able to levy these charges. Development charges pay for
"hard services" such as roads, sewers & watercourses and "soft services" such as recreation
facilities, parks development, library services, fire protection and other such services. The
charges are intended to recover only capital costs, while it is presumed that the new taxes
generated by growth will pay for the operating/on-going maintenance costs related to these
services.
Development Charges are levies against new development that are collected under provincial
legislation (the Development Charges Act), and appropriate municipal by-laws. New
development (in the context of the legislation) means development of vacant lands and/or re-development of previously developed lands. In order to collect development charges, a
municipality is required to pass by-laws for the imposition of these charges in accordance with
the requirements of the Development Charges Act.
Development Charge Legislation:
The first Development Charges Act became law in November of 1989. The intent of the Act was
to rationalize these charges and clearly identify what was and was not collectible in the form of
development levies. Most municipalities brought forward appropriate by-laws, and have
subsequently updated those by-laws as required by the legislation.
In November of 1996, the provincial government introduced draft development charge
legislation that was significantly different from the previous Act. Following many months of
consultation and intense debate, the legislation was significantly amended, and eventually
received royal assent on December 8, 1997. The regulations to the Act were released on
February 18, 1998, and the Lieutenant Governor issued a proclamation naming March 1, 1998, as
the day the Act comes into force.
The new legislation is different from the old in the following ways:
Ineligible services (Section 2): The new legislation specifically identifies services for which a
municipality may not levy a development charge. These services include cultural or
entertainment facilities, tourism facilities, parkland acquisition, hospitals, administrative
buildings, waste management services and other services as prescribed in the regulations.
Exemption for industrial development (Section 4): Enlargement of the gross floor area of an
existing industrial up to 50 percent will not incur a development charge. Under the old
legislation this specific provision did not exist.
Methodology for determining development charges (Section 5): The new legislation is more
specific about the methodology for developing standards and calculating the actual charges.
10 percent reduction in capital costs (Section 5): Capital costs for growth related infrastructure
should be reduced by 10 percent before the charges are determined. The following services are
exempt from this sub-section; water supply services, including distribution and treatment
services; waste water services, including sewers and treatment services; storm water drainage and
control services; services related to a highway as defined in subsection 1 (1) of the Municipal
Act; electrical power services; police services; fire protection services; and other services as
prescribed.
Other differences include longer appeal periods, a revised section on Front Ending Agreements,
and extensive transition provisions.
Current Status of Development Charges Within the New City:
Three of the former municipalities in Toronto have development charge by-laws in place under
development charge legislation passed in November 1989 - North York, Etobicoke and
Scarborough. These by-laws levy different rates, for different types of development. In some
cases, local Councils have adopted partial or full exemption of these charges to different classes
of development.
In 1997, North York, Scarborough and Etobicoke collectively raised approximately $15 million
in development charge revenue. This revenue is restricted in use by legislation and can only be
spent on specific services and in the former municipalities in which the charges were imposed.
Existing development charge reserve funds currently total in excess of $42 million.
Metropolitan Toronto Council in October 1997 approved a by-law to levy area specific charges
to finance the growth-related cost attributed to the Sheppard subway. This by-law was
developed for implementation under the new development charge legislation. Schedule B
provides a summary of existing charges and practices.
Effective January 1, 1998, Bill 103, the City of Toronto Act, 1997 extended these different
development charge by-laws to the new City of Toronto. As a result, different development
charges are currently collected within different areas in the new City of Toronto. The new
Development Charges Act enables current Development Charges by-laws to continue into force
until the end of an eighteen (18) months transition period, that is until September 1, 1999. Staff
must undertake substantial work and appropriate background studies in order to develop and
justify any recommended development charges.
Under normal circumstances 18 months would be sufficient time to meet the requirements of the
new draft legislation. In the new City of Toronto, key decisions will be required fairly early in
1998, for the process to be completed within the time-frame provided by the new legislation. To
that end, a work plan and timetable for implementation has been prepared and is attached as
Schedule "A".
Why Are Development Charges so Important?
Development charges can play an important role in alleviating some of the financial pressures we
are experiencing in the new City of Toronto. The Capital Budget in particular will require
serious consideration of alternative funding sources for infrastructure. Development charges are
one such source that should be explored within the context of a comprehensive development/re-development plan for the new City of Toronto. A simulation model developed by staff provides
a broad order of magnitude estimate of the potential development charge revenues that can be
generated in the new City of Toronto. The model estimates potential development charge
revenues of $45-$55 million per year.
The preliminary estimates serve only to provide a general measure of the level of revenues that
can be raised from this financing source. Revenue estimates will be impacted by a number of
policy decisions that Council will have to consider. These include whether or not to provide full
or partial exemptions to various classes of property, the degree of competitiveness of the charges
relative to other GTA municipalities and the extent to which development charges should be set
to recover all eligible growth related costs (ie. the recovery rate).
Conclusions:
This report begins the lengthy process of reviewing future development potential, developing a
long-term capital program, gathering data related to service levels, costs and standards and
establishing the criteria and principles on which a development charges by-law (or by-laws)
should be based. The process requires that staff work in consultation with the development
industry and other stakeholders so as to recommend charges that are reasonable, but reflective of
the impact of new development/re-development on the city's capital infrastructure.
Contact Name and Telephone Number:
Val Sequeira - Metro Hall: 397-4225, Scarborough: 396-4271
Rob Hatton - Metro Hall: 392-9149
Joe Farag - North York: 395-6706, Metro Hall: 397-4208