Children's Oncology Care of Ontario Inc.

(Ronald McDonald House)

- 356 Dundas Street West - Ward 24

The Strategic Policies and Priorities Committee recommends the adoption of the following report (September 18, 1998) from the Chief Financial Officer and Treasurer:

Purpose:

To obtain City Council's direction regarding the payment of property taxes for the property at 356 Dundas Street West, currently owned by Children's Oncology Care of Ontario Inc. which has, by virtue of special legislation, been exempt from property tax since January 20, 1986. Should Council not require payment of taxes foregone, then its authorization is sought for the release of the agreement registered on title against the property and the repeal of By-law No. 487-87 exempting the property from taxation for municipal and school purposes. Children's Oncology is in the process of selling the property and has a closing date of September 30, 1998.

Funding Sources, Financial Implications and Impact Statement:

Should Council require the payment of taxes foregone, the City would receive $247,017.41 in exempt back taxes of which $135,350.21 would be payable to the School Board or Province.

Recommendations:

It is recommended:

(1)That Council not require the payment of taxes that have been foregone in the 10-year period preceding the sale of 356 Dundas Street West as a result of the property tax exemption;

(2)That Council authorize

(a)the release of the exemption agreement dated May 16, 1986 from title; and

(b)the repeal of By-law No. 487-87 effective from the date of transfer of the property; and

3)That the appropriate civic officials be authorized to take whatever action is necessary to implement the foregoing, including the introduction of the necessary bill in Council to repeal By-law No. 487-87.

Comments:

Solicitors for Children's Oncology Care of Ontario Inc. (Ronald McDonald House) have advised that their client has entered into an agreement of purchase and sale with respect to its property at 356 Dundas Street West with a closing date of September 30, 1998. Council of the former City of Toronto had supported Children's Oncology Care of Ontario Inc.'s application for special legislation to exempt the property from taxes for municipal and school purposes (more fully discussed below). The solicitors have requested confirmation that there are no taxes outstanding against the property and that the agreement registered against title with respect to the property tax exemption be released.

The former City of Toronto adopted criteria (Executive Committee Report No. 28, Clause 32, (May20, 1982) to support tax exemptions from property tax through special legislation. One of the criteria was that "the exemption should not be supported by Council unless the legislation proposed provides that the City may enter into an agreement with the designated organization, whereby in the event that the exempted property is sold, then taxes foregone for ten of the preceding years shall be payable to the City, with provision for this liability to be forgiven should the organization have acquired another property in the City and continued its cultural and recreational community services".

Council of the former City of Toronto at its meeting held on May 14, 1984 (Executive Committee Report No. 14, Clause 42) authorized the support of Children's Oncology Care of Ontario Inc.'s application for special legislation to exempt its property at 356 Dundas Street West from taxes for municipal and school purposes in the form attached to the April 27, 1984, report of the Commissioner of Finance (discussed below).

The application for special legislation was approved by the Province and the Children's Oncology Care of Ontario Inc. Act, 1986 received Royal Assent on January 20, 1986. The legislation provides that Council may pass by-laws exempting from taxes for municipal and school purposes, other than local improvement rates, the property at 356-358 Dundas Street West so long as the land is occupied and used solely for the purposes of Children's Oncology Care of Ontario Inc. The legislation also provides that Council may provide that a tax exemption by-law does not come into force unless Children's Oncology Care of Ontario Inc. enters into an agreement with the City whereby, if the land exempted from taxes is sold, leased or otherwise disposed of, then the taxes foregone in the preceding period of ten years or in the period since the by-law was passed, whichever period is shorter, shall immediately become payable. The legislation also provides that where the City receives a payment under an agreement, it must retain for its own use its share of taxes foregone and must reimburse The Board of Education for the City of Toronto and the Metropolitan Toronto School Board and The Municipality of Metropolitan Toronto for their share of the taxes foregone.

Council of the former City authorized that an agreement be entered into with Children's Oncology Care of Ontario Inc. which incorporated the provisions of the Children's Oncology Care of Ontario Inc. Act, 1986. An agreement dated May 16, 1986 was entered into between the parties and registered on title July 22, 1987 as instrument CT 887642. By-law No. 487-87 was passed on July 13, 1987 to authorize the tax exemption effective as of January 20, 1986.

This is the first instance in which a property in the former City of Toronto which has been exempted from the payment of taxes under special legislation is to be sold. The issue is the payment of taxes foregone. As noted above, the special legislation and the agreement both provide that if the property is sold, then any taxes foregone in the preceding ten years or since the by-law was passed, whichever period is shorter - which in this case would be ten years - are to be payable to the City. The taxes foregone for the last ten years total $247,017.41 of which the City (including Metro share) is $116,667.20 and the school board share is $135,350.21.

Despite the wording of the criterion referred to above, it was the intended, at that time, that the payment provision be included only to ensure that any property exempted from taxes by the City, not be sold in less than ten years from the receipt of the tax exemption and receive windfall capital profits, i.e. the financial benefit of nonpayment of taxes. In effect, the City wanted to ensure that a property which received a tax exemption continued to provide the services for which it received the exemption and not be sold for a short term benefit. Although that was the intent, both the special legislation and the agreement require the mandatory payment of taxes foregone, in this case, taxes foregone for the immediately preceding ten years.

Since the period of time that the property was used for purposes for which it received a tax exemption exceeds ten years, it would seem to meet the City's original intent that no taxes be payable to the City on sale of the property. However, since both the special legislation and the agreement require the payment of taxes foregone, Council must make a decision on whether it will require payment of taxes. It should be noted that Children's Oncology Care of Ontario Inc. owns another property at 26 Gerrard Street East which continues the purpose for which the Dundas Street West property was purchased. The Children's Oncology Care of Ontario Inc. Act, 1993, was passed to enable the exemption from taxation for that property -26 Gerrard Street East.

Conclusion:

Council's direction is sought as to whether any taxes foregone during the past ten years for the property at 356 Dundas Street West should be paid on sale of the property. It was the intent of the City at that time, that the payment provision be included only to ensure that any property exempted from taxes by the City, not be sold in less than ten years from the receipt of the exemption and receive the financial benefit of nonpayment of taxes for the shorter period. Should Council decide not to require payment of the taxes foregone, it should authorize the release of the agreement from title and the repeal of By-law No. 487-87.

The City Solicitor has been consulted in the preparation of this report.

Contact Name:

Paul Wealleans, Phone: 397-4208, Fax: 392-3649.

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The Strategic Policies and Priorities Committee also submits the following communication (September18,1998) from Betsy Wright, President, Children's Oncology Care of Ontario Inc:

We are writing in connection with the pending sale of the First House which is scheduled to be completed September 30, 1998.

In 1979, the First House first opened its doors to provide a home away from home for the families of children coming to Toronto for cancer therapy. Since that time, the First House has provided shelter and emotional support to thousands of families required to deal with the trauma of a gravely ill child. The First House quickly became an integral and respected part of the pediatric oncology regime in the City of Toronto. As a result, it was often filled to capacity with the result that many otherwise qualified families were not able to be accommodated.

In the late 1980s Ronald McDonald House, with the enthusiastic prompting of, among others, the Hospital For Sick Children, decided to expand its operation by the creation of a second House. That second House was eventually built at 26 Gerrard Street East (the "Second House") where it now serves the families of children suffering from all manner of life-threatening diseases including cancer and organ transplant-related illnesses. The Second House was created for two purposes:

(i)to expand the capacity of Ronald McDonald House including the creation of a more modern facility with more medically relevant amenities; and

(ii)to provide a site where all of the services offered by Ronald McDonald House in the City of Toronto could be consolidated under one roof if it became desirable or necessary to do so.

The creation of the Second House required Ronald McDonald House to incur an initial indebtedness in excess of $3,500,000.00. This has proved to be a significant financial burden. The facilities in the First House continued to age and to require costly repair and replacement. Moreover, the First House lacks such facilities as medically correct isolation rooms; the cost of making the necessary improvements to the First House makes any significant changes to that house impracticable. We have made application to the Committee of Adjustments to permit the addition of a further seven (7) isolation rooms to the Second House at an estimated cost of approximately $500,000.00. These factors, and others, convinced us that the time had come to sell the First House and to invest the proceeds into paying for, and improving, the Second House. While it is not possible to determine, precisely, the total cost of the First House, it is estimated to have been between $1,250,000.00 and $1,450,000.00. The current sale price for the First House, 19 years later, is $1,600,000.00.

It is important to be aware that we could not have sold the First House and then used the proceeds from that sale to purchase and build the Second House. If we had proceeded in that manner, there would have been a period of approximately 18 months during which Ronald McDonald House would have been virtually out of business while we waited for the Second House to be constructed. It was necessary that we proceed in the manner that we have in order to ensure continuity, and no disruption, of the services which we provide to our families.

We have requested the City of Toronto to release the First House from the Realty Tax Deferral Agreement (the "Agreement") and to permit us to invest all of the proceed from the sale of the First House into the Second House for the purpose of paying for the Second House as well as making significant capital improvements to it. We understand that the aggregate amount of the deferred realty tax is approximately $270,000.00. The loss of this money would have a serious adverse impact upon the operation of the Second House and, in particular, upon the proposed creation of the additional isolation rooms.

We believe that it is within the spirit, and the intent, of the Agreement that all of the proceeds from the sale of the First House should be available to be invested in the Second House. This is precisely what we intend to do. We hope that you will concur in this assessment and permit us to continue being one of Toronto's havens for families in crisis.

Thank you for your attention.