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March 12, 1998

  TO:Strategic Policies and Priorities Committee

 FROM:W. A. Liczyk

Chief Financial Officer & Treasurer

 SUBJECT:Development Charges

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 be authorized to utilize appropriate staff resources and funds of up to $300,000 from the North York Development Charges Reserve Fund - Capital Growth Studies to undertake the requisite background studies pursuant to the Development Charges Act, 1997

 

  1. The Chief Financial Officer be authorized to hire, where necessary, the appropriate consultants to assist with these studies

 

  1. The 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 Adevelopment 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.

 ADevelopment 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 Ahard services@ such as roads, sewers & watercourses and Asoft 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% 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% reduction in capital costs (Section 5): Capital costs for growth related infrastructure should be reduced by 10% 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 AA@.

 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 Hall397-4225

Scarborough 396-4271

 Rob Hatton

Metro Hall 392-9149

 Joe Farag

North York 395-6706

Metro Hall 397-4208

jfarag@city.north-york.on.ca

     W. A. Liczyk

Chief Financial Officer & Treasurer

 

 SCHEDULE AA@

WORK PROGRAM

FOR ADOPTION OF A NEW DEVELOPMENT CHARGE BYLAW

AND RELATED POLICIES

 

  Phases  Key Elements  Time Frame
 1. Approval to Commence  
  • SP&P
  • Council
 Mar/98 - Apr/98
 2.Start up  
  • Establish interdepartment D.C. working group (Finance, Planning, Legal, Works, Transportation, etc)
  • Retain consultant(s)
  • Initial consultation with development/homebuilders industry
 Apr/98 - May/98
 
  1. Data Collection
 
  • Review existing and uncommitted reserve fund balances
  • Growth forecast (res., com., ind., inst.) for 10 yr, 20 yr or OP build-out
  • Determination of which services/servicing situations are to be covered under subdivision/consent agreements (outside DCA)
  • Average 10 yr service standard determination
  • Identification and cost of potential works related to growth
  • Review of long term debt and identification of existing facility oversizing
 Jun/98 - Sept/98
 
  1. Policy Development
 
  • Assessment of Municipal-wide vs area specific D.C.=s
  • Analysis of transitional issues related to existing municipal benefits, ineligible municipal services and outstanding debt
  • Formulation of DC credit policy and any other relevant agreements or credit provisions including former City by-laws
 Aug/98 - Oct/98
 
  1. Development Charges Calculations and Rules
 
  • Estimation of costs to meet increases in need for services attributable to development; the required works; existing facility oversizing consistent with services standards
  • Calculation of D.C. rates reduced by:
    • existing capacity created
    • benefit derived by existing development from the increase in service
    • anticipated capital grants, subsidies or other contributions
    • percentages and capital costs exclusion designated by Act
  • formulation of rules for exemptions, phase-in, indexing, charges for re-development, etc.
  • Preparation of D.C. background study
 Oct/98 - Dec/98
 
  1. Examination of Long Term Capital & Operating Costs
 
  • Examine the long term capital and operating costs for capital infrastructure required to service new development.
 Nov/98 - Jan/99
 
  1. Draft D.C. Background Study
 
  • Finalization of draft D.C. background study for review with D.C. Steering Committee/SP&P/Council
  • Formulation of preliminary policies re: credits, commencement date, collection timing, etc.
 Jan/99 - Feb/99
 8.Public Process  
  • Pre-meeting consultations
  • Advertisement and holding of Public meetings
  • Receipt and consideration of submissions
 Mar/99 - May/99
 9.Adoption Process  
  • Preparation of public consultation report, including review of options and assessment of impacts
 Jun/99 - Jul/99
 10.Implementation Process  
  • Collections/administration process
  • By-law indexation
  • Reserve fund reporting requirements
  • Notice for former section 13 credits
  • Former section 14 credits
 Jul/99 - Aug/99

SCHEDULE AB@

SCHEDULE OF DEVELOPMENT CHARGES

IN THE NEW CITY OF TORONTO

AS OF FEBRUARY 1, 1998

 RESIDENTIAL ($ per unit)

  Metro East York Etobicoke North York Scarborough Toronto York
By-law

141-97

By-law 1995-164 By-law

1995-165

By-law 31597

as amended

By-law 31598

as amended

By-law

24630

By-law

24646

By-law

632-91

By-law

2334-91

Sheppard

Subway

City-Wide Motel

Strip

Hydro City-Wide Yonge

Centre

Hydro City PUC as amended

Repealed

as amended
Single

2,713

n/c

2,383

3,003 346 3,931 3,353 148 3,806 505

n/c

n/c
Multiple

2,325

n/c

     

3,369

2,874 128 3,729 344

n/c

n/c
Apartment                        
2 bdrm & larger

1,628

n/c

1,723

2,166 248 2,359 2,011 84 2,412 309

n/c

n/c
1 bdrm & bachelor

1,163

n/c

1,304

1,625 189 1,682 1,437 84 2,412 309

n/c

n/c
All Other  

n/c

2,085

2,617 302          

n/c

n/c

 NON-RESIDENTIAL ($ per square foot of gross floor area)

  Metro East York Etobicoke North York Scarborough Toronto York
By-law

141-97

By-law 1995-164 By-law

1995-165

By-law 31597

as amended

By-law 31598

as amended

By-law

24630

By-law

24646

By-law

632-91

By-law

2334-91

Sheppard

Subway

City-Wide Motel

Strip

Hydro City-Wide Yonge

Centre

Hydro City PUC as amended

Repealed

as amended
Office

2.58

n/c

n/c n/c n/c

1.37

2.02 0.45 0.00 0.00

n/c

n/c
Commercial

2.58

n/c

n/c n/c n/c

1.37

2.02 0.45 0.68 0.67

n/c

n/c
Industrial

1.36

n/c

n/c n/c n/c

1.37

2.02 0.45 0.00 0.00

n/c

n/c
Other Non-Residential

1.36

n/c

n/c n/c n/c

1.37

2.02 0.45 0.68 0.31

n/c

n/c

 Notes:

 Etobicoke - Additional charge for storm water quality which is calculated using a formula

 Scarborough - City Council passed a resolution in June 1997 to waive development charges on industrial and office development in an effort to stimulate non-residential development. Scarborough PUC is considering a proposal to waive their development charge (includes electrical and water ) for industrial and office development, as well.

 Toronto - Original by-law passed October, 1991. Amendment to the by-law passed in April 1992 which placed a moratorium on the collection of development charges until January 1, 1995. Council deferred their decision to March 21, 1995. At that time the by-law was repealed. The City charges commercial, industrial and high density residential development a sewage impost fee of $0.70/s.f.

 York - Original by-law passed in October, 1991. OMB disposed of two outstanding appeals on August 31, 1992 and ordered a reduction in the non-residential charge by 50% until October 10, 1993. Council subsequently amended the by-law in October, 1992 to reduce the non-residential charge until October 10, 1993. June 25, 1997, Council passed by-law 3500-97 suspending the requirement to pay development charges.

 North York - By-law 32818 was passed on July 10, 1996. This by-law amends the City and Hydro development charge by-laws to exempt industrial uses on industrially zoned lands from payment of development charges.

 Metro Toronto - By-law 141-97 was passed by Metro Council on October 9, 1997. The charges apply only to the Sheppard East Corridor and the Yonge Centre.

 

 

   
Please note that council and committee documents are provided electronically for information only and do not retain the exact structure of the original versions. For example, charts, images and tables may be difficult to read. As such, readers should verify information before acting on it. All council documents are available from the City Clerk's office. Please e-mail clerk@city.toronto.on.ca.

 

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