June 11, 1999

To:Policy and Finance Committee

From:Commissioner of Urban Planning and Development Services and the City Solicitor

Subject:Relationship of Agreements under Section 37 of the Planning Act to Development Charges

Purpose:

To describe the past and current implementation of Section 37 of the Planning Act, and to outline the anticipated future relationship of the use of Section 37 to the Development Charge By-law.

Source of Funds:

N/A

Recommendations:

That this report be received for information.

Background:

At its meeting held on May 4, 1999, Strategic Policies and Priorities Committee, in considering a report dated April 28, 1999 from the Chief Financial Officer and Treasurer regarding a new Development Charges By-law, passed the following motions, among others:

"(4)that the Commissioner of Urban Planning and Development Services and the City Solicitor be requested to report to the Strategic Policies and Priorities Committee on the status of collections made from developers under Section 37 agreements and how such agreements will be structured if the proposed development charge by-law is adopted;

(5)that the foregoing requested reports be submitted to the Strategic Policies and Priorities Committee prior to the proposed public meeting of the Policy and Finance Committee scheduled to be held on June 24, 1999;"

This report is in response to that request. A separate report will be forwarded from the City Solicitor regarding applications for recognition of credits toward development charges.

Comments:

1.Development Charges and Section 37 of the Planning Act

Development charges must be determined in a very structured manner in accordance with a formula set out in the Development Charges Act and the accompanying Regulations. The general intent of development charges is to ensure that new growth largely pays for itself and that the capital costs of services attributable to new development are not borne by the existing community. The types of services for which a development charge may be imposed or not imposed are also set out in the legislation.

The calculation of a maximum development charge for an eligible service is based on the capital cost of the increased need for that service across the municipality, attributable to anticipated new development in the ten years following the calculation of the charge in the background study. Furthermore, the municipal council must have stated that it intends to meet the increased need for the service, through such means as inclusion in a 10 year capital forecast approved by council. The projected level of service used in the calculation cannot exceed the average level for the 10 year period immediately preceding the background study. .

Examples of services not eligible to be included in the calculation of, or to receive funding from, development charges, are: daycare, social housing, affordable housing, heritage preservation, cultural or entertainment facilities (except libraries), park land acquisition, public hospitals, waste management, municipal administration headquarters, and tourism facilities. The development charge calculation cannot include the capital costs of any new or upgraded services provided to the existing community or the capital costs of any services provided for new growth at a level of service above the average level across the municipality for the preceding 10 years.

Section 37, on the other hand, is a flexible planning tool which enables a municipality to secure the provision of city-wide, community-wide and/or local public benefits. Such public benefits are not restricted to new development only, nor to specified types of services. The broad range of possible public benefits allows the furtherance of a broad range of planning objectives, including a very significant one in today's context: provision of affordable housing. Because its use is not restricted to benefits or services for new development, Section 37 can be used to meet existing needs or deficiencies in a community; however, it should be noted that City Council has other means of funding services to satisfy an existing community need or deficiency other than through the use of Section 37, with the capital budget being the main alternative.

Section 37 of the Planning Act is a separate tool, distinct from development charges, and may be used by a municipality to fund services, facilities or matters which cannot be funded through development charges. Section 37 of the Planning Act provides for local municipalities to pass zoning by-laws under Section 34 of that Act which authorize increases in height and/or density in exchange for the provision of "facilities, services and matters" (public benefits). These benefits may be secured by a municipality entering into one or more agreements with a developer dealing with the particular benefits. Such agreement(s) may be registered against title to the site in question and the municipality is entitled to enforce the provisions contained in the agreement(s). In order to utilize Section 37, a municipality must have Official Plan policies relating to the authorization of increases in height and/or density.

It is emphasized that Section 37 is only used where an increase in the height and/or density permitted in the applicable Zoning By-law is being approved. If a developer wishes to develop within the permitted height and/or density, then Section 37 is not applicable. Where a Section 37 agreement is being utilized to secure public benefits in exchange for increased height and/or density, other facilities, services or matters that contribute to good development, but for which no height or density increases are specifically negotiated, may also be secured in such an agreement. Public benefits secured by a municipality under Section 37 in exchange for density and/or height increases may be thought of as a municipal share of the increase in land value bestowed on the owner by the municipality through the granting of the increase in height and/or density.

In the implementation of Section 37, the value of the public benefits received by the City is commonly proportional to the value of the increased density. There are benefits to a consistent value relationship between the increase in permitted height and/or density and the public benefits received in exchange, including: the simplification of the negotiations between the City and the owner; and provision of upfront knowledge and thus a degree of certainty to developers. In effect, there is, as the legislation requires, an exchange, between the developer and the City, of extra density for specific facilities or benefits. A development charge, on the other hand, where applicable, would apply to the entire building, not just to the density and/or height increase, and relates to the growth related capital costs of providing specified types and levels of services for new development only. A development charge would apply in the absence of any Zoning By-law amendment for a density or height increase.

It can thus be seen that Section 37 may be used to secure public benefits which:

i)address service needs or deficiencies in the existing community;

ii)are facilities, services or matters which cannot be, or have not been, covered by development charges; or

iii)represent the municipal share of funding for facilities or services which are only partially funded through development charges.

It is a tool which can be, and is, used together with development charges (e.g. former North York and former Scarborough).

2.Past Implementation of Section 37

The former municipalities of Toronto, North York, East York and Etobicoke had specific policies in their Official Plans relating to the use of Section 37. The former municipalities of York and Scarborough applied Section 37 on a site-specific basis where Official Plan Amendments were involved and did not have a general Official Plan policy pertaining to its use.

Former Scarborough, North York and Toronto have had the majority of experience implementing Section 37. Former Etobicoke has not specifically utilized Section 37, although public benefits have been secured through negotiated non-Section 37 agreements in a small number of development applications. York and East York have each used Section 37 for a small number of developments.

Section 37 was first incorporated in the Planning Act in 1983 (then Section 36). Prior to that date, municipalities negotiated public benefits in return for density/height increases on an ad hoc basis, which nevertheless resulted in securing some significant public benefits. It is important to note that not all public benefits secured through Section 36 or 37 agreements were considered to be density incentives, or in other words, were explicitly exchanged for increased height and/or density. In conjunction with certain public benefits being explicitly secured in exchange for height and/or density increases, other facilities, services or matters which were positive features promoting good development and would have otherwise been obtained through the planning approval process even if no density/height increases had been sought, were also secured in the Section 36/37 agreements. There are some cases where there was no explicit density and/or height bonusing at all, but because either or both density and height were being increased, a Section 36/37 agreement was used to secure the positive features of the development.

Both former municipalities of North York and Scarborough implemented Section 37 and development charges concurrently. It is interesting to note that the City of Vancouver has recently adopted an interim city-wide Development Cost Levy By-law (similar to Development Charge By-law) and an interim city-wide Community Amenity Contribution policy (similar to use of Section 37), to be implemented concurrently.

3.Future Proposed Relationship of Section 37 to Development Charges

The use of Section 37 of the Planning Act and the implementation of a Development Charge By-law are distinct and separate tools available to municipalities, for which there is no conflict when both are implemented in relation to the same development in a coordinated manner. There is thus a need to coordinate the use of Section 37 with the implementation of the Development Charge By-law, and with other planning tools (e.g. parks contributions under Section 42 of the Planning Act), to avoid duplication of charges for a specific facility or service.

A fundamental principle regarding the future relationship of Section 37 agreements to development charges should be that there will be no duplication of charges. Section 37 public benefits will be facilities, services or matters which cannot be, or have not been, funded through development charges, such as affordable housing or daycare centres, those which benefit the existing community by satisfying an existing need or deficiency (development charges fund services for new growth only), and the municipal share of funding for those services or facilities which are only partially funded through development charges. The principle of avoiding duplication of charges also applies to the acquisition of park land or cash-in-lieu under Section 42 of the Planning Act, and to services funded under any future Education Development Charge By-law should such a by-law be adopted by either Board of Education.

In accordance with the Development Charges Act, when the development charges are calculated in the Background Study, there is a reduction in the costs of service or facility projects which have been included in the calculation, as a result of grants, subsidies or other contributions received by the municipality for such projects. Cash contributions secured through Section 37 for a particular project would thus be deducted from the cost of that project in calculating the development charge. Accordingly, service or facility projects completely funded or provided through Section 37 and other grants, subsidies or contributions would not be included in the project list on which the development charge calculation was based or, if only partly funded by a contribution through Section 37, would be discounted in the calculation of the development charge to the extent of that financial contribution. For example, the library proposed for the Railway Lands and the Bathurst-Strachan community is not included in the project list in the Background Study because its funding has been completely secured through Section 37 agreements.

The Development Charges Act contains provisions regarding credits and exemptions for services already provided or paid for by developers. Credits and exemptions are dealt with in a separate report to your Committee. In some specific cases, previous Section 37 or other agreements signed with developers have explicitly exempted specific sites or lands from future development charges. Under the legislation, such agreements take precedence over the Development Charge By-law.

It is conceivable that the provision of facilities, services or matters through the use of Section 37 might, over the long term, marginally raise, across the municipality, the average level of a service which is, or will be, funded through development charges. For example, park improvements to an existing park in an existing community could be funded or provided through Section 37, and thus the average service level across the City for provision of parks would be slightly raised. When the next Background Study for the next Development Charge By-law is carried out (Development Charge By-laws expire in a maximum of 5 years), the average level of park service for the 10 years preceding the Background Study would be marginally higher, as a result of the Section 37 benefits, than would have been the case if the Section 37 benefits were not taken into account. The resulting calculated maximum development charge attributable to parks provision would, in turn, be slightly higher as a result of the Section 37 benefits.

However, it is the mandate of City Council to assess and address service deficiencies in the existing communities. If such service needs are not funded through Section 37 (and cannot be funded through development charges), then the capital budget would be the main alternative source of such funding. It is completely proper and reasonable that Section 37 public benefits be used to help provide the levels of service that City Council deems appropriate.

Future staff reports pertaining to development approvals, and the related Section 37 agreements, should explicitly set out the rationale behind, and the basis for, the specific public benefits being secured, to be clear about the relationship of such benefits to the Development Charge By-law, and to be clear about which of the secured public benefits are explicitly being provided in exchange for increased density and/or height.

4.Preliminary Principles of Official Plan Policies Regarding Section 37 Agreements

As part of the exercise of producing a new Official Plan for the new City of Toronto, policies regarding the use of Section 37 will be included. Such provisions will provide for a consistent approach to the use of Section 37 across the entire City. Implementation guidelines will also be developed in conjunction with the Official Plan provisions. Preliminary principles proposed for the use of Section 37 include:

a) a prerequisite for the use of Section 37 is that the proposed development in its final recommended form must meet the test of good planning, including consistency with other Official Plan built form and planning objectives;

b) the public benefits secured may include facilities, services or matters, including cash contributions or cash-in-lieu;

c) priority for public benefits eligible for density or height bonusing could include, but not necessarily be limited to: affordable housing; non-profit community, cultural, and institutional facilities, services or matters; heritage preservation; and park land and park improvements (over and above park levy requirements);

d) Section 37 agreements will also continue to be used as a mechanism to secure other public benefits and positive features of development which are otherwise commonly obtained or required through the planning approval process in the absence of density and/or height increases. Density or height bonuses may not be specifically attributed to these services, facilities or matters, which could include, for example, public art if required by other Official Plan provisions, streetscape improvements, unique building setbacks or public pedestrian walkways;

e) generally a consistent relationship between the value of the increase in height/density and the cost of providing the public benefits received in exchange;

f) the services, facilities or matters secured through Section 37 should generally consist of capital facilities or funding as opposed to operating funds; and

g) there should be a clear distinction between public benefits secured under Section 37 and services funded through development charges or other levies such as parks levies or education development charges to ensure no duplication of charges or service provision.

5.Use of Section 37 Prior to New Official Plan Provisions In Effect

The new Official Plan will need to harmonize the use of Section 37 across the City. In the meantime, staff are also responding to the need for a uniform approach incrementally. For example, the report dated April 15, 1999 from the Commissioner of Urban Planning and Development Services, entitled "The Mayor's Homelessness Action Task Force Final Report: Recommendations and Policy Directions related to the Housing Policies of the Official Plan", was adopted by City Council at its meeting beginning May 11, 1999. Included in that report was a recommendation that the Commissioner of Urban Planning and Development Services be authorized to pursue contributions towards the provision of affordable housing pursuant to Section 37 in exchange for increases in permitted height and/or density, in the following situations:

a) site-specific amendments to both the Official Plan and Zoning By-law; and

b) site-specific amendments to the Zoning By-law for which appropriate Official Plan provisions for the implementation of Section 37 are already in place.

Such financial contributions would be deposited in the City's Capital Revolving Fund for Affordable Housing. While these statements provide a very general policy direction, more specific implementation guidelines are needed, especially in those former municipalities (York and Scarborough) where no general Section 37 provisions are contained in the Official Plan.

Staff will be reporting further on the policy framework for implementation of Section 37, bringing forward general Official Plan provisions, more specific or detailed provisions where necessary, and implementation guidelines.

Conclusions:

The use of Section 37 and the imposition of development charges are separate and distinct tools available to the City. In the future use of Section 37 across the City, after adoption of a city-wide Development Charge By-law, it is intended that both tools be implemented concurrently, but in a coordinated manner and with a clear separation between the two. Section 37 public benefits can be secured only when a zoning amendment is adopted to increase the permitted height and/or density, and only when Official Plan provisions are in place relating to the use of Section 37. In the interim period until Official Plan provisions pertaining to the use of Section 37 are harmonized across the City, the existing situations will continue where Official Plan provisions are either already in place or are implemented on a case by case basis in site-specific applications for amendments to the Official Plan and Zoning By-law.

The use of Section 37 is a very flexible planning tool in that a wide range of facilities, services and matters secured under Section 37 can benefit existing as well as new growth, and both local and city-wide benefits can be secured. Development charges, where applicable, are calculated under a defined legislated formula, they generally apply to an entire development project rather than just the increase in height and/or density, and they fund specified services at defined levels related only to new growth.

A fundamental principle regarding the future relationship of Section 37 agreements to development charges is that there will be no duplication of charges. Section 37 public benefits will be those facilities, services or matters which cannot be, or have not been, funded through development charges, those which satisfy an existing community need or deficiency, and those representing the municipal share of funding for services or facilities only partially funded through development charges. Section 37 agreements will also avoid duplicating charges under Section 42 of the Planning Act (parks contributions), and under any future Education Development Charge By-law.

Contact Names:

Peter LangdonAnna Kinastowski

Policy and ProgramsPlanning and Administration

City PlanningTribunal Law

392-7617392-0080

Reviewed by:

Paul J. BedfordVirginia M. West

Executive Director and Chief PlannerCommissioner of

City Planning DivisionUrban Planning and Development Services

H.W.O. Doyle

City Solicitor

[p:\1999\ug\uds\pln\ot991930.pln-cc]