June 1, 1999

To:Policy and Finance Committee

From:City Clerk

Subject:Development Charges Background Study - Capital Program Review

Recommendations:

The Budget Committee on June 1, 1999:

(1)recommended to the Policy and Finance Committee, and Council, the adoption of the report (May 26, 1999) from the Chief Financial Officer and Treasurer, subject to adding the following:

"that City Council request the Province to amend the Development Charges Act to allow the City to factor into the City's calculation of the development charge the provincial expenditure of capital dollars for child care over the past 10 year period."; and

(2)received the report (May 19, 1999) from the City Clerk.

Background:

The Budget Committee had before it a report (May 26, 1999) from the Chief Financial Officer and Treasurer summarizing the capital projects included in the Development Charge Background Study dated April 19, 1999 and recommending that the development related capital program contained in the Development Charge Background Study be adopted.

The Budget Committee also had before it a report (May 19, 1999) from the City Clerk advising that City Council at its meeting held on May 11 and 12, 1999, adopted, as amended, Clause No. 1 contained in Report No. 9 of The Strategic Policies and Priorities Committee, headed "New Development Charges By-law", and drew attention to the following recommendation:

"(6)that the Capital Program identified in the Development Charge Background Study be forwarded to the Budget Committee for its review."

for City Clerk

B. Henderson/ms

Item No. 2

c.Chief Financial Officer and Treasurer

(Report dated May 26, 1999, addressed to the

Budget Committee from the Chief Financial Officer and Treasurer.)

Purpose:

This report summarizes the capital projects included in the Development Charge Background Study dated April 19, 1999, and provides a justification for their inclusion in development related capital program.

Financial Implications:

The majority of the $732 million gross capital costs identified from 1999-2003 are already included in the 1999-2003 Capital Program and development charge revenue represents an additional source of financing for these projects. Gross capital costs of $756 million are included beyond 2003 for a total program of $1,488 million. Approximately $40 million per year could be realized from the implementation of development charges as identified in the Development Charge Background Study. The actual revenue to be realized is dependant on a number of factors including the quantum of the adopted charge, level of development, policy decisions with respect to phasing in of the charge, exemptions and other transitional provisions.

Based on current capital market conditions, the projected $40 million in annual development charge revenue would replace the need to issue approximately $300 million in debt over a ten-year period.

Recommendation:

It is recommended that the development related capital program, as identified in this report and contained in the Development Charge Background Study dated April 19, 1999, be adopted.

Council Reference/Background:

The Strategic Policies and Priorities Committee, at its meeting of May 4, 1999, recommended, among other things, that the report dated April 28, 1999, from the Chief Financial Officer and Treasurer, entitled "New Development Charge By-Law", be adopted and that the Capital Program as identified in the Development Charge Background Study dated April 19, 1999, be forwarded to the Budget Committee for its review.

Discussion:

The capital costs determined in Appendix "F" and "G" of the Development Charge Background Study, the relevant portions of which are attached in Appendix C, are calculated in accordance with s.s.5(1) of the Development Charges Act, 1997 (hereinafter referred to as the "DCA") and reference projects as part of defining the increase in the need for service. It is anticipated that a number of such projects will evolve over time in response to the specific needs of new development. As a result, the cost, timing and nature of such projects may be altered as part of the City's annual capital budgetary process. It is intended that development charge draws will be made for such projects based on the development-related percentages which have been identified.

It is estimated that up to $40 million per year may be realized from the implementation of development charges as proposed in the background study and pursuant to the DCA. The actual revenue to be realized is dependent upon a number of factors including the quantum of the adopted charge, the amount and type of development occurring and the impact of policy decisions regarding exemptions, phasing-in of the charge and other transitional provisions.

Under the DCA, all existing development charge by-laws in Ontario expire on August 31, 1999. The former municipalities of Metro, Etobicoke, Scarborough and North York generated approximately $14 million in revenue in 1998 under their existing development charge by-laws enacted under the Development Charges Act 1990.

Appendix "A" provides a Corporate Summary of the development-related capital projects, as identified in the Development Charge Background Study. The development-related capital costs for the first five years amounts to $732 million, consisting of $730 million for projects already included in the five-year capital program as received by Council on March 2, 1999, and $2.0 million for a fire facility in Northeast Scarborough which was not in the original capital program received by Council. The development-related capital costs of $732 million for the first five years represent only 14.2percent of the City's five-year capital program costs.

For projects beyond 2003, gross capital costs amount to $756 million, for total capital program costs of $1,488 million. Of this total amount, $472 million, representing 31.7 percent of gross development-related capital costs, could potentially be recovered from development charges.

In the first five years, the development-related capital program has an estimated net operating budget impact of $2.0 million and a $5.7 million net impact over the total forecast period. Appendix "B" provides a Program Summary of the development-related capital program. The majority of the projects contained in the first five years of the forecast are already reflected in the 1999-2003Capital Program, as received by Council on March 2, 1999. Since the majority of the development-related capital projects identified in the study are already included in the 1999-2003Capital Program, the development charge revenue represents an additional source of financing for these projects.

Appendix "C" provides a summary of the individual program areas and capital projects included in the Development Charge Background Study. For each program area, a financial summary and a detailed project justification form is provided. The project justification provides additional information and explains why the projects have been considered for inclusion in the development-related capital program. In general, the projects meet the eligibility criteria of the new Development Charges Act (1997). The projects are required as a result of an increase in the need for service attributable to anticipated development.

Conclusions:

Since the majority of the capital projects identified in the first five years in the Development Charge Background Study have already been included in the 1999-2003 Capital Program, development charge revenues represent an additional financing tool to mitigate the impact of development-related capital projects. The proposed development charge regime will finance approximately 31.7percent of the gross cost of the total development related capital program and represents the most competitive rate in the GTA.

The projects identified in the Development Charge Background Study are representative of typical development-related costs included in the City's capital program. While it is recommended that the development-related capital program be adopted, it is recognized that individual projects will be subject to further review by Council during future capital budget deliberations. The development-related program identified in this report, the methodology utilized in arriving at the new development charge rates and a number of policy matters related to the implementation of development charges will be the subject of public consultations, to be held at a public meeting of the Policy and Finance Committee scheduled on June 24, 1999.

Contact Names:

Mr. Joe Farag, 392-8108 or Mr. John Di Lallo, 397-4207.

(A copy of Appendices "A", "B", "C" and "D" referred to in the foregoing report was forwarded to each Member of City Council with the agenda of the Budget Committee meeting of June 2, 1999, and a copy thereof is also on file in the office of the City Clerk.)

(Report dated May 19, 1999, addressed to

the Budget Committee from the City Clerk)

I am enclosing for your information and any attention deemed necessary, Clause No. 1 contained in Report No. 9 of The Strategic Policies and Priorities Committee, headed "New Development Charges By-law", which was adopted, as amended, by the Council of the City of Toronto at its meeting held on May 11 and 12, 1999.

May I draw your attention to the amendment by Council found at the beginning of the Clause, and in particular, the following recommendation:

"(6)that the Capital Program identified in the Development Charge Background Study be forwarded to the Budget Committee for its review."