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On July 19, 2023 Council participated in a Development Charges 101 Orientation and Education Workshop. The meeting agenda and a recording of the workshop are available.
What are Development Charges for?
Development charges are collected to fund capital costs associated with growth. When houses, subdivisions, shopping centres, industrial parks, etc. are built, they need municipal services. Municipal services require infrastructure to deliver, and development charges help to pay for the infrastructure.
What services are we talking about?
The City collects development charges to pay for capital costs for the following services: roads, fire, police, transit, parks and recreation, public works, library, public health, Provincial Offences Act, ambulance, waste, water, wastewater and stormwater. Education development charges are also collected by the City and forwarded local schools boards to support building new schools.
How do we decide how much to charge?
Rates are calculated in alignment with the Development Charges Act and are based on a background study which forecasts what new infrastructure will be required to provide services to our growing population in the future. It’s a complex calculation that considers building type (residential/non-residential), housing type (for residential), existing service standards, and how much (if any) of the infrastructure to be built to service growth will benefit the existing population. The calculation takes the total cost of capital required for growth and divides it by the growth in population and employment to arrive at a charge per unit (residential) or per square foot (non-residential).
What do we do with development charges that are collected?
Development charges are collected when building permits are issued and are deposited into development charges reserve funds. These reserves fund growth-related capital projects. Infrastructure such as roads, water, and sewers are required for new growth before building can begin. In this case we need to fund the infrastructure before the development charges have been collected. In these cases, we borrow money (debt) to build the infrastructure and make the debt repayments using money from the development charges reserve funds and from future development.
What about exemptions?
There are two types of exemptions: statutory and voluntary. Provincial development charges legislation includes statutory exemptions, and these exemptions were expanded through Bill 23. Voluntary exemptions are exemptions that are not required by provincial legislation, but Council chooses to exempt. An example of this is religious institutions.
When a building permit for an exempt project is issued, the City calculates the value of the development charges that would have been paid if the project was not exempt and transfer that amount of money from the City’s property tax and rate-funded capital reserve funds into the reserve funds to make the development charges reserve funds whole.
What happens to interest earned on the money in development charges reserve funds?
These funds are invested and interest earned is added to the development charges reserve funds.
How does Bill 23 impact individual projects in the capital plan?
It depends on the project. Bill 23 introduced changes that remove the City’s ability to collect development charges for some growth-related expenses (e.g., growth studies).
Historical service standards were also changed from 10 years to 15 years and this could have a positive or negative impact on the calculation for each project, depending on the service.
When we say 50 per cent of a project is development-charges funded, what does that mean?
This generally means that 50 per cent of the project is related to growth and the other 50 per cent benefits existing residents. The growth portion of the funding for the project will come from the development charges reserve funds or development-charges funded debt. However, the money in the development charges reserve funds is not only development charges collected from developers and homebuilders. There are also tax and rate-funded contributions in the development charges reserve funds because of the requirement to fund exemptions, as well as interest income that is earned on the balances in the reserve funds.
How will we see the impact of changes to development charges from Bill 23 on tax rates?
Development Charges revenue loss
There will be an overall reduction in development charges collected related to the phase-in of new rates. For example, in year one of a new rate, the City can only collect 80 per cent of development charges. This means there is a 20 per cent shortfall that must be funded from taxes and rates which was not required in the past.
Bill 23 also introduced new exemptions such as a 100 per cent exemption for non-profit housing projects and discounts for rental housing units, as well as exemptions for affordable and attainable housing. Regulations have not been released yet to enable the implementation of exemptions for affordable and attainable housing, however the capital costs of servicing these developments have not decreased, so the City will be required to make up the revenue shortfall through taxes and rates.
Ineligible growth costs
Bill 23 introduced certain costs that can no longer be included in the development charges calculation. Certain land costs and growth studies that would have been included in the background study are no longer eligible and will need to be fully funded by property taxes or rates. Regulations providing more information about which services land would be an ineligible cost for have not been released to date.
Applying a 15-year service standard instead of a 10-year standard may increase or decrease the portion of a project that is eligible for development charges funding. A 15-year standard provides more rate stability.
What are the major development charge funded projects in our current capital budget and forecast?
All growth-related projects (except for growth studies which are now excluded) are reflected in the development charges background study. These include everything from new buses and fire trucks, to new water and wastewater pipes, roads, wastewater treatment plant and operations facilities to serve our growing population.
Major projects include:
- South End Community Centre
- Operations facilities long-term plan
- Water and wastewater treatment plants
- Transit vehicle expansion and electrification
- Road widenings and bridges
- Water and wastewater servicing including new pipes and pumping stations
- Baker Street redevelopment including library
- Urban forest master plan implementation
Where can I find more information about Development Charges?
We encourage you to explore the resources on the City’s website, including the City’s current development charge rates, the 2023 Development Charges Background Study, a video that provides an overview of how development charges work and links to related planning documents. There is also an annual report published about all of the City’s reserve funds and debt and this includes detailed information about the DC reserve funds.