DCs 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 DCs help to pay for the infrastructure.
The City collects DCs 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 DCs are also collected by the City and forwarded local schools boards to support building new schools.
DC rates are calculated in alignment with the Development Charges Act and are based on a DC 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 sq ft (non-residential).
DCs are collected when building permits are issued and are deposited into DC reserve funds. DCs are taken from these reserves to 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 costs before the DCs have been collected. In these cases, we borrow money (debt) to build the infrastructure and make the debt repayments using money from the DC reserve funds and from future development.
There are two types of exemptions: statutory and voluntary. Provincial DC 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 DCs 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 DC reserve funds to make the DC reserve funds whole.
These funds are invested and interest earned is added to the DC reserve funds.
It depends on the project. Bill 23 introduced changes that remove the City’s ability to collect DCs for some growth-related expenses (e.g., land for some services, growth studies). Once the regulations are released, we will have more clarity on this change.
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.
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 DC reserve funds or DC-funded debt. However, as mentioned above, the money in the DC reserve funds is not only DCs collected from developers and homebuilders. There are also tax-funded contributions in the DC reserve funds because of the requirement to fund exemptions, as well as interest income that is earned on the balances in the reserve funds.
If 50 per cent of a project is DC funded, approximately 85 per cent of those funds would have come from DC collections and interest and the other 15 per cent from tax and rate funding prior to Bill 23. Bill 23 will lower the percentage that will come from DC collections and increase the amount for tax and rate funding.
DC revenue loss
There will be an overall reduction in DCs 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 DCs. 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 projects and discounts for rental housing units. 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 DC calculation. Certain land costs and growth studies that would have been included in the DC background study are no longer eligible and will need to be fully funded by property taxes or rates.
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 DC funding. In a high-growth environment this would generally lower the average amount that is eligible for DC funding.
All growth-related projects (except for growth studies which are now excluded) are reflected in the DC background study and in the capital budget. These include everything from new buses, waste vehicles 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
We encourage you to explore the resources on the City’s website, including the City’s current DC rates, the 2018 Development Charge Background Study, a video that provides an overview of how DCs 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.