Report to: General
Committee Report
Date:
SUBJECT: Proposed 2008 Town Wide Hard and Area Specific Development Charges
PREPARED BY: Kevin Ross, Ext 2126
RECOMMENDATION:
THAT the report “Proposed
2008 Town Wide Hard and Area Specific Development Charges” be received;
THAT the summary responses to the comments from the
public and the development community be received for information;
THAT the policy excluding local services from the
calculation of development charges, with the exception of East Precinct and
South Unionville–Helen Avenue be approved;
THAT no further public meeting is required
under Section 12 of the Development Charges Act 1997;
THAT the minutes of the May 27, 2008
Development Charges Public Meeting be approved;
THAT Council approve the development charge
background study prepared by Hemson Consulting Ltd. dated May 2008;
THAT it is Council’s intent to ensure that the increase
in the need for services to service anticipated development will be met;
THAT it is Council’s intent that infrastructure
related to post 2021 development identified in the background study shall be
paid for by development charges or other similar charges;
THAT Council recognizes that there are
operating costs associated with the implementation of the capital program;
THAT the Town Wide Development Charge By-law
and the Area 4 Don Mills/Browns Corner Industrial Area Specific Development
Charge By-law include a clause that sets out the development charges payable by
East Markham Non-Profit Housing Inc, at the 2004 by-law rates, indexed to
January 1, 2008;
THAT the Town of
AND THAT staff be directed to do all
things necessary to give effect to this report.
EXECUTIVE SUMMARY:
Staff commenced the review of the Town Wide Hard and Area Specific
development charge by-laws due to the actual costs of property and capital
works exceeding the amount the Town was able to recover under the 2004
by-laws. This imbalance started to erode the development charge reserves
and led to the decision to open the by-laws.
During this process, it was decided to transfer selected costs from an
area specific recovery basis, to a Town Wide recovery basis as it (1) better
reflects the benefiting areas and (2) provides a more efficient and fiscally
viable method of recovering growth-related costs.
Throughout the review process, staff held consultative meetings with the
development industry and responded to their concerns while providing updates to
the Development Charges Sub-Committee and General Committee.
The draft Background
Study and by-laws have been prepared and the legislated public meeting held on
In staff’s view, the
proposed development charges and by-laws are based on Town policies and
established existing service levels, and will be defensible at the Ontario
Municipal Board should the by-laws be appealed.
PURPOSE:
The purpose of this report is to
update Council on the proposed changes to the information, assumptions, and
rates in the draft May 2008 Town of Markham Development Charges Background
Study, and to obtain General Committee’s approval to forward the revised
Development Charge rates and Development Charge by-laws to Council on June 10,
2008 for approval.
BACKGROUND:
The review of the current Town Wide Hard and
Area Specific Development charge By-laws commenced in late 2006, in response to
increasing expenses for capital works and property costs in excess of that
projected, and being collected, in the 2004 Development Charges Background
Study. In the spring of 2007, a
Development Charge Sub-Committee was formed, and a number of policy issues and
cost implications were reviewed over the course of the summer 2007. In the fall of 2007, the consultation with
the development community began, and through the fall of 2007 and first quarter
of 2008, there were 4 updates provided to the Developers Round Table, 4
meetings held with a subcommittee of developers interested in the Town Wide
Hard By-law (TWH Developer Subcommittee), and over 32 meetings with area
specific developers groups.
Town Wide
Consulting Process
The TWH
Developer Subcommittee, along with their consultants, have participated in a number of meetings with
staff to review in detail their issues and comments to the changes in the
Town’s development charge recovery process.
In addition, developers participating in the consultative process for
the area specific development charges also had questions related to Town Wide
Hard (TWH) charges. Developers were
asked to submit final comments on any issues by
The primary issues relating to the TWH
development charge recovery process which were subsequently addressed by staff
were:
I. Issues - Pre-Public Meeting Consultations
1)
Initial
calculations were done using a growth forecast period to 2021 – The developers
suggested using a longer horizon in order to reflect full build-out of the Town
within the current urban boundary
2)
The
Town utilized 2001 census data to calculate the growth forecast – The developers
suggested using the 2006 census data
3)
Relatively
high cost of high density units – the distribution of costs driven by the person
per unit (PPU) was weighted in favour of the lower density units
4)
Concern
with the transfer of costs from Area Specific to TWH, specifically:
o Service level equity
(i.e. enhanced streetscapes)
o The allocation of the
reserve funds be based on the 2004 bylaws rather than the proposed 2008 costs
o Treatment of credit
agreements outstanding
o Difficulty in
administering current Developers Cost Sharing Agreements
5) Limited exemption – The developer who
qualified for this exemption under the 2004 DC by-laws believes that lot levies
paid, the cost of servicing their lands and upgrades to
6) Post period benefit – The developers were
of the opinion that some of the structures included should be for the benefit
of future growth
7) Administration fee on land acquisition – the quantum of the
fees were seen as being too large.
Staff Response & Revisions:
Town staff reviewed the issues raised as a result of the consultative process and made the following adjustments to the methodology used in the calculation of the development charge:
1) The growth forecast was adjusted to 2031 to
reflect full build-out within the current urban boundary, which corresponds to
the Town’s infrastructure plan. 6,900
housing units are added to the forecast as a result
2) The 2006 census data which became available
during the process was used to calculate the growth forecast
3) The person per unit (PPU) was calculated using
the 2006 census data and resulted in a shift of the cost away from high density
units
4) Concerns with the transfer of costs from the ASDC to Town Wide Hard were addressed by:
· Retaining cost for increases services within Markham Centre (i.e. enhanced streetscapes - $4M) for service level equity
·
The reserve
fund allocation was calculated based on the 2004 bylaws
·
Developers
were reassured that credit agreement and other claims related to works
completed will be discussed after the passage of the by-law
5) Staff recommended that the Limited Exemption on
Non-Residential Developments continue until
6) Staff reviewed the structures included and
applied a post period benefit to selected Highway 404 mid-block crossings
7) The administration fees were reviewed and
reduced to more appropriately reflect the costs of overseeing land
acquisitions.
These
revisions were communicated to the developers and presented to the General
Committee on
OPTIONS/DISCUSSION:
On
It was noted that this Public Meeting was
held under section 12 of the Development Charges Act and that Notice of the
Development Charges Public Meeting for this date was published in the Markham
Economist & Sun and Thornhill Liberal on
Committee received a copy of a report
titled DC Transition Rules that was approved by General Committee on
Mr. Craig Binning, Hemson Consulting Ltd.,
provided a presentation on the proposed development charges by-laws. Mr.
Binning provided some background on the Development Charges Study and the
proposed changes to the Development Charges regime. It was noted that only the
Town Wide Hard and Area Specific Development Charges will be impacted.
Committee sought clarification on the
changes and were advised that some increases to the Town Wide Hard Developments
Charges are offset by decreases in the Area Specific Development Charges.
Comments
from the Public
The following written submission and
deputations regarding the proposed development charges by-laws were provided to
Council at the Public Meeting:
Written
Submissions
a) Letter dated
b) Letter dated
c) Memorandum
dated
d) Letter
dated
Deputations
e) Deputation
from Mr. R. Grimes, IBI Group, at the public meeting on
f) Deputation
from Mr. P. O’Hanlon, Angus Glen Development, at the public meeting on
g) Deputation
from Mr. N. Mracic, Metrus Developments Inc., at the public meeting on
It was noted
that the final report on the proposed Development Charges By-law will go to
General Committee on
Summary
of Written and Verbal Comments – Public Meeting May 27, 2008
A.
Written Submissions:
a) and c): Patrick
O’Hanlon, President of Angus Glen Development Ltd. commented that the transfer
of Area Specific development charges, while done to develop a more efficient
and fiscally viable development charge system along with maintaining
equitability, will result in Angus Glen having to pay an additional $833,000 in
development charges as a result. Included
with the submission was an analysis from the IBI Group detailing the
calculation of the additional development charge. Mr. O’Hanlon also gave a verbal submission
which is included below.
b) Julie
Bottos of SCS Consulting Group Ltd., representing the Greensborough Landowners
Group, requested that the Town consider eliminating the area specific
development charge for Area 43 as the only project remaining in the area can be
dealt with by the landowners internally.
A meeting was also requested to discuss how the development charge
credits now allocated to Town Wide Hard will be handled.
d)
Deputations - Verbal Submissions:
e) Randy Grimes of IBI Group spoke on behalf of the developers in general and his client, The Cathedral Group in particular. He commented that the financing charge of 6.5% used in the draft Background Study is too high and suggested that a rate in the region of 5% – 5.5% was more appropriate. Mr. Grimes also suggested that the Town should open the by-laws when the relevant information is obtained under the Places to Grow Initiative regarding growth expected in the Town. Mr. Grimes said that the changes to the Development Charges regime will increase development costs in some areas and not others. He gave as an example the Cathedral area which he said will see an increase of $1.5M as a result of the transfer of costs from Area Specific to Town Wide Hard. Mr. Grimes suggested that those areas that are already partially developed be grandfathered and that the new regime apply only to new developments. This submission is dealt with under Section B of this report.
f) Mr. Patrick O’Hanlon of Angus Glen Developments, spoke to reiterate that the new regime impacts developments differently. Mr. O’Hanlon requested a 10 year transition plan in order to allow time for higher density development.
g) Mr.
B.
Staff Responses
Item a), c) and f) Submission from Angus Glen Developments Staff recognize that as a result of the transfers, there will be a cost increase to the Angus Glen area developments estimated to be approximately the $833,464 noted in the letter from Matthew Nisker of IBI. This is equivalent to an increase of approximately $1,136 per unit. ($833,464 divided by 734 units).
Angus Glen has
conditional allocation for 286 of the 734 units in 2011 (conditional on
construction of bridge between East and
Discussion
In the letter
from IBI Group dated
There options reviewed by staff are as follows:
Option 1
Approve the By-laws as recommended. In staff’s view, the proposed development charges and by-laws are based on Town policies and established existing service levels, and will be defensible at the Ontario Municipal Board should the by-laws be appealed.
Option 2
Develop a town wide policy regarding the inclusion of a percentage of the cost of smaller bridges in the TWH DC., and increase the TWH DC to collect these costs. The Angus Glen development includes a bridge crossing at Beaver Creek that is currently considered to be a local cost. The cost of bridges are higher than a typical 2 lane subdivision road, however the Town does not currently include these smaller bridges in the TWH DC. The current cost of the bridge is estimated to be in the $2 million range. The rationale put forward by Angus Glen for including small bridges in the TWH is that these bridges provide a benefit beyond their own development, and a typical 2 lane local road.
If a portion of the bridge is added to the TWH by-law, the DC rate per unit would increase. In order to be fair and equitable, staff would have to review all local bridges to determine if any other local bridge projects are similar to the Angus Glen bridge, and should also be included as an additional cost in the TWH by-law
If Council were to consider this option, in order to fair and equitable, staff would recommend a two step by-law approval.
1. Enact the TWH by-law with rates that do not include the additional costs for the bridges
2. Immediately enact an amendment to the TWH (Amended TWH) by-law with a charge (Amended Charge) that include the additional costs for the bridges.
If the developers do not support the inclusion of a portion of local bridges in the TWH Amended Charge, they could chose to challenge the Amended TWH by-law, which will include the higher rates with an estimated cost of the bridges included, without affecting the main (unamended) TWH by-law.
This approach would be transparent and fair to all developers. A policy to determine what the criteria would be for a bridge to qualify for partial reimbursement needs to be developed. It is very difficult to estimate what the cost of potentially reimbursing developers for a portion of bridges already constructed would be.
If this option is adopted by Council, staff recommend that a notional contingency of $1,500,000 be added into TWH rates, in advance of a policy being finalized, and detailed costs being determined. Until the policy and detailed costs are determined, the degree of cost mitigation available for the Angus Glen development is unknown.
Option #2 would result in an increase of 0.5% in the TWH development charge. The collection of the DC’s would be on schedule, as detailed in the Draft DC Background Study. (See Attachment – Option 2)
Option 3
The IBI Group letter suggests “grandfathering” of areas whose development is mostly complete, or provide a significant transition period. Grandfathering would mean including specific developers or development areas in the DC by-laws at the current 2004 indexed DC rates. Determining the definition of “mostly complete” or simply including all developments currently underway, or specifically the Angus Glen development is an arbitrary approach, and could have significant long term cash flow impacts. A long term transition period (ten years was suggested in the public meeting) would also have a significant cash flow impact, and would provide a market advantage to “grandfathered” developments compared to newer developments not receiving the benefit of the much lower 2004 indexed development charge.
Option #3 is not recommended by staff, as the reduced cash flow implications could be significant, precipitating the need for debt financing, and higher DC costs for future development. The potential for appeal from developers not receiving the benefit is high, as they will have to pay a higher DC rate.
Option #4
Option #4 is an option put forward in a discussion with Angus Glen Development Ltd. The proposal is:
“Another possible alternative is to propose some sort
of “equalization fund”. For example a
$100 per unit “equalization charge” over 36,000 units would produce a $3.6
million equalization fund to be distributed in an appropriate manner among the
“big losers”. Details would have to be worked out further with Staff.”
An equalization fund such as that described could not, in staff’s view, be included in the development charges. It is not a service that qualifies for inclusion in development charges, therefore would be very difficult to defend in front of the Ontario Municipal Board. A program whereby developers made voluntary payments into such a fund outside of the development charge by-laws could be implemented, and staff are willing to assist in administering such a program, but question whether it would be feasible.
Option #4 would be a fund outside of development charges that the Town could administer on behalf of developers, but cash flows would be dependent on voluntary payments being made by the developers.
Proposed Revision
No revision proposed
Item
b) Submission from SCS. SCS was
advised by staff that no area specific by-law will be passed for area 43 and
that meetings regarding credit agreements will be held over the months following
the enactment of the 2008 by-laws.
Proposed Revision
There will not be an area specific by-law for Area 43 – Greensborough
Item
d) Submission from
Proposed Revision
No revision proposed
Item e) Submission from Randy Grimes of IBI Group - Question regarding the financing cost of 6.5% used in the draft Background Study. Mr. Grimes suggested that an appropriate charge may be within the range of 5% - 5.5%. Mr. Grimes also discussed the increases in the Cathedral area, and the suggestion that grandfathering of areas that are partially developed.
Proposed Revision:
Staff has reviewed this submission
and are recommending a change to the financing costs to 5.75% for borrowing
costs (from 6.50%) and 4.00% for investment returns (from 4.50%). The effect of this recommendation is a less
than 1.04% reduction in the development charge rates which are shown in the
“Financial Considerations” section of this report. These decreases in rates reflect the lower
yields currently seen in the market.
Staff do not recommend
grandfathering of some development areas into the by-laws, as discussed under Item
a), c) and f).
Area Specific Consultative Process
In the past few months, staff have met with the majority of the Area Specific Development Charge (ASDC) developers, twice in some instances, to discuss the capital projects to be included in their respective charges. Town staff also advised developers in these meetings, that discussions on the recovery of credits will be undertaken after the enactment of the 2008 by-laws. These developers were advised of the availability of the draft Background Study that detailed their proposed charges. The revised Area Specific Development Charge rates are attached – see Appendix B.
Additional Revisions / Staff Recommendations
Council has already reviewed and passed a
resolution on some policy changes regarding the development charge calculation
in the meeting of
1. Revised detailed TWH and ASDC
capital programs are attached. The
revisions to the capital projects have slightly lowered the TWH but not the Area
Specific development charges. The
charges are discussed under “Financial Considerations”.
2. The Council resolution on April 29th
included that all local services be excluded from the calculation of
development charges. In the East
Precinct and
3. Removal of the Exhibition Creek
realignment and restoration project from area 43 – Staff have reviewed the
request from SCS Consulting Group on behalf of the Greensborough Landowners
Group and recommends that since the landowners will allocate these costs
internally there is no need for its inclusion.
This will result in no area specific charge for area 43 as this was the
only project captured in the charge.
4. A staff report recommending a grant
equivalent to development charges payable for the affordable rental housing
project proposed by East Markham Non-Profit Housing Corp. (EMNHC) will be
provided to General Committee on
5. The wording of Section 2 (2) of the
TWH by-law dealing with the methodology for charging mixed use development has
been clarified to reflect existing practice.
In a mixed use development, the residential units pay TWH charges on a
per unit basis. Normally, non-residential
space is charged based on the land area (per hectare), but in the case of mixed
use, as the residential units are paying the full TWH charge, the
non-residential development in the same building is charged based on the
building footprint, as a proportion of the total land area charge. The wording in the TWH by-law is simply being
clarified to reflect this practice.
FINANCIAL CONSIDERATIONS
Revised Development Charges:
The chart below outlines the current Town Wide development
charges, the proposed Town Wide charge before and after the transfer of ASDC
costs and the relevant variances. The
proposed charge differs from the charge included in the draft background study
due to revisions made as a result of issues raised in the public meeting (i.e.
change in financing rates).
Non-Growth Share:
The hard services non-growth share is not a legislated percentage and is based on the benefit the infrastructure will provide to the existing population. Consistent policies are applied to all hard service capital projects to determine the non-growth share. The amount to be funded from non-development charge sources for hard services equates to approximately $151 million over the twenty-three year period (2008-2031), of this amount $79 million is to be funded by the developers (local costs) and $72 million from the Town through non-development charge sources (e.g. taxes, reserves etc.)
Implementation of Capital Program:
The Development Charges Act requires Council to indicate that it intends to ensure that the increase in the need for service attributable to the anticipated development will be met. Therefore, the enactment of the development charge by-laws commits Council to ensure that the capital program is undertaken as outlined in the development charge background study.
The capital program included in the background study anticipates a large portion of the infrastructure will be installed in advance of development. The Town will be required to borrow internally and/or externally to meet this capital program. The borrowing costs associated with the front-loading of the capital program has been included in the development charge. This places an increased commitment on Council to ensure that the capital program is implemented as outlined in the background study.
Operating
Costs:
In approving the development charge by-laws, Council is also committing to the costs associated with the ongoing operation and maintenance of the assets included in the capital program. The operating cost impacts of the expanded municipal infrastructure are anticipated to be fully funded from additional tax revenues generated by the growth-related increase in the property assessment base. Furthermore, the new households will generate additional utility rate revenue that will be utilized to fund any incremental water and sewage servicing operating costs.
ENVIRONMENTAL CONSIDERATIONS:
Not applicable.
ACCESSIBILITY CONSIDERATIONS:
Not applicable.
ENGAGE 21ST CONSIDERATIONS:
Not applicable.
BUSINESS UNITS CONSULTED AND AFFECTED:
Legal Services and Engineering Department.
RECOMMENDED BY:
________________________ ________________________
Treasurer Commissioner, Corporate Services
Att: Appendix A – Council Resolution of
Appendix B – Revised Executive Summary – 2008 Development Charge Background Study
Appendix C – Minutes
of the Development Charges Public Meeting –
Appendix D – Capital Program
Appendix E – Option 2
Letter from IBI Group dated