Report to: General Committee Report Date: June 22, 2009

SUBJECT: Development Charge Soft Services Update

PREPARED BY: Kevin Ross, Ext 2126

RECOMMENDATION:

1) THAT the report on the “Development Charge Soft Services Update” be received;

2) THAT the summary responses to the comments from the public and the development community be received for information;

3) THAT no further public meeting is required under Section 12 of the Development Charges Act 1997;

4) THAT the minutes of the May 26^th, 2009 Development Charges Public Meeting be approved;

5) THAT the Development Charge Background Study prepared by Hemson Consulting Ltd. dated May 2009, be amended to reflect the change in the inventoried cost per square foot of selected Libraries and Recreational Facilities from $390 to $375 and that this amount be included in the proposed Town Wide Soft (TWS) charge by an amendment to the TWS by-law;

6) THAT Council approve the development charge Background Study as amended, prepared by Hemson Consulting Ltd. dated May 2009;

7) THAT Council declares that it is Council’s intent to ensure that the increase in the need for services to service anticipated development will be met;

8) THAT Council declares that it is Council’s intent that development related to post 2018 capacity identified in the Background Study shall be paid for by development charges or other similar charges;

9) THAT Council recognizes that there are operating costs associated with the implementation of the capital program;

10) THAT Council approve the enactment of the by-law attached as Appendix A effective on June 23^rd, 2009;

11) 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 Soft development charge by-law due to the impending expiration of the current by-law in force on August 31^st, 2009.

Throughout the review process, staff held consultative meetings with the development industry and responded to their concerns while providing updates to the General Committee. 

The draft Background Study and by-law have been prepared and the statutory public meeting held on May 26^th, 2009 where developers were provided with a forum to raise their concerns about the proposed development charges and policy changes.

Staff presented the 2009 Development Charges Background Study to General Committee on May 25^th. 2009, followed by the statutory public meeting on May 26^th. Subsequent to the Development Charge Public meeting on May 26^th, 2009, staff were asked to again meet with the developers to discuss their issues; subsequent meetings were held on June 3^rd and June 18^th, 2009. The results from these meeting were presented to the General Committee on June 15^th and June 22^nd, 2009 along with revised TWS DC rates and a proposal to implement the full charge immediately upon enactment.

In staff’s view, the proposed development charges and by-laws implement Town policies and established service levels which the Town intends to maintain.

PURPOSE:

The purpose of this report is to update Council on the proposed changes to the information, assumptions, and rates in the draft May 2009 Town of Markham Development Charges Background Study, and to obtain General Committee’s approval to implement the revised Development Charge rates in a Development Charge by-law for adoption by Council on June 23^rd, 2009 for approval.

BACKGROUND:

The review of the current Town Wide Soft (TWS) development charge by-law commenced in late 2008 in order to have a new by-law in place by August 31^st, 2009; the expiry date of the 2004 by-law. In early 2009 the Development Charge Sub-Committee was reconvened and undertook a review of the policy and methodology changes being introduced in the 2009 by-law, along with their cost implications. These policy and methodology changes were later carried to General Committee for review and consideration. Throughout this process, the Town held 5 consultation meetings with the development community to discuss the proposed new charges, policy and methodology changes and any issues arising from the changes.

Policy/Methodology Changes

The 2009 Background Study was prepared with the inclusion of changes to methodologies utilized in the 2004 Study. These changes relate to the following:

1) Fleet Inventories – All rolling stock utilized by the Town with an estimated useful life of 7 years or more is included in inventory as opposed to those kept by the Town for 7 years or more

2) Residential/Non-Residential Allocation – General Government, Fire Services and Public Works share of the capital program are allocated based on the population and employment forecast as opposed to an allocation based on property assessment (General Government and Fire Services)

3) Mixed-Use Non-Residential Rates – this was not included in the 2004 by-law but is now being proposed as it represents anticipated variations in the demand for certain Town services, namely fire services and public works. In order to qualify for a mixed-use rate, a building should be:

A vertically integrated building or structure used, designed or intended for residential and non residential uses, where:

a. the non-residential uses comprise not more than 50 percent of the gross floor area; and

b. a minimum of 100 square metres of gross floor area is used for non-residential uses

4) Gross Population Methodology – the gross population is used to calculate the historic service level and maximum allowable as opposed to the net population as used in the 2004 Study. The gross population appropriately accounts for service requirements in new households and its adoption will maximize the funding envelope and provide the Town with the funds required to achieve its growth-related capital infrastructure programs.

Town Wide Consulting Process

The TWS Developer Breakout Group, along with their consultants, have participated in a number of meetings with staff to review in detail their issues and comments relating to the changes in the Town’s development charge recovery process. Developers through their consultant, IBI Group, submitted their comments on April 23^rd, 2009 and again in a Developer Breakout Group meeting on May 20^th, 2009.

The primary issues relating to the TWS development charge recovery process which were raised by the developers during consultations were:

1) The usage of the gross population to determine the maximum allowable recoverable through development charges – This approach (the use of the gross population rather than the net population) is unjustified and has the effect of increasing the maximum allowable and results in a higher level of service being provided in the Town as a whole, at the end of the Development Charge (DC) Background Study planning horizon.

2) The relatively high increase in the TWS charge – The proposed increase of 35%-55% for residential development and 100% for non-residential development is seen as being too high.

3) The cost per square foot of $390 used for selected Recreational and Library facilities – the historical service level quality increase is unjustified.

4) The average cost of $2.1M used to value land inventory – the land value is predominantly associated with Markham Centre and these land costs are believed to be higher than other areas of the community.

5) The inclusion of the YMCA in the Town’s historical inventory – The YMCA should not be included in inventory unless a lease or licence agreement is in force between the Town and the YMCA.

6) Utilization of Reserves – There is a requirement for a detailed accounting of the reserves to ensure that the mandatory statutory deduction (10%) and prior growth is properly treated.

7) Adjustment to Capital Program – By pushing back and scaling down capital programs the Town will be able to reduce the proposed charge.

Staff Response & Revision:

Town staff reviewed the issues raised during the consultative process and responded as follows:

1) The Town is of the view that the usage of the gross population to calculate the service levels and maximum allowable accurately reflects the cost of providing services, at historic levels, for expected growth. This method is currently used by some municipalities and is being adopted by many other municipalities.

2) The TWS DC rates are determined based on 10-year service levels and replacement costs. The proposed increases in rates are necessary to maintain current service levels.

3) The Town has reviewed the replacement cost applied to selected recreation and library facilities – which is based on the preliminary cost estimate to construct the East Markham Facility – and determined that this cost included an uplift for LEED Silver certification, which is beyond the current service level for our facilities. The Town retrieved information from engineers familiar with LEED, which indicates that the incremental cost to construct a LEED Silver building ranges from 2.5%-3.5% and therefore, the Town revised the replacement cost for these structures from $390 to $375/sq.ft.

4) The average cost/ha of land was further analyzed by referencing the Town’s Property Management and Tax Assessment departments which verified that the Markham Centre lands do not have an increasing effect on the average land cost/ha used and that $2.1M/ha is a reasonable average for land across Markham.

5) The Town provided, to the developers, the June 2006 staff report which explained and included the Public Access Agreement with the YMCA and detailed the planned usage of the facility by the Town’s residents.

6) Staff provided details on projects approved through the budget process as well as the related amounts (percentage) actually funded through development charges.

7) Staff advised that there was no room to delay projects included in the DC capital program as those being funded in the 10-year growth period from 2009-2018 are currently at various stages of preparation. Any projects that may be delayed as per the capital program, are already being funded with post 2018 DC’s and hence pushing them back will have no impact on the charge.

The adjustment referred to in No.3 above had the effect of reducing the service levels and maximum allowable for the Library and Recreation Services (the revised inventory and capital program are attached – Appendix B). Most of these responses were communicated to the developers prior to the statutory public meeting on May 26^th, 2009. These issues were again raised in written submissions at the public meeting.

Public Meeting

On May 26^th, 2009 a public meeting was held to present the proposed development charge rates and by-law in accordance with the Development Charges Act, 1997. A number of written submissions were received and one verbal presentation made (see minutes attached – Appendix C).

Written submissions were received regarding the proposed development charges, from Marco Filice, Liberty Development; Paula J. Tenuta, Building Industry & Land Development Association (BILD); Sandro Campoli, Aspen Ridge Homes; Larry Webb, The Toronto United Church Council; Patrick O'Hanlon, Angus Glen Development Ltd; Nik Mracic, Metrus Development Inc. (1473092 Ontario Ltd.); Nik Mracic, Metrus Development Inc. (Lasseter Developments Inc.); Nik Mracic, Metrus Development Inc. (Wismer Markham Developments Inc.); Lynda J. Townsend, Townsend, Rogers LLP; Sal Crimi, S. C. Land Management Corporation; Pino Trentadue, National Homes and Bruce McMinn, Bruce McMinn.

Lynda Townsend, Rogers LLP representing the Building Industry and Land Development Association, addressed Council on behalf of a number of development firms. She indicated that she is working with IBI Consultants in the preparation of responses to the Town. In her presentation, Ms. Townsend spoke to the difficulties being faced by the development industry in the current economic environment, expressed the industry’s disagreement with the gross population methodology and asked for a transition provision to be put in place to ease the impact of the increase on the industry.

Transition Provision

Staff recommended at the General Committee of June 15^th that there be no transition provision included in the Background Study and TWS by-law to be adopted by Council after reviewing the following options:

1) Make the by-law effective August 31^st, 2009 when the 2004 by-law expires

2) Make the by-law effective August 31^st, 2009 when the 2004 by-law expires, however, phase-in the increase in 1/3 increments over a one year period

3) Make the by-law effective on the date of Council approval but charge current rates (subject to indexing) to apartments with site plans endorsed for approval by June 23^rd, 2009 who submit an application for a building permit on or before June 23^rd, 2011 and commence building within 6 months of permit issuance.

The Committee also heard from Randy Grimes of IBI Group, on behalf of the developers, the following transition proposal:

a) Transition/Phase-in for both Residential and Non-Residential

I. freeze rates at current level for 1 year (subject to indexing)

II. implement increases at the rate of 25% per annum over the subsequent 4 year period of the by-law

III. these graduated increases would only be fully applied if the level of building activity reaches the average of residential unit completions annually over the last 5 years (3,242). Increase is to be prorated between 3,242 and 1,000 units per annum; if less than 1,000 units p.a. DC increase will be 0%.

b) Markham agrees to open their by-law if the gross population methodology utilized by Hemson Consulting is successfully appealed at the Ontario Municipal Board;

c) Markham agrees, in any event, to review their DC by-laws (hard and soft services) once the Growth Plan review is complete;

d) Grandfathering – Any current project which has applications that have received site plan approval or draft plan approval, would pay at the current rates (subject to indexing);

e) The industry will not appeal the proposed DC by-law if their suggestions are agreed to.

Committee passed the resolution for no transition provision. They however expressed their understanding of the current economic environment within which the development industry is currently operating and requested that staff review additional options to provide a transition. These are:

1) A phase-in of the increase, in equal increments, over three years

2) A phase-in of the differential between the net and gross population methodology at the rate of 50% in year 2 and 50% in year 3 of the by-law.

Staff has reviewed the financial impact of these additional options to present to General Committee on June 22^nd, 2009. Should any change to the transition be made by Council, the amended resolution will be used to revise the by-law prior to its adoption on June 23^rd, 2009.

FINANCIAL CONSIDERATIONS

Revised Development Charges

Residential

The chart below outlines the current development charges, the charge that was included in the May 2009 development charge Background Study and the proposed charge. The proposed charge differs from the charge included in the Background Study due to the reduction in the inventory cost/sq.ft. for selected libraries and recreational facilities following further analysis of the service level used in the calculation, in response to the issue being raised during consultation with the development industry. The impact of this change is a 1.1% reduction in the TWS residential charge included in the Background Study.

Non-Residential

The chart below also outlines the differentiated rate for non-residential DC’s due to the new policy decision to introduce a mixed-use rate in an effort to encourage this type of construction without impacting DC revenues. The rate differs from that included under option 3 in the Background Study, due to a revision from 12.5% to 4% in the amount of mixed-use structures projected to be built. The impact of this change is a reduction in the mixed-use and retail charges over that originally calculated.

Growth-Related Share

The total 10-year (2009-2018) capital program is approximately $359.8M of which $168.6M represents the growth-related capital costs that can be recovered through development charges in this period. The remaining amounts are to be financed through (1) previous DC collections - $84.7M, (2) future DC’s in the post 2018 period - $89.0M and (3) 10% from other sources of funding - $17.5M.

Non-Growth Share

There is a mandatory reduction of 10% for the non-growth share of the capital program for all soft services excluding Fire Services. The 10% reduction, to be funded from non-development charge sources, equals approximately $17.5M over the 10-year period (2009-2018).

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-law 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 have 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-law, Council is also committing to the costs associated with the ongoing operation and maintenance of the assets included in the capital program. This cost is anticipated to be approximately $15M – $20M in the ten-year period (which will be partially offset by revenues). The approved 2009 operating budget includes ‘ramp-up’ provisions for some of these operational costs. Staff will continue to include provisions, where possible, in the operating budget to help offset the impact the capital program may have in any given year.

Parks, Recreation, Culture and Library Master Plan

The funds garnered through the soft service development charges are a major component of the funding for the Parks, Recreation, Culture and the Library Master Plan. Upon approval of the TWS Services Development Charge by-law, staff will be in a position to coordinate the draft master plan with the available DC funding.

ENVIRONMENTAL CONSIDERATIONS:

Not applicable.

ACCESSIBILITY CONSIDERATIONS:

Not applicable.

ENGAGE 21^ST CONSIDERATIONS:

Not applicable.

BUSINESS UNITS CONSULTED AND AFFECTED:

Legal Services.

RECOMMENDED BY:

________________________ ________________________

Barb Cribbett Andy Taylor

Treasurer Commissioner, Corporate Services

Att: Appendix A - Town Wide Soft Services By-Law

Appendix B - Revised Development Charge Tables

Appendix C – Minutes for the Development Charges Public Meeting