Development Charges have become a convoluted system
by Sandy Lindsay

April 4, 2016

Town Council

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Craig Binning and Jackie Hall of Hemson Consulting recently updated Saugeen Shores Council on the process of Development Charges (DCs) as a renewal of the By-law must be completed by August 1st.

Craig Binning

The Development Charges Act was put in place in 1997 to allow municipalities to have the opportunity to recover costs for services that are attributable to growth, such as water and sewer installations, construction of roads, hospitals and other facilities.

When the issue was first being considered by Council, it was a very contentious issue with developers and general contractors presenting their concerns.  A background study at that time was completed and presented by consultants, Watson & Associates.

In Saugeen Shores, a recorded vote by Council on January 28th, 2008 of eight to one, implemented DCs.

On August 29, 2011, Council voted for an additional increase to be phased in over three years.

At that time, the new residential DCs were to be phased in over five years and, in March of 2013, Council voted for the final increase that would see DCs reach the phased in maximum in 2016.

Prior to that, a developer, Port Elgin Lands Limited, lodged a complaint with the Ontario Municipal Board (OMB) saying that the calculations used to arrive at a DC total were incorrect and did not follow the DC Act.

On August 11th, 2014 however, the OMB sided with the Town's By-law but not before some $90,000 in legal fees was spent by the town to defend the By-law.

In its 2013 report, Hemson presented a growth forecast from 2013 to 2022 of 1,060 private dwellings.  In its recent reports, it predicted growth from 2016 to 2025 of 975 dwellings.

Previously, the DCs for residential units were based on square footage or the foot imprint of a dwelling or non-residential entity. Current charge for residential rates are $14,799 but if indexed over the past five years would be at $16,473. Under the proposed draft DCs for a single/semi the cost would be $17,043,

This time round however, it appears that the fees/charges determined in the preliminary draft are not based on footage but on a proposed 'population' or occupancy in each unit. 

According to the Draft, 70 per cent of DC rates go toward hard engineered services.  The non-residential DC rates are at $76.84 per sq. metre with 82 per cent going toward engineered services.

Binning explained that the rates are based on occupancy and supposed usage or demand on services.  Occupancy numbers per unit are based on data specific to Saugeen Shores according to the 2011 census.

When it comes to employment numbers and the space that they take up, Binning said that it "... is a tricky business." With the recent announcement by Bruce Power and the anticipated work force changes which will affect residential numbers as well, Binning suggested that at the end of this five-year period, it will be easier to determine the impact.

Deputy Mayor Luke Charbonneau asked how the forecast that was made in 2007 has stood up to the actual numbers.  "Looking back at DCs and planning, the projections of growth were often overstated and the reality hasn't turned out.  Do you go back and look at previous forecasts and use those numbers to temper you current forecast?"

Jackie Hall said that they try to be as realistic as possible and that they (Hemson) had looked at previous forecasts.

Charbonneau went on to say that when he looked at the numbers, forecasts were always too high.  "It seems to point to a pattern of miscalculation rather than an accidental overage or underage so is there something we are doing wrong or is there something wrong with our methodology? Was it overstated last time we did this forecast.?"

Binning said that the study before the last one (2013) was definitely overstated in forecasts. "The depths of the recession were more dramatic than we thought."

Councilor Neil Menage said that "... somewhere there are plans for subdivisions that account for hundreds of vacant lots.  Do we have 975 vacant lots for development
or what percentage is it for vacant lots?"

Jay Pausner of the town said that the number represented 50 per cent of lots available.

Councilor Mike Myatt raised the question around external impacts, such as Kincardine acquiring natural gas. "We have natural gas and it has been a real selling point for Saugeen Shores and Kincardine has not been able to offer it but they will be and, therefore, the situation becomes more competitive.  Did you consider that fact in the forecast?"

Binning explained that they did not consider "micro concept" changes in determining dwelling unit numbers but only looked at numbers of development over the past ten years.  "We are also working with Kincardine on their DCs and population is not always an indicator of development.  There can still be development activity in dwelling units where the population can be flat," he said when questioned about the difference between the two communities regarding building permits.

There is no doubt that DCs appear to have become a convoluted system, such as waste management where a company has been contracted by a municipality to provide a service.

"We have to be clear with the public when we are spending DCs that we are spending the money on things we said we would.  There cannot be any ambiguity in terms of what an invoice says and what we are using DC money for.  There has to be a clear process and transparency for the community in how we are using the funds," said Deputy Mayor Luke Charbonneau.  "We have to develop some sort of clear policy with our waste management company (BAWSR) so that we can tell the public, this is how the funds are being used."

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Mayor Mike Smith agreed saying that the next time the service goes to tender that the contractor is asked to separate capitalized costs.

Councilor Neil Menage then raised the issue of landfill sites.  "If we are increasing the population by 10 to 20 per cent which will increase the burden on the landfill site, how do we deal with that?"

Binning said that the reality is ... it will have to be dealt with from the tax base.  "Landfill and incineration are ineligible (under the Act) ... it was a decision of the provincial government."

Councilor Cheryl Grace asked why it would be an incentive for builders to have a flat fee based on occupancy rather than square footage.  Binning said that just because a unit is larger does not mean more people would be living in it. 

"That is very interesting," said Deputy Mayor Charbonneau, "and a point that should be highlighted is the advisability, or defensibility, of attempting to engineer the development situation or tinker with how a municipality is going to develop using the Development Charges Act as a means to architecturally engineer the municipality, social engineering doesn't work in this case.  Along the same lines, the intention of the DC Act is to recover growth related expenses to ... make growth pay for growth. It's not to pick winners or losers or to try to highlight or encourage one kind of development over another.  Standardizing the rate is the right thing to do.  Look at the difference between our community and a neighbouring community.  We have a DC and they don't and there is very little difference or impact, that we have had a negative impact net effect on doing much of anything except recovering costs related to growth.  When we get into this dialogue of using it for alternate means , I don't think it's advisable and I don't think it's effective and I think we should stick to our knitting on this."

When looking at Affordable Housing, Vice Deputy Mayor Diane Huber asked if the category included conversions. 

"The current By-law," explained Binning, "says that if you have an existing building or structure, and you are going to demolish or renovate for another purpose, you get a redevelopment credit for the existing use but if converting from one use to another with no increase in demand for services, there would be no development charge but you would get a partial credit for existing use."

"The reason I asked," said Huber, "is that in both commercial core areas (Port Elgin/Southampton), there is very little land that could be developed or redeveloped so therefore are we able to consider other potential aspects of the community where a full benefit like this would support the development of this kind of housing.  The idea is a good idea for the community and it would be good to have options in other part of the community for this kind of thing."

Deputy Mayor Luke Charbonneau added that "...when you develop on existing floor space you get a redevelopment credit but there are circumstances where there is a change in use.  Would the DC then apply?  If you are converting one use to another, what are the rules for DCs?  To me, a lot of these conversions don't accomplish a lot and there isn't much expansion or development happening in the core areas so that the exemption doesn't get you anything and, add to that the fact that exemptions from DCs don't do anything in the first place, therefore I would like to look at the wording of the By-law and changing uses and avoid catching people who are redeveloping properties on the same square footage and don't get the redevelopment credit because there is a change in use.  Perhaps, we should be looking at the wording of the By-law to find ways to make it easier to change use in these built-up, core commercial areas in particular w,here there is the benefit of adding affordable housing to a core commercial area or the benefit of adding just more residential.  Is the exemption already in the By-law accomplishing our goal? Our goal is to see some redevelopment of existing structures that are under-utilized or derelict and to see some way to allow that to happen in the same square footage.  I think we should simplify the By-law in terms of exemptions.  Do these exemptions encourage anyone to do anything or does a charge suppress or depress development?"

Binning said that the question was complex.  "Development charges do not sway a residential development from taking place, in my opinion. The redevelopment scenario has been flagged and it is important to have clarity.  There is some growing evidence that considerations may be beneficial for projects might otherwise not be financially be feasible for developers."

 "I would like to see us draw the line a little bit differently," added Charbonneau.  "Development is DC eligible but we should be looking at reconfiguring the wording of the By-law, where conversions are involved, to be exempt from the DC so that we get to see those under-utilized buildings redeveloped in a way that will benefit the community.  I think we will get more bang for our buck by doing that than by these broad exemptions for new development in any particular zone especial core zones where there is no land for new development.  We should be focused on conversions."

Mayor Mike Smith said he was comforted with the fact that figures presented by Hemson were within a matter of a few hundred dollars and that the study was, therefore, done properly last time.  "There will be a range of ideas of how we get to a final figure for DCs as there was last time.  This is the fourth time I have sat through this and we have always phased in the charges.  We are not even at the top of the range from the last phase in of development charges but I was happy with some of the ideas about affordable housing because I know there is a real need for it in this community."

To read the full Hemson presentation ... Click Here .  The draft will be re-worked, presented to the public in April with the background presented and another public meeting in May and brought back to Council in June or July. According to Binning, the stakeholders (contractors) were happy to see that the wording is being reviewed.

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Tuesday, April 05, 2016