Growing pains

Last December, the new Built and Natural Environment Committee was presented with a report on monitoring the development charges rates that they were clearly not prepared to deal with. Accordingly, the members asked that an introduction to development charges be provided to the whole council. On Tuesday, that presentation took place.

Unfortunately, I missed it as I had another meeting to attend. I gather I missed some fireworks. If reports were accurate, Councillor Nancy Branscombe “blew a gasket” at the mayor for his misuse of the chair to argue with councillors he doesn’t agree with, most frequently, Councillor Joni Baechler.

That Baechler would be the target doesn’t surprise me all that much. Let’s face it, she knows more about development charges than anyone on council. She has a great head and memory for how many hectares and how many building lots have become available; she knows the developments that have occurred and what they cost; she has all the concepts and figures at her fingertips. She knows more than many, if not most, of the people in the planning department.

Her help and patience were invaluable when I joined council, and I’m sure that she is helping or prepared to help the new members as well. Whether they are interested or prepared to put in the effort may be another matter.

Development charges are the way the city tries to pay for the costs of development. If you build a house or a factory or a store, those buildings need sewers and water and roads, at the very minimum. And when you get enough of them, they’ll need a library and a firehall. How does that get paid for? Especially when the development is some distance away from what has already been completed?

That’s where development charges come in. A rate or fee is charged on every new development to cover those costs. That fee will be calculated into the price of the house or apartment building or big box store. For a single family home, the rate adopted in 2009, although not implemented till 2010, is $19,630. There are other rates for apartments and rowhouses. Commercial and institutional are calculated on a square foot or square meter basis. These charges should cover the cost of bringing those services to the property line.

In order to figure out how much should be charged, a background study is done. This is a tricky process and you need to get it right. If you don’t charge enough, you’ll end up without enough money to pay the contractors for doing the work, which could be a problem because then you have to go to the taxpayer to make up the difference. Most taxpayers, having already paid for their infrastructure when they bought their homes, don’t really appreciate paying for someone else’s stuff, especially when the houses that are being serviced at the edges of the city are far grander than their own.

In 2007, a new Development Charges Background Study was undertaken by the city. Using staff and representatives from the community and industry who have some experience and interest in the outcome, projections were made about what infrastructure would be required over the next 20 years based on anticipated growth rates, and what those projects would cost. How many kilometres and lanes of roads? 

What about watermains? Storm sewers? Stormwater management ponds? Sewer pipes?

What will it all cost? And what if the price of asphalt or labour goes up?

And what are the right rates to reflect actual usage depending on what category of development being undertaken? Who creates more wear and tear on the roads, the residential commuter or the powercentre shopper?

And how do you pay for it? You have to put in the roads before you can build or sell the houses on which the development charges are levied. If you build a lot of houses, but nobody buys them, there will be no money going into the development charges reserve fund that covers the cost of the roads and sewers. So now, you are in a cash crunch. If you borrow money to cover the costs, you have to pay it back by going to the taxpayer who will not be happy.

To add to the problem, if you decide to give some people a break on development charges, you won’t have enough to cover the costs of the services. That’s what happens in London. Every year we put in services for industrial developments for free because we hope that will bring jobs to the city. That subsidy, plus a few others, means that every year there is about a $10M shortfall in the kitty that has to be picked up by someone. 

You guessed it. It’s you, the taxpayer.

But, some might argue, the people who get the jobs will buy houses and create assessment growth. Maybe. But assessment growth (or taxes) is what pays for ongoing services to the new development. The new roads have to be plowed, the garbage picked up, the police on call. And this year, we put it all into a tax freeze. So how will we cover that $10M shortfall?

That’s the conundrum facing a council that wants simultaneously to freeze taxes and have unprecedented growth. To get that growth means putting in services, at least, it does if you are developing greenfields (not previously built on) rather than using the existing infrastructure.

The report to Committee of the Whole dealt with how things have been going to date, looking at how accurate the background studies have been in projecting costs and seeing if some tweaking needs to be done.

But the current mayor is not likely to be satisfied with mere tweaking of development charges or a Growth Management Implementation Strategy put in place by the previous council to come to terms with the fact that we can’t grow everywhere at once.

He is committed to 2.5% assessment growth and 2,000 new jobs per year.

Where will the money come from?

Stay tuned. I expect more information tomorrow.