The city’s development charges account balance was nearly cut in half last year, driven by slower growth and over $15 million given out in exemptions. The shortfall has meant another $25 million loan to bolster the account – the second in three years – and renewed warnings from staff about the fiscal “sustainability” of both the aerotropolis and the delayed plans to upgrade sewer infrastructure.
Development fees are supposed to cover the costs of growth, but provincial restrictions limit this possibility to only about three–quarters of the required servicing needs, and city council reduces this further with discounts and exemptions to encourage growth. These currently include a 50% discount for industrial projects (including hotels), and at least a 90% exemption level in the downtown.
The staff report received this week says these subsidies have cost the city more than $60 million over the last five years. Water rates have been used to cover some of this shortfall, but “levy DC’s to date have not been funded” and constitute a growing financial pressure.
“Total DC exemptions over the 5–years are $61 million, of which the rate budget has funded $27 million of exemptions for rate supported services over that period,” explains the report. “The foregone revenues of $34 million for mostly tax–supported services over that period, as well as future exemptions, will require that some growth development be deferred and/or funded from non–DC funding sources.”
The total DC account dropped to $37.95 million at the end of 2011 compared to $67.43 million a year earlier, despite $7.76 million from water rates. So a favourable balance in the water/sewer category of over $62 million is offset by growing deficits in several others, especially road construction reserves that are now nearly $19 million in the hole.
The report says the plunge in the overall DC account “can be attributed to several factors which place pressure on DC reserve balances, including the general pace of development, unfunded exemptions for tax–supported infrastructure and the planned staging of development.” There was also $10 million used to help service the North Glanbrook business park where the Canada Bread and Maple Leaf wiener projects are located.
Residential development fell 36% from 2010 to just 1,058 units. The report explains that a portion of this “can likely be attributed to a significant increase in 2010 permits issued prior to the expiry of discounted phase–in residential rates”, but 2011’stotal was actually lower than the 1229 permits during the 2009 recession.
While the report describes this year’s numbers as “reasonably strong considering continued economic uncertainty”, it warns that that the city must “align growth infrastructure construction with ability to pay based on the flow of DC revenues” and points specifically to the impact on the two biggest planned growth projects.
“The forecast growth capital budget for the next 20 years is dominated by two developments: the wastewater plant expansion and associated linear infrastructure and the Airport Employment Growth District. The sheer size of the investment in both areas will require significant debt. DC growth revenue must remain stable relative to forecast in order for the financial plans of both developments to remain sustainable.”
Servicing for the aerotropolis could exceed $500 million. Expanding and upgrading the Woodward Avenue sewage treatment plant is pegged at $800 million and has already been postponed five years because of slower than predicted residential growth – although federal subsidies, if approved, will allow the city to proceed with a portion of the work.
Hamilton development fees currently stand at just under $29,000 for a single detached house, but some communities like Oakville are charging more than twice that amount. V