STAFF REPORT Financial Planning & Purchasing. Finance & Strategic Planning Committee Meeting Council/Committee Date: September 18, 2017

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1 1 Corporate Services STAFF REPORT Financial Planning & Purchasing Title: Development Charge Update Progress Report Number: CORP Author: Michael Pugliese Meeting Type: Finance & Strategic Planning Committee Meeting Council/Committee Date: September 18, 2017 File: N/A Attachments: [Attachments] Ward No.: All - Citywide Recommendation: 1. That CORP be approved. 2. That Council direct staff: a) to proceed with a Citywide Development Charge when finalizing the background study for public release. OR b) to incorporate the draft area rate methodology presented in Scenario 2 of this report when finalizing the background study for public release. A. Executive Summary Staff are providing Council with an update on the City s Development Charge (DC) background study progress. In consultation with Watson & Associates, City staff have been finalizing the growth projections, growth related capital program, and based on direction from Council at the June 26, 2017 Council Workshop, draft area rates for Council s consideration. This report will provide summary information and staff recommendations (where appropriate) related to: - Key decision points needed in order to finalize the City s updated DC Background Study. - The topic of DC grants as they relate to affordable housing and nonresidential/commercial growth in the City. - Staff s approach on the Stakeholder engagement process, and a communications plan for the general public with respect to the DC study/bylaw update.

2 2 Corporate Services B. Financial Implications There are no financial implications associated with Recommendation #1 as it would be a redistribution of the charge to specific areas vs a citywide rate. C. Technology Implications None. D. Legal Considerations Staff did not seek legal advice. E. Link to Strategic Plan/Economic Vitality (Strategic Priorities: Multi-modal Transportation, Infrastructure Renewal, Strong Community, Environmental Leadership, Corporate Excellence, Economic Development) Corporate Excellence, Economic Development F. Previous Reports on this Topic None, Council workshop at June 26, 2017 meeting. G. Approvals Author: Michael Pugliese Director: Filipa Reynolds Commissioner: Keshwer Patel Finance: Keshwer Patel Name Signature Date CAO

3 3 Corporate Services Development Charge Update Progress CORP Background: Staff along with Watson & Associates presented information related to the DC Update process to Council on June 26, One of the key takeaways was to investigate the use of DC area rates for Engineered services (water, wastewater and stormwater) vs a city wide rate that is currently being used today. Council also expressed interest in having incentives for affordable housing and non-residential / commercial growth in the City. Analysis of Potential DC Area Rates: The following provides a summary of the findings for two area specific scenarios undertaken. Figures in the following tables show the difference in the DC rate vs a city wide rate. Scenario 1: Three areas (Uptown/Station Area, Greenfield Area, Rest of City Area) The specific capital works required to support growth in the areas have been identified by staff and the growth forecast has been analyzed and apportioned into these areas. Due to the amount of residential and non-residential growth anticipated in each of the three areas, the capital costs are allocated as follows: a) Greenfield areas 84% residential and 16% non-residential b) Uptown/Station areas 60% residential and 40% non-residential c) Rest of City 37% residential and 63% non-residential The allocation between residential and non-residential growth in the three areas results in the area specific DC s varying slightly for residential developments. But for nonresidential development there is significant variation. The DC s for the Rest of the City area are considerably higher than other areas of the city. This is due to the lack of growth potential in the residential sector for that area. The capital works in this area would be mainly distributed over the non-residential growth, resulting in a charge of over $20 more / sq M then the rest of the areas.

4 4 Corporate Services Based on the vast difference in Scenario 1 for non-residential development, these charges may significantly hinder future non-residential infill development in the Rest of the City areas and create a situation where the development becomes unaffordable and/or non-competitive with the Greenfield and Uptown/Station areas, resulting in economic development inequities. Scenario 2: Two areas (Uptown/Station Area, Greenfield + Rest of the City Area) Watson & Associates has also undertaken an area specific analysis using only two area specific calculations; i.e. they have combined the Greenfield and Rest of City costs into one category, leaving the Uptown/Station Area calculation the same as calculated in Scenario 1. The capital costs associated with these two areas are allocated between residential and non-residential based on the incremental growth in population to employment as follows: a) Uptown/Station areas - 60% residential and 40% non-residential b) All other areas 78% residential and 22% non-residential. This scenario creates a more balanced non-residential differential by combining the growth potential of the Greenfield area with that of the remaining built up area of the city. If Council wishes to migrate from the current City wide basis of collecting DC s to an area specific basis, Scenario 2 would be the staff preferred option. RECOMMENDATION: As Scenario 2 varies slightly between the City wide rate (i.e. +/- $150 on a DC of $14,239 for a single/semi detached, and +/- $1.30 on a DC of $65.78 for Non- Residential), staff recommend maintaining a City wide rate for the DC bylaw update. Staff have discussed options with the external stakeholder working group, and there is consensus amongst the group that if the rate differential is marginal, a City wide rate would be more practical and efficient to administer. Draft Development Charge Rates (City wide): The largest factor influencing the development charge rate calculation is the growth related capital program. Staff have updated the City s growth related capital budget to reflect future growth needs in the City and to better reflect unit costs based on recent tender awards. Only DC projects have been adjusted or added, non-dc projects remain as per the approved Capital Budget. The draft DC capital budget forecast over the next 10 years ( ) totals approximately $165M (in 2017 dollars).

5 5 Corporate Services The draft DC rates (and draft growth related capital program) have been shared with the external stakeholder group and staff are continuing discussions with the group on the merits of the capital program and resultant rates. Council will have the opportunity to review the final growth related capital program and project sheets in detail along with the background study update later in September once the study is complete (see Timelines & Next Steps section for key dates). Based on the updated growth related capital program and updated growth forecast for the City, new 2017 DC rates would be approximately as follows (currently in draft form and subject to change if parameters in the model are updated): Residential Charge By Unit Type Singles & Semis 1 Bedroom or Less Apartments 2-3 Bedrooms 4-5 Bedrooms Multiples Lodging House Per Bedroom Non Residential Charge per Square Metre CURRENT TOTAL CHARGE PER UNIT $12,242 $5,566 $7,237 $11,872 $8,074 $3,712 $68.51 PROPOSED TOTAL CHARGE PER UNIT $14,239 $5,476 $9,331 $19,716 $10,296 $4,382 $65.78 % Change 16.3% -1.6% 28.9% 66.1% 27.5% 18.0% -4.0% Note, as these are 2017 rates, come January 1, 2018, all rates would be indexed by the Statistics Canada Non-Residential Building Construction Price Index as permitted by the DC Act and done in prior bylaws. For reference, a comparison to local municipalities has been provided below. As mentioned above, the Waterloo draft rate is a 2017 rate and will be indexed come January 1, 2018 along with the Upper Tier and Education rates as done in past years. DC Comparison: Single/Semi Detached (2017 rates) Waterloo (draft) $21,112 $14,239 $2,601 $37,952 Waterloo (current) $21,112 $12,242 $2,601 $35,955 Kitchener (suburban) $21,112 $10,873 $2,601 $34,586 Cambridge $21,112 $10,655 $2,601 $34,368 Guelph - $29,038 $1,884 $30,922 Kitchener (central) $21,112 $5,618 $2,601 $29,331 DC Comparison: 1 Bedroom/Batchelor Apartment (2017 rates) Cambridge $11,498 $6,614 $2,601 $20,713 Kitchener (suburban) $11,498 $5,951 $2,601 $20,050 Waterloo (current) $11,498 $5,566 $2,601 $19,665 Waterloo (draft) $11,498 $5,476 $2,601 $19,575 Kitchener (central) $11,498 $3,100 $2,601 $17,199 Guelph - $12,186 $1,884 $14,070

6 6 Corporate Services DC Comparison: 2-3 Bedroom Apartment (2017 rates) Waterloo (draft) $11,498 $9,331 $2,601 $23,430 Waterloo (current) $11,498 $7,237 $2,601 $21,336 Cambridge $11,498 $6,614 $2,601 $20,713 Kitchener (suburban) $11,498 $5,951 $2,601 $20,050 Guelph - $17,477 $1,884 $19,361 Kitchener (central) $11,498 $3,100 $2,601 $17,199 DC Comparison: 4-5 Bedroom Apartment (2017 rates) Waterloo (draft) $11,498 $19,716 $2,601 $33,815 Waterloo (current) $11,498 $11,872 $2,601 $25,971 Cambridge $11,498 $6,614 $2,601 $20,713 Kitchener (suburban) $11,498 $5,951 $2,601 $20,050 Guelph - $17,477 $1,884 $19,361 Kitchener (central) $11,498 $3,100 $2,601 $17,199 DC Comparison: Multiples/Townhomes (2017 rates) Cambridge $15,851 $10,655 $2,601 $29,107 Waterloo (draft) $15,851 $10,296 $2,601 $28,748 Waterloo (current) $15,851 $8,074 $2,601 $26,526 Kitchener (suburban) $15,851 $7,639 $2,601 $26,091 Guelph - $21,871 $1,884 $23,755 Kitchener (central) $15,851 $3,981 $2,601 $22,433 DC Comparison: Non-Residential per Sq M (2017 rates) Waterloo (current) $ $68.51 $18.62 $ Waterloo (draft) $ $65.78 $18.62 $ Kitchener (suburban) $ $55.53 $18.62 $ Cambridge $ $30.07 $18.62 $ Kitchener (central) $ $16.78 $18.62 $ Guelph - $ $ DC Bylaw Terms: Guelph Mar. 2/2014 Mar. 1/2019 Region of Waterloo Aug. 1/2014 Jul. 31/2019 Cambridge Jul. 1/2014 Jun. 30/2019 Kitchener Jul. 1/2014 Jun. 30/2019 Waterloo Jan. 1/2013 Dec. 31/2017 * *Note: City staff are planning to align the DC Update process with the Citywide 3 year capital budget & 7 year capital forecast process to better align resources and balance competing priorities for funding growth and non-growth projects. This would mean that the City would undergo another DC study update throughout 2019, for a 2020 updated bylaw, with subsequent 4-year DC bylaw terms thereafter.

7 7 Corporate Services Current DC Exemptions & Incentives: The City s existing DC bylaw contains the following discretionary exemptions: Universities or Colleges except: (i) development beyond lands designated "Academic" in the Official Plan; (ii) industrial/research uses on university or college lands where the industrial/research use is the main use; or (iii) commercial uses. Temporary use permitted under a zoning bylaw amendment enacted under section 39 of the Planning Act; Temporary use of a construction trailer in connection with the construction of the development; The erection of a building without foundation as defined in the Building Code Act for a period not exceeding twelve continuous months. Council, at the June 26, 2017 workshop, indicated their preference for incentives through DC grants to help bolster affordable housing development as well as promoting continued intensification and non-residential/commercial development. Staff have reviewed the viability of adding additional discretionary exemptions to the draft bylaw but recommend that any incentives for affordable housing and non-residential development be considered outside of the DC bylaw, for example through a Community Improvement Plan (CIP). By providing exemptions in the DC Bylaw, it limits Council s ability to review each application as well as potential funding shortfalls if uptake is greater than anticipated. By offering a DC grant through a CIP, Council has the opportunity to review applications if desired. Additionally, Council can commit a pre-determined funding budget to be used for the program, and once the funding is depleted, the program could either be extended or wrapped up based on Council s wishes. For these reasons, staff have not recommended including any further discretionary exemptions in the draft bylaw. Stakeholder Engagement & Communications Plan: As done in previous DC bylaw updates, staff have assembled a group of external stakeholders to work with staff and provide comments/feedback on the DC study update process. The group is comprised of the following individuals: - Art Sinclair Representing KW Chamber of Commerce - Martin Jones - Representing Waterloo Region Home Builders Association - Paul Puopolo - Representing Waterloo Region Home Builders Association - Dan Currie - Representing Waterloo Region Home Builders Association - Ian Robertson - Representing Urbanization Liaison Committee - Scott Higgins - Representing Urbanization Liaison Committee

8 8 Corporate Services The review process to date with this group has been as follows: - July 26, 2017: Stakeholder group kick-off meeting - Aug. 21, 2017: Working sessions for capital review & growth projections - Aug. 22, 2017: Working sessions for capital review - Aug. 23, 2017: Working sessions for capital review - Sep. 11, 2017: Initial review of Draft Background Study with staff - Sep. 12, 2017: Detailed review of Draft Background Study with staff and Watson & Associates Additional communications and conference calls have been utilized as well when needed or requested by group members. Of note, staff will be attending the September 19 Waterloo Economic Development Advisory Committee s (WEDAC) meeting to provide an update on progress to date and review of draft area rates and citywide rates for their input. Staff will also be doing a DC awareness campaign for the general public to inform them of the DC bylaw update. This will involve providing website links and social media posts to help disseminate information and provide timelines, contact information for questions, etc. Staff want to use this opportunity to educate the public on the importance of development charges and what this means to residents in their day to day lives. Also, as required by the DC Act, notice in a general circulation newspaper is required informing the community of the Formal Public Meeting date. This will be done through the Waterloo Chronicle as is done with other City notice ads. Timelines & Next Steps: There are key dates to follow with respect to the DC Act in terms of notice periods and public documents. Staff have prepared the following timeline for Council s information that will provide the required notices and disclosure requirements. Sep. 21 & 28: Notice of Oct. 23 public meeting in local paper and notice of when background study will be available to public Sep. 29: Release of background study/draft bylaw to the public (must be at least 60 days before bylaw passage, and 2 weeks prior to public meeting both requirements met) Oct. 23: Council approval of Background Study/Draft Bylaw & Formal Public Meeting (need at least 20 days notice in newspaper & study available at least 2 weeks prior both requirements met) Dec. 11: Passage of bylaw by Council Dec. 15: Implementation of new bylaw and new rates take effect (new DC rate brochure to be available) TBD: Notice of bylaw approval and time for appeal (Clerk to post notice not later than 20 days after the day the bylaw is passed appeal up to 40 days after the day the bylaw is passed)

9 9 Corporate Services Summary & Recommendations: The DC Background Study and bylaw update process is moving towards completion. Various internal departments have contributed a significant amount of information to date, allowing our Consultant to prepare a Background Study document for Council s consideration. For the reasons identified in this report, staff recommend that Council approve Recommendation 1 a) to be used in finalizing the Background Study document for a September 29, 2017 public release.