Development Charges External Stakeholder Committee Minutes - Session #12. Agenda Item Issue / Discussion Actions

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1 Date / Time: August 1, :30 pm 4:00 pm Development Charges External Stakeholder Committee Minutes - Session #12 Location: Committee Room #1 2nd Floor, City Hall Attendees: External Representatives: Jim Kennedy and Craig Linton, (LDI), Lois Langdon, (LHBA) and Gloria McGinn McTeer, (UL). Regrets: Dick Brouwer (Zebro, Non-LDI Member), Sandy Levin (UL) and Toby Stolee (LHBA). Internal Representatives: Martin Hayward (Chair), Jim Barber, John Braam, Peter Christiaans, Terry Grawey, Lorelei Fisher, John Lucas, Scott Mathers, Edward Soldo and Paul Yeoman. Agenda Item Issue / Discussion Actions 1. DC Exemption Policies a) Paul Yeoman provided the attached Policy overview with respect to DC exemptions and Community Improvement Plan grants. It was noted that the report relating to the various CIP policies will be brought forward by Planning staff, and will be considered concurrently with the DC By-law review process, and will be used as the vehicle for financial incentives on a goforward basis. Opportunities will be provided for public and stakeholder input during the CIP development process. LDI inquired as to whether there is intended to be a phasing-out of the existing process, or whether there could be a process and financing gap prior to implementation of the new CIP. The Urban League asked if the new process will provide for transparency of tracking. LDI also noted that there needs to be more transparency and explanation with respect to the mechanics of the new process in the report to the Strategic Priorities and Policy Committee. b) Peter Christiaans provided the attached flowcharts to further explain the current and future approaches to funding exemptions for growth projects; noting that the current application of exemptions is not consistent in either criteria or applicability. c) Peter distributed the attached documentation illustrating the transitional measures that would be implemented related to the new approach to financing DC exemptions. It was noted that

2 staff will need to identify the areas the exemptions will apply to, and that transitional services in industrial areas for hard services already paid for, will not be paid again by the City from Taxpayer / Ratepayer sources. LDI inquired as to whether LEDC had been consulted on the transitional measures, staff noted that their discussion would be more geared toward the use of the CIPs, but staff will inform LEDC of the change in financing arrangments. d) Paul provided the attached table outlining the summary of Stakeholder comments to date with respect to proposed DC exemption policy, as well as the staff response to each item. Paul noted that no conclusions have been drawn yet, and that exemptions will be taken out of the by-law and will contain clarified language for Council. A report to the SPPC later in August will set out a timeline and request an endorsement for the approach as set out. Subsequently, CIPs will be prepared and provided for Council s LDI expressed concern that there be a coincident approach of both Development Finance and Planning with respect to the timelines. Paul indicated that they will work with Planning staff on the work plan and timelines to ensure everything proceeds in a timely and coordinated fashion. e) Peter provided the attached Draft rules related to DC credits on conversions from one form of non-residential use to another. Stakeholders were asked to contact Peter or Paul directly with respect to any clarifications required. Paul will liaise with Planning staff and provide the outline of timelines to the Stakeholders for their information, at the next Stakeholder meeting. 2. Remaining DC Policy Items Peter provided an update on the following policies that remain outstanding: a) Policies or strategies related to DC-funded debt levels to be addressed following Master Planning Studies; b) Funding of Urban Design features or Public Realm enhancements - preliminary discussions with Planning staff, who have noted their interest in targeted urban roads or parks being enhanced through servicing standards; c) Alternative non-residential rate structures another future policy which may or may not occur with this review and will require investigation of other municipalities, to be tabled for Council for the next DC study due to workloads. d) Recovery of staff time dedicated to growth projects. It was noted that none of the above have been mapped out with respect to timelines or firm commitment for undertaking during the 2014 review. A timetable will be developed and Staff to prepare a timeline for any outstanding policies to be considered during the current review and provide to the Stakeholders at the September meeting.

3 presented at the September stakeholder meeting for its information. 3. Area Rate Report LDI enquired as to the status of the Area Rate report. Staff noted this report is still under Internal review with various areas and will be deferred. Next Meeting External Stakeholder Committee Thursday, September 5, :00 pm - 4:00 pm Committee Room #1

4 2014 Development Charges Review: Development Charge Exemptions Policy and Community Improvement Plan Grants Draft: For Discussion Purposes Only Overview: Policy Change: Development Charge Exemptions The purpose of a Development Charges By-law is to provide a framework for recovering costs associated with growth infrastructure. Should Council wish to provide financial incentives for desired forms of development, there are more effective policy tools available than exempting development in the DC By-law. It is recommended that the 2014 Development Charges By-law provide exemptions that are required by the DC Act (e.g., industrial additions <50%, municipal buildings, etc.) and for buildings that do not impact growth servicing needs (e.g., parking garages, farm buildings, etc.). DC Exemptions/Discounts will not be included in the 2014 DC By-law for new industrial buildings, institutional buildings (50% CSRF exemption) and residential buildings constructed in the defined Downtown and Old East Village areas, as future incentive funding is intended to be made available by Community Improvement Plan (CIP) grants. Community Improvement Plans as Funding Vehicles for Financial Incentives CIPs provide municipalities with a tool for providing grants to individuals, based on desired policy objectives. CIPs define a project area, establish program goals, parameters, and performance measures related to the financial incentive provided. By using a CIP, Council has a strategy related to providing grants for DCs paid, rather than just exempting DCs through its DC By-law. Use of CIPs as a funding vehicle for DC grants de-links economic development and area re-development initiatives from both the DC Study process and the DC By-law. Council gains added flexibility to modify these initiatives at any time through amendments to the CIPs, rather than having to amend the DC By-law with its significant impediments and risks (e.g., the DC Act requires a background study to amend the by-law). Consideration of Alternatives for the DC Grants Provided through CIPs In the coming months, Staff will bring forward reports related to a CIP to fund a DC grant for new industrial buildings, and amendments to the Downtown and Old East Village CIP related to the DC grants provided by these CIPs. The reports will provide program alternatives for Council Analysis conducted to date and Stakeholder comments received is being provided to Planning for the reports. Council will benefit from the discussion of alternatives in the context of the coordinated CIP strategy and will be able to examine the industrial grant, institutional grant (50%) and residential grants in isolation, rather as part of one large exemptions soup. August 26th, 2013 Strategic Priorities and Policy Report Staff are targeting the August 26 th SPPC meeting to provide Council with recommendations related to the DC Exemptions Policy and information about proposed CIP DC grants, timelines and implementation measures. Development Finance August 1, 2013 City of London DC Exemptions Policy_CIP Grants Summary (Aug1_13)

5 Current and Future Approach to Funding Exemptions for Growth Projects Current Growth Project $100k 60% Growth share $60K 40% Non-growth share $40K 30% 30% DC collections (for non-exempt development) $ DC RF's DC fund share non-exempt only $30K 30% drawdown as project progresses ESTIMATED share of project for Exempted development (ie. Inst l & Ind l) $30K Funded from IORF, in turn funded by taxpayer in Capital Budget year Tax/user rates $40K Funded from taxpayer (Debt or Capital Levy) 70% funded by taxpayer DRAFT Future Growth Project $100k 60% Growth share $60K Tax/user rates funded DC exemptions 40% Non-growth share $40K DC collections for non-exempt development DC fund share- exempt & non-exempt development $60K Budget Contributions towards DC Exemption RF (funded by Taxpayer) through Community Improvement Plan (CIP) Tax/user rates $40K $ DC Reserve Funds 100% draw for growth share Payment of exempted DC into DC reserve fund as Building Applications for exempted development occur $ DC Exemption Policy Reserve Fund Funded from taxpayer (Debt or Capital Levy) NOTES : 1) IORF means Industrial Oversizing Reserve Fund 2) In the Future scenario, funding for exempted development occurring would be provided through a Community Improvement Plan and funded through a DC Exemption Policy reserve fund (which is in turn, funded by Tax supported contributions). This DC Exemption Policy Reserve fund would be drawn down to pay the exempted development charge amounts. The cost of these exemptions over time would still approximate the 30% share contributed by taxpayers in the Current scenario (diagram above). However, the financing costs related the 30% share would be reflected in the DC rates. This would put exempted development on the same footing as nonexempted development, with respect to time of payment of growth costs. Revised Approach to Funding DC Exemptions.vsd Revised Approach to Funding DC Exemptions.vsd 8/1/2013

6 Financing related to DC Exemptions - Current approach Taxpayer contributes to funding of growth related capital work for Institutional and Industrial share of project costs Non-exempt development contributes to DC reserve funds used to fund growth related capital work Growth related Capital Work constructed for growth share : part DC funded & part Taxpayer funded RF s ; For non-growth share : Taxpayer funded Building Permit Issued for development (which benefits from Growth related capital investments) Buildout of area benefiting from capital investments Revised Approach to Funding DC Exemptions.vsd 8/1/2013

7 Financing related Futureto DC Exemptions - Future approach BOTH Exempt and Non-exempt development contributes to DC reserve funds used to fund growth related capital work Buildout of area benefiting from capital investments Growth related Capital Work constructed All of growth share DC funded; For non-growth share : Taxpayer funded Building Permit Issued for development (which benefits from Growth related capital investments) Revised Approach to Funding DC Exemptions.vsd 8/1/2013

8 DRAFT Transitional measures related to new approach to financing DC exemptions Illustration of Industrial area serviced growth share of sanitary, storm and water pipes already funded by taxpayer contributions. Also Industrial share of last treatment plant expansion serving this site already served paid by taxpayer. Future DC Exemptions related to prior funding provided for services to site : DC rate component - Exempt x Not exempt Sanitary Treatment pipes Sanitary Treatment plant capacity Storm water pipes SWM facility Water Distribution Transportation soft service rate components - to the extent that sanitary trunk pipes serving the site in question have previously been funded by taxpayer - to the extent that last treatment plant expansion serving the site have previously been funded by taxpayer - to the extent that storm pipes serving the site in question have previously been funded by taxpayer - to the extent SWM facility serving the site has previously been funded by taxpayer or on-site private facility is required - to the extent that water distribution trunk line serving the site have previously been funded by taxpayer x Not exempt; traffic generated by development normally impacts road network after development has occurred x Not exempt; demand on these services occurs after development has taken place transitional measures related to new approach to financing dc exemptions Aug.-1-13

9 Draft: For Discussion Purposes Only 2014 Development Charge Study: Summary of Stakeholder Comments re: DC Exemptions Policy and Staff Response Comment Number Stakeholder Subject Comment Response/Status 1 Urban League Downtown/OEV Exemption 2 Urban League Downtown/OEV Exemption 3 Urban League Downtown/OEV Exemption 4 Urban League Downtown/OEV Exemption 5 Urban League Downtown/OEV Exemption 6 Urban League Downtown/OEV Exemption 7 LDI Downtown/OEV Exemption 8 LDI Downtown/OEV Exemption 9 LDI Downtown/OEV Exemption 10 Urban League SoHo Exemption 11 Urban League Industrial 12 Urban League Industrial June 2013: Difficult to know how effective the exemption has been no original targets set to measure and it is unknown if the units would have been constructed without the exemption being in place. Apartment buildings have also been constructed in other areas of the City, even though the exemption was available to draw units to the Downtown. June 2013: From a public policy perspective, programs must be measurable as to what deems success e.g. change in assessment, employment, etc. Measurement can be difficult, and without firm answers, we are not swayed that the downtown subsidy should continue. July 2013: We have limited information on where additional units could be built in the Core and whether or not additional units would make a difference as there is no idea what the right number of downtown residents in the core is necessary for revitalization. July 2013: Recommend that the DT exemption program end within 3 years of announcing its conclusion; cap the amount of funding available for the 3 years (total budget should be $750k for both DT and OEV). July 2013: Request information on the number of units currently in the queue to receive funding from the reserve fund. July 2013: Continue to provide funding for DCs paid for the Old East Village as it only began in 2008 (vs in the Downtown); establish a targeted number of units, a cap and a sunset date. June 2013: The overall effect of the exemptions has been positive for the core, but there is still a need for a grocery store in the downtown that has always been seen as the catalyst required to spur real residential development. Do you keep the residential exemptions until a grocery store is built downtown? June 2013: Recommend establishing objectives and evaluation criteria for the exemption program. June 2013: If phasing out the exemptions program, establish an amount of money that would be attractive to incent the maximum number of units prior to program conclusion. July 2013: Do not support concerns about impact of SoHo exemption on drawing away units from the core. June 2013: Recommend using North American Industry Classification System (NAICS) codes to define industrial. June 2013: Why domestic and international companies, which continue to sit on large hoards of cash, need a handout is unclear. They simply play one city against the other in asking for breaks. We would support a small DC on industrial, in line with the previous staff recommendations (slide 9, $20/sqm or 10-15% of the calculated rate, whichever is smaller). The concern about the lack of targets/measures for the DC exemptions programs is a point well taken, and is a challenge for both Stakeholders and Staff. In the future, CIP programs related to granting DCs paid will provide more explicit goals, parameters and measures to improve program evaluation in future years. Amendments to the Downtown and Old East Village CIPs will examine measures to evaluate the success of the program and the upcoming industrial CIP will provide measures associated with the DC grant. This is a challenge for both City Staff and Stakeholders in assessing the future of the Downtown and Old East Village DC exemptions. Program changes will attempt to establish greater parameters, given these unknowns. considered/discussed when the amendments to the Downtown and Old East Village CIPs are brought forward for Council At present, the DC residential exemptions reserve fund makes a payment to the DC reserve funds on behalf of units constructed in the qualifying areas. There is no queue for payment to any applicant. Since there has not been any units constructed this year within the qualifying areas, the reserve fund is not in a deficit position. considered/discussed when the amendments to the Downtown and Old East Village CIPs are brought forward for Council considered/discussed when the amendments to the Downtown and Old East Village CIPs are brought forward for Council considered/discussed when the amendments to the Downtown and Old East Village CIPs are brought forward for Council considered/discussed when the amendments to the Downtown and Old East Village CIPs are brought forward for Council This position will be considered/discussed when the amendments to the SoHo CIP are brought forward for Council considered/discussed when the industrial CIP is brought forward for Council considered/discussed when the industrial CIP is brought forward for Council August 1,

10 Draft: For Discussion Purposes Only 13 Urban League Industrial 14 Urban League Industrial 15 Urban League Industrial 16 Urban League Industrial 17 LDI Industrial 18 LDI Industrial 19 Urban League Small Business Discount 20 Urban League Small Business Discount 21 Urban League Small Business Discount 22 Urban League Small Business Discount 23 LDI Small Business 24 Urban League Industrial Commercial Conversions June 2013: Request that Council be provided with a rough estimate of the costs and benefits of the industrial exemption program. July 2013: Capital budget financing of industrial exemptions has been a hidden cost recommending greater transparency through a capped Community Improvement Plan to fund any DC grant. July 2013: Retaining existing exemption would potentially raise taxes by almost 1% per year; other cities our size required industrial users to pay DCs support a 25% DC fee with an annual cap of $3.0m. Also would support a 100% DC grant for buildings less than 10,000 m2 would provide support for smaller businesses and less support for larger businesses that should be able to pay more. June 2013: Recommend clarifying the industrial definition to eliminate confusion over what is considered industrial. June 2013: Recommend that the industrial exemption focus on incenting large employers, but also provide a partial exemption for all industrial users. June 2013: Difficult to define small business if proceeding with this proposal, it should apply to commercial additions based on size, not on user. June 2013: If staff is directed to further study this additional taxpayer paid subsidy, we would recommend the past two years at least should be reviewed to help determine how much this subsidy would cost and what cap would be required, so that council could properly evaluate it. Such a review should include what, if any, change in property tax revenue resulted from the expansion. July 2013: It remains unclear how many expansions and the impact on employment and taxes would occur with a subsidy than without. July 2013: Cannot support proposal although proposed cost is low, there is no goal for the program, no parameters, no cap, and no performance measures proposed. July 2013: The addition of a minor expansion to a small business in the existing built up area of the city which will not require the extension of new services needs to be considered. Perhaps a similar exemption as the 50% exemption for industrial expansions should be reviewed as the basis of a small business exemption. In most cases any required servicing needed for an expansion of an existing business is paid for as part of the Site Plan Approval process. (Editor s note: the DC Act requires an exemption for additions of 50% or less of the area of existing industrial buildings, rather than a 50% exemption for industrial expansions.) July 2013: Proposal needs criteria suggesting that the building must have been used for an industrial use for 10 years and be vacant for at least two years in order to qualify for the conversion credits. Staff are in the process of preparing this information for inclusion with the report to Council outlining the industrial DC grant alternatives. A CIP is being prepared to provide businesses that construct new industrial buildings with a grant for DCs paid. The proposed cap will be considered/discussed when the industrial CIP is brought forward for Council considered/discussed when the industrial CIP is brought forward for Council considered/discussed when the industrial CIP is brought forward for Council Staff are preparing revisions to the industrial definition to clarify the meaning of the term industrial based on input from the Building Division about past interpretation challenges. The revised definition will be brought forward with the new 2014 DC By-law. considered/discussed when the industrial CIP is brought forward for Council Should a CIP related to small business be prepared, these issues will be examined as part of the Staff review. Should a CIP related to small business be prepared, these issues will be examined as part of the Staff review. Should a CIP related to small business be prepared, these issues will be examined as part of the Staff review. This concern is noted and is one of the reasons why the DC Background Study is not the ideal process to design a program to provide compensation to a form of development for DCs paid. A CIP provides a coordinated approach to financial grant programs whereby program goals and parameters can be outlined. Should a CIP related to small business be prepared, this proposal will be examined as part of the Staff review. These suggested program parameters will be considered/discussed when the by-law revisions are brought forward for Council August 1,

11 Draft: For Discussion Purposes Only 25 Urban League General 26 LDI General 27 LDI General 28 LDI General June 2013: Overall concern that there have not been any targets previously established for the DC subsidy programs, which makes it difficult to assess whether or not they have been successful. June and July 2013: Submission highlighted that a decision to provide an exemption/grant to incent desirable development is a policy decision of Council and does not affect the calculation of the DC rates. July 2013: Exemption Options Matrices need careful consideration the matrices that weigh program costs against the other criteria provides a totally biased matrix in favor of eliminating DC exemptions without giving any weighting to the other criteria that could favor a different alternative. In favour of exemptions/grants that result in attracting new jobs to London as this improves the local economy and increases demand for new housing. This is a widely held concern and it presents a challenge for program review. Future CIPs will provide more specific goals, program parameters and measures related to grants for DCs paid. Staff agree that discussions about DC exemptions/grants to incent desirable development, while related to development charges, should not impact the calculation and collection of development charges. By de-linking the exemptions from the DC By-law and using CIPs as the policy tool to provide incentives, future discussions about these issues can occur independent of the DC By-law/Background Study process. The purpose of the matrices was to provide Council with information on potential benefits and implications of the various alternatives. The differing weighing methods were not intended to favour a particular alternative, but rather to provide different ways of reviewing the alternatives. This position is noted and will be brought to Council s attention in a future report related to the industrial CIP. August 1,

12 DRAFT Rules related to DC Credits on conversions from one form of Non-residential use to another Current DC by-law excerpt : 14. Conversion From One Form Of Non-residential Use To Another Form Of Non Residential Use Where, in conjunction with a change from one form of lawfully existing non-residential use to another form of non-residential use, a lawfully existing building or structure is wholly or partially converted, the area for which a development charge is payable shall be calculated using the following formula, so long as a development charge was paid in respect of the lawfully existing use prior to conversion under this or any predecessor bylaw or the building or structure existed prior to April 6, 1973: Where: A-B=C A = the development charge that, were it not for this section, would otherwise be payable at the current rate in respect of the use to which the space converted; B = the development charge that would be payable at the current rate in respect of the lawfully existing former space being converted, except where the non-residential floor area being converted to residential use is, prior to the conversion, an industrial building that was built between April 6, 1973 and 1979 inclusive, and a development charge was paid on construction of the building, then the rate to be used for calculating this item (item B) shall be the current Commercial rate. The applicant for the building permit for the conversion shall provide proof satisfactory to the Director of Building Controls that the industrial building was built under a building permit issued between April 6,1973 and 1979, in order to qualify for relief afforded by this paragraph; and C = the development charge payable in respect of the converted space, a negative being converted to zero." Notes : This section is intended to recover the upcharge for intensification of a use from one form to another the DC credit on conversion is the amount of the offset against development charge otherwise payable ( B in the equation above) o for an industrial building is $0 (exception between 73 & 79) o for an institutional building for school or municipal building is $0 for by-law s.43 building (ie. a hospital, universities and colleges, place of worship cemetery or burial ground, other land, buildings or structures used for not-forprofit and exempt from taxation under, section 3 of the Assessment Act.is 50% of institutional rate for all other institutional uses being converted is 100% of institutional rate principal : o the services supporting buildings that have DC exemptions or discounts have been paid by taxpayers o whether a DC was paid or not, the building, upon conversion should be eligible for credit on conversion o subject to minimums on length of time used for the purpose (anti-manipulation) Proposed Proposed - 100% of the DC calculated charge vs. current DC charge payable net of exemptions/discounts Result : o Increase in credit for conversions of buildings previously used for industrial or institutional uses as defined in the by-law o Increase in incentive for re-purposing of existing built space Aug rules related to dc credits on conversions from one form of nonres to another nonres