Last week’s city council decision to issue a three-year moratorium on certain development charges and freeze others is projected to cost the city $5.1 million to $7.2 million in lost revenue.
This total amount over the three years, which would have otherwise been paid by developers through development charges, leaves a projected gap in future municipal budgets.
“The development charges collected are part of a financing plan for the capital projects that are undertaken,” city Financial Planning and Budgeting manager Liisa Lenz told city council during Wednesday’s finance and administration committee meeting.
“They are intended to pay for the growth portion of growth-related projects. If we do not receive the funds to pay for the growth portion of the growth-related projects through development charges, we do have to find an additional funding source.”
These funding sources could be tax levies and water/wastewater rates, but Lenz clarified the city could also reduce capital investments to offset the net revenue loss.
Last week’s decision to temporarily eliminate some development charges and freeze others for a period of three years was made by a city council vote of 7-5, and was introduced by Ward 4 Coun. Pauline Fortin.
The decision includes a three-year development charge fee moratorium on duplexes, triplexes, row houses, townhouses and small-unit apartments of 30 units or less. Development charge rates on single-family dwellings are to be held at their current rate for the three years.
The moratorium/freeze was raised during Wednesday’s meeting as part of a discussion regarding a broader report on an updated development charges bylaw Lenz had tabled, which included the implications of the previous week’s city council decision.
“The reason we’re doing all this is to create more housing,” Fortin said on Wednesday. “When a house is built, this will affect the budget because we will be receiving revenue in taxes, and that goes direct to the levy, which will actually reduce our taxes.”
Fortin later added, “This program is not going to increase people’s taxes because it is not part of the budget. It’s over and above for other different projects that the money gets used.”
There is no evidence the moratorium/freeze will create more housing, and as Ward 9 Coun. Deb McIntosh pointed out last week, the Association of Municipalities Ontario has cautioned that reducing development charges “could exacerbate housing issues and create further barriers to long-term municipal financial sustainability.”
Fortin’s point about the moratorium/freeze not being part of the municipal budget was refuted by Lenz, and Ward 6 Coun. René Lapierre questioned Fortin’s assertion that more houses built could reduce taxes.
A broader tax base might mean lower tax increases, but Lapierre added, “It will never be less than what they’re paying now.”
Lenz clarified that lowering taxes would require reducing service levels.
Last month, a city-commissioned report by Hemson Consulting said that the city’s existing development charges are much lower than municipal comparators and aren’t high enough to fully recuperate the cost of growth-related infrastructure.
In addition to highlighting the implications of last week’s moratorium/freeze decision, Lenz’s report included a draft of the city’s 2024 Development Charges Bylaw for the next 10 years.
The city’s current bylaw is slated to expire on July 1, prior to which city council is anticipated to approve a replacement bylaw. Otherwise, development charges will cease to be.
Aside from the moratorium/freeze city council approved last week, the new bylaw is slated to bring development charges up to the “calculated rate” of full cost recovery.
The industrial rate would jump from $3.70 per square foot to $13.48 and the non-industrial rate would increase from $5.56 to $16.97. There is also an option to phase these rates in over four years.
Per the three-year moratorium/freeze, affected residential properties wouldn’t be affected until July 1, 2027, at which time single residential detached units over 1,200 square feet, for example, are slated to jump from the current rate of $22,162 to $29,505.
Future rates will also be subject to the yet-uncalculated annual indexing based on Statistics Canada’s non-residential building construction price index for Ottawa-Gatineau, as has already been the annual practice under the city’s existing bylaw.
City council is expected to make their final decision on the new 10-year Development Charges Bylaw on June 11. The meeting is scheduled to begin at 6 p.m., and can be viewed in-person at Tom Davies Square or livestreamed by clicking here.
Tyler Clarke covers city hall and political affairs for Sudbury.com.
