Council has deemed a previously approved small increase in development charges too threatening to Hamilton’s economic development prospects, so the foregone growth fees will instead have to be paid by taxpayers or added to water bills. Even without the latest discount, staff are already assuming the city will fall well short of provincial growth targets and have to delay infrastructure projects.
Municipalities are permitted to make developers pay about three-quarters of the costs of servicing new growth – currently allowing Hamilton to collect $15.81 per square foot on industrial development. The city currently collects barely half that amount – $8.07 a square foot – and had planned to raise it to $9.21 on January first. Instead it has “administratively capped” the development charges [DC] at $8.78.
“Justification for this recommendation is based on competitiveness with surrounding municipalities and sustaining the current development trends regarding new industrial growth,” explains the staff report endorsed by council last month. “Economic development staff have cautioned we may be on the verge of a tipping point where DC costs are the difference between industrial developments locating in Hamilton or elsewhere [and] an industrial DC rate over $9 per square foot would likely exceed that point.”
Rates exceed $12 a square foot in Halton and other Toronto area municipalities, but are lower in Brantford and London. Temporarily at least the city won’t amend the bylaw governing these fees because a pending Ontario Municipal Board [OMB] ruling is expected to force alterations.
“Essentially it will mean that city staff will only collect DCs based on a rate of $8.78 per square foot even though the DC By-laws state a rate of $9.21,” notes the report. “This should only be seen as an interim measure to be used while awaiting orders for amendments to the DC By-laws by the OMB.”
The rate for industrial developments under 10,000 square feet will remain at $6.92. In the 2009-11 period discounts on all industrial developments totaled nearly $11 million and 2012 is expected to see another $8.6 million forgiven. While lower fees mean more taxpayer subsidy, staff argue they could generate greater potential revenues by attracting more development.
“In the year 2010, the Canada Bread development was a major driver of both industrial DC collections and foregone revenues,” explains the report. “Similarly, in 2012, the Maple Leaf Foods development is responsible for a large share of industrial DC collections ($3,313,366) and foregone revenues ($4,255,050) for the year.”
Current development fee discounts added $9 million this year to city water rates – a situation projected to continue until at least 2018 – while road repairs and other infrastructure maintenance is being delayed because of large deficits in various development charge accounts. The shortfall also means Hamilton is not keeping pace with provincial growth forecasts issued in the 2005 Places to Grow plan.
“[D]evelopment activity in the city has not kept pace with 75% of the provincial forecast,” explains the 2013 water and sewer budget. “This means that the city is falling further behind in development activity and related revenues needed to support the debt required for the Places to Grow infrastructure.”
This is particularly evident in the recent history of residential development in Hamilton, which has been averaging less than 1700 units per year in contrast to the provincial forecast of 2,566. The deficit has led staff to delay the planned expansion of the Woodward Avenue sewage treatment plant to 2023 to reduce financial risks.
“If the growth does not occur, the city would still have to meet its debt obligations which funded the growth infrastructure,” explains the water and sewer budget book. “Accordingly, if growth projections do not materialize, the debt becomes unaffordable and will further impact water and wastewater rates.”