City taxpayers must fill another huge financial hole that has accumulated as a result of exemptions to growth fees. It’s the latest revelation that growth does not pay for itself but instead has been heavily subsidized and likely will continue to be so – although residents will have an opportunity to propose changes later this month.
The city’s finance chief reports that a deficit of over $50 million has accumulated in development charge (DC) accounts. That’s despite an $8 million taxpayer-funded top-up last year. The majority of the cash shortfall was supposed to upgrade roads and it is being given as the reason why improvements to arteries like Rymal Road are way behind schedule.
“On our tax supported side, as it relates to development charge exemptions, we still have an outstanding liability of approximately $52-53 million – and that is both discretionary and statutory DC exemptions,” reported finance chief Mike Zegarac. “On our rate supported side it’s approximately $2.5 million.”
Provincial rules only allow cities to collect development charges to pay for about two-thirds of the costs of growth, but additional discounts and exemptions can be provided by municipal councils. Hamilton currently has twenty-one categories of discounts. If those were maintained staff predict they would result in an annual shortfall of over $40 million but currently proposed changes could lower that to about $12.5 million a year. In all cases exemption shortfalls must be covered by property taxes and/or water rates from existing residents.
Zegarac was responding to questions from Brad Clark on why promised upgrades to Rymal Road haven’t taken place long after significant growth in the area has occurred and the development charges collected that were supposed to have paid for the road improvements. Zegarac, who is also the acting city manager, explained that “part of the challenge that we had with some of our DC reserves – for instance roads – was that while we exempted development charges we weren’t recovering the costs of those exemptions from existing taxpayers and ratepayers.”
A major change in reducing the growth subsidies would see the end of the exemption for university buildings from paying development fees. Not surprisingly, that’s being opposed by McMaster and Redeemer. Both have written letters to the city and are expected to speak at the public meetings of the audit, financial and administration committee on Thursday, April 18 when the new development fee exemption list will be debated.
That meeting will have both morning and evening sessions in council chambers – at 9:30 am and 7 pm – as a result of a motion pushed by ward one councillor Maureen Wilson. She has been one of the councillors most critical of the current development charge rules.
Along with Clark and JP Danko, Wilson has been seeking a variable fee structure that would take account of the much higher costs of greenfield growth versus infill and redevelopment in already built-up parts of the city. To address this, the city currently provides a 70 percent exemption for development in downtown Hamilton, but that discount must be paid by existing taxpayers.
The proposed development charges bylaw offers a partial move in this direction. It separates the costs of stormwater management in built-up areas from greenfields with the result that proposed fees are $9000 higher for new single-family houses in the latter. However, other components of the development charge fees such as new road costs are not being divided in this way as they have been in some other cities.
Roads are the second largest component in the calculation of development charges, and very large expenditures are anticipated in the next decade to service growth areas such as Waterdown, Elfrida and the aerotropolis.
If adopted in its current form, the new bylaw will actually reduce fees for industrial and commercial development – about $2 a square foot in the built-up area but by just a few cents in the greenfield lands. Residential development charges will go up about $5000 in the built-up part of the city and just over $14,000 for greenfield growth. However the dramatic jumps in home prices mean these new residential charges will be a smaller percentage of the cost of new houses than before.