HomeMy WebLinkAboutFIN 16-19 Report to
° Executive Committee
PlCKERING
Report Number: FIN 16-19
Date: September 9, 2019
From: Stan Karwowski
Director, Finance & Treasurer
Subject: 2018 Building Permit Stabilization Reserve Fund
Recommendation:
1. That Report FIN 16-19 of the Director, Finance & Treasurer be received for
information.
Executive Summary: Section 7(4) of the Building Code Act (the "Act") requires the
City to prepare an annual report of building permit and inspection fees and related
administrative and enforcement costs. This report fulfills the requirements of Section
7(4) of the Act. This report also contains information about the City's Building Permit
Stabilization Reserve Fund.
Financial Implications: This report contains information pertaining to the financial
status of the Building Permit Stabilization Reserve Fund as at December 31, 2018.
Discussion: In December 2005, Council approved report PD 41-05, which enacted
a new building permit process and fees under the Act. The Act requires permit fees to
be accounted for, and not used to subsidize City functions other than administration and
enforcement of the Act and the Ontario Building Code. Watson & Associates
Economists Ltd. was retained to undertake a comprehensive analysis of all Planning &
Development costs, fees and legislative requirements and to develop an Activity Based
Costing (ABC) model for the City. Using this information, Watson recommended an
increase in building permit fees to provide for cost recovery.
For the 2018 budget, Watson & Associates Economists Ltd. undertook a review of the
Development Application Approval Process fees (DAAP). DAAP includes fees in
Building, Planning and Engineering. The purpose of this review was to quantify the
City's full costs in processing application fees and building permit fees, assess the
sufficiency of current development fees to recover these costs and recommend full cost
recovery of development fees. The calculated full cost recovery fees were then
adjusted after completing a market comparison to ensure the fees were in line with
surrounding municipalities. As a result of the DAAP review, building permit fees were
increased by 11 per cent in order to recover the shortfall in the Building Permit
FIN 16-19 September 9, 2019
Subject: 2018 Building Permit Stabilization Reserve Fund Page 2
Stabilization Reserve Fund and to build a fund balance for years with decreased
building activity.
The purpose of the Building Permit Stabilization Reserve Fund is to provide a source of
funds for current operating budget costs during an economic downturn to offset lower
building permit revenues. Without such a reserve fund, reduced growth and permit
volumes during a downturn could result in severe budgetary pressures which could
impair the City's ability to enforce the Act and the Ontario Building Code.
The Act requires that an annual report be prepared that includes total Building Permit
fees collected in the previous 12 month period and a summary of directly and indirectly
related administrative costs.
Due to the relatively low rate of development since the Building Permit Stabilization
Reserve Fund was established in 2006, the accumulated shortfall for this reserve fund
as of December 31, 2017 was $4.61 million. However, due to an excess of building
permit revenues over costs in 2018, the accumulated shortfall can be reduced by the
excess of revenues in the amount of $2,061,582, translating into a revised accumulated
deficit figure of $2.55 million for the Building Permit Stabilization Reserve Fund.
Annual Report — Building Permit Fees
for the year ended December 31, 2018
Building Permit Revenue $4,822,959
Costs:
Direct Costs $ (2,320,124)
Indirect Costs (394,421)
Capital Costs (46,832) (2,761,377)
Excess (Shortfall) Revenue Over Costs $2,061,582
Building Permit Stabilization Reserve Fund
Opening Balance, January 1 , 2018 $ -
2018 Contribution 2,061,582
Transfer to the Rate Stabilization Reserve (2,061,582)
Closing Balance, December 31, 2018 $ -
At the end of fiscal 2018, Finance staff transferred the excess of 2018 building permit
revenues over costs of $2,061,582 to the Building Permit Stabilization Reserve Fund.
Transfer to the Rate Stabilization Reserve
For the majority of municipalities, building permit revenues are sufficient to cover direct
and indirect operating costs. In addition, many municipalities have excess funds that
are transferred to their Building Permit Stabilization Reserve Fund and these funds are
used to cover any future operating shortfall in their Building Services section. As stated
earlier - Pickering has experienced a low level of construction activity that translated into
FIN 16-19 September 9, 2019
Subject: 2018 Building Permit Stabilization Reserve Fund Page 3
lower building permit revenues. For most municipalities, the budgeted and actual cost
of their Building Services section and/or department is fully funded from building permit
revenues.
Until recently, the Building Services section for Pickering required a financial subsidy
from the taxpayer to fund their operations. Starting in 2006 and up to December 2016,
this financial subsidy was $4.69 million. From a financial perspective, this subsidy was
funded from the Rate Stabilization Reserve. The City's financing strategy is to reduce
this deficit (subsidy) over time by transferring the Building Services operating surplus to
the Rate Stabilization Reserve. In 2017, Building Services had a small operating
surplus of$83,440 which was transferred to the Rate Stabilization Fund to reduce the
deficit. At the end of fiscal 2018, Finance staff transferred Building Service's 2018
operating surplus of$2,061,582 from the Building Permit Stabilization Reserve Fund to
the Rate Stabilization Reserve which further reduced the deficit.
Attachments: None
Prepared By: Approved/Endorsed By:
James Halsall Stan Karwowski
Manager, Budgets & Internal Audit Director, Finance & Treasurer
Recommended for the consideration
of Pickering City Council
2711 2-019
Tony Prevedel, P.Eng.
Chief Administrative Officer