HomeMy WebLinkAboutFIN 05-23Report to Council
Report Number: FIN 05-23
Date: February 27, 2023
From: Stan Karwowski
Director, Finance & Treasurer
Subject: Update on Bill 23, More Homes, Built Faster Act -
A Financial Perspective
File: F-1000-001
Recommendation:
That Report FIN 05-23 regarding an updated financial assessment related to Bill 23 be received
for information.
Executive Summary: Bill 23, More Homes Built Faster Act, 2022, which received royal
assent on November 28, 2022, will have significant implications on the role, function, capacity
and fiscal health of municipalities, conservation authorities, and on the planning and
development process in Ontario. Significant changes (reductions, exemptions and caps) have
been made to key revenue generating tools, primarily development charges.
Further to Report PLN 49-22 dated December 5, 2022, the purpose of this report is to provide an
updated overview of the financial impacts to the City of Pickering regarding Bill 23 More Homes,
Built Faster Act. This financial information will be shared with the public on the City’s website
and other communications tools.
It should be noted at the outset of this report, that the revenue losses are estimates based on the
best information available today. For certain aspects of the legislation, it is unclear how the
changes will be implemented as the Province has indicated these are to clarified through future
regulations.
Financial Implications: In collaboration with the Region of Durham and Durham lower tier
municipalities, a financial exercise was undertaken to apply to some degree, a consistent
approach as it relates to the costs associated with Bill 23. Table one, provides a summary of the
estimated revenue losses to the City of Pickering associated with Bill 23.
Update on Bill 23 More Homes, Built Faster Act - A Financial Perspective Page 2 of 6
Table One
Estimated Financial Impacts of Bill 23
($Millions)
Retroactive Phase in of DC Rates as of Jan 1, 2022 $14.0
Exemption of Non-profit Developments 2.3
DC discount for rental apartments 0.0
Ineligibility of Studies 0.0
Ineligibility of Land 6.5
Total Cost $22.8
The above cost is an estimate and the revenue losses could be higher depending upon the level of
activity associated with non profit developments, discount for rental apartments and construction of
affordable and attainable units.
Discussion:
A. Analysis of The Timing of Pickering Council Approving Development Charges (DC) &
Community Benefit Charges (CBC) By-law on July 11, 2022
In December 2017, Pickering Council passed the Development Charges By-law with an effective
date of January 1, 2018. This By-law had a life of five years which was the maximum term allowed
under the current legislation of the Development Charges Act. The City would have lost its
legislative authority to collect DC fees on January 1, 2023 and therefore, the staff work plan was
to have this task completed before the end of year and the “election cycle”. The City passed its
Development Charges and Community Benefit Charges By-laws on July 11, 2022, prior to the
passage of Bill 23.
When Council approved this By-law, there was no indication of the existence or timing of Bill 23
being brought forward. To some degree, the City has benefited in the short term, by adopting its
DC By-law prior to the passage of Bill 23. Growth related studies that are included in the City’s
recent DC By-law can still be funded from DC fees. In other words, for those municipalities that
adopt a DC By-law after Bill 23, all of their growth related studies will not be eligible for DC
funding. However, when the City conducts its next DC Study, all growth related studies will be
ineligible.
The City is currently planning to undertake multiple master planning studies (such as
Transportation Master Plan and Recreation and Parks Master Plans), in order to examine the
increase in need of services in response to growth. The City’s current DC Background Study has
approximately $6.9 million in gross costs for studies, with $5.3 million being eligible for DC
funding. For the next DC study, these costs will be shifted to the local taxpayer. With these
studies being excluded for DC funding in the next DC Background Study, the full cost of the
studies will ultimately be passed on to taxpayers in the future.
Update on Bill 23 More Homes, Built Faster Act - A Financial Perspective Page 3 of 6
Bill 23 also stipulates that any DC by-laws passed after January 1, 2022 will need to phase-in their
DC fees. The City is caught in between the retroactive phase-in (January 1, 2022) and the
passage of Bill 23 (November 28, 2022), and therefore, the City will need to phase-in our DC fee
over the next four years until June 2026. The City of Pickering is one of the very few municipalities
in Ontario that have passed a DC by-law in 2022 that have been caught in this phase-in situation.
B.Phase-In of DC Rates
Bill 23 implemented a phase-in for the first 4 years of any DC by-laws passed after January 1,
2022, starting with 80 percent of the maximum charge in Year 1 and increasing by 5 percent each
year until Year 5, where the full charge would then be in place. The City passed its most recent
DC bylaw in July of 2022, and therefore the DC rate reduction started after Bill 23 became law.
This phase-in approach will result in a significant decrease in DC revenues. The loss of revenues
was quantified using data from our recent DC Background Study by Watson & Associates and is
quantified below:
Year 1 – Approximately $3.5 million in lost revenue
(7 months of lost revenue, December 2022 to June 2023)
Year 2 – Approximately $5.3 million in lost revenue
Year 3 – Approximately $3.5 million in lost revenue
Year 4 – Approximately $1.7 million in lost revenue
Phase-In Period Phase-In %
Nov 29, 2022 – June 30, 2023 80%
July 1, 2023 – June 30, 2024 85%
July 1, 2024 – June 30, 2025 90%
July 1, 2025 – June 30, 2026 95%
July 1, 2026 and after 100%
The calculation above considers the annual DC costs over the forecast period of the Study, with
the phase-in reduction being applied for years 1 to 4 (2023-2026).
Overall, the City’s estimated loss is approximately $14.0 million due to the phase-in reduction
over the next 4 years. This loss has been quantified using the forecasted DC costs over the
forecast period in our recent DC Study. If there is no subsidy received from senior levels of
government for the reduced revenue, the cost will ultimately be funded by the taxpayer.
The City is already experiencing the effect of the reduced DC fees from the phase-in. In 2022
(November 29, 2022 to December 31, 2022), this City has collected $6,380 less in DC fees, due
to the phase-in.
Update on Bill 23 More Homes, Built Faster Act - A Financial Perspective Page 4 of 6
For 2023, the phase-in has already resulted in a loss of revenue of approximately $515,000 for the
month of January. Financial staff are still exploring various options regarding the funding of this
shortfall.
C.Development Charges Reductions
The City of Pickering is divided into two areas as it relates to DC fees: Seaton and “Rest of
Pickering”. The Seaton DC fees are lower due to the fact that the Seaton Landowners Group is
responsible for the transportation costs associated with Seaton development resulting in a lower
fee.
Table two below, shows the DC charges mandatory phase-in will result in a decrease for a single
and semi-detached home, comparing the fee with our old DC rate (prior to July 11, 2022), our new
rate (passed July 2022) and the reduced rate with the passage of Bill 23.
Table Two
Comparison of DC Rates for Single & Semi-Detached Dwelling
for City of Pickering (excluding Seaton)
Old DC Rate (prior
to July 11, 2022)
New DC Rate
(effective July 12,
2022)
Reduced Rate
(Bill 23, effective
Nov 29, 2022)
$21,687.00 $31,898.00 $25,518.00
The reduced rate decreases our DC fee by 20 percent, from $31,898 to $25,518 that results in a
revenue loss of $6,380 per unit. However, the DC reduced rate is still higher than the City’s old
rate after applying the DC charges mandatory phase-in. The same principle would also apply for
Seaton DC fees.
D.Exemption of Non-Profit Developments
Non-profit housing developments are now exempt from the payment of development charge fees.
Currently, City Development staff have estimated that there would be approximately 216 stacked
townhomes (assumed 2 bedrooms +) in the development pipeline that would fall under this
category. Based on the above assumption, the exemption of these non-profit housing
developments would result in a revenue loss of approximately $2.3 million.
E.Discount for Rental Apartments
DC fees for rental housing developments are reduced based on the number of bedrooms in each
unit:
•Three or more bedrooms – 25 percent reduction;
•Two bedrooms – 20 percent reduction; and
•All other bedroom quantities – 15 percent reduction
Update on Bill 23 More Homes, Built Faster Act - A Financial Perspective Page 5 of 6
At this time, there are currently no rental housing developments in the development pipeline to
quantify the financial impact of the discount for rental apartments.
F.Ineligibility of Land
Bill 23 allows regulations to prescribe services for which land costs would not be an eligible capital
cost recoverable through DCs. Depending on which services are ultimately prescribed to allow for
the exclusion of land, the impact to the City may be substantial.
The financial impact on the exclusion of land to be DC recoverable is approximately $6.5 million.
This includes two projects in our DC Study: the Animal Shelter ($100K, long-term lease over 25
years) and the Northern Satellite Operations Centre ($6.4 million).
The City has a contract with the Seaton Landowners Group, whereby, they have agreed to
provide land for City facilities, parks and other City services. Pickering’s City Solicitor, has
confirmed that this contract is still binding and therefore, the land costs associated with Seaton
development are not included in this financial exercise as a cost to the City.
G.Unknown Impacts
Bill 23 exempts “affordable” and “attainable” units from payments of DC fees and Parkland
dedication. The Development Charges Act provides a definition of “affordable residential unit” but
does not provide a clear definition of “attainable residential unit”. This makes it difficult to estimate
and quantify the potential revenue loss from these exemptions.
H.Hidden Cost – Extension of DC By-law for Ten Years
Bill 23 has extended the life of the DC by-law from five years to ten years, which means DC
Background Studies can be completed every ten years, in contrast to every five years (at a
minimum).
If the City waits ten years to update its DC Study (in 2032), costs for capital projects in the study
will be significantly outdated and underestimated. Also, new growth-related capital projects that
arise in the coming years that are not included in the DC Study will not be eligible for DC funding.
Ultimately, the City will be at risk of underfunding growth-related expenditures.
It is important to note that based on the current legislation, the phase-in “clock” restarts for every
new DC Background Study. Therefore, if the City decides to conduct a new Study in 2028, the
City would need to phase-in the DC fee decrease between 2028 to 2032. However, it should be
noted since Bill 23 came into effect in November 2022 and the City passed it’s new DC by-law in
July 2022, the City is not impacted by the first 6 months of the phase-in.
Update on Bill 23 More Homes, Built Faster Act - A Financial Perspective Page 6 of 6
Conclusion
Further to Report PLN 49-22, the overall potential revenue loss to the City due to Bill 23 is
estimated to be at least $22.8 million. The DC mandatory phase-in is estimated to result in
reduced revenues to the City totalling $3.75 million in 2023. The actual cost will be known at the
end of this year. At this current time, Finance staff are exploring various options as to how to fund
this revenue loss. From a property tax lens, the decrease in DC charges revenue represents a
levy increase of 4.60 percent on the Pickering share of the 2023 property tax bill.
The City is going through a transformational stage due to major planned growth related capital
projects. These capital projects rely on development charge funding, to varying degrees, as a
major source of capital dollars. With a reduction in DC dollars, and taking into consideration, that
there is primarily one other source of financing, the “Pickering Taxpayer”, there will likely have to
be some challenging decisions made regarding property tax affordability, “green lighting” of capital
projects and/or change in capital project scope.
Prepared By: Approved/Endorsed By:
Original Signed By: Original Signed By:
Jason Bekramchand, CPA Stan Karwowski, CPA, CMA, MBA
Senior Financial Analyst – Capital & Director, Finance & Treasurer
Debt Management
Original Signed By:
Kyle Bentley, P. Eng.
Director, City Development & CBO
Recommended for the consideration
of Pickering City Council
Original Signed By:
Marisa Carpino, M.A.
Chief Administrative Officer