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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