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HomeMy WebLinkAboutFIN 22-24 Report to Executive Committee Report Number: FIN 22-24 Date: November 4, 2024 From: Stan Karwowski Director, Finance & Treasurer Subject: Development Charges Interest Rate Policy Update - File: F-4920-001 Recommendation: 1. That Report FIN 22-24 regarding Development Charges Interest Rate Policy Update be received; 2. That the revised Development Charge Interest Policy, set out in Attachment 1, be adopted by Council; and 3. That the appropriate officials of the City of Pickering be authorized to take the necessary actions as indicated in this report. Executive Summary: The purpose of this report is to formally revise the City’s Development Charge Interest Policy (FIN 090) to reflect Provincial legislation. In other words, this is an administrative housekeeping report to amend the City’s policy. Relationship to the Pickering Strategic Plan: The recommendations in this report respond to the Pickering Strategic Plan Corporate Key to Deliver on Good Governance – Open & Transparent Decision Making. Financial Implications: Bill 23, More Homes Built Faster Act has stipulated that the maximum interest rate to be charged for developments that qualify for a ”frozen” or “phased-in” DC rate, to be the Bank of Canada policy interest rate (commonly referred to as the “prime rate”) plus 1 percent. The City’s current DC interest policy was introduced in July 2020 due to Bill 108, More Homes More Choice Act, 2019 (effective January 1, 2020), which first introduced the “frozen” or “phased-in” DC rate. At the time this policy was passed, there was no guidance from the legislation as to the prescribed interest rate to charge. The City’s DC interest policy (FIN 090) had stipulated the interest rate to be the Bank of Canada policy interest rate plus 2 percent. The maximum prescribed interest rate due to Bill 23 will result in lower interest collected from developments that qualify for a “frozen” or “phased-in” DC rate. FIN 22-24 November 4, 2024 Subject: Development Charges Interest Rate Policy Update Page 2 Discussion: The purpose of this report is to formally revise the City’s Development Charge Interest Policy (FIN 090) to reflect Provincial legislation. The City is updating its DC Interest Policy (FIN 090) to align with legislation, Bill 23, More Homes Built Faster Act. The City formalized it’s DC Interest Policy (FIN 090) in July 2020 in light of changes that were brought forward to the Development Charges Act (DCA) due to Bill 108, More Home, More Choices Act, 2019 and Bill 138, Plan to Build Ontario Together Act, 2019. At that time, the Province did not prescribe a maximum interest rate that a municipality should charge on DC’s that are either “frozen” or “phased-in”. The City had passed its interest policy to charge interest at a rate of the Bank of Canada policy rate (or the “prime rate”) plus 2 percent, which was consistent with other municipalities at that time. Bill 23 prescribes that the maximum interest rate to be charged at the prime rate plus 1 percent. Since then, the City has enforced this legislative change by charging eligible developments the BoC policy rate plus 1 percent. The revised interest policy in attachment 1 reflects this change. Other changes to Bill 23 included the exemption of non-profit housing from development charges. Prior to Bill 23, non-profit housing were eligible for a 20-year deferral; however with Bill 23, non-profit housing is now exempt from development charges. This is reflected in the updated policy. The recommendations outlined in this report will allow the City to formalize the changes to the Development Charge Interest Policy due to legislative changes to the Development Charges Act (DCA). Attachment: 1.Revised Development Charge Interest Policy (FIN 090) Approved/Endorsed By: Stan Karwowski, CPA, CMA, MBA Director, Finance & Treasurer Prepared By: Jason Bekramchand, CPA Senior Financial Analyst, Capital & Debt Management SK:jb Original Signed By:Original Signed By: FIN 22-24 November 4, 2024 Subject: Development Charges Interest Rate Policy Update Page 3 Recommended for the consideration of Pickering City Council Original Signed By: Marisa Carpino, M.A. Chief Administrative Officer Policy Procedure Title: Development Charge Interest Policy Policy Number FIN 090 Reference Resolution #378/20 Date Originated (m/d/y) July 27, 2020 Date Revised (m/d/y) November 4, 2024Xxx, 2023 Pages 5 Approval: Interim Chief Administrative Officer Point of Contact Director, Finance & Treasurer Policy Objective The fundamental principle of funding growth-related capital costs is that ‘Growth should pay for Growth’. This Policy serves to ensure that there is compensating interest income to fund the carrying costs associated with the provisions of the amended Development Charges Act, 1997, that allow development charges (DC) rates to be frozen early in the planning process, and DC payments to be phased from in for 5 to 20 years for certain development. The purpose of this Policy is to establish the rules and practices for charging interest, as permitted under Sections 26.1 and 26.2 of the Development Charges Act, 1997, as amended. Index 01 Definitions 02 Legislative Framework 03 Interest Rate Used 04 Interest Rate Publication 05 Compounding and Prorating 06 Effective Date 07 Policy Administration 01 Definitions 01.01 Development Charges Act (DCA) – the Development Charges DCA, 1997, as amended. Attachment 1 to Report FIN 22-24 Policy Title: Development Charge Interest Policy Page 2 of 6 Policy Number: FIN 090 01.02 Development Charges (DC) – City of Pickering development charges only, does not apply to the Region of Durham development charges or school board development charges. 01.03 Rental Housing Development for the purposes of this Policy only, is defined as per O.Reg 454/19 meaning development of a building or structure with four or more dwelling units all of which are intended for use as rented residential purposes. 01.04 Institutional Development for the purposes of this Policy only, is defined as per O.Reg 454/19 meaning development of a building or structure intended for the following uses: •a long term care home within the meaning of Subsection 2(1) of theLong-Term Care Homes Act, 2007; •a retirement home within the meaning of Subsection 2(1) of theRetirement Homes Act, 2010; •a university in Ontario that receives direct, regular and ongoing operatingfunding from the Government of Ontario; •a college or university affiliated with a university described above;•an Indigenous Institute prescribed for the purposes of Section 6 of the Indigenous Institutes Act, 2017; •a memorial home, clubhouse or athletic grounds by an Ontario branch ofthe Royal Canadian Legion; or, •a hospice to provide end of life care. 01.05 Non-Profit Housing Development for the purposes of this Policy only, is defined as per O.Reg 454/19 meaning development of a building or structure intended for use as residential premises by: •a corporation to which the Not-for-Profit Corporations Act, 2010 a,pplies,that is in good standing under that Act and whose primary object is toprovide housing; •a corporation without share capital to which the Canada Not-for-profitCorporations Act applies, that is in good standing under that Act andwhose primary object is to provide housing; or, •a non-profit housing co-operative that is in good standing under theCo-operative Corporations Act. 01.06 Eligible Developments – defined above under Sections 01.03, 01.04 and 01.05, as per Subsection 26.1(2) of the DCA. 01.07 Interest Rate – Bank of Canada policy interest rate plus 12 percent. 02 Legislative Framework Development Charge Deferral 02.01 Installment Payments under Section 26.1 of the DCA and as defined in O.Reg 454/19. Policy Title: Development Charge Interest Policy Page 3 of 6 Policy Number: FIN 090 Under Subsections 26.1(1), (2) and (3) of the DCA, DC shall be paid in equal annual installments, beginning at the earlier of first occupancy or occupancy permit under the Building Code Act, 1992, for: • Rental housing development that is not non-profit housing development (5 years); and, • Institutional development (5 years); and, • • Non-profit housing development (20 years). 02.02 For Eligible Developments as prescribed under Subsection 26.1(2) of the DCA, the DC shall be paid in equal annual installments beginning on the earlier of the date of the issuance of a permit under the Building Code Act, 1992, authorizing occupation of the building and the date the building is first occupied, and continuing on: i) the following 5 anniversaries of that date, in the case of a DC in respect to rental housing development that is not non-profit housing development, and institutional development; or, ii) the following 20 anniversaries of that date, in the case of a DC in respect of non-profit housing development. 02.03 Subsection 26.1(7) of the DCA allows a municipality to charge interest on the installments from the date the development charges would have been payable, under Section 26, to the date the installment is paid, at a rate not to exceed the prescribed maximum rate. 02.04 The Interest Rate shall be charged on the outstanding balance as at each anniversary date, until the DC owing are paid in full. The interest will be calculated and charged as follows: the Interest Rate will be applied to the DC balance owing and will be payable on each anniversary date. 02.05 Early payment agreements will be offered if the owner of a development would prefer to pay the full DC owing at occupancy in accordance with Section 27 of the DCA. 02.06 Where there is a change in use of development during the course of the DC deferral period such that the property or properties no longer meet the definition of an Eligible Development, all outstanding DC payments, including any interest payable up to the date of the change in use, become payable immediately. 02.07 Where the party to a deferral arrangement fails to make payments in accordance with the agreed payment schedule, the account will be considered to be in default and all DC become payable immediately. 02.08 If DC or any outstanding part of DC are not paid immediately as required in Section 02.06 or 02.07, all outstanding charges shall be added to the tax roll and collected in the same manner as taxes, in accordance with Section 32 of Formatted: Indent: Left: 1.5", No bullets or numbering Policy Title: Development Charge Interest Policy Page 4 of 6 Policy Number: FIN 090 the DCA. Interest on late payments added to the tax roll shall be calculated by reference to the City’s tax arrears interest rate in effect at the date of default. Policy Title: Development Charge Interest Policy Page 5 of 6 Policy Number: FIN 090 Development Charge Rate Freeze 02.09 Subsection 26.2(1) of the DCA provides that DC are to be calculated on: a) the day an application for an approval of development in a site plan control area under Subsection 41(4) of the Planning Act, was made in respect of development that is the subject of the DC; b) if clause (a) above does not apply, the day an application for an amendment to a bylaw passed under Section 34 of the Planning Act was made in respect of the development that is the subject of the DC; c) if neither clause (a) nor clause (b) applies, the date the DC would have been payable under Section 26 of the DCA, which is normally building permit issuance. Interest Under Section 26.2 of the DCA 02.10 Under Subsection 26.2(3) of the DCA, a municipality may charge interest on the development charge, at a rate not exceeding the prescribed maximum interest rate, from the date of the application referred to in clause 02.09 a) or b) to the date the development charge is payable. 03 Interest Rate Used 03.01 Interest Rate means the Bank of Canada policy interest rate plus 12 percent as at December 31st or June 30th immediately prior to: a) the date the DC would have been payable under the DCA for the installment payments under Section 26.1 of the DCA; or, b) the date an application for an approval of the development was made under Subsection 41(4) of the Planning Act for DC freezing under Section 26.2 of the DCA. 04 Interest Rate Publication 04.01 The current Interest Rate shall be posted on the City of Pickering website, and the website shall be updated within 5 business days of each reset date (i.e., July 1 and January 1). 05 Compounding and Prorating 05.01 All interest shall be compounded annually and accrue from the date of the applicable application as outlined in Section 26.1 and Section 26.2 of the DCA, until the date of the total accrued amount is fully paid. A 365 day calendar year shall be used for prorating all interest calculations. Policy Title: Development Charge Interest Policy Page 6 of 6 Policy Number: FIN 090 05.02 Subsequent Application(s) If a subsequent application(s) is made for a development: • the date the subsequent application is made will become the new date under which the total amount of the development charge is determined; • all interest that had accrued prior to the subsequent application shall be deemed zero (0); and, • interest will be compounded annually and begin to accrue from the date the subsequent application is made. 05.03 Interest Under Section 26.1 If a development qualifies for installment payments under Section 26.1 of the DCA, the total accrued amount shall continue to accrue interest from the date of the issuance of a building permit. During the installment timeframe, interest shall continue to accrue on the outstanding balance. This shall continue until the date the total accrued amount has been fully paid. The applicable interest applied to the annual installment payments determination shall be the Interest Rate in effect at each anniversary date. 06 Effective Date 06.01 Upon approval by City of Pickering Council, this policy shall take effect retroactively as at January 1, 2020. This policy may be repealed or modified by City of Pickering Council at any time. 07 Policy Administration 07.01 The Treasurer is the delegated authority to make administrative changes to this Policy as may be required from time to time due to legislative or other changes, if in the opinion of the Treasurer, the amendments do not change the objective of the Policy. Please refer to all associated Procedures and Standard Operating Procedures, if applicable, for detailed processes regarding this Policy.