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HomeMy WebLinkAboutFIN 18-21 Report to Executive Committee Report Number: FIN 18-21 Date: December 6, 2021 From: Stan Karwowski Director, Finance & Treasurer Subject: 2020 Building Permit Stabilization Reserve Fund -File: F-4910-001 Recommendation: It is recommended that Report FIN 18-21 from the Director, Finance & Treasurer regarding the 2020 Building Permit Stabilization Reserve Fund 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, 2020. 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 & Associates Economists Ltd. 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 Stabilization Reserve Fund and to build a fund balance for years with decreased building activity. Currently, the City Development Department and Watson & Associates Economists are undertaking a review to develop updated planning application and building permit fee FIN 18-21 December 6, 2021 Subject: 2020 Building Permit Stabilization Reserve Fund Page 2 recommendations to improve the City’s cost recovery levels in response to increasing costs and service level expectations. These recommendations will be reflected in the City’s proposed 2022 User fees. 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. In 2017 and 2018, Building Services had an excess of building permit revenues over costs. However, 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, 2020 was $2.81 million. In 2020, there was a small shortfall of building permit revenues over costs of ($162,284) as building permit revenues declined slightly from the prior year while direct and indirect costs had increased. Annual Report – Building Permit Fees for the year ended December 31, 2020 Building Permit Revenue $3,080,655 Costs: Direct Costs $ (2,771,743) Indirect Costs (471,196) Capital Costs (3,242,939) Excess (Shortfall) Revenue Over Costs ($162,284) Building Permit Stabilization Reserve Fund Opening Balance, January 1, 2020 $ - 2020 Contribution - Closing Balance, December 31, 2020 $ - Transfers 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 historically experienced a low level of construction activity that translated into 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. FIN 18-21 December 6, 2021 Subject: 2020 Building Permit Stabilization Reserve Fund Page 3 Historically, the Building Services section required a financial subsidy from the Pickering taxpayer to fund their operations. As of December 31, 2020, the accumulated financial subsidy or deficit was $2.81 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 surpluses to the Rate Stabilization Reserve. In 2017 and 2018, as the City’s development activity significantly increased, Building Services had operating surpluses of $83,440 and $2,061,582, respectively, which were transferred from the Building Permit Stabilization Reserve Fund to the Rate Stabilization Reserve which further reduced the deficit. Prepared By: Original Signed By: James Halsall Manager, Budgets & Internal Audit Approved/Endorsed By: Original Signed By: Stan Karwowski Director, Finance & Treasurer Recommended for the consideration of Pickering City Council Original Signed By: Marisa Carpino, M.A. Chief Administrative Officer