CONCLUSION
The City of Regina (City) uses Servicing Agreement Fees (SAFs) and Development Levies (DLs) to fund major infrastructure investments required for new growth and development, as per The Planning and Development Act, 2007 (Act).
Since the SAF/DL Policies were adopted in December of 2015, City Administration initiated a project to determine how to charge and collect SAF/DLs for development in established neighbourhoods (i.e. charging an intensification levy). This project included targeted stakeholder engagement with residential and employment-based builders and developers. Concerns raised were about the added cost to develop within established areas, particularly for affordable housing.
This and other stakeholder feedback summarized in Appendix C was considered and City Administration recommends amendments to the SAF/DL Policies as included within Appendices A and B to define how the intensification levy, as SAFs or DLs, will be calculated and charged to development that results in a higher intensity of use within the established areas of the city.
BACKGROUND
In 1989, City Council decided that development within the city identified as the ‘exempt area’ (i.e. area bounded by Ring Road and Lewvan Drive) will not be charged SAFs or DLs; however, growth has impacts on the capacity of the City’s major infrastructure systems regardless of its location.
In 2015, as part of the SAF Major Policy Update, City Council approved the recommendation to allocate growth-related capital project costs to intensification in recognition of:
1) The impact that growth, whether it occurs in greenfield or within established neighbourhoods, has on the capacity of the City’s water, wastewater, drainage, transportation, parks and recreation infrastructure systems.
2) The need for development projects, including those that occur in established neighbourhoods that require an increase in capacity to the existing infrastructure systems to fairly and transparently contribute to the cost of those improvement projects.
The major growth-related capital projects that benefit intensification were identified and 30 per cent of the costs for those projects were charged to infill. This percentage was based on Design Regina: The Official Community Plan Bylaw No. 2013-48 (OCP) that targets accommodating
30 per cent of new population growth in existing built-up areas.
This resulted in approximately $125 million in project costs to be collected from intensification over the next 25 years. This represents about 16 per cent of total SAF-funded project costs and 84 per cent was allocated to greenfield development; however, at that time, it was recognized that further consultation was required with the development industry to determine an approach to implement the new fee to cover this allocation of costs.
On December 14, 2015, City Council considered CM15-14 SAF and DL Policy Review and Final Phasing and Financing Project. At this meeting, City Council passed a motion:
“That the Administration be directed to consult with stakeholders and develop a proposed approach to charge Service Agreement Fees and Development Levy Charges for infill development, and that the Administration present the proposed approach to Council for approval in 2016 to allow for implementation of infill Service Agreements Fee and Development Levy charges beginning January 1, 2017”.
This direction was updated in July of 2016 through the motion in CR16-94:
“That City Council direct the Administration to consult with stakeholders and develop a proposed approach to charge Servicing Agreement Fees and Development Levies for infill development”.
And
“That the Administration present the proposed approach to City Council to allow for implementation of Infill Servicing Agreement Fee and Development Levy charges beginning in 2018”.
This report addresses these motions.
DISCUSSION
Growth provides various benefits to the community, including support for local businesses, arts and culture to foster vibrancy and services such as efficient public transit. At the same time, growth requires a significant investment in services and infrastructure whether it occurs within the established areas or in greenfield areas. Developers are directly responsible for providing the local capital requirements specific to new developments, while SAFs or DLs can be charged to fund expanded or new offsite infrastructure required to support more people or businesses, such as improvement to the water and wastewater treatment plants.
SAFs and DLs are the City’s primary tools to fund major growth-related infrastructure upgrades. SAFs are charged when there is a subdivision while DLs apply in areas where no new subdivision is occurring, but a change in intensity of land-use is occurring, generating an increase in demand for services; therefore, these fees are generally referred to as SAFs.
SAFs are collected in accordance with section 172 of the Act, which states:
“SAFs may provide for the payment by the applicant of fees that City Council may establish as payment in whole or in part for the capital cost of providing, altering, expanding or upgrading sewage, water, drainage and other utility services, public highway facilities, or park and recreation facilities located within or outside the proposed subdivision and that directly or indirectly serve the proposed subdivision (172)(3)(b)”.
SAFs are charged by the City to pay for projects that add capacity to infrastructure systems to service new growth and development. In the past, these charges have largely been attributed to greenfield development; however, due to the OCP policy to direct at least 30 per cent of new population to existing urban areas and the subsequent SAF policy change in 2015, costs for major growth-related capital projects (i.e. SAF projects) that benefit growth within existing areas were allocated to be funded by those intensification development projects. The SAF projects with cost allocations to intensification are listed in Appendix D.
Intensification is when new, additional or converted buildings are developed within established neighbourhoods of the city that may require additional service beyond what is currently required by the existing development on the site and where providing such service will result in a capital cost to the city. As such, when one building is replaced by another building with the same land-use (e.g. one single-dwelling unit for another single-dwelling unit), it is not considered intensification.
Examples of intensification are:
· Developing a vacant site.
· Converting a building from one use to another with a higher intensity (e.g. converting a warehouse to condos).
· Increasing the number of residential units by adding a secondary suite or replacing a single-dwelling unit with a duplex.
· Increasing the gross floor area of a commercial or industrial building.
Most cities charge for development that results in intensification. Fees can vary significantly based on their specific growth and financial objectives, as well as the provincial legislation that guides how development charges can be applied.
This project was advanced to determine how SAFs should apply and be charged in Regina for intensification to cover the growth-related capital costs in a way that:
· Makes sense and is understandable.
· Is fair and equitable.
· Is reasonable.
· Supports the City’s long-term financial sustainability.
Stakeholder Consultation
Given the impact of a new fee on stakeholders, an engagement plan was developed to involve those impacted in developing an approach for charging and collecting the new intensification levy. A local consulting firm, MPATH Engagement, was retained to support the development and execution of the engagement and communications plan.
Three small working groups were created to engage those from the development industry who currently are involved in or are planning to undertake development within the established areas. Two groups were focused largely on residential development and one was more focused on employment-based development.
Collectively, these groups included the Regina and Region Homebuilders’ Association, affordable housing providers, developers, builders, real estate professionals, architects, construction firms and building owners and managers.
Each working group participated in four sessions, January through May of 2018:
· Session 1: Participant education and collection of high-level input.
· Session 2: Collect feedback on variables.
· Session 3: Review and collect feedback on draft policy and approach.
· Session 4: Present final draft policy and approach.
These sessions were focused on building understanding of SAFs and what they are used for, as well as why they are being charged for intensification. This fostered an informed conversation around how the rates should be determined, how credits for existing development should be applied and how and when the fee should be implemented.
The process started broad and was narrowed and refined based on the feedback heard. After each session, participants were invited to submit additional feedback to the City to further contribute, which was compiled and shared with participants directly. Key themes, areas of concern or elements that were repeated through all groups were highlighted and responded to in the following session. This enabled City Administration to respond and share what was done with the feedback (e.g. taken and used in refining the approach or not used with an explanation as to why) and to foster further discussion. A summary of feedback collected is listed in Appendix C.
Project information was also posted on Regina.ca/saf throughout the project. This included general information on SAFs, the project, more specific working group agendas, slide presentations and feedback collected at each session.
This process was valuable in shaping the policy recommendation. A recurring theme that was particularly impactful was the desire for the intensification levy to be fairly and equitably applied. While most stakeholders expressed concern about the prospect of a new intensification levy in an already challenging development environment, it was felt that incentives and exemptions should not be built into the policy and charged to future developers. This informed the recommended policy amendments to not include incentives directly within the SAF Policy.
This feedback also directly impacted the recommendation to charge for secondary suites. City Administration had considered not charging for secondary suites as the Zoning Bylaw allows two units per lot. Furthermore, there were concerns that charging for secondary suites could result in more illegal suites being built, thereby potentially compromising the safety of those units; however, stakeholders cited from a fair and equity perspective that all new units have an impact on the systems; therefore, all should be charged the intensification levy. As such, including a secondary suites charge is included in the recommendation; however, the impact will be considered through the review of the Housing Incentive Policy (HIP) in 2019 to determine if there is a need to address this through incentives or some other manner. In the current HIP, secondary suites in detached dwelling units in the City Centre and Inner and established neighbourhoods as defined by the HIP, receive a 25 per cent tax exemption for five years. For laneway or garden suites currently being advanced as pilot projects, the same tax exemption applies, but to the entire city.
There was also concern expressed around the impact that the new intensification levy will have on affordable housing as it may compromise the ability to provide accommodations for low-income earners in our community. This direction was used to form the recommendation to use the SAF/DL for intensification as a base policy input in the review of the HIP in 2019 and its impact on affordable housing.
Similar concerns around affordability were expressed by stakeholders as well, including the impact of office development, development on vacant sites and development in the Downtown and surrounding areas. As such, the SAF Policy and the associated fee that impact development within established areas will be an input to be used in other projects, such as the Underutilized Improvement Land Strategy and Neighbourhood Planning, to determine if incentives or other tools are required. As a result, this allows the SAF Policy to remain a base policy focused on determining the costs of infrastructure to support growth and allows incentives, exemptions, or other tools to be more transparently applied through other more specific policies and programs.
Questions were also raised about whether allocating 30 per cent of costs for those projects that support intensification was appropriate given that intensification has been less than that in the recent years. Changing the allocation was outside the scope of this project as it is a larger policy discussion that, if changed, would impact other stakeholders than were involved in this project. As such, this comment will be considered during the SAF Policy five-year review in 2020.
Recommended Policy Directions
Informed by the stakeholder consultation and work with City Administration in several business areas, the following policy directions are recommended and have been incorporated into Appendix A, Administration and Calculation of Servicing Agreement Fees and Development Levies Policy and Appendix B, Administration of Servicing Agreements and Development Levies Policy.
1) Application of the Intensification Levy
The Intensification Levy would apply where development within the established city results in an increase in use or intensity of a property and as a result, a capital cost to the City, providing the additional services required to serve the new development. This area is defined by the City’s development boundary in 2013 when the OCP was approved, which represents the established city. Anything outside the boundary would be considered greenfield and charged the greenfield SAF rates. This is shown on a map in Appendix C of the policy included as Appendix A.
2) Levy Rates by Land Use Type
For intensification, the levy is proposed to be based on land-use type. While the specific categories vary, it is a comparable approach to how most cities assign rates for development.
The intensification levy calculation is based on a per person equivalent calculation as shown in Table 1. Currently, the intensification levy rate works out to approximately $3800 per person equivalent which is based on:
a) The OCP Growth Plan (OCP, Map 1) and the projections for both residential and employment growth within the existing city over 25 years.
b) The growth-related capital projects in the SAF model. These projects are determined through master plans and existing SAF Policy is used to determine which are applicable to intensification. These projects are listed in Appendix D and make up the $125 million in project costs that are currently unfunded.
Residential rates are recommended to be charged per unit. The ratio used to determine the rate is based on the most recently available census data that shares the average people per unit figures for different residential types.
This average is multiplied by the per person equivalent levy rate to determine the residential rate for different types of development. For instance, a single-dwelling unit, the average occupancy of that unit is 2.7 people; therefore, 2.7 multiplied by the per person equivalent levy rate = $10,300.
Secondary suites do not have an average occupancy reported through the census. As such, the ‘apartment with less than two bedrooms’ category is recommended for use as a proxy for secondary suites in determining a rate.
Commercial, institutional and office developments are recommended to be a single category. The intensification levy would be charged on a floor area basis (by m2). The ratio used is based on the per person equivalent of impact and assumed to be one person for every 36 m2; therefore, the commercial intensification levy rate is determined by multiplying the per person equivalent by the ratio (1 person/36 m2).
Industrial development is similar and is recommended to be charged on a floor area basis (by m2). A per person equivalent impact is assumed to be one person for every 75 m2. As such, the industrial intensification levy rate is determined by multiplying the person equivalent by the ratio (1 person/75 m2).
Table 1: Intensification Levy Rate by Land Use Type
LAND USE TYPE | Ratio | RATE |
Per Equivalent Population | 1 | $3,808 |
Residential Unit Type (charged per unit) |
Secondary Suite | 1.3 | $5,000 |
Single-Detached Dwelling | 2.7 | $10,300 |
Semi-Detached Dwelling or Duplex | 2.6 | $9,900 |
More than Two Dwelling Units (e.g. townhouse, triplex, etc.) | 2.5 | $9,500 |
Apartment (less than two bedrooms) | 1.3 | $5,000 |
Apartment (two or more bedrooms) | 1.9 | $7,200 |
Commercial/Institutional/Office (charged per m2) | 0.02778 | $110 |
Industrial (charged per m2) | 0.01333 | $50 |
These rates would be updated annually through City Council approval as the SAF model is reviewed and updated. For the purposes of introducing this intensification levy to ensure clarity in communications and reduce confusion, it is recommended that these rates be used for both 2019 and 2020.
To determine the intensification levy for a development project, the rate for the land-use type of the development would be multiplied by either the number of units to be built for residential or the gross floor area for employment-based development.
Below are a couple of examples of how the intensification levy would be determined:
a) For a new apartment building with five one-bedroom units
5 units x $5000/unit (the rate for apartments with less than two bedrooms)
= $25,000
b) For a new store with an area of 1000 m2
1,000 m2 (store’s gross floor area) x $110/m2 (commercial levy rate)
= $110,000
The intensification levy would apply to all new units in residential development and increase in area for employment-based space with one element of flexibility: small additions for commercial/institutional/office and industrial buildings would not be charged the intensification levy for their first addition of 14 m2 in gross floor area. This would allow for entranceway improvements, closets or the creation of vestibules to occur without a intensification levy being charged, as this level of addition does not typically results in an impact on services required.
Other projects that would not trigger the charging of the intensification levy would be:
· Residential renovations or additions (without a change in land use type).
· Parking structures.
· Structures without municipally-provided water and/or wastewater facilities that are intended for seasonal use (e.g. greenhouses).
3) Credits for Existing Development
The intensification levy for development that results in a higher intensity of use is only intended to cover the incremental impact on servicing. As such, a credit would be provided to account for the infrastructure capacity that the existing development had used. A site is eligible for a credit if a structure existed on the site in the last ten years from the time that new development application is submitted. This approach helps encourage development following demolitions to utilize the credit and it allows City Administration to reasonably determine past land use through assessment data or air photos.
Once the site is deemed to be eligible for a credit, it would be calculated using Table 1 and following the same process as was described for determining the intensification levy. The difference is that instead of using the information for the new development, it would use the information from the existing development to determine the credit. For instance, if a single-detached dwelling existed on a site within the last ten years, the credit would be: one single-dwelling unit x $10,300 = $10,300.
In determining the credit, the most recent use would be used in the calculation; however, if the applicant can demonstrate that a more intense legal-use had been on the site, within the past ten years, that ‘use’ will be used to determine the credit. An example of this could be a site that is currently a parking lot but was an office building five years ago; the site would receive a credit for the office building if the development permitting process started within ten years of the building being demolished. Once the credit is established, it would be subtracted from the intensification levy amount calculated for the new development.
For instance, using the example above, the $10,300 credit was calculated for the single-dwelling unit. If a duplex was to be built on that site, the calculation would look as follows:
Credit: $10,300 (for single-dwelling unit that existed on the site)
New Development: Two duplex units x Duplex intensification levy rate
Two units x $9,900
= $19,800
Levy to be Paid: New Development – Credit
$19,800 - $10,300
= $9,500
If the credit exceeds the intensification levy, the charge would be zero and the residual credit would be maintained on the site for use in the remaining ten years. This can be helpful for developers wanting to phase a development where the first phase is not large enough to make use of the credit.
Lastly, the credit will be divided on a proportional basis at the time of subdivision. Using the example above where a single-dwelling unit was demolished and a $10,300 credit was identified, if that site was subdivided into two equal lots, the credit would be equally split with a $5,150 credit being applied to each newly subdivided lot. The credit would have no cash value and could be applied when the new development on the site proceeds, provided it occurs within the ten-year timeframe.
4) Implementing the Policy and Charging the Intensification Levy
The intensification levy is being collected as part of the process for the Act through the development permit process. The City’s development and building permit processes are linked, so the process for determining and collecting the intensification levy would be executed through the building permit process. As such, payment will generally be payable at the time of building permit.
If the intensification levy owing is determined to be over $50,000, the applicant can choose to enter into an agreement with the City and make their payments over two years as follows:
· 34 per cent of the fee due at the time of building permit.
· 33 per cent of the fee due a year after that.
· 33 per cent of the fee due a year after that (or two years after the time of building permit).
The specific process for calculating and collecting the fee will be determined as the implementation of the fee through Cityview, the City’s new planning and building software, occurs. Incorporating this process into that software is anticipated to occur in the second quarter of next year. As such, it is recommended that the fee be effective October 1, 2019 to allow for its implementation through the software.
This timeframe responds to City Administration’s ability to implement the various changes and project that are underway within the Development Services Department, eliminates the potential for confusion that can occur when implementing a manual process and then replacing it with an electronic process, as well as ensures there is ample time to raise awareness with industry prior to the fees’ implementation.
RECOMMENDATION IMPLICATIONS
Financial Implications
Upon approval, the amended policies will enable the City to collect SAF/DLs (as an intensification levy) on development within the established city that results in intensification starting October 1, 2019. This fee will financially impact both privately and publicly-owned land and development equally.
Given the pace of intensification since the policy decision to start charging for intensification, it is estimated that approximately $4 million would have been collected had it been in effect as of December of 2015.
These funds, as is the case in the collection of SAF/DL in greenfield, are only used to fund SAF projects. To make up these costs, as well as those as those resulting from the recommendation to not start collecting fees until late 2019, future years will require slightly higher SAF/DL rates to ensure all capital growth projects can be funded through the SAF deferred revenue accounts. Collecting this intensification levy provides the City with more certainty that funds will be available for necessary infrastructure improvement to provide a reliable level of service to support growth.
City Administration will be considering impacts of the intensification levy on development within established areas. The intensification levy is considered a base policy to determine capital growth-related costs for off-site development and incentives have not been built into the SAF/DL Policy directly.
To support transparency of subsidies and the desire to better evaluate if they are helping to achieve intended objectives, this intensification levy will be considered as an input in the review and development of other policy and programs, such as the HIP. If decisions are made to offset the costs of the new intensification levy to meet other goals, these funds would come from taxpayers.
Environmental Implications
None with respect to this report.
Policy and/or Strategic Implications
The proposed policy amendments enable the implementation of the OCP direction that “growth should pay for growth” (Policy 1.16) that was approved as applied in the SAF/DL Policy update in 2015 that allocated costs to intensification. Concerns have been raised that the introduction of this intensification levy may negatively impact the City’s ability to meet the OCP target (Policy 2.3) to accommodate 30 per cent of the city’s population growth as intensification; however, this policy is intended to be a base policy to ensure the City can meet its long-term financial viability priority and allow the City to fund infrastructure improvement to provide reliable service to support this growth.
This policy will be used as an input for other projects focused on advancing progress towards the intensification target, including the:
· Review of the HIP.
· Underutilized Land Improvement Strategy that will seek to reduce barriers to developing vacant and under-utilized sites.
· Neighbourhood Plans that will consider where intensification is best located.
Efforts will continue to monitor progress towards the intensification target and in seeking ways to encourage growth within our established areas with the new intensification levy in place.
Other Implications
None with respect to this report.
Accessibility Implications
None with respect to this report.
COMMUNICATIONS
A defined engagement process was implemented that involved the creation of three small working groups participating in four facilitated sessions over the course of four months. Stakeholders involved in these sessions are or will be involved in residential and/or commercial/industrial development within the established area of the city. Building understanding of the content was a key area of focus to foster informed participation. Through the process, policy options were tested with the working groups to seek perspectives and gather feedback to be considered by City Administration and inform the policy iterations to narrow the options to a recommended approach. A summary of the feedback is provided in Appendix C. The final recommendations were shared with the working groups involved in this project directly, as well as the original working group involved in the SAF Policy Update in 2015 that resulted in the decision to charge for intensification.
In compliance with the Act, formal public notice of City Council’s intention to consider the amendments to The Development Levy Bylaw No. 2011-16 will also be advertised in the June 9 and 16, 2018 editions of The Regina Leader-Post, published to the City website and posted at City Hall.
Upon City Council approval of the policies, City Administration will develop and deliver a communications strategy to build awareness of the new fees prior to their implementation in 2019.
DELEGATED AUTHORITY
The recommendations contained in this report require City Council approval.
Respectfully submitted, 
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Report prepared by:
Kim Sare, Senior City Planner