The City uses Development Charges, which include Servicing Agreement Fees, Development Levies (SAF/DL) and Intensification Levies (IL) to fund major infrastructure required for growth per the requirements of The Planning and Development Act, 2007 (Act) and the Development Charges Policy (Policy).
SAF/DL and IL rates are set annually following an annual rate review process as described in the Policy to apply the most current information to rate calculations. Changes to the rates as proposed in this report require amendment of The Development Levy Bylaw, 2011 (Bylaw).
Financial Impact
The establishment of SAF/DL and IL rates is an annual process that manages cashflow to deliver growth-related capital projects funded through Development Charges.
Based on this year’s review, to support a population of 300,000, the total value of the remaining growth-related capital projects required is approximately $732 million. Development Charges cover $579 million of this cost, with $454 million recoverable through greenfield development and $125 million recoverable through intensified development in established areas. Since growth projects are often bundled with life-cycle replacement projects, the City is responsible for funding approximately $153 million of the total cost through taxpayer reserves to implement projects identified for growth.
All growth-related capital projects are subject to the City’s annual budget process.
The Development Charges Model (Model) was approved by Council in 2015 with a maximum deficit of $60 million (CR15-138). It is expected that the Model’s cashflows will be in a deficit position by 2024 and exceed $60 million in 2028 and 2029 (negative $64.7 million and negative $62.2 million, respectively). The projected deficit is caused by:
· Lower-than-average revenue assumptions from land development. This will be analyzed in more detail in 2022 when reviewing the greenfield hectares developed per year assumption in the Model.
· A need to complete projects in preparation for growth, such as the Eastern Pressure Solution which is required to restore the level of service for the water distribution system.
· Advancement of more transportation projects than planned (e.g. Dewdney Avenue, Pinkie Road, Prince of Wales Drive, Arcola Avenue).
There are risks to carrying a deficit:
· The City is financing growth-related capital projects when there is a cashflow deficit. This will reduce investment returns and result in less investment for the Asset Revitalization Reserve (ARR).
· Financing growth-related capital projects increases the need to debt-finance other City projects. The City has limited debt-financing capacity and there are many planned projects that will incur significant costs to the City.
· The City’s debt limit is $450 million. As of December 31, 2020, outstanding debt is $293 million (65 per cent of limit) and is expected to be $353 million by December 31, 2021 (78 per cent of limit). Higher debt may result in a lower credit rating which causes higher borrowing costs.
· The $60 million debt limit is intended to strike a balance between these risks and the fact that it is difficult to deliver growth projects without spending in advance of development. The City risks being unable to support growth if key growth-enabling projects such as the Eastern Pressure Solution, do not proceed at the appropriate time.
Policy/Strategic Impact
The review of the rates is completed per Section 10A of the Policy (Schedule A to the Bylaw):
· 10A – The Development Charge rates set forth by Section 6.G.5 of the Policy are reviewed from time to time and presented to Council for approval. The review will include:
o Consultation with development industry members
o Review of the current Servicing Agreement Fee balance and interest due
o Determination of pace of development to establish the Capital Projects list and developable area
o The current population and population projections to calculate appropriate funding splits for new projects added to the list
o Review of intensification development Capital Projects to calculate the Intensification Levy rate
o Review of greenfield development Capital Projects to calculate the greenfield rate
o Review of citywide development Capital Projects to ensure cost estimates, capacity and timing are accurate to calculate both the greenfield and intensification levy rates
o Review for alignment to Master Plans and OCP Growth Phasing
o Adjustment, addition, and removal of Capital Projects projected over the 25-year time horizon
o Indexing for inflation
The calculation and review of Development Charge rates are supported by Policy 1.16 from Design Regina: The Official Community Plan Bylaw No. 2013-48 (OCP):
· 1.16 – Ensure that growth pays for growth by:
o 1.16.1 – Ensuring Service Agreement Fees charges are based on full capital costs
o 1.16.2 – Regularly reviewing the rate and rate structure for Service Agreement Fees
o 1.16.3 – Reviewing the areas to which Service Agreement Fees apply, including the possibility of fees varying with location, density and use as necessary, except where specific and deliberate subsidies are approved to support public benefits
o 1.16.4 – Aligning the City’s development fees, property taxes and other charges with the policies and intent of this Plan
o 1.16.5 – Achieving a balance of employment and residential lands
Environmental Impact
City Council set a community goal for the City of Regina of achieving net zero emissions and sourcing of net zero renewable energy by 2050. In support of this goal, City Council asked Administration to provide energy and greenhouse gas implications of recommendations so that Council can evaluate the climate impacts of its decisions.
This report presents the costs to fund major infrastructure projects in the city based on calculations set out in the Development Charges Policy. At this time Administration is not able to determine how development charges would impact sustainability and greenhouse gas emissions. The forthcoming Energy & Sustainability Framework will identify the policies required review to ensure that they are aligned with the goals of achieving net zero emissions and sourcing of net zero renewable energy by 2050.
Other Implications
There are no accessibility or legal/risk impacts arising from this report.
1. Refer the rates calculation back to Administration. If Council has specific concerns, rates may be referred to Administration to review some or all of the updates made to the Model to be considered by Executive Committee or brought back directly to City Council. Proposed rates have been calculated following the Act, Council approved Policy, and based on the results of the growth-related capital projects annual review.
2. Deny the recommendations and maintain the 2022 rates unchanged from 2021, effective January 1, 2022. Maintaining rates would defer any incremental costs associated with growth to have them incorporated into next year’s calculation, but may be legally challenged.
3. Deny the recommendations. Should Council have concerns it may deny the recommendations and direct a change of policy.
Recommendations within this report, as well as planned Council dates, were provided to stakeholders in advance. Stakeholders were identified as interested parties during the report process. Stakeholders and other interested parties have received a copy of the report and notification of the meeting to appear as a delegation and will receive written notification of Council’s decisions. If approved, the rates on the City’s website will be updated accordingly.
Should Council approve the recommendations contained in this report, an amendment to the Bylaw must be prepared and adopted for the recommendations to come into effect. Public notice of the public hearing required when Council considers the proposed bylaw will be given in accordance with The Public Notice Policy Bylaw, 2020.
Background
The growth of a city can offer benefits such as supporting and attracting local business, creating population thresholds necessary to support arts and culture, promoting community vibrancy and fostering the development of services such as transit and recreation.
Growth requires an investment in services and infrastructure. New neighbourhoods and employment areas require expanded or new infrastructure for services such as water and wastewater. The Policy assigns developers the responsibility for capital requirements internal to, or triggered directly by, new developments (e.g. lift station). Development Charges are used to fund major infrastructure investments to city-wide systems required due to growth or in preparation for growth (e.g. wastewater treatment plant). Development Charges include greenfield Servicing Agreement Fees, Development Levies and Intensification Levies.
The SAF is applied when subdivision occurs in greenfield areas, while the DL is applied where no subdivision is occurring but there is a change in the intensity of land use. The IL is applied to development in established areas where there is an intensification of land use resulting in more residential units, or an increased floor area to what previously existed on the land, requiring more access to capacity in city systems than previously. By comparison, taxes and utility fees are used to operate, maintain, and fund life-cycle replacement of existing infrastructure.
The Policy is guided by legislation outlined in the Act which regulates the eligibility and calculation of these fees. The Act allows the following categories of growth-related capital projects to be eligible for funding through Development Charges:
· roads and transportation infrastructure;
· utility infrastructure, including water, wastewater and stormwater (drainage); and
· parks and recreation infrastructure.
These projects cannot include costs associated with operations, maintenance or renewal of infrastructure, nor can they be used for other growth-related costs, such as those for police, transit, landfills, libraries or firehalls.
Annual Rate Review Process
The SAF/DL and IL rates are determined annually as the Model is updated. The Model update includes review of inputs, assumptions, the growth-related Capital Project List (Appendix A) and administration fees. The Capital Project List is based on master plans and further studies, outlining projects required to service growth within the current planning horizon of a population of 300,000. Administration fees include costs related to the implementation of the Policy and delivery of projects.
The Capital Project List was reviewed by Administration and development industry stakeholders through a combination of communications, meetings and workshops. Feedback received during these sessions indicated that stakeholders were pleased with the level of communication, engagement and collaboration throughout the process and have asked that the City emulates the same process for next year. Feedback from the Regina and Region Homebuilders’ Association (Appendix B) indicated support of the rates and rationale.
Greenfield Servicing Agreement Fee/Development Levy Rate Review
The proposed greenfield SAF/DL rate of $297,000 represents a 0.67 per cent decrease from the 2021 rate of $299,000. Per the Policy, the rate for greenfield industrial development is to be calculated at one-third of the SAF/DL rate, based on this calculation the proposed rate for industrial development is $99,000 per hectare.
Intensification Levy Rate Review
As shown in the table below, the proposed land-use-specific IL rates represent an increase from the 2021 rates. The major driver for the revised rates was an increase to a cost estimate for a wastewater project (wastewater linear replacement). The project is 100 per cent funded by intensified development in established areas through ILs, with no taxpayer or greenfield cost share. These increased costs resulted in a direct increase of IL rates.
Land Use Types | Ratio | 2021 (current) | 2022 (proposed) | Increase+ |
|---|
Residential | |
Secondary Suite | 1.3 | $4,200 | $4,500 | $300 (7.14%) |
Single Detached | 2.7 | $8,700 | $9,300 | $600 (6.90%) |
Semi-Detached (e.g. duplex) | 2.6 | $8,400 | $9,000 | $600 (7.14%) |
More than 2 Dwelling Units | 2.5 | $8,100 | $8,600 | $500 (6.17%) |
Apartment (Less than 2 Bedrooms) | 1.3 | $4,200 | $4,500 | $300 (7.14%) |
Apartment (Two or More Bedrooms) | 1.9 | $6,100 | $6,600 | $500 (8.2%) |
Residential Group Care Home | 2.7 | n/a§ | $9,300 | n/a§ |
Office/Commercial/Institutional (per m2) | 0.02778 | $90 | $100 | $10 (11.11%) |
Industrial (per m2) | 0.01333 | $40 | $50 | $10 (25%) |
+ Increase from 2021 (current) to 2022 (proposed) intensification levy land use specific rates
§ The “Residential Group Care Home” land use type is new for the 2022 rates as a result of the new Development Charges Policy approved in May of 2021 (CR21-73)
In October 2020, City Council (CR20-86) approved the 2021 greenfield SAF/DL and IL rates.
In May 2021, City Council (CR21-73) approved an amendment to the Development Levy Bylaw that included an updated Development Charges Policy (Schedule A to Bylaw).
Respectfully Submitted, Respectfully Submitted,
{Signature}
Prepared by: Luke Grazier, Coordinator, Integration & Stakeholder Relations