Issue

The Development & Infrastructure Division Fees and Charges are being proposed to increase by as much as 185%, with primary areas of concern related to the Planning Building & Development Services - Engineering Services, Planning Services and various permit increases under the Safety Codes Services.

Executive Summary

There have been some significant increases in the Development and Infrastructure Fees and Charges being proposed recently with increases ranging up to 185%. The methodology for the increase is based on a six city average including Lethbridge, Red Deer, Airdrie, County of Strathcona, St. Albert and Grand Prairie. With Medicine Hat lagging behind other communities in Alberta in the recovery of its real estate and development projects, significant increases at this time would serve as a deterrent to additional investment in our community. At this point in the business cycle, the magnitude of many of the increases is not reasonable and has not been clearly justified to the business community. For this reason, the Medicine Hat & District Chamber of Commerce recommends that the City of Medicine Hat re-evaluate the increases in fees and charges and consult with industry, key stakeholders and organizations for reasonable fee structures that are implemented over a period of time. Additionally any fees and charges should be based on a baseline structure, with incremental percentage increases over a period of time, in line with the cost of service delivery and taking into consideration natural inflationary costs. 

Background

Fees & Charges

As noted in the proposed fees and charges schedule, commercial and industrial permit costs have been frozen since 1999, as Medicine Hat was always consistently higher than the six City average. However, this is no longer the case and the fees have now been adjusted according to the methodology below. 

According to the Development and Infrastructure Division, the fees and charges schedule was prepared in accordance with the principles approved by council in 2003: 

1. To set fees at 100% of the average fees charged by comparable sized cities; 
2. Fees reflect industry guidelines and local market conditions; 
3. Fees take into consideration the actual unit cost for the service including costs associated with the creation of the new on-line permitting and approvals system.

The revenues are to be directly linked to growth and market based and so may vary greatly depending on economic situation over the next three years. In order to bring fees up to the average of comparable cities, certain fees are increasing substantially. 

The notation was made by Development and Infrastructure that public expectations are that fees are fair, competitive and reflective of the market place and that the fees recognize the concept of user pay for the service provided.

Economic Climate

In relation to the economic conditions of Medicine Hat, compared to last year, business licenses issued during the first seven months of 2011 have been lower than those issued during the same period last year. 

The housing market, after proving to be a powerful economic driver in the previous years, will most likely not serve as strong a function as it had in the past. July’s 2011 numbers for both starts and completions were down year-to-year by double digits. Dwelling starts for the first 7 months has dropped by almost 50% from the same time last year.

In the real estate market, the number of sales and the dollar value associated with those sales dropped from the previous year, as well as on a month-over-month basis. There also was a decrease in the number of listings placed on a month to month, and year to year basis.

Building permits issued in July 2011, on the whole, were higher than the previous month and year. However, the residential side did not do as well as the non-residential, and within the latter, it was the permits issued for commercial new buildings that tipped the net number for permits issued in favour of July 2011. Additionally, the building permits issued over the past 7 months of 2011 are substantially lower than the same time last year – by almost 40%.

Overview of Fee Increase Concerns

With the proposed changes, fees for engineering services for subdivisions will be increasing from $1,600 to $9,265 in 2012. This is due to the addition of many new fees. The subdivision base application fee would increase from about $340 to $920. The application fee per residential lot would increase from $130 to $370. On top of most of these permits and fees, there is a proposed e-permit charge of 5%. This is in addition to the other changes in proposed fees. 

Additionally Residential Development Permit Fees are currently $150. With the increase based on other communities, they would become $275 and $289 with the e-permit charge. Home Business Licensing Fees are being proposed to increase from $71 to $170, and with the e-permit it would be $179. Additionally, Taxi Business Licenses are increasing from $51 to $120 and with the e-permit it would increase to $126. Occupancy Permits are also increasing by 52.4% and 92.3% and demolition permits are increasing by $122.2%. Additionally the Commercial and Industrial permit fees are increasing in the $3001 to $22,000 range by as much as 26.8%, but the fee increases within this schedule are not consistent percentile increases in relation to the fees.  

Analysis

Medicine Hat is lagging behind other communities in Alberta in building permits, construction and the recovery of its real estate industry. Significant fee increases would serve as a deterrent to additional investment in our community. The Chamber is very cognizant of the business climate and in turn has also been very conservative when evaluating rates and fees. 

Additionally, the cities that the City of Medicine Hat has chosen to compare itself to may not be accurate comparables due to their proximity to major centers, their cost of business due to location (higher cost of living for a Northern community such as Grand Prairie) and the cost of service delivery. The Medicine Hat & District Chamber of Commerce would rather see the fee changes tied to the cost recovery needs of the City rather than to just arbitrarily pick an average of six other cities. Furthermore, if an average amount is taken, the City of Medicine Hat must also take into account other aspects and costs of building in other communities – i.e. Letter of Credit requirements in the City of Lethbridge are negligible when compared to Medicine Hat, hence Medicine Hat’s requirements add additional costs to the builder. 

The methodology adopted by council in 2003 may also be counter productive in itself, as choosing a 100% average fee base may not be reflective of industry guidelines, local market conditions and the actual unit cost for the service. The average pricing structure proves itself as unsound methodology to legitimize price increases and can be seen as counter productive in being responsible for fair pricing. This type of methodology can discourage development rather than to promote the Medicine Hat Advantage and being “open for business”. 

To prevent “rate shock” and to create a structure that is more reasonable and justifiable to the end user, rate reviews should be conducted each year. If rates are reviewed on a regular basis and are in line with the rate structures as outlined in the recommendations below, then an environment is created that is more manageable and palatable to the business community. 

During these slow and volatile economic times Medicine Hat businesses are cutting back, watching expenses and reducing profit margins. Our municipality should be no different and it should be charged by our City representatives and elected officials to reduce costs, become more efficient and promote development.

Recommendations

The Medicine Hat & District Chamber of Commerce recommends that the City of Medicine Hat:

1. Re-evaluate the increases in fees and charges and consult with industry, key stakeholders and organizations for reasonable fee structures that are implemented over a period of time.
2. Base any fees and charges on the current baseline structure, with incremental percentage increases over a period of time, in line with the cost of service delivery and taking into consideration natural inflationary costs. 
3. Not implement these fee increases on February 1, 2012, but rather send the fee structure back to the Development & Infrastructure committee for reconsideration, evaluation, consultation and resubmission based on the recommendations above. 
4. Rescind its policy to base its fees and charges on a 100% average of fees charged by comparable sized cities and only use this methodology as a reference for research purposes.

Resources

City of Medicine Hat Development & Infrastructure Fees and Charges: http://www.medicinehat.ca/City%20Government/Committees,%20Commissions,%20Boards/2012- 14%20D%20and%20I%20Fees%20and%20Charges.pdf
Medicine Hat News, November 1, 2011: http://www.medicinehatnews.com/local-news/city-considers-raising-some-building-fees-11012011.html
Alberta Economic Highlights Reports 2011: H:\Business Advocacy Committee\Policy Research\Economic Development\Alberta, Canada - Economic highlights.mht
Economic & Labour Market Research and Analysis Project July 2011: http://edalliance.ca/files/ELRAP%20Report%20No10-July%202011.pdf

Date Approved: December 21, 2011
Date Completed: 2012