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Development Benefit (Assist) Considerations for Off-Site Levy Bylaw

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Development Benefit (Assist) Considerations for Off-Site Levy Bylaw

Finance & Taxation Municipal Policy

Finance & Taxation - Municipal Policy

Issue(s): The off-site levy bylaw #3746 was adopted on November 8, 2006 with levy rates to be reviewed every two years. In the absence of a review in 2008 and 2010, the rates were automatically adjusted by the Consumer Price Index (CPI) for the previous calendar year. Within the financial review of bylaw #3746 concerns surfaced from the City of Medicine Hat regarding developer contribution, municipal assist and actuals. In contrast, the current bylaw review has resulted in substantial increases to off-site levy costs, exceeding the CPI that has been customary for the previous years, and has not factored in a municipal assist or development benefit to balance economic impacts, competitiveness and rate shock. 

Executive Summary

The off-site levy bylaw review commenced in April 2012 with involvement from the Medicine Hat & District Chamber of Commerce, the Canadian Home Builders Association, the Urban Development Institute, the Intensification/Redevelopment area, a Greenfield Developer and a Citizen at large. There have been concerns raised with some of the consultation process, how consensus was determined, the overall offsite costs and the final financial review process and bylaw approval timelines. As the off-site levy bylaw node system is a new system of allocating off-site costs, it was difficult for stakeholders to fully understand the process and implications that a node system would have on the end results. After receiving the final costs and off-site levy amounts, there was concern over the impact that off-site levies would have on development, growth and the overall rate shock of the increase to development. In reviewing all of the factors that have been received to date, the Medicine Hat & District Chamber of Commerce recommends that there is a development benefit or assist factor considered prior to approval of the new off-site levy bylaw, with consideration given for competitiveness, development and the percentage increases in the levies. 

Background

Off-site levies provide a mechanism to recover capital costs incurred for infrastructure to support growth and development. The Municipal Government Act provides the framework for off-site levies in Division 6 Part 17 of the Act (section 648, page 357) and under Alberta Regulation 48/2004 with provision that an off-site levy is to be used only to pay for all or part of the capital cost of any or all of the following: 

(a) New or expanded facilities for the storage, transmission, treatment or supplying of water;
(b) New or expanded facilities for the treatment, movement or disposal of sanitary sewage;
(c) New or expanded storm sewer drainage facilities;
(c.1) new or expanded roads required for or impacted by a subdivision or development;
(d) Land required for or in connection with any facilities described in clauses (a) to (c.1).

Off-site levies may be collected only once in respect of land that is the subject of a development or a subdivision and offsite costs must be used for the specific purpose for which it is collected with the bylaw setting out the object of each levy and how the amount of the levy was determined. 

In November 2006 the Off-site Levy Bylaw #3746 was determined and adopted in consultation with developers and consultants and calculated by the development unit to ensure that each developer would bear a share of the costs associated with development. The levies were to be reviewed every two years; however when a review was not conducted in 2008 and 2010 the rates were automatically adjusted by the Consumer Price Index (CPI) for the previous calendar year. The list of projects for the subsequent 20 years was developed and identified based on the 2004 Municipal Development Plan/Growth Strategy. At that time developers requested a ‘Municipal Assist1 ’ to avoid rate shock, with the assist factor equaling 43.5%. In 2010 the Off-Site Levy rates at March 31, 2010 were $115,500 per ha with the Municipal Assist and without the Assist were $204,064. With the premature depletion of off-site reserves, it resulted in taxes and rates paying for debenture costs for the off-site projects.

The council directive in March 2012 was to have a fair, balanced and consistent approach to uphold the regulatory principles and guidelines along with “good faith” consultation with stakeholders. There was to be a clear and objective measurement of the degree of benefit based on engineering and accounting numbers rather than perception. The benefit allocation principles were to be established at the outset with the incorporation of both Greenfield and Intensification Development, taking all projects into consideration. 

In the stakeholder consultation process, there were 26 off-site levy areas identified with those areas aggregated into six development nodes for allocation purposes. In the commencement stages of the consultation, stakeholders agreed with the nodal system, until such time that they could determine the implications of a node system and the costs associated with each node. As the node system was determined before the project review and benefit allocations were commenced, it was difficult to form consensus on whether this was indeed the best methodology. Additionally, in relation to the stakeholder consultation process, the stakeholder review process had changed in both timelines and the stakeholders’ understanding of the role they would have in the final results. 

In the initial stakeholder process summary provided, the initial stage and review was to be completed in four months with the review of costs, bylaw and municipal assist factor considered in the following three months. Stakeholders including the Urban Development Institute, the Canadian Home Builders Association, the Intensification/Redevelopment area, the Greenfield Developer and the Chamber of Commerce were all under the impression that they would have a role in recommendations for the financial considerations and a review of the node system and the financial model. From the initial timeline provided to the Stakeholders, the allocation of time significantly changed with the consultation regarding growth, projects and allocations taking approximately from April 2012 (the initial organizational meeting) to January 2013 with the final off-site costs being presented in March. With the compressed timeline for review of the financial data, stakeholder organizations have been pressed for research, review and consultation regarding municipal assist factors and final review stage

Municipal Comparisons

MunicipalityCost/hectareNotes
Medicine Hat
(Node)
Node 1: $257,297
Node 2: $253,490
Node 3: $277,439
Node 4: $186,446
Node 5: $263,881
Node 6: $91,411
(Average $221,660) Bylaw Under Review
Grande Prairie
(Single System2)
Transportation Levy: $52,800Greenfield: Recover full cost of transportation only.
Brownfield: Not charged, unless substantially increases demand.
Note: In 2007 administration recommended a staged increase of the fees from $36,578 to $55,480, so not to be onerous on the development industry. Administration also recommended that the full increase not be passed on to the Developer. 
Red Deer
(Single System)
$197,379Greenfield: Recover full cost
Brownfield: Not charged, unless there was no off-site levy charged during original construction. Downtown is exempt from all levies. 
Lethbridge
(Single System)
$195,000Greenfield: Recover full cost.
Brownfield: Not charged unless redevelopment creates demand for increased service - negotiated on an ad-hoc basis, less than full cost recovery.
Wood Buffalo
(Node)
Range from $4,050 to $55,845The cost is dependent on whether the development area is defined as low/medium or high density. There is a Developer incentive in effect for lower town site which results in a reduction of fees by 60%.
Calgary
(Node)
$188,744 to $239,992New Infrastructure: Recover 50%
Redevelopment: Currently developing methodology
Brooks
(Node)
$18,252 to $36,408Greenfield: Recover full cost unless infrastructure projects benefit existing or future development, which is allocated accordingly.
Brownfield: Not charged if land was previously the subject to an off-site levy.
Airdrie
(Node)
$158,775
Lloydminster
(Single System)
Arterial acreage off-site: $72,397
Utility off-site: $40,474
Greenfield: Recover full cost.
Brownfield: Do not charge redevelopment levy.
Strathcona County
(Node)
$67,682 to $194,087
Stony Plain
(Node)
East: $67,437
Central: $80,557
West: $70,817
North: $61,950

St. Albert
(Node)
$214,346 (Average)St. Albert has 54 separate development areas. Municipal assist is called "demonstrated benefit" and offered most often for water infrastructure, however is factored into some transportation projects based on a case by case basis. 

 Analysis

The methodology for determining off-site levies across the province is varied and the fees range in costs, however in consideration of the information above, if the off-site levies bylaw is implemented without consideration of an assist factor, Medicine Hat will transition from one of the lowest off-site levies in the province to one of the highest, with the fees similar to that of Calgary. 

A Municipal Assist Factor can be favoured in support of growth, development and the addition to the assessment tax base with new development. There is also support for an assist factor as it can be used as a tool to provide incentive for economic activity and job creation. The multiplier affect can also be used in relation to the affordability to the home buyer or end user/purchaser of a development and maintaining lower costs for development and cost of living, resulting in an increased tax base. 

Arguments opposing municipal assist factors include the interference in free market, the factor that development is not paying for itself and an unfair burden on existing tax payers, acting as a subsidy with the potential to alter development in favour of Greenfield compared to Brownfield and reducing property values in existing development. However this opposition can be argued in the same manner and considering slow economic times, government needs to look at an action plan for economic growth and development. This would not interfere in free market, rather stimulate it and create opportunities. Development benefits a municipality through creation of an expanded tax base and ultimately a reduced tax burden because of the growth and share in the tax burden. Economic stimulation, the creation of commercial development and a new residential tax base will ultimately benefit the community as a whole, contribute to the tax base and will motivate, rather than stagnate, growth. If fees increase substantially, growth will halt and therefore there will not be the same level of development and growth and overall will not contribute to the achievement of our Municipal Development Plan. 

With consideration that municipalities vary in their methodology and each determine the benefit and cost to the developer, the City of Medicine Hat must consider all of the implications of increasing the costs and consider the best methodology and best practice for our municipality. 

The current off-site levy rates provided by City Administration are $133,885 with the Municipal Assist, with the increases proposed the percentage change would equate to the following for each node:

Node 1: 257,297 (92.2%)
Node 2: 253,490 (89.3%)
Node 3: 277,439 (107.2%)
Node 4: 186,446 (39.3%)
Node 5: 263,881 (97.1%)
Node 6: 91,411 (-31.7%)

Based on the background and research gathered, there are a few options for the City of Medicine Hat to consider when determining the final results and costs for the off-site levy bylaw. 

Recommendations

In order to remain competitive and to mitigate the increase of levies to developers, as well as to provide a stimulus to the local economy, the Medicine Hat & District Chamber of Commerce recommends that the City of Medicine Hat:

  1. Evaluate and consider the competitive advantage with other municipalities in the province, factoring in both offsite and on-site developer costs and create a comparison chart for marketing purposes to promote the off-site cost advantage. 
  2. Mitigate the percentage increase in the levies by providing either a phased in approach to the increases, a 50% municipal assist (or maintaining the existing Municipal Assist percentage) or removal of one of the levy project areas i.e. Transportation or Water. (Examples included in Schedule A). 
  3. Work to maintain off-site levies as one of the lowest in the province and market the competitive advantage to prospective businesses and developers. 
  4. Consider off-site levies as a means to stimulate development and increase the tax base and the creation of job opportunities. 
  5. Reconsider the application of levies to Brownfield development, particularly related to Intensification and downtown redevelopment, and either consider the levies as part of the downtown incentive program grants or remove Intensification and Brownfield development from off-site costs and consider them on a case by case, adhoc basis with consideration for whether there is an increased demand on off-site infrastructure services for the development proposed. 
  6. Evaluate the node system and whether the six system approach is preferred over a development area by development area basis on the 26 areas identified (similar to St. Albert and the 54 development areas considered). 
  7. Re-evaluate the off-site levies on an annual basis. 
  8. Commence plans to re-evaluate the MDP in consideration of population growth projections or alternatively look at ways to stimulate the economy in order to implement the plans and reach the target projections within the MDP. 
  9. Delay approval of the bylaw until recommendations 1 through 6 have been presented to Council for consideration and information to base their final decision. 
  10. Provide stakeholders with the additional information presented in recommendations 1 through 6 for information and transparency purposes.

Resources

1. The Municipal Assist Factor represents the City’s contribution towards the capital costs for projects that are attributed to growth development. For water and sewer, the municipal assist has been provided from utility rates and for roads and storm water the assist is provided from general revenues/property taxes and grants.
2.  Single System is also referred to by the City of Medicine Hat as the “Postage Stamp” System whereby levies are equally distributed across the municipality and shared equally by all development on a per hectare cost. 


Date Drafted: April 9, 2013
Date Reviewed: April 17, 2013
Date Approved: April 17, 2013
Date Completed: 2013


Schedule A

The following charts show comparisons of what the levies could be for each of these options. The last chart is the summary.

NodeCurrent ProposalRoadsWaterSanitaryStormTotal
1Downtown, River Flats, IXL$30, 530
$93,703$88,522$44,542$257,297
2Burnside, Cancarb, BSBP, River Ridge$88,087$107,164$33,665$24,574$253,490
3Cimarron SW lands, Saamis 7, S Vista 11$114,461$87,138$66,229$9,661$277,439
4Suntech, Airport$40,528$76,382$59,417$10,119$186,446
5Hamptons, Southlands 7, 6C$153,438$50,189$50,643$9,611$263,881
6Ranchlands, 4, 3C$30,530$50,522$10,359
$91,411


NodeTransportation RemovedRoadsWaterSanitaryStormTotal
1Downtown, River Flats, IXL
$93,703$88,522$44,542$226,767
2Burnside, Cancarb, BSBP, River Ridge
$107,164$33,665$24,574$165,403
3Cimarron SW lands, Saamis 7, S Vista 11
$87,138$66,229$9,661$162,978
4Suntech, Airport
$76,382$59,417$10,119$145,918
5Hamptons, Southlands 7, 6C
$50,189$50,643$9,611$110,443
6Ranchlands, 4, 3C
$50,522$10,359
$60,881


NodeWater RemovedRoadsWaterSanitaryStormTotal
1Downtown, River Flats, IXL$30, 530

$88,522$44,542$163,594
2Burnside, Cancarb, BSBP, River Ridge$88,087
$33,665$24,574$146,326
3Cimarron SW lands, Saamis 7, S Vista 11$114,461
$66,229$9,661$190,301
4Suntech, Airport$40,528
$59,417$10,119$110,064
5Hamptons, Southlands 7, 6C$153,438
$50,643$9,611$213,692
6Ranchlands, 4, 3C$30,530
$10,359
$40,889


Node50% Assist
1$128,648.50
2$126,745.00
3$138,719.50
4$93,223.00
5$131,940.50
6$45,705.50


NodeNo Assist50% AssistRoads not includedWater not included
1$257,297$128,648.50$226,767$163,594
2$253,490$126,745.00$165,403$146,326
3$277,439$138,719.50$162,978$190,301
4$186,446$93,223.00$145,918$110,064
5$263,881$131,940.50$110,443$213,692
6$91,411$45,705.50$60,8811$40,889

*Red - lowest cost alternative
Green - 2nd lowest cost alternative

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