POLICY REPORT
URBAN STRUCTURE

TO:

Standing Committee on City Services and Budgets

FROM:

Director of Current Planning in consultation with the General Managers of Engineering Services and the Park Board, and the Directors of Finance, Social Planning, and Legal Services

SUBJECT:

False Creek Flats - Area-Specific Development Cost Levy

 

RECOMMENDATION

(ii) 26.7% of the total ($0.80 per sq. ft.) for park requirements
(iii) 10% of the total ($0.30 per sq. ft.) for childcare requirements.

D. THAT, following the adoption of the False Creek Flats area-specific Development Cost Levy, any increase proposed to the city-wide Development Cost Levy other than for inflation be considered with respect to the overall total of levies charged and the potential impact on development in the False Creek Flats.

GENERAL MANAGER'S COMMENTS

CITY MANAGER'S COMMENTS

COUNCIL POLICY

· On December 8, 1998, Council approved city-wide policies on Community Amenity Contributions and Development Cost Levies (DCLs) to apply to new development as of January 28, 2000. For DCLs, the interim rate was set at $26.91 per m² ($2.50 per sq. ft.) for all uses except: 1) non-residential uses in industrial zones, for which a rate of $10.76 per m² ($1.00 per sq. ft.) was set, and 2) daycare and school use at $5.49 per m² ($0.51 per sq. ft.).

· On April 13, 1999, Council resolved to establish an area-specific DCL for the area proposed for I-3 zoning in the False Creek Flats.

· On July 20, 1999 Council established a boundary in principle for the area-specific DCL for the False Creek Flats.

PURPOSE

The purpose of this report is to establish an area-specific DCL for the False Creek Flats, including a boundary, rate and spending strategy.

BACKGROUND

A DCL is a charge levied by the City on new development. It is charged on a per-square-foot or square-metre basis for floor area added through new development. The collected money is used to fund growth related costs of infrastructure, park, childcare facilities, and replacement housing. Under the Vancouver DCL By-law, a city-wide DCL with an interim rate of $1 per sq. ft. is currently charged for all new non-residential development in the City's industrial zones to finance the costs associated with growth.

The area-specific DCL proposed for the False Creek Flats would be an additional levy on top of the city-wide DCL. The area-specific money is also pooled in a fund like the city-wide DCL, but it is held in reserve for capital projects that occur within the I-2 and I-3 districts of the False Creek Flats. (See the proposed Flats DCL boundary in Appendix A.)

The Flats has been identified as an area in need of its own DCL because the new high-tech development, anticipated under the I-3 zoning, is of much higher intensity than that which has existed before. Being an area that has catered to transportation and downtown-serving industrial uses, the Flats has a history of low intensity development and employment. The existing utility infrastructure and road network is not capable of supporting the new development without substantial upgrade. In 1999, during the I-3 zoning initiative, Council was apprised of these deficiencies and resolved that an area-specific DCL should be established for the Flats, but only after an economic analysis of impacts on development was undertaken. Staff were also directed to report back on the general policy of assessing park and childcare requirements in industrial areas. This report was not tied to the proposed False Creek Flats DCL.

DISCUSSION

When considering a DCL for the Flats in 1999, Council also considered a recommendation from the City Manager to set the rate for the area-specific DCL at $2.00 per sq. ft. to be used entirely for infrastructure upgrades (roads, sewers, water). Before deciding on a rate and on whether it would be used just for infrastructure, Council wanted the benefit of an economic analysis that did the following:

· assessed the financial impacts of any levy on industrial development in the Flats;
· compared potential rates to charges levied on industrial development in other municipalities; and
· analysed whether increased tax revenue could pay for increased amenities and upgraded infrastructure.

1. Economic Analysis

In response to Council's questions, a consultant was hired (Coriolis Consulting Corp.) to undertake the economic analysis. In particular, Coriolis was asked to analyze the impact on high-tech industrial development with regard to:

· the ability of redevelopment projects to pay;
· the effect on the creation of high-tech space; and
· the impact on Vancouver's competitive advantage and disadvantage relative to other municipalities.

Because of the need to coordinate the work between the Flats area-specific DCL and the city-wide DCL, the completed economic analysis was not delivered until late January 2001. A copy of this study is available for review at the City Clerks office. The study specifically addresses the following questions:

Who really pays the cost of development levies?

Assuming that they are not paid for by developers, are DCLs passed back to landowners in the form of lower land values? Or are they passed forward to end users in the form of higher prices or rents? The conclusion was that, when levies are relatively low compared to land value, they are in fact passed back to the landowners in the form of lower land values. If the levy is in the order of 10% of the land value, it is very unlikely that this would cause owners to withhold their land from the marketplace and forgo other investment opportunities with the sales revenue. As well, it is important to note that improvements to the area, from redevelopment and from the infrastructure upgrades financed by DCLs, should result in a future land value higher than before the levy.

Would the establishment of a levy in the Flats cause businesses which would otherwise have located in Vancouver to go to other areas, such as Burnaby and Richmond?

The conclusion was that a Flats DCL would not have significant effect on locational decisions of firms. Vancouver land prices are already relatively high in relation to Burnaby and Richmond. Given the success of locations likeYaletown, it is clear that some firms are willing to pay a higher price to be in a central, high-amenity location. In fact, to some extent locational decisions are independent of development cost levies. For example in Burnaby there is no DCL, while in Richmond the levy rate is between $2 and $3 per sq. ft. In spite of this, Richmond has had significantly higher industrial growth and almost double the rate of office growth (mostly high tech) experienced by Burnaby. Growth in Vancouver, on theother hand, had been held back by the lack of vacant, good quality, and appropriately zoned land, until the advent of I-3 zoning.

How much should be charged?

It must first be noted that any area-specific DCL applied to the Flats would be in addition to the already existing city-wide DCL rate of $1 per sq. ft. for industrial redevelopment.

Considering that the City anticipates between 6 and 7 million sq. ft. of redevelopment within the approved boundary, a rate of $4.94 per sq. ft. would recover the $32.6 million currently estimated as the costs for infrastructure, park and childcare. If the rate were limited to cover only the required infrastructure upgrades, the amount would be more in the order of $3.00 per sq. ft.

When Coriolis compared the proposed rate for the Flats with those in other jurisdictions, they found a rate of up to $2 per sq. ft. was consistent with what is charged elsewhere. However, when considering overall financing costs for high-tech developments, the impact of a DCL was found to be relatively minor weighed against other factors. Coriolis concluded that a DCL total rate of up to $4.00 per sq. ft. would have little effect on decisions as to whether to locate in Vancouver or not.

Considering the above, and balancing the infrastructure requirements with the City's desire to remain competitive in the marketplace, it is Coriolis's recommendation that the area-specific DCL rate for the False Creek Flats be in the range of $2 to $3 per sq. ft. (in addition to the city-wide levy of $1).

It is further recommended that the rate should not vary across the designated area, which includes I-2 and I-3 districts, because: 1) they share a number of uses; 2) they have the same maximum density; and, 3) the amount levied would be proportionate to the size of development proposed regardless of the zoning, such that the higher density developments (which create most of the infrastructure demand) will and can pay more, while the more conventional light industrial and city-serving uses will pay less. The levy would only be charged for new development, so existing buildings can be reused without incurring DCL costs. This should help those types of firms which are suitably housed in the existing industrial building stock, such as warehousing operations. The only exception would be land used for childcare and school uses, and land used for public purposes (such as the City and Park Board works yards) where a rate of $.10 per square foot would be charged.

Can future property taxes fund the necessary upgrades?

Coriolis notes that only about 20% of collected property tax goes to capital projects, and of this, only a small portion is available for new infrastructure or other growth-related capital projects. In the False Creek Flats, significant upgrading is required to allow for new development and the anticipated extra tax revenue available for infrastructure in this area is expected to cover only a small amount of the costs. Indeed, since tax revenues go into the general fund, it is difficult to say how much of future Capital Plan programs will be allocated to the specific needs of the Flats. An area-specific DCL is a much more focussed financing tool which will provide more certainty that the planned upgrades will be implemented.

2. False Creek Flats Structure Plan

Over the last few months, the efforts of a multi-disciplinary staff team have resulted in a plan for a new urban structure for the Flats. While this is a subject of a companion report, more clarity around the future structure of the Flats and worker densities has given staff an opportunity to re-assess the estimates done in 1999 for the infrastructure upgrades, and for the park and childcare requirements.

Infrastructure requirements

The proposed structure plan will result in more roads and a more urbanized grid structure than initially thought in 1999, adding significant land acquisition costs to the original estimate. While the majority of this new plan will be achieved through the subdivisions of the Finning and CN sites, there are still some streets that will require direct purchase. Sewer and water services have remained reasonably consistent with past estimates, with some additional relocation costs resulting from the plan.

As a result, the $14.3 million estimated in June of 1999 has been increased to $20 million to cover the necessary infrastructure upgrades. This amounts to about $3 per sq. ft. over the anticipated developable floor area. Because full cost-recovery is not permitted under a DCL by-law, because there are other priorities for DCL funds and because other funding sources such as the Capital Plan are available, an amount of $1.90 per sq. ft. is recommended to be contributed for infrastructure upgrades in the Flats. This rate represents 63% cost recovery, which is substantially higher than the City-wide DCL, where the interim rate is minimal.

Park Requirements

Research for the Financing Growth Review notes that, while the park standard in the City of Vancouver is based solely on residential population, workers also use parks. For example, in mixed-used areas, surveys show from 30% to 60% of park use comes from workers. In addition, as office and high-tech uses have more people per sq. ft. than residential, it can be argued that their park use is even higher. As a consequence, charging a DCL on employment space to help pay for park reflects the city-wide DCL policy and actual park use.

Option 1: No Additional Park Requirement for the Flats
While the city-wide DCL allocations are currently under review, an interim amount of $0.54 of the $1 per sq. ft. has been tentatively assigned for park purposes. This allocation will likely change. One strategy for the Flats would be to not collect any additional money for parks as part of the area-specific DCL. However, there is no assurance that any city-wide DCL money will be spent on parks in the Flats.

Option 2: Consider the False Creek Flats as a Unique Place
A number of factors come together in the Flats to suggest that another approach may be warranted. First, there is the urban structure plan which will over time transform a large-site, low-intensity, industrial area into an integrated urban place for both high-tech and city-serving industries. A crucial component of the urban structure plan is the strategic location of the major new park. Second, the nature of the industrial workplace is shifting away from physically demanding jobs towards more desk-bound jobs. This phenomenon is especially apparent in the high-tech industries, creating the need for workers to have active recreation opportunities like playing fields close to the workplace. Third, the sheer number of potential jobs to be created in the flats - up to 30,000 compared to the existing 3,000 jobs - combined with the scarcity of established recreational sites and green space in the Flats argues in favour of collecting DCLs to acquire and develop park land in this area.

The subdivision of the CN lands will eventually provide 4 acres of park in a location which has been informed by the emerging structure plan. This will be supplemented by an additional City property acquisition adjacent to this location which would also provide a required road. There are currently no funds allocated for property acquisition and park implementation. The total cost of developing this park, including half the cost of the City's aforementioned property purchase, is about $6 million. In the distant future, additional park land may be acquired in the eastern portion of the Flats, as indicated in the urban structure plan, creating a series of park blocks between the two east-west boulevards. This will depend entirely on the priorities of both Council and the Park Board at a time in the future, but could represent a cost fundable by the area-specific levy.

Thus, considering the needs of high-tech workers, the importance of park space in the emerging urban structure plan and the need for funds, staff recommend that an amount of $0.80 per sq. ft. be set aside for both park acquisition and development. This amount would result in almost 90% cost recovery of the current funding requirements, not counting the easternmost park blocks.

Childcare Requirements

While city-wide DCL allocations are under review, the tentative figure for childcare is $0.05 of the $1 per sq. ft. interim rate, a figure based on past experience with other DCLs. Unlike park, there is an existing policy to calculate and charge childcare requirements for both commercial and industrial developments.

In commercial developments, mainly in the downtown, childcare facilities have been negotiated or a contribution has been realised through the rezoning process. In industrial developments a childcare requirement has been assessed, but thus far the amount calculated has been so low that it has not triggered the requirement of any facilities. With the change from primarily light industry to the more labour intensive high-tech industry, a more significant childcare requirement is created. Not only are there typically more employees per sq. ft. in high-tech industrial use than in light industrial use, but high-tech workers are generally younger, particularly those involved in software development, and are at an age where families and children may become important.

Prior to the Finning rezoning, the City's Childcare Co-ordinator reviewed childcare demands of urban high-tech developments and confirmed the City's standard of one childcare space per 100 employees. The Finning rezoning, for which an agreement is in place, requires a 56-space childcare facility to serve the needs of 6,000 employees.

Option 1: No Additional Childcare Requirement for the Flats
Council could, under existing policy, continue to require childcare through the rezoning process, noting that much of the False Creek Flats has already been rezoned to I-3 and that further major rezonings are not anticipated. Nonetheless, there will be a portion of citywide DCL's set aside for childcare (currently 5%) and not assessing an additional charge in the Flats is an option.

Using the City's standard of one space per 100 employees and an estimated 24,000-employee population (not including Finning), the Flats would create an overall need for 240 childcare spaces. This represents four facilities at a total capital cost of $6.6 million, plus land. As there is no guarantee that city-wide funds will help provide childcare in the Flats, there willalmost certainly be significant ongoing pressure on the already limited resources of existing downtown childcare facilities and on the Flats' employees.

Option 2: Consider the False Creek Flats as a Unique Place
While we are still learning about just what high-tech industry will be in a more urbanized False Creek Flats, we do know that high-tech workers create childcare demand. Generally, developers state that, because of the importance of retaining employees, should childcare become an issue for them, the companies look to provide it. However, in the staff review undertaken prior to the Finning rezoning, it was noted that there were no known Canadian examples where high-tech firms had voluntarily provided childcare.

Thus, noticing potential demand for childcare services created by the large growth and worker density of this area, staff believe that childcare should be considered within the Flats DCL. Approximately $2 million could be generated by putting aside $0.30 of the area-specific DCL. This amount would represent a 69-space childcare facility, while this is still far short of the anticipated demand, it represents a major step in providing childcare in the False Creek Flats.

Staff recognize that the childcare shortfall cannot be fully met through DCLs. Without the tools available through rezoning, the childcare demand will have to be met through a combination of DCL revenues (approximately 30% cost recovery), voluntary provision by employers, and as funds become available, through the City's ongoing capital investment in downtown childcare facilities.

3. Overall Total

As already noted, any area-specific DCL in the Flats would be charged on top of the city-wide DCL. As a result, a Flats levy of $3.00 per sq. ft. would add up to a total of $4.00 per sq. ft. in DCL payments based on the current interim city-wide rate. The Coriolis study has suggested that this total is a reasonable amount for development in the Flats to pay.

The work on financing growth in the rest of city is still in progress and the city-wide DCL rate may be adjusted. If it is increased, for other than cost-of-living reasons, the increase should not automatically be applied to the Flats without considering the results of the Coriolis study and the potential impact on development.

4. Property Owners Meeting

On February 5, 2001, a meeting was held with property owners within the Flats area-specific DCL boundary previously approved by Council. Over 50 letters of invitation were sent out and about 15 property owners attended the meeting. The discussion focussed not only on the economic analysis, but also on the emerging structure plan.

Generally, property owners appear satisfied with the fact that monies collected would be spent on infrastructure and park amenities within the Flats area. While there was some concern regarding an initial lowering of property values, this was balanced with an understanding that, over time, a phased implementation of the structure plan would likely result in increased property values.

CONCLUSION

After assessing infrastructure, park and childcare requirements, and examining worker densities along with the goals for the Flats expressed by the emerging urban structure plan, staff recommend that the area-specific DCL be set at a rate of $3.00 per sq. ft. to be allocated as follows: 63.3% of the total ($1.90) for infrastructure upgrades; 26.7% of the total ($0.80) for park requirements; and 10% of the total ($0.30) for childcare requirements.

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APPENDIX A
Page 1 of 1

FALSE CREEK FLATS - PROPOSED DEVELOPMENT COST LEVY (DCL) BOUNDARY