SUPPORTS ITEM NO. 3
CS&B COMMITTEE AGENDA
SEPTEMBER 26, 1996
ADMINISTRATIVE REPORT
Date: September 12, 1996
TO: Standing Committee on City Services and Budgets
FROM: Director of Finance, Director of Community Planning
and Director of Permits & Licenses
SUBJECT: Regional Development Cost Charges
RECOMMENDATION
A. THAT the City commence the administration and collection of
regional development cost charges to offset growth-related
sewerage treatment costs, to be effective following approval
by the GVRD Board and the Provincial Government.
B. THAT Council approve the creation of one full-time Plan
Checker and one full-time Clerk IV at an annual cost of
$120,000 subject to job evaluation by Human Resource
Services, plus a one-time start up cost of $30,000, to
administer regional development cost charges.
C. THAT building permit fees for applications which exceed
$50,000 in value be increased by 5% to offset the
administrative and systems costs.
D. THAT the Director of Legal Services be instructed to prepare
the necessary By-law amendments accordingly, to be effective
concurrently with the introduction of regional development
cost charges.
E. THAT upon approval of this report, the Director of Permits &
Licenses notify the construction industry and the general
public of the new regional develop-ment cost charges and
building permit fees.
F. THAT the General Manager of Community Services report back
on the impacts of regional development cost charges on the
City in approximately one year after its implementation.
GENERAL MANAGER S COMMENTS
The General Manager of Community Services RECOMMENDS approval of
A, B, C, D, E and F. The City now has several DCL areas with
varying rates, each tailored to area-specific factors, while the
majority of City does not yet have DCLs. The layering of the
regional DCC now, and the potential for other similar charges to
be added in the future, may jeopardize the City's ability to
achieve its policy objectives for urban development within
existing DCL areas and future redevelopment areas. These
implications require monitoring and further analysis which could
lead to the need to identify alternative financing approaches to
raise equivalent revenues.
COUNCIL POLICY
There is no Council policy with respect to regional development cost
charges. However, on January 17, 1991, Council resolved that every
department/board review services for which fees are now charged to
ensure full cost recovery, or that fees are equivalent to competitive
charges where the fee is of a market nature.
PURPOSE
This report provides Vancouver City Council with an update on the
status of regional development cost charges prior to consideration of
a By-law by the Greater Vancouver Regional District (GVRD) Board of
Directors on October 4, 1996 and proposes additional staff resources
and offsetting fee revenues to administer the program. It is
anticipated that for the City this funding source will allocate $4
million in growth-related costs to new development, rather than impose
higher taxes on existing properties.
BACKGROUND
The GVRD Board approved a cost allocation agreement in 1994 that
included a direction to municipal and regional staff to consider the
viability of regional development cost charges (DCCs) in funding the
growth portion (i.e., costs to provide additional capacity to handle
future growth) of the sewerage capital construction program. This
growth portion includes a share of the secondary treatment upgrades
from January 1, 1995 both the regional (70%) and local (30%)
components, together with a number of primary infrastructure projects
which are largely caused by growth. The investigation commenced in
January 1995 and was co-ordinated by a Task Force of the Regional
Finance Advisory Committee (RFAC).
The RFAC Task Force delivered its initial report in late 1995,
concluding that a regional DCC for sewers was viable. It proposed
that to ensure the success of such a charge, it was important that the
governing legislation be strengthened, particularly to more clearly
authorize the regional charges. Also recommended was the inclusion of
some form of "opting out" such that a municipality could substitute
revenues from other sources in lieu of levying a regional charge on
development.
The report from RFAC was approved by the Regional Administra-tive
Advisory Committee in November, 1995, and by the Greater Vancouver
Sewerage and Drainage District (GVSDD) in December, 1995. The
Provincial Government subsequently amended the GVSDD Act in July, 1996
to authorize a regional development cost charge. In the interim, the
costs of growth in both 1995 and 1996 have been included in the annual
requisitions to the member municipalities.
DISCUSSION
On October 4, 1996, the GVRD Board will consider a By-law which will
require the GVRD's member municipalities to levy and collect a
regional DCC on new development. If approved by the GVRD, the By-law
would take effect following review by the Provincial Government, with
implementation to take place immediately following fourth reading by
the Board. This might be in November or early in 1997.
Regional DCCs will have the effect of shifting those sewerage costs
related to growth from the current users of the system to an upfront
charge on new development. There will be an increase in development
costs for both private and public projects. While the legislation
allows Council to "opt out" of regional DCCs, this does not eliminate
the administrative requirement and raises significant financial
implications, both of which are discussed later in the report.
Under the proposed By-law, regional DCCs are payable at the time of
residential subdivision where 4 or more building lots are being
created or at application for a building permit in the case of 4 or
more multiple dwelling units. Commercial, industrial and
institutional regional DCCs are to be collected prior to issuance of a
building permit.
The following rates are proposed for the Vancouver Sewerage Area:
- Single Family $973 per lot
- Townhouse 852 per unit
- Apartment 608 per unit
- Commercial 456 per 1,000 sq. ft.
- Industrial 456 per 1,000 sq. ft.
- Institutional 456 per 1,000 sq. ft.
As with the City's development cost levies, various developments will
be exempt from regional DCCs. These include:
- Buildings exempt from taxation under Section 398 of the
Municipal Act.
- Developments with less than 4 units or building lots.
- Developments where the building permit value is less than
$50,000.
- Interior or exterior renovations which do not increase
demand on services.
Except for those developments which are specifically exempt, as listed
above, all other developments will be required to pay the regional
DCC. Therefore, a number of developments that are exempt from the
City's development cost levies will be required to pay regional DCCs,
such as institutional development, schools, hospitals, social housing
and day care (which pays a nominal levy). The City, by By-law, has
the authority to exempt any development from the regional DCC provided
that equivalent revenues are forwarded to the GVRD.
ADMINISTRATIVE REQUIREMENTS
Under the proposed By-law, the City will be deemed to be the collector
of regional DCCs on behalf of the GVRD in the City of Vancouver. At
the subdivision and building permit stages, the City will be required
to review development activity and levy the regional DCCs, where
appropriate.
The City will be collecting regional DCCs on behalf of the GVRD and
the legislation indicates that the City will be subject to an audit.
Should the City fail to collect all the revenues required under the
By-law, the City will be financially responsible to cover the lost
revenues some other way.
The draft By-law requires that the City remit regional DCCs to the
GVRD on a semi-annual basis and maintain a record of all development
activity. A separate accounting must be provided for as the regional
DCCs are collected.
The legislation and By-law require the City to be diligent in all
areas of administering regional DCCs, particularly plan checking and
financial reporting. Without reducing service levels in other areas
of Planning and Permits & Licenses, it is necessary for Council to
allocate funding to establish and maintain an administrative system.
STAFFING IMPLICATIONS
For many municipalities in the GVRD, the implementation of regional
DCCs will be easily co-ordinated with existing municipal DCCs which
are levied on all new development, although it will involve a new
level of review. However, since there is not a city-wide system in
Vancouver, the introduction of regional DCCs requires a new
administrative system.
The legislation allows any member municipality to "opt out" of
charging a regional DCC, but an equivalent payment in lieu must be
made. This payment requires a municipality to undertake the same
level of plan checking review in determining actual development and
thus the amount payable. Therefore, there is little opportunity to
save on administrative costs if the City were to "opt out".
To comply with both the legislation and By-law the City will likely
have to review all development applications in excess of $50,000 in
value to determine if a regional DCC is payable. Staff have
anticipated that this would require commercial plan checkers to review
between 1,800 and 2,400 development applications in a given year.
This can be compared against our current development cost levies which
require the City to review about 10 - 25 applications per year in only
five areas of the City, including:
- Downtown South
- Arbutus Industrial
- Burrard Slopes
- Dundas Wall
- Oakridge Langara.
The application review for regional DCCs is potentially discretionary
and complex since it may apply to alterations and renovations. This
will occur where, for example, the plan checker determines that there
is a change of use, increase in floor space or other factor that will
increase demand on the sewerage system. The Director of Permits &
Licenses anticipates that each application will require an additional
30 minutes of staff time to process. This would require the addition
of one full-time Plan Checker to maintain customer service level.
A substantial part of the administration will relate to the accounting
and reporting of regional DCCs. As part of this the City will allow
developers to pay by installment and thus staff must spend
considerable time monitoring letters of credit. As well, an annual
review of regional DCCs will mean on-going liaison with the GVRD. The
Directors of Permits & Licenses and Finance are of the view that given
present staffing there will be a need for one full-time Clerk IV to
act as a development cost charge co-ordinator.
The cost to establish this system will be a one time systems and
office renovation cost of $30,000 and $120,000 on-going for staffing.
To ensure full cost recovery in accordance with Council policy, it is
recommended that the administrative costs be offset by an increase of
5% to building permit fees for all applications where the construction
value exceeds $50,000, as shown in Appendix I. A comparison of
building permit fees across the region is provided in Appendix II.
The Director of Permits & Licenses has reviewed building activity for
the last three years and is of the view that based on a conservative
projection a 5% increase in fees will generate approximately $120,000.
FINANCIAL IMPLICATIONS
Regional DCCs allow approximately $4 million of growth-related
regional sewerage costs in the City of Vancouver to be paid by new
development rather than existing properties. This approach follows
the principles of user-pay and is considered a more equitable approach
than raising taxes. However, there is an "opt out" provision to allow
a municipality to continue with the current system or other means
(i.e., property taxes, utility charges) to pay the sewerage costs.
It is envisioned that if the City wishes to "opt out" the funds for
the payment in lieu will come out of property taxes until the sewer
utility is in place.
Staff recommend that the City collect the regional DCC from new
development rather than "opt out". At a future time the City can
still exercise the this provision should it be found that regional
DCCs are having negative impact on planning or other city objectives.
DEVELOPMENT IMPLICATIONS
The overall long term implications of the regional DCC on development
in the City is highly speculative. However, the following are some
potential implications that Council may wish to consider.
The regional DCC exclusion of projects with less than four units
creates an inequity between larger and smaller projects. There is
significant growth potential in projects of less than four units in
the City. These projects, too, will add to sewerage demand and this
could result in the need to raise the regional DCC charges on larger
projects to cover the costs of all new growth. The implications of
this will need careful monitoring and consideration in any new zoning
district schedules that may be needed to implement CityPlan's
Community Visions Program. The exclusion may also lead to the market
favouring smaller projects which, in the long-term, would affect the
range of unit-types available.
The regional DCC is levied on a per unit basis for residential uses,
rather than on a square metre basis. This method of calculation could
lead to a bias toward a fewer, larger units to reduce the DCC payable.
These larger units would be more expensive, which works against the
City's objective of encouraging more affordable housing.
Another possible effect of a regional DCC is a slow down of new
development where project feasibility in today's market is marginal.
This is a temporary effect and over time the land market will adjust
to the new charges. As the DCC is regional, it should not have the
effect of displacing development from the City to the rest of the
region.
However, within the City's DCL areas, the regional DCC will have a
layering effect, similar to tax base crowding. Each of these DCL
areas has a different DCL rate which is based on detailed assessment of public benefit demands and area-specific economic analysis,
including the ability of new development to pay. The combined charges
will likely not only slow down new development but, will also slow
down DCL revenue collection which is intended to provide new public
amenities. In some other areas, the regional DCC may limit the City's
ability to charge DCLs as this layering could make new development
economically infeasible.
New development has a limited ability to pay development charges and
there is an increasing number of agencies seeking the authority to
levy such charges. In the longer-term, this may cause the City to
consider an alternative financing mix of regional DCCs and DCLs or new
revenue sources to finance neighbourhood amenities.
The inclusion of social housing in the regional DCCs should not have a
dramatic impact on the delivery of this housing type. However, staff
note that social housing is excluded from the City's DCL charges and
that consistency between these charges is desirable.
In summary, introduction of a regional DCC will have a number of
impacts on the City. As the regional DCC rates increase, any negative
effect they have would be magnified. Further analysis is required and
a re-evaluation of these, and other issues, is needed after the DCC
has been in place for a period of one year.
There are also a number of administrative and definitional issues
related to the regional DCC that staff have identified. Some of these
suggest wording changes to the draft By-law, others are interpretive
and could be worked out in the "Practices and Procedures Guide" which
will be prepared by the Provincial Government after the By-law is
enacted. These issues are described in Appendix III.
PUBLIC CONSULTATION
The GVRD is not required to undertake a public hearing process as part
of the adoption of the By-law. However, the GVRD, through the
Strategic Planning Committee, has met with representatives from the
development industry on several occasions to receive and discuss
industry comments. Broader consultation with the public has not taken
place.
CONCLUSION
Regional DCCs allow the City to collect that portion of growth-related
sewerage costs from new development rather than property taxes. The
requirement for collection, accounting and reporting requires that the
City put an effective administra-tive system in place. Staff have
estimated that there would need to be a one time start up cost of
$30,000 to adjust current systems and undertake office renovations.
Based on the high volume of development applications the staffing cost
of this system would be $120,000. Cost recovery will be ensured by a
5% increase to fee for all building permit applications which exceed
$50,000 in value. At the end of 1997 Staff propose to update Council
on regional DCCs and advise whether the "opt out" provision should be
exercised.
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