Agenda Index City of Vancouver

POLICY REPORT
URBAN STRUCTURE

TO:

Vancouver City Council

FROM:

Director of City Plans in consultation with the General Manager of Corporate Services, General Manager of Parks and Recreation, Manager of Real Estate Services, and the Manager of the Housing Centre

SUBJECT:

Interim City-wide Development Cost Levy (DCL) By-law and Interim City-wide Community Amenity Contribution (CAC) Policy

 

RECOMMENDATION

RECOMMENDATIONS

CONSIDERATION

GENERAL MANAGER’S COMMENTS

CITY MANAGER’S COMMENTS

COUNCIL POLICY

The City collects Development Cost Levies (DCLs) to contribute to the cost of servicing growth in seven areas within the City. Vancouver’s Charter limits spending of these funds to park acquisition and development, daycare, replacement housing, and basic infrastructure (streets, water, sewage and drainage). DCLs must be associated with the needs of new residents and spent within the area of collection. DCL rates vary by planning area and land use.

Since 1989, the City has been requiring community amenity contributions (CACs) for privately-initiated, site-specific residential rezonings downtown. Some rezonings outside this area have also provided a CAC. These contributions provide for amenities needed to support the increased population in neighbourhoods. Council can allocate CACs to any amenity it decides, anywhere in the City.

In 1995, Council adopted CityPlan, which includes the following directions on Financial Accountability: to take a cautious approach to increased spending; use CityPlan directions to redirect the allocation of the City’s budget; and provide more public information on the nature and allocation of City spending. To do this, CityPlan states the City will consider implementation of development costs charges, user charges for environmental services (solid waste, sewer, water) and auto use; and involve citizens in setting budget priorities and selecting Capital Plan projects for consideration.

Flowing from CityPlan, Council has also approved policies to guide city-wide rezonings by adopting:

· Industrial Lands Policies in 1995; and
· CityPlan Rezoning Policy-Before and During Neighbourhood Visioning, 1996.

SUMMARY

Currently, policies to address the costs of servicing new development across the city are not in place. This results in inconsistent and unpredictable treatment of similar developments. This report outlines options for an interim city-wide Development Cost Levy (DCL) District By-law and an interim city-wide Community Amenity Contribution (CAC) policy to provide increased consistency and certainty for new development. A companion report (“A Review of Financing the Costs of Growth”) recommends that staff undertake a broader review of the opportunities for financing growth. The interim measures would remain in-effect, pending the outcomes of the broader review.

Preliminary estimates suggest that the capital costs of growth for parks, daycare, replacement housing and some engineering infrastructure, could be approximately $1 billion. The recommended interim DCL provides a contribution toward these costs from sites which can be developed under existing zoning. The proposed interim city-wide DCL is consistent with existing DCL by-laws. The charges will apply city-wide, except in areas with existing DCL by-laws or for exempted uses.

CACs provide contributions toward the cost of services which result from a rezoning to new and usually more intense use. CACs are different from DCLs in that the City is not obliged to approve rezonings. Whether new development will occur is concluded following a Public Hearing. This means that while the Financing Growth Review is underway Council has several options as to how to deal with rezoning applications:

· Given uncertainty around eventual service requirements and CAC charges, Council could choose, while the study is underway, to not entertain privately initiated site-specific rezonings which occur outside areas with an adopted Public Benefit Strategy. This direction would focus new development on sites already planned to accommodate growth. Council already has policies in place through the CityPlan Rezoning Policy and Industrial Land Policy which can be used to minimize rezonings while the Financing Growth Review is underway.

· An Interim CAC policy could be adopted while the study is underway to provide some contributions toward service costs. This is the recommended direction discussed more fully in this report (Recommendation C and Consideration D).

· New charges may discourage development in a time of slow economic growth. Housing has traditionally served to stimulate the economy. Broader economic issues may, at this moment, be more important to the city than revenue collected during the interim period. In weighing these issues Council may choose to await the outcome of the Financing Growth Review to establish city-wide charges. Consideration “E” offers this choice.

After considering these choices staff propose implementing an Interim CAC policy. The interim city-wide CAC policy is intended to balance two public objectives -- provide a contribution toward the cost of City infrastructure while not discouraging development that may contribute to stimulating the economy. The recommended interim city-wide CAC policy will apply to all privately initiated rezoning applications outside existing policy areas. The approach has two parts -- for standard rezonings a flat rate of $3.00 per sq. ft. would be charged on increased floor space. Non-standard sites (e.g. larger sites and sites changing from industrial to residential uses), would be reported to Council for direction as to whether a flat rate charge should be applied or whether further negotiation should take place on public benefits resulting from a rezoning.

Combined, the interim city-wide DCL and CAC revenue could provide $7 to 10 million annually, or up to 25% of the $1 billion estimated growth-related capital costs (if kept in place for 25 years). Revenues could be increased if the City continues the current policy of negotiating a larger portion of the increase in land values resulting from a rezoning. This is not recommended as a interim policy but is offered for Council’s consideration.

Staff has had some discussions with representatives of industry whom new fees would immediately affect. Industry representatives generally recognize the need to contribute toward services for new development. However, industry has a number of concerns with new fees, including:

· the need for predictability as to any DCL/CAC charges when negotiations on land acquisitions occur. Provided fees are known in advance, they can be factored into the purchase price of land;
· new fees during a time of economic slowdown may further discourage development. Housing has traditionally been an economic stimulator; and
· the need for sufficient lead time before implementing new fees. Developments in process were planned on the basis of development economics which did not include new charges. Where land acquisition has occurred, and in the current economic context, there is little flexibility to absorb additional fees.

The proposed interim DCL and CAC policies attempt to address these concerns by:

· recommending interim DCL and CAC rates that reflect the low end of City experience;
· introducing a flat rate DCL and CAC for most new development; and
· providing a six-month grace period for DCL charges.

The main benefits of an interim DCL/CAC is that the city begins collection of revenue needed to provide services and offset growth-related costs. The market will adjust in a period of slow activity and when the economy picks up the charges will already be in-place. Finally, development charges will be applied consistently city-wide.

BACKGROUND

A variety of issues associated with financing the costs of providing services for residential and employment growth are outlined in a background paper "Financing Growth: Background Information", and in a companion report which proposes a review of financing the costs of growth. This report outlines proposals, under the City's existing Charter authority, to institute interim city-wide Development Cost Levies (DCLs) and Community Amenity Contributions (CACs). These interim policies would remain in-effect while a broader review of long term options for financing the costs of growth takes place.

Under Vancouver’s existing policy, sufficient capacity is available to accommodate the GVRD’s “Livable Region Strategic Plan” (LRSP) growth expectations, which adds 121,000 people and 77,000 jobs, between 1996 and 2021. Council endorsed the LRSP and, in February 1998, adopted a Regional Context Statement Development Plan confirming the City’s commitment to the regional growth strategy. Preliminary estimates of the capital costs for additional infrastructure and facilities to support this growth indicates these costs could exceed $1 billion. More details on this estimate are provided in "Financing Growth: Background Information."

The reason for implementing an interim city-wide DCL-CAC policy is that current practice in Vancouver does not treat new development consistently across the city. This results in similar developments paying a significant charge or nothing at all, depending on whether they are in a DCL area. Developments outside DCL District boundaries are free to use facilities but do not need to contribute to capital costs. Rather than continuing this inequitable situation while the Financing Growth Review is underway, staff propose an interim city-wide DCL that would apply to developments outside existing DCL areas. The City's CAC policy is based on experience with downtown rezonings and does not provide guidelines regarding rates or exemptions. Experience shows the CAC policy is inconsistently applied. Consequently staff is proposing an interim city-wide CAC policy that provides more certainty and consistency.

Based on the current situation, staff developed the following proposals for establishing an interim city-wide DCL By-law and CAC policy.

INTERIM CITY-WIDE DCL DISTRICT BY-LAW

Intent

The intent of the interim city-wide DCL By-law is to:

· increase the supply of DCL revenue to develop capital projects (parks, engineering infrastructure, daycare and replacement housing) in concert with increases in population and employment;
· provide an opportunity for the market to adjust to city-wide charges;
· provide a simple rate structure to allow for easy calculation and administration of charges; and
· treat all new development consistently by applying DCLs city-wide.

Options for Interim DCL Rates

Existing DCLs rates in the city range from 1.90/sq. ft. - $9.36/sq. ft. for residential and commercial developments. In DCL areas with industrial uses, the rate is $2.00/sq. ft. Industrial rates are typically set at 40% of residential and commercial rates.

Options considered for an interim city-wide DCL rate are outlined in "Financing Growth: Background Information". They range from capturing the full cost of required services to various proportions of the cost. A full-cost recovery DCL rate would have a significant impact on land values and many new development projects would not proceed.

Staff recommends an interim city-wide DCL rate based on the lower-end of existing DCLs. The recommended residential/commercial rate is $2.50/sq. ft ($26.90 per sq. m.), and the industrial rate is $1.00/sq. ft. ($10.76 per sq. m.). A rate of $0.51/sq. ft. ($5.49 sq. m.) for daycare and school uses is recommended. This lower-end DCL rate reflects about 15% of the estimated $1 billion growth-related capital costs. Staff believes this rate will not unduly affect development. DCL rates will be reviewed in the broader review of financing growth.

Application of the Interim DCL By-law

The DCL will apply city-wide except in existing DCL Districts, Major Projects and policy plan areas shown in Appendix A. The interim charges would remain in effect until the Financing Growth Review is completed, or until area-specific public benefit strategies, including a DCL by-law, are prepared. All new residential, commercial and industrial development would be charged a DCL at issuance of Building Permit. If new District Zoning Schedules are proposed during the interim program (such as I-3 for High-Technology Industry) staff will report on the applicability of the interim DCL By-law.

Exemptions From the Interim DCL By-law

Based on Section 523D of the Vancouver Charter, some projects would be exempt from DCLs as follows:

· alterations to existing buildings where the total square footage is not increased;
· social housing;
· buildings containing less than four self-contained residential dwelling units and no other use; and
· where the parcel of land is exempt from taxation (i.e., churches).

Timing of the Interim DCL By-law

Inevitably, new charges require the market to adjust and they could adversely affect some projects. In proposing implementation timing for an interim city-wide DCL, staff considered the following:

· Difficulties experienced by projects in process of absorbing new fees.
· Processing times for applications:

· The Ministry of Municipal Affairs “Development Cost Charge: Best Practices Guide.” This guide was prepared in consultation with stakeholders, including the development industry. It suggests a 60 to 90 day grace period from enactment of a new DCL by-law. Previous City DCLs have used a 90-day grace period.

Given these considerations, and particularly recognizing issues associated with economic conditions, staff propose a six-month grace period from approval of the DCL rates. (Recommendation B2, Rates, and Recommendation B6, Implementation).

Payment of the DCL by installment is permitted. Applicants can pay $100 prior to building permit issuance, with the remainder due prior to occupancy, if secured with an irrevocable letter of credit. This means actual payment of the DCL is not required until the project is available for occupancy and the developer may be able to access sales revenue.

Implications of Interim City-wide DCL

The interim city-wide DCL will affect approximately 40% of new residential and 75% of new non-residential (non-industrial) development. It will also affect all new industrial development. This is development occurring outside DCL Districts, major projects and policy areas with public benefit strategies. Approximately 25% of new residential developments are projects with less than four units that are currently exempt from DCLs.

There are three main advantages of the recommended interim city-wide DCL. First it allows the early collection of revenue to start offsetting growth costs. The interim city-wide DCL could generate $5.5 million annually, or approximately $121 million to 2021. Second, it treats new development more consistently across the city. Third, it allows DCL funds to be spent over a wider area of the city.

INTERIM CITY-WIDE CAC POLICY

Intent

The intent of the interim city-wide CAC policy is to respond to the development industry’s preference for the certainty of flat rate charges while recognizing that a few projects present unique opportunities and challenges.

The interim CAC is intended to:

· increase the supply of public benefits (infrastructure, facilities and amenities) in concert with increases in population and employment;
· provide a consistent application to privately-initiated rezoning applications;
· simplify the rezoning process by providing for a flat rate approach that applies to most rezoning applications; and
· ensure that a minimum level of public benefit is achieved from all rezoning applications.

Options for Interim CAC Charges

Between 25 and 30 privately-initiated rezoning applications are received annually, based on the last three years of activity. Of these, almost 50% are rezoning applications within areas with existing CACs or benefit strategies, such as False Creek North, Coal Harbour, Joyce-Vanness and Oakridge-Langara. Another 20% of applications, such as social housing, would be exempt from CACs (exemption guidelines are described below). This leaves 9 or 10 rezoning applications eligible for the interim city-wide CAC charge annually.

Options for an interim city-wide CAC include flat rates, taking a percentage of increased value due to rezoning, and major project approaches under which the developer provides a full range of city services. These CAC options are described in more detail the "Financing Growth: Background Information" paper.

Recommended CAC Approach - Standard Rezoning Flat Rate and Reporting Non-Standard Rezonings

The intent of this approach is to:

· replace the existing ad hoc approach applying CACs to rezonings;
· provide an equitable CAC collection policy for all developments by achieving a basic level of public benefit from all rezonings; and
· recognize that some non-standard rezonings, for example large-site rezonings, generate significant demands for on-site services.

The recommended interim city-wide CAC policy would apply to all privately initiated rezoning applications.

Standard Rezonings: Standard rezonings are typically small projects where the proposal is to increase density for existing uses (e.g. lower to higher density residential) or to provide for a mix of uses (e.g. residential over commercial).

A flat rate of $3.00 per sq. ft. ($32.28 per sq. m.) of the net increase in approved floor space would apply for most rezonings.

The Standard Rezoning Flat Rate approach has a number of advantages:

· provides certainty to the rezoning process;
· simplifies, and in some cases speed up, the processing of rezoning applications; and
· flat rates are supported by development industry representatives.

There are also concerns with the flat rate approach which are addressed by the following proposal.

Non-Standard Rezonings: Some sites provide unusual opportunities or challenges as a result of rezoning. For example:

· Larger sites (e.g., more than 10 acres or four city blocks) can typically provide some desired public benefits on-site.

·Sites in industrial areas proposing a rezoning to residential may be located in areas with few residential amenities. Additional services may be required to support housing. Council already has a policy, through the Industrial Land Strategy, of requiring inquiries for rezoning of industrial land to be reported to Council for direction.
· Sites achieving public objectives (e.g., social housing, Bill 57 housing) may not be able to proceed if a flat rate CAC is collected. Some such sites are listed under exemptions. Since not all exemptions can be anticipated, Council may want a way to address similar sites.

Staff propose the interim city-wide CAC policy have a provision for non-standard rezonings (such as those listed above) to be reported to Council for direction as to whether a flat rate or a negotiated approach should be applied to CACs. Negotiations will be guided by policy plans and city standards for required facilities and infrastructure. Only a small number of non-standard rezonings occur outside of existing policy plan areas.

The advantages of providing the option for negotiating site-specific benefits on non-standard rezonings are:

· The proposed flat rate CAC and DCL covers about one-quarter of the costs of servicing the new development. Council may wish to consider the opportunities non-standard rezonings present to pay a higher proportion of the costs of servicing the new growth; and
· Not all rezonings create large increases in land value. Council may wish to charge a site less than the standard rate if the use being provided meets other public objectives.

Revenue Issues

Council should note the recommended Standard and Non-Standard CAC policy could result in some sites benefitting from significant increases in land value. Under the recommended Non-Standard rezoning policy, staff expects only a few sites would be reported to Council annually. In the past, the City has sometimes negotiated a portion of the increase land value due to rezoning as a public benefit over a wider range of sites.

If Council wishes to continue this practice for a wider range of sites, it could establish criteria where more rezoning applications would be reported to Council for direction. Proposed criteria include: sites larger than 2 acres (0.8 ha); or, change of industrial to residential use; or, sites where a doubling of the density or more is proposed. If Council directs staff to negotiate a portion of the increase in land value due to rezoning, these projects would be subject to economic valuation. Staff would negotiate for the developer to provide 2/3 of the increase in net buildable land value due to rezoning. The value of this CAC would not be less than the combined value of interim DCL and CAC flat rates. Should Council wish to pursue this approach, Consideration D is offered.

Application of Interim CAC policy

The interim CAC policy would apply to all privately-initiated rezonings (including text amendments for additional floor area or residential units) throughout the City, except for existing DCL Districts, Major Projects and policy plan areas with adopted CAC policies. The CAC is calculated on the net increase of approved floor space. The interim policy will apply until the financing growth review is completed, or until area-specific public benefit strategies are prepared.

The process recommended for Non-Standard Rezonings is that they be reported to Council early in the review process (e.g., before any pro-forma analysis or negotiations are undertaken) so that Council can provide direction to staff as to whether opportunities for a negotiated CAC should be explored. Generally, a rezoning would be non-standard if it meets the following criteria:

· site larger than 10 acres; or
· change of use from industrial to residential; or
· projects achieving public objectives not covered by exemption guidelines.

CACs would be paid in addition to the interim city-wide DCL and would be net of desired public benefits provided on-site. They would be payable prior-to zoning enactment or at building permit issuance, if secured by a no-development covenant.

Exemptions From Interim CAC Policy

Some privately initiated, site-specific, rezonings would be exempt from CACs. These exemptions are generally consistent with those provided for DCLs. The interim city-wide CAC will not apply where the application is for:

· text amendments where no increased floor space or units are proposed;
· projects involving social or affordable housing (e.g., non-profit, Bill 57 housing agreements, SNRFs);
· where the parcel of land is exempt from taxation (i.e. churches); and
· floor areas or bonus areas related to heritage preservation.

Timing of Interim CAC Policy

The city-wide CAC would apply to all rezoning applications received after Council approval of the new CAC policy. Rezoning applications in-process would not be affected and would proceed under the previous arrangements. Many of these applications already include negotiations for desired public benefits. Rezoning applications received after Council refers the interim CAC policy to Committee will be advised that they will be recommended for consideration under the new CAC policy, if approved by Council. Staff note that rezoning enquiries have been advised of a possible city-wide CAC since mid-February, 1998. To date there has not been a rush of applications.

Implications of Interim CAC

There are two main advantages of the recommend two-tier, interim city-wide CAC policy. First, it provides certainty and equity regarding CAC charges by establishing a flat rate for all Standard Rezoning applications. Second, it provides a minimum level of amenity contribution from all rezonings. The interim city-wide CAC on Standard Rezonings could generate $2.1 million annually, or approximately $46.2 million to 2021. Additional revenue, or facilities in-kind, would be expected from Non-Standard Rezonings.

FINANCIAL IMPLICATIONS OF COMBINED INTERIM DCL AND CAC

Staff recognize the dilemma that new development creates. On one hand, there are regional benefits to increasing housing choice near jobs and services in the city. On the other hand, new population and employment require additional services. New development has a limited ability to pay the growing number of up-front charges. In addition to City charges, development faces growing regional and provincial fees. As the implications of this layering of charges on development economics are not fully understood, the interim rates have been kept low. The recommend combined flat rate, interim city-wide DCL and CAC is $5.50/sq. ft. for residential/commercial uses and $4.00/ sq. ft. for industrial uses. This rate applies to sites requiring rezoning. The interim DCL rate is low compared to other GVRD municipal rates and existing City rates. Implications of interim DCL rates on typical developments are shown below.

Table 1: Implications of Interim City-wide DCL per Unit/Use

Unit/Use Type

Typical Interim DCL Charge

850 sq. ft. residential unit (condo)

$2,125

1,000 sq. ft. commercial

$2,500

1,000 sq. ft. industrial

$1,000

Table 2 illustrates the type of development affected, the development charge per sq. ft., the amount of new development that would be charged, and the potential annual revenue generated by the interim development charges.

Table 2: Implications of Recommended Interim City-wide DCLs and CACs for Residential and Commercial Development

Type of Development

Interim DCL Rate
$/sqft

Interim CAC Rate
$/sqft

Total Charge
$/sqft

Development Affected

Potential Annual Revenue
($M)

Building Permits Issued Under Existing Zoning

$2.50*

$0.00

$2.50

- 40% residential
- 75% non-residential
- All industrial*

$5.5

Standard Rezonings

$2.50*

$3.00

$5.50

All eligible projects, site less than 10 ac.

$2.1

Non Standard Rezonings

Negotiated

Negotiated

Negotiated

Rezonings on large or unique sites.

variable

* Note: Lower rates are proposed for industrial development.

The interim development charges could generate $7-10 million annually. This estimate of average annual revenue is based on six years of development activity. Individual years will be higher or lower based on development activity. Based on the estimate of approximately $1 billion of growth-related capital costs, the interim city-wide DCL and CAC charges would contribute approximately 25% of estimated capital demands. The proposed financing growth review will focus on the consequences of this gap to future city budgets and services, and on options for addressing growth-related costs.

PERSONNEL IMPLICATIONS

In September, 1996 Council supported regional development cost charges for growth-related sewerage treatment. To address the additional costs of processing and administering the regional charges and coordinate existing DCLs and CACs, Council approved the creation of one full-time Plan Checker and one full-time Clerk IV an annual cost of $120,000, plus a one-time start-up cost of $30,000 for administrative systems. Council also approved an increase in building permit fees for applications which exceed $50,000 in value to offset the administrative costs.

Given the down turned economy, staff anticipate that existing DCL/CAC staff will be sufficient to administer the interim program. Administration costs will be reviewed as part of the Financing Growth Review. If, while the review is underway, development picks up, staff will report back if additional resources are required to provide advice on the DCL/CAC policy and to administer fees.

IMPLEMENTATION & COMMUNICATION PLAN

Staff recommend that if Council approves an interim city-wide DCL and/or interim city-wide CAC, that staff notify the development industry and the general public of the new, interim charges. Staff note that the Planning Department’s “Weekly Planning Update” has identified a pending interim city-wide DCLs and CACs since February 1998. In April, 1998 “Information Bulletin No. 1: Development Cost Levies” was also amended to include reference of potential changes to DCL and CAC policy. Rezoning staff have generally been providing verbal and written advice of possible city-wide charges since February 1998.

Should Council adopt the recommended interim city-wide DCL and/or CAC, additional information will be provided. This may include letters of notification to applications in process, newspaper advertisements, press releases, and inclusion on the city’s Internet web site.

CONCLUSIONS

To address the costs associated with accommodating Vancouver’s anticipated growth, new sources of revenue must to developed. While the broader review is underway, staff recommend implementing an interim city-wide DCL By-law and interim city-wide CAC policy. The interim program would remain in effect until the broader review is completed, or until area-specific public benefit strategies are prepared.

The recommended interim financing actions will begin the collection of development charge revenue to offset the anticipated growth costs. The recommended charges are at low rates relative to existing DCLs in the city and to development charge rates in surrounding municipalities.

Page 1 of 2

DEVELOPMENT LEVY DISTRICT

(a) The boundaries of the Development Cost Levy District should be as illustrated below.

Figure 1. Recommended Interim City-Wide DCL Area Boundary

RATES

(b) DCLs will be collected at a rate of $26.91/m² ($2.50/sq.ft.).

RATE ADJUSTMENTS

(c) Review rates annually with other Development Levy rates in the City and make rate adjustments based on this review.

REDUCED RATES

(d) Establish a rate of $10.76/m² ($1.00/sq.ft.) for industrial uses.

(e) Establish a rate of $5.49/m² ($0.51/sq.ft.) for daycare and school use.

EXEMPTIONS

(f) Exempt renovations defined as “changes to an existing building not involving additional floor space.”

(g) Exempt social housing defined as “housing which is built on land owned by the Federal, Provincial, or City government, cooperative housing group or non-profit society and which is in receipt of government shelter subsidy where at lease 30% of the units are occupied by core need residents.”

(h) Exempt buildings which will contain three or fewer dwelling units which are put to no use other than residential.

(I) Exempt churches which have tax-exempt status.

SECURING PAYMENTS

(j) Permit payment of DCLs by instalment, with $100 due prior to issuance of a building permit, the remainder due upon issuance of an occupancy permit, to be secured by an irrevocable letter of credit.

SPENDING OF PROCEEDS

(k) Require that DCL proceeds be spent within the levy district so that they benefit levied projects directly or indirectly.

RECONCILING DCLs WITH ON-SITE PROVISION OF PROJECTS

(l) Where capital projects funded by DCLs are provided on-site as part of a rezoning or development application, this should be on prior approval of City Council and should not be in lieu of payment of DCLS.

(m) Where DCL contributions are approved by Council to be provided “in-kind” on-site, and funded in whole or in part by the application or owner of the site, the City will reimburse the applicant or owner for the cost out of the DCLs paid.

* * * * *

ag981208.htm

Comments or questions? You can send us email.
[City Homepage] [Get In Touch]

(c) 1998 City of Vancouver