Agenda Index City of Vancouver

POLICY REPORT

URBAN STRUCTURE

Date: April 8, 1999
Author: A.McAfee /7451
RTS File No.668
CC File No.1755
Council: April 13, 1999

TO: Vancouver City Council

FROM: Director of City Plans in consultation with the General Manager of Engineering Services and the Director of Legal Services

SUBJECT: I-3 Community Amenity Contributions and Development Cost Levies

RECOMMENDATIONS

GENERAL MANAGER'S COMMENTS

The General Manager of Community Services recommends approval of A, B, and C, noting that proceeding expeditiously with area specific DCL by-laws will be essential for achieving some cost recovery for the City. The General Manager of Engineering Services must caution Council on the substantial servicing costs of these largely underdeveloped areas. The risk arises if a significant amount of development occurs as a result of I-3 rezoning and there are no arrangements to finance up-front servicing

costs. In this event, the general taxpayer may be exposed to substantial costs. While future DCLs and subdivision agreements may, in part, address this financing issue, normally the cost of servicing is addressed at the time of rezoning. This report includes information about the estimated $28.3 million required to service the portion of False Creek Flats referred for rezoning to I-3. The issue of servicing costs also arises for the Bentall site where, if the applicant does not offer to contribute infrastructure, road, and traffic improvements, I would recommend Council not approve the rezoning. If further I-3 development in Grandview-Boundary proceeds, as proposed, through owner-initiated rezonings then engineering services can be negotiated as a condition of rezoning.

COUNCIL POLICY

New residential and employment growth results in increased demands for city services. On December 8, 1998, Council approved a review of financing the costs of growth. As first steps:

On January 28, 1999, Council approved an Interim city-wide Community Amenity Contribution (CAC) policy to apply to all privately initiated rezoning applications received as of December 8, 1998. The CAC policy is attached as Appendix A.

On January 28, 1999, Council approved an Interim City-wide Development Cost Levy (DCL) to take effect on January 28, 2000. As of that date, new development, constructed under existing zoning, will be required to pay a DCL. The DCL areas and rates are attached as Appendix B.

PURPOSE AND SUMMARY

On February 25, 1999, Council referred to Public Hearing, a proposal to create a new District Zoning Schedule (I-3) to permit a wide range of high technology activities. Council asked staff to report on Community Amenity Contribution (CAC) and Development Cost Levy (DCL) requirements to provide a contribution toward upgrading the infrastructure, services, and amenities in I-3 areas.

In developing a CAC/DCL policy for I-3 staff considered two key issues:

… The City wishes to encourage high technology jobs. A high CAC/DCL charge, combined with high city land costs could discourage new employment opportunities associated with I-3 development; and

… The I-3 District Schedule will result in increased worker densities since information technology development is more like commercial-office uses than traditional industrial forms. As worker densities increase, infrastructure may need to be up-graded (e.g. new sewer and water trunk lines, road paving, lighting, and traffic controls) and workers may desire amenities and services such as open space, transit, and day care.

The City has developed a number of ways to finance costs associated with new development. These include CACs, DCLs, and servicing agreements as a condition of rezoning and/or subdivision. The recently adopted interim city-wide CAC/DCL policies apply to rezonings and new development. Because these policies are new, and I-3 is a new use form, some interpretation of the rates is possible.

Two I-3 DCL/CAC options are outlined in this report:

1. Maximizing recovery of service costs from I-3 development. This could include collecting a $3.00 CAC on the increase in high technology floor space associated with I-3 and charging the commercial/office DCL rate of $2.50 per square foot for I-3 development. This potentially brings in the most immediate funds but may discourage high technology jobs; or

2. Gaining experience with I-3 development before establishing I-3 CAC/DCL rates. This could include charging the city-wide industrial DCL rate of $1.00 per square foot for I-3 development while we gain experience with high technology uses and review servicing requirements in False Creek Flats and Grandview-Boundary. This may encourage high technology jobs to locate in the city. However, it potentially places demands on other city revenues to cover servicing costs and leaves uncertainty in the market as to possible future charges.

After considering the options, staff propose a variation on Option 2 which includes:

… Not requesting a CAC for applications to rezone from I-2 to I-3. This is the current understanding of the Interim city-wide CAC policy since there is no overall increase in density;

… Requesting privately initiated rezonings cover the cost of on-site and immediate off-site engineering services as a condition of rezoning. This is standard City practice;

… Charging the interim city-wide industrial DCL rate of $1.00 per square foot on all new development in I-3; and

… Working with stakeholders (including owners, workers, adjacent residents, and City departments) to identify area service and amenity requirements and, if needed, report back as soon as possible with area specific I-3 DCL by-laws.

The basis for this proposal is a desire to encourage high technology development. In addition, this option recognizes that we have minimal experience with high technology "campus" type development in the City. If the first application (Bentall) is any indication, it is possible that, on larger sites, the full 3.0 FSR for high technology uses will not be developed. The Bentall proposal is for 1.14 FSR, higher than suburban office parks but considerably lower than the allowable outright floor space. This means that overall servicing requirements may be less than feared and not appreciably more than some uses currently permitted under I-2.

Work is underway in False Creek Flats and Grandview/Boundary to identify service and amenity requirements. If these exceed the revenues generated through engineering service agreements and the city-wide DCL, staff will report back with proposals for area specific DCLs.

BACKGROUND

On February 25, 1999, Council referred to Public Hearing a proposal to create a new District Zoning Schedule (I-3) to permit a wide range of high technology activities. The proposed I-3 Schedule:

… builds on the existing light industrial schedule (I-2) by maintaining existing high technology uses, such as bio-technology and studios, and adds, as an outright permitted use to 3.0 FSR, Information Technology;

… encourages a "campus" environment by removing, or making conditional, uses permitted in the I-2 District Schedule which might detract from a high technology precinct; and

… proposes that the I-3 District Schedule be applied in areas with the potential for good access to rapid transit --False Creek Flats and Grandview/Boundary -- where higher employment densities can benefit from, and increase ridership on, rapid transit.

When light industrial areas redevelop to high technology areas we can expect increased worker densities since the form of development for information technology is more likecommercial-office development ( 175 - 225 square feet per worker) than traditional industrial forms (e.g. warehousing 1,000 square feet per worker). Example worker densities are attached as Appendix C. Areas with high employment densities require a higher level of services and amenities for workers.

The City has a number of ways to finance increased costs resulting from new uses:

… Community Amenity Contributions

… Conditions of Rezoning or Subdivision

… Development Cost Levies

… Capital Plan and Tax Increment

On February 25, 1999, Council asked staff to report on CAC and DCL requirements to provide a contribution toward upgrading the infrastructure and amenities in I-3 areas.

DISCUSSION

To create the new I-3 District Schedule, on February 25, 1999, Council referred several sites in False Creek Flats and 2950 East Broadway, in the Grandview/Boundary Industrial Area, to Public Hearing as City-initiated rezonings. Following past practice, City-initiated rezonings are not asked to contribute a CAC.

The absence of a CAC for I-3 sites in False Creek Flats reduces revenues available to service the area. However, an area plan is in place and several sites require subdivision. This provides an opportunity for the City to negotiate rights-of-way for roads, greenways, or other services. Some sites, such as Finning, may apply for a rezoning to provide for a service centre (retail, hotel, live/work) for their high technology business park. This will offer an opportunity for the City to negotiate amenities to support higher density uses. Information on anticipated servicing costs in the Flats is provided later in this report.

The absence of a CAC poses a problem for the 17 acre site at 2950 East Broadway (Bentall). The Grandview/Boundary area is undergoing planning for SkyTrain. Since a plan is not in place, requirements for new roads, services, and amenities are unknown. The Bentall site does not require subdivision. Consequently, if the Bentall site is rezoned to I-3, the City has no basis to later require contributions toward servicing the area. At Council's suggestion, staff have provided the applicants with information on sewer,roads, and other improvements for consideration by the owners as a voluntary contribution to servicing on- and off-site impacts related to the proposed new development. These are covered in a separate memorandum from the General Manager of Community Services. Staff will shortly be reporting on a process to consider privately-initiated rezonings to I-3 elsewhere in the Grandview/Boundary area. As owner-initiated rezonings, these could be considered for approval subject to servicing agreements.

The sites proposed for rezoning to I-3 will develop over many years. New service requirements will likely emerge as the areas redevelop. The issue of paying for new I-3 development has been the subject of considerable discussion. On one hand, it is possible to make a good case for anticipating possible longer term density increases and starting now to service the emerging I-3 areas for an eventual 3.0 FSR density. To do this, the City would need to immediately start recovering a large portion of servicing costs by charging CACs and a commercial/office DCL rate for I-3 development. On the other hand, one can make a case for not charging a CAC and applying the lower industrial DCL rate to encourage high technology development and provide a time to assess likely take-up. The key points of these two options follow.

Option 1: Maximize Recovery of Servicing Costs for I-3 Development

As noted in Appendix C, the False Creek Flats and Grandview/Boundary Industrial areas are developed at a low density (0.21 to 0.32 FSR). Current density in the Flats is about 10 workers per acre. If the Flats redeveloped to the densities we now see in Mount Pleasant (about 0.91 FSR) there would be 100 workers per acre. If a software firm developed one acre at 3.0 FSR this could result in 650 workers per acre. As redevelopment brings higher intensity uses, infrastructure (e.g. sewers, water), roads, traffic control, and amenities will need to be upgraded.

To start collecting funds to service these areas, Council could implement the following CAC/DCL rates for I-3 areas by amending the city-wide CAC/DCL policies as follows:

… Apply Community Amenity Contributions on the increase in floor space for information technology achieved through rezonings from I-2 to I-3. The I-2 District Schedule already permits some uses (but not Information Technology) to develop to 3.0 FSR. The Interim City CAC Policy notes that Council may wish to consider CAC charges where rezoning permits additional uses full development rights. Applying this guideline to I-3, CACs of $3.00 (cash or in-kind) could be considered on the increase in floor space from 1.0 FSR to 3.0 FSR for Information Technology for standard rezonings. On larger sites, staff would seek advice from Council as to whether the flat rate or a negotiated CAC should be considered torecover a higher proportion of servicing costs.

… Collect Development Cost Levies payable at the commercial/office rate of $2.50 per square foot. The $2.50 rate recognizes that the intensity of use, and hence servicing requirements in I-3, will likely be similar to those in the city's office districts where the interim city-wide DCL rate is $2.50 per square foot. Having the same rate for office and I-3 uses means that the City is not inadvertently encouraging offices now located in Downtown or Central Broadway to relocate due to a lower DCL.

Charging CACs and DCLs at the city-wide office/commercial rate minimizes the potential requirement for funds from the City's Capital Plan to service I-3 areas. If the combined CAC/DCL of $5.50 is insufficient to service the I-3 areas, Council can direct staff to bring forward area specific DCL by-laws to provide additional servicing funds.

Option 2: Gain experience with I-3 Development before establishing an I-3 CAC/DCL rate.

Another option for paying for growth in I-3 areas is to charge the basic DCL industrial rate until such time as specific area amenities are identified and/or redevelopment at higher densities places pressure on services. Under this approach:

… No CAC would be charged for I-3 rezonings on the rationale that I-2 already permits 3.0 FSR for some high technology uses and many sites may not take full advantage of the 3.0 FSR for Information Technology. (For example, Bentall proposes an overall site density of 1.14 FSR.) As is current practice, privately initiated rezonings would be charged for on-site and immediate off-site engineering improvements (e.g. infrastructure, roads, traffic control) as a condition of rezoning. The City will also receive higher taxes if land in I-3 is more intensely used.

… The interim city-wide industrial DCL rate of $1.00 per square foot would be charged on all new development in I-3. This rate encourages high technology uses, currently permitted in I-2 (e.g. film studios and biotechnology labs), to remain in I-3 areas.

This approach ensures that the City does not discourage high technology industries from locating in the City through a combination of higher land prices and high development charges. While it is hard to compare to suburban municipalities (where land costs and development densities are lower) the interim city industrial DCL rate appears to be lowerthan, for example, Richmond where the comparable DCL rate is $2.88 per square foot.

Option 2 provides less funds for area amenities initially. As employment density increases, workers will likely seek more open space and services such as daycare. These are typically funded through DCLs. As part of the SkyTrain area planning program, stakeholders (including land owners, workers, and nearby residents) will identify desired area amenities. Following this input, and analysis of market impacts, staff may report back with a proposal for a Grandview-Boundary I-3 DCL District By-law. With no plan in place, it is premature to attempt any estimates of future DCL rates. In Grandview-Boundary I-3 is proposed to be implemented, at least in the short term, through owner initiated rezonings. Owners can choose to wait until area DCL rates are set before applying for rezoning.

In False Creek Flats some amenities may be negotiated through the Finning site redevelopment where the owners are proposing CD-1 or a combination of CD-1 and I-3. Other sites may provide road and greenway dedications as a condition of subdivision. Staff will continue to review overall servicing costs, redevelopment phasing, the value of increased taxes, and the impact of charges on development economics and will report the findings to Council. If required, a False Creek Flats I-3 DCL District By-law will be proposed.

The uncertainty of future DCL rates will be of concern to owners whose property is included in the City-initiated I-3 rezoning. Engineering staff have done a preliminary estimate of the infrastructure required to service the Flats in accordance with the approved Preliminary Concept Plan. The estimated cost to fully service the I-3 portion of the Flats is $28.3 million. This includes $13.8 million for the "backbone" arterial roadway and trunk water and sewer systems improvements and $14.5 million for the internal roadways and associated servicing. These costs could be recovered by the City at subdivision (if owners choose to subdivide) or through DCLs (of at least $3.75 per square foot). Given funds will be collected over time, the City may need to provide some of these services up front through capital spending. These cost estimates are preliminary. Further review is required to determine an area DCL rate. This review will also include identifying costs associated with providing open space, day care, and possibly creek day lighting which, together with infrastructure costs, could result in a False Creek area DCL of at least $5.00 per square foot.

CONCLUSIONS

After reviewing the options, staff propose a three step process for financing development in I-3 areas:

1. Apply Option 2, the existing Interim city-wide CAC/DCL policy, to rezoning and development in the I-3 district. This option means that:

2. Work is underway in False Creek Flats and Grandview/Boundary to identify service and amenity requirements. If these exceed the revenues generated through engineering service agreements and the $1.00 DCL, staff will report back with the rationale for area specific DCL by-laws.

3. A review of Financing the Costs of Growth is underway. It will include consideration of servicing standards, relationship to the Capital Plan, and market impacts of charges. The review will provide an opportunity to consider I-3 CAC and DCL policies in a broader context.

The advantage of this three step approach is that the City can gain experience with large site high technology "campus" development as a basis for establishing appropriate charges. The concerns with this approach are that, unless carefully monitored and further charges added if needed, the City could find the I-3 areas under serviced for high technology uses. Service requirements would need to be addressed through area specific DCL by-laws.

This strategy provides initial relief to applicants seeking to develop high technology uses in the city. However, it also results in uncertainty concerning future charges, though no more so than elsewhere in the city where interim city-wide CAC/DCL rates are undergoing review. Owners, along with workers and adjacent residents, will have an opportunity to participate in False Creek Flats and Grandview-Boundary planning programs to assess future service requirements and ways to finance new services in I-3 areas.

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