Peel weighs new strategy to finance infrastructure paying for growth

NRU
March 16, 2016
Geordie Gordon

Concerned over rising debt costs to cover growth-related infrastructure, the Region of Peel is considering a new way to pay for development over the long term.

Regional officials say that in changing the current approach to plan, service and finance growth, the region would undertake formal consultations with local area municipalities and the development industry, with a goal of promoting financially sustainable future growth. Officials hope that the results of the consultations to come would promote coordination of growth-related infrastructure in areas where development is most likely to occur.

The details of the anticipated strategy have yet to be confirmed, although the region has held some workshops with the development industry and area municipalities on the new approach.

A discussion paper prepared by Westbrook Public Affairs and presented to Peel Region’s growth management committee on March 3 identifies four objectives of a possible change in how to pay for growth-related infrastructure. According to the discussion paper, the goal of the new approach is to integrate financing and servicing considerations earlier in the planning process; reduce growth-related debt, have the region be more agile in its approach to handling the uncertainty that accompanies growth and, not least, adopt a growth-focused, risk-based financing strategy.

Mississauga ward 1 councillor and Peel Region growth management chair Jim Tovey told NRU that the region has been covering the cost of growth-related infrastructure, based on projected development charges. However, he said there is a significant gap between the region’s projections and the actual collection of development charges. Residential growth projections have been on track, but provincial job growth estimates have fallen short of estimates, he said. To date, the region has borrowed $1.3 billion to finance the growth-related infrastructure.

“The Region of Peel and the City of Mississauga always had a ‘growth pays for growth’ mentality. And typically it was working, but now that we’re into more intensification, we’re also into an era where the jobs and residential numbers have not been matching up for several years,” he said.

Tovey said a possible new model would assess development charges earlier in the process to reduce or eliminate the financial risk currently borne by the region.

“It’s going to create a new model for growth in the Region of Peel... for how that growth rolls out, for how it’s allocated, and when,” he said.

Peel Region commissioner of public works Dan Labrecque told NRU that the new approach has been under consideration for two years. But the need to implement a new financial model took on urgency towards the end of the last council term as growth-related debt continued to climb.

“You don’t want to end up waking up one morning, and [finding that] you’ve got all this [growth-related] debt and there’s no growth left to assign it to,” he said. “The conversation started in the last term of council...around how we could better manage the growth process to minimize risk and in the worst case, transfer risk to other players,” he said.

In effect, said Lebrecque, the new model under discussion would shift an analysis of the financial implications of new development to an earlier stage, instead of at the back end of the planning process, as now happens.

“Is there a way to integrate that [financial] decision making so at least you have some sense of what the implications of those planning decisions are at the beginning of the process rather than at the end?” he asked rhetorically.

BILD Peel Chapter chair and DG Group vice president Darren Steedman told NRU in an email that with a substantial increase in development charges over the past decade and ongoing concerns over housing affordability, the need to do things differently than in the past has become apparent. Despite some uncertainty over the details of a possible new model to pay for growth, he says there is a recognized need to adopt a new approach.

“It [is] time to draw a stronger line between efficient delivery of infrastructure, population allocation and development charges,” he wrote.

Lebrecque said that under the current method of financing growth, unanticipated developments can affect the infrastructure planning process. For example, there could be a need for additional municipal services if council approved a tower development in an area previously intended only for low-rise housing or if an area previously slated for growth in 10 years was subject to accelerated development applications. As a result, said Lebrecque, the region would have to rework estimates of the cost for servicing a development, thereby adding to the cost burden on Peel.

“[If] we start building too much capacity because we have to make sure all the other areas are [still] serviced for when they’re planned, then we’re jumping around for things that don’t work according to the plan,” he said.

Regional officials hope that pending consultations with the building industry would establish where development is most likely occur, such as along the Hurontario corridor.

“Right now, the only concept that’s being put out there is how can we have better conversations about where this growth, both population and employment, should go,” Lebrecque said. “So then what we don’t do is go and build into the infrastructure plan that we’ve got to service ‘x’ million square metres of office space that’s never going to come. So that’s the key outcome that we’re trying to get at,” he said.

For the consultation exercise to be successful, said Steedman, there will need to be strong buy-in from all parties – the region, the development industry and the local municipalities – and at levels of cooperation not seen in the past.

“We are expecting that with more shared knowledge about the financing of growth we will stop seeing these dramatic increases in the development charges,” he said.

Steedman said that as long as the development industry is at the table as engaged stakeholders, he’s not concerned about the new approach. But he warned that if some parties don’t see the need for a “true partnership”, the consultation could be a waste of time.

Regional staff are expected to report to the growth management committee in May on recommendations for the new approach, based on comments received from the development industry and area municipalities. Meanwhile, formal consultations with area municipalities and the development industry are expected to begin in the second quarter of 2016.