City looks to Hamilton residents to cover $68M gap in foregone development fee revenue

‘Vast majority’ of the increase is out of the municipality’s hands, councillor says

Thestar.com
June 16, 2023
Teviah Moro

The city plans to tap Hamilton residents to cover $68 million in foregone development charge revenue, a shortfall partly blamed on provincial housing legislation.

That top-up strategy, referred to the 2024 budget, is to translate into a 3.7 per cent tax hike and 9.75 water rate increase.

“These are real costs tied to real projects, and those projects service growth in the future,” Mike Zegarac, general manager of finance, told The Spectator.

Municipalities rely on these charges to help pay for infrastructure -- including recreation centres, libraries, sewers and roads -- needed to accommodate growth.

Some exemptions in development charges are provincially mandated, but others are discretionary, or up to municipalities to decide.

About half of the hole the city hopes to fill, or $34 million, springs from Bill 23, the province’s recently passed More Homes Built Faster Act.

The Progressive Conservative government says the legislation is meant to help reach a goal of 1.5 million homes over 10 years to tackle Ontario’s housing crunch through streamlined approvals and development incentives.

The legislation lowers, phases in or eliminates development charges on some new builds.

Including the effect of Bill 23, about $55 million of the $68 million the city aims to recover can be attributed to provincially legislated exemptions.

The balance of the shortfall is related to discretionary development charge breaks, or “municipal incentive programs,” Zegarac noted.

But a part of the backlog is also rooted in a decade worth of “insufficient funding” influenced by “budget guidelines and residential tax affordability concerns,” noted a staff report before councillors Wednesday.

City politicians voted to refer staff’s proposed catch-up strategy to 2024 budget deliberations.

“The vast majority of these increases are not at our discretion,” Coun. John-Paul Danko said. “They’re imposed by the provincial government.”

Coun. Alex Wilson echoed that sentiment, arguing the province is forcing the municipality’s hand while “deliberately subsidizing private profit” amid Ontario’s housing crisis.

On Bill 23, Minister of Municipal Affairs and Housing Steve Clark has maintained the province’s “decision to rein in unsustainable and out-of-control municipal fees on new homebuyers is the right thing to do.”

In his Dec. 22 letter to the city, Clark also rejected the legislation would result in funding shortfalls, “provided municipalities achieve and exceed their housing pledge levels and growth targets.”

Hamilton is projected to grow to more than 800,000 people by 2051. The city has also endorsed a housing “pledge” to add 47,000 units by 2031.

City staff contend Clark’s position does “not align with the methodology” that provincial legislation demands to calculate development charges.

The province has also pointed to the federal government’s Housing Accelerator Fund as a potential source for relief, but that’s not the intent of the envelope, the city says, noting it’s meant to boost residential stock.

News of the looming hikes come just a few months after the new council landed on a 5.8 per cent tax hike for 2023.

The 3.7 per cent tax increase to cover the development charge shortfall would translate into roughly $165 for the average Hamilton household, Zegarac noted.

The 9.75 per cent rate hike, meanwhile, works out to about $80 more per household.

In addition to the tax and rate hikes, staff recommend starting a dedicated reserve to help close the development charge gap. The hope is to catch up over 10 years.