Council must deal with development charges

StCatherinesStandard.ca
Dec. 25, 2014

During and after the recent municipal election, there has been discussion of development charges — in particular, the idea of reducing or waiving them as a way to encourage business development.

This, of course, prompted me to find out a bit more about them.

Development charges are fees municipalities are allowed — not required — to impose on new development to cover costs incurred by the municipality to provide services to that development.

Some of the costs are directly related to the development, such as roads, streetlights and water and sewer lines. Other costs are not directly related to a particular property, but reflect costs the municipality will incur as development in a particular area proceeds, for example, construction of new fire and police stations, libraries and so forth.

This is not a source of free revenue for the municipality.

The municipality must be able to justify the amount of the development charge as related to the cost of providing the service.

When charges are collected, they must be segregated in a separate fund, and can only be spent for development purposes. They cannot go into the general municipal budget.

In 2012, the Niagara Region earned more than $15 million in development charges that accounted for nearly 2% of the Region’s total revenue. The figure declined significantly in 2013.

Waiving development charges would not have a huge immediate impact on the Region’s total revenue. However, that could change if development increased.

For example, York Region raised $260 million in 2013, about 13% of its total revenue. In Mississauga, then-mayor Hazel McCallion was able to boast of keeping the city debt-free at a time when it was building substantial infrastructure, in part because of development charges.

There are costs associated with new development, and they do not magically go away because the municipality waives the development charge.

If the municipality does not impose development charges, then the cost of providing the services will be paid for by the customers of the water and sewer utility and/or local taxpayers.

This could be seen in an immediate increase in the property tax, or the funds for the work could be borrowed in which case customers/taxpayers will pay the amount (plus interest) over an extended period.

Thus, the decision about whether to impose development charges raises some interesting ethical, economic and practical issues.

There are two ways of looking at this.

One, is that development charges are an equitable way of requiring new developments to pay for the cost of that development. (Actually, development charges seldom cover the full cost of the development, but that could be the topic of another column.)

After all, the streets, streetlights and water and sewer lines are as much a part of the cost of new development as the costs incurred on the property itself.

Development charges will increase the cost of the development, but that is simply a matter of the property owner who benefits from the development paying the full cost (sort of) of the development.

The opposite view is that all ratepayers in the jurisdiction benefit from new development, so distributing the cost among all ratepayers is a fair way to share the costs.

First, when the total cost of services to the new development is distributed among all ratepayers, it amounts to a fairly small addition to each person’s tax bill.

Second, all ratepayers benefit from new development. If the development is residential, it means there will be more ratepayers who will be paying property tax. If the development is commercial or industrial, there is the added benefit of additional jobs.

This is the issue of development charges.

Imposing the fee on the developer increases the cost of housing and other development, which could potentially discourage new development. But if the developer does not pay the cost, then it does not go away; it will be distributed among all ratepayers in the jurisdiction.

There is no obvious answer.

This should be a subject of discussion within the community, because it is important and affects everyone.

David Siegel is a professor of political science at Brock University.