Less revenue from increased development charges, as County mandated by Bill 23

By Sharon Harrison
Development charges in Prince Edward County aren’t the most riveting topic for many, but they are important, especially as the County undergoes significant growth and development.

A presentation by Sean-Michael Stephen, managing partner with consulting firm Watson & Associates provided an overview on the development charges background study at Thursday’s Committee of the Whole meeting.

Council and the public learned more about the implementation of a new development charges (DC) bylaw, to replace the current one which expires March 5.

Proposed imposed changes to development charges – those charges developers pay the municipality when they build here – are important as they relate to the provincial government’s new Bill 23, More Homes Built Faster Act which comes with mandated discounts municipalities must adhere to.

Highlighted Thursday, were the impacts the new DC bylaw will have on the County, its finances, and ultimately its rate-paying residents. In calculating the charges they looked at anticipated development as well as what the demand or service is going to be to accommodate new growth.

Councillor Phil St-Jean asked about the effects of Bill 23 as it pertains to the estimated cost to municipalities of the changes which are going to end up on residents’ property tax bills, so the true cost of Bill 23 for the residents of Prince Edward County.

With Bill 23, municipalities are now required to impose only 80 per cent of the maximum development charge in the first year of the bylaw.

Amanda Carter, the County’s director of finance, said it was difficult to assess what it will cost the municipality overall without historical data to work from.

“We collect annually just over $1 million in development charges, so if we take off 20 per cent, we would be funding $200,000 of that loss just in the phase-in,” said Carter.

Stephen explained that DC are imposed under the Development Charges Act, where the purpose of them is to recover only the capital costs associated with new residential, non-residential new development within a municipality.

These capital costs would include the broader costs of servicing needs within a municipality and would be in addition to the work being constructed as part of a plan of a sub-division, but not including things like internal roads, water mains, sidewalks, street lights, which would be a direct developer funding responsibility.

The bylaw does not cover water and waste water services, as those are recovered either through a specific bylaw for the urban serviced area of Wellington, or will be recovered through the current capital charge bylaw.

DC for single and semi-detached residential dwelling units (greater than two bedrooms) will increase from $8,500 to $15,257, an increase of 79 per cent.

One-bedroom and bachelor apartment units will increase to $7,309.

Charges for non-residential development per square foot of gross floor area is $1.86 for agricultural buildings, and $6.34 for industrial, commercial and institutional buildings.

“With the changes to the Bill 23 Act, municipalities are now required to impose only 80 per cent of the maximum charge in the first year of the bylaw, so the charge in the first year will be $12,206, representing a 44 per cent increase,” Stephen explained.

For non-residential development, the charge of $6.34 comes in at just under a 50 per cent increase, with the statutory 20 per cent discount in year one, that represents 20 per cent over the current charge of $5.07.

According to the consultants’ calculations, growth for early 2023 (i.e. right now) shows the County has a population of 34,285, a figure which includes both permanent and seasonal residents, a figure councillor Roy Pennell questioned.

Stephen clarified that the 2023 growth prediction comes from population data and permit information from the 2021 census, plus the number of building permits issued since then, stressing the figure includes both permanent and seasonal populations, so is greater than the population from the 2021 census.

“How are not-permanent residents going to increase the use of roads, and in most things they may have no effect at all?” asked Pennell. “That goes out of proportion to what your estimate is; going into this, we were looking at a realistic estimate of full-time people, but it looks like you are not looking at it that way.”

Over the next 20 years, it is anticipated around 200 units per year, both seasonal and permanent, would be developed in the County, resulting in a population increase of just over 8,700 persons.

Councillor Brad Nieman asked how many units were built in the last year, to which Stephen said it was close to 300 building permits issued (for new homes). He said prior, the 10-year average was 90 units per year.

Peter Moyer, director of development services, clarified that it is not necessarily the number of permits, it is the number of units. For example, one permit may have several units associated with it, so it is 300 units last year, not 300 permits.

The growth period studied looks at the next 10 to 20 years as the period for the increase in service, but the growth forecast excluding any development within Picton and the increase for need for services is not part of this exercise.

On the non-residential side, about 90,000 square foot of non-residential growth per year is anticipated, with an increase in employment of over just 2,100 jobs over a 20-year period.

“Having established what those capital costs are to meet the demand of new development, growth-related costs are apportioned over the anticipated development to arrive at a charge to be imposed on a per residential dwelling unit basis per residential development, or on a per square foot of growth floor area development for non-residential development,” Stephen said.

“Based on that level of development, the increase for need for service or those demands for new development over 10-year period for eligible services, include parks and recreation, library, ambulance and waste diversion.”

And over a longer 20 year period for services related to highway (roads) and related infrastructure, public works facilities and vehicles, fire protection services and long-term care.

“Across those service areas, the capital needs have been identified to provide the services for the new development at $152 million.”

However, Stephen explained after certain deductions and anticipated grants made as it pertains to existing development (equate to about 47 per cent), the figure comes in just under $63 million over the 10-20 year period.

“The costs broken down by service areas, almost three-quarters of the cost relate to services related to a highway (critical infrastructure needs for improvements to two existing roads), 16 percent ($9.9 million) of the costs are related to fire protection needs.”

“About 90 per cent of those ($62.8 million) relate to those two service areas representing the majority of the growth-related needs and the components of the development charge that would be imposed.”

For development in Wellington, the increase of $3,700 in year one equates to about 11 per cent increase.

DC are calculated and collected at the time of building permit issuance, although it was noted municipalities may enter into an agreements to allow applicants to pay the DC before or after what otherwise would be payable, a provision which is allowable to councils under the Act.

There are also mandatory installment payments that are required for rental housing and institutional development where they are now required to pay their charges in six equal annual installments commencing the day of occupancy.

“In terms of exemptions to DC, municipalities cannot waive DC on a case-by-case basis, but they can exempt certain types of development from the payment of charges,” he explained.

“When that occurs, that is a loss of revenue to the municipality; that loss of revenue does represent an impact to the municipality in terms of a tax or rate funding implication to make-up that revenue foregone.”
There are certain exemptions that are statutorily required if they are identified in the DC act, those include that you don`t impose DC on upper or lower tier government, school boards, land for use by university, or government.

There are also exemptions for the creation of additional residential units, either within existing residential buildings or within new residential buildings.

Non-profit housing is now exempt as defined in the Act.

In addition to those exemptions, there is also a statutory reduction to the charge for rental housing, with deductions based on number of bedrooms.

For greater than two bedrooms, it is a 25 per cent discount, a 20 per cent discount for two bedrooms, and a 15 per cent discount for less than two bedroom units.

There is also a mandatory reduction to the charge over the first four years, where in the first year 80 per cent of the charge can be imposed, the second year 85 per cent, 90 per cent in the third year, and 95 per cent in the fourth year.

Re-development credits are currently included in the bylaw, so if there is a demolition or conversion of an existing use, and that re-development occurs within three years of demolition, DC are not payable for the use that is being replaced.

Next steps include receiving feedback from the public (the 274-page report is available on the County’s website) where council will consider approving and adopting the bylaw at the Feb. 28 council meeting, in advance of the March 5 expiry date.