Changes to Development Charges Act could impact City of Kingston budget

After much opposition to the Ontario government’s Bill 23 here in Kingston, the report on how damaging that Bill might be to the City of Kingston — eluded to by Mayor Byran Paterson in an interview the day the Bill was passed — has now been published.

The report, being presented to Kingston City Council next Tuesday, Dec. 6, 2022, suggests the provincial government’s Bill 23, the More Homes Built Faster Act, 2022, could have serious implications for the City’s budget. According to a report prepared by Paige Agnew, the City’s Commissioner of Community Services, the Bill’s changes to the Development Charges Act would result in a “significant financial impact” on municipalities such as Kingston. 

Currently, the City of Kingston is able to collect development charges from the developers of new building projects through the Development Charges Act. The provisions of this Act are designed to assist municipalities in covering the capital expenses on infrastructure projects related to new developments. “Generally speaking, for new urban housing development to occur, infrastructure services (roads, sidewalks, transit, fire, water, wastewater, etc.) must be built,” the staff report notes. 

“Many municipalities construct this infrastructure and increase capacity in major facilities (treatment plants, etc.) and services (transit, community centres, etc.) in advance of development occurring to ensure lands are available for growth that will ultimately increase the municipality’s assessed tax base and provide necessary housing to support the growing population.”

By imposing development charges, the City is able to fund necessary infrastructure projects through an approach that ensures “growth pays for growth.” Instead of relying on the municipality’s tax base to foot the bill for enhanced infrastructure, the developers themselves must help offset the costs associated with their projects. 

Bill 23 includes significant changes to the Development Charges Act, changes that severely limit municipalities’ ability to impose development charges.  According to the report, Bill 23 “removes services in respect of which a [development charge] may be imposed,” “[exempts] specific types of housing from [development charges],” and “[removes] specific costs from the list of capital costs that can be funded by [development charges].”

While the potential impacts are purely speculative at this point, the report does suggest that millions of dollars could be removed from the City’s budget through these changes to the Development Charges Act. For one, Bill 23 requires that increases to development charge bylaws be phased in over a five-year period, which staff suggest could result in a “10 per cent reduction of the total [development charge] collections”; this would likely equal approximately $6,000,000 in lost revenue for the City.

By removing certain growth-related capital costs from the list of services municipalities can impose development charges for, the report estimates that approximately $4,000,000 of costs will no longer be eligible for development funding. 

The report also argues that the Bill, which is meant to increase the rate at which new homes are built throughout the province in an attempt to increase housing affordability and access, will negatively impact the City’s ability to provide affordable housing units. “The removal of municipal housing as an eligible service for [development charges] will [make it more difficult] for the municipality to create and support affordable housing, having the exact opposite effect of the desired outcome of Bill 23, lessening both the overall supply of housing and, more specifically, the supply of much needed affordable housing.”

By eliminating certain development charges from the municipality’s budget, the report notes, the burden to cover necessary capital expenses will shift from developers to taxpayers, which, in turn wil,l negatively impact renters in Kingston through increased housing costs. “In the private real estate market, where housing is sold at market value, there is no incentive or requirement built into this legislation that requires private developers to pass the [development charge]-related cost savings on to future purchasers.”

“A potential and likely result is that the lessened municipal costs could simply mean more profits for a private developer at the expense of all taxpayers who will then have to pay more for their property taxes or utility bills (water and sewer) to make up for the shortfall in funding for growth-related infrastructure.”

The report notes that staff are currently working with Watson & Associates Economists Ltd., the consulting group that helped prepare the Final Development Charges Background Study, 2019, to get a better understanding of how these changes will impact the City’s budget.