The Oakville Development Charge Fiasco – Issues Explained

Keeping up on the Development Charge debate being waged in Oakville? For those who have not yet heard, the Town of Oakville recently approved a 65% increase in the development charges used to fund infrastructure costs associated with growth. At the heart of the debate are two issues: 1) the town and region need to find a way to fund growth and 2) developers are concerned about the impact of a 65% increase on growth.

Publicly, both camps have been quite clear on the need for self-funded growth. In other words both sides recognize that growth should not come at the expense of existing tax payers. In a letter to prospective buyers sent out in June, Peter Gilgan, CEO of Mattamy Homes writes, “If there’s one message, it’s that we’re not asking any existing taxpayer to pay one red cent…to support any new development”. Oakville’s Mayor Rob Burton also commented in a recent Oakville Beaver article that “increasing development charges is essential to minimize the impacts of growth on our current taxpayers”. I’ve spoken to several people who have the opinion that the developers are just being greedy and wanting to “get away” with not paying their fair share of costs. Before blasting developers I decided to take the time to read through all the information I could find on the subject. After several hours of perusing documents posted on the Town of Oakville’s website, I think the jury’s still out on whether or not the 65% increase is justified but I do believe that developers were absolutely justified in questioning the recently implemented development increases.

In June, the Town of Oakville published a report entitled “Development Charges Background Study”. This 174 page study outlines the logic and rationale for the 65% increase in residential and 34% increase in non-residential development charges. The document raised a number of red flags which were then questioned by the developers. In no particular order, I have summarized below what I found to be the developer’s main issues with the study. Note that the issues outlined below are my interpretation of what I have read and may not be reflective of the opinion of all Oakville developers. I am simply basing my interpretation on what I have understood from the documents published on the matter. Some of these issues have been resolved and many have not. I have posted links to all my sources at the bottom of this article. I encourage everyone to consult these sources for further information on the issues at hand.

Issue 1: Methodology Used to Calculate Expenses

There are at least two ways to calculate development charges, the first is a “Net Population” calculation, the second a “Gross Population” calculation. In the most recent background study, the Town of Oakville moved from a “Net” to a "Gross” calculation resulting in significantly higher estimations for many service costs. Under the “Gross” method, development costs are based on population changes from new housing only; under the “Net” method, development charges are based on total population change. Current trends show that the number of people per house is on the decrease (fewer people having children, etc).

The developers are challenging the new “Gross” methodology under the law reasoning that as current population levels decrease, service levels actually increase per resident (same service level spread across fewer residents = improved service level per resident). Under the Development Charge Act, development charges can ONLY be based on current service levels and cannot be used to charge developers for improvements to the level of service currently offered elsewhere in the community.

Other towns and regions have also started using the “Gross” population method. I can see the logic of using both methodologies but think it’s important to note that this simple change has a significant impact on the value of the charge. While I haven’t seen any concrete information estimating the cost difference, if it weren’t significant, it wouldn’t be such a contentious issue. Perhaps it’s not a bad idea to let the courts decide which methodology is most appropriate.

ISSUE 2: Accuracy of Cost Assumptions

Immediately following the release of the background study, developers started corresponding with the town to understand the reasoning behind the dramatic cost assumption increases relative to the 2004 study. Again, bear in mind that under the Development Charges Act, all costs related to development must be used to maintain and NOT improve current service levels. Below is a graph from June’s background study showing which areas were most dramatically hit with higher cost assumptions.

Here are just some of the questions that developers had for the Town of Oakville regarding cost assumptions:

• Land acquisition cost calculations
• Cost assumptions of parks and recreational infrastructure
• Justification of significant cost increases in building and vehicle assumptions (various developers claim the report includes a 135% increase in fire station building costs, 174% increase in Oakville arena building, 100% increase in fire service vehicles – all versus the previous study’s cost assumptions in 2004)
• Understanding certain land valuation increases (average 375% increase in land value for Oakville libraries, 1214% increase in land value of centennial pool, 100% increase for major valley parkland)
• Assumptions for road and road related costs including a 257% increase in the South Service Road project, 139% increase in the Sixth Line Project

It could very well be that all the cost assumptions are based on accurate, up to date information. Even so, is it wrong for developer’s to question the rationale for such significant increases? Certainly property values have increased in the last 5 years but even so, many of these increases are extraordinarily high. In this regard, I believe the developers were completely justified in understanding the town’s calculations. I would do the same thing if I were in their shoes.

ISSUE 3: Classification of Charges

This is clearly an interpretation issue. After reading through many of the developers comments on the background study, it appears that some developers don’t understand why certain charges are classified as development related. They question instead whether some of these costs are related to servicing existing residential services and potentially increases to existing service levels (both of which are contrary to the Development Charges Act). Just as it is unreasonable to expect current residents to foot the bill for growth, it is unreasonable to expect future residents to pay for existing services.

Here is a selection of comments I found on this matter:

• In a previous study, 20% of a cost of a project at Third Line (Lakeshore to Rebecca) was allocated as a service for existing residents. Now this same project is classified as 100% attributable to growth and classified 100% as a developmental charge.
• Another project at Fourth Line (Speers Road to Wyecroft) has been reclassified from 80% to 95% attributable to development
• $20 million dollar project of North Service Road from Joshua Creek to Ford Drive assumes no benefit to existing residents
• Additional Municipal parking spots in downtown Oakville were originally allocated as 90% growth related (only 10% attributable to existing residents). The rationale for this was questioned by several developers. I believe the town has since reviewed this figure and agreed to lower the allocation based on developer’s concerns so hopefully this is now a non-issue.
• Background study includes $25 million in charges related to creating pedestrian overpasses on Dundas Street. Developers question whether this is in fact an improvement to existing service levels as overpasses are not found in other areas of Oakville

In the town’s defence, there could be other examples of projects reclassified in favour of the developers. The only one I came across was the town’s reconsideration of municipal parking charges in downtown Oakville which were only reduced after being questioned by developers.

OTHER ISSUES:

There are a myriad of other issues raised by various developers which I didn’t detailed in this article. A small sample of these issues include calculations for residential to commercial ratios, questions of when the development charge should be payable, allocation of road costs as municipal versus regional and the list goes on...

Still trying to wrap your head around the issues? Here is some background information...

• Development charges are levied to recover costs associated with the construction of roads, water and sewer infrastructure that is needed to service new development (both residential and non-residential). Development charges are paid to the Region, the Town, GO Transit and local school boards
• A development charge increase of 65% for residential and 34% for non-residential development was approved by the Town of Oakville on August 10^th, effective August 31, 2009.
• A new single family residential unit in North Oakville will now have a charge of $21,682 compared to the previous charge of $13,327. South Oakville charges are now $22,018 compared to the previous charge of $14,102 (difference between North and South Oakville is an area specific charge of $336 for storm water management in South Oakville).
• Oakville’s development charges are now the highest of any community in North America
• Town of Oakville has noted that development charges will be used to fund the following activities (in addition to various other services and road infrastructure costs):
• North Park Quad Arena, QE Park Community Centre, A new library branch, Two new fire stations, Additional buses, Kerr Street widening, Mid-town and QEW crossing, New North Oakville operations depot, Wyecroft Road expansion, New park development
• In June 2009, the Town of Oakville released a 174 page Development Charge “Background Study” which outlines the rationale behind the new costs. It is from this study that most of the development charge questions have arisen. The previous Development Charge Study was conducted 5 years ago in 2004.
• Interesting to note that the following decisions have been made in nearby municipalities:
  • Municipality of Hamilton – decided to freeze development charges for a minimum of 12 months
  • City of Toronto – freeze on development charges for 2 years
  • City of Burlington – decreased residential development charges
  • Town of Milton – raised development charges by a marginal amount

MY TAKE:

To be blunt, I think it’s easier to view developers as “bad”. It is clear that many people I’ve spoken to see them as greedy harmful corporations out to ruin the beautiful Oakville community and environment.

I whole heartedly disagree with this point of view. Yes, developers are out to make profit and yes the government is required to put the necessary checks and balances in place in order to preserve our community, services and environment. We may not like it but that is the way it has to be. Private and Public companies simply need to make profits in order to be sustainable and employ Canadians.

Love them or hate them, many of us live in homes that at some point were built by the very developers we criticize. These homes are ultimately where we create memories, live our lives and connect with our neighbours. Regardless of how you may feel, many of us would be homeless if it weren’t for the very homes these developers built. As such, I think it’s important to understand exactly what issues the developers had with the approved development charge increases. After looking at the information closer, I understand that this is clearly NOT a simple matter of greedy developers. There are thousands of people that are anxiously waiting to live in areas of Oakville yet to be developed. There were numerous discussions between developers, the Town of Oakville and the consulting firm of the background study that took place this summer. I don’t pretend to understand enough to judge if the development charges were justified but I do applaud the developers for speaking on behalf of the anticipated 72,0000 new residents and 47,000 new business opportunities that are expected in Oakville over the next 20 years.

I appreciate the hard stance the Town and Region are taking to ensure growth is sustainable and up to the standards Oakvillian’s expect and deserve. It’s hard to criticize governments that have historically made the hard decisions that have kept Oakville a charming and unique place to live. I spent a good portion of my day yesterday walking in Oakville trails. Afterwards, I drove in a new development of a neighbouring city, solidifying in my mind that Oakville communities are unmatched elsewhere. The Town of Oakville is holding its developers to a higher standard and the last thing I want is to dismiss their efforts. I am however concerned that the future growth Oakville needs (particularly employment growth), is being jeopardized as development costs jump higher and higher. Employment growth in particular is needed to significantly offset residential tax burdens. At some point, developers are going to take their business to more profitable and less politically charged communities. Have we reached this point yet? Probably not but I am concerned that we are tipping the scales too far against development at the expense of future opportunities.

Growth is a balancing act where developers, government, business, current and future residents should all come out ahead. I think this is possible but only if we respect the developers who play an important role in the process. We need them to create the communities so many people are anxiously awaiting to live in. As development charges ultimately get packaged into the price new home owners pay, questioning the significant rate increases was the ethically responsible thing to do. I applaud the developers for wanting to understand the town’s rationale and encourage all prospective new home owners to do the same thing.

If you have thoughts or comments on this issue, I would love to hear from you. Leave a comment below, visit my website at www.lindsaywalls.com, email me at lindsay@remaxaboutowne.com or call me at 905.338.9000.

Regards,

Lindsay