City of Ottawa staff provides financial impacts of Bill 23

City of Ottawa staff revealed the impacts of Bill 23 to council members on Friday, Nov. 25. 

Bill 23, the 'More Homes Built Faster Act 2022'  proposes changes to several acts and regulations including the Development Charges Act, Planning Act, Municipal Act and others.

The Ontario government is working to meet it's goal of building 1.5 million homes in the next decade and make housing more affordable. 

According to a memo addressed to councillors and the mayor, Wendy Stephanson the City of Ottawa's treasurer said development charges could cost $60 million a year or approximately 25 per cent of development charge revenues starting in 2025.

Development charges (DC) are one-time fees collected from residential and non-residential land developers. The Development Charges Act sets out a process and framework to determine charges. Municipalities must undertake a ‘Development Charges Background Study’ to determine the estimated amount, type, and location of development and the related calculations of how growth will impact future infrastructure requirements. Once new infrastructure is built or expanded, ongoing operational and lifecycle replacement costs of the assets must be funded by existing taxpayers.

“Currently, there are several benefits in applying development charges, which include the timely and orderly expansion of required infrastructure services, the avoidance of low service levels, the maintenance of acceptable levels of property taxation and user fees, and greater overall acceptance by existing residents of property development and the growth it facilitates,” said Stephanson in the memo. 

In the memo, Stephanson detailed the impacts of a few of the amendments proposed to the Development Charges Act under Bill 23.

Phase-in of annual development charge collections

Bill 23 calls for mandatory phase-in of development charge rates in new by-laws as
follows:

• Year one – 80 per cent
• Year two – 85per cent
• Year three – 90 per cent
• Year four – 95 per cent
• Year five – 100 per cent

The preliminary analysis of the financial impact and loss of revenue to the City from the proposed phase-in periods is estimated at $26 million per year or over five years, or approximately $130 million.

Removal of affordable housing as an eligible service category

The City treasurer said in the memo the five year phase-in of development charge rates in new by-laws will cost $26 million a year or $130 million over five years.

“The City anticipated expanded use of development charges to contribute towards the growth-related capital costs required to fund various affordable housing initiatives in a comprehensive 2024 DC Background Study based on the new Official Plan and Long-Range Financial Plan,” the memo said. “This will no
longer be a viable funding option as identified and a new funding strategy will need to be identified.”

Removal of land as a recoverable cost for certain service categories

Stephanson said in the memo the removal of land as a recoverable cost for certain service categories would create a $5.2 million annual impact or $52 million over 10 years based on the 2019 Interim Development Charge Background Study and By-law.

“Under Bill 23, the cost to acquire land for specific growth-related service categories can be exempted as an eligible expense if prescribed,” she said. “The removal of land will result in the use of other sources of funding and will negatively impact the City’s ability to pay developers for this component of capital projects needed for the provision of expanded growth-related infrastructure for such items as new arterial roads, park and ride facilities and public transit corridors.

Development charge background studies

The proposed amendment of no longer funding DC background studies would create an annual pressure of $2 million based on average expenditures over the last five years, said Stephanson. 

“Exemptions for housing services from DC recovery will result in a loss of capital funding of just over $1 million annually,” she added. “In addition, there would be an undetermined loss of revenue from exemptions relating to gentle intensification and attainable housing that is not fully understood at this time.”

The 2021 analysis identified a shortfall in revenue needed to pay for operational and lifecycle costs within the lower-density urban greenfield growth category of $465 per capita annually, according to the memo. 

“City staff will continue to review and analyze impacts of the proposed bill and develop responses to the province through their Environmental Registry and Ontario Regulatory Registry commenting portals, where comments are being received on various regulatory amendments and policy proposals related to the legislation,” Stephanson added.