Fallout from Bill 108 puts $205M revenue at risk, could push Peel $393M deeper into debt

After the provincial government’s rushed and ham-fisted passage of Bill 108 last week, many cities and towns across Ontario will be looking inward to try to plug the gaping holes in their revenues the legislation threatens to create.

That will be no easy task.

A report going before Peel Region councillors on Thursday suggests the impact on the municipality could be into the hundreds of millions of dollars. A worst-case scenario sees $205 million in lost revenue and $393 million in extra debt for the region between 2020 and 2031 — with very few options available to make up those dollars, other than from the pockets of property taxpayers.

The backlash over Bill 108, dubbed by the governing PCs as the More Homes, More Choice Act, began immediately after the omnibus legislation was introduced on May 2. The bill received Royal Assent on June 6.

Critics slammed the legislation, claiming it not only does little to alleviate the GTA’s affordable housing crisis but actually makes it harder to build such developments and instead encourages sprawling subdivisions filled with expensive single-family homes.

The developer-friendly legislation has also been torn apart by environmental groups, who point out the bill weakens laws put in place to protect endangered species and naturally sensitive areas like the Greenbelt.

For municipalities, the implications of the More Homes, More Choices Act are particularly dire. They’re already feeling the pinch from growing infrastructure demands and the legacy of provincial downloading that gave municipal governments more responsibility without the commensurate revenue to pay for it.

Changes to the Development Charges Act under the provisions of Bill 108 are the most significant for cities.

Put simply, development charges are fees that municipalities are allowed to collect from developers to help pay for the future impact of the completed development. For example, DCs are collected to pay for “soft services” — things like parks and libraries that will be used by a development’s future residents. Development charges also support the construction of future infrastructure: roads, water mains and so forth. This is the crux of the “growth pays for growth” philosophy that Peel Region and other municipalities across Ontario rely on to meet the growth targets set by the province.

Premier Doug Ford and the provincial PC government pushed Bill 108 through Queen's Park last week, despite strong resistance from municipal and environmental stakeholders. 

That philosophy is now at risk with Bill 108’s sweeping changes to the Development Charges Act, which governs when and how municipalities can collect these fees.

Most significant for Peel are changes to the timeframe for collecting charges. Previously, DCs were collected after a building permit was issued. Under Bill 108’s new rules, DCs for rental housing developments, institutional commercial industrial (ICI) class developments and not-for-profit housing projects would have their DCs deferred until the development is occupied, and then only in six annual instalments over five years. The inclusion of ICI developments in the bill is a confusing move for the region, where staff note that commercial buildings do nothing to increase housing supply — the ostensible goal of the legislation. Nor were such developments included in the government’s consultation process for the housing plan.

Under the “growth pays for growth” philosophy, Peel Region relies on DC charges to fund construction of infrastructure required for future growth. However, if this cash is not provided upfront by developers whose projects are in the pipeline, the region must find other ways to pay for building those things. This means either taking out more debt or ratcheting up property taxes and utility fees to bolster municipal coffers — neither of which is an attractive scenario.

“Proposed changes would have potentially adverse impacts that would result in reductions in services and infrastructure required to support growth,” according to a report from a trio of top regional officials: Stephen VanOfwegen, the region’s commissioner of finance and chief financial officer; Andrew Farr, the acting commissioner of public works; and Janice Sheehy, the commissioner of human services.

“Investments that do continue will be paid for by the taxpayer to make up the lost DC revenues. This could ultimately lead to less housing being built.”

Stephen VanOfwegen, the Region of Peel's commissioner of finance and chief financial officer, and other senior staff members are reporting to regional council Thursday on the potentially costly impacts of Bill 108. 

Staff estimate the fallout from Bill 108 could produce an added debt burden of $346 million to $393 million between 2020 and 2031. This would be a significant step backward for the region, which has been able to avoid approximately $728 million in debt since 2013 through its growth management strategy.

“If more municipal operating revenues are needed to cover the cost of growth, it will be at the expense of maintaining existing capital assets, levels of services, or current property tax rates,” says a submission to the province from the Municipal Finance Officers’ Association (MFOA). “In addition, municipalities may not have the funds available to put the infrastructure in place needed for development to occur in a timely way. Further restricting cost recovery tools is counterproductive and will increase inequities within communities. These are unintended consequences that will undermine the health and vibrancy of Ontario’s communities.”

Not only does Bill 108 threaten to lead to a skyrocketing debt load, it means a loss of about $205 million in DC revenue over 10 years. This includes $48 million in charges that have simply been removed by Bill 108, and $157 million of potential income that will be exempt.

One of the province’s significant moves to try to diversify housing in Ontario was to make it easier for developers to build secondary suites in homes and ancillary buildings by exempting these units from development charges.

Peel staff estimate that if 15 percent of developers in the region take advantage of this proposal, $157 million in potential revenue would be lost between 2020 and 2031.  

“Should there be significant uptake of this newly prescribed class in new construction, it would create the need for additional growth infrastructure to be in place ahead of development. As the DCs for such infrastructure would be exempt, lost revenues would need to be recovered through increased property taxes and utility rates,” the regional report says.

Peel Region isn’t the only municipality expressing concerns about the financial hole potentially being created by Bill 108.

A previous report from the City of Brampton puts approximately $388 million of potential revenue at risk over the next 10 years, which could pose issues for many capital projects. In 2019, 28 percent of the city’s capital budget is funded through development charges.

Bill 108 hasn’t completely torn the rug out from beneath the feet of Ontario’s cities. The provincial government has proposed an alternative to help fill the gap, but details remain sketchy.

The replacement revenue tool, dubbed the Community Benefits Charge, rolls together several previously available revenue tools into one. Peel Region staff, with few details available on how it will work, are worried it won’t be enough to cover the gap, since the bill also puts a cap on how much municipalities are able to charge developers.

“The proposed CBC needs to raise sufficient revenue to cover growth-related costs for services. It is not known if the prescribed cap (to be set by regulation) will be sufficient to offset existing charges for soft services or alternate parkland dedication requirements,” the Peel report reads.

There are no details as to rates, what municipalities would be able to charge, how it would be charged, or how revenues would be divided in a two-tier municipal system like Peel/Brampton.

Brampton staffers are concerned that the new CBC actually contradicts the philosophy of “growth pays for growth.” Between the proposed cap and the requirement to spend 60 percent of all CBC revenues within a year after they are received, they worry that less money overall will flow to municipal coffers from development.

The impact for Peel goes beyond the financial. From a planning perspective, many of the region’s expressed desires for smart, sustainable growth could be put at risk by Bill 108’s developer-friendly policies.

Reversing a move by the previous Liberal government, the PC bill reverts the new rules followed by the Local Planning Appeals Tribunal (LPAT) back to the controversial Ontario Municipal Board-style process abandoned by the previous Liberal government after years of criticism. The OMB was seen as favouring developers and giving little weight to municipal decision-making power, two issues thought to be eliminated when the province introduced the LPAT.

“The region is specifically concerned that the proposed changes could result in less weight being placed on municipal council decisions,” the regional report says.

Bill 108 may inadvertently create a mess for land use planners, who will be forced to deal with shorter timelines to complete items such as zoning bylaw amendments and plans of subdivision. The timelines are being shortened by 60 days, to 90 and 120 days respectively.

Another change could prompt a flood of activity for city officials without resulting in a quick expansion of housing.

Currently, development charge rates are based on several factors, including projected population growth, infrastructure costs, and the need for services. These rates are established in a development charge bylaw that each municipality is mandated to enact to guide the application of DCs.

Prior to Bill 108, cities set their DC rates at the time a building permit was issued (and the charge was due). However, under Bill 108, developers will have their DC rates set during the planning stage, after the site plan or zoning application is completed. This could create significant issues for municipal planners.

“(This would) incent developers to flood the Region and local municipalities with speculative zoning bylaw amendment applications for lands outside of a site plan control area to lock in a lower DC rate, but then refrain from proceeding to the building permit stage,” the report suggests. There’s a risk that developers, seeking to lock in a cheaper rate, would bring haphazard and rushed plans to the city, without any real intention of moving forward with the development for a long time. Under Bill 108, there is no mechanism to reset DC rates after a specified time.

Municipal politicians across Ontario had described these effects as “devastating,” but that did nothing to slow the bill’s passage at Queen’s Park, a mere 35 days after the PCs first proposed them.

For context, municipalities will often spend months completing studies for their development charge bylaws, including several public consultations, before a final report is created. Bill 108 provided less than 35 days for stakeholders to comment and allowed only a single day of public consultation. The public hearing was so brief that, despite the strict time limits for presentations, many organizations and individuals who had hoped to speak were deprived of their chance to appear before the committee and instead forced to submit a written summary.

"Our government wants to put affordable home ownership in reach of more Ontario families and provide more people with the opportunity to live closer to where they work," Steve Clark, minister of municipal affairs and housing, said in a press release. "That's why we consulted widely and acted swiftly to face the housing crisis we inherited head on. This legislation will make it easier to build more homes, more quickly, giving people more housing options and helping to bring prices down."

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