Taxpayer-funded incentives promised to spark urban renewal in Niagara, now a ‘total giveaway’ to luxury condo developers
Each year, the taxpayers of Niagara Region and its 12 municipalities hand out millions of dollars in incentives and grants to developers and small businesses through programs designed to spark growth in depressed areas or trigger remediation on contaminated plots of land.
However, over the last three years, a number of controversial decisions by local councils have seen these programs hand over millions to wealthy developers building multi-million dollar luxury condos—amid an affordable housing crisis that has left many Niagara residents waiting nearly two decades for assistance.
Regional staff did research that showed the incentives do work in rehabilitating lands that the market would not otherwise take on due to risk. By nature, this should be a temporary tool that stops once market momentum catches up. Early reports to Regional Council said exactly that, yet the incentives often continue in a market that no longer requires them.
The giveaways have raised serious questions about the effectiveness of incentive programs meant to direct taxpayer dollars to communities in need.
Community Improvement Plans, or CIPs, are a tool created by the Province under the Planning Act that allows municipalities across Ontario to create funding programs for any “environmental, social or community economic development reason.” These CIPs are varied across Niagara, but most commonly come in the form of grants over several years after a development is complete (a range of rebates can also be used). By far the most common type of CIP is a suite of grants to assist in the revitalization of a city's downtown core. Such programs are available in the majority of Niagara’s 12 municipalities.
One of the many mounting concerns is that residents in some of Niagara's municipalities are subsidizing wealthy developers in other parts of the region, while seeing few benefits coming back to them in return.
The intention of a CIP is simple enough to understand. Whether it’s a city’s downtown or another key area identified for growth—like Lundy’s Lane in Niagara Falls, or Crystal Beach in Fort Erie—if the municipality is able to provide an influx of funding for businesses to open, or for an existing business owner to rejuvenate their location, or for a residential development that could bring more people to an area in need of commercial activity, there’s a potential win-win outcome. More development would follow as the area begins to revitalize itself. In turn, the municipality will eventually reap big dividends from initial investment as increased taxes from new business and residents pour in. Developers have long expected incentives and various types of benefits to invest their time and resources into a community, and have traditionally donated heavily to municipal candidates in return for support when these taxpayer-funded subsidies are handed out to builders.
This funding mechanism has been used by municipalities across Ontario for decades, but until recently, there has been little research to determine if they actually work—or if they are little more than hand-outs to developers who walk away with even bigger profits on the backs of taxpayers who often don’t see anything in return.
It took a trio of council votes, but the Harbour Club, a Port Dalhousie condo project that plans to bring “exclusive” lofts and “estate residences” to the St. Catharines waterfront, got its millions from unwitting taxpayers.
The project on Lakeport Road will transform the historic Lincoln Fabrics building into a ritzy condo with 120 units and a 9-storey addition. It’s receiving approximately $7.12 million over the next 10 years, funding that is meant to assist with environmental remediation on the site.
St. Catharines council twice denied funding for the project. In 2019, when the initial application was presented to councillors it was turned down. It then lost again on a reconsideration vote in a subsequent meeting. However, after St. Catharines staff reconfigured the CIP program with the addition of a “scoring” system that gives points to proposed developments—placing significant weight on the dollar value of the project, the density, and the addition of mixed-use components—Valour Group and SDR Group were able to reapply. This time they were successful, receiving $3.56 million over 10 years, funding that is then matched by Niagara Region through the 12 municipalities that provide the tax dollars, including 11 that will see none of the direct benefits.
The project’s approval drew the ire of local Port Dalhousie councillors who protested taxpayer money being handed to luxury condo developers.
“Talk about a pile of money,” says Councillor Carlos Garcia. “The tax rebates go to the developer, not to the people who buy the condos. So it’s a total giveaway.”
The Harbour Club project highlights a number of issues with the current use of CIPs.
There are no criteria around who can apply for these incentives, leaving them open to developers big and small. This leaves the door open for large companies and even larger development consortiums to siphon off the limited taxpayer funding municipalities receive. They may not actually need the subsidy to get a project off the ground.
Valour Group, the conglomerate of companies involved in the Harbour Club project has an entire “Valour Capital” department which “undertakes an extensive due diligence review to determine the project’s viability and to structure a strategic financing solution.”
Large builders traditionally have not relied on government funding approval in their financing model. Material costs and labour are priced into the unit value for projects, paid by the buyer. Anything received from taxpayers is a bonus.
Harbour Club units and their “bespoke finishes” cost between $600,000 and $2 million. According to the project website, all of the pre-construction units have been sold.
The Lincoln Fabrics building (top) is set to be redeveloped into a luxury condo project.
(Image from Google Streetview, rendering from The Harbour Club)
Councillor Garcia says CIP funding should only be given to projects that would not be able to proceed without the money.
“That to me is the key,” he says.
This wasn’t the first condo development St. Catharines councillors had approved for CIP funding. A project right next door to Lincoln Fabrics promised to transform a Royal Canadian Legion branch into an 8-storey condo tower and received $856,000 from city council.
Most recently, councillors approved $5.7 million over 10 years for a 37-storey condo tower in the downtown core of St. Catharines. In total, the developer will receive more than $11 million in cash assistance from the City and Niagara Region. Aaron Waxman, the developer behind the project, is quoted in local media saying the project would not be able to proceed without the financial assistance.
Some local councillors have doubts about that statement.
“It has been one of the hottest real estate markets,” St. Catharines Councillor Bruce Williamson says. “There’s no need to incentivize when you have huge demand.”
The Pointer Niagara will be publishing a series of stories to find out more about these developer friendly CIP incentives, including how exactly municipalities score the applications, the transparency around the process and the relationships between elected officials, staff and the developers receiving taxpayer dollars.
The claimed benefits to the community is something that has already been scrutinized.
According to the staff report on the tower project, upon completion, the taxes on the property will increase by more than $700,000 annually. However, it’s unclear whether this financial boost to the municipality—sparked by taxpayer funding—will ever be returned to ratepayers who provided the upfront cash.
Williamson said about CIPs: “The evidence that we have is that they don’t really benefit economic development and they don’t really benefit the community or taxpayers in any way.”
Niagara Region first began offering incentives for development in 2002. Over two decades, there has been little evidence that shows local CIPs funded by taxpayers have benefited the residents of Niagara who pay for them.
“We have been unable to find a valid statistical correlation between what you spend in incentives and how your assessment grows,” explained KPMG representative Oscar Poloni in November 2019 before regional councillors. “There is no proven incremental impact of your incentives.”
Essentially, the growth Niagara was paying to spark, would have occurred without the money given to developers.
Poloni’s comments came after KPMG measured a host of regional outcomes that were supposed to benefit based on the money given to builders who in turn were supposed to help create badly needed features, such as affordable housing units.
Along with finding little evidence to support the guiding principle of the CIP programs, KPMG also found that about a third of the money doled out did not go toward projects that supported regional priorities (i.e. affordable housing) and there was “inconsistent and insufficient” monitoring to ensure the applicant was following through on its commitments. The report suggested that reducing or eliminating these incentives could be a key way for Niagara to ease its financial burden. A 2020 report from KPMG found that Niagara Region had limited financial resources and was struggling with a considerably high debt load compared to other municipalities.
Poloni told councillors the amount they have been approving in incentives (without the explicit okay from taxpaying constituents) is high compared to other Ontario cities. Contrary to their intended impact as a revenue saving tool, the KPMG report instead noted the suite of CIPs in their current form are “forecasted to create financial pressures in the coming years.”
The statements drew mixed opinions from councillors.
“It could have been a fallacy for the last seven or eight years to give rebates in a program that wasn’t directed in areas that we really wanted,” said regional councillor Brian Heit (St. Catharines).
Mayor of Fort Erie Wayne Redekop questioned the feasibility of eliminating such programs, and what options that would leave council for incentivizing development on brownfields or accomplishing other social policy objectives.
Within this split exists the largest question surrounding CIPs. If the taxpayer money being handed out is not triggering further economic growth, is it being used to accomplish another social policy goal, like providing affordable housing?
It’s clear from numerous reports that doubts are being raised about the effectiveness of CIPs as economic growth generators. The other difficulty with assessing the value of these programs is the definition of “success”. This can be very subjective. There is no comprehensive measurement tool that sets out criteria to determine success. Millions of public dollars are being handed to builders with next to no expectation for an exhaustive appraisal to determine what’s coming back in return.
If an area councillor is able to help a local business in their ward refresh its storefront, using dollars from a CIP, how is the community benefit measured? Should property taxpayers be the source for such investments in the private sector when small business loans and other private funding options exist?
Reports from area municipalities have raised the question about how effective these programs really are.
“There is no reliable evaluation tool available to the City to assess whether the project could or would proceed without incentives,” reads a 2020 report from St. Catharines staff.
A 2018 report from Niagara Falls municipal staff notes the very same, explaining that “A fiscal impact assessment is difficult to identify accurately for any CIP.”
A 2019 report from Fort Erie staff updating councillors on the success of their CIPs explains that the municipality is receiving approximately $10.50 of investment for every $1 provided through incentives. But this figure comes with a massive caveat.
“It may not be entirely appropriate to say these private dollars were invested because the programs were available,” the report states.
It continues: “The programs were nevertheless accessed and therefore, the dollars invested privately are associated with the improvements made to the buildings."
Finally, a research report completed by Paul Pirri in 2020—he is now the senior manager of economic development for the Town of Whitby—concluded much the same as KPMG. When studying 202 different CIPs across 133 Ontario municipalities, it was difficult to find any correlation between the use of CIPs and significant assessment growth. In fact, in some cases, over the long course of a CIP, assessment actually declined.
“The analysis reveals a negative relationship: the longer the time interval since adoption of a CIP, the greater the decrease in municipality-wide assessed value compared to communities that had not implemented community improvement plans,” the report reads, but he added that “while the models are statistically significant, they have little explanatory power.”
His report did separate analyses on CIPs geared toward increasing commercial and housing assessments. The findings were the same.
“No statistically significant relationships were found.”
It is worthwhile quoting Pirri’s conclusion in depth.
“This analysis yields no ‘slam dunk’ conclusions, in part because we cannot adequately tease out cause and effect,” he wrote. “On the one hand, adopting a CIP appears to have little effect on property values. On the other hand, declining property values are weakly associated with CIP adoption. A more sophisticated statistical analysis would be required to get to the bottom of these issues. What is clear, however, is that no strong relationships were observed. While widely used, CIPs do not appear to move the needle when it comes to a municipality’s economic health, at least as indicated by the assessed value of property…The fact that they continue to be used, and are used with increasing frequency, is an indication that either economic development practitioners or local politicians think that they work,” Pirri writes.
Of course, what many critics have stated as a justification has nothing to do with anyone believing CIPs actually work—they are often handed out to wealthy developers or other private sector entities who enjoy long relationships with the elected officials that ultimately control the public purse.
But there are a number of success stories in Niagara and other parts of Ontario that put CIPs on a pedestal, used to legitimize these incentives, often claiming they were the sole reason a company decided to invest in a community.
A suite of CIP incentives was provided for General Electric to build its massive manufacturing facility in Welland in 2016. That facility is credited with launching a significant amount of further investment along the Highway 140 corridor. In 2020, staff stated that 11 new industrial projects have come to Welland over the last six years. However, it remains unclear just how much of this growth can be attributed to the incentives provided to businesses.
The ecosystem of incentives across Niagara has started to shift. While St. Catharines has been handing out cash to developers building luxury condos; a staff presentation to councillors in the smaller municipality of Lincoln recommends getting out of the business of incentivizing stand-alone residential development “given changing market conditions.”
In Port Colborne, the municipality is currently reviewing its host of six CIP programs with an eye to simplifying them and gearing them more toward addressing the gaps in affordable housing.
Unfortunately, it’s clear that Niagara Region has not been prioritizing more social policy needs when using CIP investments—although some improvement has been observed over the last several years.
In 2018, 73 percent of the $13 million doled out through development charge grants and other incentives did not relate to an approved “incentive pillar”, which includes affordable housing, employment, brownfield remediation and the ill-defined “public realm”. In 2019, 41 percent of funding missed these four pillars, followed by 24 percent in 2020.
A third of the money doled out in incentive programs did not align with regional priorities.
While these programs make up a small portion of the overall regional budget, approximately $14 million in 2021, they form a significant part of the “discretionary” budget, a section of the budget where councillors have more wiggle room when choosing how this money is directed, falling outside of other legislated funding commitments, like policing, paramedics, public health or housing.
The discretionary budget is “things you choose to do, not because you have to do,” explained Poloni from KPMG.
Councillor Garcia told The Pointer he believes residents would be “horrified” to know that this amount of money is being directed to wealthy developers.
The handouts to large condo developers become even harder to swallow when looking at the ongoing affordable housing crisis in Niagara, and just how much impact these millions could have on the region’s most vulnerable.
According to data from Niagara Region Housing, since 2004, the region has invested $83.6 million, resulting in 839 affordable units. At a valuation of $99,653 per affordable unit, with the $7.12 million invested into the luxury condos at the Harbour Club and the $11.4 million into the 37-storey apartment tower in downtown St. Catharines, the region could have built approximately 186 affordable units—meaning it could have matched nearly a quarter of its affordable unit production over the last 18 years in one fell swoop.
The argument could be made that by pouring money into these social policy objectives and improving affordable housing it would actually result in more increased assessment growth and attract more businesses than any single government incentive ever could. When you factor crime reduction from improved housing options and human capital benefits that are harder to measure, but hugely significant in a community’s success, more questions arise about the use of funds to help developers instead of more targeted funding that could be better utilized by the Region.
The academic literature is rife with studies that dig into the reasons why companies large and small choose to locate their businesses where they do. While the findings vary depending on the nature of the business or industry, studies have found a number of common factors underpin these critical decisions.
Historically, factors like the level of education among an area’s workforce, population density, energy costs and local economic conditions have played prominent roles in the decisions. But a 2021 study found that more than ever, businesses are looking at the social and environmental health of an area when making this choice.
“Currently, managers must consider additional factors that, due to their company’s surrounding environment, have acquired greater importance. These decision criteria include, among others, access to technology, regional legal and political security, gender equality, climate, and environmental factors,” the European study states. “Given these complex variables, location decisions have become even more complicated, turning them into multi-criteria decision problems.”
As a foundation of many of the social determinants of health, increasing the availability of affordable housing and putting a roof over the heads of more people in need will check many of these boxes for local companies. More housing means less crime, a healthier population (and when constructed properly, a healthy environment), and can create a workforce that is better positioned to compete for jobs when other companies arrive.
“I couldn’t think of a better way to help support our local businesses, than to make significant progress in addressing our housing supply needs, which will increase the capacity for discretionary income by making housing more affordable,” wrote regional councillor Diana Huson on her website in 2021 (she did not respond to a request to be interviewed for this story). “In this way more of our residents will have the capacity to shop local, eat at a local restaurant, make retail or other purchases.”
Councillor Garcia has made reforming the CIP programs a key plank of his reelection campaign ahead of the October 24 municipal election.
“If I get reelected and hopefully get council support so that we can have something that focuses more on remediation and affordable housing,” he intends to shift the use of public funds in the community, pointing to the old GM facility that is a “toxic wasteland”.
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