Development Finance Choices Guide - British …...Michael Marson, Ministry of Municipal Affairs...

ACKNOWLEDGMENTS

Consultants: Urban Systems, Kelowna Office; Gerry Tonn and Allan Neilson-Welch

Local Government Case Study Contributors:Ruth Malli, Town of LadysmithCliff Kraft, City of KelownaMurray Dinwoodie, City of Surrey

Development Finance Review Committee (DFRC)

Dale Wall, Ministry of Municipal Affairs (Chair)Murray Dinwoodie, City of SurreyMaureen Enser, Urban Development InstituteJim Godfrey, Resort Municipality of WhistlerChris Hartman, Canadian Homebuilders Assoc.Chuck Gale, City of RichmondRobin Hicks, City of CoquitlamKenji Ito, City of BurnabySteve Kurrein, Canadian Homebuilders Assoc.Rod Kray, Township of LangleyDavid Linton, Urban Development InstituteDrew MacTaggart, Ministry of Municipal AffairsKaren Monsarrat, BC Real Estate AssociationHarriet Permut, Union of BC MunicipalitiesRobert Robertson, District of Maple RidgeElaine Taylor, Ministry of Municipal AffairsIgor Zahynacz, City of Port Coquitlam

Choices Guide Review Panel (CGRP)(some members of DFRC also served)

David Bullus, Urban Development InstituteGarry Gilchrist, Urban Development InstituteNeil Goldie, Ministry of Municipal AffairsArt Kool, Canadian Homebuilders Assoc.Cliff Kraft, City of KelownaNeil Nyberg, City of CoquitlamHerman Rebneris, Canadian Homebuilders Assoc.Bill Susak, City of North Vancouver

Publications Manager

Michael Marson, Ministry of Municipal Affairs

Canadian Cataloguing in Publication DataMain entry under title:Development finance choices guide. --

ISBN 0-7726-4380-6

1. Infrastructure (Economics) - British Columbia - Finance. 2. Infrastructure Economics) - British Columbia - Decisionmaking. 3. Public works - British Columbia - Finance. 4. Local finance - British Columbia. 5. Real estate development -British Columbia - Finance. I. British Columbia. Growth Strategies Office.

HC120.C3D48 2000 352.7'7214'09711 C00-960324-7

DEVELOPMENT FINANCE CHOICES GUIDE i 10/15/2000

TABLE OF CONTENTS

1. INTRODUCTION ..............................................................................................................................1

2. LOCAL GOVERNMENT FINANCE AND GROWTH ..................................................................................3

3. BROAD APPROACH........................................................................................................................5

4. INFLUENCING FACTORS..................................................................................................................8

5. DEVELOPMENT FINANCE TOOLS ................................................................................................... 10

5.1 DEVELOPMENT COST CHARGES ....................................................................................... 125.2 LOCAL IMPROVEMENTS .................................................................................................... 145.3 SPECIFIED AREAS ........................................................................................................... 155.4 USER FEES AND CHARGES............................................................................................... 165.5 SHORT-TERM BORROWING............................................................................................... 175.6 LONG-TERM BORROWING ................................................................................................ 185.7 LATECOMER CHARGES .................................................................................................... 205.8 DEVELOPMENT WORKS AGREEMENTS............................................................................... 225.9 DCC CREDITS AND REBATES........................................................................................... 235.10 DENSITY BONUSING ........................................................................................................ 245.11 COMPREHENSIVE DEVELOPMENT AGREEMENTS ................................................................. 265.12 PUBLIC-PRIVATE PARTNERSHIPS ...................................................................................... 285.13 PUBLIC-PUBLIC PARTNERSHIPS ........................................................................................ 30

6. MAKING CHOICES........................................................................................................................ 31

6.1 DEVELOPMENT COST CHARGES ....................................................................................... 346.2 LOCAL IMPROVEMENTS .................................................................................................... 366.3 SPECIFIED AREAS ........................................................................................................... 386.4 USER FEES AND CHARGES............................................................................................... 406.5 SHORT-TERM BORROWING............................................................................................... 426.6 LONG-TERM BORROWING ................................................................................................ 436.7 LATECOMER CHARGES .................................................................................................... 456.8 DEVELOPMENT WORKS AGREEMENTS............................................................................... 476.9 DCC CREDITS AND REBATES........................................................................................... 486.10 DENSITY BONUSING ........................................................................................................ 496.11 COMPREHENSIVE DEVELOPMENT AGREEMENTS ................................................................. 516.12 PUBLIC-PRIVATE PARTNERSHIPS ...................................................................................... 526.13 PUBLIC-PUBLIC PARTNERSHIPS ........................................................................................ 546.14 SUMMARY MATRIX .......................................................................................................... 55

DEVELOPMENT FINANCE CHOICES GUIDE ii 10/15/2000

7. CASE STUDIES ............................................................................................................................ 57

7.1 TOWN OF LADYSMITH ...................................................................................................... 587.2 CITY OF KELOWNA .......................................................................................................... 617.3 CITY OF SURREY............................................................................................................. 65

8. CONCLUSION .............................................................................................................................. 68

DEVELOPMENT FINANCE CHOICES GUIDE 1 10/15/2000

1. INTRODUCTION

The financing of growth-related infrastructure isan important issue for local governments inBritish Columbia, particularly for those situated inhigh growth regions of the province. The currentenvironment in which local governments makefinancing decisions is characterized by a numberof realities which, taken together, make theprovision of growth-related works quitechallenging. Consider the following points:

� Senior government infrastructure grantprograms assign a low priority to growth-related works.

� Taxpayers and utility users are, in general,not prepared to contribute to infrastructurewhich is required by development.

� Private sector developers demand a highlevel of transparency and accountability inthe methods used by municipalities todetermine benefits and assign costs.

� Development finance has evolved into one ofthe more complex areas of local governmentadministration. The financial and legalstakes are high for all parties involved.

Along with new challenges, however, have comenew opportunities. Recent amendments to theLocal Government Act have provided newpowers and increased flexibility to localgovernments. The various changes, taken as awhole, have enabled local governments tobecome more innovative in their use of newcapital finance tools, and more creative in theirapplication of existing tools.

The challenges and opportunities facing localgovernments in the area of development financehave created the need for resources to whichlocal government practitioners can turn forinformation on finance options available, and forguidance in making finance decisions. ThisDevelopment Finance Choices Guide ispresented as one such resource.

Purpose:

The Development Finance Choices Guide

explores the central question of how localgovernments select which tools to use to financethe infrastructure required to accommodategrowth.

In addressing this question, the Guide sets out to:

� identify and describe the finance tools forgrowth-related infrastructure available tolocal governments in British Columbia;

� outline considerations that should be takeninto account by local governments whenselecting alternative tools; and,

� provide guidance to local governments withrespect to the design and implementation ofkey tools.

It is hoped that the Guide will be of interest to avariety of audiences, including local governmentelected officials and members of thedevelopment community. First and foremost,however, the Guide has been written as aresource for local government practitioners.

Finally, it should be noted that the Guide focuseson the financing of off-site infrastructurerequirements. The Guide is not concerned withthe financing or provision of on-site works andservices required under section 938 of the LocalGovernment Act.

Background:

In December, 1995, the Ministry of MunicipalAffairs began a multi-year process to review thetopic of local government development finance.The review was initiated in response to concernsexpressed by a number of interests, includinglocal governments themselves and thedevelopment community.

A Development Finance Review Committee wasestablished to set priorities for the review, and tooversee the entire process. A number of keystakeholder organizations are represented on theCommittee, including:

� the Urban Development Institute;


� the Canadian Home Builders' Association ofBC;

� the Union of British Columbia Municipalities;� the BC Real Estate Association; and,� the Planning Institute of BC.

The Committee is chaired by the AssistantDeputy Minister (Local Government) fromMunicipal Affairs.

Soon after its inception, the Committee decidedthat development cost charges (DCCs) should bethe focus of early study. The Committee calledfor a resource document designed to foster amore rational, equitable and consistent approachto DCCs throughout the province. TheDevelopment Cost Charge Best Practices Guide,published by the Ministry in 1997, was theresource document created.

The encouraging response to the DCC BestPractices Guide prompted the Committee toconsider other needs in the area of localgovernment development finance. Morespecifically, the success of the Best PracticesGuide paved the way for the Committee to beginwork on a second guide, intended to assist localgovernments in selecting and implementingappropriate development finance tools. Thissecond guide, presented here, is titled theDevelopment Finance Choices Guide.

Format:

The Development Finance Choices Guide ispresented in eight separate sections.

� Section 2 begins with a broad discussion ofthe impact of growth on local governmentservices. Growth-related infrastructure, thecost of which is often transferred to growthitself, is distinguished from other localservices. A three-step decision-makingprocess for dealing with the financing of suchinfrastructure is introduced.

� Section 3 focuses on step one in thedecision-making process: defining a broadapproach to development finance. Thepolicy questions to consider in defining anapproach are outlined, and the important linkbetween the broad approach and thecommunity's policy framework is explored.

Comments on the actual approaches takenby governments are offered, and the keyplayers involved in setting an approach areidentified.

� Section 4 deals with step two of the process -the consideration of key factors whichinfluence the implementation of agovernment's broad approach. Factorsrelated to characteristics of the particulardevelopment project and the nature of thedevelopment industry are also reviewed.

� Section 5 addresses step three of theprocess: reviewing the individual tools. Thissection introduces and categorizes thirteendevelopment finance tools available to localgovernment. The text on each tool includesthe legislative authority for the tool, adescription of the tool, comments onimplementation and a discussion on the tool'sapplication to the development of growth-related infrastructure.

� Section 6, titled Making Choices, evaluateseach against a set of developmentconsiderations. The purpose of this sectionis to help local governments understandwhich tools are well suited to differentcircumstances. Best practices associatedwith each tool are identified. A summarytable is provided for easy reference.

� Section 7 features development finance casestudies from three municipalities: the Town ofLadysmith; the City of Kelowna; and, the Cityof Surrey. The case studies attempt toillustrate how, in practice, local governmentschoose different combinations of financetools to meet different circumstances.

� Section 8 concludes the Guide with a reviewof its key points.

Ministry of Municipal Affairs:

The Development Finance Choices Guide ispublished by the Growth Strategies Office of theMinistry of Municipal Affairs. A digital copy of theGuide is available on the Ministry's web-site(www.marh.gov.bc.ca/GROWTH).


2. LOCAL GOVERNMENT FINANCE AND GROWTH

Any discussion of local government finance andgrowth must recognize, as a starting point, thereality that growth puts pressure on localservices. As growth occurs, local governmentsneed to build new infrastructure and expand thedelivery of many services, including recreation,regulatory, corporate and emergency services.All areas of local government activity areaffected by growth.

Who should pay for the services required bygrowth? The answer to this question willdepend, in large part, on a community's valuesand attitudes with respect to development. Theanswer will also, however, depend on certainpractical considerations, such as whether or notit is even possible to attribute costs to specificbeneficiaries. (Development Cost Charges arebased on the principle of “user-pay”- thatinfrastructure should be paid for by those whouse and benefit from it).

The combination of community values andpractical considerations leads, invariably, to asituation in which the total cost of servicesrequired by growth is shared between growthitself and the community as a whole. Localgovernments choose, based on the values andpracticalities, which services are to be paid forby development, and which are to be paid for bythe greater community.

This allocation of servicing costs is depicted infigure 2A. As illustrated, the cost of new growth-related infrastructure is, in many cases, imposedon development. The cost of other activities,such as emergency and recreation services,normally falls to the community as a whole.

This Guide is not concerned with the cost, orfinancing, of activities such as emergency andrecreation services that are paid for by thegreater community. The Guide focuses, instead,on the new infrastructure required, and paid for,by growth. Which finance tools do localgovernments use to provide the new growth-related infrastructure? How do localgovernments choose which tools are best suitedto different circumstances? These are the typesof questions addressed in the Guide.

It is important at this point to emphasize a keydifference in terminology specifically, thedifference between "paying for" a service and"financing" a service. The party which bearsresponsibility for the cost of a service is deemedto pay for that service. The party which pays forthe service, however, is not necessarily thesame party that finances the service. It is oftenthe case that a second party will finance, orfront-end, the cost of the service. This secondparty then recovers, through regular paymentsover a fixed period of time, monies for theservice from the party which is responsible forthe cost. This difference in terminology isimportant to understand when reading thisGuide, which is concerned with the methodsavailable to local governments to financegrowth-related works.

Financing Infrastructure:

The Local Government Act makes available tolocal governments a wide variety of finance toolsto assist in the development of growth-relatedinfrastructure. In providing such a wide range oftools, the Act anticipates that local governmentswill make choices. The Act anticipates that localgovernments will consciously consider andchoose those tools which, alone or incombination with others, best serve particularneeds and situations.

SERVICES

REQUIRED BY

GROWTH

PAID FOR BY

GREATER

COMMUNITY

• recreation• emergency

PAID FOR BY

GROWTH

• infrastructure

FIGURE 2A

ALLOCATION OF SERVICING


A clear appreciation of the pros and cons ofeach tool is necessary in order to make the rightchoices. A knowledge of the specific tools isnot, however, all that is required to make goodfinancing decisions. The process of determininghow to finance growth-related works is astrategic exercise that involves three distinctsteps, only one of which – the third – focuses onthe specific finance tools. Before consideringthe specific tools, a local government needs to:

� define its broad approach to developmentfinance; and,

� consider some key factors that influencehow the broad approach is applied inspecific cases.

The three-step decision-making process, showngraphically in figure 2B, is the focus of sections3 through 6 of the Guide.

FIGURE 2B

DECISION-MAKING PROCESS

DEFINE BROAD APPROACH TODEVELOPMENT FINANCE

CONSIDER KEY INFLUENCINGFACTORS

REVIEW INDIVIDUALDEVELOPMENT FINANCE TOOLS


FIGURE 3ALOCAL GOVERNMENT POLICY FRAMEWORK

A typical policy framework includes the followingstrategic, land-use, economic and financialdocuments:

� Regional Growth Strategy These plans,adopted under section 850 of the LocalGovernment Act, provide direction over allfacets of regional growth and development.

(CONTINUED ON NEXT PAGE)

3. BROAD APPROACH

Each local governmenthas a fundamentalphilosophy with respect todevelopment and thegovernment's role infacilitating development.The broad approach to thefinancing of growth-relatedinfrastructure that thegovernment adoptsreflects this fundamentalphilosophy. Defining this

broad approach is the first step in the decision-making process, and is the focus of this sectionof the Guide.

The section begins by reviewing the types ofquestions a local government needs to addressin order to define its approach. The importantlink between the broad approach and thecommunity's policy framework is then explored.The actual types of approaches taken bygovernments are discussed, and a review of thekey players involved in designing an approach isprovided.

Broad Approach to Development Finance:

Defining a broad approach involves theconsideration of several policy questions relatedto growth management. A list of thesequestions includes the following examples:

� How much growth can the communityexpect in the future? Is this expected levelthe optimal level from the community'sperspective? What are the community'sobligations, with respect to accommodatingfuture growth, to the larger region?

� What types of growth are preferred or notpreferred from an economic developmentperspective? What incentives ordisincentives should be considered to attractpreferred types and/or discourage others?

� Where should future growth be directed?Where should growth not be directed?

� What local infrastructure exists today? What

additions to infrastructure will be required toaccommodate growth? Which works arerequired as upgrades for the existingpopulation? When will new works berequired? Can the new works be phased?

� What is the cost of the new infrastructure?Who benefits from the works? Who shouldpay for the works? What does thecommunity consider to be equitable? Whereprivate parties pay for services, should theparties be expected to finance, or front-end,the costs? What is the community'scapacity for financing new works?

� Who should bear the risk associated withfront-ending infrastructure costs? What isthe community's tolerance for risk?

Policy Framework:

There is a clear and direct connection betweenthe local government's broad approach todevelopment finance and the local government'spolicy framework. The questions which areexplored in defining the broad approach are thesame questions which are considered indeveloping the policy framework. Moreover, theprocess through which the framework is createdprovides the setting in which these importantpolicy questions are addressed. (A typical localgovernment policy framework is outlined infigure 3A.)

The development of a policy framework, it

BROADAPPROACH

INFLUENCINGFACTORS

INDIVIDUALTOOLS


FIGURE 3A

LOCAL GOVERNMENT POLICY FRAMEWORK(CONTINUED)

� Official Community Plan (OCP) The OCP,which is consistent with the regional growthstrategy, sets out the broad growth-management policies of a community. Itprojects future growth levels, and indicateswhere growth will be accommodated.

� Comprehensive Development Plan (CDP) ACDP is a detailed plan for future developmentin a specific area of a municipality. A CDPconsiders:

- existing levels of development- future expected growth- infrastructure requirements and costs

related to the requirements- the means by which infrastructure

requirements are to be financed

� Strategic Servicing Plan (SSP) A SSP issimilar to a CDP, but broader in scope. A SSPaddresses the key questions related to the roleof local government in service delivery. Itconsiders the types of services that the localgovernment should be providing to thecommunity, and the government's role inproviding and financing services required bygrowth.

� Economic Development Strategy Aneconomic development strategy establishesthe objectives and policies for the economicgrowth and diversification of a community orregion.

� Financial Plan This plan, required under theLocal Government Act, outlines operating andcapital expenditures for each year over a fiveyear period. Infrastructure requirements forexisting populations and growth are included.Regional districts have a capital expenditureprogram which does the same thing.

should be noted, is a fluid, ongoing process.The policy documents within the frameworkreflect the values and attitudes of the particularcommunity. As these values and attitudeschange, so must the policy documents. Andeach time the documents are revisited, thebroad approach to the financing of growth-related infrastructure is also revisited.

Alternative Approaches:

Figure 3B presents a "broad approachesspectrum". At one end of the spectrum is thegovernment-centred approach. Under thisapproach, a local government chooses toassume responsibility for financing theinfrastructure required by growth. Thegovernment recovers its front-end expendituresfrom the developers and/or new property ownerswho are deemed to benefit from the works.

At the other end of the spectrum lies thedeveloper-centred approach. This approach isone in which the local government chooses toavoid any direct involvement in the financing ofgrowth-related infrastructure. Developers ofprojects that require the infrastructure areexpected to finance the works using their ownresources. The local government serves as acollection agent, collecting payments on behalfof developers from future beneficiaries of theinfrastructure.

It is the local government which chooses whichtype of broad approach to the financing ofgrowth-related infrastructure it will adopt. Inpractice, some local governments choose anapproach that falls on the spectrum somewherebetween the government-centred anddeveloper-centred models. In many instances,local governments will alternate between the twomodels – or variations of them – depending onthe particular set of circumstances. Forexample, in cases which involve one large,experienced firm, a local government may followa developer-centred approach and transferresponsibility for financing the works to thedeveloper. In cases which involve several small

Government-CentredApproach

Developer-Centred

Approach

Some Approaches Fall inThis Area

FIGURE 3B

BROAD APPROACHES SPECTRUM


firms, the same local government may adopt agovernment-centred approach and finance all ofthe works itself. This practice of alternatingbetween the different approaches is quitepragmatic, and not uncommon.

Players Involved:

There are four different players involved indefining the local government's broad approach:

� Council or Regional District Board TheCouncil or Board, as the community'sgoverning body, plays the central role in thepolicy process through which the localgovernment's broad approach is defined.Council leads all policy discussions andmakes the final policy decisions.

� Senior Staff Senior staff are instrumentalin initiating and facilitating the policyprocess. Staff members also act asadvisors to Council in addressing the keyquestions that arise in the process, and asthe implementers of the broad approach thatis defined.

� Citizens Local governments areincreasingly recognizing the right of citizensto play an active role, beyond the electoralprocess, in making the decisions that affecttheir communities. In keeping with this view,citizens participate directly in discussing theissues and formulating the policies on whichthe local government's broad approach is

based. This approach is, after all, intendedto reflect the values an attitudes of thecommunity.

� Development Community The broadapproach adopted by a local governmentimpacts the development community in adirect and real way. Representatives of thiscommunity are entitled to participate in thepolicy discussions that form the basis of theapproach.


FIGURE 4ASUMMARY OF INFLUENCING FACTORS

CHARACTERISTICS OF DEVELOPMENT:

� type of development� value of project� structure of land ownership� timing of infrastructure required (relative to

development)� benefit of infrastructure

NATURE OF DEVELOPMENT INDUSTRY:

� industry structure� expertise

4. INFLUENCING FACTORS

Defining a broad approachto development finance –the first step in thedecision-making process –is a critical task for a localgovernment to undertake.The broad approach setsthe tone for how thegovernment will deal withthe need for new growth-related works.

It is important to recognize that the broadapproach, while useful as a general guide, is nota prescriptive strategy to be applied blindly inevery development case. The specificcircumstances surrounding different projectsoften require a local government to bepragmatic, and to exercise judgement andflexibility in implementing its broad approach.Indeed, as was noted in the previous section,the requirement to be pragmatic and flexiblemay result in a local government alternatingbetween the government-centred anddeveloper-centred models.

It is possible to identify a series of key factorswhich influence the implementation of the localgovernment's broad approach in different cases.These factors relate to:

� the characteristics of the particulardevelopment project; and,

� the nature of the development industry.

These factors, which are summarized in figure4A, are explored in this section of the Guide.

Characteristics of Development:

Consider the following key characteristics:

� Type of development In simple terms,developments can be characterized as infillor greenfield. Infill developments involve thedevelopment or re-development of existinglots which have some degree of servicing inplace. Greenfield developments involve thebuild-out of new areas where services

typically do not exist.

Given their lack of existing infrastructure,greenfield developments can be expensiveto service. The party which is maderesponsible for financing the newinfrastructure must be of a large enough sizeto secure the financing, and to assume therisk associated with cost recovery. Theamount of financing required, and the

degree of risk associated with cost recovery,are two important factors that localgovernments need to consider indetermining how to approach the project.

� Value of project The value to the localgovernment of the development project mayinfluence the approach taken. Localgovernments may, for example, be preparedto assist developments that are expected toprovide a long-term economic or socialbenefit to the community or region.Consider a mixed-use, comprehensivedevelopment that promotes sustainableliving, or a housing development thatincludes a certain percentage of non-marketunits. Local governments may be preparedto front-end costs and assume risksassociated with cost recovery for thesetypes of projects. Conversely, localgovernments may require developers of

BROADAPPROACH

INFLUENCINGFACTORS

INDIVIDUALTOOLS


other projects to finance their own works.

The value that a local government attachesto a particular development will vary bycommunity and will depend on thecommunity's broader planning and socialdevelopment goals. Each local governmentneeds to assess development projects interms of value to the community and decide,based on the assessments, the bestapproach to apply in any given case.

� Structure of land ownership The structureof land ownership refers to the number ofproperty owners involved in a proposeddevelopment. A developer-centredapproach may be better suited to projectswhich involve a small number of owners; agovernment-centred approach may beneeded when there are many ownersinvolved.

� Timing of infrastructure requirements Different developments will have differentneeds with respect to the timing of requiredservices. Most greenfield projects will needa high level of servicing before actualdevelopment can begin. Somedevelopments will allow services to beprovided in phases that stretch over arelatively long period of time. Overall, timingis an important consideration that has majorcash flow implications for local governmentsand developers. These cash flowimplications may influence the government'sapproach in different cases.

� Benefit of infrastructure The infrastructurerequired to facilitate new development willvary in each case in terms of benefit. In afew cases, the infrastructure will be deemedto solely benefit growth, whereas in othercases, the works will be determined tobenefit both growth and existingdevelopment. In these latter cases, a localgovernment may decide that a government-centred approach would be the fairest wayto proceed.

Nature of Development Industry:

Good development within a community involvesa partnership between local government and thedevelopment industry. Both parties must havean understanding of each other's objectives,

abilities and methods of doing business.

Forging a partnership with the developmentindustry is much easier to accomplish when thelocal government understands the nature theindustry which is active in the particularcommunity. Consider the following factorsrelated to the nature of the industry:

� Industry structure In some communities,the development industry is relativelyhomogeneous in terms of the size ofcompanies. In other places, there is a widerange of differently-sized companies,including both large and small firms. Largercompanies, with greater resources, arenormally more able and, in some cases,more willing to finance infrastructure costs.A developer-centred approach may workwell with these companies.

Another consideration is the number offirms. In some areas the developmentindustry is dominated by a few developmentcompanies, while in other centres there arenumerous competitors. In centres where afew firms dominate, local governments maybe able to apply a developer-centredapproach, under which single developerswould be required to front-end infrastructurecosts. In places with numerous firms, localgovernments would likely need play a largerrole in the direct financing of new works.

� Expertise The development industry'slevel of expertise has implications for a localgovernment's approach. For example, adeveloper-centred approach might beproblematic in a community where thedevelopment industry does not have theexpertise or experience necessary to front-end the cost of major works.

In another community, the government-centred approach may not allow a moresophisticated firm to apply its full creativity orabilities to a development. A localgovernment that, through its choice of suchan approach, stifled this creativity and theseabilities would not optimize the benefits ofthe development to the community.


5. DEVELOPMENT FINANCE TOOLS

After a local governmenthas defined its broadapproach, and consideredthe key factors whichinfluence the application ofthe broad approach, thegovernment can turn itsfocus to the specificdevelopment finance tools.This section of the Guidebegins the review of theindividual tools.

Thirteen development finance tools available tolocal government are introduced and describedin the text that follows. The list of tools includes:

� development cost charges;� local improvements;� specified areas;� user fees and charges;� short-term borrowing;� long-term borrowing;� latecomer charges;� development works agreements;� DCC credits and rebates;� density bonusing;� comprehensive development agreements;� public-private partnerships; and,� public-public partnerships.

Format:

A common format is used to outline each tool.The format consists of five components:

� legislative authority for the tool;� description of the tool;� implementation of the tool;� application of the tool to the development of;

growth-related infrastructure; and,� additional comments.

Categories of Tools:

The order in which the tools are presentedreflects the grouping of the tools into fourdifferent categories. These categories include:

� Cost recovery tools tools used by localgovernments to recover capital expended ongrowth-related infrastructure. Cost recoverytools include development cost charges,local improvements, specified areas anduser fees and charges.

� Source of capital tools used by localgovernments to raise or obtain capitalrequired to finance new works. Sources ofrevenue include short-term borrowing andlong-term borrowing.

� Developer-build agreements tools thatlocal governments use to transfer theresponsibility for financing growth-relatedworks to developers. Developer-buildagreements include latecomer charges,development works agreements, DCCcredits and rebates, density bonusing andcomprehensive development agreements.

� Partnership agreements arrangementsunder which growth-related works aredeveloped and financed cooperatively bydifferent combinations of public and privatebodies. Partnership agreements includepublic-private partnerships and public-publicpartnerships.

Note that certain tools can fit into one or morecategory depending on how the tools are used.For example, latecomer charges anddevelopment works agreements, normally usedas developer-build agreements, can be used ascost recovery tools to recover the cost of worksthat are financed directly by local governments.DCCs are used by governments as a costrecovery mechanism, but DCC reserves areused as a source of capital for futureexpenditures.

For the purpose of simplicity, each tool has beenassigned to the one category within which,based on standard usage, it normally falls.

The categorization of tools is shown graphicallyin figure 5A. The thirteen tools described in thissection are located within the white circle in thefigure. Additional tools, which are considered as

BROADAPPROACH

INFLUENCINGFACTORS

INDIVIDUALTOOLS


less relevant or as ways to implement othertools, are located outside of the circle.

The two categories at the top of the figure – costrecovery and source of capital – contain toolsthat support a government-centred approach todevelopment finance. Local governments thatfollow a government-centred approach wouldchoose from the tools in these two categories.Local governments that have adopted a

developer-centred approach would choose fromthe tools in the developer-build category. Thetools under the partnership agreements categorymay support either approach depending on thespecific development circumstances.

COST RECOVERY

DEVELOPER-BUILD

AGREEMENTS

PARTNERSHIP

AGREEMENTS

SOURCES OF

CAPITAL

DCCs

LocalImprovement

SpecifiedArea

Fees &Charges Long-term

Borrowing

Short-termBorrowing

GeneralTaxation

Senior GovtGrants

Parcel Tax

Frontage Tax

LatecomerCharges

DCC Credits& Rebates

Development WorksAgreements

DensityBonusing

Public-PrivatePartnerships

Public-PublicPartnershipsLocal Govt

Enterprises

FIGURE 5A

CATEGORIES OF TOOLS

ComprehensiveDevelopmentAgreements


5.1 DEVELOPMENT COST CHARGES

LegislativeAuthority:

Local GovernmentAct, sections 933 –937. See also B.C.Reg. 166/84,

Development Cost Charge (Installments)Regulation.

Description:

Development cost charges (DCCs) are designedto assist local governments in recovering moniesexpended on growth-related infrastructure.DCCs may be imposed to recover costs relatedto the provision, construction, alteration orexpansion of the following services:

� highways, other than off-street parking;� sanitary sewers;� water;� drainage; and,� parkland acquisition and improvement.

DCCs are one-time charges levied againstresidential (single and multi-family), commercial,industrial and institutional developments thatimpose a capital cost burden on the localgovernment. DCCs may be specified accordingto different sectors as they relate to differentclasses and amounts of development. In all,however, the principle of equity requires thatcharges be similar for all developments thathave a similar impact on servicing.

DCCs are payable by developers at the time ofsubdivision approval in cases where suchapproval is required. Where subdivision is notrequired, DCCs are payable at the time ofbuilding permit approval.

Implementation:

DCCs must be implemented by bylaw, whichmust be approved by the Inspector ofMunicipalities. The development of the bylawinvolves the consideration of a number ofimportant policy issues, including:

� the appropriate role of the public in providinginput into, and /or review of, the bylaw;

� the geographic extent of the DCCs;� the time frame of the DCC program;� the categories of development to be

charged;� development projections;� the units on which to base the charges;� the eligibility of capital projects;� the degree of cost recovery possible; and,� the setting of the municipal assist factor.

Local government staff, with the benefit of publicinput, develop the bylaw and the proposed rates.The bylaw receives first reading by the Councilor Regional District Board, after which changesmay be made. After second and third reading,staff forward the bylaw and supportingdocumentation to the Inspector of Municipalities.Once the Inspector has approved the bylaw, it isreturned to Council for fourth and final reading.

Application:

DCCs are a common cost recovery tool, used inmost high-growth municipalities around theprovince. DCCs are not, however, consideredan appropriate tool for every developmentsituation. For example, DCCs, when used as acost recovery mechanism, may not be the bestway to finance the extension of infrastructure toservice greenfield developments. Consider thefollowing points:

� Infrastructure for new areas often must beconstructed before sufficient DCC revenuefrom development can be collected. Withoutsufficient DCC revenue, the localgovernment is required to borrow to pay forthe projects. The debt servicing chargesincurred by the local government in payingfor the infrastructure cannot be recoveredusing DCCs at present (Summer 2000),the Local Government Act does not allowlocal governments to include interestcharges in DCC rates.

� If development projections are overlyoptimistic in terms of the timing and/oramount of development in a newly-serviced


area, the local government will not collectenough DCC revenue to fully offset theinfrastructure costs already incurred.

DCCs may be more palatable when used as asource of capital. Consider a case whichinvolves the upgrading of existing infrastructure.Since the service already exists, there is someexisting capacity to accommodate growth beforenew infrastructure projects are required. DCCrevenues can accumulate in a reserve fundbefore the infrastructure work is necessary.When the work is necessary, the DCC reservescan be used as a source of capital, rather thanas a method of cost recovery.

In addition to the concerns related to usingDCCs to greenfield cases, there are certainlimitations inherent in DCCs that are important tonote. First, DCCs cannot be charged

� against any building which is used solely forpublic worship;

� against a residential (infill) building whichcontains less than four dwelling units; and,

� where the value of the work covered by abuilding permit does not exceed $50,000.

Second, DCCs, as noted earlier, can only beused to finance the construction of highways(other than off-street parking), sanitary sewers,water, drainage and parkland acquisition anddevelopment. DCCs cannot be used inconnection with other growth-relatedinfrastructure such as fire halls, libraries andrecreation centres.

Third, section 934(4)(d) of the LocalGovernment Act states that, in setting DCCs, alocal government must consider whether thecharges will deter development, or discouragethe construction of reasonably-priced housing orthe provision of reasonably-priced serviced land.Where infrastructure costs are high, the use ofDCCs may force the local government to apply asignificant assist factor in order to keep theDCCs down to acceptable levels.

Additional Comments:

Local governments interested in learning moreabout DCCs and their application should reviewthe Development Cost Charge Best PracticesGuide (1997), published by the Ministry ofMunicipal Affairs and available on the Ministryweb-site: http://www.marh.gov.bc.ca.


5.2 LOCAL IMPROVEMENTS


Local GovernmentAct, sections 622 –645; section 500.

Description:

Local improvements are infrastructure projectsundertaken by a municipality to benefit a specificneighbourhood or area of the community.Section 623 lists a variety of projects that amunicipal Council may undertake as localimprovements. Included in this list are:

� street improvements;� bridge developments;� sewer and water works; and,� park acquisitions and improvements.

The cost of work undertaken as a localimprovement is front-ended by the municipality,then recovered from property owners within thelocal improvement area using a parcel tax. Theparcel tax may be based on a single amount foreach parcel or the taxable frontage of the parcel.Owners may commute the charges imposed onthem for payments in cash.

The municipality may collect 100% of the cost ofthe improvement from the benefiting owners. Inmany cases, however, a municipality willcontribute a portion of the cost from generalrevenues.

The infrastructure costs incurred by themunicipality (and later recovered) can befinanced in a few different ways. First, themunicipal government can borrow the funds,subject to the counter-petition provisions insections 629 – 632. Second, the municipalitycan use monies from its own local improvementfund, established under section 500, to pay theowners' portion. These monies must be repaidwith interest.

Finally, in the event that the municipalitychooses to contribute to the cost of the localimprovement, the Council may pay all or some

of the municipality's portion in any year out ofmonies provided for in the financial plan.

Implementation:

In the case of a town, city and districtmunicipality, local improvements may beproposed by Council or undertaken in responseto a petition. In the case of a villagemunicipality, local improvements can only beinitiated by the community.

Local improvements proposed by a Council aresubject to the counter-petition provision insection 630. If a majority of property ownersrepresenting at least 50% of the value of thebenefiting parcels petition Council not toproceed with the work, the particularimprovement cannot be undertaken and cannotbe proposed again for at least one year.

Local improvements initiated by property ownersmust be proposed using a petition signed by atleast two-thirds of owners liable to be charged.The properties of the proponents must, together,represent at least 50% of the value of allbenefiting properties.

Application:

Local improvements are designed to assistmunicipalities in adding services to establishedareas. Local improvements are not the besttool, and were never intended to be used, toprovide growth-related infrastructure to newdevelopments. Specified areas are moreappropriate for growth-related infrastructure.

In the past, local improvements were used inplace of specified areas because, under theLocal Government Act, only local improvementparcel taxes could be commuted for payments incash. The legislation has since been changedto allow both local improvement and specifiedarea parcel taxes to be commuted.


None.


5.3 SPECIFIED AREAS


Local GovernmentAct, sections 646 –651. See also 629 –632; 363; 500.

Description:

Section 646(1) allows a municipal Council, bybylaw, to undertake any service for the specialbenefit of a specified area of the municipality.The cost of the service provided must be borneby the property owners within the specified area,and/or the users of the service.

The cost of the service can be recovered byCouncil using one, or a combination of, thefollowing means:

� an ad valorem tax on the land;improvements or both;

� a parcel tax; and,� other fees or charges as per section 363.

A parcel tax imposed on beneficiaries may becommuted for a payment in cash.

The infrastructure costs incurred by Council (andlater recovered) are normally financed eitherthrough conventional long-term borrowing, orusing appropriations from the municipality's localimprovement fund. Section 648(3) requires thatwhere costs are financed in one of these twoways, the entire capital cost of the service mustbe borne by the specified area (i.e., thecommunity as a whole cannot contribute to thecost). The key exception to this rule relates tothe cost of excess capacity that is built into theservice. The municipality may pay this cost, ormay allow a developer to recover the coststhrough a latecomer agreement.

Implementation:

Works provided to specified areas can, as withlocal improvements, be initiated by Council or byproperty owners in the proposed area. Whereproposed by Council, the local improvement

provisions in section 629 (Council initiative) andsection 630 (counter petition) apply. Whererequested by petition, the local improvementprovisions in section 631 (petition to Council)and section 632 (sufficiency of petition) apply.

All works developed to benefit a specified areamust be undertaken by bylaw.

Application:

Specified areas, in contrast to localimprovements, are an effective tool for financinggrowth-related infrastructure. Consider thefollowing points:

� Local improvements require a municipality torecover infrastructure costs using a parceltax that is based on either a common ratefor each lot, or the taxable frontage of eachlot. In new development areas, the size oflots can vary significantly, as can theirexpected impacts on services. Moreover,taxable frontage (i.e., the amount of lotactually fronting a service) may not apply toall lots. Specified areas allow a municipalityto recover costs using a combination ofparcel tax, ad valorem taxes and other feesand charges. This feature of specified areasenables a municipality to recover costs in away that requires beneficiaries to pay theirfair portions.

� Specified areas can be used in connectionwith any type of service. Localimprovements are limited to particularservices (see section 623).

� A specified area can be legitimately appliedover a much larger area than can a localimprovement. A sewage treatment plant,which might benefit growth and the existingpopulation throughout the entire community,could be financed through a specified areathat included most of the municipality.


None.


5.4 USER FEES AND CHARGES


Local GovernmentAct, section 363.

Description:

Recent changes (Bill 88, 1999) to the LocalGovernment Act afford local governments newpowers with respect to the setting and impositionof fees and charges. A local government maynow impose fees and charges to help financeany service that the government provides.

Implementation:

Fees and charges must be established bybylaw, and must be clearly related to the cost ofproviding the service. Local governments aregiven significant discretion in determining thespecific factors on which fees and charges arebased. A local government is required,however, to make available to the public, onrequest, a report indicating how the fees andcharges were determined.

Fees and charges may vary by category ofpersons, property, business and activity toreflect the different impacts on a service thatdifferent users may have. The categories ofusers, along with the different fees and charges,must be specified in the bylaw, as must anyterms or conditions of payment.

The imposition of fees and charges is notsubject to an elector assent process.

Application:

User fees and charges are normally collected tocover the operating costs associated with theprovision of municipal services. Fees andcharges can also be collected and used towardthe financing of growth-related infrastructure.A local government, for example, can(conceivably) recover part of the cost of

installing a sewer trunk through a connectioncharge that would be greater than the actualcost of providing a hook-up. Or, a localgovernment might choose to include a portionfor capital debt retirement in annual user feescharged to properties which are connected tothe system.


Views on the appropriateness of using fees andcharges to recover growth-related capital costsare mixed. Some observers would argue thatuser fees and charges are intended to assistlocal governments in financing operations, andthat the use of fees and charges to recovergrowth-related capital expenditures would not beappropriate. Others would assert that fees andcharges constitute a legitimate component of acapital financing strategy.

Notwithstanding this difference in views, it islikely that more local governments will considerusing fees and charges to assist in the financingof growth-related infrastructure. The need toinnovate and try new tools is, in the current fiscalenvironment, quite compelling.


5.5 SHORT-TERM BORROWING


Local GovernmentAct, section 334.4.

Description:

Section 334.4 allows local governments toborrow, for a period not to exceed five years, amaximum of $50 per capita for capital projects.The $50 per capita limit is the total amount, forall capital projects combined, that a localgovernment may borrow at any one time.

Implementation:

All short-term capital borrowing must beapproved by bylaw. Unlike long-term borrowingbylaws, however, short-term borrowing bylawsare not subject to the elector assentrequirements of the Act.

Application:

Local governments make use of short-termborrowing in the following types of cases:

� To raise funds which may be required tosupplement other monies that have beencollected or dedicated to particular works.For example, a local government may findthat its DCC reserves are not sufficient tofinance a particular infrastructure projectwhich cannot be postponed. Themunicipality may choose to "top up" the fundusing short-term borrowing.

� For small capital projects, or smallcomponents of larger projects. A localgovernment, for example, may construct anew recreation centre using capitalreserves, only to find that an additional$150,000 is required for furnishings. The$150,000 could be raised through short-termborrowing.

� For small projects which cannot wait thethirty days required for the counter-petitionprocess.

Given the $50 per capita ceiling on short-termcapital borrowing, this development finance toolis limited in its value for financing growth-relatedinfrastructure. Short-term borrowing is,however, useful in conjunction with other tools.


None.


5.6 LONG-TERM BORROWING


Local GovernmentAct, section 332, 335.See also sections334, 335.1-5, 337,

338, 835, 1022.

Description:

Long-term borrowing is a tool used by localgovernments to front-end the cost of all types ofnew infrastructure.

Implementation:

Long-term borrowing is initiated through theadoption of a loan authorization bylaw as persection 335.1 of the Local Government Act. Thebylaw sets out:

� the total amount to be borrowed;� the purposes for which debt is to be

incurred;� the amount of debt allocated to each of the

purposes; and,� the maximum term for which debentures

may be issued.

The maximum term of debt that may beauthorized under the bylaw is the lesser of:

� thirty years; and,� the reasonable life expectancy of the capital

asset for which the debt is incurred.

The bylaw is subject to the counter petitionprocess outlined in section 335.1 of the Act, andmust also receive the approval of the Inspectorof Municipalities.

Once the loan authorization bylaw has beenadopted, the local government must raise therequired monies. In most cases, monies areraised through the sale of debentures whichmust be separately authorized by a securityissuing bylaw adopted under section 335.3 ofthe Act.

The Municipal Finance Authority (MFA) is, withfew exceptions, the vehicle through which localgovernment debentures are sold. A municipalrequest to issue debentures is submitted to theMFA Board of Directors through themunicipality's Regional District; RegionalDistricts submit their own requests. Themembers of the MFA authorizes the issuanceand sale of securities in an amount sufficient tomeet the requests.

Application:

Long-term borrowing, as a tool used by localgovernments to directly finance newinfrastructure, supports a government-centredapproach to development finance. In mostplaces, long-term borrowing is a necessarymeans of providing larger capital projects thatcannot be financed using reserves or currentrevenues.

There are financial risks inherent in the use oflong-term borrowing. When used in conjunctionwith certain cost recovery tools, such as aspecified area or local improvement area, therisks to local governments are minimal. Therecovery of all monies borrowed plus interest is,in most cases, assured by the use of thesetools.

When used in conjunction with tools such asDCCs, however, the risks associated with long-term borrowing can be significant. Ifdevelopment does not occur as projected, thecommunity as a whole will be liable for alloutstanding debt payments. Further, thecarrying costs (i.e., interest) incurred throughlong-term borrowing cannot be recoveredthrough DCCs.

It should be noted that the length of repaymentperiod proposed in a loan authorization bylawshould not exceed the useful life of theinfrastructure project. A local government, forexample, should not incur a debt of greater than15 years on an infrastructure project that has alife cycle of 15 years.



The MFA presently has a triple-A credit ratingwith Moody's Investor Service and the CanadianBond Rating Service. This rating, which ishigher than that enjoyed by any province, resultsin excellent financing terms for localgovernments.

Local governments that would like additionalinformation on long-term borrowing shouldcontact the Municipal Finance Authority throughits web-site (www.mfa.bc.ca).


5.7 LATECOMER CHARGES


Local GovernmentAct, section 939. Forcontext, see section938.

Description:

A latecomer charge is a charge imposed onproperties which connect to, or use, excess orextended services.

Under section 939, a local government mayrequire that the owner of land that is to besubdivided or developed provide excess orextended services i.e., facilities that serveproperties other than the land being developed.Where a local government makes thisrequirement, the cost of providing the excess orextended services must be financed by eitherthe local government itself, or the owner of theland being developed. The party that front-endsthe costs is entitled to compensation fromlatecomers who benefit from the excess orextended service. The compensation paid is thelatecomer charge.

It should be noted that while the Act doesprovide for either the local government ordeveloper to finance the excess or extendedservice, the intent of section 939 is that it is thedeveloper who will make the front-endexpenditure. The local government's role is tocalculate the latecomer charges, impose themon latecomers, collect the latecomer revenuesand forward them to the developer.

Section 939(8) requires a local government toinclude interest in its latecomer chargecalculations. The specific rate of interest to beapplied is established by bylaw and is a matterfor Council to decide.

As per section 939(9), latecomer charges canonly be collected for a maximum of ten yearsfrom the date on which the excess or extendedservices are completed. Latecomers whoconnect to the service after the ten year period

are not required to pay their fair portion of thecost of providing the services.

Finally, as noted in section 939(3), latecomercharges can only be used to finance highways,water, sewage and drainage infrastructureworks.

Implementation:

To implement a latecomer charge, a localgovernment takes the following three steps:

� determines the proportion of theinfrastructure cost which constitutes excessor extended service;

� determines the benefit of the excess orextended service to each parcel of land thatwill be served; and,

� imposes a latecomer charge on benefitinglands in relation to the benefit determined(see previous point).

The local government does not have to enterinto a formal latecomer agreement with thedeveloper unless the collection period agreed toby both parties is less than the maximum tenyears provided by the Act. Nevertheless, it isrecommended that formal agreements be drawnup in all cases in order to allow both sides toidentify and fully understand the variousadministrative obligations that each has withrespect to the collection and disbursement ofmonies.

Application:

Latecomer charges are typically used in caseswhere developers wish to build on "out-of-sequence" greenfield sites that are notcontiguous to existing urban development. Inexchange for granting development approval,the local government may require the developerto provide highway, water, sewage and/ordrainage works with enough capacity to servicenot only the developer's own site, but also thefuture development properties situated nearby.


Developers who agree, as a condition ofapproval, to finance excess or extendedservices accept the risk that not all of the costsassociated with the excess or extended portionwill be recovered before the ten year period hasexpired.


It is important to note that a developer does nothave to apply to receive latecomer payments.Under section 938, a local government mayestablish a subdivision servicing bylaw thatrequires developers to provide a wide range ofworks and services in respect of the subdivisionof land. If a developer, in accordance with thebylaw created in section 938, provides highway,water, sewage or drainage facilities that serveland other than the land being developed, thelatecomer provisions automatically apply.

The automatic application of latecomerprovisions is an important point. If a localgovernment, through a bylaw under section 938,requires a developer to provide excess orextended services, the developer is entitled tocompensation from latecomers. If the localgovernment fails to collect latecomer revenues,the local government may incur what could be asignificant liability.

Local governments interested in learning moreabout latecomer charges and their applicationshould consult the Latecomer Policy: UserManual, prepared by the Township of Langley in1988 (copies available through the MunicipalFinancial Services Branch of the Ministry ofMunicipal Affairs). In spite of its age, thisdocument remains a very useful resource forlocal governments.


5.8 DEVELOPMENT WORKS AGREEMENTS


Local GovernmentAct, section 937.1.See also sections 630and 632.

Description:

A development works agreement is anagreement between a municipality and adeveloper for the provision of off-site sewage,water, drainage and highway facilities to, or forthe improvement of parkland in, a newdevelopment area of the community.

Section 937.1(2)(a) notes that the agreementcan hold either the municipality or the developerresponsible for providing (and financing) theworks. The intent of the legislation, however, isthat the works be provided by the developer,usually as a condition of development approval.

Where a developer provides the works, themunicipality must allocate all or part of the costof the works to the property owners in the areawhich is subject to the agreement (i.e., thedevelopment works area). The municipalitycollects the cost by imposing a one-time chargeto the property owners. The property ownersmust pay the charge, including any interest thatmay have accrued, before they can obtain thevarious approvals and permits necessary fordevelopment. The actual charge is based on aformula set by the municipality. The chargevaries by property to account for different levelsof impact on services.

Implementation:

Development works agreements are establishedby bylaw. Each agreement must specify:

� the area that is the subject of the agreement(i.e., the development works area);

� the works that are to be provided;� the party which is to provide each work; and,� when each work is to be provided.

The agreement must also provide for thepayment to the developer of the chargescollected by the municipality from the propertyowners in the development works area.

Development works agreements can beproposed by Council or by the developer.Where proposed on Council's initiative, thebylaw must receive the assent of the electors inthe development works area, or must satisfy thecounter-petition provision in section 630 in orderto proceed. Where proposed by the developer,a petition created in accordance with section632 must be presented to Council.

Application:

Development works agreements are typicallyused to provide services to undeveloped,greenfield areas. The agreements allow amunicipality to require a developer to providesignificant services in exchange for receivingdevelopment approval. The agreements affordsome level of comfort to the developer on theissue of cost recovery. The developer knowswith some degree of certainty that he or she willrecover a portion of the infrastructure monies,complete with interest, from future beneficiaries.Since there is no time limit on the collection ofcharges (as opposed to latecomer payments),the developer knows that future developers whobenefit from the services will not be allowed toconnect without paying their fair shares.


None.


5.9 DCC CREDITS AND REBATES


Local GovernmentAct, section 933(8).

Description (DCC Credit):

DCC programs are intended to support broaderlocal government growth management plans.More specifically, a DCC program should bedesigned to provide servicing for newdevelopment in an orderly manner which isconsistent with the growth-related objectives inthe local government's OCP.

In some cases, a developer may wish toproceed with a project before the required trunkservices are installed in the particulardevelopment area. The local government maydecide that such an out-of-sequencedevelopment should not proceed, as it conflictswith the government's growth strategy.Alternatively, the local government may allowthe project to proceed on the condition that thedeveloper front-end the cost of constructing thenecessary trunk services.

Developers who front-end the cost ofconstructing required trunk services in advanceof their proposed timing would be entitled to aDCC credit. Put differently, the cost ofconstructing the required trunk services wouldbe deducted from the DCC amount that wouldotherwise have been collected from thedeveloper for the particular class of service. Forexample, if the developer constructed a sectionof trunk sewer, the associated capital costswould be deducted from the developer's sewerDCCs, to the maximum DCC amount payable.

Description (DCC Rebate):

Developers are normally responsible for the costof providing services to a local standard,sufficient to accommodate growth associatedwith their particular developments. Where adeveloper wishes to proceed with a

development project before the trunk servicesfronting the development are installed, thedeveloper may, at the local government'sdiscretion, be allowed to construct the servicesto a trunk – as opposed to local – standard. Amunicipality that allowed this arrangement wouldoffer the developer a rebate equivalent to thedifference between the cost of the trunk serviceand the cost of the local service.

Implementation:

DCC credits and rebates arise when localgovernments agree to allow developers tofinance the cost of trunk works identified in thelocal government's DCC program. The DCCcredit that a local government offers would bedetermined by the cost of the trunk works, to themaximum DCC amount payable by thedeveloper. The DCC rebate would bedetermined by the incremental portion of costsbeyond the local requirement.

It is important to note that DCC credits andrebates can only be given for trunk works thatare included in the DCC program.

Application:

An out-of-sequence development should becarefully considered against the community'sgrowth management objectives, as identified inthe OCP. The OCP, supported by the DCCprogram, is designed to manage growth in a waythat promotes both land-use and financialsustainability. Out-of-sequence developmentscan undermine the effectiveness of the OCP.

Municipal Affairs recommends that localgovernments explicitly set out, in the DCC bylawor in a separate policy, the situations in which aDCC credit or rebate would be considered.


Additional information on DCC credits andrebates can be found in the Development CostCharge Best Practices Guide.


5.10 DENSITY BONUSING


Local GovernmentAct, section 904.

Description:

Density bonusing is an arrangement underwhich a local government allows a developer toexceed maximum density levels in a zoningbylaw, in exchange for the provision of low-costhousing units to a non-profit agency, or for theprovision of a specific public amenity thatbenefits the community.

Density bonusing, which is voluntary fordevelopers, is designed as a "win-win" systemfor both the developer and the local government.The developer benefits by being able to buildmore floor area in a given project. The localgovernment benefits from the new low-costhousing and/or public amenities secured throughthe exchange, as well as from the higher taxrevenues from the increased floor space.

Implementation:

Density bonusing can be implemented usingconventional zoning. Under this approach, thebase density and the bonus density, as well asthe conditions necessary to achieve the bonusdensity, are outlined for each zone in thecommunity's zoning bylaw. This approachprovides a level of certainty for developers whoknow that if the bylaw conditions are met, thedensity bonus must be granted.

Density bonusing can also be implementedusing comprehensive development zoning.Under this approach, the provisions for densitybonusing are articulated in a development plan(e.g., area plan) or OCP. This approach allowsfor a case-by-case evaluation of sites, and of theamenities that are required in theneighbourhood. This approach also, however,provides less certainty to the developer.

Whichever approach is taken, it isrecommended that a local government considerand clearly articulate some key elements.Specifically, local governments should:

� clearly establish the purpose of the system;� define the amenities they wish to secure;� determine the size and type of bonus that

will be granted; and,� determine how to administer the system.

Application:

Density bonusing was first conceived of as away to encourage the creation of low-incomehousing in multi-family housing projects. In1995, the introduction of section 904 (originallysection 963.1) of the Local Government Actexpanded the original intent of density bonusingto allow local governments to use themechanism to secure public amenities in placeof, or in addition to, housing. Under section 904,local governments can grant bonus densities inexchange for contributions toward amenitiessuch as:

� walkways;� public plazas and open spaces;� child care facilities;� landscaping; and,� off-street parking.

These types of amenities, which are oftenrequired to accommodate growth, cannot besecured through the use of standard financemechanisms such as DCCs and latecomeragreements hence the attraction for localgovernments to density bonusing as a tool ofdevelopment finance. The use of densitybonusing in development finance, however,needs to approached carefully. Consider thefollowing points:

� Municipalities should be careful to avoid thetwo-step practice of:

- downzoning areas; and,- structuring bylaws to offer bonus

densities which are equivalent to theoriginal densities.


This way of securing amenities fromdevelopers would violate the intent of thelegislation.

� Pre-zoning a site for bonus density canaffect the appraised value of the site whichis, in general, based on the site's highestand best use. A developer who purchases apre-zoned bonus density site would, in alllikelihood, pay a price that reflected thehighest and best use assessment. Thedeveloper would then also be required topay the municipality for the bonus density inthe form of low-cost housing units and/orpublic amenities. In essence, developerswho purchased and developed pre-zoneddensity bonus sites would be required to paytwice for the density bonus.

� When using density bonusing, localgovernments need to consider setting upperlimits to bonusing. Density bonusing, if fullyimplemented, could significantly increasethe overall density in a community. Overalldensity levels need to be considered so thatthe intent of the community's OCP or zoningbylaw is not undermined, and so thatlivability in particular neighbourhoods is notthreatened.

Section 6.10 of the Guide provides furthercomments on issues and best practices thatlocal governments should review whendetermining how or whether to use densitybonusing as a development finance tool.


Local governments interested in learning moreabout density bonusing should obtain a copy ofDensity Bonus Provisions of the Municipal Act: AGuide and Model Bylaw (1997), published by theMinistry of Municipal Affairs. An issues paperprepared by the Urban Development Institutetitled Bonus Density and Zoning Based AmenityCharges should also be reviewed to betterunderstand the concerns of the developmentindustry with respect to the use of densitybonusing in B.C.


5.11 COMPREHENSIVE DEVELOPMENT AGREEMENTS


Local GovernmentAct section 176.

Description:

Comprehensive development agreements(CDAs) are agreements between a municipalityand a developer under which the developer, inexchange for development approval, agrees toprovide specific on- or off-site works and/oramenities for the broader community. Theworks and amenities provided through a CDAare over-and-above the services that would berequired to facilitate development of theparticular site, and that would be securedthrough development works agreements,development cost charges and other financetools. Specific types of works and amenities thatmight be secured through a CDA would include:

� social housing;� libraries;� fire halls;� transit stations; and,� various types of "hard" infrastructure.

The rationale for CDAs is that new developmentshould, to the extent possible, have a neutralimpact on municipal services. Contributionsfrom developers toward community works andamenities, in exchange for developmentapproval, help to achieve the neutral impactdesired.

CDAs, until recently, were available only to theCity of Vancouver, whose Charter provides theauthority to apply "conditions of enactment" torezoning approvals. The introduction of section176 in the Local Government Act, however,effectively extended the authority for CDAs to allmunicipalities in the province. Section 176provides local governments the authority toenter into agreements for the provision of localservices.

Implementation:

Municipalities pursue comprehensivedevelopment agreements during the zoningapproval process. Changes to zoning aregranted at the discretion of Councils. Theapproval process through which changes areconsidered provides an opportunity for Councilsto discuss with developers the need to addressbroader community goals and infrastructureneeds. In many cases, developers themselvespropose the terms of the agreements based onan understanding of local needs.

Application:

CDAs are normally considered only for largedevelopment – or redevelopment – projects.These projects tend to have an impact onmunicipal services that is significant and thatcannot be addressed through other developmentfinance arrangements. CDAs are used tosecure works and amenities that benefit both theproject and the surrounding community, andthat, in essence, attempt to neutralize thedevelopment's impact on the municipality.

Large development projects also tend to bespearheaded by a developer that is capable offunding the services required by the agreement.The costs of the works and amenities providedunder a CDA are not recoverable, in whole or inpart, from future development that might benefitfrom the services.

In the City of Vancouver, CDAs – or "conditionsof enactment" – are considered only for sitesthat are 10 acres or larger in size.


CDAs, by necessity, are negotiated on a case-by-case basis. Factors such as changingeconomic conditions, variable city-developerrelations and the specific needs of the localcommunity serve to make each developmentproject distinct. Notwithstanding the uniquenessof each case, it is important for a municipality toadopt a consistent approach to CDAs. Such an


approach reduces uncertainty for developerswhich, in turn, reduces transaction costsassociated with the negotiating process.

The City of Vancouver promotes consistency inits approach to CDAs by producing a "facilitiesstrategy" for each case. Each strategy identifiesthe exact works and amenities that are soughtby the City from the developer. At present, theCity is working to produce a city-wide facilitiesstrategy that goes beyond individual sites toaddress community needs throughoutVancouver.

The City of Vancouver is also moving towardCDAs that promote partnerships in place ofstraight contributions from developers. Under

the terms of one recent CDA, for example, thedeveloper is cost-sharing with the City a newsalt-water intake pipe that will support the City'semergency planning efforts.


5.12 PUBLIC-PRIVATE PARTNERSHIPS


Local GovernmentAct, section176(1)(a). See alsosections: 176(1)(c),

181, 183-185, 344.1.

Description:

For the purpose of this Guide, public-privatepartnerships (P3s) are defined as co-operativeventures in which local governments and privatesector entities combine strengths, and sharerisks and rewards, to develop local infrastructureand community facilities.

The rationale for establishing partnerships is thatboth the local government and private sectorpartner have unique strengths and advantagesthat, when combined, make possible theprovision of community works and services thatwould be difficult for a local government toprovide on its own.

The present examples of partnerships aroundBC and across Canada illustrate that P3s can bestructured in a wide variety of ways, and can beused to develop a wide variety of infrastructure.The Ministry of Municipal Affairs' 1999publication, Public Private Partnership: A Guidefor Local Government, provides details on thetypes of structure and their applications.

Implementation:

Experience suggests that the establishment ofpublic-private partnerships is, in most cases, acomplex undertaking for local governments. Inaddition to the need for a P3 policy andprocedures, local governments need to assesstheir organizational capabilities and, ifnecessary, secure trusted advisors from outsideof the organization. The types of expertiserequired for a public-private partnership include:

� process and project management;� contract negotiation; and,� public finance.

� private finance;� taxation policy and regulations;� accounting;� contract law;� engineering;� architecture;� facility operations;� real estate appraisal;� marketing and market analysis;� real estate development;� asset evaluation;� quantity surveying; and,� communications and public relations.

Certain partnership arrangements are subject tocounter-petition.

Application:

As a tool of development finance, P3s are well-suited to sizable infrastructure projects thatbenefit large numbers of people over wide areas(e.g., an entire municipality). Solid and liquidwaste treatment plants, for example, are viewedas good P3 candidates.

Recreation centres and entertainmentcomplexes are also viewed as good P3candidates, not only because of their size andlarge service area, but also because of theirtraditional reliance on property taxes for funding.When local governments look beyond taxrevenues to develop infrastructure, P3s standout as one possible option.

P3s may not be well-suited to smallerinfrastructure projects that benefit specific areaswithin a community. The resources required toenter and implement a P3 may outweigh thebenefits to the local government on smallerprojects. In addition, many private sectorcompanies with the resources and experiencenecessary to enter P3s will not consider projectsthat have a construction value of less than $5million.


In spite of recent legislative changes (Bill 31,


1998) designed to facilitate partnering with theprivate sector, P3s have not been eagerlyembraced by local governments in BC. Theexperiences of those municipalities which haveexplored partnering, successfully andunsuccessfully, illustrate that P3s are, indeed,complex undertakings that require significantfinancial and staff resources, considerableoutside expertise and much patience.

Some larger municipalities have, to be sure, hadsuccess with P3s and will undoubtedly continueto use this particular tool for developing andfinancing new infrastructure. In all, however,local governments should decide to use P3sonly after much consideration and with a certainamount of caution.

Local governments interested in learning moreabout P3s should consult the Ministry's PublicPrivate Partnership: A Guide for LocalGovernment.


5.13 PUBLIC-PUBLIC PARTNERSHIPS


Local GovernmentAct, section 176(1)(b).

Description:

Section 176(1)(b) allows local governments to inthis case, enter into agreements with a widevariety of public authorities to developinfrastructure and works. The term "publicauthority" includes:

� other local governments (municipalities,regional districts, improvement districts);

� school boards and other educational bodies(universities and colleges);

� public health care bodies;� provincial governments;� federal government;� First Nations; and,� a public body in another province or country

that provides local government services.

Implementation:

Local governments may enter into an agreementwith another public body to develop a widevariety of infrastructure. The only condition isthat at least one of the agencies involved in theagreement must have the necessary powers toundertake the activity or work.

A counter-petition process may be necessary incertain agreements. In addition, agreementsbetween a local government and a public bodyin another province must receive the approval ofthe Minister of Municipal Affairs. Agreementswhich involve a public authority in anothercountry (e.g., Washington State, USA) mustreceive the approval of the Cabinet.

Application:

Agreements with public authorities may beuseful in developing large infrastructure projects

that have a wide service area. For example, amunicipality might partner with a regional districtand a library board to develop a civic centre,complete with municipal offices, regional districtoffices, recreation facilities and a public library.

A local government might also partner with aschool board and the provincial government todevelop a community school, complete withclassrooms, social services and sports fields.The local government's interest would be inmaking the sports fields available to the largercommunity.

In general, public-public partnerships are seento involve less risk to the local government thanare public-private partnerships. The key reasonfor this view is that public bodies, unlike theirprivate counterparts, are not subject tobankruptcy, and are therefore less likely to leavethe local government "holding the bag".


Several municipalities have joint servicingagreements with local school districts. In all,however, public-public partnerships have notbeen pursued to any great extent. Publicpartnerships will undoubtedly be turned to bylocal governments more frequently in the futureas more examples of their success and potentialbecome better known.


6. MAKING CHOICES

This section of the Guidecontinues with the reviewof individual finance toolsby evaluating each toolagainst a series ofconsiderations. Thepurpose of this section isto help local governmentsunderstand the types ofconditions to which theindividual tools are wellsuited.

Each tool is evaluated in its own matrix against acommon set of considerations. Theconsiderations, which are outlined in figure 6A,include the influencing factors from section 4 ofthe Guide, along with certain financial concernsand factors related to a local government'sorganizational capacity.

At the end of the section, a summary matrix ofthe information from the individual matrices isprovided.

Best Practices:

The sub-sections on the various tools includerecommended best practices to guide localgovernments in their implementation of themechanisms. The best practices are based onthe experiences of local governments, and arespecific to the individual tools.

Standards of Good Government:

In addition to the specific best practices, localgovernments should be guided by a series ofuniversal standards. These standards, whichmay be thought of as "standards of goodgovernment", should guide the implementationof development finance tools in all cases. Insome situations one or more of the standardsmay take on added significance, and may beparamount in the minds of decision makers. Inno case, however, would any of the standardsbe deemed irrelevant or not applicable.

The key standards of good government that

guide the implementation of developmentfinance tools include the following:

� Equity On a basic level, most would

FIGURE 6A

SUMMARY OF CONSIDERATIONS

CONSIDERATIONS DESCRIPTION

FINANCIALCONCERNS

RISK The financial risk a localgovernment incurs in using atool.

RELIANCE ONBORROWING

A local government's need todebt-finance works.

CHARACTERISTICS OFDEVELOPMENT

TYPE OFDEVELOPMENT

Infill, greenfield or a mix of thetwo types.

VALUE OFPROJECT

The value that a governmentattaches to a project.

STRUCTURE OF

OWNERSHIPThe number of property ownersinvolved in a development.

TIMING OF WORKS The timing of works relative todevelopment.

BENEFIT OFWORKS

The party that benefits from theworks growth, community-as-a-whole or both.

TYPES OF WORKS The specific works required(e.g., roads, water, etc.).

NATURE OFDEVELOPMENTINDUSTRY

STRUCTURE Refers to the size and numberof companies in an area.

EXPERTISE The level of developers'expertise in finance.

ORGANIZATIONALCAPACITY

IMPACT ON

OFFICIALS

The amount of time required ofelected and appointed officialsto design and implement a tool.

EXPERTISE The level of staff's expertise infinance and related fields.

BROADAPPROACH

INFLUENCINGFACTORS

INDIVIDUALTOOLS


agree that the standard of equity requiresthat the cost of infrastructure should be paidby those who benefit from the works.

Existing taxpayers are often not prepared topay the cost of services which are requiredsolely for growth; similarly, developmentshould not be required to pay for servicesrequired by the existing population. Whereservices benefit both groups, costs shouldbe allocated amongst beneficiaries in a fairand equitable manner.

On another level, equity requires thatinfrastructure costs assigned to growth beassigned in a way that fairly reflects thecapital cost burdens of the variousbeneficiaries.

The notion of "fair process" is a thirddimension of equity. Local governmentsenjoy a significant level of discretion in theiruse of certain finance tools such as densitybonusing and development worksagreements. The application of these toolsto different developments should be carriedout in a fair manner. A practice of applyingdifferent standards to different developmentswould not promote equity.

� Flexibility The importance of applyingtools to different developments in a fairmanner does not mean that eachdevelopment needs to be handled in exactlythe same way. Local governments have attheir disposal a wide variety of developmentfinance tools, many of which can beimplemented in creative ways that are alsofair and equitable.

� Integration The implementation ofdevelopment finance tools should not beattempted in isolation of the localgovernment's land use planning efforts. Inmany cases, potential problems related tothe financing of new infrastructure areanticipated and resolved at the planningstage. By phasing large greenfielddevelopments, for example, a localgovernment can minimize front-endexpenditures. By minimizing front-endexpenditures, local governments resolvepotential problems related to cash flow, andmanage potential risks associated with costrecovery.

Relying solely on the innovativeimplementation of development finance toolsto resolve finance problems is not aneffective strategy. Better results arepossible when a local government'sdevelopment finance and land use planningefforts are integrated.

� Accountability The implementation of thevarious development finance tools must beundertaken in a transparent and openfashion. The development community andthe public as a whole should be able toreview and understand the policy rationalefor certain choices, and the methodologiesfor determining and applying costs andcharges.

Meaningful consultation – with thedevelopment community and the public – isan important element of accountability.Individuals or groups that may be impactedby certain decisions should be consultedduring the making of those decisions.

� Responsibility Related to accountabilityis the standard of responsibility. Localgovernments must be responsible in theirimplementation of finance tools. Considerthe following dimensions of this standard:

- Risk management a decision to usecertain tools could place the communityin a position of significant financial orlegal risk. Local governments need tobe aware of the risks associated withdifferent tools and implement the tools ina fashion that minimizes those risks.

- Return on investment local governmentsthat directly finance projects need todetermine in each case, using cost-benefitanalysis or some other test, whether thecapital investment is justified.

- Affordability in applying charges andrates, a local government needs to beaware of the impact on affordability ofhousing and serviced land.

- Consistency with overall approach alocal government should understand theimplications of various choices on its


ability to achieve the community'sbroader goals.

� Certainty The standard of certainty has anumber of key dimensions, including thefollowing:

- Certainty of process developers needto know that the development approvalprocess, and expectations at variousstages of the process, will not changemid-stream.

- Certainty of legislation developersshould know about, and have input into,proposed bylaw changes well inadvance of any changes being made.

- Certainty of rates DCC and otherrates will change over time, as theyshould to reflect changes in the value ofworks and changes to developmentprojections. Rates should not, however,change erratically. Erratic changesmake the planning of projects difficult fordevelopers.

- Certainty of approach localgovernments should be predictable andconsistent in their implementation ofdevelopment finance tools.

Variety of Tools Used:

Before continuing with the review of individualtools, it is useful to comment on the extent towhich local governments make use of the fullrange of development finance tools available.

The matrices that follow in this section explorethe conditions under which each of the thirteenindividual tools works well. In so doing, the

matrices attempt to illustrate that eachmechanism can, in certain circumstances andwhen implemented properly, assist localgovernments in providing new growth-relatedworks.

Readers of this section may form the impressionthat an effective approach to developmentfinance requires the use of many, if not all, of thethirteen tools. Such an impression would beinaccurate. The reality is that most localgovernments – including the more"sophisticated" and experienced ones – buildtheir approaches to infrastructure financingaround a handful of select tools. Thesegovernments have discovered that thecommunity's goals and concerns can often beaddressed more effectively through the targetedapplication of a few tools than through thewidespread use of many tools. This realityshould be kept in mind when reviewing theGuide.


6.1 DEVELOPMENT COST CHARGES

CONSIDERATIONS DEVELOPMENT COST CHARGES

FINANCIAL CONCERNS

RISK When used as a cost recovery mechanism, DCCsare not risk-free. If development does not occur asprojected, the local government may not recover allof its front-end capital costs. Risk can beminimized if a local government commits topostponing DCC works until after sufficient DCCreserves have been accumulated i.e., commitsto using DCCs as a source of capital instead of acost recovery tool.


Local governments which make use of DCCs as acost recovery tool must themselves front-end thecost of the works. In most cases, the works arefront-ended using borrowed funds. Interestcharges cannot be recovered using DCCs,although a legislative provision exists for theInspector of Municipalities to be able to approvedirectly-related interest costs. The provision hasnot yet been brought into force (Summer 2000).


TYPE OFDEVELOPMENT

Infill and mixed infill-greenfield developments thatcan benefit from a certain level of servicing alreadyin place are particularly suitable projects.Additional works can often be postponed until afterreserves have been accumulated, thereby makingborrowing unnecessary.

VALUE OFPROJECT

A local government that is incurring risk will want toensure that the proposed development brings whatthe government views to be a long-term benefit tothe community. If the risk inherent in DCCs isdeemed to outweigh the benefit of thedevelopment, other tools should be considered.

STRUCTURE OFOWNERSHIP

DCCs are well suited to developments whichinvolve many owners.

TIMING OF WORKS Best suited to works which can be postponed, orphased, until reserves have been accumulated.

BENEFIT OFWORKS

Used for works that benefit growth only, and forworks that benefit both growth and existingpopulations. In these latter cases, the contributionof existing owners is usually taken from propertytax revenue, as DCCs can only be charged to newdevelopment.

TYPE OF WORKS Local Government Act restricts the use of DCCs toroads, water, sewer, drainage and parks.

The Development Cost ChargeBest Practices Guide publishedby the Ministry of MunicipalAffairs examines in detail thedesign and implementation ofDCCs. Many best practicesassociated with the use ofDCCs are identified in thedocument. Some of the moreimportant best practicesidentified are offered here.

DCC Best Practices:

� Use DCC reserves Where possible, localgovernments should useDCCs as a source ofcapital, instead of as a costrecovery tool. Putdifferently, localgovernments shouldundertake to finance DCCworks using accumulatedDCC reserves.Governments that borrowfunds for DCC works maynot recover their entireexpenditure if developmentdoes not occur as projected.Governments also cannotinclude debt servicingcharges in DCC rates.

� Consult the public It isimportant to obtain inputfrom the community beforefirst reading of the DCCbylaw. The input will helpthe local government betterunderstand the public'sviews with respect to newdevelopment and thegovernment's role infacilitating growth. Suchinformation will aid in thedetermination of DCC ratesand the assist factor.


CONSIDERATIONS DEVELOPMENT COST CHARGES


STRUCTURE Not a consideration.

EXPERTISE Sophisticated developers may prefer more flexibletools such as development works agreements andcomprehensive development agreements. Lessexperienced developers, or developers working onsmaller projects, may prefer the simplicity of DCCs.


IMPACT ON

OFFICIALS

DCCs require a significant amount of staff andelected officials' time. Consultation with thedevelopment community and the public add to thetime required.

EXPERTISE Most local governments have staff with theexpertise required to design and implement DCCs.

� Be transparent The DCC rates, and themethodology used to determine the rates, shouldbe clearly outlined in the relevant backgroundreport. The report should be available to thedevelopment community and the public-at-large.

� Establish monitoring system A DCCmonitoring and accounting system should be setup to facilitate the tracking of projects and thefinancial status of DCC accounts.

� Use municipal-wide orregion-wide basis DCCsfor all services should beestablished on a municipal-wide or region-wide basis,unless a significant disparityexists between those whopay the DCC and thebeneficiaries.

� Match time frame Thetime frame for a DCCprogram should match thetime frames identified in thecommunity's servicing plan,specific area plan and OCP.


6.2 LOCAL IMPROVEMENTS

CONSIDERATIONS LOCAL IMPROVEMENTS

FINANCIAL CONCERNS

RISK Municipalities that use local improvements do notexpose themselves to significant risk. Localimprovement charges are applied to all parcels thatbenefit from the works. Application of the chargesis not dependent on development occurring.


Municipalities finance local improvements usingfunds obtained through conventional borrowing orinternal borrowing (i.e., from an established localimprovement fund). The interest charges incurredunder both types of borrowing can be recoveredfrom benefiting property owners.


TYPE OFDEVELOPMENT

Designed to assist municipalities in improvingservice levels in existing areas. For newdevelopment, local improvements are better suitedto infill projects in which most of the propertyowners who approve the new works are the partieswho ultimately pay the charges. In greenfieldprojects, the owners (i.e., developers) who agree tothe works are not always the same owners (i.e.,homebuyers) who ultimately pay for the works.

VALUE OFPROJECT

The perceived value of a specific project mayinfluence the local government's willingness tocost-share improvements.


Well suited to cases which involve many propertyowners. In cases which involve one or a few largedevelopers, the local government may wish toconsider using developer-build agreements.

TIMING OF WORKS Suitable in situations where works are requiredprior to development, and where works can bedeferred or phased. Application of charges, andcollection of monies, are not dependent ondevelopment beginning.

BENEFIT OFWORKS

Suited to infrastructure projects which benefit bothgrowth and the existing population. The localimprovement charges can be applied to bothgroups of property owners.

TYPE OF WORKS Local Government Act restricts use of localimprovements (see section 623). In general, localimprovements are used for small works with alimited benefit.


STRUCTURE Better suited to a development industry with manysmaller firms.

Local Improvement BestPractices:

It is worthwhile to reiterate thatmost municipalities do not uselocal improvements for growth-related infrastructure. Specifiedareas, which offer greaterflexibility to municipalgovernment, are the preferredtool for use with newdevelopment. Localimprovements are, however,available as an alternativemechanism, and have beenused for growth-related works insome places. For thesereasons, a review of localimprovement best practices isappropriate. Consider thefollowing:

� Build local area support Local improvementsproposed by a municipalCouncil are subject to thecounter-petition provision insection 630 of the LocalGovernment Act. If, throughthis provision, the initiative isquashed, the municipalitycannot propose the samelocal improvement again forone year. Prior to proposinglocal improvements,municipal governmentsshould understand thecommunity's sentimenttoward the work.

� Consider the need for abylaw Section 622(1) ofthe Local Government Actallows a Council, by bylaw,to specify that all or anyworks that may beundertaken as localimprovements must beundertaken as localimprovements.


CONSIDERATIONS LOCAL IMPROVEMENTS

EXPERTISE Local improvements are not difficult from adeveloper's perspective. The works are financedby the local government. The parcel taxes arecalculated and collected by the local government.


IMPACT ON

OFFICIALS

Local improvement bylaws are not difficult todevelop. They can, however, take time. Council-initiated projects, which often require a moresubstantial public consultation effort, normally havea larger impact on the organization's officials thando community-initiated projects.

EXPERTISE Limited expertise is required.

� Consider equity Many municipalitiescontribute a certain percentage (e.g., 50%)toward the cost of all local improvementprojects using monies from generalrevenues. When local improvements areused to provide works to established areas,this policy of contributing monies fromgeneral revenues seems quite appropriate.When local improvements are used forworks which solely benefit growth, this policyis questionable. In effect, municipalities thatfollow this policy for growth-related worksuse general revenues to subsidize newdevelopment.

The concern raised in this best practicestrengthens the argument against usinglocal improvements for growth-relatedinfrastructure.

Municipalities that adoptsuch a bylaw will berestricted to using localimprovements for certainworks, and will not be ableto consider using otherfinance tools which may bebetter suited to a specific setof circumstances. This typeof restriction seemsunnecessary. Municipalitiesshould enable themselves toconsider the full range offinance tools in all situations.


6.3 SPECIFIED AREAS

CONSIDERATIONS SPECIFIED AREAS

FINANCIAL CONCERNS

RISK Municipalities that use specified areas do notexpose themselves to significant risk. Specifiedarea charges are applied to parcels that benefitfrom the works. Application of the charges is notdependent on development occurring.


Municipalities rely on some form of borrowing –conventional or internal – to front-end works.Interest charges incurred under both types ofborrowing can be recovered from benefitingproperty owners.


TYPE OF

DEVELOPMENTWhile specified areas may be used to service bothinfill or greenfield developments, they are arguablybetter suited to infill projects in which most of theproperty owners who approve the new works arethe same parties who ultimately pay the charges.

VALUE OFPROJECT

Specified areas may not be well suited to projectswhich are considered to have broad value, andwhich are to be cost-shared by growth and thegreater community. The Local Government Actrequires that specified areas which are financed byexternal or internal borrowing must be paid, in full,by the beneficiaries within the specified area. Thecommunity as a whole is not allowed to contributein such cases.


Well suited to cases which involve many landowners. In cases which involve one or a few largedevelopers, the municipality should consider usinga developer-build agreement which would requirethe developer to front-end the costs.

TIMING OF WORKS Suitable in situations where works are requiredprior to development, and where works can bedeferred or phased. Application of charges, andcollection of monies, are not dependent ondevelopment beginning.

BENEFIT OFWORKS

Well suited to infrastructure projects which benefitboth growth and the existing population. Thespecified area charges can be applied to bothgroups of property owners.

TYPE OF WORKS Specified areas can be used in connection with anytype of service. Work well for smaller, area-specificworks and for works which have a larger,community-wide benefit.

Specified Area Best Practices:

Municipalities should considerthe following best practicesassociated with the use ofspecified areas:

� Set equitable charges Specified area charges canbe based on a combinationof ad valorem taxes, parceltaxes and fees and charges.Municipalities should makeuse of these elements todesign charges which bestreflect the servicing impactsof different uses.

� Build local area support Specified area projectsproposed by the municipalityare subject to the counter-petition provision in section630. If, through thisprovision, the initiative isquashed, the municipalitycannot re-propose the sameworks for one year. Prior toinitiating specified areaworks, municipalities shouldunderstand the community'ssentiment with respect to thework. This recommendationtakes on added significancein greenfield developmentswhich involve only a fewowners, and in which oneowner representing 50% ofthe property value candefeat an initiative.

� Provide full information Persons who buy homes inestablished specified areasneed to be made fully awareof the annual specified areacharges which must be paid,over and above the generalmunicipal taxes. Home


CONSIDERATIONS SPECIFIED AREAS


STRUCTURE Well suited to a development industry that iscomprised of a large number of firms.

EXPERTISE Specified areas are not difficult from a developer'sperspective. The works are financed by themunicipality. The charges are calculated andcollected by the municipality.


IMPACT ON

OFFICIALS

As with local improvements, specified area bylawscan take considerable time to develop, especiallywhen extensive public consultation is involved.

EXPERTISE Specified areas can be difficult to develop,particularly where charges are based on acombination of ad valorem taxes, parcel taxes andfees and charges. Some expertise is required.

buyers in manycommunities do not fullyunderstand the purpose ofthe specified area charge,and believe that they arepaying a higher generaltax rate than others in thesame community.Municipalities anddevelopers need to worktogether to provide fullinformation to prospectivehome buyers.


6.4 USER FEES AND CHARGES

CONSIDERATIONS USER FEES AND CHARGES

FINANCIAL CONCERNS

RISK The risk to local governments associated with userfees and charges is minimal. Late payments anddefaults on payments represent the only real risks.


User fees and charges are a cost recovery tool.Local governments that choose to make use of thistool must themselves front-end the cost of theworks. In many cases, the works are front-endedusing borrowed funds.


TYPE OFDEVELOPMENT

Conceivably, could be used to recover part of thecost of providing infrastructure to both infill andgreenfield developments.

VALUE OFPROJECT

Well suited to projects which are deemed to have awide benefit. Fees and charges would normally notaccount for the entire cost of infrastructure.Community as a whole could contribute all or partof difference.


Suited to projects which involve several owners,none of whom is able to directly finance therequired infrastructure.

TIMING OF WORKS Conceivably, could be used to finance part ofworks that are required before development canbegin, as well as works that can be phased tocoincide with development.

BENEFIT OFWORKS

Well suited to works which benefit both growth andexisting populations. Fees and charges can beapplied to both groups.

TYPE OF WORKS Recent changes to the Local Government Act allowlocal governments to apply fees and charges toany type of work under local governmentjurisdiction.



EXPERTISE Not a consideration. Local government handlesthe process.


IMPACT ON

OFFICIALS

Development of fees and charges can require asignificant amount of staff time. Elected officialsmay also need to spend time discussing the policyrationale for applying fees and charges toinfrastructure projects, as opposed to operations.

Fees and Charges BestPractices:

It should be remembered thatfees and charges havetraditionally been used to assistin funding the operation of localgovernment services. Usingfees and charges for growth-related capital projects is notcommonplace. Recent changesto the Local Government Act,however, provide someopportunity for localgovernments who wish torecover growth-relatedinfrastructure dollars throughfees and charges.

Consider the following bestpractices:

� Relate to cost User feesand charges that a localgovernment establishesmust bear a relationship tothe cost of providing theparticular service. Recentcourt challenges highlightthe importance of a clearrelationship.

� Be transparent Given theneed to relate fees andcharges to the cost ofproviding a service,transparency in theestablishment of user feesand charges is important.The background reportshould clearly outline howfees and charges werederived. As per the LocalGovernment Act, the reportshould be publicly available.

� Consult the public Bylawswhich establish fees andcharges are not subject toan electors assent process.Notwithstanding the


CONSIDERATIONS USER FEES AND CHARGES

EXPERTISE Some expertise required to establish rationale andthe actual fees or charges.

� Involve the lawyers The wider use of feesand charges is a relatively recentdevelopment under the Local GovernmentAct. Prior to implementing fees andcharges, local governments should reviewproposed rates and supporting backgrounddocuments with their solicitors.

absence of regulation in thisarea, it is suggested that alocal government design andundertake a consultationprocess to engage anddiscuss the issue withaffected property owners.


6.5 SHORT-TERM BORROWING

CONSIDERATIONS SHORT-TERM BORROWING

FINANCIAL CONCERNS

RISK There may be risk involved in trying to recovermonies obtained through short-term borrowing (incases where recovery is the objective). Fullrecovery may not be possible if development doesnot occur as projected. Funds must be repaidwithin five years.


Local governments that have made the policydecision to incur no debt will not choose to financeworks using short-term borrowing.


TYPE OFDEVELOPMENT

Suited to infill and greenfield developments. Usedin conjunction with cost-recovery tools or to pay forthe portion of services used by existingpopulations.

VALUE OFPROJECT

Can be used, with or without cost recovery tools, tofacilitate projects deemed to benefit the community.


Used mostly with cost recovery tools ondevelopments which involve many developers.

TIMING OF WORKS Best suited to situations where works are notrequired prior to development. Funds must berepaid within five years; development may not haveproceeded sufficiently to recover funds.

BENEFIT OFWORKS

Suitable for works which benefit both new andexisting development. Can be used to pay for theexisting development portion.

TYPE OF WORKS Can be used for any type of capital project.



EXPERTISE Not a consideration.


IMPACT ONOFFICIALS

Very little impact on staff and elected officials' time.

EXPERTISE No expertise is required to design short-termborrowing. The Municipal Finance Authorityhandles the process for local governments.

Short-term Borrowing BestPractices:

Short-term borrowing, with its$50 per capita ceiling, is oflimited use to local governmentsthat are undertaking thedevelopment of major newworks.

Short-term borrowing provides ameans for local governments to"top up" other funds, or toprovide limited bridge financing.An attempt to rely on short-termborrowing as a major source ofcapital would be financiallyunsound.


� Plan ahead A proper fiveyear financial plan and acomprehensive strategicservicing plan shouldreduce a local government'sneed for short-termborrowing on growth-relatedprojects.

� Watch debt limit The $50per capita limit is theaggregate limit for all short-term borrowing. In addition,monies obtained throughshort-term borrowing countsagainst a local government'sdebt limit. Short-termborrowing should be usedjudiciously in order to leavefunds available for projectsarticulated in the localgovernment's financial planor capital expenditureprogram.


6.6 LONG-TERM BORROWING

CONSIDERATIONS LONG-TERM BORROWING

FINANCIAL CONCERNS

RISK The level of risk associated with long-termborrowing varies depending on the particular toolused, in conjunction with borrowing, to recoverfront-end expenditures. The level of risk can behigh when long-term borrowing is used inconjunction with DCCs. The level of risk is, ingeneral, low when used in conjunction with othercost recovery tools that promise full recovery ofprincipal and interest.


Local governments that have made the policydecision to incur no debt will not choose to financeworks using long-term borrowing.


TYPE OFDEVELOPMENT

Well suited for use on both infill and greenfieldprojects. Appropriateness in any given situationdepends largely on the cost recovery tool used.

VALUE OFPROJECT

Often used to finance works, or portions of works,that are deemed to benefit community. Inrecognition of wider benefit, local government canrepay portion of borrowed monies out of propertytax revenues.


Long-term borrowing is often necessary in caseswhere government is required to front-endexpenditures. Such cases usually involve severalsmaller property owners, none of whom is largeenough or able to front-end the works.

TIMING OF WORKS Can be used where works required prior to, orduring, development. Appropriateness in any givensituation depends largely on the cost recovery toolused.

BENEFIT OFWORKS

Long-term borrowing is a good tool for financingworks that benefit both growth and the greatercommunity. The portion of the works to be paid bythe greater community can be funded through taxrevenues. The portion to be paid by growth can berecovered using a cost recovery tool.

TYPE OF WORKS As per section 335 of the Act, long-term borrowingcan be used to finance all types of infrastructure.


STRUCTURE Useful in communities that feature a large numberof smaller firms which are unable to directly financesignificant off-site projects.

Long-term Borrowing BestPractices:


� Match borrowing term to lifecycle It is important tomatch the borrowing term tothe expected life span of theinfrastructure. When theborrowing term exceeds aproject's life span, the partyresponsible for the debtpayments must continue topay for the works beyondthe point at which anybenefit from the works isderived. The continuingfinancial commitment toworks which no longerprovide benefit maypreclude the development ofnew works, which may alsoneed to be debt-financed.

� Choose complementarytools carefully Long-termborrowing is often used inconjunction with one ormore cost recovery tool.The choice of cost recoverytool has implications for thefinancial risk associated withborrowing that a localgovernment undertakes.DCCs, when used inconjunction with long-termborrowing, represent a risk.Full recovery of borrowedfunds is not assured;interest is not recoverable atall.

� Communicate with public Loan authorization bylawsare subject to the counterpetition provisions of theLocal Government Act.Open communication withthe public is important to


CONSIDERATIONS LONG-TERM BORROWING

EXPERTISE Not a consideration. Long-term borrowing handledcompletely by local government.


IMPACT ON

OFFICIALS

Requirement for counter petition may, in somecases, require elected and appointed officials toinvest considerable time in a public consultationprocess.

EXPERTISE None required. Sale of debentures handled byMunicipal Finance Authority.

ensure that the need forborrowing is understood,and key projects are notunduly delayed orcancelled.


6.7 LATECOMER CHARGES

CONSIDERATIONS LATECOMER CHARGES

FINANCIAL CONCERNS

RISK Latecomer charges, as presented in this Guide, area tool used to assist developers in recovering front-end expenditures that they, themselves, make onexcess or extended services. The use oflatecomer charges does not expose a localgovernment to risk.


Infrastructure costs are financed by developers.No reliance on local government borrowing.


TYPE OFDEVELOPMENT

Well suited to greenfield developments whichrequire significant excess or extended servicesbefore development can begin.

VALUE OFPROJECT

Normally used for projects with value to a specificgrowth area.


Best suited to developments with at least one largefirm that can front-end works.

TIMING OF WORKS Normally used to provide infrastructure that isrequired in order for development to begin.

BENEFIT OFWORKS

Best suited to cases where extra capacity intendedto benefit growth only.

TYPE OF WORKS The Local Government Act restricts the use oflatecomer charges to road, water, sewer anddrainage works.

NATURE OF

DEVELOPMENTINDUSTRY

STRUCTURE Use of latecomer charges normally requires largefirms with sufficient resources to front-end the costof works.

EXPERTISE Some expertise is required to prepare thedocumentation on which the charges are based,and to monitor the administration of the system.


IMPACT ONOFFICIALS

Latecomer charges require a significant amount ofstaff and elected officials' time. Many policy andtechnical issues need to be examined.

EXPERTISE Relatively high degree of staff expertise required.

The Latecomer Policy: UserManual (1988) prepared by theTownship of Langley examinesin detail the design andimplementation of latecomercharges. Many best practicesassociated with the use of thistool are identified in thedocument. Some of the moreimportant examples of thesepractices are reproduced here.

Latecomer Charges BestPractices:

� Limit liability (I) It wasnoted earlier in the Guidethat developers do not haveto apply for latecomercharges. If a localgovernment requires adeveloper, through a bylawunder section 938, toprovide extended or excessservices, that developer isautomatically entitled tocompensation fromlatecomers. The localgovernment may be liablefor compensation not paid.

In an effort to limit thepotential for liability, somelocal governments requiredevelopers to sign waiverswhich state in effect thatunless the developer andthe local government haveentered into a specificlatecomer agreement, thedeveloper is not entitled tocompensation fromlatecomers who may benefitfrom services which thedeveloper finances.


� Limit liability (II) Some municipalities haverequired developers to prepare thedocumentation necessary to calculate thebenefiting area and levels of charge.Developers who are unable, or who refuse,to prepare the necessary documents do notbecome ineligible for compensation fromlatecomers. In such a case, the localgovernment would likely become liable forthe compensation not paid to the developer.

To limit the potential for this liability, a localgovernment should consider preparing thenecessary documentation itself and, wherepossible, charging the developer for thework performed. Alternatively, the localgovernment should consider simply denyingdevelopment approval to out-of-sequenceprojects.

� Enter into formal agreements Formallatecomer agreements between a localgovernment and a developer are requiredonly in situations where one party wishes tolimit the collection period of latecomercharges to a time frame that is shorter induration than the ten years provided underthe Act. Agreements which use the ten yearcollection period do not need to be formallydocumented.

Notwithstanding the differentrequirements, it is recommended thatformal agreements be constructed in allcases, including those which use the tenyear collection period. It is important toestablish in writing the variousobligations that each party has withrespect to the collection and transfer oflatecomer charges.

� Notify property owners In some cases, alatecomer charge will not be payable until, orunless, a property owner chooses toconnect to a service (e.g., water main) withinthe ten year statutory period. In thesecases, local governments are not required tonotify property owners of the future potentialcharges. In order to promote openness andtransparency, however, local governmentsshould undertake to provide full informationto owners in all cases.


6.8 DEVELOPMENT WORKS AGREEMENTS

CONSIDERATIONS DEVELOPMENT WORKS AGREEMENTS

FINANCIAL CONCERNS

RISK Municipalities use development works agreementsto assist developers in recovering front-endexpenditures on works that the developers, underthe terms of the agreements, are required toprovide. Municipalities that make use of theseagreements do not incur risk.


Infrastructure costs are financed by developers.No reliance on Municipality borrowing.


TYPE OFDEVELOPMENT


VALUE OFPROJECT

Normally used for projects with value to a specificdevelopment works area.




BENEFIT OFWORKS

Best suited to cases where works intended tobenefit growth only.

TYPE OF WORKS The Local Government Act restricts the use ofdevelopment works agreements to road, water,sewer and drainage works, and to parklandimprovements.


STRUCTURE Use of development works agreements normallyrequires large firms with sufficient resources tofront-end the cost of works.

EXPERTISE Some expertise is required to prepare thedocumentation on which the charges are based,and to monitor the administration of the system.


IMPACT ON

OFFICIALS

Development works agreements require asignificant amount of staff and elected officials'time. Many policy and technical issues need to beexamined; many points need to be negotiated.

EXPERTISE Relatively high degree of staff expertise required.

Development WorksAgreements Best Practices:

� Build local support Development worksagreements proposed bythe municipality are subjectto the counter-petitionprovisions of the Act. Priorto initiating developmentworks agreements,municipalities shouldunderstand the community'ssentiment with respect tothe work. Thisrecommendation takes onadded significance ingreenfield developmentswhich involve only a fewowners, and in which oneowner representing 50% ofthe property value candefeat an initiative.

� Be consistent "Consistency" was identifiedearlier as one of thestandards of goodgovernment to whichmunicipalities should adherein their implementation of alltools. It is important, forreasons of consistency, formunicipalities to applysimilar expectations andrules when negotiatingdifferent agreements.


6.9 DCC CREDITS AND REBATES

CONSIDERATIONS DCC CREDITS AND REBATES

FINANCIAL CONCERNS

RISK DCC credits and rebates expose a localgovernment to little, if any, risk.


Infrastructure costs are financed by developers.Rebates, where offered, are paid out of DCCreserves. No reliance on local governmentborrowing.


TYPE OFDEVELOPMENT


VALUE OFPROJECT

Normally used for projects with specific value togrowth area.




BENEFIT OFWORKS

Normally used in cases which benefit growthsolely.

TYPE OF WORKS Use of DCC credits and rebates is limited to theworks for which the local government collectsDCCs. At most, therefore, credits and rebates canapply only to roads, water, sewer, drainage andparks.

NATURE OF

DEVELOPMENTINDUSTRY

STRUCTURE Use of DCC credits and rebates normally requireslarge firms with sufficient resources to front-end thecost of works.

EXPERTISE Limited expertise required.


IMPACT ONOFFICIALS

Elected officials will need to consider carefully theimpact of allowing out-of-sequence developments –the recipients of DCC credits and rebates – on thelocal government's growth management objectives(see best practices).

EXPERTISE Limited technical expertise required. Some policyexpertise to advise on impact of out-of-sequencedevelopments on growth management objectives.

DCC Credits and RebatesBest Practices:

� Consider impact onobjectives As was notedearlier in the Guide, an out-of-sequence developmentshould be carefullyconsidered against thecommunity's growthmanagement objectives, asidentified in the OCP. TheOCP, supported by the DCCprogram, is designed tomanage growth in a waythat promotes both land-useand financial sustainability.Out-of-sequencedevelopments canundermine the effectivenessof the OCP.


6.10 DENSITY BONUSING

CONSIDERATIONS DENSITY BONUSING

FINANCIAL CONCERNS

RISK Little if any risk to local governments.


Amenities provided and paid for by developers. Noreliance on local government borrowing.


TYPE OFDEVELOPMENT

Well suited to either greenfield or infilldevelopments wherever public amenities arerequired to help accommodate a growing area.

VALUE OFPROJECT

Used where value limited to specific area.


Not a consideration. Large developers in search ofhigher densities can provide whole amenities.Small developers in search of higher densities cancontribute to the cost of amenities.

TIMING OF WORKS Timing of development is not dependent on timingof amenities.

BENEFIT OFWORKS

Amenities in greenfield development would tend tobenefit growth only. Amenities in infill developmentwould benefit both growth and existingneighbourhood.

TYPE OF WORKS Density bonusing not intended to provide "hard"infrastructure such as sewer, water and roads.Better suited to provide landscaping, affordablehousing, off-street parking, walkways, openspaces, etc.



EXPERTISE Some experience, or expertise, in negotiationsrequired where density bonusing implementedthrough comprehensive zoning.


IMPACT ONOFFICIALS

Staff and elected officials will need to considerpolicy issues carefully (see best practices). Staffwill need to identify, often with community input, thespecific types of amenities needed.

EXPERTISE Experience in negotiations required where densitybonusing implemented through comprehensivezoning.

The Density Bonus Provisionsof the Municipal Act: A Guideand Model Bylaw (1997),prepared by the Ministry ofMunicipal Affairs, examines indetail the use of densitybonusing. Many best practicesassociated with the this tool areidentified in the document. TheUrban Development Institute'sBonus Density and ZoningBased Amenity Charges alsoprovides some useful guidanceto local governments in the areaof density bonusing. Some ofthe more important bestpractices from the twopublications are reproducedhere.

Density Bonusing BestPractices:

� Relate amenity todevelopment Amenitiessecured through densitybonusing are intended toimprove the livability of thearea which is built to ahigher density. Localgovernments need toensure that the amenitiesthey require are related tothe development whichreceives the higher density.

� Don’t use as a tax Density bonusing is not asubstitute for taxation.Funds collected through apay-in-lieu system of densitybonusing should bereserved for publicamenities, not used toprovide other requiredinfrastructure (e.g., water,sewer).

� Set upper limits It wassuggested earlier thatdensity bonusing, if fully


significantly increase the overall density of acommunity. The need to protect livability,and the objectives of the OCP, should beconsidered when examining densitybonusing.

� Be consistent Local governments thatchoose to implement density bonusingthrough comprehensive zoning should beconsistent in their approaches to, andnegotiations with, various developers. Aconsistent approach helps to eliminateuncertainty for developers who choose toparticipate in density bonusing initiatives,and helps to create a true "win-win"experience.

� Avoid downzoning As noted earlier insection 5.10 of the Guide, municipalitiesmust be careful to avoid downzoning areas,then structuring their zoning bylaws to offerbonus densities which are equivalent to theoriginal densities that were permitted. Such

an approach would violate the intent of thelegislation.

� Consider Impact of Pre-zoning Pre-zoning, which was also mentioned in section5.10 of the Guide, can affect the appraisedvalue of a site. When the value is affected,the developer who purchases and developsthe site is effectively required to pay twicefor the bonus. The practice of pre-zoningbonus density sites needs to be consideredcarefully.


6.11 COMPREHENSIVE DEVELOPMENT AGREEMENTS

CONSIDERATIONS COMPREHENSIVE DEVELOPMENT AGREEMENTS

FINANCIAL CONCERNS

RISK Little if any risk to local governments.


Works and amenities are provided and paid for bydevelopers. No reliance on local governmentborrowing.


TYPE OFDEVELOPMENT

Well suited to either large infill (i.e., redevelopment)or greenfield developments.

VALUE OFPROJECT

Used where works and amenities provide value todevelopment area and broader community.


Require one large developer that is able to provideworks without expectation of reimbursement.

TIMING OF WORKS Works often required before development canbegin.

BENEFIT OFWORKS

Used in cases where works and amenities benefitboth growth and existing populations. Specificextent of benefit depends on type of development(i.e., infill or greenfield).

TYPE OF WORKS Used to provide both "hard" and "soft" services.


STRUCTURE Need industry with large firms that are able toundertake major development, or redevelopment,projects, and that are able to provide works andamenities.

EXPERTISE Some expertise in negotiation and, possibly, publicrelations required.


IMPACT ON

OFFICIALS

Significant impact on staff resources. Negotiationsfor comprehensive development agreementsinvolve many departments and normally take time.

EXPERTISE Very high level of expertise required to fornegotiations and public relations.

Comprehensive DevelopmentAgreements Best Practices:

� Be consistent It isimportant that localgovernments apply similarexpectations and ruleswhen negotiating differentagreements.

� Prepare a strategy Localgovernments shouldprepare long term strategicplans, or facilities strategies,that clearly outline thecommunity's needs andvision, and the developers'responsibilities. Localgovernments that use suchplans as the basis forcomprehensivedevelopment agreementswill have a strong basis towithstand criticism.


6.12 PUBLIC-PRIVATE PARTNERSHIPS

CONSIDERATIONS PUBLIC-PRIVATE PARTNERSHIPS

FINANCIAL CONCERNS

RISK P3s involve a sharing of both risks and rewardsamongst partners. In some cases, risk to localgovernment might come from guaranteeing privateborrowing. In other cases, risk might come fromhaving to guarantee minimum annual revenues to aventure (e.g., rec centre). In most cases, somedegree of financial risk to government is inevitable.


Certain P3s may rely on public sector borrowing.


TYPE OFDEVELOPMENT

Conceivably, P3s could be used to provide worksto specific infill and greenfield developments. Ingeneral, however, P3s are used to provide largeinfrastructure works, such as recreation facilitiesand sewage treatment plants, that are developed inresponse to growth over a larger area. Theseworks are not related to specific infill or specificgreenfield projects.

VALUE OFPROJECT

P3s are normally used for projects that providebenefit to a large area of the community, if not theentire municipality.


Where a P3 is related to a specific development,the development would likely include at least onelarge developer, capable of participating in a majorinfrastructure undertaking.

TIMING OF WORKS Where a P3 is related to a specific development,could be used to provide works required prior todevelopment, or during development.

BENEFIT OF

WORKSP3 projects are usually designed to benefit largerareas with both growth and existing populations.

TYPE OF WORKS P3 projects can, conceivably, be used for all typesof infrastructure.

NATURE OF

DEVELOPMENTINDUSTRY

STRUCTURE Not necessarily a consideration. The privatepartners in a P3 often come from outside of thelocal community. The considerable size of P3projects (minimum $5 million) means that there is alimited number of firms available to participate inpartnerships.

EXPERTISE Firms interested in partnering with localgovernments need a high level of expertise. P3agreements can be very complex undertakings thatrequire expertise in a variety of business fields.

The document Public PrivatePartnership: A Guide for LocalGovernment (1999), preparedby the Ministry of MunicipalAffairs, provides a number ofrecommended P3 best practicesto local governments. Some ofthe more important examples,along with others, are offeredhere.

Public-Private PartnershipBest Practices:

� Be pragmatic P3sappear, in some cases, tobe pursued for ideologicalreasons (e.g., the idea thatgovernments should steermore and row less). Inorder to be of value, P3smust make good businesssense. Does partneringwith the private sector allowa local government toprovide infrastructure thateither partner couldn'tprovide on its own? AreP3s cost effective? Do thebenefits to the communityoutweigh the risks? Thesetypes of questions need tobe explored beforepragmatic decisions on P3scan be made.

� Adopt a policy Localgovernments interested inP3s should adopt a formalP3 policy. Such a policy willguide staff in initiating andevaluating partnershipproposals. The policy willalso allow a government tocommunicate its position onP3s to a variety ofstakeholders, includingcitizens groups andpotential partners.


CONSIDERATIONS PUBLIC-PRIVATE PARTNERSHIPS


IMPACT ONOFFICIALS

P3s usually take a great deal of time to developand implement. Staff and elected officials need todevote considerable energy and resources toadequately address several policy and technicalissues. Public consultation is often extensive.

EXPERTISE Expertise in a number of areas is required. Mostgovernments find it necessary to retain a variety ofconsultants to assist in structuring andimplementing partnership deals.

� Consult the public The prospect ofpartnering with for-profit private companiescan raise emotions in some centres. Localgovernments need to engage citizens andother stakeholders to ensure that thereasons for partnering are understood, andthat the merits of proposed arrangementsare appreciated. The value of publicconsultation is underscored by theprovisions for counter petition and access toinformation under the Local Government Actand other legislation. A poorly consultedpublic is, in most cases, more likely tooppose a partnership.

� Assign responsibilityinternally The localgovernment will need toidentify suitable individualsor sections within theorganization to takeresponsibility for P3s.Assigning responsibility to aselect group is important inorder to ensure thatinquiries about P3s arehandled in a consistent way,and to provide a single pointof contact for private sectorinterests.


6.13 PUBLIC-PUBLIC PARTNERSHIPS

CONSIDERATIONS PUBLIC-PUBLIC PARTNERSHIPS

FINANCIAL CONCERNS

RISK Local governments incur little risk in partnering withother public agencies. In a practical sense, publicagencies are not subject to bankruptcy, and cannotdefault on loan payments or other financialcommitments.


Certain P3s (public) may rely on local governmentborrowing.


TYPE OFDEVELOPMENT

P3s (public) are normally used to provide largeinfrastructure works, such as recreation facilitiesand civic centres, that are developed in responseto general growth. These works are not related tospecific infill or greenfield projects.

VALUE OFPROJECT

P3s (public) used on projects deemed to providebenefit to a large area of the community, if not theentire municipality. This broad benefit is usuallythe reason for the local government becominginvolved.


Not a consideration.

TIMING OF WORKS Development is not dependent on P3 (public)works in order to begin.

BENEFIT OFWORKS

P3 (public) projects are designed to benefit largerareas with both growth and existing populations.

TYPE OF WORKS P3 (public) projects can, conceivably, be used forall types of infrastructure. In most cases, however,they are used to develop civic infrastructure, suchas recreation facilities, libraries, open spaces, etc.



EXPERTISE Not a consideration.


IMPACT ON

OFFICIALS

P3s (public) can take considerable time to developand implement. Staff and elected officials need todevote energy and resources to adequatelyaddress the key policy and technical issues. Publicconsultation is often extensive.

EXPERTISE Expertise required; however, not as much as withpublic-private partnerships which often involvegreater risk for government.

Public-Public PartnershipsBest Practices:

� Consult the public Ingeneral, citizens are lessconcerned with the notion ofpartnering with anotherpublic agency than they arewith the notion of partneringwith a for-profit privatecompany. Nevertheless, itis important to consultcitizens on potential P3(public) agreements.Certain agreements willtrigger counter petitionprovisions in the LocalGovernment Act. A lack ofmeaningful consultationcould lead to a successfulcounter petition processbeing launched.


6.14 SUMMARY MATRIX

Figure 6.14A in this sub-section summarizes thekey points from the individual matrices.

The summary matrix attempts to identify theconditions to which individual tools are, ingeneral, well suited. When reviewing the matrix,it is important to recognize that generalstatements on the use of tools are difficult tomake. Some practitioners will, undoubtedly, beable to point to conditions under which theyhave successfully used tools that the matrixsuggests should be avoided. Others will notethat the choice of tools is more a political than atechnical exercise, and that some politicalobjectives preclude even the consideration ofcertain tools, regardless of the conditionspresent.

Notwithstanding these valid objections, there isvalue in attempting to offer broad guidance tolocal governments on the appropriate uses ofthe different tools.

An examination of the information contained inthe summary matrix reveals a number of keyfindings. This sub-section identifies anddiscusses these findings.

Key Findings:

Section three of the Guide discussed the needfor local governments to define a broadapproach to the financing of growth-relatedinfrastructure. Two alternative approaches,each at a different end of the spectrum, wereidentified a government-centred approach,and a developer-centred approach.

Section five of the Guide introduced andcategorized the individual development financetools. The discussion noted that the tools in twocategories – cost recovery and sources ofcapital – support a government-centredapproach, while developer-build agreementssupport a developer-centred approach. Tools inthe partnership agreement category do notsupport either approach exclusively.

This section of the Guide has examined moreclosely the full range of tools under each

approach. Consider the following findings fromthe section's summary matrix:

� Government-centred approach Thesummary matrix reveals that the cost-recovery and source of capital tools – i.e.,the tools used to promote a government-centred approach – do not, with theexception of DCCs, involve risk for localgovernments. They do, however, rely onlocal government borrowing.

In general, cost recovery and sourceof capital tools are well suited todevelopments:

- in infill areas;- that are considered to have broad value

to the community;- that involve many smaller owners, none

of whom is capable or willing to front-end major capital expenditures;

- where works are required either prior to,or during, development;

- where works are deemed to benefit bothgrowth and existing populations; and,

- that require a wide variety of growth-related works, not only "hard" services.

The summary matrix also reveals that costrecovery and source of capital tools are wellsuited to communities with developmentindustries characterized by many smallerfirms with only moderate levels of expertisein finance. Finally, these types of tools donot, in general, have a significant impact onlocal government organizations, and do notrequire a tremendous amount of staffexpertise to implement.

� Developer-centred approach The matrixindicates that developer-build agreements –i.e., the tools used to promote a developer-centred approach – impose little or no riskon local governments. Moreover, thesetools do not rely on local governmentborrowing.

In general, developer-build agreements arewell suited to developments:


- in greenfield areas;- whose value is limited to the particular

growth area;- that involve at least one large developer

capable of front-ending majorinfrastructure expenditures;

- where works are required prior todevelopment, and in order fordevelopment to occur;

- where works benefit growth solely orprimarily; and,

- that require "hard" services, such aswater, sewer, drainage and roads (theexception here is density bonusing).

In communities where developer-buildagreements are used, the developmentindustry is characterized by a number oflarge firms, each with some expertise infinance. Local governments that use thesetools need to be able to devote, at times,significant resources to design andimplementation. Local governmentorganizations also need a relatively highdegree of expertise in finance and relatedfields.

� Alternate between approaches In sectionthree of the Guide it was noted that insteadof following the same approach todevelopment finance in all situations, manylocal governments pragmatically alternatebetween the government-centred anddevelopment-centred approaches. Thereview of the various types of tools used topromote each approach illustrates the valueof alternating in this way.

The summary matrix shows that the toolswhich promote a government-centredapproach, and the tools which promote adeveloper-centred approach, are best suitedto very different development conditions.Local governments that pragmaticallyalternate between the approaches are ableto make use of those tools which are mostideal under the different circumstances.

� Organizational capacity It is worthwhile tohighlight the importance of a localgovernment's organizational capacity to thisdiscussion. The effective use of certaintools, particularly those which support adeveloper-centred approach, requires a highlevel of organizational development. Staffand elected officials need to devote time and

energy to the consideration, design andimplementation of these tools. Expertise ina variety of fields is necessary.

Local governments with the necessary levelof organizational development are in aposition to alternate between the two keyapproaches and to realize the advantagesfrom using the different types of tools. Localgovernments that lack the resources orexpertise are, out of necessity, more inclinedto follow a government-centred approachexclusively, since the tools which promotethis approach are less complex. Theseorganizations, as necessary proponents ofthe government-centred model, remaindirectly involved in the financing of growth-related works. The transfer to developers ofresponsibility for financing is difficult.


7. CASE STUDIES

This section of the Guide presents threedevelopment-finance case studies from high-growth municipalities around the province. Thepurpose of the case studies is illustrate how, inpractice, local governments choose specificdevelopment finance tools to suit differentcircumstances.

Three municipalities are featured in this section:the Town of Ladysmith, the City of Kelowna andthe City of Surrey. These three places, together,represent a range of community sizes and high-growth regions of the province.

Format:

Each case study is presented using a standardfive-point format:

� brief introduction to the municipality;� description of the featured development;� key considerations driving the local

government's choice of tools;� range of tools chosen; and,� observations.

Maps showing the location of the municipality,and the development within the municipality,have been included with each case study.


7.1 TOWN OF LADYSMITH

Municipality:

The Town of Ladysmith is situated along the 49th

parallel on the east coast of Vancouver Island(see figure 7.1A). The Town has a current

population of approximately 7,000, and anannual growth rate of 2.5%. By 2021, theTown's population is expected to reach 12,000.

Featured Development:

Stonewall Estates is a new residentialdevelopment located at the southern tip ofLadysmith (see figure 7.1B). The followingpoints highlight the development's keycharacteristics:

� Residential development StonewallEstates is a 16-lot single family residentialdevelopment, completed in late 1999. Thedevelopment is situated within a special,small-lot R-1a residential zone, which wascreated by the Town specifically toaccommodate 16 parcels.

� Greenfield The project was developed ona greenfield site.

� Water and Sewer Required Water andsewer extensions were the major off-siteservices required to facilitate development.Some minor road paving was also needed.

� One Developer Stonewall Estates was aproject which involved one developer. Thatdeveloper was the sole landowner on thesite.

� Official Community Plan The Town'sOCP (1994) notes that the area in whichStonewall Estates is located is, whileamenable to development, unserviced. TheOCP notes that "the extension of sewertrunks and water mains to the area will berequired prior to development proceedinghere" (OCP, p.40).

The development of Stonewall Estates cannotbe discussed without mentioning the RothdaleRoad development, an existing 30-lot singlefamily subdivision situated directly to the southof Stonewall. Prior to the development ofStonewall Estates, water service to the RothdaleRoad site was limited but sufficient for residents.Sewer service, however, was a major concern.A small force main and a deteriorating pumpstation connected the existing subdivision to theTown's main sewer. Sewer services to the site

FIGURE 7.1A

TOWN OFLADYSMITH

LADYSMITH

TOWN OFLADYSMITH

STONEWALLESTATES

FIGURE 7.1BSTONEWALL

ESTATES

Trans CanadaHighway

LadysmithHarbour


were in need of upgrade.

Key Considerations:

The Town's approach to servicing StonewallEstates was determined by a number of keyfactors. Consider the following points:

� Developer-centred approach In its OCP,Ladysmith notes that the development ofgreenfield, unserviced land in the communitymust be preceded by the extension of sewertrunks and water mains. In practice, thispolicy requires developers of new sites tofront-end the cost of new off-site works. Thedeveloper of Stonewall Estates wasexpected to deal, in some fashion, withwater and sewer.

� Residential land-use The Town isnormally unwilling to front-end costs orborrow monies to facilitate a solelyresidential development. On a commercialor industrial development, or on a mixed-useproject, the municipality is often more willingto directly finance works, on account of thelarger benefit to the community which theTown associates with these types ofprojects.

� Benefitter pay Equity was a majorconsideration in the Stonewall case. Newgrowth and existing development whichstood to benefit from the extended serviceswere expected to pay their fair shares ofthose services.

� Benefit to existing neighbours The Townrecognized that the sewer deficienciesassociated with the Rothdale Roadsubdivision would need to be tackled atsome point in the near future. The Townsaw the development of Stonewall Estatesas an opportunity to address RothdaleRoad's sewer issue in a cost-effectivemanner.

� Impact on developer Through its closedealings with the proponent, the Town knewthat the developer's ability to front-end largecosts and assume high risk was limited.The Town did not want to jeopardize thefeasibility of the project for the developer.

Development Finance Tools:

The tools used to finance the required off-siteworks are listed here under each type ofinfrastructure.

� Water A new water main was required toconnect Stonewall to the Town's mainsystem 250 metres to the north. A $55,000portion of the required main was included inthe municipality's DCC program. Thedeveloper provided this portion and in returnreceived a DCC credit.

The remainder of the required water main(i.e., the non-DCC portion) was front-endedby the municipality. The front-end costs arebeing recovered through latecomer chargesapplied to future development properties.

� Sewer A new sewer trunk was required tolink both Stonewall Estates and RothdaleRoad to the municipality's sewer system.The portion of the trunk allocated toRothdale was paid by the municipality out ofgeneral reserves. The cost of a pumpstation for Rothdale was also financed usinggeneral revenues. No cost recovery (e.g.,through a specified area or localimprovement) is planned.

The remainder of the sewer trunk was cost-shared by the developer and themunicipality. The Town agreed to assist inthe front-ending of this cost in order torelieve some of the financial pressure on thedeveloper. Both parties are recovering partof their costs through latecomer chargesapplied to future development.

Finally, a major easement required for thenew sewer trunk was acquired using generalreserves. No cost recovery for thisexpenditure is planned.

� Roads The Town cost-shared, usinggeneral reserves, some minor road pavingon a collector road which benefits StonewallEstates and the surrounding area.

Observations:

Stonewall Estates was viewed by the Town asan important development project, in large partbecause of the opportunity it created to address


the sewer deficiencies at the Rothdale Roadsubdivision. The Town's interest in seeing thedevelopment come to fruition was reflected inthe Town's flexible approach to the financing ofthe off-site works. The Town worked closelywith the developer to determine the levels ofrisk- and cost-sharing that were necessary forthe development to proceed.

Other observations on this case study includethe following points:

� Use of latecomers The Town chose touse latecomer charges instead of adevelopment works agreement primarilybecause Town staff had considerableexperience in using latecomers.Experimenting with a development worksagreement – assuming that the developerwould have been interested and/or able –would have required too much staff time.

Two latecomer charges are being used bythe Town to recover its own costs. TheTown is confident that all monies will becollected within the 10 year collectionperiod.

� Specified areas not used Specified areasand local improvements were notconsidered for use in financing theinfrastructure. The Town uses these tools inestablished areas only.

� Cost recovery Earlier it was noted thatLadysmith used general revenues to financethe sewer components which are deemed tobenefit existing residents. The Town doesnot plan to recover these funds from theproperties served by the improved sewer.The Town feels that the cost of the serviceimprovement should be borne by the greatercommunity.


7.2 CITY OF KELOWNA

Municipality:

The City of Kelowna is situated on the eastshore of Lake Okanagan in British Columbia'sOkanagan Valley (see figure 7.2A). The Cityhas a population of approximately 97,000 andan annual growth rate of 2.5%.


The Southwest Mission Development Sector is alarge new development area located at thesouthern end of the City (see figure 7.2B). Thefollowing points outline the area's keycharacteristics:

� Residential development The SouthwestMission Development Sector is divided intothree major residential neighbourhoods.Neighbourhood 1, in which development hasbegun, will contain approximately 1,525single family units at build-out.Neighbourhood 2, in which development isexpected to begin before the end of 2000,will contain 1,200 units. Neighbourhood 3will also contain approximately 1,200 units atbuild-out.

While each neighbourhood willaccommodate some limited commercial andinstitutional uses, the bulk of alldevelopment activity will be single familyresidential.

� Greenfield Each neighbourhood ispredominantly greenfield in nature.

� All works required All major off-siteservices are required, including water,sewer, drainage and roads. In addition,given the large size and peripheral locationof the development, schools, parks andsports fields are required.

� Limited number of developers Neighbourhood 1 is being developed by onedominant developer. Three majordevelopers own the sites in neighbourhood2. Neighbourhood 3 features a singledeveloper.

SOUTHWEST

MISSION

LakeOkanagan

CITY OF

KELOWNA

FIGURE 7.2B

SOUTHWEST

MISSION

DEVELOPMENT

SECTOR


� Planning framework The SouthwestMission Development Sector is the subjectof the City's 1995 Southwest Mission SectorPlan, a comprehensive development planwhich outlines a strategy to manage growthin the area for the next two decades. TheSouthwest Mission Sector is also addressedin the City's DCC bylaw, which includessector-specific charges for water, sewer androad works.

Key Considerations:

In 1973, Kelowna's boundary was expanded toencompass large amounts of unincorporatedland surrounding the City, including the areaknown as Southwest Mission.

At the time, small portions of Southwest Missionhad been developed. Large-scale development,however, was not actively pursued until the late1970s when the City entered into two land usecontracts with local developers. Thesecontracts, which set in place the servicing plansrequired to support a moderate level of growth,were only partially implemented. Changes inmarket conditions and concerns over servicingcosts resulted in the postponement of majordevelopment.

By the early 1990s, interest in SouthwestMission as a major development sector hadescalated. In response to this interest, the Cityadopted the 1995 Southwest Mission SectorPlan to guide future growth in the area. Indrafting the Plan, the City identified threeimportant concerns:

� The existing water system was totallyinadequate for the area's existingpopulation, let alone any new population.Improvements to the existing system, forexisting residents, would be required.

� The City required an additional lake waterintake that could eventually be connectedand provide benefit to Kelowna's main watersystem.

� One of the existing land use contractsnegotiated in the late 1970s outlined specificfinancing terms for new development. Majordevelopment under these terms wouldimpose additional capital cost burdens on

existing City taxpayers, which wasunacceptable.

The City recognized that these concerns couldbest be addressed by treating SouthwestMission as one development area over whichsubstantial infrastructure costs could be spread.The City's ongoing approach to development inSouthwest Mission requires that all servicesnecessary to accommodate growth be paid forby growth. Existing taxpayers are expected topay for improvements that are necessary tocorrect deficiencies in the existing system, andwhich clearly benefit the existing population.Existing taxpayers are not, however, expected tocontribute to the cost of growth-related works.

Other considerations include the following:

� Equity As suggested already, those whobenefit from the works should pay for theworks. This principle applies not only inallocating benefits between growth and theexisting population, but also in assigningbenefits and costs among new developmentunits.

� Impact on developers Developers havebeen, and will be, required to front-end thecost of certain works. Notwithstanding thisposition, the City recognizes that some ofthe required works are too large and tooexpensive for one or a few developers tofinance directly. The installation of newwaterworks, which are expected to total $11million, is a case in point.

� No borrowing The City is resolute in itsopposition to borrowing funds for growth-related infrastructure. The financing of suchworks must rely on developer-buildagreements or accumulated DCC reserves.


As noted earlier, all major works are required fordevelopment of the Southwest Mission Sector.Each type of work, and the tools chosen tofinance it, are outlined here.

� Water The main developer ofneighbourhood 1 installed variouscomponents of a new water system,including a water main and pump station, toservice early development. The City


determined that four components of the newsystem had extra capacity that would benefitfuture development beyond neighbourhood1. To help the developer recover the cost ofproviding the extra capacity, the Citydeveloped a benefiting area, or "extendedservice area" (ESA), for each of the fourcomponents. Future development thatoccurs over the next ten years within each ofthe ESAs will be required to pay a latecomercharge.

The water works constructed by thedeveloper of neighbourhood 1 do not, to besure, provide water service sufficient for allfuture development in neighbourhoods 2and 3. Developers in these otherneighbourhoods will be required to front-endsome of the necessary water works for theirareas. Extra capacity provided by theseworks will be recovered using latecomeragreements.

The sector DCC program for water in SouthMission does not include any of the majorworks these works, as noted, are thedirect responsibility of developers.

� Sewer The sewer trunks and lift stationsrequired for the Development Sector areincluded in the City's DCC program. As onewould expect, however, the DCC sewerreserves are not sufficient to cover the costof the major works required. Individualdevelopers, therefore, are expected to front-end the costs in exchange for DCC credits.

� Drainage The actual drainage worksrequired in the area are presently underreview. The combination of topography andsoil conditions in the Development Sectormay reduce the need for large-scaledrainage trunks.

Hydrogeological studies of the area areunderway. In the meantime, the City willcontinue to collect drainage DCCs in theevent that major works are required.

� Roads Over the next twenty years, majorroad works will be required to service needswithin Southwest Mission, and to provideadequate arterial connections to the Citycore.

Given the cost of the future arterial roadsprogram, and the large size of thedevelopment area which will need to pay forthe program, it was imperative for the City toobtain agreement from the major developersin the area on a cost per development unitfor roads, irrespective of the specificdemands that particular developments mayhave on the road network.

After much review, an equitable DCC perequivalent unit was established. A complexdecision matrix was also developed toensure that road needs within the sectorcould be met, and longer term arterial linksto the City could be built.

The construction estimates, on which theDCC per unit rates and the decision matrixwere based, needed to be fairly accurate inorder to provide some degree of certainty todevelopers and the City. To achieve thedesired level of accuracy, extensiveengineering and design were undertaken,the costs of which were front-ended by themajor developers in the area in exchange forDCC credits.

The magnitude of the roads program is suchthat affordability for developers is a concern.Affordability can be enhanced by deferring,to the extent possible, major road works untildevelopers begin to realize significantreturns on their developments in the area.Deferring major works is made possible byextending the life and value of existing roadnetworks in the area. In an effort to achievethese deferrals, the major developers inSouthwest Mission agreed to the inclusion oftemporary improvements to the roadsprogram. These improvement will be"throw-away" in nature, but will, it isexpected, delay the need for moreexpensive upgrades. The inclusion oftemporary improvements is being managedto allow all developers within the 20 yearplanning horizon to avail themselves of thispotential opportunity to address cash flow.

The need to obtain rights-of-way for futureroad projects was another importantconsideration. An equitable approach toobtaining developer contributions for rights-of-way was required. After a series ofdiscussions with the City, all majordevelopers in the area, irrespective of the


amount of land they were required todedicate for rights-of-way, agreed to a valueof $1.00 per square foot of property as thebasis for inclusion of land costs into theDCC model for developer-dedicated lands.

As roads are constructed by variousdevelopers within each of theneighbourhoods, the level of DCC creditswill need to be carefully managed to ensurethat developers are accountable for theactual costs of construction, which maydiffer from the estimated costs. The DCCcredit system has been structured to ensurethat major arterial upgrades are constructedonly at pre-set "trigger points". Thesetrigger points, which have been determinedby the Transportation Division, are tied tospecific development thresholds and DCCreserve levels. The "trigger points"guarantee that major arterial projects areonly undertaken once sufficient developmenthas occurred, and only after sufficient DCCroad reserves have been accumulated.

The approach to financing the arterial roadsprogram for Southwest Mission was craftedthrough many discussions with the majordevelopers in the area. The City and thedevelopers worked together to create anapproach that promises to minimize thefinancial impact on existing City taxpayers –the chief goal of Council – and that reflectsjoint concerns related to cash flow andequity. The model which has beendeveloped to track and review ongoing costsis very complex. It requires constantmonitoring to ensure that developers at theback end of the planning horizon do not faceinfrastructure costs which aredisproportionately higher than those facedby developers of earlier projects.

� Other works Some of the parks andsports fields that are required in theSouthwest Mission Sector will be provideddirectly by developers as on-site works.Other parks will be developed using acombination of accumulated parkland DCCreserves (into which all development in thearea will pay) and public-privatepartnerships with the School Board. Atypical partnership would result in the Cityand the School Board cost-sharing newfields that would be accessible to bothstudents and the public.

Observations:

The Southwest Mission case study illustrateshow a local government, through carefulmanagement, can minimize its exposure tofinancial risk.

The use of ESAs to provide off-site waterservices is one way the City uses to managerisk. ESAs require the developers to front-endthe cost of the water works. The risk associatedwith recovering the cost of the excess capacitywithin the 10 year recovery period belongs to thedevelopers.

The way in which the City is using DCCs alsodemonstrates its ability to manage risk. By tyingthe phasing of new arterial roads to the amountof development and the size of DCC reserves,the City can ensure that major road projects arefinanced using monies already collected. DCCs,in this way, are used as a source of capitalinstead of a method of cost recovery.

Other observations include the following points:

� Expertise The ESAs and the DCCsdesigned by City staff are complicatedprograms that require a significant amountof expertise and experience. Thedevelopers who are party to thesearrangements also require a certain amountof expertise.

� Equity Considerable attention is given tothe principle of equity and its variousdimensions. The City, for example, isconscious of the need to treat differentdevelopers in a similar fashion.Expectations with respect to the front-endingof certain works are uniform.

Equity also relates to the need forbeneficiaries to pay their fair shares.

� Integration The Southwest Mission SectorPlan considers all issues related to thefuture development of the SouthwestMission Development Sector. The DCCbylaw, which includes many of the keyworks, is consistent with the Sector Plan.

These documents are critical in allowing theCity to manage its risk and achieve its othergoals.


7.3 CITY OF SURREY

Municipality:

The City of Surrey is located south of the FraserRiver in the Greater Vancouver Regional District(see figure 7.3A). The municipality, with apresent population of 335,000, is Canada'sfastest growing major city.


The West Cloverdale North Neighbourhood is anew residential development situated in theCloverdale area of East Surrey (see figure7.3B). The following points highlight thedevelopment's key characteristics:

� Residential development The WestCloverdale North Neighbourhood is 100 hain size. Approximately 1,630 new housingunits are expected at build-out, for a totalpopulation of 4,575. Most of the new unitswill be single-family residential, althoughsome street-oriented townhouses will alsobe developed.

� Greenfield The development ispredominantly greenfield in nature. Mostland is presently zoned agricultural.

� All works required All major off-siteservices are required, including water,sewer, drainage and roads. A school site,sports fields, trails and parklands are alsorequired for the neighbourhood.

� One key developer Approximately 70different developers own parts of the 100 hasite. Certain developers do, however, havelarger stakes in the project than do others.One developer, in particular, has played –and will continue to play – a leading role inthe planning and financing of theneighbourhood and its various works.

� Planning framework The development ofWest Cloverdale North is addressed in manykey planning documents, including the City'sOCP, the West Cloverdale Local Area Planand the West Cloverdale NorthNeighbourhood Concept Plan. Surrey's city-wide 10 Year Servicing Program, whichforms the basis of the City's DCC program,includes most of the off-site works.

Key Considerations:

The City's approach to development of WestCloverdale North is determined by a number ofkey considerations, including the following:

� Developer-centred approach There are atotal of 14 neighbourhoods governed byneighbourhood concept plans in Surrey.

FIGURE 7.3A

CITY OF

SURREY

FIGURE 7.3B

WEST

CLOVERDALE

NORTH


These neighbourhoods, known as NCPs,are greenfield in nature and, as such, tendto require significant investments in newinfrastructure. In 1995, Surrey City Councilresolved to approve only those NCPs thatcan be shown to be self-financing. Inadopting this position, the City made it clearthat existing taxpayers will not finance NCPinfrastructure requirements. Put differently,in adopting the position to approve only self-financing NCPs, the City adopted adeveloper-centred approach to infrastructurefinancing.

� Support development Surrey's statedpolicy is to promote and supportdevelopment in the community. The Cityand the development industry, after all,share many of the same goals, including thegoal of providing high-quality housing toSurrey's citizens.

In accordance with the City's policy, Counciland staff work with developers to identifychanges and to introduce innovations thatassist developers in areas such as costrecovery. In the case of West CloverdaleNorth, new cost recovery arrangements arebeing made available to assist the developerwho has agreed to front-end the key works(see later).


The concept plan for West Cloverdale Northindicates that all major works are required forthe development of the neighbourhood. Thedifferent types of works, and the tools chosen tofinance the works, are outlined here.

� Water and roads Significantimprovements are needed to the watersupply system that services theneighbourhood. Specifically, an existingmain will need to be upgraded, and a newmain will need to be constructed. Roadsystem upgrades are also required.Improvements to a collector road areneeded to provide better traffic flow throughthe neighbourhood. Improvements to theCity's system of arterial roads are needed toaccommodate the increase in traffic to andfrom the site.

The required off-site water and road works

are included in the City's 10 Year ServicingProgram. None of the projects needs to beundertaken prior to development beginning.As development occurs, therefore, DCCscan be collected and held in reserve untilsufficient funds are available to construct theworks.

� Sanitary sewers and drainage A smallportion of the NCP is within the catchmentarea of an existing sewer trunk. The bulk ofthe neighbourhood, however, is not. A newsewer trunk, expected to cost $1.3 million, isrequired before development can begin. Anadditional $1.8 million in drainage works isalso required before development can begin.The total $3.1 million in sewer and drainageworks is included in the City's 10 YearServicing Plan; as such, the City will collectDCC monies for the works as developmentoccurs. The problem is one of cash flow the works are required before the DCCs willbe collected.

In keeping with Surrey's developer-centredapproach to development financing, the Cityis requiring the development industry tofront-end the sewer and drainage works.One developer with access to the necessarycapital has stepped forward to finance the$3.1 million expenditure so that the NCP canproceed.

The developer, understandably, is intent onrecovering as much of its front-endinvestment as possible. The City, in keepingwith its pledge to support development, isintent on helping the developer with its costrecovery efforts. To that end, the City hasentered into both a DCC FrontendersAgreement and a Development WorksAgreement with the developer.

- Under the terms of the DCCFrontenders Agreement, the City willcollect sewer and drainage DCCs fromdevelopment as it occurs in theneighbourhood. The City will forwardthe collected DCCs (up to a maximum of$3.1 million) to the front-endingdeveloper. The City has placed a timeperiod of ten years on the FrontendersAgreement; however, the City may, atits discretion, extend the Agreement fora further five years.

- The Development Works Agreement is


being used in conjunction with the DCCFrontenders Agreement to enable thedeveloper to recover the interestcharges it will incur in financing theworks. The Local Government Act, atpresent, does not allow interest charges,which can be substantial, to berecovered through DCCs.

In the past, Surrey has usedDevelopment Works Agreements torecover capital costs that were over andabove the amount recoverable fromDCCs. The difference in the WestCloverdale North case is that theDevelopment Works Agreement istargeted solely at interest costs. Asnoted in a January, 2000 CorporateReport, the use of the DevelopmentWorks Agreement in this fashionprovides "an additional mechanism theCity can use to assist the developmentindustry in financing projects involvinglarge front ending servicingrequirements".

� Other services In addition to the "hard"infrastructure services already reviewed, theCity has identified a list of public amenitiesthat are required in order for development toproceed. These amenities include:

- $526,000 in parkland development(soccer field, trails, joint school site,etc.);

- $25,000 toward the rehabilitation of acommunity hall;

- $75,000 for open space improvements;- $188,000 for additional library books;- $352,000 for the impact on the City's fire

protection services; and,- $82,000 for police services.

The total cost of these amenities is $1.25million. The City hopes to collect thesemonies through a density bonus program.In exchange for receiving higher residentialdensities, developers will pay $763 per unittoward the amenities at the time ofsubdivision, rezoning or building permit.

Observations:

The West Cloverdale North NCP illustrates theimportant role that a municipality can play as

facilitator of development. By working with thedeveloper to design an innovative cost recoverypackage, the City has minimized the developer'scost and risk which, in turn, has made thedevelopment of the West Cloverdale North areality.

Other observations include the following points:

� Innovation and attitude The design of aDCC Frontenders Agreement, and thecombination of this tool with a DevelopmentWorks Agreement, are examples ofinnovative public administration. They arealso illustrative of a sincere belief in thevalue of the development industry, and inthe duty of local government officials toassist the industry where possible.

� Expertise Considerable expertise andresources were required on the part of bothCity staff and the developer in designing theDCC Frontenders Agreement and theDevelopment Works Agreement package.Within City Hall, senior professionals withinDevelopment Services, Engineering andLegal Services were involved in fashioningthe agreements.


8. CONCLUSION

The Development Finance Choices Guide waswritten to explore the central question of howlocal governments select which tools to use tofinance the infrastructure required toaccommodate growth.

A three-step process was introduced early in theGuide as the framework for decision-making.The need to define a broad approach todevelopment financing was discussed, a numberof influencing factors were identified and thirteenindividual finance tools were reviewed. Eachtool was described in detail and evaluatedagainst a set of development considerations tohelp determine which tools are best suited todifferent situations. Case studies from threecommunities were presented in an attempt toillustrate how, in practice, local governmentschoose amongst the various mechanisms.

A key premise on which the Guide is based isthat the Local Government Act, in providing sucha wide range of tools, anticipates that localgovernments will make choices. The Actanticipates that local governments willconsciously consider and select those toolswhich, alone or in combination with others, bestserve particular needs or situations. The Guidehas attempted to provide the informationrequired to help local governments make thebest selections.

Looking Forward:

The Guide's primary value is as a developmentfinance resource for local governmentpractitioners. In order to retain this value, theGuide must remain relevant and up-to-date.

The Growth Strategies Office of the Ministry ofMunicipal Affairs is responsible for ensuring thatthe Guide is updated as required. Localgovernment practitioners, however, also have arole to play in making the Guide a livingdocument. The regular submission ofcomments, examples, lessons learned and otheruseful information from "the field" will guaranteethe value of the Guide for years to come.

Contact Information:

Inquiries regarding this document should bemade to:

Growth Strategies OfficeMinistry of Municipal AffairsP.O. Box 9490 Stn. Prov. Govt.Victoria, BC V8W 9N7Tel.: (250) 387-3394Fax: (250) 356-9019

Copies of the Guide may be downloaded fromthe Growth Strategies Web-sitehttp://www.marh.gov.bc.ca/GROWTH/

Development Finance Choices Guide - British …...Michael Marson, Ministry of Municipal Affairs...

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