Massive growth subsidies
Over the last eight years, growth projects in Hamilton have received over $200 million in exemptions for development charges according to a summary released this week by the city. The handouts to residential, commercial and industrial developers are accelerating with over $40 million granted in each of the last two years.
The ongoing massive subsidy is particularly instructive in the context of the current debate about expanding the urban boundary to accommodate more development on farmland. The figures contradict the oft-repeated builders’ claim that “development pays for itself”.
The eight-year exemptions summary applies to fees that could have been legally collected from developers to cover growth costs, but for which they have been granted reductions. A portion of the exemptions are imposed by provincial rules, but about 85 percent have been the result of city council decisions. The summary released last week says just over $173 million of the development charge exemptions came from city council decisions with the remaining $30 million attributed to provincial rules.
These subsidies to growth likely underestimate how much taxpayers and ratepayers directly subsidize growth projects because provincial rules forbid cities from collecting for some growth costs such as waste collection, computer purchases, parking services, airport lands and vehicles that last less than seven years such as police cars.
Development charges are supposed to cover the cost of new infrastructure such as new roads, pipes, fire and police services, and other expenditures required to service growth. Infill growth in already urbanized areas is much less costly for cities because it makes use of existing infrastructure that has already been paid for.
Greenfield development, on the other hand, requires all new infrastructure. Development fees are supposed to pay for this, although they are not designed to fund subsequent maintenance. A recent study completed for Ottawa by Hemson consultants contradicts this argument.
"Hemson found it now costs the City of Ottawa $465 per person each year to serve new low-density homes built on undeveloped land, over and above what it receives from property taxes and water bills,” reported CBC in late September. “On the other hand, high-density infill development, such as apartment buildings, pays for itself and leaves the city with an extra $606 per capita each year.”
A little over half the Hamilton growth subsidies over the last eight years have been paid for by raising property taxes or water rates, but nearly $100 million are listed as “unfunded exemptions” that still must be recovered. In recent years, at the urging of the finance department, about $16 million has been annually added to tax and water bills to offset the loss from exemptions. Last year a budget surplus of $15 million was also applied to the accumulated debt for a payment total of $31.5 million.
The financial impact of these exemptions has been reduced in the last two years by a change in the way development charges are calculated. Up until 2019, the fees were uniform across the city, a policy that heavily favoured greenfield sprawl where brand new infrastructure like roads, pipes, and fire stations must be provided by the city.
Since then development charges have gone up for water and sewer for growth south of Mohawk Road. This has helped reduce the financial advantage enjoyed by greenfield developers, but much less than other cities which separate greenfield rates from infill. The charges for roads in Hamilton, for example, are still the same no matter whether the development requires brand new ones or utilizes existing ones.
Council has sharply cut development charges for downtown Hamilton to encourage core revitalization. As a result the largest component of exemptions has been for new buildings there. In downtown Hamilton developers have gotten over $55 million in reductions over the last eight years, including nearly $29 million in 2019-20. Council currently offers downtown projects a 40 percent cut in fees, down sharply from 70 percent in 2019.
Cuts in development charges for industrial projects make up the second largest component of the exemptions at $34 million. In third place is agricultural use at $26 million.
