DCs Aren’t the Only Path to Funding

Development charges (DCs) are in the news again, as the province’s “growth pays for growth” ideal falls down again, this time in Oakville.

At a recent city council meeting, Oakville Mayor Rob Burton said, “Development charges should ensure new development covers the costs of servicing the land and building the infrastructure expected by residents.”

Sadly, they don’t. Development charges can’t be used for municipal buildings, cultural facilities or hospitals, and are limited to less than 40% of transit, which in particular has, ironically, been identified by the province as important to alleviating GTA gridlock.

“Without a change to the way transit is treated under the DCA, it will be financially impossible for municipalities to create and operate the level of transit needed to achieve this goal,” Burton said.

Back in the spring, the Star’s Christopher Hume wrote a column noting that development charges have become “an obstacle to intelligent growth, not a spur.”

Though the public sees these charges as something that affects developers, not consumers, they forget that fees are passed on to buyers. That’s probably why the city discovered DCs are the most popular transit-raising tool among residents, preferable to alternatives such as sales tax, parking levies, road tolls, etc. Opinion polls generally point to increases in development charges as a sound way of raising the billions we need to bring our transit system into this century. And yet, development charges in the suburbs that are badly underserviced by public transit are generally more than those in Toronto proper; the charge on an apartment in Toronto that is $15,000 is going to be three times as much in Brampton.

How did we get this so wrong? Every side has its story, and each is as self-interested as the next.

You can’t stop capitalists from making whatever the market will let them make in a capitalist society, and yet I’m sure many think rich developers could make a little less and eat some of those exorbitant fees. BILD estimated the industry’s contribution to growth-related infrastructure in 2012 alone at $1 billion just through development charges.

Buyers of new construction feel like they’re being unfairly dinged for those fees, and yet they want something brand new, where they can pick the perfect finishes for them, and no one else has ever tread the hardwood floors. Existing residents don’t think they should have to absorb the costs of infrastructure — after all, they were already there.

And the entire system itself is (as is most of government everywhere) just a hot mess. At an event put together by BILD and the OHBA in November, Ontario’s Minister of Transportation and Infrastructure, Glen Murray, said, “We haven’t integrated land use and transit planning for 50 years in this province.”

How can that make sense to anyone? How can we have any clue that development charges are the best way to pay for infrastructure when the two biggest government parties involved — land use and transit —don’t even speak to each other?

Societies need to be holistic in order to function well, and yet we toss this problem from stakeholder to stakeholder like a hot potato. It’s like people who don’t have children kvetching because “their” taxes have to go to schools, or people who don’t care about theatre complaining about arts funding. When you belong to a community, you are part of an ecosystem. Any time you put pressure on one part of the the ecosystem, it affects the whole. One day, you’re going to be glad your neighbours had kids even if you don’t want them yourself, because it’s their kid who’ll be pushing you down the hall of “the home.” We’re all in this together.

It’s great that a provincial panel has been assembled to look at the funding tools, but if the government let it get this far off track, how can they be the ones to get it back on? BILD and the like will give the industry a voice, but they can’t help but be self-interested. Hopefully the public embraced their opportunity to have their say before the provincial feedback deadline hit earlier this month, but the public is notoriously apathetic in such matters.

Development charges are largely indirect and hidden, so they’re easier to sneak past consumers than, say, higher HST, and that makes them a great fallback position for lazy legislators, and yet they’re becoming prohibitive for the lower-income families that help create exactly the kind of mixed and balanced communities that should be our ideal.

We need to stop doing what we’ve always done and overhaul the system completely, not just keep trying to get by making tweaks, raising development charges, and doing things the same ineffective way. Ontario relies on development charges more than any other province, looking to them to cover the costs of water, sewers, highways, police and fire services in their entirety, as well as a percentage of other expenses. Canada is the only top-tier economic nation to have no national transit strategy. Both those things need to change.

One alternative to development charges that strikes me as viable and intelligent is value capture. This is a strategy that would charge existent residents a fee or “betterment tax” based on the increase in value to their properties as a result of new infrastructure. I’m sure the residents would bellyache plenty, but it makes sense to me — if you’ve owned a home for the last 20 years and have seen equity rise by, say, 5% a year, and suddenly the government decides to put in a new subway line (paid for by development charges paid for by the owners of that condo you’ve been complaining endlessly about that’s going up on the corner) and your property value suddenly spikes by 20% as a direct result, why shouldn’t you pony up part of it? It’s a strategy that focuses on landowners, not just developers and new construction buyers.

And what about portfolio building? This would require prising some part of infrastructure away from the government and into the private sector. Why don’t we have a team of top international traders working on making money for the city, instead of putting our collective finances in the hands of a bunch of lawyers? How about a Ministry of Making a Profit? No, I’m not naïve enough not to see the potential there for exploitation, but if in the end it pays for infrastructure without driving home prices up so much only the rich can afford them, what’s a little corruption? Let’s get real, and maybe then we can get it right.