WHO PAYS FOR WHAT THE BIG PICTURE OF INFRASTRUCTURE INVESTMENT. A Smarter Growth Initiative Publication smartergrowth.ca

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1 WHO PAYS FOR WHAT THE BIG PICTURE OF INFRASTRUCTURE INVESTMENT A Smarter Growth Initiative Publication smartergrowth.ca 1

2 IT S YOUR CITY This publication was prepared by the Smarter Growth Initiative, a collaboration between the Urban Development Institute - Calgary, and the Canadian Home Builders Association - Calgary Region. Calgary has been one of the fastest-growing cities in North America for more than four years. That presents both challenges and opportunities. A smart approach to growth will ensure that we continue to be one of the most livable cities in the world. This is the fourth booklet in a series of seven, each focused on a major factor affecting our region s urban development. The topics within each publication are explored further through articles on smartergrowth.ca and with shared information on Facebook and Twitter (@smarter_growth). Learn more at smartergrowth.ca Infrastructure is top of mind for many of us, and one of the greatest economic considerations for all Canadians today. Across the country, we need brand-new infrastructure, and we need to fix or replace aging infrastructure. Funding growth and maintenance has become a chronic problem. And a very expensive one. Much of the cost of infrastructure is covered by our tax dollars, distributed by the federal, provincial and municipal governments. Over time, the burden has fallen more and more on our city s shoulders. Calgary s share of capital investment has grown from 27% to 48% since the 1950s. And, over that period of time, the residential development and building industry has taken on the lion s share of new growth expenses. The City of Calgary seeks ways to fund the constant investment we need for the construction and maintenance of our infrastructure. Although it s an intricate puzzle that can be hard to unravel, it s one we should all understand. It s our city, and we should all know what s under the hood. Our goal is simple: engage Calgarians in dialogue on topics affecting planning and development. 2

3 TABLE OF CONTENTS 06 INFRASTRUCTURE AND GROWTH 08 THE LAY OF THE LAND 10 INFRASTRUCTURE INVESTMENT 12 WHO DECIDES 14 THE ISSUES 16 WHAT S NEXT 18 MORE OPTIONS 22 GLOSSARY 24 GET INVOLVED

4 INFRASTRUCTURE AND GROWTH BUILDING FROM THE A growing economy can suddenly mean more people and more pipes BOTTOM UP More population, more pipes. Given how fast economic indicators like the price of oil can change, it s not hard to imagine the difficulty of adapting to the often unpredictable population growth and the resulting expansion of our city. Infrastructure investment needs a sound strategy that can respond to fluctuating growth patterns without imposing the burden of large debt. Calgary s city planners, builders and developers are working on a funding model for infrastructure that is responsible, and fair for all Calgarians. BASED ON CALGARY S HISTORICAL GROWTH, WE NEED TO UPGRADE ONE OF OUR WATER OR WASTEWATER TREATMENT PLANTS EVERY 10 YEARS. View the full City of Calgary Developed Areas Growth and Change 2014 report at smartergrowth.ca 6 7

5 THE LAY OF THE LAND WHO FOOTS Inside a new community, developers cover 100% of the cost of new growth. And where redevelopment takes place, it can be either The City or the builder who pays for upgrades. THE BILL? SOUND BARRIERS PHONE SYSTEM RECREATION FACILITIES STREETLIGHTS It depends where you re digging. PATHWAYS PUBLIC SPACES Outside a new residential area, The City invests in making the connection to existing infrastructure using off-site levies from developers, grants and other funding sources. ROADS AND PATHWAYS STREETLIGHTS TRAFFIC CONTROL FENCING LANDSCAPING STREETS AND SIDEWALKS PUBLIC SPACES WATER CABLE SYSTEM LOCAL WATER, WASTEWATER AND SEWER SYSTEMS PUBLIC TRANSIT GAS SYSTEM WATER, WASTEWATER AND SEWER SYSTEM 9

6 INFRASTRUCTURE INVESTMENT SHOW ME THE MONEY Finding funds to keep Calgary livable. There are only a few places that The City can turn to for revenue property tax from residents and businesses, developer levies and fees in new communities and developed communities, monthly utility payments from property owners, user fees, and federal and provincial government grants. Which one covers what costs? LEVIES AND USER FEES UTILITIES RATES PROPERTY TAX GOVERNMENT GRANTS Developers pay levies of, on average, $310,000 We all pay monthly rates to cover the cost of utilities. Property tax is one of the main sources of Federal and provincial governments contribute per hectare to The City for all growth-related infrastructure expenses inside new communities; they also dedicate land for parks and utilities. Builders pay to upgrade local infrastructure for redevelopment projects. Calgarians pay user fees to supplement the cost of things like recreation centres, public transit, water and recycling. The cost of the delivery of electricity, water and sewer is completely covered by home and business owners. Our monthly bills reflect both the fluctuating cost of electricity actually delivered to our homes as well as the local access fees. City revenue. It pays for essential services and programs. Part of our property taxes help The City with operating expenses for infrastructure including roads and parks. Approximately 2.6% of property tax revenue is used to maintain existing infrastructure. to limited capital projects. The funds come from programs like the GST refund to cities, or the gas tax. The Alberta Municipal Infrastructure Program has contributed billions of dollars to capital projects over the past number of years. Recently, the federal government made their largest single investment in Calgary s history, for the Green Line

7 WHO DECIDES WHAT GOES WHERE? Putting the puzzle together. When all is said and done, it s The City of Calgary that determines where, when and how new development can take place. They monitor our land supply, approve the subdivision of land and determine the timing of the initial infrastructure investment. The City requires that leading infrastructure water, storm, sanitary, fire and transportation services is in place before developers can begin their work. The priority and sequencing of infrastructure is, understandably, highly complex. The City tries to provide the same services to everyone, no matter where they live, and to ensure the creation of sufficient housing choices for homebuyers. The City and industry are moving further into a partnership model for determining the sequence of growth. The City has the information to take the big-picture view, and industry has strong market knowledge to bring to the table. Knowing where homebuyers are most likely to purchase new homes helps ensure that The City receives revenue through additional property taxes as quickly as possible once a new community is built. TOGETHER, INDUSTRY AND THE CITY DEVELOPED METHODOLOGY TO MONITOR OUR SUBURBAN LOT SUPPLY ON A MONTHLY BASIS TO HELP INFORM INFRASTRUCTURE SEQUENCING. There are always hundreds of infrastructure needs all over Calgary, so constant monitoring with a high-level view is critical to determine construction sequencing

8 THE ISSUES WHAT S NOT WORKING? The current cost recovery model isn t sustainable. The funding model for Calgary s infrastructure is complete cost recovery for connecting existing infrastructure to new communities, so any initial investment from The City is eventually paid back for use on future projects. The first step in finding revenue for connnecting costs is the collection of developers levies. After that, property taxes and utility rates help pay back much of the investment. New growth pays for itself. Levies paid by greenfield developers also help to fund projects that involve upgrading existing infrastructure. How? Along The City through levies, each new home built adds revenue to The City through property tax and utility rate payments. However, cost recovery is not the only goal to consider. Sometimes, the benefits of growth throughout Calgary are not necessarily directly tied to how quickly The City s infrastructure investment can be recovered. GROWTH BRINGS SUSTAINABILITY TO OUR COMMUNITIES HIGHER ACTIVITY FOR RESIDENTS MORE NEW INVESTMENT WIDER RANGE OF NEARBY JOBS BETTER SHOPPING AND ENTERTAINMENT IMPROVED INFRASTRUCTURE AND AMENITIES THERE IS AN EXPECTED PUBLIC INVESTMENT OF with high and consistent direct contributions to $22 BILLION TO PROVIDE INFRASTRUCTURE AND DAILY SERVICES TO CALGARIANS BETWEEN 2015 AND INCREASED PROPERTY VALUES Learn more about The City of Calgary Action Plan at smartergrowth.ca Adrian Shellard 14 15

9 WHAT S NEXT WHAT S BEING DONE? Finding a sustainable funding model is urgent. Together, industry and The City are actively pursuing new solutions to ease the strain of infrastructure investment as Calgary grows. In 2014, The City of Calgary established Build Calgary, a collaborative initiative between multiple City business units and external stakeholders, including developers and builders. Build Calgary has a critical mission to prioritize and meet the ever-changing demands of growth within our city by analyzing ideas for the most effective and efficient funding model. Levies Regional Coordination Consider partnerships within the entire metropolitan region to ensure efficient and sustainable infrastructure. Build Calgary works with partners and a transparent approach. Create a new Off-Site Levy Bylaw (related to developers levies) for 2016, and examine the structure for redevelopment levies. Currently, the cost of infrastructure upgrades for redevelopment projects is inconsistent, determined one project at a time. Build Calgary explores all avenues to ensure The City of Calgary maximizes infrastructure funding efficiencies. Commercial, Industrial and Transit-Oriented Development Emphasize development opportunities that generate non-residential tax. Land Supply Process Test scenarios to ensure a transparent and balanced land supply process. Legislative Framework Provide ongoing input into the review of the Municipal Government Act, to be finalized in

10 MORE OPTIONS WHAT ELSE? Looking elsewhere for funding inspiration. In cities throughout the world, there are other models to consider that could help create long-term predictable funding for efficient and effective investment decisions. It s always a good idea to ask citizens to help make important decisions around infrastructure. Recently, the Calgary Chamber convened a Citizens Commission on Municipal Infrastructure. In February 2016, they, along with input from a public roundtable, will deliver recommendations for how The City should address its infrastructure deficit. It s an exciting time to be in a fast-growing city and, with new thinking and collaboration, we can respond to our fluctuating pace of population growth and build a great livable city. PUBLIC-PRIVATE PARTNERSHIPS In a public-private partnership, the infrastructure assets remain publicly owned, but the private sector takes on responsibility for the risks associated with designing, building and maintaining the assets. The results can be innovative solutions, delivered on time and on budget. PERMANENT AREA CONTRIBUTIONS These contributions are interdeveloper financing and cost sharing of common infrastructure systems within a specific area. LOcAL IMPROVEMENT TAX A local improvement tax may appear on one community s property tax bills to help pay for improvements to specific things like curbs and back lanes in that community. Possible new revenue streams SPECIAL TAX OPTION A community can request an enhancement from The City, such as enhanced landscaping, and then pay for it as a community. MUNICIPAL-ISSUED BOND The purchase of a municipal bond is akin to lending money to The City; you earn interest on your investment

11 WE NEED SMARTER GROWTH FOR AN EVEN SMARTER CITY Get engaged and explore more planning and development issues at smartergrowth.ca

12 DEMYSTIFYING TERMS GLOSSARY Know the lingo and join the conversation. GREENFIELD VS. REDEVELOPMENT: Greenfield refers to brand-new development on previously empty and unserviced land, while redevelopment refers to new construction in a developed area. ON-SITE VS. OFF-SITE: Everything within the boundaries of a new community is considered to be on-site. As soon as you look outside the gates of a new community, that s off-site. LEVIES VS. DIRECT PAYMENTS: Levies are fees that greenfield developers must pay to fund the cost of new growth, while direct payments are imposed on redevelopers to pay for local infrastructure upgrades. Levies are based on the principle that development related to growth should pay for itself and not impose a burden on existing residents. THE MASTER DEVELOPMENT AGREEMENT (MDA) details developers obligations to provide public infrastructure and make financial contributions in the form of fees and levies for the development of new subdivisions. THE MUNICIPAL GOVERNMENT ACT (MGA), which is determined by the provincial government, helps to define how our municipalities function. It includes policies on planning and development, governance and administration, assessments and taxation. It guides how we pay for our roads, where we build our schools and how we develop healthy communities for the future. THE DEVELOPER-FUNDED INFRASTRUCTURE STABILIZATION FUND (OVERSIZE FUND) reimburses land developers for providing infrastructure for roads, parks and utilities in excess of what is normally required for the project. THE FRONT-ENDING AGREEMENTS mean that the developer agrees to finance a required infrastructure project by paying interest charges on loans, which is then paid back to them by The City. This way, projects can proceed where capital budget priorities would not have otherwise allowed

13 GET INVOLVED BE PART OF AN EXCITING FUTURE Stay informed and lend your voice to the dialogue. As infrastructure funding becomes increasingly urgent, The City, industry and community members are working together to determine a comprehensive, smart plan and a process for efficiency. We re collaborating to promote an environment where the right investments in infrastructure will foster more innovation and choice, better neighbourhood amenities, mobility options and a thriving city. Stay informed on issues facing the Calgary Region. Get to know your elected officials, talk to your friends, and attend open forums and public consultations it s your city to build. The Smarter Growth Initiative is here to provide balanced information on issues and planning trends in the Calgary Region. Join the conversation at smartergrowth.ca and be part of a bigger, smarter tomorrow. VISIT US AT SMARTERGROWTH.CA UPCOMING PUBLICATIONS DEVELOPMENT PROCESS FROM DIRT TO DOOR Creating dynamic communities where Calgarians can thrive is a complex process. You may see a great house in a great neighbourhood, but what don t you see? Discover what it really took to catch your eye. PREVIOUS PUBLICATIONS AN OVERVIEW HOW TO BUILD A GREAT CITY Calgary is one of the fastestgrowing cities in North America. That can be both good and bad. A smart approach to growth will ensure that we continue to be one of the most livable cities in the world. LAND SUPPLY DRIVEN BY DEMAND More people means more housing. How much more? And where? Researchers are working full time to make forecasts and create a land supply strategy. Here s what they know. Find out what they re saying. MARKET DEMAND THE CHANGING FACE OF CALGARY Our population is not only growing it s also changing. Naturally, not everybody wants the same thing when it comes to housing. Learn how demographics are promoting versatility in Calgary s dwellings, and what it means to stay affordable. COMPLETE COMMUNITIES LOVE WHERE YOU LIVE Intelligent urbanization leads to better health, stronger economies, more safety, less pollution, and improved social and family ties. Learn more about complete communities and how they are catching on in Calgary. REDEVELOPMENT RAISING A SMART CITY Redevelopment is part of a city s evolution, even in a young city like ours. Take a good look from all angles up, out and underground. With some good thinking, we ll make Calgary a model of intelligent urbanism. 24 Order publications at smartergrowth.ca

14 RESOURCES Action Plan , The City of Calgary, 2015 Canada s Infrastructure Gap, Canadian Centre for Policy Alternatives, 2013 City Examining Levies For Inner-City Developers, Calgary Herald, 2015 Continuing the Conversation about Homes, Communities and Canadians, Calgary Home Builders Association, 2015 Developer Levy Fails to Deliver, Council Told To Expect $14M Shortfall This Year, Calgary Herald, 2015 Developed Areas Growth and Change, The City of Calgary, 2014 Development Charges Across Canada: An Underutilized Growth Management Tool?, Institute on Municipal Finance and Government, University of Toronto, 2012 Financing Growth Study, City of Saskatoon, 2015 Government Charges and Fees on New Homes in the Greater Toronto Area, Altus Group, 2013 Infrastructure Status Report, The City of Calgary, 2013 Innovative Infrastructure Financing Mechanisms for Smart Growth, Smart Growth BC, 2007 Public Infrastructure Underinvestment: The Risk to Canada s Economic Growth, RiskAnalytica, 2010 Suburban Residential Growth , City of Calgary, 2015 The Road To Jobs And Growth: Solving Canada s Infrastructure Challenge, The Federation of Canadian Municipalities, 2012 What The Number 45 Means To Residential Construction, Daily Commercial News, 2015 VISIT SMARTERGROWTH.CA AND BE PART OF A BIGGER, SMARTER TOMORROW. THE SMARTER GROWTH INITIATIVE IS A COLLABORATION BETWEEN THE URBAN DEVELOPMENT INSTITUTE CALGARY AND THE CANADIAN HOME BUILDERS ASSOCIATION CALGARY REGION. CONNECT 26 Copyright 2015 by the Smarter Growth Initiative Permission is granted to the public to reproduce or disseminate this report, in part or in whole, free of charge, in any format or medium without requiring specific permission. Any errors or omissions in this report are the responsibility of the Smarter Growth Initiative.

15 A Smarter Growth Initiative Publication smartergrowth.ca