DEVELOPMENT AND INFRASTRUCTURE DIVISION Planning & Building Department. Chair and Members of the Community Development Committee

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1 Pg 1 of Report PB-13/10 DEVELOPMENT AND INFRASTRUCTURE DIVISION Planning & Building Department TO: SUBJECT: Chair and Members of the Community Development Committee Building Permit Fees Review Report Number: PB-13/10 Report Date: January 5, 2010 Author(s): Jason Schmidt-Shoukri Date to Committee: February 8, 2010 Telephone: Ext Date to Council: February 22, 2010 Ward(s) Affected: All File Number(s): ; APPROVALS: Department Head General Manager City Manager To be completed by the Clerks Department Committee Disposition & Comments Council Disposition & Comments 01 Approved 02 Not Approved 03 As Amended 04 Referred 05 Deferred 06 Received & Filed 07 Withdrawn 01 Approved 02 Not Approved 03 As Amended 04 Referred 05 Deferred 06 Received & Filed 07 Withdrawn 1.0 RECOMMENDATION: THAT the proposed fee adjustments contained in the Planning & Building Department report PB-13/10, dated January 5, 2010, be approved; and THAT the amending By-law XX-2010, be presented to Council at their meeting on February 22, 2010 for enactment. EXECUTIVE SUMMARY: N/A

2 Pg 2 of Report PB-13/ PURPOSE: The purpose of this report is to provide Council with the results of the building permit fees review study undertaken by Finance, Planning and Building staff, and an external consultant in the fall of 2009 and throughout January A Power Point presentation will be made by the consultant at this Community Development Committee (CDC) meeting which will provide the background, methodology and results of the fees review. The financial analysis undertaken in support of the recommendations is both detailed and comprehensive. The findings of the financial analysis are included in the presentation. 3.0 BACKGROUND AND RELATIONSHIP TO STRATEGIC PLAN: The Building Code Act (BCA), 1992 provides municipalities with the authority to collect fees to fully recover the cost of administration and enforcement of the BCA and the Ontario Building Code (OBC). Regulations made under the BCA/OBC outline the details of what can be included as part of the cost including direct and indirect costs, and provisions for a reserve fund. The basic principle for providing building permit and inspection services is: Fees for Service. Ontario Regulation 350/06 requires municipalities to hold at least one public meeting with regards to any changes in building permit fees and/or charges. Notice must be given to interested parties 21 days prior to the meeting. In compliance with the regulation, notification of intent to review and/or increase building permit fees was provided to the Burlington Housing Development Liaison Committee (HDLC), the Hamilton Halton Home Builders Association (HHHBA) and to the Building Industry and Land Development Association (BILD). In addition, on-going dialogue and consultation will take place with representatives from the development and construction industry. Information provided to HDLC is commonly shared with HHHBA. Sub-section 7(6) of the BCA addresses Changes in Fees and states that if a principal authority proposes to change any fee, it shall give notice of the proposed changes in fees and hold a public meeting concerning the proposed changes. Article of Division C of the OBC states: Change of Fees (1) Before passing a by-law, regulation or resolution under clause 7(1)(c) of the Act to introduce or change a fee imposed for applications for a permit or for the issuance of a permit, a principal authority shall (a) hold at least one public meeting at which any person who attends has an opportunity to make representations with respect to the matter, (b) ensure that a minimum of 21 days notice of the public meeting is given in accordance with Clause (c), including giving 21 days notice to every person and organization with such notice and has provided an address for the notice, (c) ensure that the notice under Clause (b), (i) Sets out the intention of the principal authority to pass the by-law, regulation or resolution under section 7 of the Act and whether the by-law regulation would impose any fee that was not in effect on the day the notice is given or would change any fee that was in force on the day the notice is given,

3 Pg 3 of Report PB-13/10 (ii) Is sent by regular mail to the last address provided by the person or organization that requested the notice in accordance with Clause (b), and (iii) Sets out the information described in Clause (d) or states that the information will be made available at no cost to any member of the public upon request, and (d) make the following information available to the public: (i) an estimate of the costs of administering and enforcing the Act by the principal authority, (ii) the amount of the fee or of the change to the existing fee, and (iii) the rationale for imposing or changing the fee. 4.0 DISCUSSION: Since the implementation of the Building Code Statute Law Amendment Act, S.O. 2006, c.9 (Bill 124) in 2006, building permit fees have remained for the most part unchanged. Unlike other corporate fees/charges, no annual indexation to either the consumer or construction price indices (CPI) took place during that period. Despite additional legislative changes, and operational and/or inflationary pressures, there has been no increase in building permit fees since Economic Downturn In the fall of 2008, a major global economic downturn led to the collapse of financial institutions and the stock market. The impact of these recessionary pressures on consumer spending confidence led to a significant downturn in the local housing market. Building permit volumes experienced a large drop in the fourth quarter of 2008 and throughout the first three quarters of In the first three quarters of 2009, 905 permits were issued compared to 1570 permits issued during the same period in As a result, building permit revenues fell to a record low level during that period. A re-deployment program was initiated and implemented in mid 2009 to reduce operational costs and address revenue shortages. Six staff were re-deployed to other departments, two vacancies, including one maternity leave, were not filled. With the exception of the maternity leave and a four-month loan to the United Way, the length of re-deployment is expected to be between six and eighteen months. Refer to City Manager report CM The implementation of the re-deployment program helped offset the shortage in revenues and ensured that operational costs are kept low in an economic downturn. It also helped retain staff within the City until such time when building permit activity justifies return of staff to their home department. This human resource strategy takes into consideration the fact that OBC enforcement staff are highly technical and must attain extensive training to meet qualifications required by legislation. The plan ensures that the return on investment is maintained within the City. The fall of 2009 witnessed the beginning of the reversal of trends in building permit activity. In the fourth quarter of 2009, 419 permits were issued compared to 218 permits issued during the same period in It is anticipated that with the economic recovery in 2010, and with the gradual increase in the volume of building permit applications and the associated revenues, a gradual return of staff to the Planning and Building department will take place. By closely monitoring building permit activity, staff will ensure a seamless transition is provided for OBC enforcement for plans review and inspections.

4 Pg 4 of Report PB-13/ Annual Report The Building Code Act (BCA) and the regulations made there under the Ontario Building Code (OBC) require that a report be prepared annually on fees collected and costs incurred. The annual report on building permit fees collected, direct and indirect costs of administering and enforcing the BCA, as well as the balance in the Stabilization Reserve Fund for the period January 1, 2009 to December 31, 2009 will be presented to this Committee at their meeting on March 29, As a result of the re-deployment of personnel to other departments, the Building Division was able to address the decline in building permit revenues arising from the recession which began in the fourth quarter of The department will likely complete the year in a near break even position, which according to the Finance department s preliminary estimates for 2009, should result in a budgeted draw of only $2,554 from the Reserve Fund. It is also be possible that the budgeted 2009 provision from the reserve fund may not be required. This will be revisited as part of the surplus disposition report in March Greenfield Residential Buildout The make-up of residential construction projects in Burlington started shifting towards more infill developments and away from historical greenfield subdivisions. Renovations and additions are on the rise - due in part to the tax credit available in and an increase in small to midsize industrial, commercial and institutional projects is starting to take place. These types of projects are typically labour intensive and time consuming but do not generate sufficient revenue to fully cover the cost of BCA/OBC enforcement. In other words, renovation and additions are cross-subsidized by other permit fees. The cross-subsidization between categories was detailed in the financial analysis and is addressed in the Building Permit Fees Review presentation. As previously outlined in the City Manager report CM-7-09, while residential greenfield buildout will impact the department, other areas unrelated to residential greenfield will increase. The shift represents a rebalancing of workload over an extended period of time. The recommended building permit and inspections fees, as developed, represent full processing cost recovery when all categories are totalled. In addition, the recommended fees are intended to help gradually rebuild the Building Permits Stabilization Reserve Fund as part of a strategic plan for accumulation in order to maintain service delivery during a future economic downturn. The revised fees, when implemented, will help the City transition from the historic reliance on crosssubsidization that could no longer be relied upon. The proposed fees are shown in Appendix A of this report and are also shown in the amending By-law XX Legislative Requirements Ongoing changes to legislative requirements, including the OBC leads to changes in the level of effort required to provide building permit and inspection services. Additional changes have recently taken place and other changes are due in 2010 and As a result, on-going training to obtain and /or retain minimum technical qualifications is entrenched in legislation and in our operating budget. O. Regulation 503/09 made under the BCA on December 16, 2009 resulted in

5 Pg 5 of Report PB-13/10 many technical changes being made to the OBC requirements. The highlights of these changes include requirements for fire sprinklers in new and certain renovated multiple-unit residential buildings over three storeys in height. This will come into force on April 1, Other technical changes took effect on January 1, This includes provisions for backflow prevention devices for solar domestic hot water systems. The proposed fees reflect technical changes to the OBC that took effect recently, including the corresponding effort needed to provide service. Revised fees also encompass additional OBC changes scheduled to take effect later this year. The fees take into account business process changes as a result of Regional initiatives, including the backflow prevention program as outlined in Planning and Building report PB-12/10 to be presented to this Committee at this meeting. That report addresses Amendments to the Building Permit By-law. It includes the introduction of Occupancy Permits and Certificates, as addressed in the current Code and in preparation for upcoming changes in that area. It also includes a fee associated with Alternate Solutions, a service required in the OBC. 4.5 Building Permit Fees Review To assist with the review and financial analysis of the building permit fees, the City retained the services of Todd MacDonald of Performance Concepts. The same consultant had worked on the City s first Bill 124 fees review in 2005/2006 and has conducted fees review for many Ontario municipalities. The consultant worked very closely with Finance and Planning and Building staff, revisited and refined the original financial model developed in The scope of work included revalidating data and ensuring that the financial model encompasses many of the operational and other changes that took place in the last few years, including the economic downturn. Refer to the presentation by Todd MacDonald for the details of the financial study, including the costing methodology. 4.6 Impact of Economic Downturn In response to the economic downturn that began in the fourth quarter of 2008, many municipalities in the Greater Toronto Area (GTA) have engaged in a similar fee review undertaken by City staff. The Large Municipalities Chief Building Officials Group (LMCBO) conducts an annual survey of building permit fees and publishes a report within the first quarter of each year. Over the last few years, Burlington s fees for providing OBC enforcement remained competitive compared to neighbouring municipalities in Halton and the GTA. A comparison of building permit and inspections fees with some municipalities in the GTA is included as part of the Building Permit Fees Review presentation. 4.7 Annual Indexation Annual indexation of building permit and inspections fees is not recommended for As outlined in the Amendments to the Building Permit By-law report BP-12/10, it is recommended that starting in 2011, the City retain the option of applying an annual indexation to fees based on the Construction Price Index (CPI). This would take place within the existing legislative context which requires that a public meeting be held and that any fee adjustment be approved by Council. Other GTA municipalities are considering moving in the same direction and some,

6 Pg 6 of Report PB-13/10 including Markham, Oshawa, Oakville, and Toronto, have already done so to address inflationary pressures. This will assist with the stabilization of building permit fees during temporary slowdowns and to provide additional staff for turnaround compliance during peak times. The development and building industry is quite familiar with the concept of indexation to Construction Price Index. 5.0 FINANCIAL MATTERS: As a result of the comprehensive study of the building permit fees, it became apparent that fees in certain categories were significantly under-recovering the cost of providing service. These categories include renovations/additions for industrial, commercial and institutional projects. It also includes residential additions and renovations and accessory structures. The issue of crosssubsidization had to be addressed so that an increase across the board is avoided, especially in a time of fragile economic recovery. Benchmarking was also taken into consideration, based primarily on a fee comparison with neighbouring municipalities. Staff were also careful to avoid a fee increase that could have the effect of driving some construction underground, i.e. construction without permit. Alternatives and options were considered including maintaining the status quo, which would require utilization of the remaining balance in the Stabilization Reserve Fund. Maintaining the status quo would also require support from the general tax base which is not in line with the principle of Fees for Service. Another option considered, is to impose a fee increase across the board, an option that would not be supported by industry, in particular by the home builders as we enter a much anticipated soft recovery year in the residential sector in Following a comprehensive business review of the fee structure and taking account of best planning estimates to determine the type of work going forward, it was determined that selected fee increases would be most appropriate to maintain service levels and turnaround times, and to cope with additional requirements posed by legislative changes. As a result, only targeted fees in specific categories were considered for increase to reduce and/or eliminate our dependence on cross-subsidization and achieve full cost recovery on the overall bottom line, in accordance with the legislation. Strategically, cross-subsidization for residential additions and/or renovations was reduced but not eliminated in order to avoid potential compliance and enforcement challenges. A major portion of the fees in Schedule A of the Building Permit By-law remains unchanged. This strategic approach was well-received by industry. Additional building permit revenue is anticipated to be generated from revisions to some of the existing fees and from new fees. A detailed listing of the proposed changes to the targeted building permit fees is shown in Appendix A of Planning and Building report PB-13/10, dated January 5, Implementation Date Staff recommend that the proposed fees adjustment takes effect on March 1 st, 2010, following approval by this Committee at this meeting, and Council approval on February 22, 2010.

7 Pg 7 of Report PB-13/ COMMUNICATION MATTERS: Over the past few months, City staff have consulted with members of HDLC and provided them with an overview of the proposed changes to the building permit fees and the rationale behind the proposed adjustments. A dialogue took place; feedback was received and taken into consideration, including avoiding an increase across the board where possible. The findings of the Building Permit Fees Review were also shared with HDLC. No objections were received from industry members in light of the pro-active measures undertaken by the City to address recessionary pressures and a budgetary deficit. Presentations by the Chief Building Official to members of the HHHBA and BILD also took place in the late fall of These presentations provided an overview of new initiatives by the Planning and Building Department, including the proposed changes to the building permit fees. Feedback was also received and taken into consideration, including possibly deferring the implementation of an annual indexation. Industry members also provided positive feedback for the level of service provided by the City over the years. In addition, a public notice about the proposed adjustments to the building permit fees has been posted at the Planning and Building Department counters. The attached listing of fees and charges will also be posted on the City s external website following Council s approval of the proposed recommendations and subsequent enactment of the corresponding amending By-law. Planning and Building staff will continue to work with the Community Relations team to address on-going communications with key stakeholders. 7.0 CONCLUSION: This report provides the results of the comprehensive building permit fees review. As a result of the financial analysis and findings, staff recommend that only certain targeted fees be strategically increased in order to recover the overall cost of enforcing the BCA and the OBC. Staff from Finance and the Planning and Building Departments has jointly undertaken the comprehensive review of the building permit fees and recommend that the proposed revisions to building permit and inspections fees be enacted effective March 1 st, Respectfully submitted, Jason Schmidt-Shoukri, OAA Chief Building Official Copy filed: s:\inet\

8 Pg 8 of Report PB-13/10 Appendices: Appendix A Listing of the Revised Building Permit Fees Staff / Others Consulted: Name Telephone Lori Jivan Joan Ford Lisa Shields Jennifer Shaw Donna Kell x7586 x7798 x7615 x7413 x7841 Notifications: Name Mailing or Address HDLC Members HHHBA Members Special Instructions:

9 Pg 9 of Report PB-13/10 Appendix A Listing of the Proposed Revised Building Permit Fees

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