Issue

The off-site levy bylaw #4721 was adopted on November 22, 2022 under the Corvus model with levy rates reviewed each year commencing in 2023 and adjustments made annually based on that same model. With the economy and businesses just starting to recover from challenging financial and regulatory circumstances an incentive program should be implemented to ensure maximum benefit for development in our community and to ease the process and create stability and predictability.

Executive Summary

The off-site levy bylaw review commenced in August 2022 with stakeholder engagement sessions taking place between August and December 2022. The Medicine Hat & District Chamber of Commerce participated in all the stakeholder engagement sessions, in addition to a number of clarification and follow up meetings with local businesses as well as City Administration. There were several factors that emerged as themes throughout these discussions that should be implemented into the City's off-site levy process, including the reintroduction of an incentive plan, a commitment to keep the off-site levy rates low, implementation of a payment plan, among others. Furthermore, there needs to be a commitment to strictly adhere to the requirements for off-site levies laid out in the Municipal Government Act. This will contribute to increased trust within the community as well as guarantee that out municipality is in line with the legislation.

Background

Off-site levies provide a mechanism to recover capital costs incurred for infrastructure to support growth and development. The Municipal Government Act provides the framework for off-site levies in Part 17 Division 6 of the Act (section 648, page 413) and under Alberta Regulation 187/2017 with provision that “an off-site levy may be used only to pay for all or part of the capital cost of any or all of the following:

(a) new or expanded facilities for the storage, transmission, treatment or supplying of water;

(b) new or expanded facilities for the treatment, movement or disposal of sanitary sewage;

(c) new or expanded storm sewer drainage facilities;

(c.1) new or expanded roads required for or impacted by a subdivision or development;

(c.2) subject to the regulations, new or expanded transportation infrastructure required to connect, or to improve the connection of, municipal roads to provincial highways resulting from a subdivision or development;

(d) land required for or in connection with any facilities described in clauses (a) to (c.2).”

“In addition to the capital costs described [above], an off-site levy may be used to pay for all or part of the capital cost for any of the following purposes, including the cost of any related appurtenances and any land required for or in connection with the purpose:

(a) new or expanded community recreation facilities;

(b) new or expanded fire hall facilities;

(c) new or expanded police station facilities;

(d) new or expanded libraries.” (Section 648, pages 414-415)

Off-site levies may be collected only once in respect of land that is the subject of a development or a subdivision, and levy monies and any interest earned from the investment of the levy must be used for the specific purpose for which the levy was collected. The bylaw must clearly set out the object of each levy, and how the amount of the levy was determined. As such, any levy collected “must be accounted for separately from other levies collected” and the levy collected “must be used only for the specific purpose […] for which it is collected or for the land required for or in connection with that purpose” (Section 648, page 415).

The Municipal Assist program that had been in place since 2013 promoted development and offered an incentive to new development to consider Medicine Hat when locating their business. The Municipal Assist Schedule provided 40% assistance in 2016, 40% in 2017 and 30% in 2018 and 90% for priority intensification areas during that same timeframe. As of January 1, 2023 the Municipal Assist program is no longer being offered and there is no proposed replacement.

The Chamber of Commerce has regularly conducted research on off-site levy costs across municipalities in Alberta to determine competitiveness and methodologies used as detailed in the chart below.

Municipal Comparisons:

Analysis

The methodology for determining off-site levies across the province is varied and the fees range in costs as demonstrated by the table above. Medicine Hat has a lower average unsubsidized off-site levy rate than that of Lethbridge and Calgary, but higher rates than other rural mid-sized centers such as Grand Prairie and Lloydminster.

While a current model for Medicine Hat has already been established, there is also concern about potential rising costs moving into the future, with the amendments to the Municipal Government Act. Within the Modernized Municipal Government Act there have been further provisions that enable off-site levies, by bylaw, to be charged for additional municipal facility projects and projects that connect to or improve the connection to provincial highways. Though the legislation allows for this additional levy to be collected, every municipality will need to consider whether this provision will be adopted and implemented.

Given that off-site levies are not an insubstantial cost to developers, it is important that developers are confident that the levies they are paying are going towards the appropriate projects that will benefit their development. As such, strong stakeholder/municipality relationships are critical to ensuring the off-site levy management and payment process proceeds as it should. There are a number of mandates set forth in the Municipal Government Act that contribute to the proper determination and management of off-site levies. It is imperative that the City adhere strictly to these mandates.

Many smaller, rural communities have difficulty paying for public facilities and roads due to a smaller tax base, where larger metropolitan centres tend to build facilities for specific communities within their City. However, in mid-sized cities, public facilities and major connector routes are generally seen as a taxpayer supported cost and are viewed to be a benefit to the community as a whole. This potential additional development cost must be assessed as to whether there will truly be a significant and enduring benefit to a specific development node or whether the project is for the benefit of the entire community. Additional costs such as these could be viewed as an added regulatory and cost burden that is being imposed on development and investment, offloading municipal costs onto the backs of new investment, development and expansions.

Furthermore, it has been the practice that the road levies would be equally dispersed across all nodes as road projects have been viewed to be a benefit to the entire community and so the costs have been equally dispersed. It is often misconstrued that road costs within a development are offsite costs, subsidized by the taxpayer, however any projects that occur within a development are borne by the developer as part of their costs already. As our City grows, roads and connector routes for services and neighborhoods benefit the entire community in the movement of goods and people, particularly in a mid-sized centre where travel from one side of our community to the other is a regular occurrence for most residents. For this reason, we have consistently stated that the road levy could feasibly be removed from the bylaw and simply remain as a taxpayer supported cost for a municipal service.

As of January 1, 2023, the former development incentive program, Municipal Assist, has been phased out. The benefit of having a specific program to incentivize development is that it acts as a demonstration that the municipality is supportive of growth and wants to work with companies looking to develop our region. Furthermore, it creates a situation where developers are more amenable to working in our region and the relationship between municipality and developer is started from a constructive place. There is an opportunity to institute a program, with industry consultation, that is equitably applied and targeted to promote growth and land development. These incentives could be used to revitalize and rebuild areas of the city that have seen challenges and negative prejudices because of environmental factors or areas prioritized for intensification purposes.

In addition to offering development incentives for off-site levies, it would be beneficial to developers to have a program whereby a developer could pay their levies over a defined period of time. As noted in the municipal comparison table, there are municipalities, such as Calgary or Strathmore, that accept payments over a three-year period as opposed to entirely up front. This would ease the burden of making large payments at the outset of a development and incentivize the developer to ensure the development proceeds on schedule.

In considering any development incentive, it should not be viewed as purely a cost as it is only triggered when development occurs and the subsidy is not used unless there is an offsite levy paid for a development. Subsequently, when development occurs, the municipality then receives tax revenue from that property in perpetuity. Any development will pay for itself through development of taxable property and increasing property tax income through developed land. The creation of commercial development and a new residential tax base will contribute to the tax base and will motivate, rather than stagnate, growth.

Recommendations

In order to create an offsite levy program that has a consistent application beyond 2023 to promote competitiveness, stability and predictability, the Medicine Hat & District Chamber of Commerce recommends that the City of Medicine Hat:

1. Work to maintain off-site levies as one of the lowest in the province and market the competitive advantage to prospective businesses and developers;

2. Create incentives in consultation with industry groups and developers that can be applied equitably and will be targeted to promote growth and land development;

3. Institute a payment plan for off-site levies where developers have the opportunity to utilize a payment plan over the course of three years. Additionally, ensure that the levy rates are set in the subdivision approval and are frozen for one year with the option to apply for an extension with the same conditions as stipulated in the original subdivision approval for an additional 12 months to ensure greater predictability in business planning.

4. Reject any additional offsite levy provisions provided for under the Municipal Government Act s.648(2.1)(a) to (d) that allow for municipalities to charge for municipal facility projects or road projects that connect to or improve the connection to provincial highways.

5. In line with the Municipal Government Act s.648.2(6)(a), make any information or data the municipality relied upon and any assumptions the municipality made in calculating the levy, including, without limitation, any information, data or assumptions the municipality used in models to complete calculations; and s.648.2(6)(b) the calculations that were performed in order to determine the amount of the levy; and s.648.2.(6)(c) anything else that would be required in order to replicate the determination of the levy.

6. Report annually on all details pertaining to the levy, including the details of all off-site levies received by each contributor for each type of facility and infrastructure within each benefitting area MGA s.648.4(2)(a), the uses for each type of facility and infrastructure within each benefitting area for each capital project s.648.4(2)(b), and. the balances retained for each type of facility and infrastructure within each benefitting area s.648.4(2)(c).

7. Ensure that consultations begin at the earliest opportunity and provides stakeholders with the ability to provide input on an ongoing basis. MGA s.648.3(1) to (4). Furthermore, ensure that no bylaw updates take place without stakeholder consultation, and construction is not commenced on any off-site levy project before being that project has been added to the levy calculation and undergone stakeholder consultation.

8. Account for each levy collected separately to ensure that the levies are going toward the specific projects for which they were collected as stated in the MGA s.648(5)(b).

Schedule A

Below is a table that shows the total levy rates and the potential levy rates without the transportation levy included:

Resources