Lecture #1 Policy Stream - Intro to policy planning Municipal finance for planners - This course is focussed specifically on expanding understanding of policy Program evaluation and policy analysis Tools - Land value capture Policy Hierarcy - Policy - Programs - Projects Policy - Providing affordable housing for people Program - Affordable housing program Projects - Regent Park social housing Policy Process - Agenda Setting Policy Formulation Policy adoption Policy implementation Policy evaluation / analysis Agenda Setting - The government will consider it, considers alternative ways to affect that issue Formulation - Analysis of alternative ways Policy Adoption Policy Implementation - Sometimes you might send out regulations but then you might get feedback that it sucks (like with the Liberals and inclusionary zoning) You need the right expertise. Like the expertise in house to do a pro forma analysis. If not the project can fail. Debt vs Deficit - Debt is a stock, deficit is a flow - Debt is a stock - so it is measured at a specific time - Deficit is a flow - so it is measured over a specific time (typically annually) No sustained federal funding for transportation. Conditional vs Unconditional Specific purpose vs general purpose Municipal Finance - A field of economics Public finance deals with a lot of the same components of theory, externalities, etc associated with property markets and economics. Public Admin Strategic planning - How the government would operate. This became popular in local government because of the business model connected to it in - - Public can be involved in the process in a number of ways. Like cleaning up along a highway. Really the responsibility of policy makers and decision makers. Does not have the same force that land use planning - the latter of which has to be followed by council. Strategic planning on the otherhand can change with an administration. Burlington had its first strategic plan in 1988. Future focus plan model in burlington. At the end of the term of council they do a survey to get public input about where the plan is. If you don’t have a strategic plan council should get together as a group to see if there are agreements and disagreements over. Capital budget - Infrastructure Items that you pay for out of current expenditures or that you can borrow money on. Land Value Capture - Regent Park example, how to you leverage public assets - Joint development - if you buy the land before prices go up. If you can buy that land beforehand you can capture the value increase for the public sector instead of the private sector. - Business taxes - Assessment of properties rules. The rule is not the current use value of the property, but the highest investors. Why? Change the policy. What determines prices? Supply or Demand? - Both are important to understand Supply Curve - Upward sloping, reflects greater supply The supply curve for any good or service are the factors of production - Factors of production are - Land - Labour - Capital - Prices or availability of these factors will determine the pricing for a good or service. Demand side/curve - Demand curves tend to be downward sloping - Higher prices less will be demands, lower prices more will be demanded - You can look at individual demand curves or market demand curves. Factors that affect demand curve - Individual - People’s incomes - People’s tastes and preferences - Price of alternatives or subsititutes - Lecture #2 Next week Craig Assignment will be put up today, course outline as well. 2) Assignment - D2L Briefing note - Connection IMIT - tax excemption if in community improvement area Proposal - Could be a paragraph based on what you want to do Development charges - what should it be used for? 3) Current events Housing sector is something that is very important, driver of our economy. If it's doing well there are a lot of spillover effects into other industries. Recent policies that affect housing prices. 1) 2) 3) 4) Provincial fair housing policy stress test mortgages interest rates foreign buyers tax - Debate about the impact of this one Keep in mind that the impact of these policies was felt initially in terms of prices, but since then things have gone back to normal. Transit - Hamilton LRT, uploading subway to province, should the federal government be involved in transit construction. - Smart Track - Before Tory’s smart track we had Rob Ford’s one stop subway. Before that we had Miller's transit city. Each mayor has a new plan. Inclusionary zoning: Either required or incentive based - The question is how do you define the affordable units, how are units are Urban land institute had an article on this, talked about how you can have a few years with deeper subsidy or more years with a less deep subsidy. 4) Fiscal model What do you think is important and why? What to do with the budgeting process Revenue - Property tax (assessment multiplied by tax rate) - Assessment done by provincial agency. Tax rate is set by council. Grand Transfer - Federal and provincial transfers. Other revenue (user charges, fines, miscellaneous revenue) Business improvement tax Own source revenue Total expenses - Type - - Workers? salaries Function - Planning - social - parks and rec - roads and transit - sewer and water - protection services (police, fire) 5) Institutional setting - - - - - - - At one point in Ontario history there was different structures that were required to match grants, based on city/town size School boards - Can raise property taxes as well - When we look at the tax rate that is applied to the assessment for properties, the taxes are collected by the local municipality. Lower tier - Collect taxes for the local government, region, and the school board. - With the reforms of 20 years ago the province took over the residential charges. Agencies, boards, and commissions. - Police board, TTC, all these things come into play. Get rolled into big budget picture. Counties - Not like a region. Typically they have limited responsibilities. There was some rational for how cities are structured Today with a subdivision the developer has to provide many of the services. Back in 1953 the local government had to borrow money to pay for it. - Rich tax base of non-residential properties was in Toronto - Part of the rationale for creating metro Toronto was to simplify this tax base. Regional governments - Having economies of scale allows you to lower the cost per unit, so they were responsible for sewer water and regional roads. began to rationalize efficiency based on economic principles. Provincial conservatives in the 1990’s - Reduced number of municipalities/regional/county governments from 870 to 360. 1998 reform - amalgamation of various municipalities - property tax reform - local services realignment - downloading Evaluation/analysis of policy - Redistribute impacts (costs/benefits) - who gains? - who loses? Economic functions of government 6) Urban Public Economy - Public goods Tebout hypothesis externalities/spillovers Income differentials Economic Functions of Government - Efficient allocation of resources (re) distribution of income stabilization policy (interest rates, unemployment, balance of trade) If you have a book on municipal finance these would be described as functions of government, especially for Provincial and federal governments. Question is what policies are appropriate for municipal governments. - Efficient allocation of resources: every day municipal services (lights late at night, etc) are taken granted by people - Redistribution of income: Could involve the way taxes are structured or the way services are provided. - Stabilization police: (interest rates, unemployment, balance of trade). - Local economic development, matching residential employment uses. Economic development is trying to attract new industries and maintain and care for what you have. - Greater Toronto market alliance. Go to trade shows, market entire region at trade shows around the world, then when they get here we can point them to particular cities. Much more efficient from a economic alliance. The concept was good but it didn’t attract much. - How do we allocate private sector development coming through - Progressive taxes = the more money the make the more you pay. Use a progressive tax base to pay for services for people that need it. Taxes can be regressive. A regressive tax is one that has greater burdens on lower income people. - regressive can be related to income or to total wealth Own source income is basically a property tax. Property tax is regressive. So you don’t want to use regressive tax to redistribute income. Public goods: Goods or services that are provided by governments because either they will not be provided by the private market or they will not be provided by the private market in adequate quantities. This is because there is some kind of market not functioning. It's an example of market failure. This has two characteristics. - Non-rivalous of consumption: Non-excludability: Economists argue that when you set prices you set it to the marginal cost. Providing it to an extra person however might not cost anything. An example would be national defence. Justice system, police protection, examples of a pure public good. Lighthouse is another example. Market fails because one person consuming it doesn’t mean someone else can consume it. In a local government setting this is true for certain things up to certain points. A public park would be an example, up until it becomes congested. Quasi public goods (services): Private sector wouldn’t provide enough of them . Demography: Baby boomer generation had a lot of people, means they are all at the top. Next up is the echo boomers and the millenials. Tiebout Hypothesis - - If you had a large number of municipalities, that each has a different service and tax package, that this may lead to an efficient allocation of resources - people would choose and move to those municipalities that had the tax and service package that most clearly met their preferences. - Votee with your feet It has had little take up in Canada, bigger in the US People don’t vote because of tax and service packages. Instead they get married, get a new job, have kids. Once they choose to move then they may decide where they are going to move and look at services and tax rates. Externalities: - External costs or benefits that arise in the production or consumption process - producers - - - consumers Externality of road congestion - impacts on individuals because of time, gas usage, - two kinds of externalities can occur. - negative and positive Property - shade in the backyard, prevents sunny and enjoyable place to live. - Subways and railways can have vibrations that have negative externalities. - Zoning game by Richard Babcock that goes and looks at the theories of zoning. - property value theory of zoning - planning theory of zoning A lot of the early zoning bylaws reflect Canada’s historic view on planning. it goes back to trying to minimize externalities. Zone properties together to minimize impacts on other areas (like residential areas). Lecture #3 - - When development occurs in a municipality that means you are getting new households, new employment space and new employees. This means an increased demand for city services. Long history of development community funding new infrastructure, cities services Rapid growth after WW2, municipal infrastructure funded Cuts in the 1960’s towards federal funding in infrastructure The 1990’s the download - Provincial government throughout Canada began to shift service delivery to municipalities Limited new revenue-raising tools provided to municipalities Many provinces enacted “development charges” legislation. - formalize municipal authority to collect capital contributions Ways to Finance Growth-related municipal infrastructure - Property taxes - property taxes are reliable, whereas sales taxes vary by how well the economy is doing. In the US they rely too much on sales taxes and non-property taxes, which is part of the reason you hear about municipalities going bankrupt. - - Property taxes are primary source for taxes utility rates (water and wastewater) Federal and Provincial grants Debt User fees Developers - local services (initial round capital only) Development charges (initial round capital only) Funding Growth-Related Infrastructure: Property taxes (and Utility Rates) Arguments For property taxes - Large base from which to recover Municipalities have reasonable autonomy to set rates Growth benefits the existing community by providing new housing, new jobs, new taxation, etc Arguments against property taxes - Equity - why should existing community pay for infrastructure related to new growth Property tax is also primarily a tool for funding operating costs and capital replacement, so very little tax room is left for new infrastructure. Funding Growth-Related Infrastructure: Federal and Provincial Grants Arguments FOR - Reduce tax impact on local community important in rural/northern communities with limited growth some infrastructure costs (i.e.transit) are so large that it would be cost-prohibitive to solely use other methods “Merit goods” Arguments Against - Often variable from year to year (except gas tax) Geographic equity - why should one community get a grant and not another Restrictions on where/how/when money can be spent money could be better used for other purposes - i.e. health and education. Funding Growth-Related Infrastructure: Debt Arguments for - Infrastructure projects can start quickly Borrowing rates have been favorable as late Arguments against - not really a funding source but rather a way of funding equity - non-benefiting groups may help pay off debt can limit future borrowing opportunities and rescue credit rating of municipality. Funding Growth-Related Infrastructure: User Fees Arguments FOR - Benefiting users pay Can be used in conjunction with Public-Private Partnerships, e.g. Bridges at border crossings Arguments AGAINST - Takes a long time to pay back capital costs Politically difficult, e.g. Road tolls Very little tax room, e.g. Often used to fund operation costs Funding Growth-Related Infrastructure: Local Services Arguments FOR - Benefitting user (developer) pays and builds to municipal standards Municipality does not have to worry about cost increases What are Development Charges? - Fees imposed on new development to finance “development-related” capital costs Overview of Canadian Legislation - Most provinces allow for the levying of municipal charges. Ontario has the most broad number of things it can fund, but Alberta has a very limited number of services it can fund. - Funding through these charges means less of a demand on property taxes funding services. Development charges are not specific to a type of development Development Related Costs - Most development charges have no impact on the viability of properties Drivers for Halifax Services - Fire services want to be able to get a vehicle to a place in a given amount of time Library have their own Toronto - Massive amounts of development have been allowed to occur without private greenspace. We should have countered that by making Trinity Bellwoods sized parks. We have failed with our ability to counter density with access to these spaces. Markham - Markham centre - developers tried to argue that they did not have to pay development charges for building recreational facilities because their owners would just use their own gym. A survey however was done by postal code that showed that they actually used it more often than others. Ontario Development Charges Act, 1997 - A background study and public process are required A by-law must be enacted (maximum life is five years) Restriction on services that can be included and the level of Growth-Related capital costs recovered Charges can be municipal wide and area specific dedicated reserve funds are required credit and front-end ING agreements are permitted charges can be levied on residential and non-residential land companion act legislate school board charges Restriction on capital goods - Computers excluded and vehicles with a useful life less than seven years Intensification exemptions charges restricted to ten-year historic service level averages. 2015/2016 Amendments to the DCA and Associated Regulations - - Cultural and entertainment facilities, including museums, theatres, and art galleries (taken out because development industry lobbied to remove it after having to put in arts facilities in mississauga centre and in markham) Tourism facilities including convention centres parkland acquisition hospitals headquarters for general administration of municipalities and local boards Landfill sites and solid waste incineration facilities. Overview of the DCA Eligible services: 100% cost recovery What do DCs Fund? - There is a question of whether or not increasing DC’s would change the price developer's sell a unit for. The prof says not. I find that hard to believe. Lecture #4 Current Events - - subways in toronto - City can’t afford to build subway further by itself - could be good, for this reason, could be bad because city loses autonomy real estate access to online data now - could let people know what others are paying. public sector accounting - municipalities have their own accounting standards they are required to use, province has other ones. Urban Public Economy Externalities - Production -> Consumption Divergence between private and social costs (negative externality) - Divergence between private and social benefits (positive externality) So you can have negative and positive externalities - Supply and demand charge - Supply side reflects price of factor to produce it (land, labour, capital) - This model treats water as free it isn’t priced. If you did take the cost of the pollution into account, what is the cost of pollution and where does the curve move now? - How do you adjust for this particular externality? Policy Tools - Taxes Expenditures/subsidies = external benefit Regulation Behavior modification (like teaching kids to recycle) Who gains? who loses? Income Differential - - Physical capacity of municipalities - Own source revenue - Property tax and user charges Residential/non-residential, 60%/40% mix could be ideal. - Gives you a mix of employment and having enough space for people to live. Also want to minimize distance for people for where they have employment. - Municipality A may be providing library services, other services, but municipality B might have people coming in to use their library. Municipality A might block and non-residents from using their facilities. Or they may charge them to buy a library card or use their recreational facilities. - The provinces then may say “we don’t want to impose additional costs on residents in area B, so we will give a subsidy so that they can enjoy the same service standard. - Join servicing agreement is also an option. Every time someone comes to your municipality to help (for like a fire) you pay for it. Designing Government Four considerations 1. 2. 3. 4. Economies of Scale Externalities/spillovers Distributive argument Demand issues. - Tiebout hypothesis 5. Political considerations - Should we have larger wards, different form - 1970 we had Toronto Centre Region Plan - In 1990 we had a number of liberal initiatives with what should happen to the region of Toronto - Coming into 1990 there was a recognition that metropolitan Toronto was not growing significantly. The 905 was growing significantly. At that point the liberal government put forward some background studies about what they should do about this. They came up with this document showing what the issues were and what needed to be addressed. - Ndp came in after 1990’s studies, we had then the golden task force. In 1996 their report came out. Their report came out at a time when they had not finished their work. Before they completed their last piece of work the PC’s came in, let her complete some of the study but it never tackled municipal structure. - Pearson Airport - land expropriated by Provincial government. Seaton communities. Trying to pull the growth in that direction. - The other lesson is that we have high servicing costs. We no longer have federal funding, so funding comes back to municipalities. Failure on the part of senior governments to provide funding. - In 1998 Smart Growth started in the US. PC’s picked it up. - In the US a movement in the early 1990’s was growth management, which had high regulatory control. In the late 1990’s it became smart growth. It was coined in maryland. - Not a pure regulation, but let's give you money to municipalities - incentive based planning but try to improve the environment and affordable housing. Political Economy View Local Government Finance Reform 1998 Three major reforms 1. Reduction of municipalities/amalgamation 2. local services realignment (downloading) 3. property tax reform - Reduction of municipalities/amalgamation - Prior to this initiative, there were 871 municipalities in Ontario. They reduced that to around 360 (at least that is how it is today) - Some made sense since it was going to allow for better economy of scales. especially in Northern ontario - Controversial ones though. Kingston, Hamilton, and Toronto. - In some ways they took ideas from the 1996 golden task force and implemented them. - We don’t know the impact of the amalgamation in Toronto, financially, only for specific services but not for the whole of the city. - Local services realignment (aka downloading) - Changing the responsibilities of the local municipality or the province. - Smith committee report 1967 - 1991 report, association of municipalities of ontario - Joint report on how to revise the system. - Prior to this reform they had a document that came out every year. - Transit, social housing downloading. - Property tax reform - combination of the York region tax rate and Richmond Hill tax rate, as well as York region school tax rate. A big chunk is the school board tax base. - They didn’t take into account existing social or transit, so for Toronto it hit us harder. - You are putting social housing on property taxes. This is a regressive tax on a progressive policy. - Province provided Transition grants for 3 year period to minimize impact on municipalities. Every mayor has been behind ever since. Determination of Property Values - Tax principle 1. Ability to pay 2. benefit principle Assessment - - - - There are more classes of properties that are accessed, single, multi-family, retail, commercial, vacant, farm, etc. Three types of inequities that exist for properties - There may be inequities within the class of a property. - Some single family properties could be accessed at 4% o f market value, others might be at 18% of market value. - There are inequities across classes of property - Across jurisdictions Smith report suggested that province take over assessment system. Prior to 1970 when they did, each municipality had its own accessors. They were supposed to be doing all the same, but each was very different. Assessments based on 1946 values, despite it being 20+ years after that Accessors wanted to make sure they captured as much property tax as they could. System wasn’t transparent, people were under paying and overpaying. Province would take over assessment function and would access all properties at market value. Assessments were creating more inequities, it was chaotic and inequal. Reform proposed taxes would be applies to 50% of residential property values, but 100% on non-residential values. - Toronto had huge backlash to this. The redistribute impacts of this in Toronto would be huge, since it would raise property taxes on single family properties (since the city of Toronto at the time had a lot of multi-residential homes) - 1977 Blair commission report on how to change the earlier reform to change the impact it would have on properties. - This got nowhere either, there was a lot of infighting and couldn’t make a decision - Early 1980’s, when nothing had happened in 10 years, they needed a reform because the inequalities were only getting worse. - Many government officials left the government, helped companies that were being overassessed. Places were beginning to lose their non-residential tax rates. Early 1980’s reform was Reassessment by property class - Data given to municipalities so that they could reassess properties so they were average of their class. - What happens is the same total amount of money would be collected to each class. - Local politicians didn’t want to take the flak for higher taxes. 70-80% of municipalities did however impose this reform, but Toronto never did. So over time the inequities were worst in Toronto because of this. - After a few studies the province had “taxing matters” in 1985, further studies in 1993, but no reform occurred until 1998. Lecture #5 Current Issues - Sidelabs Google/Alphabet - Privacy VS economic development Transit development Fiscal situation in Toronto Property values Revenues (own source revenues) - Property tax - User charge - Grants and transfers Market demand drives prices. Agricultural land value depends on the crops it produces. If wheat prices fall there is going to be less demand for land that can produce it. Sprawl has always been here. In medieval times sprawl was development outside of the city walls. Demand for land is derived demand. Residential land has higher return than employment lands, so it has a higher pricepoint. Each parcel of land has a ceiling price and a floor price. The floor price is the minimum the owner will accept, the ceiling is the maximum the buyer will pay. Revenue - Operating Costs = Net Operating Income Ceiling Price = Sigma symbol (n on top, Revenue - Operating costs Ceiling Revenue - Operating Costs = ? Ceiling price represents net economic value of income stream. Real estate uses this to appraise the value of a property. Core area plan City of Toronto - Restriction placed on zoning approvals over 45 feet. With fewer floors the ceiling price went down because the value of the property went down. If you slapped a heavy inclusionary zoning cost on condos you will see more foreclosures of condos. Property tax = assessment * tax rate More tax incentive to use vacant land. You still are getting taxed for having it, so you might as well use it. Taxation based on - benefit principle ability to pay Carrying charge = the cost of holding onto property that is vacant or not getting any rent money. Changes in 1998 meant to address unfair burdens - between the same properties - in the same districts - but did not address inequalities between districts Site value assessment ? Unit value assessment Current value New reform system (1998) Property Class 1) 2) 3) 4) 5) 6) 7) Residential/farm house Multiple family residential commercial industrial pipeline forests managed forests 5 optional classes 1) New multi-ress properties (rental only) Transition ratios 1. Res 2. Multi res 3. commercial 4. industrial Toronto 1.0 5.8 4.18 6.10 Durham 1.0 2.7 1.35 2.9 Halton York Know what net present values are Tax burden over time Incidence of the property tax - tax incidence = who bears the burden - Property taxes - development charges “Circuit Breakers” - Seniors Low income people PILS (Payment in lieu of taxes) - Local governments cannot impose taxes on senior governments Senior levels of government instead give them payments in lieu of taxation. Midterm - 90 minutes Short answer Institutional section urban public economy - externalities, public goods, etc Model of public finance, public policy, and admin - Overview of components development charges - Lecture on this from a guest presenter - - urban reform - 1998 and amalgamation - local services realignment - property tax reform Determination of property values property tax (in more detail) Lecture #6 Revenues 1) Property Tax 2) User Charges a) Other revenue/interest 3) Grants/Transfers Budgeting Two types of budgets - Operating (Current) - Capital Principle Taxation - Ability to pay - Benefits User Charges - Benefit principle Benefits of User charges - Generates Revenue - Broader range of services in some situations Rations use of services. People will take things for free, but don't want to pay for something. Creates more demand for the service. - Example of an apartment building. If there was one meter and they split the rate up with everyone equally, people would use more. The professor said that two buildings were compared (one with split up equally hydro and one with individual unit charges, the individual unit model used up 40% less power) - Provides price signals Types 1) Service fees 2) public prices - Set the prices a bit below what the private sector offers. You can set prices as a comparative to what the market would price it at. An example would be municipally owned golf courses. 3) special benefit charges - - - Special Assessments Local Improvement Charges - There were streets in North York where they didn't put sidewalks or storm water on pipes when they developed it. - People overtime wanted city services like sidewalks. - Provision in Provincial acts that allows citizens to demand these improvements. So the city can pay for this with bonds. Looking at it from a benefit basis. - Average cost VS marginal cost Development charges (DC) - Special benefit charge for specific services - Regressive - Per capita cost x average number of people per unit Area specific charges - different fees based on different areas Costs - Operating Capital Both - full cost pricing This relates to the public prices and special benefits charges mentioned earlier Congestion Charge VS Road Toll - Road toll is user fee, based on distance travelled Tory talked about road tolls on the DVP, but council wasn't sure what they wanted it to be used for. Tory wanted transit, others wanted affordable housing. - Road Congestion is a regional problem. What you need is regional Congestion charges. Time (Peak charges) - time inzone Grants/transfers - fed and Provincial local Smith committee report from 1976 started property tax reform, made recommendations for reforming grant system Rationales for grants 1) correcting misallocation of resources 2) close the fiscal gap 3) reducing the despair ties (level of services, costs of providing it) a) Making sure everyone has equal access to education for example. 4) Political rationals Capital or operating grants 1) Unconditional (General purpose) 2) Conditional grants a) Service is provided b) matching (% province, % municipal) DC act 89-90 Education DC’s - Ed DC's - 75% capital costs (he also put 66% on the board) - There was a court case involving this that was won. - Look at piece from UN by Ian slack Operating Budget - Municipalities will delay until March on their budget because the province doesn't start their fiscal year until April 1st. Also they need to know what property tax increase the school boards are looking at doing. Objectives of Budgeting 1) to provide financial control 2) to provide information for efficient management decisions 3) to improve program and financial planning Budget technologies (or formats) 1) Line item budgeting - Very hard to tell what department you are looking at if you don't know its names. Except 2) Performance budgeting 3) Program budgeting Example: Program fire prevention - Description of the program objective of it financial (budget 2018, actual budget 2018, budget 2019) Performance measures efficiency effectiveness Councilors need to be informed about the budget. Description of the program is necessary, what it's purpose is. Some objectives to what the program is trying to achieve. 4) Planning, Programming, and Budgeting System (PPBS) 5) Zero based budgeting Zero based budgeting is not good financial management. Often pushed by management consultant firms. It's not very time efficient. Inputs and outputs Strategic Planning - Vision SWOT Priority Action Plan - Program - Goes into the operating budget - Project - How to implement it? Put it somewhere in the capital budget - Some things are short term, intermediate, or long term. Bridge might take 5 years, other projects might take longer. Budget amount VS Actual Expenditure Budget Process 1) Guidelines - specific 2) Preliminary estimates 3) Consolidation analysis a) What is the impact on property tax rate, service levels? 4) Political review? 5) Revised estimates 6) Consolidation and revised estimate a) Budget committee 7) Political Analysis and Approval Actors 1) 2) 3) - Staff Politicians Citizens Informing politicians about what priorities are, giving feedback Lecture #7 Russell Matthew's from Hemson - Guest lecturer next week Today we'll talk about - Operating budget - Performance measures Capital budget Land value captures (tools) Operating Budget Budget - 1 multi-year forecast more discrete items - one or two items per department - more detail in budget Link to OB +CB - Timing (before budget year begins - Debt service impacts - Linked together, also in terms of regulation - Regulations to capture - Maintenance and Staff costs Capital Budget - Each department has a request for a budget. To be paid year to year. Sources of Capital Funding - Current Budget Grants/Transfers (province/feds) Reserves/Reserve Funds Items 2019 Stuff Things Other X 2020 2021 X X Political game played as well, because changing governments mean changing grant access Performance measures - - Two kinds - Measures of Efficiency - Measures of Effectiveness Number of years ago the province came out with the municipal measurement performance program MPMP - 35 - EIA Public Lecture #8 Planning, Economics, and Finance: Squaring a Circle - We discussed - Conflict of planning VS economics and finance - Residential growth patterns: how much change is possible? - Employment growth. - Basic conflict: Planning goals VS economics and finance - Planning is a market intervention to change physical, social, and economic pattterns - in a market economy, new development - physical change operates on economic motives - Somebody has to want to buy something, be willing to sell something. That is how development occurs. - public finances are (usually) based on sound investments and efficient spending of scarce funds. How was conflict managed in the past? - There WA not much conflict...planning facilitated growth and development while achieving broadly supported public goals market forces were harnessed and directed to achieve planning goals public works were as sound investments with a high spending priority What changed - - - Planning is increasingly doctrinaire public goals are much narrower market forces have become an enemy - Agricultural land becoming a thing that we refuse to lose. 1/3 of the land that was one Agricultural is now forest. public spending priorities have moved away from things that matter most to planners - move from most money in budget spent on new infrastructure in 1960's, to today when most is spent on health. public funds are seen to have grown increasingly scarce Where is planning headed and how do we find a new balance? - Need to consider current planning goals in the context of - market forces - the “Market is us” after all asking “how are we going to pay for this?” - Need to ask where this is going and How we will pay for it Residential Growth: How much change is possible? - While the goals are broad based, the real basis of the Growth Plan is: - Density is a virtue and can solve most other problems - Density is achieved by getting far more households to live in apartments - people will occupy apartments if policy makes all other forms of housing too expensive. Demographic and economic forces are working against these changes - housing choices are tied to family status and age Divorce happens early in a marriage or when the kids grow up and leave. People don't move into single apartments until their late 80's. After their spouse is dead. Baby boomers started in 1950's, peak boom happened in 1959 to 1960, Will not be saved by baby boomers aging (until the 2040's) or the desires of their millennial children - Key challenge to changing built form is that family households will predominantly be single family. Seniors don't want to leave until they are very old. How does municipal finance deal with these plans? - Sound financial planning needs to be based on believable development scenarios But the growth plan is the law...for the moment and if we don't plan for it then for certain it will never happen But what if we borrow money and build infrastructure that is not used and not paid for by development? Employment Growth Patterns are far more difficult to change - urban development forms are typically quite efficient for what people do for a living and when places were built - Quite different things can be done in very different environments. It comes down to whether or not they are being done efficiently for what they are doing. It doesn't mean more density necessarily. Use and density of employment lands dictate by industrial-oriented economic base of GTAH - Notwithstanding a shift away from manufacturing, long-term expectations for GTAH economy are still sound. Use and density of employment land dictated by specific needs of each user Use and density of employment land dictated by specific needs of each user - No economic basis to assume wide-spread employment intensification - Current built forms are already efficient investments for the user - Employment density (according to the lecturer) isn't that important or is specific for the industry. It's going to be dependent on the industry, so agriculture has low density. Also with automation factories will have less of it. Employment development is very troubling for municipal finance - Growth plan says employment density is good - actual employment densities are declining in some areas due to greater efficiency and economic change - unlike residential, planning has little ability to effect change - DC rates depend on density assumption: should the charge be based on actual or planned? - Accelerated shift to denser office-based employment has affected revenue. Transportation is costly, but much is based on myth - - Growth plan and metrolinx based on most new trips occurring on transit - Transportation infrastructure is being used to make people live in a certain way, change urban form. enormous public investment is required in a reversal of usual pattern; the infrastructure is being used to dictate the urban form basis of relationships and financing partly based on myths Myth 1: Automobile use is some kind of irrational “love affair” - When people have the ability to access things they really like it a lot Hanoi in 1989 was mostly electric bicycles. People really liked it because it gave them accessibility. Cars are a great thing because it gives you accessibility that you otherwise wouldn't have. Myth 2: Transit is capable of serving all types of trips in all locations - Go Transit “pays for its operating costs through the fare box (it doesn't its like 75%) Very successful commuter rail system (not really it barely moves anyone compared to the TTC) - Getting groceries, picking up kids from hockey practice, etc. You can't do nearly as much on transit as easily as you can with a car. Myth 3: Land use planning significantly affects transportation choices. - where they are going, convenience of the service, more important than land use or built form Myth 4: Choices will change because they “must” change - Population density - Biggest difference in population is as a result of the edges of a city, not the centre. Huge areas of low density in a place like New York outside of the main city (in places like New Jersey). - Los Angelo's you can't do rural development. So everything is built on urban density, a bunch of low rise apartments (not many high residential apartments). Transportation is the most challenging urban infrastructure for finances - Unlike water and sewer or human services, transportation is highly locaiotn specific location and mode choices basis of investments Current choices assume broad societal change occurring very quickly Magnet for often misplaced political interference recipe for extremely high-risk investments. How do we Square the circle? - There will be many fights and a few bad investments planners need to better understand and appreciate the planning-economics-finance condundrum financial analysis and decision making needs to better understand what planning can really deliver but, this is ontario, after all;; we are prone to grand plans but are much conservative with money. Lecture #9 Current issues - Land value capture - DCI - Sec 37 TIF Land leasing Fall economic update - Transportation, housing, some of the things they talk about. - Talking about uploading subway responsibilities to the province - Housing supply action plan. - Rent control and its impact on rental properties. Will removing it help build rental. - growing pains VS fundamental flaws with LPAT Land Value Capture - - Methods to capture “unearned increments” Theory underlying “unearned increments” identified by neoclassical economist David Ricardo Value increases in land because of market conditions (because of land increasing) or because of government investments or permissions for approval. - So not from something the owner has done. Should the land value increase be captured to fund new infrastructure. Overview of the tools - Betterment taxes special taxes/assessments tax incremental financing development charges density bonuses transfer of development rights public land leasing joint development; PPP Betterment taxes - England - Taxes on gains in land values go back to middle ages in 1427 Columbia Special taxes/assessments - Property tax (Site value” taxation Land speculation tax (Ontario 1970s) local improvement charges - property tax surcharge in benefiting zones special area assessments TIF Tools - - Broad US Applications - 48 States since 1952 (starting in California) - Has been scaled back from California, but was viewed through the lense of economic development - Chicago is another prime example Canadian Applications - Ontario: TIEG and TIF (2006 Act) - Alberta: Community Revitalization Levy - Winnipeg: small TIF initiative Core elements of TIF - a defined TIF district Assessed value increases with TIF TIF Preconditions - - There is a requirement for enabling legislation - State legislation in the US - Provincial legislation in Canada There may also be the same requirement for municipal ordinance or by law there must be positive/favorable market conditions the objectives Province of Ontario (Toronto) Example - Provincial background study; west donlands 2007 Tax incremental equivalent Grant (TIEG) - referred to as TIF light despite different legislation and applications legal basis in the Ontario planning act (section 28) requires a community improvement plan brownfield sites: supports remiediation/redevelopment - erase: Program City of Hamilton - Encourage commercial development - IMMIT program: City of Toronto 10 year benefit period - First year they get 90% back in first year, but only 10% back in last year direct financial benefits to property owners TIEG VS Tif - Tif is where government pays money for infrastructure - TIEG landowner pays for remediation cost, the government slowly pays back the landowner over time. IMIT: Imagination, Manufacturing, Innovation, and Technology Program - TIEG application created by the city in 2009 were approved, totaling $556 million in grant funding The program was criticized for giving subsidies to property owners The program was altered in 2018 changing the districts to conform to a new Toronto Core Plan The evaluated a group of applications based on the new plan prior to its approval and applying a controversial “But For” test Toronto: TIF Funding for Smart Track - 2014's mayor's election, candidate John Tory has transit improvements, Smart Track, as part of political platform It was in part based on TIF funding for a series of new stations Tory won't the election and had a “sole sourced” consulting report undertaken for Smart Track (financing) A number of political debates, discussions with the regional transit authority resulted in a modified/scaled down Smart Track In an effort to move his transit agenda forward prior to the 2018 municipal election, the city commissioned a consultant to review the 2015 smart track funding report. Only new development value will be captured, but only part of that will be because other amounts will be used for new services. Density Bonuses - General application. In exchange for increased floor area/height the developer gives either public benefits “in kind” or cash North American Applications - Numerous jurisdictions including Chicago (1957) and New York City. Toronto - - Density bonuses first proposed in 1959 to encourage design standards First policy introduced in 1964 and revised in 1970 to reinforce the contributions for community benefits in the mid 1970s the “Core Area Plan” stressed social benefits including “Assisted” housing which was then In 1983 the Ontario Planning Act provided legislative authority for municipalities to grant height and density bonsues there were three major applications in Toronto in the 1980’s - scotia plaza - Jack Layton was able to convince the developers to give $1 million to public housing instead of having to go through an OMB hearing. - bce place - bay Adelaide centre Toronto (Section 37) Progress - requests made by the developer city real estate estimates the range of uplift values, geographic specific planner should capture 15-20% of the increased value, prepares and circulates a report for the project Planner and developer negotiate the value the councilor becomes involved to determine the benefits needed in the ward Amenities Requested - Determined by staff based on guidelines Approved by council Amenities must be growth related and related to the rezone site They include: park space, libraries, childcare facilities, communities centres, transportation service, cultural facilities, and neighbourhood houses Linkage Fees - Essentially a density bonus applied to commercial development to provide affordable housing based on the principle that commercial development creates a number of relatively low wage clerical jobs and these workers need affordable housing. What are Transfer development rights (TDR)? - a market based policy or technique that transfers development rights. - When you buy a right of land you have mineral rights. Central Station in New York, huge transfer of air rights. Landmark case. Transfer density from downtown to other areas like Scarborough centre North American Applications - - New York San Francisco Denver Toronto - Ryerson transfered Air rights in exchange for access to the theatre for classrooms - Some churches have done the same for residential developments. Vancouver Public Land Leasing - - - Issues and Applications - Maintains land in public sector, controls development/built form - raises revenue and captures value Examples and potential - Boston MassPort lands, Silver line Station to airport - Potential TTC surprpluse lands, - Toronto, Waterfront - Go Parking lands York University sold off lands for residential use that they could have leased out for 5070 years and still had then. Join development approaches - to build stations and facilities use of private/public partnerships use of land leases development using air rights regent park/north Toronto collegiate type approaches - regent park was done and is being used as an example for other TCHC regeneration projects Final Lecture - Current issues Land value capture Fiscal impact analysis end of term - exam format inclusionary zoning (housing) 1) mandatory 2) incentive based Inclusionary zoning is much more complex than what gets reported in the media. The municipalities thought they wouldn't have to contribute many housing and the private sector would just build the housing. This wasn't realistic. Most municipalities don't have the expertise to do the analysis of the viability of inclusionary zoning. We don't have it coming into place. Section 37 - we have this but it is largely used for community improvements. The secondary plan for the waterfront in Toronto however does state that all the section 37 money should be used for affordable housing. It can be taken in kind (either owner occupied or rent) or in cash. - This is actually working. Hind/Tridel Building on Waterfront. - owner occupied, artscape? took over units and it's working Vancouver - four door. In these buildings there is segregation between those that are the market units and the affordable units. So different exits and entrances. Regulation on inclusionary zoning - could be successful here but it depends on whether or not it has any legs Understanding this will be important for the final exam He will put up a few documents on the economics on inclusionary zoning on the final Land Value Capture Public Private Partnerships Toronto Examples: - North Toronto Collegiate: School Site TCHC, Rgent Park: Social Housing School: North Toronto Collegiate - Developer buildings condos on a school site School Board gets new state of the art school Community obtains benefits School got almost 170,000 square feet (plus additional classrooms) Regent Park Case - One of the first urban renewal/public housing projects in Canada (1950) Belief that the physical form was the problem. That by destroying the slums it would solve employment issues. 69 acres 121,5000 people TCHC stats Average household income 14,000 average length of tenancy just under 10 years Regent Park Redevelopment - - 5100 new units approximately 3,300 market units (including affordable ownership opportunities) Replace all 2,083 RGI units. 1 for 1. - 1,583 rent geared to income on site - 500 east downtown in other places. For this model to work the place has to have rising values, big uplift in value in order to work. Have to have somewhere to place people when they are displaced. Whole project was done with huge community consultation. Also got an aquatic centre, new park, child centre, retail facilities. Key aspects of the project - Broad community consultation all existing residents guaranteed new units 12 planning principles used interesting and successful approach. Transit Applications - Potential Canadian Applications Sheppard Subway Private Sector Proposal 1990 - non-traditional revenues “density/value charges” Current consideration - Ontario: Metrolinx - British Columbia: Translink...New real estate division - Quebec Vancouver: Translink (1998) - New government model to expand the system outside metro vancouver Create a real estate division in 2008 to develop property and use the revenue to build. Option 1: station area charge - $200/unit...6 million yr Option 2: regional trans DC - $2,500 - 5000/unit, $16.7 - 33.3 mil/yr Option 3: Station Capital Fund Montreal (STM) - 2004 created Trangesco: subsidiary to enable partnerships with private enterprise for strategic development 2006 transgesco two subsidiaries - 1 metrocom: mgt and development commercial areas - Metrovision: digital displays in the metero Toronto area - - Metrolinx: Analyzing financial tools including land value capture tools - Metrolinx can only buy land they need to use for the station. They can't capture the value of land capture at all. York-spadina line: Both York Region and the City of Toronto are examining TIF applications - link to regs for provincial legisltation Sheppard line: City looking at financing approaches including TIF's, consulting work underway. Hong Kong - One of few profit making transit operations the key is th government public lead hold land system 50-70 yr leases above transit stations Tokyo - largest urban Copenhagen - City who needed capital in the early 1990's was given a long a narrow 310 hectare site by the central government Like in tokyo, transit was a tool to encourage new development The project faced numerous difficulties include the timing of the development and transit line London Docklands: - In the 1980s and 1990s the London docklands development corporation proposed land value capture from development to fund the light rail system LDCC had the power to acquire land The hope was the transit line would spur private investment due to economic downturn little economic investment occured 1998 LDCC annual report: the light rail system built, L 7.7 private investment, sale of 1,066 acres of land for redevelopment, reclamation of 1884 acres of derelict land. London Crossrail Line - Began 2009 118 km east to west across london Funding agrees October 2007 what has made its successful has been support from multiple parties. Fundng was agreed to in October 2007. Construction range of benefits identified including specific economic benefits a strong business case was developed to identify beneficiaries and determine the funding approach. Cost Sharing Between Beneficiaries - Government (⅓) - economy - - Private sector (⅓) - land owners - employers - developers Users (⅓) - Public transport users - road users United States Summary and conclusion - Land value capture can raise revenue for transit facilities - there are limitations however hybrids or the way the tool is implemented must be studied and addressed carefully in terms of its impacts application may require new legislation or changes to existing legislation - 1974 Costs of Sprawl 1973 - Fiscal Impact Analysis - This includes a TIF analysis Cost benefit analysis, or cost effectiveness analysis (which is a variation on this) Sometimes Annexation VS Amalgamation - Amalgamation is merging municipalities together. Annexation is one municipality taking over a section of another. Annexation - - Municipality needs to expand into a place because it's boundary is filled up. If it wants to take part of a township, they'll go to the province to see if they can annex the land. What is the impact of this? What is the impact on innisville township? What is the impact on the area to be annexed? What is the impact on these residents? What if innisfil lost a large part of its tax base, including a main industrial component. What if they had to raise property taxes to compensate for that. Sometimes the province has to give out grants for this. - We also can use annexation for urban boundary expansions Impacts of specific land uses. Look at the impact on high rise developments for instance, as was the case with Toronto and North York. What is the impact on commercial, office space, retail. What is the impact on a shopping mall? Costs VS Revenues - - Revenues - Property taxes - Grants or transfers - User fees or other revenue - You estimate these based on the reports to the province by municipalities, the Financial Information Return (FIR). Costs - Per capita multiplier - Case study - where are they appropriate, where are they not appropriate. See if they are representative of the average cost of the rest. - Service standard - the standard you want to use for the services in the area you are studying, look at the service standard, this is what is used for development charges. - Comparable city - Proportional valuation Method - Tries to estimate the cost are based on evaluation being the assessed value of the properties - Employment anticipation - Costs City of Edmonton was a square, started to annex strathcounty, take parts of land that were industry with a heavy tax base. Huge amount of controversy because of this. Final Exam - 2 components, - short answers - long essay questions - choices for both - cumulative to a degree, focus will be on second half - will go through things with alex. Email will be sent out about all the things you should read. - Prof said PPP won't be covered, but might want to know about it just in case. Management system Three things we talked about qt the beginning. 1. Policy including fiscal policies 2. Programs including fiscal tools 3. Projects including any capital operation. Evaluations. Operating budget
