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Who Pays for What?
An overview of how Development Charges affect Taxpayers
What are Development Charges?
When developers create new homes or commercial and industrial buildings in the city, that growth has many costs associated with it. For example, these may include widening roads and adding new community centres to serve the new residents who move in.
Developers are required to help pay for these growth-related costs through Development Charges, which they pay to municipalities like the City of Brampton.
While it is the City that charges the developers, it is the Provincial Government that sets the rules, through the Development Charges Act, 1997.
What are Capital Costs?
Capital costs include all the land, structures, buildings and equipment that are necessary to run our municipality and provide services to citizens. For example roads, buses, fire stations, recreation centres and libraries are all capital costs.
How does Brampton pay for its Capital Costs?
Some capital costs are driven by growth, while others are because we need to replace aging infrastructure.
Capital costs due to growth are primarily paid for through Development Charges and the non-growth capital costs are paid for primarily through taxes.
Over the next 20 years, Brampton’s population is expected to grow by almost 250,000 people. In just the next 10 years, the City expects to spend $1.4 billion in capital costs to accommodate that growth, 80% of which will be paid with Development Charges.
Who pays the Development Charges and how are they calculated?
Developers who are building houses, apartments, commercial buildings and industrial buildings pay the contributions. These costs are usually passed on to the new home, retail or industrial owner as part of the purchase price.
As mandated by the 1997 Development Charges Act, municipalities are required to create a “background study” to show the calculations and background materials used to establish their by-laws and associated rates. This is completed at least every five years.
The Development Charge rates are set at a level that should provide the forecasted amount of funds needed in order to pay for the next 10 years of growth-related capital costs.
Does growth pay for itself?
No. Although the intent of Development Charges is to ensure that growth pays for itself, in reality this is not the case.
There are a number of capital costs that are growth-related, but due to restrictions in the Provincial Development Charges Act, municipalities cannot use Development Charges to pay for them. These exceptions include cultural or entertainment facilities, tourism facilities, hospitals, municipal administrative buildings (e.g. City Hall) and computers.
In addition to the above restriction, the Provincial Development Charges Act only allows Development Charges to be used for 90% of the capital costs associated with Transit, Recreation, Libraries and a few others. Roads and Fire services (as well as Regional water and waste water services) are allowed a 100% charge.
Sometimes Municipalities also provide for certain discounts or exemptions for new development either as an incentive to spur certain types of development, or to deal with economic pressures faced by developers. These discounts or exemptions must be offset by either a reduction in services to the public or an increase in taxes.
How are my tax dollars used?
Due to the Provincial Development Charges Act only allowing municipalities to collect 90% for certain services, tax dollars are used to fund the other 10% of that growth and some of the excluded services.
In addition to the contribution to capital costs, municipalities use taxes to pay for ongoing costs to maintain and operate this infrastructure, including all the administration and labour expenses behind the scenes.
If Development Charges did not exist, how much would my taxes go up?
In the 2011 Capital budget, $83 million is funded by Development Charges. This would translate into a one time increase of 32% in taxes!
© 2012 City of Brampton
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