Expenditures from general revenue
Even the most avid proponent of free market development likely supports the use of municipal funds to expand municipal utilities and roads to facilitate growth. It is often in older areas of the community where plan objectives lag, and the downtown commercial area is a frequent target for improvement. The simplest approach is to invest public money in making improvements to public infrastructure. This can take the form of upgrading utilities to enable growth, replacing sidewalks, adding street furniture, and landscaping. This is done in anticipation that the improvements will make the area more attractive to visitors, encouraging private investments in building improvements and new structures, and result in higher tax revenues that will pay for the public expenditures.
Business revitalization zones
Municipalities are limited in their ability to fund improvements out of general revenue alone. The Municipal Government Act (MGA) allows for the establishment of a business revitalization zone (BRZ) to specifically address this need. The intent of a BRZ is to encourage the economic and physical improvement of local businesses through beautification and maintenance of streetscapes, buildings and structures in the area, and to promote the area as a business and shopping district. Business owners in the area must petition for the establishment of a BRZ. If the petition is sufficient then the council may establish a BRZ board of directors and set the boundaries for the zone. A special tax may then be levied on businesses in the area to achieve the mandate of the BRZ. Successful BRZs have been established in a number of communities across the province. The City of Edmonton has developed an excellent handbook on BRZs.
AUMA and business revitalization zones
AUMA’s inventory of required changes to the Municipal Government Act includes a recommendation that amendments be made to the BRZ regulation to enable councils to determine whether requirement for the boards that oversee BRZs to submit either an audited financial statement or a less onerous review engagement to council.
The recommendation is based on a resolution adopted by AUMA members in 2013 which points out that current regulatory requirements for BRZ boards to submit an audited financial statement places an undue financial hardship on these boards. Relaxing the requirement to enable a review engagement by an auditor would reduce costs while still ensuring accountability and transparency of public funds.
Municipal Affairs indicates that this issue has been added to the MGA review so stakeholders can consider if there is an appropriate balance in the annual reporting requirements between financial controls and accountability for the use of tax dollars by BRZ boards. Amendments respecting BRZ’s are still under review.
Community revitalization levy
A newer tool is the Community Revitalization Levy (CRL). This tool allows municipalities to borrow funds to pay for improvements in an area, the cost of which is funded by a levy on the increase in assessment in the area over a fixed number of years. The levy must be equal to or higher than the regular tax levy on properties located outside the CRL area. The idea is that the improvements will attract new development, the taxes from which will be sufficient to cover the cost of the improvements. The increase in the education portion of the tax levy is also retained by the municipality and applied against the cost of improvements. This method of financing improvement in an area is a common practice in the United States where it is known as tax increment financing. A plan must be prepared showing the improvements that are to be undertaken, the cost of these improvements, and estimates of the increase in assessment on which the levy will be applied to cover these costs. This tool relies on a strong development market and poses some risk. If the projected development does not materialize within the time frame allotted, the cost of improvements must be borne by ratepayers for the entire municipality. Each CRL requires the approval of the province before the plan can be adopted by the municipality and the levy applied. CRLs have been approved in Calgary, Edmonton, and Cochrane. However, the government has announced a moratorium on any new approvals.
AUMA and CRLs
AUMA members adopted a resolution at the 2014 Convention to urge the Government of Alberta to lift the current freeze on approvals for new community revitalization levies and allow it as an option for all municipalities. Additionally, AUMA supports amendments to the Municipal Government Act (MGA) that would reduce ministerial oversight on the use of municipal tools such as the CRL.
Municipal owned development corporations
Another approach is to form an arm’s-length corporation to undertake development on behalf of the municipality. An example is the Calgary Municipal Land Corporation (CMLC). Incorporated in 2007 as a wholly owned subsidiary of the City of Calgary, CMLC’s function is to implement and execute the Rivers District Community Revitalization Plan. Its mandate includes the disposition, exchange and acquisition of land, and the use of proceeds from sales and leases to finance future infrastructure projects. The advantage to establishing a wholly owned subsidiary to undertake this work is the greater flexibility the new entity has to conduct its business.
Other municipalities have taken a more direct lead in property development. Red Deer and Lethbridge, for example, have both had long established programs to develop and market municipally owned land for residential, commercial and industrial purposes. Provincial approval is required for the creation of a municipally owned corporation if it is established as a for-profit corporation.
Density bonuses are a means of providing incentives to developers in exchange for community amenities. The City of Calgary has employed this tool in several neighbourhoods. The City’s Beltline Plan provides an excellent description of the process:
Development sites can be developed up to the base density without providing any bonus items. In order to develop above the base density and up to the maximum density, developments may provide one or more bonus items in exchange for a defined amount of additional density, subject to the discretion of the Development Authority and the local content of the proposed development site.
The Plan goes on to outline five areas where bonus credits can be given:
- Provision of community amenity space;
- Provision of publicly accessible private open space;
- Provision of affordable housing units;
- Heritage designation; and,
- Incorporation of sustainable building features.
The potential for density bonuses to serve multiple objectives is obvious from this list. The application of density bonuses requires a strong market for development, a clear plan that outlines where and on what basis additional density will be allowed, and a transparent means of determining the value of the bonus and the linkage between the bonus and the amenities that are being provided.
For more ideas on how to promote economic development in your municipality visit AUMA’s Economic Development Hub.