File Category:PRO.PLA.DOW

File Folder:DOWNTOWN REVITALIZATION PLAN 2012

DATE:December 2, 2013

TO:Mayor and Council

FROM:Bob Wilson, Acting Manager of Corporate Administration

SUBJECT:Downtown Revitalization Tax Exemption Program Bylaw

ATTACHMENT:Examples of possible grants under both parts of the program

This report is provided for information purposes only. No staff recommendation accompanies this report and Council action is not required.

PURPOSE:

The purpose of this report is to update council on progress of the Downtown Revitalization Tax Exemption Bylaw.

DISCUSSION AND ANALYSIS:

Preparation of a bylaw to establish a Revitalization Tax Exemption (RTE) program, which is required to implement the Downtown Incentive Program, is nearly completed and now requires a review by the District’s lawyers. The two parts to the program are fairly sophisticated and complex and have taken more time than originally thought. It is proposed to repeal the existing 2005 RTE bylaw and have future applicants apply under the new bylaw. Under both options, there is an agreement by the owner to comply with “all applicable laws, regulations, and bylaws of the District” otherwise the certificate will be cancelled and any benefits received under the certificate must be repaid.

The bylaw should be ready for the December 16, 2013 Council meeting.

The bylaw will document the following two components to the tax exemption program which an applicant can choose either one but not both. Appendix 1 provides two hypothetical examples of both options:

Revitalization Tax Exemption CertificateOption which is a 10-year program, whereby the taxes are frozen at the pre-development level for the first 5 years and then normalizes the tax level by increasing it incrementally (20%) over the remaining 5 years until the current tax level in the final (10th) year is achieved. This program is available for new construction and renovations in excess of $15,000. A building permit must be issued by December 31, 2016 and construction must be completed and an occupancy permit issued by December 31, 2018. This option might normally be attractive to an owner who intends to retain ownership of the property.
Early Benefit Revitalization Tax Option which is a 5-year blended program, under which the first 2 years taxes are paid to the District at pre-development levels during the “construction phase” and in the third year, an amount equal to the taxes calculated on an estimate of the post-construction assessed value (based on the construction costs times 3), is paid to the developer at occupancy.

The taxes paid by the property owner(s) in the third and subsequent years are based on the current assessed value of the land and improvements. This program is available for new construction and major redevelopment on projects in excess of $500,000 and a building permit must be issued by December 31, 2016 and construction must be completed and an occupancy permit issued by December 31, 2018. This option might normally be attractive to an owner who intends to develop, stratify and sell the property.

COUNCIL GOALS/OBJECTIVES:

It is one of Council’s Goals to implement a Development Incentive Program. There is authority under the Community Charter for Council to create such programs and the proposed bylaw will achieve that. Both the Certificate Option and the Early Benefit Option of this program will expire December 31, 2018 and Council at that time, will review the program to determine if it should be concluded or extended – depending upon the success of the tax program. There will also be a section in the bylaw whereby Council can move up the deadline for receipt of applications if the program becomes too popular or imposes a financial burden on the District.

FINANCIAL IMPLICATIONS:

Implementation of the RTE Early Benefit program will require a significant cash contribution by the District and a source of funding will be identified as each application comes before Council. The bylaw will formalize the intent to repay the additional taxes (over and above the taxes in the base year or predevelopment level) received in years 3 through 5, back into the fund in which the Early Benefit funds came from. The RTE Certificate program will not result in a cash outlay from the District but will result in a delay of future additional tax revenue based on increased assessments as a result of the development for 5 years until the 10-year certificate expiresat which time, full taxes will be paid on the current assessment. Again, the financial implications of such a Tax Exemption Certificate will be detailed in a report to Council accompanying such an application. An example of possible financial implications for the District, under both options, is attached as Schedule “A” and may serve to further explain the 2 different options.

SUMMARY AND CONCLUSION:

To apprise Council that the very complicated Revitalization Tax Exemption Program bylaw is still being worked on by staff and the District’s lawyers.

SIGN-OFFS:

Bob Wilson, Acting Manager of Corporate Administration /
Comment from Chief Administrative Officer
Reviewed.

EXAMPLE OF TAX INCENTIVES UNDER THE

CERTIFICATE OPTION AND THE RTE EARLY BENEFIT OPTION

Assumptions:

Using only the tax rates for General, Debt and Policing:

Residential tax rate of $4.4761/$1,000 of assessment

Commercial tax rate of $14.236/$1,000 of assessment

All other taxes such as school, Regional District, Hospital, etc. are not affected – only the municipal tax component.

In this scenario, we used a 10,000 square foot commercial building with a 4 story residential component above, consisting of 45 units.

The commercial construction costs projected at $2,500,000

The residential construction costs projected at $8,400,000.

The current land assessment is vacant commercial at $445,400 – pre-development level and will be split into the same ratio of Residential (class 1) and Commercial (class 6).

A table is attached showing the taxes the District would receive under the two options as well as an option showing the taxes that might be received on the project if the owner didn’t apply for any tax exemptions.

Tax Certificate Option:

In the first 5 years, the District would not collect the additional $35,590 in taxes for the commercial component and $37,600 in taxes for the residential component for a total of $73,190 in new tax revenue that was not realized in each of the first 5 years. This is classed as “lost opportunity costs”. In years 6 to 10, the taxes will increase by 20% so that in year 10, the owner(s) would pay the full taxes of $79,530. In each of the first 5 years, the owner would pay taxes on the base assessment (pre-development level) which under this scenario is $6,340 per year, plus the other taxes for school, etc. The District does not gain any additional tax revenue (nor does it lose any tax revenue) until year 6 of this program option.

Early Benefit Option:

Under this option, the owner would pay, for the first 2 years, taxes at the pre-development level, which for this scenario, is $6,340 per year. In year 3 after a final occupancy permit is issued, the District would pay to the owner, a cash amount of $219,570. This consists of:

$35,590 for each of the 3 years for the commercial component which is the taxes that would have been paid on the commercial portion of the project; and
$37,600 for each of the 3 years for the residential component which is the taxes that would have been paid on the residential portion of the project.

The project is fully taxable at the current assessment rate in year 3 and beyond, so in theory, the District would recover its cash outlay after 3 yearsthrough new tax revenue, not considering lost investment income, inflation and market changes after occupancy. In this scenario, it is likely that the owners paying the taxes in year 3 and beyond are different than the owner paying the taxes in years 1 & 2 and receiving the Early Benefit Option.

STAFF REPORT TO COUNCILPage 1 of 4

Tax Certificate Option
Taxes paid by Owner
2014 / 2015 / 2016 / 2017 / 2018 / 2019 / 2020 / 2021 / 2022 / 2023 / Total
$6,340 / $6,340 / $6,340 / $6,340 / $6,340 / $20,978 / $35,616 / $50,254 / $64,892 / $79,530 / $282,970
Early Benefit Option
Taxes paid by Owner(s)
2014 / 2015 / 2016 / 2016 / 2017 / 2018 / 2019 / 2020 / 2021 / 2022 / 2023 / Total
Paid
$6,340 / $6,340 / $79,530 / -$219,570 / $79,530 / $79,530 / $79,530 / $79,530 / $79,530 / $79,530 / $79,530 / $429,350
Development without any tax exemptions
Taxes paid by Owner
2014 / 2015 / 2016 / 2017 / 2018 / 2019 / 2020 / 2021 / 2022 / 2023 / Total
$6,340 / $6,340 / $79,530 / $79,530 / $79,530 / $79,530 / $79,530 / $79,530 / $79,530 / $79,530 / $648,920

STAFF REPORT TO COUNCILPage 1 of 4