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8. Building
Permit Fees Droits relatifs au permis de construction |
Committee recommendations
That Council approve, effective April 22, 2009:
1.
A reduction in the building permit fee rate from $13.25 to $12.50
per $1,000 in construction value for all construction except farm buildings;
2.
A downward adjustment to the building permit fee rate for farm
buildings to $8.75 per $1,000 in construction value, and
3. That the Building By-law 2005-303 be amended
accordingly.
RECOMMANDATIONS DU COMITÉ
Que le Conseil approuve, à partir du 22 avril 2009 :
1.
une réduction
du taux des droits relatifs aux permis de construction de 13,25 $ à 12,50 $ par tranche de
1 000 $ de la valeur de construction de toutes les constructions, à
l’exception des bâtiments agricoles;
2.
un
ajustement à la baisse du taux des droits relatifs aux permis de construction
pour les bâtiments agricoles à 8,75 $ par tranche de 1 000 $ de la valeur de
construction;
3.
la
modification en conséquence du Règlement 2005-303 en matière de bâtiments.
Documentation
1.
Deputy
City Manager’s report, Infrastructure Services and Community Sustainability
dated 27 March 2009 (ACS2009-ICS-BLD-0011).
Report to/Rapport au :
Planning
and Environment Committee
Comité de l’urbanisme et de
l’environnment
and Council/et au Conseil
Submitted by/soumis par :
Nancy Schepers, Deputy City Manager
Directrice municipale adjointe,
Infrastructure Services and Community
Sustainability
Services d’infrastructure et
Viabilité des collectivitiés
Contact Person/personne-ressource : Arlene Grégoire, Director/Directrice,
Building Code Services/Services du Code du bâtiment
613-580-2424, ext./poste 41425,
Arlene.Gregoire@ottawa.ca
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SUBJECT: |
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OBJET: |
REPORT
RECOMMENDATIONS
That the Planning and Environment Committee recommend
that Council approve, effective April 22, 2009:
1. A reduction in the building permit fee rate from $13.25 to
$12.50 per $1,000 in construction value for all construction except farm
buildings;
2. A downward adjustment to the building permit fee rate for
farm buildings to $8.75 per $1,000 in construction value, and
3. That
the Building By-law 2005-303 be amended accordingly.
RECOMMANDATIONS DU
RAPPORT
Que le Comité de l’urbanisme et de l’environnement
recommande au Conseil d’approuver, à partir du 22 avril 2009 :
1. une
réduction du taux des droits relatifs aux permis de construction de 13,25 $ à
12,50 $ par
tranche de 1 000 $ de la valeur de construction de toutes les
constructions, à l’exception des bâtiments agricoles;
2. un
ajustement à la baisse du taux des droits relatifs aux permis de construction
pour les bâtiments agricoles à 8,75 $ par tranche de 1 000 $ de la valeur de
construction;
3. la
modification en conséquence du Règlement 2005-303 en matière de bâtiments.
BACKGROUND
At its January 27, 2009 meeting, the Planning and Environment Committee approved the following motion:
“WHEREAS the City of
Ottawa is committed to improving its delivery of services while seeking
opportunities for efficiencies and savings and approved a budget for 2009 that
seeks to maximize service excellence while minimizing financial pressures to
its taxpayers and businesses;
AND WHEREAS the Ontario
Building Code Act and Code require building permit fees to generate only
sufficient revenues to cover direct and indirect costs the City incurs to
service building permits and enforce the Act and Code and thus be revenue
neutral;
AND WHEREAS the
Building Code Services Branch of the Infrastructure Services and Community
Sustainability Department is undertaking a review to determine the appropriate
fee reduction that will ensure revenues generated from building permits only
cover direct and indirect costs, and planned to report to Committee and Council
May 2009;
AND WHEREAS the City of
Ottawa is committed to assist its taxpayers and businesses to weather the
economic situation where possible;
THEREFORE BE IT RESOLVED
that the Building Code Services Branch be directed to undertake the review in a
more expeditious manner and to report back to Committee and Council on the
recommended reduction with analysis and impact of the recommended changes by
end of March 2009.”
On July 1, 2005, the Ontario Building Code Act was amended with a view to:
- Speed up the building permit process;
- Provide for safer, healthier buildings;
- Increase the knowledge of the Ontario Building Code; and,
- Increase the accountability and transparency of building practitioners.
From the City’s perspective, the amendments represented additional responsibilities and challenges, specifically:
§ Building permit fees were to be set to cover only the costs associated with servicing building permits and enforcement of the Building Code Act and Code;
§ Mandatory processes for changes to the building permit fee rate;
§ Municipalities could establish Building Code Reserve funds to ensure they would be able to continue to enforce the Building Code Act and Code during downturns in construction activity without becoming a tax pressure;
§ Mandatory annual report on total revenues versus costs and the status of reserve funds;
§ Mandatory timeframes for completing the review of building permit applications and for undertaking Code inspections;
§ Mandatory inspections; and,
§ More stages of construction to inspect.
Prior to July 1, 2005, a review was undertaken to confirm the total costs associated with servicing building permits and enforcement of the Act and Code. These costs included the additional resources that were required in order to implement the legislative changes, in particular the mandatory timeframes for the initial review of applications and determination of whether a permit could be issued, or not, and the mandatory inspections and timeframes for completing these.
The implementation strategy and service delivery model was presented to Council in a report entitled “Building Regulatory Changes – Impact of Building Code Statute Law Amendment Act and Ontario Regulation 305/03” (ACS2005-PGM-BLD-0010), which was approved by Council on June 22, 2005. At that time, the building permit fee rate of $13.50 per $1,000 in construction value was maintained in order to cover the additional costs associated with the implementation of the legislated changes and to commence funding the Building Code Reserves.
In 2006, the Auditor General undertook an audit of the Branch and noted that “…challenges arise in that expenditures are largely related to staffing costs, and are essentially fixed in the short term, however, revenues are variable and affected by external and other cyclical factors which the Branch does not control, or even influence,…the creation of the reserve funds provides some protection…in the event of declining volumes, and / or damages awarded through litigation”. However, the Auditor General noted that the aggregate reserve fund balance in 2006 was inadequate to sustain the Branch’s operating costs and accordingly recommended that “management consider options that focus on building the reserve funds as rapidly as possible.”
The Branch was able to accelerate contributions to the reserve funds as a result of higher than expected revenues due to higher than expected construction activity in 2007, and savings due to vacancies. In 2008, the fee rate was adjusted downwards to $13.25 per $1,000 in construction value, in view of the continuing higher volumes of permit applications and revenues, and in anticipation of savings due to vacancies. As a result, management was able to build the reserve fund by end of 2008 and satisfied the Auditor General’s recommendation.
The Building Code Act stipulates that revenues must not exceed the anticipated reasonable costs required to administer and enforce the Act and Code. Thus, as the reserve fund was capped, there no longer was a basis for maintaining the fee rate of $13.25 per $1,000 in construction value.
Anticipating the capping of the reserves and the slowdown in construction activity in 2009 and 2010, Branch management commenced to evaluate costs, construction activity, and revenue forecasts in an effort to confirm:
- the anticipated revenues for the next three years;
- the possibility of a reduction in the fee rate in 2009; and,
- the methodology to switch from calculating the fees from a value of construction basis to one that sets a fee based on the square footage of construction and the type of construction.
Corporate Research Group (CRG) was retained to provide the Branch an analysis of the economic outlook for Ottawa, specifically with regard to construction over the next three to five years. Although difficult to forecast at this time given that the complete impact of the downturn has yet to reveal itself to the fullest, CRG has predicted the volume of construction activity, subject to building permits, would drop 25 per cent in 2009 from the higher than normal levels of 2007 and 2008. CRG also anticipated that 2010 and 2011 would likely hold to these volume levels, with some incremental improvement.
The three to five year forecast is essential in determining whether the reserve fund, as established in 2005, will be sufficient to offset any revenue shortfalls that will be experienced during the next three to five years. In addition, the reserve fund must be sufficient to cover the costs associated with servicing building permits already issued and applications underway, which will require full resource allocation for the next two years to complete the construction reviews and inspections.
Fee Rate Adjustment Methodology
The adjustment to building permit fee rates is a complex process as there is no direct correlation between the rate and the revenues generated. A direct correlation exists between the fees for pool enclosures and the number of pool enclosure permits; however, this is not the case for building permits as revenues are predicated by the variety of construction activity. If construction activity followed the same pattern year over year, forecasting operating costs and revenues would be straightforward. However, the moment the mixture changes, the impact is difficult to predict. Hence, the cautious approach that is adopted in setting fee rates. For these reasons, the Branch is reviewing the methodology for calculating fees, from that based on value of construction to that based on category of construction and area (square meters) for 2010 and beyond.
Specifically with regards to the fee rate for 2009, there are a number of factors that must be considered in setting the rate for building permit applications, and these are:
- volume of building permits by building type;
- type of construction (renovations vs. new construction vs. demolition vs. illegal construction vs. heritage projects, vs. small homeowner projects vs. tenant fit-ups, etc); and,
- class of building or structure (addition vs. production homes vs. custom homes vs. high rises vs. complex buildings such as hospitals, sports complexes, etc.)
Fee
Determination Approach
1. Establish the base line to determine the minimum reserve requirement such that there will be sufficient funds to offset shortfalls in revenues over the next three to five years.
This was accomplished by undertaking a trend analysis of the construction activity over a long period of time, specifically since 1981, to identify the risk of under funding the Branch’s operations due to shortfalls in revenues that are related to downturns. To establish the base line, it is necessary to review a 20 to 30 year period of data to review the impact of the cyclical nature of the construction industry.
As a result of the review of data, the Branch was able to identify the baseline of $1.5B in value of construction. This baseline ensures there will be sufficient funds in the Building Code Reserve Fund to cover the Branch’s operating costs during the years of depressed construction activity.
The
following chart provides the results of the study.
2. Confirm and quantify the total amount of construction value that falls below the base line during periods of downturns.
The data in the above chart shows three downturns, one mid stream in the early 1980s, the second more severe in the in the mid 1990s, and the third just commencing. The years from 1993 to 1997, a five-year period, would have resulted in a total deficit of $1.87B of construction value, or a net reduction of $23.4M in building permit revenues.
3. Compare to the amounts needed in the Building Code Reserves, as established in 2005.
The Revenue Stabilization and Capital Contributions funds were pegged at $22.2M. The revenue shortfall using the 1990s case would be $1.2M, the difference from the revenue lost due to the construction downturn and the reserve fund.
4. Forecast the next three to five years.
Based on the information provided by the CRG and the above data, it is anticipated that the Branch will experience a similar shortfall as that experienced in the mid 1990s.
5. Determine the amount of revenues that will be generated based on the above information.
Based on the above information on the required baseline for maintaining the City’s ability to service building permits and enforce the Building Code Act and the forecast in permit applications activity for the next five years, and considering incremental reductions of the fee rate from the present rate of $13.25 per $1,000 in construction value, it was determined that at $1B in construction value forecasted for 2009, the fee rate of $12.50 per $1,000 in construction value will generate $12.5M in revenues with an anticipated shortfall of $6.25M to be covered by the Building Code Reserve Fund.
The reduction in fee rate represents a 5.6 per cent reduction from the current fee rate of $13.25 per $1000 in construction value and a 7.4 per cent drop from the initial $13.50 fee rate established in 2004. At this rate and in view of the forecasted construction activity levels, it is expected that the Building Code Reserve Fund will be able to sustain the City’s mandate to service the building permits and enforce the Building Code Act and Code over the next three to five years.
It is noted that the building permit fee rate for farm buildings is pegged at 70 per cent of the above fee rate in recognition that such projects typically result in lower servicing costs, and thus a downward adjustment of the general fee rate will result in the fee rate for farm buildings of $8.75 per $1,000 in construction value.
6. Reassess and adjust fee rate once annually to ensure cost recovery and sustainability.
The fee determination approach will continue to be re-evaluated as the year unfolds and prior to each coming year to ensure the fee rate is set at a level that ensures sustainability while keeping the rate at the lowest level possible to assist the industry and homeowners (for small projects) during this period of downturn.
As a result of the reduction in the fee rate, permit applicants will note the following impacts:
- For a typical $50,000 renovation project, the building permit fee will drop to $625, a savings of $38.50;
- For a $20,000 barn structure, the building permit fee will drop to $175.00, a savings of $20.50;
- For a new single dwelling unit of $190,000 in construction value, the building permit fee will drop to $2375, a savings of $142.50; and
- For a larger project, such as the new Vanier Hall at Ottawa University with an estimated construction value of $90M, the fee will drop $67,500.
RURAL IMPLICATIONS
A reduction in the building permit fee rate will also represent a reduction of the rate levied for farm buildings. The new fee rate for farm buildings will be reduced to $8.75 per $1,000 in construction value.
CONSULTATION
Discussions were undertaken with the Greater Ottawa Homebuilder’s Association and members of the Building Liaison Group representing all categories of local builders. In addition, the Building Code Act requires that a 21 days notice be given to every person and organization, that requested such notice, of the Planning and Environment Committee meeting at which the proposed change to the fee rate will be discussed. Such notice will be formally released on March 24, 2009.
LEGAL/RISK MANAGEMENT IMPLICATIONS
There are no legal/risk management impediments to implementing any of the recommendations of this report.
FINANCIAL
IMPLICATIONS
The Building Code Revenue Reserve
fund has a 2009 opening balance of $16.1 million. Assuming construction activity levels of: 2009 $0.986B, 2010
$1.271B, 2011 $1.365B and 2012 $1.399B and a building permit fee of $12.50 per
$1,000 in construction value, the Reserve Fund is forecasted to have a 2012
closing balance of $3.4M. The
reserve fund should be sufficient during the current economic downturn.
SUPPORTING DOCUMENTATION
N/A
DISPOSITION
The Building Code Services Branch of the Infrastructure Services and Community Sustainability Department will provide notification of the change to the fee rate and implement the new rate following Council approval of the amendment to the Building By-law 2005-303.
Legal Services will prepare the amendments to the Building By-law 2005-303.