using development charges as a transit funding mechanism

Travis Allan and Cherise Burda over at the Pembina Insitute, a Toronto-based energy think tank, have an interesting post up on the prospects of using real estate development charges as a funding mechanism for transit. Development charges are fees developers pay to municipalities meant to offset the capital costs of extending or improving services like water or sewage systems that are imposed by new construction. However, the manner in which these fees are calculated is not always conducive to the type of development a city may be trying to encourage. Moreover, transit is rarely a serious consideration in assessing the charge. This is particularly important when development occurs in a place or a pattern that is difficult or impossible to provide good transit service to, such as those that violate the "Be on the way" rule. The original post explains some of the problems the authors observe in Ontario's development charge:

The development charge, as currently implemented in most Ontario municipalities, is crudely designed. There is a strong chance that it is subsidizing less-dense, single family homes while making compact, transit-friendly development more expensive. Development charges also likely overcharge some commercial development, and this could be contributing to the flight of office space to the suburbs, in locations underserviced by transit.

In many Ontario municipalities, including Toronto, new development is charged based on who will use it. For example, many municipalities have a per-unit rate for apartment building units, and another rate for detached single-family homes, regardless of where the buildings are located within the municipality, how much land area they occupy and the cost necessary to service them.

No matter the amount of new road or sewer needed to adequately serve a place, the development charge is assessed based on the number of residents or users.  This is obviously perverse.  Actual development impacts on the public purse vary based on location and density than by the number of residents or users.  

If a city like Toronto wants to make it easier to developers to build a certain type of development, changing the fee structure is one way to create an incentive. But what does this mean for transit?

The authors propose to use a portion of this revenue to pay for infrastructure investments needed to provide transit service to new developments. At the same time, the city could make changes to the structure of the development charge to incentivize the construction of transit-supportive development. If it worked, and there were no unforeseen consequences, the effect could be self-reinforcing: development charges encourage the type of development that transit needs to work well, and pay for some of the cost of providing that service. The supply of housing and commercial buildings that are accessible and designed to work with transit increases, more people are able to live and work in them:

 Developers continue to build in sprawling greenfields because it is often cheaper and easier than building developments in walkable, transit-oriented neighbourhoods. Lack of supply means homebuyers are priced out of these locations and are literally “driven” to the urban and suburban fringes, where long and stressful auto commutes are required — and this only leads to more congestion.

Since the vast horizontal distances of greenfields require much more infrastructure person, why should this be as cheap, in development charges, as building compactly??

5 Responses to using development charges as a transit funding mechanism

  1. The Overhead Wire May 9, 2013 at 2:47 pm #

    I think you’re basically thinking about an Impact or Linkage fee. ( In order to be able to build in a development charge that would actually account for the true transportation costs of a certain development, you would need to be able to prove in court (In the US anyway) that this linkage does not constitute a taking. This means providing a “Rational nexus” and “reasonable connection” proving that the fee is appropriate and does not constitute an unfair reduction in the value of the property.
    But you would need to prove through research or otherwise that urban development has less impact, what parts of the city are subject to how much in fees and so on. So if you’re building buildings that benefit from the expenditures but don’t pay as much as buildings that don’t, you’ll have to have an air tight legal case as to why the building doesn’t have to pay when the house does. In some cases I’m guessing this will ultimately be reduced to a legally contrived value judgement on whether Suburban life is desirable. I think it would be possible to do, but could be a hard road to hoe.

  2. jared May 11, 2013 at 3:12 pm #

    There’s a great book called Perverse Cities by Pamela Blais that discusses how current development fee structures encourage sprawl, which is a great read. Everything from roads to telephone land lines. Lots of Toronto examples too. Recommended read.

  3. Paul K McGregor May 15, 2013 at 1:10 pm #

    I know about a project in Contra Costa County that used impact fees to fund the start-up of new bus service. Each residential unit was assessed a certain fee per unit which was used as a fund to operate a new bus service. As the fees ran down, the transit agency would then have to determine whether there was enough success for the route to take the funding over completely or discontinue the service. The decision that was made was to continue the route.

  4. Matt August 9, 2013 at 1:53 am #

    A fine idea, but difficult in practice. ABQ has tried it, with some help from Chris Nelson. Doing so made development on the ‘West Side’ of town substantially more expensive.
    “The system on the books now, for instance, calls for full impact fees of $37,000 for a drive-through fast-food restaurant on the southwest mesa. It would cost $455 if it’s being built in the university area or Northeast Heights”
    -Albuquerque Journal, November 20, 2012
    Needless to say, this was highly disruptive, as full cost accounting of impacts effectively halted development west of the river. The city got taken to court. City council members HATE to go to court. So they voted to change the impact fee back to the original ‘location neutral’ system.
    New Mexico is both poor and frugal, full of people who care deeply about how their money is spent–they don’t like paying taxes, and so they want to make sure taxes collected are spent well.