City council grappled with a severe financial crisis stemming from provincial development charge reforms and regional water capacity constraints. The city faces a projected $175 million deficit in its development charge reserve fund by 2035, with $47 million permanently lost due to provincial exemptions and discounts. Council voted to extend the current development charges bylaw to 2032 while staff work to model the impacts and potentially defer capital projects. The meeting also featured unanimous approval of updates to the city's affordable housing fee incentive program, which has helped create over 1,100 affordable units since 2017.

Topics Discussed

Development Charges Revenue Crisis

The city is confronting a dramatic shortfall in development charge collections that threatens its ability to fund growth-related infrastructure. Staff presented projections showing the DC reserve fund reaching approximately $175 million in deficit by 2035 if no mitigation measures are taken. The crisis stems from multiple factors: provincial Bill 17 requiring DC deferrals until occupancy, various discounts and exemptions for rental housing, and regional water capacity constraints limiting development.

Ms. Fischer illustrated the impact with a concrete example: a 100-unit development in the central neighborhood that previously generated approximately $1 million in upfront DC revenue now yields only $143,000 annually starting in year three, with full collection not occurring until year eight. The city currently has $31 million in outstanding DC receivables on its balance sheet, with staff estimating that 50% of future DC amounts will face collection challenges.

Staff confirmed that despite earlier expectations, the province has made clear that "municipalities will not be made whole" for these revenue losses. One official stated: "If these are costs to service housing, if it's not coming from development, it will need to come from existing taxpayers and ratepayers." Without provincial assistance, the city faces approximately five years of capital project deferrals and potential property tax or utility rate increases.

Affordable Housing Fee Incentive Program Expansion

Council unanimously approved updates to the city's affordable housing fee incentive policy, which has been in effect since 2017. The program waives planning and building permit fees for non-profit affordable housing developers, requiring that a minimum 20% of units rent at 80% or less of average market rent.

The program has proven successful, with 24 housing projects qualifying for fee waivers and creating over 1,100 affordable units at various stages of development. The city has waived $900,000 in fees over nine years, a significant increase from the pre-2017 period when only seven projects were completed. Mayor Revenovich noted this "speaks to a lot in terms of the commitment of our council to trying to take steps towards assisting with the housing situation."

Key changes include expanding the definition of affordable housing to include lodging units with rents at 60% of average market rate for one-bedroom apartments, removing the requirement that developments be within 450 meters of a transit corridor, and adding new fee exemptions for cash-in-lieu payments under the public tree bylaw and zoning occupancy certificates. Staff noted the transit proximity restriction had prevented some projects from qualifying, "including religious institutions that have housing in more suburban areas."

Provincial Funding Shortfalls and Advocacy

Council members expressed frustration with inadequate provincial support following the introduction of Bill 17 and other legislative changes affecting development charges. Councillor Singh asked: "The province and the premier also committed is a promise that they would make us whole. Where is that commitment? Where has that promise gone to?"

Staff confirmed there was no formal consultation with municipalities before Bill 17 was introduced, with one official noting that "in one scenario, I believe the changes came into effect before the commenting period had closed." The city has received some funding through the "building faster fund" (approximately $24 million, with $10 million allocated to DC-eligible projects), but officials confirmed that "any commitment or funding we received from the province has fallen short of where we would have come to some sort of balance."

The city has been unsuccessful in multiple grant applications for water, sanitary, storm water, and road infrastructure. Council committed to making this a "top advocacy priority" and pushing the issue at Association of Municipalities of Ontario (AMO) meetings, noting that the problem affects municipalities across the province.

Water Capacity Constraints and Development Impacts

The regional water capacity crisis emerged as a critical factor compounding the city's financial challenges. Officials indicated that sustainable operations won't be restored until approximately 2027, limiting building activity except where approvals are already in place. One participant noted that "no one really perceived the water issue being a problem."

The water constraints create a double impact: they delay development (and thus DC collection), and they make it impossible to conduct an accurate development charges background study due to uncertainty around growth forecasts. Combined with DC deferrals, this means a 2-3 year delay for non-rental residential DC collection and up to 10 years delay for rental residential DC collection.

A council member warned that deferring capital projects for water infrastructure could create a vicious cycle: "The city may actually be unable to support a capital program that extends water mains and extends roads and services new development because we don't have cash flow within DC reserve to do that." This could prevent future community development and DC collection, creating long-term financial problems.

Development Charges Bylaw Extension and Policy Review

Council discussed extending the current development charges bylaw to 2032 rather than conducting a new background study as originally scheduled for expiration on June 30, 2027. Staff emphasized that extending the bylaw doesn't prevent conducting a background study earlier, stating "we do not need to wait the full five years to undertake a new background study."

The discussion revealed several policy questions requiring review. Council raised concerns that Kitchener's early additional dwelling unit (ADU) exemption policy may now be too generous, as the city currently exempts second AND third ADUs from DCs (worth approximately $35,000 in relief per infill project) while other cities only exempt the first and second ADUs. Staff were requested to provide commentary on whether this policy needs revision given provincial legislative changes.

Council also discussed whether the city should simply raise its lower DC rate to match the higher rate without conducting a full study, which could provide additional revenue. However, staff noted significant pressure from federal and provincial governments to reduce DC rates by up to 50%, with infrastructure funding potentially contingent on such reductions. Councillor Singh warned of a "$200 million hole" that residents will have to deal with "generationally" if DCs are slashed.

Motions

• Motion to approve updates to the Affordable Housing Fee Incentive Policy - Moved by Councillor Singh, carried unanimously
• Motion regarding Development Charges Bylaw extension - Discussion occurred but final disposition not clearly stated in transcript

Attendees

• Mayor Revenovich
• Councillor Stretch (declared conflict of interest on Item 8.4, recused)
• Councillor Singh (declared conflict of interest on Item 8.4, recused)
• Ms. Fischer (staff presenter)

Note: Other councillors may have been present but were not identified by name in the transcript excerpts provided.