Development Cost Charges

Sector:

Community Buildings [1]

Land Use [2]

Transportation [3]

Tool:

Policy [4]

Focus:

Community-wide [5]

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Using Development Cost Charges to Finance Smart Development

Development Cost Charges (DCCs) are the most common means of financing growth-related infrastructure.

They are one time charges that local governments can levy on most new subdivision and building at the time of approval. DCCs shift financial responsibility for providing capital costs for off-site infrastructure, including sewer, water, storm drainage, roads, and parkland, from the general tax base to the developers of new growth requiring the infrastructure.

However, DCCs cannot be used to pay for ongoing maintenance and operating costs for new infrastructure. Local governments are authorized to collect DCCs under the Local Government Act (see Division 10 - Section 932).

DCCs are one way for local governments to encourage climate-friendly development. A good DCC schedule provide financial incentives for development with lower infrastructure capital costs. In other words, development that is higher density, centrally located, and energy efficient would pay lower DCCs.

Local governments are authorized to collect DCCs under the Local Governments Act (see Sections 932 – 37.1). Amendments made to the Local Government Act in2008 expanded local government authority regarding DCCs by enabling local governments to waive or reduce DCCs for, for- profit affordable rental housing, small lot subdivisions designed to result in low greenhouse gas emissions, and developments designed to result in a low environmental impact. The requirements that a development must meet in order to receive a waiver or reduction must be clearly stated in the DCC bylaw.

Community Examples

City of Maple Ridge DCC bylaw [6]
Kelowna - DCC bylaw [7]contains six different density categories for residential developments, based on units per hectare.
Penticton – DCC bylaw [8] specifically for low-environmental impact development. Eligible developments may receive a 50% or 100% reduction of DCC. Proposed developments are evaluated using a Sustainability Checklist [9] to determine eligibility for DCC reductions.
Sooke – DCC bylaw [10], used specifically in Town Centre Revitalization Zone, provides a multi-year DCC reduction for eligible development, such as LEED certified and not-for-profit housing.
City of Surrey Centre: Building a Vibrant Downtown - Incentives: Surrey's Economic Investment Zones [11]

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DCCs - Key Implementation Considerations

Some local governments apply DCCs uniformly and do not differentiate between different types of development and their impact on infrastructure. Alternatively, a sector or gradient approach to DCCs sets reduced rates for higher density development and high performance buildings, reflecting the associated reduction in infrastructure costs.

Regional practicalities around DCCs provide an important context for the successful implementation of sector or gradient-based DCCs. However, the effectiveness of DCCs can be compromised if development simply leapfrogs to a neighbouring community with a different DCC standard.

The 2008 amendments to the Local Government Act require local governments, when setting their DCCs, to consider the impact on capital costs of infrastructure of development designed to result in a low environmental impact, plus other specified criteria. DCC bylaws can be integrated with other planning strategies, such as an Official Community Plan.

Land Use Opportunity

DCCs can provide a financial incentive for compact growth. Flat-rate DCCs have been the traditional approach, and can encourage large lots and less compact development. However, by varying DCCs by lot size, size of units or by location, local governments can encourage infill development, contiguous development and compact growth.

Transportation Opportunity

By adjusting DCCs for density and location, local governments can provide financial incentive for developers to build at densities and forms that are transit supportive. Also, the costs associated with arterial roads make up 20-40% of the total DCCs in most BC municipalities. DCCs could be significantly reduced if a development is able to reduce vehicle use and, in turn, the amount of arterial road required.

Building Opportunity

Varying DCCs allows local governments to encourage green buildings (e.g.. LEED certified) and affordable housing developments. Sooke [13]now offers developers a multiple year DCC reduction for LEED certified and not-for-profit housing. Similarly, Penticton [14] grants DCC reductions of 50% -100% for eligible green developments.

Infrastructure Opportunity

By adjusting DCCs by location and density, local governments can optimize their infrastructure investments since the true cost of providing infrastructure to new developments is often not reflected in flat rate fees.

Examples

Reduce DCCs closer to the town centre where the cost of providing infrastructure is usually much less than at the periphery.
Reduce the DCC per unit for high density development to reflect the efficiency in providing infrastructure to higher density development compared to low density because of the shorter distribution distances.
Eliminate DCCs for subdivision of small lots that are designed to result in low greenhouse gas emissions and development that is designed to result in low environmental impact.
Reduce DCCs in designated areas to encourage development that is able to support transit, a district energy system or a geo-exchange heating system.

Further Information

Building Permit Applications and New DCCs [15] (Young and Anderson: Barristers and Solicitors) - A short overview of legislation relating to DCCs, in effect as of January 2011.

Development Cost Charges Best Practices Guide [16]– Comprehensive guide to using DCCs for effective planning. Also see, Development Cost Charge: Guide for Elected Officials.

Do Development Cost Charges Encourage Smart Growth and High Performance Building Design? [17] - Overview of DCC uses amongst BC Local Governments.

[1] Ministry of Community Development. (2005). Development Cost. http://www.cscd.gov.bc.ca/lgd/finance/development_cost_charges.htm [18]

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