Development cost charges (DCCs) enable a local government to partially recover costs of installing new or expanded infrastructure to service land development. This infrastructure includes potable water, storm drainage, sanitary sewers, roads and parks.
DCCs for each infrastructure type are determined by dividing the expected infrastructure costs (required to service new development over the development cost charge timeframe) by number of new development units to be served. Developers are charged either at subdivision approval or at building permit issuance. DCCs must be deposited into reserve funds that may only be used for the capital costs for which they were charged. Contrary to some misinformation, a local government is not permitted to over charge or make profits from DCCs.
If the local government isn’t permitted to fully cost recover the new or additional roads, water, sewers and parks, existing taxpayers are left to fund the difference. Further, local governments are not allowed to charge for other development costs, such as new fire halls, police stations, community pools & ice rinks and the staff required to function those services. Again, existing taxpayers are left funding those new development costs & services, which cannot be cost recovered by local governments from developers.
DCCs are blamed as being too expensive, driving up the cost of development, making housing unaffordable and a tax grab by local government. DCCs simply allow for some cost recovery of installing hard services essential to land development. Their main cost drivers are materials, such as steel, concrete and asphalt, labour and equipment. The rally cry of unaffordability pits developers against local governments. As local governments are funded mostly by property taxes, this leaves existing taxpayers to fund any servicing cost gaps – a fact conveniently forgotten in most discourse. The benefit of the funding gap goes to the developer, not often the occupier of the new or expanded development.
Some questions for thought – Is it fair for existing taxpayers to pay for the funding gap between the local government’s cost of servicing new development and the charges, including DCCs, they are allowed to levy? Can local governments legally provide this subsidy to a private developer? Development is expensive, so how can land development servicing be done more equitably or generally better?
Development Cost Charges (aka Doesn’t Cover Costs)
- by Kim Fowler
- 2 min read