Development Charges in Ontario: Is Growth Paying for Growth?

This paper is part of the IMFG Papers on Municipal Finance and Governance series. For a full list of papers, please visit http://bit.ly/2ylAa2D.Ontario’s Development Charges Act (DCA) provides the legal framework within which municipalities recover growth-related capital costs from the new development giving rise to such costs. While the purpose of the DCA is to ensure that growth pays for itself, the way the DCA is designed prevents it from achieving its obvious goal. Because of its overly prescriptive and complex provisions, and because it forces municipalities to charge existing ratepayers for some of the costs of growth, the DCA undermines municipal efficiency, equity, and accountability. One barrier to legislative reform of the DCA is the absence in the literature of a rigorous economic rationale for funding growth-related capital works with development charges. This paper develops such a rationale by comparing development charges to alternative methods of cost recovery for growth-related capital works. A review of the shortcomings of the DCA leads to a recommendation that the DCA be replaced by a new development charges section in the Municipal Act and City of Toronto Act that would enhance municipal efficiency, equity, and accountability, and ensure growth really does pay its own way.Institute on Municipal Finance and Governanc