Everyone won, everyone lost: Outcome of court decision on Winnipeg’s impact fees will be more uncertainty

By | July 26, 2020

On July 8, the Manitoba Court of Queen’s Bench found that the City of Winnipeg’s “impact fee” on new housing developments exceeded city authority. And on July 11, the CBC published an opinion piece by University of Winnipeg Prof. Aaron Moore with three observations on the decision.

Moore found it mysterious that Winnipeg doesn’t have legal authority to charge development fees.

He argued that the court’s decision deprived Winnipeg of a major revenue source.

Finally, he saw the outcome as “an indication of how powerful and intractable the development industry is in Winnipeg.”

None of these conclusions make much sense, and the path to ending this dispute starts with recognizing why.

To recap, city council imposed the impact fee on new housing in late 2016. Developers sued to stop the charge in early 2017.

Like most other Canadian cities, Winnipeg’s ability to create new taxes is severely limited by its constitution and provincial law. While the court case played out, city hall made developers pay the charge anyway, and held the cash in a reserve.

One odd aspect of this dispute: small stakes. What Moore calls “a major revenue source” is really an oversized speed bump in Winnipeg’s budget. The impact fee only raised $30 million in three years. That’s less than what the city raises every single year in back-door dividends from water and sewer utilities.

Justice James Edmond’s decision hinged on whether the money was collected to cover the specific costs of growth, or more general costs. If it’s specific, it’s a fee. If it’s too general, it’s an indirect tax, and therefore unconstitutional.

And on this point, Prof. Moore may have led readers to believe other cities have carte blanche to raise and spend development charges however they want, while Winnipeg doesn’t. And it isn’t that simple.

Winnipeg’s plan less ‘meticulous’ than others

As the Ladco Company Limited v. City of Winnipeg decision clearly states, homebuilders already pay infrastructure costs to city hall as a precondition for development. Through so-called “development agreements,” builders have already funded hundreds of millions worth of city infrastructure to accommodate the impact of their projects.

While Moore rightly notes other cities can impose lot fees or other more standardized development charges, they all face limits on the kind of infrastructure those charges can fund, just as Winnipeg does.

Moore wrote that the court “decided that the language of the [city] charter did not grant the City of Winnipeg the authority to impose such a fee.”

Justice Edmond specifically decided the opposite: that under general authority provisions in Winnipeg’s charter, “the city had the power or authority to enact” the impact fee by-law.

However, Edmond also found that neither the city nor its consultants did the necessary work to actually use that authority.

As a point of contrast, Edmond even cited another court’s decision backing the legality of a similar charge to Winnipeg’s impact fee. The difference? The successful fee was “meticulous in its detail” to ensure it recouped specific infrastructure costs, and nothing more.

Winnipeg’s impact fee wasn’t so meticulous. The city’s math failed “to specifically take into account actual off-site contributions,” and didn’t include “a review of the development agreements” to consider their contribution to the cost of growth. One witness even admitted that cash recouped through water and sewer dividends wasn’t counted either.

The most likely outcome in this dispute seems to be more economic and financial uncertainty, in a town that could use less of both. – Brian Kelcey

Finally, Edmond found Winnipeg infrastructure budgets used to justify the fee were too broad to be credibly linked to new residential growth.

Winnipeg hired the Toronto-based firm Hemson to prove “growth isn’t paying for growth.” More than a few urban policy observers I know were surprised at how general Hemson’s 2016 report was.

That’s because Hemson is best-known as the supplier of choice for reliable, complex and highly specialized demographic reports to Ontario cities. There’s a market for that level of detail because Ontario municipal development charges can be overturned in court if infrastructure costs or demographic projections aren’t credible. (Sound familiar?)

Developers ‘politically weaker than ever’

And here’s the kicker: it took a judge to confirm those points after a long dispute.

That’s what makes Moore’s biggest conclusion so strange. In an effort to tell a story with heroes and villains, the professor insists the case proved developers are too powerful. To veterans of local politics, this episode is actually proof that Winnipeg’s homebuilders are politically weaker than ever.

Remember, city council routinely rejects infill housing proposals, even when they conform perfectly to the city’s own official plans, just to appease the most absurd not-in-my-backyard complaints.

In 2013, council even rejected a cement plant — with steady industrial jobs attached — proposed for land that had been zoned for heavy industry for decades. The problem: a few nearby residents regularly walked their dogs on the empty site.

Winnipeg Mayor Brian Bowman has said the city will revisit and address the bylaw issues raised in the court decision, and he hopes to work with developers on a way forward. (Gary Solilak/CBC)

If developers were as powerful as Moore claimed, they would never have had to lawyer up in the first place. Think hard about the balance of power here: to confirm that a city fee was actually an illegal tax, it took three-and-a-half years of government and industry legal spending just to get an answer.

And Mayor Bowman’s reaction to this so-called victory: he plans to give the whole impact fee thing another shot.

If Winnipeg’s developers really lived up to Moore’s expectations, they would have successfully lobbied to kill the fee/tax before it ever began, either at city council, or by triggering provincial intervention to override it back in 2017.

Neither of those things happened. So the most likely outcome in this dispute seems to be more economic and financial uncertainty, in a town that could use less of both.

With that in mind, it may now be time for the province to offer clearer guidance on what the law is actually meant to permit — for the city’s sake, the economy’s sake, and the sake of homebuyers — if only to save everyone another hefty legal bill.

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