There is a big question mark over the future and timing of Kitchener’s growth.

This week, city staff warned councillors there are significant financial shortfalls in the amount of development charges the city collected than previously forecasted.

Municipalities collect development charges, a one-time fee, from the construction of new homes and buildings to pay for infrastructure like roads, water and sewage.

Legislative changes introduced by the province means that since 2019, there have been exemptions, discounts and deferrals of development charges for certain projects. Staff told council this has resulted in a $69 million revenue shortfall between 2022 and 2025 for the city.

If the city doesn’t take any steps to mitigate those losses, the city is looking at a possible $175 million shortfall by 2032.

“We’re going to have to be extremely cautious in our spending going forward because there is a giant question mark on our future and it’s really disappointing,” Coun. Scott Davey, who is also chair of finance and corporate services committee, said Monday night.

Dan Chapman, chief administrative officer for the city, said it could mean that residents may have to take on some of the burden going forward.

“If the city will be growing and expanding and there’s a cost to service that growth, existing taxpayers will be incurring some of that cost going forward,” Chapman told councillors.

Council agreed to extend the city’s development charges bylaw, which sets the fees charged for new developments, until 2032 and staff will work to develop a financial plan that will make recommendations to council for the 2027 budget.

Impacts of legislation changes to development charges

Katie Fischer, director of financial reporting for the city, told councillors that prior to legislative changes, the city could collect approximately $1 million of development charges upfront for a single 100 rental unit development project.

But with the discount rental developments now receives, and depending on the number of bedrooms in a project, the city collects about 20 per cent less on that same project now.

Payment of development charges are also deferred for rental developments, meaning the city won’t collect that money until occupancy starts. Those payments are then drawn out over six years.

“Breaking that reduced amount over that time period means we won’t see any [development charge] collections until year three [since] construction can take up to two years on average for larger development,” Fischer said.

“Our full [development charges] wouldn’t be collected until then, by year eight.”

She also noted challenges may arise when it comes time to collect future development charges.

“It’s estimated about 50 per cent of our [development charges] amounts that are due to be collected in the future will have some level of collection challenges and so a portion of that will likely have to be transferred onto property taxes in the future,” Fischer said.

The region’s water capacity constraint that was identified in the Mannheim Service Area in December adds another challenging layer to how the city will forecast development charge revenues, Fischer said.

She said the Region of Waterloo has indicated sustainable operations will not be restored until 2027, which will limit how much is being built and further impacting when the city can collect development charges.

Cuts to development charges announced

Earlier this week, Ontario Premier Doug Ford and Prime Minister Mark Carney announced their governments will be investing a combined $8.8 billion to cut municipal development fees in an effort to spur new builds across the province.

The deal will cut development charges in half for three years, Carney said.

The fund is intended to help cover infrastructure costs for municipalities that lower development charges, but municipalities will also be expected to help pay for the cost of reductions.

Richard Lyall, president of the Residential Construction Council of Ontario, told CBC Kitchener-Waterloo’s The Morning Edition host Craig Norris on Wednesday that development charges across the province are higher than other provinces and his group welcomes the change.

“The idea is to reduce the hit to the first time homebuyer or renter … so I think this will be positive, but the devil is the details, how is this going to work? And how quickly will it become effective?” Lyall said.

“There’s some challenges ahead. We need some clarity on this, but I think this is good news overall because these are bugaboos that we’ve long said needed to be addressed.”