Tag: tif

Alberta’s Community Revitalization Levy: Rivers District, Belvedere, The Quarters

This is the second part in a three-part series on Alberta’s CRL.

Armed with a better understanding of Alberta’s CRL legislation, I turned my attention to the three active CRL projects in the province. What are the projects for? Why is a CRL appropriate for them? What can we learn from the projects that will help us when exploring the idea of using a CRL in the future? That’s some of what we’re going to look at in this post.

To quickly recap the process: there is some back-and-forth between the city and the province in establishing a CRL. First, the Lieutenant Governor must approve the regulation, which includes the CRL boundary. Second, City Council must approve the plan & bylaw for the CRL (and these can be done separately). And finally, that plan & bylaw must also be approved by the province. The three projects we’re going to look at are at different stages of that process.

Calgary’s Rivers District

The first specific CRL regulation to be passed in Alberta was for the City of Calgary Rivers District, back in 2006. The Rivers District project was the catalyst for the MGA amendment that made CRLs possible in Alberta.

 City of Calgary Rivers District Community Revitalization Levy Regulation (AR 232/2006)

The Rivers District is the furthest along of all the CRLs in Alberta – everything has been approved and the City is well into implementation. It was 2007 when everything was finally approved, so the baseline for tax assessments would have been frozen to the values on December 31, 2007.

It’s worth pointing out that the CRL is just a small part of a much larger project known as The Rivers:

The vision for a revitalized Rivers district is more than a place to live, it is a lively urban destination.

This map shows the area the project covers, and as you can see, it is quite expansive. The idea is to reclaim the waterfront, and to make the area more desirable for development. In addition to infrastructure upgrades, a new riverwalk is in the works (phase 1 is now open actually).

The CRL boundary is large, but it is a small part of the overall project. Here’s what it looks like (KML):

The boundary covers an area of roughly 1.9 square kilometers (478 acres).

One of the big advantages to using a CRL for the Rivers District is that the City of Calgary owned much of the land within the boundary. That’s important because it means the baseline assessment for those assets would be zero, and there’s lots of potential for getting some of that all-important lift.

I spent some time talking with Kathleen Young, Development Manager for The Quarters Downtown at the City of Edmonton, and found out that she actually worked on the Rivers District CRL! Her knowledge and experience on that project was one of the reasons that she came to Edmonton. You know what they say, it’s a small world.

Kathleen pointed out that the CRL boundary for the Rivers District includes some key developments, notably The Bow (here’s a photo of the building I took back in July). When finished, The Bow will become the headquarters for EnCana, and will be the tallest office building in Canada outside Toronto. Groundbreaking for the project took place in June 2007, around the same time that the Rivers District CRL was approved, which means almost all of the incremental value realized through the development of the building will be captured by the CRL.

To work on The Rivers, the City of Calgary created a wholly owned corporation called the Calgary Municipal Land Corporation (CMLC). They have some great information on the various aspects of the project if you’d like to learn more. CMLC was actually awarded a Canadian Urban Institute Brownie Award in 2008 for the CRL:

The Canadian Urban Institute’s annual Brownie Award recognizes leadership, innovation and environmental sustainability in brownfields redevelopment across Canada. CMLC won in the category of "Financing, Risk Management and Partnership" for our work in the creation of the Rivers District Community Revitalization Levy Regulation. A "made in Alberta" version of the U.S. Tax Increment Financing (TIF)— which is a widely used financing mechanism for redevelopment of brownfield sites in the United States—provides a sustainable source of funding to finance the significant infrastructure development required in the Rivers District for a 20-year period.

It sure looks like the Rivers District CRL will be a success!

Belvedere (Fort Road)

The first CRL regulation to be passed for Edmonton was for the Belvedere redevelopment project, commonly known as the Fort Road Redevelopment project. The project has been in the works since at least 2000, and has evolved quite a bit over the last decade. It was very much in the works before CRL legislation came into effect.

 City of Edmonton Belvedere Community Revitalization Levy Regulation (AR 57/2010)

The Belvedere CRL isn’t quite as far along as the Rivers District, but it is nearly there. Kathleen clarified that the borrowing bylaw (14883) has been approved, but the plan bylaw is still in the works. Armed with the $34,250,000 specified in the borrowing bylaw, the City has undertaken much of the infrastructure upgrades planned for the area.

Here’s the CRL boundary for the project (KML):

The boundary covers an area of roughly 1.3 square kilometers (324 acres).

A unique element of the Belvedere CRL is that the City owns almost all of the land within the boundary. As a result, when they sell the land all of the incremental value will be captured by the CRL, making it much less likely that the City would have to fall back on general revenue to cover the debt.

The Belvedere project is an interesting one. It is unlikely that development would have taken place in the area without the City of Edmonton stepping in to try to make the area more attractive and desirable. Through that lens, the use of a CRL makes a lot of sense. If you think back to the two basic assumptions highlighted in part one, the Belvedere CRL certainly passes the first – it’s worth the risk.

As for the second assumption – there’s a sound expectation that development will occur – that one is less certain. Especially given the challenging economy, it could be a while before anything substantial happens. Having said that, the first sale of the Station Pointe lands last year for $5.2 million is hopefully a sign of things to come (that project received $481,000 in federal funding in August). The redevelopment project is still in the early stages, and Rick Daviss at the City of Edmonton confirmed that at least a couple new conditional deals are in place, so there’s movement.

There’s more information on the Station Pointe project here – it won a Brownie Award in 2008.

You can find lots of background and other information on the Fort Road redevelopment project here.

The Quarters

The newest CRL regulation to be passed was for The Quarters Downtown, a redevelopment project here in Edmonton previously known as the Downtown East redevelopment. I wrote about The Quarters a couple weeks ago, and I’d encourage you to look at that post to get an overview of the project.

 City of Edmonton The Quarters Community Revitalization Levy Regulation (AR 173/2010)

As the newest CRL project, The Quarters has the furthest to go before it is ready for implementation. The province has approved the regulation and boundary, and Administration is now working on the plan and bylaw to present to Council. That will happen sometime in 2011, according to Kathleen. Her team wants to make sure they get it right.

Here is the CRL boundary for the project (KML):

The boundary covers an area of roughly  0.93 square kilometers (229 acres).

The Quarters is a large plan that will proceed in phases. Once completed, it is anticipated that the area will accommodate a population of nearly 20,000 people, up from less than 2500 today. The project is made up of five distinct districts, the jewel of which is known as The Armature.

An important part of any CRL plan is the way in which the City will cover the cost of the project if enough development does not occur. The default fallback is always general revenue, but Kathleen said they are looking at additional funding sources as well, such as government grants.

Kathleen told me that among other things, some of the CRL money will be used for streetscape improvements, some will be used for land acquisition to consolidate parcels for resale, and lots would be used to develop The Armature. The goal is to make that part of Edmonton a much more livable area, and the redevelopment focus is on residential assets.

As I have said before, it is an exciting project for our city! You can learn more about The Quarters Downtown here.

The project will be an interesting one to pay attention to if you’re interested in CRLs, because there are still a number of steps in the process to go.

Final Thoughts

If you’ve made it this far, you should now have a better understanding of the three active CRL projects in Alberta. You can draw your own conclusions, but a few things I wanted to highlight include:

  • All three boundaries are similarly sized
  • Infrastructure upgrades and improvements are a major part of all three projects
  • In the Rivers District and Belvedere, and to a lesser extent in The Quarters, an important consideration is the amount of City-owned land

I think it is important to look at what we already have when trying to understand how a CRL could be applied to future projects. In the next part of the series we’ll do just that, using the proposed downtown arena as our future project.

Alberta’s Community Revitalization Levy:

  1. Introduction
  2. Rivers District, Belvedere, The Quarters
  3. Proposed Downtown Edmonton Arena District

Alberta’s Community Revitalization Levy: Introduction

This is the first part in a three-part series on Alberta’s CRL.

Recently I decided to start learning more about Alberta’s Community Revitalization Levy (CRL), and I was initially struck by how little information was readily available. I searched and searched but didn’t find much. Maybe that’s because what we call the community revitalization levy here in Alberta is known as tax increment financing (TIF) elsewhere. It turns out that TIF has been available as a public financing method for more than 50 years! The State of California first used the approach in 1952, and now Arizona is the only state in the USA without some sort of TIF legislation.

Here’s how Wikipedia describes TIF:

When a development or public project is carried out, there is often an increase in the value of surrounding real estate, and perhaps new investment (new or rehabilitated buildings, for example). This increased site value and investment sometimes generates increased tax revenues. The increased tax revenues are the “tax increment.” Tax Increment Financing dedicates tax increments within a certain defined district to finance debt issued to pay for the project.

The idea is to use the “lift” generated by the increased tax revenues to pay for the debt that financed the project.

Alberta’s CRL

In Alberta, this legislation is relatively new. Bill 28 received Royal Assent on May 10, 2005 and amended the Municipal Government Act (PDF) to include Division 4 under Section 381, which enables municipalities to create a community revitalization levy bylaw (which must be approved by the Lieutenant Governor in Council).

Since that legislation came into effect, there have been three CRLs created in Alberta (as far as I can tell): Calgary’s Rivers District, the project for which Bill 28 was created, and the Belvedere (Fort Road) and Quarters redevelopment projects here in Edmonton. You can read more about all three projects in part two.

There are a few key aspects of the CRL to be aware of:

  • The CRL only applies to a very specific area (the CRL boundary).
  • The tax revenue that contributes to the CRL is split between the City and the Province.
  • The maximum amount of time a CRL can exist is 20 years, starting in the year when the bylaw is approved by the Lieutenant Governor in Council.
  • The Lieutenant Governor in Council can approve a CRL bylaw in whole or in part or with variations and subject to conditions.

And don’t be mislead by the name “levy” – the CRL is a tax as defined in the MGA. It’s a funding mechanism, nothing more.

From my read of the Municipal Government Act, there are no rules or restrictions on the type of area that a CRL can apply to. In theory a CRL works best in an area that is “blighted” but the legislation does not enforce this. This was the case in California as well, until it became clear that the legislation was being abused.

What’s the potential impact of a CRL?

I asked Rick Daviss, Manager of Corporate Properties at the City of Edmonton, to help me understand the CRL. He was very helpful and pointed me in the direction of some very useful information.

The first thing we looked was a hypothetical example of the impact of a CRL. Here’s the situation:

  • Current use: 2.0 acre parcel of land improved with a 30,500 square foot warehouse.
  • Proposed use: 2.0 acre parcel of land improved with a high rise residential condo development (proposed density of 265 units (RA9), FAR of 3.0, unit value assessed at $200/square foot).

So we’ve got an old warehouse on some land and we want to replace it with a condo. Let’s look at the assessed value:

  • Current use: $1,525,000 (this is known as the assessment baseline)
  • Proposed use: $44,431,200

Which gives us an increase in value of $42,906,200. Now let’s look at the tax assessment:

  Before After Difference
2006 Municipal Mill Rate 5.7484 5.7484 –
2006 Municipal Tax $8,766 $255,408 $246,642
2006 School Mill Rate 3.6182 3.6182 –
2006 School Levy $5,518 $5,518 $0
2006 CRL N/A $155,243 $155,243

The mill rate is used to calculate the property tax, and you can think of it as the amount of tax required divided by the amount of tax available. So if the City needs $2 billion in taxes but only $1 billion can be generated based on the assessments, the mill rate is 2. The property tax is then calculated by multiplying the assessed value by the mill rate, and dividing by 1000. So to get $8,766 in our example above, $1,525,000 is multiplied by 5.7484 and then divided by 1000.

Let’s look at the Before column first. The total tax assessment there was $14,284, and the two bottom rows are N/A because we don’t have a CRL in the before case. Both the City and School taxes are calculated the same way: assessed value multiplied by the mill rate divided by 1000. The province gets $5,518 and the City gets $8,766, all of which goes into what’s known as “general revenue”.

Now let’s look at the After column. The total tax assessment there is $416,169. The City tax is calculated the same as before, but now that we have a much higher assessed value, we end up with $246,642 in increased tax revenue. All of this will go to the CRL. The School tax is broken into two, because only the incremental tax revenue will go toward the CRL. So the $5,518 is calculated the same as in the Before case, and this goes to the province. The provincial part of the CRL is calculated as follows: the increase in assessed value ($42,906,200) multiplied by the mill rate divided by 1000. That gives us the $155,243, all of which will go the CRL.

So now you see why the CRL is such an attractive proposition: it looks like we have $401,885 in new tax that we can contribute to the CRL. And this could happen with all developments inside the CRL boundary. There are a number of caveats, however. The first is that the CRL amount will vary from year to year based on the assessment (which makes the economy and depreciation relevant) and on the school mill rate which also changes from year to year. The second is that the type of development is important – City owned properties are tax exempt, for instance. A third is that the City tax revenues as well as a portion of the School tax revenues are dedicated to the CRL, where they would otherwise have gone into general revenue.

How is a CRL created?

Rick walked me through the process of creating a CRL, and I can tell you it sure doesn’t sound like a trivial task. In the best case, Rick estimates it would take just less than two years from concept through to the start of implementation to make a CRL reality. Here’s a high-level overview of the process:

Those five steps would include, roughly:

  1. Administration conducts background research, identifies the potential boundary, comes up with preliminary revenue estimates, and prepares for and asks Council for approval to make a request to the Minister of Municipal Affairs.
  2. The Minister of Municipal Affairs considers the request and recommends an Order in Council for an establishment regulation. This step also includes some back and forth to establish the area and other parameters.
  3. The Lieutenant Governor in Council considers and approves the Order in Council for the area to be established.
  4. Administration conducts more research, holds public hearings, drafts the proposed bylaw, has it reviewed by all relevant departments as well as the province, and acquires Council approval of the bylaw.
  5. The Lieutenant Governor in Council approves the bylaw.

After all that is done, the CRL can proceed. It makes sense to plan for the Lieutenant Governor in Council’s final approval as close to the start of construction as possible, in order to get the maximum possible time under the CRL legislation.

What are the risks associated with a CRL?

As others have pointed out, a CRL is not a risk-free proposition. There are a number of issues to consider.

What if a project does not lead to an increase in property values and does not result in any new development? In this case, there would be no “lift” to pay down the debt of the project. Rick noted that a plan for this kind of scenario needs to be in place before the province will approve a CRL. It can be as simple as the City swallowing the cost of the project, as long as it can specify how it will be paid for. Another option is for a third party to backstop the plan.

Another issue is the potential shift in taxes. Will the project really result in new development – development that would not have occurred in the city otherwise – or is it merely a shift in development, from areas outside the CRL to the area inside the CRL boundary? How would you know, one way or the other?

A related issue is the decrease in general tax revenue. If the property tax inside the CRL boundary is no longer going into general revenue, what does that mean for the services the City provides? In the worst case, you can imagine the entire City being covered in various CRL projects. That would result in zero general tax revenue and thus no way for the City to pay for the services it provides to citizens. What is the impact of one or two CRL projects? That’s less clear. Same goes for the school taxes. A common concern for many people is that they don’t want their school taxes going toward the CRL instead of schools. Of course, in reality the province doesn’t come up with education programs based on the amount of school tax it receives – tax revenue does go into the Alberta School Foundation Fund, but that money is combined with whatever amount of general revenues the province deems appropriate.

Can a CRL really work?

For a CRL to work, Rick says you need to make two basic assumptions:

  1. The project the CRL would be funding is a good thing, and is worth the risk.
  2. There’s a sound expectation that development will occur as a result.

If you think the project is worth the risk, and you’re confident that development will occur as a result of taking that risk, then a CRL can be a good funding source. Rick highlighted the Belvedere (Fort Road) project as meeting this basic criteria: it’s an area that needs to be redeveloped and it’s unlikely that anything would happen without some initiative by the City, plus there’s a good chance that other development will occur now as a result of the City going in and cleaning things up.

Final Thoughts

If you’ve made it this far, you should now have a better understanding of how Alberta’s Community Revitalization Levy came to be, how it works, and what the potential impacts and pitfalls of the legislation are.

In the next part of this series, we’ll look at Alberta’s three current CRL projects in more detail.

Alberta’s Community Revitalization Levy:

  1. Introduction
  2. Rivers District, Belvedere, The Quarters
  3. Proposed Downtown Edmonton Arena District