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Calgary’s aging pipes stand in the way of its density dreams

For the past decade, Mayor Naheed Nenshi has been selling Calgarians on a vision of densified inner city neighbourhoods, but developers say aging pipes in the ground – and the argument over who pays for their upgrades – stands in the way.

For many, the idea of densifying the inner city rather than sprawling ever outward is a no-brainer. It has been pitched as a cost-saving practice because instead of having to build new amenities such as parks and fire stations, developers take advantage of what’s already there – although upgrades to the public realm are still needed.

In the city’s current Municipal Development Plan (MDP), put together in 2009, the city said it would “endeavour to accommodate” 50 per cent population growth in established areas over the next 60 years – or roughly adding 650,000 people to those neighbourhoods. They hope to get 33 per cent of it by 2039.

Clause ‘e’ in Section 5.2.2 of the Municipal Development Plan (MDP) states, “City planning and investment decisions must support the policy and growth directions of the Calgary Metropolitan Plan, the Municipal Development Plan and the Calgary Transportation Plan.

However some of the most basic underground infrastructure isn’t currently up to the task of accepting dozens of new units on streets that once held single family homes. With the exception of the downtown core, the city is leaving it up to developers to pay most of those costs.

Ward 9 Councillor Gian-Carlo Carra said over the years, Calgary became adept at building outwards while neglecting the inner city.

Carra said the current city budget reflects the reality that public money is going to be needed for ongoing development – but in this case the tax hike is related to greenfield growth. Fourteen new suburban communities were approved in July.

“What we’ve done in this budget, in an unprecedented way, is we’ve acknowledged that the cost of growth is significant and that the development industry doesn’t have deep enough pockets to fully fund growth on their own,” he said.

“We’ve done that on the greenfield edge of the city to the tune of a 2.15 per cent tax increase. For the first time you will see on your tax bill a dedicated percentage to support growth on the edge of the city.

“Whether you like it or not, it’s happening and it has to happen and it’s best that we call it out.”

He said they’ve spent a great deal of time to figuring out how to do suburban growth that makes sense, especially in terms of funding, and they need to do the same for the inner city.

“You know how the greenfield development industry got 2.15 (per cent property tax)? They asked for it,” Carra said.

First-in, first to pay

Developers who spoke to LiveWire said there’s a “first in” problem in established communities. No one  wants to the be the first one to develop in an established area, because they can be on the hook for upgrades that other developers then benefit from.

Al Devani, founder of inner-city developer RNDSQR, said they’ve triggered water upgrades on something as small as putting three townhomes on a lot that once held a single home.

“It’s kind of nerve-wracking when you look at the smaller townhouse-size developments, because those things can’t sustainably afford to pay for any type of upgrade to infrastructure,” said Devani.

“There’s just no margin on it, and if we continue to think we’re going to burden the private side with those, it just ends up costing more for people to live in the inner city and the consumers end up paying for those things.”

RNDSQR has also been the beneficiary of another developer who was first in.

“There’s examples I’ve heard of developers right down the block from us that had to pay a ton of money to get their servicing done, and then we’re kind of riding on their coattails of that development because we came in a year or two after,” he said.

Water upgrades on larger developments can range from $200,000 to well over $1 million, according to both Devani and sources at the City of Calgary.

Coun. Carra said this is a major barrier.

“A lot of our main streets have wooden pipes that were put in 100 years ago,” said Carra “You start plugging big mixed-use buildings into that and the system doesn’t work.

“So who pays for those pipes is the first poor schmuck developer who wants to build a nice building. Is he supposed to pay for everyone’s pipe and hope that he somehow gets paid back over some endeavor to assist? That’s never going to happen.”

(Editor’s note: Coun. Carra later clarified that while there are still wooden pipes in the ground, none are currently in use in these areas.)

The off-site levy

In January of 2016, the city of Calgary passed its off-site levy bylaw. The somewhat obscure and technical bylaw captured international attention because as Mayor Naheed Nenshi put it, the city was finally going to stop subsidizing sprawl.

“I am very pleased that we’ve come up with a plan that ends the sprawl subsidy, and for the first time creates a level playing field among every neighbourhood in Calgary for growth,” said the mayor when speaking to reporters after the bylaw had passed unanimously.

For years, the city was footing the bill for infrastructure and amenities in new developments around the city. Big ticket items like major storm-water facilities, and feeder main connections for storm-water and wastewater were covered by taxpayers.

The off-site levy is a cost-per-hectare on greenfield development that would capture those costs and hand them back to the developers – and ultimately consumers.

A per-unit levy was also created on inner city communities. For both greenfield and inner city, those levies only cover the major facilities, but not the cost of pipe in the ground.

Kathy Davies-Murphy, manager of growth and strategic services with the City of Calgary, also used the term “level playing field” when describing how costs for major infrastructure upgrades are shared, while the cost of pipe falls to developers.

“It’s the developer’s responsibility, whether it’s in greenfield communities or established areas, to deliver the right amount of capacity for localized infrastructure,” she said.

“If a developer is coming in and a capacity upgrade is triggered by that development, the current process is that it’s the developer’s responsibility to pay for that upgrade.”

Devani said greenfield developers have some certainty going in about those sub-surface costs, but inner city developers have a difficult time knowing when they’ll trigger an upgrade.

He doesn’t think the level playing field described by the mayor and the city is a reality.

“We’ll never win the greenfield versus urban conversation at council. There’s 11 councillors that represent greenfield new community growth,” he said.

“What I would say is that the city needs to break down those barriers and decide what type of investment they’re willing to make in order to see more critical mass and viable growth in the inner city in established communities.”

Towards a solution

Once they do get built, inner city developments that add density to a neighbourhood also bring tax uplift as well. Ten units built on two inner-city lots generates substantially more tax revenue than the two single family homes there before.

Davies-Murphy said the city has yet to do a full-scale analysis done of tax uplift that comes from densifying inner city neighbourhoods.

“That’s further work we’d like to do to understand the value that’s created through redevelopment and how that might be able to be re-invested in those communities,” she said.

One solution could be to capture some of that initial tax uplift to pay for the needed pipe upgrades in established communities, although Devani doesn’t think that’s the best way to go.

“I believe that tax capture should actually be for everything above grade,” he said.

“Any tax capture should bring inherent benefits for the community for taking on the density, so they can really become pioneers of density, and begin to champion it and understand where those wins are coming from.”

The solution may be to create more certainty for developers, according to David White, principal with Calgary consulting firm CivicWorks.

White works with developers such as RNDSQR, and he’s seen developers run into unexpected pipe costs on projects of all sizes.

“The average developer builder will tell you one of the biggest factors is certainty,” said White.

“No one wants a surprise – especially when you’re mid-flight in a project. I think that’s the heart of the issue right now. I think there’s too many surprises, and they’re often too costly.”

He and Devani both believe a levy system specifically for water and sewer infrastructure is the way to go.

“We really need to create a levy system or a contribution system that’s basically like buying insurance. So everyone pays into a pool of money and we can access that pool of money for those upgrades,” he said.

Calgary already has a similar levy for developers in the downtown core called the centre city levy

“Every developer pays a set fee based in the linear frontage of their property into a levy pool,” said Davies-Murphy. “When upgrades are required, we use those funds and city funds – utility rate funds – to deliver those upgrades.

“We review our levy systems periodically. The centre city levy is anticipated to be fully reviewed in 2020, and that may include an option to expand that area.”

For his part, Devani worries that the city’s initial push to redevelop its main streets was done without giving serious thoughts to the underground infrastructure.

“We’ve upzoned a bunch of main streets to try to foster development, but no one has yet to look at the infrastructure at the level of detail to look at how much of that can be supported with the costs of what the upgrades are.”

– With files from Darren Krause.

Editor’s Note: This version of the story corrects and earlier version that said 14 new communities were approved in the spring. In fact, they were approved by council in July.