Credit is not provided, the interest rate would be equal to the greater of the Statistics Canada Building Construction Price Index Non-Residential (annual change as at 2nd Quarter) + 5% premium or the Bank of Canada Rate as at June 30th of each year plus five percent (5%).

The Statistics Canada Non-residential Construction Price index being recommended is the same methodology used to apply the annual increase to the calculated DC charges to keep up with the cost of inflation and will maintain consistency and enhance the understanding of the process. The Bank of Canada Prime Rate as at June 30th of each year is also included to offset any significant fluctuation in the Statistics Canada Building Construction Price Index Non-Residential change. By basing deferred DC carrying costs on this methodology, the City is mitigating the risk that the cost of growth exceeds the revenue ultimately received over time thus minimizing the financial impact to existing ratepayers.

For illustrative purposes, using information available for 2020 and assuming that a Letter of Credit will be provided, the rate of interest that would be applicable at this time would be 3.6%. This rate would be applied to any portion of the DC that was due at time of building permit issuance until such time as payment is made. Based upon financial models provided by FHC and assuming that for each phase of the development, FHC would be provided with a deferral of two years, total interest earned would be approximately $177,705.

Security for Payment

One of the significant risks to municipalities is the collectability of deferred DC payments that remain uncollectible and fall into arrears. These outstanding payments currently do not have priority lien status or the requirement to register agreements on title to land. In order to mitigate this risk, it is being recommended a Letter of Credit be provided as security for the deferred DC payments. As indicated above, the City would require an irrevocable and auto renewable Letter of Credit issued to the City by FHC’s lending institution. Additionally, the DCA allows outstanding DCs to be added to property taxes and collected in the same manner as property taxes.

Revised Estimate of Financial Incentives

Based upon information provided by FHC, total estimated site remediation and servicing costs will reach $12.5 million. As part of the report previously provided to City Council with regards to the total financial incentives being provided by the City (S52/2019), an estimated build out and phase in grant calculation was completed. Based upon updated information obtained from FHC, the following revised schedule provides an estimate of how the grant value would change relative to the timing of development: