politics How Section 37 Funds Work (And Don’t Work)

We explain the section of the Planning Act that makes every councillor pull out their hair.

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nobody knows how section 37 works dot tumblr dot com #TOpoli — Nev Tragically Park (@neville_park) July 7, 2014

You may have heard “Section 37” brought up in discussions about some recent developments. Can it pay for a signature park? Can we use it to build affordable housing? Read on for the answers to all your questions.

What It Is

Section 37 is a frequently used but often misunderstood bit in Ontario’s Planning Act. Jake Tobin Garrett explains the basics here, but 1. things have changed a bit since then, and 2. we know you’re a busy person who doesn’t have time to read all that.

Tl;dr: the City’s zoning bylaw limits how tall or how dense a development can be. Section 37 says that if a development exceeds those limits, the developer can make an agreement with the municipal government to provide or pay for some kind of community benefit for the ward in return. It’s the local councillor’s job to negotiate with the developer and the community to find something that works for everyone.

What counts as a “community benefit”? Well, here’s a few typical recent examples:

This is all part of business as usual at City Hall. So why all the confusion?

Well, part of it is simply people not reading the City’s own dang guidelines [PDF]. The process has also been criticized for giving councillors a lot of leeway to secure benefits many consider frivolous. The lack of transparency in the process can also lead to a lot of community mistrust, and the integrity commissioner has frowned upon the conduct of some councillors on this file.

There are also legitimate issues with why Section 37 is even a thing. As Aaron Moore argues in this 2013 paper [PDF] from U of T’s Institute on Municipal Finance and Governance, it’s unclear what Section 37 is actually for. He identifies three different rationales supported by the Province, the City, and the OMB :

To fund the infrastructure needed to serve the higher density development; To “share the wealth” by redistributing it to the city at large; or To compensate those negatively affected by the higher density development.

Misconceptions arise when these varying purposes—and the relevant laws—clash. So, instead of talking about what Section 37 is, let’s go over what it isn’t.

What It’s Not

A magical pot of gold that downtown councillors are selfishly keeping for themselves

When Council debates the budget, Section 37 funds are often a source of discontent for suburban councillors who feel that downtown wards get more resources. Periodically a few suggest pooling all the money and dividing it citywide, which is a terrible idea.

First, that’s not allowed. Benefits are unequally distributed because they have to be local. Funds from a new high-rise in rapidly developing Ward 27 have to go to some service or project in Ward 27.

Second, there is already a citywide pool of money that developers pay into. They’re called development charges, and are one of the limited ways that Ontario municipalities can raise money. Creating a system that is almost, but not quite, entirely unlike development charges could be seen as an attempt to circumvent the law. Which is one reason Section 37 benefits have to be ward-specific.

Section 37’s “unfairness” is a function of how the law is written and the way the city is shaped. Downtown, where real estate is lucrative and space is limited, there is incentive to build higher and denser. In the suburbs, you can just build out, not up (although the Greenbelt and the growth plan make this more complicated, but that’s another story). The sprawling, car-centric built form in much of the city discourages the kind of developments that Section 37 applies to. The problem is that many residents—including city councillors—like the suburbs because they’re not downtown. But if you want Section 37 funds like downtown, you need to make your neighbourhood more like downtown.

A revenue tool

One of Toronto’s enduring challenges is that we have a lot of expensive things on our wish list, but no way to pay for them. The latest snowflake on the iceberg of unfunded projects is Rail Deck Park. It’s a great idea, but hella expensive to build: the first rough estimate is about $1 billion, and that doesn’t include all the associated costs.

Section 37 money has been used before to fill gaps in the booming downtown core. (The beautiful, high-tech Fort York library is one recent example.) It’s also been extensively used for park improvements. Along with a related provision in the Planning Act, Section 42, it’s been brought up as a way of funding Rail Deck Park. Is it enough? Well…no.

The thing is, in the context of Toronto’s larger budget needs, Section 37 agreements just don’t bring in that much money. According to this 2014 report [PDF], since amalgamation Section 37 has brought in $309 million in cash benefits. There are also substantial “in-kind” benefits, like heritage conservation, that are hard to put a dollar value on, but this report [PDF] has them at about half the value of cash contributions. That would mean the Municipal Land Transfer Tax brought in about as much last year alone [PDF] than Section 37 has in 18 years. Not quite “mayoral legacy” money. Maybe just “councillor legacy” money.

There’s a bigger picture here. City Council has gotten into a bad habit of relying on sources of revenue like user fees, TTC fares, and the Municipal Land Transfer Tax, so it doesn’t have to increase property tax revenue. Raising property taxes to improve parks should not be a hard sell. What’s more, this strategy often pushes the costs of running the city onto people who are less able to afford it. Using Section 37 as a revenue tool can create a corresponding problem, which we alluded to previously: residents of areas with little dense growth don’t get the benefits. As poverty shifts to the inner suburbs, it is increasingly important to make sure underserved neighbourhoods get a chance to catch up.

A planning tool

Okay, so the report we just linked says Section 37 is a planning tool. This is the City’s line as well. Arguably, it shouldn’t be. Developers do need incentives to get on board with building a livable, well-designed city—but Section 37 probably isn’t the best way to do it.

The City’s own guidelines say that good planning should be the standard for new development, not a bonus. If the area needs a new daycare or better street furniture anyway, is the City just using Section 37 to implement things they should have already planned for—and, equally importantly, budgeted for? And if not, does that mean the benefits are superficial, people-pleasing elements rather than an essential part of urban planning in Toronto?

The weakest point in the case for Section 37 as a planning tool is affordable housing, one of the city’s most pressing issues. As luxury condos sprout across downtown, Toronto’s lowest income people are being pushed into the inner suburbs.

In recent years, after some successful pilots, City Planning and Council have taken steps to allow affordable housing as an eligible Section 37 benefit. However, affordable housing is only one of many options, and only if the local councillor chooses to push for it. In 2013 and 2014 the City secured $10.25 million for affordable housing, which is great, until you remember that

TCHC’s state of good repair backlog is a couple orders of magnitude greater; and the definition of “affordable” they’re working with is what most of us would call “market rent” or “average”; there is no requirement that new housing should go to the people most in need.

Section 37 is not the best way to solve the housing crisis for the same reason it is not the best planning tool in general: when benefits are negotiated case-by-case and at the local councillor’s discretion, there isn’t an effective way to mandate a consistent set of standards.

It’s for that reason housing advocates have been asking the Province to give Toronto the ability to implement inclusionary zoning. That is, the City could require a certain percentage of new residential units to be affordable housing. This would take much of the wheeling-and-dealing out of the picture and create a direct relationship between new affordable housing and new, well, unaffordable housing.

Recently, the Province finally agreed. There’s just one little problem: they’re saying Toronto must choose between inclusionary zoning and Section 37. Councillors claim this will unfairly force them to choose between affordable housing and equally worthwhile projects like daycare facilities. But, as TVO‘s John McGrath writes, Queen’s Park is unlikely to listen as long as Toronto refuses to use the revenue tools it already has.

What Should It Be?

Section 37 is an imperfect tool that many, including the current mayor, have been calling to reform. But Council may consider the alternatives—whether it’s raising property taxes, inclusionary zoning, loosening zoning regulations in general, or any number of possibilities—and decide that the status quo is better after all.

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