Mayor John Tory said this week that he wants “a full review” of the use of Section 37 of the provincial planning act, after a CBC report about irate Mimico residents who think their local councillor may have given a developer a break.

The episode brings a long-simmering debate about the clause in provincial legislation to a boil.

In Toronto political circles, there may be no more famous clause in a piece of legislation; like “Catch-22” or “Agent 007,” the numbered term “Section 37” is used frequently as shorthand by politicians, journalists and pundits without much explanation. Which can lead to plenty of confusion.

What is Section 37 and why does it exist?

Essentially, Section 37 of the planning act is the one that allows for what other cities call “community benefits agreements.” If the owner of a property wants to build something that does not comply with zoning regulations, the owner may voluntarily agree to provide community benefits in cash or amenities in exchange for approval.

These benefits are negotiated by city planning staff and with local councillors in the area where the development will be built. Though the agreements themselves are approved by city council, the use of the funds is largely controlled directly by the local councillor for use in projects inside his or her ward.

The purpose of the section in the act is to offset the problems caused by changes to a neighbourhood when different kinds of developments are added to it, such as to compensate for increased traffic, population, or changes to the streetscape new developments bring.

More: The peculiar uses of Section 37 — from public art to affordable housing

What is the problem with it?

While many planners and councillors defend it as a valuable tool, several criticisms have been raised about it inside and outside city hall.

The biggest criticism is that its efficacy depends a lot on the skill and creativity of the local councillor. Since each Section 37 agreement is negotiated separately, there is no real standard or baseline for how it works, how much certain kinds of allowances will cost a developer, or what a community should expect in exchange for a big change on their street. The types of benefits delivered are vulnerable to the same eccentricity, and often depend on the priorities (or “pet projects”) of various politicians.

Some developers have decried it as an unfair shakedown. Often the buildings they propose are types the city wants to encourage — for example, a midrise building on a main avenue of the city — but deliberately restrictive zoning laws mean they need to sit down and play an unpredictable game of “let’s make a deal” with the local city councilor.

And the funds are not evenly distributed around the city. This presents a real fairness problem to the extent that, due to austerity measures imposed by low tax rates, Section 37 funding has become virtually the only source of funding for things such as playgrounds and community centres. By nature, Section 37 funds are spent in the communities where development occurs, which means there is a lot of money to spend in parts of the city where highrise condo development is concentrated. This has led to suggestions, by John Tory among others, that the money should be “pooled” to spend across the city in areas of need.

So, should we just pool the money and spread it around?

The thing is, Section 37 is not meant to serve as a source of pooled revenue for the city. We have other sources of money for that — property taxes, for instance. Specific to new construction, the city has development charges levied against new building projects that are specifically meant to generate revenue, and those could easily be increased if council wants more money for general use. Section 37 agreements are designed to offset changes to a specific neighbourhood that the specific development entering them will make. Pooling that revenue for use in other neighbourhoods would take an arguably flawed process and completely unchain it from its underlying logic.

So should we just leave it alone?

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Some councillors suggest Section 37 is needed and works well as is. But a number of experts — including Toronto’s chief planner, Jennifer Keesmaat, respected urban designer and planning expert Ken Greenberg, and a 2013 report from the Munk School’s Institute of Municipal Finance and Governance have suggested some reforms. Given that the system is so arbitrary, often unpredictable, and sometimes seems to provide incentives contrary to what the city’s approved plans claim to want, some revision seems desirable. A “full review,” as the mayor suggests, complete with options for changes to the system, may be the best approach.