Municipal Service and Financing Agreements Policy

Legislative History: Enacted June 11, 2019 (By-law No. CPOL.-391-152); Amended December 17, 2024 (By-law No. CPOL.-391(a)-18)

Last Review Date: December 17, 2024

Service Area Lead: Director, Capital Assets and Projects

1. Policy Statement

In order to achieve a logical, affordable and fiscally sustainable installation of infrastructure to service growth and development, the City of London (City) utilizes the Growth Management Implementation Strategy (GMIS), which is updated on a yearly basis. There may be circumstances, however, where the annual GMIS process cannot address a pressing need for infrastructure construction ahead of its scheduled GMIS construction date. In such cases, the Development Charges Act (DCA) provides for front-ending agreements. Based on the DCA front-ending agreements requirements, this Municipal Service and Financing Agreements (MSFA) Policy provides for agreements between the City and Owners to accelerate the construction of DC-funded infrastructure projects outside of the regular GMIS process.

2. Definitions

2.1 Twenty Year Servicing Boundary - means the extent of lands within the Urban Growth Boundary that are deemed to be required to meet projected 20-year residential unit and non-residential space demand as identified through the Development Charges Background Study growth allocations (also known as the “GMIS Boundary”).

2.2 Agreement(s) - means a form of Municipal Service and Financing Agreements as described in Section 3 of this Policy.

2.3 DCA - means the Development Charges Act, S.O. 1997, c.27, as amended.

2.4 City - means The Corporation of the City of London.

2.5 Capital Budget - means the financial plan adopted by Council. In the context of this policy, the capital budget provides the funding for the capital projects reflected in the adopted GMIS and is subject to separate Council approval.

2.6 Carrying costs - means the financial costs associated with funding an accelerated infrastructure project (i.e. interest costs, opportunity costs, administration costs, etc.), from the time of design to the time of repayment (i.e. “non-reimbursable costs”).

2.7 CSRF - means the City Services Reserve Fund.

2.8 DC - means Development Charges.

2.9 DC Study - means the Development Charges Background Study as prepared to meet the requirements of the DCA.

2.10 Front Ending Agreements - means front-ending agreements as defined in the DCA.

2.11 GMIS - means the Growth Management Implementation Strategy, as described in the City’s Official Plan (The London Plan), as amended from time-to-time.

2.12 MSFA - means Municipal Service and Financing Agreements.

2.13 Owner - means the landowner(s) or requesting parties that enter into a MSFA with the City.

2.14 Staff - means an employee of The Corporation of the City of London.

2.15 Urban Growth Boundary - means the extent of permitted urban development for the City of London, as described in the City’s Official Plan.

3. Applicability

This Policy applies to all requests by Owners for a MSFA regarding DC funded GMIS eligible growth infrastructure projects.

Although the DCA provides for several types of front-ending agreements, there are two types of front-ending agreements addressed by this MSFA Policy:

1. Single Owner MSFA: where the agreement to accelerate infrastructure under this Policy is between the City and a single Owner; and,
2. Future Benefiting Owner(s) MSFA: where the agreement to accelerate infrastructure under this Policy is initially between the City and a single Owner, with the addition of future Owners that become party to the agreement as their land within the benefiting area develops.

4. The Policy

4.1  Guiding Principles 

The City’s use of MSFAs is guided by key principles that inform requests for MSFA, evaluation of MSFA proposals, and agreements prepared to implement this Policy. The MSFA principles are as follows:

1. The DC Study and GMIS serves as the City’s development staging strategy for growth infrastructure. The DC Study establishes the infrastructure servicing needs and associated timing to ensure that projected growth demands are met. The GMIS is an important tool for Council to coordinate growth infrastructure with development approvals and correspond with the pace of growth across the City, while maintaining an acceptable financial position. It allows for timing adjustments to DC-funded projects between DC Studies and is updated annually to ensure project timing continues to align with the pace of development while ensuring financial sustainability.
2. MSFA are tools to be used to advance project timing from planned DC-funded GMIS project construction schedules. Given the opportunity for Owners to request adjustments to the timing of infrastructure through the annual GMIS process, MSFA are not anticipated to be required on a frequent basis.
3. It is critical that the integrity of the CSRF be maintained when using MSFA. To maintain the integrity of the reserve funds and to avoid undue debt risk, the City will cap the total value of MSFA that will be undertaken. Development advanced through a MSFA benefits the Owner in their attempts to capture a perceived market demand; therefore, the risk and costs associated with a MSFA are to be borne by the Owner and not the City.
4. Market choice for new housing is beneficial to Londoners, but the timely build-out of existing serviced land is also essential to capture revenues to pay for past investments in infrastructure.
5. Opportunities to positively affect the cash flow of CSRF are valued by the City.
6. All growth opportunities must be assessed based on the debt risk associated with the proposal and the existing DC debt profile.

4.2  MSFA Parameters

The City’s application of MSFA shall be managed within the following parameters:

4.2.1 General

1. The total value of all obligations under executed MSFA at any point in time shall not exceed fifteen million dollars ($15,000,000) (i.e., “the cap”).
2. MSFA shall generally only be used to advance one infrastructure project per development. The City may consider the use of a MSFA to accelerate multiple projects where the secondary projects represent minor extensions of projects that are eligible for DC funding. In addition to the maximum value of all MSFA outlined in Section 4.2.1(a), no infrastructure project accelerated through an individual MSFA shall exceed six million dollars ($6,000,000) for any one service component as defined in the DC By-law.
3. MSFA will not be used to accelerate development located outside of the 20-year Servicing Boundary.
4. Only infrastructure projects included in the most recent DC Study will be eligible for acceleration through the use of a MSFA. Additionally, only projects within the current 5-year GMIS and Capital Budget time periods will be considered for acceleration.
5. As part of a proposal for a MSFA, the Owner shall be provided the opportunity to describe the benefits of accelerating a project from the existing GMIS and Capital Budget timeline.
6. Lands accelerated for development through a MSFA shall be contiguous to existing developing lands.
7. The Owner shall pay for the full cost (growth and non-growth share) of the accelerated project. Repayment shall be exclusive of interest and shall be based on the actuals for the project, rather than the estimate contained in the DC Study.
8. Agreements shall contain provisions for the City to recover cost overruns should the actual cost of an accelerated project exceed the estimated cost identified in an Agreement. Conversely, should the accelerated project produce cost efficiencies resulting in the project being below the anticipated cost identified in an agreement with the City, the agreement shall provide that any excess of the MSFA funding that exceeds the revised actual cost of the project be returned to the Owner, without interest.

4.2.2 Municipal Service and Financing Agreements

The DCA provides for Front-Ending Agreements to advance the costs of constructing DC eligible projects where the initial financing is to be provided by one or more Owners through an Agreement. The Agreement may also provide for Owners who, in the future, develop land within the area defined in the Agreement to pay an amount to reimburse the parties to the Agreement for a portion of the upfront costs of the project.

The Agreement is viewed as a loan arrangement between the Owner(s) and the City. The loan to the City facilitates the financing and advancement of infrastructure construction versus when it would otherwise have been constructed according to the timing specified in the GMIS.

Under such an Arrangement, the following minimum provisions shall be included in the Agreement:

1. A description of the work to be done, a definition of the area of the municipality that will benefit from the project and the estimated cost of the project.
2. The proportion of the cost of the project that will be borne by each party to the Agreement, and the method and timing for depositing the amount with the City.
3. If necessary, the method for determining the part of the costs of the project that will be reimbursed by the parties who, in the future, develop land within the area defined in the Agreement; and a description of the way in which amounts collected from parties to reimburse the costs of the project will be allocated.
4. If necessary, the method for determining the amount, and the amount of the non-reimbursable share of the costs of the project for the parties who reimburse parts of the costs of the project.
5. The Owner will finance all Carrying Costs associated with the Agreement. Carrying Costs will not be eligible for reimbursement.
6. The Owner will provide the City with cash or an irrevocable indexed Letter of Credit, to the satisfaction of the City Treasurer (or designate) and in accordance with the City’s Security Policy Regarding Letters of Credit By-law, to finance the costs of the project. A Letter of Credit provided in relation to an Agreement will be drawn upon as design and construction of the project proceeds.
7. The Agreement will contain provisions related to the repayment for the project.
8. Redistribution of proportionate share of funding may be accomplished by financial contributions by Owners named in the agreement who benefit from the project completed under the Agreement (See subsection 4.2.2 c) above).
9. Repayment by way of cash reimbursement of funding for a project will commence on the date originally identified in the GMIS for the construction of the project at the time in which an Agreement is entered into. Adverse revenue conditions experienced by the City after entering into an Agreement may result in the deferral of other projects through the annual GMIS process. This may adversely affect the timing of projects not being accelerated.
10. The entering of an MSFA will not alter the times at which DCs are collected from the developments which ensue from the construction of infrastructure facilitated by an Agreement. DCs are collected in accordance with the DCA and the City’s DC By-law.
11. The Agreement will provide that the City will recover a sum estimated to be the reasonable cost of preparing and administering the Agreement, including staff time and expected consulting costs.  The MSFA will be subject to notification and appeal processes described in the Front-Ending Agreements section of the DCA.

4.3 Request for Municipal Service and Financing Agreements

4.3.1 Written Proposal Required

A request for a MSFA with the City shall require a written proposal by the Owner which demonstrates how the proposed acceleration meets the criteria outlined in this Policy. Consideration of a request for a MSFA will not commence until a written proposal has been received by the City and acknowledged in writing by the City Treasurer (or designate) as complete.

4.4 Criteria for Evaluation of Municipal Service and Financing Agreements Proposal

The following is a list of the criteria that will be applied for consideration of a MSFA:

1. Is the project proposed for acceleration included in the most recent DC Study?
2. Is the project proposed for acceleration within the current 5-year GMIS period?
3. Is the estimated cost of the project within the available MSFA cap and the available service component MSFA cap?
4. Does the project for proposed acceleration have a local service component?
5. Is there a single DC eligible infrastructure project required to permit the development of the subject lands?
6. Are there additional DC eligible projects of other non-local services required to permit the development of the subject lands?
7. If acceleration of the growth infrastructure project produces pressure on timelines for lifecycle renewal projects on previously constructed infrastructure, is there a means of mitigating the pressure through the Owner contributing to the cost of prematurely upgrading previously built infrastructure?
8. Are the benefiting lands contiguous to existing developing lands and within the 20-Year Servicing Boundary?
9. Have all environmental assessments and engineering studies required for the proposed accelerated project been completed and approved?
10. Will the project require the expropriation of land, and if so, what are the implications of the proposed expropriation?
11. Does the financial analysis demonstrate:
    1. That the acceleration of the project will not have negative impacts on CSRF cash flow projections and have minimal impact on tax and water/sewer rates funding for non-growth share portions?
    2. Are there any concerns related to the MSFA impact on the City’s debt ceiling?
12. Are the proposed project and the information contained in the proposal consistent with the MSFA principles, and parameters as stated herein?

4.5 MSFA Request Review Process

4.5.1 Written Proposal Submission

The Owner must submit a written proposal to Development Finance Staff for review. The proposal will require the Owner to demonstrate the need for the development and why it would be advantageous for the City to advance the construction timing of the infrastructure in accordance with this Policy.

4.5.2 Recommendation to Committee

If the Staff review deems the proposal to be in the City’s interest based on the criteria and financial analysis, the recommendation to Corporate Services Committee will be to approve the proposal in principle, with direction to Staff to finalize the Agreement details in accordance with the report, MSFA Policy elements affecting agreements and any further direction arising from Council’s consideration of the report.

If the Staff review deems the proposal not to be in the City’s interest based on the criteria and financial analysis, the recommendation to Corporate Services Committee will be to refuse the proposal, with reasons for the recommended refusal.

In either case, the results of the Staff review will be placed before the Corporate Services Committee of Council for their deliberation.

4.5.3 Negotiation/Preparation of Agreement

Pending a Council resolution that favours the pursuit of the MSFA, Staff will initiate the preparation of the Agreement for City Treasurer (or designate) approval.

Upon Council approval of the Agreement, both the City and Owner(s) provides signatures, and the Agreement comes into force. Based on the terms of the executed Agreement, construction of the MSFA financed project(s) can proceed.

4.5.4 Repayment under a Municipal Service and Financing Agreement

The initiating Owner(s) provides funds to the City to pay for the full costs associated with the construction of an infrastructure project, in accordance with the executed Agreement. The money received is deposited in a dedicated account and is used to pay for the costs of constructing the project. Under the DCA provisions, as lands within the benefiting area are developed, the Owners of the developing land may become party to the MSFA and may be required to contribute funds to provide a proportional share with the original Owner and previous Owners, all as set out in the Agreement. Repayment of the funds provided to accelerate the project will be in accordance with MSFA Policy and the terms of the Agreement. Each year, the City Treasurer will report the amount of outstanding liabilities and credits associated with MSFA in accordance with the DCA provisions and regulations governing the annual report of the Treasurer. As outlined in the DCA, agreements are subject to notice requirements and are appealable.