Tax breaks for developing polluted land are back

UPDATE | The City of Ottawa's legal department identified a "possible issue" with the decisions reached by council on the brownfields program, according to a memo to councillors which also recommended a public meeting. City Council passed a motion on Jan. 24, 2024, to further debate the program's future at an April meeting of the finance committee. 

A program that provides grants to developers who build on contaminated land is back on, sparking disappointment from Mayor Mark Sutcliffe who campaigned on his opposition to the tax breaks.

The brownfields program is meant to encourage development of derelict or vacant properties on land in Ottawa that has to be remediated, often because the sites were home to polluting businesses like gas stations. 

It's been paused since shortly after the last election, so staff could review the program and provide recommendations on how to improve it. 

What they came up with was a revamped plan that imposed new limits on the grant — a plan that earned Sutcliffe's stamp of approval. 

But when it came time to decide Wednesday, councillors rejected the proposed revamp by a vote of 14-8 and effectively resurrected the program that caused commotion on the campaign trail. 

"I'm disappointed," Sutcliffe said after the meeting. "I heard over and over again from Ottawa residents during the campaign last year, and frankly since I became mayor, that they don't want to see big tax handouts going to developers to build on contaminated lands."

• Motion for planned housing on contaminated sites narrowly defeated
• City of Ottawa pauses grants to developers who de-contaminate sites

Key to the program is spurring projects that developers would otherwise pass on. 

But the application process does not — and cannot — ensure that's the case, according to Don Herweyer, interim general manager of planning, real estate and economic development. 

"I don't know how they would prove it," he told councillors. 

The staff suggestions punted by council would have tied the program to a new affordable housing incentive, eliminated the deferral of development charges, and capped project grants at $5 million, or 50 per cent of eligible costs. 

$161M in approved grants, so far

Ottawa was an early adopter of this form of grant, introducing the program in 2007. 

Since then, the city has approved more than $161 million in grants for 69 projects, although the actual funding provided is far less. 

Dozens of municipalities now have similar programs, all of which cover significantly larger shares of the project costs.  

While staff say it's impossible to know whether projects will move forward without a tax break, information provided to councillors suggested it's likely the grants at least speed up projects. 

• Committee approves $60M to clean up Zibi development site
• City of Ottawa approved $90M in brownfields grants in 5 years

At a finance committee meeting held earlier this month, three members of the public — including a retired Ottawa staffer who helped develop the program — spoke in its defence. 

Weeks later, councillors are echoing their words of protest.

"It is, and can be, and has proven to be, a benefit to cities. Other cities are more aggressive than we are in doing this, and for a reason," Kanata North Coun. Cathy Curry said. 

"In the long run, this is a really good investment for the city." 

She, and others, said it's inconceivable that staff could have written that the program has "prompted the creation of 120,000 square metres of office space, 180,000 square metres of commercial space, and thousands of permanent employment opportunities" — and recommend its restructuring just a few paragraphs later. 

Creating a funding gap

Funding the brownfields grant relies on something called property tax uplift. 

When developments go ahead, they provide the city with tax revenues that are higher than what it could have otherwise collected. 

Many councillors drew on this, arguing they bring in a lot of revenue. 

But staff and the mayor characterized that as an oversimplification. While taxes go up, so do the costs incurred by the city to provide services, explained chief financial officer Cyril Rogers.

In other words, it's not free money. 

"Our core mandate is to recover our costs for the services we provide," Rogers said. "We're not in the business of creating margin on our development."  

Rogers said the proposed program changes would have better protected the city's finances.

Political dimensions

George Darouze also spoke in favour of restoring the existing brownfields program, despite the fact that his rural ward isn't affected by it. He argued councillors were inappropriately "politicizing" a business issue. 

But the politics of the issue of these sorts of tax breaks are well established. 

While brownfields grants focus on contaminated land, other grants in the same family are used to kickstart development in economically depressed areas. 

Sutcliffe campaigned against both, at a time when the voting public was frustrated with the approval of a controversial $2.9 million tax break for a Porsche dealership in Vanier. 

"This is something that the public really wants reigned in," Capital Coun. Shawn Menard also argued. "We are offside on this." 

Another part of the staff review focused on revising these community improvement programs. They all passed.

Councillors also followed staff advice to pause the grant program for development near the airport. It was the only one of these programs that saw council reject an application — a $13-million grant for a hotel — on the premise it would be built regardless. 

• Ottawa city council rejects tax break for airport hotel

As it turns out, council was right. Germain Hotels recently announced it will move ahead with building the airport hotel, without the municipality's help. 

Going forward, Sutcliffe said he will do what he's been doing since he was elected: voting against grant applications for projects that do not include affordable housing. 

"I plan to focus my energy on advancing brownfields that have an affordable housing component to them, and not supporting anything that doesn't."

Council did support staff recommendations to massage the criteria for other development programs and create a new tax break for developments that include affordable housing components. 

Rideau-Vanier Coun. Stéphanie Plante also persuaded councillors to support her motion to go against staff recommendations and grandfather applications submitted before the brownfields grant was paused.