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The Higher ED Blog: Downtown revitalization and the ‘taxing’ issue of brownfield redevelopment

Tara Vinodrai / September 28, 2015

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The Higher ED Blog: Downtown revitalization and the ‘taxing’ issue of brownfield redevelopment

This article is the third in our Downtowns: Onward and Upward series, which explores downtown revitalization issues and strategies.

In Ontario, Places to Grow has put emphasis on urban intensification and downtown revitalization. Yet, downtowns are not blank canvasses and accompanying the documented decline of many North American downtowns, buildings have fallen into disrepair or sit vacant, relics of a previous era. As such, brownfield redevelopment is one of the critical strategies to promote downtown renewal and revitalization.

Brownfields are considered to be undeveloped or previously developed properties that may be contaminated, and are usually (but not exclusively) former industrial or commercial properties that may be underutilized, derelict or vacant. According to the Ontario Real Estate Association (OREA), there are an estimated 12,000 brownfield sites in communities across Ontario, many of which are located in or near downtowns. While brownfield redevelopment is seen as having economic, social and environmental benefits, the challenges to brownfield redevelopment are also well-documented in the academic and policy literature. The barriers to brownfield redevelopment include: liability issues (both civil and regulatory), time and uncertainty issues (regulatory delay), market conditions, and access to capital and cost issues. Financial barriers are regularly cited as a significant hurdle to the pursuit of brownfield redevelopment.

Overcoming brownfield barriers

To level the financial playing field between brownfield and greenfield properties, organizations including OREA and the Canadian Brownfields Network (CBN) are proposing a new property tax class for brownfield properties under remediation.   They commissioned a recent study suggesting that the typical brownfield property owner in Ontario would save upward of $200,000 if such a tax policy was introduced.

Would a new property tax class work?

The underlying premise of the OREA/CBN study is that there is a ‘typical’ brownfield scenario, which entails a 3-year remediation and development process of an industrial site. Brian Morris, a recent graduate of the University of Waterloo’s Local Economic Development Program, challenged that assumption in his major research paper, The ‘Taxing’ Issue of Brownfield Redevelopment with Case Studies from Hamilton.

Like many North American cities and towns, Hamilton has a large number of brownfield sites: its industrial past is its urban future. Brian selected six brownfield properties (Table 1) for his analysis. All are contaminated (making them candidates for remediation), and they represent a cross-section of different types of brownfields (e.g. vacant vs. existing buildings or structures, commercial vs. industrial zoning), highlighting the complexities and uniqueness of such properties.

Table 1: Overview of case study sites in the Hamilton area

Brownfields table 1

To understand how well the proposed tax class would work, Brian assessed its performance using actual data from these six brownfield development sites. These data included property assessment values, zoning, municipal and education tax rates, remediation costs, and the estimated cost of proposed redevelopment plans (if any). Using these data, he calculated the annual taxes (municipal and education) generated under the existing and proposed classifications.

He examined if the proposed tax policy measure would generate substantial savings under different scenarios, making several observations about his case studies. First, not all of the properties require re-zoning (i.e. change of land use), which meant the property may take less time to develop and/or may not accrue the additional value often realized through re-zoning. Second, while some properties had existing structures requiring demolition, others were vacant or had structures that were suitable for adaptive reuse, again altering the remediation and development timeframe. Third, there were cases where owners indicated no interest in re-development. Finally, the sites were not all subject to industrial zoning and were varied in size, meaning that the rate and amount of tax generated (or saved) varied as well. This type of sensitivity analysis allowed him to figure out if and when the proposed tax class would actually generate the level of savings claimed in the earlier OREA/CBN study.

Proposed tax policy underperformed  

Overall, Brian’s findings suggest that significant cost savings would not materialize under the proposed tax measure. He notes:

In each of the six case study properties identified in Hamilton, Ontario, the actual performance of the proposed new tax class for brownfield properties under remediation in terms of savings was lower than the hypothetical or “typical” brownfield scenario as proposed by the CBN and OREA at $201,201 over a three year development process. One of the glaring conclusions from this study is that brownfield properties are vastly different from property to property, come in a wide range of sizes, complexities, market conditions and statuses, and cannot be classified in a “typical” sense (emphasis added).

Moreover, he suggests that such measures – whether replacing or augmenting the Province’s existing Brownfields Financial Tax Incentive Program (BFTIP) – would not directly address one major barrier to successful brownfield redevelopment: the lack of up-front financing for remediation activities.

Like with any study, assumptions have to be made and there is room for further research. However, one thing is clear: it is important to get the financial incentives right. Policies addressing brownfield redevelopment, an important downtown revitalization strategy, need to recognize the diversity of brownfields in their design.

About the authors

Dr. Tara Vinodrai is Director of the Local Economic Development graduate program at the University of Waterloo and Assistant Editor of the Higher ED Blog. She is an expert on urban and regional development, innovation and clusters, and the creative/cultural economy. Her Twitter handle is @TaraVinodrai.

Brian Morris completed his Major Research Paper under the supervision of Dr. Markus Moos from the School of Planning at the University of Waterloo. He currently works as a Business Development Consultant for the City of Hamilton.

About the series

Higher ED: Insights for the Next Economy is a platform for students, guest speakers, staff and faculty of the University of Waterloo’s professional and graduate economic development programs to share knowledge with the field at large. The series takes works destined for an academic audience and reworks them into a fresh, easy-to-digest blog article.

Established in 1988, the Local Economic Development program is the only master’s program in Canada devoted solely to local economic development. It offers a balance between theory and practice by combining coursework, a major research paper, an internship, and weekly seminars featuring guest speakers. Students are prepared for careers in local, community, or regional economic development.

The Economic Development Program is a nationally-accredited provider of professional training. It delivers certification programs and seminars that offer a deep understanding of the Canadian context in a convenient block format. Peer learning is combined with informative lectures and practical case studies to provide dynamic instruction that is beneficial for junior and senior-level practitioners.

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