| 132643 | REPORT | N | N | MAIN | ACTION | ADOPTED | N | Review of the Imagination, Manufacturing, Innovation and Technology Property Tax Incentive Program | 2024.EX11.6 | Y | Y | Y | Y | <p>The General Manager, Economic Development and Culture, the Interim Chief Planner and Executive Director, City Planning, and the Chief Financial Officer and Treasurer recommend that:</p>
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<p>1. City Council direct the Chief Planner and Executive Director, City Planning, in consultation with the General Manager, Economic Development and Culture and the Chief Financial Officer and Treasurer, to bring forward for City Council’s consideration, targeting Q4 2024, a new City-wide Community Improvement Plan (CIP) for a Financial Incentive Program consisting of development grants, in the form of Tax Increment Equivalent Grants (TIEG) for certain defined uses and Brownfield Remediation Tax Assistance, substantially addressing the policy considerations in this report and the program parameters detailed in Attachment 1, including with respect to:</p>
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<p style="padding-left: 30px;">i. eligible uses – no eligibility for office space, except when linked to associated industrial buildings and except in limited circumstances within designated Employment Areas as defined in Toronto's Official Plan;</p>
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<p style="padding-left: 30px;">ii. basis for the provision of TIEG – grant acts as one of several factors contributing to investment decisions, not necessarily the primary decisive factor;</p>
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<p style="padding-left: 30px;">iii. quantum and term of TIEG – basic grant equivalent to 60 percent of the municipal tax increment payable over a five-year period;</p>
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<p style="padding-left: 30px;">iv. approval and financial control requirements - all applications to be approved by City Council and considered as a group no less than once per year; provisions to ensure approved projects are built within certain timelines; expiry of the program after 10 years; inclusion of a program budget target or upset limit with flexibility to address exceptional projects or circumstances; etc.</p>
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<p style="padding-left: 30px;">v. local employment plan requirements; and</p>
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<p style="padding-left: 30px;">vi. mechanisms to support City goals related to sustainability, job quality and access, and community wealth building.</p>
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<p>2. Until such time as any new Community Improvement Plan by-law indicated in Recommendation 1 above is approved and in force, City Council direct the General Manager, Economic Development and Culture, the Chief Planner and Executive Director, City Planning and the Chief Financial Officer and Treasurer to bring forward, no less than annually, as a group: (i) for Council’s information, notice of any IMIT development grants approved by the General Manager, Economic Development and Culture under their delegated authority for projects meeting all program eligibility requirements and with a construction value of less than $150,000,000; and (ii) for Council’s approval, any complete applications for IMIT development grants for projects with a construction value greater than $150,000,000.</p>
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<p>3. City Council request the Chief Planner and Executive Director, City Planning, in consultation with the General Manager, Economic Development and Culture, as part of the Office Space Needs Study to explore opportunities to provide financial incentives, policies and other options to support the conversion or adaptation of vacant office space into other non-residential employment uses, including the potential to utilize as a funding source for such efforts savings from lower than forecast TIEG payments to office developments covered by an IMIT Program Financial Incentive Agreement (FIA) experiencing high vacancy rates.</p> | <p>Approved IMIT Applications and Projects</p>
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<p>Forty of 74 projects approved for an IMIT development incentive since the Program’s inception have completed construction, are either partially or fully occupied, and have received or are currently in receipt of IMIT grants over a 10-year (or with BRTA up to 12-year) period. The other 34 approved projects have either not yet completed construction or have not signed a Financial Incentive Agreement (FIA) based on the updated Current Value Assessment (CVA) of the improved property (as assessed by MPAC), post construction or major renovation.</p>
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<p>Together, these 74 projects are forecast to yield $1.3 billion in new incremental property tax revenue during the 10-year (or with BRTA up to 12-year) term of their FIAs, while collectively receiving $729 million in grants from the City, resulting in a net revenue gain for the City of $571 million via increased municipal tax proceeds.</p>
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<p>As of December 2023, the City had disbursed or provisioned $269.45 million of the forecast $729 million in IMIT grants, with a further $50.1 million in grants projected to be issued in 2024.</p>
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<p>As shown in Table 1 below, for projects approved to date, the amount of IMIT grant payments the City will need to make in any given year will peak at $61.3 million in 2025 and then decline each year until 2037. From 2038 onwards, the City will retain the full incremental property tax payable on each of the 74 developments, resulting in net new incremental tax revenue of $110 million each year.</p>
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<p>Table 1: Estimated Net New Tax Revenues of Approved Projects (2011-2037)</p>
<p>(Refer to page 4 of the report (January 16, 2024) from the General Manager, Economic Development and Culture, Interim Chief Planner and Executive Director, City Planning, and the Chief Financial Officer and Treasurer)</p>
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<p>The above projections for payable IMIT grants are based on full occupancy of the new or improved employment space associated with each development and assumed continued compliance with Program requirements. However, the value of grants payable through 2037 could be as much as $40 million less than forecast, if IMIT beneficiary office projects entering the payment cycle experience high vacancy rates.</p>
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<p>Other IMIT Applications Received and Under Review</p>
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<p>Under the existing IMIT CIP by-law, applications for projects with an estimated construction value above $150 million require City Council approval. Council can exercise discretion to approve or refuse these applications based on its determination of whether granting or denying the application aligns with the City’s interests. Those projects with an estimated construction value below $150 million must meet eligibility criteria to be approved by the General Manager, Economic Development and Culture under delegated authority from Council.</p>
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<p>IMIT applications are required to be assessed according to the criteria set out in the applicable IMIT CIP by-law in effect at the time the application was initiated. </p>
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<p>As of December 2023, the City had received and is reviewing IMIT financial incentive applications for 17 projects at different stages of application completeness. These applications are at various stages in the review process, as described in Table 2 below. Were they all to be approved, these applications would result in significant financial commitments up to $329 million in the form of property tax incentives collectively over their 10-year (or with BRTA up to 12-year) grant terms. However, conditions in the local real property market appear to be slowing if not jeopardizing the viability of some of the projects, although final determinations can only be made following the full application assessment process. Of the applications for these 17 projects:</p>
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<p style="padding-left: 30px;">- Five projects have an estimated construction value exceeding $150 million:</p>
<p style="padding-left: 30px;">Third-party review for 3 of these 5 projects (in East Harbour) has been completed and will be brought forward for City Council consideration in early Q1 2024. The cumulative anticipated grant value of these 3 projects, if approved, would be $230 million.</p>
<p style="padding-left: 30px;">Third-party review for the remaining 2 of these 5 projects is in progress, with City Council consideration expected in late Q1 or Q2 2024. The combined anticipated grant value of these 2 projects, if approved, would be $48.6 million. </p>
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<p style="padding-left: 30px;">- Nine projects have a construction value under $150 million and are considered active but their applications may or may not be deemed complete or be approved. The combined anticipated grant value of these 9 projects, if approved, would be $32.8 million.</p>
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<p style="padding-left: 30px;">- Three other projects have a construction value under $150 million but are currently deemed inactive due to a lack of response from the applicant. The cumulative anticipated grant value of these 3 projects, if approved, would be $17.6 million.</p>
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<p>As noted, prevailing market conditions may impact the viability of some projects to move forward.</p>
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<p>Table 2: IMIT Applications Under Review</p>
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<p style="text-align: left;"><span style="color: windowtext;">Status | Approval Authority </span></p>
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<p style="text-align: center;"><span style="color: windowtext;"># of Applications </span></p>
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<p style="text-align: center;"><span style="color: windowtext;">Total Estimated </span></p>
<p style="text-align: center;"><span style="color: windowtext;">Grant Value</span></p>
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<p>Construction Value >$150M – Third-Party Review Complete; Council Decision Pending*</p>
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<p style="text-align: left;"> 3</p>
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<p style="text-align: center;">$230 million</p>
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<p>Construction Value >$150M – Third-Party Review in Progress: Council Decision Pending**</p>
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<p style="text-align: center;"> </p>
<p style="text-align: center;">2</p>
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<p style="text-align: center;"> </p>
<p style="text-align: center;">$48.6 million</p>
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<p>Construction Value <$150M – Under Review; GM Economic Development and Culture may approve if all requirements are met </p>
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<p style="text-align: center;"> </p>
<p style="text-align: center;">9</p>
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<p style="text-align: center;"> </p>
<p style="text-align: center;">$32.8 million</p>
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<p>Construction Value <$150M – Inactive</p>
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<p style="text-align: center;">3</p>
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<p style="text-align: center;">$17.6 million</p>
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<p><span style="font-size: 10pt;">*Third-Party review of these applications (East Harbour) is complete. Council consideration anticipated in early Q1 2024.</span></p>
<p><span style="font-size: 10pt;">**Third-Party review of these applications is in progress. Council consideration anticipated in late Q1 or Q2 2024.</span></p>
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<p>Potential Financial Impact of Proposed New Financial Incentive Program and CIP to Replace IMIT</p>
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<p>The new financial incentive program to replace the IMIT Program proposed in this report is more targeted in terms of outcomes sought and offers more financial predictability, administrative controls and Council oversight. Total costs of the new program can be expected to be just 8 to 10% of the costs incurred under the IMIT Program. This notable difference in costs is largely attributed to two factors:</p>
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<p style="padding-left: 30px;">i.Eligible uses – In the proposed new incentive program, there would be no eligibility for office space, except in very limited exceptions where linked to associated industrial buildings or certain highly proscribed scenarios in designated Employment Areas as defined in the Official Plan. Under the current IMIT Program, 84% of grants are attributable to office space.</p>
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<p style="padding-left: 30px;">ii.Quantum and term of TIEGs – In the proposed new incentive program, a basic grant of 60% of the municipal tax increment would be payable over only a five-year period instead of over a ten-year period (i.e. half the time and therefore half the amount of grants paid through the IMIT Program).</p>
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<p>Ultimately, the take-up, costs and benefits of any new development incentive program in the future will depend on prevailing market conditions and corresponding demand for new and upgraded employment space, interest rates, technological changes, and other government policies impacting investment decisions (including with respect to tax rates and development charges), among other factors.</p>
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<p>Program Administration and Financing</p>
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<p>The IMIT Program administration fee is anticipated to generate $907,619 (as of 2023) since it was introduced in 2019 and is estimated to yield approximately $300,000 per year moving forward as previously approved IMIT applications begin receiving grants, while other projects reach the end of their grant term.</p>
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<p>Program delivery costs (e.g. for staffing, etc.) are borne by Economic Development and Culture, offset by the administration fee. Any additional cost to amend the Office Space Needs Study to explore options to support the conversion or adaptation of vacant office space into other non-residential employment uses will be accommodated within the approved operating budget for Economic Development and Culture.</p>
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<p>The Chief Financial Officer and Treasurer has reviewed this report and agrees with the financial impact information.</p> | <p>The purpose of this report is to share the findings of a review of the Imagination, Manufacturing, Innovation, and Technology Financial Incentive Program and the results of a Council directed assessment of the program’s Local Employment Requirement points-based pilot.</p>
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<p>The review of the Imagination, Manufacturing, Innovation, and Technology Financial Incentive Program considered the City’s planning and economic development priorities and financial position (including directions from the Updated Long-Term Financial Plan); assessed current and anticipated market conditions (especially with respect to office and industrial sector requirements); and includes an independent third-party evaluation of the Program’s performance, costs and benefits to date informed by consultation with stakeholders.</p>
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<p>Drawing on the review's findings, this report recommends that Council authorize staff to develop a more targeted and far less costly employment space development incentive to replace the Imagination, Manufacturing, Innovation, and Technology Financial Incentive Program, focused on the development of commercial/industrial space rather than office space, for Council’s consideration, by the fourth quarter of 2024.</p>
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<p>Established in 2008, the Imagination, Manufacturing, Innovation, and Technology Financial Incentive Program has been one of the City's principal measures to incent business development and support job retention and growth, complementing land use planning and property tax policies.</p>
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<p>The Imagination, Manufacturing, Innovation, and Technology Financial Incentive Program provides incentives in the form of Tax Increment Equivalent Grants to support the new construction or major renovation of buildings in targeted employment sectors and for certain uses throughout Toronto. The Program also includes an added grant element for Brownfield Remediation Tax Assistance. The provision of development incentives through Imagination, Manufacturing, Innovation, and Technology Financial Incentive is enabled by a Community Improvement Plan by-law authorized under Section 28 of the Planning Act.</p>
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<p>Typically, projects approved for Imagination, Manufacturing, Innovation, and Technology Financial Incentive Program receive grants over a ten-year period equivalent to 60% of the increased property taxes paid resulting from the new construction or renovation completed through the development.</p>
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<p>Since its inception, 74 projects have been approved for Imagination, Manufacturing, Innovation, and Technology Financial Incentive Program (and/or Brownfield Remediation Tax Assistance) development incentives, with a total construction value of approximately $5.9 billion. Together, these projects are forecast to yield $1.3 billion in new incremental property taxes during the 10-year (or with Brownfield Remediation Tax Assistance up to 12 year) term of their applicable Imagination, Manufacturing, Innovation, and Technology Financial Incentive Program Financial Incentive Agreement, while receiving $729 million in grants from the City, resulting in net municipal tax revenue of $571 million. The majority (84%) of grants issued or committed to date through the Imagination, Manufacturing, Innovation, and Technology Financial Incentive Program are for office space developments.</p> | 11 | 6 | CMMTTEE | EX | All | N | 1707195600000 | … | Report | ACTION | Adopted | Main | Committee | … | … | … | … | … | … | … | … | … | … | … | Decision information not found | false | Adopted | … | … | … | … | — | — | — | — | — | — | — |