A sudden end to the tax break controversy you never heard about

Ottawa's mayor has given up on a campaign promise to axe a contentious tax break for developers.

Mayor Mark Sutcliffe's platform confidently foresaw the end of the brownfields grant, which provides financial incentives for developers to clean up and build on contaminated land, claiming the move would "protect revenue the city has given up."

But persuading councillors proved too difficult.

"I'm not a fan of these kinds of programs, but I also have to work with my council colleagues and achieve consensus," Sutcliffe said. "I think we found a place that we could all live with."

He told CBC the process to find that place was long and "tricky," alluding to protracted political debates that have at times threatened to turn as toxic as the former city dumps and abandoned gas stations staff hope to see rehabilitated.

Yet at some point in the past few months, behind-the-scenes negotiations persuaded even the staunchest among the program's critics to see the latest changes as a win.

Sutcliffe also stressed that his campaign pledge should be viewed as an intention to review the program rather than to cancel it, saying "at the very least I wanted to see that the focus would be tightened around our priorities."

Mayor Mark Sutcliffe included a pledge to eliminate these grants in his 2022 campaign platform. (Mark Sutcliffe Platform 2022)

What is a brownfield anyway?

Ottawa views itself as a pioneer in this sort of incentive program.

From 2007 until this council paused the program in 2022, the city approved 69 applications with a combined value of $161 million.

But developers don't receive a one-time windfall. Money is doled out over time from the portion of property taxes they pay to the city, over and above what it collected before the lot's value jumped.

Sutcliffe says he's 'not a fan' of the program, but feels the compromise is something everyone on council can live with. (Jean Delisle/CBC)

City staff have long argued this program is a money-maker because the post-development injection can reawaken a dormant property.

"If there's nothing there, it's not going to be generating much in taxes for the city at all. But if we can get that cleaned up and then redevelop that into housing, the city can then charge a higher tax rate," explained Coun. Glen Gower. "Then we would refund a portion of that to the developer as the incentive."

That argument has a potential fault, according to critics who wonder if developers would move forward with construction projects without the city's generosity and, as the mayor once suggested, rob taxpayers of that potential revenue.

It's more than just a thought experiment. Major developers have become so used to this program formula that it's cooked into their project models.

While staff recognize the issue, consultants have advised the city that there is no way to craft an application process to weed out the not-so-needy.

Stittsville Coun. Glen Gower says the program changes are targeted at speeding up new housing. (Jean Delisle/CBC )

A thorny issue 

The political heat behind this issue stems from an age-old conflict: cities rely on developers for progress, but politicians want to avoid appearing to be in a company's (very deep) pockets.

Multi-million-dollar awards for major developers to prepare land for shopping mall expansions or big box stores raised questions, but it was councillors greenlighting a $2.9-million grant for a Porsche dealership through a sister program that lit the flame of public dissent.

Through its brownfields grant policy, the city gave $3.2 million to Rideau Centre owners Cadillac Fairview for its $360-million expansion of the downtown shopping centre. Projects without a housing component will no longer be eligible. (Architectural renderings courtesy of Rideau Centre)

Staff spent months working on recommendations to remould a program they already see as successful, eventually coming up with a plan to pull it closer to council priorities by limiting grants to affordable housing projects.

That culminated in a chaotic council meeting in November.

Downtown councillors Shawn Menard and Ariel Troster unsuccessfully lobbied for a $20-million annual limit for the suite of tax incentive programs that includes the brownfields grant.

Gower, backed by fellow suburban councillor Matt Luloff, pitched a plan to somewhat widen the program's scope while introducing a new financial cap. That foray lost by a single vote.

As councillors prepped for their final vote, a last-minute strategy to separate two recommendations successfully quashed most — but not all — of the staff-recommended program changes.

The result was a decision so unexpected that top planning brass gathered for an immediate huddle outside the chambers, confused that the program seemed destined to come through the review unscathed.

But when the outcome was scrutinized by the legal department, it failed to pass muster.

"We decided we need to go back to the drawing board, listen to what some of the different concerns were around the council table and try to rewrite this policy," said Gower, noting the rarity of the situation.

It's all about housing

What came out of those discussions is a policy limited to projects that include housing, with incentives that scale up with the addition of affordable housing, or affordable housing that's close to transit hubs.

There's also a new $3-million project cap and an 18-month "use it or lose it" provision.

"The goal is to encourage more homes to get built faster," said Gower, whom Sutcliffe credits with helping forge the path toward a compromise.

Council overwhelmingly endorsed the plan, passing the new requirements with only two councillors dissenting: Troster and David Hill.

The Greater Ottawa Home Builders' Association told CBC it's very happy the program has been reinstated, although it reserved an unfettered endorsement until after members have gone through the new application process.

Mike Moffatt, a housing economist with the Smart Prosperity Institute and former economic adviser to the federal Liberals, says high interest rates have put major projects on pause. (Submitted by Mike Moffatt)

The strategy is also endorsed by the country's top housing experts.

Mike Moffatt, a housing economist with the Smart Prosperity Institute and former economic adviser to the federal Liberals, said taxes are a huge cost to construction.

"If we're trying to encourage our developers not to be building on farmland, but instead build on these sites that are a little bit more difficult to build on, then I think it makes sense to create those incentives," he said.

Encouraging infill housing projects has benefits to both cities and residents by eliminating the need for new and expensive infrastructure such as sewers, parks and schools, Moffat explained.

Councillors applaud the progress, but will it work?

If the decision had been solely up to him, Sutcliffe said he would have tightened the reins even further.

He's not the only one.

"We're seeing some progress now," said Menard. "I would have liked to go further, but the progress we've made is still positive."

In the end, Menard still views this as a "large city giveaway" without proven benefit.

Will this be the shot in the bank account developers need to stop sitting on valuable real estate? He's not convinced.

"This was always a pretty light incentive," Menard said. "I don't think it's going to be persuading people to move faster."

Capital Coun. Shawn Menard calls limiting the criteria for housing projects is a win, but he remains uncomfortable with the program. (Natalia Goodwin/CBC )

It's clear from the market that many developers are sitting on properties, largely due to exceptionally high interest rates.

"Developers simply cannot make money given those financing costs," said Moffatt, who adds that in this environment tax breaks are a government tool that just "makes sense."

The months-in-the-making compromise had all the right ingredients to become politically palatable. Now it's time to see if this incentives recipe is enough to feed the housing market.

Gower rejects the idea that the program has been watered down, even if $3 million is a small slice of the multi-million-dollar pricetags of many redevelopment projects.

"It is meaningful," he said. "And if it could end up saving people, you know, a renter, a few hundred dollars a month once this project is built, then I think it's easy to show that benefit."