Development fund's fate sparks debate

Mon, May 15, 2006

By JONATHAN SHER, FREE PRESS CITY HALL REPORTER



London should scrap a troubled development fund before its problems cripple construction in the city, Deputy Mayor Tom Gosnell says.

His comments came after a three-person panel chosen by the city and developers met for the first time Friday to discuss the future of the city's Urban Works Reserve Fund.

"I hope they won't close their minds to winding down the fund . . . It's at risk of getting out-of-control. How do we ensure we're not left with a financial disaster?" Gosnell said.

But a developers' representative said city hall should stop meddling in a fund that for years has stimulated growth and competition.

"I don't believe city council is in the position to understand the market," said Stephen Janes of the London Development Institute (LDI).

A recent city report concludes the fund, bailed out by taxpayers in the 1980s, is in worse shape than forecast.

The fund is supposed to enable developers to pay back bank loans more quickly for work such as turning lanes and sewage treatment. Developers borrow from the fund when such work is complete, then repay the fund, often years later, when building permits are issued.

But claims to borrow are outpacing paybacks, so developers must now wait two years to get money from the fund. The delay will reach seven or eight years by 2008 if nothing changes, city staff say.

An eight-year delay would threaten all but the biggest developers, drive up land prices and put many in the construction business out of work, Gosnell said.

"You end up with a few developers surviving a cash-flow crunch and buying up development for pennies on the dollar," he said.

The threat of job losses then places pressure on council to bail out the fund, he said.

Gosnell said the fund also allows developers to choose when and where to develop, a job that should fall to city hall.

When times are good, the fund acts as a stimulant, but when the economy sours, the fund accelerates the collapse, he said.

"We have to make tough decisions about what areas go ahead with development and what areas don't," he said. "We have to look at return on investment knowing we can't grow in every direction at the same time."

Janes challenged Gosnell's position over the weekend.

"I don't think Tom has the fullest understanding of the program, with all due respect to Tom," Janes said.

Developers should decide when and where to develop, he said. If construction collapses it will be developers -- not taxpayers -- who suffer, he said.

Small developers support the fund, too, he said.

The fund keeps land prices in London lower than in Kitchener and Toronto, Janes said.

But Gosnell says land prices are higher in those cities because demand for growth there is much greater.

The fund boosts land prices in London, at least on land that is expensive to service, because developers end up borrowing more from the fund than they pay back, he said.

The threatened collapse of the fund gives ammunition to those who want to see development stop, Gosnell said.

"The proponents of no growth are delighted."

The review panel consists of a Toronto lawyer who does work for developers, an engineer with Dillon Consulting and a Kitchener planner. Their work is expected to be completed by September.