The City of Winnipeg plans to launch an internal review after auditors discovered a local developer was able to collect
$250,000 by effectively double-charging property owners for land-drainage work.
In a damning report, city auditors uncovered a total of eight cases where developers used an obscure mechanism called an
“inside-development local improvement” to collect money from property owners without providing anything in return.
The auditor’s report, published by the city late Friday, looked into Winnipeg’s local improvement process, which allows
citizens or developers to initiate construction projects that otherwise wouldn’t be included in the city’s infrastructure
plans. Local improvements typically involve small projects, such as sidewalk paving or decorative street lamps.
Under a local improvement, the city or a contractor conducts the work up front and adds the cost to property tax bills. City
auditors examined 148 such improvements between 2005 and 2009, including 84 initiated by developers.
In eight of these cases, developers — none identified by name — received city approval to begin local improvements for
land-drainage work on parcels of land owned entirely by the developer. In these cases, the eventual buyers of the properties
had no idea they would begin paying additional property taxes and got nothing in return, the auditors contend.
“Under the arrangement in question, the sole benefit of the tax goes to the developer because all of the local improvement
taxes are remitted back to the developer,” audit manager Bryan Mansky writes.
“We believe it is quite reasonable to assume that the final property owner may pay for the cost of the infrastructure
elements twice: once in the lot price and then again through the local-improvement taxes imposed.”
He and his fellow auditors “were unable to ascertain the reason for this type of arrangement,” which does not appear to exist
in other Canadian cities.
Even in Winnipeg, “inside development local improvements” are rare. The city approved no such arrangements between 1975 and
2002, when a developer succeeded in imposing extra taxes to pay for land-drainage sewers at a downtown infill project, the
auditors write.
The same developer requested this clause be added to development agreements seven times between 2002 and 2006. That year, a
city property official finally challenged a request for a local improvement levy on land-drainage sewers for a new
subdivision.
Land drainage is considered basic infrastructure, not an improvement, the official argued. But the developer successfully
argued a precedent had been set.
The developer also said the arrangement would make the resulting properties more affordable for young families. Auditors
found this wasn’t the case, since the properties were eventually assessed at $340,000, well beyond the range of many
first-time homebuyers. There was also no evidence the tax was used to reduce the price of the lots.
In this one instance, the developer gained an additional $250,000 after each homebuyer was slapped with an additional $2,036
worth of property taxes. This cost should have been included in the lot price, the auditors suggest.
“Since the installation of the basic infrastructure elements was already specifically required by the development agreement,
there is no additional benefit provided to the new property owners,” the report states.
City auditor Brian Whiteside declined to name the developer. The only way purchasers of his properties would know they were
about to pay for basic infrastructure twice was if their lawyer phoned Winnipeg’s senior local improvement clerk, the
auditors write.
Council was also left in the dark. The auditors found eight cases where the “inside-development” clause was added to
development agreements without council approval.
City council property chairman Jeff Browaty (North Kildonan) said the city will probe all of these cases and pledged to head
the review.
“If at some point council didn’t know about it, that’s a problem,” he said, but he also said individual city councillors
“sometimes do their own thing” with developments.
Browaty declined to name those councillors.
The property chairman also said he knows of Winnipeg subdivisions where all of the basic infrastructure has been put in as
local improvements. New standards must be created to improve transparency, he said.
“If at some point in time a purchaser is purchasing a property and there’s something they’re not being told openly and
honestly and the assessment hasn’t come through, that’s also a problem,” Browaty said. “We’re going to make things a little
more consistent across the board.”
The auditors’ report came before city council’s executive policy committee in July 2010, but Mayor Sam Katz’s inner circle
chose to lay it over until November. EPC approved the report on March 16. It comes before council as a whole on March 23.
http://www.winnipegfreepress.com/local/property-owners-dinged-twice-118349194.html
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