Regional Municipality of Halton: Economic Development Strategy Discussion Paper #1

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1 Regional Municipality of Halton: Economic Development Strategy Discussion Paper #1 Business Growth: Economic Development and Employment Lands

2 PREFACE This series of Discussion Papers was produced for the Regional Municipality of Halton (Region) in order to solicit input from key stakeholders, the business community and residents on the strategic directions for economic development within the region over the next decade. This feedback will assist the Region in creating a common vision to further stimulate business growth and development in Halton through coordinated and enhanced economic development servicing and programs. Recognizing that economic development is primarily realized through the growth and intensification of the business community, each Discussion Paper will focus on what has been identified as a key driver of business growth and development within Halton. The Discussion Papers will present the issue, describe the current landscape and offer commentary on challenges, options and available courses of action to address each issue. A series of questions are then asked of the reader to solicit valuable input into the strategic planning process. Discussion Paper # 1 Business Growth: Economic Development and Employment Lands Discussion Paper # 2 Business Growth: Existing and Emerging Economic Sectors Discussion Paper # 3 Business Growth: Investment Attraction and Retention Discussion Paper # 4 Business Growth: Entrepreneurship and Innovation Discussion Paper # 5 Business Growth: Quality of Place and its Influence on Economic Development Discussion Paper feedback will be considered by Halton Region and incorporated into the collective vision and guiding principles of the Region s Economic Development Strategy. These Discussion Papers are designed to generate discussion around future directions in economic development at the Regional level. 2

3 Issue The growth of export-based business sectors is very important to a municipality s sustainability and success. Shovel-ready employment lands are a critical tool to retain, expand and attract export-based businesses. The guiding principles introduced in the Province s Growth Plan for the Greater Golden Horseshoe (Places to Grow) stress the importance of creating vibrant and complete communities which support a strong and competitive economy. To achieve these goals, communities must strive to provide a healthy mix of both local population and employment growth. As the largest contiguous urban area in the province, as well as the centre of much of the economic activity in Canada, the Greater Toronto and Hamilton Area (GTAH) and many of the municipalities located within the Outer Ring of the Greater Golden Horseshoe (GGH) are well positioned to attract future residents, largely through continued net migration. However, residential growth alone cannot sustain an economy over the longer term. Areas throughout the Sun Belt in the U.S. like Phoenix or Las Vegas are prime examples of the extreme end of the spectrum. Population growth and associated residential construction was the base upon which those economies were built. The most recent recession and credit market volatility has revealed just how crippling an over-reliance on residential expansion and population-related industries like retail and personal services can be to an economy. Non-residential and non-retail development provide the key to creating balanced, complete, and sustainable communities. The continued growth in a region s basic or export-based economic sectors is critical to the continued prosperity of the region. These include uses such as advanced manufacturing, business services, logistics/distribution, and to some extent construction. Increasingly the discussion around growing basic employment is beginning to include opportunities in the emerging industries that are part of the knowledge-based economy, such as green/clean technology and life sciences/biotechnology. Many of the knowledge-based employment clusters which are found across the GTAH have also experienced strong employment growth over the past decade in Halton Region. For the manufacturing and goods producing sectors, there is a growing interdependence between manufacturers and their suppliers and/or distributors across the GTAH and beyond. This trend, combined with increased outsourcing of manufacturing production to emerging global markets, continues to drive the need for new consolidated, landextensive warehousing facilities in competitively priced markets (typically located in greenfield areas) to store and manage the distribution/transportation of goods produced both locally and imported from abroad. As a result of this trend, Halton Region has experienced significant growth within the logistics and distribution sector over the past 10 years. Over the next 10 years, the growing employment clusters identified above, along with niche manufacturing sectors related to energy and technology, are expected to drive the Halton Region economy. 3

4 Importance of Employment Lands Non-residential growth pays for itself and as such, the continued growth in the export-based economy is critical to the continued prosperity, economic expansion and fiscal sustainability of Halton Region. The benefits related to the growth of an export-based economy are far reaching. These include: increased non-residential tax assessment and positive net fiscal benefits for the municipality the costs of maintaining residential development from a community s perspective (i.e. community services, water and wastewater infrastructure) far exceed the revenues generated as shown in the following studies. o The City of Toronto collects an 80% profit on its industrial assessment, where it experiences a 40% loss on residential taxes collected 1. o In Red Deer County in Alberta, every dollar generated from commercial taxes costs $0.74 in services and every dollar generated from industrial taxes costs $0.09 in services. Every dollar generated from residential taxes was costing the county $1.81 in services residential development was costing the County 99% more than it was generating 2. employment diversity and spin-off employment (i.e. employment multipliers) for every $1.00 of GDP generated within the manufacturing sector in Ontario, there is an additional $1.06 in GDP created throughout the supply chain 3. For a non-basic sector like retail trade, every $1.00 generated creates only $0.17 of induced impacts 4. increased potential for high quality, skilled full-time employment induced economic impacts associated with local job growth and wealth creation improved opportunities for live-work employment thereby reducing commuting dependency and traffic congestion improved socio-economic conditions and quality of place. In Halton, economic growth in export-based businesses also typically generates a positive net fiscal impact (i.e. revenues less expenditures) on the regional and local municipal tax levy given the relatively lower municipal operating expenditures associated with industrial uses when compared to residential development. This benefit is typically most pronounced in industrial sectors which produce a high ratio of gross floor area to employment. 1 Kultenbrouwer, P. (2006, May 13). At what point has it gone too far? For some, the conversion of industrial areas into condos is already hurting Toronto. The National Post. 2 Greenway, G. And Sanders, S. (2006). The Fiscal Implications of Land Use: A Cost of Community Services Study for Red Deer County. 3 Statistics Canada. (2005). Provincial Input-Output Multipliers. 4 Ibid. 4

5 In metropolitan markets, maintaining a healthy supply of employment lands and buildings on these lands is fundamental to providing competitive local export-based employment opportunities. Employment lands provide the land base necessary to accommodate both large and small industrial and commercial office uses. For both international and locally-based industries, Halton s employment areas have a strong appeal given their proximity to major regional infrastructure, including the Toronto Pearson International Airport, 400-series highways, inter-modal facilities, rail, proximity to the U.S border, and access to skilled labour and post secondary institutions. Notwithstanding the above, Halton Region is in proximity to a number of large suburban municipalities within Peel, York Region and other GGH municipalities, which it competes directly with, for business attraction and retention. All of these municipalities generally offer regional attributes which generally appeal to prospective international and local end users and developers. The degree to which Halton Region can capitalize on its regional location advantages will depend largely on the local competitiveness of its employment lands. The most marketable and competitive employment areas are planned within well-defined employment precincts that offer a broad range of vacant, serviced, developable and available (i.e. for sale/lease) lands by site size, configuration, access, exposure, price, quality/suitability of vacant building space, zoning, local amenities and surrounding land uses. To a large degree, many of these local site selection factors are dictated by the Region and its local municipalities. Current State in Halton Halton Region and Local Municipalities work with the private sector to provide the services that create locations for business growth. In May 2006, Halton Region launched the Sustainable Halton initiative, aimed at conforming its Official Plan to the Provincial Policy Statement (PPS, 2005), the new Greenbelt Act, and Places to Grow Act. In 2009, Regional Council approved ROPA 37, an amendment that would incorporate the basic requirements of the Places to Grow plan, including the broad policies necessary to maintain and protect employment lands and create a complete community in Halton Region. The more comprehensive ROPA 38 was approved by Regional Council in December 2009, and partially approved by the Ontario Ministry of Municipal Affairs and Housing (MMAH) in October ROPA 38 directs Halton Region to work with its municipalities to ensure a 10-year supply of employment lands across the Region at all times, consider strategic investment in infrastructure to enhance the timely development of employment lands, and protect employment lands for economic development during the planning period to 2031 and beyond, including proposed future strategic areas outside the urban boundary. The plan is committed to ensuring there are designated employment lands available to accommodate non-residential tax assessment. Much of the current state in Halton Region can be attributed to the larger trends in the industrial and office markets throughout the GTAH. From 2003 to 2007 there was strong growth in industrial development, which slowed considerably in 2008 to 2010 due to the recession. Construction permit values suggest this was also the case in 5

6 Halton. In recent years, the largest shares of industrial development across the GTAH have been in wholesale/transportation and logistics, as well as multi-tenant industrial condos. The office market was similarly strong from 2003 to 2007, but was not affected by the recession as severely as the industrial development market. However, vacancy rates rose during the recession and remain particularly high in the western GTAH due to decreased demand and continually rising supply. Much of the recent office development in the GTAH has been concentrated in financial and business services. Throughout the recession however, land values in Halton have remained strong and are recently experiencing a surge in sales activity. In December 2007, there were 8,491 business establishments 5 across Halton Region engaged in sectors which are predominantly export-based 6. This accounted for 57.8% of all business establishments across the Region. By June 2010, the number of establishments had increased to 9,052, but remained a relatively comparable 57.3% of the total establishments 7. Growth was primarily in transportation and warehousing, professional/scientific/technical services, finance and insurance, administrative and support, waste management and remediation services, and real estate and leasing. Investment in new construction and existing facilities slightly favoured more professional or commercial office-type industries. Challenges to Business Growth There are many external factors that control the economy. Employment land is a key attribute which a municipality can exercise some influence and control over and shape the direction and amount of growth. Many economic development programs are focused primarily on two goals: providing local residents with highquality employment opportunities and generating revenue for the municipality through increased tax assessment. One of the key challenges for Halton Region regarding the future development of its employment lands relates to the macro economic trends that the Region cannot control such as: strength of the global recovery and international trade flows and investment state of the U.S. economy relative strength of the Canadian dollar. These challenges have potentially profound effects on the economic development of Halton Region, especially in terms of industrial developments and expansions based on demand for products (manufacturing) or movement of products (transportation and warehousing). Similarly, any additional office investment from domestic companies servicing global markets or multi-national companies looking to build a presence in the GTAH has the potential to be affected. 5 Excluding indeterminate establishments or non-employers 6 Statistics Canada (2007). Canadian Business Patterns Data. 7 Statistics Canada (2010). Canadian Business Patterns Data. 6

7 In many respects Halton s success will be tied to the success of the GTAH as a whole. The physical challenges facing the GTAH traffic congestion, aging GTAH infrastructure and other regional infrastructure constraints or shortcomings have the potential to impede growth in Halton. Growth in transportation, distribution, logistics, and wholesaling across the GTAH poses a challenge as well as an opportunity. Growth in these sectors provides key basic non-residential investment and employment as well as tax assessment, but facilities within this sector often require large parcels of land and employment densities are often low as a result. The work done in the Sustainable Halton, Fiscal Affordability Analysis, prepared by Watson & Associates, is based on both residential and non-residential development being built by 2031 at the densities specified in ROPA 38. It converts higher density employment projections into potential buildings and taxable assessment and revenue. If more residential development occurs than non-residential growth, compared to the ROPA 38 projection figures, in time there will be unforeseen negative fiscal impacts on both Halton Region and the Local Municipalities. This is a notable reason for a vigorous economic development strategy to support business growth. The ability of planning policy to make significant impact on overall employment density through targets, intensification/infill requirements, and land use restrictions remains to be seen, but may prove to be a considerable challenge for GGH municipalities, including Halton Region. While such policies may re-distribute land extensive employment uses geographically within a municipality or even from one municipality to another, it is unlikely that overall density levels on employment would substantially increase at an upper-tier municipal level as a result of such policy efforts. Furthermore, given the importance of low-density employment uses in the warehouse, distribution and transportation sector to the Ontario manufacturing economy, broader geographic land use restrictions in this sector would not be economically viable. On the other hand, while market trends continue to force overall employment land density levels downward, planning policies can be useful in encouraging and re-directing higher density employment uses along transitsupportive nodes and corridors. Such policy initiatives can also restrict specific employment land uses to geographic areas which are best suited for certain development types. In turn, this can enhance the economic viability, competitiveness and functionality of employment areas. In many of the new and emerging areas of the economy there is an increased presence of small to medium-sized businesses. In many ways it is the small or medium sized business that will drive growth in different areas of the economy. In areas like manufacturing, it is becoming increasingly common for less labour intensive operations to make up a larger share of the sector. For example, the number of manufacturing establishments employing less than 50 people grew from 83% of all establishments across Ontario to 85% from December 2007 to June The number of establishments employing less than 20 grew from 68% to 71%. Other sectors are increasingly being dominated by smaller, less vertically-integrated firms as well as companies that are moving immediately into foreign markets without the traditional transition from supplying a domestic market and growing to eventually service export markets. 7

8 Businesses in emerging sectors often require fundamentally different building and land needs than businesses that came before. All of these factors have potential implications regarding the absorption of vacant industrial/office space, underutilized lands/redevelopment areas, and vacant lands. The challenge for Halton and its lower-tier municipalities is to develop policies, tools and incentives related to the retrofit or redevelopment of existing spaces and underutilized lands to encourage growth and absorption in both established and greenfield employment areas. Opportunities and Actions for Economic Development Halton Region will grow its export-based business sector with the right policy environment that ensures the availability of employment lands. Diminishing opportunities for greenfield employment land development across many mature areas of the GTAH including Toronto and Peel are creating opportunities for non-residential development in Halton. As such, the Region and its local municipalities need to ensure that an ample supply of designated employment lands by site size, location, access/exposure, etc., are serviced, zoned, and available (i.e. for sale/lease). As a starting point, an inventory of investment-ready employment lands is required and can be developed by the Region of Halton in conjunction with each of the local municipalities. Over the Region s medium-term planning period (i.e ), it is recommended that the Region and each local municipality monitor its current employment lands inventory at minimum, every five years to determine when and how much additional investment-ready employment lands are required to accommodate forecast demand. Overall, new policies, tools and incentives need to be developed that will accommodate a systemically different and restructured economy from what has existed previously. While not an exhaustive list, example tools, policies and incentives, which support economic development on employment lands within the new economy could include: Policies that support Small Medium Enterprises (SMEs) and entrepreneurs, which form an integral part of the emerging knowledge-based economy (live-work policies, adaptive re-use of old buildings) Development of business incubators or programs designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services Innovative use of Community Improvement Plan (CIP) policies, including the retrofit of existing industrial buildings for smaller users or the revitalization of key economic areas (e.g. downtown, older industrial districts) Financial incentives and tools which encourage redevelopment of existing or underutilized sites, ecoindustrial development and reduced energy consumption Policies which ensure that each of the local municipalities across the Region maintain an ample supply of investment-ready employment lands at all times including the development of an employment lands inventory and monitoring system 8

9 Evaluation criteria which measures the fiscal and socio-economic benefits of industrial/ commercial development against environmental and social economic impacts The development of a standardized framework and evaluation criteria for reviewing employment lands under conversions pressure to non-employment uses Consideration of land assembly by the public sector where key properties are holding up consolidation, servicing and development The promotion of the Region s competitive position by preparing a market profile which includes a GISbased inventory of its employment lands (in both hard copy and web-based format). Preparation of regional marketing materials for sectors that fit the different characteristics of the employment areas and development of a combined investment attraction staff alignment with the Local Municipalities to undertake company contact. This is discussed further in Discussion Paper #3 Business Growth: Investment Attraction and Retention. Discussion Questions 1. Do you feel the issue presented here is important to a Halton Region Economic Development Strategy (rank from 1 to 10, with 10 being highest)? Explain. 2. Do you feel the Current State is correctly described (rank from 1 to 10, with 10 being highest)? Explain. 3. Do you feel the Challenges to Business Growth are correctly described (rank from 1 to 10, with 10 being highest)? Explain. 4. What are the key weaknesses of Halton s employment areas? In what aspects do you feel Halton s employment lands are not competitive when compared to the surrounding market area? 5. How can Halton ensure that it stays/becomes a competitive destination for industrial and office development? 6. What policy measures, tools or incentives should be considered a priority to enhance the competitiveness of Halton s employment areas? 9

10 For more information, contact Halton Region Dial 311 or Toll free HALTON ( ) TTY