Judge orders city to refund millions of dollars in impact fees to Winnipeg developers, homeowners

A Manitoba judge is ordering the City of Winnipeg to refund millions of dollars it collected in recent years through growth fees it imposed on developers, builders and homeowners in new residential developments at the outskirts of the city.

The three-year legal battle between the city and developers who wanted to kill city growth fees came to an end Wednesday.

Court of Queen's Bench Justice James Edmond found it reasonable for the city to think it could impose impact fees on developers based on the authority of council through the City of Winnipeg Charter, which is provincial legislation.

But Edmond ultimately sided with the developers and ordered the city to refund the millions of dollars it recouped through impact fees — plus whatever interest developed while sitting in the city reserve fund.

The city was directed to return those funds to affected developers, builders and homeowners.

Edmond wrote in his 119-page decision, delivered Wednesday, that the fees imposed "a constitutionally invalid indirect tax," and their primary purpose was to generate revenue for the city.

Mayor Brian Bowman had fought to create growth fees since being elected in 2014. Revenue was meant to be spent on public infrastructure projects in new developments, including fire halls, roads, sewers and water mains.

The city started charging roughly $500 for every 100 square feet of new residential space in some neighbourhoods, despite pushback from developers.

At hearings in February, residential developers Ladco and Qualico provided affidavits against growth fees.

During those proceedings, it was revealed the city had collected $30 million through what it termed impact fees. 

'I did not support the mayor': councillor

The city's impact fees never sat well with industry and some city councillors.

"This [was] a very defining moment in my political career, I will say, because I did not support the mayor and the legal team on this decision to apply impact fees," Coun. Janice Lukes (Waverley West) told CBC Up to Speed host Ismaila Alfa after the decision.

Lukes, who was one of three councillors who backed Bowman's rival Jenny Motkaluk in the last election, represents a ward that is among the city's newest and fastest-growing areas. It includes Whyte Ridge, Agassiz, Linden Ridge, South Pointe, Richmond West, Fairfield Park and the Bridgwater neighbourhoods. 

The Waverley West councillor said she supports "everyone paying their fair share," and would even back an impact fee framework — just not the current model.

"There was no connection to the money and growth, and the spending of money related to growth that the impact fees would bring in."

Fees 'aimed at raising revenues': judge

Lukes's take is also reflected in Justice Edmond's decision.

He agreed with the city's position that more costs should be covered by homeowners and business directly benefiting from growth and development. 

But he also wrote that the city's impact fees weren't focused on regulating development, growth, behaviour or how homes are built. 

"Instead, the impact fee is aimed at raising revenues to support the operations and infrastructure of the city as a whole," he wrote.

The system lacks "any definite or clear requirement that the monies collected be tied back to growth caused by the developments from which the monies are collected," Edmond's decision said.

Decision no surprise

City finance chair Coun. Scott Gillingham (St. James) told CBC News the outcome wasn't entirely unexpected.

Gillingham said he voted against the implementation of growth fees in 2016 and ensured the revenue collected went unspent pending the court decision.

"I'm glad that we made that decision to keep them there," he said.

He suggested he believed the city might lose the legal battle, in part because the development sector wasn't on board with the fees from the beginning.

Gillingham also agrees with the mayor that the city needs a new long-term growth model. There's evidence communities popping up along the periphery of the city continued to grow after the implementation of impact fees, he said.

'A path forward'

The Urban Development Institute and the Manitoba Home Builders' Association launched the legal battle in 2017. The organizations, which represent developers, maintained the city didn't have the authority to impose the fees.

A former president of the Manitoba Home Builders' Association said Wednesday he wasn't surprised by the decision.

"The development and building industry wouldn't have gone into it if it was considered a frivolous or long-shot challenge," said Mike Moore, now a consultant who worked with the developers responsible for the legal challenge.

Moore said developers want to be part of a collaborative process with the city that adjusts development with the changing needs of a growing city.

The vice-president of Qualico echoed Moore.

"I'm encouraged that there is a ruling and hopefully with direction that gives us a path forward to work with the city and figure out a way to keep growing our community," said Bryan Ward.

When contacted by CBC News Wednesday afternoon, a spokesperson for the mayor said he would wait for a review by the public service before commenting.

The city hasn't yet said whether it will appeal the decision.