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Internal Audit and Evaluation Documents

Internal Audit and Evaluation Documents

5.3 Program Design

5.3.1 EligibilityCriteria for Projects and Clients

In the design of the program, eligibility rules were established for the type of project, the type of work, and the type of client. The rules set for eligibility largely determined subsequent program scope and impact of CHPIF.³⁶ In practice, the program generally applies to all building types and to large and small owners. It does not, however, always meet the needs of smaller owners. Some owners/developers and experts recommended that the program admissibility criteria and procedures be better adapted to these needs.

Significant sectors of built heritage were deliberately excluded in order to target limited funding to meet program objectives. CHPIF targets built-heritage properties to be used for commercial and industrial purposes. All projects had to meet the requirement of being used for commercial purposes following rehabilitation. The function of the property before rehabilitation was not used to determine eligibility. As a consequence of this rule, strata³⁷ (of particular relevance to British Columbia) and condominiums (other jurisdictions) were excluded from the program because this form of commercial property activity leads to the development of private residences.³⁸

The program also applied a test of 'substantiality' by requiring that the value of the rehabilitation work be equal to at least 50% of the depreciated value of the property. Some potential projects may have been excluded by this requirement, depending upon the depreciated value of the property and the scale of the work that was contemplated. As an example, a large railway hotel designated as a historic place would not be able to use CHPIF to restore a specific component of the building, such as the main entrance canopy or the roof, because the value of the work would be valued at much less than the depreciated value of the building as a whole. Similarly, a corporation owning a moderately-valued property, such as a small office building in a small community, could be excluded from CHPIF if the corporation chose to conduct the rehabilitation over a long period of time for financial, business or technical reasons.

For owners of properties of low depreciated value, the 50% requirement was not a barrier for applying for CHPIF funding, although the certification process was potentially too expensive relative to the value of the project. Interviewees, especially potential applicants and provincial representatives, expressed the opinion that a contribution program such as CHPIF should be adjusted to make it easier for owners of properties of any value to make applications for CHPIF funding.

The program also set eligibility for the type of work through the certification program and the application of the national conservation S&Gs. In general, interviewees agreed that the certification process in combination with the codification of the conservation standards and guidelines has established a reasonable and understandable set of rules concerning work that meets the requirements of the program.

From the outset, CHPIF was designed to meet an immediate need for federal support for heritage preservation costs and to provide a proof-of-concept for a tax credit program. To simplify the mechanics of the program and to make it possible to use the program to examine whether the program's tools (especially certification and the use of the S&Gs) and parameters could be applied in a commercial and business environment, recipients were limited exclusively to taxable corporations of any size. Taxable corporations could include, for example, small businesses, publicly held private corporations, farm businesses and professional firms. Individuals were not eligible to apply for funding, although they could choose, with appropriate legal and tax advice, to create a corporation specifically for the purposes of applying for funding.

Not-for-profit organizations, including corporations with tax-exempt or charitable status, could not apply for CHPIF directly, although a tenant of a property owned by such an organization could apply for funding if the tenant had received a lease that was equal to or in excess of 20 years.

CHPIF was designed from the outset as a pilot of a tax credit program rather than as a permanent contribution program. The uncertainties associated with the program status have complicated communications with owners/developers and key influencers (architects and other professionals) in the commercial construction sector. Administrators, partner agencies and sector experts generally agreed that the scope and potential impact of CHPIF have been limited by the admissibility criteria modeled on the US tax credit program and start-up issues.³⁹

Interviewees, especially individuals with experience in commercial property development either as a supplier or as a developer, were pleased that CHPIF was in place to assist commercial property owners, but they were uncertain whether the program would be used if it were only available as a tax credit. They said that most developers structure their enterprises in a manner that already effectively reduces net corporate taxes to nil, in part because property development remains a highly speculative and risky activity. They stated that non-developer property owners, such as banks, insurance companies and professional firms, might be in a better position to benefit from tax incentives than developers. When some interviewees expressed concern that tax credits might 'distort' the property market, they may have been pointing directly to the possibility that the program might encourage profitable enterprises, such as a law firm or a medical practice, to act as a 'developer' for some types of properties, specifically for the purpose of gaining a tax credit, in competition with and at an advantage to experienced property developers.

The process of refining selection criteria and program procedures, typical of a start-up period, have made it difficult to integrate CHPIF into typical commercial investment decisions. In the initial years, applicants were required to submit applications during fixed funding 'rounds' or periods (initially yearly, then bi-annual), rather than according to the timing of individual project financing and construction cycles. This issue has been addressed through the adoption of continuous funding windows. While not part of eligibility criteria, due diligence requirements of federal program management results in extensive review periods. The timing of these program reviews may not necessarily correspond with commercial project cycles and, as a result, might dissuade some heritage owners/developers from considering CHPIF in their project planning.

Finally, the involvement of three government levels - federal, provincial and municipal in promoting and selecting projects - while essential to the success of the program given the shared responsibility, has impacted on the time required for program start-up, training and turn around/processing time. The high profile nature of the program has also resulted in some delays in project processing.⁴⁰

5.3.1.1 Summary of Findings on Program Design

Staff, provincial/territorial partners, applicants and potential applicants generally agreed that the scope and impact of the CHPIF program was limited by:

Program admissibility criteria based on a tax credit model that limit contributions to taxable corporations with commercial projects, rather than to commercial projects independent of ownership
Program admissibility criteria that exclude strata and condominium development
Uncertainty concerning the stability of funding under a three-year program
Refinement of criteria and procedures typical of a start-up program

5.3.2 Evaluation of Program Performance: Success and Impacts

As in most formative evaluations, we are limited to evaluating the results of the program to date, rather than the overall efficiency and effectiveness of a mature program that would be measured in a summative evaluation. Given the multi-year nature of heritage projects and the recent start-up date of CHPIF, none of the projects benefiting from CHPIF had been completed as of 31 May 2006.Consideration is being given in the Department to the renewal of CHPIF.

In spite of these data limitations, a preliminary evaluation of the program's parameters, the level of stakeholder participation, and the viewpoints of stakeholders provide essential feedback to assist program administrators in making appropriate adjustments to the management and design of the program and to assess whether experience with the program to date has provided evidence that can be used in further discussions concerning heritage property tax credits.

In this section, we evaluate the success of the program in a number of ways:

How the program has dealt with start-up issues
Measurement of overall program performance to date
Measurement of program performance against immediate program outcomes as defined in the Logic Model
Evaluation of the direct and indirect effects of the program

5.3.3 Program Start-up Issues

In the initial three-year period of the CHPIF program, the key emphasis has been on addressing issues and outputs relating to the start-up and immediate outcomes of the program.

In launching the program in 2002-03, CHPIF administrators had to address many key start-up issues:

Development of effective working partnerships with the provincial and territorial heritage agencies
Setting up criteria and administrative support for the financial incentives
Establishment and testing to improve CHPIF program parameters and administration in actual projects
Involvement of heritage stakeholders, including various partner agencies, applicants, experts and key influencers (developers, architects and organizations), in the promotion of CHPIF as a support mechanism for the preservation of Canada's built heritage
Training of staff and certification service providers

Overall, these start-up issues were successfully resolved by the CHPIF administrators. The communications issue is addressed in more detail in the examination of performance against immediate program outcomes (section 5.3.5 below).

5.3.4 Overview and Evaluation of CHPIF Program Activity and Expenditures to Date

CHPIF funding was originally set at $30M in total - based on $10 million per year over a defined three-year program period with a termination date. With the completion of the last round of applications in March 2006 at the end of 2005-06, year three, the program stopped accepting new projects; however, provision has been made for funding in two subsequent years: 2007-08 and 2008-09 in order to ensure completion of those projects already approved.

As of the end of July 2006, a total of 52 projects were still active (see Table 7).⁴¹

Table 7: Program Activity to Date

Fiscal Year and Application Round	Number of pre-certified projects still in process	Number of Contribution agreements signed
Year 1 FY2003-04 (Round 1)	6	6
Year 2 FY2004-05 (Round 2)	13	7
Year 2 FY2004-05 (Round 3)	7	3
Year 3 FY2005-06	16	n/a
Year 4 FY2006-07	10	n/a
Total to date	52	16

Source: CHPIF Program Data, July 2006.

Note: The deadline for round 1 was only one month away from the end of fiscal 2002-03, thus fiscal 2003-04 is considered as Year 1

Overall, program activity has tracked quite closely to the informal targets of 80 applications and 60 viable projects initially set by CHPIF administrators. If anything, program administrators underestimated the potential demand for information on the program which does not necessarily result in applications to CHPIF.⁴²

The year-to-year variation in the number of qualified projects per year has largely been a function of the following:

Need to address start-up issues (including development of effective communications with target heritage owners/developers)
Complexity of individual projects
Length of the application window
Number of rounds per year

Initially, the rounds were limited to a fixed window or period in March. In order to accommodate applicants, CHPIF administrators subsequently added a second window (2004-05). Starting in fiscal 2005 – 06, administrators expanded the window with a termination date corresponding to a three year run of applications.

Of the $30M original budget allocation for the program, $28.3M has been committed. Of the total budget allocation, $23.1M or 77% has been ear-marked for the individual projects, while a further $1.7M represents funds still available for project and/or returned from incomplete projects (ref. table below). An additional $5.1M is attributable to program administration or non project costs.

Table 8: CHPIF Funding Allocation: Project Commitments & Program Admin. Costs

Fiscal Year of the Program	Funds committed to 'Active' Projects on going	Number of Projects	Average Commitment per Project ($M)
FY2003-04	$2.9M	6	$0.483
FY2004-05	$9.0M	20	$0.450
FY2005-06	$8.3M	17	$0.488
FY2006-07	$3.0M	7	$0.428
Total Funds Committed to date & expected through the end of the program	$23.2M	50
Funds Not yet committed or money returned/incomplete projects	$1.7M
Program Administration Costs (certification service providers, PCH, etc. and Non program expense	$5.1M
Total CHPIF Program Funding	$30.0M

Source: CHPIF program data. End of May 2006. Note: not available at the time of the study.

The average CHPIF funding commitment to projects varies between $0.428M and $0.488M. Thus the average CHPIF program commitment per project for active projects was $0.463M at the end of May 2006.

5.3.5 Against Immediate Program Outcomes

The immediate outcomes for the program as defined in the logic model (section 2 above) are as follows:

Engagement of a broad range of taxable Canadian corporations in preserving Canada's heritage property
Effective communications with heritage stakeholders: applicants, agencies, etc.
Rehabilitated properties are put to a commercial use in a business
Enhancement of viability of heritage rehabilitation projects
Extension of useful life of a balanced mix of commercial projects
Historic properties owned/leased by eligible program recipients are rehabilitated

5.3.5.1 Engagement of a Broad Range of Taxable Canadian corporations in preserving Canada's heritage property

Since program start-up in 2003-4, CHPIF has certified and initiated 52 projects, which is in the range of the original 60 projected by CHPIF management. Furthermore, the 82 applications received are very close to the 80 applications originally forecast.⁴³

Typical of new grants and contributions programs, the initial start-up period of CHPIF was taken up with establishing administrative procedures, training and establishing partnerships with key agencies; thus little program activity took place. Most projects were qualified in years Two and Three. While it is difficult to argue that CHPIF program activity in this brief period has represented a 'broad range of taxable Canadian corporations', nonetheless, an analysis of program data indicates that the program has encompassed a wide variety of large and small projects in rural and urban areas (see Table 9).

Table 9: CHPIF Program Activity by Project Type, Size, Project Investment and Contribution

Some provincial/ territorial partners and experts perceive that the program favours larger urban projects over small commercial buildings. It should be noted that this perception of CHPIF does not reflect either CHPIF program activity (table above) or the program design parameters 'to support a wide range of heritage projects'. However, this perception could be a 'carry over' reflection of the parameters of the Certification process which is currently structured to suit the large urban projects in terms of support to proponents.

In total, the program should contribute to the rehabilitation of over 1.2M square feet of built heritage projects representing a total investment of at least $181M. Of this amount, CHPIF should contribute 14% and the private sector the remaining 86%. The CHPIF contribution amount will range from a low of $9.5K to $1M (the program maximum). The average contribution should be $489K out of a total average investment of $3.5M. The rehabilitation of the 50+ properties currently active in the program, demonstrates that the Standards and Guidelines developed by the HPI program can be successfully incorporated into commercial projects with modest incentives representing less than 14% of total project investment.

The principal reasons for the variance between the actual contribution level of 14% as opposed to the targeted 20% level are as follows:

Not all projects can claim all their rehabilitation costs due to the $1M cap
The eligibility is based on budgeted not actual rehabilitation costs and project costs increase over the course of a project ⁴⁵
Projects to date have been significantly larger than expected $2.2M. Based on the original $26.5M fund set aside for contributions, the calculated/targeted ⁴⁶ average contribution was $.441M and the average project value (total cost) was $2.2M. As indicated above, CHPIF is very close to this with 82 applications, 52 projects and an average contribution of $.492M

The program has encompassed projects both large and small with the smallest of qualifying projects before rehabilitation being 1,300 square feet and the largest 180,974 square feet. The average project size was 26,476 square feet. After rehabilitation, the building size increased on average by 5 percent. Approximately two thirds (34 of 52) of all projects were in urban areas and over half (26) were large urban projects. The remaining one third of all projects was in rural areas with the smaller projects predominating. The predominance of urban projects reflects the distribution of commercial and industrial built heritage in Canada.

The significant number of qualified smaller projects in both urban and rural areas which have qualified reflects the significant efforts by CHPIF and its provincial/territorial partners and municipalities to reach a wide range of owners/developers across the country.

As noted above, in the program experience to date CHPIF has met its goal of covering a wide range of built heritage projects. In the scenario that CHPIF is renewed for subsequent period(s) as a contribution program, administrators may want to consider changes to admissibility criteria in light of program performance in the various built heritage subcategories during the first period. For example, administrators might consider narrowing admissibility criteria in order to maximize impact in specific sectors and/or improve administrative efficiencies.

CHPIF program eligibility requirements include a 'substantiality test': wherein the value of the project must exceed 50% of depreciated value (as established for federal income tax purposes). Small, high-worth, heritage structures in urban areas, which frequently change ownership, often have a high depreciated value and thus either cannot meet the substantiality test or are limited to very large projects under CHPIF. Typical examples would include new owners of small run-down retail establishments located on downtown commercial arteries such as Saint-Laurent in Montreal or on Queen Street in Toronto. In the Toronto example, a typical owner/buyer might pay market price of $500K for a small heritage property, but would need to invest at least $250K in order to upgrade the property.

While substantiality was not raised spontaneously as a key issue by applicants, information seekers or experts in the interviews for this project, it has been identified by applicants directly to CHPIF program administrators.⁴⁷

In comparison, the U.S. tax credit program includes a 100% substantiality requirement in the overall admissibility criteria. This stringent requirement reflects the attractiveness of the program and corresponding high demand by owners/property developers. This has had the effect of focusing the scope of the US program to large projects with high-value buildings.

As part of an overall program review, CHPIF administrators are evaluating the impact of current eligibility criteria on the admissibility of this type of project and are considering options for 're-profiling' the program i.e. modifications to eligibility criteria in order to ensure broad applicability of the program.⁴⁸

Geographical representation among provinces and territories appears broad and more or less proportional (see Table 10). We note that none of the three Canadian territorial jurisdictions have generated projects. However, in light of their much smaller population bases and relatively small number of built heritage properties, this is not surprising. PEI has had one project pre-qualify for the program. However, the owner has since withdrawn the application and the project is no longer active.

Table 10: Provincial/Territorial Distribution of CHPIF Projects

Province/territory	Number of Projects Committed	Number of Projects In-process
BC	4	4
Alberta	2	2
Saskatchewan	3	0
Manitoba	6	1
Ontario	8	4
Quebec	3	6
New Brunswick	2	2
PEI	0	0
Nova Scotia	3	1
Newfoundland	0	1
Nunavut	0	0
NWT	0	0
Yukon	0	0
Total	31	21

Source: Parks Canada Agency, CHPIF Program Administrators, July, 2006.

Program data indicate that participants were initially weighted to the West – BC in particular, due to the pro-active stance of the provincial and municipal partners. Owners in the larger metropolitan areas – notably Toronto and Montreal in particular, which were absent from the program initially, have started to participate in the last rounds but remain underrepresented.

5.3.5.2 Effective communications

As indicated in the previous section, the development of effective communications with stakeholders was a priority task in the start-up period. This task involved setting up effective communications with a wide variety of stakeholders. From the start, CHPIF program administrators involved partner agencies in the provincial and territorial governments beginning with various rounds of consultations prior to and during the startup of the program. The existing involvement of the provinces and territories in the development of the CRHP and application of Standards and Guidelines facilitated the dialogue necessary to develop effective application processes, selection criteria and administrative procedures for the program. Ongoing communications have been established with these partner agencies to ensure program administrators are up to date on key issues and types of development occurring. A number of the certification service providers were hired for the program from the provinces/territories and municipalities.

CHPIF also consulted with key private sector heritage stakeholders and key influencers including owners, developers, architects, heritage organizations, associations, etc. in order to:

Raise the profile of the program and promote CHPIF as a support mechanism for the preservation of Canada's built heritage;
Gather input and feedback on the impact of program in various localities, sectors, etc.
Explain selection criteria, application, administrative processes and the partnerships with provincial/territorial governments
Explain the role of CHPIF certification service providers, administrators, the relationship of CHPIF to partner programs (HPI) and provincial/territorial agencies

HPI administrators were able to undertake the greater portion of the communications tasks indicated above for CHPIF due to the synergies between the two programs. In addition, a communications ('marketing visibility') budget was set up for this purpose. Most of the communications spending has been dedicated to leaflets and banners sent out to HPI partners, proponents and distributed clients at trade shows. However, the communications component has been negatively impacted by competing program demands for budget and staff time. In effect, in order to increase the service level delivery to applicants and beneficiaries, the communication budget has been reduced from $900,000 to $360,000. Only $60,000 of the $360,000 revised budget has been spent.

Some interviewees criticized the program's communications strategy:

One expert complained of the slowness in developing an appropriate communication strategy
Some municipal representatives and one provincial representative were unaware that CHPIF existed
Potential applicants found out about CHPIF by chance, rather than from industry-focused communications

However, in weighing these critiques, one needs to take into account the complexity of the tasks due to federal-provincial partnership issues and the start-up nature of the program.

Significant time was required to inform commercial heritage owners of the program, ensure familiarity with program parameters, and build CHPIF into their decision-making process. Thus, it is not surprising that only six projects qualified in the first year as opposed to 24 in the fourth year.⁴⁹

Finally, in our examination of the CHPIF website, we found that inquirers are sent to provincial registrars who are not responsible for any part of the CHPIF program.

5.3.5.3 Rehabilitated properties are put to a commercial use in a business

A key goal of the program is to improve the long term commercial viability of the built heritage properties. By improving the interior and exterior spaces, the building becomes more attractive to businesses, allowing owners to increase rental value and/or occupancy rates. A number of owners/beneficiaries indicated the rehabilitation of their property had already (i.e. before project completion and leasing of space) increased the value of other heritage properties in the area and initiated a revitalization of the downtown core of their cities.

As no projects have been officially completed and leased to date, we are not able to determine whether rehabilitated properties have been put to commercial use. However, as projects will be monitored as they are completed and for a five year period after completion, CHPIF management will be able capture information on the increase in rents/lease values.⁵⁰

5.3.5.4 Enhancement of viability of heritage rehabilitation projects

This outcome is related to the previous objective; however, no data were available at the time of this study.

5.3.5.5 Extension of useful life of a balanced mix of commercial projects

As presented in section 5.3.5.1 above, CHPIF has initiated a 'balanced mix of commercial projects', large and small, including projects in urban and rural areas. As the program develops, further information (e.g. industrial versus commercial, etc) will be captured to develop the term.

The extension of useful life of a built heritage property is related to the previous outcomes: commercial use and viability. As such, no data were available at the time of this study.

5.3.5.6 Historic properties owned/leased by eligible program recipients are rehabilitated.

No data were available at the time of this study to evaluate this outcome.

5.3.6 Direct and Indirect Program Impacts

5.3.6.1 Direct Effects and Causality

Direct effects are the amount and types of benefits/expenditures which can be demonstrated to be caused by the program.

Overall Spending Generated by the Program

In total, the program has contributed to the rehabilitation of over 50 properties encompassing 1.2M square feet of built heritage projects. The total program investment $25.4M represents a modest 14% of total project investment of $181.3M. Thus program data for the first three years indicate that CHPIF has demonstrated that it has the potential to engage the intended beneficiaries i.e. a 'broad range of taxable Canadian corporations in preserving Canadian heritage property'.

However, based on data available, we are unable to judge 'causality' i.e. whether these projects would have gone ahead in the absence of the program. Causality is a key determinant of economic benefits of the program. According to a number of owners/developers and experts interviewed, in all likelihood some of the projects would have gone ahead in the absence of the program. However, the interviewees also indicated that the heritage portion of the projects would have been renovated, not conserved according to the Standards and Guidelines. If this is indeed the case, the number of heritage buildings across Canada that were demolished during the three years in which CHPIF has been operating would have been almost the same as in the absence of the program; however, the quality of projects involving the conservation of commercial projects improved when projects were conducted within the framework of the program. Given the data limitations, however, we are unable to conclude on the direct spending impact of CHPIF.

In order to evaluate direct benefits of the program, data on program beneficiaries' decision matrix would need to be collected. In addition, data would be required over a longer program period to include completed projects.

Type of Spending Generated by the Program

Commercial heritage projects generate significant employment for architects, engineers, and skilled craftspeople which provide the detailing in wood, plaster, tin, bronze and iron in addition to the general construction trades. Thus, commercial projects which include rehabilitation of the heritage component according to the Standards and Guidelines generate spending for specific materials and skilled trades which is unique to this type of project.

The current and potential impact of CHPIF also extends beyond the relatively small number of projects initiated to date to the wider built heritage sector and commercial market. The CHPIF contribution of up to $1M has provided a significant incentive for owners/developers to undertake the heritage portion of their projects according to proper conservation consistent with Standards and Guidelines. It has also been an incentive for provincial/territorial governments to have built heritage properties included on the CRHP.

As the program develops, it will be important to determine causality i.e. what would have happened in the absence of the program – as a critical line of evidence and justification for a tax credit program. As indicated in 4.4.4.1, the program has demonstrated its ability to encompass a wide range of taxable Canadian corporations/types of projects in the rehabilitation of built heritage. From the interviews, it would appear that some owners would proceed with their projects in the absence of the program but not undertake the heritage portion in conformity with the Standards and Guidelines.⁵¹ Further studies of beneficiaries' investment decision process would be required to demonstrate the real economic impact as part of the justification of CHPIF as a tax credit for Finance and CRA.

5.3.6.2 Indirect Impacts and the Multiplier Effects

Indirect impacts are those economic and social benefits which are generated by the program beyond the target clientele, in the wider economy.

Rehabilitation of commercial heritage generates significant economic and social benefits. As the commercial heritage buildings are upgraded, and move into higher usage categories/building class (e.g. from the typical class 'C' historic building to a class 'B'), they have the capacity to generate additional rental/lease income. This in turn, enhances the long-term economic viability of built heritage.

Commercial heritage projects often have positive spin off effects on other projects – heritage and other, in the downtown areas where most commercial heritage buildings are located. In a number of cases, interviewees cited the specific CHPIF rehabilitation project being the catalyst for the revitalization of downtown areas of their cities and towns.⁵² One owner indicated that the rehabilitation of his building changed the perception in the local community of the commercial value of heritage buildings in the city as well as being the centrepiece for new development. In the case of this particular city, CHPIF's financial incentive to undertake conservation provided synergies for the city council to revitalize its downtown core through a range of initiatives from the adoption of zoning bylaws to fiscal measures.

The increase in rents and leases, retail sales and business taxes through new income producing businesses can have a major benefit for central business districts and cities in general which have been suffering from competition and 'big box' retailers in particular, located in suburbs.

While from an economic viewpoint it is difficult to argue that the direct and indirect benefits vary significantly among different types of public investment,⁵³ in the case of built heritage, it would appear that the program has demonstrated the ability to trigger latent demand for space in the down town cores which have previously been underutilized and undervalued. The key issue is whether the program generates investment in new commercial development – heritage and other, which would not otherwise have occurred. Professional offices, tourism businesses, and corporate headquarters are typical occupants which are willing to pay premium rents for rehabilitated commercial heritage office space. While evidence is largely anecdotal, it would appear that CHPIF has the ability to generate 'new business' and in this sense, investment in CHPIF may well deliver a higher net return on tax payers' investment than alternative spending programs.

The program appears to have generated indirect impacts in another fashion. A number of the provincial partner agencies and experts interviewed indicated that provinces and municipalities are applying national conservation Standards and Guidelines to non-CHPIF projects because CHPIF has shown the usefulness and usability of the Standards and Guidelines. Thus, the program appears to have indirect impacts beyond the target clientele.

Over and above the economic benefits from the revitalization of commercial heritage and urban cores, a number of writers including Toronto's Jane Jacobs, have underlined the importance of the revitalization of downtown cores to values of a 'civil society' and the individual citizen's quality of life.⁵⁴

As is the case with direct impacts, additional data would have to be collected over a longer program period in order to demonstrate the indirect economic and social impacts of the program.

5.3.6.3 Summary of Key Findings for Program Performance: Success and Impacts

Evidence from documentation and from interviews with staff, provincial/territorial partners, applicants and potential applicants indicates that:

CHPIF program administrators have been able to overcome a number of start-up issues
CHPIF has demonstrated its ability to engage a broad range of taxable Canadian corporations in proper conservation consistent with national conservation Standards and Guidelines
The program contribution represents a relative small portion of total project investment
CHPIF has established effective communications with its stakeholders, although some owners/developers and experts indicated some weaknesses which need to be addressed

In light of data limitations, we are unable to conclude on a number of immediate outcomes: whether rehabilitated properties are put to use in a business; whether CHPIF enhanced the viability of heritage rehabilitation projects; and whether CHPIF extended the useful life of a balanced mix of commercial projects. The program would need a longer period than the initial three-year period in order to judge the potential of CHPIF against these immediate program outcomes.

Similarly, given data limitations, we are unable to evaluate the direct spending impact of CHPIF or whether the number of heritage buildings across Canada that were demolished over the three years of the program have meaningfully decreased over what would have been the case in the absence of the program.

Anecdotal evidence suggests the program has generated a number of positive, indirect economic and societal impacts. Anecdotal evidence also indicates that provinces and municipalities are applying national conservation Standards and Guidelines to non-CHPIF projects because CHPIF has shown the usefulness and usability of the Standards and Guidelines.

5.3.7 Effectiveness in Program Delivery

Efficiency in program delivery was measured against the following program parameters developed by CHPIF management following program start-up⁵⁵ (see Table 11):

average processing time for projects – as defined from reception to pre-certification decision;
average response time before contribution agreement;
estimated time from reception to project certification; and
cost of personnel and overhead expenses;

The three response time indicators are dealt with followed by the cost indicator.

5.3.7.1 Response Times Indicators

As indicated in the table below, processing times have generally improved over the initial three years of the program:

average processing time for projects over the four years was 94 days/3.1 months. This has ranged from 2.5 months for projects pre-certified in the third year to 3.4 months in the second year;
average response time before contribution agreement has been 267 days – varying from 199 days to 295 days; and,
average time from reception to project certification has steadily decreased from 39 to 13 months over the three-year period.

Table 11: Administrative Efficiency Indicators: Processing and Response Times

The trend for the three parameters measured indicates an overall improvement in administrative efficiency. This corresponds to a natural learning curve by project administrators and subsequent feedback and improvement in management procedures in subsequent projects. The year-to-year variation in response times is largely attributable to the size and complexity of projects– in particular in the second year.

A further complexity is that processing and response times by program administrators are subject to response times and quality of information provided by applicants. Tardy, incomplete and/or ambiguous responses on the part of some applicants were typically due either to their unfamiliarity with program parameters, insufficient professional resources and/or other priorities. These in turn, resulted in delays in processing their applications by program administrators.

5.3.7.2 Cost of Program Administration and Overhead

As indicated previously⁵⁷ of the original $30M envelope for the program, $23.1M is committed as contribution to individual projects and another $1.7M is not yet committed or has been returned from incomplete projects. This leaves $5.1M in funding attributable to program administration costs and non-program costs.

Of the $5.1M, not directly committed to funding projects, $3.6M can be attributed to program administration of which $2.6M constitutes PCA departmental costs and $1.0M certification costs (see Table 12).

Table 12: Attribution of Program Administration and Other Non Program Costs

Expenditure Item	Funds Committed
Program Administration Costs:
PCA Levy	$0.3M
CHPIF Costs	$2.3
Certification Costs	$1.0M
Subtotal Program Administration	$3.6M
Non Program Costs:
PCH Policy Oversight Cost (420K) & PWGSC $105K) Levy	$0.5M
2003 Expenditure Review	$1.0M
Subtotal Non Program Costs	$1.5M
Total Program Administration & Non Program Expense	$5.1M

Source: CHPIF Program. Note: Figures don't include CHPIF's free balance/potential marketing fund (400K) and S+W (762K).

PCH 'Policy Oversight Funding' was used to cover contracts for analysis and development of the program design, and evaluation.

As it is beyond the scope of this project to evaluate the reasonableness of the levies and other non-program costs charged to the program, in this study we limit our assessment of program administration costs.

PCA staffing and related salary costs to date and forecast through the end of 2006-07 are summarized as follows:

Internal Staff Costs for the Program

Internal staff costs have increased 16% from $674K to $781K and FTE's from 7.5 to 10.25 (see Table 13). The principal source of variance is the omission in the original TB submission, for an audit provision. Internal PCA staffing cost for the five year provision will total $112.5K while there is an additional cost of auditing services of approximately $400K which is accounted for separately under the category 'goods and services'.⁵⁸

The original estimate assumed the program would be completed in 2005-06 whereas over half of the program activity will actually occur in 2006-10 (26 of 52 qualified projects) and will require peak staffing of 4 FTEs. Finally, the original forecast did not take into account the completion period for projects. The current forecast provides for a two year period for projects initiated this year.

Table 13: Estimated PCA Staff Costs for CHPIF Program

Certification Costs

The original estimate (ref. TB submission) of certification costs per project was $7,000 comprised of $5,000 per project for pre-certification and $2,000 for post-certification. While no forecast of total costs for certification service providers was provided, based on these per unit estimates and the original estimate of program activity⁵⁹ of 210 pre-certifications and 70 final certifications, thus approximately $1.2M for certification.

Based on current forecasts of program activity, certification costs should be $514K for 82 applications and 52 active projects. The current forecasted budget for certification as of June 2006 is $992,000. Correspondingly, average certification costs per project have doubled from $7,000 to $13,951⁶⁰. Certification has also moved from a flat fee cost calculation to estimates of real time spent. Thus, while the predicted cost of certification should be less than expected, the actual cost per project has substantially increased.

This variance in certification costs is due to improvements to the program oversight and 'service offer' necessitated to deal with the following issues:

Unforeseen complexity of individual projects⁶¹
Applicants and beneficiaries need for support⁶²
Complexity of the program parameters
Start-up nature of the CHPIF program
Need to train and manage third party certification service providers

The certification component of the CHPIF program service offer was improved based on the experience with early applicants and requests from applicants, Certification Service Providers, Provincial/Territorial partners and PCA management, for more support. Program advice is now being provided at the pre-application stage and projects can benefit from as many as two interim reports before the final certification stage is reached. More assistance is also provided to applicants in relation to cost estimates. Improvements in the certification component have resulted in:

better submissions;
fewer delays in processing; and,
reduction in risk of project failure and more successful projects all around.

In order to ensure that applicants are able to provide the necessary information for a quality application and deal with parallel planning processes and similarly, beneficiaries are able to provide quality progress reports for project management and tracking purposes, administrators have had to add two other components to the certification process: pre-qualification and interim progress/follow up reports.

In the following table, the improvements to the service offering and corresponding costs are summarized.

Table 14: Certification Process Components and Costs

Certification Process Component	Original Plan/Forecasted Costs	Actual/Current Forecast
Pre-qualification advice	-	$950
Pre-certification	$3,000	$5,000
Interim progress/follow up reports		$5,000
Post-certification	$2,000	$3,000
Total Certification Process	$7,000	$13,950

Source: CHPIF Program, July, 2006.

As no projects have officially been post-certified as yet, post certification costs can't be measured against original forecasted budget. The current overall budget estimate for certification is $2.5M which includes materials, etc.

Overall, the $4M or 13% of the total budget envelope allocated for program administration appears to be reasonable for this type of complex program. However, we were unable to obtain financial data for similar programs with which to benchmark this program.

5.3.7.3 Knowledge of Certification service providers:

In order to ensure an orderly and rapid roll out of the program in the start-up period, a large number of capable certification service providers were required. These service providers needed a range of skills:

in-depth knowledge of the heritage sector, commercial development, the Canadian Register of Historic Places and Standards and Guidelines of the HPI program;
capability of absorbing the CHPIF program admissibility criteria, administrative processes and interface with HPI and the provincial heritage programs; and
ability to liaise on an on going basis with applicants, beneficiaries, and provincial/territorial agencies in the field.

As approximately thirty certification service providers were required, it was obvious that internal PCA staff alone would not suffice, thus CHPIF hired on a part time basis, personnel from provincial/territorial government agencies. All certification service providers, internal and partners (provincial/territorial) must meet the same standards, and training has been adapted to the various knowledge base and background of the candidates.

According to CHPIF program administrators, the development and on going performance of the certification group has been successful. Overall, the certification service providers have been instrumental in the key tasks required to establish and administer the program:

Advising applicants and beneficiaries on program parameters, administrative procedures, etc.
Liaising with provincial/territorial and municipal agencies and associations
Disseminating knowledge about the program
Responding to inquiries

According to our interviews of information seekers, applicants, beneficiaries, partner agencies and experts, the certification service providers were generally acknowledged to have very good technical & program knowledge. In a few cases, owners/developers criticized their understanding of and/or their lack of practical experience in commercial development - specifically knowledge of financing requirements and project planning and execution phases of projects.

According to program administrators, provincial/territorial government certification service providers have generally performed as well as internal PCA staff.⁶³

5.3.7.4 Operational constraints:

Applicants, beneficiaries and experts consulted generally agreed that CHPIF application and administrative processes were burdensome. However, a number of interviewees along with provincial partners also indicated that the documentation requirements are appropriate to the size of grants. In this vein, owners/developers which apply for municipal and/or provincial grants which are generally much smaller in value, also have to provide extensive documentation. Interviewees generally agreed that owners/developers, who use grants and contributions as part of project financing, should plan for additional time/delays in project completion as a quid pro quo for public contribution.

Interviewees were divided on whether the CHIPF program could fit well into their own typical commercial development cycle i.e. without adversely affecting the overall viability of the project. A couple of interviewees (developer, expert), citing the typical timeframe required to deal with municipal zoning authority delays, indicated that CHPIF could be integrated into the project cycle. A number of current applicants/beneficiaries among owners/developers expressed concerns over program delays beyond the typical project cycle – typically citing the catchall phrase of "paperwork". Among suggestions by applicants and beneficiaries to improve the programs were the following:

Streamline pre-approval process;
More assistance from administrators/certification service providers for smaller owners/developers in the preparation of applications; and,
Better coordination and information sharing between three levels of government.

In assessing the merits of the critique of 'paperwork' requirements on the certification side, the practical requirements of due diligence and risk management need also to be considered:

a certain level of documentation is required to evaluate whether a proposed intervention meets the Standards and Guidelines as program administrators do not have day-to-day contact with proponents;
CHPIF documentation requirements are also intended to protect project proponents, since at the end of the project there is a final certification stage to ensure that work was carried out as stated in the application and as agreed to during the Pre-Certification stage. The clearer the documentation is at the outset, the less risk of disagreement there will be at the end of the process; and,
in the event of a future audit, administrators need to be able to clearly describe the work that was funded and how it met program requirements.

Owners/developers interviewed frequently asked about the program track record on project completion and pay out to date. When informed that no projects had yet been paid out, indicated that CHPIF would not fit into their project cycle.

While program data indicate an overall improvement in response times, and at the time of this study, indications were that two projects would be paid out in the August/September 06 timeframe, three years is too short a timeframe to evaluate whether this program would fit into the needs and project cycles of the target clientele.

5.3.7.5 Summary of Finding for Effectiveness in Program Delivery

Program data on various response time indicators show a general improvement in the delivery of the program to applicants and beneficiaries over the three years of the program.

Actual program costs for internal PCA staff have tracked closely with the initial forecast; however, the cost for certification service providers increased significantly due to the need to increase service levels to applicants and beneficiaries and monitoring of beneficiaries.

Evidence from documentation and from interviews with staff, provincial/territorial partners, applicants and potential applicants indicates that in some cases, certification service providers do not have sufficient understanding of the practical requirements of commercial financing and project planning/execution.

Staff, provincial/territorial partners, applicants and potential applicants generally agreed that applicants may be deterred from using a contribution program if the payments from the program are not aligned with the scheduling of financing and construction activities.

36 Measurement criteria are discussed in Section 4.1.3 'Performance Measurement and Reporting' while performance against target is discussed in 4.3.2 Overview of CHPIF Program Activity and Expenditures to Date'.

37 Strata is a term only used in British Columbia and is typically used to designate residential condominium properties in which owners in addition to having title to their own residential units also have a direct share in common property, in contrast to condominiums where common property is owned by the condominium corporation.

38 In the scenario that mixed commercial/residential projects incorporating strata/condominiums were to be made eligible under CHPIF, this would significantly complicate the administration of a tax credit program as tax authorities would have to consider issues such as the transfer of title from the owner/developer to individuals, tax status of individual owners in properties, etc.

39 Source: Interviews

40 For example, announcements of eligibility and pay out for completed project have also been delayed on occasion pending ministerial announcements.

41 The term 'active' designates projects which have been admitted to the program, were pre-certified or in the process of pre-certification, and were still active.

42 Active projects are those which have been accepted into the program, have been certified or are in the process of being certified and are still active. Source: CHPIF Program data.

43 Program data, July 2006 four months before the end of the three year program application period. As indicated previously, formal targets for the program were not set.

44 Definitions as provided program administrators do not incorporate specific area thresholds by category.

45 Estimates for rehabilitation costs found in the Contribution Agreements are itemized based on component costs (e.g., site office, scaffolding, equipment rentals, demolition, clean up, waterproofing, concrete work, etc.

46 Calculated from data provided by CHPIF program. To our knowledge, these were not formalized into targets.

47 Source: Interviews with stakeholders undertaken by Nordicity Group's project team.

48 Source: CHPIF program administrators

49 Section 4.4.2 figure Program Activity to Date

50 As of July, 2006, two CHPIF projects are substantially completed but not yet announced.

51 In this scenario, the economic impact is comprised of the additional expenditures required to rehabilitate the heritage portion according to the Standards and Guidelines rather than the full

52 Source: Interviews.

53 Over and above the wages, materials, services and other expenditures generated in the execution of the project, public investment indirectly generates a 'multiplier effect' in second, third, four rounds of spending by the initial beneficiaries. Generally, the multiplier effect varies between 2 and 3 times the initial investment. However, it is difficult to argue and virtually impossible to demonstrate statistically, that one form of public expenditure generates a higher multiplier effect than another.

54 Among many writers on urban issues, Jane Jacobs was one of the first to identify the need for vibrant downtown cores as a quality of life issue in her seminal work: The Death and Life of Great American Cities (1961).

55 Source: CHPIF administrators

56 'Active' or 'eligible' are projects which were admitted to the program, pre-certified and/or in process of pre-certification and active.

57 See section 4.4.2 Figure: CHPIF Funding Allocation: Project Commitments & Program Administration Costs.

58 Five years set aside requirement for auditing beyond completion of the program (2009 – 14) Ref. RBAF.

59 Annex D of the Treasury Board Terms and Conditions. Subsequently, this estimate was revised to 80 applications and 60 approved projects, which would have resulted in a total cost for certification of $520,000

60 Note that of the $13,951, $951 corresponds to program advice, which is not strictly speaking part of the Certification process.

61 For example, in some cases, non CHPIF program issues arise such as environmental and archaeological assessments, come into play.

62 Some owners/developers of larger projects need as much project support as smaller owners/developers.

63 Given the wide variety in size and complexity of projects, the program administrators have not developed standard parameters and targets such as number of applications processed, response times, etc. in order to evaluate the performance of certification.