Queensland infrastructure planning and charging framework review – commentary on DSDIP discussion paper released July 2013

In brief

This article outlines the Queensland Department of State Development, Infrastructure and Planning's proposed options for the reform of the Queensland infrastructure planning and charging framework, identifies the implications of the reform options and suggests alternative reform options for consideration.

Introduction

Infrastructure planning and charges reform

On 1 July 2013, the Queensland Department of State Development, Infrastructure and Planning (DSDIP) released a discussion paper on the review of Queensland's infrastructure planning and charging framework (Discussion Paper) which contains reform proposals which will have significant financial and other policy implications for all local governments and their ratepayers, distributor-retailers and their shareholders and customers as well as developers and land owners.

Reform timeline

The Discussion Paper identifies three stages in the infrastructure planning and charging reform process:

• Public consultation stage – From 1 July 2013 to 9 August 2013, the Discussion Paperdiscussion paper entitled Options for the reform of Queensland's local infrastructure planning and charges framework is available for public consultation.
• Government review and policy decision-making stage – From 9 August 2013 to late 2013, DSDIP will review the feedback received during the public consultation period and develop a set of reform options to be presented for government approval in late 2013.
• Implementation stage – From 1 July 2014, the new framework is proposed to commence.

Reform outcomes

The Discussion Paper identifies (on page 14) the following reform outcomes against which the reform options have been formulated and tested.

Table 1: Reform outcomes
 

Outcome	Result
Development feasibility	Makes Queensland a desirable place for the development industry to do business by: §  linking the quantum of infrastructure charges to a development's demand for infrastructure; §  minimising risks to development associated with infrastructure contributions (including time delays, increased holding costs and uncertainty).
Local authority financial sustainability	Supports the long-term financial sustainability of local authorities and the planning, delivery and maintenance of local infrastructure by local authorities. The framework is cost-effective and administratively simple to implement and maintain.
Certainty	The framework is simple to understand, implement and use. Infrastructure charges are supported by transparent published methodologies and charging schedules.
Equity	Only infrastructure essential for development is eligible for infrastructure contributions.

 

 

Reform options

The reform options identified in the Discussion Paper are split into three specific parts, which include the following:

• Part 1: Framework fundamentals:
  • Infrastructure scope
  • Trunk and non-trunk infrastructure identification
  • Infrastructure planning.
• Part 2: Charges mechanisms:
  • Capped charges
  • Planned charges.
• Part 3: Framework elements:
  • Conditions
  • Offsets and refunds
  • Credits
  • Infrastructure agreements
  • Dispute resolution
  • Deferred payment.

The Discussion Paper identifies, for each element, a status quo option involving the retention of the current system with its attendant issues as well as options which seek to address the identified issues with the current framework.
 

Themes of paper

This paper aims to address the following:

• The policy basis for infrastructure contributions.
• The elements of the current infrastructure planning and charging framework to be subjected to reform.
• The issues identified and proposed reform options for each element of the current framework.
• The potential implications arising from each reform option.
• Alternative reform options to address the issues of the current framework.

Infrastructure contributions

Types of infrastructure contributions

Infrastructure contributions are financial, work or land contributions for infrastructure related to development.

Financial contributions for infrastructure come in various forms but there are essentially 4 types:

• User pays levy – a payment to an infrastructure authority for planned infrastructure benefitting the development.
• Impact mitigation levy – a payment to an infrastructure authority to make good the unanticipated adverse effects of development on planned infrastructure.
• Development standard levy – a payment to the community to make good the adverse effects of development not complying with a development standard; for example a payment to a local government in lieu of the provision of on-site car parking spaces for a development to be used for the provision of a public parking facility by the local government.
• Betterment levy – a payment to the community for the development of higher and better uses on a site.

(See Wellham K and Spiller M Urban Infrastructure: Finance and Management, 2012, p.138.)

The characteristics of each financial contribution are summarised in Table 2 (Ibid, p.139).

Table 2: Financial contributions

 

Financial contribution	Apportionment principle	Implementation mechanism
User pays levy	User pays principle – Payment in accordance with a development's projected share of usage of planned infrastructure	Charges are levied by a notice or development approval condition in accordance with a charging instrument that relates to an infrastructure planning instrument
Impact mitigation levy	Exacerbator pays principle – Developer pays 100% of additional costs of additional or changed infrastructure	Payments are imposed in a development approval condition
Development standard levy	Inclusionary zoning principle – Developer pays 100% of the costs to comply with a development standard	Negotiated infrastructure agreement
Betterment levy	Value uplift principle – Percentage of uplift attributable to granting additional use rights	Negotiated infrastructure agreement

 

 

The Discussion Paper is primarily focussed on changes to Queensland's infrastructure charges framework which is a user pays levy. The Discussion Paper indicates that the following provisions of the Sustainable Planning Act 2009 (SPA) are to be retained:

• The conditions powers under section 650 of the SPA for the additional cost impact for out of sequence or inconsistent development. (See Table 12, Reform Options 1 and 2 of the discussion paper.)
• Infrastructure agreements can be used to implement a development standard levy and a betterment levy. (See sections 7.5.3 and 8.1.3 of the discussion paper.)

Efficient charging for urban infrastructure

In considering the Discussion Paper and the proposed reform options, regard should be had to the key findings and recommendations in respect of the efficient charging for urban infrastructure in the Industry Commission's 1993 report Taxation and Financial Policy Impacts on Urban Settlements:

• Charges should, wherever possible, reflect any significant locational differences in the costs of providing urban infrastructure. Where they cannot do so, they should at least seek to avoid systematic locational bias [chapter B3, section 3.4].
• While it is not necessary to charge explicitly for costs that are common to all developments to transmit efficient location incentives within cities, cost recovery is desirable for reasons of efficient resource management and decision making in relation to the provision of new infrastructure [chapter B3, section 3.5].
• Because efficiency in pricing has more than one dimension, it will usually be necessary to employ a number of charging instruments simultaneously. Developer charges are well-suited to reflecting variations in costs by location and in some respects may be preferred to periodic access charges for that purpose. Charges for use are probably best matched with marginal costs of supplying the service (including congestion costs, broadly defined) [chapter B3, section 3.4].
• Where there is genuine excess capacity, it is important that use of it not be discouraged by prices that exceed the costs of supply. New (and existing) users should be charged at levels that ensure that capacity is appropriately used [chapter B3, section 3.5].
• Present methods of charging for infrastructure services are often not sufficiently reflective of locational cost differences. There is too much reliance on averaging or uniformity in all forms of charging. In addition:
  •  property values have no necessary relationship to costs of providing urban services such as water and sewerage, and the practice of using them as a basis for charging should end [chapter B4, section 4.7],
  • road authorities should be allowed to levy clearly identified charges on developers to cover the costs of providing and improving higher level roads attributable to new developments [chapter B4, section 4.3].
• In attempting to assess whether public infrastructure charging encourages expansion of settlement at the urban fringe, the Commission found:
  • for most categories of infrastructure, the detailed information needed for a definitive analysis is not available,
  • in the one case – hydraulic services – where available data permitted a quantitative assessment for Melbourne and Sydney, the existence of a significant inducement to fringe location was not confirmed,
  • in most other cases, when all relevant factors are considered, it is difficult to judge whether net subsidisation of the urban fringe is likely, let alone the magnitudes involved. What is clear is that assessments which do not properly account for subsidies to established urban areas will generally overstate any inducement to fringe location, especially for social infrastructure [chapter B4, section 4.7].
• Lack of information is a fundamental obstacle to reform of infrastructure charging and better asset management. Public sector providers of urban services should be required to compile and publish annually the costs, revenues and charging structures associated with development in different areas within their administration. Information is also urgently needed on the value and condition of existing infrastructure throughout the cities [chapter B6, sections 6.1 and 6.7].

Infrastructure scope

Current framework

Local governments and distributor-retailers may require infrastructure contributions for development infrastructure which is defined as follows schedule 3 of the SPA as:

development infrastructure means—

(a) land or works, or both land and works, for—

(i) urban and rural residential water cycle management infrastructure, including infrastructure for water supply, sewerage, collecting water, treating water, stream managing, disposing of waters and flood mitigation, but not urban and rural residential water cycle management infrastructure that is State infrastructure; or

(ii) transport infrastructure, including roads, vehicle lay-bys, traffic control devices, dedicated public transport corridors, public parking facilities predominantly serving a local area, cycle ways, pathways, ferry terminals and the local function, but not any other function, of State-controlled roads; or

Note—

The chief executive administering the Transport Infrastructure Act may make guidelines, including guidelines defining the local function of State-controlled roads.

(iii) public parks infrastructure supplied by a local government, including playground equipment, playing fields, courts and picnic facilities; or

(b) land, and works that ensure the land is suitable for development, for local community facilities, including, for example—

(i) community halls or centres; or

(ii) public recreation centres; or

(iii) public libraries.

In particular a local government is empowered to:

• prepare a local government priority infrastructure plan which identifies development infrastructure as trunk infrastructure (see section 85 of the SPA and Statutory guideline 01/11 – Priority Infrastructure Plans, p.7.);
• levy an infrastructure charge (a user pay levy) for the provision of trunk infrastructure (see section 629 of the SPA.);
• require, by a development approval condition, a financial contribution (an impact mitigation levy) for the additional cost of trunk infrastructure (see section 650 of the SPA.
• require, by a development approval condition, the provision of work and land contributions for trunk infrastructure and work contributions for non-trunk infrastructure. (See sections 626 and 626A of the SPA.)

In South-East Queensland, distributor-retailers are given the same powers in respect of water supply and sewerage infrastructure. (See chapter 9, part 7A, division 5, subdivisions 1 and 2 of the SPA.)

Reform option

The Discussion Paper identifies that local governments are requiring infrastructure contributions for development infrastructure which is not essential to or does not directly benefit development but has a broader community benefit.

This contention is in conflict with the Productivity Commission's key findings and recommendations for the efficient charging for urban infrastructure identified above. This contention also does not take account of the fact that in preparing a priority infrastructure plan a local government will have established a nexus between a development in a particular area and the small cumulative impacts of such development on higher order infrastructure. As the Queensland Planning and Environment Court has observed in the context of infrastructure charges for road transport infrastructure in Hickey Lawyers v Gold Coast City Council [2005] QPEC 22, (at [35]):

If every miniscule or insignificant or sub-5 percent (or some other percentage) impact is disregarded, costs that in principle should be chargeable against developments will be foregone, but the aggregation of the impacts of developments, all of which escape a charge, will undoubtedly require expenditures from public resources to provide the necessary new infrastructure (quite apart from giving "free" access to existing infrastructure).

The Discussion Paper proposes that infrastructure contributions be limited to essential infrastructure for development only; with non-essential infrastructure for development to be funded through other revenue sources unless provided for in an infrastructure agreement.

The significant differences between development infrastructure and essential infrastructure, which are summarised in Table 3, include the following:

• Water supply and sewerage infrastructure – Dams and other instream storages and pipes below 200mm are excluded.
• Stormwater quantity and quality infrastructure – On site treatment, bank and shore protection and flood mitigation infrastructure are excluded.
• Road transport infrastructure – Higher order roads such as arterial and sub-arterial roads and the local function of State-controlled roads are excluded whilst some significant items of road transport infrastructure such as noise and light barriers, fauna management crossings, traffic barriers and fencing appear to be excluded.
• Public transport infrastructure – Bus, taxi, ferry, off-road pedestrian path and off-road bicycle infrastructure are excluded.
• Park infrastructure – Park areas are limited to 2 ha per 1,000 persons and embellishments are excluded.
• Community facilities – Land areas are limited to 2 ha per 1,000 persons.

Table 3: Comparative analysis of development infrastructure and critical infrastructure

 

Development infrastructure (Schedule 3 SPA)	Essential infrastructure (Appendix 4 Discussion Paper)	Significant exclusions
Urban and rural residential water cycle management infrastructure
Water supply infrastructure	P	·         treatment facilities not funded from other sources such as rates or utility charges ·         dams and instream storages ·         pipes with diameter below 200mm ·         it is uncertain whether land for water supply and sewerage infrastructure is included
Sewerage infrastructure	P
Collecting water	û	·         offsite stormwater quality and quantity ·         bank and shore protection ·         flood control
Treating water	P
Stream managing	û
Disposing of waters	û
Flood mitigation	û
Transport infrastructure
Roads	P	·         arterial and sub-arterial roads ·         noise and light barriers ·         traffic barriers ·         fauna management crossings ·         landscaping and street trees ·         fencing
Vehicle lay-bys	P
Traffic control devices	P
Dedicated public transport corridors	û	·         public transport infrastructure
Public parking facilities predominantly serving a local area	û
Cycle ways	û
Path ways	û
Ferry terminals	û
Local function of State-controlled roads	û	·         State-controlled roads
Public parks infrastructure supplied by local government
Land	P	·         park embellishments ·         land limited to 2 ha/1,000 persons (thereby limiting metropolitan and district sports and recreation parks)
Playground equipment	û
Playing fields	û
Courts	û
Picnic facilities	û
Community facilities land for local government
Land	P	·         land limited to 2 ha/1,000 persons

 

 

Implications of reform option

The reform option will have the following implications:

• Capital funding gap – The limitation of infrastructure contributions to development infrastructure which is essential infrastructure will reduce infrastructure charges and other infrastructure contributions for development. The costs of development infrastructure which is non-essential infrastructure will remain thereby creating a funding gap for non-essential infrastructure which will have to be funded by local governments and distributor-retailers from other revenue sources.
• Rural and regional development – The exclusion of rural arterial and sub-arterial roads which connect regional growth areas and cities and towns will significantly impact on the ability of rural and regional governments to provide road transport infrastructure necessary for agriculture, mining and urban areas.
• On site stormwater infrastructure – The limitation of essential infrastructure to only on site stormwater treatment to a standard of non-worsening will have the following implications:
  • the conditioning of development to prevent basic common law nuisances on adjoining properties will be potentially subject to an offset or refund,
  • the provision of on-site stormwater treatment will be encouraged at the expense of regional treatment resulting in high maintenance and replacement costs and increased risks to public health and safety.
• Hydraulically constrained development – The exclusion from essential infrastructure of water supply and sewerage pipes below 200 mm which currently comprise parts of the trunk water supply and sewerage infrastructure networks will not only result in less revenue from planned charges but also the exclusion of these items from infrastructure plans and Netserv plans will constrain the development of hydraulically constrained land.
• Access constrained development – The exclusion of arterial roads from essential development will limit the development of access constrained land in growth areas where the interim construction of an arterial or sub-arterial road (being at least the first carriageway) is necessary to allow for a local road function for development access purposes.

• Flood constrained development – The limitation of essential infrastructure to on-site stormwater quantity and quality treatment will limit the development of capacity constrained land requiring off-site treatment to enable development. This will be particularly the case in infill areas and fringe areas within riverine and coastal floodplains.

• Lower social infrastructure standards – The limitation of park and community facility areas to half of that provided for in the Queensland State Guideline for Social Infrastructure Planning () and the exclusion of embellishments will result in a significant lowering of social infrastructure standards especially in the context of the current trends for smaller lot sizes and reduced private open space. As the Productivity Commission has previously noted "There is now an expectation in the community that social infrastructure will be provided or made available for new development" (Industry Commission, Taxation and Financial Policy Impacts on Urban Settlement, 1993, p.100)
• Lower amenity and environmental standards – The scope of the listed essential infrastructure represents a lowering of urban amenity and environmental standards particularly in terms of the exclusion of off-site stormwater quality treatment, fauna management crossings and noise and light barriers for road transport infrastructure and public transport infrastructure in particular off road pathways and cycleways and public parking facilities.
• Different development settings – The list of essential infrastructure does not take account of different development settings such as rural areas, regional cities and towns, existing urban areas and growth areas whether it be infill or greenfield. The exclusion of work for arterial and sub-arterial roads in an urban area context may be reasonable but appears inappropriate in a greenfield or infill growth area.
• Uncertain scope of infrastructure items – The scope of the list of essential infrastructure is uncertain particularly in relation to the following:
  • Road transport infrastructure – where it is uncertain whether road transport infrastructure where it is not clear that it includes elements of roads such as noise and light barriers, fauna management crossings, traffic barriers and fencing.
  • Water supply and sewerage infrastructure – where the qualification in respect of "treatment facilities not funded from other sources such as rates or utility charges" is unclear in its intent.
• Strategic infrastructure planning, budgeting and delivery – If a local government is not required to include development infrastructure such as arterial and sub-arterial roads, off road pedestrian paths and cycleways, bus corridors and metropolitan and district parks in its infrastructure plan, then local governments may decide not to plan for infrastructure in its infrastructure plan or provide for it in its capital works program, long term financial plan and budgets due to funding limitations with the resulting social, environmental and financial costs evident in the past.
• Land use and infrastructure integration – The limited scope of essential infrastructure will discourage the integration of land use and infrastructure outcomes and encourage a fragmented approach to urban development which will be less efficient.
• Increased use of infrastructure agreements – The limited scope of essential infrastructure in the context of the limitation of development approval conditions to trunk and non-trunk essential infrastructure, will inevitably lead local governments and distributor-retailers to require infrastructure agreements for the provision of infrastructure contributions for non-essential infrastructure.
• Public policy considerations – The reform option is in clear conflict with the Productivity Commission's key findings and recommendations for the efficient charging of urban infrastructure, particularly in terms of higher level roads.

Alternative reform option

In order to address the implications of the identified reform options the following alternative reform option is suggested:

• Essential infrastructure list – A list of essential infrastructure should be prepared which provides for the following:
  • a broader scope of essential infrastructure,
  • the specification of items within each category of essential infrastructure to avoid variations in interpretation
  • variations in the items of essential infrastructure to accommodate different development settings.
• Road transport infrastructure – Essential infrastructure should at least include land contributions for arterial and sub-arterial roads in existing urban areas and land and work contributions for arterial and sub-arterial roads in urban growth areas (infill and greenfield) and rural and regional areas.
• Public transport infrastructure – Essential infrastructure should include land and work contributions for off road pedestrian paths and cycleways and public parking facilities and land contributions for bus corridors.
• Public parks and community facilities infrastructure – Essential infrastructure should include work contributions for basic recreation park embellishments as well as land requirements for park and local community facilities which accord with the State Government Implementation Guideline No. 5.

Identification of trunk and non-trunk infrastructure

Current framework

Local governments and distributor-retailers are empowered to identify development infrastructure as trunk infrastructure in an infrastructure planning instrument. Development infrastructure not identified as trunk infrastructure is non-trunk infrastructure.

Infrastructure planning instruments of local governments have included an infrastructure charging plan, planning scheme policies, adopted infrastructure charges resolution and priority infrastructure plan. Distributor-retailers are empowered to prepare a Netserv plan for trunk water supply and sewerage infrastructure.

The identification of development infrastructure as trunk infrastructure is important in the following respects:

• Infrastructure charges – Prior to the implementation of the maximum adopted charges regime, infrastructure charges were calculated based on an incremental cost methodology for the provision of trunk infrastructure.
• Additional trunk infrastructure costs (impact mitigation levy) – Development approval conditions can require additional trunk infrastructure costs for out of sequence or inconsistent development.
• Trunk infrastructure land and work conditions – In kind contributions for trunk infrastructure are required to be offset against infrastructure charges and to be refunded if the value of the in kind contribution exceeds the infrastructure charge.
• Non-trunk infrastructure land and work conditions – Development approval condition powers for land and work contributions are more limited in the case of non-trunk infrastructure.

Reform option

The Discussion Paper identifies that local governments are not recognising unidentified development infrastructure which is shared with existing or future development as trunk infrastructure with the effect that offsets and refunds are not applicable to shared development infrastructure.

The Discussion Paper proposes the following reform options:

• Standard specifications for trunk infrastructure – A Ministerial guideline for the preparation of an infrastructure plan is to provide minimum standard specifications for the identification of trunk infrastructure in an infrastructure plan.
• Trunk infrastructure definition – Essential infrastructure is to be trunk infrastructure if it satisfies any of the following:
  • essential infrastructure identified in an infrastructure plan, or
  • essential infrastructure which meets the minimum standard specification for trunk infrastructure in the Ministerial guideline, or
  • essential infrastructure which provides a trunk function in that it:
    • facilitates development of other existing serviced premises by enabling increased development or overcoming deficiencies,
    • links a group of premises to identified trunk infrastructure, or
    • would be identified as trunk infrastructure if the demand and development pattern was known at the date of the infrastructure plan.

Implications of reform option

The reform option materially increases the scope of trunk infrastructure to which offsets and refunds apply by including unplanned essential infrastructure which meets minimum standard specifications or otherwise performs a "trunk function".

Whilst the reform option responds to stakeholder issues by providing increased flexibility for developers to have unplanned essential infrastructure recognised as trunk infrastructure, the reform option will have the following implications for local governments and distributor-retailers:

• Planned infrastructure charges misaligned – The identification of deemed trunk infrastructure will result in a misalignment of planned charges in that they are only related to the establishment cost of trunk infrastructure identified in the infrastructure plan. As such planned infrastructure charges will in effect be undercharging for the cost of trunk infrastructure (identified and deemed).
• Offset reduction of infrastructure charges – Infrastructure charges intended to fund the trunk infrastructure identified in the infrastructure plan will be reduced by offsets for deemed trunk infrastructure thereby reducing the infrastructure charges available to fund identified trunk infrastructure.
• Reduced refunds for identified trunk infrastructure from infrastructure charges – The reduction of infrastructure charges from offsets for deemed trunk infrastructure will reduce the infrastructure charges available for refunds for developers which have provided identified trunk infrastructure thereby adversely impacting on the delivery of the identified trunk infrastructure for development consistent with the infrastructure plan.
• Out of sequence and inconsistent development subsidised – The requirement to provide offsets and refunds for unplanned infrastructure to service development which is outside of a priority infrastructure area or is otherwise inconsistent with the planning assumptions of a priority infrastructure plan will undermine strategic land use and infrastructure planning and result in inefficient land use patterns which are being subsidised by local government ratepayers and distributor-retailer customers. Furthermore the current conditioning powers in sections 650-652 of the SPA provide for refunds for additional trunk costs to be conditioned on development which is inconsistent with the planning assumptions in a priority infrastructure plan.
• Increased maintenance and replacement burden – The provision of subsidised out of sequence and inconsistent development will impose additional maintenance and replacement costs on local governments and distributor-retailers for infrastructure that is not required or is provided prematurely.
• Strategic planning and development assessment – The financial implications of approving development requiring the provision of deemed trunk infrastructure which will accrue offsets and potential refunds will introduce significant uncertainty in the development approvals process which will result in local governments adopting a conservative approach in its strategic planning and development assessment which will otherwise limit economic development.

Alternative reform option

The stakeholder issues and implications for local governments and distributor-retailers may be addressed by an alternative reform option in which an item of essential infrastructure is defined as trunk infrastructure if it:

• is identified in an infrastructure plan, or
• meets the minimum standard specifications for trunk infrastructure and satisfies any of the following:
  • is an alternative to an item of infrastructure in the infrastructure plan or Netserv plan,
  • allows for the removal of an item of trunk infrastructure from the infrastructure plan or Netserv plan,
  • allows for the delayed provision of an item of trunk infrastructure beyond the planning horizon of the infrastructure plan or Netserv Plan,
  • is reasonably likely to have been included in the infrastructure plan had detailed network planning for the planned development been undertaken as part of the preparation of the infrastructure plan or Netserv plan.

The alternative reform option increases the scope of trunk infrastructure for developers whilst providing reasonable certainty to local governments and distributor-retailers in relation to the financial liability of future offsets and refunds.

Infrastructure planning

Current framework

Under the current framework, local governments and distributor-retailers are required to provide detailed long-term plans for the delivery of infrastructure through the introduction of a priority infrastructure plan and Netserv plan, respectively. With the introduction of the maximum infrastructure charges framework in 2011, the detail required in a priority infrastructure plan or Netserv plan was reduced.

Reform option

The Discussion Paper identifies stakeholder issues as relating to the onerous and time consuming amendment process for a priority infrastructure plan and Netserv plan and the limited detail now required in a priority infrastructure plan and Netserv plan resulting in a lack of clarity and consistency in infrastructure conditioning, offsetting, refunding and infrastructure agreement processes.

The Discussion Paper proposes a reform option with the following elements:

• Infrastructure plan – Local governments are required within two years to include in their planning schemes an infrastructure plan which contains a similar level of detail to that required in a priority infrastructure plan prior to the introduction of the maximum adopted charges regime but with the option of either:
  • including a cost apportionment methodology and applying planned charges, or
  • not including a cost apportionment methodology and applying capped charges.
• Netserv plans – A review of the Netserv plan requirements under the South East Queensland Water (Distribution and Retail Restructuring) Act 2009 is to be undertaken by DSDIP in collaboration with the Department of Energy and Water Supply.
• Standardisation – Infrastructure plans are proposed to be standardised in three ways:
  • Cost apportionment methodology – This proposal involves adopting a standardised methodology for apportioning the cost of trunk infrastructure to future demand which may include one of the following identified methodologies:
    • average cost methodology – the total existing and future cost of infrastructure is divided by the total existing and future demand for the infrastructure to calculate a cost per demand unit for an area,
    • incremental cost methodology – the future cost of infrastructure to service future demand is divided by the future demand.
  • Standard schedule of works model – This proposal involves adopting a standard approach and format for the calculation and presentation of data in schedule of works spreadsheets. Draft templates are available for download on the at www.dsdip.qld.gov.au/forms-templates/infrastructure-charges.html.
  • Standard demand generation rates – This proposal involves adopting a standardised approach to calculating infrastructure demand to appropriately apportion the cost of infrastructure between developments. The proposed process involves:
    • determining the total planned demand in each network service area,
    • determining the total infrastructure cost for each area,
    • determining the average cost per demand unit by dividing the total cost by the total demand,
    • testing the corresponding demand generation table against this information to ensure that demand generation rates are accurate.
• Third party review – Infrastructure plans are proposed to be subject to third party review with the results of the review being further reviewed by the State government.
• Transitional arrangements:

– Prior to the adoption of a new infrastructure plan, relevant development approval conditions are to be assessed on a case by case basis to ensure compliance with the new system.

– Local governments will be given a set period (stated to be two years) within which an infrastructure plan or Netserv plan is to be prepared.

– Local governments will be required to attach a compliant infrastructure plan to a planning scheme within a year of the planning scheme's adoption. This recognises the practicality that infrastructure plans (including planned charges) can only be resolved after the land use policy issues in a planning scheme have been finalised.

– A local government or distributor-retailer which has not prepared an infrastructure plan or Netserv plan will be able to condition the provision of essential infrastructure (presumably under the more limited non-trunk infrastructure condition powers) but will be limited to applying capped charges.

Implications of reform option

The reform option addresses the stakeholder issues without having significant implications for local governments and distributor-retailers given that they are provided with the option of implementing a cost apportionment methodology and applying planned charges or not implementing a cost apportionment methodology and applying capped charges.

In relation to the proposed cost apportionment methodology, economic theory tells us that resources will be allocated efficiently when prices are equal to the marginal costs being the costs associated with an increment in supply - the cost of producing one more widget or the cost of providing roads for one additional subdivision or water pipes to one more housing development. A marginal cost methodology therefore reflects true cost pricing as marginal costs will take account of urban form matters such as location, density, local context and type. (See Blais, P, Perverse Cities, 2010, p.163)

However implementing marginal cost pricing can be complex and difficult to estimate and to allocate to users. A practical alternative is an "average incremental cost approach" which combines marginal and average cost pricing and involves allocating each element of cost to a particular incremental decision that results in the provision of a service and then to assign to each additional user the increased cost attributable on average to their usage. (Perverse Cities, p.173)

Alternative reform option

The following alternative reform options are suggested:

• Cost apportionment methodology – The cost apportionment methodology should satisfy the following:
  • Marginal cost – be based on a marginal cost approach where possible or an average incremental cost approach where marginal cost pricing is not possible.
  • Flexibility – be capable of variation between local governments (given their differing development settings) and between trunk infrastructure networks.
• Standard construction indexes and contingencies – The State should also identify standard construction indexes, contingencies and administration costs for use in infrastructure plans and Netserv plans in addition to the proposed standardised land valuation methodology.
• Standard schedule of works – The standardised schedules of works may be too simplistic to reflect more sophisticated and flexible infrastructure charges models and as such, should not be mandated.
• Standard demand generation rates – The mandatory use of standard demand generation rates does not take account of different development settings and as such, should not be mandated.

Capped charges

Current framework

When levying infrastructure charges, local governments are currently limited to levying charges less than or equal to the relevant maximum adopted charge specified in the State Planning Regulatory Provision (Adopted Charges) 2012. This system of capping charges to a clear maximum amount provides a measure of certainty to the infrastructure charges framework.

Reform option

The key issues identified in the Discussion Paper in relation to the current system of capped charges include:

• No link between infrastructure charge and demand – The demand metric (number of bedrooms or GFA) doesn't necessarily reflect the infrastructure demand created by the development and there is little link between the charge and the demand.
• Better alignment of categories with land use – Charge categories need to be better aligned with types of land use to better reflect demand for infrastructure.
• Higher charges on non-residential development – Non-residential development types may currently be too heavily charged on the basis of the attribution of a high degree of traffic generation to these types of development.

The Discussion Paper does not propose any reform options for capped charges as an analysis is to be completed by 31 January 2014. However, the Discussion Paper identifies that the analysis is proposed to:

• quantify the impacts of the final reforms on current capped charges and implement appropriate amendments;
• consider differentiating charges on the basis of location and type of development;
• take place concurrently with the implementation phase of other aspects of the reform;
• consider the financial sustainability of local governments and impacts on the feasibility of development;
• involve consultation with local governments and other stakeholders; and
• consider the appropriateness of the current degree of traffic generation attributed to non-residential development.

The Discussion Paper outlines three options for differentiation of capped charges:

• Statewide charges – It is identified that whilst this option is administratively simple, it does not accommodate regional variations in development and infrastructure delivery costs.
• Location based differentiation – It is identified that greenfield development may require more new infrastructure in comparison to infill development although DSDIP analysis indicates that the differences are small.
• Development type differentiation – The issues and corresponding possible solutions specified in the below table are to be further considered in relation to the refinement of the capped charges categories:

 

Table 4: Issues with capped charges

 

Development type		Identified issue for the development type	Proposed solution for the identified issue
Residential	Dormitory-style accommodation	Charges are currently being levied on a per-bedroom basis which is often inappropriate for this type of development	Levy charges on a per-bed basis, rather than per-bedroom
	Retirement facilities	Maximum charges currently equivalent to a dwelling house which may overstate the infrastructure demand	No solution proposed at this time
Non-residential	Warehouses and residential care facilities	Current system of charges often overstates the infrastructure demand	No solution proposed at this time
	Education facilities	Charges are currently being levied on a GFA basis of assessment	Schools Regulatory and Financial Reform Sub-Committee has issued a recommendation that charges move to a per-student basis of assessment

 

 

Implications of reform option

The proposed review of capped charges should take account of the Productivity Commission's key findings and recommendations in the Taxation and Financial Policy Impacts on Urban Settlement in respect of the impacts of charging reforms:

• While the incidence of developer charges and other contributions at any particular time will depend on the characteristics of the market, it is most likely in the longer term that they will fall on purchasers of developed land [chapter B5, section 5.1].
• In principle the timing of charges should make little difference to the burden of finance; in practice it may do so because of mechanical lending rules used by banks, the uncertainty created by the potential for public authorities to alter future charges, and government guarantees on the borrowings of public authorities [chapter B5, section 5.1].
• Statistical analysis conducted by the Commission suggests that the consumption of urban land in aggregate is not very responsive to changes in its price (and hence to changes in infrastructure charges). However this does not preclude changes occurring in the pattern of land use within cities, as illustrated by additional modelling undertaken by the Commission. Eventual impacts would depend upon the flexibility of land use restrictions and adjustment costs [chapter B5, section 5.2].
• The mix of people's income levels, household types and ages in the different parts of major cities suggests that the effects of reforms which led to higher charges would not fall disproportionately on any identifiable community group [chapter B5, section 5.3].
• The provision of subsidised urban infrastructure, or concessional charging for it, is not an efficient means of meeting equity objectives. Practical measures to shield deserving categories of people from hardship are better directed to them as people, rather than to the areas where they are thought to live, or to the city-wide networks of urban services they use [chapter B5, section 5.3].
• Charges for existing households should be examined as part of any reform of pricing structures. It would be equitable for established residents to at least face charges that matched the cost of replacing infrastructure required to service them [chapter B5, section 5.3].

Alternative reform option

• Whilst planned charges are a better public policy instrument than capped charges for the reasons outlined by the Productivity Commission, if capped charges are to be retained then the following alternative reform options are suggested:
• Location based differentiation – Capped charges which reflect different location settings such as existing urban areas, growth areas (infill and greenfield) and rural and regional areas.
• Development type differentiation – Non-residential development is charged against floor area on the theory that floor area reflects occupancy and that this is what drives capacity-related costs. However floor space reflects occupancy quite poorly given that floor space per employee varies so much between types of non-residential development. It is suggested that types of densities for each type of development be used to construct an estimate of square metres of land area per employee for each category of use. This methodology has the significant advantages of better pricing for marginal costs and of encouraging the densification of development. (Perverse Cities, pp.180-181)
• Proportional amount for distributor-retailers – A methodology needs to be established to calculate the proportionate amount of a capped charge for water supply and sewerage infrastructure networks for distributor-retailers and local government infrastructure networks.
• Distributor-retailer institutional financial arrangements – The reduced revenue from capped charges as a result of the limitation of essential infrastructure, the deeming of unplanned trunk infrastructure and more expensive offset and refund policies, will have significant financial implications on distributor-retailers who are required to provide a return to shareholder local governments and whose utility charges are regulated. In the absence of considered reform, it is inevitable that distributor-retailers will have to reduce their capital and operating budgets to adjust to the reduced revenue environment or increase debt levels or reduce returns to shareholding local governments.

Planned charges

Current framework

The current framework has prohibited local governments from adopting infrastructure charges above the maximum adopted infrastructure charges.

However, some local governments, principally in high growth areas, have requested the ability to adopt infrastructure charges above the capped charges.

Reform option

The Discussion Paper proposes the following reform option:

• Capped charges – These are to be retained as the default option for the levying of infrastructure charges where a local government prepares an infrastructure plan not incorporating a cost apportionment methodology.
• Planned charges – These are to be adopted where a local government prepares an infrastructure plan incorporating a cost apportionment methodology and the resulting planned charges are subject to a third party review assessment process and are approved by the Minister.

The proposed process involves the following four stages:

• Local government assessment – The local government decides whether or not to levy a planned charge.
• Local government financial analysis – This stage involves the following steps:

– Step 1 – Network review:

> The local government reviews the asset management plan and infrastructure plan to determine the cost profile for delivery of the infrastructure network.

– Step 2(a) – Review infrastructure scope:

> The local government estimates the future approach with respect to infrastructure development.

> If this approach would not be financially sustainable, the assessment in step 2(b) is undertaken.

– Step 2(b) – Financing options:

> The local government identifies the funding shortage and the possibility of the local government financing the infrastructure itself.

– Step 3 – Impact analysis:

> Using the information identified above, an assessment of the impact on local government financial sustainability is undertaken.

> It is proposed that the Queensland Treasury Corporation be authorised to undertake a review of this assessment.

• Development feasibility analysis – This stage involves the following steps:

– Step 1 – Feasibility assessment:

> The local government identifies areas impacted by the proposed infrastructure charges, assesses the impact within those areas on the goal of development feasibility and prepares a report.

– Step 2 – Third party review:

> The local government provides the report prepared in Step 1, in addition to relevant further information, to an independent third party who is to review the information, conduct further research and testing, and issue a binding recommendation.

> Under this proposal there would be no right for an individual developer to appeal a planned charge on the basis that it makes their proposed development unfeasible, as the planned charge is to apply to the whole local government area.

– Step 3 – Ministerial determination:

> The Minister receives the outcomes from the impact assessments and decides whether to accept or reject a planned charge.

• Ministerial determination – This stage involves the Minister accepting or rejecting the proposed planned charges. A sunset clause of 3-5 years has also been suggested to encourage continual review of planned charges.

Implications of reform option

The reform option provides for a planned charges assessment process through which a planned charge is assessed in terms of the impact on local government financial sustainability and development feasibility.

In the absence of planned charges, high growth local governments face intense pressure from anti-growth contingencies largely because those groups understand that they are being forced to pay for much of the cost of rapid infrastructure expansion through their property taxes. In practice when local governments find themselves feeling development pressures, the most realistic alternative to user pay levies tend to be growth controls or other exclusionary tools intended to limit growth. (See Burge, GS, The Effects of Development Impact Fees on Local Fiscal Conditions, 2009, p.198.)

The proposed planned charges assessment process has the following implications:

• Reduced planning costs – The alignment of price signals through planned charges with planning objectives will reduce the direct costs of implementing and administering planning through reducing growth controls and other exclusionary controls.(Perverse Cities, p.162.)
• Social and environmental costs and benefits – The assessment process takes no account of the social and environmental costs and benefits of the planned charges; being limited to an analysis of the impact on local government finances and development feasibility.
• Development feasibility – The assessment of the impact of planned charges on potential development categories will:
  • be complicated and difficult, if not impossible, given that development feasibility is changeable depending on macro scale factors such as market conditions, current land supply cycles, demand cycles and finance policies as well as the financial position and required rates of return of individual developments, and
  • impose a significant burden on local governments and distributor-retailers.
• Local government empowerment – The proposed approval of planned charges is at odds with the State government's stated policy of empowering local government. The State government does not purport to approve other local government rates and charges.
• Administrative burden – A significant resource and financial burden will be imposed on local governments and distributor-retailers in relation to administering the assessment process.
• Uncertainty – The requirement for Ministerial approval for planned charges will give rise to uncertainty given local governments' previous experience with long delays in the Ministerial approval of infrastructure charges schedules under priority infrastructure plans under the previous State government.
• Distributor-retailer institutional arrangements – The proposed planned charges assessment process is in addition to the existing institutional arrangements for regulating utility charges for water supply and sewerage. It would be more efficient for the review of planned charges to be carried out within the existing institutional arrangements.

Alternative reform option

The implications of the reform option could be addressed by adopting an alternative reform option which requires a local government and distributor-retailer to prepare a traditional cost-benefit analysis for the planned charges which would ensure that the economic, social and environmental costs and benefits of the planned charges are rigorously considered prior to their adoption.

Conditions

Current framework

Local government may impose development approval conditions for land, work and financial infrastructure contributions as an alternative or supplement to levying infrastructure charges. Currently, shareholding local governments impose conditions on behalf of a distributor-retailer under a delegated assessment model; but under the proposed utility model a distributor-retailer would be empowered to impose development approval conditions.

Reform option

The Discussion Paper envisages that the conditioning of non-trunk and trunk infrastructure would not be changed but that the reform option for deemed trunk infrastructure would address stakeholder issues in respect of the possibility of a local government both levying infrastructure charges for a development and also conditioning the provision of infrastructure which is to be shared with existing and future development for the development.

The reform option for trunk infrastructure and its implications have been considered earlier in respect of the identification of trunk and non-trunk infrastructure.

Alternative reform option

Whilst the Discussion Paper states that the conditioning powers of non-trunk and trunk infrastructure would not be changed, the various reform options raise significant uncertainty in respect of the conditioning of development approvals including the following:

• Non-essential infrastructure – It appears that conditions will not be able to require financial, land and work contributions for non-essential development infrastructure. This raises questions about the legality of conditions relating to non-essential infrastructure such as conditions intended to:
  • preserve arterial and sub-arterial road corridors,
  • preserve amenity standards such as noise and light barriers on roads,
  • preserve environmental values such as fauna management crossings.
• Refunds – The following issues are unclear:
  • Timing for payment of refunds – It is uncertain if refunds are payable at:
    • the completion of the trunk work or provision of trunk land,
    • the completion of a stage of the development, or
    • completion of the development.
  • Funding source of refunds – It is uncertain whether refunds are to be paid from:
    • infrastructure charges received from premises serviced by the trunk infrastructure which has been provided (as is currently the case),
    • infrastructure charges received for other infrastructure networks (cross crediting of refunding),
    • infrastructure charges received from premises not serviced by the trunk infrastructure, or
    • other revenue sources.
• Out of sequence or inconsistent development – The following issues are unclear:
  • Additional trunk infrastructure costs – It is difficult to understand the operation of the conditioning powers under sections 650 to 652 of the SPA for additional trunk infrastructure costs for out of sequence or inconsistent development in the context of the reform option for the identification of deemed trunk infrastructure associated with out of sequence or inconsistent development.
  • Refund of additional trunk infrastructure costs – The Discussion Paper does not discuss the operation of the provisions in section 651 of the SPA for the refunding of additional trunk infrastructure costs for inconsistent development in the context of the reform option for offsets and refunds.

Offsets and refunds

Current framework

Under the current framework, where a development approval condition requires the provision of trunk infrastructure for a development in respect of which an infrastructure charge is levied, the applicant is entitled to the following:

• Offset – The value of the trunk infrastructure is to be offset against the infrastructure charge.
• Refund – Where the value of the trunk infrastructure contribution is higher than the infrastructure charge, a refund is to be provided, on terms to be agreed, from infrastructure charges for the development of premises serviced by the trunk infrastructure.

Offsets and refunds are generally negotiated and set out in an infrastructure agreement.

Reform option

The Discussion Paper identifies the following trunk infrastructure issues in respect of offsets and refunds:

• Uncertainty – The uncertainty of the scheme of offsets and refunds in the absence of any supporting guidance framework.
• Undervaluation – The potential for the value of the land and works subject to an offset or refund to be underestimated in the absence of a uniform valuation method.

The Discussion Paper proposes reform options involving the following elements:

• Valuation of trunk infrastructure – The value of provided trunk infrastructure would be based on either:
  • the planned value in the infrastructure plan,
  • the actual value of the trunk infrastructure determined in accordance with a local government procurement process, or
  • the applicant would be entitled to choose either of the above two options.
• Standardised land valuation methodology – It is proposed that a standard land valuation methodology be adopted although no particular methodology is stated.
• Cross crediting of offsets – It is proposed that offsets for a trunk infrastructure network be applied to the proportion of an infrastructure charge applicable to other trunk infrastructure networks.
• Offset banking – The value of offsets from an earlier stage of the development approval may be retained and valued in demand units not cash for offsetting against infrastructure charges for subsequent stages.
• Transferable offsets – Offsets may be transferred to other sites owned by the same developer in the respective local government area or a distributor-retailer's geographical area.

Implications of reform option

The reform option for the adoption of a standardised land valuation methodology will provide greater certainty in terms of the preparation of an infrastructure plan and the valuation of offsets and refunds for land contributions for trunk infrastructure.

However, the balance of the reform option will have significant implications:

• Probity and public interest – The proposal that the value of an offset will be the planned value or that the applicant will have the right to apply either the planned value or the actual value will create probity and public interest issues where the actual value of the trunk infrastructure is less than the planned value. In such circumstances, an applicant is receiving a financial benefit in the form of a reduced infrastructure charge or a refund which exceeds the actual cost incurred for the trunk infrastructure. The resulting probity and public interest issues may give rise to broader political issues for a local government and distributor-retailer.
• Reduced infrastructure charges – The revenue sourced from infrastructure charges will be materially reduced as a result of the value of offsets and refunds being increased by the following:
  • offsets and refunds being calculated either on an actual value which exceeds the planned value; or on a planned value in circumstances where the actual value is less,
  • offsets when held in demand units will escalate in value in accordance with the producer price index applied to infrastructure charges which is generally greater than the consumer price index which would preserve the value of the offset over time,
  • cross crediting the value of trunk infrastructure against infrastructure charges for other trunk infrastructure networks.
• Risk transference – The proposal that the value of an offset will be the actual value of the trunk infrastructure effectively transfers the risk profile of delivering an item of trunk infrastructure from the developer to the public and also provides the potential for the shifting of some development costs to trunk infrastructure costs.
• Infrastructure delivery – The likelihood of reduced revenue from infrastructure charges will delay the delivery of trunk infrastructure to service planned development by local governments and distributor-retailers.
• Development assessment – Local governments and distributor-retailers acting prudently will have to consider the financial implications of a proposed development in terms of the likely offset and refund prior to determining a development application thereby potentially resulting in a delayed assessment process and the potential for increased refusals of development applications.
• Administrative burden – The transference of offsets will result in an additional administrative burden for local governments and distributor-retailers.

Alternative reform option

The implications of the reform option could be addressed by adopting an alternative reform option involving the following:

• Valuation of trunk infrastructure – The value of the provided trunk infrastructure should be based on the lower of the following:
  • planned value – calculated by reference to the infrastructure plan and the extrinsic material and studies upon which the infrastructure plan was prepared,
  • actual value – calculated initially in accordance with a local government procurement process prior to the commencement of work with an ability to vary the actual value at the completion of the infrastructure delivery process to take account of variations prior to the claiming of the offset.
• Valuation of offsets – The value of an offset should be given not in demand units but in cash which should be escalated to preserve its value in accordance with the following:
  • producer price index – if the trunk infrastructure is provided after the planned date of provision in the infrastructure plan, or
  • consumer price index – if the trunk infrastructure is provided before the planned date of provision in the infrastructure plan, so as not to encourage premature development.

Credits

Current framework

Under the current system of credits, existing lawful use rights and previous contributions may be taken into account as deductions when infrastructure charges are levied.

Reform option

The Discussion Paper identifies there is no legal requirement to apply credits and there is no standard methodology for calculating the value of a credit if a decision has been made to apply one.

The Discussion Paper identifies the need for a transparent methodology for applying credits that is administratively simple to implement and maintain and supports development feasibility estimates and development planning.

The reform option involves the following:

• Mandatory credits – Credits are to be provided for existing lawful use rights such that infrastructure charges may only be levied for infrastructure demand that is in addition to the demand provided for under the existing use rights.
• Register – Local governments and distributor-retailers will be required to provide for a more thorough recording of charges, credits and offsets for each lot. Details of the authority's credits policy must be made available through the authority's infrastructure plan, resolution or board decision.
• Credit policy – Public access is provided to a credits policy through an infrastructure plan, resolution or board decision.

Implications of reform option

Whilst the Discussion Paper identifies that the reform option imposes additional administrative burdens in terms of maintaining the record of charges for each and every lot within a local government area or a distributor-retailer's geographical area, the benefits of the reform option in terms of improving the accountability of the credits system significantly outweigh the additional administrative costs.

Appeals and dispute resolution

Reform option

The Discussion Paper states that the current system of appeals of dispute resolution is time and resource intensive. To achieve the specified reform objective of reducing the time and cost associated with infrastructure charges and conditions related appeals and dispute resolution the following reform options are identified:

• Pre-lodgement mediation process – This reform option would retain the rights of appeal under the current system for both planned and capped charges. However for appeals involving only infrastructure charges, a mediated dispute resolution process must be followed prior to an appeal being lodged with the Queensland Planning and Environment Court. Given the small number of appeals which would be affected by this proposal, the Discussion Paper appears to question the need for reform in this area.
• Widening of appeal rights – This reform option proposes to expand appeal rights to include one or more of the following:
  • the methodology used to calculate an infrastructure charge,
  • whether infrastructure the subject of a condition is trunk or non-trunk,
  • whether a condition related to infrastructure is reasonable and relevant,
  • the calculation of offsets, refunds and credits.

Implications of reform option

The Discussion Paper outlines the following potential implications of the reform options:

• Higher administrative costs – Both of the above options may lead to higher administrative costs for both the implementation and maintenance of the system.
• Impact of other reforms – There is the potential for the introduction of reforms to the other areas outlined earlier (e.g. standardised infrastructure planning) to reduce the need for reforms at the dispute resolution stage.

Infrastructure agreements

Current framework

Under the current system, infrastructure agreements are a mechanism by which infrastructure may be provided for and funded outside the maximum charges framework. A condition of a development approval may require compliance with an infrastructure agreement.

Reform option

The Discussion Paper identifies that infrastructure agreements are potentially complex documents that may be expensive to prepare and some local governments avoid the proper utilisation of an infrastructure agreement on this basis. Conversely, some local governments use infrastructure agreements to address issues which may be more appropriately dealt with by another mechanism.

The Discussion Paper proposes a reform option which seeks to retain the flexibility of the existing system while implementing measures to clarify where an infrastructure agreement is appropriate involving the following:

• Undertaking a review of the SPA sections relevant to infrastructure agreements.
• The removal of the power of local governments to attach development approval conditions requiring the preparation of an infrastructure agreement.
• Introducing a time limit on the negotiation of an infrastructure agreement.
• Preparing a set of guidelines to demonstrate the principles and requirements of an infrastructure agreement.

Alternative reform options

The following are suggested as alternative reform options:

• Conditioning of infrastructure agreements – The SPA empowers a local government to impose a condition of a development approval requiring compliance with an infrastructure agreement. (See section 346(1)(c) of the SPA.) The SPA does not authorise the imposition of a condition requiring the preparation of an infrastructure agreement and such a condition would, in any event, face significant legal difficulties in terms of satisfying the reasonable and relevant test. (See section 345 of the SPA.) Conditions of this nature can be subject to an appeal and, accordingly, it is suggested that a specific statutory prohibition is not necessary.
• Time limit for negotiation of an infrastructure agreement – In lieu of the specification of a time limit for negotiation of an infrastructure agreement, which is considered to be impractical, consideration could be given to the inclusion of a statutory duty on local governments, distributor-retailers and applicants to:
  • commence the preparation of an infrastructure agreement as soon as is reasonably practicable,
  • act co-operatively in the preparation of the infrastructure agreement, and
  • negotiate in good faith in respect of the infrastructure agreement.

Deferred payments

Current framework

Under the current system, the payment of infrastructure charges levied by a local government is to be made in accordance with the timeframe set out in the SPA. In respect of reconfiguration of a lot applications, charges are payable before the final sealing of a plan of subdivision. In practical terms this allows the local government to withhold the sealed plans until payment has been received.

Reform option

The Discussion Paper outlines the following potential options for deferring the payment of infrastructure charges until a project is nearer completion as an attempt to provide for a higher likelihood of project success:

• Mandate earliest payment at plan sealing – Under this option, the earliest that infrastructure charges may be paid is at plan sealing unless otherwise agreed between the parties. Payment may be further deferred by entering into an infrastructure agreement, with early payment being encouraged through the offer of discounts where payment is made early.
• Deferment until settlement of a lot – This reform option would push the time at which charges are payable back to the settlement stage and an outstanding infrastructure charge for land is to be notified on the title. Each local government would be entitled to decide whether or not to implement deferred payment as an option in their local government area. The Discussion Paper states that this reform option would require 'major adjustments' to the conveyancing process. The Discussion Paper appears to conclude that the benefits of the implementation of this option are outweighed by the potentially negative impacts on the finance industry, development industry and property purchasers.

Implications of reform option

Mandating plan sealing as the earliest date for the payment of infrastructure charges for reconfiguring a lot unless otherwise agreed is unlikely to have significant implications.

However the Discussion Paper does not consider the implications by a local government and distributor-retailer where infrastructure charges are not collected at the specified date due to an administrative oversight.

Alternative reform option

In addition to the specification of an earliest date for payment, consideration could be given to specifying a sunset period after the specified date for payment within which the infrastructure charge may not be collected by a local government or distributor-retailer.

Alternative funding and financing

Current framework

Under the current system of funding and financing infrastructure, local governments provide funding through means such as rates, government borrowing, user charges, public private partnerships and infrastructure contributions and distributor-retailers provide funding through user charges, infrastructure charges and government borrowing.

Reform option

The Discussion Paper identifies a number of proposed alternative funding and financing arrangements for local governments and distributor-retailers, including the following:

• Local governments:
  • Specific purpose securitised borrowing – Funds are borrowed for a specific project and are repaid out of the project's generated revenue.
  • Value capture levies – The rise in the value of land due to land development or construction of infrastructure is 'captured' to help fund necessary infrastructure.
  • Special purpose levies – These are issued in an area to raise the capital required to fund specific infrastructure in that area.
  • Growth area bonds – These are issued to finance infrastructure in a specific area and the debt is repaid through property tax revenues in that area.
  • Business improvement districts – Businesses within a defined area pay a tax or fee to finance infrastructure in that area.
  • Centralised financing – State and Commonwealth financing provides local governments with a structured debt to optimise borrowing.
• Distributor-retailers – Specific purpose securitised borrowing.

Implications of reform option

The Discussion Paper identifies that these arrangements are only applicable at the small scale and do not have broad State-wide application. As such they will be confined to having a more ad hoc application outside the existing framework.

Resolutions and distributor-retailer board decisions

Current framework

Under the current framework, infrastructure charges are set by an adopted infrastructure charges resolution or a distributor-retailer board decision. The Discussion Paper identifies concerns that some resolutions do not comply with the SPA.

Reform option

The Discussion Paper requests feedback on whether there is support for a third party review process for resolutions and board decisions or whether an alternative may be suggested.

Transitional arrangements

The Discussion Paper states that DSDIP is to work with key stakeholders to develop transitional arrangements relating to the following:

• Providing local governments with time to implement these reforms.
• Providing a stakeholder information program.
• Providing ongoing support to key stakeholders.

Next steps

DSDIP will review submissions on the Discussion Paper to inform the final content of the reforms. An analysis of the impacts on current capped charges is to take place with key stakeholders concurrently with the finalisation of content. The reform is to be finalised in time for commencement on 1 July 2014.