Outline of significant changes to the Development Contributions Policy 2018/19

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1 Outline of significant changes to the Development Contributions Policy 2018/19 Updated 4/4/2018

2 Hamilton City Council is updating its Development Contributions Policy ( the existing Policy ). The Council reviews the Policy whenever it embarks on its 10-Year Plan process. The purpose of the Policy is to enable the Council to recover from those people or organisations undertaking development a fair, equitable, and proportionate portion of the total cost of capital expenditure necessary to service growth over the long term. The Council is changing the Policy to better achieve this purpose. The Council plans for the proposed Development Contributions Policy ( the proposed Policy ) to become operative on 1 July The proposed Development Contributions policy can be viewed at hamilton.govt.nz/dcpolicy2018. Consultation requirements and timeline Section 102 of the Local Government Act states local authority may amend a policy adopted at any time after consulting on the proposed amendments in a manner that gives effect to the requirements of section 82 (Principles of consultation). A policy adopted under section 102(1) must be reviewed at least once every three years using a consultation process that gives effect to the requirements of section 82. There is no requirement to use the Special Consultative Procedure, and the Council s consultation on the Development Contributions Policy does not adopt that process. The Council will, however, run the consultation in parallel with the 10-Year Plan consultation process. This table outlines the steps and timeframes leading to the adoption of a revised Development Contributions Policy operative from 1 July Council meeting to approve the proposed Policy for public consultation Tuesday 27 March 2018 Public consultation open Thursday 29 March 2018 Public consultation closes Monday 30 April 2018 Council meeting to hear verbal submissions Tuesday/Wednesday 15/16 May 2018 Council deliberations meeting Thursday 31 May 2018 Council meeting to adopt the new Policy Thursday 28 June 2018 Revised Development Contributions Policy operative Sunday 1 July 2018 Proposed key amendments to the Council s policy on development contributions List of proposed amendments: 1. Removal of the CBD remission 2. Removal of existing capped charges 3. Recovery of capital expenditure outside the 10-Year Plan 4. Introduction of capped non-residential charges 5. Charge residential development contributions by the number of bedrooms 6. Removal of higher density residential charge category 7. Removal of ancillary unit charge category 8. Indexing of development contributions charges 9. Updated growth projections 10. Updated Schedule of Assets 11. Updated schedule of charges (excluding GST) 12. Updated catchment boundaries 13. Updated cost allocations 14. Housing Infrastructure Fund interest adjustment 15. Remission/special assessment and objection cost recovery fees Although the above list sets out the key proposed changes, it is not a list of all changes. You should review the draft policy in its entirety to see all changes. You are entitled to raise a submission on any part of the draft policy, not just the changes. Set out below is an explanation of the key changes identified in the list above. Page 2 of 10

3 Amendment 1 - Removal of the CBD remission The Council proposes to remove the CBD remission from the Policy. The CBD remission effectively means no development contributions are paid in the area defined in the Policy as the Central Business District (see attachment). This proposed amendment increases the fairness and equity of development contribution charges for those outside of this district and aligns with the Council s approach that those who most contribute to or benefit from Council s growth investment make a better contribution to the costs of growth. Developments remitted under the existing policy are funded by rates. The CBD remission was first introduced in the 2013/2014 Development Contributions Policy. The rationale at the time for introducing the CBD remission was to assist the Council s revitalisation objectives for the CBD. The development contributions revenue impact was anticipated to be low. Recently the value of CBD remissions has increased substantially. In the three years to 30 June 2016 the Council remitted $954,000 in development contributions under this provision, but since then Council has remitted $3.4M. This is expected to rise as developers race to secure CBD remissions in the knowledge of the proposal to remove the provision. At its 6 December 2017 meeting, the council resolved: That the Council, for the purpose of preparing a draft Development Contributions Policy, approves the removal of the CBD remission provision. The Council proposes to remove the CBD remission provision from the existing Policy, as outlined in paragraphs to and Map 8 from the proposed Policy. Amendment 2 - Removal of the existing capped charges The Council proposes to remove the existing caps applied to development contribution charges. Currently selected residential, commercial, industrial and retail sectors by catchment are capped at the 2012/13 Development Contribution Policy rates. This has led to ratepayers subsidising certain developments across the city to varying degrees. The removal of the existing caps will revert the development contributions charges to the unmodified modelled figure. The Council is also proposing to introduce new caps for the highest non-residential charges in the city. Please refer to Amendment 4 for details on the introduction of these caps. Capped charges were first introduced in the 2013/2014 Development Contributions Policy. Originally caps were introduced to promote economic development and maintain competitiveness in the non-residential market in comparison to charges imposed by other councils. Since then, economic conditions have improved significantly and land values have increased substantially, while development contributions, especially in non-residential sectors, have remained the same. At its 6 December 2017 meeting Council resolved: That the Council, for the purpose of preparing a draft Development Contributions Policy, approves the removal of caps on development contributions charges. The Council proposes to remove the existing caps from the development contributions charges. Amendment 3 Recovery of capital expenditure outside the 10-Year Plan The Council proposes to include certain strategic capital projects in its Development Contributions Policy Schedule of Assets, where the capital expenditure is programmed to occur outside the 10-Year Plan period. Recovering capital expenditure costs outside of the 10-Year Plan period ensures, where appropriate, the cost of large growth assets is collected over a longer period and the burden of payment is spread across more developments. For example, major strategic infrastructure that will benefit all growth in a catchment should be shared across all of those units of growth over the capacity life of that project. Legislation requires the Council to demonstrate the link between development today the need for the new infrastructure. Page 3 of 10

In 2014 the Government amended the LGA to include Schedule 13 1.

4 In 2014 the Government amended the LGA to include Schedule which states A territorial authority may identify capital expenditure for the purposes of calculating development contributions in respect of assets or groups of assets that will be built after the period covered by the long-term plan and that are identified in the development contributions policy. This amendment set the legal basis for charging for these specific projects which are outside the 10-Year Plan period. At its 6 December 2017 meeting the Council resolved: That the Council, for the purpose of preparing a draft Development Contributions Policy, approves the introduction of development contributions charges for the strategic capital projects that have costs programmed outside the 10-Year Plan period. The Council proposes to include within the schedule of assets the following projects where the capital expenditure occurs, at least in part, outside the 10-Year Plan period. Amendment 4 Introduction of capped non-residential charges High non-residential charges may supress development in the areas where they apply. Therefore, it is proposed a cap be introduced to the highest non-residential charges to mitigate the risk of non-residential development in greenfield growth cells being compromised. The Council s approach to growth funding is those who most contribute to or benefit from the Council s growth investment make a proportional contribution to the costs of growth. However, external economic advice is the highest non-residential charge levels will negatively affect development activity. As non-residential activities generate wider community benefits over and above that which residential do (e.g. employment, commodities, commerce) it is in the community s interests to introduce the cap. The Council proposes to cap all non-residential development contribution charges at $60,000 per 100m² of gross floor area water, wastewater, transport and site area for stormwater. Amendment 5 Charge residential development contributions by the number of bedrooms It is proposed the residential charge for development contributions be separated into four categories based on the number of bedrooms in the dwelling. This approach will better reflect true infrastructure demands and improve economic efficiency and the equitable spread of the development contributions burden across the residential sector. Development contribution charges should reflect infrastructure demand, which on average is driven by the number of people in a household. The number of people in a household is very closely related to the number of bedrooms per household (number of usual residents in household by number of bedrooms, for households in occupied private dwellings, 2001, 2006, and 2013 Censuses). The Council s rating data has been statistically correlated to Census data to determine how charges are split between dwelling size categories. Page 4 of 10

5 The Council staff have investigated recent growth patterns in Hamilton. The rating database shows, in greenfield growth cells, the typical detached dwelling has four or more bedrooms, while more than half of infill attached dwellings have two bedrooms or less. The existing Policy generally treats these different dwellings in the same way. The Council proposes to introduce four residential charge categories: one bedroom, two bedrooms, standard residential and large residential dwelling. For the purposes of classifying a new dwelling, the Council s staff will apply the criteria in the Policy to determine the applicable development contributions, The Council will advise the developer of their development contributions for a standard residential dwelling (being one household equivalent unit or HUE) per residential lot at the time of subdivision consent when more information on the final dwelling is not available. The Council will charge the additional development contribution on the building consent when the development is a large residential dwelling. However, no further residential development contribution will be required where the original assessment was made under a prior policy that did not calculate development contributions on a per bedroom basis. The residential assessment will be adjusted to reflect the actual number of bedrooms the dwelling will have if sufficient information is available prior to application for title. The proposed Policy definitions section includes explanation of the meaning of residential charge categories. Amendment 6 Removal of higher density residential units Due to the proposed change in how development contributions are assessed (see Amendment 5) there is no longer a need for the higher density category as the Council proposes charging residential solely on the bedrooms criteria. Under the existing policy some high-density developments received a discount for placing lesser demand on the Council s services but in fact placed demand equivalent to those of larger dwellings. In administering the current Policy, the Council s staff identified large attached dwellings would often receive a discount due to meeting the criteria set out under the higher density residential classification. This discount was based on both lower demand assumptions and the caps on charges described in Amendment 2. This discount was first introduced in the 2013/14 Development Contributions Policy. The original assumption leading to this discount being implemented was that higher density residential development places less demand on Council infrastructure than standard density development. Also, the purpose of this discount was to promote intensification. The Council proposes removing all references to higher density developments including paragraphs 6.19, 9.17 to 9.23, to 10.48, their sections in the schedules and Comprehensive Development Plan or Master Plan Areas & Residential Intensification Zone (RIZ) areas from Schedule 8 development contributions catchment maps. Amendment 7 Removal of ancillary units Due to the proposed change in how development contributions are assessed with the introduction of Amendment 5, the ancillary category is no longer needed and will be accounted for through the proposal to charge residential solely on the bedrooms criteria. The Council proposes to charge solely by bedrooms for consistency and fairness, as outlined in Amendment 5. Development contributions for ancillary units can be problematic to administer, and the removal will make the administration of the proposed Policy more efficient. Ancillary units currently pay 1/3 rd of a HUE. This discount was introduced in the Development Contributions Policy. The original assumption leading to this discount being implemented was ancillary unit development places less demand on the Council infrastructure than standard density developments. The administration of ancillary units under the existing Policy utilises staff resources disproportionately to the quantum of development contribution revenue generated. Page 5 of 10

6 The Council proposes to delete all references to ancillary units including paragraphs 6.4, 9.24 to 9.26, to and their sections in the schedules. Amendment 8 Indexing of development contributions charges The Council has elected to index its development contributions charges to create a better match between the charges levied and the total costs incurred by the Council, and to reflect the generally higher ability of future developers to pay relative to today. Economic advice received supports the use of indexing to preserve intergenerational equity. This aligns with the purpose of development contributions set out in the LGA. The effect of indexing is to reduce current year charges, and increase charges in future years. Modelled charges in earlier years are lower in an indexed model compared to an identical model not indexed, and vice versa for later years. The total development contributions recovered over the life of the model are therefore marginally higher in the indexed model due to the lower level of development contributions collected in the earlier years incurring more debt financing costs. Indexing provides better equity between different generations of development by spreading costs in a way that better reflects the present value of revenues received. In order to give effect to indexed modelled charges as described in the previous section, the Council at its sole discretion and in accordance with s106(2b-2c) LGA, will increase the capital component of development contribution charges annually based on the Producers Price Index Outputs for Construction rate provided by Statistics New Zealand. The existing development contribution model does not index the charges. Legal and economic advice supports indexing charges. The Council proposes to introduce indexing into the development contributions model. The charges presented in the proposed Policy have been indexed at the Council s long-term inflation rate forecast consistent with inflation assumptions in Council s 10-Year Plan. Amendment 9 Updated growth projections Growth projections were revised for residential, commercial, retail and industrial growth by catchment for These are based on updated National Institute of Demographic and Economic Analysis (NDIEA, University of Waikato) Low projections, actual growth in recent years, and the infrastructure capacity provided by the programme of capital works included in the Council s Year Plan. These growth projections align with the growth assumptions and related capital programme in the Council s Year Plan. Growth projections are a critical component of development contribution calculations, and more generally growth planning across the city. The Policy includes the growth projections the Council recently adopted. See Schedule 7 of the proposed Policy. Amendment 10 Updated Schedule of Assets The Council has updated its Schedule of Assets against which development contributions will be recovered (as set out under section 201A of the LGA). See the Schedule of Assets are on the Council s website (hamilton.govt.nz/dcpolicy2018) for the existing and proposed growth-related capital expenditure. The total costs to be recovered by the proposed Schedule is now $1,020m. This is up from $438m last year. Page 6 of 10

7 The purpose of the development contributions provisions in the LGA is to enable councils to recover from those persons or organisations undertaking development a fair, equitable, and proportionate portion of the total cost of capital expenditure necessary to service growth over the long term. The total cost of capital expenditure necessary to service growth is set out in the Schedule of Assets. The Council s proposed 10-Year Plan budget has a capital program with significantly more capital expenditure than the existing budget. Council proposes to adopt the Schedule of Assets. This growth-related capital expenditure is summarised in Schedule 2 of the proposed Policy. Amendment 11 Updated schedule of charges (excluding GST) The proposed development contribution charges have been revised based on the proposed 10-Year Plan capital programme, revised and expanded cost allocations, an updated Schedule of Assets and updated growth projections, in combination with other changes set out in this report. The existing and proposed charges for the new catchments are as shown below. See amendment 2 and amendment 4 for details about capped charges. Important note: Graphs are used below in an attempt to make it easier to compare the development contribution charges, as an alternative to using the comprehensive tables in Schedule 1 of the proposed Policy. The graphs illustrate common combinations of catchments and charges, but not all possible charge combinations. For example, only one of several combinations of possible retail transport charges and not all stormwater catchments are shown on the graphs. In addition, stormwater charges in Schedule 1 of the proposed Policy and the graphs below, are per 100m 2 site area, not floor area. Catchment amendments in the existing vs current charges in some cases means the comparison are not exact, and are only the best approximation. These graphs and tables are for first reference only. Please refer to the Schedule 1 of the proposed Policy for full charge schedules do determine development contribution charges. The Council proposes to adopt the schedule of charges. The full tables can be viewed in the proposed Policy in schedule 1 - development contribution charges. Page 7 of 10

8 Page 8 of 10 Outline of significant changes to the Development Contributions Policy

9 Amendment 12 Updated catchment boundaries The Council s integrated catchment management plan has informed boundary changes to stormwater catchments. Along with minor adjustments more significant boundary changes have been made between the following catchments: Otama-ngenge and Te Awa o Katapaki St Andrews and Te Rapa Stream Lake Rotokauri, Mangaheka and St Andrews St Andrews and Western Heights Temple View and Waitawhiriwhiri. The proposed changes to catchment boundaries overall will not have a material impact on the quantum of charges. But as the stormwater charge can differ greatly between catchments these boundary changes can greatly affect the charge for site which changes catchments. The Council has updated hydrological information regarding the stormwater catchments which informs the stormwater component of the development contribution charge. The Council proposes to amend the stormwater catchments. See the proposed Policy, Map 10 Catchments for Stormwater Infrastructure. Amendment 13 Updated cost allocations A substantive and comprehensive project-by-project analysis has been undertaken, under guidance from expert asset consultants, for allocating project costs from the proposed Year Plan capital program to growth. Programmes of work are split into their component projects and between different catchments to allow for a more fine-grained analysis. Costs are allocated spatially and by activity, while considering many factors and circumstances, principally based on growth causation e, benefits, and levels of service. The Council considers cost allocations in alignment with the development contribution principals set out in the LGA. Section 197AB (c) of the LGA states: Cost allocations used to establish development contributions should be determined according to, and be proportional to, the persons who will benefit from the assets to be provided (including the community as a whole) as well as those who create the need for those assets. Page 9 of 10

10 The Council s proposed Policy incorporates these cost allocations to determine development contributions. Amendment 14 Housing Infrastructure Fund Interest costs not incurred by the Council due to the Housing Infrastructure Fund (HIF) interest-free borrowing terms which are also not charged in the model. The effect of this is to prevent developers paying development contributions for interest never actually incurred by the Council. HIF is a government initiative to provide alternative funding sources for high growth councils with financial challenges in providing growth infrastructure necessary to maintain adequate housing supply. The Council has successfully applied to the Government for HIF funding of growth infrastructure projects to enable stage two of the Peacocke area to be developed. The Government has approved the HIF subject to final Council acceptance of loan agreement terms and on the Council approving its Year Plan (with the Peacocke growth infrastructure included) following the public engagement process. The charges presented in the proposed Policy incorporate the HIF interest cost offset. See Schedule 1. Amendment 15 Remission/special assessment and objection cost recovery fees While the Council has provided for the recovery of all its actual and reasonable costs incurred in determining a remission application in the existing and prior policies, to date no charge has been raised. Due to increased remission applications and the level of staff time required to assess them, the Council intends to begin recovering costs from the most resource-intensive applications. Council proposes to introduce hourly rates into its schedule of fees and charges to recover the actual and reasonable cost of development contribution remission/special assessment applications and objections. Staff time per hour Administration $88.00 Development Contributions Analyst/Assessment Officer $ Senior Strategic Policy Analyst/Development Contributions Officer $ Team Leader $ Unit Manager $ Page 10 of 10

Development Contributions Policy 2018: Springvale Urban Expansion Area and Otamatea West

Development Contributions Policy 2018: Urban Expansion Area and West 1 P a g e Development Contributions Policy 2018: Urban Expansion Area and West Originator: Damien Wood, Development Engineer Contact