Reform of the Queensland infrastructure planning and charging framework Ian Wright Partner Planning Government Infrastructure and Environment team Construction and Engineering group
DSDIP Discussion Paper Discussion Paper on the review of Queensland's infrastructure planning and charging framework identifies three stages in the reform process: 1. Public consultation from 1 July 2013 to 9 August 2013 2. Government review and policy decision-making from 10 August 2013 to late 2013 3. Implementation from 1 July 2014 2
Draft Bill for consultation On 12 April 2014 DSDIP released for consultation: Sustainable Planning (Infrastructure Charges) Amendment Bill 2014 and explanatory notes Fair Value Essential Infrastructure List and Fair Value Infrastructure Charges Schedule Proposed capped framework in the Draft Bill is different to: Current capped framework of maximum adopted infrastructure charges (from 1 July 2011) Previous uncapped framework of uncapped infrastructure charges (from 2003 to 30 June 2011) 3
Draft Bill for consultation Draft Bill establishes a proposed capped framework for local governments (not distributor-retailers) Proposed capped framework for distributor-retailers is materially the same as for local governments 4
Themes of the presentation Presentation has 3 themes: 1. Identification of legal and practical implications of the proposed capped framework 2. Policy implications of the proposed capped framework 3. Concluding observations 5
Legal and practical implications - Key elements of the proposed capped framework Proposed capped framework key elements: Infrastructure scope Identification of trunk and non-trunk infrastructure Infrastructure planning instrument State infrastructure charging instrument Local infrastructure charging instrument Infrastructure charge Development charge Provision of trunk and non-trunk infrastructure Offset and refund for trunk infrastructure and development charge State infrastructure provider powers Infrastructure agreements Appeals 6
Legal and practical implications - Infrastructure scope Same definition of development infrastructure, except for deletion of the local function of State-controlled roads Fair Value Essential Infrastructure List prepared to inform the calculation of a Fair Value Infrastructure Charges Schedule which may provide access to co-investment funding by the State government Details of the co-investment funding arrangements are yet to be determined 7
Legal and practical implications - Identification of trunk and non-trunk infrastructure Local government to identify development infrastructure as trunk infrastructure in a LGIP Development infrastructure not identified as trunk infrastructure in the LGIP is non-trunk infrastructure Applicants can make a conversion application to convert nontrunk infrastructure to trunk infrastructure Identification of trunk and non-trunk infrastructure is the same, except for an applicant being able to make a conversion application 8
Legal and practical implications - Infrastructure planning instrument Local government required to prepare a LGIP - existing PIPs and the infrastructure planning components of AICRs are a deemed LGIP LGIP forms part of the planning scheme: Priority infrastructure area Planning assumptions Plans for trunk infrastructure Desired standard of service LGIP is similar to a PIP 9
Legal and practical implications - State infrastructure charging instrument Minister can prepare a SPRP (adopted charges) - existing SPRP (adopted charges) dated July 2012 is deemed to be the new SPRP (adopted charges) SPRP (adopted charges) may do the following: Maximum amount for an adopted charge Charges breakup between a local government and distributor-retailer Permitted development Parameters for the methodology of calculating the cost of infrastructure for offsets and refunds SPRP (adopted charges) will be similar, except for the inclusion of permitted development and the methodology for cost of infrastructure for an offset and refund 10
Legal and practical implications - Local infrastructure charging instrument Local government can adopt a charges resolution: Effective date Adopted charges Applicable area to which the adopted charges apply Increases in a levied charge from the date it is levied to the date it is paid Charges breakup between the local government and distributor-retailer Methodology for working out the cost of infrastructure for an offset and refund Charges resolution is similar to the AICR, except for the inclusion of the methodology for the calculation of the cost of infrastructure for an offset and refund 11
Legal and practical implications - Infrastructure charge - ICN ICN is materially the same, but for: ICN only for a local government development approval (not private certifier) ICN must state the following additional matters: Reasons for the decision and details of appeal rights How the levied charge has been worked out Details of any offset or refund Establishment cost of infrastructure to be referenced in the schedule of works in the LGIP Definition of establishment cost is materially different in the following respects: Existing infrastructure The value of works is reflected in the asset register whilst the value of land is its "current value" Future infrastructure The local government's financing costs are excluded Cost of infrastructure in a PIP is not the establishment cost of infrastructure for an offset or refund 12
Legal and practical implications - Infrastructure charge - Levied charge Proposed capped framework for a levied charge is similar, except: Only for additional demand placed upon trunk infrastructure Payable by the applicant including any person in whom the development approval vests Levied charge attaches to the land and can be recovered from a landowner 13
Legal and practical implications - Infrastructure charge - Infrastructure charge vs development charge Levied charge, like an adopted infrastructure charge, has the following important characteristics: Infrastructure charge has the primary goal of recovering the cost of trunk infrastructure Development charge has the primary goal of influencing the location and nature of development Average cost approach Marginal cost approach Levied charges do not achieve full cost recovery 14
Legal and practical implications - Development charge Local government can impose an additional payment condition for development inconsistent with LGIP Additional trunk infrastructure costs required by an additional payment condition is a development charge Additional payment condition intended to influence the location and nature of development 15
Legal and practical implications - Provision of trunk and non-trunk infrastructure - Legislative requirements Local government can impose a condition for trunk and non-trunk infrastructure if: Condition identifies one of the following heads of power: Trunk infrastructure is necessary to service the subject premises Non-trunk infrastructure is required for: An internal infrastructure network A connection to an external infrastructure network The protection or maintenance of the safety or efficiency of the infrastructure network Condition satisfies the relevant and reasonable requirement, which is satisfied if: Infrastructure is necessary Infrastructure is the most efficient and cost effective solution for other premises Infrastructure on premises is not an unreasonable imposition on the development 16
Legal and practical implications - Provision of trunk and non-trunk infrastructure - Conversion applications Applicant can make a conversion application to convert conditioned non-trunk infrastructure to trunk infrastructure if construction has not commenced Local government response: May require the applicant to give information to determine the application Must decide the application within 30 business days Must give a notice of the decision stating: If approved, details of any offset or refund If refused, the reasons for the refusal and details of appeal rights May amend the development approval in the following respects: Remove the non-trunk infrastructure condition Impose a necessary infrastructure condition for the trunk infrastructure Must give an infrastructure notice or amend an existing infrastructure notice 17
Legal and practical implications - Provision of trunk and non-trunk infrastructure - Conversion applications Conversion application process raises a number of issues: Conversion application can only be lodged after a development approval takes effect There are no decision criteria identified for the consideration of the determination application 18
Legal and practical implications - Offsets and refunds - Necessary infrastructure condition If a necessary infrastructure condition for trunk infrastructure is imposed, local government must: Identify in the ICN: Details of any offset or refund The reasons for the decision Recalculate the establishment cost of the trunk infrastructure and amend the ICN if requested by an applicant Offset the cost of the infrastructure against the levied charge and provide a refund if applicable 19
Legal and practical implications - Offsets and refunds - Refund amount Refund amount is to be the proportion of the establishment cost that: May be apportioned to other users Has been, is or is to be the subject of a levied charge Refund provisions raise a number of issues: Drafting inconsistencies Apportionment of establishment cost between users and non-users has methodological difficulties and administrative burdens Refund only for trunk infrastructure in a LGIP and not trunk infrastructure identified by a conversion application 20
Legal and practical implications - State infrastructure provider powers State infrastructure providers can impose a condition requiring infrastructure or protection of the operation of infrastructure for: State-controlled roads Public passenger transport Railways Ports Airports State-related condition cannot be imposed for any other State infrastructure Local government must reimburse a State infrastructure provider levied charges for local government infrastructure replaced by the State infrastructure 21
Legal and practical implications - Infrastructure agreements Arrangements for infrastructure agreements are materially the same, except: Distributor-retailer not a public sector entity: Cannot enter into an infrastructure agreement under SPA unless a public sector entity is a party Not required to give a water infrastructure agreement it enters into under the SEQ Water Act to a local government Parties have a non justiciable obligation to negotiate an infrastructure agreement in good faith 22
Legal and practical implications - Appeals Appeals to the Planning and Environment Court and a Building and Development Committee are materially the same, except for: Errors in an ICN for: Application of the adopted charge Working out of additional demand Decision about an offset or refund Refusal of a conversion application 23
Policy implications - Changed policy objectives Draft Bill policy objectives: "Establish a long-term local infrastructure planning and charging framework that is certain, consistent and transparent and which supports local government sustainability and development feasibility in Queensland." Current capped framework and previous uncapped framework policy objectives: "(a) (b) (c) (d) to seek to integrate land use and infrastructure plans; and to establish an infrastructure planning benchmark as a basis for an infrastructure funding framework; and to establish an infrastructure funding framework that is equitable and accountable; and to integrate State infrastructure providers into the framework." 24
Policy implications - Changed policy objectives Comparison of the policy objectives: Certainty, consistency and transparency are encompassed within the broader accountability objective Local government sustainability and development feasibility do not encompass the broader policy objectives of integration and equity Economic efficiency is not addressed Integration, equity and economic efficiency not addressed 25
Policy implications - Integration issues - Infrastructure planning Land use and infrastructure planning well integrated - LGIP identifies: PIA within which 10-15 years of land for future non-rural growth is to be serviced Planning assumptions for residential and non-residential growth in the PIA Plans for trunk infrastructure Productivity Commission has recognised "only Queensland's longer term indicative infrastructure delivery timeframes provide insights for town planners looking to make longer term planning decisions." 26
Policy implications - Integration issues - Infrastructure funding Primary goal of an infrastructure charge of cost recovery not achieved LGAQ estimates an annual $480 million shortfall between infrastructure charges and the cost of providing infrastructure to new development Capped infrastructure charges prioritise accountability and certainty over cost recovery No cost benefit analysis released by DSDIP Infrastructure and land use planning not integrated with infrastructure funding The Productivity Commission has recognised "Brisbane/South Queensland was found to have the strongest links between budget funded initiatives and priorities outlined in their metropolitan and infrastructure plans." 27
Policy implications - Integration issues - Basic policy objective Basic policy objective of any infrastructure planning and charging framework is to ensure the integration of land use, infrastructure and funding Proposed capped framework and current capped framework are unlikely to encourage this basic policy objective 28
Policy implications - Equity issues Provision of infrastructure and serviced land is not encouraged to take place in an equitable manner Proposed framework does not encourage: Horizontal equity Benefits principle Vertical equity Liability to pay principle Proposed capped framework encourages: Inequity between developers Inequity between landowners Political unacceptability in the short to medium term 29
Policy implications - Economic efficiency issues Economically efficient provision of infrastructure and serviced land not encouraged Economic efficiency not encouraged: Productive efficiency Land should be developed where the cost of providing additional infrastructure and serviced land is the lowest Allocative efficiency The price for infrastructure and serviced land should reflect the costs incurred in its provision Dynamic efficiency The infrastructure and serviced land to be provided in the short term should in the long term impose the least infrastructure cost with the greatest development choices Economically inefficient non-rural settlement patterns impose long term financial costs on State and local governments, smaller developers and landowners 30
Policy implications - Productivity Commission assessments Discussion Paper and the Report of the Infrastructure Charges Taskforce have not referred to the analysis by Productivity Commission or Henry Tax Review 1993 Report on Taxation and Financial Policy Impacts on Urban Settlement: 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. 31
Policy implications - Productivity Commission assessments 2004 Inquiry Report on First Home Ownership: Recommendation 7.1 Developer charges (and charging for infrastructure generally) should be: necessary with the need for the services concerned clearly demonstrated; efficient justified on a whole-of-life cost basis and consistent with maintaining financial disciplines on service providers by precluding over-recovery of costs; and equitable with a clear nexus between benefits and costs, and only implemented after industry and public input. Recommendation 7.3 Authorities and utilities imposing developer contributions and charges should: follow guidelines based on principles set out in recommendations 7.1 and 7.2 and be subject to independent regulatory scrutiny; provide for out of sequence development if developers are prepared to meet the cost consequences; be open to proposals for alternative infrastructure arrangements that meet the needs of the households concerned; allow appeals on the amounts charged, or their coverage; and be accountable for how money raised from charges is spent. 32
Policy implications - Productivity Commission assessments 2009 Australian Future Tax System (Henry Tax Review): Recommendation 70 COAG should review infrastructure charges (sometimes called developer charges) to ensure they appropriately price infrastructure provided in housing developments. In particular, the review should establish practical means to ensure that these charges are set appropriately to reflect the avoidable costs of development, necessary steps to improve the transparency of charging and any consequential reductions in regulations. 2011 Performance Benchmarking of Australian Business Regulation: Planning Zoning and Development Assessments: Broadly, the appropriate allocation of capital costs hinges on the extent to which infrastructure provides services to those in a particular location relative to the community more widely. The Commission has previously enumerated the following principles: use upfront charging to finance major shared infrastructure, such as trunk infrastructure, for new developments where the incremental costs associated with each development can be well established and where such increments are likely to vary across developments. This would also accommodate out of sequence development infill development where system-wide components need upgrading or augmentation that provide comparable benefits to incumbents, this should be funded out of borrowings and recovered through rates or taxes (or the fixed element in periodic utility charges) for local roads, paving and drainage it is efficient for developers to construct them, dedicate them to local government and pass the full costs on to residents (through higher land purchase prices) on the principle of beneficiary pays for social infrastructure which satisfies an identifiable demand related to a particular development (such as a neighbourhood park) the costs should be allocated to that development with upfront developer charges an appropriate financing mechanism for social infrastructure where the services are dispersed more broadly, accurate cost allocation is difficult if not impossible and should be funded with general revenue unless direct user charges (such as for an excludable service like a community swimming pool) are possible. 33
Conclusions - Reforms similar to current capped framework Proposed capped framework is not significantly different to the current capped framework Proposed capped framework introduces reforms for the administration of offsets and refunds: Identification of an offset and refund in an ICN Recalculation of the establishment cost of trunk infrastructure in accordance with the methodology in its charges resolution Consider whether to convert a non-trunk infrastructure contribution to a trunk infrastructure contribution, where requested Appeal rights to review decisions in respect of offsets and refunds and conversion applications 34
Conclusions - Impact of proposed capped framework Additional financial burdens on local governments: Additional administrative costs for the determination of ICNs, recalculation requests, conversion applications and appeals Reduced levied charges from higher offset and refund values However: Greater certainty for developers Reduced costs for administration of offsets and refunds for developers Likely to be less costly to administer than the current capped framework Does not address the issues of lack of integration, inequity and economic inefficiency associated with the current capped framework Financial impacts likely to give rise to further political unacceptability 35