Queensland infrastructure planning and charging framework review - commentary on DSDIP discussion paper released July 2013 - Part 1

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

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

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 (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:

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]):

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

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.

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