This article concludes the discussion in our previous articles Queensland infrastructure planning and charging framework review - commentary on DSDIP discussion paper released July 2013 - Parts 1 and 2.
Offsets and refunds
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.
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.
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.
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
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.
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.
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.
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.
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
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.
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
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.
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.
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.
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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.