Review of local infrastructure contributions and associated improvements
On 15 April 2020, the NSW Planning and Public Spaces Minister Rob Stokes (the Minister) announced that Productivity Commissioner Peter Achterstraat has been appointed to commence a review of the current developer contributions system and provide recommendations for an improved system by the end of 2020.
In connection with this, a series of more immediate changes have been proposed and released for public comment. These changes include:
- improvements to the review process for s7.11 contributions plans;
- new criteria for when higher percentage rates for s7.12 contributions may apply; and
- the provision of further guidance material for entering into voluntary planning agreements.
Key aspects of these changes and the impact that these changes are likely to have on local councils and developers are discussed in further detail below.
Improvements to the review process for s7.11 contributions plans
Current review process – outdated and inefficient?
Under the current system for contributions levied pursuant to section 7.11 of the Environmental Planning and Assessment Act 1979 (EP&A Act), if a council wishes to charge a contributions rate in a contributions plan which is above the threshold set by the Minister in the Environmental Planning and Assessment (Local Infrastructure Contributions) Direction 2012 (Ministerial Direction), they must submit the contributions plan to the Independent Pricing and Regulatory Tribunal (IPART) for review. At present, the IPART assesses contributions plans that propose contributions above the threshold of $30,000 per lot or dwelling in identified greenfield areas and above $20,000 per dwelling in other areas.
Before a contributions plan is considered an ‘IPART reviewed’ contributions plan, a preliminary review process must be undertaken which involves several steps by the relevant council, IPART, the Department of Planning, Industry and Environment (Department) and the Minister’s nominee. Due to the multiple steps and agencies involved in this process, the Department has found that this process can take anywhere between 12-18 months to be completed.
Effect of proposed improvements
In summary, the proposed amendments to the contribution plan review process are:
- Increases to the value thresholds that trigger the review process
The abovementioned thresholds of $20,000 and $30,000 which currently apply are outdated, having been first introduced in 2008 and 2010, respectively. As a consequence, their value in real terms has continuously declined over the past decade, despite the cost of capital and land infrastructure continually increasing due to inflation and other factors.
It is expected that the need for the majority of section 7.11 local infrastructure contributions plans to be reviewed is a likely consequence of this situation, which will contribute to further delays in the review process. To avoid this, it is proposed that the value thresholds that trigger the review process are increased to accurately reflect current infrastructure costs.
- The implementation of an annual indexation mechanism for the thresholds that trigger the review process, based on the Consumer Price Index (CPI)
The proposal to implement an annual indexation mechanism for the thresholds that trigger the review process aims to address the abovementioned predicament from arising again in the future. As the CPI is an established and widely accepted index, the Department proposes to implement an annual adjustment of the thresholds using the CPI published figures for the March quarter of each year.
- A review of IPART terms of reference
The terms of reference for IPART were created when the maximum caps on infrastructure contributions rates were established. The latest amendments to IPART’s terms of reference occurred in 2018. Noting that maximum caps have not applied since 2017 for the majority of areas in NSW (as these were replaced with thresholds which trigger the review process) and that contribution caps are soon to be removed altogether, the terms of reference must be changed to reflect the present-day context and purpose of the review process.
A review of the terms of reference will aim to clarify the context of the review and streamline the process, especially for those plans which are proposing contributions rates that do not significantly exceed the threshold.
In addition, the terms of reference are to be narrowed as their current, open-ended wording, has meant that IPART have been required to undertake excessive community consultation and detailed analysis of contributions plans, in instances where this is not necessary given the level of impact involved.
- The removal of existing exemptions to the review process (i.e. ‘grandfathered’ contributions plans)
At present, land identified in Schedule 1 of the Ministerial Direction is not subject to the review process by virtue of the grandfathering of contributions plans which were introduced when the maximum caps on infrastructure contributions rates still applied. Schedule 1 of the Ministerial Direction applies to land in respect of which there was no cap on the amount of contributions that could be levied.
Since the thresholds have been established as triggers for the review process and the caps have been removed, Schedule 1 of the Ministerial Direction is no longer relevant and those contributions plans for the land identified in Schedule 1 should no longer be exempt from the new review process. By removing the exemptions, it will be clearer that the review process applies to all contributions plans that meet the review threshold triggers.
- The removal of the existing requirement for councils to re-exhibit an IPART reviewed contributions plan following the receipt of advice from the Minister’s nominee
At present, contributions plans can be amended to give effect to the advice of the Minister or Minister’s nominee in relation to implementing IPART recommendations, subject to the contributions plan being re-exhibited by council for a further 28-days following IPART’s review.
It is proposed that this requirement for re-exhibition is removed from the Environmental Planning and Assessment Regulation 2000 (EP&A Regulation), as this limits and disincentivise councils from making positive changes to a contributions plan in response to submissions received following the exhibition of the draft contributions plan.
For local councils, the series of improvements proposed are aimed at reducing the lengthy timeframes associated with the current review system, as well as ensuring that the system is in keeping with the latest planning requirements and the costs associated with local infrastructure delivery.
For developers, given that the thresholds have not changed since their introduction over a decade ago, the increases to the amount of contributions councils may be able to levy are likely to be considered quite substantial.
New criteria for when higher percentage rates for s7.12 contributions may apply
Section 7.12 of the EP&A Act enables councils to levy flat rate contributions to fund local infrastructure, meaning that contributions are charged as a percentage of the proposed development cost. Under the EP&A Regulation a maximum percentage of 1% is set which councils may levy under a section 7.12 contributions plan. However, select areas identified in the EP&A Regulation may be subject to higher maximum percentage levies. Councils are able to make requests to the Department for higher percentage rates for s7.12 contributions. At present, six local government areas are identified as having higher maximum percentage levies.
To ensure its process for assessing and determining requests for higher maximum percentage levies is efficient and transparent, the Department is proposing to adopt a set of clear criteria and request evidence from councils to assist with its assessment and determination of submissions made by councils to increase maximum percentage levies in specific areas.
The proposed criteria revolves around those areas identified:
- in a strategic plan as a strategic centre, local centre or economic corridor; and
- as having an existing or identified potential for significant employment growth.
Furthermore, the council’s planning controls will need to reflect and support the planned increase in population and employment capacity of the identified area.
Under these guiding principles, two sets of potential assessment criteria, for either an increase of the maximum percentage up to 2%, or up to 3%, have been proposed by the Department for discussion and feedback.
Further guidance material produced on voluntary planning agreements
An updated planning agreements policy framework has been developed by the Department. Although the framework was first exhibited in 2017, the policy has been reviewed in response to the diverse mix and complexity of the submissions received, to address the recommendations of the Kaldas Review and to align with current planning policies and practices.
The updated draft planning agreements policy includes:
- Draft Secretary’s Practice Note on Planning Agreements – the Practice Note provides updated and additional guidance material to councils and developers in order to enhance the transparency of planning agreement process. The Practice Note also emphasises the objective underpinning planning agreements, which is to provide a mechanism which enables the funding of creative and practical solutions to delivering infrastructure which responds to the community’s needs.
- Ministerial Direction on Planning Agreements – the Ministerial Direction aims to identify standard requirements for negotiating or preparing a planning agreement and is to be given to all local councils.
In addition to the above, we note that new Draft Special Infrastructure (SIC) guidelines have also been proposed. Amongst other things, the new guidelines clarify the method for determining a new SIC and the process for allocating SIC revenue to infrastructure investment once a SIC has been determined.
Falling under the State developer contributions framework, SICs are paid by developers to fund elements of state and regional infrastructure in growth areas of Greater Sydney and regional NSW.
Should you wish to find out more about the review of infrastructure contributions and associated improvements proposed and how these might affect you, please contact our team below.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.