Introduction

Infrastructure isn't everything but in the long term it is almost everything

The ultimate objective of urban planning is to improve the level and sustainability of a community's wellbeing. The living standards of a community are a function of its social, environmental and economic capital.

Infrastructure including both physical conveyance assets such as sewerage, water and transport (often called economic infrastructure) and specialised services such as schools and hospitals (often called social infrastructure), is critical to the social, environmental and economic capital of the community.

To channel Paul Krugman the Nobel winning economist, "Infrastructure isn't everything in urban planning but in the long run it is almost everything" (Krugman 1997:11).

Critically where the cost of development is high, it is largely because land prices are high and generally land prices are high when there is a shortage of well-located and serviced land (Low 2013).

Investment in infrastructure, in particular economic infrastructure, places downward pressure on land prices and ultimately the cost of development. When appropriately integrated with development through urban planning, infrastructure can therefore significantly improve productivity by promoting development at a lower cost.

This will be critically important especially in South East Queensland where it is estimated that the population will grow between 2012 and 2060 by some 2.3 million (up 110%) (PC 2013:51).

The planning and funding of infrastructure is therefore important, not only to drive productivity and economic growth in the short to medium term, but also to service our rapidly expanding cities and regions in the long term.

Bill introduced to parliament

It is against these challenges that the Queensland government's recent response to the funding of development infrastructure by local governments should be considered.

On 8 May 2014 the Queensland government introduced the Sustainable Planning (Infrastructure Charges) and Other Legislation Amendment Bill 2014 (Bill) and explanatory notes (Explanatory Notes) into the Queensland parliament. The Bill is expected to be passed, potentially with amendments, and implemented from 1 July 2014.
The Bill proposes an infrastructure planning and charging framework (proposed capped framework) which differs from the current capped framework and the previous uncapped framework:

  • Current capped framework – The current framework of maximum adopted infrastructure charges was introduced from 1 July 2011 (current capped framework) (Sustainable Planning Act 2009 (SPA): ch 8, pt 2, div 5A).
  • Previous uncapped framework – The previous framework of uncapped infrastructure charges existed from 2003 to 30 June 2011 (previous uncapped framework) (Integrated Planning and Other Legislation Amendment Act 2003 No. 64 (IPOLA): section 22).

The Bill establishes a proposed capped framework for local governments by amendments to the SPA and for distributor-retailers by amendments to the South East Queensland Water (Distribution and Retail Restructuring) Act 2009 (SEQ Water Act).

The proposed capped framework for local governments and distributor-retailers is materially the same, subject to any changes which may be required as a result of the implementation of the utility model for distributor-retailers. This paper focuses on the proposed capped framework from the perspective of a local government.

Themes of the paper

This paper has three themes:

  • First, the key elements of the proposed capped framework are considered in the context of the current capped framework and previous uncapped framework, to identify the legal and practical implications for applicants and local governments.
  • Second, the policy implications of the proposed capped framework are considered in the context of the current capped framework and previous uncapped framework.
  • Finally, some concluding observations are offered for the legal, practical and policy implications of the proposed capped framework.

Legal and practical implications of the proposed capped framework

Key elements of the proposed capped framework

The proposed capped framework comprises the following key elements which are addressed in this paper:

  • 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
  • Offsets and refunds for trunk infrastructure and development charge
  • State infrastructure provider powers
  • Infrastructure agreements
  • Appeals.

Infrastructure scope

The proposed capped framework is based on a definition of development infrastructure which is materially the same as the current capped framework and previous uncapped framework, other than for the deletion of the local function of state-controlled roads from the transport infrastructure component of development infrastructure (Bill: proposed new section 627).

A more limited infrastructure scope identified as the Fair Value Essential Infrastructure List has been prepared by the Department of State Development, Infrastructure and Planning (DSDIP) for the purpose of informing the calculation of a Fair Value Infrastructure Charges Schedule which, if adopted by a local government or distributor-retailer, may provide access to co-investment funding by the state government for catalyst infrastructure (Seeney 2014).

The details of the co-investment funding arrangements are yet to be determined but are intended to be focused on major developers due to the scale of their projects (Coutts 2014). Given the uncertainty associated with the co-investment funding by the state government, it is unlikely that local governments and distributor-retailers will adopt, at least in the short term, the Fair Value Infrastructure Charges Schedule.

Identification of trunk and non-trunk infrastructure

The proposed capped framework, like the current capped framework and previous uncapped framework, empowers a local government to identify development infrastructure as trunk infrastructure in a local government infrastructure plan (called an LGIP); with development infrastructure not identified as trunk infrastructure in the LGIP considered to be non-trunk infrastructure (Bill: proposed new section 627).

However under the proposed capped framework, if a local government has imposed a condition of a development approval requiring the provision of non-trunk infrastructure and the construction of the non-trunk infrastructure has not started, the applicant can make an application to the local government (called a conversion application) to convert the non-trunk infrastructure to trunk infrastructure (Bill: proposed new sections 658 and 659).

The identification of trunk and non-trunk infrastructure under the proposed capped framework is therefore the same as the current capped framework and previous uncapped framework, but for the significant policy change of an applicant being able to make a conversion application.

Infrastructure planning instrument

The proposed capped framework, like the current capped framework and previous uncapped framework, requires a local government to prepare an LGIP (Bill: proposed new sections 94A(1) and 117(2)); with existing local government priority infrastructure plans (PIP) and the infrastructure planning components of adopted infrastructure charges resolutions (called saved provisions) prepared under the current capped framework being transitioned as a deemed LGIP (Bill: proposed new sections 982 and 979(7)).

The LGIP forms part of the planning scheme and does any or all of the following (Bill: proposed new section 627):

  • Priority infrastructure area – It identifies the priority infrastructure area (PIA) being the area which (Bill: proposed new section 627):
    • is used or approved for use for purposes other than rural or rural residential purposes (defined as non-rural purposes) (Bill: proposed new section 627);
    • is serviced or intended to be serviced with development infrastructure networks; and
    • will accommodate between 10-15 years of growth for non-rural purposes.
  • Planning assumptions – It states the assumptions about population and employment growth and the type, scale, location and timing of future development.
  • Plans for trunk infrastructure – It contains the plans for trunk infrastructure the local government intends to provide or for which it intends to give infrastructure charges notices.

  • The plans for trunk infrastructure will identify the trunk infrastructure items to be provided by the local government including the establishment cost of the trunk infrastructure.

  • Desired standard of service – It states the desired standard of service for development infrastructure.

The LGIP under the proposed capped framework is similar to the PIP under the current capped framework and previous uncapped framework.

State infrastructure charging instrument

The proposed capped framework, like the current capped framework, empowers the Minister to prepare a State Planning Regulatory Provision (called an SPRP (adopted charges)) (Bill: proposed new section 629(1); cf SPA: section 648B).

The existing State Planning Regulatory Provision (adopted charges) dated July 2012 (existing SPRP) made under the current capped framework is deemed to be the SPRP (adopted charges) (Bill: proposed new section 983(1)).

The SPRP (adopted charges) may do the following:

  • Maximum adopted charge – It may state a maximum amount for an adopted charge (Bill: proposed new section 629(1)). This may subsequently be changed by the Minister by a gazette notice, but cannot be increased by more than the 3 year moving average annual percentage increase in the PPI index for the preceding 3 years (Bill: proposed new sections 629(2) and (3)).
  • Charges breakup – It may state the proportion of the maximum adopted charge between a local government and distributor-retailer (Bill: proposed new section 629(4)(a)) (called the charges breakup) (Bill: proposed new section 627).
  • Permitted development – It may state development for which there may be an adopted charge (Bill: proposed new section 629(4)(b)).
  • Method for working out the cost of infrastructure for an offset and refund – It may state the parameters for the method for working out the cost of infrastructure for an offset and refund (Bill: proposed new section 629(4)(c)).

The SPRP (adopted charges) will be similar to the existing SPRP under the current capped framework other than for the inclusion of permitted development which may be subject to an adopted charge and the method for working out the cost of infrastructure for an offset and refund.

Local infrastructure charging instrument

The proposed capped framework, like the current capped framework, empowers a local government to adopt a resolution (called a charges resolution) which must state the following (Bill: proposed new section 630(1); cf SPA: section 648D):

  • Effective date – The charges resolution must state the date when an adopted charge under the resolution takes effect (Bill: proposed new section 630(3)). The charges under the charges resolution take effect (Bill: proposed new section 634(2)):
    • if it is uploaded to the local government's website before the beginning of the identified date, on the identified date; or
    • if it is uploaded to the local government's website after the beginning of the identified date, on the day it is uploaded.
  • Adopted charges – The charges resolution may state a charge for providing trunk infrastructure for development (called an adopted charge) (Bill: proposed new section 630(1)) which must be consistent with the SPRP (adopted charges) in the following respects (Bill: proposed new section 631(1)):
    • Permitted development – The adopted charge must be for development for which an adopted charge is permitted.
    • Maximum adopted charge – The adopted charge must be for no more than the maximum adopted charge.
  • Automatic increase provision – The charges resolution may provide for increases in a levied charge from the date it is levied to the date it is paid (called an automatic increase provision) (Bill: proposed new sections 631(3) to (6)). This cannot provide for an increase in the levied charge that is greater than the maximum adopted charge or the 3 yearly PPI index average (Bill: proposed new sections 631(5) to (6)).
  • Charges breakup – The charges resolution must state the charges breakup between the local government and distributor-retailer for all adopted charges (Bill: proposed new section 632(4)).
  • Applicable area – The charges resolution may declare the part of the local government area to which the adopted charges are to apply (Bill: proposed new section 631(3)(a)).
  • Method for the working out of the cost of infrastructure for an offset and refund – The resolution must include a method for working out the cost of infrastructure the subject of an offset or refund being the trunk infrastructure identified in the LGIP or non-trunk infrastructure which is converted to trunk infrastructure by a conversion application (Bill: proposed new section 633(1)). The method must be consistent with the parameters in the SPRP (adopted charges) or a Ministerial guideline prescribed by a regulation (Bill: proposed new section 633(2)).

In essence the charges resolution under the proposed capped framework is similar to the adopted infrastructure charges resolution under the current capped framework other than for the inclusion of the method for the working out of the cost of infrastructure for an offset and refund.

Infrastructure charge

The proposed capped framework, like the current capped framework, empowers a local government to give an applicant an infrastructure charges notice (called an ICN) (Bill: proposed new sections 635(1) and (2)) which levies a charge in accordance with the adopted charge (called a levied charge) (Bill: proposed new section 627).

Infrastructure charges notice

An ICN under the proposed capped framework is materially the same as the current capped framework and previous uncapped framework other than for the following:

  • Local government development approval – An ICN can only be given for a development approval given by a local government such that an ICN cannot be given for a development approval of a private certifier for self assessable development under a local government's planning scheme (Bill: proposed new section 635(1)(a)).
  • Form of the ICN – The ICN must state the following matters in addition to those provided for under the current capped framework:
    • Information notice – The ICN must state the reasons for the decision and details of the appeal rights (Bill: proposed new section 637(2)).
    • Details of the calculation of the levied charge – The ICN must state how the amount of the levied charge has been worked out (Bill: proposed new section 637(1)(b)).
    • Details of an offset or refund – The ICN must state whether an offset or refund applies and if so, the details of the offset or refund (Bill: proposed new section 637(1)(f)). In order to identify the offset and refund it will be necessary to work out the cost of the trunk infrastructure. This will require reference to the establishment cost of infrastructure in the schedule of works in the plans for trunk infrastructure in the LGIP (although this is by no means clear).

    It is important to note that the definition of establishment cost under the proposed capped framework is materially different to the definition of establishment cost under the current capped framework in the following respects (Bill: proposed new section 627):

    • Existing infrastructure – The value of works is that which is reflected in the local government's asset register whilst the value of land is its "current value" which will be interpreted to mean market value.
    • Future infrastructure – The local government's financing costs are excluded.

    This has a number of practical consequences:

    • Operational issue – The effect of this is that the cost of infrastructure stated in a PIP under the current capped framework, which is a deemed LGIP under the proposed capped framework, is not the establishment cost of infrastructure for the purpose of determining an offset and refund under the proposed capped framework.
    • Policy issue – Given that the establishment cost of trunk infrastructure is not used to calculate a charge, as was the case with the previous uncapped framework, and is only used to work out an offset and refund, the exclusion of a local government's financing costs to fund the provision of trunk infrastructure is appropriate, otherwise those costs which are not met by an applicant would inflate an offset and refund.

Levied charge

The proposed capped framework for a levied charge is similar to the current capped framework other than for the following:

  • Additional demand – A levied charge may only be for additional demand placed upon the trunk infrastructure which will be generated by the development (Bill: proposed new section 636(1)). A levied charge must therefore exclude demand from an existing lawful use or a future use to be carried out under a further development permit (Bill: proposed new section 636(2)). As discussed earlier, the additional demand of future self assessable development can also not be included.
  • Levied charge attaches to the land – A levied charge is payable by the applicant including any person in whom the development approval vests, such as an owner of the subject premises to which a development approval applies.

Furthermore a levied charge attaches to the land such that it can be recovered from owners and their successors in title in the same way as a condition of a development approval requiring the payment of infrastructure charges under the previous uncapped framework could also be recovered from owners of land (Bill: proposed new sections 635(6)(b) and (c); Montrose).

Infrastructure charge versus development charge

A levied charge under the proposed capped framework, like an adopted infrastructure charge under the current capped framework, has the following important characteristics:

  • Infrastructure charge is not a development charge – A levied charge is an infrastructure charge which has the primary goal of recovering the cost of trunk infrastructure to be provided by a local government to service development (PC 2011:198).

  • A levied charge is different to a development charge which is a charge designed to internalise the marginal external costs that are imposed by development and which has the primary goal of influencing the location and nature of development (PC 2011:198).

  • Average cost approach not marginal cost approach – The maximum adopted charges in the SPRP (adopted charges) are calculated by reference to an average cost State-wide approach; whilst the adopted charges in a charges resolution upon which a levied charge in an ICN is based are calculated by reference to an average cost municipality-wide approach (Clinch and O'Neill 2010:2152).

  • The average cost approach whilst favoured by State and local governments for administrative simplicity and public acceptability, is generally not favoured by most smaller developers who prefer a marginal cost site-specific approach where an infrastructure charge reflects the cost of increasing the capacity of the infrastructure to serve an additional unit of demand (Clinch and O'Neill 2010:2152). This marginal cost approach is also recommended by the Productivity Commission, as is discussed later in this paper.

    Importantly, levied charges under the proposed capped framework, like the current capped framework, are based on an average cost approach and are capped. As such, levied charges in some cases do not achieve full cost recovery whilst in other cases results in over-recovery or a tax; policy positions which were intended to be avoided as was the case with infrastructure charges under the previous uncapped framework. As discussed later, the economic distortions resulting from under-recovery and over-recovery are likely to have significant public policy implications.

Development charge

The proposed capped framework, like the current capped framework and previous uncapped framework, empowers a local government to impose a condition on a development approval requiring the payment of additional trunk infrastructure costs for development inconsistent with the LGIP (called an additional payment condition) (Bill: proposed new section 650).

The additional trunk infrastructure costs required by an additional payment condition is a development charge which is intended to internalise a local government's marginal external costs imposed by development that is inconsistent with the LGIP.

An additional payment condition is therefore intended to influence the location and nature of development. This is unlike a levied charge, the primary purpose of which is cost recovery; albeit under the proposed capped framework and the current capped framework full cost recovery is far from being achieved.

Provision of trunk and non-trunk infrastructure

Legislative requirements for conditions

The proposed capped framework, like the current capped framework and previous uncapped framework, empowers a local government to impose a condition requiring the provision of trunk and non-trunk infrastructure if two statutory criteria are satisfied:

  • Head of power – The condition must expressly identify one of the following heads of power for the imposition of the condition (Bill: proposed new section 335(1)(e)):
    • Necessary infrastructure condition – A condition can be imposed requiring the provision of trunk infrastructure if the trunk infrastructure is necessary to service the subject premises and has not been provided or has been provided but is inadequate (Bill: proposed new sections 645, 646 and 647).
    • Non-trunk infrastructure condition – A condition can be imposed requiring the provision of non-trunk infrastructure for the following limited purposes (Bill: proposed new section 665):
      • Internal network – A network or part of a network internal to the premises.
      • Connection to external network – The connection of the premises to an external infrastructure network.
      • Safety or efficiency of network – The protection or maintenance of the safety or efficiency of the infrastructure network of which the non-trunk infrastructure is a component.
  • Relevant and reasonable requirement – The condition must also satisfy the relevant and reasonable requirement of the SPA (SPA: sections 345 and 406) which in the case of a necessary infrastructure condition is deemed to be met if the following are satisfied (Bill: proposed new section 648):
    • Necessary to service subject premises – The infrastructure is necessary to service the subject premises.
    • Efficient and cost effective solution – The infrastructure is the most efficient and cost effective solution for servicing other premises in the general area of the subject premises.
    • Infrastructure on the subject premises – The infrastructure, if provided on the subject premises, is not an unreasonable imposition on the development or the use of the subject premises as a consequence of the development.

Conversion application for non-trunk infrastructure

The proposed capped framework, unlike the current capped framework and previous uncapped framework, empowers an applicant to make a conversion application to the local government to convert the non-trunk infrastructure imposed in a development approval condition to trunk infrastructure, if the construction of the non-trunk infrastructure has not commenced (Bill: proposed new sections 658 and 659).

The local government is required to take the following action for the conversion application:

  • Decision criteria – A regulation may prescribe criteria relevant to a decision about the conversion application (Bill: proposed new section 660(2)). No draft decision criteria have been provided during public consultation.
  • Information requirement – The local government may, within 30 business days, require the applicant to give, within 10 business days, the information it reasonably needs to decide the application (Bill: proposed new sections 660(3) and (4)).
  • Determination of application – The local government must decide the application within 30 business days of the making of the application or the applicant complying with the information requirement (Bill: proposed new sections 650(1) and (6)).
  • Notice of decision – The local government must give a notice as soon as practicable of the making of its decision (Bill: proposed new section 661(1)) which must state the following:
    • If approved – whether an offset or refund applies and if so the details of the offset or refund (Bill: proposed new section 661(2));
    • If refused – the reasons for the refusal and the details of the appeal rights (Bill: proposed new section 661(3)).
  • Amendment of approval conditions – The local government may, within 20 business days of converting non-trunk infrastructure to trunk infrastructure, amend the development approval in the following respects (Bill: proposed new section 662(3)):
    • remove the non-trunk infrastructure condition which no longer has effect (Bill: proposed new section 662(2));
    • impose a necessary infrastructure condition for the trunk infrastructure (Bill: proposed new section 662(3)).
  • Infrastructure charges notice – The local government must, within 10 business days of the imposition of a necessary infrastructure condition, give an ICN or amend an existing ICN to reflect whether an offset or refund applies and if so, the details of the offset or refund (Bill: proposed new section 662(4)).

The conversion application process raises the following issues:

  • Development approval – The conversion application can only be lodged after a development approval takes effect. It cannot be commenced whilst an appeal is on foot for the development approval; presumably on the basis that any issue in respect of the status of the infrastructure will be resolved as part of the appeal.
  • Decision criteria – If there is an interim period in which a regulation has not prescribed decision criteria relevant to a decision about a conversion application, consideration may need to be given to determining interim criteria to determine conversion applications.

Offsets and refunds for trunk infrastructure and development charge

Necessary infrastructure condition

The proposed capped framework requires a local government which has imposed a necessary infrastructure condition requiring the provision of trunk infrastructure, to take the following actions:

  • Identification of an offset and refund – Unlike the current capped framework and previous uncapped framework, the local government must identify in the ICN the following:
    • whether an offset or refund applies and if so the details of the offset or refund (Bill: proposed new section 637(1)(f)) which is to be calculated by reference to the establishment cost of the trunk infrastructure stated in the LGIP (Bill: proposed new section 657(1)(b));
    • the reasons for the decision (Bill: proposed new section 637(2)).
  • Recalculation of the establishment cost for trunk infrastructure – Unlike the current capped framework and previous uncapped framework, the local government, where requested by an applicant, must recalculate the establishment cost of the trunk infrastructure using the method for working out the cost of the infrastructure in the charges resolution and amend the ICN accordingly (Bill: proposed new section 657).
  • Offset – The local government must offset the cost of the infrastructure against the amount worked out by applying the adopted charge (Bill: proposed new sections 649(1) and (2)).
  • Refund – The local government must, if the cost of the infrastructure exceeds the amount worked out by applying the adopted charge, provide a refund to the applicant the timing of which is to be agreed with the local government (Bill: proposed new sections 649(1) and (3) to (4)).

Additional payment condition

The proposed capped framework also requires a local government which has imposed an additional payment condition requiring the payment of additional trunk infrastructure costs for development completely in the priority infrastructure area, to provide to the applicant a refund, the timing of which is to be agreed with the local government (Bill: proposed new section 654).

Refund amount

The proposed capped framework, unlike the current capped framework and previous uncapped framework, provides that the amount of the refund is to be the proportion of the establishment cost of the infrastructure that (Bill: proposed new section 649(3); cf section 654(2)):

  • Apportionment – may be apportioned reasonably to users of premises other than the subject premises; and
  • Subject to levied charge – has been, is or is to be the subject of a levied charge.

The refund provisions for a necessary infrastructure condition and an additional payment condition raise a number of issues:

  • Inconsistency – There are subtle differences in the drafting between the provisions the significance of which is hard to distinguish.
  • Apportionment – The requirement to apportion the establishment cost between users and non-users of the subject premises, presents significant methodological difficulties and an additional administrative burden for local governments, given that the refund amount is to be stated in the ICN.
  • Infrastructure subject to levied charge – The requirement for a refund to relate to infrastructure that has been, is or is to be the subject of a levied charge by the local government, would appear to limit a refund to only trunk infrastructure in the LGIP and not trunk infrastructure identified by a conversion application. However it is far from certain whether this was intended.
Review of Queensland's new infrastructure planning and charging framework - Part 2

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