Councils in the dark about contributions reforms: NXS Planning's Infrastructure Contributions Survey 2022

This article is Part 1 of a series that proposes to examine the infrastructure funding challenges faced by Local Governments in NSW, informed by direct survey responses from NSW Councils. Our hope is that these articles will stimulate an exchange of ideas and discussion amongst the infrastructure planning community that leads to meaningful change. 
​
During May 2022 we distributed a survey to 44 local councils in NSW asking them a range of questions related to infrastructure contributions in NSW. The intention of the survey was to obtain direct responses from those responsible for the management of infrastructure contributions within council on how they are dealing with issues under the following broad categories:

1. NSW Government's reforms to infrastructure contributions
2. Challenges in forward funding enabling infrastructure
3. Council's administration of infrastructure contributions

The survey covered Councils in a range of growth settings and locations; we heard from metropolitan high growth Councils in both infill and greenfield settings, high growth regional Councils, as well regional Councils that face a different set of challenges due to low population growth.

This article will look at what is likely to be the most topical issue in infrastructure planning circles currently - the proposed reforms to infrastructure contributions in NSW.

So....are we still reforming infrastructure contributions?​

During October 2021, DPE (then DPIE) released details of proposed infrastructure contributions reforms (reforms) in a public exhibition package. Technical submissions from Council staff were due by mid-December 2021 and Council endorsed submissions were extended until early March 2022 to account for Council elections.

Since the exhibition period ended, we have had a change in NSW's planning minister (see DPIE > DPE) which has led to increased speculation about the reforms being placed on the backburner. Infrastructure planning conversations are rife with rumours and hearsay alternating between the reforms proceeding and reforms being shelved.

The commencement of the reforms is scheduled for 1 July 2022. However, we are already in June of 2022 now, and 1 July is only a month away. Meanwhile, there has been no announcements or details received from the NSW Government about the results of the exhibition period or the status of the proposed reforms. DPE staff seemingly are no clearer than the rest of us about what will happen with the reforms.

So why does this lack of clarity matter? Well, because the reforms matter. A lot.

Results from our survey showed that 64 per cent of Councils think the reforms will have a 'high' impact on the management of infrastructure contributions at their Council in one way or another. Only one Council anticipated a low impact. Given the high stakes, one can imagine why Councils would like more clarity on whether the reforms actually happen or not.
​
These were not intended to be minor housekeeping reforms; they were supposed to be a wholesale restructuring of infrastructure contributions in NSW. What was originally proposed in the reforms would result in significant changes to key areas of infrastructure contributions influencing the amount and type of funding Councils receive. However, the detail provided in the October reforms has since taken some heat out of the reforms.

(The percentages do not add up to a 100 because multiple responses were accepted for some questions)

The amendments to the essential works list to reduce its scope are on top of most Councils mind but maybe less so since they were kicked down the road for 3 years or more. (Quick side note - Does anyone know how this impacts the new IPART review model? Supposedly the new review system worked because of the narrower essential works list. Does the new IPART review system still go ahead without the amendments to the essential works list? I asked IPART staff and they were just as much in the dark as the rest of us.)

The results showed us that regional Councils were particularly looking forward to the S7.12 reforms. This is because S7.12 is more suited to the infrastructure renewal projects regional Councils often undertake. Although replacement of the percentage levy with a capped and indexed rate adds more complexity to the system (contrary to the principles put forth by the productivity commission), the increased income still makes S7.12 a more attractive proposition.
​
Unsurprisingly, the lack of interest towards the Land Value Contributions (LVC) really stands out. This is further demonstrated by Council's response to the question below.

Only 3 Councils said they find the proposed Land Value Contribution (LVC) of any use. The remaining either said 'No' or that the LVC would need to be amended before they adopted it. For more details on why this is the case, I would like to direct you to an article I published in November 2021 which talked about why the LVC (as it is currently proposed) is woefully inadequate.

Perhaps the most significant reform proposed is the new Regional Infrastructure Contribution (RIC) framework. However, we will publish a dedicated article on the RIC because the current proposal demonstrates sheer lack of accountability and provides alarmingly little detail about how the significantly increased income will be spent.
​
To further highlight the impact of the reforms, every single one of the Councils we surveyed said they would have to amend their Contributions plans and/or policies when the reforms are adopted.

This is significant. As people who are familiar with contributions in NSW will know, Councils are not in the habit of regularly updating their Contributions plans.
​
Needless to say, the reforms will likely bring a significant administrative burden for Councils seeking to implement them, with 82 per cent of respondents indicating that they are concerned about the resources required by their Councils to implement the reforms.

Anecdotally, our discussions with Councils over this past year have indicated that Councils are holding off on preparing contributions plans until there is more certainty around exactly what is happening with the reforms. To our surprise however, that is not what the Councils told us in the survey.

It would appear that many of the Councils are sensibly choosing to progress with contributions plans instead of delaying new planned development. Digging into the results a bit more, we found that these are generally high growth Councils that are better resourced than low growth regional Councils. A pattern does emerge when we analysed responses to the question below from Councils who said they are holding off on work.

Many of the same Councils that are holding off on work are considering replacing a S7.11 plan with a new S7.12 plan under the reformed legislation. All of these Councils are either located regionally or on the fringe of metropolitan Sydney. The appeal is obvious - the new S7.12 plan will come close to matching the income of a S7.11 plan with less restrictions around the projects it can fund and no right of appeal is available to the developer.

As this article has (hopefully) shown, the reforms are a complex beast. Even though they have been watered down by changes to the essential works list being placed in limbo and the wasted potential of the LVC, our survey shows they will still have a high impact on most Councils and require significant resources to implement. There are also signs that some Councils are delaying projects until they have certainty around the reforms.

Which is why it is so important that some sort of status update from the NSW government is provided to Councils and the development industry. The lack of official guidance from the NSW government is generating uncertainty throughout the industry and is paralysing decision making by Councils impacting infrastructure contributions.

We hope an announcement will be made imminently to provide guidance to our industry.

More to come

This first article has barely scratched the surface of the valuable data we collected as part of our survey. The next article in the series will look at one area that the reforms did not address adequately - forward funding infrastructure.

If you have a question about our survey or some feedback on the discussion in this article, please feel free to get in touch with me.
Suyash Pareek
Director,
NXS Planning
0452030400
​[email protected]