Review process for local contributions plans under discussion

NSW Contributions Review Series – Part 3: A focus on local contributions and levies 11 min read

As part of its suite of proposed 'system improvements' intended to address uncertainty in the NSW contributions system, the NSW Department of Planning, Industry and Environment (DPIE) has released discussion papers concerning the review of local contributions plans and the criteria for allowing councils to impose percentage levies in excess of the standard 1% maximum.

The measures canvassed in those discussion papers are likely to reduce scrutiny of contributions plans, by increasing the threshold for contributions plans to be reviewed by IPART and reducing opportunities for stakeholders to comment on draft contributions plans. On the other hand, the setting of clear criteria that must be satisfied before a council can charge higher percentage levies is a positive step that is likely to be welcomed by the development industry.

Key takeaways 

• DPIE is considering three options to increase the value thresholds that trigger the requirement for a draft contributions plan to be reviewed by IPART. It is important for the development industry to provide feedback on these options, given some of them may result in increases that are disproportionate to actual increases in the cost of providing public infrastructure and will result in reduced scrutiny of contributions plans.
• There is currently no proposal to reintroduce caps on contributions under section 7.11 of the Environmental Planning and Assessment Act 1979 (EPA Act). This may arguably be a missed opportunity to provide greater protection against levying of excessive contributions by councils, which are ultimately passed through to end purchasers.
• DPIE is proposing to remove the requirement for IPART to consult with DPIE, and other relevant stakeholders, during the review process, and the requirement for re-exhibition of contributions plans following the IPART review process. This will reduce opportunities for stakeholders' views to be heard.
• The standard 1% maximum levy under s7.12 of the EPA Act will be maintained for the majority of local government areas.
• Proposed new principles and criteria for councils to request higher contributions under s7.12 are a welcome development. In order to be most effective, these criteria should be mandatory and DPIE should publish a list of acceptable district-level infrastructure items that will satisfy the criteria.

Background

The EPA Act enables councils to require contributions towards local infrastructure from developers as a condition of development consent. These contributions can take one of two forms:

• a requirement to dedicate land or make a monetary contribution reflecting the demand for public amenities and services generated by the development (the monetary contribution is usually calculated as a rate per hectare or per dwelling to be created by the development) (s7.11 Contributions); or
• a requirement to pay a levy equal to a prescribed percentage of the proposed cost of carrying out the development (s7.12 Contributions).

In each case, contributions can only be imposed in accordance with a local contributions plan adopted in accordance with the procedure under the EPA Act and Environmental Planning and Assessment Regulation 2000 (EPA Regulation).

Currently, where a council wants to impose a s7.11 Contribution of more than $20,000 per dwelling, or $30,000 in a greenfield area, the relevant contributions plan must be reviewed by IPART and endorsed by the Minister for Planning and Public Spaces. This independent review process provides important oversight to ensure that s7.11 Contributions above these thresholds are reasonable, and fairly reflect demand for public amenities and services. Plans that impose s7.11 Contributions over these thresholds are also limited to funding works on the 'essential works' list, which excludes certain types of community facilities that are typically funded under contributions plans.

Under the EPA Regulation, the maximum s7.12 Contribution that can currently be imposed is 1% of the cost of the development, except in certain specified areas (limited to six local government areas). If a council wants to impose a s7.12 Contribution greater than 1%, it must seek an amendment to the EPA Regulation to have an alternative percentage specified for the relevant area.

Proposed changes to reviews of local contributions plan

DPIE has released a Discussion Paper outlining proposed changes to the review of local contributions plans (Review Discussion Paper). The Review Discussion Paper responds to concerns from councils that:

• the current thresholds for review are outdated, having not changed since their introduction in 2008 and 2010, and have not kept pace with increases in capital and land infrastructure costs, which has resulted in a significant increase over time in the number of contributions plans requiring review; and
• the review process takes too long, resulting in delays and lost revenue for councils seeking to adopt new contributions plans.

The Review Discussion Paper seeks to address these concerns by proposing:

Increases to the thresholds for review

DPIE is considering three options:

• index the existing thresholds by the Consumer Price Index – All Groups Sydney (CPI) from June 2010 (giving a new threshold of $24,247 for non-greenfield areas and $36,370 for greenfield areas, based on the CPI number for the June 2019 quarter);
• increase the thresholds to $35,000 per lot/dwelling and $45,000 per lot/dwelling in greenfield areas; or
• introduce one single threshold of $45,000 for all areas.

The first option is likely to be the preferred one from the perspective of the development industry. This option will result in increases to the thresholds that are more aligned with increases in the cost of providing public infrastructure since 2010. The other options would result in significant increases that would substantially reduce the number of contributions plans subject to review by IPART.

Indexation of thresholds going forward

DPIE is proposing that the review thresholds be subject to annual adjustment in accordance with CPI to ensure they keep pace with cost increases. Given most contributions plans already provide for CPI increases to contribution rates, this appears to be a sensible reform that may avoid the need for another wholesale review of the thresholds in future.

Changes to the IPART terms of reference

DPIE is proposing to amend the IPART terms of reference to clarify their purpose, remove duplication with the Local Infrastructure Contributions Practice Note, introduce a targeted review process where a contributions plan has already been reviewed, and simplify consultation requirements. While most of these measures are positive, the proposed simplification of consultation requirements would see IPART required only to consult with the relevant council, and not DPIE or any other persons IPART considers appropriate, as is currently the case.

Remove existing exemptions to the review process

Currently, the review process does not apply to contributions plans for any land listed in Schedule 1 of the Environmental Planning and Assessment (Local Infrastructure Contributions) Direction 2012. These contributions plans were 'grandfathered in' when caps on s7.11 Contributions were first introduced in 2012. DPIE is proposing to remove the exemption that applies to these contributions plans, noting that the maximum caps were removed for all but 'transition areas' in 2017, with no areas to be subject to caps from 1 July 2020.

While the removal of grandfathering provisions is supported, it is notable that the Review Discussion Paper does not consider the reintroduction of caps on s7.11 Contributions. The previous caps provided a significant protection to developers and, therefore, the ultimate purchasers. While the IPART review process still functions as an important oversight mechanism, it does not provide the same protection as fixed caps on contributions. Readers should consider whether the failure of the Review Discussion Paper to consider the reintroduction of caps is a missed opportunity that should be raised in submissions.

Remove existing re-exhibition requirements

DPIE proposes to amend the EPA Regulation to remove the requirement for contributions plans to be re-exhibited, following any amendments made to implement IPART's recommendations. The Review Discussion Paper asserts that removing this requirement will not reduce the community's ability to contribute to the review process, as they can still provide input during council's initial exhibition of the draft plan and IPART's exhibition of its draft recommendations. Nevertheless, this amendment will remove the opportunity for stakeholders to comment on the way in which a council has gone about implementing IPART's recommendations, and reduces the number of points in the process where stakeholders' views will be heard.

Criteria for higher s7.12 Contributions

DPIE has released a separate Discussion Paper outlining proposed criteria for councils to request higher s7.12 Contributions (s7.12 Discussion Paper). Importantly, the s7.12 Discussion Paper confirms that the standard 1% maximum levy will be maintained for the majority of local government areas. It proposes three principles and two sets of criteria to be applied where a council seeks approval to impose a higher rate.

Principles for allowing higher s7.12 Contributions 

• Strategic land – the area must be identified in a strategic plan (ie regional plan or district plan) as a strategic centre, local centre or economic corridor. Importantly, it appears that identification of an area as a strategic centre in a Local Strategic Planning Statement will not be sufficient to satisfy this principle.
• Employment growth – the area must have an existing or identified potential for significant employment growth.
• Planning controls – planning controls will need to reflect and support the planned increase in population and employment capacity of the identified area. This is a positive requirement, as it will ensure that councils are making the necessary amendments to their local environmental plans and development control plans to achieve their identified employment growth targets.

Proposed criteria for allowing higher s7.12 Contributions

DPIE has proposed two sets of potential criteria for discussion:

In addition to providing evidence to address the above criteria, the s7.12 Discussion Paper also notes that councils wanting to request higher maximum percentages will need to provide DPIE with a works schedule.

Criteria 1.1, 1.2 and 1.3 are identical to the three principles mentioned earlier in the s7.12 Discussion Paper. We would query whether the principles have a separate role to play or whether it would be preferable to dispense with the principles altogether, given these are replicated in the criteria.

Discussion questions

The s7.12 Discussion Paper sets out six 'discussion questions' on which DPIE is specifically seeking feedback. These include whether the criteria should be mandatory, and whether there are any alternative criteria that should be considered. In our view, the proposed criteria are sufficiently comprehensive and robust, and will be most effective if mandatory.

DPIE has called for feedback on three suggested methods of measuring 'significant' employment growth for the purpose of criterion C1.2. In our view, the first two methods (being at least 25% more new jobs than additional residents planned in the area or an increase of at least 25% more employment opportunities) are preferable to the third suggested method (being an increase in additional non-residential gross floor area (GFA) greater than 20%). An increase in employment GFA will not necessarily deliver an equivalent increase in jobs, depending on the nature of the use of that GFA.

DPIE has also called for feedback on whether it should publish a list of acceptable district-level infrastructure items for the purpose of criterion C2.1, or whether this should be determined on a case-by-case basis. We consider that what constitutes an acceptable infrastructure item should not be determined on a case-by-case basis, as this will not promote certainty or transparency.

What next?

Submissions can be made in response to the Review Discussion Paper and s7.12 Discussion Paper until 12 June 2020. Please contact us if you need any assistance in preparing a submission.

Also, keep an eye out for the final instalment of our NSW Contributions Review Series, where we will take a deep dive into the remaining 'system improvements' currently on exhibition and look ahead to the potential outcomes of the Productivity Commissioner's review of the contributions system.