The Roll-Out of Reformed Infrastructure Contributions Plan

Joel Snyder
8 January 2019

The Infrastructure Contributions Plan (ICP) system was reformed by the ascent of the Planning and Environment Amendment (Public Land Contributions) Act 2018, as a means to replace the roll-out of Development Contributions Plans in Victoria’s greenfields. While the application of ICPs is still in its infancy, this article reviews the structure and likely application of infrastructure contributions.

What are Development Contributions?

Development contributions raise a levy on land development to provide funding to the nominated development agency to carry out specified public works (including the acquisition of land). The development agency then has the obligation to deliver the infrastructure projects for the benefit of the community, regardless of the funding available in the DCP.
It is common for developers find themselves in positions whether they deliver infrastructure projects as works-in-kind or by vesting land in the appropriate authority during the course of development, and only receive reimbursement to the amount allowed in the contributions plan. This means that many developers bear the risk of insufficient funding being available. In the absence of a developer undertaking the works, such risk lies with councils as there is too often a deficit in the levy’s raised.

The new ICP system is targeted at not only streamlining the contributions process, but reduces the financial risk to councils in being able to acquire land without risk of being underfunded. It is expected that developers will have more certainty about available funding to assist in project costings, and seeks a “fairness” in all landowners being equally disadvantaged in the developer contributions while gaining a commercial advantage in having land released for urban development.

In considering this fairness principle, the following must be considered:

1. A landowner without any land projects under the ICP may pay the land equalisation amount and sell all developed lots at market value, whereas one with land projects will be required to vest its land or have it acquired at the ICP rate (most likely below market value).
2. There are limited avenues to dispute the land valuation process for public purpose land.
3. The usual additional heads of compensation under the Land Acquisition and Compensation Act 1986 such as solatium, professional expenses and disturbance, are not available.
4. Where a developer is required to deliver an infrastructure project as works-in-kind, the risk of the project being underfunded remains.

Land Contributions Model

The introduction of the reformed ICP system sought not only to streamline the contributions process but to reduce the financial risk to councils. It does this by use of the “land contributions model” which provides for an equalisation of the levy payable and the land being provided for public purposes under the ICP. Accordingly, there are two components to a developer’s infrastructure contribution:

• A monetary levy, which is paid to the collecting agency to fund the provision of works, services, facilities and plan preparation costs.
• A land component, which represents the future public land identified in the ICP that is to be vested in, transferred to or acquired by a council or other public authority.

At the time of preparation of an ICP, the total land contribution required is calculated as a percentage of the net developable land. Where a parcel of land has a higher land contribution, an equalisation credit is due to the developer. Otherwise, a land equalisation amount is payable as part of the levy.

The Infrastructure Contributions Plan Overlay (ICPO)

Where an ICP applies to a parcel of land, it is expected that an ICPO will also be implemented.

The ICPO will include:

• Indication of the levies payable per net development hectare of land.
• Calculations for the contributions percentages for each class of development.
• Land component to allow developers to understand any equalisation payment.
• Information relating to the method and timing of indexation of the levy rates and land component.
• Any specific land uses or developments that will be exempt from payment of infrastructure contributions.

The land component of the ICPO will provide the following information:

• PSP Parcel ID – A land identification number that can be located in the PSP and ICP.
• Class of Development – Likely to be either employment, residential or commercial.
• Parcel Contribution Percentage – How much land is required to be provided to the collecting agency by each landowner.
• Land Credit Amount – Total amount credited to the landowner for its public land contribution (subject to indexation).
• Land Equalisation Amount – Total amount payable by the landowner as an equalisation payment (subject to indexation).

Monetary Levies

In July 2018, the Honourable Richard Wynne MP introduced the Ministerial Direction on the Preparation and Content of Infrastructure Contribution Plans. Amongst other things, this Ministerial Direction sets out the criteria for calculating the monetary levies, which consists of the following:

• A standard levy, which is allocated to (a) community and recreation construction, and (b) transport construction. The Ministerial Direction sets out a cap on the standard levy payable which is currently $86,627 and $114,062 respectively for residential developments. The Minister may increase the amount for the community and recreation construction levy on application.
• A supplementary levy, which is applied to fund infrastructure that is not adequately funded through the standard levy. This component is based on the actual cost of the infrastructure item being funded.

The Ministerial Direction specifies the types of items that are allowable under both a standard levy and supplementary levy.

Land Component

Land projects under an ICP are limited to “public purpose land”, being defined as land for any of the following purposes:

1. public open space;
2. community and recreation facilities;
3. transport infrastructure;
4. other infrastructure that is essential to the development of the ICP plan area.

The Ministerial Direction further limits the type of public purpose land that will be allowable in ICPs. While similar types of public land were included in development contributions plans, there was no such clear limitations which gave flexibility to the authority preparing the document on types of allowable land projects. However, we expect to see many developers now restricted in the types of land to be compensated under the ICP.

Valuation and Acquisition of Land

Public purpose land is valued at its highest-and-best use on the assumption that it is readily serviceable and accessible by road, at the development front and that any GAIC has been paid. An owner of land will be given notice of the proposed land valuation where that owner’s contribution is greater than the ICP land contribution percentage. In such situation, the owner will be entitled to an equalisation credit.

Any owner that receives notice has the right to make a submission on the proposed valuation within 30 days, together with a supporting valuer’s report. If the submission is not accepted by the planning authority, the issue will be referred to the Valuer-General for a valuers’ conference and determination. There is no right of review of the decision of the Valuer-General.
Owners should be aware that the compensation payable for the acquisition of public purpose land under the ICP is limited to the valuation in the ICP and no other heads of compensation under the Land Acquisition and Compensation Act 1986 are available.

In our experience, owners are generally dissatisfied with values determined by or on behalf of public authorities, and the reformed system is likely to result in those owners with overprovisions feeling like they are placed in a vulnerable and disadvantaged position.

Application of Infrastructure Projects as Works in Kind

Similar to development contribution plans, we expect that there will be opportunity for developers to provide works-in-kind in part or full satisfaction of the monetary component of an infrastructure contribution. It is expected that most developers will be required to deliver certain infrastructure projects in order to complete development. While the credit for the works will be required to be “negotiated’ with the council acting as Collecting Agency, it is expected that a developer will be required by councils to agree to construct such project and receive the credit allowed for under the ICP. This returns the financial risk to the developer where the estimate in the ICP is understated.

Overall, it appears that ICPs will be implemented in the same manner as existing development contribution plans, and therefore developers are unlikely to be in a different position save for the treatment of public land. ICPs are therefore seen as being more council-focused by providing certainty and removing any opportunity for a landowner to seek market value for public purpose land. While some developers will see the benefits of developing englobo greenfield land, the greatest disadvantage appears to be for those landowners with high parcel contribution percentages that may have otherwise decided to await a compulsory acquisition instead of forfeiting land below market value. It is expected that development contribution plans will remain for existing contribution areas, and ICPs will be imposed for all new contributions areas.

About Best Hooper

Best Hooper’s industry-wide experience has helped us create a competitive advantage in developing a quasi-project management advisory and legal role in assisting landowners and developers in project delivery. We assist clients in all stages of developing land projects including in greenfield and brownfield areas.

Our lawyers often advise and represent clients in relation to planning scheme amendments, and developing within the constraints of a planning scheme or incorporated documents. We are one of the few Melbourne-based law firms that regularly appear at Planning Panels Victoria for planning scheme amendments including precinct structure plans, development plans and contribution plans.