Local Government Magazine
Local Democracy

Infrastructure funding – show me the money!

By Linda O’Reilly, partner, Brookfields.
Infrastructure funding is a zero-sum game. No matter how you play it there is only so much money to go around, and it is just a question of whose pocket you take it from.

Never has this been clearer than in the enactment of the Infrastructure Funding and Financing Act 2020. 

First announced by Urban Development Minister Phil Twyford in December last year it was described as a tool to allow private capital to be accessed to get infrastructure built sooner with more transparent costing. 

What it does is shift the cost of new infrastructure away from developers and councils onto homeowners, thus avoiding putting pressure on lending limits in council balance sheets.

Of course, this is not new. 

Homeowners always pay for infrastructure. If funded by councils, it gets passed on through rates, either general or targeted. 

If funded by developers, it is added to the cost of purchasing a section or home. There is no free ride for what is ultimately part of the cost of owning or buying a home. What is new in the Act is the opportunity for developers and councils to drive the provision of new infrastructure to service new urban development without financing constraints, and the imposition of that cost on householders as what is, effectively, a new tax.

The Act allows for the creation of special purpose vehicles (SPVs) that are established to be responsible for new or upgraded infrastructure for eligible infrastructure – water services, transport, community facilities, or environment resilience (managing risks from natural hazards and environmental restoration).

Any person can propose a levy to fund eligible infrastructure within a defined area, including a Council or a developer. 

The proposal must specify the proposed SPV or SPVs and its responsibilities, and the proposed responsible levy authority (RLA) which is the territorial authority for the district in which the levy applies. There is also a responsible infrastructure authority (RIA), which may be the RLA or another territorial authority, a CCO of the RLA, the regional council or a government agency. The RLA collects the levy on behalf, or the SPV, and the RIA endorses the technical specifications of the proposed infrastructure.

But, we are getting ahead of ourselves. 

First, the levy proposal is assessed by a recommender that is a government agency appointed on the recommendation of the Minister. The RLA may endorse the proposed levy unless it can demonstrate that the levy will compromise its ability to collect rates. 

The recommender must decide whether to recommend a levy proposal to the minister after taking into account specified matters and all matters of practicality, efficiency, and equity, that may assist the minister’s consideration.

The minister in turn decides whether to recommend to the Governor-General that a levy order be made after having regard to specified matters that include the affordability of the levy on those who will have to pay it, and consulting those ministers responsible for finance, consumer affairs and local government. 

A levy order may then be made by Order in Council authorising the use of a levy to fund eligible costs relating to eligible infrastructure. As well as describing the infrastructure that is to be constructed the Order specifies the costs to be funded, the levy period and details of the SPV/SPVs entitled to the levy and responsible for construction.

The levy itself operates in almost an identical manner to a rate on land in the area to which it applies. 

Like a rate, it may be set on a uniform basis or differentially for different categories of land specified in Schedule two of the Local Government (Rating) Act 2002. Liability for the levy is assessed in terms of the factors listed in Schedule three of that Act. 

The unit upon which the levy is charged is the rating unit and the ratepayer is liable for the levy due on that unit on the dates set for payment of rates and rating instalments. The RLA administers (read ‘collects’) the levy on behalf of the SPV by including it in the rating assessment and rates invoice. 

The process and applicable provisions parallel the collection of rates right down to the application of penalties and recovery actions, including rating sales.

To the ratepayer, the levy will look to all intents and purposes like a targeted rate, except that the levy will have been set by the SPV subject to overview of that process by a monitor, which is a government agency appointed by the Governor General on the recommendation of the minister at the time.

While links to rates and the Local Government (Rating) Act are close, there are links to other local government legislation as well. 

For example an SPV can exercise the powers of a local authority under section 181 of the Local Government Act 2002 to undertake works on private land; an SPV is a network utility operator with power to seek approval as a requiring authority under the Resource Management Act 1991; and a utility operator under the Utilities Access Act 2010 with access to transport corridors for infrastructure. 

A local authority is empowered to acquire land, including compulsorily, for a local SPV work under the Public Works Act 1981 where it is the RIA. 

Homeowners always pay for infrastructure.
If funded by councils,
it gets passed on through rates, either general or targeted. 

Further, if the minister believes there is a significant problem with an SPV they can appoint a Crown Manager, the purpose and role of which is much the same as if appointed to a local authority under Part 10 of the Local Government Act 2002.

The Act does not do away with financial contributions, development contributions, or targeted rates as tools to fund infrastructure. 

Indeed, it recognises past financial and development contributions, and allows an SPV to direct an RLA to transfer those funds to it as a contribution to the cost of eligible infrastructure. 

It also extends the definition of capital expenditure that may be funded by development contributions to include any funding provided by an RLA to contribute to the construction costs of eligible infrastructure intended to be transferred to it.

The new Act is criss-crossed with checks and balances designed to ameliorate the inevitable concerns associated with allowing new infrastructure provision to be potentially driven and delivered by the private sector. 

But, for the aspiring homeowner it will need to significantly advance the provision of affordable land for housing before it offsets the sour taste of an additional ongoing cost on new households.  LG

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