New infrastructure contributions framework one step closer for NSW

NSW Treasurer Dominic Perrottet has recently introduced the Environmental Planning and Assessment Amendment (Infrastructure Contributions) Bill 2021 (Bill) to State parliament. The Bill represents the next tranche of reforms to the State’s infrastructure contributions framework following administrative changes earlier this year.

The Bill’s purpose is to implement the recommendations made by the NSW Productivity Commission following itsReview of Infrastructure Contributions in December 2020, which were accepted in full by the NSW Government in March 2021.

The current infrastructure contributions framework has been identified as lacking transparency and certainty for developers, particularly in relation to Special Infrastructure Contributions (SICs). 

Outside of Sydney’s Growth Areas, draft SICs have been introduced well after a rezoning has taken place and the per lot SIC amount is often unfeasible when coupled with local contributions. This results in a lack of housing affordability and, in the worst case, the stalling of otherwise meritorious projects.  

If implemented properly, the new infrastructure contributions framework will significantly increase transparency and certainty for developers so that:

• all of the local, regional and state contributions will be known by a developer at an early stage;
  
  
• the costs of the contributions will be built into a project’s feasibility and the development risks reduced; and
  
  
• there will be a more equitable divide between a landowner benefitting from value uplift on a rezoning and a developer who is responsible for the payment of local, regional and State contributions. 

While the Bill marks the next significant step in the path to infrastructure contributions reform, it may be some time before these legislative changes are implemented.

According to the Infrastructure Contributions Reform Roadmap, the new infrastructure contributions framework is not expected to come into effect until July 2022, and the Bill has yet to be debated in the NSW Parliament.

It is important for developers to carefully monitor the introduction of the framework over the next 12 to 24 months and how it might impact current projects and future transactions, for example, the purchase price, put and call conditions and project feasibilities.  

Productivity Commission Review

The NSW Productivity Commission’s Review made 29 recommendations aimed at delivering a principles-based system which is centred on certainty, efficiency, simplicity, transparency and consistency.

The Department of Planning, Industry and Environment (Department) has closely followed these principles in devising a new funding model for infrastructure contributions, which is broadly divided into two main categories:

• local infrastructure contributions and fixed development consent levies; and
  
  
• state infrastructure contributions. 

Proposed key reforms 

The Bill aims to implement the recommendations of the Productivity Commission through the following key reforms.

Local Infrastructure Contributions

There will be three types of contribution, including:

• Local infrastructure contributions – section 7.11 contributions. The nature of the contributions reflects the existing regime and these contributions will be imposed if development will or is likely to increase demand for public services and public amenities. A contribution consent condition can still only be imposed if a contributions plan has been adopted by the local authority.
  
  
• Fixed development consent levies – Section 7.12 levies will be a fixed levy, determined in accordance with the Environmental Planning and Assessment Regulation 2000 (Regulations) and will be levied in the event a local infrastructure contribution is not imposed. The contributions will be applied to, or to recoup the costs of the provision, extension and augmentation of public amenities and public services. As with the current contributions framework, there does not need to be any connection with the development concerned and expenditure of the contributions.
  
  
• Land value contributions –The primary change to the local infrastructure contributions framework is the introduction of a new category of contribution in Subdivision 3A, Division 7.1 of Part 7.  Landowners who benefit from land value uplift as a consequence of a rezoning or the delivery of government infrastructure, will be required to make a contribution. 

Land value contributions

The Bill seeks to enable local councils and other development consent authorities (such as the Minister for Planning and Public Spaces) to specify ‘land value contributions areas’ within a contributions plan.

These contributions areas are intended to apply to land that has seen an increase in value as a result of either:

• a rezoning; or
  
  
• government funded infrastructure.

A land value contribution is deemed to be a charge on the land and restricts certain dealings with the land (such as a transfer to another party) until the charge is satisfied.  The charge will be satisfied once the land value contribution is paid as determined in accordance with the contributions plan. Where the landowner proposes to transfer the land, the Bill proposes that:

• the vendor or purchaser of the land applies to the relevant authority (in most cases, the local council) for an assessment of any land value contribution payable;
  
  
• the authority determines the contribution in accordance with the development contributions plan that applies to the land and any requirements imposed by the Regulations and issues a ‘land value contribution certificate’; and
  
  
• an instrument of transfer must be endorsed by an authorised certifier before the transfer can be registered. An endorsement can only occur once the land value contribution specified in the land value contribution certificate has been paid. 

The Bill does not outline any calculation method for determining land value contributions or underlying land value. This will be established by the Regulations once the Bill is passed.

Additional regulatory controls 

Currently, the regulation making powers under the Environmental Planning and Assessment Act 1979 (EPA Act) are limited. A new regulation making power under section 7.16A of the EPA Act will enable the Regulations to control the following:

• the way in which local infrastructure contributions are determined;
  
  
• how they are to be indexed;
  
  
• when and how they must be paid;
  
  
• reporting requirements consent authorities must follow; and
  
  
• the circumstances in which a consent authority may refuse to consider a development application on land for which a ‘land value contribution’ has not been satisfied.

Special Infrastructure Contributions replaced 

Significantly, the Bill proposes to overhaul the imposition of state and regional infrastructure contributions, currently known as ‘Special Infrastructure Contributions’, with the introduction of the ‘Regional Infrastructure Contributions’ (RIC) scheme.

Unlike SICs, RICs will not be imposed through Ministerial determinations, but via a provision of a State Environmental Planning Policy (SEPP). RICs are intended to fund the provision of regional infrastructure relating to:

• public amenities or public services;
  
  
• affordable housing;
  
  
• transport infrastructure;
  
  
• regional or state roads; and
   
• measures to conserve or enhance the natural environment. These include measures relating to biodiversity certified land or for implementing any measures under section 146A and section 146B of the Environment Protection and Biodiversity Conservation Act 1999 (Cth).

A RIC can be provided in a number of ways. For example:

• as a work-in-kind;
  
  
• recouping the cost of providing the regional infrastructure;
  
  
• funding recurrent expenditure in relation to providing the regional infrastructure;
  
  
• by the Minister (or delegates) exercising the following functions: carrying out research or investigations; preparing a report or study or an instrument; or carrying out an administrative task.

While the amending provisions establish a revised category of infrastructure contribution, key elements such as the amount of the contribution, the class of development, the regions to which it will apply and the timing for making the contribution, will all be determined by the relevant SEPP which imposes the RIC.  

In particular, the SEPP must regulate various matters, including the timing for the making of the RIC and what part of the RIC constitutes the:

• transport project component - the component imposed on development that benefits, or will benefit, from the provision of specified transport infrastructure;
  
  
• strategic biodiversity component - the component on biodiversity certified land (i.e. within Growth Centres) imposed on development for implementing biodiversity measures.

Like local infrastructure contributions, RICs will be mandated through the imposition of a condition of development consent or complying development certificate. The enabling SEPP will dictate the wording of any such condition.

Relevantly:

• no appeals are permitted in relation to a RIC imposed under a condition of development consent; and
  
  
• no connection is required between the development of land to which a RIC relates and the object of expenditure of money required to be paid.

Savings and transitional provisions

The savings and transitional provisions are as follows:

• SIC determinations made prior to 1 July 2022 (including the Western Sydney Aerotropolis) will continue to apply. The Regulations may exclude certain determinations/directions from this general rule and certain land from the application of the SIC Determinations (so as to bring that land under the RIC regime).
  
  
• While not specified under the savings and transitional provisions in the Bill, the intention is for Contributions Plans made or on exhibition prior to 1 July 2022 to continue to operate under the current local contributions framework. This means that the reforms are intended only to apply to Contributions Plans made after 1 July 2022, including those that are reviewed after that date.

Regulations

The statutory amendments proposed by the Bill are intended to be complemented by further regulatory amendments to facilitate the Productivity Commission’s recommendations. 

The Department has previously suggested that it intends to publicly exhibit the new Regulations towards the end of 2021, with a view to the new infrastructure contributions framework commencing by July 2022. 

Other proposed reforms

Along with the key reforms, the Bill also proposes a number other important changes. These changes include:

• requiring the public exhibition of proposed planning agreements;
  
  
• requiring councils to review Local Strategic Planning Statements every five years instead of every seven years; and
  
  
• enabling consent authorities (and, in the case of RICs, the Secretary of the Treasury) to initiate debt recovery proceedings ‘in a court of competent jurisdiction’ to recover unpaid development contributions.