Reform of the NSW infrastructure contributions system moves ahead

While the NSW Government is still considering its formal response to the NSW Productivity Commissioner’s November 2020 report (Report) into the NSW infrastructure contributions system, it has finalised amendments to three key documents relating to contributions received by planning authorities.

These documents are:

• the Planning Agreements Practice Note;
  
  
• the Section 7.12 Practice Note – concerning fixed development consent levies; and
  
  
• the Environmental Planning and Assessment Regulation 2000 (EPA Regulation) – concerning accountability and transparency.

The reform package tackles three of the five key areas identified in the Minister for Planning and Public Spaces’ request to the NSW Productivity Commissioner to conduct a comprehensive review of infrastructure contributions system in NSW in April 2020.  While many of the changes to the documents so far are simply administrative in nature, the package of amendments is expected to have a positive effect on the modernisation of the dated contributions system in NSW.

Planning Agreements Practice Note

In an effort to ensure the contributions process is clearer and more transparent, a new Planning Secretary’s Practice Note on Planning Agreements (Practice Note) has been made, replacing the July 2005 version. The new Practice Note includes further updates to the draft version exhibited in 2017 to address the submissions received and the recommendations contained in the Kaldas review into governance in the NSW planning system.

While the original public exhibition of the Practice Note was accompanied by the exhibition of a Ministerial Direction on Planning Agreements (Draft Ministerial Direction), the finalised Practice Note contains no references to, and is not supported by, a separate Ministerial Direction. 

In the absence of a finalised Ministerial Direction, further changes have been made to the EPA Regulation to give weight to the Practice Note.

However, the amendments, made through the Environmental Planning and Assessment Amendment (Development Contributions) Regulation 2021 (New Contributions Regulation), do not make the Practice Note a mandatory consideration for planning authorities, other than councils. The New Contributions Regulation does make the Practice Note a mandatory consideration for all planning authorities for the purpose of the preparation of the accompanying Explanatory Note. 

Fundamentally, the new Practice Note is not revolutionary and does not establish a rigid criteria against which planning agreements must be assessed. Rather, it is intended to provide guidance to planning authorities by setting a framework of principles that should be considered when negotiating or preparing a planning agreement.

It modernises the 2005 Practice Note and includes a new focus on more recent trends that have emerged in the negotiation of planning agreements. For example, the Practice Note contains new sections addressing and discouraging the practices of certain planning authorities in:

• treating planning agreements as substitutes for robust local infrastructure contributions plans;
  
  
• seeking monetary contributions tied to land value increase or expressed as an amount per square metre of floor space uplift (i.e. ‘value capture’); and
  
  
• engaging in protracted negotiations over planning agreements to the detriment of progressing applications to change environmental planning instruments or development applications in an orderly, timely manner.

The Practice Note in particular provides useful guidance on public consultation, probity, value capture, and the ‘acceptability test’. The earlier consultation draft of the Practice Note also contained a template planning agreement and explanatory note for use by planning authorities, though these annexures have been omitted from the final Practice Note.

While the Practice Note is already operational, planning authorities are not required to apply it to the consideration of proposed new or amended planning agreements which were:

• substantially negotiated before the publication of the Practice Note; and
  
  
• publicly notified before 1 July 2021.

A copy of the Practice Note is available here.

Section 7.12 Fixed Development Consent Levies

Section 7.12 of the Environmental Planning and Assessment Act 1979 (EPA Act) allows councils to impose ‘fixed development consent levies’ as a condition of development consent. These levies are charged as a percentage of the proposed development cost. The maximum levy percentage that may be imposed under the EPA Regulation is 1 per cent of the proposed cost. However, Councils are able to request increases to the maximum percentage levy for specific parts of their local government area. 

A further new practice note (Section 7.12 Practice Note) has been released to provide councils with formal guidance for identifying situations and parts of their area where requests for an increase to the maximum levy percentage may be appropriate.

While the bulk of the Section 7.12 Practice Note operates as an introduction to the practice of levying contributions in general, the following table sets out the criteria against which any request to the Department of Planning, Industry and Environment (DPIE) to increase a section 7.12 levy from one to two per cent will be assessed:

Where a council proposes to increase its section 7.12 levy to more than 2 per cent of the cost of a proposed development, it is required to supply the Department with a works schedule and financial modelling “demonstrating that a maximum 2% levy on the cost of development is insufficient to deliver identified infrastructure in the proposed timeframe”.

The Section 7.12 Practice Note is available here.

Amendment to the EPA Regulation 

Supporting the contributions system reforms is a new amendment to the EPA Regulation in the form of the New Contributions Regulation referred to above. The New Contributions Regulation contains a suite of housekeeping amendments to the EPA Regulation, which seeks to tidy up miscellaneous provisions in various planning instruments and legislation related to contributions.

The key reform instituted by the New Contributions Regulation concerns transparency in relation to planning agreements, adding new types of information that must be detailed in a planning agreement register and expanding the requirement to maintain a register to all planning authorities. 

Where previously only councils and the Planning Secretary (on behalf of the Minister for Planning and Public Spaces) were required to maintain a register, the new arrangements will see other planning authorities, such as Transport for NSW, facing new reporting obligations.

Additionally, from 1 July 2022 all planning authorities will be required to make available, in their planning agreement register, financial reports for the previous financial year which show:

• the monetary amounts received by the planning authority under planning agreements;
  
  
• the value of works contributed under planning agreements, including assets given in relation to the works; and
  
  
• the value of land contributed under planning agreements.

While planning authorities can currently maintain their own registers and are only obligated to make them available to view in person and during office hours, from 1 July 2022 all planning agreement registers will be hosted centrally by the DPIE on the NSW Planning Portal. Planning authorities will not be required to provide the additional information required by the New Contributions Regulation in respect of planning agreements entered into prior to 1 July 2022.

Councils’ reporting obligations relating to local infrastructure contributions have also been greatly expanded by the New Contributions Regulation, requiring the provision of data and details on each development subject to local infrastructure contributions including:

• details of the relevant development application, consent authority for the development, and date on which consent was granted;
  
  
• the purpose for which the contribution or levy was received, the total amount payable and an account of the total currently received; and
  
  
• whether the contributions received comprised a monetary contribution, land dedication or a separate material public benefit.

Councils’ expanded local infrastructure contribution reporting obligations come into effect on 1 July 2022, from which time they will also be hosted on the NSW Planning Portal.

A copy of the New Contributions Regulation is available online, and a new Planning Circular providing guidance on the requirements is available here.

What’s next?

The two remaining areas for reform, flagged by the NSW Government in April 2020, are local infrastructure contributions (section 7.11 contributions) and special infrastructure contributions. The Government anticipates that these remaining issues will be addressed in its formal response to the NSW Productivity Commissioner’s Report and should be announced later in 2021.

The reforms announced to date make important changes that look to improve confidence in the system for both developers and the community. It is essential that the effect of the entire reform package and the Government’s final response to the Report continues this approach and ensures that all participants have a level of certainty about the amount and nature of the benefits to be delivered through the contributions system.

Whether these benefits are in the form of local infrastructure, State and regional infrastructure, affordable housing or other items of community benefit, a transparent and certain approach to the provision of these benefits is in everyone’s interest.