​Funding local government infrastructure in Sydney – what works, what needs changing?

The question of what works and what needs changing in infrastructure funding can be tackled from a helicopter perspective and a pragmatic near term view. This article explores both perspectives and puts forward ideas for reform.

Structural impediments to effective infrastructure funding

There are three major issues here.

The tenuous status of local government - Unlike comparable international jurisdictions, NSW local governments have limited fiscal autonomy. They are not free to seek a mandate from their communities to raise local taxes to help fund needed facilities and services.

Poor subsidiarity in infrastructure responsibilities - The roles of the different spheres of governance in Australia are confused and there is a deficit in regional and metropolitan government. Although the formation of the GSC has been an important advance in integrated infrastructure and land use planning in Sydney, the Commission has no funds raising powers of its own. It must rely on its powers of persuasion and the influence of its Ministerial host – the Premier of NSW – to enforce adherence to the metropolitan plan by infrastructure agencies like RMS, Transport for NSW, HI and the like.

Excessive Commonwealth fiscal power – Canberra collects 80% of taxes, well above the level required to meet Commonwealth functions. Although Commonwealth Governments profess interest in sustainable and liveable cities from time to time, they cannot possibly know better than regional or State jurisdictions what is required by way of infrastructure in these areas. A program of devolution of tax raising and priority setting is necessary.

Local infrastructure funding mechanisms

Raising funds for infrastructure via the planning and development approval system should recognise four mutually exclusive and additive frames for development contributions. Each frame has its own rationale and tests of reasonableness as shown in Figure 1.

Confusing or conflating these frames leads to opacity in the DA system and unnecessary uncertainty, risk and litigation. All this adds up to avoidable additional costs in the urban development process.

Looking at how NSW currently operates within these four frames, it is the ‘value sharing’ area where there is greatest scope for improvement (see Figure 2). Currently, value sharing is being conducted via Voluntary Planning Agreements (VPAs) at the local level and through Special Infrastructure Charges (SICs) at the State level. In both cases, coverage of the Sydney metro area is very patchy and the methodology governing the extent of value sharing in any particular area is generally opaque.

There is also a need for reform in the user pays frame, to reinstate a clearer user pays nexus. Also, NSW could well examine practices in other Australian jurisdictions with respect to inclusionary provisions to generate land and cash for all important open space and parkland infrastructure in growing areas.

The area where NSW leads the nation is in inclusionary provisions for affordable housing, albeit that these are currently limited to a relatively small proportion of metro Sydney’s footprint.

Figure 1 Understanding development contributions through four conceptual frames

Figure 2 Rating NSW’s practices across the four frames

Ideas for reform

A rationalised approach to value sharing is needed. VPAs and SICs could be replaced by a universal development licensing scheme as proposed by SGS in a February 2017 Occasional Paper linked below. Alternatively, a metro Sydney-wide SIC scheme could be introduced based on the same principles. That is, developers would be charged a fee linked to the Residual Land Value attaching to each square metre of floor area ‘uplift’ in their proposal.

This article is a summary of a presentation by Marcus Spiller to the SSROC Cities for Us conference, July 25 2018.