Major Changes Proposed For Development Contributions

Created: Thursday, 28 November 2013 23:03

We have previously given an overview of the Local Government Act 2002 Amendment Bill (No. 3) ("the Amendment Bill"), and have promised to report further on specific proposals, including changes in the development contributions regime. The Amendment Bill in fact contains a sweeping review of development contributions, with changes to:

the purpose and direction of development contributions;
provision for reconsideration of or object to development contribution requirements;
private development agreements;

as well as some significant technical amendments. The commencement and transitional provisions in the Amendment Bill also merit consideration.

Change in Direction

Purpose and principles

The purpose of development contributions is to be spelt out in a new section 197AA, which states that they are "to enable territorial authorities to recover from those persons undertaking development a fair, equitable, and proportionate portion of the costs of capital expenditure necessary to service growth".

To support this purpose, there are six development contribution principles, all of which might have been gleaned from the existing legislation or case law, but which may provide clearer guidance for decision-makers.

development contributions should only be required if developments create a requirement for the territorial authority to provide new or additional assets or assets of increased capacity;
development contributions should be determined in a manner that is consistent with the capacity life of the assets for which they are intended to be used and in a way that avoids over recovery of costs allocated to development contribution funding;
cost allocations used to establish development contributions should be determined according to, and be proportional to, the persons who will benefit from the assets to be provided as well as those who create the need for those assets;
development contributions must be used for or towards the purpose of the activity or the groups of activities for which they were required, and in the district or part of the district in which they were required;
territorial authorities should make sufficient information available to demonstrate what development contributions are being used for and why they are being used;
development contributions should be predictable and consistent with the methodology and schedules of the territorial authority's development contribution policy.

Community infrastructure and reserve contributions

The types of community infrastructure for which development contributions may be required will be limited by a new prescriptive definition of that term, which includes for example community centres and community halls, play equipment on local reserves, and public toilets, but not libraries. Further, non-residential development will benefit by an amendment that prohibits a territorial authority from requiring development contributions for the provision of any reserve if the development is non-residential in nature, or for the non residential component of a mixed use development.

Development contribution policies

The proposed new section 201A provides for additional matters to be stated in a development contribution policy, including a schedule of:

details of assets and works to be funded by development contributions;
the estimated capital cost of each asset;
the proportion of capital expenditure to be recovered through development contributions;
the proportion of capital expenditure to be recovered from other sources.

Assets may be grouped for these purposes into "logical and appropriate groups", and must include assets for which capital expenditure has been incurred in anticipation of development. The schedule can be changed without consultation or formality to reflect a change of circumstances in relation to an asset, but only if the change does not increase the development contribution required. Subject to specific limitations, a territorial authority will be able to use the development contribution for or towards assets not included in the schedule as at the time of development, as long as the assets are for the same general function and purpose as those set out, and the schedule has been or will be updated when the development contributions policy is next changed or reviewed.

Reconsideration of, and objections to, requirements for Development Contributions

Reconsideration

New provisions are proposed to replace the review provisions written into many development contribution policies. Under a new section 199A it will be possible to apply for reconsideration of a development contribution requirement within 10 working days of receipt of notice of the development contributions on the grounds that:

the requirement has been incorrectly assessed or calculated under the Development Contribution Policy;
the Development Contribution Policy incorrectly applied; or
the information used in the assessment has been incomplete or in error.
the territorial authority will have 15 working days to respond to such a request, which can be followed by a new right to lodge an objection.

Under proposed new section 202A a development contribution policy must set out the process for requesting reconsideration of a development contribution requirement, including how the request is lodged, and the steps in the process the territorial authority will apply to the reconsideration.

Objections

Under proposed new provisions there will be a right to object to the assessment of development contributions, but this will exclude the right to challenge the contents of the development contributions policy (that will remain available by way of judicial review). An objection may be made on the grounds of:

failure to properly take into account features that significantly increase or decrease the requirement for infrastructure;
the infrastructure is not required by or related to development;
incorrect application of a development contribution policy.

The objection must be by way of written notice given within 15 working days of advice of the assessment, and include the grounds and reasons for the objection, as well as the relief sought, and whether or not the objector wishes to be heard. The objection process is independent of the territorial authority, and there is provision for the Minister to create a register of suitable persons who will be appointed as commissioners for a three year term. On receipt of an objection a territorial authority must select up to three commissioners from the Register, or anyone else that it is satisfied has required skills and knowledge not available from the Commissioners on the Register, and approved by the Minister.

The process for the hearing of objections is set out in section 199E and new Schedule 13A, and includes provision for the circulation of briefs of evidence prior to the hearing, which need not be public. The Commissioners may set the procedure during the course of the hearing, but must avoid unnecessary formality and recognise tikanga Maori where appropriate. The decision is required to be in writing, and can uphold or dismiss the objection in whole or in part, and may quash or direct amendments to the development contribution requirement. The reasons for the decision must be stated, together with a summary of issues and the relevant provisions of the development contributions policy. Commissioners cannot direct an amendment to a development contribution policy, but can make observations on the contents of the policy.

Commissioners will have powers to summon witnesses either at their own volition, or on application from one of the parties, and evidence may be taken on oath or affirmation. Witness fees will be paid by the person calling that witness, and a commissioner can request further information from an objector or the territorial authority before or at the hearing. Only the territorial authority and the objector have a right to be heard, but commissioners have discretion to invite other persons or organisations to participate. There is also provision for evidence to be given in writing or electronically.

In addition commissioners will have power to direct the order of business, evidence presentation and scope, to direct the provision and circulation of briefs of evidence, to extend or waive time periods, and to prohibit communication or publication of information supplied to them in certain circumstances. Commissioners will not be liable for anything done in good faith in the performance of their functions, duties, responsibilities and powers.

Once a decision is made by commissioners on an objection, the territorial authority retains all functions, duties, responsibilities and powers concerning the development contribution requirement as if it had made the decision, but it cannot change, amend or overturn that decision. A territorial authority can, however, still apply for judicial review of a commissioners' decision. All administrative support for the commissioners is to be supplied by the territorial authority, but it can recover the costs of the objection process from the objector pursuant to a new section 150A.

A territorial authority can still require a development contribution to be paid, notwithstanding that an objection has been lodged, but cannot use those funds until the objection has been determined.

Development Agreements

Although private development agreements have not been uncommon to date, they were not specifically provided for in the legislation. The Amendment Bill proposes not only to formally recognise such agreements, but to positively encourage them.

A "development agreement" is defined as:

"A voluntary contractual agreement made under sections 207A to 207F between one or more developers and one or more territorial authorities for the provision, supply, or exchange of infrastructure, land, or money to provide network infrastructure, community infrastructure, or reserves in one or more districts or part of a district".

Either a developer or a territorial authority may request a development agreement, and the territorial authority must consider that application without unnecessary delay. The application may be accepted in whole or in part, and with or without agreed amendments, or it may be declined. In any event written notice of the decision and the reasons for the decision are required.

Any agreement entered into must be in writing signed by all parties, and include specified details including a description of the infrastructure that each party will pay for. Other details are discretionary, but may include provision for enforcement by guarantee, bond, or memorandum of encumbrance. A development agreement is deemed to be a legally enforceable contract that does not affect the territorial authority's regulatory consent roles, but cannot be used as a lever by the withholding of regulatory consents until entered into.

A development agreement cannot require a developer to provide infrastructure beyond that which would be required under a development contribution policy, but a developer can voluntarily agree to do so. An agreement can be amended by mutual agreement of the signatories, and expires on the date specified, on fulfilment of all actions secured, or on a mutually agreed date.

Technical Changes

There are a number of these in the Amendment Bill, some of which may have a significant impact on the collection and use of development contributions. They include:

changes to section 106 to clarify that territorial authorities can calculate development contributions over the capacity life of assets that extend beyond the long-term plan period, and which do not exceed the section 203 maximum;
provision for annual increases in rates of development contribution in accordance with the Producers Price Index of Outputs for Construction without formality;
a development contribution may be amended by a process in accordance with section 82 of the Local Government Act 2002, and does not, as previously, require amendment by the special consultative procedure;
the interpretation of the term "development" will be amended to "any subdivision, building, use or work that generates a demand...", eliminating the uncertainty in the words "subdivision or other development";
new definitions are inserted for "accommodation units", "development contribution objection", "development contribution commissioner", and "objector";
the power to require development contributions in section 198 will be extended to circumstances where a certificate of acceptance under the Building Act 2004 is issued, with the consequent amendments to section 208 to provide for a certificate of acceptance to be withheld where a development contribution is unpaid;
section 199 will be amended to clarify that a development contribution may be taken to pay for capital expenditure "in anticipation of development", instead of "in anticipation of the development";
section 200 will be amended to state that no development contribution can be taken where a development contribution has already been required in respect of the same building, and further amended to clarify that the payment of rates is not a contribution that would result in a development contribution requirement being prohibited;
section 203 will be amended to take account of the Producer Price Index increases in terms of the maximum contributions payable;
section 206 will be amended to ensure that the new principles for development contributions do not obstruct the alternative uses for development contributions for reserves set out in that section.

Commencement and Transitional Provisions

The new principles, the amended interpretation of community infrastructure, the provisions relating to certificates of acceptance, the prohibition on reserve contribution for non-residential development, and the provisions relating to the contents of development contributions come into force one month after Royal Assent.

The right to object to a development contribution, the procedure for objections, and related matters come into force on a date to be appointed by the Governor General by Order in Council, or 12 months after the date of Royal Assent.

Everything else comes into force the day after Royal Assent is given.

The commencement provisions may create some difficulties. For example new sections 199A and 199B, which include the right to reconsideration of a development contribution assessment, come into force immediately. Also in force immediately is section 202A which requires a development contribution policy to include the process for requesting reconsideration of a requirement. Logically this would require a local authority to have amended its development contribution policy ahead of the commencement of the Act, which it cannot do.

In addition we note that the substantial changes required by the proposed new section 201A to the schedule of infrastructure for which development contributions will be used will come into force within one month of Royal Assent, giving territorial authorities only a minimum time to make those adjustments.

A new Schedule 1AA concerns the application, savings, and transitional provisions relating to the proposed amendments. Pursuant to clause 5 a territorial authority may retain any development contribution made to it before commencement as if the Amendment Bill had not been enacted. Where, as the result of the Amendment Bill a territorial authority can no longer collect development contributions for community infrastructure, and as a result that work does not proceed, it can retain development contributions already collected for that purpose, and use them for similar assets or functions within the district or part of the district from which the development contribution was required.

Pursuant to clause 6 of Schedule 1AA applications for resource consent, building consent, a certificate of acceptance, or a request for service connection made before the commencement of the amending legislation are to be dealt with as if the Amendment Bill had not been enacted.

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