Remove financial contributions for new developments

Simplify charging regimes for new developments by removing financial contributions

Problem

458. Currently the only restrictions around the use of financial contributions under the RMA are that the purpose and level of contribution must be specified in a council plan. Both a financial contribution and development contribution (under the Local Government Act) may be charged for a single development; although they must be for different purposes. There is considerable variation and overlap between how different councils charge financial and development contributions. This has resulted in confusion and concerns about councils’ charging under the two regimes; especially when contributions are charged under both regimes for the same development. To provide greater clarity on the use of development contributions, amendments were made to the Local Government Act. These came into force in August 2014, restricting the use developmentcontributions.

459. The overlap between the two charging regimes may be confusing and could lead to perceptions of councils double charging. However, information on the size and scale of this problem is currently notavailable.

460. The original intent of financial contributions wasto:

· provide a fair and reasonable way to finance the extension or development of bulk services or other infrastructure costs as a result ofdevelopment

· provide a fair and reasonable way to ensure the adequate provision of reserves (including esplanade reserves/strips other than in relation to subdivision) to meet the community needs generated by theproject

· deal with potential adverse effects on the environment that cannot be directly avoided, remedied, or mitigated. This includes ensuring positive effects to offset any adverseeffect.

461. Development contributions were introduced in the 2002 Local Government Act as a regime that better met the financial management requirements that councils are required to follow. Points 1 and 2 above can be achieved through development contributions (providing appropriate polices are developed) which can be taken for reserves, network infrastructure and community infrastructure under section 199 of the Local Government Act. Development contributions can only be charged in accordance with a development contributions policy that is developed through the Annual Plan or Long Term Planprocess.

Proposal

462. The proposal is to repeal the ability to charge a financial contribution under the RMA. It would still be possible to offset environmental effects (if volunteered by the applicant) under the RMA with conditions on consents for delivering specific environmentalmitigation.

463. Restricting or removing financial contributions will make it clear that the costs of servicing new growth should be met through development contributions and make charging more certain and transparent forapplicants.

464. It is expected that the removal of the ability for local authorities to charge financial contributions will result in a drop in local authority revenue of an estimated $10 million per year. Where a financial contribution is related to the provision of infrastructure or reserves, some local authorities will be able to mitigate the removal financial contributions through making greater use of development contributions under the Local Government Act 2002. The narrower scope of development contributions means that it is likely the lost revenue will not be fullyoffset.

465. One of the sections being repealed by this proposal is the only place in the RMA where environmental offsetting is mentioned and could lead to some confusion that the ability offset environmental effects is being removed as part of this proposal. The reforms will clarify how environmental offsetting is considered under the RMA. The removal of financial contributions will mean that environmental offsetting will only be possible on a voluntary basis. The research that MfE has undertaken around how regional councils use financial contributions foundthattheregionalcouncilspreferredtouseconditionstoavoidormanagetheactual

adverse effects rather than receive money to offset the effect. The ability for voluntary environmental offsetting under the RMA is not affected by thisproposal.

466. It is possible that more resource consents will be declined if an applicant does not agree to the offsetting requirements or where the offsetting offered by the applicant is insufficient to justify the consent being granted. Councils will not have the ability to impose conditions that take land or cash without the applicant’s agreement. In practice, applicants sometimes agree to offsetting conditions (eg, planting, or habitat protection on another site) that are reasonable and necessary to ensure the consent isgranted.

467. The RMA provides the ability for councils to require esplanade reserves, access strips and esplanade strips to, amongst other matters, enable public access to or along any sea, river, or lake. The removal of financial contributions will not affect the power ability for councils to acquire esplanade reserves, esplanade strips or access strips but may affect their ability to fund the acquisition of suchinstruments.

468. Unlike development contributions, the purposes for which financial contributions can be charged are not solely related to servicing growth. For example, a submission on the NES for forestry discussion document mentioned that at least one council charges financial contributions for forestry to cover the cost of maintaining the roads used by the forestry trucks. For this example, the proposal is not changing the provisions around the ability to impose works and services conditions on resource consents. Works and services conditions could be applied where there a direct relationship between the forestry vehicles and the increased maintenance required for the roads. However, it is likely to be difficult to determine the exact effect that the forestry vehicles have on roads where there are multiple road users. Under this type of scenario the full amount of the financial contribution may not able to be replaced.

469. It is recommended that the changes to financial contributions do not take effect for a period of five years. This transitional period will provide territorial authorities with an opportunity to amend or prepare their development contributions policies as part of their Long Term Plan processes. Some territorial authorities may have to prepare or amend their development contribution policy to ensure that they can still recover the costs of providing for new growth from any development that creates a demand for newinfrastructure.

Alternativeoptions

Remove the ability to take financial contributions for infrastructurepurposes

470. It would be possible to restrict the use of financial contributions so that they could not be used to cover the costs of maintaining, upgrading or providing infrastructure. This option would remove some of the existing overlap between the two charging regimes. It would not completely remove the overlap or confusion around the use of financial contributions that currently exists. The ability to take land for reserves will still be possible under both regimes. Part of the current confusion stems from the variability in how the different councils use the two charging regimes and this variability is likely to continue while the both charging regimes are able to be used for the samepurpose.

471. While this will assist by providing some clarity and improve the differences between the two charging regimes, it does not completely resolve the confusion and overlap between the two chargingregimes.

Limit the purpose of financial contributions to environmentaloffsetting

472. Another option is to take development contributions for the offsetting of environmental effects. One consideration is therefore to retain the ability for financial contributions under the RMA as this is where there is no overlap between the two chargingregimes.

473. It is considered that just limiting financial contributions to environmental offsetting will not be sufficient, as some upgrading or provision or infrastructure would be justified under a guise of offsetting environmental effects. This option may not have any significant changes in current chargingpractices.

Merge financial contributions and development contributions under oneAct

474. A third option is to merge financial contributions and development contributions under one piece of legislation. However, this option is not considered appropriate due to the different purposes of the two statutes. The Local Government Act (LGA) does not seek to manage environmental effects and the purpose of development contributions in the LGA is clearly defined to cover the capital costs of servicing growth. Between 1991 and 2002 there was only the ability for councils to charge financial contributions under the RMA. Development contributions were introduced as this was not working. The requirement for a direct causal linkage on resource consent conditions can be too restrictive to fund the future growth requirements.

Remove the ability to have a financial contribution under the RMA where there is a development contribution for the same purpose (infrastructure orfacility)

475. The final option is to remove the ability to have a financial contribution under the RMA where there is a development contribution for the same purpose. However, this option would not remove the confusion that exists between the two charging regimes and would achieve no practical purpose. Section 200 of the Local Government Act 2002 already excludes to the ability to take a development contribution to when a financial contribution has been taken for the same purpose. There would still be variation as to how different councils use the two charging regimes recover the costs of servicing growth under thisoption.

Conclusions

476. The proposal removes any confusion around the two charging regimes. It clarifies that it is the place of development contributions to recover the costs of providing the necessary infrastructure to service growth. The restrictions that exist around the use of development contributions under the LGA make it clear under what circumstances development contributions can be applied by councils. This should lead to greater consistency around how councils meet the costs of providing forgrowth.

477. This proposal will contribute to achieving the outcome of reduced duplication across resource managementlegislation.