Equity of options for funding long-term infrastructure investment

Cameron Murray and Tim Helm
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Cameron Murray: The University of Sydney

No da7h8, OSF Preprints from Center for Open Science

Abstract: This report provides advice on the equity of funding future investment in growth-related infrastructure from new development rather than general rates, and via upfront rather than ongoing payments, in the context of Auckland Council’s proposal to include projects planned beyond the 10s- year period of the Long-term Plan 2021-2031 in the calculation of development contributions. The significance of the expected cost impacts from this proposal makes it important to assess whether the change supports fair, equitable and proportionate cost recovery, and to understand the costs and benefits of using development contributions vs alternative approaches. The report concludes that it is more equitable to fund future growth-related infrastructure by taxing new development, such as via development contributions, than by taxing ratepayers across the city. Equity in funding local public goods, such as infrastructure, means those who cause the need for expenditure, and/or those who benefit from it, should fund it. Benefits in this context are best identified as land value uplift from the full planning process – both rezoning and infrastructure delivery. Infrastructure users are not beneficiaries in any meaningful sense, because they have already paid for the ongoing value of its services in the upfront price of their property. Since development causes the need for growth infrastructure, and developable land benefits most significantly, it is fair to collect funding from developers rather than ratepayers. This applies to post-2031 infrastructure just as to pre-2031 infrastructure. Moving closer to full cost recovery by treating all planned investment on the same basis therefore improves the equity of the overall funding model, better aligning funding practice with ethical and legislative principles. Charges that reflect the higher costs of greenfields development will also incentivise development to be undertaken where it has lower public cost. Early developers contribute towards the need for infrastructure as much as late developers, so this proposal also reduces the inequity of under-charging early developers inherent in current practice. The proposal is a logical application of accepted principles and raises no major equity concerns. An extended lag between payment and infrastructure delivery is not inequitable, because developers benefit financially from planned infrastructure long before delivery. Greater uncertainty over future costs may result in larger revisions to contribution levels, but there is minimal risk of over-charging. The report argues that whether funding for post-2031 infrastructure is collected upfront via development contributions or over time via targeted rates is a second-order issue, since the economic impacts are broadly similar.

Date: 2022-06-09
New Economics Papers: this item is included in nep-ppm and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:osf:osfxxx:da7h8

DOI: 10.31219/osf.io/da7h8

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