Treasury bill seeks to regulate payment for bulk municipal infrastructure

Very few municipalities are imposing development charges for the provision of bulk infrastructure for new land developments, a situation that the Treasury wants to correct with the introduction of draft legislation that will standardise how these charges can be applied.

A study undertaken by the Treasury suggested that municipalities fail to recover in the region of R20bn each year that could be raised from development charges.

Land developments are often delayed due to the unavailability or late development of new infrastructure such as roads, bulk water, electricity and sewerage or the upgrading of existing infrastructure.

There has also been underinvestment in economically crucial infrastructure by financially constrained municipalities.

The Treasury wants to remedy this situation with the introduction of the Municipal Fiscal Powers and Functions Amendment Bill, which aims to regulate and standardise the imposition of these development charges, which in the past have been regulated by provincial ordinances and several laws. None of these, however, standardises or provides clarity on how one-off development charges should be levied or calculated. This has discouraged municipalities from imposing them.

The bill that fills this policy gap will ensure that the cost of infrastructure required for a development is paid for by the developer and avoid the financial burden being carried by municipalities or communities.

Treasury senior economist Sandra Sekgetla said in a presentation to parliament’s finance committee on Wednesday that the lack of clarity over the application of development charges had created legal ambiguity and increased the scope for litigation.

“Due to these legal challenges, municipalities have not fully used development charges despite their potential scope of providing an alternative option for financing municipal infrastructure,” Sekgetla said.

“The ineffectiveness in the utilisation of development charges as a source to finance municipal infrastructure has profound, negative economic impacts, such as underinvestment in municipal infrastructure and unfair charging of existing residents for the expansion of infrastructure networks, while providing a windfall benefit to applicants who don’t pay,” Sekgetla said.

The benefits of a standardised, clear regulatory framework on development charges for municipalities would be to enhance revenue streams to finance municipal infrastructure, which could be used to raise loans for infrastructure projects. It would create uniformity across municipalities thereby eliminating unfair competition/and or treatment of applicants both within and between municipal jurisdictions.

For developers the benefits would ensure predictability, enabling them to accurately estimate their development charge liabilities and to hold municipalities to account for the timely delivery of required infrastructure. Also, developers would only pay for infrastructure that benefits them.

In terms of the bill a municipality may agree in writing with an applicant that the applicant installs all or part of the bulk engineering services required for an approved land development, and the municipality may offset the costs of installation of such bulk engineering services against the associated development charge.

Municipalities will have the choice whether or not to impose development charges, but if they decide to do so, they will be obliged to comply with the act and incorporate the policy in a bylaw. They will be allowed to provide developers with rebates or exemptions.

Municipalities that already have development charges will have 36 months to implement the legislation.

The bill provides that if a municipality fails to complete the installation of bulk engineering services within a period of 12 months from the completion date as stipulated in an engineering services agreement, the municipality must reimburse the applicant with that portion of the development charge attributable to the failure plus interest.

The public has until Monday to make submissions on the bill and the committee will hold public hearings on it next Wednesday.

ensorl@businesslive.co.za