Development Charges June 2011

BACKGROUND Presently new external infrastructure costs for new and upgraded capacity for developments are in the main subsidised by all ratepayers and not on a user pays principle. Durban has applied a simplistic “Development Charge” across the Metro from 1 July 2010 (applied in the Outer West from 2003). The other Metro Municipalities in the country, i.e. Joburg, Ekurhuleni, Tshwane and Cape Town, are currently levying development charges of one form or another, hence some recovery of costs. National Treasury Policy is to introduce Development Charges on a rational basis, across the entire country. The Municipal Fiscal Powers and Functions Act of 2007 is to be amended to better provide for a Development Charge. Spatial Planning and Land-use Management Bill, 2011 (SPLUMB) makes specific provision for a Development Charge. This is set to be enacted in 2012.

KEY POLICY OBJECTIVES  Equity and Fairness - DC must be reasonable, balanced & practical so as to be equitable to all stakeholders.  Predictability – DC must be predictable, legally certain & reliable.  Spatial & Economic Neutrality – DC primary role is to ensure timely, sustainable financing of required urban infrastructure.  Administrative Ease & Uniformity – The determination, calculation and operation of the DC should be administratively simple and transparent.  Specific Use of Development Charge – Can only be used for effecting changes to infrastructure and for no other purpose.

WHAT ARE DEVELOPMENT CHARGES? It is a tariff or levy in respect of either new external and upgraded infrastructure and/or the taking up of existing surplus infrastructure capacity in the system The charge is levied against all new residential, commercial & industrial development within Ethekwini, be they in established areas or in undeveloped areas The component costs making up the charge are in respect of municipal roads, water, waste-water and electricity services as may be required for a proposed development The payment of a development charge is not a guarantee of approval unless the development also conforms to the planning guidelines of the city, i.e. Spatial Development Plans, Service Infrastructure Plans, Scheme, etc. All funds collected are to be retained in a dedicated infrastructural fund for the area concerned.

THE NEED FOR DC POLICY – NATIONAL CONTEXT Cities should invest R257 bn (est.) over next 10 years 90% of this for infra expansion or rehabilitation, which is critical to growth and job creation, esp given existing bottlenecks Huge urban infrastructure investment need Inadequate regulatory overarching framework. Different approaches by cities offers opportunities for arbitrage. Shortfall of between R482m and R18,6bn per year! DCs important component of infra finance but: Under-investment by municipalities, compounded each year, that delays development & constrains growth and job creation Unfair, opaque rationing of access to infrastructure Windfall benefit to new developments, paid for by existing ratepayers The “missing contribution” has significant impacts

PRIMARY ROLE Fairly apportion “asset” cost relative to benefits between end users now and in the future For consumption of infrastructure not the service Does not attempt to be redistributory but can provide spatial (dis)incentives if development is beyond Urban Dev Line. User pays for consumption of infrastructure “asset” capacity These recover operating & replacement / replenishment costs (not initial asset installation) e.g: Depreciation included in tariff Supports ongoing equity: user pays Relation to other rates and user fees Is to apportion the installation costs of infrastructure

STRUCTURE & CALCULATION OF DC Structure of the Development Charge Fee is levied for provision of Municipal infrastructure required for essential services to a development CALCULATION OF DC WaterSewage DisposalRoadsElectricity Estimated additional water demand for development in Kilolitres/day X current replacement cost of existing water infrastructure Estimated additional sewage effluent generated by development in Kilolitres/day X current replacement cost of existing sewage disposal infrastructure Costs consists of 2 components: 1.Capacity component – ‘number of lanes on the road network’ 2.Strength component – pavement layers of road network Estimated Development Charge is the Asset Replacement Cost less Outstanding Loans divided by the Average Network Capacity in Rands per kilowatt

STRUCTURE & CALCULATION OF DC WaterSewage DisposalRoadsElectricity Development Charge for Water: DC = ARC – OL ANC Development Charge for Sewage Disposal: DC = ARC – OL ANC Development Charge for Roads CC = SD X TGR X HTL X CR SC = SD X DHTR X AF X CR DC = CS + SC Development Charge for Electricity: DC = ARC – OL ANC DC = Development Charge / ARC = Asset Replacement Costs / OL = Outstanding Loans / ANC = Average Network Capacity CC = Capacity Contribution / SD = Size of Development / TGR = Trip Generation Rate / CR = Cost Rate SC = Strength Contribution / DHTR = Daily Heavy Trip Rate / AF = Axle Factor / HTL = Half Trip Length

DEVELOPMENT CHARGES The landowner is responsible for payment of the development charge, although in most cases the developer (who may also be landowner) will attend to payment thereof Development Charges will be applicable to all developments for which the approval of the Municipality is required in terms of any law, by-law or scheme These relate to land use applications for township development, subdivision applications, change in zoning, change of use of an existing building Who is liable for the Charge? Which developments are affected?

WHEN IS DC EFFECTIVE? Development Charge will become effective from 1 st July 2012 It will be implemented on a phased basis over a number of years to lessen impact of new cost to developers Policy & By Law will be subject to National Treasury directive / National Legislation when promulgated.

WHEN IS DC ASSESSED & PAYABLE?  The Development Charge is to be assessed upfront during the planning application approval stage.  The Development Charge is payable on approval of the development (and only after all appeal processes, if applicable, are exhausted).  The Development Charge is to be assessed upfront during the planning application approval stage.  The Development Charge is payable on approval of the development (and only after all appeal processes, if applicable, are exhausted).

Thank You Questions ??