Judicial review of Hamilton City Council's development contributions policy
Judicial review of Hamilton City Council's development contributions policy
Tuesday 5 October, 2021
The High Court has released a judgment in AGPAC Limited and others v Hamilton City Council  NZHC 222. This is the first major substantive decision on development contributions since 2008 and will provide important guidance to councils and developers on what councils can include in their development contribution policies and how councils should make policy decisions when adopting or reviewing such policies.
What are development contributions?
Development contributions (DCs) are a funding tool for councils to charge developers a share of the capital expenditure cost necessary to service growth over the long-term. Where a development or group of developments will require capital expenditure on infrastructure (e.g. wastewater treatment plant, collector road, stormwater swale, pipes) a council may require developers to meet some of that expenditure as part of undertaking their development.
In simple terms, a council’s DC policy sets out:
- the projects the council expects to undertake to cater for growth;
- how the council has calculated the share of costs to be borne by the development community (as opposed to ratepayers generally); and
- how the council then allocates those costs between individual developments.
Specific statutory provisions in the Local Government Act 2002 set out the rules and principles that apply to DC policies.
What were the key challenges to HCC’s DC policy?
The decision involved 17 separate challenges to HCC’s policies over several years and related to each of the stages of a DC policy outlined above.
In this article, we focus on those parts of the decision that we think are most likely to be of interest to other local authorities and those who are active in the development community:
- How a court should approach judicial review of a DC Policy;
- Inclusion of models, plans and programmes in HCC’s DC Policy;
- Allocation of project costs between developers working in different areas (“catchments”);
- Allocation of costs to a particular project, and the role of “actual demand” in this process.
1: How did the Court approach review?
Different challenges required different approaches to review. Some involved pure questions of compliance with the LGA. Others involved policy judgements by HCC. Justice Gault concluded that the LGA framework both requires and leaves room for policy judgements. These policy judgments include the proportion of capex on growth which DCs will fund, and how DCs are to be allocated. The Court made clear that the concepts of fairness, equity and proportionality in the statutory purpose and principles require councils to make policy judgements but these concepts do not necessarily dictate a particular outcome.
2: Inclusion of models, plans and programmes in HCC’s DC Policy
Every council with a DC Policy must publish a Schedule of Assets which sets out each asset or programme of works for which DCs are to be used and the estimated capital costs of each project. In order to calculate DCs, the council is required to identify the total cost of capital expenditure that it expects to incur to service growth, and to identify the share of that expenditure attributable to each unit of demand.
HCC’s Schedule of Assets includes several hundred projects at a total estimated capital cost of over $1b.
The applicants challenged the inclusion of 50 projects, with a total value of over $20m. These projects were not physical assets (such as pipes, roads or pump stations); rather, they were programmes, plans and models used to ensure that new infrastructure was integrated with the strategic networks. These projects included HCC’s Integrated Catchment Management Plans, water network master plans and water and transport models.
It was common ground that these projects could be recognised as intangible assets by HCC in terms of the relevant accounting standards. The question for the Court was whether the costs of these projects was “capital expenditure” on reserves, community infrastructure or network infrastructure (as defined in the LGA). This was a question of how to interpret the relevant sections of the LGA, rather than raising issues of HCC’s policy-making judgment or decision-making process.
The Court accepted that the plans and models were “building blocks” in the development of infrastructure and that, even if the definitions of community infrastructure and network infrastructure in the LGA were limited to physical assets, capital expenditure on such assets would include the cost of planning and design work in anticipation of or preparatory to the construction of such assets. Therefore, the projects formed part of the infrastructure.
3: Allocation of project costs between catchments
HCC’s district is divided into “catchments” for the purposes of its DC policy. One of the LGA principles is that when calculating and requiring DCs, territorial authorities may group together certain developments by geographic area or categories of land use. This grouping must be done in a manner that balances practical and administrative efficiencies with considerations of fairness and equity.
Three separate challenges stemmed from the use of catchments:
Inclusion of “self-sufficient” development in catchment charge
The applicants argued that DCs cannot be charged where the developer has constructed and fully funded all stormwater, wastewater, water supply and roading infrastructure required to service the subdivision.
The Court found that, while the subdivision in question was low demand, it still generated demand for infrastructure, and may also have cumulative effects. The LGA requirements do not preclude HCC from deciding in its DC policy that some aspects of infrastructure should be allocated on a citywide basis, and some on a catchment area basis. Any double up in specific cases can be addressed by a special assessment or a private developer agreement, as had occurred in this case.
Roading projects not located in catchment boundary
The Court also considered whether a DC can be charged in respect of roading projects outside the catchment boundary. The Court accepted that there is no requirement for a project to be physically located within a catchment defined as an area on a map. As the evidence showed that the roads in question operate as collector roads, they form part of the overall transport network for the catchment.
Citywide charges for arterial roads
In addition to specific local growth catchments, some growth costs are allocated to the “citywide” growth catchment. Every developer pays DCs for the citywide catchment. HCC’s DC policy allocates the costs of arterial roads between citywide and the relevant local growth area(s) based on modelled trip generation.
The applicants argued that this distribution was unfair and that the costs should be allocated 100 per cent city wide. Their concern was that the costs of these roads was weighted disproportionately to local growth catchments and result in local developers paying twice.
The Court did not accept that there was any double counting, as the costs are apportioned between citywide and the local growth catchment. HCC’s allocation was based on expert transport advice and was not precluded by the LGA.
4: Allocation of costs to particular projects andthe role of “actual demand” in this process
DCs are payable on developments based on the demand those developments are assumed to place on the infrastructure network, measured in household unit equivalents (or HUEs). Under HCC’s policy, remissions are available for commercial and industrial development where the actual demand is more than five HUEs lower than assessed demand and where the reduction creates material capacity in HCC’s infrastructure network. The applicants argued that DC remissions should be calculated based on actual, not modelled, demand. The Court held that DCs are charged on the basis of modelled rather than actual demand. The Court accepted HCC’s argument that a materiality requirement for remissions is consistent with the LGA.
The threshold for what counts as a “development” is not high. The Court said that it’s enough that the development as whole generates demand for infrastructure. That is, there’s no requirement to show that each component of the development generates demand.
In HCC’s DC policy, gross floor area (GFA) is defined to include canopies (“permanent outdoor covered structures”). The applicants argued that canopies that only provide wet weather protection don’t create demand for additional infrastructure and shouldn’t be included in the GFA calculation. The Court was not persuaded by the applicant’s focus on the demand generated (or not) by the canopies as an individual component of the development. It found that it was open to HCC to include canopies in the definition of GFA.
HUEs for residential property
For residential developments, HCC’s policy uses bedroom numbers as a proxy for stormwater demand. The applicants argued that there is no relationship between bedroom numbers and impermeable surface area to justify this approach, pointing in particular to double-storey dwellings. The Court did not accept the applicant’s argument that stormwater DCs for residential developments can only be based on impermeable area. The Court accepted that there is a broad correlation between bedroom numbers and building footprint across Hamilton’s housing stock and therefore that HCC’s policy approach was not inconsistent with the statutory requirements. The greater the development of multi-storey dwellings, the more likely it is that this aspect of the policy will need to be reviewed, but this remains a policy judgement for elected members.
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