New Municipal Act Will Formalise Application Of Development Charges

Municipalities must align their development charges policies with the soon to be enacted Municipal Fiscal Powers and Functions Act, writes Zama Soji, Key Expert for the Public Finance Management Component of the Vuthela iLembe LED Support Programme.

Amendments to the Municipal Fiscal Powers and Functions Act (MFPFA) relating to development charges will ensure a win-win situation for municipalities, developers and ratepayers.

The Government is moving ahead with the finalisation of amendments to the MFPFA which will formalise the levying of development charges by municipalities.

Development charges are a once-off capital payment made by developers, on approval of a land development application submitted to a municipality, to cover the costs of providing bulk engineering services to service new developments, whether on greenfield sites, or re-development of existing properties. Development charges will ensure that municipalities are able to provide infrastructure assets in a timely and sufficient manner to support land development.

Challenges were experienced by municipalities when there were disagreements on the approach and manner of levying development charges within their areas of demarcation. However, after a process of finalising amendments to the MFPFA, it will be signed into law soon.

 

Some municipalities that levied development charges to developers for the provision of bulk infrastructure were challenged by developers who asserted there were issues around equity, fairness, and lack of transparency in the computation of these charges. Developers were critical about the lack of consistency and standardisation. This resulted in some developers preferring to invest in areas where development charges policies were sound, easy-to-understand and cost effective.

Municipalities play a significant role in the provision of infrastructure required for development. However, due to limited resources, they may not be able to meet the demands of developments as this may mean risking their finances and this could have a negative impact on service delivery. Thus, development charges can play a significant role in bridging that gap.

Once the MFPFA is enacted into law, policies and by-laws must be developed by municipalities to ensure that developers and other ratepayers as well as the municipalities benefit from these levies. They will have to follow all due processes prior to adopting their policies consistent with the Act in levying development charges.

The Vuthela iLembe LED Support Programme has assisted iLembe District Municipality and the local municipalities of KwaDukuza and Mandeni in the drafting of development charges policies which are aligned with the MFPFA. The finalisation of the MFPFA amendments will require municipalities to review and amended their policies to align them with the soon to be enacted Act.

During a policy and practice seminar on development charges that the Vuthela Programme hosted towards the end of 2022, it emerged that developers are willing to pay development charges if the process is fair, equitable and transparent.

National Treasury has appointed a service provider, PEGASYS, that will assist municipalities with the following:

  • Introduction to the amendments to the MFPFA;
  • Capacity assessment process and method; and
  • The assessment tool to gather information for development charges training and capacity development.

According to PEGASYS, the following are the benefits to stakeholders following the implementation of development charges policies as articulated by National Treasury.

Benefits to the municipality

  • Enhanced revenue streams for financing strategic municipal infrastructure;
  • Ability to provide infrastructure in a timely and sufficient manner to support land development; and
  • Uniformity in application of development charges eliminates unfair competition and/or treatment of developers.

Benefits to developers

  • Predictability – can accurately estimate liabilities;
  • Certainty – can hold municipalities to account for the timely delivery of required infrastructure;
  • Fairness – pay only for the infrastructure investments from which benefit will be derived;
  • Equity – all developers will be treated equally according to the same set of rules;
  • Transparency – transparent allocation of the costs of the infrastructure installed and its quality; and
  • Timing – development charges speed up the provision of infrastructure to unlock development.

Benefits to other ratepayers

  • Will not bear the cost of infrastructure serving new developments through increased rates and tariffs; and
  • Will provide additional funding to not divert existing municipal capital funding away from planned renewal and upgrading projects for existing consumers.

 

The successful implementation of development charges policies aligned with the Act will see a decrease in legal battles between developers and municipalities, and will reduce delays caused by non-availability of funding for bulk infrastructure which must be provided by the municipalities and accelerate development.