A seminar on how municipalities should levy development charges for new developments has brought hope for the successful implementation of impending regulations designed to promote greater standardisation, predictability and equitable sharing of the burden of bulk infrastructure costs.

The seminar, hosted by the Swiss Government funded Vuthela iLembe LED Support Programme, brought together government officials, developers and the business sector who have expressed varying and often conflicting views on how development charges should be levied.

A development charge is levied by a municipality to cover the costs incurred by the municipality when installing new infrastructure or upgrading existing infrastructure as a result of new developments.

The National Department of Finance is currently steering an Amendment Bill through the legislative process to standardise how municipalities levy development charges and clarify confusion over technical terminology, processes and the parameters for calculating the infrastructure costs that should be levied from developers. 

With the introduction of the Municipal Fiscal Powers and Functions Amendment Bill in Parliament last month, it has now become urgent for key stakeholders like local, provincial and national government officials, property developers, chambers of commerce and the many sectors that will be impacted by the imminent law to find common ground. The Bill is likely to be enacted into law early next year, and all municipalities will need to comply with its requirements.

Representatives of the larger members of the iLembe District of municipalities, the South African Property Owners Association, developers, the iLembe Chamber of Commerce, Industry and Tourism, the Siza Water Concession, the Department of Transport, Department of Finance and development facilitation practitioners attended the seminar.

There was general consensus that developers pay towards bulk services, like water, electricity, roads and sanitation systems. However, stakeholders differed on how the principle was being applied, and the conditions for and calculations to apportion such costs.

Many municipal officials pointed out the disjuncture between current legislation being used to levy development charges and the new amendments. The application of incentives was another area that needed clarification: should social housing projects be incentivised at the same level as commercial shopping centres, for example?

Sikhumbuzo Hlongwane, Executive Director of Planning and Economic Development at KwaDukuza municipality emphasised the need for balancing interests between developers and municipal rate payers in carrying the costs of bulk infrastructure.

Further consultation was needed on some of the financial components, especially the cost calculation formula, incentives and collaborative options for funding.

Challenges included concerns that the rationale for development charges was not fully understood by all stakeholders and the calculation formula was not standardised among the family of local municipalities in the IDM.

While it may be difficult for a uniform policy to be applied across all three local municipalities in the district, consensus should be reached on the calculation of costs.

Criteria for developer incentives should be informed by job creation, revenue generation and investment value.

Cobus Oelofse, CEO of the iLembe Chamber of Commerce and Tourism, said developers were concerned that the cost burden of installing infrastructure was shifting to end users, and that the development charges were like a form of tax on new projects.

The Chamber proposed that other opportunities to secure funding for bulk infrastructure should be explored jointly by developers and municipalities; developer contributions should be capped; rates and rebates holidays should be offered to developers as incentives, and development charges be ring-fenced for the installation of new bulk infrastructure only – and not for maintenance and replacement of faulty equipment. 

The Chamber supported developer-led planning which included municipal and provincial government officials and optimising the cost and risk sharing arrangements.

Development Facilitation Consultant and long serving former Planning Executive in the KZN provincial government, Frikkie Brooks, stressed that the process of implementing development charges should focus on achieving a win-win outcome for all parties.

This can be achieved by understanding the constraints of local government and the consequences of providing free basic services on municipal finances. Local government is sincere about providing services but is in in a difficult situation, said Brooks.

At the same time, it must be understood that, in the private sector, business has to be viable and profitable.

Development charges should be applied in a way that maximises the profitability for the developer and for the municipality in a partnership model that allows both parties to gain significant benefits.

Municipalities needed to increase revenues by expanding their rates base and expand the scale of the services they provide, and private developers can help municipalities to achieve this, said Brooks.

SA Property Owners Association CEO Neil Gopal told the seminar that the industry did not oppose development charges, provided they were applied in a manner that was fair and transparent.

He said if vacant property was surrounded by existing services which had already been paid for, the private sector should not be charged for infrastructure for the second time.

Development charges should be ringfenced for  the specific development only and should not be used at other sites for additional infrastructure.

SAPOA hoped that Amendment Bill would lead to development charges that were fair and transparent, and that it would set limits on how levies are imposed.

It was proposed that a developers’ forum would help to resolve these issues by providing a platform for further dialogue between stakeholders.

National Treasury representative Mmachuene Mpyana said the Amendment Bill sought to address many of the challenges raised by delegates and would create a standardised framework for levying development charges.

Where adequate infrastructure already exists, and municipalities are still paying off the loans used for the infrastructure, the Amendment Bill allows municipalities to use development charges to repay the debt incurred for that infrastructure.

Mpyana said National Treasury would undertake an assessment of the capacity of municipalities to implement development charges. Treasury would develop and share the tools needed to implement Amendment Bill successfully.

Vuthela iLembe LED Support Programme spokesperson Richard Clacey said the seminar had succeeded in bringing stakeholders together to share their perspectives on development charges, and to robustly engage around the issue to better understand the concerns of different role players.

While there were still many areas of disagreement between stakeholders, there was sufficient emerging agreement to be able to implement development charges in a predictable and equitable manner to the benefit of developers, municipalities and local economic growth and development.

The three municipalities in the district had used different approaches in applying the development charges policy. KwaDukuza was using an existing framework while waiting for the new legislation to be passed. iLembe had to align their policy with the Amendment Bill. Mandeni municipality has approved its regulations and was proceeding with implementation.

“We have an opportunity to do something special here in the iLembe District Municipality,” said Clacey.

“If developers and municipalities put their heads together and agree on a way forward, we can all succeed. That way, everybody wins, and everybody has a future in this region.”

He added that it was now essential for all stakeholders to proceed with discussions between themselves and forge further areas of agreement so that development charges can be successfully implemented for the benefit of all stakeholders and the communities they serve.