Infrastructure Funding and Financing Bill

Infrastructure Funding and Financing Bill

Government Bill

204—1

Explanatory note

General policy statement

This Bill is an omnibus Bill that amends more than 1 Act and is introduced under Standing Order 263(a) because the amendments deal with an interrelated topic that can be regarded as implementing a single broad policy. That single broad policy is to provide a funding and financing model to support the provision of infrastructure for housing and urban development that supports functioning urban land markets and reduces the impact of local authority financing and funding constraints.

Introduction

New Zealand’s current infrastructure funding and financing system presents a range of constraints that are making it difficult for the market and local and central government to respond to urban pressures. As a result, housing and infrastructure are not meeting the needs of New Zealanders. Specifically, local authorities face several challenges in relation to the financing of housing-related infrastructure and supplying serviced urban land.

This Bill establishes an alternative funding and financing model (the Model) to address these challenges and support the provision of infrastructure to support housing and urban development. The Model is an important step in the long-term evolution of the local authority funding and financing system and seeks to support the functioning of urban land markets by appropriately allocating the costs of infrastructure.

The Model is about creating flexibility in the infrastructure financing system to ensure that economically viable projects proceed, without being unnecessarily encumbered by a council’s financing constraints. This will improve the responsiveness of infrastructure supply to service land for housing and competitive urban land markets, reducing the overall cost of housing in the long term. The Model also seeks to facilitate urban development infrastructure that supports community needs. Importantly, it allows for a project to be ring-fenced from the local authority’s finances, ensuring that there is no recourse to the local authority.

The Model

The levy

At the core of the Model is a multi-year levy (the levy) which is paid by beneficiaries of infrastructure projects to a Special Purpose Vehicle (SPV). The levy will be enabled by legislation and authorised by an Order in Council (a levy order). Where appropriate, the design of the levy mimics many of the rating provisions within the Local Government (Rating) Act 2002. The person who is liable to pay the rates on a property is the person liable to pay the levy, and this will be collected by the territorial authority that is the responsible levy authority for the infrastructure.

The levy is applied to a geographic area of land and this will be identified within each levy order as the relevant area liable for the levy. The Bill provides for categories of eligible costs that are authorised to support the eligible infrastructure within a project area and recovered by the levy.

The Bill includes provisions requiring the agreement from owners of protected Māori land to the inclusion of their land within the area subject to the levy. This enables the owners of protected Māori land affected to assess the risks and benefits to them of the levy being applied and the development potential it will finance.

Special purpose vehicle

An SPV services the finance raised to cover the costs of the infrastructure via the levy and is responsible for both financing and construction of the infrastructure assets. Once constructed, the infrastructure will vest in the relevant local authority or public body. The SPV has a range of bespoke disclosure and reporting obligations that it must comply with. Depending on the structure and nature of the project, an SPV will have the following roles: raising capital (utilising the levy revenue stream), financing infrastructure, commissioning construction, transferring the infrastructure to the relevant local authority (or other relevant public entities), and repaying any finance raised for infrastructure. These functions may be divided between 2 or more SPVs named in the levy order.

Recommender

The role of the recommender is to provide independent, well-informed advice to the Minister for Urban Development on a levy proposal, and subsequently on whether to recommend the use of a levy, with a view to protect the interests of consumers and the Crown.

The assessment of a levy proposal by the recommender will make a recommendation on the structure and application of the levy, long-term beneficiary interests, affordability, and the expected distribution of benefits in the levy area. Consequently, the role of the recommender is critical in safeguarding the interests of levypayers through the provision of high-quality advice to the Minister before a levy is authorised by a levy order.

Statutory powers

There are several statutory powers that SPVs require to effectively and efficiently construct infrastructure. These include accessing powers conferred on network utility operators under the requiring authority regime in the Resource Management Act 1991. These powers provide an SPV with the ability to seek, hold, or receive a designation or to compulsorily acquire land through the Minister for Land Information. Local authorities are also enabled to exercise their existing Public Works Act 1981 powers in respect of projects that proceed, or are intended to be undertaken by an SPV, under the Model. In some instances, a public body may wish to transfer land held for a public work to an SPV to undertake that work.

Protected Māori land is excluded from compulsory acquisition powers; however, the voluntary sale of such land is possible.

It should be noted that the Model will continue to work with complementary regulatory regimes, such as resource and building consenting processes. However, as the Model provides local authorities with an additional tool to finance infrastructure, this may influence how local authorities allocate capital, meet other regulatory requirements, and plan urban development.

Monitor

The role of the monitor is to ensure that SPVs comply with the terms of the empowering Act and levy orders. The monitor performs as a regulator within the Model and is an important safeguard for both the Crown and levypayers once a levy order has been made. The monitor also has a role in considering and determining any objection by a person subject to the levy as to the accuracy of the levy assessed to that person.

In order to fulfil its purpose, the monitor has the power to require information from SPVs and to annually confirm the amount of levy to be collect from levypayers, and will ensure that the SPV applies the levy in accordance with the levy order. The Monitor can give statutory directions to SPVs when they are in breach of these obligations and, if those directions are not followed, ultimately recommend that the Crown step in to manage the SPV until any significant problems are resolved.

Local authority involvement

The local authority endorsement mechanism in the Bill is another safeguard to protect the legitimate interests of the local authority (or relevant public body) in which the assets will vest. A proposal for a levy must receive an asset endorsement and a levy endorsement before the Minister recommends it to Cabinet. The local authority must also assess and collect the levy on behalf of the SPV. This may entail including the levy on a rates invoice, with the levy paid simultaneously with rates collection.

Following construction, the asset will vest in the responsible infrastructure authority, be it a local authority, the New Zealand Transport Authority, or a council-controlled organisation.

Departmental disclosure statement

The Department of Internal Affairs is required to prepare a disclosure statement to assist with the scrutiny of this Bill. The disclosure statement provides access to information about the policy development of the Bill and identifies any significant or unusual legislative features of the Bill.

Regulatory impact assessment

The Department of Internal Affairs produced a regulatory impact assessment on 10 May 2019 to help inform the main policy decisions taken by the Government relating to the contents of this Bill.

Clause by clause analysis

Clauses 1 and 2 name the Bill and provide for when it commences.

Part 1Preliminary provisions

Clause 3 sets out the purpose of the Bill, which is to provide a funding and financing model for the provision of infrastructure to support housing and urban development.

Clause 4 provides an outline of the Bill.

Clause 5 relates to transitional, savings, and related provisions, setting up Schedule 1 for that purpose. There are no such provisions at present.

Clause 6 provides that the Crown is bound by the Bill.

Clause 7 contains definitions, including definitions of construction, levy area, levy period, levypayer, SPV, responsible SPV, responsible levy authority, responsible infrastructure authority, surplus levy, and excess levy.

Clause 8 defines the eligible infrastructure whose construction may be supported by a levy and clause 9 defines eligible costs that may be recovered by the use of a levy.

Clause 10 describes the kinds of persons and bodies that may be an SPV and provides that an SPV may be established and operated only for that purpose.

Clauses 11 to 14 provide for land in which Māori have an interest. Clause 11 defines protected Māori land, which is exempted from some provisions of the Bill, or in relation to which consent or agreement must be obtained before certain powers can be exercised. Clauses 12 to 14 provide that Te Ture Whenua Maori Act 1993, the Marine and Coastal Area (Takutai Moana) Act 2011, and Treaty settlement obligations prevail if there is any inconsistency with the Bill.

Clause 15 describes how provisions of the Local Government (Rating) Act 2002 are modified in order to apply to the levy scheme in the Bill. Provisions of that Act are applied topic by topic under Part 3.

Part 2Authorisation of levy

Clause 16 provides an outline of Part 2.

Subpart 1—Consideration of levy proposal

Clauses 17 and 18 provide who may propose the use of a levy and what information a levy proposal must contain.

Clauses 19 to 26 provide for the assessment of a levy proposal by the recommender, endorsements given by local authorities or other bodies, the need for the consent of the owners of protected Māori land, and the recommender’s recommendation that is reported to the responsible Minister.

Clauses 27 and 28 provide for the responsible Minister’s recommendation to the Governor-General in Council that a levy order be made, including the matters that the Minister must take into account and the other Ministers who must be consulted.

Subpart 2—Levy order

Clauses 29 to 34 provide for the making and the content of an Order in Council that authorises the use of a levy (a levy order), and also the publication of the recommender’s report on the levy proposal that resulted in the levy order. The content of the levy order is extensive and includes the levy area, the levy period, the eligible infrastructure to be constructed, the eligible costs of construction that may be recovered by the levy, the SPV or SPVs and their roles, the maximum levy that may be collected, the rating units that are to be levied, and how the levy is to be assessed for those rating units.

Subpart 3—Basis of liability for levy

Clauses 35 to 39 provide for preliminary levy-related matters, including that rateable land under the Local Government (Rating) Act 2002 is leviable, that ratepayers are liable to pay the levy when they pay the rates, and that the levy period begins on 1 July of the first levy year.

Clause 40 requires the responsible SPV to set the annual levy for each levy year.

Clause 41 requires the responsible levy authority to give a responsible SPV all rating information that the SPV reasonably requests.

Clauses 42 to 50 provide for the confirmation of annual levy. The annual levy is set by the responsible SPV once confirmed by the monitor, or as directed by the monitor.

Clause 51 allows a responsible SPV to correct an annual levy.

Clause 52 requires a responsible SPV to reduce a levy or levy period if the amount of forecast excess levy exceeds the amount specified in the levy order.

Part 3Administration of levy

Clause 53 provides an outline of Part 3.

Subpart 1—Who administers levy

Clause 54 provides that the responsible SPV is authorised to administer a levy and requires the responsible levy authority to administer levy on the SPV’s behalf in accordance with the levy order, subpart 2 of this Part, and a levy administration agreement between the 2 parties.

Clauses 55 and 56 provide for the levy administration agreement, and for the intervention of the monitor if the parties cannot agree on all necessary terms.

Clause 57 provides that, if rates are paid on a rating unit but the levy is not paid, the responsible levy authority is not required to recover the unpaid levy. (The responsible SPV may do so under clause 54.)

Clause 58 provides that a levy on a rating unit is a charge against the unit.

Clause 59 provides that a person must not refuse to pay a levy on the ground that it is invalid unless the person brings proceedings to challenge the validity of the levy on the ground that the responsible levy authority or the responsible SPV is not empowered to set or assess the levy for the person’s rating unit.

Subpart 2—Responsible levy authority administers levy

This subpart provides for the administration of a levy in the same way that rates are administered under the Local Government (Rating) Act 2002. Clauses in this subpart impose requirements on the responsible levy authority and also apply relevant provisions of the Local Government (Rating) Act 2002 with necessary modifications (see clause 15).

Clause 60 requires a responsible levy authority to pay levy proceeds to the responsible SPV.

Clauses 61 to 67 provide for how the responsible levy authority must use the rating information database and rates records kept under the Local Government (Rating) Act 2002 in collecting a levy. Matters covered include notifications by levypayers of changes in circumstances, dealing with objections, the correction of errors in the database and records, and the requirement for the responsible SPV to give any necessary levy-related information to the responsible levy authority.

Clauses 68 to 72 provide that the responsible levy authority must assess (and invoice) a levy along with rates.

Clause 73 provides for how a levy is paid and provides that small amounts need not be collected.

Clause 74 provides for the addition of penalties to a levy that has not been paid.

Clauses 75 to 77 provide for the remission of a levy and the postponement of the requirement to pay a levy in accordance with policies agreed by the responsible SPV and the responsible levy authority.

Clauses 78 and 79 provide for action that the responsible levy authority may take to recover unpaid levy (including any penalties). This includes taking legal proceedings, enforcing judgments (including by selling or leasing land), selling or leasing abandoned land on which a levy is unpaid, and recovery action in relation to Maori freehold land.

Subpart 3—When SPV recovers unpaid levy

Clauses 80 to 84 authorise the responsible SPV to recover an unpaid levy (and penalties) when there are no unpaid rates (see clause 57). Relevant provisions of the Local Government (Rating) Act 2002 are applied, with necessary modifications, and recovery action includes taking legal proceedings, enforcing judgments (including by selling or leasing land), and recovery action in relation to Maori freehold land. The responsible levy authority must make all necessary information available to the SPV.

Part 4Other operational and financial matters

Clause 85 provides an outline of Part 4.

Subpart 1—SPV’s ongoing duties

Clauses 86 and 87 set some key controls for the SPV that are implemented through the levy order. A responsible SPV must not collect more than the maximum levy revenue set by the levy order. The SPV must not apply levy revenue to costs other than eligible costs set by the levy order (or otherwise as permitted by the Act, for example under clause 89).

Clause 88 requires the responsible SPV to enter into a vesting agreement with the responsible infrastructure authority and to transfer the eligible infrastructure to the authority in accordance with that agreement.

Subpart 2—Excess levy and previous contributions

If there is excess levy held by the responsible SPV at the end of the levy period, clause 89 requires that amount to be paid to the responsible levy authority. The responsible levy authority—

  • must remit rates on the rating units to reflect that amount of excess levy if the amount of excess levy is more than the excess levy threshold permitted under clause 90; or

  • if it is less than that threshold, may retain the excess levy.

The formula for calculating the excess levy threshold for this purpose allows for an annual CPI adjustment (to be published by the monitor).

Clauses 91 to 95 relate to the case where development contributions or financial contributions have been previously given in relation to any eligible infrastructure. Clause 92 requires the responsible levy authority to provide a list of these previous contributions to the responsible SPV. The responsible SPV may then direct the responsible levy authority to transfer those amounts to the SPV and then remit the levies on rating units to reflect the correct proportion of levy that should be payable (after deducting the previous contributions, using the formula set by clause 93). If the responsible SPV does not direct the transfer of the previous contributions, the responsible levy authority must instead refund them to the relevant ratepayers for the rating units on which the contributions were paid. Clause 95 provides that the usual rules in the Local Government Act 2002 that relate to the refund of previous contributions do not apply to previous contributions under this Bill.

Subpart 3—SPV’s powers relating to construction

Subpart 3 contains some specific powers for the responsible SPV (which apply only if applied by a levy order).

These specific powers include powers equivalent to those of local authorities under the Local Government Act 2002 to construct infrastructure on private land (clause 96).

The powers also include the ability to construct, place, and maintain water services infrastructure on roads and public areas and, for that purpose, break up roads and public land (clause 97). Before breaking up roads and public land, the SPV must give written notice to the person with jurisdiction over the road or land (clause 98), and must comply with reasonable conditions notified to it (clauses 99 and 100). There is provision for work to be started urgently without notice (clause 101), but in this case, the SPV must give notice later. Clause 102 allows the SPV to appeal against conditions to the District Court.

Subpart 4—Other financial matters

Subpart 4 contains other financial accountability provisions.

Clause 104 requires an SPV to pay all levy revenue into a separate bank account with a registered bank.

Clauses 105 and 106 require the SPV to prepare financial statements for each levy year, and have them audited by a qualified auditor.

Clauses 107 and 108 require an annual report to be provided with those financial statements and the auditor’s report to the monitor. The annual report must also contain information on the eligible costs and other costs incurred by the SPV and other information needed to enable the monitoring of the levy collection. Under clause 109, the monitor may require additional information to be contained in the annual report.

Clause 110 prohibits the responsible levy authority from guaranteeing or indemnifying the SPV in any way, or from providing it with any loans or other financial support (including uncalled capital).

Clause 111 makes it clear that the Crown is not liable to contribute to the SPV’s debts. This position must be clearly stated in disclosure documents for any capital raising or other financing under the Financial Markets Conduct Act 2013 (clause 112).

Part 5Monitoring, remedies, enforcement, and miscellaneous

Clause 113 provides an outline of Part 5.

Subpart 1—Role of monitor

Subpart 1 provides for the monitor, which is a government agency appointed under clause 114.

The functions of the monitor (set out in clause 115) are to—

  • publish general information about the levy scheme for the public benefit. Clause 116 sets out this function in more detail:

  • determine objections to incorrect levy data or assessment under clauses 62 and 65:

  • monitor compliance with this Bill and the levy order by the SPV. Clause 117 provides powers for the monitor to obtain information and assistance from the responsible SPV or responsible levy authority. Clause 118 enables the monitor to supervise any change of control in the responsible SPV:

  • inquire into, and intervene in, a responsible SPV’s operations if need be. Under clauses 119 and 120, the monitor may inquire into any significant problems, potential non-compliance with the Bill or a levy order, or any concerns as to financial stability or governance and management of the SPV. The monitor may direct the SPV to address significant problems. Under clause 121, the monitor may also recommend the appointment of a Crown Manager if the monitor determines that the SPV has not addressed the significant problem.

Subpart 2—Role of Crown Manager

Subpart 2 provides for the appointment of a Crown Manager over a responsible SPV if the monitor has made a written recommendation and if the responsible Minister reasonably believes a significant problem with the SPV exists (clause 122). The Crown Manager may exercise and perform all the powers and functions of the SPV (clause 123) and must keep the responsible Minister and the monitor informed of progress (clause 124). Clauses 125 to 128 provide for the ability of the responsible Minister to terminate the Crown Manager’s appointment, the Crown Manager’s protection from liability, the Crown’s entitlement to be reimbursed by the SPV for costs relating to the appointment, and the Crown Manager’s entitlement to remuneration and expenses.

Subpart 3—Modified rights and remedies for creditors

Clause 129 provides that creditors’ usual rights and remedies apply in relation to SPVs, except as set out in this subpart.

Clauses 130 to 137 modify the application of the Receiverships Act 1993 to work more appropriately for SPVs in broadly the same way as the application of that Act is modified for local authorities. The modifications are designed to enable a receiver to exercise control over levy revenue, but not otherwise control non-charged assets of the SPV, and to ensure that appropriate constraints apply in relation to charged assets (for example, to ensure that public health is not compromised).

Clause 138 limits the usual rules under the Companies Act 1993 and the Property Law Act 2007 that allow transactions or dispositions of property at under value to be clawed back for the benefit of creditors. If a levy order applies the limits in these Acts, those rules do not apply to the transfer of eligible infrastructure by a responsible SPV to a responsible infrastructure authority or the transfer between responsible SPVs of money to finance the construction of eligible infrastructure.

Subpart 4—Enforcement

Subpart 4 provides for enforcement, including—

  • powers for the monitor to seek court injunctions against an SPV for possible contravention of the Bill or a levy order (clauses 139 and 140):

  • powers for the monitor to seek a court order compelling an SPV to remedy non-compliance (clause 141):

  • powers for the monitor to seek a civil liability order directing the refund of money or return of property from a person who has contravened a levy order to the SPV if the court is satisfied that the SPV has suffered loss or damage (clause 142) or a compensatory order if that order is not practicable in the circumstances (clause 143). Defences to both types of order are provided in clauses 144 and 145:

  • in clause 146, defining involved in a contravention for the purpose of clauses 142, 143, and 145.

Clauses 147 to 149 create offences for making false statements, refusing or failing to give information when required under the Bill, or obstructing a person acting in performance of their functions or duties, or in the exercise of their powers, under the Bill.

Subpart 5—Miscellaneous

Subpart 5 provides for miscellaneous matters. These include—

  • the appointment and functions of the recommender (clauses 150 and 151):

  • the ability of a responsible levy authority and an SPV to delegate powers and functions under the Act, other than the SPV’s functions, duties, and powers relating to the setting of the annual levy (clauses 152 and 153):

  • the application of various provisions of the Local Government (Rating) Act 2002 (clause 154).

Subpart 6—Amendments to other Acts

Clause 155 empowers amendments to other Acts that are set out in Schedule 2. The key amendments are as follows:

  • to the Goods and Services Tax Act 1985: the amendment ensures that GST is payable on the levy amount:

  • to the Land Transport Management Act 2003: the effect of the amendment is to enable responsible SPVs to be considered for funding under the national land transport fund:

  • to the Local Government Act 2002: the effects of the amendments are—

    • to allow a local authority to require development contributions to support the construction of eligible infrastructure that has been, or is intended to be, transferred to the authority under clause 88 of the Bill:

    • to allow a local authority’s policy relating to development contributions (and also financial contributions under the Resource Management Act 1991) to include contributions that support the construction of eligible infrastructure that has been, or is intended to be, transferred to the authority under clause 88 of the Bill:

    • that a contract or an arrangement under the Bill for the provision of eligible infrastructure does not in itself contravene section 136 or 137 of that Act:

    • to allow a local authority to use the powers of emergency entry under section 173 of that Act appropriately in relation to eligible infrastructure being constructed under the Bill:

  • to the Local Government (Auckland Council) Act 2009: the effect of the amendment is to allow an Auckland water organisation to give an asset endorsement under clause 20 of the Bill or to accept a transfer of eligible infrastructure under clause 88 of the Bill without breaching its obligations under section 57(1) of that Act:

  • to the Local Government Official Information and Meetings Act 1987: the effect of the amendment is to require that a land information memorandum issued by a territorial authority under section 44A of that Act must include specified information relating to levy under the Bill if the relevant land is in a levy area:

  • to the Local Government (Rating) Act 2002: the amendments provide how the rates recovery provisions of that Act apply in a case concerning both unpaid rates and unpaid levy under the Bill:

  • to the Public Works Act 1981: the effects of the amendments are—

    • to allow a local authority to compulsorily acquire land under that Act for the construction of eligible infrastructure, but to prohibit the compulsory acquisition of protected Māori land; and

    • to allow the local authority to transfer land that has been acquired to a responsible SPV for the construction, and for the SPV to transfer the land back to the authority under clause 88 of the Bill without having to comply with sections 40 to 42A of that Act:

    • to require the authority or the SPV that is disposing of land no longer required for eligible infrastructure to comply with those provisions:

  • to the Resource Management Act 1991: the effects of the amendments are,—

    • by including a responsible SPV in the definition of network utility operator under that Act, to enable the SPV to apply for approval as a requiring authority that may—

      • require a designation for a project or work whether or not that SPV has financial responsibility for the project or work; or

      • apply to the relevant Minister to acquire land (other than protected Māori land) for the work:

    • to enable a responsible infrastructure authority to require a designation for work that relates to the construction of eligible infrastructure whether or not the authority has financial responsibility for the work:

    • to enable a responsible infrastructure authority that holds a designation for work that relates to the construction of eligible infrastructure to delegate to a responsible SPV those designated functions, duties, and powers that relate to the construction:

  • to the Utilities Access Act 2010: the effect of the amendments is to require a responsible SPV, when accessing or working in a transport corridor, to comply with the same code of practice that other utility operators must comply with.