By Maryna Botha
Municipalities’ revenue collection increasingly poses challenges, partly because collection systems are not uniform and transparent, and also because financial management systems remain weak, as evidenced by the R130-billion owed to municipalities for services.
The issue of development charges has been under discussion for well over a decade in municipal infrastructure and finance policy circles. The approach across municipalities varies substantially and National Treasury indicated that it believes that this undermines the scope of municipalities to legitimately use development charges to secure direct development revenue from expenses incurred.
To this end, the Municipal Fiscal Powers and Functions Amendment Bill was released on 8 January 2020 for public comment. The purpose of the Amendment Bill, among other things, is to uniformly regulate the power of municipalities to levy development charges on landowners, to provide for policies and by-laws that will give effect to policies on the development charges, to establish an entitlement on the part of municipalities to withhold other approvals or clearances due to non-payment of development charges, and to provide for engineering services agreements.
The Bill thus seeks to give local governments the power to levy development charges in a consistent way, using a fixed structure and to collect revenue from property developers for the costs incurred by the municipality when installing new infrastructure or upgrading existing infrastructure in new land development projects. This increases predictability of development charge revenue and should, Treasury states in its explanatory Memorandum, benefit both municipalities and developers.
In terms of the Spatial Planning and Land Use Management Act 16 of 2013 (SPLUMA), municipalities have the power to impose such conditions as are determined by the Municipal Planning Tribunal prior to the approval of a land development application. One such condition is the payment of a development charge. The power to impose this condition appears to have been formalised by the Bill.
Key amendments include, among others:A condition of approving a land development application:
The development charges are a once-off charge levied by a municipality on a landowner as a condition for approving a land development application and are destined to cover the costs incurred by the municipality for the installation of new infrastructure or upgrading of existing infrastructure for a proposed development.
A municipality may withhold any approval or clearance, including a rates clearance certificate, if a development charge owed or payable has not been paid or the landowner has failed to install external engineering services in accordance with the conditions of approval or an engineering services agreement. The payment for development charges can be made either as a monetary contribution or an in-kind payment where the landowner installs infrastructure on behalf of the municipality.
Beneficiaries carry the cost:
The National Treasury states in its explanatory Memorandum that the benefits of levying development charges ensure that infrastructure required to service new developments is paid by direct beneficiaries so that existing residents do not continue to subsidise new developments. The incidence of the payment is also immediately apparent as the landowner pays and, to the extent that the market permits, the landowner will pass these costs on to the purchaser of the property.
The wording of the Bill suggests that the imposition of development charges by municipalities on landowners is not mandatory and remains within the discretion of municipalities.
Resolution, policy and by-laws:
In circumstances where a municipality elects to impose a development charge, a resolution to do so must be adopted by the municipal council. The development charge must be imposed by the competent authority as defined in SPLUMA (the Municipal Planning Tribunal) as a condition for approving the land development application. Unless otherwise provided for in the conditions of approval, a landowner will have to pay the full amount of the projected development charge before exercising the rights as approved.
The municipality must then prepare and adopt a policy for the raising of development charges in a fair and equitable way. The policy must outline the methodology for the calculation of a unit cost per municipal engineering service, specify any municipal engineering service zones and can provide that a municipality may allow for payment to be done in tranches for identified categories of land development.
The policy may provide for the municipality, at its own instance or on request by a landowner, to increase or decrease the calculated impact of a land development on external engineering services to reflect the actual anticipated demand for one or more of the required external engineering services. In such an instance, the adjustment will be calculated at the expense of the landowner who must use the services of a registered professional engineer. Subsequent to the adoption of the policy on development charges, a municipality must adopt and publish by-laws in terms of sections 12 and 13 of the Municipal Systems Act to give effect to its implementation.
Engineering services agreement:
Where an approved land development project requires the installation of internal or external engineering services, an engineering services agreement must be concluded between the developer and the municipality. This agreement must set out whether the municipality or the landowner will be responsible for installing the internal or external engineering services in respect of the approved development. Further details that the agreement must provide for, include: an outline of the nature and extent of the internal or external engineering services to be installed by either party; the commencement and completion of the installation; and the engineering standards in which the installations must conform to.
Where the municipality is responsible for the installation of bulk engineering services and fails to do so within a prescribed period, it must reimburse the landowner for the relevant portion of the development charge.
Levies for certain categories of landowners and developments may be subsidised or exempted, provided they are in line with the approved municipal policy framework and by-law. Where an exemption is granted, the municipality must identify an alternative source of revenue for providing external engineering services.
In terms of accounting, the development charges collected by municipalities are not to be regarded or recorded as a general source of revenue, but must be reflected as a liability in their financial statements. This is because the development charges collected must be used for purposes of funding or acquiring capital infrastructure assets. Once the charges have been utilised for that purpose, the charge may be recognised as revenue.
Members of the public are invited to submit written comments on the Bill by 31 March 2020, via email to Development.Charges@treasury.gov.za. Enquiries may be directed to Mmachuene.Mpyana@treasury.gov.za
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