Value Capture – A Shift from User Pays to Beneficiary Pays
Graham Scott - Manager, Rockhampton
An interesting coincidence occurred a couple of weeks ago.
Malcolm Turnbull and Barnaby Joyce were in town doing their form of Thelma and Louise, although the PM did point out that he did not intend driving off a cliff.
We were discussing a significant water infrastructure project on the Fitzroy River and looking at funding models for the capital works, in the order of $400M. The benefits of the infrastructure flow (pun intended) to the urban centres of Rockhampton and the Capricorn Coast, industrial users in Gladstone including the massive LNG projects, and a significant opportunity for high-value agricultural products on downstream irrigable soils.
As well as the usual discussion about splitting the bill between Federal, State, Local Government and industry, the PM emphasised the lift in value of the rural properties below the weir that could potentially shift from broad acre grazing to more intense horticulture or feedlots.
This increase in underlying land value is often not captured well in Economic Impact Assessments, and has not formed much of the ongoing conversation about the need for water infrastructure.
The co-incidence was the release of the Australian Infrastructure Plan the very next day which introduced a somewhat new term to me, Value Capture. Which, from an Urban Development perspective does not seem new at all; essentially “headworks” or “infrastructure charges” are a long-standing form of Value Capture.
As Infrastructure Australia explains, they see Value Capture as an important tool in the future and possibly a better approach than user pays.
I tend to agree.
Think about it this way.
Instead of paying a toll every time we travel in a tunnel; a levy (or tax or special rate) could be charged to the beneficiaries of the tunnel – be they businesses, commercial properties or local residents. The theory is that the beneficiaries gain Value from the tunnel by removing congestion, reducing travel times, improving access and generally receiving a benefit.
From someone who has worked in the urban development sector for years, this sounds an awful lot like paying headworks to get the water connected.
However, I digress from my conversation with the PM.
I think we can add another source of income for Rookwood Weir on the Fitzroy, an extra rate on the benefit area.
This approach raises a number of other critical questions, which I will let you ponder.
- Do you charge the rate when the infrastructure is built or when the downstream properties decide to start irrigating?
- Do you charge the rate over a long period of time in small increments or do you tie it to a particular event, such as the sale of the property? And how do you finance the gap?
- Can you use Value Capture as either a stick or a carrot to “encourage” the higher value use as a result of the enabling infrastructure? For instance, there could be a discount in the charge if a grazier quickly changes to irrigation.
At present there are a lot of questions, and not so many answers, but I think it’s a conversation we need to have and am keen to hear your views.
Whilst the concept of value capture is not a new concept for developers, you can at least look clever next time talking to the Federal Government by dropping the phrase.
I’m going to try that next time I’m talking to Thelma or Louise, wonder which one is which?
…and who’s playing Brad Pitt?