As policy makers refocus their efforts on cities, questions are being asked about how Australia is performing in terms of adopting innovative strategies from which to fund major urban renewal projects.
By all means, the degree of the challenges cannot be understated. In Victoria, a Property Council report released last year suggested the state needed to find at least $50 billion to fund infrastructure requirements over the next 10 years. In New South Wales, the Institute of Public Works Engineering Australasia estimates that local municipalities face an annual infrastructure funding gap of $447 million.
With massive infrastructure undertakings in New South Wales, however, and a renewed national focus on cities, the conversation about how we can go beyond traditional financing methods for urban renewal development is underway. In June, 20 leaders from industry and local government in New South Wales travelled to the United States to learn about different strategies which had been adopted across various cities there along with how they have worked out.
A resultant report was authored by Future Cities Collaborative founder and chairperson and honorary professor in Urban Policy at The United States Studies Centre at The University of Sydney Professor Edward Blakely and AECOM technical director - infrastructure advisory Joe Langley. The report concluded that the state could learn much from those examples across a range of areas. These included generating institutional and community support for innovative funding mechanisms, appropriate governance structures, urban renewal leadership, commercial revitalisation, and local empowerment and local economic development.
While Langley does not go as far as to say that Australia is failing in this space, he says there are a number of areas in which we could do better. For instance, whereas Canadian pension funds are pumping money into Australian roads, for example, restrictions upon domestic superannuation funds in Australia mean we are not able to leverage the pile of money going into domestic retirement funds in order to help finance public asset construction in the same way. So-called ‘city deals’ in the United Kingdom are seeing the central government share tax uplift benefits which are derived from infrastructure projects with its municipal counterparts, but similar things have yet to happen in Australia.
“I wouldn’t say we are failing," Langley said. “I would say we are clearly not keeping pace. From that standpoint, we are losing some ground.”
Blakely, meanwhile believes current Australian strategies in this area are falling short in that we are not effectively capturing the uplift in property values which accrue to owners of residential or commercial property as a result of new infrastructure being put in place through effective value capture strategies. Especially in commercial property, he would like to see land tax adjusted for property value.
This would mean landlords who secured permits to put in additional floors in an office tower, for example, would not simply be receiving a free gift from taxpayers through the approval of these, but instead would have to pay extra for the additional benefit. Meanwhile, owners of office or retail property on main streets or in other commercial types of hubs should also pay a ‘commercial betterment tax.’ This tax would serve to reflect the fact that they require greater use of municipal services compared with home owners in areas such as fire protection, safety and sewerage pickup, he says, noting that these property owners should be entitled to a say in how this money is spent.
Blakely says Australia is unlike other countries in that we have not suffered from a crisis and therefore have not had the need to explore innovative financing techniques as has been the case elsewhere. Going forward, however, this will need to change as we deal with aging infrastructure without the same post-war economic boom and subsequent growth in tax receipts that we had in the 20th century, he says.
Compared with traditional forms of infrastructure funding, Blakely says value capture as a concept is far more equitable.
“When a railroad comes past my building and I use it for freight, and I have to pay every time I load something on, that’s ok,"Blakely said. "But the track is there when I am not loading, right? That value to me remains and I can sell my property for more because the railway line is there or the road is there."
"And remember, the person who is operating this property is now making much larger profits than they would ordinarily from having that property – shouldn’t they share that with the people who put in the railroad?”
As for lessons Australia can learn, Langley and Blakely say it is imperative to involve the public in open discussion and to let voters decide which mechanisms they wish to adopt. The city of Denver has done just this, putting forth proposals for a 1.5 per cent special metropolitan retail sales tax over two decades in order to fund a new light rail system which was constructed at around the same time as Sydney's light rail system. The proposal was passed in a voter referendum.
In this regard, Langley is encouraged about the current open and forthright nature of current discourse with regard to tax system, which he says represents an opportunity to engage the community on how tax could work better and more effectively.
He stresses that it is also important that value capture mechanisms are implemented in a transparent way. Berkley, meanwhile, says it is imperative to look beyond initial cost and focus on the long-term economic value of infrastructure projects. By making the city more navigable and easier to get around, a light rail system in built around 10 years ago in Phoenix, for example, reinvigorated the city centre, brought in tourists and business investment and saw the city subsequently host three Super Bowls. The economic renewal associated with all this has given the city cash to invest in new medical centres, sports venues and playgrounds, and is directly traceable back to the benefits of the light rail, Blakely says.
Despite Australia’s current shortfall with regard to urban renewal funding strategies, Langley is encouraged by recent developments. At the federal level, these include the recent appointments of Jamie Briggs as the Minister for Cities and high speed rail advocate John Alexander OAM as Chair of the Standing Committee on Infrastructure and Cities, federal funding for a greater mix of projects including the Gold Coast Light Rail and freeing up of East West Link funding for other projects in Victoria. At a state level, it has been encouraging to see New South Wales embracing asset recycling and Transport Minister Andrew Constant actively looking at alternative methods of infrastructure funding, he said.
“I think there are some important changes which are taking place at the federal and state level that are looking to change some of these things (current lack of innovation referred to above),” Langley said.
“To me, it’s like the arrival of spring.”