Hobart & Glenorchy City Councils Glenorchy to Hobart Public Transit Corridor Value Capture Funding Analysis October 2016
Executive summary
While the project has been shown to present a range of economic and Introduction to the issue social benefits to the local community, proponents of the project have Hobart has a relatively high dispersed population base with growth sought to analyse how alternative beneficiaries, including local predominantly realised on fringes of the city. This fact, coupled with low residents, businesses and all levels of government can contribute to the quantity, quality and price of public transport services has meant that upfront capital costs. car ownership and use within Hobart is among the highest in Australia. Scope of the Project Steady growth in population following these trends will likely have a major impact on the social welfare, living standards and the economic GHD was engaged by the Hobart and Glenorchy City Councils to performance of businesses within the region. investigate the appropriate alternative funding methods that could be implemented to support the development of the Hobart to Glenorchy The Hobart and Glenorchy City Councils are undertaking a range of Transit Corridor to ease the funding burden off government. studies to look at supply of land, market factors and supporting policy settings that could support further infill development within the city The evaluation undertaken presents the findings of a desk-top corridor. investigation on a range of land based value capturing mechanisms that have been investigated and/or implemented internationally and aims to Introduction to the Project define and assess its potential implementation within the context of this project. The Glenorchy to Hobart public transit corridor stretches along the former heavy rail freight link from Central Hobart at Franklin Square to This report presents a range of alternative, in some cases mutually Austins Ferry. exclusive mechanisms that either the Local and/or State Government could implement to meet the funding requirement of the project. The Glenorchy to Hobart public transit corridor has been earmarked as a project to facilitate greater public transport use within Hobart to This report also provides a strategic assessment of the advantages and alleviate the ever expanding environmental footprint and related disadvantages of each mechanism and the alternative rates/tax values increasing cost of congestion facing the local community. that would have to be applied to support government to meet the overall funding requirement of the project. Furthermore, the project, if developed in conjunction with appropriate local government planning measures, has the opportunity to act as a catalyst to support urban renewal within the local area surrounding the corridor.
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Incremental increase in Local Government conjunction with the project, capitalisation of access benefits and revenues improved desirability of the area As part of this investigation, GHD undertook a strategic assessment of This international literature has highlighted that fixed infrastructure the potential general council rates that could result from economic and investment, such as light rail, is valued higher in the market as it development activity within the proposed rapid transit catchment areas. creates a perceived level of certainty of future supply (i.e. given the large upfront sunk cost) relative to other forms of transport services (i.e. Based on an estimate of the potential development activity that could buses). Previous estimates of price increases as a result of transport be realised in the area, current council rates and average assessable infrastructure (SGS Economics and Planning) have estimated that property value, and an assumed rate of diversion from elsewhere within property within a close and easily accessible distance to a station/stop the respective local government areas. Based on these assumptions it could increase by between 5% to 10% for dedicated bus rapid transit is projected that the Hobart City Council and Glenorchy City Council and between 10% and 15% for light rail. could realise up to an additional $4.5 m and $18 m respectively in present value terms over a 20-year evaluation period. Based on this level of property price increase on all properties within 800 metres from all stations across the corridor would result in an Funding investment from perceived incremental activity can be a risk to increase in Glenorchy City Council rates by $12m to $24m with the government operations, and thus not seen favourably by ratings introduction of BRT or between $24m to $36m with the introduction of agencies, as there is an inherent level of uncertainty with regards to the LRT. Furthermore, HCC could realise an increase in their rates based timing and quantum of private investment, how much is actually from between $16m to $32m with the introduction of BRT or between diverted from what would have occurred elsewhere and the other costs $32m to $48m with the introduction of LRT.1 to government in supporting this development (i.e. provision of other local government services). It should be noted that there are a mirrored of risks associated with any level of government banking potential increases in property prices to Potential increases in Local Government revenues support ongoing investment costs which could have significant adverse effects on its viability. due to property price increases
There is a body of international literature that highlights the potential for transport infrastructure, such as that which is being proposed for Tasmania, to increase property prices of surrounding residences. Property prices typically increase as a result of improved access to public transport services through general improvements to the area in
1 Present value calculations based over a 20 year analysis period, government borrowing discount and assuming that the increase in value occurred from day one of operations and was consistently maintained over the evaluation period.
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Value Capture Mechanisms zoning rights are sold to developers. This generally would result in an increase in upfront payment by developers through development The following value capture mechanisms to supporting the funding contributions but also through ongoing rates payable. requirement of this project were shortlisted for the analysis: Sale or Lease of surplus development sites – Local government’s Business Rates Supplement (BRS) – A business rate supplement associated with the project may be able to sell, lease or undertake joint (BRS) is an increase in the general rates payable on businesses of a venture arrangements with developers over land owned by government certain size and scale within a specified area/zone. Such a mechanism within the project corridor to effectively reduce the funding requirement would allow Local Government to target the funding requirement on for the project. businesses that have a direct and tangible benefit as a result of the project over an extended period of time. Results of the evaluation Special Local Government Rates (Households) – Currently, across a The quantum of funds returned by any one value capture mechanism, number of States in Australia the Local Government Act 1993 allows with the exception of the visitor tax, will not be enough by itself to fund local councils to apply special rates on top of council rates in special this infrastructure without imposing the tax on the community at what is circumstances (across its entire rates base and/or within a defined likely to be seen as an unacceptable rate. It should also be noted that area). the implementation of any two of these policies together may not be Stamp Duty supplement – Stamp duty is a tax imposed by State mutually exclusive. Government on numerous acquisitions, including selling real estate, The implementation of any value capture mechanism as well as who cars and assets belonging to a business. Property values that would will ultimately be targeted (i.e. rate and applicable safety nets) is a increase in the general proximity to the project, as a result of improved matter of public policy and therefore the decision of the government. access to employment and services, would result in additional Stamp duty receipts to the State Government when properties were sold. Further analysis may be required by local government to support the implementation of any proposed mechanism, which may include: Special interest groups (visitor/hotel tax) – One such mechanism Detailed analysis of the links between beneficiaries and those may be to impose a special tax upon visitors to the local area. Such a that will pay tax could include a rate imposed upon hotels/accommodation providers. Detailed analysis of the potential returns and uptake of Voluntary Planning Agreements – Voluntary planning agreements development opportunities along the corridor would be seeking additional funds, over and above that which are currently charged by Local Government on developers to support the Socio – economic analysis of people’s ability to pay and the funding of this public infrastructure. impact on living standards Sale of bonus Gross Floor Area (GFA) – Local Government’s Detailed analysis of the most effective implementation of a associated with this project may need to vary the existing/proposed proposed value capture mechanism to optimise returns and planning guidelines so that additional development rights above existing reduce the risk to government.
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Table 1-1: Summary of Results
Quantum assessment Qualitative assessment Source of funds Certainty of Beneficiaries Policy and Hobart Glenorchy funds and Social equality Implementation pays political timing Incremental increases in revenues Additional properties within ~ $4.5m ~ $18m LGA1 Potential rate increases as a $16m - $48m $12m - $36m result of property price rises 2 Potential additional value capture revenue sources
Business rate supplement 3 $5m - $15m $2m - $4m
Residential rates supplement 4 $5m - $27m $5m - $27m
Stamp duty supplement 5 $4m - $18m $4m - $5m
Visitor tax 6 $40m - $100m
Voluntary planning N/A N/A agreements
Gross floor area 7 $0 - $1m $0 - $3m
Sale of surplus land $5m - $6.5m $7m - $8.5m Legend: positive average/marginal impact negative
Notes: All values are taken over a 20-year analysis period,
1 Projected number of additional properties within LGA across 20 year evaluation period and current average rates payable per property 2 Between 5% and 15% increase in prices and rates payable of those properties within 800 metres of each station 3 Ranges between a 2.5% rate applied to top 10% of rate payers within 800 m of stop and 5% on the top 25% of rate payers within the whole LGA 4 Ranges between a 2.5% rate applied to the top 25% of rate payers with whole LGA, and 5% on all rate payers with the whole LGA 5 Ranges between 1% stamp rate on residential properties only and a 2% stamp duty on commercial properties only, 6 Ranges between a $1 per visitor night tax and $2.5 per visitor night tax (Only applies to Hobart LGA) 7 Using either commercial bonus GFA only or residential bonus GFA only.
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4.3 Project specific funding sources ...... 23 Table of contents 5. Business rate supplement ...... 27 6. Special local government rate ...... 32 Introduction to the issue ...... i Introduction to the Project ...... i 7. Stamp duty supplement ...... 37 Scope of the Project ...... i 8. Special interest group tax – visitor tax ...... 39 Incremental increase in Local Government revenues ...... ii 9. Voluntary planning agreements ...... 43 Potential increases in Local Government revenues due to 10. Sale of bonus gross floor area ...... 44 property price increases ...... ii 11. Sale of surplus land...... 46 Value Capture Mechanisms ...... iii Results of the evaluation ...... iii 12. Conclusions/Recommendations ...... 48 1. Introduction ...... 2 Figures 1.1 Project ...... 2 1.2 Project objectives ...... 3 Figure 1-1: Map of Study Area ...... 2 1.3 Purpose and scope of this study ...... 3 Figure 2-1: Stage 1 - Proposed Hobart Rapid Transit ...... 6 1.4 Data sources ...... 4 Figure 2-2: Completed Institutional, Office and Retail 1.5 Assumptions and Limitations ...... 4 Developments near Station ...... 12 1.6 Disclaimer ...... 5 Figure 3-1: Value Capture Funding Model ...... 14 1.7 Report Structure ...... 5 Figure 3-2: London Crossrail ...... 22 2. Project Background ...... 6 Figure 4-1: Gold Coast Light Rail ...... 25 2.1 Transport issues facing Hobart ...... 6 Figure 5-1: Commercial Rates Payable by Location ...... 28 2.2 The project ...... 6 Figure 5-2: Number of Commercial buildings by location ...... 29 2.3 Policy context ...... 10 Figure 5-3: Percentile rates payable (Commercial rate payers) ....29 3. An Introduction to Value Capture ...... 14 Figure 5-4: PV funding source - Hobart City Council LGA ...... 30 4. Alternative Value Capture Models ...... 19 4.1 Incremental increases in Tax ...... 19 Figure 5-5: PV funding source - Hobart City Council LGA ...... 30 4.2 Indirect land use beneficiary funding sources ...... 23 Figure 5-6: PV funding source - Glenorchy City Council LGA ...... 31
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Figure 5-7: PV funding source - Glenorchy City Council LGA ...... 31 Appendices Figure 6-1: Residential Rates Payable by Location ...... 33 Appendix A – Economic Contribution Figure 6-2: Number of residential rateable properties by location 34 Appendix B – City deals process Figure 6-3: Percentile rates payable (residential rate payers)...... 34 Appendix C - Summary results Figure 6-4: PV funding source - Hobart City Council LGA ...... 35 Figure 6-5: PV funding source - Hobart City Council LGA ...... 35 Figure 6-6: PV funding source - Glenorchy City Council LGA ...... 36 Figure 6-7: PV funding source - Glenorchy City Council LGA ...... 36 Figure 7-1: PV funding source - Hobart City Council LGA ...... 38 Figure 7-2: PV funding source - Glenorchy City Council LGA ...... 38 Figure 8-1: Hotels by Location ...... 40 Figure 8-2: PV funding source – Hotel rates supplement (Hobart & Glenorchy) ...... 41 Figure 8-3: PV funding source - Hotel rates supplement (Hobart & Glenorchy) ...... 41 Figure 8-4: PV funding source – Visitor tax per night ...... 42 Figure 8-5: PV funding source – Visitor tax per visitor ...... 42 Figure 10-1: PV funding source – Sale of bonus gross floor area .. 45 Figure 11-1: Government Owned land – within 800 m of stations .. 46
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Section 1 – Introduction & Background
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1. Introduction
1.1 Project The Glenorchy to Hobart public transit corridor has been earmarked as a project to facilitate greater public transport use within Hobart to alleviate The Glenorchy to Hobart public transit corridor stretches along the former the ever increasing cost of congestion facing the local community. heavy rail freight link from Hobart’s CBD to Austins Ferry. The figure Furthermore, the project, if developed in conjunction with appropriate below shows a map of the study area for the proposed Hobart Rapid local government planning measures, has the opportunity to act as a Transit project including potential stops 2. catalyst to support urban renewal and greater levels of population Figure 1-1: Map of Study Area densification within the corridor. Improved public transport services and urban renewal as a result of this project will result in a range of tangible economic and social benefits to the local community including:
Improved ease of access to jobs and services
increased employment opportunities
reduced freight and logistics costs for business There is a large body of international literature that highlights how real improvements in transport services materially improves the living standards of a local community which generally results in an increase in the desirability, demand and ultimately the price of land and housing within the area.
While the economic and social benefits of the project, as outlined above, will result in additional net incremental tax revenue received by all levels of government, relevant stakeholders have sought to assess whether alternative mechanisms, aimed at extracting a share of the benefit that would be realised by local land owners, could be implemented to assist in the funding of this project to ensure its sustainable development.
Source: Hobart City Council
2 For the purpose of this report, the proposed rapid transit is assumed to be Light rail.
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1.2 Project objectives 1.3 Purpose and scope of this study
The Glenorchy to Hobart public transit corridor has been earmarked as a GHD was engaged by the Hobart and Glenorchy City Councils to project to facilitate greater public transport use within the wider Hobart investigate the appropriateness of alternative value capture funding region. methods that could be implemented to support the development of the Hobart to Glenorchy Transit Corridor to ease the funding burden off The overall study objectives established from the client brief included: government. Examining the potential for urban regeneration in Hobart and This report presents a strategic analysis of the various land based value Glenorchy capitalising on public transit corridor use; capture mechanisms that could be enacted by either the State or Local Identifying a Vision for urban regeneration in Hobart and Glenorchy Government’s (i.e. Hobart City Council and/or Glenorchy City Council) arising from use of the public transit corridor, including that could raise additional revenue to meet the net financial costs visualisations to assist with communications; associated with the project (i.e. capital and operating costs above the Understand the planning changes required to facilitate urban projected revenue stream). regeneration along the public transit corridor; The evaluation undertaken presents the findings of a desk-top Focussed engagement to understand potential private investment investigation on a range of land based value capturing mechanisms that interest along the public transit corridor; and have been investigated and/or implemented internationally and aims to define and assess its potential implementation within the context of this Identify economic development opportunities arising from urban project. regeneration along the public transit corridor. Furthermore, this analysis attempts to highlight a range of opportunities, advantages, limitations and constraints of the various funding methods, while also providing a high level comparison of the potential quantum and timing of funds that could be realised from each of the various revenue capturing methods. A range of non-land use value capture mechanisms (i.e. user pays, parking charges) are not included within the scope of the report.
The report also presents a range of national and international case studies which highlight the key factors which ensure the successful implementation of these mechanisms.
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– Berriedale (MONA) – Claremont 1.4 Data sources – Austins Ferry The following data sources were applied to complete this analysis: There are a number of other stops which could also be included in Hobart light rail business case (Acil Allen, 2013) the design but have not been taken into account within this evaluation. Tasmanian Urban Passenger Transport Framework, 2010 Project will be constructed between 2017 and 2020 and will Southern Integrated Transport Plan, 2010 commence operations from 2020
The Southern Regional Land Use Strategy Light Rail is the only mode of rapid transit which has been costed and Infill Development Pilot Program – Stage Two Report (Draft) therefore it has been used as a benchmark for the financial analysis. State Government infrastructure strategy The total construction cost of the project, is $200 million. Proponents of the project would only be seeking funding support for this amount Hobart and Glenorchy City Council rates based information as the net incremental cost of public transport services would be Economic and population growth forecasts (Lisa Denny) equivalent to the incremental increase in revenues
Frank Knight property demand estimates All levels of Government support and will provide a fair contribution to the project. Tourism Tasmania –Tourism statistics (March 2016) The timing for which revenues are obtained over a 30-year period is 1.5 Assumptions and Limitations inconsequential for the government as it has the ability to match any funding source to the financing of the project A range of assumptions were made to support the development of this analysis. Key assumptions that underpin the evaluation are outlined The project will be financed by the Tasmanian State Government at below. the equivalent of the current State Government bond rate of 5%
The Hobart rapid transit project will be developed from Hobart CBD to All monies realised through the implementation of these mechanisms Austins Ferry with stops at: would be directed to an SPV maintained by the State Government to directly contribute to the project – Hobart CBD – Macquarie Point Both the Local and State Governments would have the ability to implement the proposed mechanisms and would apportion the money – New Town directly to the project – Albert Road The demand and uptake of property development opportunities within – Derwent Park the corridor are consistent with that provided by Frank Knight. – Glenorchy Central
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1.6 Disclaimer 1.7 Report Structure
This report was prepared by GHD for Hobart and Glenorchy City Councils The outline of this report is set out below. and may only be used and relied on Hobart and Glenorchy City Councils Section 2 Project Background – This section of the report for the purpose agreed between GHD and the Hobart and Glenorchy City provides an overview of the policy and project context. This Councils as set out in section 1.3 of this report. information is taken into account when determining the GHD otherwise disclaims responsibility to any person other than Hobart appropriateness of alternative models that could be implemented to and Glenorchy City Councils arising in connection with this report. GHD support the funding requirement of this project also excludes implied warranties and conditions, to the extent legally Section 3 An introduction to Value Capture – this section permissible. provides the reader with an introduction to the theory of value capture The services undertaken by GHD in connection with preparing this report mechanisms and why they are being increasingly viewed as an were limited to those specifically detailed in the report and are subject to alternative means by which governments can seek funding the scope limitations set out in the report. assistance for infrastructure projects.
The opinions, conclusions and any recommendations in this report were Section 4 An introduction to value capture models – This based on conditions encountered and information reviewed at the date of section of the report builds on the theory of value capture preparation of the report. GHD has no responsibility or obligation to mechanisms to highlight, at a strategic level the range of value update this report to account for events or changes occurring subsequent capture models that could be implemented within the context of this to the date that the report was prepared. project. The opinions, conclusions and any recommendations in this report were Section 5 Detailed assessment of alternative value capture based on assumptions made by GHD described in this report (Refer to models – These sections of the report provide a detailed assessment section 1.3 of this report). GHD disclaims liability arising from any of the of the advantages and disadvantages of alternative value capture assumptions being incorrect. mechanisms, their alignment to beneficiaries of the project as well as the potential quantum and timing of funds that could be realised GHD has prepared this report on the basis of information provided by Hobart and Glenorchy City Councils and others who provided information Section 6 Conclusions/recommendations – This section to GHD (including Government authorities), which GHD has not includes the key findings, a risk management plan and independently verified or checked beyond the agreed scope of work. recommendations if the local government wished to implement any of GHD does not accept liability in connection with such unverified the measures outlined within this report. information, including errors and omissions in the report which were caused by errors or omissions in that information.
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2.2 The project
2. Project Background The proposed project is to provide rapid transit services between Hobart and Austins Ferry which includes nine other stops along the corridor, 2.1 Transport issues facing Hobart augmented by feeder bus services along the corridor with the potential to Hobart has a small population, low-density urban form and a high car extend the service as far north as Granton and Brighton. The project aims dependence. Over recent decades, significant levels of residential and to provide high quality, frequent, reliable and fast public transport along commercial development have occurred outside the core centres which the corridor and also aims at supporting better value land use through has resulted in a greater dependency on the use of private vehicles. high density developments along the northern suburbs corridor.
Access to affordable, convenient and efficient public transport services Figure 2-1: Stage 1 - Proposed Hobart Rapid Transit across Hobart, coupled with the ease and relatively low cost of private vehicle travel (i.e. parking) has resulted in a low use of public transport services. Approximately 8.6% of all trips in Hobart are undertaken on public transport (based on 2011 Journey to Work data). This is significantly lower than other major centres across Australia. Increases in population and economic growth, coupled with the predominant use of private vehicles has resulted in an ever increasing occurrence of congestion across Hobart’s transport network, particularly towards its northern suburbs.
While traffic congestion in Hobart is confined to short, peak periods on key arterial roads, however these peaks appear severe when compared to normal daily traffic flows.
A range of transport and land use planning measures have been identified as potential solutions to improve the living standards of residents across Greater Hobart. Over recent years, the focus of public discussion has been a proposed light rail service through Hobart’s northern suburbs, utilising the existing, unused rail corridor from Macquarie Point to Brighton.
Source: Hobart City Council
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The proposed rapid transit service will terminate at Franklin Square in the Beneficiaries of the Project CBD. Stops along the route will include (from north to south): Value capture mechanisms rely on a thorough understanding of where Austins Ferry – Terminal the benefits of the project are being realised. It is therefore important to investigate indirect or non-monetised benefits which arise from the Claremont – Village Station implementation of a rapid transit network. Berriedale (MONA) – Village Station An economic evaluation of the Hobart to Glenorchy rapid transit service Glenorchy Central – Principal Activity Node identified several non-quantifiable benefits.
Derwent Park – Village Station Social and economic benefits associated with alleviating Albert Road – Village Station congestion and improving access to employment opportunities
New Town – Village Station Improved access to services for socially disadvantaged people. Macquarie Point – Principal Activity Node Social and community benefits associated with urban renewal and regeneration, Hobart CBD (Franklin Square) – Terminal Reduction in environmental pollution associated with increased use There is the potential to extend the network to Bridgewater and Brighton. of public transport The figure above indicates both the alignment and stopping location of the proposed rapid transit service. Supporting the tourism industry through improving access to a range of key tourist destinations It is proposed that existing public transport services operating along the corridor include frequently stopping bus services between Glenorchy and Improving the desirability of property throughout the corridor Hobart CBD operating every 10 minutes between 7 am and 7 pm on Furthermore, the potential introduction of the rapid transit network and weekdays and ‘semi-express’ bus services with a 10-minute frequency associated urban regeneration could result in a range of cost savings to during peak hours only. The proposed Hobart rapid transit would operate government including: every 15 minutes and bus services would be altered and relocated to Bus operating savings as a result of decreases in services required ‘feed’ the rapid transit stops 3. (alternatively buses are relocated and restructured to service areas which previously did not have bus services or provide more frequent services to existing bus routes)
Additional capital costs associated with the provision of infrastructure in greenfield locations (i.e. water connections)
3 Source: Hobart Light Rail Business Case (Acil Allen, 2013)
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Additional costs associated with providing transit orientated public 2.2.1 Previous evaluations of the project services to greenfield locations (i.e. ambulance, school services) In response to the high degree of public interest, the Tasmanian Government has undertaken a series of analysis to examine the potential Transport supported urban regeneration Case Study viability of a rapid transit service for Hobart. Generally, these consultancies focused on a project-level assessment of light rail as part of Marseille France a broader objective to secure project funding. Marseille, France’s second largest city, experienced continued These evaluations have focused on the viability of light rail as a discrete economic decline following the second world war. In the period transport project, examining potential patronage, operating models and between 1970 and 2000 Marseille saw the decline of the city’s project costs and benefits as part of an economic evaluation of industrial and manufacturing activities which lead to the downward operational viability. spiral into urban decay. The consultancies focused on the economic evaluation of different light In the early 2000’s, local authorities decided to redevelop the existing rail service options, as part of a broader objective to develop a business tram network as a way of revitalising the city. In 2007 the first phase case for Australian Government funding. of the new network was opened. An 8.8 km line connecting The final reports cover a range of operational and project development Euroméditerranée in the northwest with Les Caillols in the east. The issues and options, including - second and third phase saw the extension and expansion of the tram network which now consists of 3 lines, the 2 new lines being a north- Location of Hobart CBD terminus and station stops -with at least south line and an east-west line which serves 27 stops. preliminary analysis of options terminating in Glenorchy, Claremont, Granton, Bridgewater and Brighton. A key factor which influenced the government’s decision to redevelop the light rail was to encourage and promote urban renewal and inner Motive power - electric overhead and diesel options were fully city regeneration. Additionally, the light rail aimed to achieve a modal considered. shift and increase the share of public transport journey to work, to Optimum operating model - analysis of a continuum of service improve conditions for pedestrians, cyclists and public transport options, balancing travel speed with accessibility (i.e. a faster users. service with a low number of stops, to a slower service with a The outcomes of provision of light rail are not yet fully realised as the higher number of stops). project is still in its infancy. Impact of selected 'non-standard' project benefits, incorporating assumptions that lie outside accepted economic evaluation methodologies, notably a very high 'sparks effect' and a zero transfer penalty.
Relationship to broader, non-quantifiable benefits - social inclusion, agglomeration, greater urban density.
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These studies considered re-use of the existing rail corridor, and took a deliberately conservative approach to expenditure in order to maximise Costs of the Project the project benefit cost ratio (BCR). While this approach provided a The business case conducted by ACIL Tasman in 2013 highlighted a significantly more cost-effective solution compared to the development of cost between $70.2 and $77.9 million for a light rail between Hobart any new rail alignment, use of the existing corridor impacts on the and Glenorchy depending on the number of stops within the design operational characteristics of any service. For example, in relation to (these ranged from 3 to 6). patronage – large sections of the existing corridor having limited trip attractors and limited attractiveness for high-density residential Bringing these estimates to current dollar terms and consistent with the development – and speed, which is constrained by retention of at-level definition of the project (i.e. a light rail between Hobart and Granton road crossings along the existing corridor. with a total of 9 stops) it has been estimated that the total cost of the project, including costs associated with urban renewal, would represent The briefs for the consultancies focused on a transport solution which a project cost of approximately $200 million. considered patronage, catchment areas and development costs in detail. To date, only limited attention was given to the potential use of the As highlighted previously, this analysis has assumed that the total cost corridor as a catalyst for broader city shaping or urban renewal activity, of the project should be equitably shared between all beneficiaries, and where reference is made to this potential, the focus is on a ‘build it including various levels of government (incremental taxes), the wider and they will come’ approach. community (contributing through general taxes) and those that directly benefit (users and local residents through value capture) Therefore It has been noted by a number of stakeholders to the project that, only a proportion of the total cost should be assigned to those local ensuring appropriate and supportive land use and development adjacent residents that realise increased land values. to the rail corridor is an important part of the attractiveness and viability of a rapid transit service. To date, there has been only limited engagement Therefore, if its assumed that each level of government equally with local government or the private sector regarding opportunities to re- benefits from the project, then they should equally contribute to the zone and develop land near the rail corridor to support high-density projects overall costs. If this is the case, then the Hobart and housing, new commercial development and new public spaces and Glenorchy City Councils would each need to find approximately $30 to amenities. $35 million in funding and/or benefit in kind to support the development for this project.
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2.3 Policy context Southern Integrated Transport Plan, 2010 The Southern Integrated Transport plan provides a long-term framework Tasmanian Urban Passenger Transport Framework, 2010 which helps to identify and respond to transport challenges and The Tasmanian Urban Passenger Framework (the Framework) focuses opportunities which arise in the Southern Region. The plan targets six key on the implications of climate change, population and economic growth, policy areas which form the following strategies: emphasising the importance of developing transport infrastructure which Targeting infrastructure upgrades or better using existing supports sustainable living. The framework provides direction to deliver infrastructure. economically, socially and environmentally sustainable transport options for urban areas within Tasmania. More specifically the priorities of the Managing demand and reducing the number of single occupancy Framework include: car trips
Reducing Greenhouse emissions, Using better technology such as intelligent transport systems (ITS) to improve the efficiency, safety and environmental performance Developing liveable and accessible communities Educating and informing the public in order to understand travel Increasing travel reliability behaviours and available transport options Encouraging healthy and active communities Developing regulations which support innovative infrastructures Integrating transport and land use planning and pricing strategies.
The Framework identifies Transit Corridor development as a means to Engaging and developing partnerships across all spheres of create sustainable, accessible, healthy and liveable communities. These government, industry and the community. corridors need suitable infrastructure to enhance the attractiveness and In a broader context the plan aims to develop transport systems which are reliability of the public transport services that use them. It is proposed that safe, supports sustainable, liveable communities and promotes industry these corridors will be the focus for investment in public transport, walking efficiency and productivity. and cycling infrastructure The Transport Plan identifies the Hobart to Granton Light rail as a One of the key actions developed as outlined within the report was the potential new mode of transport along with the development of a ferry potential reuse of Hobart’s rail corridor from Glenorchy to Hobarts CBD service and/or a major cycleway expansion. The plan emphasises the for passenger transport. The policy investigates both light rail and rapid importance of integrating transport and land use planning to optimise transit bus network as viable options. One of the key findings of the efficiencies and liveability. investigation showed the importance of restructuring residential and commercial activities around these major corridors in order to increase The Southern Regional Land Use Strategy the attractiveness and reliability of public transport. The Southern Regional Land Use Strategy aims to rezone development areas to support greater densification along the proposed corridor.
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Implementing an Urban Growth Boundary (UGB) restricts housing Apply governance structure most likely to achieve desired developments in areas destined to become highly car dependant. The outcomes: A governance model is required to facilitate infill Greater Hobart Residential Strategy was recommended as part of the development by implementing the recommendations above and Southern Regional Land Use Strategy to manage residential growth by providing a combination of leadership, facilitation and establishing a 20 year UGB. implementation
The policy will implement a 50/50 ratio of green field to infill development. A specific Infill Development Program was recommended to identify key Transport supported urban regeneration Case Study redevelopment areas and set development targets. It has also been London Docklands Light Rail proposed to streamline the development approval process for developments located along the corridor which will also likely increase In the late 1950’s the London Docklands was undergoing a significant interest in infill developments along the corridor. decline, which was largely the result of the increase in ship sizes which meant the position of the docks moved further downstream to Infill Development Pilot Program – Stage Two Report (Draft) Tilbury where the river was deep and wide enough to handle the larger ships. This lead to the decline in available jobs which saw a The Infill Development Pilot Program has been developed to encourage decrease in both population and employment. more people to relocate to closer proximity to the Hobart Glenorchy transit corridor and established activity centres. Poor accessibility, due to the lack of public transport and narrow and congested roads connecting the area, added to the urban decline of Stage Two has two specific goals; the first is to identify and justify the the docklands. The London Docklands Development Corporation planning scheme amendments required to ensure infill development takes (LDDC) was established to address these issues in the Docklands place, the second is to encourage land owners to redevelop land within area. The development of the Docklands Light Rail (DLR) in 1987, the prescribed corridor for residential purposes. was chosen over a bus network due to the perceived ability for light The study identified several recommended policy changes including: rail to attract investment and development. The project enhanced Undertake a comprehensive strategic planning process: The accessibility to the area and also facilitated the conditions for future development of structure plans for priority infill areas can assist in a developments in the area. smoother development approval process. The DLR has helped strengthen the value chain of sole trader firms Apply supply-side interventions: stimulating infill development by and large global corporations, in turn increasing labour productivity. lowering some of the barriers such as improving development By 1998, unemployment in the area fell from 14% to 7.4%, private feasibility and creating efficient planning approvals. sector investment grew to £7.7 billion, 35,000 commuters use the Apply demand-side interventions: to stimulate the demand for infill light rail per week. development such as improving public transport, creating attractive Likewise, increased accessibility has resulted in significant residential and highly liveable communities and ensuring housing diversity. development – and associated community facilities - throughout the Docklands area.
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Transport supported urban regeneration Case Study Figure 2-2: Completed Institutional, Office and Retail Developments near Station Denver FasTracks In 2004, voters approved a 0.4% sales tax increase in order to help fund the FasTrack’s program, a $4.7 billion project to expand the transit network in Denver’s metropolitan region. The project included 122 miles of rail services, 18 miles of Bur Rapid Transit and 60 new stations along 2 new corridors.
Initially the main objective of the project was to decrease congestion on the major highways and to mitigate the smog pollution issue in the city. However, since 2004 significant amounts Transit Orientated Development have been undertaken near existing and future rapid transit stations. A Source: RTD, FasTracks Quality of Life Report, 2014 number of residential, commercial and institutional developments have been completed between 2006 and 2014, including: The Union Station itself is one of Denver’s most historic buildings and was surrounded by 19 acres of once wasted land which is now under 19,333 residential units development. 3,255 hotel rooms In 2008, city council created a Tax Incremental Financing (TIF) district 3.3 million square feet of retail which consisted of the station and 20 acres surrounding the station, 5.5 million square feet of office space which was used to fund the station upgrade.
9.9 million square feet of institutional space Since the upgrade was announced the following major developments have been undertaken including: Figure 2-2 gives a graphical representation of the completed institutional, office and retail developments in square feet since 2006. Triangle Building – a ten story office building, with 200,000 square feet of office space and 10,000 square feet of retail One of the biggest drivers of this development was the upgrades to Union Station which has since reshaped downtown Denver. In the 1980’s The Platform – a 21 story apartment building with 287 luxury Denver’s CBD was in a state of recession, with unemployment rates at units and ground floor retail 7.4% (1% above the national average) and office vacancy rates of 30%. The 17W – 640-unit apartment building currently under Since then Denver has faced a 20 year struggle to revitalise the inner city. construction In the last two years, 24 companies have relocated to downtown Denver Elan – a 300-unit apartment building which also holds 42,000 which has driven up average rental rates for office spaces with a vacancy square feet of retail. rate of 9.5%.
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Section 2 – Introduction to Value
Capture Mechanisms
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3. An Introduction to Value Capture
Transport infrastructure projects can provide a range of economic and capital investment was made. Theoretically these incremental increases social benefits to a local community including improved accessibility and above the base year revenues are collected and used to pay back the
travel times, a reduction in road accidents and CO2 emissions and initial loan or bond used to pay for the upfront cost of the infrastructure improvements in traffic congestion. over a certain period of time until the loan is paid off at which point the tax revenue stream returns to the taxing authorities. A study conducted by the Australian Bureau of Infrastructure, Transport and Regional Economics (BITRE) estimated an average return of $2.65 Figure 3-1: Value Capture Funding Model for every $1.00 invested for 128 road and rail infrastructure projects in Australia which were publicly funded4
There is a large body of international literature 5, that highlights a direct correlation between the economic benefits associated with transport infrastructure projects and land values of properties within close proximity to the service.
In an ever increasing financially constrained budget environment, governments are looking at alternative mechanisms to assist the funding requirements of infrastructure projects.
Value Capture is the process of capturing positive externalities, or indirect benefits which are a direct outcome of infrastructure projects (also known as value uplift).
Value capture instruments use the uplift in land values as a result of an infrastructure projects to financially contribute to its upfront costs. The Source: GHD system uses a beneficiaries pay principle which allows for greater Value Capture is a well-established concept and value capture allocative efficiencies. mechanism have been widely used in the United States since 1950. The figure overleaf illustrates how over time tax revenue increases due to However, only recently there has been a greater focus and emphasis on expanding business developments and the improved attraction of the value capture devices especially its potential application within Australia. local residential market to the value capture precinct where the initial
4 Australian Government Department of Infrastructure and Regional Development, Bureau of 5 Cambridge Systematics, (2012), Assessing the economic Benefit of transportation Infrastructure Infrastructure, Transport and Regional economics, Infrastructure, Transport and Productivity, (p 9) Investment in t Mature Surface Transportation System, The national Coorperative Highway Research Project, Bethesda, MD
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There are several challenges which arise from the practicalities of As such the introduction of any value capture mechanism would require a implementing value capture mechanisms. As mentioned above, estimated targeted engagement with those stakeholders it will directly affect. land value uplifts and defining value capture precincts are the first hurdle Furthermore, as mentioned in the previous section, value capture of managing a value capture system. However other challenges include mechanisms will require the cooperation of all three tiers of government the need to coordinate and restructure three tiers of government in order along with the wider community. Successful value capture systems can to approve a number of policy and taxing regime changes. also require the active involvement and engagement by other community stakeholder associations such as educational institutes, local and health 3.1.1 Implementation service agencies and other special interest groups. There are currently several barriers to implementation of value capture systems in Australia. The most notable is that it will mean the coordination Currently several cities and towns in the United States hold and cooperation of all three tiers of government. annual referendums, asking citizens to vote on certain public Currently state and federal governments are the main contributors to infrastructure projects which will have a direct impact on their public transport funding. However, many of the value capture community. A vote of yes results in a binding contract between mechanisms will require local governments to play a greater role in public the citizens, government and the purchasers of the Bond that the infrastructure developments. public infrastructure will be built on. In this circumstance genuine and robust stakeholder engagement ensures community support Local government in the near future will be looked at to support the and cooperation. funding of infrastructure projects as they have the existing taxes based mechanisms in place (i.e. annual rates based on assessable value of property), even in the case where some amendments and/or supporting 3.1.3 Social and Economic Impacts regulations/legislation may need to be enacted. All value capture mechanisms will have varying degrees of social and With this increase in control of funding Local governments will need to economic impacts on the local community. Value Capture mechanisms become more involved in not only capturing revenues from local can lead to distorted behaviours and markets and care must be taken to communities but also with the decision making process of how the ensure these negative impacts are minimised. infrastructure should be designed and delivered to maximise the benefits Developer value capture mechanisms are most commonly realised to their local constituents. through development contributions or through land sales. Local 3.1.2 Stakeholder Engagement Governments in Tasmania using Part 5 Agreements under LUPAA can seek development contributions and voluntary planning agreements for Historically governments have funded public infrastructure projects several years to support the funding of infrastructure projects. The through user pays mechanisms supported in large part by general concept that developers and eventual customers share the cost of government revenue sources. The introduction of value capture improved public transport within that area is quite well established. mechanisms can be seen by stakeholders as just another government However, there are issues with this type of value capture systems. tax. Increasing the cost to developers through taxes or levies will lead to
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higher housing prices. Developers will likely pass all the costs of 3.1.4 Value Capture as a Source of Funding increased levies on to the consumer which goes against the notion that It is important to understand the fundamental difference between funding value capture mechanisms share capital costs more equitably. It will also and financing. Funding refers to how gradual cash flows are achieved to lead to further reductions in housing affordability assist in the construction and operation of infrastructure projects while Determining land value measures, which form the basis of the value financing refers to the immediate source of cash which pays for the capture mechanism measurement also raises several issues. Estimating upfront costs of the infrastructure projects. In Australia financing can be land values is often achieved through hedonic pricing; a method which realised through a range of mechanisms including, loans, bonds or attempts to assess each individual aspect of a property separately, alternatively through the private sector (i.e. Private Public Partnerships). making it possible to determine the contribution of the infrastructure Currently Australia is one of the few governments with a AAA rating project. However, land values are subject to a number of economic and meaning loans are cheaper than they have been in over a century. social factors independent of local transport amenities and it is therefore However, borrowing too much could threaten the AAA credit rating which possible that new infrastructure projects have little to no effect on property could see cost of debt increasing. In terms of public transport prices at all. An attempt to capture land value uplifts in this case would infrastructure, governments can finance the initial capital costs of only lead to further economic distortions and social inequalities. construction using loans, however loans can’t continually fund operational Limiting a value capture mechanism to a defined area around costs of these projects and fares currently only covers 25% of total infrastructure (i.e. 400 to 800 metres from station) can also be operating costs. problematic. There historically have been a range of issues associated Value capture is an ongoing source of funding which can cater for this with the implementation of such a mechanism including: discrepancy. Tax revenues from land value uplifts can provide an ongoing Benefits realised through the implementation of public transport source of funding for operational costs. It also provides a constant source infrastructure are not necessarily directly related to the distance of revenue to source government liabilities (i.e. ongoing annual financing from accessing the service. Many factors such as ancillary and requirement) supporting transport services could also support the improved ease of access to markets over and above those within a walking Value capture mechanisms can be defined by the types of beneficiaries catchment. which are targeted:
The prescribed 400 or 800-metre area surrounding a station will Developer value capture mechanisms likely cut off at a point where one household will be subject to the Business value capture mechanisms value capture ‘tax’ or ‘rate’, while the neighbouring household will Household value capture mechanisms not, however both will receive the same benefit. The impacts on developers, businesses and households will depend on Land owners and developers may distort their developments in the type of value capture method used. Further details on the social and order to avoid the defined area where additional value capture economic impacts to each of these stakeholders is outlined in section 4 taxes are being applied to minimise their tax liability which would to 11 undermine the initial objective of the mechanism.
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3.1.5 Value Sharing Risks and it is not a recurring long term revenue item. The issue is similar to voluntary planning agreements in that it is dependent on Similar to other future revenue sources, such as fare revenues on public development actually materializing. transport, value sharing mechanisms are also uncertain. The value sharing options identified for the proposed Hobart to Glenorchy rapid Sale or lease of surplus development sites: Similarly, the transit corridor, with their associated sources of risk are outlined below: revenue risk is lower in that it is usually a one-off payment or a stream of lease revenues that are less dependent on occupation or Business rate supplement: Since this is a rate payable by demand. The issue becomes one of default risk on lease payments occupiers of business premises, the risk is that occupation levels or that valuations are not reflective of true market conditions. fall below what is projected. This means that the rate supplement revenues fall short or that the supplement itself would have to be In terms of the items where the value sharing revenue stream is a long reversed if it seems that it is contributing to a slowdown in activity term recurring payment, such as business rate supplements, the issue is along the corridor. who bears the risk of funding shortfall. For example, in the UK where these types of arrangements are common (such as in Crossrail or the Special local government rates on households: The revenue Northern Line Tube Extension), UK central Treasury effectively risk here is again linked to occupation levels and attractiveness of underwrites the initial borrowing through a UK Government Infrastructure certain locations. In addition, there are political sensitivities around Guarantee. This means that the local authority’s balance sheet where the applying such special levies that can be reversed in the future liability may sit is less exposed to a funding shortfall that it would usually leaving a funding shortfall. have to meet through its general revenue resources. It also means that Special interest groups (visitor/hotel tax): The revenue risks are the cost of borrowing is lower as it is backed by the UK Government. lower for this type of instrument since it represents a low proportion It is unclear yet how risk allocations will be dealt with by the Australian of overall cost for tourists, the number of tourist visits are more Federal and State governments in relation to value sharing. This should stable and the political impacts are less pronounced. The risks are be one of the key considerations for scheme promoters considering such more external factors that may impact on tourism demand, arrangements. although these tend to be cyclical and over a long funding period it is likely that they will balance out.
Voluntary planning agreements: The revenue risks are lower than the type of value sharing instruments that require a projection of potential revenues over a longer period of time. Voluntary planning agreements can be negotiated at the time that planning consent is being sought and hence the risk is that development itself does not materialize, and hence the associated revenues.
Sale of bonus (Gross Floor Area): The revenue risk is lower since the authorities are able to vary zoning and density guidelines,
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A key consideration for the delivery of the project will be the alternative Traditional Forms of Finance and Funding forms of investment, financing and funding options will be the procurement To support the delivery of the project, Governments can also consider options associated with the preferred project option(s). While the analysis traditional forms of funding and financing associated with the preferred of the alternative financing and delivery options are outside the scope of project option(s) such as: this evaluation it is important to note that the interrelationship, both in Fare-box revenues: which may be considered a more traditional terms of timing and quantum of funding requirement of the project. form of value sharing since the direct beneficiary of the service Packaging: different elements of the preferred project option(s) could be contributes most to its funding. separate or integrated as part of different procurement processes. This Private financing: where the private sector either does or does not may include a range of bundled or separate construction and service bear some or all demand risk associated with utilisation of the delivery contracts. infrastructure. Contestability: in respect of each package identified above, the project sponsor could consider the extent to which there is a priori case for the In respect of the above funding and financing options, the key factors are the following: investment or service delivery to be undertaken by the public sector (e.g. due to the provision of core public services) or whether the package The likely level of patronage associated with the project option(s); should be open to competition between public/private sector The potential pricing that users are willing to pay; and organisations;
The consequent level of revenue that may be generated from Contracting: for each package procured, the project sponsor can farebox revenue, which may be hypothecated in part to private consider the optimal contracting approach, having regard to the optimal sector investors to defray infrastructure costs. commercial risk allocation associated with the construction works and/or services. For example: From an investment perspective, whether Government funded or financed in part or fully by the private sector, the project over the lease/ownership Delivery risk – a construction package involving extensive tunneling period will have to provide a commercial rate of return. If the project is not through uncertain ground conditions may be best suited to a structured in an economically efficient manner there would be the dedicated alliancing arrangement whereas potential for funding shortfalls (or alternately windfall gains) may result in Bundling – a light rail extension with deep market capability of commercial and project structures that do not represent best value for rollingstock and operations service providers may be best suited to money to the local authorities of the State and are, therefore, not in the a bundled PPP arrangement, consistent with market precedent (e.g. public interest. In terms of potential private financing options, these could Gold Coast Light Rail PPP Projects) include; equity returns, debt credit margins and covenants and potential liabilities to be accepted by Government (e.g. termination liabilities under Term and demand risk – projects with a shorter term investment horizon or significant uncertainty of demand profile may be best different termination scenarios). suited to separate design/construction and operations/maintenance contracts.
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4. Alternative Value Capture Models
As highlighted in Section 3, there are a range of value capture mechanisms/models which can be implemented to effectively extract a Tax Incremental Financing (TIF) percentage of benefits realised by individuals and businesses as a result The most common type of TIF is the government will issue an of a project. infrastructure bond based on expected increases in property tax Value capture methods can be implemented to target alternative revenues generated from the project. This means the developers could beneficiaries of infrastructure projects on a “one off” or annual charge, be spared a proportion of the upfront costs at the start of the through: development.
Incremental increase in tax revenue A study was undertaken in 2008 by PwC which considered the feasibility Indirect land use related benefits of using TIF as an infrastructure funding device within Australia. The study drew from several US examples to form a conclusion on the Direct project related land use benefits benefits and drawback such a system would have when applied to This section of the report provides a summary of each of these alternative Australian projects. The result of the study showed that in order to value capture mechanisms. implement TIF’s a separate government authority would need to be established which would oversee development plans, public 4.1 Incremental increases in Tax infrastructure needs, and define TIF districts based on long term state and local planning guidelines. There are a range of Government tax mechanisms that will realise revenue from the economic development of a project such as the Hobart The study revealed several key advantages of using TIF mechanisms rapid transit corridor. Such net increases in revenue (taking into account including: that some of the activity would have been transferred from elsewhere The method doesn’t impact on housing affordability in the same way within the regional, state or national economies) will flow through to as development levies. government. Enhances allocative efficiency due to added precision around Tax incremental funding schemes attempt to sequester the increase in tax infrastructure selection. revenues which occur due to the project and use it to fund infrastructure development. It ensures that long term necessary public infrastructure projects are not set aside due to competing short term priorities
Provides incentives for on time delivery as infrastructure provisions are linked directly to revenue
Provides a transparent approach to the selection of infrastructure
projects and also an equitable way of distributing costs.
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Stamp Duty Tax Incremental Financing – Potential Issues. Stamp duty is a form of taxation charged by the State Government, under There are several issues associated with implementing a TIF value the Duties Act 2001, when someone acquires an interest in property, capture system. Developing this kind of system would require usually by buying a property. Property types subject to duty include, but extensive changes to be made to policies, governance, program entry are not limited to; easements and covenants, gifts and inheritances, criteria, organisational support etc. which would require a substantial residential and commercial property, shares and vacant land. amount of time and money. Stamp duty is a major revenue source for the Tasmanian Government, The revenue generated from TIF schemes also depends strongly on accounting for approximately 10% of State based revenue, which could the aggregate increase of the properties defined in the TIF zone. This feasibly increase as a result of increased property values directly tied to means that the potential for value land uplift will be affected by other the project. external factors including; tax rate limitations, the potential for new General increases in property prices as a result of improving the development and cycles in the regional real estate market. TIF as a desirability and accessibility of land within the corridor could result, value capture mechanism is more effective when applied to projects depending on sales patterns and wider regional impacts, on an increase which are highly likely to deliver large appreciations in land values. in stamp duty receipts received by the Tasmanian Government. Currently several states in America use TIF frequently as a way of Local Government Development Contributions generating urban renewal. To obtain TIF funding, the government identifies a TIF district which is defined as a “blighted area” or an area Local Government’s charges a contribution from developers towards the which is in desperate need of urban renewal. However, in several cost of providing local services and facilities that are required because of states the determination of what constitutes a “blighted” area has their development. weakened in order to gain political or capital advantage. Chicago are Local Governments have the ability to charge for the cost imposed as a the prime example where TIF mechanisms have been excessively result of property developments linked to this project. Furthermore, there used. 5. In 2011, one third of the city was in a TIF district (160 TIF is precedents internationally for local governments to seek additional districts total) and $500 million was collected from TIF alone (the funding from developers to support its financial contribution to other fastest growing part of the city budget).5 services that are outside of their direct control.
The Hobart City Council has informed GHD that development 6A range of government tax mechanisms that could result in increased contributions (i.e. headworks charges) are not currently applied to the revenue as a result of this project could include: development of property within Tasmania. Any mechanism involving
6 Source: O’Toole R., (2011), Crony Capitalism and Social Engineering - The Case against Tax- Increment Financing, CATO Institute, Washington DC
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developer contributions would require additional administrative and Historically in Australia, Governments have been careful about their legislative change. application of such a mechanism due to the difficulty in measuring and assigning incremental increases in revenue sources which are a direct Capital Gains Tax result of any particular project. Given the size and scale of this project, Capital gains tax (CGT) is applied to the realised capital increase realised and its potential benefits, Governments may be even less likely to pursue on the sale of any asset, except in cases of specific exemption, including this type of value capture mechanism. the family home.
The Australian Government could conceivably receive a marginal Potential range of general council rate increases increase in capital gains tax receipts received from within Tasmania as a As part of this investigation, GHD undertook a strategic assessment result of additional property development activity and/or the sale of of the potential general council rates that could result from economic investment related property that have benefited from being in close and development activity within the proposed rapid transit catchment proximity to the project. areas. Payroll taxes Based on an estimate of the potential development activity that could Payroll tax is a self-assessed, general purpose state and territory tax be realised in the area, current council rates and average assessable assessed on wages paid or payable by an employer to its employees, property value, and an assumed rate of diversion from elsewhere when the total wage bill of an employer (or group of employers) exceeds within the respective local government areas. Based on these a legislative threshold amount. assumptions it is projected that the Hobart City Council and Glenorchy City Council could realise up to an additional $1 m and $6 If the project resulted in an increase in employment within the State, m respectively in present value terms over a 30-year evaluation directly through construction and indirectly through supporting the private period. sector creating employment opportunities then it could conceivably receive increased payroll tax receipts. Funding investment from perceived incremental activity can be a risk to government operations, and thus not seen favourably by ratings General Council Rates agencies, as there is an inherent level of uncertainty with regards to the timing and quantum of private investment, how much is actually Local Government’s receive revenue from its constituents in large part diverted from what would have occurred elsewhere and the other through rates. General household and business rates are calculated costs to government in supporting this development (i.e. provision of based on the assessable value of the land and the cost of council other local government services). services to support both the property and its wider community obligations.
Any increase in the number of properties and/or increases in the value of the properties as a result of a project could result in an increase in the local government’s rates base.
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Value Capture Implementation Case Study The supplement can only be placed upon business ratepayers that are occupying land which has a rateable value of at least £50,000. At this London Crossrail threshold, approximately 15% of (or 40,000) businesses are projected to be liable for the BRS based on 2005 ratings list. The London Crossrail is a new railway stretching from Maidenhead and Heathrow in the west to Shenfield and Abbey Wood in the east. The The levy will be a basic 2% of rateable value of the business. The levy railway was developed to provide a major link connecting the outer was implemented in April 2010 and will be enforced for a period suburbs with the city, Canary Wharf and the west end and also provides between 24-30 years. The ending date will vary depending on interest an essential link between the business and entertainment centres and rates increases on GLA’s borrowings. The BRS will end once the £3.5 Heathrow airport. The Crossrail services 24 trains an hour running in billion debt is paid off. each direction. The BRS is collected by the 32 London Boroughs and the City of Figure 4-1: London Crossrail London Corporation on behalf of the GLA. It is expected to be collected in conjunction with National Non Domestic Rates (NNDR) and therefore included in the same billing and payment schedules as the already existing rates.
Other value capture mechanisms were utilised as funding sources for this project including; a Community Infrastructure Levy (CIL) and Section 106 Contributions. The CIL is set up through the local planning authority and is paid by developers to support new infrastructure projects in the area. The levy expected to raise approximately £0.3 billion in funds.
Another £0.3 billion is funded through developer contributions through
the use of planning obligations under the section 106 of the town and Source: Rail Utilisation Strategy, 2011 country panning Act 1991. These contributions are sought from The project was financed primarily by the Greater London Authority developments involving new office space in Central London and the (GLA) and Transport for London (TfL). Both agreed to contribute £7.7 northern part of the Isle of Dogs. This approach has been undertaken in billion towards the construction costs of the project. The largest element an attempt to focus on developments in locations which contribute most of the GLA contribution was financed through a Business Rate to traffic congestion. Both the CIL and the section 106 developer Supplement (BRS). Approximately £4.1 billion will be funded through the contributions required several alterations or amendments to a number of use of this value capture technique. Business Rate Supplement Act was regulations and policies. developed in 2009 which grants the power to the GLA to levy supplements on business ratepayers to finance projects.
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4.2 Indirect land use beneficiary funding sources Property taxes are also commonly used in North America as a value capturing device. It is determined using the combined value of the land As highlighted in section 3, the proposed development of the Hobart rapid and the improvements on a given parcel of land. transit could bring a range of economic and social amenity and benefits to the neighbouring communities. These benefits have the potential to Stamp Duty supplement directly result in an increase in the demand for property in close proximity As highlighted above, Stamp duty is a form of taxation charged by the to the station, as a result of improving the amenity of the local area as State Government, under the Duties Act 2001, when someone acquires well as improving the ease and time to access main centres. an interest in property, usually by buying a property. Property types A range of Value Capture mechanisms have been developed, analysed subject to duty include, but are not limited to; easements and covenants, and implemented internationally to allow the government to extract some gifts and inheritances, residential and commercial property, shares and additional income over and above that which would be obtained through vacant land. its existing tax base (as outlined above). An additional stamp duty supplement could be placed on property Business Rates Supplement (BRS) transaction which occur within the identified catchment area.
A business rate supplement (BRS), which has most notably been applied Special interest groups – visitor/hotel tax as a funding mechanism by the London Council to fund Crossrail, is an One such mechanism may be to impose a special tax upon visitors to the increase in the general rates payable on businesses of a certain size and local area. Such a tax could include a rate imposed upon scale within a specified area/zone. hotels/accommodation providers. Such a mechanism would allow Local Government to target the funding Hotel occupancy taxes have been used as a value capture revenue requirement on businesses that have a direct and tangible benefit as a sources to support the development of infrastructure projects result of the project over an extended period of time. predominately in larger cities in North America which are subject to Special Local Government Rates – households significant amounts of tourism.
Currently, across a number of States in Australia the Local Government 4.3 Project specific funding sources Act 1993 allows local councils to apply special rates on top of council rates in special circumstances (across its entire rates base and/or within a Furthermore, the project is likely to facilitate development within the wider defined area). However, using these rates for value capture will require region which could be another source of revenue to support the funding certain changes to legislation. need. Governments have the opportunity to raise revenues through specific contractual agreements with potential developers. Governments The Gold Coast City Council has recently implemented a Broad-Based can seek additional headwork charges above which is ordinarily applied Transport Improvement Levy (a type of local government rate), in (which is zero in the case of Hobart) from developers by varying existing conjunction with a range of other measures including an increase in fares, planning and zoning guidelines or through the direct sale of land attached to support the funding requirement of the Gold Coast Light Rail. to the corridor.
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Voluntary Planning Agreements Voluntary planning agreements may be a mechanism that relevant local governments could enact to support the funding of the Hobart transit corridor project
Such a mechanism would be seeking additional funds, over and above that which are currently charged by Local Government on developers to support the funding of this public infrastructure.
As highlighted above, headwork charges are currently not applied to property developments across Tasmania. Furthermore, the mechanism may offset one of the major objectives of the project; to entice development to support urban regeneration within the city.
Sale of bonus Gross Floor Area (GFA) Local Government’s associated with this project may need to vary the existing/proposed planning guidelines so that additional development rights above existing zoning rights are sold to developers. This generally would result in an increase in upfront payment by developers through development contributions but also through ongoing rates payable.
Sale or Lease of surplus development sites Finally, Local government’s associated with the project may be able to sell, lease or undertake joint venture arrangements with developers over land owned by government within the project corridor to effectively reduce the funding requirement for the project.
Such a mechanism would allow developers of the project to seek additional returns through either the use and/or sale of such land which would ultimately reduce the net funding burden associated to government.
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Value Capture Implementation Case Study The total costs of the project ($949 million) was jointly funded by the Gold Coast City Council, the Queensland Government and the Gold Coast Rapid Transit Light Rail Project Commonwealth Government. The Gold Coast City Council has sought to meet its funding requirement through the introduction of a value The Gold Coast Light Rail consists of a 13 km rail system with 16 stations capture mechanism through the implementation of a Broad-Based running from Griffith University and University Hospital and the Pacific Transport Improvement Levy (BBTIL) which was a $111 annual levy on Fair shopping centre at Broadbeach. The route runs parallel to the Gold all ratepayer’s city wide. Coast Highway. The line opened in July 2014. Extensions to Parkwood and south to the Airport are also currently being planned and designed. The levy was independent of increases in value to the relevant These future stages of the rail line are expected to deliver a total corridor properties and therefore the landowners close to the new light rail length of 40 km. stations contributed the same as landowners with smaller increases in land value. This process of levying betterment taxes to whole Figure 4-2: Gold Coast Light Rail government areas is considered suboptimal from a social equality perspective.
However, a study was conducted on housing prices between 2000 and 2013 using ABS Statistical Area 2(SA2) geography which showed that there was no observable difference between price movements in areas surrounding the project and those that were not which suggests that the project generated no land value uplift. A more refined measurement of areas (e.g. 400 m from a station) may show some results, however, it could still be argued that a city light rail would see benefits on a broader scale.
The lack of visible value uplift might be a result of the existing public transport network architecture (i.e the Light Rail is a replacement of existing bus routes so it functions to provide more capacity on an already existing link). In addition, the link is largely catering for journeys to and from shopping and entertainment areas. Both these factors could contribute to the reason land value surrounding the project are not considered more valuable. The completion of entire Light Rail project may see land values rising as the transport network extends its reach to
suburbs further from the city centres. Source: GoldlinQ
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Section 3 – Analysis of the Application of Value Capture Mechanisms
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5. Business rate supplement
Introduction benefits of the project (i.e. the commencement of operations for the project that they are funding). A business rate supplement (BRS) is a mechanism by which Local Governments can increase the general rates payable on businesses of a Furthermore, when developing the mechanism the Regional Council certain size and scale within a specified area or zone. deemed it important from a public policy perspective that this financial burden should only be placed on those businesses that were large Such a mechanism would allow Local Government to target the funding enough to be able to reasonably absorb the cost with minimal economic requirement on businesses that obtain a direct and tangible benefit as a growth impact. result of the project over an extended period of time. Applicability of mechanism for the Hobart Rapid Transit Corridor The Crossrail project within London is an example of a major project that utilises/utilised a BRS mechanism. For this project the Regional Council The Hobart rapid transit project, as highlighted within the economic negotiated an additional rate to be paid to Council on businesses that evaluation 7, would likely result in a range of benefits to the local would benefit from the project, subject to criteria including business size community and businesses alike. Businesses within the local region and proximity to neighbouring stations. An additional rate comprised a 2% would likely benefit from, increased access to employees, reduced travel charged to business ratepayers that occupy land with a rateable value of time, productivity improvements and the reduction in the cost of at least £50,000. movement freight (i.e, as a result of removing passenger vehicles off the main arterial road network). The acceptance of the local business community and willingness to contribute in a financial manner was a critical element to success of the At a strategic level8, it is most likely that those businesses that would mechanism. As highlighted through the application of this value capture benefit most from the project, and would have the ability to provide a level mechanism, within the Crossrail project it was important for stakeholders of funding support, would be located within the Hobart CBD zone ( given to accept the additional Government impost on their business as they that Hobart CBD is the final destination for most AM peak trips from could foresee: services utilising the route). Furthermore, the project would improve accessibility to employment zones along the corridor such as Northgate A tangible financial benefit of the project to their business. Shopping Centre and Derwent Park. That they would obtain additional tangible financial benefits of the While many businesses across the wider Hobart region may benefit from project over and above the additional tax that they would incur. this project, it is likely that there would only be a limited number of private That a tax supplement would only be introduced for a pre-defined sector businesses that could sustainably and equitably afford to period and that it would not commence until they obtained the
8 7 Given the limited data and analysis that has been completed to date regarding the distributional Refers to the Hobart light rail business case (Acil Allen, 2013) benefits of the project
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financially support this project through the impost of additional rates on Assessable properties - Hobart & Glenorchy City Council LGA their businesses. Figure 5-1 reflects both the locations of the commercial properties along Figure 5-1: Commercial Rates Payable by Location the corridor and the range of rates paid by each property. From this map it is observed that a congregation of higher rate paying commercial properties are located in Moonah, the Nyrstar Zinc Smelter, UBET Park, Tasmanian Technopark and the Derwent Entertainment Centre. There is also a greater number of commercial properties located within the Hobart CBD.
The map also highlights that there are very few commercial properties located within a close proximity to stations situated between Hobart CBD and Moonah. This suggests that both Hobart CBD and Moonah are likely ultimate destinations for all AM peak trips.
Land use data sourced from the Hobart City Council (HCC) and the Glenorchy City Council (GCC) was used to determine the number of commercial properties located within allocated zones surrounding the stations. The allocated zones determined property numbers within a 400 m radius of the station, between 400 and 800 m from the station and all other areas outside the 800 m radius from the station. The results were compiled in order to represent both the Hobart and Glenorchy City Council LGA’s. The results (as presented in Figure 5-2) show that the largest percentage of commercial properties (41%) are located between 401 m and 800 m from the station. Of the 1,168 properties within this area, 1,009 (86%) are located with the HCC, while 159 are within the GCC. Of the 560 properties situated within 400 m from a station, 289 (52%) are located in the HCC, while 271 are in the GCC.
Source: Hobart City Council
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Figure 5-2: Number of Commercial buildings by location As highlighted in both the qualitative assessment and international implementation of this value capture mechanism, it may be important that Outside of 400m from only a certain section of the business community provides financial 801m from station support for this project. To support this premise, a strategic assessment station 560 properties was undertaken to determine the number of commercial properties within 1,143 HCC and GCC that pay commercial rates over certain amounts. properties Figure 5-3 shows that businesses within the top 10% of commercial rate payers make up the majority of the revenue. This is particularly true for commercial properties located within 400 m of the stations within the Between 401m and 800m from Hobart LGA, where 72% of rates are paid by the top 10% of businesses station (i.e. the businesses which make up the top 10% of the total value within 1,168 the 400 m radius of stations). In the Hobart LGA, there is an increasing properties trend between rates paid and the proximity to the station (i.e. areas closer to stations contribute more to rate revenues).
Source: GHD Similarly, within the Glenorchy LGA, the majority of the revenue is Figure 5-3: Percentile rates payable (Commercial rate contributed by the top 10% of commercial rate payers (an average of 56% payers) of rates are paid by the top 10% of businesses). However, there is no discernible trend between the total rates paid and proximity to the station. $90 $80 Quantum and timing of value capture funds - Hobart $70 The potential quantum of funds that the Hobart City Council could realise $60 through the application of a BRS was analysed based on the location, $50 rate applied and rateable value of the business $40 $30 An economic evaluation was undertaken which determined the Present $ $ Thousands Value (PV) achieved through the implementation of a BRS of 2.5%, 5% or $20 10%. This has been applied to commercial properties located within the $10 specified zones (as outlined above) within the Hobart City Council LGA $- 400 m 400m & Rest of LGA 400m 400m & Rest of LGA over a 20-year period using a 5% discount rate. 800m 800m Hobart Glenorchy P10 P25 P50 P75 P90
Source: GHD
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Figure 5-4: PV funding source - Hobart City Council LGA 400 m of the station, 85% of the total quantum of funds available is captured from the top 10% of businesses (this contribution decreases to $45 65% when assessed over the whole LGA). This infers that the $40 implementation of a BRS of 5% on the top 10% of rate payers located $35 within 400 m of a station only would realise a funding contribution of $5 $30 $25 million out of a potential $6 million (if the rate were applied to all rate
$m $20 payers) over a 20-year analysis period. $15 Figure 5-5 compares the total quantum of funds available over a 10, 20 or $10 30-year period through the implementation of a 2.5%, 5% or 10% rate on $5 commercial businesses located in the allocated zones within the Hobart $0 2.5% 5% 10% 2.5% 5% 10% 2.5% 5% 10% City Council LGA. The results show a positive correlation between the 400m 800m LGA size of the area subject to the business rate, the actual rate applied and the total amount of funds collected, i.e. the largest contribution is realised Top 10% Top 25% Above average 25% safety net 10% safety net All from the implementation of a 10% rate to the entire LGA over a 30-year
Source: GHD, 20 year period Treasury bond discount rate period.
Figure 5-5: PV funding source - Hobart City Council LGA The results show that over a 30-year period a 2.5% supplement can raise between $4 and $11 million depending on the area the rate is applied $60 over. A 10% supplement rate can contribute between $15 and $45 million $50 when applied to the same areas.
$40 Quantum and timing of value capture funds - Glenorchy $30 $m The potential quantum of funds that the Glenorchy City Council could $20 realise through the application of a BRS was analysed based on the
$10 location, rate applied and rateable value of the business.
$0 An economic evaluation was conducted for the Glenorchy City Council 2.5% 5% 10% 2.5% 5% 10% 2.5% 5% 10% LGA to determine the quantum of funds available from the 400m 800m LGA implementation of a BRS. Similar trends were realised compared to the
10yr 20yr 30yr analysis for HCC and are presented in Figure 5-6 and Figure 5-7.
Source: GHD, 10, 20 and 30 year period Treasury bond discount rate The results are presented in Figure. This figure highlights that the top 10% of commercial property rate payers (i.e. the businesses which make up the top 10% of value within the Hobart City Council LGA) contribute significantly more than any other percentile. For businesses located within
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Figure 5-6: PV funding source - Glenorchy City Council LGA and 67% of total PV). A BRS of 5% on the top 10% of rate payers located within 400 m of a station would realise a funding contribution of $2 million $12 out of a potential $3 million (when applied to all rate payers). $10 Figure 5-7 shows the potential total quantum of funds captured over a 10, $8 20 or 30 year period. The results show a total significantly less than the
$6 total revenues collected with the Hobart LGA. This is as a result of the $m number and size of the businesses located in Glenorchy when compared $4 to the Hobart CBD. Businesses located within 400 m of a station raise $2 between $3 and $10 million within Glenorchy, compared to Hobart which raises between $4 and $15 million (using a 2.5%, 5% or 10% supplement $0 2.5% 5% 10% 2.5% 5% 10% 2.5% 5% 10% rate). Likewise, the maximum amount which could potentially be captured 400m 800m LGA (10% rate for the whole LGA across 30-year period) is $17 million compared to $45 million within the Hobart LGA. Top 10% Top 25% Above average 25% safety net 10% safety net All Approximately 65% of the total quantum of funds is realised within the first Source: GHD, 20 year period Treasury bond discount rate 20 years of implementation. That is, a 2.5% supplement over 20-years Figure 5-7: PV funding source - Glenorchy City Council LGA raises between $2 and $3 million compared to between $3 and $4 million of funds realised after a 30 year period. $20 $18 Implementation Considerations $16 $14 A business rate tax supplement implemented by a City Council to support $12 the funding requirement of this project could be seen as an equitable and $10 $m efficient tax mechanism as it imposes a direct financial cost upon a $8 $6 beneficiary group that has the ability to pay and directly benefits from the $4 project. $2 $0 As highlighted through the above analysis it would be important to link the 2.5% 5% 10% 2.5% 5% 10% 2.5% 5% 10% benefits that these businesses would realise (as a result of the project) 400m 800m LGA with the financial support the local government is requesting so that these
10yr 20yr 30yr stakeholders understand and appreciate the net benefit that they will realise. Source: GHD, 10, 20 and 30 year period Treasury bond discount rate Furthermore, it is important that the additional tax imposed on these Figure 5-6 identifies a similar trend to that observed for HCC whereby the businesses are of a value that does not materially impact their operations top 10% of commercial properties contribute the most to the quantum of and the resulting economic activity and employment that they support. the funds available. However, the proportion of the contribution is significantly less than that observed within the Hobart LGA (between 60
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6. Special local government rate
Introduction Similarly, in North America, property taxes (i.e. another like measure) are commonly used by State Governments as a means to capture value of Households directly and indirectly benefit from the introduction of projects to support the funding requirement. It is determined using the transport projects – ranging from the travel time savings and reduced combined value of the land and the improvements on a given parcel of congestion that the project may prevent as well as impacts on the land. desirability, demand and prices of property within close proximity to public transport services. Applicability of mechanism for the Hobart Rapid Transit Corridor As highlighted in section 4, Government’s internationally are increasingly Both the Hobart city and Glenorchy City Councils could implement a looking at introducing tax mechanisms to extract a proportion of the special rate upon households, either across the entire LGA or within a financial benefits realised by local households to support the upfront pre-defined area that would directly benefit from this project, to support its capital costs of infrastructure investments. funding requirement.
The Local Government Act 1993 allows Local Councils to apply special As previously highlighted in section 2.2, the economic evaluation of the rates, over and above normal council rates, in special circumstances. project found that households within the region would realise a range of Specifically, the Local Government Act 1993 outlines a ‘separate rate or social and economic benefits as a result of this project including, travel charge’ which can be implemented in the case where a particular project time savings, access to services and improved social cohesion. will benefit landowners or land occupiers such that the capital costs of the project can be funded through the additional rate. Furthermore, there is the potential for Local Government to vary the rate that is imposed upon its constituents given the level of benefits they may However, it should be noted that current legislation only allows the rate to obtain as a result of the project. For example, the Local Governments be implemented for a maximum of five years and the rate must be applied may choose to impose a special rate upon constituents within a certain to the entire municipal area. So whilst the Local Government Act 1993 radius of direct access to Project (i.e. one kilometre radius from the allows for the introduction of special rates to be applied, using these station). Such a mechanism could be implemented to directly target those revenues as a value capture mechanism to directly support a long term that would most likely benefit, both in a social and financial sense, as a infrastructure project will require legislative changes. result of the project.
An example of the introduction and use of this mechanism can be seen Given the alignment of the transit corridor and the fact the Hobart city on the Gold Coast with the local city council introducing a general rates centre is the ultimate destination for most trips, those households that increase, a Broad-Based Transport Improvement Levy (BBTIL) to support would likely benefit from the project most, (and thus the implementation of the construction of the Gold Coast Light Rail project (see example in a special household rate supplement would most likely target) would be section 4). constituents within the Glenorchy City Council LGA.
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However, the selection of who should contribute to a value capture Figure 6-1: Residential Rates Payable by Location mechanism within the area would depend upon the Councils best knowledge of those that would benefit from the implementation of this project. This is dependent on a number of factors including, feeder bus services and the use of these services to the corridor.
Furthermore, the implementation of the mechanism would have to take into account the social equality of imposing an additional tax upon, in some respects, a socially vulnerable local community. This would materially impact, given the implementation of a range of appropriate safeguards, both the number of households that could contribute as part of a scheme, and the total value that could be obtained from such mechanism. Therefore, it may be in the interest of all stakeholders to apply a general Local Government rate supplement across all of its stakeholders (i.e. increase the base and decrease the rate).
As with the BRS, and has been implemented elsewhere nationally, it may be seen by the stakeholders to be important for that they are not taxed for service that they had not yet received (i.e. the additional rates are not imposed upon them prior to the provision of the improved public transport service).
Assessable properties - Hobart & Glenorchy City Council LGA
Figure 6-1 represents both the location of residential properties along the corridor and the rates paid by each location and the range of rates paid by location. The figure shows that lower rate paying properties are located closer to the stations and along the corridor, particularly north of Glenorchy. Higher rate paying properties are generally located south of Moonah and in and around Hobart’s CBD, with several also located further north west of the corridor.
Source: Hobart City Council
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An analysis of the residential data available for both the Hobart LGA and Figure 6-2: Number of residential rateable properties by Glenorchy LGA showed that approximately 81% of residential properties location are located outside the 801 m radius from the station, as seen in Figure 400m from 6-2. A similar trend was observed when analysing the LGA’s individually, Between 401m station and 800m from however Glenorchy has 922 residential properties within 400 m of the 1,669 … station station and 4,185 residential properties between 401 and 800 m from the 5,935 station, compared to the 747 and 1,750 properties within these areas in properties Hobart. In Glenorchy 73% of properties are located outside of the 801 m radius, whereas 88% of those in Hobart are outside the 801 m radius. Outside of Again, it may be important that only a certain section of the residential 801m from community provides financial support for this project. To support this station 32,353 premise, a strategic assessment was undertaken to determine the properties number of properties within HCC and GCC that pay rates over certain amounts.
Figure 6-3 shows that the majority of revenue is realised within the lowest Source: GHD 10% of rate payers (an average of 44% in Hobart and 66% in Glenorchy). There is also a significant difference between rates paid in the Glenorchy Figure 6-3: Percentile rates payable (residential rate LGA compared to those paid in Hobart. In Glenorchy the rates range payers) between $1,400 and $1,700, while the range in Hobart is from $2,500 and $3.5 $3,300. $3.0
Residents living in or north of Glenorchy have considerable more to gain $2.5 from a rapid transit option heading towards the central CBD, as greater $2.0 accessibility to businesses will likely result in greater job opportunities. However as indicated above, the majority of those living in Glenorchy or $1.5
north of Glenorchy are within the lowest percentile of residential rate $ Thousands $1.0 payers, which reinforces the issue concerning the social acceptability of $0.5 applying a higher rate to these individuals. $0.0 400 m 400m & Rest of 400m 400m & Rest of 800m LGA 800m LGA Hobart Glenorchy P10 P25 P50 P75 P90
Source: GHD
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Quantum and timing of value capture funds – Hobart An economic evaluation was undertaken which determined the PV achieved through the implementation of a Special Local Government The application of a BRS, based on the location, rate applied and Rate of 2.5, 5 or 10%. This has been applied to residential properties rateable value of the property was analysed in order to determine the located within the specified zones outlined above within the Hobart City potential quantum of funds that the Hobart City Council could capture. Council LGA over a 20-year period. Figure 6-4: PV funding source - Hobart City Council LGA The results, as presented in The application of a BRS, based on the $60 location, rate applied and rateable value of the property was analysed in $50 order to determine the potential quantum of funds that the Hobart City Council could capture. $40 Figure 6-4 highlight that the contributions made by residential rate payers $30 $m are approximately evenly distributed across all percentiles within each $20 allocated area. $10 It was also observed that a high percentage of residential properties lie $0 outside of the 800 m radius surrounding a station, which explains the 2.5% 5% 10% 2.5% 5% 10% 2.5% 5% 10% substantial increase in the quantum of funds available when a special rate 400m 800m LGA is applied to the whole LGA (as shown in Figure 6-5). The results indicate Top 10% Top 25% Above average 25% safety net 10% safety net All that a 2.5% rate applied to the entire LGA captures more than twice as
much as a 10% rate applied to residential properties within the prescribed Source: GHD, 20 year period Treasury bond discount rate 800 m radius ($8 million compared to $17 million). Furthermore, a 5% rate Figure 6-5: PV funding source - Hobart City Council LGA applied to all residential properties within the wider LGA over a 30-year period produces $34 million in revenue compared to $22 million from $80 $70 commercial businesses. $60 This suggests that a general Government rate supplement across all of its $50 stakeholders would generate more available funding than rates applied to $40 $m properties based on their proximity to the station. $30 $20 Quantum and timing of value capture funds – Glenorchy $10 $0 The potential total quantum of funds which could be captured by the 2.5% 5% 10% 2.5% 5% 10% 2.5% 5% 10% Glenorchy City Council through the application of a BRS was analysed 400m 800m LGA and presented in the figures below. 10yr 20yr 30yr
Source: GHD, 10, 20 and 30 year period Treasury bond discount rate
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Figure 6-6: PV funding source - Glenorchy City Council LGA higher number of lower valued residential properties within the Glenorchy region compared to those within the Hobart region. $60
$50 Similar to the results found for the Hobart City Council, the potential of quantum funds available increase significantly when considering the $40 whole Glenorchy LGA due to the larger amount of residential properties in $30 $m this area. $20 The total amount of funds captured across all rates and locations is $10 higher than those realised within the Hobart LGA. A 2.5% rate applied to
$0 the entire Glenorchy LGA would realise a total of $21 million compared to 2.5% 5% 10% 2.5% 5% 10% 2.5% 5% 10% $17 million realised within the Hobart LGA. While the largest contribution, 400m 800m LGA realised from the implementation of a 10% rate to the entire LGA over a Top 10% Top 25% Above average 25% safety net 10% safety net All 30-year period is $84 million, compared to only $67 million captured in the HCC. Source: GHD, 20 year period Treasury bond discount rate
Figure 6-7: PV funding source - Glenorchy City Council LGA
$90 Example: Washington Metro – Silver Line $80 $70 The Washington Metro or the Silver Line is now the second busiest $60 heavy rail network in the united states. The initial project used $50 special assessment districts as a means to impose taxes on $m $40 $30 properties located in specified areas around the proposed stations. $20 During Phase 1 of the project, a fixed tax rate of $0.22 per $100 of $10 $0 assessable value was enforced. During phase 2 a starting tax rate 2.5% 5% 10% 2.5% 5% 10% 2.5% 5% 10% of $0.05 per $100 of assessable value was implemented, which 400m 800m LGA increased by 5 cents a year to $0.20 per $100 assessable value by 10yr 20yr 30yr 2014. These tax rates only applied to property owners surrounding the phase 1 or phase 2 stations. Source: GHD, 10, 20 and 30 year period Treasury bond discount rate Figure 6-6 shows a slight disparity of where funding is captured. A smaller percentage of funds are realised within the top 25% to 50% of residential rate payers. Approximately 40% of total funds are currently captured by the lowest 10% and 25% of rate paying properties. This reflects the
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7. Stamp duty supplement
Introduction Internationally, increases in stamp duties have not been implemented to support the funding of infrastructure projects due to the limited catchment As highlighted above, there is a strong body of international literature that of those liable, the once off nature of the revenue stream and the provides empirical evidence that property values in close proximity to challenges in implementing a localised duty. improved public transport services generally increase in value as a result of improved access to employment and services. Example: Stamp Duty Land Tax Stamp duty is a form of taxation charged by the State Government, under the Duties Act 2001, when someone acquires an interest in property, A stamp duty land tax (SDLT) was considered a source of funding usually by buying a property. Property types subject to duty include, but for the London High Speed Rail (Crossrail 2) project. The SDLT are not limited to; easements and covenants, gifts and inheritances, was defined as a tax levied on the transfer of properties or land residential and commercial property, shares and vacant land. which varied depending on the size, type and location of the property. The specific value against which SDLT is levied is known It is conceivable, that property values that would increase in the general as the ‘chargeable consideration’, which includes ‘everything of proximity to the project, as a result of improved access to employment economic value given in exchange for the property’. and services, would result in additional Stamp duty receipts to the State Government when properties were sold. In addition to this incremental The reason London did not pursue this as a form of value capture increase in tax revenue, proponents of this project could seek additional is that it requires further fiscal devolution powers, which was not funding support from local residents through the implementation of a guaranteed to be delivered to the Greater London Authority (GLA) locally applied stamp duty supplement.
Implementation of a stamp duty supplement could be seen as an Applicability of mechanism for the Hobart Rapid Transit Corridor alternative mechanism for obtaining funding for the project as a means of Historically there are a low number of property sales, within the Hobart directly recovering value from beneficiaries at the time they realise the and Glenorchy regions, that have been liable for stamp duty. Frank financial benefit of the project (i.e. the sale of the property). Knight 9 estimate that over the past year, on average 200 properties in A stamp duty supplement would have to be implemented by the State Hobart and Glenorchy have had to pay stamp duty. The limited return Government. Further investigation is required to determine whether such and number of properties affected reflects the fact that Stamp Duty is only a supplement could be implemented by state government on a predefined levied on purchase of investment properties. area with funds allocated directly to a specific project
9 Frank Knight Australia – Property market research and advisory services
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Qualitative assessment of value capture mechanism properties has the potential to capture between $5 and $9 million in funds respectively, over a 30-year period. Similarly, a 1% or 2% supplement on Stamp duties are seen as an inefficient tax mechanism given that they commercial properties gain between $3 and $6 million in funds over a 30- are a financial impost associated with undertaking efficient transactions. year period. As highlighted above while this may not be the most efficient mechanism Figure 7-1: PV funding source - Hobart City Council LGA it would insure a level of social equity given those that have the ability to purchase an investment dwelling or commercial property would most $25 likely have the ability to pay such an additional tax. $20 Furthermore, such a tax would be a perceived cost associated with the $15
purchase of an investment property and therefore will directly be taken $m into account within decision-making process. $10
The main disadvantage of a stamp duty supplement relative to an $5 annualised based tax is the uncertain nature, both in terms of quantum $0 and timing of funds that would be obtained through this mechanism over 1% 2% 1% 2% any given evaluation period. Given that Stamp Duties are only payable Residential Commercial upon the sale of property, that is not a primary residence of the owner, 10 years 20 years 30 years there would likely be material impact on both the number of people and also the quantum of funds available. Source: GHD, 10, 20 and 30 year period Treasury bond discount rate Figure 7-2: PV funding source - Glenorchy City Council LGA Quantum and timing of value capture funds $10 This report analysed the potential quantum of funds that the Hobart and Glenorchy City Council could realise through the application of a stamp $8 duty on both residential and commercial properties over a period of 10, 20 $6
and 30 years. $m $4 The results presented in Figure 7-1 and Figure 7-2 provide the total quantum of funds realised through the implementation of either a 1% or $2 2% stamp duty supplement imposed on either residential or commercial $0 properties within the Hobart and Glenorchy LGA’s. The results indicate 1% 2% 1% 2% that a stamp duty imposed on commercial property sales in the Hobart Residential Commercial 10 years 20 years 30 years LGA, could potentially capture between $11 and $22 million in funding over a 30-year period. While in Glenorchy, slightly more funds are raised Source: GHD, 10, 20 and 30 year period Treasury bond discount rate through the implementation of a stamp duty on residential than on commercial property sales. A 1% or 2% supplement on residential
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8. Special interest group tax – visitor tax
Introduction For the year ending in March 2016, 1.18 million people visited Tasmania last year, which is an increase of 7% from the year before. The total Proponents of this project may wish to look at alternative mechanisms, number of overnight stays increased by 9% to 10.36 million and the visitor other than imposing additional taxes directly on their constituents, that expenditure increased by 7% reaching $2.01 billion. seek funding for the project from other beneficiaries. As highlighted in Figure 8-1 this project will provide a connection between One such mechanism may be to impose a special tax upon visitors to the the majority of hotels located in Hobart and Glenorchy as well as major local area. Such a tax could include a rate imposed upon tourist attractors such as MONA. hotels/accommodation providers. However further analysis would have to be undertaken to determine the Hotel occupancy taxes have been used as a value capture revenue demand and net benefits of the link that this project would provide relative source to support the development of infrastructure projects to the alternatives (i.e. MONA boat and bus services). predominately in larger cities in North America which are subject to significant amounts tourism. Qualitative assessment of value capture mechanism It may be important for the acceptance of such a mechanism to show the It is important to note that such a mechanism could be imposed upon this benefits that these users would receive as a result of the implementation beneficiary group either by a direct tax (i.e. directly on accommodation of the project, which could include: charges) or indirectly through additional rates imposed upon Hotel and accommodation businesses. As a tourist attraction, However, it must be taken into account whether this additional rate, The use of the corridor to access tourist locations, regardless of its dollar value, would have a material impact upon visitors’ Use of the corridor to access accommodation facilities. willingness to come to Hobart for leisure holiday purposes and the potential impact of using traditional holiday accommodation providers Applicability of mechanism for the Hobart Rapid Transit Corridor relative to alternative providers (e.g. Airbnb). Given the level of analysis completed to date, there is no information with Such a tax may be seen as politically beneficial given that it does not regards to whether this particular user group would use and/or benefit impose directly on the pocket of its constituents. Although it is likely that from the project. such a tax would invariably impose a marginal economic cost on an However, recent statistics sourced from the Tasmanian Tourism important local industry. Snapshot (2016) suggest that there is potential for further growth within Invariably it could be assumed that such a tax, as long as it is applied this industry providing a basis for further investigation. equitably across alternative accommodation providers (budget versus
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luxury) that those that would correctly be paying would have the ability to the Hobart City Council due to the lack of available data of visitor trends in pay. Glenorchy.
Figure 8-1: Hotels by Location Example: Special Interest Group Tax
In the United States, hotel and room taxes are most commonly used to fund tourism promotional activities such as visitor information centres or cultural facilities, however there are a few examples where these taxes have been used to fund transportation infrastructure. In Nevada hotel room taxes helped fund the Las Vegas Strip, and the relocation of a freight rail line to a below grade line in Reno. The project was primary financed through city bonds and Transport Infrastructure Finance and Innovation Act (TIFIA) loans both backed by hotel room and sales taxes.
A hotel tax was also utilised in Louisiana to help fund the restoration of an old trolley line in New Orleans and in Myrtle Beach, South Carolina, a 2% hospitality and accommodation tax is used to help fund the county’s road program.
Quantum and timing of value capture funds
An analysis was conducted assessing the potential quantum of funds that the Hobart City Council 10would realise through the application of both a hotel rate supplement or a visitor tax.
The assessment of a hotel rate supplement was undertaken using the same method as that used to determine the quantum of funds raised for a BRS, i.e. The analysis was based on the size and location of the defined area and a varying rate was applied over a 30-year period. The second evaluation considers both a visitor tax applied per night and a tax applied per visitor. This analysis assesses only the funds captured by Source : Hobart City Council
10 No information available regarding visitor statistics in the Glenorchy LGA
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Hotel rates supplement Figure 8-2: PV funding source – Hotel rates supplement (Hobart & Glenorchy) An economic evaluation was undertaken assessing the quantum of funds realised from implementing a Hotel rate on hotels located in the allocated $10 zones in both the Hobart and Glenorchy LGA’s. The results are shown in $9 Figure 8-2 and Figure 8-3. $8 $7 An analysis of the land use data sourced from the Hobart and Glenorchy $6
City Councils found that approximately 94% of Hotels are situating in the $5 $m Hobart LGA, with only 6% in Glenorchy with the majority of those located $4 within the 800 m radius of a station (68%). This is highlighted in Figure $3 $2 8-1 which shows the majority of hotels lie within the Hobart CBD. $1 Figure 8-2 indicates that the majority of funds are captured by the top $- 5% 10% 20% 5% 10% 20% 5% 10% 20% 10% of hotel rate payers (this percentile constitutes between 60 and 65% 400m 800m LGA of total rates captured).
In terms of the total potential quantum of funds available, a hotel rate Top 10% Top 25% Above average 25% safety net 10% safety net All supplement captures significantly less than both a BRS or special local Source: GHD, 20 year period Treasury bond discount rate government rate. A 5% rate applied to the whole LGA (including both Figure 8-3: PV funding source - Hotel rates supplement Hobart and Glenorchy) over a 30-year period raises approximately $3 (Hobart & Glenorchy) million. $14 Due to the considerable lack of hotels located within Glenorchy, only $0.8 $12 million is captured using a 5% rate within the GCC ($2.2 million captured within the HCC). $10 $8
$m $6
$4
$2
$- 5% 10% 20% 5% 10% 20% 5% 10% 20% 400m 800m LGA
10yr 20yr 30yr
Source: GHD, 10, 20 and 30 year period Treasury bond discount rate
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Visitor tax Figure 8-4: PV funding source – Visitor tax per night
The evaluation of the potential quantum of funds that the Hobart City $300 Council 11 could realise through the application of a visitor tax has been $250 based on the following statistics which were sourced from the Tasmanian Visitor Statistic (2016) and the Hobart City Council statistics: $200
A total of 1,180,000 visitors travelled to Tasmania in the year $150 ending in March 2016. $m $100 An average of 8.8 nights per visitor was spent in Tasmania and an average of 4.7 nights per visitor was spent in Hobart. $50
From this, and information collated by the Hobart City Council, both the $0 aggregate visitors to Hobart and the total aggregate nights spent in $1 $2.50 $5 Dollar levy per visitor night Hobart could be determined. 10 years 20 years 30 years
The analysis considers a $1, $2.5 and $5 levy imposed both per night and Source: GHD, 10, 20 and 30 year period Treasury bond discount rate per visitor. Results are shown in Figure 8-4 and Figure 8-5 respectively. Figure 8-5: PV funding source – Visitor tax per visitor The results suggest that a significant amount of funding could potentially be realised through the application of a per night visitor tax over a 30-year $60
period. A PV of almost $50 million could be captured from a $1 levy per $50 night. A $2.5 or $5 levy per visitor night captures approximately $120 or $240 million in funding respectively. $40
A tax per visitor also has the potential to capture approximately $10 $30 $m $m million with a $1 levy applied per visitor. This reflects the assumption $20 made above that each person spends on average 4.7 nights per visit in Hobart. A $2.5 and $5 levy per visitor captures $26 and $51 million in $10 funds respectively. $0 In both of the scenarios above the majority of funds are captured in the $1 $2.50 $5 first 10 years of its implementation (47%), while almost 80% of the total Dollar levy per visitor night 10 years 20 years 30 years funds are realised in a 20-year analysis period. Source: GHD, 10, 20 and 30 year period Treasury bond discount rate
11 No information available regarding visitor statistics in the Glenorchy LGA
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9. Voluntary planning agreements
Introduction Given that such a funding mechanism would be associated with the development of property the timing of such funding would also be Voluntary planning agreements are becoming a more attractive means for relatively uncertain at this stage of the evaluation. supporting the funding needs of local government to support its community service obligations. Several local governments, notably in Applicability of mechanism for the Hobart Rapid Transit Corridor Sydney, including Parramatta, the City of Ryde, Burwood and Leichhardt It should be noted that currently while Tasmanian local governments seek have recently amended or added in specific policy guidelines regarding impact charges they do not seek any developer/headwork contributions to using certain voluntary planning agreements for value capture purposes. support the payment of local government services. Such a mechanism would be seeking additional funds, over and above As such it would seem unfeasible that either the Hobart or Glenorchy City that which are currently provided through Part 5 Agreements (i.e. Councils could seek to implement a value capture scheme aimed at headwork charges), from developers to support the funding of this public seeking additional revenue from developers. infrastructure.
There a number of public policy and social equality drawbacks to this type of value capture technique. For its effective implementation, the Example: Voluntary Planning agreements mechanism applied within the context of this project would most likely be attributable to developers that would directly benefit financially from the The Edinburgh Rail was funded through the application of opportunities delivered by the opening of the corridor which provides ‘Contribution Agreements’ (CA), which was basically a voluntary greater access to properties located closer to stations. Such a mechanism partnership between the developers and land owners whereby the would ultimately increase the cost associated with property related land value uplift generated from the project was shared between the developments. This increase in cost would either defer development or developer and the transit provider. The funding was placed into a increase the cost of property and related services on the community, by Trust Fund which was linked exclusively to the transit project. This eating into the margins of the development themselves. type of agreement works best when there is development potential and where the private sector is convinced there is not enough public Furthermore, there are a range of other potential political and policy funding to provide the infrastructure. based risks associated with the implementation of such a value capture
mechanism. There is a risk that an LGA may provide contracts to those parties that are paying for access rather than that which provides the greatest benefit to the community, even though the project and the benefits may not be realised without the funding contribution.
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10. Sale of bonus gross floor area
Introduction Table 10-1: Bonus Gross Floor Area – (m2) Local governments associated with this project may seek to vary the Current zoning Potential Ultimate Supply existing/proposed planned zoning at a particular site/area so that HCC additional development rights could be sold to support the development of Residential 53,905 70,647 the project. The additional proceeds as a result of this rezoning could be Commercial 0 0 allocated to support the funding requirement of this infrastructure. GCC Such a funding mechanism would be aimed at curtailing the economic Residential 147,324 288,188 profit associated with the development opportunities which exist solely Commercial 24,500 54,310 because of the project. Source: GHD Ultimately, the effectiveness of the mechanisms would be directly linked to where a developer could see the financial benefits associated with Qualitative assessment of value capture mechanism increased discretion or more flexible planning provisions. As highlighted above, there are a range of other potential political and Furthermore, such a mechanism would only provide an opportunity for policy based risks associated with the implementation of such a value local government as a source of funding, where a developer could see capture mechanism. There is a risk that an LGA may provide contracts to the financial benefits associated with seeking relaxed planning provision. those parties that are paying for access rather than that which provides the greatest benefit to the community, even though the project and the Applicability of mechanism for the Hobart Rapid Transit Corridor benefits may not be realised without the funding contribution. As highlighted above, the revenue stream realised by local government Given that such a funding mechanism would be associated with the would be dependent upon when the development would occur, and thus development of property the timing of such funding would also be is uncertain. relatively uncertain.
An assessment has been undertaken by GHD and Frank Knight to determine the difference between current planning provisions and potential supply of developments within a foreseeable 20-year period, as seen in Table 10-1.
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Figure 10-1: PV funding source – Sale of bonus gross floor Factors impacting demand and uptake of development area opportunities $5 Based on the historic number of properties constructed per annum, $4 dwellings and commercial in southern Tasmania, there is ample $4 demand over the coming 20 years to meet the potential supply as $3 outlined in this report. This is even the case with the development of $3
apartment and attached housing. $m $2 Given that this type of development would be something new in the $2 market, there would invariably be a range of issues facing the uptake $1 of development opportunities within the corridor, which would $1 include: $0 Residential Commercial Residential Commercial Yields realised by development opportunities Glenorchy Hobart Risk and opportunities foreseen by developers 10 years 20 years 30 years Amenity of the local area Source: GHD, 10, 20 and 30 year period Treasury bond discount rate Note: Calculations of additional government revenue based upon the incremental change in Tastes and preferences of locals to reside in such housing gross floor area. stock and within these areas Note that the above estimates are based on an assumption of a As outlined previously, there are a range of public policy reasons as consistent uptake in property developments over time to 2040, and a to why governments are supporting infill urban densification over consistent value of property compared to current estimates and current ever expanding greenfield development. Further analysis may be rates charges per assessable property values. required to determine what are the real costs associated with both As can be seen in the figure above significantly more funding is captured types of developments and what government mechanisms could be through the sale of residential bonus gross floor area (GFA) than in place to support the efficient location of future development. commercial bonus GFA, particularly in the Glenorchy LGA. However, this
is largely due to the difficulty in quantifying available bonus gross floor Quantum and timing of value capture funds area within this sector. The figure shows a maximum of $5 million could be realised within the Glenorchy LGA, and $1 million within Hobart when Based on the estimates of the difference between estimated supply, the mechanism is applied to residential properties only and over a 30- demand and current planning provisions highlights the potential additional year period. revenue streams that could be realised by local governments, through additional annual rates receipts, as a result of supporting additional development.
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11. Sale of surplus land
Introduction also segments of land surrounding the Glenorchy and MONA stops and between Granton and Claremont stations. Local governments associated with project may be able to effectively release land that they own, within the defined corridor or within its local Figure 11-1: Government Owned land – within 800 m of proximity, to effectively reduce the funding requirement for the project. stations The sale of land associated to the project could be undertaken in a range of alternative ways, including:
directly packaged as part of the project Sold separately – open market process
Sold upfront with strong terms and conditions
Joint venture development with private sector Ultimately the preferable mechanism for the sale of land to support fund this project will depend on the potentially competing needs of government to seek a financial return and supporting wider public policy position including the urban regeneration of certain defined areas. Furthermore, the means by which the project is developed (i.e. D&C, PPP etc.) will also impact the most appropriate means for releasing the value of the asset. The table below and figure overleaf, highlight those properties that are currently under the ownership/control of either the Hobart or Glenorchy City Council.
Applicability of mechanism for the Hobart Rapid Transit Corridor
The local government are currently in possession of several properties within close proximity to the Hobart to Glenorchy transit corridor. Figure 11-1 provides a map outlined the location of publicly owned land along the corridor which could be sold, leased or developed to fund this project.
The figure shows the government owns a significant strip of land running from Hobart to the Royal Tasmanian Botanical Gardens stop. There are Source: Hobart City Council
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Quantum and timing of value capture funds New Town - 10055 m2 (plus an additional 16458 m2 owned by Friends School which could be bought for benefit in kind) The potential quantum of funds that the Hobart and Glenorchy City Councils could realise through the sale of surplus government owned Albert Road - 9,962 m2 (The Car Park at the rear of the Shopping land was analysed based on the availability of vacant/not in use land. strip)
Table 11-1: Funding Source – Property Sales Austins Ferry – 83,000 m2 (area west of the point)
Number of properties Sum of AAV of properties Based on a rezoning of the land associated with its highest and best use, 400 m 401 - 800 m 400 m 401 - 800 m as outlined in the analysis of future urban densification opportunities, as HCC well as an estimated cost of relocating services, it is estimated that the Hobart and Glenorchy City Councils could realise up to $6.5 m and $8.5 In use 10 11 1,193,490 1,035,980 m respectively from the sale of this land. Other 0 81 0 1,007,290 GCC A range of factors would have to be taken into consideration with the sale of these properties, including: In Use 0 0 0 0 Vacant 1 0 2,600 0 Optimise the release of the land to maximise the value that Other 99 80 513,900 272,080 government receives from its sale Source: GHD The timing of the sale of the land is inherently uncertain at this time Notes: Other properties may include vacant and in use properties and therefore the present value of this funding stream may vary Only 5 of the 81 HCC properties defined as “other” have accessible AVVs Local governments will have to weigh up the public policy position of Only 21 of the 179 GCC properties defined as “other” have accessible AVVs any sale with the potential adverse community impacts (i.e. the As can be seen in the table above both the Hobart and Glenorchy City potential relocation of the Friends school oval) Councils own and manage a range of properties, however very few are currently deemed to be vacant and/or not in use. Similarly, Local governments will have to weigh up the public policy position of any sale of land relative to what terms and stipulations it Whilst there may be an opportunity for either council to use the need to wishes to impose on any future development (i.e. social housing, fund this and other infrastructure projects as a potential opportunity to open spaces etc.) look to better utilise and potentially divest some of its land holdings this is outside the scope of this project. There is invariably uncertainty with regards to the cost of relocating existing services which could alter the design and ultimately the value However, of the properties owned by either the Hobart or Glenorchy City on any proposed site Councils, a number of titles have been earmarked as within the immediate area of the stop locations as areas that will support future urban renewal associated to this project. Specifically, these properties include:
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12. Conclusions/Recommendations
This evaluation has earmarked a range of mechanisms that both the Socio – economic analysis of people’s ability to pay and the impact Hobart and Glenorchy City Councils could implement to support the on living standards funding requirement of the proposed Glenorchy to Hobart public transit Detailed analysis of the most effective implementation of a corridor. proposed value capture mechanism to optimise returns and reduce This analysis has found that of those mechanisms, those that would likely the risk to government. provide the greatest return, at a rate and coverage that would be
acceptable on public policy grounds would include:
Visitor tax (visitor nights) – between $40 m to $100 m
Residential rates supplement– between $7 m to $54 m
Business rate supplement– between $7 m to $19 m As highlighted throughout this report, the quantum of funds returned by any one value capture mechanism, with the exception of the visitor tax, will not be enough by itself to fund this infrastructure without imposing the tax on the community at what is likely to be seen as an unacceptable rate.
The implementation of any of these mechanisms as well as who will ultimately be targeted (i.e. rate and applicable safety nets) is a matter of public policy and therefore a decision for government.
Appendix C provides a summary of the advantages and disadvantages as well as potential quantum of funds associated to all of the value capture mechanisms that are outlined within this report. Further analysis may be required by local government to support the implementation of any proposed mechanism, which may include: Detailed analysis of the links between beneficiaries and those that will pay
Detailed analysis of the potential returns and uptake of development opportunities along the corridor
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Appendices
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Appendix A – Economic Contribution
of commercial property development within the corridor over the coming Introduction 20 year period. GHD were asked by the Glenorchy to Hobart Rapid Transit project Based on industry estimates of the cost associated with delivering this steering committee to provide a strategic analysis of the potential level of construction activity and estimated employees per construction economic contribution and direct jobs supported by the project. spend, it is estimated that this level of development could support on This section of the report presents an estimated number of jobs that will average between 500 and 1,000 direct construction employment be supported per annum as a result of the construction that will occur opportunities per annum within the corridor and the additional ongoing jobs that could be located within the area. Operational employment This estimate was based upon the forecasted construction and additional The rapid transit and urban renewal project will provide a number of supply of gross floor area that will be developed as part of the project. businesses with access to state of the art commercial premises that will Further information regarding the estimated gross floor area that could be provide good links to employees and regional centres. developed as part of this project can be found in Knight Frank assessment Based on the analysis undertaken by GHD, a range of commercial of development opportunities. precincts could be developed along the corridor, including:
It is important to note that this calculation only presents only the number Derwent Park – big box retail development of jobs that could be supported by the project, both through the Albert Road – small scale retail and commercial offices construction and operational phase, and not an incremental analysis of the new/additional jobs created in the economy. Berriedale – Hotel and tourism
Building construction employment Based on industry estimates of number of employees per gross floor area, it is estimated that this level of development could support and As well as supporting construction jobs through the construction of the accommodate on average between 1,500 and 2,500 ongoing operational light rail, this project has the potential to support a large number of jobs employment opportunities. through the construction of commercial and residential property within the
corridor as part of the wider urban renewal objective.
As highlighted in the Knight Frank assessment of development opportunities, this project could support approximately 300,000 metres squared of residential property and approximately 50,000 metres squared
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Developing a high level understanding of the key challenges and Appendix B – City deals process opportunities for Greater Hobart through a survey of existing evidence and material that has been produced for the region; The purpose of this section is to outline directions for a potential City Deal in Greater Hobart and to help the local authorities, and if required the Facilitating a half day workshop with a selection of key stakeholders from Tasmanian State Government, to understand the key parameters of City the local authorities and state government representatives; and Deals and how a City Deal for Greater Hobart could be framed within the Producing a workshop report summarizing the day’s proceedings, key current policy settings outlined by the Turnbull Government under the aspects of the discussion, including advantages and features the Smart Cities Plan released in April 2016 by the Prime Minister. stakeholders should consider in negotiating a City Deal, such as:
To be clear, while the Hobart to Glenorchy rapid transit could be a key the strategic alignment of key local and state initiatives with those anchor project within a City Deal, the approach is better suited for a wider of the Federal Government interests in City Deals; and spectrum of policy initiatives – including both infrastructure and non- priorities for inclusion in a submission to the Smart Cities plan infrastructure interventions. Key to this is the understanding of a holistic (noting further development and assessment requirements). program-based approach to economic development where the whole impact of the program on the economy of the Greater Hobart is larger Overview of City Deals Gateway Process than the sum of the impact of the individual projects. Should the local authorities in Greater Hobart and the Tasmanian State In the context of the development of the City Deal approach in Australia, Government decide to pursue a City Deal beyond the scoping exercise, there is still a sense of uncertainty on how the Federal Government’s we have designed a process that is currently being applied elsewhere in policy is shaping up. This means that over the coming period, the City Australia and is focused on de-risking the investment needed to finalise a Deals proposals coming from local and state governments will help City Deal. The diagram below outlines the stages of that process. Note formulate the Federal Government’s own position. It also means that local that this can be adapted to the context of the region where it applies, the and state governments need to be cautious over the amount of speed at which the local authorities wish to reach agreement and the pace investment they make in developing their own proposals. of policy development at the Federal level.
Accordingly, the approach we have designed with risk and uncertainty in Overall, it should take 12 to 18 months from start to finish, depending on mind in that each gateway is linked with a key milestones and the state of readiness of the partner authorities, level of engagement and deliverables, and offers an option to terminate the process. the available modelling tools.
First Steps – Scoping Exercise We would be happy to provide further details on the activities, milestones and deliverables expected in each of these gateways. Before embarking on a City Deal process, we also propose to undertake a short scoping exercise which consists of the following steps:
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Gateway 1 Gateway 2 Gateway 3 Gateway 4
. Agree the types of . Test/demonstrate . Present prioritisation of . Present final shortlist of investments/sectors for economic modelling suite schemes against lead ‘compliant‘ funding inclusion in Infrastructure and sign-off that it is fit for metric on a net cost basis scenarios – i.e. those that Fund/City Growth Deal purpose (e.g. including match maximise the lead metric plus interventions aimed at funding and other offers) and deliver the minima dependency reduction . Initial sift of long list and sign-off on medium list of . Refine package to ensure . Decisions on which . Agree objectives investments/interventions that program minima are scenario to be taken (including program delivered at each funding forward as final Fund/City minima) and metrics for . Agree funding scenarios scenario Growth Deal proposition appraising performance of to be developed based on degree of local investments/interventions . Iterate with potential funding commitment . Engage with potential funders and government . Sign-off on economic partners and government on co-funding/devolution . Decisions on the modelling approach to be on scale of contribution / propositions and PbR necessary delivery used funding devolution options governance reforms (if available and scope for applicable) . Begin to develop Payment by Results (PbR) proposed governance and joint working
Objectives arrangements . Agree instructions for working up individual investments/ interventions . Define local funding sources ‘in play’ (but not decisions on the level)
8 to 12 Weeks 12 to 16 Weeks 16 to 20 Weeks 8 to 12 Weeks Timescales
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Appendix C Summary results
Summary of Value Capture Methods Value Quantum of Funds Capturing Description Advantages Disadvantages Application to Project available ($ million) Method Majority of funds would May be a limited number of A BRS is a mechanism by be captured by the top Businesses within the Hobart LGA private sector businesses that Business which Local Governments can 10% of businesses, would likely benefit from, increased could sustainably and Rates increase the general rates meaning safety nets access to employees, reduced equitably afford to financially $7m - $19m Supplement payable on businesses of a could be applied to travel time leading to productivity support this project through the (BRS) 1 certain size and scale within a business which may not improvements and the reduction in impost of additional rates on specified area or zone. be able to afford the cost of movement freight. their businesses. additional rates. The Tasmanian Local Government Special Local government Act outlines a ‘separate rate or rates are a tax mechanisms to Has the potential to Special To raise significant funds, a charge’ can be implemented in the extract a proportion of the capture value from Local rate would need to be applied case where a particular project will financial benefits realised by those who benefit most $7m - $54m Government to the entire LGA which leads benefit landowners or land local households to support from the project, Rates 2 to social inequalities. occupiers such that the capital the upfront capital costs of promoting equitability costs of the project can be funded infrastructure investments. through the additional rate. Property values that would The implementation of a stamp It would insure a level of increase in the general duty supplement would have to be social quality given proximity to the project, as a There is uncertainty regarding implemented by the State those that have the Stamp result of improved access to the number of commercial or Government. However, it is ability to purchase an duty/Land employment and services, residential property sales likely uncertain whether such a $8m - $23m investment property tax 3 would result in additional to occur with the operational supplement could be implemented would most likely have Stamp duty/land tax receipts timeframe. on a predefined area with funds the ability to pay such to the State Government allocated directly to a specific an additional tax. when properties were sold project The project also provides a direct link between the Hobart city centre May receive greater A special tax upon visitors to and MONA indicating a strong Special stakeholder approval for It could be argued that many of the local area. Such a tax alignment with this project to the Interest a method which does the visitors travelling through could include a rate imposed tourism industry. However, it must $40m - $100m Group Tax - not tax local constituents Hobart will not benefit from the upon hotels/accommodation be taken into account whether this Visitor Tax 4 but targets other Hobart rapid transit. providers. additional rate, regardless of its beneficiaries, i.e. tourist. dollar value, would have a material impact upon visitors’
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Value Quantum of Funds Capturing Description Advantages Disadvantages Application to Project available ($ million) Method A voluntary planning This type of agreement The effectiveness of the May require regulatory/policy agreement seeks additional works best when there mechanisms will be directly linked changes. It is also dependant funds, over and above that is development potential to the developers understanding of Voluntary on whether the developer sees which are currently provided and where the private the natural benefits of gaining planning value in providing additional N/A through section 94 provisions, sector is convinced more flexible planning provisions. agreements taxes to council for the right to from developers to support there is not enough The increased value of the purchase and develop on the the funding of this public public funding to provide development will therefore not be land infrastructure. the infrastructure. ultimately passed on to the buyer. Would only provide an The local governments opportunity for local associated with this project This technique would not work government as a source Sale of may need to vary the in the case where tax applied of funding, where a Bonus floor existing/proposed planning would impinge on the margins developer could see the As above $0- $4m Area (GFA) guidelines so that additional of the development in which financial benefits 5 development rights above case it would only hinder its associated with seeking existing zoning rights are sold progress relaxed planning to developers provision. The sale of government owned Local government associated land, means foregoing future There is potential to use The local government are currently with project may be able to potential capital gains from this method as a means in possession of several properties Sale of sell land, within the defined further increases in land to financing the project. within close proximity to the Hobart Surplus corridor or within its local values. $13m - $15m Or to provide an to Glenorchy transit corridor, Land proximity, to effectively reduce The effectiveness of this immediate upfront however its potential for the funding requirement for technique will depend on the funding option. development is questionable. the project. potential for development within these areas. Source: GHD Notes: All values are taken over a 20-year analysis period, 1 Projected number of additional properties within LGA across 20 year evaluation period and current average rates payable per property 2 Between 5% and 15% increase in prices and rates payable of those properties within 800 metres of each station 3 Ranges between a 2.5% rate applied to top 10% of rate payers within 800 m of stop and 5% on the top 25% of rate payers within the whole LGA 4 Ranges between a 2.5% rate applied to the top 25% of rate payers with whole LGA, and 5% on all rate payers with the whole LGA 5 Ranges between 1% stamp rate on residential properties only and a 2% stamp duty on commercial properties only, 6 Ranges between a $1 per visitor night tax and $2.5 per visitor night tax (Only applies to Hobart LGA) 7 Using either commercial bonus GFA only or residential bonus GFA only.
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