Developer contributions to the financing of infrastructure

First principles assessment

Why introduce developer contributions?

Developer contributions have an appeal as a means of bringing income for infrastructure development. They can be applied where individual developments expected to create a burden on existing infrastructure, or to increasing the pool of resources which can be drawn on in developing infrastructure across a city or region.

There is a broad perception among decision-makers and businesses that transport infrastructure can have a significant role in supporting economic development.  It can be helpful to consider these perceptions separately from modelling results and findings from empirical studies.  The form of infrastructure perceived to be important varies according to the types of development and business concerned. First, there can be emphasis on the economic benefits of infrastructure supporting connectivity for goods and people. In this case factors such as ability of workers to travel from residential areas to areas of employment, limited congestion, and good access to motorways, rail and airports can all be significant (Docherty et al. 2009; Graham et al. 2010; Marsden et al. 2013). Second, empirical studies have identified a strong, but contested, view that infrastructure which improves the quality of the built environment can contribute to attracting high value creative and knowledge based businesses (Florida 2005).  In the latter case, the infrastructure which enhances the urban environment can focus more on public realm measures such as pedestrianisation (Docherty et al. 2009; Marsden et al. 2013).  

While the benefits of both aspects of infrastructure development are widely accepted, the evidence underpinning the perceptions of their economic value is more uncertain. Questions have been raised about the evidence supporting claims that improving quality of the urban environment creates conditions to support high value knowledge and creative industries (Boland 2007; Christophers 2008; Clifton 2008; Banister 2012; Marsden et al. 2013). Further, with regard to the more general claim that improving connectivity and reducing congestion stimulates economic development, the empirical understanding is rather weak (see Banister 2012). However theoretical work suggests there are economic benefits which might be gained by infrastructure which opens new areas for development, or reduces travel delays SACTRA 1999; Eddington 2006; Feldman et al., 2008; Cowie, 2009; Mejia-Dorantes et al., 2012).

Beyond questions about the relationship between transport infrastructure and economic development, there are matters of competitiveness, and perceived competitiveness which can be relevant in assessing the use of developer contributions. There can be concern that imposing a levy on development will encourage developers to locate elsewhere. This concern has two significant aspects. First are questions of (a) whether imposing a levy or tax would deter investment despite the benefits of the infrastructure made feasible through the levy, and (b) whether it would dis-benefit the economy overall if some businesses were deterred in this way. Second are questions of how the relation between a levy and competitiveness is perceived by those deciding the level at which to set the levy. The question of whether imposition of a levy would deter some investment might be expected to depend on how the levy is spent, that is, on whether the infrastructure is expected to benefit the needs of the developers (cf. Tiebout 1956).   The broader question of whether some deterrent to investment would harm economic development overall, raises complex and contested questions both of whether there is economic advantage in focusing on certain types of development over others (see Krugman 1996, also Porter 2003), and of the relationship between transport infrastructure and economic development.  Significantly decision-makers’ perception of these impacts might not reflect the actual relationship between infrastructure and development.  The potential benefits of developer contributions could be reduced if decision-makers set the level of developer contributions too low in the absence of knowledge of the levels planned by competing cities (see Marsden et al. 2013).  Theoretical work on the related matter of two competing cities setTING cordon tolls, each without knowledge of the toll the other will set, suggests that sub-optimum results are probable (Koh et al. 2012).

There are some concerns that a practice of using  developer contributions to fund transport infrastructure can lead planners to make decisions based on ability to secure funds from those developers and to give too little consideration to other social or environmental objectives associated with planning decisions (see Campbell et al. 2000).

Demand impacts

Demand impacts will depend on what infrastructure is developed with the contribution. This can be infrastructure expected to reduce congestion or increase connectivity. This might be expected particularly in cases where the development would be expected to increase travel or traffic volume. However it might be infrastructure designed to improve quality of the urban realm (e.g. pedestrianisation), and this might not be expected to have a significant impact on capacity for travel.

It is argued that there is a relationship between travel demand and development where development would be expected to result in increased demand. There are uncertainties about the extent to which this relationship holds (Goodwin 2011). However to the extent that it does, claims about how this relationship will influence the demand impacts of implementing developer contributions will depend on whether the contributions are used for infrastructure which actually increases economic development.

Supply impacts

Again, impacts on supply will depend on what the contributions are used to fund. Potentially, developer contributions will increase supply. One question will be whether the increase exceeds any increase in demand brought by the development.

Financing requirements

Developer contributions offer a means of providing finance. However this should not be considered independently of the uncertainties and caveats described above.

Expected impact on key policy objectives

Objective	Scale of contribution	Comment
		Developer contributions might enable provision of infrastructure which mitigates burdens on existing infrastructure created by development. It might also provide infrastructure to support further development. However this needs to be offset against the additional demand from the development.
		This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
		There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
		Contributions which solely provide for improved access to a new development are unlikely to support this objective.
		Contributions which solely provide for improved access to a new development are unlikely to influence safety.
		There is uncertainty about the relationship between transport infrastructure and economic development. Any economic impact is likely to depend on what infrastructure is funded by the contribution.
		Developer contributions provide a source of funding.

	= Weakest possible positive contribution,		= strongest possible positive contribution
	= Weakest possible negative contribution		= strongest possible negative contribution

= No contribution

Expected impact on problems

Problem	Scale of contribution	Comment
Congestion		Developer contributions might prevent congestion which would otherwise result from development.  This will depend both on the development and on the nature of the infrastructure.
Community impacts		This will depend on what infrastructure is provided. There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
Environmental damage		There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
Poor accessibility		Contributions which support new infrastructure should at least provide for the access required to the development, and ease movement for existing traffic.
Social and geographical disadvantage		There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
Accidents		There is some concern that a system of developer contributions can limit focus on social and environmental objectives and favour developments which bring higher contributions.
Poor economic growth		There is uncertainty about the relationship between transport infrastructure and economic development. Any economic impact is likely to depend on what infrastructure is funded by the contribution.

	= Weakest possible positive contribution,		= strongest possible positive contribution
	= Weakest possible negative contribution		= strongest possible negative contribution

= No contribution

Expected winners and losers: where the contribution is spent directly on the development (rather than going towards general infrastructure funding)

Group	Winners / losers	Comment
Large scale freight and commercial traffic		Impacts will depend on what infrastructure is developed, and what the economic impact of a levy turns out to be. But commercial traffic to the development should be assisted.
Small businesses		Only small businesses in the new development are likely to benefit.
High income car-users		Those associated with the development may benefit.
Low income car-users with poor access to public transport		Only those using the new development will benefit.
All existing public transport users		Only those using the new development will benefit.
People living adjacent to the area targeted	/	Those in the surrounding area should benefit from the additional infrastructure, and the avoidance of congestion arising from the new development.  However, care is needed to avoid the infrastructure intruding into the surrounding environment.
Cyclists including children		Only those using the new development will benefit.
People at higher risk of health problems exacerbated by poor air quality		Unless traffic levels increase significantly as a result of the new development, the effect should be neutral.
People making high value, important journeys		Those associated with the development will benefit.
The average car user		Those associated with the development will benefit.

	= weakest possible benefit,		= strongest benefit
	= weakest possible disbenefet,		= strongest possible disbenefit

= neither wins nor loses

Barriers to Implementation

Barrier	Scale	Comment
Legal		Legislation is usually required to permit the imposition of a contribution, and may limit the scope for such contributions.
Finance		Collecting a contribution will involve cost.
Governance	/?	If cities consider themselves to be in competition, this may result in sub-optimal outcomes. Cooperation between cities would require negotiation.
Political acceptability	/?	There can be perceptions that a levy will reduce competitiveness of an area.
Public and stakeholder acceptability	/?	There can be perceptions that a levy will reduce competitiveness of an area. There may also be a fear that contributions from developers will lead to prioritisation for development offering income even if it involves social or environmental dis-benefit. Conversely the public might consider a contribution from developers to be fair if it meets the cost of providing for access.
Technical feasibility		None.

= minimal barrier,

= most significant barrier