A development charge also known as an impact fee or developer contribution, Capital Contribution, Engineering Service Contribution, Bulk Infrastructure Contribution Levy, or an Impact Fee (internationally), is a charge that a municipality imposes on the developer of a new development project to pay for all or a portion of the costs to the public sector of providing public infrastructure to the new development. Development charges are generally used to help offset fiscal burdens related to municipal provision of infrastructure such as sewer and wastewater treatment systems, road networks, public school systems and parks. Development charges are calculated by assessing the costs that the development would impose on the current municipal infrastructure network and what additional capacity or infrastructure would be required to ensure that the new development is adequately serviced. The calculation methodologies for these fees tend to differ across jurisdictions and can be charged on an actual cost basis, an imputed/notional cost basis, or as a flat fee. The treatment of costs related to different types of municipal service infrastructure may also differ. The fee is often able to be paid either in kind or in cash
Currently, municipalities across South Africa are also able to require the payment of this once-off Developer Charge fee. DCs are levied in terms of provision set in national and provincial legislative frameworks such as the Local Government: Municipal Systems Act, the Spatial Planning and Land Use Management Act 16 of 2013 (SPLUMA), Municipal Financial Management Act (MFMA) and different Provincial Land Use Planning legislative frameworks for the different provinces in the country. In Cape Town for example, DC is levied in terms of section 100 of the Cape Town Planning By-Law. Section 100 on conditions of approval makes provision for the possibility of the city to impose reasonable conditions which arise from the proposed use of land. This implies condition limited to cost recovery and or mitigating the impact of the proposed use on the general environment and existing soft and hard infrastructure. The term soft infrastructure refers to institutions and basic technology services that are essential for the proposed use of land and overall quality of life and hard infrastructure refers to physical things that are essential for the proposed use of land and quality of life. Therefore, the DC is meant to recover the actual cost of external infrastructure required to accommodate the additional impact of a new development on engineering services. In theory the fee is calculated on a pro rata basis according to the total cost of the infrastructure and the amount of services that will be provided to the development. Since these land value increments are unearned (the property owners did nothing to generate them), it might be fair and efficient to claim an even larger share than the cost of the project for the public.
The developer charges instrument is currently insufficiently mainstreamed by various municipalities across the country. There has been growing criticisms and concerns about the failure to recoup the value equivalent to the costs incurred by the public sector on their capital investment. This is partly due to the municipal desire to reduce the risk of litigation by developers, who might claim they are being charged multiple times for the same infrastructure or endowments. National Treasury introduced a Draft Policy Framework for Municipal Development Charges in 2011 and this was followed by the drafting of the legislation currently known as the Draft Municipal Fiscal Powers and Functions Amendment Bill, which is currently going through parliamentary processes.
The Draft Bill intends to (among other things):
- regulate the power of municipalities to levy development charges
- to set out the permissible uses of income from development charges
- to provide for the basis of calculation of development charges
- to provide for municipal development charges policies, community participation and by-laws;
- to provide for engineering services agreements
- to provide for the installation of external engineering services by land owners instead of payment of development charges
- to provide for the consequences of non-provision of infrastructure by a municipality
- to regulate reductions to the obligation to pay development charges through subsidies
- to provide for matters relating to the budgeting of and accounting for development charges
- to establish an entitlement on the part of municipalities to withhold other approvals or clearances due to non-payment of development charges
- to provide for dispute resolution, delegations and financial misconduct
- to provide for transitional provisions relating to development charges
- to empower the Minister to make regulations for the effective implementation of matters relating to development charges.