Making CIL Work for You. Funding Infrastructure through Development

CILknowldge.com

A Strategic Guide to Community Infrastructure Levy

Making the Case for CIL

Strategic Infrastructure Planning

Balancing Viability

Engaging those at the sharp end

Examination Survival Guide

Implementing CIL

01 02 03 04 05 06

Inside

Leading CIL CIL helps fairly and fully fund the infrastructure our towns, cities and rural areas so badly need to enable enterprise to prosper and public services to perform. From our work with public and private sector leaders we’ve learned that, as with any fundamental change, CIL can’t be set up through a single person trying to provide all the answers nor can it be delivered just through mechanistic viability assessment. CIL is a strategic policy shift that benefits from strategic leadership from the start. To achieve the best results from CIL start from the foundations of sound infrastructure planning. Balance your attention between the technical requirements and a clear focus on the strategic outcomes. And use CIL as a mechanism to bring together organisations and people at the sharp end of development and service management to deliver great places. Inside we bring together learning and ideas designed to help you make CIL not just another tax to be administered or planning policy to be applied, but rather to make CIL a core component of your strategy to transform your area.

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Making the Case for CIL

Every day without CIL potentially means lost contributions towards much needed infrastructure.

As with any change there needs to be a genuine case for adopting CIL within your organisation. We believe the follow underlying principles make the case compelling:

1. Successful places need infrastructure – it’s common sense but also backed up by 70% of business leaders citing the quality of infrastructure as an economic priority.

2. All those benefiting from Infrastructure should make a fair contribution - Underinvestment and a difficult economic climate makes infrastructure financing challenging. CIL secures contributions from each development large or small, all of which will benefit in turn from excellent local infrastructure. –

3. A clear charging schedule will encourage development – CIL limits developers exposure to hidden financial risks in the planning process

4. Consistency of charging will speed up the planning processes –reducing protracted negotiations save time and money for developers and the charging authority.

Use these logical benefits alongside an initial analysis of potential income, cost savings, options appraisal and outline risk assessment to make the case and ensure the right level of corporate buy in. The right level of corporate commitment is vital to underpin the strategic and tactical decisions you will need to take during the set up process.

Critical Success Factors • Make the business case

early • Make sure CIL is

understood and managed as a Corporate priority

• Pre-planning will save time in the long term

Once the case is made… The next step is setting the right CIL charging level. You’ll need: 1. A robust spatial development plan adopted that sets out the anticipated quantum of

development in your area. 2. A costed infrastructure delivery programme – we cover this in section 2. 3. A strategic understanding of development viability and the impact of CIL as a cost in the

development process – we cover this in section 3.

01

Establishing a list of eligible Items Your Infrastructure Programme allows you to establish the overall cost of necessary infrastructure and the funding gap you aim to fill. The CIL mechanism allows for the fact that each area’s infrastructure priorities will change over time, but it’s important that only eligible infrastructure items are included in your initial programme as that is the basis for setting the CIL level. Furthermore, it will be important not to include infrastructure items that relate to making a site serviceable (e.g. connections to utilities networks, internal roads and items such as play space used only by future occupants of the site), as developers will pay for those through the normal process of development. Follow this decision tree to establish a list of eligible items, understand costs vs funding and set you overall CIL funding target.

02 Strategic Infrastructure Planning Proactive infrastructure planning is the foundation for strategic planning in your area. Each area’s infrastructure plan needs to establish the type and quantum of infrastructure needed to support local sustainable development. It is a mandatory requirement of the planning process to have an infrastructure delivery plan (IDP), so that document can form the starting point for CIL. However, sound infrastructure planning is more than gathering a shopping list of desired items. We believe good infrastructure planning is about building strategic partnerships with and between service providers; understanding funding and the most effective delivery mechanisms; estimating the demand arising from your future population and not just planning to meet it, but also manage demand for scarce resources. We’ve learned that organisations that prioritise the pro-active programming and coordination of infrastructure projects succeed in terms of cost savings, securing the necessary resources and delivering on time.

Critical Success Factors • Engage service providers early, regularly and

collectively • Don’t underestimate the value of robust infrastructure

programming & coordination – it’s a multi million pound portfolio

• Don’t speculate excessively on future funding • Define eligible infrastructure

Estimating the Cost of Eligible Infrastructure A credible overall programme funding target relies on credible cost estimates for each individual infrastructure item, so there is little benefit in cutting corners and risking over optimistic cost estimates. Programming Known & Expected Costs By definition predicting future funding beyond the short term is an inexact science. There are multiple ingredients in the funding pie for any infrastructure programme. It’s best to avoid excessive speculation, focusing instead on existing funding and relatively regular income streams where there are reasonable assurances of receiving the money i.e. Government grants. Income projections are part of the normal budget planning work in corporate finance teams so they are best placed to take the lead.

The infrastructure funding pie

03 Balancing Viability

Why test viability?  CIL is about funding infrastructure necessary to facilitate sustainable development, enabling enterprise to prosper and good public service standards to be achieved. Setting CIL at too high a level will have a counterproductive impact on the local economy. Keeping it strategic Each charging authority must show how they have struck “an appropriate balance between the desirability of funding infrastructure from CIL and the potential effects of the imposition of CIL on the economic viability of development across their area”. Take a strategic view of CIL’s impacts in terms of the benefits of infrastructure and the scale of the threat to development viability. Focus your energy and resources on strategic analysis rather than the viability of specific sites.

Preparing the evidence base on viability  Government guidance emphasises the use of ‘appropriate available evidence’. That’s not particularly clear but applying a common sense approach we suggest that means getting the most out of your local data, market reports, local agents and published national data sources is the best starting point, as long as it is up to date and relevant. In addition to the generalised information charging authorities may wish to sample a few sites across its area to supplement existing data, but experience tells us the focus must remain strategic. CIL Regulations indicate that proposed CIL rate (or rates) should appear reasonable given the available evidence, but there is no requirement for a proposed rate to exactly mirror the evidence.

Critical Successes Factors • Keep it strategic – spend time weighing up the overall costs

and benefits not trying and get valuations for every site • Take a balanced view of viability: residual valuations are just

one factor influencing a developers decision making – the same should go for Local Authorities

• There is a certain elegance with a single charge: but don’t be lead by that

• Make use of scenarios • Don’t set CIL at the limits of viability: things change

The CIL charging level should be set in acknowledgement of the overall cost & benefits of using CIL to delivery the required infrastructure. Depending on local needs there may be multiple social, economic and environmental benefits of infrastructure including providing sufficient school places and sustainable modes of transport. That will have to be weighed up against the impact of CIL on the local development market. Some marginal sites could become unviable if CIL is introduced, but it is the impact on the property market as a whole, which needs to be the focus on your judgements.

The traditional residual land valuation technique follows a sound principle that the value of the land must be more than the existing use value otherwise there is no incentive to sell the land and develop. Without the financial incentive development is deemed unviable. Although widely used the methodology is simplistic and in reality a developer makes risk-based judgements that are more sensitive to potential fluctuations in the cost of borrowing, sales prices or site-specific conditions than CIL. Residual valuations have become common place in area wide viability assessments using notional sites, but the same logic applied by developers needs to apply at a area-wide level: residual valuations are best used a one of several inputs to inform strategic judgements.

Strategic balancing of viability

Site-based method of testing viability

Viability: Strategic vs Site-based Analysis

04 Engaging those at the sharp end Like any good change process, make your case to build understanding and delegate to build responsibility. Corporate Positioning: more than planning The impact of CIL goes beyond the planning department. CIL will impact on local places and service quality objectives. CIL collection, enforcement, expenditure and reporting will require input from a range of organisations and departments: build from a solid foundation of shared understanding. Why not issue clear, concise briefings to internal stakeholders and delegate ownership of project activities to those best places to deliver them over the long term? Bringing Service Providers Together Efficient and effective working relationships with the various service providers are critical to infrastructure planning. No matter what stage of maturity you relationships are at, use CIL to as a lever to reinforce partnership approach to planning, delivering and driving efficiencies through your infrastructure and asset management. Engaging Communities CIL is a local tax to be spent on local priorities. You’ll need to work with your local resident and business communities to establish the balance of spend between strategic infrastructure priorities such as transport networks, and local priorities such as parks. Use the Neighbourhood Planning process to proactively inform these decisions.

Engaging Liable Parties: they are transforming your neighbourhoods  CIL’s contribution to investing in infrastructure, the local economic benefits and the increased certainty for the development industry is potential great for the local development market. Handled badly, the upheaval around a new tax could set back development activity and negatively impact the reputation of the charging authority for years to come. Consequently the communications needs to be well orchestrated. As well as complying with the statutory consultation requirements we suggest building on existing relationships with local developers and agents as they are the organisations that will deliver most development in your area. Why not manage this and other suggestions through a short communications plan to ensure good forward planning?

Critical Success Factors • Developers can deliver a large part of your vision: work with them • Involving Elected Members is crucial: CIL is not simply mechanistic, there

are strategic and tactical decision which need to be led by democratically elected officials

• Inform and delegate to build corporate ownership

Surviving the Examination 05 Your CIL charging schedule will need to be independently examined through a public hearing. CLG guidance states that the key considerations for the CIL examiner are that: • The Charging Authority has complied with the legal acts & regulations; • The CIL rate is informed by appropriate available evidence; • The Charging Authority has struck an appropriate balance between infrastructure costs,

funding sources and potential impact on economic viability of development;

In other words, the proposed CIL rate must not put at serious risk the overall development of the area. So learning from experience at planning inquiries, if you’ve applied clear logic when interpreting the evidence and kept judgements at a strategic level the examination needn’t be anything to worry about. A charging authority needs to pay for the examination costs, but as with all the preparatory work for the charging schedule those costs can be recovered from future CIL income.

Critical Success Factors

• You’ve done your homework so there’s nothing to worry about... right? • Use the same programme officer from your Core Strategy – saves on admin so you

Indicative Delivery Programme including consultation

06 Implementing CIL

CIL is all about translating a vision into reality

Avoid Surprises Successful change leaders we’ve worked with always recognise the importance of the early foundation they set. The introduction of CIL shouldn’t be a surprise to if you’ve communicated well during the early phases. The cycle of the consultation, formal examination and internal approval cycles mean you are unlikely to need a phased implementation as developers should already have begun to factor CIL into their costs. Getting the Admin Right Use CIL as an opportunity to streamline your business processes. How will you efficiently and effectively manage collection, instalments, and enforcement? These are all important administrative matters that have strategic implications for development. Review these early in the preparation process and establish sound templates such as Charging Agreements to allow your staff resources to be focused on Build on the Principle of Transparency CIL’s up front charge is designed to reduce confusion and delay for all parties. Make this a tenet of every part of CIL . For example how a Charging Authority seeks to manage in kind contributions (such as land or facilities within mixed use development) is best set out in your Charging Schedule to avoid confusion and delay. Redefining Planning Obligations Planning obligations or Section 106 agreements will exist alongside CIL to manage site specific matters. They will relate to the three tests now enshrined in law: You’ll need to update any Supplementary Planning Guidance to simply and clearly explain the relationships between CIL and planning obligations to avoid unnecessary complications and double charging. Monitoring & Reporting Monitoring the delivery of your infrastructure items is all part of a strategic approach to programme management – don’t underestimate the value of strategic programming. Why not align public reporting on progress with your statutory Annual Monitoring Report (AMR) – that will give your AMR a strategic focus on delivering change as much as the effectiveness of policy.

Critical Success Factors • Prepare early: create an implementation plan to

make the change stick • If you’ve involved all the right people you’ve built

their ownership, don’t let those relationships wither • Use transparent procedural documents & templates

for consistency & efficiency

One more thing… A survey of Local Authorities conducted in April 2011 about CIL suggested that it is going to be widely adopted, with almost 70% of authorities targeting 2011 for creation and implementation a CIL charging schedule. If you don’t have CIL in place and your neighbours do, developers may choose to work where they have the increased cost certainty that CIL brings. So, don’t waste time… Whatever stage of preparation you have reached we can help you deliver and implement a robust, effective and attractive CIL charging schedule that will bring substantial impetus to your infrastructure ambitions. For further information your initial contact points are:

e: jamie.ounan@cilknowldge.com t: 07989 420493 e: chris.twigg@cilknowledge.com t: 07775 510641 Follow @CILknowledge on twitter for more tips

 

Contact Us

CILknowledge.com is a partnership between House and Inner Circle Consulting. Between us we have over 20 years of experience working with senior managers to deliver infrastructure programmes and strategic planning policy. For further information your initial contact points are:

e: jamie.ounan@cilknowldge.com t: 07989 420493 e: chris.twigg@cilknowledge.com t: 07775 510641 Follow @CILknowledge on twitter for more tips