City Deals: A new approach for local infrastructure 2015 National Local Government Infrastructure and asset management conference 15/05/2015

City Deals: A new approach for local infrastructure

2015 National Local Government Infrastructure and asset management conference

15/05/2015

2© 2015 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

KPMG and the KPMG logo are registered trademarks of KPMG International.

Overview

Introduction

UK City Deals

Manchester Experience & Relevance to Local

Governments/ Regions in Australia

Lessons for Local Governments in Australia

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Introduction

© 2014 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.


Infrastructure and Productivity

The efficient delivery of both economic and social infrastructure have fundamental productivity implications. These implications vary across :

1. The capacity to unlock new opportunities to deliver new products and services.

2. The capacity to more efficiently deliver existing products and services through:

1. Agglomeration benefits that bring people, employment and supply chains closer together; and

2. Improvements in human capital through the provision of the right mix of infrastructure in the right location with the optimal supporting mix of social infrastructure.

1

a

2

b



Role of Local Governments in Australia

Local government sector in Australia are creatures of statute

Local government plans, develops and maintains key infrastructure for its communities

Includes local roads, bridges, footpaths, regional aerodromes, water and sewerage (in select instances), drainage, waste disposal, public buildings, parks, local libraries and community facilities, and other recreational facilities

Local government plays a critical role in enhancing regional economic development



Challenges facing Australian Local Governments

Key challenges faced by local governments

Planning for economic development and infrastructure provision – supply of sufficient qualified planners

Alignment of local and regional strategic planning for infrastructure – including prioritisation

Funding and financing and ability to adopt alternative financing mechanisms including the impact of legislative powers

Asset maintenance – cost and responsibility between stakeholders

Implications – the ‘Right’ infrastructure not delivered on time and/ or not appropriately maintained, in turn limiting the economic, social and environmental opportunities available to the local community

UK City Deal:The Manchester Experience



How did UK city regions respond to similar challenges

Certain UK city regions, led by Greater Manchester, are working collaboratively to maximise local infrastructure funding, and utilising agreements with higher levels of government to leverage the additional taxation generated for infrastructure investment

The UK Model has a number of key components:

- Pooling of financial resources

- Strict prioritisation of a programme to be delivered by the Fund on the basis of maximum net impact on the real economy

- Headline economic objectives balanced with wider environmental, distributional, and social criteria at the programme level

- Deals between different layers of government around transparent long term budgets and on ‘Earn-back’



Key Features of the Greater Manchester Approach

Focus on net impact on GVA at the regional level – no project gets credit for transferring output from one part of region to another

Programme minima – includes better than average improvement in accessibility to employment for the bottom 25% and a net saving in CO2 emissions

Metrics agreed in advance – net impact on GVA and programme minima agreed before prioritisation

Independent prioritisation – prioritisation was then independent and challenges to prioritisation approach quickly withdrawn, as effectively arguing for less jobs

End game was scale of local self help – ensuring to go as far down the prioritised list as possible. Leaders with projects low on the list therefore advocates of the maximum amount of self help

Earn back formula important to create a rolling investment programme



The Next ‘City Deals’

• Other city regions that have signed or in the process of signing a city deal include:

• Leeds City Region;

• Greater Cambridge;

• Sheffield City Region; and

• Glasgow.

• Other cities, most notably Greater Birmingham, are putting themselves in a position to follow by undertaking real economy prioritisations of programmes that are far larger than would be deliverable through their devolved budgets.

Mechanics of the City Deals



Three Pillars of the Model

Establishing Governance and Metrics

Program agreed based on performance of projects against

key metrics

Establishing Funding

ParametersAgreeing baseline budgets,

payment by results and “self help”

Real Economy Prioritisation

Prioritising projects by their impact on increasing jobs

and economic output




Governance• Effective Governance is key to negotiating and

committing to the terms of the other two pillars

• Greater Manchester established a statutory combined authority (GMCA) accountable to the leaders of the ten local governments

• Additional entities that facilitate delivery include:

• Transport for Greater Manchester (Committee);

• Business Leaders Council;

• Local Enterprise Partnership; and

• Local Transport Body for Greater Manchester

Issues for Local Government/ Regions consideration

• What are the similarities between the Manchester model of collaboration and your region?

• What are the existing structures and arrangements that could be leveraged in the region?





Metrics Lead metric as principal way of ranking

schemes (GVA/ GRP but with jobs numbers articulated too) per £ of net cost over whole life

Program minima to deliver balance at program level:

Net CO2 reduction

Improvement in lower socio-economic/ dis-advantaged communities

Upfront agreement to the metrics is a key part of creating the funding coalition.


How do these metrics align with the current method of infrastructure prioritisation at the local/ state level?

How are cross authority infrastructure investments currently framed/ coordinated?

Is there appetite for social and environmental program minima to support infrastructure investment decision making?




Real Economy Prioritisation

Program Prioritisation

Projects prioritised by an independent party

Appropriate metric definition at the outset prevents re-prioritisation once the list is known

A real economy lead metric is critical as it makes arguments against the list challenging as it would mean arguing for a sub-optimal jobs and growth outcome

Maximisation of GVA at large geography – as a prioritisation technique to maximise the net impact on growth that a city can make

Effective program minima have proven critical to holding stakeholders together


How are local infrastructure frameworks prioritised?

To what extent are longer term infrastructure frameworks adhered to?

What are the prioritisation tools that are currently being applied/ considered for prioritising infrastructure investment?

What is the appetite across relevant stakeholders for a quantitative prioritisation process? What are the drivers of this appetite?


Real Econom

y Prioritisa

tion



Establishing Funding Parameters

Baseline Budget• A commitment by central government on what a

city/ region would get in the absence of any self/ help or contribution

• The first step toward reform at the central government level

• The allocated level of baseline budget was commensurate with historical funding levels

• Provided certainty around future funding streams


Is the commitment of a long term regional baseline budget a realistic prospect in the (your) State?

What are the supporting/ inhibiting considerations?


Establishing

Funding Paramet

ers

Real Econom

y Prioritisa

tion




Self-Help

Additional locally sourced funding over and above standard budget allocation. Includes: Revenues; Tolls; Value capture; Levies; Developer contributions; and Any dedicated local taxes.

Involves the lower tier of government making difficult decisions to add to the total investment result

Increased the GM 10 year investment program by a factor of at least seven.

Divided amongst 10 local governments on a population pro-rata basis

Level of self-help determines how far down the prioritisation list the programme goes


What are the ‘self-help’ investment levers for which there would be in-principle local government support in your region?

Which ‘self-help’ investment levers would present greater challenges?

What would be the challenges in establishing a consistent self-help arrangement across your region?


Establishing

Funding Paramet

ers

Real Econom

y Prioritisa

tion




Payment by Results (Earn-Back)• A city is rewarded for its self help as (and when)

it delivers additional growth

• Local self help contribution is returned as further investment and economic growth, so long as the initial investment delivers what is promised

• Supports the incentive created by the initial move to baseline budgets and real economy prioritisation

• Ensures the City receives its fair share of the fiscal benefits that it has provided the extra capital to create

• Payment by results when combined with a fixed budget ensures a central government commitment to local infrastructure delivery, rather than leaving a greater portion of local infrastructure investment to the local tier

Have similar mechanisms been tested/ discussed with the State previously?

What would be the scope of taxation that could realistically be drawn upon in a two-tier deal between the State and Local Government?


Establishing

Funding Paramet

ers

Real Econom

y Prioritisa

tion

What does it mean?



Implications for Local Governments in Australia

• A UK City Deal type approach to infrastructure planning, prioritisation and funding has the potential to address some of the economic development and infrastructure challenges facing local communities

• City Deal approach necessitates strong governance and implementation framework

• Strong stakeholder buy-in is also critical

• City Deal approach may not be beneficial for small/ individual LGAs

• City Regions who come together and form a strong governance framework may be able to ‘operationalise’ the model

• ‘Self-help’ must be undertaken in an equitable manner

• ‘Self-help’ is critical to prosecuting the case for ‘Earn-back’

© 2015 KPMG, an Australian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

The KPMG name, logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International Cooperative (KPMG International).

Praveen Thakur

+61 3 9288 5808

[email protected]

KPMG Contact:

mailto:[email protected]

Documents

City Deals: A new approach for local infrastructure 2015 National Local Government Infrastructure and asset management conference 15/05/2015