What are developer contributions for headworks?
Developer contributions for water supply and sewerage headworks (headworks) are a charge on development to pay for their 'fair share' of the establishment cost of infrastructure required to service that development. These charges are generally based on the cost of the trunk sewer and water supply network divided by the total users of that network - this results in a headworks rate ($/Equivalent Population, or $/EP, for water and sewer headworks). Since the costed network consists of some existing and some future infrastructure items, this represents a user pays charge to 'buy into' the spare capacity of the existing system, and those upgrades to the system required to meet the demand from new development. It is important to note that subsidies of the system etc are not included in the infrastructure costs and that 'credits' are given to the extent of existing 'as-of-right' uses on the land being developed (i.e., not requiring a planning approval).
So if these are headworks, what are the rates for water and sewerage?
For the most part, rates for infrastructure cover ongoing operational costs, maintenance, depreciation, etc of the infrastructure (which can not be included in the headworks charges).
Despite the headworks policy described above, not all infrastructure costs are recoverable by developer contributions as some users are from 'existing' development which are not subject to the headworks policy. In these cases, rates provide a method of recovering the remaining infrastructure costs. To avoid 'double dipping' to pay for this infrastructure, new development is given 'credits' equivalent to the existing land use on the property, as noted above.
Why use developer contributions at all?
There are limitations with using a solely rates based method of funding infrastructure, particularly for alignment with landuse - infrastructure planning. For example, Council effectively has to 'borrow' funding to deliver the infrastructure first then set a rate to recover the costs over the life of that infrastructure - the standard of service is then limited to what and when Council can afford to 'borrow' rather than what population growth etc is demanding. The developer contribution system enables Local Government to require developers to pay their share of the infrastructure costs 'up front', aligning infrastructure delivery with demands from growth and easing the burden on the local council financial capacity.
These systems also provide more accountable and transparent mechanisms for allowing large developments to provide such infrastructure 'in kind' - with ongoing operation, maintenance and depreciation costs (enabling replacement at end of life) to be funded from the rate base.