The Infrastructure Funding and Financing Act 2020
The Infrastructure Funding and Financing Act 2020 (the Act) provides a new way to fund and finance infrastructure projects that support housing and urban development. Te Tūāpapa Kura Kāinga – Ministry of Housing and Urban Development (HUD) is responsible for administering the Act and also has the roles of recommender and monitor under the Act.
About the Act
The Act introduced a new funding and financing model for the provision of new and upgraded infrastructure for housing and urban development. The Act enables infrastructure projects to be delivered free of local authorities’ financing constraints or from charging high upfront costs to developers.
Aotearoa New Zealand’s cities are growing quickly, with housing supply and associated infrastructure often not keeping up with demand. Councils are responsible for delivering infrastructure such as water and roading, but have maximum levels of debt that they’re allowed to take on. These borrowing constraints can lead to postponements in investment in viable infrastructure projects, including the infrastructure needed for new housing developments.
Special Purpose Vehicles
The new model enables special purpose vehicles (SPVs) to fund infrastructure projects that support housing and urban development. SPVs will repay any finance raised by charging a levy to those who benefit from the infrastructure (for example, landowners in the area serviced by the new infrastructure).
SPVs can also be responsible for the construction of the infrastructure and the Act provides them with a number of powers to facilitate this. However, in most cases SPVs will just be responsible for funding and financing the infrastructure, and another party (e.g. a local council) will be responsible for construction.
If an SPV is responsible for construction, ownership and responsibility for the ongoing maintenance and operation of the infrastructure will be transferred to the responsible council or infrastructure provider upon completion.
Those benefitting from the new or upgraded infrastructure (e.g. landowners in the area serviced by the new infrastructure) will be charged a levy by the SPV. These levies are charged annually for a specified amount of time (up to a maximum of 50 years), until the SPV’s financing is repaid. Councils collect the levies from affected property owners and pass them on to the SPV.
Levies are included on a property’s land and information memorandum (LIM) and any levy amounts owing are included in rates assessments and invoices sent out by local councils.
It’s unlikely that levies will meet the total cost of a project. Additional funding will likely be required from other parties such as councils, developers or the Crown.
Cost of raising finance
The maximum levy revenue will always be higher than the amount of funding raised for a project. Funding raised through the Act’s model is usually capital from the private market. To be able to borrow capital, lenders require that interest is paid on the amount borrowed. Interest payments are the price of debt financing. Like a mortgage, the larger the capital and the longer the repayment term, the greater the total amount of interest accrues to the principal amount borrowed.
What infrastructure is covered
The Act can be used for the funding and financing of the following types of infrastructure:
- three waters infrastructure such as water supply, sewerage, sewage treatment, or stormwater drainage
- transport infrastructure such as roads, cycleways, rapid transport, rail, walkways, ferries and associated infrastructure
- community facilities such as reserves
- environmental infrastructure that manages risks from natural hazards, including mitigating or avoiding those hazards and environmental restoration.
The Act creates a monitoring, reporting and disclosure regime to make sure SPVs act appropriately. This includes ongoing reporting requirements for SPVs, such as publishing an annual report every levy year.
HUD has been appointed the monitor under the Act, which means if there’s a significant problem with an SPV it can inquire and direct an SPV.
How levies are authorised
Levies can only be charged if they have been authorised by an Order in Council made on a case-by-case basis. Orders in Council are approved by Cabinet, after a recommendation by the Minister of Housing .
In its role as recommender, HUD has to provide advice about levy proposals to the Minister and recommend whether to approve them.
Proposing a project
Anyone can propose that an infrastructure project is funded using the SPV model, including local councils, iwi, or private developers.
Project proposers can either develop proposals themselves and submit them directly to HUD (in its recommender role), or work with Crown Infrastructure Partners (CIP). CIP acts in a facilitation role, assessing the feasibility of potential projects and assisting levy proposers to develop levy proposals. CIP will also use its commercial expertise to assist with structuring and raising finance for projects. We encourage you to talk to HUD or CIP if you are thinking of proposing using the model.
Information and links about levy orders made under the Infrastructure Funding and Finance Act 2020 are published on this page.
Crown Infrastructure Partners
Crown Infrastructure Partners (CIP’s) role is to work with central government, local government, developers and land owners to assess the feasibility of an IFF transaction and advance the transaction through the process (including raising of finance). For further information on using the Act, please visit Crown Infrastructure Partners website.(external link)