Mind the Gap (in DCPs)

Probably not surprising, but this week it has been brought to my attention that Council’s with Development Contributions Plans (DCPs) will experience, on average, a 20 percent gap of levy income each year due to the land and construction cost escalations that occur. This can result in tens of millions of dollars shortfall for Councils in their ability to deliver what is committed in their DCPs.

There is some excellent work going on in this space with Councils by one of my Associates, Malcolm Lewis from LG Consulting Group.

Malcolm (with Councils inputs) has identified the pain points that Councils experience in this space, particularly for the Finance professionals who need to manage the budgets for Councils. Malcolm identifies the pain points to be:

1.       Cashflow including strategies to address DCP funding gaps.

2.       DCP financial reporting and accounting treatment

3.       IT systems

4.       Policies and Procedures.

The impact of these pain points, according to Malcolm “means that many Councils are currently unable to include emerging DCP transactions to their four year budgets or their 10 year Financial Plan documents.”

Once the DCP is in place the controlling, administering and reporting response is equally important to the actual development of the DCP.

Malcolm is delivering on a number of initiatives to assist Councils in this space including:

1.       The delivery of bespoke training for finance professionals in administering and reporting on DCP financials.

2.       Providing a customised financial plan

3.       Setting up a Finance Support Group and accountment treatment sub-group

4.       Metropolitan Councils DCP group.

Malcolm recognises the need for advocacy to State Government and Funding to develop tools and techniques to support the financial management and reporting of DCP transactions.

This however raises for me the question of whether it is worth Councils developing DCPs?

For Rural Councils in Victoria, the cost to prepare the DCP and embed it in their Planning Scheme is cost prohibitive for the level of the development that is occurring, therefore not a real option to raise income for the costly demand for infrastructure.

The DCP system of development and administration has become very complex and costly for Councils. There is a need for a review of the system and a more simpler mechanism for Councils to collect contributions from development. Councils need to call on the State Government to seek how this can be addressed, sooner rather than later.