11 MODEL 5 - INNOVATIVE
Synopsis
11.1 Innovative approaches could take various forms. In the context of this Study we have included the following mechanisms for the purposes of the consultation with stakeholders:
- Tax Increment Financing (" TIF") involves an upfront fund committed by the public sector and this is reimbursed later through a "top skim" from the non-domestic business rate payments from new occupiers moving into the prescribed TIF defined area;
- The Charge on Land model might include the local authority taking the lead on committing to infrastructure, but only on the basis of a land equalisation agreement where each owner is equitably charged on a formulaic basis such as a per plot basis to cover the upfront infrastructure;
- The Local Asset Backed Vehicle ( LABV) approach plays in the importance of some land or other initiative/incentive where the local authority can back the joint venture vehicle. LABV invests in the asset over medium/longer term, with the potential to cross fund assets in addition to other funding mechanisms through a joint venture vehicle.
11.2 Although the Study Team had indicated that the Innovative Model was worthy of testing through the stakeholder consultation process, on the same basis as the other four potential models, early feedback from the Research Advisory Group viewed model 5 as being "financing tools" rather than applied models. However, the respondents all gave their support for further work on the various methods of financing and felt that these are useful easements which can help to address the sharing of mutual risk across both private and public sector. Some of the key views are assessed below.
Stakeholder Views
11.3 These can be summarised as:
11.4Tax Increment Financing ( TIF): most consultees were supportive of the principle of the TIF Pilot Initiative in Scotland. However, a significant number raised questions about its applicability as a more universally used development charge model. Those who had knowledge of the TIF mechanism stated that the Scottish Government's preference to apply this to commercial floorspace (business rates) means that it will not be able to assist in funding infrastructure where large scale residential development is proposed. Some stakeholders queried the potential to extend the TIF approach to domestic council tax returns for residential expansions. Other innovations mentioned included a ring-fencing of stamp duty land tax.
11.5Charge on Land: considered by few stakeholders to date and so few comments received. Those that had considered it felt favourable towards its wider usage. GVA has consulted internally on this approach, with a specialist consulting and delivery team in-house. The financing specialists have explored this charge over land model in more detail recently and support its use where a small number of landowners can be encouraged to pool their ownerships into a title agreement which charges a pay-back across all plots which will benefit from a forward-financed infrastructure input which in turn is the key to unlock the land. This model relies upon a collaborative approach and in GVA's view there needs to be a clear sharing of the risks across mutual parties.
11.6Local Asset Backed Vehicles: felt by many to be more appropriate to a more buoyant property market where an equity stake based on assets with a higher base value would be more attractive to the public sector in initiating a joint venture agreement. Few commentators felt it was worthy of significant consideration in the current economic context.
11.7 For the planning system, consultees felt a key opportunity from the innovative solutions is the call to landowner consortia to adopt a sequential options route, where the first call is always for self-obligation over land, supported by private development obligations. This is an opportunity for various joint venture, asset backed, charge over land vehicles to be pre-packaged and brought to the planning process for a simple endorsement in a capping-off agreement under Section 75 of the Act 10.
11.8 If this is taken up in future larger land allocations, in the view of the Study Team it will lessen the burden on the planning system to always be left as the final stage broker and will maximise opportunities for land and development interests to be the first stage facilitator of their own solution through a unilateral agreement, as encouraged by the 2011 Annex to Circular 1/10.
11.9 However, the Study Team believe it is clear that the above will always benefit from the kind of infrastructure costing and tariffing audit (as envisaged in the measured charges model) as a reference point for defining the relationship, scale and kind and reasonableness tests which are prompted in Circular 1/10.