Asset 2015 - City deals - a new approach for local infrastructure

City Deals: A new
approach for local
infrastructure
2015 National Local Government
Infrastructure and asset
management conference
15/05/2015
Overview
1
Introduction
2
UK City Deals
3
Manchester Experience & Relevance to Local Governments/ Regions in Australia
4
Lessons for Local Governments in Australia
© 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.
1
Introduction
Infrastructure and Productivity
The efficient delivery of both economic and social infrastructure have fundamental productivity implications. These implications vary
across :
1
1.
2
2.
The capacity to unlock new opportunities to deliver new products and services.
The capacity to more efficiently deliver existing products and services through:
a
1.
b
2.
Agglomeration benefits that bring people, employment and supply chains closer together; and
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.
© 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.
KPMG and the KPMG logo are registered trademarks of KPMG International.
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
© 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.
4
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
© 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.
5
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’
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International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
7
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
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International”), a Swiss entity. All rights reserved.
KPMG and the KPMG logo are registered trademarks of KPMG International.
8
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.
© 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.
9
Mechanics of the City Deals
Three Pillars of the Model
Establishing
Governance and Metrics
Program agreed based on
performance of projects against
key metrics
Real Economy
Prioritisation
Prioritising projects by their
impact on increasing jobs
and economic output
Establishing
Funding
Parameters
Agreeing baseline budgets,
payment by results and
“self help”
© 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.
11
Establishing Governance and Metrics
Governance
Issues for Local Government/ Regions consideration
• Effective Governance is key to negotiating and committing to the terms of
the other two pillars
• What are the similarities between the Manchester model of collaboration
and your region?
• Greater Manchester established a statutory combined authority
(GMCA) accountable to the leaders of the ten local governments
• What are the existing structures and arrangements that could be
leveraged in the region?
• Additional entities that facilitate delivery include:
• Transport for Greater Manchester (Committee);
• Business Leaders Council;
• Local Enterprise Partnership; and
• Local Transport Body for Greater Manchester
Establishing
Governance and
Metrics
© 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.
12
Establishing Governance and Metrics
Issues for Local Government/ Regions consideration
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

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?
 Improvement in lower socio-economic/ disadvantaged communities
 Upfront agreement to the metrics is a key part of creating the
funding coalition.
Establishing
Governance and
Metrics
© 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.
13
Real Economy Prioritisation
Issues for Local Government/ Regions consideration
Program Prioritisation

Projects prioritised by an independent party

How are local infrastructure frameworks prioritised?

Appropriate metric definition at the outset prevents re-prioritisation
once the list is known

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?

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
Establishing
Governance and
Metrics
Real
Economy
Prioritisation
© 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.
14
Establishing Funding Parameters
Baseline Budget
Issues for Local Government/ Regions consideration
• A commitment by central government on what a city/ region would get in
the absence of any self/ help or contribution

Is the commitment of a long term regional baseline budget a realistic
prospect in the (your) State?
• The first step toward reform at the central government level

What are the supporting/ inhibiting considerations?
• The allocated level of baseline budget was commensurate with historical
funding levels
• Provided certainty around future funding streams
Establishing
Governance and
Metrics
Real
Economy
Prioritisation
© 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.
Establishing
Funding
Parameters
15
Establishing Funding Parameters
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
Issues for Local Government/ Regions consideration

What are the ‘self-help’ investment levers for which there would be inprinciple 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
Governance and
Metrics
Real
Economy
Prioritisation
© 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.
Establishing
Funding
Parameters
16
Establishing Funding Parameters
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

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?
• 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
Establishing
Governance and
Metrics
Real
Economy
Prioritisation
© 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.
Establishing
Funding
Parameters
17
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.
KPMG and the KPMG logo are registered trademarks of KPMG International.
19
KPMG Contact:
Praveen Thakur
+61 3 9288 5808
[email protected]
© 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).