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’ © 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. 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 © 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. 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).
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