The role of negotiated developer obligations in financing large public infrastructure after the economic crisis in the Netherlands

ABSTRACT

The economic crisis that started in 2009 has negatively impacted in the Netherlands the available financial resources for urban development. Dutch municipalities struggle since then with falling local financial sources, especially since active public land policy, traditionally an important additional financial source, became not so profitable anymore. One supposed effect is the limited degree to which municipalities can nowadays finance public infrastructure that serves wider areas, thus more than one specific development site (i.e. ‘large’ public infrastructure). Until now, however, there are no data available that support this claim. In this paper, we explore this and the role that developer obligations can play as an alternative, compensating financial source. Developer obligations are in many countries a growing popular public value capturing instrument, but in the Netherlands, a relative new phenomenon. On the basis of surveys, interviews and policy analysis, we conclude that at least a quarter of Dutch municipalities use developer obligations to obtain financial sources for large infrastructure. This seems, however, so far not to compensate for the diminishing of other municipal financial sources. The paper ends with some speculation about the future evolvement of developer obligations in the Netherlands.

KEYWORDS:

• Infrastructure finance
• public value capture
• developer obligations
• exactions
• planning obligations
• urban development

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Demetrio Muñoz Gielen http://orcid.org/0000-0001-6863-2336

Notes

1. Some use the term ‘neoliberalism’ to characterize this trend, e.g. Fox-Rogers and Murphy (2015).

2. There is agreement that ‘land value capture’ refers ‘not’ to the capture of value created by the efforts of the landowner himself because this value belongs to him. Land value capture refers thus first to the capture of the value created by efforts of public bodies. It could be discussed whether land value capture refers too to the capture of the value created not by public bodies but by other private parties than the owner. There is agreement too that land value capture refers to the capture of ‘land’ value increase, excluding thus the capture of the increase in value of buildings (Ingram & Hong, 2010, pp. 4–5; Smolka, 2013, pp. 8–9, 21). This paper does not elaborate on these discussions and uses the generic term ‘public value capture’ (excluding thus the term ‘land’) to include all instruments that capture all possible increases of the value of land and buildings.

3. Land-use regulation decisions are those that modify the land-use regulations to allow the new use and building possibilities. Often, these decisions precede the granting of building permit, but sometimes both take place at the same time.

4. Introduced by Section 34 of the 1932 Town and Country Planning Act.

5. See Muñoz Gielen and Tasan-Kok (2010) for a comparison of the collected contributions in privately developed land in the Netherlands, England and Spain.

6. A governmental programme of large-scale greenfield and brownfield developments that hosted most urban growth since the 1990s. Most sites were implemented through public and public–private development.

7. There is a distinction in European continental law systems between ‘public law’ or ‘administrative law’ and ‘private law’ or ‘civil law’. The first ones regulate the actions of public bodies by which they impose their actions on others, e.g. expropriation law and planning legislation. Private law regulates obligations between equal actors, no matter whether they are public or private, e.g. the Civil Code, that sets the rules by which disputes between equal actors must be resolved (Needham, 2006, pp. 24–25; Verhage, 2002, pp. 160–161).

8. Costs are ‘secured’ when there is certainty that there is, or will be, financial means available to pay them.

9. These evaluation methods presuppose that landowners bought their land for the market value of the future, more profitable building and use possibilities. This translates to the presumption that landowners already made large investments in land, even though they actually bought the land long beforehand for a much lower price. This creates an ‘artificial’ deficit, and as municipalities are not supposed to pass financial losses to the landowner, they must subsidize the costs. Thus, municipalities may be forced to subsidize the costs while landowners collect a substantial share of the land value increase.

10. We base this conclusion on regular participation in meetings of Dutch municipalities organized by the Dutch Federation of Municipalities to address this and related topics.

11. These 49 municipalities are: Aalsmeer, Albrandswaard, Barneveld, Bergen, Bodegraven-Reeuwijk, Bronckhorst, Castricum, Cranendonck, Dalfsen, Deurne, Doetinchem, Dordrecht, Dronten, Gennep, Giessenlande, Halderberge, Hellevoetsluis, Hendrik-Ido-Ambacht, Hollands-Kroon, Kampen, Katwijk, Langedijk, Lansingerland, Nederweert, Olst-Wijhe, Oud-Beijerland, Peel en Maas, Pijnakker-Nootdorp, Purmerend, Rijnwoude, Roermond, ‘s-Hertogenbosch, Schagen, Schouwen-Duiveland, Sittard-Geleen, Soest, Tilburg, Veghel, Venray, Waalre, Waddinxveen, Wageningen, West Maas en Waal, Westland, Woerden, Woudenberg, Zaltbommel, Zuidhorn and Zutphen.

12. The Structure Visions address the contributions much more briefly than the specific policy documents studied in our research, and often, they do not offer enough information to actually ask contributions to developers. Usually they need to be detailed in specific policy.

13. We regularly participate in meetings of Dutch municipalities organized by the Dutch Federation of Municipalities dedicated to this and other related topics, and in a specific working group set up by this Federation to specifically address how municipalities negotiate contributions towards large infrastructure.

14. Before the 2008 Physical Planning Act, Dutch municipalities also introduced policy documents meant for collecting contributions towards large public infrastructure. These documents were often meant for gathering contributions from the own municipal public land development companies, and only sometimes for gathering contributions from private property developers. There was at that time no clear legal framework, and because municipalities were most of the times asking contributions to themselves, there was at that time not much scrutiny to this sort of policy. It was mostly meant for internal justification and use. The 2008 Act changed the legal framework considerably and this previous practice did not provide anymore a solid reference for further policy-making.

15. The method of data gathering does not exclude the possibility that some other municipalities than the studied do also dispose of specific policy on developer obligations that allow negotiating contributions for large public infrastructure. See later the case of municipalities asking contributions towards nature and landscape infrastructure based on provincial policy.

16. In case municipalities charge directly related infrastructure only on one or two development sites, it could be discussed whether there is need for specific policy. It might be enough when municipalities share with the developer internal inventories about necessity of infrastructure, cost allocation and so on. The situation is different when municipalities charge costs on a multitute of developers. Here, there is the risk of untransparency and unequal treatment of different sites.

17. The best example of this sort of provincial policies is the Limburgs Kwaliteits Menu, of the Southern province of Limburg (Provincie Limburg, 2014; Rongen, 2017; Van der Meulen, 2017). Under this provincial policy, 23 municipalities in this province have introduced in their own local policy (a Structure vision anyhow, and sometimes also specific, more detailed policy) the possibility of asking to public, non-profit and private developers in rural areas contributions towards improvement of natural and landscape qualities located off-site, serving large areas. Of this 23, 12 are included in the mentioned survey of BVH Ruimte bv (2013) and our own research (fall 2015), but 11 are not. This means that 11 municipalities, besides the previously identified 95 (see Section 4.2.1), do also dispose of policy allowing contributions that might be characterized as large public infrastructure. These data are, however, not ‘hard’ enough because the sources do not clarify whether these municipalities do actually ask and obtain contributions towards large infrastructure:

• The contributions are often meant for other sorts of investments than large public infrastructure (e.g. demolishing houses in areas with saturated housing markets or demolishing agricultural livestock buildings). However, from 2003 till 2013, 241 small development sites in rural areas (mostly related to agricultural activities, the rest to housing, business areas, public infrastructure and facilities, etc.) agreed contributions in kind or in money towards improvement of natural and landscape qualities that could be categorized as large public infrastructure. In total, they provided 197 ha of new natural areas

• These contributions were often charged on public or non-profit developers, but sometimes also on private developers, which suggests that these practices might have some relevance for the scope of this paper.

• Similar policies have been introduced too in at least the provinces of Zeeland, Noord Brabant, Flevoland and Overijssel, but there are no available data that indicate whether they are relevant for the scope of this paper.

18. But probably a bit lower percentage, if we consider the provincial policies mentioned above.

19. These 11 municipalities are Barneveld, Doetinchem, Dordrecht, Halderberge, Hendrik-Ido-Ambacht, Lansingerland, Purmerend, Tilburg, Waddinxveen, Wageningen and Zutphen.

20. Recently, public officials of the central government are exploring together with experts the possibilities of regulating in public law contributions towards large public infrastructure that go much further than the actual scope of N-NDOs. These new N-NDOs would include some of the contributions towards large infrastructure obtained nowadays through negotiations.