Sharing the Cost of our Coastal Infrastructure

By Jon Hickman, Chair of the Victorian Coastal Council 

Our parks and public places, our heritage buildings, and our coast and harbours make as much of a contribution to liveability in Australia as our roads, public transport, communications and other utility infrastructure. But while principles behind good financing arrangements for ‘hard’ and ‘natural’ infrastructure are the same, there has been little discussion to date around how to finance the protection and enhancement of our natural and heritage infrastructure – in particular our parks and our coast.

With transport improvements there are immediate beneficiaries who will enjoy faster, easier journeys in addition to local beneficiaries whose property prices and amenity will be enhanced.  There are also benefits for the broader community, for example, through a reduction in pollution. Good public finance would have all beneficiaries paying a fair share of the cost of such improvements, On the coast a particular engineering intervention might protect private land from the impact of sea level rise, protect local streets and parks for the local community and beaches and the coastal environment used by the broader community.  The same principle of good public finance should apply.

The challenges are to identify the share of capital and operating costs to be allocated to the various beneficiaries and to design appropriate mechanisms to collect the beneficiaries’ contributions then distribute these to infrastructure operators and their financiers.

Direct user charges will often not cover the cost of operating and financing ‘soft’ infrastructure designed to protect and enhance environmental assets that provide benefits for the broader community.  Traditionally it has been the role of government to fill this funding gap, but this is becoming more difficult as our population ages and the community is unwilling to pay higher rates of tax. There is both historic and emerging evidence that communities are prepared to pay to finance specific infrastructure that they value.

One option for closing funding gaps in relation to infrastructure projects is the imposition of a broader range of ‘beneficiary pays’ arrangements. Winning community acceptance of this approach will require robust approaches to identifying the ‘value’ of benefits, the community of beneficiaries, and the basis for allocating the ‘value’ across the ‘community’ and finally implementing mechanisms for collecting revenue from the range of identified beneficiaries.

Valuing the benefits is not a complex task. This should be a routine part of the cost-benefit analysis that underpins any decision to proceed with a project. Identifying the community of beneficiaries and allocating benefits of a project across that community is a conceptually easy (but potentially politically complex) task. Yet distribution analysis is not a new art and the expertise exists to both undertake a valid distribution analysis and engage with the community throughout that process, including sharing the findings of that analysis. A practical and equitable approach to collecting revenue from beneficiaries would be to make greater use of property values. Property values could be used as a basis for collecting a special rate or charges for properties that receive an immediate or local benefit and for distributing the value of broader benefits across the broader community.

This is an extract from a paper prepared for the Australia-Davos Conference on Infrastructure.

Download the full paper here –  Funding Coastal Infrastructure