Urban planning for city leaders
A clear plan of investments and transparent public expenditures increase compliance. Collection of fees and other charges is much improved when residents can see how the money collected is used and when there is a clear link with locally significant improvements. Building clear mechanisms for deciding on public investments and allowing residents’ participation have resulted in greater compliance and better understanding of the significance of charges.
Draw on the financial market Cities access to financial markets can be achieved through various mechanisms. The access to domestic and international finance is not easy for many municipalities, which do not always have borrowing power. Ensuring sufficient recovery and returns on investments
to repay debts may not always be simple. Credit rating for cities is also not always available and perceived risk may make borrowing expensive, however, several options exist for municipalities, and mechanisms have been developed to enable them to access financial markets. Cities that are empowered to borrow and issue bonds should be fully aware of the risks involved, which can be substantial during economic downturns. Estimates of incremental tax receipts to be derived from the new developments may not materialize to the extent or time-frame anticipated. In this case, the local government may be forced to issue general obligation bonds to cover the shortfall, thereby incurring new debt. Meanwhile, the new project will place demands on public services requiring operation and maintenance costs that cannot be covered by the TIF bond proceeds. Imposing impact fees on developers will work at cross purposes with the need to accelerate the
Table 7.2 Typology of mechanisms for access to financial markets Financial mechanism
Objectives
Characteristics
Examples
Special financial vehicles (independent, wholly-owned companies)
Large scale urban projects
Municipalities that have no borrowing power borrow through such vehicles from the financial market
China
Municipal Development Funds (MDF) and Municipal Finance Institutions
capital investments
Central governments institutions that access financial markets and borrow to municipalities
Colombia (FINDETER)
Social Investment Funds (SIF)
pilot projects aimed at social development and poverty reduction
Management companies and other organizations borrow to low income residents and businesses
Pakistan (Acumen Fund)
Tax Increment Financing bonds (TIF)
finance front-end costs for the development of financially viable projects: mixed-use projects and industrial and office parks
To be repaid from the revenue from additional tax receipts from the project
Unites States
Source: adapted from various sources
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