Chapter
4
Investment Financing Frameworks and New Funding Mechanisms Local Government Financing Systems1 Local government financing systems follow a vast and complex typology; the main parameters include a locality’s national economic situation and national political, legal, and administrative traditions. The type of financing system depends on important contributing factors, including whether the local government holds responsibility for city water or electricity utilities; the degree of balance found in the country’s urban systems, at least relative to the locality’s share of national population; the size of a city; and disparities between the largest and smallest cities, or the richest and poorest, and so forth. Customarily, in developed countries, these financing systems—or at least some of their instruments—change periodically, usually every 5 to 10 years. In Africa, pressure from local authorities generally proves insufficient to justify a real influence on the choice of fiscal positions; local finances have not yet reached a substantial enough level to influence fiscal choices and usually serve only as an adjustment variable when balancing public budgets. However, the situation is changing, particularly in some English-speaking countries such as South Africa, Tanzania, and Uganda, as governments seek to optimize resource sharing and public expenditures between historically more intertwined central and local governments. Central government transfers and shared national tax receipts prove crucial in this framework. Despite their differences, all municipal financing systems rest on central government transfers and shared local and related tax receipts and fees. The balance between locally collected resources and shared taxation shapes the financing system typical of each African country. In the name of decentralization, the French-speaking countries have generally favored separating national and local taxation. They combine this structure with strong central government monitoring and oversight of local tax base assessments, rate setting, collection, and the single coffer principle,2 which allows all local tax resources, regardless of their source, to be used for any and all local expenditures. Exceptions and 149