ECONOMICS UNIQUENESS

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224 ■ THE <strong>ECONOMICS</strong> OF <strong>UNIQUENESS</strong> fi nancial mechanisms—to stimulate the reuse and redevelopment of brownfi eld urban areas and make them more attractive to private investors. In countries such as India and Egypt, the regeneration of brownfi elds mostly relies on government grants, which are to date the most successful instruments in facilitating regeneration projects and attracting private investors. Local governments, more than regional and central governments, are in the best position to foster heritage brownfi eld regeneration as well as to lead and facilitate brownfi eld eff orts in the community. Local authorities may create fi nancial solutions to the brownfi eld fi nancing problem by leveraging a combination of available national and local funds and private money. Local government programs usually off er one or more of several types of incentives. Some of these include regulatory relief, liability relief, grants and loans, insurance, waivers of development fees, property tax abatements and remediation tax credits, public investments in infrastructure and amenities, and changes in regulatory procedures among others. Table 8.1 briefl y presents fi nancial tools broadly used by local authorities for brownfi eld projects. Th ese fi nancial mechanisms are used particularly for natural heritage projects but can certainly be applied to cultural heritage brownfi elds or historic city areas. National government programs, in general, require that benefi ciaries meet special eligibility criteria, many of which are intended to combine public funding with private sources, thereby creating barriers against applying for funds. However, central authorities’ initiatives provide a solid foundation upon which local governments are able to build their own brownfi eld fi nancing strategies. Th e foregoing analysis indicates that the public sector must be the initiator of urban brownfi eld projects for the regeneration of blighted and underused urban areas and historic city areas. In summary, the public fi nancing initiatives must usually employ one or more of the following strategies: • Reduce the risks on the lender site, to make capital more available for brownfi eld redevelopment. Incentives, such as loan guarantees or companion loans, can ensure a minimum return by limiting the borrower’s exposure to unforeseen problems that can aff ect the value of collateral or the borrower’s ability to pay. • Reduce the borrower’s fi nancing costs, to make capital more aff ordable. Local authorities can subsidize interest costs through tax-exempt fi nancing and lowinterest loans, and can reduce loan underwriting and documentation costs through loan packaging assistance and technical support. • Improve the borrower’s fi nancial situation. Th e project’s cash fl ow can be improved through tax credits, tax abatements, or repayment grace periods, easing the way for the project to show the expected profi tability.
TABLE 8.1 Local Financial Tools Used for Brownfi eld Financing Tax increment fi nancing (TIF) TIF is the most common form of local support and a key part of a strategy to address fi nancing gaps. The TIF mechanism uses anticipated growth in property taxes from a development project to fi nance public-sector investments in that project. It is usually used in economically distressed or abandoned areas. TIF bonds are issued for the specifi c purposes of the redevelopment, such as acquiring and preparing the site; cleanup; upgrading utilities, streets, or parking facilities; as well as carrying out other necessary site preparations and improvements. Special service areas or taxing districts Cities can delineate a “special service area,” for instance the historic city core, and use it as a way to raise cash to fi nance additional services, improvements, or facilities to benefi t the targeted area. The property owners in a special service area agree that a special property levy or special fee will be imposed, with the proceeds used to pay for the defi ned services or activities. The jurisdiction uses this additional revenue to fi nance the improvements, by either earmarking it directly for the area or using it to issue bonds to fund the projects. Tax abatements These are reductions of, or forgiveness for, tax liabilities. There are usually two forms of tax abatement: (1) a reduction in rates for a specifi ed period (5–10 years), or (2) a freeze on property values, usually at a pre-improvement stage. It is a workable, fl exible incentive that helps infl uence private investment decisions, but it has to be carefully designed to target intended benefi ciaries without offering unnecessary subsidies, which can be a diffi cult feat. Tax abatements are commonly used to stimulate investments in building improvements or new construction in areas where property taxes or other conditions discourage private investment. Local revolving loan funds Revolving funds are usually established to meet specifi c objectives of the city. They can be used, for example, for cleanup, removal of debris and leftover equipment, and so on. After the loan is repaid to the fund, money is available for new projects. General obligation bonds General obligation bonds can be issued for any proper public purpose that pertains to the local government and its affairs. These bonds can be used to support brownfi eld cleanup and reuse projects as well as for acquiring land, preparing sites, and making infrastructure improvements. Debt leveraging Debt leveraging is a strategy that increases the return on equity when the investment is fi nanced partially with borrowed money. In the case of brownfi elds, a public entity can serve that purpose by fronting the capital to make private investment less risky. This strategy has not been used much, but it has been effective in attracting private capital to brownfi eld sites. Fees or fi nes for brownfi eld activities Source: Authors based on Bartsch 2002; NALGEP 2004. The collected inspection fees or fi nes can be devoted to urban projects instead of having these resources disappear into the general local fund. FINANCIAL MECHANISMS FOR HISTORIC CITY ■ 225
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Public Disclosure Authorized Public
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Th e Urban Development Series discu
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© 2012 International Bank for Reco
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vi ■ CONTENTS Project Appraisal i
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viii ■ CONTENTS Appendix II: Addi
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x ■ CONTENTS 7.4 Tourism Is Coupl
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xii ■ CONTENTS 9.1 How to Organiz
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Exegi monumentum aere perennius reg
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ACKNOWLEDGMENTS ■ xvii Cultural O
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xx ■ OVERVIEW What Are the Object
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xxii ■ OVERVIEW and captures the
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xxiv ■ OVERVIEW periphery, especi
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xxvi ■ OVERVIEW tourism—by impr
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xxviii ■ OVERVIEW 3. Institutiona
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1 Livable Historic City Cores and E
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LIVABLE HISTORIC CITY CORES AND ENA
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2 Investing in the Sense of Place:
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INVESTING IN THE SENSE OF PLACE ■
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0 45° INVESTING IN THE SENSE OF PL
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FIGURE 2.4 continued INVESTING IN T
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A Dubious Alternative: Property Rec
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46 ■ THE ECONOMICS OF UNIQUENESS
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TABLE 4.1 Overview of Hedonic Price
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FIGURE 6.5 Quito and Oaxaca: Timeli
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Boxes, fi gures, maps, notes, and t
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China. See also specifi c cities ac
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public sector role, 222-26, 223b, 2
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Kraay, A., 198 Kratz, C. G., 96 L l
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Pine Ridge Reservation (U.S.), 238
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Shaoxing, China, local residents re
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urban economics appraisal approach,
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ECO-AUDIT Environmental Benefits St
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ECONOMICS UNIQUENESS

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