Urban Planning for City Leaders - Cities Alliance

Urban planning for city leadersA clear plan of investments and transparentpublic expenditures increase compliance.Collection of fees and other charges ismuch improved when residents can seehow the money collected is used and whenthere is a clear link with locally significantimprovements. Building clear mechanisms fordeciding on public investments and allowingresidents’ participation have resulted in greatercompliance and better understanding of thesignificance of charges.Draw on the financialmarketCities access to financial markets can beachieved through various mechanisms. Theaccess to domestic and international financeis not easy for many municipalities, which donot always have borrowing power. Ensuringsufficient recovery and returns on investmentsto repay debts may not always be simple. Creditrating for cities is also not always available andperceived risk may make borrowing expensive,however, several options exist for municipalities,and mechanisms have been developed toenable them to access financial markets.Cities that are empowered to borrow andissue bonds should be fully aware of therisks involved, which can be substantial duringeconomic downturns. Estimates of incrementaltax receipts to be derived from the newdevelopments may not materialize to the extentor time-frame anticipated. In this case, the localgovernment may be forced to issue generalobligation bonds to cover the shortfall, therebyincurring new debt. Meanwhile, the newproject will place demands on public servicesrequiring operation and maintenance costs thatcannot be covered by the TIF bond proceeds.Imposing impact fees on developers will work atcross purposes with the need to accelerate theTable 7.2 Typology of mechanisms for access to financial marketsFinancial mechanism Objectives Characteristics ExamplesSpecial financial vehicles (independent,wholly-owned companies)Large scale urban projectsMunicipalities that have no borrowingpower borrow throughsuch vehicles from the financialmarketChinaMunicipal Development Funds (MDF)and Municipal Finance Institutionscapital investmentsCentral governments institutionsthat access financialmarkets and borrow tomunicipalitiesColombia (FINDETER)Social Investment Funds (SIF)pilot projects aimed at socialdevelopment and povertyreductionManagement companies andother organizations borrowto low income residents andbusinessesPakistan (Acumen Fund)Tax Increment Financing bonds (TIF)finance front-end costs forthe development of financiallyviable projects: mixed-useprojects and industrial andoffice parksTo be repaid from the revenuefrom additional tax receiptsfrom the projectUnites StatesSource: adapted from various sources130