Open-Ended Informal Consultative Meetings Panel on

II. MUNICIPAL FINANCE & THE NEW URBAN AGENDA<br>

Vision & Framework Cities face increasingly complex responsibilities, complicated by chronically insufficient funding & capacity constraints.

Approximately 6% of GDP ($5 Trillion USD) is estimated as necessary to pay for the urban infrastructure to support 2.5 billion in population growth expected in cities.  

A framework is needed to promote fiscal health & advance inclusive, safe, and resilient cities - Sustainable Development Goal (SDG) 11 – with participation at all levels – national, state, and local governments.<br>

ELEMENTS & PRIORITIES Sound fiscal performance of local governments rest on:
The Rules of the Game
Expenditures
Revenues
Financial management
Borrowing

Special Issues:
Climate Finance
Public Private Partnerships<br>

Rules of the Game Municipal finance systems rest on the policies, regulations and laws that create the enabling framework for fiscal governance

Systems that define a municipality’s powers and responsibilities vary world-wide (Federal, Unitary, etc.)

Most relevant are policy recommendations in the realm of fiscal decentralization: when local governments are tasked with carrying out decentralized functions with expenditure requirements, there must be a concomitant devolution of financial resources.<br>

Expenditures One of the biggest expenditure challenges facing governments is the growing gap in infrastructure funding and financing.

Increasing the efficiency of local government spending begins by holding local government officials accountable for the provision of quality public services while operating within a fixed budget constraint. 
Priority Areas for Policy Reform Include:

Higher level governments can create incentives of local officials to improve expenditure efficiency
Aligning work of spatial and economic development planners and public finance can achieve capital expenditure efficiency
Measures to strengthen local government accountability in expenditures
Measures to exploit service delivery based on economies of scale<br>

REVENUES Majority of local government revenues come from intergovernmental transfers to fund operations & capital

Own Source revenues are the second major component of revenues & typically originate from charges, user fees, or property taxes<br>

INTERGOVERMENTAL TRANSFERS The essential purpose of fiscal transfers is to bridge the gap between the cost of providing municipal services and the revenues that municipalities are able to raise.

Our focus is on policy grants mechanism and policy reform in developed and developing countries.

Priority Areas for Policy Reform Include:

Aggregate transfers should be sufficient to cover or narrow fiscal gaps
Improved grant design must also be prioritized
Fiscal transfers should be allocated on the basis of clear and transparent formulas
Policy should limit grant proliferation
Policy should establish a framework for efficient transfer execution<br>

OWN-SOURCE REVENUES Local governments need an enabling framework that sets foundation for collection of taxes, fees, and charges: constitution, laws, policies

Challenges that inhibit local government’s ability to raise own-source revenues (where enabling authority is present) include: technical capacity, inefficiencies in collection & administration, informal economies, and others.

Priority Areas for Policy Reform Include:

Appropriate devolution of the authority to collect local taxes, to set rates, and to control assessments of tax bases
Flexibility must exist for local governments to adopt the right mix of revenue sources to generate budget stability over time
Property tax & land based financing are strong own-source revenue options that support spatial planning goals & others<br>

FINANCIAL MANAGEMENT Well-functioning financial management systems enable local governments to steward public resources effectively and achieve:

Efficient, transparent & accountable use of resources
Strategic planning for growth & crises
Expanded access to sophisticated & diverse revenue sources
Internal capacity & partnerships to execute governance functions

Priority Areas for Policy Reform Include:

Addressing weaknesses in planning & budgeting
Accounting & reporting practices
Information technology
Monitoring & oversight systems
Reduced staff capacities
Adopting cohesive reform efforts rather than disjointed ones<br>

BORROWING Debt converts future revenues into capital that is immediately available for investment, encumbering future revenues for debt service payments.

Access to debt allows local governments to finance long term, inter-generational equitable infrastructure.

Broadly, three categories of municipal borrowing market can be defined – Mature, Developing & Undeveloped

Priority Areas for Policy Reform Include:

In Mature Markets, borrowing systems require improvement at the margin
In Undeveloped Markets, the fundamental conditions for borrowing have yet to emerge; other aspects of municipal finance reform are priority
In Developing Markets, key focus areas are: “golden rule” (borrow only to finance capital not operating expenses) & developing robust regulatory framework of “ex ante” rules<br>

CLIMATE FINANCE Sound fiscal performance of local government is necessary to realize climate change mitigation goals agreed at the C0P21 Sustainable Innovation Forum.
Over the next 15 years, roughly $93 trillion of infrastructure designed to be low-emission and climate-resilient will need to be built globally.
The challenge is creating an enabling environment that encourages existing and new capital to flow from a broad spectrum of sources.<br>

PUBLIC PRIVATE PARTNERSHIPS P3 projects can provide public services and benefits to local populations when government provision of the services is fiscally constrained. 
Key policy challenge lies in creating an enabling framework where projects can succeed, which can be enhanced by:
Strong “users-pay” culture
Permanent Advisory Facilities
Sectoral Strategies
National Government Systematic Training Units
Regional Collaboration<br>

IV. EXAMPLES VIA MODERATED DISCUSSION<br>

THANK YOU Lourdes GermanDirector, International & Institute-wide InitiativesLincoln Institute of Land Policylgerman@lincolninst.edu
Presenting on behalf of Policy Co-Lead Organizations: The Lincoln Institute of Land Policy & The World Bank<br>