3. Municipal Resources- For Cept Students

Municipal Resources Municipal Resources Municipal Resource Mobilisation

Municipal Resources - Introduction n

n

Usually narrow connotation of MRM has been taken in to account but it is time to take to look at larger connotation of MR In any country there exists three types of resource – Public resources – Conventional Sources – Private resources – Alternative Sources – Social resources – Alternative Sources

n

Absence of a mechanism to flow private & social resources to municipal (Urban) infrastructure sector is the main problem

Resources – Needs Relationship Resources are Limited and Needs Unlimited. Top of this Resources have competing alternative ends

Resources Public Private Social

Needs Public Private Social

Financing of Needs in Reality

Public Resource

Private Resource

Social Resource

Tax, User Charges, Market Operations

Market Operations/ Price

Self Help, Self Reliance, Self Financing

Public Needs

Private Needs

Social Needs

Financing of Needs - Ideal

Tax, User Charges, Market Operations

ity

Pa

rtic

i pa

tio

n

Social Resource

un

Market Operations

m om

Private Resource

ation z i t a Priv

’ /C l es

riva P c i l Pub

ip & h s r e rt n t e Pa

Public Needs

op Pe

Public Resource

Self Help, Self Reliance, Self Financing

Private Needs

Social Needs

Municipal Resources-Typology Municipal Resources Conventional

Internal / Own Revenue

Tax Non-Tax Capital

External

Govt. Loans Transfers Grants

Non-Conventional

Commercial Loans

Public- Private Partnership

Pricing Mechanism Accessing Capital Market • Equity • Debt

Land as Resource Social Capital through community participation

Municipal Resources - Conventional Conventional Resources Tax

Non-Tax

•Tax on entry/ consumption of goods •Property Tax •Professional Tax •Local Income Tax •Tax on animals •Tax on vehicles •Sp. benefit tax •Local Excise

•User charges for urban services •Income from sale of goods/services •Rents •Returns on investments •Profits •Licence Fees •Fines •Sale of Assets

Transfers/Grants

•Formulae based devolution or share in some resources of higher govts. •Formulae based Grants •Untied Grants •Adhoc Grants •Special purpose Grants

Govt. Loans

•From central government •From state or provincial govt •Government Agency •Municipal development funds

Municipal Resource in India Conventional Sources - Tax Revenues n Major

Municipal Taxes are as follows

– Tax on property including service levy for water supply, conservancy, drainage, lighting, fire and garbage disposal etc. – Octroi; (abolished in most of the cities) – Tax on Professions; – Tax on vehicles (other than motor vehicles). – Toll – Advertisement

Municipal Resources in India Conventional Sources - Non Tax n The

own resources other than tax

– Municipal Act provides for issuance of licenses and collection of fees for it – Fee is a charge made in return for a benefit allowed or conferred. – When the service is extensively used, becomes a public utility, then the fee charged is called a user charge or user fee. – It is charged for public utilities, parking, entry fees for play ground, swimming pools etc.

–

Municipal Resources Non Tax Resources of ULBs

Municipal Resource Conventional Sources - Grant-in-Aid n

Types of Grant – in – aid – General-purpose grant (GPG) - to augment the revenue of the local bodies for discharging their normal functions – Specific purpose grant (SPG) - for specific requirements, e.g. the increase of wage bills due to inflation, education grants, public health, road maintenance etc – Revenue Grant – may be general specific purpose but is not subject to repatriation if not spent – Capital Grant – may be general but mostly specific purpose and is linked to performance and spending of funds in a time frame –

n

Formulae Based Grant

Revenue

Adhoc Grant

Untide(General Purpose) Tide (Specific Purpose

Grants – Matrix Structure Capital

Fund Flow in the Gujarat Urban Sector Multilateral Agencies

Multilateral funds

Levels of government

Central govt.

State govt.

Central Schemes

State schemes

Devolutio n MPLAD CFCCentrally Sponsored Schemes S Funds

SFC devolu

State share

MLA State schemes Other Depts Grants

GSDMA Govt. authorities/ nodal agencies

ULBs

DOM

GMFB

GUDM

Dist. Colle

GUDC

External sources of revenue

Water SS & Sewerage, Housing, Urban Development

Own revenue

Fund Flow in the Karnataka Urban Sector Multilateral Agencies

Levels of government

Central govt.

Multilateral funds

Multilateral fundsCentral Schemes

State govt.

Govt. authorities/ nodal agencies

ULBs

Devolutio MPLAD n Centrally Sponsored Schemes S

FC funds

State share

State schemesSFC devolution

TPA/DA/ KUWSD B

KUIDFC

External sources of revenue

Water SS & Sewerage, Housing, Urban Development

Own revenue

Municipal Resources Conventional Sources - Borrowings The borrowing power of a local government is regulated under Local Authorities Loans Act (1914). n This act provides that Municipal Corporations can borrow for development activities and for payment of debt charges n State Municipal Acts put lot of adhoc, nonperformance based curbs rather than prudential norms on borrowing powers of the municipal bodies n However forced lending happens to ULBs which are not borrowing worthy. n

Municipal Finance - Components

Municipal Resource Mobilisation Alternative Sources Alternative Sources Loan Financing Commercial Banks Infrastructure Banks Municipal Development Fund Specialised Intermediaries

Community Participation Leasing

Private Sector Participation

Contracting

Pricing

Franchising BOO, BOOT, BOLT

Equity Market Debt Market

Concession Service

Accessing Capital Market

User Charges

Management

Tariff Reforms

Municipal Bond Infrastructure Bond Pooled Finance

Municipal Resource Mobilisation Financing urban infrastructure is besieged with several problems n In last decade several initiatives addressing municipal finance issues have been taken up by Central, State and by municipal bodies themselves in several countries in world n Resource Mobilisation is most commonly resorted initiative across the cities and countries n Resource Mobilisation means raising or providing n

– Adequate & continuous supply of funds – From appropriate sources – At minimum possible cost

Municipal Resource Mobilisation Alternative Sources n Why

alternative sources of financing?

– Inadequacy of conventional sources. – Bridging of resource gap. – Improving the financial and project management capabilities. – Inculcating financial discipline. – Attaining objectives of accountability, transparency and efficiency.

Municipal Finance - Components Municipal Finance Municipal Revenue

Internal / Own Revenue

Tax Non-Tax Capital

External

Municipal Expenditure

Cost Efficiency

Productive Use of Resources

Loans

Transfers Grants

Performance/Outcome Budgeting Prioritising Principles, cost and technical audit,

Vicious Cycle of Low Level of Performance and Finances Poor Organizational Poor Organizational Capacity Capacity

Low Expectation

Lack of System for Resource Mobilization

Low Level of Resources Fiscal Capacity LowLow Fiscal Capacity

Low Productivity

Low Willingness to Pay Lack of Investment

Quality of Services PoorPoor Quality of Services

Lack of Willingness to Pay - The negative cycle Low investment Low income

Unwillingness to charge

The Crux of Financing Urban Infrastructure

Poor services

Unwillingness to pay Known as Low Equilibrium Trap

Citizens unhappy

Need to Create - A Positive Cycle Higher Investment Increase income

Levy realistic charges

A Way Out/ Solution to Financing Urban Infrastructure

Improve services

Increase citizen satisfaction

Higher willingness to pay

Breaking Vicious Cycle of the low level of performance and finance n n n

n

n

Outcomes rather than outputs based management, provisioning than producing Customer- focused management Cost- Effective Management - Improving management control systems to drive down costs and improve cost recovery. Quality Management - Improving quality of services- benchmarking with international practices. Improving employee productivity through capacity building and professionalisation of cadre

Municipal Resource Mobilisation Mobilise Resources through augmentation & cost efficiency

High Level of Investment

Low Level Investment Poor services

Low income

Unwillingness to charge

Negative Cycle

Unwillingness to pay

Citizens unhappy

Increase income

Improve services#

Positive Cycle Increase citizen satisfaction

Levy realistic charges

Higher willingness to pay

Willingness to Charge, Enforcement, Governance # needs system reforms, operational efficiency, customer orientation

Municipal Resource Mobilisation – Way Forward n

Increase ULBs Income from all sources – Rationalise taxes, make them broad base – Charge wherever it possible – Earn through market based operations

n

Control expenditure in maximum possible ways – Adopt prioritisation principles, outcome budgeting

n

Improve cost efficiency (productivity) continuously – system and HR reforms – Harnessing alternative sources of financing

n

Create mechanism to flow private and social resources for financing urban infrastructure that is harnessing alternative resources

Municipal Resource Mobilisation – Way Forward n

Ensure that the new systems are: – Broad based, Holistic and Scalable – Integrates with other important components of reforms to ensure benefits

n

Create buy-in through – Opinion building by disseminating benefits of management (financial and general) reforms – Change management – Peoples’/Community Participation in Governance

n

Address human resource constraints – Capacity building of all actors and stakeholders

n

Create adequate support systems

Municipal Resources Thank You