Finance for City Leaders Handbook: Improving Municipa Finance to Deliver Better Services

352 Pages·2017·4.905 MB·English

by  Marco Kamiya (editor), Le-Ying Zhang (editor)

FINANCE FOR
CIT Y

LEADERS
2ND EDITION
HANDBOOK
Improving
Municipal Finance to
Deliver Better Services
FINANCE FOR
CIT Y

LEADERS
2ND EDITION
HANDBOOK
Improving
Municipal Finance to
Deliver Better Services
Marco Kamiya
Le-Yin Zhang
(Eds.)
FINANCE FOR CITY LEADERS
First published in Nairobi in 2016 by UN-Habitat
Copyright © United Nations Human Settlements Programme, 2017
All rights reserved
United Nations Human Settlements Programme (UN-Habitat)
P. O. Box 30030, 00100 Nairobi GPO KENYA
Tel: [phone] (Central Office)
www.unhabitat.org
HS Number: HS/059/17E
ISBN Number: 978-92-1-132766-3
Disclaimer
The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever
on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or
concerning the delimitation of its frontiers of boundaries.
Views expressed in this publication do not necessarily reflect those of the United Nations Human Settlements Programme, the United
Nations, or its Member States.
Excerpts may be reproduced without authorization, on condition that the source is indicated.
Cover Photo © Flickr
Editors: Marco Kamiya, Le-Yin Zhang
External leading contributors: Lars Andersson, Dominic Burbidge, Greg Clark, Doug Carr, Nic Cheeseman, Skye d’Almeida, Lourdes
German, Pavel Kochanov, Leonardo Letelier, Tim Moonen, Armando Morales, Miquel Morell, Daniel Platz, Dmitry Pozhidaev, Yasuo Konishi,
Devashree Saha, Yoel Siegel, Lawrence Walters, Rami AbdelKafi, Michael Lindfield, Siraj Sait, Huascar Eguino, John Probyn, Joshua Gallo
UN-Habitat Contributors: Katja Dietrich, Muhammad Farid, Elizabeth Glass, Liz Paterson Gauntner, Melissa Permezel, Douglas Ragan,
Kerstin Sommer, Younghoon Moon, Juan Luis Arango, Moges Beyene, Hazel Kuria, Gabriela Aguinaga
Project Coordinator: Elizabeth Glass, Moges Beyene
Editorial Consultant: Michael McCarthy
Design and Layout: Eric Omaya
Partners: International City Leaders, Oxford University, University College London
Contents
Foreword ....................................................................................................................................................vii
About the Authors ......................................................................................................................................ix
Introduction ................................................................................................................................................xiv
PART 1: PRINCIPLES OF MUNICIPAL FINANCE .....................................................................1
CHAPTER 1: Principles of Municipal Finance ..............................................................................................4
CHAPTER 2: Expanding Municipal Revenues ............................................................................................16
CHAPTER 3: Sustainable Municipal Finance for Development ..................................................................28
CHAPTER 4: Decentralization and Local Government Financing ..............................................................46
PART 2: DESIGNING FINANCIAL PRODUCTS......................................................................64
CHAPTER 5: Non-Tax Own-Source Municipal Revenues ..........................................................................66
CHAPTER 6: Creditworthiness .................................................................................................................82
CHAPTER 7: Green Municipal Bonds .......................................................................................................98
CHAPTER 8: Municipal Pooled Financing Mechanisms .........................................................................120
CHAPTER 9: Public–Private Partnerships ...............................................................................................132
CHAPTER 10: Financing Planned City Extension ...................................................................................146
CHAPTER 11: Islamic Municipal Finance ...............................................................................................166
CHAPTER 12: Sharing the Wealth: Private Land Value and Public Benefit ............................................192
CHAPTER 13: The Role of Real Estate Development in Urbanizing Cities .............................................216
CHAPTER 14: Improving Capital Markets for Municipal Finance in Least Developed Countries ...........238
CHAPTER 15: Developing and Managing Municipal Infrastructure Development Plans .......................254
PART 3: CROSSCUTTING ISSUES ......................................................................................268
CHAPTER 16: Financing Investments in Slums and Informal Settlements .............................................270
CHAPTER 17: The Cross-Cutting Issues of Human Rights, Gender Equality, and Youth .......................286
CHAPTER 18: Local Governments and Local Economic Development, Productive Capacity,
and Spatial Analysis ...............................................................................................................................318
FINANCE FOR CITY LEADERS HANDBOOK v

Foreword
The rapid growth of cities across the globe, and
cities’ essential role as drivers of economic develop-
ment, require that city leaders from both the public
and private sectors come together in the financ-
ing, design, and implementation of urban policies
that ensure sustainable and inclusive urbanization.
Providing city leaders with adequate financing
mechanisms and frameworks that fit the economic,
social, and regulatory context is the foundation on
which city leaders will achieve the goals of the New
tion contributes to the growing conversation on
Urban Agenda.
how cities can look inward to finance major capital
expenditures, infrastructure maintenance and oper-
A study on financing sustainable urbanization
ation, and public services.
cannot come at a better moment as world leaders
are discussing the New Urban Agenda that will
It is essential that the new approach to urbaniza-
be adopted at Habitat III in Quito. The New Urban
tion put forth at Habitat III rises to the challenge
Agenda is an action-oriented plan that aims at effec-
presented by changing urban dynamics. It is with
tively addressing the complex challenges of urban-
enormous pride and a united voice that the United
ization, including its financing. It is a set of five strat-
Nations Human Settlements Programme (UN-Habi-
egies consisting of National Urban Policies, Urban
tat) presents Finance for City Leaders—a landmark
Legislation, Urban Planning and Design, Planned City
publication that draws on the combined expertise
Extensions, and Financing Urbanization. The Habitat
of over 30 contributing authors from more than
III process offers an exceptional opportunity to build
15 public, private, and multilateral institutions all
a new model of urban development promoting
working towards equipping cities with the tools
equity, welfare, and shared prosperity.
they need to build and sustain urban prosperity.
Finance for City Leaders presents an up-to-date,
comprehensive, and in-depth analysis of the chal-
lenges posed by rapid urbanization and the various
financing tools municipalities have at their disposal.
By providing city leaders with a wide array of Dr. Joan Clos
financing solutions that emphasize sustainability, Secretary-General of Habitat III
inclusion, and financial autonomy, this publica- Executive Director, UN-Habitat
FINANCE FOR CITY LEADERS HANDBOOK vii
About the editors
and contributors
Editors External leading contributors
Marco Kamiya is head of the Urban Economy Lars M. Andersson is a local government finance
and Finance Branch of UN-Habitat, headquar- expert. In 1986 he started the Swedish Local
tered in Nairobi, Kenya. In addition to working on Government Funding Agence (Kommuninvest). He
field projects with UN-Habitat, Kamiya conducts currently sits on the board of the Agence France
research on municipal finance, the economics of Locale (LGFA) and the Global Fund for Cities
urban expansion, and local infrastructure invest- Devel-opment (FMDV) and is global advisor for
ment policy. Prior to joining UN-Habitat, he worked several governments and institutions.
at the Development Bank of Latin America (CAF)
Dominic Burbidge is departmental lecturer in the
and the Inter-American Development Bank, and
School of Interdisciplinary Area Studies at Oxford
was director of international development projects
University and a researcher in the Department of
with PADECO Co., Ltd., a consulting firm based in
Politics & International Relations. He is author of
Tokyo. He studied international development at
The Shadow of Kenyan Democracy: Widespread
Harvard University.
Expectations of Widespread Corruption (Rout-
Le-Yin Zhang is a senior lecturer and course ledge, 2016), and has published numerous journal
director of M.Sc. Urban Economic Development at articles relating to social trust, local government,
the Bartlett Development Planning Unit of Universi- and constitutional design. In addition, he lectures
ty College London. Specialized in the management in law at Strathmore University in Kenya.
of city economies, she has a wide range of research
Doug Carr is a New York–based vice president for
interests including low-carbon transitions, green
Jones Lang LaSalle (JLL) in the Public Institutions
finance, and China’s fiscal regime. Her publications
Group, focused on providing real estate planning
include Managing the City Economy: Challeng-
and development advisory services on behalf of
es and Strategies in Developing Countries (Rout-
government, educational, and nonprofit organiza-
ledge, 2015) and numerous journal articles, book
tions, with a particular expertise in public–private
chapters, and reports. She has a B.Sc. from Beijing
partnerships and transit-oriented development
Normal University and a Ph.D. from the University
projects.
of London.
viii FINANCE FOR CITY LEADERS HANDBOOK
About the editors Nic Cheeseman is associate professor of African energy policymakers. She holds degrees in business
Politics at Oxford University, the founding editor of and science from the University of Queensland.
the Oxford Encyclopedia of African Politics, and a
and contributors Lourdes Germán is an expert in municipal finance
former editor of the journal African Affairs. He is
and director of international and institute-wide
also the coeditor of the collections Our Turn to Eat
initiatives at the Lincoln Institute of Land Policy,
(2010) and The Handbook of African Politics (2013).
where she advances the institute’s global municipal
More recently, he published his first monograph,
fiscal health campaign. Prior to joining the Lincoln
Democracy in Africa, with Cambridge University
Institute of Land Policy, she worked for a number
Press (2015). He runs the popular website www.
of public and private institutions on issues related
democracyinafrica.org, is a columnist for Kenya’s
to municipal finance and also taught at North-
Sunday Nation newspaper and is an advisor to, and
eastern University. She is the founder and director
writer for, Kofi Annan’s African Progress Panel.
of the Civic Innovation Project, serves as chair of
Greg Clark is honorary professor and co-chairman the Massachusetts Governor’s State Finance and
of the advisory board at the City Leadership Initia- Governance Board, and is an appointee to a City of
tive, University College London. His other current Boston committee focused on the city’s audit and
roles include senior fellow at the Urban Land Insti- finance matters.
tute (ULI), Europe; global fellow at the Metropolitan
Pavel Kochanov is a senior subnational specialist
Policy Program, Brookings Institution; chairman of
at the International Finance Corporation (IFC). His
the JLL Cities Research Centre; strategic advisor to
primary area of expertise is credit and governance
the OECD LEED Programme; and global fellow at
risks of subsovereign government entities globally.
LSE Cities. He has led 20 reviews of city and regional
Prior to his current position at IFC, he worked at
development for the OECD, and has advised on
Standard & Poor’s, focusing on development of
national urban policies in 13 countries.
credit risk criteria and governance assessment
Skye d’Almeida manages the Financing Sustain- products. He holds a Ph.D. in economics from
able Cities Initiative at C40 Cities Climate Leadership Moscow State University.
Group, a joint initiative of C40, the Citi Founda-
Yasuo Konishi is the managing director of Global
tion and WRI Ross Center for Sustainable Cities. In
Development Solutions LLC (GDS). He has over 30
this role, she manages a network of cities working
years of experience working in the private sector
together to scale-up finance for sustainable urban
and advising major international organizations like
infrastructure and services. Her experience includes
the World Bank/IFC, United Nations, EBRD, and
designing and implementing climate finance mech-
the Inter-American Development Bank. At GDS,
anisms; advising on energy, economic, and regulato-
he works on value/supply chain analysis and local
ry policy; and working with the U.S. Department of
economic development across the world. Konishi
Energy to develop an inter-national network of clean
FINANCE FOR CITY LEADERS HANDBOOK ix
holds a master’s degree from The Fletcher School of is a member of the Technical Report of the Commis-
Law and Diplomacy at Tufts University. sion of Territorial Planning of the Central Regions,
representing the Association of Economists of Cata-
Leonardo Letelier is an associate professor and
lonia. He also works on financial feasibility and
the director of graduate studies at the Institute of
sustainability analysis of public and private invest-
Public Affairs at the University of Chile. He special-
ment projects related with urban development. He
izes in fiscal decentralization and is the author
holds an M.B.A. from ESADE Business School.
of Fiscal Decentralization in Theory and Practice
(2012). He has worked as a consultant for the Daniel Platz is an inter-regional advisor on Financing
United Nations, the Inter-American Development for Development at the United Nations Department
Bank, and the World Bank. He holds a Ph.D. in of Economic and Social Affairs, where he is part of
economics from the University of Sussex. a team that monitors and promotes the implemen-
tation of the Addis Ababa Action Agenda, the Doha
Tim Moonen is the director of intelligence at The
Declaration on Financing for Development, and the
Business of Cities Ltd, an advisory firm based in
Monterrey Consensus. He has over 15 years of expe-
London. Tim specializes in the governance, leader-
rience supporting UN intergovernmental processes
ship, and comparative performance of cities. Project
and extensive experience in the area of municipal
clients and content partners include the Brookings
finance and financial inclusion. He holds a Ph.D. in
Institution, Future Cities Catapult, OECD LEED, the
economics and an M.A. in global political economy
Oslo Region, and the Greater Sydney Commission.
and finance from The New School.
He also manages the biannual review of over 200
city benchmarks and indexes, in partnership with Dmitry Pozhidaev is the regional technical advisor
Jones Lang LaSalle. Tim has a Ph.D. in politics and for the United Nations Capital Development Fund
international studies from the University of Bristol. (UNCDF). He is responsible for UNCDF program-
ming in Southern and East Africa. He holds a
Armando Morales is the International Monetary
master’s degree in finance from the London School
Fund Resident Representative in Kenya, where he
of Business and a Ph.D. in quantitative research and
has served as coordinator of the African Depart-
statistics from Moscow University.
ment Monetary Policy Network and team leader for
a project on the harmonization of monetary policy Devashree Saha is an associate fellow at the Brook-
frameworks across East Africa. Prior to serving ings Institution Metropolitan Policy Program. She has
as the IMF Resident Representative in Kenya, he nearly 10 years of policy research and analysis expe-
was the IMF Resident Representative in Indone- rience, specializing in sources of state and regional
sia. He has also served as senior economist for the economic growth and prosperity with a focus on the
Emerging Europe Research Group at the Deutsche intersection of clean energy and economic develop-
Bank, Central Bank of Peru, as well as several other ment policy. She has authored a number of publica-
organizations. tions on issues related to clean energy financing that
have informed state and metropolitan policymaking
Miquel Morell is an economist with expertise in
in the United States. She holds a Ph.D. in public policy
spatial planning, urban planning, and housing. He
from the University of Texas at Austin.
x FINANCE FOR CITY LEADERS HANDBOOK
Yoel Siegel is a senior consultant in the Urban John Probyn is a Program Specialist with the World
Economy and Finance Branch of UN-Habitat. In Bank City Creditworthiness Initiative. He recently
addition to his work with UN-Habitat, he consults led the development of the City Creditworthiness
local governments on sustainable local economic Self-Assessment& Planning Toolkit, and has experi-
development projects. He has several years of ence working with local governments across Africa
experience setting up community-based employ- and Latin America. Prior to his work with the initia-
ment centers, developing industrial parks, facili- tive, he was with the Public-Private Infrastructure
tating training workshops, and promoting inclu- Advisory Facility, where he focused on enabling
sive urban development.    infrastructure investment for local authorities in
developing countries. He holds a master’s degree
Lawrence Walters is the Stewart Grow Professor
in international economics and development from
of Public Management at the Romney Institute of
the Johns Hopkins School of Advanced Internation-
Public Management at Brigham Young Universi-
al Studies.
ty. He recently completed a co-edited volume on
property tax policy and administration, a property Huascar Eguino works as a Lead Specialist in Fiscal
tax policy guide for developing countries, and a and Municipal Management at the Inter-Ameri-
book on managing environmental problems. His can Development Bank (IDB) in Washington, D.C.
most recent work is focused on developing land- Economist with specialization in municipal finance
based financing tools and training materials for and management, fiscal decentralization, and
developing countries. He has a Ph.D. from the urban development. He holds a Master’s degree in
Wharton School at the University of Pennsylvania. Local and Regional Development from the Institute
for Social Studies (ISS, 1994-5) and postgraduate
Joshua Gallo, Senior Municipal Finance Special-
studies in Urban Development Financing, Massa-
ist, leads the World Bank’s City Creditworthiness
chusetts Institute of Technology (MIT, 1997-8);
Initiative and related technical assistance programs
Infrastructure Finance, Harvard University (2000);
(currently in Uganda, Turkey, India, and Malaysia).
and Housing Finance, University of Pennsylvania
He’s also Program Manager for the World Bank’s
(2007). He has more than 20 years of experience in
Multi-Donor City Creditworthiness Partnership.
Latin American and the Caribbean and has provided
Previously he was Program Leader for the Sub-Na-
technical advice to 18 national governments and
tional Technical Assistance (SNTA) Program
more than 100 sub-national entities. Twice, he
under the Public-Private Infrastructure Advisory
received the IDB’s Outstanding Team Award for
Facility (PPIAF), as well as Program Manager for
his work in Brazil (Line of Credit for Municipalities
the Norwegian Trust Fund for Private Sector and
- PROCIDADES) and Mexico (Program for Strength-
Infrastructure (NTF-PSI). He was posted in long-
ening of States and Municipalities).
term assignments in Peru and Tanzania. He holds
a Master’s Degree in International Economics and M. Siraj Sait is Professor of Law and Develop-
Law from the Johns Hopkins’ School of Advanced ment at the University of East London, UK and
International Studies (SAIS). Director of the Centre for Islamic Finance, Law and
Communities (CIFLAC). A graduate of the Univer-
sities of Madras, Harvard and London, he worked
FINANCE FOR CITY LEADERS HANDBOOK xi