Municipal

Resources

Municipal Resources
Municipal Resource Mobilisation
Municipal Resources - Introduction

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
n 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 Needs
Public Public
Private Private
Social Social
 Financing of Needs in Reality

Public Resource Tax, User Charges, Market Operations Public Needs

Private Resource Market Operations/ Price Private Needs

Social Resource Social Needs

Self Help, Self Reliance, Self Financing
 Financing of Needs - Ideal

Public Resource Tax, User Charges, Market Operations Public Needs

at i zation
Priv
e r sh ip &
rt n
riva t e Pa Pe
P
op
li c
Pub
l es
’ /C
om
Private Resource m
Market Operations ity
un Private Needs
Pa
rtic
i pa
tio
n

Social Resource Social Needs

Self Help, Self Reliance, Self Financing
 Municipal Resources-Typology

Municipal Resources

Conventional Non-Conventional

Internal / External Commercial Public- Private

Own Revenue Loans Partnership
Pricing Land as
Mechanism Resource
Tax Govt. Loans
Accessing Social Capital
Non-Tax
Capital Market through
Transfers • Equity
Grants community
Capital • Debt
participation
 Municipal Resources - Conventional

Conventional Resources

Tax Non-Tax Transfers/Grants Govt. Loans

•User charges for

•Tax on entry/ •Formulae based
urban services
consumption of devolution or share •From central
•Income from sale of
goods in some resources government
goods/services
•Property Tax of higher govts. •From state or
•Rents
•Professional Tax •Formulae based provincial govt
•Returns on
•Local Income Tax Grants •Government
investments
•Tax on animals •Untied Grants Agency
•Profits
•Tax on vehicles •Adhoc Grants •Municipal
•Licence Fees
•Sp. benefit tax •Special purpose development funds
•Fines
•Local Excise Grants
•Sale of Assets
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
Untide(General Purpose) Tide (Specific Purpose
Revenue
Capital
Grants – Matrix Structure

Adhoc Grant Formulae Based Grant

 Fund Flow in the Gujarat Urban Sector

Multilateral
Multilateral funds
Agencies

Devolutio
Central govt. Central Schemes
n MPLAD
CFCCentrally Sponsored Schemes S
Funds
Levels of government

State MLA
State govt. State schemes SFC devolu State schemes Other Depts
share Grants

GSDMA
Govt.
authorities/ Dist.
nodal DOM GMFB GUDM
Colle
agencies
GUDC

ULBs External sources of revenue Own revenue

Water SS & Sewerage, Housing, Urban Development

 Fund Flow in the Karnataka Urban Sector

Multilateral
Multilateral funds
Agencies

Central govt. Multilateral fundsCentral Schemes

Devolutio MPLAD
n Centrally Sponsored Schemes S
Levels of government

State
State govt. FC funds State schemesSFC devolution
share

Govt. TPA/DA/
authorities/ KUIDFC KUWSD
nodal B
agencies

ULBs External sources of revenue Own revenue

Water SS & Sewerage, Housing, Urban Development

Municipal Resources
Conventional Sources - Borrowings
n 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, non-
performance 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.
Municipal Finance - Components
 Municipal Resource Mobilisation
Alternative Sources

Alternative Sources

Loan Community Private Sector Accessing

Participation Pricing
Financing Participation Capital Market

Commercial Leasing Contracting Franchising BOO, BOOT, Equity Market

Banks BOLT
Debt Market
Infrastructure Concession
Banks
Municipal
Service Bond
Municipal User Charges
Development
Fund Management Infrastructure
Bond
Specialised Tariff Reforms
Intermediaries Pooled Finance
Municipal Resource Mobilisation
n 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
– 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 Municipal Expenditure

Internal / External
Cost
Own Revenue Efficiency Productive Use of
Resources

Loans
Tax

Non-Tax Transfers Performance/Outcome Budgeting

Grants Prioritising Principles, cost and
technical audit,
Capital
 Vicious Cycle of Low Level of Performance
and Finances

Poor Organizational
Poor Organizational
Capacity
Capacity

Lack of System for Low

Resource Mobilization Expectation

Low Level of Low

Resources Productivity

LowLow
Fiscal Capacity
Fiscal Capacity Low Willingness to Pay PoorPoor Quality of Services
Quality of Services
Lack of Investment
 Lack of Willingness to Pay - The negative cycle

Low investment

Low income Poor services

The Crux of
Financing
Unwillingness Urban Citizens
to charge Infrastructure unhappy

Unwillingness
to pay

Known as Low Equilibrium Trap

 Need to Create - A Positive Cycle

Higher Investment

Increase Improve
income A Way Out/ services
Solution to
Financing
Levy realistic Urban Increase citizen
charges Infrastructure satisfaction

Higher willingness
to pay
Breaking Vicious Cycle of the low
level of performance and finance
n Outcomes rather than outputs based management,
provisioning than producing
n Customer- focused management
n Cost- Effective Management - Improving
management control systems to drive down
costs and improve cost recovery.
n Quality Management - Improving quality of
services- benchmarking with international
practices.
n Improving employee productivity through capacity
building and professionalisation of cadre
 Municipal Resource Mobilisation
Mobilise Resources through
augmentation & cost efficiency

Low Level High Level of

Investment Investment

Increase Improve
Low income Poor services income services#

Negative Positive
Cycle Cycle
Unwillingness Citizens Levy realistic Increase
to charge unhappy charges citizen
satisfaction

Higher
Unwillingness willingness to
to pay 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