URBAN LOCAL Chapter five

GOVERNMENTS AND FINANCE

 Central Government
 Local governments

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 Central Government
Assignment of responsibilities
 to local governments
 to establish national corporations
 to own ministries or departments, or
 to private sector.

Payment of grants or subsidies to implementing agencies

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 Other roles of the central government
The setting of national development strategies in periodic plans;
The designation of the local tax structures and the scope for the levying of charges;
Regulations governing the annual budgeting and financial and audit procedures;
Guidance on organizational and staffing structures and on levels of remuneration;
and
The provision of training and technical assistance.

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 Local governments in most developing countries have been assigned a range of
functions related to the provision of local public goods and services.
 no financial incentive for the private sector to provide public goods
 streets and footpaths, street lighting, air-pollution control, and fire protection.
 Local governments are responsible
 Controlling detailed urban planning and urban development
 controlling both land development and land uses
 providing
 basic urban infrastructure services such as water supply, roads, sewerage and
drainage systems, and parks and recreational facilities.

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The role of local governments is to:
 Undertake, efficiently and effectively, functions allocated to it by the central
government;
 Provide services in response to the needs of residents;
 Mobilize resources from its own residents to undertake these functions;
 Plan, program, and budget efficient provision of urban public services to meet the
needs of its residents;
 Coordinate with other levels of government for the provision of urban services and
provide reports to them;
 Plan, control, and monitor the use of land and environmental assets; and
 Make effective use of intergovernmental grants and loans.
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INCOME AND EXPENDITURE
OF LOCAL GOVERNMENTS
Municipal Revenues
 Two primary sources of revenue
 Internal – collected by themselves including
 local taxes, service charges, fees and licenses,
 rental income from buildings and facilities,
 interest income on municipal investments,
 income from sales of municipal assets
 External
 central government transfers,
 grants, aid donation and borrowing, and external sources.
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MAJOR TYPES OF SOURCES
A. User Charges:
 levied on the direct recipients of public service benefits for services rendered
 appropriate policy is to charge the correct (marginal cost) price.
 Water supply, sewerage, parking, and recreational facilities are frequently the subject of municipal user
charges.
B. Local (own-source) Taxes
 Local governments utilize three basic forms of local taxation:
 i) property tax;
 taxes on land, buildings and other immovable property.
 the most common form of direct revenue for local municipal governments.
 ii) local income tax;
 levied by a local jurisdiction against the income or wealth of a person or corporation.
 The principal alternative to property taxes.
 generally levied as a supplement to national income taxes.
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 iii) taxes on expenditures.
 indirect taxes because they are usually passed on by the payer to the end user
 local sales taxes, royalties, entertainment taxes, licenses and permits, and vehicle taxes.
 Licenses and Permits - include revenues derived from the issuance of local licenses and
permits such as building permits, motor vehicle licenses, and other permit fees.
 Charges for Services - include the receipt of revenues stemming from such sources such
as zoning fees, legal aid fees…
 Fines and Forfeitures - include revenues received from fines and penalties imposed for
the commission of statutory offenses, violations, and for neglect of official duties.
 Miscellaneous Revenues - includes all revenue not categorized in any of the above
revenue categories. Interest income, receipt from the sale of surplus equipment, rental
income from public property, are examples of municipal miscellaneous revenue.

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C. Intergovernmental Transfers
 revenues received from federal, state, or other local  Types of central government financial
government sources in such forms as grants or
support
shared revenues.
 wide variety of structures for intergovernmental  Five major types of direct financial
transfers support, or transfers
 Redistribution of Resources and Regional Equity  Capital investment,
 Controlling Specific Local Government Functions  Tax credits,
 Macroeconomic Management  Shared taxes,
 Resource Mobilization Efficiency
 Grants in aid, and
 National Decentralization Objectives
 Loans.

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Major Revenue Sources of Local

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 PUBLIC EXPENDITURES
Major responsibilities of local governments in public expenditure
 Expenditure Control:
municipalities have more control over expenditures than revenues, they should
closely control and monitor outlays
Allocating and controlling funds to operating departments or sectors on a
quarterly basis is preferred
 Expenditure Forecasting:
 what can go wrong and
 what has been done within the budget framework

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 STRATEGIES TO COPE UP
URBAN FISCAL STRESS
 Urban public authorities face a rapidly growing  Second, improve the efficiency and effectiveness
demand for urban services as a result of of their operations
continuing rapid urban population growth;  Productivity improvement programs;
 however, their capacity to supply urban services  more efficient programming, planning, and budgeting;
is severely constrained by a shortage of fiscal  cutting back some programs;
resources  using low-cost approaches; or
 achieving cost savings through the use of private contractors.
 urban government agencies can respond to fiscal
stress by employing three broad strategies.  Third, reduce the scope of their activities
 greater use of private participation in the provision of urban
 First, raise additional revenue services under self-help activity systems and
 increasing their user fees and charges,
 mobilization of nongovernmental resources.
 raising local taxes,
 withdraw and allow the private sector to finance purely
 introducing new taxes and charges, and private goods such as car parking facilities and recreation
 selling off assets such as unused land. facilities

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 THE END Thanks.

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