Strengthening municipal finance

• As dynamic sites of exchange between stocks and flows, cities must increase revenues to finance public expenditures to put in place building, operating, and maintenance of services such as infrastructure, environmental services, health, education, and security, while also producing public goods such as clean air, unpolluted water, and public space.
• The challenge of strengthened municipal finance lies in the conundrum which urban dynamism is up against these days – and more than ever in the face of urbanization: cities must provide the stocks of durable assets (decent housing, infrastructure, public buildings, together with serviced trading, factory and storage sites, public buildings) needed to accommodate and support over time the never-ending flows of abilities and skills (from physical strength to toplevel research) brought about by “urbanization” – with the constant interplay among these resulting in urban prosperity for all. Those stocks— fixed, durable assets expected to last for 50 to 80 years— are best funded through long-term financing instruments. Higher incidence of climate change effects and extreme weather events has highlighted the importance of these municipal finance issues.
• At the same time, coastal cities in both developed and developing countries face the prospect of flooding and sea-level rise. Urban areas in low-lying Bangladesh are already feeling the effects of flooding on low-income communities. One local study in Dhaka revealed the increased importance of “safe storage” in these homes, leading to a re-design of houses to meet these new needs. This widespread and shared issue is likely to become a critical priority for all coastal cities over the next 50 years, suggesting that any mitigation strategy must include saving resources for these purposes. In 2012, the Government of the Netherlands approved a 100-year plan for annual savings in order to be able to face disasters in a not so distant future.
• Rapidly-growing cities and towns in developing countries face another set of problems, including ever-higher demand for water and the need to go farther and deeper to find quality, abundant resources, which together contribute ever-higher marginal costs. The financing of water supply is therefore an urgent need in most developing countries.
• Similarly, the financing of sanitation is a critical priority, yet the short-term cost of water-borne sewerage systems seems prohibitive for most countries.
• The financing of ICT is also a key priority for cities to increase connectivity that can enhance human wellbeing and prosperity.

Innovative municipal finance solutions, such as value-capture, can improve the prospects of developing necessary infrastructure in specific urban areas, reducing spatial inequalities.

Source: World Cities Report 2016, UN Habitat