Financing Metropolitan Governments in Developing Countries 1st Edition Roy Bahl Online Reading
Financing Metropolitan Governments in Developing Countries 1st Edition Roy Bahl Online Reading
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Financing
Metropolitan
Governments
in Developing
Countries
Financing
Metropolitan
Governments
in Developing
Countries
Edited by
Roy W. Bahl
Johannes F. Linn
Debor ah L. Wetzel
© 2013 by the Lincoln Institute of Land Policy
Financing metropolitan governments in developing countries / edited by Roy W. Bahl, Johannes F. Linn,
Deborah L. Wetzel.
pages cm
Includes index.
ISBN 978-1-55844-254-2 (alk. paper)
1. Municipal fi nance—Developing countries. 2. Finance, Public—Developing countries. 3. Local
taxation—Developing countries. 4. Municipal government—Developing countries. 5. Municipal
fi nance—Developing countries— Case studies. 6. Finance, Public—Developing countries— Case
studies. 7. Local taxation—Developing countries— Case studies. 8. Municipal government—
Developing countries— Case studies. I. Bahl, Roy W. II. Linn, Johannes F. III. Wetzel, Deborah L.
HJ9695.F663 2013
352.4'216091724—dc23 2013001063
The paper is Rolland Enviro100, an acid-free, 100 percent PCW recycled sheet.
Contributors 421
Index 423
About the Lincoln Institute of Land Policy 431
Illustr ations
TABLES
FIGURES
BOXES
One of the several things I did to prepare to write this foreword was review the
original volume of Bahl and Linn, which came out in April of 1992, titled Urban Pub-
lic Finance in Developing Countries, including the foreword that I prepared for that
volume. In the foreword I stated, “When the World Bank initiated this research pro-
gram on urban public finance in the early 1970s, Roy, Johannes, and I found it diffi-
cult to raise much interest in the topic.” Fortunately, over the years, much of the work
by Bahl and Linn on urban public finance in developing countries has reached wide
audiences in academia and developing countries. Their book distilled the lessons
learned during many years of work by themselves and a growing cadre of others who
were prompted by the funding of the World Bank’s initial research projects and field-
work during that early period. As a result, our main objective of providing the basis
on which further research and operational work could build was largely achieved.
Now, more than 20 years down the road, the audiences have expanded, and the
knowledge base has been greatly extended, deepened, broadened, and, perhaps most
impressive, pushed into several new dimensions of importance. For example, 20 years
ago we could not have produced a chapter on the role of metropolitan cities in na-
tional economies (Shahid Yusuf); on their place in the national fiscal structure (Paul
Smoke); on institutions and politics (Inder Sud); or on infrastructure and capital
markets (Greg Ingram et al.).
Further, a large core of a new generation of specialists—drawing on the initial
and continuing work of Bahl, Linn, Richard Bird, Charles McLure, and others—
has continued to grow up around the world, and the ability to administer modern
revenue systems is in place in many locations. There has been some improvement
in governance and finances of metropolitan areas, including better expenditure as-
signments, the implementation of buoyant revenue systems in some places, borrow-
ing to finance urban infrastructure, and, most of all, more elected representation
in many regions.
Metropolitan planning has become a reality in most large urban areas, even though
the planning agencies are ineffective in moving things forward and generally in
linking their plans with the fiscal and financial aspects of metropolitan government.
There are also a growing number of success stories in metropolitan fi nance and
management that, together with the now accumulated experience and proper efforts
and support, could be extended to an even broader array of forward-looking pro-
grams to address the growing public service needs of metropolitan-area populations.
Nevertheless, an honest look at what use has been made of the now very substan-
tial knowledge base reveals that the response has not been heartening. As documented
xii n Foreword
in this volume, sweeping metropolitan-area fiscal reforms have been few and far
between; the urban policy reform agenda is still a long one; and there is a reasonable
prospect that closing “knowledge gaps”—the gaps between what we know how to
do and what is actually being done—will continue to be difficult and slow. The fol-
lowing are some of the most worrisome areas where such gaps exist, judging by the
evidence presented in this volume.
We have not developed the ability to govern effectively the metropolitan regions
that have become the most important concentrations of people on Earth. National
and state (or provincial) governments shackle city and metropolitan governments
and/or neglect their problems. Add to this frequent conflict, or at least a lack of co-
ordination, among the many different authorities. Gross inefficiencies continue to
plague delivery of most ser vices in most metro areas. Metropolitan revenues remain
gravely insufficient despite rapidly burgeoning needs and a growing tax base. Appro-
priate transfer systems that reflect the differences between metros and other local
governments have, in general, not yet been implemented. Huge infrastructure defi-
ciencies persist or, in developed countries, have emerged; and there are few signs
they might be addressed on anything approaching sufficient scale anytime soon.
The same is true of basic social ser vices. Some countries and cities are scram-
bling to address these problems, but often outside any context of a metropolitan
fiscal strategy. Perhaps of greatest concern, the data that might help elucidate these
and related problems so that more appropriate or politically palatable solutions
might be designed remain largely absent or inadequate.
One must ask why the going has been so slow for so long. This is a matter we pon-
dered, to little effect, in 1992 and again in this volume. Now, after the wholly worth-
while investment of so much more time, effort, and money, it would be a grave error
to be again naively hopeful about the future or to fall back on the excuse that devel-
opment takes time, though of course this is true. So, though it may be presumptuous,
I suggest that we contemplate a serious investigation of this “failure on the action
front,” along the following lines.
Quite a few thoughts about what has held things back emerge from these chap-
ters. A complex set of government weaknesses, a lack of democratic participation,
and the nature of politics have played important parts. One important aspect is the
urban versus rural struggle, both for political power and influence and for the
resources to meet respective needs. In addition, higher-level (federal and state or
provincial) government officials fear that they might lose control of things if too
much autonomy is given to (sometimes capable and ambitious) metropolitan mayors.
However, by far the dominant reason for lack of progress is that the central impor-
tance of cities, of urban agglomerations, remains far too imperfectly understood by
most people, including many extremely well-meaning people: advocates of allevi-
ating rural poverty; many environmentalists; and, above all, most of the influential
policy makers who might be able to get the ball rolling. As a result, though the inter-
est in urban matters has tended to cycle up and down, it has seldom been and has
never remained a top priority. Substantial progress has been made on certain aspects
of the urban “problematique,” including municipal and metropolitan finances. How-
ever, sustained progress on a broad front toward smarter growth, creating more
sustainable cities, and alleviating grave pollution problems—including global
Foreword n xiii
warming—has been lacking, as has progress toward reforming municipal and met-
ropolitan fi nances so that the resources might become available to deal with these
and other important matters.
In view of these obstacles, it would be putting the cart before the horse to insist
that solutions to this host of problems should start with the emendation of munici-
pal and metro finances. Rather, I believe, the search for a way forward will need to
start with a better understanding of the overall urban dilemma and that it cannot be
successfully addressed on an item-by-item basis. Cities, especially large metropolitan
areas, are where our greatest economic and social opportunities lie and where our
most threatening economic and social problems manifest, the former under-
exploited and the latter aggravated by inadequate and counterproductive policies
and actions.
Fortunately, there has been substantial progress in urban research since the early
1990s. This has been admirably summarized by perhaps the single greatest con-
tributor to this progress, Edward Glaeser, in his outstanding book Triumph of the
City (2011). In this very readable book, Glaeser comprehensively treats the (limited)
nature of cities’ “triumph”: in spite of the many obstacles, people will come to cities
and become “richer, smarter, greener, healthier, and happier” as a result. He also
demonstrates the many contributing reasons for this triumph over adversity, em-
phasizing that, at its core, the indomitable strength of cities is due to the edu-
cation, knowledge, and skills of its residents (importantly, including those added
via immigration) and the cities’ functions in bringing these residents together most
productively. He suggests the elements of what can be the path toward a future where
the triumph of the city might no longer be limited—if we will have the sense, and
can mobilize the will, to take it.
Some influential opinion makers have come to understand the issue at hand. In
an op-ed in the New York Times on December 5, 2012, titled, “How Cities Can Save
China,” Henry M. Paulson Jr., former chairman of Goldman Sachs, former U.S. trea-
sury secretary, former chairman and still an important force in the Nature Con-
servancy, wrote: “A flawed system of municipal finance is driving debt . . . while un-
sustainable urban planning has yielded polluted cities that are destroying China’s
ecosystems. . . . Cities can, however, be part of the solution.” And what he says is true
not merely about China (though it is surely nowhere else demonstrated in bolder
relief), but everywhere. It is around such an appreciation as this that a successful
approach might be organized.
What seems to me the only realistic path out of the current dilemma, not just
for metropolitan and city fi nance but for the urban problematique, is for there to
emerge—to be encouraged to emerge—a powerful urban coalition that can begin
to force change and to evolve a strategy to interest and eventually involve the requi-
site actors. Perhaps this could begin with the C40 Cities Climate Leadership Group,
currently chaired by Michael Bloomberg, particularly if it could adopt a more com-
prehensive view of the problem and its agenda. And perhaps such a group, abetted
by the international development banks and a number of other organizations, might
prevail upon the G20 to make these concerns central in its agenda. Success along
such lines would greatly strengthen the demand for action on the metropolitan and
municipal finances front.
xiv n Foreword
At the same time, a push could come from the supply side of ideas, with research
started now, building on the chapters in this volume, that could lead to the publica-
tion of another volume in the future. The new agenda could include, among other
things, research focused on urban institutions, management, and political issues and
on more effectively accessing capital markets. Additionally, the agenda could cover
case studies on positive trends and developments, including factors that have im-
peded or disrupted progress in metropolitan management and finance. Such a com-
prehensive program, presumably under U.N. auspices, could at last confidently build
the database to support research on these and other critical urban problems.
And, finally, a serious effort might be made to persuade the World Bank to part-
ner with the relevant regional development banks and perhaps other institutions to
initiate a large pilot program on metro finance reform in a promising metropolitan
region. Such a partnership might undertake the arduous task of discovering a re-
gion that appears to meet most of the several exacting preconditions for success, or
work with the relevant actors in the region and at the national level until the
groundwork for potential success can be laid down.
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