Abstract A bid-rent model of property value determination with a public good and property taxation is developed. Using the local government budget constraint, an estimating equation is derived which can indicate whether public goods are efficiently provided. The empirical results show over-provision of public goods in northeastern New Jersey.

Property values, local public expenditure, and economic efficiency / BEBR No. 445

Local government in advanced economies is undergoing a period of rapid reform aimed at enhancing its efficiency and effectiveness Accordingly, the definition, measurement and improvement of organisational performance is crucial Despite the importance of efficiency measurement in local government it is only relatively recently that econometric and mathematical frontier techniques have been applied to local public services This paper attempts to provide a synoptic survey of the comparatively few empirical analyses of efficiency measurement in local government We examine both the measurement of inefficiency in local public services and the determinants of local public sector efficiency The implications of efficiency measurement for practitioners in local government are examined by way of conclusion

An Empirical Survey of Frontier Efficiency Measurement Techniques in Local Government

Decentralization and delivery of public services in Asia

The majority of South African municipalities facing the challenges of unemployment, poverty and weak infrastructure are in rural areas. To fulfil their mandate, they depend significantly on financial transfers.  This is something that the government is focused on minimising as evidenced by the recent Department of Cooperative Governance and Traditional Affairs proposal of amalgamating many municipalities to make them self-reliant and functional.  This paper asks the question: ‘will amalgamations of rural municipalities correct for financial viability and functionality’? Using case studies of amalgamated municipalities, the paper observes that amalgamations will not make all rural municipalities self-sufficient and functional.

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Amalgamation of South Africa’s rural municipalities: is it a good idea?

Property Taxation in India : Issues Impacting Revenue Performance and Suggestions for Reform

The paper assesses the performances of the urban local bodies in the state of Karnataka in India.We use non parametric Data Envelopment Analysis as a tool to measure technical efficiencies of the ULBs. If we compare the services in a particular size class of city with the norms we find that in the smallest size class it is water supply which has the minimum shortfall from norms, in the medium size cities it is road density which is closest to the norms and in the largest city size class it is the solid waste management which performs the best with zero shortfall from norms. On an average for all the services there is a shortage of 57 per cent of the ONM expenditure norms, the shortage being the highest (64 per cent) in the biggest size class of cities. If we compare across size classes we find that bigger cities have on an average higher proportions of ONM expenditures while both salary and establishment components show higher proportions in smaller cities. This is indicative to the fact that bigger cities are incurring more productive expenses than the smaller ones. We find that the overall average collection efficiency of property taxes is only 62 per cent which is the lowest in the smallest size class and the highest in the medium size class with little variation across cities. We find that only 27.5 per cent of the ONM expenditure requirements can be fulfilled by the own revenues once the potential for the latter is fully realised. This proportion is higher in bigger cities with moderately high variation across cities. As far as the ONM cost coverage is concerned we find that on an average the ULBs in Karnataka can finance 50 per cent of the ONM costs on basic services through their own revenues with a very high variation in the proportions across cites. We find that the ULBs on an average can reduce 27 per cent of their expenditures on ONM, labor and establishment to provide the same levels of services provided currently by them. We also find that there can be additional savings particularly on establishment and labor expenditures to operate at the maximum efficiency levels. We find that the extent of problem of unproductive spending and under-provision of services is more pronounced in smaller cities.

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Performance Evaluation of Urban Local Governments: A Case for Indian Cities

The paper brings together the information on different components of revenues and expenditures of the urban local bodies (ULBs) in Jharkhand and analyses their growth over a recent period. The performances of the ULBs are evaluated by estimating some indicators based on actual revenues and expenditures. The expenditures are also compared with the financial norms estimated for different urban services for Indian cities according to different size classes. An attempt to estimate the gross city product of each ULB in Jharkhand is also made. A broad comparison on finances and service delivery indicators of these ULBs with those in the ULBs of the eight adjacent districts of West Bengal is also attempted. We find that the revenue capacities estimated on an average can generate additional revenues of 77 per cent for the ULBs in Jharkhand. The increase in total revenues would be the highest (184 per cent) for the 1 lakh plus cities and the lowest (30 per cent) for the smallest size class of cities. We also find that on an average Jharkhand cities generate only 0.17 per cent of their Gross City Products as own revenues. The bigger cities are found to be relatively more constrained than the smaller ones. An overall analysis of finances on the basis of actuals in the ULBs of the two states reveals that West Bengal is in a comparatively better position than Jharkhand as far as the performance according to indicators related to finances are concerned. Out of eight indicators selected, the performance on an average is better in West Bengal in almost all of them. A close look at the dependency ratio on the higher tiers of the government as a percentage of transfers to total revenues reveal that on an average 91 per cent of the revenues in the ULBs of Jharkhand comes from transfers where transfers constitute grants in different forms of assistance. Whereas in West Bengal the average ratio is 61 per cent which also includes assigned revenues. While only 6 per cent of the expenditures can be covered by own revenues in Jharkhand, the ratio is about 37 per cent in West Bnegal. Own revenues can cover 19 per cent of revenue expenditures in Jharkhand whereas in West Bengal the ratio is 43 per cent. While Jharkhand covers 41 per cent of the revenue expenditure norms by their actual revenue expenditure, West Bengal on an average can only cover 36 per cent. A brief analysis in terms of some coverage indicators of municipal services, infrastructure, employment, socio-demographic indicators and some standard of living indicators show that the urban service delivery, in terms of some of the coverage indicators, are relatively better in most of the size classes and also on an average as a whole in West Bengal. We can generally conclude that the relatively better indicator in terms of finances and expenditure management in the ULBs of West Bengal has a somewhat positive impact on municipal service delivery too.

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Finances of Urban Local Bodies in Jharkhand: Some Issues and Comparisons

The present paper attempts at a comparative evaluation of two Indian cities, Delhi and Bangalore, in the performance of implementing property tax reforms through unit area method of valuation and self-assessment schemes. Delhi is a city where the results of implementation of these reforms were not up to the mark whereas Bangalore could achieve considerable success. The main objective of the paper is to explain the differences in the extent of the success in achieving the desired outcomes in the two cities. There has been a decrease in number of assessed properties in Delhi and an increase in number of assessed properties in Bangalore. The property tax to GSDP ratio declined in case of Delhi and increased in case of Bangalore. The main findings suggest that it is a combination of policy and administrative factors which are responsible to create differences in performances of the two cities. Optimal progressivity in tax rates, better coverage and collection ratios, better service delivery, better living conditions and a more stable property market are the major factors contributing to a better performance in property tax collection in Bangalore.

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Property Tax Reforms in India: A Comparison of Delhi and Bangalore

The main objective of the paper is to propose a framework in which fiscal health conditions can be assessed and the main determinants affecting fiscal health can be identified, inspite of severe data constraints. The paper draws on big urban agglomerations in India as well as smaller cities as a sample and attempts to identify the difference, if any, in the main determinants for variations in fiscal health conditions across different size classes of cities. To compensate for the lack of statistical rigor in the estimations of expenditure needs and revenue capacities, we propose a framework which analyses the ratio of expenditure needs to revenue capacity by fitting an econometric model. It is a two-step method, in the first stage we estimate the expenditure need and revenue capacity separately by simple methods discussed above. In the second stage we take the ratio of expenditure need and revenue capacity as an indicator of financial performance of a ULB and fit an econometric model to explain the performance of ULBs on the basis of factors which are likely to affect the performance of the ULBs. We find that the role of the higher tiers of the government is important in bigger and smaller size class of cities in their financial management. However, for bigger cities we find that the own source revenues can also play an important role in bringing down the fiscal ratio. In the smaller ULBs the role of the demand indicators is not that prominent but the cost indicators play a relatively prominent role. In case of bigger agglomerations, the demand indicators are more prominent than the cost indicators.

Estimating Fiscal Health of Cities: A Methodological Framework for Developing Countries

The Commissioner of Municipal Corporation of Delhi (MCD) had recommended certain measures in December 2011 to improve the revenues of the corporation and thereby narrow the existing budget gap. These included introduction of congestion and conservancy charges and revision of rates for parking fees, one time parking charges, fees from mobile towers and property taxes, thus mainly focusing on the augmentation of the non-tax revenues. However, due to social resistance and lack of political will, none of these recommendations were implemented. In this paper we have attempted to quantify the potential revenue gains that may have resulted had the recommendations been accepted. Through a simple simulation based analysis, we find that with the implementation of the recommendations, increases in the own revenues could be between 10 per cent to 21 per cent while that in total revenue could be between 7 per cent to 15 per cent. We also find that with the reccommendations being implemented, own revenues would be able to cover about 77 per cent to 85 per cent of the revenue expenditure and total revenues would be able to account for about 74 per cent to 80 per cent of the total expenditure. Further, the share of non tax revenues in the total revenues would also rise which suggests that the corporation would be in a better position to exploit its potential for non tax revenues and move towards greater self reliance with lesser dependence on tax revenues. Finally, we find that the major share of gains would come from ‘one time parking charges’ followed by property taxes and other components.

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Simanti Bandyopadhyay

Papers

Performance Evaluation of Urban Local Governments: A Case for Indian Cities

Finances of Urban Local Bodies in Jharkhand: Some Issues and Comparisons

Property Tax Reforms in India: A Comparison of Delhi and Bangalore

Estimating Fiscal Health of Cities: A Methodological Framework for Developing Countries

Are User Charges Underutilsed in Indian Cities? An Analysis for Delhi