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Cities need to collect more tax to finance their development, says Colombian Minister

The High Level Panel brought together UN Member States and subnational authorities

At today’s High Level Panel on financing development in cities, which was part of the UN Habitat III meeting taking place in Quito, Elsa Noguera, Colombia’s Minister of Housing, City and Territory, said that the most important step in ensuring sustainable financing of cities is for the latter to improve their tax collection.

Speaking to country representatives from Member States, ministers, mayors, local authorities and other stakeholders, she said she recognised that national governments and ministers like herself are responsible for transferring resources to cities and for providing the legal frameworks necessary to stimulate financial provision to local governments, but as a former mayor of Barranquilla she had seen her budget double by simply getting better at tax collection.

“It is very important at the local level to have the political will to collect taxes that are necessary and fair, for example property taxes, business taxes and sales taxes,“ said Noguera. “Although the national government provides the legal framework for tax purposes, it is the municipality which regulates and adopts the rules at the subnational level and when there are clear rules then it is easier for citizens to pay taxes in turn.”

While improving tax resources may be an option for those cities which have the power to collect sufficient income from taxes, Mauricio Rodas, the Mayor of Quito, said it was the very lack of legal frameworks which was preventing cities from getting direct access to finance and from tapping into private sector funds.

“I have had a chance to talk to a number of mayors around the world and I think there is a major shortcoming in most countries as regards the normative framework for public-private partnerships (PPPs) and this is a task that UN-Habitat and other international organisations could make a major contribution towards by setting much clearer guidelines in order to foster public-private partnerships,” said Rodas. “We are all aware of the importance of the private sector in the New Urban Agenda and it has a huge responsibility along with other actors to adequately implement the New Urban Agenda but we need really to advance towards enhancing the regulatory framework for these partnerships to work. ”

Diène Farba Sarr, Senegal’s Minister of Urban Renewal, Housing and Living Environment, agreed that the right legal framework could provide an opportunity for the provision of urban services through concessions.

“Concessions have made it possible to set up private companies to be responsible for water provision and through something similar to a PPP, for the exploitation of a paying motorway,” said Sarr. “We formally adopted a PPP law in the National Assembly to overcome the deficit of internal resources.”

Other financing sources which cities can turn to include multilateral banks or the capital markets but both provide challenges, said Colombia’s Minister of Housing.

“It is not easy for municipalities to show they have they capacity [for such funding] yet cities are those with the greatest needs so we need to introduce management models that will build trust in the capital markets,” said Noguera. “It is really unbelievable but it is often not about the credit risk or rating but about the trust that needs to be built by local governments to see whether it is possible to generate future income which will service debt.”

And according to Noguera, while multilateral development banks bring a wealth of execution and programme planning experience and can offer soft credit lines with lower interest rates, the problem is that they often require sovereign guarantees.

Through an official intervention, Marcelo Lacerda, the Mayor of Belo Horizonte, drew attention to the National City Declaration on Localised Finance for Inclusive Change, which was drawn up by cities and local authorities in March 2016 as the official contribution by local governments on financing to the New Urban Agenda. Speaking on behalf of the Global Task Force of Local and Regional Governments, Lacerda said that this sets out the needs as well as many of the challenges being debated by the High Level Panel.

“It also showcases the wide range of opportunities that lie in our territories to build a transformative agenda for an inclusive, resilient and sustainable future,” said Lacerda.

The Global Task Force will hold a special conference on financing sustainable urban development to be held in Africa in 2017.