This post marks the beginning of our new blog series “Cities in Books“. In this series we will put across posts that reflect on how cities are portrayed in books and relate them from an urbanisation perspective.

“It is August 1854, and London is a city of scavengers.”

Thus begins ‘The Ghost Map’, Steven Johnson’s brilliant book on the London cholera outbreak of 1854. The book, on the one hand, is a medical thriller that follows its two protagonists – the physician John Snow and clergymen Henry Whitehead -  as they use reason and evidence to overturn the prevailing orthodoxy on the understanding of communicable diseases and in the process, found the science of modern epidemiology in what is still considered a seminal event in the field of public health.

Simultaneously, the book is also remarkable for its view of the epidemic as a consequence of urbanisation and the response to it as one of the defining milestones that made long-term urbanisation and high density growth sustainable prospects. In making this argument, Johnson starts off by providing us a visceral portrait of London circa 1854, to lay out the background on which the story unfolds. Sample this edited fragment about the scavenger economy of London:

“Just the names [of the scavengers] alone read like some zoological catalogue: bone-pickers, rag-gatherers, pure-finders, dredgermen, mud-larks, sewer-hunters, dustmen, night-soil men, bunters, toshers, shoremen. They were the London underclasses, at least a hundred thousand strong. So immense were their numbers that had the scavengers broken off and formed their own city, it would have been the fifth-largest in all of England…

Early risers […] would see the toshers wading through the muck of low tide, […] their oversized pockets filled with stray bits of copper recovered from the water’s edge. […] Beside them fluttered the mud-larks, often children, dressed in tatters and content to scavenge all the waste that the toshers rejects as below their standard: lumps of coal, old wood, scraps of rope.

Above the river, in the streets of the city, the pure-finders eked out a living by collecting dog-shit […] while bone-pickers foraged for carcasses of any stripe. Below ground, in a growing network of tunnels beneath London’s streets, the sewer-hunters slogged through the flowing waste of the metropolis. Every few months, an unusually dense pocked of methane gas would be ignited by one of their kerosene lamps and the hapless soul would be incinerated twenty feet below ground, in a river of raw sewage.

London’s underground market for scavenging had its own order of rank and privilege, and near the top were the night-soil men […] City landlords hired the men to remove the “night soil” from the overflowing cesspools of their buildings.”

With a population of 2.4 million people as per the 1851 census, and grossly inadequate infrastructure, London was “drowning in its own filth”. Great numbers of people living closer to each other in unsanitary conditions – the ingredients for the spread of cholera bacterium were optimal.

A growing city with infrastructure unable to keep pace with population, generating tremendous quantities of waste and sewage, and scavenger economies built around the waste – these are themes that resonate across many developing country metropolises even today. London’s transformation to a global city with good quality infrastructure therefore can be seen as a beacon of hope for these cities as they confront their infrastructure and public service challenges, but with the added complexity in most cases of much higher populations than London in 1854– in some cities like Mumbai and Delhi, an order of magnitude greater. However, the technologies and solutions available at present to tackle civic problems at scale also provide these cities tremendous opportunity to drive change much faster than London in 1854 was able to.

Having established that London in 1854 was rife with conditions for the spread of cholera, Johnson then describes the untiring work of Snow and Whitehead in fighting against the prevailing orthodoxy of the ‘miasma’ theory, which held that diseases such as cholera were caused by bad air and smells. Based on their scientific approach of collecting data on where deaths had occurred, mapping this data and comparing this with areas which were considered to be ridden by ‘miasma’, they were able to conclusively prove that the ‘miasma’ theory could not explain the deaths caused by the epidemic. They were also able to prove that it was the water from the pump located at Broad Street that caused the spread of the disease. The maps developed by Snow were critical in clinching the case for the water-borne theory.

“When Snow set out to do the second version of the map was to create a Voronoi diagram using the thirteen pumps as points. He would diagram a cell that showed the exact subsection of addresses on the map that were closer to the Broad Street pump than they were to any other pump. But these distances were to be calculated on foot-traffic terms, not the abstract distances of Euclidean geometry. […]

And so the second version of the map […] included a slightly odd, wandering line that circumscribed the centre of the outbreak, roughly in the shape of a square with five or six areas jutting out, like small peninsulas, into the surrounding neighbourhood. This was the area encompassing all those residents for whom the quickest trip for water was to the Broad Street pump. Superimposed over the black bars that marked each death, the amorphous shape took on sudden clarity: each peninsula extended out to embrace another distinct cluster of deaths. Beyond the circumference of the cell, the black bars quickly disappeared.”

Modern epidemiology was born out of this map. What is striking is the fact that the physical mapping of the spread of an outbreak enabled the detection of its source. Today, we see wide application of maps in understanding many different types of urban issues, and this owes in substantial measure to John Snow’s maps of the cholera outbreak.

Additionally, Johnson also argues that the very nature of ‘urban’ London was crucial to Snow and Whitehead making their breakthrough.

“And it was precisely [Snow and Whitehead’s] metropolitan connection that made this solution possible: two strangers of different backgrounds, joined by circumstance and proximity, sharing valuable information and expertise in the public space of the great city. The Broad Street case was certainly a triumph of epidemiology, and scientific reasoning, and information design. But it was also a triumph of urbanism”

The lasting consequence of the cholera outbreak Johnson posits is the fact that public health authorities oriented themselves towards the new science. What this meant was that there was a new focus on creating infrastructure that enabled the supply of clean water and the removal of sewage to create sanitary, hygienic cities. In the long view, Johnson argues, it is this change that has enabled (and will continue to enable) the trends of increasing urbanisation and denser cities while ensuring health and safety for citizens.

“Establishing sanitary water supplies and waste removal systems became the central infrastructure projects of every industrialised city on the planet. […] The changes ushered in by the sewer system were manifold: fish retuned to the Thames; the stench abated; drinking water became markedly more appetizing. But one change stood out above all the others. In all the years since Henry Whitehead helped track down the Old Ford reservoir contamination in 1866, London has not experienced a single outbreak of cholera. The battle between metropolis and microbe was over, and the metropolis had won.”

This post follows our earlier post on US Municipal Securities Market.

The evolution of US Municipal Securities Market can be divided into three distinct phases¹-

i. 1800s-1950
ii. 1950-1975 and
iii. 1985-present.

i. 1800s-1950

The idea of using public financing for infrastructure works emerged in the early 1800s. The financing of Port of New Orleans in the 1800s was the first instance of an authority using public financing. Until then (and for a few decades after) the dominant form of financing transport, canals and railroad was corporate debt. Following this, the issuance of Erie Canal bonds issued between 1812 and 1825 were guaranteed by New York State. The Port Authority of New York and New Jersey were among the first conduit bonds issued by state for a specific public purpose which overlay multiple municipal boundaries and whose debt was paid not from taxes but from operating revenues.

As the United States moved into the new century, city governments were granted “home rule” by state legislatures. This broadened their ability to borrow and spend. This period also witnessed an expanded Federal agenda of public work programmes. Post-World War I, the rate of increase in outlays for public works by states tended to exceed the proportional expansion of tax revenues. Moreover, outlays constituted an increasing proportion of total governmental cost payments during this period. Thus, the states experienced a growing need for borrowing to finance public works. By 1925, municipal revenue bonds became an established method.

The Federal Government had a major impact on local governments accessing public financing for public works projects through its regulatory standard setting powers. For example, the Flood Control Act of 1917 and 1928 was passed to control of floods on three rivers. Local interests protected because of flood control were to contribute not less than one-half of the cost of construction. The Hill Burton Act of 1946 was designed to provide federal grants and guaranteed loans to improve the nation’s hospital system. The federal money was only provided in cases where the state and local municipality were willing and able to match the federal grant or loan, so that the federal portion only accounted for one third of the total construction or renovation cost. The Housing Act of 1946 required municipalities with populations over 50,000 to finance one-third of the cost of redevelopment activities to match the two-thirds federal share.

ii. 1950-1975

The post- World War II period saw an increase in individuals’ taxable incomes as well as an increase in average effective tax rate for insurance companies. It also saw the emergence of a range of environment protection legislations. In addition, pent-up housing demand, the changing character of transportation and a shift in structures for manufacturing facilities, all combined to produce a huge demand for additional public and private facilities. In response to that demand, the level of state and local government debt rapidly increased. So while the total outstanding debt in 1960 was only $66 billion, by 1981 the amount was over $361 billion.

This period also saw an increase in the total outstanding amount of short term borrowing. In the early 70s, the annual dollar amount of short term debts issued equalled or exceeded the amount long-term debt issued. Also, revenue bonds began to constitute over half of new issues in the late 1970s. During this period, there were four purposes for which short term borrowing was put to use:

• Over one-third was for public housing or urban renewal purposes
• Synchronizing flow of current disbursements with current tax receipts
• Reducing financing costs associated with capital projects, in order to avoid borrowing the amount required to finance an entire capital project before all of the funds are needed
• Financing expected and unexpected operating deficits.

Some of the important federal legislations in this period that influenced the kind of debt issued in this period are:

• The Veterans’ Adjustment Act of 1952 included benefits like low-cost mortgages, loans to start a business or farm, cash payments of tuition and living expenses to attend college, high school or vocational education, as well as one year of unemployment compensation for World War II veterans. They could receive state and federal benefits, the federal benefits beginning once state benefits were exhausted.
• The Air Pollution Control Act of 1955 left states principally in charge of prevention and control of air pollution at the source. Under the Clean Water Act of 1972, the Congress created a major public works financing program for municipal sewage treatment. In the initial program the federal portion of each grant was up to 75 per cent of a facility’s capital cost, with the remainder financed by the state. In subsequent amendments Congress reduced the federal proportion of the grants and in the 1987 Water Quality Act, it transitioned to a revolving loan program. The environmental legislations permitted companies to borrow through state and local agencies for pollution control purposes, allowing them to enjoy lower interest rates because of the tax exempt status of interest on state and local debt.
• The Elementary and Secondary Education Act of 1965 is one of the most far reaching federal legislation affecting education ever passed by the Congress. Under this act, federal funds would not serve as replacements for local funds but rather they would serve as ancillary resources.
• The Housing and Urban Development Act or New Communities Assistance Program of 1970 was established to guarantee bonds, debentures, and other financing of private and public community developers and to provide other development assistance through interest loans and grants, public service grants, and planning assistance.

iii. 1985-present

As of 2010-2011, the municipal securities market had close to 44,000 state and local issuers, and with a total face amount of $ 3.7 trillion. Figure 1 below shows that while the amount issued per year has not fluctuated much, the number of issues has seen great fluctuation since 1986. Each dip in the number of securities issued roughly corresponds with periods of recession in the American economy².

Figure 1 Summary of debt issued (1986-2010)

As Figure 2 shows, retail investors or individual investors have been the largest owners of municipal debt for more than the last decade and half. These investors usually buy and hold securities till the end of the maturity period. As of 2010-2011, approximately 50 per cent of the outstanding total outstanding debt was held directly by individuals and up to 25 per cent was held on behalf of individuals by mutual, money market, closed end and exchange traded funds.

Figure 2 Ownership of debt (1996-2010)

As shown in Figure 3, most of the total outstanding debt, despite many fluctuations, is issued for general purpose. General purpose debt is issued for long range capital needs issuing agencies as well as to support construction of public work facilities and their upkeep improvements especially when there is a shortfall of federal funds. General purpose is followed by education as the purpose with the second largest issue.

Figure 3 Purpose of debt as percentage of total outstanding debt (1986-2010)

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1-This analysis is incomplete due to unavailability of data for some individual years between 1959-1962, 1962-1967 and 1974-1984
2-The sudden leap in the total outstanding amount from 2004 to 2005 is a result of revision in the Federal Reserve’s figures on municipal securities and loans due to a change in data sources. New data indicate that municipal securities and loans outstanding in 2004:Q1 is $740 billion greater than previously estimated in the flow of funds accounts. The estimate of household holdings of municipal securities and loans is revised up by about $840 billion, on average, from 2004 forward.

]]> http://financingcities.ifmr.co.in/blog/2013/04/07/us-municipal-securities-market-part-ii-evolution-and-current-status/feed/ 0 http://financingcities.ifmr.co.in/blog/2013/04/07/us-municipal-securities-market-part-ii-evolution-and-current-status/ http://feedproxy.google.com/~r/FinancingSmallCitiesBlog/~3/ldNh3CXXcKY/ http://financingcities.ifmr.co.in/blog/2013/03/28/us-municipal-securities-market-part-i-introduction/#comments Thu, 28 Mar 2013 09:53:45 +0000 admin http://financingcities.ifmr.co.in/blog/?p=322 By Krushna Ranaware, Intern, IFMR Finance Foundation

This post is part of our blog series on Municipal Finance.

In the United States, critical infrastructure financing has been facilitated to a great extent through the issuance municipal bonds or ‘munis’. States and local governments and their agencies issue municipal securities primarily to finance public infrastructure as well as to provide for cash flows and other needs of the government and sometimes to finance private projects. America’s local governments spend about one-eighth of the GDP, one-fourth of total government spending, and employ over 14 million people. Some of the distinct features of local governments are:

i) property taxes form majority of local taxes;
ii) inter-governmental taxes form one-third of local revenue;
iii) relatively balanced budgets.

As of December 31, 2011, there were over 1 million municipal bonds outstanding, in the total aggregate principal amount of more than $ 3.7 trillion with 44,000 state and local issuers (compared to 50,000 corporate bonds with outstanding principal amount at $11.5 trillion).

Types of Municipal Securities

Securities issued by state or local entities can be classified as:

1. General Obligation (GO) bonds: Bonds that are supported by the taxing power and/or full faith of and credit of the issuing authority. Holders of GO bonds can be repaid using revenue from all legal sources of the issuing authority and hence their issuance needs voter approval.
2. Revenue bonds: Revenue bonds are supported by specific revenues only, like revenue earned from taxes levied on a particular project for which financing was undertaken using revenue bonds.
3. Other types of securities: Conduit revenue bonds are issued by a state or local authority or their agencies on behalf of a third party that in turn bear the responsibility of repayment of the bond. College savings plans or ‘529 Plans’ which are sponsored by states or their agencies, provide tax advantages in order to assist saving for future college costs. Municipal issuers also use derivative products to execute interest rate swaps while investors use this instrument to hedge risks or increase returns.

Features of Municipal Bonds

Tax exemption

Federal tax exemption is one of the primary reasons for preference of municipal securities over other forms of securities. Interest payable on such securities is not subject to federal income tax if certain requirements imposed by the Internal Revenue Service regulations are met. In 2008, taxable municipal securities accounted for 11% of the aggregate principal amount of municipal securities issued; that number rose to 18% in 2009 and 32% in 2010(U.S. Securities and Exchange Commission, 2012).

Credit enhancement

The issuance of municipal securities is affected by the availability of credit enhancement, a form of bond insurance, which often takes the form of a letter of credit issued by a bank, a governmental guarantee, or an insurance policy issued by a bond insurance company. Municipal bond insurance was first introduced in 1971 and letter of credit supported municipal bonds became very popular after the introduction of variable rate municipal bonds in the early 1980s. Credit enhancements were common during 2000-2007, with more than half of the municipal securities principal issued supported by at least one type of credit enhancement during that period. As seen in figure 1, this trend was reversed in 2008 due to the effect of the financial crisis on banks and municipal bond insurers.

Types of Markets

Primary Markets

There are two types of purchases in the primary market one where securities are offered to anyone with the wherewithal to purchase them and the other where, through private placement, securities are bought by investment banks. The following chart shows the process of initial issuance bonds in the primary market.

The first step involves state or local governments getting authorization to issue debt through voter referendum or existing statutes. In the next step, the issuer determines the details like dollar amounts, maturities and coupon rates for the bonds. The third step involves bidding for the issue publicized using advertisements, setting in motion the underwriting and rating processes. The rating agencies contract with the issuer to rate the debt issue and publish the ratings. The rating agency collects the information it requires for the analysis and then publishes the rating a week before the sale of the debt issue. Instead of requiring formal competitive bidding, many short term municipal issues and some long term issues are privately placed with local commercial banks or other institutions through negotiated sales. Offerings of municipal securities are issued through an underwriting process where brokers and dealers or a ‘syndicate’ of under-writers purchases securities directly from issuers and reoffer them to investors for a fee known as the underwriter’s discount gross underwriting spread. Nearly all long term state and local debt issues are sold initially to underwriters. The syndicate submits a bid stating net interest cost to the municipality and if it is successful, the syndicate then owns the securities. The underwriters then try to sell the securities to institutional and individual investors at prices that cover their underwriting spreads and provide them with an adequate profit for their risk.

Secondary markets

The secondary market refers to all transactions in an issue that occur after the original underwriting and sale processes are completed. A good secondary market is important for a debt issue as investors are more likely to be willing to purchase state and local securities if they believe they can easily liquidate their holdings when they want to. Liquidity is an important factor for long term than short term municipal debt since most short term debt is purchased and held to maturity. Data on the size of the secondary market for state and local debt are scarce since the market is conducted over the counter, i.e. the securities are not listed or traded in a formal exchange. This means that participants dealing in the secondary market are not required to report their transactions. Thus little is known about the size of the market or the characteristics of the participants in the market. However, as seen in Figure 3, in 2011, the five biggest dealers in the market conducted 54 per cent of the total transactions in the secondary market.

References:
U.S. Securities and Exchange Commission -“Report on the Municipal Securities Market” (2012)

The revenue share between state governments and ULBs is determined by the State Finance Commissions (SFCs) which are set up by state governments every 5 years. In essence, the mandate of the SFC is to determine:

1. the principles of distribution to rural and urban local governments the net proceeds of the taxes, duties, tolls and fees levied by the state
2. taxes, tolls and fees which may be assigned to rural and urban local governments
3. grants-in-aid to rural and urban local governments from the consolidated funds of the state

In Karnataka, the third SFC was instituted to provide recommendations for the period 2008-09 to 2012-13. The report assessed the current state of ULBs in the state and developed the formula for determining the devolution of funds over this five year period.

SFC analysis of ULBs in Karnataka (2002-03 to 2006-07) reveals the following:

1. 7.35% of all ULBs² run a deficit, but the trend is most pronounced for City Corporations (CCs), where 33% run deficits.
2. Across ULB types, per capita income of ULBs is greater than per capita expenditure by a factor of 2.59 (in 2006-07)
3. Grants from state government (specific and general) contribute to 61% of overall ULB revenue, but there is a clear trend of increasing dependence on grants as we move to the smaller ULBs; grants contribute 59% of CC and City Municipal Council (CMC) revenues, while amounting to 63% and 71% in case of Town Municipal Council (TMC) and Town Panchayat (TP) revenues respectively. However, grants per capita show a declining trend as we move to smaller ULBs, except for the case of TPs, which have significantly higher values than CMCs and TMCs.
4. Of own-revenue sources, property tax forms the most significant lever, at 15.7% of total revenue; again significance drops as we move to smaller ULBs – CC (20.4%), CMC (16%), TMC (12%) and TP (9.2%). Property tax per capita also shows a declining trend as we move to smaller ULBs.
5. Salaries and allowances form the largest chunk of expenditure (31.9%) and expenditure per capita across ULBs
6. There is a positive association between per capita expenditure and per capita revenue. Additionally, population (-,+) and literacy (+,+) are significantly (at the 99% confidence level) correlated with variations in per capita revenue and per capita expenditure respectively.

In terms of the trends in devolution of funds from the state government over the period of the pervious SFC, the report notes the following:

1. Overall revenue of the state increased at an increasing rate from 2002-03 to 2007-08
2. In the same period, devolutions to rural and urban local governments also grew, but at a much lower rate than the state government revenues
   

Based on this analysis, the SFC recommended the following:

1. 33% of the Net Own Revenues (NOR) of the state to be shared with rural and urban local governments
2. The criteria for determining the share of funds to rural and urban local governments was to be as follows:
   
3. Based on these criteria, the split between rural and urban local governments of the total devolved amount worked out to 70:30. This meant that 23% of the NOR was to be devolved to rural local governments and 10% of NOR to urban local governments.
4. The 10% NOR devolved to ULB’s was to be split into 3 components as follows:
   

The complete SFC report is available here.

—

1-All data, tables and charts taken from the Report of the Third State Finance Commission, Government of Karnataka
2-There are four types of ULBs in Karnataka: City Corporations (CC), City Municipal Councils (CMC), Town Municipal Council (TMC) and Town Panchayats (TP)

Continuing from our earlier post that looked at the function and functionaries of the Karnataka Municipalities Act, 1964, this post looks at the Funds facet of the Karnataka Municipalities Act, 1964, which is the enabling legislation for the 74th Constitutional Amendment Act in Karnataka. The posts are part of our Municipal Finance blog series.

Funds

The Figure below provides a break-up of what taxes, fees and other forms of own revenue generating cess or duties, municipal councils can impose under the Karnataka Municipalities (KM) Act.

Under the KM Act, the State government and the municipal council have the power to suspend or prohibit the levy of ‘objectionable’ taxes. However, the council’s order to reduce, suspend or abolish a tax is subject approval by the State government. Additionally, the State government may also require the municipal councils to impose new taxes.

Property Tax

Property Tax is the single largest source of own revenue for most ULBs. The KM Act specifies the property tax that shall be levied for different classes of buildings and land:

1. Commercial building at such percentage not being less than 0.5 percent and not more than 2 per cent of taxable capital value¹ of the building
2. Residential building and buildings other than commercial- 0.3 to 1 per cent of taxable capital value of the building.
3. Vacant land under 1000 sq. meters- 0.1-0.2 per cent of taxable capital value
4. Vacant land 1000-4000 sq. meters- 0.025-0.05 per cent of taxable capital value
5. Vacant land above 4000 sq. meters- 0.01-0.02 per cent of taxable capital value

The Act also specifies that the property tax levied should be enhanced by 15 percent once in every three years (commencing from 2005-2006).

Property tax cannot be levied on certain types of land and buildings like places set apart for public worship, choultries, ancient monuments, charitable hospitals and dispensaries, hospitals and dispensaries maintained by railway administration, burial and cremation grounds, government lands set apart for free recreational purposes etc.

Municipal Fund

The Municipal Fund of a ULB is composed of money received by or on behalf of the municipal council by virtue of the provisions of the KM Act. Money can be taken out of the municipal fund beyond what has been specified in the budget only for specific purposes like the acquisition of land, construction, maintenance, repair for the purpose of obtaining supply of water, providing the supply of electricity, establishing slaughter houses or places for the disposal of night soil or sewage or carcasses of animals, for drainage works, providing mechanically propelled transport ,setting up of dairies or farms for the supply and to promote the health, safety or convenience of the inhabitants

The municipal council can deposit any surplus funds at interest with a government savings bank, or with the sanction of the state government in any scheduled bank or a central co-operative bank in the State or in public securities².

A municipal council may borrow money with the previous sanction of the Government from the Government or from any bank, corporation or person, money required for constructing any work of a permanent nature or for acquisition of land. In such cases, the State government will specify conditions regarding security, the rate of interest and repayment.

Budget and Auditing

The Chief Officer has to present the budget of the municipal council on or before the fifteenth of January each year with detailed estimates of income and expenditure for the ensuing financial year. The budget estimate needs to make allowance for the following:

1. Suitable provisions for all services mandated by the KM Act
2. Payment of interest and principal on loans for which the council is liable
3. All payments due to the State government (for public works carried out by the State government and contribution towards expenses of Karnataka Municipal Administrative Services)
4. Allow for a balance that it is required to meet establishment charges covering three months

The State government holds the power to modify the budget in order to bring it in compliance with the provisions of KM Act.

The law also requires that the account of the council be audited every year and an audit report submitted. The audit report should contain:

1. Every payment which appears to be contrary to law;
2. The amount of any deficiency or loss which appears to have been caused by the gross negligence or misconduct of any person;
3. The amount of any sum received which ought to have been but is not brought into account by any person, and
4. Any other material impropriety or irregularity in the accounts

(The entire act may be accessed here.)

—
1 – The taxable capital value of the vacant land shall be equivalent of fifty percent of the market value guidelines of properties published of the land notified by the Government under section 45B of the Karnataka Stamp Act, 1957.
2 – “public securities” are defined as,—
(a) securities of the Government of India,
(b) securities of the Government of Karnataka, or of any other State Government,
(c) debentures or other securities for money issued by or on behalf of any local authority in exercise of the powers conferred by a law in force in the State, or
(d) a security expressly authorized by any order which the Government makes in this behalf

This post and the next one look at the Karnataka Municipalities Act, 1964, which is the enabling legislation for the 74th Constitutional Amendment Act in Karnataka. The two posts look at 3 main features of the Act- functions, functionaries and funds. The current post speaks about the first two features.

Introduction

The Karnataka Municipalities Act, 1964 (KM Act) comprises 17 chapters, 380 sections and 13 schedules. The founding objective of the Act was to have a uniform law for the governance of Municipal Councils in the State, which were governed until then by seven different enactments. The initial Act aimed to govern both City Municipalities and Town Municipalities as the provisions were in most case common and it was seen as convenient to have a single enactment for both kinds of Municipalities. The Act was later amended in 1994 (Amending Act 36 of 1994) to bring it in conformity with the provisions of the 74th Constitutional Amendment Act (CAA), 1992.

While the City Municipal Councils (CMC), Town Municipal Councils (TMC), Town Panchayats (TPs) and Notified Area Committees (NACs) are governed by the KM Act, the larger City Corporations (CCs) are governed by the Karnataka Municipal Corporations Act (KMC Act), 1976. The Table below provides a category-wise breakup of ULBs in the state.

Functions

The KM Act mentions 23 obligatory functions, 2 special functions and 35 discretionary functions of municipal councils. The 23 obligatory functions contain most functions devolved under the 74th CAA (for more on this see our earlier blog post).

The 2 special functions are:

1. Providing special medical aid and accommodation for the sick in time of dangerous disease; and taking such measures as may be required to prevent the outbreak of the disease;
2. Giving relief to and establishing and maintaining relief works in times of famine or scarcity.

The 35 discretionary functions include specific functions like planting and maintaining roadside and other trees; taking statistics and granting rewards for information which may tend to secure the correct registration of vital statistics; maintenance of an ambulance service and broad functions like the promotion of public health or child welfare; provision of transport facilities within the municipal area and revival or promotion of cottage industries.

Functionaries

The Most important functionary at the ULB is the Municipal Council. Every municipal council is headed by the President and Vice-President. The Municipal Council consists of:

1. Councilors, elected by the people under their jurisdiction
2. Not more than five persons nominated by the Government from amongst the residents of the municipal area and who are,
• (i) Persons having special knowledge and experience in municipal administration or matters relating to health, town planning or education, or
• (ii) Social workers.
3. Members of the State Legislative Assembly, representing a part or whole of the municipal area whose constituencies lie within the municipal area
4. The members of the Council of States and members of the State Legislative Council registered as electors within the municipal area

In addition to the Municipal Council, ULBs also have a Standing committee that deals with the following subjects:

1. Taxation, finance and appeals;
2. Public health, education and social justice;
3. Town planning and improvement;
4. Accounts

Every municipal council has a Chief Officer who is appointed by the Director of Municipal Administration. The Chief Officer functions as the executive head of the municipal council. The duties of the Chief Officer include:

1. Taking prompt steps to remove any irregularity pointed out by the auditor
2. Reporting to the President, the Standing committee and the Municipal Council all cases of fraud, embezzlement, theft or loss of municipal money or property
3. Supplying any return, statement, estimate, statistics, account, or report or a copy of any document in his charge called for by the municipal council or the standing committee
4. Exercising supervision and control over the acts and proceedings of all officers and servants of the municipal council in matters of executive administration and in matters concerning the accounts and records of the municipal council

The powers of the Chief Officer include granting and issuing licenses and permissions which may be granted by the municipal council; suspending or withholding any of the issued license; receiving and crediting to the municipal fund all fees payable for licenses; entering (on behalf of the municipal council) into contracts and inviting tenders for the execution of any approved work.

A municipal council may also appoint one or more Health Officers whether temporarily or permanently, the officers being officers of the Department of Public Health.

The Director of Municipal Administration (subject to the control and orders of the Government) acts as the chief controlling authority in respect of all matters relating to the administration of the KM Act. For example, the Deputy Commissioner has the power to suspend the execution of orders of municipal councils if the order is deemed unlawful or is likely to lead to a breach of peace. The Director of Municipal Administration may also take steps to prevent extravagance in the employment of the municipal councils. In addition, the state government has the power to dissolve municipal councils under circumstances where the municipal council persistently makes defaults in the performance of the duties imposed on it or exceeds, abuses its power or refuses to carry out the directions given to it under the provisions of the KM Act.

(The entire act may be accessed here.)

Continuing from our earlier post on JNNURM, this post discusses the progress made during JNNURM-I, key lessons learnt from the mission and the proposed features of the next phase of the Mission, JNNURM-II.

JNNURM-I was envisaged as a reform-driven planned development of cities. However, the mission degenerated, to an extent if not completely, to a funding source for stand-alone urban infrastructure projects with funding delinked from reforms. The implementation status of key mandatory reforms across the states and identified cities has not been encouraging:

• Only 11 out of 30 states/UTs, audited by CAGⁱ, have transferred all functions, as per the 74th CAA, to the ULBs
• Nearly 33% of ULBs/parastatals have not implemented the accrual based double entry accounting method
• More than 40% of ULBs have failed to meet the 85% coverage of Property Tax by 2010-11
• Out of 39 cities audited by CAG, only seven cities have implemented the user charge collection mechanism for water supply (only five cities have done this for solid waste management system)
• Rent control law reforms and stamp duty rationalization has not been implemented by all the states

The total allocation of funds by the Central Government for the Mission was revised to INR 660.8 bn in 2009 from the initial allocation of INR 500 bn. During the Mission (from 2005 to 2012), only 60% of the allocated funds were released. Further, only 9% of the 2815 approved projects were completed during this period.

Key lessons from JNNURM-I

1. Lack of integrated planning at city and regional level: It was expected that the City Development Plan (CDP) would ensure that projects were identified based on an integrated plan and a long term vision for the city development. However, CDPs ultimately reduced to just the investment plans for various haphazardly selected stand-alone infrastructure projects
2. Lack of participation in planning: Not all ULBs were involved in the preparation of development plans; CDPs were prepared either by the state or the city development authorities in little or no consultation with the ULBs in many cities. Further, the preparation of Detailed Project Reports (DPRs) was done with limited interaction with the stakeholders.
3. Exclusion of peri-urban areas: The development of peri-urban areas (suburban and countryside areas) was not included in the Mission and didn’t find mention in the development plans. This has led (and is leading) to the unstructured development around the city boundaries resulting in expensive modifications at a later date.
4. Process Heavy and Lack of coordination: The Mission was process heavy and tedious with the involvement of many governing and sanctioning bodies, advisors and consultants. This resulted in a significant lack of coordination and delayed decision making for the state officials.
5. Failure to adopt service level benchmarks in designing and appraising the approved projects resulted in sub-optimal quality of service delivery.
6. Lack of adequate capacity: Implementation of reforms at the state and ULB/parastatal level suffered severely due to the lack of adequate capacity at the development planning, financial management and project management.
7. Lack of differential approach towards reforms: The Mission adopted a one-size-fits-all approach for the reform implementation across the states and identified cities, which resulted in significant mismatch in the progress of reform implementation across states.
8. Delay in the implementation of 74th CAA and incomplete devolution of financial powers to ULBs further deterred the ability of ULBs to leverage the funding assistance provided under the Mission.

Proposed JNNURM-IIⁱⁱ

The Committee to facilitate the redesigning of the second phase of JNNURM, JNNURM-II, was formed by the MoUD and Planning Commission in Sept, 2011. The committee was chaired by Sh. Arun Maira (Member, Planning Commission) and other members of the JNNURM steering committee and the state governments. The proposed structure and features of JNNURM-II discussed in the following section are based on the report submitted by the Committee in March, 2012.

Proposed JNNURM-II: Key features

• Duration: 10 years (JNNURM-I was 7 years long)
• Transition period of 2 years beginning 2012-13 to complete the approved projects under JNNURM-I and to implement the pending reforms as the state and ULB level. During this period the following would be ensured:
• Complete JNNURM-I sanctioned projects
• Centre, state and ULBs to undertake capacity building reforms
• Municipal Cadres to be established
• Development Plan and Financial Plan to be finalized (refer next section for details)
• Audit of ULB’s financial statements for at least 3 years up to 2011-12
• Base level reforms to be completed
• Nature of scheme: State Sector with Additional Central Assistance (ACA) (same as JNNURM-I)
• JNNURM-II will be an umbrella scheme with various submissions: Rajiv Awas Yojna (RAY), slum rehabilitation in areas outside RAY, Urban Infrastructure and Governance (UIG), capacity building
• Submissions/sub-schemes discontinued: UIDSSMT, BSUP, IHSDP
• Schemes merged: MoUD’s UID for Satellite Towns, RAY (Funding aspect to be governed by the guidelines approved by Cabinet)
• Division of financial assistance for JNNURM-II
• Base funds- 80% [available on completion of all mandatory reforms]
• Capacity building funds- 10% [funds available for capacity building even during the reform implementation during the transition period]
• Incentive funds- 10% [available on completion of ‘incentive’-linked difficult reforms]

Proposed JNNURM-II: Key objectives and Strategies

The chief objective of the second phase remains the reform linked development however significant stress is on identifying internal resources of fund, leveraging the Mission assistance using the idiosyncratic strengths (i.e. tourism, carbon credits, solid waste recycling, etc) of the cities, empowering ULBs, participatory and transparent governance, effective management of land resources, and pro-poor service delivery.

One of the Implementation strategies of JNNURM-II is to build adequate capacity, including the development and training of municipal cadres. Other key strategies include:

• Stress on planned development of cities: The CDPs and DPRs have given way to a ‘Development Plan’ (DP) which will be a vision document with a 10 year perspective. It would include project sequence, timelines, intended outcomes, monitor-able milestones based on the service level benchmarks developed by MoUD.
• Simplification of the processes by resolving overlapping domains and making the governance more efficient
• Ensuring the accounting reforms at ULBs. Further the ULBs to make 10-year financial plans (FP)
• Adoption of service level benchmarks to monitor and appraise the project outcomes
• Planned development of small towns and peri-urban areas
• Ironing out the distortions in land market
• Stress on innovation and learning across the urban system to build on the internal resources and strengths of the cities

The complete report of the committee on the proposed design of JNNURM-II is available here.
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i – Performance report of JNNURM by CAG India: Read here
ii – Report of the Committee on JNNURM-II (available at http://jnnurm.nic.in/wp-content/uploads/2012/08/Final.pdf)

This post, along with the next one, provides a brief overview of the JNNURM-I, key lessons learnt from the mission and the proposed structure of the next phase of the Mission, JNNURM-II

JNNURM-I: Introduction

Jawaharlal Nehru Urban Renewal Mission-I (JNNURM-I or the Mission), launched by the government of India in December 2005, was the largest, and first if its kind, mission-led urban development initiative with an estimated provision of Rs. 50,000 crore. The initial duration of the Mission was seven years beginning from the year 2005-06ⁱ.

JNNURM-I aimed to encourage reforms and fast track planned development of identified citiesⁱⁱ. The Mission identified 65 cities/urban agglomerations (UAs), called ‘mission cities’, which were eligible for assistance for infrastructure development. A list of mission cities and the selection criteria is available on the Mission’s website (http://jnnurm.nic.in/). The main aim of the Mission was to promote reforms in urban governance and service delivery and provide reform-linked financial assistance for the planned infrastructure development of the mission cities.

Mission and Institutional Framework

JNNURM-I comprised two sub-missions which focussed solely on the 65 mission cities:

(a) Urban Infrastructure and Governance (UIG) administered by the Ministry of Urban Development (MoUD)
(b) Basic Services for Urban Poor (BSUP) administered by the Ministry of Urban Employment and Poverty Alleviation, now known as Ministry of Housing and Urban Poverty Alleviation (MoHUPA)ⁱⁱⁱ

Further, the Mission had two sub-schemes: (i) Urban Infrastructure Development Scheme for Small and Medium Towns (UIDSSMT), and (ii) Integrated Housing and Slum Development Programme (IHSDP) which focused on all urban centres under the discretion of the state governments.

Going bottom-to-top, the State Level Nodal Agencies (SLNA) were responsible for inviting and appraising the projects before recommending to the State Level Steering Committee. Further, the financial assistance for the sanctioned projects was to be disbursed to the ULBs through SLNAs. They also had responsibility to manage and monitor the performance of the projects and reform implementation under the Mission. At state level, the project proposals were reviewed and prioritised by the State Level Steering Committee.

At the central level, there were two project appraisal bodies: the Technical Advisory Group (TAG) and the Central Sanctioning and Monitoring Committee (CSMC). National Steering Committee, chaired by the minister of UD and co-chaired by the minister of HUPA, provided the overall policy oversight and guidance.

Mission Strategy

JNNURM envisaged achieving the objectives of reform-linked planned urban development through the following strategy:

a) Formulation of the City Development Plan (CDP) by each mission city: The CDP was expected to be an integrated vision document for the cities which would include the policies, reform programmes and strategies, and financial plans. Infrastructure projects for the cities were to be identified based on the CDPs.
b) Preparation of the Detailed Project Report (DPR): The ULBs/parastatals were required to prepared DPRs for all the projects identified based on the CDPs. The DPRs would ensure that projects were well planned. The DPRs were expected to have details on the financial and operational viability and the environmental impact of the project among other things.
c) JNNURM Assistance and Leveraging of Funds: Financial assistance, in terms of grant or loans, from the central and state governments was to be provided to the ULBs through designated SLNAs. Further, it was expected that the nodal agencies and ULBs/parastatals would leverage these funds through external borrowings on the basis of credibility built on the financial and governance reforms under JNNURM.

Eligible Sectors and Projects

A comprehensive list of the sectors and projects eligible to receive assistance under the two submissions (UIG and BSUP) is available at the Mission website. Key sectors and projects included water supply and sanitation, solid waste management, urban transportation, development of slums, and projects to ensure basic services to the urban poor.

Reforms under the Mission

JNNURM-I was designed as a reform-linked investment mission to ensure the financially sustainable development of the urban centres through efficient governance, better infrastructure and improved service delivery. The Mission led a significant import on reform agenda which is divided into mandatory and optional reforms.

Key mandatory reforms were:

• Adoption of accrual based double entry accounting system by all ULBs
• Property tax reforms at ULB level(collection efficiency to at least 85% by 2012-13)
• Implementation of the 74th Constitutional Amendment Act by the state
• Repeal of Urban Land Ceiling and Regulation Act (ULCRA) and Rent Control Act
• Rationalization of Stamp Duty

A comprehensive list of the mandatory and optional reforms is available at the Mission website.

(Next post will discuss the current status of reforms and projects under JNNURM-I, key lessons from the Mission, and the proposed structure of JNNURM-II)

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i – JNNURM-II has proposed a transition period two years in addition to the original tenure of seven years to complete the existing projects and to implement the reforms mandated under JNNURM-I
ii – Source: JNNURM Overview available at (http://jnnurm.nic.in/wp-content/uploads/2011/01/PMSpeechOverviewE.pdf)
iii – A series of fissions and fusions led to the current structure of MoUD and MoHUPA. http://mhupa.gov.in/ministry/index2.htm provides an interesting read on this

As part of our series on Municipal Finance, in this concluding part of our two part review of the Report on Indian Urban Infrastructure and Services (2011), we look at the Report’s recommendations on urban governance reform and financing urban infrastructure.

Urban governance reforms

The Report identifies three broad areas of reforms in urban governance- administrative reforms, service delivery reforms and fiscal reforms¹.

Administrative Reforms

The Report suggests major administrative reforms “for bringing about greater efficiency in the management of infrastructure assets, delivery of urban services, and improvement in conditions for the poor so that Indian cities can provide a better quality of life, generate a better environment for growth, and be inclusive.² ”

i. Autonomy in city management
The Report recommends greater functional and fiscal autonomy for Urban Local Bodies (ULBs) so that they can effectively carry out the functions mandated under the 74th Constitution Amendment Act (CAA). It also recommends strengthening capacity at the ULB level by creating a municipal cadre and lateral hiring of professionals to the cadre.

ii. Empowered mayors with effective devolution
The executive head of a city is the Municipal Commissioner, who is deputed by and accountable to the state government. As a part of increasing autonomy of cities, the report recommends creation of single-point accountability through direct election of the mayor by residents of the city and creation of a unified command structure under the Mayor.

iii. One Ministry for Urban Affairs and Housing
The problem of urban poverty and housing for low-income households is closely interlinked to the problem of urban development. Solutions to these problems lie in an integrated planning framework which focuses on building urban infrastructure for all and ensures delivery of urban services of the same standard to all. City plans cannot be developed in isolation of the transport, housing needs of low-income households and planning through different departments under two ministries can be inefficient.

iv. Convergence of institutional responsibilities
One of key reasons for poor urban service delivery in India is the fragmented institutional set-up of cities. The report recommends convergence of responsibilities (intra-departmental responsibilities and coordination with a state and central governments) under an empowered mayor. This will lead to a holistic approach in infrastructure building and service delivery.

Service Delivery Reforms

i. Corporatization of urban services
“Corporatization of services helps in ring-fencing the finances of an entity which is responsible for the delivery of specific services and protecting it from multiple populist demands³ ” In this institutional framework, the corporatized entity can follow modern management practices while being accountable to the ULB. The Nagpur Municipal Corporation has made a start by creating a dedicated company for overseeing its water provision, waste water treatment and disposal functions.

ii. Coming together to deliver
In certain situations, it might be optimal for smaller ULBs to come together and provide services. The report envisions the creation of joint entities involving multiple ULBs for discharge of such functions. However, such entities must be made accountable to the ULBs through service level agreements.

iii. Public-Private Partnerships
The report recommends using PPPs as an effective instrument to deliver better services. Well-structured PPPs can provide both efficiency and financial gains for ULBs. However, there are a number of deterrents to the entry of private firms in urban service provision- commercial non-viability of projects, inability of ULBs to generate a robust internal revenue base, inertia to move towards new ways of service delivery etc.

iv. Regulatory regime for urban services
The report recommends setting up of urban utility regulators for all urban services to monitor progress of plans, recommend tariff structures, monitor quality of services and advise the state government. The report also suggests a benchmarking exercise to compare municipal performance indicators, done by a Reform and Performance Management Cell (RPMC) at the state and central government levels.

v. Accountability and Citizen participation
Citizen Participation needs to be strengthened to create ‛citizen owned, citizen paid, and citizen managed’ cities. Setting up of Ward Committees and AreaCommittees is an important first step. The Public Disclosure Law and Community Participation Law are important tools for driving transparency and accountability in governance. Additionally, the report endorses setting up of a Local Body Ombudsman that addresses corruption and efficiency issues and State Councils of Local Self-government headed by the Chief Minister of each state with Mayors and Municipal Chairpersons as members to discuss issues of local self-government.

vi. E-governance
By doing away with the discretionary powers vested in a few officials, e-Governance cuts at the roots of corruption and inefficiency. For example, geographical information system (GIS) can be used to improve urban land management and make it more transparent. The report suggests development of an IT cadre at the ULB level and appointment of a Chief Information Officer for larger cities for strengthening capacity.

Fiscal Reforms

i. Financial reporting, disclosures, and audits
ULBs must adopt transparent budgeting practices based on double-entry bookkeeping, performance reporting, cost accounting and auditing in order to be accountable to their citizens and also to become market-worthy so as to attract capital for investment. The Report also proposes a Market Worthiness Disclosure Standard (MWDS), which should require cities to report data in a regular and timely manner. MWDS envisages the following reports to be prepared by ULBs and made available on their websites over time:

• Cash flow statement, and key financial ratios;
• Net revenue dynamics including economic data for predicting expenditures and institutional arrangements that affect both revenue prospects and expenditure commitments; and
• City management capacity covering aspects like staff, institutional framework, and information flow.

ii. Fiscal devolution
The 74th Constitutional Amendment Act did not provide for a ‛municipal finance list’ in the Constitution to match the municipal functions listed, thereby signaling an incomplete devolution package and leaving the issue of financial devolution to state governments. It only envisaged State Finance Commissions (SFCs) to devolve funds from state to local governments. Table 1 provides a more detailed discussion on fiscal devolution.

Financing Urban Infrastructure

In the previous post, we noted that the Report estimates investment for urban infrastructure over the 20-year period from 2012 to 2031 to be Rs 39.2 lakh crore (at 2009-10 prices). It proposes a three pillar framework for financing this expenditure:

i. Securing the revenue base of ULBs through ‛exclusive taxes’ and a guaranteed and predictable share of ULBs in tax revenue of state governments
ii. New Improved JNNURM (Jawaharlal Nehru National Urban Renewal Mission) from the Government of India
iii. External Sources of Finance: Through reforms in governance and financing ULBs can begin to move away from a weak financial base towards a framework which enhances the creditworthiness of the ULBs and improves their ability to generate and leverage revenue surpluses for accessing market funds.

Table 1 captures some of the important aspects of the proposed funding framework.

The projected Municipal Revenue and Expenditure (as a percentage of GDP) over the proposed 20 year period is given in Table 2 below:

In order to finance their deficits, ULBs will have to resort to market borrowings (pooled finance, municipal bonds, institutional finance, etc.) and new project execution mechanisms like PPP, and land-based financing instruments.

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1 – For a detailed discussion on problems of urban governance and service delivery in India, see the first part of this review and our post on Municipal functionaries. The Municipal Functionaries post also discusses capacity strengthening reforms.
2 – Page 92, Chapter 4, Report on Indian Urban Infrastructure and Services (2011)
3 – Page 98, Chapter 4. Report on Indian Urban Infrastructure and Services (2011)

Continuing our series on Municipal Finance in India, we review two recent developments- Report on Indian Urban Infrastructure and Services (2011) and JNNURM. This blog post summarizes the report’s finding on three key themes- Urbanization in India: Characteristics and Challenges, Urban Service Delivery and Investments for Urban Infrastructure.

Urbanization in India: Characteristics

The Report identifies three trends that characterize urbanization in India (up to 2001):

• i. Structural transformation and decelerating urban population growth: India’s rapid economic growth has entailed a structural transformation in the economy such that the share of agriculture in GDP has declined from 34% in 1983-84 to 15% in 2009-10. During the same period, the share of services has burgeoned from 40% to 57% while the share of industry has remained constant. Structural transformation is typically associated with rapid urbanization as labour moves from low-productivity agriculture to high-productivity industry and services, which are typically located in urban areas. However, the Indian experience shows that there was only a moderate dip in the share of agriculture in total employment (agriculture still employs 52% of the workforce (2004-05)). Since employment was being generated in high-skilled sectors like IT, banking and telecom, it did not draw labour from rural areas. This led to a decelerating growth in India’s urban population- from 3.2% in the 1980s to 2.8% in the 1990s. However, a turnaround of this trend is expected for the year 2001-11. UN estimates suggest that urban population will be larger than their rural counterparts by 2045.
• ii. Low levels of Migration: Although urban-rural productivity differentials have increased since 1993-94, this has not led to a commensurate increase in migration as Lewis and Harris-Todaro models have predicted. For reasons cited in the previous section, rural-urban migration accounted for only 21% of the total increase in urban population in 1991-2001. However, with urban India poised to generate 70% of all new jobs in India over 2010-30, the trend of low rural-urban migration is set to be reversed.
• iii. Prevalence of Urban poverty: Even though urban poverty ratio has declined by half from 1973-74 to 2003-04, urban service deprivation and shelter poverty continue to be pressing problems for urban India. An environment of poor access to basic services, public health and other human development inputs perpetuates poverty in urban India. Heavily distorted land markets, an inadequate regulatory regime safeguarding property rights and absence of a strategy for inclusion of urban poor exacerbate the problem of shelter poverty. This is visibly manifested in the mushrooming of slums in urban areas. As of 2001, almost a quarter of India’s urban population lived in slums.

Urbanization in India: Challenges

The Report outlines the following challenges for urbanization in India:

• i. Agglomeration vs. Congestion: Cities tend to exhibit agglomeration economies due to close proximity of firms to skilled labour, informational spillovers between individuals and firms, access to institutions and localization externalities. On the other hand, in the absence of robust urban infrastructure, congestion diseconomies in the form of traffic congestion, pollution and environmental degradation, deterioration in civil services etc. set in. India needs to tackle the challenge of maximizing agglomeration economies while minimizing the impact of congestion diseconomies.
• ii. Creating synergy with rural development: In 2009-10, cities and towns are estimated to have contributed 62% to total GDP. As this growth continues, India needs to ensure that there are synergetic linkages with the rural economy, particularly agriculture. With boundaries of urban settlements being increasingly blurred and technology bridging the rural-urban divide, policies must aid rural poor in accessing the fruits of urban growth.
• iii. Small cities and towns: India’s urban growth has been largely concentrated in ‘big cities’ (50 cities with population over 1 million account for 42.3% of urban population). The period of growth of big cities has also witnessed the slowing down of India’s towns. The slower growth of towns has “implications for how the urbanization challenge needs to be managed. The 3984 Class II and smaller towns with population of less than 100,000 in India also have very different levels of managerial and governance systems compared to larger Class I and metropolitan cities. Hence, interventions for preparing our cities will need to distinguish between the challenges and capacities of larger cities versus the smaller towns in the country.¹”

Urban Service Delivery

The Report reviews the current state of urban service delivery in India and attributes the negligent state of service delivery to four factors that are discussed below. The Report also recommends new service delivery norms and standards for urban areas in India.

State of Urban Service Delivery

Table 1 below provides a glimpse of the Report’s compilation on the dismal state of urban service delivery.

Factors for poor urban service delivery²

• i. Inadequate investments in urban infrastructure: ULBs in India are heavily dependent on fiscal transfers from the higher tiers of government, which tend to be inadequate considering the needs of Indian cities. Mohanty et al. (2007) shows that for 35 municipal corporations, there was, on average, under-spending of 76 per cent on capital investments necessary to meet minimum standards of services.
• ii. Poor maintenance of assets: The low spending on O&M of existing assets has further contributed to the problem of service delivery. Salaries and wages account for 54 per cent of the total municipal expenditure, on average.
• iii. Fragmented institutional set up: The multiplicity of agencies with overlapping jurisdictions and fragmented roles and responsibilities has been a major factor in the poor delivery of urban services.
• iv. Capacity constraints: Municipal administration has typically suffered from overstaffing of untrained, unskilled manpower on the one hand and shortage of qualified technical staff and managerial supervisors on the other.

Service Delivery Standards and Norms

A summary of service delivery standards and norms recommended by the Report are provided in Table 2 below:

Investment for Urban Infrastructure

The Report estimates Investment for urban infrastructure over the 20-year period from 2012 to 2031 to be Rs 39.2 lakh crore (at 2009-10 prices). This includes:

i. Rs 34.1 lakh crore for asset creation, out of which the investment for the eight major sectors is Rs 31 lakh crore;
ii. Rs 4.1 lakh crore for renewal and redevelopment including slums; and
iii. Rs 1 lakh crore for capacity building.

The relative shares of the eight major sectors are provided in Figure 1 below. Investments on urban roads form the bulk of the investments (55.8%) followed by urban transport and water supply (14.5% and 10.4%).

The capital expenditure estimates by city size class are given in Table 3 below.

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1 – Page 16, Chapter 1. Report on Indian Urban Infrastructure and Services (2011)
2 – For a detailed discussion, see our previous posts in the Municipal Finance in India series