“SMALL IS BEAUTIFUL” EXPERIMENTS OF MUNICIPAL REFORMS IN HYDERABAD DR .P. K. MOHANTY, IAS EXECUTIVE DIRECTOR CENTRE FOR GOOD GOVERNANCE HYDERABAD
Hyderabad City: Geographical Area & Population City Metropolitan District Geographical Area: 69 217 (Square Kms.) Population (Million): 1971 1.62 1.82 1981 2.20 2.61 1991 3.06 4.34 2001 3.63 5.75
Municipal Reforms: Some Guiding Principles • Clarity in municipal functions: Clear jurisdictions & job charts for functionaries; • Clarity in municipal finances: well-defined revenue sources, clear expenditure norms, budgeting and accounting standards; • Matching of municipal finances to functions; • Functional & area cost centres: matching of outputs to funds allocated; • Accountability: upward and downward - of functionaries and processes.
Rationalisation of Functions Restructuring of Municipal Corporation Head Office: Departments Administration Legal Finance Planning Health & Sanitation Community Development Works Traffic & Transportation Zones & Circle Offices: South: Circles 1 & 2 East Circles 3 & 6 West Circles 4 & 5 Secunderabad Secunderabad Division
Rationalisation of Functions Contd… • Municipal “ownership” of new functions: Poverty alleviation, Slum upgradation, Environmental protection, Urban forestry and promotion of ecology; • Cost centres - focus on cost recovery and transparent subsidy to functions; • Salary pegged to no more than 25% of total revenues; • Urban Community Development & Services Fund for poverty alleviation; • City Development Fund for capital projects.
Reforms in Municipal Finances Bahl-Linn Guidelines Benefits identifiable - User Beneficiaries identifiable Charges Benefits broadly identifiable - Benefit Identification of Beneficiaries Taxes costly or difficult Neither Benefits nor Generic Beneficiaries identifiable Taxes Administrative expenses Fees & Charges Long-gestation capital Borrowings/ projects & works Bonds
Reforms in Municipal Finances Contd…. • Broad-basing of taxation –`beneficiaries pay’, `users pay’, and `polluters pay’; • Simple and transparent tax assessment and collection systems; • Focus on direct and indirect cost recovery and user charges; • Use of land and land use planning permission as resources for city development; • Self-assessment principle: applied to property tax, trade licensing and advertisement fees;
Reforms in Municipal Finances Contd…. • Involvement of tax-payers and Resident Welfare Associations in `benchmarking’, fixation of taxes and user charges and in provision of services; • Minimisation of concessions, exemptions and discretionary authority; • Visible linkages of local services to local taxes: creation of geographical cost centres; • Informed tax-payers - organised tax education campaign.
Reforms in Municipal Finances:Some Experiments • Property tax Self-Assessment scheme; • Self-Assessment schemes for trade licensing and advertisement fees; • Land and planning permission as resources; • Hyderabad City Development Fund; • Hyderabad Urban Community Development & Services Fund; • Salary Reserve and Pension Funds; • Hyderabad City Development Bond; • Functional budgeting & accrual-based accounting.
Property Tax Reforms: Self-Assessment Scheme • Historic inequity as a potential resource; • Classification of properties and inter-linking of tax data bases; • Property Tax Identification Number (PTIN) for all properties and computerisation of records; • “Slab” rate for “homogeneous” and case by case levy for “heterogeneous” properties; • Involvement of tax-payers in groups in arriving at slab tax rates and in prioritising services. • Tax camps and dialogue with Resident Welfare Association Presidents and Secretaries.
Self-Assessment Scheme: Key Features • Rationale as to “why” self-assessment; • Legal framework for property taxation; • PTIN – Property Tax Identification Number; • Separate forms for filing of returns in respect of residential and non-residential properties; • Commercial properties divided into 10 groups; • Clarity in filing requirement – who has to file return? • Clarity in filing procedure – by whom returns are to be filed and tax to be paid? • Benchmarking - one month honest rent as reference criterion for acceptance of returns;
Self-Assessment Scheme: Key Features Contd… • Procedure for verification of 25% of tax returns; • Penal action in the event of non-filing of returns; • Assurance from the Municipal Corporation: “there shall not be a single case of harassment or over-taxation to honest taxpayers who file their self assessment returns”; • Assistance available from Municipal Corporation – Tax Assistance Cells; • Development message and appeal to taxpayers on development of “their” city; • Linking of services to taxes paid - broad formulae.
Figure 1 Municipal Corporation of Hyderabad Property Tax Collected: 1991-92 - 2002-03
Direct & Indirect Cost Recovery: Fee/User Charge Reforms • Self-Assessment of trade licensing fee; • Self-Assessment of advertisement fee – distinction between hoarding & advertisement; • Bulk garbage collection charges; • Administrative charges for littering – enforcement through Nuisance Detection Squad; • Rationalisation of development and betterment (including external betterment) charges; • Introduction of new town planning charges: open space contribution, impact fee, etc.
Figure 2 Municipal Corporation of Hyderabad Trade Licensing Fee Collected: 1991-92 - 2002-03
Figure 3 Municipal Corporation of Hyderabad Advertisement Fee Collected: 1991-92 - 2002-03
Figure 4 Municipal Corporation of Hyderabad Public Works Department Charges:1994-95 - 2002-03
Figure 5 Municipal Corporation of Hyderabad Parks & Plantation Charges: 1994-95 - 2002-03
City Planning as a Resource:Planning-related Fees & Charges • Building permit fee; • Sub-division/Layout charges; • Development charges; • Betterment charges; • External betterment charges; • 5% open space contribution; • Impact fee;
City Planning as a Resource:Planning-related Fees & Charges Contd…. • Road cutting charges; • Storm-water drainage charges; • Parking contribution; • Use of planning permission as a resource; (Road-widening scheme); • Transferable Development Right; • Advertisement charges;
City Planning as a Resource:Planning-related Fees & Charges Contd…. • Forfeiture of security deposit; • Penal amounts for violation; • Demolition charges; • Projection charges; • Building regularisation fee; • Empanelment of licensed personnel; • Sale of bits & pieces of land; • Leasehold to freehold (proposed).
Figure 6 Municipal Corporation of Hyderabad Town Planning Charges: 1992-93 - 2002-03
Figure 7 Municipal Corporation of Hyderabad Betterment (including External Betterment) Charges 1992-93 - 2002-03
City Planning as a Resource:New Town Planning Charges: 1998-99-2001-02 • 5% open space contribution; • Impact fee; • Forfeiture of security deposit; • Penal amount for violations; • Empanelment of licensed personnel. • (Rs. in lakhs) • 1999-2000 2000-2001 2001-2002 • 5% open space 13.25 72.02 71.38 • contribution • Impact fee - 169.21 203.71 • Forfeiture of 59.07 107.39 27.70 • security deposit
City Planning as a Resource:Road Widening Scheme In cases of land freely surrendered for road widening, Commissioner, Municipal Corporation of Hyderabad is authorised to: • grant permission for construction over and above that permitted by prevailing FSI; • permit minor relaxations to building setbacks; • rebuild compound walls and other structures demolished at the Corporation’s cost ; • grant Transferable Development Rights where permitted FSI cannot be used.
City Planning as a Resource:Road Widening Scheme: Achievements Contd….
City Planning as a Resource:Road Widening Scheme: Achievements Contd…. Land taken over free by Municipal Corporation of Hyderabad under Road Widening Scheme while granting building permissions or taking up widening of roads: 1996-2002 Extent taken over: 821,253 Sq. Yards Approximate Market Value of Land taken over: Rs.811.51 Crores
Hyderabad City Development Fund Earmarking city planning-related charges to create a fund for important capital improvement works of city-wide importance • Development charges; • Receipts towards internal/on-site/local amenities including betterment charges; • Receipts towards external/off-site amenities including external betterment charges; • Layout/sub-division/building permit fees;
Hyderabad City Development Fund Contd… • Building regularisation fees; • Impact fees; • Compounding fees; • Projection charges; • Proceeds from purchasable development rights (incentive zoning); • Open space contribution; • Other town planning charges/fees.
Hyderabad Urban Community Development & Services Fund • 20 percent of property tax; • 30 percent of per capita grant; • Receipts under Centrally–sponsored schemes of: Swarna Jayanthi Shahri Rozgar Yojana (SJSRY), National Slum Development Scheme (NSDP), Balika Samrudhi Yojana (BSY), Chief Minister’s Empowerment of Youth (CMEY), Adarsh Basthi Scheme, etc.; • Receipts under other poverty alleviation schemes.
Salary Reserve Fund & Pension Fund • Objectives: • Creation of adequate reserve for salaries and • pension of municipal corporation staff; • Escrowing and using the escrowed funds • as collateral for municipal bonds. • Salary Reserve : Rs. 75.60 Crores • (= One year salary) • Pension Fund : Rs. 25 Crores
Hyderabad City Development Bond Bond size : Rs.82.50 crores Offer opening : March 21, 2002 Offer closing : March 31, 2002 Instrument : Un-secured (no state guarantee), non-convertible, redeemable, tax- free bonds Credit rating : CRISIL AA+SO, ICRA LAA+(SO) Interest rate : 8.5% Tenor : 7 years Escrow : Non-residential property tax, mechanism professional tax, advertisement fee, entertainment tax, stamp duty & town planning charges.
Economics ofHyderabad City Development Bond Earmarking of bond proceeds for development of key infrastructure projects - augmentation of economic growth - economies of scale, scope & agglomeration - enhanced business & trade - capitalisation into land values - growth in tax base - servicing of bonds through the tapping of tax increment – matching of debt-raising & debt-servicing capacities – upward movement on city development spiral.
Expenditure Management & Service Delivery Reforms • Unit rate system of public works; • Out-sourcing of sanitation; • Voluntary garbage disposal scheme; • Community contracting with women’s groups; • NGOs in heath care service delivery; • Co-ordinated service delivery – City Level Co-ordination Committee; • Citizen’s Charter and citizen’s service centre;
Expenditure Management & Service Delivery Reforms Contd… • Building Committee for sanction of permission to major buildings; • Budgeting reforms; • Modified accrual-based accounting; • 100% computerisation of budget, accounts, property tax, works, etc.; • Selected services through e-Seva counters; • e-Hyderabad; • Face-to-Face with Public.
Municipal Reforms: Some Important Results Contd… • Trends in: • Expenditures • Works • Projects • Salary Ratio
Figure 8 Municipal Corporation of Hyderabad Capital Expenditure 1994-95 - 2002-03
Figure 9 Municipal Corporation of Hyderabad Expenditure on Public Works (Capital + Maintenance) 1994-95 - 2001-02
Municipal Corporation of Hyderabad Modern Lighting Programme - No of Points
Municipal Corporation of Hyderabad Modern Lighting Programme - Expenditure (Rs. Crore)
Figure 10 Municipal Corporation of Hyderabad Trends in Salary Ratio as % of Expenditure: 1991-92 - 2002-03
Results of Reforms • Buoyancy in revenue collection: property tax, advertisement fee, trade licensing fee, town planning fees, user charges, etc.; • Reduction in salary expenditure as percentage of total revenues to below 25%; • Significant jump in expenditure on public works (capital + maintenance); • Sizable increase in capital budget; • Highest credit-rating accorded to any municipal bond in the country so far;
Results of Reforms Contd… • Conspicuous improvements in civic amenities & services; • Rise in tax-payers’ confidence & significant increase in the peoples’ willingness to pay; • Close participation of Resident Welfare Associations in both service delivery and tax payment; • Citizen-centric orientation of the Municipal Corporation staff - “People First”;
Results of Reforms Contd… • High ‘visible’ image of the Municipal Corporation as a responsive institution; • Clean & Green City Award for 4 consecutive years at the national level - a unique distinction for any city in India; • Lighting Society of North America Award for street lighting; • Hyderabad rated as “best” destination for IT- enabled services; • Visits by more than 15 Mayors and many dignitaries to Hyderabad to study reforms.
Municipal Reforms: Lessons from Hyderabad Experience • Infrastructure & services: key to city economic • development; • Two major planks of city development policy: • Maximising agglomeration benefits; • Minimising congestion diseconomies; • Agglomeration and congestion are potential • hidden sources of finance in mega cities; • Broadening tax base ought to be a major reform • priority;
Municipal Reforms:Lessons from Hyderabad Experience Contd… • Pre-reform conditions are critically important for designing a reform strategy; • Historic inefficiencies and inequities can be important sources of tax mobilisation in cities; • Land is a potential revenue source for city development - unexploited in many cities; • “Low tax rate – effective tax enforcement” strategy works; • Visibility of tax reform process & results from reform in terms of services important;
Municipal Reforms:Lessons from Hyderabad Experience Contd…. • Application of “known” principles and “best” practices help making reforms acceptable; • Involvement of tax-payers; • Demonstration of tax-service linkage; • Choice of tax calculation to tax-payer - self-assessment; • Incentives for filing and penalties for non-filing of returns; • Simplification of assessment and payment procedures;
Municipal Reforms:Lessons from Hyderabad Experience Contd … • “Mega” city - “small” experiment strategy works; • “Not only is it remarkable that all this has • happened, but that it has happened so fast.” • “Vast schemes, grandiose theories can never • achieve the same benefits as the accumulation • of smaller, consistent, attainable goals. • Hyderabad is one example of what the sum • looks like when the many smaller parts that • actually work are added up”. • ‘Hyderabad, India: the next Silicon Valley?’ • National Geographic, November 2002
THANK YOU DR. P. K. MOHANTY, I. A. S. EXECUTIVE DIRECTOR CENTRE FOR GOOD GOVERNANCE ROAD NO. 25, JUBILEE HILLS, HYDERABAD, ANDHRA PRADESH (INDIA) Tel. No. (+91- 40- 23541952), FAX NO.(+91- 40- 23541953) E-Mail: firstname.lastname@example.org email@example.com, www.cgg.gov.in