The quality of life for billions of people rests on the ability of local governments to deliver public services and invest for the future.
Local government is so integral to daily life that it’s often taken for granted — as are the fiscal systems that finance public services. The exceptions are when hospitals lose power, water is poisoned, populations migrate, and urban economies falter.
In these moments, headline stories from Detroit to Stockton, Flint, and Puerto Rico highlight the severe impacts of fiscal stress. The more than 200 U.S. municipal bankruptcies since 1980 reveal just the tip of the iceberg, as local governments worldwide quietly struggle to make ends meet.
Simply put, municipal fiscal health is the ability of local governments to plan, manage, and pay for critical public services and investments. This ability grows more important every day as the world’s cities confront rapid growth and local governments shoulder increasingly complex responsibilities.
Frequently, the communities that face the most pressing problems are also the communities least equipped to deal with those problems. Together, all levels of government must plan for a fundamentally urban future in which cities support 80 percent of the world’s population, generate sustainable economic growth, and stay resilient in the face of climate change. As we address these challenges, we must ask the question: how will our local governments afford the cities we need.
Local public finance is as complex as the urban systems it supports. But cities have a profound underlying source of wealth that often goes untapped — the land on which they are built. Nowhere is this more apparent than in urban areas, where public investments in infrastructure and services enable population densities that increase land value by many orders of magnitude.
Through the use of the familiar property tax, value capture, and other innovative land-based financing tools, municipalities can leverage the increase in land value resulting from public investment to pay for public services, invest in infrastructure, and finance sustainable borrowing.
Land Use Planning for Fiscal Health
Land use and public finance are inextricably linked. Planning for both together allows municipalities to shape the quality of urban life and sustainably finance public expenditures. Much to the distress of today’s public officials, many cities struggle with fiscal stress as a result of projects that were poorly planned, financed, and executed decades ago.
Conversely, carefully coordinating and strengthening spatial planning and public finance creates a virtuous cycle, in which public investments meet the needs of urbanization, raise land values, and generate local revenues. This, in turn, helps cities finance public infrastructure and provide services in sustainable ways.
In 2016, the Lincoln Institute and the World Bank coauthored the Habitat III policy unit paper on municipal finance and local fiscal systems for the United Nations Human Settlements Program (UN-Habitat). This paper outlines the fiscal challenges facing municipalities around the world and frames global policy recommendations related to the following components of municipal finance:
- The financial rules of the game
- Expenditure responsibilities
- Local revenue sources
- Financial management
- Municipal borrowing
As a member of this policy unit, the Lincoln Institute supports the implementation of a New Urban Agenda that strengthens local fiscal systems and provides a sound financial base for the urban future we need.
In 2015, the Lincoln Institute launched a multiyear campaign to promote municipal fiscal health. The goal is to help local governments increase their capacity to provide basic goods and services, plan for the future, and escape a cycle of recurring crises.
The Institute’s campaign includes: mobilizing transnational research; developing community tools to enable better fiscal management and monitoring within municipal governments; and engaging members of the public, academia, the private sector, and policy makers at all levels of government.
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