The Project Cycle

Identification: Who is the responsible authority? Who are the

stakeholders? How are they involved in the project? Is the project
consistent with a wider plan or programme such as an economic
development strategy? Have all options (including datum) been
considered in the delivery of the wider plan? Is there a budget?
How and who will finance the project?
Preparation: Prepare several options. Produce feasibility study
which sets out facts and figures for options. Determine the criteria
for evaluation.
Appraisal: This involves comparing the options identified.
Determine appraisal components (e.g. CBA, financial analysis,
environmental assessment)
Negotiation/ Decision: Are decision makers satisfied with
appraisal information?
Implementation: Monitoring and review during life of project (not
just construction). Are the objectives being met? Mid-term review.
World Bank Evaluation: On completion: Has the project achieved its aims?
Why is there a different outturn?
Financial Plan
 Financial Analysis

APPLICATION OF FUNDS SOURCES OF FUNDS

Capital costs Recurrent costs Revenues
DSM Land Civil Works Equipment Staffing Materials Repayments Self-gen Grants Loan

Year 1 1 25 16 10
Year 2 1 25 16 10
Year 3 1 30 15 16 30
Year 4 10 10 5 2 5 5 12 15
Year 5 12 2 5 10 9
Year 6 12 2 5 10 9
Year 7 13 2 5 11 9
Year 8 13 2 5 11 9
Year 9 14 2 5 12 9
Year 10 14 2 5 12 9
…
Year n 20 2 5 15 12

Affordability at Appraisal: Are there sufficient sources of funds to finance the applications?

UE1 Term 2 Session 3 17


Challenge
Limited resource raising authority of Urban
Bodies
Short & Long Term Capital
Use values vs Exchange values
Fiscal health of national government
Key Challenges:
Characteristics
Municipal vs State vs National allocation of
municipal taxes, duties, tolls and fees.
Investment returns after 20-30 years
Insertion of commercial space to finance
basic use values
Issuing bonds on behalf of municipalities in
high risk areas rather than guaranteeing
municipal bonds
Case Studies
State vs Municipal resource raising in India
Istanbul, Turkey
King's Cross Redevelopment, London
Infrastructure Finance Corporation Limited,
South Africa
Sub-National Expenditure Responsibilities in China

(Peterson 2007)
(Peterson 2007)
 Financing Public Projects
Developer Pays
Characteristics Examples
Tax Incremental Financing Financing municipal bonds or developer investments Chicago TIF areas, USA
through increased taxes, based on property values
Community incentives with recapture agreements Supply-side economics to maximise jobs & tax-base.
• Clawbacks - Recover all subsidy costs. State of Maine Clawback Act 2243, USA
• Recision - Cancel subsidy agreement.
• Recalibration - Adjust subsidy to reflect changing business condition.

Pay for impact costs of development Burden of finance to groups not yet present in the area
• Impact fees - Internalising the social costs of marginal development Section 106, UK
• developer exactions (infrastructure or services) - Based on negotiation Section 106, UK
• developer constructed off site infrastructure - Spreading benefits to fringe areas

Land Leasing (Long term occupancy & development rights) Ending the free/ cheap use of land resources. Capturing Guangdong, China
land value increments due to public investments
Public Private Partnerships Revenue earmarked to finance contracts Athens International Airport, Greece

Public Financing

Bond Issuance Large Scale projects that can typically pay for themselves TfL, London
Government Fiscal Input Invest early at times of low prices Shanghai Chengtou Corporation
Enterprize Zones Government Incentives Navi SEZ Mumbai, India
Revolving Loan Funds (RLF's) Affordable capital for non-traditional businesses South East Community Loan Fund, UK
Amalgamating tax bases Mixing high income and low income areas South African Townships
Cross border joint ventures Saving costs on basic service provision Local Authority Service Procurement- UK
Acquiring Land CPO, Government Offices Relocation Rural Land Acquisition, China

Catalyst Financing

Public Attraction Projects Marketing Projects Guggenheim Museum, Bilbao

Brownfield Projects High initial costs of remediation determining land use Greenwhich Millenium Village, UK
Retail Finance Financing public infrastructure through retail King's Cross, London

Private Financing

Bank Credit Direct and indirect revenue streams outline Marmaray Tunnel Project, Istanbul, Turkey
Joint Ventures Long term partnerships. Profits accruing to both parties First Base & Barking- Dagenham

(Peterson 2007; White, Bingham, and Hill 2003; Chapman 2008)

 Who pays?: temporal dimensions

Characteristics Example

Previous Generation Monetising an inherited public asset Land leasing

Current Generation Paying for the use of infrastructure User fees
Current to Near Future Generation Paying for the use of new infrastructure Impact fees
Future Generation Repayment of loans Fiscal spending

Adapted from (Peterson 2007)

 Tax Incremental Financing: An alternative to redistribution?

Designate an area in need of improvement. GIS data can generate boundary lines. Typically the area is run down and there are no city-
wide financing opportunities or ones based on user fees. Most States only allow the use of TIF in areas where there is a sufficient
number of 'blighted' properties.
Municipality prepares a redevelopment plan with key projects to be developed within district. These projects include historic
preservation, industrial expansion and downtown redevelopment. All these projects need to create substantial increases in the value of
property.
Municipality in collaboration with developers prepare eligibility study to demonstrate that the area meets 'blight' criteria. Study also
needs to prove that no combination of bonds, abatements and tax revenues are sufficient to attract private investment.
Once area is designated all properties within the area are valued and this figure is held constant for a fixed period. All the property
values added together to give a base against which growth will be measured.
Municipality uses coercive powers such as land assembly, site clearance, street improvements to make district attractive to potential
businesses or developers.
As private investment is attracted in the area, the assessed value of property and tax are expected to rise. Difference between new
assessed value and base is the Tax Increment.
TIF district has overall control of incremental tax over any other taxing bodies with jurisdiction over the area.
To kick-start process, municipalities issue a bond or ask a developer to pay up front. A developer may for example develop a plot of land
where there is a rent-gap. Any incremental tax due to the new use will be diverted to the TIF. Municipalities then pay the developer once
a year as the incremental taxes are received from the increase in value of all properties.

Critiques

Too often the municipality captures increment which it did not induce. For example city-wide regeneration. School or other tax
jurisdictions are therefore losing tax revenue.
Property value increases offset with property value decreases outside TIF areas
Retail moves to different parts of the same region so overall benefits to municipality are offset
Rising property values may in the long run displace residents

(White, Bingham, and Hill 2003)

Standard & Poor
Tax Incremental Financing

City of San Antonio

(Weber, Bhatta, and Merriman 2007)
Clawbacks, Recisions & Recalibration in Public Subsidies

(White, Bingham, and Hill 2003)

 Section 106: Rationalising the Impacts of Development

The Standard Charge covers contributions for Education / Training, Sustainable Transportation, Open Space, Sport and Air Quality and
will be sought on applications which:

• A new residential unit is created, £3,000 per additional bedroom will be sought;

• An increase of over 500sqm in commercial floor space (B1/B2/B8), £25 per sqm will be sought

In addition to the obligations outlined above, other potential obligations include:

• Affordable housing
• Creation of open spaces, public rights of way
• Community or Affordable Workshop space.
• Servicing agreements
• CCTV
• Adoption of new highways, Travel Plans.
• Health Care Provision
• Remove new residents’ rights to parking permits.
• Local employment and training strategies
• Compliance with the Considerate Contractors Scheme.
• Measures to encourage sustainability and bio-diversity, such as green roofs etc

Brent County Council

 Calculating Development Exactions & Impact Fees

Demand: The increased need for infrastructure or services

• Determine 'demand unit': A single identifiable entity with a set infrastructure and service demand

Cost: Outlay necessary to provide the services

• These may need to be paid upfront if they are built prior to the arrival of the units of demand

Revenue: Enhancement to government resources

• New growth should only finance its needs rather than previous infrastructure investments in other areas of the community

• If new growth produces a fiscal surplus, this should be credited against the exaction
 The Municipality as an Asset Manager

Hold asset and use as collateral Re-price and set user charges Sell and invest in infrastructure

Risks with Land Leasing & Collateral

Not as regulated as fiscal borrowing and Real Estate Bubbles. Due to long project Increased dissatisfaction of those whose
proceeds may be diverted to finance periods, land values may considerably drop land is being taken.
municipal operating budgets rather than and not able to match spending.
investments.
 Case Study: Land leasing Revenues in select Chinese Cities

Since 1994 all leasing revenues assigned to Municipalities Typical leases of 40-70 years

(Peterson 2007)
 PPP Contractual Arrangement Variations

Athens International Airport

30-year concession ratified by Greek Law 2338/95

Airport Company has the exclusive right to occupy and use the site for the purpose of the "design, financing, construction, completion,
commissioning, maintenance, operation, management and development of the airport

Shareholders of private company:

Greek Government: 55%

HOCHTIEF AirPort GmbH: 26.545%
HOCHTIEF AirPort Capital GmbH: 13.33%
Horizon Air Investments S.A.: 5%
Flughafen Athen-Spata Projektgesellschaft mbH (FASP): 0.125% stake
Revenue Bonds & Guaranteed Bonds in the USA

(Pagano and Perry 2008)

 Moody's Ratings Definitions

Aaa
Obligations rated Aaa are judged to be of the highest quality, with minimal credit risk.

Aa
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.

A
Obligations rated A are considered upper-medium grade and are subject to low credit risk.

Baa
Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics.

Ba
Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.

B
Obligations rated B are considered speculative and are subject to high credit risk.

Caa
Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.

Ca
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.

C
Obligations rated C are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.

Note: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks
in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic
rating category.

Moody's
Moody's
 Case Study: TfL Bond Issuance 3, 2006

TfL debt rating AA Standard & Poors; Aa1 Moodys

Targeted to specific investors
Competitively Priced
Based on long term inflation of ticket prices
[4.6% maturing in 2031; 4.5% maturing in 2041] compared to bond
issuance 1 at 5%
Premium of 0.36% points over government borrowing. The
markets then improved this to 0.29% points and 0.34% points
above government borrowing.
Up to 40% price rises in 2006

TfL
 Buying Payroll & The Graduated Sovereignty of SEZ

Case Study: Korea, neoliberal pockets within a developmental State

(Park 2005)
 Revolving Loan Funds

Traditional Lending Revolving Loan Fund Lending

Capitalised by deposits from account holders Capitalised from low cost government loans or foundations

The Rowntree Foundation

Catalyst Projects
The Competition for Sales Tax

(Pagano and Perry 2008)

Case Study: Bishopsgate Goods Yard
 Bibliography

Chapman, Jeffrey I. 2008. The Fiscalization of Land Use: The Increasing Role of Innovative Revenue Raising Instruments to Finance Public Infrastructure. Public
Works Management Policy 12, no. 4 (April 1): 551-567. doi:10.1177/1087724X08316159.
Pagano, Michael A., and David Perry. 2008. Financing Infrastructure in the 21st Century City. Public Works Management Policy 13, no. 1 (July 1): 22-38.
doi:10.1177/1087724X08321015.
Park, Bae-Gyoon. 2005. Spatially selective liberalization and graduated sovereignty: Politics of neo-liberalism and "special economic zones" in South Korea. Political
Geography 24, no. 7 (September): 850-873. doi:10.1016/j.polgeo.2005.06.002.
Peterson, George J. 2007. Financing Cities: Fiscal Responsibility and Urban Infrastructure in Brazil, China, India, Poland and South Africa. Sage Publications Pvt.
Ltd, April 4.
Weber, Rachel, Saurav Dev Bhatta, and David Merriman. 2007. Spillovers from tax increment financing districts: Implications for housing price appreciation.
Regional Science and Urban Economics 37, no. 2 (March): 259-281. doi:10.1016/j.regsciurbeco.2006.11.003.
White, Sammis B., Richard D. Bingham, and Edward W. Hill, eds. 2003. Financing Economic Development in the 21st Century. M.E. Sharpe, February.