Finance for City Leaders Handbook

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Cities are a driving force of the 21st century. Through bringing large numbers of people into close proximity, they spark economic growth, foster innovation, and generate prosperity. But they face the pressing challenges of creating a livable environment for their residents, enabling economic activity that benefits all citizens, and fostering urban development that is environmentally sustainable, equitable, and resilient to disruptive forces. Finance for City Leaders presents an up-to-date, comprehensive, and in-depth analysis of the challenges posed by rapid urbanization and the various financing tools municipalities have at their disposal. By providing city leaders with a wide array of financing solutions that emphasize sustainability, inclusion, and financial autonomy, this publication contributes to the growing conversation on how cities can look inward to finance major capital expenditures, infrastructure maintenance and operation, and public services.



Expanding municipal revenues

The costs that municipal governments face are likely to increase every year in line with the processes of urbanization taking place around the world. Thus, raising municipal revenues is among the most pressing challenges facing city leaders today. It would normally be assumed that a growing population increases the tax base proportionately, with a greater number of local residents simply paying in line with the greater number of services provided. However, this common assumption has been proven wrong on two counts. First, changing demographics go hand-in-hand with changes in lifestyle, economic specializations, and income distribution. These shifts mean that citizens do not always have the same needs from their local governments as before, and will change how they contribute to the funding of local government services. Second, local population increases do not usually lead to immediate adjustments by central governments in the amounts transferred to the municipal level. As the “front line” when it comes to delivering public goods and services, local governments often need to respond immediately to changing circumstances while there are time lags in altering rates of national government transfers.


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