Conseil économique pour le développement durable Funding Urban Infrastructure: Value Creation, Property Tax and Other Revenues Dominique Bureau Conseil économique pour le développement durable www.developpement-durable.gouv.fr
Motivation of the study: how to fund new stations
Complex funding model Le périmètre des dépenses du Nouveau Grand Paris d ici 2030 est de 25,525 milliards d euros. Pour financer ces dépenses, la Société du Grand Paris dispose de recettes fiscales affectées déjà mises en place, qui sont de trois natures : une fraction de la taxe locale sur les bureaux en Île-de-France qui est assise sur les surfaces à usage de bureaux, de locaux commerciaux, de locaux de stockage, de stationnement ; la taxe spéciale d équipement, taxe additionnelle aux taxes locales ; une composante de l Imposition Forfaitaire sur les Entreprises de Réseaux (IFER) assise sur le matériel roulant exploité par la RATP. Ainsi, la SGP perçoit plus de 500 millions d euros de recettes fiscales affectées par an. L État apportera un soutien budgétaire à la Société du Grand Paris à hauteur de 1 milliard d euros. De même, l État demande que les collectivités locales apportent 225 millions d euros. Enfin, des recettes fiscales affectées supplémentaires pourront être mises en place à compter de 2020, en accompagnement des améliorations de desserte procurées par les premières mises en service. Dans un deuxième temps, la SGP aura recours à l emprunt, qu elle remboursera grâce à trois types d apports: les recettes fiscales affectées; les redevances d usage payées par les exploitants (péages) à compter des mises en services; les recettes complémentaires tirées notamment de l exploitation commerciale des gares (publicité, commerce, etc.) ou d autres services.
A common problem The Crossrail 1 project funding structure includes a substantial contribution from two local sources: the Business Rates Supplement (BRS) was established in London specifically to fund Crossrail 1 and is generating a steady flow of income that is being used to repay debt raised to finance the project s construction. the Mayoral Community Infrastructure Levy (Mayoral CIL) is a charge on all new development in London. Its purpose is to contribute to the cost of additional infrastructure required as a consequence of new homes, offices and other buildings. In summary, the views of those consulted were that: the levy elements of the funding package (BRS and Mayoral CIL) had worked well (in that the loans taken out for Crossrail 1 are forecast be repaid on time or even early); the amounts raised by negotiating contributions from landowners on the route have generated only a small proportion of the value of the scheme; and many land and property owners who have benefited most from the project are not making a commensurate contribution to the project costs.
How to fund the renovation of existing ones?
The standard economic recommandation HGT: the value created by LOCAL public equipments capitalizes into land rents Additional rents should be taxed for financing the associated fixed costs (By the means of property taxes the local Authority recovers the rent she has created) In practice: special tools (TIF, JPD), rather than general development of property taxes And controversies about: Distortionary impacts of property taxes («capital view») The degree of capitalization
Are new business models for airports transferable?
Lost steps
A strong, controversial, tendancy need to clarify regulatory models (one till vs double-till) But, before that, the objectives: additional revenues or enlarged quality range of services for consumers?
Purpose of the study Two questions: Management rules for additional services provided by local public equipments: 1st Best (LLH) Pricing or Ramsey-Boiteux markups? Assignment of potential funding instruments between property taxes, other local taxes (poll, housing), revenues from shops and services? Main characteristics of the model: a standard urban monocentric model which does not assume perfect population mobility between cities (possible incomplete land rent capitalization of the benefits of the projects) with property tax base including the value of buildings (hence acting as taxes on construction)
Notations Willingness-to-pay for the services provided by the equipment Social value for a resident Surplus of a resident Costs of the equipment
Urban costs
Competitive equilibrium of land markets
Optimal policy with two fiscal instruments: α, τ
A urban platform α Local public Equipment (d) (z,y) N Social Value τ Landowners Developers (k) Residents
Urban externalities
Summary of results Structure of local taxes Role of property taxes Markups above (appropriate) MSC Benchmark: perfect mobility; no distorsion +++ 0 Imperfect capitalization 0 Construction choices incentives 0 Agglomeration externalities 0 Architectural externalities 0 Weight of low-mobile residents 0 Heterogeneous WTP - or? Cost incentives - 0 Fixed costs selection, high mobility Fixed costs selection, low mobility -
From average cost pricing to TIF, JPD
Conclusion The benchmark for pricing additional activities offered residents by public equipments should remain marginal cost even with distorsions and imperfect mobility of residents. Local taxes remain the most natural tools for funding fixed costs, the development of new revenues from retail activities firstly being to be conceived as an element of a strategy for global value creation. Structure of local taxes Fiscal distorsions. Ramsey-Boiteux features combined with externalities internalization prevail, Selection of socially justified equipments. The transposition of the average pricing rule in this context is to earmark or capture property value induced by the project to fund it: the conditionality that supplementary land rents need to be greater than development costs lead to the efficient levels for all public and additional services provided by the equipment. In this perspective tools to test and implement this condition must be developed. Extensions: competitive issues; cooperation between networks