Arup LSE MPA Capstone 2016

Impact of City-Level Decentralisation on Urban Infrastructure Investment A case study based analysis of how city-level fiscal and political autonomy affects urban infrastructure investment and delivery

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London School of Economics- March 2016 | Candidate Numbers: 14977, 28865, 28949, 38175, 46541

Table of Contents LIST OF ACRONYMS

2

EXECUTIVE SUMMARY

4

1. INTRODUCTION

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1.1 APPROACH 1.2 DATA LIMITATIONS

7 7

2. LITERATURE REVIEW

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2.1 ECONOMIC IMPACT OF TRANSPORT: BENEFITS ASSOCIATED WITH TRANSPORT IMPROVEMENT 2.2 DEFINITIONS OF DECENTRALISATION 2.3 DIMENSIONS OF DECENTRALISATION 2.4 BENEFITS AND CHALLENGES OF DECENTRALISATION 2.5 IMPACT OF DECENTRALISATION ON CAPITAL EXPENDITURE 2.6 IMPACT OF DECENTRALISATION ON A CITY INFRASTRUCTURE INVESTMENT

9 10 10 11 12 12

3. CITY CASE STUDIES

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3.1 CITY SELECTION 3.2 JOHANNESBURG 3.3 LONDON 3.4 MEXICO CITY 3.5 NATIONAL CAPITAL TERRITORY OF DELHI 3.6 NEW YORK CITY

14 15 19 24 28 32

4. DECENTRALISATION ANALYSIS

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4.1 INTRODUCTION 4.2 POLITICAL DECENTRALISATION 4.3 FISCAL DECENTRALISATION 4.4 CITIES DECENTRALISATION ON BOTH DIMENSIONS

36 36 41 48

5. PROJECT ANALYSIS

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5.1 ALIGNMENT OF FISCAL AND POLITICAL DECENTRALISATION 5.2 IMPACT OF POLITICAL DECENTRALISATION 5.3 IMPACT OF FISCAL DECENTRALISATION 5.4 IMPACT OF OTHER FACTORS

49 50 51 53

6. CONCLUSIONS

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APPENDIX 1: CASE STUDIES

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JOHANNESBURG LONDON MEXICO CITY NCT DELHI NEW YORK CITY

58 62 67 70 76

APPENDIX 2 - TERMS OF REFERENCE

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APPENDIX 3: INITIAL “GLOBAL” CITIES LIST

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PROJECTS

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WORKS CITED

87

ENDNOTES

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List of Acronyms AAP ANC BRTS CDMX COJ CPCB CRRI DCB DCLG DDA DIMTS DMRC DPR DTC DUEIIP FTA GDP GDP GLA GNCTD GO GOI HUDA IDFC IGT

Aam Aadmi Party African National Congress Bus Rapid Transit System Ciudad de MĂŠxico (Mexico City) City of Johannesburg Central Pollution Control Board Central Road Research Institute Delhi Cantonment Board Department for Communities and Local Government Delhi Development Authority Delhi Integrated Multi-Modal Transit System Limited Delhi Metro Rail Corporation Limited Detailed Project Report Delhi Transport Corporation Delhi Urban Environment and Infrastructure Improvement Project Federal Transit Authority Gross Domestic Product Gross Domestic Product Greater London Authority Government of National Capital Territory of Delhi General Obligation Government of India Haryana Urban Development Authority Infrastructure Development Finance Corporation Intergovernmental Transfer

INEGI

Instituto Nacional de Estadistica y Geografia, Mexico (National Institute of Statistics and Geography)

INR ITDP JBIC JICA MCD MMTAO MRTS MTA

Indian Rupee The Institute for Transportation and Development Policy Japanese Bank for International Cooperation Japanese International Cooperation Agency Municipal Corporation of Delhi Metropolitan Mass Transportation Operating Assistance (MMTOA) Mass Rapid Transit System Metropolitan Transport Authority

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NAO NCRPB NCT NDMC NGO NHAI NOIDA NYC OECD PANYNJ PAO PATH PILOT PPP PWD RITES

National Audit Office National Capital Region Planning Board National Capital Territory New Delhi Municipal Corporation Non Governmental Organisation National Highway Authority of India New Okhla Industrial Development Authority New York City Organisation for Economic Co-operation and Development Port Authority of New York & New Jersey Principal Accounts Office Port Authority Trans-Hudson Payments in Lieu of Taxes Public Private Partnerships Public Works Department Rail India Technical and Economic Service Limited

SCT

Secretaría de Comunicaciones y Transporte (Secretary for Communications and Transport)

SEMOVI

Secretaría de Movilidad de Ciudad de Mexico (Secretary for Mobility of Mexico City)

SPV TBTA TFA TfL TIF TRIPP ULB UNDP VAT

Special Purpose Vehicle Triborough Bridge and Tunnel Authority Transitional Finance Authority Transport for London Tax incremental financing Transport Research and Injury Prevention Programme Urban Local Body United Nations Development Programme Value Added Tax

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Executive Summary This report aims to understand when and how levels of fiscal and political autonomy may impact transportation infrastructure investment at the local level.

In order to understand the impact of fiscal and political autonomy, it is necessary to define levels of decentralisation and examine when and how decentralisation interacts with investment mechanisms for transportation infrastructure. This report adopts a case study approach to analyse differences (especially in city governance, transport governance, and funding mechanisms for transport) across five highly populated and global cities located in democratic countries: Johannesburg, London, Mexico City, New Delhi and New York City. It then analyses levels of fiscal and political decentralisation across these cities using a methodology that builds off previous research on decentralisation. Finally, after understanding the variation across cities in decentralisation levels, this report looks at whether this variation is correlated with differences in funding and financing models for public transit or project delivery. This is accomplished through case studies of two major projects in each city developed within the last two decades.

The city and project case studies reveal the impact of fiscal and political decentralisation on infrastructure investment financing and delivery is mixed.

Fiscal and political decentralisation, if both present in a city, can impact the speed at which projects are approved. Political decentralisation, alone, can influence project approval when augmented by strong leadership, high electoral accountability, or political alignment between different levels of government. Fiscal decentralisation itself has a limited influence on funding models due to the unique investment requirements for transport infrastructure projects. Each of the five cities examined have have access to the same core investing mechanisms-- general revenue, debt, grants, user charges and PPP financing--despite differing levels of political and fiscal decentralisation. This points to the impact of external factors as important determinants of transport investment funding models and project delivery.

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Introduction

1. Introduction What makes cities successful is one of the most important questions of 21stcentury political economy. Today, over 50% of the world’s population is in urban areas. By 2050, two-thirds of global inhabitants will be living in cities (Department of Economic and Social Affairs, 2014). This rapid urbanisation is radically changing the physical and economic landscape of our planet. It is estimated that by 2025, the top 600 urban centres will contribute 60% of world GDP and house 25% of global population (McKinsey, 2012). As cities grow in size and economic importance, policy makers around the world are looking at how to create urban environments that foster economic growth while increasing the standard of living of their citizens.

Figure 1.1 Urban residents as a percentage of total population. Source: Prudential Investment Management, 2015

A review of various global city competitiveness indices reveals there are a number of factors that enable growth within cities. The EIU Global City Competitiveness Index, ranks the quality of public transport and related infrastructure as the 3rd most important indicator (by weight) of city competitiveness, after real GDP growth and strength of financial institutions.

Yet, cities around the world are on the verge of an increasing “infrastructure gap.” The World Economic Forum estimates one-quarter of the global demand for infrastructure each year is not met and that without innovative financing and delivery mechanisms it will be difficult to close this gap1. But, the World Economic Forum estimates only $2.7 trillion of the existing global need for $3.7 trillion in infrastructure investment is met each year, with the majority of contributions coming from governments.2 McKinsey Consulting estimates that in the next 15 years the G20 nations’ need for infrastructure projects will surpass available investment by at least $20 trillion.3

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Figure 1.2: Urban and rural population of the world: 1950-2050. Source: United Nations, 2014

The existence of the infrastructure gap creates a need for policy makers to identify alternative sources of funding while at the same time ensuring the right infrastructure projects are delivered efficiently and effectively.

Decentralisation, a measure of fiscal and political autonomy, is one policy trend that is currently receiving a lot of attention as a potential mechanism to attract new forms of financing and better city service delivery. Public, private, and academic realms are all looking at how different levels of autonomy impact urban outcomes in service financing and provision. In the United Kingdom, for example, city deals have gained recent popularity as it is thought that local authorities can serve the needs of the population better than national authorities. Thus, increasing the level of allocative efficiency of the public investment.

However, simply increasing political and fiscal powers at the local level does not necessarily lead to more efficient and effective delivery of infrastructure.

Local governments may be too small to form a coherent, long-term, inclusive economic vision or sufficiently leverage needed resources.4 Alternatively, city jurisdiction may be smaller than the functional jurisdiction of some of their services, such as transportation, limiting their ability to coordinate governance. Thus, a better understanding of what factors of fiscal and political autonomy impact the investment and delivery of infrastructure is needed.

In an attempt to understand the impact of fiscal and political autonomy on infrastructure delivery, this report looks specifically at its influence on investment models. The following sections examine existing public transportation infrastructure investments within the context of five global cities, to understand, “What impact does a city’s fiscal and political autonomy have on urban infrastructure investment models?” Throughout this report, ‘public transportation’ and ‘mass transport’ will be used interchangeably, to mean “the movement of people within urban areas using group travel technologies such as buses and trains.”5

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The chosen cities vary in governance structures and infrastructure investment in public transportation, allowing us to draw useful comparisons and lessons.

This report aims to complement, rather than replicate, quantitative studies.

1.1 Approach How fiscal and political decentralisation impacts transport infrastructure investment models will be addressed using a case-study approach. The data used for the analysis in this report is a combination of publically available information along with in-depth interviews with relevant stakeholders wherever possible. The complexity of the research question and difficulty in measuring levels of city decentralisation, especially its various components, make a quantitative study infeasible. Data availability and comparability across countries is limited, in particular beyond OECD countries, and many of the variables of interest are qualitative in nature. An in-depth case study analysis, therefore, allows for more useful conclusions regarding the research question.

This report is split into five main sections. Section 2, is a literature review that summarises existing research related to decentralisation and the economic impact of transport. Section 3, justifies the selection of five global-cities using criteria that ensures variability and comparability along different dimensions and provides detailed information on relevant city characteristics. Section 4, analyses the level of political and fiscal decentralization for each of the five cities of interest. Section 5, provides overall findings on if/how the city’s degree of fiscal and political decentralization affected the transport investment mechanism and successful project delivery that emerge from indepth project case studies (two mass transit projects per city, see Appendix 1). Section 6 concludes.

1.2 Data limitations 1.2.1 City comparability Although the five cities selected for this analysis share many features, like identities as global cities and high levels of gross domestic income relative to the rest of their respective countries, they still differ in ways other than decentralisation level that may matter. Examples of differences that might matter for example, are that these cities are located across countries with very large differences in income per capita (USD 5.700 in India to USD 54.630 in the United States). Two of the cities selected are not capital cities (New York City and Johannesburg), like the rest of the sample and that there are different political subdivisions within each city.

1.2.2 Data availability and comparability Associated with this heterogeneity among cities selected is the lack of comparable data across countries and cities. International data published by the OECD, the IMF, and others most commonly exist at the country, and not the city-level. Studies that make international comparisons between cities,

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therefore, have to rely primarily on information disclosed by the local government, and not by externally audited sources.

Further, fiscal information regarding capital project expenditure, a major focus of this research, is difficult to gather and cannot be found in one comparable database. Information about financing/funding information from transport projects are frequently different even across sources within the same city.

Additionally, given that major infrastructure projects are often resource the origin of funds can be difficult to disentangle (central and local government, public and private funds, debt, user charges, etc.) and changes can occur throughout the lifecycle of a project. Due to this complexity, we cannot be certain the figures used in this report, are an accurate reflection of actual funding breakdowns.

Furthermore, detailed information on the initial planning, decision-making, and funding of infrastructure projects is often limited. Major transport infrastructure projects can be politically controversial providing incentives for limited transparency. Thus, consistent information on expenditures, project schedules, feasibility studies, and evaluations may not be easy to gain access to or generally publicly available.

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Literature Review

2. Literature Review This literature review aims to provide relevant information on what has been discussed about this topic thus far. It is broken into six subsections: the economic impact of transport, what is decentralisation, benefits and challenges of decentralisation, impact of decentralisation on capital expenditure, mechanisms that cities use to finance or fund urban transport infrastructure, and the impact of decentralisation on a city’s ability to provide necessary services, such as transport.

2.1 Economic impact of transport: benefits associated with transport improvement projects The argued benefits of investment in transport are wide ranging. In a recent study commissioned by the UK Department, three main types of benefits were identified for projects that focused on improving transportation systems in a city: ‘direct benefits’, which are commonly captured in a cost-benefit analysis (CBA), the benefits associated with an increase in productivity due to agglomeration produced by transport projects, and the benefits associated with incremental investment, and the employment generated in an area impacted by transport as a consequence (Venables, Laird, & Overman, 2014).

Figure 2.1 below relays the mechanisms through which transport investments are translated into direct and indirect benefits.

Figure 2.1: The effects of a transport investment. (Source: Venables et al, 2014)

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Literature Review Banister et al. find that certain conditions are necessary in order for transport to impact economic development (Banister, David, & Yossi, 2001). In developed countries where there is already a well-connected transport network, factors such as economic externalities, availability of funds for investment, and the political environment create the necessary conditions for investment to have impact. Crafts echoes this argument that alternative factors can influence the actual impact of transport investment, pointing specifically to financing sources as having potential to influence output and private investment at the city level (Crafts, 2009).

2.2 Definitions of decentralisation Currently there is no consensus among academics on what decentralisation entails. Literature has defined decentralisation in several ways: devolution of power to local authorities, election of local authorities, ability to collect or define taxes by local public bodies, independence in investment decisions, etc. Some authors, however, have introduced a more comprehensive conceptualisation of decentralisation within recent years: devolution from the national government to local authorities - at the state, regional or municipal level - of administrative, fiscal and political features (Schneider, 2003), (Faguet, 2008).

2.3 Dimensions of decentralisation Schneider categorizes decentralisation into three core dimensions: fiscal, political, and administrative (Schneider, 2003).

2.3.1 Fiscal decentralisation Fiscal decentralisation is defined as the extent to which central governments have ceded fiscal powers to subnational governments (Schneider, 2003).

Fiscal decentralisation can be further divided into the two main categories: expenditure autonomy and revenue autonomy. Revenue autonomy is defined as the extent to which central governments have ceded to local authorities the power to raise money through a range of existing or new taxes and charges. Fiscal decentralisation may also include the power for subnational governments to set those taxes and charges and the ability to borrow.

Expenditure autonomy, accordingly, is the extent to which central governments have ceded to local authorities the power to decide where to allocate spending (Schneider, 2003; House of Commons, 2014; Kuo and So, 2013).

2.3.2 Political decentralisation A second dimension of decentralisation according to Schneider is the degree to which central governments allow sub-national governments to undertake the political functions of governance. These functions include the mobilization, articulation, participation, contestation, and aggregation of local interests through institutions of the state. In decentralized political systems, political actors and issues at the local level are considered significant and and partially independent from those at the national level. Furthermore, citizens in politically decentralized systems define interests on the basis of local concerns, and political actors and organizations compete with one another 10

Literature Review over these interests in local elections. Hence, the existence of elections at the local level is by some to be an indicator of political decentralisation (Schneider, 2003).

2.3.3 Administrative decentralisation A third dimension of decentralisation is administrative decentralisation. It is defined as the level of autonomy that non-central government entities possess relative to central control. Andres et al (2014) stratifies administrative decentralisation into three categories: deconcentration, delegation, and devolution. Deconcentration is the least autonomous form of administrative decentralisation where the central government disperses responsibility for a policy to its field offices. This is merely a change in the geographic distribution of authority, and is characterized by bureaucratic and hierarchical relationships. Delegation is where the central government transfers policy responsibility to local governments or semi-autonomous organizations that are not controlled by the central government but remain accountable to it.

This type of administrative decentralisation is characterized by contractual relationship. Lastly, devolution is the most autonomous form of administrative decentralisation where the central government allows local units of government to exercise power and control over the transferred policy (Schneider, 2003).

2.4 Benefits and challenges of decentralisation Improving efficiency and reforming the distribution of power (Schneider, 2003) are reasons behind the shift towards more decentralisation. Some, like Bird, have argued that decentralisation can boost economic growth, allow public sector investments to better reflect the identities and preferences of local populations and foster greater local accountability and greater political stability (Bird, 1994). Others emphasise the need for a central body to play a stabilisation and redistributive role in the management of public resources (Oates, 1972) While empirical evidence on the efficiency of decentralisation has varied across governments and contexts, there are certain benefits that are attributed to empowered local governance. The United National Development Programme (UNDP) identified local governance as a basic component of an enabling environment associated with more efficient and equitable service delivery by bringing local knowledge closer to the policy making and service delivery processes.

While there are many arguments for decentralisation, there are also some against it. Prud’homme argues that fiscal decentralisation can have adverse distributional consequences; increased disparities between wealthier cities and poorer jurisdictions (Prud’homme, 1995). It may also jeopardize macroeconomic stability and undermine efficiency. The author also argues that, especially in developing countries, fiscal decentralisation does not bring greater allocative efficiency. He also argues that a large single procurer (national government) may have greater bargaining power and thus drive down cost of public procurement. Finally, Prud’homme points to the increased probability of corruption in governance as a downfall of decentralisation (Prud’homme, 1995).

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Literature Review

In sum, Litvack et al. “to debate whether decentralisation is good or bad is unproductive and misleading since the impact of decentralisation depends on design” (Litvack, Jennie, Junaid, & Richard, 1998, p. 26).

2.5 Impact of decentralisation on capital expenditure Across the literature, there seems to be no clear relationship between greater levels of decentralisation and higher levels of capital expenditures. Some authors do find a positive relationship. (Blöchliger & Hansjörg, 2013), using figures from OECD countries, concludes that: “investment in physical and – especially – human capital as a share of general government spending is significantly higher in more decentralised countries”. (Benassy-Quere, Gobalraja, & Trannoy, 2007) argue that in a highly decentralised context, “tax competition distorts the composition of public expenditures away from unproductive public goods towards more productive public inputs”, like transportation. (Grisorio & Francesco, 2015), using data from regions in Italy find that “fiscal decentralisation reduces welfare spending, as predicted by the competition thesis... while it has a positive effect on the share of expenditure for infrastructure and investment and for productive activities support.”

Other authors find that greater decentralisation is associated with decreasing proportions of capital expenditure to total spending. For example, Arze et al. find evidence in developing countries that higher levels of decentralisation move the spending priorities of local governments towards consumption expenditures, such as health, education and housing (Arze, Martinez, & Mcnab, 2005). Similarly, Gonzalez-Alegre, using data from Spanish regions, suggests that greater decentralisation skews the composition of spending towards current expenditures, and away from capital expenditures (GonzálezAlegre, 2010).

More importantly, some authors find that decentralisation is not associated with more private investment in public infrastructure. Using figures from OECD countries, Blōchliger concludes that “the empirical findings suggest that while public investment spending is higher in decentralised settings, it has relatively little effect on private investment” (Blöchliger, 2013).

2.6 Impact of decentralisation on a city infrastructure investment Given the benefits and challenges of decentralisation, research has been conducted to study the impact of decentralisation on the ability of a city to provide necessary services, such as transport. Musgrave argues that governments must strike a balance between efficient and effective use of funds while staying responsive to citizen preferences (Musgrave, 1959).

In relation to transport, Kodras argues that decentralisation can impact local government’s ability to secure outside funding such as PPPs, or development bank investments. Other potential negative impacts are that increased competition for outside funding, if less reliant on federal transfers, could mean inequality in funding opportunities across cities (Kodras, 1997).

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Literature Review

On the other hand, Blöchliger and Petzold argue that reliance on central governments as a main funding source creates uncertainty of funding and a potential unexpected reliance on debt to meet financing commitments (Blöchliger & Petzold, 2009). Intergovernmental grants, they contend, may exacerbate revenue fluctuations over cycles and reduce local tax efforts. This could increase local spending at the expense of higher local debt, if local governments are uncertain or overly optimistic about the amount of intergovernmental transfers they will receive. Thus a city’s ability to secure its own funding creates responsibility towards their own budgets. This argument is extended to argue that fiscal decentralisation increases service delivery efficiency and government accountability in developed and developing countries (Blöchliger & Petzold, 2009; Boetti, Piacenza, & Turati, 2012; Cantarero & Perez, 2012; Liberati & Sacchi, 2013, Barankay & Lockwood, 2007). In looking at different funding mechanisms for municipal service delivery, Bardhan and Mookherjee, argue that when local governments have complete fiscal autonomy, including unrestricted local taxation, services within cities tend to increase and reflect citizens needs because of future funding (Bardhan & Mookherjee, 2006). However, when local governments are entirely financed by fiscal grants from the central government, they tend to be unresponsive to local need shocks. This is largely due to these local governments operating under financial constraints, causing service levels to be lower compared to if self-financing via taxes or user fees.

Stability of funding streams is important for planning. With local fiscal autonomy comes more risk. Economic shocks can lead to higher volatility in local government funding. Wilcox (2013) found that business rate taxes or sales tax, user fees and charges can experience high and medium short run volatility, while property tax and other housing based fees tend to have lower short run volatility.

The current state of research on the impact of decentralisation on infrastructure investment and delivery remains inconclusive. A variety of channels are suggested to explain the factors that impact city-level investments in infrastructure. This report acknowledges this and uses information from specific transportation investment projects to find patterns that point towards probable causal linkages.

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City Case Studies

3. City Case Studies 3.1 City selection In determining the cities to study, characteristics were identified that had to be present in each cities. Cities had to be defined as global, be highly populated, and be located within a strongly democratic country. For each of these main characteristics, an objective measure was identified.

A city was classified as “global” if it was categorized as Alpha++, alpha+ or alpha in the 2010 ranking of global cities by “Globalization and World Cities Research Network” (Geography Department Loughborough University, 2010).

These are the three highest city rankings in the index. The GaWC ranking created the initial list of 47 cities to consider (see Appendix 3). To eliminate the differences in infrastructure and planning that can arise from autocratic governance, the list was further narrowed include only those ranked as “democratic” on the Freedom House Index. Cities in countries categorized 13, the 3 most democratic rankings, remained viable. Finally, looking for highly populous cities, cities were then sorted by population size. From the most populous fifteen democratic and global cities, five cities were selected to prioritize the inclusion of different demographic regions and varying levels of decentralizations to ensure comparative analysis is possible. The selected cities were: • Johannesburg, South Africa • London, United Kingdom • Mexico City, Mexico • National Capital Territory Delhi, India • New York City, United States of America This report will now briefly describe each city, focusing on governance structure, transportation governance, and transportation funding to set the basis for later analysis.

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City Case Studies- Johannesburg

3.2 Johannesburg 3.2.1 City description The City of Johannesburg, located in Gauteng province, is considered the economic hub of South Africa. However, Johannesburg is one of the most unequal cities in the world with a Gini coefficient of 0.75 (UN-HABITAT, 2011).

This is in part due to the devastating socio-economic legacy left behind by the racially discriminatory spatial planning policies of the former Apartheid regime. This has resulted in the high cost, low coverage and highly fractured nature of the city’s public transportation system, which has had severe socioeconomic consequences: immobility of labour, high unemployment, high search costs, and a strain on the competitiveness of the region (OECD, 2011). Since hosting the FIFA World Cup games in 2010, the nation’s different levels of government have made significant public transportation infrastructure investments and have begun to address these spatial economic concerns.

Box 3.1: Johannesburg city facts

City facts at at a glance ● ●

Population: 4.4 million6 GDP per capita: 16,370 ($,

City transportation facts at a glance ●

PPP, 2014)

● ●

●

Share of national GDP: 16.26%7 Total city budget: R40,839,861,000 (approx. $2.8 billion USD) 8 Capital city: No

● ● ●

Public transport currently makes up 32% of all trips during peak periods9 Metrobus system: 1200 buses10 Rea Vaya: Bus Rapid Transit system (31 stations along trunk system)11 Minibus taxi system the most predominant form of transport12

3.2.2 City governance geography The city of Johannesburg has a one-tier government, with a legislative and executive wing. The legislative council is an elected body comprised of 260 elected members: 130 of whom are elected by first-past-the-post to represent Johannesburg’s 130 wards, and the remaining 130 are selected by proportional representation from party lists. The Executive Branch is headed by the city’s Mayor, who is elected by his or her peers within the legislative council after the general election takes place. The Mayor then appoints 10 councillors to serve in his executive mayoral committee, each of whom is responsible for an area of government and reports directly to the Mayor (COJ, 2015).

The South African constitution of 1996 defines the three spheres of government (national, provincial, and local) as being interdependent with an overall objective to achieve national unity. Certain services provided by the

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City Case Studies- Johannesburg national and provincial governments, overlap those provided by the municipality. Such concurrent mandates include public transport, housing, and land use regulation (OECD, 2011).

Figure 3.1: City governance structure. Source: LSE Urban Age

Figure 3.2: City of Johannesburg Operational Budget 2014-15. Source:

3.2.3 Transport governance Transport falls under the umbrella of “cooperative governance”, with different levels of government controlling different entities, as outlined in table 3.1.

3.2.4 Funding for transportation infrastructure Transport-related expenditure in Johannesburg’s dominated by three main local entities: • Johannesburg’s Department of Transport (DoT) 16

capital

budget,

is

City Case Studies- Johannesburg • •

Johannesburg Road Agency Johannesburg Metropolitan Bus Company (Metrobus)

Table 3.1: Different transport administration agencies in Johannesburg

Jurisdiction

Area

Governing Body

National

Freeways

South African National Roads Agency (SANRA)

National

Passenger Rail

Passenger Rail Authority of South Africa (PRASA)

Provincial

Provincially owned roads

Gauteng Department of Roads and Transport

Provincial

Contracting authority for various bus services in Johannesburg

Gauteng Department of Roads and Transport

Provincial

Administering economic regulation of public transport (issuing licenses)

Gauteng Department of Roads and Transport

Provincial

Gautrain High-Speed Rail

Bombela Concession Company.

PPP with Gauteng Provincial Government

Local

Municipal Roads

Johannesburg Road Agency (JRA)

Local

Municipal Bus Service

Metrobus City-level enterprise (subsidized by City & Province)

Local

Rea Vaya Bus Rapid transit system

PioTrans Ltd. - Bus Operating Company

Local

Policy, planning, and coordination

Johannesburg Department of Transportation

A.

City of Johannesburg Department of Transport

The Department of Transport is directly operated by the city’s central administration. The capital projects that are managed and funded by the DoT are typically large-scale projects, like the capital funding for the Rea Vaya Bus Rapid Transit and the design and construction of the Roodpoorte Taxi Facility. Figure 3 shows that from 2008 to 2015, the majority of its capital budget came from national government grants. In 2011, for example, the Rea Vaya Bus Rapid Transit project received a grant of approximately R1-billion (USD $62-million) from the national government. This grant made up 99% of the DoT’s entire capital budget that year. Despite its status as a selfgoverning department with City of Johannesburg, with respect to capital spending, the DoT is largely dependent on the national government.

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City Case Studies- Johannesburg

Figure 3.3: City of Johannesburg

B.

Johannesburg Metropolitan Bus Services Ltd. (Metrobus)

The Johannesburg Metropolitan Bus Company (Metrobus) is a private entity, like the JRA, that is wholly-owned by the City of Johannesburg. Metrobus capital projects range from minor building and bus shelter maintenance projects that are approximately R600,000 (USD $37,000) to the replacement of their bus fleet that cost approximately R1.8 million per year (USD $111,000). Figure 5 show that from 2008 to 2015, 100% of these capital expenditures come from the city’s own-revenue sources. Between 2008 and 2014, much of the spending came from the City’s cash reserves. In 2015, however, majority of the funding came from loans.

Figure 3.4: Breakdown of funding sources for the capital budget of the Johannesburg Road Agency (2008 to 2015) (Source: City of Johannesburg Medium-Term Budgets)

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City Case Studies- London

3.3 London 3.3.1 City description London is the economic, cultural and political centre of the United Kingdom.

Home to a growing population, city leadership is concerned with its ability to deliver adequate housing and transportation to meet this influx. Academics and policy makers point to the highly centralized nature of the UK as a bane to city growth, arguing that decentralising fiscal and political powers would enable policies and planning that better reflect differences in local preferences and public service needs (Gash, Randall, & Sims, 2014). The London Infrastructure Plan 2050 is an example of what could be delivered if decentralisation were to take place. Set out by the Mayor of London in 2014, the plan highlights the level of infrastructure investment needed to sustain the current growth of the city, noting the current gap in funding and resources as a main challenge to success.

Box 3.2: London city facts

City facts at a glance ● ● ●

●

●

Population size: 8.6 million 15 GDP per capita: 2015 $57,157 (PPP)16 Share of national GDP: 22% of UK GDP despite accounting for only 12.5% of the UK population17 Total city budget (revenue + capital expenditures): ~£21.9b Boroughs18 Boroughs, GLA et al: 19 £22.57b ; Total: £44.476 Capital city: Yes

City transportation glance13 14 ●

●

● ●

facts

at

a

Tube: 1.305 billion riders annually, 4 million daily, 538 trains operating at peak time, 270 stations, 11 main lines Bus: 2 billion + annual riders, over 19,000 stops, around 9,000 vehicles, 675 routes Overground: 140 million riders annually, 112 stations DLR: 110 million riders annually, 45 stations, 149 vehicles

3.3.2 City governance geography London has a two-tier governance structure, with civil service delivery responsibilities divided between the 32 London Boroughs (33 including the City of London) and the Greater London Authority (GLA). The boroughs provide the majority of day-to-day services for their local residents while the GLA heads four functional bodies: The Mayor’s Office for Policing and Crime, which oversees the Metropolitan Police Service; the London Fire and Emergency Planning Authority; Transport for London; and the London Legacy Development Corporation (Greater London Authority, 2014).

The Mayor of London and the London Assembly are the two managing bodies of the GLA governance. The Mayor develops a broad vision for the city and lays out strategies on environmental preservation, culture and

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City Case Studies- London tourism, economic development, transport and waste, safety and security and spatial development among other issues. The UK Parliament makes all major financial decisions on taxation levels in the city and provides major project funding and grants to Boroughs and the GLA. The citizens of London elect representatives to manage their interests both at the Borough level and the national level. Each borough is divided into wards, which are represented by three elected councillors. Elections are held every four years, with the next election in 2018. Each council is led by a council mayor and a scrutiny committee. London is also represented by 73 Members of Parliament (LondonCouncils.gov.uk, n.d.). The Mayor is directly elected by all citizens of London. The London Assembly consists of 25 elected members, 14 of whom represent constituencies and the rest who are elected from party lists according to the total London-wide vote. The Assembly has the power to veto any plan from the Mayor.

Figure 3.5: London city governance structure. Source: LSE Urban Age

Funding for city infrastructure and other capital projects is primarily directed by the U.K. central government, with the GLA able to make some basic service delivery recommendations and decisions. The central U.K. government raises revenue through a range of sources including income tax, corporation tax, fuel duty, national insurance contributions and value added tax VAT), the latter two of which are the largest sources of revenue (Pope & Roantree, 2014). The national government passes these funds along to local governments in the form of ringed and non-ringed grants. Aside from these grants, the London Boroughs raise funds predominately through council tax and fees and charges (Harrow Council, 2016). All of council taxes raised are spent within the boroughs or are earmarked for the GLA. Grants are subject to change based on funding reviews and negotiations and are thus considered uncertain streams of revenue by London planning authorities (Travers, 2013).

20

City Case Studies- London

Figure 3.6: GLA and London Boroughs Budget 2014-15. Source: DCLG, 2016

3.3.3 Transportation governance Local transport planning is split between the London Boroughs and the GLA. The 1999 Greater London Authority Act requires that all Boroughs show how it will implement the Mayor’s Transport Strategy as it relates to the transportation planning under their purview (‘Greater London Authority Act 1999’, 1999). The current Mayor’s Transport Strategy includes proposals on how to update and transform the Tube, enhance rail options, including Crossrail, Thameslink and London Overground, improve interchanges, encouraging cycling and improving buses.

Transport for London (TfL), housed under the GLA, is responsible for running London’s transport services including the tube network, London Buses, Docklands Light Railway, London Congestion Charge scheme, 550 km network of main roads, and London Overground (LondonCouncils.gov.uk, 2012). The Mayor of London chairs the TfL board and is responsible for appointing the board members.

3.3.4 Funding for transportation infrastructure Transport for London and the Greater London Authority are predominantly responsible for managing the funding and financing used for transportation infrastructure. Looking specifically at the TfL the operations and capital spending is financed from five and six main sources respectively:

21

City Case Studies- London

Figure 3.7: TfL capital and operational budget by spending category 2014-15. Source: TfL; Mayor of London

For new infrastructure projects, the following funding options are available to the Mayor: Table 1.2: Funding options available to the Mayor of London

Funding type20

Description

Fees and charges

● Congestion Charges, road network compliance charges, advertising, property rentals, and property sales and developments

Business rates supplement

● Levied at 2p on the £, collected by London Boroughs on behalf of GLA and is currently generating approximately £255 million per annum ○ GLA currently uses transfers from this to repay debt raised to construct Crossrail

GLA Olympics precept

● levied on residential properties to pay for the Olympics, due to end in 2016/17. The precept amounts to £20 for a Band D property width

Third party contributions and sponsorship

● Typical level of capital funding through third party contributions is 3-4%, can also do sponsorships, such as the Santander sponsorship of the London cycle hire scheme

Community Infrastructure Levy

● Applies to most new development in London granted planning permission on or after 1 April 2012. Current the Levy raises money towards Crossrail and is collected by the London boroughs21. ○ Large transport projects have significant effect on land value this is a way to capture uplifts accruing to private sector and landowners at the Borough and Mayoral

22

City Case Studies- London

Borrowing

● The Portfolio is managed by the Local Government Prudential Borrowing Regime. The Mayor of London sets incremental borrowing limits every year, which are agreed upon by the Government as part of the Spending Review.22

Bonds

● Issued by a public authority to fund specific projects. Used

by Boris Johnson in 2008 to fund Crossrail, £600m bond issue to raise funds for the £14.8bn Crossrail project. Last time this was done was 17 years prior23

Non-ringed central government grants

● These grants, such as the Council Tax benefit, gives money to local governments to be spent in a specific amount on a specific service area, but the council is free to determine how to meet the requirements of the grant.

Government grants to third parties

● Grants from the central government to entities outside of local government, where the local government often acts as a liaison, but holds no control over how the funds are spent.

PPPs

● Private finance projects are typically long term contractual arrangements between public authorities and private sector companies with funding raised by the private sector companies.

The authorities manage the tendering, governance and contractual relationships for the public sector.

23

City Case Studies- Mexico City

3.4 Mexico City 3.4.1 City description Mexico City (also CDMX, formerly Federal District) is the capital of Mexico.

Mexico City plus some municipalities of its surrounding states form the Mexico Valley Metropolitan Area (Zona Metropolitana del Valle de Mexico, or ZMVM), which was created to alleviate some of the complexities in inter-state coordination of transport and service delivery. One of the main challenges of CDMX and the whole ZMVM is how to provide good transportation to citizens. A recent OECD report stated, “despite heavy investment in mass transport in Mexico City, only 25% of the population lives within one kilometre of a station or a stop. Moreover, both the underground and the new bus rapid transit system are already operating above capacity” (OECD, 2015).

In addition, Mexico City currently ranks second out of 146 large cities across the world in having the worst levels of congestion24. A driver, on average, experiences a delay of 29 minutes for a typical 30-minute commute. The limitations of the transportation system have put severe strain on labour mobility, city administration, and overall economic growth (UN-ELAC, 2010).

Box 3.3: Mexico City facts

City facts at a glance ● ● ● ● ●

Population size: CDMX 8.9 million25 (ZMVM 20.1 million26) GDP per capita: USD 19,940 Share of national GDP: 23.6% Total city budget: MXN 169 billion (USD 9.8 billion) Capital City: Yes

Transportation facts at a glance ● ● ● ●

Car use increased at an average annual rate of 5.3%, between 1990 and 200927.

Number of registered cars in the Metropolitan Zone in 2014 was 5.3 million.

The underground system has 12 lines, with 195 stations and a total size of 226.5 km.

Underground annual ridership 1.6 billion (2014), one of the highest ridership of metro systems around the globe.

3.4.2 Governance geography Mexico is a Federal country composed of 31 States and Mexico City, which given its dual position as the seat of the Federal Government is considered as “dependent on the Federation”. While not formally a State, Mexico City has many decentralised powers. Mexico City has three branches of government (as the 31 States), the executive branch, headed by the Chief of Government of Mexico City; the legislative branch, the State Assembly (composed by 66 Deputies elected every 6 years); and the judiciary, the Supreme Tribunal of Justice (appointed by the tribunal of Mexico City). The Chief of Government of Mexico City (who we will call the Mayor of Mexico City) is the most important political actor in the city, and has importance at the national level.

24

City Case Studies- Mexico City Two of the last three Governors of Mexico City have been opposition party presidential candidates. Since a reform in 1997, the Chief of Government has been elected by direct and universal elections held every six years. Figure 3.7 shows the three-tier government that interacts in Mexico City and some of its public bodies that have a say in the transportation system. Is it interesting to note that, although at the borough level the chief of delegations are democratically elected, they actually are seen as administrative sub-units from the CDMX government, with limited fiscal powers (Caldera-Sรกnchez, 2013).

Figure 3.8: Mexico City governance structure. Source: Author compilation

Fiscal powers of Mexico City are relatively high in comparison with the rest of subnational entities (States) and the city spend a huge part of the budget in Transport. 54% of CDMX revenue comes from internal sources like local taxation and local fees and charges and 46% come from federal grants (Figure 3.8) (including special funds for the capital city and special funds for infrastructure projects in the metropolitan zone). It is also remarkable that transport expenditures accounted for 11% of CDMX budget.

Figure 3.9: Mexico City Budget 2015. Source: Mexico City budget

25

City Case Studies- Mexico City

3.4.3 Transportation governance Public transport in Mexico City is highly decentralised: As it is described in the following table, the main mass transit systems are managed through different decentralised public bodies with it owns structures. At the city level, the Secretary for Mobility (SEMOVI) has its role in coordinating the different public bodies, although its ability to do that is limited and the coordination role is commonly seen as merely for the budget allocation process (OECD, 2015). Moreover, the jurisdiction of SEMOVI is strictly within the borders of CDMX, thus it does not include the whole Metropolitan Area.

Table 3.3: Transport administration in Mexico City

Jurisdiction

Area

Governing Body

National

Passenger Rail

General Direction of Rail and Multimodal Transport (Secretary of State for Communications and Transport)

Mexico City and State of Mexico

Suburban Rail

Ferrocarriles Suburbanos, S.A.P.I. de C.V. (Secretary of State for Communications and Transport)

Mexico City

Bus service

Passenger Transport Network from the Federal District (Secretary for Mobility of Mexico City)

Mexico City

Bus Rapid Transit

Metrobus of Mexico City (Secretary for Mobility of Mexico City)

Mexico City

Underground

Collective Transport System (Secretary for Mobility of Mexico City)

Mexico City

Light Rail

Electric Transport Service of Mexico City (Secretary for Mobility of Mexico City)

3.4.4 Funding for transportation infrastructure The Mexico City budget set aside for transport entities (operational and capital combined) was MXN 19.7 billion (around US$ 1.1 billion) in 2015 (Gaceta Oficial del Distrito Federal, 2014). As shown in Figure 3.9, the main transport related components in the budget include the underground (around

26

City Case Studies- Mexico City 76%), the urban bus system (9%), the tram and light train system (8%), and the bus rapid transit (7%).

Figure 3.10: Transport expenditures in Mexico City for 2015. Source: Mexico City Budget,2015

Regarding the transport capital investment projects carried out in Mexico City over the last few decades, the funding mechanisms include a variety of sources: • Public Private Partnerships - Concessions • Issuing of bonds • User charges • Central government projects materialised within the City • Central government transfers to Mexico City for specific projects • Fondo de Capitalidad (special transfer from the central government to the capital city) • Through own tax base, users

27

City Case Studies- NCT Delhi

3.5 National Capital Territory of Delhi Note: For the purpose of this report, we are referring to the State government of Delhi as the City government. This is because the state and the city boundaries are largely coterminous and the Chief Minister of the State is effectively the leader of the city.

In 1991, the 69th Amendment to the Constitution of India granted special ‘state’ status to the existing Union Territory of Delhi. Delhi's official name became National Capital Territory of Delhi (NCT Delhi) with a legislative assembly to be elected by citizens. We use the administrative boundary of NCT Delhi as our ‘city’ for this current analysis

3.5.1 City description The National Capital Territory (NCT) of Delhi is the richest state by GDP per capita, as well as the capital of India. Spread over 1484 sq.km, it is the largest city in India by area. It is home to 17 million people and at the centre of the one of the fastest growing economies in the world28.

The high GDP growth will lead to ever greater demands on infrastructure and urban transit in Delhi. It is estimated that total number of daily trips in Delhi will rise from the existing 15.5 million to 28 million by 2021.cRoads already occupy almost a quarter of all land area in Delhi, limiting the potential for further increase in that regard.29 This implies that the city of Delhi needs to improve and develop the public transport network to keep up with this projected growth in demand for urban transit.

Box 3.4: City Facts (NCT Delhi)

City facts at a glance: ● ● ● ● ●

Population Size: 17 million GDP per capita: $3,330 (~INR 196,500) Share of National GDP: 4% Total City Budget: US$ 6.3 billion Capital City: Yes

City transportation facts at a glance: ●

●

●

28

Delhi metro rail: Annual ridership of 930 million passengers.

Average daily ridership 2.6 million. 187 kms operational, 117 kms (under construction: Phase-III expansion), 1,083 coaches, rush hour train frequency; 2.3 minutes Buses: Annual ridership 1.4 billion passengers. 4712 buses in fleet, 316 million kms in trip length annually Suburban railway: Shared network with National rail. 3 million annual ridership over a 35 km circular route

City Case Studies- NCT Delhi

3.5.2 City governance geography In Delhi, there is one national-level representative, 10 state-level representatives, and 40 local representatives for every 2.5 million voters30.

Unfortunately, representation does not necessarily translate into governance.

The unique nature of Delhi as a state and also the national capital has created a complicated and confusing governance structure. The Chief Minister is elected by the 70-member State Legislative Assembly, but does not control the municipal corporations or the development authority31. These institutions, which are run by centrally appointed civil servants, have statutory planning powers with regards to infrastructure and housing. The Delhi Police is also centrally supervised by the National Government. Consequently, the powers of the state government are highly dependent on the national (union) government.

Figure 3.11: NCT Delhi City Governance Structure. Source: LSE Urban Age

For civic administration, there are 11 districts within the city that are served by different municipal corporations. In 2012, the municipality (the Municipal Corporation of Delhi) was divided into three separate corporations. In addition, there is the New Delhi Municipal Corporation (NDMC) and the Delhi Cantonment Board. The elected councillors have limited executive powers and appoint the Mayor of Delhi. The Mayor has very limited political power and serves a 1-year term. Their funding is obtained by way of grants from state and national governments or as a share in tax revenue of the state government. Moreover, the local bodies remain accountable to the national government creating further confusion. This has severely curtailed the powers of the city government.

29

City Case Studies- NCT Delhi

Figure 3.12: Delhi Taxes (2014). Source: Calculations based on data from Public Accounts Office, GNCTD

3.5.3 City transport governance geography There is no unified transportation administration for NCT Delhi. This is in spite of recommendations from different groups32 that the metropolitan area of Delhi requires an integrated transport planning and management authority that is able to provide a seamless multi-modal commuting experience for the urban and suburban inhabitants. However, there is still no apex multi-modal transport agency and a general lack of coordination prevails. The main agencies involved in managing the transport sector in Delhi are: 1. State Transport Authority, which does registration of vehicles and routing of public transport services 2. Public Works Department (PWD) of the Municipal Corporation of Delhi (MCD), which constructs and maintains roads 3. DTC, which is the operator of the public bus system 4. Delhi Development Authority (DDA), which constructs roads in newly planned areas 5. National Highway Authority of India (NHAI), which constructs and maintains National Highways 6. Delhi Metro Rail Corporation (DMRC), which is responsible for the Metro Rail 7. DIMTS, which is a joint venture by Delhi government transport department and IDFC foundation, and has been created for operation and management of new BRTS corridors.

30

City Case Studies- NCT Delhi

3.5.4 Funding for transportation infrastructure While, NCT Delhi has constantly maintained a revenue budget surplus33, the capital budget relies on central government to cover shortfalls. The inability of the city to generate enough revenue for capital expenditure is at the heart of the problem of under provision of public transport infrastructure in NCT Delhi.

Figure 3.13: Capital Budget, Expenditure and Deficit for NCT Delhi (2012-2015).

Source: Calculations using data from PAO, GNCTD

Planned capital expenditure for Delhi in 2013-14 was INR 67.8 billion (~$1.12 billion)34. This is $66 per capita budgeted for all new infrastructure provision in a year. A quarter of this is budgeted for transport related investments, or $16 per capita. The capital account for Delhi has consistently run a deficit. The city governments (state and municipal) have limited capacity to raise external funds (debt) and therefore the city relies on central government assistance to meet the shortfalls.

31

City Case Studies- New York City

3.6 New York City 3.6.1 City description New York City, the most populous city in the US, is home to the nation’s busiest mass transportation system (Fischer-Baum, 2014). As the US has experienced a trend towards mass transit, with ridership increasing 10% nationally over the last decade, an uptick of riders on New York City related transport accounts for 84% of this total (Cox, 2013). The city subway alone has experienced a 69% increase in ridership from 1981 to 2013. The strength of NYC’s public transit is a positive for the metropolitan area’s economy (the second largest in the world, behind only Tokyo), due to agglomeration, commuter, and other benefits, but also highlights the need for effective maintenance and investment in the transit system (H&RA Advisors, 2015).

Box 3.5: New York City facts

City facts at a glance

City transportation facts at a glance35 36

● ● ● ● ●

Population size: 8,491,07937 GDP per capita: $70,83038 Share of national GDP: 8.8%39 Total city budget: $78,572,581,63440 National capital: No

● ● ● ● ● ● ● ● ●

Annual ridership: 1.751 Billion in 2014, or on average 5.6 million riders per day 24 lines--21 subway routes and 3 shuttles 660mile system Most stations are served 24 hours a day 6,383 subway cars 361.1 million miles travelled by the subway car fleet in 2014 October 27, 1904, the original 28 subway stations opened in Manhattan.

Today there are 469 stations NYC is the 7th busiest subway system in the world. (the first six are in Asia).

3.6.2 City governance The five boroughs of New York City are all controlled by one, single-tiered, city government. Both the mayor and the city council government are elected independently, serve a four-year term and are subject to a two-year term limit. The mayor is very powerful, with control over the budget and appointments to city agencies and non-elected government positions. Fiftyone elected council members representing different districts within NYC'S five boroughs serve as the city’s legislative branch and are responsible for proposing legislation and revising bills. The council must approve the city’s budget and has power over land use issues. Additionally, each of the city’s five boroughs elects a president, who works alongside the mayor to prepare the executive budget and explain borough budget priorities to the council.

32

City Case Studies- New York City Borough presidents also monitor city facilities and services that exist within their jurisdiction and formulate long-term visions for the borough under their control (New York State Department of State, 2009).

Figure 3.14: New York City Budget 2015 Endnote ref: 41,42

Figure 3.15: New York City Governance Structure. Source: LSE Urban Age

3.6.3 Transportation governance Mass transit in New York City is not controlled directly by the city, but through the Metropolitan Transit Authority (MTA) a state-controlled agency established in 1968 (“The MTA Network,� n.d.). The MTA is a public-benefit corporation, with a Chairman and Chief Executive Officer nominated by NY State Governor. Governed by a board of 22, five represent the governor, four receive recommendations from the NYC mayor, seven receive recommendations from County Executives in each of Metropolitan Commuter Transport District (MCTD)41, and six are non-voting members.42 All members are appointed by the Governor and must be approved by the State Senate, illustrating the high-level of control the State has over public transport in NYC. The MTA controls a broad range of services including the commuter

33

City Case Studies- New York City rail, subway system, bus service, and some tunnels and bridges (New York City Comptroller, 2015).

The Port Authority of New York & New Jersey (PANYNJ) also influence the provision and investment in transportation in the NYC region. An interstate compact authorized by the US Congress, the Port Authority supervises regional infrastructure including bridges, tunnels, PATH rail transit system, LaGuardia Airport, and JFK Airport. The Port Authority receives no tax funds and has no tax powers, instead it’s main source of funds come from tolls and other user fees it charges, or bonds it issues to be repaid through these sources (“Overview of Facilities and Services,” n.d.).

3.6.4 Funding for transportation infrastructure An assessment of expenditures of the New York City budget does not provide a clear view of how much the city actually spends on transportation.

In the NYC annual operational budget, transportation accounts for less than 2% of total spending per year--largely due to the existence of the MTA which take primary responsibility for public transit infrastructure investment (Independent Budget Office New York City, 2013). The MTA operational budget is funded through a variety of mechanisms with the majority of the operating revenue coming from fare box revenue and state-imposed local taxes (MTA 2015 Adopted Budget, 2015). These dedicated taxes include both specific taxes to raise revenue for transportation like the Metropolitan Mass Transportation Operating Assistance (MMTOA)43, and earmarked revenues (Matthiessen Strategies, Citizens Budget Commission , 2012).

Box 3.6: Funding for transportation infrastructure

Federal

Grants (IGT)

State

Grants/Subsidies (IGT) State-Issued Bonds Dedicated State Taxes

City

City-Issued Bonds ● General Obligation Debt (GO) ○ Backed by General Revenues ● Transitional Finance Authority ○ Backed by personal income revenue ● Development Corporation Bonds ○ Backed by Property Tax Revenues Pay-as-you-go Capital from General Revenue Dedicated Local Taxes (State-Imposed)

Corporate

MTA Bonds Triborough Bridge and Tunnel Authority (TBTA) Bonds MTA Pay-as-you-go Capital

34

City Case Studies- New York City

Figure 3.16: MTA Operational Budget 2015. Source: MTA Financial Plan 2015-2018

Capital expenditure in transport infrastructure is funded primarily through the MTA Capital Budget. This five-year budget is written by the MTA and approved by the MTA Board, and a state review board (“A Matter of Time: Tracking the Pace of Spending Under Metropolitan Transportation Authority Capital Plans,� 2015). A portion of the MTA is also funded through the federal government, primarily by the Federal Transit Authority (FTA). This federal appropriation is meant to fund a backlog in infrastructure renewal and is determined by a fixed formula. After contributions by the Federal, State, and City levels, the remainder is funded by the MTA itself, through pay-as-you-go capital and bonds (MTA, 2015). The issuance of MTA debts has been the largest source of MTA capital financing over the last decade (New York City Comptroller, 2015). The breakdown of received44 funding/financing sources for the MTA capital budgets 2005-2014 as well as the planned contributions to fund for the period 2015-2019 can be found in Figure 3.16.

Figure 3.17: MTA Capital Budget 46,47

4546

35

Decentralisation Analysis

4. Decentralisation Analysis 4.1 Introduction Before one can answer the question of how infrastructure investment mechanism has been impacted through decentralisation, it is critical to conduct an in-depth of analysis into the levels of decentralisation in each of the five cities of interest on both political and fiscal dimensions. This analysis also takes into account de facto versus de jure levels of fiscal and political decentralisation and aims to qualify cities level of overall effective levels of fiscal and political decentralisation.

4.1.1 Why this approach?

The approach in assessing effective levels of political and fiscal decentralisation follows from previous studies into decentralisation and its measurement. Both dimensions have proved to be especially difficult to quantify across countries, let alone at lower levels. “Despite the quantity of scholarship devoted to the investigation on the causes and effects of decentralization, the current methodologies and data collection efforts provide policy makers and the research community with a patchwork of information regarding decentralization, rather than providing a single, consistent, and robust dataset regarding the depth and breadth of decentralization in countries around the world.� (Abdelhak, Chung, Du, & Stevens, 2012)

4.2 Political decentralisation Political decentralisation is defined as the degree to which central governments allow sub-national governments to undertake political functions of governance through the mobilisation, articulation, participation, contestation, and aggregation of local interests. Schneider recommends the use of whether elections exist at the local as the main indicator for the level of political decentralisation for sub-national governments (Schneider, 2003). He argues that the presence of local elections indicate that a certain percentage of representative activity is being undertaken at the local level. However, this metric used by Schneider is a comprehensive measure that does not take into account the heterogeneity in electoral systems and how that impacts the ability for local governments to mobilize, organize, and articulate the interests of their constituents. Furthermore, this measure used by Schneider also does not distinguish between the de jure factors, which are enshrined in law or through the constitution, and the de facto political factors that influence power dynamics in practice.

This analysis proposes a set of indicators (see Box 4.1) that, in aggregate, will provide a more comprehensive measure of political decentralisation. In

36

Decentralisation Analysis Sections 6.2.1 to 6.2.4, the five cities of interest will be assessed along these indicators.

Box 4.1: List of indicators used to measure political decentralisation

Whether political devolution is constitutionally vested Whether the existence of local government is constitutionally vested is an important indicator of political decentralisation. If the existence of local government is enshrined in a central government’s constitution, instead of through legislation, it would be much more difficult (only through constitutional amendments) for central governments to take local political representation away.

Whether the city government has strong executive and legislative decision making powers The second metric for political decentralisation used in this report, is the comprehensive measure of whether the city government, in general, has strong executive and legislative decision making powers, or if the local government is a mere figurehead or beholden to another level of government.

This metric assesses the overall political influence of the local government within a city.

Whether candidates for mayor and legislative council members nominated by the public Another important indicator of political decentralisation within a city is in the way in which candidates for mayor and legislative council members are selected. If candidates for political office are selected via party insiders, instead of the general public, there is a higher probability that local candidates will bear a higher level of accountability to the central party, and hence provide national or provincial/state-level party officials greater influence over local government. This effect is heightened if local government officials and the office-holders of higher levels of government are from the same political party.

Whether mayors and legislative council members are directly elected the public.

Local government election, namely for mayor and legislative council seats, are indicative of political autonomy. This metric is a strong indicator of whether de jure political decentralisation is in fact aligned with de facto political decentralisation.

4.2.1 Constitutionality of local government In the case of Johannesburg, Article 40 (1) in the Constitution of the Republic of South Africa (1996) states that government shall be constituted of the national, provincial, and local spheres of government, which are distinctive, interdependent, and interrelated. The constitution, according to Article 151, goes further to enshrine the power of Municipal Councils with the executive

37

Decentralisation Analysis and legislative authority to govern, on its own initiative, without interference from Provincial or National governments. There are similar provisions that pertain to New York City, Mexico City, and NCT Delhi in their respective national or state constitutions. In London, however, the existence of the local government structure is only vested through legislation, and not through the UK Constitution. Through the Local Government Act of 1985, the Margaret Thatcher Tories, through their majority government, single handedly abolished the six county councils, (previously established through the Local Government Act of 1972) and the Greater London Council (previously established through legislation in 1965) for reasons of efficiency and austerity (BBC, 2005). This heterogeneity in the constitutionality of local government structures across the different cities indicate the varying degrees to which state or national levels of government can override or subvert local representation, despite existence of local elections.

4.2.2 Executive & legislative powers For Johannesburg, Mexico City, and New York City, city governments all have significant legislative and executive power, as enshrined through the constitutions. NCT Delhi, despite having been granted statehood in 1991 under 69th Amendment47 in response to increasing calls for greater decision making powers for the metropolitan area, its political powers were unique and not the same as other states within the federal structure of the Indian union, citing the reason that NCT Delhi is the national capital and hence under the direct jurisdiction of the national government. Furthermore, it has the usual legislative and policy making powers that other states in India have, but for the crucial exceptions of physical planning, development of land, and law and order, which severely limits it when it comes to the question of capital investment in land-based infrastructure projects. Therefore, one can argue that in NCT Delhi, the national government will continue to have a large influence and impact over the governance and thus limits the de facto executive powers of the city-state’s political officials, especially in matters related to infrastructure investment. As of 2000, the Greater London Authority (GLA) has been granted power four jurisdictional areas: policing and crime, fire and emergency planning, transport, and development. This has greatly increased political powers, especially the critical role of transport infrastructure and land development (Greater London Authority Act 1999’, 1999).

4.2.3 Candidate selection Out of all the cities of interest in the analysis, New York City is the only one in which candidates for mayor, council members, and other positions are nominated by the public, generally through signature requirements (“Ballot access requirements for political candidates in New York,” n.d.). A member of the general public in New York City, upon voter registration, can freely choose to declare him or herself as a Democrat, Republican, or Independent.

This voter can henceforth vote in their respective declared party’s primary elections to select the candidates for their respective parties with a first-pastthe-post system. Despite the primaries being closed to fellow partisans, a voter is free to register for any party (or as an independent) without having to pay a membership fee or having to be vouched by party insiders (Getachew, 2009). In Johannesburg, partisan candidates for the mayor and council are all

38

Decentralisation Analysis selected by the central parties at the national level, and have to go through an internal party vetting process. Some have argued that the governing party at all three levels of the government, the ANC, has been able to influence local governance to a greater extent because elected officials become more accountable to the party instead of the public (Cameron, 2014). In NCT Delhi, the candidate for state-legislature, chief-minister, like in Johannesburg, are selected by party officials. In London, anyone can stand for election as Mayor or the London Assembly so long as they meet the minimum qualification standards. However, in order to stand as a member of a party, the party must sign a form certifying the candidate (London Elects, 2016). In Mexico City, the selection of candidates for Chief of Government and Deputies of the Assembly is done by different processes within the parties. For example, one of the parties uses a set of polls applied to citizens to select their candidates, other parties organise primary elections and other parties simply rely on the opinion of the party leaders or the current Chief of Government (Excelsior, 2012; Tornado, 2011).

4.2.4 Electoral system In Johannesburg, the 260 legislative council members are directly elected by the public, half of whom are elected through a First-Past-the-Post system, and the other half are elected through a closed party-list-proportionalrepresentation system (COJ, 2015). The executive mayor, on the other hand, is not directly elected by the public, but instead is elected by his or her peers in the legislative council after a general election takes place. As of 2016, the African National Congress (ANC), the national governing party in South Africa of President Jacob Zuma, holds a majority of seats in the Johannesburg City council and hence also the mayoralty. Some have argued that this system of selecting the mayor, coupled with the system of candidate selection and the partisan alignment with the national government, has resulted in greater de facto political influence from national and provincial governments in the decision making process of the Johannesburg city government (Cameron, 2014 and Naidoo, 2016) In NCT Delhi, members of the state Legislative Assembly are elected through a first-past-the-post system. The leader of the party that wins the majority of seats become the Chief Minister (The Election Commission of India, 1999). Unlike in Johannesburg, the candidates for the executive leader are known before and during the election. In London, the Mayor and the London Assembly are directly elected by the public. Despite having limited jurisdictional authority, Boris Johnson is argued to have raised London’s profile internationally. He is argued to have provided the city with both a figurehead and a political force. and has thus proven the benefits of a directly elected Mayor by delivering domestic and foreign investment into much needed city infrastructure (Dillion, 2016, Anderson, 2016). In Mexico City, some members of the legislative assembly are chosen via a first-pastthe-post system and some members are elected via a proportional system.

The Chief of Government is also directly elected by the public under a firstpast-the-post system (Instituto Electoral del Distrito Federal, n.d.).

As per Table 4.1, when one assesses the level of political decentralisation for each of the five cities of interest using the indicators described above, one can see a greater diversity in the degrees of political decentralisation that Schneider’s methodology would not have otherwise captured.

39

Decentralisation Analysis Table 4.1: Political decentralisation Criteria

Joburg

London

Mexico City

NCT Delhi

New York

L/M

M

M/H

M

H

Is political devolution constitutionally vested?

Does the city government have strong executive and legislative decision making powers? (or is the local government a mere figurehead, beholden to a another body or level of government with lots of power) Are candidates for mayor/executive and council legislators nominated by the public? (vs. by their respective parties through lists or party insiders) Is the mayor/executive directly elected by the public? (vs. elected by council/appointed) Are legislative council members directly elected by the public? (vs. appointed) Is the mayor/executive and higher levels of governments from opposing political parties?

Is the legislative council and higher levels of governments from opposing political parties?

Overall Relative Assessment of Political decentralisation

Johannesburg, while having its political system constitutionally vested, is still considered to have a low-to-medium level of political decentralisation. This is due to an overall government structure, of how candidates are selected and elected, that is more susceptible to de facto influence by Jacob Zuma and the national African National Congress (ANC) party (Naidoo, 2016). London is also seen as having a medium level of political decentralisation mainly due to the lack of constitutionality in its political structure, significant influence the by national government in Whitehall, and its legislative and executive powers over limited jurisdictions. However, with a charismatic mayor under Boris Johnson, it has gained considerably greater political autonomy to progress its own agenda. NCT Delhi is also considered to have a medium level of political decentralisation. Despite NCT Delhi having the jurisdictional privileges of a typical state, it lacks power in critical areas like infrastructure development and land planning. In Mexico City, the strong power of the legislature coupled with the strong executive power and profile of the Chief of Government

40

Decentralisation Analysis amounts to a strong level of political decentralisation. However, unlike in NYC, candidates for office in Mexico City are selected internally by the party and not by the public. Lastly, NYC is considered to have a high level of political decentralisation, as it scores high on all four dimensions.

4.3 Fiscal decentralisation While there are many definitions of fiscal autonomy and fiscal decentralisation, as explained in previously in the literature review, this report uses the two terms interchangeably to mean the extent to which central governments have given local authorities the power to raise revenue and the power to allocate spending. Also included is the power to set tax rates, charges, and the ability to borrow (House of Commons, 2014).

In comparing levels of fiscal decentralisation across the five cities of interest, the framework of analysis adopted was a methodology used by Slack, in a report for the London Finance Commission titled “International Comparison of Global City Financing” (Schneider, 2003; Slack, 2013).

At the most fundamental level, fiscal autonomy is measured as the percentage of a city’s budget funded by its own local taxes and fees, and the percent of city budgets funded by intergovernmental transfers from higher levels of government (Slack, 2013). Table 4.3.1 shows these figures for the five cities of interest by separating the distribution of revenues into three categories: own-source revenue, shared taxes, and intergovernmental transfers. A shared tax is defined as a tax collected by the central government, but with a share of this revenue being given to lower levels of government. While this is sometimes categorized as an own-source revenue, Slack highlights that is more of an intergovernmental transfer as sub-national levels have little power over determining their share of the tax (Slack, 2013).

The OECD also uses the presence of shared taxes as an indication of low fiscal autonomy (Slack, 2013).

The values used in this section, as throughout the report, have been collected from local budget offices, financial statements, national statistic offices and outside sources. There is no comprehensive data source for municipal finance statistics at the individual municipal level, which creates problems for data comparability. Additionally, the values below, which compare a city’s dependence on its independently generated revenue and revenue from transfers and shared taxes are based on operational budgets, not capital budgets. This is a reflection of the relative ease of accessing, interpreting, and comparing operational budgets across cities, as compared to capital budgets.

Table 4.2 and Figure 4.1, indicate that using the most basic measurement of fiscal autonomy, New Delhi seems to have the highest level out of our five cities. They also show that Johannesburg and New York City have relatively high levels of fiscal autonomy with own-source revenue contributing 85% and 75% of total budgetary revenue in each city respectively.

41

Decentralisation Analysis Table 4.2: Dependence on Own-source vs. Intergovernmental Transfers (IGT), as share of budget revenue (numbers may not add due to rounding) Own-source revenues (taxes, fees,etc)

Shared taxes

IGT

Level of fiscal decentralisation

Johannesburg

85%

0%

15%

H

London (2014) Mexico City (2015)

13%

11%

76%

L

54%

0%

46%

M

93%

2%

5%

H

75%

0%

25%

H

48

NCT Delhi (2014)

50

New York (2015)

51

49

Figure 4.0.1: City revenue dependence on IGT

Basic measure from most to least fiscally decentralised • New Delhi • Johannesburg • New York • Mexico City • London Assessing fiscal autonomy by only comparing own-source revenue to transfers as a share of total budget revenue is not sufficient, however, in determining overall levels of fiscal decentralisation within cities. As Slack (2013) highlights the characteristics of the revenue source matter as well.

Complete local tax autonomy is dependent on a city being able to: decide whether or not to levy the tax, determine the precise base of the tax, administer the tax, keep all revenue collected, and grant tax allowances or reliefs (Slack, 2013). To gain a more comprehensive understanding of fiscal autonomy, this analysis discusses the tax powers of the five selected cities.

42

Decentralisation Analysis Table 4.3, below outlines the different local taxes that exist within the five case study cities. It also highlights user fees and other charges that serve as sources of own-source revenue.

This table shows that there is wide variation in the type and extent of taxes levied across the five cities. New York City is the most extensive by number of taxes levied. Interestingly, NYC is also the only city that levies personal or corporate income taxes of any kind. While Johannesburg, despite having a very high own-source revenue as percentage of budgetary expenditure has only one tax, a property tax. Delhi’s major source of income is a value-added tax, while Mexico City’s main income source is a property tax. London has the smallest range of municipal taxes, with the council tax being the major source of the city’s own-source revenue.

Table 4.3: City Taxes & Tariffs and Fees Joburg Property Tax

London

Mexico City

NCT Delhi

Council Tax

Property Tax

Value Added Tax

Mayoral Community Infrastructure Levy

Real Estate Acquisition Tax

State Excise

Congestion Charge Business Rate Supplement (as of 2009)

52

Tax on Ownership and Use of Vehicles

53

Motor Vehicle Tax Entertainment Tax

Public Entertainment Tax

Betting tax

Payroll Tax

Luxury tax

Tax on Lotteries, Raffles, Sweepstakes and contests Tax on hosting services

New York Real Estate Taxes Payments in Lieu of Taxes (for property tax) Sales and Use Taxes: General Sales Cigarette Commercial Motor Vehicle Mortgage Stock Transfer Auto Use Tax Incomes Taxes: Personal Income General Corporation Financial Corporation Unincorporated Business Income Personal Income (non-resident city employees) Utility Other: Hotel Room Occupancy Commercial Rent Horse Race Admissions Conveyance of Real Property Beer and Liquor Excise

43

Decentralisation Analysis

Taxi Medallion Transfer Surcharge on Liquor Licences Refunds of Other Taxes Off-Track Betting Surtax Water and Sewage Tariff Electricity Tariff Waste Removal Tariff Facility Rental Fees

Rights for the use, possession, or exploitation of public property Charges for service rendered (water, healthcare, civil registration)

Stamps & registration fees User-fees

Licenses , Franchises, etc.

Charges for Services Water and Sewage Charge 54

Other charges (bank police, auxiliary police, and others)

Looking at the types of taxes levied, while interesting, does not necessarily tell us about the local autonomy over taxation. Table 4.4 begins to look across cities at their levels of local fiscal autonomy with specific attention given to tax powers. The characteristics in the table below, if present in a city, indicate a positive for local tax autonomy. These characteristics were chosen and adapted from the definition of a truly local tax found in Slack (2013), OECD indicators that rank local fiscal autonomy for sub-central governments (Slack, 2013) , and subnational borrowing and spending responsibility classifications from the IMF (Ter-Minassian, 1997). The following sections discuss fiscal autonomy across cities through an analysis of their tax powers (focusing specifically on if a city has constitutionally vested tax powers and can set its own tax rates) and access to capital markets.

4.3.1 Tax Powers: constitutionally vested right of taxation Those cities with constitutionally vested rights to taxation arguable enjoy more secure fiscal decentralisation as their access to these powers are enshrined in the national level constitutions and is thus harder to change than those that exist in legislation alone. The two cities with the highest levels of fiscal decentralisation according to Table 4.2, Delhi and Johannesburg, are also the only two cities where the rights of taxation by the city are constitutionally vested. In India, the 69th Amendment provided legal statehood to the territory of New Delhi and enshrined it in the Constitution of India55. This means that the city government has revenue-raising powers that are protected and independent. The city’s unique city-state structure therefore, give it access to the large variety of taxes that Indian States can impose. In South Africa, the power for local governments to tax is enshrined in the 1996 South African Constitution. This, however, is limited only to their ability to levy and administer a tax based on the market value of properties (Government of South Africa, 2003). Tax authority in NYC, CDMX, and London is provided through legislation. This authority is larger, however, in Mexico City than in New York City. A federal tax reform in 2007, gave Mexico

44

Decentralisation Analysis City greater authority to collect, enforce, and keep certain taxes (de Hacienda y Credito Publico 2007). For example, the Tax on Ownership and Use of Vehicles was transferred to Mexico City (and the other states) and last year accounted for almost eight percent of the taxes collected by the government of CDMX. New York City does not have as large legislative mandate to tax, as the state of New York maintains control over the city’s capacity to tax. The New York State Constitution states “taxation shall never be surrendered, suspended, or contracted away, except as to securities issues for public purposes”.

Table 2.4: City Fiscal Powers

Joburg

London

Mexico City

New Delhi

New York

Is the autonomy over power to tax constitutionally vested?

Ability to levy new taxes without supranational government approval

56

57

Ability to determine precise base of the tax

58

59

Ability to set tax rates without supranational government approval

60

Administer (assess, collect, enforce) the tax Ability to keep majority of the revenue collected Ability to grant tax allowances or reliefs to individuals and firms without restrictions

61

Ability to borrow?

There are no fiscal rules that constrain the level of borrowing in the city.

Can the city spend the majority of their revenue without consulting a higher level of government?

Relative Assessment

M/H

L

M/H

M

M/H

While the State can delegate taxing authority, this means that the city needs to get approval from the state anytime they wish to levy a new tax (Scharff, 45

Decentralisation Analysis 2008). Traditionally, London has had limited rights to set and collect taxes at the local level, with the boroughs allowed only a council tax that raises limited revenue (Pope & Roantree, 2014). Recently, the city has been granted more tax powers including the power to offer business rate discounts to attract firms and investment and the right to levy a fee on developers of new projects.

4.3.2 Tax powers: setting tax rates Bird (2011) argues that the most important component of fiscal autonomy is a city’s ability to set local tax rates, therefore, this analysis therefore uses a local power to set tax rates as a metric to evaluate city levels of fiscal autonomy. Local governments are most accountable and responsible when they can raise their own revenues and determine the rates. If we use the ability to set tax rates as a proxy for high levels of fiscal autonomy, Johannesburg, Delhi, and Mexico City would have relatively high levels.

Johannesburg has complete control over setting its own tax rate. The National and Provincial governments cannot infringe upon this right and the National Treasury can only make recommendations as to the level of the tax (COJ, 2015-2016). Therefore, while Johannesburg only has the ability to levy this one specific tax, their power over it is supreme--the city can determine the tax rate and the tax base. Delhi, similarly, has the power to set its local tax rates62. One exception that is important to note, however, is its inability to control income taxes. While income taxes serve as important sources of revenue for the state, the rates are set and collected at the national level.

In NYC the situation is a bit more nuanced. As discussed above, the state can only delegate tax authority to the city. While the state has shown a large inclination to do so, as evidenced by the high own-source revenue in the city and the large number of taxes levied--the city must still get approval for new taxes or changes to tax rates (Scharff, 2008). The property tax is an exception, however, as the only tax where the city can change its tax rates without state approval (Ruben, 2010). In practice, it should be noted that the State government in Albany does not normally veto NYC’s requests. The 2008 Congestion charging request was a rare exception to this. This could also be a reflection, however, of the city’s decision not to use political capital trying to ask for what it knows that State will refuse(Scharff, 2008).

London has the lowest control over its tax rates. All locally sourced revenues have some constraints set by the central government. Council taxes are subject to principles endorsed by the House of Commons, and as of 2013, increases above this ceiling require referendum (Department for Communities and Local Government, 2014). The city’s business rate supplements are capped by the national government, while Community Infrastructure Levy rates are set by local authorities in consultation with local communities and developers (‘Business rate supplements Act 2009’, 2009, Department for communities and local government, 2011) Whitehall still sets limitations on the amount of tax that can be collected and held locally for both forms.

46

Decentralisation Analysis

4.3.3 Access to capital markets The approach taken to constrain city borrowing is relevant to a city’s level of fiscal decentralisation. From the least to most constraining the four main approaches are reliance on market discipline, cooperation between government levels to design and implement debt controls, rules-based controls, and administrative controls (Ter-Minassian, 1997). While all five of the case study cities have the ability to borrow, in practice they vary in their ability to access capital markets due to limitations imposed by higher levels of government. Johannesburg and New York City are in practice, most unconstrained. While Joburg, can only issue long-term debt for the purpose of capital expenditure, the city sets a limit for itself and enshrines it in its budget (ACTS, 2015). New York City, while statutorily constrained by the State constitution on the amount of long-term debt it can occur to an amount no higher than 10% of a moving five-year average of full valuations of taxable real estate, in practice, is almost unconstrained The city uses public benefit corporations such as the MTA to issue debt for capital expenditure that does not count towards the city’s constitutional ceiling (Office of NYC Comptroller, 2014).

London, Mexico City, and NCT Delhi are all constrained by their national governments. London can borrow “for any purpose relevant to its function,” with the Mayor of London determining how much the city can afford to borrow (‘Local Government Act 2003’, 2003. But this amount, is subject to approval by the National Government. In Mexico City, the National Congress sets a cap on the annual quantity of debt that city can issue and only allows debt to be issued for capital investment (Gaceta Oficial del Distrito Federal, 2014). Delhi is most constrained by its national government, and is not empowered to contract external debt (Ministry of Finance, GOI, 2009).

Instead, external debt is contracted by the Central Government and then passed on to Delhi. Most of the external debt is from multilateral agencies such as IDA, IBRD, ADB etc. There is no borrowing from international private capital markets63. Further, NCTD can contract internal debt64, within constraints of fiscal laws set by national parliament.

4.3.4 Summary for fiscal decentralisation Through a more in-depth look at the various components of fiscal decentralisation, a relative ranking of our cities according to their levels of fiscal decentralisation has emerged. London’s high reliance on transfers, low tax powers, and borrowing constraints gives the city an overall relative low ranking. Joburg, by comparison, is ranked as medium-high due to its highlevel of own-source revenues, as well as constitutionally vested control over its two main local revenue sources: electricity charges, and property taxes, the city’s power to set its own borrowing constraints. Delhi, despite high statutory fiscal powers including extensive tax powers, is constrained in its effective fiscal autonomy. The low administrative capacity of the city to collect and enforce taxes, coupled with the cities limited access to finance, explains Delhi’s categorization as medium. New York City, like Joburg, is classified as medium-high due to its high own source revenue, control over city property tax rates, and high access to capital markets. Similarly, Mexico

47

Decentralisation Analysis City is ranked as medium-high due its relatively high source of own revenue and high local tax autonomy including the ability to set tax rates.

Based on the proposed more comprehensive measure of fiscal autonomy, which takes qualitative aspects into account the five cities now rank in terms of level of fiscal autonomy (from highest to lowest): • New York, Mexico City and Johannesburg • Delhi • London

4.4 Cities decentralisation on both dimensions Figure 4.2 maps out the levels of political and fiscal decentralisation for the five cities of interest. As shown in the figure, one can see that there is heterogeneity within the five cities across both dimensions of decentralisation.

Figure 4.0.2: Diagram mapping out the level of fiscal and political decentralisation for the five cities of this report

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Project Analysis

5. Project Analysis The previous analysis in Section 4 reveals heterogeneity in levels of political and fiscal decentralisation across the five cities of interest. In order to understand how these city-level results, interact with transport infrastructure investment and delivery, this report examines a cross-section of projects of varying sizes and modal foci. Project case studies are used to determine if the level of political and fiscal autonomy in a city impacted the delivery of projects or the financing and funding mechanism utilized.

Projects were selected based on a set number of criteria: • Major infrastructure projects • Focus on (public) transport projects • Highly visible to the public • began and/or completed in the last 20 years The following is the list of projects examined for this analysis: Johannesburg • Rea Vaya Bus Rapid Transit (Phase 1A) • Gautrain - Rapid Rail Link London • Crossrail 1 • Northern Line Extension Mexico • Suburban Rail Line • Underground Line 12 NCT Delhi • Delhi Metro Rail Corporation • Delhi Bus Rapid Transit System (BRTS) New York City • No. 7 Subway Extension • World Trade Center Transportation Hub Detailed descriptions and project specific information, including how project funding mechanisms were affected by decentralisation and other factors that influenced project selection and delivery can be found in Appendix 1.

The project case studies reveal that at different levels of political and fiscal decentralisation, a variety of funding models are used, with mixed results on project delivery. A variety of learnings are noted for each project, indicating others factors that impacted the choice of funding mechanism and delivery of the project.

5.1 Alignment of fiscal and political decentralisation The alignment of political and fiscal decentralisation levels can help push projects forward if the city has the ability to secure its own funding without reliance on fiscal oversight from the national level.

49

Project Analysis Box 5.1- Examples of projects that show effect of alignment between fiscal and political decentralisation on project approval

7th Avenue Subway (NYC) - New York City is considered to have mediumhigh level of fiscal and high level of political decentralisation. For the 7th Avenue Subway, for example, access to TIF/PILOT financing was instrumental in bringing this project forward quickly because “selffinancing” enabled the city to bypass the MTA and the long list of other transport infrastructure priorities that were placed above it. Additionally, the political powers vested in the Office of the Mayor of New York City enabled Mayor Bloomberg to create a Master Plan for the project and use his political will to move it forward.

Crossrail (London) & DMRC (NCT Delhi) - Crossrail and the DMRC, alternatively, demonstrate that misalignment of political and fiscal decentralisation can lead to major delays of projects. The slow pace at which both governments were willing to get involved points to the need for local governments to have more authority to move projects forward that are deemed beneficial at the local level.

5.2 Impact of political decentralisation The case studies have demonstrated that increased political decentralisation affects the speed of project selection. This is especially true if political decentralisation is augmented by strong leadership, high electoral accountability or transversal political alignment.

5.2.1 Strength of political figurehead Cities with more decentralised political powers can benefit greatly from strong political figureheads, such as a strong Mayor, since projects can be prioritised to reflect campaign promises of the elected leadership.

Box 5.2: Examples of projects that demonstrate the impact of strong political leaders on project selection and approval

Northern Line Extension (London)- For the Northern Line Extension, the political strength of the Mayor, allowed him to bring attention to the area as a potential development opportunity. This helped secure an international funding guarantee, which enabled the project to move forward-demonstrating the benefit of a strong, and internationally recognised figurehead for the city (Dillon, 2016).

Rea Vaya BRT (Joburg) - In Johannesburg, Mayor Amos Masondo, who was a prominent and imprisoned anti-Apartheid leader in the 1970’s, campaigned and pushed to bring the BRT system to Johannesburg. He even led a delegation to different international cities to learn more about the potential outcomes and successful implementation of BRT systems. Along with the announcement of the World Cup, Masondo’s lobbying efforts resulted in funding being distributed to many major South African cities for BRT systems, not only Johannesburg (UN-HABITAT, 2011).

50

Project Analysis

5.2.2 Public responsiveness and electoral accountability More politically decentralised cities have greater electoral accountability to their citizens, leading to projects that better reflect citizen’s demands and more efficiently allocated resources.

Box 5.3: Examples of projects that show how the interaction between the level of electoral accountability and project selection and approval

BRTS (NCT Delhi) - Delhi BRTS received considerable support from the Chief Minister, the Chief Secretary and the Transport commissioner of GNCTD, but repeated changes in the Chief Secretary of the government led to multiple delays in delivering the project. These delays and transit disruptions around the city led to growing community resentment against the scheme. This created increased political resistance, forcing a court-ordered shutdown of the bus lane and the eventual termination of the project.

WTC Transport Hub (NYC) - The PANYNJ was responsible for rebuilding the PATH station and transport hub post 9/11. The agency, however, is not directly accountable to voters and instead has leaders appointed by the Governors of NY and NJ. A lack of local influence in project design and delivery arguably contributed to the massive misallocation of funds and the building of a hub that is only NYC’s 18th busiest at a cost of $4 billion. The Executive Director of the agency himself, who was not in control when the project was approved, has noted that this was not the most allocatively efficient use of funds.

5.2.3 Transversal political alignment Projects tend to be delivered more successfully (less time over-runs) if they are in the interest of all the agents involved. In other words, when the political interests of local and higher levels of government are aligned.

Box 5.4: Examples of projects that show the interaction between transversal political alignment and project selection and approval

Rea Vaya BRT & Gautrain (Joburg) - in Johannesburg, the desire of the national and local government to prepare for the World Cup games created an alignment of political interests across regions and levels of government.

This aided in the timely delivery and access to funding for multiple transit projects, including the BRT and Gautrain.

Metro Line 12 (Mexico City) - Conversely, the opposing political parties of the federal and local government in Mexico detracted from federal support in coordinating the delivery the Metro Line 12, despite the project involving neighbouring states as with the Suburban Rail Line 1.

5.3 Impact of fiscal decentralisation The above projects show that fiscal decentralisation has limited influence on funding model due to the unique investment requirements for transport infrastructure projects. Additionally, city-level characteristics can change the context of project selection and delivery.

51

Project Analysis

5.3.1 Intergovernmental transfers Intergovernmental transfers from higher levels of government play a very important role in the financing of large projects. Based on the various projects presented, large-scale mass transit projects seem to rely heavily on intergovernmental grants. While fiscal decentralisation allows cities to raise their own funds, cities are often so leveraged to meet the urgent demands of public services, that long-term capital expenditure is not always easy to justify or afford. Further, transport infrastructure projects are often so expensive that even cities with extensive revenue sources cannot finance projects independently, and thus rely on other level of governments for help.

5.3.2 Public Private Partnerships PPPs are often cited as great potential funding opportunities for transport infrastructure because of the division of risk between parties and the partial assurance of funding. Use of this mechanism seems primarily driven by a government’s willingness to handle the complexity of the legal, risk, and costsharing issues associated with a PPP rather than a city’s level of fiscal decentralisation.

Box 5.5: Examples of PPP projects

Gautrain (Joburg) - In Johannesburg, although the city has access to PPP financing, it has yet to take advantage of this opportunity. Instead, the Provincial government, who had greater administrative capacity to set-up and manage the PPP, took the lead for Gautrain. Additionally, the fact that PPP’s are regulated by the national government may have contributed to the relative lengthy timeline this large-scale projects. In the case of Suburban rail Line 1 project in Mexico City, the same dynamic was observed albeit the public partner was the national government.

5.3.3 Tax Incremental Financing Cities that have the option to use tax incremental financing point to the ability for projects to be self-financed and locally-funded with no new taxes as a reason to use this financing method. These examples show that TIF is driven more by a city’s ability to raise future revenue, and investor confidence rather than fiscal decentralisation.

Box 5.6: Examples of projects employing TIF

No. 7 Extension (NYC)- For New York City, the option of TIF’s kept Mayor Bloomberg from having to go through a longer approvals process and political battles that could emerge from using other city-financing mechanisms, such as bonds backed by general city revenue or projects financed through the MTA Capital Budget. This type of financing, however, is only possible if future revenues from property or other taxes are likely to be enough to cover costs of borrowing.

NLE (London) - In London, the establishment of the VNEB OA as an Enterprise Zone and the passing of the Local Government Finance Act of 201, which extended the right for local authorities to borrow against predicted future business taxes ensured locally raised business rates would be retained locally, and thus be available to use against any borrowing needed to the project.

52

Project Analysis

5.3.4 Debt financing Access to borrowing can open up many financing options for a city. The above city case studies show that the terms on which cities are able to borrow is related to the level of decentralisation, with NCT Delhi being the most constrained. In examining the projects, however, the impact of fiscal decentralisation on external debt options is less clear. Other factors outside of level of fiscal decentralisation seem to be at play. Specifically, the use of debt instruments to fund transport infrastructure is more a function of the credit rating of a city, or the city’s ability to rely on backing from higher levels of government.

Box 5.7: Examples of cities with varying levels of fiscal decentralisation, yet all have access to debt financing

Rea Vaya (Joburg) - In Johannesburg, because the city is fairly autonomous and had a strong credit rating, it was able to identify, coordinate, and access a loan that best suited their needs to facilitate the purchase of the BRT vehicles.

Metro 12 (Mexico City) - In Mexico City the ability to borrow was key to complement the grants to Metro line 12. In 2010, CDMX government allocated 80% of its total capacity to borrow to the Underground expansion65. A positive factor for borrowing was that creditworthiness for CDMX is reasonably good and the debt was considered low-risk, so the resulting rate was reasonably inexpensive (OECD, 2015).

NLE (London) - In London, the ability of local authorities to rely on backing from the Federal government for the NLE loan ensured low rates were also secured.

5.4 Impact of other factors While decentralisation does have some impact on project financing and delivery, there are other factors that are important determinants of project selection, delivery, financing mechanism, etc.

5.4.1 External events External events such as the World Cup or economic downturns, can drive or hinder the ability of cities to move large infrastructure projects forward. Host cities for major world events, for example, may receive new access to resources to deliver new projects or speed up the delivery of existing planned projects. Just as positive events can funnel money towards certain projects, negative shocks, such as economic downturns, can decrease funding opportunities, thus causing delays or scrapping of projects all together.

Additionally, the type of external event can distort the allocative efficiency of the projects due to lack of local control, oversight, or accountability to the funds used.

53

Project Analysis Box 5.7: Examples where external events have impacted project delivery and allocative efficiency

2010 FIFA World Cup (Joburg) - Winning the bid for the 2010 FIFA World Cup impacted the selection and delivery of Gautrain and BRTS allowing the projects to receive funding swiftly and be built quickly. Today, however, Rea Vaya experiences low ridership due to the low density of Johannesburg. Rea Vaya is an example of where special funds from the World Cup distorted allocative efficiency.

9/11 (NYC) - In New York City, a federal commitment to aid the city after 9/11 opened the door to a federal funding pot to rebuild Lower Manhattan.

This allowed politicians to build expensive buildings that might serve their legacy, but cost their taxpayers little. This resulted in less oversight and accountability than other projects. For the World Trade Center Transportation Hub, access to this money meant an extravagant design and poor planning of delivery for a station that serves relatively few citizens.

Economic crises (Mexico City) - The original light train system planned for Mexico City was supposed to consist of three lines. Despite the relative success of Line 1, the economic crisis of 2008-2009 postponed the bids for Lines 2 and 3.

5.4.2 Development and economic externalities Funding and financing is often more available if a project is connected with regeneration or other economic development outcomes. In London, for example, fiscal decentralisation enabled the GLA and local councils to move the NLE forward relatively quickly; but it was the designation of this area as an Enterprise Zone that opened up the option to use tax incremental financing. In NYC, the city was willing to finance the No. 7 Extension only because they viewed it as necessary to the redevelopment of Hudson Yards.

Similarly, the projection of the DMRC Metro benefits to go beyond direct benefits to commuters and impact the develop of the surrounding areas was instrumental in securing funding from international development agencies (JICA in this case).

5.4.3 Jurisdiction over entire geographical area of project Cities where political boundaries and transport authority jurisdiction are geographically aligned experience more efficient project delivery.

Box 5.8: Examples of projects where geographical alignment between political boundary and project impacted project delivery and financing.

BRTS (NCT Delhi) - The institutional complexities inherent to Delhi’s special federal status contribute to issues arising from the need for coordination between multiple agencies. For the BRTS, the misalignment of the political and transportation jurisdiction boundaries meant weak enforcement of rules by the Delhi Traffic Police (a federal agency) along the corridor and encroachment into bus and cycle lanes. This friction between the nationally controlled police and city-controlled transport agency seriously impeded operations of the corridor during its initial launch (Baijal, 2011).

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Project Analysis

Gautrain (Joburg) - In Johannesburg, oversight of the Gautrain project was specifically placed with the Provincial government because the project was entirely in the provincial jurisdiction yet cross city lines. This ensured cohesion in delivery and financing.

Metro 12 (Mexico City) - Conversely, delivery of the Metro 12 Line in Mexico City was housed within the City government, despite the line crossing out of the city borders to neighbouring states. This misalignment of political and transport oversight jurisdiction contributed to the delayed progress of line and poor delivery due to extended cross city coordination on funding, line placement and delivery.

5.4.4 Public authority competence Irrespective of funding mechanism modalities (pure public provision, public procurement, PPPs, etc.), or the level of decentralisation, the competence and technical ability of the transport authorities or public bodies responsible for the project have a crucial impact on the success of infrastructure delivery.

The lack of coordination capabilities of the responsible transport authority or government led to delays in Metro Line 12 in Mexico City66, the BRTS in Delhi, and the World Trade Center Transportation Hub in New York City.

55

Conclusions

6. Conclusions This report conducts in-depth analysis on the levels of political and fiscal decentralisation in five global and highly populated cities. The cities were founding to have ranging levels of fiscal and political decentralisation:

Figure 6.1: Diagram mapping out the level of fiscal and political decentralisation for the five cities of interest

In an attempt to disentangle the effect of these levels on transportation infrastructure mechanisms, the analysis then moved to the project level. The report examines the planning, delivery and financing of two major important mass transit projects developed in each city over the past 20 years.

Combined with the results from the city-level decentralisation analysis, these case studies reveal that the impact of fiscal and political decentralisation on infrastructure investment financing and delivery is mixed. Fiscal and political decentralisation can impact the speed at which projects are approved so long as there is alignment between decentralisation levels. Political decentralisation shows influence on project approval when augmented by strong executive leadership, high electoral accountability or transversal political alignment. Fiscal decentralisation has limited influence on funding models due to the unique investment requirements for transport infrastructure projects. Additionally, certain city and project characteristics can change the context of project selection and commitment, thus pointing to external factors that impact funding models and delivery.

These mixed results are in-line with the findings of other research. The London Finance Commission, which recommended caution when comparing outcomes of cities with different levels of decentralisation because outcomes may be influenced by multiple factors outside of fiscal devolution, such as

56

Conclusions existing regional disparities or national economic performance (London Finance Commission, 2015).

To potentially provide more clarity on the impact of decentralisation levels, and to partially address the data limitations noted previously, this report recommends conducting more primary source interviews for future research.

Structured interviews with key city stakeholders, such as transport planners and local politicians, will enable researchers to understand the nuances of political systems and decisions being made at the local level.

For future research, this report recommends examining the impact of decentralisation on transport infrastructure investment within non-global cities, potentially cities of varying size with specific countries. This will help policy makers to understand if other city factors, such as size or variation of business sectors impact access to certain forms of financing while holding constant specific tax and borrowing laws and political structures.

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Appendix 1: Case Studies Johannesburg Rea Vaya Bus Rapid Transit (Phase 1A) Background The Johannesburg Rea Vaya Bus Rapid Transit (BRT) system is Africa’s first full BRT system. The City’s 2003-2008 Integrated Transport Plan (ITP) made a big shift from previous ITP’s from focusing on improving mobility for cars to emphasising improving mobility and accessibility for people through improvements to the public-transport system (COJ, 2003). The original plan was to create kerbside lanes for the existing minibus-taxi’s (Allen, 2013).

Upon winning the 2010 FIFA World Cup bid in 2004, spending priorities shifted toward World Cup related projects. In 2006, after having learned about the TransMilenio BRT in Bogota, Colombia, then Mayor Amos Masondo proposed the option of a BRT system (UN-HABITAT, 2011). These plans became a reality after the national Department of Transport’s Public Transport Strategy (PTS) was approved by the national cabinet, thus enabling the funding of BRT systems in the country’s biggest cities (Chitauka, 2014).

Rea Vaya was first put into service on August 31, 2009, just in time for the World Cup. As of 2015, however, multiple sources have reported consistent levels of low ridership. Some have attributed this to the low density of Johannesburg as a city (Maqutu, 2015).

Project financing The different components of Phase 1A of Rea Vaya was funded and financed through multiple sources with grants from the national government making up the bulk of total funding. The City government was able to secure a loan to purchase the 143 vehicles needed for the new system. Please refer to Box 1 for more details.

Box 1: Funding specifics Project Size: Approx. USD $350 million Capital Expenditure (dedicated transit way, road reconstruction, and stations along route, and operating costs): Grants from national government: USD $300 million Public Transport Infrastructure and Systems (PTIS) grant 67 Vehicles (143 vehicles): Brazil Export Credit Agency loan funding with assistance of HSBC as the financial intermediary: approx. $43 million (11-yr financing agreement at competitive rates) (The loan had with low-interest rates, long-term repayment schedule with

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grace periods for bus operators, and had been used by other BRT projects across the world for equipment imports)68 Support staff & consultancy GTZ & UNDP (ODA of approximately Euro €2 million )69

Role of decentralisation Political influence - Political pressure and partisan alignment across all levels of government aided the process for timely delivery and access to funding. Mayor Amos Masondo, who was considered a prominent ANC politician, was the champion for BRT’s in South Africa. However, if the low ridership in 2015 is an accurate indication, the political influence, along with the pressure to delivery infrastructure World Cup Games, may have aided in the poor selection of a BRT system for a low-density city like Johannesburg.

These finding is aligned with Johannesburg’s low-medium political decentralization rating.

Creditworthiness - Because the city remained fairly autonomous and had a good credit rating, it was able to identify, coordinate, and access a loan that best suited their needs to facilitate the purchase of the BRT vehicles. The city’s autonomy also allowed it to negotiate with local minibus-taxi drivers, who subsequently went on to form the bus operating company, and hence the Special Purpose Vehicle (SPV) for the investment. The SPV acted as the borrower and guarantor, thus also relieving the risk from the city. This ability for the government to access such debt-financing mechanism is aligned with its medium-level of fiscal decentralisation.

Other factors that impacted project delivery Special event - A key reason for the expedited rate of project execution was the imminent 2010 FIFA World Cup games. The national government swiftly provided grants for the capital infrastructure.

Box 2: Rea Vaya Outcomes On-time delivery for World Cup - Phase 1A delivered on-time and within a short time frame (5 years from proposal to end of construction). It was successfully built in time for the opening of the 2010 World Cup Games.

World Cup distortion of allocative efficiency - As of October, 2015, reports have shown that Rea Vaya has been experiencing ridership is in all corridors (10,000 passengers per day, compared to 14,000 passengers per day in other BRT systems). Experts claim that Johannesburg does not have the density for BRT systems.70

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Project 2: Gautrain - Rapid Rail Link Background The 50 km section of Highway N1/M1 that connects Johannesburg and Tshwane (formerly Pretoria), is one of the busiest corridors in the country with commutes taking approximately 2 hours. Between 1995 and 2005, traffic congestion grew at an annual rate of 7%. The economic cost of the congestion was estimated to be approximately R300 million per year of productivity loss, costs due to accidents, and increased transport costs (Mandri-Perrott & Cledan, 2010)). The US $1.2 billion Gautrain High Speed Rail project, which connections Johannesburg, O.R. Tambo International Airport, and Tshwane, was proposed to address this problem, along with reduction of emissions, improve spatial development, and economic growth, by converting approximately one-fifth of cars to rail and reduce commute time to approximately 42 minutes. Gautrain is also the largest Public Private Partnership (PPP) in South Africa (Gautrain, 2009). Operations of Gautrain commenced in June, 2010, just in time for the 2010 FIFA World Cup games.

Upon declaring Gautrain, a project of “national significance”, the national government joined the Gautrain project as a co-financier with the provincial government. It also played a significant regulatory (feasibility and affordability of CAPEX and OPEX) and consultancy role. PPP’s are also regulated by the national Public Finance Management Act (PFMA) of 1999. The various local governments that were affected played a regulatory role by setting out landuse regulations and transport plans, which the PPP must abide by. It also played a key role in coordinating and negotiating with concerned stakeholders (i.e. landowners, and affected communities).

Project financing Gautrain was delivered through a PPP mechanism. The national and provincial government provided over 73% of the financing, and the remaining 27% came from the private sector. Refer to Box 3 for more details.

Box 3: Funding for Gautrain71 Project size: Approx. USD $1.2 billion Model: PPP: Concession- DFBOT (Design-Finance-Build-Operate-Transfer) 20 years’ contract Financing: 41% National Grant (Division of Revenue Act - DoRA money via Department of Transport) 32% Provincial funding (MTEF funding) 16% Provincial borrowing 8% Private sector debt 2% Private sector equity Private partner: Concessionaire: Bombela Consortium, which is made up of 5 multi-national companies

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Role of decentralisation Inter-city scope & capacity - After negotiations in 2000, it was deemed that the provincial government should be the level of government to lead the project for several reasons: Gautrain is an inter-city project that lay solely within the province, and transport also falls under provincial jurisdiction (Gauteng, 2013) Furthermore, the Gauteng government met the financial and technical capacity requirements, as set out by national PPP regulations, to carry out the project. Despite the Gauteng’s autonomy, it still had to rely on financial and political assistance from the national government.

National government regulation of PPP- The time from the feasibility study to the signing of the PPP agreement took approximately 7 years. The processes involved in executing PPP’s, however, are considered to be a longer and more complex as compared to other mechanisms.72 This may have contributed to the long 10-year delivery time of the project. The fact that PPP’s are regulated by the national government, instead of the provincial government itself, may have also contributed to the long time line.

Other factors that impacted project delivery Special event: the imminent World Cup games also played a role in expediting the process of constructing and launching the Gautrain in 2010.

Box 4: Gautrain outcomes As of 2014, there have been complaints from riders of overcrowding and lack of parking at stations and a lack of capacity as the rapid becomes more popular73 In 2015: A report by KPMG estimated the economic impact of Gautrain between 2006 and 201274 • contributed R20-billion to the GDP of Gauteng province; • It created over 120,000 jobs in Gauteng; • It increased government revenue by approximately R5 billion; and • It provided R2-billion income to lower-income households.

As of 2016, Gautrain is carrying the projected amount of passengers it had estimated to secure by 2020 (1.4 million passengers per month)75

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London Project 1: Crossrail 1 A high frequency, high capacity service rail service linking Reading and Heathrow to Shenfield and Abbey Wood via 40 stations, including 10 new stations in central London and Docklands.76

Background The need for an east - west rail line linking the greater London has surfaced multiple times throughout London’s history. The first mention of the term Crossrail was in the 1974 London Rail study, published jointly by the Greater London Council and Department for Environment, as a potential regional railway that could help join existing rail lines in the city (Crossrail Ltd b., 2016). Support for this cross city rail was again voiced in 1980 as a way to ease underground congestion and create inter-city links across London’s existing infrastructure. The recommendations of the 1974 study were finally formalized in the 1989 Central London Rail Study, commission by the Government, and the go ahead to fully develop the scheme was given in 1990 to British Rail and London Transport. This safeguarded the Crossrail route to prevent future land developments aside from the scheme. However, with the start of the recession in the early 1990s, the private bill was rejected in 1994 due to constraints on public finances. Other attempts were made to move the project forward with little success (Crossrail Ltd b., 2016).

In 2000 a Strategic Rail Authority review again noted the need to relieve rail congestion on east-west routes in London, and in 2001 Crossrail Ltd was established as a 50/50 joint venture between TfL and Department for Transport (Crossrail Ltd a., 2016). In 2004 the Secretary of State commissioned an independent review which confirmed the need for Crossrail.

The Crossrail Bill was introduced to Parliament in 2005 and gained Royal Assent in 2008. That same year Crossrail Ltd became a fully-owned subsidiary of TfL, remaining a join venture with the Department for Transport.

The Crossrail programme is jointly sponsored by the Department for Transport and Transport for London. Crossrail Limited is a wholly-owned subsidiary of Transport for London and is responsible for delivering the programme with Network Rail. Crossrail Limited earned its autonomy to deliver the programme by passing a series of challenging review points to demonstrate that the programme was sufficiently well-developed to proceed.

Project financing Crossrail funding is provided by three main sources, government funding, London businesses and future Crossrail riders (Crossrail and Associated Services Division Department for Transport, 2011). Following the passing of the Business Rate Supplements (BRS) Act in 2009, the GLA was able to leverage this new funding option to put toward the funding of Crossrail, thus decreasing the reliance on transfers from the Government. Details of the £14.8 billion funding package can be found in Box 5.

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Box 5: Financing details Government spending ● Local: The Mayor of London through Transport for London and the Greater London Authority will contribute £7.1 billion. This Includes a direct contribution from TfL of £1.9 billion and contributions raised through the Crossrail Business Rate Supplement, section 106 and the CIL. ● National: The Department for Transport is supplying a grant of £4.7 billion during constructing. ○ Network Rail will undertake works costing on more than £2.3 billion to the existing national rail network raised through projected operating surpluses from the sue of Crossrail services Business support ● Businesses will contribute £4.1billion toward The Mayor’s commitment to fund Crossrail through a variety of mechanisms, including the Business Rate Supplement, a 2p in the pound levy raised by the Mayor on business properties in the Greater London Authority. This revenue stream is expected to continue for some 28 years will support £3.5 billion of debt to be taken out by the GLA. 77 Crossrail riders: ● Future fares from Crossrail will contribute towards repayment of the debt raised by TfL Other ● City of London Corporation: Direct contribution of £200 million, will seek contributions from businesses of £150 million of which £50 million is guaranteed ● Heathrow Airport Holdings Ltd: £70 million funding package ● Canary Wharf Group: £150 million toward cost of new Canary Wharf Crossrail station – Canary Wharf Group will design and build the new station ● Berkeley Homes – will construct station box for a station at Woolwich78

The role of decentralisation ●

●

Delayed selection of project due to necessity for Central Government buy-in: It took 35 years of proposals and planning for Crossrail to finally break ground. Experts point to the antiquated planning system in the United Kingdom as the reason for the majority of the delays, as projects of this size have to pass through multiple full-scale inquiries as well as local and national planning procedures (Glaister & Travers, 2001). The slow pace at which the Government was willing to get involved points to the need for local governments to have more authority to move projects forward that are deemed beneficial at the local level.

Variety of funding options at the local level: Ability to secure funding from multiple sources helped move the project forward despite fall out from the 2008 recession. Specifically, the opening of

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Appendix the BRS to local authorities enabled the project to access additional sources of local revenue to relieve the burden of funding from the Government.

Box 6: Results of Crossrail Despite its lengthy history, Crossrail is currently on track for its phased opening to begin in in late 2018 and will be on budget. Expected to increase rail capacity by 10% and bring an additional 1.5 million people within 45 minutes commuting distance of London's key business districts (Crossrail Limited, 2016) The latest business case audit found the line to have a benefit-cost ratio of 1.97:1, and wider economic benefit-cost ratio is 3.1 (Department for Transport, 2014). The project finally broke ground in May 2009 and partial service is expected to start in 2018.

Project 2: Northern Line Extension Underground line extension from Kennington to Battersea via Nine Elms including the construction of two new 3.2km tunnels and two new stations at Nine Elms and Battersea (www.railway-technology.com, 2015.

Background Discussion to rejuvenate the VNEB OA first began began in the late 1990s when former Chelsea and Fulham residents began looking South of the River for affordable housing options. The decision to move the US Embassy to the area in 2008 refuelled the discussion of how to better connect the region to the rest of the city (Spittles, 2012). That same year, the GLA, in partnership with the London Boroughs of Lambeth and Wandsworth, the London Development Agency, TfL and English Heritage set out to develop a planning framework for VNEB OA which included four possible line options to extend the Northern Line to the area (Greater London Authority, 2009, ‘Vauxhall, Nine Elms, Battersea Opportunity Area’, 2016). Following the publication and discussion of results, the Government committed to regenerate the the VNEB OA in 2011 including potentially establishing an Enterprise zone in the area if a commitment from a developer to develop the Battersea Power station was secured (Transport for London, 2013). This would enable business rates generated in the area to be retained and invested locally for 25 years following the establishment of the Zone (Volterra Partners, 2012).

Around this time the Local Government Finance Act of 2012 came into being, which extended the right for local authorities to borrow against predicted future increases in business rates, known as a tax incremental finance model (Out-Law.com a., 2013). Also in 2012 London Mayor Boris Johnson secured a bid from a consortium of Malaysian property developers, backed by the Malaysian government, to develop the Battersea Power station (Ruddick, 2011). As part of deal, the consortium committed to partially fund the

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Appendix extension of the Northern Line to the Battersea power station (Ruddick, 2012).

In 2013 a funding package was announced for the project based on the new sources of revenue and in 2014 the project received Royal Assent in 2014.

TfL, under GLA is overseeing the delivery of the project; construction is currently underway and the line is expected to open in 2020.

Project financing In 2013 the London Boroughs of Wandsworth and Lambeth, the GLA and the treasurer announced their proposal to fund the NLE entirely through contributions from the developments in the area that will benefit from the extension (Transport for London a., 2014). Under the proposal the GLA is able to borrow up to £1 billion from the Public Works Board to fund the extension with a guarantee from the Government to ensure minimal borrowing costs.

Repayment of the loan will be split between developer contributions paid through community infrastructure levies or 106 agreements and partly from business rates collected within the Nine Elms Enterprise Zone jurisdiction (Out-Law.com b., 2013).

Box 7: Project Facts Total cost of project: £998.9million79 Total available to borrow: £1billion from Public Works Loan Board Wandsworth Contribution: £259.1million in CIL funding, including £200.1million from the Battersea Power Station site and £59.0million from other sites Lambeth £7.3million in CIL funding Enterprise Zone debt contribution: £266.4million

The role of decentralisation ●

●

Local funding enabled planning to move quickly: Due to the new funding opportunities that opened up to the area, project planning and funding securement were able to move relatively quickly, as a plan for financing needed to be set up before Royal Assent would be given.

Influence of strong city leadership: The political strength of the Mayor in shedding light on the area as a potential development opportunity and securing international funding shows the benefit of a strong, and internationally recognized figure head for the city (Dillion, 2016). Having local democracy behind that, such as the issue of transport, can help to get things done more quickly, and decisions are being made closer to the need.

Other factors that impacted project delivery ●

Regeneration opportunity and populous: Although the devolution of fiscal autonomy enabled the GLA and local councils to move the project forward relatively quickly, it was the designation of the area as an Opportunity Area and Enterprise Zone that enabled this specific type of funding to be used. For less populated cities, or areas that do

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Appendix not have as strong of business investment potential, this type of TIF financing is not feasible.

Box 8: Results Currently the project is on track to be delivered on-time and on-budget.

Once complete the extension is expected increase capacity through central London during peak times by 20% and deliver a benefit to cost ratio of over 8:1.80

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Mexico City Project 1: Suburban Rail Line 1 Background This project was delivered in order to alleviate congestion on the mass transit system and highways that serve the population in the State of Mexico and commute in Mexico City. This commuter rail was first conceived during President Ernesto Zedillo’s term in office (1994-2000), to use some existing rail tracks abandoned during the mids 1990’s after the elimination of Ferrocarriles Nacionales de Mexico (the decentralised public body governing railways). During Vicente Fox's term in office (2000-2006) an agreement between the national government, the Chief of Government of Mexico City and the Governor of the State of Mexico was signed for terms of the collaboration between different levels of government for the project (Rutzen, Hutson, & Loftus-Otway, 2010).

At the Federal level, the project was led by the General Directorate of Rail and Multimodal Transport, a branch of the Secretary for Communications and Transport (SCT). Since the project was interstate, two agencies were involved at the state level: the Secretary for Transport and Road Administration of Mexico City, who coordinated the intermodal connections between the suburban rail and the other mass transit systems within the city; and the Secretary for Transport of the State of Mexico, who arranged a feeder-bus system to connect the train stations with the localities within the state.

Project financing A Public Private Partnership was used to build, operate and maintain the system for 30 years. The Spanish company Construcciones y Auxiliar de Ferrocarriles (CAF), who offered the lowest passenger fare, won the bidding process. The total cost was estimated to be some MXN 7.518 million (around USD 706 million). 53% of the total cost was financed by the Federal government and 47% by the Concessionaire (Rutzen et al., 2010). The scheme designed, had a maximum rate of return for the company and also allowed the federal government to make up for the investment.

The role of decentralisation i.

The efficiency with which the project was developed is commonly challenged. Although seven years passed between the first feasibility study (in 1997) and the second feasibility study (in 2004), once the decision was made in 2006, it took less than two years to build the project. Service was inaugurated in May 2008. Also, according to reports disclosed by the SCT, the initial budget was not exceeded.

However, the federal government has provided extra funds for the operation of the service (OECD, 2015). The role of the city-level agency in CDMX was only as the coordinator of the train with other mass transit systems. The key player was the Federal government,

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ii.

who was the owner of the existing infrastructure, oversaw the development of the project and financed more than half of the project.

According to initial calculations by the SCT, the ridership was supposed to be 300,000 passengers. As of 2015, however, the actual ridership was about half of the estimated ridership (Terra, 2015).

Despite this fact, the project is seen as successful since it allows to inhabitants of the State of Mexico, to reduce their commuting time to CDMX from two hours to less than 30 minutes (CNN-Expansion, n.d.a). Some researchers have argued that because the train was designed to take advantage of the existing rail lines in order to make the project cheaper, it was not the best route and should have considered a route through more populous villages than those that were served by the existing lines (OECD, 2015). This situation could be used as an argument for decentralised decision-making process in the design phase.

Other factors that impacted project delivery iii.

iv.

The original light train system plan was to build three lines. Despite the relative success of line 1, the economic crisis of 2008-2009 postponed the bids for lines 2 and 3 (the tender for line 3, for example, had to be abandoned after the only tender quit because of the lack of funds).

The line 1 project was one of the three largest investments in the State of Mexico during the six years of term of Enrique Pena Nieto as governor (current Mexican President). He is now being criticised for funding infrastructure projects in favour of his former constituency (Red, 2014; Universal, n.d.).

Project 2: Underground Line 12 Background After several decades without improvements or extensions in the Mexico City Underground system, Line 12 was announced in 2007 by the Chief of Government of the Federal District, in order to meet the demand for public transport in the city (Jornada, n.d.; Jornada-UNAM, n.d.).

The Underground governing body of CDMX (the Sistema de Transporte Colectivo Metro, or STC-Metro) was the key player in determining the scope of the project. Additionally, like all the projects related to infrastructure construction carried out by any governing body within the limits of CDMX, the development of Line 12 fell within the jurisdiction of the Secretary of Works and Services, which was the organiser of the bidding process for the construction project.

Project financing Although there is no aggregate calculation for the total cost of the project, the Federal government claims the total amount granted to the CDMX government for the project was MXN 14,361 million, or around 80% of the total cost (“Pronunciamiento de la SFP con relación a la Línea 12 del Metro,” n.d.) . The rest of the project was financed by the CDMX government through

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Appendix issuing bonds for MXN 4,000 million during 2010, around 20% of the total (CNN-Expansion, n.d.-b; Redacción & Hernández, 2010). Although the Underground agency is a ‘parastatal’ public body, the project relied exclusively on external sources because it operates on a ‘under the budget’ scheme. The state government must heavily subsidise the operation of the system81, given that the price charged per ticket--despite an increase in 66% that took place in 2014-- covers only 50% of operational costs (Nexos, n.d.).

The project was over budget. The initial budget for the project was around MXN 17,500 million and although an official figure has not been calculated82, estimates set the overall cost between MXN 18,200 and MXN 26,000 million (Indicador Consultores, 2014). This number does not include the cost to repair the line (over half the stations had to be closed) a year and a half after the line was opened.

The role of decentralisation The ability to borrow was key to complement the grant from the federal government. In 2010, the CDMX government allocated 80% of its total capacity to borrow to the Underground expansion83. The creditworthiness of CDMX is reasonably good, as the debt is considered low risk (Standard and Poor’s rating was ‘mxAAA’ and Fitch rating was ‘AAA(mex)’ for those CDMX bonds), so the credit was reasonably cheap (OECD, 2015).

A drawback of decentralisation is that without proper coordination there is a lack of incentives for the CDMX to fund extensions of the network. Given the fact that the Underground is a decentralised public body that depends fully on CDMX (and it is heavily subsidised by) there is a lack of incentives to make the necessary expansions in zones of the State of Mexico. There is an argument, therefore, that justifies grants from the Federal level.

Other factors that impacted project delivery Given the importance of the underground system for the population of CDMX, ticket price increases are very controversial (for example, before the last increase, a poll was organised to test the reaction of the citizen and found it was not as unpopular as initially thought). However, an increase to the “real operation cost” is seen as implausible because the political costs that could imply for the CDMX authority.

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NCT Delhi Project 1: Delhi Metro Rail Corporation Background The first time the idea for a mass rapid transit system for Delhi was suggested was in 1969, in a traffic and travel characteristics study. For 20 years it was debated whether such a project is the responsibility of National or Local Government84. Following this, GNCTD commissioned Rail India Technical and Economic Service (RITES) Limited, in 1988–89, to study the feasibility of introducing an Integrated Multi-Modal Mass Rapid Transit System for Delhi.

The study was completed in 1991. In July 1994, the Central Cabinet gave the go-ahead, in principle, for the MRTS for Delhi and directed the GNCTD to take up the preparation of a Detailed Project Report (DPR) which was finalised in March 1995. The Union Cabinet sanctioned the Delhi MRTS Phase I (Project) September 1996, at a total cost of USD 971 million – at April 1996 prices (CAG, 2008)85. For implementation and operation of the project, the Delhi Metro Rail Corporation Limited (DMRC) was registered in May 1995 as a joint venture between the Ministry of Urban Affairs (Ministry of GOI) and the GNCTD. The engineering and project management was entirely the responsibility of DMRC which was provided an autonomous executive structure. Having constructed a network of 213 Km with 160 stations in record time, the DMRC today stands out as a shining example of how a mammoth technically complex infrastructure project can be completed before time and within budgeted cost by a Government agency.

Box 8: Project Funding for DMRC Phase-I

Party

Share in funding

Government India

of 16.5%

Government Delhi

of 16.5%

Funding instrument 14% equity, 2.5% interest free loans for land acquisition costs

The GOI and GNCTD join together as equal equity partners in the project and 14% equity, 2.5% also agree to bear interest free loans the project for land financial risks acquisition costs equally

JBIC

64%

Time-sliced loans

Private investors

3%

Equity

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Remarks

soft Loans provided in tranches. Details in appendix Income generated by way of property development sales at highly lucrative metro rail stations.

Appendix

Project financing The Delhi Metro was conceived as a social sector project and a large part of the funding was provided by the government of Japan by way of soft-loans from the Japanese International Cooperation Agency, JICA (formerly, Japan Bank for International Corporation).

Figure A.0.1: Figure: DMRC funding sources by Project Phase As the Delhi Metro project was not considered commercially viable86, the Government of India provided concessions to the DMRC (CAG, 2008), including many tax exemptions, as well as: 1. Interest free subordinate loans from the GOI, GNCTD, HUDA, and NOIDA for supporting the cost of the land required for the project.

2. The long-term debt required for the project was raised by the GOI, through a loan agreement executed with JICA at concessional rates of interest and transferred to the company.

3. Immunity from exchange rate fluctuation – fluctuation risk for the period of repayment of foreign loans was to be shared between the GOI and the GNCTD, equally.

4. Exemption from property tax and electricity tax.

5. Exemption from import duty, excise duty, sales tax and works contract tax.

6. No dividend to be paid on government equity until the JBIC loan is fully repaid.

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Appendix Box 9: Comparison of Tax Liabilities of DTC and DMRC (Kharola & Tiwari, 2008)

The role of decentralisation The transition to a stronger city government coincided with the take-off of the project. The GNCTD made budgetary provisions for project studies for the DMRC. This suggests that the city government was able to provide the required impetus for the project after having been considered for decades.

Other factors that impacted project delivery The projection of Delhi Metro as a project whose benefits go beyond the direct benefit to commuters, was instrumental in securing funding from international development agencies (JICA in this case). This initial funding was critical to starting the project and the largest source of finance for the entire project The Delhi Metro Act, 2002, which provided clear legal framework for the acquisition of land required for the project was essential for successful delivery. This act superseded the municipal laws governing land usage in Delhi.

Professional SPV with strong management culture, clear autonomy and widespread political support.

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Project 2: Delhi Bus Rapid Transit System (BRTS) Background Delhi was the second city in India to implement a Bus Rapid Transit system.

Despite a long gestation period, the network has been slow to implement.

While environmental benefits of the scheme are measurable, the BRT system is not economically sustainable and remains politically susceptible to powerful car lobby groups. Infact 6 years after opening only 5.8km of the initial 14.5 km pilot corridor was operational. Political resistance has been intense, forcing a court-ordered shutdown of the bus lane from March to September 2012. The corridor was eventually re-opened but a decision to scrap the project was taken in July 2015. It is currently non-operational.

The Delhi BRT experience does however offer valuable lessons. From a planning perspective it also demonstrates the types of resistance and conflict that should be anticipated in development of public transit systems.

Figure A.2: Institutional Framework of Delhi BRTS

Box 10: Timeline of the failed Delhi BRTS

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2008: Trial run of the BRTS started on a 5.6 kilometre stretch between Ambedkar Nagar and Moolchand. The Delhi government introduced 20 new low-floor buses.

Within a few months, residents and commuters raised concerns about the heavy traffic jams on the BRTS corridor.

March 2012: The Delhi government asked the Central Road Research Institute (CRRI) to study the effectiveness of the BRTS. This was after the Delhi High court asked the state government to study the traffic patterns along the BRTS following a public interest litigation filed by a Delhi-based NGO. The court allowed a free run for other vehicles on the BRTS during the period of study.

October 2012: The Delhi high court dismisses the petition against BRTS. “A developed country is not one where the poor own cars but one where the rich use public transport,” the court said. “Even if we were to accept the argument that as of today…some inconvenience is being caused across the board to everybody, we have to keep in mind that planning is always long-term and the fruits of the labour invested today may not be available in the immediate future.”

November 2013: Delhi’s then government under Sheila Dikshit, who had consistently defended the project, finally yielded to pressure before the city went in for elections. “We could not make the project successful. We already suspended all other BRTS projects. The concept did not meet the expectation. So we will have to scrap it,” Dikshit said ahead of the elections.

July 2015: The AAP87 government finally scrapped the project. “This was a public demand. There have been several accidents and traffic has become haphazard (along the BRTS corridor). Taking all this into account, the Delhi government has decided to scrap the BRTS corridor,” Manish Sisodia, Delhi’s deputy chief minister said.

Project financing The Delhi BRTS was funded entirely from the budgetary resources of the Transport Department of the GNCTD (Baijal, 2011). Total cost of the 14.5 km Delhi BRT project was Rs.2.15 billion (USD $45 million). Of this only 5.8 km of the corridor was operational. Though the remaining 8.7 km of the pilot was provided with BRT infrastructure (including dedicated cycle and pedestrian tracks). The bus lanes were not physically separated and continued to operate on the left hand side of the road with mixed traffic. The average cost of construction of this corridor was about Rs.148.3 million/km (or USD 3.1 million/km). This does not include the cost of rolling stock as bus operations are funded separately (Baijal, 2011) Maintenance costs of the corridor (including road marshals and other repair and maintenance) were approximately Rs.212 million per annum. Buses operated by licensed private contractors and DTC served the corridor and collected fares directly. Thus DIMTS revenues were limited to advertisement rights on bus shelters. Deficits were funded by GNCTD

The role of decentralisation The institutional complexities inherent to Delhi’s special federal status under the Indian constitution have already been discussed (refer section -insert index of delhi city case study). It is not surprising that issues arose with coordination between the multiple agencies. In some instances conflicts arose. Most notably, the resistance to BRT design by the Delhi Traffic Police

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Appendix (a federal agency) led to weak enforcement of discipline along the corridor and encroachment of bus and cycle lanes. This friction seriously impeded operations of the corridor during its initial launch (Baijal, 2011)

Other factors that impacted project delivery Political leadership: The Delhi BRTS received considerable support from the Chief Minister, the Chief Secretary and the Transport commissioner of GNCTD, but repeated changes in the Chief Secretary and shifts in institutional support meant that it ultimately fell to the Chief Minister and representatives of RITES and TRIPP to deliver the project (Ponnaluri, 2011).

DIMTS was appointed in 2006, providing an important interface between the GNCTD and other actors, but this was late in the process and coincided with growing community resentment against the scheme. This impeded the leadership that DIMTS were able to lend to the project (Baijal, 2011).

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New York City Project 1: No. 7 Subway Extension Extends NYC Subway IRT Flushing Line 1 mile from its previous terminus at Times Square to one new station at 34th and Eleventh Avenue

Background This project was initially part of Mayor Lindsay’s 1969 plan to expand the Manhattan Central Business District (CBD) to the Hudson River and develop the West Side through self-financing mechanisms. The plan called for redevelopment through building office space, hotels, housing, a new subway line, and a convention centre--but died with financial crisis in the 1970s. In 2001, The Giuliani administration issued a report called “A Framework for Development: Far West Midtown” in collaboration with a NYC2012 (a group in support of an NYC Olympic Bid) that again emphasised the need to develop the CBD. Once entering office in 2002, Mayor Bloomberg turned Giuliani's idea into a Master Plan, which included an aim to construct an Olympic/Jets Stadium over the MTA’s rail yards in the area. In preparation for the Olympic Bid and stadium, the City Council rezoned the area’s 26 million square feet (msf) for mixed‐use development. This factor enabled NYC to move forward with the redevelopment despite the city’s failure to win the Olympic Bid and the scrapping of the Jets stadium. More specific to the No. 7 Extension, NYC City Council passed a resolution to finance green spaces and infrastructure investment in the area, including the extension, which it viewed as essential to attracting developers (Fisher, 2015).

Project financing The No. 7 Subway Extension is funded through payments in lieu of taxes (PILOT) financing, a form of value capture financing, very close to TIF. At a cost of $3Billion, the Hudson Yards Redevelopment Plan is the US’s largest TIF project in the country (Fisher, 2015).

Box 11: Financing Details Project Cost: Initial $2.1 billion allocation, increased to $2.4 billion despite the removal of one station from initial plan (“Financing Redevelopment on the Far West Side,” 2013).

PILOT: To be repaid with PILOTs: sales taxes, mortgage recording taxes, residential property taxes, DIF payments, and proceeds from the transfer of development rights. Idea the same as TIF, a redevelopment agency, issues bonds to finance transport infrastructure, which will then increase property values and generate increased tax revenue. Main difference, between TIF and PILOT, is that under PILOT the city owns the land so it can remove the land from tax rolls, with the developer paying a discounted payment to the agency instead of property taxes.

Investment Vehicle: A special financial vehicle was created to drive financing called the Hudson Yards Infrastructure Corporation (HYIC). The city did not have to issue bonds directly in its own name, therefore, but through this city-owned local development corporation.

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Appendix

Amount Issued: HYIC issued $3 billion in PILOT‐backed bonds, $2 billion in 2007, and $1 billion in 2012.

NYC Liability: NYC has guaranteed only interest payments if HYIC is unable to make payments and forward property tax revenues from the area not covered by PILOT as tax equivalency payments (Fisher, 2015).

The role of decentralisation Fiscal decentralisation gave the city access to TIF, allowing the city to finance this project independently quickly and easily without excessive political constraints. NYC

gained access to tax incremental financing by the New York State’s Municipal Redevelopment Law in 1984, but had never before been used. By law, only property taxes revenue can be used by TIF, but otherwise this mechanism places few constraints on cities, noting only steps at the local level that must be taken before its implementation. Access to TIF/PILOT financing was instrumental in bringing this project forward quickly--bypassing the MTA and the long list of other transport infrastructure priorities they were placed above it--and financing the subway independently. The availability of this mechanism, a function of fiscal decentralisation within the state, allowed Mayor Bloomberg to use the rhetoric that this project was self-financing and kept him from a longer approvals process and political battles that could emerge from using other city-financing mechanisms, such as bonds backed by general city revenue (Fisher, 2015). It seems clear that the city’s level of fiscal decentralisation through TIF allowed Mayor Bloomberg to move forward with his vision of for transport and economic development independently.

Other factors that impacted project delivery The potential of winning the Olympic 2012 bid and the desire of city officials to use this external event as a catalyst to make improvements to the city, especially its infrastructure was important in the getting this project done quickly and financed fully by the city. Additionally, the potential for economic development of Hudson Yards, one of the few undeveloped areas of Manhattan left, was instrumental in the implementation of this project. It allowed to city to claim that project would finance itself (even though this was not true) and offered the promise of economic growth through new office and housing space.

Box 12: Details on other factors On how the Olympics led to a push for better public services: “We thought the Olympics would be the catalyst to get a lot of things that many people thought the city needed” (Bagli, 2011).

-Mayor Bloomberg On how Economic development concerns pushed the project, and explained the expansion of the line to Hudson Yards, and not the addition of another which would have helped from a transport perspective, but served no development purpose.

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Appendix

“The threat... is that without increased office development, regional growth and its benefits of increased income and real estate taxes would shift from the city to New Jersey and Long Island” (Fisher, 2015)).

- Bridget Fisher, The Myth of Self-financing: The Trade-off Behind the Hudson Yards Development Project “To remain competitive in the world marketplace, the City needs to provide for office growth and development. Even before the City lost over 13 million square feet of office space in the September 11 attack on Lower Manhattan, land was needed to add an estimated 60 million square feet of office space in Manhattan over the next 20 years” (Rose, 2001).

-Department of City Planning, Far West Midtown: A Framework for Development “A Tenth Avenue station would be nice, but it’s really a straight transportation project versus an economic development catalyst” (Geberer, 2015).

- Deputy Mayor for Economic Development, Dan Doctoroff

Project 2: World Trade Center Transportation Hub Rebuilding the terminus of the Newark-World Trade Center and HobokenWorld Trade Center PATH rail lines creating a transportation hub and adding a retail complex

Background In the face of September 11, 2001 Lower Manhattan’s infrastructure was severely destroyed leading to an urgent need to rebuild the disrupted transportation links. The World Trade Center Station, initially opened in 1971, was largely destroyed during the attacks of 9/11 and was closed for two years until a temporary station was opened on November 23, 2001 at a cost of $323 million (Dunlap, 2014). The Port Authority, who owns and manages the World Trade Center Complex, and is responsible for the PATH trains built the new temporary station while also planning a permanent rebuild (NYC IBO, 2011). The permanent station, which opened March 3, 2015, would become the most expensive train station ever built (Lorenzetti, 2016).

Project financing The World Trade Center Transit Hub was financed primarily through Federal Grants. In the wake of 9/11 the Federal Government promised $20 billion to help the city rebuild, the largest share of this has been given to help rebuild transport infrastructure ($4.6 billion), specifically Fulton Center and the World Trade Center Transportation Center (NYC IBO, 2011).

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Appendix

Box 13: Financing details Project Cost: Initial $2 billion, project costs soared to $3.95 Federal Transit Authority Grant: Initial $1.7 billion from FTA, which jumped to $2.9 billion (Dunlap, 2014).

Port Authority of New York and New Jersey Funds: Initial $300 million, ended up approximately $1 billion ((Dunlap, 2014)

The role of decentralisation No apparent link between level of city political or fiscal decentralisation on the chosen transportation funding mechanism since the city did not directly contribute to the funding implementation of this project. However, the misalignment of administrative jurisdictions created an imbalance between the provision of transport to address local need and the desires of the Port Authority to deliver architectural icon like Grand Central Station (Dunlap, 2014). The PANYNJ is controlled by the Governors of New York State and New Jersey and is thus not locally accountable and there were poor decisions made at the planning and design level due to some political pressures from the Governor of New York (Smith, 2014).

Other factors that impacted project delivery Outside events & outside funding distortions: 9/11 opened the door to a federal funding pot that allowed politicians to build expensive buildings that might serve their legacy, but cost their taxpayers nothing so less oversight and accountability than other projects (Dunlap, 2014). The New York State Governor at the time, George Pataki, was contemplating a run for President and thought a statement building could improve his reputation. Additionally, his political ambitions kept him from allowing PANYNJ from closing No. 1 subway line, which would have reduced project costs, because it would upset constituents in the republican stronghold, Staten Island (Dunlap, 2014).

Conflicting project governance linked to structure of PANYNJ: While the PANYNJ was designed to be a politically independent organisation, this is no longer the case with the governors of both states exerting a high level of control(Smith, 2014). This political influence mixed with the fact that the PANYNJ enjoys fiscal independence means low accountability to local needs and thus limiting allocatively efficient outcomes.

Also contributing to poor project governance structure was the revolving door of PANYNJ leadership during this period. Four different NY Governors who appointed five executive directors and five NJ Governors who appointed four chairmen. This lack of consistent governance of the organisation, likely contributed to the project being delivered behind schedule and way over budget (Dunlap, 2014).

Linked to this lack of strong governance and the windfall of federal funds is that the authority chose Spanish architect Santiago Calatrava design for the project, which included a soaring Oculus. A failure to properly contract and cost the design, as well as account for security concerns, surging prices due to the amount of construction going on in the city, and other potential 79

Appendix concerns and delays meant the PANYNJ wildly underestimated the costs of the project and the time it would take to complete (Dunlap, 2014).

Box 14: Efficient? Effective?

How many riders use the PATH Station daily?

Less than 50,000 riders use this this station daily, making it the 18th busiest train station in New York City. The new station does not increase capacity, and is not likely to significantly increase ridership as it has remained relatively constant over time (Kimmelman, 2016).

On time? On budget?

Over five years behind schedule, and about twice the initial cost ($2.2 to $3.95 billion) Also, temporary station had already succeeded in bringing riders back and making it again PATH’s busiest transit station, while costing relatively little (Dunlap, 2014).

Allocative Efficiency? No. On the near completion of the WTC Transport Hub and his refusal to attend a celebratory opening, "I’m proud of the work that the Port Authority and hundreds of skilled union workers performed on the Hub...since I arrived here, I have been troubled with the huge cost of the Hub at a time of limited resources for infrastructure” (Rubinstein, 2016).

“This thing is a symbol of excess” (Rubinstein, 2016).

“We would not today prioritize spending $3.7 billion on the transit hub over other significant infrastructure needs” (Dunlap, 2014)-Pat Hoye, Executive Director PANYNJ “No one intelligently could say that the level of design and architecture associated with it was commensurate with the level of usage”(Dunlap, 2014). -Former Commissioner, quoted in the Observer speaking on condition of anonymity

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Appendix 2 - Terms of Reference Assessing the impact of fiscal autonomy on urban infrastructure investment ARUP Capstone Project 2015-16

1. About Arup City Economics Arup’s City Economics team was established in April 2015 specifically to lead on the major economic and political issues that face our city-based clients.

The team includes economists, management and financial consultants and policy experts. The team works with city, regional and national governments, and a range of private sector clients, to help guide them on key strategic and policy issues, also providing detailed economic and financial ex-ante analysis on major infrastructure and built environment projects, plans and programmes.

2. Study Brief Major change in powers for cities and regional government is afoot. Whether in developing countries - or more economically-advanced states – cities are increasingly regarded as the most effective and powerful “vehicles” for the delivery of public policy objectives. These changes will have a direct impact on Arup’s business. Stronger city governance structures are likely to lead to an increase in infrastructure investment. Whether in relation to tackling climate change (think C40 Cities) or boosting growth, employment and competitiveness (because of the agglomeration benefits they bring) cities now sit at the centre of many policy initiatives designed to shape a better world.

One of the main challenges that cities face is how they can raise sufficient revenue to provide the high-quality services that will keep them competitive going forward for residents, businesses and visitors. As a result, there is considerable interest in world cities, including New York, London, Sao Paulo, Mumbai, Toronto and Paris, as to how increased financial freedoms for major conurbations (fiscal autonomy) might stimulate increased provision of infrastructure. This is particularly relevant for those sectors not normally provided for by the private sector such as transport, affordable housing, social infrastructure, public realm and cultural facilities, and environmental infrastructure. Cities that fail to provide these services are likely to lose their competitive and economic advantage.

This research project is aimed at understanding how the global infrastructure investment landscape is likely to be affected – and could be shaped for the better - as a result of increased fiscal autonomy.

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Appendix

3. Objective Taking a cross-section of cities, this project will identify the opportunities, challenges and innovations associated with varying degrees of financial and political autonomy for city-regions. It will answer the following research question “What impact does a city’s fiscal and political autonomy have on urban infrastructure investment models?”

4. Context The world's urban population has grown rapidly from 746 million in 1950 to 3.9 billion in 2014, and it is expected to surpass 6 billion by 2045. Rapid development is putting increasing pressure on urban public services.

The economic development, sustainability and quality of life in cities will depend on the governance structures and financial capacity and capability they have to invest in the infrastructure that will shape their growth. However, cities have varying degrees of control over the infrastructure investment that is critical to their growth and wellbeing of citizens. Decision-making and funding and financing are often dispersed across national, regional and local agencies, and where strategic and spending decisions sit will affect the ability of cities to adapt, invest and grow to meet the demands of expanding human and business populations.

As cities grow in population and economic importance, the ability of government—be it national, regional or at the city level—to invest in the infrastructure cities need will become even more important. Globallycompetitive cities will require investment in transport, energy, housing, social infrastructure, and public realm, and the most in-demand cities will likely become increasingly expensive. The movement towards sharing responsibility for infrastructure investment between the public and private sectors has led to a range of new investment models. However, the institutional capacity, political power and financial resources of cities will influence their ability to attract and level private investment.

Now, and looking to the future, understanding the intersection between governance and investment will be critical to structuring the infrastructure investment that enables cities’ growth. In the UK, for example, the movement towards autonomy represents a trade-off between the financial scale, expertise and coordination efforts of central government and the local knowledge, user-pays, nimble implementation benefits of city government.

From command-and-control economies to more highly-devolved city-regions, the context of the policy and financial powers held by the city will shape Arup’s relationship with their public and private partners.

While individual countries or city regions have conducted research into the economic impact of autonomy, research by economists like Rodriguez-Pose have only been slightly positive, if not inconclusive, that more power at the city-region level leads to better economic outcomes. This research will take lessons from major infrastructure projects and assess how the degree of

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Appendix local power and fiscal autonomy has helped or hindered investment in projects.

5. Scope and methodology Taking a cross-section of cities, the project team should identify the opportunities, challenges and innovations associated with varying degrees of financial and political autonomy for cities. The study should answer the following question: "What impact does a city's fiscal and political autonomy have on urban infrastructure investment models?"

Task 1: Selection of case-study projects and cities.

Identify examples of successful/innovative and less successful infrastructure investments in selected cities. Infrastructure projects should be chosen based on those projects which have been highly visible to the public, because they will provide a wealth of information and also will have drawn the most political and fiscal resources to be implemented, representing the most forwardthinking projects.

Task 2: Development of project case-studies.

Develop case studies to understand the key characteristics of the targeted infrastructure investment for each city. This should include evidence on the following: key decision-makers at city, region and/or national level agencies involved in project design and implementation funding agencies regulatory and statutory agencies policy strategy funding and financing mechanisms evidence or appraisal of political and socio-economic outcomes.

We envisage that this will involve desktop research and some stakeholder consultation. Students will have access to international Arup consultants for their research efforts.

Task 3: Development of city governance case-studies The project team should detail the governance geography, funding and finance powers and policy levers relating to infrastructure investment at the city level for each of the project case studies. Using a common set of criteria, like the proportion of locally- raised taxes that are spent locally, democratic accountability of city leaders, and control over infrastructure investment and maintenance, the project team should be able to describe the factors that influence a city’s decision making and financing of infrastructure investments.

Then, the team should assess the legislative accountability and coordination of infrastructure providers within each city. Lastly, the team should evaluate how powers held at city-level supported or inhibited timely and successful investment in urban infrastructure and new investment models.

Task 4: Writing final report and providing findings and recommendations on city governance structures, fiscal and policy autonomy, and innovative financing models and partnerships.

83

Appendix The project team should identify characteristics of city governance powers and finances that supported or hindered infrastructure investment. In particular, where new and innovative financial models and partnerships were used, the team should assess whether the degree of localisation helped or hindered the process.

6. Method of working The project team is expected to be self-motivated, and will work with a high degree of autonomy in undertaking the research study. However, Arup will facilitate the project in the following manner: • Provide the brief • Host a kick-off meeting with the team and the academic supervisors for the purpose of setting perspectives; clarifying details; and providing further background.

• Host a mid-term ‘steer’ meeting at which the team will present and discuss interim findings. Progress towards the stated objectives will also be reviewed.

• Comment on the development of the final report and attend final reviews (at the discretion of the academic supervisors).

• Nominate a member of staff to act in a liaison capacity with the team to ensure good communication during the life of the project

7. Primary points of contact at Arup • • •

Zoe Jankel (Arup Study Lead) Zach Wilcox (Arup Study Senior Consultant) Alexander Jan (Arup City Economics Director)

8. Deliverables • •

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We propose an interim report to be delivered half way through the project (late December 2015) We propose a final report to be delivered at the end of the project (March 2016) to be accompanied by a presentation at Arup’s London office to a wide audience of Arup staff members.

Appendix

Appendix 3: Initial “Global” Cities List GaWC with numbers

Cited in world city research

GaWC Ranking 2010

Democratic Regime

Population Metropolitan Area (in thousands)

Amsterdam

2

10

Alpha

1

1,091

Atlanta

3

2

Alpha -

1

5,142

Bangkok

3

3

Alpha -

6

9,270

Barcelona

3

2

Alpha -

1

5,258

Beijing

2

3

Alpha

7

20,384

Boston

3

2

Alpha -

1

4,249

Brussels

2

8

Alpha

1

2,045

Buenos Aires

2

4

Alpha

2

15,180

Chicago

1

12

Alpha+

1

8,745

Dallas

3

2

Alpha -

1

5,703

Dubai

1

Alpha+

6

2,415

Dublin

3

Alpha -

1

1,169

Frankfurt

2

13

Alpha

1

715

Hong Kong

1

11

Alpha+

5

7,314

Istanbul

3

1

Alpha -

3

14,164

Jakarta

2

1

Alpha

2

10,323

Johannesburg

3

5

Alpha -

2

9,399

Kuala Lumpur

2

2

Alpha

4

6,837

Lisbon

3

1

Alpha -

1

2,884

London

0

15

Alpha++

1

10,313

Los Angeles

2

12

Alpha

1

12,310

Madrid

2

7

Alpha

1

6,199

Melbourne

3

2

Alpha -

1

4,203

Mexico City

2

6

Alpha

3

20,999

Miami

3

7

Alpha -

1

5,817

Milan

2

9

Alpha

1

3,099

Moscow

2

3

Alpha

6

12,166

Mumbai

2

3

Alpha

2

21,043

Munich

3

4

Alpha -

1

1,438

New Delhi

3

Alpha -

2

25,703

New York

0

15

Alpha++

1

18,593

Paris

1

15

Alpha+

1

10,843

City Name

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Appendix

Philadelphia

3

2

Alpha -

1

5,585

San Francisco

2

9

Alpha

1

3,300

Santiago

3

1

Alpha -

1

6,507

Sao Paulo

2

10

Alpha

2

21,066

Seoul

2

6

Alpha

2

9,774

Shanghai

1

1

Alpha+

7

23,741

Singapore

1

9

Alpha+

4

5,619

Sydney

1

11

Alpha+

1

4,505

Taipei

3

3

Alpha -

1

2,666

Tokyo

1

15

Alpha+

1

38,001

Toronto

2

10

Alpha

1

5,993

Vienna

3

4

Alpha -

1

1,753

Warsaw

3

Alpha -

1

1,722

Washington, D.C.

2

1

Alpha

1

4,955

Zurich

3

13

Alpha -

1

1,246

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40 The City of New York. Executive Budget 2016. Retrieved December 15, 2015 from http://www.nyc.gov/html/omb/downloads/pdf/erc5_15.pdf 41 MCTD counties include Nassau, Suffolk, Westchester, Dutchess, Orange, Rockland, and Putnam 42 3 Non-voting appointees represent New York City Transit, Long Island Railroad, and MetroNorth rider councils, and the other 3 represent transit unions 43 The MMTAO consists of small percentages of various state taxes imposed within the MTA Transportation District. The MMTAO broadly consists of percentages of a sales tax, petroleum business tax, corporate franchise, and corporate surcharge.

44 Note: this refers to received contributions as of April 30, 2015 45 The New York City Comptroller: Bureau of Fiscal and Budget Studies (May 2015). The “Invisible Fare” Revealing MTA’s Full Contribution to the MTA. Retrieved February 28, 2016 from http://comptroller.nyc.gov/wp-content/uploads/documents/MTA_Report_Invisible_Fare.pdf 46 MTA. (2015). MTA Capital Program 2015-2019. Retrieved from http://web.mta.info/capital/pdf/CapitalProgram2015-19_WEB%20v4%20FINAL_small.pdf 47 Constitution of India: http://indiacode.nic.in/coiweb/amend/amend69.htm 48 Local Authority Revenue Expenditure and Financing England 2014-15 Final Outturn 49 Mexico City Budget 2015 50 GNCTD Budget 2013-14, http://www.delhi.gov.in/wps/wcm/connect/lib_finance/Finance/Home/Budget/Budget+2013-14/ 51The City of New York. Executive Budget 15 Expense, Revenue, Contact. Retrieved December 15, 2015 from http://www.nyc.gov/html/omb/downloads/pdf/erc6_14.pdf 52 Presupuesto de Ingresos y Egresos del Distrito Federal 2015 53 Note: State taxes in Delhi are counting as city taxes, as this categorizes Delhi as a city-state 54 Slack and February Budget Book for endnotes...http://comptroller.nyc.gov/wpcontent/uploads/documents/February_Budget_Book_2.pdf 55 Constitution of India: http://indiacode.nic.in/coiweb/amend/amend69.htm 56 Joburg is constitutionally limited to only a property tax 57 The state legislature can be overruled by the national parliament 58 New York City must seek approval from New York State Legislature 59 For business 60 New York City can set real property tax rates independently, its largest source of tax revenue. All other tax revenues are subject to initiation or approval by NYS governor and legislator (Ruben 2010).

61 if administered via a subsidy can do so independently as considered spending, otherwise to change the tax base or rate it would need state approval. This appear in an annual list of tax expenditures (Scharff 2008).

62 Constitution of India: http://indiacode.nic.in/coiweb/amend/amend69.htm 63 Government Debt Status Paper, Ministry of Finance- Department of Economic Affairs, Budget Division, 2013 64 Article 293, Constitution of India

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65 constrained to a level around MXN 5.000 million in the last years 66 In Mexico City, the Comptrollerâ&#x20AC;&#x2122;s Office of CDMX penalised almost 50 public officials for different technical/administrative negligences and irregularities in the Metro Line 12 project.

67 Kumar, A., S. Zimmerman, and O.P. Agarwal (2013). World Bank - International Experience in Bus Rapid Transit (BRT) Implementation- Synthesis of Lessons Learned from Lagos, Johannesburg, Jakarta, Delhi, and Ahmedabad, World Bank 68 HSBC (2012). Suggested structures for financing South African Cities' BRTs. HSBC BRT Team. Retrieved from http://www.dbsa.org/EN/AboutUs/Publications/Documents/Mr%20G%20Smith.pdf 69 Kumar, A., S. Zimmerman, and O.P. Agarwl (2013). World Bank - International Experience in Bus Rapid Transit (BRT) Implementation- Synthesis of Lessons Learned from Lagos, Johannesburg, Jakarta, Delhi, and Ahmedabad, World Bank 70 Maqutu, A. (2015, October 2). Low Passenger Numbers Bedevil Rea Vaya. Business Day Live. Retrieved from http://www.bdlive.co.za/business/transport/2015/10/02/low-passengernumbers-bedevil-rea-vaya 71 World Bank Group (2016). Financial Viability Support Global e orts to help create commercially viable PPPs. Partnerships IQ. Retrieved from https://library.pppknowledgelab.org/World%20Bank%20Group/documents/2847 72 http://siteresources.worldbank.org/PPPILP/Resources/5-Jack.pdf 73 Mudzulu, K. (2014). Gautrain 'not worth the money'. IOL. Retrieved from http://www.iol.co.za/news/south-africa/gauteng/gautrain-not-worth-the-money-1637550 74 KPMG (2015). Gautrain Economic Impact Report . Retrieved from http://gma.gautrain.co.za/uploads/doc/GautrainEconomicImpactReport-July2015.pdf 75 Gia Nicolaides (2016, February). Thousands of New Jobs to Come Out of Gautrain Expansion. Eyewitness News. Retrieved from http://ewn.co.za/2016/01/26/Thousands-of-newjobs-to-come-out-of-Gautrain-expanding 76 Crossrail Ltd a. (2016). Crossrail Limited. Retrieved January 11, 2016, from http://www.crossrail.co.uk 77 Crossrail and Associated Services Division Department for Transport. (2011, October). Your Request for Information, Ref: F0008133. Retrieved from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/4863/letter.pdf 78 Crossrail Ltd c. (2016). Funding. Retrieved February 8, 2016, from http://www.crossrail.co.uk/about-us/funding 79 Transport for London. (2013). Northern Line Extension Factsheet 1: Funding and Financing.

Retrieved from http://content.tfl.gov.uk/nl-factsheet-i-web.pdf 80 Transport for London a. (2014, November 12). Northern Line Extension to Battersea Gets Go-Ahead Retrieved from https://tfl.gov.uk/info-for/media/pressreleases/2014/november/northern-line-extension-to-battersea-gets-go-ahead 81 to put figures in perspective, in 2012, this funds were almost MXN 6.460 million (OECD, 2015) 82 Being asked about the total cost of Line 12 by the Chamber of Deputies, the Chief of Government of Mexico City answered â&#x20AC;&#x153;the cost of Line 12 falls within the cost paramters of all

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the undergrounds in the worldâ&#x20AC;? - http://gaceta.diputados.gob.mx/PDF/62/2015/mar/20150303VII.pdfâ&#x20AC;?

83 constrained to a level around MXN 5.000 million in the last years 84 Until 1991, New Delhi was a Union Territory as defined in the Constitution of India 85 Comptroller Auditor General, GoI 86 According to E Sreedharan, MD, DMRC, the financial rate of return of the Delhi Metro is very low, at about 3.5%, which essentially means a metro is not a financially profitable venture (Business Standard, 2011).

87 Aam Aadmi Party (AAP)- current ruling political party in Delhi 88 constrained to a level around MXN 5.000 million in the last years

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