Municipal finance fuels local government. And financial success requires a sound enabling environment as well as sound practices for local government budgeting, financial management, and revenue generation.
Creating the Enabling Environment
Creating a sound enabling environment for local financial management requires work at both national and local levels of government.
At the national level, appropriate policies and fiscal regulations are required to create an effective municipal finance framework ensuring that local governments are able to obtain the financial resources they need to carry out their mandated responsibilities. The structure of revenue sources, intergovernmental transfer mechanisms, incentives for sound fiscal management, creditworthiness requirements, and access to appropriate debt financing form the enabling environment for effective local governance.
ICMA has worked with national ministries and local governments in a variety of international contexts. We know how to analyze municipal finance in terms of the national legal and policy framework, institutional arrangements for municipal debt financing, and local revenue enhancement. In addition to analysis, ICMA is experienced in designing and introducing changes—such as legal and regulatory reforms—at the national level.
Similarly, ICMA has successfully introduced reforms at the local level that have resulted in substantial revenue enhancement. These have included improvements in property tax collection and the introduction of e-governance tools that enable the efficient collection of other municipal fees and charges.
ICMA has helped create independent municipal funds designed to facilitate the development of commercially viable municipal infrastructure projects, structured appropriately for mixed public/private financing, and operating sustainably over their normal life cycle.
Establishing Sound Internal Systems
ICMA has worked with municipal officials and staff to establish or improve systems for accounting, budgeting, asset management, debt management, revenue forecasting, and taxation. And we have worked with jurisdictions to improve their creditworthiness. Sound internal systems ensure the financial security of a local government and allow it to better predict its financial standing, set priorities, weather budget shortfalls, initiate new programs, manage services, support the need for additional funding, and borrow funds at lower costs.
ICMA’s financial management programs are characterized by the following:
- Our approach is practical and pragmatic, in keeping with our emphasis on using hands-on finance practitioners as key members of our project teams.
- We encourage the creation of innovative, locally appropriate solutions to challenges in the field of municipal finance and revenue collection.
- We promote transparency and accountability in all aspects of financial management.
Here are examples of successful ICMA programs:
- ICMA developed an intensive certification program in municipal finance for Southeast Asian officials and delivered it via the World Bank's Global Development Learning Network, an interactive videoconferencing system. The objective of the training was to increase the capacity of local governments to secure bond financing necessary for infrastructure improvements. The five-module course covered (1) the operating budget; (2) capital planning and budgeting; (3) revenue generation; (4) accounting and reporting; and (5) creditworthiness and debt financing.
- Earlier, ICMA provided training on municipal bond financing to participants who accessed the session remotely from the Philippines (Manila), Malaysia (Kuala Lumpur), and Indonesia (Jakarta), utilizing the same distance learning facilities.
- ICMA is helping the World Bank and the Government of Tajikistan establish mid-term strategy and action plan to improve the performance of local governments and utilities in munical service delivery. Key components of the project are the creation of a Communal Services Development Fund to support infrastructure services and the development of a financial management system to ensure its effectiveness.
- In Lebanon, ICMA helped lay the groundwork for improved financial systems by preparing studies focusing on three key subject areas: (1) strengthening the municipal finance framework; (2) property tax modernization; and (3) assessing the Independent Municipal Fund. The project involved development of:
Municipal budgeting and accounting systems (including performance-based budgeting)
Financial management and reporting procedures
Personnel management systems
Property tax assessment methodologies
Property tax billing, collection, and monitoring systems
Improved municipal real property management
IT system development and expertise in hardware/software specification in support of all of the foregoing areas.
- In Mexico, Costa Rica, and Argentina, ICMA México-Latinoamérica assisted sub-national authorities in efforts to increase their ability to borrow at reasonable interest rates through the Regional Credit Rating Improvement program. Employing ICMA’s CityLinks™ model, municipal finance practitioners from U.S. jurisdictions helped these authorities review the factors that affect their creditworthiness and design plans for improvement.
- ICMA supported 13 municipalities in Guatemala as they implemented national-level integrated financial management and procurement systems—both of which improve transparency and accountability and foster citizen trust in government. As a subcontractor, ICMA’s role was to provide critical support at the national and local levels to strengthen local government financial management. Program accomplishments included:
Implementing the integrated financial management system and establishing internal audit units in the municipalities, many of which are isolated and have high indigenous populations and high poverty and illiteracy rates
Designing and implementing a national-level certification program for municipal financial managers
Completing studies on the impact of the USAID-funded civil and tax registry systems implemented in previous programs, with recommendations for revisions and future replication
Developing guides to improving municipal financial administration and transparency, establishing municipal internal audit units, and generating own-source revenue in municipalities.
- As a result of ICMA’s work on the Core Management and Budget Skills for Indonesian Local Governments program, more than 40 local governments began implementing performance-based budgets and holding regular public hearings to engage citizens in participatory budget processes.
- Through the Transparent Accountable Local Governance program, ICMA provided technical assistance to 35 local governments in Sri Lanka to help them improve and manage their financial systems, including budget development, financial reporting and reconciliation, improvement of internal control, and cash management techniques for greater transparency and effectiveness.
- A partnership with Rayong, Thailand, resulted in the development of a transparent five-year budgeting tool, as well as improved sound financial management practices and increased citizen involvement in the budget process.
Taxation and Revenue Generation
ICMA has successfully introduced reforms at the local level that have resulted in substantial revenue enhancement. These have included improvements in property tax collection; systems for registering, licensing, and taxing businesses; systems for establishing or updating property values; and the introduction of e-governance tools that enable the efficient collection of other municipal fees and charges.
- As a member of the implementation team for the Regional Afghan Municipalities Program for Urban Populations (RAMP UP) ICMA helped municipalities design systems that include property registration, business registration and licensing, establishing or updating property values, and setting tax rates. Combined with education of citizens and business owners about the importance of registration and payment of taxes, and improved collection methods, these changes resulted in increased revenues to support municipal services.
- ICMA's USAID-funded Commercialization of Afghanistan Water and Sanitation Activity (CAWSA) program worked with local units of the national water utility to help them increase cost recovery through a combination of operating efficiencies and revenue generation. CAWSA municipalities improved their billing and collection practices by hiring interns to read meters, deliver bills, and enforce collection of delinquent accounts, resulting in increased revenues and conversion of illegal connections to official ones. And the utilities extended their distribution networks to cover more households from which fees could be collected.
- The Lebanon Municipal Finance Studies project cited above provided a roadmap for modernization of the property tax in Lebanon. Recommendations from the study were later incorporated into proposed legislation in the country.
- As a member of the implementation team for the Local Governance Support Program in Indonesia, ICMA provided training and other assistance in finance and budgeting to local governments in nine provinces. One of the focus areas was building sustainable revenue streams.
- As part of a comprehensive post-tsunami recovery and disaster mitigation plan to improve public infrastructure and basic services, ICMA worked with selected communities in India to strengthen municipal financial systems and improve the collection of property taxes and water user fees.
- ICMA implemented a CityLinks partnership with Ulaanbaatar, Mongolia, that included the design of transparent fee-collecting and revenue-tracking systems conforming to international accounting standards.
- ICMA worked in Montenegro to design and implement a market-based, locally administered property tax in an inclusive program that included the development of real estate tax software (consisting of a land registry database and bill-generating modules), dissemination of best practices, and training on mass property assessment.