January 2018

Maimunah Al SharifCities create wealth and opportunities. They are drivers of economic and social development. They possess huge untapped economic potential that can and should be leveraged to create more wealth and economic opportunities for all. This requires good urban planning and effective legal and regulatory frameworks. It also requires strategies, plans and models that stimulate locally driven economic growth, including through the utilization of local assets, opportunities and exploitation of local potential.

Cities also face huge challenges. The biggest challenge urban authorities in developing countries are facing is the increasing gap between availability of financial resources and municipal expenditure needs. This fiscal gap is growing because of the rapid growth of urban population. It is creating an ever-growing demand for services, new utilities, maintenance, upkeep, and constant infrastructure renovations.

Most cities largely depend on revenue derived from property taxation and other service charges while other and more lucrative sources of revenue, such as income tax, sales tax, value-added tax and business tax, are controlled by the central governments. Where local authorities are deriving revenues from property taxes and service charges, meaningful tax increases are sometimes refused or delayed by central governments for fear of eroding political support among the urban populace. In other words, many central governments continue to refuse to pay the political and financial costs associated with the decentralization of roles and responsibilities by the central governments to lower levels of government.

The New Urban Agenda adopted by the UN member states in 2016 emphasizes the need for allocating adequate financial resources for the promotion of sustainable cities. Cities and towns in developing countries should make use of both tax and non-tax revenues. Adequacy of own revenues is the key to a city’s improved ability to deliver necessary public goods and services as well as to promote accountability of local officials to their citizens.

This publication draws on the expertise of many public, private, and multilateral institutions. City leaders are encouraged to use this publication as a handbook on local government financial and fiscal systems.

Executive Director, Ms. Maimunah Al Sharif
United Nations Human Settlements Programme, UN-Habitat


Preface by Dr. Clos

July 2017

Dr. Joan ClosThe rapid growth of cities across the globe, and cities’ essential role as drivers of economic development, require that city leaders from both the public and private sectors come together in the financing, design, and implementation of urban policies that ensure sustainable and inclusive urbanization. Providing city leaders with adequate financing mechanisms and frameworks that t the economic, social, and regulatory context is the foundation on which city leaders will achieve the goals of the New Urban Agenda.

A study on financing sustainable urbanization cannot come at a better moment as world leaders are discussing the New Urban Agenda that will be adopted at Habitat III in Quito. The New Urban Agenda is an action-oriented plan that aims at effectively addressing the complex challenges of urbanization, including its financing. It is a set of five strategies consisting of National Urban Policies, Urban Legislation, Urban Planning and Design, Planned City Extensions, and Financing Urbanization. The Habitat III process offers an exceptional opportunity to build a new model of urban development promoting equity, welfare, and shared prosperity.

Finance for City Leaders presents an up-to-date, comprehensive, and in-depth analysis of the challenges posed by rapid urbanization and the various financing tools municipalities have at their disposal. By providing city leaders with a wide array of financing solutions that emphasize sustainability, inclusion, and financial autonomy, this publication contributes to the growing conversation on how cities can look inward to finance major capital expenditures, infrastructure maintenance and operation, and public services.

It is essential that the new approach to urbanization put forth at Habitat III rises to the challenge presented by changing urban dynamics. It is with enormous pride and a united voice that the United Nations Human Settlements Programme (UN-Habitat) presents Finance for City Leaders—a landmark publication that draws on the combined expertise of over 30 contributing authors from more than 15 public, private, and multilateral institutions all working towards equipping cities with the tools they need to build and sustain urban prosperity.

Dr. Joan Clos
Secretary-General of Habitat III
Former Executive Director, UN-Habitat