Chapter 5: Non-Tax Own-Source Municipal Revenues

Lourdes Germán
Lourdes Germán is director of international and institute-wide initiatives at the Lincoln Institute of Land Policy.
Elizabeth Glass
Elizabeth Glass is a consultant for the Urban Economy Branch of the United Nations Human Settlements Programme.


The revenue available to local governments is a key determinant of a city’s ability to provide the services citizens need and to meet expenditure requirements. In cases where revenue is constrained, infrastructure investments often suffer, and government services are reduced.1 Consequently, the need to diversify, grow, and mobilize revenues is one of the most pressing challenges city leaders face in various regions of the developed and developing world. Building a solid revenue base depends on a number of factors, including empowering city leaders to grow and diversify their own-source revenue pool to complement external revenue flows (e.g., intergovernmental transfers) over which local government officials lack direct control. It also requires enabling city leaders to mobilize own-source revenues, after they are raised, by harnessing financial tools that can support their strategic priorities (e.g., land-based financing instruments, debt instruments, and public–private partner-ships, among others).

This chapter examines how city leaders can mobilize non-tax own-source revenues to help establish a strong foundation for fiscal governance.2 It focuses on a wide variety of non-tax own-source revenues, ranging from charges and fees directly related to citizens’ use of a service (e.g., consumption of water, removal of trash, etc.), to charges levied on the value or physical attributes of the property being serviced, in order to capture some of the benefits resulting from public investments in land (e.g., betterments).3 To that end, the chapter begins with a typology and overview of the various sources and types of non-tax own-source revenues used by cities across the world. It then examines the global variation in revenue reliance at the subnational government level.

It is clear that reliance on non-tax own-source revenues, particularly charges and fees, is not the only path to sound fiscal stewardship. This chapter advances the principle that a combination of all municipal revenue sources is important for achieving strong municipal fiscal health. The chapter identifies select key considerations that can be instructive to government officials who seek to evolve and reform the non-tax own-source revenue components within their jurisdiction. The aim is to highlight the merit of empowering city leaders with strategies that help them harness non-tax own-source revenues appropriately for the maximum benefit of their municipalities.

To guide the reader who seeks a bridge from theory to practice, this chapter includes illustrative case studies of jurisdictions that have successfully grown and mobilized non-tax own-source revenues to support different strategic priorities.

  • 1. UN-Habitat, Guide to Municipal Finance (Nairobi, UN-Habitat, 2009). Available from books/guide-to-municipal-finance/.
  • 2. This chapter’s focus is limited to examining non-tax own-source revenues. As such, this chapter does not cover the other important classes of revenues that municipal governments rely on, including intergovernmental transfers, or own-source revenues derived via taxation (which are dis-cussed in Chapter 2). A discussion of strategies to broaden municipal revenues also appears in Chapter 2.
  • 3. Roy W. Bahl and Johannes F. Linn, Governing and Financing Cities in the Developing World (Cambridge, Mass., Lincoln Institute of Land Policy, 2014). Available from….

The revenue available to local governments is a key determinant of a city’s ability to provide the services citizens need and to meet expenditure requirements.

Overview of the types of non-tax own-source revenues

Non-tax own-source revenues are often raised from charges, fees, fines, and other special assessments related to a variety of government services and assets. Examples include rent collected from government-owned property, charges for goods and services, business licence fees, and marriage licence fees, to name only a few. While it is impossible to classify all the types of non-tax own-source revenues that exist across the developed and developing world, Table 14 presents a selection of differ-ent revenue types, their general characteristics, and representative jurisdictional examples.

  • 4. This table reflects materials from the following sources: R. M. Bird and F. Vaillancourt, eds., Perspectives on Fiscal Federalism (Washington, D.C., World Bank, 2006); Roy W. Bahl and Johannes F. Linn, Governing and Financing Cities in Developing Countries (Cambridge, Mass., Lincoln Institute of Land Policy, 2013); Advisory Commission on Intergovernmental Relations, Local Revenue Diversification: User Charges (n.p., 1987); Arindam Das-Gupta, Non-Tax Revenues in Indian States: Principles and Case Studies (n.p., Asian Development Bank, 2005).
Select examples of government non-tax own-source revenues
Table 1

5    6    7    8    9    10    11    12

The autonomy to grow and mobilize the various classes of non-tax own-source revenues described in Table 1, and others, often depends upon a particular municipality’s experience with the twin processes of urbanization and fiscal decentralization. For instance, does the legal enabling framework authorize local governments to mobilize various types of non-tax own-source revenues? Where enabling authority is present, does the municipality have autonomy to implement, control, and manage the administration of the non-tax own-source revenue base? When a local government is tasked with new expenditure requirements, is there a parallel devolution of financial resources to support the expenditures via the mobilization of non-tax own-source revenues?13 Answers to these questions depend on the jurisdiction’s particular enabling legal framework, the political context, the structure of fiscal governance established vis-à-vis higher levels of government (e.g., national, state, and provincial), and the extent to which fiscal decentralization is in an ongoing and progressive state of reform. Additionally, jurisdictional size and composition may also be a factor that impacts own-source revenue mobilization and fiscal capacity. Commentators have observed that, in some instances, large cities and metropolitan areas often have greater fiscal capacity resulting from their ability to levy, collect, and administer own-source revenues to cover expenditure mandates.14

As a result, there is a wide range of variability across governments in the use of and reliance on non-tax own-source revenues (when compared with revenues raised by taxation and intergovernmental transfers), as illustrated in Figure A.

Source of subnational government revenues in OECD countries, 2012
Figure A

Evaluating non-tax own-source revenues

Each class and type of non-tax own-source revenues carries different strategic considerations that are important to evaluate when framing policy recommendations.15 At present, among the most widely used types are user charges and fees related to government services.16 User charges are most appropriate for public goods and services such as public transit, water, sanitation, tolls (as described in Case Study 1), and others where the majority of the benefits of the particular good or service are confined to the consumer.17

Proponents of the “benefit principle” support the idea that a citizen who benefits from a government service should pay for it. Charges and fees are often determined based on the quantity consumed. This provides local governments an indication of service needs and therefore allows local officials to maximize efficiency by proactively matching supply and demand.18 Additionally, when effectively implemented, user charges and fees provide information to consumers about how much public goods and services cost, thereby enhancing the efficient allocation of services and achieving pricing transparency. This can produce an added benefit of boosting fiscal transparency and local government account-ability, ultimately resulting in more effective and responsive government entities.

However, an additional important consideration is the potential for charges and fees to disproportionately impact the citizens least able to pay, particularly low-income citizens.19 This concern is magnified in the context of essential government services, such as water, sewer, sanitation services, and others. This gives rise to the important question of whether the provision of these goods and services should have a redistributive focus, or whether it should instead be guided by cost-based principles (including marginal cost pricing and others focused on efficiency).20

Civic engagement dynamics can also potentially play a role in the success of non-tax own-source revenue frameworks that are reliant on charges and fees, particularly where there is a visible disagreement between governments and citizens with respect to the price citizens pay for public services. This dynamic can deter the establishment of a “users-pay” culture, which can be necessary for non-tax own-source revenue frameworks to succeed from an administrative and collections standpoint. This dynamic is particularly visible in the widespread resistance to the payment of user fees within the impoverished segments of some countries’ urban populations.21

The political climate surrounding a particular public-service pricing regime, as well as the regime’s perceived legitimacy, can also impact the strength of a charges and fees framework.22 In some jurisdictions, a user charge can help support services that would otherwise be financed in a general fund and shift the funding of those activities to a self-sup-porting enterprise fund. Scholars have commented on this phenomenon, observing that 

“municipalities facing financial and political obstacles often use the fee-supported service model for many of their public services outside of the tax-supported general fund services, because fee-supported services charge customers, not the community as a whole, and possibly generate profits. … Since a user charge is a market-like financing which shifts general fund activities to fee-supported enterprise fund activities, the usage of user fee-supported goods and services has become a popular strategic effort for cities.”23

Revenues generated from government-owned assets are another important, and often underutilized, source of non-tax own-source revenues—one that carries unique strategic considerations. While these revenues can be particularly useful for financing local infrastructure and other important investments, it is important to consider the revenue generation capacity of each asset.24 Equally important is the consideration of any constraints and of the sustain-ability corresponding to the asset, particularly where naturally occurring resources (oil, gas, minerals, etc.) are harvested.25

Some classes of non-tax own-source revenues from government-owned assets—such as PILOTs—may be limited if they can only be generated from certain discrete institutional actors. PILOTs, as noted in Table 1, have emerged as voluntary payments made by private non-profits and other tax-exempt entities. For municipalities that rely heavily on property taxes, or are working to strengthen their local property tax base, PILOTs may become an important source of non-tax revenue. In recent years, they have gained popularity in Canada and the United States, where several cities—including Boston, Philadelphia, Baltimore, and Pittsburgh—have begun collecting PILOTs. Given that PILOTs are voluntary, municipalities that collect PILOTs have developed a number of incentives to encourage non-profits and other tax-exempt entities to participate. For example, “non-profits may agree to make PILOTs because they realize that they share an interest in the fiscal health of the local government.”26 In other instances, non-profits agree to PILOTs because they depend on public goods and services and on the cooperation of municipal authorities in granting building permits and zoning changes. PILOTs thus constitute a new and potentially strong revenue stream from this discrete user base.27

Betterment levies, or special assessments, also harness the value of land as an asset, but the application of revenues resulting from such sources can carry some limitations. A typical betterment levy is imposed by a government on the owners of a select group of properties. It is used to either entirely or partially fund the cost of a specific improvement or service that benefits the public (generally) and confers a special benefit upon the owners of certain specific properties.28 The enabling legal framework in some jurisdictions—for example, Colombia— provides for the consideration of “benefit factors” when calculating and assessing the levy, and can include defining a “virtual area” and using select factors to determine which entities benefit within the designated physical area.

Public space in Medellin, Colombia

Developing a checklist of best practices for expanding and harnessing non-tax own-source revenues

As noted previously, city leaders’ ability to harness non-tax own-source revenues can depend on the enabling legal framework that establishes the system of fiscal governance; the degree of fiscal, administrative, and public sector decentralization; the political climate and history; and relations with higher levels of government. Accordingly, policy reform in this realm should begin with an evaluation of these elements to chart a tenable and politically feasible path forward. The following checklist can guide city leaders who are considering reform in a wide range of global socio-political contexts. It is followed by expanded recommendations and best practices related to each item.

  • First, determine the areas where policy reform is necessary. Focus on policies aimed at achieving revenue sufficiency, supporting the sound operations of government, and meeting citizen needs.
  • Second, evaluate how, and whether, policy reform can enhance the local government’s ability to use non-tax own-source revenues to help support infrastructure investments (which typically require large-scale capital raised via external financing mechanisms, including debt, land-based financing tools, and public– private partnerships).29
  • Third, create a technical roadmap to carry out the desired policy reforms.
  • Fourth, identify ways to build the local government’s technical capacity to implement the desired reforms, as well as future reforms.

First,  to  determine  the  areas  ripe  for  policy reform, a city leader must first clearly articulate the goals of reform (e.g., revenue sufficiency, supporting the sound operation of government, or meeting citizen needs) and assess the current framework. Next, city leaders should examine the current presence and function of each type of non-tax own-source revenue currently used by the municipal government. It may then be prudent to evaluate current and past trends in collection rates, and compare these with the costs of collecting each type of revenue, among other factors. This will assist in evaluating the extent to which the existing non-tax own-source revenue framework generates the funds necessary to finance service delivery and the day-to-day operations of government.

Key questions to ask in this regard include: Should user charges or benefit charges be structured to support cost recovery, especially in the cases of transportation and public utilities? Should certain user charges that form the financial backbone of public enterprises evolve to support the delivery of urban services on an area-wide basis? If so, this will require an understanding of current expenditure needs (relating to both capital and government operations) and forecasted needs (informed by projections of population growth, externalities, and other factors). This process can identify potential gaps in funding and also evaluate the efficiency of the current revenue collection system. This can be measured by a number of criteria, including “cost of collection” ratios that provide insight into how efficiently revenue is collected.30

Second, when evaluating the scope of reform, city leaders may want to consider how non-tax own-source revenues can enhance access to, and use of, financial instruments to fund major infrastructure investments. Many local governments cannot fund large infrastructure projects via “pay-as-you-go” funding from current revenues and must resort to loans, debt, public–private partnerships, or land-based financing instruments.31 As a result, a strong base of non-tax own-source revenues can position a municipal government to leverage several of these financial tools.

For example, a municipality can expand the base of capital for water and sewer projects via issuance of municipal revenue bonds support-ed by local water and sewer fees.32 Municipal revenue bonds are bonds funded from a specific revenue source. They allow municipalities to dedicate discrete streams of revenues to support multi-year borrowings that produce capital for infrastructure investment.33 To pay principal and interest on the bonds, such borrowings require a pledge of specific assessments and charges— in this case, those related to water and sewer services.

It is important to note that debt finance is not an additional source of revenue––it is a mechanism for raising large-scale capital by dedicating current and future revenues to debt service payments.34 The local government seeking to expand use of debt instruments should consider reforms to the pricing regime of the dedicated revenue source pledged to support revenue bonds (i.e., water fee, sewer assessments, tolls, etc.) and ensure that such revenue streams are not inhibited by any superior claims on the assessments, as well as other factors.35 (See Case Study 2 for an illustration of the intersection of these principles in the context of municipal bonds.)

Third, once priority areas for reform have been identified, city leaders should attempt to create the technical roadmap that will guide the implementation of the desired reforms. The path to reform begins by answering certain foundational questions that include: What changes are necessary to the legal framework governing the jurisdiction? Is a constitutional or statutory change required? To support reform, should the level of decentralization present in the jurisdiction be re-examined or changed? What role do higher-level governments play in ensuring reform is successful? Is the political will to implement reform present?

Finally, an important component of the implementation process is supporting city leaders charged with administering new and existing programs or policies by providing avenues for technical capacity building. Significant impediments to the harnessing of non-tax own-source revenues can include the burden and costs of administration, collection, and enforcement of the user fees (or related fines), particularly where institution - al capacity is low and relevant training for local officials charged with implementation is absent.36 Areas of capacity building can include reforms to improve revenue administration, assessment, and collection; and introducing means-testing to make revenue generation more progressive, while retaining a high level of revenues. An integrated plan for technical capacity building that is aligned with broader financial management principles can help local government officials steward resources effectively so they can meet their short- and long-term financial and operational obligations—and do so with accountability.37

  • 29. Roy W. Bahl and Johannes F. Linn, Governing and Financing Cities in the Developing World (Cambridge, Mass., Lincoln Institute of Land Policy, 2014), p. 36. Available from….
  • 30. OECD, Government at a Glance 2013 (Paris, 2013). The report observes that the “cost of collection” ratio is a standard measure of efficiency often adopted by revenue bodies, comparing the annual costs of administration with the total revenue collected over the fiscal year. A downward trend of the ratio can constitute, all other things equal, evidence of a reduction in relative costs (improved efficiency) or improved tax compliance (improved effectiveness).
  • 31. For an expanded discussion of the role non-tax own-source revenues can play in supporting public–private partnerships, please see Chapter 7.
  • 32. Consider, for example, the revenue bond issuances to support water and sewer infrastructure by the New York City Municipal Water Finance Authority, Massachusetts Water Resources Authority, or the Metropolitan Water District Authority of Southern California, whose information are presented in the United States Electronic Municipal Marketplace (
  • 33. Municipal Securities Rulemaking Board, Market Education Center. Available from
  • 34. United Nations Conference on Housing and Sustainable Urban Development, Municipal Finance and Local Fiscal Systems (n.p., Habitat III, 2016). Available from… fiscal%20systems.pdf.
  • 35. It is important to distinguish revenue bonds from general obligation bonds that are issued by a government unit and are payable from its general funds. Most general obligation bonds are secured by the full faith and credit of the issuer, depending on applicable law. Municipal Securities Rulemaking Board, Market Education Center. Available from
  • 36. United Nations Conference on Housing and Sustain-able Urban Development, Municipal Finance and Local Fiscal Systems (n.p., Habitat III, 2016). Available from… fiscal%20systems.pdf.
  • 37. United Nations Conference on Housing and Sustainable Urban Development, Municipal Finance and Local Fiscal Systems (n.p., Habitat III, 2016). Available from… fiscal%20systems.pdf.


The various types of non-tax own-source revenues have their respective pros and cons. However, they can form an important part of the municipal revenue base and enhance the provision and quality of public goods and services. They can also provide an important diversification of the revenue base, contributing to improved municipal fiscal health and creating a foundation for fiscal autonomy. Irrespective of the type of non-tax own-source revenue deployed, be it a user charge or rent collected from a local government–owned asset, municipalities must have the appropriate legal, regulatory, and administrative framework in place to enable revenue mobilization.

To maximize sustainability and ensure prolonged success, it is particularly important that the administrative framework for each non-tax own-source revenue stream takes into account the specific strategic considerations unique to each type of revenue. Furthermore, it is important to acknowledge that not all non-tax own-source revenues are sustainable streams of municipal revenue, particularly those emanating from government assets (e.g., rent collected from natural resource extraction). Harmful externalities can result if such considerations are not properly evaluated and balanced. Additionally, in the context of user charges and fees, establishing pricing regimes in ways that balance the considerations discussed earlier in this chapter, including the needs of the population and cost of service delivery, is essential to maximize efficiency and the likelihood of a strong “users-pay” culture.

Where these and other conditions are present, it is also imperative that municipal leaders have appropriate technical capacity to manage and mobilize the non-tax own-source revenue instruments available to them, in accordance with the prevailing laws and regulations. A promising area for policy reform is enhancing this technical capacity so as to improve administration, collection, efficiency, and account-ability, in alignment with the municipality’s goals.

Case study
Tolling system in South Africa

The growing popularity of user fees, specifically tolling systems, reflects efforts to broaden non-tax revenue bases. Tolling systems are now in use in countries such as Lesotho, Mozambique, and the United States. These systems require users of roads to pay tolls (fees) in exchange for the infrastructure’s use. This can be an effective means of mobilizing non-tax own-source revenues to finance both the maintenance and construction of local and regional transportation infrastructure. Moreover, tolling systems and user charges in general have the added bonus of pushing consumers towards the optimal level of consumption. This in turn provides the necessary information governments need to make efficient decisions regard-ing the provision of transportation infrastructure.38

The history of toll roads in South Africa dates as far back as 1700, when the governor of the Cape Colony collected tolls to fund road repairs.

Currently, toll roads in South Africa are run by a state agency called the South African National Roads Agency Limited (SANRAL). SANRAL is responsible for managing the Republic of South Africa’s road system and taking charge of the development, maintenance, and rehabilitation of national roads. However, SANRAL does not operate tollgates; tolls are collected by contracted private companies that have appropriate technology, infrastructure, and human capital to operate tollgates on SANRAL’s behalf.

In total, there are 51 tollgates located through-out South Africa, which, since 2015, have generated enough revenue to finance the construction of 584 kilometres of additional lanes and 47 new bridges, widen 134 existing bridge structures, and provide 186 kilometres of lighting and 127 kilometres of concrete median barriers. Overall more than 64 per cent of the country’s road infrastructure has been renovated solely using toll funds, and toll funds have entirely funded the construction of new roads.

Despite public protests, in 2011 SANRAL introduced an urban tolling system in major cities such as Johannesburg and Cape Town. At the time, many claimed that urban tolling would significantly increase the cost of transportation in cities, particularly affecting lower- and middle-income families. However, in Johannes-burg, for instance, urban tolling has not considerably increased the cost of transportation. Commuters who travel by public transport are exempt from tolls, provided such vehicles have an account with SANRAL. In contrast, those with private vehicles pay an affordable capped monthly rate, with light vehicle owners paying just US$0.02 per kilometre. Urban tolls have also generally reduced travel times and congestion, resulting in lowered greenhouse gas emissions and substantial savings on vehicle running costs; the tolling system in Johannesburg has cut time on the road by as much as 50 per cent. Furthermore, urban tolls have proven efficient, as only 17 per cent of the collected toll revenue goes towards collection costs. The remaining balance is allocated to the initial capital costs of road upgrades, road maintenance, interest payable on debt, and other operational costs.

Overall, the tolling system in South Africa is an effective source of non-tax own-source revenue and serves as a successful example of mobilizing such revenues to finance and maintain local and national infrastructure.

  • 38. R. M. Bird and E. Slack, “An Approach to Metropolitan Governance and Finance,” Environment and Planning C: Government and Policy, vol. 25, no. 5 (2007), pp. 729–755.
BRT station in Johannesburg, South Africa

Case study
Municipal bonds supported by non-tax own-source revenues

Cities face increasingly complex responsibilities, complicated by chronically insufficient funding to meet local needs.39 In Latin America, Africa, and the United States, municipal governments are using project revenue bonds and general obligation bonds with greater frequency as a source of infrastructure financing, particularly when private capital is needed to close multi-billion-dollar short-falls in spending for needed infrastructure.40 Debt financing is feasible only where municipalities have the ability to service their debt from own-source revenues in a sustainable manner and where a robust enabling regulatory framework for municipal borrowing is in place.41 The City of Dakar illustrates how one municipality adopted a comprehensive strategy to enhance its credit profile and build a sustainable revenue base that will position it to potentially leverage municipal securities to raise capital for infrastructure investment.

In 2011, the City of Dakar launched the Dakar Municipal Finance Program (DMFP) to begin to strategically position itself as a creditworthy issuer that could attract funding from investors in regional capital markets.42 Proceeds from municipal borrowing were expected to be in the range of approximately CFA20 billion/US$40 million, and would have enabled the municipality to finance a large market that would benefit the economically active poor.43 Specifically, the financing would provide for the relocation of city markets currently located in informal commerce zones, such as sidewalks and roadways, to a central market that will be constructed to accommodate and improve the livelihoods of approximately 3,000 vendors.44

To position itself to raise capital from investors, Dakar had to take several steps. In most African countries where subnational entities are allowed to borrow, they face significant challenges establishing creditworthiness due to limited cash flows, lack of debt management experience, and other factors.45 Dakar faced several challenges in this regard, including self-generated income and resources that were considered small, as well as a budget substantially dependent on a central government and limited technical capacity.46 From 2008 to 2012, the city increased its own revenues by almost 40 per cent, mostly from advertising billboard fees.47 The city accomplished this despite challenges posed by low levels of fiscal decentralization; the city had control over less than 10 per cent of its total revenues. The city also established a Department of Planning and Sustainable Development capable of demonstrating that Dakar had a credible development strategy.48 Additionally, the city augmented its technical capacity by partnering with a number of institutions—including The Bill and Melinda Gates Foundation (managed by the Cities Alliance Initiative), USAID, the Public-Private Infrastructure Advisory Facility (PPIAF), and the French Development Agency (AfD)—to create a comprehensive program that included rigorous fiscal training and that developed detailed assessments of potential investment projects.49 It also institutionalized a participatory process that gave voice to the urban poor population, a critically important user base of the project that was to be funded.50

Following a significant improvement in the city’s finances and fiscal management, the City of Dakar was awarded its first investment-grade credit rating of BBB+ in 2013 by Bloomfield Investment.51 Although an inaugural planned bond issue has not yet been brought to market, Dakar’s Municipal Finance Program demonstrates the importance of addressing institutional and structural issues that impact revenues and municipal fiscal health. It also highlights the importance of developing technical capacity programs to position cities to leverage their revenue base and to use financial instruments.52

A recent World Bank, AfD, and Cities Alliance report estimates Africa’s yearly municipal finance gap, an indicator of the magnitude of investment needed to sustain growth, is approximately US$25 billion, and estimates African local government investment capacity at only US$10 billion over 10 years.53 In this context, the City of Dakar’s approach to establishing a creditworthy profile, and to achieving revenue diversity to support future debt service, will likely be followed closely by cities in Africa and other developing regions that want to mobilize project revenue debt and similar financial instruments to raise scale capital from investors.54

A view of Dakar, Senegal