International Conference on Financing Municipalities & Sub-National Governments Washington D.C. Sept Oct. 1, 2004 M unicipal F inance inJORDAN Presented By: Yousef Batshon Ministry of Planning and International Cooperation The Hashemite Kingdom of Jordan

Financial Capabilities of The Municipalities Main Source of Income is the Central Government, –6% of collected taxes on petrol products and road transport duties & building and land property taxes. –Municipal share are transferred to their account at the CVDB. Self-generated income is very low, except for the Greater Amman Municipality, Municipalities are granted long term Loans from CVDB to cover costs of urban services to meet the basic needs of growing population.

Government’s Efforts to Financially Support Municipalities  In 1951 The Economic Development Fund was established for the purpose of financing municipalities' projects.  In 1955 The Municipalities Credit Fund was established for providing loans for municipalities, and in 1966 it became an independent corporation.  In 1979 the Cities and Villages Development Bank (CVDB) was established to provide Financing for the Municipalities and gradually took on the role of providing assistance to Municipalities in the technical, administrative and financial fields in addition to the provision of loans to finance Infrastructure & Productive Projects.

The Cities and Villages Development Bank (CVDB) Objectives Provide Financing for Local Government to carry out infrastructure Projects & self generating productive projects. Assist Local Government in defining the priority of its productive Projects according to its Feasibility. Provide Training for the Municipality personnel. Authorized only to deal with Municipalities.

Development of CVDB Capital YearInstitutionCapital JD’ The Economic Development Fund The Municipal Credit Fund The Municipal Credit Fund (independent) The Cities and Villages Development Bank The Cities and Villages Development Bank The Cities and Villages Development Bank The Cities and Villages Development Bank 50000

Sources of Funds JD’ Million Capital and Reserves JD 58 Foreign Loans JD 2 Deposits and other accounts JD 19 Total JD 79 The Banks Capital was recently raised from JD 25 Million to JD 50 Million in order to cater for the Municipalities needs especially after the Merger of Municipalities.

Types of Projects Financed By CVDB InfrastructureProductive Roads / Side Walks..Commercial Markets and Vegetable Markets Public parks and sport centers Electricity and lightingSlaughterhouses and Cold Stores Civil works equipment Solid waste equipmentIndustrial and Handicraft Areas Land acquisition CemeteriesOffice Buildings Municipality buildings and libraries Parking Lots

CVDB Credit Strategy Infrastructure Projects Interest at 5.0 % p.a., with a maturity period of 12 years including 2 years grace Productive Projects Interest at 6% p.a., with a maturity of 12 years and including 2 years grace Since 1979, CVDB, has awarded Loans To municipalities &local councils Totaling to JD 201 Million distributed as follows:  JD Million as Infrastructure or Service Projects (86%) JD 27.6 Million as Productive Projects (14%)

CVDB Efforts in Financing Productive Projects The Bank encouraged Productive Loans to provide a stream of self generated income for the Municipalities. The results of the majority of these Productive Projects Loans were actually disappointing due to the following Reasons: Lack of efficient management Lack of proper studies Projections provided by municipalities did not fully materialize. Weak control and supervision during construction. Problems in collecting the revenues (rents..etc.) from tenants due to social limitations.

Finance, supervise, and follow-up on infrastructure, social housing, and revenue generating projects of municipalities and joint service Councils. Receive and manage deposits of local councils and other public institutions. Provide local councils with technical assistance and training. Administer and guarantee loans to local councils. Provide equity participation in local revenue generating projects. Undertake economic, financial, and technical evaluation of projects financed by the bank. Bank’s Goals

Training activities The Bank's Law requires the Bank to provide necessary technical assistance to local councils and municipalities including training of their personnel. Actions performed by the Bank in this regard: A committee was established including members from CVDB and the Ministry of Municipal Affairs (MoMA) to coordinate and plan training requirements, Three training centers were established, one in each of the North, Center, and the South regions, Training was carried out to Council members and municipal employees, In 2003 and in order to facilitate the training efforts in the south region, three centers were opened one in each of Karak, Tafileh and Maan,

Reasons that caused the deterioration in the financial status of municipalities High indebtedness since total loans reached JD 65.0 Million (US $ 93.0 Million), Inadequate collection of municipal fees which are due (JD 28 Million or about US $ 35 Million end of 1999), Drop in the revenues from productive projects (self generating projects) due to weak management, Unnecessary expansion in zoned areas resulting in excessive cost needed for land acquisition for services mainly roads ( about JD 15 Million or about US $ 35.o Million), Increase in administration costs mostly due to over employment (salaries exceeding 50% of total). Rescheduling of loans resulted in an increase in loan service cost and this produced the opposite result. The large number of municipalities resulted in high operating costs.

Municipal Revenues

Table 1: Municipal Finance Tables

Actions Taken by Government to improve the financial Situation Merging of several municipalities into one large municipality, hence, reducing the number from 327 to 99 municipality, Restructuring of municipalities, Training of staff, Raising the share of municipalities in the fuel tax to 6%, Allocating JD 8.5 Million for restructuring, Improving Budgeting procedures, Stopping unneeded new appointments.

CVDB Role in Restructuring Reduction of the interests on loans. Study the financial situation of the municipalities and prepare remedy plans, Opening new branches, Introducing an MIS system, Training of municipalities staff, Providing credit needed (JD 6 Million), Transforming all overdrawn amounts to loans.

Results of the Restructuring Process Improvement of the revenues from fuel tax by about 100 % from 2000 to 2003, Increase in collection of internal revenues by 40%, Increase in Capital Budget, Reduction of the Salaries share to the total expenditure, Improve solvency.

Government Support to the Municipalities Several Programs were provided to upgrade Municipal Infrastructure; PROGRAM Amount (JD’ Million) Community Infrastructure Project 30.7 Social and Economic Productivity Program 2.7 Social and Economic Enhancement Program 2.9 Total Government Support 36.0

PRESENT STATUS  Many Municipalities still face Financial difficulties,  Few Municipalities could be considered insolvent,  Need for reform in Municipal Finance,  Need for reform in the CVDB Role.

Proposed Regional and Municipal Development Project The World Bank is now in the process of identifying a project to support the Municipalities through identifying development projects to be financed from a Bank Loan and grants from other donors. A PHRD grant was obtained through the World Bank to carry out the studies needed for this purpose.

Thank You

The Actual Financial Statement for the year’s end ( ) (in thousand JD)