1. Financing Smart and Sustainable Cities
Hamid Rashid, Ph.D.
Chief, Development Policy and Strategy
United Nations Department of Economic and Social Affairs, New York
This does not represent the views of the UN and/or its Member States

2. Outline A smart and sustainable city Externalities
Smart finance for a smart city
Why land value tax?
Policy considerations
This does not represent the views of the UN and/or its Member States

3. A smart and sustainable city
Balanced growth – economic sustainability
A positive-sum game
Wealth, income and consumption inequality
Access to services – social sustainability
Health, educational and transportation services
Special needs of children, elderly, disabled
Environmental sustainability
Mitigating pollution
Adapting to climate change
Technology keeps pace with human needs
A sustainable city is a smart city
This does not represent the views of the UN and/or its Member States

4. Externalities
Cities are confronting challenges that are national, regional or even global in scale
Policy externalities
Macroeconomic policies
Credit policies
Social policies
Environmental externalities
Pollution
Rapid technological change
But cities have limited policy independence and only few instruments
Smart cities must use these instruments wisely
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5. Financing Challenges
Cities host 53% of world population but typically control less than 20% of tax revenue
Depend on transfers
Even in the United States with a decentralized structure, nearly 40% of city revenue comes from state and federal government
Large mismatch between responsibilities and finance
Economic dependence constraints the capacities of cities to design and implement smart policies
Even when cities are able to tax, they rely on few sources of revenue, which are highly pro-cyclical
Property tax
Sales tax
Fees for public services
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6. Cities keep growing…
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7. Local Government revenue shares and sources
Share of revenues collected at local levels are too small to finance the needs of smart cities
Cities are too dependent on grants and transfers
Smart cities need alternative and more efficient revenue source
This does not represent the views of the UN or its member states.

8. Smart Financing Most of these taxes are inefficient and distortionary
Local taxes are inadequate to finance massive needs of cities
A city’s biggest asset is its land, which makes a city a city
Land value is determined by city level decisions, hence endogenous
Land value tax (LVT) can kill many birds with one stone
Least distortionary
Cannot be hidden
LVT taxes “undeserved gains” of landowners
Prevents asset price and credit bubbles
Removes dis-incentive of property development
An eco-tax to encourage more efficient use of land
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9. Why land value tax?
“Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains - and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived,” Winston Churchill
This does not represent the views of the UN or its member states.

10. Policy considerations
Cities need sustainable source of finance to be smart and sustainable
Central government transfers do not always allow cities to take smart decisions
Transfer are often conditional and targeted
Transfers can be volatile
Land value tax can be a critical source of revenue for cities to
Invest in infrastructure
Expand access to services
Prevent real estate and credit bubbles
Reduce wealth and income inequality
This does not represent the views of the UN and/or its Member States

11. Thank You