Land Value Capture for Infrastructure Financing

By Abhishek Das

The concept of Land Value Capture is gaining significance as governments across the world are looking for sustainable modes for financing infrastructure projects. The basic principle behind Land Value Capture is that legitimately created value belongs to its creator. So, if it is evident that there is a rise in the value of immovable properties,due to infrastructure investment by government, the government has the right to capture this increased value.

The requirement of government investment in infrastructure development is rising steadily.More so,in developing countries, which are experiencing massive urban expansion. In the case of India, the budget outlay for infrastructure for the financial year 2016–17 was 2200 billion rupees ($32 billion). The projects include construction of new airports, metro rails and expansion of road networks. This will result in the escalation of land prices in the vicinity of these projects. At present, private developers make use of the benefits of land value increment. The urban local bodies in India are yet to capture this rise in land value.

Land value capture is done in two steps:

• Value creation (and)
• Value recovery

Betterment taxes, land pooling, sale of development rights, land readjustment and formation of special assessment districts are some of these practises. The success of the system is dependent on three stages of implementation.

• Identification of the benefactor
• Quantification of the increase in property value (and)
• Collection of the increased value (or a part of the value)

The city of Bogota in Columbia has been successfully implementing Contribucion de Valorizacion – a form of betterment taxation –for almost a century now. Many of the infrastructure projects in the city are financed by this revenue. Mass Transit Railway Corporation (MTRC) of Hong Kong has also implemented the LVC concept successfully. MTRC operates without government subsidy and is highly profitable. Around 80 per cent of the total income of MTRC come from property business.

In Gujarat, betterment tax can be collected by the Gujarat Town Planning Scheme if there is an increment in land value after implementing Town planning Scheme in an area. But this provision in not utilised and no such tax is collected. The local administration of some Indian cities increased the stamp duty to capture the addition in land value. For example, in the case of Nagpur Metro, an additional stamp duty of one percent is to be levied for 25 years on all property transactions. The problem here is that the additional stamp duty falls on the entire residents of Nagpur, whereas,people who have property near the metro corridors are the only benefactors. The Delhi Development Authority (DDA) has prepared a land-pooling scheme, which was approved by the Ministry of Urban Development in 2015.But DDA is yet to implement the scheme.

The urban local bodies in India find it difficult to implement LVC mechanisms because of the lack of capacity to do so. Development activities in Indian cities are carried out by different development authorities of central and state governments. For large projects, such as metro rails, special bodies are created.These special bodies do not have the power to impose tax on land, and often do not coordinate with the urban local bodies. Consecutively, the urban local bodies do not capture the additional land value because the project is not implemented by them. Even if the urban local bodies attempt to do so, the fundamental idea of LVC is questioned, because it is not the developer entity that captures the benefits of the development. What is the solution to this dilemma? The solution is to make the urban local bodies capable of implementing the infrastructure projects. Empower them so that they can implement financing mechanisms and strategies to capture the increment in land value.

Abhishek Das is Research Associate at CPPR- Centre for Urban Studies. Views expressed by the author is personal and does not represent that of CPPR.

The fakeness (stupidity?) of the Vyttila junction traffic arrangement

By D Dhanuraj*

In the last few weeks, experiments with the Vyttila junction traffic arrangement have grown to the level of utter chaos and stupidity. It is no surprise as the busiest junction in Kerala never received the attention it deserves. Often, it tends to fall in prey for the ad-hoc arrangements suggested by non- experts reflecting the total failure of the administrative system. With the experiments continue, the citizens have a tough time crossing the Vyttila junction.

I am not sure how these latest changes have been arrived at. Media reports that a sitting judge has a say in the most recent changes. It exposes the lack of robust mechanisms and capacity build up for a major element like public transport in a city like Kochi. How come a judge or a police officer could usurp the role of a public transport expert? How do they arrive at the decision and what data they have to conclude? Did they conduct any simulation exercises before they implemented their decision? As far as I know about the city traffic and transport management system, it lacks the authentic data and updated information till recently. Even the biggest investments in Kochi’s public transport sector lacked the updated information on the commuters’ volume and their whereabouts. Again, it is not surprising as there too many cooks to spoil the party.

I would not have been alive to write this blog if I didn’t have that miraculous escape at the U-Turn (on the way from Elamkulam to Tripunithura) on the other day. The issue at the U-Turn on the northern side of Vyttila is that it conjoins S A Road, Palarivattom – Thammanam road and Subhash Chandra Bose Road. U-turn, in fact, cramps the line traffic. On the southern side, U-Turn is ahead of the junction that gives enough lead time for the traffic from Tripunithura to ease down. But there again, the lack of turning radius and curvature stops the vehicles from Aroor side abruptly that adds chaos to the whole lane traffic from there onwards heading Palarivattom. Now the situation is grimmer with the vehicles are caught up in the traffic jam starting from Thycoodam underpass onwards. Assess the oil burnt out in the vehicles joining from the different routes compared to the one-way traffic in the earlier version. Who cares and who is benefited?

The other impact of the traffic jam at the Vyttila junction are the implications it has on the other roads connecting Vyttila. Held up in a traffic jam at Vyttila, both private and public vehicles tend to increase their speed once they emerge out of the Kochi city to compensate the time they have already in the traffic jam. It leads to increase in the accidents and casualties in the other outskirts of Kochi. It is common practice in this part of the world to alter the traffic management arrangements every time when a new police officer or a district collector assumes office in the city. They fail to understand that even altering or shifting busy traffic from one end of the road to another end will have socio-economic impacts. Fake arrangements will not stand the test of the times and more importantly will make the commuters unsafe on the roads.

*D Dhanuraj is Chairman of CPPR. Views expressed by the authors are personal and does not represent that of CPPR

"Demystify the RBI" Dr D Subbarao speaking at CPPR's 12th Quarterly Lecture

The Paradise Road

By Ananthitha A*

 

Bad roads, bad roads, bad roads everywhere. Out of the 15 km from my home to office, at least 2 km is fully damaged with gutters, potholes and cracks, 12 km is partially damaged and the rest 1 km an assurance to the believe the myth that, ‘roads in Kerala can be in good condition’.

Who is responsible for the horrible state of our roads?

They blame many. They blame the rain. They say, the torrential rains in Kerala weaken the bond between the tar/bitumen and stone. They say the rains hinder the repair works also and thus the roads are all and more damaged by rains.

They blame the trees on road sides. To add to the cruelties of this villain rain, the drainage less roads have big trees on roadsides at many places. The dripping rainwater from trees is poison to the tar, killing it drop by drop!

They blame the sun. They say, the scorching heat of the sun melt the tar and ruin our roads.

They blame the wind. They say, the winds blow away the stones leaving the sticky tar.

They blame the speeding vehicles and their rubber tyres. They blame the unruly drivers.

Oh God! So many to be blamed.

So, how can we protect and save our roads? You mean, we should avoid all the culprits from road? Yes. Keep away, the rain, the sun, the winds, the trees and most importantly, the vehicles with their drivers from our delicate roads.  Then what are the roads meant for?

That’s true. Then is tar/bitumen the culprit? “During the early and mid-20th century when town gas was produced, coal tar was a readily available by product and extensively used as the binder for road aggregates”, says Wikipedia. So, isn’t it time to move ahead?

It is heard that in Netherlands, there are roads made for absorbing the rainwater which thus allows for recharging the groundwater. So rain should not be a villain to our roads too!

Many cities in the developed world encourage the planting of trees along public streets.  Healthy tree-lined streets are a key component of the ‘Urban Forest’, states the ‘Urban Forest Plan’ of San Francisco.  ‘The Urban Forest Plan’ provides a strategy to create a more sustainable urban forest and a truly green city. So street trees should not be villains to our roads too!

“A solar roadway is a modular system of specially engineered solar panels that can be walked and driven upon. Missouri's Department of Transportation is aiming to install a test version of the startup's solar road tiles in a sidewalk at the Historic Route 66 Welcome Center in Conway”. How can we now call sun a villain to roads?

There are researches going on trying to understand whether, the road transport pressure can be used to generate electricity. Yes, the speed and brakes are not villains too.

So, what is our choice? To be part of the blame game and suffer silently/violently in these bad roads? Or start petitions in change.org asking Prime Minister Narendra Modi to start funding some road research in India? Or become Anniyan and solve all our road woes on our own?

 *Ananthitha A, Environmental Engineer, Ultra-Tech, Environmental Consultancy and Laboratory. Views expressed by the author is personal and does not reflect that of CPPR.

The Unsustainability of the Odd-Even Scheme

By Jayati Narain

Image 1: Delhi roads during rush hour traffic.

For the first 15 days of January 2016, Delhi roads have been undergoing what is globally known as road space rationing. Commonly referred to as the odd-even car scheme. This has been a drastic move by the AAP government to take action against the alarming pollution levels in the city.

The scheme states that on odd dates cars with license plate numbers ending in an odd digit may ply, and on even number dates cars with license plate numbers ending in an even digit may ply.  A number of details have been given as to how the scheme is to function, action against violators and those exempt from the scheme. The ultimate goal of the scheme is to reduce the total number of cars on the road, thus bringing down the pollution level.

While the scheme has been criticized from many quarters, many citizens of Delhi have welcomed the move. Much of the acceptance around the scheme has been along the lines of ‘at least something is being done.’ Such a statement is extremely telling of the urgency felt in needing to address the air pollution and the complete lack of action by previous governments. However, the relief over action being taken is clouding the most important question of how successful such a scheme will be.

Unfortunately based on the current situation the long-term success of such a move seems rather doubtful. This can be said looking at the causes of pollution in Delhi, the lack of a supporting public a number of ways in which the scheme can be circumvented.

Several studies have shown that the air pollution in Delhi is caused by a number of factors, not just from the emissions from private vehicles. Larger contributing factors are from the industries and brick kilns surrounding the city. Along with the burning of wood fires in the winter. Given the level of pollution in Delhi, even making a dent in a single contributing factor seems worthwhile. In the short term this may be the case, but if the larger causes are not addressed pollution levels in Delhi will only continue to rise.

Image 2: Delhi roads during the odd even scheme

More then effecting the pollution level, such a move has had a noticeable impact on congestion level in the city. Another much needed and welcome change for Delhi traffic. But, as the development of wider roads and flyovers has shown, more road space leads to more cars. Those willing to invest in a second car (as many seem to be), or add to growing license plate black market (again, as many seem to be), will now prefer to be on the road. This is also linked to a lack of investment in public transport.

This is probably the biggest problem with the odd-even scheme. A 15 day scheme like this is a great way of pushing people to use public transport and experience an alternative mode of transport, they may not have use regularly. However, little has been done in this regard. The government has been promoting carpooling, ride share apps and has added school buses to the regular DTC fleet (possible, due to schools being on Winter Break). Compared to many cities in India, Delhi has a good public transport system. But the current metro and bus infrastructure was inadequate even before this scheme was started. With increased ridership in the next 15 days, this will only be further exaggerated. The need for investment in public transport and pedestrian infrastructure is crucial to the development of any city. Such infrastructure has benefits beyond pollution and congestion reduction.

Much of the discussion surrounding the success of the scheme, including that by the Delhi government, is about compliance rather than long-term change. There has been a call for a shift in the attitude and behaviour of Delhi-wallahs. The effect of appeals such as these will have little impact, as the behaviour of the Delhi-wallah’s is not very different from that of citizens of any other city. People will continue to do what makes the most sense for them. While this may come of as selfish, it is also rational. If behaviour changes are required they should be brought about by systemic and structural changes, rather simply emotional appeals. While these appeals may work in the short term, their long-term effects are negligible. Structural changes force a change in behavior simply because it is more rational. Thus, if a car driver is inconvenienced due to lack of road space or congestion taxes and public transport is a viable option, it is a perfectly rational decision to switch over. Unfortunately given our particular level of development, the use of public transport is tied up with status and class. The only way to over come this is that cars must be inconvenienced. While the odd even scheme achieves this, it does little to project public transport as a viable option.

The ultimate success of the scheme should be dependent on people continuing to use public transport even after the 15^th of January. Unfortunately given the current capacity of public transport and the state of its surrounding infrastructure, it is unlikely many will continue to use it, unless they are already frequent users.

The major problem with the odd even scheme is not in its implementation or if people will comply, it is simply that it is short sighted. Even if it is able to bring down pollution level in during the fifteen day trial period, it cannot be indefinitely extended due to its unsustainability.

While it is good that some action is being taken, this does not mean that we shouldn’t be critical of it. Such a scheme does have the possibility of being a success, but only if the investment is made in improving the city’s public transport services and infrastructure.

*The author is the managing associate of CPPR- Centre for Urban Studies. Views are personal.

Image 1- PTI

Image 2- Trina Shankar