Local governments take out loans based on future tax revenue to fund infrastructure investments. The investments are repaid through increased property taxes and land sales/leases stemming from the investments. This allows public sector projects to be delivered through private sector financing models like tax increment financing, where bonds are issued and repaid with future tax revenue. However, there are challenges to consider such as private investors benefiting more than the public and justifying using tax money for projects that enrich private entities.
2. Taxes
Land Value Capture
Attracts (and
benefits) private
investors
Local government takes out loans based on future revenue
Investments repaid through the yield stemming from sales and leases, and increased property taxes
Public sector delivery Private sector delivery
Private sector
finance
Public sector
finance
Tax Increment
Financing
Financial
institutions
(pension funds,
insurances)
Local government issues state guaranteed bonds
Investment capital for infrastructure investments
Bonds are repaid with
future tax revenue
Public investments
attracts (and
benefits) private
investors
Luise Noring
3. Taxes
Land Value Capture
Attracts (and
benefits) private
investors
Local government takes out loans based on future revenue
Investments repaid through the yield stemming from sales and leases, and increased property taxes
Public sector delivery Private sector delivery
Private sector
finance
Public sector
finance
Tax Increment
Financing
Financial
institutions
(pension funds,
insurances)
Local government issues state guaranteed bonds
Investment capital for infrastructure investments
Bonds are repaid with
future tax revenue
Public investments
attracts (and
benefits) private
investors
Local government
owns the land
assets
Local government
owns the taxes
Luise Noring
4. Challenges with tax funded investments
1. Justifying public investments in markets that allow private investors
to reap the economic benefits of those investments
2. Using property tax revenue for development activities of a
neighborhood rather than alternative investments, such as in school
education
3. Spending public funds to repay the bonds, when the market defaults
4. Building a long-term mission, and creating transparent processes
and strong municipal oversight
Luise Noring
5. Differences in governance
Hamburg
Manchester
Pittsburgh
A fiscally strong city state engaging in
city projects through the creation of
publicly owned corporations
By privatizing and out-sourcing to
private businesses, public section was
faced with competition forcing them to
become more efficient
Pittsburgh has a fragmented
governance structure with no
metropolitan consolidation on cross -
city decisions and competencies.
City investments rely on a project-by-
project coordination
