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Tag Archives | Parking

To keep the money where you raise it

Tax Increment Financing is amongst the many public financing methods that the cities in India need to explore further.

The City of Chicago, the third biggest city in United Sates of America, evidently requires a large revenue source to maintain the needs of a growing population of two million plus. It is in this attempt that there are various innovative financing methods used by the Chicago government to raise revenue. One of the methods that stands out is the Tax Increment Financing (TIF) method. It refers to a funding tool that allows the extra property tax to be used in the region itself.

TIF is generally used for a given region, whereby the taxes collected in the region are called base revenue and any amount collected above the base revenue is captured by the region itself. The taxes above the base revenue, incremental revenue, is used for economic development in the region earmarked under the TIF. It is usually spent on the public work or to attract private businesses in the region. TIF is usually used in regions that are declared “underdeveloped” and are considered to be dependent on the public expenditure for growth.

This method of funding have been supported by experts in urban planning like Donald C Shoup. The basic argument being that the citizens tend to pay more taxes if they can see tangible changes from their contributions. In his paper The High Cost of Free Parking, Shoup makes the case that the curb side parking revenue could be used to fund the Business Improvement Districts just like TIF is used for redevelopment projects from the increases in property tax revenues. TIF, therefore, acts as a pool of fund that can be used by the given region to attract business and economic opportunities based on the contributions by the population directly benefitting from it.

Although it may sound like a good idea, TIF has been severely criticised for being biased towards the business units and acting like a subsidy for the rich businesses. In their attempt to attract higher private investments, the regions tends to give large subsidies to the businesses. Thereby, diverging money away from the basic requirements like improving and maintaining infrastructure in the region.

The other major complaint regarding TIF is that it leads to development in the regions that do not need it as much. As TIF is collected from the funding made over and above the basic property tax, it is inevitable that regions with high income populations tends to collect higher funding as compared to poorer neighbourhood. Hence, TIF tends to limits the distribution of resources in a given region rather than help distribute it.

Having said that, TIF is an interesting tool that can be used to raise the local revenue and to incentivise higher tax collection in various wards in the city. The ward members can be made responsible for the use of the amount raised. The representatives being elected from each ward  will ensure that the members are directly accountable to the local population.

With Indian cities still struggling to find sources to raise revenue, TIF is at least a good option to explore.

Image: http://indypolitics.org/wp-content/uploads/2016/02/TIFS.jpg

Devika Kher is the Program Manger of Takshashila’s Graduate Certificate in Public Policy course and a policy analyst at Takshashila Institution. Her twitter handle is @DevikaKher.

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A Socialist Justification for Market Pricing

As a socialist, welfare State, India needs to obtain the best price for distributing public property like roads

 

Car Parking

The average Indian is extremely reluctant to pay for parking. He will prefer parking for free on public roads rather than pay for a spot in a parking lot or mall, even if this involves the inconvenience of parking much further away, and navigating poorly lit and constructed pavements. It is a failure of the State that they are allowed to do this. Roads are public property or part of the public wealth and as such, are meant for the use and enjoyment of all, not just those who can afford their own private transport. There are many reasons to levy a fee on parking – as is the practice in many developed countries – some economic and others moral. While the one with the most popular appeal might be to reduce congestion on roads, the most important is that it is the constitutionally mandated duty of the State to do so. Article 39 of the Constitution of India (found in Part IV: Directive Principles of State Policy) declares that the State shall direct its policy towards securing:

(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good;

(c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment;

 The current free parking system clearly violates these two provisions as the failure to distribute the material resource (roads) for the common good has resulted in the concentration of wealth (with private car owners) to the common detriment (traffic congestion). However, Article 37 also states that even though the Directive Principles are “fundamental to governance” and are the “duty of the State to apply”, they are not enforceable by courts. But this issue has been circumnavigated by the Courts in cases questioning the validity of public tenders for material resources.

In Ram And Shyam Company vs State Of Haryana And Ors, the Supreme Court held that because India is empowered to be a “Sovereign Socialist Secular Democratic Republic” by the Constitution, the property of the State is “socialist property” or community property and that every citizen has a vital interest in its effective use and legitimate disposal. The Court clearly differentiates between private property and public property and holds that India’s status as a welfare State means that the latter must be dealt with differently for the following reasons:

Public Property is held in trust

Owners of private property have complete freedom in how to dispose their property as long as they remain within the law. They may gift the property or sell it at a fraction of its full value if they so wish to. But the Court held that a “welfare State as the owner of the public property has no such freedom while disposing of the public property. A welfare State exists for the largest good of the largest number, more so when it proclaims to be a socialist State dedicated to the eradication of poverty…. public property has to be dealt with for public purpose and in public interest” It went on to argue that because the State is merely holding public property in trust for the benefit of the community it must ensure that its disposal is free of any favouritism or untowardness. The Court quoted from one of its previous cases, Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir and Anr where it had held that “the Government cannot act in a manner which would benefit a private party at the cost of the State; such an action would be both unreasonable and contrary to public interest.”

There are already a number of judgments limiting the arbitrariness of government actions. When they are read together with the statements delivered by the Supreme Court in the Ram and Shyam case, they essentially make the provisions of Article 39 enforceable in Indian Courts. While the Court may have substituted “material resources” and “common good/detriment” with “public property” and “public interest”, the intention remains unchanged; the State must act for the largest good of the largest number, and must do so in a fair manner.

Disposal of Public Property should be done at Market Price

The Court also interpreted the phrase “public purpose” as a validation of market pricing for public property. It held that if public property was disposed of at the highest possible price, the State would be “able to expand its beneficial activities by the availability of larger funds”. As such, its intention must always be “to obtain the best available price while disposing of its property.” At this point, readers will probably be wondering how this reconciles with the Indian government’s perennial preference for subsidies as a welfare mechanism. The Court did, in fact, take this into account and held that “socialist property may be disposed at a price lower than the market price or even for a token price to achieve some defined constitutionally recognised public purpose, one such being to achieve the goals set out in Part IV of the Constitution.” But even this limitation has the following proviso: “where disposal is for augmentation of revenue and nothing else, the State is under an obligation to secure the best market price available in a market economy”

It has already been established that the “constitutionally recognised purpose” under the Directive Principles, if anything, requires that parking on public property should be charged at the market price. The current framework allows the rich to enjoy public wealth at the expense of those less privileged. Even a relatively small parking charge would go a long way in rectifying this situation. Take Bangalore for example, instituting a simple parking fee of Rs. 7 per hour could yield as much as Rs. 4 lakh per hour for the State exchequer. Such revenue would help finance urban infrastructure projects and result in immediate benefits for payees of the fee.

As India continues to grow and more people migrate to cities, it is imperative that the government gets its act together and charge urban space at a premium. A fear of the negative repercussions from the rich and privileged is insufficient reason for the State to shy away from instituting parking fees. The Constitution requires it, the Courts expect it and the people need it; the onus of establishing is now on the government.

Madhav Chandavarkar is a Research Associate with Takshashila Institution and can be found on Twitter on his handle @MadChap88.

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