Reform of Land Development Fee in Serbia

1. Reform of Land Development Fee in Serbia Marko Paunović Center for Liberal-Democratic Studies

2. Current Status • Land development in Serbia is supposed to be financed through: • 1) construction land rent; • 2) construction land development fee; • 3) construction land use fee; • 4) other sources in accordance with the law • However, in practice, land development fee is the most important • Also, land development fee is used as an instrument of industrial and social policy – rates differ substantially, based on economic activity, many credits and exemptions

3. Effects • Inneficient Land Use • Less investments and construction • Reduced land income

4. Reasons for change • Fiscal decentralization initiatives • Land privatization/denationalization • Potential privatization of local utilities

5. Other systems • Croatia – very similar • Bulgaria – reliance to national transfers • USA – impact fee in 30 states • No adverse effects? • Cost based • More or less clear procedures • Strict earmarking

6. Principles of the future system • Economic Efficiency (efficient land use) • Transparency of the process and use of money • Fairness (no subsidization) • Investments and growth • Administrative Simplicity

7. Possible Options for land development financing – User Charge • potentially efficient – if in fact turned into an impact fee, • not fair – current users subsidize new users • not very transparent • seems good for growth, but only in the short run – in long run user charge is higher than necessary • difficult to implement efficiently • not possible to finance public goods

8. Possible Options for land development financing – Taxes • Inefficient – full marginal cost is not paid • Not very transparent – depends on the budget process and budget system • Unfair – not paid by the one who generates costs • Can be good for growth, but only in the short run – in the long run taxes are higher • Easy to implement

9. Possible Options for land development financing – Impact Fee • Efficient – marginal cost pricing • Transparent – all costs are listed • Fair – everyone pays their share of costs • Can impede growth in the short run • Relatively difficult to implement efficiently • OUR CHOICE

10. Issues for implementation • How many fees? • Strict earmarking or not? • Flexibility vs. transparency • Inter fee borrowing? • Who is the investor, utility or city government? • Fee differentiation and discounting? • Residential vs. Industrial vs. Commercial? • How to deal with EU and national transfers?

11. More detailed proposal • Earmarked, but not strictly earmarked (the existence of two separate funds – for public and private goods) • No return of unspent money • No transfer of right for development • Levied even when there is no planned need

12. Types of fee • Private goods • Water • Sewage and purification • Disposal of solid waste • District Heating • Gas • Public goods • Traffic (streets, pavements, storm water drainage, bridges, signs, greenery) • Public spaces (parks, squares, cemeteries)

13. Fee Primary criterion Secondary criterion Water supply Diameter of the connection Area of the facility Sewerage Diameter of the connection Area of the facility Waste disposal Area of the facility Purpose of the facility District heating Area of the facility Cubic volume of the facility Gas distribution Diameter of the connection Purpose of the facility Transportation Projected traffic Area of the facility Public areas Area of the facility Area of land Data requirements and calculation • Basic precondition – having a infrastructure development plan!

14. Exemptions and deductions • No discounts for reasons related to social or developmental policies • Direct subsidies, if needed

15. How to set a fee • Prepare projections of construction and increased demand • Prepare infrastructure projects and estimate costs • Choose indicators and prepare costs per indicator • Charge accordingly