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

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

Effects Inneficient Land Use Less investments and construction Reduced land income

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

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

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

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

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

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

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?

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

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)

Data requirements and calculation Basic precondition – having a infrastructure development plan! FeePrimary criterionSecondary criterion Water supplyDiameter of the connectionArea of the facility SewerageDiameter of the connectionArea of the facility Waste disposalArea of the facilityPurpose of the facility District heatingArea of the facilityCubic volume of the facility Gas distributionDiameter of the connectionPurpose of the facility TransportationProjected trafficArea of the facility Public areasArea of the facilityArea of land

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

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