How to finance public projects with private resources
There are different ways of financing urban projects in Mexico City, beyond capital from public resources.
Introduction:
An urban project is a process of intervention and management of a given space in the city in order to achieve a positive impact on those who inhabit it, and its financing can be obtained outside the direct capital from public resources.
However, the one that seems to me the most convenient and efficient is the one provided for in the Urban Development Law (Chapter V) as a product of the Urban Impact Study (Sections two, three, four and five).
This law obliges private developers to pay the Mayor's Office an amount up to 10% of the commercial value of their land in order to improve the immediate environment of the neighborhood where their property is built.
4 ways to finance a city project:
The main ways to finance a city project are:
1. Allocation of public resources.
2. PPP: public-private partnerships
3. Participatory budgeting
4. Private resources
1. Allocation of public resources
It’s the allocation of financial funds destined by the public authority to carry out city projects.
2. PPP/PATR: public-private partnerships / revocable temporary administrative permit.
These are associations dedicated to raising both public and private financial capital to carry out certain urban projects.
3. Participatory budgeting
These are financial funds obtained through the direct participation of citizens and are applied to carry out city improvements.
4. Private resources
These are resources from private builders obliged by law to pay up to 10% of the commercial value of their land to generate works with an impact on the city.
Where to obtain private resources for the generation of city projects.
By law, developers constructing buildings exceeding certain square meters of construction are obliged to pay up to 10% of the commercial value of their land.
However, it often happens that the developer pays this value to the central government by means of a transfer, and thus, the resource is lost without being able to be applied to a specific project.
How can a municipality finance public projects with private resources?
Each municipality can generate its own strategies for financing its projects, as long as the processes comply with transparency requirements.
In the case of city projects, this is done through the application of Article 122 of the Urban Development Law as a product of the urban impact study.
The main purpose of this article is to promote the ability of each local government to capture such resources to apply them in studies and projects of city transformation.
There is the possibility of inviting the taxpayer to apply such resources to a specific project through the figure of substitutive donation, included in the urban development law.
Which are the projects that have to pay urban improvements?
Office projects larger than 5 thousand meters and housing projects larger than 10 thousand meters are required to submit the Single Impact Study.
This study determines the urban improvement measures and thus determines the concrete actions that the project must comply with to mitigate the impacts.
Hence, developers prefer to deposit it to a central government account where the budget is allocated for another purpose.
How do I calculate the amount of urban improvement measures available in each municipality?
Each Mayor's Office is responsible for knowing what building permits are in force in the entity and, therefore, obtaining the amount of m2 of land under development and its commercial value.
From this data, the Mayors' Offices have the right to dispose of up to 10% and decide where and how to allocate the resources in agreement with the developer to generate local urban improvement projects.
Conclusion.
The transformation and improvement of the city is possible thanks to the financing mechanism described here, which allows any district of Mexico City to apply this legal method to generate sufficient funds and autonomously, and that can be used in strategic projects of substantial improvement in a specific place of the municipality.
In A-001 Taller de Arquitectura we have a specific area for the development of studies and urban projects. Our main project "Parque Rubén Darío" is an example of the application of this model with a successful result.
The purpose of this model of financing city projects is that the authorities manage to materialize political ideas through the renovation and good urban design of public space. Reach out, we are ready to start talking about your ideas.
Arch. Jorge Reich
A-001 Architecture Workshop
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