Local Government

URBAN FINANCE (Financing The Cities)

If we explore cities in develop country not only has a good quality on environment but also wealthy.
They can build infrastructure and public services in a good quality.

The cities can develop by private and by government. New town such as Bumi Serpong Damai, Bintaro Jaya, Karawaci, Kota Wisata, and Kota Parahiyangan, those that developed by private. Eventhough the infrastructure to those area developed by government later or already exist. Or private already know that government have a policy to build a road, toll road or other infrastructure to prospective area. But of cause there is no formula that guarantees private response quickly to build an area. There some other aspect that consider before they take an action, such as market, location, design, financing, entrepreneurship, and time.

In the context of government, the ability of local government to develop their region can be we seen from their fiscal capacity. Each local government in Indonesia have different fiscal capacity (table 1). Under new law of decentralization in 2004, e.g revisition Law No. 22 of 1999 become Law No. 32 of 2004 and law No. 25 of 1999 become Law No. 33 of 2004, local government have greater autonomy and fiscal transfer from central government.

Budget that for developed infrastructure mostly come from intergovernmental transfer (revenue sharing, general and specific purpose grant). Others, fiscal transfer e.g. general purpose grant (DAU) mostly use for pay the local civil servant or in other word for manage the development. The system of intergovernmental transfers in Indonesia comprises three basic types of schemes: revenue sharing, a general purpose grant (DAU), and grants for specific purposes (DAK). The transfer system has seven main objectives:

• i). Address vertical fiscal imbalances between levels of government (revenue sharing, DAU);
• ii) Equalize regional government fiscal capacities to deliver services (DAU)
• iii) Encourage regional expenditure on national development priorities (DAK);
• iv) Promote the attainment of minimum infrastructure standards (DAK);
• v) Compensate for benefit/cost spillovers in priority areas (DAK);
• vi) Stimulate regional commitment (DAK); and
• vii) Stimulate revenue mobilization (revenue sharing, DAU, DAK).

Revenue Sharing: there are three types of revenue sharing mechanisms, one for property based taxes (PBB and BPHTB), one for natural resource revenues (forestry, mining, fisheries, oil, and gas) and one for the personal income tax. The revenue sharing schemes are intended to respond to regional aspirations for increased access to and control over revenues, assist in the stimulation of increased regional revenue mobilization and address vertical imbalances.

A general purpose grant (DAU) is intended to respond to regional aspirations for greater access to and more control over revenues. The DAU also addresses problems related to vertical imbalances and in intended to equalize fiscal capacities across regions to finance services.

A specific-Purpose Transfers (DAK) is intended to help fund important needs which cannot be estimated in a DAU formula and to assist with funding of expenditures which relate to national priorities. Now, there are 6 priorities e.g. education, health, infrastructure (road, irrigation, pipe water), agriculture, fishing and marine, government infrastructure, and environment.

The ability of local government in manage their annual budget is important. Eventhough they have a big fiscal capacity do not guarantees that budget optimally invest in infrastructure, community development or education and health. The obstacle such as delay of legalisation of APBD (annual budget), starting the project and low disbursement become the reality every year of some project that create some problem because the momentum gone. In this context time is important to be a success development or to be a plan works.