Tehran Municipality Plans to Diversify Revenue Sources

Tehran Municipality will broaden its revenue sources, the capital city’s deputy mayor for planning and urban development said.

Under the new municipal management that took office in August, Hojjatollah Mirzaei added that TM’s budget management will not surrender to “financial slackness” next year (to start March 2018) by relying on unsustainable revenues, such as construction taxes and duties—the simplest way to raise money, but will rely on five new financial resources.

“These new resources include taxes on municipal services and facilities, state funding, foreign investment and finance deals, value added tax and private sector investment in economically feasible projects,” the deputy mayor was quoted as saying by the Persian daily Donya-e-Eqtesad.

Referring to the consequences of overreliance on construction revenues, the municipal official said Tehran’s current fiscal budget took a body blow with the financial meltdown in the housing sector.  

“Such revenues accounted for as much as 80% of the budget. In fact, the greater share of the city’s budget comes from taxes and duties paid by 200,000 people active in the construction sector,” he said.

Back in October, the municipality released the balance sheet for the first six months of the current year, according to which 79% of TM revenues have unsustainable sources.

Mirzaei noted that the municipality aims to employ common approaches to generate revenues–those which are being adopted in other countries such as property taxes–and to halt the dependency of the city’s budget on unsustainable resources.

“Tehran Municipality will only finance projects that reduce traffic, environmental pollution and social inequality, facilitate water supply and contribute to the process of making Tehran a smart city. Projects that worsen traffic like building new highways won’t receive a budgetary allocation next year,” he said.

“The city will continue to fund development projects that have made over 50% physical progress and their completion would help reduce traffic and environmental pollution.”

Noting that the municipality will employ contractionary and more conservative approaches in drafting the next year’s budget, Mirzaei said an amendment will be proposed to Tehran City Council regarding the current fiscal budget.

From the municipality’s annual budget of $4.5 billion in the first six months of the current Iranian year, revenues reached $1.7 billion or 72% of the H1 projected budget. As for the expenditures in the same period, the figure exceeded revenues by $75 million. Considering that 28% of the revenues were not realized, revenues covered 80% of the expenditures.

TM said almost $253 million of its revenues came from issuing construction permits for banks and organizations to whom the municipally is indebted. The rest of the revenues went for paying wages to TM workers and maintenance of the city–$253 million and $101.6 million, respectively.

Put together, the gloomy figures give a bitter message: The municipality, compared to the past few years, has fewer sources of income to carry out its tasks. What is further cause for concern is that many unexpected expenditures, such as those associated with heavy snowfall, flooding and the like, fall in the second half of the calendar year.

Back in September, the newly-appointed Tehran Mayor Mohammad Ali Najafi said the municipality owes 300 trillion rials ($7.31 billion), mostly to banks and the army of contractors working for it.

“The outstanding debt is 1.7 times more than the municipality’s total budget for the current fiscal year (March 2017-18),” he said.

Noting that Tehran needs to tap into private sector potential and foreign investments, Najafi said, “Some 72% of the projects in Tehran need further funding even after they are completed. The municipality’s local resources are unlikely to be adequate to conduct and complete these projects.”