COLOMBIA: Financing Infrastructure for Urban Redevelopment Sub-National Technical Assistance Program - Phase II

Attracting private financing in urban infrastructure is a challenge. One solution is to “unlock” urban land values—such as by selling public lands to capture the gains in value created by investment in infrastructure. As such, the government of Colombia wants to foster the use of land-value capture (LVC) instruments, including innovations such as Tax Increment Financing (TIF) that would leverage private finance for public infrastructure and urban redevelopment projects. 

PPIAF’s SNTA provided technical assistance to assess the feasibility of a TIF operation for urban redevelopment in Colombia. The study shed light on real estate dynamics, possible structuring and going-to-market options, as well as legislative and regulatory gaps in the country for the successful implementation of a TIF instrument.  

At a legislative level, the national government needed to assess the gaps to the current land value capture framework and recommendations on needed reforms that wouldn’t hinder municipal efforts to secure future revenues beyond the medium term and current debt ceiling for sub-sovereigns, and without the need for authorization from the Ministry of Finance. In parallel, the project would evaluate the best financing structure of a potential TIF district combining alternative instruments such as pay-as-you-go financing, developer financing, or a mix of the two with the municipal financing framework that was currently in place.  

The government conducted a comprehensive review of the LVC legal framework, which to date only a few cities have taken advantage of. For instance, results from a study conducted by the Ministry of Housing, Cities and Territory showed that in 2014, only nine out of the 72 largest municipalities reported to have captured some of the increments in land and property values utilizing the existing LVC framework. Bogota, who leads the implementation of LVC instruments, reported to have captured increments in property values from close to 3,000 properties in the 2004–2012 period, while almost 12,000 properties were affected by land-use changes. 

This SNTA-supported activity is expected to bring in private sector financing and expertise in the structuring of a 400-block innovation district development. If successful, this would be the first ever TIF operation conducted outside the United States and the objective is to replicate this work in at least one additional municipality in Colombia, placing SNTA as a frontrunner in promoting the sustainable use of innovative financial instruments to spur development.  

In a fiscally constrained global context where investors are cautious about infrastructure investments, and with decreasing sources of revenues, this activity played a timely and important role in helping cities leverage their existing assets, infrastructure plans, and innovative sources of financing to meet their goals.