Uganda - Report on urban finance and management

Report No. 5322-UG Uganda Report on Urban Finance and Management September 6, 1985 Water Supply and Urban Development Division Eastern and Southern Africa Projects Department FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents (1983) Currency Unit: Uganda Shilling (USh) I USh US$ 0.003 310 UShs US$ 1.00 Weights and Measures All weights and measures are metric. Abbreviations used include: ha hectare km kilometer sq km square kilometer Abbreviations and Acronyms CDC Commonwealth Development Corporation DAPCB Departed Asians' Property Custodian Board DC District Commissioner EC European Community HFCU Housing Finance Company of Uganda IPA Institute of Public Administration KCC Kampala City Council LALF Local Authorities Loan Fund MHUD Ministry of Housing and Urban Development MLG Ministry of Local Government .-ow Ministry of Works MPED Ministry of Planning and Economic Development NHCC National Housing and Construction Corporation NWSC National Water and Sewerage Corporation RDC Reconstruction and Development Corporation UEB Uganda Electricity Board ULC Uganda Land Commission Fiscal Year Government: July 1 - June 30  FOR OFFICIAL U ONLY UGANDA REPORT ON URBAN FINANCE AND MANAGEMENT Table of Contents Page Introduction and Summary of Recommendations .... ...... i CHAPTER I: THE URBAN POLICY FR.AHEWORK . ..... . ................ .. . ....... 1 A. Urbanization Policy and the Recovery Program ............ 1 B. Public Control of Urbanization: Major Themes ........... 2 1. How Much Control? . .......................... 2 2. Who Should Control? ............................. ...... 3 3. Resource Generation and Cost Recovery ............... 4 C. Implications for Urban Strategies ............... ......... 5 D. Structure of the Report 5 CHAPTER II: THE FINANCING OF URBAN SERVICES ............. ............. 7 A. Revenue Structures and the Financing of Municipal Investments ..... .. - .. ........................ 7 1. Structure of Revenues and Collections ............... 7 2. Sources of Financing for Urban Services ............. 8 B. Major Issues ........ ...... ............................ 9 1. Local Revenues and Expenditures ...................... 10 2. Financial Management and Control .................... 13 3. Housing Finance .................................. 17 This report is based on the findings of a mission which visited Uganda in November 1983. Mission members were 0. Grimes and F. Johnson (Eastern and Southern Africa Water Supply and Urban Development Division) and A. Kennefick and V. Newcombe (consultants). The participation of Mr. Newcombe and of his associate C. Ruben was arranged by the UN Centre for Human Settlements (UNCHS), Nairobi. This document has a restricted distribution and may be used by recipients only in the perforrnance of their oflicial duties. Its contents may not otherwise be disclosed without World Bank authorization.  Page CHAPTER III: THE MANAGEMENT OF URBAN SERVICES ........................ 19 A. Strengthening Urban Management: Major Issues ........... 19 1. Organization o ................................ .... 0 ...... 19 2. Regulations and Standards ........................... 23 3. Capacity ... ........................................ 25 B. Strengthening Urban Management: Implementation ......o... 26 1. Municipal Services . *********. ...... see&. 27 2. Land .... .................... .......... ........ 29 3. Housing ............................................. 31 CHAPTER IV: RECOMMENDATIONS FOR IMPLEMENTATION ..... .................. 34 A. Immediate Action Program .... ......... .......... ...... 34 1. Local Government Financial Management ............... 35 2. Maintenance Equipment .. .... ...... ............. ...... 39 3. Training ................... e... ........................ 39 4. Regulations .............. - -.-........ -- ....... 39 5. Small Scale Brick Producers ......................... 41 B. Medium-Term Measures ................................... 41 1. Local Government Financial Management ............... 41 2. Local Government Administration ..................... 42 4. Land and Housing ..................... ... ... 43 ANNEXES Annex 1: Urban Population Trends ................................ 45 Annex 2: An Estimate of Income Distributions for Urban Areas ... 47 Annex 3: Revenue and Expenditure, Jinja Municipal Council, 1981-1984 ........ 50 Annex 4: Revenue and Expenditure, Entebbe Town Council, 1981-1984 ......... 51 Annex 5: Housing Finance Company of Uganda: History and Current Condition ....... 52 Annex 6: Summary of Urban Housing and Environmental Conditions, 1981 .... 56 Annex 7: Urban Management Training Requirements and Institutions .57 Annex 8: Selected Source List of Reports and Papers ............. 64  Page CHARTS Kampala City Council: Functional Organization .................. 66 Jinja Municipal Council: Functional Organization ........... .... 67 Entebbe Town Council: Functional Organization .................. 68 MAPS IBRD No. 18521: Uganda: Major Cities and Towns IBRD No. 18534: City of Kampala  Introduction and Summary of Recommendations Purpose of the Report a. For the foreseeable future, Uganda's macroeconomic strategy will continue to emphasize rehabilitation of the productive and foreign exchange-earning sectors. There can be little scope for meeting investment needs in non-priority sectors, either in the original Recovery Program (1982-84) or in the revised 1983-85 Program. The emphasis on direct production is clearly necessary until the restoration of the economy is further advanced. b. Awareness in the Government is growing, however, that the goals of the Recovery Program become jeopardized by breakdowns in essential support services such as water supply, road maintenance, and communications. Reliable supplies of water and electricity are critical aspects of the rehabilitation of key industries and the greater use of all industrial capacity. The maintenance of such infrastructure networks, once rehabilitated, is an equally critical element of economic recovery that reduces the need for future investments in infrastructure capacity. Since these services are typically provided in cities and towns, the attainment of Recovery Program objectives is linked to the effectiveness with which urban services are managed and financed. c. Better-managed cities can contribute to the recovery process by taking on financial and service burdens that the national budget is not able to assume. Since urban service improvements generally confer specific benefits on urban residents, there is a strong case for the cost of these improvements to be met from local rather than national resources. This in turn implies that local government authorities as well as urban residents themselves will have to bear a much greater share of the financing of such investments than at any time in the past. d. The purpose of this report is to suggest feasible ways of improving local government administration and finance. It proposes measures to strengthen the local revenue base so that urban authorities will become less dependent on transfers from the central government. It also suggests several means of building a more harmonious relationship between central and local governments, lessening the tensions that are now evident. Finally, it examines the effects such improvements would have on the provision of essential urban services, land and housing. Approach and Content e. Because the main focus is on urban administration, management, and finance, the report does not attempt comprehensive coverage of urbanization trends. It does not formulate or systematically review an urban investment program, for two reasons. First, although physical  -ii- investment needs are huge, the Recovery Program priorities suggest that large-scale investments of this kind should be deferred unless they can be shown to be fully in line with Program objectives. Second, even if it were decided to launch such investments now, most financial control and management procedures at both central and local levels are not yet up to the task. Hence, the lower priority now given to urban-related investments allows some time to correct the most serious deficiencies in urban finance and management, as a prerequisite to starting any major investments afterward. f. As the Recovery Program moves forward, local authorities will have increased revenue requirements to maintain existing and newly developed facilities. The local councils will also have to move toward greater financial self-sufficiency, depending less on block grants from the central government. In municipal and town councils the Graduated Tax, which is their main revenue source, will have to be greatly supplemented by other revenue sources. Among the most promising of these sources is market stall fees, which appear to be substantially below levels that demand would allow. The effectiveness of the present budgeting process for local authorities will also need improvement through training and staff development at both the council and central government levels. Particular attention will have to be given to budgeting and setting aside funds for capital loan repayments and for extensive maintenance programs. This will have to be done under the necessary conditions of rising salary costs and ongoing efforts to increase council revenues. g. Clarification, and in some cases redefinition, of the lines of responsibility between central and local authorities is critical for the management of urban services to become more effective. It is suggested that written regulations be put into effect to formalize informal procedures that are already in place, as well as to codify new working relationships that reserve key roles for both councils and central government agencies in the provision of services such as water and town planning. The report also recommends that a study be launched to clarify the functions of local and central authorities in the management of Kampala. h. Priorities for the training of staff for urban management need to be related to the most pressing Recovery Program objectives. Expatriate help would be beneficial in this respect, especially so in the areas of municipal finance and financial control. The key institution for this type of training is the Institute of Public Administration, whose staff need strengthening by expatriate teachers. The report recommends that new courses in quantity surveying and in teaching methods be offered at Uganda Technical College and at the National Teachers College respectively. It encourages greater support for the Survey Training School, and proposes strengthened programs of training for the Ministry of Housing and Urban Development and the Ministry of Local Government.  -iii- Summary of Recommendations i. The most urgent measures for improving urban finance and management constitute an Immediate Action Program. mhese measures include: a. Technical assistance, equipment, and materials for strengthening financial management in Kampala, Jinja, and Entebbe municipalities as well as other towns, and for improving the effectiveness of the Ministry of Local Government (ref. paras. 2.10-2.38) b. Provision of equipment and vehicles for Kampala City Council for adequate maintenance of roads; and tools, equipment, and buildings for Kampala and Jinja to rehabilitate vehicle maintenance facilities (para. 3.18) c. Written clarification of central and local government responsibilities and the roles of central authorities in the management of Kampala. For water supply/sewerage and town planning, redefinition of present arrangements to ensure an effective role for councils (paras. 3.4-3.10) d. Technical assistance, materials, and teacher training to strengthen training capabilities at the Institute of Public Administration, Uganda Technical College, National Teachers College, and the Survey Training School (paras. 3.20-3.23) e. Measures to simplify the regulations governing land servicing and house construction (paras. 3.14-3.16, 3.34) f. Encouragement of small and medium-scale brick producers (paras. 3.45-3.46). j. To build on the improvements resulting from the short-term action program, several critical measures need to be carried out over the medium term. This medium-term program consists of the following actions: a. Local government financial management - improved revenue collection systems at Kampala, Jinja, and Entebbe councils (paras. 2.24-2.30) - program for identifying and recording businesses for licensing purposes (paras. 2.24-2.30) - planning and initiation of a comprehensive property rate administration program (paras. 2.28-2.29) - assessment of capacity for capital investment through preparation of revenue forcasts and cash flow projections (paras. 2.15, 2.19, 2.21) 2.9) - implementation of a strategy for increasing public deposits and mortgage lending capacity at the Housing Finance Company of Uganda (para. 2.39-2.42) b. Local government administration - creation of a Traffic Management and Transport Planninkg  -iv- Section within the Kampala City Engineer's Department (para. 3.3) - review and implementation of proposals to legalize selected illegal markets (para. 3.30) - assessment of the feasibility of more private sector participation in solid waste management, especially in the central areas of Kampala (para. 3.29) c. Training - Establishment of a two-year higher diploma course in Settlement Development at Uganda Technical College (para. 4.21) - Creation of a one-year post-graduate course in Regional Development at Makerere University (para. 4.22) - Expansion of facilities to increase the output of artisans in the building trades (paras. 3.45-3.46). d. Land and Housing - Issuance of a policy statement on civil servant housing that would clarify the prospects for an overall reduction in housing subsidies and for moving to a system of housing allowances (paras. 3.41-3.42) - Research on the cost of local building materials and their implications for maintenance (paras. 3.44-3.46) - Preparation of an "Area Development Plan' for the Namuwongo/Wabigalo/Kisugu districts of Kampala (para. 3.43) - Preparation of a restructuring plan for the National Housing and Construction Corporation (para. 3.41) - Proposals for ensuring the timely development of "mailo" land to accommodate the expansion of built-up areas in the Kampala region (paras. 3.37-3.38). k. The measures listed above consititute a set of priority actions in urban management and finance in support of Recovery Program objectives. It is recommended that the Ministry of Planning and Economic Development (MPED), together with the Ministry of Housing and Urban Development (MEUD), the Ministry of Local Government (MLG), and the Kampala, Jinja, and Entebbe councils, take the lead in establishing an agenda for rapid implementation based on these measures. MPED is also well placed to secure Government approval of the priority measures and to seek financial help from outside donors. However, MHUD and the councils should also move forward with their available resources on the recommendations directly concerning them.  UGANDA REPORT ON URBAN FINANCE AND MANAGEMENT CHAPTER I: THE URBAN POLICY FRAMEWORK A. Urbanization Policy and the Recovery Program 1.1 Since civilian government was restored in 1979, Uganda's decimated physical and human resources have had to be devoted to restoring internal security and reviving the foreign exchange-earning sectors. Restoration of productive capacity in agriculture and other activities, promotion of exports, and greater fiscal discipline have necessarily been the main focus, of both the original Recovery Program (1982-84) and the revised Program issued in September 1983. Rehabilitation of housing and basic infrastructure could receive little attention. This conscious decision not to deal systematically with problems of city management and services until later also extended--justifiably-to the institutional and policy framework. Before local government policies and procedures could be made more effective, work procedures, salaries, and morale in national ministries and agencies had to be restored. 1.2 Awareness is growing, however, that postponement of the most urgent reforms in the way services in cities are provided and managed can prevent the goals of the Recovery Program from being reached. In the current Recovery Program social infrastructure comprises 20% of total investment planned for 1982-1985, compared with 15% in the original Program. Several major projects in the urban sector are underway or planned. These include the rehabilitation of Kampala City roads, financed by EC; the rehabilitation of war-damaged towns of Masaka, Mbarara, and Arua by the Reconstruction and Development Corporation (RDC); the rehabilitation of water supply systems in Kampala and in 6 other major towns; and urban water supply schemes for several secondary towns. It is increasingly realized that to strengthen the capacity of central but not local authorities to undertake these investments is to leave resources that are critically needed for economic recovery unproductive and unused. Well-managed cities contribute to recovery by meeting costs and taking on burdens that national agencies for the foreseeable future cannot be expected to assume. To achieve greater management effectiveness as well as lower costs of services, the central and local authorities which jointly manage these cities must pull together. 1.3 There is equal awareness that these concerns are immediate and practical. As shown in Table I below, the urban population grew at an explosive rate during the 1960s and even during the Amin years grew faster than the national average of 2.8%: Table 1 Urban Population, 1959-1980 Urban Growth Rate Census Population (million) since previous Year Total Urbar % Urban Census year 1959 6.5 0.3 4.8 - 1969 9.5 0.7 7.8 9.0 1980 12.6 1.1 8.7 4.0 Source: Ministry of Planning and Economic Development  - 2 - Urban growth since 1980 has probably averaged about 5%, still .ess than the combined rate of the last two decades. If internal security continues to improve, migration to the cities and towns can be expected to intensify. Even at 5%, however, the urban population will double in 15 years, and Kampala will have a populatlon of 1 million by the end of the century. 1.4 Large investments are being conceived and programmed for rehabilitation of the war-damaged towns of Masaka, Mbarara, and Arua; for reconstruction of decrepit infrastructure; and to meet housing backlogs. The first significant improvements in urban services in over a decade, in road rehabilitation for Kampala and in water supply and sanitation for seven towns, are being launched. As is widely acknowledged, however, the financial control and management procedures required to make these investments fully productive now must often be re-learned, when not reinvented. The fact that so little is working well at thp local level actually provides a good opportunity to look critically not only at the procedures themselves, but at the philosophy they reflect and the assumptions, often implicit, underlying them. The basic idea of this report is that through such a critical assessment, strategies for improved urban finance and administration can be devised and implemented in support of the goals of the Recovery Program. B. * bli,c Management of Urbanization: Major Themes How Much Control? 1.5 Uganda shares with all urbanizing countries the issue of how much government control over the urbanization process is desirable. Generally speaking, urban policies in Uganda over the past two decades have favored more rather than less public involvement. Local authorities and the National Housing and Construction Corporation (NHCC) have been given primary responsibility for putting up housing to meet the demands of urban families. Building and land use regulations set out in detail what is a legitimate construction technique and material and what is not. "Acceptable' (Grade I) construction is distinguished from 'temporarily acceptable" (Grade II) construction, and city and town councils take steps to hasten the conversion from Grade II to Grade I. Town plans include detailed descriptions of land uses and investment requirements for public infrastructure, which are reflected in Zoning Plans with the force of law. 1.6 It should be recognized that this relatively active role of government is partly unintended. Before the expulsion of Asians in 1972, the Kampala City Council (KCC) used private contractors, most of whom were Asians, to carry out its road maintenance and rehabilitation operations. With the collapse of this part of the construction sector since 1972, what little maintenance could be done has had to be performed directly by KCC through force account. Nevertheless, the prevailing trend has been to seek solutions to problems of urban management through publicly financed and implemented programs.  -3- 1.7 To be consistent with the Recovery Program, howeve.-, such solutions will require that government be a facilitator of private initiative much more frequently than an active participant. This sort of re-examination is already underway. As one example, discussions on future housing policies have emphasized the need to steer away from large-scale public construction toward more active private involvement in housing. The specific measures discussed include rehabilitation of the existing stock and the possibility of cash allowances for civil servants to find their own housing on the private market. This report argues that such measures move in the right direction, but should also be applied to building and land use standards, investment programming, and the regulatory environment. Who Should Control? 1.8 Public responsibility for urban programs, whatever is decided about how far this responsihility should extend, is shared between central and local governments. Historically in Uganda, the powers of local authorities have been defined in quite different ways ranging from a great deal of local sovereignty to very little. Before the Protectorate introduced standard systems and procedures over the whole territory of Uganda, local management of local affairs was virtually absolute. A critical concern of all governments since independence has been to find the right balance between local autonomy and central control, a process which is still far from complete. 1.9 Uganda has a local administration everywhere in the country and local governments in the largest cities and towns. This distinction between local administration and local government is of central importance. The basic unit of local administration in Uganda is the district, headed by the District Commissioner (DC). Whether for a well, a market, or police protection, residents of the district traditionally turn to the DC to get things done. Onto chis system has been, in a sense, grafted a structure of city, municipal, and town councils each consisting of a Council, a Mayor, Town Clerk, and town engineers, treasurers, medical officers, and other officials.l/ In law, the prerogatives and duties of councils are for the most part clearly defined. In practice, however, two key factors have combined to blur lines of responsibility, giving inconsistent and often conflicting signals about the pace at which the national government is allowing real autonomy and accountability to devolve upon local governments. First, financially the councils have been living a hand to mouth existence, unable to realize significant tax revenues from the economic base of the towns. Second, the mandate of the most important council (Kampala) is to a large extent duplicated by the responsiblilities that continue to be exercised since 1974 by the Kampala DC, whose geographical territory is identical to that of the KCC. Strategies for dealing with these two issues are presented in later chapters of the report. 1/ Town Boards, in the smallest urban centers, are one rung below the Town Councils in importance. They are not designated as -self-accounting," (i.e., with autonomous responsibilities), and so will not be a major focus of this report. Moreover, the term "councils' or "council governments- refers to the entire city or town government, not just to the members of the deliberative body.  -4- 1.10 The position taken in this report is that no major changes in the structure of central and local government responsibilities are necessary for the appropriate balance between central control and local autonomy to be struck. On paper, local governments have more powers ani duties than they have been able to exercise. In most cases the strategies recommended in the report involve enabling local governments to do what they are already legally empowered to do, within accepted limits set out by the central government. In other cases, described more fully in Chapter III, a clarification or redefinition of the boundary between central and local responsibility would make both levels of government more effective. Resource Generation and Cost Recovery 1.11 As the Recovery Program is carried out, councils in their efforts to improve their financial performance will have to ensure that planned investments remain within the limits of resource availability and that costs are recovered from those who benefit. At the same time as revenue requirements for new projects and for maintenance of existing facilities will increase, councils will have to move further toward financial self-sufficiency, depending less on block grants from the central government. 1.12 Part of this process will involve a reconsideration of pricing policies for publicly provided services, so that the prices paid more closely reflect the economic cost of providing the service. Land and housing are the two most important commodities in urban areas being acquired at prices essentially unrelated to their production cost. Government officials are well aware that public housing is rented at a fraction of the rents that are obtained on the private market, and that land leasehold rents as well as customary (-kibanja-) land rents often lie below market-clearing values. But they see no alternative if such goods and services are to be affordable. One way of resolving this service pricing dilemma is to question whether the service should be provided publicly at all, as is already being debated in the case of housing built by NHCC and KCC. Another, explored in greater detail in Chapter III, is to ensure that regulations governing service provision are flexible enough to allow for a range of acceptable alternatives rather than only one or two. 1.13 The need for more effective mechanisms of cost recovery arises not only from budget stringencies at the national and local levels, but from the nature of urban investments themselves. Such investments, especially improved water, drainage, and transport networks, play a role beyond the city boundaries in the support they give to productive activities elsewhere in the economy. However, they also confer specific beneflits on urban residents, particularly owners of the land or housing whose value has been increased by the investments. As a result, there is a strong case for these residents, rather than all taxpayers in the country, paying most or all of the cost of providing the service.  -5- 1.14 For city and town councils, achieving cost recovery objectives will require much improved performance in all revenue categories, with the rate tax on real property being especially critical as the major source of council revenue. This in turn requires improvements in procedures for real property valuation, records management, and assessments as well as collectious. It also implies that urban services will be governed by the same pricing and cost recovery features whether they are managed by local authorities or by national ministries. C. Implications for Urban Strategies 1.15 Much attention has been devoted at the technical level since 1979 to the question of how to improve the functioning of towns and town governments, even though the decision makers have not given this question high priority. Statements of policy direction have been prepared in housing and solid waste management, and policy alternatives in most other fields of urban investment have been intensively discussed. This has produced wide recognition of the range of policies that could be applied, and also of policy instruments that have been successfully applied elsewhere. What is lacking is a sense of priorities. 1.16 For this reason the report focuses primarily on what should be done first. It does not argue that a comprehensive strategy should be put in place immediately to deal with all problems of urban growth, finance, and administration. Long descriptions of deficiencies in equipment, staffing, or transport will not be found in the report. Such deficiencies have been well documented by the public agencies themselves (see Annex 8, No. 10). Moreover, the object is not to encourage an attempt to return to a golden age- when equipment was more ple-ntiful. The report neither accepts the present nor proposes a reiurn to the past. Instead it builds on the discussions now underway to offer suggestions on how the capacity of both central and local governments to manage the urban economy can be improved. Some measures are especially urgent, and constitute an Immediate Action Program. Others may be dealt with more gradually, and comprise recommendations for the improvement of urban management and productivity over the medium term. 1.17 Because good intergovernmental relations are critical to the success of any urban strategy, the institutional framerork proposed involves a sharing of central and local responsibility for almost all urban investments. To anticipate one example discussed in Chapter III, urban water supply was the responsibility of city and town councils prior to 1972, and has been with the National Water And Sewerage Corporation (NWSC) since then. The report maintains that a redefinition of responsibilities which reserves roles for both the councils and NWSC will have a higher payoff in effective and appropriate water supplies than if full responsibility were given to either alone. D. Structure of the Report 1.18 Major constraints on the financing of urban services and housing are described in Chapter II. The main issues are presented, together with  -6- suggestions for a strategy to improve local government finance. In a similar manner, Chapter III presents the principal issues of organization, procedures, and capacity facing urban authorities in the provision of serviced land and housing and the maintenance of existing facilities. Training needs for tecbnicians and managers are presented and an assessment made of the capacity of local training institutions to respond. Finally, the elements of the recommended strategy, both imediate and medium-term, are described in detail in Chapter IV.  - 7 - CHAPTER II: TEE FINANCING OF URBAN SERVIC(S A. Revenue Structures and the Ftnancing of Municipal Investuents 2.1 Local governments in Uganda are divided into urban authorities and town boards. Urban authorities are generally self accounting", in that financially they are supposed to be self-sufficient and operate with their own budgets. Urban authorities comprise one city council (Kampala), nine municipal councils, and thirty town councils, ten of which are self-accounting. These council distinctions tend to reflect differences in council size, financial resources, and need for central budget support. There are sixteen town boards, which administer very small towns financed by the central government through an "administrative center' structure. _ Structure of Revenues and Collections 2.2 Local government revenues are derived from the following sources, and are credited to a general municipal fund: Local Taxation a. Property taxes (referred to as property rates or assessment rates) b. Graduated local income tax payments by individuals (referred to as the Graduated Personal Tax, GPT, or more commonly, the Graduated Tax). Fees, Charges, and Other Local Receipts c. Licenses, permits, fees and fines d. Rents from land leased out by councils e. Public market rents and dues f. Interest on investments g. Gifts Gr.mats h. Block grants from the central government. 2.3 Urban authority revenues are viewed in three categories for planning and budgeting purposes: regular cash receipts; balancing revenues; and re-charged or recovered costs. The first two categories usually constitute almost all of a council's revenues. Regular cash receipts are the fixed statutory revenues over which a council has little control, and which do not vary appreciably. The Graduated Tax, license fees and market rents are the principal regular cash receipts. For planning purposes these receipts establish a basic working balance for a 1/ The basic legal framework for the financial management of city, municipal, and town councils is set out in the Urban Authorities Act (1958), chapter 27. As used in this report, -urban authorities", -local authorities," and 'local governments- refer interchangeably to city, municipal, and town council administrations.  - 8 - fiscal year. Property rates and central government block grants, on the other hand, are not related to any specific service and hence are regarded as "balancing- revenues. That is, they are subject to variation by a council or the central government to meet the overall annual budget requirements of a council. Municipal budgets are supposed to be prepared at the council level, for review and approval by the Ministry of Local Government (MLG), to ensure that the budgets are reasonable and that local and national priorities are consistent. In practice, however budget preparation and review procedures are in disorder. 2.4 The large majority of local revenues have traditionally come from the property rate, tne Graduated Tax and central government block grants. The significance of each of these revenue sources to individual councils has depended mainly on two factors. First, the size of the employed population within a council's boundaries affects the amount of Graduated Tax revenue. Second, the extent of infrastructure developxent affects the amount of the property rate revenue. Hence, the major beneficiaries of these two sources of local taxes have been Kampala City Council and the municipal councils of Jinja, Mbale and Masaka (in that approximate order). Also, the dependence on central government block grants to balance urban authority budgets has been highest with the town councils, followed by the municipal councils and then by. Kampala City Council. 2.5 Collection methods differ from one kind of tax to another, and depend partly on the population makeup of individual councils. Three basic approaches are used: a. Taxpayers remit an assessed levy directly to a council office. This approach is most common for property rate payments, license fee payments, and Graduated Tax pay- ments by self-employed individuals. It assumes that tax- payers have reasonable access and transportation to the main cash office, or to field offices of a council. b. Graduated Tax deductions are recovered by employers from the wages of their workers, and are remitted monthly to council cash offices. c. In cases of delinquency or where taxpayers would have to travel long distances to a council cash office, council revenue collectors visit taxpayers to obtain direct payment. Sources of Financing for Urban Services 2.6 Traditionally, the following sources of funds have been available to local governments to finance municipal investments: a. Current revenues and general cash reserves  - 9 - b. Renewals funds and receipts from the sale of depreciated assets c. Receipts from the sale of council land d. Grants from the central government e. Loans from the Local Authorities Loan Fund. 2.7 During the 1960s, the urban authorities usually realized annual operating surpluses which accumulated as general reserves. These reserves were used as a primary source of capital financing. Since their liquidity positions were generally good, the urban authorities also budgeted and financed some investments from current revenues. When the urban authorities could build general reserves, they also contributed to renewals funds. The resources in these funds were set aside as short-term invest- ments or as deposits in commercial banks. The proceeds were eventually used for acquiring new vehicles and equipment, for repair and maintenance of civil works, or for minor civil works construction. The balances of these renewals funds typically were supplemented by proceeds from the sale of assets such as vehicles which had become uneconomic to maintain. 2.8 Amounts collected from land sales made by the Ministry of Lands, Minerals and Water Resources on behalf of local authorities have been deposited in a statutory council fund called the "land premia" fund. This fund has been used for financing infrastructure for housing plots designated by councils. 2.9 Other sources of capital funds for local governments have been direct grants from the central government and low-interest loans from the Local Authorities Loan Fund. This fund has been managed by a Board appointed by MLG. In the past, urban authoritles also have received gifts of plant, machinery and equipment from foreign governments and international agencies. B. Major Issues 2.10 Local government financial operations in the 1960s were generally sound, and the outlook for development was optimistic. However, through the 1970s to the present, political and economic events have interacted to cause a steep decline in the financial condition and management of the urban authorities. This decline has been so serious that the present situation has reached crisis proportions. 2.11 In 1971, with the establishment of the military regime, block grants from the central government were substantially reduced. Since the local authorities were dependent to various extents on these grants to generate operating surpluses, subsequent annual operating deficits became the norm. To cover these deficits, general reserves which had been built up in previous years were depleted. At the same time operating expenditures were rising at unprecedented rates, mainly due to extremely high domestic inflation.l As operating costs increased, land premia and renewals funds in the urban authorities were also drawn down to meet recurrent operating expenses. During the same period the Local Authorities 1/ One index of domestic prices rose to a level exceeding 9,800 in 1982, compared to a base of 100 in 1966; another rose to more than 13,000 during the same period.  - 10 - Loan Fund was not replenished, and central government grants for capital projects had ceased. Hence, by 1973 new municipal investments had stopped. 2.12 While costs were rising, local tax collections began to decline precipitously. Government ministries became delinquent in remitting the Graduated Tax deductions on behalf of their employees. Properties left by the Asians expelled in 1972 have been administered by the Departed Asians' Property Custodian Board (DAPCB). DAPCB is legally responsible for paying property rate taxes on the more than 4,000 properties it administers, but has not done so, partly because of massive arrears on rents owed it by government ministries. Increased tax evasion by the general public further aggravated the situation. The consequence of reduced revenues and rising costs (especially the wage bill, due to increased domestic inflation) was a serious deterioration in municipal facilities and services and an exodus of trained staff. The departure of financial staff, especially at managerial and supervisory levels, was critical for the local authorities. Local Revenues and Expenditures 2.13 Issues arising from analysis of the finances of Kampala, Jinja, and Entebbe councils were considered to be representative of the financial problems facing all local authorities. Revenue and expenditure trends for these councils could be assessed to different extents because of the varying condition of their books and records. Kampala City Council has not posted its general ledger since 1977. Entebbe Town Council has kept its posting current, but has not prepared abstracts of accounts since 1979. Jinja Municipal Council, on the other hand, has maintained current books and abstracts, and has received an unqualified opinion from independent auditors on their 1982 financial statements. Given these conditions, the revenue and expenditure data obtained from Kampala were not as specific as those from Entebbe and Jinja, and could not be displayed in a comparable manner. 2.14 Kampala City Council (KCC). The disarray of the accounting records in Kampala became a major issue after the current Mayor took office in November 1982. The poor controls and records in the Council Treasurer's Office, as well as allegations of fraud and mismanagement, became topics of discussion in Parliament. In response, MLG appointed a Commission of Inquiry, and the Deputy City Treasurer and Chief Accountant of Kampala were put on "forced leave" in September 1983, pending the outcome of the investigation. 2.15 KCC is faced with trying to meet sharply increased salary and wage costs with limited revenue flexibility. The central government approved two salary increases in 1983 for public service staff, in reaction to the rapid rise in domestic inflation and the devaluation of the Uganda Shilling. The resulting increases in salary and wage costs to KCC will amount to some 80% in 1984 over 1983. In addition,  - 11 - general expenditures for other goods and services have increased sharply. The approximate trend in KCC expenditures is UShs 385 million in 1982, UShs 580 million in 1983, and UShs 940 million in 1984. The Council anticipates total revenue requirements of about UShs 1 billion to meet anticipated expenditures for 1984. This figure recognizes that block grants of about UShs 90 million will not cover the entire increase in salary costs, even though it reflects about a UShs 40 million increase over the amount received in 1983. Hence, the Council is planning increases of about 50% in market rentals, housing rentals, and taxi and bus park fees. Also, a recent revision in the schedule of graduated taxes should increase this revenue from UShs 100 million in 1983 to some UShs 300 million in 1984. The Council has also budgeted for about UShs 300 million of revenues from the property rate tax. However, this assumes 100% collection efficiency, when actual collections since before 1979 have been estimated at 10%. About half of the uncollected property rate tax is due from goverument agencies and corporations which habitually have been delinquent in their payments. The likely outcome is for KCC to run at least 25% below its revenue budget in 1984, as it probably has done over the past five years, resulting in minimal cash available for anything but salary and wage expenditures. As a result, until revenue collection efficiency can be increased and general price levels become stable, service delivery in the Council will continue to deteriorate, and new municipal investments will not be affordable. 2. 16 Jinja Municipal Council. In contrast to Kampala, Jinja has maintained reasonable control over its finances despite the national economic decline. It has kept its accounting records current and has had an independent audit of its Abstracts of Accounts at December 31, 1982. Revenue and expenditure trends for Jinja, from 1981 through 1984, are shown in Annex 3. Total revenue increased by an average of 83% in 1982 and 1983, reaching a current level of some UShs 160 million per annum. An additional increase of 50% has been forecast for 1984. While this increase appears substantial, it may be required simply to absorb the effect of price increases which have averaged 70% per year from 1977 through 1982. 2.17 More than 90% of the revenue increases in Jinja Council over the past two years have come from increases in service 'ncome, mainly from increases in property rentals and market fees. At the same time, annual increases in central government block grants have been needed to meet Council operating budgets. In 1983, service income was estimated at 64% of total revenues; block grants, 21%; the Graduated Tax, 11%; property rates, 2X; and licenses and other income, 2%. In 1984, the Council expects revenues to increase to UShs 246 million, resulting from an increased property rate levy, new Graduated Tax rates already announced by the central government, increased rents and fees (principally in markets), and an increase in block grants. These increases appear to be achievable, although the block grant amount could be less than expected because of national financial constraints. 2.18 Expenditure patterns tor Jinja have been fairly uniform over the past three years. Civil works programs have averaged 37% of total  - 12 - expenditures; administrative operations, 32%; public health programs, 22%; and education and other programs, 9%. In 1983, overall expenditures in these programs were distributed as follows: Salaries and wages 44% Fuel and other transport costs 25% Administrative supplies and expenses 19% Building and road maintenance materials 7% Other 5% 2.19 Jinja Municipal Council's estimate for 1984 anticipates an operating surplus of some UShs 50 million (21% of total revenue), which is intended for capital outlays. This amounts to slightly more than the UShs 44 million forecast for block grant income. Effectively the Council can meet its operating fund requirements (at existing service levels) from locally generated revenues, but will need continued central government support to cover any new investment. Some elasticity exists in service revenues, particularly in market rents and fees, to further increase local revenues. However, if block grants continue at present or reduced levels, these service revenue increases will probably be needed to cover future salary and wage costs, or to increase municipal services to higher levels, and no additional funds will be available for capital investments. 2.20 Entebbe Town Council. The financial health of Entebbe Town Council has depended on central government block grants, which currently comprise about 55% of Entebbe's total revenue. Annex 4 shows estimated revenue and expenditure trends for Entebbe for 1981-83. The Council's total revenue approximately doubled from 1981 to 1983, to a level of some UShs 32 million per annum. About 57% of the increase was due to increased block grants, with the remainder coming from higher market rents and service fees. Operating expenditures during 1981-83 were proportionately increased to absorb the revenue increases. The Council has therefore depended on the block grants to meet recurrent operating costs, at low municipal service levels, with no reserves available for investment. 2.21 After the block grants, the Graduated Tax is the next significant revenue component, at about 24%, followed by service fees and market rents at 18%, and property rates at only 3%. In practice, about 80% of Entebbe's revenue base is determined by central government activity. Block grants are determined directly by the national authorities; about 95% of the assessed property in Entebbe is government-owned; and a large number of wage earners subject to the Graduated Tax are employed by the government in Entebbe or Kampala. The Council has identified an additional UShs 2 million in local taxes and fees which it can raise, but while such action is necessary, it will be much less than what is required to meet rising operating costs or capital investment needs. Mhe increase in the Graduated Tax by the central government should materially increase Entebbe's total revenue in 1984, but this increase probably will be absorbed by rising labor costs and a need to raise municipal service levels. Hence, in the foreseeable future the financial capacity of Entebbe will continue to be determined in large part by central government block grants.  - 13 - Financial Mbnagement and Control 2.22 The deterioration of economic conditions in Uganda has also been reflected in financial administration at the councils. For several revenue categories at both the national and local levels, amounts collected are much lower than amounts due. Expenditure control is poor, and financial planning and budgeting has become largely unreliable. 2.23 Accounting Systems and Control. The basic organization of accounting functions and records at the councils is a continuation of that used in the early 1960's. In principle it is sound, reflecting good separation of functions, adequate audit trails within the books and records, and provision for continuous internal audits. In practice, however, systems and procedures are not uniform among councils, and their effectiveness has been reduced by a number of underlying problems. These problems exist in each of the councils studied, but are most serious in Kampala and Entebbe. The principal problem is inadequately trained financial and accounting staff. The major consequence has been an inability to develop, document and supervise procedures for clerks who must rely completely on on-the-job training to be effective. In addition, the situation has been worsened by old and inoperative machines for posting records, and by a chronic lack of office supplies, including such basic items as paper stocks. Finally, since council staff have not been able to support their families on their salaries alone, absenteeism and low staff productivity have become significant contributory problems. 2.24 Revenue Collection and Arrears. Revenue collection in the councils is a general problem, with the severity and reasons for the problem varying for different types of revenue. 2.25 The Graduated Tax is the councils' most reliably collected levy. A collection rate of about 90% usually can be expected because of existing collection procedures and the traditional public view of the tax.1/ Most of this tax is deducted from employees' wages and remitted monthly by employers to council offices. The key control feature in the collections is a Graduated Tax Ticket which each working adult carries as a primary form of identification. When remittances are made to councils, this ticket is marked and returned to the worker. Traditionally, the paying of the Graduated Tax and holding of the tax ticket has been a symbol of coming of age in the community. This is also an incentive for self-employed persons to pay the tax. 2.26 Systems within the councils should be capable of efficiently receipting the Graduated Tax Tickets, controlling cash receipts, posting individual taxpayer records, and monitoring the records for delinquencies. In each of the councils visited the machines for receipting the tickets were old and had become unreliable or inoperative. The control of cash I/ The stated collection rates are for taxes collected in the year they are billed. No major additions to receipts are realized from collections in later years.  - 14 - receipts, when payments are made at the main council offices, is adequate. The condition and maintenance of taxpayer records, however, varies among the councils. Jinja's records are well managed: The Jinja Council uses a manual system of records from which an individual record can be easily retrieved using either a permanent taxpayer number or the taxpayer's name. The records at Kampala and Entebbe are not as well organized and managed, with those of Kampala being in a serious state of disarray. 2.27 Entebbe and Kampala have an additional problem with their Graduated Tax administration. Taxpayers are supposed to pay the Graduated Tax to their council of residence, rather than to their council of employment. A large number of government employees work in either Entebbe or Kampala, but live in the other council. In practice, the taxes deducted by the employers are simply remitted to the council where the employer is located. To a large extent the differences cancel out, but Entebbe probably loses some revenues from this practice. 2.28 Collection of property rates is a major problem in Kampala City Council and the municipal councils. In the town councils the property rate is not a major income source, and the associated recordkeeping and collections are not complex. Entebbe Town Council, for example, has only about 600 property rate records, and has achieved a collection efficiency of about 85%. The arrears are mainly with government agencies, who own about 95% of the ratable property in Entebbe. However. collection efficiency for property rates is only about 10% in Kampala, and about 50% in Jinja. In contrast to Entebbe, Kampala has about 50,000 property rate records to manage. In general, the poor collection performances at Kampala and Jinja can be attributed to personnel and systems that are not equipped to effectively administer the property rate program. Personnel have inadequate training; recordkeeping systems are not well designed, up to date, or well managed; and basic transportation for necessary field work is lacking. Also, agents following up delinquencies and collections in the field run the risk of physical harm. 2.29 In Kampala, private property owners and government agencies each account for about half the shortfall in property rate collections. Collection problems among private owners are traceable directly to poor recordkeeping and administration at the KCC. Owners may also be withholding payments because municipal services are poor. Turning to the other half of the shortfaLl, arrears to KCC from government entities in September 1983 amounted to some UShs 245 million. About 80Z of this amount was owed by only four agencies: the Departed Asians' Property Custodian Board (UShs 79 million); the Uganda Land Commission (UShs 44 million); the National Housing and Construction Corporation (UShs 37 million); and the National Water and Sewerage Corporation (UShs 35 million). 2.30 Collection of other council revenues such as rents and fees is hampered by poor records and weak systems and procedures. The collections are especially unreliable where cash must be collected in the field. In such instances lack of transportation and security are major problems. Kampala, for example, has been experiencing about three to five thefts of  - 15 - cash per month at remote collection sites. Such thefts may have amounted to UShs 20 to 30 million in 1983. 2.31 Role of the Central Governament. The central government, vainly through the Ministry of Local Government (MLG), has a close relationship with local councils in matters of financial planning and control, including development projects. There is in principle the basis for a healthy partnership, especially in instances where local capabilities are lacking. In practice, however, MLG lacks the staff and equipment to do its job. The issue is that to be successful, any program to improve urban finances will have to include improving and working through certain central government agencies, particularly MLG. 2.32 Through the Urban Authorities Act and various administrative procedures, the national government exercises considerable control over the financial management of local authorities. MLG has primary supervisory control over council finances, and is responsible for: (a) Allocation of block grants to councils (b) Establishment of financial policies and directions through budgetary control procedures (c) Review of monthly financial reports prepared by councils (d) Inspection and audit of council development programs Ce) Establishment and enforcement of council accounting practices (f) Appointment (by the Minister) of city, municipal and town Councilors, in cases where the Minister deciles that the Councilors will not be chosen by election, and (g) Management of the Local Authorities Loan Fund. 2.33 National entities other than MLG also affect local authority finances and management. The Public Service Commission appoints, hires and fires key financial staff, including Council Treasurers. The Auditor General's office is charged with carrying out year-end financial audits of councils, in instances where the councils do not retain independent auditors. Moreover, the power of a council to levy local taxes is restricted by the national taxing authorities under the Ministry of Finance. The Ministry of Finance also controls the total amount of block grants going to urban authorities, as well as any capital contributions to the Local Authorities Loan Fund. Finally, the Ministry of Commerce sets business license fees (presently at very low levels) in the urban authorities. 2.34 While in theory MLG has an important function in supervising and enhancing local authority financial management, its role in practice has been largely ineffective. Like the urban authorities it is supposed to supervise, it suffers from a serious lack of trained management and technical staff, equipment, supplies, transport, and budget allocations. The consequences are that: (a) No written budgetary or policy guidelines have been prepared for local authorities; (b) Monthly financial reports from councils, when they are sub- mitted, are not reviewed;  - 16 - (c) No guidelines have been established for monitoring council financial operations; (d) No up-to-date local authority accounting guidelines have been prepared; (e) No procedures have been developed for reviewing and auditing council development programs; (f) The Local Authorities Loan Fund is inactive; and (g) Councilors have not been appointed in all the local juris- dictions in which they were not chosen in the 1981 elections. 2.35 The Ministry of Finance budgets the overall block grant which is distributed among the councils, and has the significant prerogative of designating taxes as central government revenue sources, pre-empting their use for local revenue. Block grants were originally intended as a supplement to local revenues, but in practice have become a primary source. A formula was developed in 1979 for computiig the amount of block grants, but because of financial constraints nationally this formula has never been applied. Instead, the grants have been based on available national revenues and the past expenditure needs of councils. Block grants are presently being made to help local governments meet the increasing salary requirements of their staff. In 1983, however, the grants to councils were inadequate to cover all the mandated salary increases, a problem which stems primarily from difficulties in raising revenue at the national level. The national income tax, for example, suffers from weak collection systems and widespread fraud and evasion. For the foreseeable future block grants will remain an unstable source of revenue for councils, increasing the pressure on them to become financially more self-sufficient. But at the same time the councils are likely to be increasingly dependent on these grants. Consequently, any short-term strategy to improve local finance should also address improvements in central government financial management and revenue collections. One approach worth consideration would be to tie national income tax collections from individuals (which are noticeably inefficient) into the more reliable local Graduated Tax collection system. In this manner the Income Tax Department of the Finance Ministry could use the list of taxpayers produced by the local assessing committees. Urban authorities could earn a fee for this service. Cash collection controls would have to be strengthened before such an approach could be considered seriously. 2.36 In the medium term, some amount of continuing block grants to urban authorities would be a sound policy. However, a strategy should be developed for the larger urban authorities (i.e., the city and municipal councils) to meet operating expenses entirely from local revenues. Ihis will necessitate reconsidering and implementing formulas for calculating individual block grants, and over the medium to long term will necessitate an evaluation of national taxes for possible transfer to local jurisdictions. 2.37 Financial Personnel. The departure of trained accountants from Uganda, together with the decline in accounting and financial training programs, has resulted in a shortage of skilled financial staff in both local and central governments. The shortage exists at all skill levels, from accounting clerks through financial managers. Ihe situation is most  - 17 - serious at the intermediate and senior levels, where accounting, auditing and financial analysis skills are normally acquired through college programs and some years of practical experience. Near-term rempdies using intensive training programs, together with expatriate advisors in key positions, are feasible and necessary. However, to sustain any improvements made with this approach, longer term programs will be needed for educating professional accountants for public sector careers, and for possibly attracting back those professionals who have left the country. 2.38 National Economic and Security Conditions. The effectiveness of any program to improve the financial well-being of local authorities will depend very largely on trends in national economic and security conditions. Until wages and salaries have been adjusted to prevailing price levels, the budgeting and matching of municipal revenues and expenditures will be seriously hampered. In addition, stable currency vilues and adjusted wage levels will be required before nublic savings deposits can be increased substantially, and any realistic housing programs can be planned. Improved economic stability and physical security also will be needed for urban authorities to reliably obtain and control basic equipment, parts and supplies; to make field collections of revenues; and to adequately manage a property tax administration program. Housing Finance 2.39 The primary source of finance for housing in Uganda is the Housing Finance Company of Uganda (HFCU). At present, HFCU is operating essentially as a savings bank, relying on short-term investments for operating profits. New mortgage business was suspended in 1982, and restued on a limited basis in 1984. Commercial banks in Uganda are not in the home mortgage loan market. Consequently, the viability of HFCU as a source of financing for housing is central to any housing development strategy. Annex 5 presents a history of HFCU operations and its current management position and financial prospects. 2.40 HFCU currently offers 8-10% interest on savings deposits, and is now charging 15-18% interest on mortgage loans. Interest rates offered and charged by the company are controlled by the Central Bank of Uganda. Meanwhile, commercial banks in Kampala are offering higher interest on savings accounts. Since the comwn.Aial banks do not offer long-term mortgage financing, HFCU has continuied to attract mainly small depositors who want to remain in good standing with the company in case they may want a mortgage loan. Nonetheless, the higher rates offered by the commercial banks should make it difficult for HFCU to attract new deposits to levels that would be needed to cover a substantial increase in mortgage loans. On the other hand, if HFCU raises deposit interest rates to be more competitive, loan rates also will have to be increased to maintain a profitable spread. This could make beneficiary affordability an even more critical issue in any housing development program. 2.41 Continued improvements in the administration of HFCU should put the company in a position to manage a higher volume of lending. However, essential requisites for increased lending will be substantial increases in public deposits and in the company's capital base. The central government and the Commonwealth Development Corporation (CDC) have been negotiating an increase in their capital contributions to HFCU.  - 18 - 2.42 To the extent that earnings continue to accrue and additional capital contributions are made available to HFCU, the company's lending ceiling will be limited only by the amount of public deposits it can attract. As a general rule, total loans should not exceed about twenty times the company's overall capitalization. At present deposit levels, an additional loan capacity of about UShs 400 million could prudently be realized, increasing at about 10% per annum. This is an insignificant amount. Given an average cost of about UShs 7 million for a housing unit, these additional loans would finance less than 60 units. Hence, very large increases in public deposits will be needed to cover the loan levels required to finance any meaningful housing development at present costs. For this to be achieved, personal inucmes will have to rise dramatically to meet the general price inflation, and then the HFCU will have to compete with the commercial banks for new deposits. In addition, as discussed further in Chapter III, lower-cost housing solutions can be promoted.  - 19 - CHAPTER III: THE AENT OF URBAN SERVICES A. Strengthening Urban Management: Major Issues 3.1 Improvements in the design, implementation, and management of urban investments will require a strengthening of both the capacity of the central and local agencies responsible for such investments and of the ability of these agencies to work cooperatively. It is useful to visualize such institutional strengthening as consisting of improvements in (a) the structure and organization of institutions; (b) regulations, standards, and procedures; and (c) resources and capacity. The first part of this chapter discusses major issues of organization, capacity, and the regulatory environment that are reflected in current practice in town planning, building regulations, and central-local government relations. For capacity issues the emphasis is on equipment and especially training needs, since proposals for improving financial, capacity were presented in Chapter II. The second part of this chapter describes how the application of measures to deal with these issues would affect programs in urban water supply, solid waste collection, land tenure, and housiag. 3.2 Structure of Local Governmoent. The present organization of local councils is by and large adequate for the tasks they have to perform. While the fuUl official structure is quite complex, the effective functional organization of the Kampala, Jinja, and Entebbe Councils, given in Charts 1-3, shows a consistent pattern familiar to Anglophone East Africa. The Council is the deliberative body, headed by a largely ceremonial Mayor in the case of Kampala and Jinja. Day to day affairs are run by the Town Clerk's, Engineer's, Treasurer's, Public Health, and Education Departments into which are fit all the functional responsibilties of the Council.l/ All Departments report to the Town Clerk, who is the chief administriative officer of the Council. Committees of the Council review expenditure proposals prior to their consideration by the full Council. In its capacity as financial controller, the Ministry of Local Government is charged with reviewing budget forecasts, monitoring the progress of budget spending, and auditing council development programs (see also para. 2.31). 3.3 What improvements can be recommended in this structure give first priority to coordination between Departments, and secondly to filling gaps in responsibility. Consideration should be given to formalizing the contacts between Departments in a 'Program Review Committee' (PRC), a management team consisting of the five Department heads with the Town Clerk as chairman. The PRC would review and approve major expenditure proposals before presentation to the council committees. This 1/ The smaller units are often retained in the Town Cj.erk's Office until they are large enough to stand on their own. Thus, Jinja in 1984 made education, formerly with the Town Clerk, a separate Department.  - 20 - would make more systematic the present informal and essentially haphazard technical review, and would save time and effort in the long run. As a second major function, the PRC would coordinate the work schedules of units serving more than one Department. In some councils responsibility for solid waste collection is shifting from the Engineer's to the Public Health Department, while maintenance and repair of vehicles, including refuse trucks, reirains with the Engineer. With vehicle fleets in almost total disarray, the first few new vehicles acquired will be much in demand, and the PRC would advise on their allocation. In about 4-5 years Kampala will also need to consider establishing a separate traffic management and transport planning section in the City Engineer's Department, to consolidate functions now split between two sections and to remedy the absence of responsibility for urban transport planning. 3.4 Even more than the structure, however, priority should be given to clarifying the function of councils in areas where the line between central and local management has been left undefined. The area of electricity supply and street lighting provides the model for such an arrangement. The respective roles of KCC and of the Uganda Electricity Board (UEB) are recorded in an agreement specifying the services UEB as agent provides to the KCC as client or consumer of electricity. Each side has been aware of the responsibilities of both, and as a resuit the agreement has worked well in practice. 3.5 A similar relationship, that has also worked satisfactorily, prevails between the Commissioner of Lands and Surveys (Ministry of Lands, Minerals, and Natural Resources) and KCC in land valuation, land registry, and plot attribution. This relationship, however, has never been written down. It is recommended that an agent-client agreement be drawn up to formalize the working arrangements that have evolved between the Commissioner of Lands and KCC. The framework of such an agreement is provided by statutes already in force, such as the Urban Authorities Act and the Town and Country Planning Acts. Like the UEB/KCC text, this agreement would specify: (a) the form of relationship linking the parties; (b) the undertakings of each party; (c) ownership of assets; (d) terms of payment for services rendered; (e) responsibility for maintenance of assets; and (f) procedures for additions to the stock of assets (e.g., network extensions, valuation and registry of new land, etc.). 3.6 The Commissioner of Lands-KCC agreement pertains to a critical area of central-local relations that having worked well on the  - 21 - ground, should not be difficult to put on paper. Next, this procedure should be applied to a central-local issue which has been a source of tension for 15 years: road maintenance in Kampala. When the boundaries of Kampala City Council were enlarged in 1968 from 22.2 sq km to 195 sq km, the demarcation for road maintenance and rehabilitation between KCC and the Ministry of Works (MOW) was not adequately clarified. While WOW has taken the view that KCC is responsible for all trunk roads within its expanded boundaries, KCC maintains that responsibility for the western and eastern districts of the expanded KCC remains with MOW. Resolution of this dispute, in written form, is urgently required to avoid misallocation of future investments. A large KCC road rehabilitation project being launched with financing from the European Community (EC) concerns only the Central District of Kampala. Simultaneously, MOW is planning to rehabilitatethe Kampala-Jinja Road beginning not at the Central District line of Kampala but 4-5 miles farther out, at the eastern extremity of the KCC. 3.7 Central-Local Relations In Kampala. The key management issue facing Kampala is the duplication of vertical lines of control between the central government and the KCC. On the one hand, MLG as the supervisory ministry of all local governments is empowered to carry out the financial management and quality control functions already described (see para. 2.31). On the other, the Kampala District Commissioner (DC) has important authority in both law and practice over the growth and management of Kampala. 3.8 The DC is the President's personal representative and Chief Government Agent in the capital. He is appointed by the President and reports to the Permanent Secretary, Office of the President. Largely because the military regime questioned KCC's capacity to handle security in the Kampala area, the post of DC Kampala was created in 1974. The DC presides over the District Intelligence Committee, which has met monthly since that time to review security. Enforcement of security measures passes from the DC to local chiefs, as it does elsewhere in the country. However, local chiefs since 1968 have been incorporated into the KCC as Council Agents, and report to the Town Clerk. Especially as the KCC limits contain extensive semi-rural and rural areas which traditionally are formed into districts, local chiefs/Council Agents effectively report to both the Town Clerk and the DC in their duties of tax collection, monitoring of compliance with security, and interpretation of government policy at the local level. In this sense the roles of the Town Clerk and of the DC are overlapping at the same level. However, in another sense the roles are hierarchical. The DC presides over the important District Team and Planning Committee, which sets guidelines for the development of the KCC region. The KCC Town Clerk is a member of this committee. 3.9 It is recommended that the Public Service Commission launch as soon as possible a study leading to proposals for sorting out the roles  - 22 - of MLG, KCC, and DC in the management of Kampala. Scenarios to be concidered would likely include the following: Scenario A: The present structure is retained but with formal coordination between DC and KCC (joint planning committees, task forces). Similar linkages are established between DC and M1G to clarify responsibilities for control of KCC activities. DC/KCC coordination is possibly achieved by giving DC a seat on KCC committees, as is true for councils elsewhere in the country. Scenario B: DC retains authority over security matters and becomes an advisor to KCC on development issues. The District Team and Planning Committee becomes the District Planning Advisory Committee, still chaired by the DC. Some traditional development functions of the DC (e.g., veterinary services) remain with the DC until the periphery of the KCC is more urbanized. Scenario C: DC remains in charge of security but most or all development functions are vested in KCC. The District Team and Planning Committe is abolished. The DC, however, is regularly informed (for example, through accounts of meetings of the proposed PRC; see para. 3.3) of upcoming development programs so that security implications can be evaluated. Scenario D: The post of DC is abolished. The pre-1974 arrangement is reinstated, with an Assistant DC for Kampala reporting to the DC Mpigi. Scenario K: The post of DC is abolished along with the District apparatus in Kampala which is handed over to KCC. The territory of the DC Mpigi (less Kampala) is split into two, largely so that each DC would have less ground to cover. 3.10 Although to anticipate the conclusions of this review would be premature, the impression is inescapable that Scenario C has much to recommend it. Line authority from the central government to local authorities remains split between MLG and the DC, but there is a clear distinction as to the powers of each. MLG would gain greater stature as the sole supervisor of KCC's programs for the growth and management of Kampala. Because development programs in Kampala depend heavily on further improvements in security, the DC retains a vital, though now more indirect,  - 23 - role in the city's future. Retaining the present structure (Scenario A) appears completely unworkable: given the confusion of roles and authority, there is bound to be tension between the DC and the KCC Town Clerk even with coordination linkages. Scenario B does not materially reduce this confusion. and perpetuates problems of service coordination (e.g., DC veterinary services and KCC health services in the same locality). Finally, doing away with the DC post (Scenarios D and E) would appear to make it much more difficult to manage the security situation in Kampala. Regulations and Standards 3.11 Town Planning. Regulations and procedures governing the preparation of urban land use plans suffer from three main shortcomings. First, they assume it is possible for economic activity to be allocated spatially by public decision. Although it is true that town planning choices (such as the location of bus terminals and health clinics) affect the spatial allocation of residences and employment, it is not true that the spatial allocation of residences and employment can be determined by town planning choices. Physical plans could be improved in their coverage of socio- economic conditions in the towns, which in any case change rapidly making the plans soon obsolete. Second, no one (except, perhaps by default, the counclls) has responsibility for costing out the municipal infrastructure plans and translating them into investment programs. In the rare cases where this is done, as for example with Structure Plans for Masaka and Mbarara prepared recently by consultants to the Reconstruction and Development Corporation (RDC), it is found that lack of attention to issues of financing, economic viability, and cost recovery casts serious doubt on the feasibility of the final result. Third, although councils approve plans before the final submission to the Town and Country Planning Board, they typically play little or no part at the preparation stage. 3.12 The first priority to improve the to-wn planning process is to draw up an agent-client agreement between councils and the Ministry of Housing and Urban Development (MEUD, where responsibility for preparation of town plans has been located since its removal from MLG in 1981) similar to the existing KCC/UEB agreement and that proposed for KCC/Commissioner of Lands. For greatest efficiency and economy of resources, actual preparation of plans should continue at MEUD. However, the Physical Planning Department of MHUD should be strengthened and enlarged so that it can develop capabilities in the design and evaluation of urban investment programs. This Department would require the blending of economist and financial analyst as well as planning skills and those of other specialists. Technical expertise would be necessary to help with the shift from physical planning to investment planning. As the clients, councils would (a) initiate the process by requesting that the Department prepare an Area Development Plan justifying capital investments from the socioeconomic  - 24 - as well as physical standpoints; (b) be kept informed by MHUD during preparation; and (c) as at present, approve the plans before their final consideration by the Town and Country Planning Board. Although M1G has not been directly involved in town planning since 1981, this redefinition of the objectives and composition of plans requires importent inputs from MLG, particularly judgments as to the viability of the financ'ng plans, availability of finance, and cost recovery measures proposed for the investments. 3.13 Building Regulations. Legislation governing building construction differs markedly according to whether the construction will occur in a Planning Area or a Residential Settlement Area. For Planning Areas the 1964 Public Health Act (Building Rules) specifies in detail the materials and methods permitted for acceptable Grade I construction. Primary responsibility for enforcement of the Building Rules lies with the council Engineer's Department. To obtain a building permit, a plot owner must submit plans in quadruplicate and structural drawings in duplicate to the engineer. The plans are then checked for conformity with the structural aspects of the Rules and circulated to other council officials for compliance with planning, land tenure, and health regulations. The plans then return to the Engineer's Department for dispatch to the Development Committee of the council and the Council itself. After a permit has been approved, inspections are to be carried out at seven stages of construction. 3.14 It is not suprising that only a few house builders have the resources and patience to meet these requirements. Housing development therefore mostly takes place outside the areas where the Building Rules apply, either in Residential Settlement (Grade II) areas or in unrecognized communities. These settlements are generally far from the city centers and hence remote from job opportunities. The Grade II building rules are much simpler and are stated in terms of performance criteria rather than specifications of materials and methods.1/ Although a few materials (grass for roofing) are allowed only in specialTy designated areas, the Grade II Rules and their administration are basically flexible. Even the Grade I Rules do not prohibit innovation in design or the use of new materials. However, the detailed specifications of materials and building methods promotes rigidity of techniques, favors established and experienced builders, and discourages innovation. 3.15 Existing regulations do allow councils to define their own performance standards. KCC, for example, could take advantage of this provision by asking the Physical Planning Department (MHUD) to prepare performance criteria after carrying out tests of local building materials. The resulting criteria would quite likely legitimize a wider range of acceptable materials and techniques for construction and finish. 3.16 It is important to note that although the local authorities would in this manner continue to be concerned with establishing guidelines 1/ Foundations, for example, are required to be ...adequate to support the load transmitted to them.-  - 25 - and criteria for construction, they would not need to be concerned about how quickly a lower-standard house is upgraded to a higher standard one. This preoccupation would disappear because any house would be acceptable as long as it meets the performance criteria. Councils would no longer incur the irritation of residents feeling pressured to improve their houses faster than their incomes permit. Capacity 3.17 Equipment. Since most municipal vehicles and equipment were destroyed or stolen during the war of 1979, equipment needs are pervasive. For lack of transportation, ambulance and solid waste collection units in councils have been inactive, and mobile health workers have not been able to reach the majority of urban families who do not live within walking distance of a dispensary. 3.18 A program to rehabilitate vehicle fleets should concentrate first on (a) acquisition of road maintenance equipment and vehicles for Kampala, and (b) repair of the Sixth Street Maintenance Workshop in Kampala and of vehicle maintenance facilities in Jinja and Entebbe. In the EC-assisted road rehabilitation project being launched by KCC, no provision is made for maintenance equipment. Without a maintenance capacity the streets will quickly revert to their present state, and this investment will have been wasted. Replacement of vehicle maintenance equipment, purchase of tools, and repair of the premises, especially at the Sixth Street Workshop, should precede even the purchase of spare parts so that the repair of wrecked vehicles can begin immediately once the spares arrive. Also, equipment needs of Masaka, Tororo, Mbale, and other towns should be evaluated so that similar rehabilitation programs can be prepared. 3.19 The desperate shortage of equipment for survey of land boundaries is a major bottleneck in the issuance of land titles by the Commissioner of Lands. Since the Ministry follows the Torrens land registration system, survey plans showing the precise plot limits must be attached to title documents. Restoration of survey equipment is necessary to speed up the ponderous process of land surveying and plot attribution. 3.20 Traiuimg. Turning to the human aspects of capacity issues, the training needs of local governments were reviewed in terms of what is required to fill existing vacancies in their establishments. Annex 7 presents the results of the surveys undertaken at Kampala, Jinja, and Entebbe councils, together with an assessment of the capacity of key training institutions in Uganda to meet the most urgent needs. 3.21 The most serious training deficiencies are at the middle management and senior technical levels. Engineer's departments lack trained works supervisors and assistant foremen, while the treasurer's  - 26 - departments make do with far fewer principal tax officers, accountants, collection agents, and auditors than are required. These gaps in middle management harm those both above and below. On the one hand, senior managers by default become engulfed in matters that would have been handled by their subordinates. On the other, the implementation staff are either promoted too quickly to lower and middle management or, more typically, carry out their technical duties without guidance or feedback. As an alternative to training, staff without the right skills could theoretically be reduced through attrition and others hired in their places. This was tried in early 1983 at KCC and proved to be politically impossible, even had the required skills been available on the market. 3.22 The first priority is therefore training to enable local authorities to improve their administrations and their financial and revenue collection procedures. The most senior council officials would benefit from exposure to local government operations abroad, through for example 1-2 months' visits in the UK or the USA. Most training courses would however be provided locally, in the first instance by the Institute of Public Administration (IPA). IPA diploma courses in Local Authorities Administration, in Office Management, and the Finance Officer's Diploma which had been eliminated in 1981 were reinstated in July 1984. To achieve the course objectives, expatriate teaching assistance and equipment will be required. Early consideration should also be given to reinstating the accounting diploma course, also discontinued in 1981. For administrative staff under the supervision of MLG, the main emphasis should be on training administrative secretaries and township officers for improved administration of the very small towns designated as "new administrative centers.2 3.23 The second set of major training requirements concerns redirection of the Physical Planning Department of MEUD toward urban investment planning. There are two conditions for this to occur. First, the planners and engineers now in the Department should be complemented by financial analysts and economists immediately, and later by other specialists such as statisticians and demographers. Second, responsibility for deciding whether proposed investments are consistent with the Recovery Program lies with the Ministry of Planning and Economic Development (MPED). Proposals for strengthening MPED, in part through training, have been made in the framework of the IDA Third Reconstruction Credit.1/ Because of its vital role in the monitoring of investments, the training needs of MPED should be met in parallel with those of MHUD's Physical Planning Department. B. Strengthening Urban Management: Inplementation 3.24 The previous section described changes in organization, systems, and capacity that are associated with improved urban management. 1/ See Michael L.O. Stevens, Review of Planning and Economic Management Machinery," November 1983.  - 27 - This section outlines how actions of local and central government to provide municipal services, land and housing would be improved by such changes. municipal Services 3.25 Water and Sanitation. Under the Water Supply and Sanitation Rehabilitation Project being launched with IDA assistance, water and sewage treatment networks in the seven largest towns of Uganda will be rehabilitated. At the same time, the capacity of the National Water and Sewerage Corporation (NWSC) to respond effectively to pressing demands in other towns will be strengthened through technical assistance and training. However, as the institutional capacity of NWSC is built up, it is equally important to redefine the statutory relations between NWSC and the councils. 3.26 Prior to 1972, local authorities were fully responsible for construction, operation, and maintenance of water supply and sewerage networks. This responsibility was transferred to the newly-created NWSC in 1972. Councils were left without authority, but as the most visible and accessible government bodies continued to be blamed by their constituents for the lack of service. Up to the present day, councils have maintained that water and sewerage networks should be returned to their management. 3.27 By means of a written agent-client agreement of the type recommended for town planning (see para. 3.12), the effectiveness of both .WSC and local authorities in the provision of water and sanitation services would be enhanced. Councils would ask NWSC to prepare plans for network extensions and plant rehabilitation on the basis of councils' own programming priorities. NWSC will undoubtedly have to be selective in meeting these requests, until its own capabilities improve further. Councils would monitor the preparation of designs and, as at present, consider the final product in the Development Committee and later the full Council. In doing its work in accordance with stated priorities of the councils, NWSC's role in the design, implementation, and maintenance of investments would be facilitated since it can count on the more active support, or at least the lack of resistance, of councils. On their part the local authorities would again play a significant role in the process, even if this role is conception and monitoring and not line responsibility. 3.28 Road and Vehicle Maintenance. The most serious shortcomings in the road maintenance capacity of councils can be traced to inadequate training and equipment. Both routine and periodic maintenance were done fairly well before 1971, and each was budgeted for separately in the council Roads Funds. Subsequently, periodic maintenance funds were removed from the budget and routine maintenance resources were drastically reduced. For the  - 28 - foreseeable future, local authorities will therefore continue to contract out the reconditioning and reconstruction of roads to the private sector. This is entirely appropriate. Meanwhile the focus would be on acquiring tools and equipment to rehabilitate vehicle maintenance workshops, especially the Sixth Street Workshop in Kampala. Equipment needs will be varied, since street surfaces vary from 97% paved in central Kampala to 5-15% in the Western and Eastern Districts of Kampala, but they should not be considerable (in the first round of acquisitions) to get the maintenance workshops and street patching crews back in operation. Any subsequent purchases would be tailored to progress in local financial reforms, so that recurrent costs and provision for renewal of equipment can be met through local taxation. 3.29 Solid Waste Management. Trucks, bins, hand carts, and other equipment provided under the IDA-assisted Water and Sanitation Rehabilitation Project should dramatically improve the solid waste collection capacity of councils in Kampala, Jinja, Entebbe, Masaka, Mbarara, Mbale, and Tororo. At different times, the Public Cleansing units of councils charged with solid waste collection and disposal have been located in the Engineer's Department; the recent trend is to shift them to Public Health departments. The exact placement of these units appears to be less important than the coordination required with vehicle maintenance staff in the Engineer's Department, so that the skip trucks and carts will be regularly serviced. Although scheduling would theoretically be easier from within the Engineer's Department, there is no reason why Public Cleansing units located in Public Health should not be able to liaise as easily with vehicle maintenance staff in the Engineer's Department. For example, equipment maintenance schedules for all Departments should be reviewed regularly by the Program Review Committee (see para. 3.3). 3.30 Markets. The way in which the local councils' monopoly of food markets is managed illustrates the benefits to be obtained from a more flexible institutional framework that treats similar economic entities similarly. In Kampala, 52 food markets with a total of about 7,100 stalls have been licensed by the KCC. Licensing ostensibly maintains health standards by admitting for sale only goods passed by health inspectors. However, these intentions are thwarted since goods that are believed not to pass the city inspection are sold under the table to people in illegal markets, now numbering 43 in Kampala with,about 2,000 stalls. When it is considered that of the 52 legal food markets, 43 are "undeveloped,- and that physical differences between -legal, undeveloped" and "illegal" markets are often negligible, it makes both financial and economic sense to bring as many presently "illegal" markets as possible under the purview of the councils. In the KCC a survey of all markets was undertaken in 1981, with the result that 10 markets were subsequently legalized. It is recommended that this process be expanded in Kampala and initiated in Jinja, where the impacts on local revenue can be substantial (see paras. 2.16-2.19).  Laund -29 3.31 With the exception of one municipal council (Bombo) and 18 town councils, all cities and towns in Uganda have the authority to allocate and manage the land within their borders. Ownership of the land is vested in the Uganda Land Commission (ULC), which transfers effective control to the local governments through a 199-year lease at a symbolic charge of USh 1 per year. Individuals may then obtain a leasehold title from the local authorities upon completion of the following steps: a. A cadastral survey is conducted by the Chief Registrar of Titles, provided there is an approved Zoning Plan for the area b. Councils declare the plots open for lease c. Applications for a plot are made to the Chief Registrar of Titles d. Land records are checked to make sure the plot is available e. A Government Valuer determines the "land premium," or market value based on location, amenities, etc. f. The application form is sent to the Town Clerk, who puts the item on the agenda of the Development Committee of the Council g. After review by the Development Committee, the item is voted on by the full Council. The Chief Registrar of Titles is represented at the Council meetirg h. Minutes of the Council meeting are forwarded to the Chief Registrar of Titles i. If the Chief Registrar indicates "approval' on the minutes, a lease offer is extended to the applicant. The applicant is asked to pay (a) the full land premium; (b) all survey fees; and (c) title insurance j. A lease document ("Lease by Urban Authority") is prepared and sent to the applicant who signs, pays a stamp duty, and returns the lease to the Chief Registrar of Titles k. The Chief Registrar of Titles forwards the lease to the council, which seals it 1. The sealed lease is returned to the Chief Registrar of Titles, who issues a Leasehold Certificate. Leases run 5 years (2 years in Kampala), and are extended to 49 years in rural areas or 99 years in urban areas provided the plot has been developed. The longer leases are renewable. Ground rents equal to 1OZ of the land premium are paid annually, and revised every 10 years.  - 30 - 3.32 As shown in Table 2 below, those who complete this long process and obtain a leasehold title represent a small fraction of the potential demand (although a larger fraction of the high-income residents that are able to afford the costs involved): Table 2: Ldx Leasehlds Awrded in relatimn to Potenial Dmmu, 1979-1983 AnmuaL New Plots Pqplation Reqlred leasebolds (OCnificates of Title) Awarded Total Tbwn Increase a/ Eah Year b/ 1979 1980 1981 1982 1983 1979 -1983 Kampala 16,O0 2,960 107 211 345 230 330 1,223 Jinja 1,575 290 13 31 12 18 22 96 Etebbe 790 145 7 6 13 12 21 59 / At 3.5% armal pouation gw-th. b/ 5.4 person per bxuebold. Assam one hxsetDld per plt. Swuroe: Coazdssioner of Ladi Surveys. 3.33 Several factors combine to produce this result. First, surveying of new development areas has been virtually halted by the lack of both survey equipment (see para. 3.19) and financing. The national budget has not been able to pre-finance cadastral surveys, even though their cost is recovered from plot applicants at the time of the lease offer. Moreover, the review of individual plot allocations by the Development Committee and by the full Council further draws out the attribution process. This review also applies to applications for lease extensions, where a judgment must be made about how much effort over the previous two or five years -as gone into developing the plot. Given the shortage of building materials in Kampala, the two-year initial lease period is typically not long enough to finish construction. Finally, land premiums are higher than can be afforded (especially without credit) by many applicants, although they may still lie well below the full market value. Of the applicants for a plot in Entebbe who completed all steps in the process over the past three years, less thav half actually accepted the leaseholds that were finally offered them because they discovered they could not meet the payment terms. 3.34 As was also suggested for building regulations (para.3.15), a broadening of the range of acceptable solutions would both simplify the process and permit its extension to areas not yet in the system. The objective should be to confer security of tenure, as a means of channeling private savings into investments in housing. In parallel with the title award process described above, the granting of an Occupancy Permit to other segments of the urban population is likely to be welcomed as a measure of security by those having no written evidence whatsoever of tenure. Following this line of reasoning, Occupancy Permits would be issued  - 31 - by councils to low and middle income residents whose house locations do not interfere with plans for the future provision of services. In one or two pages, the Occupancy PermiL would (a) confirm officially the right of plotholders to remain where they are; and (b) be changed into a full leasehold title when the plot is surveyed and the land premium is paid. Because ownership remains with the council when an Occupancy Permit is delivered, no land premium or ground rents would be due. 3.35 As building regulations become more performance-oriented (see paras. 3.15-3.16), there would be much less need for detailed distinctions among land uses. Consequently, the process of awarding land leaseholds can also be simplified. The shift from physical planning to investment planning would imply a move away from the present Zoning Plans. The tendency instead would be to prepare what can be called Area Development Plans, which would indicate the broad land use implications of future investments without need for details on what each type of use will be. Low to middle income residential", or even an unqualified "residential," could replace the current Grade I-Grade II designations. The basic transportation network would be indicated, and land reserves for community facilities would be shown. Although the Development Committee and the full Council would review and approve Area Development Plans, there would be little need afterward to approve each plot application since the layout of all plots is acceptable. These time-consuming steps can be saved. 3.36 Once the plot is awarded and construction begins, homebuilders should not be penalized if outside forces such as the scarcity of building materials prevent them from finishing within two years. Consideration should be given to lengthening the initial lease period in Kampala to four or five years. In contrast, the period between revision of the ground rents (10 years) is too long. In nominal terms, grm'nd rents would have to be raised astronomically to cover the inflation of a decade and maintain their real value. It is recommended that the period between revision of ground rents be reduced immediately to five years, and be further reduned when staff of the Commissioner of Lands are geared up to manage more frequent revaluations. 3.37 Mailo Land. Over half the land area of Kampala lies outside the jurisdiction of the Uganda Land Comission and consequentl' of KCC. Mailo land, located primarily in the western and southern districts of the KCC, is privately owned land with titles granted under customary rights before and during the Protectorate. Mailo land ceased to exist under 1975 legislation aimed at forcing mailo owners either to develop or relinquish ownership. This legislation, however, was never enforced. 3.38 Fortunately, ULC land in Kampala has not all been used up. This will allow time to sort out the complexities of the mailo ownership issue and examine the impacts of alternative control measures. Meanwhile, as the city expands, it can be expected that mailo owners will respond to economic incentives to use their land more intensively. Housing 3.39 As in other countries, central and local authorities in Uganda have found it impossible to meet the demand for housing with affordable publicly constructed housing units. It is widely recognized that a change  - 32 - in policy is justified not only oecause the existing public housing stock has deteriorated badly, but also because its scarcity perpetuates inequities between those with access to it and those without. 3.40 The problems are similar whether the public housing is owned by the National Housing and Construction Corporation (NHCC) or by local councils. Most of the KCC's 1,760 council housing units, for example, came onto its books in 1958 when the African Housing Department of the Ministry of Works, which had built them, was dissolved. Since only 150 units have been built since 1962 (one third of these to replace existing ones deteriorated beyond repair), there has been virutally no new construction in over 20 years. Table 3 below shows that fixed 1983 rents in KCC council housing bear no relation to market rents for the same type of house: Table 3 Rents in relation to Market Values of Comparable Units KCC Council Housing, 1983 KCC Estimated Council Fixed Monthly - Market Rent, Housing Rent, 1983 1983 Unit (USh) (USh) 1 room 165 3,000 1 bedroom 240 8,000 2 bedrooms 615 12,000 3 bedrooms 1,830 16,000 The argument that this is a necessary in-kind wage supplement for underpaid city employees loses validity when it is considered that two-thirds of such housing is not occupied by city employees but by the general public. Aside from council housing, KCC has 88 units available to senior staff. In the staff housing the difference between fixed KCC rents and market rents is even wider. For a 3-bedroom house in a Grade I area, renting monthly on the open market perhaps for USh 20,000, a senior staff member of KCC pays USh 142. 3.41 The fact that neither central nor local authorities should accept unlimited responsibility to house their staff was recognized as far back as 1954. Now, both levels of government appear on the verge of redefining their roles as facilitators in the housing market rather than participants. In-cash housing allowances, permitting public officers to obtain their housing privately, are being given more serious thought. This is a wove very much in the right direction. However, such an initiative will need to develop in parallel with a reorganization plan for NHCC that would permit devestiture of its unproductive assets (essentially its public housing stock). NHCC could then take on the management of programs to develop surveyed plots for private house construction, along the lines of the -reception area programme' now being considered. 3.42 The practical problems of introducing a housing allowance scheme will need to be carefully reviewed. Given the steep rise in house rents and in the costs of new construction, the financial burden will need to be reduced through a phased introduction of allowances together with the establishment of long-term loan arrangements. MHUD is assembling a team of consultants to advise Government on the issue of civil servant housing. The scope of work of this team should include an in-depth evaluation of the impacts of introducing a housing allowance system.  - 33 - 3.43 Since surveyed plot programs can be administratively complex, the redirection of NRCC to acquire competence in this area will take time. In the near term, however, neighborhood upgrading holds a better promise both of improving the living conditions of poor families and of demonstrating the redefined public-private roles in housing. Proposals for slum improvement in the Namuwongo, Wabigalo, and Kisugu districts of Kampala show that a start has been made toward developing a workable program. To more closely reflect the mix of public coordination and private initiative, these proposals should be redefined to (a) reduce the scope to what is within the repayment capacity of residents; (b) focus on basic services, with an optional credit program for house construction and improvement; and (c) improve security of tenure through introduction of Occupany Permits. Families with Occupancy Permits could then build in non-permanent materials on a 4- or 5-year lease, provided the materials meet the performance criteria set forth in the building regulations. 3.44 Building Materials. To satisfy these construction needs, critical shortages of building materials must be addressed. Roofing sheets and nails continue to be almost lOOX imported, as there are no alternatives for completing most buildings. It is recommended that MHUD closely monitor trends in the productior of locally-based materials (primarily bricks and concrete blocks), so that complementary imports of roofing sheets and nails can be assured. The production of bricks in turn requires large amounts of energy, currently derived from coffee husks and firewood. Wood resources are being badly depleted in many semi-urban and rural areas, raising the opportunity cost of using coffee husks as fuel for brickmaking rather than in agriculture. For brickmaking, alternatives such as recycled diesel fuel rather than coffee husks should be explored, since the larger brick kilns accommodate several types of fuel. 3.45 Industrially-produced bricks are affordable to only a small segment of the population, but artisan and small-scale producers make bricks suitable for single-story houses and use less capital in smaller tranches. Programs being designed by the Ministry of Industry to help small-scale producers should be funded and put in place as rapidly as possible. Coordination with the larger producers (particularly Uganda Clays) would help get these programs off the ground: since the current demand far exceeds the supply of building materials, the industrial producers do not see small suppliers as a threat and have shown an interest in providing technical assistance. Other programs such as those at the Kiteredde Construction Institute near Masaka are designed to develop local materials and train artisans in their use. They deserve support as part of a reorientation of policies in central government ministries toward the production of local materials. Finally, the Building Research and Materials Development Unit of MHUD will also reqcire more equipment and greater staff capabilities if it is to fulfill its role in the design, testing, and demonstration of local materials. 3.46 Unless regulations and standards are also made more flexibl , these direct actions will probably have only a limited impact. Performance-oriented building regulations would automatically give greater scope for the use of local materials. Moreover, some local authorities prohibit the firing of bricks within their boundaries, despite the number of suitable sites and the high cost of transporting finished bricks from outside the town limits. A review of these regulations is a necessary complement to the managerial and financial advice provided under Ministry of Industry programs in the promotion of local building materials.  - 34 - CHAP=ER IV: RECGIHHEDAXIONS FOR LS INITATIO5 4.1 The recommended strategy for improving urban management and finance in Uganda builds selectively on the strengths of central and local authorities and addresses the most commonly shared weaknesses. The overriding purpose of such a strategy is to support the goals of the Recovery Programme by improving local services and the capacity to generate and pay for essential investments. More specifically, what is proposed is designed to: a. Set clear guidelines for urban institutions by formalizing the successful informal procedures and clarifying roles and responsibilities b. Improve the financial administration of local authorities, the financing of urban investments and the recovery of costs from those who benefit c. Establish similar regulations and prices for similiar coTnmodities and services d. Introduce more effective measures for servicing of land, granting of tenure, and house construction. A. lumediate Action Program 4.2 From the set of recommendations presented in earlier chapters, measures making up an Immediate Action Program to be carried out as rapidly as possible include the following: a. Technical assistance, equipment, and materials for strengthening financial management in Kampala, Jinja, and Entebbe municipalities and for improving the effectiveness of MLG (paras. 2.10 - 2.38) 1/ b. Equipment and vehicles in KCC for adequate maintenance of roads, and equipment, works, and tools in Kampala and Jinja to rehabilitate vehicle maintenance facilities (para. 3.18) c. Written clarification by the agencies concerned of central and local government responsibilities and the roles of MLG and DC in the management of Kampala. For water supply/sewerage and town planning, redefinition of present arrangements to ensure an effective role for councils (paras. 3.4-3.10) d. Technical assistance, materials, and teacher training to I/ Although equipment and technical assistance needs of these three municipalities are critical, requirements are also urgent in at least 12 major cities and towns. At the same time, the capacity to use and maintain the equipment will need to be strengthened in these other towns, as is also the case for Kampala, Jinja, and Entebbe.  - 35 - strengthen training capabilities at IPA, Uganda Technical College, National Teacher's College, and the Survey Training School (paras. 3.20-3.23) e. Measures to simplify the regulations governing land servicing and house construction (paras. 3.14-3.16, 3.34) f. Encouragement of small and medium-scale brick producers and construction artisans (paras. 3.45-3.46). Specific aspects of the measures proposed for immediate action are discussed in paras. 4.3-4.17 below. Local Government Financial Management 4.3 Overall Strategy. Recommendations for strengthening local government financial management would initially concentrate on improving and supplementing the capabilities of in-country staff, using expatriate advisers. Concurrently, established training institutions and their curriculums would be strengthened to provide more formal financial training. The curriculums would have to meet two general areas of need: college-level training for professional accountants; and functional short programs in specialized areas of municipal accounting, auditing, financial analysis, and municipal finance. The expatriate advisers would provide input to ongoing curriculum needs at the training institutions, and would complement the formal training by providing on-the-job training to local and central government staff. 4.4 The tasks of the expatriate advisers would be to (a) serve as "mentors' to key in-country staff; (b) take a lead role in improving and documenting systems and procedures; and (c) provide policy and operational advice on municipal revenue strategies and budgeting. Three advisers would be needed for a period of two to three years each. They would be assigned to the Ministry of Local Government. 'One adviser would assume a lead role in addressing issues of financial policies, inter-ministerial issues, local and central government relationships, and systems and procedures wichin the Ministry. A second adviser would work full time with the KCC, concentrating on improving systems and procedures, developing staff capacity, and advising on financial management issues. The third adviser would play a similar role for Jinja and Entebbe, and also provide back-up support at MLG. 4.5 The near-term efforts of the advisers would focus on streamlining financial management policies and practices; improving, standardizing and documenting systems and procedures; dnd upgrading staff capabilities. Opportunities to increase specific revenue sources at councils would also be addressed, but this should not be an immediate emphasis. As results are realized in the management areas, and as the national economy improves, the focus of the advisers would shift toward increasing municipal revenues and capital financing resources to support development programs. This effort would include (a) reactivation of the Local Authorities Loan Fund; (b) improvement of revenue collections; (c)  - 36 - development of programs for making larger councils financially self-sufficient; and (d) initiation of a comprehensive property tax administration program. 4.6 Program Elements. The following tasks comprise a recommended immediate action program for improving local government financial management. They are listed in approximate order of priority. a. At the Ministry of Local Government: (1) Prepare a plan and schedule for the payment of taxes in arrears to councils from central government agencies and corporations. (2) Develop and document a formula for allocating available block grants to urban authorities (to be done