Mexico - Decentralization and urban management in Mexico : urban sector study

Report No. 8924-ME Mexico Decentralization and Urban Management Urban Sector Study luly 8, l99l Infrastructure and Energy Operations Division Country Department 11 Latin America and the Caribbean Regional Office FOR OFFICIAL USE ONLY This documenth~as a restrcted diswribution and may be ~Ised by recipients' only'in the performance of their official duties. fts contetts may not otherwise be disclosed without World Bank authorization. !~~~~~~~~~~~~~~  CURRENCY UNIT PESO (MEXS) On May 20, 1991, the exchange rate in the controlled market was USs - MexS2980.40; and in the free market US$1 - Mex$3002. The controlled exchange rate is currently being devalued by Mex$0.40 a day. Weimhts and Measures Metric System Fiscal Year January 1 - December 31 Abbreviations and Acronyms BANAMEX - National Bank of Mexico BANOBRAS - National Bank of Works znd Services CEM - State Commissions for Municipal Studies CNEM - National Center for Municipal Studies CODEM - National Commission for Municipal Ejidal Lands CONALEP - National Commission for Legalization of Ejidal Lands COPLADES - State Committees for Economic and Social Planning COPLADEMs - Municipal Committees for Economic and Social Planning COPLAMUNs - Municipal Committees for Economic and Social Planning CORETT - Commission for Regularization of Land Tenancy and Tai ffs FCP - Compensatory Revenue Sharing Fund FFM - Municipal Revenue Sharing Fund FGP - General Revenue Sharing Fund FIFAPA - Trust Fund for Water and Sewerage FOMUN - Municipal Development Program IEPES - Institute for Economic and Social Planning IRAP - National Institute for Public Administration INDOTEC - National Institute of Public Finance PRONASOL - National Solidarity Program INEGI - National Institute for Geography, Information, and Statistics SARK - Secretary of Agriculture and Hydraulic Resources SCHP - Secretary for Credit and Public Treasury SEDUE - Secretary for Urban Development and Ecology SPP - Secretary for Programming and Planning  FOR OMCIL USE ONLY =CO DRCEIThALIUZ* N AND URBAW MAN6EHEM pN MEXICO Urbua Sector Study Table gf Contg=t Executive Summary i - iv I. SECTOR BACKGROUND I A. Introduction I B. Pattern of Urbanization 1 C. Institutional Development 2 D. Federal Agencies Concerned With Urban Management 4 II. POWER SHARING. EFFICIR1CY. AMD RQUITY: 4 OBJECTIVES OF DECENTRALIZATION A. Introduction 4 B. Objectives of Decentralization 4 C. Power Sharing 5 D. Efficiency 5 E. Equity 6 F. Implications for Urban Policy 6 III. FEDERAL/STATE/MUNICIPAL RELATIONS 7 A. Introduction 7 B. Role of National Agencies 8 C. Federal Investment 9 D. The Provi;ion of Credit 16 E. tevenue Shariag 18 F. An Unaddressed Issue: Ejidal Land 21 This Report was prepared based on two missions to Mexico during March, April, and May of 1989. The first mission, led by Tim Campbell (LATIE) included Jese Brakarz (consultant), covered case studies in the northern states. The second, full mission, was led by Carl-Heinz ume (LA2TE) and included Mossrs/Mm1. Tim Campbell (LATIE), Willism Dillinegr (INURD) and Mike Garn (INUWS), and Betty Alvarado and Ren Davey (Consultants). Carl-Heinz Mume (Task Manager) had the coordinating responsibility for the production o0 .he report, which vas compiled and edited by Ken Davey. This document bas arostrkted distribution and may be used byrecipients only in the performance Iof their offcial dutis. Its contents maY not othoi be dbscbose without World Bank authorization.  - ii - IV. MUNICIPAL ADMINIOTRATION 23 A. Introduction 23 B. Structure 23 C. Municipal Punctions 25 D. Internal Organization 27 e. Staffing 30 F. Finance 34 C. StatelLocal Relations 40 V. PRIORITIES FOR PUTURE URBAN POLICg 43 TAEMS 1. Mexico: Population, Growth Rates, Urbanization for Mexico and Selected Countries in the Region. 47 2. Mexico: City Site and Growth Rates, 1990. 48 3. Mexico: "Social* Rates of Growth in Principal Cities, 1950-1980. 49 4. Mexicos Urbanized Region of Northern Mxico. S1 S. Mexico: Mortality and Illiteracy by Region. 52 6. Mexico: Basic Infrastructure in Mexico by Region. 53 7. Mexico: CUD. Allocation of Resources, 1983-1988. 54 8. Mexico: Number and Average Populations of Municipios by State. 59  1. For a decade now Mexican Administrations have pursued broad policies of decentralization. These have embraced constitutional, fiscal and institutional reforms. Stare and municipal administrations have been accorded substantial statutory shares of national revenues. An increasing proportion of federal investment is planned by state and municipal level coordinating committees (COPLADES and COPLADEMS/COPLAMUNS)v and undertaken through Convenios Unicos de Desarrollo (CUDs) in which state and, in most cases, municipal administrations participate in desigr. and execution. The Constitution has been amended to give municipal administrations prime responsibility for urban planning and infrastructure, and rights to property taxation. Federal secretariats have delegated considerable respensibility to state level representations. 2. These reforms have been undertaken against a backdrop of continuing and massive urban growth, which is set to continue, with the fastest rates in the secondary cities. Urban areas now contain 702 of the population, and on present trends this will reach 802 vithin another twenty years. Mexico City is growing at less than one per cent per annum, but secondary cities at nearly five per cent. Sixty two cities now exceed 100,000 people. 3. Decentralization of decision making is a rational response to these changes. Local participation in investment choice increases the efficiency of resource allocation. Equity is improved when thoso who benefit meet the cost; and benefits of most public urban services (apart perhaps from education, health care and waste disposal) are largely localized. 4. This Report therefore endorses the broad thrust of recent government policies, and does not suggest any major departure from them. Its concern has been to identify constraints to their full implementation and opportunities for their further development. 5. Our first major area of concern is the division of resnonsibilitv between the three tiers of moverament for resource allocation. This involves issues of both principle and process. 6. In the past, patterns of federal investment have been influenced by spatial targeting of population growth. We believe that industry, employment and people have shown a robust resolve to locate themselves in places of inherent economic advantage, regardless of planners' intentions. The 1990-1994 National Urban Development Plan recognizes this by emphasizing the need for infrastructural investment to reinforce the demographic and economic growth demonstrated by the secondary cities over the last decade, and to encourage private investment in natural growth corridors. 7. A further target of the Urban Development Plan is the improvement of living conditions of the poorest neighborhoods in towns throughout the country. This is being pursued through the National Solidarity Program. We strongly endorse an emphasis on the needs of the poor in investment choice. Poverty cannot be addressed simply by some general territorial redistribution of resources since this does not ensure that they benefit poor people and ignores  - ii - the needs of the poor in richer regions. poverty has to be addressed by investments of particular benefit to the poor and targetted to poor neighborhoods wherever they exist. 8. Several measures have been undertaken to Improve efficiency in the allocation of resoureos. These include: (a) Channeling a proportion of federal investments through CUD. to involve state and, to a lesser but growing extent, municipal participation in progrsm choice, design and execution, together with counterpart recources; (b) joltt planning of investments through COPLADES; (c) the rapid proliferation of municipal solidarity programs aimed at poverty alleviation; and (d) the increasing substitution of SANORIAS credits for grant financing of services appropriate for user charging. Further iprovements in the allocation and coordination of urban infrastructural investment are being pursued through proposal. under the National Urban Development Program to create Commissione of Urban Development in the fast growing secondary cities, and to give these areas priority in such investment. 9. We endorse these reforms and recommend further steps to enhance their benefit; (a) progressive increases in the proportion of federal livestment funded through these channels; (b) developing improved guidelines and enhancing the local uapabilities for conducting the finant al and economic appraisal of state programs submitted for CUD financin; and (c) including In CUDs allocations some compensation for local investment and operating costs arising from direct federal investment. 109 Our second concern is to strenathen municial administration. The amendment in 1983 of Article 115 of the Constitution was a major breakthrough In defining a field of responsibility in which municipal administration should bave a primary role. Its fundamental fitness for this role was confirmed by the strong signs of accountability, responsiveness and flexibility shown by the several local governments we visited. But there are still severe institutional constraints to be overcome if the objectives of the constitutional reform, and the "self -management culture" sought by the Salinas Administration are to be achieved. 11. Perhaps the biggest constraint is the discontinuity of municipal administration represented by the three year term of office and the associated turnover in managerial and professional staffing. Although there would be risks