COLOMBIA: Financing Urban Development in Colombia, implementing innovating LVC instruments - TIF Phase II

Infrastructure financing is a priority for municipalities across the globe and even more so in the wake of the COVID-19 pandemic, which has impacted not only national but also municipal finances. Accordingly, PPIAF has aligned its priorities, both globally and in Colombia specifically, to better support subnational financing initiatives, often through the evaluation of alternative financing mechanisms. 
In the second phase of support to the Colombia Tax Increment Financing (TIF) Technical Assistance that focused on the municipality of Medellin, PPIAF’s work leveraged the efforts of the “Sustainable Regional and Urban Development Programmatic Approach,” which emphasizes the fostering of innovative methods for city management. The TIF tool leverages future tax revenue gains from real estate value appreciation to finance the development of urban infrastructure. The engagement included a review of city financing instruments and completion of a TIF Innovation District pilot in Medellin. The pilot consisted of a first phase of technical, legal, financial, and real estate market studies to develop TIF instruments for initial implementation in Medellin and in other Colombian cities thereafter. One of the most pertinent achievements of this activity was the incorporation of the TIF legal framework in the 2018–2022 Colombia National Development Plan. 
PPIAF subsequently supported the government of Colombia in developing innovative land-based finance tools for urban regeneration and infrastructure for two pilot cases in Medellin and Barranquilla. The analytical work in both pilots included the identification and scoping of the TIF urban redevelopment projects. Analyses performed in this exercise included the quantification of bond-issuance scenarios and the role of TIF as a finance source for urban redevelopment. The results were presented to the government and provided policy recommendations for strengthening, diversifying, and enhancing the process and technical capacity of structuring a TIF instrument.
The pilot project selected for scoping and analysis in Medellin was the Avenida 80 Tram Corridor, which consisted of the development of a 521,000 square meter area over 20 years, presenting an opportunity for a TIF bond-issuance of approximately $190 million. In Barranquilla, the entire city was identified for potential redevelopment, however, real estate market constraints reduced the development area from over 5 million to 1.6 million square meters over the 20-year lifetime using the TIF instrument. This resulted in a potential TIF bond issuance of over $47 million. 
In addition to the objectives of the PPIAF assistance, CREST was brought on board to assess the impacts of riverine and coastal climate-induced hazards on the Barranquilla pilot project area. The results were used to develop recommendations to boost the overall climate risk resilience capacity of the TIF investment area and to serve as a robust and sustainable model for application to other areas across Colombia. 
Though the results of both PPIAF assistances have already resulted in tangible changes to urban infrastructure financing in Colombia, the PPIAF intervention showed that both cities need to adopt institutional strengthening and land management recommendations before TIF can be successfully implemented. As such, follow-up work may include the provision of guarantees to further mitigate risk, increase creditworthiness, and make the TIF instrument more attractive to investors, as well as the dissemination of these results to other Colombian cities facing similar urban development financing challenges. 

Approved date2021-04-13
SectorMulti-sector (i.e. for infrastructure in general)
RegionLatin America & Caribbean

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