UNITED NATIONS HUMAN SETTLEMENTS PROGRAMME (UN-HABITAT), MINISTRY OF TRANSPORT, INFRASTRUCTURE, HOUSING, URBAN DEVELOPMENT AND PUBLIC WORKS & THE DEPARTMENT OF FINANCE AND ECONOMIC PLANNING (COUNTY GOVERNMENT OF KISUMU) Own-Source Revenue (OSR), or the taxes and charges that are controlled and levied by local governments, have been gaining in traction over the past few years – for good reason. OSR is key to ensure that local governments have the necessary funding to provide adequate services to their taxpayers. OSR also increases the accountability of local governments to their constituencies and thereby incentivizes more effective and citizen-oriented service delivery. Lastly, OSR has the potential to increase the creditworthiness of local governments and provide them with access to private capital markets for larger scale investments in the local economy. While the merits of OSR are widely accepted, actually using OSR systems in an adequate, effective and efficient manner remains a challenge for many local governments, especially in low-income countries. Local governments in low- income countries generate around $12 per capita per year from OSR compared with $2,944 per capita per year in high-income countries. For OSR in lower- income countries and Africa in particular to fulfil its important role within decentralized political systems, and for it to help close the growing subnational infrastructure gap, OSR systems need to be optimized. Among the key OSR reform bottlenecks is lack of adequate capacity of local governments and inadequate fiscal decentralization frameworks that devolve insufficient authority to local levels. Less talked about, but of equally critical importance - so it seems - is the lack of lack of OSR reform incentive. Effective OSR policies and systems in fact frequently are not in the interest of tax collectors, politicians or economic elites, all of whom can benefit from tax loopholes and lack of enforcement. Similarly, since raising taxes is generally politically unpopular, local governments are often unlikely to willingly optimize OSR – especially when they have access to politically ‘cheaper’ sources of funding/finance. The Africities Summit provides an ideal opportunity to focus on the politics of OSR reform and the extent to which incentive constraints undermine reform efforts across the African continent. It provides an opportunity to flesh out how insufficient reform incentives work to undermine OSR reform efforts and what can be done to address these issues at the local, national and international levels. Guiding Questions:

• What is the role of politics in OSR reform and how to insufficient reform incentives undermine OSR reform efforts?
• What levers and approaches exist to strengthen the incentives for local governments to optimize their OSR systems?
• Does technology bear potential to overcome insufficient OSR incentive issues and how can this potential be leveraged?
• What do insufficient OSR reform incentives imply for Local Finance reform more broadly? Where are local finance interventions complementary and where do they undermine respective reform incentives?
• Should OSR reform be pursued in parallel with other Local Finance reforms or are there instances where it should be considered a prerequisite for other Local Finance reforms?

Objectives & Contribution

• To outline the extent to which insufficient reform incentives undermine OSR reform in Africa
• To identify key mechanisms that have been successfully used to address insufficient reform incentives
• To raise awareness among development stakeholders for the need to focus on the incentives for OSR reform for the financing of urban development more broadly
• To move towards a greater awareness of the trade-offs between various Local Finance interventions and a new consensus among stakeholders and development partners around the need to sequence Municipal Finance reforms