14

**Table 2: Comparison of Regulatory Frameworks: Key Elements (Continued)**

|**Regulation on Borrowing**|**Rationale/Comment**|**Applicability to Land Assets**|
|---|---|---|
|**Contingent Liabilities &**<br>**Inventories**<br>Regulations require that<br>subnational government<br>guarantees of third-party loans<br>(e.g., subnational enterprises) be<br>counted as debt for debt ceiling<br>purposes, either at full value or<br>risk-adjusted. This in turn<br>requires a comprehensive<br>inventory of subnational<br>guarantees, as well as all of the<br>different types of debt that a<br>municipality and its constituent<br>elementshaveincurred|In practice, this “inventory”<br>of subnational debt<br>obligations and guarantees<br>has been one of the most<br>difficult challenges. Until<br>an inventory is undertaken,<br>there typically is no<br>comprehensive<br>understanding of<br>subnational aggregate debt<br>obligations.|A closely parallel situation arises in<br>managing subnational land finance.<br>An accurate accounting and reporting<br>of subnational land transactions and<br>land ownership is necessary to<br>understand the potential risks.<br>Similar to loan guarantees, land may<br>be transferred to or from third parties<br>in non-transparent ways that entangle<br>and obscure financial reality.|
|.<br>**Fiscal Transparency**<br>Subnational borrowing should be<br>brought on budget, preferably<br>through a separate capital budget<br>that spells out capital revenue<br>sources and investment<br>expenditures. Outstanding debt<br>obligations should be spelled out<br>on the liability side of the local<br>government balance sheet, or in<br>equivalent notes. Budgets,<br>financial statements, and balance<br>sheets should be publicly<br>reported.|Transparency of this kind is<br>necessary to reduce private<br>financial dealings and<br>corruption, and to build the<br>basis of fiscal<br>accountability, both<br>‘downward’ to citizens and<br>‘upward’ to higher-level<br>governments. Off-budget<br>transactions can obscure<br>financial reality.|Bringing land transactions on-budget<br>is a critical part of regulation in this<br>area. All information on public land<br>inventories, public land valuations,<br>land sales, and land contributions to<br>public-private joint ventures or<br>subsidiaries should be conducted<br>through transparent instruments, be<br>reflected in the budget and financial<br>statements of either the subnational<br>government or of the special purpose<br>vehicle serving as the financing<br>instrument, and be a matter of public<br>record.|
|**Collateral Restrictions**<br>Regulations commonly identify<br>public-purpose property that<br>cannot be offered as collateral<br>for subnational borrowing. A<br>Pledge Law commonly requires<br>registration of all property<br>pledged as collateral so as to<br>protect against “double<br>pledging.”|The purpose of the first<br>regulation is to prohibit a<br>lender from foreclosing on<br>property that is essential to<br>service delivery or the<br>performance of basic<br>government responsibilities.|Exactly parallel. In fact, the same<br>law typically identifies what types of<br>publicly owned property can and<br>cannot be alienated, either by sale or<br>as collateral for loans. The<br>registration of land and property<br>collateral for land-management<br>purposes involves exactly the same<br>information required for subnational<br>debtregulation.|

Sources: Liu and Waibel (2008, 2009) on subnational debt regulation, authors’ own research.

Additional similarities exist between other aspects of Debt Management Policy and Land Asset Management Policy. Some of the issues below may be addressed as policy guidelines rather than regulatory requirements.