The first method is based on analogy and estimates benefits based on changes in property prices in comparable areas where similar projects were implemented. As an alternative, they can also use the double appraisal method where as discussed in the case of Colombia, before and after prices of the properties in the area of influence are compared. Lima has faced several challenges in implementing betterment levies. First, the municipality lost key professionals, including engineers, architects, economists, etc., and the remaining staff was not compelled to participate in training courses on implementing betterment levies. Second, the political will from municipal authorities is non-existent while middle and upper class residents are dissatisfied with levies. These classes feel they are overburdened with taxes; meanwhile projects are not well marketed so citizens do not understand their full benefits. The outdated land registry has also posed challenges as it makes the administration of the levy particularly difficult (Huayapa 2001: 5).

While the methodology for Lima’s betterment levies is nearly identical to Colombia’s, the lack of training and technical knowledge on implementation translates to potential missteps at every turn. Like Colombia, public participation is a part of the betterment levy process in Lima. A citizen representative is selected by democratic process to act as a liaison between the community and the municipality (Huayapa 2001).

Successful implementation of betterment levies requires several prerequisites to be in place. First, strong institutions must be in place to support the process and build capacity in terms of implementation and collection of taxes. A clear understanding of the methods to calculate benefits and define the distribution of the levy among tax payers is essential. Just as important is the attitude of tax payers. Encouraging citizen participation and working towards a strong tax payment culture will also support the success of betterment levies.

# <mark>4.3 DEVELOPMENT/IMPACT FEES AND EXACTIONS</mark>

Development/impact fees and exactions are one-time fees collected by a municipality from a developer, to dedicate land or build or pay for costs of capital improvements that are required for public facilities. These fees are usually set as a condition for the approval of development. Fees paid by developers may be in-kind (e.g. provision of public services or land) or monetary, and are used to fund specific activities that serve the public benefit. Exaction-revenue relies on current charges rather than accrued property taxes, which may provide an alternative in places that do not have strong property tax regimes.

Since exactions are predicated on an active new development environment, they are typically used in areas facing rapid growth. The primary model of exactions originates from the United States, where private development impact fees have long helped finance public works. The legal argument behind exactions is that public need for increased or improved infrastructure is “attributable” to new development (Altshuler and Gómez-Ibáñez 1993). The popular use of exactions in the United States emerged from the struggles of betterment levies and special assessment taxes during the Great Depression. The collapse of the financial system triggered defaults on financing for public works. Their purpose is best summarized by Altshuler and 27