DBKL -- It's about responsible spending

THE EDGE WEEKLY ISSUE#991

THE WEEK OF DECEMBER 2 – DECEMBER 8, 2013

MY Say: By TONG KOOI ONG

Last week, we contrasted the budgets of DBKL and the state of Selangor.  The general conclusion was that given the two have relatively similar revenue base, Selangor was spending its income much more efficiently than DBKL.  This is because despite being far larger (in terms of number of residents and land area), Selangor has a smaller operating budget.

Some people were unhappy and challenged my analysis on the basis that running a state is different from running a municipality.  I acknowledge this fact.  Indeed, comparative analysis is never absolute.  No two municipalities have exactly the same mandate, requirements and expectations.

This week, I compare DBKL’s budget with those of the municipalities of Penang island and Ipoh, as show below.

 

The conclusions are the same.  DBKL spends three times more than Penang Island and five times more than Ipoh in terms of operating expenditure per person.

In terms of land area, DBKL spends nine times more than Penang Island and 34 times more than Ipoh per sq km.  Note that the budgets of Penang Island and Ipoh are not the latest, but that will not change the conclusion.

Are these cities totally comparable?  NO.

Kuala Lumpur is the capital city of the country and it deserves more attention and care.  But we have also not taken into consideration the fact the KL has a development budget of almost RM800 million while the other cities area operating on RM16 million.

Let me now move on to the second area of misunderstanding, that assessment should be based on property valuations.

DBKL as a municipality operates on a budget based on what it needs to meet the demands and expectations of its residents.  The people have the right to expect DBKL to be responsible, accountable and prudent in spending their money.

So, the first requirement is to question the budget.  Is the budgeted amount fair and reasonable?  This is why we have written extensively on this topic.

Once the total expenditure amount is agreed on or acceptable to the people, the next question is how to share the cost of running DBKL.  A fair methodology used in most cities is to correlate the budgeted expenditure with the amount of assessment to be collected from each residence based on a percentage of the value of the property.

How does this work in practice?  Say the total property value in City X is $10,000 million.  The city’s budgeted expenditure is $80 million.  Then, each resident will pay the equivalent of 0.8% of the property value.

Now, assuming the total property value in City X doubles to RM20,000 million, if we allow the rate of 0.8% to remain constant, then the city will have a $160 million budget to spend.  But this should not be allowed.  It will only encourage wastage and inefficiencies.  In any case, the gains in property value are taxed indirectly through RPGT and income tax on rents.

Instead, the right approach is to first decide what is a reasonable budget for City X.  Say it is raised from $80 million to $100 million.  Then the assessment rate will be reduced to 0.5% of the property value of RM20,000 million. 

I would like to add that the above methodology for property assessment is the most common form applied, as far as I am aware.

I hoped I have sufficiently clarified and put to bed the main assertions I have made, namely, DBKL needs to be more efficient and transparent in the way it spends and revenue collection should not be tied to property value. 

TONG KOOI ONG is executive chairman of The Edge Media Group.  Feedback is welcome at www.tongkooiong.com