Colombia - economic aspects of the country's land use

American Journal of Economics and Sociology, The,  Dec, 2000  by Fernanda Furtado

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FERNANDA FURTADO [*]

THE COLOMBIAN EXPERIENCE with the principle of collecting the community-created value of land for community benefit is significant in the context of Latin American land-value taxation because of the nation's long tradition of effective use of the Contribution de Valorizacion (CV), a valorization or assessment surcharge imposed on properties that benefit from land value increments originating from public works.

This charge has usually been understood as the main form in which the principle of value capture has been embedded in the legal framework of most Latin American countries. These countries other than Colombia have had charges similar to its CV, many of which were introduced in legislation since the 1930s and 1940s. Nevertheless, outside Colombia the implementation of the instrument has generally been very sparse and controversial, in keeping with the familiar Latin American practice of "the law that does not rule"--i.e., legislation that is on the books but not enforced. In this setting, the Colombian CV is recognized as exceptional, because, albeit subject to shortcomings that eventually led to its retreat in the 1980s, it was effective for many decades after its first introduction in the 1920s, and had a fundamental role in financing the modernization and servicing of Colombian cities throughout the country.

Besides its paradigmatic role in the use of the CV, the case of Colombia is now of great relevance because of the recent (1997) enactment in national legislation of the Participacion en Plusvalias (PP), a new instrument guided by the value capture principle. The PP is explicitly based on the right of the community to participate in land value increments created by community effort, including in its scope not merely increments arising from public works but also those arising from land use norms and regulations defined by the public sector in the urban planning process.

The importance of this new initiative does not stem from its originality in the Latin American region. The basic idea for the new Colombian instrument may be traced in the legislation of many other countries, ranging from traditional law precepts (as in the expropriation law in Venezuela in the 1940s) to more recent initiatives (as in the attempts since the 1970s to regulate the selling of development rights in Brazil). However, those efforts were always subject to stiff political resistance related to a weak internalization of the principle that land value increments originated by the community are unearned and undeserved by private owners in their capacity as such. [1] As a consequence, the associated instruments were usually not implemented, or at best they were used in pragmatic ways in which the link with the ethics of value capture was loosened. [2]

The promising nature of the Colombian PP comes, in truth, from the legacy of accumulated experience with the CV. It is on the current stage in technical, human, political and institutional development in this sphere that Colombia can build an effective use of the new instrument, opening the way to a wider understanding of the value capture principle in Latin America in the coming years.

I

The Experience with the Contribucion de Valorizacion

THE LEGAL FOUNDATION for the Colombian CV goes back to 1921, when a levy designed to recover the costs of local public works that brought benefits to certain properties was introduced in legislation at the national level. Over the decades this legislation was amended and complemented by several other laws and decrees, adapting and in times changing the scope of the instrument. This legal evolution in the use of the instrument may be divided into four periods: introduction, expansion and consolidation, peak, and retreat. In each of these periods, some bench marks indicate the uniqueness of the Colombian case in Latin America and set the bases for the development of the new Participacion en Plusvalias.

A. Introduction

In the first period, it is important to recognize the motivations for the introduction of the instrument in Colombia as contrasted to other Latin American countries, and also to know how its use came about. From the 1920s, and through the 1930s with the Great Depression, there was a steep rise in urban growth in the region, and with that, an increase in the demand for public investments in the more important cities. It happened that the financing of public works through external capital secured or collateralized by the national government, such as eventually occurred in other countries of Latin America, was hindered in Colombia. Because of international political problems as well as economic reasons, [3] Colombia lost ground in its bidding for external financing, and some of the urban public services for which foreign concessions were not renewed at the turn of the century, were assumed by local business groups.

The combination of the relatively strong local operational capacity that was then developed, with the shortage of foreign capital, contributed to making the new instrument the most and possibly the only available resource adequate to face the challenge of providing the necessary urban infrastructure expansion. Spurred by these specific factors, the legal framework passed through a series of adaptations, in order to better define procedures for implementing the instrument and obviating some of its limitations. Examples are the enlargement of its scope to any public work of local interest, the inclusion of an extra charge of ten percent to cover administrative costs, and the permission by the National Government for its use at the municipal level.