The Central Bank Annual Report 2008 has made a startling revelation that the jurisdictions of 18 Municipal Councils, 42 Urban Councils, and 152 Pradeshiya Sabhas have been brought within the domain of the Urban Development Authority (UDA). This would mean that these are areas wherein the UDA shall be responsible for its physical planning, which includes the "physical and economic development of land therein". Nonetheless, an Amendment in 1982 to its principal enactment has empowered the UDA, " to delegate to any officer of a Local Authority, in consultation with that Local Authority, any of its powers, duties and functions relating to planning within the UDA-declared areas, and such officer shall exercise, perform or discharge any such power, duty or function so delegated, under the direction, supervision and control of the UDA". As per the latter, although such delegation was conferred as far back as 1990, the ground reality is that 212 of the total of 330 Local Authorities are now being impacted by the UDA’s footprint over its areas. This according to the Central Bank Annual Report includes, "the construction of administrative complexes, commercial complexes, town improvement projects, educational , social and cultural projects, industrial projects, and integrated projects". It’s overarching influence will be the enveloping of these areas by a Development Plan and its accompanying Planning and Building Regulations. The implications of these on the demographic and economic profiles in such areas are far-reaching. Thus, its populations will be urban centred, and its economy will reflect a shift towards the Services and Industry sectors. Another noteworthy downstream phenomenon will be an upward trend in land values arising from the corresponding dynamics of land uses and building construction. The inability of capturing it’s due outcomes for public benefit has created a serious systemic defect which needs to be addressed.

The learning curve starts with the familiarization of the UDA Law. It was enacted in 1978 with the object of " promoting integrated planning and implementation of economic, social and physical development of areas as may be declared by the Minister to be Urban Development Areas". It’s primary task was also to establish the Urban Development Authority with a wide array of powers over land and buildings in carrying out the said object. The latter required that a Development Plan be prepared and implemented by the UDA for the physical and economic development of land in the declared areas. The plan would encompass such matters as the regulation of the use of land and the erection of structures. It will include land plot sizes, building heights, floor area ratios, access roads & parking, infrastructure networks, environmental norms, etc. The setting of such regulations would be reflected in the corresponding built form and aesthetics of the physical fabric and landscape of the area. It’s manifestation will attract the flow of private, public and private-public resources into the areas for purposes of development. In this connection, the UDA Law has interpreted "development activity" to mean the parceling or sub-division of any land, the erection or re-erection of structures and the construction of works thereon, the carrying out of building, engineering and other operations on, over or under such land, and any change in the use for which the land or any structure is used. Consequently, the said Law has mandated that no person shall carry out or be engaged in any such development activity in the UDA – declared areas, except with a permit granted by the UDA, and in accordance with the terms and conditions indicated therein. Hence the reason for tasking the UDA with the framing of regulations for the use of the land, and the erection of structures thereon.

One major outcome of the UDA’s intervention in development activity in it’s declared areas will be the volatility of land values. It will, in turn, influence the property tax regime of the Local Authorities which administer such UDA – declared areas. Thus, the planned development in the latter will usually fuel an upward rise in values; often manipulated by Real Estate Agents and Developers to include a speculative component therein. The catalyst for their investment arises from public policy to incentivise such development with fiscal and other concessions. It’s consequence in an unchartered market could however be its vulnerability to economic downturns, which can significantly impact the speculative layer inherent in the land values. Its negative fallout can then be partially constructed buildings and vacant plots that will blot the landscape and the urban form. During such crashes in the economy, the land values will either fall or remain flat. Its greater impact will be the apparent glut in the market of built accommodation, and a downward spiral of its rental or lease values. In this situation of volatility in the market, a corresponding incidence will be the fluctuation of Annual Values of lands & buildings, which comprise the cornerstone of the property tax regime of the Local Authorities. However, it makes it difficult for these Authorities to prepare new assessments or to revise same in a manner that can match the pace at which the market functions. In this connection, it is however worth noting that a Local Authority is empowered, "at any time to revise any assessment or verification, if it is satisfied that there are sufficient grounds for increasing or decreasing same as it may seem fit, and to fix the date upon which the revised assessment or verification shall come into force". The use of the latter has nonetheless been nullified by the current system in place for the assessment of Annual Values of property for computing the property tax, and for the collection of its revenues. Accordingly, there will be a "hidden loss" in property tax revenue in the UDA – declared areas which can be substantial; possibly in the millions in each year.

In the above connection, the emergent key factor is the nexus that should exist between the administering of the areas of Local Authorities, and that of the implications of declaring such areas within the domain of the UDA for its better physical and economic utilization. Thus, an age – analysis of the UDA – declared areas shown in Table 1 indicate a stunning feature. It indicates that 121 of the 330 Local Authorities have been so declared for over 20 years, while another 93 have been declared for periods exceeding 10 years. This suggests that there should have been a dramatic rise in property tax revenues in all three categories of Local Authorities where the UDA footprint has prevailed. It follows that its total revenues too should have increased. A true assessment of same has however not been possible due to the absence of data collated over time. However, the beginning of recorded information from 2005 onwards affirms the negligible gradient in the property tax revenue (see Table 2)

The significance of the above especially for the Pradeshiya Sabhas which have had a massive increase in the numbers of its areas declared within the domain of the UDA. It has had a quantum leap doubling from 69 in 1989 to 154 in 2009. Accordingly, there should have been a sharp increase in the share of its immovable property situated in localities within such declared areas. These localities should have been deemed appropriate for designation as " built –up localities", with the approval of the Assistant Commissioner of Local Government (ACLG) appointed for that area. In the latter event, the Pradeshiya Sabhas Act No: 15 of 1987, empowers a Pradeshiya Sabha to impose different rates on the assessment of Annual Value of immovable property for different built – up localities or parts thereof, having regard to the level of development of such localities. It implies that since areas within 154 Pradeshiya Sabhas have become UDA – declared areas, they should have been substantial contributors to increasing it’s property tax revenues. The reality however has been different. The main cause for same has been attributed to the inaction, (for whatever reason), of the Pradeshiya Sabhas to seek the approval of the respective ACLG for the declaration of its "built- up localities". On the other hand, the ACLGs who it is understood are normally noticed by the UDA during the process of declaration of the areas, could have been pro- active in overseeing the Pradeshiya Sabhas by commending action on same.

The above suggests that there is a systemic defect in the procedures, due to the UDA footprint in the Local Authority areas impacting its property tax regime. It needs to be remedied to avoid the deprivation of due revenues to the Local Authorities. A way forward is the engagement of Physical Planning cadres in them. Their absence has led to a loose link in the nexus between the "UDA – Local Authority –ACLG". It has been compounded by Local Authorities not adequately utilizing it’s statutory mandate to prepare a new assessment of the Annual Value of each house, building, land and tenement. The assessment could have been made on their own by the Municipal and Urban Councils, while the Pradeshiya Sabhas could obtain "the services of the Chief Valuer or of any person or persons appointed with the approval of the respective ACLGs". The latter could have been catalyzed by having the cadres of Physical Planners in the Local Authorities, who would have been instrumental in transmitting to the Assessor each and every Permit granted for any development activity. It’s outcome would then be the convergence of a common outlook between the Local Authority and the UDA for declaring an area suitable for development. A fallout of its absence will not only be a situation of deprived revenue, but also of an uncontrollable rise of unauthorized constructions. It’s aspect of revenue loss has skipped the radar of the Audits of the finances of Local Authorities. Accordingly, it may warrant the Auditor General to undertake a focused study on it, jointly with the Finance Commission, and make recommendations on correcting the systemic defect.

The outcome of an under – resourced and under – staffed condition of the Local Authorities will be it’s inability to carry out the mandated services to the public. It’s downside will be the cascading impact, especially on public health. The negative effect of same can be seriously detrimental like the current spread of Dengue. On the other hand, it is the Local Authority that has the outreach to deliver these local services to better serve the public. Nonetheless, the cyclical nature of financial impoverishment has to be the deterioration of its services. The urgency to arrest it does not require rocket science. It has precipitated from ancient times with the wisdom to establish Gam Sabhas.