With the widespread use of family cars, cities in developing countries are undergoing rapid motorization. Governments and planners across the country generally hope to meet the growing transportation needs of cities through infrastructure investment. More and more cities, with the help of the national government or the involvement of the private sector, have developed a set of financing methods for major infrastructure projects such as urban roads and subway lines. Some regions have innovatively adopted models such as Public-Private Partnership (PPP) and financing methods based on Land Value Capture (LVC), successfully driving the construction and implementation of large-scale transportation infrastructure.

Nevertheless, cities that can truly establish sustainable capital flows to meet future investment needs are still few. In fact, many cities are facing ongoing financial difficulties in transportation operations and development. In extreme cases, some cities are unable to secure funding for the operation and maintenance of existing infrastructure, making operations unsustainable, let alone improving road traffic regulation and management capabilities. Poor urban road management leads to road congestion and further intensifies public dissatisfaction, which invisibly reinforces the illusion that "expanding transportation infrastructure is the only way out."

The construction costs of urban transportation infrastructure are high, but their usage cycles can last decades or even span several generations. With the growth of population size and household income, the demand for urban transportation infrastructure continues to steadily climb. These factors strongly support cities with good financing credibility in adopting long-term government debt financing, or in other words, enabling qualified cities to repay debt through future user fees and tax revenues. This is also why the government's long-term debt financing model is widely used in municipal infrastructure projects in high-income countries. Although this approach has made some progress in developing countries, cities still generally have limited access to long-term government debt financing due to local debt control policies, insufficient government creditworthiness, and municipal management.

This article explores the overall situation of urban transportation financing and its related institutional challenges from a systematic and holistic perspective, especially the situation in large cities in developing countries. The main point of this article is that urban transportation financing is not just about financing; we must also consider this issue comprehensively within the broader context of urban infrastructure management, urban finance, and urban governance.

The difficulties in infrastructure financing in developing country cities mainly stem from deficiencies in infrastructure management systems and the lack of favorable environments for private sector participation in cities. Cities should strive to improve urban transportation efficiency and actively promote financing reforms, removing obstacles to transportation financing at the strategic level. With the rapid development of domestic capital markets in developing countries, cities should gradually build long-term borrowing capabilities and lay solid foundational work before government borrowing. The capabilities of city governments, especially in preparing capital investment plans, multi-year financial planning, and managing municipal infrastructure assets and local debt, are important cornerstones for enhancing the sustainability of urban transport financing.

Urban transportation is a complex system that encompasses diverse travel modes, infrastructure, service systems, and operational mechanisms. This complexity makes urban traffic management highly challenging, but it also provides cities with several options for technological and policy development. A deep understanding of complexity is crucial for urban managers and planners—before focusing on financing capital investment projects, it is necessary to consider the following questions comprehensively: Are existing urban transportation facilities being used efficiently? Are capital investment projects seen as the best choice to solve urban transportation challenges?

Urban transportation systems consist of physical infrastructure (roads, tunnels, railways, and terminals) and transportation modes. The latter includes both rail locomotives providing fixed-point services and non-fixed-point road vehicles. Most of the city's transportation infrastructure is used for urban travel, such as streets, bridges, parking facilities, bus stations, Bus Rapid Transit (BRT), subways, traffic control centers, signaling systems, and more. Intercity transportation facilities in cities include airports, ports, train stations, long-distance bus stations, logistics terminals, and more. All these infrastructures and services, whether through human planning or geographic proximity, are interconnected and interconnected to serve pedestrians, cyclists, passengers, and drivers together. The complexity of an urban transportation system is often related to the size of the city. A small town might have just a simple street network, possibly a long-distance bus station, while a large metropolis might have most of the above transportation facilities.

Besides transportation users, urban transportation also involves multiple forces: private enterprises have long been responsible for supplying large amounts of public transportation services and are increasingly deeply involved in transportation infrastructure construction; The model of public sector provision of transportation facilities and services is more common in most countries worldwide. Almost all city governments are responsible for transportation planning, management, and supervision. In some countries, central governments provide financial support for urban transportation development through national urban transportation programs (such as the Federal Transportation Assistance Program in the United States and the Jawaharlal Nehru National Urban Renewal Program in India), or by funding specific urban investment projects (for example, the central government of Thailand financing the Bangkok Metro).

Of course, there is an even more important interest group that should not be forgotten: property owners. Because urban transportation provides physical connections for various types of land use—such as central business districts, residential areas, schools, shopping centers, and parks—the market value of specific properties (i.e., the owner's core interests) is directly linked to travel costs and convenience. In cities where property taxes are levied, property owners pay particular attention to the impact of public spending on the value of their properties.

Ultimately, the urban transportation system is a local market with various service providers and a large number of users. It consists of numerous segments, often divided by modes of transportation (such as buses, taxis, and subways), transport corridors, or subzones. In a city's transportation market or a specific segment, competition may occur between different travel modes (such as the choice between private cars and buses, or buses versus subways), or between different operators within the same mode of transportation. The intensity of competition often varies significantly due to differences in technical conditions and market structures.

Bus services, taxi services, and off-street parking garages can be provided by some private operators, so these sectors often show strong market competition. Looking at the subway, its construction cost is very high. Building two metro systems in one city to compete on the same site is economically ^{meaningless(1).} Therefore, subway owners are usually single service providers in the market. In contrast, street facilities are generally owned by the government and operated and maintained by the government. Some facilities are government-owned but operated by the private sector through concession arrangements, such as Singapore's MRT, Bangkok's Blue Line, and many cities' roadside parking services.

Most cities' transportation infrastructure not only requires high upfront investment, but its operation and maintenance also incur high costs, but the operational expenses are usually spread over the entire lifecycle of the facility. If properly maintained, these facilities can last at least several decades; otherwise, they may age quickly, and repair costs often exceed those of proper maintenance. More importantly, poor maintenance leads to lower service quality and infrastructure safety standards: imagine what it would feel like to drive or take the bus down an old, bumpy street? The cart is exhausting, and the people grow weary.

When transportation facilities are not properly maintained, part of the cost burden will be passed on to users. This not only results in an increasing number of poor user experiences and rising accident rates, but also accelerates the wear and tear of vehicles. Therefore, local governments need to consider not only the maintenance costs of urban transportation facilities but also the additional costs that poor maintenance may bring to users.

How can cities raise funds for the construction and operation of transportation systems? Generally, there are two methods: user fees (such as bus fares and parking fees) and taxes. Cities can also finance urban transportation by borrowing from commercial banks or issuing bonds through capital markets, but must use local fiscal revenue to pay principal and interest. Obviously, as long as circumstances permit, urban transportation services should be charged for a fee. "Whoever benefits, pays" is a fundamental principle that public finance should follow. Moreover, in areas where markets can play a role, city governments should allow or even encourage the private sector to provide services. This approach will allow the government to step back and more effectively focus on other types of services that are not suitable for the private sector to provide alone. This is especially attractive for financially stressed cities. A wealth of international experience shows that, because the private sector strives to minimize costs, the urban transport services it provides are often more cost-effective than those offered by the public sector.

Many urban transportation services provided by the government, such as public transit and street parking, charge users for them. However, not all urban transportation facilities are suitable for charging users. For example, if fees are charged for daily use of city streets, the operating mechanism may be too cumbersome, resulting in excessively high transaction costs.

Therefore, when charging for basic urban transportation services does not match reality, the government chooses to use other financial resources to provide services. Urban streets are usually funded by the government through public spending and are owned and operated by the government. But we must not forget that the government's tax collection and management system also requires a large amount of manpower and resources. Regrettably, when considering the differences between public and private sector services, we rarely account for the cost of government tax collection.

Transportation economists have conducted rigorous research on the pricing issues of urban transportation ^[1]. From a business perspective, private operators want their service prices to maximize profits and cover total service costs, including capital and O&M expenses. In a competitive market, prices are determined by market competition, which often drives prices closer to cost. From a social perspective, public authorities often hope to set prices for public services within the affordable range of the general public.

When transportation service prices are insufficient to cover service costs, if the service is convenient and beneficial to the public, the government will subsidize the service to maintain it. This practice is not uncommon. Many cities regard public transportation as a basic public service, so they implement price adjustment mechanisms to keep fares below cost. When costs rise, some cities choose not to adjust service prices but instead provide more subsidies to low-income groups or operators.

Subsidies have their social rationality, but they also have some obvious weaknesses. Its high management costs can become a heavy financial burden. Additionally, the existence of subsidies can easily lead bus operators to lax control over operating costs, resulting in rising operating costs and constant subsidy demands from operators.

Even if a city has enough tax revenue to maintain existing transportation services, it still faces significant challenges when faced with the huge investments required for transportation expansion, since urban transport infrastructure is a capital-intensive investment. Take the subway as an example: its construction cost may far exceed $100 million per kilometer. The unit cost of urban elevated roads ranges from 20 million to 40 million USD. Few cities can extract so much from current user fees and tax revenues. Without financial support from higher-level governments, municipal government loans (debt financing) are needed to fill the funding gap.

Government borrowing for investment is reasonable, since infrastructure can last for a considerable period and serve generations; therefore, it is inappropriate to have current beneficiaries bear all the investment costs of the entire project. For the same reason, matching the debt repayment period with the lifespan of the infrastructure is also desirable. The private sector usually borrows to fund large-scale investments and construction, but in fact, governments can do this as long as they have good credibility and the ability to manage local government debt.

In summary, a city's transportation system contains a wide variety of infrastructure services that collectively provide travel convenience for a large number of city residents. City governments can choose the most suitable urban transportation model from among numerous management and funding options. Urban transportation infrastructure can be owned and operated by the government or private sector, with construction and operation costs derived from user fees or tax revenue, or a combination of both. When a city has the conditions and ability to borrow externally, it can use public debt financing to finance the construction of large investment projects.

In areas where markets can play a role, the government should allow the private sector to provide services. Where possible, user-paid services should be used as a funding guarantee for sustainable service ownership whenever possible (see Table 1). Only in this way can the municipal government free up financial space to provide urban transportation services that the market itself cannot effectively provide.

Table 1 Management, operation, and financing of urban transportation services: preferred solutions

Since the government plays a key role in urban transportation, and urban transportation is not the only sector the government needs to manage, it cannot be discussed without the municipal finance system for urban transportation financing. City governments are often responsible for providing multiple municipal public services, such as street cleaning, fire protection, air pollution control, and landscaping. City governments often use city taxes to provide such municipal services.

Paid services such as public transportation, water supply and drainage, sewage treatment, and solid waste treatment can be provided by the government or private sector. At the municipal level, it is common for several departments to compete for financial resources, with each department seeking more support. For example, even if road congestion is obvious, the mayor cannot neglect flood control facilities that pose safety risks. The city government must conduct multi-party consultations to finalize the priorities and implementation timeline for the work. The responsibility of urban transportation planners is to report to city decision-makers on cost-benefit assessments, technical feasibility, and the potential financial impact of alternative solutions on current and future urban transportation.

Urban transportation is usually regarded as a local affair, because most of the social benefits and costs generated by urban transportation fall within the scope of the city or metropolis. Most governments expect local governments to become key contributors to urban transportation development. Municipal fiscal revenue includes the city's own income and intergovernmental transfer payments. Among these, self-owned income covers local taxes and municipal service fee revenue. Local taxes come in a wide variety, including but not limited to property tax, income tax, sales tax, business tax, and motor vehicle tax.

The structure of local finances varies between countries, and even different cities within the same country are not the same, mainly determined by the definition of intergovernmental relationships. Some countries grant local governments considerable fiscal autonomy, allowing them to collect municipal service fees and taxes; Other countries rely more on intergovernmental transfers and funding grants to support municipal services.

Some developing countries allow local governments to borrow in capital markets. However, some countries have imposed stricter restrictions on local government borrowing. For example, Thai law requires parliamentary approval for city governments to borrow; Some countries have long prohibited local governments from borrowing for project construction, and China has only gradually relaxed such restrictions in the past decade or so. Looking back over the past forty years, a significant global trend has been that more and more countries have delegated fiscal revenue and expenditure responsibilities to local governments and granted them greater fiscal autonomy.

However, very few cities in the world have sufficient financial resources to meet the public's public service needs. This is largely because as population size and household incomes grow, the public's demand for public services continues to increase in both quantity and variety, while the cost of providing public services keeps rising as per capita income rises. Indeed, although large cities are wealthier, their per capita public expenditure tends to be higher^[2].

Moreover, over the years, taxpayers' expectations for the government to provide more and better public services have increased, but they are unwilling to pay more taxes. So far, providing decent municipal services with limited financial resources remains a major challenge for city governments.

This dilemma is especially pronounced in cities in developing countries. On one hand, most cities face rapid growth in population size and service demand, but lack sufficient urban infrastructure to serve residents, let alone reserve room for potential future growth. Due to poor local management capacity, many cities have inefficient infrastructure and service operations, and a significant portion of demand remains unmet. Even if existing infrastructure can be continuously maintained, there are often issues of insufficient maintenance and poor quality, causing rapid deterioration and reinforcing the illusion that infrastructure needs expansion.

On the other hand, most cities have limited local income, and some rely heavily on intergovernmental transfers, but this does not always fill the fiscal gap. Many cities' fiscal revenues can barely cover daily expenses (such as civil servant salaries and public service operation and maintenance costs), and they are even less able to invest in necessary construction projects. Cities with the ability to borrow to build infrastructure, and those with both financial management and financing credibility, are very few. Indeed, there is no simple or straightforward solution to this dilemma. However, over the past few decades, cities around the world have bravely explored and accumulated significant experience. Details are as follows:

Cities in developing countries can save substantial financial resources by improving the operational efficiency and performance of existing transport systems and adopting low-cost alternatives. Due to widespread issues such as inefficient use and management of existing infrastructure, many cities have developed a "inflated" demand for infrastructure expansion. The root cause is consistently unsatisfactory infrastructure utilization, often caused by misallocation, poor management, and low pricing among various parties.

For example, when major city roads become congested, buses slow down faster than private cars. This drives bus passengers to switch to private cars whenever possible, creating a vicious cycle: more and more people drive on the road, traffic becomes more congested, bus speeds drop further, and more people choose to drive, resulting in more people driving on the roads—a cycle that repeats. If dedicated lanes for public transit only, such as Bus Rapid Transit (BRT), are set up in the road system, this vicious cycle could be broken. The cases of the Bogotá rapid transit system in Colombia and the Huangpu Avenue rapid transit system in Guangzhou, China, serve as strong evidence. Both systems achieve operational efficiency close to that of metro lines, but their construction costs are only a fraction of the metro's construction cost.

Donald Shoup's groundbreaking research focused on another issue—the high cost of free parking ^[3].。 He observed that U.S. urban planners often set minimum parking standards through regulations to meet peak parking needs for each land use, but this approach does not fully consider the price car users pay for parking and the costs society must bear to provide parking spaces. This system design essentially lowers the market price of parking services, effectively providing implicit subsidies for the inflated parking demand.

Today, requirements for free parking and minimum parking facilities have been widely implemented in cities in developing countries, and the logic behind road congestion is strikingly similar to that in the United States. Even more severe, illegal curbside parking is extremely common in these cities. Illegal parking has a very similar impact to free parking, but it also creates another layer of problems: illegal curbside parking occupies scarce spaces meant for evacuating traffic, which often further worsens congestion. Clearly, this is not a financial issue, but a management one.

Improving the efficiency of existing infrastructure is especially important for cities with severe traffic congestion. To address congestion, many cities in developing countries have chosen costly "construction" methods such as widening roads and building new roads. However, experience shows that without proper management of traffic demand, cities cannot overcome traffic congestion through "construction." ⁽²⁾ In fact, various non-construction measures to address urban traffic congestion already exist. Some are supply-side measures aimed at better managing the road space for various users (pedestrians, cyclists, passengers); There are also demand-side measures, including reasonable pricing for vehicle ownership and use (such as license fees, fuel taxes, and congestion fees), as well as non-pricing measures (such as purchase restrictions, license plate limits, and road restrictions). All these measures should be prioritized and adopted according to the cost-effectiveness approach. Only when these low-cost measures are exhausted can investment in road expansion yield reasonable returns.

Private sector participation is crucial for improving transportation efficiency and easing government fiscal burdens. Take Rio de Janisla, Brazil, for example: privatization has improved the operation of the city's subway and suburban railways^[4].。 In 1997, due to years of losses, poor management, and insufficient infrastructure, the Rio metro and suburban rail system had long relied on substantial government subsidies, with total subsidies reaching $290 million that year. Overwhelmed, the Rio de Janeiro state government initiated privatization, granting the franchise rights to two private companies—Rio Metro Company and Rio Suburban Railway—through open bidding, while stopping operating subsidies. This was also one of the government's measures to address the budget crisis in the mid-1990s. After taking over, these two companies significantly enhanced service quality, foot traffic, and financial performance by improving management, controlling costs, and promoting unified pricing.

Rio Metro Company successfully expanded the operating mileage of the metro by 62%, increasing the total length from 25.3 kilometers to 40.9 kilometers, and increasing passenger flow by 71%, from 380,000 to 650,000 passengers per day. In 2007, the government granted Rio Metro a 20-year franchise, with the option to extend for another 20 years upon expiration. The system generated sufficient profit, with a cost recovery rate of 1.6.

Before the privatization of the suburban railway system, passenger volume had already shrunk from 1.2 million per day in 1985 to 145,000 in 1998. After privatization began, ridership on the Rio suburban railway gradually improved, reaching 530,000 passengers per working day in 2010. Most commendably, the performance improvements and service efficiency of the metro and suburban railways were achieved without government operating subsidies, and at that time, Rio's average annual population growth was less than 1%. Without privatization, it's hard to imagine how these two transportation systems could reverse passenger flow and succeed in holding on.

Cities in developing countries should seize several major opportunities to tap new fiscal and tax resources to advance necessary investment and construction. First, consider motor vehicle taxes, including automobile sales tax, transfer tax, fuel tax, and license plate tax. In addition, the government can increase government revenue by directly charging car users fees such as registration fees, parking fees, tolls, and congestion fees. In 1992, Bahl and Linn pointed out that the growth rate of cars in developing country cities exceeds population growth, arguing that vehicle ownership and use provide a robust tax base for city governments ^[5].

It is relatively easy to tax car ownership and use, and the motor vehicle tax burden is usually borne by high-income families. Governments can use such revenue to pay for public spending related to car use, or use it as a pricing mechanism to regulate the social costs of vehicle use (such as exhaust pollution).

Today, motor vehicle taxes have been implemented in many developing countries, and tolls are widely accepted. However, enforcement of parking fees is generally weak. Congestion charging practices have been widely implemented in Singapore, London, and Stockholm, but have yet to appear in cities in developing countries.

Thirty years ago, the shift of fiscal power and private enterprise participation in infrastructure were not yet widespread in developing countries. Traditional urban transportation financing sources (local taxes, fees, and intergovernmental transfers) were extremely limited, mainly relying on central government grants and loans from international financial institutions guaranteed by central governments to advance major projects. Over the past 30 years, non-traditional financing tools have stepped onto the historic stage of urban development in developing countries, with some cities achieving remarkable success while others have suffered setbacks^[6].

The construction and operation costs of urban rail transit are high, ranging from $50 million (elevated light rail in simple urban environments) to $180 million (underground heavy rail) per kilometer. Urban rail transit is usually one of the largest investment projects in a city, and whether sufficient funds can be raised is a major test of the city's comprehensive financing capabilities. Moreover, most urban rail systems worldwide have operating cost recovery rates below 1.0. This means that the revenue from urban rail is lower than operating costs, and cities must subsidize the funding gap for operations and maintenance. This adds a long-term and continuously rising financial burden risk to municipal finances.

Despite significant obstacles, more and more developing countries have overcome financial difficulties and successfully built and operated numerous urban rail transit projects. Brazil absorbs multiple sources of funding for urban rail projects, including financial resources from the federal and state governments, as well as loans from multilateral development banks guaranteed by the federal government and the National Bank of Brazil. The Chilean national government funds the metro infrastructure in the capital, Santiago, while the metro company, under government guarantees, is responsible for funding vehicles and equipment. Bangkok built and operated the elevated light rail system under a Build-Operate-Transfer agreement without government subsidies. Its Blue Line metro project received civil engineering funding from the Thai national government, loans from the Japan Bank for International Cooperation, and BOT franchise rights for equipment and operational financing. At the end of the last century, Kuala Lumpur built three urban rail lines, each signed with a BOT-like agreement and received government guarantees for domestic debt, but a few years later, the three railways faced financial difficulties and the government reclaimed operating rights.

From the above, it can be seen that many cities in developing countries have adopted comprehensive investment and financing tools for urban rail transit. Such projects involve huge amounts of capital and often serve as a touchstone for a city's overall mobilization ^{capacity [7].}

In summary, there are several approaches to financing or obtaining financing:

In developing countries, urban institutional capacity is generally weak, even in large cities. Although most cities have established the necessary management bodies, their technical capabilities often fail to match the growing responsibilities and challenges in urban transportation. Moreover, these organizations may each manage their own affairs and act independently. From urban transportation planning to budget preparation and project implementation, there are many missing links in systems and procedures. Even in China's mega-cities, although their urban transportation institutions do possess relatively strong technological capabilities and technical means, there are still some shortcomings in the system and mechanisms, which to some extent hinder the process of transforming advanced concepts and successful experiences into concrete practices ^[10].

Imperfect mechanisms and systems affect cities' ability to raise funds for transportation investment. Solving these problems requires long-term determination and gradual effort. For many Chinese cities, the key gaps in urban transportation financing can be summarized in three disconnects: the disconnect between spatial planning and fiscal budgeting, the disconnect between investment, construction, and maintenance needs, and the disconnect among key factors in local debt management.

Prioritizing urban public spending requires rigorous decision-making mechanisms, and the decision-making process must be based on solid spatial and financial planning. However, cities in developing countries differ significantly in their planning capabilities. In low-income countries, even in capital cities like Phnom Penh and Vientiane, local governments have relatively weak urban planning and fiscal planning capabilities. Over the past twenty years, the population and number of vehicles in these cities have increased dramatically, and now the problem of street congestion has become very severe.

Although large cities in China and India already possess certain urban and transportation planning capabilities, their multi-year fiscal planning capabilities remain weak. In fact, a lack of multi-year fiscal planning capacity or a severe disconnect between finance and spatial planning is a common problem faced by all developing countries. Although cities prepare annual budgets, their connection to spatial planning is weak, as the latter typically covers a timeframe spanning 20 years. If spatial planning fails to effectively connect with financial planning, it loses the practical foundation for implementation, resulting in urban infrastructure improvements envisioned in spatial planning often being random during implementation. To address the disconnect between spatial and financial planning, the introduction of Capital Investment Planning (CIP) and Multi-Year Financial Planning (MYFP) can be adopted.

Capital Investment Planning (CIP) is a planning process that prioritizes capital investment projects proposed by various public sectors, ultimately generating a multi-year, financially viable capital investment project plan (usually five years). The plan will clarify the annual priority project implementation schedule, estimated costs for annual capital investments, and recommendations for financing models, including debt financing where conditions permit. Capital investment planning serves as a link between long-term spatial planning (such as urban master planning) and annual budgets, guiding the government's allocation of funds for specific projects over a period of time. It is usually reviewed and approved by local councils and may be amended in the event of significant changes in the city's needs and financial capacity. Capital investment plans are often one of the prerequisites for cities to raise funds from the capital market. Multiannual Fiscal Planning (MYFP) makes judgments about income and expenditure in the coming years and explains how the government's ability to pay and provide services will change under given policy and economic assumptions. Combining annual budget preparation with multi-year financial planning reflects short-term rigidity and medium- to long-term flexibility in public expenditure planning. Introducing a multi-year perspective in budgeting helps government officials assess the long-term impact of fiscal decisions. These practices are very common in urban governance in high-income countries and are now gradually being adopted by developing countries.

The second institutional capability closely related to urban transport financing is infrastructure asset management capacity. Generally speaking, the scale of a country's infrastructure assets expands as national income grows. As infrastructure assets continue to accumulate, maintenance expenses will increase accordingly. Research by Ingram and other scholars shows that when a country is in a low-income phase, spending on infrastructure construction often exceeds maintenance spending, and the gap between the two narrows as national income levels rise; And once a country enters the ranks of high incomes, infrastructure maintenance spending will exceed capital investment ^{expenditure [11].}

The same rule applies to urban scenarios. As the economic level of cities in developing countries rises and demand grows, urban infrastructure accumulates year by year, with urban transportation infrastructure accounting for a large proportion. In the coming decades, annual maintenance costs for these assets may increase significantly, but most cities have yet to make forward-looking plans for the structural shift of public spending from "construction investment" to "maintenance management." From the perspective of capital investment entities, if the central government leads massive investments in municipal infrastructure, local cities often neglect asset maintenance; If the government provides intensive subsidies for public transportation facilities and operations, operators lack the power to ensure equipment is in good working condition. This phenomenon of "emphasizing construction over maintenance" remains very common in developing countries. The resulting infrastructure crisis—a state where infrastructure is on the verge of collapse—may emerge in the future.

As mentioned earlier, aging urban infrastructure brings enormous social costs, manifested in higher operating costs, discomfort for the public, unreliable services, surging accidents, and higher repair costs. Such an infrastructure crisis has actually already occurred in the United States. Since the late 1990s, the infrastructure crisis has been a focal point in public policy debates in the United States. In 2007, the collapse of an eight-lane bridge over the Mississippi River in Minneapolis sparked strong public dissatisfaction. It is widely believed that the main reason for the rapid deterioration of U.S. infrastructure is that the government has not clearly recognized the importance of infrastructure maintenance in various matters, resulting in insufficient funding for proper maintenance.

To prevent infrastructure crises, some countries and cities have established a practice called Infrastructure Asset Management (IAM). It integrates practices in management, finance, economic analysis, engineering design, and other related fields, aiming to deliver the level of service people need in the most cost-effective way.

Procedurally, infrastructure asset management covers the following core aspects: establishing and regularly updating an asset database, assessing asset value, current status, usage, and performance, updating data on asset maintenance and repair costs, developing maintenance schedules and capital renewal plans based on different budget schemes, forecasting annual and medium-term financial needs, setting priority lists, and monitoring and evaluating the execution of asset management plans. Urban integrated asset management is a relatively new practice, with methodologies still being refined ^[12], but its value is gradually being recognized worldwide.

If city governments are allowed to directly access capital markets for long-term debt financing, the public's biggest concern is the systemic bankruptcy risk associated with local government borrowing. So far, the most important lesson we have learned from numerous past international experiences is the necessity of establishing strict pre-market regulation of cities accessing debt financing, which is crucial for preventing systemic bankruptcy risks. Pre-regulatory supervision mainly includes the following aspects: (1) Debt can only be used as financing funds for long-term capital investment projects (known as the golden rule); (2) Debt financing must serve public projects (such as municipal transportation and livelihood facilities) and must not be used for commercial purposes; (3) Debt issuance must be subject to quantity restrictions (for example, debt repayment must not exceed a certain percentage of local government revenue, or total debt stock must not exceed a certain percentage of local government revenue); (4) Budget documents, debt issuance processes, and instrument types must be made public and subject to public supervision ^[13].

An important component of local public debt management is the dynamic monitoring of the city's fiscal status. To prevent excessive borrowing from triggering local government debt crises, some scholars have proposed setting threshold parameters for urban government debt ^[14]. For example, the ratio of debt repayment to own income cannot exceed a certain level. They further recommend using indicators to measure risks related to changes in debt and government servicing ability (such as the ratio of debt balance to regional GDP), debt-to-debt ratio (i.e., the ratio of debt balance to the city's fiscal capacity for the year), and servicing index (the ratio of annual debt repayment requirements to the city's fiscal capacity for the year).

Applying these indicators in real-world settings requires adhering to the principle of adapting to local conditions, dynamically adjusting debt/repayment thresholds according to specific circumstances. In addition to tracking key indicators, it is also necessary to regularly conduct medium-term macroeconomic trend forecasts to assess the impact of the macro environment on debt servicing ability. Through debt sustainability analysis, identify critical points for long-term repayment risk and formulate medium-term debt strategies that balance new borrowing costs and risks. At the same time, performance evaluation of debt management is conducted from multiple aspects, including rationality of management structure, coordination with fiscal policy, effectiveness of contingent debt supervision, business accountability, and public disclosure mechanisms.

Local government debt management is closely linked to the multi-year fiscal plan mentioned earlier. For the purpose of managing local government debt, a multi-year financing plan should be developed to forecast the scale of local borrowing over the next 5~10 years, and this plan should be updated periodically.

Markets are crucial for the effective operation of urban transportation. If market functions are missing, governments will have to take on all urban transportation infrastructure and service supplies, which will trap most governments in financial distress. As the primary principle of urban transport financing, the government should maximize the involvement of the market and private sector in the provision of urban transportation infrastructure and services, so that the government can focus its efforts on supplying infrastructure and services that are difficult for the market to reach.

After clarifying the various capital flows for urban transportation construction, the government should also consider the feasibility of usage fees in practical operations. Where possible, users should be charged to pay the corresponding fees for the services they enjoy. In addition, the government must be cautious when dealing with direct subsidies (such as bus operation subsidies) and implicit subsidies (free parking benefits), as these subsidies easily trigger misguided incentives, leading to low operational efficiency and resulting in wasted fiscal resources. Only by clarifying these issues can the urban transportation financing difficulties be properly resolved.

Due to low pricing and poor management, the efficiency of urban transportation infrastructure usage is generally low, leading to excessive demand for infrastructure capacity in society. Improving the efficiency of existing infrastructure is often the most cost-effective way to eliminate public "inflated" demand. Moreover, improving the efficiency of infrastructure use also means saving financial funds.

Faced with the continuously growing transportation demand, cities in developing countries should also tap into new financial resources. Whether from the perspective of funding acquisition or controlling vehicle demand, motor vehicle taxes and user fees are sources of income closely related to urban transportation. In developing countries where car ownership and usage are growing rapidly, city governments should seriously consider income from parking fees, license plate auctions, fuel taxes, and congestion fees.

In addition to traditional sources of financing (including central government grants and local fiscal revenue), there are other financing tools available for urban transport development, including government and social capital cooperation, land financing, and carbon finance. Cities should strive to mobilize these financial resources, but at the same time, they should be clearly aware of their respective limitations.

In urban transportation development, the most sustainable source of funding is long-term debt financing. While forecasting the growth of national wealth and private savings, cities should also vigorously strengthen their long-term borrowing capabilities. This cannot be achieved by the city's efforts alone. The national government should vigorously promote the development of the domestic capital market and formulate corresponding laws and regulations to enable city governments to borrow and manage risks.

Cities also need to remove institutional barriers in the urban transportation financing process. Practices such as capital investment planning and multi-year financial planning should be introduced to narrow the gap between spatial planning and annual budget preparation. At the same time, infrastructure asset management mechanisms should be introduced to ensure that expensive infrastructure can maintain good operation after completion and receive regular maintenance and repairs.

Finally, local debt management mechanisms must be introduced to effectively control systemic bankruptcy risks. Many places around the world have made significant improvements in debt management capabilities. A large number of successful cases can provide valuable references for cities and governments in developing countries, helping cities further strengthen their long-term lending capacity in capital markets. Urban transportation is also expected to become the biggest beneficiary of this wave of development.

Note: This article is a translation and modification based on an international article published by the author in 2016. The original English citation format is: Zhi Liu, "Towards Sustainable Urban Transport Finance Mechanisms"[A], in Traffic in Towns: The Next 50 Years, Ying Jin and John Polak (eds.), Landor Links online publication, 2016.