Friday, 29 November 2013

DBKL – It’s about responsible spending

Last week, we contrasted the budgets of Dewan Bandaraya Kuala Lumpur (DBKL) and the State of Selangor. The general conclusion was that given the two have relatively same revenue base, Selangor was spending its income much more efficiently than DBKL. This is because despite the fact that Selangor is far larger (in terms of number of residents or land area), it 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 the budgets of DBKL with the municipality of Penang Island and Ipoh, as shown below.

The conclusions are the same. DBKL spends 3 times more than Penang Island and 5 times more than Ipoh in terms of operating expenditure per person.

In terms of land area, DBKL spends 9 times more than Penang Island and 34 times more than Ipoh per square km. Note that the budgets for Penang Island and Ipoh are not the latest, but it 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 that KL has a development budget of almost RM800 million while the other cities are operating on RM16million. So, perhaps this is more than sufficient to offset the difference in status of the cities.
Let me now move to the second area of misunderstanding, that assessments 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 that DBKL will 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 or acceptable to the people, then the next question is how to share the costs 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 their 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 values in City X doubled to $20,000 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 wastages and inefficiencies. In any case, the gains in property values are taxed indirectly through RPGT and income taxes on rentals.

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 $20,000 million.

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

I hope 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 values.


  1. I hope before increasing at any rate they can go get feedback from the people first . rather than a sudden increase it shld be done gradually . this is like a cowboy style , if increase 300% all a sudden . They also need to realize that property value increase does not mean owner have more money to pay tax/assessment ..As the increase in value is stuck in the property itself and unless this "gains" is realised , the property owners don't really have additional money to pay ...moreover this is also taxed via RPGT, income tax etc it's crazy to assume ppl are getting richer therefore shld be tax .. In fact i think citizens are in mad .. They are angry at all the failed policies of the present administration

  2. I fully agree with your assertion that valuation rates should not be tied to property values per se. There is so much waste , inefficiency and mismanagement of funds that unless these excesses are plugged, putting more money into DBKL's budget will only encourage the wrongdoers to go about their business as usual ways.

  3. Dear Mr TKO,
    Impressive report, thank you for updating the findings and clarifying things up as I asked (and some others). You did compare it to other cities in Malaysia which is good.

    To put the DBKL spending on perspective, FYI other capital cities such as Tokyo or NY(not a capital however, but the financial center), do spend significantly more than other cities, including that of KL. I just ran a rough number, readers should take this with a pinch of salt due to my time limitation, that Tokyo is spending as much as RM17,000 per person and for that of NY, as much as RM25,000 per person. Of course their scope of services and coverage and financial aid from gov could be different, so please take note.

    If KL wants to be a world class city, it must spend as necessary, and the residents who demanded world class service, must be prepared to pay for such services.

    It is a bit funny that you actually gave a positive view of the recent proposal to increase the salaries of Selangor YBs by a lot of money, declaring that in order for the constituents to request macam2, it is only fair those YBs are paid appropriately (these are not your exact words, my apologies). This is a higher expenses on the state gov by hundreds of percent a yr on YBs (essentially consuming more of Selangor constituents payments), which is analogous to the DBKL request to increase their expenses by consuming more of their constituents payments. Both are pretty similar thing and why do you ok the other but not the other one? The same reasoning can be used for both issues.

    I disagree with your method of calculating what the budget of DBKL should be, by basing it on the value of properties. In my opinion, DBKL should strive to provide the services it is required to do, by obtaining the monies from the constituents. If there is extra money collected, it is not a license to increase spending (we both agree on this), in fact DBKL should reduce its assessment rates if it consistently collecting more than it needs. However when what it collects is not enough, it can raise it as necessary, as long as the constituents would bear it. If the constituents won't bear it, then they must choose to live in a lower standard and allow DBKL to cut its scope of services. This is pretty typical, however rarely practiced these days.

    On the percentage of rates to be charged for on property values, it is just a way of collecting money from residents. If you have other fairer ways to collect from the constituents, you should propose it. If not, this is the way it is going to be. It is simply the bigger the property, the more one will need to pay and the higher the value, the more one will need to pay as well.

    Further, did you notice that your proposal of adjusting DBKL rates based on market value is not good in the sense that in order to maintain similar level of collection during a down market year (property values decline), DBKL will be automatically forced to RAISE its percentage rates in order to collect? Not just property owner are saddled with a plunge in their property values, now they will be forced to pay higher assessment rates in percent, in order to maintain the DBKL collection amount. During very good years (property values are going up), DBKL will be forced to collect less. I think this is not a good proposal. I suggest you tweak it to make it better and fairer.

    Please keep up your work, many thanks.

    Penulis Siri Kegagalan Emas