BBMP-owned properties: Leased out for a pittance

Revenue crunch is a standard excuse to explain away the Bruhath Bengaluru Mahanagara Palike (BBMP)’s poor record in development and maintenance. But when a lockdown wrecks havoc, should it not tap into its own properties that have been grossly under-exploited for years?

Many of these properties, estimated to be well over 20,000, are right within the city’s core in prime locations that can command a premium. But BBMP earns a pittance as rentals are ridiculously low. Lease agreements entered into years ago at unrealistically low rates, offer virtually nothing to the Palike coffers.

Does the lockdown offer an opportunity to review this obsolete system? Can the agreements be revoked or reviewed to raise badly needed revenue for a city that is reeling under a lockdown? The Palike can potentially generate hundreds of crores of rupees, but the process demands a transparent path that includes all stake-holders.

Properties let out

As N S Mukunda from the Citizens Action Forum (CAF) points out, the rental/lease agreements were inked years ago for periods that extended from 33 to 99 years. To make matters worse, the original lessees let the properties out for exorbitant rents. Not a single rupee from this goes to the Palike.

So, why is the revenue shortfall under this head significant for BBMP? To understand this, a look at the Palike’s 2020-21 budget should offer a perspective.

The civic agency has estimated an outlay of Rs 10,899 crore for the financial year. Fifty-one per cent of this (Rs 5,607 crore) has been allocated for revenue expenditure such as salaries, administrative cost and operation and maintenance cost. A sum of Rs 5,288 crore (49%) has been set aside for capital expenditure.

Huge budget variance

But the problem lies with the huge variance between budget estimates and actuals. “Since 2016-17, this budget variance averaged at 28% while cities like Mumbai (9%), Chennai (15%), Ahmedabad (8%), Surat (5%) boast of an average budget variance under 15%,” notes a budget analysis by the Janaagraha Centre for Citizenship and Democracy.

To compensate for the big gap, the Palike increasingly relies on government grants. “Without either a significant push to raise its own revenues or guaranteed, predictable State grants, there is a risk that the total budget size of the BBMP may stagnate at current levels.”

The risk is seriously real. The Palike’s collection efficiency of property tax drastically declined from 75% in 2016-17 to 60% in 2019-20. In this context, the unexploited potential of the Palike’s own properties assumes special significance.

Acknowledging the dramatic rise in its dependency on State grants since 2013-14, BBMP has now proposed to reduce its dependency on grants to 40%. How does it intend to do this? The budget proclaimed the obvious strategy: By mobilising its own revenues. But, is there a plan?

Property identification

The first critical step should be to identify all the properties that the Palike owns, as Mukunda suggests. Every detail related to these properties should be publicly made available on the BBMP portal, open to public scrutiny.

Lease rates should be revised, and to this end, notices should be issues to the lessees, he says. A model already exists to fix the new rates. The base rate of property tax is fixed according to the guidance value of an area, and the same procedure could be adopted.

In 2002, as part of developing a Fund-based Accounting System (FBAS), the Bangalore Agenda Task Force (BATF) had prepared an inventory of 20,000 properties owned by the Palike. Although the list was not fully exhaustive, the inventory had land records and other details.

Long-term lease

It was found that many of the properties were in upmarket areas on long-term lease. Today, there is no update on the exact number of such properties, many of which are levied only 1/20th or even 1/30th of the current market rates. There is absolutely no transparency about the assets, a perfect setting for ‘backroom adjustments’ as a source puts it.

So, here’s how this ‘racket’ works: Once a property lease period is about to expire, well-oiled machinery that operates through a nexus of officials and agents gets to work. The lessee is asked to either pay the market rate, which is a hefty sum, or settle for a negotiated price that inevitably bypasses the BBMP coffers.

The way out, as a BBMP Restructuring Committee member and urbanist V Ravichander points out, is to list out all the assets and estimate the current market rental value in the location of each property. The new lease agreement should be based on the existing market rate.

Rentable properties

Only a part of the BBMP-owned properties fall under the rentable category. But Ravichander notes that even the Palike’s public assets could be monetized as they do a public service. A well structured parking policy, for instance, could help the Palike earn about Rs 400 to 500 crore.

A comprehensive overhaul of the existing system is in order. But, as Mukunda says, this should be done in an open, transparent manner. Many corporators, cutting across party lines, admit that BBMP-owned properties have been ignored for far too long.

It is suggested that the BBMP ward committees could be tasked with identifying the properties. That way, the survey process could be decentralised with active citizen participation. Existing lease agreements will have to be either cancelled or reviewed, so that revenue generation for public good takes the front seat.