Business Arnona

Parking

Yair Assaf-Shapira

Most parking places in Israel are free. Car owners expect to have free parking near their homes, but is this also true when you are out and about? Not everyone has an easy time finding parking near their places of work, or shopping and entertainment centers. Like any other product or service that is in short supply, parking in city centers can be hard to find, and as a result, multiple parking garages have popped up over the years.

Business Arnona

Lior Regev

Arnona (municipal tax) is the main source of regular income for Israel’s local authorities, including the Jerusalem Municipality. Residential Arnona, however, does not typically cover the cost of the municipal services provided to residents. The rate for non-residential properties differs from the rate for residential homes. For this reason, local authorities compete for Arnona from businesses: businesses pay more and use relatively few municipal services.

Which part of the city generates the most Arnona for the Municipality of Jerusalem?

The amount generated depends on the types and sizes of properties in each part of the city. For example, places of religious worship pay the low rate of NIS 63 per square meter, while offices and commercial businesses larger than 150 square meters pay the high rate of NIS 334 per square meter. Because the amount due is determined by square meters, the larger the property, the higher the Arnona. In some cases, the rate is further affected by the size of the property: if it is beyond a certain threshold, the cost per meter rises. And in some cases, the location can also affect the rate.

By cross-referencing the number of properties and the Arnona revenues they generated in 2016, we can identify several phenomena. The revenues from the Mahane Yehuda market and Malha mall areas are comparable, at NIS 25 and 28 million, respectively, before discounts. Yet the number of non-residential properties in the Mahane Yehuda area stands at 1,600, compared with only 300 in the Malha mall area – a five-fold difference (!). The reason apparently lies in the large number of small businesses in the market area, in contrast to the mix of businesses in the mall, which has many regional or national commercial franchises.

Moreover, the rumors about the death of the City Center evidently overstated the situation. About 1,670 businesses operate in the triangle formed by the Ben-Yehuda Street, Jaffa Road, and King George Street, generating some NIS 44 million for the city, before discounts.

The largest Arnona-generating areas are the industrial and commercial zones of Talpiot and Giv’at Sha’ul. In recent years the mix of properties in both zones has been continuously diversifying. Today they house auto-repair shops, stores and places of commerce, business offices, some remaining traditional industries, and the beginnings of knowledge-intensive industries. Interestingly, the number of non-residential properties in Talpiot is larger than the number in Giv’at Sha’ul by nearly 1,000 (2,518 compared with 1,548), yet the difference in income generated amounts to only NIS 7 million (105 compared with 98 million, before discounts).

Translation: Merav Datan

The apartment is always bigger on the other side

Lior Regev
Jerusalem Institute for Policy Research en.jerusaleminstitute.org.il

A few months ago the 2017 Arnona (municipal tax) invoice landed in our mailboxes. Next to the total payment due, the invoice notes the size of our apartment, at least as it appears on the municipal registry.

Arnona taxes are one of the main revenue sources for local authorities in Israel, enabling a range of services for residents. Besides size of property, what determines Arnona rates is the property’s use, namely, residential, commercial, services, and the like. Jerusalem has four Arnona districts, each with a different rate per square meter.

As a general trend, apartment sizes in Israel have been steadily increasing over the years. Crumbling public housing, where three children shared a bedroom, might have sufficed in the past, but today every toddler demands a private room. Moreover, living rooms have become a permanent and ever-expanding fixture. And why make do with one bathroom, when we can have two? It is interesting to look at the repercussions of this trend for planning in Jerusalem.

Residential buildings constructed in the 1950s and 1960s offered relatively small apartments. The times demanded housing for hundreds of thousands of new immigrants, and the budget was scant. As of 2015, 56% of the apartments in Kiryat Yovel, 34% in Kiryat Menachem and Ir Ganim, and 43% in the Gonen (Katamon) neighborhoods (A-I) were smaller than 60 square meters (m2).

A decade later, in the 1970s and 1980s, there began to be constructed the large satellite neighborhoods, designed in advance with larger apartments. In 2015, 54% of apartments in the French Hill, 55% in Gilo, and 57% in Neve Yaakov were 61-100 m2 in size. In Ramat Eshkol, another neighborhood constructed during this period, about 60% of the apartments were in this size range. Interestingly, apartment sizes vary among the neighborhoods built during those years because the planners wanted to attract diverse groups. Apartments in the range of 61-80 m2 account for 41% in Neve Yaakov, 40% in Ramat Eshkol, and only 20% in the French Hill.

Jumping forward to the 1990s and 2000s, the trend towards larger apartments continues unimpeded. In two neighborhoods built during those years, Ramat Shlomo and Har Homa, most apartments exceed 80 m2 (82% and 74%, respectively). For the sake of comparison, only 3% of apartments in Ramat Shlomo and 2% in Har Homa are smaller than 60 m2.

So how big will apartments be in years to come?

Translation: Merav Datan

Fight for Your Right (To Pay Tax)

Dafna Shemer
Jerusalem Institute for Policy Research   en.jerusaleminstitute.org.il

Jerusalem’s Arnona (municipal tax) is particularly high, the highest in Israel. In 2014 Jerusalem’s total due Arnona was 1,173,000,00 NIS (New Israeli Shekels) for 212,000 housing units. Arnona discounts amounted to 26% of the total, with 40% of the discounts going to residents from Jerusalem neighborhoods of low socio-economic status (a socio-economic status of 2-5, with 20 being the highest status, according to the 2008 census).

An examination of Jerusalem’s lower socio-economic neighborhoods reveals an interesting picture regarding the exercise of rights on the part of East Jerusalem versus West Jerusalem residents. These neighborhoods are geographically and socially distinguishable as areas populated by the ultra-orthodox (haredi) in West Jerusalem and by Palestinians in East Jerusalem.

Most (72%) of the properties in West Jerusalem that belong to residents of lower socio-economic standing have a ranking of 4 or 5, whereas in East Jerusalem only 49% of the properties belong to residents with a ranking of 4 or 5.

Building on the assumption that people with the same socio-economic status would receive the same discount in Arnona, given their income, we examined lower socio-economic neighborhoods in West Jerusalem and in East Jerusalem. We examined how many discounts were granted on the basis of income, as a proportion of the total number of apartments in the neighborhood. Evidently, the percentage of Arnona discounts based on income, as a proportion of the total number of apartments, is higher in West Jerusalem (39%) than in East Jerusalem (26%). For the sake of comparison, we note that in neighborhoods of higher socio-economic standing (15-19), 6% of the apartments receive a discount on the basis of income.

Both East Jerusalem and West Jerusalem neighborhoods show a decrease in the percentage of discounts granted on the basis of income as the socio-economic ranking of the neighborhood rises. East Jerusalem neighborhoods with a socio-economic status of 2 received discounts for 27% of the apartments therein, whereas West Jerusalem neighborhoods with a ranking of 2 received discounts for 42% of the apartments therein. East Jerusalem neighborhoods with a socio-economic status of 5 received discounts for 15% of the apartments therein, while for West Jerusalem this figure was 35%.

When we examine the total Arnona collected, in relation to the total due without discount, amidst residents of lower socio-economic standing, we find that collection rates in East Jerusalem (72%) are lower than in West Jerusalem (85%). Here too, as the socio-economic status increases from 2 to 5, Arnona collection rates increase. For higher socio-economic rankings (15-19), collection rates are higher too – at 96%.

In sum, one might conclude that residents of West Jerusalem are more effectively exercising their rights vis-à-vis Arnona than East Jerusalem residents. And perhaps as a consequence, Arnona collection in West Jerusalem is more effective and efficient than it is in East Jerusalem.

Jerusalem – Toward a fiscal balance

Glenn Yago, Senior Director, Milken Innovation Center
Jacob Udell, Research Analyst, Milken Innovation Center
http://milkeninnovationcenter.org

In a word, Jerusalem is unique.  It is at once a world-class brand, a paradox of every type, and the obsession of about one-quarter of the people on the planet.  It is also a city – a municipality to almost 900 thousand people. Jerusalem is also structurally insolvent.  

With a 2016 operating budget of NIS 5.15 billion, Jerusalem received NIS 320 million to cover its operating deficit in 2015 and NIS 516 million in 2016.  In the simplest terms, this is 10% percent operating deficit. On its face, such a deficit is a big budget problem.  There is not enough money to pay the current bills – and to take care of long term needs and obligations such as infrastructure spending, pension obligations, and other legacy costs. With about one-third of the city’s population at or below the national poverty level (compared to one-fifth nationally, and just over one-tenth in Tel Aviv) and the high concentration of land use in government and non-profit activities, total property tax exemptions more than double that of Tel Aviv and Haifa – in 2015, such exemptions totalled over NIS 587 million, or 23% percent of all taxable real estate in the City.  Though Jerusalem businesses and residents who do pay property tax are burdened with rates at almost twice the amount per square meter than in other cities, total property tax collection per capita is still significantly lower than that of other major cities in the country (see chart).  All in all, per capita municipal expenditures in Jerusalem are about half the per capita expenditures in other major cities in Israel.   Jerusalem is like an employee who has to work sixteen hour shifts day after day and get only half the salary.

Each year, the public is treated to the spectacle of the City reaching out to the Government to help it settle its budget woes.  To his enormous credit, the Mayor has taken the position of promoting, leveraging, strengthening, and building the city out of this persistent deficit. 

The 2020 Plan, so called for both its perfect vision and unrealistic deadline, is a robust effort to leverage the region’s strengths, attract private investment, and increase the tax base sufficiently to overcome the budget deficit.  The joint investment of private capital, government, and philanthropy of NIS 1.2 billion over the next decade, along with the corresponding improvements in transportation and access within the city and with other cities on the coast, and the rehabilitation of neighborhoods, will spur economic growth in Jerusalem valued at NIS 4.15 billion. The influx of municipal revenue from new housing, new commercial activities, and new offices, and, yes, even new residents, even while adjusted for escalated costs of municipal operations over this period, is expected to eventually yield a viable operating margin to support the city’s growth and strengthen its financial condition. 

But how to achieve this fiscal balance when the new cash flow will be gradual over a long period of time and the amount needed to get there is so large?  Borrow against this incremental annual cash flow to pay for the needed investments in the city that will make these new sources of revenue possible.  This is a familiar fiscal strategy for cities around the world – New York (1975-1980), London, Chicago (1985-1995), Boston (1990-2010), Paris (1988-1995), Cleveland (1985-1995).  The Government can enable this new fiscal vision for Jerusalem by creating financial tools that create opportunities to investors that understand the long term benefits of a city in fiscal balance.

Temporarily Out of Use

Yoad Shachar

Jerusalem Institute for Israel Studies   www.jiis.org

The modern city serves us, its residents, in a variety of ways. We live, work, seek leisure and recreation, or simply walk around within the city. In the past, space was not sharply divided along its different uses, but during the nineteenth century the various uses of space within the city began to be differentiated so as to prevent nuisances or harm from certain uses of land to other parts.

The combination of land uses within a city varies across Israel’s various municipalities and local councils, and the particular mix generally reflects the character of the city. For example, a local council with a particularly high percentage of residential areas will serve primarily as a bedroom suburb whose residents seek employment and recreation elsewhere. Land use plays a major part in the socio-economic status of a city. We would expect, for example, that a town with large industrial zones – which are a main source of employment – would have many residents who are employed as blue-collar workers in the industrial sector. In contrast, a town with large areas of office space would serve as a home for many professionals. The combination of land uses is extremely significant in relation to the municipal budget, which is based on municipal taxes (Arnona) from apartments and properties in the city, some of which yield higher taxes than others: areas zoned for commerce yield a much higher Arnona than residential zones. In other words, the combination of land uses in large part determines the city’s economic base.

Jerusalem is Israel’s second-largest city after Dimona in terms of area of jurisdiction. It covers 125 square kilometers, significantly higher than the figures for Tel Aviv, with 52 square kilometers, or Haifa, with 65. Yet only 47% of Jerusalem comprises built-up areas, compared with 73% of the area of Tel Aviv and 55% of Haifa. The large discrepancies between these cities become strikingly apparent when we examine how their built-up areas are divided for various uses.

Among the major cities with a population greater than 200,000, Jerusalem dedicates the highest percentage of its built-up areas to residential purposes (71% of all built-up areas). This is a high percentage relative to what we might expect for the country’s largest city and the center of a metropolis. Among the major cities, Ashdod and Haifa have the lowest percentages of residential areas as a proportion of built-up areas. These cities have large areas zoned for industry as well as the infrastructure and transportation necessary for the ports they contain.

Another striking discrepancy among the major cities is the difference in percentage of area zoned for commerce and office space. Only 6% of the built-up area in Jerusalem serves as commerce or office space while in Tel Aviv the figure is 17% of built-up areas – nearly threefold. In Haifa 13% of built-up areas serve as commerce and office space, twice the figure for Jerusalem.

Areas zoned for commerce and office space are particularly significant in terms of the municipal budget because they yield higher Arnona municipal tax revenues than other land uses. As most of a municipality’s independent revenue comes from Arnona, the motivation to expand areas of commerce and office space is evident. This is apparently the reason that the big plans for city development focus on the business zone now taking shape and form at the entrance to the capital. It is important to keep in mind, however, that zoning land for commerce and office space does not guarantee that it will be used for this purpose. After zoning land for a particular use, and before printing those promising Arnona bills, the city must create incentives for companies and business owners to come and set up shop in the new business zone and thus actualize its intended use.

Translation: Merav Datan

Fight for Your Right (To Pay Tax)

Dafna Shemer

www.jiis.org

Jerusalem’s Arnona (municipal tax) is particularly high, the highest in Israel. In 2014 Jerusalem’s total due Arnona was 1,173,000,00 NIS (New Israeli Shekels) for 212,000 housing units. Arnona discounts amounted to 26% of the total, with 40% of the discounts going to residents from Jerusalem neighborhoods of low socio-economic status (a socio-economic status of 2-5, with 20 being the highest status, according to the 2008 census). 

An examination of Jerusalem’s lower socio-economic neighborhoods reveals an interesting picture regarding the exercise of rights on the part of East Jerusalem versus West Jerusalem residents. These neighborhoods are geographically and socially distinguishable as areas populated by the ultra-orthodox (haredi) in West Jerusalem and by Palestinians in East Jerusalem. 

Most (72%) of the properties in West Jerusalem that belong to residents of lower socio-economic standing have a ranking of 4 or 5, whereas in East Jerusalem only 49% of the properties belong to residents with a ranking of 4 or 5. 

Building on the assumption that people with the same socio-economic status would receive the same discount in Arnona, given their income, we examined lower socio-economic neighborhoods in West Jerusalem and in East Jerusalem. We examined how many discounts were granted on the basis of income, as a proportion of the total number of apartments in the neighborhood. Evidently, the percentage of Arnona discounts based on income, as a proportion of the total number of apartments, is higher in West Jerusalem (39%) than in East Jerusalem (26%). For the sake of comparison, we note that in neighborhoods of higher socio-economic standing (15-19), 6% of the apartments receive a discount on the basis of income. 

Both East Jerusalem and West Jerusalem neighborhoods show a decrease in the percentage of discounts granted on the basis of income as the socio-economic ranking of the neighborhood rises. East Jerusalem neighborhoods with a socio-economic status of 2 received discounts for 27% of the apartments therein, whereas West Jerusalem neighborhoods with a ranking of 2 received discounts for 42% of the apartments therein. East Jerusalem neighborhoods with a socio-economic status of 5 received discounts for 15% of the apartments therein, while for West Jerusalem this figure was 35%. 

When we examine the total Arnona collected, in relation to the total due without discount, amidst residents of lower socio-economic standing, we find that collection rates in East Jerusalem (72%) are lower than in West Jerusalem (85%). Here too, as the socio-economic status increases from 2 to 5, Arnona collection rates increase. For higher socio-economic rankings (15-19), collection rates are higher too – at 96%. 

In sum, one might conclude that residents of West Jerusalem are more effectively exercising their rights vis-à-vis Arnona than East Jerusalem residents. And perhaps as a consequence, Arnona collection in West Jerusalem is more effective and efficient than it is in East Jerusalem.