Special rating areas, also often referred to as betterment levies, special assessment districts or city improvement districts (CIDs) refers to an additional tax or assessment paid by property owners within a defined geographic area (the “special assessment district”) to fund public improvements either on the form of infrastructure or service provision. The additional taxes are collected from owners who will derive benefit from the capital improvements made within the SAD. This capital payment principally occurs in two ways:
(i) The municipality pays for the up-front cost of the investment and is repaid over time by the special assessment revenues; or
(ii) The assessment revenue cash flow is securitized. This tool can be used when private property owners acknowledge that their property could rise in value sooner if they agree to be assessed at a higher rate, rather than wait for the public sector to identify and deploy capital funds for a specific improvement.
The assessment rate for the additional tax tends to vary depending on the type of land use (e.g., residential, commercial, industrial), and the municipality may apply either a constant rate or phased rate increase until the needed funding amount is reached. The length of time for the SRA also varies but generally depends on the local municipal regulations and the financing required.
In South Africa, special rating areas have been used to revive urban nodes across the City of Cape Town. Cape Town is also a city with the only known unique case in South Africa whereby an SRA was established to finance large infrastructure project and through recourse to a long-term loan. This SRA is commonly known as the Claremont SRA, and it was one of the first SRAs established in Cape Town. Going way beyond the usual “crime and grime” approach adopted by SRAs, The Claremont Improvement District Company (CIDC), who managed the Claremont SRA, arranged to finance the construction of a bypass road that would ease traffic on the SRA’s main artery and increase the attractiveness of the area.