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Finance

The traditional basis for municipal finance is local property tax levied on real estate within the city. Local government can also collect revenue for services, or by leasing land that it owns. However, financing municipal services, as well as urban renewal and other development projects, is a perennial problem, which cities address through appeals to higher governments, arrangements with the private sector, and techniques such as privatization (selling services into the private sector), corporatization (formation of quasi-private municipally-owned corporations), and financialization (packaging city assets into tradeable financial public contracts and other related rights). This situation has become acute in deindustrialized cities and in cases where businesses and wealthier citizens have moved outside of city limits and therefore beyond the reach of taxation. Cities in search of ready cash increasingly resort to the municipal bond, essentially a loan with interest and a repayment date. City governments have also begun to use tax increment financing, in which a development project is financed by loans based on future tax revenues which it is expected to yield. Under these circumstances, creditors and consequently city governments place a high importance on city credit ratings.