Local government financial reforms: Some negative possibilities

On the issue of local government financing, the May 6th 2003 constructive engagement agreement between President Bharrat Jagdeo and Leader of the Opposition Mr. Robert Corbin stated – among other things – that the parties would develop: “a suitable system and appropriate procedures for compulsory annual fiscal transfers to the local government organs.”

For the system to be suitable and appropriate it must be related to the problem as perceived by those who sought the remedy. Regardless of the justification of the PNCR’s position, what motivated this demand was the party’s belief that the PPP/C government was arbitrary and discriminatory20130911henry in its approach to local government funding. The historic quarrel between the Georgetown City Council and the Ministry of Local Government best exemplifies this concern.

For years the council has been complaining that the regime has been deliberately starving it of resources: not making an adequate subvention available, delay in the adoption of rules that will allow the council to effectively collect rates and taxes, preventing it from becoming involved in economic activities, withholding or not paying central government taxes in a timely manner, etc. The Fiscal Transfer Bill 2012 was intended to partly fix these kinds of problems.

Not surprising then that the explanatory memorandum of the Bill notes that while under the present arrangements local authorities are sustained by rates and taxes, government grants and other sources, the aim is to put the authorities in a position to better sustain themselves by better utilising these very sources and be as autonomous as possible.

Under section 3 of the Bill, mainly with the permission of the minister, local authorities may increase their revenue by approaching donor agencies for grants, negotiating with central government for revenue sharing contracts, embark on other revenue earning economic projects, establish parking charges, etc.

Section 4 sets out a list of conditions authorities must fulfill before they become eligible for fiscal transfers. The budget estimates for the following year must be submitted to the relevant council by 15th November of the current year and must include expenditure and revenue data and the previous year’s budget estimates, indicate the basis for all forecasts, a financial statement with actual and budgeted expenditures and disclose the performance indicators, population profile, new investments, etc.

Under section 5 “The Minister may establish grants to any local authority” which are over and above the annual subvention.

According to section 6, the annual subvention from the central government to local authorities will be based on an approach, which “shall be aimed at improving the overall performance of local authorities.”  Generally, the formula unconditionally distributes 50% of the allocation for each category of local authority equally among its members and the remaining 50% is to be based on three weighted elements: the geographical size of the local authority, its population and the percentage collection of revenue for the preceding year.

Given the motivations that brought the demand for reform, the first and most glaring problem that comes to mind must be the existence of section 5, which appears to gives to the minister sole discretion to authorise grants to any local authority. If the regime is as arbitrary and discriminatory as the opposition claims it is, this section will allow it to keep the annual national subvention to a minimum and simply give additional assistance to the authorities it favours! At the very least, the law should have required that the minister act upon the advice of the Local Government Commission (inadequate as the latter is).

Secondly, although the formula penalises local authorities for not collecting a given level of revenue, and even though at one point the Report on the Bill recognised that “in arriving at the determination of the annual subvention to local authorities …. it is acknowledged that central government has a responsibility to provide financial resources to local authorities to assist them to discharge their functions and responsibilities,” nowhere does the Bill or the Report seek to ascertain that in going forward, the new process does not begin with authorities being awarded less than their last subvention. So it seems quite possible that should the government not increase the total and specific grants to the authorities, the application of the formula could lead, for example, to some Neighbourhood Democratic Councils receiving less than the $3m they now get!

Though it is now in a better position to negotiate, the parliamentary opposition cannot increase budget subventions. If it loses its majority, it would be in an even weaker position to help local authorities. In the circumstances, it could have sought a method of allocation that is more predictable and not dependent on the vagaries of parliament.  One way of doing this would have been to ring-fence the present minimum and negotiate that a given percentage of the GDP goes to local government.

Thirdly, for the distribution of 50% of the government grant, the collection of rates is weighted 40% and population and size 30% each. Given the level of poverty that exists in most of these villages and the likely level of activism that the formula could incentivise councils to show, the property of many poor persons may be placed in jeopardy. True, the Local Government (Amendment) Bill 2012 allows the minister to make exceptions in cases of poverty, but is this not the same minister whom the opposition has grave doubts about and should this not again be a matter for the more neutral commission?!

Finally, as to the capacity of the authorities, with the consent of the minister, to raise funds from other sources, given the administrative weakness of most authorities, external fundraising cannot be more than aspirational at this stage. And even more troublesome, am I wrong in believing that one of the perennial complaints of the Georgetown City Council has been the reluctance of the ministry to give it permission to raise additional resources?

If the Georgetown City Council was foreseeing the end of its personnel difficulties with the Ministry of Local Government by the replacement of the Municipal Service Commission with the new Local Government Commission, the manner in which the latter has finally been constituted has virtually put paid to that expectation! Now, the new financial arrangements do not appear to have made it much simpler for council to be in a position to seek additional funds!

These interventions on the recent local government reforms were only intended to suggest that in relation to substantial policy matters, all the good intentions in the world cannot replace a heightened appreciation of one’s context and a substantial public discourse. When necessary, politicians of all complexions exploit existing opportunities. Good rule making includes the attempt to anticipate negative possibilities and block them.


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