Local Government Funding

Amid all the furore about the general economic decline, the full effects on local government and local services won't be seen for a little while yet. While there have been some job losses from local authorities already, and all are in more straitened circumstances, the real impact is some way off. There will be a sharp adverse effect on local government programmes, especially capital programmes in the next few years, and the reason is the way local authorities are funded.

First, local government in Ireland relies on rates from commercial property and a grant from central government for the bulk of its day-to-day funding. We already know that the allocations from central government are down by about 7% for this year, so that's got to hurt. However, the knock-on from higher vacancies in offices and shops etc will also force local government finances into a more difficult position. Remember that this money is the bread and butter of footpath repairs, parks, and public lighting.

Secondly, capital works, that's for major investment projects like roads, is partly reliant on development levies, the charges levied on developers when they build. As planning permissions dwindle, that source of capital will also start to dry up. Now, quite a lot of this is put aside from past applications and the effects might take some time to work through the system, but there will be a hard landing here too.

The point is that too much of local government funding depends on development. When development declines, revenues decline quite dramatically -- on both the capital and revenue side. We haven't really had to face this fact since the levies were introduced, as there has, if anything, been too much development, but the chickens will sooner or later come home to roost.

Local government is likely to head into a very difficult period where all of its principal income streams are going to be under serious pressure. Central government will put the real squeeze on the grant, while rates income is likely to decline too. Raising rates doesn't really make sense when so many businesses are under such pressure. Even things like fees for planning applications, which have been on a upward curve for so long are heading for a serious drop.

All of this is just a microcosm of how the tax base is too narrow. In this case, the general thrust of government policy has been to facilitate development, so policies like the 20 per cent social housing provision and planning levies not only deliver a gain to society, they also ensure that development is facilitated.

It could be argued that in times of boom or relative economic stability, there is a balance struck between the needs for development and the community gain, but in times of decline, as now, it leaves local government services in a perilous state. We mightn't be seeing it just yet. But we will.