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Identify the Key Sources of Funding ‘Current Expenditure’ for an Irish ‘Local Authority’ and Analyse the Key Challenges Facing the Local Authority in Delivering Services with the Sources of the Funding You Have Identified.

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Educational and Professional Development Unit – Form 603
Assignment Cover Sheet

Student Name: Peter Navan

Student Number: C00152237.

I am a student as follows: Stage 3

Module title: Financial Management

Assignment Question Answered: 1

Lecturer to correct this assignment: Dr. Philip Byrne

Dates I attended module: 1st & 2nd May 2012.

Date this assignment is due: 25.05.12

I hereby certify that the information contained in this (my submission) is information pertaining to research I conducted for this project. All information other than my own contribution will be fully referenced and listed in the relevant bibliography section at the rear of the project.

ALL internet material must be referenced in the bibliography section. Students are encouraged to use the Harvard Referencing Standard. To use other author's written or electronic work is illegal (plagiarism) and may result in disciplinary action. Students may be required to undergo a viva (oral examination) if there is suspicion about the validity of submitted work.

Signed: _________________________________

NOTE: 2 copies of form and 2 copies of the assignment to be submitted to: Irish Aviation Authority.

For IAA use:

Date stamped ( Logged onto IT System ( confirmation email sent to student (

I.A.A./I.T.C Degree Programme for Aviation, Transport and the Emergency Services Sector. Stage 3. 2011 - 2012

Module: Financial Management

Lecturer: Dr. Philip Byrne

Student: Peter Navan

Student Number. C00152237.

Employer: Dublin Fire Brigade.

Assignment number: Option 1

Requirement: 2,500 – 3,000 words

Submission Due Date: 25th May 2012..

Word Count 3,000 words

Contents:

Cover Page. Page 2

Contents. Page 3

Assignment Descriptor. Page 4

1.0 Introduction Page 4

2.0 Local Authorities. Page 5

2.1 Functions of Local Authorities Page 6

3.0 Funding and Expenditure of Local Authorities Page 7

3.0 (i) Capital Expenditure & Funding. Page 7

3.0 (ii) Current Expenditure Page 8

3.1 Current Expenditure Funding Page 8

3.1 (i) Commercial Rates Page 9

3.1 (ii) Charges for Goods and Services Page 10

3.1 (iii) Specific State Grants. Page 11

3.1 (iv) Local Government Fund Page 12

3.1.1 Pension Related Deduction. (PRD) Page 13

3.1.2 Charge for Non Principal Private Residences. (NPPR) Page 13

4.0 Analysis. Page 14

4.1 McCarthy report Page 15

5.0 Conclusion Page 16

6.0 Bibliography and points of reference. Page 17

Assignment Descriptor

Identify the key sources of funding ‘Current Expenditure’ for an Irish ‘local authority’ and analyse the key challenges facing the local authority in delivering services with the sources of the funding you have identified.

1.0 Introduction.

In order to give the reader an insight into this assignment and an understanding of both ‘local authorities’ and ‘Current Expenditure’ and it’s key sources of funding, the author will first introduce the reader very briefly to a generic ‘local authority’, an even more brief outline of some of the many functions of the local authority will also be given to enable the reader to see why funding is required.

Following on from this, the author will identify the two types of expenditure a local authority has and their funding arrangements. The assignment, as is asked will focus on the key sources of funding the current expenditure of a local authority, an explanation of each of the sources of funding will be given. During the assignment reference will be made to the last three annual reports from Dublin City Council, the largest local authority in the country, this will aid the reader in understanding the trends of the identified revenue streams over the period and provide actual data to aid in the analysis of the challenges facing these key sources of funding. An anaylsis of the data that concerns us in these annual reports will lead on to a look at the challenges facing local authorities in delivering services with mention given to a report of the Special Group on Public

Service Numbers and Expenditure Programmes, otherwise called the McCarthy Report.

2.0 Local Authorities.

‘Local Authority’ is the term used to describe the entities that provide local government functions in the Republic of Ireland. There are 114 local authorities in the Republic of Ireland, this is comprised of thirty-four local authorities, termed county or city councils, which cover the twenty six counties of the state. A further eighty town councils form a second tier of local government. Operating in smaller towns and cities, they exercise limited functions which are a subsidiary to those of their relevant county council. Currently there are 29,000 staff employed in local authorities, this is down from a high of 37,000 staff employed in 2008. The principal decision-making body in each authority is composed of the members of the council, termed county or city councilors, these are elected by universal franchise in local elections that take place every five years. The last local elections took place in 2009. Under The Local Government Acts these councilors have some statutory functions that are called ‘reserved functions’, however, a great many of the authorities' statutory functions are the responsibility of their chief executives, termed city or county managers, who are career officials appointed by an independent government body. The Minister for the Environment, Community and Local Government has responsibility for the local authorities.

2.1 Functions of Local Authorities.

The core competencies of the city and county councils include planning, transport infrastructure, sanitary services, public safety (notably fire services) and the provision of public libraries. Under the 2001 Local Government Act the key services to be delivered by the local authorities are;

• Housing and Building

• Road transportation infrastructure and safety.

• Water supply and sewage

• Development control, planning and incentives.

• Environmental protection.

• Recreation and amenity.

• Education, Health and Welfare.

• Keeping of records.

Each of these headings can be subdivided to give over one hundred services been delivered on a daily basis by local authorities throughout the state. Under various pieces of legislation the local authority has key enforcement roles in relation to many of their services, for instance The Environment Acts 1996 – 2003 along with European Union Directives give local authorities enforcement roles and powers in relation to waste management, litter management, air pollution, noise pollution, water pollution and burial controls to name but a few.

3.0 Funding and Expenditure of the Local Authorities.

In order for a local authority to function it requires funding. These funds are used by the local authority for their expenditure. The local authorities’ funding and expenditure is classified under two different types;

• Capital Funding and Expenditure

• Current Funding and Expenditure

3.0 (i) Capital Expenditure is the term given to expenditure or spending by the local authority in order to create or enhance an asset for the authority, this would include acquisitions of land, buildings, plant or machinery, the construction of roads or buildings, provision or improvement of water or sewage schemes. Capital Expenditure items would normally be expected to be on items that would last beyond the current financial year.

Capital expenditure is normally funded from the local authorities’ own resources or borrowings, or exchequer funding, or by certain departmental or authority grants, such as the National Roads Authority (NRA), or European Union (EU) structural funds, or by any combination of the aforementioned, such is usually the case in Public Private Partnerships (PPP). In a PPP the project may be funded by private business, state grant, EU funding and local authority funding all at the same time, this could have the affect of each of the contributors having a stake in the project and maybe a share of any revenue generated. As this assignment is focused on current expenditure funding we will not be examining these sources further.

3.0 (ii) Current Expenditure, also known as revenue expenditure, is that expenditure which is used on day to day or current basis. It includes items such as • Wages • Fuel • Supplies • Utilities • Road repair • House repair • Clothing • Fleet running costs. • Upkeep of authorities’ plant, machinery, buildings. • Tools. • Entertainment.

Basically, any expenditure that is involved in the daily running of the authority, does not create or substantially enhance an asset and would, in a normal course, be expected to be utilized or used in the current financial year or shortly after, can be considered as current expenditure.

3.1 Current Expenditure Funding. There are 4 key sources of funding for current expenditure in local authorities. These are;

• Commercial Rates

• Charges for Goods and Services

• Specific State Grants

• Local Government Fund

In 2009 the total funding to local authorities countrywide was €4.72 billion. A synopsis of Dublin City Council’s (DCC) revenue income, taken from its last 3 annual reports 2008, 2009 & 2010, is given in the table below.

| |2008 |2009 |2010 |
| | €923.4m | €914.3m | €896m |
|Total Revenue Income €m | | | |

Table 1. D.C.C.’s Revenue Income

3.1 (i) Commercial Rates.

Commercial rates are charges that are levied annually by the local authority on commercial and industrial property. This includes shops, factories, offices, land, mines, rights of easement, fishing rights. Local authorities levy commercial rates on the basis of valuations provided to them by the Valuation Office. In 2009 the total funding to local authorities countrywide, from commercial rates was €1.245billion which represented 26.5% of the total funding (Byrne 2012). A trawl through the financial reports for Dublin City Council (DCC) for the last three full financial years published, ’08, ’09 & ’10 shows us the following;

| |2008 |2009 |2010 |
| Total Commercial Rates Due €m | €304.6m | €316m | €324m |
|Expressed as a % of overall revenue income | 33% | 34.5% | 36% |
| | €8m = |€14m = 4.4%|€28m = >8.5%|
|Amount Not Collected |2.6% | | |

Table 2. D.C.C.’s Commercial Rates revenue income.

From this table, it can be seen that over the 3 year period revenue income due from commercial rates increased both in monetary terms but also as a percentage of the overall revenue income whilst at the same time the amount of Commercial Rates not collected went from less than 3% in 2008 to in excess of 8.5% in 2010.

3.1 (ii) Charges for Goods and Services

Local Authorities charge end users for goods and services supplied by the authority, these include • Housing Rents • Parking Charges • Commercial water charges • Waste charges • Planning permission fees • Licensing fees • Fire charges • County demand charges • Tolls •

In 2009 the total revenue income to all local authorities was €1.476 billion, this represented 31% of the overall funding to local authorities. (Byrne 2012) A synopsis of Dublin City Councils’ income from its charges for goods and services drawn from the financial reports for the last 3 full financial years available is given in the following table. Dublin City Council is unique in that income from its county demand charges is quite high, this is due to the fact that Dublin City Council provide a fire service to the 3 adjoining authorities, Fingal, DunLaoghaire Rathdown & South Dublin County Councils under a Service Level Agreement (SLA), this has been shown separately in the table but it all comes under income from charges for goods and services.

| |2008 |2009 |2010 |
|Charges for Goods and | €291.7m | €266.9m | €246.2m |
|Services | | | |
|Charges to other local | €97.4m | €99.8m | €92.5m |
|authorities | | | |
|Expressed as a % of overall | 42% | 40% | 38% |
|revenue income | | | |

Table 3. D.C.C.’s Goods & Services revenue income.

3.1 (iii) Specific State Grants

Local authorities receive funding from a number of government departments in relation to revenue spending for certain specific schemes. Some examples of these are funding by the National Roads Authority (NRA), who come under the remit of the Department of Environment, in relation to roads maintenance, or salt provision during periods where roads may be prone to icing, funding from the Department of Agriculture during the noxious weed growing season for use in clearing noxious weeds such as Ragwort from the roadsides, funding from Department of Environment in relation to bringing housing up to BER standards, Funding from the Department of Education in relation to higher education grants for staff (such as is the case with this author receiving funding for this course).

In 2009 the amount of revenue funding through Specific State Grants to all local authorities was €1.056 billion, this represented 22.5% of the overall revenue funding received by local authorities (Byrne 2012). Once again a synopsis of Dublin City Councils’ income from Specific State Grants, drawn from the financial reports for the last 3 full financial years available, is given in the following table.

| |2008 |2009 |2010 |
| Income from Specific State | €117.2m | €133.6m | €149.2m |
|Grants | | | |
|Expressed as a % of overall | | | |
|revenue income |12.6% |14.6% |16.6% |

Table 4. D.C.C.’s Specific State Grants revenue income.

3.1 (iv) Local Government Fund.

The local government fund, also known as the ‘General Purpose Block Fund’ is a funding system for local authorities introduced by the Local Government (Financial Provisions) Act, Statutory Instrument (SI) number 29 of 1997 and amended by the Local Government Act SI number 16 of 1998. It is financed by the full proceeds of motor tax and an Exchequer contribution. The Fund provides local authorities with the finance for general discretionary funding of their day-to-day activities and for non-national roads, and funding for certain local government initiatives. In 2009 the combined amount paid to local authorites under the general purpose grant was €0.943 billion, this represented 20% of the total funding to local authorities for that year. The following table gives Dublin City Council’s funding under the general purpose block grant for the last three financial years available.

| |2008 |2009 |2010 |
|Income from General Purpose Grant (Local | €104.1m | €81.6m | €64.6m |
|Govt. Fund) | | | |
|Expressed as a % of overall revenue income| 11.2% | 9% | 7.2% |

Table 5. D.C.C.’s General Purpose Block Grant.

3.1.1 Pension Related Deduction. (PRD)

The pension-related deduction was introduced with effect from the 1st of March 2009 via the Financial Emergency Measures in the Public Interest Act, Statutory Instrument number 5 of 2009. The Act was introduced in the context of giving some stabilisation to the public finances. The Act allowed for the making of a new deduction from the remuneration of public servants who are members of a public service pension scheme. The monies collected from the PRD are to be retained by each local authority and applied to their general purpose block fund. Exchequer funding to the authorities via the general purpose block grant will be decreased pro rata with the amount of PRD retained by each authority. The table below sets out DCC’s PRD retention for the last three fianacial years available.

| |2008 |2009 |2010 |
|Pension Related Deduction retained by | €0| €16.1m | €19m |
|DCC | | | |
|Expressed as a % of overall revenue | | 1.7%| 2.1% |
|income |0% | | |

Table 6. D.C.C.’s Pension Related Reduction retention amounts.

3.1.2 Charge for Non Principal Private Residences. (NPPR)

The Local Government (Charges) Act, SI number 30 of 2009 broadened the revenue base of local authorities through the introduction of a charge on non-principal private residences. The charge is set at €200 per dwelling and is levied and collected by each local authority. The income from the charge is retained by each local authority and applied to their general purpose block fund. Exchequer funding to the authorities via the general purpose block grant is decreased pro rata with the amount of NPPR retained by each authority. The table below sets out DCC’s NPPR retention for the last three fianacial years available.

| |2008 |2009 |2010 |
|NPPR collected by DCC |€0m |€10.1m |€13.5m |
|Expressed as a % of overall | 0% | 1.1% | 1.5% |
|revenue income | | | |

Table 7. D.C.C.’s NPPR income.

4.0 Analysis.

Having identified the key sources of funding a local authorities’ revenue expenditure and examining Dublin City Councils revenue income via these sources for the past three financial years available, the author will present his key findings on these revenue streams in relation to D.C.C.’s revenue funding for the period reviewed.

• D.C.C.’s total revenue income fell by over €27 million.

• D.C.C.’s expected commercial rates income rose by €20 million but correspondingly the actual collection fell by €20 million.

• The percentage of commercial rates income – v - the overall total revenue income rose by 3% indicating a heavier reliance on this revenue stream.

• Income from charges for goods & services fell by €45 million.

• Income from charges to other local authorities fell by €5 million.

• Income from specific state grants rose by €32 million.

• The percentage of specific state grants income – v – the overall total revenue income rose by 4% indicating a heavier reliance on this revenue stream.

• Income from the general purpose grant fell by €39.5 million.

• Income from PRD rose from a baseline of €0 to €19 million.

• Income from NPPR rose from a baseline of €0 to €13.5 million.

4.1 McCarthy report.

In 2008 the Government announced, in its Statement on Transforming Public Services, that it was establishing a Special Group on Public Service Numbers and Expenditure Programmes to examine the current funding and expenditure programmes in each Department and to make recommendations for reducing public service numbers so as to ensure a return to sustainable public finances. The Minister appointed Mr Colm McCarthy, School of Economics, University College Dublin, as Chair of the Special Group on Public Service Numbers and Expenditure Programmes. Amongst the many recommendations arising from this report that were to have an affect on local authorities were;

• The Group proposed that a replacement of the Exchequer support currently given through the Local Government Fund be advanced. It considered that alternative sources of income for the local authorities should be explored.

• The Group considered that local authorities should be self financing in the long term and that Exchequer support should be replaced with the scope for increased revenue generation within the Local Authority sector.

• The Group recommended that a reduction of €100m in Exchequer contributions to the Local Government Fund should be applied.

• The Group recommended at least a three year freeze on commercial rates to alleviate pressure on businesses in the current economic climate.

The group stated that there is also a potential for savings from new policy directions such as rationalising the number of local authority structures and exploring opportunities for outsourcing and shared services.

5.0 Conclusion.

On 28 June 2011, the Minister for the Environment, Community and Local Government, Phil Hogan, announced that Limerick City Council and Limerick County Council would be merged into a single local authority. The proposed merger would come into effect following the 2014 local elections, the Minister also said that he would not rule out other local authority mergers. This merger is following up on recommendation from the McCarthy report and should have the affect of giving the new authority access to larger portions of locally generated revenue streams whilst also reducing the cost of providing services, suffice it to say that many other local authorities’ are under examination for possible mergers..

To comply with another recommendation that “local authorities should be self financing in the long term and that Exchequer support should be replaced with the scope for increased revenue generation within the Local Authority sector” (McCarthy et al. 2009), the government has introduced two new taxes/charges that are up and running, the NPPR and the PRD. As is shown in the data, the Exchequer funding to D.C.C.’s general purpose fund fell by €39m whilst the two new taxes generated €32.5m for the fund. There are other charges in the pipeline, a new ‘household charge’ (currently €100) has been introduced on private residences and a septic tank charge is currently been implemented, a new water charge for domestic premises is also currently been drawn up. In line with the McCarthy report these charges are to be self financing and the Government will reduce its contribution to local authorities by the amount collected.

An earlier report in 1991 by An Expert Committee on Local Government Re-Organisation and Reform, chaired by Mr. Tom Barrington identified the “absence of a local taxation system, which limits local discretion” the report went on to recommend “significant financial independence of local authorities from central revenue, having local taxation with accountability and a wide dispersal of liability”. The report also highlighted that the “lack of autonomous funding…….leading to a passive dependence on the central (government)” (Barrington et al 1991). Should local taxation be re-visited again in the current economic climate? Now, 21 years post-Barrington are the new NPPR, PRD, Septic Tank Charge, Household Charge and Water Charges what Mr. Barrington envisaged as ‘local taxation’?

Rates are currently a major challenge to local authorities, McCarthy recommends a three year freeze on the level of the rates to alleviate hardship on businesses, but the current amounts outstanding in all local authorities must be examined. D.C.C. with a shortfall of €20m in 2010 stated in its annual report “Rates form the largest single income source of Dublin City Council’s day to day activities. The rate collection in 2010 performed robustly in the context of a weakening economic environment” (D.C.C. 2010).

Organised campaigns of non-payment of the new household charge, septic tank charge and proposed water charges are already underway and this presents a serious challange to local authorities. Local authorities today face many challenges in maintaining and developing their current revenue streams and the McCarty report recomendations place many new challenges on local authorities to identify and collect possible new sources of funding to replace Exchequer funding.

6.0 Bibliography & Points of Reference.

Byrne, P. Unpublished Class Notes. NCI (2012).

Callanan, M. & Keogan, J. F. Local Government in Ireland Inside Out. IPA. Dublin (2003).

D.C.C. Annual Reports and Accounts 2008, 2009 & 2010.

Report of the Special Group on Public Service Numbers and Expenditure
Programmes 2009.

The Irish Statute Book, Acts of the Oireachtas, Statutory Instrument 29 of 1997. Local Government (Financial Provisions) Act.

The Irish Statute Book, Acts of the Oireachtas, Statutory Instrument 16 of 1998. Local Government Act.

The Irish Statute Book, Acts of the Oireachtas, Statutory Instrument 5 of 2009, Financial Emergency Measures in the Public Interest Act.

The Irish Statute Book, Acts of the Oireachtas, Statutory Instrument 30 of 2009, The Local Government (Charges) Act,

Report of the Expert Committee on Local Government Re-Organisation and Reform. Dublin. Stationary Office. (1991).

Appendix 1. Tables 1 to 7 combined.

| |2008 |2009 |2010 |
|Total Revenue Income €m |€923.4m |€914.3m |€896m |
| Total Commercial Rates Due €m |€304.6m |€316m |€324m |
|% of overall revenue income |33% |34.% |36% |
|Amount Not Collected |€8m = 2.6% |€14m = 4.4% |€28m = >8.5% |
|Charges for Goods and Services |€291.7m |€266.9m |€246.2m |
|Charges to other local authorities |€97.4m |€99.8m |€92.5m |
|% of overall revenue income |42% |40% |38% |
| Income from Specific State Grants |€117.2m |€133.6m |€149.2m |
|% of overall revenue income |12.6% |14.2% |16% |
|Income from General Purpose Grant |€104.1m | €81.6m |€64.6m |
|% of overall revenue income |11.2% | 9% |7% |
|PRD retained by DCC |€0 |€16.1m |€19m |
|% of overall revenue income | 0% |1.7% |2.1% |
|NPPR collected by DCC |€0m |€10.1m |€13.5m |
|% of overall revenue income |0% |1.1% |1.5% |

Source; DCC Annual Reports 2008. 2009 & 2010

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