Mr. Eamonn O'Sullivan:

I thank the Cathaoirleach. The CCMA welcomes this opportunity to present to it on the topic of local government funding, in partnership with our colleagues in the Association of Irish Local Government and the National Oversight and Audit Commission. I am Eamonn O'Sullivan, chief executive of Monaghan County Council and I am accompanied by Mr. Garry Martin, director of finance, information systems and emergency services with Donegal County Council. I am currently the chair of the CCMA finance committee and Mr. Martin is the chair of the heads of finance association of the CCMA.

Our presentation focuses on three points. The first is the evolving role of local government following a period of significant reform. The second is the local government budgetary process and primary funding lines. The third relates to the current financial standing of the local government sector.

Since 2010, the local government sector has undergone a period of significant reform. In 2010, the local government efficiency review group recommended 106 actions designed to deliver savings of €511 million in the sector. Those were achieved through a combination of staffing reductions, procurement, shared services and operational efficiencies. By the end of 2015, a total of €586.6 million in savings were achieved by the sector by implementing the majority of those recommendations.

In 2012, the Government published, Putting People First – Action Plan for Effective Local Government, the policy of reform for local government. It was the largest such policy in more than 100 years of local government in this country and envisaged a strengthened role for local government in economic and community development and the devolution of further functions to the sector. In 2014, the Local Government Reform Act was passed. This gave legislative effect to the reform programme. Municipal districts were established and an associated reformed budgetary process was introduced. Since 2014, the reforms have been embedded in the sector. Municipal districts and associated roles have developed. Local community and development committees were established which underpinned the broader economic and community role local authorities play. The local government sector has continued the drive for efficiencies with the establishment of shared services to deliver back office functions such as payroll, procurement, road management, environmental and waste management and housing assistance payment, HAP.

The Local Government Act 2001, as amended by the Local Government Reform Act 2014, provides the legislative basis for the local authority budgetary processes. There are two principal budgets: the revenue budget, dealing with day-to-day and operational expenditure; and a multi-annual, rolling capital budget. I will not go through the revenue budget in detail but it is outlined briefly in the presentation. There are four stages to it which I have set out for the committee.

The primary constituent income lines for the local government sector is respect of the revenue budget are: local property tax, which comes under the local government fund; commercial rates; Irish Water, through the service level agreement; direct Government grants; and income from a variety of charges and fees, such as those relating to housing, planning, car parking and so on. The proportion of each of the above will vary from authority to authority depending on scale and whether it is rural or urban in nature. The proportion of income generated as a sector in respect of the headings is profiled in the appendix and shows the trend in the income lines over the period 2008 to 2015. I will not go into that in detail.

In respect of the capital budget, the chief executive also prepares and submits to the elected members a report indicating the programme of capital projects proposed by the local authority on a rolling three-year basis. The capital programme includes expenditure on the acquisition of fixed assets and the construction of infrastructure in areas such as roads and transportation, housing, marine, cultural services, economic and tourism infrastructure, environmental services and fire and emergency services projects.

The capital budget is primarily funded through a combination of direct grants, most often from central government but also from external funders such as directly from EU funding programmes, internal council capacity through development charges or contributions, and, subject to affordability, through loan finance, raised by councils and subsequently financed over the duration of the loan. Unlike central government and the majority of other State-sponsored bodies, the local government sector operates on an accrual accounting basis, meaning that any operational loss or gain is carried forward on the accounts of each council at the end of each year and with the effect that a number of councils, due to a variety of reasons, found themselves carrying deficits on their accounts. Those are managed on an individual basis by each council, with the oversight of the Department of Housing, Planning and Local Government and the local government audit service.

As outlined in the appendix, local authorities have made significant progress in reducing their revenue deficits between 2012 and 2016 reflecting a positive and proactive management of the challenges faced and responded to.

In recent years, local government finance contracted significantly. Sources of revenue income reduced from €4.84 billion in 2008 to a low of €4.04 billion in 2016, a reduction of €800 million in nine years. The contraction in capital budgets was starker. Between 2008 and 2015, capital budgets decreased from €5.58 billion in 2008 to €1.15 billion in 2014, with a slight increase to €1.31 billion in 2015. Between 2008 and 2015, capital income reduced by almost €4.27 billion. The trend in the sources of both current and capital income is set out in the appendices.

The local government sector is the key enabler for development in its area across many guises in addition to its core statutory functions related to housing, roads and transportation, planning and development, and fire and emergency services. These include infrastructure, actions enabling economic development, tourism, recreation and the quality of life in our respective local authority areas.

An appropriate financing model is critical to the sector in terms of enabling it to maximise its capacity in maintaining and developing each respective city and county area for the future in a manner that meets the needs of all of our citizens.