Mr. Damien Geoghegan:

We hope we can be of assistance to the committee in its deliberations a funding model for local government finance. My name is Damien Geoghegan. I am a member of Waterford City and County Council and I am president of the Association of Irish Local Government. I am accompanied by Councillor Danny Owens, executive member of the AILG and a member of Offaly County Council, and by our director Mr. Tom Moylan. We are also accompanied by members of our executive committee who are in the public gallery, Councillors Brian Lawlor, Thomas Healy, Guss O'Connell, Pat Daly and Luie McEntire.

The AILG is the statutory representative body representing the democratically elected members and their member authority of Irish local government. Our submission today gives an overview of current receipts and their funding model as opposed to capital receipts. Current receipts fund the day-to-day activities of our members' authorities providing the essential local services to the communities that we represent. However, as an association representing the full body of local elected members across the country of every political party and none, we can only comment on the funding streams available to local authorities in their current format and we cannot give any ideological or political opinions on the merits of any funding source available to local authorities as determined by national Government.

I will now summarise the points in our detailed submission to the committee regarding the funding model for local authorities. The Local Government Reform Act 2014 brought new local government arrangements into effect from 1 June 2014 with all 80 existing town councils abolished and replaced by a comprehensive system of municipal districts, integrating town and county governance. Therefore, the number of local authorities decreased from 114 to 31 city and county councils.

The funding streams for local authorities come from a variety of different sources, including central Government from a number of different Departments, the local government fund, goods and services, commercial rates and local property tax, LPT. The Local Government Act 2001, as amended by the Local Government Reform Act 2014, provides the legislative basis for the budget process which details these funding streams on an annual basis. EU requirements dictate that the main parameters of the national budget are to be published by 15 October each year and that local government aspects and budgets must be formally adopted by 31 December.

The local government-funding model changed considerably in 2014, with the introduction of Irish Water and the LPT. Total local authority budgeted current income for 2016 was €4.011 billion which was a 3.35% increase on 2015. However, this was still a 3.3% reduction on current income of €4.149 billion for 2014, the last year of general-purpose grants from the local government fund before the introduction of the LPT. For 2016 the highest percentage income for local authorities was received from commercial rates at 37% followed by income from goods and services at 30%. Direct central government grants and subsidies amounted to 24% with LPT accounting for 8% of current income for local authorities. More than 75% of all local authority income is generated locally from commercial rates, income from goods and services and the LPT, thereby helping to fulfil the vision set out in Putting People First for local government to be the primary means of public service at local level.

We will now briefly go through and comment on the various income streams available to local authorities. Local authorities are obliged by law to levy rates on commercial property. Commercial rates accounted for 37% of overall local authority income for 2016 with rates accounting for individual income in local authorities ranging from 16% to 52%. Budgeted income from rates in 2016 amounted to €1.47 billion, down from €1.49 billion in 2015.

While revenue from commercial rates is an important income for local authorities, one area of concern is the increased number of rates arrears and the lower rates-collection rate being experienced across all local authorities. This is a significant issue particularly over the last eight to ten years as local businesses navigate and try to survive the economic recession, and as local authorities address the issue of higher vacancy levels. A study by NOAC, published in April 2016 on local authority rates collection for the period 2013-2014, found that rates-collection rates had fallen to as low as 72% for some local authorities with other authorities recording rates arrears as high as 51% to 56%.

While it should be noted that collection performance has improved as local authorities work with their ratepayers to address the issue of rates collection and arrears, the AILG believes that this is one of the biggest challenges facing local authorities. We need to establish how we can protect a significant source of income for our member authorities while at the same time help existing businesses and encourage and attract new local business into our cities, towns and villages to ensure their survival. To this end, the AILG welcomes the announcement by previous Minister for Housing, Planning, Community and Local Government, Deputy Coveney, on new rates legislation that will provide for the introduction of a number of measures, the most important of which is a provision to allow local authorities to introduce rates alleviation schemes including a six-month exemption from rates where a property has become vacant to allow a property owner to seek new tenants. These measures will help to improve the financial position of local authorities while allowing the elected members to introduce mechanisms to support specific local economic policy objectives depending on the priorities of their local authority.

LPT was introduced in 2015 by national Government and, since then, it has replaced the general-purpose grant previously payable to local authorities. Some 80% of LPT is retained locally to fund vital public services with the remaining 20% redistributed to provide top-up funding to certain local authorities to ensure that no local authority is worse off compared with general purpose grant allocations in 2014. As already outlined, the current element of income from LPT for 2016 was €312 million, accounting for 8% of income for local authorities. Nineteen local authorities were net recipients from the equalisation fund receiving over €108 million. The balance of 12 local authorities were net contributors to the equalisation fund. Eleven local authorities reduced their level of LPT by varying their LPT rate at a cost of €36 million. Of these 11 local authorities, three were net recipients from the equalisation fund.

The association has identified a number of anomalies in the workings of the LPT that should be addressed as a matter of urgency. Our members are required to make their decision on any possible variation in the LPT by the 30 September of each year, but the budget process for our members is not finalised by the 31 December of each year. This had been identified as a significant problem on the basis that they are been asked to make serious decisions on LPT rates without the benefit of having a full budget available to them so they can make informed decisions as to any potential implications a varying of the LPT may have on their finances. There is also an issue with using 2014 as the ongoing baseline to determine the current element of LPT payable to our member authorities. This baseline needs to be increased dramatically in order to ensure that local authorities have sufficient general funding available to them.