Oireachtas Joint and Select Committees
Thursday, 9 November 2017
Joint Oireachtas Committee on Housing, Planning and Local Government
Local Government Finance: Discussion
At the request of the broadcasting and recording services, members are asked to ensure that their mobile phones are turned off completely or switched to aeroplane, safe or flight mode, depending on their device, for the duration of the meeting. It is not sufficient for members to just put their phones on silent mode because that will maintain a level of interference with the broadcasting system. Apologies have been received from Deputy Coppinger. Deputy Barry will be appearing in her stead.
No. 6 on the agenda is an examination of the funding model relating to local government finance. I remind members that we will have two sessions today. I very much welcome Mr. Eamonn O'Sullivan and Mr. Garry Martin from the County and City Management Association, CCMA; Councillor Damien Geoghegan, Councillor Danny Owens and Mr. Tom Moylan from the Association of Irish Local Government, AILG; and Mr. Pat McLoughlin and Ms Sheila McMahon from the National Oversight and Audit Commission.
Before we commence, I draw our guests' attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
I invite Mr. Eamonn O'Sullivan from the CCMA to make his opening statement. We usually have five minutes for opening statements.
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.
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.
Mr. Danny Owens:
Local authorities also receive a substantial part of their annual funding from a range of Departments and Government agencies which in 2016 amounted to €979 million or 24% of current income for local authorities. These central funds come from the local government fund and, as has already been outlined, the general-purpose grants previously payable out of the fund have been replaced by LPT allocations.
Most of the funding sourced from central government and provided to local authorities must be used for specified local authority services. For 2016, approximately 70% of the total provision from central government to local authorities was accounted for by two categories, namely, housing and urban regeneration programmes at 41% and transport at 29%.
While there has been an increase of 4% on central funds to local authorities in 2016, it should be noted that more than €141 million of this came from the capital element of the local property tax, LPT, which was additional funding to the current element of the LPT of €312 million given to local authorities in 2016. The overall 2016 LPT allocation to local authorities is €453.3 million. The association would contend that the LPT should not form part of the local government fund and, for better transparency reasons, should be a fund used for financing local services provided by local authorities as this was the original basis for its introduction in 2014.
Our final observation today is in relation to income from local goods and services delivered by local authorities. Income from these services amounted to €1.186 billion in 2016, or 30% of income for local authorities. Most of this income from goods and services is generated at local level and the association would advocate the need for a much higher level of control over financial resources, particularly at municipal district level to reverse the current situation of our members having minimal financial influence at municipal district level during the local authority budget process.
The Association of Irish Local Government, AILG, is currently engaging with the Department of Planning, Housing and Local Government in relation to the strengthening of municipal governance of the new local government structures and the AILG is committed that more control over the budgetary process at municipal district level will form part of this review to ensure greater transparency and accountability of income from local goods and services.
Mr. Damien Geoghegan:
In conclusion, we acknowledge the work of this important committee and pledge that we in the AILG will play our part on behalf of all elected members to work alongside the committee and we look forward to continuing to contribute the committee's work. We thank the Chairman and the committee members for listening to our submission and we will be glad to take questions that the members may have.
Mr. Pat McLoughlin:
I thank the Chairman. I am joined by Sheila McMahon, who is the head of our secretariat and provides management support to NOAC. This is the first time I have appeared before the committee as the chairman of NOAC and I thank the committee for its invitation. We are honoured to be present today and we welcome this important first engagement, which we hope will continue.
NOAC was established in July 2014 under the Local Government Reform Act 2014 to provide independent oversight of the local government sector. Its functions are wide ranging, involving the scrutiny of performance generally and financial performance specifically, supporting best practice, overseeing implementation of national local government policy and monitoring and evaluating implementation of corporate plans, adherence to service level agreements and public service reform by local government bodies. A Government Minister may also request that NOAC prepare a report relevant to its functions on any specified aspect of local government.
NOAC publishes annual local authority performance indicators and composite public spending code quality assurance reports. It has published update reports on the implementation of the recommendations of the 2011 local government efficiency review and shared services projects, a review of the adequacy of the local authority 2015–19 corporate plans, reports on rates collection and the financial performance of local authorities 2013-15, studies of local authority performance of their statutory functions in relation to the private rented sector and of the management and maintenance of their housing stock, and a survey of local authority tenants’ experience and satisfaction.
NOAC operates mainly by sub-groups, including a financial performance sub-group, set up to oversee different aspects of its work, each consisting of three or four members from NOAC’s total current membership of ten people. NOAC does not have a separate executive and its secretariat is provided by the Department of Housing, Planning and Local Government. We currently have two staff.
NOAC's 2017 work plan includes a best practice showcase event later this month in collaboration with the County and City and Management Association, CCMA, and a customer service project consisting of a desktop exercise involving all local authorities. The NOAC work plan also involves a workshop, happening today, with relevant customer service personnel from a selection of authorities. NOAC has commenced compiling profiles of each local authority based primarily on the material in its own reports to date and meetings with the chief executives, but also to include information provided by the authorities themselves outlining the particular context within which they each operate.
As indicated above, NOAC’s role in relation to local government policy is to oversee how the national policy is implemented by local government bodies. NOAC does not have a function of providing input to the development of policy for the sector. When it comes to financial performance, NOAC’s role is to scrutinise performance of any local government body in respect of the financial resources available to it, and that scrutiny includes in relation to value for money.
NOAC carried out a review of local authority rates collection performance because this is a significant revenue source for the sector. It reviews the reports by the Local Government Audit Service, LGAS, of their annual audits of the local authority financial statements and follows up on selected aspects raised in those reports. It reviews also value for money reports produced by the value for money unit of the LGAS. Regular meetings are held between us and the director of the audit service and NOAC has a good working relationship with the director and her team.
NOAC does not have any expertise on the components of the local government funding model and how it operates in practice. It performs its functions within the funding model that exists and has, to date, looked only at a few aspects of local authority financial performance. NOAC’s focus is on how efficiently local authorities utilise their funding, rather than on how they are funded in the first place. I hope the committee will appreciate that this is the context in which I will be pleased to participate in today’s discussion.
I thank the Chairman and I thank all the witnesses for their presentations here today. Coming from a local authority background, only one and a half years ago, I feel the pain of the local authority members. Back in 2014 we envisaged that local democracy was returning through Putting People First but, as it turned out, it did not restore any local democracy around funding.
With regard to the 20% equalisation fund, nobody has mentioned what their views are on that or the justification for it. Do the witnesses believe that is the correct way to move forward on the LPT? Just before I left the membership of my local authority, people were looking for the LPT to be kept in each municipal district. This would have disadvantaged the weaker areas. The fundamental issue is the baseline figure we are all faced with. Are the witnesses from the CCMA and the AILG happy with the methodology used and the transparency around the calculation of the baseline? Is it open and transparent to everybody so a comparison can be made county by county? I have looked for this information and I have not got it.
Another critical matter that needs to be addressed is the adoption of the LPT and the budget. From a political point of view, this is an utter disaster. We are asked to make the tough decisions on the LPT in December while the budget does not come until six weeks later. The people who do not want to make the tough decisions can hide behind the LPT, and when it comes to the budget they claim the credit for the tough decision that was made. Moving forward, that has to be addressed. In today's environment, where figures are available almost immediately, I do not see why there is any need to differentiate the time difference between the two. I believe these figures could be merged together. Each local authority knows its revenue in September. They have it at the push of a button and they also know their costs at that time. I see one of the priorities as the harmonisation or merging of the LPT decision and the budget decision into one process.
Using that baseline, the other aspect of the LPT is that the Government is now controlling the extra, over and above, that some local authorities have available to them. This goes against the whole purpose of Putting People First. Local democracy has been removed, in theory, from 40% of the budget process in some counties. They have no say at all in this. This is an area we need to consider.
Turning to rates and commercial rates, as a ratepayer I could never understand the value for money I was getting. One of the reasons behind it was that the rates were the only available option left to the local authority members to balance the books at the end of the year. It did not matter what services the commercial rates sector was getting - A minus B equals C and we had to do the multiplier on that. When adopting the LPT, the local authority members are still left with that decision at budget time instead of bringing the two aspects together.
I want to discuss commercial rates and rental on housing in Wicklow. There is a difference between how both are presented to members. The write-offs for commercial rates are presented to members. In other words, one has the total rate bill, the write-off and a net income. The rental generated by housing was net of the write-off in Wicklow and, therefore, the process was presented differently. I always consider collection rates. I was surprised how high the collection rates were on social housing but that was because the write-off was never shown. Perhaps that is not the same in each county but that is how it was done in Wicklow.
The municipal district fund was the greatest cop-out ever because there was nothing left for municipal districts. I do not know how we will manage the matter going forward. If we are going to continue with municipal districts then we need to give them the powers to adopt their own budget of significance.
Turning to the effect the loss of water services has had on local authorities, some still have service level agreements in place but they will be watered down over a period. I still believe one is left with the pension liability for all of the staff.
In terms of outstanding balances for commercial water, are the organisations happy with the figures that have been derived from Irish Water? What is happening with the development levies that would have been collected by local authorities through water services but now go to Irish Water? Have the organisations any input into deciding where that will go into the future?
It is frustrating to see that only 39% of motor tax is spent at local authority level and the rest probably goes to Irish Water. However, that is an argument for another day.
I appreciate the exceptionally good work that has been done by the National Oversight and Audit Commission, NOAC, and thank it for all its reports. In fairness, NOAC has no teeth and no role in providing solutions, directing policy or anything. I mean no disrespect but it is a cop-out to have NOAC. If NOAC had teeth it would perform a different function. NOAC provides excellent report on rates collection but it does not take aim. What would NOAC do to change its situation?
Mr. Eamonn O'Sullivan:
Deputy Casey has covered a lot of material and I will do my best to answer. He started with a question about 20% equalisation in terms of the local property tax. He must understand a baseline existed and that the transition from the local government fund to LPT funding in 2014 took that into account. Depending on what side of the line one is on in terms of the distribution of the 20%, a number of counties have benefitted from the equalisation process, including my own county of Monaghan. The baseline is still very important for rural counties but it is also a constraint. One cannot go from a position of having a source of funding in 2014 to removing it suddenly, which is why we have the equalisation process.
The Deputy mentioned the disconnect between the adoption of the LPT, which must take place before 30 September, and the statutory budget process. The disconnect is recognised by the AILG and its members and, indeed, by the CMMA. The matter is under discussion as part of the reform and ongoing adjustment of the budgetary process. It is something that we have mentioned to our departmental colleagues. We have sought the alignment of the budgetary process with its municipal district element to ensure that we have a more complete, well-defined and structured process.
In terms of challenges, we are only in year 3 and heading into year 4 of the new system that was introduced by the reform Act. There is no doubt, depending on what part of the country one is in and, possibly, which political hue of those involved, opinions will vary on how the system currently works. It has bedded in well. Municipal districts are performing well and certainly those that I have dealt with. Before I took up my current position in Monaghan I worked in the larger country of Kildare. Therefore, I have experience of both a larger urban county and a smaller rural county. Municipal districts are still settling in and bedding down. They are not perfect but they are working. Our challenge is to improve the situation, to keep improving and to ensure it can be seen at a local level that the municipal districts perform a valuable function. It is a challenge for all politicians, whether one is elected or non-elected, to do so.
Irish Water was a very significant transition programme. There are service level agreements and they work. There is a regulator to oversee that work. To some extent, the regulator plays a role in tackling the challenge of managing the system and ensuring it works.
The sector in the CCMA is committed to making the service level agreements work and continuing the very good working relationship that has been established. The CCMA recognises that a lot of change was involved and there was good co-operation by the staff side of local government in terms of making the changes happen. Three years on a lot of work has been done but there is lot more infrastructure needed. Irish Water has given ample evidence of same.
In general, the local government sector now plays a more central role in economic development and enterprise. Our challenge is to balance that to provide a pro-business and pro-enterprise culture in the sector, which is important.
When it comes to the adoption of the budget and its impact on commercial rates there are pressures from small business, particularly in terms of vacancies. Effectively, the nation has had a fragile recovery. As we all understand, different sectors of business have experienced growth quicker than some and different parts of the country have experienced different levels of growth. The signs of growth and recovery are less obvious the further one travels from Dublin, which is a challenge for all local authorities.
Our colleagues in NOAC play an important oversight role in the sector. NOAC has consistently reported and its report on the 2016 performance indicators will be published shortly. Such reporting is important for householders and the commercial sector because we can demonstrate where the funding is being allocated and what work has been done at local level. NOAC helps us to do that because it is removed from the sector so can provide an impartial report. We, as a sector, look forward to continuing a strong working relationship with Mr. Geoghegan and his colleagues in the AILG and Mr. McLoughlin and his colleagues in NOAC, and will continue to help the service to improve.
I hope I have addressed most of the questions posed by Deputy Casey.
Mr. Eamonn O'Sullivan:
The calculation is quite cumbersome. I do not profess to understand it in detail but it is there so we must operate it.
The challenge for us, as a sector, is that many of our costs are rising faster than our revenue base, be that revenue base local taxation or commercial rates. That is where the value-for-money work that NOAC does comes into play, in addition to our continuing to deliver on efficiencies and a programme of ensuring the local government sector is lean and making the best use of the scarce resources available to us.
Mr. Damien Geoghegan:
On behalf of the association, I would like to make the point that local authorities and local government are underfunded, considering the number of services we are required to deliver at local level.
The notion that we have to sit down every year, a couple of months before we are presented with our budget figures, and set the local property tax rates for our areas is totally unacceptable. No business would operate in such a manner but we are expected to do so. It is the view of the association that local property tax raised in a particular area would be retained in that area. There is obviously a cost to that. Where is the incentive for a larger urban local authority to maintain its local property tax, or even increase it, considering that a large chunk of it is automatically taken away for central government funds? There is no incentive either to maintain the rate at the baseline figure or increase it every year. Local authorities should be allowed to retain their local property tax revenue in the area in which it is raised. That would certainly require the elimination of the equalisation deduction from the authorities where it would apply, and there would be a cost of approximately €100 million in this regard because one would have to ensure those benefiting from the equalisation fund would continue to do so.
The notion of returning one's local property tax to the baseline figure every year is unacceptable. One is making a request of local authority members every year, if they are brave enough and if they have decided to increase the local property tax by any figure or percentage, and the following year they are asked to do the same again. The increase does not remain in place. It allows those of a particular persuasion to go in every year and make the proposition that the value can be reduced by 15% when, in fact, that is not the case. If a local authority member increases the local property tax, for whatever reason, that increase should stay in place; it is as simple as that. That is exactly how one would operate with rates, for example. If one increases the rates one year, the increase stays in place.
With regard to rates, we acknowledge collection has improved but there is certainly room for further improvement. Owing to a delay in the rates valuation office making a rates valuation, one business could have rates imposed on it while the business next door might not. We acknowledge that the former Minister, Deputy Simon Coveney, made allowances in this regard. He has allowed local authorities to impose temporary rates on a business until the rates valuation office sets the rate for it. We certainly welcome that.
Finance at municipal level is a major bugbear of all local authority members right now. It is probably the one weakness in the system. It is a very obvious weakness. It has led to a number of calls on proposals to reintroduce town councils, precisely because, at budget time at municipal level, a major change took place. In the past, a town council was presented with a major budget document at budget time but it is now presented with a one-page document. The latter is not very clear with regard to expenditure and income. There needs to be a major analysis of how municipal districts are financed.
Mr. Tom Moylan:
With regard to working from the 2014 baseline, it should be noted that the local property tax represents the only general-purpose funding that local authorities have. The staff embargo for local authorities was lifted in 2015, yet we are still using 2014 for a baseline figure for general-purpose funding. Therefore, if local authorities want to try to recruit vital staff they lost over the last eight or ten years, they do not have the general-purpose funding to do so because they are working from a 2014 figure. This needs to be examined straight away.
Let me highlight the Deputy's other point on commercial rates and the budget book showing the full income from rates. Arrears must be provided for. I accept the Deputy's point from an accounting point of view. One benefit, however, is that it shows, in monetary terms, the effect of high vacancy levels and the effect of arrears. A monetary figure in the budget book hits home with our members and demonstrates that we have an issue either with high vacancy rates or arrears, and that needs to be addressed. I accept the point. In one way, it can be confusing but it highlights problems and an issue in another way.
Mr. Pat McLoughlin:
It is fair to state we do not have teeth. Giving us more teeth would probably be problematic given the independence of the local government sector. I would argue, however, that the local government efficiency review group, of which I was chair, did not have teeth. Neither did the implementation group, yet the sector has made €587 million in savings since 2010. It has done so by leveraging the scale of local government at sectoral level, developing shared services, wherever appropriate, and comparing and contrasting performance across the individual local authorities. We are certainly finding in our work that our reports are increasingly beginning to become embedded in the local authorities. The audit committees are reviewing it and discussing it with members, and members are challenging management on why their local authority compares poorly with others. It is not all about saying that the performance is below par. We see much potential in local authorities working together and sharing good practice. That is why we are working with the CCMA. We have an event where we are showcasing good practice in individual local authorities and challenging the sector to ask why it cannot be carried out in other local authorities. It is about our being able to highlight where we believe performance could be improved.
How the local authorities might use any savings accruing from improvements is a matter for them, both individually and at sectoral level. Given that there are only two staff and that we rely on CCMA and many of the local government and audit service staff to do our work, I believe the performance of the local government sector in terms of efficiency is much higher than that of any other sector of the economy. I might not agree with that when I am talking to the CCMA but the reality is that if one looks objectively at what the sector has saved since the efficiency review, one notes that of a little over 100 recommendations from the review group, 69 have been implemented or partially implemented. This is a high rate of performance. I argue that there were no teeth in that; it had to be done through co-operation and people working together at sectoral level.
I am conscious of the time so I will try to be as specific as I can. I thank the witnesses for attending. This committee is about local government. Our terms of reference today are to examine the funding model. That is what we are about. It is why this committee decided to invite the various groups and witnesses. I thank Mr. O'Sullivan. It is interesting to focus on CCMA. I constantly visit its website. There is not a lot of information on it. I do not know who feeds into it. The witnesses might take that point back. Trying to understand what the CCMA is represents a difficulty for Oireachtas members. It is certainly difficult for county councillors.
I want to draw on a few points that were made. I echo what Mr. McLoughlin said because I do not necessarily agree with them. I am fed up hearing the word "savings". Savings have cost local government. They have cost communities and people in terms of service provision. It is not a matter of the bottom line in respect of savings. The opening statement referred to €586.6 million in savings were achieved but they were achieved with a lot of pain and hurt. The reality is that many communities were left disadvantaged. I am not going to give a lecture here today about the performance of local authorities in housing, value for money and waste within the services because we know the position. I was a councillor for many years in Dún Laoghaire-Rathdown and I have a particular interest in governance and accountability.
Mr. McLoughlin might talk to us about the staff embargo. What is the current position on the embargo in terms of costs?
On the question of the acquisition of property, it always amazes me that in any local authority the elected members do not consent to the acquisition of real estate that the local authority management purchases on behalf of the county or the community. In section 93 cases, the local authorities have a disposal system that is put to the elected members, but the county manager does not seek and the legislation does not provide for the seeking of the approval of county councillors for the acquisition of property. A number of councillors have spoken to me where their county managers - chief executives, as they are now - have spent millions of euro of public funds on real estate without any cross-reference or checking with the local authority. When they come to fund that acquisition they must come back to the local authority, but that is after the event. It raises serious questions of accountability and governance and finance that any of the 31 local authorities can go out and incur vast public expenditure with any consent in advance. I can understand the arguments about the sensitivity of commercial transaction, being in the market and doing one's business privately, but I have concerns and I want to flag them to the association. The association might come back to me on that.
The association's representatives might also talk about the local property tax, in terms of funding. I want to say, in respect of the covers all three presentations here, that I am fundamentally against the local property tax. It is an unjust and unfair tax. It has no regard of people's capacity to pay. As I have said here from the outset, I am in favour of a local tax or council tax - call it what it is - where people get services and they pay for them. We want less ambiguity about local government finance. I accept that someone has to pay for the delivery of local services but we should make it clear. We should simplify the model. We should let people know what they are paying for and what they can legitimately expect for what they pay. I am a supporter of a local council tax. We should learn from the experiences of Britain and elsewhere, but should not get hung up on the view one cannot introduce something called a council tax. Let people know they are paying for local services, but to attach funding to the size of people's property or the valuation on people's properties is grossly unfair. As I stated in the Seanad last week, this is one of the most important issues that will face the electorate. I am determined to address it. Voters are sitting in the long grass, as am I. This is not the proper, fair and responsible way to fund local government. At some other point, we need to look at the whole model.
Turning to the AILG, I particularly welcome the association and Councillor Damien Geogheghan. I congratulate Councillor Geogheghan on his election as president. I am always keen to do business with the AILG. I myself was a member. It is a wonderful organisation. It is representative of the voices of councillors.
I note what Councillor Geogheghan said about the local property tax but I will not dwell on it. He pointed out a number of anomalies and we need to look at them. He addressed "Putting People First", which I have here. A lot in this document was never delivered on. It is timely that this whole matter was looked at again. We need a strong debate. From talking to the AILG's members throughout the country on a regular basis, local property tax and the funding of local government is important, as is the funding and support of the members who do the work. The AILG is always keen to address these issues. I welcome it and all its executive here and say that its role is very important.
The witnesses might share some of the AILG's views on a council tax because politics requires leadership. Politics requires us, both city and county councillors and Senators and Deputies to lead from the front. I would like to hear a more proactive response from the AILG on that.
Turning to Mr. Pat McLoughlin and the National Oversight and Audit Commission, NOAC, the Chairman correctly stated NOAC has no teeth. NOAC does great work but many councillors know nothing about it. That is the reality of it. Oversight is all very well but when will NOAC not only have teeth but, more importantly, be able to impose sanctions? I would like to see a greater synergy between the Local Government Audit Service, who we will have in here later, and NOAC. I would like Mr. McLoughlin's feedback on this. Time and time again, I have sought clarification on audit reports from the Local Government Audit Service. I am critical of it too. It is not appropriate that an inhouse Department of Housing, Planning and Local Government audits 31 local authorities. I have always argued the case that all local authorities should come under the scrutiny of the Comptroller and Auditory General. They should be in here and have to answer questions about their accounts. What is Mr. McLoughlin's view? What would he suggest? How could NOAC work in greater collaboration or would he like additional powers and additional resources to work closely with the Local Government Audit Service?
A number of Local Government Audit Service reports for 2015-16 were posted up on its website in the past few days but there are no sanctions. The Local Government Audit Service has singled out many local authorities here for their failure to comply with their property registers to transfer their property register assets to an IT system. For four years in succession, they have singled out one particular local authority and asked why it has not done so and the response from the chief executive in question was that the local authority does not have the resources. When one talks to chief executives, they say the Local Government Audit Service cannot sanction them, it is all a joke and all the chief executive is asked is to comment. The Local Government Audit Service does not seem to have any powers. NOAC does not seem to have any powers either. It is all a matter of scrutinising and reviews and conducting reports but it ends up being nothing.
At the end of the day, councillors have a duty. We are public representatives at all different levels. Citizens have a right to expect good corporate governance and sanction. The big problem in this area is who is sanctioned, that is, what chief executive gets removed if he or she has failed. I am not suggesting one should because it is a difficult job. I would be the first to point that out.
I am concerned about the last paragraph in Mr. McLoughlin's statement to the committee where he states, "NOAC would not have any expertise on the components of the local government funding model and how it operates in practice". Those are Mr. McLoughlin's words, not mine. That raises a concern and I would like Mr. McLoughlin to explain that to me.
Mr. Eamonn O'Sullivan:
I thank Senator Boyhan for his comments on the CCMA website. We will certainly take that on board.
I am a little surprised that the Senator would be so vocal on not knowing of the County and City Management Association because we have been in existence for over 50 years. Within our own local authority areas, members of the association are highly visible and also accountable for our actions, rightly so because of the positions that we hold. The elected members - the AILG can comment on this if it wishes - sit at least once a month in public session, with access for citizens and for the media, and rightly so. In the local authorities that I have worked in, there has always been a strong tradition of accountability, both directly as part of the local authority but, most importantly, because we are conscious that the members are extremely vulnerable and accountable every five years when local elections come around. Working with the elected member is an important part of the role of a chief executive or county manager.
My own experience was previously as a head of finance. I was heavily involved in producing budgets and the mantra by which we worked was that there should be no surprises for the elected member when the draft budget is presented so that there is full transparency and full accountability at local level. However, we are not trying to pretend that the system is perfect. To do so would be doing the service a disservice. As a local government sector, we are unique in that we publish performance indicators and had been doing so before the establishment of NOAC. By doing so now through NOAC, it gives a level of scrutiny that might not have been there previously in the sector.
In my experience we have been publishing service indicators, and now performance indicators for over ten years. Given the diverse role that local government performs, it is impossible to capture everything but it does capture the wide range of essential services that are delivered at local level in spite of the vagaries of the funding system that has evolved. In this regard the funding system is a challenge.
It leads to the imperfection and variation across the country that can occur because of settlement patterns and the way in which the country has developed. The draft national planning framework, which is out for consultation, is a recognition of the need to promote regional development in a more equitable and balanced manner. This is a challenge for all of us, whether Members of the Oireachtas or members of the County and City Management Association.
To return to Senator Boyhan's question on the 2014 baseline and the staffing embargo. As noted, the embargo was relaxed in 2015. Chief executives of local authorities can only employ the staff they can afford to employ. The budgetary constraints we face must be managed, which is part of the challenge. We identify a need and we have workforce plans which we keep under review. However, the challenge is to be able to afford to employ additional staff and then to recruit and retain them because once the market picks up, the supply of labour becomes constrained.
The Senator referred to the acquisition of property. I am not aware of the specifics to which he is referring. We have to acquire property from time to time. We operate in a market in which there are other bids. I have experience of the council being outbid for property it was seeking to secure for good operational reasons.
On the funding of property acquisitions, it is a reserve function of councils to sanction any borrowing proposal. We tend to try to keep our corporate policy group in the loop regarding major financial matters and, as I stated, budgetary matters should create any surprises for elected members. However, there are times when information cannot be made public owing to the sensitivities surrounding negotiations to acquire property. This is also a challenge.
We have capital programmes which signify, on a rolling three-year basis, what are our capital aspirations. Anything the chief executive does should accord with the plans and programmes in place. We cannot always get this right, however, and timing issues sometimes create an information gap. This should be the exception rather than the rule.
On the local property tax, from the perspective of councillors and county and city managers, we operate within the funding system that is legislated for by the Oireachtas. The local property tax is, for now, the main source of funding for local government. Senator Boyhan explained his preferences on the matter and he is entitled to his views. We are operating on the basis of the legislative programme set out for local government and we must make the best possible use of it.
We are conscious that the revaluation decided in 2014 under the local property tax is due for completion in 2019. That is a matter for the Government and Oireachtas to legislate.
Mr. Tom Moylan:
I thank Senator Boyhan for his comments. On the issue of the local property tax and our views on a local tax, we represent 949 councillors of all political parties and none. I am sure Members of the Oireachtas could debate the merits of a local property tax all day, just as we could. The question to be addressed is how local authorities should be funded. Should they be fully funded from central funds or should local charges be used to generate funding? This question must be asked as part of a wider debate. As noted in the submission, 75% of funding for local authorities comes from local receipts from commercial rates, local property tax and income from goods and services generated locally. The remaining 25% of funding comes from central funds. As such, much of the funding for local authorities is generated locally from the general public.
Councillor Danny Owens will highlight the services people receive for the money they pay, which is extremely important. Councillor Brian Lawlor is from South Dublin County Council, which last year introduced a small pilot scheme on a participatory budget. It established a local fund of €300,000 for one of its local electoral areas and asked members of the public in the area how they would like this sum to be spent. This was done to show the public what their local property tax is doing for them. It is a good pilot scheme and I understand the sum involved has been increased to €600,000 this year. This type of initiative could be rolled out elsewhere to demonstrate to the public the services they receive from their local authorities.
Mr. Danny Owens:
To address an issue raised by Senator Boyhan, while the purpose of the meeting is to examine the funding model, it is also important to consider the utilisation of this funding and how it is spent, particularly in terms of value for money for local authority housing. Many councillors are disenchanted because the role of local authorities in building houses has been considerably diminished as a result of the advent of approved housing bodies. This raises a serious longer-term issue. In the short term, there is an economic argument for using approved housing bodies but that is not true in the longer term.
A small number of local authority homes are built in County Offaly. While building directly is more costly to the State initially, the benefits of doing so are obvious. The houses built by councils become an asset from which an income is gained and the council retains the house when it has been paid off. That is not the case under the approved housing body model under which we hand over approximately 30% of the cost of building houses to these bodies. This is dead money which will never achieve anything. We do not own the asset and we have less input into the allocation of the completed homes. This approach must be reviewed. I am not making a political point because it has been presided over by successive Governments. It is important that we address this in the long term rather than in the short term because housing provision by local authorities is an aspect of policy that must be addressed very soon.
Mr. Pat McLoughlin:
When I was a member of an bord snip nua, as it was known, and the local government efficiency review, it was clear that the difficulties experienced by the State at the time impacted on local government because of the extent to which the latter was dependent on State funding and the fact that local government did not have a sustainable model of funding in its own right. Internationally, local government is much more independent of central government finances.
On the Comptroller and Auditor General and local government audit service, I was appointed to chair a group established to determine whether the two services could be merged. During our deliberations, which were by no means easy, the Government took a decision to establish the National Oversight and Audit Commission. From recollection, the reason for not merging the different services was that local government receives approximately 75% of its income locally and must, therefore, be accountable locally. Why should the national audit service - the Office of the Comptroller and Auditor General - interfere in that particular area? This is a policy issue. Nevertheless, we established that the services could work together in a number of areas, including quality standards.
The reason we have no expertise on the funding model is because it is not an issue for us. Should we have more powers? Other than in matters of examining and reporting, I am not sure that the PSA necessarily has any more power than we do. It may have greater ability to call people in as witnesses, perhaps. Within NOAC, however, we have now decided to bring in each local authority, as much so that we can get an understanding of the individual context as anything else. Each local authority deals with quite different issues so there can be very different reasons efficiency can vary.
We work very closely with the Local Government Audit Service, LGAS, and have, for example, agreed on the range of issues we will look at from the point of view of value for money. LGAS has some expertise in value for money as part of its audit service. We have now agreed on a programme of work - what we in NOAC will do and what the LGAS will do - and we will do so every year. I also regularly meet the director of the audit service and she has come before NOAC to agree on these issues. We have not discussed what other powers we should have because this is a policy matter for Government.
With regard to councillors' knowledge, all I can say is that I am being increasingly asked to meet audit committees and so forth. We will certainly do anything we can to bring the attention of councillors to the work that we do and I will raise the possibility of providing greater information at the next NOAC board meeting. When we issue our reports, for example, there is no reason why we could not email copies to councillors if they were happy to receive them. There is no issue there.
I thank the Chair and the two committee members who very kindly allowed me skip them in the queue to speak because I have to leave at 11.05 a.m. I have three questions and they concern the local property tax; Traveller accommodation; and the question of local government capital income, particularly with regard to housing. By their nature, these questions are probably more for Mr. Geoghegan and his colleagues from the Association of Irish Local Government.
I will start with the question of the local property tax. I believe this to be an unjust tax; a tax on the family home. When it was first introduced we were told that it would go towards funding local services but this was a con trick. While 80% goes to local services, central Government funding for these services has been cut so badly that the local property tax revenue is, in reality, just replacing lost income and communities have not benefited from better services as a result. I note a particular paragraph in Mr. Geoghegan's paper which I will now read out for the committee:
The issue of using 2014 as the ongoing base-line to determine the current element of local property tax payable to our member authorities needs to change with immediate effect and this base-line needs to be increased dramatically to ensure that local authorities have sufficient general funding available to them.
I read that as a call for a big increase in the local property tax, and I remind the AILG that this tax is a contested tax. The household charge that went before it was not paid by 50% of the population, a level of opposition similar in scale to that against the water charges. It was only when jackboot tactics were used and the Revenue Commissioners were put in charge of collection that opposition was driven back, only to later feed back into the water charges campaign. If major increases in the local property tax are coming up either in 2019 or indeed further down the line, based on higher property prices in a housing bubble as opposed to a depressed market in 2013, all I can say is that the political establishment should remember that this was and is a contested tax and will remain so in the future. This could be a major issue, particularly if large increases are sought. I wish to put that on the record.
My next question concerns Traveller accommodation. I have here an article that appeared in The Irish Times on 14 September, the headline of which runs: Traveller housing targets have not been met in 18 years. The article reports that there are 1500 Traveller families living in overcrowded conditions in the State; that funding for Traveller accommodation, which stood at €171 million euro between 2005 and 2008, dipped to €34 million last year; that only 70% of the units targeted have actually been provided; and, incredibly, that more than €55 million of monies allocated for Traveller accommodation since 2000 remains unspent. Why is that?
On the question of local government capital income, I find the figures here to be earth shattering. In 2008, local authorities received capital income grants from the State of €5.5 billion euro but by 2015 that had been cut to €1.3 billion. In other words, then, every €4 or more of this funding received by local authorities from central Government was cut back to less than a euro. This is not just a cut - it is a massive cut, the impact of which can be seen on housing in particular. We heard on "Morning Ireland" this morning of the latest report from Threshold on how landlords are using the refurbishment legal loophole to evict tenants and hike up rents, thus putting even more pressure on the local authorities. This is an absolute scandal. If these cuts were reversed we would be able to build public housing on public land and put a major dent in the housing crisis. A total of 9,000 local authority homes were build in 1975; 75 were built in 2015; 142 were built in 2016. These cuts must be reversed and I ask the witnesses to comment on this.
Mr. Tom Moylan:
I point out to Deputy Barry that nowhere in our submission do we call for an increase in local property tax. What we do call for, however, is the need for a review of the practice of using 2014 as the baseline for the general purpose element that our member authorities receive from the local property tax. That is our demand in the paragraph highlighted by the Deputy. In 2016, for example, €473 million was taken, or could potentially have been taken in 100% of the local property tax. Based on the 2014 baseline, €282 million of that goes back to local authorities for general purpose use while the rest comes back in capital allocations. What we are saying is that the general purpose figure, as based on 2014, needs to be increased to meet the ever-increasing day to day expenditure of our member authorities. What we are looking for, effectively, is that some of the portion of the local property tax that goes towards capital projects be moved back towards general purpose use. How would one then fund the capital element? This would just have to come out of the Central Fund. Nowhere in our submission, however, do we look for an increase in the local property tax. In line with the national criteria set down by the Oireachtas, our member authorities can either increase or decrease this tax by up to 15%. I want to make clear, however, that we do not call for this anywhere in our submission.
Mr. Damien Geoghegan:
The figure of €5.5 billion being cut to €1.3 billion can once again be brought back to the fact that we are over-reliant on central Government funding. When the economy collapses as it did then one is obviously going to see an effect at local level and that is exactly what is reflected in those figures.
I will be quick because I know that other speakers want to come in on this. I welcome the witnesses here today. Having served as a councillor myself, I know how hard they work and how little they are listened to.
Local authorities are not being listened to by the Minister in relation to their budgetary shortfalls. Local authority budgets are made up of charges in respect of local property taxes, rent, waste, parking, planning fees, motor taxes and rates. They cannot charge people any more without crippling them financially. If the local authorities are experiencing budget shortfalls at the end of the year and they are reporting this to the Minister but he is refusing to provide more central Government funding then we have a problem. There is nobody speaking up for local authorities and councillors. This is a massive issue. The powers which councillors previously had have been taken from them and they are dwindling further. This is unfair. At the end of the day, the local authorities and councillors do not have a say in any of this and that concerns me.
Reference was made to revaluations. The revaluation of commercial properties is ongoing. Much of this revaluation is based on outdated maps. There has been no updated measurement of premises. Also, the cost of appealing a decision is approximately €400. Who is fighting for these businesses that are paying their rates and in doing so are barely surviving? The local authorities are being left to deal with all of these issues and that is unacceptable. I am sure all of the witnesses are aware of the national planning framework 2040. We have all worked on local development plans down through the years. If the new framework plan is implemented local authorities will have no remit in terms of development, job creation and so on. I accept the framework is only a guideline but-----
Councillors all over the country have made submissions on this issue. Councillors must be heard, including through the committees of the Oireachtas. Local authority requests for funding from the central government fund are not being heard. As I said, it is not possible for the local authorities to increase charges further and many of them are facing huge staff shortages. There is no funding. Many local authorities are under pressure in terms of staffing and that needs to be addressed.
I ask that consideration be given to the issues I have raised. Councillors are suffering and that is not fair.
I was a member of a local authority for over 30 years. The legislation which barred Deputies also being a member of a local authority was, I believe, bad legislation. As a result of that legislation the link between what happens locally and nationally was broken. This is supported by today's discussion in terms of the lack of funding available to local authorities. If one is not a member of a local council one does not know the ins and outs of its budget or the demands on it.
I agree with Senator Boyhan's point about accountability to the Oireachtas. As Members we ought to have more input into local government and we need to find a better way of doing this other than an annual meeting. I also believe that local authorities should be accountable for their budgets to the Committee of Public Accounts. It is in that arena that the local authorities can provide clarity around their budgets. They will need to have all the facts before them when they do so. In the interim, there is no accountability. I welcome the work being done by the National Oversight and Audit Commission, NOAC. I am disappointed that the body has only ten staff. I cannot imagine how it is getting through all of its work. The commission needs a lot more support.
As stated, the job of the National Oversight and Audit commission is to provide independent oversight of the local government sector and it has wide-ranging functions in that regard. As I said, the commission is doing important work. Does it meet with its managers, auditors and councillors in a public forum? Failing an appearance of NOAC before the Committee of Public Accounts, it should be seen to be holding the councils to account in its annual report in terms of which is operating to best practice and where practice is worst. In other words, it should identify which local authority is bottom of the list and hold it to account in that regard in a public forum. If that cannot be done via the Committee of Public Accounts then I am sure the commission has the power to do it. This would bring about accountability and a focus to the work of the commission. There is no doubt but that the commission is doing excellent work but it does not have sufficient staff. We need to know more about it and what I have suggested might assist us in that regard.
In regard to finances, I believe there is need for a root and branch reform of local government. There is need for an independent analysis of how it operates, where best practice is adhered to, the most vibrant local authority, the best mix in terms of business input and so on. I welcome the County City and Management Association, CCMA, comment about it being business and job focused. I believe that is happening. However, there is need for business expertise in this area to encourage local authorities countrywide to find new ways of being more accountable, more efficient and so on. I do not know if there are business experts in the National Oversight and Audit Commission. I would like more debate on this issue. I believe by focusing on these issues publicly the commission will get a better result.
In regard to debt accrued by councils when land values were rising, some councils, including Louth County Council, bought land in good faith that is now worthless. There are examples of land purchased for approximately €12 million which is now worth only €1 million or less. Where local authorities made decisions in good faith and are now millions of euro in debt the Government should remove that debt from them to ensure they can spend their budgets on services and so on. The decisions that were made were made at a time when property values were high. The councils purchased that land to develop them for housing and communities. I would welcome the views of managers on that issue. Perhaps we could establish a NAMA-type agency to remove these bad debts from councils. We need to ensure that no local authority is encumbered by bad debts. Much of the budget of Louth County Council is servicing this type of debt and as such it cannot provide services and so on in the county.
I have a lot to say. I have a lot of experience in this area. I would like to make my point, which might wake up people outside. We need to challenge local government in a public forum. This could be done via a public meeting on the National Oversight and Advisory Commission's annual report. We must praise the best but we must also show up the councils that are not doing their job. If we do not do this, they will be moribund and lack life and vibrancy. I want to see a vibrant and powerful local government.
If moving through National Oversight and Audit Commission is the way to go, I am happy to do that. I thank the Acting Chairman for his indulgence.
Mr. Eamonn O'Sullivan:
There is much to respond to and I will do my best in the time available. Deputy O'Dowd referred to debt in regard to land acquisition. It is something that affects some local authorities, where it is more pronounced, than others. The local government audit service is working on it because it is a significant problem in certain counties, of which Deputy O'Dowd's is one. It is under active consideration.
On best practice and how we share and learn from it, I will use my own county of Monaghan as an example. Each year when the National Oversight and Audit Commission performance indicators are published, we take those indicators locally and rank ourselves not only against the national indicators but also against local authorities of a similar size and character - looking at the most local level, there is fierce competition between Cavan and Monaghan, for instance - and we do so with a view to establish where we can do better. After doing this exercise at management level, we bring that report through our corporate policy group and to our councillors. There is a process of trying to use the information that Mr. McLoughlin and the National Oversight and Audit Commission assemble and collate to improve our services but it is done in the context of funding constraints and staffing limitations. It is not always possible to achieve them but we use the indicators to set targets to improve our position across the indicators over the following year. One area where we have proven very effective has been pre-letting maintenance of local authority housing stock where Monaghan's turnaround time is the lowest nationally. In the example of show case to which Mr. McLoughlin referred, my housing staff would be giving a presentation to their colleagues on how they achieved it in Monaghan. It is an example of where indicators can be used as a benchmark which facilitates improvements within the sector. If, through the local government added service, we can comply or explain, it would be an efficient way of improving standards across the sector. It relates to scaleability, or the scale of a small rural county such as Monaghan versus that of the larger local authorities such as Fingal or Dún Laoghaire-Rathdown. There will be differences because of scale and the character of the areas. We are trying to use the performance indicators not only to report on performance but to improve it as a sector. That will take time.
Mr. Damien Geoghegan:
We would agree with many of the comments. Deputy O'Dowd said that we want to see a vibrant and powerful local government, and we do, but it is important to remember the role of the councillor. The day of the part-time councillor is over. It is gone. We have a major oversight role to play as councillors and our constituents expect us to be all things to all people. We are underpaid.
Mr. Damien Geoghegan:
We need to allow councillors to do the role full time, to gain the expertise required to carry out our functions and roles. Then people will see proper local government in Ireland. Deputy O'Dowd referred to the abolition of the dual mandate. We should be given a proper mandate and paid accordingly.
Mr. Pat McLoughlin:
We bring groups before us, the meetings are extensively minuted and published on our website. This committee could bring all parties before it when we produce reports. For instance, we produced a report on the private rented sector in October which showed low levels of inspection, compliance and prosecution. We would not have been able to see the degree to which units were grossly inhabited but many of the issues that have been raised recently were raised in our report. Our board would be very happy if, when we do a thematic study or report, we would be called before the committee because it allows us to bring more light to issues.
Local authorities in themselves are not accountable to us but they have greatly co-operated with us in the work and programmes which we undertake. Deputy O'Dowd referred to resourcing. That is on the agenda of our next meeting. We have only two staff - having had three at our maximum - but we have been able to rely on the County and City Management Association and staff of local authorities. For instance, in our work on how local authorities are dealing with their customer-facing function, we bring in the staff who do that, see what is going on, look at best practice and see if we can work on that. We will examine our resources at our December meeting.
I thank the Chairman for allowing me to contribute. I welcome the witnesses from every part of local government, from councillors to executives to oversight. It is a very interesting subject and I am delighted to participate in the meeting. I pay tribute to our elected representatives in local government. They play a key role in maintaining a strong local democracy. I also pay tribute to the officials. I am well aware of the work done by the County and City Management Association and its many of its members, which include our former director of services in County Meath.
On the funding model, I have a question about the baseline figures for the general purpose grants which is included in the table circulated to members this morning. These are used for deciding whether a county gets a net contribution or deduction. Do those figures include the funds which old town or borough councils would have received from general purpose grants? The county councils were paid a general purpose grant but within those counties, multiple town councils and sometimes very large borough councils, which would have also received a general purpose grant. Does the cumulative figure for the base grant given here include the cumulative impact of the loss to town and borough councils?
I agree entirely with Councillor Geoghegan's remarks on the budgets for municipal districts. He is 100% correct. I served for 17 years on a local authority which went from there being a very significant budget for a large urban centre being replaced by a one-sheet budget for a municipal district. I do not disagree with Mr. O'Sullivan that they are doing good works but they are not comparable to what they did before, in what was allowed for statutory powers. If Mr. O'Sullivan and the councillors are in agreement that there are failures, can we have a statement here that there will be a cohesive effort to change it? It is not good enough to acknowledge that something is wrong, we must see a return of statutory budgets for these areas whether it is the through the return of town councils or statutory budgets for what were the electoral areas.
Deputy O'Dowd and Senator Boyhan raised the acquisition of property and it was also addressed by Mr. O'Sullivan. It is having a considerable impact; it is the legacy of not having debt forgiveness. Not every county got into the land aggregation scheme. A point was raised about oversight for acquisition on a piece of land which elected members do not have. Some county managers might bring it to the corporate policy group to flag it, but others do not. In my own county, a 22 acre field was acquired for over €20 million. Nothing was ever built on this landlocked piece of land. Now something will happen through the activation scheme but the houses that will be built on that field are now coming in at over €100,000 per unit more expensive than any other house because the site acquisition cost is being factored into the delivery of the unit. The county council is going to the Department asking for money to build the houses and the Department is saying okay but when they see how much the field cost, it is factoring this price into each unit. The result is that we are getting fewer houses. That is the catch.
Who is the loser? It is not the Department or the Custom House, but the people on the social housing waiting list. The yield is only half of what could be produced. This is the key point and it needs to be addressed. This feeds into the role of central government. I accept the point made by Councillor Geoghegan, other councillors and Mr. McLoughlin on the 75% to 25% divide, but we need more involvement from central government. If the general purpose grant had been allowed to stand with the local property tax when it was introduced, we would have had enriched councils providing more services, but what was given with one hand was taken with the other and we only got parity.
Rates are a big issue and not only with regard to revaluation. After a decade of rates freezes and, in some case, rates reductions, we are getting back into the sphere and zone of rates increases. This week, we saw Fingal County Council increase its rates by 2%. It is under pressure as it has a huge number of people in the area, from Swords to Blanchardstown. It is a very rich council and it is under severe pressure. It will raise its rates by 2% this year, which will bring in €2.5 million extra income. It comes back to the key point of whether we are serious about the funding of local government by central government, or whether we will allow the funding model to be, as we are discussing, just on the shoulders of local authorities. County managers and councillors will not shirk the challenge. They will rise to the challenge of trying to provide the services they are required to provide for their people, but this lets central government off the hook. We do not have a local government system that is comparable with Europe or the United States. We need to be honest about this. The discussion here this morning should help.
I will be very brief because I do not want to go over what has already been said and well articulated by various speakers. The greatest crisis facing the country at present from a social and economic respective is housing. Councillor Owens and Deputy Cassells have made very pertinent comments. There is a feeling out there that local authorities are not building in the way in which they did. They are told by central government that funding is not an issue and that if projects were put before it, funding would not be an obstacle, but it is taking two to three years to go from an initial site inspection to construction commencement. At the same time, approved housing bodies are getting the apparent nod, and in recent years we have had an overdependency on the housing assistance payment as a result.
I ask that the Chairman and committee members insist on a further meeting with the witnesses to discuss this item specifically because this is something that has to be ironed out. Why are local authorities not building? When we meet the Department, it states the procurement process has been reduced from eight to four stages, but it still takes two to three years. We hear this example replicated throughout the country, which is ridiculous in the extreme. It is time those at the coalface, including the witnesses, elected members and ourselves, get a handle on why local authorities are not building houses. It is as simple as that. Last year, the Minister published the sites and lands in council ownership. This was put on a website, expressions of interest were sought and then we heard no more about it. I want a special meeting, if it takes two days or a week, to get to the bottom of this and get everybody on side on how this issue is dealt with so we can all be on the same page. That is all I will say about this, rather than take taking up more time at the meeting.
With regard to commercial rates and the revaluation ongoing since last year, the assumptions are that in the round the income will remain the same and that the rates will be collected. The variation in valuations in some sectors is such they will not be collected. I was interested to hear about the National Oversight and Audit Commission, and I acknowledge the work it does. I specifically compliment it on being the first to bring to public knowledge the lack of inspections and the 6% rate in 2015. As usual, it takes a sexy programme on TV - not that it was anything of the sort - to bring home the alarming nature of it to most people. It is from this that progress might ensue.
With regard to commercial rates, the witnesses mentioned that they carried out an exercise recently. Have they made this public? What are its findings? Are the witnesses aware of the difficulties we face considering the new evaluation taking place? Next week, we will discuss a new valuations Bill, which will seek to address the anomalies that exist in our archaic system, and bring about new methodologies in how rates are calculated and collected. This is fine, but if that legislation were produced and agreed in the Dáil tomorrow, it could not be retrospective. It could be ten years before the fruits of it will be borne. In the meantime, some people are of the opinion that the bills on their tables this year, which will come into effect next year, will somehow be wiped. They will not, unfortunately. Are the Association of Irish Local Government, the Department and the Minister aware of this train wreck that will present itself? Some industries and businesses have seen their rates bills rise by 300% or 400%. It is unbelievable in the extreme to think that in this day and age a cost and expense can increase by this amount and, considering what they have come through in recent years, they can be hit by this. If it were any other sector or service, there would be uproar. The way in which it is done is well managed in the sense it is county by county over a period and there is a bit of an outcry every couple of months in different areas of the country. If this were happening in the whole and together, it would not have proceeded and it would not have lasted a week or two.
What exercise has been carried out and is it up to date? Is it cognisant and relevant considering the huge increases taking place at present? There is an assumption that local authorities will get the money. I saw the same with development levies and charges. There was an assumption that they would be collected and that if they were received one year, they would be received the following year. The witnesses have mentioned their revenue has decreased by €800 million or €900 million. I would like a breakdown of this. Laois County Council recently reduced its development charge, which was commendable, in an effort to try to reduce the cost of construction for the private sector. Local authorities should do this across the board, but will the Government compensate them in the short term for the shortfall? It is the same with regard to the overdependency on these revenue streams. The local authorities state they need a revaluation of the local property base rate and valuation going back to 2014, notwithstanding that local authorities have been forced to increase it over recent years anyway. If this is not done, the Government can state the local authorities have the wherewithal to do it themselves, not to come knocking on its door and that they should take the play and take the hit politically on the ground. This is what is at play. None of us is interested in politics when we are elected to these forums. We are supposed to come together and ensure we represent those who gave us the privilege to do so in a constructive and cohesive manner, but these are the facts. While the oversight body might not have any input in policy, surely it can comment on the trend that has become obvious in recent years regarding the way in which the local property tax is spent.
I thank the witnesses for coming before the committee. I acknowledge the work of the local authority members, particularly those from my region of Waterford, Councillor Damien Geoghegan and his colleagues. I also acknowledge the role of the CEOs. The CEO in Waterford, Michael Walsh, is doing an incredible job. The problem we have in Waterford is we are not recognised as part of a region. What can the witnesses do to help the local authorities in Waterford, Wexford, Kilkenny and Carlow to get regional support to develop our areas? The south-east region is falling down in terms of employment and we are not getting equalisation or recognition. What can the witnesses do for the south-east region to give us the same chance as other regions?
We are being squeezed out and it is a real problem in the south east.
My second point, following on from Deputy Cowen's comments, concerns the housing crisis. We saw the "Prime Time" programme recently and not only do we have a question of supply of houses, including social and affordable houses, but we also see a major problem in the rental sector now. It was shocking, disgusting and vile to see in that programme the conditions in which people are living and, moreover, and worse, the safety conditions. These people's lives are being threatened day by day in the squalor of their rental accommodation. They are paying large sums of money for dreadful conditions. Do the local councils have funding to pay for inspectors to visit these properties? We have heard there is a deficit in respect of property inspections. If there is no funding at local authority level, can the Government step up and provide urgent funding to ensure that properties in the rental market are inspected for health and safety and living conditions for the people, the citizens, forced into rental because of the lack of social and affordable housing in the market?
We are under fierce time pressure. We must be finished by 11.35 a.m. in order to give our next witnesses time, so I ask our current witnesses to stick to a minute for their answers, if possible. Then they might correspond directly with the committee about anything they did not get to reply to if that is okay.
Mr. Eamonn O'Sullivan:
Any request the CCMA gets from the committee will certainly be responded to positively. On whatever subject matter, and obviously especially on housing, if the association can provide any assistance or information, we will be forthcoming with same at the Chairman's request and at her convenience. We have had a long conversation about the challenges, and perhaps the simplest way I can summarise it is that a modern, 21st century system of local government requires an effective and efficient system of financing. We have spoken at length about the vagaries of this in its current guise. I ask all Oireachtas Members to do everything they possibly can to put the funding of local government finance on a firm footing, not an annual hand-to-mouth existence, which has possibly been the model until now.
Mr. Damien Geoghegan:
I concur with Mr. O'Sullivan. The proper funding should be put in place and we should be properly resourced. Deputy Cassells is dead right. We absolutely need to receive the return of budgets at municipal level. Regarding Senator O'Sullivan's point about inspections, we saw what happened in this country when we did not have inspections when buildings were being built. Now we need inspectors there to make sure the rental sector is properly overseen.
Mr. Pat McLoughlin:
We produced a report on local authority rates collection in April 2016 that related to the performance between 2013 and 2014. Each year, it is one of the indicators we have. At that stage our view was that a lot of additional income could be collected by the sharing of good practice. The 2015 report indicates that collection performance was 80% or more for 16 local authorities and that Fingal, Kilkenny and Roscommon councils were exceeding 90%. We looked at the overall issue of the system itself to see whether we could add value by further examining how the rates system operated. We took a view that so many reports, etc., on it had been done at that stage that with our small staff we could not add value to reconsidering the whole rates system.
Mr. Eamonn O'Sullivan:
Regarding the sector within the sector, we have set targets on a banded basis and the sector has met those targets. Through the debt management group of the CCMA finance committee, we are trying to ensure we achieve those targets for 2017. I think the general scheme of the rates modernisation legislation is about to go into pre-legislative scrutiny, and our colleagues from the Department will probably discuss that with the committee. I think the committee is meeting them today also.
On behalf of the members, I thank our witnesses from the NOAC, the AILG and the CCMA for their attendance. I am sorry to rush them. We will probably have to have them before the committee again sooner rather than later because there is much more we need to debate. We will suspend the meeting to allow our second set of witnesses to take their seats.
I have received apologies from Deputy Eoin Ó Broin.
I welcome to our second session from the Local Government Audit Service, Ms Niamh Larkin, director of audit, and Mr. Richard Murphy; and from the Department of Housing, Planning and Local Government, Mr. Paul Lemass, Ms Lorraine O'Donoghue, Ms Sinéad Kehoe, Mr. David Kelly and Mr. Rory O'Leary.
Before we begin, I draw the witnesses' attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee.
However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
I invite Ms Larkin to make her opening statement.
Ms Niamh Larkin:
My name is Niamh Larkin and I am the director of audit in the Local Government Audit Service, LGAS. I am accompanied today by Mr. Richard Murphy, who is a principal local government auditor in the LGAS.
The LGAS performs the independent, external audit of local government, as established by the Minister for Housing, Planning and Local Government. The LGAS audits the annual financial statements of local authorities, including regional authorities, motor taxation offices and other bodies. The Minister for Housing, Planning and Local Government appoints auditors, known as local government auditors, to carry out or assist in the carrying out of audits of local authorities and other bodies. All local government auditors are qualified accountants and are recruited following open public competitions.
Each local government auditor is assigned an audit district under warrant of authority from the director of audit. Local government auditors are independent of the Department when discharging their professional functions. This independence is protected in legislation in accordance with section 116(2) of the Local Government Act, 2001. The 2001 Act sets out the primary duties of the local government auditor as follows:
In the course of the audit of accounts of the local authority or other body, the local government auditor shall carry out such audit tests as he or she considers appropriate in order to be satisfied as to: (a) whether the annual financial statement is prepared in accordance with section 108 or with the accounting requirements otherwise applicable to the body concerned,
(b) whether the annual financial statement presents fairly the financial position of the authority or other body and of its income and expenditure for the period in question,
(c) whether the transactions of the audited body conform to the statutory or other authorisation under which they purport to have been carried out.
Following the audit each local government auditor issues an audit opinion, an audit report and a management letter to the chief executive of the local authority. It is the local government auditor’s main statutory duty, following completion of the financial audit, to give his or her independent audit opinion on the annual financial statements of the audited body as to whether it presents fairly the financial position of the audited body and of its income and expenditure for the period under audit. In addition to the audit opinion, it is custom and practice to issue statutory audit reports covering any matter or matters which the auditor considers should be reported. The chief executive of a local authority is required to respond to this report and his or her comments shall be included, if of material significance, as part of the final report. This procedure has enhanced public scrutiny of local government as management responses to address the issues raised at audit now form part of the published audit reports. In accordance with international standards on auditing, an auditor may issue a management letter drawing attention to any weaknesses in financial procedures and-or internal controls identified during audit and make appropriate recommendations.
The role of the elected members in the governance of local authorities is vital. The approval and regular monitoring of revenue and capital expenditure and the consideration of the annual financial statement are important functions for the council members. A copy of the auditor’s report is furnished to each member of the local authority in accordance with section 20 of the Local Government (Financial and Audit Procedures) Regulations 2014. Furthermore, the audit committee is required to report to the relevant authority on its consideration of the audited financial statement, auditor’s report or auditor’s special report at the next practicable meeting of the relevant authority following the audit committee’s consideration. The participation of members or retired members on local authorities’ audit committees is now an integral part of the oversight of corporate governance in the local authorities. In accordance with good governance, each local government auditor attends at least one meeting with the audit committee of the local authority, to present his or her report, discuss the issues arising and to review responses provided by the chief executive.
Members of the public have unique rights as part of the public accountability framework for local government. They can inspect the annual financial statement, records and other documents relating to the accounts to be audited for seven days before the formal audit commences.
I hope that the information provided clarifies the role of the LGAS in the accountability framework applying to the local government sector. The LGAS has no role in determining the methods used to fund local authorities or in deciding on the levels of funding in individual cases. However, in the course of their audits, the local government auditors would be aware of the financial position of each local authority and references are often made in audit reports to matters of concern in this regard.
As director of audit, I thank the committee for inviting me and my colleague here today to discuss the role of the LGAS.
Mr. Paul Lemass:
My name is Paul Lemass and I am the assistant secretary, local government division. I am accompanied today by my divisional colleagues, Ms Lorraine O'Donoghue, Ms Sinead Kehoe, Mr. Rory O'Leary and Mr. David Kelly.
I welcome the opportunity to discuss the funding of local government with the committee today. The current system of local government comprises 31 local authorities which vary significantly from one another in terms of size, population, public service demand, infrastructure and income sources. Local authorities have responsibility for delivering a wide range of services at local level including housing, planning, roads, maintenance and cleaning of streets, street lighting, environmental protection, fire and emergency services and the provision of recreational amenities and community infrastructure. They also make a significant contribution in delivering the State’s capital and infrastructure requirements across these areas as well as playing a key role in supporting economic development and enterprise at local level, a function that was put on a statutory footing in 2014.
The funding system that applies to local authorities is a complex one, as authorities derive their income from a variety of sources including commercial rates, charges for goods and services and funding from central Government. In 2015, the most recent year for which audited figures are available, goods and services represented 32% of local authority income, commercial rates accounted for 37%, grants and subsidies for 22% and local property tax, LPT, allocations 9%. Income from goods and services includes car parking fees, recreation and amenity activities, planning fees, housing rents and fire service charges.
Audited figures for 2015 indicate that total expenditure was €5.27 billion. Revenue or current expenditure represents €3.96 billion of this amount, with €1.31 billion in capital expenditure. Notably, 2015 saw the first annual increase in revenue and capital expenditure for a number of years. Capital expenditure has increased from a low of €1.1 billion in 2014 to €1.3 billion in 2015 and to an estimated €1.6 billion in 2016, some €1.9 billion in 2017 and €2.3 billion forecast for 2018, which is partially attributable to the increase in activity to deliver the priorities in Rebuilding Ireland.
Commercial rates form an important source of funding for local authorities. In 2017, budgeted rates income amounts to €1.475 billion which accounts for 35% of total budgeted 2017 income of €4.26 billion. Local authorities levy rates on all relevant property as defined by the Valuation Acts 2001 to 2015. The Acts also provide that certain properties are not liable for commercial rates. These categories of property are set out in Schedule 4 of the Acts and include, for example, hospitals, farm buildings and community sports facilities. The rates paid on a property are based on two factors, namely, the valuation determined by the independent commissioner of valuation and the annual rate on valuation, ARV, determined by the local authority at the annual budget meeting.
The legislative basis for commercial rates is spread over a significant number of enactments, some of which date back to the 19th century. Many of the provisions are outdated and are not suitable for business trends in the modern era. In this regard, the Government has approved the drafting of a Bill to modernise the legislative basis for rates. The Department will be attending a meeting of this committee later in November to discuss these proposals specifically.
Central Government funding of local authorities is through a number of Departments and offices and is for a variety of purposes.
Some streams of funding are delivered directly from Departments to local authorities while others are routed through State agencies. Most funding from central government to local authorities must be used for specified services. These can be grouped into six broad programme categories, recreational, education, environment, housing, transport and discretionary.
Local property tax, LPT, is an annual recurring tax applying to most residential properties in Ireland and is currently linked to the market value of the property in 2013. LPT is collected by the Revenue Commissioners and the funds are ultimately redistributed to the 31 local authorities in accordance with Government policies on funding allocations. LPT is a significant source of funding for local authorities. It supplements income from other sources, having been introduced to provide an alternative, stable and sustainable funding base for the local government sector. The role of local authorities in deciding the local adjustment factor annually is an important connection between revenue raising and expenditure decisions at a local level. Currently, 80% of LPT is retained in the area where the tax is raised. The remaining 20% is used to help fund other local authorities that do not have a sufficient property tax base to meet their funding requirements. Every local authority currently receives a minimum amount of funding from the local retention of LPT that is known as the baseline. Some local authorities with large property bases receive additional LPT income compared to their baseline. The Government has decided that those local authorities will use this funding in two ways, with a portion available for their own use and the remainder, if any, for funding housing and road services. The elected members of a local authority decide annually whether to vary the rate of LPT in its local area. The rate can be varied up or down by a maximum of 15%. If a local authority decides to reduce the local LPT rate, the authority forgoes that amount from its LPT allocation. However, if an authority decides to increase the LPT rate above the basic rate, it receives the full amount of the increased yield collected. The total LPT allocation to local authorities for 2017 is €501 million. This includes a subvention from the Exchequer of €44 million.
I thank the committee for its time. I am happy to answer any questions or address any issues that members may have.
I thank Mr. Lemass and Ms Larkin for coming in. The two papers were excellent. They were very simple with no ambiguity. We will clearly be leaving here with a greater, crystal clear understanding of the two relevant functions and roles. I thank the witnesses sincerely for that. It is sometimes very hard to break something down to a simple message and the witnesses have certainly done so well.
I have a question for Ms Larkin. I welcome her. I know she has not been in her job for long since I had reason to contact her recently. I am delighted that she is here. I am familiar with outputs of audits, audit opinions, audit reports, management letters and even the role of elected members with regard to audit committees. The big issue is what sort of teeth Ms Larkin, as director of audit, has in the local government audit service. I have read local government audits and reports for many years. I cited a story earlier today. I will not single one local authority out because I do not think that would be fair, but I will single out a recurring issue. Ms Larkin's auditors, in their successes, have raised the issue in local audit opinions and sought clarification about it from chief executives. It relates to the property registers that local authorities are meant to maintain and their requirement to transpose these registers of very valuable assets. Many of these registers of these public assets, held in trust, are incomplete and it is appalling. Ms Larkin's organisation has identified the need to transpose these. Every year, it has raised questions for chief executives and they have come back with a standard one-line answer about resources, staffing issues, etc. It has gone on for four years in one local authority and for three years in another. I can cite all of these and send all this detail to the local government audit service. No action has been taken anywhere. When I made contact with these chief executives, they told me that they were doing their best, that there was no money or resources, and to buzz off and stop asking.
I have worked with my group in the Seanad, the Independents, to bring a Bill forward. The heads of it are something to the effect that we will seek to have the Committee of Public Accounts or Comptroller and Auditor and General to co-ordinate this power and bring in these chief executives. I am not sure if that is the best use of resources but I am really trying to find out how effective we can be. What sanctions does Ms Larkin have for a local authority that fails to address the continuous issues Ms Larkin raises in her reports? I found it extraordinary that it went on for four years in a row in one case and that there was no action. Chief executives say that the Local Government Audit Service does not have the power to do anything about them, and it continues to examine them. In some cases, this issue is not raised in the Local Government Audit Service's next report because it clearly changes the focus in an audit and does not continue to raise the same matter. It is frustrating. What can Ms Larkin do about that?
The issue of the audit report being brought to elected members when "next practical" is not good enough and it may need to change. I know Ms Larkin is dealing with the system that is in place. I was dealing with her office two weeks ago to inquire why many of the reports of completed audits were not up on the councils' websites. I suggest that when she completes her audit of a local authority, she might send a copy of the report to local authority members. If there is any legal or legislative impediment, I would like to hear from her. Every member should have the report. It should not be sitting in someone's drawer waiting for a time that is suitable. In one case, I was told that the local authority's audit committee would not be meeting for three months so the report could not be brought to members for three months. That is too late, particularly if the Local Government Audit Service is producing strong recommendations. I suggest that Ms Larkin consider circulating that and asking the chief executive to place that on the agenda for the next council meeting. We know there is one every month. I thank Ms Larkin. She has given us a very comprehensive paper. She might address what sanctions the local government audit service has to make people deliver with regard to its concerns.
I will be brief. I want to discuss how information is presented to local authorities to provide a full understanding of the end of year financial statement. I wish people the best of luck in trying to relate an end of year financial statement to a budget book. We need to look at how the budget book is presented to councillors. In all fairness, trying to follow that budget book is an absolute nightmare for anybody who is interested. Issues I have encountered in my time in Wicklow include the lack of coherent policy for write-offs. For commercial rates, the total budget and income, write-off, net income and collection rate will be shown. The rental income from social housing would be presented in the budget book with the net after write-off, with the collection rate. Key policy decisions need to be made to provide consistency throughout local authorities. Those of us who have served on local authorities all know the huge problem we have with collection rates, yet we have the huge success with the Revenue Commissioners collecting the local property tax. There is a question, moving forward, about the best way to collect local authority revenue.
We have all mentioned that we look at the Local Government Audit Service's annual opinion every year and that it remains the same, with no real action being taken on it. What can we do in future to address the lack of action being taken on the annual opinion? Having served on the first audit committee in Wicklow, I found it was hugely successful and beneficial from the local authority's perspective. I know the Local Government Audit Service only engages with local authorities once annually. Does Ms Larkin see those audit committees having a better role moving forward with regard to the overall audit performance of local authorities?
A debate is coming up on commercial rates. It is the most antiquated system that we have seen. It has been the only balancing act that local authorities have had to balance their books. The payment of commercial rates was never about the service. Commercial rates were balanced by what local authority members saw for income compared to expenditure. I am glad to see that is being addressed at last.
I will ask the Department about LPT and the baseline figure. What methodology is used? How is the baseline figure for each local authority calculated?
Ms Niamh Larkin:
There are a number of issues there which I might compile when I answer them. I will start with the focus of the audit because the Senator mentioned it. We approach the audit every year on a risk basis. The local government auditor addresses that based on the issues in the prior audit year. At the commencement of each audit, they would find out from the chief executive, the head of finance and the directors of service the risk areas in the local authority during the year. That is built into our audit plan for the year so it means that the audit resources are focused on those areas that are considered to be of highest risk in the local authority. Obviously, we are unable to audit every transaction within a local authority so we must direct our resources accordingly. As a result of that, all of the issues that appear in an audit report would be revisited the following year. Therefore, if something is raised in an audit report, we follow that up to find out what progress has been made. If there is a lack of progress or insufficient progress has been made, that will be mentioned in the current year's audit report.
It is important to note that we also have a management letter. Where issues are not considered to be of a high enough risk or a high enough priority, they would form part of the management letter. There are additional issues that would not appear in the audit report but would appear in the management letter. This year, we have changed the layout of our management letter. As well as the recommendation from us as to what should happen and the feedback from the chief executive, the management letter also includes a timeline for addressing that issue. The idea is that we can address it instead of it being just an item that has to be looked at at some point in the future. We can then measure it in terms of when it should have been addressed, when it was committed to being addressed by the local authority, and whether that took place.
I have noticed as well that a number of the audit committees, and the committee referred to them and their important role, are now tracking the issues in both the audit report and the management letter. They are bringing them up at each audit committee meeting and asking the directors of service or various staff members to make representations as to what is happening in that area within the local authority. That is a further level of accountability and governance with regard to tracking issues and making progress on them.
We meet with the audit committee each year. The purpose of that is to provide further clarity about issues that come up in the audit report. The audit committee then prepares a report on that which it presents to the members in order that the members have a better understanding of some of the issues that are raised and their significance.
Delays in putting the reports on the website were mentioned. The procedure at the moment is that the reports go to the chief executive who corresponds with the directors of service and their management who reply to us. Once that is completed, we forward a copy of our final report to the audit committee. Out of courtesy, we wait for the next audit committee meeting. The audit committee meetings only take place every three months. Typically, they take place four times a year, so sometimes there is a time delay. After that, we wait for the audit committee to present its report to the council members, so we do allow time and there is a time delay between the audit being completed and being put up on the website. We can definitely raise ways to shorten that with the County and City Management Association, CCMA. It is not a delay on our end. It just relates to following the procedures that have been set. That is definitely something we can look at and we can consider circulating it.
Regarding sanctions, there are different levels of accountability. In each local authority, it is the chief executive who is accountable for following up on all of the issues raised. We then have the further layer of the audit committee which can also direct the internal audit unit to look at any issues we have raised and produce follow-up reports in that area or look at the area in more detail. The audit committee can direct the internal audit unit and follow up and assess the actions of management in following up on issues. Another feature is the report to the councillors.
Regarding the budget, there is a detailed note in the financial statements that explains at a high level the overs and unders in the year which we would look at as part of our audit. As part of our preliminary analytical procedures and our audit procedures, we would go through the overs and unders for the year and obtain explanations from management as to why they have occurred. We also look for the approval of the members regarding the overs and unders. We would note the committee meeting at which that happened.
The other point concerned a policy for write-offs. There is no standard policy as to when a debt should be written off but there is a process to be followed. Thirty days after the year end, a schedule of uncollected rates is prepared that is reviewed by the chief executive. A decision would then be made. There is a formal process before a write-off is taken, and all those write-offs would be approved by the chief executive and the heads of finance.
As part of our audit, we would look at the collection rates of the three main income streams, which are rates, rent and housing loans. All audit reports comment on those, whether they have improved or declined in the year and any reasons for that. We would also look at the controls and procedures behind rates and rent collection, what procedures are in place in the local authority and whether we consider those procedures to be adequate. I think that answers all of the points.
Mr. Paul Lemass:
I think most of Senator Boyhan's questions related to the audit but I wish to underline that the Department sees the audit committee as a pivotal part of the governance framework, and that is why it was put on a statutory basis in 2014. The performance of the audit committee is something we take very seriously in the overall framework of governance.
With regard to the write-off issue, I can confirm that our understanding is that appendix 7 would break out the gross and the net, would highlight and report collection rates based on the net, and would also show the gross figures prior to that both for housing rents, rates and other sources of revenue. If it is helpful, we could do a note on that to clarify our understanding of it.
Rates collection is a huge issue for us. We will appear before the committee next week to discuss that in detail, so if the committee is happy, I can defer it until then.
Mr. Paul Lemass:
Sure. We will do that next week. Regarding the local property tax, LPT, and the baseline, the baseline for property tax effectively equates to the baseline through the general purpose grant allocations in 2014. The numbers sometimes look different because the numbers that are water related are stripped out. The Government took a decision at that time that no local authority would be worse off from the LPT in 2015 and 2016 than it had been through the general purpose grant allocation in 2014, so it effectively forms the baseline.
Perhaps I should have asked about the methodology, the transparency of the general purpose grant and how it was calculated because there are discrepancies. As councillors, we all said that Dún Laoghaire was getting more and Wicklow was getting less and we asked how the general purpose was granted, what methodology was used and the transparency behind it. If it is not the baseline I am looking for, then I am looking for information on the general purpose grant.
Mr. Paul Lemass:
One would have go to back as far as 2000 to look at when we started allocating general purpose grants. The approach that was taken at that time was to develop what was called a needs and resources model. That model ran from 2000 to 2008 and brought in up to 600 financial entries into a modelling system that looked at things like the number of housing applications, motor tax transactions, rates demands, the kilometres of local and regional roads funded by local authority resources, the number of swimming pools and opening hours. It became a very complex model but it did establish for eight years what the general purpose grant should be. From 2008 onwards, that was effectively kept as the baseline. The model ran from 2000 to 2008, but thereafter it became the baseline until 2014, at which time it transitioned into the LPT allocation.
I do not want to take much time but this is a critical point. We are arguing about the baseline, which goes back to 2008. The services provided by local authorities since then have increased enormously but the baseline has not moved with them. This is the problem we faced in the first session. The CCMA and the Association of Irish Local Government, AILG, said the baseline needs to be looked at. If we are going to look at the future funding of local authorities, the baseline needs to be re-evaluated in a transparent manner. I will leave it at that.
I agree with Deputy Casey.
I have seen changes because of the various cuts. People cannot afford to pay these amounts. We are dealing with people's money and livelihoods. This is not our money. The number of cuts across the country has been unreal.
There seems to be an unfair system. Everything has to be audited and regulated and payments need to be made, but we are in a crisis. When an audit determines that so many mortgages or business loans have to be paid, there must be leniency. We are not a bank. If we ever take that attitude, we are finished. When auditing is done and attempts are made to try to bring in arrears, there must be leniency. Through its audit, its CEO, who is responsible, and itself, a council must ensure leniency. Sometimes, people forget that this is not our money.
I was taken aback by something that I read to the effect that if an authority decides to increase the LPT rate above the basic rate, it receives the full amount of the increased yield collected. We cannot just go to a local authority meeting and say that we will increase the LPT, rates or whatever. The more money we try to take in, the more people are told that they will get an incentive for it, but they just do not have it. This matter needs to be considered in audits. When I asked local authorities for leniency in respect of a number of people, they replied that they were being told to do this by the Department, that there must be an audit or that it could not be done. That is unfair. Will the witnesses consider this matter, given that we are dealing with people's money, and give everyone a fair chance?
I have a question for both witnesses, starting with Ms Larkin. She discussed public accountability and stated that the public could access "the annual financial statement, records and other documents relating to the accounts". Where will the public find that information?
Ms Niamh Larkin:
After we finish our audits each year, we compile an overview report that examines all 31 local authorities and considers a number of issues that span the majority of them. One risk area is something that Senator Boyhan referred to, namely, fixed assets. We examine the value of those assets as well as the value of loans. A large volume of loans are on an interest-only basis. We also examine matters such as unfunded capital balances in each local authority and ensure that sources of funding are identified for those. In each year in the overview report, we pull together the main themes and risk areas for local authorities.
Ms Niamh Larkin:
We have a strong working relationship with NOAC. I met Mr. McLoughlin a number of times last year and this year. We have also set up a process of sharing our work plans. At the start of 2017, NOAC shared its work plan with us and we shared with it our work plan regarding value for money. The idea is to get NOAC's input at the start of the year on any addition that we should consider or how we could expand the scope. We took all of NOAC's feedback in that regard on board. I have presented to NOAC on value for money, how our remit covers that area and other areas we will examine in future.
I thank Ms Larkin. My next question is for Mr. Lemass. He referred to grants, subsidies and the six broad programme categories. The last category is discretionary and another is housing. We have discussed the housing crisis and the need for more funding for local authority housing, affordable housing and supply generally. I am curious about the word "discretionary". A word like that always puts fear in me because nothing is pinned down. Will Mr. Lemass give an example of what is meant by "discretionary"?
Mr. Paul Lemass:
I might take a few of those questions together. Regarding baselines, which are now referred to as LPT allocations, I will be clear. The Minister makes proposals on LPT allocations. He does so within the constraints of the LPT legislation, which is the responsibility of the Department of Finance. Effectively, we are constrained by the funding that is available within that legislation. The Department of Finance commissioned a report from Dr. Don Thornhill on the LPT legislation, how it was administered and how it could be improved. I understand that the Department of Finance will review its approach in 2018. Our Department will be actively involved in that process to ensure that questions regarding issues such as the baseline are brought to the table at that point.
On the question of leniency that Senator Murnane O'Connor raised, we will get into that issue in more detail next week, but the policy towards rate payments is that the priority is for the ratepayer to engage with the local authority. Under the current system, there are two moieties annually, with rates paid partly in January-February and partly after July. The proposal, which we will discuss in more detail next week, is for that to be spread out over the year. The priority is for the ratepayer to engage with the local authority. It is only where the ratepayer declines to engage that further measures must be taken. This is the approach that we are proposing.
The decision to vary LPT is a local one. Seven out of 31 local authorities have chosen to increase property tax from between 2.5% to 10%. The number decreasing it has reduced to four, not all of which are decreasing it by the full 15%. There is a significant change.
I might revert to the Senator with a breakdown on the discretionary side of grants and subsidies. We will get some more detail and send her a note.
I apologise, as I missed the witnesses' addresses. I will pick them up on a point. Someone stated that €5 billion was the expenditure per annum across local authorities. That is a great deal of money. I support Senator Boyhan's assertion that local authorities and their auditors should appear before the Committee of Public Accounts.
Is a chief auditor's report published annually? Are trends in the various audits published and circulated widely? Is it on the LGAS website or somewhere else? It would be important.
Some local authorities, such as Louth, purchased landbanks at significant cost. Through no one's fault, seeing as how land prices collapsed, the authorities have been left servicing a large debt. Many of their resources that should be going towards current expenditure are instead going towards that debt, which is having a negative impact on councils' financial capacity to deliver a good service.
The gentleman from the CCMA told us that he believed the auditors were dealing with this matter and that something was happening. I do not know whether I have remembered his words exactly. For councils to function properly, this debt should not rest with them. Perhaps the witnesses have a view on this. Some councils have been able to get this debt removed whereas others have not. Louth has a serious problem.
I welcome the fact that there is a chief auditor's report. Some of the criticisms of local authorities relate to value for money and significant overruns. Would the LGAS undertake a value for money report on certain issues across all councils, for example, where projects worth more than €20,000 or €40,000 have seen significant overruns in excess of whatever the service deems to be a reasonable figure?
One of things people complain about is work which sometimes goes on interminably and nobody seems to be responsible or accountable for it. Everybody knows that something is going on and that the contracts are possibly not professionally proofed. I am not saying that is what happened in a case we had in Drogheda some years ago but it went on for an entire year in the centre of the town and destroyed business in the area. I never found out the reason that happened but it was a disaster. I am highlighting the issue of significant impact on the ability of a town to function. Will someone comment on what happens if it is brought to the attention of a local authority? Part of the issue is that the project ought to have been priced differently, for example, if the contract had been completed by a certain time, there ought to have been a benefit to the contractor rather than it having been the case that the longer they were there, the more money they got. I am not an auditor so I do not have any knowledge in that regard but it is an issue.
The other point I wish to raise relates to fraud. I will not say where it was but it has been brought to my attention. It was not in County Louth. There was a court case and a conviction for fraud. A business person lost millions and he lost his business as a result. The Garda prosecuted in the case but the person still has questions arising in respect of the local authority. I rang the auditor in Dublin and we got a letter from him saying he would investigate the matter but he was forbidden by law to correspond further with the complainant. The problem is that the we do not know what has happened. We have not seen the report. The auditor did say it would be part of the audit he was doing but the person does not know what has happened and is very concerned and agitated about it.
I accept that an auditor should not and cannot get directly involved, but if there has been a court case, there ought to be a better way of dealing with the local authority aspect of the matter rather than have the person concerned coming into me every couple of months to inquire if I have heard what is going on. He wants to know what the Garda is doing and what the local authority is doing. He suffered a grave injustice. The courts acted on that and convicted a person for it. Another issue that must be addressed is whether there is a better way of dealing with such cases than a complainant not knowing what is going on. He has not been told whether the audit has been completed. I do not even know if the audit has been completed. That is not fair, right nor just. The person has lost his entire business as a result having been defrauded of millions.
Ms Niamh Larkin:
A number of points were made and I will address them in sequence. The first point related to the overview report. We publish it each year and it sets out a number of sections. The first section is to provide clarity on the role of the local government audit service. We also produce value for money reports during the year and the section explains the criteria for selecting them. The second section goes into the financial figures that appear in the annual financial statements of the local authorities. We look at sources of revenue income and revenue expenditure and we look at trends over a number of years. We also look at capital spend and capital income and trends in that regard. We look at the main balance sheet items and any movements that are in those items.
The third section relates to audit issues raised. We look at issues that appear in a number of local authorities and what type of issues arise. As I said in reply to Senator O'Sullivan, we look at fixed assets, which always comes up in our audit report, unfunded balances, development contributions, the existence of land loans and loans that have to be serviced by the local authorities, and the impact that has on them. We also note areas where progress has been made. That report is published on the Department's website. It is freely available for everyone and a copy of it is sent to all local authorities as well.
With reference to land loans, if any of them are an issue, they would be referred to in the audit report. Auditors frequently refer to the impact of servicing loans. Many audit reports reference the amount it costs to pay the interest on a loan and the impact that has had on the revenue account of a local authority. The CCMA referred earlier to the fact that we have started a project this year whereby we are looking at value for money and fact-based audit reports. One of the areas is the interest cost of loans and the loans that exist in local authorities. We are compiling information across all 31 local authorities on loans, the purpose of the loan, the interest cost of it and how much of it is recoupable from the Department. That will give us a clear picture of the loans that exist, the number on an interest-only basis or loans where the interest may be rolled up.
In terms of value for money, we look at national studies. Apart from the four fact-based reports, they are purely to collect information in a certain format on four topics across all of the local authorities. We do have a consultative committee for the value for money examinations and it is made up of a number of chief executives, heads of finance and also our own staff. We look at topics on either spend or areas where people may have concerns within local authorities and then we would carry out a study on that area.
With regard to capital projects, they are frequently referred to in audit reports. The types of issue that come up are overspends, projects being referred for conciliation and arbitration, and the legal cost of that either as a percentage of the project or as a stand-alone figure. Capital projects are an area we examine. Procurement regarding certain projects is mentioned in a number of audit reports. We ask for feedback from the chief executives in terms of that.
We follow a very specific process with regard to fraud. At the commencement of each audit we correspond with the chief executive and his management team on fraud. We ask them to make us aware of any instances of fraud and then we look at that. We have to consider the legality surrounding certain ongoing cases and what we can refer to in our audit report. We do refer to issues of fraud in our audit report or we consider that they have impacted on either the running of the local authority and in terms of materiality as well. We look at the procedures local authorities themselves have to make sure that if fraud has arisen, it has been referred to the Garda and it is being followed up.
We do correspond in terms of issues that have been raised by the public. We follow a formal process if someone writes to us, but we have to consider that in terms of materiality. All of our audit reports are published on our website, and if something is brought to the attention of an auditor and it turns out to be an issue, it will form part of the audit report. Reports are freely accessible to all members of the public.
There was a court case and we made the complaint after the conviction of the people concerned. I do not say the auditor did not know about it but what Ms Larkin is saying is that, by law, the council would have had to inform the auditor and we should be able to get that correspondence.
Yes, but what I am getting at is whether the council told the audit service. It is obliged by law to tell the audit service if there was a case of fraud involving a local authority process where a person lost a huge amount of business and there was a conviction.
I just want to make the point in public. I appreciate what you say, Chairman, and I will not take much more time on this. It is a very serious charge. There was a serious court case and a serious conviction.
These issues are still arising and the person is deeply concerned about them. We brought these to the attention of the auditor but we do not know what is happening. The witness is telling me now, which is fine. However, if I want to find out if the manager of that county, or the accountable person, informed the auditor that there was a fraud conviction which involved the council in some way, would they have been legally obliged to have told the witnesses that?
Mr. Paul Lemass:
Very briefly, there are two points about local authorities purchasing landbanks and servicing debt, I appreciate there is a significant amount of debt associated with landbanks. Our understanding is that if a loan was raised against a landbank, that would have to have been approved by the elected members of the council and that is the process in place.
I am not in a position to comment on housing policy, dealing with the debt and the LAGS process. It is specific to housing policy. I would, however, like to pick up on one of the points Ms Larkin has made about the overview report. The Department also takes the overview report very seriously and picks up on the issues raised in it, specifically the procurement issue that the Deputy mentioned. The Department has supported this sector in setting up a local government strategic procurement centre which works in areas such as the development, implementation, regulation and measurement of the Government's procurement programme in the local government sector. As a result, we now have a procurement officer in place in each local authority. The strategic procurement centre provides regular training on national procurement regulations. It monitors compliance with those. We now have local authority corporate procurement plans in place in 27 out of 31 local authorities and the remaining four are being finalised.
I need to go back to the baseline issue and I apologise for harking back to this. Did Mr. Lemass say that the Minister for Finance is considering the baseline with a view to changing it? Somebody is shaking their head to indicate no.
Many local authorities are saying, and the witnesses have more or less confirmed this today, that the baseline has not been reviewed in 17 years. It was calculated in 2000. The counties that have a surplus are the ones that have grown. The 12 counties that have a surplus of local property tax, LPT, are cities or are close to Dublin, such as Wicklow, Kildare and Meath. The only ones outside that area are Kerry and Clare. The rest are city locations. The baseline needs to be recalculated urgently or some sense of transparency needs to be brought to that figure because those local authorities are suffering in trying to deliver services. Is the baseline being reviewed, and if so, when will that be done? Can we have access to the calculation made in 2000?
Mr. Paul Lemass:
To correct the point about 2000, the needs and resources model introduced in 2000 ran for eight years. There would have been an annual process over those years. The most recent year for which the needs and resources model would have operated would have been 2008. Thereafter, general purpose grants evolved, more or less guided by the needs and resources model, but it was felt generally by the sector that it was extremely cumbersome to be monitoring 600 financial indicators every year to decide on their appropriateness. There were also local factors that made it very hard to compare. The maintenance of a kilometre of road in a boggy area is very different from the maintenance of a piece of road in an area where the land is not boggy. It became very challenging to maintain this system.
In 2014, there was the transition to the LPT. I highlight that because the general purpose grant, now the LPT allocation, is within the broad framework, the legislative base, of the local property tax legislation which is the responsibility of the Department of Finance. There is, however, an intention in that Department to act on the findings of the Thornhill report which will consider how allocations are made and how LPT is calculated, and we will be part of that process. The Minister is on record as saying that process will take place in 2018.
On behalf of the members, I thank Mr. Lemass, Ms Larkin and all the departmental officials for attending this meeting. If there is anything they feel they did not get to qualify in their answers, they might send it to the committee afterwards.
The next meeting will be on 14 November 2017 when we will have a private briefing on the commercial rates Bill with Mr. Lemass.