John Paul Phelan (Carlow-Kilkenny, Fine Gael) | Oireachtas source

I thank Senators for giving me an opportunity to speak about local government funding. We are all conscious that at this time of the year, we are in the budget-making season for local authorities. The adoption of a balanced budget is the single most important duty that elected members of local authorities are called on to carry out each year. As I speak, 29 of our 31 local authorities have agreed a budget. Sligo County Council and Waterford City and County Council are the final two authorities to agree a budget. They are scheduled to meet tomorrow and next Thursday, respectively. The decisions made by elected members to balance the budget are matters for themselves in line with their statutory role and democratic mandate. I recognise the challenges facing elected members of local authorities in adopting annual budgets. Councils are required to adopt budgets which are sufficient to meet the expenditure arising during the year. In arriving at their decisions, members must consider the impacts on local homeowners and businesses, the requirements of the local authority in delivering critical services to local communities and the need to adopt a balanced budget. Ultimately, elected members must strike a balance between all of these issues.

The financial position of the local government sector has improved considerably over recent years. As we know, authorities derive their income primarily from four main sources: commercial rates; charges for goods and services; funding from Government grants; and the local property tax. Since 2015, the revenue of local authorities has grown from €4 billion to €5 billion. In 2015, 32% of local authority income came from goods and services, 37% of it came from commercial rates, 22% of it came from Government grants and 9% of it came from the local property tax. In 2019, that picture has changed significantly. Income from goods and services has reduced by 6% to 26% of overall local authority income. Income from commercial rates has reduced by 7% to 30% of overall income, although it is higher in some local authorities. Income from Government grants has increased by 12% to 34%. Income from local property tax allocations has increased by 1% to 10%. That is a very significant transition in local government funding. Local authorities vary significantly in terms of size, population, public service demand, infrastructure, income sources and overall financial position. I recognise that some local authorities face greater challenges than others due to these variations. As a whole, the sector is in a much healthier financial position now.

Local authorities are also funded to deliver other programmes, including housing and roads projects. Next year, the Government will invest some €2.63 billion in housing, representing an increase of €250 million since 2019. This funding will help local authorities and partner bodies to deliver 27,500 homes for families and individuals in need. Some 11,000 of these homes will be owned or managed by local authorities and approved housing bodies, supported by almost €1 billion in Exchequer funding. Over 7,000 of those 11,000 homes will come from various build programmes. This means that in 2020, there will be more new-build homes in the social housing sector than in any other year so far this century. Budget 2020 has maintained strong support for local authorities. This Government has not been found wanting. In 2020, it will provide €156 million to support local authorities through the Exchequer contribution to the Local Government Fund. On a like-for-like basis, local authorities will receive €23 million more in funding in 2020 than in 2019. The extra €23 million represents an increase of 27% in Exchequer support for local authorities to meet additional pay and pension costs arising from national pay agreements.

Support for local government in 2020 has been realigned, largely as a result of the valuation of Irish Water as a global utility liable for commercial rates. From 2015 to 2019, compensation of approximately €47 million per annum was paid to local authorities in lieu of commercial rates from Irish Water. From 2020, Irish Water will be liable for commercial rates once more. Therefore, the compensation in lieu of commercial rates will be discontinued. The decision to make Irish Water liable for rates, similar to other global utilities like the ESB, was made in consultation with local authority management. It is the right thing to do. The apportionment of the valuation of Irish Water among local authorities from 2020 will be based on population, as it is with other global utility companies with national networks. Following the valuation of water infrastructure by the independent commissioner for valuation, the local government sector is expected to collect a broadly similar amount in commercial rates to that previously funded by the Exchequer in water rates compensation. The precise final figures will not be fully available until all local authority budgets have been concluded and annual rates on valuation have been confirmed.

The Department of Housing, Planning and Local Government is taking an overview of the financial impact of this transition on local authorities in the context of their overall financial positions and the preparation of budgets for 2020. A small number of individual local authorities are expected to receive less in Irish Water rates than they received in compensation. Based on analysis by the Department, as well as bilateral and sectoral engagement, a number of local authorities were identified as being challenged to deliver balanced budgets in the first year of the changeover. Along with the Minister, Deputy Eoghan Murphy, I am providing a once-off special assistance payment of €2 million to Waterford City and County Council and €300,000 to Wicklow County Council to assist them and to allow time for rebalancing of income and expenditure in 2020.

Annual commercial rates of almost €1.5 billion account for approximately one-third of local government current income. Earlier this year, the Oireachtas made great strides in modernising the commercial rates system in the Local Government Rates and Other Matters Act 2019, which contains provisions to support local authorities and ratepayers. The Act contains provisions in section 15 relating to new rates alleviation schemes. These provisions empower the elected members of local authorities to devise and achieve policy objectives through locally-targeted rates waiver schemes. The elected members have the discretion to introduce waiver schemes that support objectives outlined in county development plans, local area plans, local economic and community plans or the national planning framework. The power to make alleviation schemes is an extra tool that is available to local authorities to encourage economic development, respond to local needs and support national policies. In effect, it is an extra reserved function for local authority members. Work on the commencement of section 15, which deals with the new alleviation scheme, is under way.In order to ensure any local authority that wishes to implement an alleviation scheme in 2020 can do so, my Department advised such local authorities to make a provision in their budgets for 2020 on the basis that the necessary regulations will be made in time so the local authority can draft its scheme and carry out public consultation in quarter 1 of 2020.

The Act also amended the Valuation Act 2001 in respect of the making of a rate limitation order. A rate limitation order is set for local authorities following a revaluation, to ensure the revaluation is revenue-neutral by setting an upper limit for overall rates income in the following year. The rate limitation order formula was amended to take account of the potential loss of rates income following the conclusion of valuation appeals. This is an important amendment for local authority finances. In addition, the formula was amended to account for the addition of a new global utility and for increases in the valuations of existing global utilities. Prior to the formula amendments, instead of being revenue-neutral, the rate limitation order could have had an unintended negative impact on local authority finances by not taking account of the loss of rates income following appeal and buoyancy from rates on global utilities. I commend the constructive approach taken by this House to that legislation. Unsurprisingly, this measure has been widely welcomed by the local government sector and is exactly the kind of approach, both practical and strategic, we must take to continue modernising local government funding.

Local property tax, LPT, is also a significant source of local authority funding. The role of local authorities in deciding the local adjustment factor for LPT, up to 15% annually, is a vital one. This decision provides an important connection between local revenue raising and local expenditure. Any losses arising from local variation decisions are ultimately borne by the local authority in question. It is interesting to see the change in attitude to LPT over time, with 19 local authorities varying their LPT rate upwards in 2020 as compared to only five in 2019. LPT, as with all taxation policy, is a matter for my colleague, the Minister for Finance, Deputy Donohoe. The review of LPT was published by the Department of Finance earlier this year and referred by the Minister, Deputy Donohoe, to the Committee on Budgetary Oversight for its consideration. There are significant policy implications and choices in the report and it requires careful consideration by the Oireachtas. A local government funding baseline review group was also established to consider the methodology to determine local authority funding baselines and to inform the distribution of any additional funding that could become available for general operational purposes, for example as a result of the implementation of recommendations in the LPT review. When the ongoing process on the consideration of that review of LPT is concluded, the linked work of the baseline review group will be considered further.

I am pleased with the progress the Government, with the support of this House, has made in improving local government funding this year. The impact of the new Local Government Rates and Other Matters Act 2019 in reducing income uncertainty for authorities and providing for important alleviation schemes cannot be underestimated. The establishment of Irish Water as a rateable utility increases the sustainability of the overall rates collection base and brings Irish Water into line with other utilities. This is another important step, supported by local authority management. The Government continues to increase its support for revenue and capital funding for the sector. The growth in the capacity and performance of the sector in delivering key programmes, such as housing in particular, continues to improve. Over the last five years, this Government has played its part and will continue to play its part in ensuring the satisfactory funding of our local authorities. I am of the local government sector, having served as a member of Kilkenny County Council what seems like many moons ago, and I will continue to advocate for adequate funding on its behalf and on behalf of the sector in general. Local government funding is growing year on year and is being rebalanced and the transition is not over yet, with important policy decisions to come.