The Times, March 9 2015
A few weeks ago, the National Audit Office highlighted various financial shortcomings in local council governance. These ranged from lack of procurement procedures by some councils to budgetary deficits.
Such reports are of great value and it is important that local councils adhere to established procedures to ensure proper financial governance.
It is also important to note that, though some local councils appear to be experiencing immediate financial problems, others might not be in such a situation even though accounts report a deficit.
For example, a local council might use financial reserves to make up for one-off expenditure programmes dealing with infrastructure. Trouble crops up when local councils become increasingly dependent on such shrinking reserves, thus resulting in unsustainable expenditure programmes.
Here one should note that local councils are almost totally dependent on funding from the central government to cover their expenditure. Some councils have been successful in tapping EU funds but, other than that, they have almost inexistent fiscal autonomy.
This is problematic on two fronts.
In the first instance, it appears that government funding is not being realistically updated to meet councils’ needs. This is especially the case when the population of a locality grows or when a council is assigned the upkeep of a project carried out by the central government – such as a park – without being given adequate funding for the purpose. Such projects tend to crop up closer to elections, with little financial consideration to their upkeep and maintenance.
In the second instance, almost total reliance on government funding is rendering councils dependent on central authorities, with no room for initiatives that can generate revenue. Such top-down dependency runs contrary to the principles of subsidiarity and decentralisation as it keeps financial authority in the hands of ministers and their loyal bureaucracies.
Besides, as things stand, this system is already showing cracks, possibly leading to an increased number of councils with unsustainable financial situations in the years to come.
I think the time has come to revise legislation so local councils can generate funds for certain initiatives and services. Those who thrive on cheap partisan propaganda will say that this will result in ‘new taxes’ but, to the contrary, this can result in citizens being given their money’s worth through better infrastructure and services.
A basic example in this regard concerns public car parks currently administered by Transport Malta. It is an open secret that car park attendants – who are paid for their job by the State – expect a tip. If one calculates the amount of money generated through this ‘informal’ system, one can reach obvious conclusions. If such tips are formalised through a system run by local councils, the revenue generated can be used for public purposes, such as road maintenance.
The same holds for construction projects. Current legislation and proposals in the 2015 Budget are totally out of synch with the regular damage to roads and pavements caused by developers. Residents frequently complain about such damages and rightly so but councils can only do so much. Relative fiscal autonomy in this regard could ensure that councils use rigorous financial tools to ensure that those who damage the infrastructure pay for it.
Similar examples can be given with respect to sanctioning and enforcement in matters such as waste, pollution, usage of public space for commercial purposes and so forth.
Local councils can also ensure better financial governance through internal procedures. Trust and reciprocity among councillors and staff is a key aspect in this regard.
Sometimes, (petty) partisan bickering, even among councillors coming from the same political party, hinders councils from acting properly. The same holds for the assigning of responsibilities to councillors who do not have the necessary experience or expertise in the area concerned.
In this regard, the role of the mayor is of vital importance. While some can be too divisive, narcissistic or lacking in leadership skills, others can have more positive attributes.
An effective mayor should be inclusive, assigning responsibilities to councillors in line with their interests, experiences and skills and, as far as possible, beyond narrow partisan interests. Committees featuring councillors from different political parties can work well provided there is genuine trust among those sitting on it.
Such a mayor should also give utmost importance to the recommendations of the executive secretary, to councillors within the finance committee and to professionals giving services to the council in their respective fields. This would ensure that financial management is sustainable and according to procedures.
Still, the challenge of subsidiarity is key for sustainable financial management by local councils. As things stand, many councils simply cannot cope with demands related to infrastructure and local services. Limited government funding and almost inexistent fiscal autonomy are simply hindering councils for being as effective as they should be.