Seanad Éireann - Volume 103 - 14 March, 1984
Local Authority Financing: Motion.
Mr. M. O'Toole Mr. M. O'Toole
Mr. M. O'Toole: I move:
That Seanad Éireann deplores the inadequate financing of local authorities for the financial year 1984 with the derisory increase for rates support grants of 0.8% over 1983 which will lead to further unemployment and a deterioration in services, and calls on the Government to take immediate action to rectify their position.
I welcome the Minister. It is regrettable that as a result of a decision by his predecessor in bringing in the Local Government (Financial Provisions) Bill, 1983 the present Minister has now inherited an appalling situation with regard to the financing of local authorities.
We in Fianna Fáil opposed that measure at that time and we pointed out the financial implications it would have on local authorities throughout the country. Most of the Senators in this House who are members of county councils know the financial plight we are in. We have 27 county councils and two borough councils and since their establishment, and indeed since 1902 when the county councils received statutory powers, never were they in such a financial plight. Most people who want to criticise the situation  today will say that it is a result of the removal of domestic rates in 1978. I do not hold that view. Most of the people on the other side of the House — especially on the Fine Gael benches — will not hold that view either, because prior to the abolition of rates on domestic dwellings the previous Government had made a move to abolish 25 per cent of the rates on domestic dwellings. Therefore, it is unfair to say that the situation arose as a result of the removal of domestic rates.
The real crunch came last year when we decided to enact the Local Government (Financial Provisions) (No. 2) Bill, 1983, which gave power to the manager to increase charges and took away from the Minister the commitment he had in the 1978 Act. As we head into the 1984 financial year there can be little doubt that the system of local government financing is in chaos. Many local authorities find themselves in a position of virtual insolvency. This situation has not developed overnight but is possibly the product of inadequate financing over years. The chronic under-financing and under-funding of a range of sources include the low level of recoupment grants, the high level of statutory repayments, the disappearance of the agricultural rate — which affects some counties more than others, depending on the valuations — and the high level in some areas of non-payment of charges for services. Any one of these factors in itself presents local authorities with cash and finance problems and the combined effect of these factors is proving nothing short of disastrous. Clearly this situation cannot be allowed to deteriorate any further. Since 1978 the level of poundage increases, sanctioned by a variety of Ministers for the Environment, has meant a severe drop in real terms in the incomes of local authorities from that source. Rate increases, compared with inflation, left a considerable gap to be made up. From 1978 to 1982 we had a poundage rate increase of about 58 per cent, compared with 74.4 per cent inflation and this left a shortfall to local authorities during that period. Even with that reduction they were able to tick over, but it is clear  that there has been a substantial drop in real terms in their income from this source. The powers of the Minister in this area have greatly undermined what little autonomy existed prior to their introduction.
The burden of statutory payments from local authorities has considerably excerbated the financial problems brought on by funding cutbacks in other areas. In 1983, for example, £12 million was paid towards supplementary welfare for a scheme over which local authorities had no control whatever. You get your demand from the health board in the region that governs your council and just pay and get no other detailed account of where or how that money has been spent. That was a departure from the old system whereby health came under your rate consideration for rates estimates. The local authority no longer have any say in what is demanded from the health boards. The same applies in connection with the Office of Public Works and this in my county and in most western counties where some arterial drainage works have been carried out is a very large commitment in the statutory requirement each year by the Office of Public Works. In Mayo alone, we have a demand for over £900,000 which is, to say the least, very considerable.
In such things as malicious damages, local authorities had to fund this commitment last year to the tune of £15 million, something that should not be under the financing of local authorities. Clearly an alternative method of local authority financing must be devised which will rationalise the payment of statutory charges and remove the punitive burden of costs of, as I mentioned, malicious claims injuries. The consequences of the successful challenge to the constitutionality of sections of the 1852 Valuation Act must be tackled.
An adequate and fair system of valuation on agricultural land must be quickly devised. Since the abolition of domestic rates in 1978 the tax base of the local authority has been precariously narrowed and today it is to all intents and purposes non-existent. Such total dependence on central Government  funding, particularly given the level of departmental control, is an attack on the very roots of democracy itself. While local authorities in some instances welcome in principle the discretionary power to levy charges in some areas, the financial implications of these charges are less than satisfactory. The use of charges to make up for the recoupment shortfalls from the Department and as an attempt merely to maintain the level of existing services means that charges are seen by many citizens as simply an added burden of taxation from which no benefits will accrue. The unpopularity resulting from such a perception rebounds directly on the local authority rather than on the causes and source of the original revenue shortfall. Despite such charges the critical financial position means that local authorities will carry a debt of over £60 million into the current financial year. That debt is recurring in addition to the debt that will be piled on in this current year, which will be greatly increased as a result of the severe lack of finances in this year.
Considering the 1984 estimates for all local authorities one is confronted with the full effects of the Local Government (Financial Provisions) (No. 2) Act, 1983 which removes the statutory requirement on the Minister for the Environment to provide annual grants to each local authority equal to the amount they would have received had rates on dwelling houses and agricultural land continued to be levied. The new legislation empowers the Minister to allocate a nominal sum in lieu of rates and he has taken advantage of his new powers to limit this year's grant increase to 0.8 per cent despite inflation projected at 9 per cent or maybe 10 per cent in 1984. This decision contrasts with the Government's decision to allow an 8 per cent increase in current Estimates for Government Departments, thus protecting central Government funding at the expense of local government.
The 1983 Act also empowers county managers to levy charges for council services and it is clear that the Government intend that their cutback in financial support for local authorities will be made up by dramatic increases in local  service charges and in all probability by seriously detrimental increases in rates on commercial premises without any consequent easing of the direct and indirect taxation burden already imposed by the Exchequer. The Fianna Fáil Party did not support the 1983 Act and opposed it here in the Seanad as in the Dáil because it enabled service charges to be introduced to replace grants in lieu of rates rather than to supplement the existing sources of local authority revenue. We also opposed the 1983 Act because it gave the Minister rather than the elected councillors the power to bring in new service charges.
Fianna Fáil are very concerned at this attack on local democracy and our councillors should highlight the detrimental effect of the 1983 Act so that the public can understand the position fully. Local authority members are best qualified to decide finally what is best for their own area, drawing on their great experience and knowledge of local circumstances. Fianna Fáil recognise the urgent need for a new structure and method of financing of local authorities, and completely reject the 1983 Act as being inadequate and destructive to local democracy.
I am sure that if I deal with County Mayo nobody will say that I am being parochial. I have been a member of the county council there for at least 29 years. I have seen their financial estimates in that time and I can safely say here that this year's estimate is the worst we have ever faced. We have already had a meeting in committee when we tried to iron out our difficulties and meet the challenge that faces the people of our county. We have failed to reach any reasonable decision that would accommodate the people for whom we administer. Of two possible measures, one is to increase the rate, which is £27 in the £ this year, and the manager's rate demand for 1984 is something in the region of £31.70. That is a collossal increase but we must face it if we do not get some moneys from the Department of the Environment. There is a suggestion that water rates will go up from £45 to £60 and refuse collection charge from £10 to £15 and then all our service charges will be increased. We lose  something in the region of £170,000 each year in rates on agricultural land as a result of a court decision.
Our roads are in a terrible condition and not getting the attention they require. The result will be, unfortunately, that the road workers will be laid off as a result of the Minister's decision — which will be our decision in the final analysis — but the administrative or engineering staff cannot be touched. Regardless of how services are reduced, because of their terms of appointment we cannot reduce the number on the administrative or engineering side. The only people we can reach for are the poor unfortunate road workers, thus adding to the number on the unemployment register, immediately and putting it soaring within the county, and indeed it is fairly high at the moment.
There is discrimination in that a percentage of commercial ratepayers and business people are caught with the increase in rates on the one hand and the increase of the service charges on the other, and I think they will no longer be able to meet the demand. As a result of the charges we introduced we had conditioned the people to a change from getting free services to paying for services. They had accepted that fairly well, although maybe reluctantly at the outset. It is surprising how after a year or two paying service charges they can become resigned to paying, but they will not be resigned to this drastic increase which we will have to make this year in order to provide the services to the county that they demand.
Finally, I call on the Minister to extend the statutory period within which county councils are allowed to strike a rate. The 21-day statutory period means that once one starts on one's estimates they must be completed within 21 days. I call on the Minister to extend that period to allow county councils to negotiate with him as most councils are doing at the moment. I understand that some councils have already met, and most councils are in the process of meeting, either the Minister for the Environment or the Minister of State at the Department of the Environment  during this week and the coming weeks. It behoves the Minister to give county councils an extension of time because they have yet only some indications of the amounts of grants that will be available to them. We in County Mayo have got the road grant, we have a £100,000 reduction in the LIS and the highest LIS county in Ireland. Our housing construction and sanitary services grants have not been indicated to us, and I understand we are to lose £238,000 that we had last year in environmental grants. It behoves the Minister to tell the people in each local authority what grants are being made available and what finances he is going to allocate to them.
As I said at the outset, most of the Members here are members of local authorities. We are not bringing up this for any political reason. The General Council of County Councils, orientated by the Labour and Fine Gael superior numbers, have taken a unanimous decision to meet the Minister on this problem of local authority financing. They met the Minister and they are not happy with the result of that meeting, but they will, I understand, meet him again in a very short time with a view to getting better results. They have unanimously decided that a crisis exists in local authority financing. Some restructuring will have to come about this year or next year. We have heard about local government restructuring, and I ask the Minister when he intends to bring about local government reform and local government finance restructure. They are the main problems facing local government at the moment.
Finally, we are demanding the removal of the statutory demands to local authorities, namely the OPW statutory demands, the ACOT statutory demands, the health boards, the courthouses and malicious damages charges. These are the greatest burden of expenditure we have and there is no recoupment whatever in respect of them, so I would suggest to the Minister that if we got rid of the statutory demands we would be in a position to run our own business in a businesslike fashion and give the people  the services which they are prepared to pay for.
Mr. Lynch Mr. Lynch
Mr. Lynch: I rise to second this motion and I sincerely hope that the Minister will not alone take note but will take action on many of the matters and issues raised here tonight before this debate is concluded. I can anticipate some of the replies from the Government benches. We tabled this motion in the full knowledge and firm belief that there is a sense of social deprivation in this country today that was never witnessed or had never existed before. I am calling on this Government to take whatever action is necessary, to take whatever steps are necessary, to alleviate many of the problems and many of the hardships that we know only too well exist at present and have been created at Government level. County councils and corporations have served the needs of the local community well down through the years. We must ask ourselves what has happened, not alone to the power of the county councils but also to the spirit within that particular community in that area which enabled boreens to be tarred, lanes tarred, roads tarred, employment created and generated. The environment was improved. A major contribution was made at that level to the development of this country. We must ask ourselves what is to be the end result if the situation is allowed to continue. It is a situation into which we are, from a local authority member point of view, being pushed by the present administration.
I would like to refer to many matters which are of great concer to myself and to every member of every county council, to the members of the corporations and to Members of this House. The present financial difficulties of the county councils, corporations etc. have been created at national level. The resolution of these problems must come at Government level. The costing of the local taxation base and progressive reduction in the rate support grant which has been mentioned by Senator O'Toole can cause and are causing severe financial problems for every local authority. This year, as has been mentioned by Senator O'Toole,  the increase in rate support grant is only 0.8 per cent. We must recognise the fact that inflation is estimated at 10 per cent, hoping for the best. The recent Supreme Court decision that rates on land are unconstitutional has resulted in a very severe loss of revenue to county councils. My own county council in County Meath has lost £1.4 million. Yet the Government has not taken any cognisance of the serious financial problems facing the county councils as a result of this decision, except to say: “Make it up yourselves, apply local charges”.
The introduction of local charges, in the present manner, is most unsatisfactory and cannot be regarded as a resolution of the serious financial problems of local authorities. A variety of local charges has been suggested and is in operation. This can only lead to administrative difficulties. We should all recognise that fact. It is also very doubtful if, because of the resentment which they create, they can have a worth while and lasting impact on the local financial base. That is a fact we must all take cognisance of. In any event, they can only make a very small contribution to the overall finances of local authorities.
Senator O'Toole referred to local government reform. It is imperative that the Government formulate proposals for the reform of local government. A lot has been said in this Chamber during a recent debate concerning local government reform. In fact the local elections were postponed because local government reform was being implemented. Yet, has any Member of this or the other House seen one scrap of paper or one sentence produced in relation to local government reform? I believe — and I will probably be proved right — that to introduce local government reform, to implement it so as to meet the needs of the local communities and the needs of the country, would take many years. We will have a local government election before proper local government reform will or can be implemented. I am sure the Minister must recognise this fact. If we are to look at the structures as they exist at present and as we would like to see them exist and to function, a lot of research is  needed and a lot of identification would have to be made with other countries where the system is in operation. Many years will have passed and many members of local authorities will have changed before that can be implemented.
What is happening is that under pretext of the implementation of local government reform county councils and corporations are being left with a shortfall. The gun is being put to the head of the local authority members to implement programmes and execute charges so that by the time local government reform does come in the Exchequer will apparently be relieved of its responsibility to the local community. That is my firm belief and it seems to be the way it is heading.
I believe that the reform itself would alleviate some of the financial problems if the extraneous services to which Senator O'Toole referred — and I also mentioned courthouses — which are at present the responsibility of local authorities were transferred to central Government Departments. If the State demands — I am again talking about what Senator O'Toole has mentioned — in respect of the Office of Public Works, health boards, vocational education committees — were removed from local authorities the position would be changed, but the fact that these charges are still levied on county councils is indicative of the lack of Government action. I call on the Government to take appropriate action to carry out local government reform and to provide a proper method of financing local authorities. The financial problem created by Government decision, or lack of decision in my honest opinion, has detracted from the tremendous progress which the local authorities have made down through the years. I think we would all agree that in difficult times the councils and the local authorities have performed creditably and I have no doubt they will continue to do so if proper decisions are made at Government level.
If you go back to the root of the problems that exist today, to revert to what I said earlier about the sense of deprivation that exists in this country, when rates were removed from private dwellings,  it started in the late 1966-67 period — guarantees were given at that time that local authorities would be financed from central Government funds. This would be done on a par with the amount of capital that would have been generated from the old rates system under the PLV rates collection which was administered by the local authority. At the same time the Government of the day, my own party, decided that VAT — and nobody could tell me today what the rate was in 1977: I think it was about 5 per cent — would be increased to provide the extra capital allocations for the local authorities. The VAT rates were increased and indeed for a few years the estimated rate that would have been generated from the system that had been abolished, was met from central Government funds. PRSI rates also increased. In each ensuing budget we had the usual increases on duty on goods up to the present budget when VAT was even put on clothes.
Take all the increases and take the problems facing many of our young people today, many of them unemployed, many of them not sure if their jobs will last a week, a month or a year, many of them with mortgage repayments to meet, many of them having got married and starting to build up a household and to rear a family and assumed all sorts of commitments, and in spite of all the taxation that has been imposed, this Government sees as the solution to the problems the imposition of extra charges for refuse collection and water supply.
It is a pity that I have only a few minutes left because there is another problem that we need to look at very seriously. The people in my own county who are paying rates at the moment are the family businesses who are giving employment, who are paying VAT and PRSI, the people who are keeping the show going. The number of commercial ratepayers in my own county is 1,000. They are asked to generate a sum of £900,000 this year, pay their water rates as well and meet all their demands. This is one area that is over-burdened. To impose more charges on these people who are carrying the can and supporting the community to such a degree, I think, is most unfair. I would  ask the Minister to look into that particular sector and see can we do something. I feel that people who are paying commercial rates should be exempt from water rates or something like that. We asked to have a meeting with the Minister in our own county and the Fine Gael and Labour councillors concerned would not agree to Meath County Council coming up to meet the Minister until after we had struck the rate. We were out-voted on it. By coming up to meet the Minister after we had struck the rate the service charges have been approved by the county council and every thing is rosy.
Mr. O'Leary Mr. O'Leary
Mr. O'Leary: It gives me considerable pleasure to move amendment No. 1:
To delete all words after “Seanad Éireann” and substitute the following:
“notes the level of Government support for local authority finances as reflected in the increase of 10.3 per cent in the aggregate of grants and subsidies being provided for 1984 and the fact that almost two-thirds of all local authority spending on current account is provided, or recouped, from the Exchequer; and that taking account of these facts and of the extended powers which have been conferred on local authorities to raise revenue from local sources, any adverse effects of the current economic difficulties on local authority services and employment in 1984 will be minimised.”
First of all, I want to speak just for a few minutes on a few boring figures. For any of you who would like to remain, I am sure I will be able to entertain you with some more lighthearted stuff at a later time. The first thing we should do is look at the position that this Government had to consider when it arrived in power, and the revised Estimates for the Public Service for 1983 contain a wealth of information, because they contain not only the changes made by this Government but also uniquely in considerable detail the changes which were made by the previous Government. The fact is that with regard to the small portion of  local government finance which is referred to in the 0.8 per cent increase the outgoing Fianna Fáil Government anticipated that the amount that they would give to local authorities in 1983, had they returned to power, was £138 million. That is a very large sum of money. Coincidentally, it was precisely the same as had been given to them in 1982.
That shows that an authoritative decision had been taken to change the law in that regard because estimates are normally produced on the basis of the continuation of existing policy. Policy decisions had been taken by Fianna Fáil. This is recited in the Government's explanation which is contained in the budget 1983 document presented to Dáil Éireann by the Minister for Finance on 9 February 1983. It is stated on page 51 under the heading of the Environment Vote that the previous administration had budgeted for a shortfall in local authority finances to the extent of £77 million to be financed by the introduction by the local authorities of new charges, increases in existing charges and increases in rates on industrial and commercial property to yield £58.16 million. That was the declared intention of the Fianna Fáil Party and I maintain that it is still their policy at national level but their local councillors throughout the country like to pretend, in talking to the people that they think they represent, that that is not their policy at all. It is, in fact, their policy to have local charges and bigger charges than the local charges which we found necessary to impose upon the people.
I have it on no other authority than the present leader of the Fianna Fáil Party in January 1984, what his policy is in regard to public expenditure. In an interview given to Success magazine, page 20, January 1984, the following is Deputy Haughey's view. Referring to the present Government he said:
We are reducing capital expenditure, but not cutting current expenditure. That is the change which has to take place. We have to curtail current expenditure to make more resources available for capital expenditure.
 And you would do that?
Cutting current expenditure is very difficult politically?
It is. Cutting current expenditure is very difficult but it has to be done. The emphasis has to be changed. More resources have to be made available for capital expenditure because investment today means jobs tomorrow.
Mr. M. O'Toole Mr. M. O'Toole
Mr. M. O'Toole: Nothing about the environment there.
Mr. O'Leary Mr. O'Leary
Mr. O'Leary: The official policy of the Fianna Fáil Party is to cut expenditure more than this Government have done. I would not criticise them for having that policy. What I would criticise them for is at national level putting forward one point of view and at local level trying to fool the people by putting forward a different point of view. Those are the present antics of the Fianna Fáil Party and of Fianna Fáil councillors up and down this country.
Mr. M. O'Toole Mr. M. O'Toole
Mr. M. O'Toole: Do you accept responsibility now?
Mr. O'Leary Mr. O'Leary
Mr. O'Leary: You can be sure we will.
Mr. M. O'Toole Mr. M. O'Toole
Mr. M. O'Toole: That is not true.
Mr. O'Leary Mr. O'Leary
Mr. O'Leary: Fianna Fáil are in favour of cutting expenditure in toto. One should take note that they are not in favour of maintaining expenditure. They are in favour of cutting expenditure below the present level. They are also in favour of local charges because they planned to introduce them. That is only right but it should be done within reason. Remember you are also in favour of cutting local expenditure. How can you do that, reduce the amount of money that is being spent on various things, and at the same time not have local charges? Of course, this can be done: it can be done if the policy of this Government is changed in one of the following ways: if in regard to the local authority housing  subsidy, instead of giving an increase of 25 per cent, you give a smaller increase; with regard to private housing grants, instead of giving, as this Government have been doing, an increase of 25 per cent to local authorities, you give nothing. In respect of water and sewerage, instead of an increase of 30 per cent give no increase at all. You can do that. With regard to group water schemes, instead of increasing expenditure by 50 per cent, no increase need be given. Then there will be no local charges but there will be no group water schemes either. With regard to water supply schemes in general, you need not give an increase of 20 per cent, which this Government have decided on. You can keep local charges static and probably even reduce them, but you can only do so by reducing these essential elements of our local government structure. Nobody has suggested to me any way in which they can do anything else.
We have the grotesque situation where the Fianna Fáil Party at national level is putting forward a policy of cutting current expenditure. It means cutting the grants which local authorities are being given under the various headings. That is the Fianna Fáil policy.
Mr. Lynch Mr. Lynch
Mr. Lynch: On a point of order, would it be fair to ask Senator O'Leary, if his Government have given all those increases, could he explain to us about a cut in capital expenditure of approximately £253 million in the present budget?
Mr. O'Leary Mr. O'Leary
Mr. O'Leary: Yes, most of what I am talking about is not capital but current expenditure. What the Fianna Fáil Party are trying to do is create a two-tier policy structure where in order to impress the bankers and the people who write in The Irish Times, they are putting forward a policy of financial rectitude at national level. At local level they are fighting tooth and nail in exactly the opposite direction. Deputations are coming from all sides of the country descending on Ministers to persuade them to do precisely the opposite to what the Fianna Fáil Party policy is. That is the reality of  what is going on. It is about time we had a little realism and appreciation for the difficult financial situation in which this Government find themselves and in which any other Government which would replace us would find themselves. We cannot have our cake and eat it.
The only point I would concede in the excellent contribution of Senator O'Toole is his appeal on the statutory demands. Let us get this straight. To remove the statutory demands, for example, for health and the rates on courthouses, it should mean, if we are serious about it, a further substantial cut in the rates support grant, in the grant in lieu of rates and a further substantial cut in the agricultural rate. Otherwise, it is only a licence to increase expenditure. I am in favour of taking these things away from the local authorities. They should not be involved in them. The local business people should not be expected to pay part of these national charges through their business rates. I agree with and accept that. We will then have to accept that the whole range of support which local authorities get, and which is based on the inclusion of these items, would have to be readjusted to reduce the amount to what it would be if they were excluded.
On the one hand, one cannot say that one is in favour of getting rid of these statutory demands and expect the Government to come up at the end of the day with the same support in lieu of rates. This is not realistic. While I would concede that the tidying up of local government is a good thing, we must be realistic enough to realise when that occurs the benefit of that has to go, unless we want to double tax the people back to the business community in the area which was referred to by Senator Lynch or back to the general body of rates by transferring these important items from a local taxation basis to a national taxation basis.
The concentration by Fianna Fáil on the 0.8 per cent increase in the grant in lieu of rates does not give proper or due importance to the very many other areas increase which have taken place during this year. This is only one small method by which local authorities are financed.  As I explained, the local authority housing subsidy has increased by 25 per cent and the water supply and sewerage schemes by 30 per cent. This is part of the overall picture. What local authority have made serious attempts to minimise the increase in the level of current expenditure over the last few years? Both parties should do this in common. We have not been very successful at national level in doing it, but local authorities have been even less successful.
Another point on which I agree with Senator O'Toole is on the cuts which have had to be made over the last few years and which will need to be made in years to come. These cannot just be concentrated on those who are making and repairing the roads, but must be spread across the spectrum. There will need to be better value for money in the services being provided by local authorities. It will then be seen that the amount of money which the Government are providing under the various headings is, indeed, very substantial. That in respect of the grant for relief on rates is now £164,700,000.
Acting Chairman (Séamus de Brún) Acting Chairman (Séamus de Brún)
Acting Chairman (Séamus de Brún): I must remind the Senator that he has a minute-and-a-half left.
Mr. O'Leary Mr. O'Leary
Mr. O'Leary: The amount which the local authorities are receiving under the local environment heading is very substantial. I accept that if a local authority are not development minded and not drawing on the resources of the Department of the Environment because of the manner in which the grants are being administered at present, they may not be getting their fair share. The promoting within local authorities of constructive schemes for the development of the sanitary services and road network facilities will be met by a positive response on the part of the Department of the Environment. For that reason, the motion before us is too narrow in that it confines their consideration to one small aspect of financing. For that reason, I commend the amendment to the House as reflecting more the level of general support which the Government have given in the past  and are continuing to give local authorities throughout the country.
Mr. Harte Mr. Harte
Mr. Harte: I formally second the amendment.
Minister for the Environment (Mr. Kavanagh) Liam Kavanagh
Minister for the Environment (Mr. Kavanagh): A Chathaoirligh, I am very glad of this opportunity of speaking here on local authority financing and on the Government's position in regard to the financial provision for the current year. Far from feeling in any way defensive on this subject, the position is that the Government have taken radical action to retrieve local authority finances from the brink. The financial provision for local authorities this year is as much as can be done in the current economic conditions. It is, moreover, a fair and reasonable provision and is calculated to enable service and employment to be maintained as closely as possible to the 1983 levels. I want also to explain that I am looking very urgently and very fully at the whole system of local authority financing to see how we can modify it so as to get rid of the worst features, including the inordinate dependence on central financing and the related diminution in local independence and discretion.
First, it is appropriate, I think, to remind ourselves of the importance of the part which local authorities have come to play in the national life of the country. Not alone does the Government of the day rely on them to give effect to important national policies in such key areas as housing, roads development, provision of services and infrastructure and in matters such as planning and environmental protection, but the local communities, too, rely on them to create wealth and to provide jobs. Because of the scale of their responsibilities and the way in which they have developed in recent years, they have now become very important local centres of economic and social activity. Perhaps the best indicator of their key economic and social role is the fact that in 1983 they spent, between current and capital spending, about £1.4 billion and provided employment for about 35,000 people. It is only natural,  therefore, that there should be keen political and public interest in their affairs and in their wellbeing.
In times of economic difficulty such as those we are experiencing at the moment, it is inevitable that problems will be experienced in maintaining services and employment. Local authorities are no different from any other institutions in the public sector in this regard — all are being asked to do their share in the effort to bring the public finances under control. Where the local authorities are different, however, is in that the problems which the general economic situation has created for them have been compounded by other difficulties which have emerged over the past few years.
Nobody will deny that the burden of domestic rates was regarded as a severe one on many families and that the decision to abolish them was, indeed, a popular one. But, although it was not acknowledged by the Government of the time, this step was to deal a major blow to the financial state of local authorities — one from which they have not recovered — and to their vitality as local democratic bodies.
For all the problems about rates — and there were considerable problems — the fact is that domestic rates had come to be recognised and accepted as one of the mainstays of local authority financing. To knock away this prop without providing any adequate substitute system was a recipe for financial trouble, and so it has proved to be. The decline of local authority finances on current account from a position of credit to a situation of substantial deficit is clearly traceable to the decision of 1978. The acceleration in the dependence of local authorities on Exchequer financing — to which I shall come back — is also traceable to those decisions.
The inordinate dependence on central financing, in turn, threatens the sense of responsibility, the sense of discretion and the sense of accountability at local level. These are not trends that are in the best interests of a healthy and effective system of local democracy. It was in connection with the abolition of domestic rates in 1978, also, that the decision was made  — which I am glad to say this Government has reversed — to remove the discretion of local councils to determine the level of their rates. Instead, we had the spectacle of the Minister deciding for them each year the level to which rates had to be limited, leaving the council with no option but to put up with it and to tailor their decisions and what they could do for the local community accordingly.
Rates were the discretionary source of local authority revenue which they used to effectively perform their functions and meet their commitments. With the loss of this discretionary power of revenue and the rate poundage limits imposed by the Minister, local authorities were no longer able to raise funds as they had always done, but the demands for more and better services continued. Naturally, the authorities wished to maintain services and the infrastructure in which they had invested so much and, consequently, available credits were quickly used up and deficit financing and certain cut-backs became inevitable. I think it is well to remind ourselves at this stage of the background to which I have referred and that a heavy price has been paid by local authorities and by the public for whatever political gain was secured by the abolition of rates in 1978.
Other factors have aggravated the position. Local authorities were already beginning to feel the strain when the farmers challenged the constitutionality of rates on land. While the Supreme Court, in January of this year, ruled in favour of the farmers, this decision itself did not present immediate problems for local authorities because rates on land had already been relieved in full with effect from 1983. But some farmers, in anticipation of a favourable outcome to the court challenge, had refused to pay rates in 1981 and 1982 and, as a consequence of this action, local authorities lost over £20 million in rate arrears over those two years. This was money which the authorities had budgeted to get and which they spent in the normal way. The loss was, consequently, very real and very severe.
We have, of course, been experiencing a very severe recession. This has meant  that there has been very severe pressure on public finances generally and, of course, finance for local authorities did not escape. In this situation, it was found impossible to maintain full Exchequer recoupment to local authorities in respect of the domestic rate reliefs granted to householders and in 1982 there was a shortfall of £10.7 million in the Exchequer recoupment.
This, then, was the position which we found when the present Government took office. Furthermore, the 1983 Estimates which our predecessors had prepared provided for no increase in the domestic grant over the reduced amount which was paid in 1982, while the provision for the grant in lieu of rates on land would have financed only a standstill in rates poundages. This would have spelt disaster for the local authorities and for the provision of local services and, despite the serious state of the national finances generally, we felt we had to take steps to avert that situation.
The first step which we took was to allocate a special additional £31.5 million to the rate support grants. This enabled us to provide for full recoupment of rates, including an increase of about 5 per cent over the 1982 rate poundage level. This was an immense improvement for local authorities, both immediately and in terms of the measure of the commitment of this Government to the local government system.
We also looked at the question of the rate poundage limitation which had operated since 1978 and we came to the conclusion that this practice, while basically designed to protect the State from unreasonable demands was, in fact, a counter productive, inappropriate device. What was happening in practice was that local authorities wee being prevented from raising revenue from local rate sources by the State imposed limitation and, consequently, the demand for State grants was being pushed up. This situation existed because of the link established by the Local Government (Financial Provisions) Act, 1978 between the amount of the rates reliefs given by a local authority and the amount of the State recoupment. So we decided to  break this link and to remove the obligation to give full recoupment of rates reliefs. This left the way open to release the stranglehold of the State on rate poundage levels and, in fact, no rate poundage limit was imposed for 1983 — or, indeed, for 1984. We were, of course, criticised in certain quarters for the removal of the obligation to give full domestic rates recoupment, but this was essential if we were to relax control of rate poundages and, as I have said, full recoupment had already been dropped in practice.
This relaxation of the rate poundage controls was the first step in an effort to restore to local authorities some of the independence which they previously enjoyed. We took another significant step in this direction when we gave to the local authorities greatly increased powers to charge for the services which they provide. I know that local authorities were not in a position to reap the full benefit of these additional powers in 1983 for reasons which I shall go into later, but I am confident that they will make full use of them in 1984. Although charges of this type will never constitute a major source of revenue for local authorities, they constitute a necessary and significant source of additional discretionary revenue which can be called on to finance various projects. I know that the additional powers were welcomed by most people associated with local authorities for this reason.
This, then, was the financial package which we gave to the local authorities in 1983 and I am glad to say that they responded positively. They adopted realistic increases in industrial and commercial rates; they applied their new charging powers, although the full benefits have not yet been seen; they looked at their various existing charges and reviewed them as appropriate; they continued to seek better and more efficient ways of doing things, and the net result was that they managed to get their finances on to a better basis than had been possible for a number of years.
And what of the proposals for 1984? I should like at this point to dispel a few  misconceptions which have been expressed about the Government's treatment of local authorities in the 1984 Estimates. The story is being put about that the Government are looking after services and employment in Government Departments through an overall increase of 8 per cent in the Public Service Estimates but that grants to local authorities are going up by only 0.8 per cent. This is certainly not the case. In my own Department, for example, staff numbers are now down by 15 per cent on what they were in 1981 through the operation of the embargo. There is no corresponding embargo in local authorities, although I would expect that local authorities should look seriously at vacant posts, to see if savings can be achieved.
In so far as grants to local authorities are concerned, Senators may wish to know that Government grants and subsidies to local authorites will this year amount to £663.311 million, an increase of £52 million, or 10.3 per cent on 1983. The capital allocations will be up by £12.5 million, between voted provisions and borrowing authorisation, in spite of the curtailments arising from the need to restore overall State borrowing to more manageable proportions. In so far as the rate support grants are concerned, we have managed not alone to maintain the additional £31.5 million which we provided in 1983, but we have added a supplement of £2.27 million. This brings the total of the rate of support grants to almost £280 million, a massive contribution by any standards.
If we are going to talk about the level of grant provision, therefore, we should look at the total picture. We should take account of the major financial rescue effected by this Government last year, without which there would have been major losses in services and employment, and relate this year's provisions with last year's. We should in fairness be prepared to look at the total subventions and to acknowledge, as I have shown, that the total has been increased to a degree that reflects well on the Government's commitment in this area in the present very difficult times.
I believe that these provisions, combined  with greater competitiveness in tendering for local authority contracts, will enable the authorities to maintain the level of employment and services at or close to existing levels in the short term. Councils must be willing to make reasonable use of the extended powers which they have been given to raise revenue locally and they must be diligent in collecting funds due to them. I have no wish to see local rates or charges raised to excessive levels, but there has to be some correlation between the demand for local services and the readiness to finance them from local sources. A further factor working in favour of the local authority position is the fact that there is at present keen tendering for their contracts.
There must also be closer attention than ever, in the present climate, to ensuring that the best possible return is secured for local authority expenditure in terms of employment and output. This requires programmes at local authority level for eliminating waste and for promoting cost effective procedures in all areas of their operations. I know that a lot of economising has been going on, but all local authorities must make further efforts to maintain services and employment within the constraints of the restricted budgets within which they have to operate. This is a considerable challenge, but I have no doubt that local authorities will respond to it positively and successfully as they have done in the past.
As I said a moment ago, local authorities were not in a position to reap the full benefit of their additional charging powers in 1983. There were a number of reasons for this. Firstly, the Local Government (Financial Provisions) (No. 2) Act, 1983, the instrument which contained the additional powers, did not come into effect until 12 July last, more than half way through the year, and then there was a problem about preparing and issuing demands because of industrial action by local authority staff. This means that the issue of demands was delayed for a very long time and, in some areas, demands were not actually issued until well into November.
 In these circumstances, I am sure that Senators will agree that a collection of about one-third — we have not got all the returns in yet, but this is the trend so far in relation to new charges imposed for the first time in 1983 — is reasonable. In some areas, collections have been particularly heartening — in Cork city, for example, 65 per cent of the new charges have now been collected. The position in regard to the existing charges, for example domestic water in the country council areas, has also been good, with collection levels well up to the standard of previous years. In some cases collections have bordered on 100 per cent of the amounts provided in the Estimates. These indications give real grounds for optimism and I am hoping that a vigorous and sustained collection campaign in 1984 will yield good returns.
Before leaving the question of charges, I would like to refer briefly to the objections which have come from various quarters to the payment of charges. The principal argument which is used against charges is that the services were paid for through the rates and that the cost of the rates relief is now being paid for through direct and indirect taxes. But, of course, the principle of services being paid for by those who have access to them has long been enshrined in local government law. There was provision for a separate water charge with which we are all familiar in non-urban areas, where the services were not available to all, and payment was expected where the service was available. This principle is equally valid in relation to urban areas. There is no valid reason why a person who lives in a non-urban area and who does not have access to services such as water or refuse collection, should have to contribute towards the cost of providing these services for his urban neighbour. The only fair system is to charge separately for those services which are not available to all.
What I find more difficult to understand, and what I find disquieting, is the attitude of opposition to payment of charges which has been taken up by some politicians, and even by a political party represented in the Oireachtas. Let me be clear about this. I am not questioning the  right of any political figure to express his opposition to a Government measure of this kind and, indeed, a certain amount of political point-scoring is only to be expected in an area like this and does not bother us very much.
What does bother us and, should I suggest, bother all who are interested in the welfare of the political process is a situation in which people who claim to be involved in that process are openly encouraging ordinary people to break the law by withholding payments which are legally due from them; who are openly professing their intentions, as some are recently doing, of themselves breaking the law by refusing to pay charges due to their own local authority. I can only appeal to these people to look again at their positions and their responsibilities and to consider whether they are being true to their role as public representatives.
I do not believe that many people are going to be taken in by these tactics, or that they will have much influence at the end of the day on the local authority finances. The greater danger lies in the damage that can be done to the standing of representative local government itself if political practitioners feel free to break laws and to encourage others to break laws duly enacted and being duly applied in the local government sector. That, I believe, is a real danger and a real cause for concern.
There is a lot of mischievous talk about charges being rates restored in another form. Neither the form nor the amount of charges in any way matches up to what would be involved now for householders if domestic rating were to be restored on the old basis. The rates on a typical semi-detached dwelling in the Dublin area would now be about £450 and local authority charges are nowhere in this league. Moreover, I do believe that most householders will accept that the charges are perfectly reasonable in relation to services such as water supply as compared, for example, with what they pay for other domestic services such as electricity, gas, television, telephones and so on. I can, at the same time, fully apprecitate  that the initial reaction of many people to what is regarded as an additional impost is not one of welcome. I think the system will settle down fairly quickly.
To turn away for a moment from the revenue raising functions of local authorities, I would now like to mention one particular area of local authority expenditure which is the subject of much criticism and complaint. It is the area of the statutory demands, as they are known. In many respects, statutory demands are the relics of former functions of local authorities which have now been taken over by other public bodies. But although the functions have gone, the financial obligation remains. The principal statutory demands are in respect of supplementary welfare allowances, arterial drainage and ACOT. There are many other demands also, but these are the ones about which local authorities express the greater concern.
Supplementary welfare allowances are paid by the health boards on behalf of the Department of Social Welfare. But because they replaced a scheme of home assistance which the local authorities used to operate, the local authorities are obliged by law to contribute up to more than 40 per cent of the cost of the scheme plus the full cost of the administration of the scheme by the health boards. Similarly, the local authorities' responsibility for arterial drainage was taken over by the Office of Public Works but they must still pay the full cost of the maintenance work carried out by the Office of Public Works. The position with regard to ACOT is much the same as it is for most other demands, except that there is a limit to the amount of the ACOT demand.
Local authorities argue, with some justification, that they have no control over the statutory demands and no say in the administration of the schemes to which they relate. They are not consulted in advance about policy, or furnished with detailed accounts. They have seen over recent years the demands, particularly in respect of the supplementary welfare allowances scheme and the arterial drainage, escalating at an alarming rate, while  their income has, in addition to being tightly curtailed by the rate poundage limits, suffered the loss of over £20 million of farmers' rate arrears.
Another problem with statutory demands is, of course, that they do not fall evenly on every area. The burden of supplementary welfare demands falls most severely on those counties which formerly had the best home assistance schemes, because of the peculiar arrangements which were built into the law at the time this scheme was introduced. This has resulted in a disproportionate burden being imposed on counties which had good home assistance schemes while other counties, which had less generous schemes, are faring far better now. Similarly with the arterial drainage demand. Naturally, drainage and maintenance are not equally spread over the country and some counties are badly hit. Western counties come to mind as facing particularly severe demands because of the level of drainage activity. It is unfortunate that, although land is improved through this drainage, there is no extra yield in taxes to the local authorities in response to their financial commitment.
I can appreciate the concern and difficulties these statutory demands and other extraneous services are causing for local authorities, and it is my aim to have them examined urgently in the context of the review of local government.
Another area which is very much akin to the statutory demands is malicious injuries compensation. Again, local authority involvement is a relic of bygone days when local authorities had a role in law enforcement and judicial affairs. And although their liability is now limited to a maximum of the produce of a rate of 20 pence in the £ in any year, local authorities do incur non-recoupable expenses of considerable amounts in processing and defending claims. It is this financial burden, arising from a function which has nothing to do with the normal role and functions of a local authority, which gives rise to frustration and annoyance, and I am also looking at this question of malicious injuries compensation in the context of the review of finances.
I have mentioned the review of local  finances, and I would now like to talk about it for a few moments.
I have already spoken of the financial difficulties of local authorities and of the adverse effects which they are having on local democracy and on local government generally. These problems stem directly from the abolition of domestic rates in 1978 and the assumption of a greater degree of central control over local financial affairs. No new system was devised to replace the rates and the system has just stumbled along ever since, with local dependence on the Exchequer increasing year by year. We have now reached a stage where almost two-thirds of the current spending of the local authorities is funded by the State, as compared with only 40 per cent in 1976. This trend cannot be allowed to continue — it is unhealthy for the local authorities and unhealthy for the State, and so we must find a new and better way of financing local authorities. The review is part of the search for this new and better system.
The purpose of the review is to identify clearly and positively the problems which beset the finances of local authorities at present, to determine the source of these problems and to suggest solutions. Any solution should provide a firm basis for adequate funding of the various local services and programmes, without undue dependence on the Exchequer; should involve an appropriate degree of local financial independence and discretion, and should ensure that all sectors of the community contribute their fair share. Most of us could, I suspect, make a reasonable stab at identifying the problems, but I am not at all sure that there would be too many takers for the job of producing realistic and workable solutions.
But solutions will have to be found. From the point of view of local authorities, the present situation is one in which their freedom of action as elective local representative bodies is seriously restricted by the constraints of limited local revenue sources, by statutory demands and by their dependence on the Exchequer. This situation can only continue to undermine the viability and independence of the local government  system, and cannot go on. It is generally accepted that proper accountability in a democratic local government system requires that a reasonable portion of the resources spent by the local authorities in providing local services should be controlled by them.
From the point of view of the Exchequer, the increasing cost of funding local authorities cannot continue, given the other demands which have to be accommodated from the same source. The task is to devise a system which will reconcile the aim of the central Government for less participation in local financing and that of local authorities for greater financial discretion, with due regard for the overall national economic policy.
The task is not an easy one. It requires considerable analysis of all the available options, including the methods of financing in other countries. It is necessary to apply as much expertise as possible to the problem, and I would welcome the contributions of people, particularly in local authorities, who have expressed concern on this matter previously. I should also, perhaps, mention in this regard that the National Economic and Social Council are carrying out an independent review of local authority finance at present, and I hope to have the fruits of their labour available to me before making final decisions on new arrangements.
I will close now, a Chathaoirligh, and I would like to thank you and the Members of this House for your attention and for giving me this opportunity to speak about this very important subject, to explain the Government's position and the action that has been taken to provide the fullest possible measure of support for local authorities under the current circumstances, as well as the intention to seek as a matter of urgency to devise a more appropriate overall system of local authority financing for the medium and longer terms.
I should like to respond to Senator Doolin's request that the estimates of local authorities should be put back for some time until I can meet deputations. Estimates have to be prepared within the  prescribed time. That is a statutory requirement which must be respected. I am willing to see deputations at an early date but I have to say again, and I am quite clear in saying it, that I cannot hold out any prospect of extra funds being provided in the current year. The local estimates process should, therefore, proceed in every local authority area. I will certainly be available to meet local authorities and, if an immediate meeting is required, I will try to get the Minister of State to meet any local authority who requests it.
An Cathaoirleach An Cathaoirleach
An Cathaoirleach: When is it proposed to meet again?
Mr. O'Leary Mr. O'Leary
Mr. O'Leary: It is proposed to meet at 2.30 p.m. on Wednesday, 21 March 1984.
Seanad Éireann 103 Local Authority Financing: Motion.