JOINT COMMITTEE ON THE ENVIRONMENT, HERITAGE AND LOCAL GOVERNMENT debate -
Tuesday, 31 Mar 2009

Departmental Circulars: Discussion with Department of the Environment, Heritage and Local Government.

Chairman

It is now proposed to deal with circulars to local authorities from the Department of the Environment, Heritage and Local Government. At a meeting last week, members noted the number of circulars which had issued recently from the Department to city and council managers and a number of calls were made for the Minister to attend this meeting to discuss the impact of these circulars. Unfortunately, the Minister and Ministers of State were unavailable at such short notice. We are pleased, however, that the assistant secretary has, with his officials, come before the joint committee to discuss the matter. I welcome from the local government finance section Mr. Des Dowling, assistant secretary, Mr. Peter McCann, finance officer, Mr. Laurence Kelly, principal officer, and Mr. Joe Malone, professional accountant. I thank them all for attending.

The format of the meeting will involve a brief presentation followed by a general question and answer session. Again, before the presentation begins, I draw the witnesses' attention to the fact that members of the committee have privilege but the same does not apply to witnesses appearing before it. 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 by name or in such a manner as to make him or her identifiable.

I now invite Mr. Dowling to proceed.

Mr. Des Dowling

I should first like to convey apologies from the Minister and the Minister of State who are unable to be at today's meeting of the committee.

I thank the Chairman and members of the committee for the opportunity to make a brief statement. The committee has asked the Department to provide some further information on a number of circulars issued to local authorities. These are: Fin 01/2009 — preparation and submission of financial data for calculation of general government balance, GGB, as at 31 December 2008; Fin 02/2009 — format of AFS 2008 and other accounting issues; Fin 03/2009 — control and monitoring of local authorities and contribution to the GGB; Fin 04/2009 — development debtors and pension levy; IPPP 1/2009 — 8% reduction in professional fees, effective from 1 March 2009; and Fin 05/2009 — pension related deduction for public servants.

While the circulars that were issued relate mainly to technical accounting issues, I understand that members are interested in the implications for local authorities of these directions, particularly in relation to the funding mechanisms for capital budgets. Primarily, it is upon these that I am focusing in this statement.

As regards the control and monitoring of local authorities' contribution to the GGB, a number of the circulars relate to the financial management and treatment of capital projects. Consideration in this regard takes account of the broader financial context, particularly the necessary restrictions on borrowing. Arising from the limitations on borrowing under the EU Stability and Growth Pact established in the context of the Maastricht treaty, the Government determines the permitted borrowings across the wider public sector, including local authorities, which make up the GGB. The Government has set a maximum limit of €200 million on local government's annual contribution to deficits in the GGB.

In light of this limitation and the implications for long-term capital and infrastructural projects in local authorities, the Department has sought to manage this requirement in a manner to stay as close as possible to this limit. As a first step, circular Fin 03 broadly sets out the monitoring and control procedures that are necessary in order to monitor compliance with the Government limitation on local authority impacts on the GGB.

The Department of Finance has reiterated the local authority requirement that the GGB limit for 2009 does not exceed the target of €200 million and a system of control and ongoing monitoring was put in place for 2009 in order to address this requirement. There are a very significant number of financial variables underpinning the overall balance. The approach taken was to seek to put in place the necessary controls while not over-burdening the system with excessive administration.

Following recent discussions between the Department and the County and City Managers Association, CCMA, it was agreed that both parties would initiate a process of consultation and co-operation to address the financial situation across all public sector spending, particularly the local government sector. The Department very much appreciates the collaboration and input from the CCMA in addressing the very serious issues arising from the current economic difficulties and has been engaging with the sector on a number of fronts.

Prior to 2007, the GGB was in surplus mainly due to net income from development contributions, although the general buoyancy in the economy kept income from all sources strong in a way that is now absent in a contracting economy. With these changes, the set limit of €200 million was exceeded in 2007 and it remains a significant challenge to stay within this limit having regard to the factors that underpin it. Provisional figures supplied by local authorities, and reported by the Central Statistics Office, indicate that the local authority contribution to the GGB deficit is of the order of €407 million in 2008. As mentioned earlier, the position as advised by the Department of Finance is that the net position must not deteriorate by more than €200 million, measured year on year. In order to stay within this limit it is critical that the factors that could potentially result in the limit of €200 million being exceeded are tightly controlled.

The major factors influencing change in the GGB that must be controlled by local authorities in order to stay within the €200 million limit are as follows: revenue accounts must be balanced with no deficits at year end; capital accounts, excluding some specific type activities which do not impact on the GGB, must be balanced; the net increase in non-mortgage borrowing must be limited to the levels sanctioned; and the net bank position must be limited to the previous year's level. The principal factor here is movement in local authority cash balances and, of course, borrowing.

As regards loan applications, as the committee will be aware borrowing by local authorities is a normal feature of the funding and delivery of a range of projects and services at local level. The ability of local authorities to borrow money has enabled them to advance key capital and infrastructural programmes that have contributed greatly to the improvement of infrastructure, facilities and services over recent years. These developments have benefited communities in all parts of the country. Different to other parts of the public sector, local authorities have a capacity to fund such borrowing in many cases from local sources of finance without direct recourse to the Exchequer.

Control of borrowing by local authorities is not a new feature as it has been in place for some years. The technical rules governing the GGB calculation are determined by EUROSTAT and reported at national level by the Central Statistics Office. It was always recognised that levels of borrowing by local authorities impacted on the overall GGB, even for capital purposes, as physical asset formation is not immediately reckonable for GGB purposes. Over time, the GGB would benefit by the amount of the annual principal repaid. This is an important technical point and one that has a very significant bearing on the management of the GGB limits. Funds applied to capital infrastructure appear as a deficit because the physical asset resulting is not registered as a balancing asset in the GGB accounting rules. However, in cash terms, the relatively buoyant state of local authority finances in recent years, particularly flowing from development levies, compensated for any deficits being recorded from capital spending.

The object of the controls outlined in the circular is to enable the permitted loan limit available to the sector as a whole to be allocated having regard to investment priorities. Best use of these permitted allocations will be assisted by close monitoring on a quarterly basis.

With regard to the allocation of €250 million, local authorities have been asked to provide details of the value of principal of loans they expect to repay during 2009. Initial indications are that this will amount to some €50 million. When repayments of principal are taken into account, the Department will have available to it the capacity to sanction some €250 million in non-mortgage loans for local authorities. The committee will be aware that there are many more projects and possible areas of spending than can be met within the overall loan amount available and, therefore, it is a significant challenge to do justice to the range of proposals and applications coming to the Department for consideration.

With regard to phase 1 of the 2009 allocation, it was considered necessary for 2009 that due consideration be given to dealing with the requirement to provide finance for projects where there was already a liability. It has been agreed, therefore, that the allocation for 2009 should be based on providing priority funding to those projects where work is under way, completed or where loan sanction had been previously approved. The available loan sanction will be directed towards supporting local authority capital programmes in a number of key areas, such as improved water services, waste facilities and housing. Phase 1 of the loan sanction has issued in respect of the following: waste, €15 million; water services, €65 million; local government policy, €10 million; housing, €13 million; local services, €660,000; and allocations to the Department of Arts, Sport and Tourism, €3 million. This gives a total allocation in this first phase of €106.66 million. A second phase of loan sanction capacity will be notified in due course.

On the pension levy, the Financial Emergency Measures in the Public Interest Act 2009 provides that the new pension-related deduction applies to local authority staff along with other public servants. Local authorities will retain the full proceeds of the new pension-related deduction and the Exchequer contribution to the local government fund is being reduced to take account of the deduction. This has been designed to have a neutral impact on local authority finances.

With regard to professional fees, the committee has seen an earlier circular alerting local authorities to the need to give effect to the Government's decision to obtain an 8% saving from the payment of professional fees. Following further consideration of these matters and clarification, the Department has now issued further guidance in a new circular to local authorities on this.

More generally, the Department will continue to work closely with local authorities in what are very difficult and challenging financial circumstances. Local authorities are subject to the same financial constraints found in the broader public service and required to comply with the Government decisions in these matters. The Department is acutely conscious of the pressures at local level to maintain investment and support the local economy notwithstanding funding constraints. We will continue to work with local government to seek to generate and release the maximum amount of resources possible for the sector. I thank the joint committee for the opportunity to make this statement.

Chairman

Mr. Dowling mentioned that revenue accounts must be balanced, with no deficit at year end. Of the estimates agreed by local authorities at the end of last year, did any have a current deficit as part of their balance? In other words, were any authorities reducing their cash balances as part of their current account deficits? If so, given that it is a reserve function to approve the rates, must the authorities in question seek new agreement on their estimates? Will Mr. Dowling explain the impact on current estimates already agreed?

Mr. Des Dowling

I may ask my colleagues to assist me on some of the technical points. Local authorities have performed consistently well in recent times in terms of keeping their revenue accounts in balance. It would be taken as a given within the estimates they prepare that this balance would be achieved both historically and in the coming year. Therefore, no new requirement is being imposed on them.

The requirement in regard to the €200 million limit has been in place since 2004. However, it is only in the last couple of years, because of the general change in income flows and so on, that the question of a deficit has arisen. Therefore, the types of control mechanisms we have sought to put in place are a recognition of the changed circumstances. There is no substantive change in terms of the €200 million limit requirement, which has been in place since 2004.

Chairman

Last year the Comptroller and Auditor General highlighted the existence of at least €1 billion in development levies in accounts across the various local authorities. That income flow would have been of great benefit to account balances in recent years. Will Mr. Dowling comment on that?

Mr. Des Dowling

It is not so much that it would have helped the balances but rather that there would have been a positive flow against expenditure in the period in question. In other words, income was coming in to meet the requirement to spend. The important issue is the change in the overall balance rather than the absolute amount. Difficulties arise in a situation of deteriorating income and where development levies and contributions are reducing. It is not a question of whether there is a specific amount in the bank but whether there will be a continuing inflow to deal with local authorities' future needs in terms of requirement to spend.

Chairman

Is Mr. Dowling saying that capital investment that was to be done out of the development levies can only be carried out under development levies received in 2009, regardless of the opening balance?

Mr. Des Dowling

That is true to an extent. One of the issues to take into account is that while development levies are important, they account for only 8% to 10% of the total capital account. They are important but they are not the be all and end all. In the committee's consideration of this, it should recognise that what is important is keeping the overall capital account in balance, taking account of all the factors. This is a difficult area to manage because local authorities have such a range of inflows and outflows. The net outcome is that at the end of the year, the change or deterioration should not, in total, exceed €200 million.

Deputy Phil Hogan

Will Mr. Dowling clarify whether development levies for 2009 are required in order to get any new investment or contractual obligations under way?

Mr. Des Dowling

Local authorities can draw on those development contributions for investment but at the end of the year, when all income flows are taken into account, there should not be a deterioration on the capital account in excess of €200 million. As I said, in the case of development contributions, one is talking about 8% to 10% of the total capital account, although this will vary from one local authority to another. Exchequer grants, loan facilities and other sources make up the other 85% to 90% of infrastructural spend.

Deputy Phil Hogan

Arising from the circulars the Department has issued, how does Mr. Dowling propose the local authorities will receive the capital account funding that will allow them to meet their objectives?

Mr. Des Dowling

We do not have the estimates for the current year. Last year there was a total capital spend of some €7 billion. The committee must make what assumption it can around what the coming year will bring. Clearly it will be of a very significant order and, within that, development contributions will have a continuing role to play. The constraint is that development contributions, like other income sources, are declining and, therefore, the task of managing all this is much tighter and more difficult. This will undoubtedly constrain the range and number of projects that can be advanced in the coming year compared with what we might have hoped under a different economic situation.

Deputy Phil Hogan

I see the Department has met the county and city managers. Have they given any financial profiles of their local authorities and have they given some indication of their likely end point in 2009 on development levies and other financial matters?

Mr. Des Dowling

The overall position is reducing and people will be aware of this from their contacts around the country. In terms of the overall limit of the €200 million change, this is short compared with the range of projects we could probably seek to advance in total terms. This is the task we have to fulfil given the changed economic circumstances.

Deputy Phil Hogan

What is the financial position of each local authority? Could the Department supply us with that information?

Mr. Des Dowling

It depends on what the Deputy means by "financial position". The best thing might be——

Deputy Phil Hogan

Can the Department give us information, such as the revenue and current accounts?

Mr. Des Dowling

The best summary of this is the annual financial statements which are published. The figures for the end of 2007 would be——

Deputy Phil Hogan

Does the Department have the 2008 financial statements?

Mr. Des Dowling

No, this takes a number of months to compile so we do not have the 2008 final figures.

Deputy Phil Hogan

The Department does not have the 2008 figures by the end of March?

Mr. Des Dowling

I would seek guidance from colleagues as to when we would have them. Mr. Malone, the professional accountant, deals directly with these matters.

Mr. Joe Malone

Generally speaking the local authorities are required to have finalised their annual financial statements by the end of March and submit them before the end of June. Three have been submitted and we expect the remainder to come in in the next couple of months.

Deputy Phil Hogan

It is very difficult to gauge the financial position of local government when we do not have that information. We are working from the historically high level of 2007.

Mr. Des Dowling

There is a broad range of financial information related to local authorities and we can seek to assemble something which would be helpful to the committee in advance of the AFSs becoming available.

Deputy Hogan mentioned the contact we have with local authorities and managers, and it is important to acknowledge that they are acutely aware of the difficulty of promoting economic and local development while bringing the appropriate fiscal rigour to their activity. It is a difficult thing to balance.

Deputy Phil Hogan

Has the Department alerted the county and city managers or asked them to consider further reductions in expenditure for 2009?

Mr. Des Dowling

There are a number of elements to that. These circulars set out arrangements on a particular element. Local authorities are more generally subject to the pensions arrangement, which is effectively a deduction. They also have to achieve the payroll reductions, which apply across the public service. In setting their budgets at the end of last year, the Minister would have asked them to minimise the increase in rates to promote local business and to minimise the change in charges. All those would promote an approach to minimise overall expenditure to ensure we keep a balance in the current account.

Deputy Phil Hogan

One of the circulars talks about a limit on borrowing of €200 million. The Department of Finance is asking the Department of the Environment, Heritage and Local Government to enforce that this time. The Department has been over the top a little in the last few years and the Department of Finance is now saying it must cut its cloth to measure and hit the target.

Mr. Des Dowling

The target was a limit and in a situation where there was significant revenue buoyancy, we were in surplus. That was a good outcome and the idea of having a limit on the deficit was academic because it did not arise. In changed circumstances, however, we need a different approach. As we do not have the prospect of a surplus, we must try to ration the deficit we are permitted.

Deputy Phil Hogan

Will Mr. Dowling explain what is meant by the comment on page 4 that provisional figures supplied by the local authorities indicate that the local authority contribution to the general government balance, GGB, deficit is of the order of €407 million? What implications did that figure have in 2008?

Mr. Des Dowling

It is a provisional figure. When one aggregates all the changes in the various components, there is a deterioration of €407 million because of the range of capital investments undertaken during the period and the extent of local authority borrowing to put these projects in place.

Deputy Phil Hogan

How much of that figure is the Department hoping to get under control in 2009?

Mr. Des Dowling

A target of €200 million has been set. We have put systems in place to work towards this figure.

Deputy Phil Hogan

On page 6, there is a technical point to the effect that over time the GGB will benefit by the amount of the annual principal repaid. Can Mr. Dowling give us more information on the physical asset formation?

Mr. Des Dowling

It is perhaps a slightly obscure point but an important technical one because it derives directly from the rules that govern the GGB. These are not our rules but accounting rules determined by EUROSTAT to which all countries report on the same basis. Where a local authority acquires an asset, whether it spends resources by way of a loan or cash, it does not immediately get credit for the asset acquired, whether it is a building or piece of infrastructure. There is a minus in terms of the money spent but it cannot benefit from the plus side by virtue of acquiring the asset. Where it has borrowed money to acquire the asset, the plus side comes back gradually as the local authority redeems the loan it took out to acquire the asset. On the negative side, there is the immediate cost to the GGB but there are pluses over time. The €200 million limit is a snapshot taken at the end of the year such that if an authority has run down its cash reserves in order to acquire an asset, the cash has reduced by the total amount but the asset does not register as a plus. It is all negative in respect of the GGB, although we might say it is an even exercise because money has been spent on something.

Deputy Phil Hogan

The authority does not get credit for the investment. How many applications has the Department received for borrowing from the local authorities? Would they all have applied for permission to borrow for capital purposes? Would most or all be refused?

Mr. Des Dowling

I believe we received applications from all local authorities. We have used an initial tranche of €106 million to facilitate some of the applications in priority areas and those I mentioned where there was already a commitment and which were perhaps in progress with payments to be made to contractors and so on. We will revisit the remainder to decide on the next group of authorities and projects that we can advance. The amount can vary because it depends on when payments will fall due. We are asking local authorities to bring as much precision as they can to this process in order that if one authority does not use the loan we have approved, another will not be at a loss because it has not sufficiently refined its figures to state what exactly it will draw down in any one period. The challenge is to refine the process as much as we can to ensure local authorities receive approval only to the extent that they draw down the moneys in that year.

Deputy Phil Hogan

Will Mr. Dowling give us details of the projects on which the sum of €106 million is spent?

Mr. Des Dowling

We can do so.

Chairman

Before I call Deputy Scanlon, to follow up on Deputy Hogan's point, will Mr. Dowling comment on the impact of a local authority entering into the provision of a water and sewerage scheme by way of a design and build finance package with the local authority paying for it over a period of, say, 25 years? It would have signed the contract up-front and the Department would acknowledge its full liability in that respect. How does such an arrangement work? If the local authority pays for it through a design and build finance package over an extended period, will that help to overcome this problem?

Mr. Des Dowling

It is difficult to do justice to the complexity of some of these issues. Where the flow of cash is over an extended period, it is more manageable than meeting all the cost up-front. I am not sure whether we have come across that precise example. Mr. Malone might like to comment on it.

Mr. Joe Malone

In the case of a design and build package, we have not come across it as yet. The model of which I am particularly mindful, although I may be straying from the point, is the polluter pays principle. For the commercial side of the project the finance has to be borrowed and repaid. Part of the capital for refunding comes from the charge to the customer. The capital charge offsets the repayment of the capital element over a period of time. That has the same effect as that outlined, namely, that if one borrows money to purchase an asset, one will not immediately get the benefit from it. Over a period of time, as the loan declines and the principal is repaid, the benefit will accrue in the calculation of the GGB.

Chairman

Mr. Malone has outlined the traditional method. The Ringsend plant and the Portlaoise sewage treatment plant are both design and build contracts, for which the cash outlay is not made up-front, rather it is made over a 25-year period with the benefit of the asset accruing over that period. If all local authorities moved to that system, would it get around this problem of the GGB?

Mr. Des Dowling

It is difficult to generalise. If the Exchequer was meeting the direct grant cost, there would not be a difficulty from the point of view——

Chairman

There is no grant. It is a financial agreement and the money is paid over a 25-year period. Do Mr. Dowling follow what I am saying?

Mr. Des Dowling

I do.

Chairman

There is no grant up-front. That is the essence of the point I am making. No cash is given up-front, other than the first year payment.

Mr. Des Dowling

In a situation where the Exchequer was providing enough money, whether up-front or over a period of time, the constraint of the €200 million, as it bears on the local government sector, would not apply. However, if it was the local authority which was funding the project, by way of borrowings or from some other source, the fact that funding would be provided over a period of time, as opposed to up-front, would make, as the Chairman correctly said, the €200 million limit more manageable.

Chairman

Should we not encourage local authorities to enter into long-term financing arrangements rather than obtain loans to cover the cost of projects up-front and thereby continue the capital investment? They would only have to take in the cash they would expend in year one and on an ongoing basis thereafter.

Mr. Des Dowling

If it was possible to configure infrastructural development and acquisition on a basis that the drawdown was not made all in one go, certainly, it would make this more manageable, but that is not the only consideration in the funding of projects.

Chairman

There is scarcely a local authority which does not have a design and build and finance package for a sewerage scheme at some stage of progression. If they were all progressed, it would lead to considerable investment in the short term and the payment would be spread over a 25-year period. We have been hearing of design, build and financial operations for years. There are many such projects in the system. Could they not all be advanced without impacting on the process?

Mr. Des Dowling

It is certainly the case that if an arrangement with a local authority was entered into to carry out a contract, whereby the loan fell to be repaid over a longer period, the sum of €200 million would go further.

Chairman

Is that highlighted in the circulars to encourage them to explore this option?

Mr. Des Dowling

We have asked for considerable precision in loan applications to ensure a local authority will not require any more than is absolutely necessary in any year to advance a project. In that context, under procurement guidance, it would be encouraged to use these methods. The circular seeks to put in controls to limit the drawdown but they are elsewhere in terms of our water and housing policies. They would set out the arrangements whereby these assets, or these projects, would be advanced, which would include the type of approach the Chairman suggested.

Chairman

I know Mr. Dowling said it is a complicated issue. Perhaps he might come back to it. It might not be as easy to do that in local authority housing because one either buys the house or one does not. One is taking out a loan up-front. In regard to waste water, we all hear about design, build and finance packages over a 25-year period.

Mr. Des Dowling

It would be useful to clarify some of those points. In terms of what we have sanctioned, we are satisfied we are meeting the immediate requirements which have been put before us by local authorities in regard to their funding requirements.

Deputy Eamon Scanlon

I thank Mr. Dowling for his presentation. The local authorities were notified some time ago about the county road fund for 2009. Speaking for the two local authorities I represent, namely, Sligo and Leitrim county councils, those notifications showed an increase of 1% for 2009. Has anything changed in that regard or does that stand?

Sligo County Council requested funding for a number of priority projects, one of which is the pedestrianisation of O'Connell Street in Sligo town, which has been closed for the past four years. No work has taken place. Another project is a bundle of sewerage schemes. Three schemes bundled are Tubbercurry, Strandhill and Grange. Those three schemes have been prioritised because of difficulties relating to one of the schemes. When will a decision be made on that application and what decision might be taken in this regard? Will this work be approved for 2009?

Mr. Des Dowling

On the first issue, it will be for our colleagues in the Department of Transport to advise the Deputy on the county road fund. We would be happy to pass on the request. I am sorry I am not in a position to advise on that.

Chairman

Will Mr. Dowling make the request and ask the Department of Transport to write back to us, or will we make the request?

Mr. Des Dowling

Perhaps the Chairman might make the request.

Chairman

The committee will follow that up directly with the Department of Transport.

Mr. Des Dowling

On the other matters, it is difficult to talk precisely but I have some contact with this because Deputy Scanlon has spoken to me about projects in Sligo. I understand the considerable concern about them, particularly regarding the pedestrianisation proposal for the main street in Sligo. I do not have a proposal on my desk from Sligo County Council, or the borough, to advance this. A number of issues had to be worked out and resolved but subject to clarification from my colleague, this is not among those being held up because we have not sanctioned loan approval. There may be other issues involved but it is not germane to what we are talking about today. We can check them because they are relevant. Certainly, on the water side of things, I will check that out again.

Deputy Eamon Scanlon

I understand an application has been made to the Department to raise funds. I believe the figure is €15 million for certain projects within the county. The two projects I mentioned are part of that application. I understand this application was made in the past month or so.

Mr. Des Dowling

It may be that there is an application in regard to the water component of it but that may well involve grant assistance rather than the loan arrangements about which we are talking. It is important we establish what the position is.

Deputy Joanna Tuffy

I refer to the amount allowed by way of loans for housing. Does Mr. Dowling have a breakdown on what that will provide? How many houses is it estimated the Department could get built for that? How will the economic downturn affect housing? One outcome is that there will possibly be more people on housing waiting lists. If one takes an area such as water services, what was to be done will be done anyway. However, there will be people who will be less able to afford to buy their own house and I would imagine increasing numbers will be added to the housing list. What progress does the Department expect to make on local authority house building?

Mr. Des Dowling

I hesitate to go into the housing area. I am conscious that one of my colleagues spoke to the committee last week. It might be better if Deputy Tuffy's subsequent queries were relayed.

Chairman

We were told last week that a circular or information on that topic was imminent.

Mr. Des Dowling

Excuse me for not being in a position to advise the Deputy on that.

Deputy Joanna Tuffy

That is okay.

Chairman

We have asked for a copy of it to be sent directly to the committee.

Mr. Des Dowling

We can certainly respond with a note on the breakdown of the €13 million which was included in the initial allocation. The committee may take it that they would have been among the more urgent requirements which our housing colleagues were seeking to advance.

Deputy Joanna Tuffy

The local authorities will deduct the pension levy for themselves and then keep it. Will the Department be monitoring all of that information to ensure it is collected appropriately? Will there be accountability?

Mr. Des Dowling

Indeed. First, it is a deduction but it is not new territory in that it is merely another deduction through the payroll system. The system would be capable of doing that. To draw on what Deputy Tuffy has said, the Department is putting in place a set of reporting arrangements to see what the yield will be from the pension deduction. Those will be reported on a monthly basis to the Department. The €80 million, of course, is an estimate based on our understanding of what this might yield and overall we would achieve neutrality from the deduction. The Exchequer contribution is being adjusted downwards to reflect this source of additional funds to local authorities.

Chairman

Did the same arise in the case of the 1% levy? Last September there was to be a 3% cut in payroll over the period. Did the same mechanism apply in the case of those two other deductions? The Department is reducing the general purpose grant from the Department to the local government fund by the amount of this pension levy. Is it doing that for the other two deductions?

Mr. Des Dowling

No. The pay was dealt with differently. Local authorities were asked to achieve those reductions within their own budgets but there was not a direct relationship established between that change and the adjustment or, let us say, the negotiation and the settling of the figure.

Deputy Phil Hogan

The local authorities absorbed it.

Mr. Des Dowling

They would be absorbing it. That is correct. I suppose that goes back to the earlier question on the requirement to reduce expenditure. That would have been one of the measures which was imposed across the public service and local authorities were part of that.

Chairman

What of the 1% which came into effect on 1 January?

Mr. Des Dowling

That is a taxation measure. That would come out of individuals' incomes.

Chairman

Has the Department issued any circulars to local authorities about the payment of bonuses in 2009? Has Mr. Dowling a view on that in terms of where we are and so on?

Mr. Des Dowling

I would be surprised if anyone was attempting to advance a bonus approach in the present environment.

Deputy Phil Hogan

Would Mr. Dowling like to pre-empt their surprise and issue a circular?

Mr. Des Dowling

I have no instruction from the Minister on it.

Chairman

We will follow that up with the Minister.

Deputy Phil Hogan

Local authorities are worried about their obligations under Part V, which was introduced a number of years ago. Are they in a position to fulfil contracts, which they are obliged to do, to complete projects to provide social housing? What assessment has been carried out in the local government area on Part V commitments for local authorities? Is the Department satisfied all local authorities are in a position to meet those requirements in 2009?

Mr. Des Dowling

Again, I might be trespassing on the area of others. I am conscious of the changing position and local authorities are in a much tighter situation. Furthermore, Part V took a certain time to build up and the fruits of that are coming through now. The Department is working with local authorities to ensure the Part V dividend is obtained. It would be better for colleagues to deal with that.

Deputy Phil Hogan

Will Mr. Dowling be kind enough to ask Mr. McCarthy to communicate with the committee? We did not have time last week to ask him. Will Mr. Dowling ask him the level of commitments required to be discharged by local authorities and if there are sufficient resources to meet them this year?

Chairman

We are due information from Mr. McCarthy and, therefore, he might attach this.

Mr. Des Dowling

Yes.

Deputy Michael Fitzpatrick

Payroll deductions were mentioned. When local authorities achieve the 3% reduction in payroll, will that result in them not letting people go? I am fearful they will continue to let people go and reduce payroll by more than 3%. Is that being monitored?

Mr. Dowling referred to work under way and completed, and loan sanctions that have been approved. These projects will go ahead but what is the position for next year? Did the planning for this year not take place last year? We are a poor State in 2009 as many of these projects get under way. Are projects being planned for next year in order that approval will be granted this year for work to be undertaken then?

I refer to the monitoring of what local authorities do on a quarterly basis, which is a costly exercise. Are we placing a great deal of trust in county managers? Mr. Dowling said he met and engaged with the county managers' association on these matters. Has he had discussions with the county councillors' and the town councillors' associations? They are being affected in a big way by the constraints being imposed as they go forward for election in June. These constraints will impinge severely on them. Have they been updated and informed about what is happening?

Will the monitoring mean a local authority such as Kildare County Council, which could have up to €60,000 in discretionary funding available, need to seek approval to spend it? If so, from whom will it be required?

Has a circular issued to local authorities regarding unwanted property? A number have property for which they will have no use in the future. Has a circular issued on the sale of such property and what would happen to the proceeds?

Local authorities have received sanction for projects this year but, because of this circular, they may be unable to produce their share of the funding, which could be up to 20% in some cases. What will happen to projects where the local authority is not in a position to proceed because of the restrictions imposed by the circular?

Mr. Des Dowling

I will try to deal with those questions. On payroll and the realisation of the 3% saving, we have in place an arrangement, again through our contact with the CCMA, which will satisfy us. We were keen to ensure we did not take an overly heavy-handed approach to these matters, as local authorities were responsible for their own financial approaches. While adhering to the parameters set by the Government, we do not want to overlay a huge tier of administration in these matters. I agree fully with the principle that we should be able to satisfy ourselves that the 3% saving is being achieved and we intend to so do.

Deputy Michael Fitzpatrick

And no more.

Mr. Des Dowling

It is a matter for a council to determine what its overall pay budget will be. Payroll is a significant cost for most public service administrations. We will not be prescriptive in what should be the precise budget for each council. Each council will make its own decisions in that regard.

Deputy Michael Fitzpatrick

My understanding is that councils were asked to make a payroll cut of 3%.

Mr. Des Dowling

Correct.

Deputy Michael Fitzpatrick

Will Mr. Dowling be happy if they make a payroll cut of 7%?

Mr. Des Dowling

That is a matter for them to determine in the light of whatever services and other requirements they have to meet locally.

Deputy Michael Fitzpatrick

I have a particular interest in this issue. Would it be possible to inform the committee, say, at the end of June of what the councils had achieved in payroll cuts?

Mr. Des Dowling

If we have the data available, we will be happy to supply them to the committee.

Chairman

It would be helpful if we could receive that information at the halfway stage.

Mr. Des Dowling

We will review the position to see what data we can supply. This relates to the point in respect of administration generally. We must ensure in terms of the €200 million savings required that in trying to do what is right we do not over-burden the system with excessive administration. That said, we view this as basic financial information which is reported on annually in the annual financial statements. We are asking local authorities to take a quarterly perspective in order that they will be aware during the course of the year of how matters are progressing. We considered a quarterly review was a reasonable basis upon which to attempt to plan.

How will this work from a multi-annual perspective? These projects are often complex. Deputy Scanlon referred to a number of projects in Sligo which are often contingent on a number of things happening. We have sought to ensure that in approving loan applications we receive the best information from authorities as to when they will require funding for projects. In some cases, applications were approved for 2008. Funding for projects which did not advance as rapidly as anticipated not drawn down must be sought afresh the following year. On the drawdown of partial funding, issues such as timing and the remainder of the work involved will be considered. In all cases, the Department has multi-annual programmes for its main spending programmes, including water, housing and so on. This fits within that broader framework.

On the questions relating to property, we take it as a given that in the current climate any assets available to a local authority will be considered carefully in terms of how they can be brought into use or how they might assist the overall financial position of the authority. We all recognise that the current climate is not the most attractive for the disposal of property and one would expect a degree of prudence in this regard. Nonetheless, there are assets available to a local authority and we expect them to be used to ensure the capital account remains in balance and to use them as a source of funding where this is appropriate.

The question is related in the case where a local authority is unable to meet a commitment due to its changing financial circumstances. We accept that this may well be a reality because of the pressures which local authorities are facing with regard to the rates income and the buoyancy from income from other sources. The very strongest effort will be maintained to ensure that all critical projects, particularly those in priority areas such as water and housing which Deputy Tuffy has mentioned, and those which councils have been identifying as priorities, would advance. The committee can be assured that we will do our best to try to allocate the limited resources available to us so that local authorities are not in a position where a project is ready to go and there is not the funding available to meet it. We would expect that on a multi-annual basis, local authorities would seek to plan to ensure that as projects advance, they organise their finances in such a way as to be in a position to meet this local component. We believe we are meeting the top priorities but it is a very challenging context in which we now find ourselves. This is what we have to recognise as I hope the committee will also do.

Chairman

We are hearing about projects over €5 million needing approval from the Department of Finance. I refer to cases where there is a programme of works within an individual authority and where the programme cost is greater than €5 million. I refer in particular to the roads programme. I ask the delegation not to refer me to the Department of Finance because it affects the local authority end of year balance, or the Department of Transport just because I have mentioned roads. We are hearing that some road maintenance programmes cannot proceed because the programme cost is greater than €5 million, notwithstanding the many individual components costing much smaller amounts. Is this an issue?

Mr. Des Dowling

Mr. McCann is the Department's finance officer and he might wish to comment. I am aware that the Department of Transport has made some ruling about contracts and the advancement of projects. My own Department has not put any block on projects proceeding because of the arrangements we are discussing here. We are dealing with them on a case-by-case basis and we are satisfied that priority projects are being allowed to proceed. Mr. McCann may wish to comment on the more general position.

Mr. Peter McCann

I am aware of the issue that has arisen but we have no direct control over how the Department of Transport controls its capital responsibilities. The issue is being addressed in current terms but I do not know what the final outcome is. However, it has been raised. My understanding is that it is under consideration. As to what will be the outcome, I am not absolutely certain.

Chairman

Has Mr. McCann heard that where a roads programme costs more than €5 million, there is an issue about letting any part of the programme proceed?

Mr. Peter McCann

I do not have the full detail. I am generally aware that there is an issue but we are not directly involved in our Department with that as this is solely within the remit of the Department of Transport.

Chairman

I know it is not the business of the Department but if Mr. McCann is monitoring local authority accounts he must know what is the payment from the Department of Transport to local authorities for roads in 2009? What are local authorities expecting to receive or would Mr. McCann know that? The Department should know this if it is keeping an eye on local authority finances.

Mr. Des Dowling

The Estimates for 2009 have yet to be settled. It would be preferable to wait and see what is available to the Department of Transport.

Chairman

The committee might send a letter on this topic to the Department of Transport to clarify matters.

Deputy Michael Fitzpatrick

Perhaps we should focus on the Department of Transport. Does a small amount of spending on country roads need to be sanctioned by either the Department of Finance or the Department of the Environment, Heritage and Local Government? The county I represent, Kildare, is at a standstill and is doing nothing owing to the requirements for documentation and approval. Is that a genuine excuse? If such small amounts of money need to be approved, we will do no work at all. We are now in March and almost into April.

Mr. Des Dowling

I can only say that we certainly would have concern if local authorities are not able to proceed with projects. I can only answer for my own Department. We have not put a block on projects but are trying to manage those on a case-by-case basis. It may be for the Department of Transport to respond.

Deputy Phil Hogan

One issue the Department has responsibility for is the water programme, which received a substantially increased allocation in the October Estimate. I am confused that Mr. Dowling has said that the Estimate is not settled for 2009. Obviously that means it has been adjusted. It might not have settled down, but it was settled last October for 2009. What adjustment has the Department made to October's Estimate? That Estimate indicated a 19% increase for water and wastewater services. Is that still on target?

Chairman

On a point of clarification, what was published on budget day — I do not know the technical term——

Mr. Des Dowling

The Revised Estimates are published in April.

Chairman

—— is only the draft Estimate. As a result of budget day announcements there can regularly be changes. The Revised Estimate comes before the committee. We have not yet discussed the Estimate for 2009.

Deputy Phil Hogan

I understand that.

Chairman

It is not yet finalised.

Deputy Phil Hogan

I saw the figures mentioned in the volume last October. I just wanted to know whether they were still there.

Chairman

We will see soon.

Deputy Phil Hogan

I am asking Mr. Dowling.

Chairman

I ask Mr. Dowling to respond.

Mr. Des Dowling

The Deputy is asking me to anticipate the Government's decisions in the budget, which I am unable to do.

Deputy Phil Hogan

I am asking the right man. He is the Government — in that area anyway.

Chairman

It goes without saying that Mr. Dowling is not in a position to answer that. We understand that. We do not blame the Deputy for trying. Mr. Dowling is well able to field such a question. At this stage we have covered the topics we wanted to discuss today. I thank Mr. Dowling and all his officials for their attendance. What we have discussed is a matter of interest to all members because we hear of such matters in all our constituencies.

I remind members that on Tuesday, 21 April, we will be visiting the Dublin Docklands Development Authority.

The joint committee adjourned at 4.55 p.m. until 3.30 p.m. on Tuesday, 28 April 2009.