General purpose grants from the Local Government Fund have historically been structured to bring about equalisation over time; that is a position of balance where the financial needs of local authorities are met by their resources and they are able to provide an appropriate level of service to their customers. Local authorities’ cost and income bases vary significantly from one another as a result of their size, population, public service demands, infrastructure and income sources and calculating an appropriate distribution of these grants has been complex.
There are significant variances between local authorities in all areas of operation, service provision, income generation and service demand, some of which is geographically driven and influenced and is subject to fluidity and uncertainty, particularly in the last 5 years. In these circumstances, a strict formulaic approach to General Purpose Grant allocations would have limitations. In determining these grants a number of factors were taken into account as relevant, including the overall funding available for local authorities, the estimated cost to each authority of providing a reasonable level of service to their customers, the income each authority should generate from local sources and the necessity to provide each authority with a baseline allocation that will support its financial stability. Each local authority’s financial position is kept under ongoing review by my Department, through gathering data and meeting local authority personnel, where necessary; local authorities’ annual and multi-annual financial performance and projections, where available, along with any other relevant information would also have been considered as part of the process of allocating General Purpose Grants.
In 2014 the establishment of Irish Water presented local government with significant organisational and financial challenges. Service provision responsibilities are moving from the local authorities to Irish Water, infrastructure is being transferred, financing arrangements have altered and local authorities are operating on behalf of Irish Water under Service Level Agreements. These changes impacted directly on the funding model for local authorities, with General Purpose Grants in 2014 reflecting the move of the funding source from my Department to Irish Water; the levels of General Purpose Grants received in 2014 are, therefore, not comparable to previous years’ allocations.
In 2015, in addition to the changes in water services funding, local authorities will be faced with further changes to their funding model as a result of the move to local retention and variation of Local Property Tax (LPT. The Government has decided that 80% of LPT will be retained locally to fund vital public services in 2015. The remaining 20% will be re-distributed to provide additional funding to certain local authorities that have lower property tax bases due to the variance in property values across the State. This additional funding will be allocated to ensure that no local authority receives less income from LPT in 2015 than they received from the General Purpose Grants in 2014.
Certain local authorities, with stronger property bases, will however receive additional income in 2015 from LPT compared to their 2014 General Purpose Grant. The Government has decided that these local authorities will use this surplus funding in two ways, with a portion available for their own discretionary purposes and the remainder, if any, to fund some services in the Housing and Roads areas for which they currently receive Central Government funding. The portion that will be retained for discretionary purposes by these authorities will be an amount equal to 20% of the total expected LPT income in their respective areas (before any decision to vary rates) or, in the case where that surplus will be less than 20%, the full amount. It will be a matter for the individual local authorities to decide how to spend that discretionary funding.
I have advised local authorities of their individual provisional LPT allocations for 2015. This information has been provided at this early stage in the budget process for 2015 in order to ensure that local authorities have sufficient detail available to inform their decision-making in respect of LPT rate variation for 2015, which must be completed and notified to the Revenue Commissioners by 30 September 2014.
