Since 2015, the revenue of local authorities has grown from approximately €4 billion to €5 billion. This mainly comprises income from goods and services, commercial rates, Government grants and Local Property Tax.
Between 2015 and 2019, Irish Water was not liable for commercial rates and approximately €47m p.a. was paid to local authorities to compensate them for the water services-related rates income they would have previously received. Having regard to a recommendation from the local government sector that this exemption from rates should be removed, Irish Water will become liable for commercial rates from 2020 and the compensation-related funding will cease. Irish Water will pay commercial rates directly to individual local authorities, following the global valuation process undertaken by the Commissioner for Valuation, in a similar arrangement as applies to other utilities. The majority of local authorities are expected to see an increase in their rates income arising from this process.
Of course, this is just one of a number of variables that feed into local authority budgets. For example, there have also been revaluations of other utilities and all of the local authorities likely to lose rates income from the Irish Water valuation would be likely to see their rates income increase from the ESB revaluation. In addition, there is funding made available from the Local Government Fund (LGF) and the Exchequer funding of €156m being made available through the Local Government Fund (LGF), on a like-for-like basis, will see local authorities receiving €23 million more in Exchequer funding when compared to 2019.
My Department has kept the anticipated financial impact of the changed approach to the rating of Irish Water under review, liaising directly with sectoral representatives and with the most impacted authorities, particularly in the case of the seven authorities who are expected to receive less in the resulting commercial rates than they received previously. Taking account of other expected changes in incomes and the financial positions of the authorities concerned, Waterford City and County Council and Wicklow County Council were identified as facing significant challenges to deliver balanced budgets in the first year of the changeover.
Therefore, Minister Murphy and I are providing a once-off special payment of €2 million to Waterford City and County Council and €300,000 to Wicklow County Council to assist them in 2020 and to allow more time for the necessary rebalancing of income and expenditure.
Income from commercial rates is for use by local authorities at their discretion and, owing to its nature, is subject to fluctuations from time to time. My Department will continue to monitor the financial impact of the transition of Irish Water to a global utility undertaking for rates purposes, as part of its wider role in supporting local authorities. It is also my intention to consider this issue and other relevant issues when the work of the Local Government Funding Baseline (Review) Group falls to be considered.