Local Government Reform

Decentralizing the Deserving and Equipping the Disadvantage

Policy Paper No. 55, The 12th Caesarea Forum, 2004

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  • Cover Type: Softcover
  • Number Of Pages: 101 Pages
  • Center: Eli Hurvitz Conference on Economy and Society
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Examination of Israel’s local governance as a whole reveals severe administrative and budgetary problems. Does the reform created within it actually widen the gap that exists between strong and weak authorities, instead of narrowing it? This paper analyses changes that were made in the system of local governance in the aftermath of the economic and security crisis of the early 2000’s.

Among Israel's local authorities one witnesses a great variation in the quality of budgetary management and service provision. In general, changes in the legal and budgetary environment in which the local authorities have operated since the mid-1990s have brought about a situation in which the authorities’ bank debt has remained stable, while its size relative to the authorities’ income, GDP and population has decreased, despite the fact that aggregate grants from the Israeli central government to the authorities have not grown in proportion to these variables. Thus, from the end of 1997 to the end of 2003 the local authorities’ overall debt (including overdrafts) remained almost unchanged, and relative to population size, income and expenses, actually decreased. Of the local authorities, about 160 decreased their per-capita debt during this period at fixed prices, while about 100 increased this debt. As a result, a significant level of operative stability was achieved by the local authorities until the crisis of 2003-2004. This crisis to a large degree reflected the dramatic changes made in the size of governmental budgetary transfers. Examination of Israel's local governance as a whole, however, reveals severe administrative and budgetary problems in many local authorities, although the media tends to exaggerate these problems at the expense of the sound management practice that prevails in many of them.

The changes that took place in local authority budgeting during 2003 and 2004, including the attempt to introduce an additional drastic cut in the aggregate grant for 2004, did not take into consideration the differences that exist among the authorities. General programs, which are not based on detailed familiarity with the local authorities affected, are always problematic. This kind of approach impaired implementation of the local authority unification plan (the unification that did take place was unprecedented), and resulted in the shelving of most of the additional cuts planned for the 2004 local authority budgets, and created the potential for long-term damage to budgetary management. There was also an obvious asymmetry in the economic recovery plan: the wage cuts and property tax increases mainly aided one group of local authorities, while the grant reduction injured another group of authorities. These ill-considered and hasty attempts to institute comprehensive reforms without taking into consideration the differences between the various authorities caused great instability in the authorities’ financial management. The struggle that ensued in the wake of these reform efforts undermined basic norms of governance in many local authorities.

Efforts to address budgetary issues in a comprehensive manner reflect a more profound problem. On the one hand, the multiplicity of local authorities in Israel occasions frequent governmental involvement in their administration and supervision. On the other hand, the government does not have the capability to effectively monitor what goes on in the authorities. Moreover, the attempt to exert control over such a large number of local authorities requires the adoption of a uniform policy toward the authorities, with no distinction based on the quality of their administration, size, and external influences –distinctions that would ease the burden of oversight borne by the central government.

The current crisis in local governance may lead to developments in a number of directions: (1) deterioration of local governments, characterized by erosion of services at the municipal level, with residents, particularly those with the means to do so, paying for more and more services privately while the weaker populations make do with inferior services; (2) greater involvement of the central government in the provision of local services, whether directly or through privatization which “bypasses” local governments – a situation in which the central government has great influence on control and on setting the ground rules with regard to local services provided by external contractors; or (3) greater efficiency and improvement of local government services, whether through streamlining the existing system or through a process in which local governments become less involved in the direct provision of services and more involved in “navigation” and control of services provided by contractors and private companies hired via concessions. Since the first of these developments is undesirable from both a social and an economic point of view, and since experience elsewhere in the world points to the probable creation of forces that would seek to expand the role of local government in the provision of public services in Israel, it is important that tools be developed to make it more efficient, while strengthening the relationship between the will of residents of various localities and the composition of the “package” of services and payments provided to them. Due to the complexity of the problems to be addressed, it is highly expedient that solutions be developed based on a long-term perspective and with clear goals in mind; nevertheless, these changes must introduced carefully and gradually.

Principles of the proposed change in the relationship between the central and the local governments are as follows:

  • The local authority's rights and obligations vis-à-vis the residents should be determined in a clear manner, preferably via legislation. The general framework for such legislation may be based on the Council of Europe's Charter of Local Self-Government. Based on this law, “ground rules” (a kind of joint code of regulations)may be set according to which the authority has responsibility in such areas as property tax collection, land use, municipal services, etc.
  • The need for many individual authorizations on minor issues places a greater burden of responsibility on the civil service and on the Minister of the Interior with regard to issues related to local government, but they are unable to enforce reporting requirements, make decisions within a reasonable time frame, or devote the appropriate attention to the issues in question. Moreover, the local authorities are obliged to waste valuable administrative resources and time in seeking authorizations from the various governmental bodies. It is therefore proposed that, with regard to the larger cities (those of a size to be determined based on further study), a policy be adopted according to which “everything is permitted, except for what has been explicitly forbidden. ”Such a policy would provide for a significant expansion of local authority responsibility in such areas as education, infrastructure, transportation (traffic signs, lights, etc.), beachfronts, and bylaws. Decisions would be subject to the condition that they have no negative effects on the residents of neighboring localities. It is further proposed that the role of the large cities in formulating an urban vision and planning principles be expanded vis-à-vis the regional planning committees and the national Planning Authority and that the local planning and construction committees’ authority be increased. The condition for all of this is a lack of external negative effects and adherence to proper administrative norms in the field of planning and construction.
  • With regard to medium-sized local authorities (20, 000 – 50, 000 residents or another range to be determined upon further study)–the proximity of these localities to neighboring localities will be examined in order to determine the degree of external influence to be expected as a result of decentralization of responsibilities for the localities in question. The lower the level of external influence, the greater the degree of authority to be granted to the locality.
  • Since local authorities are currently most unwilling to absorb economically weak populations, the grants provided by the government ministries, including the aggregate grant, should be designed in such a way that the absorption of these populations will become more attractive (similar to budgeting based on “standardized clients” in the health basket), that is, by emphasizing the socio-economic variable as a criterion in allocating grants.
  • Costing of the services that the local authorities provide to the central government should be carried out in a contractual framework. Contracts should be drawn up for relatively long periods, in order to avoid drastic changes each year.
  • The billing systems of governmental services that are provided jointly by the central government and the local authorities should be separated wherever possible from local authority billing.
  • Strict, uniform, and transparent criteria should be set for quality of administration in the local authorities, particularly in the area of budgetary management. The possibility should be examined of increasing the authority and strengthening the quality of the professional administrative cadres vis-à-vis the political administration. This document proposes a possible alternative to this kind of classification.
  • Localities which meet the criteria for managerial quality should have the responsibility for budgetary administration gradually transferred to them, while legal mechanisms should be created to ensure that the residents of each locality bear responsibility for the cost of budgetary discrepancies. The localities should be given, among other things, the authority to set property tax rates, subject to certain limitations on minimum and maximum fees and on the maximal ratio between residential and non-residential fees. Differential changes in property tax rates for different parts of a locality should also be subject to authorization, in order to prevent discrimination against minority groups in the localities.
  • Authority heads whose terms of office witnessed an increase in the authority's deficit after debt deduction, beyond a certain level to be stipulated in the regulations, or during whose term of office there were delays in paying the salaries of authority employees, or other serious budgetary mishaps, should be removed from office.
  • The issuing of bonds or the taking out of large loans in order to invest in development projects will be permitted to those localities freed from supervision only on the basis of a plan requiring proof of the ability to repay the loans via automatic property tax increases or by cutting specific, previously stipulated expenditures whenever the authority fails to adhere to the original repayment plan. Projects that create a loan burden exceeding a certain level and their accompanying budgetary obligations will require authorization of the entire population of the locality.
  • In localities whose budgetary management does not meet the standards set, the full range of existing tools available to the Interior Ministry will be brought to bear. Decisions on the taking of actions such as those authorized by the most recent Arrangements Law should be made by an independent, professional body according to strict criteria and with greater firmness than is currently employed. The government and the Minister of the Interior should set general policy – for example, the easing of criteria during periods of economic or security crisis – but they should not interfere in individual decisions regarding a particular locality's success or failure in meeting the criteria. The first stage should consist of administrative steps, such as the appointment of a supervising accountant and external tax collector, while only at the second stage should an ad hoc committee be appointed or the authority/council head's term of office be abbreviated.
  • Requests for external interference in locality administration, as previously mentioned, should be made by the government or by a certain percentage of council members/local residents. A fee will be charged for requests that are turned down.
  • There will be no budgetary allocations based on the disadvantages of a locality's small size, except in cases where geographic remoteness or other objective problems prevent effective unification of localities.
  • In general, increased efficiency of service, unification of services between authorities, and, in many cases, unification of the authorities themselves are in the interest of the residents and their elected officials. However, there are many instances in which obstacles block the effective unification of local authorities. The government can assist in this process by providing loans – and in extreme cases grants for specific time periods –in order to cover one-time expenditures, such as severance pay, or to equalize the debt burden between unifying localities.
  • For those localities suffering from faulty management over a long period of time, it is appropriate to consider implementing the model of a professional municipal administration an elected council, which would mean maximal separation of the political and the bureaucratic echelons, but with no appointments on behalf of the central government. Such a step would necessitate appropriate legislation.