Wednesday, May 9, 2012

County and city councils heading for a painful financial nose dive

There are 29 county councils and 5 city councils in Ireland.  Local administration also includes 5 borough councils, 75 town councils, 8 regional authorities and 2 regional assemblies.

The largest component are county councils and the city councils and their financial position has taken a hammering over the past five years.

They collectively have a cumulative income for revenue purposes of €4.6 billion which has not materially changed between 2007 and 2010.  It is derived from rates (27.1%), State grants and subsidies (40.7%). goods and services (23.9%) and other sources and charges.

Their revenue spending is on roads, transportation and safety (19.7%), environmental services (17.5%), water (16.4%), housing (14.6%) with the balance on agriculture, education, recreation and amenities.

They also spent €2.8 billion on capital investment, down from a capital spend of €6.3 billion in 2007.  The largest item of expenditure in respect of capital are payments to contractors, although they amount spent on contractors has dropped from €3.2 billion to €1.3 billion in the downturn, Councils are substantial buyers of land spending €583 million in 2007 and, surprisingly, €308 million in 2010.  Fees are another major absorber of public funds with €410 million spent under this heading in 2007 and €188 million in 2010.  Expenditure on land and other assets in the four years came to €3.8 billion while €818 million was realised from land disposals, some of it no doubt attributable to McCreevy’s public sector decentralization fiasco.

A curious feature of local authorities is that they have fixed assets of over €90 billion, which includes land valued at €2.2 billion, housing valued at €17.9 billion as well as parks, other buildings, plant and machinery, roads and infrastructure, water and sewerage treatment and heritage assets.  But these assets are valued at their purchase price in the case of assets acquired since 2003, not at their prevailing market price.  A revaluation would surely have major implications for their capacity to carry debt.

Their financial position has grown very precarious.  Ten of them have €81.3 million in the bank while 24 of them owe the bank €62.6 million.

The accumulated surplus on the revenue accounts of the councils amounted to €34 million in 2007 but four years later this surplus had dropped to €18.7 million.  The most financially robust are the four Dublin councils and Cork Co Council, which between them had cash balances of €71.3 million at the end of 2010.

The most severe revenue deficits are in Donegal, Sligo, Meath, Waterford and Wexford whose combined population has increased by 58,000 to 623,000 in the 2011 Census.  Donegal Co Council saw its deficit rise to over €12.7 million – equivalent to over €78 for each resident of the county.  Sligo Co Council saw its revenue deficit increase from €1.4 million to €9.9 million in four years. The revenue deficit at Offaly Co Council by 2,822% since 2007, from €€64,990 to €1,899,146 in 2010. The population of the county expanded by 8.2% in that five-year period.

The main non State sources of cash-flow for councils are rates, housing rents, commercial water charges and repayments of housing loans.

The councils  started 2010 with arrears of rates and commercial water rates of  €404 million but they wrote off €83.7 million as non-recoverable with bad debts in respect of rates accounting for 80% of this write-off.  Billing from these sources in 2010 amounted to €2.1 billion but almost €500 million of this remained uncollected by the year end.  If the amount written off at the end of the year was consistent with the amount written off at the start of 2010, a further €100 million is likely to be written off.

Escalating bank debt, an inability to collect from debtors and overvalued assets are likely to combine and make the majority of the State’s 29 county councils and five city councils a financial basket case.

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