Municipal finance is a cornerstone of successful decentralization in government. In light of ongoing discussions over proposed new legislation and the municipal elections this month, EXECUTIVE talked to attorney Ziyad Baroud about the state of municipal finance and municipal reform proposals. Baroud, who teaches municipal law at St. Joseph University and is a consultant with the UNDP, is also an activist for municipal reform and development.
How important is the finance issue to Lebanon’s municipalities?
The law of 1977 gave the municipalities wide jurisdiction in governing their local affairs. If the municipalities do not have the money needed to implement projects, which are their prerogatives under the law, they cannot fulfill their mandates.
What difficulties hamper the financial aspect of municipal governance?
The problems begin with size. Small municipalities do not have enough resources. Another problem is that some of the funding that is in principle due the municipalities via the central government has not been distributed equally and regularly. Going into details, municipalities have two sources of income. First, taxes from residents on properties, shops etc, are payable to the municipalities. The other source is a share of phone and electricity bills and certain customs duties. This money goes into the Independent Municipal Fund (IMF), which was created in 1977. This fund is supposed to serve all municipalities but mainly to finance small municipalities, which do not have enough income from direct taxes.
How much money are we talking about here?
The total amount collected in this fund between 1997 and 2001 was LL890 billion, or almost $600 million. This is a rather large amount. There are criteria for distributing moneys in the fund. But money was not paid out regularly, and distribution was based on political considerations. Take for instance one QADA where you have 40 municipalities and another where you have 26. In the first one, LL4.7 billion were paid in 2001; in the latter, LL19.6 billion were paid. Revenues in the IMF need to be distributed equally and regularly.
If properly distributed, would the funds make municipalities more effective?
They would be sufficient only for large municipalities. Before the 1998 elections, we had around 750 municipalities. Today, we have around 900, in a country of 10,000km2; so an average of one municipality per 11km2, which is very small. So you see a need for a redrawing of the municipal map?
Yes. We need to resize municipalities. Jordan restructured its municipalities two years ago. They have around 240 municipalities today, and Jordan is larger than Lebanon.
What activities fall under the financial authority of the municipalities?
86% of municipal expenditures go to services. Some municipalities undertake infrastructure projects because they have the financial support to do so, often from international donors. Others do not implement infrastructure projects, because they don’t have the means. It is not the nature of the project that influences decisions, but the availability of funds
Do municipalities have the resources to hire employees?
Unfortunately, municipalities have been forbidden from hiring anybody since the Council of Ministers decided in the early 1990s to impose a hiring freeze in the public administration. We have municipalities that are without civil servants and qualified employees. Instead, elected council members and municipality presidents do the jobs if they are qualified. Plus, employees are underpaid. Wages in the municipalities are worse than elsewhere in the public sector.
What is the total employee count on the municipal level?
We do not have these figures because there are no centralized data. Employee numbers vary from 2,500 in Beirut to zero in some municipalities. All municipalities need more employees.
Are municipal budgets published?
Not by virtue of the law. Some municipalities publish their figures, but as far as I know, not more than five are doing so. A new draft law should oblige municipalities to publish their budgets so that citizens can be aware of how funds are being used. Municipal funds are public funds.
Are there audit procedures for municipal budgets?
Yes, municipalities are not free to do whatever they please. We have financial controls, judicial controls, and controls by citizens. One of the positive points in the new draft law involves auditing. However, we need to rethink how the auditing of municipalities can be conducted without having the central government directly involved.
Is implementation of financial autonomy more important than elections for building good municipalities?
No. It is very important to address both political and financial issues. Municipalities are a good exercise in democracy, transparency and accountability. What makes the financial issue so important is that you cannot give municipalities a range of prerogatives but deny them the means to accomplish them.