Since 2013 the research by lecturers Gerard Turley and Stephen McNena at NUI Galway has focused on the economics of local government, and, in particular, the funding, finances and financial performance of the local government sector in Ireland. We have published with colleagues from NUI Galway (Dr. John McDonagh and Dr. Geraldine Robbins) and University of Limerick (Dr. Darragh Flannery), in journals such as Local Government Studies, The Economic and Social Review and Administration, as well as in The Routledge Handbook of International Local Government. Listed below are our peer-reviewed articles, with links to the published academic, scientific and policy-related papers. Comments by email to us are always welcomed.
This paper analyses the effects of the economic crisis on local government budgets in Ireland. In this context, it also examines the preceding period, namely the impact of the economic boom on local government finances. We find that the budgets of local authorities, as with the national budget, increased greatly throughout the boom years. Although local authority spending increased, local governments were not as profligate as central government during this period. As for the economic recession, the evidence is of a lagged effect on local government budgets, with no dramatic change in 2008, unlike the impact at the central level. As with downturns elsewhere, the negative impact of this recession on local authority budgets began to impact only after it had affected the national budget. Falling local revenues combined with significant reductions in central government allocations to local government have resulted in expenditure adjustments as local authorities seek pay and non-pay savings. We also show evidence of much cross-council variation in finances, with particular regard to changes in rate income and central government grants.
A framework to assess the financial performance of local governments is presented in this paper. The framework adapts and extends an earlier methodology and includes new financial performance measures reflecting considerations in the literature of appropriate financial performance measures for local government units. Using 14 indicators, five broad financial performance measures are employed, assessing liquidity, autonomy, operating performance, collection efficiency and solvency. We apply this numerical and narrative analysis of key financial performance indicators to Ireland’s primary local authorities during the recent boom and bust period. Through application of this financial performance measurement framework using a benchmarking methodology, we identify relatively strong and weak local authority financial performance. We recommend the adoption of this framework as an extension to the annual financial statements of local authorities to help users more easily assess financial performance and to distinguish between relatively well-performing councils and those showing signs of financial trouble, with a view to early identification of councils in financial difficulty.
A framework to assess the financial performance of city and county councils in Ireland is applied to the recent boom and bust period. Based on previous work, our financial performance measurement framework assesses performance in the areas of liquidity, autonomy, operating performance, collection efficiency and solvency using the audited, published financial statements of Irish local authorities. Financial indicators for the years 2007 and 2011 are developed and reported to capture the boom and bust years, respectively. Overall, the results indicate that the majority of Irish city and county councils performed satisfactorily in a financial sense relative to central government performance despite the downturn in economic activity and the resulting fall in council income. The paper suggests a small but increasing number of county councils are exhibiting signs of financial difficulty, with poor levels of revenue collection, increasing provisions for bad debts and rising debt levels. In light of the recent boom and bust in the Irish economy and the growing importance of performance measurement in a reforming public sector, we recommend adoption of the financial performance measurement framework as part of the annual financial statements of Irish local authorities.
It was over a quarter of a century ago that information from the financial statements was used to benchmark the efficiency and effectiveness of local government in the US. With the global adoption of New Public Management ideas, benchmarking practice spread to the public sector and has been employed to drive reforms aimed at improving performance and, ultimately, service delivery and local outcomes. The manner in which local authorities in OECD countries compare and benchmark their performance varies widely. The methodology developed in this paper to rate the relative financial performance of Irish city and county councils is adapted from an earlier assessment tool used to measure the financial condition of small cities in the US. Using our financial performance framework and the financial data in the audited annual financial statements of Irish local councils, we calculate composite scores for each of the thirty-four local authorities for the years 2007–13. This paper contributes composite scores that measure the relative financial performance of local councils in Ireland, as well as a full set of yearly results for a seven-year period in which local governments witnessed significant changes in their financial health. The benchmarking exercise is useful in highlighting those councils that, in relative financial performance terms, are the best/worst performers.
In 2000 the central government in Ireland introduced a formula-based needs and resources equalisation model in its local government system to ensure that the allocation of general purpose grants to local authorities was done in an equitable manner. However, the equalisation model is lacking in transparency, with few details publicly available as to its exact specification. Within this context, the purpose of this paper is to critically assess fiscal equalisation in Ireland’s local government system. More specifically we address the question of whether general purpose equalisation grants bear any relation to expenditure needs and fiscal resources. We achieve this by estimating our own model based upon a number of indicators of potential need and available resources. We outline a number of alternative equalisation models based on different objective criteria, and compare the simulated allocations resulting from the alternative models to the actual general purpose grants, with a view to partly explaining past allocations but also identifying improvements in the future design of fiscal equalisation in Ireland. Our findings show politically sensitive redistribution away from county councils towards city councils, resulting in new winners and losers. The results for Dublin City Council raise the question of whether, given its population size, level of economic activity and budget, it should be treated separately and as a special case with respect to intergovernmental fiscal relations in Ireland.
In this paper we set out to analyse changes in local government expenditures and income in the context of central government austerity measures, local government budgetary adjustments and, most especially, the 2014 local government reforms. More specifically we outline the effect of the local government reforms, and, in particular, the redesign of intergovernmental fiscal relations (namely, territorial rescaling, expenditure and revenue re-assignment, changes in central government transfers) on the local public finances. Using data from the Local Authority Budgets we examine changes to the main service divisions, income sources and cross-council variations in expenditures and income, pre and post the 2014 reforms. Our results show that local government fiscal changes and recovery lag central government patterns, a general shift from central grants to local own-source revenues, and cross-council differences with respect to dependency and self reliance persist. The establishment of Irish Water and the Local Property Tax have, at least initially, made the local government fiscal accounts, and in particular the Local Government Fund, less transparent and more complex, making an objective and accurate assessment of local authority budgets more difficult than before the reforms. Earlier publication of the consolidated AFSs of the local authorities is called for so as to ensure continued scrutiny of the local public finances.
This paper sets out to establish the extent of austerity in the Irish local government system during and after the Great Recession. Austerity is measured by the adjusted change in local government expenditure from peak to trough years, and is analysed by type of expenditure, service division and local authority. Stripping out the change in local government current spending that is due to expenditure reassignments reveals that the austerity-related reduction in local government operating expenditure is not as large as often portrayed. As for other findings, there are sizeable differences across the aforementioned classifications, with, most notably, capital expenditure cuts far exceeding cuts in current expenditure. The largest decreases in total spending were on roads and housing services, and small rural county councils endured the most austerity, as measured by the initial reductions in current expenditure. In terms of policy implications, the biggest concern is the large infrastructural deficit that needs to be tackled, arising from austerity cuts in capital expenditure imposed at both central and local government level. As the economy recovers from the Great Recession and the subsequent era of austerity, failure to address this problem will hinder Ireland’s international competitiveness, constrain the economy’s future growth rate and result in impoverishment of public services at local level.
Economies of scale are often the underlying rationale for local government amalgamations. Yet the international evidence on the relationship between municipal output or size (in population terms) and costs as measured by expenditure per capita is unconvincing, with doubts over whether size matters at all for the efficient provision of local public services. Given the 2014 structural reforms aimed at local government territorial consolidation in Ireland, we use pre- and post-merger data to investigate whether there is any evidence of scale economies in the Irish local government system. The econometric study finds empirical evidence of “U-shaped” cost curves for Irish local councils in 2011 and 2016. In both years the range of turning points are near the median council size, suggesting that many local authorities were operating in the diseconomies region before and after the 2014 territorial reforms and amalgamations. With more territorial changes currently planned, policymakers should look at further amalgamations only on a case-by-case basis but also at other mechanisms to deliver efficiencies, either through strategic alliances and more shared services arrangements or other ways of inter-municipal cooperation as is common in many continental European countries.
The years since the 2008 financial crisis and subsequent economic crash have witnessed significant changes to the funding of the local government system in Ireland. This paper outlines these developments, while, at the same time, exploring some of the most important future challenges relating to the financing of Irish local authorities. The dominant local government revenue issues of the last decade outlined here are fiscal autonomy and the balance between own-source income and central government grants, income differences between urban and rural councils, the Local Property Tax, changes in commercial rates and fiscal equalisation. In terms of fiscal dependency and equalisation, our findings show reductions in the vertical and horizontal fiscal imbalances in the Irish local government system. Likely future challenges include the need to re-examine the balance between business taxes and non-business taxes, funding the expected growth in metropolitan areas and the financing options for capital investment by local authorities, including consideration of municipal bond issuance for the Greater Dublin Area.
Given the changes in the Irish economy since the economic crisis and, more specifically, reforms in the local government sector, this paper reassesses the financial position and fiscal sustainability of local authorities in Ireland. To do this we employ a local government financial performance framework that measures liquidity and solvency, but also operating performance and collection rates for different sources of revenue income. Using financial data sourced from local council income and expenditure accounts and balance sheets, we report and analyse the financial position and performance during the 2007-2017 period. The results indicate an improvement in the financial performance of local councils since the early 2010s. Cross-council differences persist, and, in particular, between large urban local authorities and smaller rural local authorities, albeit only for the liquidity and operating performance measures. Among the small rural councils Sligo County Council’s financial position, although improving, remains a serious matter with on-going consultation with and monitoring by central government. To help improve the measurement of local authority financial performance we recommend inclusion of this framework in the local authority Annual Financial Statement and also in the Performance Indicator report with a view to making financial reports more accessible and transparent to citizens and taxpayers but, ultimately, to help improve performance and service delivery by the local authorities.
Fiscal equalisation is a key element of a country’s fiscal arrangements where functions and finance are decentralised to subnational government. Although Ireland’s horizontal fiscal imbalances are partly reduced by grants from an equalisation fund, the current model of equalisation payments is not fit for purpose. In this paper we design a fiscal equalisation system for Ireland’s 31 local authorities based on a Representative Revenue System model and estimates of fiscal capacity. Using the main revenue sources we estimate fiscal capacity for 2017, and calculate formula-derived equalisation transfers for the financially weaker local councils. Compared to the existing transfers funded from the local property tax, our results provide for a larger equalisation fund financed by the central government, a greater degree of equalisation but with individual council winners and losers. Careful consideration needs to be given to the funding options available to the net losers, including higher taxes locally levied on commercial and/or residential properties, or where deemed necessary, a transition payment from the central government.
Fiscal equalisation is a key element of a country’s intergovernmental fiscal arrangements where functions and funding are decentralised to subnational government. Equalisation transfers or grants are used to reduce the fiscal disparities exist between local authorities in Ireland. In our research we construct a model of fiscal equalisation that is consistent with international best practice based on quantifiable, predictable, and equitable criteria, but like all fiscal equalisation programmes worldwide, tailored to the specific circumstances of the home country. As the objective of our model is revenue equalisation, we use the concept of fiscal capacity and the Representative Revenue System (RRS) framework to generate equalisation transfers. Compared to the existing transfers funded from the local property tax, our results provide for a larger equalisation fund financed by the central government, a greater degree of equalisation but with individual council winners and losers.
Traditionally, local governments fund recurring expenditures from three broad sources, namely user fees and charges, local taxes and grants or transfers. Although reform of local government funding is a never-ending process, since the 2008 financial crisis Ireland has witnessed an unusually large number of changes in the funding of Irish local councils.These area new local property tax (LPT), commercial rates harmonisation and revaluations, abolition of general purpose grants and anew equalisation fund to finance designated transfers for the purposes of reducing fiscal disparities between local authorities. Together, these have resulted in a reduction in the vertical and horizontal fiscal imbalances in the Irish local government system.
The economic rationale frequently cited for local government territorial reforms and municipal amalgamations is the economies of scale argument. It is argued that in the subnational public sector sphere larger councils may exhibit scale economies, and provide services at a lower per unit cost than smaller councils. As against the ‘small is beautiful’ argument that is advocated by political scientists using the local democracy and subsidiarity arguments but also by economists in favour of decentralisation, competition and government restraint, this is the case of ‘big is better’.In examining structural and organisational reforms aimed at seeking out the optimum size of local government the most likely conclusion based on international evidence is that there is no single or standard size that is appropriate for all local governments, i.e. no one-size-fits-all solution and no universal prescriptions for the design of local government systems as individual country and local circumstances and system-specific characteristics matter.
Local councils in Ireland experienced the same boom and bust conditions that the national government and the general economy witnessed since 2007/8. Whereas the public finances of central government have been subject to much research and debate, the same level of scrutiny was not applied to subnational government and local public finances. Yet, local government suffered a fall in local revenues combined with significant reductions in central government grants. In this study the authors set out to assess the relative financial performance of Ireland’s local authorities using a financial performance measurement framework. The study used a recently developed financial performance measurement framework, outlined in a recent paper by the same authors (see Turley et al., 2015). Data for the 34 councils (5 city and 29 county) for the two years, 2007 and 2011, allowed the researchers to capture the boom and bust period under investigation. Using 14 indicators, five broad financial performance measures were employed, assessing liquidity, autonomy, operating performance, collection efficiency and solvency. This numerical and narrative analysis of key financial performance indicators was then applied to Ireland’s primary local authorities during the recent boom and bust period. The framework addresses concerns underlying calls for increased accountability and transparency of public sector organisations as part of New Public Management reforms. Through application of this financial performance measurement framework using a benchmarking methodology the research identified strong and weak local authority financial performance.