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Friday 19 September 2014

Councils spend half a billion on projects they're unable to afford

Paul Melia Environment Correspondent

Published 12/03/2014 | 02:30

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The new plan aims to boost construction in areas where affordable homes are most needed, while also creating jobs. Photo: Thinkstock Images
Councils to spend half a billion on projects they're unable to afford. Photo: Thinkstock Images

CITY and county councils have spent more than half a billion euro building houses and water treatment plants and buying land without having funding in place.

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A report from the Department of the Environment says that almost €540m has been spent on capital projects without funding being available, and warns of the "deteriorating financial position" of a number of councils across the country.

Some 20 of the 34 local authorities are technically insolvent, and are relying on overdrafts and bank borrowings to meet day-to-day expenses.

In some cases, all discretionary spending has been "effectively eliminated", with Sligo County Council warning that it is retaining services "at levels to ensure compliance with statutory obligations".

The Local Government Audit Service Activity Report examines spending in 2012, the last year for which figures are available, and warns that the merging of city and county councils, abolition of town and borough councils and the transfer of water services to Irish Water will present "major challenges" for the sector.

"Management should have in place additional reporting/ oversight arrangements on the activities of the merging authorities as and from January to May 2014," it says.

"The finance functions in local authorities must be adequately supported to deliver the significant demands in this area."

The report also notes a sharp decline in spending among councils since the height of the boom, particularly on capital projects. Spending in this area has plummeted from €6.134bn in 2008, to €1.791bn in 2012.

Purchase of land and other assets has dropped from just over €1bn in 2008 to just €163m last year, and development contributions are down to €45m from €460m in six years ago.

Key concerns raised include the level of unpaid charges, including rates and rents, across the 34 local authorities, poor financial management and a failure to go to the market to seek the best price for services.

REVALUATION

Councils also owe some €2.3bn, some of which is only being repaid on an interest-only basis. In addition, people who secured mortgages through the local authorities owe €1.3bn, but arrears in this area are mounting.

Some council staff also enjoy "acting up allowances" for carrying out particular roles, without approval from the Department of the Environment, and assets are not being properly recorded.

There are also concerns about a lack of internal audit functions in some councils to oversee day-to-day spending. There is a "lack of oversight" in how scarce public funds are being spent in some cases, while Mayo County Council was criticised for "effectively disbanding" its internal audit unit in June 2011.

The report says a "major revaluation" of assets including land, buildings and houses will need to be undertaken "when market conditions allow".

On the issue of unfunded balances for capital projects, council managers have indicated they will be funded from future development levies, sales of assets and grants from the department.

Among the reasons given for the deterioration in local authorities' finances are the general economic collapse, reductions in funding from the Government, the cost of servicing loans and payment of retirement gratuities to departing staff.

The report says some €289m was spent in 2012 on pensions and gratuities.

The Department of the Environment said the overall spend in councils had reduced "considerably since 2008 as the amount available from central government has been pared back".

Staff numbers had dropped by 26pc from 37,243 in June 2008 to 27,456 in December 2013, with deep cuts in payroll including overtime and allowances. Savings of €839m were made in the same period due to efficiencies and changes to work practices.

A spokesman said the merger of councils in Tipperary, Limerick and Waterford, coupled with the dissolution of town and borough councils, would save up to €45m a year.

Irish Independent

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