Governmental Budgeting for Municipalities
The income mix of Israel’s local authorities comes from three sources:
- Self-produced revenue, mostly from property taxes, which vary according to the size and use of the property;
- Fixed sums from the central government's budget;
- Grants from the Ministry of Interior.The government budget for local authorities is determined according to its participation rate in the municipalities' expenditures on education and welfare, and is dependent on numerous criteria.
Recently, the Ministry of Finance and the Ministry of Interior have begun a strategic process of changing the mix of government expenditures on local government, which includes transferring funds from financially robust municipalities to weaker ones. This change is planned to take place in three fields: education, welfare and discounts on local property taxes approved by the central government. Its goals include strengthening weaker municipalities in Israel, enabling them to provide better services to their residents and narrowing the gap between them and the more financially sound municipalities.
ADALYA assisted in preparing a model for reforming the budgeting method for municipalities to differential budgeting, whereby weaker municipalities will receive higher funding than stronger ones.
The work process was divided into several stages:
Review and Data Collection
The first stage was reviewing the method behind the central government's budgetary participation in education and welfare currently in use as well as the discounts on local taxes given to government offices. We then studied the governmental revenue mix in each municipality.
ADALYA assisted in preparing a model for reforming the budgeting method for municipalities to differential budgeting, whereby weaker municipalities will receive higher funding than stronger ones.
The work process was divided into several stages:
Review and Data Collection
The first stage was reviewing the method behind the central government's budgetary participation in education and welfare currently in use as well as the discounts on local taxes given to government offices. We then studied the governmental revenue mix in each municipality.
Defining the Municipality Strength Indictor
The critical stage in the project was developing an indicator that defines what constitutes a municipality's strength. The predominant indicator used today, which looks at the socio-economic level of the municipality's residents, is insufficient, as does not take into account the municipality's strength as a whole.
To form a new indicator, we asked ourselves: what makes a municipality "strong?" Is it the residents' socio-economic strength? Is it the municipality's own economic strength? Is it mainly dependent on the level of local property taxes collected?
After a thorough review of the criteria, we devised an optimal indicator for evaluating a municipality's strength. To better understand the correlation and the difference between the socio-economic indicator and the "municipal strength" indicator we formed, we performed both a nonparametric and a parametric statistical analysis, and as expected, we found a strong correlation between the two.
The Economic Model
Our basic approach in building the economic model was to create one that was efficient and easy to understand. It was tested through three complex simulators built with advanced tools for the purpose of creating an optimal and easy-to-implement model for presenting the planned changes.
The simulators modeled the planned reform, with each one of them addressing all the criteria of the various budgeting items in each field. The model did not review residents' payments to the municipalities, but rather, revenue from the central government in the form of direct budgets and taxes on government offices. The model created offers an optimization of the funding for weaker authorities, while minimally subtracting from the stronger ones.
Since the funds transferred between municipalities according to this model are significant, it is vital that the reform be carried out over several years to avoid sudden changes on either end of the spectrum. Thus, the model we built spreads the redistribution of resources over three years in an easy-to-implement manner.
Summary
A change in the methodology of governmental allocations to local authorities in Israel will strengthen the weaker authorities and improve the services they offer to residents. The change in the government budgeting model should be carried out with three principles in mind: efficiency of distribution; ease of implementation; and gradation.
The critical stage in the project was developing an indicator that defines what constitutes a municipality's strength. The predominant indicator used today, which looks at the socio-economic level of the municipality's residents, is insufficient, as does not take into account the municipality's strength as a whole.
To form a new indicator, we asked ourselves: what makes a municipality "strong?" Is it the residents' socio-economic strength? Is it the municipality's own economic strength? Is it mainly dependent on the level of local property taxes collected?
After a thorough review of the criteria, we devised an optimal indicator for evaluating a municipality's strength. To better understand the correlation and the difference between the socio-economic indicator and the "municipal strength" indicator we formed, we performed both a nonparametric and a parametric statistical analysis, and as expected, we found a strong correlation between the two.
The Economic Model
Our basic approach in building the economic model was to create one that was efficient and easy to understand. It was tested through three complex simulators built with advanced tools for the purpose of creating an optimal and easy-to-implement model for presenting the planned changes.
The simulators modeled the planned reform, with each one of them addressing all the criteria of the various budgeting items in each field. The model did not review residents' payments to the municipalities, but rather, revenue from the central government in the form of direct budgets and taxes on government offices. The model created offers an optimization of the funding for weaker authorities, while minimally subtracting from the stronger ones.
Since the funds transferred between municipalities according to this model are significant, it is vital that the reform be carried out over several years to avoid sudden changes on either end of the spectrum. Thus, the model we built spreads the redistribution of resources over three years in an easy-to-implement manner.
Summary
A change in the methodology of governmental allocations to local authorities in Israel will strengthen the weaker authorities and improve the services they offer to residents. The change in the government budgeting model should be carried out with three principles in mind: efficiency of distribution; ease of implementation; and gradation.
