Over the past 15 years, management by Israel's local councils has improved phenomenally, according to a Bank of Israel study published this week. Local authorities have gone from an aggregate deficit of 0.8% of the gross domestic product to a surplus of 0.2% of the GDP. Their total debt decreased by 1.7% of the GDP.
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In fact, over the past 15 years, overall debt grew in only 44 of the local councils, out of more than 250; the remaining local authorities, which range in size and socioeconomic deciles, have also seen an improvement in debt levels. All this has happened despite the government having reduced its responsibility toward local authorities – the central government’s support for local government shrank by 0.5% of the GDP during those years.
So how to explain this marked improvement in the management of local authorities? The Bank of Israel says it has to do with tighter restrictions on their budgets (the formula for income supplements was refined over the years) and the Interior Ministry’s supervision of them: It now has increased power to appoint replacement committees for failing councils and more power to make councils more accountable to the public. These moves have increased transparency and made voters more knowledgeable going into local elections. (We can also presume that all this has been accompanied by an increase in prestige for local administration.)
This wonderful improvement, however, has not extended to Arab local councils – they have improved but not at the same rate as their Jewish counterparts. The rate of debt per inhabitant plummeted by 46% percent in those 15 years, while the Arab councils saw only a 25% drop – and this is despite the fact that Arab councils spend much less than Jewish councils. According to the Bank of Israel figures, 13.2% of Israel’s citizens live under the Arab local authorities' jurisdiction, but their councils spent only 9.1% of overall local council expenditure.
In other words, the Arab local councils are poorer and less well managed, and their inhabitants receive far fewer municipal services than the inhabitants of the Jewish local authorities. Being an Arab citizen in the state of Israel just isn’t all that fun.
Why are the Arab local authorities so much worse off than the Jewish local authorities? Professors Avi Ben Bassat and Momi Dahan conducted a study in 2009 for the Israel Democracy Institute, which looked at of the roots of the crisis in the local councils – and their findings are still relevant.
The crisis stemmed from extensive cuts to the supplements awarded to local councils in 2003, due to the severe economic crisis affecting Israel. Since then the grants have not returned to the 2003 levels or gotten close to where they need to be – weaker councils are not compensated for the loss of income from municipal property taxes or the increased expenditures stemming from their relative weakness.
Apparently, the income supplements that today amount to NIS 2.4 billion are NIS 0.6 billion to NIS 0.8 billion less than what is necessary. Those most affected by this shortfall are the local authorities that rely most heavily on these supplements to balance their budgets – the weakest councils, which also happen to be the Arab local councils.
Israel also discriminates against weaker local authorities when it comes to budgeting, mainly for education and welfare. Richer towns can and do spend more of their own budgets, per capita, on school children. But the state doesn't give poorer local governments more money to bring the poorer towns' spending on education in line with that of richer towns. The result is that weaker local councils' investment per student is considerably less than in stronger councils – something that continues to increase the social gaps in Israel.
Paradoxically, a similar problem also exists with respect to welfare budgets, because councils are required to cover 25% of their welfare budget. Stronger councils fulfill this requirement and even supplement their budgets, but the weaker councils cannot meet that requirement and subsequently lose government funding – even though their welfare needs are great.
Dahan and Ben Bassat's findings also address distortions in municipal tax calculations: They found that Arab councils charge more municipal tax per capita than Jewish councils of similar socioeconomic deciles. In effect, the formula for calculating municipal tax discriminates against Arabs, apparently because Arabs live in larger houses and therefore owe more property tax.
In addition, Dahan and Ben Bassat found that Israel's Arabs are also discriminated against in terms of business property tax – across socioeconomic groups, Arab councils take in far less income from business property tax than their Jewish peers. The Arabs simply don't have business-related sources of income, both because their authorities are managed less well and also because they don't have land reserves for business development. And we won't even get into discussing the historic expropriation of Arab lands.
At the same time, there are serious administrative problems in the Arab local councils. The property tax collection rate among Arab local councils in the lowest decile amounts to 18% as compared to 82% in the Jewish locales. In decile 2, the Arab councils collect 46% as compared to the 65% collected by the Jewish councils in the same group. Dahan and Ben Bassat examined the spread of municipal property tax collection in a given decile. They found a tremendous spread, especially in the Arab councils. The rate of property tax collection in the Arab locales ranked in decile 2 ranged from 0% to 82%, which shows that even when the troubles are the same troubles, dealing with them is a management issue.
The conclusion is that Israel must increase its support for the Arab local councils – by upping the income supplements, introducing differential education and welfare budgets and returning lands to the Arab local authorities that will enable them to grow and develop. At the same time, the state must demand better administration from the Arab councils.
In recent years the state has done just that, when it determined that 15% of the income supplements would be conditioned on improved collection of property tax – to 80%. The move failed, since it turns out that only 25 of the 85 Arab councils have succeeded in reaching the required threshold. The state then changed its policy, and now it is giving partial supplements for improvement in collection, without a minimum requirement.
The interesting thing, though, is the partial success of the initiative: The 25 Arab local authorities that did reach the 80% collection threshold are a great improvement over the six that reached the threshold in 2008. In other words, it is possible to spur the Arab councils to improve their administration – if they are given reasonable and attainable incentives and help in getting there, by means of land and budgetary resources and administrative help. The only thing that is necessary is the desire to help them.