Budget Supplements Come Back Thru Back Door

Gov't stopped giving cities money to balance budget, but gave the same to restructure

So much for forcing the cities to clean up their financial act. The amount th egovt is giving local authorities to restructure is about the same as it cut from entitlements to balance their debitory budget, TheMarker has found.

From 2003, the government has reduced its "balance-the-budget" subsidies to poor cities by an accumulated NIS 2 billion. But it's funneled back just as much in "recovery programs".

Moreover, the government has canceled its subsidy cutbacks. The allowances are back in full.

In 2003, as Israel teetered on the brink of financial crisis, the Finance Ministry decided to clip the balancing allowances, which were meant to help balance the authorities' budgets.

The allowances were reduced from NIS 3.3 billion to about NIS 2.5 billion, a drop of about NIS 800 million that year.

One year later, 150 local authorities found themselves foundering. The state was forced to finance recovery programs for many of them. Approximately NIS 1.8 billion were pumped back in.

This trend has since continued, and local authorities have received a total of NIS 2.2 billion over the past three years.

The ministry of interior points to these figures as proof that the allowance cuts of 2003 were unnecessary, putting local governments into a tailspin from which they have yet to recover, and resulting in the recent wage crisis and the ensuing strike that gridlocked the economy two weeks ago. The union of local authorities asserts that the cuts are the original cause of the current crisis.

The treasury rejects these claims, saying that the cut in the allowances was necessary. It adds that local authorities paid under the recovery programs are not necessarily the same ones that suffered cuts.

According to the ministry, the crisis in the local authorities began a year after the cuts.

The crisis, says the ministry, was a result of local elections, which produced substantial irregularities in local council budgets. "If it were only an issue of a balancing allowance, we would have seen a deficit of NIS 800 million in 2004. The fact is, the deficit was two and a half times that," ministry sources say.

The Finance Ministry also points out that of the 150 local governments operating in the red in 2004, only 30-40 remain broke. The pressure exerted on the authorities along with recovery programs worked, it said