Swimming in Money in Tel Aviv, Drowning Just About Everywhere Else

Tel Aviv is such a success story, both in Israeli and international terms, that one has to wonder whether the city is embarking on grandiose and very expensive projects that aren't really needed.

Before you know it, the city of Tel Aviv will be starting its next grandiose project: fixing up the boardwalk along the sea. The beachfront upgrade will join other major jobs, like the renovation of the Habima national theater, a controversial job the city just finished, and the equally controversial makeover of the Heichal Hatarbut auditorium, home of the Israel Philharmonic Orchestra. No question about it, controversial though the works may be, they have made Tel Aviv a prettier, more attractive city.

Everyone wants to live there, therefore it is no surprise that the summer protest over cost of living erupted in Tel Aviv. Its allure is captivating and the city has become as much of a magnet for tourists as Jerusalem. In fact Tel Aviv is such a success story, both in Israeli and international terms, that one has to wonder whether the city is embarking on grandiose and very expensive projects that aren't really needed.

Habima - Aviad Baranes - December 2012
Sets and the city

Certainly, fixing up Habima, the Mediterranean Sea boardwalk and the Heichal Hatarbut add to Tel Aviv: but were they necessary?

The residents of Tel Aviv don't bother themselves with that question. In general they aren't bothered by much, at least so far as the city's expenditures are concerned. Residents are confident the pavements will be in good repair, the boulevards will be elegant, the classrooms will be orderly and clean, and that Ichilov Hospital will provide the best medical care. They rest assured that the city will provide the municipal services they need.

Do Tel Avivians apreciate how lucky they are? Probably not. The grim reality for Israelis living in other cities is very different. They cannot be sure of any municipal services.

Take the Bedouin town of Rahat, with its 52,000 residents. A year ago it got its first public bus line. It's also the only Bedouin town to boast a bank. Most of the Arab local authorities don't provide any welfare services to their residents, because the Welfare Ministry demands the municipalities pay 25% of the outlay. It is for the same reason that most Arab local authorities have no state-funded day care. There are only 30 subsidized day care centers in Arab towns, according to the Industry, Trade and Labor Ministry. These are meant to service more than 400,000 impoverished Arabs.

rahat - Itzik Ben-Malki - June 18, 2010
Itzik Ben-Malki

Israel has 256 local authorities. Two hundred rely on supplementary income from the Interior Ministry in the form of "balancing grants" that help balance the local authority's expenditures and income. (The government calculates the local authority's "normative" expenditure, factors in its actual revenue from city tax collection and gives it the difference, to oversimplify the case. )

Sixty of the 256 local authorities are undergoing financial rehabilitation programs. Twenty of these have reached dire straits: the Interior Ministry threw out the elected local authority leaders on the grounds of extreme mismanagement and replaced them with its own appointments.

Of the 256 local authorities, only 50 are considered "robust", which means they make do without government handouts. All the others are in some stage of financial distress and cannot exist without state help.

About 100 to 150 exist with their nose barely above water, and 50 are in a state of protracted collapse, says urban planner Nahum Ben-Elia.

This isn't some sudden crisis that erupted in Israel's cities, towns and hamlets. This is how things have always been, at least in the last decade. The system went through a terrible shock in 2003, when the economic crisis forced the government to decimate its "balancing grants". Today 80% of the local authorities remain dependent on grants, and anywhere from 50 to 60 (the Interior Ministry won't give us the figure ) go in and out of financial rehab programs.

Urban planners know all about this. "A small local authority cannot sustain itself. At most it can survive," says Ben-Elia. He blames the government. The operational model of Israel's local authorities has no parallels anywhere else, he claims. The local authorities are obliged to supply all services (welfare, education, sewage, roads ) and get little government help, in relative terms.

"The government provides 34% of the local authorities' budgets," he says. The rest of the funding is supposed to come from the collection of municipal taxes (arnona ) and other fees paid by the residents. That 34% rate is the lowest in the West, Ben-Elia says, and it's certainly low compared with the services the local authorities are supposed to provide.

Tel Aviv, and the other 15 strongest cities in Israel, do manage to collect the income they need through arnona and other fees. These strong cities have the wherewithal to invest in education, welfare, entertainment and, of course, fixing up seaside boardwalks, theaters and tree-lined boulevards. Such endeavors make them more attractive to well-to-do people, who end up moving there. More businesses open, which means more income for the cities and around and around it goes. It is the positive life cycle of the lucky in Israel.

Positive cycles of this sort, however, belong to 15, or at most 50 local authorities. All the others are caught in a vicious cycle. They don't have enough money to invest in development, and the quality of life deteriorates. Well-to-do people move out. Businesses shut down, and the city's income falls further.

At this stage the state steps in with balancing grants, to help cities that are running at a deficit balance their books. The formula for calculating the grants has changed over the years, and economists agree that the present formula is economically correct and equitable. It defines a normative bundle of services that the local authority must supply to residents. It checks the local authority's income, and makes up the difference between the income and the cost of the bundle.

But when a cash-strapped government scales back these grants, the local authorities can't supply all necessary services. At best the grants help them break even. The money certainly isn't enough to spur growth that would lead to budgetary independence, and the result is that all too many local authorities in Israel are and will remain dependent on crumbs from government.