Poor Management and Corruption

One of the mysteries in the local authorities' crisis is how they survived in 2003. After all, the budget cuts did not start this year. There were cuts in 2003 also, as well the enormous debts and horrifying deficits that had accumulated over the years.

One of the mysteries in the local authorities' crisis is how they survived in 2003. After all, the budget cuts did not start this year. There were cuts in 2003 also, as well the enormous debts (NIS 15 billion) and horrifying deficits (NIS 6 billion) that had accumulated over the years.

Why then did the crisis erupt only now? The explanation can be found in the date of the local authority elections - October 28, 2003. Until that date the authority heads did not dare to even hint at the deficits. They did not want to reveal that the emperor had no clothes on because any type of excuse would have made a bad impression on the voters. Authority heads therefore presented a facade of success. They promised suppliers that everything would be paid "after the elections" and did all sorts of acrobatics to obtain a bit more credit from the banks.

But now, after being elected for five years (it is irrelevant whether each mayor is new or a veteran), they can allow themselves to come out in the open and expose their shame to all. Now the interests have been reversed. The more the local authorities scream and strike the more they will receive from the treasury - and who will remember this crisis in another five years, during the next elections?

Another reason for the eruption of the crisis precisely now is the economic situation. When the economy is growing, businesses open, municipal tax revenues grow and the coffers fill up. During a long recession, however, tax revenues decline and the deficit grows. Up until three years ago, the Interior Ministry's budget included larger and larger "balancing grants" that were used to cover up the failed management in the local authorities and the growing deficits. Now, however, the deep recession has forced the treasury to drastically cut the grants to the authorities (by NIS 1.8 billion over two years), and such a cut cannot be absorbed.

The crisis is the result of poor and corrupt management by the Interior Ministry and the local authorities over approximately 20 years. From 1984 until last year, the Interior Ministry was controlled by Shas (apart from short periods under Ehud Barak, Haim Ramon and Natan Sharansky). The Shas representatives who held the Interior portfolio were Yitzhak Peretz, Aryeh Deri, Eliyahu Suissa and Eli Yishai. They managed the ministry like a grocery store, using the slips of paper method. If a council head promised Shas a synagogue, kollel or mikveh, he would receive handsome sums, and no one checked the details. Although the ministry had an accountant whose job it was to review the authorities' books and report to the minister, the reports were filed away without being read.

Many authority heads turned their councils into the main supplier of jobs for their associates. Even in the past few lean years, while the economy was shrinking, local authorities increased their payrolls and raised salaries. There are some authorities that collect only 20-30 percent of their potential taxes. This happens mainly in Arab villages, where there is no tax collection from the mayor's clan. There the annual deficit can be as much as 70-80 percent of the budget. This wasteful management continued for years, until the ministry was handed to Avraham Poraz.

Now things are being managed differently. There are no more slips of paper and no transfers without criteria. The money is transferred to the authorities based on the recommendations of the Gadish report, and Poraz will soon appoint an accountant to oversee problematic authorities. The supervising accountant will not allow authority heads to spend a single shekel that has not been budgeted in advance.

The accountant will examine both the wage and pension terms and the collection systems for water and local taxes. When it turns out that an authority is unable to recover, an outside committee will be appointed, or it will be merged with the adjacent authority. When recovery is possible, the state should provide an additional budget in exchange for a recovery plan that will be signed and implemented.

There are currently 226 local authorities in Israel, and 70 of them have fewer than 5,000 residents. While the Interior Ministry's original proposal was to combine 150 authorities, at the conclusion of the process only 29 had been united - after the heads of local authorities from the Likud exerted counter pressure.

That is also what happened with deputy mayors. Poraz wanted to reduce their number by 290, but after Uzi Cohen intervened, the cut was reduced to 142.

During budget discussions, Meir Sheetrit opposed such a deep cut in the balancing grants. He contended that a cutback approaching 50 percent was unfair and would not be approved.

Treasury budget director Uri Yogev, however, said the authorities should be given a hard slap and then infused with some cash via recovery programs. Finance Minister Benjamin Netanyahu accepted Yogev's view, but this week understood his mistake after matters worsened, and Sheetrit has been appointed to head talks between the treasury and the authorities. It is now clear to all that the authorities will get back about NIS 1 billion of their budget cut, half as balancing grants and half for recovery plans. Until the next crisis.