Local Authorities' Grants Back to Pre-cut Levels

The amount infused into local authorities' recovery programs is the same as that trimmed from the authorities' balancing allowance, TheMarker has found. The allowance refers to annual financing to local authorities received by weaker authorities from the Interior Ministry, which has been cut by an accumulated NIS 2 billion since 2003. A similar amount has been funneled back into the authorities as part of the recovery programs. Not only that, allowance cutbacks have since been canceled, and the allowances are currently back to the levels prevailing on the eve of the program.

In 2003, at the height of the Israeli economic 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, some 150 local authorities found themselves in dire straits, and as a result of the crisis, 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, however, rejects these claims, saying that the cut in the allowances was necessary, adding that the local authorities that received financing as part of the recovery programs are not necessarily the same authorities 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 point out that of the 150 authorities in crisis in 2004, only 30-40 remain in trouble, and the pressure exerted on the authorities along with recovery programs, are now bearing fruit.