URBAN FINANCIAL MANAGEMENT: REVENUE RAISING, BUDGETING AND PARTICIPATION WITH SPECIFIC REFERENCE TANZANIA

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URBAN FINANCIAL MANAGEMENT REVENUE RAISING,
BUDGETING AND PARTICIPATION WITH SPECIFIC
REFERENCE TANZANIAS EXPERIENCE__________________
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• Introduction
• Urban councils accorded status of government
• Have powers to levy and collect taxes, fees and
  charges
• LGRP addresses problem of under funding
• Objective of LGRP to enhance financial
  resources and increase the efficiency of their use

2

• Categories of Sources of Revenue
• Own Source revenues
• Grants
• Borrowing

3

• Own Source Revenues
• Taxes e.g. property tax, service levy, rent
• Charges
• Fees for undertaking activities/access to
  services
• Need to step up revenue collection effort
• Need to harmonize and rationalize taxes, fees and
  charges

4

• Borrowing
• Borrowing benefits present and future generations
• Borrowing currently not seen as a source of
  finance
• Bond market at national level just emerging
• Problem of moral hazard leading to Central
  Government paying loans of defaulting councils
• Local Government Loans Board seriously resource
  constrained
• Bond market is a potential source of finance

5

• Grants
• Grants provided to councils since reintroduction
  of local government system in 1984
• 80 of recurrent expenditures financed through
  grants
• Currently, councils have no discretion in
  allocating grants
• Act No.6 of 1999 allows for provision of block
  grants to councils
• Block grants provision to be approached on a
  phased arrangement

6

• Shortcomings of Current Grants Allocation
• Non-transparent and subject to negotiations
• Supply focused rather than demand/client driven
• No incentive to improve on service delivery
• Favours developed/better off councils
• No accountability downward
• Excess central control over local resources

7

• Principles to guide design of grant allocations
• Provision of adequate resources
• Preservation of budget autonomy
• Enhancement of equity and fairness
• Transfers to be predictable
• Simple and transparent formulae
• Transfer system not to create negative incentives
  for revenue mobilization
• Transfer system to focus on demand for services
• Transfer system to avoid equal shares
• Transfers system to avoid sudden changes in
  amounts of grants

8

• Formula-based system being developed with likely
  factors as follows
• Population
• Number of school age children
• Infant mortality rate
• Poverty count
• Distance from council headquarters

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• Problems facing implementation of Formula
  based System
• Financing of holding harmless
• Cost of holding harmless Shs.18.44 billion (14.65
  billion for Education and Shs.3.79 billion for
  Health)
• Continued disaggregation of grants into PE OC

10

• Eligibility for greater Autonomy
• All councils were assessed and went through
  following three steps
• Councils accounts not awarded adverse opinion
  audit report
• Council has substantial own source revenue
• Council operating good financial management
  systems
• Some 11 councils picked for greater financial
  autonomy

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• Division of Resources between Central and
  Local Government
• Should be guided by expenditure responsibilities
• Central Government responsible for development of
  policies, research, professional development,
  quality control and setting standards
• LGAs lead other agents in implementation
• Steps being taken to rationalize sources of
  public revenues

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• Planning and Budgeting
• Local government system and laws call for
  bottom-up planning
• Participatory planning and budgeting emphasized
  as part of the reform of local government
• People at local level are given the chance of
  identifying their problems, prioritizing them and
  looking for solutions to bring about own
  development
• Financial regulations for block grants management
  require councils to allocate annual budget to
  each service outlet

13

• Capacity Building in Financial Management
• Councils can only justify their existence by
  improving on service delivery
• This can happen with better management of
  finances
• So ZRTs are providing inhouse training to address
  weaknesses in financial management
• Introduction of Epicor-based system in 32
  councils (including 14 urban councils)

14

• Urban Councils Budgets
• LGAs budgets are prepared in the context of
  Central Government process of planning and
  budgeting
• Plans and budgets of LGAs reflect policies
  pursued by Central Government
• Plans and budgets are made under the law and
  attendant regulations
• They should be developed on a bottom-up
  participatory approach for full ownership

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• Process of Budget Formulation
• Budget preparation starts with issuance of annual
  budget guidelines around December
• The guidelines recap the sector policies and
  areas to be given priority in allocation of
  resources
• Currently priority sectors are education, health,
  water, roads, agriculture and lands
• Ministry responsible for local government clarify
  issues that are relevant to LGAs

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• Process of Budget Formulation (Cont)
• Important information contained in guidelines
  includes levels of funding to enable councils to
  plan ahead and realistically
• Use of GFS codes links Central and Local
  Government budget preparation and execution
• It engenders uniform application and reporting
  and makes consolidation of budgets and reports of
  various levels
• Primary education sub-sector claims 70 of the
  grants while 18 of the grants goes to the health
  sector

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• Local Government Budget
• Ownership of the plans is entrenched in the
  people by use of the Opportunities and Obstacles
  to Development (O and OD)
• Technical input to the planning process begins at
  ward level
• So output of the Ward Development Committee
  begins to assume the required format
• This calls for provision of indicative planning
  levels of funding to wards

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• Local Government Budget (Cont)
• It is not always possible to do this with regard
  to grant funds
• Integrated draft council plans and budgets
  submitted to Regional Secretariats (RS)
• Comments and advice of RS incorporated and draft
  budget submitted to Finance Committee and thence
  to Full Council for approval

19

• Budget Execution and Monitoring
• Approved budget is part of the law
• Monthly reports on revenue collection and
  expenditure and bank reconciliation statements
  submitted to Finance Committee
• Quarterly reports submitted to Full Council and
  copies sent to RS for verification and
  consolidation
• Council management responds to questions and
  queries raised at various levels
• Internal audit checks on soundness of the
  financial and accounting system and on the
  execution of the budget

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• Budget Execution and Monitoring (Cont..)
• External audit checks on proper accounting for
  funds collected and received and the use to which
  they are put
• LAAC discusses auditors findings and
  observations and gives instructions for
  improvement of financial performance
• LAACs instructions are binding on the council
  hence it is an effective monitoring instrument

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• Challenges in Budget Execution
• Budget not yet accepted as an instrument for
  guiding and controlling activities of the council
• Poor quality and delayed reporting
• Unpredictable flow of funds from own sources
• Non adherence to rules and regulations
• Inadequate or lack of qualified staff

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• Addressing Challenges
• These challenges are being addressed under LGRPs
  relevant components of Good Governance, Finance
  and HRD
• Good Governance focuses on enhancing financial
  accountability and transparency, training of
  Councillors, codes of conduct and reporting
  upwards and downwards

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• Addressing Challenges (Cont...)
• Financial management focuses on inhouse training,
  and use of Epicor-based system in financial
  management and introduction of formula-based
  grant allocation system
• HRD focuses of restructuring to identify core and
  non core functions leading to establishing number
  and quality of staff required

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• Need for Capacity Building
• Capacity building needs fall under training and
  provision of equipment
• Capacity building also required at Central
  Government level in order to adequately support
  and facilitate LGAs in performing fiscal
  responsibilities

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• Conclusion
• The country is on right track to fiscal
  decentralization
• There is adequate superstructure for proper
  budget execution and fiscal reporting by LGAs
• Councils need to justify their legitimacy and
  existence through good governance including
  improved delivery of services to the people and
  enhanced accountability and transparency