Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.
According to Article 55(1) of the Local Councils Act, each year the Minister of Finance allocates a provision under the Appropriation Act which serves for the exercise of the functions of the Councils. The amount appropriated has to be allocated by the Minister responsible for Local Government to each Council on the basis of the formula determined in the Eighth Schedule to the Local Councils Act. These allocations are made available to the local councils by the Minister after a written request by the executive secretary.
According to the Eighth Schedule of the Local Councils Act, the financial allocation to local councils covers landscaping and maintenance of parks and gardens, roads maintenance and roads fixtures, waste management and administration. A grant is allocated to each of the aforesaid categories and then it is distributed to local councils on the basis of the formula provided under the Eighth Schedule of the Local Councils Act. The amount of the grant allocated to each local council constitutes a proportion of the total grant allocated to all local councils for the said category, which is equal to the area in the said locality covered by the establishments for which the grant is given, divided by the total area of such establishments in Malta.
For example, the grant given to each local council for landscaping and maintenance of parks and gardens equals to the area covered by parks, gardens, soft areas and verges in each locality in proportion to the total area of parks, gardens, soft areas and verges of all the localities in Malta, multiplied by the total apportionment allocated by government for the maintenance of parks, gardens, soft areas and verges.
Apart from the annual grant, the central government may allocate or provide for additional grants by way of special funds, schemes to raise additional funds and supplementary funds.
According to Article 58 of the Local Councils Act, the Minister responsible for Local Government may, after the approval of the Minister of Finance, establish special funds and make such funds available to local councils. These funds are distributed by means of regulations made by the Minister.
Furthermore, according to Article 60 of the Local Councils Act, each local council has the power to raise funds by means of any scheme designed to provide additional funds to those allocated to it under Article 55 of the same Act.
During the consultation process, the Ministry of Justice, Culture and Local Government highlighted a total increase in €3.956 million in financial allocation to local councils in 2017 compared to the previous year (€2 million in direct funds to be distributed in terms of the Funding Formula in the Eighth Schedule of Local Councils Act and €1.956 million for special initiatives).
Nevertheless, by virtue of Article 61, the Local Councils Act expressly prohibits the local councils from authorising any works, the value of which exceeds the annual provision allotted to it for that financial year taking into consideration the amount forecast for payment of acts of ordinary administration, except upon obtaining the approval of the Minister responsible for Local Government and the Minister of Finance after a written request by the executive secretary indicating the amount of net surplus funds resulting from previous years. If the amount appropriated by the local council under the Appropriation Act is deemed insufficient, the Minister of Finance and the Minister responsible for Local Government may approve the grant of a supplementary sum to the local council.
Moreover, the local councils do not have the power to hold or invest in commercial undertakings any money received by way of grant by the central government without the written approval of the Minister responsible for Local Government.
According to Article 55(3) of the Local Councils Act, in allocating the appropriate amount to a Local Council, the Minister may retain any portion of such amount if he/she deems it to be necessary to either ensure redress of any negative balance, the production of copies of minutes of the Local Council and the Finance Committee within 3 (three) working days after their approval, the production of copies of any financial statement or document the submission of which is determined by the Act and the production at all times of the documents that may be demanded under the Act, or the payment by the local councils of any penalties imposed for failure to submit the financial declarations or other documents to the central government promptly. Such an amount may not exceed 1% of the financial allocation at any given year.
Furthermore, under Article 55(3) of the Local Councils Act the Ministry of Finance may allocate a fund each year to compensate for the co-financing of European Union projects.
The expenditure of each local council is monitored and controlled by the central government through the provision of annual budgets. According to Article 56(1) of the Local Councils Act, each local council shall no later than 2 (two) months after its first election and, subsequently once during the month of January in each financial year or within 15 days from the date the council is notified of its allocation whichever is the later cause to be submitted to it estimates of the income and expenditure of the council during the following financial year. Prior to their transmission to the central government, these estimates are approved by each local council and then they are forwarded to the Minister responsible for Local Government within the time limits specified under the Act.
Donations of any kind to local councils are prohibited by the Act under Article 63A of the Local Councils Act.
For the purposes of acquiring additional funding, the ability of local councils to borrow capital from non-governmental actors is limited. According to Article 3(2)(a) of the Local Councils Act, local councils do not have the power to borrow or lend any monies except with the authority of the Minister responsible for Local Government in writing, with the concurrence of the Minister of Finance. In the event that the loan proposed to be undertaken for the finance of a project is repayable within a period longer than 8 (eight) years, such a proposal has to be submitted to the residents of the locality for approval in a referendum pursuant to Article 3, paragraph 6 of the Charter. Article 63 of the Local Councils Act prohibits local councils from investing in any commercial undertakings unless authorized to do so in writing by the Minister responsible for Local Government and according to Article 61 of the same Act, the local councils cannot authorize any works the value of which exceeds the annual provision allocated to it for that financial year taking into consideration the amount forecast for payment of acts of ordinary administration.
As it is evident from the above, the provisions of the Local Councils Act dealing with the allocation of government grants to local councils are extensive and quite restrictive to local councils. The local councils are entirely financially dependent on the central government grants allocated to them annually and any supplementary or special funds are only provided to the local councils upon the written authorisation and approval of the central government through the Minister responsible for Local Government and the Minister of Finance.
During the consultation process, the Ombudsman stressed to the rapporteurs that the funds allocated by the central government to the local councils were inadequate and as a consequence the councils experienced financial difficulties preventing them from effectively performing and accomplishing their functions under the Local Councils Act. For instance, the Office of Ombudsman repeatedly received complaints against local councils from individuals seeking to recover the costs of repairing damage caused to vehicles as a result of bad maintenance of the roads which falls within the responsibility of the local councils. According to Ombudsman maintenance of the roads, streets, pavements and passageways in proper conditions can only be achieved if the councils, that are not economically independent and depend on the grant annually allocated to them by the central government, receive sufficient funds to, inter alia, implement roadwork projects for the benefit of the residents and visitors.
It is worth noting that there is no provision in the Act allowing local councils to raise money through taxes, contrary to Article 9, paragraph 3 of the Charter, which has not yet been ratified by the Republic of Malta. This maintains the financial dependence of local councils on the central government and prevents the local councils from regulating their affairs independently, contrary to the pursuit of the Charter for the creation of self-governed local authorities. Without financial independence to determine their expenditure and raise revenues through local taxes, Local Councils may not be considered entirely self-governed.
Furthermore, the grants allocated to local councils are provided to them for specific purposes only, as the categories mentioned above indicate, being in this way earmarked for specific purposes. This is inter-connected with the restrictive but detailed list of functions provided to the local councils under the Article 33 of the Local Councils Act. Consequently, it may be argued that the local councils are not able to dispose of their financial resources freely. Instead, the grants provided to them are directed towards covering specific categories of expenditure and the local councils do not have the ability or financial capacity to engage in the execution of non-mandatory tasks.
As to the adequacy of the grants allocated to them, one has to examine the size of the sums provided to local councils. The statistics mentioned above indicate that the size of the local councils’ resources have been kept at the same level for years and the expenditure on local councils as a proportion of the total annual government expenditure is miniscule, being approximately 1%. Nevertheless, this may be incidental and inter-connected with the fact that the Legislature has not provided a wide array of functions and responsibilities to the local councils. Since the functions of the local councils are limited and the expenditure of the local councils are pre-estimated through the annual budgets, approved by the House of Representatives and executed by the central government by way of allocation of grants, the maintenance of the said grants in low levels does not seem to come as a surprise.
In the event that local councils wish to embark in new projects or extend their expenditure in ways which are inconsistent within the narrow ambit of the Local Councils Act, they have to request additional funding, either by the central government directly or by obtaining a loan upon securing the consent of the central government. Such a task is reserved for the central government. Furthermore, during the monitoring visit the delegation was informed that obtaining additional funds for the execution of tasks not included under the Local Councils Act or the execution of infrastructure projects or even for the more effective performance of the local councils’ responsibilities is by no means an easy task and such a process is time consuming. Furthermore, the restrictive list of functions provided under the Local Councils Act does not leave much room to local councils to engage in larger and costlier projects for the benefit of the citizens.
The delegation was informed that local councils experience financial difficulties which prevent them from performing their functions fully and effectively. It was emphasized to the delegation that the amount of the grant allocated to local councils every year is inadequate. Taking into consideration that local councils have no tax-collecting capacity and that their remaining income and monetary resources are severely limited, it is evident that the local councils experience considerable difficulty in executing their functions.
Apart from the above, consideration has to be given to the fact that part of the financial resources allocated to some local councils are used by Communities, established and operating within some of the localities, hence limiting the available sum of the grant allocated to each of these local councils.
In light of the above, the Republic of Malta is in violation of Article 9, paragraph 1 of the Charter, since the grants allocated to local councils for the execution of their functions are inadequate and they are unable to perform their functions effectively or at all, by reason of lack of economic resources.