High Level Debate on Israeli Municipalities Reveals Inefficiencies

Following the publication of the book entitled The Political Economics of the Municipalities by Prof. Avi Ben-Bassat and Dr. Momi Dahan, an open forum was held on October 14th  at the IDI George Shultz Roundtable to discuss the issues raised in their research and the reforms they propose.

The following key points were made by the forum participants, a prominent group of scholars and public officials, including Interior Minister Eli Yishai:

Concerning a bill planned for the coming Knesset winter session, Minister Yishai stated: “We have initiated a program to reform the planning processes. This is no secret; it started with the reform in the Israel Lands Administration. If we promote the planning reform in a proper manner, then for every subcommittee that receives powers, the district superintendent – the regulatory agent – will examine the committee’s performance, and if needed, there will be an urban buildup subcommittee, which will be appointed by the government. All the mayors will then want to receive powers, and if we want to transfer the district committee’s powers to the municipalities, there can be no mistakes."

Minister Yishai also addressed the issue of foreign workers: "I have nothing against the foreign workers’ children, only against their parents. We cannot ignore the matter of the foreign workers. Fifty can enter through Sinai every day; at this rate, Arad will collapse, irrespective of an appointed committee, grants, or other types of support. These are not refugees. Of the entire 10,000, perhaps 20-30 are refugees. The infiltrators are not refugees. A negligible percentage of them are refugees. We absorb more refugees than any other state in our region. There are hundreds of thousands of illegal foreign workers here… who enter through Sinai... like the Wise Men of Chelm. Everyone is familiar with this phenomenon. The government intends to forcibly address this problem, including by building fences in the southern region. I am returning these workers to their countries – let them go back where they came from. Some will return voluntarily, if there is an effective enforcement policy. We should reduce the number of illegal foreign workers, as well as the legal ones.”

Important points made by Interior Minister Eli Yishai:

• The district superintendent will be the regulatory agent of the local planning and building committees. If the committees fail to function properly, supervisory committees will be appointed over them.
• On the matter of the foreign workers: “I have nothing against the foreign workers’ children, only against their parents"

Dr. Momi Dahan made the following remarks regarding the level of municipal tax collection: Collecting municipal property tax in all sectors is not necessarily related to the locality’s economic level. “What distinguishes the councils is the quality of management.” In the past decade, there has been a very significant increase in the number of specially appointed committees in local councils – officials who were not elected by the public manage the locality. This attests to a very severe municipal crisis in some localities. It should be noted that the number of Arab authorities that fail to collect taxes is disproportionately large, and this greatly increases the crisis.”

Dr. Momi Dahan:

"The first cause is the municipalities and the degree of political factionalism within them. The book demonstrates that the number of factions that participated in the elections and were elected is very large, and this promotes a very high degree of “political factionalism” in relatively small localities. He said that this was not always so in the past. “The greater the political factionalism, the larger the size of the debt as compared to localities that are less divided.

"The second cause – the weakness of the professional echelon as opposed to the political echelon. Mayors are often willing to promote their personal interests at the expense of the residents, and this is possible when the professional echelon is relatively weak. “The weakness of the professional echelon is also reflected in the ongoing deficits and in the collection rates of municipal property taxes.” The level of collecting municipal property taxes in all sectors is not necessarily related to the locality’s economic level. “What distinguishes the councils is the quality of management.

"The third cause – “the residents' wealth. We are in for a surprise – what we found here was the following phenomenon: In very weak localities, the debt is relatively small, as it is in very strong localities. The localities in the medium range are more vulnerable to the crisis.

"The fourth cause – government responsibility. The government plays a very important role in the municipal administration. The government hands over activities to the local authorities that are not necessarily fully funded. Without the balancing grant, a situation will be created in which it will be very difficult for weaker municipalities to provide education and welfare services. “We see a problem in the size of the balancing grant – for example, in the field of education, we see very great disparities in the provision of education services. A partial explanation for these considerable disparities in the ability of weaker authorities to provide education services is related to the fact that the balancing grants are below the desired level.”

Prof. Avi Ben-Bassat: “Some problems originate in the government, because the budgeting process is not based on fiscal considerations; instead, a budget is calculated in hours per pupil. In affluent localities, the value of each hour is higher since the teachers in these districts make higher salaries. For years, we have been saying that the budget should be calculated by shekels per child, not by hours per child… I don’t think that we can create total equality; wealthy municipalities say that their residents are wealthy and wish to provide more education to their children, for example. In the end, very great disparities are created, which can be balanced through government expenditure on education and balancing grants.”

Dr. Momi Dahan: "The balancing grant is about 20 percent lower than the amount recommended by the committee that determines the size of the grants. In practice, the Ministry of Finance also understands that the balancing grant is low, and that the weaker municipalities are under-budgeted, which affects their ability to provide education and welfare services. The balancing grants have dramatically dropped in the past years and it is mainly the weaker municipalities that have suffered. This cutback is responsible for the crisis that some of the municipalities are facing, and has given rise to specially appointed committees, thereby effectively creating an economic and democratic crisis.

Another phenomenon in the planning and implementation of the state budget that I would like to point out is the failure of a budget that is allocated to a specific municipality to reach its destination."

Dr. Momi Dahan: “To examine the electoral system in the municipalities with the express goal of rectifying the party factionalism, we propose canceling the two-ballot vote in such a way that the mayor will be the leader of the largest faction.”

Unifying municipalities: We present a number of interesting findings in the book. We discovered that population size is not a significant factor in the probability of a crisis. We found that the level of debt does not vary in relation to the size of the municipality’s population – despite economies of scale. One of the reasons for this is the balancing grants, which “reward” small localities. On one hand, the government works to unify municipalities; on the other hand, it provides an incentive to small localities.

“The smaller the locality, the more you lose in terms of efficiency, but the more you gain in terms of representativeness – in a small locality, representativeness is greater. In small localities of up to 10,000 residents, voter turnout is about 80%. As the size of the locality rises, voter turnout drops – this is another indication of representativeness.”

We recommend leaving the decision of the unification of municipalities to the residents of the localities in question, and canceling the factor of size in the balancing grant formula in order to give greater weight to the locality’s socio-economic level.

For more information on The Political Economics of the Municipalities, click here.