THE PROBLEMS AND PROSPECTS OF REVENUE GENERATION IN NIGERIAN LOCAL GOVERNMENT SYSTEM: A STUDY OF NJIKOKA LOCAL GOVERNMENT AREA,

Transcription

1 THE PROBLEMS AND PROSPECTS OF REVENUE GENERATION IN NIGERIAN LOCAL GOVERNMENT SYSTEM: A STUDY OF NJIKOKA LOCAL GOVERNMENT AREA, By IFEAYEKWU, FRANCIS C. PG/M.Sc./12/64447 A PROJECT REPORT SUBMITTED TO THE DEPARTMENT OF POLITICAL SCIENCE, UNIVERSITY OF NIGERIA, NSUKKA IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER OF SCIENCE (M.Sc.) IN POLITICAL SCIENCE (PUBLIC ADMINISTRATION) i

2 Title THE PROBLEMS AND PROSPECTS OF REVENUE GENERATION IN NIGERIAN LOCAL GOVERNMENT SYSTEM: A STUDY OF NJIKOKA LOCAL GOVERNMENT AREA, By IFEAYEKWU, FRANCIS C. PG/M.Sc./12/64447 ii

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4 Approval Ifeayekwu, Frances C., a Postgraduate Student in the Department of Political Science, University of Nigeria, Nsukka with Registration Number: PG/M.Sc./12/64447 has satisfactorily completed his research requirements for the award of Master of Science (M.Sc.) in Political Science (Public Administration). The work embodied in this dissertation is original and has not been submitted in part or full to this or any other university, to the best of our knowledge Dr. Herbert C. Edeh Professor Jonah Onuoha Supervisor Head of Department External Examiner Professor C. O. T. Ugwu Dean, Faculty of the Social Sciences iv

5 DEDICATION This research work is dedicated to the memory of my late father: Mr. Benedith Ifeayekwu. And To my uncle, late chief Francis Melugbo for their invaluable assistance in my academic career. v

6 ACKNOWLEDGMENTS It is my wish to utilize this space sincerely to acknowledge all the individual who, in one way or the order, contributed to the success of this work. Specifically, I must express my indebtedness to my supervisor, Dr. I. M. Abada whose supervisory roles are decisive and critically functional to be accomplishment of this work. Really, words are semantically inadequate to express my gratitude. In the same vein, I must express my appreciation to all the lecturers in the Department of Political Sciences, especially the current Head of the Department, Prof. Onuoha Jonah, for their immense contributions towards my intellectual development, Prof., it shall be well with you. My unwavering gratitude goes to all officials of Nigerian local government council, particularly those who patiently provided me with the necessary data for the accomplishment of this research work. Their willing disposition is a reflection of their enthusiasm in their pioneering work to make the local government of a model. Also, my thanks go to staff of Nnamdi Azikiwe library, University of Nigeria, for the assistance they rendered to me. In a special way, I must express my indebtedness to the following individuals for using their works in this project: Prof. Ezeani E. O., Prof. Okoli F. C. and others whose works contributed immensely to the successful completion of this work. Finally, I want to appreciate implicitly, my mother for all her cares, love and innumerable encouragement. Mummy, you shall live long to rap the fruits of your labour. Chief Francis Melugbo, though late, your efforts in assisting me in the university can never be in vain. May your sour rest in the bosom of the Lord, Amen. vi

7 Abstract Local governments in Nigeria are faced with many difficulties in generating adequate finance to perform their constitutional responsibilities; such problems are a cog in the wheel to the smooth running of local government administration. These challenges include dishonesty on the part of officer collecting the revenues, such as cases of printing receipts by the officers. This development has hampered the operations of Njikoka local government area of Anambra state. This study therefore examines problems and prospects of revenue generation in Nigerian local government system, with focus on Njikoka local government area of Anambra state. The study is a qualitative descriptive analysis, while data collection was effected through the secondary sources. Systems theory served as theoretical framework of analysis. The findings reveal that despite external and internal sources of revenue to Njikoka local government, corruption and poor governance, public cynicism, lack of qualified revenue collectors and lack of financial autonomy undermine revenue collection. It also demonstrates enlightenment and motivation of revenue collectors are measures to enhance the prospects of revenue collection in the local government. It therefore recommends honest and credible leadership as a panacea for revenue shortfalls in Njikoka local government. vii

8 TABLE OF CONTENTS Title page i Approval page ii Dedication iii Acknowledgement iv Abstract v Table of Contents vi List of Tables vii CHAPTER ONE: Introduction 1.1 Background of the Study Statement of the Problem Objectives of the Study Significance of the Study CHAPTER TWO: Literature Review 2.1 The Concept of Local Government Role of Local Governments Problems of Local Government Revenue Generation Gaps in Literature CHAPTER THREE: Methodology 3.1 Theoretical Framework Hypotheses Methods of Data Collection Methods of Data Analysis CHAPTER FOUR: Background and Sources of Revenue in Njikoka Local Government 4.1 Historical Development of Njikoka Local Government Organizational Structure of Njikoka Local Government Administration 51 viii

9 4.3 Functions of Njikoka Local Government Sources of Revenue to Njikoka Local Government 61 CHAPTER FIVE: Problems and Prospects of Revenue Generation in Njikoka Local Government 5.1 Problems of Revenue Generation in Njikoka Corruption and Poor Governance Lack of Well Trained Personnel Lack of Financial Autonomy Poor Transportation and Communication Lack of transparency and public cynicism Prospects of Revenue Generation in Njikoka LG Good Governances Recruitment of Trained Revenue Collection Personnel Adequate Enlightenment of the General Public Motivation of Revenue Collectors Punishment of Dishonest Revenue Collection Personnel CHAPTER SIX: Summary, Conclusion and Recommendations 6.1 Summary Conclusion Recommendation Bibliography ix

10 LISTS OF TABLES Table 3: Table Tenement Rates in Njikoka in LGA.. 64 Table 4: Slaughter Schedule Table 5: Entertainment Rate Table 6: Liquor Licensing Fee. 67 Table 7: Market and Allied Maters Fees x

11 Chapter one Introduction 1.1 Background of the Study as government is the means by which the common problems and needs of a community constituting a country are economically catered for, so also local community revolves jointly those common problems and needs, which could have been difficulty to solve individually, (Olaoye et al, 2009:12) Nigeria as a sovereign nation operates a federal system of government, that is, the federal government, state government and the local government councils. Onwo (1992) Observed that each level of the three tiers of government derive its powers not from the magnanimity of the central government but from the constitution; each level of government has defined responsibilities assigned to it by the constitution. The implication of this is that the three segments of governments are mutually interrelated in a unified effort to make life worth while for the masses. Local governments operate at the grassroots and are expected to provide services to their stakeholders. In a federal system like Nigeria, local governments are close to the people and hence could effectively alter socioeconomic and political conditions within their jurisdictions. Apart from providing and maintaining basic infrastructures, local governments can complement the economic activities of other levels of government. This of course depends on the availability and proper utilization of funds. 1

12 Revenue generation is therefore an important issue for Local Government Councils. It is through this activity that the Councils source the finance for funding their operations, thus to a large extent, determining the quantity and quality of services provided to the generality of people within their domain. These reasons, coupled with the fact that Local Governments are engines of growth and development, make imperative the need for Local Governments to map out strategies for improved revenue generation, emphasising especially the internal sources which are more flexible, and could be in the total control of the Local Governments. Local governments in Nigeria are created to bring governance closer to the people at the grass-root level and promote political participation. It is the closest tier of government to the people in Nigeria, yet the resident population in it is denied the benefits of its existence. This is evident in the environmental state, deteriorating public school buildings, poor market facilities and lack of health centers as well as access roads and drainages. According to Olusola (2011), the failure of the Local governments in the area of service delivery has made the citizens to lose trust in government as an institution. In some areas, council officials are better known for the harassment of citizens than service delivery (Shar, 2007). This is basically due to the difficult in generating revenue for its operations, as well as fulfilling its constitutional responsibilities. As a result of this development, many Nigerians crave for change in the local government system as presently constituted in order not only to bring it in conformity with present day realities but also to make it live up to the 2

13 expectations of the people who have been yearning for development and a sense of belonging. In order to fulfill these important constitutional responsibilities, local governments require huge sums of money, which is usually difficult to generate. The primary source of local government sustenance is from Federal Allocation. It is the livewire of a local government. Sections 7 and 8 of the 1999 Constitution of the Federal Republic of Nigeria provide for the existence of an autonomous and democratic local government. It also outlined the sources of local government revenue to include rates, statutory allocations, fines, earnings and profits, fees and charges, grants, loans and other miscellaneous sources. The extent to which a local government can go in accomplishing its goal largely depends on its revenue strength. The capacity of local government to generate revenue internally is one very crucial consideration for the creation of a local council. Despite these considerations, the local governments still encounter mirage of difficulties in generating revenue. Local government administrations in the country experienced fundamental changes in The 1976 local government reform created for the first time, a single-tier structure of local government in place of the different structure in the various states. The 1976 reform is of great importance because it hinges on restructuring of the financial system of local governments in Nigeria. The reforms instituted statutory allocation of revenue from the federation accounts with the intention of giving local government fixed proportions of both the federation account 3

14 and states revenue. This allocation to local government became mandatory and was entrenched in the recommendations of the Aboyade Revenue Commissions of The 1979 constitution empowered the national Assembly to determine what proportion of the federation account and revenue from a state to allocate its local governments. Njikoka local government area of Anambra state is one of these councils created for the development of the local communities and improvement in the living condition of its people. It is one of the twenty-one (21) local government areas in Anambra state and 774 in Nigeria. It is one of the oldest local government councils in Anambra state, having evolved from Njikoka County in 1930 to to Njikoka local government in Its headquarters is situated in Abagana. According to the 2006 population and housing Census, Njikoka has a population of 750,327 and a landmass of 225 kilometers. The problem of inadequate funding have led Njikoka local government into a vicious circle of poverty, resulting to inadequate functions and powers, which ultimately lead to in the employment of low skilled and poorly paid staff. 1.2 Statement of the Problem The essence of reforming local government system in Nigeria is to bring about stable increases in income, productivity, diversification of its economy and general quality of lives in the rural areas. But the ability of the local governments in Nigeria to accomplish these tasks depends on their financial endowments. 4

15 Therefore, finance is the bedrock of any organization, including the local government system. It is generally agreed that functionality of local government, the level at which services are rendered, and the quality of services are strongly tied to the financial resources available to it. Local governments in Nigeria are faced with many difficulties in sourcing adequate revenue; such problems are cogwheel to the smooth running of the local government system. With the local government reform of 1976, local governments in Nigeria became recognized as the third tier of government, vested with the statutory powers to discharge the duties and responsibilities of government. To achieve this, no doubt, efficient and effective revenue generation and management becomes germane. The revenue issues, particularly the problem of generation are well documented. However, there have been a tendency, conscious or unconsciously, to over generalize the problems of local governments. Though the empirical fact from extant literature revealed the problems of some local governments in the country, the experience of Njikoka local government seems to have been ignored in that respect. This, therefore, necessitates a study of this nature to investigate if Njikoka local government is faced with enormous abnormalities occasioned by revenue collectors, issues of financial autonomy, poor governance and unwillingness by higher levels of government to release resources to the local government in revenue generation. Based on the above recognized problems in the extant literature, the study raised the following questions to fill the gap in the literature: 5

16 1. Has the absence of well trained revenue collectors constitute revenue generation problem in Njikoka LGA? 2. Does lack of transparency by revenue collectors impede revenue generation in Njikoka local government? 3. Has poor governance and lack of financial autonomy contributed to the problems of revenue generation in Njikoka LGA? 1.3 Objectives of the Study The broad objective of the study is to determine the problems and prospects of revenue generation in Nigerian local government system, with focus on Njikoka local government area of Anambra state between 1999 and However, the specific objectives are: 1. To determine if the absence of well trained revenue collectors constitute revenue generation problem in Njikoka LGA; 2. To ascertain if lack of transparency by revenue collectors impede revenue generation in Njikoka local government; 3. To examine how poor governance and lack of financial autonomy contributes to the problems of revenue generation in Njikoka LGA. 1.4 Significance of the Study The study has theoretical and practical significance. Theoretically, it will determine the problems and prospects of revenue generation in Nigerian local government system, particularly in Njikoka local government between 1999 and 6

17 2012. This is more so considering the debate the issue of local government revenue has generated since the return of democracy to Nigeria in It will also contribute to the noble goal of making local governments in Nigeria more effective. More so, this study is expected to add to the body of literature on local government and stipulate further research in this direction. The constant need to improve governance in Nigeria, particularly the local governments, makes the contributions of this work invaluable as reference for further research in local governments in Nigeria. Practically, the findings of this research will assist policy makers and local government administrators in making local governments in Nigeria more financially viable and efficient in service delivery. It will also go a long way in making local governments in the country more viable, efficient, effective and self-reliant as the finding will bring to the fore issues that have undermined the revenue generation mechanisms of the local government system. It will therefore serve as a guide to local government administrators. 7

18 Chapter Two Literature Review Successful research depends on a well-planned and thorough review of the relevant literature available and such a review usually entails obtaining useful references or sources. Literature is reviewed for the following reasons: to obtain perspective on the most recent research findings related to the topic of the search; to obtain an indication of the best methods, instruments for measurement, and static, which can be used; to improve the interpretation of one s own research results; and to help determine the actuality of research on a particular topic. The purpose of this review is to interrogate the problems and prospects ofrevenue generation in Nigerian local government system, with focus on Njikoka local government area of Anambra state between 1999 and The Concept of Local government The concept of local government as observed by Dumadu (2008) involves a philosophical commitment to democratic participation in the governing process at the grassroots level. This implies legal and administrative decentralization of authority, power and personnel by a higher level of government to a community with a will of its own, performing specific functions as within the wider national framework. There are various definitions of local government by scholars and practitioner or administrators alike observed Ezeani (2006). A local government according to Agagu (1997) is a government at the grassroots level of administration meant for meeting peculiar grassroots need of the people. Appadorai (1975) defined it as a 8

19 government y the popular elected bodies charged with administrative and executive duties in matters concerning the inhabitants of a particular district or place. Lawal (2000) also defined local government as that tier of government closest to the people, which is vested with certain powers to exercise control over the affairs of the people in its domain. Olisa et al (1990) defined local government as a unit of government below the central, regional or state government established by law to exercise political authority through a representative council within a defined area. The United Nations Office for Public Administration (1976) defines local government as:.a political sub-division of a nation or (in a federal system) state, which is constituted by law and has substantial control of local affairs, including the powers to impose taxes or to exert labour for prescribed purpose. The governing body of such an entity is elected or otherwise locally selected. The guidelines for a reform of local government in Nigeria define local government as: Government at the local level exercised through representative council established by law to exercise specific powers within defined areas. These powers should give the council substantial control over local affairs, as well as the staff and institutional and financial powers to initiate and direct the provision of services and to determine and implement projects, so as to complement the activities of he sat and federal government in their areas, and to ensure, through active participation of the people and their traditional institutions, that local initiatives and response to local needs are maximized. Historically, Nwabueze (1982) upheld that regardless of nomenclature, local government is a creation of British colonial rule in Nigeria. it has overtime 9

20 experienced change in name, structure and composition. Between 1930s and 1940s, for instance, local government was known as chief-in-council and chief-andcouncil, where traditional rulers were given pride of place in the scheme of things. In the 1950s, election was introduced according to the British model in the western and eastern parts of the country with some measure of autonomy in personnel, finance and general administration. It was on this premise that the rising tide of progress, growth and development experienced in the local governments in these areas was based. The pace of this development was more noticeable in the south than in the north. During this period, heterogeneity was the hallmark of local government as there was no uniformity in the system and the level of development was also remarkably different. The introduction of 1976 reforms by the military administration of General Obasanjo, says Ajayi (2000), brought about uniformity in the administrative structure of the system. The reforms introduced a multi-purpose single-tier local government system. The 1976 guidelines added that the reforms also introduced population criterion under which a local government could be created. Consequently, a population of within 150,000 was considered feasible for a local government. This was done to avoid the creation of non-viable local council and for easy accessibility. There was also provision for elective positions having the chairman as the executive head of local Government with supervisory councilors constituting the cabinet. This was complemented by the bureaucrats and professionals, such as doctors, Engineers, etc, who were charged with the responsibility of implementing policies. Ajayi (2000) further upheld that in 1991, a major landmark reform was introduced as the system had legislative arm. In 10

21 addition, the Babangida administration increased the number of local government from 301 in 1976 to 453 in 1989 and 589 in The Abacha regime also increased the number to 774 local councils that we have today and the administrative structure also underwent some changes. Since the 1976 Local Government Reforms that were undertaken to strengthen the local system in Nigeria, several challenges have cropped up, over the years, to impede the performance of local government councils in the discharge of their constitutionally assigned responsibilities. One of such challenges is the dwindling revenue base of local government councils. This academic discourse has become imperative in view of the fact that in recent time, since 1976, the role of the local governments as a veritable instrument for rapid development of rural, and even the urban areas have taken a central stage albeit without a corresponding access to prerequisite financial resources to meet this expectation. Interestingly, the sources of funds for this tier of administrative authority have continued to dwindle over the years with the ascendancy of both the central and state as the key actors in the Nigerian political economy. The local government is relegated to the backstage. Adedokun (2012:34), clearly made this situation explicit by observing that: [T]he federal structure of Nigeria constraints local government s ability to mobilize and use revenue to meet their obligation in a sustainable manner. Adedokun notes further that one of the recurrent problems of the three-tier system in the country is the dwindling revenue generation as characterized by annual deficits and insufficient funds for meaningful growth and viable project development. Local governments are 11

22 the nearest government to the people at the grassroots in Nigeria; they are strategically located to play a pivotal role in national development (Adedokun, 2012). Therefore, it behooves the students, scholars and other stakeholders of public administration to tarry, and ponder on how this meager financial resource could be properly and effectively harnessed in order to enable local governments implement their constitutionally assigned functions and responsibilities. Local governments in Nigeria are created to bring governance closer to the people at the grass-root level and promote political participation. It is the closest institution of government to the people in Nigeria, yet the resident population in it is denied the benefits of its existence. This is evident in the environmental state, deteriorating public school buildings, poor market facilities and lack of health centers as well as access roads and poor drainages. According to Ojo (2009) local governments have performed below expectations as a result of poor management. Undoubtedly, Finance and its prudent management are the bedrock of effective functioning of local government. It is against this backdrop that Tonwe (1995, cited in Ojo 2009: 37) argues that local governments require finance to perform their statutory functions. The ability of the local government to do this is largely dependent on availability of fund, coupled with efficient management which constitutes the required catalyst necessary for timely execution and completion of their development projects. Tonwe (1995), however expresses some reservations. For instance, he notes: in recent time, lack of funds has often been attributed as the major problem which had hindered effective and 12

23 successful execution and completion of many projects at the local government level. However, experience has shown the contrary that poor finance management, rather inadequate finance is the bane of local governments inability to achieve substantial development in their domain (1995, Cited I Ojo, 2009: 37). Local government is a government at the grassroots level. According to Ojofeitimi, the word local connotes that councils are meant for small communities and the word government means that they have certain attributes of government. Thus, local government can therefore be defined as a political sub-division of a nation (or in a federal system, a state) which is constituted by law and has substantial control of local affairs including the power to impose taxes or to demand labour for prescribed purposes (Ojofeitimi, 2000: cited in Ojo, 2009: 37). Local government is a sub-governmental organ or body created by the central government or Act of Parliament to be in charge of political administration of a locality or a local unit in a state. The United Nations Department of Public Administration (1961:11) defines local government as...a political subdivision of a nation (in a federal system, a state) which is constituted by law and has substantial control of local affairs, including the powers to impose taxes or to exact labour for prescribed purposes. The governing body of such an entity is elected or otherwise locally selected. Local administration in Nigeria can be traced to the colonial period. Available record shows that the first local administration ordinance was the Native Administration Ordinance No. 4 of 1916 which was designed to evolve from Nigeria s old institutions the best suited form of rule based on the people s habits of thought, prestige and custom (Bello-Imam 1990). These local administrations were 13

24 used by the colonial authorities to administer the north, east and western regions. The system of indirect was however, successful in the north which very centralized government and partly successful in the west. However, due to the absence of a centralized system of administration in the eastern region, indirect rule was unsuccessful. Since then, local governments in Nigeria have been reformed on many occasions in order to boost its revenue base and make it more efficient in service delivery. Adedokun (2004) observed that the Macpherson constitution of 1948 initiated some remarkable changes; the regions introduced some reforms in their local administrations in the 1950s which aimed at enhancing performance. Though, the reforms gave local administrations power to collect rates and levy pools and income taxes to finance their activities, the regions had overall control of the taxes. Local administration lacked self-determination, hence their resources were inadequate. Though, the local authorities were partially successfully in the North but unsuccessfully in the Eastern and Western regions. Adedeji (1970) blames the ineffectiveness of local administration on the following reasons; (a) Lack of mission or lack of comprehensive functional role (b) Lack of proper structure (i.e. the role of local governments in the development process was not known). (c) Low quality of staff; and (d) Low funding. 14

25 The local government system in Nigeria has experienced several reforms since the early 1950s. During that period, the system was modernized and constituted on a representative basis. Colonial local administration revolved around traditional rulers, with the unit of local administration referred to as the native authority. Executive authority lay with the district officer. The authorities at that time created administrative organizations that were ad hoc in nature. However, some success of this type of administration was noticeable in the centralized emirates of the former Northern Nigeria. The evolution of local government administration in the country must be seen in the context of regionalism. The old regions of the East, West and North, as a result of different levels of development traversed different paths to strengthen their systems of local administration. An analysis of the evolution of local government administration prior to the major 1976 local government reforms is in NCEMA (1990) and Gboyega (1983). The 1976 reform represented a fundamental change in the development of local government in Nigeria. For the first time, the country was given a common, single-tier structure of local government in place of the different structures of various states. Our interest in the 1976 reform hinges on the restructuring of the financial system. The reforms instituted statutory allocations of revenues from the federation account with the intention of giving local governments fixed proportions of both the federation account and each state s revenue. This mandatory allocation was entrenched in the recommendations of the Aboyade Revenue Commission of

26 The 1979 constitution empowered the National Assembly to determine what proportion of the federation account and a state s revenue should be allocated to local governments. In 1981, the National Assembly fixed these proportions at 10% of the federation account and 10% of the total revenue of the state. In 1985, the States proportion was reduced to 10% of internal revenue. Local governments allocation from the federation account was later amended to 20%. At present, statutory allocation to local governments stands at 25% of the federation account, reflecting the larger development role local governments are expected to play. These changes were due to the 1976 local government reforms, which also stated that the internal revenue sources of local governments would include: Rates, which include property rates, education rates and street lighting Taxes such as community, flat rate and poll tax Fines and fees, which include court fines and fees, motor park fees, forest fees, public advertisement fees, market fees, regulated premises fees, registration of births and deaths and licensing fees Miscellaneous sources such as rents on council estates, royalties, interests on investments and proceeds from commercial activities. This clear delineation of revenue sources was to avoid the usual encroachment on local government sources of revenue by states. 16

27 A number of important factors come clearly from this conception. First, that a local government is a lower level government compared to a national government; second, it is set up by law and has certain responsibilities. It is normally elected. Whalen (1970:312) made some additional contribution when he averred that,...each unit of local government in any system is assumed to possess the following characteristics, a given territory and population, an institutional structure...a separate legal identity, a range of powers and functions authorized by delegation from the appropriate central or intermediate legislature and lastly within the ambit of such delegation, autonomy subject always...to the test of reasonableness. These variables were all captured in the Nigeria s local government reforms of 1976, which define the local government today in Nigeria hence it could be described as a government at the grassroots level established by an act of parliament to perform specific functions within its area of jurisdiction (Agyman, 1999). Ekpo (2003) observed that in Nigeria, local government were created to give self identify and local independence to groups of villagers and to perform localized functions pertinent to their area of jurisdiction. Since the 1976 Reforms local government have been going through considerable changes to enable it deliver effective services to the people at the rural areas within the jurisdiction of the local governments. The 1999 Constitution as amended in the fourth schedule averred that the main functions of the local government councils were as follows; 1. The consideration and the making of recommendations to a state commission on economic planning or any similar body on- 17

28 i) The economic development of the state, particularly in so far as the areas of authority of the council and of the state are affected, and ii) Proposals made by the said commission or body; a) Collection of rates, radio and television licences; b) Establishment and maintenance of cemeteries, burial grounds and homes for the destitute or infirm; c) Licensing of bicycles, trucks (other than mechanically propelled trucks), canoes, wheel barrows and carts; d) Establishment, maintenance and regulation of slaughter houses, slaughter slabs, markets, motor parks and public conveniences; e) Construction and maintenance of roads, streets, street lightings. Drains and other public highways, park, gardens, open spaces, or such public facilities as may be prescribed from time to time by the House of Assembly of a State; f) Naming of roads and streets and numbering of houses; g) Provision and maintenance of public conveniences, sewage and refuse disposal; h) Registration of all births, deaths and marriages; i) Assessment of privately owned houses or tenements for the purpose of levying such rates as may be prescribed by the House of Assembly of a state; and j) Control and regulation of (i) Out-door advertising and hoarding, (ii) Movement and keeping of pets of all description, (iii) Shops and kiosks; 18

29 (iv) Restaurants, bakeries and other places for sale of food to the public (v) Laundries, and (vi) Licensing, regulation and control of the sale of liquor, 1. The functions of a local government council shall include participation of such council in the Government of a state in respects of the following matters (a) the provision and maintenance of primary, adult and vocational education; (b) the development of agriculture and natural resources, other than the exploitation of minerals; (c) the provision and maintenance of health services; and (d) such other functions as may be conferred on a local government council by the House of Assembly of the state (Constitution, 1999). The governing body of local government councils like the state and central governments, are elected for a fixed tenure (in case of Caretaker committees; nominated or/ selected). It is expected that the federal, state and local governments have imbued in them some degree of administrative autonomy. However, in Nigeria, local government autonomy is a myth rather than reality. There are three separate standards to local autonomy the amount of responsibility devolved, the size and elasticity or resources assigned, and the degree of discretion conferred (Ojo, 2009). The question is to what extent have these standards been observed in Nigeria s fiscal federalism since the 1976 local government reform? 19

30 2.2 Role Of Local Governments Local governments in Nigeria have enormous responsibilities to perform. These include the mobilization of local resources, promoting social and economic improvement and development as well as national integration. In addition, they are expected to carry out regional policies with respect to agriculture and selected industries, thereby helping to ameliorate unemployment (Obinna, 1988). Ojo (2009) added that local governments at work also revolve round revenue generation, budgeting, development planning, provision of services and community mobilization. Collection of rates, radio and television licenses; Establishment and maintenance of cemeteries; Licensing of bicycles, trucks (other than mechanically propelled trucks), canoes, wheel barrows and carts; Construction and maintenance of roads, streets, street lights, drains and other public highways; Naming of roads and streets and numbering of houses; Provision and maintenance of public conveniences, sewages and refuse disposal; Registration of all births, deaths and marriages; The provision and maintenance of primary, adult and vocational education; The provision and maintenance of health services amongst others; Formulation of economic planning and development schemes for the local government area; 20

31 Establishment, maintenance and regulation of slaughter houses, slaughter slabs, markets, motor parks and public conveniences; Assessment of privately owned houses or tenements for the purpose of levying such rates as may be prescribes by the Houses of Assembly of a state; Control and regulation of: outdoor advertising and hoarding; movement and keeping of pets of all descriptions; shops and kiosks; cooked food sold to the public; laundries; licensing, regulation and control of the sale of liquor; participation in: provision and maintenance of health services; Any other functions that may be conferred by the state House of assembly. According to Ojo (2009) [T]he above-itemized functions of local government are broad, demanding, critical and crucial for ensuring the overall growth and development of various local areas. These developmental imperatives further reinforce the case for viable and efficient financial management for local governments (Ojo, 2009: 39). 21

32 Ojo (2009) posits that the funds of local government councils are managed by the key officers of respective councils. Financial management has to do with the efficient use of funds. It is a method of showing and ascertaining the financial position of government or business over a period of time. According to him financial management can be perceived to consist of a cycle of activities. The aim of this cycle of activities is to ensure that resources are allocated and monitored in such a manner that they have the greatest beneficial impact on the overall service objectives (Lawson, 1999 cited in Ojo 2009: 39). Ojo (2009) maintains that in order to perform finance functions efficiently, the financial managers of the local government have to: 1. Set the financial objectives of the local government. 2. Prepare plans of action and select policies for achieving the objective. 3. Develop financial plans and incorporate these into the overall plans of the local government. 4. Check the achievement of the objectives and evaluate deviations from the plan. 5. Establish causes for deviations. 6. Take corrective action and/or redesign policy or revise the objectives to start a new cycle as illustrated in figure 1 above. 22

33 Local government needs adequate funding to service the functions assigned to it by the central government. These are Mandatory and Government. The Mandatory ones are said to be those that have revenue sources attached to them. In short, these functions have to do with revenue generation. The Concurrent functions are more or less social functions which do not have revenue attached to them and which local governments require a lot of funds to carry out. They are in a lot of cases heavily subsidised and are not profit oriented as such. Proper funding is therefore required to perform such functions. Local government funds are raised in different ways. Local governments derive their revenues from two major sources viz internal and external sources. Internal sources are the revenue items local governments have control over. External sources come from grants and loans. Let us take each of these sources one by one. Internal sources or local revenues are those within the tax jurisdiction of local government. As pointed out earlier such jurisdictions are constitutional in some systems and conventional on others. The Nigerian case specifies both function and tax jurisdictions in the constitution. These are also tax laws to support revenue generation. You may also recollect that the Fourth Schedule of the Nigerian Constitution specifies the functions of local government in which our earlier analysis found out that a lot of these exclusive (mandatory) functions have revenue sources attached to them. Generally local government internal revenue can be classified as: Local tax revenues, user charges and administrative revenues. The dominant and most 23

34 promising of this three is tax revenue. The principles of taxation are efficiency, equity and revenue productivity. Tax administration may be much easier to manage at the city or urban level than the rural. Some taxes are however suitable for urban local government than rural ones. These include sales tax, and tax on property. In rural areas, community taxes may be very suitable. Note generally that the tax system or structure is such that relates to either person, property or transactions. This is why we talk of community tax and personal income tax (personal) property tax (property tenement) and sales tax (transactions). These are the types of taxes paramount at the local government level. You should remember the point made that the tax on property and transactions are more applicable for urban local governments. (However in rural local governments taxes on transactions are evident in local markets, specially) in bulk purchases of local commodities like grains. Property tax is a highly productive tax in terms of revenue. Property taxation remains the most general kind of local tax throughout the world, developed and underdeveloped. Local Governments in Canada and Great Britain depend on it. It is levied in Ghana, the Middle East and In Tanzania. Local Governments in the United States derive about 8% of their locally raised revenue from this source. Several urban local governments in Nigeria, Lagos being in the forefront, collect property taxes. The types of urban property taxes are discernable, namely; Site Value Tax on vacant or unimproved vacant land; (tenement). A tax on urban housing or building not subject to the site tax. Despite the promising nature of this tax, it is bedeviled with problems. The problems are largely administrative, technical and political. 24

35 Technically, there is the problem of valuation i.e. good data and classification of property and putting in place, machinery for its collection. Part of this machinery for collection is the administrative problem of attitude and efficiency of revenue collection at the local government level. Another problem is the strong political forces opposed to property rating, since the owners of the property are those with political connection. Furthermore, this tax has become a futile exercise in Nigeria for example, to rate property in rural areas. While the yardstick may be mundane and unscientific, it at the same time an unusual tax to the rural dweller. Most of the exclusive and concurrent functions assigned to local government as earlier noted should be considered as sources of revenues. These could be classified as user charges and administrative or general revenues, They involve the sale of economic goods or resources by the government, for a specific charge or price. An example is charges made for the position of markets and motor parks. These publicly produced services having the characteristics of private goods may be financed according to the benefit principle. This means that the services with high welfare aspects such as education and health cannot fall into the category as they cannot be financed by user charges. Note the funds for such services by more in the external sources. In the lights of the nature of these internal sources, only urban areas are likely to raise any reasonable percentage of their revenues. Hardly do rural governments in Nigeria go beyond the 10% mark in revenue generation as percentage of total local government revenue. The modal distribution may even be less than 5% urban local government may generate up to 15-20%. Even then some 25

36 urban ones do not differ from rural local governments. Revenue effort is rather low. The survival of local governments rest largely with external sources. The conceptual and theoretical issues involved in intergovernment fiscal relations are fully discussed in Ekpo and Ndebbio( 1991) and Shah (1991). However, it is necessary to re-emphasize that local government fiscal operations can play an important role in macro-management of the economy. At the local level, certain goods and services are best provided through public means. Hence, issues of efficiency, resource allocation and distribution become relevant at the third level of government. In addition, it is generally agreed that certain taxes, levies and rates are better collected by local governments. Expenditure made at the local level may not only be centrally financed, but also centrally directed. Local governments that act as central expenditure agents do not reflect expenditure decentralization in a meaningful sense, just as centrally collected but shared taxes do not imply proper revenue centralization (Musgrave, 1973:342). It is, therefore, important to distinguish various types of grants and transfers reflecting the extent to which central control of expenditures and revenues is involved. Centralization could be measured between various tiers of governments. It is possible that within an economy decentralization may take place between the federal and state governments while relative centralization remains at the local government level. The converse can also occur. There are several issues on the economics of intergovernmental transfers. Intergovernmental transfers can be generally classified as either non-matching or 26

37 selective matching. Non-matching funds may be selective or general (conditional or non-conditional). In terms of selective non-matching transfers, the government at the centre, for example, provides a specific amount of funds to another tier and expects the latter to match the funds. Such funds are often for a specific purpose. Selective non-matching grants are best suited as a means of subsiding activities to which the higher level government (say the Federal Government) assigns a high priority by Local governments. Such a case would occur in a degree of spillovers up to some level of provision after which the external benefits abruptly terminate (Shah, 1991: 22). For non-matching unconditional or general grants, no constraints are imposed on how the funds are to be spent. Selective matching grants, on the other hand, must be spent for a particular purpose and the recipient is required to match the funds to some degree. These grants are otherwise known as cost-sharing programmes. There are economic, political and social justifications for transfers. These reasons are covered in Broadway (1990), and Shah (1983). Economic justifications for grants include efficiency, equity and stabilization objectives. Within the theory of grants, efficiency and equity objectives are complementary. Boadway (1990) maintains that application of efficiency and equity principles suggests four main economic reasons for grants. These are: 27

38 Inter-jurisdictional spillovers - implying that intergovernmental transfers can be used to increase the efficiency with which public goods and services are provided. Fiscal gap involving a mismatch between means and expenditure needs at various levels. This results in a structural imbalance bringing about a shortfall in revenue for a lower level of government. Fiscal gap or imbalance could be due to: (a) inappropriate expenditure and tax assignment; (b) limited and/or unproductive tax bases available to a lower tier of government; (c) tax competition between tiers of government; or (d) the centre crowding out tax room for state and local governments. Minimum standards of services - connoting efficiency as well as equity criteria for ensuring common minimum standards across an economy especially in a federation. Differential net fiscal benefits across states occurring because some states are better endowed than others with natural resources and thus have better access to an enlarged revenue base. Furthermore, some states could have higher incomes, hence a greater ability to raise revenues from existing bases compared with others. Stabilization grants can increase in periods of slack economic activity to encourage local expenditure and curtail spending during the upswing of the business cycle. 28

39 In nearly all Western industrialized countries, there are well developed mechanisms that guide the management of local government resources. These mechanisms are embedded in the financial regulations. In Nigeria, the mechanisms are embedded in the Revised Financial memoranda for Local Government The Financial Memorandum stipulates the generation and judicious management of funds for the benefit of the entire community. Local governments, being government at the grassroots level, have the sole responsibility of catering for the citizen s at the local levels. As Okoli (1998) rightly pointed out, that Local governments exist to fill the gap which the national government is too remote to fill, it brings the national government closer to the people and makes its impact felt in all the nooks and crannies of the society. By implication, the national government through this medium caters for the grassroots. Local governments play vital roles in the development of the country. This third tier government is very vital in the political and economic field of a nation. Therefore, the aim of the provisions for the generation and management of fund in the Revised Financial Memorandum 1991 is to ensure adequate generation and proper management of fund so as to achieve the sole responsibilities of local governments. As Aborishade (1994) rightly observed, that the institution of local government is an embodiment of progress and is as old as anything one can quickly consider essential in the political and economic field of a nation. The major external source available to local government is generally classified as grants. (As pointed out earlier, external sources are the mainstay of 29