Report of the Local Government Efficiency Review Group

11.1.7 Interest rate exposure, on the other hand, may be greater than currently
realised, in situations where local authorities may be borrowing on a
variable rate basis and lending on a fixed (e.g. house purchase loans), or
vice versa. Long-term debt is obtained from the Housing Finance Agency,
the National Treasury Management Agency, and the European Investment
Bank, all of which provide very favourable terms when compared to those
available currently from the private sector.
11.1.8 There are two key disciplines that apply to local government spending. The
first is that local authority revenue budgets as adopted by their members
must be balanced and the commercial rate struck accordingly.
11.1.9 The second discipline relates to the General Government Balance (GGB),
under which borrowing limits are set for the various elements of the public
service. The GGB measures the fiscal performance of the whole General
Government Sector, which includes the Exchequer, the Social Insurance
Fund, the non-commercial semi-state bodies, the National Pensions
Reserve Fund (and other extra-budgetary funds), the Vocational Education
Committees, and local authorities. During the first half of the decade
substantial income accrued to local authorities due to the receipt of
development levies. The decline in construction activity since 2008 has
seen a reversal of fortune for local authorities, with these receipts largely
drying up.
11.1.10 However, local authorities have accumulated receipts which have been
earmarked for capital works. Some of these capital works require a
contribution by the local authorities, particularly for water and waste water
treatment facilities. The spending of these accumulated funds would, in the
absence of further receipts, result in a worsening of the GGB position and to
this end local authorities have been instructed that their capital spend from
development levies is capped at the level of development levy receipts in
the current year. The consequence of this is that many capital projects
have been postponed so as not to breach the GGB requirements.
11.1.11 Local authorities require borrowing both in the short-term and in the longerterm
for a significant part of their funding. As regards short-term borrowing,
temporary borrowing in the form of overdraft facilities has been a feature of
local government finance for decades. In a 2009 survey of 32 local
authorities, it was found that 17 local authorities had their banking services
with Bank of Ireland, 14 banked with AIB and 1 with Ulster Bank.
11.1.12 A recent report by the Office for Local Authority Management illustrated that
some local authorities are being charged higher margins than others by the
banks. Given that there are only three banks involved, the Group considers
that it would be appropriate that a uniform overdraft rate be procured at
national level for those local authorities banking with the different overdraft
lenders.
11.1.13 A coordinated approach between local authorities to match overdraft
requirements with surpluses, based on base interest rates with no premium
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