The Palestinian Economy. Theoretical and Practical Challenges

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Zagha
on the cash basis. Almost no LGU employs accounting or management practices to
determine the true costs of services. Without good service costing, reasonable economic
fees cannot be set. Finally, water and electricity operation surpluses, if any, represent a
fairly unreliable source of funds since many municipalities are behind in their payments
to suppliers, partly due to some residents’ inability to pay or abstention from paying fees
owed. As a result, local underpayments become a central government burden due to the
fact that two Israeli corporations that supply most Palestinian LGUs with water and
electricity have had their arrears paid by Israel’s Ministry of Finance, which in turn,
deducts them from the clearances of VAT and other taxes it collects for the PA Treasury.
However, the PA Ministry of Finance (MoF) has recently begun to offset these
Israeli deductions against transportation and fuel taxes due to LGUs. MoF records show
that the aggregate amount of water and electricity arrears cleared by the PA Treasury
against LGU dues exceeded NIS 75 million over the 1998-2000 period (representing
about 65% of total LGUs’ dues collected by the MoF). A senior MoF official estimated
that LGUs’ total utility debt to Israeli companies might reach as high as NIS 750 million.
Unfortunately, revenues from property taxes are trivial and barely reach 1% of the
revenues generated by the LGUs. This is to be contrasted with higher shares in more
developed countries. Figure 6 shows local property taxes as a percent of household
expenditure in different countries. The funding of the LGUs, especially the larger units,
depends more on utility projects such as water and electricity and most probably will
remain so until better property valuation system is in place to account for the bonanza
owners of land could get during high periods of urbanisation like the one we witness in
the Palestinian territories.