The interim Punjab Provincial Finance Commission Award is billed to significantly drive up funding to the recently inaugurated local union councils, district councils and metropolitan corporations/municipal committees for local service delivery functions.

It also plans to bring transparency and predictability in fiscal transfers, as well as set a direction for future awards.

“The award raises the share of funds for local functions (including education and health) to 44pc of the net provincial consolidated fund (inclusive of such receipts as foreign loans but exclusive of certain common expenditures like debt repayments). This clearly reflects the fiscal needs of districts, ensures adequate funding for local councils and attempts to end inter-district disparities,” Punjab Finance Minister Ayesha Ghaus-Pasha told Dawn.

Architects of the award contend that fiscal transfers under the new rule-based award will ensure adequate resources for salary and non-salary purposes, as well as development needs of local councils — whose powers have been curtailed to performing local service delivery functions under the Punjab Local Government Act, 2013.

This is in negation of the concept of the third tier of government at the local level under article 140(A) of the constitution that envisages fiscally and administratively empowered local governments.

The provincial government has retaken control of 11 departments out of the 13 devolved to a district level under the previous local government law enacted in 2001 under Gen Pervez Musharraf’s military regime.

The remaining two functions — education and health — will indirectly be run by the provincial government through its proxies on district education and health authorities.

In major cities, the province has also taken control of different local functions through creation of special purpose vehicles (SPVs) like Lahore Solid Waste Management Company.

“In spite of the provincialisation of many local functions, the award massively increases the size of the pie that the province has agreed to share with local councils, which will result in a whopping 42pc spike in financial resources available to them for local service delivery,” Ms Pasha argued.

It establishes three types of grants with 82pc of the resources set aside for ‘general purpose grant’, 11pc for ‘development grant’ and 7pc for ‘transition grant’. The bulk of the funds — 83.2pc — have however been allocated for district education and health authorities.

The size of each grant and the share of local governments in each grant are determined on the basis their historical expenditure and fiscal needs, according to officials.

Individually, district education authorities will receive 66.9pc of the funds and district health authorities, 16.3pc of the total transfers to local councils, under the award. The rest of financial resources will be put at the disposal of local councils (12.4pc) and union councils (4pc) for service delivery functions.

In answer to a question, the minister said district education and health authorities will be ‘executing agencies of local councils’.

“Although these authorities will be run by independent boards, local public representatives will be involved in the decision-making process and policy choices.” Ms Pasha further said the authorities have been established because the government doesn’t want to disrupt the reforms agenda it is implementing in these areas.

The award also suggests the establishment of a ‘challenge fund’ to provide incentive to local councils to improve performance through capacity building and innovations in service delivery, as well as constitution of an internal audit authority for independent local government annual special financial and performance audits to ensure proper utilisation of funds and prevent misuse of resources.

“Since the bulk of the funds — 85.3pc — flowing vertically from the province to districts will be distributed horizontally among districts under a multiple-factor formula, it will bring transparency and predictability in fiscal transfers, the minister insisted.

The remaining 14.7pc resource (Rs54bn for the present fiscal) earmarked as grants for special purposes has been added to help improve service delivery through SPVs.

The formula-based transfer (Rs337.5bn for the current year) is claimed to be 23.1pc higher than the budgeted allocation (of Rs274bn based on the 2006 award).

Inter-district horizontal distribution of ‘General Purpose Grant’ and ‘Development Grant’ will be done on the basis of a multiple-factor formula with weight of population determined to be75pc, which was 91pc under the 2006 award. The remaining weight is distributed between poverty, expenditure needs and cost of service delivery.

In addition to population, the factors considered for horizontal distribution among district education authorities are: population density, poverty, school going-age population, girls’ middle school enrolment and out of school children.

Similarly, in case of district health authorities, factors like population density, poverty, women population of child bearing age and population of elderly (above 65 years) and children (less than 9 years), in addition to population, will be considered for inter-district distribution of funds.

Published in Dawn, Business & Finance weekly, January 23rd, 2017