ISLAMABAD, June 15: The formula for allocation of development funds for districts is proposed to be revised under Punjab’s new Provincial Finance Commission (PFC) award taking effect from the fiscal year 2006-07.

The development grants for the districts would be distributed on the basis of 50 percent population and 50 percent under- development index based on Punjab’s multiple indicator cluster survey 2005. Previously under the interim PFC award, the formula was 66 percent on population basis and 33 percent on the basis of under-development index.

Distribution of the rest of the funds, particularly the current expenditures, was then done on historical expenditure baseline of local governments with an incremental increase over these baselines.

The interim award over a period of time had become lopsided in favour of a particular tier of government and its two other negatives were that there was no control on recurrent expenditures with the provincial government meeting the shortfalls and certain districts ended up with surpluses whereas others were faced with continuous deficits.

The government claims that the new PFC is more transparent and predictable and maintains hard constraints on all local governments especially on their recurrent side.

Besides the revision in the distribution formula of the development funds, the salient principles of the new PFC are that it meets actual salary and non-salary expenses of all levels of local governments; provides adequate resources for financing development expenses, and that maximum resources would be allocated on per capita basis.

Moreover, any distortions arising out of the new basis of distribution would be corrected through equalisation grants.

Tied grants based on need and performance would be given to districts and the city districts would get additional resources to cater for their civic functions.

Substantial enhancement in the resources allocated for tehsil/town municipal administrations and union council has been envisaged under the new PFC.

The new PFC is said to be a better version as compared to the interim PFC because it aligns local government functioning with provincial government’s priorities and provides adequate revenue to LGs to meet their expenses.