The Local Government Finance Commission (LGFC) is an autonomous arm of government responsible for advising central and local governments on issues of fiscal decentralisation.
The Commission is established under Article 194 of the 1995 Constitution and has been operational since February 1995 following an official launch by Hon. Bidandi Ssali, the then Minister of Local Government.
The Commission is constituted by seven members appointed by the President; four of which are nominated by the District Councils (3) and Urban Councils (1). The other three are nominated by the Minister responsible for Local Governments in consultation with the Minister responsible for Finance, Planning and Economic Development.
The Commission is serviced by a secretariat organised in two departments, namely central grants and local revenue on the one hand (comprising of economists and statisticians) and administration on the other. There are currently 38 staff members in the secretariat headed by a Commission Secretary.
Functions of the Commission
The functions of the Commission as spelt out in article 194 of the Constitution and elaborated in section 77 of the Local Governments Act, 1997 are to:
- Advise the President on all matters concerning the distribution of revenue between the Government and local governments and the allocation to each local government of moneys out of the Consolidated Fund.
- Consider and recommend, in consultation with the National Planning Authority, to the President the amount to be allocated as equalisation and conditional grants and their allocation to each local government.
- Consider and recommend to the President potential sources of revenue for local governments.
- Advise the local governments on appropriate tax levels to be levied by local governments.
- Deal with disputes between local governments over financial matters and tender advice relating thereto to the parties involved, the Minister and the Minister responsible for Finance as may be necessary.
- Monitor local governments’ budgets to ensure that they don’t significantly detract from priority programme areas; where budgets detract from PPA, the LGFC is to inform the council and the President through the Minister for appropriate action.
- Perform such other functions as Parliament may prescribe.
Parliament has passed the Local Government Finance Commission’s bill. The new law is intended to strengthen the LGFC to effectively and independently advise government on the right course. The Act would also be a basis for establishing the Commission rules, regulations and conditions of service including pension scheme for its staff.
Crucial roles in fiscal decentralisation
The Commission plays the following crucial roles in fiscal decentralisation:
- Advocates for substantial growth of unconditional grant relative to the other grants. By so doing it hopes that the vertical fiscal gap between the central government and local governments will be reduced.
- Ensures that the mechanisms used for allocating the various conditional grants development oriented and responsive to people’s needs. Agreeing on conditions, as the law requires has been the point of emphasis. In this way local governments would own t he grants and use them to alleviate poverty and induce development from the grassroots.
- Ensures that “least developed local governments” are assisted through equalisation grant. By so doing horizontal imbalances amongst local governments would be reduced and thus “balanced growth” promoted.
- Ensures that local revenue raising capacities are enhanced with the aim of gradually making local governments more dependent on local revenue rather than central transfers. The study on revenue enhancement is just one such effort to achieve that.
- Advises local governments to promote accountability and improve capacities as a way of enhancing efficient utilisation of available resources.
In addition, the Commission promotes a balance between responsibility assignments and sources of revenues assigned to local governments. The Revenue Sharing Studies conduced in 1999 and 2000 are examples of our effort to achieve that balance.
All these is done to establish an equitable system for allocation of financial resources from the consolidated fund to local governments and promote efficient and effective local revenue mobilisation.
Methods of Work
The methods of work as adopted by the Commission are aimed at achieving transparency, promoting partnerships, strengthening consultative and collaborative interfaces as well as ensuring effective dissemination of findings and recommendations.
These are achieved through:
- Holding meetings and discussions within the Commission and with other stakeholders such as local governments, line ministries, donors and NGOs.
- Holding seminars, workshops and conferences as a two-way approach to collecting, disseminating and sharing of information. The Commission has also presented several papers on fiscal decentralisation in international and national conferences within the region.
- Preparing periodic advisory notes to both the Government and Local Governments.
- Constituting committees of stakeholders to co-ordinate specific issues. Currently the Commission chairs a Local Revenue Enhancement Co-ordinating Committee (LRECC) and a Local Government Budget Committee (LGBC).
- Conducting and sponsoring research in specific cases of interest. The research approach is collaborative in nature and the reports are discussed in seminars, workshops and conferences of stakeholders.
- Undertaking study tours to other countries and receiving foreign visitors as a way of promoting exchange of experiences.