A researchers’ guide to local government grants

This paper describes the system through which grants are transferred to local government in some detail according to a set of descriptive parameters developed and explained within the paper. The paper also looks at the grant reform, and is a companion to a second Occasional Paper, “The Local Government Grant System, Paper Two: Evaluating the local government grant system”, which evaluates the extent to which the system is consistent with government’s decentralisation policy.

The paper extends the descriptions and analysis of the grant system provided in the official documents available in the public domain detailing the grant system (the Division of Revenue Act (DORA), the Budget Review and the Intergovernmental Fiscal Review). Official descriptions tend to be rather truncated, as they are not exclusive to local government grants.

The paper firstly develops a set of descriptive categories as a basis for distinguishing different types of grants. These categories include: the pools from which the resource transfers are funded and the channels through which they flow to reach local government; the purpose of the transfers; the criteria used to allocate grants to individual municipalities and the conditions under which grants have to be spent. The paper does not look at how the size for each grant is determined. The relative size of the transfers and the growth in allocation is examined under each of the grant categories. The paper then takes a “snap-shot” of the current grant system and briefly reviews the reasons for and aims of the grant reform policy. Secondly, it provides a description of the key transfers in terms of their purposes and the scope of the activities funded. Thirdly, it analyses the allocation of resources to different types of grants and through time. Fourthly, it describes the allocation criteria and the conditions associated with the different transfer streams. Fifthly, it analyses how the grant allocations are distributed across geographic space (using provinces as the spatial unit), and across municipal categories. Sixthly, the paper describes how the grant consolidation process has progressed.

The paper attempts to include provincial allocations in the analysis as provinces allocate a significant amount of resources to local government. Very little is, however, known about how the provincial transfers to local government work as they only started being recorded in any clear form on provincial budgets in 2003/04. Much more research on the provincial transfers is required to determine how they have been designed and how they work. Paper One’s analysis is thus very “broad-brush” and should be seen as indicative rather than definitive.

[adapted from author]