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Dr. Adi Brender of the Bank of Israel presented an analysis of the budget performance of local authorities in Israel over the past 15 years, at the Annual Conference of the Union of Treasurers of Local Authorities in Israel held in Tel Aviv.

At the Annual Conference of the Union of Treasurers of Local Authorities in Israel today, the Head of the Macroeconomics and Policy Division of the Bank of Israel Research Department, Dr. Adi Brender, spoke about a marked improvement in the budget performance of local authorities over the past 15 years.

In his speech, Dr. Brender described the tension that exists between decentralizing budgetary powers to local authorities and the concern that such decentralization will negatively impact their financial stability. He surveyed the important institutional changes in national government behavior vis-à-vis local government beginning in the 1990s, and the change in processes in local government itself. He noted that these support the improvement in local authorities' budget discipline. Dr. Brender noted that these changes have led, over the past 15 years, to the public's beginning to support in local elections the heads of authorities who balanced the budget or reduced the deficit, and avoided having to require extraordinary government aid.

The institutional changes in local government were reflected, over the past 15 years, in a marked and continued decline in the ratio of local authority debt to revenue, despite a decline in government support of their budgets over that period. The decline encompassed the great majority of authorities, at all socio-economic levels, though it was smaller and later in the Arab sector. In the speech, methodology was presented for classifying local authorities by the quality of their budget management. It was found that out of more than 250 local authorities in Israel, budget management quality is especially low in only several dozen authorities. The speech included an international comparison of the size of local authority debt, which indicated that the ratio between local authorities' debt to GDP was very low in Israel, compared with advanced economies, as well as data indicating that the ratio of local authorities' debt to their revenue is much lower than the average in comparable advanced economies.

Based on the findings presented, Dr. Brender noted that the budget performance of local authorities in Israel justifies examining the expanding budget powers for those local authorities that manage their budget responsibly over the long run. Increasing the funding possibilities of these authorities in terms of investments is likely to promote the development of local infrastructures and thus to aid in accelerating building authorization processes in those authorities. Such flexibility is also likely to provide an incentive for other authorities to improve their performance in order to qualify for the possibility of more independent management.