Budget Appropriation: Lessons From Lagos State

The perception that governance in Lagos State is going to cross over to a slow lane from the initial fast lane, which was started in 2007 by Governor Babatunde Fashola, has continued in spite of claims by the government that its N492billion 2012 budget has recorded 75% cumulative implementation in the first six months. The federal Government has implemented 56% of it 2012 budget in the same period, depending on which organ of government you choose to believe.

The approved budgeted expenditure of N492billion, for 2012 which Governor Fashola signed into law on the first working day of 2012, was the largest ever for the state.

Strength:
If any government is performing at a near magical dimension, its budget is the magic wand. There is no magic that Nigeria’s federal government could perform, for instance, with a budget that has 72% dedicated to recurrent expenditure.

Irrespective of the manifesto espoused by politicians during campaigns, their annual budget,  is a perfect indicator of their intentions. For some reasons, the Lagos State government’s budget, since 1999 under the Asiwaju Bola Ahmed Tinubu, has espoused good intentions, especially by the adoption of the Medium Term Framework, which allows the government to make a three-year plan and take up bigger projects.

Why Is Lagos performing?
First, the capital: recurrent expenditure ratio in the state’s 1999 budget was 33:67 –but it peaked at 61:39 in 2009 before a slight descent in 2010 that now stands at 53:47 in 2012.

Second, the state maintains a central treasury office, as against the federal government’s practice of handing over each ministry’s budgetary allocation to the minister. For instance, in 2009 budget, the ministry of tourism could not access its capital vote from the treasury office because they could not present any evidence warranting payment. Imagine that the commissioner had unhindered access to the ministry’s account! It is, therefore, easy to see why federal ministries cannot perform – the ministers have the money whether they implement the budget or not.

Third is the progression of the internally generated revenue. The projected revenue for 2012 is about N27billion higher than 2011 revenue. The government is continually evolving revenue generation means, and, in fact, all Ministries, Departments and Agencies (MDAs) are not only cost centres, they are also revenue centres. The newly created Safety Commission that is barely a year old has a revenue target of N50million in the 2012 Budget, and even the Scholarship Board is expected to generate about N28million. It is, therefore, not surprising that the expected 2012 Ordinary Revenue of N289.7billion can offset the total recurrent costs –personnel and overhead costs – of N233.6billion.

Fourth, the rhetoric is not just about figures; there are evident and progressive results. Public order has so much improved, and many that have not been to Lagos before 2009 will no longer recognise Oshodi. Safety is gradually getting on the front burner and security is only hindered by lack of a state police. Lagos used to be the dirtiest city in Nigeria, being described once as “a huge refuse dump” but it’s now arguably one of the cleanest in the contest with Calabar. The number of candidates who obtained five credits in SSCE, including English and Mathematics, has improved from a miserable 7.58% in 2007 to 21.11% in 2010. Lagos was bedeviled with traffic jam that was assuming hazardous dimension, but it is now well managed across the state. There are cogent results in the area of flood control. In essence, there are results – whether commensurate or not – to justify the spending in the state.

Fifth, the state borrows healthily. Its debt as a percentage of GDP has never exceeded the international standard of 3%. In 2012, the deficit financing required is N66.4billion, which is about 1.2% of the state’s GDP.

Weaknesses:
First, as mentioned earlier, the Capital: Recurrent ratio, which peaked at,  61:39 in 2009 after a steady climb since 1999, is plummeting. It was 56:44 in 2011. In 2012, it is 53:47. Who knows what it would be in 2013?  
While explaining the plummeting ratio, Governor Fashola said: “These ratios are dictated by recent wage increases and also partly informed by the emerging recurrent costs of maintaining and staffing the various infrastructure projects we have embarked upon over the years that are now being put to use, such as new schools, new hospitals, new water works, skill centres, and so on.”

This trend started in January 2011 when the government implemented the Minimum Wage. This was months before the federal government signed the Minimum Wage Bill into law. This implementation costs the state N24billion that could have been used for capital projects. Clearly, the personnel cost must now be tamed.

Second, tax compliance is still awfully low. According to a data of the ministry of transport, collated under an arrangement with the state’s internal revenue service (LIRS) to ensure that private vehicles owners that are contravened for traffic offences are also asked to show their proof of tax compliance, over 10,000 car owners arrested did not pay their taxes.

The Commissioner for Physical Planning and Urban Development, Toyin Ayinde, also revealed that over 600 applications for building approvals are yet to be approved because the applicants are tax defaulters.

The Governor disclosed recently that while Lagos has a population of eight million active people only 2.7million pay taxes. Surprisingly, many of the defaulters are the upper and middle class –the first to criticise government policies. What if all eligible tax payers pay voluntarily without the state having to expend a kobo on enforcement?

Third, the Personal Income Tax Act,  was recently amended and according to Tunde Fowler, the head of LIRS, these amendments mean that every state may experience a reduction of about 50% in the revenue accruable to them from all sectors of the economy. This is already happening as the LIRS performance accounted for 50.60% of the Total Revenue for 2012 first quarter compared to 60.30% in 2011. Add this developing trend to the ongoing retrenchment in corporate organisations across the country, and the picture looks grim. Recently, major banks laid off more than 1,000 workers, about 70% of which are in Lagos.

Threats:
Perhaps, the ugliest feature about budget implementation in Lagos State is low first quarter performance that started in 2010 and is becoming a trend. Also, the revenue potential in agriculture and tourism are yet to be fully exploited.

In addition, the furtive way the House of Assembly handles budget review is not conducive to democracy. The 2010 Budget implementation was terrible due to the acrimony running between the executive and legislative arms of government. A proposed budget of N429billion was slashed by N40billion and that was not until after the first quarter of the year, against the usual practice of getting an appropriation law in January of every year.

The state’s polity could have been spared of this political bickering if the legislative has adhered to the regulations governing budget review. The claims and counterclaims surrounding the allegations of that faceless “True face of Lagos” group should not have arisen had the lawmakers done their constitutional duty.

The next in rank to lack of stringent legislative oversight on Lagos budget is the difficulty in monitoring executed projects. It is to the government’s credit that its budget is the most detailed budget available on the internet. However, details of approved contracts are shrouded. This should have been obtainable from the State Tender’s Board.

For instance, how do we know the government is not recycling projects? In the 2012 Budget, the renovation and rehabilitation of 314 primary and secondary schools were approved but how do we know if any part of this approved number has not been appropriated in previous budgets? This is a logical question considering that the names of the 314 schools to be renovated are not in the public domain. It is, therefore, difficult to monitor project executions. The need for this level of transparency has nothing to do with the integrity of government officials but fulfil the democratic creed that demands eternal watchfulness as the price of freedom.

The High Cost Of Governance
Then, we have the cost of governance, which is soaring while sources of funding are shrinking. In 2007, the exchange rate of a naira to the dollar was 125:1; it is now 160:1. The average local bank lending rate was 17%, today it is an average of 19%. Prices for cement, bitumen, and diesel and petrol have all gone up. Should Lagos State government decide not to be versatile in looking for fund, there would be many abandoned projects in the state. Lagos must learn from the federal government which recently revealed that it has thousands of abandoned projects.  

Also, despite the implementation of minimum wage, the relative peace in the state is often punctured by strikes and threats of strikes especially from the medical doctors and teachers, who both want the state to implement the wage agreement they signed with the federal government. In Nigeria, when one sector gets a special wage package, other sectors want their special package too. Regrettably, each wage increase, whether general or sectoral, comes with attendant increase in house rents, transport fares and food prices. To curb this trend, the state to established a wages commission to unify the entire civil service payroll and, therefore, ensure uniform wage increment. This effort has not been well received by the workers.

It seems labour unions are more concerned about wage increase than policies that engender improved living standards. Can they not see that whatever is gained after a protracted battle for increment is quickly lost to inflation?

Another ugly factor affecting budget implementation in Lagos is the ease with which politics of election affect governance. The 2009 budget was the most successfully implemented in Governor Fashola’s first term, while the 2010 and 2011 were the worst, for obvious political reasons. The projected capital: expenditure for 2010 and 2011 were 58:42 and 56:44. The actual performances for both years were 31:69 and 30:70 respectively.

Overhead Cost
The overhead cost in Lagos State Budgets has always been wild. In 2012, it is N151.9billion. For the first quarter, overhead cost actually performed at 110%, an indication that government must find ways of lowering its cost. The cost of borrowing has also increased as internal debt charges for the first quarter amounted to 163%.

A decisive factor of lowering overhead cost, however, would be the power supply. The state launched a 10MW IPP on Lagos Island to provide 24hours power supply to the State House Marina, General Hospital Lagos, Island Maternity Lagos, the Lagos High Court and Igbosere Magistrate Court, has reduced the cost of powering these facilities through generators by about 40%, as disclosed by the state governor.

Again, until the government offer a plausible explanation, it will continue to amaze a layman that the LIRS, tasked with the job of tax collection and, therefore, expected to have huge overhead cost, has N9.50billion for that purpose, while the state treasury office and office of Chief of Staff respectively have overhead cost of N19.50billion and N13.80billion.

In the face of these bad and ugly challenges, the government must continue to sharpen its magic wand, the budget. This means looking for funding. Consequently, Governor Fashola has announced an increase of 0.05 per cent in the rate of Land Use Charge, with effect from January 2012. The trends dictate that residents should get ready for more levies than they had paid in the past.

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