Why does the performance of Palestinian Local Governments matter?
1. Palestinian local governments represent a key pillar of the future Palestinian state. Predating the Palestinian Authority, many have long and proud histories, including some of the oldest inhabited cities in the world. With increasing political and geographical fragmentation over the last two decades, Local Government Units (LGUs) have become of paramount importance regarding the provision of services to the local population, particularly in areas where the relatively young central government is politically, geographically, and fiscally constrained. Some existing LGUs were created as early as the second half of the 19th century, and over the decades, they have performed under the complexities of disparate political and legal regimes. As the lowest level of governance, Palestinian local authorities fulfill a critical role, not only as a key public service provider but also as the government tier closest to citizens, with elected councils critical for representation and accountability to citizens. The most recent local elections were on May 13, 2017, and in October 2012, only in the West Bank; following the most recent local elections in both the West Bank and Gaza in 2006. Strengthening LGUs and enabling them to perform as fully functional local governments accountable to citizens are key priorities for the Palestinian Authority.
2. A high level of fragmentation with large variations in fiscal and institutional capacity affects local service delivery performance. In 1997, there were 350 local authorities; today there are 417. This may not be financially viable and could adversely affect allocative efficiency in a highly financially constrained environment. In short, Palestinians could be paying for a large but inefficient local government sector that is draining scarce public resources and external aid at the cost of eroding infrastructure, declining services, and suboptimal development. However, there is currently no evidence to substantiate this claim, and it is important to get a better understanding of the drivers of service delivery performance and the most effective ways to support LGUs to better perform for the benefit of the Palestinian people.
3. A lack of comprehensive data that is representative at the LGU level has made it impossible to assess and compare service delivery outcomes across Palestinian LGUs. Data on service coverage and basic governance indicators in Palestinian LGUs exists, but it does not cover all local services and is collected from the supply side, i.e., local authorities and service providers. Although the Palestinian Central Bureau of Statistics (PCBS) conducts regular household surveys, which would allow for assessing service outcomes from the demand-side, i.e., citizens and service users, the data is not representative at the level of individual LGUs. Those constraints have limited the possibilities for a comprehensive performance assessment in the past. However, it is important to understand what drives the service delivery performance of Palestinian LGUs in order to make meaningful policy recommendations, address the issues that are fully under Palestinian control, and highlight the adverse impacts that externally imposed constraints have on the living standards of the Palestinian people. However, to date, no robust evidence base exists to answer those questions.
How do Palestinian Local Governments perform and how can it be meassured?
4. The analysis presented in this report has the objective to fill this critical knowledge gap and help targeting interventions to improve service delivery in the West Bank and Gaza. The Palestinian Local Government Performance Assessment (LGPA) establishes the quantitative basis for analysis and a performance baseline for future benchmarking. Existing local service delivery data has been very limited, despite substantial external support to the sector over the last decades. Generally, the scope of existing data only covers select supply-side information collected from LGUs or household data, which is not representative at the LGU level. Hence, under the LGPA, a comprehensive household survey, covering more than 380 Palestinian municipalities and village councils, was conducted, providing the quantitative basis for the following analysis. In addition, data available from earlier analyses conducted by the World Bank was used to better understand the supply side of service delivery, including local government financing, performance of Joint Service Councils (JSCs), and institutional data collected under the Municipal Development Program (MDP). Complementary qualitative analysis and case studies were implemented to allow for a more comprehensive understanding of performance drivers and determining factors related to institutional capacity, governance, and political economy.
5. Service outcomes vary substantially both across LGUs and sectors. The LGPA assesses service delivery outcomes for the key pubic services under the responsibility of local authorities, i.e., water supply, sanitation, solid waste management, and local roads. The assessment reviews outcome variations across sectors, individual LGUs, and geographic areas. Data on electricity supply, education and health was also collected by the LGPA household survey, but are not subject to this analysis. Although data for those service sectors will be important for follow-up analysis, the LGPA limits itself to the four basic services mentioned above. LGUs have no or only limited role in delivering education and health services, which are administered and operated by the national authority, international agencies or non-governmental organizations, or in electricity distribution, which falls under the responsibility of electricity distribution companies.
6. Outcome variations alone, while important to understand, do not allow for better targeting of interventions and policy recommendations. A more comprehensive measure is needed to assess LGU service delivery performance based on citizen access and satisfaction with service outcomes that would allow for comparisons of LGU performance across the West Bank and across Gaza. A performance index was therefore developed for policy makers and Development Partners as a tool to identify and target interventions in municipalities and village councils.
7. The LGPA Performance index uses ten indicators to measure overall LGU performance. The ten indicators represent the three dimensions of access, quality and reliability for piped water, piped sewage, and waste collection, and a joint measure for local roads. The LGPA Performance index ranks LGUs according to their performance scores and allows for an analysis of key drivers for service delivery performance, including geography size, wealth, fiscal strength, institutional capacity, governance, and modes of service delivery.
How satisfied are households with service delivery outcomes?
8. Palestinians have achieved high rates of access, although services are not always available and quality differs. Palestinian LGUs have achieved remarkable levels of access to basic services, particularly given the challenging circumstances of occupation and an overall context of fragility, conflict and violence. Piped water supply connections have reached almost universal coverage at 94 percent in the West Bank and 88 percent in the Gaza Strip. Over 80 percent of households in Gaza and up to 95 percent in the West Bank have access to regular solid waste collection. Around 77 percent of households in the Gaza Strip are connected to a piped sewage network. At 30 percent, access to piped sewage is much lower in the West Bank, although this is largely a reflection of the more rural character of West Bank villages compared with the highly urbanized Gaza Strip: in the West Bank, access to piped sewage is at 8 percent in Village Councils, compared to 37 percent in municipalities. For those households connected to a piped sewage network, around 80 percent report that the quality and reliability of services is acceptable, suggesting that waste water priorities should focus on increasing treatment capacity and access to those households not yet connected. Comparing outcomes in the waste water sector to other countries, coverage with improved sanitation facilities is clearly higher in the Palestinian territories (96 percent) than in Lebanon (80.7 percent) and the average of fragile and conflict-affected situations (FCS; 43.5 percent), slightly higher than the average for the region (89.6 percent), and just below neighboring Jordanian (98.6 percent).1
10. Across sectors, access rates are lowest for local roads. Fewer than 2 in 3 Palestinian households have access to paved roads. Only 42 percent of households in Gaza report having immediate access to a paved road from their home, compared with around 74 percent in the West Bank. This finding is consistent with the high share of roads investment projects prioritized in local development plans across Palestinian LGUs, suggesting that investment needs for local roads will remain high in the foreseeable future. It also reflects the shortage of funding LGUs have available for the rehabilitation, extension, and maintenance of roads. Compared to revenue-generating services, such as solid waste collection and water supply for which service providers generally charge user fees, LGUs have no direct income source to cover road rehabilitation and maintenance cost. Instead, LGUs have to rely entirely on own or shared taxes, grants from the central government, or from external donors which, however, tend to prioritize other sectors or investments in their support programs.
11. The quality of solid waste collection has room to improve. Only 59 percent of households in the West Bank, and surprisingly 70 percent of households in Gaza express satisfaction with the quality and reliability of solid waste collection services. Despite the increasing coverage of collection services and substantial investments in sanitary landfills in both the West Bank and Gaza, LGPA findings suggest room for improving service outcomes. Investing in disposal infrastructure and collection equipment alone will not suffice. Experience from an output-based investment program in the southern West Bank targeting LGUs in the Hebron and Bethlehem Governorates provides good lessons how user satisfaction can be increased through improving the timeliness of collection services, cleanliness at collection points, and effectiveness of feedback and complaint mechanisms. Strengthening the management capacity and improving responsiveness of service operators should be a priority for support.
Figure ES-2: Satisfaction with Service Quality and Reliability
12. Overall, municipalities achieve consistently higher service outcome levels than village councils. In general, service outcome levels are declining in line with LGU size groups. This holds for both access and satisfaction ratings across sectors, except water supply. But size alone does not explain the difference in outcomes. Interestingly, households rate access and satisfaction with water supply services highest in small municipalities, while large and medium size municipalities have outcomes more comparable to those of village councils. This may be driven by the more rapid demographic growth in municipalities outstripping the availability of bulk water and adversely affecting water quality and availability. However, with this exception, LGPA findings confirm that service outcomes are generally lower in village councils. Villages tend to struggle to provide and maintain the same level of services compared to municipalities. The current status quo is not sustainable and more needs to be done to consolidate service delivery in village councils to bring them at par with municipalities.
13. Service outcomes vary across regions. For the most part, LGUs in the central and north West Bank achieve higher outcomes than the south West Bank and Gaza. This finding is consistent, except for piped sewage, for which access is higher in Gaza as a result of the high level of urbanization; and satisfaction is the highest in the south for those households who are connected to the sewage system. There is greater access to solid waste collection services in the north West Bank, with almost universal coverage, but satisfaction rates with the service is the lowest; this is somewhat counterintuitive given the long-standing support to improving solid waste management in the northern West Bank. There is no straightforward explanation for the regional variations, beyond the more pronounced divide between the West Bank and the Gaza Strip. However, some have argued that a larger number of movement restrictions and proximity of LGUs to the separation barrier and Area C might be among the determinants for regional variations in service outcomes.
14. While the likelihood for access to piped water is lower for poorer households, gender is not a determining factor driving service outcomes. Households at the bottom 40 percent of the wealth distribution are more likely to be affected by low access rates compared with higher income groups, particularly in the West Bank and for piped water supply. Non-poor households in the West Bank are almost two times more likely to have access to piped water than those in the bottom 40 percent of the wealth distribution. Findings also suggest that poorer households in the West Bank are less satisfied with waste collection services than the non-poor are. The likelihood of being connected to the piped water network is slightly higher for households in the upper three wealth quintiles in Gaza, but this gap is not statistically significant. LGPA findings also suggest that there is no significant gender gap in basic service delivery. Service outcomes for female-headed households are statistically not significantly different from male-headed households, except for access to piped water and satisfaction with piped sewage in Gaza. Overall, Palestinian LGUs have achieved remarkably equitable service provision, despite significant needs to improve service quality and reliability.
What is driving the performance of Palestinian local Governments?
Size, Density and Location
15. While population size and location matter, municipalities perform better than village councils even when ruling out differences in LGU size and geography. Size and location affect overall performance of Palestinian LGUs, but, importantly, the performance differences identified in the LGPA go beyond a pure size or regional effect. This is an important finding, underlining that other crucial factors drive the performance gap between municipalities and village councils. While households in villages clearly rate service outcomes lower than in municipalities, a focus on merging LGUs into larger entities will not necessarily improve service delivery performance by itself. Additional policy instruments, capacity development, and incentives, that go beyond size and 'amalgamation' are required to achieve better performance in Palestinian LGUs.
16. Higher population density is strongly associated with better performance outcomes. Population density varies substantially across Palestinian LGUs, ranging from less than four people per square kilometer (km2) in one of the small villages in the West Bank, the Village Council of Marj al Ghazal in the Jericho Governorate, to more than 11,000 people per km2 in Gaza City. In more than 75 percent of LGUs in the West Bank and Gaza, the average population per km2 is less than 1,000, and in 34 municipalities and village councils, it is below 100. These wide gaps are severely affecting service delivery outcomes, because LGU population density and service delivery performance are strongly correlated. The most populated 20 percent of LGUs on average perform 6.2 points higher than the least populated 20 percent of LGUs. On average, a 1 percent increase in population density corresponds to a 3.3-point higher performance score. This finding is consistent with global experience, since the cost of infrastructure and service provision declines on a per capita basis with increasing densities. Palestinian LGUs should aim to achieve higher levels of population density and avoid costly sprawl that is hampering service delivery performance.
18. In general, households in Area C or close to the separation barrier are less likely to have access to basic local services. Satisfaction with quality and reliability of services is also notably lower in Area C and near the barrier. In comparing the likelihood of service access for households that live within a 1 km radius of the separation barrier, no statistically significant coefficients are observed. However, if the distance considered is narrowed, significant differences emerge in the water sector: households living 500 or even 250 meters from the separation barrier are on average just half as likely to have access to piped water than those living farther away. This effect is statistically significant for both the entire West Bank sample and the subsample of LGUs that are intersected by the barrier. While the coefficients for the Area C indicator suggest that, on average, households living in Area C are less likely to have access to all of the four basic services, only the indicator for solid waste collection yields a statistically significant result: the odds to be covered by a waste collection service of households that live in Area C are only one-third as large as those of households that live in Areas A and B.
19. Overall, Area C is associated with lower LGU performance scores. This finding holds even when controlling for important performance drivers, such as remoteness and size of LGU. On average, LGUs serving areas where at least 60 percent of the built-up area is in Area C have a statistically significant performance score, which is 5.8 points lower than the other West Bank LGUs. LGUs with a developed Area C area share of more than 70 and 80 percent perform 8.0 and 8.5 points lower on average. Palestinian LGUs have little means to improving service delivery outcomes of communities living in Area C, given their limited mandate beyond Areas A and B. Development Partners have stepped up their support to communities in Area C. Since 2012, around 113 masterplans have been prepared to support capital investment and service delivery improvements in 77 LGUs with Palestinian communities living in Area C. However, to date, only five of the plans have been approved by the Israeli Civil Administration (ICA). The other masterplans submitted to the ICA for approval are still awaiting a decision, 81 of them have been pending for more than 18 months.
Fiscal Capacity and Responsiveness
20. Fiscal capacity is a main driver of LGU performance. Overall, per capita revenues are strongly associated with higher LGU performance and a robust relationship between per capita expenditures and LGU performance exists, disproportionally constraining smaller municipalities and village councils due to their limited revenue base and institutional capacity. A 1 percent increase in per capita operating revenues on average corresponds to a 4.7-points higher performance score; and a 1 percent increase in per capita operating expenditures to a performance score increase of 5.2 points. This effect is even more pronounced among municipalities, where a 1 percent increase in per capita revenues is associated with an average 6.5 higher performance score, and an 8.9 higher score for per capita expenditures. Fiscal capacity can be identified as one, if not the strongest driver of LGU performance, even when ruling out differences due to size and location. Eroding local budgets limit the funding available to invest in extending, upgrading or even maintaining services at satisfactory levels. This finding urges giving highest priority to advancing local government financing reform and addressing the large imbalances of fiscal capacity across LGUs, in particular between village councils and municipalities, but also across municipalities. The current inter-governmental fiscal architecture in Palestine is characterized by local revenue assignments that are insufficient to cover the operational expenditure needs of LGUs; and lack of a fiscal transfer from the central government that would include equalization elements to correct imbalances across local authorities characterized by varying fiscal capacity. Without addressing those horizontal and vertical fiscal imbalances, only limited progress can be envisioned for improving Palestinian local government performance.
22. Citizens are more likely to pay their bills on time if they are satisfied with service reliability and LGU responsiveness. On average, Palestinian households that agree their LGU is very responsive to citizens' concerns or complaints have about 1.75 times higher odds to pay on time for piped water supply and solid waste collection. Assuming that a reform of the Palestinian local government financing system would yet have to evolve over time and is likely to be implemented only in the medium-term, as a priority LGUs will need to increase own-source revenue collection to enhance their fiscal capacity as the main driver of service delivery performance. Compared to all other measures, results from the LGPA suggest one shortcut for LGUs to collect more revenues from user fees: increase responsiveness to citizens' needs.
23. Higher LGU responsiveness corresponds to better performance. Responsiveness helps increasing citizens' willingness to pay. However, in addition, households that have used a citizen service center, or generally agree with the statement that their LGU is very responsive to citizen concerns and complaints, also rate service outcomes higher. Regardless of the size or location of a LGU, the LGPA finds a positive relationship between responsiveness and service delivery outcomes: on average the 20 percent of LGUs with the highest share of households reporting their LGU is very responsive to citizen concerns and complaints perform 16.4 points higher.
24. Less than one-third of Palestinians agree that their LGU is very responsive. There is plenty of room to make local authorities more responsive, increase citizen satisfaction, and enhance local revenue collection. Government responsiveness has also been found to be a key factor in the participatory behavior of citizens and believed to be a key driver to encouraging responsible citizenry, regaining trust in government, and enhancing political participation. In the Palestinian territories, the overall satisfaction rate with the responsiveness of LGUs is low: less than one-third of households agree that their municipality or village council is very responsive to citizen concerns and complaints. The rate in the West Bank (30 percent) is only slightly lower than in Gaza (37 percent), but it varies substantially across governorates: in Tubas, only 1 in 10 households agree that their LGU is very responsive, while in Tulkarm and Qalqilya, almost half of the households agreed with the statement. Comparing satisfaction rates across types of LGUs in the West Bank, the share of households agreeing is higher in municipalities (31 percent) than in village councils (24 percent).
26. LGUs need to reach out more actively to their citizens and promote the existence and use of a citizen service center. In West Bank municipalities where citizen service centers exist, only 16 percent of surveyed households report knowing about it, 37 percent report not knowing whether or not it exists, and 46 percent report not believing in its existence. Knowledge about feedback instruments is slightly higher in large municipalities, where at least 1 in 5 households report knowing that a center exists. In medium and small municipalities, only about 15 percent of households know about citizen service centers. Given the efforts and resources provided to establish one-stop-shops and other service centers in Palestinian LGUs, Development Partners, the Palestinian Authority, and local authorities need to give much more attention to promote their existence and use by the public.
27. Institutional arrangements for service delivery vary across the basic service sectors, but tend to be fragmented. Functions are distributed across central and local authorities with a variety of stakeholders involved in the policy making, priority setting, financing, operation and monitoring of services. LGUs have full authority over local roads and are responsible for the planning, development, and maintenance of the network, with the Ministry of Public Works and Housing responsible for regional roads outside the municipal masterplans. LGUs also have full authority over solid waste management services, although disposal functions, and to a lesser extend primary collection and transfer functions, are generally delegated to a JSC. The Ministry of Local Government is the policy making authority and also monitors LGU performance in the solid waste sector. However, the water and sanitation sector is characterized by a high level of fragmentation, with policy making and sector investment planning functions at the Palestinian Water Authority, regulation and performance monitoring at the Water Sector Regulatory Council, and service operation at the local level. In total, there are more than 100 municipal water departments, and more than 160 village councils operating water services. 13 JSCs deliver water and sanitation services, but there are only 3 operating water utilities, 2 in the West Bank and 1 in Gaza. The high level of fragmentation causes high inefficiencies and a constraint to generating economies of scale.
28. Joint service provision can help in reaching economies of scale, increasing financial sus-tainability, and improving service delivery performance. The establishment and development of JSCs has been crucial to improving service delivery in Palestine since the adoption of the Local Government Act in 1997 and is an important element of the Palestinian Authority's consolidation effort to leverage economies of scale and sustain many existing village councils in recent years. Broadly, there are three types of JSCs: those providing a single service, those providing multiple services, and those that were established for planning and development. The Joint Services Provision Assessment carried out by the World Bank in 2015 identified that out of the 82 existing JSCs in the West Bank and the 10 in Gaza, only 55 are active. Most (32) active JSCs are categorized as planning and development, 16 as solid waste management, and 7 as water supply and sanitation services. Some JSCs provide multiple services to their member LGUs.
29. JSC capacity and governance arrangements are critical to delivering better results. The current institutional framework and governance structure for service provision by the JSCs have several limitations. The management and decision-making structure, accountability framework, financing arrangement, public participation, and social accountability systems are generally inadequate or unclear. As part of the 2015 assessment, a more detailed review of the active councils was conducted based on a good governance framework assessing performance across six thematic areas: rule of law, effective and efficient service delivery, transparency, accountability, responsiveness, and participation. Findings of the assessment confirmed large performance variations, with only 16 councils scoring at an acceptable level. The water sector had the best score; the scores for solid waste management and planning and development JSCs were lower on average.
30. Membership in a JSC does not in itself improve service delivery outcomes in LGUs, but it does appear to have a positive impact, particularly for village councils. LGPA findings suggest that a member of a planning and development JSC achieves an average 4.0-point higher performance score than a nonmember, regardless of population size and location. The performance gain is higher for village councils, performing an average of 5.2 points higher compared with municipalities, which see average performance gains of 4.1 points. This finding confirms that pooling resources, including for better institutional capacity in basic planning and development functions, has a positive impact on LGU performance. It is critical to reach a minimum scale in order to achieve adequate institutional capacity for operating services at satisfactory levels, which is particularly important for village councils. However, because many planning and development JSCs have also been established at the request of Development Partners to channel and manage donor funds, performance gains might also be related to the additional financing that is available to them. Scale alone is not enough.
31. With increasing degrees of specialization, the technical and institutional capacity of JSCs drives service delivery outcomes. In the water sector, membership in a JSC does not guarantee satisfactory service delivery outcomes. However, remarkable performance gains can be observed, for example, in Jenin, which was rated one of the best performing JSCs in the 2015 assessment. In general, membership in a water supply and sanitation JSC does not yield better outcomes in the sector, but when limiting the sample to the Jenin Governorate, where some LGUs belong to a JSC and others do not, membership in a JSC corresponds to a very strong and statistically highly significant performance gain in water service outcomes, scoring more than 30 points higher than the average. It will be imperative to continue and accelerate consolidating the water sector, since operating individual municipal and village water departments is neither sustainable nor viable in the long run. However, significant investments in reducing technical and commercial losses, in parallel to targeted utility reform and institutional strengthening programs, are required to improve service performance.
32. For solid waste services, the effect of .15C membership on performance outcomes varies across regions in the West Bank. On average, membership in a solid waste management JSC seems to suggest slightly lower service delivery outcomes. However, this might be a reflection of the fact that only a small number of LGUs can be used as control group. A more disaggregated analysis is required to understand the differences. For example, focusing on performance-level variations between LGUs in Salfit and Qalqilya governorates that belong to a solid waste JSC, and those LGUs that do not, JSC membership corresponds to a notable, however statistically not significant, performance gain in solid waste collection performance scores.
Governance and Accountability
33. More than 3 out of 4 Palestinian households think that voting in municipal elections can have a positive impact on local service delivery. This reflects a very strong belief in the importance of basic accountability mechanisms to improve LGU performance, but also suggests significant room for improvement. Households' trust in the role of elections for service delivery differs across the Palestinian territories. In Gaza, almost a fifth of the households do not believe in such a relationship, and almost a third of the households in the West Bank do not think that voting and service outcomes are interrelated. Overall, trust in the role of voting is slightly higher in municipalities (69 percent) than in village councils (66 percent).
34. Building more responsive LGUs strengthen citizens' trust in the impact of voting and their willingness to vote in future election. Citizens who are satisfied with LGU responsiveness on average report more often that voting has an impact on service delivery. Among the households who strongly agree their LGU is very responsive, 86 percent believe that voting has an impact on public services. In contrast, among those households who strongly disagree, only 59 percent think that elections and service delivery outcomes are connected. As a result, among citizens who believe that voting in municipal elections influences service delivery outcomes, 80 percent planned to vote in the next elections, compared to just 28 percent among those who think voting and public services are not related. Overall, at the time of the LGPA survey, more than 4 out of 10 Palestinian citizens in the West Bank did not plan to vote in the next municipal elections, as was reflected in the voter turnout of the latest West Bank elections in May 2017.
35. Basic accountability mechanisms need to improve to enhance citizen satisfaction with their LGUs. Not many Palestinian households use a feedback or complaint mechanism and satisfaction is only moderate. Overall, despite their existence in some LGUs, few households use available mechanisms to provide feedback or file a complaint. Only 16 percent of households in the West Bank and 8 percent in Gaza report having used either a citizen service center, municipal website, LGU or service-provider feedback system, or a booklet to address a service issue. Only 6 percent of West Bank households have used a feedback system or LGU website compared with 3 percent and 5 percent in Gaza respectively. None of the surveyed households in Gaza claim to have used a service center; in the West Bank, the figure is around 4 percent. Only 40 percent of those who have used a feedback mechanism reported being satisfied with it. The vast majority of citizens would rather file a complaint directly to their LGU rather than working through a citizen service center or a feedback or complaint system.
Conclusion and the Way Forward
36. Palestinian local governments have almost achieved universal coverage in terms of access to basic services. This is a remarkable achievement, particularly given the context of fragility and conflict in the Palestinian territories. Although satisfaction rates vary across LGUs and sectors, and the bottom 40 percent experience an overall somewhat lower quality of services, household income is not a main determinant of service delivery outcomes, and there is no gender gap. These are very positive achievements under extremely difficult circumstances in a highly challenging environment.
37. Increasing access to improved drinking water should be given the highest priority, particularly in Gaza. With almost the entire population in Gaza dependent on potable water delivered by tanker trucks, solving the Gaza water crisis will remain the greatest challenge for local service delivery for years to come. Improvements in LGU performance will not solve the crisis, which goes well beyond local government issues and requires critical actions from the Palestinian Authority, the Government of Israel, and the international community, such as support to increasing bulk water supply to the Gaza Strip, including through purchase from Israel and private water purifiers to address the short term needs of a growing Gaza population, reducing technical and financial losses in a moribund water distribution network, treating and promoting the reuse of waste water, and increasing local desalination capacity.
38. LGUs must strive to converge quality and reliability standards for basic services. While the local government mandate is broader than basic service provision, citizen satisfaction levels will not increase unless local governments deliver on their main tasks of supplying reliable drinking water and sanitation services, collect the garbage from households, and ensure a well maintained local road network. Key elements of good governance and professional management will be critical to making LGUs more responsive to the needs of citizens, and will also help make LGUs more reliable partners for private enterprises and promoting local development. Lack of reliable basic services rates among the highest of the concern for investors. In addition, targeted policies to support citizens in marginalized communities need to be developed. Local government sector support alone will not suffice to address the disparate living standards across Palestine. A significant group of LGUs have received substantial external support, but service delivery outcomes remain at low levels of, including marginalized LGUs with high rates of poverty and/ or those that are deeply affected by the prevailing restrictions to movement and access.
39. Addressing vertical and horizontal fiscal imbalances is critical to improving local service delivery performance. While size and location matter, their impact on LGU performance is limited compared with local fiscal capacity. Palestinian LGUs are largely dependent on service fees and charges to cover their operational expenditures, not to mention critical capital investments. Although Palestinian municipalities and village councils are responsible for providing critical public services, they have not been assigned sufficient revenue sources. On average, charges and service fees account for 50-70 percent of total revenues, mostly from public utility services, such as electricity and water. As a critical first step, Ministry of Local Government needs to review and revise LGU revenue and expenditure assignments. The current revenue assignments are not sufficient to deliver even on the core LGU functions. The property tax could provide a large potential revenue source for municipalities, but collection needs to be extended to all LGUs and should be decentralized from the Ministry of Finance and Planning at least to the largest municipalities. Finally, establishing a fiscal transfer mechanism that effectively addresses imbalances is long overdue and requires highest attention from both Ministry of Local Government and the Ministry of Finance and Planning.
40. Changing the financial incentive structure for service provision must be at the core of the reform agenda. Due to chronic underfunding, LGUs have developed a practice of diverting revenues from service fees to meet their expenditure needs. Cross-subsidies and payment arrears are widespread and common practice across municipalities and village councils. Current incentives are strong: data for the years 2011-13 shows that total revenues per capita for village councils in charge of electricity distribution can be up to four times higher than those without that responsibility. Village councils with electricity distribution functions were able to spend over twice as much in per capita operating and development expenditures than those without the responsibility for each year during the period of 2011-13. For municipalities, there is a difference of almost 100 percent between the two groups of municipalities in terms of total revenue per capita. Despite the recent separation of electricity distribution from local governments, LGUs continue to receive dividends from electricity revenues that they request from distribution companies in their role as shareholders. Incentives and current practices are similar in the water sector.
41. Breaking this vicious circle will require decisive action at local and national levels. Key priorities include: (1) increase local revenue collection; (2) improve transparency of payment flows, including interagency arrears; (3) sanction entities that divert funds for nonessential or unproductive use; and (4) provide financial support to LGUs without the fiscal capacity to ensure basic service provision. Absent a regular fiscal transfer from the central government, improving local fiscal capacity will require enhancing revenue collection and expenditure efficiency. However, our knowledge about the cost of service provision remains limited. Although a new budget format distinguishing between functional categories has been introduced, the majority of LGUs do not report actual revenues and expenses, which makes efficiency assessments difficult. More emphasis needs to be given to correct reporting during the budget review and approval process, including as a condition for allocating capital investment grants.
42. Responsive and accountable local governments are critical to better performance. Regardless of the size and location of a LGU or the institutional arrangement for service provision, the LGPA shows a consistently better performance by responsive and accountable local governments. There is a large and growing number of LGUs that have achieved higher levels of service delivery performance through strengthening citizen engagement, improving transparency and accountability, and enhancing local revenues. More attention must be paid to supporting effective governance arrangements that engage citizens at all stages of development planning, investment prioritization, and feedback on service delivery performance. This should be a priority for the PA but also for Development Partners. Given the dual positive impact on LGU performance from higher citizen satisfaction and willingness to pay, supporting more responsive and accountable LGUs promises the highest return on investment in parallel to a local government financing reform overhauling the inter-governmental fiscal architecture.
43. A clear policy needs to be developed for more professional and corporatized service delivery. JSCs play a critical role in consolidating service delivery because they can gradually assume service operation functions from small and mostly weak LGUs, provide the necessary scale, and develop into the nucleus of future regional public utilities. However, JSCs do not guarantee improved performance in service delivery if they are not matched with more professional management and strong accountability mechanisms in terms of service users and the local authorities they represent. Overall, Palestinian policy makers should aim to integrate villages and municipalities into more densely populated urban areas to achieve better performance outcomes. Public utilities are an effective means of regional integration. There is an urgent need to establish a clear action plan to separate and professionalize service operation, with clearly assigned revenue streams and measurable performance standards. Given the high fragmentation in the water sector, this initiative should be launched jointly between the Ministry of Local Government and Palestinian Water Authority. A first critical step to disentangle financial flows and understand expenditure efficiency would be to establish separate cost accounts for utility services, particularly for water, waste water and solid waste management.
44. Finally, performance benchmarking should be made an integral instrument for evidence-based policy making. The LGPA has developed an instrument to track performance trends and improvements, assess efficacy of policy measures, and evaluate donor support on a regular basis, which can be replicated. Palestine has unique and successful experience in managing a performance-based grant mechanism and providing targeted capacity-building support to municipalities, implemented by the Municipal Development and Lending Fund (MDLF). In parallel, Ministry of Local Government has started developing an online citizen portal for all LGUs through their GeoMOLG Department. This experience, in addition to the new data from LGPA, can assist in the scaling-up the systematic linking of capital grant allocations to clear performance targets in LGUs and measuring expenditure efficiency to better understand the use of scarce public resources at the local level. LGUs can also use the LGPA to produce and publish citizen score cards, while Development Partners may consider using the baseline established by the LGPA to monitor progress and measure impact of their support to Palestinian LGUs. These are tremendous assets that Palestinian local governments can rely and build on as they strive to continue improving performance to benefit their citizens.
1 World Development Indicators.