Big capital projects may not go ahead in credit crunch

MAJOR capital projects planned by local authorities may not go ahead this year owing to new government restrictions on their ability to borrow money.

The Department of the Environment, Heritage and Local Government admitted yesterday projects that could not be funded directly from income generated by local authorities themselves could face difficulties.

A recent circular issued by the department instructed all local authorities “to initially examine all sources of internal funding before applying for loan sanction”.

On capital spending, it notes: “It is most important that expenditure is funded by income received or due within the year.”

However, officials from the department informed an Oireachtas committee that priority funding would be given to projects that were under way or where loan sanction had already been approved, especially those relating to water services, waste treatment and housing.

But local authorities will have to re-apply for loan sanction on any monies that were not drawn down by the end of 2008.

Separately, the Department of Transport has also ordered local authorities to halt almost e500 million worth of spending on local and regional roads until further notice owing to the dramatic downturn in taxation revenues.

The committee heard that the Government had set a maximum limit of e200m on the annual contribution of local authorities to the deficit in the General Government Balance (GGB), which fixes borrowing levels across the public sector.

However, they pointed out that the contribution by local authorities to the GGB deficit had risen to e407m last year.

Assistant secretary, Des Dowling, pointed out that local authorities must balance their capital and revenue accounts in the current year with no deficit.

Borrowings must also be restricted to sanctioned levels.

The department expects to be able to advance e250m in non-mortgage loans to local authorities this year, of which e106.6m has already been allocated.

“It is a significant challenge to do justice to the range of proposals and allocations coming to the department for consideration,” said Mr Dowling.

The committee heard that local authorities have also been allowed to retain the full proceeds of changes in deductions under the controversial pension levy for public servants.

They have also been instructed to reduce their payroll by 3% this year and to achieve an 8% reduction in professional fees.