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As soon as the first wave of coronavirus restrictions hit back in mid-March there was an immediate clamour from businesses facing closure for a moratorium on paying commercial rates.
This was entirely understandable, particularly from the bar and restaurant sector which led the charge. If no cash is coming in how could they be expected to meet rates bills that, particularly in Dublin, amount to thousands of euro even for firms of a relatively modest size.
On the other side of the rapidly dwindling coin were recipients of rates, the local authorities. Rates are the lifeblood of council coffers in Dublin, with the four local authorities receiving far less in central government funding proportionately than their rural counterparts and in the Local Property Tax collected from their residents.
Dublin City Council chief executive Owen Keegan was the first to raise the red flag. Back in mid-March he warned that a blanket moratorium on commercial rates would mean the council running out of money, but he said ratepayers having difficulty meeting their bill could come to an "appropriate arrangement" with the council, which would be a deferral of payment rather than a moratorium or free pass on bills.
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After more than a month of wrangling the Government stepped in and announced a “waiver” on rates bills from March 27th to June 27th. This was the moratorium business had sought, but would also mean the Government directly paying the local authorities on behalf of businesses “forced to close due to public health requirements”.
However, what happens after the end of this month is yet to be determined.
"It is clear that many businesses will be impacted beyond the 27th of June by virtue of scheduled reopening dates, reduced capacity related to social distancing and their reliance on what one assumes will be an uncertain and gradual return in public confidence in the near term," said chief executive of South Dublin County Council Daniel McLoughlin.
“The extension of the three-month rates waiver to six months is, in my view, the minimum necessary to protect local government funding and to support the reopening of business.”
Safeguarding business
South Dublin relies on rates for approximately 52 per cent of its income – some €132 million a year. The protection of businesses and local authorities is critically interrelated, he said.
“Local government and the public sector must be viewed in terms of its capacity to lead economic recovery and the recovery of these very businesses. Any substantial falloff in commercial rates will clearly undermine this capacity.”
McLoughlin said that as long as the waiver was extended, and the income deficit stayed below €25 million, he firmly believes “it is manageable on a one-off basis”.
“For now our ambition must be to stay on track for remainder of this year and see where it takes us.”
The rates waiver was one of two schemes proffered to local authorities by the Government on May 2nd. The second was the “restart fund”, which was designed for businesses that may not have had to close but were suffering a “dramatic loss of turnover” due to Covid-19 restrictions.
Aimed at businesses with fewer than 50 employees, the fund would provide ratepayers with a grant equivalent to their 2019 rates bill, up to a maximum of €10,000 by way of a rates rebate.
Keegan told councillors a few days later that, while he was awaiting the precise details of the scheme, it would go a “considerable way” to compensating the council for lost rates income. He has since revised that view.
“Contrary to our original understanding of the scheme,” he said, “there will be no requirement on recipients of Restart Fund grants to use the money to pay/part pay commercial rates in 2020. Thus, the expected benefit in terms of supporting commercial rates income in 2020 is unlikely to materialise.”
The original circular indicated the grant was to be used to pay down rates owing and to ensure businesses could continue to pay their liabilities to the council this year, he said.
“There is now no requirement that it be used to pay arrears or current rates liabilities. The correction does mean it is very beneficial for small businesses, but not particularly beneficial for local authorities.”
There was also an issue of eligibility for the waiver scheme to be resolved.
“Somebody may have seen their turnover collapse but were not forced to close. A lot of businesses may be trading, but may not be profitable,” said Keegan.
The city council had expected to take in just over €357 million in rates this year – about one-third of its income. About €250 million of that remains outstanding. In addition the council is incurring substantial loses in other income streams, particularly parking charges.
“Our parking income would be way down. Normally it would be €30 million a year, but that has collapsed.”
Balanced budgets
No specific cuts have yet to be identified by the council, but Keegan said “we are legally obliged to have a balanced budget”, so something, it appears, would have to give.
“Some projects that were due to be completed this year may run into next year. Some grants for projects that are no longer going ahead over the summer because of the restrictions won’t need to be paid and there is no travel abroad to conferences, so things like that have resulted in a saving.”
However, he said the council will be relying on the government to compensate it for lost income. “Eventually we would run out of cash, but I am reasonably confident we will be looked after.”
Dún Laoghaire-Rathdown County Council director of finance Helena Cunningham said the initial announcement of a rates deferral had an "immediate" impact on cash flow for the council.
Rates account for 46 per cent of the council’s budget. Approximately 67 per cent of Dún Laoghaire-Rathdown businesses were expected to be affected by the pandemic although the actual impact will only be known “post-Covid”, she said.
While the commitment of the Government to pay rates on behalf of closed businesses had provided immediate relief, the long-term impact of Covid-19 on rates income could be “considerable”, she said.
“It is widely predicted that Covid-19 could be with us for at least another 12 months so the financial impact could be felt for some time.”
Other income streams such as parking, planning, housing rents and loans will also be affected but she said it was difficult to predict accurately the full extent at this stage.
“However, for the month of April on a year-on-year comparison it would have been expected to receive €560,000 in parking income and only circa €60,000 was received,” said Ms Cunningham.
There will, she said, be some “naturally occurring expenditure savings” such as the events programme or works not taking place due to the restrictions. However, the ability of the council to recover and function would “depend on the extent to which compensation is made available and the extent to which the council’s income level is maintained,” she said.
“It is considered imperative that public service is not reduced in order to assist businesses and the public to come out of this crisis and, to do this, compensation for income lost is critical.”
Fingal County Council is the most dependent on rates of the four Dublin local authorities with 55 per cent of its income coming from that stream. A council spokesman said it was also critical support is maintained for the long term.
“The local authority sector and the services we provide are going to be a critical component in the economic recovery of the country. Any reduction in commercial rates income will severely impact on our ability to do this.”
The council is also facing a funding shortfall from parking charges and housing rents, he said.
“Our overall objective is to continue to provide our key services within the evolving Covid-19 emergency and its financial fallout and to ensure that a quality environment in which to live and do business is maintained,” he said. “The council will continue to prudently manage its finances and monitor its expenditure within this evolving situation.”
Cllr Tony Murphy, chairman of Fingal's economic policy committee, said the council's high rates yield is heavily dependent on one major payer – Dublin Airport.
“The premiere concern in terms of Fingal’s income stream would be the airport. Not just the airport itself, but the ancillary businesses that feed off it, logistics companies, hospitality etc,” he said.
A spokesman for the Dublin Airport Authority (DAA) said it is "currently continuing to make rates payments", but "in line with Government guidelines, as a business that has suffered a severe financial impact from the Covid-19 pandemic, we are in discussions with our local authority in relation to the issue of rates".
Both the DAA and the council declined to say how much the airport pays in rates.
Fingal has also received European Investment Bank funding for major projects such as the regeneration of Balbriggan and the Swords Cultural Quarter, so those projects should be secure, said Mr Murphy.
Vital revenue
“Fingal County Council has been prudent and we have a reserve that will allow us to deliver on any of our planned capital projects,” he said. “However, how the next government deals with local authority financing will determine not only the security of local government services for the coming months but into next year.”
Dublin City Cllr Daithí Doolan said not enough focus has been brought to bear on the threat local authorities face from a decline in rates.
“The council’s funding has gone off the cliff. A comprehensive compensation package has to be delivered by the Government but there is no sense of decisiveness, no sense of initiative. The foot is off the pedal,” he said.
Mr Doolan is advocating that the council be allowed to undertake zero-interest borrowing in addition to rates compensation. Funding had to be maintained for community projects, such as the local area plan for Cherry Orchard, he said.
“Cherry Orchard is one of the most marginalised communities in the country and it has suffered hugely from Covid. Young people who haven’t been in school, more and more are getting sucked into the criminal economy such as drug dealing.
“My concerns is that if the economy goes off the edge the people at the bottom will suffer the worst and the longest.”
Dún Laoghaire-Rathdown County Council is “very different” to other local authorities, said Fine Gael Cllr Barry Saul.
“We would have quite a few blue-chip multinationals that have paid their rates already. Sandyford is the engine of Dún Laoghaire-Rathdown’s economic development and has had a strong rate of payment so far,” he said.
“So we’re lucky in terms of our commercial base. That’s not to say we won’t be in trouble if the rates subsidy is removed. There will be problems if a cliff arises at the end of June. Local authorities will have to be underwritten for a considerable length of time. A lot of businesses, particularly in the retail and entertainment sectors may not come back.”
High-impact projects
Cllr Saul said there would be “a perception that Dún Laoghaire-Rathdown is a rich county”, but its prized income streams such as development levies were ring-fenced for specific projects and could not be repurposed to fill funding gaps. Also annual reliables such as the Marlay Park concerts, which would bring in up to €1 million a year in revenue for the council, would not go ahead this year. Where cuts might be seen would be to services which might not be seen as essential, but have a strong local impact, he said.
“What I would call the low cost high-impact projects, such as hanging or extra cleansing of the streets, the council might perceive these as the low-hanging fruit.”
South Dublin County Council was also in a “pretty robust financial situation” coming into the pandemic, according to Fianna Fáil Cllr Ed O’Brien.
“Our chief executive is committed to ploughing on with the capital projects where funding has already been allocated.”
But as with the other local authorities, he agreed a lot will rest on what happens after June 27th and how the next government deals with local authority funding.
“None of us has a crystal ball. If the Government continues to subvent I would be quite confident we wouldn’t be looking at the kind of cuts that would worry me, but a lot will depend on the input of the incoming government.”
The Department of Local Government has yet to announce any extension of the waiver scheme. A spokesman said the “Government is currently preparing further guidance for local authorities on the scope and application of the waiver” and the position would be reviewed “as part of a wider review of options to support enterprise and employment, and associated local authority funding implications, once the unwinding of public health restrictions has advanced”.
The impact of lost income from parking fees and other municipal charges is also under review.
“This information will form part of the review of supports and local authority funding implications,” he said.