CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A local government is the third tier of government in Nigeria. Like any level of government, it has administrative structure, statutory assigned functions, social commitment and financial arrangement necessary for it to maintain itself and perform its statutory in Nigeria was legally recognized for the first time, as the third tier of level of government by the 1979. Constitution of the Federal Republic of Nigeria; section 7 (1) and decree N0. 12, the constitution of the Federal Republic of Nigeria, 1989 that spells its functions. Since 1979, there has been a tremendous growth in local government expenditure in line with greater emphasis on grassroots participation. For instance, in 1992 while complete political, administrative and financial autonomy was granted to the local government from state control, its responsibility was enlarged. In addition to the functions assigned to it by the constitution the local government is now (with eect from 1992) directly responsible for primary and adult education, primary health care and rural water supply. Faced with these increased responsibilities and the enormous expenditure associated with them, it is pertinent that the local government expands its sources of revenue beyond the present level. An action in this direction is necessary, as it would enable the local government to discharge its current functions and bring socio-economic development to the local populace. Before now, the local government relied heavily on grants from the state and federal government relied heavily on grants from the federation account 20% in addition to a percentage of the internally generated funds of the state. This being the case, government grants and statutory allocations are only supplementary sources of revenue to the local governments. For the local government to be self-sustaining financially, without reducing the level and quality of its services to the people, it is important that it reaches out for potential internal revenue sources which would supplement existing ones. This also implies that existing sources be fully exploited and more carefully managed. SOURCES: Federal Republic of Nigeria; Constitution of Federal Republic of Nigeria (1979) fourth schedule part p section 7 (1); decree No 12 of 1989 official gazette, No. 29. Babangida, I.B. Watershed on our National evolution; 1992 Budget Address to the National on January 1, 1992.
1.2 STATEMENT OF PROBLEMS
One of the major problems confronting the Local Government in Nigeria has been identified as that of its inability to raise funds to finance its expenditure commitments and achieve enhanced grass root development. This problem facing the local government could be attributed to the following factors.
a. Over dependence of the local government on funds from state and federal government which comes in the form of statutory allocation or giant or aid. This problem of finance has remained with local government. By their nature, such external funds are provided to supplement the internal generated fund of the local government. More so regardless of the amounts transferred or generated by the local government through this means, they often arrive late (that is they are paid in areas) towards the end of the fiscal year to which they are related. This financial arrangement makes it difficult for the local government to be able to plan, coordinate and better control its financial engagements.
b. Inability of the local government to utilize all the internally revenue generating opportunities. This problem results from the financial relationship, which exists between the local government and the higher levels of governments. The local government tends to under utilize its numerous internal sources of funds because of its heavy dependence on statutory allocation and grants from the state and federal governments. The inability of the local government to exploit all the available internal revenue sources augment its overall financial base has made it increasingly difficult for it to generate enough finds to match its expenditure estimates.
c. Improper planning, management and control of available funds. The problems of inadequate finding sometimes emanates from the inability of the local government to properly utilize the funds at its disposal due to poor financial planning.
1.3 OBJECTIVES OF THE STUDY
Finance is the bedrock of every organization in any economy. It is a crucial pre-requisite which enables an organization, either private or public to maintain itself and effectively meet its commitments to individuals and groups who consume its output of goods and services. It is therefore, the intended objective of this study to do the following: –
a. To examine the present statutory functions of the local governments in Nigeria and determine the extent to which it is performing these functions with the resources available at its disposal.
b. To examine the existing financial arrangement relevant to the local government with reference to their various sources of revenue.
c. To evaluate the expenditure patter of the local government
d. To examine the various instrument of finance
e. To examine the various constraints of local governments finances and ascertains their bearing on the financial autonomy of the local government.
f. To examine the prospects of improving existing sources of local government finance and,
g. To uncover potential internal revenue sources for the local government.