3.4 Developments in Grants and Composition

TABLE 3.4 Developments in Grants and Composition

Final accounts Final accounts Final accounts Final accounts Budget Budget 1995/96 1997/98 1998/99 2002/03 2003/04 2004/05

Share Share Share Share Share Share Type U Sh billion (%) U Sh billion (%) U Sh billion (%) U Sh billion (%) U Sh billion (%) U Sh billion (%)

Unconditional grants 40.6 34.5 54.3 24.0 64.4 23.0 76.9 11.7 82.8 11.2 87.5 10.9 Conditional recurrent grants 77.2 65.5 168.4 75.0 202.1 71.0 428.1 65.1 467.8 63.1 527.0 65.4 Conditional development grants 0 0 2.2 1.0 18.8 7.0 147.9 22.5 187.4 25.3 187.4 23.3 Equalization grants 0 0 0 0 0 0 4.2 0.6 3.5 0.5 3.5 0.4

Total 117.8 100.0 224.9 100 285.3 100.0 657.1 100.0 741.5 100.0 805.4 100.0

Source: Composed offigures from the Decentralisation Secretariat, MoLG, MoFPED, LGFC, and Steffensen, Tidemand, and Ssewankambo 2004. Note: Final accounts and releases are provisional. Columns may not sum to totals shown because ofrounding. Local Government Organization and Finance: Uganda

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and the economic growth in the country (LGFC 2000b;ULAA and UAAU 2003).In budget 2003/04,the grant constituted U Sh 83 billion,or 11 percent ofall grants to local governments.

Most unconditional grants are used for fixed salary costs in the local governments.The grant has become more a grant for funding fixed administrative salary costs ofthe basic local government administration (decentralized staff) than a genuine unconditional (discretionary) grant for service delivery and development.Some local governments cannot finance their fixed administrative costs for wages in the general administration even with the unconditional grants,whereas others have a surplus to be used for other cost items.

The allocation formula for the unconditional grant has changed twice. Initially,the formula contained four criteria:child mortality rate,school-age population,general population,and area. Subsequently only two criteria— population (85 percent weight) and area (15 percent)—were applied,after allocating a fixed amount to each local government for basic costs (U Sh 150 million) and some minor historical transfer items (accounting for 10 to 15 percent ofthe total) (Donor Sub-group on Decentralisation 2001,16;Steffensen and Trollegaard 2000,153).In practice,the unconditional grant has been divided into salary and nonsalary components.Because ofproblems with salary arrears in some local governments and imbalances between salary obligations (staffon the payroll) and the grants,the formula was changed again to take into consideration the existing payroll oflocal governments,on the basis ofthe size ofthe payroll ofthe administrative staff (58 percent),the population (36 percent),and the area (6 percent).The grant now provides about nine months offunding ofthe staffon payroll for each district,according to existing staffcommitments (LGBC 2003,56).The new allocation principles,which were put in place to reduce arrears in salary payment,reward districts with an already high number ofstaffon the payroll.These principles could introduce the incentive for local governments to increase administrative salary expenditures and are also unfair to local governments that have fewer staffmembers on the official payroll.

The reform ofthe entire structure oflocal government administration is expected to change the allocation formula to ensure funding ofminimum staffing structures.Unresolved issues include the links between the administrative restructuring and the disparities across local governments in expenditure needs and revenue potentials and the links to the equalization grants,the incentives that the allocation criteria will provide,and thelevel ofautonomy that local governments will be given in using the unconditional grant.