Adalah demands Interior Ministry alter formula used to calculate budget balance grants

The current formula – a complex method of calculating budget distribution which differs for Arab and Jewish towns – leads to discrimination against Arab municipalities.

Adalah – The Legal Center for Arab Minority Rights in Israel sent a letter to the Israeli Interior Ministry on 20 February 2017 demanding that it move to alter the discriminatory formula used to calculate budget balance grants allocated to local councils.


The letter, sent by Adalah to Interior Ministry Director General Mordechai Cohen on behalf of the National Committee of Arab Mayors (NCAM), maintains that the current "Gadish" formula – a complex method of calculating the distribution of these grants which differs for Arab and Jewish towns – leads to discrimination against Arab municipalities in budget balancing grant allocation.


The purpose of these grants is to reduce budget deficits, which are created when the expenditure of municipalities and local councils for essential services exceeds their income. The grant is allocated in order to secure a minimal and reasonable level of service for the residents of towns and villages. The grants are generally calculated based on the gap between the revenue and the expenditure of the local council.


The Interior Ministry announced in a press release that Interior Minister Aryeh Deri had decided to establish a commission to examine the current formula, and to transfer an additional NIS 400 million (approximately US $108,051,000) in budget balance grants to economically weaker local authorities.


Adalah Attorney Sawsan Zaher wrote in her letter that the NCAM expects that the budget supplement will be allocated to reducing the budgetary gap between Arab and Jewish local authorities – a gap resulting from distortions created by the Gadish formula.


"The makeup of the Gadish formula leads to a significant reduction in the budget balance grants allocated to Arab authorities, despite the establishment of ostensibly neutral criteria. This discrepancy may be seen in the allocation of these grants over the past five years (2010-2015): Grants allocated to Jewish local authorities during this time period increased at a rate of 21.4 percent while grants allocated to Arab local authorities during this same time period was at a significantly lower rate of just 12.9 percent," Attorney Zaher explained.


Not only does the Gadish formula discriminate against Arab municipal authorities both from the standpoint of revenues and expenditures, but it contributes to the widening gap between Arab and Jewish municipalities.


Issues calculating municipal revenue


According to Adalah, , the "revenues of Arab local authorities are lower and, based on this, one may assume that the balance grants they receive would be larger. But, in fact, the balance grants they receive are smaller [than those of Jewish authorities]."


For example, one of the obstacles in the revenue component was setting a unified amount for all local councils to reflect their revenues from governmental offices and taxations, while Arab local councils do not reach that unified amount and their average revenue from such a source is lower, leading to lower balance grants for them.


In addition, the formula sets another unified "plug number" as a minimum income per person which is part of the town's revenues component in the formula. However, most local councils do not meet this requirement and their balance grant is thus automatically reduced. This amount is then transferred to Jewish local councils, most of which exceed the minimum income requirement.


Issues calculating municipal expenditures


The Interior Ministry has effectively created two separate funding tracks, therefore discriminating against Arab local authorities in favor of Jewish local authorities. According to Adalah's letter "data reveals that the actual allocation of the general budget for Jewish local authorities is higher than in Arab towns… Jewish towns have an allocation that reaches 90 percent of the grant for which they are eligible while Arab towns reach only 80 percent."


Adalah also noted that a local authority's expenditures are calculated according to – amongst other factors – the number of registered residents it has. However, this situation does not take into account the situation of Arab Bedouin local authorities in the Naqab (Negev) which provide municipal services to tens of thousands of people from surrounding areas, in particular residents of unrecognized villages who are not registered as residents.


"This formulation harms the grants allocated to Bedouin local authorities. These authorities provide social and educational services to residents of [nearby] Bedouin communities that have not been recognized by the state, and who are not registered as residents of any recognized municipality."


Previously, Adalah initiated Supreme Court litigation concerning the formula for balance grants, which consistently has disadvantaged and discriminated against Arab municipalities. In response,  the state has changed the formula for the allocation of balance grants, affording some greater funds to Arab municipalities, however Adalah asserts that the current formulation is still not sufficient to reduce major gaps.See e.g.,  HCJ 6223/01, National Committee of Arab Mayors, et. al. v. Ministry of the Interior, et. al.



Unequal Distribution of Balance Grants to Jewish and Arab Municipalities