Local authorities are losing hundreds of millions of euro in unpaid rates and levies from businesses, property developers and householders, according to local government auditors.
As a result, corporations and county councils are struggling to collect enough income from rates and charges to pay for vital services such as roads, water and housing.
A report by the Department of the Environment's local government audit service shows that in 2009 local authorities were still owed more than €450 million in levies from developers. In addition, local authorities are experiencing major problems collecting unpaid rates.
They were owed €152 million in unpaid water charges in 2009 (a 65 per cent increase in the space of two years), while rates income arrears have risen to €188 million (a 120 per cent increase in two years).
Revenue collection was worst in local authorities such as Offaly, Clare and Carlow, which managed to collect less than one-third of water rates due to them.
The audit report also expresses concern at the deterioration in the financial position of a number of local authorities.
The majority of local authorities recorded a deficit at the end of 2009, but the most significant were Donegal (which faced a deficit of €12 million), Meath (a €9 million deficit) and Waterford (a €7 million deficit).
Despite the adverse economic climate, the financial position of some local authorities remained relatively strong, with Dublin's three local authorities maintaining a healthy surplus. Department of the Environment officials have privately admitted some local authorities are facing "critical areas of vulnerability" due to funding shortages. Cuts to government spending over recent years have exacerbated the problem, with local authorities increasingly reliant on local revenue such as commercial rates and development levies.
However, the slump in construction and closure of businesses is making it more challenging to collect revenue from these sources.
Auditors say the poor performance in collecting water charges appears to be linked to problems such as the introduction of meters, disputed charges, inadequate follow-up of arrears and financial difficulties experienced by customers.
Affordable housing schemes have also proved a major headache for local authorities. Under these schemes, local authorities constructed or purchased houses to be sold as affordable houses.
However, since the property market crash the sale of these houses has slowed considerably, resulting in an increase in the stock of unsold houses held by many local authorities. The funding of these projects, including rolled-up interest costs, is a significant issue.
There are also problems with mortgages given to local authority residents and others by local government.
In total, the mortgage funding gap – the difference between the amounts owed by local authorities to financial institutions and the amounts owed to local authorities by mortgage-holders – is about €80 million.
