PALESTINIAN AUTHORITY

The Palestinian Authority is a unitary and semi-presidential territory in Western Asia. The Palestinian Legislative Council (PLC) is the legislative body and parliament of Palestine. It is a unicameral legislative council comprised of the president, elected to a four-year term by direct popular vote, and 132 members directly elected on a multi-member constituency basis.

Since the establishment of the Ministry of Local Government in 1994 and the passing of the Local Authorities Law in 1997, there are two levels of sub-territorial administration: governorates as deconcentrated entities at the regional level and self-governing municipalities and village councils at the local level. The governorates are under direct supervision of the Ministry of the Interior while the municipalities and village councils are under the supervision of the Ministry of Local Government, which acts locally via its offices in the governorates’ capital cities. The Ministry of Local Government’s vision and strategic plan regarding self-governing sub-territorial entities is “good local governance capable of achieving sustainable development with effective community participation”.

The 1997 Local Authorities Law gives the local authority the right to set rules in several areas under local jurisdiction, such as setting prices for water and electricity within the limits established by the Ministry of Local Government. However, the law contains a few grey areas that complicate the relationship between the various bodies of local administration. For instance, the 29 refugee camps fall under the authority of the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) and are excluded from the jurisdiction of the Ministry of Local Government, the governorates and the municipalities. In addition, since the 1997 Law does not clarify the prerogatives or powers of the governors, these often govern based on Jordanian law.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
157 municipalities (Baladiyat) and 328 village councils (Majalis Al Qura)
Average municipal size: 11 400 inhabitants
556			556

OVERALL DESCRIPTION: The Palestinian local government system is a one-tier system composed of local government units (LGUs): 157 municipalities and 328 small villages.

In addition to the LGUs, the governorates are deconcentrated units of the central government at the regional level. Following the 1993 Oslo Accords, the West Bank has been divided into three areas of control: area A under exclusive control of the Palestinian Authority for civil and security issues in Palestinian agglomerations (covering 18% of the West Bank territory); area B of partial autonomy with civilian control over Palestinian rural areas (representing 20% of the West Bank territory); and area C under Israeli control over civil and security issues in rural areas and several Palestinian agglomerations (62% of the West Bank territory). Area C is rich in natural resources and constitutes around 60% of the agricultural lands in the West Bank. Some 300 000 Palestinians live in area C. The political situation has delayed land and construction permits, led to the destruction of property and, in consequence, hindered economic development and governance of area C.

MUNICIPAL LEVEL: There are currently 565 local government units, 157 of which are classified as municipalities and 328 as village councils. The distinction between the two types of LGUs is mainly based on their size, with most municipalities having more than 5 000 inhabitants. Following the 1993 Oslo Accords, the number of municipalities and village councils increased (from 139 in 1997 to 456 in 2017 and more recently to 565 in 2021). The rise in the number of LGUs results from ministerial decisions to upgrade the village councils to municipalities based on two main criteria: an increase in population and an improved village council performance.

Overall, the West Bank and Gaza Strip are highly urbanised (74% of total population), with almost 2.3 million living in the 12 largest cities. Around 700 000 Palestinians live in medium-sized municipalities of 25 000 to 50 000 inhabitants, while the second largest group live in small municipalities that count between 4 000 to 25 000 inhabitants. All village councils put together are only home to around 600 000 people even though they comprise the biggest share of local government units. In the Palestinian territory, 70% of the small villages have less than 3 000 inhabitants.

The municipality and the village council are both self-governing bodies with members directly elected by the population for a four-year term. For each local government unit (whether a village or a city), the elected councillors members elect the mayor among themselves at their first meeting. The election follows a proportional representation system based on lists of candidates. The last elections for LGUs took place in 2021/2022 in two phases: phase one for village councils in December 2021 and phase two for municipalities in March 2022. Although the 2017 elections were held in both the West Bank and the Gaza Strip, these last elections were only held in the West Bank.

Before the 1997 Local Authorities Law, municipalities were divided into two categories although both regulated by the same legal framework (no difference in terms of competences and prerogatives). The category depended on the time of their establishment: “old municipalities’ date back to Ottoman, British and Jordanian rules, while ‘new municipalities’ were created through the 1993 Oslo accords. The 1997 Law created four categories of municipalities based on demographic criteria: class A (district capitals, more than 15 000 inhabitants); class B (municipalities between 10 000 and 15 000 inhabitants); class C (between 5 000 and 10 000 inhabitants); and class D (between 1 000 and 5 000 inhabitants).

STATE TERRITORIAL ADMINISTRATION: The 16 governorates (muhafazat) are regional administrative bodies, 11 of which are located in the West Bank and 5 in the Gaza Strip. All governorates are headed by governors, appointed by the president. Governors manage security forces and monitor basic service provision, such as education and health, at the regional level.

HORIZONTAL COOPERATION: In response to the increasing number of LGUs, the government planned to pool several municipalities or villages together to reduce dispersion. As a result, between 1997 to 2021, about 81 joint service councils (JSC) have been created by ministerial decisions, although not all are fully functioning yet and only about half of them are active councils. The main objective of the establishment of joint service councils is to bring several small LGUs together to provide a specific service, such as garbage collection and disposal, water or power distribution. The council’s duties are to identify, plan, and implement strategic interventions for the benefit of the local inhabitants. The council members (one representative from each city or village council incorporated in the JSC) elect the chairman, deputy chairman and the treasurer during their first meeting.

The 1997 Local Authorities Law specifies 27 domains of activities that are under the responsibility of Palestinian municipalities within their jurisdictions, including town planning, delivering building permits, and regulating commerce and industry. In addition, municipalities are authorised to regulate services in fields such as buildings construction; water supply, electricity supply, sewerage and other infrastructural service; public health monitoring, including collection and disposal of solid waste; cultural and sport activities and public parks; natural disasters prevention and risk-management; budget approval and management; in addition to constructing and maintaining schools. Although this contains several provisions on municipal autonomy and responsibility, the ministries assume de facto most of the tasks.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Municipal level
1. General public services (administration)	Administrative services; Public buildings and facilities; Building licensing; Cemeteries
2. Public order and safety	Firefighting (large municipalities such as Hebron)
3. Economic affairs / transports	Management of international aid; Public markets management; Public places management; Land and sea transport (local); Road maintenance operations; Slaughterhouses; Local roads; Road signals; Regulation of street vending; Livestock control
4. Environment protection	Parks & green areas; Waste management (collection, treatment and disposal of waste for houses and other public facilities); Weights and measures control; Advertisement control; Street cleaning; Sewerage (waste water management); Natural disasters prevention and risk-management
5. Housing and community amenities	Control building construction; Set building construction standards; Building regulations; Water supply, distribution, pricing and protection; Electricity supply, distribution and pricing; Paving; Street lighting; Urban and land use planning
6. Health	Public health promotion; Epidemic prevention; Sanitary system implementation; Food inspection; Establishment of hospitals and public health centres (monitoring in coordination with government agencies)
7. Culture & Recreation	Plan activities in coordination with educational institutions; Cultural facilities management (monitoring in coordination with government agencies); Sports; Museums; Public libraries
8. Education
9. Social Welfare	Social services for the poor

Scope of fiscal data: municipalities

SNA 2008

Availability of fiscal data: Medium

Quality/reliability of fiscal data: Medium

GENERAL INTRODUCTION: The 1997 Local Authorities Law establishes the fiscal framework for local governments in the West Bank and the Gaza Strip. Furthermore, the Jordanian Property Tax Law nº 11 of 1954 and the Egyptian / British Property Tax Law nº 5 of 1942 regulate the property tax system in the West Bank and the Gaza Strip respectively. The financial resources of Palestinian municipalities are sporadic and unpredictable.

Municipal finance is dependent on the following revenue sources of LGUs: i) User fees (e.g., water, waste water, solid waste, business licenses, rental of municipal markets); ii) Local taxes that are collected by the central government such as the property tax and industrial and professional fees; iii) Grants from donors through the Ministry of Finance (MoF), the Ministry of Local Government and the Municipal Development and Lending Fund (MDLF) and through direct in-kind support; iv) Intergovernmental fiscal transfers such as regular transportation fees and emergency fund for crises. These sources are not stable and sufficient for the small LGUs, especially to cover the overall growing development needs of the communities.

The tax bases are set by law while tax rates are defined at the central level. The municipalities and village councils have the same financial assignments, with the exception that village councils are not assigned property tax revenues but collect an education tax instead. In general, the property tax is collected by the central government while the education tax is directly collected by LGUs and is dedicated to renovate school buildings as well as to purchase books. The lack of stable financing source deriving from property tax affects the ability of village councils to meet the development and capital investment needs and to provide essential services and infrastructure. Due to unstable conditions and economic stagnation including measures on movements, closures, the war in Gaza and COVID-19, municipal revenues have steadily declined since late 2019 and their debts have dramatically increased.

The Ministry of Local Government oversees budget preparation, fixes local taxes and grants final approval over audits and tenders. Although in line with other countries in the region, the local government sector in the Palestinian Authority is rather small if compared to other regions of the world, with fiscal decentralisation still in its infancy.

Sub-territorial government expenditure by economic classification
2018	Dollars PPP / inhabitant	% GDP	% general government	% sub-territorial government
Total expenditure	142	2.2%	7.7%	100.0%
Inc. current expenditure	142	2.2%	8.2%	100.0%
Compensation of employees	50	0.8%	6.1%	35.4%
Intermediate consumption	63	1.0%	15.8%	44.1%
Social expenditure	3	0.1%	0.8%	2.3%
Subsidies and current transfers	1	0.01%	10.4%	0.5%
Financial charges	0.1	0.0%	0.5%	0.1%
Others	25	0.1%	52.3%	17.7%
Incl. capital expenditure	-	-	-	-
Capital transfers	-	-	-	-
Direct investment (or GFCF)	-	-	-	-

EXPENDITURE: The share of sub-territorial expenditure in total public expenditures and GDP has remained steady in previous years, accounting for 10.8% and 3.7% respectively in 2016 according to the 2019 report of World Observatory on Subnational Government Finance and Investment. In 2018, this situation changed drastically as local government expenditure dropped at 7.7% of total public expenditure and 2.2% of GDP according to IMF GFS data where no capital expenditure was reported. The distribution of current expenditure by economic classification in descending order reveals that in 2018, expenses are primarily made in three categories which are the consumption of goods and services (44.2%) followed by the staff expenditure (35.4%) and other current expenditure (17.7%). Current social expenditure, subsidies and current transfers and the payment of interests represent around 3% of local government (recurrent) expenditure.

DIRECT INVESTMENT: Data on sub-territorial government investment is not available. Palestinian municipalities largely depend on external sources (i.e., international donor countries) to meet their investment needs in public infrastructure, public transportation provision, local school maintenance, and social welfare programs.

In particular, several Palestinian municipalities have been using public-private partnerships to deliver certain public services, especially for public parks, produce markets, slaughterhouses and transit services such as taxi and bus, as well as managing beach fronts.

ⓘ No detailed data available for this country

According to the 2019 report of the World Observatory on Subnational Government Finance and Investment, Palestinian municipalities devoted a significant part of their budgets to general administration, health services and public works. Similarly, village councils spent most of their expenditures on general administration, health services and general services, the latter encompassing all services other than health, culture and education.

Sub-territorial government revenue by category
2018	Dollars PPP / inhabitant	% GDP	% general government	% sub-territorial government
Total revenue	152	2.7%	9.4%	100.0%
Tax revenue	25	0.5%	2.2%	16.8%
Grants and subsidies	8	0.1%	-	5.2%
Tariffs and fees	118	2.1%	-	77.9%
Income from assets	-	-	-	-
Other revenues	0.3	0.0%	-	0.2%

OVERALL DESCRIPTION: Local government revenue represented 9.4% of general government revenue and 2.7% of GDP in 2018 according to the IMF GFS. These revenue of UDS PPP 152 per inhabitants are lower than the USD PPP 157 per inhabitants collected in 2017. The main sources of revenue for Palestinian local governments can be divided into four categories: own sources from taxes and user fees, government fund transfers and international aid. Much like in previous years, data from 2018 presents tariffs and fees from the sales of goods and services to be the main own-source revenue for local governments, representing 77.9% of total local revenues. Tax revenues, principally composed of taxes on property according to the IMF GFS, follow as the second largest source at 16.8% of local revenues and grants and subsidies remain very low compared to international averages, at 5.2%.

TAX REVENUE: With respect to tax revenues, many municipalities suffer from the absence of an effective collection system. Although the 1997 Law authorises municipal councils to implement systems that include taxes, fees, revenues and fines, it does not expressly delegate to municipal councils the power to impose taxes on their territory (Article 5 B, Local Authorities Law). Besides, municipalities require central government approval to increase their taxes, the fee scale for their services or to propose any additional tax.

In the Palestinian Authority, the property tax and industrial and profession fees are collected by the central government and distributed by tax sharing to the municipalities. The transportation tax is another shared tax and is reverted to municipalities in proportion to the number of inhabitants. The West Bank local government units also collect a local education tax, the proceeds of which go to the construction and maintenance of schools. The education tax is levied locally on the basis of the property tax (equivalent to 7% of the net rental base). It is noteworthy that revenues associated with education tax do not appear in municipal accounts.

The laws governing property tax were inherited from two old legal frameworks that remain in force: the Jordanian Property Tax Law no. 11 of 1954, enforced in the West Bank, and the Egyptian / British Property Tax Law no. 5 of 1942 in the Gaza Strip. According to the 1954 Jordanian Law, property tax is collected by deconcentrated services within the municipal boundaries of the Palestinian territory only. The property tax rate is 17% of the property rent value. It is determined by a special committee comprised of representatives from the municipality, the MoF and local valuators. The MoF returns 90% of the tax to municipalities after deducting a 10 % is fee for collection by the Department of Property Tax employees. The capacities and resources of the property tax staff were designed to serve the 30 municipalities that existed prior to 1994, whereas this number has increased dramatically since then. Consequently, there is a lack of collection capacity which is currently being addressed. In the Gaza Strip, local government units are in charge of collecting property taxes. All sub-territorial tax revenues in 2018 are categorised as property taxes and they account for 16.8% of total local revenues and 0.5% of GDP.

GRANTS AND SUBSIDIES: In accordance with article 26 of the 1997 Local Authorities Law, at least 50% of centrally collected revenues should be distributed to local governments on whose territory they were assembled. The remaining revenues should be distributed on the basis of proportions determined by the cabinet and considering the following criteria: size of municipal population; proportion of municipal contribution to revenue collection; special or particular status of the municipality (class A to class D municipalities); specific tasks entrusted to the municipality beyond the local level; and basic needs of the municipality according to its development plans (as approved by the Ministry of Local Government).

However, the situation of local finances of Palestinian local governments is highly affected by the continuing uncertainty and instability caused by the political situation on the territory. LGUs are highly dependent on international aid, mostly for their investment budgets. The World Bank and the European Union are the two main donors in urban areas. These funds are primarily allocated to projects for the construction and rehabilitation of basic infrastructure in areas such as water, electricity and roads. Local governments can access this type of funding from the central government and donors, through the Municipal Development and Lending Fund (MDLF). The MDLF is a semi-government organisation set up in 2005 by the Ministry of Local Government to facilitate international donations to local governments. Its board of directors is chaired by the Minister of Local Governments and includes 4 other line ministries, as well as mayors. The MDLF has a grant allocation mechanism formula that distributes infrastructure grants to municipalities and village councils based on their needs, population and institutional performance based on criteria set by the MDLF.

In 2018, grants and subsidies accounted for 5.2% of sub-territorial government revenue.

OTHER REVENUE: Electricity distribution and collection is the responsibility of several entities such as the Jerusalem electricity company, the West Bank northern company and municipalities. The municipalities that are under the companies’ jurisdictions are not in charge of distribution and fee collection. Therefore, revenues differ from one municipality or village council to another. A 2017 World Bank report estimates that the revenue of village councils with electricity distribution functions can be up to four times higher than that of village councils without such responsibilities. Building permits also represent a significant source of revenue for local governments, albeit volatile due to their link to the economic and political context. Municipalities also receive revenues from property rentals and profession permit fees. Tariffs and fees collected by municipalities accounted for their largest source of revenue of 2018, at 77.9%.

ⓘ No detailed data available for this country

FISCAL RULES: Palestinian local governments prepare their budget execution report and submit it to the Ministry of Local Government every six months. They must also submit a financial report to the Ministry of Local Government, every year by the end of March. In addition, the ministry is required to ratify the municipal financial accounts. Since 2014, fiscal initiatives have aimed to improve the predictability and transparency of intergovernmental fiscal transfers. Accordingly, the Ministry of Finance and Planning has been requested to publish regular online reports on the amount of fees and charges collected on behalf of municipalities and village councils such as property taxes and road fees, as well as on the amount it transfers to municipalities.

DEBT: The 2005 Palestinian Public Debt Law no. 24 sets the permitted public debt ceiling at 40% of GDP. In addition, article 21 of the 1997 Local Authorities Law specifies that local government borrowing is subject to the approval of the Ministry of Local Government. The ministry makes the decision based the ability of the LGUs to pay back their debt with their resources. The ability of local governments to borrow from banks has been at times influenced by the political situation.

TERRITORIAL MANAGEMENT OF THE CRISIS: In fighting the pandemic, a Crisis Management Committee was established at the central level for the planning and monitoring of all activities related to responding to and alleviating the negative impacts of the spread of the virus. The Committee is chaired by the Minister of Health. The committees created at the governorate level for joint territorial efforts are chaired by the governors and include mayors, healthcare veterans and healthcare senior executives. All stakeholders, including the central government, the local government, NGOs and the private sector effectively coordinated and worked together to streamline all efforts, measures and initiatives targeted to respond and mitigate the negative effects of the COVID-19 spread.

Local government authorities are considered to be the primary responders to crises and are tasked to provide leadership and coordinate measures leading to the eventual containment of the crisis. LGUs have been working actively since the announcement of the first COVID-19 case in the Palestinian Authority in February 2020. The committees established at all levels of governments set the framework to combat the spread of the virus, followed up on the preventive plans to be implemented by all stakeholders, checked the readiness of the hospitals to detect and discover new positive cases, verified the preparedness of ambulance facilities with disinfection requirements and monitored the numbers of positive cases, recovery and death rates.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The COVID-19 outbreak hit the territory at a particularly difficult time of economic decline, further worsening the socio-economic situation with direct effects on unemployment levels and services. The economic stagnation and financial shortage have aggravated the consequences of poor public social infrastructure and weak protection schemes. The Ministry of Social Affairs expects severe impacts in the labour market stemming from the COVID-19 pandemic and its subsequent economic crisis. Small-scale enterprises stopped operating due to COVID-19 and the continuous lockdowns. In the short-term, responding to COVID-19 required humanitarian assistance to the most vulnerable individuals and households.

IMPACTS OF THE CRISIS ON SUB-TERRITORIAL GOVERNMENT FINANCE: Since the mid-1990s, the Palestinian Authority and the Palestinian economy have remained vulnerable to economic shocks and subject on external donor assistance flows. LGUs’ fiscal space is characterised by a fiscal deficit status. The high spending levels during and after the pandemic far exceed the revenues they are generating. Consequently, LGUs are not able to plan adequately, design and provide resources for pressing needs without jeopardising the sustainability of their financial position or the stability of the economy. The pandemic showed that the local authorities’ performance is characterised as a moderate to weak performance due to the tight public fiscal space and the poor financial stability.

Service delivery and infrastructure provision have suffered from decades of occupation, conflict, under investment, lack of reliable data, unmanaged city growth and poor governance - combined with high demand from a rapidly growing population. The local development approach through municipalities could play a large role in stimulating this but it is limited by the lack of municipal finance options.

ECONOMIC AND SOCIAL STIMULUS PLANS: Considering building back better in the mid to long-term, it is important to bolster capacities of vulnerable individuals, institutions, LGUs and reinvigorate the private sector. In this respect, LGUs started developing their capabilities in strengthening their economy focused on local economic development, creating jobs for their citizens and reducing inequalities, for example the regeneration of historic city and village centres that contribute to open new job opportunities and new small businesses.