The implementation of financial autonomy for local governments in Nigeria could result in a significant revenue shift, with state governments potentially forfeiting billions of naira annually to the 774 local councils. An analysis of the 2023 state Internally Generated Revenue (IGR) data reveals that the 36 states and the Federal Capital Territory (FCT) collected a combined N341.6 billion from sources that, under the new autonomy arrangement, would fall under the purview of local governments. This figure represents revenue streams such as market levies, road taxes, tenement rates, and other local charges that have historically been collected by state governments but are constitutionally designated as local government revenue.
The move towards financial autonomy for local governments gained significant momentum with a landmark Supreme Court ruling in July 2024. The court affirmed the constitutional right of local governments to manage their own finances and directed the Accountant-General of the Federation to disburse allocations directly to local government accounts. This ruling effectively stripped state governors of their long-held control over local government funds, a practice the court deemed illegal and unconstitutional. The case, initiated by the Attorney-General of the Federation, challenged the governors’ authority to withhold federal allocations meant for local governments and their practice of dissolving elected councils and installing caretaker committees.
Despite the Supreme Court ruling, the direct disbursement of funds to local governments hasn’t fully materialized. The Federation Accounts Allocation Committee (FAAC) continued to channel allocations through state government accounts for the latter half of 2024, citing “practical impediments” to the direct payment system. The potential loss of revenue from local sources, as highlighted by the IGR analysis, represents a significant hurdle in the implementation of full financial autonomy. State governments, accustomed to controlling these revenue streams, face the prospect of a substantial reduction in their financial resources.
The National Union of Local Government Employees (NULE) has strongly advocated for the return of these locally generated revenues to the councils. NULE President, Hakeem Ambali, argues that the collection of these revenues by state governments is unconstitutional and contravenes the Fourth Schedule of the 1999 Constitution, which clearly outlines the revenue sources assigned to local governments. He highlighted several specific examples, including signage fees, refuse evacuation charges, tenement rates, and motor park tolls and taxes, as revenues that rightfully belong to local governments but have been usurped by state governments. He further criticized the creation of state-level entities like motor park boards as mechanisms designed to divert local government resources.
The analysis of the 2023 IGR data provides a state-by-state breakdown of the potential revenue loss, revealing considerable variation across the country. Lagos State stands to lose the most, with a projected forfeiture of N77.1 billion to its 20 local government areas. The FCT follows closely with a potential loss of N65.22 billion to its six area councils. Rivers State is another significant loser, projected to forfeit N32.83 billion to its 23 local government areas. Other states like Ogun, Delta, Edo, Kaduna, Kwara, Oyo, Akwa Ibom, Ondo, Kano, Enugu, Anambra, Ekiti, Cross Rivers, Ebonyi, and Bauchi face varying degrees of revenue loss, ranging from hundreds of millions to billions of naira.
The remaining states also face potential revenue reductions, highlighting the nationwide impact of this impending financial restructuring. The figures underscore the significant financial implications of granting local governments full control over their constitutionally allocated revenue sources. This shift in revenue control has the potential to reshape the financial landscape of sub-national governance in Nigeria, empowering local governments and potentially leading to improved service delivery at the grassroots level. However, the transition presents significant challenges, particularly for state governments that will need to adjust to a reduced revenue base and find alternative ways to fund their operations. The successful implementation of financial autonomy for local governments will require careful planning, collaboration between the different tiers of government, and a commitment to transparency and accountability in the management of public funds.
