SSFC- Summary of Findings & Recommendations

The Eleventh Central Finance Commission after going through the reports of first generation State Finance Commissions, among other things, has opined that many of these have not addressed the specific terms listed in Article 243-I and 243-Y nor did they clearly indicate the principles formulated for sharing. A copy of the observation is made available in annexure XIV-I.

2. Keeping the observations of Central Finance Commission in mind, the Second State Finance Commission has meticulously prepared the report with reference to our Terms of Reference. That we have duly covered the Terms of Reference could be seen from the correlation statement below which is arranged in the order of paras in the Governor’s notification: -

Para number and the clause in TOR	CHAPTER in which term of reference is covered.
2. The Commission shall review the financial position of the local bodies. 3. In reviewing the financial position of the local bodies, the Commission shall assess the financial position of each of the local bodies as on 31^st March 2000.	CHAPTER-IV CHAPTER-V -do-
2(a)(i) The Commission shall make distribution between the State and the said local bodies of the net proceeds of the taxes, duties tolls and fees leviable by Government, which may be divided between them and allocation between the said local bodies of their respective shares of such proceeds.	CHAPTER-XIII
2(a)(ii) Determination of the taxes, duties, tolls and fees which may be assigned to or appropriated by the said local bodies.	CHAPTER-IV
2(a)(iii) Grants-in-aid to the local bodies from the Consolidated Fund of the State.	CHAPTER-XIII
2(b) The measures needed to improve the financial position of the local bodies taking into account inter alia, their level of debt and their ability to service the debt.	CHAPTER-VI CHAPTER-VII
4. In making its recommendations, the Commission shall have regard to the resources of the State Government the demand thereon, in particular the expenditure of the State on debt servicing including the debt servicing on behalf of local bodies/other committed expenditure or liabilities of the State Government and the need to generate adequate surplus on revenue account for State’s commitments on capital account.	CHAPTER-VII CHAPTER-XIII
5. The Commission shall have regard to existing level of devolution and other resources transfer.	CHAPTER-XIII
5(i) Recommendations of XI CFC.	CHAPTER-XI
5(ii) Requirement of the local bodies for meeting revenue expenditure including maintenance of capital assets, keeping in view the need for generating surplus for capital investment.	CHAPTER-V
5(iii) Revenue resources of the local bodies for the five years commencing from 1^st April 2002 on the basis of level of taxation reached on 1999-2000 and the potential for increase in revenue.	CHAPTER-IV
5(iv) The status of implementation of the recommendations of the First State Finance Commission and utilization by the local bodies of the resources transferred.	CHAPTER-III CHAPTER-V CHAPTER-XIII
5(v) The scope for better fiscal management consistent with efficiency and economy in major components of recurring and non-recurring items of expenditure.	CHAPTER-VI
6. The Commission shall review the present system for assessing the accountability of the local bodies in utilizing the resources raised or received from the State and Central Governments and other agencies.	CHAPTER-VIII
7. The Commission may suggest changes, if any, on the basis of classification of local bodies as rural and urban.	CHAPTER-IX
8. The Commission shall also make suitable recommendations on the changes, if any, needed in the system for payment of pension to the retired employees of local bodies.	CHAPTER-X
9. The Commission can also make suitable recommendations regarding any other issues having bearing on the terms of reference above.	CHAPTER-XII

3. In keeping with the requirements in Article 243-I(4) and Article 243-Y(2) and corresponding State enactments, we are now summarizing the recommendations made by us in the order of chapters:

1. Levy of property tax may be done as enshrined in the Tamil Nadu Urban Local Bodies Act, 1998 now in abeyance, during the next revision. If for any reason, this Act could not be renotified prior to the revision, the provisions dealing with property tax as contemplated in the above act may be incorporated in the Acts in force at that time. In any case, the concept of annual rental (rateable) value has been upheld by Supreme Court (May 2001) in property tax cases relating to Hyderabad Corporation. The property tax as contemplated in the Act shall be general purpose tax.

A minimum property tax of Rs.25/- per half year shall be levied in Town Panchayats wherever it is less than this amount.

Levy of water tax and education tax may be done at the rates as suggested in Tamil Nadu Urban Local Bodies Act. The education tax may be continued towards maintenance of school buildings till the schools are taken over by Government.

2. The periodicity of revision will be quinquinennial in respect of residential properties and in respect of non-residential properties the frequency will be once in two years. This may be effected in October 2003 after suitably amending the existing Act(s).

3. a. All assessees shall be brought under database and an assessee card as suggested in Form 12 in Tamil Nadu Urban Local Bodies Rules, 2000 containing the tax and non-tax dues may be issued. The list of assessees should be updated annually by ensuring co-ordination between Town Planning and Revenue wings of the respective local bodies.

b. Further, the Commission recommends that in Chennai city, a detailed tax mapping exercise can be given to a reputed consultancy firm which can give upto date data-base incorporating all the properties (commercial, industrial, residential etc.) in six months just prior to the property tax revision and this can be updated once in five years. On the basis of Chennai experience, it may be extended to all other Municipal Corporations and selectively for major Municipalities.

4. i) A property tax Guideline Committee may be immediately constituted for each Urban Local Body consisting of the officials as mentioned in Para 2-13 and it may classify the zones. The guideline Committee will adopt a combined index based on both general price inflation and the real estate value for the purpose of fixing rates of lands and buildings. It should be based on plinth area only. Owner occupation may be given 30% relief.

ii) Levy of fine at 2% per month on the value of tax amount for non-filing of returns and false returns.

iii) To bridge the gap between the pre-1998 assessees and post-1998 assessees, in the payment of property tax, the following approach is recommended. Commercial and industrial assessments belonging to pre-1998 period may be brought on par during next revision with effect from 01.10.2003. In the case of residential properties, this may be effected in two phases viz. during the general revisions in 2003 and 2008.

The levy as contemplated in the TNULB Act may be levied and collected without any slippage.

6. There should be no time limit to initiate legal proceedings for recovery of property tax except the provisions under the Limitation Act viz., 12 years. An amendment may be effected.

i) The plinth area rental value will be more appropriate basis for house tax in Village Panchayats around urban areas vide para 3.2.2 above and classified plinth area tax will be the better basis for interior Village Panchayats for which options should be available in the Act.

ii) The rule enabling postponement of general revision may be deleted especially when the Government expects the Local Bodies to exploit and mobilize local resources to maximum extent.

iii) Plinth area rates as prescribed in Schedule-I under Section 172(i) of Tamil Nadu Panchayats Act 1994 may be adopted along with minimum flat rate of tax as explained in Table IV –11.

iv) All other five recommendations made under this Section may also be implemented.

The Commission recommends that Panchayat Union councils may be authorized to levy ‘Development cess’ at the rate of Rs.5/- per annum on residential properties and Rs.10/- per annum for commercial properties and it should be collected by Village Panchayats and passed on to Panchayat Unions.

i) The local bodies may continue to exercise the powers of levy. The present income limits may continue till 31.3.2002. Thereafter, triennial revision may be effected from 1.4.2002. The income slabs of the salaried class for levy and the rates of tax for the periods from April 2002 and April 2005 shall be as in para 4.8.

ii) In respect of industries registered under Industrial Regulations Act and Companies registered under Companies Act, 1956 the maximum amount of Rs.2500/- p.a. may be levied from April 2002 itself. But the individual employees working in that establishment shall be covered under the income brackets as aforesaid in (i)

iii) In respect of traders, the collection may be entrusted to the Commercial Taxes department, which will assess and intimate the derived income to the respective local body for levy of Profession Tax, by using the surplus staff with them. A nominal service charge not exceeding 5% of the tax demand reported by them may be deducted and the balance 95% remitted to local bodies by Commercial Taxes Department every quarter. A committee as envisaged in para 4.8 may be constituted to review the above process once in six months.

iv) In respect of self-employed professionals, the Karnataka pattern of profession and experience based system may be introduced, vide para 4.6 read with annexure V-3. This may be done with reference to study by a suitable committee as suggested in the chapter so as to enforce the new rates from 1.4.2002.

10. Measures Common to both Panchayat Raj Institutions / Urban Local Bodies:

i) The rates fixed by the Government may be adopted and the revision may be done once in three years.

ii) It may be ensured that all business establishments / trade licencees and industry assessees covered under Profession Tax are brought under advertisement tax and the collection done along with the other tax and non-tax dues.

This tax may be levied on all vehicles as narrated in the section on non-tax receipts of Local Bodies. A similar provision may also be made in Tamil Nadu Panchayats Act or the rules framed thereunder.

The Commission recommends triennial revision of rates in respect of tax on Cable T.V.

This Commission recommends that Urban Local Bodies / Panchayat Raj Institutions may be given the powers to revise the bus stand fees once in three years with the minimum rates as suggested in the relevant para.

i) The Commission recommends that the amount entitled for apportionment and the actual amount adjusted may be reconciled and the dues at least for the period 1997-2002 may be adjusted in the financial years 2002-2003 and 2003-2004 and used for road development schemes in rural areas.

The Commission recommends that the Village Panchayats should be empowered to adopt the revised rates and collect the fees after due notification issued through the Collector of each district.

This Commission recommends that the Panchayats should be given powers to initiate action to remove the fallen trees from the roads and sell them, ensuring quick disposal of the trees and realization of better revenues

The Commission recommends that surcharge of 10% of house tax may be fixed as water tax in village panchayats where there is more or less assured supply of water all through the year.

The Commission recommends that a Committee as suggested in the relevant paras for sharing fishery rental on 50:50 basis between Panchayat Unions and Panchayats and also in respect of PWD tanks for sharing the proceeds as explained in the relevant para.

A Committee as suggested in the relevant para may be formed for fixing the upset price and for sharing the revenue in the ratio of 70:30 after deducting actual working expenses as explained in para 8.7.

i) The Commission recommends that whenever land revenue is waived or ordered for remission by State Government, the Panchayats and Panchayat Unions may be fully compensated for the loss of LC/LCS and that the fixing of LC/LCS with reference to the LR rounded to the nearest hundred rupee from April 2002, its collection and its apportioning may be implemented as explained in relevant paras.

ii) The LC/LCS dues to the Panchayat Raj Institutions for the period from 1997-2002 may be adjusted on the basis of the GO issued in 1982 as illustrated in the relevant para.

iii) The levy of enhanced rates by way of increase in LCS from Rs.5/- to Rs.7/-and Local Cess from Re.1/- to Rs.2/- on the rounded land revenue may be implemented. Half of this incremental revenue may be given to Panchayats and Panchayat Unions as assigned tax revenue and the remaining 50% may be given to water users’ association. The relevant paras on this may be implemented.

iv) The adjustment of Local Cess Surcharge and Local Cess needs to be monitored both at district level and the State level as amplified in the relevant paras.

The Commission recommends that in respect of 1 plus 3 (ground floor + 3 floors and above) buildings used for residential purposes a congestion tax at the rate of 10% of property tax may be levied. In respect of 1 + plus 2 (ground + 2 floors and above) constructions used for commercial / industrial purposes, a congestion tax at the rate of 20% of property tax may be levied in Chennai Corporation at the first instance and thereafter by other Municipal Corporations. Wherever buildings are subjected to service charges the congestion levy to the extent of 10% may be imposed for buildings with 1+ 3 (Ground + 3 floors) and above.

i) The Commission recommends that both development charges and the OSR collected within the local area be transferred to the local bodies concerned at 75% of total collection

ii) The Commission recommends that the lanes which are not required for public purposes as mentioned in para 9.3 may be sold to the willing owners at market rate in one lump-sum.

The Second State Finance Commission recommends that 10% of such collected amount under library cess may be retained by local bodies as collection charges

SFC recommends that 10% from out of the amount due to this fund may be retained by local bodies as collection charges.

Auctioning of Municipal shops may be done on the lines of IMFL auction to realize the one year rental in advance as explained in the paras concerned.

The Commission recommends for fixing lease amount wherever the Municipal land is taken as explained in the relevant paras.

We also recommend that service charge as contemplated under Section 88 of Tamil Nadu Urban Local Bodies Act 1998 may be levied on Agricultural Marketing Committees for the civic services rendered by the local bodies for which the Agricultural Marketing Committees’ Act may be amended suitably.

The Commission recommends that properties constructed by any Government Department / Agency on local bodies lands and remaining idle may be handed over to the local bodies for proper utilization.

The Commission recommends that wherever Housing Board acquisition notification (e.g., Valasaravakkam), has been issued but the scheme has not been taken up for five years such notifications may be cancelled so as to realize the revenue as suggested in the relevant paras.

i) The Commission recommends that the statutory transfer of revenue from Entertainment Tax as already ordered by Government, the sharing formula for Panchayat Raj Institutions and the monitoring mechanism as discussed in the relevant paras may be implemented.

ii) The unadjusted amount may be passed on to the local bodies within the period recommended in the relevant para.

i) The Commission recommends that the surcharge on stamp duty be levied on the 11 items relating to property at the same rate with effect from April 2002 as per Annexure IV –7.

ii) The existing system of pooling may be allowed to continue but the distribution formula may be modified in respect of Panchayats by according 50% weightage to population and 50% weightage to collection.

iii) The collection charges for the surcharge collected may be restricted to 5% for Urban Local Bodies and 3% for Panchayats.

i) The Commission recommends that the dues pending as on date may be cleared by issuing suitable guidelines.

ii) The Government Order No.5 Industries Department dated 3.1.98 may be given effect after getting the stay thereon vacated.

iii) Further, the Commission recommends that revenue from the granites may be shared with PRIs as narrated in the relevant para.

The Commission recommends that during its award period increased degree of self- reliance as explained in the relevant paras may be achieved by local bodies.

19. a) The Commission recommends that all works relating to village panchayats should be placed in the grama sabha and for urgent works post-facto approval may be obtained.

b). This Commission recommends that a Committee may be constituted with Collector as Chairman at district level to decide on water supply schemes.

20. This Commission recommends that when the major tanks are going to be handed over to Water Users’ Association as contemplated in the Tamil Nadu Farmers Management of Irrigation System Act 2001, M.I. Tanks can also be handed over to Water Users’ Association. Till such time and as this is an agency function, grants to cover not less than 50% of the expenditure may be given outside the devolution.

Similarly this Commission recommends that Government take over the rural dispensaries and ayahs working in maternity centres as indicated in the para and till such time grants to cover 50% of the expenditure may be sanctioned outside the devolution.

21. The Commission recommends that a guideline committee for fixing O&M under the Chairmanship of Commissioner of Rural Development may be formed to monitor the expenditure and budget framing for each sector as narrated in the relevant para.

22. This Commission recommends that a monitoring mechanism at the district level under the Chairmanship of the Collector may be evolved to look into the level of investment and the O&M needed as narrated in the relevant para.

23. The Commission recommends that the post of Road Inspector may be changed as Works Inspector. For a group of 5 Village Panchayats one Works Inspector may be posted. The surplus staff in other departments may be utilized and there should not be any fresh recruitments and the existing technical assistants at the Panchayat Unions who are qualified may be regularized as narrated in the connected para.

24. a) In respect of sewerage and sanitation, individual Town Panchayats may take up projects with public and private participation and with their own funds as like Valasaravakkam, Thiruchendur and Rameswaram.

b) The Commission has estimated sustainable level of investments for Town Panchayats at about Rs. 800 crores. The Commission further recommends that a guideline committee for O&M may be formed under the Chairmanship of DTP as narrated in the relevant para to fix the norms for various core sectors for the years 2002-04 to monitor the expenditure and budget framing within the scarce available resources and at the same time for ensuring due provision for each sector. These norms may be updated once in two years.

c) We recommend that the intersectoral outlay for O&M as above may be strictly monitored and implemented so that there is no tendency to book excessive expenditure on one sector at the expense of others.

d) We also recommend that the observance of O&M cost norms in the first two quarters may be watched and it may be linked to the release of third and fourth and those which conform to the norms may be given the devolution entitled to third and fourth quarter. Where the Town Panchayats incur expenditure far in excess of norms, the devolution may be reduced to the same extent they exceed the norms. Likewise in case of shortfall also the amount may be reduced as aforesaid.

e) The O&M has been estimated based on the past spending but the scope and need to contain the expenditure has been indicated in annexure to the chapter.

The recommendations made for Town Panchayats in 24(b) to (e) are applicable mutatis-mutandis but the committees will be under Commissioner of Municipal Administration or RDMAs. The O&M in the main chapter has been worked out based on the sustainable level of investment assumed at Rs.650 crores for 2002-07.

What has been said in recommendations 24 and 25 are applicable mutatis-mutandis. The O&M in the main chapter has been worked out based on the sustainable level of investment of Rs. 450 crores during 2002-07.

The recommendation made in 26(a) above is equally applicable except for the Committee and other monitoring mechanism, which will be headed by the Commissioner, Chennai Corporation as indicated in the para and that the O&M worked out in the main para is with reference to the sustainable level of investment of Rs. 525 crores forecast for 2002-07.

27. a) This Commission recommends upgradation / creation / re-deployment of certain technical posts in the department of Town Panchayats as narrated in the relevant para.

b) Subject to the proviso all posts other than Executive officers may be declared as non-provincialised.

c) In the event of the reclassification being accepted in toto or substantially, the staff rendered surplus may be redeployed in retirement / promotion vacancies. Those who could not be accommodated anywhere may be posted in Selection Grade / Special Grade Town Panchayats as additional staff to look after computer operations, settlement of audit objections and collection of arrears of taxes and non-taxes.

28. The Commission recommends that in respect of the municipalities and corporations wherein surplus staff have been identified, with reference to staff / 1000 population ratio, those municipalities and corporations have to decisively reduce the strength as narrated in the relevant para.

29. The Commission recommends that Government may form a Committee as mentioned in the para and decide on measures to improve property stock in Madurai.

30. a) The Commission recommends that Urban Local Bodies should duly organise road digging before every re-laying so that haphazard digging will be avoided. In Chennai city the co-ordination committee as suggested in the relevant para shall pursue and implement the procedure evolved.

b) To improve traffic management, we recommend that all the Municipal Corporations in the first instance may set up traffic signals in important road junctions. Particularly in Chennai city automatic computerized traffic signals as in Mumbai and Delhi may be set up. Road widths have to be maintained by keeping roads and pavements free from encroachments.

The Commission recommends that maintenance, particularly preventive maintenance, needs to be accorded higher priority than hitherto. Leakage and wastage need to be brought down from the present level of 40% to the level within 10% and there is need to impart training. The Commission’s abiding interest in water supply as a major civic responsibility, sustainable level of investment, supply at minimum cost to consumers etc., may be seen in this para. Hence all measures and recommendations including those spelt out in the critique on water supply may be implemented.

32. The Commission has taken note of the predicament of Chennaiites regarding water supply. Measures to augment supply and ensure equity in distribution are urgently required. The Commission therefore recommends a study by qualified consultant based on consumer survey and take decisive measures in the next one-year. This survey should also determine what is the market share of private water suppliers vis-à-vis, CMWSSB and outline the steps to be taken by CMWSSB to keep its market share in tact without further erosion.

a) This commission recommends that Government may set apart Re.1/- crore as incentive fund for being distributed to the local bodies who have provided R.W.H structure in 90% of lands / buildings owned by these local bodies, as per modalities to be worked out by Government.

b) Tax incentives should be made available to the public for having constructed the R.W.H. structure in their houses (rebate on the first and second half yearly assessment)

c) The Chennai Metropolitan Water Supply & Sewerage Board has made the R.W.H. structures mandatory for all the buildings (irrespective of size and area) when approaching Chennai Metropolitan Water Supply & Sewerage Board for new water and sewer connections. This may be emulated by other Urban Local Bodies.

d) The other recommendations for propagating the rainwater harvesting may also be implemented.

The Commission recommends that Special Grade and Selection Grade Municipalities may go in for privatization of identified segments of solid waste management so that conservancy staff would be reduced to the barest minimum. The privatization should lead to lower cost and better service. The surplus staff should be redeployed wherever needed.

35. a) The Commission recommends that the impact of modernization of solid waste management in Chennai City may be analyzed by making a study by a qualified consultant.

b) The Commission recommends that based on study mentioned above, as per Supreme Court judgement, in the first three years all Class I cities, the modernization of their solid waste management systems be attempted by setting up treatment, processing and disposal facilities with following allocation of funds from incentive fund.

Besides, the Eleventh Central Finance Commission grants set apart for Urban Local Bodies may be apportioned and given as per the Supreme Court direction.

The Commission recommends that incentive funds may be given to local bodies as narrated in the para based on the Report Card System.

37. The Commission recommends that a coordination committee may be constituted inducting both the Tamil Nadu Housing Board officials and officials from Heads of Departments concerned with local body administration which may review the already completed schemes and measures needed for time-bound takeover.

38. The Commission recommends that whenever investments exceeding Rs.5 crores for Corporations, Rs.1 crore for Municipalities and Rs.50 lakhs for Town Panchayats and Village Panchayats take place, such projects should be monitored personally by the District Collector, Commissioners of the concerned Corporations, Commissioner of Municipal Administration, Director of Town Panchayats and Commissioner of Rural Development to ensure that the local bodies do not act as hindrance but actively cooperate in such projects. Further, the HODs concerned should see that the local bodies accord clearance for new projects within the time limit set so as to push through the pace of development.

39. a) The Commission recommends as already indicated in recommendation No.28 above,the following staff ratio per thousand during the award period of Second State Finance Commission.

b) To achieve this, replacement of personnel hereafter by way of filling up shall be restricted to 50% of the retirement vacancies. After ensuring need-based replacement, the balance shall be surrendered.

(i) Productivity norms may be prescribed for all categories of staff to achieve rightsizing of establishment keeping in view the overall staff norms as recommended in para 6.4 and

(ii) Illustratively assessments for each collection staff may be prescribed at 2400.

40. This Commission makes the following recommendations regarding the Zero Base budgeting. In the first instance Zero Base Budget may be introduced in all Municipal Corporations and Special Grade Municipalities and also in line agencies directly and intimately connected with Local Bodies viz. Tamil Nadu Water supply and Drainage Board, Chennai Metropolitan Water Supply & Sewerage Board, Chennai Metropolitan Development Authority, Tamil Nadu Slum Clearance Board, Directorate of Town & Country Planning and Tamil Nadu Pollution Control Board.

41. Based on the experience gained so far in privatization the State Finance Commission makes following recommendations: -

i) This Commission reiterates the provisions relating to privatization in Tamil Nadu Urban Local Bodies Act/ Rules and also policy spelt out in the G.O. on privatization of core civic services for ensuring cost reduction, but avoiding double cost for the taxpayers.

ii) In the first phase, as indicated in recommendation 34 above,Solid Waste Management particularly transport of garbage and segregation and recycling of wastes may be privatized in Municipal Corporations / Municipalities and thereafter to bigger Town Panchayats. While attempting this, the staff shall be redeployed so that the expenditure on the operations is brought down.

iii) The lessons of privatization of solid waste management may be studied and thereafter it may be extended to maintenance of streetlights and water supply. By 2005, about 35% to 40% of the civic services need to be privatized.

iv) Government may make use of the proposed amendment to contract labour laws by the Centre, to ensure that these facilitate privatization and do not hinder the process.

42. The State Finance Commission recommends that the fiscal responsibility may be fixed on the local bodies in the following areas illustratively and incorporated in Panchayats Act and Urban Local Bodies Act by early 2003.

e. Limiting the salary and pension commitment to 49% and deploy at least 51% for O & M, assets creation, debt servicing and investment.

f. Fixing responsibility for time and cost overruns on line agencies and government departments.

43. The State Finance Commission recommends that centralized purchase of public health materials by Panchayat Raj Institutions may be organized at the district level, (say, Collector or Project Officer, District Rural Development Agency) as in Urban Local Bodies.

44. a) This Commission recommends the normative cost of Rs.300/- per light on an average in rural areas with purchase of aluminium choke only. Simultaneously, the State Finance Commission recommends that a Committee may be formed consisting of Chief Engineer from Tamil Nadu Electricity Board and Additional Director in the office of the Director of Rural Development. This committee will meet before the year 2002-2003 and fix norms, which will be in vogue for two years after which it will be revised every two years.

b) This Commission recommends fixing the O&M cost for Hand Pumps and Power Pumps as below: -

45. This Commission recommends that a cost-cum-water tariff fixation committee may be constituted with the members as suggested in the relevant paras and also the rates for TWAD operated schemes.

This may be done before April 2002 and reviewed once in two years by converting this into a statutory body and incorporating this in Tamil Nadu Panchayat Act and Urban Local Bodies Act.

46. In respect of CMWSSB similar approach may be adopted and a committee as mentioned in para 9.19 may be formed for fixing rates and revision.

47. This Commission recommends that schedule of rates may be fixed district wise annually by a committee of respective S.E.(PWD), S.E.(Highways) and S.E.(TWAD) taking into account lead and availability of raw materials locally.

48. This Commission recommends that HoDs may prescribe and monitor the life of a vehicle / norms for condemnation, ceiling on maintenance / repair and purchase so as to curb wasteful expenditure.

49. A Taxation Appeal Tribunal may be constituted in each of the seven RDMA jurisdictions besides a tribunal at Chennai for adjudicating the fiscal matters which should be final and binding. These eight tribunals will deal exclusively with local body property tax and house tax cases.

50. This Commission makes the following recommendations to facilitate collection of arrears: -

i) Defaulters’ list may be published through mass media such as local newspapers, cable T.V., cinema slide etc.

ii) Legal proceedings and criminal prosecution may be pursued to their logical conclusion and revenue realized.

51. a) In case of collection of cycle stand fees they may be given to TEXCO to prevent scrupulous elements from fleecing the public and pocketing the difference.

b) In case of pay and use latrines reputed NGOs and trusts may be granted the lease.

52. The sealed tender-cum-auction method may be implemented for leasing out properties of Local Bodies and advance rent can be collected before leasing out the premises. (Pagadi System). Further, by prescribing the up-set value new projects should be subjected to fetch the minimum amount, which would ultimately cover the project cost and interest well within the payback period.

53. In order to streamline the system, the State Finance Commission recommends that the depositing of the Provident Fund contribution to the respective account should be verified by the Financial Adviser & Chief Accounts officer from the concerned Office of the Head of Department once in six months and with a computerization of Accounts, the backlog in interest calculation should be brought to current as explained in the relevant paragraphs in the chapter

54. a) This Commission after detailed deliberations both internally and with various stakeholders has decided to segregate water supply loan from other loans and accord separate treatment for water supply and drainage loans for the schemes implemented by TWAD as on 31.3.2000. There will be no relief for loans taken for remunerative enterprises.

b) This Commission recommends debt relief subject to Recommendation No.56 below, on principal outstanding as on 31.3.2002 on water supply loans as under:

From 1.4.2002, the interest may be calculated for the principal as on 1.4.2002 after deducting the amounts to be written off as recommended above.

55. The State Finance Commission recommends that the interest rate may be reduced from 13.5% to 10.74% for the Urban Local Bodies subject to the criteria spelt out in Recommendation No.56 below.

56. a) In respect of Municipalities and Town Panchayats, only those Urban Local Bodies which have their own per capita income above the average for that grade within that class of Urban Local Bodies will be eligible for relief. For instance, if a Municipality is in Grade I category, for comparison, the average per capita income for Grade-I needs to be taken.

b) The second criterion is that on expenditure front also, only those Municipalities and Town Panchayats which have their per capita expenditure below the average for that grade within that class of Urban Local Bodies will be eligible for relief.

c) For Municipal Corporations, (excluding Chennai) class average may be taken for both the above criteria.

d) In other words both criteria need to be satisfied for giving relief to Urban Local Bodies. For those Urban Local Bodies which satisfy any one criterion and not eligible for debt relief, moratorium will be given upto 2003 to see if they improve their financial position in the next revision of property tax and steady reduction of their expenditure by then. The Urban Local Bodies, which do not satisfy even one criterion, are not eligible for moratorium also.

e) The relief as aforesaid is confined to loans taken for water supply and drainage projects only. It will not include other projects taken up for remunerative enterprises. Further, since water supply and sewerage functions of Chennai Corporation are entrusted to Chennai Metropolitan Water Supply and Sewerage Board, Chennai Corporation is not entitled for debt relief.

57. There are several high-debt Municipalities though not eligible under the criteria in Recommendation No.56 above need relief and would require a separate approach. To facilitate decision-making in respect of such Urban Local Bodies, this Commission recommends that a committee consisting of Commissioner of Municipal Administration, Special/Additional Secretary, Finance Department, Special / Additional Secretary, Municipal Administration & Water Supply Department as Members and Chief Executive Officer, Tamil Nadu Urban Infrastructure Financial Services Ltd. as a special invitee may be constituted by the Government. The review by the Committee may be in two ways for the two classes of Urban Local Bodies as detailed below: -

a) For the Municipalities, which are eligible under the criteria in para 10.1(per capita income/expenditure) the review will be half-yearly to see that they do not slip back in financial parameters.

b) The Commission recommends a level of Rs.750/- per capita debt for the second class of Urban Local Bodies. For these high-debt Urban Local Bodies, first there needs to be BIFR type of analysis by the above Committee as explained in para 10.2

c) After reviewing this, based on the committee’s recommendations, Government can enter into a MOU with those municipalities. On signing the MOUs by these municipalities (by Chairman and Commissioner) the relief will be accorded. This will be monitored on quarterly basis to see if these ULBs stick to the conditions stipulated in the MOU. If they do not, devolution shall be cut proportionately.

58. The Commission recommends a 25% ceiling on deduction from gross State Finance Commission devolution towards repayment of government loans.

59. The penal interest on water-supply loan outstanding as on 31.3. 2000 is around Rs.30 crores. Hence this Commission recommends waiver of penal interest from equalization fund available to Urban Local Bodies to those Urban Local Bodies who satisfy the eligibility criteria spelt out in para 10.1.

60. The Commission recommends that there may be one agency for both State and Centrally Sponsored schemes for improving basic amenities viz. TUFIDCO and the other for World Bank aided projects viz. TUIFSL. Accordingly, the IUDP schemes handled by Directorate of Town and Country Planning may be handed over to TUFIDCO. Thus, TUIFSL may continue to be an agency in BOT and World Bank funded projects. To avoid overlapping of functions, lending by TUFIDCO may concentrate upon remunerative projects and Mega city programmes and TUIFSL may take up the rest viz. water supply and infrastructure loans.

61. The Commission recommends that the Heads of the Departments should continue to oversee the financial position of local bodies effectively and to limit the borrowings at certain prudent level especially in Urban Local Bodies through case-by-case analysis. A ceiling of four times on own resources could be fixed for borrowing by the Urban Local Bodies in this State. After detailed scrutiny, this norm may be incorporated in TNULBs Act. Similarly for annual debt servicing for all loans, it may be fixed at 25% of the total revenue receipts.

62. a) The State Finance Commission recommends that the incentives may be sanctioned to both Urban Local Bodies which have successfully launched the public health project through public participatory approach and through private sector involvement. This approach will keep debt of such local bodies within manageable levels.

b) The Commission recommends that urban development fund may be created from out of equalization fund set-apart for Urban Local Bodies. This is to take care of interest subsidy in respect of viable and eligible projects benefiting the core civic needs of the people. This will be done after appraisal in each case.

63. The Commission recommends that better placed Village Panchayats adjoining Corporations can think of taking loans. The borrowing may also be permitted at the Panchayat Union level for remunerative purposes since the Panchayat Unions will have better financial viability for better management of assets and for debt servicing, for which instructions may be given. These will be on case-by-case study.

64. a) This Commission recommends that the Director of Local Fund Audit shall be the statutory auditor for Municipal Corporations, Municipalities, Town Panchayats, District Panchayats, and Panchayat Unions. For conferring statutory status on Director of Local Fund Audit, a separate enactment of law on the lines of A.P. and Kerala may be attempted.

b) The Village Panchayats’ audit shall continue to be done by Deputy B.D.O. as at present. However we recommend Test Audit by Director of Local Fund Audit as tabulated in the statement in the Annexure VIII 1.a. to this chapter.

c) Further we recommend that in place of concurrent audit, pre-audit may be introduced for work-bills in Municipalities, Town Panchayats and Panchayat Unions. The staff that are now engaged in concurrent audit may be made use of.

d) Simultaneously, it is imperative to improve the expertise of auditors qualitatively for which more professional approach is needed. Hence we recommend that 25% of the posts of ADs may be earmarked for direct recruitment so as to induct professionals such as Chartered Accountants as is being done in Treasuries and Accounts Department. Besides, we recommend that subordinate service personnel be put through SAS test so that they could give adequate support to auditing officers as is being done in Accountant General’s Office.

e) The Commission recommends that the accrual accounting system may be progressively extended to all Town Panchayats and Panchayat Unions from 2003-04 after due and extensive training to the staff.

65. We recommend that, wherever Sec 14 of the Comptroller & Auditor General Act 1971 applies, A.G. can continue to do scheme audit. The relative audits to be done by Director of Local Fund Audit and Accountant General may be seen in Annexure VIII-1. Further, the Government may take up with Comptroller & Auditor General of India and Union Finance Ministry for raising the financial limits as they were fixed about two decades ago.

66. The Commission recommends that the time frame as indicated in Para 3.8. may be followed.

To ensure the above annual calendar of events the two exclusive committees as amplified in Para 3.8 may be set-up to monitor the schedule and they may meet once in a quarter.

67. This Commission recommends Committees at the district level for Urban Local Bodies for clearing the accumulated audit objections.

68. The Commission recommends implementation of management audit, so as to instill a sense of responsibility among the executing agencies.

69. a) The Commission recommends creation of schematic budget as explained in Para 6.5 and 6.6 for a period of two years to start with.

b) The Commission further recommends that a detailed shelf of projects needs to be prepared dovetailing with the Tenth five-year plan and this can be got approved by the Grama Sabha. This is explained in the section on Grama Sabha. Further Plan-Budget linkage needs to be consciously worked out.

70. In order to strengthen the accountability of the elected representatives to the public, the Commission makes the following recommendations: -

a.	Filing of property return as mandatory for elected representatives as contemplated in G.O. Ms.No.858 RD & LA Dept. dated 25.4.73 at the time of assuming office and also annually during the term of office for which Tamil Nadu Panchayat Act 1994 and Tamil Nadu Urban Local Bodies Act 1998 may be amended suitably (vide Annexure VIII 2)
b.	The Local Body representatives have to be declared as public servants so as to enable invoking the provision of Prevention of Corruption Act, 1988 and Benami Act.
c.	Ombudsman type of institution may be set up for Local Body representatives with six months time frame to complete the enquiry and give findings.
d.	Debarring the functionary concerned from election in the event of conviction by court as envisaged in Section 8 of the Representation of Peoples Act, 1951.
e.	Issuance of detailed guidelines to prevent Benami Transaction by Local Body representatives.
f.	The elected representatives against whom RILS proceedings are issued and also for proven irregularities may be debarred from contesting election for six years for which the relevant Act may be amended. (VIII-Para 7.2)

71. a) This Commission recommends that for each Panchayat Union as explained in the relevant paras, a qualified para-accounting professional from the panel approved and maintained by the Director of Local Fund Audit can be appointed by the concerned District Collector, as Inspector of Panchayats. While computerizing the accounts of the Village Panchayats, the present registers maintained may be reviewed and reduced to the extent possible.

72. The Commission recommends that the amount earmarked by Eleventh Central Finance Commission for data base of Urban Local Bodies may be set apart for Town Panchayats for computerizing these accounts. In respect of PRIs, the entire amount may be set-apart for Panchayat Unions as they are the focal centres of data base management

73. This Commission recommends that the audit report incorporating major irregularities noticed in the local bodies may be compiled and presented before the Committee of legislature for local bodies, for which the Director of Local Fund Audit can function as a Secretary or Convenor.

74. The Commission recommends opening of Computerized Information Kiosk in all the Corporations, Municipalities and Panchayat Unions, in the first instance. Once the computerization is introduced in Town Panchayats, (vide para 8.2) such kiosks can be opened there also.

75. This Commission makes the following recommendations to strengthen the Grama Sabha: -

i) Grama Sabhas may be conducted by rotation twice a year covering all the habitations in Village Panchayats.

ii) Grama Sabhas may approve all the works taken up by Panchayat Unions, District Panchayats, District Rural Development Agency, various State and centrally sponsored schemes as also works taken up under MLA LADP funds. Wherever urgent works are to be executed, post-facto approval may be obtained in the next meeting of grama sabha as explained in chapter on Civic Needs and Finances-Para 7.1.

iii) It must be made mandatory for the field functionaries of line departments to be in attendance while Grama Sabhas are in session.

v) Consistent with the above, other recommendations and suggestions made in the reports of Director of Evaluation and Applied Research and Gandhigram Rural Institute may also be implemented.

76. a) In the light of the experiences gained in the conduct of Grama Sabha in the last four years, the Second State Finance Commission strongly recommends a similar Urban Sabha may be constituted in Town Panchaya