The Marker, Adi Cohen, 09.03.2021
Budgetary ignorance that has opened up in the coffers of dozens of local authorities that have signed umbrella agreements with the state in recent years, indicates the failure of the mechanism designed to incentivize cities for intensive development, in order to absorb thousands of new residents. By the end of 2019 , umbrella agreements had been signed with 32 local authorities with the aim of increasing the incentive for additional housing units in their territory, through significant development budgets - but many authorities were left with a budgetary burden and insufficient sources of income to absorb thousands of new residents.
TheMarker has learned that the Interior Ministry is currently leading a dramatic move to overcome the main barrier preventing intensive development of housing supply in cities - and promote a new umbrella agreement with an "improved" mechanism that will include additional budgets for the authority, which will serve as a kind of economic safety net. The network will make it possible to finance the increase in expenses required to absorb the families and prevent harm to existing residents.
The current roof agreements have earmarked billions of shekels from the state budget for the development and construction of supporting infrastructure and public buildings alone. In contrast, the new agreements are expected to include an additional annual budget estimated at tens and even hundreds of millions of shekels per year, for each city that is found suitable for it - depending on the number of housing units added to it - and will accompany the roof agreement, in order to ensure its implementation. Accordingly, the Ministry of the Interior, which until now was not a party to the umbrella agreements, is seeking to join the signing - alongside the Israel Land Authority, the Ministry of Finance and the Ministry of Construction and Housing.
The move comes after the Interior Ministry has been warning for years about the dangers in the deficit budget that local authorities are facing due to the roof agreements. Now, the political situation created since the Ministry of Finance stopped concentrating its powers in the field of housing, allows the Minister of the Interior, Aryeh Deri (under whom sits the Planning Administration), to intervene and demand budget transfers to local authorities.
The great promise of Deri and Litzman
In light of Deri's involvement in the housing market, it is not surprising that in the last news ahead of the election, the plan to establish an ultra-Orthodox district in Kiryat Gat is the one that is expected to receive tens of millions of shekels, as part of the Interior Ministry. This is a huge plan to build about 10,000 housing units in the west of the city for the ultra-Orthodox public - which is one of the biggest sectoral promises of Deri and the Minister of Construction and Housing, Yaakov Litzman. The plan has been promoted at an accelerated pace in recent months - in parallel with contacts to formulate a new roof agreement, the third in number, between the Kiryat Gat municipality and the state, in favor of its implementation.
Minister of the Interior, Aryeh Deri Photo: Moti Milrod
TheMarker has learned that the new roof agreement of Kiryat Gat is expected to include, for the first time, an estimated budget backing of an additional NIS 70 million per year - to cover the current deficit that will be created following the expected addition of residents to the city. According to sources in the Ministry of the Interior, this is a budget required by the ministry as an economic safety net for the city, which will accompany it throughout the period of implementation of the three roof agreements - estimated at 10-12 years. In total, this is NIS 700-800 million for the municipality's coffers.
The current budget item for the city is weighted based on the approximately 20,000 housing units that are expected to be added to the city in the coming years, within the framework of the roof agreements that have been signed - and the third is currently being discussed. According to the Ministry of the Interior, the deficit that each of these housing units will create is about NIS 4,200 a year. Along with this clause, the agreement will also include a set of tools and resources that will assist the local authority in marketing and realizing the employment areas in its territory: establishing a municipal administration that will have faith in the issue, budgeting for additional manpower, providing incentives for construction developers and more.
The Ministry of the Interior claims that the Ministry of Finance expresses its willingness to include the budget assistance clause in the agreement. However, our appeal to the Ministry of Finance shows that the issue is not on their table at this stage - despite the large budget increase that requires the ministry's involvement.
Yaakov Litzman, Minister of Construction and Housing Photo: Emil Salman
"NIS 65 million a year for five or six years"
"It is no secret that the Ministry of the Interior had a factual and focused critique of the umbrella agreements and that they do not have a built-in response to the current challenges of local authorities," says Mordechai Cohen, director general of the Ministry of the Interior. "Kiryat Gat, which is about to sign another roof agreement, which will bring it to a city of 250,000 residents in the not too distant future."
"The umbrella agreements signed are a tremendous move by the state in terms of accelerated development and super-infrastructure, but they do not address the authorities' ability to provide services to the growing population - and there is a delay of several years until those authorities manage to stabilize their budgetary resources ." Employment and trade.
Mordechai Cohen, Director General of the Ministry of the Interior Photo: Ofer Vaknin
"We want to create incentives for entrepreneurs who will realize the employment areas and prevent the city from running a deficit, along with providing budgetary support that will help the municipality provide services to residents - until those areas are realized, which we estimate will take five or six years. NIS 70 million a year, while the local authority requests about NIS 120 million.
"The agreement is currently being negotiated, and what is left for White at the moment is how long it will take until the budgetary sources of employment are created and what the scope of the deficit will be at that time," Cohen adds. "If our demands in this agreement are indeed met, we will not only be partners in the discussion - but also in the signing, and we will be the ones accompanying the implementation of this move."
According to the director general of the Ministry of the Interior, the government paralysis that Israel has been in for the past two years is delaying the implementation of the move: "We live in a continuous budget, and also for the Ministry of Finance, Israel Land Authority and the Ministry of Housing. However, unlike in the past there is more attention and willingness to move during the day. The Treasury also understands that there is a barrier here that cannot be ignored - and that local authorities must be addressed.
"On the one hand, the state cannot call on the PA to go under the stretcher, take risks and turn worlds around to develop - and on the other hand, because of the same development, the city will enter recovery plans. And that is what is happening in Kiryat Gat right now.
Cohen claims that the upgraded roof agreement that Kiryat Gat will sign, on its additional budgets, is detached from the designation of the Kiryat Gat West plan for the ultra-Orthodox population. However, given the many forces and resources that the leaders of the housing market are investing in government ministries in promoting this plan on the eve of the election - it is difficult not to attribute the move in question to the implementation of the huge plan. In addition, the Kiryat Gat Municipality notes that the inclusion of a current budget assistance clause in the municipality's coffers has been placed on its part as a condition for signing the agreement - and for implementing the extensive construction of housing units intended for the ultra-Orthodox public.
On the way to the domino effect
To date, the umbrella agreements have not included "backing up" the gap in the current budget of local authorities as a result of the addition of residents - and thus lies a significant part of the failure of these agreements on the part of mayors. This was also pointed out by a report published by the Ministry of the Interior last October, which first quantified the damage created by the umbrella agreements to the resilience of most of the authorities that signed them (about 75% of them) - when their financial ability to provide adequate services to their residents decreased.
Mayor of Kiryat Gat, Aviram Dahari Photo: Ilan Asaig
Under the agreements signed so far, 395,000 housing units were to be added. But in practice, it seems that the state is having a hard time meeting the goals it has set for itself. This is also indicated by the Bank of Israel's report published in March 2020, which shows that of the marketing targets set by the state under the umbrella agreements, as of the end of 2019, only 35% have been implemented in practice.
According to estimates, if the new model of the umbrella agreement is implemented in Kiryat Gat, a domino effect is expected to occur among the local authorities that have signed and will sign umbrella agreements. That is, many authorities are also likely to seek coverage budgets for the deficit inherent in the roof agreements process.
"Three times more public institutions"
"After two agreements we signed with the state, in the third roof agreement we are no longer ready to be suckers," says Aviram Dahari , mayor of Kiryat Gat , in a conversation with TheMarker . "We are ready to build for young couples, the ultra-Orthodox and anyone who wants to - but we will not pay for it anymore, but the state.
"Unlike the previous agreements, the third agreement we formulate does not only talk about the Kiryat Gat West plan (Haredi Quarter; A.K.), but about everything that will happen in the city by 2040. There are huge plans in the west of the city, in the north, plans and plans for urban renewal. "The current budget we are talking about should take into account all these housing units, which add up to the municipality's annual deficit."
According to Dahari, the development costs are expected to grow in the construction of a district for the ultra-Orthodox population and should be reflected in the budgeting of the roof agreement. "In a neighborhood like Carmei Gat, which is for the general public, you are building a 20-story building, a school and some kindergartens. In the west of the city we will need 3 times more public institutions. In previous agreements, on the development fees the state named the municipality had to add matching. I do not mean "To do it here, I have no where. If the state wants tens of thousands of housing units, I have no problem - but to put a hand in your pocket."