The 15th Finance Commission headed by Chairman, Shri N.K. Singh along with its Members and senior officials today met with the representatives of the Urban Local Bodies (ULBs)  of Karnataka.

The Commission was informed that:

• All 17 functions of the 18 as envisaged in the 12th schedule of the Constitution, have been devolved to ULBs in Karnataka. One remaining function of Fire Services devoled only to Bruhat Bengaluru Mahangara Palike (BBMP). 
• The State has been releasing funds currently as per the recommendations of the 4th State Finance Commission ( 2018-19 to 2022-23).
• Karnataka  has a total of 280 ULBs, of which 115 are Town Municipal Councils, 92 are Town Panchayats, 58 are City Municipal Councils, 11 are Municipal Corporations  and 4 Notified Area Council.

 As per the recommendations of the 4th SFC, (2018-19 to 2022-23)

• 48% of the non-loan net own revenue (NLNORR) of the state to be allocated to local bodies.
• 1% of the NLNORR may be earmarked to Brihat Bengaluru Municipal Corporation, leaving 47% to be allocated to PRIs and ULBs in 75:25 ratio (i.e., share of PRIs & ULBs at 35% and 12%, respectively).
• Central FC grants should not be included as a part of devolution.

The Commission was informed about:

i)  AASTHI project for GIS-based property tax system: Under this project, the property tax valuation changed from annual rental value assessment to a capital value method and a GIS-based property tax information system was put in place. Further, a ‘self-assessment system’ has been implemented, shifting the responsibility for calculating property tax from city officials to property owners.

ii) Karnataka Municipal Data Society (KMDS): State has formed Karnataka Municipal Data Society (KMDS) that rolls out municipal IT applications for citizen services and municipal administration to ULBs in Karnataka, manages their websites, and is a repository of municipal data.          

  The Commission observed that:

• There has been no releases of performance grants to ULBs in 2017-18 & 2018-19.
• The State Government should have ideally constituted SFC-V by now – also the  that previous SFCs were not constituted on time.
• The State Government has included Central FC grants as part of state devolution (despite SFC-IV recommending against it).
• The revenue from advertisement tax for ULBs was estimated to be ₹ 200 crore in 2018-19. However, GST has subsumed this tax. In this regard, State Government has responded that ULBs were provided additional devolution of 0.5% p.a. of NLNORR by SFC-IV, which would take care of this shortfall.

The representatives of  ULBs present at the meeting were – Ms. Gangambike Malikarjun, Mayor, BBMP; Shri Padmanabha Reddy, Corporator, BBMP ward No. 29, Leader of opposition in BBMP; Shri B. S. Sathyanarayan, Corporator, BBMP, Ward No.154, Basavanaudi; Ms. Roopashree B. S, Deputy Mayor, Tumakuru City Corporation; Shri Channabasappa S. N, Deputy Mayor, Shivamogga City Corporation; Shri B. A. Ramesh Hegde, Corporator, Shivamogga City Corporation; Shri M. Sudhir, President, Kampli TMC; Shri H. Vishunayak, President, Mariyammanahalli TP and   Shri G. Raghavendra, Councilor and Member Standing Committee, Khudlagi TP.

The Commission further noted all the concerns highlighted by the representatives of the ULBs and promised to address them in its recommendations to the Central Government.

Devolution of functions: state allocation framework and municipal reforms flagged gaps in grants and fiscal treatment of central transfers. The Commission noted Karnataka's devolution of nearly all 12th schedule functions to ULBs, the State's adherence to the 4th State Finance Commission's allocation of a specified share of non loan net own revenue to local bodies with a separate earmark for the metropolitan corporation, and the 4th SFC's recommendation to exclude Central Finance Commission grants from state devolution. It recorded municipal reforms-GIS based property tax valuation with self assessment and a municipal data society-and concerns over unpaid performance grants, delayed SFC constitution, inclusion of central grants in devolution by the State, and GST's impact on municipal revenues.