In a historical decision, the Supreme Court of Nigeria has mandated that all 774 Local Government Areas (LGAs) of the federation must have full financial autonomy.
This suggests that the federal allocation meant for local governments will bypass the State Government and be paid directly to the Local Government coffers.
Many believe this will make room for more accountability and transparency at the local government level, create more opportunity for grassroot development, and reduce income inequality.
However, some argue that the financial autonomy given to local governments might lead to a disruption of Nigeria’s federalism, equating the federal government’s direct credit to local government accounts to usurping the powers of the states.
From Nigeria’s pre-independence period, local governments across the various regions had always been self-sufficient, generating their incomes from taxes and providing social services such as primary education, primary health care, and other basic infrastructure.
The current federal intervention in local government funding finds its origins in the local government reforms of 1976. The former reforms paved the way for the current local government structure, function, local revenue generation, and federal allocation.
While the local government reforms mostly changed their structure and functions, the federal allocation shared to the local governments also changed.
The Federal Government allocation to LGAs increased through the years from 10% of the proceeds to the federation account in 1976 to the current 20.64%, due to increased responsibilities and increased number of the Local Government Areas.
The increase in federal allocations to LGAs coincide with increases in their numbers from 299 LGAs in 1967 to 774 LGAs in 1999 till date.
Currently, the Federal Government divides the FAAC allocation between the three tiers of government in Nigeria, based on different factors, such as the 13% derivation, Statutory Allocations, Value Added Tax (VAT), and distribution of exchange gain difference.
The FAAC allocation of 20.6% for the local governments is to be shared among the 774 LGAs in the country.
The President of Nigeria, Bola Tinubu assured that, “by this judgment, our people – especially the poor – will be able to hold their local leaders to account for their actions and inactions. What is sent to local government accounts will be known, and services must now be provided without excuses.”