BROKE STATES

“Ask not what your country can do for you. Most of the politicians are corrupt anyway.” Rita Coolidge

It is official. State governments are going under because they have no funds to keep basic services going. Bankruptcy which faces many state governments has long been foretold by many governors, and the protracted arguments over paying the N18,000 minimum wage have been identified as both cause and the consequence of many states, particularly those from the north, going broke. But the Senate says States are going broke because governors are corrupt. Its Ad Hoc Committee on National Planning, Economic Affairs and Poverty Alleviation, Appropriation, Finance as well as States and Local Governments which examined the causes of the looming bankruptcy in many states, recently concluded that it is the result of financial recklessness of many governors. The senators say corruption through misappropriation and misapplication of public funds and abuse of immunity clause in the constitution is responsible for the threat of bankruptcy in States.

Perhaps it should surprise no one therefore that State governors have decided to challenge the Federal Government over deductions and withdrawals for such items as payments for petroleum subsidy, Excess Crude Account and the Sovereign Wealth Fund. They say these deductions and withdrawals are unconstitutional, and they will ask the Supreme Court to decide whether they should continue or not.

Governors’ grievances over deductions to pay the massive and highly disputed fuel subsidy was in part responsible for the decision to withdraw the subsidy on petroleum. It soon became clear that the partial withdrawal has neither resolved the basic issues of transparency and accountability in the oil and gas sector; nor put the issue of the acceptability of amounts deducted to rest. Government is still paying a much higher amounts than it should for the reduced subsidy, and state governments’ “take-home-pay” from monthly fund allocation meetings has become leaner and more unpredictable. Governors complain that they do not understand or accept the process which deprives them of large expected amounts. They want an end to deductions to pay for subsidy, and this should raise their monthly allocations. If all subsidy has to be removed, so be it, but they will not say so.

They also want a judicial ruling of the Federal Government’s desire to create a Sovereign Wealth Fund to replace the Excess Crude Account, a facility which currently makes available the resources of all tiers of government for massive, unplanned drawdown. Intense and delicate negotiations, lobbying and discussions have been going on to prevent the Governors from taking the Federal Government to court over the legality or propriety of the Sovereign Wealth Fund (SWF). Realizing that it will not win a legal battle over the SWF, the Federal Government had opted to convince Governors of the value of the facility, emphasizing its benefits of saving for investment in infrastructure and the real sector, and shielding huge resources from being used to address immediate recurrent needs and overheads of governments. Until this decision to challenge the establishment of the SWF, the Federal Government had virtually established a framework for its operation, and with anywhere between $1b to $5b reported to be available for it, and a target of $10b being lobbied for, it appeared as if the Federal Government was winning its battle to save for the rainy day. There was some talk of partial buy-in by some governors, and fierce resistance from partisan interests. The intense efforts put in by Dr Ngozi Okonjo-Iweala to bring the Governors around to some agreement now appears to be coming unstuck. A legal dispute will substantially delay the take-off of the SWF, and render the excess crude funds amenable and available for continuous, routine plunder.

Viewed against the claim by the Senate that mismanagement and corruption, and not dwindling resources are responsible for the imminent bankruptcy of many states, how is the clamour for increased funding by State Governments from oil and gas revenues to be understood? One perspective may be informed by the accepted wisdom that Governors will never have “enough” resources to misappropriate, maintain basic services and institutions of state, as well as invest in real development. One or two have said they have enough to develop, and a few others have concentrated on raising more revenues internally instead of crying out for more funds from oil and gas sources. A second perspective may place the senators’ conclusions in a context which suggests that they are ill-equipped to comment on the management of resources at state levels. They lack the moral courage to criticize, in the light of their own massive remunerations. They do not have to take difficult decisions which Governors take in managing costly public services, oiling political machines and investing in infrastructure. A third perspective may highlight a wider issue on the merit of revisiting the manner revenues are shared between the three tiers of government.

State Governors have made a credible case for a review of the revenue allocation formula which should give them a larger share. There is a lot of sympathy for this position, as well as the basic underlying argument that the federal government should be relieved of many of the functions it performs, which it uses as rationale for its current share of revenue. States therefore want more funds for more tasks, or at least to perform their tasks better.

The basic problem is one of trust. The public does not trust State Governments to use additional resources judiciously, with very few exceptions. In circles where serious discussions around the amendment of the constitution are conducted, state governments are reminded that their demand for additional funds will enjoy wider and more credible support if they accede to the demand that local governments should enjoy unfettered financial and political autonomy. There are also serious questions regarding the quality of management of public funds, with waste and corruption being the hallmark of much of governance in most states.

Ordinarily, State governments should mount a vigorous public campaign in support of the legal steps they are taking to challenge the federal government over the deductions and withdrawals from oil revenues. But they are likely to lose the battle because the public will be hard put to join in a cause which merely seeks to transfer funds from the federal to state governments, disburses funds now which could be saved. Neither level enjoys much credibility in terms of the manner it handles public funds. Yet there are good reasons why the issue which Governors say they will take to the Supreme Court should be discussed more widely. The manner the excess crude account has been approached with a predatory attitude by federal and state governments should not be tolerated. While there are good reasons to create flexible access to these types of funds for critical, short-term needs, these have hardly been the uses to which they have been applied in the past. The creation of a Sovereign Wealth Fund will be strongly advised in a country like Nigeria where revenue volatity and massive corruption, which are in part fed by easily available resources, characterize the political economy. With forecasts of dipping prices of crude being made, revenues from oil will be placed under even more stress.

There ought to be an open and constructive national discussion around the manner oil and gas revenues are derived and utilized. A dispute limited to the federal and state governments over who should have more, or whether we should save or spend will be largely ignored by the public, which sees little difference in the manner the two tiers manage our resources. States going broke may secure more resources if a judicial ruling says they should; but this is highly unlikely to improve the lives of most Nigerians.