Module 12: Municipal Finance, State Finance Commission & 14th FC Grants

Statutory Revenue Sources under The Bihar Municipal Act, 2007:

• Municipalities are empowered to levy property taxes, user charges for water supply, sewerage/drainage, parking, building plan approvals, trade licenses, birth/death certificates, and commercial waste stacking.
• Own Revenues vs Transfers: A financial study by the SPUR project in the 28 largest ULBs showed that ULBs raised only Rs. 589 per capita in 2012-13, of which own revenues constituted merely 25 percent, with the remaining 75 percent relying entirely on state devolutions and central grants.

Recommendations of the Fourth State Finance Commission (SFC):

Recommended that 7.5 percent of the state's own tax revenue be devolved to local bodies, of which the share of Urban Local Bodies (ULBs) is 30 percent. The inter-se distribution among ULBs is determined using three criteria:

1. Population (weightage: 30 percent)
2. Geographical Area (weightage: 20 percent)
3. Number of BPL Households (weightage: 20 percent)

Fourteenth Central Finance Commission Grants (2015–2020):

Sanctioned a total grant-in-aid of Rs. 2,275 crore for Bihar's municipalities. This comprised a basic grant of Rs. 2,141 crore and a performance-linked grant of Rs. 535 crore across 4 years. Performance grants require audited accounts not older than 2 years and verified increases in own revenue collections.