Fiscal federalism: The Lagos example

At a time when most of the states of the federation are battling with bankruptcy and unable to meet basic responsibility such as payment of workers’ salaries following the decline of oil-derived federally distributable revenue, Lagos state is soaring high outpacing economic growth in other parts of the country, as the state’s non-oil revenues help sustain increased investment in infrastructure and other social amenities. Lagos raked in N287 billion in Internally Generated Revenue (IGR) in 2016, well above the total budget size of more than 20 of Nigeria’s 36 states.  Over the last 18 years, the IGR of Lagos has risen from a mere N600 million monthly in 1999 to about N24 billion in 2016, with a projection of hitting N30 billion in 2017. True, as Governor Ambode said some time ago, “IGR is the energy that keeps us going and puts the state on a sound financial footing to continue to meet its obligations to the citizens, despite the economic recession.”

Powered by the significant revenues generated internally, Lagos raised planned expenditure for 2017 by 23% to N813 billion, the biggest annual expenditure plan by any sub-national order of government in the country. The Lagos state budget is more than what the five states in the SouthEast plan to spend in 2017. Also, the budget of Lagos exceeds the combined budget of the six states in the North Central by N31billion, which indicates the overwhelming spending power of the state.

Of the government announced budget of N813 billion, with a targeted total revenue of N625 billion, approximately N478 billion is expected to be generated from IGR, representing 74% of the total revenue. Of this amount, the Lagos Internal Revenue Service (LIRS) is to generate N360 billion, which comes down to about N30 billion monthly. The balance of N170 billion for the 2017 budget is to come from a N100 billion bond issuance programme and a combination of internal and external loans.

But this did not just come about because of the population of Lagos state or its location and position it occupies in the country. It took solid thinking, planning, adversity and vision, and above all stable and qualitative governance since 1999 to attain such enviable position.

The critical point of the reforms came in 2004 when former President Obasanjo arbitrarily ordered the stoppage of constitutionally guaranteed local government funds to Lagos state for unilaterally creating additional local governments without the necessary approval from the National Assembly. Lagos was not the only state affected. Other states like Katsina, Nasarawa, Ebonyi and Niger were also affected. However, while the others quickly backtracked and abrogated the councils, the then governor of Lagos, Bola Tinubu, refused to accept what he regarded as a flagrant disregard of the constitution and usurpation of the powers of the state and instead headed for the courts. The Supreme Court ruled in his favour but Obasanjo would have none of it and continued to withhold the funds.

Not wanting to bastardise the idea of federalism that he has always preached and defended, Tinubu decided to call Obasanjo’s bluff and look inwards for survival. This meant fast-tracking and deepening the fiscal and tax reforms his government has started since 1999. From a meagre N600 million in 1999, internally generated revenue rose steadily to N2 billion monthly in 2003, N3 billion in 2004, N4 billion in 2005, 5.57 billion in 2006, and N7.90 billion in 2007. The current figures stand at N30 billion/month with a projection to reach N50 billion in 2019. Already, by 2012, federal allocation represents only 30% of Lagos state budget while tax revenues account for the rest 70%.

Certainly, not all states have the same revenue generating capacity as Lagos. But they all have revenue-generating capacities. Perhaps, they should read the Lagos state reform manual for useful advices. But the practice of depending sorely on federal allocation is not federal and no longer tenable.