Federal Government’s plan was to pay the monthly revenue allocation of the local governments into their CBN accounts following the recent ruling of the Supreme Court granting the councils financial autonomy.
The state governors had initially persuaded the federal government to delay the direct payment of the LG allocations to sort out some technicalities.
The request was granted and when it appeared that the coast was getting clear for the accounts to be opened at the CBN,the governors unexpectedly launched a campaign to sway Abuja to allow the LGs’ funds be paid through the commercial banks.
Their argument is that no LG is legally bound to maintain accounts with the CBN.
Chairman of the Finance Commissioners Forum, Akin Oyebode confirmed the latest position of the states to The Nation yesterday.
Any move to force the councils to operate accounts with the apex bank,he said,was illegal.
He said that local governments have long maintained accounts with commercial banks without constitutional infraction.
“You can’t force me to open an account,” Oyebode said.
“No local government, to my knowledge, has gone to say we want an account in the CBN. Local governments already have bank accounts with commercial banks.”
Oyebode said the question of whether revenue should be paid directly to local governments or routed through the States/Local Government Joint Account (JAC) hinged on how the constitutional provision for JAC was interpreted and implemented.
“The conversation as to whether you pay local governments directly or through JAC is an administrative discussion,” he noted, pointing to the constitutional backing for the Joint Account system.
“JAC itself is a provision in the constitution.”
According to him, Section 7 of the 1999 Constitution grants state Houses of Assembly the authority to make laws for the operations of local governments. As such, states exercising oversight over local government finances are acting within the bounds of the law.
Citing the example of Anambra State, Oyebode said the state’s approach to managing local government funds is a constitutional right. “Anambra has exercised that right, and it is within their rights to do so.”
He acknowledged the growing concern over allegations that some state governments misappropriate local government funds through the JAC system.
However, he argued that the recent Supreme Court ruling on the matter was more significant than simply mandating direct payments to local governments.
“The ruling of the Supreme Court is groundbreaking,” he said, referencing the court’s position on the autonomy and tenure of local governments. “You cannot sack a local government chairman and expect that you will receive the revenues. That is the real value of this judgment.”
Oyebode further explained that Section 7 of the Constitution allows state Houses of Assembly to make provisions for the statutory allocation of public revenue to local governments. This means that even with direct federal payments to local governments, states can still pass laws requiring local governments to pool resources through mechanisms like JAC.
He also criticised the sequence of reforms, arguing that the focus should first be on revising the revenue allocation formula among the tiers of government. According to him, the existing revenue distribution model does not reflect the actual service delivery needs of local governments, resulting in many councils lacking sufficient funds to operate.
“By not reviewing those indices, if you pay local governments directly, at least a third of the local governments are going to be insolvent,” he warned. “As of today, those local governments cannot even pay their salaries from their allocation.”
To mitigate this, states currently use the JAC to pool resources, pay salaries as a first-line charge, and then distribute the remaining funds based on service indices. Oyebode noted that this approach ensures that no local government is left unable to meet its financial obligations, especially regarding salaries.
He also pointed to obligations like the Universal Basic Education Commission (UBEC) where states make 50% counterpart contributions on behalf of local governments.
According to him, if funds were paid directly to local governments, they would still need to contribute to such initiatives from their allocations.
“Nobody is trying to dissolve local government authority,” Oyebode said. “All we are saying is that in implementing these judgments, there are a number of administrative matters that need to be taken into consideration, and we need to find a way to work around it.”
On the CBN account issue, Oyebode said the federal government lacks the authority to dictate where local governments should bank. “The owner of the account has the right to self-determination. The Central Bank is the bank of the federal government. The local government is not an appendage of the federal government.”
He argued that local governments should retain the freedom to choose whether to open accounts with the CBN or continue banking with commercial institutions.
“The point is that it is the choice of the local governments,” he said. “It is not for the federal government or its agents to proclaim that local governments must open accounts in the Central Bank.”
Oyebode also questioned the practicality of local governments banking with the CBN, which he described as a wholesale bank, not designed for retail services. “The Central Bank is not a retail bank. It doesn’t even bank states, where there are only 36, not to talk of remotely located local governments.”
“How will you bank those local governments? How does it want to meet the needs of those local governments?” he asked, arguing that it would be more efficient for local governments to maintain their current arrangements with commercial banks.
He called for a proper legal interpretation of JAC’s role in the constitution, suggesting that the Supreme Court could provide further clarity on the matter. “Let the parties have a proper discussion as to what is the role of JAC as enshrined in the constitution. Let’s go and get the interpretation again from the Supreme Court.”
He said much of the resistance to changes in local government funding was motivated by a desire to protect councils from external interference, including individuals seeking to siphon off funds.
According to him, Anambra’s law does not violate the constitution, and Section 7 clearly empowers state assemblies to legislate on local government functions.
“What is clear, which is not subject to opinion, is that the constitution provides for that,” Oyebode said. “If a state wants to oversee the management of local government finances, Section 7 of the constitution allows the House of Assembly to make laws.”
