Economic Case for the CDPs

The current report is based on audit of all 18 CDPs in counties Cork and Kerry. The rationale for the current research is that decisions which are currently being taken to end the current CDP programme cannot be justified on either economic or social grounds. There is no economic or social benefit to the government or civil society arising from the current plans to shut down CDPs. Those who are work at the coal face within the CDPs know the value of the work involved together with its breadth and extent. They know that the contribution that CDPs make to service provision, employment, education, social care and quality of life in communities all over the country is hugely significant and far outweighs the cost to the state of investing in them, both on economic and social grounds. Focusing solely in economics, CDP managers have known for some time that the loss of employment, services, volunteers and other CDP outputs that would arise from shutting them down would be more than equal to the funding they receive. Even on this narrow economic focus, community workers in the CDPs always suspected that there would be no economic saving to the state if the projects were to be closed.

However, because the state’s plans to end the current CDP programme are oblivious to these economic realities, the decision was taken to compile the data to prove it. In doing so, we have concluded in what follows that the state would save virtually nothing by closing down the CDPs. In addition, the social cost to society would be hugely significant: the unavailability of childcare, day-care, youth services, recreational activities for youth, meeting places for a large array of groups, literacy courses, FETAC courses, services to jobseekers, all would exert a huge social cost to citizens. It would increase marginalisation and result in a sharp deterioration of quality of life at a time when these services were never more needed. As a result, this report attempts to show policy makers the folly of ending the CDP programme in its current form. In what follows, this is shown by comparing the monetary value of the resources which the 18 CDPs in Cork and Kerry receive against the cost to the government if these resources were removed and the 18 projects shut down.

The total funding allocated the 18 CDPs in the various communities amounts to €6,474,000. This is made up of 2.2 million core funding and 4.3 million additional funding across all 18 projects. Removing this funding equates to taking 360,000 in spending power out of each of the 18 communities. The CDPs operate in very disadvantaged areas where there exists far less spending power than more affluent areas. To remove this level of income from these already residualised communities would cause further deprivation. It would also lead to the shutting down of small shops and small local enterprises. This would further marginalise these communities and deprive them of many essential social and economic facilities and amenities. Even if there is the removal of core and additional funding streams to specific CDPs or a reduction of funding to many others, the effect will be the same proportionately. Any cutbacks in funding are socially and economically regressive.

In CDP communities, the vast majority of the populations are from the lower end of the income distribution. As such, economic consumption studies show that the marginal propensity to consume by citizens in the lowest half of the income distribution is 100% of all income. Essentially, less-well off people spend the whole of their income. By contrast, income earners at the highest half of the income distribution either save a proportion of their income or else it leaks out of the economy by spending on luxury goods which are imported. This has been highlighted very recently by the Think Tank on Action for Social Change (TASC 2009) where Prof. Terence McDonogh has highlighted the fact that cutbacks in communities where all the economic resources are spent and which spin-off in to the locality, is economically and socially perverse.

The effect of closing down 18 projects would be to put 306 people on the dole. In addition, given the need for re-training to secure future employment, the closure of the CDPs would remove 147 from skills training employment schemes delivered in the projects. A total of 164 staff members would be entitled to redundancy payments. The total number of years service accruing to these workers currently stands at 624 years. As a consequence, the cost of redundancies, paid at the minimum statutory rate of two weeks per year of service would cost the exchequer over €800,000. The 18 CDPs currently own their own premises. These are quite substantial and valuable and the total value of imputed rent by the 18 CDP premises, essentially a rental subsidy to the state, based on current market rental values would be in the region of 864,000. In the event of the closure of all CDPs, this subsidy would be lost to the state and thereby represents a cost to the exchequer.

Each CDP contributes a mean average of €41,011 in tax and PRSI payments and €7,618 in VAT. The total payments to the exchequer for the 18 projects amount to €451,367 and €129,514 respectively. The 18 projects taken together contribute 41,182 volunteer hours to the state which are currently unpaid. In the event of CDP closures, these hours would be lost. Depending on the number of CDPs that are closed down, the loss of what are free volunteer hours and a subsidy to the exchequer, would be proportionate. The total cost to the state of the loss of voluntary hours which are in dire need and would ultimately have to be replaced by paid workers is €669,207.

 

                                                                Table 1: Cost of Closing 18 CDPs

Cost Elements

Cost €

Unemployment
(306)

Annual Social Welfare Cost

3,246,048
 
Redundancy Cost

€803,912 (Management= 210,045)

 
Tax + PRSI lost
451,367
VAT lost
129,514

Non Management Volunteers: Replacement Cost

467,837
Loss of Imputed Rent
864,000

Management Volunteers: Replacement Cost(7 Pub Svts)

343,000
Total
6,305,678
 

We have noted above that the total revenue from core and additional funding accruing to all 18 CDPs amounts to a total of €6,474,000. , table one aggregates the cost to the exchequer of this action and details the total cost, which are: the cost of paying social welfare payments to 306 unemployed workers previously employed by the CDPs which would cost €3,246,048 in one year. The total cost of redundancy payments for the accumulated 624 years of service would amount to over 800,000. The 18 CDPs contribute a total tax payment to the state of almost 581,000 which would be revenue foregone to the state and thus counted as a cost. To cost of replacing over 41,000 voluntary hours by ordinary volunteers and voluntary management groups would be 810,837. Finally, the loss of rental subsidy by the CDPs to the state is a stated cost amounting to 864,000. The total cost of all these items in one year to the exchequer is 6,305,678. Given that the savings in funding would amount to 6,474,000, this means that the net saving to the state of closing 18 CDPs would be a paltry 168,322 which means the state would save only 2.6% of the present funding delivered. The converse of this is that, in the event of the closure of 18 CDPs, 97.4% of the purported savings would not accrue to the state. This renders any impending plans to close to CDPs as an almost zero sum game which would deliver almost no economic savings to the exchequer.

In the context of the new Local and Community Development Programme, it may be the case that all 18 CDPs will not face closure. The various interpretations from interest groups in regard to the plan is that: many of the CDPs will face closure; the additional funding streams which accrue to the CDPs will be centralised and continuity is not guaranteed. Essentially, these will have to be competed for and the total value of the additional funding is likely to be significantly cut; in addition, for the CDPs that remain open, in addition to their existing additional funding being cut or removed altogether, the management of the CDPs will be centralised within a small number of centralised local development agencies within Cork and Kerry. Additional funding represents almost two thirds of the total resources going to the CDPs and core funding the remaining third. At the moment the state has carte blanch to implement cuts across both funding sources within a centralised LDP structure. What is crucially important here is that even if the state were to cut, for example, a minority of six CDPs, which would be a huge loss to the areas as discussed above, the savings to the state in cutting core funding and/or additional funding in this instance would be equally matched by the cost of doing so. In other words, in the same way as the cost of cutting 18 CDPs would match the revenue savings to the state, likewise the cost of cutting six would match the revenue savings benefit to the state also. Essentially, it is a zero sum game.

Consequently, the figures above show that the savings for the exchequer in closing all 18 CDPs is almost exactly the same euro for euro as keeping them open. The logical extension of this fact is that any proposed savings for the exchequer in cutting additional funding and closing CDPs will be matched almost totally in terms of cost to the state euro for euro also. Thus, for example, if the state were to cut the overall value of the programme by 50% by closing maybe six projects and severely cutting additional funding, this 50% saving would be matched by a 50% cost as per the itemised headings in table 1. In this event, the state still save almost nothing as before.

The Local and Community Development Programme also plans to take over the management of the CDPs centrally within previous LDP structures with the result that all boards management on all 18 CDPs will cease to exist. This is a certainty. Currently, members of voluntary management boards across all 18 CDPs contribute 12,932 hours on a voluntary basis per annum. The standard working week is 1,950 hours per annum. This means that with the handing of management functions to the centralised LDP organisation, then seven extra public servants would be needed to undertake the management role previously undertaken by volunteers. The recent Central Statistics Office data indicates that the average level of public service pay is 49,000 per annum. This would amount to an increased cost of 343,000 to the state. This is included as part of the overall cost above. It is discussed separately here to highlight two points: firstly, local management boards currently cost the state nothing. In the proposed new structure, transferring these new functions back to the state would cost the exchequer 343,000. Secondly, best practice in community development is to empower communities themselves according to the government’s own White Paper (2000) and scholars such as Faughnan (2000), Beresford and Croft (1999) and many others. The combined effect of the plan would be to cost the state 343,000 to implement bad practice.

The removal of management committees would disempower the citizenry of the community. This would result in a huge fall off in volunteering, the antithesis of current government policy. The loss of empowerment and volunteers would lead to a total local disenchantment with the process of community development which would also result in a fall off in those who participate on employment schemes, education and training courses. The combined effect would be to erode social solidarity in the community and increase marginalisation and poverty along with the attendant problems of anti-social behaviour and crime. This would contribute to growing material inequality and inequality of power between the local citizenry and the state. Ultimately, this even leads to social unhappiness, poor quality of life outcomes, poorer overall health, and poorer mental health. This process has been verified beyond all doubt, based on exhaustive quantitative research recently in a highly influential book entitled The Spirit Level, written by health economists Profs. Richard Wilkinson and Kate Pickett (2009). This amounts to the social cost of disempowerment and marginalisation which the stripping of power away from local management boards to a central agency would involve.

At present the 18 CDPs undertake an immense variety of work which fills glaring gaps in state services. These include: affordable childcare; day care centres for elderly; counselling; drop-in centres; after school clubs; continuing education and training courses; facilitation of meetings for groups across a wide spectrum from Alcoholics’ Anonymous, Grow community mental health, recreational facilities for children and adults. In the context of the current recession the demand for these services has increased dramatically due to unemployment, house repossessions, poor mental health outcomes and other social problems. This has been highlighted by a recent report by the Irish Association of Suicidology (2009) which recorded a doubling in suicide from 2008 to 2009 and the critical gaps in mental health services, attendant on the non introduction of services envisioned in the Vision for Change mental health policy document.

In addition, in an attempt to address these glaring gaps in service provision and increase the employment capacity of community members, the CDPs have displayed their tremendous commitment by being heavily involved in recently and newly introduced statutory, local development and local government structures. At present, the combined total involvement by the 18 CDPs on these new democratic structures amounts to 158 in total. These range from RAPID, City/County Development Boards, Local Authority, Vocational Educational Committees to involvement with the local city/county childcare committees, the Gardai, the probation services, local development companies, diocesan youth services, Money, Advice and Budgeting Service (MABS), FÁS and many others.

In addition, CDPs are to the fore in leading the battle against unemployment as there are almost 4,000 participants on FETAC and other educational courses run across the 18 CDPs. In addition, of the 44 participants in community employment/social economy and rural development training in 2008, 34 have progressed to work or further education, demonstrating a success rate of 80%. The deadweight cost of having these participants descend in to long-term unemployment and long-term social welfare dependency is avoided by the work of the CDPs. A figure for this is not included in table 1, but it is likely to be several hundreds of thousands saved for the exchequer. Finally, the 18 CDPs deliver hundreds of childcare places in Cork and Kerry. The investment in childcare offers a huge economic return to the state. At the end of November this year, the Starting Strong Alliance (formerly the Irish Childcare Policy Network), in a new report has noted that: “The best long-term investment the government cut make to ensure Irelands economic recovery would be in early child-care with the return to investment in quality early care and education is high. Cost-benefit analyses in the US have found returns can be as high as $16 for every $1 spent.”(Irish Times 27-11-09)

This short report has shown the economic saving to the government by closing down 18 CDPs in Cork and Kerry is virtually fully matched by the costs to the state if and when this happens. This is taking only the economics of the programme in to consideration. If it was possible to put an economic value on the social hardship, loss of social integration, decline in social capital and overall deterioration of quality of life that would result, the overall benefits to the government would be far outweighed by the costs. In addition, if the government were to cut the numbers of projects and/or the non-core funding of CDPs, by a proportion of the total (e.g. half the projects and non-core funding), the economic cost to the state would also be matched proportionality, resulting in virtually zero saving to it. When social costs are taken in to consideration, the overall cost to government would outweigh any economic benefit. The research conducted on the 18 CDPs in this report can be taken as valid 10% sample of the total 180 CDPs in the country. As a result, we would expect the findings and conclusions arrived at for these 18 CDPs to hold for the 180 projects in the programme as a whole. As a consequence, we can say with confidence that there is no benefit to the state by ending the CDP programme nationally or in cutting the number of projects and non-core funding by a proportion of the total. We hope, even at this late stage, that the current government plans to shut CDPs can now be reversed.

Tom O’Connor- 29th Nov 2009

Lecturer in Economics, Cork IT.

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