PA FINANCIAL CRUNCH HAS LOCAL CONSEQUENCES

C O N F I D E N T I A L JERUSALEM 001853

SIPDIS

SIPDIS

NEA FOR FRONT OFFICE, NSC FOR ABRAMS/DORAN/LOGERFO

E.O. 12958: DECL: 05/09/2016
TAGS: EFIN PREL PGOV KWBG KPAL IS
SUBJECT: PA FINANCIAL CRUNCH HAS LOCAL CONSEQUENCES


Classified By: Consul General Jake Walles, per reasons 1.4 (b) and (d).


1. (C) Summary. In a sign that the Hamas-led government's
financial difficulties are trickling downward, a somber Hani
al-Hayek -- Fatah mayor since May 2005 of the Bethlehem-area
town of Bayt Sahur (population 13,000) -- informed ConGen
Poloff May 5 that his municipality faced a serious financial
crisis stemming from the PA Ministry of Finance's refusal to
transfer an estimated USD 300,000 in property tax revenue.
As a result, the municipality will be forced to lay off
employees and cut back on services. End summary.


2. (C) Al-Hayek said that the taxes, collected from Bayt
Sahur residents between January and March 2006, represent a
significant portion of municipal funding. Approximately USD
50,000 is needed per month to pay salaries for the
municipality's 65 employees and to cover basic services, such
as local health clinics and garbage collection. Al-Hayek
said that MOF officials have indicated that the PA treasury
is "empty." Al-Hayek also noted that the PA Ministry of
Local Government has offered no assistance to Bayt Sahur.
(Comment: In addition to the fact that the PA Finance
Ministry has no revenue, commercial banks in the West Bank
and Gaza Strip that collect tax payments on behalf of the PA
have not transferred these payments to the PA but are instead
applying them against the PA's debts to the banks. End
comment.)


3. (C) Barring an immediate infusion of money, al-Hayek
indicated that he would be unable to pay June salaries and
would thereafter dismiss at least ten employees per month
until the situation improves. Al-Hayek said that he held a
meeting May 5 with municipal employees where he informed them
of the looming financial crisis. The mayor told the
employees that salaries could be slashed by as much as 50
percent as a temporary fix. Al-Hayek predicted that the
majority of municipal workers would likely remain in their
jobs since few job prospects exist in Bayt Sahur. He said
municipal services would be affected by the cutbacks.


4. (C) Al-Hayek planned to travel to Italy on May 6 to
request assistance from Bayt Sahur's "sister cities."
Whatever funds he succeeded in collecting would not solve the
problem, he said. Al-Hayek noted that the economic hardships
in Bayt Sahur have led many in the community's predominantly
Christian population to apply for exit visas to the U.S. and
Europe in search of better economic opportunities. He added
that the neighboring towns of Bethlehem and Bayt Jala were
facing similar economic problems, but suggested that
Bethlehem could better weather the situation by relying on
the city's tourism industry.

Comment
--------------


5. (C) Al-Hayek's bleak assessment of Bayt Sahur's
financial standing underscores that the PA's financial woes
are having a significant impact at the municipal level.
Unlike Bayt Sahur, which can benefit somewhat from tourism in
neighboring Bethlehem, most Palestinian municipalities in the
West Bank have no alternative funding mechanism beyond
property taxes for providing basic services to its
communities. Under these circumstances, municipalities are
likely to face increasingly stark choices as to which
services they can provide to their constituents.

WALLES