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WB Work on Decentralization in ECA • • • 72 active projects, studies involving decentralization, local government, urban, rural, or community development 57 multisectoral DPLs since 2000, many of which have IGR components PEIRs also address decentralization, intergovernmental issues Project lending focuses on the grass roots or specific municipalities PROJECT NAME COUNTRY Rural Investment Project (AZRIP) Azerbaijan Rural Development Project Georgia Rural Investment & Services Project (APL #2) Moldova Post-Accession Rural Support Project Poland Rural Development Project (APL #1) Romania Rural Infrastructure Rehabilitation Project Tajikistan Community Works 2 Project Albania Community Development Project Bosnia and Herzegovina COMMUNITY DEV SUPPLMT Bosnia and Herzegovina Community Development Fund 2 Project Kosovo Municipal Development & Decentralization 2 Project Georgia Municipal Services Project Turkey Municipal Water and Wastewater Project Armenia Urban Infrastructure & Service Delivery Project Bosnia and Herzegovina Municipal Environmental Infrastructure Project Croatia MUNICIPAL SERVICES PROJECT Romania Municipal Infrastructure Development Project Tajikistan Fiscal Decentralization IDF Grant Albania Local Government Capacity Building Grant to Implement Intergovernmental Fiscal Reforms Kyrgyz Republic Major Issues in IGR in ECA Countries • • • • • Correspondence: finance follows function Transparency and predictability Equity Macroeconomic control Incentives for efficiency Before Reform • Local governments had broad responsibilities: public utilities, education, health • No political autonomy • Resources based on norms, negotiations The Transition (1) • Local governments became legally independent • Existing organizational structure maintained or even further fragmented Avg. Population of Municipalities France Czech Rep. Sw itzerland Hungary Austria Spain Latvia Germany Estonia Italy Norw ay Finland Poland Belgium Denmark Netherlands Sw eden Serbia Georgia Lithuania Great Britain 0 20000 40000 60000 80000 100000 120000 140000 The Transition (2) • Multi-party elections held • Some countries centralize social sectors • But most leave existing local functions intact and • Search for new ways to finance them The New Revenue Structure • Very little local taxing power • Most revenues from shares of national taxes, intergovernmental transfers Figure II.2 Structure of Local Government Revenues as % of GDP Slovak Republic 2000 Slovenia 2002 Taxes on Property Lithuania 2002 Taxes on Income Estonia 2001 Other Taxes Latvia 2002 Grants Czech Republic 2002 Other Revenues Hungary 2002 Poland 2002 0% 2% 4% 6% 8% 10% 12% 14% 16% Intergovernmental Transfers • New systems distinguish ‘local’ from ‘delegated’ functions, with separate funding for each • Local functions: water supply, sewerage, SWM, roads, planning, land use • Delegated functions: education, health, social assistance Local Functions • Financed from shares of PIT, non-earmarked transfers • Shares of PIT vary Municipal Share of PIT Georgia Slovakia Latvia Estonia Lithuania Hungary Slovenia Poland Czech Rep. 0% 20% 40% 60% 80% 100% 120% Criteria for Equalization • Revenues per capita • Expenditure needs – Land area – Road length – School aged children – Hungarianism Financing Education Declines in enrollment in rural schools prompt shift in financing Old system: based on facilities, teachers New system: based on enrollment • Equitable: equalizes spending per pupil • Encourages efficiency: – Cuts spending in under enrolled schools – Gives school directors budget autonomy But… • Controversial, because schools closed, teachers dismissed • Governments respond by: – Adjusting formula to reduce immediate impacts – Improving surviving schools Health • High costs, inefficiency in health care prompt changes in financing • Governments respond by: – Dividing primary form secondary health care – Introducing capitation financing for primary care But.. • Attempts to introduce performance criteria into primary care financing not successful • Performance criteria for secondary health care even less so Are reforms successful? Local Expenditures as % GDP objective status correspondence Ongoing debate over adequacy of transfers transparency Yes, but some more than others equity Yes, but some more than other macro control Yes, although threat of arrears, borrowing efficiency Yes in education; less so in health HU CZ general public PO public order ec affairs SV transport LI environment LT housing health ES recreation SK education GE social protection SB 0.0% 5.0% 10.0% 15.0%
