Implementation

   

To what extent does the central government ensure that tasks delegated to subnational self-governments are adequately funded?

EUOECD
 
The central government enables subnational self-governments to fulfill all their delegated tasks by funding these tasks sufficiently and/or by providing adequate revenue-raising powers.
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9
Canada
Canada’s central government typically ensures that tasks delegated to subnational self-governments are adequately funded. Education and health care are largely the responsibility of provincial governments, and the federal government transfers funds earmarked for these functions through the Canada Health Transfer (CHT) and the Canada Social Transfer (CST). In addition, Canada has a system of Equalization and Territorial Formula Finance (ETFF) payments in place, which are unconditional transfers to the provinces and territories designed to equalize the level of public service provision across provinces and territories. The block-funding structure is intended to give provinces and territories greater flexibility in designing and administering programs.

Last year, the Liberal government indicated that CHT spending will be capped at 3.5%, down from 6% in previous years. Though several provinces negotiated their own deals with the federal government to secure appropriate CHT increases. The federal government is calling for more transparency from provincial and territorial governments on CHT spending, suggesting that subnational governments are not spending health care dollars adequately. Both the CHT and the CST will be reviewed in 2024.
Citations:
Department of Finance, Canada, Federal Support to Provinces and Territories. Retrieved 2016 from http://www.fin.gc.ca/fedprov/mtp-eng.asp
New Zealand
The New Zealand governmental system is highly centralized. Local government structures, which are lean and generally uniform, raise only about 5% of total government tax revenues. However, local autonomy in setting tax rates and bases is greater than in any other OECD country. The main source of local tax revenues is the so-called rates, which are taxes on real-estate holdings. At the time of writing, local governments had full discretion to set rates, subject to a general balanced budget requirement. Other revenue sources include user charges and fees. Local government officials have been lobbying central government for the right to raise revenue from additional sources, including road tolls and a gasoline tax. To date, their lobbying has been largely unsuccessful, although the Transport Minister recently announced that Auckland would be given the right to derive transport income by way of a 10 cent per liter fuel tax. There are no block grants from central to local government, but the central government contributes funding to specific local government functions, in particular transportation as well as road construction and maintenance. For example, a major new city rail link in Auckland is being funded by a combination of local and central government money. The National government has reformed the Local Government Act with the aim of limiting local services more to their core tasks to keep costs under control.
Citations:
Local Government Act 2002 Amendment Act 2012 (Wellington: The Government of New Zealand 2012).
M. Reid, J. McNeill and C Scott, Local Government, Strategy and Communities, Wellington, Institute of Policy Studies, 2006.
Switzerland
In Switzerland, cantons and municipalities levy most of the country’s tax revenues. They determine local tax rates and decide how tax revenues will be distributed. Between 2004 and 2007, Switzerland passed a rather successful reform of its financial federalism, which has now taken effect. The basic idea was to establish a clear division of tasks between the federation and the cantons, and create transparency with regard to the flow of resources between the federal state and the cantons. In this reform, the basic principle of fiscal equivalence was strengthened. This means that communes, cantons and the federation each are responsible for the funding of their own tasks, and for the balance of their own budgets. The fiscal equalization scheme has been retained, as it is necessary to reduce certain geographical, economic and social disparities, but the danger of providing badly aligned incentives through earmarked subsidies is eliminated through the use of grants. Funds thus continue to flow vertically (from the federal state to the cantons and vice versa) as well as horizontally (between communes and cantons). Nonetheless, it remains to be seen whether the new fiscal equalization scheme will help cantons that have serious problems in fulfilling their tasks or in meeting their goals due to their small size, lack of resources, or other reasons. In any case, there is a divide between those cantons that pay more and those receiving payments.
 
The central government enables subnational governments to fulfill most of their delegated tasks by funding these tasks sufficiently and/or by providing adequate revenue-raising powers.
8
Austria
Under Austria’s federal system, individual states (“Länder”) are constitutionally weak as compared with individual states in other federal systems. Yet politically, the states enjoy significant power due to the principle of federal or indirect administration and the federal structure of all major parties. Successful party leaders on the state level often determine the fate of their party’s national leadership.

In part because of this ambivalent power structure, responsibilities shift and are shared between levels. In some cases, this functions well: In the case of the most recent health reform, for example, state administrations and the federal government, working closely with the umbrella organization of public insurance companies, together developed a formula that is expected to limit increases in care costs. In other fields, such as the school system, the conflicting structures and interests of the state and federal governments have led to inefficiencies and finger-pointing. Concerning the need to determine the amount of subsidy states must provide asylum-seekers, the states responded in contradicting ways.

A significant aspect would be to allow the states to independently raise some taxes. However, the states themselves oppose such a reform. The states seem satisfied to be financed by the federal authorities, decided by a negotiated compromise between the federal government (“Bund”) and the states.

The Austrian constitution mandates that tasks delegated to regional or municipal governments must be adequately funded, although this does not always entail 100% national funding. This principle is in most cases effectively implemented, with some exceptions on the municipal level.
Denmark
Part of the income tax paid in Denmark is a municipal tax and municipalities have discretionary powers to set the taxes. The municipalities also receive funding from the state (bloktilskud), and there is an equalization arrangement that reallocates funds from richer to poorer municipalities. There are annual negotiations with both the municipalities and regions about the financial framework agreement. Since municipalities act independently – though coordinated via their organization (Kommunernes Landsforbund) – the budget decisions of the municipalities have not always been consistent with the overall targets set by the Ministry of Finance. This implied for some years that expenditure growth exceeded targets. This has led to a new system – part of the Budget Law approved by parliament in 2012 – which includes financial sanctions. The sanctions have both an individual and collective element. If the sum of expenditures exceeds the agreed target, the “bloktilskud” is reduced by an equivalent amount. This reduction is levied 60% on the municipalities which exceeded expenditure targets and 40% on all municipalities (distributed according to population size). The new system has been very effective and municipalities have been well within targets in recent years. Since 2002, municipalities have been part of a so-called tax freeze implying that taxes (e.g., income and building sites) cannot increase. If one municipality increases some tax it should be matched by a decrease in another municipality.

Many municipalities currently find themselves in a very tight financial situation and have had to reconsider resource use on core activities like child- and old-age care and schooling.
Citations:
Jørgen Grønnegård Christiansen et al., Politik og forvaltning, 4. udg., 2017.

Andersen, T.M., J. Bentzen, S. E. Hougaard Jensen, V. smith and N. Westergaard-Nielsen, The Danish Economy in a global perspective, Copenhagen: DJØF Publishing, 2017.
Finland
Municipal governments have a right to assess taxes, collecting more than twice as much as the central government in income taxes. A government grant system additionally enables local governments to continue to provide public services even when experiencing a funding gap. In essence, a portion of locally collected taxes is put into a common pool, from which transfers are made to financially weak local governments. The central government establishes strict standards and service-provision requirements intended to cover all citizens. However, local governments are tasked with providing these services, which means that some municipalities are unable to meet the standards without increasing taxes. Given that local government units differ greatly in size and resources, they are in unequal positions in terms of capacity and performance efficiency. A large-scale reform of municipalities and services, started in 2006 and yet unfinished, has led to a considerable reduction in the number of municipalities. Among other goals, the reform aims to secure sufficient financing and an efficient provision of services across the country. The government has also introduced a further and much contested reform project to create larger entities tasked with providing social and health services in a more efficient way (SOTE). However, according to assessments, the final compromise solution of 18 social services and health care entities is less satisfactory in terms of efficient funding and democratic organization than was an original proposal for a maximum of nine to 12 SOTE regions. At the time of writing, the final shape, structure, and outcome of the SOTE reform remains open and subject to critical public discussions.
Citations:
Government press release on “Government decision on next steps in reform package on health care, social welfare and autonomous regions”, http://vm.fi/en/article/-/asset_publisher/10616/hallitus-paatti-sote-uudistuksen-jatkosta-ja-itsehallintoalueista
http://alueuudistus.fi/en/frontpage
Iceland
The issue of grant-based funding has been a constant source of conflict between local and central governments. Meanwhile, the division of responsibilities between the central government and local governments has changed, but not radically. In 1996, full responsibility for primary education was transferred from the central government to local governments. In general, this transfer of responsibilities has been achieved without imposing a heavy financial burden on local governments. However, some of the smallest municipalities have experienced fiscal difficulties as a result of these transfers, and have either been forced to amalgamate or cooperate on service provision with neighboring municipalities. Full responsibility for services for disabled individuals was transferred to local governments in 2010 and took effect in January 2011, without conflicts concerning funding arrangements arising between the central government and local governments. Further transfers of responsibility have been planned – though without any dates set, including responsibility for elderly care. Negotiations on the transfer of elderly care have been repeatedly postponed due to disagreements over funding arrangements between central and local governments. The negotiating and preparation committee with representatives from state and local levels has in fact had no formal meeting since August 2013 (www.velferdarraduneyti.is/yfirfaerslan/).
Citations:
Eythórsson, Grétar Thór (2017): Bigger and stronger together. How Icelandic municipalities solve their lack of capacity and scale economy. In: Teles, Filipe & Swianiewicz, Pawel (Eds.): Inter-Municipal Cooperation in Europe
Institutions and Governance. Palgrave MacMillan. DOI: 10.1007/978-3-319-62819-6

Eythórsson, Grétar Thór (2012): Efling íslenska sveitarstjórnarstigsins: Áherslur, hugmyndir og aðgerðir. In: Icelandic Review of Politics and Administration. Vol 8, No 2. 2012. http://www.irpa.is/article/view/a.2012.8.2.12/pdf_278

www.velferdarraduneyti.is/yfirfaerslan/
Norway
There is a constant tension between central and local government over the funding of responsibilities imposed on local governments. As welfare policies move more toward ensuring universal rights, the financial and administrative demands placed on the various local units have become more challenging, particularly for some of the smaller units. As a result, local-government funding has been increased. This policy was initially met with great satisfaction by local authorities; however, these bodies rapidly adapted their activities to these new financial flows and relaxed budget discipline which, in turn, led to growing public debt at the local level. Local governments later again began asking the central government for additional funds. In general, regional governments and municipalities are adequately funded, but there have been efforts to promote voluntary structural reforms that would create larger units. However, these reforms have been slow and some have been rejected by voters in local referendums.
USA
The United States has a federal system in which the 50 states are independent sovereign governments, although the federal constitution is “the supreme law of the land.” States have unrestricted power to raise their own revenue, although the federal government takes full advantage of their more productive sources, such as the income tax. There is no general presumption of uniform standards for public services. Rather, the federal government imposes standards or seeks to induce certain levels of performance in varying degrees on different issues.

State officials have often complained that federal mandates required substantial expenditures without providing the necessary funds. In 1995, the Republican Congress passed the Unfunded Mandates Reform Act. The act provides incentives for Congress and regulatory agencies to identify potential unfunded mandates in the legislative or rule-making process but does not prevent them from setting mandates. As a result, complaints from state officials have subsided. The Obama health care reform seeks to expand coverage of low-income individuals by raising the income ceiling for eligibility for Medicaid, a program administered and largely funded by the states. According to the law, the federal government will pay 90% of the cost of the expanded coverage if states pay 10% of the cost of health coverage for the new beneficiaries. However, many states with Republican leadership have thus far opted out of the Medicaid expansion.
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Czech Rep.
The regional tier within the Czech system of governance has taken on greater importance following a process of consolidation of various administrative functions. The budgetary allocation of taxes, tax autonomy, and financial decentralization have enabled regional governments to exhibit more independence in fulfilling governing duties and managing necessary infrastructure. European structural funds constitute an important resource for regional development. All negotiations over regional budgets remain complicated by opposing political majorities on the central, regional and municipal level. This problem has been aggravated by the 2016 regional elections, in which new governing coalitions emerged, sometimes bringing the parties of the current governing coalition into opposition.
France
Over the past 30 to 40 years, the powers of communes, provinces (départements) and regions, delegated by central authorities or taken over de facto by local entities, have increased considerably. Normally a delegation of powers was accompanied by corresponding funding. However, as formerly centralized policies were notably badly managed or insufficiently funded, local units had to face huge expenditure increases that were not fully covered by the central government. Thus, more than two-thirds of non-military public monies are spent by local/regional actors, a figure comparable to the situation in federal states. While in theory local authorities are in some areas acting as agents of the central government, they have, actually, secured ample discretion. The recent regional reform reducing the number of regions from 22 to 13 has had quite an important consequence: the new regions will benefit from a fraction of the VAT, whereas before they did not receive taxes but only transfers from the central government.

On the other hand, the piecemeal and ad hoc reforms of local taxation, such as the elimination of the local business tax (taxe professionnelle) and its compensation by national state allocations in 2009 have not improved the situation. Growing tension between central government and local authorities has been fueled by President Macron’s decision to exempt 80% of local taxpayers from paying the “taxe d’habitation” (a rather unfair tax paid by all local residents, owners and tenants). The local tax will be replaced by a financial compensation from central government, which local authorities will have no direct influence over, meaning that local authorities have lost control over this part of their resources. Moreover, local authorities fear that the state subsidy will not evolve over time according to needs. In addition, further savings have been imposed, forcing local authorities to improve their budgetary policies.
Germany
The delegation of tasks from the national to the subnational level without commensurate funding has been a sore point of German fiscal federalism. For instance, municipalities suffer under the weight of increasing costs of welfare programs. However, a number of adjustments over the last years have substantially rejuvenated municipalities and states. The Hartz IV reform, which merged welfare benefits with unemployment benefits for the long-term unemployed, shifted minimum income payments for individuals capable of work from municipalities to the Federal Employment Agency. In 2009, the federal government began compensating municipalities for basic income support provided to pensioners, the percentage of which reached 100% in 2014. Financial burdens associated with education and childcare have also been shifted to the federal level.

For months, the federal government and state (Länder) governments wrangled over the costs associated with the influx of migrants and refugees. In July 2016, the federal government increased the flat-rate payment for integration by about €8 billion by 2018, which is an exceptional improvement.

With respect to the future of the fiscal equalization system, an important compromise on the new system (in effect from 2020 onwards) was achieved in October 2016. In this compromise, the Länder receive higher shares of VAT revenues and a system of exclusively vertical equalization payments (from the federal to the state level) is replacing the current horizontal system (where richer states pay to poorer states).

Taken together, a comprehensive shift of financial resources from the federal to the state and municipal level has been achieved and remains under way. Complaints from the Länder about underfunding increasingly lack credibility.
Citations:
http://www.spiegel.de/politik/deutschland/fluechtlinge-laender-bekommen-sieben-milliarden-euro-mehr-a-1101934-druck.html
Israel
Local authorities have three main types of income: local taxes (property tax, fines, tolls) earmarked for financing local services, government funds designated for social and educational services, and governmental balancing grants for basic services that local authorities are otherwise unable to fund. The government’s budgeting procedure for local government is clearly articulated, and includes progressive budgetary support. One major problem in the government’s budgeting procedure was mentioned in the State Comptroller’s 2015 report, which noted that there is no regular procedure in the Interior Ministry for managing the local-authority development budgets.

Over the years, the Ministry of the Interior has expanded its oversight over local authorities as issues of politicization, corruption and management failure have resulted in unwieldy deficits or even municipal bankruptcies. Research focusing on social services shows that although Israel’s local-government funding levels are comparable to other OECD countries on an absolute basis, local authorities in fact receive comparatively less government funds than their peers elsewhere when taking into account the proportion of responsibilities delegated to the local level.

Some recent improvements have been made in this system. The government’s 2017 – 2018 plan set the goal of ensuring local authorities receive adequate funding by increasing financial supervision, increasing budgets and continuing the differentiated funding policy. The government has increased weaker municipalities’ budgetary allocations (total balancing grants have increased from ILS 2.7 billion in 2014 to ILS 3.1 billion in 2017), assigned an accountant to each municipality, assisted in developing local budgets, allocated extra budgetary support to minority municipalities (Bedouins, Druze, etc.), and started a new fund tasked with reducing inequalities between local authorities.
Citations:
Ben Basat, Avi and Dahan, Momi, “Strike in local authorities,” IDI website 15.1.2012 (Hebrew)

Ben Basat, Avi and Dahan, Momi, “The political economy of local authorities,” IDI website 2009 (Hebrew)

Saada, Aria, “Ombudsman’s report 57ב: Budgeting social services for local authorities equality lacking,” Abiliko website 9.7.2010 (Hebrew)


Dahan, Momi, “Why do local authorities hold back pay?,” IDI website 15.11.2009 (Hebrew)
Ben-Bassat, Avi, Dahan, Momi, and Klor, Esteban F., “Representativeness and efficiency in local government,” Jerusalem: IDI 2013, introduction summary in English: http://en.idi.org.il/media/2464644/ Representativeness-Abstract.pdf
“Instructions for local authorities’ budget frame proposal for the year 2012,” Ministry of Interior website (Hebrew)

Informational Leaflet, Local government administration, October 2016, http://www.moin.gov.il/LOCALGOVERNMENT/Documents/Newsletter1.3.pdf

Ministry of Interior Working Plan 2018-18, http://www.moin.gov.il/LOCALGOVERNMENT/local%20authority/CHMap/Documents/%D7%9E%D7%A9%D7%A8%D7%93%20%D7%94%D7%A4%D7%A0%D7%99%D7%9D.pdf
Luxembourg
Since 2018, the Ministry of the Interior has overseen 102 municipalities in Luxembourg. This supervision is paired with substantial financial transfers from the central government to local entities, which, apart from a substantial share in corporate income tax (CIT) revenues, lack autonomous sources of revenue. Two-thirds of local entities have fewer than 3,000 inhabitants, a size which is believed to be far too small to handle modern political, administrative and technical matters. The government had planned to reduce the number of local municipalities to 71. However, the new government has weakened this objective, as it does not correspond to a top-down strategy for municipal mergers. The aim is to have no municipality under 3,000 inhabitants, thus reducing operational costs and improving administrative and technical efficiency. Municipalities frequently complain that funding from the central government is insufficient. The government has used financial transfers to overcome local resistance to municipality mergers. So-called municipal associations (syndicats intercommunaux) exist in fields, such as culture and sports, to help improve the quality of local government. In December 2016, parliament voted in favor of a reform of the municipal finance system. Since 2017, due to the full budgetary assumption of teachers’ salaries, grants to local budgets have been increased, providing municipalities financial and planning security.
Citations:
“Ausgewogenere kommunale Finanzlandschaft.” Luxemburger Wort, 7 Dec. 2016, Accessed 21 Dec. 2017.

Halsdorf, J.-M. “Die Kommunal- und Verwaltungsreform im Großherzogtum Luxembourg – Grundzüge und Perspektiven.” Kommunalreformen in Deutschland, edited by Martin Junkernheinrich and Wolfgang H. Lorig, Nomos, 2013, pp. 445 – 462.

“Reform der Gemeindefinanzen – Die Rechnung geht auf.” Luxemburger Wort, 8 Aug. 2017, https://www.wort.lu/de/politik/reform-der-gemeindefinanzen-die-rechnung-geht-auf-5989b91da5e74263e13c570a. Accessed 21 Dec. 2017.

Syndicat des Villes et Communes Luxembourgeoises, www.syvicol.lu. Accessed 21 Feb. 2017.
UK
Within the United Kingdom, Scotland, Wales and Northern Ireland have devolved governments, which have responsibility for major public services, such as health care and education. England has no devolved government, though local authorities in England have responsibility for a more limited range of public services, including schools. The central government exercises tight control over the finances of the devolved governments and local authorities in England. The bulk of local authority revenue in England comes from central government grants, even the rate of property tax is controlled centrally. As a result, local authorities have been among the hardest hit by government spending cuts. Social care is an especially problematic area, but local authorities are also highly constrained in dealing with basic services, such as filling potholes in roads. Increased task funding for subnational governments was announced in the 2017 budget, but it does not go far enough to offset funding gaps.

Given the absence of a written constitution, there is no mechanism to govern the allocation of funds to finance these devolved tasks. As such, any decisions about funding is subject to political and administrative negotiations through formula-based need assessments. Agreements such as the “Barnett Formula” for Scotland, Wales and England provide some stability of funding. However, despite their recent reaffirmation, these agreements could change if a future government decides that fiscal consolidation requires severe spending cuts.

The Scotland Act 2012 gave the Scottish Administration new taxation and borrowing powers. After the close outcome of the Scottish Referendum and as a result of the Smith Commission’s Report, the new Conservative government announced the devolution of further tax powers – including income-tax powers – to the Scottish Parliament. The details of additional borrowing powers for the Scottish Parliament were laid down in the Scotland Act of 2016, which allows the Scottish government to borrow £450 million a year for investment into infrastructure, such as schools and hospitals, up to a total of £3 billion.

The new government has announced a reform of local governance. This would mainly include a decentralization of decision-making, monitoring and spending powers to local mayors (an office which is quite unusual in the United Kingdom). Challenges are sure to arise in relation to task funding. Funding for mayoral combined authorities is often allocated on a negotiated basis, but this is to some extent a deliberate policy choice to ensure that devolution is bespoke to the needs of different areas.

The Welsh assembly has far less fiscal discretion, but central government has agreed that borrowing powers should also be devolved to the Welsh assembly and agreed on a fiscal framework. A new settlement for Northern Ireland has also been under discussion for quite some time, but agreement had not been reached at the time of writing. A debate on financial matters in England must also be expected.
Citations:
Scully, Roger/Jones Richard Wyn 2011: 7. Territorial politics in post-Devolution Britain, in: Heffernan, Richard et al.: Developments in British Politics 9, Basingstoke and New York

Smith Commission Report: http://www.smith-commission.scot/wp-content/uploads/2014/11/The_Smith_Commission_Report-1.pdf

Autumn Statement 2016: https://www.gov.uk/government/topical-events/autumn-statement-2016
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Australia
Tasks are delegated to the states and territories not by choice, but by constitutional requirement, yet the states and territories are highly reliant on the Commonwealth to finance the myriad services they provide, including primary, secondary and vocational education, police, justice systems, public transport, roads and many health services. This dependence has been a source of much conflict, and many would argue it has led to inadequate provision of state-government provided services. The federal government’s commitment to completely pass on to the states all revenue raised by a broad-based consumption tax introduced in 2000 only marginally reduced the tension between the two levels of government. Certainly, it has not helped that prices in education and health care have in recent years risen faster than general price levels, while the proportion of expenditure subject to the consumption tax has declined from 56% in 2005 to around 47% in 2015. In response, the previous Labor government attempted to address underfunding of health care and education, reaching funding agreements on health care with most jurisdictions in 2011 and making progress on agreements for school funding in early 2013. The coalition government has not shown the same commitment to increasing health and education funding, and indeed has indicated an intention to scale back federal funding. Since its rise to power in September 2013, the coalition government has delivered a significant budget deficit in every fiscal year. Consequently, task funding is likely to fall further than rise over coming years. The notable exception is for the National Disability Insurance Scheme (currently in the process of being rolled out), which has had its funding secured by a 0.5% increase of the Medicare Levy (levied on taxable income) from July 2019.
Citations:
Australian Government ‘Re:think Tax Discussion Paper,’ March 2015: http://bettertax.gov.au/publications/discussion-paper/.

http://www.abc.net.au/news/2015-11-02/gst-hike-would-raise-130b-modelling-shows/6903782

https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/rp1617/Quick_Guides/NDIS
Chile
Chile’s central government exercises strong control over municipal and regional budgets, and accounts for a significant proportion of local revenue. Currently, about 18% of the federal government’s budget is redistributed to the regional and local level (OECD average is about 45%). However, the assignment of new duties to the municipal level does not necessarily imply a corresponding allocation of adequate funds.

Municipal programs are monitored relatively closely by the central government, although spending overruns do sometimes occur, resulting in local-government debt. The quality of services (e.g., the public health and education systems) provided by less wealthy municipalities are sometimes below average as some municipalities are unable to raise the income required to effectively provide the services themselves. This challenge is characteristic of Chile’s centralized political system and must be regarded as a structural problem. The current government convened a commission to study decentralization, with the ultimate goal of addressing these ongoing issues. The commission’s proposal, which was presented publicly in October 2014 and supported by President Bachelet, included several proposals designed to strengthen regional governments. Two such measures were originally slated for implementation by the end of 2017, but have not been approved by parliament by the end of the period under review:

• Regional governors (Gobernadores Regionales) will replace the current regional mayors (Intendentes Regionales) and be directly elected, enabling citizens to hold them accountable for promises made in their political campaigns.

• Regional governors (Gobernadores Regionales) will replace to be given responsibility for regional and urban planning, administration of the National Fund for Regional Development, and implementation of social and economic policies at the regional level. The regions will create three new divisions for this purpose: Industrial Advancement (Fomento e Industria), Human Development, and Infrastructure and Transport.

In addition, the amount of federal funds provided to regional governments should increase. The original decentralization proposal included an implementation timeline stretching through 2016 and 2017, but the final draft regarding the exact competences and budgeting for regional governors must still be approved by Congress. The current scenario points to a delayed and probably less extensive implementation of the reform proposals. So far, Chile and Turkey are the only OECD-member countries where regional authorities are not designated by elections.
Citations:
http://descentralizacion.cl/

http://www.senado.cl/appsenado/templates/tramitacion/index.php

http://chiledescentralizado.cl/eleccion-de-gobernadores-regionales/

http://chiledescentralizado.cl/boletin-marzo-abril-2017/

http://www.kas.de/chile/es/publications/47796/

http://www.subdere.gov.cl/sala-de-prensa/subdere-y-cchc-exponen-avances-del-trabajo-conjunto-realizado-para-profundizar-proces
Ireland
One of the motivations for the creation of Irish Water in 2013 was to remove responsibility for the provision of water services from local governments, many of which had failed to provide a reliable supply of high-quality water to their populations and had seriously under-invested in water infrastructure over the years, perhaps largely due to inadequate funding from the central government. Due to strong populist reaction, the funding mechanism for Irish Water, namely the imposition of household water charges, was strongly resisted. As a result of this resistance, this funding mechanism was abolished and household water charges were repaid in 2017. The water initiative paralleled the 2005 decision to remove the provision of public-health services from regional health boards, centralizing this power instead in the Health Services Executive. As we have seen, this has not resulted in a smoothly functioning health care delivery system.

The functions and services that remain the responsibility of subnational units of government are largely funded by the central government rather than from local resources. In 2013, grants from the central government accounted for 43% of the current revenue and 90% of the capital revenue of subnational governmental units. Local taxes accounted for only 28% of their current receipts. While the introduction of the local property tax raised the proportion of funds coming from local sources, subnational units of government remain heavily dependent on the central government for resources. This dependence is proportionately greater in the case of smaller and poorer local units.

The receipts from the new local property tax (LPT) are to be distributed as follows: in 2015, 80% were to be retained locally to fund vital public services, while the remaining 20% were to be redistributed to provide top-up funding to certain local authorities that have lower property-tax bases due to variance in property values. The Local Property Tax Exchequer Receipts at the end of September 2017 amounted to €362 million.
Citations:
https://www.revenue.ie/en/corporate/information-about-revenue/statistics/local-property tax/index.aspx
Italy
In recent years, a double and to some extent contradictory trend has taken place in the relationship between central government and local administrations (regions, provinces and municipalities). On the one hand, constitutional reforms and normal legislative and administrative changes transferred broader tasks to local governments. This has particularly been the case for regions where the devolution of functions in the field of health care has been particularly extensive, for example. On the other hand, however, because of budgetary constraints and strong pressure from the European Union and international markets, the central government has increasingly reduced transfers to local governments in order to balance its own budget. Local governments have tried to resist this fiscal squeeze without great success and have had to increase local taxation. At the same time, the government has reduced the autonomy of municipalities to levy property taxes. As a result, functions delegated to subnational governments are now often underfunded, and local authorities have been forced to cut services.

In 2016 and 2017, the government - made the “internal stability pact” more flexible. The pact significantly restricted the budgetary autonomy of municipalities and in particular damaged the “virtuous” ones, which could not spend their budgetary surpluses. This change should enable virtuous municipalities to increase investments. Furthermore, the central government transferred special issue funds to the regions to allow them, among other things, to better align with EU law.
Japan
Local governments – prefectures and municipalities – strongly depend on the central government. Local taxes account for less than half of local revenues and the system of vertical fiscal transfers is fairly complicated. Pressures to reduce expenditures have increased, as local budgets are increasingly tight given the aging of the population and social-policy expenses related to growing income disparities and poverty rates.

Japanese authorities are well aware of these issues. Past countermeasures have included a merger of municipalities designed to create economies of scale, and a redefinition of burdensome local-agency functions. In addition, the LDP and others have contemplated a reorganization of Japan’s prefectural system into larger regional entities (doshu). This reform proposal is highly controversial, however. Since 2014 – 2015, special economic zones (tokku) where national regulations are eased and regional vitalization special zones serve as field experiments for improved policymaking. Many observers doubt whether the approach being taken is bold enough.
Citations:
Takuji Okubo, The truth about Japan’s tokku special zones, JBpress Website, 02.07.2014, http://jbpress.ismedia.jp/articles/-/41109

Promoting local autonomy, The Japan Times, 9 January 2017, https://www.japantimes.co.jp/opinion/2017/01/09/editorials/promoting-local-autonomy/
Latvia
Local governments enjoy a comparatively high degree of autonomy. The local government share of public expenditure was 24.3% in 2015, slightly above the EU average of 24.1%.

Local governments have autonomous tasks, delegated tasks and legally mandated tasks. Each type of task is meant to be accompanied by a funding source. In practice, however, funding is not made available for all tasks. The President’s Strategic Advisory Council has described local governments as having a low degree of income autonomy and a relatively high degree of expenditure autonomy. In its 2011 report on Latvia’s adherence to the European Charter of Local Self-Government, the Council of Europe concluded that local authorities have inadequate access to independent resources and urged Latvia to increase local authorities’ financial autonomy.

The adoption in 2012 of a medium-term budget-planning process envisions the inclusion of three-year budget cycles for local government. While this will provide medium-term budget clarity for local governments, there is also a concern that it will prevent local governments from gaining access to budget increases in proportion to the rate of economic recovery. Data from 2015 showed an imbalance between central and local government budget pressures. In 2015, local government expenditure decreased by 1.1%, while central government expenditure increased by 3.8%. However, local government income increased by 1.7%, while central government income increased by 3.4%.

Local governments suffer from a lack of capacity in financial management. The State Audit Office has repeatedly noted that local governments ignore accounting standards and requirements. In the absence of proper local and national approval procedures for government transactions, violations range from petty issues, such as covering entertainment costs out of the municipal budget, to large scale fraud, such as a municipal official signing a €200 million bond.
Citations:
1. The President’s Strategic Advisory Council (2013), Management Improvement Proposals, Available at (in Latvian): http://www.president.lv/images/modules/items/PDF/Pasvaldibas_EGPP_FINAL.pdf, Last assessed: 21.05.2013

2. Congress of Local and Regional Authorities (2011), Local and Regional Democracy in Latvia, Available at: https://wcd.coe.int/ViewDoc.jsp?id=1857271&Site=COE, Last assessed: 21.05.2013.

3.Freedom House (2016). Nations in Transit: Latvia 2016. Available at: https://freedomhouse.org/report/nations-transit/2016/latvia. Last assessed: 29.11.2017
Lithuania
Lithuanian municipalities perform both state-delegated (funded through grants from the central government) and independent (funded through a national tax-sharing arrangement and local sources of revenue) functions. Lithuania has a centralized system of government with powers and financial resources concentrated at the central level. The central government provides grants for the exercise of functions delegated to the local level, as local authorities have minimal revenue-raising powers. In 2012, the Congress of Local and Regional Authorities expressed its concern that Lithuanian municipalities have limited capacities and insufficient resources to deliver the services delegated to them. Municipal concerns, including that of adequate funding, are addressed by a joint commission that includes the government and the Association of Lithuanian Municipalities. After the Constitutional Court ruled that the existing legal framework governing the allocation of municipal revenue was not in line with the constitution, the government introduced a new procedure for allocating revenue to municipalities. However, this decision will increase municipalities’ dependence on targeted central-government grants.
Citations:
State of local and regional democracy in Lithuania, see https://wcd.coe.int/ViewDoc.jsp?id=1925765&Site=Congress&BackColorInternet=e0cee1&BackColorIntranet=e0cee1&BackColorLogged=FFC679
Portugal
Unsurprisingly given its extremely small size Portugal, is one of the most centralized countries in Western Europe, with autonomous self-governing areas in the island regions of the Azores and Madeira. A total of 308 municipalities represent the main subnational level of government. OECD figures for 2016 (the most recent data available) show Portugal to have among the group’s lowest relative levels of subnational public expenditure in several areas of education, health and security. However, these figures had improved significantly since the 2012 OECD report.

The subnational sector has long been burdened with increasing debts, and 18 municipalities received support from the Municipal Support Fund (Fundo de Apoio Municipal, FAM) during the period under review.

The current government has expressed a commitment to decentralization. It addresses this topic in its program, even identifying it as the basis of its reform of the state. On 16 February 2017, the Council of Ministers approved a law that transferred a number of very important responsibilities to local governments. Among the most important innovations was to increase the share of the public budget transferred to local governments from 14% to 19%, as stipulated in the National Program of Reforms.
Citations:
www.portalautarquico.pt=PT/financas-locais/transferencias/freguesias

OECD (2013), “OECD Regions at a Glance 2013”
OECD (2016) “OECD Regions at a Glance 2016” available at http://www.oecd.org/regional/oecd-regions-at-a-glance-19990057.htm

http://www.fundodeapoiomunicipal.pt/category/noticias/

Diário de Notícias (2017), “Fundo de Apoio Municipal paga 590 mil euros de juros às câmaras e ao Estado,” 11/7/2017. Available online at: https://www.dn.pt/lusa/interior/fundo-de-apoio-municipal-paga-590-mil-euros-de-juros-as-camaras-e-ao-estado-8628727.html
Slovakia
In Slovakia, the degree of decentralization is relatively high. However, funding for subnational governments has been precarious. While the shares of both municipalities and regional self-governments in personal income tax revenues have substantially risen since 2014, subnational governments have continued to complain about unfunded mandates. Their strong reliance on personal income tax has made their revenues highly dependent on the performance of the economy.
Spain
Spain has a very decentralized political and administrative structure, with 17 Autonomous Communities controlling over a third of public spending, including services such as health care and education. The system has also been occasionally associated with deficiencies in the process by which tasks are delegated to regions without adequate funding sources. The Autonomous Communities enjoy some power to raise revenue to counterbalance this insufficiency of funding, but the revenue from these taxes is very low. In the context of the deep economic crisis and austerity that have characterized Spain in recent years, public-spending cuts and reinforced central control of the regional accounts have led to criticism of the central government for deliberately shifting unfunded mandates to the regions. As a result, some regions have been incapable of adequately fulfilling their delegated tasks without help. In 2016, the central government reiterated tough budget-deficit targets for the regions, even though the EU had decided to loosen fiscal targets for the country as a whole. In addition, the period under review was deeply affected by the earlier enactment of Organic Law 2/2012 on Budgetary Stability and Financial Sustainability of Public Administrations. Under this legislation, regional governments must now approve an expenditure ceiling in keeping with a stability target and expenditure rule. The debate over the criteria through which solidarity funding for regions and territories is allocated continues to be intense, with richer regions seeking a profound revision of the general funding system. Catalonia’s bid for independence has been partly fueled by widespread social unrest related to the region’s limited fiscal capacity to support the taxes collected there. In 2012, the central government introduced a program providing inexpensive liquidity to the regions. This remained in force in 2017. The program includes the general Regional Liquidity Fund (FLA). Most regions depend on these funds in order to service their debt and spending policies, since rating agencies have downgraded their credit ratings to so-called junk status, making it very difficult to obtain alternative funding.
Citations:
June 2017, Reuters: “Spain tells Catalonia will cut off funds if used for referendum”
https://www.reuters.com/article/u s-spain-politics-catalonia-funds/sp ain-tells-catalonia-will-cut-off-fu nds-if-used-for-referendum-idUSKBN1 A61WP
Turkey
Municipal governments depend on financial contributions from the central government. Many municipalities do not have the sufficient resources to finance basic duties. Thus, many have declared bankruptcy. Municipal borrowing constitutes a large share of Turkey’s total medium- and long-term debt. Financial decentralization and reform of local administration have been major issues during the review period. The central administration (mainly through the Bank of Provinces) is still the major funding source for local governments. During the 2014 – 2015 fiscal year, the government allocated €118 million to a village infrastructure project (KÖYDES), €189.9 million to the Drinking Water and Sewer Infrastructure Program (SUKAP), €74 million to the Social Support Program (SODES).

The previous governments have been frequently accused of taking a partisan approach toward the distribution of funds. Since 2009, transfers from the central government to municipalities via the Bank of Provinces have taken into consideration the number of inhabitants and the locality’s relative position on development indices. However, the new model has not eased the difficult financial situation of Turkey’s municipalities, which are seriously indebted to central-government institutions. According to Audit Court reports, most metropolitan municipalities have substantial debts. Therefore, most local projects in major metropolitan municipalities are run by the central government.

The recent change in regulations governing metropolitan municipalities was designed to generate funds for them. However, this shift is expected in turn to cause smaller administrative units to be fiscally and administratively dependent on the metropolitan municipalities. In other words, the authority held by subunits such as villages and small towns are expected to be undermined in the long run.
Citations:
TC Kalkınma Bakanlığı KÖYDES Projesi 2015 Ödeneği, 20 January 2015, http://www.migm.gov.tr/Dokumanlar/2015_1_KOYDES_YPK_KARARI.pdf. (accessed 27 October 2015)
2015 Yılı Yatırım Programı yayımlandı, 15 January 2015, http://www.bloomberght.com/haberler/haber/1702267-2015-yili-yatirim-programi-yayimlandi (accessed 27 October 2015)
TC Sayıştay Başkanlığı Kalkınma Bakanlığı 2014 Yılı Sayıştay Denetim Raporu, http://www.sayistay.gov.tr/rapor/kid/2014/Genel_B%C3%BCt%C3%A7e_Kapsam%C4%B1ndaki_%20Kamu_%C4%B0dareleri/KALKINMA%20BAKANLI%C4%9EI.pdf (accessed 27 October 2015)
‘Hazine’ye 17 milyar lira borçlu olanların listesi,’ Karar daily newspaper, 23 April 2015, http://www.karar.com/ekonomi-haberleri/hazineye-17-milyar-lira-borclu-olanlarin-listesi (accessed 27 October 2015)
“Sayıştay’a göre; İstanbul ve Ankara Büyükşehir Belediyeleri borç ‘batağında,” 19 October 2017, http://t24.com.tr/haber/sayistaya-gore-istanbul-ve-ankara-buyuksehir-belediyeleri-borc-bataginda,468360 (accessed 1 November 2017)
 
The central government sometimes and deliberately shifts unfunded mandates to subnational governments.
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Bulgaria
Local governments in Bulgaria receive most of their revenues from the central government and have a very limited revenue base of their own. Municipalities receive funding from central government in three ways: a portion of the revenues from some general taxes are designated for municipal budgets; central government subsidizes municipality budgets; and central government delegates some of its tasks to municipalities, transferring the respective financing to them (known as delegated budgets). Ministry of Finance and the National Association of Municipalities in Bulgaria assessments of whether tasks assigned to municipalities have been adequately funded differ widely. Municipalities often claim that the Ministry of Finance deliberately leaves delegated functions underfunded, forcing municipalities to finance national policies with local funds.
Malta
Local councils in Malta are primarily municipal bodies, and cannot raise revenue through local taxes. Nearly all funding for local-government activities comes from the central government, with a small fraction sourced from local traffic fines. The funding formula for local councils is based on geography and population, but – despite legal provisions – local councils run budget deficits, both because of inadequate funding and mismanagement by the councils themselves. At the beginning of 2015, the government launched a fund for local councils’ capital projects however it remains inadequate. Regional committees were generating revenue from contraventions through the local enforcement system, however, this task was taken over by a central government agency in 2014. The total budget allocated for local government for 2017 was €35.5 million. There has been a steady, though not particularly substantial, increase in the overall budget (local councils received €32 million in 2015 and €33 million in 2016), distributed across 68 localities throughout the islands of Malta and Gozo. A 2018 to 2020 local council culture fund of €750,000 has been introduced for cultural events.
Citations:
44 local councils request devolution of government property Malta Today 11/09/2015
Money for local councils Times of Malta 14/02/2015
http://www.timesofmalta.com/articles/view/20151228/local/councils-shortcoming-identified-by-nao-unacceptable-parliamentary.597069
http://www.timesofmalta.com/articles/view/20160706/local/auditor-general-criticises-funding-scheme-as-hasty.617914
http://www.timesofmalta.com/articles/view/20160111/opinion/Auditing-local-governance.598374
http://www.timesofmalta.com/articles/view/20151226/local/councils-christmas-dinner-bills-give-auditor-a-headache.596707
Local government culture fund 2018 - 2020
35.5 million budget for 68 local councils in 2017 The Malta Independent 04/07/17
Mexico
Mexico has three levels of government – central, state and municipal. In Mexican federalism, state governments are politically and economically more powerful than municipalities. The state governors’ association is a powerful lobby group that bargains effectively with the central government. In general terms, Mexico’s intergovernmental transfer system must reduce vertical imbalances and discretionary federal transfers. The latter are distributed from the center across states with political, rather than policy goals in mind and constitute a substantial share of government spending. Moreover, Mexican states need to increase their own revenues in order to become less dependent on central government transfers.

Due to government austerity, underfunded mandates and insufficient resources are a challenge for the successful completion of many government tasks and undermine the realization of the principle of subsidiarity in Mexico’s fiscal federalism.
Poland
Since 1999, Poland has supported three tiers of subnational governments: municipalities, districts and regions. Since the 2015 elections, the relationship between the central government and the majority of local governments still controlled by parties of the previous government has been strained. As heavily criticized by local offices, the reform of the school system has been associated with a strong shift of costs to the local level. PiS distrust in the politicians running the 50 biggest Polish cities has led to selective support for other localities, thus sending a strong clientelistic signal to the local authorities that funding and support will be distributed not on merit, but on political grounds. In 2017, subnational government fiscal problems increased due to a decrease in available EU funds at the local level.
South Korea
While South Korea remains a unitary political system, a rather elaborate structure of provincial, district and neighborhood governments has been in place since 1995. Local governments play an important role in providing services to citizens and respectively account for about 35% of government spending (according to the latest available data in 2015). However, local and state governments have relatively little ability to raise their own revenue. As their own sources account for only 17% and 22% of national revenues respectively, most subnational governments need substantial support from central government, particularly outside the Seoul region. In addition, local administrations are often understaffed, and central-government employees are often delegated to subnational authorities. President Moon has highlighted the importance of decentralizing state power in order to help local municipalities and provinces to be run more autonomously. Under the 2018 budget proposal, KRW 3.5 trillion ($3.1 billion) will be delivered to local governments in the form of local subsidies to provincial governments.
Citations:
OECD, Government at a Glance 2009
OECD, Government at a Glance 2011
OECD, Government at a Glance 2017 Database
“High welfare-related costs stymie local governments,” Korea JoongAng Daily, Oct 14, 2014
Korea Herald. Moon vows efforts for greater local autonomy. June 14, 2017. http://www.koreaherald.com/view.php?ud=20170614000743
Sweden
Unfunded, or insufficiently funded, mandates have been a long-standing issue in Sweden; indeed recent studies show an almost complete unanimity among local governments with regard to their frustration of insufficiently funded mandates. Subnational governments enjoy extensive autonomy in relation to the central government in Sweden. Local governments and their national association, Swedish Association of Local Authorities and Regions (SALAR), have insisted that all tasks placed upon them by central government must be fully funded.

SALAR has made this claim an overarching principle, which it now emphasizes every time the central government delegates tasks to local authorities. Instead of fully funded mandates, though, the central government frequently negotiates the funding aspect of delegated tasks with the local governments and SALAR.

As a reaction to the large number of asylum-seekers in 2015 and 2016, the red-green government to a great extent funded the additional work required of local authorities. However, this additional funding does not change the fact that in more routine exchanges between the central government and local government, funded mandates remain usually insufficient. In 2017, much of the central government’s support to local authorities to assist their work with asylum-seekers was terminated; it is now up to local authorities to fund these activities. This may generate gradually increasing local taxes.
Citations:
Pierre, J. (2014), Globalization and Governance (Cheltenham: Edward Elgar).
Netherlands
Decentralization and integration subsidies comprise 14% of all income from the general fund (Gemeentefonds). Policy-related national subsidies have decreased as a proportion of total income (falling from 62% in 1990 to 34% in 2011) and in number (from over 400 in 1985 to less than 50 at present). As of 2015, the national government has pursued a far-reaching decentralization of policy tasks (in youth work, chronic patient care, social benefits, worker-activation employment programs). However, local-government budgets are supposed to contribute to meeting the European Monetary Union 3% government-deficit norm by accepting a decrease in their total budget. In 2014, local governments on average received €1,091 per inhabitant. In the coming years, this will decrease to approximately €950. In addition, the national government has placed new restrictions on the way municipal governments spend their own income.

Local governments will be expected to “do more with less” in the upcoming years. The Center for Economic Policy Analysis recently proposed that local governments expand their local tax base; combined with a decrease in national taxes, this would simultaneously be good for the national economy and local democracy. The Association of Dutch Local Governments (Vereniging Nederlandse Gemeenten, VNG) has installed a special advisory commission to look into the issue.


Citations:
VNG, De wondere wereld van de gemeentefinanciëen, 2014 (eng.nl, consulted 9 November 2016)

Vaststelling van de begrotingsstaat van het gemeentefonds voor het jaar 2014, fig. 2.2.3, p. 13, Tweede Kamer, vergaderjaar 2013-2014, 33 750 B, nr.2

“Laat gemeente meer belasting heffen,” in NRC-Handelblad, 25 April 2015

VNG, Terugblik VNG-Commissie Financiën, 17 October 2016 (eng.nl., consulted 9 Novermber 2016)

Federatie van Onderwijsorganisaties, “Code rood in het primair onderwijs: Staking donderdag 5 oktober!” 5 September 2017
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Belgium
Several core responsibilities of the Belgian central government have been delegated to regional or sub-regional levels over the recent decades: to the three regions (Flanders, the Brussels region and Wallonia), to the linguistic communities (Flemish, French and German), and to the municipalities (communes/gemeenten; a city may be subdivided into several communes). Due to recurrent political stalemates between the Flemings and Francophones, the Brussels region has been chronically underfunded. Municipalities in rich areas are typically funded sufficiently, but this is often not the case in poorer areas. Reductions in unemployment benefits have also had spillover effects on these municipalities, since they are financially responsible for minimum income support for the poor.

Likewise, the government agreement also implies serious cuts in financial transfers from Flanders to Wallonia in the coming years. But since Wallonia is a post-industrial region with unemployment levels twice as high as those in Flanders, it is difficult to see Wallonia not continuing to suffer from chronic underfunding.

The government agreement also envisioned a decentralization of taxation. However, the main sources of state financing (direct taxes and VAT) will remain centrally controlled and collected, with the funds redistributed according to pre-agreed sharing rules. Redistribution issues remain a point of conflict between the main regions and communities, with the recent financial crises having heightened tensions.
Croatia
The division of competencies between central and subnational governments has been relatively stable. By far the most important revenue source of subnational governments is the personal-income tax, which contributes about 90% of all tax revenues and slightly more than half of total revenues. The remaining taxes account for only around 6% of total revenue, the most important being the property tax (approximately 3.3% of total revenue). The second most important source of revenue is the various types of administrative fees (user charges being the most significant among them, as they collectively make up approximately 17% of total subnational revenues). Grants from the central government (often administered via counties) and various assistance funds from abroad rank third. Finally, about 8% of subnational governments’ revenues derive from the various types of property they own (business premises, apartments). Strong regional and local differences have long hindered subnational governments from being properly financed. Many municipalities and towns, most of them in rural areas, are poor and therefore face severe difficulties in providing public services. Amendments to the law on financing local government authorities were adopted only in December 2017.
Citations:
Koprić, I., A. Musa, V. Dulabić (2016): Local government and local public services in Croatia, in: H. Wollmann, I. Koprić, G. Marcou (eds.), Public and social services in Europe: from Public and municipal to private sector provision. London: Palgrave Macmillan, 201-215.
Cyprus
Local government bodies receive substantial subsidies from the state budget, with funds often earmarked for specific projects. The overall amounts have been decreasing recently. In addition, the Council of Ministers, in particular the ministers of interior and finance, have expansive powers to manage the finances and assets of municipalities. The recent creation of new municipalities has increased local government budget needs. Pending legislation aims to reorganize municipalities and improve their management, increasing centralization and the control of state funding. However, the main challenges facing Cyprus are inefficiency, mismanagement and corruption – all larger challenges than elsewhere.
Citations:
1. President pledges Funds for Healthy Reformed Municipalities, Cyprus Mail, 12 August 2017 www.cyprus-mail.com/2017/08/12/president-pledges-funds-healthy-reformed-municipalities
Estonia
Estonian local governments are heavily dependent on financial resources from the central budget, as revenue from local taxes is negligible. During the economic recession, the central government cut funds allocated to the local governments by 13%. Pre-recession levels will first be restored in 2018. In addition, considerable uncertainty looms over the tasks of local councils following the municipal mergers completed in 2017.
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Greece
After the onset of the economic crisis in 2010, it was revealed that subnational authorities, working on a “soft-budget” mentality, had contributed to the fiscal derailment of the Greek state through lax control of their own expenditure and hiring of excessive personnel in municipal agencies. Since then, such practices have been curtailed, while the government has imposed strict control over local government expenditure to the point of depriving subnational authorities of necessary resources. For the central government, functioning within the constraints of the Third Economic Adjustment Program, achieving a large budget surplus was and still is a major priority. At the same time, it is not possible to roll back the long-term process of transferring competences to subnational authorities which had started before the crisis. Thus, it is not uncommon to encounter unfunded mandates.
Romania
Local government have been undermined by increased uncertainty about the rules of the game and the expanding scope for clientelism in financial allocations. As part of a broader legislative package to raise salaries in the public sector, local civil servants benefited from important salary raises in mid-2017, unsustainable in many smaller towns and villages. Elected mayors and councilors had lobbied successfully for a rise a few months earlier, when their compensation packages were increased by 30%. These salary increases are unprecedented and put a strain on the budgets of small and medium localities at a time when EU funds absorption remained low. Another source of local government funding has been the National Program for Local Development (PNDL), a scheme of distributing national funds. Since its inception in 2013, the PNDL has been discretionary, opaque and politicized, lacking objective criteria for the allocation of investment projects by region or municipality and thus being used by ruling parties to reward pliant mayors. For half of the 5,000-odd projects currently implemented, contracts are won by a handful of companies with close party or family connections with leaders of public institutions. If PNDL (which is funded 100% with national money) applies “soft rules” to select infrastructure projects and supervise contractors, local governments may lose interest in the more rule-based and transparent EU structural funds. Local businesses may develop connections with public administration, engage in uncompetitive practices and rent seeking. This magnifies the PNDL’s negative political impacts: institutional uncertainty, resources can neither be predicted nor planned for, local governments lobby the upper echelons of government for “emergency transfers,” clientelism, and diminished engagement with citizens who are excluded from these dealings.
Slovenia
Municipal governments – the sole tier of subnational self-government in Slovenia – have suffered substantial fiscal difficulties for some time. The Cerar government has focused on reducing the bureaucratic burdens without reducing the number of municipalities. However, the measures taken have not been effective at all, and municipalities have suffered from the government’s decision to postpone the re-introduction of the property tax to the period after the next parliamentary elections. Government proposals to lower central government transfers have met resistance by the Association of Municipalities and Towns of Slovenia (SOS), the Association of Municipalities of Slovenia (ZOS) and the Association of City Municipalities (ZMOS). In 2016 and 2017 alike, the three municipal associations and the Cerar government failed to reach an agreement on the financing of municipalities.
 
The central government often and deliberately shifts unfunded mandates to subnational self-governments.
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Hungary
The second Orbán government merged small local authorities and shifted a portion of subnational self-governments’ former competencies to the central government administration. However, the transfer of competencies from the subnational to the national level has gone hand in hand with an even stronger reduction in subnational governments’ revenue sources. As a result, the latter have fewer resources for the remaining tasks than before. Moreover, central government grants have been discretionary and unpredictable. Municipalities and counties with an influential Fidesz leader have been in a better position to get additional funding; the other have been confronted with the newly introduced “solidarity tax” imposed upon rich municipalities. A good case in point of the problems associated with the discretionary budgeting of the central government is the delayed reconstruction of the M3 metro line in Budapest, the most important transport facility in Budapest, carrying more than 500,000 people every day. The project has suffered from funding conflicts between the government and the city, which is perceived by most Fidesz leaders as a left-liberal stronghold, even though it has a Fidesz mayor.
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