IMPLEMENTATION

New Zealand is highly centralized, and local government structures are lean and generally uniform. Local government raises 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 the holding of real estate. Local governments have currently full discretion to set rates, subject to a general balanced budget requirement. Other revenue sources include user charges and fees. 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. The minister of local government from the ACT New Zealand Party, and a coalition member of the National-led government, has wanted to impose greater controls on local governments and to reform the local government act, which provides general competencies to local bodies to do achieve the economic, social, environmental, and cultural outcomes of their communities. The outcomes of the reform proposals are at the select committee stage and their precise form has yet to be decided. It does seem likely that the more aspirational view of local government, in facilitating strategic planning in governance on behalf of communities may be reduced and result in a return to viewing local governments largely in their service delivery role. The changes are likely to impose further monitoring and a benchmarking exercise on the sector. What is interesting to observe is that local governments behave quite conservatively and particularly so with respect to borrowing. While borrowing rates have tended to rise, sometimes above the rate of inflation, the key driver for this has been the need to upgrade infrastructure rather than the result of local government taking on new functions or being irresponsible in their spending behaviors.

There is a constant tension between central and local government over the central government’s funding of duties that are imposed on local governments. The present central-left government radically increased local government funding in its first period. That was first met with great satisfaction on the local side, but local governments rapidly adapted activity to their new financial base and were soon back to putting usual pressure on central government for additional funds. In general, regional governments and municipalities are adequately funded and their financial squeeze, certainly with the new level of central government funding, is more down to locally generated ambitions than central government tight-fistedness, and to some degree to local government profligacy and inefficiency. There is a general tendency towards the establishment of universal rights and entitlements at the national level, that are to be implemented at the local, causing tension when it comes to financing.

In Switzerland, cantons and municipalities levy most of the tax revenues. They determine local tax rates and the distribution of their tax revenues. 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 transparency with regard to the flow of resources from federal state to cantons. Therefore, the basic principle of “fiscal equivalence” has been 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 is kept because it is necessary for reducing geographical, economic and some social disparities, but the danger of providing badly aligned incentives through earmarked subsidies is eliminated through the use of grants. Finally, financial flows go vertically (from the federal state to the cantons and the reverse) as well as horizontally (between communes and cantons).
Nonetheless, it remains to be seen whether the new fiscal equalization scheme will help cantons that – due to their small size or lack of resources, or for other reasons – have serious problems in fulfilling their tasks or in meeting their goals.

Austria’s federal structure features constitutional dominance on the federal level and a high degree of de facto autonomy of the states. The political reality provides more power for the states and their governments than the reading of the constitution would imply.
According to paragraph 4 of the law on finance (Finanz-Verfassungsgesetz), every institution must receive the funds needed to carry out its tasks effectively. No institution must be over-burdened with assignments. The distribution of funds usually takes place every four years in negotiations between the federal government and autonomous states. States or institutions that are over-burdened with tasks and lack the necessary funding can appeal to the Constitutional Court. There are several cases of them having done so with success.

Canada’s central government typically ensures the 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 to this level of government for these functions. These transfers comprise the lion’s share of provincial budgets. In the 1990s, as part of its deficit reduction strategy, the federal government cut transfers to the provinces, prompting severe criticism by these governments. The current government has consciously tried to avoid this path. It has been more willing to accede to the provinces’ wishes in trying to resolve the so-called fiscal imbalance in the ability of the two levels of government to raise revenues. Consequently, the central government has enabled the provinces to fulfill most of their delegated tasks by means of sufficient transfers. Of course, this does not mean that certain provincial governments such as Ontario are not experiencing very large deficits, primarily attributable to the economic crisis.

Part of the tax paid in Denmark is municipal income tax, and the tax rate varies between municipalities. The municipalities also receive money from the state (bloktilskud), and there is an equalization arrangement that moves funds from richer to poorer municipalities. The central government tries to control local expenditures through economic agreements. The current government does hold local governments on a tight leash given the tax freeze it introduced, which also includes local governments. There are annual negotiations between the municipalities and regions about the financial framework agreement. Many municipalities currently find themselves in a very tight financial situation. Since municipalities act independently – though coordinated via their organization (Kommunernes Landsforbund ) – there is an issue in ensuring that financial decisions of the municipalities adds up to a sum consistent with the overall targets set by the Ministry of Finance. Persistent deviations in recent years suggest that the current system is not fully efficient.

Over the years there has been more or less constant strife between the local and state governments over the character of grant funding. The division of responsibilities between the central government and local governments has changed over time, but not broadly. In 1996, full responsibility for primary education was transferred from the central government to the municipalities. This transfer was in general accomplished without imposing a heavy financial burden on local governments, but a lack of funding did cause serious economic problems for many of the smallest municipalities. In quite a few cases, the shift in responsibilities forced these small municipalities to merge with neighboring municipalities. As of the time of writing, delegation of two important tasks – handicapped affairs and elderly affairs – from the state to the local level was planned. The extent to which the central government will be able to provide sufficient funding remains uncertain in view of the state’s dire post-crash fiscal straits.

Owing to the country’s small size, Luxembourg contains no subnational entities, with the exception of its 116 municipalities. Two-thirds of municipalities have fewer than 3,000 inhabitants, which is thought to be too small to cope with political, administrative and technical demands. Therefore a process of territorial reform has been initiated, which will be accelerated after the municipal elections of 2011 and completed with the elections for the newly merged communities in 2017. No municipality shall have fewer than 3,000 inhabitants or more than 100 square kilometers.
Municipalities have no fiscal autonomy and frequently complain that funding from the central government is insufficient. The past decade was, however, marked by a decentralization of cultural infrastructure, resulting in operational costs that are perceived as excessive by many citizens confronted with an austerity unknown until this point. When the Tripartite considered finding savings at the municipal level, the Union of Luxembourg Towns and Municipalities (Syndicat des Villes et Communes Luxembourgeoises, SYVICOL) protested, placing particular emphasis on its non-representation within this body.

In 2009, revenue-sharing from the national budget (€179 billion) comprised two-thirds of the combined income of the 441 local and municipal governments; revenues raised by local governments made up one-third. One-third of income from national revenue-sharing comes from a general fund for local government (Gemeentefonds). The general fund, which is the local governments’ “pocket money” (because they may spend it as they like, see Constitutional Discretion), is allocated in ways that generally allow local governments to receive more as they need it. There are about 60 criteria for allocating money, 75% of which are related somehow to the local/municipal district size (i.e., in terms of number of residents and dwellings, total road surface, number of waterways). There are additional allowances for the four largest cities (Amsterdam, Rotterdam, The Hague and Utrecht). The general fund will not be increased for 2011 – 2012. Article 2 of the law on financial relations between national and local governments specifies that, if and when national policy imposes new tasks on local governments, the national government should also indicate how local costs may be covered (i.e., the “pay down to the nail” principle). However, increasing the general fund is just one option. National government may as well stipulate that local government ought to cover costs through increased revenue-raising efforts.
Whether or not local governments are funded adequately is monitored in nationwide financial scans and an annual update of the general fund. During the last years, the financial position of local governments has been somewhat enhanced through growth of the general fund and more-than-average use of local governments’ own revenues (minus local taxes).

The extent to which central government imposes unfunded mandates on regional and local governments has long been a topic of heated debate. Sub-national governments in Sweden enjoy extensive autonomy in relationship to central government; indeed, that autonomy is written into the opening article of the constitution. Sub-national governments insist that unfunded mandates are an imposition on that autonomy since it forces local government to redistributes its tax resources. Local government and their national association emphasize what they call the principle of full compensation. However, the assignment of tasks and the financial arrangement pertaining to those tasks are frequently negotiated and renegotiated between central and subnational government.

In part designed to mitigate the continuous conflict between the Commonwealth and the states and territories over funding, the Commonwealth government introduced in 2001 the consumption tax (the Goods and Services Tax, or GST), with all of the funds collected by the GST being passed to the states to fund their responsibilities. In return, the states agreed to abolish their small, inefficient taxes. The states and territories have a mixed record in abolishing these taxes and the disputes between the Commonwealth and the states and territories over the funding of their local services have remained. In 2010 there was a major dispute over the funding of health and hospitals. Ultimately, all but one of the states agreed to transfer responsibility for public hospitals to the federal government in return for an increased level of funding.

The regional tier within the Czech system of governance has taken on greater importance following a process of consolidation of various administrative functions. However, the regions’ financial dependence on the central government is high, since regional funding comes largely in the form of central government grants, which are subject to annual legislation. It remains a matter of dispute whether regional governments have the financial resources to effectively manage the tasks assigned to them. Under the Topolánek government, negotiations over regional budgets were complicated by opposing political majorities.

Task funding is a problem in principle at state level, but has not been a problem in practice for many years. The reason for this has to do with oil revenue. During most recent years, the budget has been based on an estimated value of fiscal oil income, with surplus income from higher-than-expected oil prices being allocated in a different way from the main budget. Since oil price estimates have been very conservative, oil income has almost invariably been higher than forecast. Much of any higher-than-expected income goes directly to state governors. This gives the subnational governments some fiscal cushion if necessary. The current recession and limited fall in oil prices have reduced this margin of autonomy. This is not really a problem yet but may be one in the future. However, state governors are powerful figures in Mexican politics, and they can probably protect their interests if necessary. At the municipal level, participatory requirements have been put into place in order to prevent local spending from being excessively influenced by partisan politics. The success of these measures has varied from case to case. Overall, there is more of a problem with misuse of financial resources than with fiscal starvation.

Although Spain can be considered a semi-federal system, the very high degree of regional decentralization has been occasionally associated with deficiencies in the process through by which tasks are delegated. Thus, competences have in some cases been transferred to the regions in the absence of adequate funding sources. The existence of such unfunded mandates may indicate the lack of a previous impact assessment (as, for example, during the difficult implementation of the ambitious 2006 law to support care of dependent people). However, this in some cases may be part of a deliberate political aim by the center to weaken the new autonomous governments by reducing their spending discretion. It is also true that since the 1980s, and particularly since the late 1990s, regions have enjoyed some power to raise revenue in order to counterbalance this insufficiency of funding, but they have tended not to use this power for fear of political costs.
In December 2009, the general funding system of 15 of the 17 autonomous Spanish regions was profoundly revised (the Basque Country and Navarre have a distinctive privileged system of funding, since they collect all taxes and then contribute to the general expenses of the state by transferring a fixed amount to the central government). Because of the 2009 reform in the general system, the 15 regional governments affected will receive roughly an additional €11.7 billion to fulfill both their independent devolved powers and the delegated tasks. While the main force behind this change was the pressure exerted by the more affluent and populated regions (and particularly by Catalonia, after the approval of its new statute of autonomy in 2006), no region rejected the final agreement reached through bilateral and multilateral negotiations (however, the conservative People’s Party and some peripheral nationalist parties voted against the reform in the final parliamentary vote). The debate on the criteria by which solidarity funding should be allocated between regions and territories continues to be intense in Spain.
After this reform, the central government has increased the capacity of the richer and more populous regions to fulfill most of their tasks adequately (giving the autonomous governments more access to taxes collected in their territories as well as to new revenue-raising powers). At the same time, interregional redistribution to the poorer, less populous or outermost regions has been preserved, taking into consideration a variety of factors.
In practice, however, this funding system may produce growing divergence, depending on each region’s revenue-collecting capacity. For their part, local governments (with responsibility for roughly 15% of total public spending in Spain) are without doubt inadequately funded given their responsibilities, but municipalities have less political power than regions to improve the system.

There are two categories of subnational government in the UK that make it difficult to provide a unified answer in this section. Three of the four countries of the UK (Scotland, Wales and Northern Ireland) have devolved governments and responsibility for major areas of public services, such as health and education. However, there is no government of England per se. Moreover, there are local authorities that in England are linked directly to central government departments, while in the other countries, the link is to the respective devolved government.

In spite of devolution in Scotland and Wales, the United Kingdom is still a very centralized state when it comes to the funding of public tasks. The allocation of public funds from the general account of the Exchequer is subject to political and administrative negotiations, as there is no other constitutional mechanism able to govern the process. While some stability of funding is provided in certain areas through agreements such as the “Barnett formula” for Scotland, Wales and England (but not Northern Ireland), the allocation of funds takes place in principle at the discretion of the central government. Especially in times of fiscal problems, sometimes severe budget constraints will simply be imposed on the recipients by the central government. English local authorities obtain block grants that constitute the bulk of their direct central-government funding, and raise additional revenue from a property-linked “council tax.” Local authorities in the other three UK countries deal directly with their respective devolved administrations, which obtain their own block grants from the central government. A result is that the mix of public services may differ – for example, the terms on which care for the elderly is provided differ in England and Scotland because of a political choice made by the Scottish government to be more generous with free care – a fact that engenders some resentment south of the border.

Central government does impose tasks on local government which the latter is apt to complain are unfunded, but the reality is that there is not a direct link between funding and tasks, and it is the responsibility of the local government to make choices based on its block grant with respect to balancing the priorities and tasks assigned to it.

Chile’s central government exercises strong control over municipal budgets, accounting for a large proportion of local revenue. However, the assignment of new duties at the municipal level does not necessarily imply the corresponding allocation of adequate funds. Municipal programs are monitored relatively closely by the central government, although spending overruns can be observed that result in local government debt.

Municipal governments have a right to assess taxes, and they in fact collect twice as much in personal income taxes as does the central government. A government grant/subsidy system enables local governments to provide public services in case their own tax revenue is insufficient. In essence, a portion of locally collected taxes is put into a common pool, from which transfers are made to local governments with weak financial resources. The central government establishes strict standards and service provision requirements, to which all citizens are entitled. Local governments are tasked with providing these services, which means however that some governments 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 for municipalities and services, which started in 2006 and has led to a reduction of the number of municipalities from 415 to 348 in 2009, aims to, among other things, secure sufficient financing and efficient provision of services.

The situation of subnational government is rather paradoxical. On the one hand, thanks to the fact that most national elites (parliamentarians) are also elected local officials, subnational authorities are among the most powerful “pressure groups”; and because of this crucial position within the political system they have been able to secure extremely favorable global subsidies from the central government without strings attached. On the other hand, the central authorities have taken advantage of the “appetite” of local and regional governments for new competences by transferring new tasks and policies without fully financing these extra duties. As the central government was managing these sectors badly in most cases due to the lack of resources and to excessive centralization, the transfers had a huge impact on local finances and on manpower in communes, departments and regions. The problems have been further exacerbated by the piecemeal and ad hoc reforms of local taxes, such as the elimination of the local business tax (taxe professionnelle). While considered a bad tax by nearly everybody, it was one of the main genuine local financial resources. Its elimination, adopted in 2009, has meant further dependency of local authorities on the central government; even if the loss of revenue will be compensated by national state allocations, local authorities consider this shift a menace to local financial autonomy.

In 2007 (the latest year for which data are available), subnational units of government raised only 45% of their current and capital revenue from their own resources. The remainder came as grants from the central government. The collapse of property construction and development activity has further weakened the finances of local authorities.
The weaknesses in this system were clearly evident during the extreme weather events of the winter of 2009, when – for example – the severe flooding in the major river catchment areas was blamed partly on the inadequate maintenance of these waterways, which is the responsibility of subnational government units. These organizations blame the inadequate provision of funding by the central government. Similarly, responsibility for the repair and maintenance of local roads is mainly the responsibility of county councils, but they are dependent on grants from the central government to pay for this activity, and the damage caused to these roads by the severe winter has not resulted in an adequate increase in the resources made available.

In the wake of the economic crisis, local governments in Slovakia have suffered from substantial fiscal problems. In 2009 and 2010, the central government provided local governments with additional money. However, allocations were too small to compensate for the decline in tax revenues. As a result, some smaller municipalities were not able to preserve the standard of public services. The government’s tax policy aggravated the fiscal problems of the subnational governments. Two amendments to income tax law substantially reduced local revenues from the income tax.

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 the citizens, and account for about 46% of government spending (as of 2006, the latest available data). However, local governments have relatively little ability to raise their own revenue. As their own sources account for only 22% of national revenues, most subnational governments need substantial support from the central government, particularly outside the Seoul region. In addition, local administrations lack sufficient manpower; central government staff is often therefore delegated to subnational authorities.

Local administrative bodies, mainly municipal governments, do not have sufficient financial resources to finance the tasks assigned to them by law. Many have declared bankruptcy, and their borrowing constitutes a large share of Turkey’s total medium- and long-term debt. In short, the central administration (mainly through the Bank of Provinces) is still the major funding source for local governments. As of 2009, local administrations as a whole have TRY 39.5 billion in internal and TRY 5.8 billion in external debt. Support for the Infrastructure of Villages (KÖYDES) Project has been provided by the incumbent government since 2005, with a total of TRY 5.7 billion allocated from the central administration budget for these activities. The incumbent government has been accused of taking partisan approach toward the distribution of such funds, with respect to municipal governments controlled by the opposition parties. Financial decentralization has been a major issue under discussion.
Until 2009, transfers from the central government to municipalities via the Bank of Provinces were calculated solely according to the municipalities’ population. This system did not contribute to the leveling of the huge development differences in different regions of the country. Since then, a new model has been adopted that combines the number of inhabitants with 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 such as the Finance Ministry, the Treasury, the Social Security Institution and the Bank of Provinces. Total municipality debt rose from TRY 30.7 billion in 2006 to TRY 44.3 billion in 2008, with no improvement evident in 2009.

Governors and other state officials often complained that federal mandates require substantial expenditures without providing the necessary funds. In 1995, following the Republican takeover of Congress, Congress passed the Unfunded Mandates Reform Act to curb the practice of unfunded mandates. The act provides for certain incentives for Congress and regulatory agencies to identify potential unfunded mandates in the legislative or rule-making process, but does not prevent Congress or agencies from setting mandates. Coverage is narrow and judicial review limited. There are also exclusions and thresholds in the act, above all exceptions for mandates that are conditions of federal assistance or that arise out of the voluntary participation in federal programs. The act has not done away with mandates, but has curbed direct orders and drawn attention to the issue. The problem of unfunded mandates can best be seen as the result of the attempts to bridge the gaps that exist because of the lack of linkages between federal and state administrative systems. The Obama administration has implemented few measures that impose mandates on state governments. The one exception is health care reform, where there are likely to be substantial additional costs for some states in the expansion of the Medicaid program after 2016, when the federal government will not cover the full costs of such expansion. Some states plan to sue the federal government over a supposed intrusion into state sovereignty, others are planning laws and state constitutional amendments to limit the impact of the reform. The federal government does not take responsibility for ensuring the financial capacity of state governments to perform their functions. State governments have their own revenue sources (not created by the federal government), except insofar as the Constitution maintains and protects and, as independent governments, make their own decisions about taxing and spending in performing them.

The funding of tasks delegated from national to subnational level without a corresponding source of funding is a sore point in the German debate on fiscal federalism. Some progress was made on the expenditure side in 2006, when the Bundestag and Bundesrat agreed on the Federalism Reform I, which abolished some forms of mixed financing. Furthermore, draft laws connected with the provision of cash benefits or allowances in kind for third parties will in the future require the approval of the Bundesrat .
Nevertheless, problems with the new provisions soon emerged when the grand coalition wanted to increase the number of child care places for children under the age of three. Since the first federalism reform of 2006, education has come almost entirely under the jurisdiction of the individual federal states. Moreover, the federal government is not allowed to fund state tasks unless the federal level also has legislative competences in the field. Thus, it was very difficult to find a way to provide the states with the necessary funding to provide enough places in child care facilities. Though a way was found in the end, it came close to violating the new constitutional rules.
The inadequacy of autonomous state-level tax resources remains a major reform issue to be addressed. Federalism Reform II has failed to bring any breakthrough in this regards. The German states remain the only level of government with practically no autonomous tax-setting power.

The central government has increasingly cut transfers to local governments in order to balance its own budget, and has also reduced their fiscal resources through the abolition of the local housing tax (ICI). This has meant that functions delegated to subnational governments have often become underfunded, and local authorities have been pushed to reduce the level of services provided.
The central government generally enables tasks devolved to the regions (e.g., health care) and municipalities according to the provisions of the Italian constitution. Task funding and transfers are discussed and negotiated with the appropriate regional and municipal assemblies. Regional governments and their presidents (the regional governors) are often made up of high-ranking party officials, who command not just administrative powers but also real political power. Thus, the bargaining for funds – or over the distribution of cuts, as is more common at the moment – is not just a one-way process but rather a more or less fair negotiation between equal partners. It is true that, as in many other OECD countries today, all levels of government are being forced to cut spending. Nevertheless, a devolution process is underway in Italy which has tended to shift funds from the national to the regional level.

The dependence of local governments – prefectures and municipalities – on central government is strong. Local taxes account for less than half of local revenues, and there is a complicated system of vertical fiscal transfers. Local governments can follow their own policies only to a limited extent, as they are generally required to execute central policies. During the period under review, pressure on expenditures has further increased, as local budgets are responsible for a considerable proportion of the rising costs associated with the aging population, as well as social policy expenses due to the growing income disparities and poverty rates. Moreover, tax income has been disappointing during the period, due to the sluggish economy and the contraction of the economy following the Lehman Brothers collapse in late 2008.

Japanese authorities are well aware of these issues. At least until 2007, the level of local government indebtedness had been stabilized. Measures aimed at this goal included a merger of municipalities designed to create economies of scale, lower personnel costs and lower levels of public investment. This latter policy was implemented by LDP-governments and is being continued by the new DPJ-led government. The new government also hopes to increase fiscal decentralization further, but no concrete progress has been made yet.

Since 1999, there have been three tiers of subnational governments: municipalities, districts and regions. A number of reforms, most notably health care and education reforms enacted in 1999, increased the responsibilities of subnational governments without providing the necessary resources. The Tusk government has done little to address this problem. In the period under review, however, an improved usage of regional and cohesion EU funds has helped subnational governments perform their duties.

Portugal continues to be one of the most centralized countries in Western Europe, with autonomous self-governing areas solely in the insular regions of the Azores and Madeira. The 308 municipalities represent the main subnational level of government. This level has limited resources available. In 2007, Portugal continued to have the EU’s fifth-lowest ratio of subnational public expenditure to GDP – a position that appears considerably worse if we take into account that three of the four countries below Portugal are Luxembourg, Malta and Cyprus. Subnational public expenditure represented approximately 14% of total public expenditure in 2007, more than two times lower than the EU-27 average of almost 34%.
The relatively new Law of Local Finances (passed into law in January 2007) severely limited local governments’ ability to obtain loans from financial institutions, and reduced the share of state revenue allotted to town halls. The figures for 2008 show town halls to be increasingly unable to meet their financial commitments, with a majority in debt.
The Azores and Madeira, which enjoy autonomous legal status, have their own policies. However, they too rely on central government funds, which are again in short supply. Both regions are governed by financial laws different than those affecting other local governments, in the form of the Leis de Financias Locais e Lei de Financias Regionais. These laws resulted in the resignation of Madeira’s head of government, Alberto Jardim, who argued that the available funds were insufficient to the policies he was expected to implement. The government’s very difficult economic situation has resulted in the curtailing of many of these tasks due to a lack of funds. Among these are some education and health care services, as well as such basic functions such as road maintenance, water, sewage, and the like.

The responsibilities of Belgium’s central government have been reduced over the past few decades and delegated to the country’s regions or sub-regions. These include the three regions (Flanders, Brussels, and Wallonia), the main two linguistic communities (Dutch and French, as well as the smaller German-speaking community) and the communes (which can be smaller than a city). Due to a political stalemate between the Dutch-speaking and French-speaking parts of the country, the region of Brussels has voluntarily been substantially underfunded. The communities were made responsible for education, but did not receive sufficient funding to ensure its healthy development. The Dutch-speaking community and the Flemish region were merged to address this issue, but the French-speaking community could not be combined, since it operates in Brussels (which is bilingual), in Wallonia (generally French-speaking) and in some parts of the Brussels periphery, which is officially Dutch-speaking. Another example is with police reform. In principle meant to increase efficiency, reforms delegated more responsibilities to the communes, but many were also left largely underfunded (possibly an attempt at reducing the government deficit). In general there are problems of underfunding delegated tasks.

In Greece, subnational self-government refers to directly elected prefectural authorities and municipal authorities. These authorities primarily depend on the state budget for the funding of their mandates, but are able to raise revenue through a few locally imposed taxes (e.g., municipalities requiring restaurants, bars and coffee shops to pay for a license to set out tables and chairs on public walkways outside their doors). Since the mid-1990s, the central government has followed a course of delegation, passing many responsibilities to subnational authorities. However, the central government does not provide the prefectural and local governments with enough funding, making unfunded mandates common.

Local governments in Hungary, which get about 90% of their revenues from central government, have traditionally suffered from underfunding. The austerity measures adopted by the Gyurcsány and Bajnai governments included serious cuts in the share of tax revenues allocated to local governments, thereby aggravating the discrepancy between local functions and local resources. A further problem is that the responsibility for distributing EU funds has long rested not with the self-governed counties, but with the regions, a territorialized tier of central government not legitimized by elections. A 2009 decision by the Constitutional Court changed the situation, but did not really clarify the relationship between the subnational and central levels of government.