Strasbourg, 28 March 2013                                                                       CDLR(2013)11

Item E.1 of the agenda

EUROPEAN COMMITTEE ON LOCAL AND REGIONAL DEMOCRACY

(CDLR)

POLICY RESPONSES TO CHANGING

ECONOMIC FORTUNES ON LOCAL BUDGETS

(KYIV GUIDELINES)

For guidance and action

Secretariat Memorandum

prepared by the

Directorate of Democratic Governance

Democratic Institutions and Governance Department

This document is public. It will not be distributed at the meeting. Please bring this copy.

Ce document est public. Il ne sera pas distribué en réunion. Prière de vous munir de cet exemplaire.

Introduction

As the financial (debt) crisis enters its 6^th year in 2013, the impact on local government finances continues to be felt across Council of Europe member states.  In a time of precarious economic circumstances and sustained downward pressure on public finances, it is crucial that local and central government coordinate policy effectively to enable sustainable growth and sound fiscal outcomes.

The CDLR has played an important role in helping develop a coherent Council of Europe response to the impact of the crisis on local budgets.  The Council of Europe publication “Local Governments in Critical Times: Policies for Crisis, recovery and sustainable development”, prepared by the CDLR and the Centre of Expertise for Local Government Reform, represents an important initiative and is recognised by the Congress as a valuable resource for local and regional authorities.  The OECD has also acknowledged that their work on the crisis complements and reinforces existing Council of Europe standards.

Current situation

At their 1156^th meeting on 28 November 2012, as a follow up to the Kyiv Ministerial Conference of November 2011, the Ministers’ Deputies instructed the CDLR to:

·         Analyse the impact of changing economic fortunes on local budgets and develop proposed policy responses on the basis, as appropriate, of the “Kyiv Guidelines”.

For its part, the Congress has already begun the process of analysing the impact of the crisis and developing policy proposals in response to it by commissioning Professor Ken Davey to prepare a policy-oriented report to be presented to the Congress Bureau in June 2013 and to be finalised and adopted at the Congress plenary session in Autumn 2013.

CDLR Bureau decisions

The CDLR Bureau discussed the new terms of reference at its meeting on 1 February 2013.  As a first step, the Bureau agreed to invite Professor Davey to present an outline of the work he has prepared for the Congress to the CDLR at its 51st meeting 11-12 April 2013.

In preparing his report for the Congress, Professor Davey has based a significant amount of his financial analysis on EUROSTAT data which principally covers the EU27.  With a view to developing cooperation with the Congress, and in order to respond to the new terms of reference given to the CDLR by the Committee of Ministers, the Bureau decided to invite Professor Davey to prepare a draft questionnaire (see Appendix) for all member states as a means of gathering appropriate financial data for 2012 and gauging to what extent member states have taken into account the “Kyiv Guidelines” in responding to changing economic fortunes.

CDLR members should comment following consultation, as the case may be, of colleagues in other departments dealing with central/local budgets and finance, amend and approve the draft questionnaire at the meeting in April. The questionnaire will then be distributed to all member states to be completed and returned to the Secretariat by 31 May 2013.

On the basis of responses received, Professor Davey will analyse the data and prepare a report outlining which  policy responses have been or seem to have been adopted in member States, in accordance with the terms of reference.

Other possible activities

The Centre of Expertise for Local Government Reform is setting up a task force to assist local authorities in financial difficulty, using its good governance tools and expertise.  A new version of the “Benchmarking for Local Finance” Toolkit, adapting the toolkit to the implications for local and central authorities of the current financial crisis is close to completion and could be tested in local authorities in countries such as Spain, Portugal, Greece and Italy.  The CDLR could explore ways of promoting and adapting the Toolkit to other member states as a means of compiling examples of best practice and case studies.

Indeed, the CDLR could continue / resume regular financial monitoring of local budget performance over the course of 2013 with a view to giving a clear up-to-date picture of the situation to the Committee of Ministers upon the expiration of the current Terms of Reference of the Committee and with a view to extracting guidelines or policy proposals.

The CDLR could also look at ways of updating and promoting the Handbook on Finance at Local and Regional Level and the “Kyiv Guidelines” as a useful reference point to help prepare member states to better respond to and anticipate changing economic fortunes.

Action required

Members are invited to comment, amend and approve the questionnaire in appendix to this document. The CDLR should then invite member states to complete the questionnaire and return it to the Secretariat by 31 May 2013. The CDLR should also consider the other possible activities outlined above (promoting the use of the Benchmark, updating the Handbook) and  give guidance to the Secretariat on possible action to be taken.

APPENDIX I

QUESTIONNAIRE ON LOCAL GOVERNMENT:

POLICY RESPONSES TO CHANGING ECONOMIC FORTUNES

At the 1156^th meeting of the Ministers’ Deputies on 28 November 2012, as a follow up to the 17^th Session of the Council of Europe Conference of Ministers responsible for Local and Regional Government, Kyiv (Ukraine), 3-4 November 2011, the CDLR was instructed to:

·         Analyse the impact of changing economic fortunes on local budgets and develop proposed policy responses on the basis, as appropriate, of the “Kyiv Guidelines”.

CDLR members are kindly asked to respond to the following questions in respect of your own state and submit the data requested in the Excel format attached by 31 May 2013. These replies will assist the preparation of policy responses by the CDLR as well feeding in to work being done on this subject by the Congress of Local and Regional Authorities.

PART I: FINANCIAL PERFORMANCE

Part I is designed to cover the period since the Ministerial Conference in 2011 to the beginning of 2013. In all cases replies should include changes made in 2013 budgets and related legislation.

If the accounts for the full year 2012 are not yet available in your country, then at least official projections or the first semester should be provided, and compared with similar periods of the previous years.

1.1      Financial Data on Local Budgets[1]

General, national, local government comparison

General, national, local government comparison

I.2       Local Government indebtedness

I.2       Local Government indebtedness (cont.)

Please explain in one paragraph:

If the local government payment arrears are a serious problem in your country and how does the government estimate their size;

To what extent local government owned companies (providing communal, utility, transport services etc.) influence the financial health of local governments;

If local governments in your country use cash or accrual accounting systems.

I.3.      Please provide a breakdown of the local budget revenues by tier and the main categories of revenues, selected from the list below:

a)            Own taxes and fees (with their main components shown, if possible)

b)            Major shared revenues (explaining the allocation mechanisms)

c)            General-purpose transfers from the central government

d)            Earmarked transfers from central government to finance social functions (education, health, social welfare)

e)            Other earmarked transfers, specific grants

f)            Funds for capital investments in the local budgets:

 

·   EU funds, other international,

·   central budget, special extra-budgetary,

·   loans, bonds,

·   asset sales, operational surplus

·   private resources

PART II: RESPECT FOR KYIV GUIDELINES IN POLICY AND PRACTICE

The Council of Europe is keen to assess to what extent and in what ways the Guidelines adopted at the Kyiv Conference in November 2011 have influenced and inspired policies and practices developed and implemented by central and local governments in member states in response to changing economic fortunes.

II.1     Revenue policy

 

1.            Are any changes underway or under consideration in the assignment of          revenues to subnational governments to ensure greater stability during         economic turbulence?

2.            Has local taxation of business enterprise been subject to specific review?

3.            Has extra impetus been given to local taxation of property?

4.            Has the freedom of subnational governments to determine the levels of their   taxes and charges been enhanced or reduced by any recent changes?

5.            Have the levels or distribution of intergovernmental transfers been changed     significantly in 2012 or 2013. Have reductions been:

·                     proportionate to general reductions in public expenditure

·                     subject to prior consultation and notice?

Has there been any significant change in the conditionality attached to transfers?

·                     Has the authority of subnational government to borrow funds for investment been reduced or enhanced in any way? In practice, has access to credit been   curtailed? Are procedures in force for responding to municipal insolvency?

II.2     Expenditure Management

1.       Have there been any significant changes in local discretion to determine levels and purposes of subnational expenditure?

2.       Have there been significant changes in 2012 and 2013 in levels of staffing and remuneration?

3.       What significant measures have been taken to improve the efficiency and       transparency of subnational government expenditure? How far have        benchmarking, computerisation, procurement reform and performance audit       contributed?

4.       What roles have been played by rationalising service networks and inter-municipal      co-operation?

 

II.3     Combating Social Deprivation

1.       How far have subnational governments been able to target social assistance and        services to the needs of the most vulnerable social groups?

2.       Have they sustained support to the voluntary sector in this field?

3.       How are local services for the elderly meeting the challenges from inexorable increases in the age group?

II.4     Economic Recovery

1.       How far has subnational government been able to sustain or increase             investment in infrastructural and environmental improvement?

2.            How active is subnational government in promoting:

·         The development of human skills?

·         Energy efficiency?

·         Access to advanced technology?

 

3.       Is the local planning framework conducive to private investment and              employment creation?

II.5     Partnership

In providing public services, combating social deprivation and promoting development and employment, has there been any increase (or diminution) in subnational government partnership with

1.            other levels of government

2.            neighbouring local authorities

3.            private and social enterprise (including contracting and franchising)

4.            the research industry (local universities etc.)

5.            the voluntary sector?