CSOs discussed draft policy advice document on financial autonomy for municipalities
As a continuation of the September discussion on increasing the financial autonomy of Bulgarian municipalities in line with good European practices and standards, on 16 November the Citizen Participation Forum organised a meeting of representatives of civil society organisations with experts from the Council of Europe’s Centre of Expertise for Good Governance (CECEGG) to discuss the draft policy advice document on the topic.
Mr. Vieri Ceriani, expert at CECEGG briefly recalled the principles of local democracy and the role of civil society, stressing that citizen participation is crucial for democracy. The structure and key points of the policy advice document on increasing the financial autonomy of Bulgarian municipalities were presented.
Ceriani explicitly stressed that it is not right for the state to centrally manage the finances of municipalities and said that this situation can be changed through one of the two scenarios proposed in the document – the Comprehensive Reform Scenario (which corresponds to international best practices and good governance principles) and the Alternative Scenario (which is a gradual, step-by-step approach aimed at implementing some of the most important and urgent reforms rather than a comprehensive reform).
In the conclusion of his presentation, the expert of the Council of Europe’s Centre of Expertise for Good Governance pointed out that in the current situation the second scenario is advisable for Bulgaria, with the introduction of econometric methods in the calculation of earmarked grants for delegated functions and in the calculation of municipal revenues (real revenues to be replaced by the standard fiscal capacity), as well as trying out the equalization of the budget deficit instead of the expenditure items and the fiscal capacity and the elimination of extra-budgetary transfers, or at least a drastic reduction in favour of transparency. The current system creates perverse incentives for municipalities, from which they lose out, but civil society loses out too, because there are no clear and transparent rules.
The participants in the meeting stressed that the municipalities should have autonomy and plan their investments based on the real needs, and the proposals and recommendations of the civil society organizations for more transparency and citizen participation, shared during the meeting held on 26.09.2023 in Sofia, should be implemented in the final version of the document with political advice, because their absence demotivates the citizens, raises doubts and distrust, creates conditions for corruption and abuse.
CSO representatives also expressed support for the second, phased scenario, as well as for the proposal to change the equalisation subsidy and abolish the additional end-of-year transfers.
In the course of the discussion it was noted that the more complex the economic models that are proposed, the more difficult it will be for policy makers to understand them, which is why it is better to use simpler methods. According to the participants in the discussion, the current spending standards are not bad and could be used by removing the final say of the Ministry of Finance and letting municipalities and line ministries set them.
One of the main highlights discussed during the meeting was the proposal to share the PIT revenues between the national and local budgets. The participants in the meeting were adamant that the formulation for the sharing of the PIT revenues should be much more explicit and have a mandatory character, and the redistribution of the PIT revenues should be based on the residence of the person who receives the respective income, and not on the place of registration of the company.
It was strongly expressed that a redistribution mechanism should be applied together with other mechanisms to level the differences between municipalities.
Regarding the delegated services, the recommendation of the participants in the meeting was to make part of them local and to finance their costs with a part of the PIT, i.e. the municipalities to receive tax revenues and to reduce the subsidy by the same amount. For another part of the delegated services, it was shared that it would be appropriate to finance them through block grants, with municipalities having the power to make their own decisions in targeting services.
Last but not least, the measures ensuring the improvement of financial decentralisation were highlighted as key to comply with the Council of Europe’s 12 principles of good democratic governance, including those on transparency and citizen involvement in decision-making processes, and to provide for information and awareness-raising campaigns for citizens on the benefits of financial decentralisation mechanisms.
Project ‘Developing fiscal decentralisation and improving local financial management in
Bulgaria’ supported by the European Commission (DG REFORM) through the Technical
Support Instrument (TSI) and by the Council of Europe, and implemented by the Centre of
Expertise for Good Governance of the Council of Europe. The author is solely responsible for
the content of this document. The opinions expressed do not necessarily reflect the official
policy of the European Union and the Council of Europe.