1

Territorial and administrative decentralisation in the Czech Republic

Vera Kamenickova, Director of the Council for Social and Economic Strategy, Czech Republic

Second Workshop of the project "Strengthening Fiscal Framework for Local Government Reform - Policy Design", Istanbul 8. - 10. September 2003 - WBI/LGI/UNDP Initiative

for Caucasus

2

I. Introductory notes 

II. Territorial division

III. Advantages and disadvantages of small units existence 

IV. Functions distribution 

V. Financing arrangement  

VI. Role of inter-communal co-operation

VII. Effective local government

VIII. Legal status

3

I. Introductory notes

Czech Republic is a small country: 

-  with 10 mill. citizens located in Central Europe; 

-  communist regime existed until November 1989; 

-  going through the process of a change from very centralised form of regulation towards decentralised ones;

- similarly as in Caucasus countries undergoing many political and economic changes in a relatively short time period;

4

I. Introductory notes 

-  in which the fiscal decentralisation does not have a long history;

 

- intensively prepares to joint EU (expected accession in May 2004);

 

-  until 1990 discretion of local government over its revenue was severely restricted, local government acted more or less as an agent of central government;

 

- 1993 - tax reform accompanied by local budget reform took place;

5

II. Territorial division

- renewal of self-government principle in 1990 after an almost 40 year gap;

 

- in 1990 new Law on municipalities defining their functions, main revenue sources and property;

 

-  2001 - second tier of self-government at the regional level introduced;

 

-  2002 - "small districts" established at the municipal level;

6

II. Territorial division

-  73 districts and four biggest cities being a municipality and a district, abolished by January 1, 2003;

 

-  over 6 000 municipalities, more than 80 % of them with less than 1 000 citizens, the number of municipalities grew by 50 % in 1990 - 1992 following the very liberal law on municipalities;

 

- 14 regions form the second tier of self-government; 

- 10 special regions NUTS 2 for EU funds drawing;

7

Lessons: 1. Liberal Czech law on municipalities includes serious risks of

maintaining fragmented structure of self-government, which has several negative consequences on the efficiency of public sector;

 

2. Voluntary amalgamation is a rather long term process;  

3. Introducing regional level of self-government as a vehicle how to overcome the fragmented municipal sector is not always the best solution - complex local government sector, more local officials, less professionals per municipality; more costly solution;

 

4. A number of proposals to change regional borders, as the division of municipalities among regions was not designed so, to take into account all necessary economic and social aspects including local priorities;

 

5. There should be a set of clear and agreed criteria, when considering the establishment of regions;

8

III.  Advantages and disadvantages of small units existence

-  small unit existence is supposed to minimise to flow of citizens onto big cities and thus to prevent the leave of people of the countryside;

-  another assumption - the smaller units the closer relationship between local government and its citizens, the communication does not have to be mediated, in smaller units may priorities of citizens be easier learnt and utilised;

-  specifically in the Czech case - the number of municipalities is an consequence of forced amalgamation in seventies done under the previous regime;

-  using the contracting out mechanism may, if properly managed, diminish the disadvantage of small size of a unit;

9

III.  Advantages and disadvantages of small units existence

- comparing to advantages are disadvantages of small units more numerous: - small and unstable budget; - lack of professionals dealing with management accounting, legal, and other issues; the probability of a mistake is larger; - difficult to run investment program, long term budgeting is very productive because of grater uncertainty; - difficult to borrow, banks will always hesitate to lend to small units as the repayment is difficult to predict; - mayors of small unit have usually a regular job besides being their function; - difficult to adopt changes in the legal environmental;

10

Lessons:1. Having once a great number of small municipalities, it is very

difficult to find a commonly agreed way of their amalgamation; 

2. In most European countries a steady tendency can be observed to merge municipal units;

 

3. Greater units are usually not only more stable, but also create better prerequisites for further decentralisation, for more effective service provision, better budgeting and local affairs management;

 

4. Sustainability of local budget and the ability to meet local preferences represent basic tools for measuring the viability of existing unit from the local representatives point of view;

 

5. Central government should prepare a set of criteria in order to properly aim the grant system; however, it is a very difficult and politically sensitive task requiring close co-operation of all interested parties.

11

IV.  Functions distribution

-  functions are defined in the law;

- for all municipalities regardless their size is the legal framework of own municipal functions the same;

- bigger units provide some delegated functions for smaller unit;

- associations of municipalities may be created for carrying some municipal services.

12

IV a. Municipal level

two types of municipal functions: own and delegated;

-  own functions include:

- education (pre-school facilities and basic 9-year schools,

while teacher's salaries are paid by the central budget),

-  personal social services (pensioners residential homes,

residential and nursing homes for the elderly and for

physically and mentally handicapped children and adults,

infant's homes and abandoned children's homes, housing

(practically all state owned flats were assigned to

municipalities),

13

IV a. Municipal level -  water supply and treatment, collection and treatment of household waste, -  public parks and open space, - local transport, local road maintenance, natural gas and electricity power supply, -  public safety, urban planning, recreational, cultural, and sport activities and facilities.  

- delegated functions cover:  

-  birth, marriage, and death registries, -  issuance of identity cards, passports, driving licences; -  building permissions; -  different tasks in sanitation, environmental protection, statistics.

14

IV b. Regional level

-  regional development in co-operation with municipalities within a given region;

-  secondary education (basically four years after primary education);

-  regional transport, maintenance of all roads except city roads and highways;

-  cultural institutions (galleries, museums, zoos, scientific libraries);

-  personal social services (homes for elderly and disabled adults and children, nursery homes, homes for abandoned children);

-  health care (hospitals); -  environment protection.

15

Lessons:

1. not precious definition of function in the relevant laws leads to many disputes;

 

2. dual financing of elementary and secondary schools involves several complications;

 

3. the set of own municipal and regional functions does not meet the volume of own revenue thus making self-government dependent on subsidies in the areas, where it should be self-financed;

16

V. Financing arrangement

results from the new system of local government financing

adopted in 1993, not many changes took place afterwards,

-  share of local government revenue on the public

revenue - around 20 %;

-  local government spending on GDP - almost 10 %;

-  share of state subsidies on total local government

revenue - exceeds 20 %;

-  all subsidies are specific - the provider decides the usage of

them;

-  tax revenue represents up to 60 % of total revenue;

17

V. Financing arrangement

-  no local taxes, only local fees (on dog ownership, on

recreational stay, on tickets on cultural events, on the use of

public space, on advertisement, on gambling machines, on

entry to the historical parts of a city), some discretion in

case of real estate tax;

-  tax sharing principle - the national yield of three taxes

(personal and corporate income taxes and VAT) is shared,

shares for particular levels of government are given in a

law;

-  very week local debt regulation adopted only recently.

18

Lessons:1.  The non existence of local taxes limits the local government

discretion over revenue; 

2. Only specific subsidies form further obstacle for local government decisions;

 

3. Tax sharing principle as applied in the Czech Republic ensures relatively even revenue distribution among municipalities in terms of per capita revenue but enables almost no influence of local government on its tax revenue;

 

4. All taxes are collected by central government so that local government on one hand bears no costs connected to the tax administration, on the other hand it cannot influence the tax yield and has no control over it.

19

VI. Role of inter-communalco-operation

-  a vehicle, which may overcome the small size of municipalities in some respects;

 

- although there is a law dealing with all important aspects of municipal co-operation (accounting practices, joint property maintenance, decision making and responsibility spread among members of a association), there are not many of them, the temporal forms so far prevail;

 

-  the main areas of municipal co-operation are: water supply, waste water treatment, management of disposal sites for household garbage, and local transport;

 

-  preparing for EU accession plays an important role in improving co-operation among municipal units in several ways - in co-operation itself, how to prepare joint programmes, and in bringing rules in all stages of programming procedure.

20

Lessons: 1. Precious legal definition concerning all aspects of co-

operation is very important;  

2. Drawing EU funds cannot be done without close co-operation of municipalities;

 

3. Role of the Union of municipalities may help in disseminating positive result of existing co-operation and in assisting by changing the legal environment, reflecting local government interests;

 

4. Central government support to co-operations or to merging smoothes these processes;

 

5. Regular exchange of information among municipalities provides useful lessons as well as meetings of local representatives in order to discuss common issues.

21

VII. Effective local government

 -  non existence of local taxes in the Czech Republic has an important implication: local authorities that are dependent on money handed to them from on high (grants and tax sharing based on national tax yield) tend to spent money inefficiently and blame the resulting poor services on under-funding;

 

- another important implication observed in the Czech Republic is low degree of citizen participation on local affairs, although a law on free access to information has been in place since 2000;

22

VII. Effective local government

-  unified budgetary classification for all units within the public sector enables to compare different municipalities from the efficiency point of view;

 

-  audit is obligatory; though not always done by professionals;

 

-   courses organised by central government aim to train local officials in order to improve the management of local affairs, these courses are obligatory for a set of professions (dealing with delegated functions) and end with a certificate;

23

Lessons:

1. It is crucial for local authorities to be assured of financial resources that are in line with their responsibilities to promote local government accountability.

 

2. Fiscal decentralisation should deal not only with bringing more money to self-government, but also enabling increased room for manoeuvre in setting level of their revenue and therefore the level of their expenditure.

 

3. Local taxes are necessary to enable local authorities to vary the quantity and quality of local services in accordance with local preferences.

24

Lessons:

4. Common rules, how audit is carried out, should be in place.  

5. Standards of basic local service provision should be in place in order to improve measuring efficiency.

 

6. Although the unified budgetary classification and regular recording are important, without precious analyses of these data only partial results can be obtained.

25

VIII. Legal status

- the law on municipalities defines all functions, responsibilities and types of revenues (adopted already in 1990);

- municipalities are legal entities;

- they have the right to own budget and property;

- as an owner of property, has local government the right to maintain, sell, lease, or use its property as a pledge in case of a loan (with some exceptions);

- control of central government over local government action is defined in the particular laws and is restricted to legal aspects and management of subsidies;

26

VIII. Legal status

- the budget execution must be audited, either by a private auditor or by the regional office (in case of municipalities up to 3 000 citizens);

- municipal budget must be prepared in accordance with the unified budgetary structure;

- budget execution is recorded to the Ministry of Finance on a monthly basis;

- final account is provided once a year and must be available to the public;