report j okay

7/29/2019 Report j Okay

1/26

Draft-Jokay-Nov. 15, 2005 1

Computerised tools in the areas of multi year local government investment

planning

Draft Inception Report1

November, 2005

1Prepared by Charles Jokay.


2/26


Summary of Assignment: Component B.3 Development of software tools and manuals for

municipal financial management; B.3.1 Review manuals and computerized tools developed

by multi- and bilateral donors in the framework of local administration projects in selected

(EU) members (especially multi-year investment planning).

I. Introduction

This inception report is based upon three phases of work. The first involved

preliminary research and background reading on some multiyear investment planning

software, manuals and approaches used in the EU 15 and EU 8 countries by bilateral,

multilateral donors as well as commercial applications. The second phase, conducted in the

field in Ankara and Istanbul (October 18-25, 2005) consisted of multiple interviews with key

stakeholders in several ministries (Finance, Interior), types of municipality (metropolitan,

district), province, national planning authority, software vendors, municipal associations and

other experts. These interviews firstly familiarized the consultants with the publicadministration and municipal system in Turkey, and indicated what new requirements; such as

performance budgeting, strategic planning and multiyear investment planning would be

imposed upon all levels of local authorities, from the municipality to the Special Provincial

Administration (SPA) level. A secondary purpose of the field visits was to familiarize

ourselves with the variety of domestic (Turkish) municipal software used for reporting,

accounting, budgeting and financial management in general. The SPA association, for

example, and Metropolitan Istanbul both had new capital investment planning software in

place that they had developed themselves. These visits, review of legislation, and

consultations with local experts served the purpose of providing some kind of evaluation

criteria for the ultimate review of handbooks and software used in the EU 15 and EU 8

states. The third phase involves writing the inception report, based upon on the ground

observations and the review of software that is easily accessible.2

II. Impressions/Assessment of Turkish municipal needs based upon field visits

Given changes in key legislation on the roles of metropolitan municipalities, Special

Provincial Administrations and municipalities, as well as new requirements for three year

investment plans, performance budgets based upon strategic plans and comparative

performance indicators, any system of software support must integrate the functions of annual

budgeting, investment planning and strategic planning. (Local authority strategic plansrequired starting from June, 2006).

New Turkish software in the investment planning and budget planning area must meet

a set of requirements that do not exist in other national settings. The Beper system, developed

by the Ministry of Interior, proposes a complex system of performance indicators,

infrastructure indicators, and budget-based indicators for use throughout Turkey in all local

2A footnote on methodology. Software and handbooks that are in the public domain, such as those produced in

USAID-funded projects in Southeastern Europe, or available from multilateral donors, were reviewed

extensively, and if possible, attached in an appendix to this report. Commercial software provided in Europe or

globally could not be reviewed in detail as copies of these applications are not available on a sample basis, and

analysis had to rely on materials provided publicly by the vendors or covered in secondary sources.Accounting and budgeting software is covered by Zsuzsa Kassos report, while capital improvement

planning software and approaches are restricted to this report.


3/26


authorities (We understand this to mean SPA, metropolitan municipalities, district

municipalities and municipalities). These performance indicators can be used to compare

municipalities with each other, but only carefully, as some of the indicators may reflect

structural conditions (Istanbul vs. a relatively new industrial city elsewhere). These centrally-

determined performance indicators are supposed to support comparison and efficiency, but we

propose the following:

The performance indicators (in any new software) should simply provide theframework for comparison, or offer ideas for developing own indicators at the local

authority level for comparison within a single local authority over time.

The performance indicator system, both Bepers, and a local authoritys own indicatorsystem, should be supported by the software used for strategic planning, investment

planning, and ultimately, performance budgeting.

Any locally developed or imported strategic planning, investment planning andultimately budgeting software should be able to simultaneously provide data to Beper

for national comparison, while at the same time, allow for customization, as an SPA

may have its own requirements as it reviews the strategic and investment plans of itsmunicipalities.

Standardized and top down software (investment, strategic, budget) that iscomplementary must allow for variations in national planning priorities (requirements

of the SPO-State Planning Organization), SPA priorities, and also the priorities,

special requirements of metropolitan municipalities.

Strategic planning and investment planning processes that take into account Beper as astarting point really need to be flexible enough to handle the local needs of 81 SPAs,

any metropolitan citys wishes, as well as the local wishes of 3,200 municipalities.

(The foreign software reviewed basically assumes very little involvement of higher

level local authorities in determining performance indicators etc, and most of them donot take into account varying layers of review and approval that may affect a typical

Turkish municipality who needs to coordinate with a metropolitan municipality, or

with the SPA, and in some cases, ,the SPO, if its investment touches national

competencies.).

Iller Bank: given that the largest source of domestic funding for local authorityprojects is Iller Bank, their project proposal format, financial presentation formats

must be taken into account by the planning/investment software. We suggest that the

capital investment planning software be able to export project description and

financial data directly in the format in which Iller Bank, and other anticipated funding

sources would like to see.3 We unfortunately did not get an opportunity to

interview Iller Bank and suggest that any follow up on softwarespecifications/design considerations start with a series of interviews with

potential funding sources, both domestic and foreign. (Please see the materials

from the Bosnia-Herzegovina Governance Accountability Project for an example of

project presentation format. We consider the information in that project presentation

format to be the minimum that an outside funder would need before considering a

municipal project for funding).

Turkish software, as described to us during the interviews, in the areas of budgetingand investment planning, does not explicitly support public comments and

participation (Even the sophisticated Istanbul capital improvement planning software

and procedure is technically-driven and conducted by professional staff in technical

3This was also suggested by Istanbul Metropolitan Municipality during an interview with the finance director.


4/26


departments coordinating with each other). We suggest that future EU projects, as

well commercial bank practices in our experience, do require evidence of public

participation, comment and support, as vital components of CIP and budgeting. (The

Romanian and Bosnian CIP process handbooks are good examples of participatory

CIP processes and should be considered as examples for developing versions that take

into account Turkish conditions).

Our general impressions of the software that was observed in action lead us to

conclude that Turkish stakeholders, including large municipalities, SPAs, central ministries as

well as private sector firms are fully capable of creating accounting, budgeting, investment

planning, strategic planning and performance measurement procedures and software. This is

based upon examining and hearing presentations on software produced by entities such as or

called Beyaz, Say2000i, Beper, Ankara SPA investment planning software (experimental),

one Ankara district municipality and Istanbul Metropolitan Municipality (capital

improvement planning). There is no question that properly localized software production

capacity exists. What is missing, are clear guidelines from the appropriate ministries andauthorities answering such questions as:

What will happen when 26 NUTS II regions come about in Turkey that will be doingpre-accession planning for EU funds? How will they relate to the 81 SPAs, the SPOs,

or to the plans of the other local authorities?

Will existing commercial and in-house budgeting and accounting software need aninterface with Say2000i in 2007? What are the standards? If no interface standards

are set, how will Say2000i be extended to budget users in every local authority?

A municipal interface is needed with SPA software for cases in which a project isjointly financed. In other words, each SPAs own in-house planning, budgeting, and

CIP software needs interfaces with municipal software. This is even more true if the

facility to be built will have shared operational expenses among several levels.

We did not detect any, nor did any of the interviewees at the SPA or SPO levelindicate any planned coordination regarding the strategic or capital improvement

planning system to be used in 2006. This applies also to the various forms, formats

etc. that are currently in use that could be standardized.

Eventually, the distinction between foreign and domestic credit cannot be used in thecontext of creditworthiness evaluation. In other words, the MOI, MOF and SPO get

involved in certain municipal projects because of the foreign currency risk and/or

sovereign guarantee. But assuming eventual EU membership, then the distinction

between a foreign financial institution registered anywhere in the EU and a Turkey-based institution will not be valid anymore. This means that basic creditworthiness

issues, if we remove exchange rate risk and assume no state guarantee, are technically

the same regardless of the nationality of the lender. So the SPO and all the relevant

ministries need to decide upon a review and approval process that is universal,

separating the issue of exchange risk and the sovereign guarantee. Eventually, the EU

will demand non-discrimination against financial institutions registered in the EU,

and by definition, non-Turkish but EU financial institutions will need to be allowed to

bid for financing local authority projects. At that point in time, any review by the

SPAs, the SPO, or any ministry may not discriminate against foreign financial

institutions.


5/26


Conclusion: the financial planning and budgeting software, the strategic planning

considerations at all levels eventually need to treat foreign borrowing and domestic

borrowing equally, allowing for the unique risks of foreign currency of course. Any set of

software developed or chosen for Turkish local authorities needs to assume that the capital

and banking market will be open for competition from abroad, and the approval process

needs to be adjusted by those who are currently in the approval process.This is closely connected to Component A. of the project. Reform capacity has to be

strengthened, especially in the field of policy advice, drafting secondary legislation and

training.

III. Other Considerations for Turkish software

Despite the availability of good software currently for municipal budgeting and

accounting, as well as similarly good software for strategic planning and capital improvement

planning, a general concern is that there is a lack of standardization among the various

commercial and in-house packages that are in use. This software, as the Ankara SPA haspointed out, is neither certified nor audited by an outside agency. Furthermore, the relevant

ministries have not set standards, so no assumption can be made about the equivalence or

interoperability of current municipal software in use in one province or across the country.

Until and unless someone sets standards, such as listing the mandatory functionalities etc., it

will be difficult to develop and integrate new packages that can handle performance

budgeting, strategic planning as well as multi-year investment planning.

These following features should be taken into account when designing or selecting

software and procedures for capital investment planning, strategic planning and multi-year

performance budgeting. These features are by no means exhaustive, and are based upon brief

encounters with various applications during the field visits. These considerations, as well as

the ones mentioned earlier, were subsequently taken into account when reviewing various

public domain and commercial applications used by multilateral donors and/or in the EU 8

countries.

Investment planning:

Even though only 3 year investment plans are required, investment planning software,spreadsheets etc. must show a direct impact on the current operational and capital

budget of the local authority. These means showing not only debt service, but alsoamortization, as well as changes in operational costs, maintenance costs, and changes

in other revenues and expenses during and after the construction is completed and the

asset is activated on the balance sheet of the public enterprise or local authority.

The investment planning procedure/software should try to plan for the entire life cycleof the asset being purchased or constructed. This is important from the perspective of

equity, i.e. future rate and taxpayers should also pay for something that will be used

10-15 years from now. This assumes that financing will be able to match the useful

economic life of the assets being built.

The procedure/software used should enable public participation at every step. In otherwords, scoring project ideas, evaluating the feasibility of selected projects should

depend in part on the level of public support and input. Public support is critical forfee-supported infrastructure such as water, wastewater etc. projects that Turkish


6/26


municipalities are to sponsor. Of course, popularity with stakeholders should not be

a dominant selection criteria. But it is worth noting, that the technology preferred by

several donor-supported projects assign significant weight to participatory strategic

planning, project selection, and investment proposals. Our experience in other

transition countries (Bosnia, Serbia, Romania) has been that potential funders want to

see evidence of public support for projects as a part of their evaluation process. (Thishas been repeated in many public lectures by credit rating agencies as well).

Any capital improvement planning software must provide analysis of compliance withcurrent and prospective borrowing restrictions. In other words, some measure of

indebtedness (stock or flow) in relation to a budgetary statistic or type of revenue mustbe build into the system. The CIP system needs to have a screen that shows

compliance with current regulations, and should be flexible enough to allow for

changes in national debt limit legislation. In addition, the CIP system should enable

the user to develop their own ratios showing coverage of various types of expenses

from various revenue sources.

Given Turkeys complex system of review and approvals by higher levels such asprovincial-SPA oversight over municipal and metropolitan plans, or metropolitanoversight over municipal plans, or the national influence of the SPO, any CIP software

must include options for tracking and documenting the activities of the reviewers, as

well as producing templates required to request these higher level approvals.

In anticipation of pre-accession, operational and structural funds from the EU, and thepossibility that Iller Bank loans will be available in combination with other domestic

and international loans, the CIP software package must be able to document and track

multiple funding sources with divergent terms and conditions. Particularly important

will be the ability to coordinate the timing of applying for and receiving these funds,

as the decision cycles and pay-out schedules of multiple funders will never be

synchronized.

The CIP software should be able to support 7 year planning cycles and programmingon a regional basis (Nuts II) that is standard practice in the EU and expected of pre -

accession and associated status countries.

One main output goal of any CIP software or approach would be to support three yearbudgeting at the municipal level that takes into account the effect of investments on

operational expenses and potentially upon revenues. Such information should be

easily exported from such applications for direct use in preparing annual operational

budgets that have a three year perspective.

Strategic Planning:

While strategic planning in the classical sense is more of a process rather than an

operational procedure, there are design considerations to take into account were certain steps

in the planning process automated, made interactive or put on the internet. We assume that

strategic goals, once defined, lead to operationalized objectives. These objectives appear in

the form of development programs (in CIP), and ultimately should be broken down in year by

year budgets.

Standard project requests, other forms of input documents are needed from budgetusers at all levels to be fed up to various local authorities, and if appropriate, to the

SPO.

Request forms, reviews, scoring and the notification/tracking system should beincluded as a functionality


7/26


Public input at various stages needs to be more than simply a tick on a spreadsheet. Strategic plans, mostly descriptive and not numerical, need to be compatible in content

and form with the planning system of the relevant SPA, and the two levels must be

able to communicate in both directions.

Budgeting:

Annual budgets with one year time horizons and maybe retrospective figures become

multiyear budgets when the impact of current and future investments upon operational

expenses and revenues are added in. In other words, anticipated changes in revenues and

expenses of all types, including amortization, maintenance and debt service, are derived from

multiyear investment plans. Showing the direct and anticipated indirect impact of

investments (and in more sophisticated systems the increase in operational costs/drop in

performance/ revenues caused by disinvestment or a lack of investment) in an operational

budget is only possible with strong information in the proper format from investment and

strategic plans. In other words, anticipated changes in service levels caused by demographicshifts, new responsibilities, or changes in other drivers of revenues and expenses are used to

add future years to a current operational budget, especially if that budget is based upon

programs or performance indicators rather than being a simply line-item budget with

inflationary increases.

Budgeting software currently in use in Turkey, or anticipated given changes inaccounting and other requirements, mustbe able to accept inputs in the proper

format from multiyear investment plans and from strategic plans. These inputs are

the drivers and justifications for current and anticipated expenses, and in some cases,

revenues if the municipality builds infrastructure that generates direct fees, or indirect

increases in other taxes that depend on the general economy of a locality.

Projected operational expenses, amortization, loan repayment, project revenue andeconomic impact determined in investment plans need to be transcribed to

operational budgets. In an ideal world, the entire life cycle costs and benefits of an

investment could be shown on a net present value basis.

Even if the budget law, public borrowing law, or accounting laws and regulations donot require it, it may be a good practice to establish and document a reserve fund,

sinking fund etc. for loan repayment that could be monitored by a lender, by an

internal controller, by the legislative branch, or by outside agencies such as a Ministry

or the Court of Accounts.

Perhaps component B.2, B.4. and B5 could contain a CIP pilot project.


8/26


IV. Multilateral and Bilateral Tools used in multiyear investment planning/strategic

planning

A major effort was launched in the transition countries of Central Europe in the early

1990s, and in the late 1990s in the former Yugoslavia to reform municipal finance systems,and to enable municipalities to engage in long term borrowing. This effort was financed in

large part by the United States Agency for International Development (USAID) in a series of

capacity-building projects that built capital improvement planning and creditworthiness

assessment software. The early effort started in Poland, and Polish models for participatory

capital planning spread to later USAID projects in the ex-Yugoslavia and Southeastern

Europe.

There are two types of models in use in general. The first type deals with describing,

ranking, comparing, and projecting the costs/benefits of capital improvement projects that

could be initiated by citizen meetings and lots of stakeholder involvement. These models

involve complex scoring systems, many public hearings, and direct connections to capital

budgets that have direct impact on current budgets. These CIP models were developed tosupport program budgeting training and software, and relied on policy changes that these

projects were advocating at the national level. The initial Polish version of participatory

capital improvement planning resulted in many improvements in later versions that were used

by other projects. The most advanced, and complicated variation on the Polish CIP was

used in Romania, albeit it is more technical than participatory. That model used by the Grasp

project, as well as a simpler version more reliant on direct citizen participation used in

Bosnia-Herzegovina are presented below.

The second type of public domain spreadsheet available for use elsewhere consists of

models that attempt to manage municipal creditworthiness. These models are essentially

extensions of a municipalitys capital budget, and do not analyze the details of many proposed

and running projects, but rather try to match capital expenses, debt service and other costs

with the legally available cash flows from local revenues, shared taxes and other sources of

repayment. These models require very little descriptive data regarding the details of projects

beyond items such as total cost, annual debt service, grace periods, interest rates etc. These

creditworthiness models support current budgeting, as well as provide projects of future

creditworthiness under certain expected revenue scenarios. They are not used to select, rank,

catalog etc. proposed projects, rather should be considered as operational tools used in the

budget planning process. Most importantly these creditworthiness models try to predict how

much total borrowing a municipality may engage in given legal and fiscal constraints, and its

outputs are critical for both capital planning (gives total borrowing capacity) as well for

preparing current and future operational budgets (how much debt service, capital expense maybe included at all). These creditworthiness models are customized for each fiscal system

where they have been used, and a special Turkish version could easily be prepared as the

general principles are the same: showing the legally available anticipated free cash flow that

could and should be used for debt service. The Grasp (Romanian) creditworthiness model is

included in full in the Appendix. A simpler creditworthiness model developed for Bosnia-

Herzegovina is described only in part as it is still under development. However the Appendix

contains a project description template that can be used by project sponsors in their initial

approaches to funders, higher levels of government or the public. Once sufficient interest is

demonstrated, further calculations may be made and complete documentation prepared.

These models, as well as others to be described briefly in this section, some of whichare public domain, some commercial, do not yet meet specific Turkish design requirements


9/26


that are related to the multiple layers of approval and review of strategic plans, investment

plans and local authority budgets. However, the two types of public domain CIP models

(citizen participation and technical) form a very reliable base from which to build a Turkish

model that takes into account layers of subordination, review and oversight that are not

assumed to exist in the models outlined below.

Example 1:

Bosnia and Herzegovina: Governance Accountability Project Participatory Capital

Improvement Planning System (full documentation attached)

This approach to CIP has been tested in 10 municipalities in 2004-2005. It relies on a

series of interactive meetings among stakeholders, who in the end produce a short plan (20

pages) and a consensus-based short list of priority projects that are derived from project

descriptions submitted by stakeholders of various types. The process is to be repeated

annually, as its conclusions are key inputs to the annual budget. The procedure has thefollowing steps:

CIP MANUAL OUTLINE

STEP 1Decision making.

Who is to take the initial decision, mayor or city council.

Advantages and disadvantages of both solutions.

Scheduleambitious or safe?

STEP 2Mayor Dispositions concerning:

Implementation schedule.

Coordinating Committee (CC) composition (competences).

Capital Investment Card (CIC) format (mover application form).

Set of selection criteria project.

STEP 3Media campaign.

Mayors interview.

Cover story in local newspaper.Local radio.

Local TV program.

STEP 4Capital Investment Card (CIC, format of project application) distribution.

Citizens access to CIC and collection.

NG organizations participation.

Entrepreneurs and their organizations participation.

Local leaders and local VIP proposals (notified by special letter of mayor).

STEP 5Coordinating Committee (CC) primary activities.


10/26


Setting fixed weekly day and hour of CC meetings.

Checking each CIC if completed.

Setting a mover deadline for his/her CIC completion.

CIC content checkingis it project or whole program? (program must split into set of

projects).

CIC statistics to be published when gathered:How many of them origin from citizens, from their organizations, council committees,

authorities, high ranking officers, others.

Projects technical structure and its discrepancies (citizens projects versus municipality organs

projects e.g. citizens moved great number of roads and streets improvements projects whereas

organsmayor and councilonly few of such ones).

CIC statistics along budgetary classification.

Projects coding and stamping (delayed must be rejected or directed to CIP updating procedure

next year).

Notifying the movers about what is the reason their CIC were rejected (in writing).

STEP 6Projects elaboration.

Gathering basic information of project conformability (must be confirmed in writing or by

signature) with:

Master plan,

Land register (geodesy),

Land ownership,

Land purchase program (if needed),

Technical feasibility,

Projects pricing.

Estimating investment purchases costs needed for each project concerning.

Updating budgetary multiyear operational surplus forecast (treasurer, finance director).

Estimating total own financial capacity (during CIP period, usually five years) versus total

projects costs difference (in percent).

Creditworthiness evaluation.

STEP 7Projects ranking.

Set of selecting criteria approval (CC).

Shaping points and wages scale for prioritization purposes.Prioritization of projects by points scoring (individually each member of CC and drawing

average number of points for each project).

Setting Multiyear Sectoral Investment Projects list (projects are ranked in each).

Own financial resources allocation for each sector by:

Average costs,

Points scored percentage,

Costs percentage of each sector,

Development strategy main goals,

Mixed method.

STEP 8Co-financing.


11/26


External resources identification.

Own financial share estimation for each project (as required by certain donor).

Loans, credits perspectives evaluation.

STEP 9Passing council resolution.

STEP 10Applications for each project completion.

Please note that true financial planning begins after step 10, and this manual from

Bosnia is not supported by any software application. Rather the participatory procedure, all

within a particular municipality, is relied upon to score and rank priority projects that the

council ultimately approves. At that point in time, the budgeting process can begin and other

applications are called upon to develop the details of investment plans.

This type of CIP process does have its own system of criteria for ranking project

proposals, and these criteria should be derived from the general strategic plan of the

municipality. The following criteria system could be operationalized in a spreadsheet-basedevaluation system.

PRIORITY 0 POINTS 1 POINT 2 POINTS 3 POINTS

The investmentimproveseconomic

development

Does not serveinvestors

Serves the objectiveof some investors

Serves manyinvestors

Incredibly attractivefor investors

What is the levelof satisfaction of

community needs

Influence on 1/3of the territory

Influence on 1/2 ofthe territory

Influence on 75%of the territory

Influence on thewhole community

The project bringsnew budgetincome

The project willnot bring newbudget income

The project willbring new budgetincome, but onlyafter many years

The project willimmediately bringincome

The project willimmediately bringsignificant income

The projectattracts foreigncapital

The project willnot attract foreigncapital

The project willattract only oneforeign investor

The project willattract a fewentities

The project willattract foreign fundsfor one half of theprojects

The project

started earlier

The project has

not started yet

20% of the project

started

50% of the project

started

80% of the project

started

The projectdecreases currentbudget costs

The project willnot decreaseexpenditures

The project willdecreaseexpenditures, butonly after some years

The project willimmediatelydecrease expenses

The project willimmediatelysignificantly decreaseexpenses

The projectconnects theexistinginfrastructure

The project doesnot connect theexistinginfrastructure

The project connectsthe same type ofinfrastructure

The projectconnects differenttypes ofinfrastructure

The project will be aconnecting elementfor infrastructure ofthe municipality


12/26


The project isenvironment andcommunityfriendly

The project is notenvironment andcommunityfriendly

The project does noteither improve orharm environmentand community

The project isenvironment andcommunityfriendly

The project improvesthe conditions of thecommunity

Another capital planning approach used in Bosnia by Padco, a USAID contractor,

proposes using two types of selection criteria, one based upon urgency, another based upon

magnitude. These two types of criteria are reprinted below, and the complete Padco approach

is attached in electronic form.

Urgency of Problem Criteria: Urgency-based criteria are designed to capture a broad

spectrum of needs that could be addressed by capital project proposals. The criteria are

ordered from highest importance to lowest according to the urgency of the problem that will

be addressed by the capital project proposal. The following list provides a glimpse of the

types of urgency-based criteria according to order of importance of the problem:

Addresses an existing health or public safety hazard

Meets a legal requirement or mandate

Prevents a health or public safety hazard from occurring in the near future

Protects or saves the structure integrity of an existing asset

Needed to maintain existing level of public service (without this investment the level

of service will decrease)

Supports economic development

Improves quality of life for citizens

Improves efficiency of public services (same level of service with less resources)

Improves effectiveness of public service (higher/better level of service)

Offers more convenient service to citizensProvides new service to citizens

Magnitude of Project Impact Criteria: Criteria can also be developed and applied according

to the magnitude of impact of each proposed project. The magnitude of the impact can be

considered from either the communitys view or the municipal organizational perspective.

The following list provides an illustration of these types of criteria:

Number of project beneficiaries

Employment contribution (number of new jobs created)

Impact on local economic development

Impact on the environmentMultiethnic benefits

Percentage contribution/level of donor support

Need for ongoing operating funding support

Evaluation: from a procedural perspective, this Bosnian variation of an originally Polish

approach is a completely consensus-based, non-technical and participatory system of project

identification and selection. It is a planning system, not a financial projection system.

Keeping this in mind, this kind of approach would need to be modified for use in Turkey

given the subordination and review of municipal projects to the SPA or to other local

authorities such as metropolitan municipalities. The Polish original, as well as its Bosnianderivation, all assume that a municipality may propose and plan capital projects without much


13/26


interference from higher levels of local authorities. The Padco approach, slightly more

technical, is also based upon consensus-seeking public participation, and assumes that

municipal capital investment decisions are not questioned or overruled by higher levels.

Example 2:

EU: European Commission Guidelines4 (cost benefit analysis)

Guidelines on performance budgeting and project evaluation were published recently

by the EU Commission. From a practical perspective, these guidelines are difficult to

operationalize. But from a CIP system design perspective, they give insight into the

justification for using cost-benefit analysis instead of cost effectiveness analysis only.5 The

recommended approach compares projects and not differing plans to achieve the same project.

The approach should take into account the value of non-market costs and benefits, as well as

consider redistribution of income issues.

Evaluation: At this point, Turkish CIP design should allow this type of cost-benefit analysis

to become a part of the CIP process, and this type of analysis can be operationalized and

scored.

Example 3:

OECD/SIGMA:

The OECD has published two documents that could be useful in Turkey in designing

multi-year budgeting and multi-year investment planning. The Managing Public

Expenditures Guide6 offers textbook-like descriptions of the multiyear approaches used in

several OECD member states. Most relevant, given the top down nature of Turkey, would

be the British use of multiyear expenditure frameworks and multiyear budget frameworks.

From a practical perspective, OECD has recently (2004) produced a set of investment-

planning spreadsheets called Toolkit for Multiyear Investment Planning for Municipal

Environmental Infrastructure designed for the Russian and Ukrainian markets. Full

references to websites and other resources are given in the Appendix to this document.

However, these spreadsheets (instructions, called MIP Users Guide, are in the annex) were

prepared taking Central European transition country experiences into account, and in fact,most of the authors were Polish or had extensive experience in Poland and other transition

countries. This model is very similar to the investment planning spreadsheet used by Padco in

Bosnia, and uses consensus-based discussions as does the Gap model from Bosnia.

Evaluation: From a technical perspective, these models have been designed based upon

Russian and Ukrainian conditions, where a semi-federal system of public administration is in

place. On the other hand, the budget categories, including the standard types of revenues

4European Commission: European Economy, No. 3 (2004), published by Directorate-General for Economic

and Financial Affairs.5

See pages 202-209 of the report cited above, attached to this document.6Richard Allen and Daniel Tommasi, editors: Managing Public Expenditures: A Reference Book for

Transition Countries, Paris: OECD-SIGMA, 2001.


14/26


available, had to be made very general for the spreadsheets to be useful elsewhere. Our

recommendation is that the technical structure of the project evaluation, scoring, repayment

calculations be taken into careful consideration, ignoring the peculiarities of the Russian

federal system. Furthermore, these models can be ordered for free directly from the OECD

and are in the public domain, so from a software design perspective, they offer useful

methodological insights for similar systems in Turkey. (See the appendix and annex for weblinks and descriptive materials).

Our initial impression of the OECD multi-year model is that it is like a simplified

version of what was produced by the Grasp project in Romania. So the input and output

pages and the programming structure may be useful for design purposes, while a more careful

analysis of the Romanian approach may be the most useful for Turkey.

V. Single country examples (EU, OECD members or candidate countries)

Example 4:

Romania: Governance Reform and Sustainable Partnerships Program (GRASP) Capital

Investment Planning and Budgeting Toolkit (Full documentation, spreadsheets, instructions

are attached in appendix to this report).

This system of spreadsheets, forms, and instructions is the most comprehensive tool

reviewed for multiyear capital investment planning, since it contains very strong links to

creating budgets, and also focuses on an objective, technically-based project scoring

procedure.

In additional to a detailed set of instructions, the Grasp model contains the following

set of materials:

1. A model of disposition and an action plan;2. Analysis of the information system of the multi-annual capital investment

plans and proposal for improving the questionnaire and a draft regulation for

planning and budgeting capital investments;

3. Approval and implementation forms and instructions;4. Financial planning model prepared in Microsoft Excel;5. Criteria for analyzing and prioritizing projects;6. Citizen participation in the decision-making process using a questionnaire and

a model to obtain a hierarchy of priority projects;

7.

Practices used by public authorities in investment planning and implementationand a model multi-annual investment plan covering 5 years.

The general instructions from the GAP manual state the following:

A CIP requires the use of a coherent and unified methodology, as well as several

financial management tools. The undertaking looks at a medium-term horizon, and the

investment programs are scheduled each year, in an order that reflects the community's

priorities. The applied methodology for priority setting limits the subjectivity through a

number of quantitative and qualitative criteria and leads to a more efficient use of budget

resources. In order to identify financing resources to fund the projects a budget forecasting

exercise must occur and the CIP must be updated every year. The multi-annual program canonly be prepared and implemented when responsibilities specific to the project are assigned to


15/26


several specialists in a working group, a common action plan is approved, and resources are

allocated. The action plan is approved by the coordinator of the working group and approved

by the mayor or, as applicable, by the president of the county council, the authorizing officer.

The full cooperation of the departments involved in this process contributes to the success of

this enterprise and helps avoid miscommunication that may occur in the process.

Grasp experience has been that successful CIP depends on intense citizen and

stakeholder involvement throughout the planning and implementation process.

This CIP process consists of 12 steps:

1. Determine the organizational structure2. Establish capital policies3. Develop forms and instructions4. Assess capital needs5. Analyze the financial capacity6. Prepare project requests7. Review project requests8. Rank project requests9. Evaluate financing options10.Draft the capital program and budget documents11.Adopt the capital program and budget12.Implement, evaluate, and monitor the capital budget

TABLE OF CONTENTS:

Grasps project scoring and ranking criteria are so well developed, that they are

reprinted in their entirety below.

Several priority setting approaches are available: (a) single standard; (b) prioritization by category based on values; and (c) multiple criteriainvolving weighting and scoring.

a. Single standardThis approach uses a single standard such as return on investment or availability of financing to evaluate projects. Projects that have short

investment payback periods or can be financed through other sources besides local funds receive high priorities.

b. Prioritization by category

Each project is placed into one of a small number of rating categories based on urgency and community values. Examples of categories

include mandatory, urgent, essential, necessary, desirable, acceptable, and deferrable. This type of system generally does not prioritizeprojects within each category but points can be assigned and projects ranked. Below is an example of prioritization by category.

MandatoryProjects mandated by law, regulation, or court order.

Urgent and Essential

Includes projects that:

Remedy a condition dangerous to health, safety, or property

Correct a major deficiency Complete or make fully usable a major improvement

Provide facilities for a critically needed service

Do not have flexible timing and funding

Desirable

Includes projects that: Conserve or improve existing facilities

Replace functionally obsolete or deteriorated facilities

Reduce operating and maintenance costs Raise service standards

Attract new development

Are needed now but funding is f lexible

Acceptable


16/26


Includes projects that:

Prevent substandard service

Provide a new service Enhance public convenience and comfort

Reduce overcrowding conditions

Raise facilities to optimum level Have flexible funding and timing

DeferrableIncludes projects that:

Can be postponed to a later date

Need additional planning and analysis Duplicate other public or private projects

Have limited benefits or adverse effects

c. Multiple criteria

This approach uses multiple criteria for evaluating projects in order to balance diverse and competing values and needs. Examples of criteriainclude fiscal, health and safety, economic, environmental, operating budget, and political impact.

Example of multiple criteria to prioritize projects

The working group determines the set of criteria to prioritize capital investment projects having in view the following:

- strategic objectives;

- financial and capital investment policy elements;- available information (in the project description).

The working group set a number of criteria to be used in ranking projects, in accordance with the development strategy and the local

community values. These criteria could be:

1. The project contributes to local economic development;

2. The project contributes to infrastructure development;

3. The project completes or develops current services;4. The project supports environmental protection and sustainable development;

5. The project contributes to community health improvement

6. The project contributes to regional development

7. The project contributes to asset rehabilitation and tourism development

8. The project has a polarizing role for rural areas

9. The project contributes to the support of the business environment;10. The economic impact on the county council.

Weighting project ranking criteria

Each criterion is weighted (1 to 10, and respectively -10), depending on its importance, as follows:

Criterion Weight

1. The project contributes to local economic development; 82. The project contributes to infrastructure development; 9

3. The project completes or develops current services; 6

4. The project supports environmental protection and sustainable development; 45. The project contributes to community health improvement 2

6. The project contributes to regional development 7

7. The project contributes to asset rehabilitation and tourism development 58. The project has a polarizing role for rural areas 6

9. The project contributes to the support of the business environment; 3

10. The economic impact on the county council. 10

Assigning points

Depending on the extent to which the project under consideration meets the criteria, points could be assigned as follows:- to a great extent [7 - 10] points;

- to somewhat great extent [4 - 6] points;

- to little extent [1 - 3] points.

Final project scoring The final score granted to each project is the product of criterion weight and individual project score. An Excel

weighting and scoring matrix is included in GRASP CIP Toolkit.Each local government will need to identify the criteria and weights most suitable to its needs. Multiple criteria systems can be burdensome

and time consuming. Some local governments have abandoned applying points and weights because of the time required. They have,

however, continued to use clearly defined criteria to aid those involved in setting priorities. A sound factual basis for priority setting isessential. Evaluative criteria development is a trial and error process requiring continual testing and refinement. A simple system installed

gradually is the best approach. Initially the criteria will prove useful in strengthening the preparation of project justifications.

Priority setting can be simplified by excluding certain projects from intense scrutiny such as:

Projects that alleviate an emergency

Small or marginal projects Projects involved in litigation

Projects with a high level of community and political support


17/26


Poorly conceived projects requiring further analysis

High cost projects when only limited funds are available

Projects included on an approved replacement schedule Legally mandated projects

When project priorities are determined by a committee, consideration should be given to using group interaction techniques such as thenominal group method. Nominal grouping is a structured interaction technique that encourages input from all group members and provides

for anonymous voting on priorities.

Multiple Criteria Definitions

Legal Impact - considers the extent to which the project is mandated by law or regulations of a higher level of government, such as

water pollution regulations pertaining to a landfill site.

Health and Safety Impact - considers the extent to which a project corrects hazardous conditions relating to health, life, or property or

prevents a critical breakdown of an essential facility.

Fiscal Impact - considers capital, operating and maintenance costs, return on investment, alternative sources of financing, potential for

leveraging local funds, revenue increases or decreases, cost recovery, cost savings, and effect on tax base.

Economic Impact - considers the extent to which a project stimulates economic development and creates jobs.

Community Impact - considers the extent to which the project benefits the entire community or neighborhood, meets the special needs of thelow income, aged, minorities or handicapped, and contributes to neighborhood preservation, stabilization, and revitalization.

Environmental Impact - considers the extent to which the project protects the environment and conserves resources such as energy, water,

and open space.

Political Impact - considers the extent of community support or opposition and elected officials perceptions and needs.

Aesthetic and Cultural Impact - considers the extent to which the project enhances the community aesthetically and culturally, such asproviding works of art and cultural facilities.

Operational Impact - considers

Quality and timeliness of the request

Priority assigned by the department

Extent to which the facility will be used Useful life

Productivity increases If project is on an approved replacement schedule

Application of technology

Implementation of approved plans and policies

Service Delivery Impact - considers the extent to which the project causes disruption and inconvenience such as relocation, rerouting of

traffic, or temporary cessation of water or sewer service.

Risk Impact - considers the extent of risk and uncertainty associated with the project, such as effect of new technology, uncertain benefits, or

design problems.

Inter-jurisdictional and Intra-jurisdictional Impact - considers the relationship of the project to other public and private projects in terms of

scheduling, financing, and construction benefits.

Consequences of Deferring - considers the costs and negative consequences of deferring the project such as inflation, construction cost

increases, loss of financing, or detrimental reduction in level of service.

Evaluation: The Grasp approach to CIP should be taken seriously by Turkish experts who

want to integrate strategic planning with multiyear investment planning, and operational

budgeting. Grasp does all three. For example, the project forms that describe each individual

project proposed during the process contain a sheet on future budget impact. Furthermore,

full cost-benefit analysis in net present value terms can also be done on those project forms.

The scoring system allows many criteria with differing weights to be developed. The budget

module, a part of the CIP package, uses historical data five years back in time, and makes

projections five years into the future. The module imports the results of the CIP process, and

also generates a host of creditworthiness indicators, some of which may be of interest to

lenders, and to regulators. Finally, a debt limit compliance sheet is also available to showlegal compliance with various higher level requirements.


18/26


For use in Turkey, this complex system would need to undergo modifications to match

the budgetary structure, the approval process involving higher authorities such as SPAs, SPO

or even the MOI and MOF. But of all the models reviewed, the GRASP approach is the most

sophisticated and offers a wealth of options for incorporation into Turkish versions.

The rating criteria for project proposals, for example, could include performance

indicators imported from Beper or developed locally. As Grasp assumes that municipal CIPsare updated annually, these criteria for projects under way could be continuously monitored

and matched against resource commitments to give municipal managers even more options to

make adustments.

VI. Commercial Examples:

Three types of commercial public sector investment planning software in use in

Europe were considered for evaluation. Unfortunately, demonstration versions, pricing,

configuration etc. information is not available for public review unless the potential clientdemonstrates a true interest in making a purchase. In other words, firms such as SAP or

Oracle are capable of developing any type of software to meet virtually any need, but only if

one know the number of users, licenses and can identify all functionalities ahead of time.

What follows then is a cursory review of what is in use. In general, none of the commercial

platforms observed currently meet the major Turkish requirements identified earlier: allow

for multiple layers of funding and approval, integrate performance indicators with strategic

and investment planning, and feed data to multi-year operational budgets, with as few as 81

SPA users, or as many as 3,200 municipal users at a minimum, not counting municipal

enterprises and individual departments within large municipalities.

Example 5:

Austria, Germany: Fabasoft eGov-Suite (www.fabasoft.com/html/eGov/egov-product.htm)

Despite its name, this suite is designed to support document flow, archiving, tax

account management and other business functions of municipalities. Such software could be

modified to include budgeting and planning functions if required.

Example 6:

Europe-wide: SAP (www.sap.com/publicsector)

SAP has developed budget planning and execution modules for use in the public

sector in various European countries. The budgeting modules of course can be integrated

with dozens of other strategic and operational modules, and can provide support for

constituent services, utilities, local tax and revenue management, security, controlling and

audit, HR, grants management etc. Given that SAP develops custom solutions for each one of

its clients, it is very difficult to assess the public examples given from Austria and Germany

and whether these types of solutions could work theoretically in Turkey. Our view is that

global firms such as SAP, Oracle etc. can solve just about any problem, but the problememerges with development fees, license fees, hardware requirements, and the need to
http://www.fabasoft.com/html/eGov/egov-product.htmhttp://www.fabasoft.com/html/eGov/egov-product.htmhttp://www.fabasoft.com/html/eGov/egov-product.htmhttp://www.sap.com/publicsectorhttp://www.sap.com/publicsectorhttp://www.sap.com/publicsectorhttp://www.sap.com/publicsectorhttp://www.fabasoft.com/html/eGov/egov-product.htm


19/26


constantly buy upgrades and improvements. Our experience with firms on the scale of SAP

and Oracle in Bosnia-Herzegovina has been that they expect the client to virtually write the

specifications and design for their specific needs, then the firm assembles modules it already

has, and much of the testing and localization is done by the client himself. The decision to

use such a firm is not dependent upon what the firm has done already or has ready to offer

Turkish local authorities, but is instead a choice to let the vendor assemble its modules oncase-by-case basis.

Example 7:

Europe-wideArtemis project management (Artemis 7) (www.aisc.com)

This firm offers the public sector an investment management system that has strategic

management, project management, and financial management modules. Their investment

module claims to be able to align national and regional interests within a capital investment

portfolio, as well coordinate among various sources of funds, including those coming from theoperational budget. Our impression is that these packages are modifications of systems used

in the corporate world and are aimed at keeping senior executive management well-informed.

Artemis does claim to have a public sector investment management module that has a

database of proposals, a sheet to match objectives and strategies, a construction management

module, cost estimation, capital programming, life-cycle management etc. The description

shows an interesting presentation format, and practical windows for intervention. Needless to

say, what we saw are tools that need to be customized for each particular client. What is not

indicated, is whether they have any clients that cover an entire system, such as all the SPAs

would be. Their approach and tools, however, should be examined more closely as it seems a

specific attempt has been made to develop a product specifically for the public sector. Their

references include clients in Russia, Central Europe, the USA and much of Asia.

VII. Further steps for software, manuals, training for small and medium-sized Turkish

municipalities to acquire multi-year investment planning capacities:

What are needs?

Multiple funding channels are assumed (pre-accession, multilateral and bilateral loans,international loans, domestic loans, municipal own resources, contribution by

population, domestic government transfers or grants)

Divergent timing for applications, payout, reporting and repayment Need for complicated, segregated project accounting system User fee setting, public enterprise management, off budget expenditures (PPP) need to

be done openly and within the capability of planning/investment software

Performance indicators and performance budgets at the municipal level must be linkedto strategic plans and visa versa

Develop or buy and modify?
http://www.aisc.com/http://www.aisc.com/http://www.aisc.com/http://www.aisc.com/


20/26


It seems that the various applications under development or in use in Turkey already

are of high quality, but have not yet been linked together to support multi-year operational

and investment budgets based upon performance expectations and strategic plans. The

linkages between these functions need to be defined by those who have an overall vision for

the future of the country, and have an overview of the need for better accounting, budgeting

and planning at the local authority level. The commercial applications, given the rightamount of money, could be replicated by foreign firms who design a new system from A to Z,

incorporating features of Beyaz, Say200i, Beper etc.

Local firms may not have the overall vision to connect all of the various functions that

new laws and regulations will require soon.

However, it is our firm judgment that with proper guidance, standards, auditing and

oversight, the domestic software industry would be able to work with the various local and

national authorities in linking together the successful applications, while at the same time

designing or incorporating foreign best practice.

Certainly the Grasp approach to CIP should be considered as a model to be emulated

after thorough modification for Turkish conditions.

The basic budgeting and accounting modules seem to be in order (see Kasso),however, strategic planning is an approach, not a software package. CIP could be supported

by software, templates and forms, which is why we are arguing that the Grasp approach be

given a thorough examination.

Conclusions:

Good software for CIP and multi-annual budgeting, is a part of the decision-making

process. Local authorities have the competence and authority to make decisions on their

development strategies and budgets. Project financing needs to be harmonized with

anticipated EU regional development requirements (subsidiarity, additionality, coordination,

etc.)

Given changes in key legislation on the roles of metropolitan municipalities, SpecialProvincial Administrations and municipalities, as well as new requirements for three

year investment plans, performance budgets based upon strategic plans and

comparative performance indicators, any system of software support must integrate

the functions of annual budgeting, investment planning and strategic planning.

A national working group should set the standards and expectations for such anintegration of functionalities of several types of software produced by the public

sector, private sector or by foreign suppliers.

Any locally developed or imported strategic planning, investment planning andultimately budgeting software should be able to simultaneously provide data to Beper

for national comparison, while at the same time, allow for customization, as an SPA

may have its own requirements as it reviews the strategic and investment plans of its

municipalities.

Standardized and top down software (investment, strategic, budget) that iscomplementary must allow for variations in national planning priorities (requirements

of the SPO-State Planning Organization), SPA priorities, and also the priorities,

special requirements of metropolitan municipalities.


21/26


A municipal interface is needed with SPA software for cases in which a project isjointly financed. In other words, each SPAs own in-house planning, budgeting, and

CIP software needs interfaces with municipal software. This is even more true if the

facility to be built will have shared operational expenses among several levels.

Eventually, the distinction between foreign and domestic credit cannot be used in thecontext of creditworthiness evaluation. In other words, the MOI, MOF and SPO getinvolved in certain municipal projects because of the foreign currency risk and/or

sovereign guarantee. But assuming eventual EU membership, then the distinction

between a foreign financial institution registered anywhere in the EU and a Turkey-

based institution will not be valid anymore. This means that basic creditworthiness

issues, if we remove exchange rate risk and assume no state guarantee, are technically

the same regardless of the nationality of the lender.

The SPO and all the relevant ministries need to decide upon a review and approvalprocess that is universal, separating the issue of exchange risk and the sovereign

guarantee. Eventually, the EU will demand non-discrimination against financial

institutions registered in the EU, and by definition, non-Turkish but EU financial

institutions will need to be allowed to bid for financing local authority projects. Atthat point in time, any review by the SPAs, the SPO, or any ministry may not

discriminate against foreign financial institutions.

Any set of software developed or chosen for Turkish local authorities needs to assumethat the capital and banking market will be open for competition from abroad, and the

approval process needs to be adjusted by those who are currently in the approval

process.

Even though only 3 year investment plans are required, investment planning software,spreadsheets etc. must show a direct impact on the current operational and capital

budget of the local authority. These means showing not only debt service, but also

amortization, as well as changes in operational costs, maintenance costs, and changesin other revenues and expenses during and after the construction is completed and the

asset is activated on the balance sheet of the public enterprise or local authority.

The investment planning procedure/software should try to plan for the entire life cycleof the asset being purchased or constructed. This is important from the perspective of

equity, i.e. future rate and taxpayers should also pay for something that will be used

10-15 years from now. This assumes that financing will be able to match the useful

economic life of the assets being built.

The procedure/software used should enable public participation at every step. In otherwords, scoring project ideas, evaluating the feasibility of selected projects should

depend in part on the level of public support and input. Public support is critical for

fee-supported infrastructure such as water, wastewater etc. projects that Turkishmunicipalities are to sponsor.

Any capital improvement planning software must provide analysis of compliance withcurrent and prospective borrowing restrictions. In other words, some measure of

indebtedness (stock or flow) in relation to a budgetary statistic or type of revenue must

be build into the system. The CIP system needs to have a screen that shows

compliance with current regulations, and should be flexible enough to allow for

changes in national debt limit legislation. In addition, the CIP system should enable

the user to develop their own ratios showing coverage of various types of expenses

from various revenue sources.

Given Turkeys complex system of review and approvals by higher levels such asprovincial-SPA oversight over municipal and metropolitan plans, or metropolitan

oversight over municipal plans, or the national influence of the SPO, any CIP software


22/26


must include options for tracking and documenting the activities of the reviewers, as

well as producing templates required to request these higher level approvals.

In anticipation of pre-accession, operational and structural funds from the EU, and thepossibility that Iller Bank loans will be available in combination with other domestic

and international loans, the CIP software package must be able to document and track

multiple funding sources with divergent terms and conditions. Particularly importantwill be the ability to coordinate the timing of applying for and receiving these funds,

as the decision cycles and pay-out schedules of multiple funders will never be

synchronized.

The CIP software should be able to support 7 year planning cycles and programmingon a regional basis (Nuts II) that is standard practice in the EU and expected of pre -

accession and associated status countries.

Budgeting software currently in use in Turkey, or anticipated given changes inaccounting and other requirements, must be able to accept inputs in the proper

format from multiyear investment plans and from strategic plans. These inputs are

the drivers and justifications for current and anticipated expenses, and in some cases,

revenues if the municipality builds infrastructure that generates direct fees, or indirectincreases in other taxes that depend on the general economy of a locality.

Projected operational expenses, amortization, loan repayment, project revenue andeconomic impact determined in investment plans need to be transcribed to

operational budgets. In an ideal world, the entire life cycle costs and benefits of an

investment could be shown on a net present value basis.

Even if the budget law, public borrowing law, or accounting laws and regulations donot require it, it may be a good practice to establish and document a reserve fund,

sinking fund etc. for loan repayment that could be monitored by a lender, by an

internal controller, by the legislative branch, or by outside agencies such as a Ministry

or the Court of Accounts. The Grasp approach to CIP should be taken seriously by Turkish experts who want to

integrate strategic planning with multiyear investment planning, and operational

budgeting. Grasp does all three. For example, the project forms that describe each

individual project proposed during the process contain a sheet on future budget

impact. Furthermore, full cost-benefit analysis in net present value terms can also be

done on those project forms. The scoring system allows many criteria with differing

weights to be developed. The budget module, a part of the CIP package, uses

historical data five years back in time, and makes projections five years into the future.

The module imports the results of the CIP process, and also generates a host of

creditworthiness indicators, some of which may be of interest to lenders, and to

regulators. Finally, a debt limit compliance sheet is also available to show legalcompliance with various higher level requirements.

Action Recommendations for LAR:

Some specific activities for the technical assistance team:

Development of user manuals and training of trainers for implementing performanceindicators ( Beper) that are tied to performance budgets using the new legislation valid

from 2006. (How to national indicators get translated into local indicators that appear

in local operational and capital improvement budgets?)


23/26


User manuals and training of trainers to convert national and provincial plans (SPOand SPA) to municipal strategic plans, then to capital improvement plans.

Turkification of CIP models such as the one developed by Grasp or by the OECDfor Russia and Ukraine.

The process of borrowing review and approval, both at the municipal and Ministrylevel has several design considerations that should be taken into account both whendeveloping regulations, and should also be included in any screening page in CIP

and budgeting software. Some of these debt approval considerations are:

1. User fee setting standards: what expenses should user fee paid by the public,by institutions and businesses cover?

2. Rate covenant (part of bond issues as well)3. Subsidy from Municipal Budget: how much, based upon what, for what

purpose? May it be budgeted for many years in advance? Will municipality

subsidize any loss? How will it segregate the capital cost subsidy?

4. Monitoring and Warning System: use of sinking fund, reserve fund etc.5. Nature of Guarantee: first loss, any loss? How is it triggered, measured etc?6. Security Offered: cash flow from user fee, subsidy from municipality,

secondary security offered by enterprise or municipality (non-essential

property).

7. Statutory debt limit: how does enterprise borrowing amount apply tomunicipal debt limit? How is municipal commitment vs. enterprise

commitment to lender recorded and updated?

8. Is debt service limit dynamic?9. What are sanctions for exceeding it during the term of a loan or in a new

loan? (see proposed BiH legislation)

10.Shared responsibility between enterprise, municipality as source of subsidy,municipality as price-authority, municipality as guarantor?

11.Multiple sources of funding: enterprise reserves, self-contributions of public,hook-up fees, EU grants, central government grants, sales of municipal assets

etc. How do these affect the risk of borrowing?

12.Public Procurement of Financial Services: required by EU directives, howdoes this affect review and approval process by MOF? Timing and

sequencing?

13.Financial Standards, coverage ratios: what funds are available for debtservice over time, and how do they compare to debt burden? Any changes in

legal availability of own source revenues expected during lifetime of loan?


24/26


Can national budget affect these flows negatively and in an unpredictable

fashion?

Non-payment: while clearly not within the mandate of this evaluation, thestakeholders in the local authority borrowing process should consider theconsequences of non-payment of debt by municipal borrowers to lenders who are not

affiliated with the Government of Turkey, i.e. domestic private banks and foreign

banks who do not want to press their claims against the State, but rather want clear

procedures and guidelines to follow in case of a default. This is needed since EUcompetition rules will not allow unfair advantages to state owned banks to write off or

hide their bad loans to municipalities, nor to have special advantages on the capital

markets for their sources of funds. (See for example the pressure against German

Landesbanken who will lose many of their old privileges soon. This is something for

Illerbank to consider too.)

Local revenue generation: a significant portion of the capital projects proposed underthe new system will be funded from user fees. Utility management, utility price-

setting and regulation will become critical skills for the municipal level as well.

Training and users guides may be needed here as well.

The TAT unitshould assist the technical departments at the MOI in defining thefunctions and capabilities of the software to be designed and implemented by domestic

Turkish companies that meet the multiple requirements of the new legislation. One

inter-sectoral working group should define the flow chart of functionalities, and

specify the chains of approval and required information flows before too much work is

done.

The inputs of potential private sector lenders to Turkish local authorities should besought out: what do they expect to see in strategic and investment plans? What

information do they require in CI plans? Do they have templates and standard ratios

etc. that should be supported by the family of software that is adopted? (This is an

approach taken by some USAID-supported projects in Central Europe and former

Yugoslavia).

Turkey does not need to develop a significant portion of the software needs anew,

since significant progress has been made, even in the absence of clear guidance from the

various stakeholder ministries.

What is needed then is a mapping of the goals and functions of the various systems

already in place and tested, in comparison to the future goals of the country regarding the

integration of performance budgeting, capital investment planning and strategic planning.


25/26


List of Interviews (incomplete):

Ministry of Interior

Mr. Murat Zorluoglu, Project Director

Mr. Adnan Kilicoglu, Controlling DepartmentMr. A. Sait Kurnaz, Project Director for Beper and Yerel Bilgi

Ministry of Finance

Mr. Baki Kerimoglu, Steering Committee of Say200i, and colleagues

State Planning Organization

Mr. Sedat Cetik, Hasan Coban and colleaguesVolkan Erkan, Planning Specialist

Software Vendors:

Mr. Baris Can, Alfabin

Mr. Ercument Usta, Beyaz

Municipal Associations:

Mr. Halil Ibrahim Dasoz, General Secretary, Union of Municipalities

Ms. Duygu Dalgic, Union of Municipalities

Union of Provincial Services software team

Local Authorities:

Mr. Cemil Aslan, Head of Finance, Istanbul Metropolitan Municipality, and colleagues

Mr. Murat Hakseven, Software Projects Coordinator, Istanbul Metropolitan Municipality

Mr. Mehmet Cetin, Secretary General and staff, Ankara SPAMr. Balamir Gundogdu, Deputy Mayor and Staff, Altindag Municipality


26/26

report j okay

Documents