Legislative guarantees for fiscal autonomy and diverse sources of revenues of local governments

The law and/or other regulations establish criteria for the allocation of resources to local governments

Review of legislation to assess whether it establishes rules for the allocation of resources to local governments both for competences transferred from the state and own/exclusive competences. The legislation stipulates that no competences may be transferred to local governments without sufficient financial coverage. The legislation also stipulates how transferred competences are financed from the central state administration and what is the share of finances to local governments to cover their own competences.

The law stipulates diverse revenues for local governments

Review of legislation whether it establishes various sources of revenues for local governments. The basic sources of revenues include transfers from the state, grants, share on taxes, the right to raise local taxes and fees, borrowing rights, etc.

Local government budgets do not require additional approval by a higher authority

Review of legislation to check whether the law establishes any obstacles to local governments in their management of finances. The law requires that local governments approve their budgets in line with the national legislation, however the approval of local government budgets should not be conditional to central authorities’ approval.

Local governments can own assets

Review of legislation to check whether the law grants local governments the right to own assets and manage their assets freely and in line with national legislation.

Stable rules exist for the size and allocation of shared national taxes and general transfers

Review of government documentation to check whether there are stable and clear rules established for the size and allocation of shared national taxes and general transfers. Stable refers to not significantly changing more often than once in two parliamentarian terms of office (or two electoral circles).

The law establishes the borrowing autonomy of local governments

Review of legislation to check how borrowing rights of local governments are established. If there is a borrowing right of local governments, the law stipulates whether this right is subject to state authorisation.

The law establishes procedural rules for borrowing rights of local governments

Review of legislation and/or regulations to check how procedural rules for local government borrowing are established.

The law establishes threshold for borrowing rights and debt of local governments

Review of legislation to check whether it establishes threshold for debt of local governments or other rules imposing limits on local government borrowing. In case there are rules that do not appear sufficient, insufficient refer to rules that are not efficient, very poorly designed or/and not duly respected/are imposed poorly.

There are guidelines for local governments in the process of borrowing

Review of central authorities’ regulations, guidelines, documentation to check whether local governments receive more detailed information or guidelines on the rules and procedures for borrowing and whether a consultation mechanism is in use.

The law defines criteria and procedures for financial stabilisation of local government budgets that are not capable of financing their functions

Review of legislation to check whether it stipulates the financial responsibility of local governments. The law should establish criteria and the procedure for stabilising local government budgets in case they are in financial constraint. Criteria mean what local governments have to fulfil to receive help for financial stabilisation. Procedure refers to the process, which the authority has to follow when supporting the stabilisation of local government budgets. The law should also stipulate cases, when local governments are unable to tackle their financial situation and describe which authority has the right to interfere and help to reorganise for future fiscal sustainability. There should not be interference in the basic local government functions from the state, interference should be limited to stabilizing the financial situation of the local government only in cases of insolvency or other legally defined financial distress cases.

Debt of local governments (%)

Review of financial data available at the central administration concerning the indebtedness of local governments. Depending on the ceilings for debt for local governments, it is verified whether local governments fall within the legal limits of indebtedness. Points are allocated based on the percentage of municipalities that are within the legal limits of debt (x): • x < 5% = 0 points. • 5% ≤ x < 100% = linear function. • x = 100% = 3 points.