Financial balance and fiscal sustainability of local governments

The law stipulates that the state cannot transfer competencies to local governments without ensuring finances for their implementation

Review of legislation whether the law ensures that the state does not transfer/delegate competencies to local governments without ensuring their financing. This is to guarantee that local governments are not receiving responsibilities beyond their capacities.

Ministries consult on financing issues with the local governments prior to introducing a new competence or a new law

Review of government documentation to check whether the ministries consulted or negotiated with local governments prior to amending laws with an impact on local government financing. Data for the last three years is checked. Documentation can be at the ministry responsible for local government affairs, the ministry of finance and/or the sectoral ministry responsible for competences delegated to local governments. SIGMA identifies at least four sectors that have key delegates competences to local governments. These sectoral laws must be in the common areas: education, social affairs, environment and land use. The evaluation will not be generalised but emphasise that the assessment concerns only these sectoral laws that comprise the sample of ministries. All reviewed cases need to meet the criterion to get the points. The criterion will be checked in the following areas: - Education - Social affairs - Urban and land use planning - Waste and wastewater management

Proportion of local governments with operating surplus at the end of the budget year (%)

Review of fiscal data to check what proportion of local governments has operating surplus at the end of the budget year. Points are allocated based on the percentage of local governments with operating surplus at the end of the budget year (x): • x < 80% = 0 points. • 80% ≤ x < 100% = linear function. • x = 100% = 3 points.

Local government spending ratio (%)

Review of fiscal data to check the percentage of spending at the local level (using all resources available, except borrowing) relative to total expenditure of the general government (using all resources available). A higher ratio indicates a higher degree of decentralisation. Points are allocated based on the percentage of local government expenditure within total expenditure of general government. Calculation: total local government expenditure / total expenditure of general government (x): • x < 10% = 0 points. • 10% ≤ x < 30% = linear function. • x >= 30 % = 10 points.

Municipalities that adopted the annual budget before the start of the budget year without substantial delay (%)

Review of administrative data to check the number of municipalities, which adopted their annual budget before the start of the budget year without substantial delay (one month). Points are allocated based on the percentage of local governments having adopted their budget before the end of the budget year with a delay of less than one month. Calculation: number of local governments adopted budget before the end of the budget year with no substantial delay/ number of local governments (x): • x < 90% = 0 points. • 90% ≤ x < 100% = linear function. • x = 100% = 3 points.

Municipalities that have payment arrears (unpaid obligations) at the end of the calendar year (%)

Review of fiscal data to check how many municipalities have unpaid obligations at the end of the calendar year. Points are allocated based on the percentage of local governments having unpaid obligations which are over 3 months overdue. Calculation: number of local governments with unpaid obligations / number of local governments (x): • x > 30% = 0 points. • 10% < x ≤ 30% = linear function. • x ≤ 10 % = 5 points