Session, Date & Activity Session 1 March 3, Tuesday 3:30 pm Content and Objectives
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1 Session, Date & Activity Session 1 March 3, Tuesday (the readings listed for this session are attached with this December 2014 posting). Other material to be posted in mid- February Intergovernmental Relations and Local Government Finance Central European University March 3 through 13, Syllabus as Professors Robert Ebel and Gabor Peteri Topic Introduction and Overview Decentralization Framework: What Makes Fiscal Sense This course will address the fundamental questions facing any country that is engaged in the public sector reform and the intergovernmental/ decentralization dialogue: What is the special country context (economic, demographic, and institutional) that frames, what makes fiscal sense for sorting out options for public sector reform? Which level (organizational type) of government should spend on which functions (expenditure assignment)? Which subnational government should levy which revenues (revenue assignment)? How will the intergovernmental (typically, central subnational/local) fiscal imbalances be resolved when the case for decentralized spending is almost always greater than that for decentralized revenue generation (intergovernmental grants)? How shall one organize and institutionalize the subnational/local role in the timing of obtaining receipts for the long term financing of a society s public infrastructure? (borrowing and debt)? And, what type of capacity does it take for both a central and subnational sector to become intergovernmental? Be sure to have read/reviewed these material before the first day (March 3): 1. Introduction to Intergovernmental Relations (Ebel & Peteri notes) with Power Point to Accompany Remarks.. 2 Essay on Fiscal Architecture (Ebel and Wallace) and Template 3. Understanding a Legal Framework: European Charter on Local Self Government (Gerard Marcou)
2 Session 2 March 4, Wednesday 5:20 pm Expenditure Assignment and Service Delivery Expenditure Assignment requires one to apply an agreed upon set of criteria for determining which government provides which public services and this is by no means a simple exercise. Then, once the sorting-out the expenditure roles ( competencies ) among different types of governments has been addressed, the next issue arises regarding how decentralized services are provided and managed. Required : 1. Essay: Intergovernmental Assignment of Expenditure Responsibility (Ebel & Vaillancourt) 2. Service Provision In A Decentralized Setting (Peteri) Further for background (to be posted on Moodle): 1. Council of Europe/Davey (2011). Local Govt in Chapter 1 2. Council of Europe/Inter-Municipal Cooperation (2010) Chapter 1 3. Peteri (2012), Mind Your Own Business /Community Based Governance. Ch.1 4. WDR, 2004 (World Bank World Development Report) Service Delivery Chapter Assignment for Session 1& 2 (March 4) Exercises to be handed in Session 3 March 5, Thursday, 1:30 pm Further Preparation: For delivery by Friday, March 6: Prepare a short note of the intergovernmental legal/administrative organization of your country (or other country or countries you choose) You may also wish to refer to the following link that reviews the status of decentralized government in the various regions of the world: Please deliver these short reports via on or before the March 5 class. rebel@robertebel.com and gpeteri@lgidev.com For your country (or region), fill in/tailor the Fiscal Architecture and Expenditure Assignment Matrices. Note: for this activity the class will be split up into working groups with each group(s) taking on either the Fiscal Architecture or the Expenditure Assignment exercise. Be prepared to present and discuss on Monday March 9. The Assignment of Revenue by Type of Government (1 st of two Thursday afternoon sessions) Presentation on the principles and practice of revenue assignment among different types of governments: what makes fiscal sense and what are the criteria to be applied in selecting one type of tax (or non-tax) revenue over another? Required readings: 1. Principles of Revenue Assignment, Mobilization and Administration (Ebel) 2. Sequencing Revenue Assignment (Ebel and Weist)
3 Session 4 March 5, Thursday, Session 5 March 6, Friday, 1:30 pm Exercises New Reading Session 6 March 6, Friday, Illustrations: User Charges & Property Tax Policy and Administration (2 nd of the two Thursday Sessions) Non Tax Revenue/User charges. User charges and generate revenues as well as enhance service efficiency and public accountability. Two key (and closely related) design issues that arise with the application of charges and fees are that of (i) determining the extent to which the charge can (or should) cover the full costs of a public service (cost recovery) and (ii) creating the right set of proper incentives faced by service providers and the customers alike. Required : Bird, Richard: User Charges in Local Government Finance Péteri, Gábor: Charging local government services in Hungary Theory and Practice of Intergovernmental Transfers (1 st of two Friday Sessions) 1.Turn in participant prepared exercises on intergovernmental legal/administrative organization of the countries chosen 2. Intergovernmental Transfers Once one has sorted out sort out expenditure responsibilities and revenue authority between central and subnational (e.g., local) governments. Two types of fiscal imbalances will occur.the first is a vertical imbalance between expenditure and revenues among different types of government. The second is a horizontal imbalance that occurs when the differences in expenditure needs and revenuegenerating ability vary across similar types of subnational governments, as some jurisdictions are more tax base rich and/or less need impacted than in others. Thus the case is made for intergovernmental transfers from higher to lower tiers of government. This session examines the purpose and structure of different types of central-to-subnational (local) grants Required reading: Essay on Intergovernmental Grants (Ebel) --also accompanying grants taxonomy matrix and graphical analysis Exercise: Constructing an Equalization Grant (Peteri) (2 nd of the two Friday Sessions)
4 Session 7 March 9, Monday, Exercise Session 8 March 10, Tuesday Financing and Management of Local Utility Services 1. Turn in participant prepared exercises on Fiscal Architecture and Expenditure Assignment 2. Basic urban services, such as water provision, sewage treatment and solid waste management are typically local government functions. The ultimate local responsibility for these core services is exercised through various public and private service delivery arrangements by using mixed forms of financing, such as transfers, user charges and loans. Since the early 1980s the institutional forms of service provision were driven by the theory and practice of New Public Management, which promoted various forms of private sector participation. However, the recent regulatory changes on the services of general economic interest in Europe and the financial consequences of the economic crisis led to new service and funding patterns. This session will highlight the new trends in urban service management and financing. Required reading: Wollmann, Hellmut-Marcou, Gerard: The Provision of Public Services in Europe. Between State, Local Government and Market Background Reading : Horvath and Peteri, Utility Services in Central & Eastern Europe Péteri, Gábor: Fiscal Relations Between Municipal Companies and Local Governments Martin Pigeon, David A. McDonald, Olivier Hoedeman and Satoko Kishimoto (Editors): Remunicipalisation: Putting Water Back into Public Hands. Policy Advice for the City of Bayban Sector Illustration of Decentralized Service Delivery: Public Education (Prof. Peter Rado) As a merit-based public service, primary and secondary education is jointly provided by central and local governments. Following the country specific historical traditions diverse forms of service assignment and complex intergovernmental fiscal relations have been developed in the field of public education. The actual scope of decentralization in this sector is defined not only by the devolution of competencies, but it us also influenced by control mechanisms and financing arrangements. The focus of this session is on finance with special attention paid to contrasting input based techniques to that of output based schemes. With a focus on European practice, the methods of intergovernmental transfers in support of public education will be presented. Required reading: Bird, Richard: Financing Decentralized Education Background Reading: Rado, Péter Decentralizing Public Education
5 Session 9 March 11 Wednesday, 5:20pm Session 10 March 12, Thursday, 1:30 Local government borrowing, debt management (Prof. Charles Jokay) Subnational borrowing has emerged as on the thorniest issues for intergovernmental (decentralized) systems. In principle, not only should subnational governments be able to borrow, but, indeed, if a nation is develop the physical infrastructure required for sustainable long term growth and development, they must become creditworthy enough to engage (in perhaps significant) borrowing. This, in turn, the taking on, and management of, long term debt. This session will examine the question of why borrow and then explore the organizational an institutional arrangements to make this is all work in a manner that promotes both economic efficiency and equity. Hungary s experience with (some) problems subnational default will be examined. Required readings Ebel, Robert, Abha Prasad, & Sayyora Umarova: Subnational Government Borrowing and Debt Management Jokay-Szepesi-Szetana: Municipal Bankruptcy Framework and Debt Management Experiences, Background readings: Canuto-Liu: Until Debt do Us Part. Subnational Debt, Insolvency and Markets. (Chapter 1. An Overview) Peteri, Gabor: Hungary: Re-centralization and Local Debt Consolidation Beyond Assignment: Accountability (1 st of two Thursday Sessions) Accountability is defined by the overall governance framework. The pillars of national integrity system influence the governments obligation to inform citizens of their public finances. Laws and regulations, independent public organizations, civic groups and the media determine the actual level of accountability. Accountability is exercised through political, administrative, financial and social mechanisms. The methods of revenue sharing and transfer design influence the balance between local discretion for improved service efficiency, on one hand and control for effective national fiscal policies and financial management practices, on the other. Accountability in intergovernmental fiscal relations depends on the (i) predictability in planning the total allocated amount; (ii) proper incentives and objectivity of the allocation rules and (iii) transparency of the methods followed in the daily allocation practice. (Peteri) Required readings Serdar Yilmaz, Yakup Beris, and Rodrigo Serrano-Berthet: Local Government Discretion and Accountability: A Diagnostic World Bank Working Paper 113. (WPS 113) Recommended readings Transparency and Accountability Initiative: Open Government Guide Gabor Peteri (Editor): Finding the Money. Public Accountability and Service Efficiency through Fiscal Transparency. OSI/LGI, Budapest. Davey, Ken: Making Government Accountable. Local Government Audit in Post-
6 Session 11 March 12, Thursday communist Countries. Case studies of Claw-Back(Hungary) and Conflict (Ukraine) (2 st of two Thursday afternoon sessions), Open panel discussion This session will be a public event. Two critical issues of decentralization will be discussed in a panel format: (i) why and how centralization trends emerge (case of Hungary) and (ii) could decentralized governance support peace-building (case of Ukraine) Session 12 March 13, Friday 1:30 pm April Review of the course 2. Discussion of Take Away Lessons Briefing Notes Due
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