The Kosovo Decentralization Briefing Book Edited by Robert D. Ebel and Gábor Péteri These Briefing Notes have been prepared with the financial support of the Kosovo Foundation for an Open Society and the Local Government and Public Service Reform Initiative of the Open Society Institute-Budapest. No state- ment in these essays should be interpreted as a position regarding the final political status of Kosovo. The terms such as “central” or “national” may refer to either Kosovo as a province or Kosovo as an independent national entity. Kosovo Foundation for Open Society (KFOS) and Local Government and Public Service Reform Initiative (LGI) Open Society Institute–Budapest KFOS Address Ulpiana - Imzot Nikë Prelaj, Villa nr.13 Prishtinë, Kosovo Tel/Fax: (+381 38 ) 542 157, 542 158 542 159, 542 160, 542 161 E-mail: [email protected] Web Site www.kfos.org www.forum2015.org LGI Address Nádor utca 11. H–1051 Budapest, Hungary Mailing address P.O. Box 519 H–1357 Budapest, Hungary Telephone/Fax (36-1) 327-3104 (36-1) 327-3105 E-mail [email protected] Web Site http://lgi.osi.hu/ First published in 2007 by Kosovo Foundation for Open Society & Local Government and Public Service Reform Initiative, Open Society Institute–Budapest TM and Copyright © 2007 Forum 2015 ISBN - 13: 978-9951-503-00-6 ISBN: 9951-503-00-4 Kosovo Foundation for Open Society & Local Government and Public Service Reform Initiative The publication of these country reports has been funded by the Kosovo Foundation for Open Society and Local Government and Public Service Reform Initiative of the Open Society Institute–Budapest. The judgments expressed herein do not necessarily reflect the views of KFOS and LGI. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Copies of the book can be ordered by e-mail or post from Forum 2015 or LGI. Cover design: “Lautrec” Printed in Pristina, Kosovo, 2007 Design & Layout by “Lautrec” Table of Contents I. Decentralization Framework 13 1. Introduction and Scope of the Kosovo Decentralization Briefing Book 13 (Robert D. Ebel and Gábor Péteri) 2. Local Government in Kosovo (Gábor Péteri and François Vaillancourt) 19 3. Fiscal Architecture (Robert D. Ebel and Sally Wallace) 33 4. Fiscal Decentralization in Eastern Europe: Stages of Reform (Kenneth Davey) 41 5. Legal Framework and the European Charter of Local Self-Government (Gérard Marcou) 49 II. Expenditure Assignment and Service Delivery 61 6. Fiscal Autonomy (Robert D. Ebel and Serdar Yilmaz) 61 7. Intergovernmental Assignment of Expenditure Responsibility 75 (Robert D. Ebel and François Vaillancourt) 8. Service Provision in a Decentralized Setting (Gá�����������������������bor Péteri) 89 9. Joint Service Delivery (Gá�����������������������bor Péteri) 103 III. Financing Services 109 10. Revenue Assignment, Mobilization and Administration (Robert D. Ebel) 109 11. Intergovernmental Transfers (Robert D. Ebel and Gábor Péteri) 121 12. Local Borrowing and Municipal Debt (Pawel Swianiewicz) 135 13. Property Devolution and Local Government Asset Management (Gábor Péteri and Michael Schaeffer) 143 IV. Planning and Accountability 155 14. Budgeting: Methods, Process and Execution (Zsuzsanna Kassó) 155 15. Achieving Decentralized Accountability (Michael Schaeffer) 169 V. Managing the Reform Process 179 16. Sequencing Fiscal Decentralization Reform (Roy Bahl and Jorge Martinez-Vazquez) 179 17. Building the Capacity to Govern (György Hajnal) 189 18. Policy Process and Policy Development Capacity (Arta Rama) 199 VI. Special Topics 209 19. Local Economic Development in a Post-UNMIK Kosovo (Scott Abrams) 209 20. Territorial and Administrative Structures (Pawel Swianiewicz) 219 21. Large City Administration (József Hegedüs) 227 22. NGO and Government Partnership (Gjylieta Mushkolaj) 237 23. Local Government and the Right to Freedom of Association (Gjylieta Mushkolaj) 247 VII. Bringing It All Together 255 24. Benefits, Costs and Rules of Fiscal Decentralization (Roy Bahl) 255 List of Contributors List of Contributors Scott Abrams Senior Program Manager Local Government and Public Service Reform Initiative Open Society Institute-Budapest Roy Bahl Dean Andrew Young School of Public Policy, Georgia State University, Atlanta Kenneth Davey Emeritus Professor, University of Birmingham and Chair of the Steering Committee, Local Government and Public Service Reform Initiative Robert D. Ebel Research Professor Institute of Policy Studies George Washington University, Washington D.C. György Hajnal Senior Researcher Hungarian Institute of Public Administration Budapest József Hegedüs Managing Director Metropolitan Research Institute Budapest Zsuzsanna Kassó Certified Auditor and Certified Public Accountant Budapest Gérard Marcou Professor of Law University of Paris, Sorbonne Jorge Martinez-Vazquez Professor of Economics and Director of the International Studies Program Andrew Young School of Policy Studies, Georgia State University, Atlanta Kosovo Decentralization Briefing Notes Gjylieta Mushkolaj Professor of Law University of Prishtina Gábor Péteri Director of Development LGI Development Ltd. Budapest and London Arta Rama Faculty of Law, University of Pristina, Special Chamber of the Supreme Court of Kosovo Michael Schaeffer Senior Advisor Hazelton Bell Group, Washington, D.C. Luan Shllaku Executive Director Kosovo Foundation for Open Society, Prishtina Pawel Swianiewicz Associate Professor and Chair of the Department for Local Development and Policy, Faculty of Geography and Regional Studies, Warsaw University François Vaillancourt Professor of Economics Université de Montréal Sally Wallace Professor, Andrew Young School of Policy Studies, Georgia State University, and Associate Director, Fiscal Research Center, Georgia State University, Atlanta Serdar Yilmaz Senior Economist Social Development Department, The World Bank Benefits, Costs and Rules of Fiscal Decentralization List of Tables and Figures 2. Local Government in Kosovo Gábor Péteri and François Vaillancourt Box 1. Transparency Matters Box 2. Local Government in Serbia Table 1. Ethnic Composition of Resident Population in Kosovo Table 2. Kosovo Population by Age Group Table 3. Public Expenditures by Budgetary Entities (EUR Million), Kosovo, 2000–2005 Table 4. Municipal Expenditures by Sector in FY 2006 Table 5. Municipal Revenues Grants and Own Revenues, Kosovo, 2006 Budget (EUR) 3. Fiscal Architecture Robert D. Ebel and Sally Wallace Table 1. Illustrations of Local Fiscal Architecture and Likely Implications for Spending and Tax Policy 6. Fiscal Autonomy Robert D. Ebel and Serdar Yilmaz Table 1. Classification of Local Taxes by Degree of Local Autonomy Table 2. Classification of Intergovernmental Grants by Degree of Fiscal Autonomy Table 3. An Illustration of the Elements of Subnational Fiscal Autonomy with Respect to Expenditures Table 4. Classification of Borrowing and Debt Authority by Degree of Local Autonomy 7. Intergovernmental Assignment of Expenditure Responsibility Robert D. Ebel and Francçois Vaillancourt Table 1. Illustrative Intergovernmental Assignment of Functions Table 2. Further Detail to Illustrate Expenditure Assignment Among Governments: Primary Education 8. Service Provision in a Decentralized Setting Gábor Péteri Figure 1. Separation of Roles and Functions in Public Service Provision Table 1. Stages of Transformation in Public Utility and Communal Services in Transition Countries Table 2. Intergovernmental Relations and Education in Comparative Perspective Table 3. Intergovernmental Relations and Water Management in Comparative Perspective Kosovo Decentralization Briefing Notes 10. Revenue Assignment, Mobilization and Administration Robert D. Ebel Table 1. Criteria for Making Subnational Tax Choices 11. Intergovernmental Transfers Robert D. Ebel and Gábor Péteri Table 1. Objectives, Methods and Incentives of Intergovernmental Fiscal Transfers Table 2. Alternative Methods of Grant Allocation Table A-1. Taxonomy of Intergovernmental Grants Table A-2. Determination of the Distributable Pool in Selected Countries Table A-3. Equalization and Intergovernmental Transfers, Selected Countries 13. Property Devolution and Local Government Asset Management Gábor Péteri and Michael Schaeffer Table 1. Real Property Owned by Local Governments in Transition 14. Budgeting: Methods, Process and Execution Zsuzsanna Kassó Box 1. Sequence and Principles of Budget Reform Table 1. Traditional vs. Performance-Oriented Budgeting 15. Achieving Decentralized Accountability Michael Schaeffer Figure 1. Accountability Linkages Table 1. Mechanisms for Advancing Public Sector Accountability 16. Sequencing Fiscal Decentralization Reform Roy Bahl and Jorge Martinez-Vazquez Figure 1. Sequencing Fiscal Decentralization: A Normative Approach 17. Building the Capacity to Govern György Hajnal Table 1. Elements of State Capacity: Possible Objectives of Capacity Building Efforts 20. Territorial and Administrative Structures Pawel Swianiewicz Table 1. Territorial Organization and Service Delivery Options 24. Benefits, Costs and Rules of Fiscal Decentralization Roy Bahl Table 1. Strong, Weak and Ambivalent Supporters of Fiscal Decentralization Preface Preface The seven years of the post-conflict, state-building process in Kosovo have been marked with tremendous challenges to the political, economic, and social