Monitoring and Policies Towards the Municipalities with Financial Difficulties
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Trakia Journal of Sciences, Vol. 15, Suppl. 1, pp 25-28, 2017 Copyright © 2017 Trakia University Available online at: http://www.uni-sz.bg ISSN 1313-7069 (print) ISSN 1313-3551 (online) doi:10.15547/tjs.2017.s.01.005 MONITORING AND POLICIES TOWARDS THE MUNICIPALITIES WITH FINANCIAL DIFFICULTIES N. Markov* Department “Regional Development”, Faculty of Economics, Trakia University, Stara Zagora, Bulgaria ABSTRACT Local government in Bulgaria is determined by strong legal regulation, significant imbalances and heterogeneity. Municipalities have different socio-economic and demographic potential. This defines different conclusions regarding the budget process, which is a basic attestation of the volume of municipal commitments and the resources for their implementation. The aim of the study is to present the quantitative measures that define a municipality as "a municipality in difficulty" and on this basis to present some summaries and recommendations. The study uses general and specific methods of assessment and analysis. The results show that a group of municipalities is in permanent financial difficulty. This requires a differentiated approach by the central government to local government. Key words: Municipalities, Budgets, Imbalances, Regulation PURPOSE develop a uniform methodology for assessing Differentiation in the development of the the financial situation of municipalities in different regions in Bulgaria is significant. The order to make qualitative and reliable research coefficient of variations at NUTS2 level findings. A similar methodology was reaches almost 50%. This high value gives rise developed by the Ministry of Finance. The to distinct differences in both the socio- methodology defines a set of indicators for economic profile and the demographic comparative analysis and evaluation. In situation of the different regions. addition, in the Public Finance Act, the Municipalities as the main administrative- valuation element is integrated into a separate territorial unit in which local self-government block in which the so-called financially takes place also show unevenness. It is troubled municipalities are classified. manifested both in population numbers and its Financially troubled municipalities are those characteristics, as well as in the ability of experiencing financial pressures outlined in a individual municipalities to accumulate set of indicators related to short-term liquidity, revenues that secure public commitments that budget balancing and collection of their own meet modern quality of life requirements. The revenues. The reason for this classification is size of municipalities in Bulgaria is extremely the determining of a set of tools for purposeful inadequate. In Bulgaria there is a municipality impact so as to overcome the reported with a population of less than 1000 people (the deterioration. municipality of Treklyano as of 31 Dec 2016 has a population of 836 people), and there is METHODS also a municipality with a population of more The methodology of the survey is based on a than 1.3 million (Stolichna Municipality). This methodology of the Ministry of Finance, which extremely high variation range also determines is the result of the provisions of the Public the differences in the financial capacity of the Finance Act and in particular Article 130, individual municipalities in Bulgaria. Under which defines financially troubled these conditions, it is very important to municipalities and the specific procedures for _________________________ their rehabilitation. The indicators to be *Correspondence to: Nedelin Markov, monitored are as follows (1): Department “Regional development”, Faculty of 1. The annual amount of municipal debt economics, Trakia university, Stara Zagora, payments for each municipality in each Bulgaria, E-mail: [email protected] individual year may not exceed 15 per cent of the average annual amount of own revenues Trakia Journal of Sciences, Vol. 15, Suppl. 1, 2017 25 MARKOV N. and the total equalisation subsidy for the last 5. The budget balance of the municipality three years calculated on the basis of annual budget in the last three years is a negative performance reports of the municipality; figure for each of the three years; 2. Payables for budget expenditures of the 6. The average collection rate for real estate municipality available at the end of the year tax and vehicle tax is below the average exceed by 15 per cent the average annual collection rate of the two taxes for all amount of reported expenditures for the last 4 municipalities reported for the last year. years; The indicators described do not have the 3. Commitments available for the budget of the highest valuation value, but they provide a municipality at the end of the year exceed 50 satisfactory basis for comparison even more so per cent of the average annual expenditure that the most reliable data are used in their reported for the last 4 years; calculation. 4. The arrears of municipal budgets available at the end of the year exceed 5% of the RESULTS municipal expenditures reported for the last Table 1 summarises the presented information. year; Table 1. Allocation of municipalities by number of indicators for financial valuation. Two Three Four Five criteria criteria criteria criteria Number of 42 27 4 5 municipalities Source: Ministry of Finance, Public expenditures, Municipal finances Towards the end of 2016, a total of 36 (2) the municipalities of Dospat (104%), municipalities are classified as financially Belogradchik (94%) and Nedelino (71%). hindered municipalities. This conclusion is based on the fact that they violate more than The indicator reflecting expenditure three criteria defined in the Public Finance Act. commitments not to exceed the average annual This is a litmus for existing problems about the amount of expenses was violated by 36 ability of municipalities to fulfill their municipalities. The highest values are reported commitments to the local community. The in the municipalities of Smolyan (182%), legislator has stipulated that municipalities Chepelare (145%) and Lesichevo (120%). The with similar difficulties should follow a strict municipality of Nedelino has high value here procedure aimed at their financial again (110%). rehabilitation. The process of financial recovery leads to a loss of autonomy since the The limit of 5% of the arrears of municipal central government gets greater rights to expenditures is exceeded by 58 municipalities. intervene in municipal finances. On the other The largest deviations are reported in the hand, the rescue procedure entitles municipalities of Belogradchik (104%), Dospat municipalities to request additional loans and (83%), Dimovo (82%) and Nedelino (63%). subsidies from the central government. Negative budget balance for a given period With regard to the current debt payment was realized by the municipalities of (Criterion 1 of the LFA) by the end of 2016, 23 Blagoevgrad, Sozopol, Shabla, Belene, etc. municipalities report data higher than the ones Interesting is the presence of Stolichna set. For example, the municipality of municipality, which has budget deficit in three Madzharovo reports a value of 90.8%, consecutive years, as follows: 2014 - BGN municipality of Oryahovo - 66.9%, and 84.2 million, 2015 - BGN 35.7 million and municipality of Miziya - 53.0%. The other 2016 – BGN 38.4 million. municipalities with a reported excess achieve CONCLUSION lower values. It is difficult to typify precisely which group of With respect to the criterion the cost municipalities tend to be financially troubled. obligations do not exceed 15% of the average It would be logical for a small municipality annual amount of expenses over the last 4 with low income capacity and limited years (Criterion 2), the status being as follows. municipal ownership to have high tendency The criterion was not adhered to by 37 and risk of falling into the group of financially municipalities with the highest values being troubled municipalities. How then could we explain the presence of the municipality of 26 Trakia Journal of Sciences, Vol. 15, Suppl. 1, 2017 MARKOV N. Sozopol, which has unbalanced budget, high making does not guarantee that the most levels of debt and overdue liabilities. Isn’t it well-prepared and motivated employees that the Black Sea coast municipalities belong will join the municipal administration; to those "dwarf municipalities" which, due to Secondly, political commitments create the tourist service they offer, obtain inefficiency in the spending of public funds, disproportionate municipal revenues compared mainly through violation of public to any other inland municipality of this procurement legislation. In this connection, magnitude. The reasons for this can be sought short-sighted methods of distribution of in the following areas: vertical transfers have been found - there is The size of the municipalities - in Bulgaria no reliable algorithm to regulate how to there are to date 265 municipalities. Some allocate the funds from the central of them have emerged due to accepted government to the municipalities, beyond traditions, others for political reasons, still the estimates stipulated in the State Budget others have municipality status due to their Act. Again linked to political dependencies large size and are therefore a natural is the fact that some municipalities are more attraction center for people, activities and privileged to receive funding. Such services. Whatever the reason, the considerations can also be made with the fragmentation