POLAND OVERVIEW OF LOCAL GOVERNMENT'S ROLE IN FACILITATING PRIVATE DEVELOPMENT OF HOUSING October 1991 POLAND OVERVIEW OF LOCAL GOVERNMENT'S ROLE IN FACILITATING PRIVATE DEVELOPMENT OF HOUSING Prepared for AID RHUDO/EASTERN EUROPE Washington, DC and USAID MISSION Warsaw, Poland Prepared by PADCO, Inc. 1012 N ptreet, NW Washington, DC 20001 AID Contract No. DHR-1008-C-00-0108-00 RFS #36 October 1991 TABLE OF CONTENTS CHAPTER 1 1.1 Introduction ........................................... 1 1.2 Methodrelogical Approach. ................................. 2 1.3 Execuiive Summary ..................................... 4 1.3.1 Polish Municipal Government Organization and Functions ... 4 1.3.2 Municipal Finance ................................ F 1.3.3 Legal and Regulatory Framework .................... 6 1.3.4 Principal Constraints and Bottlenecks .................. 10 CHAPTER 2 2 Polish Municipal Government Organization, Budgetmaking, and the Decision Environment ..................................... 19 2.1 Organization and Functional Responsibilities of the Grnina ......... 19 2.2 The Budgetary Process in Polish Gmina ....................... 25 CHAPTER 3 3 Municipal Finance in Poland ................................... 29 3.1 Gmina Revenues ....................................... 29 3.2 Gmina Expenditures ..................................... 33 CHAPTER 4 Legal and Regulatory Framework for the Delivery of Serviced Land and Housing ........................................... 41 4.1 Introduction ........................................... 41 4.2 Legal Framework ...................................... 42 4.2.1 Local Self Government and the Division of Authorities ...... 42 4.2.2 Land Management ................................ 43 4.2.3 Rental Housing Legislation .......................... 44 4.2.4 Land Transfer, Titling and Registration ................. 45 4.2.5 Planning and Project Approvals ...................... 45 4.2.6 The "Housing Crisis" Proposal ....................... 47 4.2.7 The Construction Industry-Privatization and Cmpetitive Procurement .................................. 49 4.2.8 Local Construction and Mortgage Finance Institutions ...... 50 4.2.9 Taxation and Tax Incentives ......................... 51 4.2.10 Cooperative Housing .............................. 52 Table of Contents, continued CHAPTER FIVE 5 Principal Constraints and Bottlenecks to Facilitating the Private Sector Production of Housing ....................................... 53 5.1 Non-Shelter Related Obstacles of Local Government ............. 53 5.2 Overview of Constraints and Bottlenecks ...................... 54 5.2.1 Managerial/Administrative Weaknesses ................. 54 5.2.2 Land Management Issues ............ ............. 55 5.2.3 Project Planning and Design ......................... 58 5.2.4 Financing Technical Infrastructure ..................... 60 5.2.5 Construction of Serviced Land and Housing .............. 62 5.3 Specific Local Government Impediments to the Private Sector Provision of Housing ..................................... 64 FIGURES AND TABLES Figure 1 Organizational Structure of a Typical Polish City (Gdansk) Governm ent ................................... 5 Figure 2.1.1 Organizational Stiucture of a Typical Polish City (Gdansk) Governm ent .................................. 21 Figure 2.1.2 Organizational Structure of a Warsaw Gmina (Mokotow) Government .................................. 23 Figure 2.1.3 Organizational Structure of the Warsaw Union Administration ... 24 Table 1.3.1 1991 Revenue Aggregates for Selected Polish Cities .......... 7 Table 1.3.2 1991 Expenditures for Selected Polish Cities ............... 8-9 Table 1.3.3 Local Government: Review of Obstacles to the Private Sector Provision of Housing: Warsaw-Gdansk-Torun-Siedlce-Lodz .............. 11-16 Table 1.3.4 Summary and Prioritization of Local Government Impediments to the Private Sector Provision of Housing: Warsaw-Gdansk-Torun-Siedlce-Lodz ................ 17 Table 3.1.1 1991 Revenue Aggregate for Selected Polish Cities .......... 30 Table 3.2.1 1991 Expenditures for Selected Polish Cities ............. 34-35 Table 4.2.1 Schedule of Essential Activity of an Investor in Multi-Family Housing Construction ............................ 48 Table 5.3.1 Local Government: Review of Obstacles to the Private Sector Provision of Housing: Warsaw-Gdansk-Torun-Siedlce-Lodz .............. 65-69 Table 5.3.2 Summary and Prioritization of Local Government Impediments to the Private Sector Provision of Housing: Warsaw-Gdanslk-Torun-Siedlce-Lodz ................ 71 Table of Contents, continued ANNEXES ANNEX A Scope of Work ANNEX B Detailed Assessments of the Five Cities Visited: Warsaw-Gdansk-Torun-Siedice-Lodz (with Table of Contents) ANNEX C Selected List of Persons Contacted During Mission ANNEX D Bibliography CHAPTER 1 1.1 Introduction A philosophy of increased reliance on private sector production of housing figures prominently in government's latest January 1990 round of economic reforms. These reforms, which aim to rapidly transform Poland into a market economy, include provisions that seek to redress the adverse conditions under which the housing sector was previously dominated by large state enterprises. In the past, state '-onstruction enterprises commonly received large subsidies and preferential treatment inthe awarding of contracts. Due to these comparative disadvantages, the private sector accounted for only about one-third of the total investment in housing at the time these latest economic reforms were introduced. Coupled with this mandated decline in the monopolistic position of the state within Poland's housing sector, the rocently enacted Local Self-Government Act (March 1990) will also have a dramatic impact on Poland's private housing sector. This act assigns Poland's municipalities a significant, new role in the provision of housing and serviced land. For the first time in almost 50 years, local government will now have overall responsibility for all aspects of land management, urban planning, project approval, and the provision of off-site infrastructure. The ability of local government to efficiently and effectively carry out this new role will be one of the deciding factors in determining to what extent the private sector can increase its share of Poland's residential housing market. To serve as a vehicle fo. this major restructuring of its housing sector, the Polish govern­ ment and the World Bank, through the Housing Finance Project Office (HFPO), are in the process of preparing a major housing sector program for World Bank financing. This pro­ gram is designed to encourage, support and introduce changes in the country's housing sector which are consistent with current economic and policy reforms. Overall, the pro­ gram is expected to improve the housing delivery system, expand the availability of con­ struction and mortgage financing, and to define the role and degree of involvement of national and local government in the housing sector. The World Bank and the United States Agency for International Development (AID) have agreed to collaborate in developing this program for Poland's housing sector. The two donor agencies will pursue a cocrdinated approach whereby AID provides management assistance and the World Bank provides capital financing. AID's management asss3tance will focus on three of the houing sector's key components: * Housing Finance System that will rationalize the provision of construction and mort­ gage financing; 2 * Private builders, residential developers, and the emerging real estate industry who are responsible for the development, marketing and sales of housing projects; * Local government that is responsible for land management and the provision of infrastructure, as well as for the local economic development and environmental protection. This report focuses on the critical third element of AID-World Bank collaboration-local govemment. Specifically, the report employs a rapid assessment of five Polish cities (Warsaw, Gdansk, Torun, Siedlce and Lodz) to gauge the capacity and capabilities of local government to carry out its prescribed role in the delivery of serviced land and housing. Following the identification and assessment of the principal constraints and bottlenecks of this process at the local level, the report recommends a technical assist­ anCE and training program that addresses their amelioration. At the request of the Office of Housing and Urban Programs, PADCO will provide the proposed technical assistance and training program under separate cover. (See Annex A for a detailed description of this study's Scope of Work.) The remainder of this chapter contains the study's methodological approach and execu­ tive summary. Chapter 2 provides a quick overview of the current municipal structure as recently enacted in Local Self-Government Act (March 1990). This soction also contains a brief description of the budgetary process and decision environment at the level of local govemment. Chapter 3 analyzes the financial situation of the five municipalities visited by the survey team. Chapter 4 presents the essentially national legal framework that impacts on the delivery of serviced land and housing at the local level. Finally, Chapter 5 identifies the constraints and bottlenecks that will tend to impede the private production of housing at the level of local government. 1.2 Methodological Approach This section describes the methodological approach applied in the present study. The present study uses the case study approach