Decentralisation – opportunities and questions

Plovdiv hosted the first of a series of regional discussions with the mayors and chairs of municipal councils organized by NAMRB. Specific proposals and models for financial decentralization of municipalities and activation of the process of delegation of powers and resources to local authorities are discussed. The other wide range of topics are the prospects for European funding for municipalities in the 2021-2027 programming period.

"Decentralization continues to be the main topic on the agenda" – the Mayor of Plovdiv Municipality Zdravko Dimitrov, who is also chairman of the Regional Development Council in the South Central Planning District, stressed in his welcoming speech to the participants in the forum. The idea of transferring 2% of the income tax to the municipalities is an issue that has been discussed in recent years and I believe that the time has come for the state to take concrete and clearly written steps on its implementation, stressed the Mayor of Plovdiv. He also stressed the importance of the European funds that municipalities expect during this programming period and emphasized that the opportunity for mayors to receive additional resources through the Regional Investment Fund is a new important tool. Forum was attended by representatives of 39 South Central Planning District, including 35 mayors and 26 municipal councils chairs. The subject on decentralisation was addressed in the context of reorganising the national tax system and transferring some of the income taxes from the state to the municipalities.

Hassan Aziz, Mayor of Kardzhali Municipality and NAMRB Board Vice-Chair: "The process of decentralization in the last 10 years is moving, but in the opposite direction – towards greater centralization. In all reports of the international institutions and various national authorities, the expert assessments for the decentralisation process are clear: the processes in Bulgaria strengthen the centralization in the management. This is what distinguishes our governance within the EU, but this is not a compliment."

The NAMRB Board Vice-Chair recalled that the first Strategy for Decentralization of State Government was adopted as early as 2006.The Second Strategy Document covers the period from 2016 to 2021 and focuses mainly on the structuring of the second level of government – the regional governors. According to various performance indicators, progress on the path to decentralization for the whole period is not more than 10-20%. Providing different revenue sources for local authorities is important conditions to ensure greater autonomy of municipalities and the possibility of implementing more local policies, Hassan Aziz stressed. He noted that in this respect are also the recommendations of the monitoring mission of the Committee of Local and Regional Authorities and the Organisation for Economic Cooperation and Development. Mayor of Kardzhali made an overview of the NAMRB's efforts to expand the elements of decentralization and drew attention that the results so far are not satisfactory. He presented the new package of proposals developed by the NAMRB for expansion of the revenue base of the municipalities, which includes redistribution of the state-collected physical persons income tax, with 2% remaining in favor of the municipalities; freedom for municipal councils to determine the rate of that part of the tax; assinging part of the corporation tax to municipalities, updating the tax assessments of real estate and covering in the tax system the property not previously taxed. "The topic of decentralization is pulsating, stressed the NAMRB Board Vice-Chiar – during elections it becomes relevant because it sounds modern, European, democratic, and the municipalities are at the heart of the democracy of government" – emphasised Dr. Hassan Aziz.

Emil Kabaivanov, Mayor of Karlovo Municipality and the NAMRB Board member: "The time for talking about the need for tax restructuring to talk about a package of tax changes has come. We can think about VAT, as it is in neighboring contries, it is time to ask ourselves why not every property is taxed. Coalitions that do not have strong positions in local government tend to make reforms, perhaps this is the time to talk about decentralisation frankly. The first step we aim to take is the step towards changing attitudes towards over-centralisation.

Municipalities must have an investment resource to secure co-financing of European projects in order to be able to successfully apply for projects under the new Regional Development Fund. It is important to discuss every detail of the model that we would support and clearly understand the "sacrifices" we need to make in this process."

Mayor of Karlovo opened a discussion on the particularly sensitive topic whether municipalities can opt out of some of the activities delegated by the state and, respectively, the subsidy for them and partly or entirely from the total countervailing subsidy. According to Dr. Kabaivanov, the starting point for forming a position should be the answer to the question of whether, receiving more revenue, municipalities are ready to finance more effectively more activities. "When we open up the topic of tax sharing, we will inevitably be asked the question "in exchange for what"," E. Kabaivanov stressed. One of the questions that provoke divergent opinions is the definition of the principle by which shared taxes are collected – whether they are due at a permanent address, whether they are due at the current address or are paid by location of the enterprise where the person works and receives income.

Mayor of Ardino Municipality, Seized Shaban, urged his colleagues not to rush to make decisions. The specifics of each of the municipalities give arguments in different directions. He motivates his position with the fact that for mountain regions, which cover many scattered settlements, the problem of connectivity is much bigger and more difficult to solve than the repair of a street network, for example. "The best possible decision needs to be made and the characteristics and specifics of each municipality assessed," he said, but he is adamant that in negotiations to expand financial decentralisation, reductions on subsidies received so far are unthinkable.

"Let each of us speak at all levels of government more convincingly on the topic in order to form a critical mass that understands the essence of the problem" – urged the mayor of Karlovo municipality Emil Kabaivanov and specified: "The goal is not to seek confrontation. The aim is to achieve such an understanding that allows sufficient freedom for both local and central government to work effectively. This is the only key for successful development."

Georgi Maradzhiev, Mayor of Stamboliyski Municipality and NAMRB Board Member: "It is not to underestimate the fact that an urgent rethink of the way the tax assessments of real estate are determined. Examples from different municipalities of the backlog of the tax base from market prices are numerous. It is a matter of management courage to take real steps towards decentralisation, but it is also important to give a clear account of what we will have to give up. It is clear to all of us that the ceding of some of the national taxes will affect some of the subsidies currently received. The estimates of what we would get when 2% of the physical persons income tax is ceded must also be compared to what we would lose. I know that this way I will put a finger on the wound, but it's the only way we can rely on realistic judgment.

Georgi Maradzhiev presented various possible models for changing the criteria by which the tax assessment is determined and drew attention that a serious problem, including political one, is the issue of the introduction of a tax on agricultural properties. He stressed that the problem is serious, its communication with society is not easy, but the loss to local communities of the privilege of not paying tax is also a factor creating tension.

As a "matter of management courage" defined the mayor of the municipality of Stamboliyski the decision to take real steps towards financial decentralization.

Nebi Bozov, Mayor of Sarnitsa Municipality and the NAMRB Supervisory Council: "We must definitely discuss the risks of linking the reform with requirements for a new administrative-territorial division of the country, to optimize the number of municipalities. As mayor of the youngest municipality in Bulgaria, I will only recall that at the heart of the creation of a municipality is the local initiative and the right to the opinion and voice of the locals. Next, such 'formal reforms' would not lead to a substantial reduction in costs, in particular would not lead to a reduction in transfers provided by the State. People located in the territory concerned will continue to live and work there, will continue to require at least the level and scope of public services achieved. If anyone thinks that reducing the number of municipal councillors will save the state money, let's not mix moral and legal arguments. During the first 4 years,   municipal councillors of Sarnitsa municipality voluntarily gave up receiving remuneration because they were convinced that local self-government was important to us."

Municipalities are very sensitive to the topic of reducing their number, especially because of the lack of a thorough approach and a realistic idea of the needs of people by region and the efforts of mayors to attract and retain competent staff against the background of low pay.

Jebel Municipality covers 40 settlements and the entire service of the population is provided by 70 municipal employees, said the mayor of the Dvebel municipality of Nadzmi Ali. He called for an active dialogue with the government in order to reach an understanding of the real problems and current issues of the municipalities. He noted that the ambitions for digitalization of administrative services are a wonderful dream, but against the background of pay levels in the IT sphere, fewer municipalities can afford highly qualified experts in all areas of competence. He also drew attention to the ever-increasing number of responsibilities and duties that central government transfers locally. In recent years, there has also been a tendency for these new and financially unsecured tasks to be accompanied by high requirements in terms of both technical and technological provision and staff personnel as well.

The thesis also supported the mayor of Panagyurishte municipality and the NAMRB Board member Nikola Belishki. According to him, first of all in the process of seeking adequate funding for municipalities is a change in the approach in which activities and responsibilities are assigned to municipalities – what exactly and real is the valuation, he stressed. According to preliminary estimates, more than BGN 1 billion additional obligations imputed to municipal administrations under different legal acts.

Nikola Belishki, Mayor of Panagyurishte Municipality and NAMRB Board Member: "By raising the issue on decentralization, we must also look inward to ourselves. Do mayors of municipalities also tend to delegate functions to mayors in settlements. A number of institutions in a series of meetings practically legitimized the association of mayors of settlements, but the only result that was achieved was only an exacerbation of the contradictions on the ground with the mayors of municipal centres. The main question is whether there is a capacity in small settlements for financial resource management, according to the law, because the responsibility, regardless of who committed the violations, remain to the mayor of the municipality, not to the direct perpetrator. It is important in the decentralisation negotiations not to allow ourselves to give up what we have as revenue, but to find the most accurate formula for what we want further and how we can achieve it. There are also conditions that we need to fulfil, so it is important that we find the right approach to the executive and legislative authorities to ensure these changes through regulatory decisions."

Rumen Pehlyanov, Mayor of Rudozem Municipality, shared with the mayors and Municipal Councils Chairs of the South Central Region his frustration that the resulting increases in subsidies under the 2022 budget are divergent from the widely advertised increases. With nearly 20 years of experience behind him in the local government, Mr. Pehlyvanov said that for small municipalities affected by acute demographic problems, funds provided under the activities delegated by the state do not cover the real costs of their implementation. The need for additional funding and the lack of forecastable revenues will continue to put municipalities in a subordinate position. According to him, the source of most of the problems is that "in these 20 years I have not seen a government that regards municipalities as an integral part of state government and mayors - as equal responsible in the governance of the state.

Discussions to discuss the main challenges facing the municipalities in the process of financial decentralization are due to take place in May in Burgas / for the South Eastern Planning Region/ and in Albena (for the municipalities of the North Eastern Planning Region). A special address to the mayors of Bulgaria on behalf of the Mayor of Istanbul – Eckrem Imamoglu, made Ms. Touba Fidankaplan.

She presented the Partnership Network between the Mayors of Cities in the Balkans – B40, established at the end of 2021 at the initiative of Mr. Imamoglu. Among the 23 founding mayors from 11 countries is also the Vice-President of the Management Board of the National Assembly and Mayor of Kardzhali Hassan Aziz, and in the process of accession are Plovdiv, Karlovo and other municipalities. The Network creates real partnerships based on the practical experience of mayors in the field of action related to climate neutrality, the protection of air cleanliness, the introduction of modern technologies in the management of different urban systems, a partnership in expanding access to contemporary cultural content. Among the areas where B40 will promote the exchange of ideas, experience and expert support to promote local economic development and stimulate citizens' entrepreneurship. Modern global conditions also require entangling in the themes of problems and adaptation and integration of refugees into local communities. The next host of the B40 cities meeting in May this year will be the Greek capital Athens.

During the second working session of the Regional Forum in Plovdiv, dedicated to the opportunities for European funding of municipalities, Deputy ministers Dilana Ivanova of ministry of regional development, Momchil Nekov of ministry of health and Ivan Krastev of ministry of labour and social policy, as well as Nikolina Chapanova - member of the Road Infrastructure Agency Management Board, took part.