Vojko Obersnel, M.Sc. President of the Association of Croatian Cities PERSPECTIVES OF LOCAL GOVERNMENT PROVISION AND FINANCING OF DECENTRALIZED SERVICES IN CROATIA Vojko Obersnel, M.Sc. President of the Association of Croatian Cities

EUROPEAN CHARTER OF LOCAL SELF-GOVERNMENT – The Croatian Parliament in 1992 adopted the Decision on acceptance and compliance with the principles and the institute of the European Charter of Local Self-government, implemented only since 1 January 1998 Croatia is considered bound by the following provisions (paragraphs) of the Charter: Constitutional and legal foundation for local self-government Concept of local self-government Scope of local self-government (sub-paragraphs 1,2 and 4) Protection of local authority boundaries Appropriate administrative structures and resources for the tasks of local authorities Conditions under which responsibilities at local level are exercised Administrative supervision of local authorities' activities (sub-paragraphs 1 and 2) Financial resources of local authorities (sub-paragraphs 1,2 and 3) Local authorities’ right to associate (sub-paragraphs 1 and 3) Legal protection of local self-government

LOCAL AND REGIONAL GOVERNMENT SYSTEM IN CROATIA No. of counties - 20 + City of Zagreb No. of cities -123 + City of Zagreb No. of municipalities – 426 Association of Cities and Municipalities: Organization of cities Organization of municipalities CROATIAN UNION OF COUNTIES

ASSOCIATION OF CITIES AND MUNICIPALITIES projects and programs activities proposals of amendments to Laws cooperation with USAID cooperation with EU cities

ACHIEVED LEVEL OF DECENTRALIZATION IN CROATIA primary and secondary schools, health care, social welfare, culture LARGE CITIES AND COUNTIES in the New Law: transport in their area maintenance of public roads, issuing construction and location permits, other by-laws regarding construction

CITIES AND TAXES CITY OR MUNICIPAL TAXES SHARED TAXES INCOME TAX SURTAX CONSUMPTION TAX TAX ON VACATION HOMES TAX ON COMPANY OR NAME TAX ON THE USE OF PUBLIC SURFACES TAX ON IDLE LANDS TAX ON UNUSED ENTERPRENEURIAL REAL PROPERTY TAX ON VACATION PLOTS SHARED TAXES PROFIT TAX INCOME TAX CAPITAL TRANSFER TAX

INCOME AND PROFIT TAX Distribution of realized income tax and surtax and profit tax by level of public authority 38 9 53 34 57 68 4 28 69 3 10 20 30 40 50 60 70 80 2003 2004 Income tax and surtax Profit tax state county city/municipality Source: Drezgić Saša, M.Sc., Faculty of Economics Rijeka Data: Ministry of Finance

Population 2003 (thousand) GDP per County (in HRK bil.) GDP PER COUNTIES IN 2003 County Population 2003 (thousand) Total Share in GDP (%) GDP per County (in HRK bil.) HRK GDP p.c. EUR Krapina-Zagorje 140.5 2.3 4.4 31,322 4,141 Sisak-Moslavina 182,8 3.3 5.3 34,439 4,553 Karlovac 139.1 2.5 4.7 34,105 4,509 Varaždin 183.2 3.9 7.4 40,576 5,365 Koprivnica-Križevci 123.2 2.7 43,081 5,696 Bjelovar-Bilogora 130.8 4.3 33,456 4,423 Međimurje 118.4 2.1 4.1 34,567 4,570 Zagreb 316.0 10.2 32,202 4,258 City of Zagreb 780.0 31.4 6.1 77,682 10,271 Primorje-Gorski kotar 305.1 8.0 15.5 50,668 6,702 Lika-Senj 53.0 1.3 2.4 45,673 6,038 Zadar 165.8 3.0 5.8 35,001 4,628 Šibenik-Knin 113.6 1.8 3.5 30,379 4,017 Split-Dalmatia 471.00 7.9 15.3 32.568 4,306 Istra 208.6 6.2 12.0 57,757 7,636 Dubrovnik-Neretva 123.9 4.8 36,542 5,096 Virovitica-Podravina 92.2 1.6 33,030 4,367 Požega-Slavonija 85.4 1.4 31,661 4,186 Brod-Posavina 176.2 25,234 3,336 Osijek-Baranja 328.8 5.7 11.0 33,235 4,394 Vukovar-Srijem 202.5 5.2 25,783 3,409 Note: for calculation of GDP per capita the average foreign currency rate in 2003 was used; HR/EUR – 7.56

GDP PER COUNTIES IN 2003

Title of budgetary revenue TOTAL REVENUE Structure of generated revenue of the state, county and city/municipal budget # Title of budgetary revenue 2003 2004 - mln. HRK % 1 State budget own revenue 38481,0 64.1 40191,1 63.3 2 State budget shared revenue 6597,2 11.0 6749,0 10.6 3 State budget total revenue (1+2) 45078,2 75.1 46940,1 74.0 4 Own county revenue 1440,5 2.4 1450,9 2.3 5 Shared county revenue 989,6 1.6 1125,4 1.8 6 County budget total revenue (4+5) 2430,1 4.0 2576,4 4.1 7 City/municipality own revenue 6241,0 10.4 6648,7 10.5 8 City/municipality shared revenue 6302,9 7281,6 11.5 9 City/municipality total budget rev. (7+8) 12543,9 20.9 13930,3 22.0 10 Total generated revenue (3+6+9) 60052,2 100.0 63446,8 Source: Drezgić Saša, M.Sc., Faculty of Economics Rijeka Data: Ministry of Finance, Tax Administration

TOTAL REVENUE 22% 4% 74% State budget total revenue County budget total revenue City/municipality budget total revenue

Structure of public expenditures Structure of public expenditures of European unitary economies General public services Defense Public order and safety Education Health-care Social Welfare Housing sector Leisure, culture, religion Other C L Albania (1998) 75 25 100 20 80 70 30 81 19 68 32 65 35 98 2 Bulgaria (2001) 76 24 97 3 41 59 84 16 90 10 38 62 94 6 Croatia (2001) 56 44 99 1 49 51 42 58 Czech Rep. (2001) 54 46 92 8 61 39 95 5 37 63 40 60 78 22 Denmark (2000) 72 28 88 12 45 55 71 29 Estonia (2001) 96 4 33 67 91 9 France (1993) 74 26 23 77 18 82 27 73 Hungary (2000) 36 64 89 11 Ireland (1997) 52 48 Latvia (2001) 93 7 Lithuenia (2001) 79 21 The Netherlands (1997) 86 14 17 83 Poland (2001) 53 47 85 15 Romania (2001) Russia (2001) 87 13 Slovakia (2001) Slovenia (2001) Great Britain (’98) Source: Drezgić Saša, M.Sc., Faculty of Economics Rijeka; Data: IMF (2002), Government Finance Statistics

INDEBTEDNESS OF GENERAL GOVERNMENT SITUATION WITH DEBT OF THE GENERAL GOVERNMENT – without granted guarantees as at 31 October 2005 HRK million % GDP Central government total debt 84,647.50 38 Extra-budgetary funds total debt 14,616.00 6.6 Local government total debt 1,524.70 0.7 GENERAL GOVERNMENT TOTAL DEBT 100,788.20 45.3 Source: Ministry of Finance, NBS for GDP

FISCAL CAPACITY OF CITIES Comparison of total expenditures of the Croatian local public sector in 2001 Source: Drezgić Saša, M.Sc., Faculty of Economics, Rijeka Data: Ministry of Finance

FISCAL DECENTRALIZATION increase in own tax revenues non-tax revenues – in part used as earmarked revenue, and in part for other activities from the self-government scope borrowing – the level of borrowing to be adjusted to the value of local unit’s assets, i.e. budget capacity not to set up new units of local government without ensured resources

ANALYSIS OF FUNCTIONAL RESPONSIBILITIES OF LOCAL GOVERNMENT AND RECOMMENDATIONS FOR FURTHER DECENTRALIZATION (1) From the standpoint of local government: current division of functions is not in compliance with the principle of subsidiarity some of the basic functional responsibilities prescribed by laws are not appropriately implemented specific discrepancies and inconsistencies exist, as well as a high level of imbalance of current legislation

ANALYSIS OF FUNCTIONAL RESPONSIBILITIES OF LOCAL GOVERNMENT AND RECOMMENDATIONS FOR FURTHER DECENTRALIZATION(2) CONCLUSIONS: further transfer of competences for primary schools to cities and large municipalities transfer of competences of social welfare centers to large and medium-size cities transfer of concessions for agricultural land to all units of local government transfer of competences for roads to large and medium-size cities transfer of the tasks of issuing operating permits for hospitality industry enhancing the level of adjustment and coordination between the local government and service providers in health-care and social welfare introducing more equitable distribution of shared profit tax so it is shared to areas where profit was actually generated introducing a real “Equalization Fund”

FINAL CONSIDERATIONS Inadequate level of decentralization Ratification of other provisions of the European Charter of Local Self-government There is no developed and strong local government without fiscal decentralization as a precondition for the decentralization of functions Need to adopt the Law on Local Civil Servants and Employees Need to set up a Local Government Academy Direct election of leaders of units of local and regional government