MUNICIPAL REVENUE IN TURKEY: STRUCTURE AND RECENT CHANGES PROFESSOR AYŞE GÜNER JUNE 16, 2009

Local Governments in Turkey Local Governments in Turkey Special Provincial Administrations (81) Special Provincial Administrations (81) Municipalities (2947) Municipalities (2947) Villages (35000) Villages (35000)

MUNICIPALITIES: THE MOST “VISIBLE” LOCAL GOVERNMENTS WHY SO ?  Provide services directly related to daily lives  Executive body directly elected by local residents  Residents “pay” to local governments

INCREASE IN THE NUMBER OF MUNICIPALITIES YearsNumber of Municipalities

NUMBER OF MUNICIPALITIES ACCORDING TO POPULATION CENSUS 2008 PopulationNo.(%) up to , , , , , , , , ,81 over ,24 Total

RECENT LEGAL ARRANGEMENTS New Municipal Law (Law No.5393, ) New Metropolitan Municipality Law (Law No.5216, )  new functions and responsibilities  limitations on borrowing Revised Fiscal Transfer System (Law No.5778,

NEW OVERLAPPING RESPONSIBILITIES SERVICESMETROPOLITAN MUNICIPALITIESMUNICIPALITIESSPAs Education Construction, maintenance and repair of school buildings;support necessary equipment Construction, maintenance and repair of school buildings; provide every type of necessary Equipment Provision of land for school buildings; construction, maintenance and repair of school buildings Health Construction, maintenance and repair of health institutions when necassary;support equipment Construction, maintenance and repair of school buildings; provision every type of necessary equipment; may provide and operate all type of health institutions Health services (in provincial borders) Environment Protect the environment, water districts and agricultural areas; afforestation; protect cultural and natural entities and areas Provide environment and environmental health services; afforrestation Protect the soil, prevent erosion within provinces, afforestation outside the boundaries of municipalities Development of Economy and Commerce Development of economy and commerce Development of economy and commerce Social Services Provide every kind of social and cultural services for the old, disabled, women and children Provide every kind of social and cultural services for the old, disabled, women and children Social services and aids; micro credit for the poor Conditions Priority of services depend on the financial situation of the municipality and the urgency of the services Priority of services depend on the financial situation of the SPA, the urgency of the services and the development level of the service area Coordination Coordination of services between other local governments and public institutions will be provided by the governor

MAIN REVENUE SOURCES OF METROPOLITAN MUNICIPALITIES  5 percent of the general budget taxes collected within the boundaries of their provinces (derivation principle and pooling).  30 % of the general budget tax revenues that district municipalities within GCM boundaries receive.  50 % of parking fees, 50 % of amusement tax from horse racing.  Contribution to expenditures.  Grants from other public administrations, external and internal borrowing, revenues from the selling and renting of immovables, use charges, etc.

REVENUES OF MUNICIPALITIES  Share From General Budget Tax Revenues 2.85 percent of the collected general budget tax revenues is distributed to municipalities on the basis of population (80 %) and development (20 %) criteria.  Own Revenues (i) municipal taxes, (ii) municipal fees and (iii) contributions to municipal expenditures. (i) municipal taxes, (ii) municipal fees and (iii) contributions to municipal expenditures. In addition municipalities, with the decision of the municipal council, may set tariffs for municipal services that have not been subject to the above revenue types.  Contributions to Municipal Expenditures Contributions may only be collected in three cases: sewage, water and road construction or improvement services. The municipality sets the amount to be contributed from the property owners who benefit from the service. But there is a ceiling, such that the amount cannot exceed 2 percent of property tax values. Contributions may only be collected in three cases: sewage, water and road construction or improvement services. The municipality sets the amount to be contributed from the property owners who benefit from the service. But there is a ceiling, such that the amount cannot exceed 2 percent of property tax values.  Other revenues   Borrowing

REVENUES OF MUNICIPALITIES (CONT.) Municipal Taxes  Property Tax  Fire Insurance Tax  Entertainment Tax  Communication Tax  Announcement and Advertisement Tax  Environment and Cleanliness Tax

REVENUES OF MUNICIPALTIES (CONT.) Municipal Fees  Occupation Fee  Weekend Business Fee  Natural Water Fee  Broker’s Fee  Slaughter Fee  Construction Fee  Business Opening Fee  Regisratation Fee  Health Certificate Fee  Property Development Fees  Fee for Inspection of Measurement and Weighing Instruments  Fee for Inspection of License All these fees, except for the broker’s fee, have a fixed tariff which has last been updated in 1992 and Keeping in mind the high rate of inflation during these years, the collection costs of these fees have become higher than the revenues received.

MUNICIPAL REVENUES (%) Average REVENUES 100 GB Tax Revenues 53,750,744,944,547,450,148,148,8 49,853,1 54,450,143,852,453,6 49,7 Municipal Taxes 7,76,64,813,910,87,96,310,9 10,18,1 8,312,418,113,311,2 10 Municipal Duties 3,53,4 2,83,42,82,52,2 2,41,4 2,52,3 2,74,6 2,8 Expenditures Contribution Shares 1,61,42,111,4 11, ,2 Fees 2,82,21,92,23,232,3 2,52,8 2,52,72,82,93,2 2,6 Revenues of institutions and organizations 5,96,14,954,84,75,24,9 5,96,5 6,97,27,676,5 5,9 Profits of undertakings 0,60,50,40,71,81,50,7 0,50,6 0,8 Revenues of municipal property 12,1137,77,99,59,711,610,5 10,38,9 109,99,88,68,1 9,8 Fines 1,51,41,21,72,42,52,22 2,92 222,22,52,1 2 Various revenues 8,412,324,817,311,411,613,34 2,93,3 2,75,566,45,9 9,1 Special aid and funds 2,32,5434,14,86,43,4 3 2,72,91,71,82,3 3,2

SHARE OF OWN REVENUES Average REVENUES100 Own Revenues-1*15,613,612,219,918,815,112,116,515,915,2 14,318,424,2 20,120,2 16,8 Own Revenues-2**20,12114,215,318,4 19,618,119,517,9 19,419,820,4 18,917,5 18,6 * Consisting of municipal taxes, fees, contributions and charges ** Consisting of municipal enterprise revenues, business profits, asset revenues and fines SHARE OF PROPERTY TAX AND TOTAL TAXES IN MUNICIPAL REVENUE Property Tax42,81,673,82,31,26 4,73,1 2,7611,17,15,8 Municipal Taxes7,76,64,813,910,87,96,310,9 10,18,1 8,312,418,113,311,2

MUNICIPAL BORROWING: LIMITATIONS  Local governments may borrow from external sources with or without the guarantee of the Treasury. But in any case the approval of the Treasury is compulsory. The Treasury consults the State Planning Organization about the place and priority of projects in the investment program to be realized through foreign finance.  The total stock of domestic and foreign borrowings (including the interest) of the municipality and its related companies may not exceed the total amount of final budget revenues which is increased at the rate of revaluation. This amount is applied as one and a half fold for metropolitan municipalities.  The municipality and its companies may provide domestic borrowing by the decision of the Municipal Council, provided that this amount does not exceed ten percent of the total final budget income subject to increase at the rate of revaluation; the decision of the simple majority of the entire members of the Council and approval of the Ministry of Interior are required for local borrowings above ten percent.  In the case of infrastructure investments of the municipalities which require advanced technology and considerable amount of financial resources, the borrowings for the projects approved by the Council of Ministers upon request of the Undersecreteriat of State Planning Organization is not taken into consideration for the calculation of the amount mentioned in the above. The evaluation of the Undersecreteriat of Treasury is asked for projects that need foreign resources.

MUNICIPAL BORROWING Total Revenues Borrowing internal external borrowing/total revenues (%)8,857,157,116,143,063,5 2,6

CONCLUDING REMARKS  Clear definition of services and responsibilities  Necessity of a new law for own revenues  Fiscal autonomy ?