Presented to: Dr. Khaled Zakaria By: Raghdaa yehia Euro-Med Studies-PhD Program Faculty of Economics & Political Sciences Cairo University Spring 2009.

* OutLine: First/ Introduction. Second/ Legal and Constitutional Basis. Third/ Local Politics and Decision Making. Fourth/ Local Administration and Supervision of Local Government. Fifth/ Local Finance and Economic Development. Sixth/Next Steps in the Transition Process. Seventh/Conclusion.

1/Introduction: Hungary Republics is Landlocked countries,Liberal democracies joined to EU accession in May 1, Hungary Republics Landlocked countries,Liberal democraciesEU accession Administratively Hungary is divided into 19 counties, 20 urban counties, and the capital city of Budapest also has county status.into 19 counties 20 urban counties The counties are further subdivided into 173 sub-regions, and Budapest is its own sub-region.into 173 sub-regions Since 1996, the counties and City of Budapest have been grouped into 7 regions for statistical and development purposes.7 regions

Hungary Administrative Structure Plan Central Level of government County (20) Sup-Regions(173) Regions (7) Regions Level Districts(23) Capital Budapest Municipalities (123) Cities(23) “Urban area” County(19) “Urban area” Villages(100) “Rural area”

They creation a new local governments in 1990 required through transformation of the whole system of public administration.in 1990transformation Before 1990 the state administered local affairs in accordance with the principles of centralization.Before 1990 centralization. Hungary tried local government reform strategies and has maintained numerous small communes, where unified to common council 3071 local government replaced 2579 council local government replaced 2579 council.

2./ Legal and Constitutional Basis The reform process of the Hungarian system of local government has been continuous throughout the 1990s and has occurred in two main stages: First :Initiated by parliamentary Act No. LXV of 1990 on Local Governments, which established the legal foundation for the process of democratization and reform of the political system. Second: The reform process that was realized when the Act on Local Governments was broadly modified.

2.1/ Local Self- government: Local government in Hungary exists at two levels: 1. The municipality 2.The county. There are no hierarchical relations between the two levels of local government. In practice the main function of counties is maintenance of institutions providing public services, such as hospitals, secondary schools, museums, libraries, …etc. The fundamental rights of all local governments are equal. Local government may form districts and may establish district offices.

2.2/Relationship between the State Administration and local government: The relationship between local governments and central organs of public administration and other organs of the state are regulated by the Parliament. Parliament determines the territorial division of the country after soliciting the opinions of the local governments involved regarding the union, separation, changing of boundaries, name and seat of counties. The Constitutional Court protects the rights of self- government, oversees the legality of local authority activities and exercises constitutional control over local government decrees. The government designates legal supervision over local governments to the Ministry of the Interior, which is exercised through the heads of the public administrative offices of the capital and counties.

2.3/Changing administrative structures” Not a constitutional issue”: Hungary did not have option of changing it is constitutionally established administrative structure, the country was able to modify this structure significantly to help regional development by adopting the necessary legislation. Hungarian practice shows that the necessary changes can be made to the country’s administrative organization even without resorting to Constitutional amendments.(quite effective)

3/Local Politics and Decision Making 1. System of Local Elections. 2. Internal Structure of Local Government Decision Making. 3. Public Participation in Decision Making (common problem).

1. System of Local Elections The most important organs of local government are the body of representatives and the mayor, both of which are elected by voters of the community. All Hungarian citizens of age who are permanent residents of a particular municipality have the right to vote and to stand in local elections. Those who are not Hungarian citizens but have permanently settled in Hungary also have the right to vote. The system of elections of the body of representatives differs in small and large(depending on the size of the population) settlements. Before 1994, they were elected by electors delegated by the districts, and the county assembly was elected by electors delegated by settlements. Now the members of the county assembly also are elected directly by voter.

2- Internal Structure of Local Government Decision Making The basic rights and powers of local government are exercised by the body of representatives, which may delegate authority to the mayor, its committees, city district bodies of representatives and bodies of local minority self-government. The mayor is the political and administrative head of the local government and is responsible for local policy implementation. He or she makes decisions on state administrative matters and has the right to delegate such powers.

villages with less than three thousand inhabitants, the position of mayor may be filled voluntarily. The vice-mayor or vice-mayors may be elected on proposal of the mayor for the term of office of the representative body from among its members. Vice-mayors perform functions under the supervision of the mayor.

3- Public Participation in Decision Making: There are several forms of public participation in decision making. Direct methods, such as local referendum, local public initiative and public hearing. Citizens may also participate in local decision making through membership on committees of the representative body. A common problem public hearings must be held at the municipal level at least once a year, by law. And although each municipality faithfully does so, it is rare for local voters to show up for such meetings more than the minimum required number of times.

4./Local Administration and Supervision of Local Government: 1. Structure and Operation of Local Administration 2 - Control, Audit and Supervision of Local Government

4/1 Structure and Operation of Local Administration About the structure the body of representatives is responsible for establishment of its office and the division of its powers into departments. The division of the office may be based on : 1. Administrative branches (for example education, welfare, local economy), 2. Functional tasks (labor, finance) 3. Types of activities (issuing licenses, direction of institutions). About the operation The office acts, as a unified professional administration. The management of the office is addressed by the mayor and the chief executive. The mayor’s approval is necessary for decisions made by the chief executive that fall under the mayor’s competence. Local functions are carried out by the council the mayor council offices, and council community.

4/2 Control, Audit and Supervision of Local Government Local government control and audit are performed in two manners: 1- Internal organs :Internal control is the responsibility of the body of representatives and is exercised through the chief executive, the auditor, financial committee and the accountant. 2- External organizations: The State Audit Office exercises control over the management of assets of local governments, and the courts share the responsibility of control over local government.

5 /Local Finance and Economic Development: Local governments have their own assets and independently manage their budgetary revenues and expenditures. 5/1 Revenues: Sources of revenues for the local government budget consist of four main elements: 1- Independent revenues 2- Shared revenues, 3-normative grants from the central budget 4- capital investment financing. 5-profits from privatization, 6-loans and the issue of bonds. Independent revenues are derived mainly from local taxes, determined and imposed by municipal governments in accordance with legislation.

In 2005 REVENUE AND GRANTS can estimate around 13,000 billion Euro: Local taxes account for 14% of municipal revenues (with the business turnover accounting for 90% of that, or 12% of municipal revenues). All other local taxes make up only 2% of local revenues on a national average. In Budapest, local taxes take over a 30% share, while in most villages, this number is below 5%. This is means that local tax represents the major source of revenues from local government, and there is growing of the total local taxes as following diagram represent:

Growing of the total local taxes,

Tax revenues are divided between central government, local government and the social security system. While central government remains by far the largest recipient of tax revenue, with over half of the total, local government taxes are, at 4.3 % of GDP, not negligible. Local taxes have grown rapidly until 2005 (70 % increase since 1995). Municipalities who wish to develop infrastructure need to raise local taxes and to manage their capital assets well to generate debt service payments as well as matching funds needed for grants. *Notes:

Hungary have complex tax system, If central government has any authority to interfere with local finances. Local option taxes are only beneficial to municipalities ONLY if mandated tasks are sufficiently funded from other sources. Finally, If we observe the present of local government revenues to the GDP it represent very limited ratio, which reflect negative impact on development process on local government level. But it was radically increase during the time.

Structure of revenues according to level of government % of GDP Central Governme nt Local Governme nt

* Revenues Assignments : A-Regions

B-Municipalities

5/2 Expenditures: The scale of local government expenditures in Hungary is exceptional due to their extensive responsibilities. Local government expenditures include administrative expenditures, debt servicing and other economic services. The great number of tasks of local government in the social sector creates dependence upon funding by intergovernmental transfers from the central government. The real value of local government expenditures decreased by 5 percent annually in the second half of the 1990s. The diminishing public sector has put great fiscal pressure on local governments since the introduction of the local government system.

*Local government expenditures assignment:- The expenditure function assigned to local government appears logical and in line But they need to develop the system of uniform and informative local budgeting coupled with timely expenditure reporting. They use formula to assign the expenditure for municipalities and regions this formula take some variables that effect to determinant the assignments most important one is the size regarding to the inhibition numbers this formula with three independent variables and a constant value provides one simplified design. population,age group of population, expressing municipal needs and the capacity of local public institutions. Logically, given the very small size of many Hungarian localities, there is a strong case for assigning some services, e.g. secondary education and hospital care to large units as is done. The need for larger local governments the average population of Hungarian localities is only 3482 (2834, excluding burlaps)2368, or 74%of these village have less than 20,000 inhabitants. Many of these local government are simply small to provide efficiently the public services demand from them.

5l3 Intergovernmental Transfer system and Borrowing: 5/3/1 Intergovernmental fiscal transfers: transfers are used to 1. 'close the fiscal gap", to "vertical fiscal balance", that is, ensure that the revenues and expenditures of each level of government are approximately equal. 2. Achieve "horizontal fiscal balance"("equalization") among local governments. 3. stimulate local fiscal effort, that is, to encourage localities to raise their own resources. 4. influence local spending decisions in accordance with central preferences.

A number of changes seem desirable in the present structure of Hungary's central-local fiscal transfers. The grants is Hungarian transfers tools include both general grants often with an explicit equalization elements and specific grants. “Normative grant“, has three important characteristics: -First, the total amount to be distributed to local governments is entirely discretionary. - Second, the grant is completely unconditional: local governments can spend the money however they see fit. - Third, its distribution formula contains both "equalization" and "need" components".

5/3/2 Borrowing: The local self government working under the farm work of act (88) that grant localities limited borrowing authority. Borrowing take number of forms: 1. Short –term borrowing for liquidity management "of up to 3%of total expenditure".can be initiated by the local mayor, financing would come from the local financial in station and would carry market interest rate. 2. Long –term borrowing to finance infrastructure investment, property, improvement, or project – required the approvable from local simply.

-Municipality: Obtaining loans localities are primate under the self – governments act to mortgage property wonder by them as collateral for loans with expectation of so called (core-propserties )such as streets and public park and area. -County: The loans approved under the credit plan of local council in the aerial regime,but now have become the responsibility of new self government and present in number of them a major burden on the capital budget.

6. /Next Steps in the Transition Process There are main problems of public administration reform, which Hungary government tray to solve it to reach his target plan to development local level with the end of 20013, these problems are : 1. Territorial administration-regionalization 2. Role of the Constitutional Court in local government affairs. 3. Development of associations

7./Conclusion: The territory of the Republic of Hungary is divided into the following Administrative units: the capital, the counties, the cities and communities. The capital is divided into districts. Districts may be formed in cities as well. The Fundamental rights of local governments are equal, The duties of local governments may differ. local government may appeal to the Constitutional Court for the protection of its rights. The Mayor is the chairman of the local representative body. The representative body may elect committees and create offices. Further reform of Hungary's new system for financing local government should strengthen local own-source revenues and should revise the normative grant, simplifying it and making allowances for local governments' revenue-raising capacity.