Iceland

Iceland - Monitoring report

Date of the monitoring visit: from 21 to 23 June 2016
Report adopted on: 29 March 2017

This report follows the second monitoring visit to Iceland since it ratified the European Charter of Local Self-Government in 1991. It shows that the country has a satisfactory level of local democracy.  


The report praises recent developments fostering local self-government, including the promotion of the involvement of local authorities in national decision-making and increased inter-municipal co-operation and citizen participation in local authorities. In particular, it underlines that the national and local authorities were able to deal with a major financial crisis and its economic and social consequences without undermining local self-government. Nevertheless, the rapporteurs draw the authorities’ attention to the absence of a clear division of responsibilities between central government and local authorities, the lack of direct applicability of the Charter in the domestic legal system and the fact that the capital, Reykjavik, has not been granted a special status in accordance with Recommendation 219 (2007). Lastly, local authorities still do not have adequate resources for performing all their functions.

 

The Congress recommends that the Icelandic authorities clarify the division of responsibilities between central government and local authorities and pass legislation to give the Charter legal force in Iceland’s domestic legal system.  It also urges them to provide local authorities with adequate and sufficient financial resources and grant the city of Reykjavik a special status to take account of its particular needs compared to other municipalities.

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Article ratified Ratified with reservation Non ratified
Compliance Partial compliance Non compliance To be determined
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Article 2
Constitutional and legal foundation for local self government - Article ratified

The principle of local self government shall be recognised in domestic legislation, and where practicable in the constitution.


Consistently with a long tradition of local autonomy, deeply rooted in the Icelandic history, the principle of local self-government is included in Chapter VII – on Rights and Freedoms – of the Icelandic Constitution, enacted at the very moment of the independence from Denmark, in 1944. According to Article 78 of the Constitution, “The municipalities shall manage their affairs independently as laid down by law. The income sources of the municipalities and the right of the municipalities to decide whether and how to use their sources of income shall be regulated by law.”

 

Article 1 (Autonomy of municipalities) of the Local Government Act 138/2011 establishes that “1. Iceland is divided into municipalities (local government areas) which are in charge of their own affairs, at their own responsibility. 2. Administration of municipalities is exercised by municipal councils which are elected in democratic elections by their residents in accordance with the Local Government Elections Act”. Article 2 (Overall administration of local government affairs) provides that “2. The Minister responsible for local government affairs shall take account of, and respect, the autonomy of the municipalities, the tasks they deal with and their finances”. Article 3, setting out the aim and the premises of the Act, provides that: “the municipalities are independent government authorities” and that they “have independent sources of revenue and an independent right to determine the tariffs they are permitted to set”.

 

As for the legal status of the European Charter of Local Self-Government (considered in Recommendation 283 (2010), lett. c), according to which Icelandic authorities were invited to pass legislation to give the Charter legal force in the domestic system), this is still uncertain in Iceland, notwithstanding the mention of the Charter contained in article 3, para. 4 of Law 138/2011.

 

During the meeting with the rapporteurs, the President of the Supreme Court pointed out that there are few cases dealing with local autonomy, referring to Article 78 of the Constitution as a standard for the judgment. While currently there are no judgments in which the Charter has been cited, municipalities can nevertheless refer to the Charter as an interpretative tool, even if the Charter has not been ratified. According to the President, the new provision opens the door to more indirect references.

 

The rapporteurs believe that appropriate legislation to give the European Charter of Local Self-Government legal force as a directly applicable source of law in the domestic legal system should be passed and that the previous recommendation should be reiterated.

Article 3.1
Concept of local self government - Article ratified

Local self-government denotes the right and the ability of local authorities, within the limits of the law, to regulate and manage a substantial share of public affairs under their own responsibility and in the interests of the local population.


The main question that must be addressed under this heading is whether, in the present situation, Icelandic municipalities regulate and manage a “substantial share of public affairs under their own responsibility and in the interests of the local population”. This provision requires an assessment which takes into account the rather “subjective” and relative nature of the concept of “a substantial share of public affairs”, since no official or universal method of measuring such substantial character has yet been developed. The question must be addressed considering the historical evolution, the culture and the constitutional traditions of the country under analysis.

 

In order to assess compliance with this provision, both legislative and factual aspects should be taken into consideration.

 

Icelandic laws and regulations entrust municipalities with a series of competences and powers that can be depicted as “fair” or “reasonable” in the light of the “unitary” constitutional characterisation of the country and of the geographical characteristics of the country, with a small population scattered very unevenly cross the territory. In spite of all attempts to amalgamate, the municipalities are generally wide spread and thinly populated, except in the Reykjavik region: more than half of the municipalities in the country have less than 1000 inhabitants and 1/3 have less than 500. As a consequence, they have a limited capacity to provide modern services. The small size of many municipalities contribute to explain the difficulties to launch a wider decentralisation process, although some new transfers of competences are under discussion (such as elderly care, health and home nursing), depending on the possibility to increase municipal co-operation.

 

The representatives of the smaller municipalities expressed some concerns about their capacity to fulfil all the tasks entrusted to them, but the Congress delegation did not hear any substantial or recurrent claim from local representatives that the present local competences were either insufficient or non-substantial. As a matter of fact, most interlocutors seemed satisfied by the current situation on this point. Even the economic and financial crisis seems mostly overcome and it does not impact on the ability of municipalities to manage a substantial share of public affairs.

 

In conclusion, the rapporteurs consider that the requirements of Article 3 para.1 of the Charter are satisfied by the present legal and factual situation in Iceland.

Article 3.2
Concept of local self government - Article ratified

This right shall be exercised by councils or assemblies composed of members freely elected by secret ballot on the basis of direct, equal, universal suffrage, and which may possess executive organs responsible to them. This provision shall in no way affect recourse to assemblies of citizens, referendums or any other form of direct citizen participation where it is permitted by statute.


Iceland (as other Nordic countries) follows the monistic model of local government, in which, all powers of local government rest with the elected council. Municipal council are elected every 4 years in democratic elections by their residents in accordance with the Local Government Elections Act (Article 1.2 Law 138/2011).

 

Apart from this fundamental feature, the administrative organization of the municipalities varies to some extent from one municipality to another, according to the “ordinance on the governance of the municipality”, that is passed by each municipal council (Article 9).

 

After the elections the council usually appoints (normally for the entire electoral term) a chief executive (or a mayor) that can be hired from within the council (then usually it is the leader of the leading party), or from outside the council (with or without party connections). S/he is the head of the administration and manages the municipality on a daily basis. S/he prepares and attends council meetings and the meetings of the executive board but without the right to vote (except those who also hold a seat in the council). Although only a small number of the Icelandic mayor would count as a political figure in the classical meaning of the phrase as a substantial number of them are not elected by the public; their role is highly political as they are hired and fired by the council and their persona is very often closely knitted to the majority in the council.

 

The municipal council (with 7 or more councillors) may elect, for one year, an executive board, that, together with the chief executive officer, shall see to the management and financial management of the municipality to the extent that these responsibilities are not entrusted to others. It shall supervise the administration and financial management of the municipality, compile draft budgets and supplements thereto and submit these to the municipal council.

 

One of the most important changes introduced by Law n. 138/2011 addresses citizen participation (Chapter X). According to Article 102, “1. The municipal council shall strive to ensure the residents of the municipality and those who receive its services the chance to participate in, and influence, the governance of the municipality and the preparation of its policies. 2. Residents’ influence may be ensured by means including: 1. the active provision of information to the residents, 2. consultation with the residents, e.g. at citizens’ meetings or residents’ conferences and in referendums, 3. the appointment of residents’ and consumers’ councils, 4. the structuring of the operation of the municipality according to local premises and conditions, 5. collaboration with, or assistance of another type for, residents who wish to make a contribution towards municipal affairs”. New rules (Article 108) provide for citizen initiative based on referendums (on request of 20% of those who have the rights to vote) and public meetings (10% of those who have the right to vote). Local authorities are also obliged to provide their citizens with information on local government issues and procedures (Article 103). 

 

The rapporteurs consider that the requirements of Article 3 para. 2 of the Charter are fully satisfied in Iceland.

Article 4.1
Scope of local self government - Article ratified

The basic powers and responsibilities of local authorities shall be prescribed by the constitution or by statute. However, this provision shall not prevent the attribution to local authorities of powers and responsibilities for specific purposes in accordance with the law.


Although Icelandic municipalities hold many powers and responsibilities in several domains of local life, it should be pointed out that there is no comprehensive or codified set of competences for municipalities in the legal system of Iceland. The Local Government Act does not contain such a list and, although article 7, para.1 of the Act stipulates that each year the Ministry shall issue a guideline survey of the functions entrusted to the municipalities by law, classified according to whether they are obligatory or not, the Ministry has not yet issued such guidelines. The actual competences of municipalities in the different sectors of governmental action are identified by the applicable laws and regulations in each of those sectors. Therefore, a “hard core” of essential or “inherent” competences for municipalities is entirely absent from the legislation; nor could this “hard core” be derived by interpretation from article 78 of the Constitution, which refers to the “affairs” of municipalities, without defining them. Accordingly, the competences granted to local authorities in the different sectors of governmental activity may be increased or reduced by the State legislature.

 

In general, no major complaints were raised during the meetings about the attitude of the State legislature. The number and importance of powers and competences currently enjoyed by Icelandic municipalities are generally regarded as “fair” or “reasonable” by local representatives. Nothing would support the idea that municipalities do not truly represent a “key” and vigorous actor of public life. Accordingly, Article 4, para. 1 of the Charter which establishes that “The basic powers and responsibilities of local authorities shall be prescribed by the Constitution or by statute”, should be considered as complied with in Iceland.

Article 4.2
Scope of local self government - Article ratified

Local authorities shall, within the limits of the law, have full discretion to exercise their initiative with regard to any matter which is not excluded from their competence nor assigned to any other authority.


As for Article 4, para. 2 of the Charter, according to which “Local authorities shall, within the limits of the law, have full discretion to exercise their initiative with regard to any matter which is not excluded from their competence nor assigned to any other authority”, this principle seems to be fully accepted in Iceland. Article 7, paras. 2 and 3 of the Local Government Act provides that “2. Municipalities shall work for the common welfare of their residents to the extent they consider practicable at any given time. 3. Municipalities may undertake any task relating to the residents of the municipality, providing it is not assigned to others by law”.

Article 4.3
Scope of local self government - Article ratified

Public responsibilities shall generally be exercised, in preference, by those authorities which are closest to the citizen. Allocation of responsibility to another authority should weigh up the extent and nature of the task and requirements of efficiency and economy.


Article 4, para. 3 of the Charter articulates the general principle of subsidiarity. It establishes that “Public responsibilities shall generally be exercised, in preference, by those authorities which are closest to the citizen. Allocation of responsibility to another authority should weigh up the extent and nature of the task and requirements of efficiency and economy”. Article 4, para. 4, touches on the problem of overlapping responsibilities. In the interest of clarity, it provides that “Powers given to local authorities shall normally be full and exclusive. They may not be undermined or limited by another, central or regional, authority except as provided for by the law”.

 

Recommendation 283 (2010), paragraph 5, lett. a), invited Icelandic authorities to “ clarify their fundamental legislation on the basis of the subsidiarity principle, making provision for a clear division of responsibilities between central government and local authorities”.

 

Since then, this issue has not been addressed by Icelandic legislation. No provisions have been introduced in Law 138/2011. During the meetings which took place with the delegation, local government representatives underlined that this is still an issue of concern and that too many grey zones still exist, as a recent report made by the Icelandic Association of municipalities has revealed. Unclear burdens affect employment services, children’s’ affairs, social security and social assistance, health services, elderly people’s affairs, disabled people, and other groups, such as immigrants and prisoners applying for municipal financial support. According to this document, the consequences of these grey zones adversely affect a relevant number of individuals. 

Article 4.4
Scope of local self government - Article ratified

Powers given to local authorities shall normally be full and exclusive. They may not be undermined or limited by another, central or regional, authority except as provided for by the law.


See answer at article 4.3

Article 4.5
Scope of local self government - Article ratified

Where powers are delegated to them by a central or regional authority, local authorities shall, insofar as possible, be allowed discretion in adapting their exercise to local conditions.

 


Article 4.6
Scope of local self government - Article ratified

Local authorities shall be consulted, insofar as possible, in due time and in an appropriate way in the planning and decision-making processes for all matters which concern them directly.

 


Finally, Article 4 para. 6 of the Charter provides that “local authorities shall be consulted, insofar as possible, in due time and in an appropriate way in the planning and decisionmaking processes for all matters which concern them directly”. Recommendation 283 (2010), paragraph 5, lett. e), provided that Icelandic authorities should “clarify the situations, and also the related procedures, in which local authorities may be involved in national decision making that concerns them, by envisaging, for example, the right for local authorities to be consulted, to which the state would be bound”.

 

The new Local Government Act fully addressed this issue, since Article 2, para. 4, establishes that “No matters specifically concerned with the interest of a municipality may be resolved without consultation with the municipal council”. Article 98.3 provides that “At all times when issuing government edicts on the basis of this Act, the Minister shall consult the Association of Local Authorities in Iceland regarding their contents”. Actually, the association has been involved in the process of writing the new local government act. 145. Chapter XIII of the Act is dedicated to “communication and consultation between central government and the municipalities”. According to Article 128, “The Government shall ensure formal and regular collaboration with the municipalities regarding important issues of governance relating to the position and responsibilities of the municipalities. Formal collaboration shall take place regarding, amongst other things, the presentation of draft legislation with a bearing on the municipalities and on the control of public finances, the division of responsibility between central government and the municipalities and other important issues with a bearing on the interests or finances of the municipalities”.

 

Two main collaborative bodies have been established: a State and Municipal Collaborative Council and a State and Municipal Collaborative Committee. The first, that shall meet at least once each year, is integrated by the Minister responsible for local government and the chairman of the Association of Local Authorities in Iceland. Other Ministers shall attend meetings of the collaborative council as the occasion arises at any given time. The latter is composed by the permanent under-secretaries of the Ministry responsible for local government and by three representatives nominated by the committee of the Association of Local Authorities in Iceland. If necessary, the collaborative committee may decide to summon representatives from more ministries. The collaborative committee shall function under the auspices of the collaborative council, and be the forum for regular discussion and communication between the state and the municipalities. The collaboration agreement between the Association of Local Authorities and the Government establishes structures for the consultation and collaboration procedures between the association and the ministries. There is at least one annual consultation meeting with the Minister of Finance and the Minister of the Interior, and other ministers if relevant. Two standing subcommittees have been set up by the new collaboration agreement, with representatives from the association and the mentioned ministries. One deals with financial affairs and the other with labour market affairs. These committees collect data on development in their respective spheres and present them at the annual ministerial meetings. Parallel to these structures, informal contacts between the association and the State institutions play an important role in the collaboration procedure.1 

 

In addition, Article 78 establishes that one out of three members of the Municipal Finances Monitoring Committee appointed by the Minister of Finance shall be appointed in accordance with a nomination by the Association of Local Authorities.

 

In conclusion, although the number and importance of the powers and competences currently enjoyed by Icelandic municipalities could be considered in compliance with Article 4 of the Charter, the rapporteurs believe that the recommendation included in lett. a) of the Recommendation 283 (2010) should be reiterated and that Icelandic authorities should be invited again to clarify the division of responsibilities between central government and local authorities, in the light of the principle of subsidiarity.


1See https://portal.cor.europa.eu/divisionpowers/countries/Candidates/Iceland/Pages/1-Systems-of-multilevel-governance.aspx

Article 5
Protection of local authority boundaries - Article ratified

Changes in local authority boundaries shall not be made without prior consultation of the local communities concerned, possibly by means of a referendum where this is permitted by statute.

 


As Iceland is one of the most sparsely populated countries in the world, it is easy to understand why the process of mergers of municipalities has been a prominent feature of the Icelandic territorial landscape in the last twenty years: the number of municipalities has been reduced from 196 to 74. In spite of all the attempts to reform, the main feature characterizing the Icelandic system is still very much present: more than half of the municipalities in the country have less than 1000 inhabitants and 1/3 of them have less than 500 individuals, a circumstance that has been considered as the main problem over the decades; too many, too little municipalities with limited capacity to provide modern services.

 

Mergers have always been voluntary (with the exception, in the past, of those municipalities whose population fell under 50 inhabitants; this threshold, however, has now been abandoned by Law 138/2011), since it is against the law to merge municipalities without the prior consent of the majority of citizens, which must be consulted by means of a referendum.

 

Law 138/2011 dedicates the Chapter XII to “Amalgamation of municipalities”, setting detailed rules on the amalgamation procedure. Article 120 establishes that “No municipality may be amalgamated with other municipalities unless more voters in a referendum […] are in favour of the amalgamation than are opposed to it”.

 

Recommendation 283 (2010), paragraph5, lett. f), invited Icelandic authorities to “raise the minimum threshold below which the merger of local authorities is compulsory and make provision for a combination of criteria based, in particular, on economic and geographical rationality and on the preservation, as far as possible, of inhabitants’ “municipal identity” before consideration”. Although in the last few years local leaders and state politicians seem to have begun to believe that the most realistic way to strengthen the municipal level so that it can continue taking over significant tasks from the state is by developing more cooperation projects, and a form of surrender to voluntary amalgamations appears to have taken place, during the meeting with rapporteurs the Icelandic Association of Local Authorities expressed its opposition to compulsory mergers provisions.

 

Therefore, the rapporteurs consider that Article 5 of the Charter is now fully respected in Iceland.

Article 6.1
Appropriate administrative structures and resources for the tasks of local authorities - Article ratified

Without prejudice to more general statutory provisions, local authorities shall be able to determine their own internal administrative structures in order to adapt them to local needs and ensure effective management.


Article 6, para. 1 of the Charter provides that local authorities shall be able to determine their own internal administrative structure. 155. With regard to internal organization, Icelandic municipalities enjoy a fair degree of autonomy. According to Article 9 of Law 138/2011, within the limits of State legislation, municipal councils are allowed to pass special ordinances on the governance and administration of their municipalities and the procedures applying to the matters handled by the municipality. Provisions must also be made in the ordinance on meeting procedure for the municipal council and its committees. Important aspects of the municipal organisation (such as the committees, councils, boards, including an executive board to be established, the appointment and the qualities of the chief executive officer etc.) are left in the hands of the municipal council: a circumstance that explains the variety of models of administrative organization existing among the Icelandic municipalities.

 

As regards Article 6 para. 2 of the Charter, Icelandic municipalities have the power and the autonomy to recruit highquality staff on the basis of merit and competence. There is no centralised system for recruitment, in the sense of a nationwide, French-type territorial public service. Law 138/2011 lays down specific provisions dealing with the engagement of the employees (Article 56). According to Article 57, “The terms of service, rights and obligations of municipal employees shall be subject to the provisions of collective agreements at any given time and to the provisions of their employment contracts”.

 

During the meetings, rapporteurs were told that in small municipalities it is difficult to recruit high-quality staff: the level of capacity (in terms of the number of trained and skilled professionals) increases only upon reaching around 2,500 residents. In any case, this difficulty is only part of the broader question on the size of municipalities and on the search of effective solution to guarantee a stronger local government: certainly, it cannot be considered a consequence of “the conditions of service of local government employees”, as indicated by Article 6, para. 2 of the Charter.

 

Consequently, the current Icelandic system fully meets the requirements enshrined in Article 6 of the Charter.

Article 6.2
Appropriate administrative structures and resources for the tasks of local authorities - Article ratified

The conditions of service of local government employees shall be such as to permit the recruitment of high-quality staff on the basis of merit and competence; to this end adequate training opportunities, remuneration and career prospects shall be provided.


See answer at article 6.2

Article 7.1
Conditions under which responsibilities at local level are exercised - Article ratified

The conditions of office of local elected representatives shall provide for free exercise of their functions.


As for Article 7, para 1 of the Charter, under Icelandic law, the conditions of office of local elected representatives do provide for the free exercise of their functions. This point has never been put into question by facts or reality, as Iceland is an advanced democratic country. Article 24 of the Local Government Act provides that “Municipal councillors are independent in their work. They are bound solely by the law and their own convictions in their positions on individual matters”.

 

Municipal councilors are entitled to unpaid mandatory special leave throughout their term of office (article 33 Law 138/2011) and employers may not dismiss employees because they have stood as candidates in municipal elections or been elected to a municipal council. If an employee who has stood as a candidate in a municipal election or been elected to a municipal council is given notice of termination of employment, the employer shall demonstrate that the termination cannot be attributed to these events.

 

Article 7.2
Conditions under which responsibilities at local level are exercised - Article ratified

They shall allow for appropriate financial compensation for expenses incurred in the exercise of the office in question as well as, where appropriate, compensation for loss of earnings or remuneration for work done and corresponding social welfare protection.


As for Article 7, para. 2, of the Charter, according to Article 32 of the Local Government Act, municipal councils are obliged to determine appropriate stipends to municipal councilors for their work. Travelling costs, accommodation and maintenance costs, if needed, shall also be covered. The representatives met by the rapporteurs shared very different views on the appropriateness of financial compensation for councilors. Some interlocutors pointed out the low level of the remuneration, others seemed to be satisfied. An explanation could be that the level of remuneration for councilors falls within the autonomy of municipal councils. Nevertheless, the fact that the law refers to an obligation of municipal council to determine “appropriate” stipends and the lack of strong complaints may be considered sufficient indicators of the fact that Article 7, para 2 of the Charter is complied with.

Article 7.3
Conditions under which responsibilities at local level are exercised - Article ratified

Any functions and activities which are deemed incompatible with the holding of local elective office shall be determined by statute or fundamental legal principles.


As for Article 7, para. 3, of the Charter, the Local Government Act provides for disqualification from participation to the examination of, and final decisions regarding, individual matters (Article 20). In those cases, the alternate should be summoned for the examination and final decision of the matter. To the knowledge of the delegation, no rules exist on the disqualification from the holding of local elective office. According to Article 2 of Local Government Election Act, Law 5/1998 with subsequent amendments, “Every Icelandic national who has reached the age of 18 years when an election takes place and who is legally domiciled in the municipality is entitled to vote in municipal elections. According to Article 3 “ Any person who is eligible to vote in a municipality, as provided for in Article 2, and who has not been deprived of legal competence shall be eligible to stand for election to a municipal council.”. If a councillor on a municipal council loses his or her eligibility for election, he shall step down from the municipal council (Article 30 Law 138/2011). In that case, his alternate should take his seat (Article 31).

 

Consequently, the rapporteurs consider that Article 7 of the Charter is respected in Iceland.

Article 8.1
Administrative supervision of local authorities' activities - Article ratified

Any administrative supervision of local authorities may only be exercised according to such procedures and in such cases as are provided for by the constitution or by statute.


Article 8 of the Charter deals with supervision of local authorities’ activities by other levels of government. Recommendation 283 (2010), para.5 lett. d), invited the Icelandic authorities to “stipulate in domestic legislation the cases in which the minister responsible for local government may exercise supervision over local authorities’ performance, and set out the related procedures, which must be based on the principle of local authorities being given a due hearing”. At that time, basic legislation from one hand did not provide for general and systematic controls of the acts of local authorities; on the other hand, it established the monitoring by the Ministry of the performance of the local authority, opening the doors, in case they neglect their duties, to financial penalties.

 

The new Local Government Act clarified the rules on administrative supervision and financial supervision, by introducing detailed regulation in Chapter XI (administrative supervision) and in Chapter VIII (financial supervision), especially on categories of matters under monitoring and on the consequences of the monitoring. Nevertheless, the principle of local authorities being given due hearing is still missing from the legislation.

 

Considering that Article 110 of the Law 138/2011 provides that the Minister “shall choose the measure that is most likely to produce the desired result, taking into account the autonomy of the municipalities” and that during the meetings no complaints have been raised about the supervision system, the rapporteurs consider that Article 8 of the Charter is respected in Iceland.

Article 8.2
Administrative supervision of local authorities' activities - Article ratified

Any administrative supervision of the activities of the local authorities shall normally aim only at ensuring compliance with the law and with constitutional principles. Administrative supervision may however be exercised with regard to expediency by higher-level authorities in respect of tasks the execution of which is delegated to local authorities.


See answer at article 8.1

Article 8.3
Administrative supervision of local authorities' activities - Article ratified

Administrative supervision of local authorities shall be exercised in such a way as to ensure that the intervention of the controlling authority is kept in proportion to the importance of the interests which it is intended to protect.


See answer at article 8.1

Article 9.1
Financial resources of local authorities - Article ratified

Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.


During the visit, two main points of concern emerged, related to the fulfilment of Article 9, para. 1 and 2 of the Charter.

 

Those concerns are not related to the financial crisis that hit the country (local authorities included) in 2008: by now, the crisis is completely over and Iceland is experiencing not only a recovery, but also a brisk economic growth. Recommendation 283(2010) lett. g) invited the Icelandic authorities to “set up a support fund for local authorities particularly hard hit by the crisis so that they are able to continue delivering certain public social services”. According to the Association of Local Authorities, this recommendation is “no longer relevant in the current situation”, although there are still some municipalities that are facing serious problems (Reykjanesbær).

 

As for Article 9, para. 1, local authorities dispose freely of their financial resources, within the framework of their powers, as stated in Article 78, para. 2 of the Constitution, according to which “The income sources of the municipalities, and the right of the municipalities to decide whether and how to use their sources of income, shall be regulated by law”. Nevertheless, as the resources they dispose of are limited, some local authorities are unable to do anything except what is stated in the law. This could be a threat to the self-governing capacity, since if the local authorities can only do what is stated by the law then their role is de facto akin to that of a service delivery agency for the central government.


 

 

Article 9.2
Financial resources of local authorities - Article ratified

Local authorities' financial resources shall be commensurate with the responsibilities provided for by the constitution and the law.


As for Article 9, para 2, according to which financial resources are in general commensurate with the responsibilities provided for by the constitution and the law, the rapporteurs were told by local government representatives that although funds have been cut after the crisis, State agencies have nevertheless passed several competences to local authorities, without the corresponding allocation of adequate financial resources (e.g. public transportation, that has been transferred to the Regional Associations of Municipalities). In addition, municipalities have had to incur new expenses in conjunction with the touristic boom (that helped Icelandic economy to recover). The rise in tourism has put a pressure on various services offered by the municipalities. Infrastructure investments are needed in many popular tourist places. Municipalities, led by the Association of Local Governments, have lobbied for local tourist taxes or a share in tax revenues from tourism levied by the State. In the more remote areas, municipalities are facing significant depopulation and need more funds for maintaining social services and for encouraging local development. The only tool that local authorities can use to fulfil the new tasks is the increase of local taxes. The measures under discussion are a re-thinking of the Equalisation Fund, in order to make it more dynamic, and the introduction of new municipal taxes, like a tax on tourism. State representatives focused on more efficient expenditures (especially for primary schools, that are very expensive) and on the possibility for local authorities to raise real estate tax or to fully collect the taxes that they already could collect (such as the real estate tax on bed-and-breakfasts).

 

In the light of the above, the rapporteurs conclude that special attention has to be paid to the allocation to local authorities of adequate financial resources, especially when new competences are transferred.

Article 9.3
Financial resources of local authorities - Article ratified

Part at least of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of statute, they have the power to determine the rate.


Local taxes cover about the 70% of the financial resources of the local authorities. Municipal councils have the power to determine the rate of local taxes: they determine annually the income tax level (between 12.44% and 14.52%) and the property tax level (up to 0.5% on residential housing, up to 1.5% for commercial premises: those rates may be increased of 25%), in full compliance of Article 9, para. 3 of the Charter. 

Article 9.4
Financial resources of local authorities - Article ratified

The financial systems on which resources available to local authorities are based shall be of a sufficiently diversified and buoyant nature to enable them to keep pace as far as practically possible with the real evolution of the cost of carrying out their tasks.


Local authorities in Iceland enjoy a great deal of fiscal autonomy if compared to local authorities in most countries.1 They have their own resources thanks to local taxes (property tax, municipal income tax), central government contributions from the Equalisation Fund and charges levied on users of public services (water supply, waste collection, child care, etc.): those resources are of a sufficiently diversified and expanding nature to enable them to keep pace as far as practically possible with the real evolution of the cost of carrying out their tasks, in compliance with Article 9, para. 4 of the Charter. 


1 Revenue autonomy (own revenues relative to total resources available) at the local level is very high (89%), which entails a rate of dependency on central government transfers that is much lower than the EU average (11% versus 47%). Local own revenues represent 27% of total government revenues, which is higher than the EU average (13%). See https://portal.cor.europa.eu/divisionpowers/countries/Candidates/Iceland/Pages/4-Fiscal-Powers.aspx

Article 9.5
Financial resources of local authorities - Article ratified

The protection of financially weaker local authorities calls for the institution of financial equalisation procedures or equivalent measures which are designed to correct the effects of the unequal distribution of potential sources of finance and of the financial burden they must support. Such procedures or measures shall not diminish the discretion local authorities may exercise within their own sphere of responsibility.


The protection of financially weaker local authorities (Article 9, para. 5 of the Charter) is assured by the Equalisation Fund. On average, about 12% of local authorities’ total revenues come from that Fund. The share varies greatly from one municipality to another. The Minister of the Interior is in charge of the Equalisation Fund, assisted by an advisory committee of 5 members, 4 of them being nominated by the Association of Local Authorities.

 

During the meetings, the rapporteurs were told by several interlocutors that the Equalisation Fund needs to be revised to take into account the evolving necessities of local authorities, especially in urban areas, and also to stimulate more mergers, as at the moment it encourages fragmentation, by supporting especially the smallest rural municipalities. The Ministry of the Interior assured the delegation that they are working on reviewing the system, to incorporate different criteria, but they need at least one more year to be ready to implement the new system. 

Article 9.6
Financial resources of local authorities - Article ratified

Local authorities shall be consulted, in an appropriate manner, on the way in which redistributed resources are to be allocated to them.


As for Article 9, para. 6, of the Charter, on consultation of local authorities on the way in which redistributed resources are allocated, it should be considered respected. As we said, 4 out of 5 members of the advisory committee on Equalisation Fund are nominated by the Association of Local Authorities. The Association of Local Authorities plays a task also in the formulation of the Fiscal Strategy Plan, according to Article 11 of the Public Finance Act (123/2015): before it is submitted to the Althingi, the Minister shall seek an agreement with the Association of Local Authorities in Iceland, acting on behalf of the local governments. 

Article 9.7
Financial resources of local authorities - Article ratified

As far as possible, grants to local authorities shall not be earmarked for the financing of specific projects. The provision of grants shall not remove the basic freedom of local authorities to exercise policy discretion within their own jurisdiction.


As for Article 9, para. 7 of the Charter, grants for specific projects do exist, as consequence of agreements between central government and municipalities (like in the recent case of asylum seekers) but they do not represent an important part of the financial resources of local autonomies and do not seem to constitute a problem for their autonomy. 

Article 9.8
Financial resources of local authorities - Article ratified

For the purpose of borrowing for capital investment, local authorities shall have access to the national capital market within the limits of the law.


Local authorities have access to the national (and international) capital market, within the limits of the law, with the ceiling raised after the 2008 crisis so that the debt ratio of a municipality should not be higher than 150 per cent of its revenues (Article 64 Law n. 138/2011) (see further paragraph 95 infra). Thus Article 9, para. 8, of the Charter is respected. 

Article 10.1
Local authorities' right to associate - Article ratified

Local authorities shall be entitled, in exercising their powers, to co-operate and, within the framework of the law, to form consortia with other local authorities in order to carry out tasks of common interest.


In Iceland, inter-municipal co-operation plays a growing role in the attempts to strengthen local government capacities to manage their own affairs and to get more competences from the central government.

 

According to many interlocutors, inter-municipal cooperation has been seen recently as a replacement for large scale merging, although this raises important questions on democracy. Since there is no formal elected intermediate stage between state government and municipalities, this would mean transfer of power from the elected representatives at the local level to a cooperative organ – not elected but under a board of directors comprising representatives from the municipalities involved. A delegation or endorsement of power of that kind could weaken local democracy rather than strengthen it.

 

In the new Local Government Act, Chapter IX is dedicated to “Collaboration between municipalities on the execution of functions”. It provides co-owned agencies (byggðasamlag), the possibility that a municipality undertakes tasks for other municipalities, regional municipal associations.

 

Co-owned agencies are legal entities that municipalities may establish to undertake the execution of specific tasks of municiplities, such as the operation of schools or fire-prevention measures. They are subject to the provisions of Local Government Act, as regards procedure, the rights and obligations of board members, their employees, finances, budgets and the auditing of annual accounts, administrative supervision and other general rules applying to the functions of the municipalities and other public authorities (Article 94). Provisions on the election of the board, quorum at the meetings, the board’s authority to bind the municipalities, the cases in which the approval of the municipal councils is required for the board’s decisions to be valid etc. shall be included in the agreement.

 

Another form of collaboration directly provided by the Law 138/2011 is the agreement by which one municipality undertakes tasks for other municipalities. When one municipality undertakes tasks for one or more other municipalities, it may be decided that those municipalities which are regarded as purchasers of services may nominate observers to attend meetings of the relevant committee in the municipality which is regarded as the service provider, with the right to address meetings and propose motions when matters covered by the joint task are under discussion. All the details shall be covered by an agreement of collaboration (Article 96).

 

Regional Associations of Municipalities, established in each region of the country, may, by agreement or in accordance with authorisations in separate legislation, undertake tasks or other activities connected with their role as defined in the first paragraph, such as tasks related to regional development or other common interests of the municipalities (Article 97).

 

Additional forms of collaboration may be established by agreements between municipalities on the execution of specific functions that must be approved by the municipal councils in question (Article 92). Those If a collaboration agreement between municipalities involves the assignment of final decision-making authority regarding individuals’ rights and obligations, the collaboration may only proceed within the framework of a co-owned agency or in such a way that one municipality takes over tasks for another municipality or other municipalities, unless provisions in law grant special authorisation for some other form of collaboration. In that case, the approbation of the Ministry is required for those agreements to become valid (Article 93).

 

An especially important role is played by the Icelandic Association of Local Authorities, founded in 1945: under the Local Government Act (Article 98), “the Association of Local Authorities in Iceland is the common representative of the municipalities in Iceland”. It defends their interests in dealings with the government and other parties both in Iceland and abroad. It formulates common policy on individual issues and therefore works closely with the government and the Althing. A special co-operation agreement is in force between the association and the government, containing formal provisions covering relations between them. According to Article 98.3, The Association shall be consulted by the central government when issuing government edicts on the basis of the Local Government Act. All municipalities may be members of the Association of Local Authorities in Iceland. All municipalities now belong to the Association, but their participation in its activities is voluntary.

 

As for Article 10, para 3, of the Charter, local authorities may set up international and European collaborations: the Icelandic Association of Local Authorities plays an important role in international collaboration, specifically on the basis of the EEA Agreement.

 

In conclusion, rapporteurs consider that Article 10 is fully respected in Iceland.

Article 10.2
Local authorities' right to associate - Article ratified

The entitlement of local authorities to belong to an association for the protection and promotion of their common interests and to belong to an international association of local authorities shall be recognised in each State.


See answer at article 10.1

Article 10.3
Local authorities' right to associate - Article ratified

Local authorities shall be entitled, under such conditions as may be provided for by the law, to co-operate with their counterparts in other States.


See answer at article 10.1

Article 11
Legal protection of local selfgovernment - Article ratified

Local authorities shall have the right of recourse to a judicial remedy in order to secure free exercise of their powers and respect for such principles of local self-government as are enshrined in the constitution or domestic legislation.


Concerning the protection of local self-government, as legal persons, municipalities enjoy the substantive and procedural rights which apply to such entities and can challenge any act in courts.

 

A recent example of those judicial remedies was presented to the rapporteurs during the monitoring visit: a case involving Reykjavik municipality, that had to sue the Ministry of Interior before the Supreme Court to have a contract enforced, relating to the third strip of the city airport. The case showed that those remedies are effective.

 

In addition, as Iceland follows the diffuse model of judicial review of legislation, the municipalities – as any other person or entity – can directly challenge legislation in court on the grounds of unconstitutionality. As in other Nordic countries, the judicial review of legislation is only seldom exercised and courts are not seen as the main remedy to avoid violations of the constitution. The focus is much more on collaboration rather than on litigation.

 

During the meeting with the rapporteurs the President of the Supreme Court was unable to quote any case of unconstitutionality for violation of Article 78 of the Constitution. According to him, Article 78 was quoted in 6 or 8 cases in the entire history of the Supreme Court. As regards the Charter – which, as previously indicated, has never been incorporated in the Icelandic legal system – no data have been found on its impact. According to the President of the Supreme Court during the meeting with rapporteurs, it has never been mentioned by Courts in their rare decisions on local self-government that are rather based on Article 78 of the Constitution. In his opinion, the reference contained in the Article 3.4 of the Local Government Act could open the doors to more direct references by the courts.

 

Recommendation 283 (2010), para.5 lett. h), invited Icelandic authorities to “introduce appropriate legislation to give local authorities a right of appeal against decisions taken at national level which could infringe principles of local self-government enshrined in the charter”. This issue has not yet been addressed in a general way. Nevertheless, in the new Local Government Act there are specific provisions giving the municipalities the right of appeal against decisions adopted at national level in the exercise of administrative or financial supervision (Article 117).

 

Taking into account the recent legislative developments and the Icelandic tradition, the rapporteurs maintain that Article 11 should be considered respected in Iceland.

Article 12.3
Undertakings - Non ratified

Any Party may, at any later time, notify the Secretary General that it considers itself bound by any paragraphs of this Charter which it has not already accepted under the terms of paragraph 1 of this article. Such undertakings subsequently given shall be deemed to be an integral part of the ratification, acceptance or approval of the Party so notifying, and shall have the same effect as from the first day of the month following the expiration of a period of three months after the date of the receipt of the notification by the Secretary General.


195. Iceland ratified the Charter without reservations.
Article 12.2
Undertakings - Non ratified

Each Contracting State, when depositing its instrument of ratification, acceptance or approval, shall notify to the Secretary General of the Council of Europe of the paragraphs selected in accordance with the provisions of paragraph 1 of this article.


195. Iceland ratified the Charter without reservations.
Article 12.1
Undertakings - Non ratified

Each Party undertakes to consider itself bound by at least twenty paragraphs of Part I of the Charter, at least ten of which shall be selected from among the following paragraphs:

 

– Article 2,

– Article 3, paragraphs 1 and 2,

– Article 4, paragraphs 1, 2 and 4,

– Article 5,

– Article 7, paragraph 1,

– Article 8, paragraph 2,

– Article 9, paragraphs 1, 2 and 3,

– Article 10, paragraph 1,

– Article 11.


195. Iceland ratified the Charter without reservations.

ACCESSION

to the Council of Europe

RATIFICATION

of the European Charter of Local Self-Government

CONSTITUTION | NATIONAL LEGISLATION

Consistently with a long tradition of local autonomy, deeply rooted in the Icelandic history, the principle of local self-government is included in Chapter VII – on Rights and Freedoms – of the Icelandic Constitution, enacted at the very moment of the independence from Denmark, in 1944.



30Ratified provision(s)
0Provision(s) with reservation(s)
3 Non ratified articles
24Compliant Provision(s)
3Partially Compliant Articles
0Non-compliant Article