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.
The delegation is particularly concerned about the legislative provisions relating to this article which have not undergone any significant amendment since Recommendation 45 (1998).
The Congress recommended more clarity regarding the distribution of competences, notably the delegated competences. It also asked for a better match between financial resources and delegated responsibilities. The rapporteurs note that there is still need for more clarity. They remind the authorities that the financial resources for taking over these competences need to be sufficient, whether they are financed by government transfers or depend on local taxes and fees (of which the local authorities can fix the rates in accordance with Article 9 paragraph 3 of the Charter).
A contradiction remains between the principle set out in Article 141, paragraph 2 of the Bulgarian Constitution (“A municipality’s permanent sources of revenue shall be established by law) and the current funding system based on government transfers.
The improvements observed these past few years are due primarily to the new, more objective system for sharing government transfers among municipalities (adoption of the standard cost method to calculate the level of funds to be transferred to each municipality, and secondly to the growing share of municipalities’ own revenues as compared to that of government transfers (down from 96.1% in 1991 to 54.8% in 2008), but which are nonetheless not sufficient to generate genuine autonomy. Although the municipalities have greater fiscal autonomy, given that financial autonomy is linked to local functions that account for only small share of municipal responsibilities, the expected improvements in the area of local taxation will have only a limited impact.
In the opinion of the rapporteurs, as long as that imbalance persists, the financial autonomy of municipalities will be reduced.
Article 9, paragraph 1 of the Charter comprises the obligation not only to guarantee local authorities adequate financial resources, but also to allow them to freely allocate those resources. The first consequence of that principle is the right of local authorities to have their own budget. The second is the relative independence of the local authorities when it comes to the allocation of their budgetary resources. Independent approval of the budget is the highest expression of local autonomy.
This principle is enshrined in Article 141, paragraph 1 of the Bulgarian Constitution stating that “A municipality shall have its own budget” and in LSGLAA Article 52, paragraph 1, which stipulates that “The municipal council shall adopt independent budget of the municipality, out of the republican one, on the basis of own income sources and subsidies from the state, distributed among the municipalities according to criteria, determined with a law”.
The Congress delegation is concerned about numerous aspects of the current legislation governing the budgetary procedure for Bulgarian municipalities, which appears to contradict this important legal provision. Before the municipalities are authorised to adopt their budget, the government must prepare and approve the “State-consolidated budget”.
In the 2009 State budget there were specific provisions defining the exact amount of the supplemental subsidy, the general equalisation subsidy and the capital investment subsidy. The State Budget Act specifies (Article 11): “While developing the municipal budgets and their adoption by the Municipal councils, the funds for financing the delegated by the state activities shall be determined in functions, groups, activities and items, according to the Single budget qualification”. The State budget therefore imposes specific limits on the spending policy of the municipalities, which is not acceptable.
The municipal council is supposed to adopt the municipal budget only after the adoption of the State budget and in accordance with its instructions. In light of the power to monitor the legality of municipal acts (and the more specific supervisory powers of the Finance Ministry), any provision in the municipal budget that does not respect the limits set by the State budget will be deemed unlawful. The State-consolidated budget therefore strongly compromises the “independence of the municipal budgets.
The consolidated-budget method is not specific to Bulgaria, but elsewhere in Europe it gives the State a better overview of global public finances, in order for example, to avoid counting the same resources twice, and to better coordinate the practices of the different administrative bodies. The main difference as far as the Bulgarian system is concerned is that the State-consolidated budget, in addition to being a source of information, also has binding legal effects, inasmuch as the municipal budgets have to be adopted after the decisions have been taken at State level on the allocation of resources.
In times of severe financial crisis it is understandable that the State should accord itself certain extraordinary powers to control the spending policy of all entities, including local entities. Restrictions (a cap on taxes and expenditure) must be proportional and temporary without compromising the principle of local autonomy. The rapporteurs take the view, however, that for an ordinary system to so limit the autonomy of the municipalities with respect to the adoption of their budget is contrary to Article 9 of the Charter and to the spirit of the Charter as a whole.
The principles of adequate resources (Article 9, paragraph 1) and of resources commensurate with responsibilities (Article 9, paragraph 2) were seriously challenged by the difficulties recorded in connection with the current financial crisis. The Congress delegation noted numerous problems in relation to the financial situation of the municipalities. Many of them are in huge difficulties and are no longer able to fund their policies. The largest – and the ones that attract the tourists most – are coping thanks to the process of privatisation. Yet a long-term strategy seems to be lacking. For the moment, the central government does not foresee any structural solution for the funding of the municipalities.
The rapporteurs have received information after the visit to the effect that specific solutions have been developed for municipalities, including a special Fund for Local Self-Government Authorities (FLAG EAD), “with Order No. 4 of the Council of Ministers of the Republic of Bulgaria of March 7, 2007, as an instrument of state policy in regional development. The mission of the Fund is to support the efforts of Bulgarian municipalities and municipal companies in the preparation and successful implementation of projects under Operational Programmes (OP)/Rural Development Programme (RDP), for the modernisation and expansion of municipal infrastructure and for the creation of modern and sustainable local communities. The Fund grants loans to municipalities and municipal companies implementing projects approved by the Managing Authorities of OP/RDP, and to municipalities for the preparation of project proposals.” In addition to the above, information received from the Regional Policy and Local Self-Government Committee underlined that the Government had “granted to the municipalities, free of charge, a considerable number of state owned real estate items” and that a series of amendments to legislation had given the municipalities “the opportunity to manage and realise income from both properties granted to them and from properties still owned by the State”.
After the visit of the delegation, the National Association of Municipalities of the Republic of Bulgaria drew attention to the gradual diminution of municipalities’ financial resources, both in terms of their own revenues and government transfers. It would appear that there is a net decrease in public spending capacity at local level (down from 18% to 14% of total public spending).
The situation appears to be particularly difficult for almost all small municipalities, which are in dire financial straits; they do not even have the financial resources to participate in the European co-financing programme. This situation could lead to disparities in the financing of the 264 municipalities, and Bulgaria could be contravening the principle laid down in Article 9, paragraph 5 of the Charter.
Recommendation 45 (1998) referred to the need to “ensure that municipal authorities have sufficient buildings, in both qualitative and quantitative terms, to be able to carry out their financial and administrative functions”. Major improvements have been made in that area: the law on municipal property has been broadly amended, in compliance with Article 140 of the Constitution, and the municipalities have been given numerous properties and the necessary powers to manage them.
Nonetheless, the Bulgarian local authorities deplore the restrictions imposed by ordinary legislation which obliges them to permit the use of such assets, free of charge, by private enterprises.