Albania - Monitoring report

Constitutional provisions

Article 13 of the Constitution states that local government in the Republic of Albania is founded upon the basic principle of decentralisation of power and is exercised according to the principle of local autonomy

Articles 108-115 define the principles of local government and authorities. Thus, Article 108(1) establishes that the units of local government are communes, municipalities and regions, while Article 108(2) establishes that the local boundaries cannot be changed without prior consultation of the inhabitants.

Article 109 stipulates that, the representative organs of the basic units of local government are councils that are elected every four years in general direct elections by secret ballot. In addition, the mayor of the municipality and the head of the commune as the executive organ of the LGU, are elected directly in the same manner.

Article 110 stipulates that regions, composed of several basic units of local government, are the entities in which regional policies are developed, implemented and harmonised with state policy.

Basic powers and the principle of the right to local fiscal autonomy are set out in Article 113, establishing that the councils of the communes, municipalities and regions regulate and administer local issues, in an independent manner, within their jurisdiction by exercising the rights of ownership, administering all income created locally, and enjoying the right to exercise economic activity and to collect and spend the income necessary for the exercise of their functions. According to this article, local authorities should be entitled to adequate fiscal resources, which they were free to dispose of within the limits of their powers.

Legislative provisions

Law 8652 of July 2000 on the organisation and functioning of local government (the Organic Law) is the main piece of legislation relating to the decentralisation reform. It affirms the rights and powers of local authorities in conformity with the Constitution and the Charter, and establishes the framework for relations between central and local government. It is clear that, under this legislation, local authorities enjoy considerable autonomy regarding a broad range of public service activities, economic development, social and cultural activities, and public order and protection.

Law 115/2014 of 31 July 2014 on the administrative and geographical division of local authorities in Albania, whose main objective was to improve the effectiveness and standard of local services and promote a more balanced form of regional development, provided for the administrative division of the country into 12 regions (qarks) and 61 municipalities.

Under Article 4 (1) of Framework Law 139/2015 on local self-government in Albania, the local authority bodies operate according to the principle of local self-government. The law transferred significant public service functions to municipalities as their exclusive responsibility, including the following:

i. social services;

ii. pre-school education staff and support staff at pre-university level;

iii. forest and pasture management;

iv. management of the secondary and tertiary water treatment system for irrigation and drainage;

v. fire rescue centres;

vi. management of rural roads.

97. Law 107/216 on regional prefects lays down their role and powers as representatives of the Council of Ministers at regional level.

Law 68/2017 on local financial autonomy is the very first piece of comprehensive legislation on local government finances. It sets out all the principles and procedures concerning local authorities’ sources of income, the management of expenditure and the related intergovernmental dialogue and consultation.

There have also been several amendments to existing legislation and regulations relating to local self-government to clarify the situation regarding decentralised and newly delegated functions. Examples include:

• Regulations on the collection of property and local taxes, and guidelines on local authorities’ financial management

• The legal framework and guidelines laid down in Law 107/2014 on regional planning and development, coupled with Council of Ministers decision 686 of 2017 laying down the regulations and detailed procedure relating to the preparation of land-use plans at the municipal level.

Local authorities’ effective capacity to regulate and manage a substantial share of public affairs has been strengthened by the 2015 reform in which 373 municipalities and communes were merged into 61 municipalities. The creation of these large municipalities has enabled local authorities to expand their role in the overall system of public administration and provide better managed local public services. However, this capacity is limited by the inadequate resources available to finance these new municipal responsibilities (see articles 9.1 and 9.2).

The rapporteurs also found that the regional tier has not benefited fully from the local and regional reforms of recent years. Although, according to Law 139/2015, regions constitute the second tier of local self-government, they still seem to have a limited role. Their main function is to help to develop and implement regional economic development policies and ensure that they are harmonised with national policies. In practice, they appear to be more like one further level of administrative decentralisation, with a limited margin of discretion while the main investment decisions remain in the hands of the central state, via the regional development funds. Regional councils are still not elected by universal suffrage but are composed of representatives of their constituent municipalities, which is hardly consistent with full democratic legitimacy.

Moreover, Law 102/2020 on regional development and cohesion, provides for the government to establish four administrative regions to serve as the focus for regional development and cohesion policies. The creation of these new administrative bodies inevitably raise questions about the future role of the current regions and possible overlaps between these two tiers of administration. It reflects a centralised approach to the framing and implementation of regional development policies which is difficult to reconcile with the requirements of local self-government.

In Albania, the local councils are the municipalities’ representative bodies. In accordance with Article 109 of the Constitution their members are directly elected by citizens. Local elections are held every four years across the country by proportional representation with closed lists. Mayors and heads of communes are elected by direct vote using a majority system and secret ballot. The July 2012 changes to the Albanian electoral code under Law 74/2012 entitled groups of electors to put forward candidates for local councils. Candidates may not stand for more than one council. Nor may candidates proposed by a group of electors be supported, directly or indirectly, by other candidates of another electoral body, such as a political party, standing for the same election. Eligibility to stand for election to a local council or as mayor is restricted to persons with a permanent residence in the authority area concerned.

It should be noted that women represent 50% of the membership of municipal councils, since candidate lists for municipal elections have to comply with gender parity.

The June 2019 local elections were not conducive to the strengthening of local democracy in Albania. They were boycotted by the opposition, which does not therefore control any municipality. As a high-level Congress delegation reported, following its visit to Tirana from 4 to 6 February 20203, this setback to municipal pluralism had led to a further erosion of the trust of citizens in the institutions of the country. Neither the government nor the opposition could afford to remain indifferent in the face of such a situation and had to act in a responsible manner, according to their specific roles in the democratic process, in order to ensure elections offering a pluralistic choice to the voters, at both the national and the local levels.

The rapporteurs consider that progress on the Albanian reforms designed to strengthen local democracy and public confidence in the institutions of state is still dependent on the ability of the government and the opposition to co-operate on the basis of democratic political dialogue.

Meanwhile, regional authorities are not elected by universal suffrage but composed of representatives of their constituent municipalities’ elected bodies. As already noted in the last report, the rules governing the composition of regional councils remain problematic, as the Charter expressly requires (Article 3, para. 2) that the deliberative bodies of local authorities, of whatever level, should be composed of members freely elected by secret ballot on the basis of free, secret, equal, direct and universal suffrage.

Finally, regarding the right to participate in local authority affairs, the rapporteurs consider that chapter VI of the local self-government legislation, entitled “transparency, consultation and civic participation” should be fully applied. Steps should be taken to foster democratic participation, to ensure public involvement in the local decision-making process. Admittedly, progress has been made regarding access to information: a growing number of municipalities have published relevant information and appointed local freedom of information co-ordinators. Nevertheless, there is a need to strengthen the machinery for public participation in local decision making, particularly regarding the budgeting process, in all municipalities.

Local authorities’ powers and responsibilities are set out in Articles 23 to 30 of Law 139/2015 on local self-government. They exercise exclusive powers and ones that have been delegated by the institutions of central government.

The exclusive powers concern infrastructure and public services, social services, culture, sport and leisure, environmental protection, agriculture, rural development, forests and public grazing land, nature and biodiversity, local economic development and public safety.

In 2016, at the end of the first year of the local and regional administrative reform process, municipalities had spent an average of 26% of their budgets on administration, 21% on public infrastructure, 21% on public services (cleaning, refuse disposal, public lighting, green spaces and so on), 20% on children’s day-care and primary and secondary education, and 8% on sports, cultural and social centres.

Local authorities must be empowered to take initiatives on matters that are not explicitly excluded, by law, from their powers and responsibilities5. Article 8 of Law 139/2015 on local self-government authorises local self-governing authorities to take local public policy initiatives in areas under their jurisdiction on any matter, unless it is unlawful or has been made the exclusive responsibility of another body. It therefore appears that, quite apart from the 41 areas of responsibility expressly assigned to them by Law 139/2015, Albanian municipalities are empowered to intervene in any matters of local concern. This residual general power of competence is clearly fully consistent with the principle of local self-government but it remains little used in practice, given the number and extent of the powers and responsibilities expressly devolved to local authorities.

This paragraph of the Charter introduces the subsidiarity principle, whereby public responsibilities shall generally be exercised “in preference” by those authorities which are closest to the citizen. Under Article 10 of Law 139/2015, relations between local self-governing bodies and the institutions of central government are based primarily on the subsidiarity principle. Article 2, sub-paragraph 12, defines this as the exercise of functions and powers at a level of governance that is closest to citizens, bearing in mind the importance and nature of the requirements of effectiveness and economy. This definition is directly inspired by Article 4, paragraph 3, of the Charter. Article 22 of the legislation states that local authorities regulate and administer their activities with full effect and with no external supervision, in accordance with the Constitution, the European Charter of Local Self-Government and the legislation in force. The 41 exclusive areas of responsibility assigned to municipalities by this legislation cover a very wide range of fields which relate to all the responsibilities that must be exercised closest to the citizen.

The Albanian local authorities association has told the rapporteurs that a clear distinction is not always drawn between municipal powers and responsibilities and state interventions. The transfer of new functions to local authorities does not prevent the state from intervening. Law 139/2015 provides for the establishment of a social fund for the financing of services in co-operation with the ministry responsible for social protection. Moreover, in practice, reference might be made to state interference since 2019 in coastline management, which is a local authority responsibility. Similarly, certain investment decisions are made by the state, such as the construction of health centres, even though the construction, refurbishment and maintenance of primary health care buildings has been a municipal responsibility since Law 139/2015. In many areas of activity, the exercise of local competences still requires co-ordinated action with central government.

The interior ministry has already taken steps to produce a functional legal framework that is clear and easy to apply at local level. By December 2020, some 80% of local government legislation (Law 139/2015 and legislation on specific sectors) had already been harmonised. The rapporteurs consider that these efforts must be pursued.

Municipalities’ public security functions, as specified in Law 139 of 2015, include their responsibility for civil protection against natural and other disasters. Recent such major events in Albania, including an earthquake and the pandemic, have revealed certain ambiguities in the division of roles and responsibilities between different institutions, mainly local and central. The new Law 45/2019 on civil protection and efforts to mitigate the effects of the earthquake and Covid-19 have highlighted municipalities’ critical role in reducing the risks posed by such disasters and in providing civil protection.

It would also be helpful to draw up and maintain national minimum standards in certain priority areas such as pre-university education, sanitation services, housing, public security (municipal police) and civil protection, agriculture and rural development. Steps should also be taken to harmonise the legislation and regulations governing water supply and wastewater treatment and set minimum quality and security standards for water supply services, including the calculation of its cost.

Briefly, it appears that many new functions of local self-government are not yet backed up by the necessary legal changes, making it difficult for local authorities to exercise these functions.

In Albania, under Law 139/2015, delegated functions and powers may be mandatory or non-mandatory. The mandatory ones are those that are prescribed in law. When the law permits, central institutions authorise municipalities or regions to carry out specific functions, where appropriate specifying the procedures for monitoring their performance. The central institutions may authorise municipalities and/or regions to exercise a unique prerogative for a specific function.

Other, non-mandatory, functions and powers may be delegated to municipalities on the basis of an agreement between a particular local government body and the central institution with legal responsibility for the activity in question. In every case, central government must provide local authorities with the necessary financial support to exercise the delegated functions and powers.

To ensure that the national norms and standards laid down in the relevant legislation are applied, ministries, according to their area of responsibility, oversee the activities of the organs of local self-governing authorities and, in the case of delegated functions, are empowered to exercise supervision over them.

In practice, delegated functions and responsibilities are exercised under the close supervision of the various ministries concerned and municipalities’ margin of discretion is relatively limited.

In practice, it appears that central government consultation of local authority associations does in fact take place, but that it sometimes takes on a somewhat routine character. A consultative council composed of representatives of central government and of local and regional authorities was established in December 2016, by Council of Ministers decision. The local and regional authorities have equal representation on the council. It is the main forum of consultation and discussion and meets several times a year. It enables local authorities to put forward their proposals and defend their interests and the parties concerned seem to find that it works satisfactorily. However, in its 2019 report, the association of Albanian municipalities noted that the consultative council functioned more as a conference than as a genuinely participative body.

More recently, a thematic group on decentralisation has been set up, including representatives of local and regional authorities and civil society. There has also been close co-ordination and co-operation with the government on logistical, administrative and financial aspects of managing the Covid-19 pandemic. Consultation between local and central authorities via daily on-line meetings to exchange information and co-ordinate decision making has become pivotal. More specifically, joint working groups have been established to exchange information and co-ordinate activities in particular areas, and these meet on a regular basis.

The creation of the consultative council as the main forum for consultation on new strategies likely to have an impact on local governance is an important development, which appears to be generally appreciated by those involved, particularly the local and regional authority associations which are jointly represented on this body.

Administrative and geographical reorganisations of authorities, with or without boundary changes, require special legislation. Proposals to reorganise one or more local self-governing entities are submitted to parliament with the supporting facts and arguments concerning the economic, social, cultural, demographic and administrative reasons for the reorganisation in question and its associated benefits. Such proposals will also consider the opinion of those living in the areas concerned, the relevant administrative and territorial maps and the effects of the reorganisation and the resulting changes on them, and how to deal with the problems of the constituent authorities from the standpoint of their financial obligations to third parties and to each other.

Municipal and regional councils affected by proposed reorganisations and their presidents must give their official opinions and, in event of disagreement among council members, even the opposed views of the members concerned. The Council of Ministers, when it has not itself initiated the reorganisation, and other central institutions of state not subordinate to it but concerned by the reorganisation, shall give an opinion, with reasons, for or against the proposal. These opinions must be submitted within 60 days of receipt of the originator’s request.

Article 93 of Law 139/2015 provides for the updating of administrative and geographical boundaries. In the case of the 2014 mergers of communes, the government-directed consultation process involved public meetings, consultation sessions, a public hearing and a national survey. Albanian legislation does not provide for local referendums. Civil society was involved in the consultation process: in total, 13 meetings were attended by 1 218 participants. All the meetings were broadcast live on the administrative and geographical reform on-line portal. In addition, the parliamentary special committee on the reform held eight public hearings with representatives of local government and associations of elected officials, civil society, international organisations and independent constitutional institutions. A total of 75 participants took part in these hearings. All the meetings were broadcast live on television. At the second series of consultations on the merger options approved by the committee, 42 meetings were attended by 1 785 persons. Community opinion was sought by means of a national survey of a sample of 16 000 respondents. This ranks as the largest national survey ever conducted in Albania. It appears that every local authority was consulted on the new boundary reform and was able to give its opinions on the merger proposals.

Under Article 113 of the Constitution, communal, municipal and regional councils are empowered to establish rules on their organisation and functioning, in accordance with the law. Article 9 of Law 139/2015 on local self-government authorises municipalities to establish administrative arrangements for exercising their devolved functions and responsibilities. They can thereby set up committees, councils and commissions to perform specific functions when necessary, in accordance with the legislation on gender equality.

The new Law 152/2013 on the public service extended its scope to include municipal administration. Over the years, there has been an expansion of local government human resources but the situation remains problematic. According to the government’s on-line financial system, in 2020 there were 34 047 employees for the 61 municipalities, 901 more than in 2019. Forty of the 61 have increased their staffing, in particular Tirana (+488 employees), Pogradec (+130) and Durrës (+81). However, other municipalities have seen a decline in their staffing levels, in particular those of Dibër (-63 employees) and Lezhë (-52).

The most highly qualified administrative personnel are mainly concentrated at central level and in the principal towns and cities, whereas municipalities in rural areas have difficulty in recruiting people. The comprehensive decentralisation and local governance strategy notes that limited ability and/or capacity to design and implement local development strategies and local development plans, to draw up local medium-term financial programmes, and to deal with complex regulations and ensure that there are well-established training facilities are some of the main challenges to the proper functioning of local government administration.

There is a specific body of law governing the salary system applicable to local authority staff, based on the classification of councils into four population-related groups. Further progress is still required, particularly regarding remuneration of the employees of small and medium-sized municipalities, whose salaries are below those paid by the large councils. According to the mid-term appraisal and the annual monitoring reports of the decentralisation strategy, reform of the local authority salary structure, particularly for small and medium-sized authorities, is still a priority for the Albanian government in the years to come, to make it easier for councils to retain qualified staff. Finally, staff recruitment should be quite independent of any political considerations or influence.

Mayors’ appointment must be confirmed by the civil bench of the district court of the municipality concerned within twenty days of the announcement of the results of the mayoral election. Their removal from office is declared if the conditions laid down in Article 45 of the Constitution and the relevant provisions of the Albanian electoral code are breached (conviction with prison sentence). Mayors’ term of office ceases if they refuse take their oath, resign, are no longer permanently resident in the municipality in which they were elected, are dismissed by the Council of Ministers under Article 62 of Law 139/2015 (if they have committed serious violations of the Constitution or legislation, if they have been found guilty of a criminal offence in a final judgment, or if a municipal council calls for them to be dismissed for absence from duties for a continuous period of three months), stand for election to parliament, have been declared ineligible by a final court decision, or are deceased. When a mayor’s term of office ends prematurely a by-election is held for a replacement, as provided for in the electoral code, and the mayor’s duties are performed in the meantime by the deputy mayor.

There is also a system for checking municipal councillors’ mandates. Under Article 49 of Law 139/2015, councillors’ mandates are confirmed and may be withdrawn by a majority of votes of all the members of the municipal council. The conditions under which their term of office may be prematurely ended are also provided for in law.

Municipal councils may be dissolved before the end of their term of office. If a council fails to meet for a continuous period of three months from the date of its last meeting, the prefect may convene a meeting no more than twenty days later. If, after being convened by the prefect, the council still fails to meet, it is dissolved before expiry of its normal term of office following a decision of the Council of Ministers. Municipal councils may also be dissolved following reorganisations resulting from changes to municipal boundaries.

There is a margin of discretion concerning “serious” violations of the Constitution or the law. These can be the grounds for a mayor’s dismissal or the dissolution of a municipal council, but are very rare in practice. The courts to which such decisions are referred can rule on their lawfulness.

Article 51 of Law 139/2015 provides for councillors to receive monthly compensation for their official activities of up to 10% of the monthly salary of the mayor of the municipality concerned. The minimum and maximum monthly salaries of mayors and deputy mayors are laid down in a Council of Ministers decision and vary according to three different groups of municipalities. Employers are required to permit councillors to take absence from work to attend municipal council meetings or meetings of its committees and other activities organised by the council. Mayors must supply councillors with any information or documentation relating to the municipality requested by them. Councillor

Restrictions on holding elected office should be as limited as possible and set out in national laws, which means that they apply to all levels of government. They should mainly be related to potential conflicts of interest or involve a commitment that prevents the local representative from discharging his or her duties for the local authority in a professional way.

In Albania, Article 47 of Law 139/2015 specifies the circumstances in which the role of local councillor may be declared incompatible with certain offices.

Administrative and financial supervision of local authorities is clearly defined in Article 13 of Law 139/2015 on local self-government.

Depending on their particular areas of responsibility, ministers oversee the activities of the organs of local government to ensure that the norms and standards laid down in the relevant legislation are properly enforced, and in the case of delegated functions they are empowered to exercise supervision.

Rule-making decisions and orders issued by local authority bodies are subject to review of their legality by the prefect within ten days of their publication. As the designated local representatives of central government, prefects have extensive supervisory authority over local authority actions and decisions. They are required to rule on the legality of decisions and orders within ten days of their registration.

Reviews of legality by prefects may lead to the rejection of an authority’s decision or order, in which case the latter may refer the prefect’s decision to the administrative court.

Local authorities are subject to external audit by the relevant central government bodies regarding their use of conditional and/or delegated funding from the national budget and/or foreign aid which they receive on the basis of agreements signed by the central government.

Local self-governing authorities are subject to supervision by the state supreme audit office under the legislation in force. Under Article 163 of the Constitution, the national audit office supervises the use of state funds by the organs of central and local government. Law 154/2014 details the role of the audit office. It carries out some twenty audits each year focussing on both the lawfulness of the use of public funds and the effectiveness and efficiency of local management. It can make recommendations on a case by case basis, most of which are put into practice (362 recommendations issued in 2018, 357 accepted). Each year, the audit office reports to parliament on local authorities’ public spending performance.

The general rule established by the Charter is that supervision shall “normally” aim only at ensuring compliance with the law and with constitutional principles. It thus proclaims a general preference for checks on legality over checks on expediency, the former being the only checks that in general comply with the Charter. Checks on expediency are not prohibited by the Charter, but they are severely restricted, since they are deemed to be incompatible with the very notion of local self-government. Administrative checks on the expediency of activities must therefore be confined to functions that the superior authorities, the supervisory bodies, have delegated to the local authorities10.

In Albania, central government supervision of local authorities is designed to ensure compliance with the legislation and excludes all checks on the expediency of activities that fall within authorities’ own sphere of competence. According to the October 2016 legislation on regional prefects, their relationship with local authorities is based on the principle of consultation and co-operation for resolving mutual problems.

In practice, prefects’ task is to ensure that central government’s policy lines are adhered to at local level. This has led to controversy, because of the partisan practices that can result from such a system at local level, and because it enables central government to exercise direct supervision over local and regional authorities. The 2016 Law strengthened prefects’ role in overseeing local authorities’ application of legislation and delegated functions. For example, they are expressly charged with monitoring local authorities’ use of the powers and responsibilities delegated by central government and of the money they receive for these functions, according to rules laid down by the Council of Ministers. Where such checks reveal infringements of the law, prefects must inform the minister responsible for the delegated functions and the prime minister.

At regional level, prefects monitor social, economic and political developments. They receive all policy and budgetary documents and are empowered to retain these documents for a period of ten days to review their lawfulness.

The intervention of the controlling authority must be in proportion to the importance of the interests which it is intended to protect. In this regard, in 2019 the Council of Europe’s Committee of Ministers recommended the governments of member states to adopt appropriate measures to “put in place an appropriate legal, institutional and regulatory framework for supervision of local authorities’ activities which is proportionate, in law and in practice, to the interests which it is intended to protect” (Recommendation CM/Rec(2019)311 on supervision of local authorities’ activities). In accordance with the proportionality principle, therefore, the supervisory authority should only intervene insofar as it is necessary, having regard to the pertinence of the public interest concerned or of the seriousness of the violation that the local authority has allegedly committed.

In Albania, the administrative supervision of local authorities, as practised, appears to maintain proportionality between the extent of the supervisory authority’s intervention and the importance of the interests which it sets out to protect. Local authority orders and regulations are not immediately enforceable, but are subject to the prefect’s prior approval. The review of lawfulness conducted by the prefect may lead to rejection of the authority’s decision, but the prefect can also negotiate possible changes to it with the authority, which in practice is what normally happens. Thus, in cases where prefects identify a breach of the law, they can refer the measure back to the local authority body concerned, with a note of the violations found. In such cases, the relevant authority can re-examine its original decision. If revised decisions are still found to be unlawful, prefects can request the administrative court to declare them null and void. Where prefects find a breach of the law and consider that returning the measure to the authority concerned is unlikely to serve any purpose, they may request the administrative court directly to declare it null and void and will then inform the authority accordingly. In practice, there may well be cases where it is difficult to secure co-operation between municipalities and the prefect, leading to a considerable number of referrals of proposed measures for re-examination by the prefect.

Municipalities may in turn refer prefects’ rejection decisions to the administrative courts for a ruling on whether a rejection is justified. In practice, the interior ministry may intervene in cases of difficulty and re-examine the lawfulness of proposed measures, after consulting the ministry of justice.

In their meetings with various interlocutors, the rapporteurs received no complaints about insufficient compliance with Article 8 paragraph 3 of the Charter. The Albanian municipalities association considers that prefects do not interfere with their members’ decision-making rights and authority and do not exercise any hierarchical powers over local authorities.

Law 139/2015 on local self-government sets out a number of basic principles of municipal financing, including, in particular, one which states that the functions and powers delegated to local self-governing authorities shall be accompanied on each occasion by the financial resources necessary for their accomplishment.

Local government reform and the legislation on local financial autonomy have given rise to a significant increase in local budgets. For example, the city of Tirana’s budget has risen from 35 to 180 million euros (EUR) since the start of the reform process. The reforms in question have also led to greater decentralisation of tax-raising powers to municipalities, thus enabling them to draw up budgets where expenditure on local investments and public services is more closely tailored to meeting the needs of the local population. Since the first year of application of the local government reform, income from local taxes and other charges has risen by about 3.7 billion Albanian Lek (ALL), or 28%. The main contributors to this increase in revenues have been the immoveable property tax (+19%), refuse disposal services, public lighting and green spaces (+58%), administrative charges (+27%) and the tax on infrastructure impact (+94%). The changes in the law relating to the tax on the use of public space and the hotel occupancy tax resulted in an increase in local income in 2016 of approximately ALL 500 million.

Public investments self-financed by municipalities have increased by 26%, or ALL 2 billion, since 2015. However, there are major differences in investment performance between individual authorities: in 18 of the 61 new municipalities annual investment expenditure has fallen by between 2 and 60%, while in 18 others it has risen by more than 100% compared with 2015.

In any case, given the large number of powers and responsibilities transferred to municipalities in 2015 and the role they are expected to play in economic and social development, it would appear that the financial resources at their disposal, including those of the largest authorities, are still insufficient to meet all their needs and enable them to carry out their devolved functions in a fully satisfactory manner. This is also the conclusion of the most recent report (2019/2020) of the state supreme audit office. The assessment of municipalities’ financial situation undertaken in 2019 by the “Local Public Finances” project, supported by the Swiss government, revealed that one municipality could be categorised as facing severe financial difficulties (with an arrears stock equal to 85.2% of approved expenditure), nine had financial difficulties, 12 had financial problems and 37 did not come into any of these categories.

According to the Albanian legislation on local self-government, the principle that local authorities’ own and delegated functions must be adequately financed is fulfilled by the criterion that financial resources should be in proportion to the cost of carrying out these functions. Under Law 139/2015, financial resources are deemed to be adequate if they are sufficient to meet the legally defined standards laid down for the functions of local self-government. This definition is not fully reflected in Law 68/2017 on financial autonomy, under which the adequacy of financial resources is a function of the historical cost of the exercise of local government functions by the different ministries concerned, in accordance with the legal standards historically applicable, thereby reducing the amount to be financed by central government to ensure adequacy. Law 68/2017 does not, therefore, provide that the unconditional transfer of funds for municipalities’ own spheres of competence must be in proportion to the cost of exercising the relevant functions, or be dependent on current legal standards for such activities.

As a result, costs of activities are determined not by the legal standards applicable to them but by the average of central government expenditure on them over the previous three years. The level of central funding for municipalities’ own sphere of competence is not therefore based on the real cost of the activities concerned since their historic costs are the sole basis used by the ministry of finance and the economy to estimate the cost of local authorities’ own areas of activity. The same basis is used to calculate the level of government funding for delegated functions, such as the administration and protection of agricultural land. A reform was introduced in the 2019 budget to finance the system of preschool education and crèches, based on a new standard in the form of the number of children benefiting from these services. It would be helpful if national rules and standards could be established for other areas of local responsibility.

Another matter of concern is the symmetrical decentralisation of functions compared with the unequal geographical distribution of the resources formerly used by the relevant ministries to carry out these functions.

Between 2016 and 2018, the government provided additional financial and material support for, in particular, nursery schools, fire protection and irrigation and drainage, although there are still significant differences in material resources. Thanks to the mid-term budgeting system for local government functions and activities, the main information on the cost of carrying out these functions comes from assessments undertaken by the local authorities themselves. It is still necessary, in this regard, to ensure that municipal powers and responsibilities and the equivalent financial resources are fully aligned, so that the unconditional transfer of funding for activities that fall within local authorities’ own sphere of competence properly reflects the cost, to those authorities, of exercising these functions.

Steps should also be taken to improve the predictability, stability and fairness of the intergovernmental transfer system. More specifically, central government should be prohibited from imposing legal modifications, in the course of the financial year, that affect municipalities’ level of financing. In practice, there appear to be no such cases to date.

Finally, attention should be drawn to the 2019 earthquake and the public health crisis associated with Covid-19, which have placed a large additional and unexpected financial burden on local authorities, coupled with a reduction in their tax base for which the state has provided only very partial compensation (see below).

The legislation on local self-government, local borrowing and budgetary management authorises local authorities to take out short- and long-term loans. Under Article 31 of Law 68/2017, the finance ministry may require an independent external audit of a local authority’s accounts before approving a long-term loan. A certain percentage of the annual borrowing limit approved by the annual finance act is reserved for local authorities, in accordance with central government’s policies and rules on financial discipline. Access to the private capital market is regulated in collaboration with the finance ministry.

Any regulations or restrictions concerning local government borrowing imposed by central government and limiting their borrowing capacity must be temporary and cannot be extended beyond the financial year in which they are introduced, unless such measures are approved by parliament (Article 39 of Law 139/2015). According to data published by the ministry of finance and the economy, at the end of 2020 local authorities’ total debt was ALL 6.930 billion, a significant reduction of ALL 1.239 billion compared with the previous year. The highest level of debt was accumulated by three municipalities, namely Tirana (761.8 million), Kavajë (727.8 million) and Vorë (702.6 million).

The rapporteurs conclude that the situation in Albania is, in this regard, in compliance with Article 9, paragraph 8, of the Charter. However, they consider that increasing local authorities’ capacity to use borrowing to finance investment would be desirable.

Albanian legislation identifies four types of transfers: shared taxes, unconditional transfers, specific transfers earmarked for newly-delegated functions and conditional and competitive investment grants from the regional development fund. Transfers are allocated to local authorities on the basis of historic costs previously declared by the respective ministries. Under Article 23 of Law 68/2017, unconditional transfers from the central budget are granted to self-governing municipalities to finance their functions and competences as specified in law. They are totally free to use them as they choose. Article 22 of the 2017 legislation on financial autonomy establishes the principle that local authorities have total freedom in how they use unconditional transfers and income from shared taxes. The annual amount of the unconditional grant to local authorities must not be less than 1% of the gross domestic product (GDP), and in any event not less than the sum allocated in the previous financial year.

According to the finance ministry, in 2019, unconditional transfers represented 1% of GDP, or ALL 17.5 billion, an increase of 6% or approximately ALL 1 billion over 2018, and 42% or ALL 5.2 billion more than in 2015. Conditional transfers are used for the purposes and in the manner determined by the body making the transfer.

Since municipalities’ own functions must be financed from general income and not conditional grants whose conditions are fixed by the national government, the legislation introduced a three-year transitional period in which municipalities received conditional grants – specific transfers – to pay for them. The transition period ended in 2019, though the objectives set for it had certainly not been fully achieved. It was anticipated that after 2019, municipalities would not only be better equipped to manage these newly decentralised functions but would also start to finance them through a combination of local taxes and charges, together with the unconditional government grant.

The rapporteurs consider that an increase from 1 to 2% of the GDP threshold fixed for unconditional transfers, which is what the associations representing municipalities seek, should be a short-term objective. It would be a desirable means of improving the predictability, stability and fairness of the intergovernmental transfer system.

Eventually, conditional transfers will only be granted to finance specific projects deemed to be of local, regional or national interest, where co-operation with local authorities is required, and delegated functions. Any central government body proposing the delegation of a function with its accompanying conditional transfer must first consult the consultative council for central and local government (Article 27 of Law 68/27).

A consultative council of central and local authorities was established in January 2017 to put consultations between central government and local authorities on an institutional footing. The council is the main forum for consultations on draft legislation, draft Council of Ministers decisions, and policies and strategies governing or having a direct impact on the exercise of local authority rights and obligations. The local and regional authority associations have equal representation of their members on this new body. The legislation on local finances was the main focus of discussion at the consultative council’s early meetings. Most of the associations’ proposals were taken into account in the final wording of the Act, which came into force in May 2017. The council’s recent activities have enabled local authorities and their associations to discuss government fiscal policy, implementation of the national decentralisation strategy and planned measures to protect the environment.

However, the municipalities association has expressed regret that the consultative council’s activities have concentrated mainly on the presentation of numerous non-legal decisions and technical matters rather than discussing strategic issues relating to powers and responsibilities, and finance.

Article 24 of the 2017 Law provides that unconditional transfers to municipalities are to be based on the formula published and detailed in the appendices to the annual finance act. The formula takes the following criteria into account: a) resident population, as measured at the most recent census and corrected by data from the civil population register, using a coefficient published in these appendices – up to 80% of the total will be allocated on the basis of this criterion; b) population density, reflecting differences in the costs of providing services according to local government area – up to 15% of the total will be allocated on the basis of this criterion; c) number of pupils in the pre-university education system – at least 5% will be allocated on the basis of this criterion.

Financial equalisation is effected via the unconditional grants system and is based on the sharing of tax receipts. Once the overall unconditional transfer has been calculated, a series of individual calculations are made for municipalities whose total income per inhabitant from shared taxes is either less than 75% or more than 110% of the national average.

Fiscal equalisation is based on:

a. each municipality’s fiscal capacity, measured as its total real revenue from shared taxes collected/received the previous year;

b. the equalisation threshold, defined as the relationship between income per inhabitant from the municipality’s shared taxes and the national average for these same taxes: municipalities above or below this average respectively contribute to or benefit from the financial equalisation element of the unconditional grant;

c. the fiscal equalisation coefficient, which is the amount, based on income per inhabitant from shared taxes, that municipalities above or below the equalisation threshold must respectively pay into or receive from the equalisation fund;

d. the resulting equalisation, or compensation, fund, which is required to ensure fiscal equalisation between municipalities and consists of the amount necessary to ensure that every municipality achieves the selected equalisation threshold.

Local self-governing authorities whose fiscal capacity is below the equalisation threshold receive compensation according to the predetermined fiscal equalisation coefficient. The compensation comes from the equalisation fund, made up of contributions from municipalities whose fiscal capacity is above the threshold.

The regions benefit from a form of vertical fiscal equalisation, the regional fund (Fondi i Rajoneve), which has replaced the centralised grant system. The system comes under the authority of the Prime Minister.

This paragraph deals with local taxes and charges, which are usually considered public-law resources of the public administration. This tax-levying power is a key part of the financial autonomy of local authorities^[12].

Local taxation creates a basis for local revenues to finance local services, so it is a crucial indicator for measuring local autonomy, together with the proportion of an authority’s own income and the proportion of central government transfers in the total local budget. Accordingly, local authorities with a large share of local revenues in their budget and the consequent ability to finance their mandatory tasks have greater financial autonomy. In the light of Article 9.3, a tax can only be qualified as purely local if the authority concerned has the power to set the rate "within the limits of the law". Therefore, the applicable tax legislation may determine a "band" of tax rates, within which the local authority is free to determine the actual tax rate. In addition, local governments must also have the power to approve internal regulations regulating the technical and operational details of tax collection (types of rates, deductions, tax relief programmes, etc.), so that the general provisions of the law can be adapted to local circumstances and needs.

The Charter does not state that a local authority’s own resources must contain a uniform proportion of local taxes, but it does establish a requirement for “at least” part to derive from local taxes and charges. This part should be large enough to ensure the greatest possible financial independence of local authorities.

Article 11 of Law 68/2017 on the financing of local authorities is concerned with their own sources of income. It lists the different local taxes:

a. Property taxes, including taxes on buildings, agricultural land and urban sites, and on transactions concerning the latter;

b. New construction infrastructure impact tax;

c. Hotel tax;

d. Advertising hoarding tax;

e. Temporary taxes established by law;

f. Local taxes on small businesses;

g. Personal income tax; gifts, inheritance and local lotteries taxes;

h. Other taxes specified in law.

The main sources of own income are the recurrent immoveable property tax, the tax on the infrastructure impact of new buildings, and fees and charges for local services. Until recently, the small businesses tax was also an important income source for local authorities. Since 2006, the assessment basis for this tax has been reduced on a number of occasions and in the period 2013-2015 it was transformed, in practice, into a shared tax which is now levied by the national government and from which the majority of small businesses are exempted. In 2017, income from the small businesses tax was only 10% of what the local authorities themselves raised in 2008.

Article 14 of the 2017 Law also authorises local authorities to levy charges for services provided or rights granted to individuals and legal persons. They can receive income from such charges as those concerned with the use of public spaces or refuse collection and disposal.

Local authorities can also draw income from letting municipal properties, the sale of local property in accordance with the applicable legislation, and economic activities. Local tax rates are still governed by national legislation, which sets minimum and maximum levels for each of them, though within these limits municipal councils are free to vary the rate. Municipal councils can also set the level of local charges, unless otherwise provided in specific legislation. These are intended to cover the costs and are directly proportional to consumption or take-up by individuals.

According to the World Observatory on Subnational Government Finance and Investment (SNG WOFI)^[13], in 2016, Albanian local authorities remained heavily dependent upon top-down fiscal grants, which represented 76% of their total revenues in 2016 while tax revenues – including shared and own-source taxes – only stood for approximately 16%. These ratios contrast with the EU averages (44% for grants and subsidies, and 41% for tax revenues) and are an indication of strong fiscal vertical imbalances.

Following the entry into force of the new Finance Law in 2017, and according to data supplied by NALAS^[14], in 2019 own sources revenues accounted for 42% of total local budgets (the average for the western Balkans was 39%) while shared taxes only constituted 3%, compared with a western Balkan average of 14%. Transfers from central government to local government budgets represented 56% of the total.
In 2020, the impact of the health crisis resulted in a 4.9% drop in local tax revenues and a 5.3% drop in own resources, while at the same time State transfers increased by 3.6%.

Although part of authorities’ own resources comes from local charges and taxes, the rapporteurs believe that this proportion is still not sufficient to safeguard local authorities’ financial independence. They consider that the contribution of taxes shared with the state could be increased significantly.

In practice, the levying of certain taxes can also pose problems. This applies particularly to the immoveable property tax, which must become a central element of the local taxation system. Municipalities lack recent cadastral data from the state in connection with this tax and therefore have no reliable information on which to base the rates set, resulting in a loss of income. To rectify this detrimental situation for local finances, the government is digitising immoveable property records so that tax rates can be set on the basis of market values of the properties concerned. The state must provide municipalities with reliable cadastral information to establish a firm basis for the immoveable property tax, which is the keystone of the local taxation system.

Albanian local authorities’ financial autonomy is guaranteed in the Constitution and the new Law 68/2017 on the financing of local self-government. According to the Act, fiscal decentralisation is still a main plank of the reform programme. The aim is to offer local and regional authorities more financial autonomy to carry out the functions devolved to them. It is based on the principle that national budgetary policies should ensure that local authorities are adequately funded and that they should have a wide range of income sources. Article 10 provides that local authorities are financed from local taxes and charges and other local income sources, state funding, income from shared national taxes and charges, local borrowing, gifts and donations and any other local sources specified in law.

Generally speaking, the reforms carried out have served to increase municipalities’ fiscal and financial autonomy, but their situation varies considerably. Municipalities control 75% of the sources of funding while central government controls 25% of total local spending via conditional or earmarked transfers. In addition to conditional transfers, there are also unconditional transfers which represent a major part of the state's financial transfers. In addition to conditional transfers, there are also unconditional transfers which represent a major part of the financial transfers of the state.

There has not been any significant change in the average financial autonomy ratio (municipalities’ own as a percentage of total resources) in recent years: 25.6% in 2010, 25.2% in 2015 and 27% in 2017, even though numerous authorities increased local taxes and charges significantly over this period. A more detailed individual analysis of the 61 municipalities shows that the financial autonomy ratio varies from 3% to 68%, thus revealing significant differences in their level of dependence on government.

In certain small municipalities own resources still constitute a very small proportion of the total: for example in Finiq, with 3500 inhabitants, they only make up 15% of total income. In contrast, in certain medium-sized towns, own resources can form a significant proportion of the total. Thus in Lezhe, with 70 000 inhabitants, they represent about 60% of total income.

Unconditional, or non-earmarked, transfers from the state budget, which municipalities are free to use as they chose, are still the main source of funding: over 50% of their income in the case of 70% of the new municipalities. At the end of 2016, municipalities’ income from local taxes, fees and charges was 28% higher than in 2015. In the period January-June 2017, this source of income was again 28% higher than over the same period in 2016. The total financial resources of the local government recorded an amount of ALL 52 billion until the end of 2020, i.e. a slight increase of 0.2% compared to the same period of the previous year. The revenues from own local sources (local taxes and tariffs, activities with assets and others) recorded an  amount of about ALL 24.2 billion, with a decrease of about 5.3% in annual terms, which is about 1.4 billion less than the level recorded in the previous year. According to the authorities under consideration, revenues from their own sources showed negative results due to a decrease in the collection of local tax revenues (-5%) and local tariffs (-6.6%) during this period. 30 out of 61 municipalities managed to have a positive revenue performance for this period, while the remaining 31 local governments were not able to neutralise the decline in revenue from their own sources. Some of the municipalities affected by the earthquake on 26 November 2019 recorded a significant decrease in revenues, such as the municipality of Durrës , Krujë , Kurbin and Shijak .

Since 2015, therefore, when the local self-government reforms started to take effect, local authorities’ own resources have practically doubled while the financing of investments from the same source has risen fourfold, though still not to a satisfactory level.

The diversification of resources requirement means that local authority financing must not depend solely on taxes and transfers. It should be based on all potential local income sources: transfers, local taxes, duties, fees, royalties, profits under private law, interest on bank accounts and deposits, fines, sale of property or other assets, services to the private sector and so on.

Under Article 34 of Law 139/2015, local self-governing authorities are financed from income from taxes and other local receipts, funds transferred by central government and ones obtained directly from shared national taxes and other levies, local borrowing, donations and other sources, in accordance with the law. It also states that local self-governing authorities’ right to create income independently is guaranteed by law.

Municipal councils are also empowered, under Article 13 of Law 68/2017, to establish temporary taxes for a limited period for the provision of specific services and financing public investments.

The open-ended nature of local resources is also protected. If changes in fiscal policy lead to a reduction in local tax rates or their basis of assessment, or in the level of income local authorities receive from shared taxes, the finance ministry is legally obliged to take measures to offset this decline by increasing local financial transfers. Moreover, functions and responsibilities transferred or delegated to local authorities, as well as the introduction of new national standards for the provision of particular services, must always be accompanied by the necessary financial resources to carry them out (Article 4 of Law 68/2017 on local financial autonomy).

For example, Law 122/2020, amending Law 9632/2006, on the local tax system, has exempted small businesses suffering from the Covid-19 pandemic from the profits tax. Since this tax has been assigned to municipalities, their representative association has asked for strict compensation for the losses arising from this reform. Municipalities’ financial resources thus appear to be sufficiently diversified and buoyant.

Chapter 5 of the 2015 legislation on local self-government is concerned with co-operation between two or more local self-governing entities. It provides, firstly, that to carry out their duties and provide specific services for the common good, two or more local authorities in a region or in different regions may jointly perform any duty and/or provide any service for which they have a legal responsibility by concluding or implementing contracts or agreements, delegating among themselves specific powers and responsibilities or entering into contracts with third parties. Such inter-municipal co-operation agreements must specify the functions to be carried out by each municipality or jointly, the resources required to achieve the objectives set, the duration and extent of the delegation of powers and responsibilities concerned, the authorities’ respective financial contributions and the method of sharing income and any other benefits.

Inter-municipal co-operation agreements must be approved by the councils of each of the local self-governing entities that are party to the agreement. The financial obligations of each of the parties must be approved each year as a separate item in the local budget. In practice, most of the intermunicipal co-operation contracts entered into concern the management of waste, water or nature reserves.

In addition, two or more local self-governing entities within a region or in different regions may conclude agreements among themselves or with institutions of central government to establish distinct legal persons, or “joint powers authorities”, to which they assign specific powers and responsibilities. Each party’s contribution must be clearly specified, be it funding, services, equipment, qualified staff or any other asset necessary to secure the objectives sought. Agreements come into force once the relevant prefect has issued a declaration of legality within the statutory time limit.

Under the Constitution, local authorities are empowered to form unions and other joint institutions to defend their interests. The Albanian municipalities association was established in 1993. Its main objectives are to protect the joint interests of Albanian municipalities, establish direct relations with parliament and the government for protecting the interests of Albanian local self-governing entities, represent Albanian municipalities in dealings with other bodies, provide a forum for discussing joint problems and finding practical solutions within the confines of the association, and facilitate the establishment of contacts between municipalities and their foreign partners.

The Albanian association for local self-government, the association of the regions and the Albanian municipalities association are the representative bodies of local self-government. Local authorities are consulted through their representative associations, which enables them to present opinions, comments and proposals on policies and legislation directly impacting their rights and functions.

Article 14 of the 2015 Law on local self-government authorises local self-governing entities to conclude inter-municipal co-operation agreements with local authorities in other countries. Before reaching such agreements, the local authorities concerned must consult the foreign ministry. In practice, Albanian local authorities engage in transfrontier co-operation with Greece, North Macedonia, Kosovo^[15], Montenegro and Italy in various fields, such as tourism, the environment and the cultural heritage.

Article 113/3 of the Constitution authorises local authorities to lodge an appeal with the administrative courts if they consider that their right to self-government has been infringed. On the other hand, any person has the right to appeal to the courts if a local authority’s activities are in breach of the Constitution and the law and infringe his or her legitimate rights and interests.

Under Article 134 of the Constitution, local authorities can ask the Constitutional Court to rule on matters relating to local self-government. Numerous such applications have been lodged, particularly from the local authority associations, on such matters as the distribution of powers and responsibilities, local taxes and building permits.

The Constitutional Court has a well-established body of case law on local autonomy and it should be noted that, in its decisions, it has referred directly to certain principles laid down in the European Charter of Local Self-Government.

Article 115 of the Constitution stipulates that appeals can be lodged with the Constitutional Court within 15 days against the dissolution of a municipal council or dismissal of a mayor for serious breach of the Constitution or the law, in which case the relevant Council of Ministers decision is suspended.