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North Macedonia - Monitoring report

Date of the monitoring visit: 20-22 April 2021
Report adopted on: 13 December 2021
Files : CPL(2021)41 | Recommendation 466(2021)
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This report follows the fourth monitoring visit, carried out remotely, in North Macedonia since the country ratified the European Charter of Local Self-Government in 1997.

A positive climate was noted with regard to the reform on further decentralisation in North Macedonia. The report welcomes the strong emphasis placed by the government in its development strategy, as evidenced by the adoption of a new Programme for Sustainable Local Development and Decentralisation 2021-2026. It also notes with satisfaction that since the previous recommendation in 2012, the Additional Protocol to the European Charter of Local Self-Government was signed and ratified.

Nevertheless, the report expresses concerns over the persistence of a lack of clarity in law and in practice regarding the division of competences, which leads to an overlapping of competences. It underlines that local authorities lack adequate financial resources to perform their tasks, and that municipalities continue to be highly dependent on central government transfers. The report notes that there is a general need to increase compliance with integrity obligations in local appointments.

Consequently, the recommendation invites the authorities of North Macedonia to clarify the division of competences and devolve further powers to local self-government as part of the decentralisation process. To this end, national authorities must ensure the adequate and commensurate funding to enable municipalities to carry out new tasks provided by the legislation. The recommendation suggests that the government of North Macedonia increase municipalities’ own share of local budget revenues and introduce a broader system for equalisation of their revenues. Finally, national authorities are encouraged to increase digitalisation, implement capacity-building programmes at local level and further consolidate anti-corruption measures.

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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.

constitutionally and legally determined spheres of competence. Article 116 ensures that the territorial divisions of the Republic and the area administered by each municipality are defined by law.

 

Article 117 designates the City of Skopje as a particular unit of local self-government, the organisation of which is regulated by law. Amendment XVI stipulates the two thirds Assembly majority and absolute majority of the total number of members of non-majority communities in the Republic required for legislative amendments regarding local self-government. Amendment XVII refers to specific competences allocated to the municipalities and the city of Skopje.

 

Framework laws and specific legislation structure the relationships and actions of local self-government. These include:

  • the 2002 Law on Local Self-Government
  • the 2004 Organic Law on territorial organisation of local self-government
  • the 2004 Special Law on the City of Skopje
  • the 2004 Law on Financing the Units of Local Self-Government.

The legal status of the Charter and its relationship with domestic rules is quite clear. According to Article 118 of the Constitution of North Macedonia, ‘the international agreements ratified in accordance with the constitution are part of the internal legal order and cannot be changed by law’. Thus, international treaties form an integral part of the internal legal order, that is, they are a source of law, and with the act of ratification they are automatically incorporated into the internal legal order of North Macedonia and are directly applicable by the country’s courts. Courts may therefore refer to the Charter and take it into account when they have to settle disputes concerning local self-government.

The Constitutional Court upholds the rights of the municipalities. Municipalities have the right to appeal to the Constitutional Court if the State authorities encroach on their prerogatives. Article 110 of the Constitution specifies the right of the Constitutional Court to decide on conflicts of competency among bodies of the Republic and units of local self-governmen

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 concept of local government is enshrined in the Constitution of North Macedonia. Article 8 explicitly mentions local self-government among the values of the constitutional order. Section V of the Constitution guarantees the autonomy of the municipalities in the execution of their constitutionally and legally determined spheres of competence. This autonomy enables local authorities to issue ordinances and by-laws to regulate public affairs, albeit with supervision by the Republic.

Various legislative provisions reinforce the constitutional recognition of local self-government. The organic law, Law no. 5/2002 on Local Self-Government (and its amendments) and a range of ordinary laws (particularly the Law on Financing of the Units of Local Self-Government and the Law on Territorial Organisation no 55/2004) designate municipalities as legal entities which have their own territory, their own regulations, their own and delegated competences, their own and other sources of financing. Thus, local authorities in North Macedonia manage a substantial share of public affairs under their own responsibility but there is sometimes a lack of clarity regarding delegated functions and the roles of local authorities and line ministries in implementing and funding those functions. Other important laws regarding local government in North Macedonia include the Law on local elections; the Law on the City of Skopje; the Law on Inter-Municipal Cooperation, the Law on the State Inspectorate for Local-Self Government, and the Law on Balanced Regional Development.

The process of decentralisation, which started on 1 July 2005 and intensified since 2017, has resulted in an increase in the share of public affairs managed by municipalities. This process is based on inclusion of local authorities and aims at strengthening their autonomy and capacity. Special laws determine the details of the decentralisation process so that now there are more than 80 laws which deal with local self-government.

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.

Local authorities in North Macedonia are composed of members freely elected by secret ballot on the basis of direct, equal, universal suffrage in accordance with Article 22 of the Constitution. Local elections are held every four years. Each municipal governing body consists of the Mayor (gradonacalnik) and the municipal council (sovet na opstinata). The mayor has an executive role and the council acts the representative body of the citizens.

Article 114 of the Constitution allows that, within municipalities, forms of neighbourhood self-government may be established. Article 82 of the Law on Local Self-Government (05/02) deals with these forms of neighbourhood self-government such as urban communities and neighbourhood communities (in rural areas), specifying that the competences, activities and financing of such units are regulated by the statute of the municipality.

Article 20 of Law 05/2002 on Local Self-Government stipulates that ‘citizens shall directly participate in the decision-making process on issues of local importance through civil initiative, citizens' gatherings and referendum, in a manner and procedure determined by law’. Law 05/2002 also gives citizens the right, individually or collectively, to submit appeals and proposals regarding the work of the organs of the municipality and the municipal administration. Local authorities must respond within 60 days of receipt of the appeal. A new law on Balanced Regional Development was passed in April 2021. It includes mandatory consultation of citizens and the business community on an annual basis when priority projects are being determined.

These legislative provisions embody the instruments of the Additional Protocol to the European Charter of Local Self-Government (CETS No. 207) on the right to participate in the affairs of a local authority

 

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.

The powers and responsibilities of local authorities are outlined broadly in the Constitution and specifically in legislation, particularly, Law 05/2002, the Law on Local Self-Government. Furthermore, according to the Constitution (Article 115) and Law 05/2002 (Article 23), respectively, the carrying out of specified matters can by law be entrusted to the municipality by the Republic and a public administration body may delegate the execution of specific tasks from its competence to the mayor/municipality.

 

The municipalities have competences in the area of urban and rural planning, protection of the environment, nature and space regulation, local economic development, municipal utilities, culture, sport and recreation, social welfare and child protection, education, healthcare, civil protection, firefighting. Recently delegated competences include construction land management and dealing with illegally constructed buildings. Shared competences include education, health, road maintenance, urban planning and building permits. The ongoing decentralisation process is resulting in the attribution to local authorities of further powers and responsibilities for specific purposes.

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.

Article 20 of the law on Local Self-Government 05/2002 gives municipalities general competence, stating that they shall have the right to perform activities of local importance in their territory that are not excluded from their competency or are not under the competency of the organs of the state administration.

 

Fields in which local authorities can decide on issues of local relevance are specified in Article 22 of the Law on Local Self-Government 05/2002, as amended. They include public services, urban and rural planning, environmental protection, local economic development, local finances, communal activities, culture, sport, education and health care.

 

The allocation of competences is uniform for all municipalities. There is no difference in competences and functions among them, regardless of differences in size, economic endowment, population density and fiscal and administrative capacity. The only differentiation concerns the City of Skopje and the ten municipalities within it and is regulated by a special law. For example, the City of Skopje has authority over secondary schools, whereas its ten municipalities have authority over primary education (elementary schools).

 

In fulfilling local government competences, the Mayor is responsible for the organisation and operation of the administration and also proposes acts for adoption, while the Council adopts decisions to be implemented by the Mayor.

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.

Interlocutors confirmed that they consider that municipalities have discretion to take initiatives within the scope of their competences although they mentioned the limited scope of competence of municipalities in the areas of social protection and local economic development. The ongoing decentralisation programme is expected to lead to increased subsidiarity as it aims to ensure ‘a high degree of respect for the principle of subsidiarity through more clear definition of the scope of authority of various levels of government, taking into account municipalities’ comparative advantages’11. The new Programme for Sustainable Local Development and Decentralization 2021-2026 and the actions agreed in the Memorandum for Promotion of Fiscal Decentralization, Public Finance Reforms and Economic Development which was signed between the Ministry of Finance and UNDP in February 2021 seem tangible evidence of a desire to achieve greater subsidiarity.

 

The symmetrical transfer of competencies (i.e., regardless of the size and capacity of municipalities), is an issue, particularly for small rural units of local self-government who welcome the equal treatment but struggle to fulfil their obligations because of limited financial and human resources. The UN has pointed out that smaller municipalities in particular ‘need assistance in designing and funding services to address the needs of specific groups, particularly women, minorities and vulnerable or marginalized groups such as persons with disabilities12.

 

The rapporteurs consider that Article 4.3 is complied with in North Macedonia, but decentralisation efforts should be pursued to enhance the application of the principle of subsidiarity.

 

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.

The Law on Local Self-Government 05/2002 specifies that the competencies given to municipalities are full and exclusive and states that municipalities shall independently regulate and perform activities of local importance and shall be responsible for their performance.

 

Article 21 of Law 05/2002 states that the competencies are ‘as a rule comprehensive and exclusive and shall not be taken away or limited, except in cases determined by law’.

 

Interlocutors confirmed that they consider that municipalities have exclusive authority regarding their own competences. However, there can be some ambiguity about roles and responsibilities regarding competences resulting in overlapping of competences and occasional lack of clarity as to who is accountable for execution of specific competences. Interlocutors highlighted such issues regarding aspects of social policy and educational policy.

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 23 of the Law on Local Self-Government 05/2002 gives municipalities discretion in adapting the exercise of delegated tasks to local conditions while respecting the standards determined by law. Interlocutors stated that in practice, municipalities adapt the exercise of their competences to local conditions but do so within the scope of the Law.

 

Under Article 61 of Law 05/02, shared administration bodies for the performance of certain competencies may be established or abolished on the basis of a decision adopted with majority vote of the total number of members of each municipal council. Since 2009 the Law on Inter-municipal Cooperation (Law 79/2009) has been in force, regulating the form, functioning and financing of such collaborations. Such inter-municipal collaborations achieve efficiency and economies of scale and overcome capacity and resource deficits. Examples cited by interlocutors include collaboration regarding health, road maintenance and the sharing of experts such as planning inspectors between smaller municipalities.

 

Public enterprises are established by municipalities for the purpose of performing services in the spheres such as utilities infrastructure (water supply, sewerage waste, transportation, etc.). Municipalities can use their own property pursuant to the Law on Local Self-Government and the Public Procurement Law.

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.

 

Article 78 of the Law on Local Self-Government 05/2002 specifies that 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. It also refers specifically to consultation with municipalities during preparation of the spatial plan of the Republic.

 

Consultation on the amount, the method of calculating the grants from the central budget as well as the sources of financing delegated competencies is mandatory. According to the Law on Financing of ULSG (Units of Local Self-Government), the Government establishes a Commission for monitoring the development of the financing system of the municipalities. The Commission consists of representatives from relevant ministries and ZELS whose representatives usually include elected mayors.

 

ZELS (the Association of the Units of Local Self -Government of the Republic of North Macedonia) plays a significant role in the consultation process. In accordance with the Law on Local Self-government, ZELS is competent to cooperate with the central Government on issues of local relevance, has a right of legislative initiative in areas of local interest and assesses the legal and administrative framework for local taxation and grants. ZELS cooperates with the State authorities on EU integration issues through the same channels. Twice a year, the Government has meetings with ZELS to discuss their views on issues affecting municipalities. Meetings on specific topics are arranged between the Board of ZELS and the line ministers. During the Covid crisis the Association was frequently consulted regarding local government’s response.

 

ZELS engages in direct on-line communication with all municipalities in relation to all proposals that concern local government (draft legislation, regulation, financial provisions and calculations, other initiatives). Interlocutors stated that the response rate from municipalities varies and there are few examples of initiative being taken by municipalities to raise issues which they wish ZELS to pursue.

 

In 2019, a Working Group, which included representatives of local self-government, was formed to identify further competences which might be transferred to local authorities. The process was not completed due to the holding of parliamentary elections in 2020. In February 2021, the Government established a new high–level Working Group for the continuation of the decentralization process.

 

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.

 

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.

 

Article 116 of the Constitution of the Republic of North Macedonia decrees that the territorial division of the Republic and the area administered by each municipality should be defined by law. This constitutional provision has been amplified by various legal instruments. The 2004 Law on the Territorial Organisation of Local Self-government (55/2004) regulates the territorial organisation of local self-government in the Republic of North Macedonia. It describes territorial organisation and division and the definition of official boundaries and administrative borders and denotes rules and general issues regarding local government (municipalities, self-government areas) and their powers, obligations and duties. Law 55/2004 states that joining, division and change of boundaries may be done by changes and amendments of this law, following prior consultation with the citizens of the territory of the municipalities that are concerned. This provision, along with the binding force of Article 5 of the European Charter within North Macedonia’s monistic legal system, would seem to underpin the principle of prior consultation. Since further legislation or amendments are subject to the double-majority requirement, smaller communities seem to be protected against unilateral territorial changes.

 

No issues regarding application of the principle of consultation re boundary changes were raised during the monitoring process. Therefore, the rapporteurs consider that Article 5 is complied with in North Macedonia.

 

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.

The Constitution (Article 115) grants local self-government autonomy in the execution of its constitutionally and legally determined spheres of competence so local authorities may decide on their internal organisation. However, as interlocutors stressed, the structure must be approved by the Ministry of Public Administration. Within each local authority, the organisation, scope and way of performing the tasks of the municipal administration are determined by the council, on the basis of a proposal by the mayor (in accordance with Article 57 of Law 05/02).

 

The system distinguishes between civil servants employed in state and local government authorities established under the Constitution and public servants employed in institutions performing publicly funded activities e.g., education, health etc. Decisions on hiring, rights and duties, the system of payment of salaries and compensations to the salaries, responsibility, evaluation and termination of the employment in the municipality are made in line with the provisions of the Law on Civil Servants. National laws directly impose obligations on local authorities and shape the conditions of service of local government employees. The annual employment plan for each local authority requires approval from the Ministry of Information Society and Administration (MISA) and individual approval by the Ministry of Finance is required for each new appointment. Interlocutors referred to the delays which occur as a result of these requirements.

 

According to research by the OSCE and ZELS13 LSGUs believe that central government ministries are not sufficiently aware of the work, functioning and needs of the LSGUs which are completely different from the central institutions. The research also referred to the complex legal requirements placed on local authorities, an issue mentioned by some interlocutors. Nevertheless, the rapporteurs are satisfied that local authorities have power to organise their internal structures and service delivery in line with generally accepted principles of governance as advocated in the Contemporary Commentary on the Charter14

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.

The conditions of service of local government employees are clearly set out by law, with most of the laws dealing with public servants at all levels, not specifically local government employees. Such laws include the Law on Public Sector Employees (27/2014) which sets the general legal framework on the human resources management in the public sector and specifies obligations related to recruitment, promotion, professional development, evaluation and reward of the employees in the public sector. The Law on Administrative Servants (27/2014 + Amending Law 198/2018) covers all aspects of employment of the administrative servants. Articles 30-47 regulate the employment process Articles 48-53 regulate promotions and Articles 85-97 regulate the remuneration system. Thus, the discretion of local authorities is framed by national regulation. Article 59 of the Law on Local self-government ensures representation of the various communities in the hiring process. The Law on Prevention of Corruption and Conflict of Interest (Law no. 12/19) and subsequent amendments, regulate the restrictions of the appointed and elected officials in the exercise of public office. This law regulates the prevention of conflict of interests between officials’ personal interests and their duties as civil servants. Decree No. 2020-3762 introduces new methods of transmitting declarations of interests. The list of jobs subject to this obligation has been completed for the local civil service. In its assessment (again focussed on the national level), SIGMA rated the adequacy of legislative framework for merit-based recruitment for civil service positions in North Macedonia at 16/1815.

 

Interlocutors referred to the difficulties experienced by small municipalities in recruiting appropriately qualified staff. EU-commissioned evaluation has suggested that capacity to engage with donors / EU may even be decreasing due to ‘systemic problems in the local public administration (e.g. no clear career development perspective, lack of technical profiles, outflow of skilled staff to the private sector where wages are higher, etc)’16. The issue of nepotism in local appointments and the potential for patronage, nepotism and cronyism because of the role of the mayor in local appointments was also mentioned by some interlocutors. The EU evaluation (2020) refers to the patronage-based governance mechanisms, the political nominations and nepotism, the ethnic factor and corruption which play out at national and local levels. A State Commission for Prevention of Corruption is in place and continues to address allegations of nepotism, cronyism and political influence in the process of recruitment of public sector employees in North Macedonia. The ongoing anti-corruption measures, increasing digitalisation and greater awareness are expected to increase compliance with integrity obligations.

 

The Public Administration Reform (PAR) Strategy 2018-2022 is currently being implemented, involving local authorities as well as central bodies. Because of the national situation at the time of preparation of the plan, the priority was de-politicisation and capacity building of central level institutions. The PAR Strategy 2018-2022 states that over 40 municipalities have adopted integrity policies at local level. The OCSE and ZELS assessed that ‘the specifics of the municipal administration are not properly represented within the PAR Strategy and the laws that regulate the public administration’17. The PAR budget was decreased as a result of reallocation of resources in response to the COVID-19 crisis.

 

The EU Instrument for Pre-Accession Assistance (IPA 2014–2020) included a regional component which supported strengthening the capacity of local government and local institutions. The EU Commission’s 2020 country report points to the need to ‘improve the administrative capacity at central and local level’18. Some interlocutors referred to EU accession negotiations as leading to a focus on central administrative processes. This echoes the EU’s comment on the lack of tradition of involving LAs directly in processes related to the accession process and adoption of the EU acquis19. It is expected that as negotiations continue that attention to building administrative and absorption capacity within local authorities will increase.

 

Annual compulsory training is organised by MISA but the OSCE/ZELS research states that local officials feel it is generic and not functioning properly, but they are satisfied with the specialised training organized by ZELS. The UNDP is currently delivering a Capacity Development Program and by the end of 2021 expects to have trained all 81 LSGUs in efficient tax collection, stable financial management and internal financial control20.

 

There is a clear legal framework, so the rapporteurs consider that Article 6.2 is formally complied with. However, there is need for further capacity building and attitudinal and cultural change. The rapporteurs would support the EU Commission’s assessment that ‘ensuring respect for the principles of transparency, merit and equitable representation remains essential’.

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.

Article 35 of the Law on Local Self-Government (05/2002) stipulates that local representatives are elected for four years and cannot be recalled. The mayor is elected by direct universal suffrage for a four-year term using the majority electoral model while councillors are elected using proportional representation. During the monitoring process, there were no indications of constraints on the exercise of local representatives’ functioning.

 

All citizens over 18 with the capacity to contract may stand as candidates in local elections unless sentenced or imprisoned for committing a criminal offence. The right to propose candidate lists for councillors and candidates for mayors is held by the registered political parties, individually or as part of coalitions, as well as groups of voters (100 signatures for municipalities with less than 10,000 inhabitants to 450 signatures for municipalities with more than 100,001 inhabitants).

 

Gender quotas are in place for local elections. Candidate lists for Municipal Councils and the City of Skopje must be prepared so that ‘for every three places at least one will be reserved for the less represented gender’22 .Similarly, there must be representation of at least 30% of each gender on election management bodies.

 

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.

In North Macedonia, mayors are regarded as full-time professionals and the amount of their salaries is determined by the Law on Salary and other allowances of the Members of the Assembly of the Republic of North Macedonia and other elected and appointed persons in the Republic. A Congress report lists North Macedonia among countries where mayors’ salaries are about six times higher than respective national minimal wages23. The same report ranks North Macedonia among countries where capital city mayors’ monthly salaries are closer to the private sector’s senior managers. It also lists North Macedonia among only seven countries which provide full social welfare protection for mayors.

 

Councillors receive an allowance but not a salary. They have a right to claim travel and accommodation costs, daily allowance when they travel and telephone costs. Payment of expenses is made according to the regulations which refer to civil servants. North Macedonia does not provide financial compensation for loss of earnings.

 

Interlocutors considered that the current determined fees within the Law to be appropriate but highlighted growing demand for the professionalisation of the role of the president of the municipal council.

 

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.

Consult reply indicated at article 7.1

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.

Consult reply indicated at article 7.1

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.

Consult reply indicated at article 7.1

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.

Consult reply indicated at article 7.1

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.

Consult reply indicated at article 9.1

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.

Consult reply indicated at article 9.1

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.

Consult reply indicated at article 9.1

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.

Consult reply indicated at article 9.1

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.

Consult reply indicated at article 9.1

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.

Consult reply indicated at article 9.1

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.

Municipal property contains land, facilities, financial resources (money) and rights. With the exception of possible delegated functions (in future), all municipalities have the same expenditure responsibilities; only the City of Skopje has special legal provisions for sharing the competencies with its 10 constituent municipalities.

 

Legislation determines how municipalities may dispose and manage their assets. The Law on Financing Units of Local Self-Government of 2004 (hereafter the “Finance Law”) has re-opened the process of fiscal decentralisation.

 

In 2005, in accordance with the above Law, municipalities received the authority to fully administer and collect property tax and the tax on sale of property as well as certain local fees. The level of taxes and fees is determined by a lower and upper limit allowed by laws and the Municipal Councils are responsible for determining the exact percentage of these charges. For example, the Law on property taxes determines that property taxes can range from 0.1 to 0.2% of the estimated value of the property of a citizen. Each Municipal Council can decide what the amount applied in the respective municipality will be. Only one municipality (Gjorče Petrov) has actually determined the maximum amount of 0.2%, while all other municipalities apply the minimum amount.

 

Local resources and taxes

 

Municipal sources of revenues and their comparative size are (Article 4 of Finance Law): Local taxes established by law and administered by local bodies are the property tax, the inheritance and donation tax, the real estate transaction tax, and 100% of the personal income tax of individual craftsmen. Local fees which the local authorities determine and are entitled to collect are communal fees and administrative fees. Local charges, in particular construction land arrangement charge, charges for urban and spatial plans and communal services utilisation charges. Property revenues: revenues from property sale or rent and interest rate revenues. Penalty revenues which are determined and collected as sanctions for the violations of municipalities’ regulations. Donations (currently foreign donations are relevant). Loans (upon authorization by the central government). Subsidies from various funds, e.g. fund for economically underdeveloped areas, fund for communal activities and roads, fund for water pipes and sewages. Grants: purpose grants, non-purpose grants, block grants for expenditure, grants for capital investments, grants for delegated competencies.

 

Shared revenues, in particular share in national taxes

 

Shared revenues are coming from the personal income tax and the Value Added Tax (VAT): municipalities receive a share of 3% from both. By 2013, the VAT share is to be increased to 4.5% (in practice, by the end of 2011, the quota had already reached 3.7%).

 

VAT grants are general grants which are not subject to any conditions and which can be fully used in line with the needs of a municipality. Their distribution is in line with the criteria determined in the Decree on Methodology for Distribution of VAT Revenues by Municipality. Total VAT revenues, collected in the previous fiscal year, are to be distributed both by a fixed amount (3,000,000 Denars, approximately 48,580 Euros) to all municipalities (including Skopje and its municipalities), and as a variable portion (12% goes to Skopje and its municipalities and 88% to all the others). The latter portion is distributed according to the following criteria: 65% according to the number of inhabitants, 27% according to the area of the municipality and 8% according to the number of settlements.

 

The average share of tax revenues in the local authority budgets has been around 30%. In 2007, they participated with 37.8%; in 2008, they accounted for 21.2% of the total and, in 2010, they amounted to 24.6%, as a result of the increase of transfers from the central budget in the form of block grants to the municipalities which had moved to the second stage of fiscal decentralisation.

 

Provisions in special laws have further increased the revenue of municipalities, in particular by sharing the income from concessions for exploitation of mineral resources (22% State – 78% municipalities) and for the sale of construction land (20% State – 80% municipalities) which is transferred from the Ministry for Transportation and Communication to those municipalities which fulfil certain administrative criteria. Currently 14 municipalities are entitled to manage land.

 

Grants

 

Grants from the State budget and the budgets of various funds provide additional revenues. Capital grants are used to finance investment projects on the basis of a program determined by the Government and their use are monitored by line Ministries and the Agency for State Roads. Earmarked grants are used for financing specific activities of municipalities that are in the first stage of fiscal decentralisation for education, culture, social policy and child protection as well as fire-fighting. Line Ministries propose and monitor the distribution of earmarked grants by municipality, project, institution and/or program.

 

Municipalities argue that this financial instrument should be transferred to them so that they themselves can decide which investments will be financed (instead of a decision by central authorities). In fact, cases have been reported where central government decided to build a school in a municipality without prior consultation, although the municipality had other priorities.

 

In the second stage of the fiscal decentralisation process, municipalities finance the transferred competences with block grants which include expenditure related to salaries and costs pertaining to maintenance of buildings, goods and services. Line Ministries propose the methodology for determining the criteria for the distribution of block grants. Each year the central government adopts a Decree on Methodology and Criteria for Distribution of Block Grants, the total amount of which may not be less than the amount of funds from the central budget used for the same purpose in the year before the transfer of a certain competence.

 

Fiscal decentralisation

 

Fiscal decentralisation is an important part of the whole decentralisation process as budget and fund transfers to municipalities must accompany the transfer of (new) competences.

 

The Finance Law provides for the implementation of fiscal decentralisation in two phases (starting on 1 July 2005). In the first phase the fulfilment of two conditions is required (Article 46) according to which, municipal administrations should have at least two employees qualified to work on financial management, budget preparation, budget execution, accounting and financial reporting, and three employees qualified to work on determination and collection of taxes.

 

In order to access the second phase (which was supposed to start in July 2007, but had been postponed to January 2008), municipalities have to meet the following criteria: a) fulfilment of the two conditions of the first phase; b) good financial results in the previous 24 months; c) adequate staff capacity for financial management; d) timely and regular notification to the Ministry of Finance regarding good results and verification by the same Ministry; e) no outstanding liabilities vis-à-vis suppliers or other creditors that overcome the usual payment condition.

 

For monitoring and assessing compliance with these conditions, a Commission has been established in January 2007 which meets four or five times a year. It consists of a President, nine members and a secretary. Among the members there are the President and Vice-President of ZELS, Mayors, representatives of line Ministries, academics and international experts. There is also an inter-ministerial working group meeting regularly, every two months.

 

According to the information provided to delegation during the visit, by the end of 2011, 79 out of 85 municipalities had entered the second phase of decentralisation, and only six (all from the Western part of the country) remained in the first phase. However, four of these six municipalities have sizeable debts, and two of them lack financial management capacity. Additional efforts are needed in order to prepare them for moving to the second phase.

 

Municipal debts, borrowing and financial equalisation

 

Before the adoption of the Finance Law, there was no instrument envisaged for the purposes of equalising the financial situation of local governments set in the legislation on local self-government. However, there were transfers and funds. Although not originally designed for this purpose, in practice they were used for equalisation purposes. Under the new law, the only defined equalisation instrument is the revenue that will be transferred from the yield of the value added tax. Although not explicitly mentioned, block grants are also considered as instruments the government can use to equalise the financial situation of local authorities. In the City of Skopje and its municipalities, a joint fund has been established for the purposes of equalisation (in accordance with a specific methodology for distribution of the funds).

 

In order to overcome the liquidity problems of the municipalities, a new instrument has been introduced in the form of short- and long-term loans (up to ten years) from the central budget. The Government has approved 23 such loans, 13 out of which are short-term and 10 are long-term (with a repayment period of up to five years). By approving long-term loans, a positive effect has been achieved, overcoming liquidity problems.

 

Pursuant to the Law on Local Government, municipalities cannot go bankrupt, but the Finance Law has provisions for declaring a state of financial distress. In the latter case, the Mayor adopts a decision to declare financial distress and informs the Municipal Council, the Ministry of Finance, the Ministry of Local Government and ZELS thereof within three days. A Coordinating Body consisting of five members monitors the coordination of the process to overcome financial distress. The Mayor then submits a draft plan of measures, which are implemented through the supplementary budget or the budget of the municipality for the respective fiscal year. The Mayor decides when to declare the situation of distress over.

 

In order to take loans, municipalities must consult with the Ministry of Finance, which controls the level of borrowings and loans, as well as deficits of local budgets. The criticism made of the restrictions created by a case-by-case authorisation system which goes contrary to the Charter’s Article 9 para. 8 has been met with the adoption of new Law on Public Debt and the Law on Local Financing. In June 2011, the Ministry of Finance adopted two Rulebooks (published in the Official Gazette, no. 83/2011) on the form and content of borrowing by the public institutions and public enterprises owned by public institutions, respectively.

 

The Parliament is also involved in this situation because indebted municipalities are considered to be part of the general public debt and therefore, all municipal borrowing has to be approved by the Parliament. The latest example is of a loan from the European Bank for Reconstruction and Development (EBRD) to the City of Skopje approved by the Parliament. In cases where municipalities are charged by commercial banks, only the opinion from the Ministry of Finance is required, i.e. the Parliament does not get involved.

 

Municipalities borrow on a long-term basis for financing capital projects and investments, for re-financing debts incurred to finance capital projects and investments, for liabilities incurred under “sovereign guarantees” or on the basis of loans from the central budget and protection and elimination of consequences caused by natural disasters or environmental disasters. Borrowing is limited: annual instalments must not be higher than one third of the budget of the previous year.

 

Municipalities have access to the capital market in order to realise capital projects for the improvement of infrastructure and utility services. They can also issue municipal bonds to be used for planned development projects. A “Guide for Issuance of Municipal Bonds” has been prepared for the purpose of informing the municipalities as regards the manner, procedure and the advantages of issuance of municipal bonds.

 

Evaluation of the financial situation

 

Although local self-government spending results in 17.2% of the total budget, municipal revenue does not seem sufficient for addressing the assigned tasks efficiently. Most municipalities, therefore, are still struggling to harvest their own income and the State still finances most of them.

 

This is illustrated by the example of the city of Zhelino: 25 Euros per capita (compared to 100 Euros in the City of Skopje) are simply not enough for fulfilling the municipality’s competences. The municipal administration does not employ an architect for urbanism, an internal inspector (or auditing unit), or an environmental inspector. Maintaining infrastructure for services is problematic: there are still private homes and settlements without electricity; only 2 out of 18 settlements have water-pipelines and the school building which was destroyed by a fire will only be replaced next year when the replacement is included in the budget of the Ministry of Education.

 

Among the main causes of the insufficiency of financial resources figure the – still – centralised management of State-owned land, the inadequately monitored or insufficiently implemented property tax collection and tax-payer databases which are not updated. The administrative capacity of some municipalities, in particular the smaller ones, remains low in the areas of financial management, tax administration and financial control. Transparency and accountability of local government administrations is still inadequate.

 

The Rapporteurs have noted that, in order to improve the situation of small and rural municipalities, the application of the new formula for a “guaranteed minimum-income” appears to be a promising step in the right direction: a minimum of 3 million Denars is guaranteed for each municipality. Further resources are added according to the VAT and income-tax quotas (criteria: 50% per capita, size of the area and the number of settlements). With this new method of calculation and allocation, no municipality should have an income of less than 4 million Denars.

 

ZELS position paper for 2011 requests an increasing share in VAT for municipalities from the current 3% to 6% (against the 4,5% actually envisaged as objective for 2013) as well as an increase in the amount of personal income tax-share from the current 3% to 15%.

 

Despite the achievement of some important results in the decentralisation process, several problems remain, such as the great disparities among the municipalities and in their capacity to perform specific functions. As a consequence of their budgetary problems it is difficult for local authorities to participate in EU funded projects which necessitate co-financing of resources. Consequently, rural municipalities in particular are dependent on grants, since they cannot rely on taxes from buildings or resources from land. Although criteria for grants for capital investment (infrastructure) are well-defined by international donors (IMF, World Bank), this does not always seem to be so in the case of State grants.

 

In the opinion of the Rapporteurs, more central coordination, support and supervision is necessary in the area of transferred competences. This is illustrated by the frequently mentioned example of education-related competences: once secondary education became mandatory, the problem of covering the additional costs for pupils’ transport has emerged everywhere, but the Ministry of Finance seems to ignore it, referring to block grants for these functions, which are not earmarked. The Ministry’s message seems to be: “Just organize procurement better and save!”.

 

The Rapporteurs are of the opinion that local authorities should be duly consulted in respect of Government investments in their localities whilst the grants afforded to them should not impinge on the fiscal autonomy as provided under the Charter.

 

The Rapporteurs also note that the planning of expenses regarding education seems to be inadequate and prone to coordination problems. While the Ministry of Finance transfers earmarked funds to municipalities for maintenance and heating expenses of school buildings, the salaries of employees and transportation of pupils and priorities of capital investment for schools are defined in the annual program prepared by the Ministry of Education which transfers funds directly to the schools, depriving municipalities of the financial means to invest in the schools.

 

To overcome these problems, ZELS has suggested the establishment of criteria for the allocation of funds for capital investments in schools as well as its own involvement in the planning process of the central authorities regarding these funds.

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.

Consult reply indicated at article 9.1

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.

The LSG Law 2002 promotes various voluntary forms of cooperation between municipalities. The instruments therefore are regulated in detail in the Law on inter-municipal cooperation (2009) and include (Article 9 of the law): forming joint working or administrative bodies; establishing of mutual public services; and concluding agreements on joining of funds and performance of certain work by one municipality on the behalf of another or more municipalities.

 

In practice, inter-municipal cooperation seems to be widely used. According to the delegation’s various interlocutors, 80% of the municipalities engage in such cooperation agreements, which are also necessary for entering the second stage of the fiscal decentralisation process.

 

There are numerous examples of cooperation between municipalities in order to make savings in financial and human resources, among which can be cited the cooperation between three small municipalities near Strumica: Vasilevo, Bosilovo and Novo Selo.

 

All 84 municipalities of “the former Yugoslav Republic of Macedonia” and the City of Skopje are members of ZELS, the internal organisation of which comprises an assembly (85 Mayors gathering once or twice a year), a managing board (19 Mayors from different political parties comprising opposition at national level; decision-making by consensus), one President and two Vice-Presidents (one of which, by statute, has to be a member of an opposition party; one is Albanian), 13 committees (Mayors) and networks (municipal administrative staff).

 

ZELS carries out training activities for elected officials as well as for civil servants and administrative staff through its own Training Centre for about 1 500 persons per year. Currently, the main topic for training is management of (construction) land in order to prepare municipal staff for the required certification in that area. ZELS has also provided translation-equipment for 32 municipalities for meetings as well as training (including the publication of a handbook) for the Committees of Inter-ethnic Relations. In the field of “e-government/e-municipality”, ZELS is developing an ICT-strategy and provides web-design services and software on its server. Problem-communication by citizens, energy efficiency software and construction land are the main areas covered. By 2012, software for the electronic issuance of building permits, the register for underground cadastre and for electronic payments to the municipality by citizens will follow.

 

Agreements on transfrontier cooperation as well as membership in international organisations of local government is regulated by several laws, including the law on the ratification of the Charter which contains, in its article 10, the principles laid down by the Charter regarding intermunicipal and transfrontier cooperation and the law on local self-government which provides for cooperation with local authorities of other countries and international organisations of local communities and local authorities (Article 14 para. 4). Hence the collaboration with NALAS, the Network of Associations of Local Authorities in South-Eastern Europe, of which ZELS is a founding member.

 

Since 2010, ZELS (together with the City of Skopje) has an EU office in Brussels. ZELS is also one of the founding members of NALAS, the Network of Associations of Local Authorities in South Eastern Europe, and actively participates in its activities; it acted for one year as NALAS Secretariat in 2007.

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.

Consult reply indicated 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.

Voir réponse indiquée à l'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.

The LSG Law (2002) distinguishes between the protection of the constitutional position of municipalities and the “ordinary” judicial protection.

 

The constitutional position of municipalities can be protected through the submission of an initiative, by the municipal council or the mayor, before the Constitutional Court in order to assess the constitutionality of a law, or the constitutionality and legality of general acts of the Ministries and other organs of the State administration which might infringe upon the constitutional position or constitutionally guaranteed rights of municipalities (Article 87). In practice, there have not been any constitutional complaints for alleged violations of LSG rights (Article 110); conflicts of competence between the State and local authorities have not given rise to controversies.

 

The notion of “general legal acts”, which are examined by the Constitutional Court on procedural conformity with the Constitution, includes acts adopted by municipal councils. Based on Article 87 of the Constitution, mayors have frequently challenged acts adopted by municipal councils granting additional benefits or fees, mostly with success.

 

Individuals can also submit an initiative for constitutional review before the Constitutional Court (actio popularis). This has occurred in only few occasions. The Constitutional Court only controls the formal and legitimacy of procedures, while details and discrimination in single cases is left to the administrative courts. One such complaint regarding procedural consultation rights has led to the annulment of the “Skopje 2014” urban planning procedure by the Constitutional Court and the procedure had to be repeated.

 

Against acts and activities of the organs of the State administration and the Government, which impede the performance of municipal competences determined by the Constitution and law, municipalities are guaranteed judicial protection before competent Courts (Article 88).

 

The Law on Administrative Disputes was amended in order to establish a High Administrative Court with jurisdiction to decide on appeals against decisions of the Administrative Court, which itself hears appeals against decisions of misdemeanour commissions in the administrative bodies, government second instance commissions and the acts of local authorities. The court became operational in July 2011.

 

As mentioned before, international treaties are taken into consideration as integral parts of the legal system. Thus, direct reference to the Charter has been made in two cases before the Constitutional Court regarding budget issues quoting large parts of the Charter.

 

There is no special commission or procedure for disputes between municipalities. There has been one exception which arose due to different interpretations of the provisions of a law and it was overcome by forming a joint committee of the affected municipalities and the proposed amendment helped in overcoming the reasons of their disagreement.

ACCESSION

to the Council of Europe 9 November 1995

RATIFICATION

of the European Charter of Local Self-Government 6 June 1997

CONSTITUTION | NATIONAL LEGISLATION

Local Self-Government is considered as one of the fundamental constitutional values (Article 8) and is directly regulated in Section V of the Constitution.



30Ratified provision(s)
0Provision(s) with reservation(s)
0 Unratified Provision(s)
13Compliant Provision(s)
1Partially Compliant Provision(s)
1Non-compliant Article