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.
As in other European countries, the financial aspects of local autonomy are perceived by local politicians as one of the most controversial aspects of the current situation. As a matter of fact, most of the attention and remarks made during the visit had to do with this topic. Three main ideas should be here presented as the general framework of local finances in Italy: the constitutional context, the economic-political scenario and the key legal framework governing this matter.
For what concerns the first point, local finances are regulated by different constitutional provisions and principles, which form the so-called “Fiscal Federalism” (federalismo fiscale). On the one hand, and from the perspective of the allocation of powers between the State and the regions, it should be underlined that, after the constitutional reform of 2001, local finances are characterized as a concurrent competence. The regions have legislative powers in this area, but the State keeps control of the fundamental principles. As a consequence: (a) the regions can establish local taxes, “as long as they do not hit elements already taxed by the State”. Regional Laws may also determine variable tax rates and establish other schemes for co-participation for local authorities in the regional taxes; (b) the financial situation of local authorities may present differences around the country, especially in the regions having a special status, since they manage almost entirely their own resources and have increased competences in the field of local government.
Moreover, the Constitution provides substantive principles in the domain of local finances (Article 119). To begin with, local authorities shall have revenue and expenditure autonomy, “subject to the obligation to balance their budgets”. Moreover, they will have “independent financial resources. They set and levy taxes and collect revenues of their own”. They have also the right to have a share in the State revenues. On the other hand, it is established that “State legislation shall provide for an equalisation fund”. As for the principle of commensurability, it is explicitly guaranteed at Article 119. 4th indent: Revenues raised from the above-mentioned sources shall enable local authorities “to fully finance the public functions attributed to them”. Finally it is provided that the State shall allocate supplementary resources and adopt special measures in favour of specific local authorities “to promote economic development along with social cohesion and solidarity”. These constitutional principles have been further elaborated by a bunch of rulings of the Constitutional Court (i.a., Rulings No 37/2004 and 425/2004).
Therefore, the basic requirements of Article 9 of the Charter seem to be enshrined in the domestic constitution.
For what concerns the economic-political scenario, the whole situation is pervaded by the governmental policies and laws approved by the government and Parliament to fight the economic crisis, to control the public deficit, and to comply with the Stability plans and other strategies required by European Union. This framework has prompted the adoption of different measures, the most important ones being the Stability Plans, approved every year since 1999. These plans involve numerous measures and objectives, such as linear budget cuts, reinforced budgetary balance obligations and even financial penalties, which have hit in a dramatic manner the local finances, and has led to a limitation in their spending autonomy. The situation seems to be critical in the case of provinces. This picture was already underlined by the previous monitoring visit carried out by the Congress in Italy, back in 2012. Unfortunately, this panorama is likely to remain the same at least in the short future, since the Italian economy, according to our interlocutors, is not recovering at the desired pace. Fiscal decentralisation has not been deepened since the last monitoring visit, just the reverse. The overall picture may present variations and nuances in some regions having a special status.
Finally, the key legal framework is represented by a set of laws and regulations, whose backbone is the Fiscal Federalism Act of 2009 (Act No 42, of 5 May 2009), as amended. This key statute enables the approval of further regulatory measures, and enumerates general and specific guiding principles. Among those principle stands that of coordination of public expenditures, consistency, financial discipline, rationalization and budget balance. The continuous amendments and readjustments to this statute make the picture difficult to depict as stable. In any case, the current situation and trends may be summarily described as follows:
Main sources of municipal income
Traditionally, municipal taxes included the tax on real estate, a housing tax (ICI), a tax on the collection and disposal of waste; a supplementary (local) income tax; a publicity tax and a tax on the occupation of public spaces. There have been several changes in this picture: some taxes have been eliminated, while others have been renamed and new acronym introduced, which sometimes makes the matter hard to understand. The main changes are:
The single municipal tax (imposta unica comunale, IUC), established by the Act No 147 of 2013. The details and operative elements of such tax may change from year to year, which makes difficult to present a “stable” situation.
In reality, this tax embraces or unifies three other local taxes:
The IMU (imposta municipale propria), which is a real estate tax. It hits owners of real estate that is registered in the cadastre (buildings, farms, urban and farm land) and other real estate rights. This tax does not hit the personal, main housing (except if it is a luxury housing), but only secondary residences. The taxable base is determined in connection with the value of the property according to the cadastre. The regular tax rate is 0,76% of the taxable base, but municipalities may increase or reduce such rate, with a maximum of 0,3%. There are specific tax exemptions, which change from one year to another.
The TASI, or tax for indivisible services. This is a supplementary real estate tax, which hits among other things the main residences if they are considered luxury housing. It is supposed to meet the expenses for the delivery of lighting, street cleaning, green areas and services that are provided equitably by municipalities to all citizens;
The TARI (tassa sui rifiuti, a tax on waste). Formerly “TARES” and other denominations such as “TARSU”. The amount is determined by the municipality, within the guidelines that have been determined by State regulations and which, in any case, must ensure the integral covering of the cost of the service of collection and treatment of waste).
The ADDIRPEF, a municipal surtax on the personal income tax. Municipalities may decide to establish such surtax (addizionale), with a maximum of 0,8% (for Roma Capitale, 0,9%).
The ICPDPA, a municipal tax on external publicity and billposting.
Other taxes, such as the touristic tax (imposta di soggiorno) and the contribution (contributo) on disembarkation. The first one can be collected by some municipalities such as the capital of the province (capoluogo), the unions of municipalities and other touristic spots. The latter can be collected by municipalities in some minor islands, as an alternative as the touristic tax.
Charges and fees
Italian municipalities may collect several fees and charges. Among them:
The CIMP. This is a fee for the installation of publicity, which may replace the ICPDPA (tax on publicity), if the municipality finds it appropriate;
The TOSAP, a fee for the occupation of public spaces (such as streets, boulevards and parks) by economic activities, such as bars, stores, etc.
The COSAP, another fee for the occupation and use of public areas and spaces, which may substitute the TOSAP.
The ISCOP: a charge that may be collected to cover the cost of some public works by the municipality.
Italian municipalities may get income of no fiscal nature, such as the revenue from business, commercial activities and revenue from the ownership of property (sale of movable and immovable property); interests from deposits or other financial products; collection of traffic and parking fines and other administrative offences; financial operations: the municipalities can ask for loans from the private sector and they can issue bonds. However, this source of income has been subject to many restrictions, in the framework of the struggle against excessive public deficit. According to Article 119 of the Constitution, local authorities can only have recourse to indebtedness in order to finance investment expenses, not their running costs.
Transfers and equalisation schemes
Italian municipalities may receive different types of transfers:
Transfers from equalisation mechanisms: the lack of meaningful equalisation mechanisms has been a traditional feature of the Italian system of local finances, and the 2012-13 Congress Monitoring still reported that “there is no general scheme in operation and this continues, therefore, to be a huge gap in the implementation of fiscal federalism”. The present 2017 visit, however, has revealed that significant progress has been achieved, although the situation was still assessed as unsatisfactory by the interlocutors met during the visit. Currently, the fund of local solidarity (fondo di solidarietà comunale, FSC) is the most important tool for equalisation. This equalisation Fund was created by the Law No. 228/2012, and replaced the preexisting “Fondo Sperimentale di Riequilibrio”. This Fund, and the respective allocations received by the municipalities in the regions of ordinary status (plus Sicily and Sardinia) is managed by the Central Direction of Local Finance, in the Ministry of the interior. The amounts to be received by the municipalities are calculated according to a complex set of variables. The Solidarity Fund envelope for 2016 was 6,442 million €.
Ad hoc Transfers and subsidies from the State budget: municipalities may receive transfers for the performance of joint projects or public works.
EU Funds: municipalities may benefit from the several EU funds established in the domain of urban development, rural development and other fields related to the municipal life. Italy has also received extraordinary funds to remedy the situation caused by emergencies like earthquakes in the L´Aquila area.
The current overall situation of municipal finances was diagnosed in a contradictory way by the interlocutors of the delegation. Local leaders consider the situation as unsatisfactory in general, as far as the flexibility and sufficiency of financial resources is concerned. Their main claims may be summarized as follows:
while the biggest part of the public deficit is on the shoulders of the central government (48,4 billion € in 2015, against a surplus of 1,5 billion€ on the part of municipalities) local finances have been hit in disproportionately severe way. The budget cuts (tagli lineari) imposed on the municipalities do sum up more than 9 billion€ between 2011 and 2015.
Since 2012, the State transfers to municipalities have been continuously reduced: from roughly 10 billion € in 2012, to 1,4 billion € in 2015.
Since 2015, the fund for municipal solidarity (FSC) is provisioned solely by the IMU local tax.
In 2015 the State net contribution to the municipality finances was even negative: the municipalities have done a net contribution of 628 million€ to the State budget.
In a nutshell, they claim that the system of local taxes is not satisfactory and that the total amount of disposable resources is not enough. Moreover, some local leaders are not satisfied with the manner how funds are calculated, and according to them there is not enough equalisation. They also allege that the budget cuts (tagli lineari) were decided unilaterally by the Government and imposed in a rather executive way. In this sense, mention should be made to several reports and opinions performed by the Court of Auditors (Corte dei Conti) in recent years. In these reports (namely in one released shortly before the visit of the delegation) the said Court found that municipalities are not adequately funded to discharge their statutory services and responsibilities.
A different viewpoint is that of the central government. The relevant ministry contends that the current system is fair for the country, taking into account the current economic crisis. Government official assert that the current financing has been established according to the “standard costs” (fabbisogni standard) for the fundamental functions of municipalities. The current system ensures, at least, the adequate delivery of such fundamental functions. They also understand that the principle of commensurability of local finances (as proclaimed by the Constitution) is respected. Moreover, in order to counterbalance the negative fiscal effects on the municipalities of the abolition of the TASI for main residences, the central Government has allegedly increased the FSC by 3,5 billion€ for compensatory transfers.
Independently from the official position of the Government, it is clear from tables and data provided by municipal associations and leaders that the own revenues of municipalities have decreased in recent years, and so have the state transfers.
The main sources of own revenues for the provinces (taxes and charges) are the following:
IPT, imposta provinciale di trascrizione. This is a tax that hits the inscription of cars and other vehicles in the transit register, and other modification in the said register. The tax rate depends on the fiscal power of the car. The provinces may increase the said rate up to 30%;
RC-Auto; this is a tax that hits the insurances of civil responsibility derived from transit accidents. The provinces may also increase or reduce the tax rate;
TEFA: this is an environmental tax, that is supposed to finance the provincial services in the domain of protection and restoring of the environment. This is a derivative provincial tax, and is complementary to the local TARI (waste tax);
TOSAP: this tassa functions like the equivalent one in the case of municipalities.
From the perspective of the Charter, the assessment of the financial situation of provinces is, according to the delegation, rather negative.
To begin with, the financial legislation of the period 2013-16, together with the institutional review under Law No. 56 of 7 April 2014 and the reduction of tax revenues, has provided for a reduction of resources amounting to 4,25 billion€, with a severe repercussion on their capacity to perform their functions. Second, the Stability Act of 2015 established that provinces and metropolitan cities would contribute to the containment of public expenditures by means of a reduction of running costs (linear cost or tagli lineari) of one billion € (900 million € for the provinces of the regions of ordinary status and 100 for the provinces of Sicily and Sardinia). This reduction should be in the amount of 2 billion in 2016 and 3 billion in 2017.
The government representatives declared that they are aware of this situation and that in 2016 (Act No. 208 of 28 December 2015, Stability Act of 2016) some measures were adopted in favour of metropolitan cities and provinces. In particular, 495 million€ of complementary contributions were granted to the provinces for roads and school buildings, 100 million€ for extraordinary road maintenance works, 20,4 million for staff expenditure and 39,6 for the maintenance of balanced budgets. The total amount of those complementary contributions for the incoming years are supposed to be 470 million€ for the years 2017-2020.
In any case, the representatives of the provinces (at least those placed in the regions having an ordinary status) do evaluate their financial situation as clearly insufficient. They claim that the own revenue is far to cover the expenses for the fundamental functions of the provinces. In addition, and under the “spending review” strategy embodied in the Act No. 190/2014, the provinces must transfer to the State a significant amount of the fiscal effort obtained in the provinces. This would go clearly against Article 119 of the Constitution. According to the provincial leaders, in 2017 the provinces of the regions having an ordinary status will have to “reimburse” or repay to the State more than 1,6 billion €, a sum which is close to the amount of the total collection of the provincial own taxes: according to the UPI, the tax revenues for the provinces in 2014 accounted for a total of 2,095 million€ (660 million for the tax on transcriptions; 1,250 million for the insurance tax, and 185million for the environmental protection tax). Consequently, the net amount of the tax collection that will stay at the disposal of the province will only be 446 million € (2,095 billion minus 1,6 billion in transfers to the State). However, the discharge of the three fundamental functions for the 76 provinces placed in the regions having an ordinary status (roads, schools and environmental protection) would need at least 1,305 million €. The imbalance is, thus, quite clear.
Finally, they remind that they manage today more than 130,000 kilometers of provincial roads and 5,100 schools, hosting in total more than 2,5 million students ad claim that they do not have the resources to manage and conserve appropriately those facilities and infrastructures. This is not only a problem of sufficiency of means to provide good quality services, but a source of personal concern among the provincial leaders. In the case of an accident in a provincial road or in a school, the Law does not only provide of course for the civil and administrative responsibility of the province, but also in some extreme cases the criminal liability of the provincial leaders, as long as the accident was caused by a bad maintenance or conservation of the facility. Therefore, provincial leaders feel that, on the one hand, they could be prosecuted in the criminal courts, but on the other they do not have the financial means to avoid the risky situation.
The UPI pointed out that, as a result of these different financial measures, there is an imbalance in the budgets of the provinces which allegedly amounts to 650 million€, as certified by the public company “SOSE”. The overall situation can be singled out in certain provinces. In this sense, the delegation was briefed about the extremely difficult financial situation of the province of Belluno, in the Veneto region. The rulers of this province informed the delegation that there is an acute imbalance in the provincial budget for 2017. The total expenses for the discharge of the “fundamental functions” have been budgeted in 29,200 million€ and they have estimated tax revenues in the amount of 23,800 million€. However, they are obliged to transfer or repay (riversamento) to the State funds in the amount of 22,915 million€. Therefore, there is an imbalance of some 28,315 million€. The data are quite illustrative and show a dramatic situation.
The Court of Auditors has also made its voice heard in this area. In an important report released shortly before the visit of the delegation, the Corte dei Conti has affirmed that provinces do not have the adequate financial resources to accomplish their tasks; that the provinces should no longer suffer from the effects of the “programmed suppression” of these bodies; and that they must have the necessary personnel, financial and instrumental resources to carry out their fundamental functions and to guarantee the essential services for the citizens and for the territory.
In the domain of budgeting, all municipalities are free to draft and to approve their own budgets, but in recent years the budgetary discipline of the State (mainly by the Corte dei Conti) has been sharply increased. “Budgetary discipline” is now the golden rule.
Although the Law sets some specific limits and clear on the public debt and on the deficit of local authorities, the indebtedness of local authorities is still a hot issue. The precise rules governing the extreme cases of insolvency are laid down at Articles 244 and ff. of the Testo Unico. According to information facilitated by the Ministry of the Interior, in recent times 102 local authorities have resorted to financial failure, including large-size municipalities like Alessandria or Potenza. The peaks are in Sicily, Campania and Calabria. Cases of financial instability did affect some provinces, too (Biella, Caserta).
Finally, and as far as municipal property is concerned, Italian local authorities have their own property, goods and assets. This is specifically guaranteed by Article 119, last indent, of the Constitution. The situation on this issue seems to be quite satisfactory. The right to own land and real estate property is fully recognised to local authorities, and they manage their assets in a free way. In the case of the provinces, thought, a specific information should be underlined: As a consequence of the Delrio Act, the provinces were partly dismantled in several ways; their “non fundamental” functions were transferred to the regions, and part of their personnel and assets were alto transferred, according to some criteria that were negotiated in the Joint Conference.
In view of the foregoing, it appears to the rapporteurs that Article 9 of the Charter is not respected in Italy, especially in the case of provinces.