Monitoring Committee

CG/MON/2015(27)15
Restricted

15 April 2015

Post-monitoring Georgia

Draft final Roadmap

Rapporteurs^[1] :   Nigel MERMAGEN, United Kingdom (L, ILDG)

                        Helena PIHLAJASAARI, Finland (R, SOC)

I.        General considerations

In accordance with Congress Resolution 353 (2013)REV, on “Congress post-monitoring and post- observation of elections: developing political dialogue”, the Georgian authorities expressed interest in entering into a post monitoring political dialogue with the Congress in order to expedite implementation of Congress Recommendation 334 (2013) on local and regional democracy in Georgia.

The first concern of this present work is to build on Congress Recommendation 334 (2013) of March 2013 which resulted from the monitoring mission in 2012 as well as from a fact-finding mission in February 2013.

The following should be noted:

-  At the end of 2013, the Government launched a comprehensive territorial and administrative reform of local government. On 5 February 2014 the Parliament of Georgia approved, at the third and final reading, the new Local Self-Government Code (LSG Code) and on 7 March and 17 April 2014, adopted an electoral package of bills which brings about certain changes in the current local self-government system.

-  In 2013, a Commission for Constitutional Reform, composed of politicians and specialised experts, was set up to develop draft amendments to the Constitution. The procedure to revise the constitution is complex and compromises are hard to achieve.

-  Up to now, the financial capacity of local authorities has not been developed

-  There is improved cooperation between national authorities and the national association of local authorities (NALAG), which now seems more involved in decision making processes relating to local authorities.

II.       Follow-up to Congress recommendations

The amendment to the Constitution in order to include the principle of subsidiarity in the field of local government (Congress Recommendation 6.a).

There appears to be no legal obstacle to enshrine the principle of subsidiarity in the Georgian Constitution. However the ensuing political debate, with entrenched political positions, complicates negotiations, leading to stalemate, as is the case for the current suggested revision.

Three options are available for including the principle of subsidiarity in Article 2-3; 2-4 or in Chapter 7 of the Constitution.

The principle of subsidiarity, eventually with the specification that this should be done without prejudice of the state sovereignty and territorial integrity, should be explicitly mentioned.

1.     The financial autonomy of local authorities (Congress Recommendation 6.c, 6.d, 6.e)

The rather limited fiscal decentralisation in Georgia was one of the main issues addressed in the monitoring report and it still lacks definition in the recent LSG Code and other new legislation. The most persistent problematic issues following adoption of the LSG Code are: insufficient financial resources (this has a bearing on the independence of local authorities), limited capacity of local self-government to generate own resources and the system of equalising transfers to municipalities (in particular the limited amount of transfers in relation to the nominal Gross Domestic Product, as well as the relevant procedure for the distribution of equalising transfers).

Local authorities have the right to set the rate for local property tax (central collection of this tax might be more advantageous) and to set local fees. However, such revenues may be too low for some municipalities. According to the planned reform, the financial resources of local authorities will increase by a “shared tax” so that a portion of the income tax paid by those registered and employed in the territory of a self-governing unit, will remain in that self-governing unit. In addition, along with special and targeted transfers, the municipality’s budget will receive capital transfers.

The new LSG Code stipulates that the Georgian Government shall amend the Tax Code of Georgia by 1^st September 2014 in order to provide a share from PIT tax revenues to municipalities, for implementation in 2016. The amendment deadline was missed and the Georgian Government produced such amendments only in December 2014 (alongside the state budget for 2015). 

Concerning the equalisation transfer, equalisation grants are recognised as “own revenues” that the municipality spends independently and under its own responsibility. In 2011 the equalisation grant represented 52% (approx. 627.788.300 GEL) of the financial assistance from the central government to municipalities. These resources are granted “with the purpose of implementation of exclusive rights” and are allocated according to a specific formula. There is criticism of this formula by the Government as well as by NALAG which both call for the formula in particular, as well as the equalisation system in general, to be revised, clarified and improved.

The purpose of equalisation systems is to equal out different revenue bases and the diverse expenditure needs of local governments, rather than to “top-up” resources for local bodies. Therefore a fully-transparent, well-structured formula is essential and the Congress’ rapporteurs advocate introducing amendments by 2016.

The precondition for a fairer allocation of funds derives from a clarification of competences of local authorities.

As regards the audit of municipalities: The Local Self-Government Code of the Organic Law of Georgia stipulates in a very detailed and consistent way the concept, rules and principles of state supervision (legal and sectoral supervision) of the activities of municipal bodies (sect.VI ch.XVI). However, the following chapter XVII on the audit of activities of Municipal bodies briefly defines the concept of audit (art. 139) and in article 140  lists the three audit types which are  state audit (1), independent audit (2) and internal audit (3). The 2008 Law of the State office Audit  (SOA) contains substantial provisions in this respect.

2.      The consultation process between national authorities and local authorities and their representatives (Congress Recommendation 6.b)

From a legal point of view, this issue is now formally solved by Article 7(3) of the LSG Code which stipulates: “The state authorities are obliged to hold preliminary consultations with the non-profit (non-commercial) legal entities that incorporate more than half of the municipalities of the country, prior to the making decisions on the issues relating to the authorities of the municipality established by this Code”.

The Congress rapporteurs welcome the fact that de jure a consultation procedure with local authorities and the associations that represent them is now established.  It also hopes that the requirement for consultations with local self-government and its representative bodies, in due time, in an appropriate way and in planning and decision-making processes for all matters which concern them directly, notably as regards financial issues, will be sustained in practice.

III.      Timeline agreed with participants in the post monitoring meeting

2016 seems to be an acceptable deadline to implement these actions apart from the constitutional revision as well as the ratification of the non-ratified provisions of the Charter, which may require a bit more time, consequently, 2017 appears to be a reasonable deadline.