Report on Local and Regional Democracy in “The Former Yugoslav Republic of Macedonia” - CPL (7) 8 Part II

Rapporteur: Jean-Claude FRECON (France)



Introduction on the situation of local democracy in « The Former Yugoslav Republic of Macedonia » 15 april 2000

At its meeting on 2 November 1998, following the visits carried out by the Rapporteur for the purpose of monitoring the trials of the mayors of Tetovo and Gostivar, the Bureau of the Congress, having regard to his observations, decided to draw up a report on the state of local democracy in "the former Yugoslav Republic of Macedonia" (see the Bureau's conclusions appended to document CJ/Bur (5) 75). The preparation of this report had been postponed owing to the massive influx of refugees into Macedonia1 in spring 1999, then reactivated following the visit by the President of the Congress, Alain Chénard, to Skopje in July 1999.
"The former Yugoslav Republic of Macedonia" ratified the European Charter of Local Self-government on 6 June 1997 without entering any declarations or reservations.
An initial visit, scheduled for 20-24 September 1999, enabled the delegation to meet representatives of the Macedonian delegation to the Congress, the Association of Units of Local Self-Government (ZELS), the Government and the Macedonian Parliament as well as local elected representatives. The second visit was carried out from 8 to 11 March 2000, enabling discussions to be held with the various Macedonian interlocutors on the experts' initial conclusions and proposals as presented in document CG/BUR (6) 68 rev, published in November 1999. The programmes of the visits are appended. The Rapporteur would like to express his sincere thanks to Mr Hedtkamp (Germany) and Mr Woehrling (France) for their expertise and assistance in preparing this report, and to Mr Bohner and Ms Affholder (Secretariat of the Congress). The visit was prepared in close co-operation with Vladimir Ristovski, acting Director of the Council of Europe's Information and Documentation Centre, and Mirjana Lozanoska, Delegate of the Ohrid Local Democracy Agency, whose efficiency contributed to the successful preparation of the visits.

The Rapporteur would like to stress the highly positive and open attitude of the Macedonian authorities, both local and national, who repeatedly expressed the wish to co-operate with the Council of Europe in carrying out their reforms and bringing Macedonian legislation into conformity with the European Charter of Local Self-government. In particular, the Rapporteur would like to thank Mr Nasufi, the Minister of Justice (and former Minister of Local Self-Government), Mr Saiti, the Minister of Local Self-government, the Association of Units of Local Self-Government, Mr Kurkciev, its President and Mayor of Gevgelija and Mr Trajcevski, its Secretary General, as well as the Macedonian delegation to the Congress, chaired by Mr Penov, Mayor of Skopje, and Mr Prackovski, Mayor of Delcevo, for their willingness to help and their contribution to the work carried out by the Rapporteur and the experts.
The experts' preliminary opinion, after the visit in September 1999, had highlighted numerous dysfunctions of local democracy in Macedonia, where the situation in this respect seemed unsatisfactory in many ways. Whereas the 1995 law on local self-government appeared fairly compatible with the European Charter of Local Self-Government, the adoption of special laws, the redrawing of administrative boundaries (which resulted in the creation of new local authorities without their being given the financial and human resources necessary for their functioning) and the prevailing administrative practices have placed Macedonian local authorities in a difficult situation down the years. Their actual powers are very limited, and the sum total of their budgets represents only 1% of the state budget. Local authorities' financial resources (receipts and expenditures) are capped by the central authorities. They cannot determine either the basis or the rate of local taxation even though they manage substantial extra-budgetary funds; they possess no fixed assets; there are no financial or fiscal measures designed to encourage local development or inter-municipal co-operation; local government personnel are not properly trained; the Association of Units of Local Self-Government has only limited resources and cannot protect the interests of local authorities etc.

The Minister of Local Self-Government had undertaken to prepare a series of reforms concerning the laws on local self-government, local finance and the administrative division of the territory. This process is actively supported by the European Union's Phare Programme and the US AID Urban Institute. The Minister hoped that these laws would be rapidly revised. In that connection, requests for assistance or co-operation have been made by the Ministry of Local Self-Government and the Association of Units of Local Self-Government with regard to legislative reform, the training of local government staff, awareness raising seminars, etc.

However, the Rapporteur has been obliged to note that the planned reforms have not been instigated over the past six months. A certain stagnation was observed by the delegation, which deeply regretted the lack of co-operation and dialogue between the various interlocutors who should be fully involved in the reform process. The Rapporteur does not underestimate the difficulty of the reforms to be carried out, particularly those connected with the setting up of a new Ministry of Local Self-Government, nor has he overlooked the events which have affected Macedonia's political life in recent months. However, a presidential election should not paralyse on-going preparatory work. The Rapporteur calls for fresh impetus be given to the reform process and reminds those involved of the Congress's readiness to assist in examining draft laws.

This explanatory memorandum is intended to assess the current situation with regard to the structures and functioning of local democracy in Macedonia; it will then consider the state of local finance, which is considered particularly critical. It should be noted that this report contains a number of proposals and suggestions that have been partially incorporated into the draft Recommendation and draft Resolution.

The document is divided into two parts, the first analysing the state of local democracy, the second examining the financial situation of local authorities in Macedonia.

Part I Analysis of the state of local democracy in « the former Yugoslav Republic of Macedonia »

I. Introduction

Under Yugoslavia’s former political and legal system, local government was regarded as a “system of self-managing democratic integration and socio-political organisation representing the basic communities”.

Although Yugoslavia very quickly abandoned the system of dual subordination between local authorities and higher authorities, the municipalities were not regarded as the expression of a local authority in the western sense of the term but as the basic unit of a system which, despite recourse to federative and self-managing principles, formed an entity.

In this framework, the Yugoslav municipalities were not clearly distinguished from the state apparatus, but they nevertheless possessed considerable power and autonomy. A series of territorial reforms had the effect of reducing their number from 11,500 in 1946 to 4,000 in 1952, 1,470 in 1955, 836 in 1959 and 530 in 1979. In Macedonia the number fell from 61 in 1967 to 34 in 1979. However, this amalgamation process left local authorities in existence at neighbourhood and village level. While being reduced in number, municipalities were allocated significant functions and fairly substantial resources. On average, they kept between 25% and 35% of the taxes levied in their territories. These resources were supplemented by voluntary public contributions decided on by referendums in order to finance individual projects, as well as by subsidies from the federated states for the purpose of ensuring better financial equalisation.

The municipalities also had an economic role to play, and Yugoslav companies were subjected to interference by them in their choice of directors, staffing policy, investment etc. The municipal assembly was empowered to suspend any measure prejudicial to workers’ rights and company assets. A local authority was responsible for protecting legality, the security of persons and property and public order and peace. These powers also covered environment protection, spatial planning, construction policy and town planning. Local authorities provided for various facilities in the fields of transport, water supplies, health, education, culture, sport and leisure. In other words, because a municipality was the instrument of a single authority, it was responsible at local level for preserving the socio-political and socio-economic system.

Although under close political control, the municipalities were not subject to stringent administrative supervision: the acts of their authorities were monitored only from the standpoint of their legality and constitutionality. A municipality could freely adopt its charter and exercise regulatory power. But problems of compliance with the state’s political choices were in reality settled by extra-juridical means: it was the same political will – the will of the party – that actuated organs of power at all levels and in all fields of collective action.

Thus the former Yugoslav municipalities constituted an important level of administration possessing significant resources and playing a role that was noteworthy yet closely integrated into the state apparatus on account of the political system which precluded the existence of any genuine form of local self-government.

With the change of regime, the various republics that emerged from Yugoslavia opted for the western model of local government. The old system under which the municipalities formed part of a political set-up was abandoned. Administrative structures instituting municipalities that were actually independent of the central political authority were created. This was also the case with the Republic of Macedonia as a result of the law of 26 October 1995, which provided the state with machinery comparable to that existing in west European states with regard to the status of municipalities. Local democracy, in the true sense of the term, was thus established.

However, the adoption of this western administrative system seems superficial and partial in many respects. Municipal structures of a technically independent kind were set up, but to some extent they remained empty shells or at least weak entities on account of their lack of effective or sufficiently substantial powers, their lack of significant autonomous resources, their lack of appropriate staff or facilities, their inability to count on a favourable environment in terms of cultural policy and the fact that they were frequently used for party-political purposes.

Thus while in the Republic of Macedonia the 1995 law does provide a framework generally consistent with the criteria and requirements of the European Charter of Local Self-Government and with western conceptions of municipal freedom, in reality it has created weak municipalities whose de jure powers are limited and whose de facto powers are even weaker, their resources being highly restricted in an unfavourable political and economic context. Consequently, these municipalities cut a sorry figure in relation to the state apparatus which is locally present in the same territorial framework. Moreover, the establishment of approximately 85 new municipalities in 1996, in the absence of any rational overall plan or any appropriate support measures, further accentuated the weakness of the local authority system by creating a hiatus between the old and new municipalities.

A radical reorganisation of the system of local government is therefore necessary if the concept of local democracy is to be put into effect.

II. Conformity with the European Charter of Local Self-Government

In various respects the legislation on local democracy in the Republic of Macedonia may be regarded as satisfactory and in accordance with the principles of the European Charter of Local Self-Government. On certain key points, however, some marked inadequacies may be observed.

A. The satisfactory aspects

These mainly concern the legal framework of local self-government.

a. Guarantee and concept of local self-government

The 1993 constitution of the Republic of Macedonia provides (Article 114) that the right of citizens to local self-government is guaranteed. The municipalities are organs of local self-government. They are self-financing. According to Article 115 of the constitution, their powers cover matters of local importance, particularly in the fields of town planning, municipal activities, culture, sport, social security, child welfare, pre-school education and primary education. The municipalities must be autonomous in the exercise of their constitutional or legislative powers. Territorial divisions are determined by the law. The arrangements for applying these constitutional principles must be laid down in an institutional law necessitating a two-thirds majority of all members of parliament. Local self-government also enjoys judicial protection in that the Constitutional Court is empowered to decide on conflicts between the Republic’s authorities and the municipalities. In so far as Article 118 of the constitution endows ratified international agreements with the force of domestic legal rules non-amendable by the law, it should be possible for the European Charter of Local Self-Government, which has been unreservedly ratified by Macedonia, to be relied upon in courts as a means of challenging contrary provisions of domestic law.

These principles of local self-government were stipulated in the law of26 October 1995, Article 4 of which provides that the municipalities may not be subjected to restrictions by the state authorities in matters within their legislative or constitutional jurisdiction, except on grounds of legality and under the conditions prescribed by law. Disputes concerning the legality of the acts of municipalities must be referred by the state’s authorities to the Constitutional Court or to another competent judicial body (Articles 69 and 70 of the law).

These aspects may be regarded as reflecting a satisfactory definition and guarantee of local self-government in relation to Articles 2 and 3 of the Charter. However, note should be taken of the existence of various legal or financial procedures that affect the exercise of local authorities’ powers and cast doubt on the reality of their autonomy (see below).

b. Democratic nature of municipal organs

Municipal councillors and mayors are elected by the population by universal and direct suffrage on a proportional-representation basis as far as councillors are concerned and on a double-ballot majority basis as far as mayors are concerned. There is an exception to the rule of direct suffrage in the case of the city of Skopje, where 14 delegates are appointed by the councils of the city’s member municipalities. Electoral operations are supervised by electoral commissions and electoral bureaux which offer satisfactory guarantees and enable representatives of the opposition to carry out their own monitoring. The mayor is answerable to the electorate in so far as he may be dismissed by it (by majority vote, on the initiative of 20% of voters). Arrangements for direct participation by citizens through referendums are provided for.

The autonomy of the mayor and the municipal assembly is such as to foster mutual supervision of these two organs.

c. Protection of local authority boundaries (Article 5 of the Charter)

Changes to municipal boundaries must be decided on by the legislature after consultation with the municipalities concerned as well as their inhabitants (referendum and public meetings) (Articles 15 and 87 of the law on local self-government). Technically, therefore, Article 5 of the Charter is being complied with. It may nevertheless be wondered if the municipalities were actually consulted in connection with the creation of new municipalities in 1996. In any event, it is important that these procedural guarantees be observed in connection with any further change.

d. Appropriateness of local authorities’ internal structures to their tasks
(Article 6.1)

Municipalities may freely adopt their charters, within which they may themselves define the internal administrative structures they wish to adopt as well as determine their manner of functioning.

e. Conditions of office of local elected representatives (Article 7)

Municipal councillors are immune from prosecution in connection with the expression of their opinions during their terms of office (Article 36). They are entitled to compensation for expenses incurred during their terms of office (Article 37) as well as to compensation for loss of earnings. The conditions under which compensation is awarded by municipal councils may even be considered so liberal as to permit certain abuses. The various incompatibilities are laid down by the law.

In practice, the situation is less positive. Some spectacular arrests of mayors have occurred, admittedly for criminal offences but in circumstances that did not seem unconnected with their position in the opposition. Articles 38 and 48 of the law on local self-government set out, in a manner consistent with the Charter, the grounds on which mayors or municipal councillors may be removed from office. Experience shows, however, that in the present difficult context sentences of more than six months’ imprisonment, which entail removal from office, may be imposed in circumstances that are not always unquestionable. At all events, legal proceedings instituted against elected representatives, whatever the reasons for them may be, should not only respect the relevant judicial guarantees but also be clearly explicable to local public opinion.

f. Legal protection of local self-government

In accordance with Article 11 of the Charter, local authorities have a right of recourse to a judicial remedy in order to secure free exercise of their powers and respect for the principles of local self-government. This recourse is exercised before either the Constitutional Court or another competent judicial body, as appropriate (Article 86 of the law on local self-government). Guarantees should be available, particularly in the case of interference by the central authority in the functioning of municipalities.

Article 74 of the law on local self-government allows the central authority to dissolve a municipal council if it fails to adopt its budget or hold meetings or proves incapable of exercising its functions for a period of more than six months. These grounds are acceptable provided they are not abused.

On the other hand, Article 75 provides for the dissolution by the government of municipal councils whose resolutions jeopardise the sovereignty and territorial integrity of the Republic. Such a provision seems not only unnecessary, as the government may stay the execution of such resolutions, but also questionable, as it carries few procedural safeguards (informing of parliament); moreover, the ground for dissolution is formulated in very vague terms. This provision should be amended.

g. Co-operation between local authorities at national and transfrontier level

Article 10 of the law on local self-government provides that local authorities may co-operate together. In order to pursue their common interests or undertake joint tasks, they may set up common services, establish public enterprises or create common funds. The objectives and procedures of such co-operation must be laid down in an instrument communicated to the state administration.

It appears, however, that some judicial bodies have interpreted Article 10 in a restrictive manner, making it impossible to set up genuine institutions, with their own legal personality, for co-operation between municipalities.

Local authorities may also co-operate with local authorities of other countries and with international organisations of local authorities. They are entitled to become members of international organisations of local authorities.

However, the law provides for the organisation of only one Macedonian association of local authorities for the purpose of enabling local authorities to pool their experience and promote local self-government. The existence of a single association of local authorities may thus be regarded as a legislative restriction of the right of Macedonian municipalities to group together. This provision is aimed at preventing associations of local authorities from being established on ethnic and cultural bases. Such an objective is questionable in the light of the Framework Convention for the Protection of National Minorities. It may nevertheless be assumed that Macedonian municipalities are not prohibited to set up more than one association, even though only one association will have an official status vis-à-vis the government.

h. Administrative supervision of local authorities’ activities

Article 8 of the Charter distinguishes between matters for which local authorities are intrinsically responsible and those that are delegated to them. As regards the former category, the state’s supervision of the exercise of such responsibilities must be limited to ensuring compliance with law. In the case of tasks for which responsibility has been delegated to local authorities, supervision may be carried out from the standpoint of expediency, but it must be exercised in such a way as to ensure that the role of the supervisory authority is kept in proportion to the importance of the interests it is aimed at protecting.

Consequently, the exercise of supervision as to expediency over non-intrinsic tasks delegated by the state to local authorities, as provided for in the Macedonian law on local self-government, is not contrary to the Charter. In any event, there are apparently no such delegated responsibilities at present in Macedonia. With regard to intrinsic responsibilities, the condition that they must be exercised in conformity with the laws governing them, as frequently provided for in the Macedonian law on local self-government, is not contrary to the Charter either. However, the existence of a system of authorisation and approval by the state in connection with the adoption of town-planning schemes (Article 18) might be regarded as questionable in the light of the provisions of the Charter, which limits administrative supervision to considerations of legality whereas the above-mentioned system of approval seems to be based on considerations of expediency.

The special law on municipal budgets also ensures closer supervision of municipal expenditure by the central authorities. Likewise, the fees charged by local public services (charges) appear to be subject to central government scrutiny, although the law makes no provision for this. In other words, Macedonian local authorities appear to be subject to excessive supervision, either through special legal texts or through more subtle means.

Article 69 of the law on local self-government empowers the government of the Republic of Macedonia to stay the execution of a local authority measure if its execution is liable to cause irreparable damage. However, this power is subject to referral of the case to the Constitutional Court within a period of 15 days for a decision on the legality of the measure concerned. This provision may be regarded as consistent with the Charter in view of the conditions governing the exercise of the powers thus assigned to the Macedonian government.

Article 71 grants to ministers and other state authorities a power of inspection and supervision as well as a power of instruction and direction for the implementation of general laws and instruments. If a local authority fails to execute these instructions and directives, the state may issue injunctions to the local authority and, if these are not followed, substitute itself for the latter. Such a general power of instruction, direction and supervision is compatible with the Charter provided that it is actually confined, as prescribed by the law, to matters delegated by the state to local authorities.

i. Provision for regional or minority languages in the case of municipal administration

The law on local self-government includes various measures aimed at fostering provision for minority languages. It is stipulated that municipalities in which non-Macedonian cultural groups represent the majority or a substantial minority, the languages of the cultural groups concerned may be used by municipal organs, and municipal documents are drawn up in several languages. Similarly, public announcements may be bilingual or multilingual.

It is also stipulated that in municipalities comprising more than one cultural group an effort may be made to ensure appropriate ethnic representation within the municipal staff, albeit with due regard to the criterion of professional competence (Article 54).

Lastly, the law provides for the creation of an advisory inter-ethnic council in municipalities whose population is ethnically diversified. In practice, these inter-ethnic councils do not seem to be very active, but they may nevertheless make a contribution to intercultural understanding.

B. The problematic aspects

Alongside the aspects presenting no difficulty, there are several points on which the Macedonian law on local self-government is unsatisfactory.

a. The powers of Macedonian municipalities

The law on local self-government enumerates three types of power for Macedonian municipalities:

1. Powers exercised autonomously by Macedonian municipalities

Article 17 of the law lists 32 powers which municipalities may exercise “independently”. Within these 32 fields of activity, however, a distinction should be drawn between those that may be exercised exclusively by Macedonian municipalities and those that are exercised “within the framework of laws” laying down the relevant implementing conditions.

The powers that municipalities may exercise in a fully autonomous manner are as follows:

- adopting “development programmes” and “programmes for the planning of construction zones”,

- regulating the upkeep of public parks and squares of local importance,

- regulating the sweeping of chimneys,

- giving opinions and making proposals,

- encouraging, facilitating and promoting touristic, craft or industrial development schemes.

These are powers of very little practical significance.

The other powers that municipalities may exercise on an intrinsic basis and in an “independent” manner must be exercised “in accordance with the law”. As a result, ordinary laws may lay down the conditions on which these powers are exercised. This may be regarded as a normal method of organising municipal activities, but it may also result in the relevant laws subjecting municipal initiative to restrictive conditions. In any event, a reference to legislative provisions should not be interpreted as a prior condition for the exercise of the powers concerned. Short of violating the constitution, such laws should also avoid excessively controlling the powers exercised by municipalities “autonomously”. In the light of the information gathered, it is not possible to pass judgment on the practice followed, as the experts did not have access to these particular laws. However, several municipal representatives did complain to them that the effective exercise of these powers was hindered either by the existence of over-precise legislative provisions transforming municipalities into instruments of state policy or by the total absence of such provisions. If that were the case, it would have to be concluded that the spirit of Article 112 of the constitution had not been observed by the laws concerned.

The powers thus exercised in conformity with the relevant laws are as follows:

- regulation and use of construction zones,

- determination of zones and tax collection on built-up areas,

- construction and upkeep of local roads, streets and other infrastructures and facilities of local importance,

- choice of the names of streets and squares,

- organisation of drinking water supplies and the disposal of sewage and waste as well as rainwater,

- organisation and regulation of public lighting,

- organisation of local public transport,

- planning of road signals,

- planning and upkeep of cemeteries,

- upkeep and management of waterway beds,

- organisation of public contracts,

- provision of communication systems of local importance,

- establishment of secondary schools (of a vocational nature),

- financing of facilities for primary schools beyond the level guaranteed by the Republic,

- conduct of civil-protection operations,

- creation of public services and public enterprises for the supply of services of local importance.

This list of powers may seem substantial. In practice, many municipalities appear to have difficulty in effectively exercising those that are of real importance.

2. Powers exercised subject to authorisation or supervision by the central authorities

Municipalities are empowered to adopt both general and detailed town-planning schemes. General town-planning schemes must be approved by the central authority. Refusal of such authorisation is not subject to appeal, no doubt because it is discretionary. As regards detailed town-planning schemes, approval by the central authority is also necessary, but refusal thereof may be referred to the competent judicial body.

Moreover, in accordance with the law and in conjunction with the state authorities, municipalities may provide funds for the construction and equipping of institutions in the fields of pre-school education, culture, sport, child welfare, elementary health care and the protection of nature, animals and plants as well as other fields of importance to citizens at local level.

3. Fields in which powers are delegated by the Republic

The Republic may delegate its responsibilities to municipalities with a view to more rational implementation and fuller satisfaction of citizens’ needs. In that event, specific funding is payable to municipalities. On the other hand, the exercise of these activities is placed under the direction and supervision of the state authorities, in accordance with Article 4, paragraph 3, of the law on local self-government.


Article 3 of the European Charter of Local Self-Government defines local self-government as the right and the ability of local authorities to regulate and manage a substantial share of public affairs under their responsibility. Article 4 refers to the principle of subsidiarity, whereby a responsibility should be assigned to an authority higher than a municipality if that is preferable in view of the extent, nature and requirements of the task concerned. The same article also specifies that powers given to local authorities should normally be full and exclusive. It may be doubted that these principles have been properly implemented in the Republic of Macedonia.

Admittedly, when examining the text of the law on local self-government, one is impressed by the size of the list of powers entrusted to municipalities. This favourable impression is, however, dispelled by a more detailed examination. It is true that several provisions confer on Macedonian municipalities a fairly broad right of initiative in a large number of matters of local interest, either for the conduct of promotional operations, or for the provision of supplementary funding or for the offering of opinions and advice. This right of initiative would no doubt be an adequate legal basis for the deployment of fairly extensive activity if Macedonian municipalities had the funds and fixed assets needed for exploiting such potential. As will be seen later, however, their financial resources are extremely slender and their fixed assets almost non-existent. Their statutory possibility of acting, for example, on an auxiliary basis in the fields of culture, sport, social protection, health, education or environment or in the promotion of economic activities has remained a dead letter.

Other activities may, it is true, be carried out by Macedonian municipalities, despite their meagre resources, but they are very narrow and cannot serve as a basis for a dynamic municipal policy. The same applies to the regulation of chimney-sweeping and the upkeep of cemeteries.

The fact is that the only powers of genuine importance for municipal development and local policy-making are those relating to town planning, the creation of new construction zones and the servicing of building land. In this field, municipalities have a certain degree of statutory power and scope for initiative despite the limited nature of their resources. In practice, however, the exercise of these powers seems to be subject to state supervision and authorisation.

It may therefore be concluded that Macedonian municipalities do not, in practice, manage a substantial share of public affairs within the meaning of Article 3 of the Charter. If they are to attain a really significant level of responsibility, they should first and foremost be provided with additional means of action. They should also be given a guarantee concerning the genuinely independent exercise of their responsibilities. Lastly, they should be assigned additional powers of a truly “strategic” nature in terms of the development of a municipal policy. This would presuppose the initiation by the Macedonian state of a transfer of powers to local authorities. The matters that might be transferred in this way include municipal police (a possibility for which the constitution currently makes no provision, although it does not rule it out either), social assistance, pre-school education and cultural development. It should be remembered that, under Article 115 of the Macedonian constitution, municipalities are expected to enable citizens to participate in decision-making in the fields of town planning, culture, sport, social security, child welfare, pre-school education, primary education and elementary health care. It is reasonable to interpret this provision as conferring effective, even though non-exclusive, powers on municipalities in the above-mentioned fields. In order to comply with the constitution, the law on local self-government should constitute a genuine basis for the exercise of these powers.

b. The resources of municipalities

This is the area in which the situation of Macedonian municipalities is most problematic. A separate report deals with the financial resources of local authorities, which are manifestly inadequate to enable them to discharge their responsibilities in a proper manner.

But it should also be noted that Macedonian municipalities are largely devoid of the fixed assets necessary for the effective exercise of their powers. Items of immovable property (administrative premises, sports grounds, swimming pools, etc) seem to have been transferred to the state even though they were created by means of local resources. The Charter does not contain any provisions on municipal property, but it is possible to apply mutatis mutandis the provisions on financial resources (Article 9), under which local authorities must be provided with adequate financial resources of their own and be able to dispose of them freely within the framework of their powers. These resources must be commensurate with their responsibilities, and municipalities must be consulted on the way in which they are allocated.

c. The situation of municipal staff

Under Article 6 of the European Charter, the conditions of service of local government employees must be such as to permit the recruitment of high-quality staff on the basis of merit and competence. The situation in Macedonia seems to fall short of these requirements. Under Article 54 of the law on local self-government, administrative officers of municipalities are appointed for a period of four years. This means that their appointments must be renewed at the time of each election. In other words, if the political majority within a municipal council changes, a “spoils system” is liable to be operated, resulting in the dismissal of the administrative officers working for the previous municipal authority. Such a system is not calculated to guarantee a neutral, stable and competent municipal staff. In a highly politicised country such as Macedonia, it is important for local authorities to have professional, apolitical administrative staff at their disposal.

Another aspect liable to affect the quality of municipal staff lies in the financial difficulties of municipalities which prevent the staff from being guaranteed a steady income. If the spirit of the Charter is to be respected, municipal staff should be provided with conditions of service offering adequate guarantees of neutrality and stability as well as satisfactory prospects of remuneration and career development.

The administrative efficiency of Macedonian municipalities has been further weakened by the fact that a number of local officials were transferred to central government departments during the local government restructuring process.

Lastly, there is a problem of municipal staff training.

d. Implementation of the territorial reform

In 1996 a law increased the number of municipalities from 34 to 124. This reform, which was motivated by a desire to bring municipal structures closer to the population (the average size of municipalities was at the time 58,000 inhabitants and 700 km2) and by a concern to ensure that the geographical location of certain cultural communities was more fully reflected in the municipal system, is nowadays being criticised. Such criticism seems justified in so far as the reform has created new municipalities without adequately organising the sharing of resources (staff and buildings) between old and new municipalities. The old municipalities still have the same, partly unused staff, and the new ones are frequently lacking in resources.

In their pre-reform structures, Macedonian municipalities were often very large. The decision to set up new municipalities was therefore justifiable as a means of creating structures closer to citizens. However, the reform is now being criticised because it was not always based on objective criteria and is resulting in additional expenditure whose usefulness is questionable. In view of the slender resources available to the Republic of Macedonia, this stricture seems legitimate.

In order to avoid unnecessary expenditure and nevertheless bring municipal structures closer to citizens, it might be envisaged setting up in the Republic of Macedonia a two-tier municipal system where grass-root authorities performed certain neighbourhood functions while larger municipal entities provided the services demanding the most resources.

It would in any event be regrettable if all the municipalities set up in 1996 were abolished. Many of them are big enough to serve as a framework for significant municipal action. Moreover, several of them reflect a local solidarity or a community of interests which it would be a pity to ignore. Thus, some new municipalities enable better provision to be made for the existence of ethnic or cultural minorities. It would no doubt be desirable if municipal boundaries were invariably drawn solely according to ethnic criteria. However, as specified in the European Charter for Regional or Minority Languages, the manner in which administrative boundaries are drawn should at the very least avoid disregarding the existence of ethnic or cultural communities and jeopardising their ability to share a social and cultural life. Consequently, account should be taken of a series of criteria that might legitimately include the possibility of providing cultural or ethnic minorities with better means of using municipal structures.

Lastly, it seems essential that if the territorial division of municipalities were decided upon, it should be carried out in accordance with the principles laid down in Article 15 of the law on local self-government, ie after broad consultation of the populations and municipal councils concerned. Choices in this matter should take genuine account of any wishes thus expressed.

III. General assessment

The Constitution of the Republic of Macedonia and the Republic’s law on local self-government reflect a clear desire to create a system of local self-government in Macedonia. Paradoxically, however, the abandonment of the “Yugoslav system” of municipalities as it existed in the communist era has had the effect of promoting centralisation rather than decentralisation. The Yugoslav municipalities forming powerful yet non-autonomous social communities have been replaced by “western”-style municipalities of a more autonomous but largely powerless kind. The institutional reorganisation has resulted in a strengthening of power at republic level. No doubt this process of centralisation is due to the difficult economic conditions, the various political problems and the need for the new Macedonian state to establish a sound basis. Whatever the reasons may be, however, the Macedonian authorities seem to have been afraid of a genuine form of local self-government and lacking any real confidence in the virtues of such a system. After the change of regime, therefore, public funds and assets were mainly concentrated at state level; only limited powers were assigned to the municipalities, which were not provided with the wherewithal to deal properly with matters of local interest. Whatever its justifications were, a territorial reform aimed at creating new municipalities has further accentuated the local level’s difficulties, as the reform was inadequately prepared and not accompanied by the necessary support measures.

There is now a vicious circle: the municipalities have few resources, but the slenderness of their resources is justified by the absence of significant powers. Not possessing any substantial resources or powers, the municipalities have been unable to establish an effective administrative apparatus, so that they would probably have difficulty in properly discharging any new responsibilities. Thus the weakness of the system of local self-government is a justification for keeping it in a state of impotence as, in view of the difficult economic situation in Macedonia”, it would not be acceptable if the limited resources available were wasted.

This vicious circle must nevertheless be broken. It is fully in the interests of the Republic of Macedonia to possess active and dynamic local communities capable of shouldering responsibility for some of the many problems confronting the country. The municipalities must be provided with additional resources; but they must use these resources at least as efficiently as the state authorities, and the transfer of resources must be accompanied by a transfer of power under an effective supervisory system.

In order to inaugurate a “virtuous circle” of local initiative where the municipalities, thanks to new powers, could become more effective, it is important to ensure the transparency of municipal management so that responsibility for using the resources provided is clearly defined.

Moreover, a “partisan” approach to questions of local self-government should be avoided. The way in which the state authorities manage such questions may not always seem to ride above such considerations. The difficulties encountered by certain opposition mayors, the application to the municipalities of the law on the limitation of municipal expenditure and the rapidity or readiness with which authorisations or agreements are granted give the impression that the central authorities are trying to favour those municipalities that are headed by individuals close to the governmental majority and, conversely, to avoid giving the same treatment to municipalities supporting the opposition. Even supposing these suspicions are unfounded, it is disturbing enough that the lack of transparency in the state’s supervision of municipalities provides grounds for such anxiety. If local democracy is to function properly, political criteria must play a lesser role and the state authorities’ actions should be governed by considerations of legality and efficiency and by transparent and impartial procedures.

IV. Proposals

To put the Macedonian local self-government system back on track, a range of co-ordinated, balanced measures must be envisaged. These measures must enjoy widespread support throughout the country if they are to be effective.

1. Measures should be introduced to encourage greater mutual trust between central and local government and to ensure that decisions are taken independently of any political or partisan concerns. To that end, support should be given to institutions characterised by their objective, impartial approach to decentralisation issues:

- Local government officials should be politically neutral, have a strong sense of professional ethics, enjoy permanent status and be recruited on the basis of ability;

- A body should be set up to monitor and audit local authorities’ accounts, and should enjoy a considerable degree of independence from both central and local authorities. Its tasks should be to examine the accounts of local authorities (and enterprises attached to local authorities) and to report on whether they are in order, both technically and in terms of sound management of resources;

- A “National Council on Local Self-Government” should be set up, enjoying independence from the government and local authorities and comprising equal numbers of central and local government representatives (and, if appropriate, members of parliament, suitably qualified public figures and senior members of the judiciary). The council would arbitrate between local authorities and central government in any conflicts relating to the exercise of powers and the allocation of resources. It would also be responsible for laying down criteria, setting standards and issuing recommendations concerning practical aspects of decentralisation.

2. A programme should be implemented to ensure that the powers conferred on Macedonian municipalities by the constitution and the law on local authorities are transferred in practice. Among these powers, the following should be regarded as “core” responsibilities of local authorities:

- town planning – building new housing estates or development and leisure areas;

- cultural and sports activities at local level, with appropriate facilities;

- social work and welfare at local level;

- public hygiene, in particular child welfare, nurseries and day care centres, support for the elderly and retirement homes;

- pre-school and primary education;

- local public services (development of open spaces, street lighting, drinking water, sewerage, waste disposal, etc);

- development and maintenance of the local infrastructure (road system and public buildings used by local public services);

- general management of local affairs, especially with a view to strengthening mutual support at local level and encouraging local development initiatives, whether economic, social or cultural.

3. Transfers of power must be accompanied by an equivalent transfer of resources: the resources earmarked for tasks which are currently performed by central government departments but are to be transferred to municipalities must be evaluated. Equivalent amounts must be transferred to local authorities and must be linked to the retail price index. This will ensure that the overall balance of public finances is not affected by decentralisation: the same share of public finances will be allocated to the same services, but the services will be managed at local level under the responsibility of the municipalities themselves.

The municipalities must also, however, have a share of non-earmarked resources so that they can develop their own initiatives. For example, provision might be made for allocating municipalities a fraction of the VAT yield. However, if municipalities are to discharge their duties properly, some of their income should stem from a tax levied at local level, the yield of which may be influenced by each municipality. A local tax based on the rateable value of housing might be used for this purpose, with municipalities being empowered to set the tax rate within certain limits prescribed by law. Each municipality must be accountable to the local population for its use of these local resources. (The central government tax authorities could be given responsibility for collecting local taxes.)

In any case, the law on the limitation of local budgets should be repealed.

Municipalities could also be given responsibility for maintaining public order, peace and security at local level.

Responsibilities should, in principle, be transferred in their entirety. They should, of course, be discharged within the limits of the laws governing them; such laws, however, must not contain provisions placing excessive restrictions on local authorities’ scope for initiative. In any case, any law that significantly reduces local authorities’ room for manoeuvre within their own sphere of competence should be passed under the same conditions (qualified majority) as the law on local self-government itself.

An important factor in local authorities’ room for manoeuvre is their ability to set their own charges for municipal services; this power must not be subject to central government supervision.

4. Transfers of power must also be accompanied by the transfer of some of the staff currently employed by the central authorities to perform the tasks that are to be assigned to the municipalities. Decentralisation will mean that these staff no longer have a job to do at central government level. Owing to the lack of human resources available, they should be transferred to the municipalities.

5. Relations between municipalities and local public-sector firms need to be clarified. Such firms must not have a monopoly on public works contracts or public service franchises. Municipalities must be able to negotiate their contracts by means of tendering procedures, with contracts being awarded to the firms submitting the best offer.

6. There should also be a fairer distribution of public property between central and local authorities. Buildings set aside for local public services should be owned by the municipalities, which should also be entitled to use certain plots of state-owned land for their own local development projects. The above-mentioned National Council on Local Self-Government could be given responsibility for dividing public property more fairly between central and local government.

7. Inter-municipal co-operation and territorial reorganisation should be promoted. Enforced reorganisation is not advisable. However, two devices may be used to encourage the voluntary amalgamation of municipalities:

- granting a special status, with guaranteed scope for initiative, to districts and villages incorporated into a municipality (especially if they were formerly municipalities in their own right);

- granting increased financial assistance to municipalities agreeing to amalgamate.

As an alternative to amalgamation, the setting up of associations of municipalities should also be encouraged by awarding specific financial support to institutions promoting co-operation between municipalities.

8. Any disputes between the central authorities and a municipality (for example, regarding the lawfulness of a decision by a municipality or the compliance of a decision by a central government department with the law on local self-government) must be brought before a neutral body. The National Council on Local Self-Government could arbitrate in such matters before ultimately referring them to a court if necessary.

V. Conclusion

In sum, “the former Yugoslav Republic of Macedonia” should seek to regenerate a momentum aimed at strengthening local self-government. Local self-government consists of a series of components that are mutually reinforcing: appropriate territorial structures, democratically elected institutions, a coherent set of powers permitting genuine initiative, genuine resources in the form of finance and facilities, a sound administrative framework with a competent and stable staff, a sense of solidarity and belonging, a satisfactory functioning of local media and a harmonious relationship between the municipal structure and civil society. In some of these respects, the system of Macedonian municipalities is deficient or too weak. The weakness of certain components leads to inadequacy in the case of others and complicates the reform or adjustment of the municipal level. It is therefore necessary to act on several aspects simultaneously and re-establish the necessary momentum while placing faith in the principle of local self-government. What is needed is the political will to transfer additional powers and resources to the local level.

Undoubtedly, this also implies the creation of appropriate supervisory machinery to obviate inefficient use of resources in a country where resources are scarce. But the choice of supervisory machinery should be made in such a way as to avoid disrupting municipal initiative. This means laying the emphasis on ex post facto forms of supervision and on the provision of assistance and counselling.

Lastly, the ways in which the state authorities act should be made more transparent so as to render their impartiality more apparent and clarify the ground rules for everyone. In this connection the legislative control of municipal action is legitimate, but it should be limited to the setting of objectives, criteria and limits without affecting scope for initiative at local level and the ability to make effective choices at that level.

In “the former Yugoslav Republic of Macedonia” there is much potential at local level, considerable enthusiasm on the part of those concerned and, in general, a real will to work together. Despite the economic difficulties, the degree of tension between the various socio-cultural groups has remained reasonable. This denotes a great sense of responsibility at all levels. Such a sense of responsibility constitutes the best guarantee that an advanced system of local self-government can be constructed. It remains for the Macedonian state’s authorities to have the will to use the existing potential more effectively and invest fully in a system of local self-government by renouncing the facile solution of over-concentrating power and resources at central level. If this course is adopted, the Macedonian state will be strengthened as a whole.



Part II: Analysis of the financial situation of local authorities in "the former Yugoslav Republic of Macedonia"

1. Foreword

The 1995 Law on Local Self-Government and the Report on the structures and functioning of local democracy in “the former Yugoslav Republic of Macedonia" adopted in June 1998 by the Steering Committee on Local and Regional Democracy (CDLR) might have led us to expect a local self-government system broadly based on the Council of Europe's European Charter of Local Self-Government, particularly if we compare the said law with current legislation in neighbouring countries. It is therefore no wonder that many representatives of Macedonian municipalities are advocating first of all applying this law coherently before drafting any new legislation. There is apparently a chasm between theory and practice, between the legislation and its application, in this as in so many other fields (eg the spectacular arrest of several mayors and the limited legal protection they have been granted).

The situation of municipal finances is described below.

2. Financial autonomy

The financial autonomy of a given territorial authority depends on its ability to decide alone on its activities and to implement them within the framework of its available resources. Therefore, since all activities incur expenditure, local and regional authorities should be in a position to plan, implement and finance their activities themselves. The right of authorities to draw up their own budget on the basis of financial resources that can be planned and apportioned as they wish is a sine qua non for any financial autonomy. But the fact is that municipalities in “the former Yugoslav Republic of Macedonia" are being refused this right. The municipalities' budgets are fixed by State legislation, and the Law on the limitation of public consumption expenditure sets out a list of maximum items of expenditure authorised for each municipality.

Even though Article 17.2 of the Law on Local Self-Government grants the municipalities the right to budgetary autonomy, Article 20 of the Law on finances stipulates that local budgets must be "harmonised" with the Ministry of Finance. This "harmonisation" procedure sets a ceiling on the admissible volume of the overall budget and on the various budget items. Moreover, the municipal assemblies must follow Ministry of Finance directives when adopting their budget. Even where these rules are complied with, it is not unusual for yet more "harmonisation" measures to be implemented, encroaching even further on the municipalities budgetary rights.

The municipalities may not exceed these budget estimates. Any excess expenditure must be paid back at the end of the year, to be apportioned among municipalities which have not received the local taxes provided for in the Law on the budget. This ensures some kind of financial equalisation, although it does not seem to be governed by any objective criteria. Excess expenditure by the municipalities totals in 1999 138 million Denars.

The State sometimes intervenes directly in municipal budgetary management during a given financial year, as happened in April 1999 when it imposed budgetary restrictions. It justified this decision by the fact that International Monetary Fund directives required a reduction in public expenditure and made the grant of financial aid subject to compliance with these restrictions, while at the same time asking the State to subsidise small municipalities in receipt of insufficient tax revenue. However, this is not a valid reason for abolishing municipal self-government.

The maxima set out for municipal budgets in the Law on the limitation of public consumption expenditure are extremely low; for instance, a medium-sized town such as Tetovo can only spend a maximum of DM 1 million. Even though comparisons with the corresponding situation in western European would certainly be inappropriate, they do nonetheless highlight the extremely low level of such budgets, which are virtually exhausted once the municipality has paid its employees their wages. In Skopje, as in other towns and cities, the overall budget of 78 million Denars2 is insufficient to finance the 180 municipal officials' salaries (in addition to the 2000 or so employees of public enterprises, though they are not remunerated from the municipal budget).

The ministries complain that municipalities employ too many staff, which some of them do not in fact dispute. However, they do complain that they have no legal means of shedding supernumerary staff. Clearly these were staff formerly assigned to the 34 large municipalities and who have had to be taken on by the old – and now much smaller – municipalities. Another group of staff, namely qualified staff of the former municipalities, has been transferred, as have their responsibilities, to the local offices of the ministries. One of the municipalities visited claimed that only 20 of its 40 municipal employees were really necessary. This situation, combined with the almost total politicisation and lack of professionalism of the public administration, makes efficient management of municipalities particularly hard to achieve. There are accordingly plans to establish a professional local government service.

Municipal budgets currently account for only 1% of public spending in Macedonia. If, for the purposes of comparability with the figures for other States, we add 1 to 2% in respect of special grants from central funds and specific municipal budgets for provision of public services, a total of only 2 to 3%3 is transferred for municipal expenditure. In the absence of consolidated statistics for the various public budgets, these figures can only give an approximate idea of the scale of the problem. However, they do evidence the fact that the municipalities have very few powers and only minimal funding, even though they were promised much more when the legislation was being drafted. These promises were broken inter alia when the Law was being implemented. All the powers assigned to municipalities by the Law on Local Self-Government are conditional on a special law governing the tasks in question. This enables the State to completely overturn the original provision.

The Ministry of Finance is considering increasing municipal budgets by 10% per annum in the coming years. The municipalities’ share would thus rise from 1 to 1.1% next year, and it would take 10 years for this share to break the 2% barrier. This objection has not been challenged, which suggests that the Ministry of Finance has no medium-term plans for improving the municipalities’ position and that it has been unable or unwilling to take on board the strategy paper – very close to the Charter – produced by the Ministry of Local Self-Government. It should be noted that no representative of the Ministry of Finance took part in the drafting of the strategy paper, whose author was dismissed for political reasons with the change of government, whereas the departments concerned would gladly have kept him on. This further illustrates the degree of politicisation of the civil service.

In addition to their purely administrative functions, the municipalities must use the exiguous resources at their disposal to ensure municipal planning and development, supervise financial activities, carry out inspections and manage social welfare and civil protection services. These are all that remain of the powers afforded by the Law on Local Self-Government following the adoption and implementation of the special acts (see also the analysis, above, of the apportionment of responsibilities in Macedonia). This is why municipalities are afraid that in fact a new Law will not improve matters. The Ministry of Finance nevertheless expects that should municipalities be given additional powers, they would also be granted additional financial resources, the decisions then being made on a case-by-case basis. It is to be hoped that this system will help to establish the principle of correlation.

Many municipalities have fallen individually foul of State undertakings, but this applies particularly to those in the western part of the country, which have had, and sometimes still have, to take direct responsibility for accommodating refugees. Some of these municipalities that have been unable to execute the missions assigned to them by law because of financial problems are worried that direct State intervention will threaten their autonomy.

The Ministry of Finance argues that the budgets it draws up take account of the municipalities' own tax revenue, ie that the municipalities finance themselves from their low level of tax revenue. This is partly true, but is no excuse for the wholly inadequate level of municipalities’ own revenues, and what is more only applies to old municipalities which pre-date the territorial reform. In the case of all the new municipalities, but also old ones that have been split up into several different municipalities, earmarked resources have had to be redistributed on the basis of the old budgets. Three fairly rough percentages were used for this distribution, viz 80% for the number of inhabitants, 10% for the area covered by the new municipality and 10% for the number of associated municipalities.

Naturally, budgets defined in this manner only partly reflect real financial needs. For instance, no account is taken of the liabilities represented by staff who used to work in the larger municipalities but who now only constitute a financial burden, or of, for instance, exceptional expenditure on municipal rehabilitation areas.

In 1992 the central State took over many items of municipal property, including assets funded by municipal resources, such as the sports facilities at Skopje. Only a small proportion of this property has been returned to municipal ownership. On a legal level, State take-over of property entails for the State the obligation to meet the cost of maintaining that property. The municipalities complain, however, that they are themselves having to finance even the most urgent repairs. There is a pressing need for legislation on the apportionment of property between the State and the municipalities, in accordance with the principle of subsidiarity and subject to the allocation of adequate resources. Such legislation should also clarify issues of ownership in the private sector so as to avoid unnecessarily complicating direct investment by foreign undertakings.

The municipalities affected by the influx of refugees from Kosovo exhausted their annual budget in just a few months but have only been refunded the direct costs, after considerable delays. This also applies to the financial aid from the European Union. So far, the European Union has pledged 25 million Euros for direct costs, yet the sums paid to date have been collected by the State, rather than directly by the municipalities. Given that indirect costs are reimbursed under the equalisation system (see above) and that this system plays only an insignificant role, the municipalities in question are in a particularly precarious situation4.

Land for building – the decision to release which rests wholly with the State – is especially problematical. The State decides on land use plans and even on building permits. The municipalities, which are responsible for providing services, complain that the attendant direct and indirect costs are not covered by the charges established by the State. Moreover, the entire responsibility for planning and deciding on the apportionment of land between residential and commercial areas and the provision of services for such plots ought to be transferred to the municipalities.

3. Municipal responsibilities

The Law on Local Self-Government assigns the municipalities responsibilities in 32 different fields, but a whole series of specific laws has overturned a good many of the relevant provisions. On closer inspection, it becomes apparent that the few responsibilities transferred to the municipalities primarily correspond to the decentralised implementation of activities managed at State level, ie to devolved State powers. Accordingly, the municipalities have exclusive responsibilities only for fire services, civil protection and kindergartens. Nevertheless, in response to further probing we were informed that in practice the municipalities had no real decision-making powers, even in connection with kindergartens. Virtually all the powers traditionally assigned to municipalities are either executed entirely by the State or else exercised by the municipalities on behalf of the State, and this principle even extends to culture and sport. The ministries’ local offices in the 34 old municipalities play an important role here and have taken over not only the facilities but also the best staff. The municipalities are therefore quite rightly demanding that the scope of their responsibilities be extended to the same level as those in western European countries. They would also like to have the legal means of enforcing their powers. They are anxious to be able in future to exercise responsibilities in the fields of social assistance, kindergartens, nursery schools and first aid within the health system.

Actual budgetary appropriations are used for municipal (and particularly town hall) management as such, viz telephone services, water, electricity, travel and transport expenses, supplies, fire services and spatial planning.

4. Territorial reform and local authority financing

As we briefly mentioned above, the 1996 Law on territorial division increased the number of municipalities from 34 to 124. Currently, the smallest municipality has 456 inhabitants; the biggest is Skopje, which has 440 760 inhabitants and a special status. The Association of Municipalities of Macedonia was unable to provide any accurate statistics on the breakdown of municipalities in accordance with size. According to the Phare project report, 60% of municipalities have under 10 000 inhabitants and virtually 50% under 5 000 inhabitants. Most of those interviewed are hoping and expecting that a revision of this territorial reform will reduce the number of municipalities. Moreover, we were told that many new municipalities had no competent administrative services and that they were too small to set up any efficient administrative structure. Furthermore, the State considers that any municipality which has not managed to establish a proper budgetary footing in four years of existence has no raison d'être. That seem rather an exaggeration when we consider the municipalities' general financial situation. The problems facing municipal authorities are further exacerbated by the fact that the various ministries have their own departments – the local offices already mentioned several times – in the municipalities. These offices have very extensive attributions and powers that are seldom clearly delimited, which gives rise to friction.

5. Fund-based management versus uniform budgetary management

Unlike the type of uniform budgetary management practised in modern western democracies, financial management in the "former Yugoslav Republic of Macedonia" is still very much based on specific funds, which is obviously unconducive to any rational decision-making process. For example, alongside the public budget there are specific funds for pensions, employees, roads, public health and municipal management, all of which have governing bodies. The municipalities are affected not only by the administrative fund but also by the road-building fund, which is also used for building and maintaining municipal roads and streets. Every year 20% of the funds for road-building and maintenance are earmarked for financing local roads and 15% for streets, although such appropriations do not come under the municipal budgets. In practice, municipal infrastructures are entirely financed and put in place by the State rather than by the municipalities themselves, usually through specific funds. The municipalities submit project applications to the fund's governing body, which then takes a discretionary decision on them and on the manner in which any projects it accepts will be implemented. Moreover, no municipality could finance the laying of 10 metres of piping or the construction of 100 metres of roadway from its own resources.

The fund principle also applies within the municipalities themselves, given that some services traditionally provided by the municipalities such as water and electricity supplies, sewage treatment and household waste collection are ensure (if indeed they are ensured) by public enterprises. Although the latter depend de jure on the municipality (unless they have been privatised), their incomings and outgoings are never mentioned in the municipal budget. Apart from the city of Skopje5, which has its own public transport network, all the other towns and municipalities have State-managed transport networks. When comparing municipal budgets with those in other countries we must bear in mind that in “the former Yugoslav Republic of Macedonia" the municipal budget is, to quote the Phare project report, a residual one.

Public production and distribution enterprises are funded not only from charges and levies, the amount of which must be approved by the State, but also from public subsidies. This system, like others for allocating financial resources, is highly politicised and is thus an impediment to a rational investment policy. Here again the municipalities ought to have full self-governing powers. Although the mayor is the head of these public enterprises, his ability to influence what they actually do is relatively limited. The municipal council simply takes note of the public enterprises’ programmes and has scarcely any leverage. Decisions concerning the activities of these enterprises rest in practice with the bodies that finance them, ie with the State through its funds. It is significant that the debate on reforming public enterprises forms part of the wider review of future administrative reform.

These enterprises are also affected by financial problems and the general economic crisis, which leads to outstanding debts on the part of both individuals and enterprises and delays in wage payments.

Consideration is being given to privatising such enterprises. In view of the low, or even non-existent potential for cost-effectiveness, the many unpaid bills (notably on the part of enterprises operating in the municipality itself) and the fact that rates will probably continue to be fixed by the State, any such privatisation will be mainly theoretical, amounting to little more than a change of legal form.

The municipalities that used to be part of Skopje still depend on the capital's public enterprises. They must transfer part of the charges collected to the municipality of Skopje for the establishment of any new network or mains link-ups. Since the municipalities must guarantee the link-up works themselves, some mayors, such as the mayor of Orizari, feel cheated by the amount to be transferred, whereas Skopje considers the charge-sharing procedure as fair. Other municipalities on the outskirts of Skopje have still not been connected to the drinking-water mains or the sewage system. Instead of assigning such work to public enterprises, the municipalities often use private operators, which is apparently cheaper than concluding contracts with public enterprises in neighbouring municipalities.

6. Municipalities' resources

6.1 Taxes

Even though municipal budgets are set by law, the municipalities' own tax revenue plays a role not only when the amount of the legal grant is decided but also while the budget is being implemented. Municipal expenditure must not exceed its tax revenue, whereby the municipality must pay any excess expenditure back to the State. This discourages municipalities from attempting to enlarge the basis of assessment or to extend it, for instance by attracting new inhabitants or enterprises into the municipal area. The Ministry generally offsets any losses, because otherwise wages could not be paid. That having been said, the municipalities also complain about the procedure used by the Ministry for paying these amounts.

The level of taxes to be paid to the municipalities under Article 62 of the Law is so low as to be scarcely worth mentioning. The municipalities levy a kind of tax on the sale of goods and services (sales tax) (the Phare project report points out that the municipalities were promised that they could collect the corresponding sums, but this has not yet become effective), a property tax, an inheritance and gift tax and a land or property transfer tax. In some cases, this transfer tax accounts for over half of the municipality's tax revenue, whereas the percentage for taxes and duties on property and services is only about 20%. The balance comes from the other taxes and duties collected by the municipalities, but also, and above all, from a number of specific levies such as vehicle registration charges and, in particular, the bill-posting tax. Other sources of revenue include donations, a share in the profits (if any) of public enterprises operating in the municipal territory, resources generated by municipal property and fines for infringing municipal bye-laws. Revenue generated by fines imposed for infringing legal provisions laid down by authorities other than the municipality are transferred to the central budget.

Although municipalities cannot impose their own taxes and duties, they do seem to be entitled to levy an independent tax on private living space and corporate net areas. The revenue from such taxes are not subsequently chargeable to the budget earmarked for the municipality by legislation. This tax was introduced some twenty years ago, and is apparently levied in the big towns and cities, such as Skopje and Ohrid, with varying degrees of success. The average annual cost of a dwelling in Skopje is in the region of DM 100 (FF 335). If this tax were levied in its entirety, it would be a considerable additional source of income for the municipalities, and would even exceed Skopje's overall budget (78 million Denars). Even though the municipality faces major difficulties in collecting the tax itself, as only approx. 20% of those liable to this tax actually pay it, the sums collected nevertheless account for 3 to 4 times the total municipal budget. The high cost in time and money discourages municipalities from legally enforcing the collection of the tax. Furthermore, companies can apparently partially evade this tax by agreeing to perform work for the municipality, and this is what happens in Skopje. For all these and other political and social reasons, many towns and cities balk at following these examples.

Rural municipalities face specific budgetary problems, given the virtually non-existent yield from taxes on property and services and the minimal revenue from other taxes.

6.2 Other resources

There are very few resources at local level other than the taxes and charges used to finance public enterprises under the above-mentioned specific budgets.

While Macedonian municipalities can contract loans and credits from national bodies, the economic crisis and the fact that municipalities can offer few guarantees ensure that the funding of such loans remains purely theoretical. As a general rule such credits are only granted for debts left by former municipalities in the form of unpaid bills. In fact there is no chance of any further loans being granted to the municipalities. The Ministry of Justice is responsible for monitoring all loan applications as well as supervising the municipalities, even though there is a separate Ministry of Local Self-Government. The latter in fact has no administration of its own, and its influence on government action is accordingly slight. Its already small establishment has been further reduced by the loss of several posts following the change of government.

One of the main shortcomings of the financing system is the lack of appropriations from the State budget, especially non-earmarked general appropriations. Adopting a broader definition, the sums transiting through funds might be regarded as earmarked appropriations, even though they are not included in the municipalities' public budgets.

There are plans to introduce a value-added tax with a standard rate of 19% and a reduced rate of 5%, with no simultaneous reduction of other taxes. This measure will give the State sufficient room for manoeuvre to bring about a substantial improvement in the municipalities’ budgetary situation. Consideration ought also to be given in this context to the introduction in the near future of non-earmarked, general grants. It would also be possible to apportion the municipalities’ share – to be determined in the law establishing value-added tax – on the basis of population, which would also be a measure of financial equalisation. However, the Ministry of Finance has no such plans, arguing – not very convincingly – that introducing any element of complication into the legislation would be time-consuming.

Instead, the Minister for Local Self-Government is planning to issue a new specific law regulating municipal funding, as it considers the current situation as a stopgap. The new law will take account of experience abroad, particularly in Poland, the Czech Republic, and possibly Germany. In practice, this new text, which, according to information from the Ministry of Finance, now has the status of a Bill, provides only for the annual 10% increase in municipal budgets, with no notable increase in other sources of municipal finance. The fact that the committee of experts of the Ministry of Local Self-Government has a counterpart in the powerful Ministry of Finance is significant. The latter is expected to complete its work in April and publish its conclusions in June. This perhaps explains why the ministries in question pursue very different policies.

7. Conclusions

The only conclusion to be drawn from the public finance situation of Macedonian municipalities is that this country currently has no effective system of local financial self-government corresponding to the principles set out in Article 9 of the European Charter of Local Self-Government.

8. Proposals

1. The system whereby the State fixes the municipalities' budgets should be replaced by one in which the municipalities have autonomous budgetary rights. The current situation is manifestly incompatible with Article 4 (4) of the Charter;

2. Consequently, in accordance with Article 8 (2) and (3), any administrative supervision of municipalities should aim only at ensuring compliance with the law, except in the case of delegated powers;

3. To take up the proposals of the Phare project, the Ministry of Local Self-Government should have competent staff and increased political prestige in order to establish a system of local self-government compatible with the spirit of the Charter;

4. In accordance with Article 4 (3) the municipalities should be attributed greater powers, which they should exercise under their own responsibility. “The former Yugoslav Republic of Macedonia" lags far behind western Europe in this respect; even in fields where municipalities exercise responsibilities that involve major expenditure, the organisation and financing of these activities are decided on by bodies outside the municipalities, as the Phare project report points out (Analysis of Phare documents, summary);

5. Article 9 (1) of the Charter stipulates that municipalities must be provided with adequate financial resources. It would therefore be useful to overhaul the structure of municipal resources by transferring high-revenue taxes to them. That having been said, the competent Reform Commission has not been notified of any plan to improve the financial situation of municipalities by means of additional tax revenue;

6. Article 9 (3) lays down that municipalities should be empowered to determine the rate of at least some of the local taxes that they collect. It would also be worth considering whether the tax on living space and net areas, which is currently partly levied by the municipalities, should not instead be collected by the national tax authorities for the benefit of the latter, possibly using social criteria to define the basis of assessment by contract. Urgent measures are needed to combat tax fraud;

7. Furthermore, in accordance with Article 9 (7), a system of general grants should be introduced for the municipalities, apportioned on the basis of objective criteria. The requisite budgetary resources might be secured by allocating to the municipalities a proportion – to be decided – of the yield of the value-added tax;

8. A system of financial equalisation, primarily funded by appropriations from the central State, should be introduced in accordance with Article 9 (5) and maintained until municipal resources have increased to a satisfactory level. At all events the horizontal inter-municipality financial equalisation procedures should be such as to encourage municipalities to develop and control the assessment basis for the taxes they levy. A first step towards this kind of system of financial equalisation might be to allocate a proportion of the yield of the value-added tax on the basis of population;

9. In pursuance of Article 6 (1), we should consider whether an amendment to financial legislation would not serve to clarify the whole area of municipal budgets. This would mainly involve ensuring that the budget covered all the municipality's activities, so that the municipal council could take rational decisions and identify the costs of other budgetary options ("opportunity costs");

10. In accordance with Article 10 (1), local authority consortia should be granter wider powers to participate in reforming local government legislation and the financial and budgetary system.

APPENDIX - Preparation of the report in the situation of local democracy in « the former Yugoslav Republic of Macedonia »

Composition of the délégation of the Congrèss of Local and Regional Authorities of Europe

Mr Jean-Claude FRECON (France), Mayor of Pouilly-lès-Feurs, Vice-President of the Association of Mayors of France, Rapporteur of the CLRAE for "the former Yugoslav Republic of Macedonia", member of the working party responsible for monitoring the European Charter of Local Self-Government accompanied on 8 March 2000 by Mr Alain CHENARD, President of the Congress of Local and Regional Authorities of Europe

Mr Jean-Marie WOEHRLING (France) et Mr Günter HEDTKAMP (Germany), experts

Mr Vladimir RISTOVSKI, Director of the Council of Europe Information and Documentation Center

Mrs Mirjana LOZANOSKA, Delegate of the Local Democracy Agency in Ohrid

Mrs Mirjana ALEKSOSKA, interpreter

Mr Ulrich BOHNER, Deputy-Head of the Congress Secretariat

Mrs Sylvie AFFHOLDER, Congress Secretariat

Programme of the Mission of 20-24 september 1999

1 The name "Macedonia" is used for the purpose of description and for the reader's convenience, and does not prejudge the Congress's position with regard to the state's name.

2 Last year Skopje was granted appropriations of 31 million Denars from central funds. The city receives no extra financial aid in respect of its status as the capital.

3 In 1996, the public expenditure of the "former Yugoslav Republic of Macedonia" (approx. 50% of GNP in 1996) totalled some 80 billion Denars, 42 billion of which came from the central budget, 34 billion from extra-budgetary funds and 0.78 billion from the municipalities. Public expenditure was decreased to 47.6% of GNP in 1997, falling to 36.44% in 1998. The proportion paid by the municipalities rose to 0.883 billion in 1998; the total resources from funds and grants fell from 1.545 billion in 1996 to 1.497 billion in 1998.

4 For example, municipalities that lie on the outskirts of the larger towns and cities and have inhabitants in receipt of social welfare assistance face major difficulties. Suto Orizari, for instance, officially has a population of 17 700, but in fact many people live in unauthorised makeshift shelters in the municipal area and the municipality has to provide them with the basic welfare benefits. Payments in such municipalities, including salaries, are often delayed by several months

5 Nine municipalities on the outskirts of the old Skopje municipality have become completely self-governing. Skopje now comprised the city as such and seven associated municipalities, although the latter have autonomous administrative structures.