(20/04/00)

Rapporteur: Mr Jean-Claude FRECON (France)

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EXPLANATORY MEMORANDUM

FOREWORD

I. INTRODUCTION

1. With the agreement of the Committee of Ministers and on the basis of the explanatory report on the European Charter of Local Self-Government, the Congress assumed responsibility for the political monitoring of the Charter’s implementation in the signatory states. Monitoring is therefore the direct responsibility of local elected representatives, who are ultimately the real beneficiaries of the Charter’s provisions.

To monitor the implementation of the Charter, the Congress, from its inception, set up a working group for which I am the rapporteur. The group, comprising 10 members of the Chamber of Local Authorities, is chaired by Mr Gerhard ENGEL (Germany) and assisted by a group of independent experts, led by Professor Alain DELCAMP (France).

2. The working group examines the legal foundations of local self-government and the conditions in which it operates in states which have merely signed the Charter. The examination procedure therefore functions as a political incentive rather than as a system of legal penalties. It aims to respect the wide variety of models and practices concerning local self-government in the various European states and does not seek to standardise them. Accordingly, the working group endeavours to take account of each state’s individual characteristics and to interpret the Charter’s provisions progressively.

3. Owing perhaps to their combined political and legal nature, these activities are a powerful political means for the Congress to encourage recognition of the fundamental principles of local democracy by the Council of Europe’s member states. The monitoring system employed by the Congress is therefore a particularly suitable compromise solution for ensuring compliance with an international treaty dealing with the internal organisation of individual states.

4. The working group carries out its tasks in two ways:

a) drawing up general reports on the implementation of different articles of the Charter (ex officio monitoring);

b) examining direct complaints from local authorities alleging that their own state authorities have failed to comply with the Charter’s provisions.

II. THE FIRST THREE REPORTS ON MONITORING THE IMPLEMENTATION OF THE EUROPEAN CHARTER OF LOCAL SELF-GOVERNMENT

5. In this context, taking account of the work carried out by the former Conference of Local and Regional Authorities, the working group’s first report on monitoring the implementation of the Charter (Rapporteur: Mr Jean-Claude VAN CAUWENBERGHE (Belgium)) considered in some depth the preliminary issues of the incorporation of the Charter into the legal systems of ratifying countries and the remedies available to local authorities in cases where the principle of local self-government is violated by domestic laws and regulations. Moreover, a significant part of this first report was devoted to the conformity of legislation in the above-mentioned countries with the various provisions of the Charter.

6. After it had been approved by the working group, the report was presented at the first plenary session of the Congress (31 May - 3 June 1994) by Mr Giorgio DE SABBATA (Italy). On the basis of the report and in accordance with the working group’s proposals, the Congress adopted Recommendation 2 (1994) to the Committee of Ministers and Resolution 3 (1994). Hence, these texts represent the first result of the CLRAE’s ex officio monitoring of the implementation of the European Charter of Local Self-Government.

7. In its Recommendation 2 (1994), the Congress noted that the Charter had been incorporated into domestic law in some countries, but not in others. It consequently requested the Committee of Ministers to study these issues and to inform it about the existence of procedures which local authorities could use to verify the conformity of domestic legislation with the Charter in countries which had ratified the Charter, whether or not it had been incorporated into domestic law.

8. The Committee of Ministers responded to this request by informing the Congress of its decision “to ask the Steering Committee on Local and Regional Authorities (CDLR) to provide it with the information it needed to reply to CLRAE Recommendation 2 (1994)”. At its 16th meeting (Strasbourg, 6-8 December 1995), the CDLR adopted a report (CM (96) 8 Addendum revised) providing the Committee of Ministers with the information it needed to reply to the Congress’s Recommendation 2 (1994). The report contains the information sent to the CDLR by 21 national delegations.

9. The Committee of Ministers submitted the CDLR’s report to the Congress. In its Resolution 34 (1996), the Congress took note of the report and decided to submit it to the working group responsible for monitoring the implementation of the Charter, for more thorough examination. The working group decided to undertake an analysis comparing the CDLR’s report, which contained the replies of the various ministries responsible for local authorities, with the summary of information provided by members of the group of independent experts and contained in the first report on monitoring the implementation of the Charter, drafted by Mr VAN CAUWENBERGHE in 1994.

10. On the basis of this analysis, the working group drew up a response as well as a draft recommendation proposing that the Committee of Ministers adopt a recommendation on the implementation of the European Charter of Local Self-Government, to be addressed to all ratifying countries. Ms Gaye DOGANOGLU (Turkey) and Mr Alan LLOYD (United Kingdom), rapporteurs, presented these documents at a meeting of the Standing Committee of the Congress (Strasbourg, 5 and 6 February 1998), which unanimously adopted the working group’s proposals set out in Recommendation 39 (1998). The Committee of Ministers gave a negative reply to the recommendation in its decision CM (99) 100 of 8-9 September 1999.

11. At the same time as drafting this response concerning the Charter’s incorporation into the legal system of ratifying countries and legal protection of local self-government, the working group continued to monitor the implementation of the Charter. It thus prepared a second report on the monitoring of local authorities by central and regional authorities. On the basis of this text, at its 3rd plenary session (Strasbourg, 2-4 July 1996) the Congress adopted Recommendation 20 (1996), dealing, inter alia, with the application of Article 7, paragraph 1 and Article 8 of the Charter, which it submitted to the Committee of Ministers. On this occasion, the Congress also adopted the above-mentioned Resolution 34 (1996). These texts represent the culmination of the second ex officio monitoring assignment concerning the implementation of the Charter.

12. In order to reply to Recommendation 20, the Committee of Ministers again requested the CDLR’s opinion. At its 20th meeting (Strasbourg, 26-28 November 1997), the CDLR proposed that the Committee of Ministers “transmit to all member states the CLRAE report on the application of all the above-mentioned articles and elaborate a recommendation of the Committee of Ministers to all member states concerning the control on local authorities’ actions, giving consideration to the proposals in paragraph 9 of CLRAE Recommendation 20 (1996)”.

This decision by the CDLR went even further than the recommendations of the Congress, which had merely asked that the above-mentioned texts be transmitted to all ratifying countries.

The Committee of Ministers welcomed the CDLR’s proposals in its decision CM/Del/Dec (96) 574/9.1 and adopted Recommendation No. R (98) 12 on supervision of local authorities’ action, with reference to CLRAE Recommendation 20. This text was also issued to the member states, together with the Congress’s report on the subject.

13. The procedure followed in the preparation of the first three reports on monitoring the implementation of the Charter ensured a detailed, successful dialogue from beginning to end between the Congress, responsible for the political monitoring of the Charter’s implementation, and the signatory states, with the Committee of Ministers acting as intermediary. Nevertheless, the working group observed a number of weaknesses in the procedure, one major drawback being its length.

To address this problem, the Congress proposed in paragraph 15a of Resolution 34 (1996) that the CDLR’s opinion be sought before recommendations on the subject were submitted to the Committee of Ministers. At its 20th meeting, the CDLR welcomed this proposal, which has accordingly been put into effect in the preparation of the present report.

14. This report is the result of extremely fruitful co-operation between our working group and the CDLR. At its 25th meeting (Strasbourg, 7-9 June 2000), the CDLR is expected to adopt a draft recommendation on “Local taxation, financial equalisation and financial grants to local authorities” with a view to its final adoption by the Committee of Ministers. The co-operation procedure developed on the basis of Resolution 34 (1996) has enabled the Congress to state its views on the draft recommendation through the Standing Committee’s adoption in March 2000 of an opinion drawn up by the working group (Opinion … (2000)). The opinion took account of the conclusions of the present report on the financial resources of local authorities in relation to their responsibilities. A preliminary version of these conclusions was forwarded to the CDLR by the Congress President in November 1999 to enable the CDLR to take them into account in drawing up the draft recommendation of the Committee of Ministers on local taxation, financial equalisation and financial grants to local authorities.

III. THE FIRST THREE INTERNATIONAL CONFERENCES ON THE CHARTER

15. In order to examine more closely the issues dealt with in the reports and to demonstrate the Charter’s potential (following the conference held in Barcelona from 23 to 25 January 1992, which played a decisive part in the setting up of a genuine system for monitoring the implementation of the Charter as part of the Congress’s activities), the working group has organised other specific international conferences:

a) the conference celebrating the 10th anniversary of the European Charter of Local Self-Government (Copenhagen, 17-18 April, 1996), which, on the basis of an appraisal of the Charter’s implementation ten years after its opening for signature, revealed its widespread application, the broad range of situations to which it applies and the intention of European states, especially the new democracies in central and eastern Europe, to refer to it in their domestic legal systems;

b) the conference on the application of the European Charter of Local Self-Government by the courts (Barcelona, 24-26 April 1997), which highlighted the fact that although the activities involved in the monitoring of the Charter’s implementation by the Congress are essential, they form only the international component of the procedures for applying its provisions and that judicial supervision by national courts and tribunals should be the other essential element of these activities.

IV. FOURTH REPORT ON “THE FINANCIAL RESOURCES OF LOCAL AUTHORITIES IN RELATION TO THEIR RESPONSIBILITIES: A LITMUS TEST FOR SUBSIDIARITY”

16. The subject of the fourth general report on the Charter’s implementation (following the first three reports on the incorporation of the Charter into the legal systems of ratifying countries and the question of monitoring) was determined by the working group at its second meeting in Strasbourg in 1996, when it immediately stressed the importance of local authorities’ financial resources (Article 9 of the Charter) with regard to their political and administrative autonomy. This was also the theme of one of the conferences of European ministers responsible for local government (Lisbon, 10 and 11 October 1996). In the same context, the working group also considered the impact the introduction of the single currency would have on local authorities in the European Union, whose resources might be cut to enable countries to meet the macro-economic conditions required by the Maastricht Treaty. It concluded that local democracy would cease to exist if financial resources were insufficient and that the fourth report should therefore be devoted to the issue of local finances.

17. The group also felt that the practical application of two major articles of the Charter still needed further examination: Article 9 on local finances and Article 4 on the scope of local self-government. Accordingly, in view of the relationship between local authorities’ responsibilities and the resources needed to exercise them, it decided to examine the issue of local finances together with that of responsibilities.

On the basis of these considerations, the working group officially selected the theme of local authorities’ financial resources in relation to their responsibilities (Article 9, Article 3, paragraph 1 and Article 4, paragraphs 1-5 of the Charter).

By tackling this subject, the group began work on its fourth ex officio monitoring assignment concerning the implementation of the European Charter of Local Self-Government.

18. After its initial examination of the replies to the questionnaire on local finances submitted by members of the group of independent experts, the working group selected a number of specific issues which merited particular attention:

- the concept of local taxes and the right of local authorities to determine the rate of these taxes;

- the general trend towards reducing local authorities’ own resources and increasing shared taxes and transfers;
- state responsibility for distributing financial transfers and the purposes of financial equalisation;

- the respective proportions of general and specific (earmarked) grants in local budgets;
- the unstable and precarious nature of the sources of local authority funding;
- central authorities’ increasingly supervisory role with regard to local authority budgets;
- the impact of national financial difficulties on local self-government, particularly in countries having to meet criteria laid down in the Maastricht Treaty;
- public opinion concerning local taxes and the pros and cons of the joint financing of public projects by the state and regional or local authorities.

19. The study provided the working group with detailed information on the way in which local budgets have developed in the various countries, the level of local taxes (exclusively local taxes) in local budgets, the distinction between municipal taxes (which have the same basis of assessment as state taxes but whose rate is determined by the municipalities) and shared taxes (which are levied and whose rate is determined by the state), the concept of adequacy, resources procured through capital raising, local property tax and local corporation tax. The study showed in particular that local authorities in only eight European countries could boast a proportion of “own” resources higher than 50%. It pointed out that money raised through exclusive taxes was constantly falling, often being replaced by transfers. The working group believed that this constituted a restriction on the exercise of local self-government.

20. In the light of this information, Prof. Delcamp produced an initial questionnaire on local authorities’ responsibilities and whether they were commensurate with the financial resources available for exercising them. Using the experts’ replies as a basis, Mr Delcamp prepared a further study. After examining the study, the working group decided to review the timetable of its work on the final report. This change of approach was due to the difficulties of drafting a single text dealing with local authorities’ financial resources in relation to their responsibilities. More specifically, the working group had to come to terms with a wide variety of different practices regarding the transfer and delegation of powers to local authorities. Every country has its own established way of doing this, each based on different principles such as general responsibility or the listing of specific responsibilities.

21. Analysing these different systems in relation to local finances proved an especially complex task since very few members of the group of independent experts replied to the questionnaire on responsibilities and the only statistics available to the working group were those contained in tables drawn up by the CDLR for its publications on the functioning of local self-government in the member states. In the circumstances, the working group thought that it was very difficult to verify the financial resources available to local authorities to enable them to carry out their tasks. While remaining convinced that linking responsibilities to financial resources in a single report was politically expedient, the group thought that the balance between the two was also dependent on national political and institutional factors which should be studied in greater depth and incorporated into the final report, if it were to be truly complete.

22. Bearing these difficulties in mind, the working group decided to present at the 5th plenary session (Strasbourg, 26-28 May 1998), a preliminary report dealing only with local finances and simply opening the debate on the relationship between resources and responsibilities. On the basis of this interim report concerning only the financial resources of local authorities, the Congress adopted Resolution 71 (1998) at the 5th plenary session and instructed the working group to continue its efforts to draw up a final report also covering the question of responsibilities. Encouraged by the Congress’s instructions, the working group therefore continued its work on drawing up the final report on the relationship between the financial resources and responsibilities of local authorities.

23. To that end, a second questionnaire concerning matters such as the apportionment of specific responsibilities among local authorities was sent to the members of the group of independent experts on the Charter. The working group was eventually able to draw up a detailed report on the subject using the replies it received. However, in view of the complex, political nature of the question of whether financial resources were commensurate with responsibilities, the working group decided to seek validation of its work at a further international conference. At the invitation of the President of the Marches Regional Council, the conference was held in Ancona (Italy) from 16 to 18 October 1999.

24. The working group’s aim in holding the conference was to show that the balance between local authorities’ financial resources and responsibilities could have far-reaching implications for their political relations with higher-level authorities, whether central or regional. The extent to which resources are commensurate with responsibilities is the true yardstick of the degree of autonomy enjoyed by local authorities. The working group therefore considered that if the transfer of certain responsibilities to local authorities was accepted as one of the fundamental criteria for local self-government, it should also be acknowledged that the transfer of such responsibilities should always be offset by the allocation of sufficient resources.

25. In this connection, the discussions at the Ancona Conference provided a clear illustration that:

- the subsidiarity principle – as defined in Article 4, paragraph 3 of the Charter – is one of the most effective criteria for ensuring the democratic apportionment of powers among the various levels of government and, consequently, the exercise of genuine local self-government by the authorities concerned;

- proportionality between local authorities’ financial resources and their responsibilities is a litmus test for subsidiarity and hence for the degree of autonomy enjoyed by such authorities.

26. These ideas were encouraged by the Congress President, who, in his opening address at the conference, was anxious to point out that proper application of the subsidiarity principle was a practical way of ensuring effective, open government decisions, adapting them to the needs of citizens, maintaining the diversity that was an asset to our continent and, lastly, promoting sustainable development based on high standards of democracy.

He maintained that states had no option but to introduce decentralised, autonomous government, as it would be difficult for central governments to remain effective and democratic without sharing some of their powers with elected institutions close to the citizen. He added that according to the principles of our organisation, government decisions could not be considered in abstract terms, but – with a view to democracy – must always be justified by effective results. The achievement of local self-government was thus a prerequisite for implementation of the subsidiarity principle, as the sharing of public responsibilities between the state and local and regional authorities was meaningless unless the latter enjoyed a certain degree of political, administrative and financial autonomy. In more practical terms, such autonomy existed only where local and regional authorities had the right to exercise responsibilities in those areas that affected their communities most directly.

27. In order to exercise these responsibilities, local and regional authorities must have sufficient financial resources of their own, which are freely available and commensurate with their powers. Using the working group’s initial conclusions as a basis, the Ancona Conference provided a number of indications as to whether European local and regional authorities actually possess sufficient resources for the responsibilities assigned or delegated to them. These indications have now been incorporated into this report, enabling us to assess the extent to which the principle of subsidiarity is currently applied in Europe.

28. Admittedly, in view of the difficulty of the task with which the working group has been entrusted, the report as it now stands is probably still unable to provide an accurate overview of the relationship between resources and responsibilities. However, it is to be hoped that the conclusions of this fourth report on monitoring the implementation of the Charter will serve as a useful step in this direction.

29. Besides the discussions at the Ancona Conference, the conclusions of this report are based on the two studies that the group of independent experts, led by Mr Alain Delcamp, has carried out since 1996: the first (Volume I of this report) deals with financial resources and, as stated above, was presented to you at the Congress’s 5th plenary session; the second (Volume II of this report) deals with responsibilities and is being presented for the first time.

30. On the basis of these conclusions, as rapporteur for the Working Group on the European Charter of Local Self-Government, I would urge you to adopt the draft recommendation and the draft resolution relating to this report.

V. CONCLUDING REMARKS

31. The working group regards the 7th CLRAE plenary session, in the year 2000, as a milestone in the Congress’s political monitoring of the implementation of the European Charter of Local Self-Government. In this context, as we have seen, the working group responsible for monitoring has completed four monitoring assignments under its ex officio procedure. This has led the Congress to adopt a considerable number of recommendations and resolutions addressed to the Committee of Ministers and the relevant authorities in the Council of Europe’s member states. These texts have probably played a part in strengthening local self-government in the member states. They have certainly led to frank, constructive dialogue with the relevant authorities. In our opinion, such dialogue is in itself a major achievement.

32. Following this CLRAE plenary session, the Council of Europe is to publish, by the end of 2000, at the working group’s request, a high-quality book emphasising the Congress’s various efforts to encourage states to adopt the Charter, to ensure compliance with the Charter in practice and to develop and operate our monitoring system.

33. In addition, in monitoring implementation of the Charter at the request of individual authorities over the past two years, the working group has examined a number of complaints from local authorities alleging infringements of the Charter by higher-level authorities. While ensuring that the legitimacy of decisions taken by the central authorities is respected, the working group has attempted to give an encouraging reply to all those who have submitted complaints, in the hope of improving the situation that caused them to complain.

34. In some cases, where there have been serious, blatant infringements of the Charter, the working group has immediately referred the matter to the Congress Bureau so that the Bureau may intervene on a political level and a report may be drawn up by the appropriate CLRAE authorities.

35. Before saying a few words about the future, I would like, on behalf of our Congress, to express my warmest thanks to the group of independent experts which has assisted the working group since 1994 and without which it would have been impossible to obtain the results described above. In particular, we should express our profound gratitude to Mr Alain Delcamp, chair of the group of independent experts, whose skills, political nous and approachability have enabled him to direct and guide our work over the years, ensuring co-ordination and continuity which would otherwise have been impossible.

36. The substantial reforms being approved at this plenary session will mean that the Congress takes on a new identity, becoming stronger and pursuing even more ambitious objectives.

In this context, it would appear that the Congress’s responsibility for political monitoring of the implementation of the Charter has been formalised by the Committee of Ministers, which referred to this function in its new Statutory Resolution, the text providing a basis for the reform of the Congress. In particular, this responsibility is likely to be entrusted to the Chamber of Local Authorities of the new Institutional Affairs Committee.

37. These decisions are to be welcomed as, in my view, they are a recognition of the Congress’s efforts over the past few years. By formalising the Congress’s activities on monitoring the Charter, the Committee of Ministers no doubt wished to contribute towards strengthening both the Congress itself and European legal safeguards for local self-government.

I am convinced that the strengthening of these two dimensions is a prerequisite for consolidating local democracy throughout our continent.

THE FINANCIAL RESOURCES OF LOCAL AUTHORITIES

Study prepared as part of the

4th General Report on Political Monitoring of the Implementation of the European Charter of Local Self-Government: “The financial resources of local authorities in relation to their responsibilities: a litmus test for subsidiarity”

(Application of Article 3, paragraph 1, Article 4, paragraphs 1-5 and Article 9 of the Charter)

by Alain DECAMP
Chairman of the Group of Independent Experts on the European Charter of Local Self-Government

Volume I

FOREWORD

This third consolidated report of the work of the group of experts forms part of the systematic analysis process which the working group, under the aegis of the CLRAE, decided to undertake as part of its task of monitoring the application of the European Charter of Local Self-Government. The report is concerned with the application of Article 9, which contains the Charter’s provisions regarding finance. It also tries to outline the problems concerning the adequacy of financial resources in relation to the current distribution of responsibilities between local authorities and higher-tier elected authorities. Its authors, therefore, also bore in mind the provisions of Articles 4.3 and 4.4 of the Charter, concerning powers and responsibilities.

This report deals mainly with finances, however, and provides, as far as possible, a comprehensive and helpful overview of the situation in all Council of Europe member states. It considers in turn the place of local budgets and the different ways of funding them and contains a detailed study of the main sources of income (taxes, transfers, fees and charges, capital raising). It also evaluates the real financial autonomy of local authorities in each country concerned by means of previously unpublished tables and graphs.

Rather than wait for a report dealing with both finances and responsibilities - which, given current levels of knowledge of the various national situations, would be virtually impossible to draw up - the working group decided to submit this initial contribution without delay, in order to resume and intensify the discussions already begun with the CDLR and with the Committee of Ministers itself. The aim is to complete, as quickly as possible, a joint assessment of the situation which might help to change governments’ attitudes to a vital issue even if they are currently faced with financial and economic problems.

The working group believes that the principles of financial autonomy should be given particular emphasis because, despite some positive developments (most transfers taking the form of grants which local authorities may freely dispose of), it is apparent that the scope for genuine local taxes, ie taxes for which local councils can at least determine the rate, is narrowing. Of course, autonomy cannot be exercised without accountability. An initial glance shows immediately how unsure people are about what local authorities’ responsibilities actually are. Such uncertainty is doubly harmful: firstly, it makes the relationship between the state and local authorities very unclear, with the result that public scrutiny is impossible; secondly, it makes it impossible even to begin to compare income and expenditure, fundamental though that is to the adequacy principle laid down in the Charter.

In view of these remarks, the Working Group believes that it is all the more necessary to reinforce relations between the Congress and the Committee of Ministers with a common aim to diffuse the principles of local democracy and local self-government as effectively as possible in all European countries and further afield. This implies reinforcing the means at the disposal of the Congress to this effect so that it may carry out its mission - as it would wish - more thoroughly.

I. Step three in monitoring the implementation of the european charter of local self-government: the question of financial autonomy

This report continues on from the work carried out since 1992 by the Council of Europe's Congress of Local and Regional Authorities of Europe. In that year Resolution no. 233 (1991) was enacted, setting up a system for monitoring the implementation of the European Charter of Local Self-Goverment¹.

The report also continues on from the two first general reports produced at the request of the two previous working groups set up by the CLRAE.

The first of these reports concerned the conditions for incorporating the Charter in the different domestic legal systems², and the means providing local authorities with the right of recourse to judicial remedy. In so doing, the report concerned itself directly with the implementation of article 11 of the Charter. Since it was also the first experiment of this kind, the report provided the occasion for gathering an initial body of information about the conditions in which the various articles of the Charter were implemented in Council of Europe countries which had signed or ratified the Charter.

The main purpose of the second report concerned the supervision of local and regional authorities, whether by central government or other authorities (regional in a certain number of cases). The articles of the Charter taken into account by the report were articles 3 (the concept of local self-government), 6, paragraph 2, on administrative resources and in particular on the recruitment and management of local authority staff, 7, paragraph 1 (the free exercise of functions) and, of course, article 8, which is entirely devoted to the supervision of local authorities' activities. The scope of the report had therefore been designed with a particularly wide viewpoint.

It also continues on from the report on the Charter’s incorporation in the legal systems of ratifying countries and on legal protection of local self-government. This report in fact covers in greater detail the subject of the first section of the first general report³, in the light of the conclusions of the dialogue⁴ with the Committee of Ministers, the first results of which are found in that report.

Encouraged by Resolution no. 34 and Recommendation no. 20 (1996), which were enacted in turn by the Copenhagen Conference marking the tenth anniversary of the signature of the Charter, the third working group of the Congress, during its sessions of 7 and 8 November in Strasbourg, chaired by Mr. Gehrard ENGEL, decided to pursue the work that had been undertaken. This time the group was to tackle a subject of particular importance for the self-government of local authorities, that of finances. In so doing, the group was more than simply continuing the patient work of analysis, article by article, that it had been given by the Congress as its objective. It thus allayed the misgivings that had been expressed during the development of the supervisory system about its extension to cover financial matters, which were likely to "concern delicate questions of political subjectivity"⁵, an extension in scope which admittedly also posed certain problems of interpretation, particularly with regard to the "entitlement of local authorities" to "adequate financial resources of their own" stipulated in paragraph 9-1.

The group was perfectly aware of this difficulty, since it considered it impossible to examine the question of finances without at the same time examining that of powers and responsibilities. As a result, the scope of the study was to include not only the whole of article 9, but also paragraphs 4 and 5 of article 4, devoted to such competencies.

For methodological reasons and in view of the difficulty of preparing a comprehensive first report that used the same basic approach for all Council of Europe member states, the working group followed the experts’ suggestion of dividing the work into two phases: an initial technical report on financial resources, to be followed by a second report on responsibilities. This distinction seemed particularly appropriate since the Committee of Ministers had commissioned a study of local finances in Europe for the Lisbon Conference⁶.

Firstly, therefore, a questionnaire on the implementation of Article 9 of the Charter was drawn up and sent to the members of the Group of experts, who were able to refine and elaborate on their replies at the joint meeting with the working group, held on 22 and 23 May 1997. An initial draft consolidated report, showing the difficulty of establishing comparable figures, was also presented at that meeting. Hence, a supplementary questionnaire was sent out, with the result that a virtually definitive version was presented at the meeting on 13 October. Despite the quality of the information provided, the rapporteur was obliged to use even more statistics emanating from outside the working group than had originally been anticipated. Details of these statistics are provided in the section of the report devoted to methodology.

In spite of the inevitable imperfections of such a project⁷, the work carried out represents a major achievement since it is concerned with a very difficult subject. The level of accuracy provided with a view to drawing an effective comparison between different national situations was sufficiently high to enable the working group to make a “political” assessment of the situation of local authority finances from the local self-government viewpoint.

National contributions were made by independent experts from the following countries:

Belgium, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Lithuania, Luxembourg, Former Yugoslav Republic of Macedonia, Malta, Netherlands, Norway, Portugal, Russia, Slovenia, Spain, Sweden, Turkey and United Kingdom. The Danish and Portuguese experts also replied to the supplementary questionnaire.

This report also takes into account the observations made at the meeting on 13 October 1997.

The preliminary conclusions drawn from the experts’ replies to the second questionnaire, covering responsibilities, were also presented at the meeting on 13 October.

The discussion that followed revealed some unexpectedly serious problems:

- firstly, problems of definition. The Charter itself referred to several concepts which were hard to define clearly: own responsibilities, delegated responsibilities, full and exclusive powers, a substantial share of public affairs. One of the initial conclusions was the fact that these concepts firstly had to be clarified, possibly in a resolution interpretating them, as was recently the case with regard to Article 7.1 on the free exercise of functions.

- considerable differences of opinion with regard to the distinction between “general responsibilities” and “attributed responsibilities”, and to whether it was appropriate to list all such responsibilities in the law.

- insufficiently detailed replies on the range of responsibilities covered and, more important, a failure to provide the quantitative information necessary, a priori, to assess the “adequacy” of resources in relation to responsibilities.

It was therefore decided to delay presenting the final report until 19 and 20 January 1998.

A wide-ranging and very interesting exchange of views on the subject of responsibilities was held at this working group meeting. The rapporteur for the group of experts opened the debate, with the assistance on this occasion of Mr Philippe DE BRUYCKER, director of the Centre of Public Law at the Université Libre de Bruxelles, Belgian member of the Committee of Independent Experts and Secretary General of ARCOLE. The discussion touched in particular on whether it was actually possible to make an “objective” comparison of the resources available to local authorities and the funds they “theoretically” needed to carry out their tasks. As well as the difficulty of making such an assessment, there was the question of whether responsibilities were obligatory or not, the difficulty (and sometimes the appropriateness) of defining service “standards” and the uncertainty which might surround a precise a priori definition of local authorities’ “own” tax resources. A less ambitious approach was proposed: to find out in particular whether the different Council of Europe member states actually recognised the notion of “equivalence” between resources and responsibilities and if they applied it in practice, for example when state (or regional) responsibilities were transferred to local authorities.

As far as genuinely exercised responsibilities were concerned, it also seemed that, if the work was to be done properly, preliminary fact-finding, standardising analysis tools, deciphering the legislation of the various countries and evaluating the budget required for each individual task would be at least as complicated as the work on financial resources had been (there were perhaps even fewer comparable sources). Certainly, the task needed simplifying. In view of the replies submitted by the experts, which were fewer in number and less detailed⁸ than those concerning financial resources, it was in any case impossible to bring this work to a satisfactory conclusion immediately. The following 12 countries replied first to the questionnaire: Denmark, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, Portugal, Spain, Sweden and Turkey. They were followed by Bosnia and Herzegovina, Iceland, Russia and the United Kingdom (Great Britain).

It was therefore decided that only the part on financial resources would be submitted to the Congress for approval at its first session, mainly so that dialogue with the Committee of Ministers could begin as soon as possible. This dialogue could be made more thorough and might include, for example, informal contacts between either the experts or the working group and a CDLR delegation. This could lead to agreement on the way the financial situation of local self-government should be analysed and on the measures that governments might be led to take as a result of such analysis. The problem of evaluating responsibilities could also be outlined, with emphasis on the notion of equivalence between resources and responsibilities. Hence, an active process could be established, based on greater awareness of how local democracy in Europe really functioned. The rapporteur for the group of independent experts, meanwhile, stressed that the difficulties already met were an inevitable result of the more thorough and objective approach which the various Congress working groups had been forced to adopt since the process of monitoring the Charter’s implementation had been pragmatically and gradually set in motion. Moreover, it was precisely because of this approach that the Committee of Ministers had taken the working groups’ views into consideration.

In keeping with the outcome of the 2nd Conference, held in Barcelona in April 1997, the future resolution would also provide an opportunity to persuade the Congress to consider new methods which might prove necessary to setting up permanent monitoring of the Charter’s implementation.

The work carried out has shown the seriousness of methodological problems and has confirmed the need to provide an updated analysis of the Charter’s provisions, in particular so that they can be understood and implemented in all countries, whether or not they already have an established system of local democracy.

II. METHODOLOGICAL PROBLEMS RAISED BY A COMPARATIVE STUDY OF LOCAL FINANCIAL RESOURCES:

The first issue that needs to be addressed is clearly the sources of information on local finance.

2.1 Diversity and uncertainity of sources

The most homogeneous system is that of the European Community (EUROSTAT); it is inconvenient, however, in that it only applies to the 15 member States, and places very little importance on local authorities, which are considered from the economic rather than the legal or democratic points of view⁹.

Similar observations may be made about the two other systematic sources available: the statistics of the Organisation for Economic Co-operation and Development (OECD), the scope of which, however, for the time being at least, does not include all the Council of Europe's member States, and the statistics produced by the International Monetary Fund (IMF)¹⁰.

A fourth, more adequate source of statistics has been added this year, produced within the Council of Europe itself, further to the initiative of the Committee of Ministers as part of the preparations for the 11th session of the Conference of European ministers in charge of local authorities, which took place in Lisbon on 10 and 11 October 1996. The introductory reports were published at the beginning of this year as part of the "Local and Regional Authorities in Europe" series. Of particular note is the CDLR report prepared with the assistance of professors David KING and Rémi JEQUIER who, based on OECD accounts and the replies provided by the different delegations to the CDLR, have developed a series of tables covering most member States of the Council of Europe.

It is also worth noting that, further to the initiative by DEXIA, a new banking group specialised in financial engineering for local authorities, a systematic survey has also been carried out on "local financial resources in the fifteen countries of the European Union"¹¹. A feature specific to this survey is that it was based on national accounts and on direct contact with qualified experts in the various countries under consideration. The method adopted was therefore similar to that used by the group of experts appointed to assist the working group of the Congress. In addition, a noteworthy fact is that the unit adopted by the group was the decentralised regional authority, and the authors of the survey took considerable lengths to determine a factor basic to our own study, namely the "margin for manoeuvre in local taxation", defined as the "real ability of local authorities to change their own level of tax revenue by modifying rates and/or the bases of assessment". A distinction is not always made, however, between the first and second "decentralised" levels, such as the regional and local authorities in Italy.

2.2. The approach adopted:

Surprising though it may seem in 1997, therefore, the result is that it is impossible to refer to a single, unanimously accepted source of statistics valid for all countries in the survey. It is therefore tempting to try to set up such a source, but on the other hand one can easily see that what has been impossible up until now falls well outside not only the scope but also the purpose of this simple report.

Furthermore, despite their quality and the effort made at standardisation, the contributions of the experts, being based on national statistics, are not wholly comparable, if only because of the difficulty in obtaining definitive figures for a relatively recent given year. 1995 seemed an acceptable target, but the fact of the matter is that the data for that year are not yet available for every country.

It therefore seemed preferable to adopt a pragmatic approach, situated halfway between the ideal situation, i.e. setting up a simple, harmonised reference system, and an incomplete overview of unevenly detailed monographs. Our concern has been to create a working document which excludes none of the overall sources available, but which is sufficiently close to the "field" to complete or correct general data with information sourced in each country. The working document is also intended to satisfy the overall purpose of the survey, namely to provide enough "objective" information for the members of the Congress of Local and Regional Authorities of Europe to assess the way in which article 9 of the Charter has been implemented in the countries that have signed or ratified that fundamental document, and even to form an opinion as near to reality as possible of the financial situation of the different local authorities in Europe.

It is a matter of course that during the exercise we have been led to give priority to the work carried out by the CDLR in relation to all the sources of information. This seemed logical in that its approach, although in a different context, has the same ultimate purpose and is based on similar methods (gathering information from national experts in order to draft a "policy" document, as an eventual source of resolutions and recommendations for member States). In addition, the recent experiment in interchange between the CLRAE and the CDLR also seemed to indicate that particular emphasis, despite the fact that up to the present date the Congress has been more prone to carrying out research and sending recommendations to the CDLR in order to obtain its reactions¹². A third, practical reason also led us in the same direction: rather than attempt to continually repeat the same imperfect surveys "by starting from scratch", might it not be preferable to use existing studies and develop them, if necessary criticising and improving them in order to get closer to reality? For this reason, reference is made in the present report to the data gathered as part of the CDLR study on local financial resources in Europe, and will at least be considered as a starting point.

Finally, before discussing the real subject of this report, it should be stated that precisely because of the specific difficulty in gathering data on financial matters, and the lead times available for doing so¹³, it seemed preferable to the working group to separate the study of finances from that of competencies. The preliminary work of the group of experts, therefore, will result in practise in the drafting of two reports, one devoted to finances - the present document - and the other devoted to powers and responsibilities, given that even an approximate understanding of the latter is vital in order to assess the concept of "adequacy". For this reason, from the month of June onwards, at the same time that additional information on finances was requested from the experts, a second questionnaire was sent them, exclusively focusing on competencies. In addition to contributions from the above-mentioned experts, contributions from two ARCOLE members (Belgium and Germany) as well as various personal documents were used. Care was also taken to refer whenever necessary to the monographs published by the CDLR. This covered part of the groundwork for the monitoring files on each country that the working group had decided to set up.

As far as possible, given the variety of sources available, we have strived to provide indications on all the countries that have signed or ratified the Charter (and even others when a monograph was available that had been established by the CDLR¹⁴).

III. THE PROVISIONS OF THE EUROPEAN CHARTER OF LOCAL SELF-GOVERNMENT RELATED TO FINANCES

The reference provisions are contained in article 9, but it is obvious they cannot be taken into consideration independently of the other provisions, in particular those aimed at instituting the legislative and even constitutional warranties of self-government (articles 2 and 3 in particular). They should also be viewed in relation to the provisions concerning responsibilities. Indeed, this is expressly stated in Article 9.2 itself: “Local authorities’ financial resources shall be commensurate with the responsibilities provided for by the constitution and the law.”

3.1. The importance of "own resources": the principle of effective accountability:

3.1.1 Paragraph 1 of article 9 first of all states that local authorities shall be entitled to resources of their own.

This concept of "resources of their own" is explained immediately afterwards, as being resources that local authorities may "freely dispose of ". Indeed, it is essential that they have full discretion in choosing how resources are earmarked within their own sphere of responsibility.

Transfers received from the State or from other public or private bodies, therefore, cannot be considered by local authorities as resources of their own.

Resources that fall within this definition are first of all fees, i.e. revenue proceeding from paying services performed to benefit the local population (the supply of drinking water, if this is provided by the local authority etc.) or taxes that may be related to authorisations (building permits, authorisations to use public property such as a marketplace etc.), or to local development (the building of approach roads for use by companies etc.)

This first type of resources forms part of an economic and social context in which it is accepted that users are held to pay a price in return for services provided by the local authority, and that the price must not be too far removed from the real cost of the service rendered.

To these fees naturally may be added the revenue from property belonging to the local authority, given the latter is entitled to dispose of same. We should therefore note in passing the importance, above all in recent democracies, of a clear definition of the assets of the various public authorities, whether the latter are governed by the rules of private law or not. Resources of this nature come from rental income on private property owned by the local authority, or, more exceptionally, from the sale of assets.

In fact, as a general rule, local authorities do not have any commercial activity, and their management cannot be compared to that of a company.

3.1.2 The second item under the heading of local resources is that of taxes.

Taxes, in fact, are normally the greatest source of income, since they represent one feature of the local authority's independence but also symbolise the autonomy held by its representative bodies by virtue of their election by the local population. The ability to levy taxes is indeed a basic prerogative which separates a public authority from private individuals. Whatever their level, only democratically elected assemblies have the right to vote taxes.

The power to vote taxes is also essential as a means for declaring and developing the accountability of such assemblies. Voting taxes is therefore at the same time the most symbolic and the most difficult exercise to perform in relation to citizens.

Reciprocally, the latter are all the more inclined to accept a tax if in concrete terms they can see "where their taxes go" at the local level, and can compare them with the quantity of service they receive in return. For this reason Charter article 9-3 provides that part at least of their own resources "shall derive from local taxes and charges of which, within the limits of statute, [the local authorities] shall have the power to determine the rate.".

The term local taxes, according to the terms of the Charter, is intended to refer to taxes distinct if possible from national or regional taxes (or federal taxes in the case of a federation). In fact, it is essential that citizens can see to what uses their money is put, and clearly understand for which local authority it is destined.

The fact that local authorities can call on tax resources of their own is at the same time an element of security for local administrators, who thus are able to ascertain what type of resources they can depend upon in the long term.

Having their own taxes is not enough, however; local authorities must also be able to vary their amount. "It is accepted that central or regional statutes may set overall limits to local authorities' powers of taxation; however, they must not prevent the effective functioning of the process of local accountability"¹⁵.

In very general terms, local authorities raise property taxes, the basis of assessment for which relates to the ownership (of land or houses) or the occupation of housing.

These easily localised taxes are generally allocated to the nearest local authority, but they are inadequate, and relatively unresponsive. Yet the Charter provides that local resources "shall be of a sufficiently buoyant nature for them to keep pace, as far as practically possible, with the real evolution of the cost of carrying out their tasks".

Hence the need to undertake reforms to complete property taxes by more dynamic taxes, such as taxes on income, on business activity etc. The Charter makes no statement about the nature of these taxes and leaves the choice open to the countries concerned.

Determining what property is subject to taxation is a natural cause of tension between local authorities and central government, each attempting to obtain the greatest portion of the most dynamic form of taxation. The problem, of course, becomes even more complex when a regional level is added to the central and local levels.

These difficulties, and a good many others that will appear depending on the way in which national situations are analysed, make it all the more urgent to reiterate this requirement of the Charter.

At this point, however, it is worthwhile introducing a further distinction in order to more fully comprehend the concept of local taxes, as defined by the Charter.

With regard to the basis of assessment, i.e. the definition of the various items that constitute property subject to taxation, it is not necessary - even though it may be desirable - for the basis to be defined at the local level. All that is required - and here we concur with the legal part of the Charter - is for the basis of assessment to be defined at a sufficient level, generally that of the national parliament. If genuinely exclusive taxes cannot be levied, national and local levels may make use of the same basis of assessment. In this case, failing the ability to affect the basis of assessment, the local authority must be assured it can modify the rate of taxation.

Indeed, there can be no freedom at all if local authorities have no freedom to exercise discretion in terms of tax rates. At the very most, for national economic reasons, or to ensure a certain degree of comparability of the tax burden, pegging or ceilings may be admissible, but only by law. The explanatory report is very clear in this respect¹⁶. Resources proceeding from the sharing of national taxes, therefore, based on a priori keys of redistribution, may in no way normally be considered as resources of their own. On this point, we concur with the CDLR.

3.2. The adequacy principle:

3.2.1 The indications given in the Charter:

On several occasions, article 9 refers to the concept of "adequacy".

Sufficiency of resources is to be appraised in relation to the competencies entrusted to the local authority, referred to in the explanatory report as a relationship of "adequacy". Charter article 9-2 thus provides that "local authorities' financial resources shall be commensurate with the responsibilities provided for by the constitution and the law". For this reason, it is extremely difficult to assess the financial independence of local or regional authorities without examining in parallel the competencies entrusted to them. This only further increases the difficulties of comparison already indicated, since their powers and responsibilities themselves are usually far from being clearly defined.

Even though adequacy may be difficult to appraise, the concept is a powerful incentive to set up, either legally or constitutionally, a means of clearly defining competencies for each level.

The consequences drawn by the Charter from the sufficiency principle are twofold:

· The first is that of the necessary balance between the transfer of competencies from central or regional government and the corresponding financial transfers.

· The second is that the tax system, which is generally insufficient to meet needs, has to be completed by transfers.

3.2.2 Complements to local resources:

3.2.2.1 Transfers

These refer to a general concept designating all the movements of budgetary resources from the central State to local authorities. The concept therefore needs further explanation.

The oldest and most traditional form of transfer is that of grants. Using these, the State helps the local authority to carry out a project which requires funds beyond the scope of its budgetary resources (such as large-scale capital investments). In actual fact, from the State's viewpoint, a grant frequently represents a means of supervising the way in which local authorities carry out their responsibilities. Grants are often accompanied by technical requirements (which may be real or presented as such, and are imposed on the local authority) with the result that, rather than an aid, they often form an incentive to commit the financial resources of the local authority to the realisation of some project, or of some form of action that complies with government policy.

A second factor in the development of these transfers stems from the need to ensure a certain degree of financial equalisation of resources to protect, according to the Charter, "financially weaker local authorities" (9-5).

Experience has also shown that, more and more frequently, the development in transfers stems from the difficulty in finding new tax resources which are sufficiently well distributed to be transferred. Equally often, these new transfers have compensated for the withdrawal of taxes which over time have become inappropriate (for instance the problems that arose in the United Kingdom when attempting to replace the traditional property tax) or which have become incompatible with developments in national taxation (such as the introduction of Value Added Tax, which rendered a certain number of former local taxes on consumption null and void).

Whatever the causes for their introduction, the methods of allocating and distributing transfers must also comply with a certain number of principles:

· They must not be such that they diminish the discretion local authorities may exercise¹⁷. As far as possible, therefore, block grants are to be preferred, i.e. which are not earmarked for specific projects.

· Nor must the share of transfers allocated to equalisation be such that it removes that same basic freedom. Hence the requirement for firm, clearly defined criteria, preferably established through consultation ((9-6) with local authorities or their representatives.

With respect to the origin and the amount of the transfers, the solutions can be diverse: they may be financial transfers from State budgets or other public bodies; they may also be shared taxes, i.e. taxes levied at the national level (or, more exceptionally, at another level), income from which is distributed between several levels of public authorities according to the above-mentioned criteria. The "dynamic" nature of the resources mentioned in the Charter, of course, equally applies to transfers. This is why the question of their indexing, or failing such, that of the annual re-negotiation of their amount must be posed when they are established.

Another question that must be posed is the standard level or type of procedure permitting the establishment of keys for the distribution of transfers. This is one of the main issues, given the importance acquired by transfers in financial relations between governments and local authorities today. The important point, of course, is that these procedures should be based on consultation with the local authorities concerned (9-6). But the overriding factor is that it must be impossible to modify the distribution keys in any unilateral or covert way. They form an integral part of the essential elements in local self-government, and as such, have the benefit of the guarantees provided for in article 2, namely recognition in "domestic legislation" (by which is meant acts passed by parliament), or "where practicable" in the constitution. Concrete experience has shown that the latter requirement, where distribution keys are concerned, is not as unrealistic as one might imagine¹⁸.

3.2.2.2 Capital raising

The last type of financial resources provided for by the Charter concerns those resources obtained through capital raising. Paragraph 9-8 provides for this in order to finance capital investment (which seems to imply that the funding of current expenditure by capital raising is financially unorthodox). In order to do so, local authorities must have access to the "national capital market" within the limits of the law.

In its own right, Article 9 forms an integral chapter of the European Charter of local self-government. It needs to be confronted with certain realities which, in some respects, have considerably changed since the Charter was drafted, notably as a result of the internationalisation of the capital markets, itself a furtherance of liberalisation - and even the privatisation of public activities - and of the pressures exerted by the potential recession that has weighed on the various public budgets in recent years.

IV. GENERAL DATA ON LOCAL BUDGETS

Although the scale of local budgets is not a criterion of self-government explicitly specified by the Charter, it is nonetheless one of the indicators of the degree of decentralisation of a State. In addition, it seemed useful to provide an overview of the situation in the introduction to this report. It will not be possible, however, to draw any significant lessons from the tables presented below, since their interpretation necessarily requires knowledge of the powers and responsibilities involved, which are the subject of the second report. On the other hand, the following chapters may clarify conclusions drawn about scale, the first criterion.

This chapter also places greater emphasis on the issue of statistical sources. Since the experts' contributions were insufficiently homogeneous in macro-economic terms, and did not cover all the countries having signed or ratified the Charter, they could only be used to adjust or to commentate complete series of existing statistics.

We came up against several difficulties in doing so, the first of these being the uncertainty of the categories of statistics adopted and the absence of any homogeneity in definitions. This is particularly true of the IMF statistics, which make no clear distinction between expenditure for, and revenue from, the various social welfare systems. In addition, a distinction is not always made between local and regional budgets. This is the case, for instance, with the most recent comparative statistics (1985/1994), in which the distinction is made for only 5 out of the 39 member States of the Council of Europe: Germany, Austria, Spain, Switzerland (but neither Italy nor Belgium), none of which falls within homogeneous categories. On the other hand, the distinction is applied to the Netherlands, the only unitary country in the sample. The IMF statistics, however, can be used to gain a relatively accurate overview of the change over ten years in the place of local budgets in relation to the budgets of central governments.

It therefore seemed preferable to use an initial table established by the CDLR, and to commentate it, notably in the light of the experts' contributions. It compares municipal expenditure on the one hand with the Gross Domestic Product (GDP), and with General Government Expenditure (GGE) on the other. For the purposes of our study, it seemed useful to examine the two sets of figures separately, and to present the results in the form of two graphs in which the various countries are ranked in ascending order, to make the results easier to read and as groundwork for the comparison of this expenditure with the local authorities’ competencies.

4.1 Local budgets in relation to Gross Domestic Product

Table 1 Local budgets in relation to Gross Domestic Product (GDP) and to General Government Expenditure (GGE)¹⁹.

According to the data in the first K&J table above, local authority expenditure in the different Council of Europe countries, compared with the Gross Domestic Product for each of the countries concerned, ranged from 0.11% (San Marino) to 27.5% (Sweden), with an average of 8.91%. The spread between the countries having signed and ratified the Charter is only slightly lower (the lowest rate, that of Malta, is hardly any higher than that for San Marino (0.337%). The size of the states should be taken into consideration, however, as well as the different spans of time in which the conditions for local self-government have been applied.

In this respect, it is particularly noteworthy that the countries in central and eastern Europe have made considerable efforts in very little time. The country with the lowest ratio of local authority expenditure to Gross Domestic Product is Romania, with 3.5%, a figure comparable to that for Greece, although the latter is a member of the European Union. The highest percentage is that for Hungary (17%), apart from the ratios for the Nordic countries, which have the largest local budgets from the point of view of this criterion.

As supplementary information, we have included the figures provided by the experts, or lacking any such data, and if the country in question is a member of the European Union, the figures contained in the DEXIA study mentioned earlier. Certain differences may be attributed to the year of reference (France, for instance, to a large degree), but in most cases they are the result of an ambiguity in the scope of the term "local" budgets. Most DEXIA statistics seem to cover not only local authority expenditure but also that incurred at other levels of local authority, when they exist (such as provinces, counties or départements). In the case of Austria, the inclusion of the city-state of Vienna results in a slight over-estimation in the weight of local authorities²² (a fact also applicable to Oslo, although to a lesser degree). There remains one anomaly specific to the Nordic countries: the differences can be considerable depending on whether social welfare expenditure is included or not, the latter usually being borne by the county but fully reimbursed by the State. The non-inclusion of such expenditure for Denmark results in a minimisation of the weight of the local authority sector in the country. If the statistics had not been expressed in that fashion, Denmark would easily find itself at the top of the list for the weight of local authority expenditure in relation to Gross Domestic Product. A certain number of other variations persist which are difficult to explain and stem from methodological problems. These differences could have been eliminated from the tables, but it seemed useful to include them, if only to show the degree to which these types of statistics should be taken with caution. Rather than attempt to correct the K&J table in the margin, it seemed preferable to keep it as a basis for the graph presented on the following page. The differences noted might give rise to further research or help to find variables that explain the differences between the various countries.

4.2 Local budgets in relation to public budgets

The report established by the CDLR refers to the place of municipal expenditure (with, as we have seen, the reserves that must be applied to the scope of that term) in relation to general "Government expenditure". Although the concept is precise, it seems ambiguous in that it appears to give the word "government" a particularly wide meaning, including local and regional authorities. The conclusions that can be drawn from such comparisons, of course, are not void of interest in that they permit, in particular, the figures in relation to GDP to be corrected, by "neutralising", so to speak, the impact of the different levels of interventionism of the public structures in the country in question. The ideal situation would have been to compare the weight of the local sector with the State budget, a comparison made possible using the IMF statistics, within the limits already indicated. Indeed, an inattentive reader might suppose that this is precisely what the figures do. In actual fact, the values taken into account are those for all public authority budgets (central government, regional authority or government when such exists, local authorities and in all likelihood - unfortunately we may say, because of the uncertainty of the scope of the terms - budgets which do not come under the heading of local authorities in the strict sense of the term, namely, from the point of view of the Charter, those administered by elected representatives). It seemed preferable to make this apparent by referring to "public budgets" in general, while remaining perfectly conscious of the unsatisfactory nature of the term²³. The scale of local budgets in relation to overall public budgets bracket an average of 22%, or one-fifth, with minima for San Marino, Malta and the former Yugoslav Republic of Macedonia (of around 1%), and maxima of up to 60% (Norway).

The case of San Marino, Malta, and to a lesser degree, Cyprus, can be fairly easily explained by the characteristics of the territories in question. It seems impossible to use the figures for Greece, which are too out of date.

At the other extreme, we have four countries with highly differing characteristics: Norway and Sweden, to which should be added Denmark, which is close for the statistical reasons explained above, but also Hungary and Lithuania. The rank of Lithuania is confirmed by the report of the expert for the country, even if the figures seem slightly lower. They reflect a regular downturn (from 43.9% in 1991 to 35.6% in 1996).

If the maximum and minimum figures are excluded, most of the countries lie in a bracket ranging from 10 to 30%; the rates for 7 of these (the United Kingdom, France, Switzerland, Germany, Finland, Denmark and Luxembourg) range between 27 and 30%, which would seem to suggest local budgets represent nearly half the budget of the central government (and are equal to it in Germany, due to the overall weight of the budgets of the Länder).

4.3 The trend towards decentralisation

Over and above spatial comparisons that must be considered with caution, as we have seen, because of the difficulty in gathering data which are fully analogous, it is tempting to measure trends over time and to ascertain their direction, in meaningful although no doubt general terms. It is an irrefutable means of ensuring that the various legislative reforms and declarations of intent in favour of local self-government are having an effect.

Here once again, the statistics are inadequate, since they are not available for every country, and are not always homogeneous. A single source of data is therefore insufficient. We have carried out a study based on IMF statistics which provide - at least in theory - figures for each of the countries in question. The graph below shows the trends from 1985 to 1994 for all the countries in the field for which figures were available. Out of the 23 countries, the trend can be seen to be relatively dissimilar, since apart from situations of relative stability (such as in Denmark, but also at high levels in Belgium, the Netherlands and Germany) the 19 remaining countries are more or less equally divided between those in which the relative proportion of local budgets increased, and those in which the proportion decreased.

A considerable number of the drops in percentage share concerns the new democracies of central and eastern Europe. Some of the falls are occasionally spectacular (to nearly half in Estonia, a little less for Poland). These figures must be interpreted with caution. The first reason, given the reference date (1985) is that of terms. It is common knowledge that "decentralisation" in the former people’s democracies was artificial to a very large degree, corrected as it was by the doctrine of "democratic centralism". Most of the services concerning the population were no doubt connected to the local level but they were not accountable to independent authorities appointed after free elections. This can result in a paradox, in that citizens may have the initial impression that decentralisation is less extensive under the new system, since self-governing local authorities provide less services than the purportedly independent authorities did so beforehand. Accounts of this kind exist²⁴. The reports by the Lithuanian and Latvian experts confirm this, since instead of increasing, the portion of local budgets has steadily decreased in both countries (from 26% in 1994 to 19% in 1997 for Latvia²⁵; from 43.9% to 35.1% between 1991 and 1996 for Lithuania²⁶). Taking into account the high starting point, it would nonetheless seem that the portion of local budgets tends to decrease as new institutions are set up. This takes place in two phases: the first corresponds to the gradual definition of the respective spheres of the central government and local and regional authorities that previously had coincided; in the second phase, just as the oldest democratic States, the new democracies find themselves confronted with the familiar friction between the central powers and local authorities, particularly in times of financial duress. Local authorities, being less well entrenched, find it more difficult to resist. It should equally be pointed out that decentralisation also coincides with a phase of privatisation, the effect of which is to reduce the influence of public authorities, particularly at the local level. Greater recourse to private enterprise of this kind may no doubt partially explain the similar trends to be seen, surprisingly enough, in countries in which decentralisation, far from decreasing, on the contrary has expanded (Finland).

To limit ourselves to this first group of new democracies, however, we can therefore conclude that the relative decrease in the weight of local expenditure over ten years is not in itself indicative of a regression in decentralisation. One might almost be tempted to put forward the opposite hypothesis, since in a certain number of those countries in which the fall is least marked, at first sight the reforms would seem to be taking place at the slowest pace and with the greatest uncertainty, at least where local democracy is concerned (such as in Bulgaria and Russia). Speculations such as these should not hide certain more positive trends, however, which are the consequences of the reforms that have been undertaken in this same area (such as in the Czech Republic).

Even if these findings should be considered with caution, they suggest that when examining decentralisation reforms in the former peoples' democracies, special considerations should be applied.

The countries of Central and Eastern Europe are not the only ones to form the sample of states in which the portion of local budgets tended to drop between 1985 and 1994. On the contrary, some extremely old democracies, often cited as examples for their decentralised organisation, also belong to the same group. Such cases in particular include Sweden, Switzerland and the United Kingdom. The situation in the latter country is henceforth well known, and the finding only corroborates previous analyses; with regard to Switzerland - a country outside the survey - the fact seems more surprising, however. Perhaps we should seek an answer in the development of federalism and the relative weight of cantons in relation to municipalities (?). The considerable effort made by Sweden to reduce public expenditure in general only partially explains the relative decrease shown here.

Positive trends can be seen in countries that for many years have been members of the Council of Europe and which are known to have to have undertaken an effort to catch up in the move towards decentralisation. Among these figure countries in southern Europe (Spain, Portugal and Italy - to a lesser degree²⁷) as well as France, Iceland and Luxembourg. Earlier studies on the period 1980-1987 had shown more even more significant trends. In 6 states (Germany, Belgium, Spain, France, the United Kingdom and Italy) the portion of local authority expenditure on average rose from 9.3 to 10.2% of GDP. Within this sample, however, the falls (in Belgium, the United Kingdom and Germany respectively) were compensated by the growth in the three other countries (in ascending order Spain, with Italy and France virtually equal). Since that date, the municipalities in Spain, as the municipalities in Belgium before them, seem to have suffered from the increasing preponderance of regional authorities (local expenditure had a 12.7% share in 1986, but 11.3% in 1995). In Portugal, on the other hand, a unitary country, the portion rose from 10% in 1990 to 12% in 1996.

One cannot be satisfied with using an approach as general as this to evaluate the way in which the different countries are applying the provisions of the Charter. These assessments must be moderated by a precise analysis of the means, and above all the freedom of discretion exercised by local authorities to vary such means in relation to their own policy options. As the examination of the former peoples’ democracies has shown, there is no point in theoretically having a large local sector, and leaving the allocation of most of its resources to the discretion of central government. In this context, the degree of control over their local taxes held by local authorities seems to be a criterion at least as important as the overall weight of their budgets.

V THE ORIGIN OF THE DIFFERENT RESOURCES IN LOCAL BUDGETS AND THE ROLE OF LOCAL TAXES

5.1 Definitions: The concept of local taxes - the distinction between taxation and transfers:

A theoretical maximalist definition of the concept of "local taxes"²⁸ would require us to consider only a taxation system in which each tax would be created, all its factors defined (taxable value and basis of assessment) and its rate varied according to the free will of the elected representatives of the community, and collected by that community’s officers. The tax chain would thus be complete.

Even if this situation may occasionally exist in reality (most of time for taxes with little impact), it gives little consideration for the fact that a local authority cannot be assimilated to an independent state but is part of a system governed by general laws, and in terms of taxes, in particular must take into account the fact that it involves exactly the same economic actors, whether the latter pay their taxes to the central government, or to the regional or local authorities direct. Where taxes are concerned, as in other areas, the concept of self-government must be understood to be exercised, to quote the Charter, "within the limits of statute" (9-3). Paragraph 9-1 is even more precise since it provides that the right to "adequate financial resources" is limited by " national economic policy".

This principal being stated, each State having signed the Charter undertakes to ensure local authorities have resources of "their own" in order to exercise, as freely as practically possible, the powers and responsibilities entrusted to them by the constitution or the law.

Having resources of their own therefore means resources which are clearly allocated in advance - of which the community can only be deprived through a particularly serious procedure - that the community may freely dispose of, and, with respect to taxes, that it can vary of its own accord in relation to its requirements, taking into account the degree to which the citizens that form the selfsame community accept the tax burden.

The ability to vary the amount of taxes collected is essential, and is precisely the most important factor distinguishing them from the other main source of revenue, namely transfers, whose amount by definition is determined by a power other than the local authority, even though the latter may be associated with the determination of that amount, in some way or another. Indeed, it has been argued that elected representatives should have the discretion of this ability at least in order to fulfil their responsibilities in relation to their fellow citizens. If such a link were lacking, the very concept of a local authority, as a place for learning and practising democracy, would be in danger.

Local administrators, therefore, are not merely elected to "manage" local affairs, they are also appointed as "representatives" of their fellow citizens and as such, therefore, must take genuine decisions in their name. This function would be threatened if they had no more to do than to redistribute resources coming from, and determined by, an outside authority.

The only tax, therefore, that may be considered as falling within the scope of this definition of loca taxes, is one, whether allocated to the community or created by it, whose amount may be freely varied by its elected representatives.

Realism leads us to make a certain number of distinctions within the category of "local taxes" defined in this way. An initial distinction may be made between "exclusive" taxes and the others.

Exclusive taxes are those which come closest to the ideal definition. Included within them are those taxes allocated by the local authority to the category to which it belongs, namely, taxes that that only the local authority can raise. It is through these taxes that the independence of the authority is most likely to be clearly expressed. As we shall see, in most countries today, apart from one or two exceptions, exclusive taxes are neither the greatest in number, nor do they produce the greatest yield. It is common knowledge that governments have always tended to take over taxes with the highest yield (such as income tax or corporation tax).

The difficulty in finding sufficiently diverse forms of property subject to taxation and which are sufficiently well distributed throughout the territory (an extremely important factor for local taxes) has led most states to set up taxation systems in which the basis of assessment for the tax is common to the State and to the local authority (the most representative example in this respect being income tax in the Nordic countries). In our opinion, this does not prevent this type of tax from being included under the heading of local taxes²⁹. The fact that the basis of assessment should be common to that adopted by the State may be to some advantage, not only in relation to the cost of collection but also in ensuring a certain degree of equality in terms of taxation throughout the national territory.

In our opinion, on the other hand, it does not seem possible to include in local taxes what is commonly referred to in the United Kingdom as "shared taxes", i.e. taxes collected at the national level before being redistributed to several levels of authorities.

These resources are much closer to a budget allocation than a tax. For this reason, it seems more logical to include them under the heading of transfers. We also noted with interest that the same option was taken by the CDLR in its report mentioned earlier. After citing the two most representative cases, that of Germany and of Austria, the authors of the report emphasise the fact that the shared tax system has two drawbacks: "local authorities cannot determine their own tax rates; the central government may see the shared tax revenues as part of its own revenues which it is giving away, and in this case it may want as many controls as it would want with grants"³⁰.

To make a clearer distinction between transfer-taxes and non-exclusive local taxes, we propose to refer to the latter as "common taxes"³¹. It would worthwhile finding a term in English to clearly define this concept of taxes in which the basis of assessment is common to the state and to local authorities, since the expression "shared taxes" can equally as well designate "common taxes", which, from the strict viewpoint of local self-government is not the same thing at all. Common taxes also often have higher yields (income tax, for instance). In some countries, essentially France, "exclusive" local taxes are common to several levels of local authorities.

On the other hand, in our opinion, the fact that a tax may be mandatory or non-mandatory has no impact on its nature as a local resource or not.

5.2 The proportion of the different categories of resources in the local budgets of Council of Europe member States and the place of local taxes:

Based on these definitions, and with priority being given to the information provided by the members of the group of experts, we have drawn up the table below.

Table no. 2 gives both a general and fairly accurate idea of the proportion in each country of the different categories of resources providing income for local budgets. The figures used are those found in the CDLR report, modified on the basis of the data supplied by the experts, which were also much more numerous and usable than for the previous table³².

The origin of the resources in local budgets³³

It may be observed that the orders of magnitude are on average considerably different³⁴. We attached particular importance to further analysis of the "Other" item³⁵, which is generally considered a "hold-all" heading and often attains proportions which make comparisons difficult. One of the headings in which the differences are greatest is that of local taxes. The fact that the table drawn up by the experts, who are a priori less in favour of governments, shows a higher average of local taxes is, a priori, proof of its exactitude. One of the causes is that various taxes have been included in local taxes which correspond to the provision of services (but which cannot be assimilated to the payment of fees)³⁶. This more accurate assessment of the proportion of local taxation does not modify the "ranking" of the different sources, based on the portion of income they represent in local budgets.

5.2.1 First remarks

The first, somewhat unpleasant surprise, lies in the extremely important position henceforth held by transfers, which can only be partially explained by the inclusion of shared taxes³⁷. In all, resources from transfers - shared taxes, specific grants, general grants and others - on average represent nearly half the local resources of Council of Europe member States.

Even if the principal cause for the scale of these figures is the situation of the countries in transition, they nonetheless indicate the extreme difficulty in constructing an autonomous local tax system.

The second source of revenue is local taxes, on average representing a little more than a quarter of all resources. The source covers highly diverse situations which needed to be pointed out in graph no. 3 below, in which the countries are ranked by ascending order of the proportion of local taxes - both exclusive and joint - in income for municipal budgets.

The third item in the table, "fees and charges", may be considered as ranking second in local resources after taxes. It includes both fees paid in exchange for authorisations (such as authorisations to make use of public property) and above all charges paid for services rendered by the municipality, whether they are entirely state-run (i.e. services provided by the departments of the local authority itself) or provided by concessionaires (which may be semi-private or private companies).

The "capital raising" item seems relatively low (hardly more than 5%).

An analysis separating the group of the oldest member States of the Council of Europe from the countries in transition makes this "diagnosis" clearer:

5.2.2 Countries in transition

In the countries in the first of the above groups, the results are naturally closer to the principles underlying the financial autonomy of local authorities: the gap between the share of taxation and the share of transfers, in particular, is smaller (approximately 33% and 40% respectively). The figures for the countries in transition are relatively different: transfers represent nearly 2/3 of their resources³⁸, taxation a little less than 18%, fees and charges and "other" resources (in which the proportion of sales of assets is not insignificant) a little more than 8% each. Capital raising is virtually non-existent (2%).

The distinction between the two groups of countries is clearly demonstrated in the graph below, in which the countries are ranked by ascending order of the proportion of local taxes in their budgets.
The graph shows that only in the municipalities of three of the oldest member States of the Council of Europe is the proportion of local taxes less than 20% of their overall resources: the Netherlands, despite the recent trend, Ireland and Austria. The countries with the highest proportion - around 50% and more - include the Nordic states (Norway, Denmark, Sweden and Iceland), to which may be added the municipalities of Switzerland (46%).

There then follows a second group with local tax shares ranging from 42% (France) to approximately 33% (Luxembourg), to which may be added Belgium, Finland and Germany. It is worth noting that the rate for France is only obtained due to taxes for which the bases of assessment are different from those used by the central State. This is also true of Germany, but only partially so.

The third group ranges from 31% (Italy) to 23% (Portugal), and notably includes Spain, which is very close to 30%, and now leads the United Kingdom (25%).

Amongst the countries in transition, worthy of note is the position of Poland, now with a share of local taxes in its resources of over 21%, after being one of the first countries to set up the legal and administrative frameworks for local self-government.

5.2.3 Trends over time

Readers who wish to obtain information about the most significant trends in local taxation over time may refer to the statistics on tax revenue published by the OECD, which provide data on the trends between 1975, 1985 and 1994 on local taxation in relation to the overall tax resources of the States belonging to the organisation. The most important positive trends concern Spain, Italy, France - although the latter country started with a higher level - and Iceland. Negative trends can be seen for the United Kingdom, but also to a lesser degree for Germany and Austria.

In all, therefore, study of the various data tends to moderate a certain number of preconceived ideas, and in any case shows that the struggle for truly autonomous local resources is never completely over.

VI THE STRUCTURE OF LOCAL TAXATION. THE DIFFERENT CATEGORIES OF TAXES

6.1 Traditional local taxes and the difficulty in replacing them:

The distinguishing feature of local taxes is precisely that they can be localised. This may appear to be a truism but it is a real difficulty in the exercise of taxation, one that merging the smallest local authorities only partially solves.

This, in any case, is the reason why the oldest form of local taxation still found in most countries is based on the ownership of property. It initially concerned the ownership of land before being extended, in certain countries at least, to buildings, whether the tax remains based on the concept of ownership or takes into account occupancy of the building or housing. The primary form of local tax historically, therefore, is first and foremost a tax on assets and not a tax on income or on consumption.

6.1.1 The place and characteristic of property tax

The table below shows that this form of taxation exists in the 25 countries in consideration, except for Malta and Sweden. The basis for the tax varies, however : it can still be limited to a tax on land (unbuilt property). This is the case in 4 countries: the former Yugoslav Republic of Macedonia, Greece, Lithuania, and Russia. It can also only concern buildings, as in Belgium, Hungary, Ireland, Iceland, the Netherlands, and Norway. The two taxes can coincide but remain distinct; this is the situation found in Austria, Denmark, France, Germany, Latvia, and Portugal. The same tax can be applied both to buildings and to land (as in Luxembourg, Slovenia, Spain, Turkey and the United Kingdom). The Belgian situation seems to be unique, in that it is the only country in which the basis for the tax is common to both local authorities and to the State (formerly the central government, and now the regional authorities).

Payers of property tax are generally landowners, but on occasion the tax can also be levied on tenants. This is the case in the Netherlands and in the United Kingdom. A similar situation is to be found in France, but in the latter case tenant tax is only one item in a tax distinct from property tax, which is levied on all occupants of rented accommodation or housing, no matter what their status. In this case the tax is termed a household tax. In most cases this type of tax is levied on natural persons; on the other hand it may be levied only on legal entities, while retaining its status as a property tax. This is the case with rates, a mandatory tax levied in Ireland, or the Danish tax levied on buildings which remains non-mandatory.

The different categories of local taxes³⁹

With respect to the method of calculating the tax, countries use what one might term the "rateable value" or "rateable income" from the asset. Others prefer its "market value" (as in Iceland, the United Kingdom, and Sweden). Lithuania refers to the "estimated value" of the asset. In actual fact, the value is usually assessed by commissions which are more or les specialised, in conjunction with the tax department of the local authority (as in Ireland), or, in most cases, with the tax department of the State (such as in Belgium and France). Germany makes use of a combined system; the body responsible for this, the "Finanzamt", staffed by civil servants of the Land, applies the market value for unbuilt property, the "rental value"⁴⁰ for buildings, and the "productive value" for forests. The classification of property in the United Kingdom is performed by a State department, the "valuation office", assisted by private consultants.

All these assessments are subject to periodic revaluation, often on a fixed-rate basis (annually in Spain, biennially in Denmark, and at more or less regular intervals in France).

Property tax represents a variable portion of local tax revenue, which can range from 100% in Anglo-Saxon countries⁴¹ to relatively symbolic sums. It is worth noting that property tax represents nearly 17% of local revenue in Belgium, 14% in Spain and in Italy, 12% in Latvia, 11% in Iceland, 10% in France, slightly less in Portugal (8.8%) or in the Netherlands (7.6%). It represents very little in Denmark (4%), Russia (2.4%) or in Luxembourg (2%).

OECD statistics appear to be a little more generous: in 1994, property tax apparently represented approximately one third of local tax resources in the unitary countries belonging to the organisation. The proportion seems to be higher than 40% in the federal States. Above all, these statistics make it possible to measure the positive impact of the tax reforms carried out in certain countries.

The change is quite clear in Spain and Italy, but also in Portugal, where property tax represented 37.2% of all resources in 1994, but existed neither in 1975 nor in 1985, the other reference years used for comparison.

The portion apparently decreased above all in Denmark and Luxembourg, but also in England and Austria.

These apparently positive data must be tempered not only in the light of the total of local taxes in relation to overall resources (if property tax represents a third of local taxes in Turkey, that portion must not hide the fact that the sum total of local taxes only represents less than 5% of overall resources), but also after taking into account the overall trend in the proportion of local taxes in relation to all the taxes levied in the different countries (a statistic which is also provided by the OECD): apparently the portion has generally decreased since 1975, dropping from 12.5% to 11.8% of GDP. The fall seems to be particularly significant in the United Kingdom and in Ireland (respectively dropping from 11% to 4%, and from 7.3% to 2.3%), both of which are countries in which property tax is a priority source of revenue.

Based on these findings, this type of taxation has apparently come up against a certain number of limitations:

6.1.2 The limitations of property tax

- It is extremely difficult to evaluate its bases of assessment in so far as real estate is a relatively narrow market, making it impossible to determine the true market value of property. The result is highly unwieldy administrative valuation systems which can only be correctly applied over a time-scale of ten years and even longer: the last valuation in Luxembourg took place in 1941, and in no way is a special case. Revaluations occasionally find themselves enclosed in a vicious circle: they require a great deal of time (counted in years), but the longer they take, the greater the variance between assessed and real market value, such that governments hesitate to take the new valuations into account, for fear of the excessively high transfers of charges they may incur between tax-payers. This is what occurred in France, for instance, with the Act taking into account the results of such a valuation process. Although the Act was passed by both Chambers in 1991, it has yet to come into force.

- The tax is not very buoyant, all the more so because it is very difficult to tax land over and above a certain threshold, given that the income landowners are likely to derive from it has considerably decreased in relative terms. It is not rare, for example, in France for the "unbuilt" property tax to be higher than the annual revenue from the lease paid by a farmer of agricultural land.

- The tax is relatively blind, in that it gives little consideration to the social situation of the tax-payers.

It was on the basis of these various reasons that the rate reform was undertaken in England and replaced by a poll tax. The reform having resulted in the well-known political difficulties, the British government had no other alternative than to revert to a proprietorial basis of assessment with the "council tax". The operation, however, resulted in a drop in the proportion of local taxes, the difference with the revenue from rates being compensated by an increase in Value Added Tax (which rose from 15 to 17.5%), and thus, from the point of view of the local authorities, in an increase in resources from transfers. On the other hand, at approximately the same time (1992), Italy showed that the creation of a municipal property tax could be appropriate, thereby reinforcing local authorities’ own tax resources. The tax was entitled the council tax on property (ICI).

A certain number of other taxes may also be connected to property taxes, such as the tax in France on the removal of household rubbish, which is levied on the same basis of assessment.

The conclusion that can be made from this brief overview is that property tax, despite the criticisms that may be laid against it, remains the most natural of local taxes. It is precisely for this reason that most of the new democracies have already enacted it.

It cannot meet the necessities of local self-government by itself, however. Most States have therefore supplemented it by resources based on another form of tax logic. Two groups in this respect stand out quite clearly: those States which have set up their own local tax on business activities, and those which have made use of the resources deriving from income tax. No State, however, has established an exclusive tax of this type. The solution has been found in a basis of assessment common with the State tax system.

6.2 The principal supplementary taxes: local tax on business activity, and standard income tax:

These taxes are the two main items currently to be found in local taxes. When they exist, they often represent not only the largest portion of taxes controlled by local authorities on their own in Europe, but frequently also the majority of their resources (58% of all the resources of Swedish local authorities for example stem from income tax, and approximately 50% of French local authorities’ own tax revenue stem from Trade tax⁴²). Major taxes on business or income taxes are often exclusive in the countries in which they exist, somewhat moderating the statement made by the CDLR in its report on “Local finances in Europe” that "no European country has secured a high local tax yield without having a local income tax"⁴³. Although there may be no other exclusive local income tax (it is always common to the local authorities and to the State), the same does not apply to taxes on companies which, when they exist, are all exclusive local taxes first and foremost, apart from one exception⁴⁴.

Local taxes specific to companies are to be found today in Belgium, France, Germany, Italy, Luxembourg and Spain⁴⁵. Income tax levied and collected by local authorities is mainly to be found in the Nordic countries (Denmark, Finland, Iceland and Sweden), as well as in Belgium and Switzerland.

6.2.1 Local tax on business activity

Local taxes on business activity are relatively numerous and varied. As we shall see later (in subsection 4.3, "Other categories of taxes"), they can also be levied on production, consumption (or sales), trade and changes of ownership. The main local tax on business activities to be found in the six countries mentioned above is a company tax.

The first difficulty the legislators in these different countries have come up against (and the tax has been created recently, notably in Spain, and particularly in Italy), has been the definition of its basis of assessment. There is no homogeneous system in this respect. The main item taken into account can be profits (Germany, Italy, Luxembourg, Portugal), capital assets (France), the number of persons employed (Belgium, Spain), or more specific items such as motor power (Belgium)⁴⁶. This primary item can be taken into consideration on its own (as in Luxembourg since 1 January 1997), or jointly with other items, such as capital assets (Germany), wages and salaries (France⁴⁷), surface area (Spain and Italy), electrical power (Spain), or the sector of activity (Spain and Italy). They may or may not include the "independent" professions (doctors, lawyers, notaries public etc.).

Given these conditions, one may wonder why this tax is not more widespread, and why it is periodically queried in the countries in which it does exist.

Here we come up against one of the obstacles in the development of local and, a fortiori, exclusive taxes. Local authorities find themselves competing with the State (which in most cases itself raises a tax on company earnings⁴⁸). They are above all the victims of two contemporary economic factors: developing competition - more particularly within the framework of a single market such as that existing between the fifteen member States of the European Community - and the increasing scale of unemployment. The companies and those that represent them easily decry what they consider to be a surtax, and which is also detrimental to an objective - local development - to which local authorities are naturally responsive. To this may be added certain technical considerations: the localisation of the tax may make its collection difficult, since large firms generally have several establishments dispersed around the national territory; does this mean priority should be given to the site of the head office, or should revenue from the tax be redistributed between all the local authorities that provide services for the benefit of the company in question etc.? All of these are questions that have naturally been raised and resolved in different ways from country to country. Although company tax has a particularly high yield it also leads to considerable inequality of resources between local authorities, above all when it is raised by authorities that are small in scope.

These facts and findings have recently led to numerous debates that have occasionally resulted in major reforms: pegging of the tax in relation to the added value produced by the company and government compensation (France), exemptions such that only the largest companies are accountable (Germany⁴⁹), the establishment of financial equalisation funds (in France⁵⁰ and Luxembourg), the withdrawal of certain items in the basis of assessment (such as capital assets, in Luxembourg and in Germany). In Germany in particular, provision has been made to withdraw the part of the Gewerbsteuer [corporation tax] applied to working capital (Gewerbekapital steuer) and to reduce the part applied to earnings (Gewerbeertragsteuer). The loss in revenue for the municipalities will be replaced by a share in the VAT which until now had only been shared between the Federation and the Länder. The Italian tax known the "municipal tax on commercial or artistic activity" (ICIAP) which was introduced in 1989 and represents nearly 3% of all revenue could fall victim to the aim to create a regional local resource in favour of those regions which have none as of yet (a tax to finance regional self-government which is to be based on added value (IREP), provided for by statute no. 662/1996). After an in-depth study of a reform in 1996, the basis of assessment for the French Trade tax should not be substantially affected. On the other hand, its collection may be encouraged at a municipal group level.

It is understandable that under these conditions, an income tax collected locally should seem preferable on the basis of simplicity.

6.2.2 Part of income tax decided locally: pros and cons

This is the solution adopted by the Nordic countries - this type of local tax has been in use in Sweden since 1928 - not only for their municipalities but also for their counties, when such exist. This type of tax represents a major share, if not virtually all, of local resources. In 1997 the Icelandic municipalities hoped to obtain no less than 55% of their resources from this type of tax. In 1995, local income tax represented 91% of municipalities’ local resources in Denmark, and 90% of their local resources in Finland.

A tax such as this has several advantages:

- simplicity first of all. Although it is not mandatory⁵¹, the basis of assessment is the same as that applied by the central government. This may also make collection easier (the local tax in Iceland is collected by the State at the same time as its own the national tax). The only true difference concerns the way in which the tax is calculated: the rate voted by the local assembly is applied on a proportional basis, as opposed to that prescribed by the national parliament which is applied on a graduated basis. This is in keeping with the difference in philosophy between the two types of tax system: that of the State is designed more for redistribution, whereas the primary aim of local taxes is to provide local authorities with the resources they require to fulfil the objectives they have decided in common.

- This tax is without doubt also more equitable in that it can be adjusted for inflation both continually and in uniform fashion. It also has the advantage of reducing the disparities in taxation over the national territory that the traditional local tax system is often accused of accentuating.

As in any solution, choosing a local income tax also has its drawbacks:

- its base is limited by the options decided at a higher echelon, particularly with regard to exemptions⁵². It is a tax which lacks "legibility", in that local tax policy and national tax policy are hardly separable. It is also to be feared that being constrained by exemptions decided on grounds of social policy - albeit perfectly comprehensible - the tax only partially satisfies the purpose of a genuine local tax, which is to share the cost of services between all the inhabitants benefiting from them. The result is that it is not infrequent for the number of "local" payers of income tax to be higher than the number of "national" tax-payers (the difference is to be found in France, for instance, in the ratio between payers of household tax and payers of national income tax⁵³).

Whatever the methods employed (i.e. through coercion or through co-operation), a basis of assessment common to both local authority and State in an area in which changes have an immediate impact on the citizen, necessarily results in the fact that the government cannot afford to disregard the options taken by local authorities in terms of tax rates. For instance, the fact that the Norwegian parliament each year prescribes an upper and lower ceiling on the tax rate results in a local income tax rate which is virtually uniform throughout the territory of the country (which also happens to be aligned with the highest rate). Similarly, in Iceland, it is illegal for a variation in the local tax rate, when added to that decided by the State, to exceed the highest marginal tax rate.

With respect to the Charter’s stated wish to have diversified local resources, one may also wonder whether it is advisable for local authorities to be so basically dependent in this way on a single type of tax resource. There is another system in Belgium of "cents added" to income tax, but the sums collected in this manner are no higher than 16%, or little more than the revenue raised through the country’s building tax (an advance on income tax payable on immovable property).

Finally, these examples show that when choosing taxes, be they local or not, it is equally impossible to adopt national cultural preferences. It is significant, for instance, that there is no local income tax in the countries of southern Europe, which traditionally have little inclination for direct taxation, and still only have a relatively low-yield income tax at the national level, thus lightening the burden for tax-payers.

This brief overview in any case shows that there is no ideal local taxation system, and that attempting to localise, as a factor contributing to self-government, only limits the imagination - generally considered to be fertile where taxes are concerned - of reformers in this particular area.

Despite this, the three types of main tax outlined above are not the only resources to be found when examining the situation in different countries.

6.3 Other types of local tax:

First of all, we should put to one side those tax resources stemming from what is occasionally termed "pocket-money revenue", the introduction of which is generally left to the initiative of local councils. The main characteristic of these resources is their high degree of diversity, but also their low yield, to the point where elected representatives are often led to assess their cost-effectiveness, in countries in which such revenue is still provided for by the legislator. The current situation illustrates the high number of possible solutions of this type (we counted 135 in all)⁵⁴. The most characteristic tax in this category is of course that applied to pet dogs which is to be found in many countries such as Finland, Germany, Russia, Sweden etc. (but not France). Also worth citing are the taxes on entertainment, advertising and "bill-boarding", markets, gambling and betting, on residence tax (adopted by municipalities with a high tourist population, such as in Greece, the Netherlands or France), or on secondary residences (in Belgium and Germany in particular), etc. Altogether these taxes represent little more than 1% of all resources.

A second category of supplementary taxes is that concerning consumption or sales. Amongst those worth citing are the tax on drinks in Austria⁵⁵, which represents a significant portion of resources (approximately 4%), and the generally high-yield tax on electricity consumption found in France, Italy and Greece, for example. These taxes, above all those applied to retail sales, were much more commonplace in the past, but in most cases they have become incompatible with the general adoption of value added tax⁵⁶. Indeed, as we shall see, their withdrawal has often resulted in the creation of transfer resources to compensate for them.

A separate category must be included for the fast-developing taxes that have a link more or less direct with environmental protection. To the traditional tax on the removal of household rubbish have been added taxes on sewers or on sanitation (the Netherlands), or on waste (Belgium, Iceland). No doubt they are destined to rapidly grow, despite the increasing degree of privatisation of this type of service, because of the cost these operations will entail in the future. Worth noting also is the special tax in Greece on the "cleaning and electrification of public sites", which is of considerable importance for municipal revenue in the country.

If, however, in addition to the three main types of tax previously described, we had to isolate the local taxes with the highest yields that have seen relatively wide-scale development in recent years, worth citing might be the taxes on motor vehicles and on the conveyance of real estate, both of which are based on localisable property subject to tax and are buoyant in relation to the economic situation.

The tax on the registration of automobile vehicles has become more widespread as a result of the recent reforms on decentralisation and the related need to find State tax resources to transfer. The tax is worth mentioning, even though it has not always been to the benefit of municipalities. The Italian provinces, for instance, were authorised to raise a surtax on this type of tax, which was then transferred to the ordinary regions; since 1982 the regional authorities in France have had the same opportunity, and since that same date the départements can make use of the revenue raised by the road-fund licence, which is based on vehicle horsepower; in Portugal and in Spain, however, the revenue constitutes a municipal resource.

The tax on the transfer of ownership of property is an integral feature of new resources. It is to be found in Spain in particular in the form of a tax on the capital gains realised further to the sale of land. The tax is particularly well-suited to local life, since it provides supplementary income for the town planning operations that municipalities generally perform⁵⁷. A tax on property transactions has been introduced in Portugal for the benefit of municipalities; in France, together with the départements, the latter also have the benefit of part of the old conveyance dues that formerly were a source of income for the State.

Amongst the new democracies, Slovenia has also introduced a tax on transfers free of charge of the ownership of property (i.e. including both donations and inheritance). The former Yugoslav Republic of Macedonia has taken the same measure.

Equally as much as the scope and type of taxes, however, consideration should be given to the ability of local authorities to define their basis of assessment and amount.

6.4 The degree of discretion of local authorities:

In order to determine the ability mentioned above, several factors must in turn be taken into account; amongst these, the most important would seem to be the varying degree of discretion local authorities can exercise in varying the rate of taxation.

6.4.1 Assessment and calculation of the taxable value

As we have already remarked, contrary to a fairly widespread belief, full discretion in determining the basis of assessment is not, in itself, a significant factor in local self-government. This can be explained on the grounds of principle, according to which the concept of local self-government only has meaning inside a coherent legal framework, the ultimate control of which is held by the elected representatives of the people at the national level. If this is not the case, there is no self-government, only independence. Under these circumstances, however, there is no problem other than psychological in being subject to the general will as expressed by statute.

Defining the basis of assessment for taxes naturally falls within the responsibilities of the domestic legislation, although a certain degree of adaptation may be left to the discretion of elected local councils by means of regulations. Amongst others, these may concern parties exempt from tax, but may also apply to the basis of assessment itself, given that it is relatively simple and its evaluation by local councils is unlikely to be prejudicial to the principles of equality amongst citizens. Very frequently, however, determining the basis of assessment also requires technical knowledge and means that go beyond those held by a local authority even of some scale.

Another issue is that of the practical calculation of the basis of assessment in particular circumstances. As we have seen with respect to property tax, the basis can be left to the administrative services of the local authority, which are often closer to, and therefore more apt to evaluate, the situation in the field (such as the family context).

In the same spirit of mind, a further issue concerns the accountability for collecting the tax.

6.4.2 Tax collection

Entrusting the collection of taxes to the administrative services of a local authority may guarantee its efficiency, since they would be directly interested in its yield. On the other hand, there may be an advantage, particularly in terms of overall cost for the country as a whole, in having a centralised system overseen by a specialised government department, above all if, as we have seen, the collection is a complex operation (in the case with a company located in the territory several municipalities), or, in the opposite case, if a common basis of assessment with the national taxation system naturally makes it easier to carry out both operations in relation to the same tax-payers at the same time. The options taken by different countries in this respect do not seem to be related to the degree of centralisation within them. The option taken may also closely depend on the history and on the presence or absence of a territory-wide network of central or regional government departments in addition to local authority services.

Finally, in so far as this point has been developed in the experts’ reports, the situations in the different countries in the sample seem relatively disparate, although there is a certain tendency to let the local authority collect exclusive taxes.

Exclusive local taxes, and property tax in particular, in principle are raised by the beneficiary authority in Belgium, Denmark, Finland, Ireland, Luxembourg, the Netherlands, Sweden and the United Kingdom. This is not the case, however, either in France⁵⁸ or in Portugal. Naturally, the collection of joint taxes is usually entrusted to the State. This is the case in both Belgium and Iceland in particular.

6.4.3 The right of recourse to taxation or not

The right of recourse to taxation held by the elected council of a local authority in order to secure its resources might also appear to be a decisive factor for local self-government. This is only partially the case, however. In fact the more or less mandatory nature of taxation depends on the legislator, and even if that right were applicable to every category of tax, the very difficulty in obtaining resources would itself result in taxes being adopted. One might also suppose that the mandatory nature of most taxes is a means of ensuring local authorities do not deliberately under-tax their citizens, in order to depend principally on income from special or general grants provided by the central government.

There are various solutions to this issue, depending on the country in question. They often vary in relation to the type of tax, but it is rare for a major local tax to be non-mandatory. For those taxes that are non-mandatory, the right of recourse to their introduction is above all symbolic, all the more so because it is often accompanied by prior authorisation from the government (as is the case in Luxembourg and in the Netherlands).

Property tax is in principle mandatory in every country. There are exceptions in Belgium, Germany, the Netherlands, Norway, Slovenia, Russia and the United Kingdom. A further exception is to be found in Denmark for unbuilt property (but not for built real estate).

Income tax is mandatory in the Nordic countries. It is non-mandatory in Belgium and in Portugal, where its role as a supplement to the State income tax is clearer.

Corporation tax is only non-mandatory in Belgium and in Germany (where it is nonetheless the primary source of tax income for budgets) and in Spain, with respect to capital transfer tax alone.

The principle is inverted for those categories of taxes we have classified under the "Other" heading, forming something of a "range" of options open to local authorities according to their priorities and to whatever corresponds best to their requirements. This is the case with the Spanish tax on capital gains from property deals, for instance. Taxes on assets (private and corporate) are on the other hand mandatory in Norway, as is the tax on gambling in Portugal, and as are the special taxes (on leisure activities, advertising and insurance) to which local authorities in Turkey have a right of recourse.

6.4.4 The right to determine the amount of tax: voting rates

From the standpoint of the Charter and in practical terms, this is the most significant variable, of course.

The ability to change rates must not be considered independently from the institutional context, however, and in particular from the budget supervision system in existence. Subject to this major reserve, in relation to which the reader is referred to the previous experts’ report, complete freedom for councils to determine the rates of local taxes appears to be relatively rare.

In terms of the main taxes, freedom of this scope exists, in theory at least, in Belgium and in Germany (for every tax), as well as in Finland and in Iceland (for income tax). Freedom appears to be the rule, but there are other exceptions to it with respect to minor taxes, the introduction of which is generally non-mandatory (exceptions exist in Portugal and in Turkey).

At the other extreme, the rate is always determined by the State in Greece (for mandatory taxes), in Malta, in Portugal (except for the derrama and unbuilt property tax), and in Turkey. The same situation is to be found, of course, in some of the new democracies (such as the former Yugoslav Republic of Macedonia and Latvia for built real estate tax).

The most widespread situation is one in which the power to determine tax rates is regulated, either by imposing "brackets", or "ceilings". The buoyancy of the different rates can also be subject to "linkage" (such as in France where the corporation tax rate is linked to the local household tax). Also in recent years, governments have tended to resort to temporary measures of rate freezing (Sweden), or rate capping (as in the United Kingdom).

Examples of rate pegging determined by the domestic legislation include the property tax rates in Austria, France, Hungary, Ireland, Iceland, the Netherlands, Russia etc. Other examples include the derrama in Portugal or income tax in Sweden. In Denmark, the preferred method is apparently that of government "recommendations" based on dialogue between the State and national associations of local authorities (a practise known as "budgetary co-operation"), in which in principle each local authority is at liberty to follow such recommendations or not as they see fit.

Examples of "brackets" worth citing are those applied to the unbuilt property tax levied on landowners in Denmark (ranging from 6% to 24%, which is relatively wide), the property tax in Italy and in Portugal (where the bracket ranges from 0.7 to 1.3%), and most local taxes in Spain. The table entitled "Different Categories of Local Taxes" is designed to provide as accurate an overview as possible of the situations existing in the different countries in this respect.

The tax rate may also be a determinant variable in the amount of general grants paid by the State⁵⁹. A survey of taxes, therefore, cannot be totally separate from that of transfers.

VII THE FUNCTION, NATURE AND DISTRIBUTION OF TRANSFERS

As we have seen, transfers now represent the primary source for funding local budgets. We have already looked at that development, which is all the more cause for concern with respect to local self-government because it is an on-going trend. The study of taxation has shown that several existing local taxes had been, or were about to be, withdrawn and replaced by transfers. That is the situation in the United Kingdom in particular, it is currently being considered in Germany, and may be the case in Italy in the near future.

The study of transfers from the standpoint of the Charter is therefore all the more necessary. It is therefore worth examining the various forms of transfer in turn, and assessing their relative importance. This is the purpose of the following table, which distinguishes between three different types of transfer: shared taxes, general grants and specific grants. These categories, however, do not allow for every type of transfer. As for taxes, therefore, proceeding in the same manner as the CDLR, we have been led to isolate a remainder category. As far as possible, just as for taxes, we have tried to narrow the analysis in order to minimise the content of this final category.

Beforehand, a few issues concerning the various functions possible for this type of resource need to be discussed from the point of view of local authorities.

7.1 The different functions of transfers

7.1.1 Providing income for budgets. Compensation for transferred competencies

The first of these functions is to provide income for budgets, if, as we have seen, the more "standard" resources, namely taxes, for councils entrusted with the autonomous management of the affairs of a community to which they are accountable, cannot be adequately provided, for reasons which may be both technical and political. The quantity of transfer defined by domestic legislation corresponds first of all to the fair redistribution of overall revenue as a function of the share of public functions fulfilled by each level of power and responsibility. The equivalence principle, therefore, must also apply in this case. It is also upheld that the transfer resource would be better suited to use as compensation for the performance of new powers and responsibilities delegated to the local authority. This is a point that will need to be elucidated when examining competencies, since the answer may vary depending on whether the competencies are indeed new (in other words, transferred or assigned in definitive fashion), or "delegated", i.e. exercised by an agent on behalf of another local authority (usually the State). One point of discussion will concern the nature and duration of such agency services, and the answer may vary depending on whether the case concerns a federal State without any administrative network of its own (such as Germany), or a unitary or federal State with its own network of services spread throughout the territory.

In the former case, the concept of power delegation is virtually a structural feature of the organisation of the State, and the fact cannot be excluded that amongst its corresponding "structural" resources there may be a share of tax resources; in the second case above, in which the delegation of power is temporary and therefore revocable, a transfer would indeed appear to be more suitable. The concepts of shared taxes or general grants correspond fairly well to this logic of income and compensation. For the allocation of these types of transfers, the concepts of minimum or "standard" resources are occasionally used in order to exercise "basic" competencies. Although comprehensible, the logic may nonetheless turn out to be hazardous, since the concept of service is liable to introduce a certain number of subjective elements (examples are to be found in the new democracies).

The logic of budget revenue implies that transferred resources be as unrestricted as possible since they correspond to the exercise of the local or regional authority’s own powers and responsibilities, or those that have been delegated in structural fashion. Care must also be taken to ensure the transfers are structurally buoyant as well, in order to be considered by the local authority as equivalent to tax resources.

Table 4: Breakdown of Transfers - Figures as a percentage of general municipal revenue

7.1.2 Assistance: specific grants and general grants

The second function is that of assistance, which fits in perfectly well with the logic of "subsidiarity", using the "second sense" of the term, to coin an expression adopted by the Congress, namely, assistance provided to a lower level authority to permit it to carry out a competence, which, in certain cases, may exceed its own capabilities, rather than have the competence exercised by the higher authority⁶⁰.

This second function corresponds equally well to the concept of specific grants, i.e. financial aid to carry out a task or realise capital investments, as to that of general grants, which authorities may freely dispose of.

In principle, specific grants are usually earmarked for capital expenditure, whereas general grants are more global in nature, and often relate to current expenditure. Other categories of transfers halfway between general and specific are becoming increasingly widespread today, such as grants designed to ensure the performance of a specific competence (social work in the Nordic countries, health services in Italy, education in France). Their scope and scale can provide freedom comparable to that afforded by larger grants as long as the sums in question are sufficiently large and the transfers are not accompanied by over-precise provisions. Only concrete analysis permits these transfers to be classified in one or the other category.

7.1.3 Financial equalisation

The third function of transfers fulfils a purpose whose importance is commensurate with the scale of powers and responsibilities exercised by the authority, and justifies funds, if not equal, at least comparable throughout the territory (social services, education etc.). This is the financial equalisation function. Its purpose is to compensate for inequalities arising between municipalities as a result of their size and local tax potential. Specific grants are occasionally seen as having a purpose of financial equalisation, but this is not take into consideration as such, and the distribution of specific grants is rarely based on objective criteria that take into account the characteristics of the municipality. The integration of objective distribution criteria is precisely a defining feature of general grants, which also fulfil the requirement of predictability which is vital for administrators.

One can easily understand under these conditions why the switch-over from specific to general grants has been fostered by the Council of Europe, and the trend in fact does seem to have been in that direction if we consider the relative average share today for each of these categories of transfers, representing respectively 22.87% and 10.32% of local resources, or a general grant level that has more than doubled, without taking into account the shared taxes which further increase the portion of transfers that authorities may freely dispose of.

It is occasionally difficult to distinguish between transfers designed to produce financial equalisation and those whose purpose is simply to provide revenue for local budgets, for instance by refunding part of the taxes levied within the municipality. The logic behind each type of transfer is not always clearly distinct, and financial equalisation can be achieved equally well by redistributing the income from a shared tax (as in Austria or Germany) as by distributing a general grant. Indeed, the latter can quite simply be the cumulative result of shares of a general grant with a different purpose. This is the case, for instance, with the block grant for current expenditure in France, developed to gradually replace the old bases for the local tax, withdrawn in 1966 when Value Added Tax was introduced, with sums based on the objective evaluation of the requirements of each municipality.

The principles and rules of financial equalisation can be both extremely variable and highly complex, since they are always the result of power struggles between the various categories of authority.

As a result, as well as population, other data can be taken into account such as the surface area or length of roads that have to be maintained, the number of pupils of school age, the population of elderly persons, or the situation of the municipality from the point of view of social housing, all of these data being taken into account to varying degrees depending on the target priorities.

The criteria themselves are very often weighted by an assessment of the real tax potential of the municipality, and even the tax burden it bears upon its citizens ("help yourself and heaven will help you"). Transfers thus appear to be a convenient (and therefore tempting) means for the practical implementation of policy options that have been defined at the central level. The result can be a complexity as well as an occasional variability that is detrimental to their "legibility", and sometimes partially distorts their purpose. This explains why the accumulation of criteria combined with the growing scarcity of resources at the central level can result in the paradox of a reduction in the sums available for financial equalisation. The tendency that can be seen in certain countries, therefore, is to revert to criteria that are simpler, but which are less oriented towards the objectives of redistributional equity.

7.2 Shared taxes

This type of transfer seems to be part of an intermediate category, halfway between a tax and a grant. It is distinct from the former, however, in that its purpose is to redistribute income obtained by applying a rate fixed exclusively at the central level.

The shared tax system has one advantage, however: that of providing a clear reference and ensuring the development of local authorities resources parallel to those of the State.

The table above shows the relative importance of this type of tax in the local resources of the fairly limited number of countries that use it in order to provide income for local budgets. It is worth observing that Germany and Austria, the two countries most commonly cited as examples in this case, are not those which make use of it most frequently. The examples of the Czech Republic (CS), Latvia (LV), Romania (RO), Slovenia (SL), Estonia (EE) and Russia (RU) demonstrate that the system can be convenient in countries in transition.

The taxes that are shared are various. It seems that they are most numerous in Austria (21). The most frequently used seems to be income tax. Revenue levels from it for the local authorities in Austria, Germany, Greece, Hungary and Slovenia respectively stand at 18, 15, 20, 38⁶¹ and 30%. The criteria employed do not seem to have completely stabilised in Latvia (where the share can vary according to the local authority) and in Russia. Business tax in the United Kingdom⁶² and in Latvia is shared. As we have seen, corporation tax in Germany remains a local tax of which the municipalities only retain 35%, the balance being paid back in equal proportions to the Federation and to the Länder. VAT is shared in Austria (12% for the municipalities) and in all likelihood will soon be so in Germany as well. The same applies to the tax on fuels in Austria (3%), excise in Russia, the road-fund licence in Greece and in Hungary (50%), and property conveyance fees in Greece (3%) and in Slovenia (70%). In Denmark, the municipalities receive one third of the revenue from the capital gains tax, and a small share of the national corporation tax (3/25 of the taxes raised are paid back to the municipality in which the company has its head office).

As has already been indicated earlier, the logic of redistribution can vary in relation to the tax: salary tax in Austria is initially redistributed between the Länder on the basis of demographic criteria, while for income tax it is the criterion of the collected tax which is adopted. Sub-distribution is carried out by each Land thereafter on the basis of population densities and tax potentials. In Germany 15% of the income tax received by the Länder is redistributed to the municipalities. The Länder are also held to reconvey a share of the taxes they receive from the Federation. In Greece, 80% of shared taxes are redistributed on the basis of the number of inhabitants, and 20% on other criteria. 1/3 of the sums have to be earmarked for capital investment.

7.3 General grants

With more than one fifth of all resources, general grants henceforth represent the greatest share of transfers. The proportion seems to be particularly high in a large number of countries, as the following graph shows. Overall, except for a few of the countries in transition (Estonia and Romania in this case) and the United Kingdom (which only recently adopted the concept of shared tax out of necessity), the countries which have opted for shared taxes make little or no use at all of the block grant system, which confirms the fact that the two types of transfer are relatively similar in their objectives: to supply local authorities with general resources or those that they may freely dispose of.

This general trend is relatively recent: block grants were only introduced in Sweden and in Finland towards the mid-90s. The paradox, however, is that the United Kingdom⁶³, formerly a pioneer in the field, today finds itself somewhat at the back of the field (the share of specific grants has more than doubled in 20 years)⁶⁴. Similarly, the graph shows that the extent to which certain countries depend on this type of resource is no doubt too great (for five of them⁶⁵ more than 50%).

Calculating the amount of these grants need not obey rules which are fundamentally different from those currently used for shared taxes, since many block grants correspond to the withdrawal of a former local tax⁶⁶. They should therefore be analysed more as a means of compensation for loss in income than as a "donation" from central government. In this way, in France, the block grant for current expenditure [dotation globale de fonctionnement (DGF)] which replaces the local tax is a fixed share of the Value Added Tax and is indexed, thereby allowing the transfers in favour of local authorities to grow faster than State revenue. As a result, income for the funds allocated to financial equalisation is frequently based on "keys" applied to the revenue from certain State taxes. This is the case, for instance, in Luxembourg (based on a key of 18% on income tax, of 10% on VAT, and of 20% on the road-fund licence), in the Netherlands and in Spain⁶⁷ (with a fixed annual percentage of the main State taxes).
Just as shared taxes are not always used only as budget revenue, so general grants are not systematically allocated to financial equalisation. In Sweden, for instance, admittedly an example of a particularly sophisticated system, block grants are distributed through three funds, each of which is based on a different, clearly identified logic: a general grant with no financial equalisation purpose is allocated only on the basis of the number of inhabitants in a municipality; a grant to equalise resources is destined to compensate for an inadequate tax potential in relation to the national average⁶⁸; and a grant to equalise charges is distributed according to an evaluation of charges by an independent agency based on 15 different criteria.

More generally, with respect to the distribution of grants, the number of inhabitants usually constitutes the primary criterion (Finland, Luxembourg, Sweden, Turkey). The sum paid on this basis can vary, however, in relation to the demographic category (France⁶⁹), or to the structure of the population (Latvia). Surface area is the second simple indicator of requirements (it is one of the two main criteria, together with population, taken into account in Luxembourg by the municipal fund for financial grants). The efforts of imagination used to define other criteria are limitless. We have already given certain examples above (see section 5.1, on the different functions of transfers). In Hungary, a secured amount of grant (called the "mandatory grant") is transferred to local authorities, calculated in relation to the theoretical cost of 20 categories of municipal services. In Slovenia there is a similar system of evaluation of mandatory competencies (the grant on average represents 32% of the sum obtained in this way). In Portugal, 8 "objective" criteria are taken into account.

The criteria are different and combined in varying proportions with criteria of wealth, and occasionally tax potential as well.

In France, the inadequacy of tax potential is calculated on the basis of all local taxes; in Italy, the equalisation fund for tax inequalities takes into account the inadequate yield of corporation tax, in Denmark integrate the bases of assessment for income tax etc.

Very often, the grants are made through "funds" which pool the resources of diverse origins, as in Belgium (the municipality fund), Luxembourg (the municipal fund for financial grants), Portugal (the financial balance fund⁷⁰), the Netherlands (the municipality fund), and Turkey. These funds are occasionally administered by boards of trustees or are assisted by advisory bodies elected by local authority associations (such as the local finance Council in the Netherlands). In France, although grants do not transit through any particular fund, there is a Local Finance Commission, established by the same act that introduced the block grant for current expenditure [dotation globale de fonctionnement (DGF)] in 1989. It is this commission which decides, within the limits of statute, the exact distribution of the sums between the various shares of the Grant. In Iceland, the charge equalisation fund is administered by a council composed of four elected representatives and chaired by a civil servant appointed by the government.

The policies adopted by the various countries in relation to the grant system seem relatively similar, but it is difficult, however, to give a systematic overview which is satisfactory, due to the variability, confusion and number of the considerations taken into account in the various systems. After an initial phase during which the concept of block grants has become generally accepted, the time has perhaps come to lay down a few simple principles which could serve as guidelines for assessing the compliance with the spirit of the Charter of the various policies implemented in terms of transfers.

Two issues seem pre-emptive in this analysis:

firstly, the amount of grants and the method of establishing them at the national level (a question of even greater emphasis at a time when every state is obliged to adopt restrictive financial policies);
and secondly, the methods of their distribution, in order to prevent an indirect reversal to the over-sophistication of specific grants.

7.4 Specific grants and other transfers

With respect to the trends mentioned above, it is extremely significant that the share of specific grants allocated is henceforth no longer decisive, on average at least.

Very few of the countries belonging to the "first generation" of the Council of Europe figure at the head of the list of countries that still resort to massive use of specific, or earmarked, grants. It is not insignificant that, apart from the United Kingdom, the countries fall within the category of federal states or at least have a high degree of regionalisation. The current trend is to replace or to superimpose specific grants from the central government with earmarked grants from constitutive bodies.

The situation of the new democracies is also worthy of more detailed attention, in that the central government may be tempted to use earmarked grants in order to recover policy control it may have temporarily lost. Mention is made in the Hungarian report, for example, of a trend in recent years to increase specific grants to the detriment of general grants.

In general, the share of earmarked grants is not wholly representative of the influence exercised by the State or its agencies through this means. Specific grants, which mainly relate to capital expenditure⁷¹, by definition have a multiplying effect, and their concession is frequently a condition prior to the realisation of a given project. Furthermore, precisely because of its nature, it is rare for a specific grant to be the subject of a co-ordinated policy. It is often left to the discretion of the ministries involved (public works or their equivalent, social welfare, education - if this type of ministry exists - transport). The most distinguishing feature of specific grants compared with block grants is precisely the sectorial nature of the former type of transfer. They are a tempting means for "technical" administrators to gain acceptance for their policies.

Finally, special consideration should be given to earmarked grants, generally termed "balancing" grants, which exist in virtually every country, and are allocated on a basis identical to the regulations applicable to the treatment of deficit budgets.

The transfers listed under the "other" heading [table 5] are more closely related to earmarked grants than to block grants. Apart from highly specific transfers⁷², the largest category we felt should be isolated, and which is highly indicative of a certain current trend in local authorities, is that of contributions from the European Union. The latter now play a significant role in the income for local budgets in Ireland and in Portugal (between 7% and 10% of their overall resources).

VIII FEES AND CHARGES, "OTHER" RESOURCES AND CAPITAL RAISING

Other than through taxation and transfers which are the most important items in their budgets, municipalities can procure revenue in three different ways:

through the fees and charges they levy in exchange for the services they provide to the population, through diverse receipts which may be temporary, for example the sale of assets or capital gains on investments when these are authorised,

and by income from capital raised with specialised institutions,

or, more rarely, from savings bonds, which local authorities are authorised to issue only under certain conditions and in certain countries.

As can be seen, these resources are fairly diverse:

8.1 Fees and charges

Fees and charges, on average representing approximately 12%⁷³, in fact are the second most important item in local resources after taxes. Just as for taxes - perhaps even more than taxes - their extent depends on the initiative of the local authority. There may be a statutory instrument concerning the prices of services, but these are now fairly rare.

The amount of these resources depends in concrete fashion on the regalian prerogatives of the authority (fines for non-observance of local administrative regulations, fees to be paid for permits, such as in town planning) but also constitutes the remuneration for services rendered to the population (transport, the supply of water, where applicable the supply of electricity, of heating etc.). The revenue under this second item closely depends on the policy adopted by the local authority in relation to privatisation or service concessions.

8.2 The "other resources"

It is sometimes difficult to separate the "fees and charges" item from the "other resources" item which is still too high (6.88%) despite considerable efforts to reduce it, a fact which is confirmed by the greater accuracy of the information provided by the CDLR⁷⁴. One might also consider that the "other resources" logically should come under the heading of "own resources". We do not propose to categorise it in that manner, precisely because of the uncertainty of the inventory, and also because a significant part comprises non-renewable resources (such as sales of assets, in particular by local authorities located in countries undergoing economic transition).

8.3 Capital raising

Capital raising forms the adjustment variable for local budgets, which explains why its amount on average remains relatively limited (5.55%). One may find this surprising, in that it is a perfectly suitable means for funding capital investment.

This "weakness" no doubt is due both to a certain slowdown in investments by local authorities because of the current economic situation and the weight of fixed operating costs (when local authorities are very often by far the most important civic public investors⁷⁵), and to a certain persistence in this particular sphere of control by the central government, when supervision elsewhere has tended to disappear.

Little by little, however, the trend is to replace a priori controls by laying down prudential standards (such as negative covenants on capital raising at short term, other than under exceptional circumstances, and the definition of debt-to-equity ratios).

CONCLUSION

LOCAL FINANCIAL RESOURCES AND LOCAL SELF-GOVERNMENT.

LESSONS TO BE LEARNT FROM THE IMPLEMENTATION OF THE CHARTER

The question of financial resources, which is essential to the exercise of all types of local powers and responsibilities, seems to be an issue in itself which ought to form the subject of a separate report.

However, it is clear that many references have been made to the way in which financial resources are inevitably linked to the number of tasks actually carried out. This is what we have called the question of adequacy.

Difficulty of assessing “adequacy”

We have seen that this concept is difficult to assess in an objective way, for several reasons:

- the difficulty of accurately defining the tasks actually carried out by local authorities as opposed to the state. The first problem here is a legal one: most countries, except federal states, perhaps – and even they may be unwilling - are reluctant to draw up a clear list of all local authorities’ responsibilities. Even if they were to produce such a list, local authorities' exact margin for manoeuvre would still have to be determined. The performance of these tasks is governed by law and often by regulations, which means that such tasks cannot be defined from a purely practical point of view.

- the difficulty of assessing the cost of the tasks carried out by the various types of local authority. Such an evaluation must be partly subjective and may be particularly difficult to carry out since the size of the task carried out may depend on the will or on the wealth of the particular authority concerned. Often, such costs can only be assessed in an approximate way, for example when a law transferring a particular responsibility is passed. Ideally, at such a time, the evaluation used to calculate the resources to be transferred should correspond to the budgetary payments made up to that point by the authority (central or regional) which was previously responsible.

- the difficulty of clearly defining various terms contained in the Charter.

Hence it is not possible in this report to provide a detailed study of both financial resources and the cost of responsibilities at the same time.

Moreover, the working group thought that, in view of the scarcity of comparative financial documentation that was both reliable and concise, the conclusions of the study on financial resources, which merited a report in itself, should be submitted to the Congress immediately. In this way it would be possible to begin comparing these conclusions with previous studies by CDLR.

Nevertheless, there was no reason why the working group should not use this report to draw up a draft resolution dealing at least partly with responsibilities, if only to help define the basic content of the supplementary report which would be needed to cover this precise field.

Conclusions regarding the financial resources situation

To turn to the substance of the report, the first conclusion to be drawn is that financial resources now constitute a “weak link” in the type of local self-government set out in the Charter.

Of course the Charter supports the idea that resources should come from a range of different sources, which is indeed the case, but the question remains whether the proportion of “own“ resources which local authorities can dispose of freely can be considered sufficient in Europe today.

It seems to us that being able to dispose of non-earmarked transfers freely is not an "adequate" condition for describing them as "own resources". Although we must welcome the fact that non-earmarked transfers have increased to the detriment of specific grants - which is an important and interesting lesson to be learned from the study - they actually remain a precarious form of resource which generally does not carry sufficient long term guarantees, these being, as a rule, the hallmark of taxation.

Besides, and this is a fundamental point, the increasing frequency of transfers has coincided with the establishment of a kind of local democracy which is more “functional” than political, ie one which focuses on decision makers’ accountability to the people they are required to administer.

Unless we are careful, there is a danger that the growth of transfers, which is certainly useful if responsibilities are to be exercised consistently in both quantitative and geographical terms, will bring about a change in the role played by local councillors in Europe: instead of acting as managers, accountable for the monies entrusted to them by the people, they will be expected to negotiate with and even beg from the central or regional authorities. This is a danger about which we think the Congress, as the local authorities' representative body, could issue a warning in order to guard against the risk of governments relaxing as soon as they have introduced the system of non-earmarked transfers.

Efforts could be focused firstly on the development of guarantee mechanisms at the highest possible level given that the economic situation of the member states implies a potential danger that, having generally handed over their powers and responsibilities to local authorities, they will not draw the necessary conclusions in terms of finance. These efforts and warnings are particularly necessary because, more than in the past, the need for monetary stability and the demands of the fight against unemployment could conveniently be used to justify a restrictive financial policy towards local authorities.

In order to indicate more clearly the current levels of local authorities’ financial autonomy in Council of Europe member states and to draw some useful lessons from the exercise, the diagram below divides countries into groups on the basis of their local authorities’ “own resources”, in the strictest sense of the phrase (local taxes plus fees and charges).

More than in the past, the need for monetary stability and the demands of the battle against unemployment could conveniently be used to justify such a policy. Hence the need for vigilance seems all the greater.

We have tried to divide countries into groups on the basis of their local authorities' "own resources", in the strictest sense of the phrase, as shown in the diagram above. Excluding "the former Yugoslav Republic of Macedonia" and Latvia, where the current situation regarding local self-government requires clarification, only 8 countries can boast a proportion of "own resources" equal to or more than 50%.

The average figure is less than 40% (38.69%), while six European Union countries, including one of the largest, are below that average - one of them with under 17% and the others with between 34% and 38%. As one would expect, none of the new democracies, except the two mentioned above and with the reservations stated, are above the average figure. These results which, of course, could be disputed, but not in terms of the overall picture they convey, could be used to alert people to the battles which lie ahead, if only to prevent the current situation from worsening.

As far as the Charter is concerned, lessons which could help in the drafting of future resolutions or recommendations may be drawn from the following points:

- the difficulty of obtaining homogeneous information about local finances,

- the substantial but nevertheless limited proportion of "own resources" coming from real local taxes, ie taxes for which local authorities may be required to decide the rate, albeit within a framework of upper limits and bands.

- the trend towards a reduction in exclusive taxes, mainly as a result of the difficulty of finding alternative independent tax revenue, this being due both to central and regional governments' reluctance to give up progressive tax revenue and to the technical difficulties involved in replacing or supplementing traditional local taxes which either do not produce a high enough yield or are not "elastic" enough,

- the temptation to replace these with transferred resources,

- the predominant role to be played in future by transferred resources in funding local budgets, and the simultaneous increase in the proportions of these resources being made available for authorities to dispose of freely (general grants and shared taxes) to the detriment of earmarked resources (specific grants),

- a certain confusion between funding local budgets or compensating for powers and responsibilities transferred in various ways, and financial equalisation; the trend, noted in some countries, of insisting that the practices of local authorities are "standardised" to some extent, at least where taxes are concerned, and the danger that this poses to the exercise of local freedom, which naturally involves a certain amount of variety,

- the value of achieving within the Council of Europe, the only body which deals with local finances from a not exclusively economic viewpoint, a sufficient level of standardisation of budgetary statistics in order to clarify the concept of local authorities' "own resources", which they may dispose of freely,

- the relatively limited use made of capital raising and the fact that this possibility for funding local budgets gives central government the opportunity to continue exercising some form of supervision.

- the need, in order to assess the actual situation of local democracy in Europe, to be able to compare for each country the resources available (and the proportion of these represented by own resources) with the tasks to be carried out, or at least those that are obligatory;

- the difficulty of achieving this aim because of technical and legal problems: the inadequacy of current data on the distribution of responsibilities in different countries; uncertainties surrounding basic concepts and definitions of responsibilities contained in the Charter itself, which need to be clarified, probably by means of a chart analysing the interpretations made by the different countries; the reluctance of most member states to incorporate in a small number of general laws even a brief list of the main responsibilities of the various types of local authorities; the difficulty in any case of objectively assessing the cost of exercising these responsibilities.

- the expediency, even before carrying out a full study, of making the Congress aware of the above points, which need to be taken into account if conclusions drawn from current national situations are to be used to influence the policies of the governments concerned.

n Fees and charges
n Local taxes

RESPONSIBILITIES OF LOCAL AUTHORITIES AND PROPORTIONALITY BETWEEN RESPONSIBILITIES AND LOCAL FINANCES

Study prepared as part of the

4th General Report on Political Monitoring of the Implementation of the European Charter of Local Self-Government: “The financial resources of local authorities in relation to their responsibilities: a litmus test for subsidiarity”

(Application of Article 3, paragraph 1, Article 4, paragraphs 1-5 and Article 9 of the Charter)

by Alain DECAMP, Chairman, and Philippe DE BRUYCKER, Vice-Chairmane
of the Group of Independent Experts on the European Charter of Local Self-Government

Volume II

SUMMARY

The first question concerns the definition of “responsibility”, which can denote either a field of activity or a (physical and legal) capacity to act. Insofar as possible, we will use the term only to designate a field of activity (education, for example, or social action), preferring the word “power” to indicate capacity to act.

In this respect the Charter requires some clarification.

Likewise, there is a need to clarify the term “own responsibilities” - a concept associated with the idea of a minimal level of supervision by central authorities, to ensure compliance with the law, and necessarily corresponding to a minimum of own resources, particularly in the form of revenue from taxes (the rates of which the local authorities may vary at their discretion) and certain other non-earmarked resources.

The experts’ replies indicate that, generally speaking, the question of responsibilities has received less attention than other provisions of the Charter. For example, it is rarely addressed in national constitutions and very few countries, apart from the federal states, have attempted to draw up lists of responsibilities. Thus the only way to determine precisely which responsibilities are exercised by local authorities is to go through entire bodies of legislation with a fine-tooth comb.

Therefore, our first conclusion is that in order to give greater practical application to the subsidiarity principal - which is now a reference point for many states - each should attempt to identify, in its legislation or preferably its constitution, at least a basic “hard core” of own responsibilities and try to evaluate, as clearly as it can, how those responsibilities are currently allocated among the different levels administered by elected councils.

Such an evaluation is vital if the effect of decentralisation is not simply to be greater complexity for the general public. It is also a prerequisite for replying accurately to one of the central questions raised by the working group, namely that of the balance between local authorities’ responsibilities and their finances.

It is clear, from scanning the replies of the 29 experts, that there is a gradual trend towards convergence in terms of general principles - particularly with regard to the methods that the continental countries and their Anglo-Saxon counterparts use to define responsibilities. On the other hand, it seems impossible to identify a Council of Europe member countries’ model for the allocation of responsibilities. While there is a common set of responsibilities, particularly at municipal level, centred around the management and organisation of an area and the provision of basic services to the population, the picture becomes more complex as soon as we include intermediate-level authorities, which (where they exist) normally have more substantial responsibilities that are also, as a rule, better defined - for example, co-ordination, social action, education and health.

With regard to the “proportion” of public affairs handled at local level, the situation varies greatly, ranging from a model based on traditional municipal tasks to systems where local authority spending is on a par with, or even exceeds, the central government budget. Whereas, in the first case, such arrangements are often regarded as provisional, pending decentralisation measures, the latter situation in which very many responsibilities fall to local authorities is not always seen as ideal. The risk is that the local authorities’ freedom of action will be circumscribed by the need to implement national policies. That risk is all the greater in recently democratised countries where local authorities have almost as many delegated responsibilities as own responsibilities - and in some cases, more.

An ongoing effort must therefore be made to find the right balance, ensuring that local self-government means real freedom of choice and the capacity to adapt services to the specific needs of the population.

Matching responsibilities and resources is a major part of that effort. Instead of trying to compile comprehensive (and not necessarily reliable) tables of comparison between the precise cost of the responsibilities exercised and the level of potential resources, it is better to encourage governments to develop systems under which any reallocation of responsibilities will be sufficiently transparent to allow local authorities and their representatives to monitor the process properly and establish that a transfer of responsibility will indeed be matched by a financial transfer.

To summarise, therefore, any resolutions or recommendations based on this report should be geared towards promoting more systematic efforts to pinpoint the responsibilities assigned by law to the different levels of authority, and encouraging a culture of monitoring the balance between transfers of responsibility and transfers of funds.

INTRODUCTION AND REPLIES TO QUESTIONNAIRES

This report constitutes the second part of the monitoring work that the Council of Europe decided to undertake in 1998.

The Working Group has already considered the main part, which is concerned with finances. To complement that work, this report sets out to assess the allocation of responsibilities to local authorities in the countries of the Council of Europe.

I. BACKGROUND TO THE REPORT

The first part, drawn up on the basis of a first questionnaire⁷⁶, submitted to the Working Group on 19-21 January 1998 showed a number of limitations inherent in the exercise:

- Firstly, it had proved very difficult to carry out a quantitative analysis of the financial needs arising from the allocation of responsibilities. This, however, had been the original aim since the Congress Working Group felt that a study of finances was inextricably linked with a study of responsibilities. The Group wished to establish how Article 9.2 of the Charter was being applied: this article states “local authorities’ financial resources shall be commensurate with the responsibilities provided for by the constitution and the law”;

- The first contributions received from the experts did not always describe the situation in the various countries in sufficient detail, or at any event in such a way as to allow comparisons.

The summary presented this time is supplemented by the replies given to a second questionnaire sent out mid-way through the year and drawn up at the meeting of the Working Group responsible for follow-up on 7 and 8 April last. The questionnaire (which appears in the appendix together with the first version) included a table, responsibility by responsibility, of the different fields of public action likely to be assigned to local and regional authorities.

The replies received have enabled us to draw a number of conclusions which are acceptable at this stage and obviate the need, as had been envisaged in the preliminary report, to resort to monographs, often very complete (especially in the most recent versions) drawn up by the CDLR. As was the case for the report on finances, these documents will be referred to only to provide supplementary information. Nevertheless the aim is still to attempt, country by country, to harmonise the Congress sources with those of the CDLR in order to have data which could usefully be compared by reducing, as far as possible, any “technical” reasons for divergence, if only at the level of the terminology used.

It must be said that we are still a long way away from being able to draft a summary, but hopefully the conclusions in this report will prove useful to this end.

We are sure they will also supplement the different country-by-country sheets which the Working Group also decided should be drawn up, supervision of which was entrusted to Philippe De BRUYCKER for ARCOLE.

An outline of this document was studied in detail by the group of experts at its meeting in Strasbourg on 25 and 26 October 1998, to which the CDLR secretariat was invited. At that meeting, certain ambiguities were clarified and essential extra information was gathered. The experts’ joint findings were also presented and discussed. They are intended as a resource for the working group to draw on in preparing a draft resolution and recommendation for submission to the Congress.

II. REPLIES TO THE QUESTIONNAIRE

Of the 36 countries (out of the 40 Council of Europe member states) which have signed the European Charter of Local Self-Government, 29 provided at least one reply to the questionnaires sent to the members of the Committee of Independent Experts. Furthermore, one reply was received from a non-member country: Bosnia-Herzegovina.

Initially, 11 reports were received which were used for the January meeting.

These came from: Denmark, Finland, Germany, Hungary, Italy, Latvia, Lithuania, Portugal, Spain, Sweden and Turkey. We were also able to take account of the experience in France based on the rapporteur’s contribution although no formal report had been drafted.

Four further reports were received, but too late to be used: Bosnia-Herzegovina, Iceland, Russia and the United Kingdom.

A third wave of replies have arrived since August from: Albania, Austria, Cyprus, Estonia, France, Luxembourg, "the Former Yugoslav Republic of Macedonia", Malta, the Netherlands, Norway, Romania, Slovenia and Ukraine.

A special thank you to a number of experts for having supplemented their replies to the first questionnaire in order to take account of the clarifications which were requested. These were the experts from Denmark, Finland, Hungary, Iceland, Latvia, the Netherlands, Portugal, Turkey and the United Kingdom (Scotland).

The present conclusions are therefore based on a sample of 29 countries⁷⁷ (including one, Bosnia-Herzegovina, which is not yet a member of the Council of Europe) which we feel may be regarded as representative.

III. CONCLUSIONS JUSTIFYING A SEPARATE REPORT ON RESPONSIBILITIES

The conclusions jointly arrived at by the group of experts are particularly interesting because they indicate that the question of responsibilities is, in itself, much more complex than it might seem and also vital to the process of making self-government a reality.

The experts’ conclusions constitute an invitation to local and regional authorities to demonstrate more systematically the relationship between the cost of carrying out responsibilities and the resources actually available to local authorities for doing so.

The research thus throws up a very important idea. Unexpectedly, the issue of responsibilities clearly poses what is in theory a central question:

Are local authorities to be considered as entities distinct from the state and, in that capacity, able to exercise the fullest possible range of their own responsibilities with a certain degree of autonomy and thus of diversity? Or, on the other hand - bearing in mind that the breadth of public sector activities inevitably means an overlapping of powers - must they be regarded ultimately as part of the machinery for implementing policies fixed at national level, albeit in consultation with their representatives?

This may seem a surprising question but it is a legitimate one in a situation where, for example, local authorities in federal or quasi-federal states are required to carry out at least as many “delegated” responsibilities (assigned to them by the federation or, increasingly, by the federal states) as own responsibilities, and where their counterparts in the most decentralised states - ie those (particularly North European) countries that assign the greatest number of responsibilities to local government - have less and less room for manoeuvre (as if the capacity for independent decision-making was automatically in inverse proportion to the volume of tasks).

The question is absolutely vital to the future of local self-government if we consider that as local budgets increase in size it is becoming more and more difficult to make available to local authorities taxation-based revenue whose level they can genuinely influence.

It is essential that this (highly political) question be asked, particularly in respect of the newly democratic countries where central governments, following the Council of Europe's advice, have tended to delegate a great many (if not most) responsibilities to local authorities, or to regional ones where these exist, but are inclined to accompany this policy with a less than full transfer system, based on assessing average levels of spending required. Local self-government cannot be defined in purely quantitative terms. Like democracy itself, it demands a qualitative approach.

The risk is that if basic attention is not paid to the prior identification of those tasks best carried out at national, regional and local levels - and thus to determining which responsibilities to allocate - a certain confusion may arise that will inevitably damage the cause of local self-government.

Before looking at the various points, it is necessary, as has been customary practice in previous work, to take stock of the provisions of the Charter concerning responsibilities and to take this opportunity to clarify a number of definitions for better mutual understanding.

PART ONE - PRINCIPLES GOVERNING THE ALLOCATION OF RESPONSIBILITIES

I. THE CHARTER PROVISIONS AND THE ISSUES THEY RAISE

The question of responsibilities, although apparently straightforward, may in fact be one of the most problematic because the Charter makes parallel and successive references to a number of concepts.

The first article to raise the question is the one that actually defines local self-government, Article 3.1. The term “responsibilities”, in the relevant sense, is not used. The text refers only to “a substantial share of public affairs”.

A. DEFINITION OF LOCAL SELF-GOVERNMENT (ARTICLE 3.1)

“1 - Local self-government denotes the right and the ability of local authorities, within the limits of the law, to regulate and manage a substantial share of public affairs under their own responsibility and in the interests of the local population.”

In this introductory paragraph, the Charter proposes a definition of local self-government that is spelt out in the following articles and includes formal, political and practical aspects:

- the right […], within the limits of the law, to regulate (ie to make regulations in respect of) and manage […] under their own responsibility (formal aspects, stressing the authorities’ legal capacity to manage their own affairs);

- in the interests of the local population, a formula that suggests the notion of legitimacy and thus introduces a political aspect. Local activity only makes sense if its purpose is to meet the needs of a population that has expressed a demand for it;

- the ability […] to regulate and manage a substantial share of public affairs (a practical aspect, emphasising the need for local authorities to be effective and pointing, in particular, to Articles 9 - on Financial resources - and 10, and to their fields of application).

It is clear at once that two concepts are present: the legal notion of “capacity” (signified by the term “powers”) and that of the field of action, in a practical sense.

In the French text of the Charter, the use, particularly in Article 4, of the word compétences poses problems because it can mean both “powers” and “responsibilities” - which are discrete concepts in the English text.

That said, Article 4 makes a series of distinctions, which were reflected in the structure of the questionnaire but which call for some explanation, especially as the experts have interpreted them in different ways in their contributions.

B. SCOPE OF LOCAL SELF-GOVERNMENT (ARTICLE 4)

This article raises a whole series of questions:

- on the distinction between own and delegated responsibilities;

- on the notion of “basic powers and responsibilities” and “powers and responsibilities [attributed] for specific purposes”;

- on the authority empowered to determine both types of responsibility;

- on the issue of general responsibility;

- on the notion of “full and exclusive powers”;

- on the implementation of the subsidiarity principle.

1. Own responsibilities and the problem of general responsibility

1. The basic powers and responsibilities of local authorities shall be prescribed by the constitution or by statute. However, this provision shall not prevent the attribution to local authorities of powers and responsibilities for specific purposes in accordance with the law.

2. Local authorities shall, within the limits of the law, have full discretion to exercise their initiative with regard to any matter which is not excluded from their competence nor assigned to any other authority.

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4. Powers given to local authorities shall normally be full and exclusive. They may not be undermined or limited by another, central or regional, authority except as provided for by the law.

2. Delegated responsibilities

5. Where powers are delegated to them by a central or regional authority, local authorities shall, insofar as possible, be allowed discretion in adapting their exercise to local conditions.

3. The subsidiarity principle

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3. Public responsibilities shall generally be exercised, in preference, by those authorities which are closest to the citizen. Allocation of responsibility to another authority should weigh up the extent and nature of the task and requirements of efficiency and economy.

The wealth of aspects covered by this article calls for more than a simple commentary. Readers are therefore referred to the following section, which attempts to review the various questions of interpretation raised in its practical application through the various national legal systems.

II. INTERPRETATION OF THE CHARTER PROVISIONS WITH REFERENCE TO THEIR APPLICATION IN THE DIFFERENT STATES

A. ALLOCATION OF RESPONSIBILITIES BETWEEN THE STATE AND DECENTRALISED (MAINLY LOCAL) AUTHORITIES; LEVELS OF LEGISLATION AND GENERAL DEFINITIONS OF RESPONSIBILITY

Article 3.1 of the European Charter of Local Self-Government defines local self-government as the right of local authorities to manage a substantial share of public affairs. Although this is a key provision, determining the extent to which it is actually applied in states bound by the Charter is not easy.

1. The concept of a “substantial share of public affairs”

The first question concerns the criterion for defining such a share. One option would be look at the apportionment of responsibilities between central government and local and regional authorities in order to compare the two bodies of responsibilities and attempt to pass judgment on the balance. Aside from the inevitably subjective aspect of such an assessment, the task is by no means straightforward, given the absence of sufficiently detailed comparative data on local authority responsibilities in each of the Council of Europe member states.⁷⁸

The notion of a “substantial share” of public affairs is in itself essentially relative - and the Charter avoids going into greater detail.

However, one way in which this report may be useful is in offering various pointers - based on existing situations - towards the type of responsibilities that might “reasonably” be allocated to local authorities at different levels, or at least in presenting a number of options and specific references.

Another interesting point is that the experts do not always advocate maximalist solutions. It would seem that the real problem is now that of striking a balance, particularly with regard to the key issue of ensuring that resources match - ie are sufficient to cover - responsibilities. In Scandinavia, for example, there is a school of thought (echoed particularly in the Norwegian report) that opposes any further increase in local authorities’ powers.

It is true that decentralisation is already well developed in the countries concerned. In some cases it is felt that an overload of responsibilities is the reason why local authorities have less financial leeway and are reduced to executing national policies according to a standard pattern.

It might also be noted that the massive transfers of responsibility to local authorities in the newly democratised countries as are merely a semblance of decentralisation: they are a means for the state to offload as many tasks as possible, in what is generally a one-sided transaction.

It is difficult to generalise on the question of whether or not local authorities manage “a substantial share of public affairs”. We may, however, go so far as to identify a trend - namely that local authorities in most countries are certainly required to carry out “a share” of public business and that, with certain exceptions, the size of that share tends to be, or is becoming, substantial. The next question is whether or not the local authorities also have the “ability” to manage this substantial share of public affairs. In reality, the only way to form a judgment with regard to this stipulation is to examine how the Charter as a whole is applied. As we have already pointed out, local self-government necessarily involves a wide range of elements in respect of which Article 3.1 cannot be regarded as anything more than a legal reference point.

That is why the working group was concerned to address the issues of responsibilities and finances in parallel.

2. Levels of legislation and method of allocation

A further question is that of the level of legislation necessary for allocating responsibilities. Here, as on other points of principle, the Charter recommends recognition “where practicable” in the constitution. Responsibilities must, at least, be prescribed by statute.

2.1 The importance of the question

There is no need to devote a great deal of space to this stipulation, which has already been discussed in previous reports. The concern of the Charter’s authors was to have a guarantee at the highest possible level that local self-government would not subsequently be eroded by central (or other) authorities.⁷⁹

It might well seem that the highest possible level is the democratically elected sovereign authority charged with representing all the people and communities that comprise the state. But we then have to ask how parliaments are formed, and what procedures exist for ensuring the continuity of the rules governing the responsibilities and powers of local and regional authorities. The fact that those authorities have their own elected bodies gives them a particular right to be respected by the national legislative body. It is a fact that, in most countries, local elections, just like national ones, are regarded as “political” elections; in France and Germany this situation is based on judicial interpretation of the constitution.⁸⁰

For local authorities, however - at least in those countries that do not have a constitutional court - there are certain dangers associated with enshrining their powers in supposedly unchallengeable legislation. This is demonstrated by the statements made by the association of Swedish local authorities in May 1993 when it pointed to a tendency on the part of parliament to pass laws imposing new obligations - particularly financial ones - on local government. The British experience is another case in point. It is clear from the wave of “re-centralisation” measures taken in the United Kingdom before the 1997 change of government that local authorities can be very vulnerable to the unchecked will of a legislative authority.

Very few countries, apart from federal states, have “institutionalised” participation by local and regional authorities in the preparation of legislation. Many prefer to proceed by way of agreements negotiated with the large national associations. In such a situation those associations must be powerful enough to be effective.

2.2 A neglected issue

The guarantee is stronger if it is enshrined in the constitution or if the state possesses a constitutional court. In fact, as we shall see, constitutions rarely provide any indication regarding local responsibilities, most of them leaving this to be done through legislation (see, in particular, the constitutions of Austria, Denmark, Luxembourg, the Netherlands, Portugal and, to a lesser extent, France). In the case of Portugal, the constitution does not lay down a general sphere of responsibility, as such, but Legislative Decree No. 100/84 of 29 March 1984 lists the different fields in respect of which municipalities must have their own statutory resources in order to enable their elected assemblies to exercise “decision-making powers” (powers that they enjoy precisely by virtue of their being elected). The Croatian and Macedonian constitutions are exceptions to this general picture. It would be interesting to know whether there have been cases in which local authorities in these countries have been able to make use of the constitutional protection thus granted to their responsibilities (or at least to those that are listed).

Even statutory definitions of powers are imperfect in some respects and attract certain criticisms. This is an area where the question of responsibilities seems to be somewhat neglected.

In most countries, local responsibilities are not listed in “institutional” or “basic” local government acts. They are to be found scattered across a great many different pieces of legislation giving local authorities specific powers in this or that field, with the result that it is sometimes difficult to gain an overview and even more difficult to produce an exhaustive list.

But there are strong reservations about legislative programmes that seek to list responsibilities in too much detail. One argument is that such lists may very quickly become out of date. The fact is that a great many of the national reports in response to the first questionnaire made little or no reference to the question of responsibilities. The notion of “competence” [the French compétence] was frequently understood in the sense of “power” (or capacity to act), rather than “area of responsibility”. Indeed, general legislation on local self-government often takes the form of procedural acts, laying down the principles and rules governing the functioning of local authorities, and their relationship to the state. Very few such acts tackle the issue of areas of responsibility.

In many cases, the very notion of a substantial share of public affairs - which is, as we have seen, a basic element in the definition of local self-government under Article 3 - is absent. (This is not so in new legislation, which, in this respect, follows the Charter more faithfully than older laws. The Polish interim constitution of 17 October 1992, for example, is very interesting on this point, Article 71 stating: “Local self-government shall concern itself, within the limits defined by law, with the performance of a substantial part of public tasks, except for those tasks which are, by statute, reserved exclusively to the competence of governmental administration.”) It would be interesting to know whether, and if so to what extent, such a provision, so clearly inspired by the European Charter, is applied in practice.⁸¹

2.3 Issues raised by the question of the reference legislation

It is nonetheless legitimate to consider the possible value of listing local responsibilities in the relevant institutional act or possibly in some type of local government code. On this point, the explanatory report to the Charter itself is somewhat sceptical - “[...] it is not possible, nor would it be appropriate to attempt, to enumerate exhaustively the powers and responsibilities which should appertain to local government throughout Europe” - a stance reflected in the contributions of several experts (particularly those from Scandinavia).

This is understandable in the case of the Charter, inasmuch as the spirit of the document would not admit the imposition of a standard vision of local democracy. But it is reasonable to think that there is scope for trying some form of list in individual countries. The fact is, however, that few of the countries covered in the replies to the questionnaire have made any such attempt. The French legislation has identified “blocs of responsibilities” so that they can be allocated to the different tiers of local government in accordance with their previously determined main areas of concern. Although this approach does not prevent numerous overlaps between the different levels of power, it does have the advantage of making the institutional system more easily understood by citizens, enabling them to see clearly the value of local authorities in terms of the tasks they perform. Nonetheless, the resulting situation is heavily criticised and the need to “clarify” local government responsibilities is one of the current rallying cries of reformers.

From the point of view of local self-government, the scattering of responsibilities across the whole body of the legislation can have damaging effects: legislators do not always pay sufficient attention to the consequences for local self-government of laws allocating responsibilities to, or withdrawing them from, local authorities. Inevitably this scattering encourages a tendency for local authorities to be seen as organs for executing comprehensive sector-based policies that are, in the main, determined centrally in respect of each sector.

One point that might be discussed, and could possibly be reflected in a resolution based on the report, is the question of how to limit this negative effect while avoiding the opposite pitfall of listing responsibilities in too much detail. Might it be feasible, for example, to suggest setting out all the principles that govern the allocation of local responsibilities in a type of framework act that could only be amended under special conditions (such as the need for a qualified majority in parliament)?

3. The question of a “general definition of responsibility”

Although the growing complexity of the legal system in all the countries concerned has resulted in an increase over time in the number of specific responsibilities allocated to local authorities, there are still general definitions, or statements, of responsibilities, which, as Article 4.2 of the European Charter puts it, grant them “full discretion to exercise their initiative with regard to any matter that is not excluded from their competence nor assigned to any other authority”.

3.1 Aspects of the debate

It would seem that such clauses exist, implicitly or explicitly, in the majority of countries of the continental legal tradition. Indeed they have recently been included in the constitutions of most of the newly democratic countries of Central and Eastern Europe.⁸²

They are not to be found, as such, in countries with a common-law tradition. The United Kingdom has developed a different legal system, under which no local authority - nor any other institution - may make decisions that fall outside its statutory powers (the ultra vires principle).⁸³

The United Kingdom having recently joined the group of countries that have ratified the Charter, it would seem an appropriate time to compare attitudes to this type of clause.

It is interesting to note that there is debate on this point within both legal traditions.

The British report⁸⁴ refers to attempts to introduce a general clause in the UK. They were unsuccessful but C.M.G. Himsworth takes the opportunity to point out the potentially reductive effect of interpreting the ultra vires principle too strictly. He recalls two particularly interesting “glosses” on the principle that make for some latitude in its interpretation. On the one hand, a local authority may do anything “which is calculated to facilitate, or is conducive or incidental to, the discharge of any of [its] functions”. It may also “incur expenditure which in their opinion is in the interests of, and will bring direct benefit to, their area or any part of it or all or some of its inhabitants”. Two criteria are clearly present, which, in the continental tradition, form the basis for local self-government: a geographical area and its population.

Some British commentators have therefore taken the view that the addition of a responsibilities clause would be no more than a symbolic measure.

By contrast, the ultra vires principle may result in a greater degree of precision in the texts (including ministerial orders) that govern local authorities’ activities, and in recourse to the courts on highly technical issues.

However, Himsworth concludes that initiative-taking by local authorities’ is limited more often by the financial resources at their disposal than by legislation.

At the same time, it should be noted that Ireland, although not a signatory to the Charter, introduced a general responsibility clause in its 1991 Local Government Act.⁸⁵

The principle of such clauses is also disputed in continental Europe because their significance is, in many cases, underestimated.

The first argument is that the historic purpose of the “general responsibility” clause was to define the powers of local authorities at a time when the latter were regarded as natural communities (and sometimes even as village “families” belonging to the private sphere, responsible for what were considered to be “local affairs” according to the circumstances of the time and the sovereign’s own perceptions. As the 21st century dawns, however, we may well query the continued appropriateness of this survival from the past.

One particular consequence of legislative intervention is that there are practically no areas of local authority activity that are still free from regulation by a higher body, so a second objection is in the form of a question: what subjects can local authorities still concern themselves with on their own initiative, over and above the responsibilities that are expressly assigned to them?

3.2 The significance of such a clause as an affirmation of local autonomy

We would reject both these arguments because they appear to take insufficient account of the profound significance of such clauses - a significance recently reinforced by the widespread trend towards the recognition of local and regional bodies as political institutions in their own right.

From the standpoint of the general theory of administrative organisation, the general and indeterminate nature of local authorities’ responsibilities is one characteristic that distinguishes them, as political institutions, from decentralised public-service bodies that are not managed by elected councils and are subject to the speciality rule, in other words are responsible (as public institutions or agencies etc) for a particular sector, or directly subordinate to the hierarchical authority of central government.

This interpretation was recently confirmed by the German Federal Constitutional Court,⁸⁶ which found that the sphere of responsibilities open to local self-government was not materially restricted, but rather all-embracing within a territorial area of activity. Local authorities did not need to be assigned special responsibilities for taking on tasks within their geographical area.

This is also why the French decentralisation act, while significantly extending the list of areas of responsibility devolved to municipalities, départements and regions, was careful to abrogate the general rule that they were responsible “within the limits set by law” for their geographical area and its population, by virtue of the mandate given to their directly elected bodies.

This is a measure of the theoretical significance of Article 4.2, particularly at a time when a number of newly democratic countries are undergoing a vital shift, changing from societies where freedom was the exception to societies where freedom is the rule.

In fact, local government can only assert itself in a context where there is scope for initiatives based on the needs of the population.

Apart from its theoretical significance, a general definition of responsibilities has some essential practical effects.

Specifically, it enables local authorities to complement the activities of central government without needing to justify this with reference to any specific legal provisions. Experience also shows that, because they are in direct contact with the local population, and their form of organisation may be better co-ordinated than that of central ministries (which, in turn, are probably more concerned with rapid execution), local authorities are more able to respond to new problems. They are also very frequently asked to co-ordinate activities or undertake experiments that, without them, would be impossible.

None the less, a general definition of responsibilities is not sufficient in itself. It needs to be accompanied by sector-specific provisions that will be increasingly detailed according to the number of bodies active in the sector and the resulting need for arbitration between them (in the form of legislation).

Therefore, general definitions of responsibility and specific legislation are not mutually exclusive, but in fact complementary. Specific laws indicate local authorities’ spheres of activity in a given sector. But that is not to say that they do away with the principle of general responsibility. It would therefore be a mistake to interpret - as some would seem tempted to do - general responsibility (under Article 4.2) as being at odds with the allocation of powers and responsibilities “for specific purposes” (under Article 4.1).

The issue here is one of legislative technique, not of principle.

Moreover, even within specific legislation that provides for powers to be allocated in a given field, it is not possible, by definition, to foresee every situation in advance, much less so to make the necessary provisions. A complementary basis for action is therefore needed. In such situations, the precise allocation of responsibilities between a local authority and, for example, the relevant central-government office will depend on the ability of the parties involved to have their point of view accepted. Therefore, the local authority must not be required systematically to accept the arbitration of the government administration.

The thrust of these arguments is that local authorities’ spheres of activity should be determined, insofar as possible, by two types of provision:

- a “general responsibility clause”, based on the simple fact that the local authority has been mandated by the people living in its territory to administer that territory in their best interests. Nonetheless, to avoid pointless controversy, this general definition of responsibility should be statutorily - or, better still, constitutionally - recognised;

- a series of specific statutes outlining precisely, sector by sector, the extent of the various powers and responsibilities of central government, on the one hand, and of all relevant local authorities, on the other.

In the case of a country where, for various reasons, decentralisation was little developed and concerned only the most immediate tasks of a rural-type society - the administration of community property, networks, transfers etc - a general definition of responsibilities accompanied by procedural legislation would be sufficient.

In the case of a highly developed country with a high level of intervention by the authorities (including local authorities), the general definition of responsibility would play a secondary role, serving nonetheless as a reminder that every local authority retained an irreducible measure of self-government that carried legal force without reference to any particular piece of legislation or court decision.

The essentially dual nature of the basis for local-authority activity is reflected in an analysis of existing national situations.

Indeed, it would seem to be the norm that general definitions of responsibility and provision in local-government legislation for bodies of specific responsibilities exist side by side. Such a juxtaposition is to be found in most countries and it is possible that the debate about the relative merits of general definitions of responsibility as opposed to the assignment of responsibilities is actually contributing to a rapprochement between the two systems. The two approaches coexist, for example, in Belgium, Spain, Finland, France and Greece, as well as Luxembourg, Poland and Portugal.

Apart from this distinction, there is a further question, already raised above: is it preferable to rely on a range of specific provisions in the statutes governing various sectors of activity, or should an attempt be made to bring together, insofar as possible, the different areas of local or regional responsibility so as to provide an instant overview of responsibilities, authority by authority?

It is precisely because, in most countries, this question was not considered at an early stage that the majority of the experts decided it was virtually impossible to compile an exhaustive list of the responsibilities assigned to the various tiers of local government.

4. The concept of “full and exclusive” responsibility

It is clear from a quick examination of the replies on this point⁸⁷ that there is a preference for the more general of the two possible interpretations of the concept.

It might be thought that the words “full and exclusive” are used in the Charter to imply clearly identified “blocs ” of responsibilities, no less clearly (and fully) assigned to given political levels of administration: central (or federal) government, federated state government (region or other intermediate tier, whatever it may be called), municipality etc.

Such an arrangement might be seen, in some respects, as an ideal one.

Inevitably, the reality is different, even in the federal states although an effort is made there, in constitutional provisions or primary enabling legislation, to distinguish the roles of the different levels insofar as possible. Thus, most responsibilities fall into the “concurrent” category - those that are exercised jointly by the federation and the states.

The same trend is at work in all the countries, whatever the nature of their chosen institutions, and is more marked the greater the level of activity of the authorities generally.

Indeed, the various structures are perhaps better characterised by the interwoven nature of the different tiers and their activities than by their respective levels of autonomy.

There are several possible explanations for this:

- whatever the administrative tier involved, the same population is being served (if not the same taxpayers, albeit paying different types of taxes to different authorities) and the same territory covered;

- for activity by any public authority to be effective there has to be co-operation at every level;

- any attempt to isolate a particular sphere of responsibility (or part of a sphere of responsibility) soon runs up against major technical difficulties:

How, for example, could full responsibility for education be assigned to a single tier of administration? The authorities at every level have an interest of one kind or another in taking responsibility for education. At best, we can say that there are different possible roles for them. For example, should educational qualifications be issued at national level or not? Can the construction and maintenance of school buildings be separated from the recruitment and deployment of teachers? What about logistics and the definition of curriculum content? Should there be an egalitarian public education system and what authority should be responsible for running it? Should education and vocational training be linked or not? What arrangements should be made for special education, adult education etc?

- apart from the question of how to distinguish in clear, practical terms not only between spheres of responsibility but also between aspects of the same sphere, it is clear that the choices involved are not merely technical ones and that, inevitably, not all spheres of responsibility lend themselves as readily as education to a detailed theoretical analysis. What about town planning, environment, or culture, for example?

- these are not the only difficulties. There is the question of how to make clear distinctions without entering into too much detail. Might over-legislation not produced an excessively rigid system? And how are disputes between local authorities to be managed?

Arrangements that might just be conceivable in a state with only two tiers of authority, central and municipal, might be impossible in one that had political authorities at four or five different levels. In this case, the problem of distinguishing clearly between different aspects of a responsibility is compounded by the need to give each tier a clearly identified share.

It is because of these and other questions that efforts at clarification (by consultative committees, for example) and moves to translate such efforts into legislation (eg in France) are few and far between.

But despite these difficulties, we should not abandon attempts at clarification. On the contrary, Article 4.4 is an invitation to pursue such efforts. And clarification is all the more necessary inasmuch as it is virtually a prerequisite for the implementation of Article 4.3 on subsidiarity.

The alternative, more global, interpretation - which must nonetheless prevail - is based on the text of the Charter itself: “Powers given to local authorities [...] may not be undermined or limited by another, central or regional, authority except as provided for by the law.”

This means that once a local authority has been assigned a task, it must, insofar as possible, have at least the legal capacity to execute it using its own resources. Article 4.4 thus connects with Articles 6-9, which concern resources, and particularly Article 8 which sets out - and limits - the various possibilities of intervention by supervisory bodies.

B. NATURE OF RESPONSIBILITIES: OWN AND DELEGATED RESPONSIBILITIES

The distinction made in the Charter between own responsibilities (Article 3.1 refers to local authorities’ own responsibility) and delegated responsibilities⁸⁸ may pose a problem with regard to the different traditions of Council of Europe member states.

Part of the difficulty lies in the fact that the distinction reflects a theoretical issue that is rarely debated in all its complexity.

It must first be stressed that, despite what is sometimes stated, the distinction does not in any way correspond to that between “natural” responsibilities (exercised by local authorities on their own initiative) and those “assigned to them by law”.

1. Differences between own responsibilities, “naturally” local responsibilities and responsibilities attributed by law

The idea of “natural responsibilities” or responsibilities that are “naturally” local has potential practical validity and is not incompatible with the subsidiarity principle.

There are, in fact, a certain number of activities that can be seen as more obviously local than others. They are those that most directly concern the organisation and daily life of the local community. For example, the idea of “natural” responsibility suggests territory, and thus roads, or means of communication in general, the organisation of the community or the various services that the inhabitants are entitled to expect from the body responsible for public provision (water supply, sanitation, gas and electricity supplies and primary education, to cite just a few examples).

It also suggests a historical reality: municipalities began as “citizens’ communities” and were initially regarded as having private legal personality and possessing property that they were responsible for managing. The same idea is behind the theory of local communities predating and preceding the state. It is also the original basis for terms like “local affairs” or “municipal affairs” that crop up in the legislation of many countries.

The Charter does not use these terms but it reasonable to assume that its authors recognised the idea behind them. The concept is echoed in the term “basic powers and responsibilities” in Article 4.1.

Far from making a distinction between the two types of responsibilities, the notion of own responsibilities (which the Charter does not use explicitly but on which it is entirely based) combines them in one and the same category.

The underlying idea is that these are responsibilities belonging to local authorities as of right because they have been assigned to them by the body with jurisdiction to decide such matters (which, under the Charter, is the legislature). It is true that the responsibilities assigned by law are usually circumscribed by higher legal rules that constitute a framework within which local authorities’ activities must take place.⁸⁹ However, the majority of local responsibilities which - on the basis of a fairly vague idea, dependent on historic circumstances - appear to be “natural” are also defined in law, so we must not be confused by the notion of “general responsibilities”, a term which (with reference to the concept of a general definition of responsibility) is sometimes used to describe them. This type of general responsibility cannot exist without reference to the constitution or the law, if only because it has to be seen as a residual responsibility vis-à-vis the responsibilities already explicitly assigned to the local authorities themselves or to other public authorities. It does not exist in its own right.

2. Separate distinctions: own v. delegated responsibilities and politically decentralised v. administratively decentralised responsibilities

At first sight the distinction between own and delegated responsibilities might also appear to be the same as that traditionally made in French legal theory between politically decentralised and administratively decentralised responsibilities (in French compétences décentralisées and compétences déconcentrées).

Politically decentralised responsibilities are those assigned to bodies that are separate from the state and derive their own legitimacy from elections. Despite the history of theoretical argument on this subject in France, and even more so in Spain,⁹⁰ the only bodies that can be assigned politically decentralised responsibilities are local - territorial - authorities because only they have a general responsibility⁹¹ (see above).

Administratively decentralised responsibilities are those assigned to an authority that is remote from the original seat of decision-making but nonetheless part of the same legal entity. For example, central government Ministers may allow part of their decision-making powers to be transferred to territorial administrative officers (the French préfets), who represent the state in their areas (départements). Likewise, a municipal council may transfer some of its powers to a neighbourhood council.

Administrative decentralisation differs from delegation inasmuch as it constitutes a permanent institutional measure. Although the authority to which powers are assigned under such an arrangement remains part of the assigning entity - the government or municipality in the examples above - it acts independently.

At the same time, in unitary states of the Napoleonic tradition it is possible for powers to be delegated to authorities that are legally separate entities from the delegating bodies. This type of delegation refers to the situation known in France as “functional separation” [dédoublement fonctionnel] in which a body that is part of one institution is required to undertake duties for and on behalf of another institution. Mayors, for instance, are deemed to be state officials when they undertake certain specific functions, for example in relation to policing.

In certain countries this functional separation can have implications for the way that the individual or body concerned is appointed. Thus in Belgium the justification given for the fact that mayors are still appointed by the king, rather than being elected by the municipal council, is that they are also officials of the federal authorities.

Functional separation can lead to confusion with regard to the question of supervision. In recent years there have been serious problems in this respect in some Central and Eastern European countries (including Romania, where the difficulties have now been resolved, and also Croatia).

3. The distinction between own and delegated responsibilities in relation to federalism

According to the experts’ replies, the distinction between own and delegated responsibilities (i.e. between those that an authority exercises independently, by virtue of its own legitimacy, and those that it exercises on behalf of another authority, in this case the state) does not appear to be acknowledged in all the unitary states - and particularly not in Denmark, Finland, Sweden or Turkey.

It would seem to have more affinity with the theory of federalism. In Austria and Germany, the federation does not, in principle, develop its own administration but uses that of the federated entities or their local authorities.

However, it is important to make a further distinction between what may be termed “federalism of execution” and delegated responsibilities in the strict sense. Federalism of execution concerns cases where bodies are called on to execute responsibilities on behalf of another body that has the basic legal responsibility in the relevant area. This is the situation provided for in Article 83 of the German Basic Law, which states that “the Länder shall implement federal legislation in their own right in so far as this Basic Law does not provide or permit otherwise”.

The concept of delegated responsibilities is narrower and is concerned with the specific case where a responsibility assigned to one body in its own right is delegated by it to another body. This is the situation provided for in Article 85 of the German Basic Law.⁹² (It also relates to the situation discussed under 2. above.)

The draft European Charter of Regional Self-Government clearly makes the relevant triple distinction by differentiating between “own competences” in Article 4, “delegated competences” in Article 5 and “regional affairs” in Article 6.

Whereas, for its part, the European Charter of Local Self-Government merely deals with what are termed “delegated powers” in Articles 4.5 and 8.2, its stance is more strongly protective of local self-government than that required by a strict application of the delegation theory. Although Article 8.2 acknowledges the traditional consequence associated with the distinction between own and delegated responsibilities (namely that delegated responsibilities may be subject to administrative supervision with regard to expediency, whereas supervision of local authorities’ own areas of responsibility is theoretically confined to ensuring compliance with the law), Article 4.5 states that authorities granted delegated powers should be allowed “discretion in adapting their exercise”. This stipulation has the potential to cause functional problems in situations where a local authority, although acting on behalf of another authority, has discretion with regard to the exercise of its responsibility. This is probably the reason why Austria has included this provision on its list of reservations.

Spanish law (the basic local government act of 2 April 1985) appears to make a distinction that is closer to the spirit of the Charter by separating authorities’ own responsibilities assigned by law, which are not subject to any supervision other than that designed to ensure compliance with the law (Article 7.2), from delegated responsibilities.

The latter, when laid down by parliament, are mandatory but parliament must then provide for the corresponding financial resources.

A government department may also delegate responsibilities, but in such cases the delegation must be accepted by the local authority in question.

Although the distinction between own and delegated responsibilities is relatively clear, it may - as we have observed⁹³ - have problematic consequences from the standpoint of local self-government.

In practice it is often difficult to pinpoint the basis on which a local authority exercises this or that responsibility. There is a risk that this uncertainty may be to the advantage of supervisory authorities, which in one case (that of own responsibilities) can do no more than ensure compliance with the law but in the other (delegated responsibilities) are justified in supervising fully the expediency of the local authority’s activity.

There is a further risk that in countries where local authorities have almost as many delegated as own responsibilities - if not more - there may, in practice be less respect for local self-government and the local authorities may become used to co-operating so closely with other bodies that they actually lose a sense of their own autonomy.

There is bound to be concern on this point when we look at the weight of so-called “delegated” responsibilities assigned to local authorities in the newly democratic countries. The case of Ukraine is almost a caricature of this situation - according to the expert’s report, the municipalities there have no fewer than 66 “own” and 77 delegated responsibilities.

C. CRITERIA FOR ALLOCATION AND THE SUBSIDIARITY PRINCIPLE

Given the new interest in subsidiarity, it is worth considering separately the definition of the concept in Article 4.3 of the European Charter of Local Self-Government: “Public responsibilities shall generally be exercised, in preference, by those authorities which are closest to the citizen. Allocation of responsibility to another authority should weigh up the extent and nature of the task and the requirements of efficiency and economy.”

To some extent, this provision develops the idea, contained in the preamble to the Charter, that “it is at local level that ... the right of citizens to participate in the conduct of public affairs ... can be most directly exercised”.

This definition is important in a number of respects.

∙ Firstly, it constitutes an initial attempt to give legal expression to a principle that can be seen as either a tenet of political philosophy or an actual rule of law.

As pointed out in a study on the subject, commissioned by the Steering Committee on Local and Regional Democracy,⁹⁴ subsidiarity is a “concept rooted in numerous long-standing philosophical and political traditions of European thought” ... “more than just a word [it] appears today to convey a political philosophy. ... The basic idea underlying the principle is that political power should intervene only to the extent that society and its constituent parts, ranging from the individual to the family, the local community and various larger groupings, have not been able to satisfy the various needs. Subsidiarity thus goes beyond a simple principle of institutional organisation and is applied first to the relation between the individual and society⁹⁵ and then the relation between the society and the institutions, before possibly providing the inspiration for a division of powers⁹⁶ between the base and the summit.”

Obviously it is in respect of the last mentioned application that the principle has been included in the Charter,⁹⁷ as a basis for the construction of states from the bottom up.

Before assigning a responsibility to a higher tier, the question must be asked whether it would not be better exercised at local level, possibly even with a certain degree of help from the tier above.

In fact, the term “subsidiarity” has two meanings. It not only implies that the higher tier can have no more than a subsidiary (or secondary) role, but also contains the idea that the higher tier (or administrative bodies in general) exist to help⁹⁸ the citizens or the “lower”-level authorities to perform their functions (because the local authorities, although they may be less powerful, have the advantage of being closer to the citizens).

Obviously, the authors of the Charter were not concerned with endorsing all the potential effects of the subsidiarity principle as a basis of political organisation, but rather with emphasising the fact that decentralisation or the reinforcement of local self-government was not necessarily less effective than centralisation.

∙ The second important aspect of Article 4.3 is that it is the first example - pre-dating the Maastricht Treaty by seven years - of the inclusion of the subsidiarity principle in an agreement under international law.

∙ The third strength of the Charter in this respect is that it takes a firmer stance than the Treaty on European Union. While acknowledging that the “extent” or “nature” of a task or the “requirements of efficiency and economy” may justify the allocation of public responsibilities to “another authority”, it lays down the principle that “public responsibilities shall generally be exercised, in preference, by those authorities which are closest to the citizen”.

In the Treaty on European Union, as it stands, the principle applies only to relations between the member states and the Union, and its purpose is as much to reinforce the Union (in the spirit of the so-called “Spinelli draft” adopted by the European Parliament) as to give the member states more autonomy.

More than a legal rule, Article 4.3 sets a standard for the approach to be adopted both by the legislators who draft the relevant texts and by the administrations that apply them.

As the Congress pointed out in its Opinion on Committee of Ministers Recommendation R (95) 19 on the implementation of the principle of subsidiarity, the article can be given an even more practical interpretation. It may be seen as an invitation to the member states to take account of the subsidiarity principle in their legislation, in two ways:

- as a criterion for allocating public responsibilities between different levels of government;

- and as a criterion guiding them in the exercise of those responsibilities.

This process may in itself give the member states an opportunity to “review” the situation with regard to the various tiers of administration and the way they interact.

Recommendation No. R (95) 19 of the Committee of Ministers also includes four specific suggestions that constitute an invitation to the member states to allocate responsibilities more efficiently:
- by specifying a hard core of own responsibilities;
- by initiating a debate on ways of tailoring responsibilities to the characteristics of the local and regional authorities (“à la carte” decentralisation);
- by being prepared to adopt experimental measures in this field;
- by ensuring that mechanisms exist for involving the local and regional authorities, particularly through their associations.

The Charter’s interpretation of the subsidiarity principle thus represents an invitation to take the concept beyond its philosophical origins and national roots (essentially in Germany and Austria) and make it a general rule, both reinforcing and elucidating all the provisions concerning responsibilities.

As we shall see, although there are no particularly striking examples of the principle being transposed into legislation, its presence in the Charter has certainly contributed to greater awareness of the concept in the different countries and there is scope for giving that awareness further practical expression.

PART TWO - THE REPLIES

I. GENERAL PROBLEMS OF ALLOCATING RESPONSIBILITIES

A. ALLOCATION OF RESPONSIBILITIES BETWEEN THE STATE AND DECENTRALISED (MAINLY LOCAL) AUTHORITIES; LEVELS OF LEGISLATION AND GENERAL DEFINITIONS OF RESPONSIBILITY

The experts generally found it hard to adapt their replies to the distinctions drawn in the first questionnaire. Indeed, a number of the questions may have seemed superfluous. We have therefore tried to present a functional summary of the replies as they relate to the general questions raised by the allocation of responsibilities.

1. Levels of legislation

The first important point is that the question of responsibilities is rarely addressed in constitutions. However, that general observation needs to be qualified, in two respects:

∙ The constitutions of federal states or those that have (or are developing) a regional structure are naturally more inclined to address these issues than are the constitutions of unitary states.

But a distinction has to be made between the respective responsibilities of the federation and its federal components, on the one hand, and those allocated to municipal or other (county or provincial-level) decentralised authorities, on the other.

In the first case, the question of responsibilities is one of the key elements in determining the initial “contract” between the entities concerned. The lists of responsibilities are therefore long and often very detailed. The constitutions in question also tend to group responsibilities in categories and to include rules for interpreting the provisions.

The main distinction made here is between exclusive and concurrent responsibilities.

Exclusive responsibilities are those allocated to an authority which is the only one empowered to deal with the relevant matter. In this case the legal definition of the responsibilities constitutes a rule for settling conflicts of jurisdiction. However, this means of allocating responsibilities depends on the existence of an impartial body capable of ruling on the highly complex and sensitive questions of interpretation that are often in dispute. The issue of legislative precedence does not arise in this scenario, where the rules made by the different components of the state carry equal force.

Concurrent responsibilities are those that are assigned initially to one authority without excluding the possibility of another authority’s intervening subsequently in that field. In the event of conflict in such cases, federal rules take precedence over those of the federated bodies (in Germany the principle applied is that of Bundesrecht bricht Landesrecht). This method of allocating responsibilities necessarily implies a hierarchy of the legal rules of the various authorities, which to a certain extent simplifies the settlement of conflicts of jurisdiction. Sometimes, in the case of concurrent responsibilities, the authority with secondary powers can only intervene after establishing certain grounds, respect for which is relevant to the settlement of any conflict.

Such is the situation not only in Germany, but in Austria, Belgium, Spain and Italy.
The responsibilities of local⁹⁹ authorities are not listed in the same way. But the German Constitution, at least, does include an article laying down in principle a “guarantee of self-government” [Article 28]. This gives local authorities explicit, added protection. It also provides a basis for appeals to the Federal Constitutional Court, which is developing a body of relevant case law, interpreting and, indeed, supplementing the constitutional provisions.

The fact of belonging to a federal state thus gives local authorities constitutional recognition of their independence and an added measure of guarantee, at least in legal terms. This is particularly well illustrated in the case of Austria, where the balance provided for in the law is reinforced by a form of constitutional and political practice in which the municipalities are effectively the “third pillar” of the federation.

Moreover, the Austrian constitution addresses the question of municipal responsibilities in more detail than the German constitution.

∙ The second qualifying remark concerns the age of the constitutions in question.

It has already been observed (see our previous reports and comments) that, on the whole, the newly democratic countries have taken greater pains¹⁰⁰ to transpose the Charter provisions.

This tendency is less marked when it comes to the question of responsibilities, although it has to be said that a number of the articles concerning local government in the new constitutions do include the equivalent of a general definition of responsibility:

As well as the new Polish constitution, referred to above, the constitutions of the following countries should be mentioned:

Estonia (Article 154: “All local issues shall be resolved and regulated by local government ...”); Hungary (Article 42: “Local government refers to independent, democratic management of local affairs and the exercise of local public authority in the interests of the local population”); Romania (Article 120(2): “The local councils and mayors shall ... manage public affairs in communes and towns”); Slovakia (Article 67: “The community decides independently in matters of local self-administration”); Slovenia (Article 140: “The range of duties and functions performed by a municipality shall include such local matters affecting only the people of that municipality, as the municipality may independently determine”); and the Czech Republic (Article 104: “The board of representatives resolves matters of self-administration, unless these are entrusted by law to the board of representatives of a higher unit of territorial self-administration”).

The Croatian and Macedonian constitutions include a list of responsibilities as well as a general definition, but they are exceptional in this respect. In Albania, the authorities were willing to take account of the experts’ recommendations on this point before submitting the draft constitution to a referendum.

In most countries, provision for the allocation of responsibilities is made mainly by statute. It is thus at this level that we can assess and compare the methods of allocation used.

2. Method of allocation: general responsibility and lists of responsibilities

As we have seen, the concept of general responsibility only exists in the so-called “continental” systems, but it is clear from scanning the replies that this is the system adopted by all the newly democratic countries.

There is a very clear trend towards the introduction of general definitions of responsibility, even in countries previously sceptical about such an approach (for example, Ireland, where the relevant provision was adopted in 1991, and Sweden). The Swedish Local Government Act of 1991 (Section 2 (1)) is explicit in this respect.

Those Western European countries where democracy has been restored in recent decades have also introduced similar provisions. In Spain, for example, the significant text is Article 25 (1) of the Law of 2 April 1985 (the basic legislation on local self-government) while in Portugal it is Article 2 of Legislative Decree 100/84 of 29 March 1984.

In some countries, especially in Northern Europe (Denmark and Finland), the principle of general responsibility tends to be inherent in the legislation rather than explicitly stated.

Contrary to the impression that may have been given by the questionnaire,¹⁰¹ general definitions of responsibility are not incompatible with the technique of listing responsibilities. The two approaches can co-exist quite happily (as is evident from recent legislation in some Eastern European countries), but it is clear that most countries have rejected (or failed to explore) the idea of including in a single legal text the fullest possible list of the responsibilities allocated to the different tiers of decentralised local government. In this respect the situation in France is an exception and, in fact, resembles the current arrangements in the federal countries.

In order to arrive at a precise definition of how responsibilities are allocated it is necessary to comb through entire bodies of legislation. This is a very difficult, if not impossible, exercise and most of the experts, recognising the enormity of the task, opted not to undertake it.

Most general laws on local government are essentially of a procedural nature and rarely, if ever, include provisions on areas of responsibility.¹⁰²

There are several reasons why this is so:
- most legislative authorities do not seem to have considered such provisions necessary;
- many have regarded the task as a highly complex and even unrealistic one;¹⁰³
- it was seen in some countries as an ill-advised experiment that carried a risk of “setting in stone” matters than were essentially evolving.

3. Current thinking on the allocation of responsibilities according to local authority size:

Obviously the allocation of responsibilities varies according to the tiers of government involved and certain replies are very interesting in this respect inasmuch as they throw light on the relative importance of different tiers. This point will be touched on in the final summing-up (see Part Three below).

It is rare for responsibilities to be allocated explicitly according to size of authority, a fact bemoaned by some experts (in the case of Ukraine, for example). Apart from countries such as Germany, where, on account of their size, certain authorities are assigned first and second-tier responsibilities, Spain is almost the only country where there is a range of size-related options. However, a similar approach is under consideration in Portugal.
The replies to the part of question 2 concerned with discussions on the allocation of responsibilities are extremely varied. Sometimes, as in the cases of Finland, Germany, Sweden and Spain, the answer is negative. In some countries (Denmark, for example), the experts report that a standing committee is examining the issue. The situation is fairly similar in France, where recent legislation (of 1995) on regional planning provided for the government to submit a report clarifying local and regional authorities’ responsibilities but, to date, the report has not been submitted. In Turkey the debate appears to focus on the allocation of certain specific responsibilities, such as education and health. Italy appears to be one country where the allocation of responsibilities is particularly likely to be reviewed since such a process is built into much broader institutional changes.

B. NATURE OF RESPONSIBILITIES: OWN AND DELEGATED RESPONSIBILITIES

Question 6: “full and exclusive” responsibilities

This expression appears to have no specific significance in certain countries. The experts noted that, in theory, these were definitely characteristics of the responsibilities granted to local authorities but that their exercise was inevitably constrained by institutional and legal requirements, which had to be respected: for example, the need to inform (in the case of Latvia) or the principles of efficient or economic management.

The proper exercise of certain responsibilities, such as town planning in Portugal and policing in Lithuania, necessitates co-operation with the centre. The Lithuanian report is very non-committal on this point, while according to the Turkish report none of the responsibilities in that country are full and exclusive. In Germany an interesting distinction is drawn between first-tier responsibilities, which do have these characteristics, and second-tier ones, which tend to be assigned.

Question 7: own and delegated responsibilities

The distinction between own and delegated responsibilities undoubtedly calls for clarification, since some reports tend to contrast own responsibilities, exercised in accordance with the principle of general allocation, with those delegated on a case-by-case basis, as in Italy or Sweden (in the latter a distinction is made between non-regulated and other responsibilities).

The reports show that the distinction is not confined to federal or regional states, since it exists very clearly, for example, in the Hungarian legislation of 1990, while in many unitary states certain state responsibilities are exercised by the local authorities. As we have already noted, the distinction is particularly clearly expressed in Spain, where own responsibilities are those identified as such by the law whereas delegated ones are the subject of an agreement between the delegating and the receiving authorities.

As we have seen, the proportion of delegated, as opposed to own, responsibilities is high and would appear to be growing.

This pattern is structurally significant in the federal states - especially those where the federation has little or no administration of its own.¹⁰⁴ In Germany, for example, almost half the responsibilities of the second tier of “local” government (the Kreise, or counties) have been delegated by the state. The same phenomenon is increasingly common in the recently democratised countries although they are all structured as unitary states and have chosen to stay that way.

It is a pity that the criteria for distinguishing between own and delegated responsibilities are not always clear in the reports, nor apparently (and more worryingly as regards the exercise of local democracy) in the legislation.

Question 8 (on the exercise of duties that are the responsibility of a higher authority) is also concerned with the distinction between own and delegated responsibilities. In fact, it might be argued that this question corresponds to the definition of delegated responsibilities.

Somewhat surprisingly, however, few countries apart from the federal or “regionalised” states provide for the option of one tier of local government delegating to another.

C. THE SUBSIDIARITY PRINCIPLE

This is one of the areas (question 5) where the answers particularly reflect new thinking.

In the report (referred to above¹⁰⁵) that we prepared for the Steering Committee on Local and Regional Authorities, we tried, in the appendix, to detail the extent to which the principle was currently being applied in the five countries represented by the experts on the ad hoc working group (Germany, Austria, Belgium, France and Italy).

The overall picture was one of relatively limited application of the principle, apart from the cases of Germany and Austria where it is considered to be applied in the general definitions of Länder responsibilities that are contained in the two constitutions:

“Except as otherwise provided or permitted by this Constitution, the exercise of governmental powers and the discharge of governmental functions is incumbent on the States” (Article 30 of the German Basic Law) and “In so far as a matter is not expressly assigned by the Federal Constitution to the Federation for legislation or also execution, it remains within the States' autonomous sphere of competence” (Article 15(1) of the Austrian Constitution).

The Italian Act of 8 June 1990 (Article 9) reaffirmed the general definition of municipal responsibilities in wording that is close to the definition of subsidiarity in the European Charter of Local Self-Government. In France, the actual term “subsidiarity” was used in the debate preceding the reallocation of responsibilities. The commission set up in 1976 to consider the development of local responsibilities began by addressing the question of “who does what?”. In its answer to that question it explicitly included the subsidiarity principle among the criteria governing the allocation of responsibilities. It defined the principle as that of seeking, in every case, the appropriate level at which responsibilities should be exercised - “un niveau supérieur n’étant appelé que dans les cas où les niveaux inférieurs ne peuvent pas exercer eux-mêmes les compétences correspondantes. L’Etat doit ainsi déléguer aux collectivités tous les pouvoirs publics qu’elles sont en mesure d’exercer” [“involving a higher tier only in cases where the lower-level authorities cannot exercise the relevant responsibilities themselves. Thus, the state must delegate to local authorities all those public responsibilities that they have the capacity to exercise.”¹⁰⁶

This reference represented a major break with French legal tradition.

The experts’ replies to question 5 are particularly original and show that the situation has evolved considerably.

There seems to have been a shift of opinion in all the countries concerned towards conceptualising what was sometimes no more than the result of practice or of certain legislation. Although not every country has undergone what the Italian expert described in his own country’s case as a “U-turn” (section 4-3 of Act 59 of 1997), there are fairly frequent references to such ideas in legislation, for example in Spain, where numerous provisions refer to taking decisions at a level as close as possible to the citizen.

It is often stated that this principle underlies the legislation governing local responsibilities - and in some cases has done so for a long time. One cannot be sure here whether the existing distribution of responsibilities results from the application of the principle (unlikely, at least in the case of countries with a long-standing democratic tradition¹⁰⁷) or whether in fact these replies are tending to evade the question. In this line of reasoning, all positive provisions in respect of local authorities - and especially all transfers of responsibility - are seen as being based to some extent on the subsidiarity principle. What is certainly evident is a more or less general will to refer to the subsidiarity principle even though, so far, few countries mention it specifically in their legislation. At the same time, it is apparent that, in very many cases, the wording of new provisions concerning a general definition of responsibility is influenced in very many cases by Article 4.3.

Apart from the mention by the French reform commission (see above), the principle was referred to explicitly in the report of the Swedish commission on the reform of county authorities in 1974.

There are exceptions to the general trend: the Lithuanian contribution states that parliament does not recognise the principle, while the Turkish contribution denies its existence in either theory or practice. The Lithuanian expert points to a strictly opposite trend in the allocation of responsibilities between 1991 and 1997.

II. LOCAL AND REGIONAL AUTHORITIES’ FIELDS OF RESPONSIBILITY IN THE DIFFERENT COUNCIL OF EUROPE MEMBER STATES

It was mainly in order to obtain detailed answers from the experts for this section of the report that the decision was taken to send a second questionnaire, the replies to which were set out in the form of a grid that was also used for drawing up country-by-country tables. It proved extremely difficult to summarise the replies on this wide-ranging and complex question, so the report simply aims to identify broad trends (insofar as that is possible, given the diverse circumstances in the member countries). It does not attempt to describe in detail how responsibilities in each of the chosen areas are allocated.

A. SECURITY, POLICE AND JUSTICE

1. Security in general and maintaining law and order
2. Police (including conditions of service)
3. The courts (especially with reference to court buildings)
4. Civil defence
5. The fire service
6. Registers of the population (including foreigners) and of voters

It is a feature of the system in certain countries, such as Finland, Turkey and Ukraine, that virtually all law-and-order functions are the responsibility of central government. The other countries fall into two categories. In the first (comprising Portugal, the Netherlands, Belgium and Moldova), the basic tier of local government has a police force - run in some cases by a number of municipalities grouped on an area basis - that exists alongside the national police. In the second category (comprising Denmark, Luxembourg, Iceland, Cyprus, Latvia and Estonia) the local police is state-run although local authorities may be required to meet some of the cost of policing (in Luxembourg, for example, they pay for police buildings and police officers’ salaries and pensions).

The courts are the responsibility of the state (Luxembourg and France are good examples), and local authorities play no role here except, in certain countries such as Romania, with regard to court buildings.

They have more responsibility - at least in some countries - for civil defence (there are different names for this area of activity). On the other hand, the fire service and the keeping of various registers of the population (civil status or electoral registers, for example) are traditionally local government responsibilities, except in certain countries such as Latvia and Lithuania.

B. EDUCATION

With the exceptions of Cyprus and Turkey (which are special cases inasmuch as their local authorities have no responsibility for education), and bearing in mind that there are different systems for state and private schools, the allocation of responsibilities here would seem to reflect the various levels of education.

The French system presents a classic example, with a specific tier of local government responsible for each level of education (the municipalities run the primary schools, the départements are responsible for the collèges [lower secondary schools] and the regions run the lycées [upper secondary schools]). At the same time, it must be recognised that education is a field where it is common for responsibilities to be shared between authorities at different levels, each bearing its share of the costs involved.

In most countries, municipalities have responsibilities for nursery and primary education (and in some cases for secondary education too) but these are often confined to school buildings - which they construct, maintain and, in some cases, equip. However, they may also extend to the teaching staff (who, in the case of Denmark, are appointed and paid by local government). The state, meanwhile, retains responsibility in principle for curricula at all levels and for all aspects of university education.

It is in education that we see the clearest differences between the systems of the so-called Visegrad Group of countries (Hungary, Poland, Slovakia and the Czech Republic) - although Slovakia and the Czech Republic have or have had plans for decentralisation along the same lines as the other two states. Hungarian and Polish municipalities spend respectively 31.75% (1996 figure) and 37% (1997 figure) of their operating budgets on primary education. Their field of responsibility is particularly broad, resembling the Scandinavian or British models rather than the French system.

C. HEALTH

Even more so than education, health is an extremely complex field, where the role of local authorities can only be assessed within a broader context. In particular, it is clear that the extent of their responsibilities depends on the degree to which health care is public or private - an observation confirmed by the case of the United Kingdom, where the existence of a national health service leaves them with virtually no role to play.

The establishment of social security systems having generated a significant centralising effect (that is more or less marked according to the level of development of health care in the different countries), the current trend in this high-spending sector is towards national management plans, which local authorities (to the extent that they have initiative-taking powers) must fit into. France offers a striking example here inasmuch as its hospitals are, in theory, local public institutions but in practice the whole sector is state run.

Two extremes are apparent: a Scandinavian model (seen in Denmark, Norway and Sweden) in which counties are the main health-care authorities (in Sweden health is their primary responsibility) and the model of 100% state responsibility, seen in Cyprus and Iceland (although decentralisation has not been ruled out in the latter). In other countries (such as Finland and Belgium), it is common practice for municipalities to combine and co-operate in running hospitals.

Health is thus a responsibility that tends, logically enough, to be assigned to authorities at intermediate level between central government and the municipalities, although the latter are often in charge of developing certain aspects of preventive care. In Hungary, for example, the list of municipal responsibilities in this field is particularly impressive. It comprises:

- basic health services (including dental care);
- running hospitals;

- entering into agreements with the national health service.

These responsibilities tie in with those of the county authorities, which have parallel powers in respect of regional hospitals and specialised care services.

D. SOCIAL ACTION

It is important to not to confuse this field with state-run social security systems. What is involved here is exclusively assistance to individuals, in the form of (normally financial but possibly other) benefits payable in respect of specific categories of people such as refugees, disabled people, infants or the elderly or to people who, for various reasons, are not covered by the social security system.

Outside Cyprus, where this field falls under the responsibility of central government, local and regional authorities in most countries have responsibilities within what tend to be fairly strict regulatory frameworks, established at national level. The tier of local government mainly responsible in this sector is often the municipality (this is the case in Denmark, where municipalities have a surprising degree of autonomy in this area, and in the Netherlands), while in France it is the département.

In Hungary, responsibilities for social action are allocated on the basis of Act No. II of 1993. The municipalities provide financial assistance (to the elderly and the jobless as well as childcare and housing allowances) and have substantial regulatory powers (including, for example, in respect of adoption). The counties, for their part, are responsible for retirement homes, centres for disabled people, family support and child protection.

Polish municipalities have less wide-ranging powers in this sector, which will be restricted further when the new powiats [districts] - one of two types of intermediary authority - assume certain responsibilities in respect of public health and social assistance. The latter is the main area of municipal involvement.

E. TOWN AND COUNTRY PLANNING

Very broadly speaking, there is little difference between the various countries as regards local and regional authorities’ responsibilities in this field - except for the case of Cyprus, where once again the municipalities have unusually few powers.

With regard to regional planning there is usually a hierarchy of plans, from those drawn up at national level down to local plans. Swedish municipalities, however, have exclusive responsibility for planning, while their Slovenian counterparts enjoy a large measure of independence in this field.

Municipalities grant planning permission or permission to divide land into lots, subject to supervision by higher authorities and to a public right of appeal to administrative bodies or the courts. In Germany, however, although the municipalities are responsible for urban planning, land-use permits are issued by the next tier of local government, the Kreis. There is a similar arrangement in Slovakia (where the district authorities are still administratively decentralised organs of the state).

F. HOUSING

The pattern is for specialised agencies - based either locally (as in Sweden, the Netherlands and Belgium) or nationally - to take charge of public housing policy in consultation with local authorities (the case of Moldova is an example).

G. ENVIRONMENT

Inevitably, local authorities’ environmental responsibilities depend on the legal framework within which the authorities must operate and this is increasingly characterised by a proliferation of laws and regulations, many of them made at European rather than national level.

Outside those countries (Turkey and Ukraine) where environmental policy is essentially the preserve of central government, local authorities’ powers in this field offer a particularly good example of powers of execution - in the case of water treatment, for example (the Swedish system is a good illustration), or all aspects of household waste disposal and treatment. This is a sector in which European regulation (under the Natura 2000 programme, for example) is likely to entail particularly substantial increases in local authority spending. Institutionalised co-operation is an approach to environmental management currently practised in many countries.

H. CULTURE, LEISURE AND SPORT

This field - in which local authorities appear to have more discretion than they do with regard to the environment and planning because (except in Denmark) fewer binding regulations are imposed on them (some, particularly in Luxembourg, also have optional powers that they are not required to exercise) - is largely the responsibility of municipalities, except when it comes to initiatives in the wider public interest, requiring more financial outlay than they can afford. In very many countries, the public libraries network is run mainly by the municipalities, who also tend to be responsible for urban parks and open spaces. Local authorities also provide a great deal of support, in the form of grants, to private-sector cultural, leisure and sports initiatives, to the extent that certain associations can seem, in effect, like offshoots of the public bodies.

I. TRAFFIC AND TRANSPORT

With regard to roads, there is a very clear system of classification (particularly in Denmark and France) under which the different grades of road are the responsibility of either central government or one of the levels of local government. In the Scandinavian countries, roads that carry very little traffic may be the responsibility of the residents.

Urban and local transport is run by the municipalities - independently in the case of city authorities, or elsewhere by inter-municipal co-operative bodies that can assume a wide range of legal forms. Transport can account for a substantial share of local authority budgets, especially those of large municipalities.

J. POWER SUPPLIES

With the exceptions of Cyprus, where municipalities have no role in respect of power supplies, and to a lesser extent Latvia, Turkey, Ukraine and the United Kingdom, the Council of Europe member states have in common the fact that power (gas and electricity) and water supplies are the responsibility of municipalities, acting either independently or in co-operation, under a variety of legal arrangements that also offer scope for private-sector involvement. Municipalities, particularly in Norway, may also have a role in power generation. In some countries, such as France, Spain, Albania and Lithuania, the existence of a state-run monopoly has the effect of tightly restricting local powers in this field, although there may be scope for local authority involvement in managing such systems.

K. ECONOMIC AFFAIRS

Leaving aside tourism, which is promoted through local government initiatives, there are few powers for local authorities in the economic sphere, although they are increasingly active in tackling the problem of persistently high unemployment.

Their potential involvement in economic affairs is strictly limited, on the one hand by the principle of commercial and industrial freedom in those countries that recognise it and, on the other, by EC legislation (notably restricting the use of subsidies) in the Community countries. As a result, local authorities tend to be involved mainly in setting up industrial and commercial estates, essentially to house new businesses, and in supporting business start-ups.

L. RELIGIOUS OBSERVANCE

The role of local authorities in respect of religious observance obviously depends on the relationship between the state and the churches in the different countries. However, even in countries like Denmark where central government plays an active part in church affairs, there is no such role for local government.
In some countries (Belgium, Luxembourg and Norway, for example), the municipalities may be partly responsible for maintaining church buildings or may act as ultimate guarantors for the debt of church administrative bodies.

PART THREE - OUTLINE ASSESSMENT and THE QUESTION OF MATCHING RESOURCES AND OBLIGATIONS: THE SUFFICIENCY PRINCIPLE

To conclude this study, in which we have sought to give an overview, while at the same time detailing the situation in respect of local authorities’ main functions, we must try to make an overall assessment and to answer the key question of whether the responsibilities assigned to local government are matched by allocations of resources for exercising those responsibilities.
This will naturally involve using both the questionnaire replies that specifically concern responsibilities, and those (already summarised in the first report) that relate to finance.

However, a word of caution is necessary:

The analysis of both sets of replies has highlighted the difficulty of finding a wholly satisfactory approach.
With regard to finance, comparable sets of statistics are not available, particularly of the type (of most interest to the Council of Europe as a political organisation) that would indicate how much scope the various tiers of local government actually enjoy.
When it comes to considering responsibilities, the problems encountered are different. Firstly, it is very hard to extract the relevant information from the different texts through which it is scattered. Then there is the extreme difficulty of comparing what tend to be complex provisions based on institutional philosophies that are, in almost every case, country specific. Other problems include a certain indifference towards this essential question, and the daunting nature of the task, not only at a comparative level but also within each state.
The work that has been done was thus all the more necessary and will, at least, serve to highlight difficulties that may not have been foreseen at the outset. The only way to obtain results is to continue to work actively, particularly in terms of compiling data on each country and producing monographs on each major area of responsibility. The Council of Europe could initiate or support relevant research programmes.

Our outline assessment is based on the following three questions:

Are local authorities responsible for a substantial share of public affairs?

On the basis of this initial survey, can we draw conclusions about a model for the allocation of responsibilities in the Council of Europe countries?

Is there a balance between resources and obligations, or more precisely between responsibilities and funding?

I. DO LOCAL AUTHORITIES PLAY A SUBSTANTIAL PART IN PUBLIC AFFAIRS?

This question cannot be answered simply by listing the areas of responsibility that local authorities exercise or by supplying detailed figures. Both approaches are necessary and we shall use them both in turn.

In terms of statistics, an approximate answer is provided by analysing figures for local budgets as a proportion of gross domestic product in the different countries. This is done in the two tables below, which are based on figures that appeared in the first report.

The first table shows municipal spending as a percentage of GDP, the second shows it as a proportion of overall public spending, in order to allow for the fact that the size of the public sector generally varies from country to country. The tables should be read with considerable caution because the source figures, although they provide a sense of scale, are far from being directly comparable.

Municipal spending as a percentage of GDP

Municipal spending as a percentage of GDP

The first table shows an apparently satisfactory situation in one respect: broadly speaking, there is no longer a West-East divide between decentralised and centralised states, although the position of countries such as Bulgaria, Lithuania and Latvia may seem somewhat anomalous, given what we know about the way that local democracy has developed there. This confirms the inadequacy of overall figures as an index of decentralisation in a state. What is needed is a range of indicators. On the other hand, the situation of countries like Hungary and Poland¹⁰⁸ should be noted because it is the practical reflection of a recognised and steady trend since 1989. In Poland, in particular, this culminated recently in the election, by universal direct suffrage, not only of municipal authorities (it was the third such municipal poll) but also of the new tiers of local government established under the radical process of reform undertaken between June and October 1998. The new authorities are the województwos [voivodes or provinces], reduced in number to 16, making them similar in size to the larger European regions, and the 373 powiats [districts] - situated between municipal and regional level - which complete the local government structure.

As indicated in the report on finances, the level of municipal spending as a proportion of national GDP in Council of Europe countries ranges from 0.11% (in San Marino) to 27.5% (in Sweden) and averages 8.91%. Among the Central and Eastern European countries - where substantial efforts have been made in a short time - Romania is the state where municipal spending is proportionately lowest, at 3.5% of GDP (a figure comparable to that for Greece, despite the latter’s membership of the European Union). The highest figure is to be found in Hungary: its level of 17% is exceeded only by the Scandinavian countries, which have the biggest local budgets, under this system of measurement.

The following table, showing local budgets as a proportion of total public spending, tends overall to confirm the rankings but presents a clearer picture:

On average, local budgets account for about 22% (roughly one-fifth) of total public spending and range from the extremes of around 1% in San Marino, Malta and the former Yugoslav Republic of Macedonia up to 60% in Norway.

The cases of San Marino, Malta and Cyprus are readily explained by the particular nature of the areas concerned. The figures for Greece, which are out of date, may be disregarded.

At the top end of the scale are four very different countries: Norway and Sweden (whose situations, for statistical reasons already explained, resemble that of Denmark) but also Hungary and Lithuania. Lithuania’s ranking is confirmed by the report from the national expert, although the figures given seem slightly lower. What they show, in any case, is a steady downward trend (from 43.9% in 1991 to 35.6% in 1996).

Setting aside these cases at both the lower and upper ends of the spectrum, it is clear that in most countries the relevant figure lies between 10% and 30%. In seven cases (those of the UK, France, Switzerland, Germany, Finland, Denmark and Luxembourg) it is between 27% and 30%, suggesting that local budgets total almost half of central government spending (in Germany, where the budgets of the Länder are very substantial, local government spends the same as central government).

The contrast between the percentages for certain Central and Eastern European countries also illustrates the diversity of approaches to the decentralisation of responsibilities (compare, for example, the cases of Hungary and the Czech Republic).

There has been a great temptation for central governments to seize on decentralisation as a means of “offloading” as many responsibilities as possible and decentralising various problems. The example of Lithuania, next to Norway in the table, is very significant in this respect, and we should be under no illusions: local budgets as a percentage of public spending there have been in steady decline since 1994. Hungary’s case is a complex one, illustrating just how substantial delegated, as opposed to own, responsibilities can be and highlighting the fact that budget volume has little to do with autonomy.

Overall, it can certainly be said that European local authorities do, as a rule, play a substantial part in public affairs.

II. IS THERE A COUNCIL OF EUROPE MEMBER COUNTRIES’ MODEL FOR THE ALLOCATION OF RESPONSIBILITIES?

This is a tempting question but, purely on the basis of the foregoing, the answer has to be “no”. Such a conclusion accurately reflects the reality and, in fact, it is more useful to outline a number of approaches and suggest points of comparison than to search for uniformity.

On the basis of our study of national situations in respect of the different spheres of activity, we can begin by making the following observations.

Two extreme situations are apparent. In the first, local authorities (especially municipalities) have retained what might be termed a “traditional” level of responsibility, at which their powers are very directly related to the business of managing a given territory and serving the collective interests of its inhabitants. This level of responsibility would also seem to correspond to the core set of powers that the Charter refers to as “basic”:

- the administration of municipal property;

- local public services: water supplies, sanitation and transport (all the various “networks”);

- area management: development and urban planning (in co-operation, of course, with the state and with “higher tiers” of administration where such exist) and environmental responsibilities;

- police and civil security;

- culture and leisure.

The pattern of municipal responsibilities in such varied countries as Cyprus, Slovakia and the Czech Republic, for example, is based around this “hard core”.

In the fields of economic affairs and development, the municipalities’ tasks are determined under a process of co-ordination at district or regional level. Major development choices tend to be made at regional level, but municipalities have a significant role in issuing land-use permits.

At the other extreme are countries where the municipalities have been assigned additional, and often very substantial, tasks in the form of own or delegated responsibilities. This model corresponds to what the Charter terms “the attribution of powers and responsibilities for specific purposes”.

The main sectors concerned are undoubtedly social action and health (in the broad sense) and education. In the cases where these responsibilities have been devolved to local level they often represent the largest local budget item, as will be clear from the figures below. However, the degree of decentralisation involved can vary considerably. The key distinction here is between systems where the management and payment of teachers is decentralised and those where it is not. There is no obvious rule to explain why some countries opt for one solution as opposed to the other. The decentralisation of responsibility for teaching staff may be a long-standing, traditional arrangement (as in the United Kingdom) or a recent innovation (as in Hungary and Poland). It is essentially the existence of this option that explains the differences in the relative size of local government budgets.

The extent of local-government responsibilities may reflect significant differences in each country’s understanding of what local government is.

In those countries where the local authorities retain what we have called a hard core of responsibilities, local self-government is seen as the opposite of state centralisation, against which it must be protected. Because authorities’ budgets are smaller they can be funded largely from traditional tax revenue (mainly land tax).

In the countries where local and regional authorities have to assume substantial management tasks, there may be a different perception of their role in the state. They see themselves as parts of a greater whole, naturally and necessarily (given the nature of their duties) co-operating closely with the central authorities. The Netherlands word “mebewind” - which can be translated as “joint management” - is a very useful one to describe this type of situation and the ethos that it promotes. The picture is similar in the countries with an established tradition of federalism. The other side of the coin is the fact that, as a rule, these local and regional authorities have less room for manoeuvre, for at least two reasons:
- They are required to provide services (education, for example) which, by their nature, extend beyond the sphere of local interests, and those services have to be provided to a more or less equal standard not only throughout the local authority area but across a region or indeed the whole country.
- The second limiting factor is financial: traditional sources of tax revenue alone cannot supply the sums of money required. Given the obstacles to developing an additional, more modern taxation system that were discussed in the last report, the only question is that of how to increase financial transfers, in whatever form. As the relative volume of transfers grows, they tend to be allocated according to increasingly varied criteria, to the point that the process becomes virtually automatic. There are also cases of the criteria for allocation involving estimates of “normal” spending on this or that type of service. There is thus a significant risk of local budgets becoming no more than forwarding points for resources earmarked to meet “standard” needs. This would seem to be the approach that certain Central and Eastern European countries have opted for in making the basic decision to shift a large number of responsibilities from the centre to local level. One can see how, at the extreme, such a division of responsibilities could, paradoxically, reduce local democracy or hamper its development.

A further question that has emerged in recent years is that of dividing tasks between the public and private sectors, not only in those countries that are undergoing a planned transition towards a market economy but also in Western Europe, where every country has experienced the limitations of excessive public-sector intervention. One of the major challenges for those managing various areas of responsibility, at local and other levels, is the question of whether or not to privatise certain services. Which services should be considered? Should the running of the services be contracted out while overall control is retained? The first question has arisen principally in the United Kingdom. The second is being asked in France where the management of most national distribution networks is being contracted out to the private sector. It is also an issue at local level in Northern Europe. In most countries the debate has tended to focus around the production and (particularly) the distribution of energy.

The way in which responsibilities are divided must also reflect the different levels of administration.

Leaving aside the question of allocating responsibilities between federations and federal states or regions, we will concentrate here on the intermediate tiers between the state (whether unitary, federal or regionalised) and the municipalities.
The more intermediate tiers there are, the more complex the business of allocating responsibilities.
As a rule there is only one intermediate level - if we disregard the various inter-municipal co-operation bodies that work alongside or overlap with this level. Certain countries (particularly large unitary states, such as France and, more recently, Poland) may have more than one.

In most cases, the intermediate authorities function, in accordance with the subsidiarity principle, at least as organs of co-operation. This is the self-proclaimed role of the German Kreise, but there are other examples of intermediate authorities explicitly recognised as having a co-ordinating function: the Romanian judeţ and the Polish voivode before the reform of 1998). The tasks undertaken at intermediate level are all those that cannot be performed by a single municipality or by an association of municipalities, typically responsibilities for roads and various networks. Increasingly, certain sanitation tasks have to be performed at this level, particularly in the light of European regulations. The same is true of responsibilities for certain types of transport (essentially land-based).

On the other hand, intermediate-level authorities will, by definition, cover a larger territory. Inevitably, therefore, they also have a role in all aspects of planning and land use.

In addition, some such authorities (the French départements, for example) are directly involved in the performance of municipal tasks, via the assistance that they are able to give to municipal councils.

Intermediate-level authorities also constitute a tier of local government in their own right when it comes to the allocation of responsibilities that the state has decided to decentralise. Specifically they tend to have a role in social and especially health affairs (the Scandinavian counties, the French départements and the new Polish powiats are examples of this trend).

With regard to educational responsibilities, it is rare for the intermediate tier to be left out (as it is in Sweden, despite the existence there of county authorities). The allocation of responsibilities tends to reflect the different levels of education. Thus in France and Poland secondary education is the responsibility of, respectively, the départements (partly, because they share it with the regions) and the powiats.

Intermediate authorities (particularly, in countries where there is more than one such tier, those that cover the largest territory) are also in charge of setting guidelines and making plans for various sectors (economic and cultural affairs in Poland, economic affairs, vocational training and transport in France). An issue that then arises is that of deciding to what extent base-level authorities must be bound by such guidelines. Here it would seem that there is a difference between unitary and federal or regional states. In the latter - because the intermediate authorities are of a different nature from the other levels of government - the functions of the different tiers tend to dovetail. This is not so much the case in the unitary states.

The following tables are intended to present a more practical picture of the relative importance of the different spheres of responsibility.

They are not (and could not be) designed to provide more than an idea of the relative scale of responsibilities because the statistics are neither standardised nor complete. It is unfortunate, in this regard, that all the experts could not supply even an approximate breakdown of municipalities’ operating costs.

Some of the statistics are in the form of absolute figures, thus permitting comparison of the amounts spent by each tier of local government. Others are given simply as a percentage of overall spending at the relevant level.

To take the example of France: while the regions’ spending on education is very substantial as a proportion of their overall budget, it is less in real terms than the amount that the départements spend on collèges [lower secondary schools], although that figure is under 10% of the départements’ total spending.

Overall it is more difficult to produce a breakdown of spending by function for the municipalities than for the intermediate authorities.

The tasks performed by the municipalities are much more diverse and more difficult to consider individually because, in some cases, they tend to involve the input of time and resources by municipal offices rather than the investment of money. This is particularly true of town planning, which is, first and foremost, a regulatory responsibility. It is also the reason why municipalities have a relatively high operating budget, a proportionately larger slice of which is accounted for by staff costs. In some cases it is also difficult statistically to produce an accurate breakdown of spending. This applies with regard to housing, an area in which some local authorities, instead of exercising their responsibilities directly, work through private companies (as in the United Kingdom) or agencies (as in France).

The largest budget items are often general administration and roads.

Social action is a major budget heading in Sweden, Iceland and Norway. Spending on education is higher where there are no real intermediate-level authorities (as in Iceland, Ukraine, Poland before the reform, and Estonia).

The case of Sweden is worth highlighting because, between municipalities and counties it is the former than spend more on education and social action. There is a similar situation in the United Kingdom in the sphere of education (where district budgets account for almost 50% of total spending).

In Denmark there would appear to be a balance. It is only in the health sector that a great deal more is spent by counties than by municipalities.

The second tier of local government spends heavily on roads in Denmark, France (where the authorities concerned are at both departmental and regional level) and in the Netherlands. There is a further similarity between France and the Netherlands in that the second tier in both countries plays a decisive role in the field of social action (which accounts for 43.2% of spending by the French départements and 49.5% of provincial budgets in the Netherlands).

The Scandinavian countries are remarkable for the amount spent by second-tier authorities on health (essentially hospitals). There would seem to be a similar trend in those newly democratic countries (except Poland) for which figures have been supplied.

Economic affairs do not appear to be a major area of local-government responsibility. However, the figures may be deceptive here because policies on the provision of infrastructure (as well as tax policies which are not reflected in this survey) may have a significant impact on local development and business start-ups.

Overall, despite the limited nature of the sample, it is hard to identify a dominant “profile” in the allocation of responsibilities.

Broadly speaking - although not systematically - more costly responsibilities tend to be allocated to second-tier authorities.

In accordance with the subsidiarity principle, municipalities tend to be first in line in the distribution of responsibilities, with second-tier authorities assuming the tasks of co-ordination or allocation. Most commonly, although to varying degrees, the different levels find themselves working alongside one another in the same field of responsibility.

III. IS THE PRINCIPLE OF BALANCE BETWEEN RESOURCES AND OBLIGATIONS (ie MATCHING FUNDING TO RESPONSIBILITIES) SECURE?

Article 9 of the Charter mentions more than once the concept of “adequacy”, with reference to the responsibilities assigned to local and regional authorities. Thus, Article 9.1 provides that: “Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers.”

A. NATURE OF RESPONSIBILITIES AND NATURE OF FINANCIAL BALANCE

Article 9.2 spells out the relationship between resources and responsibilities, stipulating that: “Local authorities’ financial resources shall be commensurate with the responsibilities provided for by the constitution and the law.” The explanatory report, for its part, uses the term “adequate” - “The principle in question is that there should be an adequate relationship between the financial resources available to a local authority and the tasks it performs.” And it adds: “This relationship is particularly strong for functions which have been specifically assigned to it. ”

This last sentence warrants some explanation itself. Just as the authors of the Charter recognised the existence of what might be termed “naturally” local responsibilities (the familiar “basic” powers and responsibilities), it would also seem that they believed such responsibilities - or those exercised in accordance with a general definition of responsibility - were naturally to be funded from the authorities’ own resources and whatever financial elbow-room they managed to create for themselves.¹²⁸ By contrast, responsibilities assigned under specific legislation had to be matched by adequate financial transfers - a requirement all the more applicable in the case of delegated responsibilities.

It is clear from the foregoing that this interpretation of the Charter’s provisions is too simplistic.

Own responsibilities amount to more than “basic responsibilities”. We have shown in the preceding chapters that powers and responsibilities attributed “for specific purposes” are also own responsibilities that do not differ in nature from others in that category.

Moreover, a local authority budget is an entity and, whatever sources it is drawn from or whatever method is used to calculate it, it ought to constitute a single fund at the disposal of the elected representatives. Such a system is a pre-requisite of local self-government, and one point to emerge from the previous report is that the trend towards general transfers of funds represented a move in that direction. Every local and regional authority must have the maximum possible scope (however limited that might be) for prioritising is activities - ie for making choices.

It would also be an entirely artificial exercise to isolate, on the one hand, own responsibilities (seeking to cost them would make even less sense) and, on the other hand, own resources. Indeed, any attempt to distinguish own resources could raise problems of principle because one of the requirements of the Charter is that local and regional authorities have the scope, insofar as possible, to vary the rates of taxation that they apply - and thus also the level of revenue from that source. This means that we can really only speak of “potential” own resources.

For these reasons we believe that any equation between own responsibilities and own resources needs to be approached with caution - both in principle and in accounting terms - although it may serve as a way of encouraging member states to increase the proportion of own resources in local and regional budgets. As we have seen, own resources currently account for only a minor part of local authority budgets.

Given that own responsibilities cannot reasonably be said to amount to less than half of all current local government responsibilities, the first conclusion from our research must be that local and regional authorities in European countries today do not, overall, have a level of own resources commensurate with the own responsibilities that they exercise.

Secondly, it is not useful to regard “attributed” and “delegated” responsibilities as one and the same with regard to the way they are financed. Certainly they both fall into the category of “specifically assigned” responsibilities, to borrow a term from the explanatory report, but, as we have seen, they are different in nature.

This means that they may be subject to different funding arrangements: in some cases, though not all, delegated responsibilities may, for example, be financed by specific grants.

On the other hand, a responsibility that is “attributed” - thus becoming part of the authority’s own responsibilities - should not, as a rule, be financed by earmarked funds.

However, there is a positive aspect to both attributed and delegated responsibilities inasmuch as they require specific legislation to be passed, thus giving parliament - and the local authorities - an opportunity to ensure that corresponding financial provision is made. That is a reality that deserves to be analysed as a step towards improving the situation in the future, always bearing in mind how difficult it is to produce a full and impartial assessment of the balance between responsibilities and financial resources.

B. A DIFFICULT CONCLUSION THAT CALLS FOR A NEW METHODOLOGY

The question of balance between resources and responsibilities - what the Charter calls the need for the one to be commensurate with the other - is difficult because determining whether such a balance exists involves both subjective and objective assessment.

It is a subjective process inasmuch as local elected representatives naturally tend to take the view that their resources are insufficient, while central government representatives naturally tend to think the contrary.

There is little chance of arriving at a satisfactory solution other than through the creation of a joint committee of government and local authority representatives to consider the question.¹²⁹

The point was, moreover, made by all the experts - who tend to echo the elected representatives’ view - that resources are not commensurate with responsibilities.¹³⁰

In any case, there cannot be a real balance between resources that are limited and invariably slow to increase and needs, which are to some extent indeterminate. The fact that local decision-makers are closer to their electorate and thus more responsive than the comfortably distant government only serves to reinforce what might be termed the “tyranny of need”.¹³¹

On the other hand, making an objective assessment is not easy - for reasons evident from the observations made throughout this report.

It is certainly feasible to envisage an individual country making efforts to assess the balance. France tried to do so to some extent as part of the process of monitoring the application of legislation transferring responsibilities in 1982-83. A committee was formed to evaluate transfers of responsibility, and reports on the subject were produced for a local-government finance “observatory” set up within the Committee on Local Finances, a consultative body established in 1979 and composed of representatives of local and regional authorities at every level. Similar, more or less formal steps have been taken elsewhere but, for the moment, a comprehensive, objective assessment covering all the Council of Europe countries would seem to be an impossibility.

The previous report demonstrated the difficulty of such an endeavour purely in respect of finances, and assessing responsibilities at the same time would be even harder.

For these reasons, we have opted to suggest certain avenues of approach which, although less ambitious, might help to produce practical solutions for the future.

The first point to be made is that few constitutions or statute books contain provisions concerning the principle set forth in Article 9.2. Where such provisions do exist they do not normally have general application, but relate solely to certain categories of responsibility or, in some cases, only to the field covered by the statute in which they appear.

One of the most general provisions is that contained in the Latvian local government act of 19 May 1994, under which any increase in responsibilities must be matched by an increase in income. The requirement is spelt out even more specifically in respect of cases where the state delegates responsibility for performing a given task, but the amount of the financial transfer is based on previous spending on that task by the state administration. The French act of 1983 is framed in the same spirit, with the limitations that this type of benchmarking implies.

More recently, in Italy, Act No. 59 of 1997, concerning special powers, laid down (in Article 4.3) a series of basic principles governing the delegation of responsibilities by higher levels of government to municipalities and provinces. One of those principles is that financial resources shall correspond to the tasks that have to be performed.

As might be expected, there is even less constitutional than statutory provision, but it is worth highlighting Article 118 of the recent Albanian Constitution (of 21 October 1998) because it asserts the principle of equivalence in respect of both delegated responsibilities and, more generally, all responsibilities statutorily attributed to local authorities.

Rarer still is legislation providing for continued compliance with the principle of equivalence. The French act of 1983, which made an attempt at this, is an exception. Building on the basic principle enshrined in the Charter that responsibilities shall be prescribed by statute, it provides that any change in an area of responsibility under a provision laid down by regulation (subordinate legislation issued by the government alone) must automatically trigger corresponding financial provision.

Some states refuse to be bound even by the principle of equivalence. One such state is the Netherlands, which entered a reservation in respect of this provision of the Charter. In Sweden, despite the efforts of elected representatives’ associations, the parliament has refused to enshrine the principle in law. It has accepted that the “financing principle”, governing the financial relationship between the state and the local authorities, will be taken into account but is not prepared to make it binding under the law.

Principles, of course, are one thing, but their practical application is another. The Lithuanian expert, for example, reports that the principle laid down in that country in 1994 (see above) is not applied. And we have already seen how, in France, there tends to be a growing gap between the cost of exercising responsibilities and the level of financial resources assigned to cover them.

There are, in fact, very few effective, binding mechanisms through which local and regional authorities can defend the principle of equivalence where it exists.

This is one consequence of the reluctance (already mentioned) on the part of states to give the question of responsibilities the same level of priority that it accords to regulations for supervision. It is true that monitoring equivalence would entail a study of accounts that might be incompatible with what is an essentially legal decision. The only effective way to defend the principle, therefore, is through the establishment of formal or informal procedures that would demand a certain level of transparency on the part of parliaments (and, even more so, of governments), requiring them, at least, to answer the question “How shall we pay for it?”

The focus must therefore be on the moment when new responsibilities are transferred.

It would be much easier to put in place the type of arrangements envisaged if governments were prepared to enshrine the principle in their legislation.¹³²

In certain cases (essentially those where responsibilities are delegated) the example of Spanish legislation might be followed by giving the authority to which the task is delegated the right to refuse it if it is not matched by a corresponding transfer of resources.

Obviously this problem is essentially a political one that can only be properly resolved if two key conditions are met:

- there must be transparency and closer co-operation in the drafting of legislation that affects local and regional authorities;

- those authorities and their associations (or institutional representatives) must be vigilant at national level.

PART FOUR - MAIN CONCLUSIONS ON WHICH A RESOLUTION COULD BE BASED

I. Updating and interpreting the Charter with regard to responsibilities

An analysis of the provisions of Articles 3 and 4 has shown a level of uncertainty concerning the scope and interpretation of the Charter whereas it seemed to be one of the clearest and best organised parts. This is particularly necessary since the concepts used (the general definition of responsibilities, the concept of specific responsibilities, delegated responsibilities, the concept of adequate resources, the concept of own powers, etc) are occasionally not understood completely or at all by national parliaments and, worse still, by those responsible for defending local self-government. At the risk of shocking, it could be said that the importance of the question of responsibilities and how this question is incorporated in legislation is, in practice, somewhat undervalued in the implementation of local self-government.

In addition, one should perhaps take greater account of the diversity of legal traditions at a time when, for example, the United Kingdom, previously absent from the discussions on these matters, now wishes to play a full part.

Proposing an “interpretation” of the Charter which is clearer and more suited to the prevailing attitude in the different countries fits in perfectly with the role of a “political” organ monitoring the application of an international convention, which the CLRAE is. Previous work (eg with regard to the monitoring of individuals) has shown the value of such an approach.

The following are suggestions for improving the clarity of the text:

- Show more clearly that the question of the nature of the responsibility (basic or specific) is secondary in relation to its definition and, above all, the level of regulation in which this definition should be given,

- Draw greater attention to the difference in nature between “own” powers and “delegated” powers. It needs to be shown that in the second case, the regulatory level is less important than in the first¹³³, that it could even be a mere agreement with the local authority, but in the framework of a legislative definition of the general conditions of the contract (possibility of refusal, guarantee of financial resources).

- find a simpler and less imperative presentation of the general definition of responsibilities showing that above all this is an important question of legal philosophy for local self-government, in harmony with the principle of subsidiarity: anything which parliament has not explicitly proscribed or reserved for another authority may qualify for an initiative at local level.

- propose a method of defining and presenting responsibilities.

- seek practical ways and means of assessing the actual application of the principle of proportionality between responsibilities and the financial implications. This should be a general principle and not simply, as many states seem to interpret it, a principle which applies merely to delegated powers.

- redress the balance in the debate on mandatory responsibilities and optional responsibilities which is not as fundamental as is sometimes made out, except as a criterion for distinguishing clearly the powers and responsibilities which must of necessity be compensated for financially from the others.

II. Methods for defining and allocating powers (i) between the state and the decentralised or autonomous authorities and (ii) between the different levels of self-government.

- It must be clearly spelt out that the expression “full and exclusive” competences cannot be divorced from the context of the way in which the state is organised and that it must be combined with the principle of the hierarchical structure of regulatory texts and functions. It is not necessarily unlawful for central government to intervene in the implementation of a local or regional responsibility. Everything is a question of form and empowerment or not by parliament.

Generally speaking, two approaches are acceptable:

- “Vertical” or regulatory allocation between the state and the autonomous authorities:

The allocation of a responsibility to an authority by parliament is no barrier to the latter stipulating the parameters of the responsibility on behalf of the legislative responsibility of the state which remains (appropriate adjective to be used in accordance with the type of state: unitary, federal or composite).

On the other hand – and this is where the distinction can be a subtle one – civil servants of central government acting as an authority (or, to use another expression, the central administration or its representatives in the field) are also required to comply with this legislation. The regulatory power with which they are invested cannot be imposed on local authorities unless this is expressly provided for in legislation (which is why representatives of local authorities must monitor these questions in Parliament very closely).

- “horizontal” or sectoral allocation which raises the question of the criteria and practical interpretation of the principle of subsidiarity.

Ideally each member state should review its legislation to see whether the division of responsibilities between the central administration and other autonomous authorities complies with the criteria of subsidiarity, ie, for decisions to be taken by an authority closest and accountable to the population directly concerned. It should be remembered that subsidiarity, like decentralisation, is a political concept which cannot be satisfied merely by the criterion of proximity alone; in addition it is essential that decisions are taken by elected authorities accountable to their population.

One possibility could be for specialised commissions such as exist or have existed in various countries (France, United Kingdom, etc) to look into the roles of the different authorities in satisfying citizens’ expectations in terms of public services and forward proposals concerning the criteria for allocating state responsibilities (diplomacy, defence, overall economic policy, currency, etc), those of local authorities and those of intermediate level authorities.

One of the questions the Group could look at is one sometimes referred to as “blocks of responsibilities” (tying in, partially, with the concept of “full and exclusive” responsibilities). “Blocks of responsibilities” should be understood as meaning a search for as straightforward a definition as possible of the various responsibilities and an effort to assign the essential aspects of an area to be managed to the same authority.

Experience has shown that there are very few responsibilities which can be assigned in toto to the same authority (the general rule is for the responsibility to be shared between several authorities). An attempt must however be made to do this since decentralisation can be profitable for the citizen only if it results in greater visibility of the action of the various public authorities, in other words if it remains within the bounds of a certain form of simplicity.

Consequently, sharing within a single responsibility is not, in itself, to be proscribed (this would be unrealistic); but any such sharing must be clear and logical. This is an essential precondition for any clear response to the question of the proportionality of resources and financial implications.

The way in which the different responsibilities are defined and protected is clearly also part of this:

- It is out of the question to advocate an exclusive approach (general responsibilities or a list of competences). Experience has shown the misgivings and differences of approach in this field and how impossible it is to decide on a single method. A number of easily understandable ideas must be borne in mind:

▪ the level of protection of local responsibilities must be at least comparable to that of other aspects of self-government. The importance attached to this question must therefore be reassessed. Taking the example of what the new democracies have done, a list of responsibilities (in the sense of fields of action) should ideally be included in the constitution.

We are not talking of an exhaustive listing but it is essential to introduce at least the idea of a “hard core of own responsibilities”. This expression, taken from certain constitutional case-laws (Germany in particular), reflects more effectively than the concept of basic responsibility the idea that local self-government cannot exist if there is no guarantee of a minimum set of fundamental responsibilities. It is not incompatible with an expression reflecting, more effectively than the old concept of “local affairs”, the principle of subsidiarity. It would be one way of introducing this principle at an appropriate level in the various legal systems in Europe¹³⁴;

▪ Account must also be taken, above and beyond differences over the method to be adopted, of the advantages, together with some disadvantages, of including in the basic laws on local self-government provisions relating to responsibilities even if it means such responsibilities need to remain general in nature. In this way citizens will realise that questions of local self-government are not merely procedural questions but have a very practical impact on important areas concerning their life in society. Rather than an exhaustive listing, an indicative listing could be given, the application and development of which could be specified in particular laws.

▪ Similarly, an attempt could be made to group together in a suitable form all the provisions concerning local autonomy, irrespective of the field in question.

The idea which should underlie any deliberation on this subject is clearly one of openness and transparency. In any event, a clear enumeration of responsibilities is essential for the success of any attempt to apply the highly controversial principle of Article 9.2 of the Charter.

III. The balance between resources and obligations

This was the fundamental question asked at the beginning of this study.

A. The situation is of some concern

- The principle of matching resources to obligations is stated clearly only in very few legislations. There is therefore no system for assessing how it is applied. Application of this principle would appear to be left to the good will of parliaments in the lottery of annual budgets. Guarantees that the principle will be upheld are therefore reduced to the bare minimum. What is more, when it is mentioned, the principle concerns only delegated responsibilities (which shows that the provisions of the Charter have not been understood) or transfers of responsibility in the future.

Although they have not been able always to back this up from detailed figures, in general the experts feel that there is an inadequate level of financial resources in relation to the responsibilities assumed.

In particular, they denounce several phenomena which contribute to the fact that local authorities are continuously in a precarious situation:

1. As regards the allocation of tax revenue, in comparison with the central authorities, local authorities are the poor relations:

▪ The proportion of their resources deriving from own local taxation is generally small and indeed falling in the more developed countries.

▪ In the new democracies, the provision of sufficient own resources comes up against the difficulty of drawing up a property index, insufficient economic development and income (industrial or private) and conceptual difficulties inherent in a complete overhaul of the system of organisation.

And yet, this necessity which is so crucial for local self-government and for giving responsibility to elected representatives comes up against the natural reticence of states to delegate part of their resources.

▪ the taxes they are allowed to levy are, without exception, not the most productive. There is still greater emphasis on property and land tax whereas taxes on economic activity are continually falling on the pretext of the principle of free competition.

As a result, local and regional authorities believe that they do not have the minimum margin of manoeuvre to be able to initiate new activities. This is the real limitation to the practical application of the concept of general responsibilities.

2. Reticence on the part of states is increased for two reasons:

▪ in the EU countries and in the countries which are candidates for membership, the desire for a strict budgetary policy is often reflected in larger overall financial constraints, from which local authorities do not escape. Worse still, this may result in a loss of their independence or a questioning of the decentralisation itself, held to be partly responsible for the growing public deficit.

▪ in other states, financial difficulties caused by the transition make it tempting to decentralise responsibilities – which may appear to satisfy the requirements of the Charter – without, however, allocating the corresponding resources.

3. The financial difficulties of local authorities have increased by a series of mechanisms which have resulted in transfers of obligations for which no corresponding financial compensation is given:

States willingly offload “bad risks” on local authorities, ie risks which are likely to result in substantial unforeseen expenses: this is the case, for example, with care for the elderly, a logical transfer from the proximity point of view, but one which is potentially crippling because of demographic developments and the growing number of situations of dependency and precariousness.

Such expenses may also result from the new “freedoms” granted to local authorities, especially in areas where the state is remiss (aid for economic development).

Very often, it concerns inducement by the state administration to participate in an expenditure outside any legislative measure of a general nature: this is the case with contractual procedures to build a particular facility or to develop a public activity in a given sector. Local authorities are then subject to real blackmail.

Very often also, local and regional authorities take it upon themselves to compensate for the lack of action by the state in an area for which it has responsibility (eg universities or roads).

There is a whole set of examples of transfers of obligations which are not presented as such and which should be denounced.

B. These proposals should not be viewed as miracle solutions; they rely heavily on the vigilance of the local authorities themselves and their associations:

Before making any proposal concerning the need to maintain a balance between resources and charges, it is perhaps necessary to restate the reasons why management which is close to the citizen is financially preferable, in principle, to centralised management: decisions are more suited to the situation and there is greater control on expenditure. Control is likely to be more effective if a significant proportion of the resource depends on a decision taken by the elected local authorities themselves. There is therefore an overall interest in more own resources being decentralised.

Among the possible proposals, local authorities in the various countries should be encouraged:

- to demand the setting up of joint state-local authority committees to evaluate the current balance between resources and obligations

- to demand, if the decentralisation of new taxes is not feasible, the conclusion of financial stability pacts to ensure stability of local finances, particular as we saw in the preceding report that these resources are increasingly dependent on budgetary decisions taken by central government.

- the major associations of local elected representatives could also be encouraged to give some thought to the optimum level of division of responsibilities between the state and local authorities:

It may be that the optimum level, at a given time, is not a maximum level of responsibilities.

Too many responsibilities, too quickly, may bleed the local authorities dry; transferring responsibilities without the resources could, ultimately, be harmful for the development of local democracy.

There is a danger that too many responsibilities – and it is clear that beyond a certain threshold new resources can only come from transfer funding – could result in local elected representatives merely implementing national policy.

Furthermore, it is easy to understand that the greater the number of responsibilities, the more they will accentuate the question of a uniform distribution of services throughout the country and the more justification there could be for central government intervention to adjust their margin of manoeuvre.

C. On a more technical level:

The need to establish a balance between responsibilities and charges is an argument for the setting up of systems, on the initiative of states, which can equalise resources to enable each authority, whatever its size or wealth, to carry out the responsibilities allocated to the category of authority to which it belongs.

It would not be contrary to the principle of subsidiarity, however, in order to adapt to the diversity of situations, to offer a number of areas or choices as to the number of responsibilities which each authority was prepared to carry out (eg in relation to its population).

With regard to the mechanisms to be set up to ensure a continual balance between responsibilities and resources, each state should be invited to bear in mind the following:

▪ with each new envisaged transfer of responsibility there must be a corresponding method of funding, whether this concerns the transfer of a new tax resource or new transfer funding. The latter should, wherever possible, not be tied to the responsibility itself but should be allocated to all the resources available to the authority to enable greater scope for savings to be made.

▪ the first question to be asked relates to an evaluation of the amounts concerned. Generally speaking, and ideally, the solution should be to transfer to the authority the equivalent of the amount central government would have spent on that responsibility. However, experience has clearly shown that local authorities, generally closer to the needs of their populations, do a better job of managing the sectors assigned to them than the central authorities. It is essential therefore that transferred resources be open-ended (as is the case with taxes) or that they may be re-assessed. Local authorities are therefore advised to be very circumspect with regard to the transfer of responsibility offered to them. It is essential for them to clearly state their views at that point.

The Charter leaves the question of defining the possible mechanisms for involvement in decisions, but this involvement in the decision-making process is a key factor in the institutional organisation of the various states.

APPENDICES

1. Questionnaires sent to the experts

2. Classification adopted for the CDLR's study series

1. Questionnaires sent to the experts

1.1. First questionnaire

QUESTIONNAIRE ON THE RESPONSIBILITIES OF LOCAL AUTHORITIES
addressed to the members of the Committee of Independent Experts on the European Charter of Local Self-Government

Preliminary observations

1-2-Observations on the first questionnaire

Certain questions could appear to be repetitive. This is the case for questions 1, 2.1 and 4, which all dealt with the same subject, ie the development of the scope local authorities have in carrying out their responsibilities.

One of the questions was not understood. This was question 3 ("ad hoc" responsibilities), but this did not affect the validity of the replies as a whole. The experts who best replied were those who had understood the question to apply to the various legal means (mainly) which local authorities disposed of to carry out their responsibilities.

Question 7 on the distinction between own responsibilities and delegated responsibilities was largely understood (the Hungarian reply is particularly clear), but there were a few "vague" replies to question 8. Finally, the concept of associations of municipalities was sometimes understood to be associations representing local authorities, whereas it in fact referred to associations of local authorities to carry out a certain number of their responsibilities.

On the whole, the tables replied only imperfectly to question 9, and in any case, the notes are much less complete than the CDLR studies, which need to be consulted again and critically analysed. One of the conclusions of the analysis of the first questionnaire was that the second one should include a "simplified" grid responsibility by responsibility.

1. What are the general principles governing the responsibilities of local authorities and the nature of their powers?

2. How are those responsibilities defined:

- Is there a general definition of responsibilities, and, if so, at what level of legal text: constitution, Act or regulation?

- Is there a list of responsibilities, and if so, in what kind of legal instrument does it appear?

- Has your country opted for the first or second way, or both?

- Is the way in which responsibilities are defined currently under discussion? What issues have been raised in that discussion and what are the prospects for change?

3. To what extent are local authorities assigned ad hoc powers in order to fulfil specific duties?

4. Do local authorities have the right to take action in fields which are not specifically excluded from their general responsibilities or assigned to other bodies? Is that right acknowledged in law or in the Constitution or does it result from the general principles of interpretation in force?

5. To what extent is the principle of subsidiarity, as set out in Article 4, paragraph 3 of the European Charter of Local Self-Government, enshrined in standard-setting texts and implemented in practice?

6. Are the general responsibilities of local authorities full, comprehensive and exclusive?

7. Is a distinction made in your legislation between own responsibilities and delegated responsibilities? Is this distinction based on a specific criterion?

8. To what extent and according to which criteria are local authorities required to carry out duties which are the responsibility of higher authorities?

9. In decreasing order of importance and, if possible, grouped under main headings but giving sufficient detail, please list the responsibilities¹³⁵ discharged by:

i. municipalities

ii. associations of municipalities

iii. second tier authorities which do not enjoy legislative powers (in other words, excluding federal states, regardless of their title).

1.2. Second questionnaire

This second questionnaire is slightly different from the first and is more comprehensive, especially with regard to the precise definition of local responsibilities. The experts who replied to the first questionnaire are kindly asked to elaborate on their previous answers and to reply to the new questions.

It should be noted that this questionnaire applies to decentralised authorities which do not enjoy legislative powers (ie. excluding, in particular, federal entities).

Experts are asked to make a clear distinction in each of their replies between municipalities and second- and possibly third-tier authorities (province, département, county, region, etc.).

1. What are the general principles governing the distribution of responsibilities between local and central authorities?

2. What are the most common categories used to classify responsibilities (discretionary/compulsory, legislative/executive, etc)? Is a distinction made between purely local interests, general interests and interests combining local and general elements?

3. In particular, please indicate whether a distinction is made between own responsibilities and delegated responsibilities. If so, what is the criterion governing it, at what level (legislation, case-law, practice, theory) is it made and what impact does it have (particularly in terms of supervision, financing and liability)?

4. How are responsibilities defined:

a. Is there a general definition of responsibilities, and, if so, at what level of legal text: Constitution, Act or regulation?

b. Is there a list of local authorities’ various responsibilities? In what kind of legal instrument does it appear? (Is the issue of responsibilities addressed or even simply referred to in the general Act (institutional or General Principles Act) on local authorities or government? Is there an Act which sets out the general principles governing local authorities’ responsibilities?)

c. Has your country opted for the first or second way of defining local authorities' responsibilities, or both?

d. What are the respective roles played by the legislature and the executive in the allocation of local responsibilities?

5. Do local authorities have the right to take action in fields which are not specifically excluded from their general responsibilities or assigned to other bodies? Is that right acknowledged in law or in the Constitution or does it result from the general principles of interpretation in force? In what circumstances might a local authority be prohibited from taking action in a particular field?

6. To what extent is the principle of subsidiarity, as set out in Article 4, paragraph 3 of the European Charter of Local Self-Government, recognised? Is it the basis on which responsibilities are distributed or is it a requirement to be complied with by the various authorities in carrying out their responsibilities?

7. Do local authorities have the opportunity to give their point of view concerning changes in their responsibilities (in particular through consultation procedures)?

8. Are the general responsibilities of local authorities full, comprehensive and exclusive?

9. Are local authorities genuinely able to carry out their responsibilities? Do you think that local authorities are responsible for a large proportion of public affairs in your country? Are their financial resources in proportion to their responsibilities? If you cannot draw an overall comparison between responsibilities and financial resources, you might be able to provide an operational expenditure breakdown (for example as a % of the total amount spent on different activities, such as education or social welfare). It would also be useful to have specific examples of discrepancies between the significance of a responsibility and the funds allocated to it. Acts effecting one-off transfers between central government and local authorities may also provide tangible evidence of the approach your country’s legislature or government takes to application of the principle of equivalence between resources and costs.

10. To what extent and according to which criteria are local authorities required to carry out duties on behalf of higher authorities?

11. Please give a detailed list of local and regional authorities’ responsibilities, distinguishing between municipalities and second or third tier authorities (province, département, county, region) which do not enjoy legislative powers (ie excluding federal entities), and grouping them under the headings set out below. Please note that the questionnaire is not set out in table form in order that replies can be given in as much detail as possible.

For each responsibility, please specify the extent to which the authorities concerned have the power to issue regulations or executive power, particularly on an individual level, and the financing arrangements where the responsibility in question is not financed from local taxation or the block grant. At the very least, please give operational expenditure breakdowns for authorities’ budgets and accounts.

a. Security, police and the courts

i. security in general and maintaining law and order
ii. police (including conditions of service)
iii. the courts (especially where court buildings are concerned)
iv. civil defence
v. the fire service
vi. registers of the population (including foreigners) and of voters

b. Education

Please indicate responsibilities concerning the curriculum, staff (conditions of service and salaries) and buildings (construction and maintenance), distinguishing between the different levels of education (pre-school, primary, secondary, higher, vocational and technical education, adult education, etc).

c. Health

Please indicate responsibilities concerning health services, with particular reference to buildings (construction and maintenance), staff and possibly equipment. Please add under this heading any other relevant information.

d. Social welfare

Please indicate authorities’ various responsibilities concerning child care facilities, assistance for families, young people and the elderly, nursing homes and welfare assistance in general, including provision for the disabled, minorities and foreigners. Please specify whether these benefits are paid for by local authorities on their own account or on behalf of the state.

e. Town and country planning

Please describe the exact role played by local and regional authorities in the drawing up of land use plans, their responsibilities with regard to the granting of planning permission, and their role in protecting sites and monuments (cultural and historic heritage).

f. Housing

Please specify the role played by local and regional authorities in the area of housing, with particular regard to low-cost social housing, building renovation, etc.

g. Environment

Please describe the role played by local and regional authorities in preventing and controlling water pollution (sewage treatment), air pollution, soil pollution and noise pollution, and in disposing of household refuse and other waste (storage, sorting, treatment and incineration), and their responsibilities in respect of abattoirs, cemeteries, hunting and fishing.

h. Culture, leisure and sport

Please indicate the role played by local and regional authorities concerning museums, libraries, theatres, concert halls, sport, leisure, parks and green spaces.

i. Traffic and transport

Please describe local and regional authorities’ responsibilities in respect of traffic policing, highway maintenance, public road (bus, tram) or rail transport and infrastructures such as railway stations, ports and airports.

j. Energy

Please describe the role played by local and regional authorities in energy distribution (gas, water, electricity, etc.).

k. Economy

Please describe authorities’ responsibilities in respect of agriculture, trade and industry, tourism and employment (promoting employment, fighting unemployment, providing vocational training). Please describe the impact of the principle of free trade and industry on local authorities’ right to intervene in economic matters.

l. Religion

What is the exact role of local and regional authorities concerning religious affairs?

Associations of municipalities: please describe their various fields of action in as much detail as possible.

12. Is the way in which local responsibilities are defined currently under discussion? What issues have been raised in that discussion and what are the prospects for change?

2. Classification of responsibilities used in monographs prepared by the CDLR