The Congress,

Bearing in mind the proposal of the Chamber of Local Authorities:

Having noted the report prepared by Mr Masters following his visits to Estonia from 7 to 10 February and from 9 to 10 March 2000 in the company of a consultant and a member of the Secretariat;

Thanks the authorities of Estonia, at all levels, for welcoming its delegation, for their very kind, friendly and cooperative reception;

Pays tribute to the important progress made by Estonia since 1991 in every field of the country public life and in particular to the legislation and practice of local government which provide appropriate frameworks for local democracy;

Notes, however, that at certain points, some changes would be advisable to improve the democratic participation and the capacity of local administration approaching the current practice to the standards of European Charter of Local Self-Government;

Also notes that the entire local government system is now under discussion and is facing a far-reaching change and believes that there is an excellent opportunity for Estonia to correct its shortcomings that have emerged furing the last ten years and to raise the standards and quality of the system;

Notes in particular that:

The local government system has only one-tier in Estonia (247 municipalities) and that the country is divided into 15 counties headed by county governors appointed by the government of the Republic;

The representative body of the local government is elected only for a three-year-term;

The legal status of the City of Tallinn, which has 420.000 inhabitants (out of 1.445.000 for Estonia) and provides more than 50 % of the national GDP, is on the political agenda;

The size and number of local authorities and counties are currently widely discussed and that the basic direction of the change is to reduce the number of municipalities mainly through voluntary amalgamation;

There is a movement of transfer of functions from county government to the county associations of local authorities and that there are proposals on the establishment of direct or indirectly elected county self-government;

Local authorities are at the moment incapable to collect and administer local taxes and that there is no appropriate citizen’s register for this purpose;

About half of the total local revenues come from the personal income tax from which local governments receive 56 %; the amount of central grants (about 25 % of the total local revenues) is calculated on an automatic formula which preserves the differences in the financial resources of municipalities;

Rural municipalities have no municipal assets and the financial situation of small local authorities is the question of the hour;

Estonia has good cross-border connections, particularly with Finland and other Baltic countries and that there is a day-by-day cross- border traffic and co-operation between the border areas of Estonia and the Russian Federation. Estonia and Russia have reached an agreement on their common state borders and the signature and ratification of this agreement are still pending;

Aliens have the right to vote in local elections and that, according to the law, candidates in local elections should have Estonian proficiency; in certain areas of the country, the municipal council can work in the language of the majority;

Considers that:

The reform of the territorial organisation of the Republic should not only focus on local authorities but also include the central government counties;

Larger local authorities would have to capacity of providing higher level public services;

The transfer of functions and tasks from the county government to the county associations of local authorities should be encouraged;

The current system of local government finance is unfair for certain geographical areas and for rural municipalities in general and the central subsidies system is unable to correct conveniently the present unbalances;

The lack of a general and accepted register of tax-payers together with the obligation to declare one’s place of residence, significantly hampers the assessment of the true personal income tax revenues in local authorities;

The involvement of local authorities in regional policy formation could be improved;

The territorial co-operation of local authorities located within the same county has real importance;

Recommends therefore that parliamentary, governmental and other competent authorities of Estonia, in restructuring the local government take into account the following recommendations, suggestions and considerations:

With regard to administrative division

Having regard to the restructuring of the administrative division, local authorities, local government associations concerned must be consulted prior to the final decision-making in accordance with Article 4, paragraph 6 of the European Charter of Local Self-Government. The concerned inhabitants should also be involved in the process of the change in local authority boundaries, possibly by means of local referendum of plebiscite;

It is necessary to encourage the voluntary mergers of small municipalities by financial incentives taking into account the opinions of the municipalities and the inhabitants concerned;

Establishing larger local government units with greater financial and administrative capacities, the interests of effectiveness and efficiency should be reconciled with the principle of subsidiarity as it is expressed in Article 4 paragraph 3 of the Charter. The alternatives for the new administrative division must respect the virtual role of the attraction centres as well as the citizens' access to public services as easily as possible;

As part of the modification of the Local Government Organisation Act, the legislature and the central government should consider giving special legal status for the City of Tallinn recognising the capital's importance in the country. In doing so, the current distribution of tasks and functions between Tallinn and the relevant county government could also be reviewed;

With regard to redistribution of functions

The present tendency of transferring functions from the county government to county associations of local authorities has to be supported, because the associations embody the interests of the municipalities. Estonian parliamentary and government authorities should consider the reestablishment of the county self-government on the basis of the strengthening county assemblies;

Larger local authorities would be more capable of providing higher level public services. Other ways of public service management, like establishing joint institutions of municipalities or widening the contracting-out practices could result in ensuring citizens have the right to choose service producer;

With regard to financial issues

Estonian authorities should change their legislation and practice so that, in the future, local authorities may have, at their disposal a greater proportion of financial resources of their own, in particular having greater capacity to raise revenues from local taxes. Pursuant to the Charter, “Part at least of the financial resources of local authorities shall derive from local taxes and charges of which, within the limits of the statute, they have the power to determine the rate” (Article 9, paragraph 3);

Local governments should be able to impose personal income tax being empowered to determine its rate. For this purpose, the conditions of a more effective local taxation should be ensured, mainly by reducing the administrative costs of tax collection (e.g. by means of contracts with state tax boards to collect them) and by establishing a local citizens' register. In order to enhance the revenue basis of local authorities, new types of local taxes could be introduced or the current forms could be transformed (e.g. introducing property tax from land tax);

Referring to Article 9 paragraph 5 of the Charter, Estonian authorities should consider the introduction of a more specialised financial equalisation system which would be able to take into account the special circumstances and conditions of the individual local authorities. The current automatism of calculating the amount of the so-called ”state subsidy” (block grant, actually) does not seem to be sensitive enough for local authorities, particularly the rural municipalities in detrimental situations;

With regard to central-local government relations and local government associations

The national associations of local authorities should strengthen their ability for common and coordinated actions in particular for representing uniform interests in the negotiations with central government. They could consider the possibility of the unification;

As for regional policy and development, the democratic participation of local authorities and involvement of local interests in the decision-making process seem to be unsolved. After being admitted into the European Union, the reception and reallocation of EU-grants will raise this issue. There are various procedures in Europe which ensure the representation of local government interests in regional policy formation from the corporative regional bodies to the directly elected regional self-governments. These considerations should not be eliminated from the current discussions;

With regard to transfrontier co-operation and the situation of Russian minority²

Estonia should sign and ratify the “European Outline Convention on Transfrontier Co-operation between Territorial Communities or Authorities” as soon as possible. The formation of the necessary legal basis of transfrontier co-operation with Russia (agreements on border, on transfrontier co-operation between local and regional authorities, on rules of mutual visits of the population of the border regions) should be taken into consideration;

The stipulation of the Local Government Council Election Act requiring Estonian proficiency from candidates in local elections should be reconsidered before the next elections, including the possibility of providing information to the Public in other languages during an election;

The legislative and government authorities should examine the ways and possibilities to protect languages of local minorities including the right to use a mother language at local government council sessions as well where it is possible (e.g. where the Russian speakers are in majority);

Other issues

37. The present three-year-term of the representatives' mandate could be reconsidered. This period - taking into account the political nature of the council membership - does not seem to be enough to realise political promises and programmes, which might cause certain certain short term initiatives, to be taken, which could result in long term inefficiency.

² According to the official data, Estonia's ethnic distribution is as follows: Estonians 65.1%; Russians 28.2% ; Ukrainians 2.6% ; Byelorussians 1.5% ; Finns 0.9% ; others 1.7%