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The Impact of the Economic Downturn on Local Government: What Can We Do About It?

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The Impact of the Economic Downturn on Local Government: What Can We Do About It? 6 July 2010 Gabriela Matei Council of Europe Overview Why is the CoE concerned? – PowerPoint PPT presentation

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Title: The Impact of the Economic Downturn on Local Government: What Can We Do About It?


1
The Impact of the Economic Downturn on Local
Government What Can We Do About It?
6 July 2010 Gabriela Matei Council of Europe
2
Overview
  • Why is the CoE concerned?
  • The comparative study
  • Overall impact
  • Policy options
  • From Utrecht Ministerial Conference to Kiev
  • What can we do about it?

3
Why Is the CoE Concerned?
  • Governments shrinking financial resources,
    difficulties to maintain quality public services
    accessible to citizens
  • Citizens face economic problems due to recession
    incapability to pay municipal taxes, increased
    demand for social assistance, growing
    unemployment
  • Governmental underperformance can lead citizens
    to reconsider the concept of decentralized
    government and democracy

4
The Comparative Study
  • Partners - Council of Europe and The Local
    Government and Public Service Reform Initiative
    of the Open Society Institute (LGI)
  • Coverage - 32 countries members of the CoE

5
The Comparative Study
  • Recommendations to 16th session of CoE Conference
    of Ministers responsible for local and regional
    government - Utrecht, 16-17 November 2009 - The
    Utrecht Declaration
  • Monitoring
  • financial data,
  • policy responses

6
Overall Impact
  • Local own revenues in decline
  • Compensatory grant increases in some countries,
    cuts in others
  • Overall contraction in 12 countries, over 10 in
    5 countries
  • Causes of different performance
  • Economic fortunes
  • National grant policy
  • Vulnerability of local revenue bases

7
Overall Impact
  • Vulnerability of Local Taxes
  • Property taxes the most stable
  • Personal Income Taxes vulnerable, but subject to
    delay
  • Corporate Profits taxes and VAT shares most
    affected

8
Overall Impact
  • Current expenditures - steep rise in cost of
    social benefits might entail local government
    bearing some of the extra costs of
  • Housing allowances
  • Safety net payments to the long term unemployed
  • Emergency aid to families in advance of awards of
    state benefits

9
Overall Impact
  • Capital budgets - sources of investment funding
    will decline
  • shrinking operating surplus
  • reduced willingness of banks for credit or bonds
  • less capital for PPPs for private enterprises
  • shrinking market for asset sales
  • Fiscal stimulus strategies may lead to enhanced
    flow of EU /state budget funds for capital
    projects

10
Policy Options
  • No Quick Recovery Expected
  • Unemployment still rising
  • Timelags in tax impacts on local budgets
  • Expected post-recession cuts in state support
  • Demographic trends
  • Demands of local economic recovery and climate
    change

11
Policy Options
  • Making Money Go Further
  • Improved efficiency - benchmarking, performance
    audit, relaxation of unsustainable norms,
    reviewing incentives to expensive provision
  • Reducing overhead costs - territorial
    reorganisation, inter-municipal co-operation
  • Improved targeting of social expenditures -
    eliminate unneeded subsidies, remove barriers to
    access to benefits, enable more voluntary
    participation in social care.

12
Policy Options
  • The overriding priority will be to protect
    essential local public services by making local
    government expenditure as productive as possible.

13
From Utrecht Ministerial Conference to Kiev
  • 2010 Review Conference
  • Workshops
  • Inter-governmental Finance
  • Doing more with less promoting efficiency
  • Local government contributions to economic
    recovery and sustainable development
  • Coping with the social impacts of recession and
    demographic change

14
What Can We Do About It?
  • Political commitment
  • Identify joint actions for coming years
  • How can this crisis become an opportunity for
    local governments?

15
Thank you!
  • For more information
  • COUNCIL OF EUROPE SECRETARIAT - Directorate of
    Democratic Institutions
  • Gabriela Matei, Senior Project Manager, E-mail
    gabriela.matei_at_coe.int
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