Local Government Automony Flashcards
Local Government Autonomy
Ladner see seven dimensions to measuring local autonomy:
- Political discretion: the formal distribution of power and the effective decision-making competences relative to service delivery (institutional depth + effective political discretion);
- Financial autonomy: the financial resources available locally and the possibility to decide on their sources (fiscal autonomy + financial self-reliance + borrowing autonomy);
- Non-interference: the extent of liberty left by higher levels of government in their control (financial transfer system + administrative supervision);
- Policy scope: the scope of services for which local governments are responsible (= policy scope);
- Legal autonomy: the legal status and protection of local governments (= legal protection);
- Organisational autonomy: the free organisation of local political arenas and administration (= organisational autonomy);
- Access: the degree of influence of local governments on political decisions at higher levels of government (= central or regional access).
Policy-making automony
(political discretion)
Administrative decentralisation and more concretely functional assignments determine the degree of local government’s policy-making autonomy (political discretion).
Ideally, functional assignments should provide local authorities a ‘dual mandate’:
• The ‘general mandate’ (own function) is composed of devolved functions that LGUs carry out with substantial discretion. They act as policy-makers within their jurisdiction and cumulate the role of policy setters and service provider.
• The ‘specific mandate’ (delegated function) is primarily composed of delegated functions that LGUs carry out on behalf of central government. They mainly concern service provision.
However, even under specific mandates local government can retain limited discretion:
Pure agency functions: LGUs do not enjoy any autonomy. ‘local governments perform tasks and services without own influence (…) on the level and quality of the services-the local governments perform the functions on behalf of the central
government as agents’. This can include, for instance, the payment of social benefits or teachers’ salaries.
Partly agency functions: LGUs retain some discretion and act as ‘semi-autonomous’ policy implementers.
Discretion in managing Human Resources
(Organisational automony)
The pillars and functions of the HRM system, and the contextual factors that influence it, is an important condition for realising local autonomy and accountability and ensuring results. Assessing the autonomy of local governments requires asking the following questions:
- Do LGUs decide staff structure and number of employees without central approval?
- Do LGUs have the authority to set their own salary scales and allowances?
- Can local authorities recruit, hire, promote and fire their own employees?
- How is disciplinary authority exercised, and by whom?
Local government budgets (1)
The decentralised budget is the main tool enabling LGUs to realise their policy-making autonomy: the volume of resources matters, but more determining is the composition of the budget and the discretion with which local governments can decide expenditures and revenues.
The decentralised budget is a tool to ensure local service delivery and contribute to national/sector targets: the volume of revenues influences the level and the quality of the services provided at local level, and therefore it influences aggregate sector outcomes. In addition, the assignment of revenues influences whether services are equally distributed across the territory.
The decentralised budget is a key tool for accountability: LGUs can be held accountable for performing a specific function only if they have the discretion to perform that function and if they have the fiscal resources
to do so
Local government own revenues
Local government own revenues
- Taxes
- Non-taxes revenues: fees and charges
- Royalities (resource rich countries)
- Publcily-owned utilities (water, electricity)
Subnational borrowing is also a source of revenue but it is not a core and stable source of income.
Local government budget equilibrium
Budgets should tend towards equilibrium, and this rule also applies to decentralised budgets. This means that the two sides of the budget –expenditure and revenue – should match to ensure sustainable results.
Ideally local governmet should finance functions only if they have resources for it – that is, exercise budgetary accountability, and the nature of the expenditure determines the source of revenue that should finance it:
• LG should finance their own spending decisions: their ‘own local revenues’ (tax, user charges) should finance services for which LGUs have full discretion. Central level should only provide additional funding to correct horizontal imbalances (unconditional grants).
• Central government should fully or partially finance specific mandates that LGUs carry out on its behalf. Central and local governments share the cost of ‘partly agency functions’ because LGUs retain some discretion.Central government fully finances pure agency functions because LGUs have no discretion at all (e.g. specific grants).
Budget and Financial Autonomy
A key challenge is that there is no one single way to measure or assess subnational
autonomy in budget, fiscal and financial matters. Yet, two main guiding questions can help you have a better grasp of local autonomy, notably:
• Do LGUs have discretion to decide and carry out expenditures? (How is central control exercised?)
• Do LGUs enjoy effective financial autonomy to carry out their responsibilities?
Budget autonomy focuses on actual expenditures and budget implementation. It refers to LGUs capacity to decide alone, fully independently, the categories, quantity and quality of services that they offer their residents. Such discretion to make spending decisions is a key incentive for public participation: as noted before, citizens are more likely to participate if they feel they can influence decision-making processes.
Latitude to arrange services: the spending side of the budget includes both own functions, which fall under the general mandate (devolution) – the ‘true’ arena for budget autonomy as they retain strong control and full responsibility for the services; specific functions, which are delegated with some latitude for arranging and providing services (‘partly agency’ functions); and delegated functions with no discretion at all (‘full agency’ functions).
Nature of central control: central government should exercise a ‘power of judicial review’ to ensure that processes are in line with efficient public management principles. Yet, it should not interfere in the choice of the expenditure as such (a consideration of the appropriateness of public spending). An indicator to measure central control can be the
number (or share) of LGUs’ budgets that upper levels modify during the planning process.
Financial autonomy
Financial autonomy refers to the revenue side of the budget.+ It is about the volume of resources that LG can devote to finance their own decisions under their general or specific mandate.
Two indicators assess whether and how own revenues effectively contribute to financial autonomy: fiscal autonomy and fiscal sovereignty.
Fiscal autonomy refers to the authority’s independent access to taxes and user fees. Local governments rely on a number of own sources of revenue, including taxes, fees, rent on local government properties and user fees.
- *Fiscal sovereignty** refers to local government ability and discretion to set tax parameters. Total tax autonomy requires that local governments have a decisive role and capacity to:
i) assess and set the tax base, tax rate, method of calculation and collect revenue;
ii) decide alone on the utilisation of these funds;
iii) collect own sources of revenue.
Determinants of financial autonomy
LG’s discretion to levy its own revenues (fiscal autonomy) or to set tax parameters (fiscal sovereignty) does not automatically lead to financial autonomy. The contribution of local taxes to financial autonomy depends on the type of the tax, on its potential yields and their share in the budget, on their distribution between the central and local levels as well as on their incentivising effects.
Fiscal sovereignty alone does not always lead to financial autonomy: property taxes are frequently assigned to intermediary or local levels with a certain degree of fiscal sovereignty. Yet, the revenues from this tax are small compared to total resources and it is unlikely that the yield from this tax would grow significantly. Consequently, it would be incorrect to think that this tax gives financial autonomy just because local governments can set its parameters.
Limited fiscal sovereignty can lead to increased financial autonomy when local governments fully own the revenues of the tax: some central governments determine the modalities a local tax. This means local governments do not have fiscal sovereignty, as they collect but cannot decide the parameters of the tax. However, if they entirely own the revenues from the tax, local governments can enjoy higher financial autonomy than from the property tax mentioned above.
Discretionary transfers can significantly contribute to financial autonomy: Swiss cantons ceded to the confederation the sharing of direct taxation on individual income and company profits. They obtained in exchange a 30% share of the revenues, which are transferred with no restriction on the use of the funds. The transfer is not counted as own revenue. Yet, subnational entities fully own these resources, which provides them significant discretion to develop their own policies and priority services.
