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

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? The comparative study Overall impact Policy options From Utrecht Ministerial Conference to Kiev 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?

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  1. The Impact of the Economic Downturnon 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@coe.int

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