Local government expenditure and NECC

1. Local government expenditure and NECC* A discussion note 1 DJ : UNCDF : 10/2009

2. Contents Introduction Decentralisaton and NECC expenditure Budget Classifiers and NECC expenditure Lessons for NECC spending 2 DJ : UNCDF : 10/2009

3. 1) Introduction Introduction Decentralisaton and NECC expenditure Budget Classifiers and NECC expenditure Lessons for NECC spending 3 DJ : UNCDF : 10/2009

4. Hypotheses This workshop will discuss three hypotheses: That local level resources and decision making can be more efficient in responding to the challenges of NECC That local level resources and decision making can be more effective in identifying these challenges and designing holistic solutions That providing resources locally will then enable these local institutions to ‘buy in’ the services and expertise of higher level institutions on a demand driven basis. Likewise it will facilitate the pooling of resources between affected local governments DJ : UNCDF : 10/2009 4

5. Local NECC response (1) Whilst the challenge of NECC is global, the immediate effects are local. Just a few kilometres can separate the arid from the fertile or the disaster prone from the safe. Yet governments and development partners often respond by channelling resources into programmes covering large areas. These are sometimes inefficient and fail to recognise local specificity. Their effect can sometimes be counterproductive (for example to encourage to greater migratory pressure and conflict rather than dealing with problems at their source). DJ : UNCDF : 10/2009 5

6. Local NECC response (2) Whilst there are common issues surrounding NECC (managing the carbon cycle, for instance) its local reality is varied and highly specific. In some cases it requires a local disaster risk reduction / disaster management capacity, in other areas it requires new infrastructure such as small dams etc. In yet others it may require relocation of households. These are multiple configurations that do not easily fit into sector or ministerial boxes. For example - whilst the skills and resources of the Ministry of Health may be relevant in one case, the skills of a different agency are needed elsewhere. Furthermore, whilst environmental agencies can identify these issues they do not always have the mandate to resolve them. These challenges do not respect administrative boundaries. For example, they may affect three local government jurisdictions along a river bank, but not affect others on higher ground. DJ : UNCDF : 10/2009 6

7. Local NECC response (3) DJ : UNCDF : 10/2009 7

8. What is local government? DJ : UNCDF : 10/2009 8

9. Definitions Delegation – A local agency empowered to do something on behalf of a central agency. It takes decisions in the name of the central authority and the central authority remains accountable for its performance. De-concentration - Staff and offices of an agency are located away from its headquarters. They still belong to the central body, still report to it, but are located somewhere else. Devolution – Power and authority given to a body for specific areas of responsibility. In local government this normally means administrative and financial autonomy. The body is accountable for its actions. 9 DJ : UNCDF : 10/2009

10. 2) Decentralisaton and NECC expenditure Definitions and introduction Decentralisaton and NECC expenditure Budget classifiers and NECC expenditure Why does this matter to environmental spending? 10 DJ : UNCDF : 10/2009

11. What is local government expenditure? Local government expenditure is the sum total of financial resources disbursed by local governments. This can be in the form of: Salaries, pensions and other personnel obligations Goods and services Expenditure in capital investments Project expenditure in non capital projects Grants Loans Transfers (including to other levels of local government) Interest payments and debt servicing 11 DJ : UNCDF : 10/2009

12. How is local government expenditure managed? There are many ways to answer this question. For the purposes of this presentation we shall focus on two aspects of local public expenditure management. Firstly – the relevance of decentralisation arrangements to resource allocation for NECC Secondly –the relevance of expenditure classifiers and budget codes to expenditure on NECC DJ : UNCDF : 10/2009 12

13. Budget approval - how does this differ? Delegation – budget approved centrally as part of central agencies allocation but managed on central agency’s behalf either by local representations of that agency or by a local government with devolved responsibilities. De-concentration – budget approved centrally as part of allocation for local representation of central agency and managed by that local representation Devolution – budget approved locally by devolved authority. Resourced by own revenue and fiscal transfers from other levels of government 13 DJ : UNCDF : 10/2009

14. Budget methodologies Zero sum – start from zero each year and reallocate according to what you now need with no attention paid to last years budget Programme – allocate resources across and between agencies according to policy goals and objectives Incremental / departmental - each budget unit prepares a proposal with the previous year as its starting point. One of the above is ALMOST ALWAYS the model adopted in practice – though it may be “retrofitted” to fit in with other models DJ : UNCDF : 10/2009 14

15. Expenditure and mandates Mandates for NECC are spread between a variety of central and local government agencies and operate at different levels. These include: Environmental Protection Energy Forestry, Minerals and Mining Land Use Planning Public Works Water and Sanitation Health Education Expenditure is only possible against assigned mandates. In your country where do the mandates lie for these functions? Is there scope for delegation of mandates? 15 DJ : UNCDF : 10/2009

16. Example of unfunded mandates DJ : UNCDF : 10/2009 16

17. De-concentration conclusions In de-concentrated resource allocation systems the tendency is for departmental / incremental budgeting with little incentive for examination of NECC issues if they fall outside department mandate. Local programming of expenditure on NECC is possible by agencies with a NECC mandate if they are delegated the authority from the centre Otherwise these expenditures will be programmed by national agencies at a national level Programme budgeting models may oblige other agencies to include NECC as a consideration during local programming Discretionary local resources untied to any particular agency are another route for local programming of NECC 17 DJ : UNCDF : 10/2009

18. Devolution conclusions In local devolved resource allocation systems the tendency is also for departmental / incremental budgeting at the local level with little scope for examination of cross cutting issues. There may also be greater limitations on capital budgets and less potential for investment. However there is scope for receiving delegated powers and / or revenue sharing with relevant agencies including other local governments. There may also be a greater perception of NECC issues – on the other hand local politics may place less priority on NECC as shown in the next slide. There may or may not be departments that have NECC mandates at local level therefore the national regulatory environment is fundamental. To what extent are devolved local governments obliged to programme with NECC considerations in mind? 18 DJ : UNCDF : 10/2009

19. Example of underfunded NECC DJ : UNCDF : 10/2009 19

20. 3) Budget classifiers and NECC expenditure Definitions and introduction Decentralisaton and NECC expenditure Budget classifiers and NECC expenditure Why does this matter to environmental spending? 20 DJ : UNCDF : 10/2009

21. How is local government expenditure classified? For each dollar, baht or taka listed in the budget there are a variety of classifiers or codes that provide meaning to the expenditure. Inter alia these can include: Organic – the agency or department responsible for the expenditure Economic – the economic nature of the expenditure – capital items, goods and services, salaries, grants Programmatic – whether the expenditure is related to a particular programme or policy Project or core – whether the expenditure is for a defined set of activities with an beginning and an end or whether it is for ongoing agencyal existence. Territorial – where the expenditure will occur or which part of the territory will benefit DJ : UNCDF : 10/2009 21

22. Organic classifier Most expenditure is driven by the organic classifier: Organic – the agency or department responsible for the expenditure Normally the body that also draws up the proposals Generally this is on an incremental basis (last year plus 5%) Institutional incentives to maximise slice of the cake Up to 90% personnel related Very skilled at fitting their own priorities with the programme or policy labels currently in vogue NECC related departments? These are often not present at local level. DJ : UNCDF : 10/2009 22

23. Economic classifier (1) Most expenditure is programmed by Economic Classifier: Personnel (salaries, pensions and other obligations) Goods (durable and non durable Services (from office cleaning to consultancies) Capital – definition – something that enters into the asset inventory Transfers – including inter governmental ones to other units with administrative and financial autonomy (local government, airport authority, etc) Interest payments and debt servicing DJ : UNCDF : 10/2009 23

24. Economic Classifier (2) DJ : UNCDF : 10/2009 24

25. Economic Classifier (3) DJ : UNCDF : 10/2009 25

26. Programme Budgeting and its variations This is often seen as a panacea because it attempts to tie expenditure to objectives across institutions. Budget units are forced to link their expenditure to programmes. On the face of it – a cross cutting “environment and climate programme” would seem to be an attractive idea. However it requires a high level of capacity (and extra resources) to make it work. And departments manage to re-label activities to fit the programme. DJ : UNCDF : 10/2009 26

27. 4) Decentralisaton and NECC expenditure Definitions and introduction Decentralisaton and NECC expenditure Budget classifiers and NECC expenditure Why does this matter to environmental spending? 27 DJ : UNCDF : 10/2009

28. Local Government Expenditure matters DJ : UNCDF : 10/2009 28

29. Local Expenditure and NECC 29 DJ : UNCDF : 10/2009

30. How to enable a holistic response? (1) The previous sections have shown how “sticky” local expenditure can be and how difficult it is to change long term expenditure patters Yet we have also examined the potential of local level planning to define holistic responses to the challenges of climate change and the environment In addition, NECC challenges are not evenly spread across a territory It may be that specific measures are required to ensure resources are directed in its direction 30 DJ : UNCDF : 10/2009

31. How to enable a holistic response? (2) These measures could include: Examination of NECC related expenditure within the budget classifiers with the objective of maximising the resources attributed to this function A similar exercise with regard to the planning and programming for such expenditure Specific grants / transfers attributed to the local government specifically for this purpose but not tied to any institution. Mechanisms for the “matching” of these grants with the larger programmes of central government or with other local jurisdictions 31 DJ : UNCDF : 10/2009