(PDF) Statistical Brief: Albanian Local Government Finance after Territorial Administrative Reform and on the Eve of the Implementation of the Law on Local Government Finance

This brief presents an overview of the evolution of local government finance in Albania over the past decade. It has two central purposes. The first is to examine changes in the financial position of local governments since the 2014 passage of the Law on Territorial and Administrative Division. This law consolidated 373 local governments (67 municipalities, 306 communes) into 61 larger municipalities. The second is to highlight some of the changes and challenges that will accompany the implementation of the 2017 Law on Local Government Finance (LGFL). The first section of the Brief, tracks the evolution of local government finance in Albania over the last 10 years, paying particular attention to the changes that have occurred since territorial consolidation and the passage of the new Law on Local Self-Government. Where possible and appropriate it compares the revenue and expenditure of Albanian local governments with their counterparts in the region. In the concluding sections, the Brief presents some simulations of the major financial changes that can be expected to accompany the implementation of the LGFL as well as some of the challenges that need to be addressed to consolidate the reforms.

ALBANIA PLANNING AND LOCAL GOVERNANCE PROJECT IN ALBANIA STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND ON THE EVE OF THE IMPLEMENTATION OF THE LOCAL GOVERNMENT FINANCE LAW June, 2017 This publication was produced for review by the United States Agency for International Development. It was prepared by Tetra Tech ARD. 1 Prepared for the United States Agency for International Development, USAID Contract Number AID-182-C-12-00001 Prepared by: Tony Levitas Senior Research Fellow Watson Institute for International Studies Brown University Elton Stafa PLGP Municipal Finance Expert Tetra Tech ARD Contact: Adrienne Raphael Project Manager adrienne.raphael@tetratech.com PLGP Contact: Kevin McLaughlin, Chief of Party kevin.mclaughlin@tetratech.com Tetra Tech ARD Home Office Address: Tetra Tech ARD 159 Bank Street, Suite 300, Burlington, VT 05401 Tel: (802) 658-3890, Fax: (802) 658-4247 www.ardinc.com PLANNING AND LOCAL GOVERNANCE PROJECT IN ALBANIA STATISTICAL BRIEF Albanian Local Government Finance after Territorial Administrative Reform and on the Eve of the Implementation of the Law on Local Government Finance June, 2017 DISCLAIMER The authors’ views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. CONTENTS ACRONYMS AND ABBREVIATIONS ........................................................................................................................ iii EXECUTIVE SUMMARY ........................................................................................................................................... 1 1. INTRODUCTION.................................................................................................................................................. 5 2. TOTAL LOCAL GOVERNMENT REVENUE.............................................................................................................. 7 3. THE COMPOSITION OF LOCAL GOVERNMENT REVENUE .................................................................................... 9 4. LOCAL GOVERNMENT EXPENDITURE ............................................................................................................... 18 5. THE DISTRIBUTION OF LOCAL GOVERNMENT REVENUES AND EXPENDITURES ................................................ 22 6. THE LAW ON LOCAL GOVERNMENT FINANCE AND ITS IMPACT ON MUNICIPAL BUDGETS ............................... 29 7. NEXT STEPS ...................................................................................................................................................... 33 APPENDIX 1: COMPOSITION OF LOCAL GOVERNMENT REVENUES IN 2016 ................................................................39 APPENDIX 2: COMPOSITION OF LOCAL GOVERNMENT EXPENDITURES IN 2016 .........................................................41 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE EVE OF TERRITORIAL CONSOLIDATION i LIST OF FIGURES Figure 1: Local Government Revenue as a Share of GDP and Total Public Revenue in South-Eastern Europe (2015) .....................................................................................................................................................................7 Figure 2: Local Government Revenue as a share of GDP and Total Public Revenue 2002-2016 ................................8 Figure 3: The Composition of Local Government Revenues (BN ALL) ........................................................................9 Figure 4: Composition of Basic Local Government Revenues as % of Total 2002-2016 ...........................................10 Figure 5: The Composition of Local Government Revenues in South-East Europe in 2015 .....................................11 Figure 6: Composition of Local Government Revenues in Albania in 2016 Compared to SEE Average in 2015 ......13 Figure 7: The Composition of Own-Revenue 2002-2016 (billion ALL) ......................................................................13 Figure 8: The Composition of Local Government Own-Revenue as a Percentage of Own-Revenue .......................14 Figures 9 & 10: The Property Tax as % of GDP and Local Government Own Revenues in SEE 2006 and 2015 ...........15 Figures 11 & 12: Total Local Government Expenditure, in Billion ALL and as a Percentage of Total, 2011-2016 .......18 Figures 13 & 14: Local Government Expenditure from Freely Disposable Revenues, Billion ALL and as a Percentage of Total 2011-2016.....................................................................................................................................19 Figures 15 & 16: Composition of Local Government Investment Spending from Freely Disposable and Grant Funding by Functional Classification, 2011-2016 (BN ALL) ........................................................................20 Figures 17 & 18: Composition of Local Government Spending by Functional Classification, 2011-2016 in Billions of ALL and as a Share of Total. .......................................................................................................................21 Figure 19: Projected Increase in Transfers Resulting from the LGFL ...........................................................................31 Figure 20: Projected Total Local Government Revenues Resulting from the LGFL .....................................................32 LIST OF TABLES Table 1: Per Capita Revenues of Municipalities by Quartiles Organized by Per Capita Own-Revenue in 2016 ..........23 Table 2: local government revenues per capita by quartiles based on population 2016............................................25 Table 3: The Composition of Per Capita Own-Revenues in 2016 by Quartiles based on Per Capita Own Revenues ..27 Table 4: The Composition of Per Capita Local Government Expenditure by Quartiles based on Per Capita Expenditure without Conditional Grants in 2016 ......................................................................................27 ACRONYMS AND ABBREVIATIONS ALL Albanian Lekë BN Billion EU European Union FY Fiscal Year GDP Gross Domestic Product GoA Government of Albania IPA Instrument for Pre-Accession Assistance IPT Immovable Property Tax LGFL Law on Local Government Finance LGU Local Government Unit MoF Ministry of Finance NALAS Network of Associations of Local Authorities of South-East Europe PIT Personal Income Tax PLGP Planning and Local Governance Project PPP Public-Private Partnership RDF Regional Development Fund TAR Territorial and Administrative Reform USAID United States Agency for International Development USD U.S. Dollars USG United States Government STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE EVE OF TERRITORIAL CONSOLIDATION iii EXECUTIVE SUMMARY This brief presents an overview of the evolution and current status of local government finance in Albania today. Its purpose is to give policy makers and stakeholders a picture of local government finance in the aftermath of the Territorial and Administrative Reform (TAR) and on the eve of the implementation of the new Law on Local Government Finance (LGFL). The report makes the following main points: • The 2015 TAR consolidating 373 local governments into 61 municipalities has been followed by an improvement in the collection of local taxes, fees, and charges. There has also been a decline in expenditure on public administration relative to the cost of the total amount of services municipalities have to provide. • As such, territorial consolidation seems to have produced some gains in the efficiency and effectiveness of local governments. But definitive judgments are premature because the gains are uneven across municipalities and because there are questions about whether some of them are adequately servicing their newly incorporated rural areas. Going forward, operating costs –and with them expenditures on public administration, are also likely to rise as municipalities increase the quantity and improve the quality of local public services. • The accounting and reporting of local government financial data by the Ministry of Finance (MoF) has improved. MoF now reports municipal revenue without including social transfer payments to poor households, payments made through their budgets but over which they have no control. Expenditures can now also by examined by both economic and functional classifications. Access to the revenue and expenditure data of municipalities should be made available to the Municipal Associations, the new Consultative Council, as well as to universities and think tanks. • Following the 2015 passage of the Law on Local Self-Government, new responsibilities in preschool education, fire protection, environment, forestry and irrigation were devolved to municipalities. To pay for these new functions the national government added about 6 billion lekë (ALL) into the transfer system. As a result, local government revenue as a share of total public revenue increased from 9.8% to 11.8% between 2015 and 2016, and as a share of GDP from 2.6% to 3.2%. Despite these gains, however, Albanian local governments still receive substantially less public revenue than their counterparts in the region. • The Albanian intergovernmental finance system remains very heavily dependent on Conditional Grants for investment. Over the last decade, successive national governments have chosen to use these grants to provide local governments with between 25% and 30% of their total revenue. The dependency of municipalities on these grants for so much of their revenue 1 distorts local priorities, undermines good financial planning, and weakens the independence of local officials vis-a-vis the national government. • The consolidation of local governments in 2015 was accompanied by the introduction of a new formula for allocation of the Unconditional Grant in 2016. But because the national government decided not to increase the size of the Unconditional Grant, MoF imposed “hold harmless” provisions on the application of the new formula. As a result, the least populous – but often far from the poorest—municipalities have continued to receive a disproportionate share of the grant. This has preserved the bias of the old formula against densely populated urban areas despite territorial consolidation. • The 2017 passage of the Law on Local Government Finance (LGFL) marks a major milestone in the development of Albania’s intergovernmental finance system. The law will stabilize and substantially increase municipal revenues by: i) anchoring the size of the Unconditional Grant at no less than 1% of GDP; ii) giving municipalities a 2% share of the Personal Income Tax (PIT) generated on their territories; and iii) expanding their share of the Vehicle Tax from 18% to 25%. • The Law also clearly identifies the Property Tax as the most important local tax, defines how newly devolved functions should be financed until they can be considered true own-functions, introduces new principles for local public financial management, and requires the development of financial recovery plans for municipalities in financial distress. • To consolidate the gains of the last few years, the LGFL will have to be properly implemented and complemented by efforts to strengthen local government tax powers. This will require close cooperation between the national government and local governments in the Consultative Council established by new Law on Local Self-Government. Work in the following areas should begin as soon as possible to ensure that the promise of the recent reforms is fully realized. o o The “hold harmless” provisions imposed on the Unconditional Grant in 2016 and 2017 should be lifted and the specific weights and brackets needed allocate the Grant in 2018 should be agreed upon with the Consultative Council. To the greatest possible extent, these weights and brackets should be defined so as to correct the anti-urban bias of the old formula. To ensure that PIT-shares can be properly returned to their place of origin, MoF needs to be able to identify PIT by the municipality in which taxpayers/employees reside. MoF and the Road Directorate also need to develop procedures that guarantee that the Vehicle Tax is attributed to place of residence of the vehicle owner. o The 2015 Law on Local Self-Government devolved new functions to local governments in the areas of pre-school education, fire protection, forestry and irrigation. The Law states that these should be considered local government own-functions and thus financed from freely disposable general revenues. At the same time, however, both the Local Self2 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW Government Law and the Local Government Finance Law allow these functions to be financed by “Specific (conditional) Transfers” for a transitory period of up to three years. This was done for two reasons: to give policy makers time to harmonize sectorial legislation with the actual devolution of these responsibilities; and to ensure that all municipalities actually have the infrastructure necessary to provide the concerned services. Both tasks will require time and energy. The national government should be prepared to provide investment support to those municipalities that currently lack the infrastructure to provide the newly devolved functions. Work to develop plans for the full devolution of each of these functions should be begun as soon as possible. o To implement the new financial management rules contained in the LGFL, MoF needs to develop a range of new formats, templates and procedures. These should be discussed with the Consultative Council and carefully communicated to municipalities. o The LGFL requires municipalities that have substantial payment arrears to develop and implement financial recovery plans. It also requires MoF to monitor these plans and to take remedial action if the plans fail to have their desired effects. Because senior MoF officials report that 6 to 10 municipalities may already be close to insolvency, it is very important that MoF and the Consultative Council elaborate the rules and procedures necessary to negotiate this new and highly contentious terrain. o In light of the LGFL’s identification of the Property Tax as the single most important source of local tax revenue, the GoA is currently considering developing a national fiscal cadaster to facilitate the registration, valuation and billing of the tax. This is a good idea because it should reduce the cost of administering the tax and help standardize local practices. A central registry of all properties and their users should also help with the fair and equitable imposition of other local taxes, fees and charges. But the experiences of both Kosovo and Republika Srpska suggest that even the creation of technologically sophisticated central cadasters do not immediately produce dramatic improvements in the yield of the tax if local officials are not committed to using the tax and have reasonable enforcement powers. The experiences of other countries in the region also suggest that Albanian policy makers should not expect the tax to generate revenue greater than 1% of the GDP any time soon. o Historically, the Albanian intergovernmental finance system has made excessive use of Conditional Grants –through the Regional Development Fund– to provide local governments with investment funds. Both ruling coalitions have used the investment grants as much for political purposes as for developmental ones. Grants have also been given disproportionately to small, but not necessarily poor municipalities (mainly for roads) as opposed to larger, poorer municipalities with pressing network infrastructure needs. Municipalities should be aware of the possible shrinking of the Regional Development Fund over the next couple of years, as presented in the GoA’s Macroeconomic and Fiscal Projections for 2018-2020. Nonetheless, the Fund is likely to remain an important source 3 of investment funding over the foreseeable future and efforts need to be made to ensure that its allocation in not only fair and transparent, but clearly aligned with country’s most important development needs, that should be specified by the Consultative Council. o 4 The LGFL, by stabilizing the foundations of the intergovernmental finance system, should make municipalities more creditworthy. In light of this, the GoA should consider loosening restrictions on local borrowing. Creditworthy municipalities should be allowed to make effective use of their right to borrow while national government investment grants should be directed predominantly towards poorer jurisdictions. The GoA should also continue its efforts to reduce the borrowing of the national government because at present Albania’s total public debt as a percentage of GDP (71%) significantly exceeds the limits set by the European Union’s Maastricht Treaty (60%). As result, national government borrowing continues to crowd out local debt financing. STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW 1. INTRODUCTION This brief presents an overview of the evolution of local government finance in Albania over the past decade. It has two central purposes. The first is to examine changes in the financial position of local governments since the 2014 passage of the Law on Territorial and Administrative Division1. This law consolidated 373 local governments (67 municipalities, 306 communes) into 61 larger municipalities. The second is to highlight some of the changes and challenges that will accompany the implementation of the 2017 Law on Local Government Finance (LGFL). Together with the new Law on Local Self-Government of 2015, these laws constitute the legal foundations of Albania’s efforts to radically overhaul its system of subnational governance as defined in the “National Cross-Cutting Strategy on Decentralization and Local Government.”2 This strategy set three major objectives for the new system of public administration: to increase the effectiveness and responsiveness of local governments by concentrating human and financial resources in a smaller number of larger democratically-elected units; to improve the efficiency of local public services by lowering administrative costs; and to help ensure the balanced and sustainable growth of the country by providing subnational governments with the skills and resources necessary to deliver improved public services to their citizens and businesses. It is too early to assess the degree to which these goals will be met. But there is no question that the legal order that has been put in place over the last few years represents a substantial achievement in Albania’s continuing effort to both democratize its public sector and to improve the quality of public services. At the same time, the new legal framework does not automatically resolve all the problems inherited from the past, and the creation of a new, more dynamic subnational order must be followed by further reforms if its promise is to be fully realized. The first section of the Brief, tracks the evolution of local government finance in Albania over the last 10 years, paying particular attention to the changes that have occurred since territorial consolidation and the passage of the new Law on Local Self-Government3. Where possible and appropriate it compares the revenue and expenditure of Albanian local governments with their counterparts in the region. In the concluding sections, the Brief presents some simulations of the 1 Law 115/2014 on the “Territorial and Administrative Division of Local Government Units in the Republic of Albania” July, 2014 2 Council of Ministers, “National Crosscutting Strategy For Decentralization and Local Governance” July 2015, pp. 1-99 Tony Levitas “Statistical Brief: Albanian Local Government Finance on the Eve of Territorial Consolidation” PLGP/USAID September 2014 pp. 1-38 3 5 major financial changes that can be expected to accompany the implementation of the LGFL as well as some of the challenges that need to be addressed to consolidate the reforms. The data used in the report comes from the Albanian Government Financial Information System (the Treasury System) for the period 2011-2016 and is based on actual end-year figures. In the report, we have excluded social welfare payments to poor families from the Ministry of Social Welfare, payments that flow through local governments but over which they have no control. These transfers are substantial, amounting to about 20 billion ALL a year. Total local government revenue thus includes (1) revenues collected or raised by local government themselves (Own-revenues); (2) freely disposable intergovernmental transfers (Unconditional Grants and Shared Taxes); (3) Conditional Grants from line ministries and the Regional Development Fund for local government own-functions, or functions which local governments continue -de facto- to share with the national government (e.g. transport, education, water supply and sewage)4. But it excludes revenues that flow through local government budgets for delegated functions like the payment of social welfare transfers, and the operation of Civil Status Registry Offices and National Business Centres. Total local expenditure refers to expenditures financed from own revenues, freely disposable transfers, and conditional grants from both line ministries and the Regional Development Fund. But as on the revenue side, it excludes resources transferred for (or spent on) the delegated functions described above. It is also important to note that most of the national investment funds that go to local governments for education infrastructure and other important local public services come from the Regional Development Fund. Nonetheless, they are accounted for in the Treasury system as Conditional Grants from line ministries. The revenue and expenditures of Qarks (regions) are excluded from the data and not considered in the report because with municipal consolidation this level of government has become significantly less important and now accounts for less than 5% of all subnational spending. The population numbers used to calculate per capita revenues and expenditures are from the 2011 census. 4 We use the phrase de facto here because the new 2015 Law on Local Self Government eliminated the category of shared functions from the catalog of possible intergovernmental arrangements. See the discussion of “Specific Transfers” on pages 11 and 12 below, as well as in the concluding section of the Brief. 6 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW 2. TOTAL LOCAL GOVERNMENT REVENUE Figure 1 below, compares the total revenue of local governments in Albania as both shares of GDP and total public revenue with the same indicators for local governments elsewhere in South-East Europe in 2015. In countries marked with an asterisk, local governments pay for the full costs of running primary and secondary schools including teachers’ wages. As a result, in these countries the share of local government revenue as percentage of total public revenue is higher than the average for the region. Indeed, in Kosovo and Romania, it is higher than the EU average despite the fact that both countries have relatively small public sectors. This is largely because in Kosovo and Romania, local governments also pay for the full costs of primary health care facilities, including the wages of doctors and nurses. Figure 1: Local Government Revenue as a Share of GDP and Total Public Revenue in South-Eastern Europe (2015) 50.0% 43% 45.0% 39% 40.0% 42% 38% 41% 42% 43% 45% 44% 37% 38% 35.0% 30.0% 31% 30.3% 26% 25% 25% 25.0% 20.0% 15.0% 33% 30.7% 9.8% 10.2% 11% 10.0% 5.0% 2.6% 3.9% 4.7% 14.6% 15.3% 13.1% 14.0% 14.2% 14.5% 5.0% 5.9% 5.8% 6.1% 6.3% 6.7% 17% 17.2% 17.4% 6.3% 6.6% 5.4% 7.6% 10.1% 11.2% 0.0% Local Government Revenue as a % of GDP Local Government revenue as a % of Public Revenue Consolidated Public Reveue, % of GDP *Countries in which local governments are responsible for primary education and in some cases primary health care. See NALAS, Fiscal Decentralization Indicators in South-East Europe, 2016. Albanian data does not include Qarks; Romanian data includes county level governments (judets). As can be seen from the Figure, the overall size of Albania’s public sector is small (26%), suggesting that the national government has difficulties in collecting taxes. Municipalities also play a limited role in the country’s governance structure as can be seen from the fact that local government revenue is equal to only 9.8% of total public revenue and 3.2% of GDP. Indeed, by both measures Albania ranked last in the region, despite the fact that in a number of other countries local governments are responsible for a similar set of public services. As such, it is fair to say that 7 Albanian local governments both play a relatively limited role in delivering public services and are underfunded when compared to their counterparts in South East Europe. This however may be changing. Following the 2015 passage of a new Law on Local SelfGovernment, municipalities were transferred responsibility for important functions in pre-school education, fire protection, irrigation and forestry. As a result, in 2016 the national government increased total local government funding by approximately 6 billion Albanian ALL5. This, together with improvements in local government own-source revenue and increases in other intergovernmental transfers led to an increase in municipal revenue as a share of total public revenue from 9.8% to 11.8% between 2015 and 2016, and from 2.6% to 3.2% of GDP (compare Figure 1 with Figure 2 below). Figure 2: Local Government Revenue as a share of GDP and Total Public Revenue 20022016 30% 25% 27.0% 26.9% 26.1% 26.2% 25.4% 24.8% 24.2% 26.3% 26.4% 24.8% 24.1% 24.5% 25.1% 26.0% 26.0% 20% 15% 10% 7.8% 9.3% 9.8% 9.1% 11.8% 11.5% 12.4% 11.5% 11.1% 10.9% 10.1% 9.3% 10.4% 10.5% 9.8% 5% 1.9% 2.3% 2.4% 2.3% 3.0% 3.2% 3.1% 2.9% 2.9% 2.6% 2.3% 2.5% 2.8% 2.6% 3.2% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Public Revenues as % of GDP LG Revenues as % of GDP LG Revenues as % of Public Revenues Source: MoF’s Macroeconomic and Fiscal Indicators and the Treasury System. Authors’ calculations. Thus, after a decade of downward fluctuation, municipal revenue as a share of both GDP and total public revenue has recovered to their 2007-2008 levels. Moreover, this upward trend continued in 2017, when in anticipation of the passage of the LGFL, the Unconditional Grant was increased by 2.5 billion ALL. Most importantly, this trend should continue: On the one hand, and as we shall discuss later, the LGFL should further increase and stabilize the Unconditional Grant by specifying that the grant pool can be no-less than 1% of the GDP, and no less than the amount allocated in the previous year. On the other hand, and for the first time it assigns municipalities 2% of the Personal Income Tax (PIT) generated on their territories and expands their share of the revenues from the Vehicle Tax from 18 to 25%. As a result, the finances of Albanian local governments should improve in the coming years, and with it their role in the governance of the country. 5 This increase is shown in Figure 3 below as an increase in the Unconditional Grant. As discussed later, (pp. 10 & 15) this increase will be recorded in the future as “Specific Transfers” and will function primarily as a sectoral block grant for preschool education. 8 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW 3. THE COMPOSITION OF LOCAL GOVERNMENT REVENUE Figure 3 below, presents the basic composition of local government revenues between 2002 and 2016 in billions of ALL. As can be seen from the figure, there has been a fair amount of fluctuation in both total revenues and their composition over the last ten years. Figure 3: The Composition of Local Government Revenues (BN ALL) 50 45 12 40 35 6 30 7 25 4 20 15 10 5 0 1 8 12 1 6 1 7 10 9 10 10 12 14 2003 2004 2005 2006 2007 9 10 8 7 11 8 18 13 12 13 12 11 10 12 16 14 14 14 13 13 15 14 2008 2009 2010 2011 2012 2013 2014 2015 11 2 6 6 18 3 2002 Own Source Revenues Unconditional Grant 2016 Conditional Grants (w/o MSWY) Source: MoF’s Macroeconomic and Fiscal Indicators and the Treasury System. Authors’ calculations. * MSWY stands for Ministry of Social Welfare and Youth. Own-revenues increased steadily from 2002 to 2008 and have consistently constituted the single largest source of local government income. In 2008, however, the absolute value of own-revenues began to decline after the national government imposed restrictions on the ability of local governments to tax business through the Small Business Tax (SBT)6. This policy was continued even after a change of government in 2013, and in 2014 the SBT was transformed into a centrally collected Simplified Profit Tax. Municipalities still receive 99% of this tax on an origin basis, but it is now imposed on a substantially narrower base7. Some local governments –led by the capital City of Tirana- responded to the restrictions imposed on the SBT by using the liberal provisions of the Local Tax System Law to introduce Temporary 6 See Tony Levitas, Local Government Taxes, Fees and Charges in Albania: Current and Future Challenges (Report to the Albanian Associations of Communes, Swedish Association of Local Authorities) September, 2010, pp. 1-31 7 1% is deducted by the national government as a fee for administering the tax. 9 Taxes that they imposed disproportionately on the business community (e.g. the Temporary Tax for Greenery, and more recently the Temporary Tax for Educational Infrastructure). In other cases, local governments responded by introducing new local fees or by increasing the levels of the existing fees. These changes buoyed the yield of own-revenues even as income from the SBT fell. Following Territorial Consolidation and the amalgamation of Albania’s 373 local governments into 61 municipalities in 2015, the collection of own revenues improved significantly in 2016. This suggests that territorial consolidation has been accompanied by an increase in the effectiveness of local revenue collection. The Unconditional Grant rose steadily between 2002 and 2009. But it then became downwardly unstable. Moreover, between 2009 and 2015, the calculation of the grant became both less transparent and less unconditional, as categorical transfers were added into the grant pool at the margins through the annual budget law. The annual budget law defined the size of the grant and, with the add-ons, amounts that had to be spent on certain earmarked functions. The grant’s downward instability during this period, however, helped convince local government officials and national policy makers that a floor had to be put on its size. The provisions in the LGFL that specify that the grant cannot be less than 1% of the GDP, nor less than the previous year’s actual allocation, reflect this conviction and represent a major landmark in improving both the adequacy and stability of Albania’s intergovernmental finance system. The role of Conditional Grants in the intergovernmental finance system has increased fairly steadily since 2007. Indeed, by 2010, the amount of Conditional Grants in the system had more than doubled and as can be seen from Figure 4 below, rose to 25% of total local income before peaking in 2015 at 29%. This rise crowded-out efforts to increase the size of the Unconditional Grant and occurred across the tenures of national governments run by opposing political parties. This suggests that both parties found Conditional Grants to be useful tools to control infrastructure development at the local level and exert political control over local governments. Figure 4: Composition of Basic Local Government Revenues as % of Total 2002-2016 100% 9% 80% 60% 7% 37% 10% 34% 7% 16% 22% 17% 18% 37% 38% 26% 24% 23% 25% 25% 29% 25% 33% 34% 34% 36% 35% 33% 38% 38% 37% 67% 34% 40% 57% 56% 55% 20% 47% 44% 47% 43% 41% 42% 43% 39% 39% 38% 37% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 24% 0% 2002 2003 2004 2005 Own Source Revenues 10 Unconditional Grant Conditional Grants (w/o MSWY) STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW Figure 5 below compares the composition of local government revenues in Albania with those of other South-East European countries in 2015. Countries are ranked from left to right based on the share of local revenue in total public revenue. Not surprisingly, countries in which local governments are responsible for significant social sector functions (e.g. primary education) are clustered on the left hand side of the figure. Their own-revenues from local taxes and fees also represent a lower share of their total revenue. Meanwhile, in countries in which local governments perform few or no social sector functions, their own-revenues represent higher shares of their total revenue. This is a function of the fact that it is very difficult to assign local governments ownrevenues robust enough to cover the costs of social sector functions. Blochlinger and King have dubbed this phenomena the “decentralization paradox”, the paradox being that the more service responsibilities that are assigned to local governments, the less local governments can be expected to finance these functions themselves8. Figure 5: The Composition of Local Government Revenues in South-East Europe in 2015 100% 80% 60% 40% 7% 35% 2% 1% 3% 3% 13% 52% 66% 6% 17% 30% 45% 7% 38% 20% 1% 12% 18% 46% 33% 0% 19% 21% 27% RKS MD 20% 0% RO 12% 21% HR 6% 6% 33% MK 5% BG 4% 25% 31% 50% 19% 48% 22% 35% 8% 3% 41% 10% 43% 4% 14% 52% 6% 24% 22% 35% 5% 70% 33% 28% SEE RS (BiH) MNE SLO 41% 42% 46% RS TR FBiH (BiH) 35% AL Own Revenues Shared Taxes General Grant Sectoral Block Grants Investment Grants LG revenues, % of public rev. NALAS, Fiscal Decentralization Indicators in South-East Europe, 2012-2016 http://www.nalas.eu/News/FD_Rep_17 Albania’s position in the figure is noteworthy for four reasons. First, in 2015, and as we have already seen, Albanian local governments received a lower share of total public revenue than any of their counterparts in the region. Second, they had the highest share of income from Conditional (investment) Grants. Indeed, the only countries remotely close to Albania are all new members of the European Union -Bulgaria, Slovenia, and Romania- who receive large amounts of structural support from the EU through Conditional Grants to local governments. Third, the Albanian 8 Blochliger and King, “Less than You Thought: the Fiscal Autonomy of Sub-Central Governments” OECD Economic Studies No.43 pp. 156-185 http://www.oecd.org/eco/publicfinanceandfiscalpolicy/40507581.pdf. The only way to escape this paradox is to give local governments not just PIT shares, but control over PIT rates. This is the foundation of both Nordic and Swiss Fiscal Federalism in which the national government determines the base of PIT and collects it, but allows local governments set the rates. 11 intergovernmental finance system makes comparatively modest use of shared taxes, and unlike Romania, Moldova, Croatia, Republika Srpska, Montenegro, Slovenia, Serbia, Turkey and the Federation of Bosnia Herzegovina, was not sharing Personal Income Tax with its local governments. And finally, sectorial block grants are absent from the system because in 2015 Albania had yet to devolve any of the social sector functions that these grants are typically used to fund. PIT sharing has become an important pillar of local government finance throughout postcommunist Europe. One reason for this is that it provides a direct budgetary incentive for local governments both to encourage job creation and to work with their national governments to formalize the grey economy. Another, is because PIT per capita is a good objective measure of the relative wealth of different jurisdictions and can thus be used to anchor transparent, fair, and easy to administer equalization systems9. Indeed, for all these reasons Albanian local government legislation had anticipated the introduction of PIT sharing since the first Organic Law was passed in 200010. Nonetheless, it wasn’t until the 2017 passage of the LGFL that PIT sharing was introduced in practice. As result, in 2017, Albania municipalities will begin to receive a modest 2% share of the PIT generated on their territories. This will not be enough to provide municipalities with either a strong budgetary incentive to create jobs or to work with the national government to formalize the grey economy; but it will increase their overall revenues and help strengthen the equalization system within the Unconditional Grant formula.11 In this context, it is also worth noting that the LGFL introduces a new category of Specific Transfers to finance the functions devolved to local governments under the 2015 Law on Local Self-Government. The most costly and important of these functions is the payment of the wages of preschool teachers. As already indicated, in 2016 the national government added 6 billion ALL into the intergovernmental finance system to finance the costs of these functions. But with the passage of the LGFL, these functions will be financed by Specific Transfers that will function like the sectorial block grants that other countries in the region use to finance social sector functions. 9 See USAID/PLGP White Paper on Fiscal Decentralization in Albania (http://www.plgp.al/index.php/en/resources/plgppublications/99-white-paper) and Tony Levitas, EURASIA State of Decentralization Background Paper, Seminar for Dialogue and Capacity building of local and regional authorities in Eurasia in the development and local governance fields, SKL International Tbilisi, Georgia May 2013 pp. 1-30. 10 Article 17 of Law 8652 on the Organization and Functioning of Local Governments, 31/07/2000 11 It is perhaps worth adding that neither the Law on Local Self Government nor the LGFL specifies that PIT must be shared on an origin basis. The equalization provisions of the LGFL, however, can only be implemented if all shared taxes are shared on an origin basis. Also, all taxes shared that have been shared with local governments in the past (e.g. the Vehicle Registration Tax and the SBT) have been shared on an origin-basis. 12 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW Figure 6: Composition of Local Government Revenues in Albania in 2016 Compared to SEE Average in 2015 Data for SEE from NALAS cited above Figure 6 above, compares the composition of local government revenues in Albania in 2015 and 2016 –including the new Specific Transfers– with the average composition of local government revenues for the countries of South East Europe in 2015. As can be seen from the Figure, even though the share of (conditional) investment grants remains inordinately high, the structure of municipal finances in Albania has moved closer to the regional average, and will move further in this direction with introduction of PIT sharing in 2017. Figure 7 below, shows the composition of local government own-revenue between 2002 and 2016 in billion ALL. As can be seen from the figure, local government own-revenue increased substantially in 2016, suggesting that the new consolidated municipalities are more effectively collecting own revenues than their predecessors. Figure 7: The Composition of Own-Revenue 2002-2016 (BN ALL) 20.0 18.0 16.0 1.8 14.0 12.0 10.0 0.5 0.5 3.0 0.4 1.6 8.0 6.0 2.0 0.0 4.1 1.2 0.8 0.8 2.6 0.7 0.5 1.5 2.3 1.1 2002 2003 2004 4.0 2.2 3.6 1.8 1.4 2.4 0.5 2.2 3.3 1.7 2.2 0.6 2.5 3.0 0.6 2.8 3.8 4.2 2.6 2.5 2.8 3.2 2005 2006 2007 2008 2.2 1.7 1.1 2.4 3.2 0.6 1.0 2.8 2.2 2.8 2.0 2.2 2.1 2.6 0.7 3.2 2.4 1.3 2.6 2.7 3.2 2.1 1.5 1.8 2.3 2.1 1.1 1.4 2.3 2.2 1.7 1.8 2.0 2.1 3.1 3.3 4.0 2013 2014 2015 2016 1.3 1.5 2.2 1.3 1.6 1.9 1.3 1.6 2.3 1.4 1.6 2.2 1.7 2.0 2009 2010 2011 2012 2.9 1.3 Property Tax Fees for Local Services Administrative Fees Vehicle Taxes Small Business Tax Other 1.9 3.0 3.3 Infrastructure Impact Tax Note: In the figure the Vehicle Tax is included as an own revenue. With the LGFL it will be classified as a shared tax and its sharing rate will be increased from 18% to 25%. 13 In 2008, as part of the effort to reduce the tax burden on businesses, the national government halved the rates local governments could impose on the property of legal entities. As a result, the yield of the tax plummeted. In 2014, these constraints were removed and the collection of the tax returned to its 2008 levels. Indeed, studies of individual jurisdictions suggest that over 80% of the yield of the tax is derived from businesses. Nonetheless, and as can be seen from Figure 8 below, the tax now constitutes 22% of local government own-revenue and is the largest single source of revenue that municipalities collect themselves. Meanwhile, the yield of the SBT has collapsed, and in 2016 the tax generated only 3% of local government own-revenue. Figure 8: The Composition of Local Government Own-Revenue as a Percentage of OwnRevenue 100% 5% 5% 90% 80% 21% 43% 34% 70% 60% 35% 5% 50% 40% 40% 29% 18% 5% 18% 20% 10% 2002 11% 15% 20% 16% 20% 18% 4% 4% 4% 5% 18% 19% 18% 20% 17% 9% 27% 28% 27% 26% 8% 11% 2003 2004 2005 20% 21% 20% 2006 2007 2008 14% 16% 16% 19% 17% 16% 9% 11% 11% 12% 14% 22% 19% 23% 21% 15% 13% 9% 9% 9% 10% 11% 2009 2010 13% 11% 15% 14% 2011 2012 2013 Fees for Local Services Administrative Fees Vehicle Taxes Small Business Tax Other 13% 18% 11% 15% 7% 3% 6% 8% 10% 15% 16% 17% 14% 15% 18% 21% 23% 22% 2014 2015 2016 16% 17% 13% Property Tax 15% 16% 16% 23% 28% 0% 12% 15% 30% 29% 11% Infrastructure Impact Tax The collection of both Fees and Administrative charges have also increased significantly, suggesting that local governments are doing a better job recovering the costs for the services they provide. Between 2011 and 2015 the yield of the Infrastructure Impact Tax fell significantly in both real terms and as a percentage of local own-revenue. In part, this is because the investment boom of the mid-2000s slowed significantly with the global recession of 2009-10. And in part, it is because the national government imposed a moratorium on new construction until local governments completed their Territorial Development Plans. In 2016, revenue from this tax increased but it is unclear how much this may be due to public works built by the national government, and how much it is related to new private construction. Figures 9 & 10 below, show the yield of the property tax as percentage of GDP and of total local government revenue in all countries of South-East Europe in 2006 and 2015. As can be seen from the figures, there has been a growth in the yield of the tax in most countries of the region. Nonetheless, the property tax still yields revenue equal to less than 0.6% of GDP in all countries of the region except for Montenegro, Romania and Serbia, with the greatest changes in the period 14 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW occurring in the latter two countries. Indeed, the collection of the property tax in Serbia and Montenegro are now both in line with the average for the EU (c. 1.1% of GDP in 2014) -which in turn is low by American or Canadian standards (2.5% - 3% of GDP). 1.20% 1.40% 2006 1.20% 1.00% 1.00% 0.80% 0.80% RO SLO MD MNE FBiH (BiH) BG BiH SEE RKS RS ([BiH) AL RS TR HR MK 0.60% 0.40% 0.20% 0.00% 0% 5% 10% 15% % of GDP 1.40% % of GDP Figures 9 & 10: The Property Tax as % of GDP and Local Government Own Revenues in SEE 2006 and 2015 2015 RS RO 0.60% BG MD 0.40% 0.20% 20% 25% % of total local revenues BiH 0.00% 0% MNE RKS TR HR RS (BiH) SLO SEE FBiH (BiH) AL MK 5% 10% 15% 20% 25% % of total local revenues In Montenegro, much of the yield of the tax comes from coastal properties in general, and hotels in particular. Here, municipalities have turned heavily to the tax as the national government has rolled back their powers to impose taxes on new construction and on business registration. The story in Serbia is more complicated. Until 2006, the national government administered the tax but transferred 100% of its yield to local governments. But because the national government derived no revenue from the tax, the registration of the base, its valuation and collection were extremely poor. As a result, local governments inherited extremely poor administrative data on the tax when it was handed over to them in 2007. The construction of local fiscal cadasters has been a long and slow process. The national government has helped by developing tax registration and billing soft-ware and donors have supported municipal efforts to improve the registration and valuation of properties. As in Montenegro, the national government has also forced local governments to use the tax by limiting their ability to tax the business community. And most recently, it has put in place an incentive system that rewards local governments for increasing collection. Taken together, these measures have managed to double the yield of the tax over the last decade. For their part, both Kosovo and Republika Srpska have tried to improve the yield of the tax by creating centralized fiscal cadasters. With the support of the international community, the government of Kosovo created a Property Tax Agency within the Ministry of Finance. This Agency is responsible for maintaining a national fiscal cadaster of all properties. It also prepares tax bills for all properties after local governments submit to it information on valuation and rates. 15 By the mid-2000s, and with the help of significant donor funding, the Agency had registered most buildings in the country. But local governments did a poor job of registering new properties and by 2012 the cadaster had to be updated through another –largely donor funded– round of mass registration. Local governments have also kept valuation and rates low, and have been lax with respect to collection. As a result, the yield of the tax has not increased dramatically and collection rates remain at about 50% after payments for outstanding debt are accounted for12. Republika Srpska has also moved to a more centralized system. In 2012, the entity government put in place a national cadaster system and recentralized the administration of the tax. As a result, the entity government now values all properties, sends out tax bills, and collects the tax. Municipalities however, are still responsible for setting tax rates and for ensuring the registry of new properties. So far however, the new system has yet to yield substantial improvements. These different strategies to improve the performance of the property tax should be carefully examined by Albanian policy makers, particularly since the LGFL clearly designates the property tax as the most important source of local tax revenue. Indeed, the development of the tax is critically important for the development of responsive and accountable local governments in Albania because it will be the single most important fiscal instrument linking citizens –as taxpayers and consumers of local public services—to their democratically elected officials. For this linkage to work however, the tax has to be fairly imposed on both commercial and residential properties and uniformly enforced and collected, neither of which has proved easy anywhere. In part this is because the infrastructure necessary to administer the tax is technically complicated and costly to develop. But it is also because local government officials are reluctant to tax their electorates and prefer to raise revenue through less transparent means. Kosovo and Republika Srpska have tried to address the technical problems of administering the tax by creating a centralized property registry that can calculate and issue all tax bills once valuation and registration information has been in-putted locally. And in Republika Srpska, collection has also been recentralized, meaning that all the tax execution powers of the national government can in theory be brought to bear on reluctant tax payers. Neither Kosovo nor Republika Srpska, however, have yet to see big returns on their investment into the tax whose yield remains low. In large measure this is because the recentralization of tax administration does not fix the second problem that the property tax almost inevitably encounters in practice: The reluctance of democratically elected local officials to actually use the tax to raise revenue from voters. Indeed, the experience of Kosovo and Republika Srpska –like those of many other governments—demonstrate that even the most technically sophisticated administrative systems will leak like sieves if local officials fail to register (new) properties, value them in B. Disha, S. Kurtisi, T. Levitas, “Improving Municipal Own Source Revenue in Kosovo” (USAID/Democratic Effective Municipalities Initiative, January 2012) pp. 1-25. 12 16 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW uniform ways, and enforce collection –assuming that they actually have some real enforcement powers. As such, Albanian policy-makers should be wary of technological solutions to the property tax problem that do not address the reluctance of local officials to impose the tax as well as the reluctance of citizens to pay. In this context, the short description provided above of Serbia’s (not so short history) with the tax may be instructive. Here, the recent substantial gains in the yield of the tax have come not through the recentralization of tax administration, but through a combination of national support for the development of reasonably uniform local cadasters; national pressure on all local governments to use the tax; and financial and other rewards for those local governments that actually improve registration and collection. In short, while it may make sense for Albania –as a relatively small country—to centralize certain aspects of property tax registration and valuation –while maintaining the essentially local character of the tax (rate setting, billing and collection) - policy makers should not forget that much of the real challenge lies beyond the realm of purely technical solutions. Moreover, as important as the development of a uniform and equitable property tax system is for Albanian local democracy, national policy makers should recognize that even in the best instance the tax will yield insufficient revenue for local governments to pay for significant social sector functions on their own. At best, a well-executed property tax reform will increase –hopefully significantly— the ability of local governments to meet their electorates demand for better local infrastructure and services. This is critically important. But it is important more because of its power to change the relationship between citizens and their local officials than it is as a way to relieve fiscal pressure on the national government by raising the amount of money local governments can raise themselves. Or put another way, while there is every reason in the world to implement a fair, equitable and effective property tax system in Albania, the primary objective this effort should be to improve the nature of local governance, and not to reduce the amount of central transfers. 17 4. LOCAL GOVERNMENT EXPENDITURE This section provides a description of local government expenditures, their status and development over the past six years, following the economic and functional classification, and divided by the source of funding. This section shows also where local government investment spending is focused and where the central governments’ transfers at the local level are focused. Figures 10 and 11 below, show the composition of local government expenditures according to their economic classification in both billion ALL and as a share of total expenditure for the years 2011-2016. As can be seen from the figures, local government personnel spending increased sharply (c. 30% or 5 billion ALL) in 2016 after remaining stable for many years. This reflects the fiscal weight of the functions devolved to local government by the new Law on Local SelfGovernment, and in particular the costs of paying pre-school teachers. It is also striking that since 2011, local governments have spent between 34% and 42% of their total budgets on investment, and in 2016 investments amounted to just under 20 billion ALL (c. 156 million USD). The high share of investment spending in local government budgets is impressive and suggests that local governments are making concerted efforts to improve the lives of their citizens. Figures 11 & 12: Total Local Government Expenditure, in BN ALL and as a Percentage of Total, 2011-2016 50.0 40.0 30.0 33.7 32.0 34.3 37.5 15.5 48.8 100% 19.9 80% 39.6 16.5 13.6 10.8 13.0 9.8 11.0 10.4 11.1 12.1 10.4 10.1 10.8 11.0 11.0 16.2 2011 2012 2013 2014 2015 2016 20.0 12.6 10.0 Personnel Operational Capital Investments Total 34% 38% 41% 42% 41% 29% 34% 30% 30% 31% 26% 31% 32% 32% 29% 28% 33% 2011 2012 2013 2014 2015 2016 60% 40% 20% - 40% 0% Personnel Operational Capital Investments But here two things must be remembered. First, half of all investment spending has been financed through the Conditional Grants (mostly from the Regional Development Fund), which we discussed earlier. The allocation of these grants has been highly politicized and in many cases 18 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW reflects more the priorities of the national government than it does those of local governments. 13 Second, much of this investment is concentrated in a few jurisdictions, with between 25 and 30% of it going to Tirana and Durres, the two largest cities in the country. Figures 13 and 14 below, show the composition of freely disposable municipal expenditure (without Conditional Grants) according to their economic classification in both billions of ALL and as shares of total expenditures. Without conditional grants, investment spending drops from about 40% of total spending (Figure 12) to about 25% (Figures 14). Moreover, almost half of investment spending from freely disposable revenues comes from Tirana and Durres. Figures 13 & 14: Local Government Expenditure from Freely Disposable Revenues, in BN ALL and as a Percentage of Total 2011-2016 Freely Disposable Local Expenditures Own Local Expenditures 36.6 40.0 100% 27.5 28.3 6.2 7.1 8.0 10.0 9.4 10.2 10.0 9.6 9.5 10.0 10.3 10.2 2011 2012 2013 2014 2015 30.0 25.3 24.6 25.6 20.0 7.1 5.0 8.6 10.0 10.2 80% 10.8 60% 28.1% 20.5% 24.1% 25.6% 28.5% 27.7% 33.9% 40.7% 36.8% 36.8% 35.5% 29.6% 38.0% 38.8% 39.1% 37.5% 36.0% 42.6% 2011 2012 2013 2014 2015 2016 40% 15.6 - 20% 0% Personnel Operational Capital Investments Total 2016 Personnel Operational Capital Investments The wages for preschool teachers in 2016 appear in both figures as freely disposable revenues because this is how they are registered in the treasury system. Figures 15 and 16 below show the composition of investment spending by functional classification from both freely disposable revenue, and from Conditional Grants for the years 2011-2016. As can be seen from the figures, more than 60% of all investment spending from both sources has gone towards public transport, meaning essentially roads and the renovation of public squares. There is no question that Albania needs to improve its road network and public squares. But it should also be noted that spending on road improvement and public squares is also the easiest type of investment spending to execute because it requires the least amount of complex planning and because road investments can be suspended mid-stream without great cost, if money runs out. As such it is likely that the high share of investment spending on roads and public squares is not just a reflection of needs or preferences, but also a reflection of the difficulties of preparing investment projects in other areas. 13 See for example UNDP “Assessment of design and performance, recommendations for improvements and support in reforming the Regional Development Fund” December 2010, pp 1-34 and “ Albanian Association of Municipalities, “Position paper on the Allocation of the RDF” March 11, 2014, pp 1-2 19 As can be seen from the figures, most investment in education has come from conditional grants, while almost all investment in local administrative capacity has come from own-source revenue. Investments in the improvement of local public services have been financed almost in equal part by local and conditional funds. Figures 15 & 16: Composition of Local Government Investment Spending from Freely Disposable and Grant Funding by Functional Classification, 2011-2016 (BN ALL) Freely Disposable Local Investments 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - Conditional Local Investments 0.8 1.0 0.2 1.2 1.4 0.2 1.0 1.3 4.2 2.4 2011 2012 Other Education Local Public Services 0.2 0.9 1.4 3.5 2013 0.4 1.1 0.4 0.7 1.6 2.2 1.7 3.7 2014 5.2 2015 6.0 2016 Culture Administrative Services Public Transport Infrastructure 11.0 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 - 1.6 2.6 1.6 2.1 2.3 1.4 1.8 1.5 1.9 2.1 6.6 2.0 1.5 1.8 1.7 2011 2012 Other Education Local Public Services 3.1 2013 4.2 4.7 2014 2015 2016 Culture Administrative Services Public Transport Infrastructure Figures 17 and 18 below show the composition of total local government spending by functional classification for the years 2011-2016 in billions of ALL and as a percentage of total spending. As can be seen from Figure 17, between 2011 and 2015 spending on Administrative Services amounted to about 11 billion ALL before declining to 10 billion ALL in 2016. Meanwhile, spending on other functions increased sharply, so much so that spending on Administrative Services declined from about 30% of total spending in the years prior to 2015, to 20% in 2016. Although it is too early to make any conclusive judgements, this suggests that territorial consolidation has increased the administrative efficiency of local governments in Albania, and that the 61 new municipalities, on average, have managed to reduce administrative costs both in absolute terms and relative to the other services they provide. 20 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW Figures 17 & 18: Composition of Local Government Spending by Functional Classification, 2011-2016 in BN ALL and as a Share of Total 100% 50 40 30 20 4 1 1 2 3 5 7 4 1 1 2 3 5 5 11 11 10 4 1 1 2 3 6 3 1 1 2 4 6 3 1 2 2 3 7 4 2 2 2 11% 3% 2% 6% 9% 11% 3% 3% 5% 10% 12% 3% 3% 5% 8% 9% 3% 3% 4% 11% 9% 3% 4% 4% 8% 60% 14% 16% 16% 17% 17% 40% 20% 16% 22% 24% 28% 32% 30% 28% 2013 2014 2015 80% 7 7 7 9 11 15 11 11 11 10 20% 0 33% 35% 2011 2012 7% 4% 4% 4% 15% 15% 30% 20% 0% 2011 2012 Administrative Services Local Public Services Sport, Culture, Religion Secondary Education 2013 2014 2015 2016 Public Transport Infrastructure Preschool and Primary Education Social Prodection Other Other Social Prodection Preschool and Primary Education Public Transport Infrastructure 2016 Secondary Education Sport, Culture, Religion Local Public Services Administrative Services These conclusions, however should be regarded cautiously for two reasons. First, it is possible that some of the reduction in spending on administrative services has come at the expense of the rural areas that have been incorporated within municipalities. And second, it is quite possible that administrative costs will increase in both absolute terms and as a share of total spending as local governments improve the services they provide. The importance of conditional investment grants for spending on public transport and public squares can be seen in the rapid expansion of this category of expenditure in both charts. Indeed, it masks the growth in absolute spending that has occurred over the last few years in other areas like Local Public Services. Also noteworthy is the increase in education spending in both absolute terms and as a share of total spending. In part, this increase comes from Conditional Grants for education infrastructure. But the lion’s share of the increase in 2016 comes from the devolution of preschool education to local governments. Finally, it should be noted that spending on Water Supply and on Housing –both contained in the other category— remain low. 21 5. THE DISTRIBUTION OF LOCAL GOVERNMENT REVENUES AND EXPENDITURES The consolidation of local governments in 2015 was accompanied by the development of a new formula for allocation of the Unconditional Grant in 2016. But this new formula was not fully implemented in either 2016 or 2017 because MoF imposed “hold-harmless” provisions on the allocation of the grant. These provisions required that no municipality receive less than 85% of what they had received in previous years. They were considered necessary by MoF because contrary to the Ministry’s expectations the GoA did not increase the size of the Unconditional Grant in 2016 and without such an increase, the formula would have produced a politically unacceptable number of jurisdictions that lost substantial amounts of funding. As a result, the new formula —whose parameters are now defined but not fully specified in the LGFL— is expected to go into effect in 2018. The increase in the Unconditional Grant that is expected to come from anchoring it to 1% of the Gross Domestic Product should allow for enough coverage and to ensure that there are no losers from the transition from one formula to another. In the following, we repeat the same basic analysis of the equity of intergovernmental finance that we conducted in 201214. As we shall see, the system continues to favor small but not necessarily poor municipalities at the expense of more urban jurisdictions that appear to have weak tax bases. Given the hold harmless provisions imposed on the formula this is not surprising since these provisions essentially left the previous per capita allocation of the grant unchanged. It should also be noted, that in the following, judgements about the relative wealth and poverty of municipalities are being made on the basis of their per capita collection of revenues from local taxes, fees, and charges. This is suggestive, but judgements about the relative wealth of jurisdictions should not be made on the basis of collected revenues because these are heavily dependent on the behavior of municipalities -on how willing local governments are to actually tax their citizens. Instead, such judgements should be made on the basis of an objective measure of the relative strength of local government tax bases. Unfortunately, such “objective” measures are hard to come by. But in the future, the expansion of tax sharing called for in the LGFL –and in particular, the analysis of the per capita yield of PIT by location- should allow for a much more reliable assessment of the real wealth of municipalities, 14 Tony Levitas, Albanian Local Government Finance on the Eve of Territorial Consolidation, Planning and Governance Reform Project (ARD-TetraTech/USAID) September 2014 pp. 1-40 22 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW and with it the equity of the intergovernmental finance system. Nonetheless, it is still useful to look at the system using per capita collections as the metric of relative wealth. Table 1 below, presents the per capita revenues of municipalities in quartiles organized by per capita revenue from local taxes, fees, and charges. What this means is that we have ranked all municipalities in order of their per capita own-revenues from “poorest” to “richest”. We have then separated out the Capital City of Tirana as a special case and divided the remaining 60 municipalities into four groups –quartiles– each composed of 15 municipalities each. The first quartile contains the 15 municipalities that collect the least own-source revenue, while the fourth contains the 15 that collect the most. The third column in the top half of the table presents the average population of the municipalities in each quartile. The last column shows the percentage of total per capita revenues of each quartile in relation to those of the 4th quartile. And the columns in between, the per capita yield of different types of municipal revenue. Table 1: Per Capita Revenues of Municipalities by Quartiles Organized by Per Capita Own-Revenue in 2016 % of Total Pop. in Average Own Shared Uncond. Condit. Total Revenue to Quartile Pop. Revenue Taxes Grant Grants Revenue 4th Quartile 1st 407,306 27,154 1,595 261 8,676 3,251 13,782 66% 2nd 459,703 30,647 3,027 270 7,282 4,806 15,385 74% 3rd 807,183 53,812 4,154 361 6,303 4,602 15,419 74% 4th 568,524 37,902 7,262 430 6,625 6,609 20,926 100% Tirana 557,422 557,422 13,023 504 4,326 1,254 19,107 91% All 2,800,138 45,904 5,993 374 6,481 4,180 17,028 81% % of % of % of % of % of Ratio of % Pop. in % of Own Shared Uncond. Condit. Total of Pop. % Quartile Pop. Revenue Taxes Grant Grants Revenue of Revenue 1st 407,306 15% 4% 10% 19% 11% 12% 0.81 2nd 459,703 16% 8% 12% 18% 19% 15% 0.90 3rd 807,183 29% 20% 28% 28% 32% 26% 0.91 4th 568,524 20% 25% 23% 21% 32% 25% 1.23 Tirana 557,422 20% 43% 27% 13% 6% 22% 1.12 All 2,800,138 100% 100% 100% 100% 100% 100% 1.00 In the bottom half of the table, these middle columns show the percentage of each type of revenue going to a particular quartile. Thus, Tirana collects 43% of all own-revenue in the system but only gets 13% of the Unconditional Grant despite serving 20% of the population. The last column shows the ratio of the percentage of the population living in each quartile to the percentage of that quartiles total revenues. For example, c. 20% of the population lives in the 4th quartile which receives c. 25% the total revenue in the system. So the ratio of its share of the population to its share of the total revenues in the system is 1.23 to 1. 23 As can be seen from the Table, municipalities in the 1st and 2nd quartiles receive larger Unconditional Grants than all the others. This makes sense because it means that the allocation of the Unconditional Grant is helping to equalize the (collected) revenues of “poorer” jurisdictions with those of richer ones. But a number of other things about the Table are puzzling. So puzzling in fact that they ultimately cast a shadow on this initial observation. The first is that while the allocation of the Unconditional Grant seems to be flowing to poorer jurisdictions, the same cannot be said of Conditional Grants. Municipalities in the 1st Quartile receive less in Conditional Grants than the 2nd Quartile. Indeed, and as can be seen from the bottom half of the table, 1st Quartile municipalities receive a lower share of the total pool of Conditional Grants (11%) than their share of the population (15%). This is odd, because one might reasonably expect that Conditional Grants would also flow disproportionately to poorer municipalities. But this is clearly not the case. In fact, municipalities in the 4th quartile have the highest per capita amount from Conditional Grants and receive 32% of all Conditional Grant money despite the fact that serve only 20% of the population. Indeed, they receive more per capita funding from both the Unconditional Grant and Conditional Grants than the 3rd quartile, despite the fact that they collect substantially more in own revenues. These indicators suggest that while the Unconditional Grant is having an equalizing effect on the system, it is not very efficient because the poorer jurisdictions of the 3rd Quartile get less per capita from the grant than their richer counterparts in the 4th. At the same time, the allocation of Conditional Grants seems to be dis-equalizing because with the exception of Tirana, most of it is going to jurisdictions with relatively high per capita own revenues. Indeed, it looks like Tirana is bearing most of the costs of equalization because its shares of both Conditional and Unconditional Grants are significantly lower than its share of the population. To some extent this is both necessary and to be expected because Tirana’s own-revenues are off the charts. Nonetheless, when looked at regionally, it is extremely unusual that the total per capita revenues of a capital city are less than the average per capita revenues of richest 25% of other municipalities (see below). What is driving these outcomes becomes a little clearer when we examine Table 2 below. In this Table, the quartiles are determined not by per capita own-revenues, but by population. Thus, the 1st Quartile is composed of the 15 smallest municipalities, and the 4th the 15 largest. This radically changes the composition of the quartiles when compared to Table 1, as can be seen from the percentage of the total population living in each one. What is striking about the Table is that the per capita own-revenues of the 1st, 2nd and 4th quartiles are remarkable flat, and that the 3rd Quartile actually collects less per capita revenue than all the others. What this means, is that there is no obvious relationship between the population of a municipality and its collection of own revenues. Instead, there are clearly a fair number of small jurisdictions that do well with the collection of own revenues, as well as a fair number of large jurisdictions that do not. Moreover, there may be a group of medium sized (3rd quartile) municipalities with populations of 20,000 to 40,000 people that have particularly weak tax bases. 24 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW The lack of a clear relationship between population and the apparent ability to raise own-revenue is unusual because in most countries there is a strong correlation between low population, rurality, and weak revenue raising ability. TABLE 2: LOCAL GOVERNMENT REVENUES PER CAPITA BY QUARTILES BASED ON POPULATION 2016 Quartile 1st 2nd 3rd 4th Tirana All Quartile 1st 2nd 3rd 4th Tirana All Pop. in Quartile Average Pop. Local Revenue P/C Shared Taxes P/C Uncond. Grant P/C Condit. Grants P/C Total Revenu e PC 121,480 312,190 464,382 1,344,664 557,422 2,800,138 8,099 20,813 30,959 89,644 557,422 45,904 4,757 4,829 3,639 4,274 13,023 5,993 232 495 304 329 504 374 12,735 8,325 7,449 6,046 4,326 6,481 11,454 6,316 6,654 3,385 1,254 4,180 Populatio n in Quartile % of Pop. % of Local Revenue % of Shared Taxes % of Uncond. Grant % of Condit. Grants 3% 9% 10% 34% 43% 100% 3% 15% 14% 42% 27% 100% 9% 14% 19% 45% 13% 100% 12% 17% 26% 39% 6% 100% 29,178 19,965 18,046 14,034 19,107 17,028 % of Total Revenu e 7% 13% 18% 40% 22% 100% 121,480 312,190 464,382 1,344,664 557,422 2,800,138 4% 11% 17% 48% 20% 100% Ratio of Revenue PC to 4th quartile 2.08 1.42 1.29 1.00 1.36 1.21 Ratio of % of Pop. to % of Revenue 1.7 1.2 1.1 0.8 1.1 1.0 The three quartiles of the smallest municipalities get higher per capita revenues from both Unconditional and Conditional Grants than the 4th quartile, despite the fact that per capita local revenues of the 4th Quartile are lower than those of the first two. The low population quartiles also get substantially larger shares of these grants than their shares in the total population, whereas the opposite is true for both the 4th quartile and Tirana. Or put another way, the first three quartiles of municipalities –in which 32% of the population live—receive 42% of the Unconditional Grant, and 55% of Conditional Grants. Meanwhile, the 48% of the population that lives in the 4th quartile, and the 20% of the population that lives in Tirana receive –respectively– 45% and 13% of the Unconditional Grant, and 39% and 6% of Conditional Grants. In short, the allocation of both Unconditional and Conditional Grants in Albania strongly favors municipalities with small populations –whether they are poor or not– over larger ones. To one degree or another, this is justifiable to the degree that municipalities with low populations are also sparsely populated. This is because the unit costs of servicing low density jurisdictions are usually 25 significantly higher than those servicing of at least moderately densely populated ones, though it is also extremely difficult to measure exactly by how much15. Nonetheless, Albania’s intergovernmental transfer system is very unusual with respect to how strongly it seems to favor low population jurisdictions. For example, in Serbia the four largest cities had per capita revenues seven times those of the 1st quartile of local governments in 2002. Moreover, even after very significant improvements were made in the equalization system in 2006, the gap between the richest and poorest quartiles of local governments remained well over 3 to 1, a gap which widened again at the end of the decade16. Similarly, in 2010, Skopje –the capital of Macedonia, had per capita revenues close to three times the average of all other jurisdictions, while the per capita revenues of local governments in the 4th quartile were five times higher than those of the 1st17. Finally, in Georgia, the capital city of Tbilisi receives close to 50% of all the revenues in the intergovernmental finance system –including 50% of the “Equalization Grant”despite the fact that only 30% of the population lives in the capital.18 The point here, however, is not that Albania should try to emulate what is going on elsewhere. Far from it. Indeed, in many ways Albania should be complimented for its commitment to equalization. At the same time, the strong preferences for small jurisdictions –independent of their apparent revenue raising ability- that can be seen in the allocation of both the Unconditional Grant and Conditional Grants should be reviewed. Table 3 below, shows the composition of own-revenues across quartiles ranked according to total per capita own-revenues19. As would expected, per capita revenues of all types –with the exception of fees from the use of public space in the 2nd Quartile—increase steadily from the 1st Quartile 15 On both the general tendency of low density jurisdictions to have high unit service costs, and the difficulties of measuring these differences see J. Kim and J. Lotz (eds), Measuring Local Government Needs, The Korea Institute of Public Finance and the Danish Ministry of Social Welfare, Copenhagen 2008. We use the phrase “moderately densely populated” because it is often argued that there is a “U-shaped” distribution of unit costs across municipalities with different densities, with costs highest in both the least and most densely populated jurisdictions (See “Introduction,” in Kim and Lotz. Pp 1-12). 16 See Tony Levitas, Reforming Serbia’s Intergovernmental Finance System, Serbia Local Government, in Journal of Public Administration (Volume 28, Spring 2005) pp. 149-178 and Levitas, The Effects of the Suspension of the Law on Local Government Finance on the Revenue and Expenditure Behavior of Local Governments in Serbia: 20072009, Serbian Quarterly Economic Monitor, Winter 2010) p. 1-28 17 See Tony Levitas, Local Government Finances in Macedonia Today: Possible Reforms for Tomorrow, IDG Working Paper, Urban Institute, May 2010, pp 1-39 Towards Improving the Efficiency and Equity of Georgia’s Intergovernmental Finance System, USAID/TetraT?ech, July 2016, pp 1-45. In Georgia, the strong preference for Tbilisi is combined with a strong preference for tiny settlements in mountainous areas. Taken together this is starving the mid-sized cities and towns in which most of the population lives, giving Georgia the worst of both worlds. 18 19 The Table is slightly different from Table 1 because in Table 1 shared Vehicle Tax was included in the pool of revenues used to create the quartiles. 26 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW through the 4th and Tirana. Indeed the per capita own revenues of the 4th quartile are more than four times more than the first. The average population of municipalities in the 3rd and 4th quartiles are also higher than those in the 1st and 2nd. But again the correlation between population size and revenue raising ability is far from perfect, because the larger jurisdictions of the 3rd quartile (average population 54,000) collect significantly less own revenue than their smaller counter parts in the 4th (average population 38,000). So again, some small jurisdictions are probably getting more than their fair share of grants, and some larger (and hard-pressed) municipalities are getting less. Table 3: The Composition of Per Capita Own-Revenues in 2016 by Quartiles based on Per Capita Own Revenues Fees for Other Fees for Property the use of Admin. Total Own Pop Local Local Taxes public Charges Revenue Taxes Services space 1st 2nd 3rd 4th Tirana All 396,272 470,737 807,183 568,524 557,422 2,800,138 326 799 1,134 1,778 2,737 1,413 417 804 1,199 2,662 5,338 2,143 296 656 767 1,078 2,861 1,162 34 158 96 237 539 215 418 530 906 1,400 1,511 995 1,491 2,948 4,102 7,157 12,987 5,927 Table 4 below, presents the per capita expenditures of local governments without Conditional Grants broken down by economic classification and organized in quartiles based on total per capita expenditures without Conditional Grants. As can be seen from the Table, 55% of the population lives in the first two quartiles with lowest per capita expenditures from freely disposable revenues while only 7% of the population lives in the 4th quartile, where such expenditures are close to the levels achieved by Tirana. The high investment spending of this quartile of small municipalities is a result of the fact that these municipalities both collect higher than average amounts of ownrevenues while also receiving generous Unconditional Grants. The low investment spending of the first two quartiles expresses the fact that many fairly large municipalities collect lower than average amounts of own-revenue while also receiving modest Unconditional Grant awards. Table 4: The Composition of Per Capita Local Government Expenditure by Quartiles based on Per Capita Expenditure without Conditional Grants in 2016 Goods Other Investment % of Total Pop. Wages and Operating Investment as % of Pop. Expenditure Services Expenditure Total 1st 2nd 3rd 4th Tirana All 812,777 741,150 492,524 196,265 557,422 2,800,138 29% 26% 18% 7% 20% 100% 4,242 5,304 6,296 8,920 6,054 5,573 2,264 3,023 3,556 4,397 5,908 3,567 557 823 1,023 1,072 1,570 947 1,826 2,345 2,925 5,367 7,962 3,626 8,891 11,495 13,801 19,755 21,494 13,714 21% 20% 21% 27% 37% 26% 27 Looking ahead, in 2018 the hold harmless provisions currently governing the allocation of the Unconditional Grant will be loosened or removed. At the same time, the other coefficients governing the allocation of the formula –most importantly the coefficients for population and relative wealth (based on the per capita yield of shared taxes) have to be set. In running the simulations to determine these coefficients MoF should bear in mind the analysis above and adjust the formula in ways that make the allocation of the funds more efficient and to the greatest possible degree shift resources to larger municipalities with particularly weak tax bases. Similarly, the objectives, rules, and the reporting of Conditional Grants –particularly those governing the allocation of the Regional Development Fund—should be examined to determine whether funds are being allocated in a way that serves the greatest good of the greatest number. We return to these issues in the concluding section of the report. 28 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW 6. THE LAW ON LOCAL GOVERNMENT FINANCE AND ITS IMPACT ON MUNICIPAL BUDGETS The passage of the Local Government Finance Law (LGFL) marks a milestone in Albania’s efforts to create an adequate, equitable, and transparent intergovernmental finance system. The major achievements of the law can be summarized as follows: Anchoring the Unconditional Grant: The Law requires that the size of the Unconditional Grant that local governments receive to support their expenditure responsibilities be set (anchored) at no less than 1% of the GDP and no less than the previous year. As a result, and for the first time, municipalities’ single largest revenue source will be predictable from year-to-year and will grow with the economy. This should allow municipalities to reasonably forecast their budgets over a multi-year time horizon and substantially improve their ability to plan and execute capital improvements. It will also stabilize the intergovernmental finance system in ways that should allow the Ministry of Finance to begin to ease the current restrictions on municipal borrowing. New Principles for Allocating the Unconditional Grant: The consolidation of 373 local governments into 61 larger municipalities required the definition of new principles for allocating the Unconditional Grant. These new principles were necessary because the old ones were based largely on the legal distinction between municipalities and communes, a distinction that territorial consolidation made immaterial. But they were also designed to improve the transparency and equity of the grant by: • Shifting the foundation for the allocation from population as recorded in the Civil Registry, towards population as registered in the 2011 census; • Replacing the proxies for additional expenditure needs (mountainous/non-mountainous; a non-transparent categorization of local governments in “fiscal distress”) with a single proxy based on population density; • Clearly grounding the revenue equalization component of the formula on shared taxes so as not to discourage own-revenue collection. In 2016 and 2017, these new principles were not fully used to allocate the Unconditional Grant because without substantially increasing the size of the grant they would have led to significant reductions in the grant awards of a number of municipalities that were treated preferentially under the old formula. As a result, MoF imposed “hold harmless” provisions on the allocation of the grant so the full effects of the new principles have not been realized. With the passage of the LGFL not only have these principles been specified in the Law, but the size of the Unconditional Grant pool has been increased by its anchoring to 1% of the GDP. As a 29 result, it will be possible to remove the hold harmless clauses that have been governing the allocation of the grant since 2016. But before the new system can go into full effect, policy makers will have to specify the population density and equalization coefficients that will be used for the 2018 allocations. These coefficients should be set in such a way as to increase the efficiency of the grant by pushing money towards municipalities with weaker tax bases (as measured by the per capita yield of shared taxes) while not penalizing those who increase their collection of own revenues. It should also direct more funding to municipalities that have high population densities but low revenue raising capacity –again as measured by the per capita yield of shared taxes. Increased Role of Tax Sharing in the Intergovernmental Finance System: The Law increases the role of tax sharing in the intergovernmental finance system by assigning to municipal budgets 2% of the yield of the Personal Income Tax (PIT) generated in their jurisdictions and expanding the share of the Motor Vehicle Tax they receive from 18 to 25%. These new tax shares will increase local revenues while also strengthening the equalization system by deepening the pool of funds that can be equalized against without disincentivizing own-revenue collection. The potential future increase of the PIT share would also create direct budgetary incentives for mayors to promote job creation and align national and local interests with respect to formalizing the gray economy. The Identification of the Property Tax as the Most Important Local Tax: The Law makes the Property Tax the single most important local government own revenue. The Law regulates municipalities’ ability to use Temporary Taxes to create ad hoc levies that in practice get disproportionately imposed on businesses by requiring Temporary Taxes to be imposed as surcharges on the Property Tax. It also specifies that fees for public services should be tied directly to the full cost of providing those serves and to the greatest possible degree apportioned across beneficiaries in accordance with their consumption the concerned services. These provisions should increase the willingness of municipalities to invest in the modernization of property taxation while also helping to align fees with service provision. Eventually, they should also help shift the tax burden from firms to households. Hopefully, they will also strengthen the linkage between local taxation and political accountability, while improving the business enabling environment. New Financial Management Principles: The Law introduces new principles for local financial management. Among these are new standards for budget planning, execution, reporting, external auditing, and provisions for identifying and resolving local fiscal distress. Taken together, these new requirements should improve the sustainability and transparency of budget formation and execution, reduce the arbitrary imposition of fees and taxes, help resolve situations in which municipalities have accumulated unsustainable liabilities, prevent such situations from emerging in the future, and reduce local fiscal mismanagement and malfeasance. 30 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW Devolution of New Functions to Municipalities: The new Law on Local Self-Government eliminated the category of shared functions and devolved responsibilities in the areas of fire protection, pre-school education, irrigation, and forestry to municipalities as own-functions. But according to the LGFL these functions will be funded in part through Specific Transfers (and not the Unconditional Grant) in order to ensure that municipalities who have the institutions necessary to provide the services continue to receive adequate funding for them. This is an awkward arrangement, but it should also increase the role of municipal governments in the provision of basic public services. Figure 19 below shows the projected increase in transfers – without Conditional Grants – that should result from the implementation of the LGFL over the next few years. The projections are based on the assumption that funding for Specific Transfers, shared taxes and the Unconditional Grant grow in line with the Government’s Macroeconomic and Fiscal Framework20. bilion ALL Figure 19: Projected Increase in Transfers Resulting from the LGFL 30 24.8 25 22.2 7 19.0 20 7 6 15 2.5 1 3.3 26.2 7 1 3.8 27.4 7 1 3.5 10 14.0 12.9 11.2 11.6 11.6 12.2 13.3 12.5 13.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 5 13 13.8 14.5 16.0 0 Unconditional Grant without LGFL PIT share Single year support in 2017 Vehicle Tax 2017 2018 (P) 2019 (P) 2020 (P) Unconditional Grant Specific Transfers Figure 20 below presents a projection of total local government revenue over the next few years, by integrating the Government’s projections for the Regional Development Fund (under the Ministry of Urban Development) for 2018-2020, and by projecting a 10% annual increase in the in the collection of own revenues. Taken together, these changes should generate a 13% increase in total local government revenues by 2020 if the national government abides by its forecasts, including those concerning Conditional Grants. This will mark a substantial improvement in the financial position of local governments. Decision of the Council of Ministers No. 47, dated 25.01.2017, “On the approval of the Macroeconomic and Fiscal Framework for the period 2018-2020 20 31 Figure 20: Projected Total Local Government Revenues Resulting from the LGFL 60 50 40 30 20 10 0 7.0 4.2 8.3 4.2 10.3 12.1 9.6 3.3 13.4 9.1 9.0 11.5 2012 2013 2014 10.8 3.8 6.7 11.7 9.5 2.2 2.2 13.2 15.5 2.0 7.0 3.5 3.5 17.1 18.3 2.0 7.0 3.0 3.6 19.5 12.3 10.4 2015 Own Source Revenue Shared Taxes Specific Transfers for New Functions 32 6.0 2.0 7.0 3.0 3.6 15.6 2016 17.1 18.9 20.7 22.8 2017 2018* 2019* 2020* Unconditional Grant Conditional Grants (+RDF) Conditional Transfers from Line Ministries STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW 7. NEXT STEPS Territorial Consolidation and the passage of both the new Law on Local Self-Government and the Law on Local Self-Government Finance mark major milestones in Albania’s effort to create local governments capable of effectively responding to the needs and preferences of their citizens. But to fulfill their promises, these laws will have to be implemented smoothly and coherently. At the same time, the GoA will have to decide on a national strategy to improve the use and effectiveness of the property tax, and take steps to ensure the allocation of Conditional Grants is based less on considerations of party politics and more on the objective needs of municipalities, however defined. In the following, we outline some of the major challenges that remain to be faced. Preparing, Negotiating and Allocating the Unconditional Grant: As we already indicated, in 2015, MoF developed a new formula to allocate the Unconditional Grant to the 61 consolidated municipalities. The new formula’s main principles were later incorporated into the LGFL. But as already discussed, in 2016 and 2017, MoF implemented the new formula using hold harmless clauses. This should not be repeated in 2018 particularly because it will be the last time in the foreseeable future that the grant pool will expand significantly enough (2.5 to 3.5 billion ALL) to dampen the effects of the reallocation of funds required by the new principles. Equally importantly, it needs to be stressed that while these principles are stated clearly in the law, it is up to MoF and Parliament – after consulting with the Consultative Council - to determine some of the coefficients and brackets that will influence the final allocation of the grant, in particular the population density component of the formula and its equalization provisions. It is therefore important that work be initiated on the final structure of the formula as soon as possible. In conducting this work both MoF and the representatives of local governments should be guided by an understanding of the problems with the current allocation of the formula and the objectives they want to achieve. In particular efforts should be made to redirect funds away from small jurisdictions with robust tax bases and towards some of the larger municipalities that have weak tax bases. Ensuring that new tax shares are distributed on a True Origin Basis: The LGFL requires that municipalities receive 2% of the PIT and 25% of the vehicle registration tax generated in their jurisdictions. To date, however, MoF has never had to be concerned with the origin of PIT, only that firms paid it on behalf of their employees. Allocating PIT on origin basis will thus require going into the PIT database and extracting information about the place of residency of employees. This is technically possible, but MoF needs to begin work in this area quickly if the tax is to be allocated on an origin basis in 2018. 33 Similarly, while the 18% share of the Vehicle Registration Tax has been allocated to local governments on an origin basis in the past, the registration of the tax by the Road Directorate has not been transparent. As a result, there has been uncertainty about whether local governments are getting their “fair share” and constant tension between municipalities, MoF, and the Road Directorate over the attribution of the tax to particular jurisdictions. To avoid these tensions in the future, clear and transparent procedures for attributing the Vehicle Tax by origin should be developed and implemented by MoF and the Road Directorate and discussed with local governments. Preparing new Financial Reporting and Budgeting Standards, and for Monitoring and Resolving “Fiscal Distress”: The LGFL requires municipalities to improve their public finance management practices in accordance with new guidelines, procedures and formats developed by MoF (and the Central Audit Chamber). These include guidelines for projecting own-revenues; formats for reporting all tax payers, tax liabilities and tax abatements; formats for reporting the level of local fees and charges by type of fee payer; templates for both line ministries and municipalities to report the allocation and use of Conditional Investment Grants; principles and procedures for budget formulation, execution and reporting; and principles and procedures for the external auditing of municipalities by accounting firms, principles and procedures that differ substantially from the auditing of private sector entities. The development of these guidelines and formats should be done in collaboration with the Consultative Council in order to ensure that their implementation does in fact improve the finance and management practices of municipalities. Further, the implementation of all these guidelines and bylaws from local government units is critically dependent on the improvement of the human capacities at both the local and national level. Articles 56-59 of the Law also establish procedures for identifying local governments that are having serious problems meeting their financial obligations and are at risk of becoming, or already are, financially insolvent. These procedures require MoF to monitor municipalities’ unpaid payment arrears, something that will require the Ministry to develop new detecting and reporting formats. They also require municipalities whose arrears exceed certain thresholds to develop financial work out plans, and for MoF to ensure that these plans are successfully implemented. This is entirely new and contentious terrain. Moreover, according to senior MoF officials a number of municipalities already exceed the first and second thresholds (arrears greater than 25% of their annual expenditures) and five or six of them may already be in the third phase of “fiscal distress” (arrears greater than 80% of their annual expenditures). If the provisions of the LGFL are to be implemented, these municipalities, in cooperation with the MoF will have to develop and implement recovery plans. Such plans are always problematic because they temporarily constrain the financial independence of democratically-elected local governments. To ensure that they generate as little conflict as possible they will have be both carefully prepared and clearly 34 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW explained to all stakeholders. To ensure that this is possible, work on these problems should begin as fast as possible both within MoF and with the Consultative Council. Further, the system cannot be entirely based on self-declaration and MoF should take steps to periodically monitor whether local governments are really budgeting financial commitments in line with revenues. Harmonizing Sectorial Legislation with the Devolution of New Functions to Municipalities and the Rules Governing Specific Transfers: The new Law on Local Self-Government devolved to municipalities significant new responsibilities in the areas preschool education, fire protection, irrigation and forestry as own-functions. As own-functions, local governments should be free to manage these functions as they see fit. They should also pay for them out of their general revenues. But while this is the goal, it will take some time for this to become a reality. There are two reasons for this. The first is prosaic: while the Law devolved these responsibilities to municipalities as own functions, they continue to be regulated by sectorial laws and regulations set by line ministries. Some regulation of these sectors will remain necessary to ensure that local governments provide services in accordance with some set of minimum standards. Nonetheless the existing legislation will have to be overhauled in order to give local governments some reasonable amount of managerial autonomy. Finding the right balance between local autonomy and centrally set but achievable service standards is a non-trivial task. At a minimum, it will require intensive discussions between the line ministries responsible for regulating these sectors and the municipalities who will now be delivering the concerned services. The second reason is more complex and will complicate the task of determining reasonable regulatory standards for the newly devolved functions. The origin of the problem lies in the fact that the geographical distribution of the assets and employees that have been providing these services on behalf of the national government is extremely uneven. For example, there are only 49 fire stations in the country, and not 61, meaning that while fire protection has been devolved to all municipalities as an own function, not all municipalities have the assets and employees necessary to provide the service. Similarly, the percentage of preschool-age children who have access to preschools differs dramatically from one municipality to another because the national government was never able to build and staff preschools everywhere they are necessary. As a result, there is an inherent tension between devolving these functions to all municipalities as own responsibilities, and the reality that only some of them have the infrastructure and staff to actually provide the service now. Worse, this tension expresses itself in an extremely painful financial dilemma: if all local governments are expected to provide newly devolved services according to some reasonable minimum standards, then all local governments should be receiving the resources necessary to do so. But giving all local governments these resources is incredibly costly precisely because the services have never been adequately funded in the past -or at least not everywhere in the country. 35 If, however, the national government simply allocates what it has spent on these functions in the past to all local governments based on some reasonable metric like the number of citizens or preschool age children that these local governments must serve, then nobody is happy: local governments that already have the assets and employees to provide the services get less money than they got before and often have to close facilities. Meanwhile jurisdictions that don’t have the infrastructure or employees, get some new money but typically not enough to actually provide the service. Unfortunately, there is no easy way out of this problem, a problem which in fact haunts decentralization efforts in many countries across the globe. In Albania, the LGFL created the category of Specific Transfers to give all parties to the problem additional time to work through it. These Transfers allow the national government to provide those municipalities that already have the infrastructure and employees to actually provide the concerned services with the same amount of money that the national government spent on them in the past. This is clearly unfair to other jurisdictions that should also receive funding for these new own functions. But it prevents the reduction of services in places where they already exist. More importantly for our purposes, the law limits the use of Specific Transfers for three years. As a result, the national government has three years to develop and implement plans to overcome the problems caused by devolving to (newly created) local governments public services that historically have been provided (and funded) very unevenly across the country. In some sectors these plans are already emerging. For example, the national government has committed itself to building fire stations and purchasing fire trucks in at least some of the municipalities that don’t have them. This is a good start, but the issue will require not only building new infrastructure in many municipalities, but figuring out how local governments everywhere should finance the operating costs of the services going forward. Meeting these challenges will require a combination of sectorial, financial and legal expertise as well as the active and continuous engagement of the Consultative Council and Albania’s Municipal Associations. Strengthening Local Government Tax Powers: To improve the responsiveness, accountability and efficiency of local governments it is critically important to strengthen the linkage between municipalities and their electorates through local taxation. This will require the development of a coherent political, legal and technological framework for the registration, valuation, billing, collection and enforcement of the property tax, as well as rules that ensure that other local fees, charges and taxes are fairly and uniformly imposed on different categories of tax payers. With the encouragement of the IMF, the national government has recently begun considering the development of a centralized fiscal cadaster designed to facilitate the registration and valuation of 36 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW all real property in the country. This may be a good idea, but the experiences of Kosovo and Republika Srpska suggest that technologically sophisticated and centralized systems of property registration and billing, do not in themselves ensure radical increases in the yield of the tax. Meanwhile, the experiences of Serbia and Montenegro suggest that significant improvement in the collection of the tax can be achieved without centralized cadaster systems if the national government is prepared to consistently support municipalities in developing their capacity to administer the tax, apply pressure on them to use the tax, and reward those who do. It is beyond our purposes here to suggest the particular path that Albania should take to improve the regulatory regime governing the property tax. But at least three points should be made here. First, the construction of this regulatory regime needs to be developed with the active engagement of local governments if they are going to actually use the tax. Second, both the national government and municipalities must make it clear to taxpayers how and why they are being taxed, if voluntary compliance is to improve. Or put another way, policy makers at both the national and local levels must understand that while technical improvements in tax administration and collection are extremely important, at the end of the day successful local taxation requires as much a change in tax culture, as it does in tax administration. And finally, the experiences of other countries suggest that while real gains in own-revenue mobilization can be achieved with the property tax reform, these gains take years to mature and generally do not produce financial gains of sufficient magnitude to allow for the reduction of national government transfers. Reforming the Regional Development Fund: As we have indicated, the share of conditional grants in the Albanian intergovernmental finance system has been inordinately high over the last 10 years and all ruling political coalitions have used the Fund as much for political purposes as for developmental ones. Over the coming years, the size of the Regional Development Fund will probably shrink as indicated in the Governments’ Macroeconomic and Fiscal Projections for 2018-2020. Local governments should consider this eventuality, and focus more of their energies on raising the revenues they need to maintain high investment rates. At the same time however, the Regional Development Fund will remain an important part of Albania’s intergovernmental finance system and steps should be taken to ensure that its allocation is not only depoliticized, but focused on the country’s most pressing needs. For example, the Fund should clearly be used to equalize the resource and facility endowments that are currently inhibiting all local governments from providing forestry, irrigation, fire protection and pre-school services as own-functions in accordance with the 2015 Law on Local Self Governance. This could be done by clearly stating that equalizing these endowments is a priority of the fund, and that much of the fund will be used to build and equip fire stations and 37 preschools in those municipalities that don’t have them, or have too few of them relative to their service (e.g. preschool age) populations. Similarly, thought should be given to using the fund more to support critical efforts in the areas of water supply, sewage treatment and solid waste disposal, as opposed to roads. Moreover, in thinking through these issues, efforts should be made to ensure that the funds produce the greatest good for the greatest number. This probably means directing funds to more densely populated urban areas for network infrastructure at the cost of funding rural roads, and shifting the bias in the existing allocation of the grants from small jurisdictions –regardless of the relative wealth—to larger ones that have low revenue raising capacities as measured by the per capita yield of shared taxes in their jurisdictions. Improving local government access to debt financing: The LGFL, by stabilizing the foundations of the intergovernmental finance system, should make municipalities more creditworthy. In light of this, the GoA should consider loosening restrictions on local borrowing. Creditworthy municipalities should be allowed to make effective use of their right to borrow while national government conditional investment grants should be directed predominantly towards municipalities with low revenue raising ability as measured by their per capita revenues from shared taxes. The careful liberalization of access to credit is also important because the inability of financially sound local governments (e.g. Tirana) to finance major capital improvements through debt seems to be encouraging them to enter into extremely non-transparent arrangements with private developers to build public infrastructure. These non-transparent arrangements (read: badly constructed PPPs) should be constrained, and where possible replaced with bank loans based on simple, transparent and prudent debt regulations, most of which are already specified in the Law on Local Government Borrowing of 200821. At the same time, the GoA should also continue its efforts to reduce the borrowing of the national government because at present Albania’s total public debt as a percentage of GDP (71%) significantly exceeds the limits set by the European Union’s Maastricht Treaty (60%). As a result, national government debt continues to crowd out local government borrowing. 21 Articles 17 and 18 of Law Nr. 9869, 04.02.2008, “On Local Government Borrowing.” 38 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW APPENDIX 1: COMPOSITION OF LOCAL GOVERNMENT BASIC REVENUES, IN ORDER OF THEIR PER CAPITA OWN REVENUES Row Labels Has Dibër Pustec Kurbin Bulqizë Këlcyrë Memaliaj Gramsh Klos Mat Peqin Kukës Prrenjas Maliq Mirditë Tepelenë Pukë Devoll Librazhd Fushë_Arrëz Divjakë Ura_Vajgurore Kuçovë Selenicë Pogradec Libohovë Rrogozhinë Kolonjë Vau I Dejës Shkodër Cërrik Fier Përmet Poliçan Elbasan Belsh Lushnjë Malësi e Madhe Tropojë Lezhë Berat Krujë Patos Kamëz Gjirokastër Finiq Vlorë Pop. By Census 16790 61619 3290 46291 31210 6113 10657 24231 16618 27600 26136 47985 24906 41757 22103 8949 11069 26716 31892 7405 34254 27295 31262 16396 61530 3667 22148 11070 30438 135612 27445 120655 10614 10953 141714 19503 83659 30823 20517 65633 60031 59814 22959 104190 28673 10529 104827 Local Revenues Per Capita Shared Taxes Per Capita Uncond. Grants Per Capita Condit, Grants Per Capita 716 1,065 1,174 1,306 1,382 1,553 1,590 1,709 1,712 1,800 1,845 1,918 1,934 1,967 2,178 2,353 2,361 2,406 2,418 2,631 2,712 2,794 3,052 3,072 3,086 3,087 3,164 3,190 3,220 3,421 3,611 3,638 3,841 3,844 3,849 4,012 4,026 4,180 4,196 4,281 4,296 4,493 4,791 4,794 4,854 4,879 4,942 288 190 118 357 814 151 150 131 141 213 187 267 150 161 243 294 177 222 129 120 212 316 242 155 185 318 156 206 532 356 208 549 266 242 258 160 311 251 189 468 344 258 2,325 34 454 339 368 11,252 8,156 10,196 6,253 10,242 12,866 11,831 11,027 8,705 9,389 6,538 8,918 6,893 6,872 12,050 13,669 14,080 7,818 8,916 15,222 6,473 4,698 6,617 9,849 6,708 13,406 5,889 14,423 6,506 5,863 5,868 5,643 12,779 11,041 5,911 6,352 5,751 8,749 10,670 5,982 7,255 5,054 6,579 4,611 10,323 11,804 6,217 10,440 1,183 333 2,825 5,829 12,398 4,066 2,711 2,703 4,316 2,006 567 827 3,189 8,131 16,060 8,980 1,301 9,610 1,925 16,962 5,546 1,181 7,092 1,159 7,261 5,635 11,733 7,621 1,035 5,817 5,961 13,836 5,616 5,334 9,564 3,895 2,055 4,636 1,509 7,095 4,846 4,588 535 7,831 690 1,667 total revenue per capita 22,696 10,594 11,821 10,741 18,266 26,968 17,637 15,579 13,261 15,718 10,576 11,669 9,805 12,189 22,602 32,375 25,599 11,748 21,073 19,898 26,358 13,353 11,092 20,168 11,138 24,071 14,845 29,552 17,878 10,675 15,503 15,791 30,723 20,742 15,352 20,089 13,983 15,235 19,691 12,241 18,990 14,651 18,283 9,974 23,462 17,712 13,193 39 Konispol Delvinë Shijak Durrës Kavajë Skrapar Korçë Mallakaster Roskovec Tiranë Sarandë Vorë Dropulli Himarë national average 40 8245 7598 27861 175110 40094 12403 75994 27062 21742 557422 20227 25511 3503 7818 2,800,138 5,216 6,103 6,111 6,739 6,926 7,209 7,221 7,245 8,245 13,023 13,223 13,727 13,810 20,763 5,993 124 347 283 448 277 624 333 307 1,907 504 637 68 631 184 374 7,039 11,870 5,185 4,896 6,659 15,067 7,667 7,655 5,147 4,326 8,953 4,844 20,115 14,008 6,481 22,474 9,636 2,993 3,205 10,885 14,177 9,237 12,783 5,690 1,254 17,778 5,719 15,728 41,963 4,180 34,853 27,956 14,571 15,288 24,746 37,077 24,459 27,989 20,989 19,107 40,591 24,358 50,284 76,919 17,028 STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW APPENDIX 2: COMPOSITION OF EXPENDITURES PER CAPITA (WITHOUT CONDITIONAL GRANTS) IN 2016 Wage s Goods and Service s Other Operating Expenditur e Investmen t Total Expenditur e Investmen t as % of Total 46,291 24,906 104,190 26,136 135,612 59,814 30,438 19,503 4,081 4,397 3,164 3,767 3,558 3,886 3,785 4,210 2,662 2,103 1,209 1,521 3,301 1,922 1,317 1,766 330 470 316 431 753 614 425 353 652 886 3,355 2,328 516 1,993 3,277 2,627 7,726 7,856 8,045 8,049 8,128 8,417 8,805 8,956 8% 11% 42% 29% 6% 24% 37% 29% 27,295 31,892 34,254 61,530 27,445 41,757 141,714 83,659 16,618 31,262 26,716 47,985 61,619 27,600 65,633 104,827 22,148 31,210 8,245 10,657 27,861 175,110 3,290 30,823 120,655 16,790 60,031 24,231 27,062 22,959 16,396 10,529 75,994 3,985 5,592 4,075 5,137 4,561 4,642 5,275 4,913 4,907 5,876 4,658 6,439 5,557 6,445 6,657 4,478 4,371 5,421 5,488 6,508 3,800 5,186 7,555 4,551 5,547 6,142 6,138 6,735 6,751 6,863 5,591 6,853 6,396 1,547 1,873 2,459 2,555 2,720 1,710 2,624 2,996 2,203 2,137 2,768 2,685 1,584 2,425 2,470 4,907 4,197 2,808 3,754 2,918 4,183 2,760 2,121 1,694 3,423 2,685 3,137 3,351 3,159 2,429 2,972 4,519 5,348 385 463 716 809 685 327 644 568 610 354 778 830 546 732 867 1,466 202 396 589 1,221 1,185 849 467 466 1,455 525 760 923 846 840 1,167 1,162 1,234 3,068 1,394 2,471 1,254 1,878 3,217 1,450 1,542 2,318 2,089 2,314 1,115 3,863 2,000 1,672 914 3,111 3,268 2,301 1,511 3,032 3,428 2,260 5,991 2,406 3,561 2,965 2,202 2,537 3,250 4,095 2,087 1,872 8,985 9,323 9,722 9,756 9,846 9,897 9,995 10,020 10,039 10,457 10,520 11,071 11,551 11,603 11,666 11,766 11,882 11,894 12,133 12,160 12,202 12,224 12,404 12,704 12,832 12,915 13,000 13,211 13,294 13,383 13,826 14,623 14,851 34% 15% 25% 13% 19% 33% 15% 15% 23% 20% 22% 10% 33% 17% 14% 8% 26% 27% 19% 12% 25% 28% 18% 47% 19% 28% 23% 17% 19% 24% 30% 14% 13% Pop. Kurbin Prrenjas Kamëz Peqin Shkodër Krujë Vau I Dejës Belsh Ura_Vajguror e Librazhd Divjakë Pogradec Cërrik Maliq Elbasan Lushnjë Klos Kuçovë Devoll Kukës Dibër Mat Lezhë Vlorë Rrogozhinë Bulqizë Konispol Memaliaj Shijak Durrës Pustec Mal. e Madhe Fier Has Berat Gramsh Mallakaster Patos Selenicë Finiq Korçë 41 Përmet Poliçan Mirditë Kavajë Pukë Këlcyrë Gjirokastër Vorë Tropojë Delvinë Roskovec Kolonjë Fushë_Arrëz Libohovë Sarandë Tepelenë Skrapar Himarë Dropulli Tiranë Grand Total 42 10,614 10,953 22,103 40,094 11,069 6,113 28,673 25,511 20,517 7,598 21,742 11,070 7,405 3,667 20,227 8,949 12,403 7,818 3,503 557,422 2,800,13 8 10,373 8,314 8,303 6,411 10,288 7,115 10,437 5,222 6,771 9,412 5,219 10,875 10,334 8,553 10,219 10,727 13,712 11,460 13,190 6,054 3,396 3,404 3,293 4,356 2,610 2,123 3,282 3,776 3,147 5,076 2,779 4,243 3,762 3,798 8,810 3,224 4,342 9,390 12,542 5,908 845 379 404 1,155 1,211 863 1,337 554 583 709 568 1,508 1,502 1,096 1,729 1,253 979 975 3,341 1,570 734 3,527 3,755 4,060 1,924 7,055 2,361 7,998 7,135 3,037 9,740 1,930 3,300 6,171 2,260 8,672 6,582 5,207 6,222 7,962 15,349 15,624 15,756 15,983 16,034 17,157 17,419 17,552 17,636 18,235 18,307 18,557 18,900 19,619 23,020 23,876 25,616 27,033 35,296 21,494 5% 23% 24% 25% 12% 41% 14% 46% 40% 17% 53% 10% 17% 31% 10% 36% 26% 19% 18% 37% 5,573 3,567 947 3,626 13,714 26% STATISTICAL BRIEF ALBANIAN LOCAL GOVERNMENT FINANCE ON THE AFTER TERRITORIAL ADMINISTRATIVE REFORM AND BEFORE THE LOCAL GOVERNMENT FINANCE LAW U.S. Agency for International Development Planning and Local Governance Project in Albania Dervish Hima St. 3 Towers near Qemal Stafa Stadium Tower No. 1, Apt. 91, Tenth Floor Tirana, Albania Tel: + 355-04-450-4150 Fax: + 355-04-450-4149 www.usaid.gov 43

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Statistical Brief: Albanian Local Government Finance after Territorial Administrative Reform and on the Eve of the Implementation of the Law on Local Government Finance

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