This week, the Ministry of Finance released data about the financial situation of municipalities in Bulgaria in 2017 and they show a certain improvement. The average level of municipal debt for the country, as a percentage of revenues and subsidies, is down from 49.16 percent in 2016 to 48.08 percent at the end of 2017. Arrears are also down – from 7.25 to 5.58 percent. In 2018, 21 municipalities were taken off the list of municipalities earmarked for financial recovery, though two new ones were added; there are another 9 municipalities which have invariably been on the list since 2016.

A general meeting of the National Association of Municipalities – the biggest NGO in the country - held less than a month ago in Sofia, also ascertained there was an improvement. The association’s governing bodies stated that over the past year the macro-framework for the financing of municipalities had improved, with more funding being provided for education, social services, healthcare etc. But they also drew attention to some facts that are worrying. Invited to attend, President Rumen Radev warned that the European model of decentralization of municipalities, a model that has been boosting progress in many countries, has not been put in place in Bulgaria yet.

According to data of the Institute for Market Economics, in 2016, local government revenues, as a revenues-to-GDP ratio in Bulgaria, reached a mere 7 percent, the EU average being 15.6 percent. Driven by their financial impotence, the result of the central government’s refusal to take any real steps towards financial decentralization, Bulgarian municipalities have been resorting to tax hikes. That same year, 2017, the year the finance ministry saw an improvement in the financial situation of municipalities, 62 instances were registered of an increase in local taxes, most of them considered to be key, and only 8 of tax reductions. The Institute for Market Economics says that the simplest model for a genuine change in the financial independence of local government, and the easiest to put in place, is to leave some or all of the income tax revenues for use by the municipalities, following the “money follows the identity card” principle. But after the failed attempt to do so in 2015, at this time, the idea of transferring the money from income tax to the municipalities is no longer up for discussion, and in practice the central authorities are proposing attaining financial decentralization by increasing the tax burden on municipalities instead of by distributing the taxes already levied.

Some experts point to another reason for the municipal financial woes – the need to provide co-financing for European projects, which entails taking out loans and accumulating debts. In fact this co-financing is an additional burden for municipalities, compounding the problem of the proverbial poor tax collection.

A debate on a real decentralization and transfer of part of the revenues from direct taxes back to the municipalities may no longer be on the agenda, yet the actions by local authorities show that decentralization is a very real problem. According to the Institute for Market Economics, even though it is a valid point that such a change should only be put through after grouping municipalities together and drafting a new territorial-administrative division, if there exists the political will, such a change could take place in 2018 even. Such was the opinion expressed by President Rumen Radev at the meeting of the National Association of Municipalities – that drafting an effective national policy of regional development is the only way any real improvement in the position of municipalities can be achieved.

English version: Milena Daynova

Photo: archive