How to Lead Successful Budget Negotiations?
The targeted audience of these recommendations is primarily the countries of Southern-Eastern Europe, where typically local government associations are strong, large and unified ones. Most of the techniques proposed here will work only in these unitary states with one tier local government system. We focused mostly on the annual budget preparation process, so the local government association’s role in the budget implementation, amendment of the annual budget and tax laws, in budget reporting, etc. are not discussed here.
A continual, institutionalized dialogue between national and local governments is critical for the stable and healthy development of any decentralized political order. At the same time, however, it is important to recognize that the goal of reformers in decentralizing societies should be to remove as many critical financial issues from annual negotiations as possible, and in particular to separate to the greatest degree possible the determination of the national budget from the actual planning of local government budgets.
The best way to do this is to have a Law on Local Government Finance that specifies in permanent framework legislation the following:
- The nature and type of all local government own fees, charges and taxes and the nature of their rate setting powers.
- All shared taxes and the methods (rates, formulae) at which they will be shared with local governments.
- The nature of all categorical grants (earmarked, block grants) for permanent delegated or devolved functions (like primary education).
- The nature of all general grants, including equalization grants.
- The nature and procedures by which all categorical grants for specific (one time) purposes will be determined and allocated.
- The nature of any debt limitations to remove these limitations from annual discussion and to avoid the need for the pre approval municipal loan or bond issues by the Ministry of Finance.
- The law shoulf require the Ministry of Finance to submit to the Municipal Association(s) by the middle of the second quarter of every fiscal year information on the revenue and expenditures for the previous fiscal year.
- The law should require the creation of a negotiation forum and mechanisms.
Declaration on Budget Negotiations
Meeting of NALAS Members' Presidents - "Municipal Budget Negotiations", Budva - Becici, June 27-28, 2008
NALAS Members’ Presidents, present at the meeting on budget negotiations held in Budva on 27-28 June 2008, agreed on the following:
- The Presidents of NALAS Member Associations endorse the draft document and recommendations on Municipal Budget Negotiations produced by the Task Force on Fiscal Decentralisation, lead by NAMRB. All NALAS members will use the proposed recommendations, with the necessary adjustments to specific circumstances of individual countries.
- In those countries where the adequate legal framework does not exist, the process of amending the laws should start immediately, in order to ensure the participation of Local Governments Associations (LGAs) in budget negotiations. Additionally, a Memorandum of Understanding that regulates in more details the process of negotiations, should be signed between LGA and the Ministry of Finance, as well as with the Parliament. NALAS recommendations for draft amendments and MoU should be used.
- LGAs have to overcome any differences among their members and to formulate common positions. In that way, the Associations will build the necessary trust with its membership.
- The Negotiation Team of the LGA has to have a clear mandate and to represent common positions on behalf of all municipalities, not the position of their own municipality.
- The roles of LGAs and the Ministry of Local Self-Government should be clearly defined and divided, since only the associations can speak on behalf of the municipal interests.
- The capacities of LGAs as well as of municipalities should be strengthened, in order to be able to conduct municipal budget negotiations with central government.
- All LGAs should have their own databases that would comprise all relevant data, including budgets of all municipalities in their country. The LGA analytical capacity is a precondition for effective negotiations.
- The associations should actively involve media in the process of budget negotiations and use them to get support of the public.
- Budget negotiations should finish by signing the Protocol of agreements and disagreements with the Ministry of Finance.