TIRANA, May 20- Revenues from local sources, namely local taxes and tariffs, assets and other assets, of all municipalities in the country recorded a value of about 24.2 billion lek (197.2 million euros) by the end of 2018, up by about 19.1 percent in annual terms, about 3.9 billion lek (31.7 million euros) higher than the previous year’s level. Revenues from municipal resources themselves doubled comparing to 2013, where only 12 billion lek (97.7 million euros) were collected.
The increase in revenues from its own resources came as a result of the increase in taxes and fees from new municipalities that emerged from territorial reform. Infrastructure impact tax doubled, property taxes increased, and cleaning fees as well, while a special tax for education was imposed in Tirana. But as the tax burden on local government has increased, analysis show that services for citizens have not improved. Even in rural areas due to communal shutdowns the municipalities have not provided routine services for the maintenance of roads and public buildings.
According to the Supreme State Audit, with the implementation of the administrative-territorial reform, the ratio between capital expenditures and current expenditures is the same as the 2010-2011 report, with insignificant changes. In a comparative analysis this shows that the past 300 municipalities and 60 municipalities have the same ratio of current/capital expenditures with the 61 new municipalities from the territorial administrative reform. Personnel costs increase (in 2017 twice as high as in 2013) and operating ones did not meet with the major objective of administrative and territorial reform, the increased operational efficiency, and shrinking administrative costs.
Also, a Co PLAN analysis has shown that current expenditures essentially exacerbate local budgets. During 2018 they recorded a level of about 58.8 billion lek (478.8 million lek), up by about 9.5 percent in annual terms. Current expenditures expanse was largely driven from increased operating and other costs, by about 10.8 percent in annual terms. In the same direction but to a lesser extent, it also contributed to the increase in personnel costs. Municipalities spent about 21.2 billion lek (172.6 million euros) per person in 2018, increasing by about 7.2 percent in annual terms. By contrast, investment expenditures amounted to about 23.4 billion lek (190.5 million euros), down by about 12.0 percent in annual terms. Administrative-territorial reform aimed at increasing the investment performance, which in fact further marginalized the rural population of the municipalities because taxes are taken across the territory, while investments are mainly made in municipal centers.
Local taxes overspending
Despite the source of financing, the local government spent 82.1 billion lek (668.4 million euros) by the end of 2018. This value increased by about 2.4 percent in annual terms, determined by the increase in current expenditures. According to the Co Plan analysis in the breakdown by economic nature, the current expenditures amounted to 72.6 percent and capital expenditures accounted for about 27.4 percent of total expenditures carried out in 2018. Out of the total expenditures of 82 billion lek (667.6 million euros) from local government, the expenditures carried out with the municipalities’ own funds recorded a level of about 48.3 billion lek (393.2 million euros), slightly increasing by 0.9 percent compared to the previous year.
Current expenditures marked a level of about 35.2 billion lek (287 million euros) at the end of 2018, up by about 17.2 percent in annual terms. The rate of developments in spending through its own funds over the last three years has been largely determined by the current expenditure performance. The expansion of current expenditures in 2018 constituted the main determinant in the growth rate by 0.9 percent of spending with its own funds. By contrast, the performance of capital expenditures with its own funds contributed negatively to the performance of total expenditures. The municipal budget analysis shows that among the components of current expenditures, staff expenses for wages and salaries, accounted for about 20.5 billion lek (167.2 million euros) during the period considered, increasing by about 8.5 percent compared to 2017.
Personnel expenses continue to follow upward annual trend, albeit at more moderate rates, and impacted by the effect of increasing the number of employees as a result of the transfer of new functions. Thus, following the increase of about 53.4 percent ”‹”‹in 2016 (following the transfer of new functions), the growth rate was progressively moderated to 21.2 percent in 2017 and to about 8.5 percent in 2018. Operational and other expenses recorded a level of about 14.7 billion lek (119.9 million euros) at the end of 2018, an increase of 32 percent compared to the previous year. At a detailed level, operating expenses incurred with its own funds for this period amounted to 13.4 billion lek (109.3 million euros), an increase of about 32.9 percent in annual terms.
All categories of operating expenses have been expanded during 2018. Expenditure on office supplies increased by 31.3 percent, services from third parties by 24.5 percent, transport costs by 24.8 percent, travel expenses by 12.1 percent, other operating expenses by 46.2 percent, and common maintenance by 49.3 percent. Starting from 2015, the performance of operating expenses is clearly following an upward trajectory, with the end of 2018 marking their maximum level. According to Co Plan’s analysis, although the increase in expenditures in this category appears to be spread across almost all component sub-items, their performance in the medium to long term needs to be monitored with caution as it may create financial sustainability problems for municipalities.
Capital expenditures or investments constitute an important item of local budgets and a precondition for long-term economic development in local government. Over the years, the level of capital expenditures has been volatile, although it presents a good correlation with the performance of its municipality’s own financial resources, particularly with revenue from infrastructure impact tax from new construction. After accelerating growth in 2017, investment expenditures amounted to 13.1 billion lek (106.8 million euros) at the end of 2018, down by about 26.7 percent in annual terms.
According to government functions, capital expenditures for the functions ‘economic issues’ which also includes transport infrastructure, and ‘community housing and commodities’ which includes housing and urban planning, water supply and sewerage, public lighting, cover the main expenditure burden capital in all periods analyzed with 50.1 and 25.7 percent respectively. However, expenditures on investments in the function of ‘economic issues’ halved in 2018, recording a reduction of 6.6 billion lek (53.8 million euros) from about 13 billion lek (106 million euros) in 2017, down by 49.4 percent a year. Meanwhile, investments in the ‘community housing and commodities’ function have increased significantly by about 37.7 percent in annual terms. With the transfer of new competencies in pre-school and pre-university education, municipalities have increased the level of investment in educational infrastructure. Namely, investment in education recorded a level of about 1.3 billion lek (10.6 million euros) in 2018, up by about 75.2 percent in annual terms.
Municipal expenses per capita
The data on expenditure per capita incurred by its own funds point to significant differences between municipalities with the ability to spend their own funds in the period considered. Based on the average index for the last three years built by the Co Plan, the Municipality of Himara represents the highest expenditure per capita at about 49,463 lek (403 euros), followed by the Municipality of Dropull at about 42,563 lek (347 euros) per capita. At the other end, the Municipality of Shkodra appears to have recorded the lowest level of expenditures per capita with its own funds, averaging at around 10,137 lek (82.5 euros) in the last three years, followed by the Municipalities of Kamza, Kurbin, Peqin and Vau i Dejes.
The marked difference between the minimum and maximum level of per capita spending through its own funds signals the existence of deep differences in the fiscal capacities of the municipalities and the need to mitigate them in the function of providing local public services. As an initial step in this direction it is estimated to address the calculation of the potential fiscal capacities of the municipalities and further evaluate their performance versus the potential. Further, the performance indicator related to the rate of revenue collection can be factored into the unconditional transfer allocation formula as an element to neutralize the differences for municipalities in an unfavorable fiscal position.
Along with spending of funds from their own resources, municipalities also incur expenditures with conditional funds, namely funds that are transferred from central institutions, such as line ministries which should be used according to their intended purpose. For this category of entries in the local budget, municipalities do not have decision-making authority on the amount or manner of use of these funds, therefore they are spent according to the line ministries’ definitions, or otherwise with a definite destination. These funds are transferred from line ministry budgets in the form of conditional transfers to finance delegated functions and/or special projects considered by local, regional, or national interests where cooperation with municipalities is required.
In the years under review, expenditures made with contingent funds have followed upward trend, mainly following the changes applied to the scheme of benefiting economic assistance for families in need. Contingent expenditures in 2018 fell by about 33.7 billion lek (274.7 million euros) in total, increasing by about 4.7 percent in annual terms. This growth rate results to be moderate compared with the double digit growth recorded in 2017 by 26.2 percent in annual terms). Based on the economic classification, expenditures made with contingent funds focused on two main items. The first were transfers to family budgets such as economic aid, disability payment, etc.. The other was capital expenditures or investments, including the Albanian Development Fund. Of the total conditional transfers, the funds allocated by the Ministry of Health and Social Protection represent about 62 percent of the total or about 21 billion lek (171.2 million euros) by the end of 2018, down slightly by about 0.7 percent in annual terms. By contrast the funds allocated to capital expenditures result to have significantly grown for the second consecutive year. Thus, capital expenditures financed with contingent funds marked a level of about 8.7 billion lek (70.9 million euros) in 2017, from about 3.3 billion lek (26.9 million euros) that was in 2016. Although at moderate rates, investment by funds from central institutions continued to grow in 2018, marking a pre-order level of around 10.3 billion lek (83.9 million euros), up by about 18.3 percent in annual terms. Investments made with conditional funds in 2018 focused mainly on the ‘Housing and Commodity Commitment’ functions with about 7.8 billion lek (63.5 million euros), and ‘Education’ with about 2.2 billion lek (17.9 million euros).
Crude budgets
Despite the size of the financial resources “cake,” the structure of revenues from its own local resources remains an important indicator of local fiscal autonomy. During the last year, the ratio of local personal source revenues to total financial resources was 29.1 percent, the highest historical value since 2010. Although in summarized terms for the 61 municipalities this indicator results in improvement, detailed analysis at the municipal level and according to specific voices, signals a subtle state of local autonomy. Thus, the improvement indicators are determined by the increase of revenues in a limited number of municipalities and their budgets. This improvement is dictated by the increase in infrastructure income tax from new constructions.
The unstable nature of the income from this tax,- which is indicated by seasonality and concentration of developmental pressure on a limited number of municipalities or being the subject of development policies-, and the collection of over 75 percent of its revenues in three municipalities, signals structural weaknesses in local fiscal autonomy. By contrast, real estate tax revenues signal a positive performance in the last year and the expectation of increasing its share in local own resources, following the application of a new methodology based on the value of the property. In this context, CO Plan experts estimate that it would be worth determining the theoretical potential of revenues that can be collected from this tax to facilitate and further monitor its administration by municipalities in the country. Expansion of local public spending continues to be largely determined by current spending, such as personnel and operating expenses. Delaying the effect of the transfer of new functions in 2016 and the presence of an upward trend in this spending category does not support one of the main arguments on the basis of administrative and territorial reform, which is increasing efficiency in the provision of public services. At the same time it is difficult to assess whether the increase in current spending has been translated into better services for citizens. Conversely, capital expenditures have been shrunk in 2018, with its own funds and conditional ones.
