How to Lead Successful Budget Negotiations?

Recommendations for local government associations on the rules and procedures of budget negotiations

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Click here to read the Declaration on Budget Negotiations

The NALAS Fiscal Decentralization Task Force has launched a project on the assessment and improvement of negotiations between the local government associations and the relevant partners in the national government. The overall goal of the project is to improve the local governments’ negotiation position during fiscal planning and budget implementation process. More specifically the project aims to improve the responsiveness of intergovernmental transfers on municipal priorities, to make grant allocation more transparent and more predictable and to establish clear fiscal equalization system. The project was lead by the expert team of the National Association of Municipalities of the Republic of Bulgaria (NAMRB).

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:

1. The nature and type of all local government own fees, charges and taxes and the nature of their rate setting powers.
2. All shared taxes and the methods (rates, formulae) at which they will be shared with local governments.
3. The nature of all categorical grants (earmarked, block grants) for permanent delegated or devolved functions (like primary education).
4. The nature of all general grants, including equalization grants.
5. The nature and procedures by which all categorical grants for specific (one time) purposes will be determined and allocated.
6. 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.
7. 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.
8. The law should require the creation of a negotiation forum and mechanisms.

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