site.btaElections Give Local Governments New Horizon - Analysis

As new local government leaders take the oath of office and municipal councils get down to work after the Bulgarian local elections on October 29 (with runoffs on November 5), it is time to look beyond the voting results and the comments of election analysts. Media focus is shifting away from local governance very quickly. People are going back to discussing the prospects of the national government. Still, the elections have given new energy to the local authorities, which are here to stay for four years. It is therefore important to identify the likely directions of development at the local level, Petar Ganev of the Institute for Market Economics (IME) says in an analysis published on the IME website.

Raising local taxes

Some local taxes and fees will be raised in the coming years. First, they are too low and cannot stay that way forever. Many people in Bulgaria pay more for their annual vignettes than in property tax. And second, the Bulgarian financial system is flawed. It drains municipalities of their own revenues, makes them dependent on transfers and grants from the central executive budget and causes a chronic lack of resources even in years of abundance for the public purse. In addition, it is assumed to be normal for municipal taxes to go up at the beginning of each local government cycle. This time, however, there is an important detail. Municipal councils are unlikely to be responsible for the expected rise in local taxes and fees.

The property tax is typically the main source of municipal revenues, but municipalities have already reached the highest property tax rate allowed by the law. To boost their revenues, they will perhaps focus on changing the property appraisal pattern. For 10 years now, property appraisals have not reflected the development of the real estate market. It seems more than likely that Parliament will address the matter of property appraisals - either by changing the so-called location coefficient (which is the easier way), or by working out some sort of quasi-market appraisal formula for tax purposes. Either way, expectations are that the property tax will increase considerably on the strength of legislative amendments.

A new way of funding local investments

Political instability in Bulgaria and the lack of a single strong player in control of political power should lead to a different model of funding large investment projects of regional and municipal significance, Ganev went on to say. The "black box" model, which could be used to finance the construction of a major boulevard in Varna or two new stadiums in Plovdiv, seems hardly feasible anymore. If the absence of strong power concentrated in the hands of a single political party leads to the establishment of clear rules for funding regional and municipal projects and the existence of a capital programme which is approved by Parllament and is publicly accessible rather than being concealed in the state budget scheme, it may be one of the most sensible achievements of the incumbent "non-coalition".

Fewer strategies, more work

Over the last three years, Bulgarian municipalities have put tremendous amounts of energy into strategic planning, the so-called integrated development plans for the period 2021-2027, related mainly to absorbing EU resources under the new operational programmes. The process has brought infinite hardship as municipal governments have been torn between real work and attempts to fit a municipality's colourful life into the standard boxes of EU projects.

This is over now. The new local governments are not supposed to write strategies. Instead, they need to navigate the intricacies of large projects which have been drafted, and in some cases, launched, and to learn about new funding opportunities, particularly those available under the National Recovery and Resilience Plan, which has been revised so many times and is so slow to unfold. "Transformation funding" opportunities at the local level exist in every meaning of the word "transformation", which is why it will be very easy to see the difference between well-working local governments and those whose primary concern was to win the elections.

The importance of municipal investment units

The setting up of special teams to attract investments has been common practice in Bulgaria's leading municipalities over the last four or five years, the analyst says. Such a unit may be a stand-alone municipal agency or a strong directorate in the municipal government, or a hardworking deputy mayor in charge of business development. These taskforces can begin to play a more important role than central government institutions in designing investment concepts, organizing marketing campaigns, developing industrial areas, creating top-class business spaces and establishing partnerships with educational institutions.

Restarting the debate on financial decentralization

All these processes share one thing in common. They require changing the structure of public finances and giving municipalities a greater role to play. Despite the existing potential at the local level, including opportunities to fund large investment projects, a mayor will never have a clear horizon unless their municipality is financially autonomous and the local budget is linked to the local economy. A nationwide rearrangement of local power furnishes the best occasion to restart the debate on financial decentralization, including the possibility for the revenues from some direct taxes to be shared between the central government and the local authorities. Whatever investment funds the central government may create at the local level, they cannot make up for the injustice of draining local resources away, Ganev says in conclusion.