Restructuring Intergovernmental Transfers and Educational Finance in Bulgaria
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Restructuring Intergovernmental Transfers and Educational Finance in Bulgaria James S. McCullough. CONTEXT: GDP/CAPITA. SITUATION IN 1998. MUNICIPAL BUDGETS DECREASED BY HALF HIGHLY DEPENDENT ON SHARED TAXES AND SUBSIDIES LARGE HORIZONTAL INEQUITIES IN MUNICIPAL REVENUES

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Restructuring Intergovernmental Transfers and Educational Finance in Bulgaria

James S. McCullough


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CONTEXT: GDP/CAPITA Finance in Bulgaria


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SITUATION IN 1998 Finance in Bulgaria

  • MUNICIPAL BUDGETS DECREASED BY HALF

  • HIGHLY DEPENDENT ON SHARED TAXES AND SUBSIDIES

  • LARGE HORIZONTAL INEQUITIES IN MUNICIPAL REVENUES

  • COMPLEX AND UNSTABLE SUBSIDY FORMULA

  • SOCIAL SECTOR EXPENDITURES DOMINATE MUNICIPAL BUDGETS

  • NO LOCAL CONTROL OVER MUNICIPAL OWN SOURCE REVENUES

  • NO REAL POLICY ANALYSIS & DEBATE OVER MUNICIPAL FINANCE SYSTEM


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MUNICIPAL TRANSFERS Finance in BulgariaPER CAPITA 1998



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THE PRECIPITATING CRISIS 1999-2000 Finance in Bulgaria

  • RAMPANT MUNICIPAL BUDGET DEFICITS

  • AD HOC BAILOUTS OF MUNICIPAL DEFICITS

  • COST FACTORS BEYOND MUNICIPAL CONTROL

  • PIECEMEAL REFORMS TO SUBSIDY SYSTEM

  • INEFFECTIVE EXPENDITURE CONTROLS BY MOF

  • ACCELERATED DECLINE IN MUNICIPAL CAPITAL INVESTMENT

  • BREAKDOWN IN CENTRAL-LOCAL MEDIATION ATTEMPTS


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SETTING THE STAGE FOR REFORM 1999-2001 Finance in Bulgaria

  • LOCAL GOVERNMENT INITIATIVE POLICY WORK

  • ANALYTICAL STUDIES & POLICY DEBATE

  • EMERGING CONSENSUS ON NATURE OF PROBLEM

  • POLITICAL CAMPAIGN & ELECTION OF 2001

  • KNOWLEDGEABLE ACTORS GAINING INFLUENCE

  • POLICY AGENDA IDENTIFIED


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MUNICIPAL FINANCE REFORM 2001 Finance in Bulgaria

  • NEW GOVERNMENT

  • HIGHLY PLACED CHAMPION IN NEW ADMINISTRATION

  • FORUM OF KEY STAKEHOLDERS SETS UP WORKING GROUP

  • FORMAL WORKING GROUP EMPOWERED BY COUNCIL OF MINISTERS

  • GUIDING DOCUMENTS:

    • “CONCEPT”: COMPREHENSIVE REFORM STRATEGY

    • “PROGRAM”: MULTIYEAR DETAILED PLAN


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MATCHING FINANCING TO SERVICE ASSIGNMENT Finance in Bulgaria

  • CLEAR DEFINITION OF MANDATED SERVICES

  • REDUCTION OF HEALTH SERVICE ASSIGNMENT

  • ELIMINATION OF SOCIAL WELFARE ASSIGNMENT

  • ADOPTION OF COSTING STANDARDS FOR FUNDING ALL OPERATING COSTS OF MANDATED SERVICES

  • FULLY FUNDING ALL MANDATED SERVICES WITH TRANSFERS

    • BLOCK SUBSIDY + SHARED TAXES = MANDATED SERVICE FUNDING

  • PERSONAL INCOME TAX BECOMES 100% DEDICATED AS MUNICIPAL SHARED TAX


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LOCAL OPTION SERVICES FUNDED BY OWN SOURCE REVENUES Finance in Bulgaria

  • LOCAL FEES AND CHARGES UNDER LOCAL CONTROL

  • LOCAL TAX AUTONOMY REQUIRES CONSTITUTIONAL AMENDMENT

  • FOR POOR MUNICIPALITIES, SPECIAL SUBSIDY POOL CREATED TO PROVIDE BASE LEVEL OF OWN SOURCE REVENUES

  • MUNICIPALITIES CAN USE OWN REVENUES TO “TOP UP” MANDATED SERVICE FUNDING

  • VERY BOUYANT LOCAL REVENUE GROWTH DUE TO AGGRESSIVE LOCAL RATE INCREASES


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EDUCATION FUNDING Finance in Bulgaria

  • PRIMARY & SECONDARY SCHOOLS FUNDED THROUGH MUNICIPAL BUDGETS

  • USE AGGREGATE LEVEL OF EDUCATION FUNDING IN 2001 AS BENCHMARK

  • MUNICIPALITIES STILL DO NOT CONTROL TEACHER COSTS

  • HORIZONTAL INEQUALITY GREATLY REDUCED

  • COSTING STANDARDS HASTILY DESIGNED AND NEW STANDARDS FORMULATED BUT NOT APPROVED

  • COSTING STANDARDS COVER OPERATING COSTS ONLY


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EDUCATION COSTING STANDARDS Finance in Bulgaria

PER STUDENT ALLOCATION =

1. TEACHER SALARY COSTS

(normed on actual average class size)

2. “MAINTENANCE” (NON-SALARY) COSTS

(biased adjustment for actual class size)

NOTE: DIFFERENT TYPES OF SCHOOLS HAVE DIFFERING SETS OF STANDARDS


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DELEGATED BUDGETS EXPERIMENT Finance in Bulgaria

  • EXPERIMENTAL REFORM UNDER WORLD BANK LOAN

  • FORMULA-BASED ALLOCATION FROM MUNICIPALITY TO SCHOOLS

  • GIVES LOCAL SCHOOL ADMINISTRATORS PARTIAL CONTROL OVER BUDGETS

  • UNSPENT FUNDS CAN BE CARRIED OVER

  • SCHOOLS CAN ENGAGE IN REVENUE RAISING ACTIVITIES

  • SUCCESSFUL RESULTS SO FAR BUT LIMITED SPREAD EFFECT


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LESSONS LEARNED Finance in Bulgaria

  • LENGTHY PERIOD OF FAMILIARIZATION, ANALYSIS, DEBATE AND EXPERIMENTATION REQUIRED TO GET FUNCTIONING FISCAL DECENTRALIZATION SYSTEM IN PLACE

  • CONTINUOUS MONITORING AND ADJUSTMENT REQUIRED TO MAKE FISCAL DECENTRALIZATION WORK

  • MINISTRY OF EDUCATION HAD LIMITED INVOLVEMENT IN OVERALL FISCAL DECENTRALIZATION DEBATE & CAPACITY BUILDING

  • AGGREGATE LEVEL OF PUBLIC EDUCATION FUNDING STILL UNRESOLVED IN BULGARIA

  • SHOULD EDUCATION TRANSFERS BE EARMARKED OR PART OF BLOCK GRANT?

  • COSTING STANDARDS INCREASE TRANSPARENCY & PREDICTABILITY BUT, ONCE ADOPTED, TEND TO PERSIST EVEN IF BADLY DESIGNED

  • EMPHASIS ON FISCAL DECENTRALIZATION HAS SO FAR IGNORED ISSUES OF SCHOOL GOVERNANCE


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