INTER-MUNICIPAL COOPERATION: CHALLENGES IN EUROPE AND IN SLOVENIA.

• Author: Rakar, Iztok

1. Introduction

   The financial crisis has put additional pressure on local self-government to reconsider the question of the effectiveness of local spending and service delivery. Financing municipalities and the ideal size of municipalities have been the central questions in various research projects. Most of these projects have focused on degrees of fiscal decentralization or adequacy of financing (Finzgar and Oplotnik, 2013; Bolivar et al., 2014) and on efficient use in respect to municipality size (Dahlby, 2011; Pevcin, 2013).

   Analyses of recent reforms in different parts of the world show that all of the abovementioned problems were monitored during reform processes (Paulikas, 2013; Cogez and Rabaey, 2013; Razin and Hazan, 2013; Wollmann, 2012; Cole, 2012; Swianiewicz and Mielczarek, 2010; Kuhlmann, 2010; Blom-Hansen, 2010). Meneguzzo et al. (2013) conclude their presentation of reforms in Italy, Germany, France and Portugal by noting that reform processes have led to increased centralization. In his comparison of reform processes in India, Brazil and South Africa, Do Vale (2013) pointed out that tradition and the political environment are important elements in the success of reforms, and works on reforms in Macedonia (Kreci and Ymeri, 2010), Turkey (Yilmaz and Guner, 2013), Latvia (King et al., 2004), and Germany and France (Kuhlmann, 2008) reached similar conclusions.

   Challenges in financing are interrelated with challenges in democratic governance --at the core is the tendency towards territorial changes of municipalities (the merging of municipalities) and the creation of forms of inter-municipal cooperation (hereinafter: IMC) through which the decision-making function is at least partially transferred from local representatives elected directly by local residents to other institutions (inter-municipal structures). The main purpose of this paper is to present the challenges different countries are facing in IMC and municipal finances. We tried to present IMC as an alternative to the merging of municipalities. Data on IMC are presented for Slovenia. All the findings serve as a starting point for designing solutions that could be applied to local self-government in Slovenia.

2. Overview of organization and the degree of financial decentralization in selected EU member states

   Local and regional authorities play a very important role in the EU--more than 91,000 authorities implement 70% of all EU legislation and represent 16% of the GDP, 56% of public employment, 33% of public spending, and 66% of all public investment expenditure in the EU (Kuhlmann and Wollmann, 2014, p. 22; Committee of the Regions, undated). Principles of territorial organization vary greatly across the EU, both at the state and sub-national levels. In the EU, the municipality is considered the base unit of territorial organization. In 2011, the average municipality in the EU had 5,630 residents across a surface area of 49 [km.sup.2]. At the same time, substantial disparities exist from country to country: in France, the Czech Republic and Slovakia municipalities on average have fewer than 2,000 residents1, while municipalities in Great Britain have over 100,000 residents. The enormous range of municipality sizes in the EU is best demonstrated by data showing a ratio of 1 to 85 in terms of number of residents, and 1 to 310 in terms of area. In 2011, nearly 80% of all municipalities at the level of EU were in just five states, with two states--France (41%) and Germany (13%)--accounting for over half of all municipalities (Council of European Municipalities and Regions, 2008, pp. 4-5; Dexia and Council of European Municipalities and Regions, 2011, p. 6) (2).

   As with territorial organization, large differences can also be observed in the degree of financial (de)centralization of municipalities (Milunovic, 2012). The degree of centralization of local levels is usually measured using public expenditure and revenues collected at the local level as shares of the GDP. The two metrics generally match up, as differences only occur in the level of indebtedness on the local level. The share of local public expenditure and revenues in 2013 varied across EU: from 0.8% of GDP in Malta to 37.5% of GDP in Denmark. The countries noted above as having a large number of municipalities (France, Italy, Spain, Germany and Czech Republic) show revenues as a share of GDP near the EU average, with shares ranging from 6.4% in Spain to 15% in Italy; the EU average was 11.6% (Eurostat, 2014). Comparing these shares with those of the states, one finds the highest degree of autonomy in Italy (that is, relatively large local revenues as a share of GDP indicate the largest degree of decentralization among the selected countries). In Slovenia in 2013, public revenues on the local level reached 9.5% of the GDP, which amounts to around one fifth of all public revenues. A similar degree of autonomy can be found in France, where local revenues have a similar share among total public revenues. As noted above, Italy has a higher share, followed by the Czech Republic. Germany and Spain have a lower share (around 7% of all public revenues).

   Besides these differences, at the level of EU differences also appear in the position of local self-government within the state administrative systems and in the tasks of municipalities (Kuhlmann and Wollmann, 2014, pp. 14-28). In this respect, local self-government in the EU presents a very diverse picture wherein differences are more easily identifiable than similarities (Hulst and van Montfort, 2007, p. 1).

3. Inter-municipal cooperation

   3.1. Introduction

   Regardless of the differences between EU member states, they all have something in common: the search for the 'perfect size' of municipalities, which would facilitate both democracy and identity on the local level as well as economic efficiency in the provision of public services (Council of European Municipalities and Regions, 2008, pp. 5, 85; Blom-Hansen, 2010; Pevcin, 2013). One of the most popular tools for achieving this goal is the merging of municipalities (3). This is not exactly a new trend, as reductions in the number of municipalities have been underway for decades, beginning in Austria and Sweden in the 1950s, and reaching a peak in the 1960s and 1970s (Wollmann, 2004; Dollery et al., 2007). However, some states have experienced the reverse trend--a greater number of municipalities; this is particularly true of the former socialist states, including Slovenia, and is often a reaction to earlier territorial consolidations introduced by the communist government in an undemocratic manner (Swianiewicz, 2010, p. 1).

   There are other ways for achieving ideal municipality size, the most popular of which involve various forms of IMC (Herteog, 2010, p. 286) (4). Such cooperation serves to preserve smaller municipalities and, in doing so, to avoid conflicts with the residents of these areas; at the same time, it enhances the economic efficiency of the delivery of certain public tasks and services (Painter et al., 2003; Kuhlmann, 2008) (5). Accordingly, the number of forms of IMC, seen from a comparative perspective, is also very large. These forms can be divided into four groups: 1) informal, 2) weakly formalized, 3) IMC in functional 'enterprises', and 4) IMC as a model of integrated territorial cooperation (Local Government and Public Service Reform Initiative et al., 2010, pp. 1314; Hulst and van Montfort, 2012).

   Although the process of merging municipalities is picking up speed in most European countries, powerful resistance is still present (Dexia and Council of European Municipalities and Regions, 2011, p. 7). Most authors specialized in comparative European studies agree that the process of merging municipalities is not easy and in many cases does not succeed (France and Italy) (Dexia and Council of European Municipalities and Regions, 2011, p. 7). At the opposite end of the spectrum one finds cases of successful merger processes, for example the Danish reforms of 2007, the Latvian reforms of 2009 and the latest reforms in the Austrian state of Styria, which were introduced from 2010 to 2014 (6). However, mergers bring up questions about the distance separating the residents of these areas and decision-making processes on matters affecting them--this is the so-called economic-political dichotomy of municipal mergers (Swianiewicz, 2010, p. 17) (7). Limiting the discussion to the abovementioned successful merger processes in Denmark and Latvia, the share of local public expenditure in the GDP in Denmark was reduced by a percentage point in 2007, but then increased considerably after 2009 (from 32.4% in 2007 to 37.7% in 2012). The increase was the result of a new distribution of tasks between the central and local levels whereby local budgets assumed the financing of health care. As the roles of assigning tasks on the state/local community levels changed, so too did financing, in order to accommodate the new arrangements. Although reforms have brought about greater decentralization, the...