WORLD BANK–AUSTRIA URBAN PARTNERSHIP PROGRAM (UPP) IMPROVING LOCAL GOVERNMENTS CAPACITY The Experience of Municipal Finances Self-Assessment in South-East Europe JANUARY 2018 FOREWORD AND ACKNOWLEDGEMENTS W e would like to acknowledge funding provided by the Austrian Federal Ministry of Finance under the World Bank-Austria Urban Partnership Program (UPP). This program, implement- ed by the World Bank, aims to strengthen the capacity of local governments in South-East Europe (SEE). It has helped finance several products and activities, including (a) City to City Dialogues in the region on Municipal Finances, and Land/Urban Planning; (b) the customization and applica- tion of Local Governments Self-Assessments tools (MFSA, Urban Audits), and (c) the development of a methodological guidebook on MFSA and Urban Audits. UPP participating countries include: Albania, Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro, and Serbia. The results have been summarized by cities as well as by countries; the former is presented in this report and accompanied by MFSA Synthesis and Country Reports – Experiences in South-East Europe 2011-2015 (forthcoming). The cities have been using a Municipal Finance Self-assessment tool (MFSA), which was also customized and tested under the UPP. • World Bank: Ms. Sabine Palmreuther, UPP Team Leader, Senior Operations Officer (GSURR), Ms. Tamara Nikolic, Regional Focal Point, Operations Officer (GSURR); and Mr. Mihaly Kopanyi, Municipal Finance Advisor, World Bank Consultant; • Local consultants: Ms. Merita Toska (Albania), Ms. Brankica Lenic and Mr. Goran Rakic (Bosnia and Herzegovina), Mr. Anto Bajo (Croatia), Mr. Marjan Nikolov (Macedonia), Ms. Natasa Obradovic (Montenegro), and Ms. Ljiljana Brdarevic (Serbia). The team would like to acknowledge the thought leadership of the former team member Ms. Catherine Farvacque-Vitkovic, World Bank retiree, and the invaluable support of the staff of the World Bank offices in the UPP client countries. The UPP program and its team have greatly benefited from the close cooperation and partnership of the Network of Associations of Local Authorities of South-east Europe (NALAS) and the Local Government Associations in the partner countries, as well as our clients from all participating cities and municipalities whose engagement in the Program and eagerness for knowledge, networking, and exchange of experiences within the SEE region and beyond made this Program a success. The brochure presents a sample of city data summaries (based on MFSA): This sample does not include the whole set of participating municipalities but rather a representative segment of 37 cities/municipalities. FOR MORE INFORMATION, THE FOLLOWING ADDITIONAL RESOURCES ARE ALSO AVAILABLE: Municipal Finances: A Learning Program for Local Governments. The World Bank. https:// olc.worldbank.org/content/municipal-finances-learning-program-local-governments-self-paced Municipal Finances: A Handbook for Local Governments. Edited by Catherine D. Farvacque- Vitkovic and Mihaly Kopanyi. Washington, DC: The World Bank. 2014 Municipal Self-Assessments: A Handbook for Local Governments. The World Bank (forthcoming) 1 INTRODUCTION S ince 2010 the World Bank has partnered with the Austrian Government in a program aimed to strengthen capacity of local governments in South-East Europe (SEE). The Program aims to assist and support cities and local governments in South East Europe in a process of modernization and reform, in order to promote local development for inclusive and sustainable growth and enhanced urban governance. So far, the Program has targeted seven countries of South-East Europe, including Albania, Bosnia and Herzegovina, Croatia, Kosovo, FYR Macedonia, Montenegro, and Serbia. UPP was designed to respond to the demand from clients and partners in SEE region for inter-city exchange within and beyond Europe, and offered regional analytical work as well as hands-on capacity building to local governments (i.e. how-to/diagnostic tools, and participatory approaches). All Program activities were grounded in a multi-stakehold- er dialogue, including the civil society groups, which enriched the knowledge sharing among actors who don’t have many opportunities to interact with each other in their daily work. So far, the Program engaged in close collaboration over 80 SEE cities and municipalities of all sizes from across the region creating a platform for city peer learning and knowledge exchange, from other regions in Europe and further afield. This enabled local government leaders to pursue their priority issues, while identifying good practice and technical solutions that are a good fit. Where binding constraints to reform exist, UPP offered tools, strategies, and methods to help city leaders overcome these and shape new policies and practices through results-based hands-on learning. Municipal Finance and Land/Urban Planning are fundamental issues in the region. Cities have traditionally been heavily dependent on transfers and their own revenues have also been essentially based on land development revenues and have been, therefore, very vulnerable to economic or financial crisis. Typically, budgets are prepared with no collaboration with the strategic planning process. To foster peer learning, the UPP held a series of City to City Dialogues (C2C) on municipal finances, urban planning, and land management: Improving Municipal Revenues; Modernizing Local Public Expenditure Management; Modernizing Legal and Regulatory Framework in SEE; Guided Urban Land Development - Reconciling Public and Private Interests; Stock-taking from Self-Assessment findings and formulation of Municipal Finance Improvement Programs; From financial self-assessment towards municipal investment programming (Urban Audit); and Action Plans and results from MFSA and Urban Audit implementation. 2 Participants received hands-on capacity building in a series of interactive workshops. Between the workshops, they worked on specific reform actions that they had identified as the highest priority for their city. Facilitated cross-city and cross-country dialogue during and between workshops helped to cross-fertilize ideas and share experiences. Municipal Finances Self-Assessment (MFSA) helps assess a city’s financial health and to identify specific actions to improve mobilization of local resources, financial management, public spending, public assets management, investment programming and access to external financing (borrowing + donor funding). MFSA is Excel based, filled out and analyzed with support of local consultants, in full harmony with PEFA and rating agencies’ guidelines; supports cross-municipality comparisons and benchmarking; supports evidence based policy-making; and provides municipalities with unified framework and communication tool. It performs several functions: (a) it reviews municipal budgets (revenues and expenditures), financial management practices, savings capacity, investments efforts, and financial projections for the next five years; (b) it provides some benchmarking through a set of simple and comparable key indicators and ratios; and (c) it defines key actions to be included in a municipal finance improvement plan aiming for greater accountability, visibility and efficiency in the use of public funds. A local government going through the overall process of Municipal Finance Self-Assessment gains: • Analysis of its financial condition: the local government implementing MFSA will have made reviews of its municipal budgets (revenues and expenditures), assessment of its financial management practices, municipal savings capacity, potential increase of the investment efforts, financial projections for the next five years; • Elaboration of a Municipal Finance Improvement Plan the local government implementing MFSA will have made reviews of its municipal budgets (revenues and expenditures), assessment of its financial management practices, municipal savings capacity, potential increase of the investment efforts, financial projections for the next five years; • Improved presentation of the financial condition and plans of the local government in front of its stakeholders, the potential creditors and donors, etc.; • Improved strategic planning process as the solid municipal finance analysis and plan, and the knowledge of the potential for savings and borrowing will provide better ground for developing other municipal development plans; and • Benchmarking with other local governments through a set of simple and comparable key indicators/ ratios. 3 MFSA METHODOLOGY AND CYCLE 4 MFSA CITY DATA PROFILES (UPP I and II) Monitoring Dashboard for informed Decision-making 5 ALBANIA MFSA MUNICIPALITY OF BERAT CITY PROFILE Territorial organization: The municipality of Berat’s territorial area and current administrative borders were established in 2015 by the Territorial and Administrative Reform. This set of government reforms involved the merger of the former municipality of Berat with the former communes of Roshnik, Sinjë, Otllak, and Velabisht. The total surface area of the municipality is 382.1 square kilometers. Demography: According to 2011 census data, the municipality’s population is the thirteenth highest in the country. According to 2015 data from the civil registry, there are 99,231 inhabitants in the municipality, which is about 3.4 percent of the country’s overall population and a 0.15 percent increase over 2014. Economy: Municipal-level data are unavailable, but the gross domestic product of the qark (county) to which the municipality belongs was €2,474.4 in 2014, about €982.6 below the national average; the qark-level unemployment rate was 11.4 percent. The city of Berat is a national center of cultural heritage, including the traditional neighborhoods of Mangalemi, Gorica, and Castle; Onufri, the national museum of iconography; and other galleries, museums, churches, and mosques. Berat is one of the oldest towns in Albania, with 2,400 years of history. Proclaimed a “museum city” in 1961, it is also a UNESCO World Cultural Heritage City. Exchange rate: €1 = ALL 139.7 (2015); inflation rate: 1.9 percent (2015). Source: Bank of Albania. Decentralization of city-level functions: Since the adoption of Law 139/2015 on local self- government, local government units in Albania can conduct their own functions as well as mandatory or optional delegated functions transferred to them by law or agreement, which are totally financed by conditional transfers. Municipalities exercise their own functions in terms of infrastructure and public services; social services; culture, sports, and recreational services; environmental protection; agriculture, rural development, public forests and pastures, nature, and biodiversity; local economic development; and public safety. Utilities management: The Joint Stock Company Berat–Kuçovë, which is owned by the municipality, provides water supply and wastewater services. The municipality, according to procurement procedures, contracts out the cleaning and waste management services to a third party, Infinity Construction Ltd. Under the authority of the public service company, the municipality of Berat and the public lighting service provides service and maintenance to the road infrastructure. Municipal staff: Total, including central administration and the budgetary subordinated units: 492. Capital investment plan: Investments have been broadly financed by an external fund competitively obtained from the Regional Development Fund and bank loans, mostly used to expropriate infrastructure investments. Urban issues and challenges: Historical neighborhoods should be preserved, the lack of public services addressed, and the tourism sector strengthened to allow for year-round tourism. Obstacles include disparities between administrative units in terms of urban and economic development. FINANCIAL SITUATION Growth Items 2011 2012 2013 2014 2015 Index Current revenues followed an upward trend from 1 Current revenue 895,613 933,916 988,265 1,414,099 962,005 1.8% 2011 to 2015; the average annual growth rate was 2 Operating expenditure 790,315 808,919 861,964 1,017,724 936,374 4.3% about 1.8 percent. Registered current revenues 3 Gross Operating balance 105,299 124,997 126,301 396,375 25,631 -29.8% revealed a substantial annual jump of 43.1 percent 4 Debt service and borrowing costs - - - - - in 2015, mainly due to higher intergovernmental transfers. Operating expenditures followed the same 5 NET CURRENT BALANCE 105,299 124,997 126,301 396,375 25,631 -29.8% trend, increasing by 4.3 percent on average over the five-year period. Higher revenues determined 6 Capital Revenues 55,728 52,503 43,362 63,245 136,749 25.2% a positive gross operating margin over time, 7 Own capital revenues 510 6,905 2,084 15,297 31,000 179.2% particularly in 2014. The net current balance was 8 Investment grants and donations 55,218 45,597 41,278 47,948 105,749 17.6% positive, with a five-year growth index of 8.8 percent. 9 Capital investment expenditures 165,567 128,623 127,176 389,879 447,679 28.2% Balance after investments suggests that despite this 10 BALANCE AFTER INVESTMENTS (4,540) 48,877 42,486 69,741 (285,300) 181.5% and the municipality-generated capital revenues, investments were broadly covered by external sources of financing. 11 Cash reserves from previous years - - - 276,727 41,993 12 Loan proceeds - - - - - 13 OVERALL CLOSING BALANCE (4,540) 48,877 42,486 346,468 (243,307) 170.6% Source: Municipality of Berat and www.financatvendore.al HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenue structure: State revenues accounted for 73.8 percent of the municipality’s total revenues. Own-source revenues represented only 22.3 per- cent, and other revenues, 3.9 percent. The revenue structure was clearly dominated by central government transfers to the municipality, indicating its poor capacity to rely on its own resources. Revenues from shared taxes represented a marginal source of overall revenues—1.5 percent; and uncondi- tional transfers, the municipality’s primary disposable financing source, about 21.4 percent. In terms of own-source revenues, local taxes represented 11.4 percent of total revenues and proceeds from local fees, 8.8 percent. Income generated from asset management represented only 2 percent of total revenues. 6 Average % of total Revenues: The municipality’s revenues trended 2011 2012 2013 2014 2015 annual revenues upward during the observed period, measured by growth index the average annual growth index (+4.4 percent). Total Revenues 924,088 934,426 995,170 1,416,184 1,098,753 4.4% 100.0% Both revenues from state transfers and own-sources 1. State revenues 717,860 736,490 786,800 892,842 810,848 3.1% 73.8% contributed to positive developments in total - Shared taxes 22,019 27,705 22,269 16,673 16,673 -6.7% 1.5% revenues. State revenues increased by 3.1 percent, - Unconditional transfers 248,046 248,021 249,994 294,039 235,595 -1.3% 21.4% suggested by the average annual growth index, - Conditional transfers 447,795 460,763 514,538 582,131 558,580 5.7% 50.8% mainly due to conditional transfers. Revenues from 2. Own revenues 200,162 187,067 208,370 245,609 244,775 5.2% 22.3% shared taxes and unconditional transfers had negative - Local taxes 150,682 138,564 155,851 167,399 125,751 -4.4% 11.4% growth rates of 6.7 percent and 1.3 percent, respec- - Local fees 33,437 31,780 32,844 54,655 97,237 30.6% 8.8% tively. Own-source revenues performed well during - Income from assets mng. 16,042 16,723 19,675 23,554 21,787 8.0% 2.0% the considered period, with an average growth rate 3. Other own revenues 6,066 10,870 - 277,732 43,130 63.3% 3.9% of 5.2 percent. While revenues from services fees - Dividends, rev. from PUC - - - - - - 0.0% increased by 30.6 percent on average, revenues - Donations/Grants 6,066 10,870 - 1,006 - - 0.0% from local taxes contracted by -4.4 percent. Given - Loans - - - - - - 0.0% the potential for tourism, much remains to be done - Municipal bonds - - - - - - 0.0% to increase the municipality’s overall revenues and - Carryovers - - - 276,727 43,130 - 3.9% financial autonomy. State revenues 717,860 736,490 786,800 892,842 810,848 3.1% 73.8% Own revenues 206,228 197,937 208,370 523,341 287,905 8.7% 26.2% Source: Municipality of Berat and www.financatvendore.al Over the last three years, a reverse tendency is observed: while expenditures for capital investments increased, expenditures for personnel and operating expenses contracted. Investments were broadly financed with external funds competitively obtained from the Regional Development Fund and with bank loans, mostly used for expropriation of infrastructure investments. 2011 2012 2013 2014 2015 Total expenditures 955,882 937,542 989,140 1,407,603 1,329,142 1. Current expenditures 790,315 808,919 861,964 997,511 904,321 1.1 Personel 249,173 234,857 252,731 246,378 242,039 1,600 Personel Other current exp. Capital exp. 1.2 Operational 178,611 213,212 192,945 240,873 210,412 in ALL million 1,400 -Office materials and other administrative 7,866 9,499 6,991 6,847 6,307 1,200 -Services from third parties (energy, water, phone) 87,487 127,173 105,953 134,304 114,427 1,000 -Transport Expenditures 11,613 13,498 15,552 19,079 15,583 800 -Travelling and allowances 3,415 2,645 2,428 3,174 1,353 600 -General Maintenance Expenditures 12,815 9,414 12,671 18,171 16,572 400 -Other Operating Expenditures 55,415 50,983 49,351 59,298 56,170 200 1.3 Subsidies 2,387 12,424 22,854 26,000 28,200 - 1.4Transfers 360,143 348,426 393,434 484,260 423,670 2011 2012 2013 2014 2015 1.5Interest Payment - - - - - 2. Capital Expenditures 165,567 128,623 127,176 410,092 424,821 Source: Municipality of Berat and www.financatvendore.al RATIO ANALYSIS 90% Benchmark  level for  fiscal  autonomy The creditworthiness indicator, measured by the ratio of gross oper- Indicator 2011 2012 2013 2014 2015 80% ating savings to current revenues, improved substantially until 2014, Credit  worthiness 11.8% 13.4% 12.8% 28.0% 2.7% 70% suggesting an increased capacity to borrow from external sources. Fiscal  autonomy 53.2% 50.7% 48.6% 59.0% 49.8% 60% The 2014 event was brief and temporary; by 2015, the indicator reg- Capital  i nvestment  e ffort 18.5% 13.8% 12.9% 27.6% 41.3% 50% Indebtedness 8.1% 7.7% 7.3% 6.2% 6.2% istered 2.7 percent, well below the benchmark level. 40% Level  of  s ervice  s ustainability 5.9% 6.8% 7.6% The fiscal autonomy indicator, measured by the ratio of own-source 5.0 30% Municipal  employees  per  1000  i nh 3.6 20% revenues to total current revenues, suggests that the municipality 10% still needs to concentrate its efforts on own-source revenue genera- tion to reduce dependency from intergovernmental transfers. 0% 2011 2012 2013 2014 2015 The capital investment effort indicator, measured by the ratio of capital expenditures to current revenues, was volatile but improving 45% Benchmark  level  for  capital  investment  effort 35% Benchmark  level  for  credit  worthiness over the considered period. The capital investment effort improved 40% 30% from 27.6 percent in 2014 to 41.3 percent in 2015, suggesting an 35% increased effort by the municipality to channel resources into invest- 30% 25% ments. 20% 25% The indebtedness indicator, measured by the ratio of debt service to 20% 15% total current revenues, decreased progressively and stabilized at 6.2 15% 10% percent over the last two considered years. 10% 5% 5% The level of sustainability from the expenditure side, measured by 0% 0% the ratio of maintenance work expenditures to operating expen- 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 ditures, increased over the last three observed years. In 2015, the service sustainability indicator was about 7.6 percent, below the   benchmark. Administrative efficiency, measured by the number of municipal employees per 1,000 inhabitants registered a value of 5.0 in 2015, up from 3.6 registered in the previous year. Despite this jump, the indicator was still below the benchmark of 25 employees per 1,000 inhabitants FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING Multiannual financial projections are available and regularly updated as part of the MTBP document. There are no special models applied for projec- tions that are mostly realized based on ministry of finance guidelines and historical trends analysis. Since 2016, the municipality of Berat is engaged in a new vision, as specified in the draft territorial development strategy. A capital investment plan guides the prioritization of investments despite constraints regarding access to capital, such as local borrowing and the issuance of debt. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve budget process and credibility by increasing local tax collection rate with a particular focus on households; improve collection of property taxes, in- cluding on buildings, agricultural land, and urban land. Actively contribute to the drafting of a new local finances law to allow for more stable and substantial sources of financing for municipalities. Efforts to date have resulted in the approval of Law 68/2017: On Local Self-Government Finances. Contact: Luiza Bazaj luizabazaj@ymail.com | http://bashkiaberat.gov.al 7 ALBANIA MFSA MUNICIPALITY OF ELBASAN CITY PROFILE Territorial organization: The municipality of Elbasan is composed of 13 administrative units: the former municipality of Elbasan and the former communes of Bradashesh, Papër, Gjergjan, Labinot Fushë, Labinot Mal, Funarë, Gracen, Tregan, Shushicë, Shigjan, Gjinar, and Zavalinë. The total surface area of the municipality is 872 kilometers, up from 7.9 kilometers prior to the 2014 Territorial and Administrative Reform (TAR). Demography: According to 2015 data from the civil registry, the municipality of Elbasan has 208,460 inhabitants, which is about 7.2 percent of the country’s overall population and a 0.67 percent increase over 2011. Economy: Municipal-level data are unavailable, but the gross domestic product of the qark (county) to which the municipality belongs was €2,445.3 in 2014, about €1,011.6 below the national average. The municipality’s reported unemployment rate for 2014 was 10.7 percent; qark-level data suggests a higher unemployment rate of 12.2 percent. Exchange rate (2015): €1 = ALL 139.7; inflation rate (2015): 1.9 percent. Source: Bank of Albania. Decentralization of city-level functions: Since the adoption of Law 139/2015 on local self-gov- ernment, local government units in Albania can conduct their own functions as well as man- datory or optional delegated functions transferred to them by law or agreement, which are totally financed by conditional transfers. Municipalities exercise their own functions in terms of infrastructure and public services; social services; culture, sports, and recreational services; environmental protection; agriculture, rural development, public forests and pastures, nature, and biodiversity; local economic development; and public safety. Utilities management: The municipality outsources urban waste management services to a private enterprise. The municipality delivers public lighting and other services through its public utility company. Ujësjellës-Kanalizime ShA, a public company owned by the municipality, provides water supply and wastewater treatment services. Municipal staff: . Total employees: 1,299; general administration: 440; technical services unit: 254; other units: 528; contractual (part-time): 77. Capital investment plan: Over the next three years, the capital investment plan is mostly oriented at road infrastructure works, such as the reconstruction of the rural road Qaf Hajdaran–Byshek (€1.3 million), planned for 2017; rehabilitation and asphalting of 28 Nëntori street. (€1.4 million), planned for 2018; rehabilitation and asphalting Ahmet Hosto- palli street and the palace squares in Beqir Dardha neighborhood (€0.3 million). Urban issues and challenges: Issues include overbuilt urban spaces that lack public services; challenges include urban and economic development disparities between administrative units. FINANCIAL SITUATION Items 2011 2012 2013 2014 2015 Growth Index 1 Current revenue 1,941,755 2,009,910 2,253,929 3,032,286 3,202,606 13.3% Current revenues followed an upward trend during the 2 1,850,547 1,946,496 2,224,433 2,612,583 2,458,340 7.4% period 2011–15, and the growth index was about 13.3 3 91,209 63,414 29,496 419,703 744,266 69.0% percent. Current revenues increased substantially, by 4 Debt service and borrowing costs 5,345 10,419 20,146 - 58,049 81.5% about 34.5 percent in 2014, mainly due to increased 5 NET CURRENT BALANCE 85,864 52,995 9,350 419,703 686,217 68.1% intergovernmental transfers. Operating expenditures 6 Capital Revenues 227,542 135,404 182,937 170,936 268,848 4.3% grew an average of 7.4 percent, with a positive gross 7 Own capital revenues 124,963 38,376 44,562 17,840 81,996 -10.0% operating balance over the entire five-year period. 8 102,579 97,028 138,376 153,097 186,852 16.2% The net current balance was volatile but positive, with 9 Capital investment expenditures 465,519 268,886 465,495 1,070,258 603,706 6.7% a registered five-year growth index of 68.1 percent. 10 BALANCE AFTER INVESTMENTS (152,113) (80,487) (273,208) (479,619) 351,359 Balance after investments suggests that, despite the 11 Cash reserves from previous years - - - - 218,552 positive net current balance and capital revenues 12 Loan proceeds 28,894 18,735 51,839 298,788 - generated by the municipality, investments were 13 OVERALL CLOSING BALANCE (123,219) (61,752) (221,369) (180,831) 569,911 mostly covered by external financing sources such as Source: Municipality of Elbasan and www.financatvendore.al the Regional Development Fund and loans. HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenue structure: State revenues accounted for 76.3 percent of the municipality’s total revenues. Own-source revenues represented only 14.3 percent, and other revenues, 9.4 percent. The revenue structure was clearly dominated by central government transfers to the municipality, indicating its poor capacity to rely on its own resources. Loan proceeds were broadly used to finance infrastructure investments in the municipality. Revenues from shared taxes represented a marginal source of financing, accounting for less than 1 percent of overall revenue. The primary disposable sources of municipal financing— unconditional transfers and own-source revenues—account for 16.3 and 14.3 percent, respectively. 8 Overall revenues marked a positive average growth index of 12.5 percent during the considered period, primarily resulting from an increase in intergovernmental transfers. Shared taxes contracted by an average of 11.9 percent over the five-year period, but due to the small share of overall revenues that they represent, did not counterbalance the positive average growth rates of unconditional and conditional transfers. Own-source revenues showed a slight average annual increase of 1.7 percent, mainly due to income from the management of assets, such as rental properties. Revenues from local taxes and fees showed negative average growth rates of -0.9 and -2.5 percent, respectively. Source: Municipality of Elbasan and www.financatvendore.al The municipality of Elbasan channeled relevant financial resources into infrastructure investments such as roads, the rehabilitation of building facade, parks, and water and sewage systems. Most of these investments were financed through the Regional Development Fund. Overall current expenditures accounted for an average of 63 percent of total expenditures. Personnel expenditures were fairly stable, averaging about 20.7 percent; other current expenditures increased over the observed period. Source: Municipality of Elbasan and www.financatvendore.al 4. RATIO ANALYSIS The creditworthiness indicator, measured by the ratio of gross operating he creditworthiness indicator, measured by the ratio of gross operating savings to current revenues, improved progressively over the observed period, reaching 23.2 percent in 2015, only 6.8 points below the international benchmark of 30 percent. Despite being on a relatively good track, creditworthiness needs to improve to support external borrowing in financial markets. Fiscal autonomy, measured by the ratio of own-source revenues to total current revenues was volatile over the observed five years; results were low and below the benchmark level of 80 percent. The volatility of the indicator was determined by changes to the level of allocated unconditional transfers and the criteria used to divide it among mu- nicipalities. Despite the enormous need for investments, the capital investment effort indicator, measured by the ratio of capital expenditures to current revenue, was volatile and below the benchmark level of 40 percent. Given the municipality’s low level of fiscal autonomy, their investment policies were broadly subject to central government decisions, such as those regarding the Regional Development Fund. The indebtedness indicator, measured by the ratio of debt service to total current revenue was 1.8 percent in 2015, up 0.9 points from the previous year. The level of sustainability on the expenditure side, measured by the ratio of maintenance work expenditures to operating expenditures, suggests an improvement from 13.2 percent in 2011 to 6.4 percent in 2015. The indicator’s current level was below the benchmark, signaling the need for an increased emphasis on investments. Administrative efficiency, measured by the number of municipal employees per 1,000 inhabitants, registered a value of 6.2 in 2015, up from 3.6 in 2014. Despite this jump, the indicator was still below the benchmark level of 25 employees per 1,000 inhabitants. 5. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING Multiannual financial projections are available and regularly updated as part of the MTBP document. There are no special models applied for projections, which are mostly realized based on ministry of finance guidelines and on an analysis of historical trends. Since 2016, the municipal- ity has been executing a new vision, as specified in the territorial development strategy. The capital investment plan guides the prioritization of investments despite constraints imposed by the central government regarding access to capital, such as local borrowing and the issuance of debt. 6. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve budget process and credibility by increasing local tax collection rate with a particular focus on households and improving the collection of property taxes, including on buildings, agricultural land, and urban land. Actively contribute to the drafting of the new local finances law to allow for more stable and substantial sources of financing for municipalities. Efforts to date have resulted in the approval of Law 68/2017: On Local Self-Government Finances. Contact: Klevis Xhoxhi klevis.xhoxhi@yahoo.com | http://elbasani.gov.al/sq-al/Pages/default.aspx 9 ALBANIA MFSA MUNICIPALITY OF FIER CITY PROFILE Territorial organization: The municipality of Fier is composed of 10 administrative units: the former municipality of Fier and the former communes of Mbrostar, Topojë, Dërmenas, Levan, Frakull, Cakran, Libofshë, Portëz, and Qendër. The total area of the municipality is 621 square kilometers, up from 8 square kilometers prior to the 2014 Territorial and Administrative Reform (TAR). Demography: According to 2015 data from the civil registry, the municipality has 198,889 inhabitants, which is about 6.9 percent of the country’s overall population and a 0.68 percent increase from 2014 data. Fier is one of the largest municipalities of Albania and its population is the fifth largest in the country. Economy: Municipal-level data are unavailable, but the gross domestic product of the qark (county) to which the municipality belongs was €4,061.8 in 2014, about €604.8 above the national average. The qark-level unemployment rate in 2014 was 13.4 percent. Exchange rate (2015): €1 = ALL 139.7; inflation rate (2015): 1.9 percent. Source: Bank of Albania. Decentralization of city-level functions: Since the adoption of Law 139/2015 on local self-gov- ernment, local government units in Albania can conduct their own functions as well as man- datory or optional delegated functions transferred to them by law or agreement, which are totally financed by conditional transfers. Municipalities exercise their own functions in terms of infrastructure and public services; social services; culture, sports, and recreational services;   environmental protection; agriculture, rural development, public forests and pastures, nature, and biodiversity; local economic development; and public safety. Utilities management: The municipality outsources the delivery of urban waste management services to a private enterprise. The municipality delivers public lighting and other services through its public utility company. Ujësjellës-Kanalizime ShA, a public company owned by the municipality, provides water supply and wastewater treatment services. Municipal staff: Total employees: 1,300; general administration: 426; technical services unit: 400; other units: 474. Capital investment plan: Over the next three years, the plan is oriented mainly toward infrastructure works such as the rehabilitation of Mujo Ulqinaku street (€1.1 million), planned for 2016–17; reconstruction of Agim-Ndërmenas-Hasturkas, Libofshë road (€1.4 million), planned for 2017; reconstruction of Mirëkuptimi street (€1.0 million); and construction of an aqueduct in Buzmadh village, planned for 2020. Urban issues and challenges: Issues include overbuilt urban spaces that lack public ser- vices; challenges include lower urban and economic development disparities between ad- ministrative units. FINANCIAL SITUATION Current revenues followed an upward trend during Items 2011 2012 2013 2014 2015 Growth Index the period 2011–15; the average annual growth Current revenue 1,707,315 1,422,220 1,637,790 1,758,660 2,078,659 5.0% rate was about 5.0 percent. Current revenues Operating expenditure 1,653,840 1,474,374 1,584,445 1,762,980 1,513,141 -2.2% increased by about 18.2 percent in 2015, mainly Gross Operating balance 53,476 (52,153) 53,346 (4,320) 565,518 80.3% due to an increase in intergovernmental transfers. Debt service and borrowing costs 35,800 35,800 Operating expenditures contracted by an average of NET CURRENT BALANCE 53,476 (52,153) 53,346 (40,120) 529,718 77.4% -2.2 percent on average over the five-year period. The gross operating margin was volatile over the observed period and substantially increased in Capital Revenues 293,409 101,322 110,456 256,410 208,834 -8.1% 2015 due to higher current revenues and lower Own capital revenues 104,083 64,376 44,102 20,546 70,000 -9.4% current expenditures. The net current balance was Investment grants and donations 189,326 36,945 66,354 235,864 138,834 -7.5% volatile, and the five-year growth index was 77.4 Capital investment expenditures 327,273 221,044 170,474 351,292 566,662 14.7% percent. Balance after investments suggested that BALANCE AFTER INVESTMENTS 19,612 (171,876) (6,672) (135,001) 171,891 72.1% despite the positive net current balance and capital revenues generated by the municipality, investments Cash reserves from previous years - - - - 106,118 were broadly covered by external financing sources Loan proceeds such as the Regional Development Fund and loans. OVERALL CLOSING BALANCE 19,612 (171,876) (6,672) (135,001) 278,009 The municipality had a volatile investment balance, which only became positive in 2015, driven by better Source: Municipality of Fier and www.financatvendore.al performance of current revenues and the efficient use of financial resources. HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenue structure: State revenues accounted for 72.8 percent of total revenues for the municipality. Own-source revenues represented only 22.5 percent, and other sources, 4.6 percent. The revenue structure was clearly dominated by central government transfers to the municipality, indicating its poor capacity to rely on its own resources. Revenues from shared taxes represented a marginal source of financing, accounting for about 3.2 percent of overall revenues. The municipality’s main disposable sources of finance, the unconditional transfer and own-source revenues, accounted for 14.3 and 22.5 percent, respectively. Regarding own-source revenues, local taxes constituted 15.3 percent of total revenues, and proceeds from local fees, 3.7 percent. 10 Average % of total 2011 2012 2013 2014 2015 annual Revenues: Overall, revenues marked a positive revenues growth index average growth index of 4.6 percent during the Total Revenues 2,000,725 1,523,542 1,748,246 2,015,070 2,393,612 4.6% 100.0% considered period. Revenue performance was largely 1. State revenues 1,512,054 1,046,571 1,354,394 1,554,365 1,743,281 3.6% 72.8% determined by an increase in intergovernmental - Sha red ta xes 44,952 75,412 81,882 72,394 75,800 14.0% 3.2% transfers. Revenues from shared taxes grew - Uncondi ti ona l tra ns fers 382,007 295,730 406,551 455,949 342,935 -2.7% 14.3% progressively, by 14.0 percent on average over the - Condi ti ona l tra ns fers 1,085,095 675,429 865,961 1,026,023 1,324,546 5.1% 55.3% five-year period. In average, revenues from the 2. Own revenues 486,561 476,139 389,582 457,315 539,384 2.6% 22.5% unconditional transfer contracted by -2.7 percent - Loca l ta xes 347,535 352,713 281,078 302,227 366,986 1.4% 15.3% over the observed period. Own-source revenues - Loca l fees 85,157 62,918 61,012 98,566 89,733 1.3% 3.7% registered a slight average annual increase of - Income from a s s ets mng. 53,868 60,508 47,493 56,522 82,665 11.3% 3.5% 2.6 percent, mainly due to income from asset 3. Other own revenues 2,110 832 4,270 3,390 110,947 169.3% 4.6% management (rent from assets). Revenues from local - Di vi dends , rev. from PUC - - - - - 0.0% taxes and fees point to low positive average growth - Dona ti ons /Gra nts 2,110 832 4,270 3,390 4,829 23.0% 0.2% rates of -1.4 and -1.3 percent, respectively. The data - Loa ns - - - - - 0.0% point to a large gap between revenues generated - Muni ci pa l bonds - - - - - 0.0% by own sources and those from state transfers and - Ca rryovers 106,118 4.4% grants, despite both exhibiting an increasing trend State revenues 1,512,054 1,046,571 1,354,394 1,554,365 1,743,281 3.6% 72.8% over time, especially after 2012. Own revenues 488,671 476,971 393,853 460,705 650,331 7.4% 27.2% Source: Municipality of Fier and www.financatvendore.al During the period of 2011–15, the municipality channeled relevant financial resources into infrastructure investments such as roads, rehabilitation of building facades, parks, and water and sewage systems. Most of these investments were financed through the Regional Development Fund. Mean- while, overall current expenditures still accounted for a large share of total expenditures. Personnel and operational expenditures were mostly stable over the observed period, representing an average about 25.3 and 57.4 percent of total expenditures, respectively. 2011 2012 2013 2014 2015 Total expenditures 1,981,113 1,695,418 1,754,919 2,114,271 2,306,518 Personel Other current exp. Capital exp. 2,500 in ALL million 1. Current expenditures 1,653,840 1,474,374 1,584,445 1,762,980 1,600,205 1.1 Personel 480,800 458,483 492,261 546,690 491,186 2,000 1.2 Operational 351,737 321,041 301,145 325,472 312,617 -Office materials and other administrative 21,660 11,741 15,942 14,312 12,346 1,500 68,953 -Services from third parties (energy, water, phone) 75,918 65,026 81,990 85,909 -Transport Expenditures 66,792 60,793 56,244 66,554 49,458 -Travelling and allowances 5,164 6,048 2,395 6,247 2,989 1,000 -General Maintenance Expenditures 38,702 35,825 41,319 29,460 27,637 -Other Operating Expenditures 150,466 130,716 120,219 126,910 134,279 500 1.3 Subsidies 99,488 90,975 4,857 3,000 - 1.4Transfers 721,814 603,874 786,182 887,818 796,401 - 1.5Interest Payment - - - - - 2011 2012 2013 2014 2015 2. Capital Expenditures 327,273 221,044 170,474 351,292 706,313 Source: Municipality of Fier and www.financatvendore.al RATIO ANALYSIS 90% Despite the substantial improvement during 2015, the Benchmark  level for  fiscal  autonomy creditworthiness indicator, measured by the ratio of gross 80% operating savings to current revenues, was still below the 2011 2012 2013 2014 2015 70% benchmark level of 30 percent. The current level of this Credit  worthiness 3.1% -­‐3.7% 3.3% -­‐0.2% 27.2% 60% indicator in 2015 suggests that the municipality lacked the Fiscal  autonomy 45.3% 56.3% 56.0% 50.4% 50.4% 50% capacity to borrow to finance its investments. Capital  i nvestment  e ffort 19.2% 15.5% 10.4% 20.0% 27.3% 40% Fiscal autonomy, measured by the ratio of own-source revenues Indebtedness 2.0% 1.8% 30% to total current revenues, was volatile over the five-year Level  of  service  sustainability 9.1% 9.1% 20% period with low-level results below the benchmark level of Municipal  e mployees  per  1000  i nh. 3.1 6.5 10% 80 percent. The volatility of the indicator was determined by changes in the level of allocated unconditional transfers and 0% 2011 2012 2013 2014 2015 the criteria used to divide them among municipalities. The capital investment effort indicator, measured by the ratio 45% Benchmark  level  for  capital  investment  effort of capital expenditures to current revenues, was quite volatile 35% Benchmark  level  for  credit  worthiness 40% 30% and below the benchmark level of 40 percent during the 35% 25% considered period. Given the municipality’s low level of fiscal 30% 20% autonomy, their investment policies were broadly subject 25% 15% to central government decisions, including the Regional 20% 10% Development Fund. The indebtedness indicator, measured by the ratio of debt service to total current revenues, was 15% 5% 1.8 percent during 2015, down by 0.2 points from 2014. The 10% 0% level of sustainability on the expenditure side, measured by 5% -­‐5% the ratio of maintenance work expenditures to operating 0% -­‐10% expenditures stabilized at 9.1 percent during 2014–15. The 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 indicator was below the benchmark, signaling a need for an increased emphasis on investments. Administrative efficiency,   measured by the number of municipal employees per 1,000 inhabitants, was 6.5 in 2015, up from 3.1 in 2014, but despite this jump, it was still below the benchmark level of 25 employees per 1,000 inhabitants. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING Multiannual financial projections are available and regularly updated as part of the MTBP document. There are no special models applied for projections that are realized mostly based on ministry of finance guidelines and an analysis of historical trends. Since 2016, the municipality has been executing a new vision as specified in the territorial development strategy. The capital investment plan guides the prioritization of investments, despite constraints to accessing capital, such as through local borrowing or the issuance of debt. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve budget process and credibility by increasing the rate of local tax collection with a particular focus on households and by the better collection of prop- erty taxes, including on buildings, agricultural land, and urban land. Actively contribute to the drafting of the new local finances law to allow municipalities to access more stable and substantial sources of financing. Efforts to date have resulted in the approval of Law 68/2017: On Local Self-Government Finances. Contact: Enekelejda Peshkpia lejdap@yahoo.com | http://bashkiafier.gov.al/sq-al/Pages/default.aspx 11 ALBANIA MFSA MUNICIPALITY OF GJIROKASTËR CITY PROFILE Territorial organization: The municipality of Gjirokastër comprises seven administrative units: the former municipality of Gjirokastër and the former communes of Antigone, Cepo, Lazarat, Lunxhëri, and Odrie dhe Picar. The total are of the municipality is about 478 square kilometers. Demography: According to 2015 data from the civil registry, the municipality has 52,169 inhabitants, which is about 1.8 percent of overall population and a 0.68 percent increase over 2014. According to 2011 census data, the municipality of Gjirokastër’s population is the 25th largest in the country. Economy: Municipal-level data are unavailable, but the gross domestic product of the qark (county) to which the municipality belongs was €3,343.4 in 2014, about €113.5 below the national average. The qark-level unemployment rate in 2014 was 15.9. Exchange rate (2015): €1 = ALL 139.7; inflation rate (2015): 1.9 percent. Source: Bank of Albania. Decentralization of city-level functions: Since the adoption of Law 139/2015 on local self-government, local government units in Albania can conduct their own functions as well as mandatory or optional delegated functions transferred to them by law or agreement, which are totally financed by conditional transfers. Municipalities exercise their own functions in terms of infrastructure and public services; social services; culture, sports, and recreational services; environmental protection; agriculture, rural development, public forests and pastures, nature, and biodiversity; local economic development; and public safety. Utilities management: The municipality’s main and exclusive responsibilities are the provision and maintenance of local infrastructure, including roads, amenities, waste disposal, public lighting, buildings, social services, preuniversity education, infrastructure, and irrigation systems. The municipality provides urban waste management and public lighting services through its public utility company. Ujësjellës-Kanalizime ShA, a public company owned by the municipality, provides water supply and wastewater treatment services. Municipal staff: Total employees: 568; general administration: 84; technical services unit: 172; other units: 312. Capital investment plan: Over the next three years, the plan is oriented mostly toward infrastructure works such as reconstruction of Square– Checkpoint street (€1.4 million), planned for 2016; urban waste treatment at the Gerhot dumpsite (€18,000), planned for 2017; reconstruction of “Prom. 18 Shtatori and other lanes “Rexhep Qosja “ and “Gole Gushi “ (con. from 2015) (€1.2 million); and construction of the city’s industrial market, planned for 2016. Urban issues and challenges: Issues include the preservation of historical buildings and the lack of public services; challenges include lower urban and economic development disparities between administrative units. FINANCIAL SITUATION Items 2011 2012 2013 2014 2015 Growth Index Current revenues followed an upward trend during 1 Current revenue 466,917 515,188 546,197 741,202 716,441 11.3% the observed period of 2011–15, and the annual 2 Operating expenditure 394,430 353,567 426,752 478,052 468,104 4.4% average growth index was about 11.3 percent. 3 Gross Operating balance 72,486 161,621 119,445 263,150 248,337 36.0% Current revenues increased substantially, by about 4 Debt service and borrowing costs - - - - - 35.7 percent in 2014, mainly due to an increase in 5 NET CURRENT BALANCE 72,486 161,621 119,445 263,150 248,337 36.0% intergovernmental transfers. Operating expenditures grew an average of 4.4 percent over the five-years, 6 Capital Revenues 120,210 19,484 10,495 32,103 35,785 -26.1% allowing for a positive gross operating balance during 7 Own capital revenues 21,245 8,436 3,064 1,052 1,388 -49.4% the whole period. Net current balance was volatile 8 Investment grants and donations 9 8,965 11,048 7,431 31,051 34,397 -23.2% but positive, with a five-year growth index of 36 9 Capital investment expenditures 187,585 39,685 101,120 289,396 283,505 10.9% percent. While covering overall current expenditures, 10 BALANCE AFTER INVESTMENTS 5,111 141,419 28,820 5,856 617 -41.0% the positive margin allowed for capital expenditures undertaking backed up also from intergovernmental 11 Cash reserves from previous years11,387 20,173 79,908 204,488 190,580 102.3% funds. Overall, the financial management of the 12 Loan proceeds municipality was prudent, with a clear orientation 13 OVERALL CLOSING BALANCE 16,497 161,592 108,728 210,344 191,197 toward capital expenditures. Source: Municipality of Gjirokastër & www.financatvendore.al HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenue structure: State revenues accounted for 56.5 percent of the municipality’s total revenue. 0.9 Own-source revenues represented only 18.0 percent, and other revenues 25.5 percent. The revenue in  ALL  billion Intergovermnetal  transfers,  grants 0.8 structure was clearly dominated by central government transfers to the municipality, indicating its Own  source  revenues poor capacity to rely on its own resources. Revenues for shared taxes represented a marginal source of 0.7 financing, accounting for less than 1.8 percent of overall revenues. The municipality’s main disposable 0.6 financing sources, the unconditional transfer and own-source revenues, accounted for 23.9 and 18 0.5 percent, respectively. Other own-source revenue developments are defined by the substantial level of 0.4 carryovers (earmarked and not), which alone accounted fo 25.3 percent of total revenues. 0.3 0.2 0.1 0.0 2011 2012 2013 2014 2015   12 Average 2011 2012 2013 2014 2015 annual % of total Overall revenues marked a positive average growth revenues index of 6.4 percent during the considered period. growth index Total Revenues 587,126 534,672 556,692 773,305 752,226 6.4% 100.0% Revenue performance was broadly defined by an 1. State revenues 407,055 353,219 352,017 433,965 424,899 1.1% 56.5% increase in intergovernmental transfers. While state - Sha red ta xes 11,567 18,599 16,772 12,710 13,460 3.9% 1.8% revenues increased by 1.1 percent, revenues from - Uncondi ti ona l tra ns fers 139,661 141,673 136,139 173,357 179,892 6.5% 23.9% own sources contracted by an average of 5.2 points. - Condi ti ona l tra ns fers 255,827 192,946 199,106 247,899 231,546 -2.5% 30.8% The overall increase in revenues was sustained 2. Own revenues 167,882 141,434 123,019 130,610 135,620 -5.2% 18.0% by higher unconditional transfers and shared tax - Loca l ta xes 109,046 84,613 76,295 78,181 81,887 -6.9% 10.9% revenue in average annual terms. Revenues from - Loca l fees 45,010 38,366 29,458 33,531 36,760 -4.9% 4.9% unconditional transfers widened by -6.5 percent over - Income from a s s ets mng. 13,826 18,456 17,267 18,899 16,973 5.3% 2.3% the five-year period. Own-source revenues contracted 3. Other own revenues 12,189 40,019 81,655 208,729 191,708 99.1% 25.5% - Di vi dends , rev. from PUC - - - - - 0.0% by an average of 5.2 percent due to lower revenues - Dona ti ons /Gra nts 802 19,847 1,747 4,242 1,128 8.9% 0.1% from local taxes and fees. Revenues generated - Loa ns - - - - - 0.0% through asset management positively contributed - Muni ci pa l bonds - - - - - 0.0% to the municipality’s overall revenue performance. - Ca rryovers 11,387 20,173 79,908 204,488 190,580 102.3% 25.3% In other own-source revenues, carryover levels were State revenues 407,055 353,219 352,017 433,965 424,899 1.1% 56.5% substantial, especially over the last two years. The Own revenues 180,071 181,453 204,675 339,339 327,328 16.1% 43.5% average annual growth rate was about 102.3 percent over the considered period. Source: Municipality of Gjirokastër & www.financatvendore.al A large share—more than 60 percent over the considered period—of the financial resources available to the municipality was channeled through current expenditures. Investments were volatile, with a minimum level of 12.6 percent of total expenditures in 2012 and a maximum level of 38 percent in 2014–15. 2011 2012 2013 2014 2015 Total expenditures 582,016 476,639 554,163 767,448 751,609 1. Current expenditures 394,430 416,751 429,252 478,052 468,104 900 Personel Other current exp. Capital exp. in ALL million 1.1 Personel 171,167 169,862 176,291 181,471 200,305 800 1.2 Operational 100,676 106,448 129,674 109,844 102,143 700 -Office materials and other administrative 6,956 6,267 5,653 3,836 4,490 600 -Services from third parties (energy, water, phone) 25,082 24,666 45,898 23,117 25,581 -Transport Expenditures 16,553 16,365 14,609 16,695 15,340 500 -Travelling and allowances 5,364 9,741 6,323 4,790 3,841 400 -General Maintenance Expenditures 6,538 6,449 5,750 5,046 6,157 300 -Other Operating Expenditures 40,183 42,960 51,440 56,360 46,734 200 1.3 Subsidies 4,000 2,988 2,500 4,200 3,500 1.4Transfers 118,588 137,452 120,788 182,537 162,156 100 1.5Interest Payment - - - - - - 2. Capital Expenditures 187,585 59,888 124,911 289,396 283,505 2011 2012 2013 2014 2015 Source: Municipality of Berat and www.financatvendore.al RATIO ANALYSIS 90% The creditworthiness indicator, measured by the ratio of gross 80% Benchmark  level for  fiscal  autonomy operating savings to current revenues, improved steadily and stood well above the benchmark level of 30 percent, suggesting Indicator 2011 2012 2013 2014 2015 70% an adequate capacity for borrowing to finance investments. In Credit  worthiness 15.5% 31.4% 21.9% 35.5% 34.7% 60% 2015, the indicator was registered at 34.7 percent, about 4.7 Fiscal  autonomy 71.0% 66.3% 65.5% 70.9% 72.7% 50% points above the benchmark level. Capital  i nvestment  e ffort 40.2% 7.7% 18.5% 39.0% 39.6% 40% Level  of  service  sustainability 4.6% 4.6% 30% Fiscal autonomy, measured by the ratio of own revenues to total Municipal  e mployees  per  1000  i nh.      10.9 20% current revenues, followed a upward trend over the considered 10% period, remaining below but close to the benchmark level of 80 0% percent. 2011 2012 2013 2014 2015 The capital investment effort indicator, measured by the ratio of 45% 40% Benchmark  level  for  credit  worthiness capital expenditures to current revenues, was volatile and below Benchmark  level  for  capital  investment  effort 40% 35% the benchmark level of 40 percent. The indicator marked its 35% 30% lowest level of 7.7 percent in 2012, but grew in the subsequent 30% three-year period to 39.6 percent in 2015. The municipality had 25% 25% no current loans, but could consider such an option in the future. 20% 20% 15% 15% The level of sustainability on the expenditure side, measured 10% 10% by the ratio of maintenance work expenditures to operating 5% 5% expenditures, stabilized at 4.6 percent in 2014–15. The indicator 0% 0% is currently below the benchmark, signaling the need for an 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 increased emphasis on investments. Administrative efficiency, measured by the number of municipal employees per 1,000   inhabitants, was 10.9 in 2015, well below the benchmark of 25 employees per 1,000 inhabitants. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve budget process and credibility by increasing local tax collection rate with a particular focus on households; improve collection of property taxes, including on buildings, agricultural land, and urban land. Actively contribute to the drafting of a new local finances law to allow for more stable and substan- tial sources of financing for municipalities. Efforts to date have resulted in the approval of Law 68/2017: On Local Self-Government Finances. Contact: Aurora Lazaj lazajaurora@gmail.com | http://bashkiagjirokaster.beep.com 13 ALBANIA MFSA MUNICIPALITY OF PËRMET CITY PROFILE Territorial organization: The current administrative borders were established in 2015, by the Territorial and Administrative Reform, which involved the merger of the former mu- nicipality of Përmet with the former communes of Çarçovë, Frashër, Petran, and Qendër Piskovë. The total area of the municipality is 606.6 square kilometers Demography: According to 2011 census data, the municipality of Përmet has the 51st largest population in the country. According the 2015 data from the civil registry , the municipality has 21,833 inhabitants, which is about 0.8 percent of overall population. Economy: Municipal-level data are unavailable, but the gross domestic product of the qark (county) to which the municipality belongs was €3,343.4 in 2014, about €113.5 below the national average. The qark-level unemployment rate in 2014 was 15.9 percent. Tourism is a very important economic sector for the municipality; other sectors include agriculture and industry. If further developed, the tourism sector has great potential to generate additional revenues and jobs for the residents of Përmet. Exchange rate (2015): €1 = ALL 139.7; infla- tion rate: 1.9 percent. Source: Bank of Albania. Decentralization of city-level functions: Since the adoption of Law 139/2015 on local self- government, local government units in Albania can conduct their own functions as well as mandatory or optional delegated functions transferred to them by law or agreement, which are totally financed by conditional transfers. Municipalities exercise their own functions in terms of infrastructure and public services; social services; culture, sports, and recreational services; environmental protection; agriculture, rural development, public forests and pastures, nature, and biodiversity; local economic development; and public safety. Utilities management: The water supply and sewerage company in Përmet operates as a joint stock company, with an independent status from the municipality, regardless of the fact that the municipality is the only shareholder, owning 100 percent of the of company shares. Cleaning services, waste collection, and greening services are provided by the municipality through the jurisdiction’s greening and cleaning department. The service is provided throughout the entire municipality, including the recently added administrative units. Solid waste disposal occurs in an open area near the city of Përmet, because a suitable a landfill that meets the municipality’s needs remains lacking. Municipal staff: Central administration: 77; Total number of employees, including budgetary units: 294. Capital investment plan: The municipality’s investment capacity is quite limited. Some small investments have been made using the municipality’s own-source revenues—mostly emergent interventions such as new cemeteries and reconstruction of sidewalks and inner streets. For large-scale investments, the municipality must compete for grants from other sources. Urban issues and challenges: Issues include a lack of roads and public services; challenges include challenges in urban and economic development disparities between administrative units and strengthening capacities in tourism destination management. FINANCIAL SITUATION Growth Items 2011 2012 2013 2014 2015 Index Current revenues followed a downward trend during 1 Current revenue 296,516 262,062 266,621 373,641 238,620 -5.3% 2011–15, and the average annual growth rate was 2 Operating expenditure 204,625 204,013 196,679 249,496 217,727 1.6% about -5.3 percent. Current revenues increased 3 Gross Operating balance 91,891 58,049 69,942 124,145 20,892 -30.9% by about 40.1 percent in 2014, mainly due to an 4 Debt service and borrowing costs - - - - - - increase in intergovernmental transfers. Operating expenditures increased by an average of 1.6 percent 5 NET CURRENT BALANCE 91,891 58,049 69,942 124,145 20,892 -30.9% over the five-year period. Gross and net margins, despite being positive over the whole considered 6 Capital Revenues 38,821 37,962 45,848 70,000 9,924 -28.9% period, were -30.9 percent on average. The balance 7 Own capital revenues 8,538 8,810 1,221 3,654 985 -41.7% after investments suggests that despite the positive 8 Investment grants and donations 30,283 29,152 44,627 66,346 8,938 -26.3% net current balance and capital revenues generated 9 Capital investment expenditures 99,016 51,206 64,606 124,644 30,031 -25.8% by the municipality, investments were mainly covered 10 BALANCE AFTER INVESTMENTS 31,696 44,805 51,184 69,501 785 -60.3% by external financing sources such as the Regional Development Fund and loans. The overall financial 11 Cash reserves from previous years 24,847 33,391 16,676 53,367 12,359 -16.0% snapshot suggests that, despite the restricted 12 Loan proceeds - - - - - - availability of financial resources, the municipality was very efficient in the use of its financial resources. 13 OVERALL CLOSING BALANCE 56,543 78,196 67,860 122,867 13,143 -30.6% Source: Municipality of Përmet and www.financatvendore.al HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenue structure: State revenues accounted for 81.2 percent of the municipality’s total revenues. Own-source revenues represented only 13.6 percent, and other sources, 5.2 percent. The revenue structure was clearly dominated by central government transfers to the municipality, indicating its poor capacity to rely on its own resources. Revenues from shared taxes represented a marginal source of financing, accounting for about 1.1 percent of overall revenues. Unconditional transfers accounted for about 35.7 percent of total revenues, representing the main source of financing for the mu- nicipality. In addition to intergovernmental transfers, own-source revenues generated from local taxes, fees, and asset management also contributed to the municipality’s overall financial performance. Local taxes and service fees accounted for 6.3 and 75.2 percent, respectively. Asset management must be improved to generate financial resources and sustain investment levels. 14 Average % of total 2011 2012 2013 2014 2015 Revenues tendencies: Overall, revenues marked a annual revenues Total Revenues 305,054 270,872 267,843 377,295 248,543 -5.0% 100.0% negative average growth index of -5.0 percent during 1. State revenues 240,063 202,223 219,881 287,414 201,775 -4.3% 81.2% the considered period. Overall revenue performance - Sha red ta xes 2,461 2,136 3,276 2,562 2,707 2.4% 1.1% was determined by negative developments in both - Uncondi ti ona l tra ns fers 76,818 78,488 82,849 102,006 88,840 3.7% 35.7% state and own-source revenues. Revenues from - Condi ti ona l tra ns fers 160,784 121,599 133,757 182,847 110,228 -9.0% 44.3% state transfers decreased by an average of 4.3 2. Own revenues 40,117 34,411 30,164 36,514 33,871 -4.1% 13.6% percent annually, mainly due to lower conditional - Loca l ta xes 23,738 17,020 13,978 17,373 15,567 -10.0% 6.3% transfers. Revenues from shared taxes increased an - Loca l fees 12,200 12,286 12,703 12,433 12,912 1.4% 5.2% average of 2.4 percent over the five-year period, and - Income from a s s ets mng. 4,179 5,104 3,483 6,708 5,392 6.6% 2.2% revenues from unconditional transfers increased by 3. Other own revenues 24,874 34,238 17,797 53,367 12,897 -15.1% 5.2% 3.7 percent. Own-source revenues contracted an - Di vi dends , rev. from PUC - - - - - - 0.0% average of -4.1 percent annually, mainly due to lower - Dona ti ons /Gra nts 27 848 1,121 - 538 111.3% 0.2% revenues from taxes (-10). Services fees and revenues - Loa ns - - - - - - 0.0% from asset management performed better than - Muni ci pa l bonds - - - - - - 0.0% taxes, with an average annual increase of 1.4 and 6.6 - Ca rryovers 24,847 33,391 16,676 53,367 12,359 5.0% percent, respectively. Carryovers from previous years State revenues 240,063 202,223 219,881 287,414 201,775 -4.3% 81.2% are an important element of other revenues but Own revenues 64,991 68,649 47,961 89,880 46,768 -7.9% 18.8% demonstrate a declining trend. Source: Municipality of Përmet and www.financatvendore.al The data show that a large share of available financial resources were used to cover personnel and operating expenses over the 2010–15 period. On average, these two categories represented about 75 percent of total expenditures during the observed period. Capital expenditures represented about 25 percent of total expenditures during the same period. Operating and personnel expenditures seem to have increased reasonably during 2015, accounting for about 87.9 percent of total expenditures detriment investment expenditures. 2011 2012 2013 2014 2015 Total expenditures 303,641 255,219 261,598 374,140 247,902 1. Current expenditures 204,625 204,013 196,992 249,496 217,870 Personel Other current exp. Capital exp. 400 in ALL million 1.1 Personel 71,254 62,322 73,619 80,788 74,681 1.2 Operational 47,723 43,062 40,451 56,253 48,093 350 -Office materials and other administrative 4,034 4,266 3,271 2,877 2,197 300 -Services from third parties (energy, water, phone) 10,577 7,359 6,389 11,448 10,842 250 -Transport Expenditures 7,697 8,034 8,037 8,515 6,946 200 -Travelling and allowances 3,784 3,113 2,545 2,619 2,117 -General Maintenance Expenditures 9,694 10,229 10,000 16,146 17,101 150 -Other Operating Expenditures 11,937 10,060 10,209 14,648 8,891 100 1.3 Subsidies 5,000 10,125 1,577 1,000 2,500 50 1.4Transfers 80,648 88,504 81,346 111,454 92,596 1.5Interest Payment - - - - - - 2011 2012 2013 2014 2015 2. Capital Expenditures 99,016 51,206 64,606 124,644 30,031 Source: Municipality of Fier and www.financatvendore.al RATIO ANALYSIS The creditworthiness indicator, measured by the ratio of 90% Benchmark  level for  fiscal    autonomy gross operating savings to current revenues, deteriorated 80% substantially during 2015, registering at a level of 8.8 70% percent, well below the benchmark level of 30 percent Indicator 2011 2012 2013 2014 2015 Credit  worthiness 31.0% 22.2% 26.2% 33.2% 8.8% 60% and the previous year’s level. Results suggest that the 50% municipality lacked the capacity to finance its investments. Fiscal  autonomy 48.7% 57.0% 50.3% 52.0% 55.9% 40% Capital  investment  effort 33.4% 19.5% 24.2% 33.4% 12.1% 30% Fiscal autonomy, measured by the ratio of own-source Level  of  service  sustainability 28.7% 28.8% 20% revenues to total current revenues, was significantly Municipal  employees  per  1000  inh 13.5 10% below the benchmark of 80 percent over the five-year 0% period, despite some amelioration during 2015. As a very 2011 2012 2013 2014 2015 small municipality with a limited budget, the possibilities to undertake large-scale investments with own-source 45% 35% revenues were limited. Benchmark  level  for  capital  investment  effort Benchmark  level  for  credit  worthiness 40% 30% 35% The capital investment effort indicator, measured by the 25% ratio of capital expenditures to current revenues, was 30% 25% 20% volatile during the observed period. The indicator dropped 20% 15% from 33.4 percent in 2014 to 12.1 percent in 2015. 15% 10% 10% The level of sustainability on the expenditure side, measured 5% 5% by the ratio of maintenance work expenditures to operating 0% 0% expenditures, was about 28.8 percent in 2015 (almost the 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 same level as in 2014). The current level of the indicator was quite close to the benchmark level of 30 percent.   Administrative efficiency, measured by the number of municipal employees per 1,000 inhabitants, was 13.5 in 2015. The indicator remained below the benchmark level of 25 employees per 1,000 inhabitants. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve budget process and credibility by increasing the local tax collection rate with a particular focus on households and improving the collection of property taxes, including on buildings, agricultural land, and urban land. Actively contribute to the draft of the new local finances law to allow for more stable and substantial sources of financing for municipalities. Efforts to date have resulted in the approval of Law 68/2017: On Local Self-Government Finances. Contact: Denisa Mamillo | denisa.mamillo@gmail.com 15 ALBANIA MFSA MUNICIPALITY OF VLORË CITY PROFILE Territorial organization: Current administrative borders were established during 2015, as a result of the national governmental reform (the Territorial and Administrative Reform -TAR), which involved the merger of the former municipality of Vlorë with the former communes of Orikum, Novoselë, Qendër and Shushicë. The total surface of the Vlorë Municipality is 619 km2 from 12 km2 before the 2014 TAR. Demography: According to 2011 census data, the municipality of Vlorë has the seventh largest population in the country. According to 2015 data from the civil registry, the municipality has 194,857 inhabitants, which is about 6.7 percent of overall country’s population. Economy: Municipal-level data are unavailable, but the gross domestic product of the qark (county) to which the municipality belongs was €3,237.3 in 2014, about €219.7 below the average national level. The qark-level unemployment rate in 2014 was about 15.5 percent, 2.2 points higher than the national average of 13.3 percent. Exchange rate (2015): €1 = ALL 139.7; inflation rate (2015): 1.9 percent. Source: Bank of Albania. Decentralization of city-level functions: Since the adoption of Law 139/2015 on local self- government, local government units in Albania can conduct their own functions as well as mandatory or optional delegated functions transferred to them by law or agreement, which are totally financed by conditional transfers. Municipalities exercise their own functions in terms of infrastructure and public services; social services; culture, sports, and recreational services; environmental protection; agriculture, rural development, public forests and pastures, nature, and biodiversity; local economic development; and public safety. Utilities management: Ujësjellës-Kanalizime, the public company owned by the municipality, provides water supply and wastewater services. Currently, Vlora Water Utility is under reconstruction, in the process of including all the existing water companies in one. However, at the moment, aside from the main water utility in Vlorë, there are two other water and sewage companies operating in Orikum and Novoselë that report to the municipality of Vlorë. A private enterprise contracted by the municipality provides urban waste management service sin compliance with the public procurement regulatory framework. Municipal staff: Total employees: 653; general administration: 331; technical services unit: 196; other units: 126. Capital investment plan: The plan for the next three years is primarily oriented toward infrastructure works, such as the reconstruction of infrastructure on the Vlorë-Skelë Boulevard (€2.9 million), planned for 2017–19; parks, sidewalks, recreational spaces, and parking on both sides of the main boulevard (€2.8 million), planned for 2017–19; and the rehabilitation of a series of roads connecting the city of Vlorë with other administrative units. Urban issues and challenges: Issues and challenges include overbuilt urban spaces, a lack public services, disparities between urban and economic development and among administrative units, and the need to promote year-round tourism. FINANCIAL SITUATION Current revenues trended upward trend during 2011–14. Overall current revenues dropped substantially due to large revenue inflows from a 2015 infrastructure impact tax. The five-year average annual growth was negative, at -23.3 percent. Operating expenditures contracted by an average of -0.1 percent over the five-year period. In 2015, current revenues were not sufficient to cover the overall current expenditures incurred by the municipality, resulting in a negative gross operating margin. The positive net current balance turned negative in 2015. The balance after investments suggests capital revenues supported the municipality’s investment efforts. Investments were also financed by external sources such as the Regional Development Fund and loans. Source: Municipality of Vlorë and www.financatvendore.al HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenue structure: State revenues accounted for 71.4 percent of the municipality’s total revenues. Own-source revenues represented only 23.6 percent and other revenues, 4.9 percent. The revenue structure was clearly dominated by central government transfers to the municipality, indicating its poor capacity to rely on its own resources. Revenues from shared taxes represented a marginal source of financing, accounting for about 2.2 percent of overall revenue. Unconditional transfers accounted for about 24.6 percent, almost the same as own-source revenues. Own-source revenues generat- ed from local taxes and fees and from asset management also contributed substantially to the municipality’s overall financial performance. Local taxes and service fees accounted for 15.6 and 7.9 percent of total revenues, respectively; asset management requires improvement before it can generate financial resources and sustain investment levels. 16 Revenues tendencies: Overall revenues marked a negative average growth index of -4.8 percent during the considered period. Revenue performance was broadly determined by own-source revenue contraction. Revenues from state transfers increased by an average of 2.8 percent annually, mainly due to unconditional transfers. Revenues from shared taxes contracted by an average of 1.6 percent over the five-year period. Own-source revenues contracted at a annual rate of -10.8 percent, mainly due to lower tax revenues. Service fees performed better than taxes, registering an average annual increase of 8.6 percent. Carryovers from previous years were an important element for other revenue streams. Given the municipality’s tourism potential, much remains to be done to increase its overall revenues and financial autonomy. On the expenditure side, most resources were used to cover personnel and operating expenses. On average, these two categories represented about 80 percent of total expenditures over the period of 2010–15. These expenditure categories mostly accelerated over the last three years. Capital expenditures represented about 19.5 percent of total expenditures. Source: Municipality of Vlorë and www.financatvendore.al RATIO ANALYSIS The creditworthiness indicator, measured by the ratio of gross operating savings to current revenues, deteriorated substantially during 2015, turning negative to -97.6 percent, well below the benchmark level of 30 percent. Resultsb suggest that the municipality lacks the capacity to borrow to finance its investments. Fiscal autonomy, measured by the ratio of own revenues to total current revenues, was volatile over the five-year period and was below the benchmark level of 80 percent despite amelioration in 2015. The volatility of the indicator was determined by changes in the level of unconditional transfers allocated and the criteria used to divide them among municipalities. The capital investment effort indicator, measured by the ratio of capital expenditures to current revenues, was volatile over the considered period. Since 2014, and especially in 2015, investments were mostly financed through state transfers rather than own-source revenues. The level of sustainability on the expenditure side, measured by the ratio of maintenance work expenditures to operating expenditures, stabilized at around 3.0 percent during 2015. Administrative efficiency, measured by the number of municipal employees per 1,000 inhabitants, was 3.4 in 2015, down from 3.8 in 2014. The indicator remained below the benchmark level of 25 employees per 1,000 inhabitants. FINANCIAL PROJECTIONS AND INVESTMENT PROGRAMMING Multiannual financial projections are available and regularly updated as part of the MTBP document. There are no special models applied for projections that are mostly realized based on ministry of guidelines and an analysis of historical trends. Since 2016, the municipality has been executing a new vision as specified in the draft territorial development strategy. The capital investment plan guides the prioritization of investments, despite constraints to access to capital, such as local borrowing and the issuance of debt. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve budget process and credibility by increasing the local tax collection rate with a particular focus on households and improving the collection of property taxes, including on buildings, agricultural land, and urban land. Actively contribute to the draft of the new local finances law to allow for more stable and substantial sources of financing for municipalities. Efforts to date have resulted in the approval of Law 68/2017: On Local Self-Government Finances. Contact: Jeton Puka jetonpuka@gmail.com | http://bashkiavlore.org 17 BOSNIA AND HERZEGOVINA MFSA CITY OF BANJA LUKA CITY PROFILE Territorial organization: Administrative center of the Bosnia and Herzegovina of Republic of Srpska, consists of 57 sub-municipalities. Total area of the city: 1.239 km2. Situated on 17°12’ of longitude and 44°46’ of latitude. Population: Total population in 2013-180.056; 2016-182.848 (estimate RS Bureau of Statistics); preliminary census in 2013 BiH-199.191 (BiH Agency of Statistics) Annual growth: +0.4%. (2013-16) status in the country: 2nd place (status in the RS: 1st place). Density: 147.6/km 2. Economy: GDP per capita: 3.302 EUR (estimate 2016).Banja Luka holds 9.497 business entities, not including individual entrepreneurs, and a labor force of 58.482, (basic activity, head office on the city territory). The unemployment rate declined from 20% in 2015 to 17% in 2016. Banja Luka is a university, economic, political and administrative center of the Republic of Srpska with favorable geographic location (highway 50 km, connected to the highway Zagreb-Belgrade; highway Banja Luka-Doboj is nearly completed, as a connection between corridor 5c;international airport is 25 km from the city).Its economic potential is related to development of trade, services (IT), tourism, agriculture and processing industry. Due to the large number of green areas (parks and alleys),it is called the “City of greenery. It is also called “the city of young people, sports and culture. The City is preparing its candidacy for the European Capital of Culture in 2024. Utilities management: The city of Banja Luka is either majority or significant owner of 5 utility companies operating in: waste management and recycling, heating, water supply and sewer- age management, sanitation and funeral services. Also, the city is the founder of 1 public com- pany providing entertainment and recreation, majority owner of 1 shareholders’ company for utility fee collection and design and engineering work. Construction and maintenance of street lighting, construction and maintenance of road infrastructure, are funded by the city budget through public procurements and contracts with private companies. Public transport services are provided by private transport companies based on the city permit. Public parking services are provided by the city administration through one of its departments. Municipal staff: 750 in city administration and 606 in public institutions and organizations funded through city budget in 100% (2016). Current Project Investment Plan: Capital expenditure plan was adopted for the period 2015-2017. Planned investments in millions of BAM (defined source of funding): 8.7 (2015), 49 (2016), 59.4 (2017). Investment structure: 17% economy; 41,4% transport and utility infrastructure; 41,6% for housing, education, social welfare and health care, and sports and culture, environment protection. Development of a new capital investments plan is under way, which will define new list of priorities and realistic sources of funding. Urban issues & challenges: Upgrading the City as a regional center. Strategic goals: sustained development and larger efficiency in resource management, (goal 1); diversified economic structure ensuring full employment (goal 2); infrastructure efficiency and efficacy (goal 3); well integrated local community (goal 4); revitalized rural areas with ensured conditions for self-sustainable development (strategic goal 5). (Source: Reviewed “City Development Strategy 2007-2019”). FINANCIAL SITUATION Exchange: 1 BAM = 0.51129 EUR / 1 EUR = 1.95583 BAM. Inflation index: 2013 / 2014 / 2015 / 2016 / 2017 (RS, 2017-estimate) 0.0% 1.2% +1.4% -0.4% 1.3% •2016 actual budget of the City of Banja Luka is EUR 65.1 million, of which EUR 59,7 million is from current revenues. • Average annual growth of current revenues in the period under review was 1.6%, which is the result of decreased state tax transfers with increased own-source revenues. •Debt service: 2013 refinancing of loans, which sig- nificantly reduced net current balance. Afterwards, due to the reduced current expenditures and rise in revenue, net current balance increased since 2014. In 2017, debt is refinanced again, hence annual debt service is reduced from 11.6 mil. EUR to 9.1 mil. EUR (around 6 mil. EUR in the following years). • Operating exp. were in 2016 42.2 mil. EUR, with a decline of 1.3% in the period under review. • Capital expenditures in 2016 were 9.6 mil. EUR. In 2013, 5.1 mil. EUR was invested in recapitalization of heating company (Toplana). Compared to 2013, decline in investment is for 16.2%, which is mainly a consequence of reduced credit inflow, decline in capital revenues and flood repairs in 2014 funded from the current revenues 18 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Current Revenues: The most significant sources of current revenue are shared taxes (58%), The most significant sources of current revenue are shared taxes (15%), asset revenues (19%), and other local revenues (8%). The highest share of current revenue comes from indirect taxes with an average share of 37%. Local property tax with an average share of 6% has the potential to be increased in the future. Revenue from state transfers showed a high volatility and decline of 1.8%, while own-source local revenue recorded an average annual growth of 7.4%. In 2013, there was a high share of proceeds from borrowing represented due to refinancing of long-term loans. The share of state transfers from the Republic is reduced and in 2016 it reaches the share of 58%, whereas the share of own-source revenues is increased (42%). Unconditional and conditional (development) transfers, were not allocated. Capital revenues are in decline (-9.7%), but activities were taken to increase it (“Asset Management” project). Proceeds from borrowing became stable after 2013 on 4.5% of the City budget. The shares of current expenses for payroll (except for 2013, when the budget framework was increased due to refinancing), ranged between 28% and 31% with regard to total budget expenditures. These expenditures were reduced (-0.5%) as well as for goods and services (-4.8%). Current transfers, subsidies and grants rose (3.4% with social transfers to citizens and subsidies to companies) and have average share of around 15% (except 2013). Capital expenditures dropped from 18% in 2013 to 15% in 2016. Because of refinancing of loan debt in 2017, large capital investments are expected primarily in the construction of new city heating plan on wood chops and transport infrastructure. RATIO ANALYSIS • Operating margin increased from 23% to 32% of current revenues and net margin shows rise as pos- itive changes. • The debt burden is reducing, which is good, but annual share of debt service in current revenue is still high. • Ratio analysis indicates a need to increase the city’s fiscal autonomy. • Share of capital investments shows volatility (2013 5mil EUR invested in recapitalization of city heating plant). Apart from 2013, share of these expenses gradually increased. As the refinancing of loans was successfully completed in 2017, conditions for addi- tional capital investments in the future period have been created. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING City`s revenues are expected to rise by 2% on an annual basis. Smaller operational costs are also expected. New employments are not expected in the forthcoming period. Refinancing will enable lower annual amounts of debt repayment,which will lead to investments in the new district heating plant,business zones,water supply. MUNICIPAL FINANCE IMPROVEMENT PLAN Financial improvement plan has two main objectives with financing estimate of 1.5 mil. BAM: (I) Financial improvement and (II) Improved local funds management. Goal I has 3 specific objectives which are under the competence of central state or entity (increased share of the City in distribution of income on indirect taxes and personal income tax; control over the implementation of the Income Tax Law; introduction of new utility fees) and 5 specific goals under the competence of local self-governance (debt restructuring; revenue management based on immovable property tax, rental and utility contribution; implementation of public-private partnership projects and the project “Asset Management). Goal II has 5 specific objectives: An advanced model of program budgeting (implementation of more complex models and precautionary principle); development of financially sustainable “Capital Investments Plan” and the new “Development Strategy”, which will be more focused on public policies; advanced control of budget execution (centralized procurement, improved implementation analysis and monitoring);additional internal audit control; improved budget liquidity (collection of all receivables; write off of suspicious and controversial receivables). Contact persons: DEJAN VUJIĆ/BOŽANA ŠLJIVAR | Website: www.banjaluka.rs.ba 19 BOSNIA AND HERZEGOVINA MFSA MUNICIPALITY OF FOČA CITY PROFILE Territorial organization: Foča is one of the largest municipalities in Bosnia and Herzegovina, with a total area of 1,115 square kilometers. It is located in the south- eastern part of RS, and it occupies a prominent place in the Upper Drina region. Foča comprises 24 local community units (mjesne zajednice). Demography: Total resident population (2016): 17,200; annual population growth: -0.0232 percent; country population ranking: 65; population density: 15 inhabitants per square kilometer. Economy: Gross domestic product (GDP) per head (country level): 6,454; GDP real growth (country level): 0.7 percent; active population: 7,200; city unemployed population (regis- tered at national employment service): 3,700; city unemployment rate (percent of active population): 47.3 percent. Tourism, agriculture, and energy are the most prominent economic sectors. The National Park Sutjeska, is in the municipality’s territory. It is the oldest and the largest national park in Bosnia and Herzegovina, with an area of 17,250 square kilometers [[ok as added?]]. Perucica, the best preserved primeval forest in Europe with unique beauty is also in this area. Utilities management: Water supply and wastewater treatment and drainage: Izvor AD (public utility company); collection and disposal of waste, maintenance of municipal cemetery, city streets and parks, and public spaces: Komunalac AD (public utility company). The administrative committee [[define]] and utility companies determine prices for water supply and wastewater services. Municipal staff: Municipal administration: 157; general administration, including 3 representatives: 104; preschool administration: 16: social care administration: 16; municipal tourism organization: 5; and cultural administration (culture center and museum): 19. Existing project investment plan: Foča’s development strategy until 2026 includes detailed situational analyses of sectors, a SWOT analysis, a vision statement, main strategic objectives, and strategic programs. The first three-year implementation plan was adopted for 2017–19 in accordance with the development strategy. Financing will be shared by the city budget and funds from international and domestic donors, the European Commission, and the UNDP. Urban issues & challenges: Improve the quality of life through capital investments. Roads, water supply, sewage, and kindergarten are among the most significant issues. Challenges include land management, commercialization, and employment. FINANCIAL SITUATION Exchange: €1 = BAM 1.95583 / BAM 1 = €0.51129 Inflation index (percent) 2011 / 2012 / 2013 / 2014 / 2015 / 2016 +3.9 +2.1 0.0 -1.2 -1.1 +0.5 Structure of public expenditures Revenues and expenditures: The highest share of expenditures went to operating expenditures (2016—74 percent). Capital investments increased during the last three years: 8 percent in 2014, 11 percent in 2015, and 21 percent in 2017; as did borrowing costs and debt services: 2.8 percent in 2014, 3.0 percent in 2015, and 4.1 percent in 2016. Municipal capital revenues, including own-source capital revenues, were much lower than capital investments so a large portion of capital investments were financed with current revenues. 20 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Items (in BAM) 2011 2012 2013 2014 2015 2016 Share 2016 (percent) 1 State transfers and grants 6,451,086 8,356,701 6,117,689 7,497,864 7,258,431 8,902,909 75.4 2 Own-source revenues 2,207,688 2,560,670 2,715,507 2,518,484 2,441,225 2,388,575 20.2 3 External revenues 80,196 6,694 280,650 211,169 304,395 516,835 4.4 4 TOTAL REVENUES 8,738,970 10,924,065 9,113,846 10,227,517 10,004,051 11,808,319 100.0 Current Revenues: The most significant current revenues were state transfers and grants (75 percent in 2016). The share of revenues increased in correlation with an increasing VAT (value-added tax) and decreasing own-source (non-tax) revenues. State grants financed with the support of donors (European Union and others) were implemented in parallel with the municipal budget. Current Revenues: The share of current expenses for payroll and goods and services (general administration) were relatively stable accounting for 27 percent of budget expenditures. Current social transfers jumped from BAM 783,987 in 2011 to BAM 1,727,704 in 2016 due to increased social transfers to citizens. The share of capital expenditures to total expenditures was very variable, making it difficult to determine a trend over the short term. RATIO ANALYSIS Operating savings were below the benchmark but relatively volatile over the observed period due to changes in revenues and expenditures. Indebtedness levels were within acceptable limits. Fiscal autonomy was significantly low because a major portion of the revenues comes from state transfers. The municipality of Foča has no fiscal autonomy. It depended on state transfers and grants. Foča’s lack of fiscal autonomy is based in legislation and compounded by the fact that the VAT (value-add- ed tax) is collected at the state level. Capital investment efforts by the municipality were below the benchmark. Foča can only increase this indicator by increasing revenues because operating expenditures cannot be significantly reduced. The number of municipal employees per hundred citizens was 9, and salaries and wages were lower than 20 percent of operating expenditures, in accordance with benchmark. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING Financial projections: The main assumptions behind revenue projections are historical analyses and DOB. Historical analyses are important because a large portion of municipal revenues is state transfers (shared taxes) on which the municipality depends. Own-source revenues are variable, and it is very difficult to make accurate projections. Investment programming: The municipality of Foča adopted a development strategy for capital projects and plans for capital investment over three years, including the reconstruction of the primary and secondary water supply system for €3.5 million; reconstruction of the primary and secondary sewerage network for €3.4 million; building of a municipal landfill for €1 million; and building a health center for €1 million. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve the municipality’s financial situation through the acquisition of additional donations by applying for IPA (Instrument for Pre-Accession) funds; improve land management and commercialization of unused land and forest; improve the municipality’s financial management by reducing the influence of politics at the budget planning stage rejecting unrealistic capital budget investment requests; and adhering to multiannual financial plans. Contact: Mirjana Davidović finovaop@teol.net | www.opstinafoca.rs.ba 21 BOSNIA AND HERZEGOVINA MFSA MUNICIPALITY OF NOVO SARAJEVO CITY PROFILE Territorial organization: Municipality of Novo Sarajevo is one of the four municipalities of the City of Sarajevo, the capital of Bosnia and Herzegovina, which has 297,416 inhabitants and covers 141.5 km². Novo Sarajevo municipality is one of the 9 local communities in the Sarajevo Canton. The total area of the municipality is 9.9 km2, and includes 18 local communities (mjesna zajednica). Demography: Population (Census 2013) was 68,802 and estimates for 2015 is 73,862: Annual population growth is 1%. Density: 7,461 inhabitants / km² Economy: Total income per capita 209 EUR in 2015, Population activity rate 43,2; Unemployment rate (% of active population) 26.9%; employment rate 74.1%(% of active population); Development Index in the Federation of BiH 146.2. Utilities management: None of the utility companies are included in the municipal budget, since utility companies are not under the jurisdiction of municipalities in Sarajevo Canton. However, in some cases, the municipality transfers funds to some utility companies for specific projects. Municipal staff: 200 employees in municipal administration. Current Project Investment Plan: Main capital projects and capital investment plan for next three years: Construction of the sewerage network according to the Development strategy, investment of 0.8 EUR, Reconstruction of the Bosko Buha facility for educational and cultural events, investment of 0, 7mil EUR, Construction of a community building and an outpatient clinic in the settlement Hrasno Brdo, investment of 0.8 mil EUR Urban issues & challenges: Development strategy of the municipality includes social, economic and environmental development in order to improve quality of citizens’ life and overall development of the municipality. New sectoral goals are set for following 5 years, while operating plans are prepared for 3 years as well as capital investment plans with new projects. Issues to address include local asset management and illegal constructions. Challenges are improving citizens’ quality of life, creating conditions for attracting investment, and creating new employment opportunities for the citizens. FINANCIAL SITUATION Exchange: 1 EURO= 1.95583 BAM Inflation index: BiH. 2012: 2.1%, 2013: -0.1%, 2014:-0.9%, 2015:-1.0%. 2016:-1.1%. (Central bank of BiH) The budget for 2015 was realized in the amount of 8.9 million euros, with strong revenue growth from 2011 to 2015 by 12% annually. In the period 2011-2015 capital expenditure recorded strong growth in investment activities by 7% annually on average. The municipality does not have any debt. Operating margin was only in 2011 lower than capital investment expenditure. Capital expenditure decreased in 2013, but recovered in last two years. Capital expenditure is financed from ongoing revenues, no sales of assets, donations or capital intergovernmental transfers were recorded. 22 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Total municipal revenue increased in 2014, mainly due to higher revenue collected from land development fees. Shared tax were rather stable, until 2015 when state general transfers (indirect tax) increased due to change of Law on public revenue sharing in FBIH (which effects only Sarajevo Canton and its municipalities). Property tax is the sole local tax in FBiH, but in Novo Sarajevo it is shared with the Canton (which also administers it). Expenditure structure is dominated by payroll expenditure (including employees benefits), and shows 1% annual growth. In 2011 payroll expenditure were 62% out of total operating expenditure, but since then until 2015 shows decreasing trend and 2015 make 56% in the structure. Other current expenditure from 20% amounted to 25% in the structure, mostly as result of increasing current transfers of social benefits to citizens and NGOs. RATIO ANALYSIS Creditworthiness: Operating margin shows stable trend and above benchmarks in 2014-15 after a particularly low level in 2013. Fiscal autonomy is low, substantially below the benchmark. State grants are low about 30% of current revenues, but most earmarked. Capital investment effort shows great fluctuation, was the lowest in 2013, but effort is on the rise in last two years. Labor efficiency: Salaries comparing to operating expenses are substantially above the benchmark which indicates issues of over-employment and low rationality of the municipal administration. Budget predictability is low, but improving. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING It is necessary to harmonize the Development strategy with the municipal finance system. Financial analysis should be prepared every year as a base for revision of the three year operating plans annually. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve financial situation of the municipality: Change legislation in order to stop current sharing property tax with the Canton, give more flexibility on the local tax policy and Improve coordination with tax administration in local tax collection. Improve financial management of the municipality: Improve reliability of forecasting revenues and expenditures, Improve cost analysis of main expenditure categories, Improve expenditure monitoring, Improve Budget execution reporting, Establish an asset management system. Contact Persons: Mirela Spaho, spahom@novosarajevo.ba | Website: www. novosarajevo.ba 23 BOSNIA AND HERZEGOVINA MFSA MUNICIPALITY OF ODŽAK MUNICIPAL PROFILE Territorial organization: The municipality of Odzak is located in the northern part of Bosnia and Herzegovina and is one of the 3 local self-government units in the Posavska County. The total area of the municipality of Odžak is 158.4 km² and includes 22 local communities (mjesne zajednice). The municipality was hit by floods on two occasions in 2014, which was the biggest natural disaster this municipality has ever experienced. Demography: According to the 2013 Census, the number of inhabitants is 21,289, and 18,397 according to estimates for 2016, with a population density of 116 inhabitans/ km². The number of inhabitants has a steady downward trend, and in 2016, the annual growth was -149, while natural increase per 1000 inhabitants was - 8.10. Economy: In 2016, the municipality had 160 active legal entities and 203 small craft businesses. All economic indicators analyzed have a growth trend (total income, profit, employment, equity, coverage of import by export amounts to over 90%). The strongest economic activity in the municipality of Odzak is the manufacturing industry: 42 entities, 860 employees, 80 million KM of the total income, more than 50% products are exportes to the market, over 3 million EUR profit). Tax revenue per capita in 2016 amounted to 56 EUR. The employment rate of the active population in 2016 was 51.4; the unemployment rate (% of the working population) is 48.6%, and the employment rate is 17.1%; According to the development of municipalities, Odzak is 57th out of 79 municipalities in the Federation of Bosnia and Herzegovina. Utility Management: The Odžak Municipality provides water, wastewater treatment and waste disposal services through its majority public company JP Komunalac. Municipal staff: 48 employees in the municipal administration. Current Investment Plan: The Key Strategic Planning Document is the Revised Develop- ment Strategy of the Municipality of Odžak for the period 2016-2020. A public debate on the new Spatial Plan of the Odžak municipality for the period 2016-2035 is under way and The Plan is expected to be adopted in 2017. Capital Investment Plan 2017-2019, among other, includes the following investments: construction and reconstruction of water supply; expansion of business zones North at a future border crossing; strengthening tourism especially hunting and fishing; expansion and rehabilitation of the sewerage system in the municipality of Odzak; rehabilitation of an existing landfill for the disposal of waste and illegal landfills; reconstruction of the existing road network destroyed in floods, field roads and channels; irrigation; completion of land consolidation; demining mines of contaminat- ed surfaces; construction of terminal and other facilities at the future border crossing BiH/ Croatia. Urban Issues and Challenges: Urban issues in the municipality of Odzak are a lack of investment, production and business facilities; inactive privatized companies; wild dumps and damage from war and floods; large land area contaminated with mines. Challenges for the municipality of Odžak are: improving the quality of life of citizens; creating conditions for attracting investment and employment by respecting environmental standards, and thus reducing the outflow of the working-age population. FINANCIAL SITUATION Exchange rate (2011-2015): 1 EURO = 1.95583 BAM . Inflation index BiH (Central bank of BiH). 2012: 2.1%, 2013: -0.1%, 2014: -0.9%, 2015: -1.0%. 2016: -1.1% Current revenue show 1% average annual decline while operating expenditure grew fast by 7% annually. Operating expenditure show significant increase from 81% of current revenue in 2011 to 99% in 2014, and resulted in negative gross and net current balances in 2015). The volatile net savings and the sharply decreasing investment grants resulted in fast decreasing capital investments, the growth index shows (-15% per year). The low predictability and high volatility of revenues resulted in unpredictable closing balances that were negative in three of the surveyed five years. These attributes signal low level of sustainability of the city’s financial growth. 24 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Average growth of total revenue 2011-15 per year was -3%. Average growth of transfers from other government levels was -1%; this trend is mostly result of decrease of general transfers from indirect taxation revenue because of large debt repayments for budget support loans to the Federation Government level. Own-source local revenue have grown by 1% annually, but was vulnerable because of the volatile nature of local fees (such as development fee). External revenue increased in 2014 due to larger amounts of intergovernmental capital transfers and donations received for flood recovery. Structure of the revenue: State transfers were 51% of total revenues in 2011, but lowest 38% in 2013; own-source revenue increased from 46% in 2011 to 51% in 2015. Average annual growth of total budget expenditure was 7%. In the structure of total operating expenditures, the share of payroll expenditure decreased from 36% in 2011 to 30% in 2015. Expenditures on goods and services varied from 30 to 33% of total budget expenditures. Interest expense declined by 19% annually. The other current expenditures were spent largely on transfers to individuals for social care (employment rate is only 17.1%;), which addittionl increased in 2014 and 2015 as transfers to help in the flood recovery. RATIO ANALYSIS Creditworthiness is very low; the ratio is below the benchmark and was declining in the period. Indebt- edness was low, but the annual debt repayment is not adequate with regard to operating income. Fiscal autonomy is low due to the current legislation and the administrative structure of FBIH. There is practi- cally no tax policy which municipalities exercise full discretion. Capital investments were at the bench- mark in 2011, but drastically fell by 2014, because of the flood, but somewhat recovered in 2015. Sal- aries compared to operating expenses are below the benchmark, and total number of employees per 1000 inhabitants is low, which indicates the rationality of the city administration. Maintenance are way below the benchmark and mu- nicipality need to improve it. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING Most of the project proposals in the operational annual and three-year plans were linked with the budget of the municipality of Odzak to a less linked to the level of the Canton, and not at all with the higher levels of the Federation and Federal and state agencies. Existing legislation on the repayment of foreign debt in BiH is not in favor of local governments, so the change of related laws and laws on the distribution of public revenues between levels of government and local self-government units will improve the financial capacities of local governments in the FBiH. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve the financial situation of the municipality: Improve cooperation with the Tax Administration in collection of tax and non-tax revenues of the municipality of Odzak. Municipality requests from Tax office all resources belonging to the Odzak municipality. The municipality insist on com- pliance with bylaws that regulate the procedures and deadlines for collecting revenues from the tax administration. Municipality need to improve internal control, improve collection of communal fees, introduce internal audit, increase cost monitoring, accelerate the introduction of program budgeting. Contact Persons | Nihada Bećirbašić nihada.becirbasic@odzak.ba | Website: http://www.odzak.ba 25 BOSNIA AND HERZEGOVINA MFSA MUNICIPALITY OF ORAŠJE MUNICIPALITY PROFILE Territorial organization: The municipality Orašje is located in the northeast of Bosnia and Herzegovina and covers a space of 125 km2. The municipality consists of 13 inhabited places, of which one is urban and the other rural. According to the Dayton Peace Agreement, the municipality of Orašje is one of 3 municipalities in Posavina canton. Demography: The population is 21,584 (Census 2013) and 18,988 according to estimates for 2015. The annual population growth of -0.1% in 2013 increased to 0.6% in 2015. According to the number of inhabitants (Census 2013) Zenica is 4th largest city in BiH with density: 152 inhabitants / km². In Orašje is situated one of the main border crossings between BiH and Republic of Croatia (EU), which is one of the most significant comparative advantages of this area. Economy: The most significant activities in Orašje are: wholesale and retail trade and maintenance, manufacturing, transport, warehousing and communications and construction. Total revenue per capita in 2015, based on estimate population, 151 EUR. Tax revenue per capita 61 EUR. Population activity rate is 70.5; unemployment rate (% of working population) is 31; employment rate 52.8; and development Index (in the Federation of Bosnia and Herzegovina) is 79. Utilities management: The municipality provides services through its public utility companies, as well as through its own department such as parking service. Public companies provide ser- vices: water supply and waste water treatment, waste disposal and cemetery. Municipal staff: number of employees in municipal administration is 80 Urban Issues and Challenges: Due to the lack of investment, manufacturing and business facilities, the unemployment of young, working-active population has increased, which has led to emigration. The main challenge is to stop emigration and create a favorable climate for work and development, create a favorable climate for new investors and thereby raise the quality of life of citizens. Current Project Investment Plan: Key Strategic Plans are Revised Strategy for Development of the Orašje Municipality 2016-2020. and the Plan for the Implementation of Strategic Projects and Measures for the Period 2017-2019, where we particularly emphasize the project for the construction of a water supply and drainage system worth EUR 3,000,000, the construction of infrastructure in the Business Zone, the construction of a fridge for fruits and vegetables and a Distribution Center in values of 250,000 EUR etc. FINANCIAL SITUATION Exchange rate (2011-2015): 1 EURO = 1.95583 BAM. Inflation index BiH (Central bank of BiH): 2012: 2.1%, 2013: -0.1%, 2014: -0.9%, 2015: -1.0%. 2016: -1.1%. The municipality has a stable but small operating surplus, which has grown fast 16% per year over the last 5 year. Current revenue show average growth 6%, while operating expenditure are growing slower (5% annual growth). Operating expenditure show decrease from 89% of current revenue in 2011 to 83% in 2014. Capital investments increased in 2014 and funded from large donations due to the floods which have brought enormous destruction in the municipality. The city does not have cash provisions from previous years to finance capital investments, so it depends on current revenues and borrowings. The city’s budget is under good control and shows stable positive balances that have grown by 16% over the analyzed 5 year period, albeit the large balances often are due to the slow utilization of the development grants 26 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Average growth of total revenue 2011-15 is only 1%. Average growth of transfers from other government levels is -1%, this trend is mostly result of decrease of general transfers from indirect taxation revenue because of large debt repayments for budget support loans to the Federation Government level. Own-source local revenue has increased since 2013 because of revenue from local fees but is vulnerable because of the volatile nature of those fees. External revenue increased in 2014 due to the floods which were the worst in 120 years and have brought enormous destruction in the municipality. Structure of the revenue: State transfers were 54% of total revenues in 2011, but lowest 50% in 2013; own-source revenue increased from 27% in 2011 to 39% in 2015. Average growth of total revenue 2011-15 is only 1%. Average growth of transfers from other government levels is -1%, this trend is mostly result of decrease of general transfers from indirect taxation revenue because of large debt repayments for budget support loans to the Federation Government level. Own-source local revenue has increased since 2013 because of revenue from local fees but is vulnerable because of the volatile nature of those fees. External revenue increased in 2014 due to the floods which were the worst in 120 years and have brought enormous destruction in the municipality. Structure of the revenue: State transfers were 54% of total revenues in 2011, but lowest 50% in 2013; own-source revenue increased from 27% in 2011 to 39% in 2015. RATIO ANALYSIS Ratio Analysis: The ratio analysis reflects a generally good performance of the municipality with good control of expenditures, however improvements are constrained by the low fiscal autonomy and thus the low level of local revenues. Credit worthiness ratio (operating Savings before interest/current revenue) is way below the benchmark, only 2014 was on the level of the benchmark. The debt service is very low, easy to serve from operating savings. Fiscal autonomy is low due to the current legislation and the administrative structure of FBIH. There is practically no tax policy which municipalities exercise full discretion. Capital investments were decreasing from to 2011 to 2014, the high investments in 2014 were mostly investments in the flood recovery. Maintenance ratios were stable and steadily above the benchmark that show good policies of the local government. Salary expenditures comparing to operating expenditure were above the benchmark in 2011 and 2012, but were bellow or at the benchmark in the last three years. Number of employees were way below the benchmark which indicates the rationality of the city administration. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING It is necessary to harmonize the Development strategy with the financial system (the financial capacity of the City), which implies previous financial analysis; at the local level, the level of cantons, federation and state government. Existing legislation of foreign debt repayment in BiH is not in favor of local governments, thus change of related laws and laws of public revenues allocation between level of governments and local self-government units will improve financial capacity of local governments in FBIH. MUNICIPAL FINANCE IMPROVEMENT ACTION PLAN The municipal finance improvement plan is primarily possible with greater control: increase internal control, introduce internal audit, and increase cost control. Also, emphasis should be placed on improving the cooperation with the FBiH Tax Administration in collecting municipal tax and non- tax revenues, as well as insisting on compliance with subordinate legislation governing the procedures and deadlines for revenue collection by the tax administration. Contact Persons: Nikola Benkovic nikola.benkovic@orasje.ba | Website: http://www.orasje.ba 27 BOSNIA AND HERZEGOVINA MFSA CITY OF PRIJEDOR CITY PROFILE Territorial organization: Prijedor is located in the northwestern part of Bosnia and Herzegovina and it is the third largest city in the Republic of Srpska and the sixth in Bosnia and Herzegovina. The city is divided into 49 local communities. City area: 834 km2. Population: Prijedor has about 105,000 inhabitants and the population density is 126 in- habitants / km2. Economy: Representatives from trade, hotel and catering, services and light industry (wood, metal, mining and textile) are represented. The number of registered legal entities is 425 and the entrepreneur is about 1,327. Public Utility Companies: In the majority ownership of the City of Prijedor there are 5 public companies: water supply and sewerage; garbage collection; city market; city heating plant and public transport company. The distribution of electricity is under the jurisdiction of Republika Srpska. City staff: A total of 426. The City Administration employs 258 civil servants and 168 employees in public institutions financed by the City of Prijedor (Children’s Nursery, Center for Social Work, Agency for Local Economic Development, Film Center, Theater, Gallery and Tourism Organization). Current Capital Investment Plan: It was adopted for the period 2016-2018 and is adopted annually for the current and next two years. The most important projects are: (1) The Water and Sewerage Project in the Republic of Srpska with the EIB, which implementation is in the process from 2012-2020 and for the City of Prijedor, amounts to 35,832,594 KM; (2) Reconstruction of the Fire Station in Prijedor in the amount of 2.000.000 KM and implemented in the period 2017-2019, (3) The Social Housing Project funded by the Development Bank of the Council of Europe in the amount of 1.845.000 KM and implemented from 2016-2018 (4) The World Bank Emergency Rescue Project in the amount of 451.751,23 SDR for the reconstruction of communal infrastructure for the period 2016-2017. (5) Construction of a City Heating Plant on biomass in the amount of KM 20,000,000 (14,000,000 KM of EBRD loan and 6,000,000 grant). The plant for the production of electricity was built with this investment as the part of this congenerative energetic complex. Urban issues & challenges: Vision of the City of Prijedor from the Integrated Development Strategy of the City of Prijedor for the period 2014-2024 is as follows: “Prijedor - a City of Real Investments and Successful People” The strategic goals of the City of Prijedor are: Built a strong economy that uses all the resources of the city of Prijedor and its surroundings, recovered and reconstructed existing and built new physical infrastructure, developed network of institutions for supporting social development and improved quality of life of citizens and established functional capacities for sustainable environmental management with the application of energy efficiency principles. FINANCIAL POSITION Exchange: 1 EUR = 1,95583 KM Inflation index (percent) 2012: 2.1%; 2013: 0.0%; 2014: -1.2%, 2015: -1.6%; 2016 .: -0.20%. Total current revenues had a 3.93% growth trend due to a change in the decision on the allocation of VAT revenues belonging to local communities that, due to the results of the population census and the number of inhabitants as distribution criteria, increased the City’s revenues on this basis. Operating expenses had a growth trend of 3,73% due to the large increase in the number of social protection beneficiaries. According to the Law on Social Protection, local communities co-finance 50% of social protection, and due to the difficult economic situation, the number of users of these services is increasing. Debt repayment had a growth trend of 19.6% due to repayment of previouse loans for capital investments and new borrowing for the same purposes. Capital expenditures in 2016 amount to KM 12.049.725. If we compare 2012 and 2016, the average increase in capital expenditures is 16.8% and varies by age in accordance with the Development Strategy and Capital Investment Plan of the City of Prijedor. The net margin has an average downward trend of -1.03%, which is the result of a faster growth of current expenditures than current revenues, as well as the advances and increases in repayments for loans invested in capital investments from an earlier period. Current expenditures also include interest expense for previously borrowed loans. Own capital revenues have an average downward trend of -31.7% due to a decrease in private construction activity and thus drop of cevelopment fee revenues caused by a major economic crisis and falling demand on the market for residential and business premises. 28 HISTORICAL ANALYSIS: REVENUES AND EXPENDITURES The most important revenue is from revenues shared with the entity (VAT and personal income tax) 70,1%, revenues by city decisions (property tax, concession fee, taxes, etc.) 21,7% The revenues from indirect taxes make the most significant share in local community revenues and amount to about 63%. The potential risk of this type of revenue is the fact that from these revenues the external debt is first settled, then the expenditures of joint state bodies, the costs of the entity and then the needs of local communities. Any increase in external debt repayment significantly jeopardizes the functioning of local communities that have identified the distribution among local communities according to commonly established criteria. The wage tax is about 8% and depends on economic development and the rate of increase in employment, while concession fees, annuities and construction land and other fees depend on the level of construction activity. Property tax represents potential in this local community because a large number of citizens reside abroad and did not even register in the register of assets, which is the prerequisite for tax collection and collection. Unconditional transfers have a significant trend of growth, but they represent the provision of 50% in the participation of the total social security costs of citizens and thus increase the participation of this type of expenditures from the local level. The share of wages and salaries in total costs before interest payment is around 26%, current maintenance costs are 7% and increase with increasing capital investments, interest rates on loans increase with the level of indebtedness and other operating expenses are also affected by the increase in retail prices. RATIO ANALYSIS Capital expenditures in 2016 amount to KM 12.049.725. If we compare 2012 and 2016, the average increase in capital expenditures is 16.8% and varies by age in accordance with the Development Strategy and Capital Investment Plan of the City of Prijedor. The net margin has an average downward trend of -1.03%, which is the result of a faster growth of current expenditures than current revenues, as well as the advances and increases in repayments for loans invested in capital investments from an earlier period. Current expenditures also include interest expense for previously borrowed loans. Own capital revenues have an average downward trend of -31.7% due to a decrease in private construction activity and thus drop of cevelopment fee revenues caused by a major economic crisis and falling demand on the market for residential and business premises. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING Financial projections are based on historical data on revenues and expenditures and are projected on the basis of the Framework Budget Document issued by the Government of Republika Srpska for the current and next two years. It is necessary to constantly balance the vision of urban development with the city financial system. MUNICIPAL FINANCE IMPROVEMENT PLAN Financial Sustainable Capital Investment Plan with the aim of implementing the objectives of the City Development Strategy for the period 2014-2024. Introduction of project budgeting instead of nominal; Improve monitoring of main revenues and expenditures during the year; Increase transparency and increase citizens’ participation in planning and reporting on the budget process; Increase citizen satisfaction with local community services with other departments through the establishment of funding allocation criteria and the ongoing evaluation of the budget process; Consistent application of the Law on Public Procurement and other laws that indirectly influence the increase of revenues and reduction of expenditures; Improving the level of property management; By increasing the control over the operations of public companies etc. Contact person: Nevenka Lučar | Web page: www.prijedorgrad.org 29 BOSNIA AND HERZEGOVINA MFSA MUNICIPALITY OF PRNJAVOR CITY PROFILE Territorial organization: Prnjavor municipality is located in the northern part of Bosnia and Herzegovina, in Republika Srpska, near the Ljubić Mountain and Ukrina River and 50 kilometers from the capital city of Banja Luka. The municipality comprises 34 local communes (mjesna zajednica). The total area of the municipality is 630 square kilometers. Population: Total, according to the 2013 census: 34,357; density: 57 inhabitants per hectare Economy: Gross domestic product per capita: €4,145 (2016 estimate); business entities: 731; individual entrepreneurs: 1,554; number of unemployed: 5,725, 2,419 of whom are in the active labor force, and 3,306 of whom applied to exercise other rights; unemployment rate (2016): 19.3 percent. Prnjavor’s favorable geographic position connects with neighboring municipalities by main roads, is close to the European Union border and the exit to the Belgrade-Zagreb highway (60 kilometers), and the new highway Doboj-Banja Luka will pass through the municipality. The business environment is dominated by the light metal industry, the woodworking industry, footwear production, trade, and catering. Utilities management: The municipality is the founder and majority owner of two utility com- panies: PARK a.d. for waste management and sanitation and VODOVOD a.d. for water supply and sewerage, which are not included in the municipal budget but are co-financed through dedicated projects, funds, and grants. Municipal staff: Total: 205; city administration: 161; preschool administration: 21; social care 13; other external budget users: 10. Current Project Investment Plan: The municipality of Prnjavor has a development strategy for 2012–20. An evaluation was conducted In 2016 and the strategy revised in 2017. The capital investment program is annually renewed during the budget adoption process, which coincides somewhat with the development strategy. Currently, there are three stages of capital investment projects in different phases: POVELIĆ, a water supply project (2002–20); new music school construction (2015–17); and “Our Joy” kindergarten expansion (2015–17). Urban issues & challenges: The most important issues include the completion of the project to supply water throughout the municipality, the opening of the business zone— Vijaka, road improvement through the construction of circular flows, wastewater treatment and expansion of the sewerage network, electricity network improvements throughout the municipality, and increasing the employment rate. FINANCIAL SITUATION Exchange: BAM 1 = €0.51129 /€1 EUR = BAM 1.95583 (fixed exchange rate—currency board) Inflation index (percent) 2014: -1,.2%; 2015: -1.4%; 2016: -0.4%; 2017: +1.3% (projected) The municipality’s actual 2017 budget was €6.7 million, all from current revenues. The average annual growth rate for current revenues during the observed period was 0.59 percent. Debt service increased slightly. Capital investment spending remained at virtually the same level as current revenue, and investments were funded with the municipality’s own-source revenues. Social benefits, salaries, and repayment of loans limited the potential for investment. 30 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Current revenues: The most significant sources of current revenues were shared taxes (VAT taxes represented 76 percent of current state transfers), local taxes and fees, and local nontax revenues. The highest share of current revenue came from the VAT, with an average share of 62.4 percent; followed by personal income tax, with an average share of 8.4 percent. Local property taxes represented an average share of about 4 percent; and noncurrent state transfers were negligible during the observed period. The ratio of total municipality and state incomes of 81 percent: 17 percent shows little influence on total budget revenues by local politics. Growth 2014 2015 2016 2017 Items (million EUR) 2014–17 ( , millions) ( , millions) ( , millions) ( , millions) (percent) Operating expenditures 5.377 5 .287 5 .734 5.539 0.99 Payroll (including employee benefits) 2.165 2.171 2.126 2.069 - 1.50 Goods and services 1.401 1.324 1.611 1.272 - 3.16 Current subsidies, grants, and transfers 1.811 1.792 1.997 1.946 2 .42 Other current expenditures 0.000 0.000 0.000 0.252 - Debt service 0.917 1.026 0.750 0.832 -3.20 Capital investment expenditures 1.225 0.611 0.716 0.679 -17.87 RATIO ANALYSIS Creditworthiness was above the benchmark limit, but there was little space for new borrowing. The indebt- edness parameters were above the reference values but within the limits allowed by Republika Srpska’s law on borrowing. There was a high level of fiscal autonomy during the observed period. The level of capital investment is below the comparative index because the potential for investments was limited by the allocation of social benefits, the repayment of debts, and cost of salaries. Service sustainability was high above the benchmark, reflecting a stable and well-planned budget. Salary and wage allocations were above the benchmark but tended to decline; they will continue to be harmonized under the new local government law. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING Financial projections are based on historical analysis as well as projections and guidelines from the ministry of finance’s budget framework document. MUNICIPAL FINANCE IMPROVEMENT PLAN Increase cooperation with the tax administration of the Republik of Srpska to increase property tax collection and better control tax returns. Improve the collection of doubtful and contested claims. Attract investors by creating a favorable business environment (Business Friendly Certifi- cate/BFC), and expanding the base of local revenue sources. Build a business-industrial zone as a prerequisite for expanding domestic entrepreneurial activities and for attracting new investments. Improve coordination among municipal administration departments in terms of monitoring, controlling, and collecting local revenues and educating budget users on planning and monitoring the execution of the budget. Increase the municipality’s share of distributed joint budget revenues with Srpska’s budget (Income Tax - ratio 36:65). Lobby through the Association of Local authorities of Republika Srpska to change legal regulations to prevent borrowing at the level of Bosnia and Herzegovina] from affecting the reduction of the amount of revenue from the allocation of VAT distributed to municipalities. Rationalize the costs of the municipal administration by it with the new Law on Local Self-Government. Contact: Siniša Moravski | www.prnjavor.ba 31 BOSNIA AND HERZEGOVINA MFSA CITY OF TUZLA CITY PROFILE Territorial organization: Tuzla is located in north-east Bosnia and Herzegovina, on the slopes of the Majevica mountain. The elevation of the city is 239 meters above sea level. Its favorable geographic position enables Tuzla to have good connections with other regions in Bosnia and Herzegovina, as well as with neighboring countries, Croatia, Serbia and Monte Negro, but almost equally with the regions of South-East, Central and Western Europe. The total area of Tuzla is 294 km² and includes 40 local communities. Demography: Population reaches 110,979 (list 2013) and 110,642 according to data for 2016. Tuzla is the third largest city in BiH with a population density of 376.3 inhabitants / km². Economy: Tax revenues realized in the city of Tuzla amount to KM 19.8 million. The highest tax revenues per capita in the city of Tuzla amount to KM 179. Gross domestic product (GDP) of the city of Tuzla in the amount of about KM 1.2 billion represents 6.6% of the GDP of the entire Federation of BiH. GDP per capita of the city of Tuzla is estimated at KM 8.911 and it is about 43% higher than the average GDP of the Federation of BIH, estimated at KM 6.231. The development level of the city of Tuzla, i.e. the development index is 129.7, i.e. 29.9 points higher than the average development index of the Canton. The employment rate is 61.5%, i.e. higher than the average employment rate of the Canton, estimated at 46.2%. The registered number of legal entities in the city of Tuzla is 3,654, The registered number of craftsmen is 3,518. Public Utility Services: The city of Tuzla provides services through its public utility companies: central heating delivery, collection, treatment and distribution of water, collection and drainage of waste water, collection and transport of waste, maintenance of green areas and hygiene in public areas, maintenance of public areas in winter, solid waste management at sanitary landfill, public parking management, horizontal, vertical and semaphore signaling maintenance, free wireless internet system management, video surveillance and funeral service management The number of Public Administration employees: 431 Current Investment Plan: The key strategic planning document is the Development Strategy of the City of Tuzla 2026, followed by Draft Strategy for Youth of the City of Tuzla 2017-2026, Spatial Plan of the City of Tuzla 2010-2030. The Capital Investment Plan for 2017, among others, includes the following investments: construction and reconstruction of water supply system, reconstruction and rehabilitation of the existing road network, central heating supply to residential buildings. Urban issues & challenges: Urban Issues: Continuity in the development of culture, creative innovation, healthy and pleasant living, ensuring economic and social attractiveness, development opportunities and good quality of life for citizens and investors. Challenges of the city of Tuzla: improving the quality of life, continuing and intensifying activities to create more favorable conditions for new investments, economic growth that will lead to job creation. FINANCIAL SITUATION Exchange rate (2011-2015): 1 EURO = 1,95583 BAM Inflation index BiH (Central bank of BiH). 2012: 2.1%, 2013: -0.1%, 2014: -0.9%, 2015: -1.0%. 2016: -1.1%. The city has a stable operating surplus, which has grown 34% per year over the 5 years. Current revenue show average growth 6%, while operating expenditure remained on the same level and grew only by 0.2% per year. Capital investment vary from year to year, but average growth was17% annually. The city does not have cash provisions from previous years to finance capital investments, so it depends on current revenues, donations, and borrowings. The city budget is under good control and shows stable positive operating balances, however, the overall closing balance turned to be negative in 2014 and 2015. But the overall balance were still positive when loan proceeds are accounted. 32 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Average growth of total revenue 2012-15 was 7% per year. Average growth of transfers from other government levels declined by 1% per year, this trend is mostly result of decrease of general transfers from indirect taxation revenue because of large debt repayments for budget support loans to the Federation Government level. Own-source local revenue has increased by 16% annual mostly pursuant to the Law on allocation of the revenues collected by public companies and other legal entities which generate revenues from the operation of Thermal Power plant in Tuzla- External revenues were very volatile and decreased eventually by 20% on average annually. . Structure of the revenue: State transfers were 59% of total revenues in 2011, but only 43% in 2015; in turn own-source revenues increased from 40% in 2012 to 57% in 2015. Average annual growth of operating expenditure was virtually zero. In the structure of total operating expenditure however, the share of payroll expenditure increased from 36% in 2011 to 43% in 2015. Expenditure for goods and services were on the highest level of total budget expenditure were 46% in 2014. Interest expense annual growth was 71%, which is alarming, albeit it started from very low level. RATIO ANALYSIS Ratio Analysis: The ratio analysis reflects a generally good performance of the municipality with good control of expenditures, however improvements are constrained by the low fiscal autonomy and thus the low level of local revenues. Credit worthiness ratio is below the benchmark until 2015. The debt service is very low, easy to serve from operating savings. Fiscal autonomy is low due to the current legislation and the administrative structure of FBIH. There is practically no tax policy which municipalities exercise full discretion. Capital investments were decreasing from to 2011 to 2013, the high investments in 2015 and seems the investments are increasing again. Maintenance ratios were stable and steadily above the benchmark that show good policies of the local government. Salary expenditures comparing to operating expenditure were above the benchmark in 2012, in 2013 were below, but in 2014 and 2015 above the benchmark. Number of employees were way below the benchmark which indicates the rationality of the city administration. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING Obligation and commitment of Tuzla City Administration to align the development planning process with the financial plan, i.e. the plan for the implementation of strategic and other development documents must be aligned and in accordance with the Budget of Tuzla City Administration. FINANCE IMPROVEMENT PLAN Amendments to Legislative Regulations aimed at developing and creating a better business environment, related to the amendment of Real Rights Law, the Request for Transfer of the Right of Use of Abandoned Mines in order to become operational and turned into new business areas, Amend- ment of the Law on Public Revenue Initiative Contact Persons: Svjetlana Kakeš | Email: svjetlanak@tuzla.ba | Website: www.tuzla.ba 33 BOSNIA AND HERZEGOVINA MFSA CITY OF ZENICA CITY PROFILE Territorial organization: The city of Zenica is located in the central part of Bosnia and Herzegovina and is one of the 12 local government units in the Zenica-Doboj Canton. The total area of Zenica is 558.5 km and includes 73 local communities (mjesna zajednica). Demography: The population is 110,663 (Census 2013) and 109,950 according to estimates for 2015. The annual population growth of -0.1% in 2013 increased to 0.6% in 2015. According to the number of inhabitants (Census 2013) Zenica is 4th largest city in BiH with density: 198.14 inhabitants / km². Economy: Total revenue per capita in 2015, based on estimate population, 203 EUR. Tax revenue per capita 91 EUR. Population activity rate is 69; unemployment rate (% of working population) is 48.2; employment rate 51,1; and development Index (in the Federation of Bosnia and Herzegovina) is 105.3.. Utilities management: The city provides services through its majority owned enterprises and public utility companies: for heating distribution, water supply and waste water treatment, waste disposal (city co-founder and co-owner), funeral services, and for city parking services. Municipal staff: 282 employees in city administration, 738 employees in public companies. Current Project Investment Plan: Key strategic planning document is Integrated Development Strategy of Zenica 2012-2022. Public debate on new Spatial Plan of Zenica 2016 to 2036 is over and the Plan is in the process of adoption. Capital investment plan 2017-19 among others, list following investments: construction and reconstruction of water supply EUR 23.6 millions; expansion of the Business zone EUR 920,340; strengthening tourism 296,554 EUR, sewerage 10,8 million EUR, reconstruction and rehabilitation of the existing road network 1, 6 mil. EUR Urban issues & challenges: Urban issues in Zenica are lack of investment, production and business facilities; illegal constructions; wild landfills and landslides. Challenges for the city are: improving citizens quality of life, creating conditions for attracting investment and employment, while respecting environmental standards. FINANCIAL SITUATION Exchange rate (2011-2015): 1 EURO = 1,95583 BAM Inflation index BiH (Central bank of BiH). 2012: 2.1%, 2013: -0.1%, 2014: -0.9%, 2015: -1.0%. 2016: -1.1%. 45,000   3,500   40,000   3,000   Current revenue show average growth 4%, while 35,000   30,000   2,500   operating expenditure are growing faster and resulted 25,000   2,000   in -7% annual growth. Operating expenditure show 20,000   1,500   significant increase from 81% of current revenue in 15,000   10,000   1,000   2011 to 99% in 2014, and provided extremely low 5,000   500   net current balance (-1% in 2014). 0   0   -­‐5,000   2011   2012   2013   2014   2015   2011   2012   2013   2014   2015   Current  revenue   Capital  expenditure   Net  current  balance            Own  capital  revenues            Investment  grants  and  dona 0,3 0,19 0,10 0,11 0,01 0,13 and the administrative structure of FBIH. There is Net margin/Current acctual revenue > 0,2 0,24 0,09 0,10 -0,01 0,12 practically no tax policy which municipalities exercise full discretion. 2. Indebtednes s Debt services/total current revenue < 10 % 0,4% 2,0% 2,2% 2,2% 1,6% Capital investments tend to fall by the end of 2015. Ongoing capital projects are funded by with loans 3. Fis c al authonomy still in the grace period. However, the plan of capital Own taxes + fees + unconditionla grants/Total investments from 2017 to 2019 is very ambitious, and > 80 % 46% 47% 48% 48% 51% current revenues expect significant investments. Capital investment expenditure/Current acctual Salaries comparing to operating expenses are below revenue > 40 % 18% 16% 21% 14% 8% the benchmark, and total number of employees per Expenditures for capital investments delegated by 1000 inhabitants is low, which indicates the rational- the state / total investment expenditures > 50 % 3% 1% 23% 13% 24% ity of the city administration. 5 L evel of s ervic e s us tainability City improved budget estimations since 2012 and Maintenance works expenditure / Operating achieved reliable budget in 2015. > 15 % 8% 7% 5% 11% 7% expenditures 6. Others Salaries/Operating actual expense > 40 % 24% 26% 24% 21% 23% Actual revenue / Planned revenue > 95% 95% 78% 82% 88% 97% FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING It is necessary to harmonize the Development strategy with the financial system ( the financial capacity of the City), which implies previous financial analysis; at the local level, the level of cantons, federation and state government. Existing legislation of foreign debt repayment in BiH is not in favor of local governments, thus change of related laws and laws of public revenues allocation between level of governments and local self-government units will improve financial capacity of local governments in FBIH. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve financial situation of the municipality: Improve cooperation with FBIH Tax administration in the collection of tax and non-tax revenues of the City. Insist on compliance with the bylaws that regulate the procedures and deadlines for collecting city revenues by the tax administration. Increase monitoring in collection of non-tax revenues by a sectoral principle (city services). Improve internal control, introduce internal audit, increase monitoring of expenditure, accelerate the introduction of program budgeting. Contact Persons: Dževdana Brajić | dzevdana.brajic@zenica.ba | Website: www.zenica.ba 35 BOSNIA AND HERZEGOVINA MFSA MUNICIPALITY OF ŽEPČE MUNICIPAL PROFILE Territorial organization: Žepče is located in the central part of Bosnia and Herzegovina as one of the 12 local self-government in the Zenica-Doboj Canton. The total area of the Žepče municipality is 282.3 km and covers 43 local communities (mjesne zajednice). Žepče was hit by floods on two occasions in 2014. It was the biggest natural disaster this municipality has ever experienced. Demography: The population is 30,219 (Census 2013) and 31,015 according to estimates for 2015. The average population density is 110 inhabitants per km2. Economy: Total revenue per capita in 2015, based on estimate population, 96 EUR. Tax revenue per capita 74 EUR. Population activity rate is 70; unemployment rate (% of working population) is 48,8; employment rate 55,0; development Index (in the Federation of Bosnia and Herzegovina) is 155,1 which brings Žepče to fourth place on the list of developed local governments in FBiH Utility management: The city provides services through its majority owned companies and public utility companies: for the distribution of heating, water supply and wastewater treatment, waste disposal and parking services for the city. Municipal staff: 59 employees in the municipal administration, 14 employees in the fire department and 12 employees in the Social Protection Center Current investment plan of the project: The program of capital investments for 2017 plans 49 development and 37 infrastructure projects. In 2016, 46 projects have been planned, 24 projects have been fully implemented and the remainder will continue to work in 2017. In 2016 was allocated for: the road infrastructure 84023 thousands EUR, water supply and sewerage 245 thousands EUR, electricity 23 thousands EUR , economy and agriculture 102 thousands EUR, education, sport and culture 164 thousands EUR and for projects from other areas cca 205 thousands EUR. Urban issues & challenges: Urban issues in the municipality of Zepce are a lack of investment, production and business facilities; wild landfills and landslides. The challenges for the city are: improving the quality of life of citizens, creating conditions for attracting investment and employment, while respecting environmental standards. FINANCIAL SITUATION Exchange rate (2011-2015): 1 EURO = 1,95583 BAM. Inflation index BiH (Central bank of BiH). 2012: 2.1%, 2013: -0.1%, 2014: -0.9%, 2015: -1.0%. 2016: -1.1%. Current revenue show average growth -0.1%%, while operating expenditure show avarage 0.1% annual growth. Operating expenditure show significant increase from 68% of current revenue in 2011 to 88% in 2014 (flood recovery transfers/grants), but amounted back to usual level (69%) in 2015. The city does not have cash provisions from previous years to finance capital investments, so it depends on current revenues and borrowings. HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Average growth of total revenue 2011-15 is -0.1%%. Average growth of transfers from other government levels is -2.4%, this trend is mostly result of decrease of general transfers from indirect taxation revenue because of large debt repayments for budget support loans to the Federation Government level. Own-source local revenue has increased since 2013 because of revenue from land development fees but is vulnerable because of the volatile nature of those fees. External revenue increased in 2014 and 2015 due to larger amounts of intergovernmental capital transfers and donations received for flood recovery. 36 Structure of the revenue: State transfers were 74% of total revenues in 2015, but 68% in 2015; own-source revenue increased from 25% in 2011 to 34% in 2015. External revenue increased from 1% in 2011 to 35% in 2015 (due to the flood recovery grants and donations received) Average annual growth of total operating expenditure is 3%, . In the structure of total operating expenditure, the share of payroll expenditure increased from 37% in 2011 to 39% in 2015 , but still bellow the benchmark (40%) . Other current expenditure growth is result of goods and services (vary from 30 to 33%) of total budget expenditure. Interest expense annual growth of -10% since municipality has one loan which will be repaid 2018. RATIO ANALYSIS Credit worthiness ratio is bellow the benchmark only in 2014, due to the significiant incresease of awarded current grants to individuals for flood recovery. Othervise, creditwortnes indicator shows that municipality has capacity of borrowing and investing. The annual debt repayment is adequate with regard to operating income. Fiscal autonomy is low due to the current legislation and the administrative structure of FBIH. Capital investments tend to fall by the end of 2014, but sharply recovered in 2015. Salaries comparing to operating expenses are below the benchmark, and total number of employees per 1000 inhabitants is low, which indicates the rationality of the city administration. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING It is necessary to harmonize the Development strategy with the financial system ( the financial capacity of the City), which implies previous financial analysis; at the local level, the level of cantons, federation and state government. Existing legislation of foreign debt repayment in BiH is not in favor of local governments, thus change of related laws and laws of public revenues allocation between level of governments and local self-government units will improve financial capacity of local governments in FBIH. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve financial situation of the municipality: Improve cooperation with FBIH Tax administration in the collection of tax and non-tax revenues of the City. Insist on compliance with the bylaws that regulate the procedures and deadlines for collecting city revenues by the tax administra- tion. Increase monitoring in collection of non-tax revenues by a sectoral principle (city services). Improve internal control, internal audit, increase monitoring of expenditure, accelerate the introduction of program budgeting. Contact Persons: Sanja Ilić | sanja@opcina-zepce.com | Website: www.opcina-zepce.com 37 CROATIA MFSA CITY OF JASTREBARSKO CITY PROFILE Territorial organization: The city of Jastrebarsko is 30 kilometers away from Zagreb, the county’s administrative center. Part of the Zagreb metropolitan area, it encompasses the town of Jastrebarsko and 58 surrounding suburbs. The city has two districts—Upper and Lower Jask, and its suburban settlements include 30 established local communes. Demography: Total resident population, according to 2011 census: 15,886; in-country ranking: 36; vital index: 62.3; density: 79 inhabitants per square kilometer. Economy: Gross income per capita (2015): €7.813; activity rate (2015): 62.4; unemployment rate (percent active population): 6.0; national development index: 100–125 percent; exchange rate: €1 = HRK 7.583; inflation index: 3.4 (2012), 2.2 (2013), -0.2 (2014), -0.5 (2015), -1.1 (2016). Source: CSO and Ministry of Finance. Utilities management: City utility (communal) companies: (1) Roads Jastrebarsko Ltd.: maintenance of roads, cleanliness of green and public spaces, winter services,] public lighting, and other items); (2) Waters of Jastrebarsko Ltd.: water supply and drainage; (3) Cemeteries Jastrebarsko Ltd. Municipal staff: General administration: 26; representatives: 3; employees in budgetary userS (2015): 98. Decentralized functions: Primary and secondary education, welfare, and fire protection. Existing project investment plan: Main capital projects and three-year capital investment plan: the development of economic zones—”Jalševac” (€2.2 million); road reconstruction (€320,000). Urban issues and challenges: Increase the overall standard of living of the population; expand opportunities to create new jobs; improve the community’s cultural, social, and sporting life. FINANCIAL SITUATION Current revenues were higher than expenditures throughout the observed period. The city achieved an average budget surplus of 0.2 percent per year even after debt repayment expenditures were subtracted. The average net current balance (primary surplus) is about €2.2 million; it decreased by about 0.6 percent per year. Capital expenditures grew until 2014; they then decreased by 50 percent. Capital revenues are low and do not represent a significant source of financing for capital investment projects. Even after the net interest on loan repayments was deducted from the balance after investment, the overall closing balance was positive or in surplus. Receipts from borrowing were low, and in 2015, almost disappear because the city repaid the loan installments from previous years. The financial position of the city is stable, which is confirmed by solid liquidity indicators. HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Main revenue sources: State transfers: 58 percent; dominance of shared (income) taxes: 48 percent; own- source revenue: 41 percent; external revenue sources: 1 percent. 38 Own-source revenue (local fees) consists of communal fees and contributions; they represented a significant source of funding. Communal fees and contributions are revenues earmarked mainly for local infrastructure maintenance. Local taxes were low during the observed period; shared income tax was stable, representing the dominant source of financing for the city. The total capital investment represented 19.35 percent of total revenues. The largest share of capital expenditures related to construction work—improving infrastructure for the entire metropolitan area. Most capital investments were funded by the city’s own revenue sources and from funds from the European Union. Capital expenditures, mostly related to civil works, constituted 21 percent of total expenditures over the observed period. The city’s payroll costs were significant at 29 percent; and operation and maintenance costs were high, accounting for more than 50 percent of total expenditures. RATIO ANALYSIS All of the city’s financial indicators were within the reference values, demonstrating that the city is stable and in a good financial position. Interestingly, current savings were above the reference value, indicating the city’s significant financial resources for borrowing. Debt accounted for an average of 24 percent of the total budget, but these large obligations did not pose a significant financial burden. The city’s rate of financial autonomy was about 40 percent, a result of the higher share of the communal fees and contribution revenues. Expenditures for capital investments were below the reference value; on average, they made up only about 29 percent of current revenues. Maintenance costs were in desirable values. interestingly, wage expenditures were high— 35 percent of total current expenditures. The city planned its budget well: the amounts realized did not significantly deviate from the planned amount of revenues. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING The cost of debt is low. City creditors are mostly private companies. The city regularly settles all of its obligations according to maturities. For the period 2016–18, most of the city’s capital investment finance comes from own revenue sources or operating surpluses. After 2016, higher maintenance expenditures and debt repayments are anticipated, but this is not a problem because the city expects to grow its own revenue sources by 8 percent and receive 3 percent higher income from conditional grants. Gross operating savings are growing as net savings. The overall closing balance from 2016 to 2018 is zero. The city’s debt involves two long-term loans used to finance capital utility infrastructure projects MUNICIPAL FINANCE IMPROVEMENT PLAN Most of the city’s plans are long-term activities, but in the short term, the city is focusing its priorities on increasing fiscal autonomy by improving local tax collection and revising decision on city taxes (tax on trade name). The permanent, long-term activities are attracting private investors. The city has successfully established an entrepreneurial zone, and it continues to attract private investment through Improvements of Business Climate Further investments in infrastructure equipment GZ “Jalševac” and “Trešnjevka”. In the context of improving business and the development of a competitive local economy, the city is focused on speeding up administrative procedures, connecting entrepreneurs, offering staff training, and providing direct incentives to entrepreneurs. The city is more focused on the new potential source of (co) funding—project application to EU funds and state programs, project preparation for co-financing from European Union funds and the state budget. Contact: Ivana Španić ivana.spanic@jastrebarsko.hr | http://www.jastrebarsko.hr 39 CROATIA MFSA CITY OF LABIN CITY PROFILE Territorial organization: The city of Labin includes seven local committees. Its population is distributed in 17 settlements. The total area of the city is 72 square kilometers. Demography: Total resident population, according to 2011 census: 11,642; annual growth: -0.002 percent; in-country ranking: 58; vital index: 81.4; density: 162 inhabitants per square kilometer. Economy: Income per capita (2015): €12.536; activity rate (2011): 64.1; unemployment rate (percent active population): 6.79; national development index: 100–125 percent; exchange rate: €1 = HRK 7.583; inflation index: 3.4 (2012), 2.2 (2013), -0.2 (2014), -0.5 (2015), -1.1 (2016). Source: CSO [and Ministry of Finance. Utilities management: City utility (communal) companies: (1) 1 May Ltd.: garbage collection, park maintenance, cleaning of public areas and parking lots, maintenance of cemeteries and organization of burial and other funeral services, maintenance of unclassified roads, and civil engineering; (2) Vodovod Labin Ltd.: water supply, public drainage, medical testing of drinking water for their own use, performance connections to the municipal water structures, and calibration of water meters; (3) Labin Apartment Ltd.: management of apartment buildings; (4) Labin 2000 Ltd.: parking management in public areas. Municipal staff: General administration: 34, technical service unit: 3. Number of employees at budget users (2014): 133. Decentralized functions: Primary and secondary education, welfare, and fire protection. Existing project investment plan: Main capital projects and three-year capital investment plan: Reconstruction and upgrading of the sports center with extra hall and supporting facilities (€4.4 million); underground city, phase 2: hot links, export tower, and pane in Podlabin (€1.5 million); reconstruction of the entrance to the tourist resort in Rabac (€0.7 million); new kindergarten in Vinež, phase 1 (€1.3 million); home for the elderly in Labin (€5.8 million). Urban issues and challenges: Increase economic competitiveness; develop human resources; improve quality of life; strengthen infrastructure, environmental protection, sustainable management of space and resources, and Labin’s identity and recognition. FINANCIAL SITUATION The city of Labin is in a solid and stable financial position. Total current revenues were higher than current expenditures during the observed period so the city recorded a current budget surplus over the entire observed period. After the current surplus was deducted from debt repayments, the primary surplus remained at an average of around €1.5 million. Debt service was reduced an average of 10.6 percent annually. Capital revenues were low and recorded an average decrease of 25 percent. These were insufficient for financing capital expenditures, which gradually declined by an average of 12.6 percent per year. The balance after the investment remains in the surplus. When we take into consideration that the city does not borrow, but only pays off its obligations from the previous year then it is clear that the city has a positive overall closing balance throughout the period. The city will probably use total budget surpluses to finance capital projects and maintain a high level of liquidity. HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Own-source revenues—local fees and asset sales—are the most dominant for the city’s revenue. 40 The main sources of the city’s revenues were own sources, accounting for 48.2 percent of total revenue. Own-source revenue are consistent from communal fees and contribution earmarked revenues used for financing and maintaining communal infrastructure. Another important source of revenue was government transfers, accounting for 42.2 percent. State transfers consisted mainly of shared tax revenues, accounting for 82 percent of total transfers. Direct transfers from the central government represented 18 percent of total transfers. Capital investment decreased over the period 2012–15. The city’s planned investments for 2016 require more than 30 percent of total expenditures. Total operating expenditures represented 85.7 percent of total revenues. Wages increased by 3 percent, operating costs by 2 percent, and maintenance costs by 15 percent. The cost of wages includes salaries of city administration employees and budgetary users , directly financed out of the city’s budget (kindergarten, fire brigade, city library, open university, and others). RATIO ANALYSIS The city is in an excellent financial position, with high liquidity. Gross operating savings made up an average of about 20 percent of current revenues over the observed period. Total liabilities represented 24 percent of the budget with a downward trend. The city did not borrow money during the considered period; it only paid off earlier obligations. Own-source revenue sources represented more than 50 percent of current revenues, demonstrating the city’s significant fiscal autonomy. Capital expenditures accounted for about 17 percent of current revenues; they were relatively low and decreasing. Maintenance expenditures were below the maximum reference value, accounting for an average of 11 percent of current expenditures. Expenditures for employees were high during the observed period, with 36 percent close to the maximum reference value. The city failed to fully ensure execution revenue in accordance with the plan. Revenue outturn represented an average of approximately 92 percent of projections. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING Since 2016, the city of Labin has been significantly increasing the financing of capital projects to €2 million by 2018. Most funding sources for capital projects have been realized by surpluses from previous years’ income and funds from the European Union. Thanks to its excellent financial position, the city does not need to borrow money. The main capital projects include the construction of the entrance to the tourist resort Rabac and reconstruction of existing intersections in circular and landscaping; new construction of Kindergarten Vinež (phase 1), and reconstruction of Liče Faraguna Labin Center (renewable energy includes). The city has invested a lot in the preparation of documentation for projects financed with European Union funds. MUNICIPAL FINANCE IMPROVEMENT PLAN The city’s financial plan is primarily focused on making technical improvements of budget execution, transparency, and reliability, including improving the reliability of forecasting, increasing prudence in planning, and stopping the trend toward constant changes in tax regulations. Additional aspects include refining the cost analysis of the most significant expenditure, control in achieving program and projects defined objectives. The city will focus on improving local tax collection and revising the property tax rate for households. Sale of assets that generates costs. Significant effort has been invested into improving the business environment with infrastructure and tourism. The city has implemented a program to support to entrepreneurs and most of the capital project besides savings tend to finance by increase European Union funds utilization. Contact: Marija Kadoić Balaško marija.kbalasko@labin.hr | www.labin.hr 41 CROATIA MFSA CITY OF PREGRADA CITY PROFILE Territorial organization: The city of Pregrada is located in the westernmost part of the Croatian Zagorje. It is part of the Krapina-Zagorje County administrative zone. The total area of the city is 67.26 square kilometers. Demography: Total resident population, according to the 2011 census: 6,594; annual growth: -0.015 percent; in-country ranking: 112; vital index: 50; density: 98 inhabitants per square kilometer. Economy: Net income per capita (2012): €4,324; activity rate (2011): 59; unemployment rate (percent active population): 18.7; national development index: 75–100 percent; exchange rate: €1 = HRK 7.583; inflation index: 3.4 (2012), 2.2 (2013), -0.2 (2014), -0.5 (2015), -1.1 (2016). Source: CSO and Ministry of Finance. Utilities management: City utility (communal) companies: (1) Niskogradnja Ltd.: housing and communal activities; (2) Viop Ltd.: water supply and sanitation; (3) Humplin Ltd.: gas distribution system. Three budgetary users: [[meaning?]] Kindergarten (“Our Joy”), The City Library, Museum. The Music School. Municipal staff: General administration: 8; representatives: 1. Employees at budgetary users (2015): 22 Decentralized functions: Primary education, welfare, and fire protection. Existing project investment plan: Main capital projects and three-year capital investment plan: road paving, cultural center, children playgrounds, and business zone infrastructure. Urban issues and challenges: Increase capacity to attract funds from the European Union, improve the competitiveness and growth of small and medium-size family farms, construct hard and soft infrastructure required for business growth and a comfortable lifestyle, and transform local government to force economic development and enhance attractiveness of the city’s for investments. FINANCIAL SITUATION After settling liabilities, the city recorded current surpluses over the entire observed period, although the level decreased by an average of 4.6 percent per year. Capital revenues were insufficient to finance capital expenditures, which contracted by an average of 8.5 percent annually. Balance after investment was negative during the entire observed period. The city regularly borrowed on the financial market, and the overall closing balance was negative. There is no potential for the city to finance major capital projects through own-source revenues, but it does have liquidity to settle all of its obligations. HISTORICAL ANALYSIS: REVENUES & EXPENDITURES The city’s main revenue sources were government transfers, representing 78.36 percent of total revenue. Own-source revenues accounted for 17.30 percent, and the share of external revenue was 4.34 percent. Operating revenues were the city’s primary source, representing 87.38 percent of total revenues and receipts. Own-source capital revenues accounted for 0.98 percent of the total city revenues, and capital expenditures represented 18.70 percent of the city’s total budget revenues and receipts. Debt was related to long-term debt and short-term loans. Short-term loans were included in the debt because they were repaid over two budgetary years. 42 From 2013 to 2015, the largest part of investment capital was for construction work. Regarding the financing method, most of the capital expenditure was financed through grants (i.e. applying to grants through various open calls of the central government) and from own-source revenues. Total operating expenses represented 68.13 percent of total expenditures; salaries, 22.50 percent; operating costs, 38.43 percent; and maintenance costs, 7.2 percent. Cost of salaries included: city administration staff, accounting for 11.35 percent, and wages for workers employed in budgetary users, accounting for 11.15 percent of total expenditures. RATIO ANALYSIS On average, the current surplus accounted for about 24 percent of current revenues—a good indicator of liquidity. Debt comprised an average of 18 percent of the budget, with a decreasing trend over the observed period. Borrowing receipts accounted for only 8 percent of total revenues, which is low, and shows that the city was managing its finances reasonably well. The city had a low level of financial autonomy because its own-source revenues accounted for only 27 percent of total current revenues. Capital investment was about 25 percent of total current revenues. Maintenance costs were lower than the reference value, accounting for about 13 percent of current expenditures. Salary expenditures accounted for about 30 percent of total expenditures and were high relative to the maximum reference value. Realized revenues totaled 93 percent of projected revenues. The city’s revenue planning process is insufficient, but the deviations are not large and are close to the reference values. In short, the city is liquid and in a relatively solid financial position, but with limited funding opportunities for greater capital investments. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING In accordance with its capabilities, the city of Pregrada ensures proper maintenance of its infrastructure. Financing plans through 2018 mainly refer to expenditures envisaged under the capital investment program as they relate to paving roads, the city’s cultural center, the computer program, e-roads, children’s playgrounds, and business-zone infrastructure. The city intends to provide liquidity revenues to finance capital projects. It expects an increase in conditional grants from the central government and own-source revenues to finance capital expenditures. MUNICIPAL FINANCE IMPROVEMENT PLAN The budgeting capability of the city of Pregrada to finance larger capital projects is relatively modest. The city therefore focuses on activities related to technical enhancements of budget management, such as improving forecast reliability, budget execution (95 percent and more), the cost analysis for capital projects and long-term fiscal planning, city development strategy according to defined strategic economic priorities, and spending by con- trolling defined city objectives to ensure the implementation of its development vision. Contact: Marko Vešligaj (Mayor) and Krunoslav Golub krunoslav.golub@pregrada.hr | www.pregrada.hr 43 CROATIA MFSA CITY OF ZAPREŠIĆ CITY PROFILE Territorial organization: The city of Zaprešić is located in the northwestern part of Zagreb County, 17 kilometers from Zagreb, the county’s administrative center. Zapresic is situated in the valley of three rivers, the Sutla, the Sava, and the Krapina, between Slovenia to the west, the county of Krapina-Zagorje to the north, the city of Samobor to the south, and Zagreb to the east. The area of the city is 52.6 square kilometers. Demography: Total population, according to the 2011 census: 25,223; annual growth: -0.9; in-countryranking: 23; vital index: 96.4; density: 479.5 inhabitants per square kilometer. Economy: Gross income per capita (2015): €10,364; activity rate (2015): 63.2; unemployment rate (percent active population): 5.9; national development index: 100–125 percent; exchange rate: €1 = HRK 7,583; inflation index: 3.4 (2012), 2.2 (2013), -0.2 (2014), -0.5 (2015), -1.1 (2016). Source: CSO and Ministry of Finance. Utilities management: City utility (communal) companies: (1) Zapresic Ltd.: waste disposal; park maintenance; cleaning of public areas, parking lots, and main squares; management of the market, cemetery maintenance and organization of burial and other funeral services; (2) Water Supply and Drainage Ltd.: collection and distribution of drinking water and drinking water supply, wastewater treatment, construction engineering, installation infrastructure for water, drainage and purification; (3) Information Center Zapresic Ltd.: FM radio broadcasting. Decentralized functions:t Primary and secondary education, welfare, and fire protection. Municipal staff: General administration: 52; technical service unit: 8; representatives: 2; part-time officers: 2. Number of employees in budgetary users: 225. Existing project investment plan: The primary capital projects and three-year capital investment plan includes upgrading the building and sports facility of the Kuplje primary school for €276,000; road Zaprešić–Jablanovec for €76,000; city square for €147,000; and remediation of landfills for €128,000. Urban issues and challenges: Promote tourism, raise the quality of life, foster a knowledge society, and develop urban infrastructure. FINANCIAL SITUATION In EURO. Over the observed period, the city regularly settled its financial obligations and was a low credit risk with a high level of budget liquidity. Current revenues were higher than current expenditures so the city realized current surpluses on average. Over the last two years, current surpluses remained even after the city met its debt obligations. The city achieved a primary surplus, which indicates that there is no problem with its repaying its obligations. On average, debt repayments were reduced over the observed period. Capital expenditures grew by 4.6 percent annually; they were the main reason behind the city’s total budget deficit and negative closing balance. The overall closing balance was negative but was reduced by about 26 percent over the observed period. The total final closing balance trend was on the decrease. HISTORICAL ANALYSIS: REVENUES & EXPENDITURES 100% 50% 0% 2012 2013 2014 2015 State transfers Own revenues External revenues The main revenue sources were government trans- fers, primarily personal income tax, representing a 63 percent share of total revenues; followed by own-source revenues at 29 percent; and external revenues, primarily own-source revenues of budgetary users at 8 percent. State transfers consisted of shared revenues, which ac- counted for 80 percent of total transfers, and transfers from the state and the county budget, which account for the remaining 20 percent. Current revenue dominated in the revenue structure. 44 Total current revenue represented around 89 percent and noncurrent revenue, 11 percent of total revenue. The city did not borrowed money during the observed period. Own-source revenue of budgetary users represented 8.1 percent of the city’s revenues. The fiscal autonomy of Zaprešić was limited by the fact that the dominant budget revenue source is shared income taxes. Capital investments constituted 18 percent of total revenues in 2015, representing growth over 2014. The city planned to significantly increase capital expenditures in 2016, mostly financed by loans. Current expenditures represented an average of 75 percent of total expenditures, with dominance of operating (material) costs, followed by very high level of payroll. High level of payroll are confirmed by the data from ratio analysis (salaries and wages/operating actual expense). (see: table with ratio analysis) RATIO ANALYSIS The financial indicators of the city are solid. Debt comprised only 13 percent of the budget over the observed period—much less than the reference value. Indebtedness indicators were positive. The city did not borrow money on the financial market During the observed period. Own-source revenues made up an average of about 23 percent of total current revenues. Zaprešić depended on income tax revenues that are shared with the central government. Communal fees and contributions offered greater financial autonomy. Capital investment expenditures were about 18 percent of current revenues on average. The city incurred great costs for maintenance, representing 17 percent of operating expenditures—above the reference value. Close to the reference value were relatively high wage expenditures, which make up an average of 36 percent of total current expenditures. Planned and realized revenues did not deviate significantly and were within the reference values. FINANCIAL PROJECTIONS / INVESTMENT PROGRAMMING The overall closing balance during the entire observed period period was negative. The city finances the lion share of its capital expenditures with its own-source revenue. Borrowing proceedings in all period are zero. More loan receipts are expected because the city in their financial projection stated borrowing around €350,000 in 2016 and €1.9 million in 2017. As a result, the overall closing balance in 2017 is expected to be positive at around €676,000. From 2016 to 2018. The city plans to invest in capital projects, such as upgrading schools and sports facilities, as well as in roads and the city square. However, the closing balance is expected to be zero in 2018 according to the city’s MUNICIPAL FINANCE IMPROVEMENT PLAN The city of Zaprešić has been focused on technical improvements of its financial management, such as improving the cost analysis of the dominant expenditures and forecasts. It is also focused on better collection of local revenue and has great expectations regarding the introduction of a property tax, although this directly depends on the decision of the central government. Local government initiatives are primarily focused on sup- porting entrepreneurship and improving infrastructure with the aim of creating a business-friendly environment for potential investors. Most capital investments in 2017 will be financed through loans. And most of the proposed actions are intended for the long-term and do not include a start date for their implementation. Contact: Marija Potočki mpotocki@zapresic.hr | http: //www.zapresic.hr/naslovnica 45 KOSOVO MFSA MUNICIPALITY OF SHTIME CITY PROFILE Territorial organization: Municipality of Shtime is organized according to the Law, No.03 / L-040, 2008 for Local Self-Government and the Law, No.03 / L-041- on Administrative Borders of Kosovo Municipalities. Shtime is located in southern Kosovo, (district of Ferizaj) covering an area of 134 km2, (52 Sq. mile); with one urban center Shtime and 22 villages Demography: 27,324 inhabitants of which: 26,447 Albanians; 49 Serbs; 750 Ashkali and 59 of other nationalities. Density: 204/Km2% of population of Kosovo: 1.51% (1,810,000) Economy: Shtime’ economy is mainly based on agriculture although the municipality is well known for its vast reserves of high quality limestone. There are about 860 registered private businesses operating in the Municipality, employing about 1902 employees. The public sector employs about 939 employees. A new industrial park is expected to be operational within 2018, and some 300 new jobs are expected to be created. Decentralized Functions at the City level: Child care (kindergartens), primary education, secondary education); Primary health care; Infrastructure - urban area, local roads, public lighting, maintenance and regulations of parks etc.; Management of forest exploitation; Fire brigade; Business registration; Buildings registration for property tax purposes; Cadaster and geodesy; Economic Development; Culture, Youth and Sport. radio broadcasting. Utilities management: Public Company - Division on Public Company Managed by Ministry of Economy Development Municipal staff: 658 employees of which 94 civil servants of the Municipal Administration; 462 in education functions, 102 in primary health care and 94 in other functions Urban issues & challenges: Improve quality of life and promote economic growth and job-creation through capital investments. Key areas: communal infrastructure, urban planning and environment, road infrastructure, construction of primary schools, kindergartens, sports and cultural facilities. Existing Project Investment Plan: 3 years rolling plan financed by the Municipal budget + Grants from the state budget, Line Ministries and Donations. FINANCIAL SITUATION Items 2012 2013 2014 2015 Growth index Current revenues of the municipality of Shtime have been constantly improving over the 4-year period Current revenue 3,765,555 3,906,736 4,219,643 4,589,777 6.80% 2012-2015with an annual rate of 6.8%. However, operating expenditures have been increasing faster Operating expenditure 3,539,592 3,670,485 4,067,949 4,400,692 7.50% pace, on average 7.8% annually. As a result, the gross Gross operating margin 225,963 236,251 151,694 189,085 -5.80% margin is shrinking by 5.8% annually. Operating Debt repayment 0 0 0 0 n.a. revenues are constantly higher than operating costs, although at a minor margin which is then dedicated for Net margin 225,963 236,251 151,694 189,085 -5.80% capital expenditures. Capital expenditure 1,081,706 1,454,627 1,553,698 1,397,260 8.90% Capital revenues show robust increase 14% annually. Capital Revenues 893,014 1,312,796 1,529,074 1,325,864 14.10% The own capital revenues grew even faster (34% per - Own capital investment rev. 42,238 73,338 95,701 101,632 34.00% year), but investments are largely (90%) financed through grants from the state and line ministries. - Investment grants 845,023 1,033,992 1,380,818 1,175,251 11.60% The city has not incurred debt, and the low 6% gross Donations investments revenues 5,753 205,466 52,555 48,981 104.20% margin does not generate funds for debt service. Investment balance 37,271 94,420 127,070 117,689 46.70% The budget is managed with good discipline and shows Cash reserves from previous years 46,093 44,811 42,938 49,657 2.50% stable positive overall closing balance that grew by 26% Loans 0 0 0 0 n.a. annually. Overall closing balance 83,364 139,231 170,008 167,346 26.20% 46 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenues: The total revenues grew dynamically by 8.3% per year, high above inflation. Revenues from central government’s grants constitute 93% of Shtime’s revenues, Own Source Revenues constitute only 6% and the share of OSR is slightly shrinking because the state transfers grew faster (8.1% vs. 7.6%).The donations grew very fast, but still represent a minor share of total revenues. Expenditures: Wage and salaries constitute 65% of total expenditures and about 83 % of operating expenditures. In 2015 they’ve increased by 8.9% when compared to 2014. Most of the costs for wages and salaries relate to the staff in education functions and are offset by an earmarked grant. Capital investment expenditures accounted for around 23 % of total expenditures, focusing mainly on civil works (road maintenance and water supply and sewage, schools maintenance and construction). Unfortunately spending for investment has decreased by 9.9% when compared to 2014. Operating expenditures constitute 12% of total expenditures and have registered a minor increase of 2.2%. RATIO ANALYSIS Creditworthiness: Shtime has very low creditwor- thiness, since the gross saving ratios were low and declining from 6% to 4%. Fiscal autonomy: is very low, just above half of the benchmark, because the city not only relies on state transfers, but half of them are earmarked development grants. Capital investment efforts are reasonably good, yet below benchmark; however, state grants finance the bulk of investments. Labor efficiency: The municipality employs adequate number of staff just at benchmark, but salaries and wages still absorb over 80% of current budget with alarming growing trend. MUNICIPAL FINANCE IMPROVEMENT PLAN 1. Actions to increase creditworthiness: (i) Increasing local property tax collection, (ii) Increasing financial accountability 2. Actions to increase service sustainability: Re-adoption the urban plans of the municipality with the new General urban plan 3. Actions to improve budget reality: Improve forecast reliability 4. Actions to generate savings from operating expenditures which can be used for increasing capital expenditures. Contact: Mr. Osman Sadikaj E-mail: osmansa2008@gmail.com | Web Page of Municipality: https://kk.rks-gov.net/shtime 47 MACEDONIA MFSA MUNICIPALITY OF GAZI BABA (OGB) CITY PROFILE Territorial organization: Gazi Baba is one of the 10 municipalities of the city of Skopje. It is local government unit but shares a tax system with Skopje. Demography: Population: 76,458, 9 percent of Skopje’s population of 668,000; annual growth rate: 0.1 percent; density: 8.3 inhabitants per hectare (low because of the large city area) Economy: First industrial center of Macedonia, including Makstil Steel Plant; Skopsko Brewery; Skopski Saem, a business park along the Belgrade-Thessaloniki highway and the airport. Agricultural land: 65 percent; labor force: 29.127; unemployment rate: 9.501; average inflation (2011–15): 1.9 percent; MKD 1 = €0.0163 (August 2017). Decentralized functions at the city and municipal level: Kindergartens and primary education are responsibility of the municipality of Gazi Baba. Secondary education is a responsibility of the city of Skopje, local roads is shared responsibility between the city of Skopje and the municipality of Gazi Baba. Rural solid waste collection is responsibility of Gazi Baba and the land field is a city of Skopje responsibility. Water supply and waste water is responsibility of the city of Skopje. Utilities management: Water supply and waste water: PE Water Supply and Sewage (shareholder: city of Skopje); electricity: EVN (private company by agreement with the government); urban heating: Skopje Sever and Energy Sector ESM for the industrial zone. Municipal staff: Total: 913; primary education: 604; kindergarten and senior citizen homes: 178; and communal services: 131. Urban issues & challenges: Improve the quality of life through capital investments. Key areas include roads, water supply, sewage, and school facilities (new construction and reha- bilitation). Main issues include GIS and land management implementation. Existing Project Investment Plan: Three-year rolling plan financed by the city budget and state grants includes MKD 110 million for a waste water system (100 percent city budget) and MKD 18 million for a new kindergarten— Jurumleri (88 percent state grant and 12 percent city budget). FINANCIAL SITUATION (IN CURRENT TERMS) The growth indexes for the observed period were driven by somewhat optimistic projections for 2015. Loan generation in 2014 boosted debt service and borrowing costs in 2015. Own-source capital revenues projected for 2015 drove planned capital expenditures. Revenues from land sales were projected to double in 2015 over 2014 and land development fees were expected to be 30 percent higher. The operating balance was positive over the considered period. The plan for 2015 was too ambitious, including the expansion of expenditures, which demonstrate the potential space for better budget planning in Gazi Baba. There is indication that Gazi Baba management was planning too ambitious revenues collection first that explains the expansion of expenditures. Specifically, in 2015, capital revenue was expected to be almost four times higher than in 2014; additional revenue from donations was also expected. According to treasury data from the ministry of finance, in 2015, Gazi Baba had around MKD 650 million in revenues compared with the plan for MKD 950 million—a discrepancy of 32 percent. The largest discrepancies involved Communal taxes, land sales, and capital transfers from the central government. 48 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 - 2011 2012 2013 2014 2015 State transfers & grants Own-source revenues External revenues Revenues: Revenues from the central government plus grants almost equaled own-source revenues in Gazi Baba, reflecting decrease in its fiscal dependency from the central government transfers over the observed period (2015 is a plan). The personal income tax was shared with the state (3 percent) and the municipality of Skopje (20 percent of the 3 percent). Own-source revenues were shared with the municipality of Skopje: 50 percent for the property tax and 40 percent for the land development fee. Annual growth rates were high, with an average of up to +14 percent increase] for the observed period; own-source revenue collections grew faster than state transfers. 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 - 2011 2012 2013 2014 2015 Capital expenditures Expenditures: Payroll accounted for 46 percent of total expenditures and around 56 percent of operating expenditures. Most of this was generated by school staff and was offset by an earmarked grant. Capital investment expenditures accounted for around 17 percent of total expenditures, primarily civil works such as road maintenance, water supply and sewage, and school construction and maintenance. RATIO ANALYSIS FINANCIAL MANAGEMENT The administration and the finance sector prepares the budget; it is adopted by the municipal council. The state audit office conducts the audit. MUNICIPAL FINANCE IMPROVEMENT PLAN To increase creditworthiness, increase local tax collection and revenues through alternative and innovative sources; to increase service sustainability, readopt the municipality’s urban plans of with the new general urban plan; and to improve budget planning, enhance forecasting and lower current expenditures. http://www.gazibaba.gov.mk/lok-potencijal.html 49 MACEDONIA MFSA MUNICIPALITY OF KISELA VODA CITY PROFILE Territorial organization: Kisela Voda is one of the 10 municipalities of the city of Skopje. It is local self-government unit but shares a tax system with Skopje. Demography: Population: 58,216, 9 percent of Skopje’s population of 668,000; annual growth rate: 0.1 percent; density: 12 inhabitants per hectare Economy: Kisela Voda is among the largest industrial zones in Skopje. Economic entities: 6,810; Labor force: 38,772; Unemployed: 7,674; average inflation (2011–15): 1.9 percent; MKD 1 = €0.0163 (August 2017). Decentralized functions at the city and municipal level: Kindergartens and primary education are responsibility of the municipality of Gazi Baba. Secondary education is a responsibility of the city of Skopje, local roads is shared responsibility between the city of Skopje and the municipality of Gazi Baba. Rural solid waste collection is responsibility of Gazi Baba and the land field is a city of Skopje responsibility. Water supply and waste water is responsibility of the city of Skopje. Utilities management: Water supply and wastewater: PE Water Supply and Sewage (shareholder: city of Skopje); electricity: EVN (private company through agreement with government; urban heating: Skopje heating company “Sever” and Energy Sector ESM for the industrial zone. Municipal staff: Total: 929; primary education: 479, kindergarten and senior citizen homes: 221; communal services: 99; general administration: 130. Urban issues & challenges: Improve quality of life through capital investments. Key areas are the promotion of communal infrastructure; urban planning and the environment; road infrastructure; and the construction of primary schools, kindergartens, and sports and cultural facilities. Existing Project Investment Plan: The three-year rolling plan, financed by the city budget and state grants includes MKD 32 million for a cultural center in Drachevo (50 percent city budget and 50 percent central government funds); MKD 25 million for sports hall in the primary school Rajko Zinzifov (47 percent grant from China, 23 percent city budget, and 30 percent central government funds); MKD 9.8 million for street reconstruction (finance source: 75 percent World Bank grant and 25 percent city budget); and MKD 110 million for storm water drains in Przhino (World Bank on-lending borrowing storm water drains in Przhino (World Bank on-lending borrowing FINANCIAL SITUATION (IN CURRENT TERMS) The growth indexes for the observed period were driven by somewhat optimistic projections for 2015. Own-source capital revenues projected for 2015 drove the capital expenditure planning for 2015. Revenues from land sales were projected to double in 2015 compared with 2014 and land development fees were expected to be much higher in 2015 than in 2014. During the last two years of the observed period, Kisela Voda improved its financial position. It faced challenges in terms of being in arrears to creditors but has recently improved its situation. Kisela Voda had a positive operating balance in 2014 and had an ambitious budget planned for 2015 totaling around MKD 950 million, but the actual budget was 30 less. There were major discrepancies between projections for personal income taxes, property taxes, communal taxes, land sales, and donations of capital and actual figures. 50 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES 1,000,000,000 900,000,000 800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 - 2011 2012 20132 014 2015 State transfers & grants Own-source revenues External revenues Revenues: Revenues from the central government in addition to grants were almost even with Kisela Voda’s own-source revenues, resulting in a lowering of the city’s fiscal dependency over the observed period. In 2015, Kisela Voda made ambitious forecasts regarding its own-source revenues. The personal income tax was shared with the state (3 percent) and the municipality of Skopje (20 percent of the 3 percent). Own-source revenues were shared with the municipality of Skopje—50 percent of property taxes and 40 percent of land development fees. 700000000 600000000 500000000 400000000 300000000 200000000 100000000 0 2011 2012 2013 2014 2015 Capital expenditures Expenditures: Payroll accounted for 43 percent of total expenditures and around 57 percent of operating expenditures. It was mostly generated by school staff and was offset by an earmarked grant. Capital investment expenditures accounted for around 24 percent of total expenditures, mainly civil works such as road maintenance, water supply and sewage, and school construction and maintenance. RATIO ANALYSIS FINANCIAL MANAGEMENT The administration and the finance sector prepare the budget; it is adopted by the municipal council. The state audit office conducts the audit. MUNICIPAL FINANCE IMPROVEMENT PLAN To increase creditworthiness, expand local tax collection and improve financial accountability; to increase service sustainability, readopt the municipality’s urban plans with the new general urban plan; and to improve budget planning, enhance the reliability of forecasting. Contact: Marina Trajcovska, marina.trajcovska@kiselavoda.gov.mk | http://www.kiselavoda.gov.mk/ 51 MACEDONIA MFSA MUNICIPALITY OF KOČANI CITY PROFILE Territorial organization: The municipality of Kočani is situated in the heart of eastern Macedonia, 120 kilometers from Skopje, in the middle of the river Bregalnica, between the Plackovica Mountains to the south and the slopes of Osogovo to the north. The total area of the municipality is 382 square kilometers. Demography: Population of municipality, according the 2002 census: 38,092 inhabitants, among the largest in the eastern planning region. Economy: Trade and textile manufacturing are the most important sectors in Kočani . Two foreign investments were made over the last few years: a greenfield investment with the Dutch company Antura, which has 150 employees; and a brownfield investment with the American consortium Amphenol, which has 200 employees. Average inflation 2011–15): 1.9 percent; MKD 1 = €0.0163 (August 2017). Decentralized functions: Kindergarden and preschool, primary and secondary education, local roads, solid waste collection and transportation, water supply, and waste water. Utilities management: Water supply and wastewater: Vodovod Kočani (public utility company); electricity: EVN (private company); urban heating: RE: Geoterma (public utility company). Municipal staff: Total: 919; primary education: 331, secondary education: 174; kindergarten and senior citizen homes: 74; communal services: 230; contractual workers 19; general administration and firefighters: 92. Urban issues & challenges: Improve quality of life through capital investments. Key areas include roads, water supply, sewerage, and school facilities (new construction and rehabilitation). The main issue is geographic information systems (GIS) and land management implementation. Existing Project Investment Plan: The three-year rolling plan, financed by the city budget and state grants includes €605,318 for the construction of local infrastructure in several villages; €258,679 for the construction of a local road—Goce Delcev—in v.Orizari - eur 17,400,000: Construction of wastewater treatmant plant in v Mojanci FINANCIAL SITUATION (IN CURRENT TERMS) The growth indexes for the observed period illustrate that current expenditures grew faster than current revenues and that decreasing the gross operating balance marginally contributed to the negative balance after investments in 2015. 450,000,000 400,000,000 350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 - 2011 2012 2013 2014 2015 Current revenue Capital investment expenditures Kočani’s gross operating balance was positive during the considered period. Following the stylized fact of weak budget planning Kočani’s budget planning for 2015 was ambitious. Actual total revenues were 10 percent less than projected, but were much better than the plan of municipalities. Projected revenues from land sales were overly ambitious. 52 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 - 2011 2012 2013 20142 015 State transfers & grants Own-source revenues External revenues Revenues: Revenues from the central government in addition to grants were almost double Kočani’s own-source revenues, resulting in a somewhat high level of fiscal dependency during the observed period. The annual growth rate for total revenues was relatively low, averaging up to +3 (2011–15); own-source revenue collection was in decline compared with state transfers and grants. 1,000,000,000 900,000,000 800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 - 2011 2012 2013 2014 2015 Capital expenditures Expenditures: Payroll accounted for 43 percent of total expenditures and around 57 percent of operating expenditures. It was mostly generated by school staff and was offset by an earmarked grant. Capital investment expenditures accounted for around 24 percent of total expenditures, mainly civil works such as road maintenance, water supply and sewage, and school construction and maintenance. RATIO ANALYSIS FINANCIAL MANAGEMENT The administration and the finance sector prepare the budget; it is adopted by the municipal council. The state audit office conducts the audit. MUNICIPAL FINANCE IMPROVEMENT PLAN To increase creditworthiness, expand fiscal space and the collection of local taxes; to increase service sustainability, foster energy efficiency; and to improve budget reality, and enhance the reliability of forecasting. Contacts: Elena Dimitrovska, and Zoran Hristov, | www.kocani.gov.mk 53 MACEDONIA MFSA MUNICIPALITY OF KRIVA PALANKA CITY PROFILE Territorial organization: With 33 settlements, the municipality of Kriva Palanka is located in the northeastern region of the former Yugoslav Republic of Macedonia. In accordance with the DUP the city is fragmented into urban parts. Demography: Population, according to the most recent census of 2002: 20,257; urban population: 14,558; annual growth rate: -0.3 percent; total areа: 480.81 square kilometers; density: 43.30 inhabitants per square kilometer. Economy: The low cost of doing business in Kriva Palanka attracts investors from Italy, Turkey, and Bulgaria. There are conditions for agricultural production and meat production. The mining industry is also developed. Unemployment rate: 28 percent. Average inflation (2011–15): 1.9 percent; MKD 1 = €0.0163 (August 2017). Decentralized functions: Preschool, childcare, primary and secondary education, local roads, solid waste management, water supply, and drainage of urban waters. Utilities management: Water supply and wastewater: Vodovod Kočani (public utility company); electricity: EVN (private company); urban heating: RE: Geoterma (public utility company). Municipal staff: Total: 387; education: 272; kindergarten: 35; firefighting: 13; administration: 61. Urban issues and challenges: Improve quality of life through capital investments. Key areas are roads, wastewater treatment plants, and water supply. The main challenge is the Kjmanovo-Gjueshevo road, a cross-border connection. Existing project investment plan: The three-year financial plan includes MKD 6.8 million for drainage of Bojanov Dol (ministry of transportation); MKD 23 million for water supply (ministry of transportation); and MKD 7 million for water supply from Stanechka River with a filter station. FINANCIAL SITUATION (IN CURRENT TERMS) The growth indexes for the observed period were driven by somewhat optimistic projections of current revenues for 2015, which did increase in 2015 through property taxes and communal fees, providing fiscal space for an increase of capital expenditures in 2015 compared with 2014. 400,000,000 30,000,000 350,000,000 25,000,000 300,000,000 20,000,000 250,000,000 200,000,000 15,000,000 150,000,000 10,000,000 100,000,000 5,000,000 50,000,000 - - 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Current revenue Capital investment expenditures Own capital revenues Kriva Palanka’s gross operating balance was positive during the considered period. Following the weak budget planning in Macedonia, Kriva Palanka budget planning for 2015 was ambitious. Actual total revenues in 2015 were about 35 percent less than projections. Projected revenues from land sales were also too ambitious. Poor planning was in the property tax, communal tax and mostly failed expectations for transfers from the central government. 54 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES 450,000,000 400,000,000 350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 - 2011 2012 2013 20142 015 State transfers & grants Own-source revenues External revenues Revenues: Revenues from the central government in addition to grants were almost five times more than Kriva Palanka’s own-source revenues, resulting in a high level of fiscal dependency over the observed period. The annual growth of total revenues was relatively high, an averaging up to +12 percent (2011–15); own-source revenue collection grew more slowly than state transfers and grants. 350,000,000 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 - 2011 2012 2013 2014 2015 Capital expenditures Expenditures: Payroll accounted for 44 percent of total expenditures and around 52 percent of operating expenditures, mostly generated by school staff and offset by an earmarked grant. In 2015, capital investment expenditures accounted for around 16 percent of total expenditures, mainly civil works such as road maintenance, water supply and sewage, and school construction and maintenance. RATIO ANALYSIS FINANCIAL MANAGEMENT The administration and the finance sector prepare the budget; it is adopted by the municipal council. The state audit office conducts the audit. MUNICIPAL FINANCE IMPROVEMENT PLAN To increase creditworthiness, expand local taxes collection; to enhance service sustainability, improve local economic development (LED); and to improve budget reality, enhance the reliability of forecasting. Contacts: Valentina Angelkovska, and Dragica Mitrovska, | http://www.krivapalanka.gov.mk/ 55 MACEDONIA MFSA MUNICIPALITY OF STRUMICA CITY PROFILE Territorial organization: The municipality of Strumica is located in the southeastern part of the former Yugoslav Republic of Macedonia. It comprises the city proper and 24 settlements. The city’s master plan is divided into nine urban districts, of which the residential zone is composed of eight communes or residential communities. Demography: Population, according to the most recent census of 2002: 54,676, including 35,311 living in the center of municipality; annual growth rate: 0.1 percent; total area: 32,189 hectares; density: 1.7 inhabitants per hectare. Economy: The city has a robust business infrastructure as well as a Moody’s bond credit rating of B1. The low cost of doing business is attracting many new residents and investments from Croatia, Greece, Turkey, and Germany. Strumica is part of an extensive agricultural area, offering opportunities to invest in the food production industry and in the export of quality agricultural products. Labor force: 29,127; unemployed: 9,501; average inflation for the observed period of 2011–15 was 1.9 percent; MKD 1 = €0.0163 (August 2017). Decentralized functions: Childcare (kindergarten), primary and secondary education, local roads, solid waste collection, transportation, water supply, and wastewater. Utilities management: Water supply and wastewater: PE Komunalec; electricity: EVN (private company); urban heating: PE Strumica GAS. Municipal staff: Total: 1,426; primary education: 523; secondary education: 235; kindergarten and senior citizen homes: 156; communal services: 337; civil works: 19; and general administration: 156. Urban issues and challenges: Improve the quality of life through capital investments. Key areas are roads, water supply, sewage, school facilities (new construction and rehabilitation). The main issue is geographic information systems (GIS) and land management implementation. Existing project investment plan: The three-year rolling plan, financed by the city budget and state grants, includes MKD 220 million for a gas network (basic budget and municipal bonds); MKD 37 million for the local road—Popcevo (World Bank grant); and MKD 590.4 million for s water treatment plant (IPA-Fund grant) FINANCIAL SITUATION (IN CURRENT TERMS) The growth indexes for the period were driven by investment grants and donations in 2015 and higher revenues from land sales land development fees in 2015 compared with 2014. 800,000,000 400,000,000 700,000,000 350,000,000 600,000,000 300,000,000 500,000,000 250,000,000 400,000,000 200,000,000 300,000,000 150,000,000 200,000,000 100,000,000 100,000,000 50,000,000 - - 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Current revenue Capital investment expenditures Own capital revenues Strumica’s 2015 budget plan was 14 percent higher than actual numbers. Land sales were expected to rise by around 170 percent in 2015 compared with 2014, but they only rose around 40 percent. Overall capital revenues were lower than the expected in 2015 than 2014. 56 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 - 2011 2012 20132 014 2015 State transfers & grants Own-source revenues External revenues Revenues: Revenues from the central government in addition to grants almost equal Strumica’s own-source revenues. As a result, fiscal dependency lessened somewhat during the observed period. The annual growth rate was high, averaging up to +8 percent [[meaning?]] (2011–15); own-source revenue collection grew at a faster pace than state transfers. 1,000,000,000 900,000,000 800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 - 2011 2012 2013 2014 2015 Capital expenditures Expenditures: Payroll accounted for 44 percent of total expenditures and around 68 percent of operating expenditures. It was mostly generated by school staff and was offset by an earmarked grant. In 2015, capital investment expenditures accounted for around 28 percent of total expenditures, primarily civil works such as road maintenance, water supply and sewage, and school construction and maintenance. RATIO ANALYSIS FINANCIAL MANAGEMENT The administration and the finance sector prepare the budget; it is adopted by the municipal council. The state audit office conducts the audit. MUNICIPAL FINANCE IMPROVEMENT PLAN To increase creditworthiness, develop more flexible borrowing procedures and improve the assessment of property taxes; to increase service sustainability, readopt the municipality’s detailed urban plans; and to improve budget reality, improve the reliability of forecasting. Contact: Evgenija Gramatikova, | www.strumica.gov.mk 57 MONTENEGRO MFSA MUNICIPALITY OF BIJELO POLJE CITY PROFILE Territorial organization: The municipality of Bijelo Polje is located in the northeast region of Montenegro and comprises 137 settlements and 39 local communities. Its total area is 924 square kilometers, which is 6.7 percent of the total territory of the country—the fourth largest by area. located in the northern part of Montenegro on the bank of Lim River, surrounded by high mountains with forests - Bjelasica, Lisa, and Pesterska. Demography: Total population, according to 2011 census: 46,051, representing 7.43 percent of the country’s total population. Growth rate in period 2003-2011 is negative -6.6 percent; country ranking (in population): 3 out of 23; vital index: 125; population density: 49.8 inhabitants per square kilometer; average age: 36.1; rate of natural increase (2011): 4.2. Economy: Total income per capita (2013): €436-1,854; active population (2011): 14,733; activity rate (2011): 32 percent; unemployment rate (2013): 27 percent; national development index (2010–12): 38.06 percent (19th out of 21 municipalities in 2012 relative to local development); inflation rate: 3.7 percent in 2011, 5.1 percent in 2012, 0.3 percent in 2013, -0.3 percent in 2014, and 1.4 percent in 2015. Decentralized functions: Montenegro is highly centralized, and the municipalities have limited functional competencies. The Law on Local Self Government stipulates that the municipali- ty’s responsibilities include local road maintenance, water services, garbage collection and treatment, street lighting, greening, culture, and sports. Municipalities are not responsible for providing education and health services. Utilities management: Waste disposal and maintenance of public spaces and parks, city market, cemeteries, of local roads, and city’s steam heating system: city utility company d.o.o Komunalno “Lim” Water supply, drainage, and wastewater treatment: d.o.o. Vodovod Bistrica; parking services: d.o.o Parking servis (parking services). Municipal staff: Local administration: 307; public institutions: 92; public enterprises: 228. Urban issues and challenges: Improve waste management system and wastewater treatment; lower the high unemployment rate; attract private investors, develop small businesses, tourism, and agriculture; concession was granted to build small hydropower facility Existing project investment plan: Ongoing capital projects and a major five-year large-value capital investment plan (2011–17) co-financed through the state budget and through public-private partnerships include the construction of wastewater treatment plant and sewage network (27 kilometers long for €10 million); reconstruction of a sports facility for €400,000; construction of swimming pools for €3 million; construction of sports terrain for €300,000; solidarity housing construction for €3.4 million; construction of a city parking lot with garages for €700,000; reconstruction of the city square for €6 million; reconstruction and modernization of the city market for €1.7 million; construction of livestock markets in Tomaševo, Pavin Polje, Lozno, Kanji, and Bistrica for €500,000; construction and reconstruction of the road network (86 projects) for €15 million; construction and reconstruction of the water supply network (44 projects) for €6.6 million. FINANCIAL SITUATION (IN CURRENT TERMS) The positive operating margin during the observed period and high operating surplus beyond operating expenditures in 2014 indicate financial strength and sustainability of the municipality’s operations. In 2015 due to high operating expenditures there was a significant reduction of the gross operating balance, signaling financial issues and jeopardizing creditworthi- ness. The operating expenditures grew an average of 4.3 percent while current revenues decreased slightly with an average index of 0.5 percent. Due to high debt service and borrowing costs (growth index of 20.8%), and high operating expenditures the net current balance was negative in 2012, 2013 and alarmingly so in 2015, worsening the municipality’s financial situation. The operating margin decreased an average of 18.9 percent but remained positive. However, this was accompanied by a positive overall balance (except in 2012) Investments showed strong negative balances in 2011, 2012, and especially 2015 where capital investments had to be financed mainly from debt (in 2015) and debt and cash reserves (2011 and 2012). The City shows reduction of cash reserves shrunk by 41.2 percent, and although there were no loan proceeds from 2013 to 2014 the high level of borrowing in 2015 (debt reprograming arrangement) brought the growth index of 90.9 percent. Capital investments revealed a declining trend at -4.9 percent. The highest debt repayment of €3.8 million excluding interest is indicated in 2015. Twenty-two percent went to repaying a bank debt (7 percent of total expenditures in 2015) and 78 percent for repayment of arrears (23 percent). 10,000,000.00 8,000,000 8,000,000.00 7,000,000 6,000,000.00 6,000,000 Loan proceeds Current revenue 5,000,000 4,000,000.00 Cash reserves from Capital investme nt 4,000,000 previous years 2,000,000.00 expenditures Investment grants and 3,000,000 0.00 NET CURREN T 2011 2012 2013 2014 2015 BALANCE 2,000,000 Own capital revenues 2,000,000.00 1,000,000 4,000,000.00 - 6,000,000.00 2011 2012 2013 2014 2015 58 Current revenues amounted to 71 percent of total revenues over the 2011–15 period. Own-source capital revenues, including the sale of property, declined by an average of 40.9 percent. The city finances capital expenditures with investment grants from the state budget and with donations (31 percent of total capital revenues). The city maintains capital expenditures at a high level even though revenues are insufficient, and considering the high levels of borrowing in 2015, the city should revise its investment plans going forward. HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Own-source revenues constituted 29 percent of total budget revenues, including property sales, which accounted for 14 percent of total own-source revenues and 4 percent of total revenues (2011–15) and which revealed an average declining trend of 13.5 percent. State transfers (shared revenues) and grants (equalization) accounted for 53 percent of total revenues for the 2011–15 period and showed a slight declining trend of 0.4 percent. The city demonstrated a strong reliance on state transfers and grants, 18 percent of which are shared revenues and 82 percent equalization (unconditional) grants. Own-source revenues declined more quickly than state transfers and grants, suggesting that the city should make more of an effort in this regard. External revenues, with a growth index of 91.5 percent, accounted for 18 percent of total revenues in 2011–15, peaking in 2015 due to reprogramming debts and entering into loan agreements with government approval to deal with city’s accumulated debt and arrears. Capital investments declined by an average of 1 percent during the observed period, with the highest level in 2014, then declining by 33 percent in 2015; they represent an average of 21 percent of total expenditures for 2011–15. The largest share of capital investments (85 percent) during the observed period was in expenditures for local infrastructure, including city construction land improvements, with a 3 percent growth index. Current expenditures trended upward with an average annual growth of 9 percent, constituting 54 percent of total expenditures for 2011–15, reaching the highest level in 2015, mainly due to an increase in payroll-related costs, interest, fees, and transfers. Current expenditures represented 57 percent of total expenditures in 2015. RATIO ANALYSIS The city achieved positive operating savings over the observed time period—a sign of creditworthiness. The ratio was met in 2013 and 2014, but dropped below the 30 percent benchmark in 2015, which suggests that the city’s creditworthiness is weak and it can no longer borrow. Debt repayment capacity was strong for 2011–14, but the high level of indebtedness in 2015 indicates that the city could not repay all of its outstanding debt from the five-year operating surplus (against 10-year benchmark). Debt service increased, reaching 69 percent of current revenues in 2015 and failing to meet the benchmark over the entire observed period, constraining the city’s borrowing capacity. Indebtedness ratio Capital investments below the 40 percent benchmark (debt outstanding/budget total) consistently exceeds the 60 percent benchmark, signal the need to revise investment policies. The city demonstrating zero room for further debt financing and a need to further stabilize its shows negligible reliance on earmarked investment indebtedness. The city was within the benchmark for maintenance expenditures. It spent grants whereby investments have mainly been financed more revenue on labor than the benchmark (40 percent) in 2015, possibly due to the from loans. The city does not generate revenues repayment of outstanding payroll-related obligations rather than from additional hiring. sufficient to fund the benchmark. Budget planning— The city performs well on the ratio for municipal employees relative to inhabitants. It planned and actual figures—were within range, pointing should measure revenue performance in fees to better focus on service sustainability. to fairly realistic budget planning. The city shows strong fiscal autonomy and spending sovereignty, with an ability to increase its own-source revenue. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve the financial condition of local government by enhancing the regulatory framework (new revenue sources through adoption of the Law on Utility Operations and the Law on Legalization of Informal Constructions (completed). Establish a new ministry for public administration (completed). Increase creditworthiness (enhance capacity for preparation and implementation of European Union projects and developing project documentation (by 2019). Improve exchange of data between the state and local governments for an improved database on shared revenues and more reliable forecasting (by end of 2018). Enhance service sustainability and improved operations of local administration. Improve the information technology system for the assessment and collection of real estate tax (by 2018). Implement new tax accounting software to ensure an improved database on all local taxes (by 2018). Introduce inter-municipal cooperation—the pooling of municipalities to propose joint projects, to be allocated from European Structural Investment Funds (by 2018). Advance budget reliability and enhanced budget planning by improving reporting for equalization (by 2018). Fully implement functional classification (by 2018). Improve municipal treasury operations by implementing budget expenditure controls and measures (end of 2017). Contact Person: Alida Nuhodzic finansijebp@t-com.me Website: http://www.bijelopolje.co.me 59 MONTENEGRO MFSA MUNICIPALITY OF BUDVA CITY PROFILE Territorial organization: The municipality of Budva comprises 61 settlements and 13 local community units; its total area is 122 square kilometers. The city of Budva is located in the Adriatic region, and is the center of the municipality of Budva. It is 2,500 years old— one of the oldest settlements on the Adriatic coast. Demography: Total population, according to 2011 census: 19,218 (3.1 percent of the total population of Montenegro); annual population growth: -0,8 percent; country ranking (population): 11 out of 23.; vital index: 191; population density: 157 inhabitants per square kilometer. Population growth, according to the 2011 census relative to 2003 census is 24.1 percent, the highest population growth rate in the country. Average age of population: 36.5; rate of natural increase (2011): 5.8. Economy: Total income per capita (2013): 3,538; activity rate (2011): 56,1 percent; unemployment rate (percent active population): 13.2; employment rate: 49 percent (the country’s highest); national development index (2010–12): above 125 percent (331.7 percent), ranking first in the country; inflation rate: 3.7 percent in 2011, 5.1 percent in 2012, 0.3 percent in 2013, -0.3 percent in 2014, and 1.4 percent in 2015. Decentralized functions: Montenegro is highly centralized, and the municipalities have limited functional competencies. The Law on Local Self Government stipulates that the municipali- ty’s responsibilities include local road maintenance, water services, garbage collection and treatment, street lighting, greening, culture, and sports. Municipalities are not responsible for providing education or health services. Utilities management: Water supply, drainage, and wastewater treatment: Vodovod i kanalizacija d.o.o Budva 2 (water and sewage company); waste collection and disposal; management of landfills, city market, and city parks; maintenance of public spaces, green, and recreational areas. Public lighting: d.o.o Komunalno Budva (utility company). Sports: JP Mediteranski sportski centar and JP Sportsko rekreativni centar (public companies). Cemeteries: JP Pogrebne usluge Budva (public company). Parking: Parking servis d.o.o (public company). Municipal staff (2015): Local administration: 315; public institutions: 210; public enterprises: 479. Urban issues and challenges: Overbuilt urban spaces, wastewater treatment, solid waste management, and illegal construction. Existing project investment plan: The primary capital projects for 2011–17 were the construction of the roundabout on the Boulevard Becici stream and control stream for €250,000; utility equipping and construction and reconstruction of water and sewage networks for an approximate total of €2 million; wastewater treatment plant for €4.6 million; day care center for €408,000; building of garages for €1.1 million; a school sports playground in Sveti Stefan for €70,000; spatial planning for 2016 for €6.1 million. FINANCIAL SITUATION The positive operating margin during the observed peri- omunicipality’s substantial operating margin reflects the financial strength and sustainability of its operations and demonstrates strong creditworthiness, accompanied by a positive overall closing balance (high growth index of 176 percent). However, debt service made up a substantial portion of the expenses, resulting in negative net current balances for each year, placing a huge burden on the municipal budget. The investment balance was negative in 2011 and 2015, mainly due to the repayment of arrears on capital investments. The municipality has a growing index for cash reserves (with a high of 206 percent) due to a 2015 increase, which were negligible from 2011 to 2014. The current revenue growth index (2011–15) was 17.1 percent, indicating a recovery for the local economy and finance. Current city revenues were much higher than operating expenditures. As a result, positive operating balances show financial strength in terms of the city financing its regular operations. Operating expenditures trended upward, meaning that the municipality was not committed to saving; the growth index shows it growing more slowly than current revenues (9.5 percent). Current revenues amounted to 71 percent of total revenues over the 2011–15 period. Own-source capital revenues, including the sale of property, declined by an average of 40.9 percent. The city finances capital expenditures with investment grants from the state budget and with donations (31 percent of total capital revenues). The city maintains capital expenditures at a high level even though revenues are insufficient, and considering the high levels of borrowing in 2015, the city should revise its investment plans going forward. 60 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES The municipality strongly relied on own-source revenues. In 2015, own-source revenues accounted for 85 percent of total budget revenues, including property sales of less than 2 percent; shared taxes accounted for 14 percent. External revenues (loan proceeds) made up 1 percent of the 2015 budget. Own-source revenues had a growth index of 4 percent, mainly by increasing the collection of local property taxes. Total own-source revenues, however, have grown slower than state transfers (12.5 percent growth index). External revenues (Budva received no donations or state transfers during the period of 2011–15) showed a declining trend since 2011, with no loan proceeds in 2012 and 2013. Overall, shared taxes accounted for 12 percent of the municipality’s total revenues over the observed period, while own-source revenues accounted for a high of 87 percent. Current expenditures showed an upward trend, with an average annual growth rate of 10 percent. Capital investments were at their highest level in 2012; they declined by half in 2013, and remained at the same level in 2014 and 2015, with an average annual growth rate of 22.5 percent over the observed period. The largest share of capital investments was for local infrastructure, with growth index of 17 percent. RATIO ANALYSIS The creditworthiness ratio—the operating margin over current revenues—was high and met the benchmark of >30 percent, showing an upward trend and suggesting the municipality’s strong creditworthiness during the observed period as well as its capacity to borrow and invest. Capital investment efforts were below the benchmark except in 2012, indicating that the city should reconsider its investment policies. The city’s investment performance experienced a downturn and had no earmarked investment grants. The downward trend in capital investments may have been caused by the city budget having being burdened with the repayment of accumulated capital investment arrears due to its over-investing in previous years and undertaking high-value As of 2013, the indebtedness ratio (debt outstanding/ capital projects that could not be completed due to the economic downturn and declining budget total) was below the set benchmark, indicating revenues from the sale of assets, the lack of investment grants, and possibly the high cost of serious emerging financial issues with expiring grace periods borrowing. The city could consider entering into public-private partnerships instead. Planned for loans. Debt repayment capacity met the benchmark— and actual budget figures were not within the range, pointing to the need for more realistic the city was able to repay all outstanding debt from five budget planning. Fiscal autonomy was high, exceeding the benchmark, demonstrating the city’s years of operating surplus against a 10-year benchmark. spending sovereignty and ability to increase its revenue. The city was below its benchmark in However, debt service was well below the benchmark, terms of maintenance expenditures, indicating the need for the prioritization of noncurrent causing serious concern, including accumulated bank asset maintenance. The city spent more on labor costs than the benchmark but performed well debt as well as arrears—ballooning debt payments—and with regard to the ratio of municipal employees relative to inhabitants. It should measure its absorbing up to 60 percent of overall budget expenditures revenue performance in fees to improve its focus on service sustainability. during the observed period. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve the financial condition of the local government by enhancing the regulatory framework (new revenue sources through the adoption of the Law on Utility Operations and the Law on Legalization of Informal Constructions (completed); establish the new ministry for public administration to monitor and control local government operations and protect their interests (completed); increase creditworthiness by improving the exchange of data between the state and local government for a better database on shared revenues and forecast reliability by the end of 2018; promote service sustainability and improved operations of local administration by improving the information technology system for the assessment and collection of real estate taxes by 2018; implement a new tax accounting software to ensure improved database on all local taxes by 2018; implement savings measures for current expenditures, such as updates to the Act on Organization and Systematization of Jobs, by end 2017; enhance budget reliability and planning by implementing an accrual accounting base by 2019; improve municipal treasury operations by implementing budget expenditure controls and measures by the end of 2017; implement a “hands-on” application for planning of revenues and expenditures for credit analysis by 2020; and implement a debt management system and improve investment programming by 2020. Contact: Srdjana Milicevic srdjana.milicevic@budva.me | website: http://budva.me/ 61 MONTENEGRO MFSA MUNICIPALITY OF MOJKOVAC CITY PROFILE Territorial organization: The municipality of Mojkovac is located in the northern region of Montenegro and comprises 14 settlements. The total area of the municipality is 367 square kilometers, which represents 2.6 percent of the country’s total territory; it is among the smaller municipalities of Montenegro. Mojkovac is located on the west bank of the Tara River between the mountains of Bjelasica and Sinjajevina. It sits at the intersection of the main road connecting Montenegro’s coast and capital city of Podgorica with northern Montenegro and Serbia. Demography: Total resident population (2011 census): 8623 comprising 1.4% of the total population in Montenegro. Annual population growth is negative: -13.4%. Rank in the country (in population): 16 out of 23. Human development index is below the Montenegro average and amounts 0.78. Population density: 23 inhabitants / km². Average age of population is 38.4. Rate of natural increase in 2011 is negative: -3.1. Economy: Total income per capita (2013): €436–1,855 (within the range of the northern region, the lowest of the three regions); activity rate (2011): 33 percent (below the 45 percent benchmark; unemployment rate (2011): 16.3 percent; employment rate (2011): 21.4 percent; national development index (2010–12): 63.4 percent; inflation rate: 3.7 percent in 2011, 5.1 percent in 2012, 0.3 percent in 2013, -0.3 percent in 2014, and 1.4 percent in 2015. Decentralized functions: Montenegro is highly centralized, and the municipalities have limited functional competencies. The Law on Local Self Government stipulates that municipal tasks include local road maintenance, water services, garbage collection and treatment, street lighting, greening, culture, and sports. Municipalities are not responsible for delivering education and health services. Utilities management: Water supply, drainage and wastewater treatment, waste disposal, public lighting, city market, maintenance of public spaces, and cemeteries: Javno komunalno preduzece Gradac (city utility company). Municipal staff (2015): Local administration: 78; public institutions: 15, public enterprises: 55. Urban issues: Waste management system; landfill dumps from lead and zinc mines; depopulation and high unemployment rate; wastewater treatment; use of renewable energy sources. Investment Projects: Main capital projects (2011–17): Crossroad reconstruction ul. Janka Vukotića for €240,000; landslide stabilization in Stevanovac for €150,000; construction of cycling and running trail on Jalovište for €540,000; construction of the sludge treatment pool construction for €180,000; construction of Njegoseva street and local road—Mojkovac-Ravni— for €400,000; protection and regulation of the wellhead for the city water supply in Gojakovići for €100,000; construction of water supply system in Gostilovina and Slatina for €150,000; construction of the municipal administration building for €500,000; and construction of the building for socially vulnerable persons for €300,000. FINANCIAL SITUATION The positive operating margin indicates sustainability of the operations of the Municipality with operating expenditures showing slight downward trend (0.6%). Operating margin grew by 7.2 percent. However, debt service made up substantial part of expenses resulting in negative net current balances in 2013 and 2015, with a worrisome growth index of 40 percent, creating a concerning burden for the municipal budget and constraining its investment and borrowing capacity. Debt service reached the highest level in 2015 (33 percent of the total budget expenditures) out of which 55 percent went on repayment of bank debt (18 percent of the total expenditures in 2015) and 45 percent for repayment of arrears (15 percent of the total 2015 expenditures). Investment balance was only positive in 2014, which indicates investments were financed partly from debts. The overall closing balance also shows a growing negative trend; which is a problem for the municipality, showing the budget is not balanced with debt financing. The municipality is running well in terms of financing operations, but it has overinvested in the past and with no cash reserves and low own capital revenues the capital expenditures were mostly financed through borrowing or from grants. Cash reserves have been negligible throughout the period but recovered to some extent in 2015 showing growth index of 186 percent. The current revenue growth index from 2011 to 2015 was 1 percent. Negative net current balance in 2013 and 2015 is caused by high debt service costs exceeding current revenue potential. Capital investment financing shows declining trend (-7.2%) since 2012 when municipality received grant and transfers of (15% of the total budget revenues in 2012) and used loan proceeds to finance large capital investment (28% of the total budget). Own capital revenues (only 7% of the total capital revenues or 2% of the total revenues 2011-2015) are insufficient to finance capital investments, which are mainly financed from grants and borrowing. Over the observed period 44% of capital revenues came from grants and donations. 62 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Municipality receives steady shared revenues and unconditional (equalization) grants. During the observed five year period state transfers and grants accounted for 43% of the total revenues, while own revenues (including property sale) accounted for 49% of the total 2011-2015 revenues. Own revenues show growth index of 4%, mainly by icrease in collection of local property tax (growth index of 4.2%). Total own source revenues have grown faster than state transfers (1.6% growth index) which indicates municipal efforts to improve collection rates. External revenues (53% loan proceeds, and 47% donations during 2011-2015) show strong growing trend with average growth index of 34%, under which loan proceeds indicate growth index of 44% while donations have grown by 0.09%. Current expenditures trended upward, with an average annual growth rate of 7.8 percent (83 percent of total 2011–15 expenditures), reaching their highest level in 2015, mainly due to an increase in interest and fees (average growth index: 120 percent) and grants and transfers (growth index: 23 percent) Capital investments were at their highest level in 2012, declining by half in 2013, with further reductions in capital spending in 2014, reflecting an average annual decrease over the observed period of 0.07 percent. The largest share of capital investments during the considered period was for land development (44 percent), which decreased by an average of 9 percent. Capital investment costs constitute 17 percent of the total expenditures for 2011–17. RATIO ANALYSIS The city achieved positive operating savings over the observed time period—a positive sign for creditworthiness. However, the creditworthiness ratio—operating margin over current revenues—only met the benchmark (>30 percent) only in 2014. The ratios below the 30 percent benchmark reflect the municipality’s lack of capacity to further borrow and invest. The indebtedness ratio (debt outstanding/budget total) met the benchmark. Debt repayment capacity also met the benchmark: the city could repay all outstanding debt with a five-year operating surplus against a 10-year benchmark. However, debt service relative to current The capital investment effort below the benchmark revenue is well below the benchmark (<10 percent), causing serious concern, including suggests that the city should reconsider its investment accumulated bank debt as well as arrears ballooning debt payments—reaching their highest policies. The city investment performance took a downturn ratio in 2015 (45 percent of current revenues). Annual borrowing far exceeded the current and relied on earmarked investment grants and loans. This revenues benchmark of 15 percent in 2015 at 35 percent, indicating that municipality must trend may have been caused by the city budget being be cautious regarding future debt. The city demonstrated strong spending sovereignty— over burdened with the repayment of accumulated capital 80 percent, except for 2011. It was below the benchmark for maintenance expenditures, investment arrears due to the city overinvesting in previous indicating a need for the prioritization of noncurrent asset maintenance. Indicators suggest years (2012) and possibly the high cost of borrowing. there is room for improvement in local tax collection. The city exceeded the benchmark for Capital investment efforts were well above the benchmark, payroll costs relative to operating expenses, but managed to meet the benchmark with a staff reflecting low development expenses and a high level of rationalization plan in 2015, reflecting improved city spending on labor. The city performed dependence on external financing. Planned and actual well on the ratio for municipal employees relative to inhabitants. It should measure revenue budget figures were not within the range, pointing to the performance in fees to better focus on service sustainability. need for more realistic budget planning. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve LG financial condition through enhancing regulatory framework (new revenue sources through adoption of the Law on Utility Operations and the Law on Legalization of Informal Constructions (completed); Establishment of the new Ministry for Public Administration for monitoring and control of operations of the LGs, and protection of their interests (completed). Increase creditworthiness (enhance capacity for preparation and implementation of EU projects and developing project documentation -by 2019, Improve exchange of data: State vs. LGs for better data base on shared revenues and forecast reliability end 2018); Service sustainability and improved operations of local administration (Improve the IT system for assessment and collection of real estate tax by 2018; Implement new tax accounting software to ensure improved database on all local taxes – by 2018; Implement saving measures for current expenditures -updates to the Act on Organization and Systematization of Jobs, by end 2017; introduce inter municipal cooperation: Pooling of Municipalities to propose joint projects - considering the size and the amount to be allocated from the European Structural Investment Funds by 2018); Budget reliability and enhanced budget planning (improve reporting for the purposes of equalization by 2018, Full implementation of functional classification as a standardized framework for regional comparability by 2018;implement accrual accounting base by 2019; improve municipal treasury operations – implement budget expenditure controls and measures –end 2017, improve investment programming – by 2020) Contact: Rajka Tomovic uprava.lokprmo@t-com.me Website: http://mojkovac.me 63 MONTENEGRO MFSA MUNICIPALITY OF PLJEVLJA CITY PROFILE Territorial organization: The municipality of Pljevlja is located in the northern region of Montenegro, comprising 153 settlements and 27 local communities. The total area of the municipality is 1,346 square kilometers—10 percent of the Montenegro’s total territory and the third largest municipality in the country. The highest point in Pljevlja is on the Ljubišnja mountain at an altitude of 2,238 meters; the lowest point is in the canyon of the Tara river at an altitude of 529 meters above sea level. Demography: Total population, according to 2011 census: 30,786, representing 5 percent of the country’s total population; population growth rate from 2003 to 2011: -12 percent; country ranking in terms of population: 7 out of 23; vital index (2009): 73.5; population density (2010): 20.1 inhabitants per square kilometers; average age of population: 41.8; rate of natural increase (2011): -7.6. According to the 2011 census, Pljevlja has the highest negative natural increase in Montenegro at - 234. Economy: Total income per capita (2013): €436–1,854; active population (2011): 11,569; activity rate (2011): 48.7 percent; unemployment rate (2011): 15.5 percent; national development index (2010–12): 70.74 percent, making Pljevlja the 13 of 21 municipalities in relation to local development in 2012; inflation rate: 3.7 percent in 2011, 5.1 percent in 2012, 0.3 percent in 2013, -0.3 percent in 2014, and 1.4 percent in 2015. Decentralized functions: Montenegro is highly centralized; municipalities have limited functional competencies. The Law on Local Self Government stipulates that municipalities are responsible for local road maintenance, water services, garbage collection and treatment, street lighting, greening, culture, and sports. Municipalities are not responsible for delivering education and health services. Utilitiy management: Waste disposal, maintenance of public spaces: d.o.o Cistoca (city utility company); treated water supply and sewage: d.o.o. Gradski vodovod; drainage, wastewater treatment, and cemeteries: Komunalne usluge (public company); central heating: Grijanje (public company); maintenance and protection of local roads (public company); center for sports and recreation. Municipal staff (2015): Local administration: 280; public institutions: 44; public enterprises: 457. Urban issues: High levels of air, water, and soil pollution; improvements needed to waste management system; inadequate management of solid municipal waste; Illegal landfills in rural and urban areas; lack of wastewater management systems (industrial and nonindustrial); improvements needed to water supply network; lack of railroad traffic; undeveloped network of regional and local roads; high unemployment rate; and depopulation. Investment Projects: Ongoing and planned capital projects (2011–18) include construction of a wastewater treatment plant for €5.6 million; construction of a main collector for the sewage network for €2.5 million; regulation of river beds in Ćehotina for €3.5 million; modernization of city parking infrastructure for €800,000; reconstruction and adaptation of the cultural center for €1.6 million; construction of the home for elderly persons for €2.1 million; improvements to the city market space (strategic plan) for €4 million; and construction of the city swimming pool (strategic plan) for €3.5 million. FINANCIAL SITUATION Pljevlja had a positive operating margin during the observed period (2011–15) and a large operating surplus above operating expenditures, pointing to the municipal- ity’s financial strength, the sustainability of its operations, and its strong creditworthiness. Operating expenditures decreased an average of 1.3 percent, while current revenues grew by 7.4 percent, reflecting a level of recovery for the local economy and finances. Due to the high level of debt service and cost of borrowing (growth index of 42.6 percent), the net current balance turned negative in 2013, negatively affecting the municipality’s financial condition. However, the city got back on track in 2014 and reduced the cost of its debt service by 40 percent in 2015 compared with 2013. The operating margin increased by an average of 32 percent, accompanied by a positive overall balance, except in 2013 due to extremely high debt service and borrowing costs. Investment balances were negative in 2011 to 2013 when capital investments had to be primarily financed with debt and partly with investment grants. The city demonstrated volatility with regard to cash reserves, with a growth index of 3 percent; city borrowing decreased by 58 percent over the observed period. Capital investments declined by 31 percent. The highest debt repayment was in 2013 (51 percent of total budget expenditures), 21 percent of which went to the repayment of bank debt (11 percent of total 2013 expenditures) and 79 percent for repayment of arrears (40 percent of total 2013 expenditures). Current revenues were 79 percent of total revenues for 2011–15. Own-source capital revenues were negligible and declined an average of 15.6 percent. The city financed its capital expenditures primarily with external revenues—donations, which constitute 29 percent of total capital revenues, and loans. Capital revenues represented 21 percent of the total revenues over the observed period. Capital investments were 27 percent of total expenditures due to the long-time effects of the extremely large investments in 2011, suggesting that the city should revise its investment plans and consider entering into public-private partnership arrangements to secure additional money for capital projects. 64 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Own-source revenues, including property sales (negligible), constituted 42 percent of the total 2011–15 budget revenues, demonstrating a growing trend of 9.1 percent. State transfers (shared revenues) and grants (equalization) accounted for 41 percent of total revenues and had a growth index of 3.9 percent. External revenues represented 17 percent of total revenues over the observed period and declined by 36 percent. The city is reliant on own-source revenues, indicating that it prioritizes own-source tax collection efforts. Unconditional grants (equalization) by the state represented 41 percent of total state transfers and grants; shared revenues were 59 percent. Own-source revenues grew faster than state transfers and grants—a significant accomplishment considering the economic downturn and declining local economy. External revenues reached a high in 2011 due to high €4 million loan and a €1 million donation, but rates of borrowing declined after that, demonstrating the city’s commitment to controlling local debt. Capital investments, which declined by an average of 30 percent during the observed period, were at their highest level in 2011, mainly financed by loans. The largest share of capital investments (52 percent) during the observed period was expenditures for local infrastructure, which declined by 21 percent. Current expenditures showed a downward trend of 1.3 percent, 49 percent of total expenditures for 2011–15, rising again in 2015 primarily due to an increase in pay- roll-related costs, grants, and transfers. In 2015, current expenditures constituted 54 percent of total expenditures RATIO ANALYSIS The city achieved positive operating savings over the observed time period—a good sign of creditworthiness. The ratio was met in 2013–15, which demonstrates an improving debt financing scenario. The indebtedness ratio exceeded the benchmark of 60 percent but improved in 2015 (not including the tax debt reprogram arrangement, or arrears). Debt repayment Capital investments were below the benchmark of 40 capacity met the benchmark: the city could repay all outstanding bank debt from the percent since 2011, when the city overinvested and five-year operating surplus (against the 10-year benchmark. However, debt service was over-indebted, which triggered the need to revise relative to current revenue was well below the benchmark of <10 percent since 2013, its investment policies. The city was strongly reliant causing serious concerns, including accumulated bank debt as well as arrears, which on earmarked investment grants in 2015 (68 percent), are ballooning debt payments, reaching the highest ratio in 2013 (60 percent of current indicating that the city did not generate sufficient revenues). This constrains the city’s borrowing capacity. Annual borrowing far exceeded revenues to fund the benchmark (40 percent) level of the 15 percent benchmark in 2011 (57 percent), but the city has since demonstrated capital investments. The budget planning, i.e., planned good policy decisions around borrowing. Since 2013, the city was significantly below and actual figures show discrepancies from the set the benchmark in terms of maintenance expenditures, indicating the need for the indicator points to the serious need for more realistic prioritization of noncurrent asset maintenance. The city spent more of revenues on labor budget planning. The city did not demonstrate strong costs than the benchmark (40 percent) in 2015, which may have involved the repayment fiscal autonomy or spending sovereignty. There is room of outstanding payroll-related obligations rather than from additional hiring. The city did to increase its own revenue. The city should measure the not perform well on the ratio for municipal employees relative to inhabitants over the revenue performance in fees in order to have better focus last two years. on service sustainability. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve the financial condition of the local government by enhancing the regulatory framework (new revenue sources through adoption of the Law on Utility Operations and the Law on Legalization of Informal Constructions (completed); establish the new ministry for public administration (completed); increase creditworthiness by enhancing the capacity for preparation and implementation of European Union projects and developing project documentation by 2019; improve the exchange of data between the state and local governments for an improved database on shared revenues and forecast reliability (end of 2018); enhance service sustainability and improved operations of local administration by bettering the information technology system for the assessment and collection of real estate taxes by 2018; implement new tax accounting software to ensure improved database on all local taxes, by 2018; Implement saving– updated Act on Organization and Systematization of Jobs, by end 2017; introduce inter-municipal cooperation—the pooling of municipalities to propose joint projects, to be allocated from the European Structural Investment Funds, by 2018; and promote budget reliability and enhanced budget planning (improve reporting for the purposes of equalization) by 2018. Contact: Biljana Vukanic, opstinapv@t-com.me | website: http://www.pljevlja.me 65 MONTENEGRO MFSA CITY OF PODGORICA CITY PROFILE Territorial organization: Podgorica is the capital and administrative center of Montenegro as well as its largest city. The capital city includes two sub-municipalities: Tuzi and Zeta; it comprises 139 settlements and 66 local community units. The total area of the city is 1,500 square kilometers or 10.7 percent of the territory of Montenegro. Podgorica is favorably located at the confluence of the Ribnica and Morača rivers and is the meeting point of the fertile Zeta Plain and the Bjelopavlići Valley. Demography: Total resident population, according to the 2011 census: 185,937, representing 30 percent of the total population of Montenegro. Country population ranking: 1 out of 23; vital index (2009): 205.8. Population density: 129 inhabitants per square kilometer; population growth, according to the 2011 census relative to 2003 census: 10.6 percent; average age: 35.7; rate of natural increase (2011): 6.2. Economy: Total income per capita (2013): €1,315–2,570 (central region); activity rate (2011): 50.9 percent; unemployment rate (2013): 11.3 percent; employment rate (2011): 48.6 percent; average national development index (2010–12): above 125 percent (141 percent); inflation rate: 3.7 percent in 2011, 5.1 percent in 2012, 0.3 percent in 2013; -0.3 percent in 2014; and 1.4 percent in 2015. Decentralized functions: Montenegro is highly centralized, and municipalities have limited functional competencies. The Law on Local Self Government stipulates that the municipality is responsible fo local road maintenance, water services, garbage collection and treatment, street lighting, greening, culture, and sports. Municipalities are not responsible for delivering education and health services. Utilitiy management: Water supply, drainage, and wastewater treatment: Vodovod i kanalizacija d.o.o Podgorica (water and sewage company); collection and disposal of waste, maintenance, and cleaning of public areas: Cistoca d.o.o. Podgorica; public lighting and traffic lights: Komunalne usluge, d.o.o. Podgorica; landfill management, recycling, and trade of raw materials: Deponija, d.o.o. Podgorica; city parks and green areas: Zelenilo d.o.o Podgorica; funeral services and arranging and maintaining cemeteries: Pogrebne usluge d.o.o. Podgorica; management of public parking: Parking servis d.o.o. Podgorica; management of green markets: Trznice i pijace, d.o.o. Podgorica; sports: Sportski objekti d.o.o, Podgorica; local roads: Putevi d.o.o. Podgorica. Municipal staff (2015): Local administration: 643; public institutions: 203; public enterprises: 2,035. Urban issues: Managing medical and industrial waste and chemicals; construction of the new wastewater treatment plant; construction of sewage networks; industrial pollution; land usurpation and illegal construction; illegal waste dumps; depopulation of rural areas. Strategic plan goal: reduce CO2 emissions by more than 20 percent, and increase the share of renewable energy production by 20 percent by 2020. Investment Projects: Completed: construction of the bypass around Golubovci phase I and IV for a total of €5.9 million; construction of the city parliament building for €4.1 million; construction of a social housing building for €5.7 million; construction of hydrotechnical installations for €8.4 million. Ongoing capital projects: Golubovci bypass next phase (plan: €3.5 million; executed to date: €1.7 million); construction of the city theater (plan: €3.9 million; executed to date: €1.2 million); covering a city water pool (plan: €1.9 million; executed to date: €1.3 million). FINANCIAL SITUATION The positive operating margin reflects the city’s financial strength and the sustainability of its city with the exception of 2012 when net current balance was negative due to the high cost of serving debt, lower current revenues, and extremely low cash reserves. The city was able to generate an operating surplus above operating expenditures. The operating margin grew by an average of 14 percent and was accompanied by a positive overall balance. The investment balance was negative in 2011 when capital investments had to be partly financed with cash reserves. The city had strong cash reserves over the observed period (except in 2012), and there were no loan proceeds during that time. Capital investments declined by -9.7 percentage points. Debt service increased over the observed period, with a growth index of 11.4 percent. High levels of debt repayment (€3.8 million) was notes in 2015, 56 percent of which went to repay bank debt (5 percent of total expenditures for 2015), and 44 percent to repay arrears (4 percent of total 2015 expenditures). The current revenue growth index from 2011 to 2015 was 2.1, representing 66 percent of the total revenues over the observed period. Operating expenditures were stable and had a negligible increasing trend; they grew more slowly than current revenues, at 0.1 percent. Own-source capital revenues, including property sales, grew by 4.6 percent. The city received some investment grants from the state budget with a growth index of 21.5 percent. It reduced capital expenditures from 2012 onward and had no direct borrowing during the observed period, while operating expenditures were kept at the same level. The overall closing balance showed a positive trend, with a high growth rate of 142.7 percent, a tremendous improvement since 2011, showing robust surpluses due to the increased revenues and the very conservative capital investment plans. This suggests that the city can revise its investment plans and use cash reserves directly or borrow against cash reserves and substantially increase capital investments. 66 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Own-source revenues constituted 79 percent of the total budget revenues, including property sales, which accounted for 8 percent of total own-source revenues and 6 percent of total revenues during the observed period. Shared taxes and state transfers accounted for 21 percent of total revenues for 2011–15. The city strongly relied on own-source revenues, which had a growth index of 1.8 percent, mainly due to an increase in the collection of local property taxes (growth index: 7 percent) and land development fees (growth index: 13 percent). Own-source revenues grew faster than shared taxes, indicating a dependency on own-source collection and tax efforts. There was no borrowing during the observed period. The city received state investment grants: 9 percent of total state shared revenues, or 2 percent of total revenues for 2011–15. The city achieved positive operating savings over the observed time period—a good sign of creditworthiness. The ratio was met in 2013–15, which demonstrates an improving debt financing scenario. Current expenditures trended upward, with an average annual growth rate of 0.41 percent, constituting 55 percent of total expenditures for 2011¬–15, reaching their highest level in 2015, mainly due to significant transfers and payroll-related costs. In 2015, capital investment costs constituted 34 percent of total expenditures. Due to a stagnating economy and lack of investment, there was a significant drop in investment activities in 2012, with an average annual decrease of 9.7 percent over the observed period. RATIO ANALYSIS The city achieved positive operating savings over the observed period—a sign of creditworthiness. The trend toward credit- worthiness was affected by a drop in revenues in 2012, which resulted in a small operating margin. Ratios were below the 30 percent benchmark, suggesting that the city is on a good track but has weak creditworthiness that needs improvement to help it borrow in the private debt market. Debt repayment capacity is strong: the city could repay all outstanding debt with five years of operating surpluses against a 10-year benchmark. Debt service increased, reaching 7 percent of current revenues, failing to meet the benchmark in 2015, thereby constraining the city’s borrowing capacity. The indebtedness ratio (debt outstanding/budget total) constantly exceeded the 60 percent benchmark, likely due to issued loan guarantees for Capital investments above the benchmark of 40 percent the local public companies. Planned and actual budget figures were not within the range signal the city’s financial health and smart investment policies. over the last three years, pointing to the need for more realistic budget planning. The city The city demonstrated a strong investment performance, demonstrated strong fiscal autonomy and spending sovereignty, with the ability to increase significantly over 40 percent in some years, as well as a its own-source revenue. It was below the benchmark for maintenance expenditures, negligible reliance on earmarked investment grants. The city indicating the need for the prioritization of noncurrent asset maintenance. The city spent favored development expenses and generated revenues less revenue on labor than the benchmark (40 percent) and performed well on the ratio sufficient to fund the 40 percent benchmark for capital for municipal employees relative to inhabitants, indicating that the city could spend pro- investments. The city should, however, consider entering into portionately more on services and development. The city should measure the revenue public-private partnerships to reduce the burden on local performance in fees to better focus on service sustainability. budget evident in 2015. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve the financial condition of the local government by enhancing the regulatory framework (new revenue sources through adoption of the Law on Utility Operations and the Law on Legalization of Informal Constructions (completed); establish the new ministry for public administration to monitor and control local governments and protect their interests (completed); increase creditworthiness by enhancing the database on shared revenues and improving the reliability of forecasting by the end 2018; enhance service sustainability and improved operations of local administration by upgrading information the technology system for real estate tax assessment by 2018; implement new tax accounting software to improve the database on all local taxes by 2018; foster budget reliability and enhanced budget planning by implementing an accrual accounting system by 2019; implement a “hands-on” application for the planning of revenues and expenditures for credit analysis by 2020; and implement a debt management system and improve investment programming by 2020. Contact: Snezana Popovic, finansije@t-com.me | website: www.podgorica.me 67 MONTENEGRO MFSA MUNICIPALITY OF TIVAT CITY PROFILE Territorial organization: The municipality comprises 42 settlements and 6 local community units. Total area is 46 square kilometers, with 5 square miles facing the open sea. Tivat is a coastal town in southwest Montenegro, located in the central part of the Bay of Kotor, on the southwestern slopes of Vrmac Hill (765 meters). Tivat Bay is the largest of the four bays in Boka Kotorska. Demography: Total resident population, according to 2011 census: 14,031, constituting 2 percent of the total population of Montenegro; country ranking population): 14 out of 23 mu- nicipalities; vital index (2011): 1.1; population density: 296.3 inhabitants per square kilometer; population growth, according to the 2011 census compared with the 2003 census: 4.5 percent; average age: 38; natural increase (2011): 14; rate of natural increase: 3.7 in 2009 and 1.1 in 2011. Economy: Total income per capita, in 2013 was within the range of the southern region: EUR 1,053–3,538, the most developed region of Montenegro; activity rate: 49 percent in 2011 and 53.7 percent in 2015; unemployment rate: 13.2 percent in 2011 and 17.6 in 2015; national development index (2010–12): above 125 percent (173 percent), ranked second In Montenegro. Inflation rate: 3.7 percent in 2011, 5.1 percent in 2012, 0.3 percent in 2013, -0.3 percent in 2014; and 1.4 percent in 2015. Decentralized functions: Montenegro is highly centralized; municipalities have limited functional competencies. The Law on Local Self Government stipulates that munici- palities are responsible for local road maintenance, water services, garbage collection and treatment, street lighting, greening, culture, and sports. Municipalities are not responsible for delivering education and health services. Utilitiy management: Water and sewage: Vodovod i kanalizacija d.o.o (city utility); water supply, drainage, and wastewater treatment: Tivat; d.o.o Komunalno; collection and disposal of waste, managing landfills. city market, city park, maintenance of public areas, green and recreational areas, cemeteries, marina services, public lighting Tivat (utility company); sports: JU Sportska dvorana Tivat. Municipal staff (2015): Local administration: 93; public institutions: 22; public enterprises: 139. Urban issues: Insufficient parking spaces; incomplete sewage system; wastewater treatment; solid waste management and disposal; implementation of risk management system for forest fires and floods; advanced use of renewable energy sources and improvement of energy efficiency; illegal construction. Investment Projects: Main capital projects for 2011–17 include road construction— MR1, Phase I for €3 million; construction of walking path in Belani for €1.1 million; day care facility for children with disabilities for €800,000); Solila water supply pipeline for €700,000; public hall in Gosici for €150,000; sewage system in Donja Lastva for €350,000; and construction of civil protection facilities for €400,000. FINANCIAL SITUATION The substantial operating margin indicates the financial strength and sustainability of the municipality’s operations, except for 2013, with a low net current balance due to the high cost of serving debt. The strong operating margin demonstrates strong creditworthi- ness, accompanied by a positive overall balance. The investment balance was negative only in 2011 when capital investments had to be partly financed with cash reserves from previous years. The municipality had strong cash reserves and there were no loan proceeds during the observed period. Capital investments in 2015 amounted to €3.3 million—a 36 percent decreased compared with 2011. Capital expenditures decreased an average of 11 percent. Debt service increased 34 percent. Total revenues in 2015 were €16.3 million (current revenues: €7.9 million; capital revenues: €6 million, and high cash reserves: €3.7 million). Current revenue growth from 2011 to 2015 was 18.9 percent, pointing to a recovery of the local economy and finances. The city’s current revenues were much higher than its operating expenditures. This positive operating balance demonstrates financial strength in terms of the city financing its regular operations. Operating expenditures trended upward, which means that the municipality was not committed to savings; the growth index demon- strates that they grew more slowly than current revenues (8.1 percent). 68 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Own-source revenues account for 85 percent of total budget revenues, including property sales, which account for less than 2 percent, and shared taxes, which account for 10 percent. External revenues (grants/donations and no loan proceeds account for 5 percent of the overall budget for 2011–15. The municipality strongly relied on own-source revenues. Own-source revenues grew 4 percent, mainly by increasing the collection of local property taxes. Total own-source revenues (excluding property sales) grew more slowly than state transfers. External revenues (there was no borrowing in the observed period, only donations and grants) increased significantly to 270 percent due to the large value of donations in 2015 (€3 million). MAIN OPERATING EXPENDITURES Items (Line items by category) 2011 2012 2013 2014 2015 Average annual growth CURRENT EXPENDITURES (total) 4,153,775 4,827,901 4,575,852 4,633,477 4,665,523 2.95% 1 Payroll (including employees benefits & misc.) 1,311,242 1,664,772 1,787,557 1,758,987 1,763,126 7.68% 2 Operating costs 606,140 884,526 823,626 773,696 765,758 6.02% - Material 49,436 57,337 53,948 54,067 50,025 0.30% - Travel expenses 10,204 9,905 7,816 7,885 14,844 9.82% - Representation costs 28,740 26,454 26,638 14,787 12,114 -19.42% - Energy 238,828 238,661 247,931 248,711 247,960 0.94% - Telephone services 19,644 22,773 29,087 26,535 25,011 6.22% - Postal services 12,834 15,151 14,724 12,340 13,832 1.89% - Banking services 18,655 26,547 13,573 24,200 22,114 4.34% - Transportation services 30,800 30,200 32,000 29,800 33,000 1.74% - Contract services 196,999 457,498 397,909 355,371 346,858 15.19% 3 Current repairs and maintenance 72,032 105,636 58,765 55,657 56,194 -6.02% 4 Rents 34,934 34,238 35,798 37,826 56,080 12.56% 5 Interest costs and fees 452,587 641,976 70,000 47,973 40,576 -45.28% 6 Current subsidies 7 Grants and transfers 1,323,855 1,059,493 1,289,080 1,314,083 1,430,239 1.95% 8 Social security and welfare 28,585 21,435 31,885 30,324 28,400 -0.16% 9 Other expenditures 396,432 521,461 537,906 670,588 581,344 10.04% Capital investments were at their highest level in 2011 and were volatile during the observed period, with the largest capital investments made in improvements to the city construction land, which grew 30 percent. Current expenditures trended upward with an average annual growth rate of 3 percent. In 2015, capital investment costs constituted 35 percent of total expenditures. A significant drop in investment activities was noted in 2013, but returned to a path of growth over the following years; it still showed a negative average annual index within the observed period of -10.8 percent. Current expenditures (34 percent of total expenditures in 2015) reached their highest level in 2012, mainly due to significant transfers and increased interest. The remaining expenditure items that burdened the municipal budget in 2015 included repayment of debt (8 percent) and repayment of arrears (7 percent). RATIO ANALYSIS The creditworthiness ratio—operating margin over current revenues—was high and met the benchmark of >0.3, showing an upward trend. This suggests strong creditworthiness within the observed period and the municipality’s capacity to borrow and invest. The low levels of capital investment could indicate that the city managed its financing operations but failed to generate revenues sufficient to fund the 40 percent benchmark level. Planned and actual budget figures were within the range, which points to the need for more realistic budget planning. Fiscal autonomy was moderate, indicating issues with the city’s spending sovereignty. Capital investment efforts met the benchmark, demonstrating the city’s financial health and smart investment policies. The city had The city demonstrated strong debt repayment capacity a strong investment performance, significantly over 40 percent in some years, and (except in 2013). It could repay all outstanding debt with a negligibly relied on earmarked investment grants. The city was below the benchmark for five-year operating surplus against a 10-year benchmark, but maintenance expenditures, indicating a need for the prioritization of noncurrent asset debt service relative to current revenues was volatile, often maintenance. The city should measure revenue performance in fees to have better focus well outside the benchmark. The indebtedness ratio (debt on service sustainability. It spent more of its revenues on labor than the benchmark but outstanding/budget total) exceeded the 60 percent budget performed well on the ratio for municipal employees relative to inhabitants. benchmark in 2011–12, but got back on track in 2013–15. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve the financial condition of the local government by enhancing the regulatory framework such as new revenue sources through adoption of the Law on Utility Operations and the Law on Legalization of Informal Constructions (completed); establish the new ministry for public administration to monitor and control local government operations and protect their interests (completed); increase creditworthiness by improving the exchange of data such as that of the state and local governments, allowing for a better database on shared revenues and forecast reliability by the end of 2018; enhance service sustainability and improve operations of local administration by improving the information technology system for the assessment and collection of real estate taxes by 2018; implement a new tax accounting software to ensure an improved database for all local taxes by 2018; encourage budget reliability and enhanced budget planning by implementing an accrual accounting base by 2019; implement “hands-on” application for the planning of revenues and expenditures for credit analysis by 2020; and implement a debt management system and improve investment programming by 2020. Contact: Rajka Jovicevic, finansije@opstinativat.com | website: http://opstinativat.com 69 SERBIA MFSA CITY OF BELGRADE CITY PROFILE Territorial organization: Belgrade, the capital city of Serbia, sits at the center of the district of Belgrade, which has 17 sub-municipalities. Regulated by a special law (2007) with vertical and horizontal coordination mechanisms of 10 urban and 7 suburban mu- nicipalities. Total area of the city: 360 square kilometers; total area of the district: 3,227 square kilometers. Demography: Population of district, according to the 2011 census: 1,659,440; annual growth: +5 percent; density of city: 35 per hectare; density of district: 5.5 per hectare. Economy: Gross domestic product per capita (2015 estimate): €8,380. Business entities (not including individual entrepreneurs): 59,017; labor force: 778,534—46 percent of the population; unemployment rate (2015): 13.9 percent. Located on the Danube and Corridors 7 and 10, it has the highest concentration of scientific, intellectual, cultural, and service capacities in Serbia, with a well-developed infrastructure and potential with information and communication technology. The city boasts of its highly cumulative and creative industries, services, and public services. Utilities management: The city provides services through its 22 majority-owned public enterprises and public utility companies, covering water supply and sewerage, heating, funeral services, marketplaces, landscaping, sanitation, parking, public lighting, public transporta- tion, road maintenance, public housing, and the collection of utility fees, and other services. Autonomous public utility companies operate in the seven suburban municipalities. The city has entrusted some operations to enterprises and institutions that it did not itself found. Municipal staff: Total (2015): 12,422; city administration: 3,915; preschool education: 8,507. Urban issues and challenges: The main goal of Belgrade’s development efforts through 2021 is to improve the quality of life for citizens and the city’s economic performance with continuous capital investments, enhancement of identity; and affirmation of the city’s public spaces, river banks, and coastal zones. The city’s chosen activities promote identity enhancement, rational resource management, efficient public property management, planned controlled development, and regulation of public space. (Source: Development Strategy 2021). Existing Project Investment Plan: Since 2013, the city has adopted a three-year rolling capital investment plan based on its development strategy, regional spatial plan and master plan. It envisages numerous and extensive projects primarily focused on urban and transportation infrastructure, including the construction of new bridges and tunnels, the extension of the sewage system, and reconstruction of the water supply network. Planned investments: RSD 24.5 billion (2016); RSD 18.5 billion (2017), and RSD 14.5 billion (2018). FINANCIAL SITUATION Exchange rate 1 EUR = 121.6261 RSD (end of 2015) Inflation, end of period: 2011: 7.0 % 2012: 12.2 % 2013: 2.2 % 2014: 1.7 % 2015: 1.5 % Sound operating margins combined with regular cash reserves and reduced capital investment resulted in sufficient self-financing capacity, which allowed the city to post consecutive overall closing balances of 8–14 percent of total revenues between 2013 and 2015. The improvement in Belgrade’s cash reserves largely reflect controls on operating expenditures and reductions in capital spending, which have reduced its borrowing requirement. The city did not hold uncommitted credit lines for the past few years, reflecting the accumulation of positive cash balances. Its solid financial performance has led to a comfortable liquidity position, which tripled over the past few years. The city’s available cash represents an extremely solid financial cushion against potential budgetary pressures and supports capital investment funding over the medium term. 70 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenues: Belgrade had relatively limited control over its revenue base, which consisted of shared state taxes (43 percent) and own-source revenue (57 percent). The city’s fiscal dependence on state resources exposed its finances to the central government budget performance and evolving intergovernmental relations. Changes to the government’s fiscal policy for 2012–15 resulted in the city loosing significant revenues through the elimination of state transfers, reduction of shared wage tax, and elimination of and limitations to the levels of certain local fees and levies. Expenditures: In 2015, the structure was dominated by urban services (41 percent) and social services (31 percent). The city allocated substantial resources to urban services, primarily road infrastructure, public transportation, water supply, sewage network, and solid waste management. The rest of the city’s budgeted resources were allocated to general administrative services (17 percent) and commercial services (11 percent). RATIO ANALYSIS The deterioration of the operating performance was driven by the exposure of the operating margins to a low-revenue-growth environment along with the drop of the national economy in that period. Belgrade’s direct debt declined to 66.5% of budget in 2015 from historical high 75% at the end of 2014. Belgrade’s fiscal performance has been sound, with double-digit operating surpluses over the last five years. Despite rising debt until 2014, debt service costs were only around 10 percent of actual current revenue and thus regarded as manageable. The city has complete autonomy in deciding how to finance its competencies. The collection of revenues is at a satisfactory level, both for local taxes and fees. Employee expenses are not a great burden on the budget or the citizens of Belgrade. Service levels could be The capital investment remained a major leeway for improved by increasing spending on maintenance projects. Belgrade, although it was curbed by high infrastructure needs, common to all local governments in Serbia. FINANCIAL PROJECTIONS Medium-term financial projections for city’s budget reflect the need to substantially increase sources of financing for infrastructure. It is expected that this will be achieved by continuing the effective collection of own-source revenues, through the implementation public-private partnership projects, and by creating new revenues based on improving the city’s management of assets. MUNICIPAL FINANCE IMPROVEMENT PLAN Improve the budget planning process by improving budgetary principles by 2017, introducing planning software for indirect budget users by 2019, and initiating gender-responsive budgeting by 2018). Establish a uniform reporting methodology for the city administration by 2017 and develop an application reporting solution by 2018. Establish an asset management system (2014–18) Contact: Ranka Perić | Website: www.beograd.rs 71 SERBIA MFSA CITY OF NIŠ CITY PROFILE Territorial organization: Niš is the third largest city in Serbia and the administrative center of the Nišava District of southern Serbia. Its location is strategically important, situated at the intersection of European highway and railway networks connecting Europe with Asia. The city consists of five submunicipalities with a total area of 596 square kilometers. Demography: Population, according to 2011 census: 260,237; according to 2015 estimate: 257,883; annual growth: -0.2 percent; density: 433 inhabitants per square kilometer. Economy: Business entities: 2,975 (excluding entrepreneurs); labor force: 101,403 (40 percent of the population); unemployment rate (2015): 31.7 percent. Niš is the industrial, commercial, and financial center of southeastern Serbia. As an industrial center, it is well known for tobacco, electronics, construction, mechanical engineering, textiles, nonferrous metal, food processing, and rubber goods. Utilities management: The city provides services through its 15 majority-owned public enterprises, 8 of which are utility companies, covering water supply and sewerage, heating, funeral services, marketplaces, landscaping, sanitation, parking, public transportation, road maintenance, city housing, collection of utility fees, and other services. Municipal staff: Total: 2,642; city administration: 1,703; preschool education: 668. Urban issues and challenges: Improve the quality of Niš’ local system, including job creation, business development, institutional capacity, and overall quality of life, in accordance with the principles of sustainability. Existing Project Investment Plan: The city adopted a three-year capital expenditure rolling plan based on its 2009–20 development strategy, the master plan, the spatial plan, and the detailed regulation plan. The capital expenditure plan envisages extensive projects mainly focused on urban, transportation, and utility infrastructure, including land development (70 percent), reconstruction of streets with water and sewerage networks, construction of new utility infrastructure, and public housing. Planned investments: RSD 2.0 billion (2016); RSD 1.9 billion (2017); and RSD 2.1 billion (2018). FINANCIAL SITUATION Exchange rate 1 EUR = 121.6261 RSD (end of 2015) Inflation, end of period: 2011: 7.0 % 2012: 12.2 % 2013: 2.2 % 2014: 1.7 % 2015: 1.5 % The city of Niš generated a total budget surplus over the observed period. However, a declining operating balance combined with a downward trend in cash reserves resulted in the city experiencing limited self-financing capacity toward the end of the period. Substantial changes and a reduction in the amount of current revenues generated from one year to another, together with increasing debt repayments, were the reasons for the generation of net-current deficit in 2014. A drop in cash reserves, including the net margin, absent significant growth in other financing sources resulted in a major reduction of investment activities—from RSD 2.4 billion in 2011 to only RSD 787 million and RSD 908 million over the last two years. 72 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenue: The revenue structure confirms that city’s finances were highly dependent on shared state taxes and transfers, constituting 64 percent of total revenues. This has implications for the stability and predictability of the city’s finances. The primary current revenues were shared personal income tax (52 percent), local property tax (12 percent), unconditional transfers (11 percent), and local fees (12 percent), together constituting 87 percent of total revenues. The primary revenues earmarked for capital expenditure financing were proceeds from the sale of assets and land development fees, constituting 5 percent of total revenues. Expenditures: The expenditure structure was dominated by operating expenses that accounted for 82 percent of the total budget in 2015. The rest of the city budget resources were allocated to capital investments (13 percent) and debt services (5 percent). Payroll accounted for 29 percent of total expenditures and more than one-third of operating expenditures (36 percent), mostly generated by city administration staff. RATIO ANALYSIS The deterioration of the operating performance was driven by the low revenue growth along with the drop of the local economy. The City’s debt burden was bellow the benchmark, total debt ranged from 18% to 23% of the budget. Niš’s fiscal performances were modest, with thin double-digit operating surpluses over the observed period. The city’s self-financing capacity needs to be improved in the short term by significantly reducing operational expenditures and possibly increasing current Despite the high infrastructure needs, the investments revenues. Revenue collection improved, but staff costs continue to be high, approaching were reduced from 42% (2011) to the historically the upper benchmark. Reduced indebtedness leaves room for further acceleration of lowest 12% of current revenue (2014), due to the low investment efforts from external resources. self-financing capacity of the City FINANCIAL PROJECTIONS Over the medium-term, the city needs to provide financing sources for capital investments, expected to be RSD 2 billion per year. To this end, the city should focus on improving its self-financing capacity by cutting operating expenditures and increasing its use of external sources of funding, such as loans and private capital. MUNICIPAL FINANCE IMPROVEMENT PLAN Enhance creditworthiness by improving own-source revenue collection through the establishment of links between different databases within the tax administration (2017); foster budget realism by improving the operational capacity for policy-based budget planning and capital investments coordination (2017); and advance sustainability of service delivery by improving capital projects planning through the establishment of a single platform and methodology for public investment analysis and planning led by the Ministry of Finance (2018). 73 SERBIA MFSA CITY OF ŠABAC CITY PROFILE Territorial organization: Šabac is located on the right bank of the Sava River, 103 kilometers upstream from Belgrade, near the borders with Croatia and Bosnia and Herzegovina. Total area of the city and the 51 surrounding settlements is 795 square kilometers. Demography: Population, according to the 2011 census: 117,388; according to 2015 estimate: 113,113; annual growth rate: -0.9 percent; density: 142 inhabitants per square kilometer. Economy: Business entities: 2,946, excluding entrepreneurs; labor force: 42,386 or 37 percent of the population; unemployment rate: 26.8 percent (registered). Fertile agricultural land and the waters of the rivers Sava and Drina support industrial activities, water processing, agriculture, river transport, and tourism. Šabac’s economy is very vital and diverse. It has significant capacity in chemical, metalworking, woodworking, food industry, construction, medicine manufacturing, water management, leather processing, and textiles, among other enterprises. Utilities management: The city provides services through its nine owned public enterprises, five of which are public utility companies, covering water supply, heating, waste management and sanitation, greenery, and parking services. Municipal staff: Total: 797; city administration: 192; preschool education: 392. Urban issues and challenges: Modernize the existing infrastructure and reduce unemployment by attracting new industries and services, including small- and medium-size enterprises (business clusters). Existing Project Investment Plan: The city adopted a three-year capital expenditure rolling plan based on its 2010–20 development strategy, master plan, spatial plan, and detailed regulation plan. It envisages extensive projects, primarily focused on urban, transportation, and utility infrastructure, including the construction of a new biomass heating plant, public utility networks (water, sewage, and heating), and a new international port on the Sava River. Planned investments (in millions of RSD): 615 (2016); 783 (2017); and 959 (2018). FINANCIAL SITUATION (IN CURRENT TERMS) Exchange rate: 1 EUR = 121.6261 RSD (end of 2015) Inflation, end of period: 2011: 7.0 % 2012: 12.2 % 2013: 2.2 % 2014: 1.7 % 2015: 1.5 % The city of Šabac realized a total budget surplus during observed five-year period. However, the slower generation of current revenues compared with the growth of operating expenditures resulted in a downward trend of operating balances. The generated operating surplus was used exclusively for debt repayment and capital expenditure funding. Apart from a modest net current surplus, capital expenditures were funded primarily with capital revenues, such as land development fees and asset sales, in addition to loans and municipal bonds. Accordingly, the city’s capital investment expen- ditures recorded much faster growth compared with operating expenditures over the observed period. 74 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenue: The revenue structure confirms that the city’s finances were highly dependent on state taxes and transfers, representing 45 percent of total revenues, which influenced the stability and predictability of the city’s financing. Main current revenues were shared personal income taxes, local property taxes, uncon- ditional transfers, and local fees, constituting 74 percent of total revenues. Main revenues earmarked for financing of capital expenditures were proceeds from the sale of assets and land development fees, representing 9 percent of total revenue. Expenditures: The expenditure structure was dominated by operating expenses, accounting for 69 percent of the total 2015 budget. The rest of the city budget resources were allocated to capital investments (25 percent) and debt services (5 percent). Payroll accounted for 17 percent of total expenditures and 25 percent of operating expenditures, mostly generated by preschool education staff and, to a lesser extent, by the city administration. RATIO ANALYSIS The decrease in operating performance was driven by the low level of revenue growth, mainly state transfers, along with the significant increase in operating expenditures over the last observed year. The total direct debt declined from 31 percent of the budget (2011) to 16 percent in 2015 through the repayment of loans to commercial banks. Šabac’s fiscal performance was solid, with double-digit operating surpluses over the observed period. The city enhanced its self-financing capacity by increasing own-source revenues and cutting operating expenditures. Reduced and manageable indebtedness allows the city to access the capital market to finance investment projects. Capital expenditures, ranging between 13 percent and 33 percent of current revenues, confirm the significant investment effort of the city despite of downstream trend of state transfers. FINANCIAL PROJECTIONS The medium-term financial projection for the city’s budget includes upgrading the city’s operating performance to enhance its self-financing capacity and investment efforts by continuing the effective collection of the own-source revenues, the rationalization of operating expenses, and the in- creased use of private capital through the implementation of public-private partnership projects. MUNICIPAL FINANCE IMPROVEMENT PLAN Enhance budget realism by improving the operational capacity for policy-based budget planning and capital investments coordination (2017, fourth quarter); foster creditworthiness: expand own-source revenue collection by the establishment the links between different databases within the tax administration (2018); promote service sustainability by improving capital projects planning through the establishment of a single platform and methodology for public investment analysis and planning, led by the ministry of finance (2018, fourth quarter). Contact Person: Marija Knežević | Website: www.sabac.rs 75 SERBIA MFSA CITY OF SUBOTICA CITY PROFILE Territorial organization: Subotica is the second most populous city in the province of Vojvodina. The city’s metropolitan organization comprises an inner city and 19 suburban settlements. Located close to the border with Hungary, the city holds a strategic position and is the most important administrative, industrial, trade, traffic, and cultural center in the northern Bačka region. The total area of the city is 1,007 square kilometers. Demography: Population, according to 2011 census: 143,179; according to 2015 estimate: 139,011; annual growth rate: -0.7 percent; density: 138inhabitants per square kilometer (1.4 per hectare). Economy: Business entities: 2,946, excluding entrepreneurs; labor force: 51,235 or 37 percent of the population; unemployment rate: 17.3 percent (registered); key economic sectors: agriculture, food production and processing, electronics, metal and chemical industry, and the service sector. There is an enormous development potential for tourism. Utilities management: The city of Subotica has created 11 public utility companies in the field of waste management, heating, water supply and sewage, funeral services, marketplaces, sanitation, public transportation, and road maintenance. Municipal staff: Total: 1,266; city administration: 686; preschool education: 505. Urban issues and challenges: Develop an integrated system of public transportation, including for suburban settlements; upgrade environmental facilities; and develop tourism based on Palić Lake and the potential for the city to be a cultural heritage site. Existing Project Investment Plan: The city adopted a three-year capital expenditure rolling plan based on the development strategy, master plan, spatial plan, and detailed regulation plan. Some capital projects are open to different forms of partnerships and investment, including industrial business parks, greenfield and brownfield investments, regional solid waste management facility, transportation and utility infrastructure, and reconstruction of the national theater building and schools. Planned investments (in millions of RSD): 1.541 (2016), 815 (2017), 863 (2018). FINANCIAL SITUATION (IN CURRENT TERMS) Exchange rate: 1 EUR = 121.6261 RSD (end of 2015) Inflation, end of period: 2011: 7.0 % 2012: 12.2 % 2013: 2.2 % 2014: 1.7 % 2015: 1.5 % Sound and growing operating margins combined with regular cash reserves resulted in a solid level of self-financing capacity for the city of Subotica. Due to the trend of successfully aligning operating expenditures with negative current revenues, the city generated a stable operating and net current balance. Increased annual debt service did not jeopardize the positive net-operating surplus trend, which was used for investments. The city is capable of implementing additional investment activities from accumulated cash reserves. 76 HISTORICAL ANALYSIS: REVENUES & EXPENDITURES Revenue: The revenue structure confirms that the city’s finances were highly dependent on shared state taxes and transfers, which constituted 52 percent of total revenue. This affected the stability and predictability of the city’s financing. Since 2011, the city’s fiscal autonomy was further disrupted by the much faster growth of state transfers compared with own-source revenues. State shared revenue grew at an annual rate of 6.3 percent, while own-source revenue declined by 2.2 percent. Expenditures: The expenditure structure in 2015 was dominated by social services (38 percent) and general administration costs (27 percent). The city of Subotica allocated substantial resources to commercial services, primarily land development and local economic development. The rest of the city’s budget resources were allocated to urban services (13 percent), which grew at an annual rate of 34 percent. RATIO ANALYSIS Gross operating savings ranged from 13 to 16 percent of current revenues, confirming the improvement of the city’s operating performance, which resulted from the successful alignment of operating expenditures with a negative current revenue trend. Total direct debt increased from 24 to 35 percent of the budget during the observed five-year period, reflecting the city’s low level of indebtedness. Subotica’s fiscal performance has been sound, with stable double-digit operating surpluses over the last five years. The city’s self-financing capacity could be enhanced by increasing own-source revenues and reducing city administration costs. The low level of indebtedness leaves room for further acceleration of investment efforts based on new borrowing. The city’s capital investment efforts experienced cyclical movement (every four years), ranging from 14 to 23 percent of current budget revenues. FINANCIAL PROJECTIONS The medium-term financial projection for the city’s budget is a stable operating performance with a need to further increase financing sources for the enormous infrastructure needs. To this end, the city will focus on the effective collection of own source-revenues and an increased use of external funding sources, such as loans and private capital. MUNICIPAL FINANCE IMPROVEMENT PLAN Enhance budget reality by improving the operational capacity for policy-based budget planning and the coordination of capital investments (2017); promote creditworthiness by increasing own-source revenue collection through the establishment of links among databases within the tax admin- istration (2018); and foster service sustainability by improving capital projects planning through the establishment of a single platform and method- ology for public investment analysis led by the ministry of finance (2018, fourth quarter). Contact Person : Dubravka Rodic | Website: www.subotica.rs 77 78