Harmonizing State- and EU-funded Projects in Regions | Final Synthesis Agreement for Harmonizing State- and EU-funded Final Investment Programs romania Regional Development Program 2 Synthesis Dated November 26, 2015  Project co-financed from the European Regional Development Fund through the Operational Programme Technical Assistance (OPTA) 2007-2013 Agreement for Advisory Services on Assistance to the Romanian Ministry of Regional Development and Public Administration on Harmonizing State- and EU- funded Projects in Regions Final Synthesis November 26, 2015 romania Regional Development Program 2 4 Table of Contents Table of Contents ....................................................................................................................................... i List of Figures ...... ...................................................................................................................................... iii List of Tables ............................................................................................................................................. iv List of Boxes ........ ...................................................................................................................................... iv List of Acronyms ........................................................................................................................................ v Sumary ......................................................................................................................................................... vi Context ........................................................................................................................................................ 1 What is this work about? .......................................................................................................... 3 Diagnostic: What are the main challenges? ............................................................. 5 1 There are major gaps in the coordination of public infrastructure investments in Romania, both across administrative levels and across sectors/jurisdictions ........................................................................... 6 2 State-budget-funded programs lack strategic focus, rigorous selection criteria, and effective monitoring and evaluation .................................................................................................................................... 9 3 The documentation of many projects financed by the MRDPA through the PNDL is of poor quality ..... 13 4 The designs currently deployed for public infrastructure projects are outdated and inefficient ............. 15 5 There are significant challenges facing Romania’s housing sector: exposure to risks, quality-related, and institutional ........................................................................................................................................ 17 Recommendations: What are the proposed strategies and action steps? ... 21 1a Build an enabling environment that supports coordination through improved trust, accountability, administrative capacity, and information systems that talk to each other ............................................ 22 1b Improve the quality of strategies by establishing and empowering a Strategy Unit in the Prime Minister’s Chancellery .......................................................................................................................... 22 1c Harmonize state-budget and EU-funded investment programs across the entire investment cycle ........ 23 1d Share good practices of project-level coordination and build the capacity of local authorities across the country ......................................................................................................................................... 26 2a Design and adopt objective and transparent selection criteria for state-budget-funded programs to maximize development impact ............................................................................................................. 26 2b Support the adoption of actual multi-year budgeting ...................................................................... 33 2c Assess, pilot, and scale up territorial contracts (TCs) ........................................................................ 36 3a Improve the technical documentation of investment projects financed through state-budget programs .... 37 3b Revise standard cost policies and the Eligible Expenditures Order ..................................................... 38 4 Enhance the design of public infrastructure projects in Romania ......................................................... 40 5 Develop and Adopt a National Housing Strategy ................................................................................ 40 i  What next? ........................................................................................................................................ 53 Practical Prioritization of Projects ........................................................................................................ 53 Roadmap for Action ............................................................................................................................ 59 Recent Progress .................................................................................................................................. 61 Key Success Factors ............................................................................................................................ 62 Annex 1: Detailed Project Selection Grids and Criteria for PNDL Investments ............. 63 County Roads ...................................................................................................................................... 63 Communal Roads ................................................................................................................................ 65 Water and Wastewater Systems ......................................................................................................... 67 Social Infrastructure ........................................................................................................................... 70 Annex 2: 75 Knowledge Exchange and Dissemination Workshops ................................................. ii List of Figures Figure Description Page No. 1 Key quvestions and answers of this technical assistance program 2 2 Key players responsible for the coordination of public investments in Romania 6 3 The need for coordination depends on the value of a proposed investment 7 4 Snapshot of coordination challenges at the level of strategies, programs, and projects 8 5 The process of choosing investments for financing involves multiple steps 11 6 There is little coordination of ROP 2007-2013 and PNDL 2014 county road investments 13 7 Poorly targeted government programs address mainly middle-income households 20 8 There are 4 fundamental elements of an enabling environment for coordination 23 9 Examples of vertical and horizontal coordination mechanisms that could be applied to 23 investment programs in Romania 10 Proposed PNDL allocation by county based on proposed funding criteria 25 11 Two development impact indicators that can be tracked over time 26 12 Proposed PNDL M&E framework 27 13 Proposed framework for the triage and coordination of projects submitted for PNDL financing 30 14 Prioritization of investments in communal roads by locality 31 15 Prioritization of investments in health infrastructure by locality 32 16 Prioritization of investments in educational infrastructure by locality 32 17 Prioritization of investments in cultural infrastructure by locality 32 18 Prioritization of sports infrastructure by locality 33 19 Hypothetical example of how a RON 500 million multiannual appropriation could work in practice 35 20 Variation of road rehabilitation/ modernization price from sample of projects reviewed by the 39 Bank team 21 Functional housing market: Proposed roles of the public and private sectors 41 22 Current and proposed institutional structure for Housing Department at the central level 46 23 Snapshot of existing infrastructure in Covasna County 54 24 Prioritization of county roads in Covasna County 55 25 Prioritization of communal roads infrastructure in Covasna County 55 26 Prioritization of water system investments in Covasna County 56 27 Prioritization of sanitation system investments in Covasna County 56 28 Prioritization of educational infrastructure in Covasna County 57 29 Prioritization of health infrastructure in Covasna County 57 30 Prioritization of cultural infrastructure in Covasna County 58 31 Prioritization of sports infrastructure in Covasna County 58 iii  List of Tables Table Description Page No. 1 Summary of current technical assistance 3 2 Synthesis of Romanian norms and regulations related to road engineering 16 3 Synthesis of Romanian standards related to water and wastewater engineering 16 4 Synthesis of Romanian regulations and standards related to earthquake protection 17 5 Proposed PNDL General Process Indicators 27 6 Comparison of PNDL allocations by sector 61 7 A breakdown of PNDL 2015 priority projects 61 8 Prioritization criteria for allocating funding between counties (for county roads) 63 9 Prioritization criteria for county road projects 64 10 Prioritization criteria for allocating funding between counties (communal roads) 65 11 Prioritization criteria for communal road projects at the county level 66 12 Prioritization criteria for allocating funding between regions (for water projects) 67 13 Prioritization criteria for allocating funding between regions (wastewater projects) 67 14 Prioritization criteria for water projects by locality 68 15 Prioritization criteria for water projects by locality 69 16 Prioritization criteria for allocating funding between counties (educational infrastructure) 70 17 Prioritization criteria for allocating funding between counties (health infrastructure) 70 18 Prioritization criteria for allocating funding between counties (cultural infrastructure) 71 19 Prioritization criteria for allocating funding between counties (sports infrastructure) 71 20 Prioritization criteria for educational infrastructure projects by territorial administrative unit (TAU) 72 21 Prioritization criteria for health infrastructure projects by territorial administrative unit (TAU) 73 22 Prioritization criteria for cultural infrastructure projects by territorial administrative unit (TAU) 73 23 Prioritization criteria for sports infrastructure projects by territorial administrative unit (TAU) 74 List of Boxes Box No. Description Page 1 The definition of adequate housing 2 2 Recent MRDPA steps toward a multiannual PNDL 36 iv List of Acronyms ANRSC National Authority for Regulating Public Utility Community Services CLLD Community-Led Local Development CNADNR National Highways and National Roads Company DG RDI Directorate General for Regional Development and Infrastructure EBRD European Bank for Reconstruction and Development EC European Commission EE Energy Efficiency EF Environment Fund EIB European Investment Bank EU European Union FSI Financial Sustainability Index GOR Government of Romania IDA Intercommunity Development Associations ITI Integrated Territorial Investments LHDI Local Human Development Index MARD Ministry of Agriculture and Rural Development MECC Ministry of Environment and Climate Change MoH Ministry of Health MPF Ministry of Public Finance MRDPA Ministry of Regional Development and Public Administration NARW National Administration Romanian Waters NIC National Investment Company NHF National Housing Fund OP Operational Programme PNDI National Program for Infrastructure Development PNDL National Local Development Program PNDR National Rural Development Programme RDA Regional Development Agency RDP Regional Development Plan RO Regional Water Operator ROP Regional Operational Programme SU Strategy Unit TAU Territorial Administrative Unit TC Territorial Contract UN United Nations UNDP United Nations Development Program UNECE United Nations Economic Commission for Europe v Summary Summary The 2014-2015 Romania Regional Development 2 Program is the continuation of the World Bank’s technical assistance to the Ministry of Regional Development and Public Administration (MRDPA). Building on the previous engagement, the current work addresses a fundamental question: given Romania’s persistent development challenges, how can the country do more with less when it comes to the public infrastructure it needs? The key is to enhance coordination and harmonization of different funding sources, particularly infrastructure programs financed from the state budget and from EU structural funds. The National Local Development Program (PNDL), managed by the MRDPA, is reviewed in depth, though the conclusions typically hold for all state-budget-funded programs. This synthesis report summarizes the main findings and recommendations from eight final reports and 24 knowledge sharing workshops organized in all eight regions in Romania in 2015. Several ”bonus” outputs were also produced, going beyond the terms of this technical assistance (three investment guides, an applicant guide, and an operational manual). The sectors covered include: roads (county and local); water and wastewater; social infrastructure (education, health, culture, and sports); and housing. For each of them, the current work assesses the state of the sector, current gaps, and opportunities for growth, at three interrelated levels: strategic (what should be done?); program-level (with what sources of funding?); and project-level (through what specific activities?). This synthesis report – along with all the outputs it draws from – is meant as a practical tool for policymakers at the national, regional, and local level. It also seeks to inform a broader audience of private and nongovernmental stakeholders. vi Harmonizing State and EU Funded Projects in Regions | Final Synthesis Context 1. Romania today displays a complex picture of great hopes and remarkable development potential, in the context of persistent challenges in many vital sectors. It is beyond any doubt that the country still has a long way to go in terms of providing its citizens – all citizens, including the poor and the marginalized – the infrastructure and public services they need to share and add to the benefits of development. Examples of the many gaps are hard to miss (e.g., deficient transport infrastructure, lack of access to water and sanitation in certain rural areas, governance capacity challenges, etc.), particularly in comparison to the situation in other EU Member States. But it is also true that Romania has taken key steps forward toward sustainable and inclusive growth. Positive results have been recorded, particularly in large urban centers, with București surpassing cities like Madrid, Lisbon, and Athens in terms of GDP per capita (PPP). The data confirm Romania’s growth prospects, but the Government should do more to empower its citizens to pursue opportunities and maximize productive potential.1 2. Romania’s overall aim is clear: achieve sustainable and inclusive development, accelerating convergence with the European Union. A first question to answer is what needs to be done to help Romania’s economy grow. The World Bank’s 2013 ”Competitive Cities” report offers a set of potential answers.2 The first priority is to invest in improved connectivity and accessibility (both within leading areas and between leading and lagging regions), enabling people to take advantage of opportunities in Romania and abroad. Second, particularly in lagging areas, the government should invest in functioning institutions that ensure basic living standards for communities – essentially, the same start in life for all citizens (including running water, sewage, electricity, good schooling, effective land and housing markets, healthcare, etc.). Finally, marginalized communities require targeted efforts to address the specific obstacles they face (e.g., discrimination, exclusion, etc.). 3. If what is to be done is generally known, an equally critical question is how to do it. Specifically, how can Romania address massive infrastructure needs given the limited resources at its disposal? There are multiple challenges. For one, even the money that is available in theory is hard to leverage in practice. As of October 31, 2015, with only two months to spend the structural funds allocated to the 2007-2013 programming period, Romania’s absorption rate stood at only 58.67% – the lowest in the EU by far. Second, available nonreimbursable funds are simply insufficient: even if the country was able to absorb 100% of the EU funds going forward, it would still face a funding gap estimated at over EUR 30 billion through 2020 just to cover investment needs in county and communal roads, water and wastewater, and social infrastructure.3 In water and wastewater alone the gap exceeds EUR 20 billion, and Romania could face serious sanctions after 2018 if it does not achieve EU-level targets on coverage and service quality. Third, limited resources are sometimes poorly and inefficiently deployed. Particularly when relying on funds from the state budget, investment decisions are rarely taken according to rigorous and transparent selection criteria that would maximize development impact. Between 2003 and 2013, Romania allocated to capital spending a higher share of its GDP than any other country in the EU, but continues to lag behind its EU peers in terms of infrastructure quality. 4. In particular, Romania’s housing sector faces special policy, legal, financial and institutional challenges. Romania’s housing is among the most crowded, dilapidated, expensive, and poorly located of any country in Europe, and exposes a large number of people to high seismic risk. Many of Romania’s housing problems are the legacy of the former communist regime. The share of poorly built communist housing is the highest in the region, and most of the housing stock is essentially in the wrong place: many mono-industry cities were built as part of the ”systemization” program by which the communist regime determined which locations should grow and which should be eliminated. Many of these cities are now experiencing severe population decline, following the collapse of the communist-era industries. The result has been a significant housing ”gap”, and more inadequate and more expensive housing conditions, which almost certainly adversely affects social inclusion and economic growth. Many of Romania’s middle-income households are forced to live in housing that is either too expensive to maintain, or inadequate in terms of structural safety, location, energy efficiency, space, infrastructure, or physical appeal. 1 For a detailed discussion of the key ingredients for economic growth, see ”Competitive Cities: Reshaping the Economic Geography of Romania,” World Bank, 2013. 2 Ibid. 3 Investment needs are estimated for each sector according to a World Bank methodology. For full details, see the report on ”Improving Prioritization Criteria for PNDL Projects,” World Bank, 2015. 1 Context The poor are relegated to the worst living conditions in slums and ‘ghettos,’ and in many ways have been neglected by public policies and programs. Moreover, ownership rights are fragmented, which makes the stock even more badly allocated. Currently, there are more housing units than the number of households in Romania – some 8 million dwellings for 7.2 million households. 5. Despite all these challenges, Romania spends only a fraction of the average amount of housing sector government assistance provided by other middle-income countries. Thus, Romania’s expenditures on the twenty- two such programs amount to less than $35 million, which, in terms of the share of GDP, is less than the one-third of that spent by other emerging economies. One goal of this work is to help make adequate housing attainable to all income groups by 2030. Figure 1. Key questions and answers of this technical assistance program IMPACT: Accelerate Romania’s inclusive and sustainable development So what? RESULT: ”Do more with less” Why? OUTPUT: Design and implement harmonized infrastructure investments To what effect? Coordination mechanism PROCESS: INTRA-SECTORAL INTER-SECTORAL How can coordination • Vertically: across administrative levels • At national, regional, county/local levels help? • Horizontally: across investment programs • At the levels of strategies, programs and (EU and state-budget funded programs) projects CORE PRINCIPLES: Enabling environment What are the CAPACITY SYSTEMS necessary elements for TRUST RESPONSIBILITY Do we have the time? Do we have the coordination to work? Can we work together? Who is responsible? Do we have the people? infrastructure? Box 1. The definition of adequate housing ”Adequate Housing” is defined in this report as one that offers: − −Security of tenure and protection against forced evictions − −Safety in terms of structural stability − −Equal and non-discriminatory access to housing for disadvantaged or marginalized communities − −Affordability: Eurostat defines a household to be financially ‘overburdened’ when total housing + utility costs exceed 40% of net income. − −Availability of services − −Habitability: Appropriate dwelling units usable by special needs communities such as the elderly, nonconventional family types, etc. − −Suitability of location: Access to job opportunities, and workforce mobility 6. In sum, the message for enhancing Romania’s public infrastructure investments is simple: to address its development needs with its limited financial resources, the country should pursue an all-out effort to ”do more with less.” This further requires several elements: clear strategies defining the main priorities in each sector and across sectors; effective and efficient investment programs, with rigorous selection procedures and criteria; and projects designed and implemented with the principle of maximizing value for money, regardless of the source of funding. In addition, there needs to be full coordination across these three levels – strategies, programs, and projects. 2 Harmonizing State and EU Funded Projects in Regions | Final Synthesis What is this work about? 7. Recognizing the importance of this policy agenda, the Government of Romania (GOR) has asked the World Bank to support its efforts to harmonize and optimize public infrastructure investments. Under the current technical assistance, the Bank team has worked with the Ministry of Regional Development and Public Administration (MRDPA), building upon several previous engagements: the 2010-2011 Functional Review of the ministry; and the World Bank’s Regional Development Program in Romania (November 2012-March 2014), which provided recommendations primarily targeted at EU-funded instruments. The current work seeks to encourage effective coordination among all types of funding sources for infrastructure investments in: local and county roads; water and wastewater systems; social infrastructure (education, health, culture, and sports); and housing. The current technical assistance with the MRDPA includes four components, as summarized in the table below. The main focus of this work is on state-budget-funded investment programs and projects, whether through the National Local Development Program – PNDL (Components 1, 2, and 3) or through housing-related programs (Component 4). Table 1. Summary of current technical assistance Components Sub-components 1a. Assessment of infrastructure investment strategies, including Coordination of strategies and plans for EU and state- ways to improve their coordination and correlation; 1. funded investments in infrastructure 1b. Harmonized selection criteria for enhanced coordination between EU and State-funded projects. Assessment of the current portfolio of MRDPA 2a. Prioritization criteria for local infrastructure projects; investment projects, including their prioritization and 2. 2b. Analysis of the portfolio of technical-economic preparation of potential EU-funded investments for the documentation. 2014-2020 programming period Improvement in the use of efficient designs and Technologies and standards for better quality and longer-life 3. technologies in MRDPA investments infrastructure projects 4a. Housing strategy: diagnostic and recommendations; Design of a Housing and Infrastructure Development 4. 4b. Funding sources for housing investments; Strategy 4c. Housing programs: review and proposals for reform. 8. Between November 2014 and November 2015, the Bank team delivered a set of multiple outputs to the MRDPA. The following is a list of the reports submitted: • Component 1 • ”Coordination of Strategies and Programs for EU and State-Funded Investments in Romania’s Infrastructure” (March 2015) • Harmonization of Selection Criteria for Enhanced Coordination and Prioritization of EU and State-Funded Projects” (August 2015) • Beyond the terms of the agreement, a series of detailed maps has been produced, organized in three investment guides for: (i) county roads; (ii) water and wastewater systems; and (iii) local roads and social infrastructure (August 2015). These atlases show at the level of each county the current infrastructure and the proposed prioritization of future investment projects based on a series of proposed selection procedures and criteria. • Component 2 • ”Prioritization Criteria for Local Infrastructure Development Projects” (December 2014) • ”Evaluation of the Portfolio of Regional Development Investment Projects” (August 2015) • Beyond the terms of the agreement, the team has prepared a practical Beneficiary Guide for all beneficiaries considering applying for PNDL financial support for county or communal infrastructure investments. • Component 3 • ”Efficient and Innovative Designs and Technologies for Public Infrastructure Investments in Romania” (June 2015) 3 What is this work about? • Beyond the terms of the agreement, the Bank team produced an extensive operational manual for public infrastructure investments, covering the full cycle: project planning and preparation; public procurement; project implementation (supervision); and the post-implementation phase (December 2015)4 • Component 4 • Housing in Romania: ”Towards a National Housing Strategy,” ”Coordination of State and EU Funds for Housing,” and ”Program Prioritization and Projects” (August 2015) • The first report, ”Towards a National Housing Strategy” is a detailed analysis of the housing situation in Romania, and provides a host of recommendations aimed at addressing the gaps in the sector. It aims to help establish the foundations for Romania’s forthcoming National Housing Strategy. The solutions – policy, legal, institutional, and financial – aim to make the housing market work more effectively through the more efficient use of government resources. • The second report, ”Coordination of State and EU Funds,” complements the main housing sector assessment by providing an overview of how public and EU funds have been used in this sector and how the two funding sources could better complement each other. In addition to streamlined programming in the housing sector, proposed action steps include ways of establishing and funding the proposed National Housing Fund. • Finally, the third report on ”Program Prioritization and Projects” outlines what should be the priorities in the housing sector under a comprehensive Action Plan. Recommendations include streamlining a number of housing programs, and discontinuing and reviewing some of the existing ones. In addition to these outputs, the Bank team also organized a number of knowledge dissemination events, aimed at collecting feedback from all interested stakeholders. Over 700 participants benefited from these workshops, including: Regional Development Agencies’ staff, local and county authorities (as applicants/beneficiaries of EU and State- funded infrastructure programs), regional water operators, civil society groups, private companies (construction, design, engineering, etc.), and members of the academia. See Annex 2 for the list of workshops, main topics, and a snapshot of the feedback received.5 9. The purpose of this final synthesis is to communicate the main findings and recommendations corresponding to all four components of the current technical assistance. This summary is organized as follows: diagnostic (what are the main challenges?); recommendations (what are the proposed targeted strategies and action steps?); and next steps (what next?), also serving as a roadmap for tracking progress against the recommendations made through this work. The diagnostic section also includes a number of updates to the final reports submitted earlier in the process, reflecting recent legislative and policy reforms undertaken by the MRDPA and the GoR in the context of this work, particularly with respect to the implementation of the National Local Development Program (PNDL). 4 This output includes elements pertaining to both Components 2 and 3. 5 A more extensive description of the events has been sent separately to the MRDPA. Please see Annex 2 for summary data regarding the organization of workshops and knowledge dissemination events under all four components of the current technical assistance. 4 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Diagnostic: What are the main challenges? 5 Diagnostic: What are the main challenges? There are major gaps in the coordination of public infrastructure 1 investments in Romania, both across administrative levels and across sectors / jurisdictions 10. Coordination refers to the capacity of different stakeholders to work together for achieving specific goals. There are two reasons to coordinate public infrastructure interventions: to reduce costs and to increase benefits. For example, if two or more authorities are implementing investment programs that have the same goals and target the same beneficiaries, they are likely duplicating their efforts and missing out on cost-saving opportunities through consolidation of operations. The same goes for beneficiaries who, for a variety of reasons, choose to finance their infrastructure projects through more expensive funding sources (e.g., state budget funds instead of EU structural funds). By the same token, lack of coordination implies failure to leverage synergies across different investments. If a new school or hospital gets built, the road connecting to it should also be rehabilitated. If a county finances a particular county road, the neighboring authorities may want to consider financing a county road that connects to that investment. Coordination makes the whole greater than the sum of the parts. Figure 2. Key players responsible for the coordination of public investments in Romania Description / Role as related to the coordination Level Key Player* of public investments in Romania − −Has the full perspective on government activity − −Has the potential legitimacy to coordinate across ministries and across Center of Government administrative levels (Prime Minister’s Chancellery) − −Has the potential to evaluate the performance of investment programs (state- funded ones in particular) and decide on whether to adjust / expand / cancel them − −Manages and implements the PNDL and ROP Minister of Regional − −Leads public administration reform efforts in Romania (including for a Development and Public potential new framework on teritorial contracts) Administration − −Maintains a key role in liaising with local / county authorities − −Plays the leading role in all budgeting processes, including in proposed reforms National toward multiyear and performance budgeting Ministry of Public Finance − −Oversees the portfolio of large investment projects of a national scale (based on GEO 88/2013) − −Manages the Large Infrastructure Operational Programme − responsible with the coordination of EU-funded investments −Is Ministry of European Funds − −Leads a working group on the coordination of all investments (both EU and state-funded), based on the Romania-EU Pertnership Agreement − −Verifies public expenditures at all levels Audit Bodies − −Conducts auditing of all EU operational programs, verifies expenditures Court of Accounts / Audit etc. (Audit Authority reports to the EU on how EU-funded programs are Authority implemented) − −Regional, partnership-based structure meant to coordinate regional Regional Development Council development policies as well as oversee and support RDAs − −Includes County Presidents and representatives of different rank cities Regional − non-profit, public utility bodies as executive arms of RDCs −8 Regional Development Agencies − −Act as intermediary bodies under the ROP and coordinate the Regional Development Plans − −Design, implement and coordinate investment projects at the county / local level Local County / Local Councils − −Can engage in partnerships with each other for specific financing or for providing joint services Note: This list is not comprehensive. There are a range of other players that affect the coordination of investments (e.g., utility providers, inter-community associations etc.). 6 Harmonizing State and EU Funded Projects in Regions | Final Synthesis 11. In truth, the need to coordinate is inescapable in many ways – both vertically (across administrative levels) and horizontally (across sectors and/or across jurisdictions). Regarding vertical coordination, very few local governments have the capacity to support the investments they need entirely from their own funds, especially in countries that have not decentralized fully. Based on prudent capital expenditure margins, more than three in four communes in Romania can only afford to rehabilitate one road and one school during the 2014-2020 programing cycle.6 Local government units simply do not have the financial and human resources needed to address the basic infrastructure needs of local communities, so other actors need to intervene to fill the gaps – regional authorities (in countries where regions have formal administrative powers, which is not yet the case in Romania), the national government (through a variety of state-budget-funded programs), or supranational authorities like the European Union. As for horizontal coordination, very few investments depend on a single sector: roads cross railroads and power lines, wastewater treatment plants influence the quality of water bodies, schools and hospitals function well only if there is sufficient demand for their services and hence proper connectivity with people in surrounding areas, etc. The simple but important point is that proper coordination of public investments is a must in any policy context. 12. This is not to say that coordination is a given – it is challenging, time-consuming, and may require institutions giving up individual decision-making power in favor of a collective forum of stakeholders. Counties, cities, towns, and communes across Romania have their own mandates, carry out their own attributions, and deliver their own services to constituents. Subsidiarity ensures that decisions are taken as closely as possible to the citizens. Particularly for smaller value projects that local authorities can cover from their own budgets, it may not be possible or even desirable for the national government to influence how such investments are designed and implemented. Even in the case of the PNDL and other similar programs, central-level stakeholders are in fact financing functions and services that are in the local domain. It is thus hard for higher-level strategies to translate directly into local and county projects. They cannot be imposed; instead, special conditions and incentives are needed to make the perceived benefits of coordination exceed the costs. Figure 3. The need for coordination depends on the value of a proposed investment High • Benefits of coordination exceed the costs • Large investments depend on the financial support from other sources (state budget, EU funds, loans, etc.) Need to coordinate Point of indifference • Costs of coordination benefits = costs exceeded the benefits • Small investments can be more easily financed from the beneficiaries’ own sources Low Small Values of proposed investments as % of the beneficiary’s budget Large - Benefits of coordination exceed the cost - Costs of coordination exceed the benefits Point of indifference - Large investments depend on the financial support from - Small investments can be more easily benefits = costs other sources (state budget, EU, funds, loans, etc.) financed from the beneficiaries’ own sources 6 See report corresponding to Component 2 of the current World Bank engagement with the MRDPA: ”Improved Prioritization Criteria for PNDL Projects,” World Bank, 2015. 7 Diagnostic: What are the main challenges? 13. At the same time, to paraphrase a local saying, Romania is too poor to afford not to coordinate properly. With resources flowing from the central government and from the EU, rather than from own resources through local taxation, there has been a tendency to overinvest and invest sub-optimally into objectives that do not always generate the appropriate economic returns (”cathedrals in the desert”). In Romania, over 80% of the capital spending in the public sector is done by local authorities (including through EU funds and central government transfers). There is little coordination across ministries: each key ministry appears to have its own ”investment program,” usually resembling simple earmarked transfers for capital investments from the central to the local level. The MRDPA manages the bulk of funding for supporting local-level investments. For its part, the Ministry of Finance has its own role to play in managing fiscal risks and ensuring that expenses committed to through various investment instruments can indeed be afforded under national budget constraints. Figure 4. Snapshot of coordination challenges at the level of strategies, programs, and projects Strategies • Too many • Poor quality (lack of objectives, budget, priorities, indicators) • Lack of an institutionalized process for development and continuous improvement of strategies Investment Programs • Different approach among EU-funded and state-funded programs • Lack of clear separation for areas of intervention • Investment programs vs. capital transfer mechanisms (criteria, procedures) Infrastructure Projects • The sequence of projects is poorly designed (delays in rehabilitation of public utility networks) • Missed opportunities of leveraging economies of scale (lack of integrated projects) • Lack of adequate monitoring and evaluation 14. There is broad consensus – in policy circles and beyond – that there are major gaps in the coordination of public infrastructure investments in Romania, at all levels. Perhaps the most often cited examples refer to the inefficient sequencing of investments, whereby a newly rehabilitated road is damaged by subsequent public works related to the rehabilitation of utility networks. Such situations often result in media articles and public outrage regarding the inefficient spending of taxpayer money. In effect, this simple example is indicative of the broader challenge of coordination faced by public authorities in Romania, across all phases of an investment’s cycle: from the development of a strategy to the design of an investment program to the financing, implementation, and monitoring and evaluation (M&E) of individual infrastructure projects. 15. First, the cross-sectoral and sectoral strategies that should guide the allocation of scarce public resources often demonstrate room for improvement. Coordination challenges often originate in the large number of existing sectoral and cross-sectoral strategies, with overlapping and unclear objectives. There are no clear standards for developing such documents. Strategies are not easily accessible, so they are hard to refer to and correlate with, and typically remain broad wish lists, without specifying: clear priorities, budgets, implementation timeline and action steps, and M&E indicators. There is no institution explicitly mandated to review all available strategies and decide how they ”fit” together and what their policy and budgetary implications are. Equally important, there are no M&E procedures for the strategies developed to decide on whether they are needed, whether they are appropriate, and whether their goals are fulfilled. 16. Second, state-budget-funded investment programs like the PNDL are not always properly designed, and a systematic effort to coordinate intervention areas is lacking. Typically, state-funded programs have no strategic document at their foundation and they are not guided by a clear operational framework. Much of the poor coordination, duplication, and inefficiency can be traced back to the failure to clearly demarcate and synergize types of interventions between and among EU and state-funded investments. In addition, procedures are more lax under state-budget programs than those applicable to EU funds (e.g., simpler applications, largely based on technical 8 Harmonizing State and EU Funded Projects in Regions | Final Synthesis documentation only; quicker disbursement of funds; fewer monitoring visits and audits; etc.). This generates the risk of crowding out structural instruments, while Romania remains last in EU funds’ absorption (52.59% at the end of January 2015, with less than one year to go to spend the balance).7 17. Third, the prioritization of state-budget-funded projects relies on financing criteria that remain vague, subjective, and opaque, and project selection is much less rigorous than under EU structural funds. There is usually no clear algorithm for deciding among a variety of proposed investments. Moreover, state-budget-funded programs operate on annual budgets, so there is a lot of instability and priorities may shift from year to year, which discourages larger and more strategic investment programs. Instead, what happens in practice is that there is a significant and ever-growing portfolio of new and ongoing investment projects, in various phases. Without a defined budget for a multiannual implementation period and without a list of investments that, once selected, are guaranteed funding until completion, prioritization is essentially impossible. 18. Fourth, monitoring and evaluation (M&E) mechanisms at the level of state-funded programs and projects are rudimentary. There is no systematic tracking of basic key indicators of a program’s performance (number of completed projects, value of ongoing projects vs. annual budgetary allocation, number of new projects, etc.) or, if such data exist, they are not made public. No impact assessments are carried out, so it is impossible to determine if state-budget-funded projects are reaching their objectives or if they need to be adjusted in terms of design and/or implementation procedures. 19. On top of everything, the overall environment in Romania is not particularly conducive to coordination, for a myriad of reasons. There is no solid history of collaboration among public institutions. Coordination happens on an ad-hoc basis, if at all, and there are few formal requirements for public actors to consult with each other and work together to accomplish common goals. The infrastructure for sharing information and collaborating efficiently and effectively (e.g., modern and interoperable IT platforms) is largely missing, which means that coordination takes time. At the same time, public employees are poorly paid; particularly those involved in the design and implementation of infrastructure projects are very busy with operational tasks and various emergencies. This leaves even less time for coordination efforts. 2 State-budget-funded programs lack strategic focus, rigorous selection criteria, and effective monitoring and evaluation 20. State-budget-funded programs reviewed make no attempt to coordinate among themselves and with other EU instruments, but rather finance a long list of investments, causing overlaps with other programs. This creates a competitive dynamic among funds, with state-budget-funded instruments often crowding out EU investments because they finance the same types of interventions under more flexible rules and monitoring. Moreover, there is no attempt to leverage synergies across different programs. The diagnostic below focuses on the PNDL, but the findings hold true for all state-budget-funded investment programs. 21. To begin with, there is no formal strategy specific to the PNDL. At the time of its launch, the PNDL was an important expression of the new cabinet’s commitment to the development of rural infrastructure, as reflected in the 2013-2016 Governing Program (as approved by Parliament through Decision 45/2012). For example, one of the key objectives for Romania’s regional development is defined as the financing of a basic package of services for rural areas, including roads, drinking water, sanitation, social infrastructure etc., ”for achieving [at least] minimum standards of living.”8 The same document further emphasizes the need to prioritize public infrastructure projects to contribute to Romania’s sustainable, balanced development.9 Other than these broad commitments, there are no defined policy priorities and objectives for the PNDL. The program’s strategic framework is broad enough to accommodate a variety of projects, without hard constraints around what to finance and in what proportion. 22. The PNDL focuses primarily on roads, water, and sewage projects, but other types of investments (e.g., social infrastructure, cultural sites, sports centers, etc.) can also be eligible for financing. Article 7 in the GEO 28/2013 (consolidated version) describes the list of intervention areas (similar to ”axes” of EU-funded programs): • Water supply systems and drinking water treatment plant; 7 See http://www.fonduri-ue.ro/. 8 See 2013-2016 Governing Program, Chapter 10 on ”Development and Administration”. 9 Ibid. 9 Diagnostic: What are the main challenges? • Sewage systems (networks) and wastewater treatment plant; • Education units (kindergartens, primary and secondary schools, high schools, etc.); • Healthcare units in rural areas (clinics, pharmacies, etc.); • Public roads (i.e., county roads, local interest roads, commune roads and/or public roads within localities); • Bridges, culverts, and/or footbridges; • Local cultural facilities, such as libraries, museums, multi-functional cultural centers, and theaters; • Landfills; • Public, commercial markets, fairs, cattle fairs, as applicable; • Sports facilities; • Headquarters of local public authorities and other subordinated public institutions;10 • Tourist infrastructure developed by local public authorities.11 The types of eligible works include construction of new infrastructure, as well as extension, rehabilitation, and upgrading of existing infrastructure. Essentially, through such broad conditions, the PNDL is able to cover the MRDPA’s entire vast portfolio of projects – both previously-financed interventions (at various stages of completion) and brand new investments, by all types of local public beneficiaries (from local councils in communes and cities to county councils). The lack of strategic focus is evident in the fact that the PNDL has actually expanded its set of eligible interventions, covering a vast array of potential projects. This has happened in spite of the massive unfulfilled investment needs in a sector like water and wastewater, where Romania will face EU infringement procedures if it does not make substantial progress by 2018. 23. Based on the budget allocation among ministries, as agreed at the government level and approved by Parliament, the MRDPA establishes the PNDL’s total annual budget. Ordinance 19/2015 revamped the way the program selects projects for financing. Major changes include: (i) a more involved role for the MRDPA in centralizing and selecting project proposals, with County Councils no longer playing any part in this process; (ii) adoption of a multi-annual framework for the PNDL, with beneficiaries required to submit estimates for the duration of their project (there is no guaranteed financing, however); (iii) expansion of the number of criteria, as set through a separate Government Decision (instead of the PNDL ordinance and the corresponding norms for applying it), though the actual procedures remain equally vague. 24. Government Decision 624/2015 approved a set of criteria for PNDL project selection: • Balanced allocation of funding across counties, taking into account at least one of the following ”sub-criteria:” demographic data; financial capacity of public authorities; share of ongoing investments in each county (in terms of number of projects and their value). • Type of investment and whether it contributes to achieving European targets in a particular sector. Most likely, this would cover investments in water and wastewater systems. • The project completion stage (as a percentage). • The date on which the project was signed with the contractor / service provider. • The number of beneficiaries. 25. There are still significant gaps in how these criteria are defined and implemented. For one, the law is not clear which of the main criteria are factored into project selection, merely noting that ”at least one of [them] should be considered.”12 Second, there are no defined weights for individual criteria or for sub-criteria within the main categories (e.g., number of ongoing projects vs. their funding needs). Third, it is unclear how certain indicators would be measured in practice, particularly the administrative-territorial units’ capacity to co-finance investment projects. One proxy that could be used would be non-earmarked revenues as a share of total revenues,13 in the absence of clear commitments (e.g., local/county council decisions to co-finance particular investments), but the law is silent on this matter. Fourth, it is completely unclear how a criterion should be scored. For instance, it is better to have a more advanced project or an early-phase one? Should the date of the contract be more or less recent? Are investments in counties with many ongoing projects prioritized or, on the contrary, deprioritized? Finally, other potentially relevant indicators are missing. For example, the PNDL does not seem to take into account a county’s development level, measured as GDP per capita or the Local Human Development Index (developed by Prof. Dumitru Sandu and proposed by the World Bank as a measure of development at the county and local levels). 10 This category was introduced through GEO 30/2014. 11 This category was introduced through GEO 58/2014. 12 Article 2 of GD 624/2015. 13 For a detailed explanation of this methodology, see the 2014 World Bank report on ”Identification of Project Selection Models for the Regional Operational Programme 2014-2020”. 10 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Figure 5. The process of choosing investments for financing involves multiple steps Eligible applicants Prioritized list of applications (based on eligibility criteria) (based on selection criteria) Successful All “graduates” of potential Selected financing applicants beneficiaries programs for (completed financing projects) Pre- Application Application Implementation Post-Implementation Phase Phase Phase Phase Note: Adapted based on “ROP 2.0: Facilitation of Direct and Proactive Support for Applicants and Beneficiaries of the Regional Operational Programme 2014-2020,” World Bank, 2015. 26. At the beginning of 2014, the (initial) funding allocation was roughly equivalent across counties – around EUR 5 to EUR 5.7 million. On the one hand, this demonstrates the MRPDA’s commitment to making the PNDL funds available to authorities in all parts of Romania. On the other hand, the outcome may suggest that there is no clear prioritization of investments based on counties’ different characteristics. By contrast, the ROP 2007-2013 and 2014- 2020 (in draft form, as of August 2014), for example, made specific commitments to less developed areas, allocating significantly larger shares of funding particularly to the North-East, South-East, and South Regions. 27. The MRDPA makes the final selection of projects that receive PNDL funding in a given year. Once again, the methodological norms do not define a clear, transparent selection process. The final selection is to be based on ”[the Ministry’s] own specialized assessments.”14 It is unclear what data are deployed in such evaluations. The finalized list of interventions is approved through the MRDPA’s Minister Order, including an annex with the full set of projects (for each of them, the annex simply notes the name of the administrative-territorial unit, the name of the project, and the sum channeled from the state budget). 28. There are slightly different requirements for applicants with ongoing vs. new projects. For the former, local authorities need to send to the MRDPA the documents that show the project’s current phase of completion, the updated value of remaining expenses to be incurrent for the finalization of the intervention, and public procurement contracts that have been signed previously, including addenda, if any. Upon verification of such documents, the process can move forward to the contracting phase. 29. For new investment projects, beneficiaries are required to submit to the MRDPA the corresponding technical documentation. In most cases, this refers to feasibility studies for new interventions or the documentation for approving intervention works (DALI15) for existing infrastructure. Feasibility studies and DALIs are not eligible for reimbursement through the PNDL and have to have been developed through the applicant’s own resources, in accordance with the regulations set by GD 28/2008. GEO 28/2013 also notes that the documentation must prove that the proposed projects abide by the applicable cost standards. However, cost standards are provided only for county roads, communal roads, and for water projects. No cost standards are provided for wastewater projects, as these are considered to require quite different technical solutions from case to case.16 14 Article 9 (2) in GEO 28/2013, as modified by Article 1 (4) in GEO 19/2015. 15 ”Documentație de Avizare a Lucrărilor de Interventii” (Documentation for the Approval of Intervention Works). 11 Diagnostic: What are the main challenges? 30. It is worth noting that local authorities who seek to access PNDL funds do not submit formal applications that are comparable to the complex documents required by EU-funded programs. The bulk of an ”application” is the technical documentation corresponding to the proposed project – i.e., the feasibility study and/or the detailed technical design. In field interviews, PNDL beneficiaries express satisfaction with the current system’s simplicity and relatively quick processing of applications. In effect, under the current system, requiring a formal form with categories similar to those included in applications for EU funds – e.g., ”project relevance for strategic objectives,” ”economic impact,” ”technical features,” ”social/environmental impact,” etc. – would not add much value. This is because the actual prioritization and, essentially, the ”preselection” of projects happen at the level of county councils. The MRDPA only verifies that submitted proposals are in accordance with a set of criteria – it is more of an eligibility check than a thorough technical and financial evaluation. This is not to say that the technical-economic data related to the project is not assessed by MRDPA evaluators, but only that projects that make it thus far generally go through contracting. Even if a proposal initially fails the check, MRDPA staff recommends the necessary improvements to beneficiaries, enabling projects to move to the next phases (pending the successful resolution of suggested changes). 31. More recently, changes were introduced to the PNDL’s methodological norms to increase the efficiency of assessing and approving new project proposals. Until June 2014, the technical documentation would be first assessed by DG RDI within the MRDPA and then sent to the Ministry’s Technical-Economic Council (TEC). Without the TEC’s formal approval, projects would not be eligible for financing. Citing the low capacity of the TEC to assess proposals and the long delays incurred in the process, the MRDPA eliminated this step through Ministry Order 1851/2013. Currently, new projects pre-approved for financing through the PNDL only go through an assessment by the technical unit of the DG RDI, which primarily evaluates the following: • whether the technical documentation is complete and in accordance with GD 28/2008; • whether the applicant’s folder includes the local / county council’s decision for approving the project’s technical- economic indicators and for ensuring the required co-financing; • whether the expenditures are properly presented and do not exceed current cost standards. 32. Data show that there is no deliberate effort to ensure coordination of projects across financing sources. As the figures below show, the current financing criteria for the PNDL do nothing to incentivize beneficiaries to ”link” these investments with projects financed from EU structural funds. In addition, because of how the PNDL functions in practice – annual disbursements of funds – preference is given to short road segments that may play no strategic role in a county / region. A few positive examples do exist – in the North-West and South – but these are rather the result of a deliberate effort by those County Councils to coordinate investments, or may even be the result of a fortunate coincidence. It is clear that the PNDL could do more to encourage beneficiaries to design and implement investments in an integrated fashion (e.g., by granting bonus points to those applicants who demonstrate that their proposed projects connect with other EU-funded investments). 33. Once the multiannual contract between the MRDPA and local authorities is signed, actual project implementation can commence. The exact stages will depend on whether the project is new or ongoing. In the former case, the beneficiary of PNDL funds will have to organize public procurement procedures, in line with the applicable legislation (GEO 34/2006). In some cases, these procedures take a long time – due to challenges in court, lack of offers, or other reasons specific to each project – which may aggravate the risk of not using up the funds allocated for a particular year. If the project is ongoing and construction work has already begun in a previous year (through the PNDL or a different program), depending on a case-by-case basis, the beneficiary may continue previous engagement with service providers and contractors. 34. Payments and reimbursements are critical factors for a smooth, successful implementation. Based on the methodological norms (Articles 16-17), beneficiaries used to submit reimbursement requests first to county councils, which would then submit a consolidated request for each county to the MRDPA. This system was then changed to allow beneficiaries to request funds directly from the MRDPA, essentially simplifying the process by eliminating a step. Some county councils report, however, that local city halls sometimes fail to send them a copy of reimbursement requests sent to the Ministry, thus requiring repeated requests to keep them in the loop. According to county council staff interviewed, they want to remain involved to be able to coordinate and monitor the implementation process in their respective jurisdiction. Based on the latest legislative changes (GEO 46/2015 modified Article 10 of GEO 2/2013), the Ministry approves reimbursement requests in the chronological order in which they are received – the 16 In practice, MRDPA technical staff use a simple rule of thumb for benchmarking sanitation projects, namely that they should not exceed 1.5 times the cost of equivalent water projects. 12 Harmonizing State and EU Funded Projects in Regions | Final Synthesis principle “first in first out” holds – within the set annual limits and based on the proofs/documents received (“situații de lucrări”) directly to beneficiaries. Finally, beneficiaries send back to the MRDPA the proof of payment of service providers (i.e., showing that the funds received were used for the intended purpose). 35. In addition, beneficiaries are responsible for monitoring work progress and reporting updates to county councils and the MRDPA. The flow of reports is similar to the initial one presented above for financing requests: local beneficiaries send all documents corresponding to PNDL investments to county councils; every quarter, county councils send to the MRDPA a consolidated update on the progress of construction works. Upon request, beneficiaries are required to send to the MRDPA any document related to the financed project. For its part, the MRDPA is responsible for the monitoring and controlling the program’s implementation. In this capacity, the Ministry can appoint representatives who, together with counterparts from the State Inspectorate for Constructions, verify the accuracy of reported data and compare it to the reality on the ground. Figure 6. There is little coordination of ROP 2007-2013 and PNDL 2014 county road investments Cities with population larger than 100,000 POR 2007-2013 Contracted County Roads Projects National Road Network PNDL 2014 Contracted County Roads Projects 36. The current legal framework includes no details on requirements for the post-implementation phase – i.e., tracking the project’s evolution upon completion. At least based on the methodological norms, once the actual works are finished, the beneficiary sends a copy of the completion report to the Ministry. If and when the warranty period expires, the local authority again sends a copy of the formula documentation (”procesul verbal de recepție final”) to the MRDPA. Beyond that, the two key post-implementation functions for ay investment program – i.e., ex-post monitoring and evaluation (M&E) and knowledge sharing – appear to be missing at this point in the PNDL’s evolution. Put differently, there is no formal process for evaluating the impact of completed investments and there are no institutionalized efforts for communicating good practices among past, current, and future beneficiaries of PNDL funds. This is not surprising for a young program like the PNDL; still, going forward, it would be important to set-up ex-post mechanisms to ensure the continuous improvement of the instrument. Subsequent chapters provide more in- depth suggestions for monitoring and evaluation mechanisms, including through performance and impact indicators. 13 Diagnostic: What are the main challenges? 3 The documentation of many projects financed by the MRDPA through the PNDL is of poor quality 37. The assessment of a sample of 289 projects submitted to the PNDL reveals several areas of improvement, in particular some common conformity and eligibility issues. Practically all identified issues are related to the administrative compliance and quality of application documents needed for the evaluation. This is to be expected, as the current evaluation process is essentially entirely focused on checking for administrative conformity and eligibility. The list below includes typical issues encountered, with the aim of signaling to the MRDPA and to local authorities where common gaps in the documentation exist or where the quality needs to be improved: • Lack of Supporting Documents / Technical Studies. The field studies (the topographic study, the geotechnical study, etc.) and the technical review / control are basic documents required by Government Decision 28/2008. These are often missing, which creates problems during the implementation (inadequate technical solution for a particular investment, changes in the estimated investment value, changes in technical solutions during implementation, delays in construction works, etc.). • Inadequate/Insufficient Technical Documentation. Two main issues are the submission of the documentation for approval of intervention works (DALI) instead of the feasibility study (FS) and the submission of the Detailed Technical Design (DTD) instead of the FS. The law clearly stipulates that the FS includes technical and economic documentation necessary for executing construction works for new investments, while the DALI is required for intervention operations on existing infrastructure (modernization, rehabilitation/consolidation, etc.). • Incorrect Project Budget (Cost Breakdown). Typical budget-related errors include: (i) arithmetical errors; (ii) VAT applied to taxes; (iii) wrong VAT amount; (iv) a format other than the one established through GD 28/2008; (v) incorrect registration of amounts in budgetary chapters, typically as a way to lower expenditures so that they abide by the set cost standards. Such mistakes can lead to incorrect estimates of the value of investment (under/over estimation) with a potentially major impact upon the funds’ allocation process and upon the actual implementation of financed projects, particularly if there is a gap in funding. • Insufficient Cost Breakdown for Main Works. Beyond non-compliance with the legal requirements, providing insufficient details on the estimation of the main works in the budget makes it impossible or very difficult for evaluators to verify whether the project abides by the set cost standards. Another issue is the lack of correlation between the technical description and the budgetary estimation of the same items. • Lack of Main Drawings. While the law requires drawings from the FS / DALI to include the site plan, the general layout, and other plans and general cross sections, the projects’ documentation often lacks these key elements. This can lead to major delays in obtaining the Construction Permit and/or to the approval of technical solutions that are incomplete and may lead to incorrect evaluations of the built surface, the volumetric analysis, etc., directly affecting the estimated value of the investment. • Noncompliance with Cost Standards. The maximum values for unit costs are established through Annex 3 of GD 363/2010, modified through GD 250/2011. The provisions for some investment types are, however, not very clear, which can lead to incorrect interpretations by the applicants. The most frequent mistake in applying cost standards has been noticed with road infrastructure projects where the MRDPA has only included the ”road shoulder,” ”causeway system,” and ”elements for drainage” (i.e., only earth ditches). • Lack of Documents for Property / Assets. Property documents are requested by GEO 28/2013 for approving the PNDL and by MRDPA’s Minister Order 839/2009 for obtaining the Construction Permit. In practice, some applicants fail to include them, which can lead to erroneous identification of the estate (built/land) in the studies’ area, incorrect technical solutions, and delays. • Missing / Expired / Incomplete Urban Certificate (UC). Approvals, agreements, and studies related to the planning certificate can establish preconditions for starting the investment, so it is vital to obtain these approvals (permits) and agreements before the development of the FS, which needs to take into account possible recommendations or constraints foreseen by these documents. This was a common mistake in particular for social infrastructure for which permits and certificate of urbanism were often missing. • Local Council Decision Requiring Amendments. According to provisions of article 36, paragraph (4) of Law 215/2001, the Local Council ”approves, upon the mayor’s request, technical-economic documentations for local interest investment works, under current legal conditions.” In practice, Local Council decisions are often incorrect. Common mistakes include: the approved total amount of the investment is insufficient compared to the total budget amount; the amount of the local authority’s own contribution is not explicitly mentioned; the amount of the own contribution does not cover all ineligible costs. Lack of financial resources associated with the co- financing can lead to incorrect financial allocations by the MRDPA and possibly to suspension of works for lack of financial resources. 14 Harmonizing State and EU Funded Projects in Regions | Final Synthesis 4 The designs currently deployed for public infrastructure projects are outdated and inefficient 38. Engineers must follow the regulations and standards in force for any type of construction design related to roads, water and wastewater infrastructure, or social buildings. According to Government Ordinance (GO) 39/1998 and Law 355/2002, the statute of standards is voluntary, unlike regulations and norms, which are mandatory. Based on the current standards and norms, the Technical Specifications (TS) are elaborated. They represent the technical documentation that explains every step of the technological process for the realization of construction elements: resistance elements, enveloping elements, partition elements, and finishing elements. TS content is not regulated at the national level, each design company using its own more or less complete TS. Contractors then usually fail to consider the TS submitted by the designers, as they have their own execution solutions based on current practice that does not always rely on performance criteria. 39. Unlike other developed countries, Romania is still using technical standards that are 10-20 years old or even older. The alignment process of Romanian standards to European ones is currently being implemented, but unfortunately, it takes time and the harmonization is done gradually. Thus, peculiar situations appear when conflictual standards coexist, or for a specific test/material, the old standard was canceled, without adopting a new one. This way, the design of Romanian roads cannot be at the same level with the roads designed in developed countries, where the standards are renewed once every 2-3 years. 40. A related challenge concerns Road Safety Audits (RSAs) and Road Safety Inspections (RSIs), which are mandatory for all types of roads, starting with January 1, 2015. According to the law currently in force (Law 265/2008) in Romania, every road project needs to be verified for all its stages (feasibility study, detailed technical design, after construction) by accredited road safety auditors, in order for it to comply with predefined checklists. Road safety auditors or inspectors must be different and independent of the design specialists who elaborated the projects. 41. RSAs and RSIs are still not implemented on all road projects as stipulated by Directive 2008/96/EC of the European Parliament and of the Council. This happens due to multiple reasons: lack of trained professionals (auditors / inspectors) – only 12 in the entire country; lack of clear regulations regarding the main authority that is supposed to supervise the audits / inspections; and also the very high prices established by the Romanian Road Authority (ARR) (e.g., EUR 50,000 per km for new highways, EUR 15,000 per km for national road rehabilitations, etc.).17 Currently, instead of being independent, auditors are contracted by the designer/constructor, even though this is against the law. 42. Finally, innovation and research in construction are poorly developed. The main organizations involved in the research process are: the National Institute for Research in Constructions (INCERC) for civil buildings; the Institute for Research in Transportation (INCERTRANS); the Technical Roads Studies and Information Center (CESTRIN) for roads and bridges; and SC PROED SA, SC AQUAPROIECT SA, National Institute for Hydrology and Water Management (INHGA), Institute for Hydro-energetic Studies and Design (ISPH) for water supply, wastewater, hydrographic, hydro- technic and hydrologic works. In the field of design of civil buildings, the emphasis on research moved to universities. The relationship between research and implementation at the level of design / execution companies is not found in an organized framework at the level of professional associations or ministries (MRDPA, Ministry of Transport, and Ministry of Environment, Waters and Forestry). 43. Laboratories of private construction companies apply programs of verification and testing under Romanian and European legislation, aiming to contribute to the harmonization of test methods. Unfortunately, practical experience of laboratories fails to be disseminated due to interruption of exchange programs organized. The State Inspectorate in Constructions (ISC) organizes an annual symposium for exchange of experience, which involves the heads of laboratories and certified road inspectors. At the same time, it organizes a Road Specialists Congress that allows exchanges of ideas, views, and information in a professional network. 17 Annex 2 of Transport and Infrastructure Ministry Order no. 480/2011. 15 Diagnostic: What are the main challenges? 44. Nowadays any new material proposed on the Romanian market (imported or invented) must be approved based on laboratory testing procedures. Approvals procedures for companies that can issue quality certificates for materials and the low efficiency of the quality verification system have led to the proliferation on the market of materials with higher quality certificates than real parameters found. Due to low prices, this market of ”acceptable” materials discourages producers who respect the quality provided in certificates in the production line. Some European countries are maintaining centralized quality checking for materials by national laboratories, e.g., France - Centre Scientifique et Technique du Bâtiment (CSTB). A similar structure existed in Romania, the National Research Institute in Constructions (INCERC), whose monopoly was abolished. Table 2. Synthesis of Romanian norms and regulations related to road engineering Indicative Name Year of application PD 177 Normative for flexible and semi-rigid pavement dimensioning (analytical method) 2001 Ord. MT No. Order of the Minister of Transport for the approval of the technical norms for the 1998 50/1998 design and construction of streets in rural localities Ord. MT No. Order of the Minister of Transport for the approval of the technical norms for the 1998 45/1998 design, construction and modernization of roads Ord. MT No. Order of the Minister of Transport for approval of technical norms for establishing 1998 46/1998 the technical class of public roads AND 504 Norm for reviewing of public roads 2007 AND 557 Instructions regarding traffic recordings on public roads 2015 CD 155 Norm for determining the technical state of modern roads 2001 PD 162 Departmental norm on extra urban highways design 2002 Norm for organizing and execution of traffic investigation, origin – destination. DD 506 2015 Preparation of investigation data for processing AND 554 Norm on maintenance and rehabilitation of public roads 2002 AND 603 Guide on lighting conditions on national roads and highways 2012 AND 602 Road traffic investigation methods 2012 Table 3. Synthesis of Romanian standards related to water and wastewater engineering Standard Standard name Year of application number SR 8591 Buried urban pipes. Requirements for layout 1997 Underpasses for railways and highways with pipelines. STAS 9312 1987 Design specifications STAS 7656 Line- welded steel tubes for installations 1990 STAS 2448 Sewerages. Manholes. Design rules 1982 STAS 3051 Sewerage systems. Channels of external sewerage networks. Basic design rules 1991 Gully tops and manhole tops for vehicular and pedestrian areas. Designs SR EN 124 1996 requirements, type testing, marking, quality control Sanitary installations. After supply for civil and industrial buildings. Main design STAS 1478 1990 specifications SR 4163 Water supplies. Distribution networks. Design specification 1995 STAS 4165 Water supplies. Reinforced and prestressed concrete tanks. General specifications 1988 STAS 9470 Hydrotechnics. Maximum rainfall. Intensities, durations, frequencies 1973 STAS 12594 Sewerages. Injection stations. General rules for designing 1987 16 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Table 4. Synthesis of Romanian regulations and standards related to earthquake protection Date of the Romanian regulations and standards Year of application earthquake November 10, 1940 First Romanian standard related to secure the buildings to seismic action. 1941 P13-63 1963 P13-70 1970 March 4, 1977 P100-78 1978 P100-81 1981 August 30, 1986 May 30, 1990 P100-92 1992 P100-1/2004 based on the format of EC8 (SR EN 1998-1:2004) 2004 P100-3/2008 for existing buildings expertise 2008 P100-1/2013 2014 45. The legislative harmonization process is delayed due to the low degree of absorption of new SR EN by design companies, due to lack of promotion/dissemination. The Romanian Association for Standardization does not benefit from adequate funds in order to organize regular presentations of newly adopted harmonized regulations. Before 1990, the centralized state ensured a forced implementation of research and innovation in current practice. After 25 years, the Romanian society failed to enable, in the free market, new links between the few R&I centers (institutes or universities) and the remaining companies operating on the construction market. Various professional associations, several congresses, national conferences, and workshops organized by the Ministry or other State institutions did not have continuity in order to become home of constant promotion of new ideas between construction actors in Romania. 5 There are significant challenges facing Romania’s housing sector: exposure to risks, quality-related, and institutional Deteriorating communist era housing stock 46. Much of the housing stock in Romania built during the communist period is deteriorating due to poor maintenance. Over 35% of the country’s 8.5 million housing units is in a state of neglect and needs urgent repairs. Dilapidated housing includes over 10,000 pre-1980 blocks with structural, roof, and heating needs. Home Owners Associations (HOAs), legally mandated to maintain and manage these buildings, often either have limited technical or financial capacity to carry out their functions, or lack the sense of ownership or responsibility to carry out maintenance and improvement activities. Many historic residential buildings are also derelict due to the lack of maintenance. In some cases, the buildings have been abandoned for years, and the owners cannot be traced. Seismic risk 47. Romania’s exposure to earthquake risk is among the highest in Europe, with an estimated 10,577 households living in 607 residential buildings rated in the Class I (highest) seismic risk category across the country. București has the highest seismic risk of all European capitals, and is one of the ten most vulnerable cities in the world. București has 60% of the country’s Class I risk buildings, while over 2,500 residential blocks are unstable (Class I through Class III risk categories) and need structural strengthening. There are two key problems for the failure of the 17 Diagnostic: What are the main challenges? seismic retrofitting of buildings through the government loan scheme, namely the lack of ‘necessity housing’ or other instruments (such as rental vouchers) to facilitate transitional shelter for residents during the retrofitting period, and the unwillingness of the residents to leave their current homes. Inadequate housing for poor and vulnerable groups 48. Romania has the most ”severe housing deprivation” in the EU-28 countries. The poor and marginalized groups are often relegated to live in squalid and overcrowded conditions in slums or old ‘blocks-of-flats’ or ill-maintained social housing units with insecure tenure. Housing conditions vary across the different types of poor settlements in urban, peri-urban, and rural areas. Urban settlements in inner city areas are by far the worst, with extremely poor quality housing, little or no infrastructure, and high levels of unemployment and poverty. Dysfunctional housing market 49. The private sector real estate market is still reeling from the effects of the 2008 crisis, and the developers who survived bankruptcy are now burdened with unsold housing inventories from the 2008-2010 period. Private banks have practically frozen construction lending, reducing the production of new housing, especially for the middle of the market. The main challenge of the new housing construction market is the limited range of housing options offered and the constraint of affordability (high interest rates of 10-12% or mortgages). Additional issues are the high space standards specified in the Housing Law (e.g., 58m2 for a one-person home, 81m2 for a 2-person home), and the threshold of EUR 60,000 under the Prima Casă program (which guarantees a low interest rate). According to unofficial figures, the rental market could be 15-20% of the housing stock in București and other major cities, and it is largely informal (without contracts). The very limited supply of ‘formal’ rental housing has high rents, unaffordable for most middle and low-income households. Another aspect adding to the problems is the high cost of trunk infrastructure for housing in peri-urban areas, which is passed on to the consumer in the form of higher house prices. Inadequate legal and institutional framework 50. Housing laws, public programs, and institutions are inconsistent and over-lapping. The Housing Law has been amended nine times since 1996, and some of the amended provisions are today disparate, and difficult to comprehend or enforce. The lack of an underlying housing strategy to substantiate housing legislation has created a diverse classification of public housing – for example, Social Housing, Necessity Housing, Youth Housing – which cannot be used interchangeably to adapt to changing local needs. 51. There are a number of public institutions responsible in one way or another for housing in Romania. The Ministry of Regional Development and Public Administration (MRDPA), National Housing Agency (NHA), Ministry of Labor, and local authorities operate as disparate entities. Public housing programs are deeply fragmented: there are some twenty-two government programs with almost no coordination or monitoring mechanisms, and inadequate budget allocations. Most of the projects are not prioritized. Local authorities must provide the serviced land and raise their own funds to develop and operate necessity or social housing, which puts a serious burden on local finances. 52. There are little to no data available on publicly funded housing at the national or the local level, which makes it impossible to do a meaningful diagnostic or draw future projections in the sector. The stock of publicly owned buildings in Romania is not being utilized to its optimal potential partly due to the absence of a comprehensive inventory of these buildings, and partly due to the lack of administrative and technical capacity to assess the full potential of these assets and assign uses accordingly. Poorly targeted government assistance in housing 53. Romania’s public housing stock is inadequate, in terms of both quantity and quality. Less than 2% of housing is publicly owned, and since 1990, less than 10% of new housing has been built using public funds. Public sector housing subsidies are far too over-reaching to be effective. Government housing programs tend to favor middle and high income individuals over the poor. Local governments are required to provide social housing for individuals earning below the National Average Monthly Net Income of RON 1,866 (EUR 380) per capita, an income threshold mandated by the Housing Law, which also applies to most public housing programs. According to this, however, almost everyone except the richest 7-8% of the income distribution is eligible apply for social housing.18 The Youth Housing Program, which is 18 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Picture 1. Multifamily buildings in Class I of seismic risk in Bucharest among the largest public housing programs in Romania, is not targeted based on income (described more below); the Land Lots for Youth Program awards higher eligibility ”points” to applicants with higher incomes. Finally, the Housing Law refers to low income persons, but does not explicitly include socially marginalized or physically challenged people. 54. The bulk of housing subsidies and government programs go to middle-income households as opposed to the poorest 20-30% of households who need it most. The main housing government programs include the Youth Housing program (EUR 224 million to date), the Prima Casă loan guarantee (EUR 4 billion since 2009 to date), and the BauSpar subsidy (EUR 188 million to date), but none provides much benefit to poor households. While the Social Housing program and other programs are intended for the poor, they have faced issues regarding budget allocations and implementation. The low prioritization of Social Housing Program is evident from its budget allocation: over a 10-year period from 2005 to 2014, it received EUR 55 million, which is only 20% more than the budget allocation for the BauSpar subsidy for a single year (EUR 45 million for 2015). The government also provides a VAT subsidy (5% as compared to the regular VAT of 24%) to individuals purchasing private houses priced below EUR 86,000 or RON 380,00019 – this is another general subsidy awarded regardless of the beneficiary’s income. 55. While local authorities must provide social housing, they have neither the technical capacity nor the financial means to undertake such projects. Social housing is essentially a ”loss-maker” for local authorities, and so they have no incentive to build or maintain or increase their social housing stock. Another problem of the social housing is the way it is allocated to beneficiaries. The eligibility criteria for social housing set at the local level is based on household members, education level, income, etc., but preference is usually given to those who can pay for utilities, thus, again, excluding the very poorest. 56. The Youth Housing program under the NHA targets people younger than 35 years, and is not income-targeted. The government has put EUR 49 million into this program between 2005 and 2014, and in June 2015, another EUR 175 million was approved by the Council of Europe Development Bank to build 6,990 housing units over the next 7-8 years. The implicit subsidy embedded in the program’s rental units includes free land and services, and below-market 18 According to the Household Budget Survey of 2012, individual income for the first income decile is RON 0-281 (EUR 0-63) and RON 1201-10740 (EUR 270-2,416) for the 10th income decile. 19 This was established by GEO 200/2008, which made an adjustment to the 2003 Fiscal Code to include, among other changes, a reduced VAT for houses purchased for less than EUR 86,000 (RON 380,000). The land must not exceed 250m2, and the house area should be less than 120m2 (excluding auxiliary buildings). 19 Diagnostic: What are the main challenges? rents with no term limit for occupancy, which is a disincentive for tenants to move out. Another program targeted to young people is the Land Lots for Youth program in which plots of land are allocated to beneficiaries, ranging from 150-300m2 in cities, 250-400m2 in towns, and 250-1,000m2 in rural areas. 57. Massive investment is ongoing to improve the energy efficiency of residential buildings. The program on thermal insulation is among the most active government-supported programs in housing, and the speed at which this program is implemented deserves commendation. However, the focus of these programs is too narrow, and the quality of work shows considerable scope for improvement. Moreover, even though legally mandated to do so under GEO 18/2009, this program is not adequately tapping into the potentially huge opportunity to simultaneously improve common areas and undertake structural seismic retrofitting of the vast stock of old housing. Another problem is the ”top-down” implementation: subsidies from the central and local governments essentially direct the implementation, and HOA’s maintain only a peripheral role in decision-making or monitoring of construction. Figure 7. Poorly targeted government programs address mainly middle-income households EUR 380/m National Average Income per capita EUR 430/m/HH EUR 335/m/HH Youth Housing Prima Casă EUR 310/m/HH BauSpar EUR 245/m/HH Social Housing 20 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Recommendations: What are the proposed strategies and action steps? 21 Recommendations: What are the proposed strategies and action steps? Build an enabling environment that supports coordination through 1a improved trust, accountability, administrative capacity, and information systems that talk to each other 58. There are four core principles of an enabling environment for effective coordination of infrastructure investments: trust; accountability; capacity; and information systems. These cross-themes influence the quality of the process of coordination for all the dimensions discussed in this report: across administrative levels; across players/programs; across sectors; across phases of a cycle of investment strategies / programs / projects. • Trust: • Coordination ultimately always occurs between people – not between amorphous institutions or sectors. This is why building a culture of collaboration is quintessential for instilling coordination in the DNA of any organization. A key corollary is the need to reduce turnover of critical staff and consolidate capacity. • The MRDPA should: (i) organize special training programs for staff on how to enhance collaboration; and (ii) collect and disseminate good practices from around the country regarding internal (within an organization, across various units) and external (across organizations) coordination. • Accountability: • Coordination should be included in the list of formal responsibilities corresponding to each authority in charge of designing and implementing public infrastructure investments. This would trickle down all the way to the Bylaws and the required individual staff competencies and performance matrix (”fișa postului”). • As the line ministry in charge of public administration, the MRDPA should spearhead the ”coordination agenda” for Romania’s public sector and hold local authorities and other institutions accountable for their efforts. • Capacity: • Who will do the challenging work of coordinating across departments/ institutions/sectors/administrative levels? This is not a task that can be outsourced, but one that requires active involvement from insiders (experienced staff who knows the system and can navigate it across institutional and jurisdictional lines). • Particularly in the context of low-paid positions in Romania’s public administration, with monthly wages of around EUR 400 or lower, experienced specialists are very hard to come by and tend to be in very high demand. • The MRDPA’s role would be to lead the effort to enhance public authorities’ ability to manage human capital, reward/sanction employees, and raise salaries to competitive levels. This would help ensure lower turnover of critical staff and allow them to dedicate time to coordination. • Information systems: • Effective coordination also depends on comprehensive, timely, and accurate information flows among all stakeholders involved. Information is power and one cannot manage what one does not measure. • Romania has not yet aligned databases across public institutions. Even units within the same ministry sometimes use incompatible systems. • The MRDPA’s role would be to develop (in-house or through outsourcing) a common database of public infrastructure investments in Romania to facilitate real-time information sharing and coordination. 1b Improve the quality of strategies by establishing and empowering a Strategy Unit in the Prime Minister’s Chancellery 59. The first step is to develop, refine, and approve a set of coordinated strategies underpinning investment programs to ensure proper demarcation of intervention areas. The MRDPA cannot directly lead this effort, but it can support the Center of Government (the Prime Minister’s Chancellery) – which maintains a weak role vis-à-vis line ministries – to supervise the development of strategies and their implementation through a dedicated Strategy Unit (SU). The SU would be under the Prime Minister’s direct coordination. Building on current legislation (Government 22 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Figure 8. There are 4 fundamental elements of an enabling environment for coordination − −Coordination happens across people first and foremost (and only then across institutions) Trust − −Consolidation a mentality based on cooperation (seminars, best practices, etc.) − −Reducing turnover and motivating public sector staff − −Explicitly including coordination in public institutions’ mandate Responsibility − −Explicitly including coordination in bylaws − −Explicitly including coordination in the terms of references for managers − −Coordination requiers time and resources; due to lack of capacity, there is a risk that the need for Capacity coordination is aknowldged but ignored, and it could fall at the bottom of the list of priorities − −Strenghtening the management of critical human resources (number of staff, wages) − −Coordination depends on information exchange (among levels and/or sectors) Systems − −Need databases that “talk to each other” − −Develop an integrated database for all investments Decisions 870/2006 and 775/2005), it would rationalize the number of strategies and adopt a set of common standards for their development. The SU would also monitor how these strategies translate into investment programs and further into projects. In particular, the unit would ensure that investment programs are properly designed, with clear synergies among them, following the example of EU funds. The SU would also play the main M&E role with respect to the performance of investment programs, tracking key data like annual project completion ratio, annual increase in ongoing investments, etc. The Prime Minister would thus be able to recommend data-driven adjustments to current investment programs and, as needed, their expansion / merger / termination, in line with their performance. 1c Harmonize state-budget and EU-funded investment programs across the entire investment cycle 60. Most coordination opportunities arise in the harmonization of frameworks and procedures applicable to EU and state-funded investment programs. The former have introduced a variety of new tools in the Romanian context (e.g., strategic and integrated planning, rigorous public procurement, monitoring and evaluation of performance, etc.) and have generated a true shift in the mindset of public sector staff. From hundreds of interviews with local, regional, and central authorities, conducted since 2012 as part of the World Bank’s technical assistance for Romania’s regional development, one conclusion holds true at all levels: staff working on EU programs are more motivated, more creative, and more rigorous in the design and implementation of public infrastructure investments. Romania therefore faces a great opportunity to leverage the learnings from the implementation of EU funds and replicate them in state-budget- funded programs. Figure 9. Examples of vertical and horizontal coordination mechanisms that could be applied to investment programs in Romania Vertical Coordination Horizontal Coordination ...across levels of government ...across sectors and/or jurisdictions Dedicated platforms Dedicated platforms (explicit mandate to coordinate) (explicit mandate to coordinate) Conditionalities Conditionalities (positive incentives / negative sanctions) (positive incentives / negative sanctions) Co-financing mechanisms Local-level procedures Territorial contracts* (single instrument for both vertical and horizontal coordination) * Territorial contracts are addressed separately under recommendation 2c below. Note: Adapted based on “Investing Together: Working Effectively across Levels of Government,” OECD, 2013. 23 Recommendations: What are the proposed strategies and action steps? 61. Indeed, EU-funded programmes have a much better track record than state-funded programs, despite low overall absorption rates. As a point of comparison, in 1994, the Romanian Government launched the National Program for the Modernization of National Roads and Construction of Highways. The Program proposed the modernization of 11,300 km of national roads in 15 phases, by 2014. However, in the 20 years since its start, only 20% of the planned length was completed, and only 3 of the 15 phases were closed. A similar experience was registered with the Priority Program for the Development of Highways, or the various state-budget-funded programs started over the years to finance infrastructure investments at the local level. By contrast, the management of EU funds has improved over the past few years (as did the absorption rates), and instruments like the Regional Operational Programme (ROP), managed by the MRDPA, have been good performers even when benchmarked against similar programs in other Member States.20 62. The suboptimal performance of state-budget-funded programs can be improved through a number of key elements adapted from EU-financed interventions, with the caveat that proposed measures should factor in capacity constraints. Indeed, the capacity to process applications and oversee projects is much lower in departments responsible for state-budget-funded programs versus Managing Authorities of EU structural funds (fewer staff, lower wages, etc.). Compared to the ROP, for instance, a program like the PNDL is characterized by a larger portfolio of smaller investments, on average – as shown in chapter 2 – which calls for simpler yet equally rigorous procedures throughout the project cycle. Equally important, previous assessments of EU funds, including by the World Bank21, have noted the signs of excessive bureaucratization in how the Romanian Government implements EU regulations, so it is important to adopt only the elements that work well. 63. The following recommendations are made primarily in relation to the PNDL in this report, but effectively apply to all state-budget-funded programs: • Anchor the PNDL in a rigorous and stable strategic framework over a longer programming cycle. To ensure that limited public funds are deployed to achieve the largest possible impact, it is important to strategize, plan, and identify clear priorities. Ideally, the programming period would be the same as for EU funds (seven years plus two-three years for finalization of investments). This will not only enable the possibility to finance more impactful projects, but it will also foster better coordination and harmonization of all programs – i.e., operational programs financing similar investments could draw on a joint strategy and would look to contribute toward the same goals. Once the strategic framework is agreed upon, the next step is to develop the operational document for state-funded programs – i.e., the Applicant Guide. This would explain the overall rules for implementing the program (e.g., the PNDL), offering in-depth descriptions of investment axes and eligible types of interventions, eligible expenditures, eligibility criteria (types of beneficiaries), and evaluation and selection criteria. • Adopt multi-year budgeting to enable more strategic investments and finance new investments only when funds required by ongoing projects are fully covered. Without multi-year budgets, there is little predictability for beneficiaries (their projects may receive funding this year and none the next), there is a tendency to finance smaller and less impactful projects (investments financed through PNDL 2014 were on average three times smaller than similar projects financed through ROP 2007-2013 and PNDR 2007-2013), and it is hard to do proper strategic planning (yearly investment programs can only finance the projects submitted for financing for that particular year). Especially for a program like the PNDL, which in 2014 had a portfolio of nearly 4,000 projects (significantly larger than in 2013), it is important to decide what budget can be expected year-on-year to finish (at least some of) the projects started. Multiple steps are required, including: rationalization of current portfolio; setting a budgetary baseline covering annual costs of all ongoing projects remaining in the portfolio; and allocation of funds for new investments only when/ if excess resources exist – not just for the first year, but for future years’ baseline as well. The MRDPA did take a few steps in the right direction through Government Emergency Ordinance 46/2015, which created a multiannual PNDL – at least in theory. Beneficiaries are required to submit multiannual estimates of their expenses, though there is no formal requirement for the MRDPA to pay in full such expenditures, even for projects with ”multiannual” contracts. It all depends on annual allocations, and there has been no effort to date to rationalize the project portfolio and make it financially and fiscally sustainable. • Set a clear, fixed implementation timeline for completing projects. Beneficiaries of EU funds know that they have a clear deadline by which they have to use funds, i.e., they risk losing those funds if they do not complete the investment in due time. Under state-budget-funded programs 20 See the two reports produced under ”ROP 2.0: MA-IB Collaboration and Beneficiary Support for the ROP 2014-2020,” World Bank, 2014. 21 See the reports on ”ROP 2.0: MA-IB Coordination and Beneficiary Support,” World Bank, 2014. 24 Harmonizing State and EU Funded Projects in Regions | Final Synthesis there is no time restriction and many investments, even small ones, are continued for years on end, drawing funds from a limited pool to keep the investment going, often at a minimum effort level. Countless construction sites linger around Romania, without a push to complete such works before approving new ones. GEO 46/2015, cited earlier, does set a timeline for contracts – four years, with the possibility of a two-year extension. However, it is not clear what happens if six years go by and a project is still not finished; there is no mechanism to apply corrections, ask for the money back, or otherwise incentivize the beneficiaries to finish the projects on time. Figure 10. Proposed PNDL allocation by county based on proposed funding criteria22 Proposed PNDL 2014-2020 budget allocation by county 0-50 51-70 71-80 81-84 • Harmonize eligibility and selection criteria. Beneficiaries of EU funds operate within a procedural framework that is clearly defined at the beginning of a program and stays relatively constant over the full programming period. In the case of state-budget-funded programs, rules are often unclear and, when they do exist, they change every year or even more frequently. This leaves room for interpretation and ad-hoc implementation, reducing predictability and transparency for program applicants and beneficiaries, for their service providers (e.g., contractors of infrastructure works), for the Ministry of Public Finances that needs to budget according to the money spent in a given year, etc. The eligibility of investments should be decided based on what can and should be covered along with EU funds – either to contribute to the same goals in sectors where needs are too high to rely only on structural instruments (the ”equivalency” approach) or to fill gaps left unaddressed by EU funds (the ”complementarity” approach). There should also be transparent, fair, and rigorously enforced selection criteria, along with harmonized contracting for all applicants. • Direct interested applicants to EU financing first, but build a pipeline of proposals that can be channeled to either EU or state-budget funds. If a proposed project can be eligible for EU funding (i.e., in sectors where the ”equivalency” approach holds), the MRDPA and other ministries managing state-budget-funded investments should first direct applicants to EU grants (i.e., the cheaper financing). This may be a question of awareness-raising or it may require a hard constraint to only accept an application if it proves that it is either ineligible for EU funds or that it is ”eligible but not financeable” (because of EU funds running out under certain axes/intervention areas). In any case, the harmonization of rules and procedures will ensure that investments in the pipeline may be eligible for either EU funds or the state budget, which would help boost absorption of all available financing sources. • Implement stronger M&E mechanisms at the program level. First, the PNDL and other state-budget-funded programs should set performance indicators for the entire program (e.g., number of projects, total beneficiaries, absorption rates, etc.) and for each sector (length of rehabilitated roads, number of additional people with access to water and sanitation, etc.). Second, a list of 22 For a detailed description of the funding allocation criteria among counties, see Annex 1. 25 Recommendations: What are the proposed strategies and action steps? clear impact indicators should be defined and monitored (two examples are included in the figure below). Third, to enable the monitoring process to run smoothly, a Monitoring Committee should be established, including both staff of the MRDPA and representatives of the beneficiaries (e.g., one representative per county). Monitoring should also rely on Intermediate Bodies (County Councils, Regional Development Agencies, or another institution of choice) and on local communities. • Enforce stronger monitoring at the project level. Proper monitoring is the first step in enabling the MRDPA to correct issues promptly as they develop during the project implementation phase. For its part, the MRDPA should continue to have the overall program monitoring role, with specific project monitoring visits scheduled based on a defined methodology (e.g., as mentioned earlier, larger/more complex projects should be more carefully scrutinized). Also, the MRDPA should rely on a set of independent auditors and/or on more formal Intermediate Bodies for this task. There are two main options for fulfilling the IB role: County Councils or Regional Development Agencies (see section 5.3.1. for a discussion of pros and cons of the two scenarios). Figure 11. Two development impact indicators that can be tracked over time Territorial Development Index for 2011 0,00 - 1,25 1,26 - 1,50 1,51 - 1,75 1,76 - 2,00 2,01 - 2,94 Local Human Development Index for 2011 Very Poor Poor Lower-middle Developed Middle Developed Upper-middle Developed Developed Upper Developed 26 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Table 5. Proposed PNDL General Process Indicators Proposed indicator Measure unit Data source Baseline value Annual new projects selected by PNDL No. Projects database 3,952 Annual project completion ratio (share of completed projects in total on-going % Projects database 0 projects) Annual in/out balance (value of new projects divided by the value of RON Projects database 0 completed projects) Annual increase ratio of ongoing investments (the projects value/number at the end of the % Projects database 0 current year divided by the number/value of projects at the end of the previous year) Figure 12. Proposed PNDL M&E framework −−formed at national level −−MDRAP + county representatives Monitoring Committee −−collects data from county level and provides information regarding the General indicators of the programme −−elaborates the monitoring report for the programme (annually) −−formed at county level −−county + local actors (one person for each sub-programme) Monitoring Team −−collects data from projects’ beneficiaries and provides information regarding the specific indicators of the sub-programmes to the Monitoring Committee −−elaborates a monitoring report at county level (annually) −−local level Beneficiaries −−provide data regarding the implementation of the project financed by PNDL to the monitoring team • Harmonized post-implementation procedures. The first step in establishing a proper M&E system for the post-implementation phase is to define and agree on a set of performance indicators for each financed project. At a minimum, chosen indicators should abide by the ”SMART” set of criteria: specific, measurable, attainable, relevant, and time-oriented. There is also a need to continue monitoring visits in the field for a number of years after the completion of the investment. Again, this can be done with the support of independent auditors and/or IBs. Last but not least, the MRDPA should leverage the experience of beneficiaries who successfully complete PNDL projects and involve them in dedicated knowledge-sharing mechanisms. 1d Share good practices of project-level coordination and build the capacity of local authorities across the country 64. At the level of projects, the key to effective coordination lies with the main beneficiary of an investment grant – i.e., the county/local authority. For all the aforementioned reasons, however, subnational governments lack the capacity to properly coordinate investments’ planning, implementation, and M&E. The MRDPA should also promote a set of good practices for local-level coordination, collected from authorities around the country. For example, some mayors can propose to their local council a sequenced, calculated approach to needed infrastructure investments – i.e., making sure that they first invest in underground networks of utilities and only then move on to road rehabilitation. Consultations with public service providers (electricity, gas, water, wastewater, etc.) are equally critical to ensure that investment plans are fully correlated. 27 Recommendations: What are the proposed strategies and action steps? 2a Design and adopt objective and transparent selection criteria for state- budget-funded programs to maximize development impact 65. There are two main approaches to enhanced coordination through financing criteria: equivalency and complementarity. On the one hand, harmonized criteria can be equivalent across investment programs. This is appropriate particularly when the needs in the sector far outweigh the supply of funds and there are also clear requirements to fund particular investments. On the other hand, harmonized criteria can be complementary across investment programs. That means that in a given sector one may define from the start of a programming period the list of eligible types of investments for each fund. Together, these lists should be ”MECE” – mutually exclusive, comprehensively exhaustive. In other words, there would be no overlaps and, as a whole, the funds would serve the full range of needs in a sector. 66. The optimal approach varies by sector; there is no one-size-fits-all answer. For example, in the roads sector, the EU-funded Regional Operational Programme (ROP) 2014-2020 will focus on county roads connecting to the TEN-T network; the PNDL could take on county roads that do not connect directly to TEN-T, but remain a priority based on a number of other criteria (e.g., located in the area of a major urban center, high number of beneficiaries, etc.). By contrast, for the water and sanitation sector, the PNDL should maintain the EU requirements of focusing on localities over 50 people for water and over 2,000 p.e. for sewage systems, in accordance with Water and Wastewater Master Plans. Why not focus on localities that are not eligible for EU funds through the Large Infrastructure OP or the PNDR 2014-2020? The answer is simple: the priority lists have already been established by the Master Plans based on clear criteria, and Romania still needs to fulfill EU-level commitments in the water and wastewater sector. Finally, for social infrastructure, the PNDL should make sure that it evaluates and prioritizes investments based on criteria similar to those used by EU funds – these are sensible criteria for making sure that the investments have the desired impact (e.g., sufficient number of students or patients, adequate focus on marginalized and/or low-income communities, etc.). 67. Fortunately, Romania’s experience with EU funds provides plenty of examples of good practices that should be replicated for state-budget-funded programs like PNDL: • A purposeful focus on coordination: Each EU Member State is required to explain how it will ensure complementarities across structural funds, starting with the programming documents approved by the EC before implementation can begin. For instance, the Romania-EU Partnership Agreement 2014-2020 clearly notes: ”The complementarities identified among European Structural and Investment Funds require an effective coordination during planning and implementation […] in order to avoid the overlaps between actions.”23 • Programming anchored in real needs and priorities: EU-funded programs draw from and correlate with relevant strategic documents, both cross-sectoral (e.g., the Romania-EU Partnership Agreement, the Convergence Programme, etc.) and sectoral (e.g., the General Transport Master Plan, the National Health Strategy, etc.). These priorities are generally stable across time, so stakeholders know what to expect and can plan accordingly: what programs finance which types of interventions, under which eligibility conditions, in what timeframe, etc. • A predictable and stable timeline, with multiyear budgeting and an effective IT infrastructure: The seven- year EU programming cycle (e.g., 2007-2013, 2014-2020) maintains the same strategic objectives, planning documents, and implementation procedures throughout. Even if political power alternates in that timeframe, no changes occur to EU operational programmes and their corresponding funding once these are agreed with the EC in the first year. Stability fosters opportunities to coordinate for enhanced impact. In all this effort, it is critical to rely on a functional and effective data collection and data sharing system. • A common legal and procedural framework across all EU-funded programs: The Common Provisions Regulation No. 1303/2013 was adopted in order to: establish a clear link with the Europe 2020 strategy; improve 24 coordination; ensure steady implementation; and facilitate potential beneficiaries’ access to the funds. All programs have similar application procedures and a rigorous, transparent selection process, explained in depth in their respective Applicant Guides. • Increasingly effective citizen engagement throughout the entire process: from designing a community’s strategy to individual project cycles (from pre- to post-implementation). The new Community-Led Local Development (CLLD) instrument is a testimony to the increased focus on citizen engagement in EU-funded operations. 23 Romania-EU Partnership Agreement, p. 209. 24 See http://ec.europa.eu/contracts_grants/funds_en.htm. 28 Harmonizing State and EU Funded Projects in Regions | Final Synthesis 68. All these elements are critically important for establishing a solid foundation for coordination and, indeed, they all affect the choice of financing criteria for the PNDL and other state-budget-funded instruments. A purposeful focus on coordination means that from the start investment programs are designed to have financing criteria that are equivalent or complementary, depending on the sector. Financing criteria can also encourage coordination by prioritizing (e.g., through “bonus points’ in the evaluation process) integrated interventions – i.e., proposals that prove to be coordinated across sectors and/or across administrative levels. This was the approach of the EU-funded PNDR 2007-2013, and it is the new approach of the ROP 2014-2020 with respect to strategic county roads investments in each region. When programming is anchored in real needs, it enables the design of financing criteria that deliver high potential impact and still demonstrate financial sustainability (more on this below). In addition, multiyear timeline and budget enable managing authorities of EU and state-funded programs to coordinate interventions over a longer time horizon, reducing the risk of cannibalization between the two types of funding. Finally, a common procedural framework for all state-budget-funded programs – harmonized with EU-funded instruments – requires transparent, clear, and specific selection criteria. This would deliver added credibility and broader appeal for state- funded programs like the PNDL and would also enable projects to move between different pipelines more easily. Whenever there is sufficient room under EU funds, projects should always be financed through such resources, which are nonreimbursable (and, hence, much cheaper than state-budget funds). 69. There is one important caveat to the principle that state-budget-funded programs should replicate fully the practices of EU-funded instruments – in one word: capacity. In truth, resources available to process applications and oversee projects are much lower in departments responsible for state-budget-funded programs versus Managing Authorities of EU structural funds (fewer staff, lower wages, etc.). Compared to the ROP, for instance, a program like the PNDL is characterized by a larger portfolio of smaller investments (the investments financed through the PNDL 2014 were on average three times smaller than similar projects financed through the ROP 2007-2013 and the PNDR 2007-2013), which calls for simpler yet equally rigorous procedures throughout the project cycle. Over 700 people are involved in the management and implementation of the ROP, which also benefits from a dedicated budget for technical assistance, whereby it can afford to also hire external evaluators. The PNDL relies on only around 20 people in the MRDPA and has virtually no budget allocated for hiring external consultants. This also means that a competitive grant approach whereby beneficiaries across a region / across the country have to compete for available funds is not feasible under the current PNDL’s capacity constraints. Equally important, previous assessments of EU funds, including by the World Bank,25 have noted signs of excessive bureaucratization in how the Romanian Government implements EU regulations, so it is important to adopt only elements that work well and err on the side of simplicity. 70. The methodology deployed to revamp the PNDL’s prioritization and selection criteria is straightforward: (i) estimate investment needs in a particular sector (e.g., based on statistical data, available cost standards, etc.); (ii) decide on a formula for allocating funds across counties; and (iii) decide on a formula for selecting/ranking projects within a county; (iv) identify projects that can be financed by EU funds and guide them to the relevant operational programme; and (v) arrive at the final pool of projects proposed for PNDL financing. Of course, ongoing and new investments are treated differently: the former should receive priority and new investments should only be started if there are sufficient budgetary resources to cover their full costs (not just in the first year, but in every year through completion). How much the percentage completion rate will weigh in the selection of investments is a decision that belongs to the MRDPA management. It is likely that no new investments will be funded for a period of time in the absence of fiscal and financial space to finish ongoing projects in a rationalized portfolio. 71. While each sector calls for its own financing criteria to match its specificities, there are multiple common categories that these criteria ”test for.” The following are in line with previous Bank proposals to the Government (as reflected in Emergency Ordinance 88/2013 for the prioritization of significant projects at the national level). • First, the criteria proposed in this report test for actual needs on the ground and, by the same token, seek to estimate potential impact of proposed interventions, both in terms of numbers and in terms of quality of improvement. Potential measures include: technical status (e.g., paved/unpaved road); demand (e.g., traffic levels, number of potential beneficiaries, level of development of a particular locality, number of inhabitants/physician, school-aged population, etc.); and opportunity (e.g., a road’s proximity to a major urban center). • Second, the criteria test for strategic alignment of a proposed project with existing sectoral strategies: for example, for water and wastewater, the intervention should be included in the regional Water and Wastewater Master Plans. 25 See the reports on ”ROP 2.0: MA-IB Coordination and Beneficiary Support,” World Bank, 2014. 29 Recommendations: What are the proposed strategies and action steps? • Third, the criteria also include a measure of financial sustainability. This seeks to correct the current issue of local authorities disregarding operations and maintenance (O&M) costs related to infrastructure projects financed by an EU grant or another form of support from the national government. The Financial Sustainability Indicator (FSI) looks at whether a local authority can afford to spend on operations and maintenance related to new infrastructure investments given their budgetary standing and trends. • Fourth, to the extent possible, selection criteria should also factor in each projects’ readiness level. As a general rule, the more advanced an investment in its implementation, the higher priority it should receive. The are important caveats to this, however: (i) some of the projects should not receive any more funding, despite the sunk costs, as they were poorly designed from the start (e.g., wastewater treatment plants in very small localities); and (ii) the data on project completion rates (as a proxy for ”readiness”) are insufficient, unreliable, and variable over the course of a year (since the PNDL functions on an annual basis, a project may have one completion rate when funding is allocated, and another completion rate when funds actually make it to the beneficiary, as localities often fund projects from their own sources). Project readiness can be deployed by the MRDPA as a selection criterion – in addition to the criteria mentioned above – only after rationalizing the current project portfolio (i.e., eliminating all projects that should not receive any financing) and after developing a functioning system for data collection and analysis regarding project implementation status and completion rates. • Fifth, proposed criteria under each sector seek to enable coordination of PNDL projects with other investments funded by the EU and/or the state budget. At a basic level, projects eligible for EU funds should be ”redirected” from the PNDL pipeline to an EU operational programme (e.g., ROP, Large Infrastructure, National Rural Development Programme) by checking whether the proposed project has been submitted for nonreimbursable financing before granting PNDL funding. Moreover, for particular interventions, bonus points can be awarded in the scoring process if the applicant demonstrates coordination with other funding sources, other sectors, and other (local) governments. Figure 13. Proposed framework for the triage and coordination of projects submitted for PNDL financing Is the project recommended for financing? • Full pool of applications • Basic criteria applied for screening out projects that are not recommended for financing • Initial decision on whether a particular project proposal should move forward YES NO Could the project be financed from EU Funds? Project is not recommended for financing • Pool of ”financeable” applications (neither EU, nor PNDL funds) • If a project fits the eligibility criteria of particular EU programs, it is recommended to pursue financing through those instruments YES NO Which EU program Could the project be financed through the state-funded PNDL? could finance the • Conformity (technical documentation fulfills GD 28/2008 requirements) intervention? • Eligibility (project objectives/activities are aligned with PNDL requirements) For example: • Roads the connect YES NO to TEN-T network -> Regional Operational Is the project a priority? What adjustments would be Programme • Prioritization criteria* developed (further) needed to the proposal • Water supply/sewage • Selection model applied (e.g., scoring) to make it ”financeable” under the PNDL? systems for locali- ties between 2,000- • Conformity (e.g., permits, etc.) 10,000 -> National *Note: Full prioritization model is • Eligibility (e.g., objectives, activities) Rural Development Programme presented in a seperate chapter. • Technical aspects (e.g., omissions in the design, etc.) 30 Harmonizing State and EU Funded Projects in Regions | Final Synthesis • Finally, integrated planning should be encouraged by prioritizing projects included in an Integrated Development Strategy, following the model of the EU-funded ROP 2007-2013 (with Integrated Development Plans under Axis 1) and of ROP 2014-2020 (with Integrated Urban Development Strategies – SIDU – under Axis 4). 72. Annex 1 includes the detailed project selection grids, including detailed criteria and their corresponding weights, and a list of principles for how coordination between PNDL and EU funds could be ensured. Again, in addition to what is proposed here, the MRDPA will have to factor in project completion rates and make a decision regarding the weight of this additional criterion. The proposed lists of criteria for each have been validated with sector experts and key stakeholders, including potential beneficiaries at the local and county level. The maps reproduced below show the results of applying the proposed criteria for local-level infrastructure: local roads, health, education, cultural, and sports infrastructure. Figure 14. Prioritization of investments in communal roads by locality Prioritization of communal road investments Highest priority High-medium priority Low-medium priority Lowest priority Figure 15. Prioritization of investments in health infrastructure by locality Prioritization of health infrastructure Highest priority High-medium priority Low-medium priority Lowest priority 31 Recommendations: What are the proposed strategies and action steps? Figure 16. Prioritization of investments in educational infrastructure by locality Prioritization of education infrastructure Highest priority High-medium priority Low-medium priority Lowest priority Figure 17. Prioritization of investments in cultural infrastructure by locality Prioritization of cultural infrastructure Highest priority High-medium priority Low-medium priority Lowest priority Figure 18. Prioritization of sports infrastructure by locality Prioritization of sports infrastructure Highest priority High-medium priority Low-medium priority Lowest priority 32 Harmonizing State and EU Funded Projects in Regions | Final Synthesis 2b Support the adoption of actual multi-year budgeting 73. The full adoption of multiyear budgeting in Romania holds great promise for enhancing the coordination and impact of PNDL investments. The main advantages of a multiannual PNDL would include: (i) strategic focus over a longer time horizon, meaning more stable policy priorities; (ii) manageable project portfolios, in line with available resources (i.e., no new projects can begin in the absence of required resources for the full implementation period); (iii) enhanced predictability across the entire value chain, from the MRDPA to program beneficiaries and project-level contractors; (iv) improved correlation with current multiannual instruments (EU structural funds); and (v) simplified procedures and reduced bureaucracy by signing truly multiannual contracts. Indeed, the successful adoption of multiannual budgeting for investment programs like the PNDL requires a substantial effort from many players, with the Center of Government and the Ministry of Public Finance (MPF) playing leadership roles, though the MRDPA can act as a key driver of needed reforms. Keeping in mind the need to triage and rationalize its large and unsustainable project portfolio, as well as the broader benefits of multiannual budgeting in Romania, the MRDPA has the potential to become a key driver of needed reforms. 74. It is also true that the culture of annual budgets is strong in Romania – partly because of legal and regulatory limitations, partly because of mentalities, and partly because of capacity reasons. The Constitution stipulates, under Article 138, paragraph 2, that ”the Government develops the draft of the budget annually […] and submits it for the Parliament’s approval.” During field interviews, interlocutors in certain institutions, including in the Ministry of Public Finance, have noted that this particular article is an important constraint against adopting a full-fledged multiyear budgeting framework. In practice, for an investment spanning multiple years such as a new bridge in a city, the City Hall writes up a contract with the contractor and, annually, signs an addendum stipulating the sums available for that given year. In addition, there are three key capacity constraints worth noting: high unpredictability on the revenue side due to frequent changes in taxes and unstable (and generally low) collection levels; weak ability of the Ministry of Public Finance to provide sound economic and fiscal forecasts; and strongly fragmented, rudimentary IT systems that make it very hard to track programs and projects.26 75. On the question regarding the feasibility of a multiannual PNDL given current legislative and policy constraints, there are more arguments in favor than against. For one, EU-funded interventions currently ”run through” the national budget and expenditures get subsequently reimbursed; this suggests that it is possible to have multiyear infrastructure investment projects even under the status quo constraints of annual budgeting, provided that there is firm commitment to a clear annual budget allocation. Moreover, the Romanian Law on Public Finances (Law 500/2002), even under its current form, appears to permit multiyear budgeting. Article 4 (5) provides that the budget may include ”multiannual commitments,” with these commitments defined by Article 2 (14) as ”amounts allocated to certain programs, projects, subprojects, objectives and the like, which are carried on for a period longer than a year and give rise to commitment credits and budgetary credits.” As for the annuality provision of the Romanian Constitution, there is nothing stopping the Government or the Parliament from adhering to multiyear targets, which is essentially what happens under the Fiscal Responsibility Law (though room for improvement definitely exists). To follow the letter of the law, the Government would develop and approve a multiyear budget annually, rolling it forward every year (as it happens in other countries too). 76. What should then be the key elements of a truly multiannual budgeting system for investment programs like the PNDL?27 First, the multiannual appropriation reserved for a particular investment has to only go to that investment; otherwise, the same problems will continue: ”drip funding,” delays, inefficient expenditures, and diverting money from one investment to another. Second – and related to the first condition – is to have a solid project 26 Over the few last years, an important IT project is under implementation (the FOREXEBUG system). But this does not solve all problems, as it does not cover public investment projects or the investment programs. 27 The World Bank has an ongoing technical assistance project with the Ministry of Public Finance on the topic of public investment management, including the prioritization of infrastructure projects at the national level. Several of the key recommendations made in this report are adapted to the PNDL and to investments at the subnational level from the ”Draft Report on Strengthening the Link between Prioritized Projects and the Budget,” Advisory Services of Strengthening Public Investment Management, World Bank, May 2015. 33 Recommendations: What are the proposed strategies and action steps? monitoring system, tracking at all times what the projects’ total cost is, what contracts are signed, and when. Third, the total value of multiannual appropriations for a spending agency must be clearly and credibly defined. This would require the fiscal-budgetary strategy (Law 69/2010) and the corresponding laws on approved ceilings to define limits specifically for multiannual appropriations for each major ministry/spending agency (this is not the case, currently). Under such a system, no new projects could be pursued unless extra budgetary room becomes available for current and future years, equal to the new projects’ total cost. It would thus be impossible to reshuffle projects within a ministry’s portfolio (or program, like the PNDL), since each investment would have a clear, dedicated multiannual appropriation. Last but not least, the system requires strong monitoring and evaluation functions from both within and outside the MRDPA. The MPF and other audit and control institutions like the Court of Accounts and the Audit Authority should monitor project allocations and, respectively, corresponding expenditures, while the Center of Government should regularly evaluate the performance of investment programs.28 77. For its part, the MRDPA can take several steps to facilitate the full adoption of multiannual budgeting in Romania? For one, the MRDPA should ask to be included in the fiscal-budgetary strategy from 2016 onward. Currently, it is not one of the ten ministries that are covered by this framework, which means that there is virtually no multiannual financial planning and no ceilings defined for the main categories of expenditures (including the PNDL). Moreover, the MRDPA should work with the MPF to promote the establishment of ceilings and multiannual appropriations for baseline capital expenditures (for the current project portfolio) and new investment projects. Again, the current system does not make this distinction, which is critical for having a functional model of strategic prioritization of a limited number of projects. 78. More specific to the PNDL, the MRDPA should consider pursuing the following measures for turning the program into a de facto multiannual instrument: • Conceptualize what the PNDL could look like through 2020 – essentially the time interval matching the EU programming period. This is a first step to greater internal discipline in allocating resources to PNDL projects and, in fact, does not depend on the Ministry of Finance formally adopting the model presented above. All that is needed is sufficient commitment by the MRDPA to stick to a certain split in the funding allocated to the main sectors under the PNDL. Assuming the PNDL budget will be at least at 2014 levels, the total envelope through 2020 would be RON 13 billion – or EUR 2.8 billion.29 • Next, the MRDPA should rationalize the PNDL portfolio based on budget constraints. The current portfolio would take over 15 years to complete, assuming that 2014 funding levels would hold going forward. The rationalization should therefore be done for each sector by: (i) deploying the sector-specific criteria (e.g., those listed in chapters 4-6 of the current report); and (ii) considering project completion status, with more advanced works taking priority. Some investments will have to be put on hold, others will have to search for alternative funding (e.g., EU funds), and others will have to be canceled. • The MRDPA should further set the PNDL baseline (for the budgeted year and for the programming period). This would cover all ongoing investments that passed the test (i.e., remained in the portfolio) in the previous step. All these projects should be finalized according to their implementation timeline (without intervening on the portfolio of ongoing investments to exclude some projects and/or introduce new ones), budgeting properly based on costs expected for each year. • The MRDPA should consider new investments separately from ongoing projects and only when allowed by the available budget envelope. New investment projects should be funded exclusively by the difference between the total PNDL budgetary allocation (budgeted year and programming period) and the PNDL baseline (as defined above). These projects would be prioritized according to the sector-specific criteria in this report. For all new projects accepted, the corresponding planned budget allocations must be included in the PNDL baseline for future years. • The MRDPA should develop its IT systems for tracking how projects are performing. This is needed to monitor the large number of projects in the PNDL portfolio and know, at all times, which stage they are at, how much money they are absorbing, and whether they are on track or face delays. The same database would also capture the multiannual requirements of each project in the portfolio, making sure that the total costs are properly reflected in the available budgetary envelope. 28 For detailed proposals on M&E mechanisms, see the report on ”Coordination of Strategies and Programs for EU and State-Funded Investments in Romania’s Infrastructure,” World Bank, April 2015. 29 See the report on ”Improved Prioritization Criteria for PNDL Projects” (submitted by the World Bank team as part of the same technical assistance for the MRDPA – Component 2) for an in-depth discussion of sector-by-sector allocation under the PNDL. 34 Harmonizing State and EU Funded Projects in Regions | Final Synthesis • The MRDPA should strengthen overall monitoring and evaluation (M&E) mechanisms to make necessary corrections in the financing and implementation of the program promptly. The PNDL should have performance indicators for the entire program (e.g., number of projects, total beneficiaries, absorption rates, etc.) and for each sector (length of rehabilitated roads, number of additional people with access to water and sanitation, etc.). This would enable measuring actual results, in line with the principles of performance-based budgeting (the most advanced form of multiannual budgeting, virtually nonexistent in Romania). The MRDPA should also rely on third parties for unbiased evaluations of the PNDL’s efficiency and effectiveness, both during and post implementation. Figure 19. Hypothetical example of how a RON 500 million multiannual appropriation could work in practice 600 500 400 Multiannual appropriation Commitments Million RON Payments 300 Commitment 2 (Project 2) Commitment 1 (Project 1) 200 100 Payment 2.2 Payment 1.3 Payment 1.2 Payment 2.1 Payment 1.1 0 Year 1 Year 2 Year 3 Year 4 Year 5 Source: ”Draft Report on Strengthening the Link between Prioritized Projects and the Budget,” Advisory Services of Strengthening Public Investment Management, World Bank, May 2015. 35 Recommendations: What are the proposed strategies and action steps? Box 2. Recent MRDPA steps toward a multiannual PNDL During the course of this technical assistance, the MDRPA took some first steps toward making the PNDL a multinational program. However, upon close analysis, it is clear that the measures taken, while welcomed, are insufficient. GEO 46/2015 warrants the all contracts signed for financing PNDL investments are multiannual for a maximum duration of four years, which can be extended by another two years, Beneficiaries estimate annual expenditures for each financed project. Moreover, payments are made on a first-in-first-out (FIFO) basis, which can incentivize beneficiaries to speed up the implementation of projects, but also has downsides, as explained below. There are also harsh measures for punishing those beneficiaries that deploy funds transferred for PNDL investments toward other activities (e.g., suspension of shared quotas of the Personal Income Tax, etc.). In short, the benefits of the changes may be two-fold - to be confirmed in practice: increase the predictability of annual al- locations (provided that the MRDPA can actually cover the sums requested by beneficiaries annually); and a prioritization of payments to projects that demonstrate they can “ absorb “ the money by submitting reimbursement requests diligently. The deeper the issues of the PNDL, however, remain unresolved, and some issues may be aggravated by the proposed changes. For one, the selection process that chooses which projects get financed (initially) is still opaque and biased. Only reimbursement requests are more objectively prioritized based on the FIFO rule. But this may also generate unintended consequences: financing projects with low completion rates to the detriment of investments that are almost finished. This would only worsen the issue of inefficient financing for investment over very long periods of time. More importantly, GEO 46/2015 notes that transfers/payments to beneficiaries are made within the limits of the annual budget of the MRDPA. Without having a clear multiannual budget for the MRDPA and PNDL as a whole and without ratio- nalizing the current project portfolio - which, as noted earlier, would take 15 years or more to finish - there is still a signifi- cant risk of drip funding. The recommendations made earlier to reduce the size of the portfolio, including by suspending/ canceling investments that do not make economic sense (e.g., sanitation systems in localities of under 2000 p.e.), still hold. There are no provisions freezing the financing of new projects in the absence of sufficient budgets, so the problems of the past will likely persist, except now the MRDPA will have an idea of what everything costs over a number of years. But this obvously does not mean that it can cover these (estimated) expenses. Finally, it is not clear what happens after the period of six years expires. Would the projects be cancelled? Would the benefi- ciaries have to pay back the money? All that remains to be determined. 2c Assess, pilot, and scale up territorial contracts (TCs) 79. Based on the experience of other countries, territorial contracts (TCs) between national and sub-national entities hold the potential to become a very powerful tool for the coordination of investments in Romania. At the same time, it is important to recognize that adoption of TCs would be much harder than adoption of multiyear budgeting, for which a starting point (albeit insufficient) does exist. TCs involve stakeholders from public, private, and nonprofit sectors, usually at a regional level. They include a vision for that particular territory, with goals, activities (projects), and performance indicators (for output, outcome, and impact). They can be transactional, shaping financial allocations through a series of positive incentives and/or sanctions; or relational, trust-based. Most importantly, territorial contracts have the potential to account for both state-budget and EU funds, setting priority projects and ”dividing them up” between financing sources of various kinds. 80. In the Romanian context, territorial contracts would help mitigate the high volatility of strategic investment priorities. First, territorial contracts would offer an opportunity to bring stakeholders together – across party lines and across sectors (public, private, and nonprofit) – and establish a list of priority projects for an entire programming period. Second, they would be perceived as stronger accountability mechanisms compared to existing documents (e.g., development strategies). They could have specific sanctions for potential breaches, penalizing those parties that decide to deviate unilaterally from set priorities. Third, territorial contracts would follow a clear format, requiring subnational and national authorities to think through a list of priority projects, but also decide early on regarding 36 Harmonizing State and EU Funded Projects in Regions | Final Synthesis funding sources and parties accountable for implementation. This framework would help define, from the start, who is responsible for what. Fourth, by setting a more stable list of priorities, territorial contracts would reduce the risk of ”drip funding” and starting more projects than financially sustainable. Finally, this tool would enable authorities across administrative levels to nurture a culture based on partnership and collaboration, which is very valuable in a context where ever-more-complex projects require public actors to be increasingly creative and collaborative – not just across administrative levels, but also across sectors. 81. In addition to strong political commitment, several key principles should be followed for an effective deployment of TCs in the current Romanian context and, in fact, several of these recommendations hold regardless of whether TCs ultimately materialize. The first is to integrate – not duplicate – existing planning documents at all relevant administrative levels (development strategies, spatial plans, programming documents for EU and state- budget funds, national sectoral strategies, etc.). Ideally, Romania should also have a specific legislation regulating TCs, either as a new law on (regional) development (per the Polish model of the 2006 Act regarding the principles of development policy) or as an amendment to the Law on Public Administration as to allow signing and enforcing agreements between national and sub-national authorities. Moreover, if one party breaches the TCs, there need to be clear sanctions, while on the positive side projects included in a TC could be rewarded with bonus points during evaluation processes (whether under EU or state-budget-funded programs) or, in the aggregate, regions that manage to maintain the same TC priorities for an entire programming period may receive additional transfers from the national budget. To the full extent possible, the TCs should have the same timeline as EU funds (i.e., seven plus two- three years) and state-budget funds should also be able to operate in a multiannual framework. 82. The MRDPA, as the ministry in charge with public administration affairs in Romania, should take on the main role in the adoption of TCs and in creating the aforementioned conditions for their success. Specific steps would include: • Create a technical task team responsible for evaluating in-depth the opportunity of adopting territorial contracts in Romania. This internal team could also collaborate with outside experts. • Assemble a group of legal experts and explore requirements, needed changes, etc. This is important to determine what can be done under the current legal framework and what changes are needed, if any. It would be particularly critical to establish the type of sanctions and positive rewards that could be tied to the adoption of territorial contracts. • Launch a consultation process with subnational governments to test the idea and decide on the optimal structure. This could be done through a series of events in each region, enlisting the help of Regional Development Agencies. Of particular importance would be to decide who the parties to the agreement could be: for example, the MRDPA and county councils, or the MRDPA and Regional Development Councils (i.e., the body that includes county and local authorities in a particular region), etc. • Prepare a full action plan and timeline for implementation. This will depend on generating sufficient momentum and buy-in from all stakeholders involved. • Launch pilot territorial contracts in a number of jurisdictions. • Monitor and evaluate pilot results and adapt, launch, and implement the model for the national scale. External experts should be involved to assess the results of TCs, covering a series of critical areas: legal; technical; policy design; and monitoring and evaluation (M&E). 3a Improve the technical documentation of investment projects financed through state-budget programs 83. A major issue identified during the assessment of a sample of PNDL applications was the poor quality of the technical documentation. To make sure that the applications follow the requirements, it is recommended that the MRDPA prepare and provide an Applicants Guide for the PNDL. This guide would provide interested potential beneficiaries with all the information needed to prepare the application, including available funds, documentation required, and the type of projects to be prioritized (which may change for different programming periods). The guide should detail the filling-in manner, the eligibility conditions for the project and the applicant (and for the partners, if applicable), and should cover compliance, assessment, contracting, implementation, settlement, project completion 37 Recommendations: What are the proposed strategies and action steps? and final payment, the checklist of documents, the assessment grids, the financing contract template, the design, execution, supervision, performance and audit contract templates. 84. The Applicant Guide would ensure complete transparency of the entire PNDL process and provide a coherent and fair framework for all applications. The guide for the Regional Operational Programme (ROP) may be used as a basis for the preparation of the PNDL guide. The documents and forms specified in the Applicants Guide shall bring rigor in drafting the documentations for the requests for funding and would make the entire process easier, including during the implementation and upon the project’s completion. The period for assessing the requests for funding is also expected to become shorter as a result of reducing the number of cases where clarifications are needed during the assessment process. 85. Once the Applicant Guide will be available, a series of awareness-raising campaigns are necessary to ensure the document has reached the potential beneficiaries of the PNDL. At least one meeting with the local authorities should be organized in each county, or a few meetings per region at the Regional Development Agencies may also work well to promote the funding opportunity. An improved website for the program is also necessary for quickly providing all relevant documents and information for future and current beneficiaries. PNDL is publicized on the official web page of MRDPA, which includes Order 1851/ 2013, with all annexes, and GEO 28/2013. Not much other information about this program is available. The communication around the program and on the financed projects is a key condition for stimulating potential applicants to prepare and submit projects. The official page of the PNDL should publish the financial allocations per county, the list of projects contracted for financing (now included on the website), including the related amounts, and the projects’ implementation stage. 86. A related recommendation is to help strengthen the capacity of PNDL applicants and beneficiaries. The experience of the EU-funded programs in the 2007-2013 programming period indicates that local authorities need continuous technical assistance, especially during the project preparation phase. A relative easy way to deliver this kind of assistance is to set up a help-desk system, either at central level (MRDPA) or inside the intermediary bodies, if any, depending on the chosen institutional architecture of the management system (for example, Regional Development Agencies or County Councils could play this role). 87. It is also necessary to increase of capacity at MRDPA level to appraise projects. A systematic training program could be set-up at the ministerial level, so that the decision on project selection is consistent across the Ministry. An example could be the approach pursued by Ireland’s Central Expenditure Evaluation Unit. As a key component of strengthening the country’s public investment management system, the unit has been promoting the delivery of professional training in public investment management through the country’s Civil Service and Development Centre. Even countries with long established public investment management systems, like the UK, are giving renewed emphasis to systematic training: the established UK Major Projects Authority intends to train 200–300 civil servants over the next five years through its Major Projects Leadership Academy. Among emerging economies, Slovenia’s public investment management regulation reinforces the importance of developing and maintaining capacities by mandating the finance ministry to define training requirements and organize training sessions. 3b Revise cost standard policies and the Eligible Expenditures Order 88. Implementation of cost standards for infrastructure is imperfect and has posed challenges to beneficiaries. The intention for deploying the cost standards is praiseworthy as a solution for keeping project costs under control, as well as to help in planning The problem is that current cost standards are not sufficiently developed and, in some cases (i.e., wastewater systems), they do not exist at all.30 They also do not reflect updated nominal values (i.e., values have not been adjusted for inflation since 2010), or supply and demand fluctuations; and it is also unclear if comparisons between project values and cost standards should reflect RON or EUR values. 89. Although the technical solutions included in the legislation on cost standards (particularly for the road infrastructure) are just a recommendation, they are adopted by all applicants. Designers thus choose lower-quality, cheaper, less efficient technologies, which may result in higher long-term costs. In this context, it is challenging to 30 The MRDPA currently uses instead a rule of thumb whereby cost standards for wastewater systems are roughly 1.5 times the cost standards for water supply systems. 38 Harmonizing State and EU Funded Projects in Regions | Final Synthesis adopt new / greener technologies that may come at a premium cost upfront, but which may be cheaper over the long term (e.g., if one takes life-cycle costing into consideration). Despite all this, the cost per km still varies quite a bit. Thus, for the projects with complete data (88 projects), the average value for road rehabilitation/modernization is RON 900,652 per km, with the smallest amount of RON 400,601 per km, for 2.1 km of road rehabilitation in Cluj county, and the highest amount of RON 2,612,894 per km, for 21.79 km of street rehabilitation in Constanta county. 90. Cost standards should be updated or waived completely. In the latter scenario, the authorities could use instead a list of reference prices denominated in EUR to make sure that costs are kept under control. In this case databases with ranges for local prices for the main materials should be created. In any case, technical solutions proposed should be only indicative and designers / beneficiaries should be properly informed that they may adopt alternative options that are superior in terms of short / long-term costs and quality. Figure 20. Variation of road rehabilitation / modernization price from sample of projects reviewed by the Bank team 18 16 14 Number of projects 12 10 8 6 4 2 0 <500 500-600 600-700 700-800 800-900 900-1,000 1,000-1,100 1,100-1,200 1,200-1,300 1,300-1,400 1,400-1,500 1,500-2,000 2,000-3,000 Price per km for road rehabilitation / modernization (th. RON) 91. As for the Eligible Expenditures Order (EEO), because the PNDL is in its entirety a state-budget-funded program, with money coming essentially from the same source, there is no reason to over-regulate beyond GD 28/2008. Currently, the methodological norms specify a list of non-eligible expenditures (article 8 (3)), including feasibility studies, specialty studies, technical assistance, taxes, etc. The list, as it stands, is arguably a better option than what was deployed under the ROP 2007-2013, which defined what can be financed, excluding by default anything that was not specifically mentioned in the Order of Eligible Expenditures. In other words, it is nearly always better to define what does not qualify for reimbursement, as currently under the PNDL. It may still be worth it, however, to look at the list of non-eligible expenditures and decide whether it would warrant an exception. 4 Enhance the design of public infrastructure projects in Romania 92. There are multiple recommendations for improving the design of public infrastructure projects in Romania. For one, it is mandatory to align the technical standards in force to European standards, reflecting climate change, traffic modifications, and other new concepts environment friendly. Some standards are too old and their content is not up to date compared to international best practices. 93. There should be a switch of the current Romanian classification to a well- structured functional classification for roads. This would include relating technical classes and maintenance classes to a revised functional classification via design speed and traffic volumes. Functional classes provide continuity for the road’s design features (and other road management matters). Functional classification is also important to land uses and helps both the road administrations and the road users structure the network. 39 Recommendations: What are the proposed strategies and action steps? 94. The implementation of the Road Safety Audit and Road Safety Inspection should be done according to the current legislation. ARR should organize technical courses for the accreditation of auditors/ inspectors, but also new and clear regulations should be established according to the law in force. Another important aspect that should be considered is related to the prices for a RSA or RSI. They should be revised and adapted to the economic situation of Romania. 95. Traffic and environmental impact studies should be required when starting a design project, just as geotechnical and topographic studies are required currently. This way, the solution of new construction, modernization, or rehabilitation will have better technical support. 96. The implementation of drinking water safety management and food safety systems such as ISO 22000 is needed. Many water utilities in Europe have chosen to be ISO 22000 certified because this ensures safe healthy water throughout the entire supply system. Romanian regional water operators should adopt similar measures. 97. Last but not least, the verification of the project should be made by specialists certified as technical verifiers, different and independent of the design specialists who elaborate the projects. The beneficiaries should be the ones to contract the technical verifiers, and not include this task into the design phase, which is in fact against the law. Put differently, practice needs to reflect what the law mandates. 5 Develop and adopt a National Housing Strategy 98. Improving the functioning of Romania’s public role in the housing sector could significantly enhance conditions at relatively low costs. These improvements would not only make housing more affordable and of better quality, but would also rebound to the broader economy as well. The Strategy’s basic principle should be a ‘functional’ housing market that involves both the public and the private sector. As illustrated in the figure below, a basic principle of the Strategy should be to aim for a ‘functional’ housing market, in which: • The public sector plays a key role in providing direct housing assistance to the poorest and most vulnerable groups; • The public sector actively intervenes in specific themes or sectors facing market failure or negative externalities; • The public sector creates incentives to change behavior and leverage private investments for affordable housing through ”assisted” market solutions; and • The private sector is enabled to serve the housing needs of middle and upper income groups. 40 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Figure 21. Proposed roles of the public and private sectors for a functional housing market EUR 836/m National Average Income (HH) PRIVATE SECTOR: Individual houses, flats | Conventional EUR 430/m/HH Mortgages PUBLIC-PRIVATE ASSISTED PUBLIC INTERVENTIONS MARKET SOLUTIONS ”Addressing market failure EUR 335/m/HH ”Changing Behavior and negative externalities” through Incentives” Seismic retrofitting / PPPs, Co-ops, DAs | Loan reconstruction EUR 310/m/HH guarantees, VAT / tax MFB maintenance (old bldgs) exemptions, subsidized Cultural heritage / historic Loans, grants, co-financing, preservation vouchers Energy efficiency EUR 245/m/HH PUBLIC SECTOR: Social housing, Integrated urban upgrading | cash grants, rental vouchers, TA The following set of measures is recommended: A. Urgently initiate seismic retrofitting of structurally unsafe residential buildings The government may consider prioritizing financial and technical assistance for seismic retrofits of structurally unsafe buildings. Funding for this program could be through a direct central budget allocation channeled through the proposed National Housing Fund (NHF), discussed later in the section. • Develop a Seismic Risk Mitigation Plan for residential buildings categorized structurally unsafe First and foremost, a mitigation plan would need to be developed for seismic risk mitigation in residential buildings, which outlines a range of approaches to be used under the different scenarios – for example, historic / non-historic buildings, level of risk severity, etc. – together with a participatory process to engage with resident communities to create awareness and ease the process of relocation. • Provide transitional accommodation for residents during retrofitting as well as prevent occupation of dangerous buildings The urgent need for seismic retrofitting will also require a plan to ensure that residents temporarily move out of dangerous buildings into transitional shelter. This shelter will need to be provided by the state. Since it will take some years to build up an adequate stock of public housing that can be used for this purpose (Necessity Housing), other alternatives may be considered in the interim: the government might consider offering other more flexible incentives to households to vacate the premises so that improvements can be undertaken - for example, rental vouchers to the households temporarily displaced by the retrofitting, with special assistance focused on the most vulnerable groups. The voucher amount should ideally be a progressive subsidy that targets those most in need.31 Importantly, besides providing alternatives to their current location, a law would need to be put in place that proscribes people from living in unsafe buildings. • Implement structural retrofits Once the buildings are vacated, they will need to be retrofitted or demolished and reconstructed – based on a thorough technical analysis. Financing for such retrofitting would largely come from the government, with a small co-financing element from the resident households, depending on their income levels and the value of the property. The subsidy can be progressive – for example, the co-financing requirement for households in the lowest 30 income percentile could be zero, while those in the top 30 income percentile could be required to 31 For example, 100% of established standardized market rent for households in the bottom 30 income percentile; 90% for households in the 31-50 income percentile; 80% for the 51-75 income percentile and so on. 41 Recommendations: What are the proposed strategies and action steps? contribute up to 30-40% of the cost of repairs. The resident household’s contribution could take the form of an interest-free loan (as is the case under the current seismic retrofitting program). For properties with commercial or other monetary potential, the private sector may be encouraged to participate through incentives such as tax breaks, placing liens on valuable but risk-exposed property, etc. The construction of additional public housing (to be used as Necessity Housing), as needed, might be executed by the NHA, based on its experience in undertaking large-scale housing projects. B. Prioritize improvement of old housing and neighborhoods • Improve the quality of communist-era housing There is lack of awareness among the public regarding the law which requires HOAs to maintain the common areas of their buildings. The law and the obligations of the occupants needs to be spelled out more clearly and disseminated more widely. At the same time, enforcement is key, and it is critical that ownership ‘obligations’ that correspond to ownership ‘rights’ be clearly spelled out and implemented. At the same time, it is important to provide the necessary support to HOAs – and more specifically to poorer households who are members of these HOAs – to ensure that the cost of repairs is manageable. To this effect, partial grants or co-financing covering a significant portion of the cost of repairs may be given to HOAs that meet certain eligibility criteria, and this could be done from a window under the proposed National Housing Fund (NHF, described under section H). The contribution of the HOA (20-50% of cost of repairs) may come from cash reserves of the HOA, if available, or through a loan from a commercial bank which is guaranteed by the NHF. Additional grants may be given to poor households for example, those earning below the median income, to ensure that their cost burden for housing and all utilities combined does not exceed 30-40% of the monthly income. • Improve the quality of historic buildings and neighborhoods The NHF could provide financial assistance to owners of historic residential buildings/ dwellings – both HOAs and individual households – to undertake improvements of these structures. As in the case of non-historic buildings described above, this could take the form of a grant, or a loan with a large co-financing element because, as mentioned, the cost burden may often be too high for individuals or HOAs to bear, and the improvement of such buildings is in the larger public interest. The financial assistance would be most effective if linked to a technical assistance component • Link energy efficiency (EE) / thermal insulation program with general building improvement Repairs of common areas in multifamily buildings should ideally also be tied to measures for improving energy efficiency as well as seismic/structural safety. The massive financing made available for EE measures offers a significant opportunity to instill a culture of building maintenance more generally. The EE program offers the largest pot of money for the housing sector in Romania, and may be used as a means to foster this sense of ownership and responsibility– this support for creating interested participants is essential and will be cost- effective and sustainable in the long term. C. Prioritize housing assistance to the poor and vulnerable • Provide security of tenure and protection from illegal evictions There is a need to accelerate land tenure programs, especially in poorer neighborhoods – possibly by introducing alternative land tenure instruments – e.g., renewable occupancy permits until they receive a legal title. It would be advisable to subject all evictions to checks and balances to determine whether they are justified; appropriate legislation needs to be developed to this effect. Legislation should also be developed to allow NGOs to represent a community in the case of forced evictions. • Use a customized approach and expand the menu of options TA one-size-fits-all approach can often fail to target the poor and vulnerable. The government could consider expanding public sector housing assistance beyond ”social housing” to include a menu of options that are not just more appropriate for the recipient households and their lifestyles, but also more value-for-money for the government, more equitable, and more sustainable. A range of housing-related interventions – such as in- situ infrastructure upgrading, site-and-services, subsidized rental housing – may be considered for poor and marginalized communities, linked with finance, community participation, and income generation. 42 Harmonizing State and EU Funded Projects in Regions | Final Synthesis • Improve targeting of subsidies for EE programs Public grants used to reduce the economic burden on citizens, such as for insulation measures, should be targeted first at the poorest and most disadvantaged citizens – such as those living in social housing. Similarly, special ‘allowances’ funded by the state may be awarded to lower-income households in private buildings who are ‘forced’ to participate in insulation programs because a 2/3rd majority has been reached in the vote to participate in the thermal insulation programs.. • Apply a participatory approach to housing The government may consider adopting two basic elements in all housing programs targeted to the poor: (i) Emphasize ‘process’, not ‘product’, with a systematic, sustained and structured engagement with the communities to identify the appropriate interventions and to build ownership; and (ii) Encourage inclusive developments, and retain the social fabric, especially in the case of the poorest and most vulnerable households. • Designate ”Improvement Areas” For certain segments of the population, the goal of meeting current building standards will take time to realize. Meanwhile, their priorities may place a higher value on space than, for example, services. It is, therefore, recommended to permit building to alternative, lower standards in such cases. This can be done by designating ”Improvement Areas”, within which different standards are applied. Such regulations should ensure compliance with the ‘hard’ components (standards for structural stability, day lighting and ventilation, basic sanitation) but be flexible in terms of the ‘soft’ components (e.g., building materials, finishes of walls, doors/windows, roof etc.), which can be upgraded over time. • Factor in utility expenses in housing subsidy calculations The current subsidy on social rental housing mandating that the rent not exceed 10% of household income is not appropriate for households in the lowest three income deciles – because utility costs make housing unaffordable. For these households, a subsidy ensuring that the household does not pay more than 10-15% of income on the housing and utility bills combined would make housing more affordable. Also, the problem of incoming tenants of social housing ‘inheriting’ the debt of previous occupants may be rectified by changing the law to make the debt and the account linked to the person, not the property. • Include a separate program for vulnerable groups such as the elderly and disabled The Housing Law specifically defines disabled persons for state assistance, and the disabled and elderly are identified as vulnerable groups targeted by the Law on Combating Marginalization through Housing. However, public support in terms of providing adequate housing for these special groups has been limited thus far. They will require specific investments and programs in line with European Standards, such as improving accessibility for those who are disabled or have with limited mobility, and mandating special features for the elderly. D. Improve the social housing program • Make social housing financially viable for local authorities Current policy for social housing subsidizes the rent payable by setting it at 10% of the family income, irrespective of the cost of the dwelling. This level is much lower than the share used in wealthier countries which often require a contribution level of 30%. The low level means that buildings designed for social housing will always be a net drain on the finances of the local authority, which is a significant disincentive for them to develop more units for this purpose. While 30% may be too high, 10% is almost certainly too low a figure – especially for households in the 40-50th income percentile. What would be more appropriate is a policy that subsidizes the family and not the house, and could help reverse the disincentive: setting the rents at a level that recovers more of the costs of the development, day-to-day maintenance, and management costs would also be more sustainable. Funds from the national government could make up the difference for poor tenants with income insufficient to pay the rent. • Revise criteria for social housing allocations Criteria established by local authorities that give priority to those with education or on the basis of home domicile hurt the poor and vulnerable who typically lack education and often do not have the necessary (residency) registration papers. It is important to streamline these criteria, and to mandate that allocation of social housing be done on the basis of transparent and published criteria. 43 Recommendations: What are the proposed strategies and action steps? • Narrow the income eligibility band Eligibility based on the ‘average’ income skews due to outliers. As mentioned earlier, currently, households with incomes that place them higher in the income distribution than the top 10th of the population are ”income” eligible for social housing and other housing subsidies. In most economies, only the bottom 2 or 3 income deciles are eligible for subsidies, but this should be reviewed in light of incomes and housing costs in Romania. A more targeted eligibility threshold is the ‘median’ net monthly income (50th income percentile). Subsidies should be targeted at those most in need, with much stricter criteria applied through a regular review of incomes, and other means tests. E. Facilitate the production of affordable housing by the private sector • Incentivize and leverage private funds for ‘affordable’ housing, both private and public Affordable housing could be encouraged by local authorities offering Public Private Partnerships (PPPs) and Development Agreements (DAs) for the delivery of private ‘affordable’ housing, and even public housing. This public housing may then be used as ‘social housing’ or ‘necessity housing’ – similar in concept to NHA’s youth housing, but built with private investment and centered on a more demand-responsive approach. In addition, local authorities are well-positioned to actively upgrade and refurbish existing public buildings for use as public housing (or other uses) through PPPs and DAs. This can start with creating a comprehensive inventory of relevant public assets (buildings) to be converted into social housing. Local authorities may obtain loans or grants (or a combination thereof) to pay for the above options through a financing window under the proposed NHF. Many European countries boast robust co-operative housing sectors that offer an affordable midpoint between fully private housing and fully public housing both for tenants and also for governments that can encourage co-operatives with limited subsidies. Housing Cooperatives can serve the function of a developer or a registered social landlord. As a developer they are well-placed to provide a higher quality of private and communal life at a competitive cost because they are geared towards providing affordable housing to members rather than maximizing profits for developers. Sometimes, these organizations develop only for rent. They might develop only for rent for their members, or may build for a wider public, including social housing, thus alleviating the cost and management burden from the public sector. • Review and reform the Prima Casă guarantee program The Prima Casă program may serve its purpose better through improved targeting to lower income creditworthy homebuyers who would otherwise not be able to get a mortgage loan in the market. One way to do this is to limit the span of eligibility to lower middle income households (say, people in the 30th to 50th income percentile), and at the same time, removing the house price threshold – which, as it currently stands, is not only a ”free-for-all” subsidy, which is inefficient, it is also having a distortionary effect on the market. • Review and reform the rental housing policy The lack of formal rental housing and the growth of the ‘grey’ rental market in Romania is a major deterrent to labor mobility. It causes difficulties for new families, and inflates the rents of the limited stock available. While there is little available data for the rental market, sector expertise indicates that the policies pertaining to rental housing need to be reformed. Several measures may be considered to this effect, for example, removing tax disincentives for rental housing, reforming the rental policy which currently leans in favor of the tenant, and introducing a landlord-tenant dispute resolution mechanism. F. Revise and Complete the Legal Framework • Introduce a new Housing Law While it is the case that the Housing Law has been revised with an excessive frequency, the current Housing Law needs to be nevertheless be replaced by something that establishes a more general framework. The new law will need to clarify the obligations of homeownership that correspond to the rights that have been distributed. Without this clarification it is unlikely that HOAs will take on the role of maintaining and improving the housing stock. The new Law would also refine income eligibility criteria for social housing and other public housing programs in a more general way, while simultaneously establishing more appropriate and lower housing standards, and refining the role of the NHA. Among other things, the new law will need to mandate that public money be used to assist either those who have insufficient income to meet their housing needs, with priority 44 Harmonizing State and EU Funded Projects in Regions | Final Synthesis for those most in need, i.e. the poorest 20% to 30% of the population, or those – such as emerging HOAs, or the elderly in seismically risky housing – who with minor assistance can undertake high social return activities. For greatest effectiveness this latter step should be accompanied by the establishment of a National Housing Fund (described below). Whether that Fund should be defined in the new Housing Law, or as a separate legislation is a matter of legislative efficacy. However, it should be emphasized that the governing regulations for an effective Housing Fund are themselves complex. • Introduce a legal framework that proscribes living in unsafe structures It will be important for the new Housing Law to ensure that families currently at risk are not left at risk. This means clearly stating under the new Law that unsafe structures be vacated, and tied with a clause that ensures adequate support from the government to the affected households, both in terms of temporary resettlement – either in the form of government provided public housing or in the form of cash vouchers with which the households can access private housing for rent. The law may also require that unsafe buildings – historic or non-historic – that have been lying vacant for more than a certain period of time (say, 2 or 3 years) be compulsorily acquired by the government (or local authorities), and retrofitted or torn down. • Consolidate the various categories of ”public housing” The current distinction between ”social housing” and other housing built or managed by the public sector needs to be reconsidered such that all housing provided by the state, for whatever purpose, is designated public housing. Families lacking the means to pay the economic rent and utility costs of such housing (for example, those who are currently eligible for ”social housing”) could be given income support. This move will achieve three important objectives: make it economically viable for Local Councils to erect and manage public housing; make public housing supply more responsive to the prevailing demand – for example, any single public housing unit could serve as a ‘necessity’ house or a ‘social’ house or housing for any other special group; and prevent social housing from becoming socially damaging ghettos where only poor people reside. • Improve space and building standards for dwellings The current standards as prescribed under the Housing Law legislate on the size of house required by a specific number of occupants. This is unrealistic in two senses: firstly because family size changes from year to year, and secondly, because it prevents families from making spatial adjustments in order to achieve other economic objectives. It is advisable that such a standard be omitted from the Housing Law. Regarding building and space standards more generally, the existing regulations regarding minimum room sizes, window sizes, ventilation, sanitation etc. may be retained. However, alternative building, planning and sanitation regulations will be required for areas designated as informal settlements or incremental/self-build housing. G. Strengthen institutions at all levels • Strengthen the Housing Department and its mandate at the national level At present, MRDPA has a duty to prepare the national level budgets for the programs implemented by the government for housing, and play an advocacy role to justify the maximum possible allocations. However, there is little recognition of the broader effects that a more proactive housing policy could have on economic growth and social inclusion. The spatial legacy of the communist-era construction has an extraordinary effect on the nation’s potential. Addressing these problems will require resources and greater policy attention. Ultimately, of course, the MRDPA will need to ensure that the funds benefit the more needy sections of the population, and are properly accounted for. MRDPA’s coordination role among the various public and private stakeholders needs to be strengthened, including maintaining a consolidated housing database. A housing department at the General Directorate (GD) level is proposed that would have responsibility for programs in energy efficiency, HOAs and maintenance, accessing finance, monitoring, evaluation, and data collection. Such a strengthened housing department can provide training to specialists at the county level, who can then provide support to local authorities in energy efficiency standards and procurement, social housing, asset management, housing finance, and other key areas. • Clearly define and strengthen the role of local councils The current policy requires the local council to construct social dwellings instead of providing incentives for them to refurbish existing public buildings for residential use. The refurbishing of existing public buildings into social housing is allowed by the Housing Law; however, it is not effectively implemented – for example, conversion from other uses to residential use may not always be properly done, or the sanitation and other 45 Recommendations: What are the proposed strategies and action steps? underlying infrastructure may be inadequate. Local councils are, in principle, well-suited to provide serviced land and need to engage in PPPs with HOAs, Housing Cooperatives, and private sector developers to provide social housing, but their technical and financial capacity in the housing sector needs to be improved. It is recommended that county councils take a stronger lead in identifying housing need and coordinating local councils’ five year housing plans, while local councils be assisted to access funds and technical assistance in developing public housing. Figure 22. Current and proposed institutional structure for Housing Department at the central level Current Proposed GD Regional Development and GD Regional Development and Infrastructure Infrastructure Technical Department Planning Department Strategy Strategies and Policies Department Housing Department Budgeting Public Works Department ... Data TA Unit Unit for Project Coordination ... (Programs) • Reform the role of the National Housing Agency Public institutions in the housing sector would benefit from a reform process so that they are positioned to serve as ‘enablers’ of an efficient housing system, rather than ‘providers’ of housing (especially housing targeted to the non-poor). In particular, the role of the National Housing Agency (NHA) requires reconfiguration: from a constructor of Youth Housing to an overseer of the construction of Necessity Housing (to temporarily accommodate residents of these risky buildings undergoing retrofitting), and as a leader in seismic retrofitting projects. The NHA could also play a role in public sector programs for which local authorities lack the skills to design or implement, in which cases it would be appropriate for the NHA to step in. The NHA may establish a division that serves as a technical assistance arm for Local Councils. This division would include architects, financial analysts, engineers, urban planners and community development / social workers, and would take the lead in designing and implementing such programs, or in advising and training local staff in that field. H. Reform Financing Programs and Mechanisms • Establish a National Housing Fund A potential solution to some of Romania’s blockages in the production of affordable housing could be the establishment of a dedicated National Housing Fund (NHF). The Fund would be a centralized source of government support for developing the affordable housing market through targeted financial support. The Fund could consist of several specific funding windows accessible by both private and public sectors. It could serve to consolidate the existing labyrinth of programs into a more coherent, consistent public role. The overall objective is to increase the availability of good quality, energy efficient, affordable housing while providing it in a transparent, efficient way. This could be for rental housing, or for affordable homeownership, or for improvement of residential buildings or neighborhoods. The Fund would support new housing and rehabilitation of existing housing stock. The NHF could have a social function and, as such, would require public funds. However, if it is to successfully develop a multi-year long-term investment strategy for housing, it needs independence from the political process and stable funding sources. A major objective of such a fund would be that current, poorly-targeted 46 Harmonizing State and EU Funded Projects in Regions | Final Synthesis and highly expensive subsidies would be retargeted to encourage the greatest output for public expenditures. That is, the expenditures would be designed to leverage other resources – e.g., beneficiary contributions and private finance – as well as minimize the government taking on responsibilities and/or risks in ways in which it does not have comparative advantage. The Fund would be managed at the national level, but would have a strong regional presence also as the key link with local authorities that serve as the main delivery point for social housing at present. Some windows under the proposed Fund would be run as national schemes; others would be run as local schemes under local authorities, and administered through private banks serving as financial intermediaries for these housing finance products. Local authorities might also provide a contribution or co-financing (<10%), with the bulk of the financing coming from the Fund. • Redirect existing programs / subsidies Youth Housing program. The Youth Housing program has been successful in terms of scale (approximately 30,000 units delivered to date) and is a good tool to attract youth to growing cities, in principle. However, the massive per unit public expenditure involved in the construction of new housing for the non-poor is a questionable use of limited government resources: it channels scarce public resources away from people who most need the assistance. While providing housing for Romania’s youth in urban centers is a valid policy objective, the current programs are not necessarily achieving this objective. At the same time, poor households who are left out of the public assistance agenda will not be able to contribute to the economy without targeted assistance from the government, a foregone opportunity that outweighs any economic windfall represented by the current Youth Housing. Abolishing this program should first take the form of ceasing construction of new Youth Housing, and stopping the sale of Youth Housing. Selling these units effectively removes stock from the already too small pool of public sector housing, while continuing to rent them for extended contracts means that the same residents benefit from the subsidy year after year. These should be retained as rental housing stock to be used as one or more of the following: (i) revenue generating assets with market-price rents that can help cross-subsidize the cost of existing social housing or raise funds to construct new social housing; (ii) rental housing targeted to lower income households who can pay the current rents; (iii) housing for the youth at subsidized rates, but with a cap on the number of years it can be occupied by any single household (e.g., 3-5 years); or (iv) ‘transition’ houses for residents of buildings undergoing seismic retrofitting. BauSpar subsidy. The BauSpar (saving-for-housing) product offered by two leading banks has been relatively successful in inducing people to register accounts eligible for the subsidies, with over 300,000 savers between two private banks in 2015. However, it is not having its intended impact of expanding housing loans: only 5% of savers are exercising the option to take out a housing loan after the ‘saving’ period elapses. Also, the subsidy element of this program is not well-targeted: anyone can apply for a BauSpar product and benefit from the subsidy of EUR 250 per customer annually. Many of the accounts probably would have existed without the subsidy. From 2005 to 2015 the programs budget has exceeded RON 841,590,738, representing an average government liability of RON 84,159,074 annually for the last ten years. This program could be better designed to target the savings subsidy for home improvement and mortgage loans to those earning below the national median income. The remaining subsidy could thereby be re-allocated towards a small home improvement loan guarantee program, which would be accessible through all banking institutions rather than just the two currently administering the BauSpar program. VAT subsidy. The VAT subsidy for purchase of houses would be much more effective if targeted by income level, for instance to people earning below the national median income. The additional revenue thus generated (from otherwise ”lost” VAT) could be allocated to other priority areas discussed in this report, including public housing and seismic retrofitting. National Program for Thermal Rehabilitation of Blocks of Flats. This program duplicates another parallel program financed with EU funds. A significant proportion of works are perceived as sub-standard by end beneficiaries and even by primary stakeholders in the program (HOAs and local authorities). The program could continue in a redesigned form and be financed under Window 5 in the proposed NHF to first target social housing stock. This would achieve an enhanced impact for low-income households, considering the consequent reduction in 47 Recommendations: What are the proposed strategies and action steps? utility bills, but also alleviate pressure on local authorities that are responsible for those units. The program can be further improved by establishing co-financing or grant mechanisms linked to household income. These grants – targeted to poor residents or low income households – are especially important in buildings with a high percentage of poor or low income households. In such situations, the 20% financing commitment becomes a major financial burden. Grants to cover these costs could be obtained from Window 9 under the NHF. Coordination of thermal insulation work with other major upgrading interventions such as seismic retrofitting (structural strengthening) and district heating system upgrades is also necessary. In this way the benefits of thermal insulation investments will be fully realized by both reducing leakage in the district heating systems as well as ensuring that the thermal insulation will not need to be redone if and when upgrades to older buildings’ structural framework are implemented. The proposed NHF could provide a centralized platform for monitoring such interventions based on sequential disbursements of funds. Energy Efficiency of Blocks of Flats and Rehabilitation of Heating Plants in Cities. Two types of investments in the program portfolio on energy efficiency are recommended for continuation with EU funding (Energy Efficiency of Blocks of Flats under ROP, and Rehabilitation of Heating Plants in Cities under OPLI). Given the amount of EU funding for such works, it is recommended that government funding be directed to complementary types of investments (e.g., consolidation works). For the program for Energy Efficiency of Blocks of Flats under ROP, the funding line was limited to certain eligible beneficiaries based on city population for the period 2007-2013 with preference given to larger cities, regardless of implementation capacity. The funding can be extended to other cities, regardless of whether they are county residences or not. The limiting for the next period will be detailed in the Applicant Guide. In addition, contractors for such works can be pre-qualified and warranty measures can be instituted for a maintenance period. The quality control problem of current interventions can be addressed by pre-qualifying contractors and instituting warranty measures for a maintenance period. The Green House Program. Aimed at reducing air pollution by installing solar panels and thermal plants for residential structures, this program can continue in a redesigned form and be financed by Window 5 under the proposed NHF. Redesigned prioritization for this program could encompass better evaluation of applications in order to take into consideration particular conditions of the housing unit, since there are differences in wind and solar potential across Romania. The program could also be expanded to collective housing units and public buildings such as schools, hospitals, nurseries, etc. The District Heating Rehabilitation Program. This program can also continue due to the serious challenges in the provision of affordable heat through old and inefficient district heating systems. This could be positioned for funding under Window 8, coordinated with investments through Window 5 of the proposed the NHF. The prioritization of continuing energy efficiency programs should consider aspects such as: primary energy savings, rate of connection to the centralized system, duration of project implementation and payback period of the investment, compliance with environmental protection, and the ratio of the amount of investment to the number of connected apartments. • Better utilize public buildings to their full potential: Asset Management Strategy One of the most useful ways to raise revenue for housing programs is through a more efficient use of existing public buildings. First and foremost, an inventory of all publicly owned buildings is needed, at the central and local levels – including the youth housing stock, heritage buildings, social housing, and any other vacant or derelict public buildings. Once this is done, an Asset Management Strategy should be developed, to help public authorities determine the best use of these assets. Some of these – particularly the historic buildings (owned or acquired because they were lying vacant for an extended period of time, as suggested above) – might be revenue generating assets that could potentially finance some of the subsidy programs in the housing sector, including public housing. 48 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Proposed National Housing Fund Windows Recipient of Finance Target Group / (Purpose) Financing Product End User Private real estate Support to developers of Tax 1 affordable housing developers (Affordable Incentive housing for rent or sale) First time home buyers Support to buyers of Loan Middle National Level 2 affordable housing (Private affordable Guarantee Income houses) Seismic retrofitting NHA | Local 3 of unsafe residential Authorities Co-Financing buildings Rehabilitation of old Property owners 4 residential buildings (Individual HHs | HOAs) Co-Financing (incl. heritage buildings) Lower Energy efficiency in Local Authorities | 5 Co-Financing | Grant Middle residential buildings Utility companies | HOAs Income Rehab. of old/ historic 6 neighborhoods Local Authorities Co-Financing Local Level Public housing (construction, Local Authorities | Co-Financing | Loan 7 rehabilitation) + NHA Guarantee Rental vouchers Infrastructure upgrading Co-Financing | Partial Low Income 8 (underserved areas - Local Authorities Grant | Poor urban and rural) Individual housing Poor households Grant | Housing 9 construction or (Urban and rural) Allowance upgrading (incl. EE) 49 Recommendations: What are the proposed strategies and action steps? I. Summary of Proposals for Housing Programs Reform Financing for Housing: National Housing Fund Existing programs Recommended Action Steps / Projects None Establish a National Housing Fund Proposed programs Recommended Action Steps / Projects Develop design and draft Operations Manual for the NHF Establish distinct institutional entity with transitional team to oversee and National Housing Fund. Consolidate the various run NHF financing channels for the housing sector under one umbrella institution – for better Identify pilot projects and allocate ‘seed money’ coordination and transparency Conduct feasibility studies of pilot projects, and implement them Capitalize and operationalize the Fund, scale up Program for Seismic Risk Mitigation in Residential Buildings Existing programs Recommended Action Steps / Projects To consider discontinuing. Introduce the new program suggested below Seismic retrofitting program (Program for Seismic Risk Mitigation in Residential Buildings) Proposed programs Recommended Action Steps / Projects Provide technical assistance to develop Strategy / Plan for Seismic Risk Mitigation in Residential Buildings Raise awareness among local administrations and private owners in relation to seismic risk Program for Seismic Risk Mitigation in Residential Buildings Create a national inventory of seismically vulnerable housing stock Develop feasibility studies and technical designs for retrofitting works Develop options for transitional housing (necessity housing, housing vouchers) Implement retrofitting works Program for Capital Improvements in Multifamily Residential Buildings Existing programs Recommended Action Steps / Projects Introduce Program for Capital Improvements in Multifamily Residential None Buildings Proposed programs Recommended Action Steps / Projects Raise public awareness of legal framework regarding building maintenance Establish a technical assistance unit to build capacity of HOAs and relevant public authorities Program for Capital Improvements in Create local housing needs assessments and local housing plans aimed at Multifamily Residential Buildings multifamily building capital improvement investments Create portfolio of interventions based on multifamily building typology Implement capital improvement works 50 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Program for the Rehabilitation of Privately Owned Historic Dwellings Existing programs Recommended Action Steps / Projects Co-opt local spending on façade restoration into the proposed Program for *Façade restoration Rehabilitation of Historic Residential Dwellings *Not a program itself, but supported by access to credit guarantees for facades restoration, as per Law 153/2011. Proposed programs Recommended Action Steps / Projects Provide technical assistance to homeowners and HOAs to improve privately owned historic dwellings and buildings Program for the Rehabilitation of Historic Provide technical assistance to relevant public authorities Residential Dwellings Create local housing needs assessments specifically for historic buildings Implement historic rehabilitation works Program for Rehabilitation of Historic Residential Neighborhoods Existing programs Recommended Action Steps / Projects None Introduce Program for the Rehabilitation of Historic Residential Neighborhoods Proposed programs Recommended Action Steps / Projects Provide technical assistance to local authorities to improve historic neighborhoods Program for the Rehabilitation of Historic Create historic neighborhood plans Neighborhoods Implement rehabilitation works Program for Increasing the Stock of Public Housing (through adaptive reuse or new construction) Existing programs Recommended Action Steps / Projects Rental Housing with Private Capital Housing for Resident Physicians Support for Young People Living in Rural Areas Consider discontinuing Rebirth of the Romanian Village Housing for Evicted Tenants Social Housing for Roma Consider discontinuing and existing youth housing converted into ’public’ Youth Housing Program housing stock (to be used based on local need, with a preference for ”social” and ”necessity” uses) Social Housing Consider discontinuing Necessity Housing Proposed programs Recommended Action Steps / Projects Provide technical assistance to local authorities to create inventories of public assets to inform the development of Asset Management Strategies Program for Increasing Public Housing Conduct local housing needs assessment Stock (through adaptive reuse and new Create public Asset Management Strategies construction) Implement rehabilitation of public buildings for conversion to public rental housing Construct new public rental housing Program for Rental Housing Vouchers Existing programs Recommended Action Steps / Projects None Introduce new program for Rental Housing Vouchers (for private housing) Proposed programs Recommended Action Steps / Projects Program for Rental Housing Vouchers Establish a Rental Housing Voucher Program 51 Recommendations: What are the proposed strategies and action steps? Program for the Production of Affordable Housing by the Private Sector Existing programs Recommended Action Steps / Projects Mortgage Financed Housing Land lots for youth Consider discontinuing Support for young people living in rural areas Prima Casă program BauSpar subsidy To be continued with income eligibility criteria (see Chapter IV) VAT subsidy Proposed programs Recommended Action Steps / Projects Program for the Production of Affordable Streamline the framework for public-private partnerships (e.g., DAs, BOTs) Housing by the Private Sector Introduce incentives for private entities to construct affordable housing Program for Informal Settlement Upgrading and Housing Construction / Improvement in Urban and Rural Areas Existing programs Recommended Action Steps / Projects Combating Marginalization – Housing Component – Advance payment for housing Consider discontinuing purchase / construction Combating Marginalization – Housing Consider discontinuing (move funding to rental voucher program) Component – Subsidized rent Combating Marginalization – Housing Component Consider discontinuing – Subsidies for current costs (utility bills) Planned Axis in ROP: Program for the upgrading Consider discontinuing with some reforms. See new Program for Informal of informal settlements in urban areas (to be Settlement Upgrading and Housing Construction / Improvement in Urban and initiated with ROP funding) Rural Areas (below) Proposed programs Recommended Action Steps / Projects Draft new set of housing and infrastructure standards for low income areas, develop regulations for ”Improvement Areas” Conduct training for NHA and local authorities to build their capacity in Program for Informal Settlement Upgrading incremental housing and informal settlement upgrading and Housing Construction / Improvement in Develop a program sub-component on assisting poor households in Urban and Rural Areas (to complement urban incremental housing construction and improvement upgrading program under Axis 9 in ROP) Include a distinct program for vulnerable groups such as the elderly and disabled and other special categories Identify and implement pilot upgrading projects in urban and rural areas 52 Harmonizing State and EU Funded Projects in Regions | Final Synthesis What next? Practical Prioritization of Projects 99. As the final list of proposed investment projects for the 2014-2020 programming period is defined, authorities at all levels have at their disposal the Investment Guides produced as part of this technical assistance work. These cover three key areas: county roads; water and wastewater systems; and local roads and social infrastructure (education, health, culture, and sports). Each Investment Guide includes a detailed set of maps for each county, showing where current assets are (from roads to schools, hospitals, cultural centers, etc.) and where investments might be better targeted upon application of the set of proposed prioritization criteria.32 The same guides also distinguish between projects that may be financed from EU vs. state-budget-funded programs, thereby facilitating coordination among these various funding instruments. 100. By all measures, the guides are a unique collection of data at the level of counties and territorial administrative units, and can serve as a very practical tool for choosing the most impactful and needed investments. For one, managing authorities of state and EU-funded programs can rely on these Guides in the evaluation of proposals submitted for financing. For their part, local/country authorities can also use the information in the guides to select the projects that they would like to see financing for. Civil society watchdogs and other stakeholders can also monitor projects actually chosen for funding versus other potential projects. Transparency can thus contribute to the goal of making the most out of the limited investment resources available to public authorities. 101. The maps reproduced below are examples of what is included in the Investment Guides. The chosen example is Covasna County, and the maps cover: county roads, communal roads, water and wastewater, and social infrastructure (education, health, culture, and sports). The prioritization follows from the application of the criteria proposed in this technical assistance. 32 See Annex 1 for the full set of prioritization criteria. 53 What next? Figure 23. Snapshot of existing infrastructure in Covasna County Judeţul COVASNA County SUPRAFAȚĂ TOTALĂ 3.710 km2 Total Area POPULAȚIE 206.261 locuitori / people Population Județul COVASNA County Regiunea CENTRU Region INFRASTRUCTURA Creșe Grădinițe Școli primare Școli gimnaziale Licee teoretice Licee tehnologice Licee vocaționale EDUCAȚIONALĂ Nurseries / daycares Kindergartens Primary schools Secondary schools Theoretical high schools Technology high schools Vocational high schools Education Infrastructure 2 163 61 78 6 9 3 INFRASTRUCTURA DE SĂNĂTATE Cabinete medicale de familie Dispensare medicale Cabinete stomatologice Spitale Policlinici Ambulatorii integrate în spitale Unități medico-sociale Health Infrastructure General medical offices Medical dispensaries Dental offices Hospitals Policlinics Ambulatories integrated in hospitals Medical-social units Proprietate publică Public ownership 106 2 75 4 0 6 0 Proprietate privată 0 0 10 1 0 0 Private ownership INFRASTRUCTURA Cămine culturale Monumente arheologice Monumente de arhitectură CULTURALĂ Community centres Archaeological monuments Architecture monuments Cultural Infrastructure 110 Categoria A Număr real Categoria A Număr real Category A 97 Real number 112 Category A 159 Real number 365 INFRASTRUCTURA Săli de sport Terenuri de sport SPORTIVĂ Gyms Sports fields Sports Infrastructure 89 62 54 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Figure 24. Prioritization of county roads in Covasna County Județul N COVASNA County Prioritizarea investițiilor în DJ (pentru PNDL și POR) Prioritization of 3 County 5 CR investments 7 4 6 (for PNDL and ROP) 6 COVASNA PRIORITIZAREA INVESTIȚIILOR Târgu Secuiesc PRIORITIZATION OF INVESTMENTS DJ prioritare pentru modernizare / reabilitare prin PNDL Priority CR for modernization / 5 7 3 rehabilitation through PNDL 1 DJ prioritare pentru modernizare / reabilitare prin POR 2 1 Priority CR for modernization / 8 rehabilitation through ROP INFRASTRUCTURA RUTIERĂ SFÂNTU GHEORGHE ROAD INFRASTRUCTURE Drum național 2 National road Drum județean County road Drum comunal Local road Judeţul 4 LIMITE LIMITS Limită județ County limit REȚEAUA DE LOCALITĂȚI SETTLEMENT NETWORK Localitate <2.000 locuitori Municipality <2,000 inhabitants Localitate 2.001-10.000 locuitori Municipality 2,001-10,000 inhabitants 10 5 10 10 20 30km Localitate >10.000 locuitori Municipality >10,000 inhabitants Municipiu reședință de județ County capital Figure 25. Prioritization of communal roads infrastructure in Covasna County Județul N COVASNA County Brăduț Prioritizarea Vârghiș drumurilor comunale Estelnic Mereni Prioritizing Lemnia Communal Roads County Bățani Bixad Sânzieni Poian Baraolt Turia Micfalău Brețcu COVASNA Malnaș Prioritate maximă Târgu Secuiesc Highest priority Cernat Bodoc Ojdula Prioritate medie-superioară Aita Mare High-medium priority Catalina Prioritate medie-inferioară Low-medium priority Belin Dalnic Ghelința Arcuș Prioritate minimă Ghidfalău Lowest priority Zăbala Moacșa Zone urbane Urban areas Hăghig Sfântu Gheorghe Brateș Vâlcele Reci Boroșneu Covasna Ilieni Mare Ozun Chichiș Valea Mare Judeţul Comandău Dobârlău Zagon Barcani Întorsura Buzăului Sita Buzăului 10 5 10 10 20 30 km 55 What next? Figure 26. Prioritization of water system investments in Covasna County ALIMENTARE CU APĂ N Water system Limită companie apă-canal Limit of water supply-sewage company LIMITE Limits Limită județ County limit Limită unitate administrativ-teritorială Limit of territorial administrative unit PRIORITIZAREA PROIECTELOR DE ALIMENTARE CU APĂ LA NIVEL DE LOCALITATE Prioritization of water projects, by settlement Fără investiții prioritare No priority investments 0,01-2,00 2,01-4,00 4,01-6,00 6,01-8,00 8,01-10,00 Figure 27. Prioritization of sewage system investments in Covasna County CANALIZARE N Sewage clusters / agglomerations Limită companie apă-canal Limit of water supply- sewage company LIMITE Limits Limită județ County limit Limită unitate administrativ-teritorială Limit of territorial administrative unit ORDONAREA DUPĂ PRIORITATE A PROIECTELOR DE CANALIZARE LA NIVEL DE LOCALITATE Priority scores for sewage projects, by settlement Fără investiții prioritare No priority investments 0,01-2,00 2,01-4,00 4,01-6,00 6,01-8,00 8,01-10,00 56 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Figure 28. Prioritization of educational infrastructure in Covasna County Județul N COVASNA County Brăduț Prioritizarea Vârghiș infrastructurii Estelnic Mereni educaționale Lemnia Prioritizing County Bățani Bixad Sânzieni Poian Education Baraolt Micfalău Turia Brețcu Infrastructure COVASNA Malnaș Târgu Secuiesc Cernat Bodoc Ojdula Aita Mare Prioritate maximă Catalina Highest priority Belin Prioritate medie-superioară Dalnic Ghelința High-medium priority Arcuș Ghidfalău Zăbala Prioritate medie-inferioară Moacșa Low-medium priority Hăghig Sfântu Prioritate minimă Gheorghe Lowest priority Brateș Vâlcele Reci Boroșneu Covasna Ilieni Mare Ozun Chichiș Valea Mare Judeţul Comandău Dobârlău Zagon Barcani Întorsura Buzăului Sita Buzăului 10 5 10 10 20 30 km Figure 29. Prioritization of health infrastructure in Covasna County Județul N COVASNA County Brăduț Prioritizarea Vârghiș infrastructurii Estelnic Mereni de sănătate Lemnia Prioritizing County Bățani Bixad Sânzieni Poian Health Baraolt Micfalău Turia Brețcu Infrastructure COVASNA Malnaș Târgu Secuiesc Cernat Bodoc Ojdula Aita Mare Prioritate maximă Catalina Highest priority Belin Prioritate medie-superioară Dalnic Ghelința High-medium priority Arcuș Ghidfalău Zăbala Prioritate medie-inferioară Moacșa Low-medium priority Hăghig Sfântu Prioritate minimă Gheorghe Lowest priority Brateș Vâlcele Reci Boroșneu Covasna Ilieni Mare Ozun Chichiș Valea Mare Judeţul Comandău Dobârlău Zagon Barcani Întorsura Buzăului Sita Buzăului 10 5 10 10 20 30 km 57 What next? Figure 30. Prioritization of cultural infrastructure in Covasna County Județul N COVASNA County Brăduț Prioritizarea Vârghiș infrastructurii Estelnic Mereni culturale Lemnia Prioritization of County Bățani Bixad Sânzieni Poian Cultural Baraolt Micfalău Turia Brețcu Infrastructure COVASNA Malnaș Târgu Secuiesc Cernat Bodoc Ojdula Aita Mare Prioritate maximă Catalina Highest priority Belin Prioritate medie-superioară Dalnic Ghelința High-medium priority Arcuș Ghidfalău Zăbala Prioritate medie-inferioară Moacșa Low-medium priority Hăghig Sfântu Prioritate minimă Gheorghe Lowest priority Brateș Vâlcele Reci Boroșneu Covasna Ilieni Mare Ozun Chichiș Valea Mare Judeţul Comandău Dobârlău Zagon Barcani Întorsura Buzăului Sita Buzăului 10 5 10 10 20 30 km Figure 31. Prioritization of sports infrastructure in Covasna County Județul N COVASNA County Brăduț Prioritizarea Vârghiș infrastructurii Estelnic Mereni sportive Lemnia Prioritizing County Bățani Bixad Sânzieni Poian Sports Infrastructure Baraolt Turia Micfalău Brețcu COVASNA Malnaș Târgu Secuiesc Cernat Prioritate maximă Bodoc Ojdula Highest priority Aita Mare Catalina Prioritate medie-superioară High-medium priority Belin Dalnic Ghelința Prioritate medie-inferioară Arcuș Low-medium priority Ghidfalău Zăbala Moacșa Prioritate minimă Lowest priority Hăghig Sfântu Gheorghe Brateș Vâlcele Reci Boroșneu Covasna Ilieni Mare Ozun Chichiș Valea Mare Judeţul Comandău Dobârlău Zagon Barcani Întorsura Buzăului Sita Buzăului 10 5 10 10 20 30 km 58 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Roadmap for Action 102. There are a range of proposed targeted strategies and key action steps resulting from the technical assistance work under all four components of this program. The recommendations span different areas – policy, legal, financial, and institutional. Whether in roads, water and sanitation, social infrastructure, or housing, it is obvious that Romania shows significant room for improvement in terms of how it defines, selects, finances, implements, monitors and evaluates, and coordinates its public infrastructure investments. The next sub-section summarizes the main proposed steps, including a potential timeline, the role of the Ministry of Regional Development and Public Administration, and the difficulty of implementing the recommended actions. It also serves as a roadmap for monitoring and evaluating progress. Timeline for No. Proposed Action MRDPA Role Difficulty implementation Build an enabling environment that supports coordination through improved trust, accountability, 1a Support Long-term High administrative capacity, and information systems that talk to each other Improve the quality of strategies by establishing 1b and empowering a Strategy Unit in the Prime Support Short-term Average Minister’s Chancellery Harmonize state-budget and EU-funded investment programs across the entire investment cycle (main recommendations target the PNDL, but also applicable to other state-funded programs) • Anchor the PNDL in a rigorous and stable strategic framework over a longer programming cycle. • Adopt multi-year budgeting to enable more Lead strategic investments and finance new (PNDL reforms) investments only when funds required by Support ongoing projects are fully covered Short- and 1c (other programs’ Average • Set a clear, fixed implementation timeline for medium-term reforms through completing projects transfer of • Harmonize eligibility and selection criteria knowledge) • Direct interested applicants to EU financing first, but build a pipeline of proposals that can be channeled to either EU or state-budget funds • Implement stronger M&E mechanisms at the program level • Implement stronger M&E mechanisms at the project level • Harmonize post-implementation procedures Share good practices of project-level coordination 1d and build the capacity of local authorities across Lead Short-term Low the country Lead (PNDL reforms) Average Design and adopt objective and transparent Support Short-term (proposal available 2a selection criteria for state-budget-funded programs (other programs’ (applicable for through current to maximize development impact reforms through 2016 programs) technical assistance) transfer of knowledge) Support the adoption of actual multi-year Medium- 2b budgeting (not just for a program like the PNDL, Support High and long-term but at the level of the entire government) 59 What next? Timeline for No. Proposed Action MRDPA Role Difficulty implementation Lead (pilot) Support (scale-up, Medium- and long- 2c Assess, pilot, and scale up territorial contracts High with potential term administrative reform and regionalization) Low (full set of Lead recommendations, (for PNDL) along with proposed Support Improve the technical documentation of investment Applicant Guide 3a (other programs’ Short-term projects financed through state-budget programs and Investment reforms through Operational Manual transfer of available through knowledge) current technical assistance) Revise standard cost policies and the Eligible 3b Lead Short-term Low Expenditures Order Enhance the design of public infrastructure projects 4 Lead Medium-term High in Romania Low (full set of inputs for the Develop and Adopt a National Housing Strategy Lead Short-term strategy is available through current technical assistance) Urgently initiate seismic retrofitting of structurally Lead Short-term High unsafe residential buildings Prioritize improvement of old housing and Lead Short-term High neighborhoods Prioritize housing assistance to the poor and Lead Medium-term High vulnerable Improve the social housing program Lead Medium-term Average 5 Facilitate the production of affordable housing by Lead Medium-term High the private sector Revise and Complete the Legal Framework Lead Short-term Low Lead (for institutions under MRDPA Strengthen institutions at all levels mandate) Medium-term Average Support (Center of Government) Reform Financing Programs and Mechanisms Short / Medium- (including the establishment of a Lead High term National Housing Fund) 60 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Recent Progress 103. The MRDPA had access to a draft version of the criteria recommended by the World Bank team in time to rethink the design of the PNDL for 2015. With respect to the PNDL’s funding allocation by counties, by and large, the PNDL 2015 (as of August 2015) follows the World Bank proposals, with some notable exceptions.33 The key point is that the MRDPA still needs to adopt a clearly defined, transparent formula for allocating funds between counties. As for allocation by sectors, the 2015 split is closer to the Bank team’s proposals than in the previous year. The MRDPA has triaged communal road projects, with a focus on works with a high completion degree, based on interview data. Also, the program finances more social infrastructure projects (particularly new educational infrastructure projects). 104. The Bank team compared the 2015 PNDL portfolio with the priority lists resulting from the application of criteria proposed in this report. Of the PNDL projects financed in 2015, about 46% (worth about half of the total allocation) were also on the Bank’s list. But the program also financed 979 ”non-priority” projects (i.e., in the initial project portfolio of around 4,000 interventions there were other proposals that should have received funding before these 979 projects). Around 14% of PNDL 2015 represent investments in non-priority sectors, i.e., sectors that, in the opinion of the World Bank, should not be the focus of the PNDL. These include investments in tourism infrastructure, city hall buildings, communal markets, or other hard infrastructure for which it is difficult to devise clear prioritization criteria (e.g., investments in bridges and investments in local roads, usually determined on a case- by-case basis like in the aftermath of a flood). Finally, there are also 367 investments in the 2015 portfolio (roughly 15%) that should probably not be financed. These are typically water and wastewater projects inherited from previous investment programs and are either too small in scale (e.g., wastewater systems in localities with less than 2,000 people equivalent) or could be eligible for EU funds (e.g., Large Infrastructure OP). Table 6. Comparison of PNDL allocations by sector Technical Assistance Sector PNDL 2014 Allocation PNDL 2015 Allocation Proposal County Roads 14% 15% 10% Communal Roads 45% 25% 33% Water and Wastewater 35% 50% 35% Social Infrastructure 2% 10% 14% Other (e.g., city halls, tourism, 4% 0% 8% markets, bridges) TOTAL 100% 100% 100% Table 7. A breakdown of PNDL 2015 priority projects PNDL 2015 Allocation Investment Type Number Share Share (in RON) Priority investment according to World Bank 1,125 46.3% 523,492,716 50.0% Prioritization Non-priority investment according to World Bank 979 40.3% 392,883,433 37.5% Prioritization Investment in non-priority sectors 325 13.4% 130,752,151 12.5% TOTAL 2,429 100.0% 1,047,128,300 100.0% 33 For example, Botoșani and Cluj received significantly less funds than what was proposed by the Bank (around RON 11-12 million less). By contrast, counties like Bistrița-Năsăud, Constanța, and Iași received significantly more – around 11-16 million RON more. 61 What next? 105. It is important that for the 2016 financial exercise some of the lessons from the current exercise be internalized to enable enhanced coordination and harmonization of interventions – and, hence, higher development impact. Ideally, the PNDL should focus on finalizing a triaged version of the current project portfolio, with a particular attention paid to projects with a high priority score, while at the same time identifying potential solutions for the projects that should technically not be financed by the PNDL. For example, water and wastewater projects that could technically be covered by OP Large Infrastructure 2014-2020 should be funded from this OP. The same goes for county roads and social infrastructure that can be financed by the ROP 2014-2020. All this comes back to the need to improve coordination among investment programs and projects in Romania. The MRDPA has begun taking some steps in the right direction with the 2015 programming of the PNDL, but in truth a lot more can and should be done to promote effective coordination among investment programs and a more strategic project selection and prioritization process. 106. One positive recent development is the move to a multiannual PNDL, though there are serious limitations to the current framework. As explained earlier, a multiannual PNDL only solves part of the current challenges and, if followed through, may increase the predictability of disbursements from one year to the next. But the deeper issue of unsustainable project portfolios remains; there has been little rationalization of the current portfolio, and nowhere near where it should be in order to expect that projects would actually get finished in the set six-year timeline. Moreover, the new FIFO rule for disbursements may create adverse effects in terms of funding early-phase projects (as opposed to projects nearing completion, which should get priority). Key Success Factors 107. Keeping in mind the high stakes of sound public investment coordination and prioritization in Romania, the challenges of implementing the proposed reforms remain high. As noted throughout this report, investment needs at local and county levels far exceed available resources. This makes funding allocation schemes tough to design and implement based on objective and transparent criteria, particularly given a persistent mentality of ”asking from the center” often based on political and personal connections. But the good news is that this is starting to change with the availability of EU funds, which are truly ”a new way of doing business” for subnational and national authorities. They require clear and fair rules, rigorous implementation and monitoring, and a sharper focus on results and impact. 108. What are the main success factors for adopting the proposed reforms for harmonizing EU and state-funded investments? • Strong political will and commitment: Funding allocation decisions have inevitable political economy implications. Strong leadership at the Center of Government and at the MRDPA is needed to change the paradigm of how state-funded programs have worked for years, moving things toward the ”EU-funds model.” • Ownership: Related to the first point, public authorities should demonstrate ownership over the proposed measures – whether they decide to follow them entirely, in part, or in some adapted form. This is critical for ensuring that particularly measures that require patience and only deliver long-term results actually get implemented and are followed through. • Technical expertise and strong capacity: Some of the proposed action steps are complex for any country, and they are particularly tough to accomplish given current capacity constraints of Romania’s public administration. Reform programs like multiannual budgets, territorial contracts, a revamping of housing funds, etc. require access to specialized technical know- how and strong administrative capacity at all levels. • Transparency: This is fundamental to improve the current functioning of strategies, programs, and projects. It enables all stakeholders – including civil society groups – to monitor progress and call out deviations from the set course. A culture of transparency and data sharing takes time to build. 62 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Annex 1: Detailed Project Selection Grids and Criteria for PNDL Investments County Roads The first step is to decide on the allocation of resources for county road projects across different counties in Romania. This follows the current PNDL model in that each county receives a share of the total budgetary envelope for the program. The table below, however, proposes a significant improvement over the status quo by setting a clear, specific, and transparent formula, including criteria for allocation of funds. Table 8. Prioritization criteria for allocating funding between counties (for county roads) Proposed Measure Year Weight Relevance Indicator The way funds are allocated should be done mostly based on where the need is greatest. In this case, the greatest need was calculated Investments by identifying the counties with the largest network of dirt or gravel RON 2011 30% Needs county roads made – i.e., county roads requiring modernization. The investment needs for modernization work were evaluated using cost standards developed by the MRDPA. The total population of the county is another important prioritization Population Number 2011 20% criteria, as the rehabilitation of a county road network should take into consideration how many people will benefit from this investment. The LHDI was designed by Prof. Dumitru Sandu and indicates for Local Human each county the respective level of development. The less developed Development Value 2011 15% a county is, the more attention it should be given as it will likely have Index fewer resources for the development of critical infrastructure. The FSI was developed by Victor Giosan and Graham Glenday and it measures the prudent capital expenditure margin for a local authority. The FSI represents, in a simplified form, 30% of non-earmarked revenues over an implementation timeline (in this case 2014-2022, Financial 2014- which corresponds to the next EU programming period, including Sustainability Value 15% 2022 two years for finishing up investments started through 2020). The Index FSI is also meant as a counter-weight to the LHDI, as it shows the capacity of public authorities to cover operations and maintenance costs for completed infrastructure projects. Usually, the poorer public authorities have a weaker capacity to cover such costs. This is thought as a counterweight to population numbers, as there may Number of Number 2011 20% be counties with a high population, but with a low motorization rate, Motor Vehicles and counties with a smaller population but a higher motorization rate Once the funding is allocated between counties, the next step is to decide on which specific projects should receive financing. The following table includes a number of criteria for prioritizing and selecting investments in county roads. This model can be applied to both ongoing and new investments. Regarding the former, since the PNDL’s current project portfolio far exceeds available resources, the criteria noted below can also be deployed to sort through existing projects and reach a manageable portfolio size (by suspending, postponing, or canceling some investments). In addition, the completion rate of an individual project can and should be taken into account for decisions regarding which investments the PNDL will keep in its portfolio; the importance of this criterion in raking projects (i.e., % weight in final score) depends on the MRDPA’s preferences, as manager of the PNDL. As for new projects, these would only be approved and launched if there is sufficient room in the PNDL budgetary envelope once all ongoing projects are accounted for. This space must exist not only for the first year, but for all subsequent years, through the project’s completion. 63 Annex 1: Detailed Project Selection Grids and Criteria for PNDL Investments Table 9. Prioritization criteria for county road projects STEP 1 – Prioritization of all county roads within a county Prioritization Criteria Weight Relevance Connection to opportunities While the network of county roads is relatively large in • Connection to a growth pole (10 points) every county, some road links are more important than • Connection to a county residence (7 points) others. Of particular importance are those county roads • Connection to a city with more than 10,000 30% that improve accessibility to centers of opportunity – i.e., people (4 points) larger localities that provide jobs, education, healthcare, • Connection to a city with less than 10,000 culture, administrative services and act as engines for the people (1 point) local / county / regional / national economy. Connection to major trunk infrastructure • Connection to a highway proposed in the Connection to major trunk infrastructure enables overall Transport Masterplan (10 points) 20% accessibility to people living along the respective county • Connection to an express road proposed in the road. Transport Masterplan (7 points) • Connection to a national road (4 points) Traffic on the county road • More than 3,500 vehicles per day (10 points) The more travelled a county road is the more attention • 2,000 - 3,500 vehicles per day (7 points) 30% it should garner when it comes to rehabilitation / • 500 - 2,000 vehicles per day (4 points) modernization works. • Less than 500 vehicles per day (1 point) Number of people per km serviced by county road It is not enough to ease access to opportunities, it is • More than 450 people/km (10 points) important to do so for as many people as possible. County • 300 - 450 people/km (7 points) 20% roads that connect a larger population to a center of • 150 - 300 people/km (4 points) opportunity should receive a higher score. • Less than 150 people/km (1 point) STEP 2 – Identification of projects that could be financed from EU funds* Sub-step 2.1 Reasoning County roads that connect to the TEN-T network may be eligible for funding under the Regional Operational Programme 2014-2020, and Identify the county roads that connect to the applicants should first apply to the ROP, before attempting to apply for TEN-T network. PNDL funding. If the ROP application is not accepted for funding, applicants should provide an explanation of why it was not accepted. *Note: This step may be subject to change, based on the final Applicant’s Guide developed for the Regional Operational Programme 2014-2020. STEP 3 – Identify the road links that should receive PNDL funding Sub-step 3.1 Reasoning Using the priority list prepared under Step 1, and subtracting the county roads that may be eligible for EU funding, determine the length of the county road links defined as ”bad,” which could be financed from the county road allocation for the respective county. Available funds should be allocated with priority to the Funding will be given to the county roads that have received the road links that have been identified by the county councils highest score under Step 1, and which have a road link defined as as being ”bad.” It is the county councils that best know ”bad.” If the PNDL funding available to a county for county road which road links are in most need. The prioritization projects will suffice to modernize all road links defined as ”bad,” methodology described under Step 1 ensures that a unified Sub-step 3.2 will be undertaken. methodology is used nationally for allocating PNDL funds County councils have provided information on the state of the for ”bad” county road links. roads (i.e. ”good,” ”average,” ”bad”). According to GD 363/2010, the cost standard for the modernization of 1 km of county road is EUR 332,832. 64 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Sub-step 3.2 Reasoning If available funding for a particular county suffices to cover the modernization of all ”bad” county road links, the remaining funding can be used for the rehabilitation of ”average” county road links as follows: • Priority will be given to the county roads with the highest estimated score under Step 1, with the exception of the roads that may be eligible for EU funding. • Funding will be allocated with priority to dirt or gravel roads defined as ”average.” • If funds will remain after this allocation, remaining funds will be If ”bad” county road links can be covered with allocated allocated to ”average” county road links that have the following PNDL funds, the rest of available funds should go to coverage type: cement concrete; paved with setts; or, bituminous second priority road links identified by county councils as asphalt. being in an ”average” state. • Should funding be available even after this allocation, the remaining funds will be allocated to ”average” county road links that have been modernized already (i.e. they have an asphalt concrete coverage). County councils have provided information on the state of the roads (i.e. ”good,” ”average,” ”bad”) and on the surface coverage of county roads. According to GD 363/2010, the cost standard for the rehabilitation of 1 km of county road is EUR 273,855. An investment guide with the application of these prioritization criteria is delivered electronically together with this technical assistance. Communal Roads The first step is to decide on the allocation of resources for communal road projects across different counties in Romania. This follows the current PNDL model in that each county receives a share of the total budgetary envelope for the program. The table below, however, proposes a significant improvement over the status quo by setting a clear, specific, and transparent formula, including criteria for allocation of funds. Table 10. Prioritization criteria for allocating funding between counties (communal roads) Proposed Measure Year Weight Relevance Indicator The way funds are allocated should take into account where the need is greatest. In this case, the greatest need was calculated Investments by identifying the counties with the largest network of communal Euro 2011 40% Needs roads made of gravel and stone – i.e., communal roads requiring modernization. The investment needs for modernization work were evaluated using cost standards developed by the MRDPA. Communal roads primarily service people in rural areas and the larger Rural Number 2011 30% the rural population of a county, the more attention should paid to Population rehabilitation/ modernization of communal roads there. Local Human The LHDI was designed by Prof. Dumitru Sandu and indicates for Development each county the respective level of development. The less developed Value 2011 15% Index a county is, the more attention it should be given as it will likely have (LHDI) fewer resources for the development of critical infrastructure. 65 Annex 1: Detailed Project Selection Grids and Criteria for PNDL Investments Proposed Measure Year Weight Relevance Indicator The FSI was developed by Victor Giosan and Graham Glenday and it measures the prudent capital expenditure margin for a local authority. The FSI represents, in a simplified form, 30% of non-earmarked Financial revenues over an implementation timeline (in this case 2014-2022, Sustainability 2014- which corresponds to the next EU programming period, including Value 15% Index 2022 two years for finishing up investments started through 2020). The (FSI) FSI is also meant as a counter-weight to the LHDI, as it shows the capacity of public authorities to cover operations and maintenance costs for completed infrastructure projects. Usually, the poorer public authorities have a weaker capacity to cover such costs. Once the funding is allocated between counties, the next step is to decide on which specific projects should receive financing. The following table includes a number of criteria for prioritizing and selecting investments in communal roads. This model can be applied to both ongoing and new investments. Regarding the former, since the PNDL’s current project portfolio far exceeds available resources, the criteria noted below can also be deployed to sort through existing projects and reach a manageable portfolio size (by suspending, postponing, or canceling some investments). In addition, the completion rate of an individual project can and should be taken into account for decisions regarding which investments the PNDL will keep in its portfolio; the importance of this criterion in raking projects (i.e., % weight in final score) depends on the MRDPA’s preferences, as manager of the PNDL. As for new projects, these would only be approved and launched if there is sufficient room in the PNDL budgetary envelope once all ongoing projects are accounted for. This space must exist not only for the first year, but for all subsequent years, through the project’s completion. Table 11. Prioritization criteria for communal road projects at the county level STEP 1 – Elligibility Sub-step 1.1 Reasoning Finance communal road projects only in communes with more PNDL funds should target initially larger communes, where than 1,000 people a minimum of economies of scale can be achieved. STEP 2 – Identifying the TAUs that could receive PNDL 2014-2020 funding* Sub-step 2.1 Reasoning The communes that have a larger FSI, have a larger Propose for PNDL 2014-2020 funding the TAUs that have an FSI budget capacity, and a higher administrative capacity larger than EUR 4 million. required for writing a PNDL application. Moreover, smaller Focus only on communal road projects of less than 5 kilometers. infrastructure projects require lower operation and According to GD 363/2010, the standard cost for the maintenance costs, and they allow more communes to modernization of 1 km of communal road is EUR 193,506. benefit from investments in their communal roads. *Note: This step may be subject to change, based on the final Applicant’s Guide developed for the PNDL 2014-2020. An investment guide with the application of these prioritization criteria is delivered electronically together with this technical assistance. 66 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Water and Wastewater Systems The first step is to decide on the allocation of resources for water and wastewater projects across different regions in Romania (in most cases, these ”regions” covered by Regional Water Operators cover only one county). This follows the current PNDL model in that each county receives a share of the total budgetary envelope for the program. The tables below, however, propose a significant improvement over the status quo by setting a clear, specific, and transparent formula, including criteria for allocation of funds. Table 12. Prioritization criteria for allocating funding between regions (for water projects) Proposed Measure Year Weight Relevance Indicator Investment needs were calculated from the regional masterplans and they took the existing commitments for SOP Environment 2007-2013, Investment Euro 2014+ 40% PNDL, PNDR, and for the Environment Fund into consideration. This Needs is the most important indicator, as it shows how much there is left to invest in the sector. People without The more people are without access to piped water in the particular access to Number 2011 15% region, the higher the need for investments in the sector. piped water In accordance with the Territorial Development Strategy of Romania, a LHDI Value 2011 15% priority should be given to providing key basic infrastructure in lagging regions. This measure is designed as a counterweight to the LHDI. Whenever a local authority is investing in water infrastructure, especially if it will FSI Value 2011 15% not cede the operation and management to the regional operator, it is good to check whether it will have the financial capacity to operate and maintain the investment. Water tariff Priority should be given to the regions where the water tariff does / Average not represent a substantial share of the average monthly income. The Affordability monthly 2011 15% more affordable the service is the more likely are people to connect to income in the the service. region Table 13. Prioritization criteria for allocating funding between regions (wastewater projects) Proposed Measure Year Weight Relevance Indicator Investment needs were calculated from the regional masterplans and they took the existing commitments for SOP Environment 2007-2013, Investment Euro 2014+ 40% PNDL, PNDR, and for the Environment Fund into consideration. This Needs is the most important indicator, as it shows how much there is left to invest in the sector. People without access to The more people are without access to sewage in the particular Number 2011 15% a sewage region, the higher the need for investments in the sector. system In accordance with the Territorial Development Strategy of Romania, a LHDI Value 2011 15% priority should be given to providing key basic infrastructure in lagging regions. This measure is designed as a counterweight to the LHDI. Whenever a local authority is investing in water infrastructure, especially if it will FSI Value 2011 15% not cede the operation and management to the regional operator, it is good to check whether it will have the financial capacity to operate and maintain the investment. 67 Annex 1: Detailed Project Selection Grids and Criteria for PNDL Investments Proposed Measure Year Weight Relevance Indicator Water tariff A priority should be given to the regions where the wastewater tariff / Average does not represent a substantial share of the average monthly income. Affordability monthly 2011 15% The more affordable the service is the more likely are people to income in the connect to the service. region Once the funding is allocated between counties/”regions,” the next step is to decide which specific projects should receive financing. The following tables include a number of criteria for prioritizing and selecting investments in water and wastewater, respectively. This model can be applied to both ongoing and new investments. Regarding the former, since the PNDL’s current project portfolio far exceeds available resources, the criteria noted below can also be deployed to sort through existing projects and reach a manageable portfolio size (by suspending, postponing, or canceling some investments). In addition, the completion rate of an individual project can and should be taken into account for decisions regarding which investments the PNDL will keep in its portfolio; the importance of this criterion in raking projects (i.e., % weight in final score) depends on the MRDPA’s preferences, as manager of the PNDL. As for new projects, these would only be approved and launched if there is sufficient room in the PNDL budgetary envelope once all ongoing projects are accounted for. This space must exist not only for the first year, but for all subsequent years, through the project’s completion. Table 14. Prioritization criteria for water projects by locality STEP 1 – Eligibility Sub-step Reasoning According to the EU Water Acquis, it is only these localities that should be Identify all localities at the water region level with prioritized for investments in water infrastructure. Investments for smaller more than 50 people localities are not considered a priority. STEP 2 – Coordination with EU funded projects Sub-step Reasoning Identify localities financed under LI OP 2014-2020, This allows the charting of all ongoing or proposed investments in the as well as localities with ongoing investments sector, and ensures that PNDL funds will go to completing started PNDL under SOP Environment 2007-2013, PNDL, PNDR, water investments or go to starting new investments in areas not yet and the Environment Fund covered by other investment programs. STEP 3 – Prioritization of water investments Prioritization Criteria Weight Reasoning Population in locality without access to piped water • More than 2,000 people (10 points) Localities with a higher number of unserved people should 35% • 1,000 - 2,000 people (7 points) receive a higher priority. • 500 - 1,000 people (4 points) • Less than 500 people (1 point) Level of development of locality as measured by the Local Human Development Index Priority should be given to less developed localities, which • Poor locality (10 points) 15% lack the resources to undertake needed investments in the • Low-med locality (7 points) sector. • Hi-med locality (4 points) • Developed locality (1 point) Financial Sustainability as measured by the FSI • > 2,500,000 Euro (10 points) The capacity of the locality to potentially cover operations • 1,500,000 – 2,500,000 (7 points) 15% and maintenance costs should be factored in. • 1,000,000 – 1,500,000 (4 points) • < 1,000,000 (1 point) 68 Harmonizing State and EU Funded Projects in Regions | Final Synthesis STEP 3 – Prioritization of water investments (continuing) Ideally, investments in water should only focus on localities Locality is part of a regional system within the that are part of the masterplan, as these were identified water masterplan as the target places for achieving the EU Acquis. Also, the 35% • Yes (10 points) masterplans already presuppose a prioritization process • No (4 points) of investments, including an analysis of affordability of the service and the capacity of end-users to pay for the service. Table 15. Prioritization criteria for wastewater projects by agglomerations STEP 1 – Eligibility Sub-step Reasoning According to the EU Water Acquis, it is only these localities that should be Identify all agglomerations at the water region prioritized for investments in wastewater infrastructure. Investments for level with more than 2,000 people equivalent smaller localities are not considered a priority STEP 2 – Coordination with EU funded projects Sub-step Reasoning Identify agglomerations financed under LI OP This allows the charting of all ongoing or proposed investments in the 2014-2020, as well as localities with ongoing sector, and ensures that PNDL funds will go to completing started PNDL investments under SOP Environment 2007-2013, wastewater investment or to starting new investments in areas not yet PNDL, PNDR, and the Environment Fund covered by other investment programs STEP 3 – Prioritization of wastewater investments Prioritization Criteria Weight Reasoning Helping achieve a better quality of water bodies • Waterbodies in moderate, poor, or bad state OR This measure can help achieve the EU Water Framework with good ecological potential (10 points) 10% Directive, while at the same time meeting targets for the • Waterbodies in good or very good state OR with Wastewater Directive. moderate ecological potential (4 points) Population in locality without access to piped water • More than 3,000 people (10 points) Localities with a higher number of unserved people should 30% • 2,000 - 3,000 people (7 points) receive a higher priority. • 1,000 - 2,000 people (4 points) • Less than 1,000 people (1 point) Level of development of locality as measured by the Local Human Development Index Priority should be given to less developed localities, which • Poor locality (10 points) 15% lack the resources to undertake needed investments in the • Low-med locality (7 points) sector. • Hi-med locality (4 points) • Developed locality (1 point) Financial Sustainability as measured by the FSI • > 2,500,000 Euro (10 points) The capacity of the locality to potentially cover operations • 1,500,000 – 2,500,000 (7 points) 15% and maintenance costs should be factored in. • 1,000,000 – 1,500,000 (4 points) • < 1,000,000 (1 point) Ideally, investments in wastewater should only focus on localities that are part of the masterplan, as these Locality is part of a regional system within the were identified as the target places for achieving the water masterplan 30% EU Acquis. Also, the masterplans already presuppose a • Yes (10 points) prioritization process of investments, including an analysis • No (4 points) of affordability of the service and the capacity of end- users to pay for the service. An atlas with the application of these prioritization criteria is delivered electronically together with this technical assistance. 69 Annex 1: Detailed Project Selection Grids and Criteria for PNDL Investments Social Infrastructure The first step is to decide on the allocation of resources for different types of social infrastructure across different counties in Romania. This follows the current PNDL model in that each county receives a share of the total budgetary envelope for the program. The tables below, however, propose a significant improvement over the status quo by setting a clear, specific, and transparent formula, including criteria for allocation of funds. Table 16. Prioritization criteria for allocating funding between counties (educational infrastructure) Measure Time Specific Proposed Indicator Relevance unit period weight Share of pre- and school- aged Indicates the availability of a critical mass of beneficiaries for the population (3-18 % 2011 40% educational structure. It is mainly an efficiency indicator, orienting the years) in total investments to the counties with the highest number of pupils. population One of the causes of the early-school leaving phenomenon, besides The early school the socio-economic issues, is the poor access to school infrastructure. % 2011 10% leaving rate Thus, investments should be oriented towards the peripheral settlements with limited access to quality educational services. Poverty is strongly correlated with poor education and early-school leaving. Investments in educational services should target poor LHDI Value 2011 15% communities with limited resources and social issues. In accordance with the Territorial Development Strategy of Romania, a priority should be given to providing key basic infrastructure in lagging regions. This measure is designed as a counterweight to the LHDI. Whenever a 2014- local authority is investing in social infrastructure it is good to check FSI Value 15% 2022 whether it will have the financial capacity to operate and maintain the investment. Access to educational IT&C infrastructure is an indicator for the Number of PCs / quality of life and also for the quality of education (endowment of Number 2013 10% 1,000 pupils education facilities). Poor and remote areas are generally confronted with poor access to IT&C tools, both in households and schools. Number of sports The obesity phenomenon among pupils has grown in the last years fields / 1,000 Number 2013 10% and schools should provide proper sports facilities to improve their pupils physical condition. Table 17. Prioritization criteria for allocating funding between counties (health infrastructure) Measure Time Specific Proposed Indicator Relevance unit period weight Indicates the accessibility of people to quality health services. Number Life expectancy 2013 10% Developed counties are characterized by a high level of life quality as of years suggested by life expectancy. Number of Indicates the accessibility to primary medical services. The provision inhabitants / Number 2013 30% of a sufficient number of physicians generally ensures lower morbidity physician rates and higher life expectancy. Indicates the accessibility to specialized medical services. The Number of hospital availability of complex emergency and specialized services, such as beds / 100,000 Number 2013 10% the ones offered by hospitals, generally suggests a better quality of life inhabitants for citizens. Share of Indicates the level of demand for health services that is directly population over 65 % 2011 20% correlated with the population’s median age. in total population 70 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Measure Time Specific Proposed Indicator Relevance unit period weight Number of Indicates the accessibility to pharmaceutical drugs. The access inhabitants / Number 2013 30% to pharmacies generally ensures a better health condition for the pharmacy population. Table 18. Prioritization criteria for allocating funding between counties (cultural infrastructure) Proposed indicator Measure Year Weight Relevance The lack of museums in many cities and villages is a barrier in Number of developing a strong cultural and touristic local offer. Investments in Number 2013 10% museums such cultural units should target the most deprived areas in terms of museum and exhibition infrastructure. Tourism and culture are often interlinked. The already existing tourist Number of tourists Number 2013 40% poles should be supported by investments in cultural infrastructure, in hosted order to exploit their full potential and prolong tourist stays. Number of seats The availability of art performing venues is an indicator of the quality in art performing Number 2013 10% of life. Investments in such facilities should target those settlements, institutions / especially urban ones, which have no/fewer such institutions. companies Public libraries offer basic cultural services that should be available to Number of public Number 2013 10% all citizens, regardless of their residence. Thus, investments in such libraries units should be oriented towards the most cultural deprived areas. Investments in cultural infrastructure should target poor communities LHDI Value 2011 15% with limited resources for such investments. This measure is designed as a counterweight to the LHDI. Whenever a 2014- local authority is investing in social infrastructure it is good to check FSI Value 15% 2022 whether it will have the financial capacity to operate and maintain the investment. Table 19. Prioritization criteria for allocating funding between counties (sports infrastructure) Proposed indicator Measure Year Weight Relevance Share of young Youngsters represent the largest share of sports facilities users. The population (5-29) % 2011 40% indicator reflects the availability of a critical mass of end users for in total population sports infrastructure. Number of sports The number of clubs is a relevant indicator of the citizens’ interest in Number 2013 10% clubs sports, indicating also a high demand for better sport facilities. Number of registered This number of registered sportsmen/sportswomen is also relevant Number 2013 20% sportsmen and for evaluating the demand for sports infrastructure at local level. sportswomen Investments in sports infrastructure should target poor communities LHDI Value 2011 15% with limited resources for such investments. This measure is designed as a counterweight to the LHDI. Whenever a 2014- local authority is investing in social infrastructure it is good to check FSI Value 15% 2022 whether it will have the financial capacity to operate and maintain the investment. 109. Once the funding is allocated between counties, the next step is to decide which localities should receive financing within each category of social infrastructure (i.e., education, health, etc.). The following tables include a number of criteria for prioritizing and selecting investments in these various types of social infrastructure. This model can be applied to both ongoing and new investments. Regarding the former, since the PNDL’s current project portfolio far exceeds available resources, the criteria noted below can also be deployed to sort through existing projects and reach a manageable portfolio size (by suspending, postponing, or canceling some investments). In addition, 71 Annex 1: Detailed Project Selection Grids and Criteria for PNDL Investments the completion rate of an individual project can and should be taken into account for decisions regarding which investments the PNDL will keep in its portfolio; the importance of this criterion in raking projects (i.e., % weight in final score) depends on the MRDPA’s preferences, as manager of the PNDL. As for new projects, these would only be approved and launched if there is sufficient room in the PNDL budgetary envelope once all ongoing projects are accounted for. This space must exist not only for the first year, but for all subsequent years, through the project’s completion. Table 20. Prioritization criteria for educational infrastructure projects by territorial administrative unit (TAU) STEP 1 – Identifying the TAUs that should receive priority funding for educational infrastructure projects Proposed Indicator Measure Year Weight Relevance Number of school Indicates the sustainability of educational investments. The existence aged (6-18) / pre- Number 2011 30% of a critical mass of children and pupils ensure the efficiency and school aged (3-6) improves the impact of public spending. population Share of population with It is a measure for the likelihood that the educational infrastructure % 2011 10% pre-university will be used. education Indicates the provision of sufficient educational infrastructure for Average no of the school population. A high number of pupils/classroom generally children/pupils / Number 2013 10% indicates the need for additional investments in extending the existing classroom infrastructure. The level of socio-economic development is strongly correlated with LHDI Value 2013 15% quality of cultural services. Investments in cultural services should target less developed communities with limited resources. The FSI is designed as a counterweight to the LHDI and measures 2014- FSI Value 15% the capacity of the public authorities to operate and maintain the 2020 infrastructure investment once it has been finalized. The access to educational IT&C infrastructure is an indicator for the Number of PCs / quality of life and of the schools endowment (quality of education). Number 2013 10% 1,000 pupils Poor and remote areas are generally confronted with poor access to IT&C tools, both in households and schools. Number of sports The obesity phenomenon among pupils has grown in the last years fields / 1,000 Number 2013 10% and schools should provide proper sports facilities to improve their pupils physical condition. STEP 2 – Coordination with EU funded projects* Sub-step Reasoning The communes that have a larger FSI, have a larger budget capacity, and a higher administrative capacity required for writing a PNDR or a ROP application, and required for writing more complex and higher Propose for PNDR 2014-2020 or POR 2014-2020 value integrated development projects (which are eligible under PNDR). funding the TAUs that have an FSI larger than EUR 4 Moreover, smaller infrastructure projects require lower operation and million. maintenance costs, and they allow more communes to benefit from Focus only on education infrastructure projects of less investments in their communal roads. than EUR 500,000. EUR 500,000 is the upper threshold set in the draft PNDR 2014- 2020 programmatic document, and it should be used by PNDL too, to ensure a coordinated approach. *Note: This step may be subject to change, based on the final Applicant’s Guide developed for the Regional Operational Programme 2014-2020 and the PNDR 2014-2020. 72 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Table 21. Prioritization criteria for health infrastructure projects by territorial administrative unit (TAU) STEP 1 – Identifying the TAUs that should receive priority funding for health infrastructure projects Proposed Indicator Measure Year Weight Relevance Share of Indicates the level of demand for health services, that is directly population over 65 % 2011 20% correlated with the population’s median age. in total population Number of Indicates the accessibility to primary medical services. The provision inhabitants / Number 2013 20% of a sufficient number of physicians generally ensures lower morbidity physician rates and higher life expectancy. Number of Indicates the accessibility to pharmaceutical drugs. The access inhabitants / Number 2013 20% to pharmacies generally ensures a better health condition for the pharmacy population. Indicates the accessibility to specialized medical services. The Distance to the Kilo- availability of complex emergency and specialized services, such as 2013 20% closest hospital meter the ones offered by hospitals, generally suggests a better quality of life for citizens. The average mortality rate is an indicator directly influenced by the Average mortality 2009- average age and the quality of medical services. Higher mortality rates / infant mortality ‰ 20% 2013 indicate both an unfavorable age structure and the need for improved rate medical services. STEP 2 – Coordination with EU funded projects* Sub-step Reasoning The communes that have a larger FSI, have a larger budget capacity, and a higher administrative capacity required for writing a PNDR or a ROP application, and required for writing more complex and higher Propose for PNDR 2014-2020 or POR 2014-2020 value integrated development projects (which are eligible under PNDR). funding the TAUs that have an FSI larger than EUR 4 Moreover, smaller infrastructure projects require lower operation and million. maintenance costs, and they allow more communes to benefit from Focus only on health infrastructure projects of less than investments in their communal roads. EUR 500,000. EUR 500,000 is the upper threshold set in the draft PNDR 2014- 2020 programmatic document, and it should be used by PNDL too, to ensure a coordinated approach. *Note: This step may be subject to change, based on the final Applicant’s Guide developed for the Regional Operational Programme 2014-2020 and the PNDR 2014-2020. Table 22. Prioritization criteria for cultural infrastructure projects by territorial administrative unit (TAU) STEP 1 – Identifying the TAUs that should receive priority funding for health infrastructure projects Proposed Indicator Measure Year Weight Relevance It indicates the settlement’s touristic attractiveness, considering that culture and tourism are strongly correlated. The existing touristic Average number of 2009- Number 30% poles require additional investments in cultural infrastructure and tourists 2013 events, in /order to improve their offer to visitors and to improve their competitiveness. Average number It indicates the cultural attractiveness of the settlements. Such 2009- of visitors in Number 20% investments should target the cultural poles, by exploiting their 2013 museums existing potential. Average number It signals the level of cultural services’ provision. More performances 2009- of organized Number 10% indicate the existence of a strong demand for cultural events that 2013 performances should be supported by investments in infrastructure. Average number of 2011- The indicator reveals the level of the cultural demand at local level, active readers in Number 10% 2013 orienting the investments in an efficient way. public libraries 73 Annex 1: Detailed Project Selection Grids and Criteria for PNDL Investments STEP 1 – Identifying the TAUs that should receive priority funding for health infrastructure projects Proposed Indicator Measure Year Weight Relevance The level of socio-economic development is strongly correlated with quality of educational services. Investments in educational services LHDI Value 2013 15% should target less developed communities with limited resources and social issues. The FSI is designed as a counterweight to the LHDI and measures 2014- FSI Value 15% the capacity of the public authorities to operate and maintain the 2020 infrastructure investment once it has been finalized. STEP 2 – Coordination with EU funded projects* Sub-step Reasoning The communes that have a larger FSI, have a larger budget capacity, and a higher administrative capacity required for writing a PNDR or a ROP application, and required for writing more complex and higher value integrated development projects (which are eligible under PNDR). Propose for PNDR 2014-2020 or POR 2014-2020 Moreover, smaller infrastructure projects require lower operation and funding the TAUs that have an FSI larger than EUR 4 maintenance costs, and they allow more communes to benefit from million. investments in their communal roads. Focus only on cultural infrastructure projects of less EUR 1,000,000 is the upper threshold set in the draft PNDR 2014- than EUR 1,000,000. If Class A cultural heritage sites 2020 programmatic document, and it should be used by PNDL too, to are financed, focus only on Class B sites. ensure a coordinated approach. The ROP focuses on Class A cultural heritage sites in urban and rural areas, and on Class B cultural heritage sites in urban areas. The PNDR focuses on Class B cultural heritage sites in rural areas, and so should the PNDL to ensure a coordinated approach. *Note: This step may be subject to change, based on the final Applicant’s Guide developed for the Regional Operational Programme 2014-2020 and the PNDR 2014-2020. Table 23. Prioritization criteria for sports infrastructure projects by territorial administrative unit (TAU) STEP 1 – Identifying the TAUs that should receive priority funding for sports infrastructure projects Proposed Indicator Measure Year Weight Relevance Share of young Youngsters represent the largest share of sports facilities users. The population (5-29) % 2011 40% indicator reflects the availability of a critical mass of end users for in total population sports infrastructure. Number of sports The indicator is relevant for evaluating the quantitative availability of rooms / 1,000 Number 2013 15% sports facilities at local level. Investments of such kind should target inhabitants the most deprived areas in terms of sports facilities. Number of sports The indicator is relevant for evaluating the quantitative availability of fields / 1,000 Number 2013 15% sports facilities at local level. Investments of such kind should target inhabitants the most deprived areas in terms of sports facilities. The level of socio-economic development is strongly correlated with LHDI Value 2013 15% quality of sports services. Investments in sports services should target less developed communities with limited resources and social issues. The FSI is designed as a counterweight to the LHDI and measures 2014- FSI Value 15% the capacity of the public authorities to operate and maintain the 2020 infrastructure investment once it has been finalized. STEP 2 – Eligibility Sub-step Reasoning This is in accordance with the cost standards included in GD Focus only on sports infrastructure projects of less than 363/2010. No EU funded operational programmes proposes the EUR 665,720 funding of sports infrastructure in rural areas. An atlas with the application of these prioritization criteria is delivered electronically together with this technical assistance. 74 Harmonizing State and EU Funded Projects in Regions | Final Synthesis Annex 2: Knowledge Exchange and Dissemination Workshops The World Bank teams organized a total of 24 knowledge dissemination workshops across the country to present to nearly 700 public investment beneficiaries and other relevant stakeholders the key findings and recommendations covering the four components of the project. Eight seminars were organized in September and October 2015 in all eight regions in Romania to present and discuss the main solutions for better prioritizing public investments and applying appropriate coordination mechanisms among strategies and different programs financed from the state budget and EU funds (Component 1). During a number of four seminars organized in October 2015 in the South West, North West, North East, and București-Ilfov regions, the World Bank experts presented and discussed the key findings and proposals following the assessment of the project portfolio of the National Local Development Program - PNDL (Component 2). In addition, two workshops organized in October tackled the innovative designs and technologies for public infrastructure investments (Component 3), while a couple of seminars held during the summer presented the main proposals on how to improve housing conditions in Romania (Component 4). Below is the full list of workshops, including location, date, theme, and number of participants. No. of Number of Location Date Theme/Component events participants Coordination of Strategies and Programs for EU and State- Funded Investments in Romania’s Infrastructure (Component September Călărași 2 1), and Sustainable development, inclusive development, and the 56 10, 2015 identification of mechanisms for preparing projects for EU funding (Component 2) Coordination of Strategies and Programs for EU and State- Funded Investments in Romania’s Infrastructure (Component September Bucharest 2 1), and Sustainable development, inclusive development, and the 28 14, 2015 identification of mechanisms for preparing projects for EU funding (Component 2) Coordination of Strategies and Programs for EU and State- Funded Investments in Romania’s Infrastructure (Component September Brăila 2 1), and Sustainable development, inclusive development, and the 66 16, 2015 identification of mechanisms for preparing projects for EU funding (Component 2) Coordination of Strategies and Programs for EU and State- Funded Investments in Romania’s Infrastructure (Component September Craiova 2 1), and Sustainable development, inclusive development, and the 47 17, 2015 identification of mechanisms for preparing projects for EU funding (Component 2) Coordination of Strategies and Programs for EU and State- Funded Investments in Romania’s Infrastructure (Component October 6, Alba Iulia 2 1), and Sustainable development, inclusive development, and the 65 2015 identification of mechanisms for preparing projects for EU funding (Component 2) Coordination of Strategies and Programs for EU and State- Funded Investments in Romania’s Infrastructure (Component October 8, Cluj Napoca 2 1), and Sustainable development, inclusive development, and the 82 2015 identification of mechanisms for preparing projects for EU funding (Component 2) 75 Annex 2: Knowledge Exchange and Dissemination Workshops No. of Number of Location Date Theme/Component events participants Coordination of Strategies and Programs for EU and State- Funded Investments in Romania’s Infrastructure (Component October 13, Timișoara 2 1), and Sustainable development, inclusive development, and the 43 2015 identification of mechanisms for preparing projects for EU funding (Component 2) Coordination of Strategies and Programs for EU and State- Funded Investments in Romania’s Infrastructure (Component October 15, Piatra Neamț 2 1), and Sustainable development, inclusive development, and the 38 2015 identification of mechanisms for preparing projects for EU funding (Component 2) October 15, Bucharest 1 Assessment of the PNDL project portfolio (Component 2) 16 2015 October 19, Caransebeș 1 Assessment of the PNDL project portfolio (Component 2) 9 2015 October 21, Baia Mare 1 Assessment of the PNDL project portfolio (Component 2) 38 2015 October 23, Piatra Neamț 1 Assessment of the PNDL project portfolio (Component 2) 33 2015 October 12, Efficient and Innovative Designs and Technologies for Public Bucharest 1 22 2015 Infrastructure Investments in Romania (Component 3) October 13, Efficient and Innovative Designs and Technologies for Public Bucharest 1 19 2015 Infrastructure Investments in Romania (Component 3) July 24, Bucharest 1 Housing in Romania (Component 4) 45 2015 July 28, Bucharest 1 Housing in Romania (Component 4) 55 2015 76