K-143 Municipalization Model (FULL document ENG)

Coalition 143 (K-143)

MUNICIPALIZATION: A POPULAR GOVERNANCE MODEL FOR

BOSNIA AND HERZEGOVINA

REVISED MODEL

DRAFTED FEBRUARY 2010

REVISED JANUARY 2011 AND MAY 2013

PRESENTED JUNE 2014

K-143 Municipalization Model

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TABLE OF CONTENTS

Executive Summary Page 4

Introduction and Background Page 9

I. BiH’s International Obligations and Aspirations Page 12

II. Local Self-Governance in Europe Page 18

III. Brčko District: A Domestic Example of Local Self-Government Page 20

IV. Why Municipalization? Page 22

V. The Municipalization Model Page 26

Guiding principles, methodological approach Page 26

1) Division of Functions Page 27

2) Governing Institutions Page 28

3) Regional Spatial and Strategic Development Councils Page 36

4) Ethnic Protection Mechanisms Page 37

5) Revenue Sources for State and Municipal Governance Page 43

VI. Financial Analysis – Jasmina Đikić, Tony Levitas Page 44

Fiscal implications of consolidating BiH’s governance structure Page 44

Methodological notes Page 70

Problems and inconsistencies Page 78

ANNEX I: Chart Showing the Distribution of Competences Page 82

between Municipalities and the State

ANNEX II: Number of Seats in K-143 Model Parliamentary Assembly Page 84

ANNEX III: European Examples of State-Local Allocations of Competences Page 89

ANNEX IV: Brčko District: BiH’s Most Developed Example of Local Self-Government Page 101

Bibliography Page 105


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Brief History of Model and Co-Author Biographies Page 108


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Executive Summary

Reform in Bosnia and Herzegovina (BiH) has hit a dead-end. Its top-heavy governance costs its

citizens dearly, while senior politicians are insulated from the fate of their constituents. They

have no interest in being agents of change, despite EU incentives.

The Council of Europe, the EU and NATO have all stated that constitutional reform is necessary

for BiH to integrate fully in to the latter two organizations. BiH is already not compliant with the

requirements of the Council of Europe and OSCE, a fact pointedly made in the December 2009

ruling by the European Court of Human Rights finding that BiH’s Dayton constitution and

election law are discriminatory in their provisions for election to the Presidency and House of

Peoples, and must change.

Municipalization – a BiH governance structure with only municipal and decentralized state

government – would address both the functionality and accountability failings of the current

system. Unlike any other constitutional reform proposal brought up since Dayton, this state

model is the first one that holds real potential for change and popular buy-in.

Dayton Bosnia’s dysfunctionality is rooted in the fact that it has been built bottom up from an

uneven and ethnicized middle layer of government (entities, cantons). Constitutional reform

proposals have addressed the problem from two directions. The first approach has been to

territorially reorganize the middle layer through regionalization of Bosnia. The second has been

to incrementally change state institutions and/or institutional mechanisms (the 2006 “April

package,” the “Butmir process”). Both approaches had to fail. Regionalization would provoke

conflict around the territorialization of ethnicity. Institutional reform does not solve the basic

problem of the dominant political tradition of undermining state institutions from within based

on the ethnic ticket, a process that has led to internal ethnic division of state institutions and

opens space for systemic corruption.

Municipalization can solve both problems. It does not draw new borders, but builds on the

existing (municipal) ones and it builds the state from the local level bottom-up, the only level at

which strong ethnic affiliation and the de facto, but not formal, institutionalization of ethnicity

guarantee a substantial amount of social trust and do not neutralize popular demands for

citizen participation and accountability of government.

We have developed such a state model by linking this original idea with Bosnia-Herzegovina’s

international obligations for Euro-Atlantic integration and the country’s recent and historical


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experience and tradition of local self-governance. It made use of the experience of many other

European states with decentralization, drawing special attention to Scandinavian countries and

the transformation experiences of post-socialist East European states. In addition, it drew upon

the unique example of Bosnia’s Brčko District as a guidepost to the sorts of competences

municipalities can handle if sufficiently empowered and resourced.

This uniquely decentralized two-layer state structure is based on several guiding principles:

• removal of the middle layer and transfer of as many competencies as possible to the

local and as many as necessary to the state level;

• clear-cut division of competencies and clear mechanism of decision-making between the

government layers, creating a state that is not vested in old-fashioned “centralism,” but

functions in a modern way with a strong emphasis on harmonization, standardization

and oversight

• leaving as many institutional forms as possible intact and only changing their substance;

• transforming the existing declared ethnic protection mechanisms into real functional

protection mechanisms by introducing the reality principle into the state structure,

which means to institutionally address the basic fears of all ethnic groups, but build the

state based on today’s reality and not based on national narratives tied to the past.

Such a system would serve the citizens of BiH far better than the current structure, compelling

politicians to be genuinely representative at both levels, allowing for superior and more

equitable public services, and enabling the rationalization of a bloated public sector. The shift

would also allow for long overdue reforms of social services and veterans’ benefits to take place

that have long been stymied in the current system.

Proposed Governance Model:

Division of functions:

Municipalities would gain exclusive competences currently held at cantonal and entity levels in

a number of areas like education (through the secondary level) and culture, maintaining its role

in direct service provision to citizens with greater resource and staffing to fulfill these

responsibilities. Municipalities would gain substantial additional competencies in a wide range

of other areas (health care, civil protection, environmental protection, spatial planning,

transport, tourism, trade and industry, etc) in which it would share responsibility with the state.

Supervision of these competences to ensure legal compliance would be done by the relevant

state ministries. Many competences would be best served by cooperation agreements with

neighboring municipalities.


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The State would gain exclusive competences currently held at entity and cantonal levels,

including: policing and justice (though maintaining the 16 current police and judicial units, and

including a new Supreme Court), internal security, agriculture/forestry/fisheries, hospitals,

higher education, finance and banking supervision. It would also gain additional revenue by

assuming the middle layers’ income tax authority.

Governance Structures:

Municipal Level: Local governments would maintain similar structures to those in operation

now, with directly-elected mayors and larger municipal councils and administrations. Sub-

municipal governance would be strengthened by giving the Mjesne Zajednice more authority

and certain autonomy. Where existing, city municipalities would lose their status as units of

local self-government. Financial audit mechanisms would be substantially strengthened and its

autonomy guaranteed.

Forms of voluntary cooperation would play a crucial role in securing the efficient management

of the large number of functions that fall under local competence, especially the pooling of

functions by several municipalities through the creation of collective, single-task organizations.

A specific role would be played here by the Regional Spatial and Strategic Development

Councils that would turn national spatial planning into a bottom-up process and provide for

access to large EU structural funds.

State Level: The state would comprise a government with a strong prime minister and a strong

parliament. There would also be a single President, elected indirectly in the Parliamentary

Assembly, by a three-fifths majority. This office would have purely representational functions.

This model proposes a unicameral BiH Parliamentary Assembly, which is radically different from

the current structure. It foresees a strong linkage of parliament to the local level and thus to

the citizens and to remove the ethnic protection function from the legislative by disassociating

the existing body (House/Council of Peoples) from parliament.

The unicameral parliamentary assembly would consist only of a House of Representatives

directly elected from the 143 municipal districts, with additional representatives for

municipalities with more than 50,000 inhabitants (in increments of 50,000). Based on the

preliminary municipal population figures from the 2013 census (which will likely be revised

down in 2015), this would yield a House of 169 Representatives. The citizens residing in the


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municipalities in the current Republika Srpska would seat 44% of the assembly, citizens residing

in the present Federation would seat 55%, and Brčko would have two seats, or roughly 1%. The

House would have sole legislative authority for all state competences. We have also calculated

the number of seats which would be allocated per municipality if the threshold for additional

seats was set at 40,000 or 30,000 inhabitants (see Annex II). Those thresholds would create a

House of Representatives composed of 184 or 213 seats, respectively.

Ethnic protection mechanisms:

The proposed state model includes a number of ethnic protection mechanisms that transform

the current system in order to institutionalize ethnicity into the state structure in a way that

does not impede state functionality. It aims to transform the current system of territorialized

ethnic “protection mechanisms” that enable groups and individuals to realize their private

interests through the political system by declaring to act on behalf of “ethnic interests” without

being forced to explain what these ethnic interests are and what they aren’t into real functional

ethnic protection mechanisms.

The governance model contains crucial protection mechanisms that are strong even without

being institutionalized: the decentralized state system is built upon a municipal level that is

dominated by one ethnic group in most localities in post-war Bosnia. The model includes the

establishment of strong institutional mechanisms that will lead to at least a substantial

weakening of local and regional disparities and underdevelopment.

Besides these indirect ethnic protection mechanisms, the proposed model offers a number of

direct ethnic protection mechanisms:

Council of Peoples:

Councils of Peoples will be established both at the state and the municipal level. Unlike the

current entity Council/Chamber they will consist of four equal caucuses of five councilors from

the three “constituent peoples” and “Others and national minorities.” They will be directly

elected, thus differentiated from the legislature and from political parties. They will ensure that

none of the – clearly and constitutionally defined – Vital National Interests are violated by

having the ability to veto legislation.

At the municipal level, Councils for Inter-Community Relations would take the lead role in

mediating between local institutions to prevent potential ethnic conflicts. When unsuccessful,

citizens will have the right of legal remedy through the Constitutional Court’ VNI chamber. The

state Council of Peoples would perform a parallel function, negotiating with the Parliamentary


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Assembly on legislation that members determine would threaten a Vital National Interest of a

recognized constituency. When harmonization proves unsuccessful, the CoP would have the

right of appeal to the Constitutional Court, which will deliver a final ruling.

Proportionate ethnic representation on state level in the distribution of key political functions

and public authorities would be secured, but with considerable flexibility, linked to a future

census and not on the pre-war census. At the local level, proportionate representation in public

authorities would include certain affirmative action mechanisms that aim to balance the effects

of ethnic cleansing. This would be based on the choice of individual victims to return to their

pre-war municipalities and apply for a job in local institutions, and not based on pure statistics.

A system of sanctions would be applicable for active malfeasance by local authorities, not for

demographic disparities alone.

Institutions to curb regional disparities and underdevelopment:

Two major, modern institutional settings would guarantee to curb regional underdevelopment

und the local developmental disparities. This has been a key topic and a major policy failure

both in the socialist and in the post-socialist periods. These institutions would be Regional

Spatial and Strategic Development Councils and mechanisms to ensure local financial

equalization.

Sources of Revenue:

The simplification of BiH’s governance will be reflected in governmental revenue structure.

With the elimination of the middle layers of government, their revenue sources can be

reallocated. The revenues from the single account (Value Added Tax and Customs) will only be

split two ways, with municipalities receiving additional allocations to cover their new

responsibility for primary and secondary education, as well as additional discretionary funds.

The Personal Income Tax will be divided 50/50 between the state and municipalities.

Municipalities will also levy charges and fees for provision of local services, and be enabled to

borrow for capital expenditures. The new revenue structure is explained in detail in the

financial analysis section.


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Introduction and Background

The polarization built into the Dayton constitutional system may have been the high price of

peace in 1995, but the fact that it is fatally flawed has long been apparent. The system of

ethnic institutionalization and mobilization of fear (embodied de facto in the election law)

rewards nationalist efforts to leverage fear and employ fiscally reckless patronage at election

time (while hundreds of thousands of citizens are left with no way to demonstrate their

frustration other than by refusing to exercise their voting rights or going to the streets to

protest, as seen in February 2014).1 In addition to its inherent instability2 (only held in check by

the international High Representative and his military backup, now known as EUFOR), Dayton

BiH is absurdly over-governed for a country of an estimated four million inhabitants. While

providing ample patronage opportunities for the ruling parties, this does little for citizens who

are well aware they are overtaxed, overgoverned and underserved.3 The failure of BiH to meet

the requirements for visa liberalization in 2009 was only the latest disappointment for a

population that “continues to see salvation in integration with Europe,” but whose politicians

operate with scant concern for the common good.4

The international community, too, increasingly recognizes that BiH’s constitutional order (and

its election law) hamstrings its functionality – even survival – as a state. The EU5, the Council of

Europe’s Venice Commission6 and European Court for Human Rights7, and NATO8 have all

1 See Kurt Bassuener “How Bosnia’s protest movement can become truly transformative,” February 23, 2014 at

http://www.democratizationpolicy.org/how-bosnia-s-protest-movement-can-become-truly-transformative See also Bodo

Weber and Kurt Bassuener “EU Policies Boomerang – Bosnia and Herzegovina’s Social Unrest,” DPC Policy Brief, February 2014,

at http://www.democratizationpolicy.org/pdf/briefs/DPC%20Policy%20Brief_Bosnia-Herzegovina's%20Social%20Unrest.pdf 2 See DPC and the Atlantic Initiative’s Assessing the potential for renewed ethnic violence in Bosnia and Herzegovina: a security

risk analysis, published in October 2011, at http://www.democratizationpolicy.org/uimages/pdf/DPC-

AI_BiH%20Security_Study.pdf The UNDP’s Annual Report 2008 aggregates the data from the four quarterly Early Warning

Surveys. The 2008 Political Stability Index was at its lowest point since the surveys began in 1999. See www.undp.ba 3 Ibid. The UNDP report noted that “a clear majority (of respondents) are of the view that BiH institutions cost too much money

and time…they are expensive, time consuming, and of questionable efficiency…the public are not at all happy with the quality

and effectiveness of domestic institutions,” which inflict direct and indirect costs upon citizens and business. Pages 33 and 34. 4 Ibid, page 10.

5 This has been articulated by senior officials in both the Council and the Commission. “Evolution of the constitutional

framework will be essential…to ensure a functional and efficient state capable of delivering on BiH’s obligations in the EU accession process and as a potential future Member States [sic].” Javier Solana and Olli Rehn, cover letter to Joint Report – EU’s policy in Bosnia and Herzegovina: the way ahead, letter and report to EU Foreign Ministers obtained by DPC, 31 October 2008. Both bodies participated in the failed “Butmir process” in late 2009. Bosnia and Herzegovina 2009 Progress Report was explicit on the problems of the current constitutional order, including entity voting. Page 7-8, Progress Report. 6 The March 11, 2005 Venice Commission Opinion on the Constitutional Situation in Bosnia and Herzegovina and the Powers of

the High Representative is probably the most detailed critique of the Dayton constitutional model, and makes clear the country

has no chance of entering the EU with its current governing structure in its point #26. See

http://www.venice.coe.int/docs/2005/CDL-AD(2005)004-e.asp


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stated the country needs constitutional reform to move forward with its integration processes.

They have yet to clarify in detail what changes will be required for BiH to meet its current

obligations or enable it to integrate effectively. “Constitutional reform” has thus become a

catchphrase both emptied of meaning and used as a political football. Elite-focused efforts to

find concord among ruling parties in the “Butmir process” in Fall 2009 on a “package” including

some modest constitutional reforms failed and were counterproductive.9 Attempts to forge

agreement among the same protagonists on even sub-constitutional issues (as seen with the

stillborn so-called “Prud Agreement”) have also come to naught. Efforts to achieve agreement

on how to implement the European Court of Human Rights’ December 2009 Sejdić-Finci ruling,

which continued until February 2014, failed to deliver.10 There is no reason to hope that yet

another attempt to jump-start a constitutional reform process based on agreement among the

same ethnocratic oligarchs will be any more successful. If agreement among these leaders were

to be forged, it would be almost guaranteed to be dysfunctional. None will be willing to

abandon their vested interests protected by the current system. These leaders know they need

not fear pressure from below under the current system, and operate accordingly. In the

meantime, BiH citizens see the likely date of their country’s entry into the EU receding further

than that of any other regional aspirant, including Kosovo: 2022, on average.11 They are also by

far, according to all relevant polls, the most broadly pessimistic population in the region.

Bosnia’s dysfunction is apparently seen as so innate and intractable by both Bosnian citizens

and the international community that only incremental change from the current structure is

seen as possible. Attempts at a “big bang” change to a different system are often dismissed as

a utopian lost cause, or even dangerous. But the country’s instability cannot be cured by mere

scaffolding of an inherently shaky platform. It requires an entirely new operating system – one

that has popular legitimacy, unlike the Dayton constitution.

We believe that there is a vast potential constituency for a governance structure that can work

for – and is accountable to – citizens. The spectrum of what might be popularly acceptable is

far wider than what the senior political leaders put on the menu, according to the 2007 UNDP

7 The ECHR ruled in December 2009 that BiH’s Constitution and Election Law are discriminatory in their provisions for the

Presidency and House of Peoples. See Sejdić and Finci vs. Bosnia and Herzegovina at

http://www.unhcr.org/refworld/category,LEGAL,,,,4b44a28a2,0.html 8 “NATO Wants Bosnia to Reform Constitution – Scheffer,” Reuters, July 16, 2009 at http://www.javno.com/en-world/nato-

wants-bosnia-to-reform-constitution-scheffer_270755 9 See Toby Vogel, “Trying to appease the unappeasable,” European Voice, December 18, 2009.

10 “EU disappointment on lack of progress in Sejdic-Finci implementation,” EU Delegation in BiH, February 17, 2014 at

http://europa.ba/News.aspx?newsid=6181&lang=EN 11

Gallup Balkan Monitor Insights and Perceptions: Voices of the Balkans. 2009 Summary of Findings, page 19. www.balkan-

monitor.eu


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report “The Silent Majority Speaks”12 and the results of the October 2008 municipal elections.

Popular dissatisfaction with established political elites, considerable even before the backsliding

seen since 2006, is very pronounced.13 As US President Barack Obama’s Chief of Staff Rahm

Emanuel said during the 2008 campaign, “Never allow a crisis to go to waste. They are

opportunities to do big things.”14 The global economic crisis, combined with the deepening

political crisis, may provide the most opportune moment since Dayton to present the public

with creative new solutions.

The governance model outlined on the following pages is one which K-143 members believe

has great promise to gain traction with citizens throughout BiH. It is a highly decentralized

structure in which municipalities would have local ownership of the day-to-day administrative

and fiscal decisions, while the state-level government would be sufficiently empowered to

handle the functions it can perform at a comparative advantage, and perform an oversight role.

Institutions of the state could also be distributed to other urban centers, rather than being

concentrated in the capital.

12

Available at http://www.undp.ba/index.aspx?PID=3&RID=43 The study found, for example, that about eight in ten BiH

citizens identify with the state; only 14% profess not to. The poll also found wide aspiration for constitutional change and EU

membership among the citizens, along with a lack of trust for governing authorities, or indeed socially among citizens. 13

The sense of being represented by anyone or any party in the BiH political arena was 11% for Bosniaks, 18% for Croats, and

29% for Serbs. Gallup Balkan Monitor Insights and Perceptions: Voices of the Balkans. 2009 Summary of Findings, page 24-25.

www.balkan-monitor.eu 14

Jeff Zeleny, “Obama Weighs Quick Undoing of Bush Policy,” New York Times, November 9, 2008.

http://www.nytimes.com/2008/11/10/us/politics/10obama.html


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I. BiH’s International Obligations and Aspirations

Unmet Obligations

Council of Europe: Bosnia and Herzegovina undertook an obligation to bring its governance into

conformity with the European Convention on Human Rights (already integral to the Annex 4

Constitution) when it joined the Council of Europe in 2002. Ever since, provisions in the

Constitution and Election Law have been the target of criticism by the Council of Europe’s

Venice Commission, the Parliamentary Assembly of the Council of Europe (PACE), and the

Council itself.

The Venice Commission’s Opinion on the Constitutional Situation in (BiH) and the Powers of the

High Representative in 200515 spelled out these problems in detail: the composition of the

Presidency and the House of Peoples ran counter to BiH’s ratification of the Convention and

Protocol 12, “which guarantees the enjoyment of any right set forth by law without

discrimination.”16

The European Court for Human Rights’ judgment in the Sejdić and Finci vs. Bosnia and

Herzegovina case17, given on December 22, 2009, was the culmination of all previous opinions

and recommendations given by the Council of Europe and its associated bodies on BiH´s

constitutional structures and election law provisions, making changes to remedy these

problems mandatory. The Court found that the constitutional and electoral law restrictions for

“others” regarding the Presidency and House of Peoples to be in violation of the European

Convention of Human Rights (Article 1 of Protocol 12 for the applicants’ ineligibility for the

Presidency; “Article14 taken in conjunction with Article 3 of Protocol No. 1” for the applicants’

ineligibility for the House of Peoples).

In January 2010, the Parliamentary Assembly of the Council of Europe (PACE) passed Resolution

170118, referring to the above ruling and calling on Bosnia´s political leaders to “fully engage in

a meaningful and constructive dialogue about concrete proposals for amendments to the

Constitution, in line with the 2005 recommendations of the Venice Commission, with a view to

adopting a reform package in time for the 2010 parliamentary elections which should be

organized in accordance with the revised Constitution.” PACE also passed the related

15

http://www.venice.coe.int/docs/2005/CDL-AD(2005)004-e.asp 16

http://www.humanrights.coe.int/Prot12/Protocol%2012%20and%20Exp%20Rep.htm 17

See the judgment at http://www.unhcr.org/refworld/category,LEGAL,,,,4b44a28a2,0.html 18

http://assembly.coe.int/Main.asp?link=/Documents/AdoptedText/ta10/ERES1701.htm


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Recommendation 189419 to (inter alia) “(consider) launching a wide discussion, with the

participation of key domestic and international stakeholders, including the members of the

Peace Implementation Council and, in particular, the European Union institutions and Bosnia

and Herzegovina’s neighbors, about the challenges Bosnia and Herzegovina currently has to

face on the road to Euro-Atlantic integration and the means to overcome them.”

A 2008 joint opinion by the Venice Commission and OSCE’s Office for Democratic Institutions

and Human Rights (ODIHR) on proposed amendments to the BiH election law20, repeated both

organizations’ criticism of the discriminatory provisions of the Bosnian Constitution, adding that

it contravened numerous international documents, including the International Covenant on

Civil and Political Rights, the European Convention on Human Rights and other commitments to

the Council of Europe, and the OSCE Copenhagen Document. It also noted that the

apportionment of seats in multimember constituencies did not appear to allow for equal

suffrage – the equal weight of each vote. It referred to the OSCE/ODIHR Election Observation

Mission’s report on the 2006 general elections21, which also raises this point in its

recommendations.

In addition, BiH has signed the European Charter for Local Self-Government22, which stipulates

the following:

• That public responsibilities shall be generally exercised by those authorities closest to the citizens

• That the principle of local self-government be recognized in domestic legislation, in the constitution where possible

• That the basic powers and responsibilities of local governance be prescribed by legislation

• That powers given to local authorities shall normally be full and exclusive

• That administrative supervision of local authorities’ activities must be based on legislation, and be limited to ensuring compliance with law and constitutional principles (regarding tasks delegated by higher levels to be performed by local authorities), interventions must be kept in proportion to the importance of the interests to be protected

• That local authorities be able to determine their own internal administrative structures, limited only by general provisions

19

http://assembly.coe.int/Main.asp?link=/Documents/AdoptedText/ta10/EREC1894.htm 20

http://www.venice.coe.int/docs/2008/CDL-AD(2008)012-e.asp 21

http://www.osce.org/documents/html/pdftohtml/23206_en.pdf.html 22

http://www.logincee.org/file/1027/library


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• These rights should be exercised by freely elected councils/assemblies and executive organs

• The right and ability of local authorities to regulate and manage a substantial share of public affairs under their own responsibility, in the interest of the local population

• That local authorities exercise full discretion to take initiative on any matter not explicitly excluded from their competencies nor assigned to any other authority

• That local authorities shall be consulted in planning and decision-making processes for matters concerning them directly

• That municipal borders cannot be changed without consultation with local communities, ideally through a referendum

• Local authorities have the right of recourse to judicial remedy to secure free exercise of their powers and respect for the established principles of local self-government

• That local authorities have the right to co-operate and form consortia with other local authorities to carry out tasks of common interest

• Local authorities have the right to belong to an association for protection and promotion of common interest, and the right to belong to an international association of local authorities

The Charter stated the following about municipal financial resources:

• Local authorities are entitled to freely dispose of financial resources

• The resources of local authorities shall be commensurate with their responsibilities

• These resources shall at least partly derive from local taxes and charges, the rates of which can be set at the local level

• Local authorities shall be appropriately consulted on how on the method of allocation of resources redistributed to them

• Financial equalization procedures should be established to protect financially weaker local authorities without diminishing their discretion

• Grants to local authorities shall not be earmarked for the financing of specific projects

• Local authorities should be able access national capital markets to borrow for capital investment

OSCE: BiH’s obligations as a member of the OSCE, stemming from the 1990 Copenhagen

Document,23 require it to “respect the right of citizens to seek political or public office,

individually or as representatives of political parties or organizations, without discrimination.”

“Persons belonging to national minorities have the right to exercise fully and effectively their

human rights and fundamental freedoms without any discrimination and in full equality before

the law...The participating States will respect the right of persons belonging to national

23

http://www.osce.org/documents/html/pdftohtml/13992_en.pdf.html


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minorities to effective participation in public affairs, including participation in the affairs

relating to the protection and promotion of the identity of such minorities.”

The term “national minority” carries a specific connotation in the post-Yugoslav countries, and

even more specific in BiH, with its three “constituent peoples.” Even after the BiH

Constitutional Court’s constituent peoples decision in 2000 and the following impositions by

the then High Representative Wolfgang Petritsch, which called for all three peoples to be

“constituent” throughout BiH, “others” and national minorities remain an “out” group in the

Dayton system. The OSCE obligation, as articulated by ODIHR in 2006 and 2008, runs parallel to

the Council of Europe´s criticisms, through the Venice Commission and other bodies, and most

recently in the Sejdić and Finci verdict by the ECHR of December 2009.

Taken together, the Council of Europe and OSCE have stated repeatedly and for years running

that BiH´s Dayton constitutional order is discriminatory. The December 2009 Sejdić and Finci

verdict by the ECHR has made changing these provisions a legal requirement, which remains

unmet as of June 2014.

Stunted Aspirations

The European Union: As noted in the introduction, the EU has called for constitutional reform

in BiH to ensure functional and sustainable institutions, including clear structures for

coordination between government layers (a so-called “coordination mechanism”).

This is critical, since as a signatory of a Stabilization and Association Agreement (SAA) and

aspirant candidate for membership, BiH has entered into an enormously complicated and

detailed contractual relationship with the EU, also spelled-out in phases in the Partnership

Document. Substantial legislative and structural change will be required.

In brief, the EU will demand the following from BiH, listed by sector:

Economy: Ensure a single economic space, meaning the free movement of goods, capital, services and persons. Also:

• establishment of free trade zone between EU and Bosnia

• nationally harmonized regional planning (for accessing EU funds)

• taxes: principles of the (EC’s) Code of Conduct for business taxes; permanent formula for allocation of indirect tax revenues between government layers

• develop fiscal surveillance mechanisms: rules-based and coordinated between layers of government, supreme audit institutions (central harmonization units for financial management and control and for internal audit systems)


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• transfer of banking supervision to state level

• A state-level Ministry of Agriculture, Food and Rural Development and the development of a comprehensive state level agricultural strategy

• Anti-trust policy: adequate legislation, Competition Council (central level)

• WTO membership and subsequent obligations

Energy: adoption of a comprehensive energy strategy, meeting Energy Community Treaty obligations;

Transport: implementation of recommendations of Memorandum of Understanding on

Development of SEE Core Regional Transport Network;

Policing: adherence to the three EU principles for police reform24; maintaining established central-state agencies (SIPA; border police) and establish additional central states organs defined by the police reform law prior to the signing of the SAA;

Anti-corruption policy: adherence to relevant international conventions and GRECO recommendations (CoE Group of States against Corruption – general guidelines, code of conduct for public officials, rules on party and election financing);

Health system: the development of community-based services for mental health care;

Education: resolution of the “fragmentation” of the educational system, prevent ethnic segregation in schools, implementation of Bologna process

Refugee return: proper funding, socio-economic integration, implementation of the Sarajevo

Declaration (securing conditions for the return of remaining refugees & IDPs)

Environmental protection: passage of a state-level law and the establishment of State Environment Agency

Media and Information: strengthening the capacity and independence of the Communications Regulatory Agency and establishment of national data protection agency.

The Commission’s latest Progress Report, issued in November 2010, noted minimal progress in

terms of BiH’s meeting most of the above conditions, and numerous others. The legislative

process is not even passing the necessary legislation, much less ensuring its implementation.

24

These were prevention of political influence, state-level command and budgetary control, and policing regions based on

functional criteria. They remain unimplemented. EU fudged its own conditionality to create the perception of forward

movement on the European path.


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NATO: The Alliance has been the vaguest international organization on the constitutional

reform issue. In Fall 2009, it weighed in at the top, with outgoing Secretary General Jaap de

Hoop Scheffer stating that constitutional reform was necessary to join the Alliance. This was

reiterated by his successor, the incumbent Anders Fogh Rasmussen. But there has been

nothing in the way of official clarity on what this might mean. According to one NATO observer,

“I have the impression that this is seen as EU-led and that NATO is just lending moral support.”

From a technical point of view, NATO´s constitutional issues are relatively few:

• Deleting from the constitution the Standing Committee on Military Matters (SCMM), which was to coordinate the (now-disbanded) entity militaries, to eliminate a potential problem in the chain of command. This would also ensure that defense is controlled by the Minister and the Parliamentary Assembly, with oversight by the Presidency as Commander in Chief.

• Clarity of chain of command on defense, security, and intelligence, with democratic civilian control and oversight.

The SCMM issue may be a requirement for BiH to implement the Membership Action Plan

(MAP).


18

II. Local Self-Governance in Europe

There are a number of examples in Europe (including EU members) of two-layer governance

structures (such as Denmark, Finland and Slovenia), though the three-layer model is more

prevalent. In BiH, adopting such a system would mean drawing new lines of the map – not a

promising prospect. An Annex compares a number of these countries in greater detail.

While the EU does not take a formal stance on the individual internal organization of its

members, it does call for subsidiarity: governance functions should be assigned to the lowest

level at which they can be undertaken effectively. A number of functions are commonly

handled at the local level throughout the Union: development of local economy, social housing,

public utilities (water, electricity and gas supply), fire protection, and local (or regional)

planning.

In addition, many functions are frequently shared or divided between the state and lower levels

of government, though there is wide variance among EU members at which level these are

vested: police, health and social assistance, education (usually primary, often secondary),

culture (libraries, museums, parks), roads and transport (public transport, sometimes ports and

river transport), environmental protection, and tourism promotion.

There is also wide variance in revenue allocation between the state and local levels, with new

members typically reserving more than 70% of revenues for the state level. In countries with

wider distribution of authority, it comes close to 50/50 between state and sub-state levels

(collectively). The source of these revenues also varies widely; from 4-70% of revenues used by

local governments is derived locally, from sources like property and income taxes.

Redistributive and equalization mechanisms based on “objective criteria” such as population

size, age distribution, and socio-economic indicators are a European norm, as is increasing

allocation of resources to structural and cohesion funds directed to poorer European regions,

and the coordination/harmonization of national and EU policy.

Competing governance trends are at play within the EU and Europe more broadly. While

decentralization allows for more responsive governance, some functions – health care for

instance – are moving up from lower levels to take advantages of economies of scale and to

ensure greater equality in service. Two competing trends are observable: One is for states with

a two-layer governing system to establish a third, regional layer of government (or for some

with a week mid-layer to strengthen it). The other trend is to keep the two-layer system but to

increase cooperation/pooling among municipalities to provide better and more efficient public


19

services. This latter approach maintains local control while ensuring maximal effectiveness and

efficiency in planning and service delivery.

Denmark illustrates a balance between these. Its 98 municipalities have primary responsibility

for a host of public services. An intermediate layer between local government and the state

exists mainly for health care provision. These five regions of state administration have limited

competence. Danish law encourages collaboration among municipalities to provide public

services, though this is voluntary – local governments are legally responsible for delivering

these services to their citizens; how they do so is discretionary. The state has an equalization

fund to ensure comparable service provision at near to average cost. Oversight for adherence

to law is conducted by the state.


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III. Brčko District: A Domestic Example of Local Self-Government

Brčko District, in northeastern BiH, was placed under international supervision after the Dayton

Accords (see Annex). It has the most expansive and well-resourced municipal government in

the country, and is also the most multiethnic. It is therefore an important reference point,

illustrating the extent of competences which can be handled at the local level.

Brčko District (BD) is estimated to have 90,000 inhabitants, three times the BiH average. It also

has significant numbers of each of the three constituent peoples. It undertakes governance

functions and operates public services that are run at the entity and cantonal level elsewhere in

the country. The District’s competences, as defined by the Brčko District Statute,25 include:

- BD economy - social welfare

- BD finances - judiciary and legal services

- Public property - policing

- Public services and infrastructure - housing

- Culture - urban development and zoning

- Education (primary and secondary) - “other competences necessary for the

- Health care functioning of the District as a single

- Environment administrative unit of local self-government”

The main District Government institution is the Assembly, consisting of 31 members, including 2

representing national minorities, elected for a four-year term of office. Its Speaker is elected by

a 60% majority. The Assembly determines general policy and oversees public administration

and expenditure. Qualified majorities of 60% of members present are required for a number of

defined acts, including amending the rules of procedure, passing the budget, and amending

laws. 60% of total members must vote to remove the mayor. Amendment of the Statute can

only be done with a 75% majority of all members. There are detailed provisions to prevent

outvoting, requiring affirmative votes by at least 1/3 of members from each constituent people

to pass legislation to change the Statute, rules of procedure, the budget, and concerning

education, language, religion or culture. Unlike in the rest of the country, the Assembly elects

the Mayor, who selects his deputy. The Coordinator represents the District to the institutions

of state in Sarajevo. The Deputy Mayor, the Coordinator, and Heads of Departments are

selected by the Mayor based on professional competence, also reflecting the general

25

Available in full at www.ohr.int


21

composition of the population. The District also has a Finance Directorate and Office for Public

Property.

Revenues: The District receives 3.55% of the VAT proceeds. It also recently introduced a

property tax at the introductory rate of 0.6%. The BD Government’s land reform proposal

would privatize public property holdings not needed for governance purposes, which would

bring in significant one-off revenues. The District may introduce an income tax in the future.


22

IV. Why Municipalization?

We devised municipalization – strengthened municipalities with greater decision-making

powers as the foundation of popular governance, with the state also strengthened to perform

the functions that can only be handled at that level, as well as to meet the requirements of

Euro-Atlantic integration – as the best hope of finding a modus vivendi among BiH’s citizens.

The political downward spiral of the past eight years has only deepened our conviction that

efforts to forge consensus among BiH’s political elites for incremental change to the Dayton

constitutional order are approaching the basic problem from the wrong direction. BiH will only

begin to function and reform itself under a system that has popular legitimacy: a majority of

each self-defined group in the country needs to conclude a given system can serve and protect

their interests. Coalition 143 (K-143) assembled around the municipalization model in the belief

that it could deliver this popular and effective governance, and has therefore pursued

development of a more detailed concept of how such a structure could work.

Local Self-Government has a long and strong tradition in Bosnia, as it does in Southeastern

Europe as a whole. Local governance was the basis of the state in Ottoman Bosnia, due to its

remote position in the empire and its mountainous geographical conditions.

The local level maintained an important role when society and state went through a

tremendous process of late modernization in the socialist era, from the mid-20th Century. When

Socialist Yugoslavia developed its system of self-management socialism as a more democratic

counter model to Stalin’s Soviet socialist system, decentralization was made the cornerstone of

the “new system” and the municipal layer of government took a key position in these

decentralizing efforts.

Many state functions were moved to the municipal level. The principle of local self-government

was further enhanced through establishment of units of sub-municipal government, the so-

called Mjesne Zajednice. It represented an additional institutional form of democratic

participation and important means of modernizing society. These built the basis for collective

work, of small communal activities on voluntary basis, like the building of roads in remote rural

settlements.

Yet what was intended to form an important part of a democratization effort developed a

number of dominating negative trends. They were the result of the structural contradiction of

decentralization in an authoritarian socialist system: of decentralization as a means of

democratization and the maintenance of the role of the Communist party as the ultimate


23

authority. This contradiction turned decentralization into a process of authoritarian

decentralization or “decentralization in place of democratization.” Its main features were:

• control over local government institutions and local economy by the party through

informal and semi-formal means, undermining the normative functioning of local

governing institutions

• making a mockery of the carefully built institutions of local democratic decision-making

and direct citizen participation

• integration of local economies based on territorial, and not functional principles, totally

inadequate to modern economies, thus leading to

• the territorialization of group concurrencies, aggravating a phenomenon known as

“localism”

• the failure of local authorities to effectively manage transferred functions because of

the lack of an adequate financing system and the failure to build a professional and

skilled local administration

• the failure to establish efficient institutions and mechanisms of oversight and control of

local authorities’ activities by upper layers of government, and their ultimate

breakdown

• the failure to develop efficient mechanisms for territorial equalization, leading to the

failure to deliver on one of the key promises of Yugoslav socialism – to achieve regional

equality and erase regional underdevelopment

• turning planning and decision-making processes between the different layers of

government (federal, republican, local) into an informal/semi-formal bargaining process,

substantially damaging the development of the economy and

• contributing heavily to the process of erosion of state institutions and the disintegration

of the state

In the ethnic breakdown of the socialist state and in takeover of government by newly formed

ethnic parties in the early 1990s the municipal level again played a crucial role. The ethnic

parties’ gaining of power at the first multiparty elections in Bosnia in 1990 was launched from

the local level. Nationalists understood the importance of the local level and paid tribute to it.

They exploited the motives of the previous socialist system connected with the local level,

pointing to the failure to achieve territorial equalization and highlighting the problem of

regional-municipal underdevelopment. It was not coincidental that the municipalities in which

conflicts between municipal authorities and Mjesne Zajednice had taken place were where

ethnicization of the political and public sphere first gained ground and the culturalization of

social conflicts could be observed.


24

The usurpation of the state by the ethnic parties in the prewar and war period built upon their

taking control over municipalities from the bottom-up. This was the precondition for physically

reshaping the structure of the local population and local elites.

Yet wartime efforts to centralize the established ethnic nationalist (proto)states were only

partly successful, showing the continuing tradition of strong local authorities based on their

proximity to the citizens. Ethnic regimes thus had to resort to some of the ruling techniques of

the previous system, such as informal bargaining with local elites.

That the traditional strength of local public authorities, based on their close geographical

connection to the citizens, can be used for democratic reform of the governing system can be

seen through various success stories of reform projects at the municipal level (VAT tax reform

to strengthen local revenue system, improving municipal service delivery, inter-entity

cooperation of municipalities). These were implemented in post-war Bosnia with the support of

mayors and municipal councilors despite their membership in the leading ethnic parties that

still dominate the Bosnian-Herzegovinian state and political system.

If BiH is to become a functional state, it must be built with the recognition of the importance of

the local layer of government in creating a modern and democratic state. But this can only

succeed if it takes into account the negative aspects of the history of decentralization and

developing mechanisms that will prevent their repetition. These include:

• local governance based on democratic principles and the active participation of its

citizens,

• the financial and administrative empowerment of local authorities to handle

decentralized functions,

• a transparent and institutionalized decision-making process between the local

authorities and those of the upper layer(s) of government, an institutionalization of

oversight and control by upper layer authorities over the activities of local authorities

that is both efficient and respects the autonomy of local institutions, and

• the establishment of modern democratic institutions to fight regional disparities and

underdevelopment.

A strong governance role for municipalities clearly has precedent in BiH. The underlying point

of the following model for municipalization is to change the incentives in the governance

system from being divisive to being integrative, and maximizing popular control.


25

Municipalities are the outer limits of popular trust in BiH; beyond that outer perimeter, social

trust fades altogether, even within one’s own ethnic group.26 This lack of trust, in interaction

with the divisive provisions in the Dayton Accords, creates an environment ideally suited to

ethnocratic political elites, allowing them to operate with little or no accountability to citizens.

A municipalized governance system would be built around the present reality of limited

integrative social capital, making localities the building blocks of the state governance structure.

Citizens would be able to expand control of the only level of government over which they can

exercise any discernable leverage, and lose nothing in the process. A two-level system would

deliver accountable governance and superior (and more equitable) public services for less

money, allowing space for economic development stifled by the bloated public sector.

A two-layer governance structure will also break the formal linkage between ethnic groups and

territory, which has often been specified as the Dayton Constitution’s main flaw by Venice

Commission, and now by the ECHR in the Sejdić and Finci vs. Bosnia and Herzegovina ruling.

Ethnoterritorialism would effectively continue to exist at the local level in a demographic sense;

it did before the war as well in many municipalities (Drvar, Cazin and Posušje were

overwhelmingly Serb, Bosniak and Croat, respectively). But under a municipalized state

structure, there would be no legal reification of ethnoterritorialism, and ethnic protection

mechanisms would exist for all self-defined groups, beyond the three constituent peoples.

Such a system would allow for the rise of socioeconomic issues in politics which citizens and the

international community have long claimed to desire. There are common, cross-cutting

interests that are regularly ignored due the easy ability of nationalist elites to homogenize

populations through fear and patronage under the Dayton Constitution. There are different

interests among municipalities dominated by the same group: one’s interests as a resident of

Orašje are quite distinct from those of someone residing in Kiseljak or Grude, for example.

They cannot be effectively represented by a system that assumes their interests are identical –

and they are not. A state that can both reflect wide common interests where they exist and

give voice to differing interests within groups must be based on the local level, where those

interests are first manifested. To build-up a functioning BiH, it has to be broken down to the

elemental governmental unit.

26

See UNDP’s fascinating 2009 study on social capital in BiH, “The Ties That Bind,” available on www.undp.ba


26

V. The Municipalization Model

Guiding principles, methodological approach:

Based on the rationale for a municipalized state model for Bosnia-Herzegovina, the

following model is developed along several guiding principles:

• Move as many governing functions as possible to the local level. Keep or move up to the state level only those functions where it is necessary for reasons of securing state integration, maintenance of public security or where the efficient functioning of a certain governing sector cannot be guaranteed when located at the local (or consensual local pooling – see below) level. Share competencies in these cases as much as possible. Thus allocation of competencies to the central state level is undertaken with a strong accent on state institutions’ role in harmonization, standardization and overview.

• Create a clear-cut division of competencies and clear mechanisms (while at the same time avoiding over-regulation) of decision-making between the two layers of government. Avoid competence-overlap and reduce discretionary authority to a minimum – as both are one of the main sources of undemocratic bargaining and authoritarian tendencies and of the growth of irrational and inefficient bureaucracies as well as the flourishing of corruption in the current system.

• Build the governance structure around the current reality, not competing visions of a rewind to 1991 or completely ethnically clean national territories. No ethnic groups should have to worry… but at the same time, none can attain the dreams of its national leaders.

• No revolutionary approach: there should be no question of ‘reinventing hot water’ as the local phrase has it. This would provoke needless resistance to the model when presented publicly, especially in connection with institutional settings that were the object of fierce (ethno-)political debate since Dayton.

• Leave the form intact as much as possible, but change the substance: The model envisions maintenance of Vital National Interests and collective representation in a Council of Peoples; keeping the current unevenly sized municipalities, including the wartime-created small municipalities; maintenance of the territorial organization of police (10 cantons, Brčko District, and five RS police districts); existence of city municipalities, etc. Yet in each case, the structure and context change considerably.


27

The methodological approach that resulted from the application of these principles is twofold:

1. Erase the entity and canton layers of government, move their competencies mainly downwards and partly upwards.

2. Transform the current declared ethnic protection mechanisms into a system of real protection mechanisms to prevent discrimination against any ethnic group, part of an ethnic group or an individual on the basis of his/her declared ethnic affiliation.

This eliminates the potential to pursue individual/group interests under the cover of

ethnic protection, thus weakening the state and its institutions, its functioning and role

as a protector of and service delivery for its citizens, and thus slow down or prevent the

reforming and modernizing of state, society and economy of Bosnia-Herzegovina.

1. Division of functions

Municipal competencies:

In the proposed state model, a host of government competencies would be moved down to the

municipal/city level. The breadth of competencies falling under the authority of local self-

government units would be great even by European standards, given both the number of

exclusive and shared competencies.

Education would fall under almost exclusive municipal/city authority: pre-school, primary,

secondary and vocational/technical education. Only higher education would fall outside local

purview. Culture, leisure and sports would also almost completely be in the responsibility of

local authorities, as well as most of public utilities (water supply, sewage, refuse collection and

disposal).

Housing would be an exclusive municipal competence. In addition, local, urban and

regional/spatial planning would be competencies of the local self-government units, making

national spatial planning a bottom-up process in which the role of the central layer of

government would basically be reduced to national harmonization.

Municipalities/cities would also exercise authority in public transport and traffic, on a local (and

regional planning and coordination) level, as well as in public health and social welfare. They

would have the bigger share of competence in fire protection and civil protection.


28

Through shared competencies, local self-government units would play an important role in the

promotion of economy (local economic development), in industry and trade and in tourism

promotion.

Sharing competencies with the state level, municipalities and cities would have greater

authority over agriculture/forest/fishing, as well as play a key role in consumers’ protection and

environmental protection.

State competencies:

The two-level governance model proposed would be more decentralized than many European

systems, but there are precedents (Denmark, for example). While much is to be handled at the

local level, the state would gain a number of competences currently handled at the entity and

cantonal level. It would also share or divide a spectrum of competences with municipalities.

New or augmented state competences would include education (exclusive authority over

higher education; oversight over levels handled at municipal level), internal security/policing

(current policing structures will remain, but under central command and control), justice (as

with policing), health care (insurance and hospitals), social welfare, veterans’ affairs, energy,

environmental protection, transportation (for highways, rail, river traffic and air), agriculture

and forestry, and science and technology.

In the case of shared competences, the line ministries would perform oversight over

municipalities (for example, Ministry of Education for primary and secondary schooling), but

only to ensure compliance with legal obligations. Civil protection and firefighting, for example,

is a shared competence to ensure expeditious work to combat forest fires, deal with flooding,

etc.

2. Governing institutions

Municipal Level

Under the model the municipal level would be the only level of local self-government. Units of

local self-government would be (rural) municipalities and cities. The principles of local self-

government would be integrated in the State Constitution and spelled out in a Law on Local

Self-Government, based on the principles of the European Charter of Local Self-Government (as

is the case currently for the entity laws on LSG). At the same time with the strengthening of


29

local self-governance the institutional role of the Mjesna zajednica as a guarantor of sub-

municipal governance would be strengthened.

Governing institutions: Governing institutions as existing in both entities’ municipalities would

remain intact.

Mayor: The mayor is the head of the executive and the chief of the municipal/city

administration. He will be directly elected on majority vote. He can have one or more deputies

elected by the municipal/city council.

Municipal Council: Municipal/City Councils would undergo some additions compared to their

current structure. Along with the large number of (exclusive and shared) competencies moved

to the municipal level additional council committees would be formed.

Given this expansion the number of councilors, currently 11 to 31 based on the number of

registered voters in one municipality/city, would have to be expanded. Comparing it to councils

in other European countries with a comparable amount of competencies a size ranging from 17

to 45 Council members seems most reasonable. After the upcoming census, council size should

be linked to the number of inhabitants.

The current electoral system shall remain unchanged: a proportional electoral system, including

a regulation for the representation of minorities27 that guarantees at least one mandate for

minorities which comprise more than 3% of population.

Ethnic protection: Certain institutions and mechanisms would be in force to secure the

protection against ethnic discrimination on municipal/city level. These include a Council for

Inter-Community Relations (Vijeće za međunacionalne odnose/ CICR) and mechanisms for

proportionate representation in public authorities as described in detail in the separate section

4 on ethnic protection mechanisms.

Sub-municipal government: Units of sub-municipal government would be Mjesne Zajednice in

municipalities/cities and city municipalities.

Mjesna Zajednica: The establishment of local communities would be obligatory for all

municipalities and cities. An adequate part of responsibilities and competencies should be

transferred to the local communities. This would include a limited budget, the right to have

27

See Article 13.14 of the Election Law of BiH


30

property and the autonomous disposal of these assets in line with principles set by the

municipality/city. Competencies and authorities shall be comparable to those of Mjesni odbor

in the City of Zagreb28, including the right to plan “small communal actions” (mainly in the field

of infrastructure).

Cities: Cities would be exclusively defined as an urban, functional unit connected by the

everyday needs of its inhabitants. They would have the same competencies as (rural)

municipalities, along with exclusive competence over urban roads and public transport. City

council members would be elected by the same proportional representation system, and the

mayors directly elected by majority vote.

City municipalities: City municipalities with their governing institutions would remain in cities

where they already exist (Sarajevo, Istočno Sarajevo) but would lose current status as units of

local self-government. Other cities of an adequate size (with a lower limit of inhabitants defined

by the Law on Local Self-Government) would be allowed to establish city municipalities. A

substantial part of responsibilities and competences should be transferred (in the case of

already existing municipalities: kept) to this unit of sub-municipal government. City

municipalities in the City of Belgrade and City Quarters in the City of Zagreb29 would serve as

good models for the design of city municipalities, their institutions and authorities.

Brčko District: Because of its specific history, Brčko District would keep its special status and

retain its unique institutional setting as defined by the District’s statute (indirect election of

mayor, ethnic outvoting prevention mechanisms). Its competencies would remain untouched,

and the size of the district assembly unchanged.

Mostar: In 2012, the Federation Constitutional Court ruled that the Mostar Statute imposed by

High Representative Paddy Ashdown was unconstitutional, running contrary to basic

constitutional principles and principles of democratic representation.30 The city’s governance

remains gridlocked; citizens of all identities are increasingly frustrated at the poor service. The

City of Mostar would adopt the municipalization model, which would affect local government

structure and representation on the state level. The mayor would be elected directly, as is the

norm in the rest of BiH. Determining the districts for the city’s three seats in the BiH

Parliamentary Assembly may well also prove contentious. The city’s specific history will make

the CICR a particularly important institution. Adjustment of the distribution of councilors 28

Statut grada Zagreba, Članak 92-103 29

Statut grada Beograda, Članak 74-86 , Statut grada Zagreba, članak 80-92 30

These violations have been confirmed by the Constitutional Court of the Federation of BiH.


31

among the city electoral units may be required, given the additional competencies gained by

the city authorities. The number of municipal council members would likely rise from the

current 35. The modalities of applying the municipalization model to Mostar’s specificities will

require detailed study by persons who know the city intimately.

Regional Pooling and other forms of municipal cooperation: In the proposed two-layer state

model with a very high degree of decentralization of governing functions, many municipalities

will structurally not be in a position to sufficiently perform all their new competences. It is

therefore crucial to enable different forms of municipal cooperation. These forms of

cooperation will be established on a voluntary basis, but they will be promoted by the state

through a grant system. Each municipality is free to decide whether it will enter into any form

of cooperation with other municipalities, as well as which municipalities it cooperates.

To ensure that municipal cooperation will not be misused for the de facto/informal re-

establishment of regional sub-national units (based on ethnicity) institutions formed will

exclusively be single-task service provision institutions, without governing functions.

Regional pooling: Regional pooling is probably the most promising form of cooperation. It

means the establishment of joint municipal authorities, single-task organizations that are

independent legal public entities governed by municipal legislation. Its council members would

be delegated by municipal councils. They would be financed by the participating municipalities

through user charges and separate contributions to investments. Regional pooling will be

especially attractive in the field of health, education and social welfare.

A special form of regional pooling would be the Regional Councils, joint authorities dealing with

regional spatial planning and management of strategic regional development planning and

access to EU structural funds. These will be described in a separate chapter (Chapter 3).

Other forms of municipal cooperation: Other forms allowed by the law would be: contracting

other municipalities for certain functions (small, economically weak municipalities), joint

municipal civil servants (small municipalities); establishing joint limited companies, co-operative

societies and foundations.

State Level

BiH Parliamentary Assembly


32

There has long been recognition of the need to considerably expand the House of

Representatives to allow for a more functional committee structure and member specialization.

The model posited below would achieve this aim. It would have a directly elected but non-

legislative Council of Peoples to serve as a watchdog for (defined) Vital National Interests, to be

explained in detail later in this paper’s section on Ethnic Protection Mechanisms.

Unicameral Parliamentary Assembly

The House of Representatives (a.k.a. “Parliamentary Assembly,” a title which currently

connotes both the House of Representatives and House of Peoples) would be the sole

legislative body for the state of Bosnia and Herzegovina.

One Representative would be elected for each of BiH’s 143 municipalities (average of 28,000

inhabitants), plus one additional Representative for those municipalities with 50,000 or more

inhabitants, in step-increments of 50,000. According to the preliminary results of the BiH 2013

census, this would mean a House of Representatives of 169 members (average citizens per

Representative: 22,437). 19 municipalities would elect more than one Representative, and 6

would elect more than two: Banja Luka (4), Bihać (2), Bijeljina (3), Bosanska Gradiška (2), Brčko

(2), Cazin (2), Centar Sarajevo (2), Doboj (2), Ilidža (2), Istočno Sarajevo (2), Mostar (3), Novi

Grad Sarajevo (3), Novo Sarajevo (2), Prijedor (2), Travnik (2), Tuzla (3), Zenica (3), Živinice (2),

and Zvornik (2).Election would be FPTP in single-member constituencies. In multimember

constituencies, divisions among roughly equal agglomerations of mjesne zajednice would

create single districts. Representatives would be required to maintain offices in their

constituencies, and would receive travel and housing stipends for this purpose.

Using current territorial divisions as a frame of reference (though the entities would cease to

exist), this would yield:

• Municipalities in present RS would elect roughly 44% of Representatives (vs. 33% now)

• Municipalities in present FBiH would elect roughly 55% of Representatives (vs. 66% now)

• Brčko District would elect roughly 1% of Representatives

• Croat majority municipalities would elect roughly 15% of Representatives (slightly below the 17% in the 1991 census).

A qualified majority would be required (3/5, 60%) for those issues that might likely trigger VNI, as well as qualified majorities for Constitutional and Electoral Law amendments. In this way, while the electoral units are not explicitly ethnic, it would be well-nigh impossible to “outvote” on sensitive issues where there is intra-ethnic solidarity (at least in the case of the Serb fear of Bosniaks+Croats vs. Serbs).


33

Municipal governments would represent their interests at the state level in much the same way

as Brčko District does now, though official offices. A unified BiH Association of Municipalities

and Cities would represent the collective interests of municipalities.

Advantages over the current system:

• Direct linkage of citizens to Representatives in BiH Parliament. The present party lists do not allow citizens to monitor and hold to account “their” representative after elections.

• No formal ethnic factor in electoral system OR the legislative process.

• Allows for issue and interest-based alliances in the House, as opposed to the rigid top-down rule of parties in the present system. This disaggregated structure would open the door to a new sort of politics.

o Example: The interests of Croat-majority communities in, for example, Orašje, Kislejak, Livno, Mostar and Grude are all distinct. But under the current system their votes for HDZ get bundled to support party interests (centered in Mostar). The same differentiation applies to Bosniak-majority communities of Bihać, Turbe, Zenica, Konjic, and Goražde, and Serb-majority communities in Bijeljina, Drvar, Vlasenica, Foča, and Trebinje.

• This model would cut into the power of the existing party machines, weakening their grip on the overall process. Candidates, whatever their party affiliation, would have to seek (and maintain) approval of a defined electoral base (unlike now, when voters cease to be a cause for concern beyond the campaign and electoral cycle). This makes it more likely that the public interest would trump party interests – which usually are the personal interests of the leadership clique.

• No entities, so no entity voting, which effectively functions as a second ethnic vote for the RS.

• The larger membership (>4x as large as the current House) would allow for proper committee and staff structures, and issue specialization of Representatives.

• This system would come far closer to equalizing the number of citizens per representative. The current system has been a criticized by the Venice Commission and OSCE/ODIHR for its opacity and variation in representation. This system is easily adjustable to population movement/decline/growth with census data.

BiH Government

The Head of Government in this model would be embodied in the Prime Minister. The

Parliamentary Assembly would elect the Prime Minister by a qualified majority of three-fifths

(60%) of members present and voting. Once elected, the Prime Minister would assemble a


34

Government31 (Council of Ministers) to be confirmed by the Assembly, also by three-fifths of

members present and voting. Removal of the Prime Minister or individual Ministers can be

effected by three-fifths of total elected members.32 There would also be a single President,

elected indirectly in the Parliamentary Assembly, also by a three-fifths majority. This office

would have purely representational functions, and be among the offices subject to the flexible

distributional key explained on page 38. Changes to the Rules of Procedure, amendment of

standing laws (including the Election Law), and passage of the budget shall also require three-

fifths of members present and voting. In addition, qualified majority votes will be required for a

certain number of issues that are of potential ethnic sensitivity. Amendment of the Constitution

would require two-thirds (67%) of total members to vote in favor. The rationale for these

requirements is to ensure that matters that might affect interethnic relations have substantial

majorities in favor (and reducing the likelihood of a VNI intervention by the Council of Peoples).

A single President would be elected indirectly within the House of Representatives by a 3/5

majority. The President would be head of state, but the office would have only representative

functions, as is common practice in many European countries.

Ministries

The State would maintain the competences it currently holds33, gaining additional ones from

the current entity and cantonal levels. The new government would encompass the following

ministries:

• Ministry of Interior (Command and Control over regional police)

• Ministry of Justice (w/ new Human Rights portfolio)

• Ministry of Foreign Affairs

• Ministry of Defense

• Ministry of Finance

• Ministry of Economy and Trade

• Ministry of Health

• Ministry of Social Welfare, Refugee, Labor

• Ministry of Veterans Affairs,

• Ministry of Education and Culture

31

A variation of the current vetting and public hearing system for ministerial candidates, adopted in late 2006, would be

maintained, amended to eliminate the role of the now nonexistent Presidency. 32

This is the same formula that applies in Brčko District. 33

The Ministry of Human Rights and Refugees would be disbanded; its portfolio split between the Ministries of Justice (Human

Rights) and Social Welfare (Refugees). The Ministry for Civil Affairs’ portfolio would be subsumed into the new Ministry of

Interior.


35

• Ministry of Agriculture, Forestry and Fisheries/Water Management

• Ministry of Energy

• Ministry for Environmental Protection and Tourism

• Ministry of Science and Technology

• Ministry of Transport and Communications, incl. Spatial Planning

The State would also have a number of new or augmented agencies, including:

• Banking and Securities Supervision Agency

• Anti-trust/Competition Council

• OSA, reporting to the Prime Minister and overseen by a select parliamentary committee

• State Statistics Bureau (augmented)

• State Auditing Office (augmented to audit municipal accounts)

• The BiH Civil Service Agency (augmented)

• National Data Protection Office

• Public Broadcasting System (regional studios having considerable autonomy)

• A new Supreme Court, with a special division to handle administrative disputes

The two-layer governance model will considerably strengthen:

• Municipal Governments and Administrations

• The BiH Parliamentary Assembly

• The BiH Government

• The BiH Ombudsman

• The Court of BiH

• The BiH Constitutional Court

Policing and Justice

Many municipalities are unlikely to be able to support the full breadth of infrastructure

(training, vetting, etc) required, so would be compelled to enter into cooperative agreements

with other, neighboring municipalities. Rather than reinvent the wheel, this model would

maintain the current 16 policing regions (5 Public Safety Centers in RS, 10 at Cantonal level in

FBiH, and Brčko District), subordinating them to state command and control through the

Ministry of Interior, providing each with an individual budget based on objective criteria. (This

is essentially the police reform deal that almost came into being, but was rejected by Haris

Silajdžić in early 2007).


36

As with the policing regions, the current 16 judicial regions would be maintained. The Ministry

of Justice would oversee all courts in BiH. The HJPC would maintain its role of selecting and

disciplining judges and prosecutors. A new Supreme Court would be established to be the final

judicial authority, and it will maintain a chamber for administrative disputes between governing

authorities.

Distributing State Institutions throughout BiH

The centralization of governance functions presently generates resentment not only against

Sarajevo as the State Capital, but also against entity administrations, and within ethnic groups

as well as among them. Shifting to a two-layer state structure will require popular investment,

so it should not result in the total concentration of state-level functions in the Capital,

especially considering that the elimination of entity and cantonal administrations will free-up

premises for both state and municipal use. The new Ministries and agencies as envisioned

above could conceivably be located in Lukavica, Banja Luka, Mostar, and Tuzla (or elsewhere).

Their location should have a functional rationale; the state property inventory and an

assessment of premises currently occupied by middle-layer administrations could help identify

the most suitable sites.

3. Regional Spatial and Strategic Development Councils

Regional Spatial and Strategic Development Councils would represent a special form of regional

pooling of municipal authorities that has been described under municipal governing institutions

in Chapter 2.

Unlike all other forms of pooling, these would be double-task authorities. The reason for this

unique structure lies in the necessity for municipalities and cities to join in spatial planning on a

regional scale to turn national spatial planning into a bottom-up process. It is also necessary for

strategic development planning on a wider scale than the municipal/urban in order to access

EU structural funds in the process of EU-integration, and even more so afterward. Given, for

example, the fact that as of 2009 1.4 million inhabitants were estimated to be without access to

running water,34 the importance of the access to these funds cannot be overstated. Strategic

regional development planning would be a bottom-up process too, leaving the state a role in

harmonization, as the system of the EU’s structural funds are based on co-financing by central

grant systems.

34

This shocking statistic was drawn from the 2009 World Bank study From stability to performance. Local governance and

service delivery in Bosnia and Herzegovina, pg.11


37

Participation in Regional Spatial and Strategic Development Councils would be mandatory for

all municipalities and cities in the sense that all must be members of one regional council. How

municipalities and cities join into regional councils would be at their discretion, yet the

established planning regions would need to fulfill certain conditions.

In addition to territorial contiguity, these conditions would have to encompass the criteria set

by the European Union for the definition of statistical regions – the so-called NUTS.

NUTS are statistical regions used as a tool by EUROSTAT, the EU’s statistical office, to

systematize on a comparative basis the development of sub-national development in EU

member states. They are a key element for the distribution of the EU structural funds. NUTS

regions are normally defined through negotiations between EUROSTAT and the EU member

states and membership candidates. In Bosnia, no such an agreement has been reached due to

the politically complicated and uneven nature of sub-state units. An agreement between the

different layers of government in Bosnia on defining NUTS regions could not be reached. The

proposal made by the EU Regional economic development project EURED in 2004 to establish

five statistical regions was rejected by RS authorities (though mayors from both entities,

including in the RS, had accepted it).

One way to reconcile freedom of choice with the need to harmonize statewide and to fulfill EU

conditions could be to organize a negotiating process between the Bosnian-Herzegovinian

municipalities and cities and the responsible state authorities. If an agreement on the number

and composition of the regional councils cannot be reached in a set timeline, the Councils will

be established on the basis of the 5 statistical regions proposed by EURED and maintained until

an alternate arrangement is agreed.

4. Ethnic Protection Mechanisms

Current situation and rationale for change:

Given the traumas of BiH’s 3 ½ year war, a majority of citizens see ethnic safeguards as

necessary. Otherwise moderate or flexible citizens often feel compelled to vote for “their”

nationalists (fully cognizant of their flaws) out of fear as an ethnic protection measure, as they

need that perception of insurance and safety.


38

The problem with the Dayton’s state construct does not lie with the fact that ethnicity is

enshrined in the institutional setting and the political system as a whole as such, but in the way

how ethnicity is enshrined.

In the current system “ethnic interest” to a huge extent takes the character of a blanket clause

that serves group and individual interests, without the need to identify what the named ethnic

interest is and what it isn’t. This is achieved through of a number of institutional regulations:

• Through territorialization of ethnicity at the middle layer of government (entities and cantons).

• Through making this territorialization of ethnicity the main building principle of central state authorities: Presidency, State Legislature (entity voting) etc.

• Through institutionalizing Vital National Interest in entity/state legislature (House/Council of Peoples) without precisely defining it.

• through proportional representation in employment policy at state and middle layer state institutions, catering to patronage, mediocrity and provincialism

The underlying problem of these institutional elements is that Dayton Bosnia has

institutionalized two competing narratives - the one of the (ethnically cleansed) wartime Bosnia

and the one of the pre-war (multiethnic) Bosnia. These two mutually exclusive narratives lock-

in the instability of the political system and prevent the reality principle’s entry into political

life.

The results of this highly problematic form of ethnic institutionalization are:

• the distortion of all elements of the democratic political system: party system, parliamentary system, electoral system, legal system, state administration, media and civil society.

• systemic corruption.

• discrimination against the rights of national minorities and others

• instigation of ethnic fears remains the most promising political means for parties to gain and keep power, thus creating long-term insecurity and social instability

• the prevention of state functionality and of socio-economic prosperity.

• the prevention of Euro-Atlantic integration.

Indirect ethnic protection mechanisms:

The very model of a two-layer government system, in which ethnicity is already de facto

territorialized to a large extent in the municipalities (and cities) due to the results of the war,

represents a form of ethnic protection in itself. Yet the municipal level is the only existing

territorial level where ethnic identification does not prevent the citizens from demanding


39

political participation, accountability and the separation of ethnic from other life issues (socio-

economic, democratic et.al.)35.

Another element of ethnic protection against discrimination lies in the modern institutional

mechanisms to achieve (relative) territorial equality in (socio-economic) development (financial

equalization system, regional/spatial and economic development system) and equal territorial

representation (state legislature) that are part of the model.

In addition to these implicit, indirect protection mechanisms the direct ethnic protection

mechanisms must be designed in a way that they can provide real protection while avoiding the

negative aspects of the current system (especially blockage of decision-making processes).

Direct ethnic protection mechanisms:

A. Council of Peoples (CoP)/ State level

Composition: Directly elected from the territory of BiH as a whole, allowing all members of a

self-declared identity (Bosniaks, Croats, Serbs, and Others/National Minorities) to select those

who would represent their group rights in state government. Council members need/must not

be members of any political party; the top five vote earners in each group would be elected to

the Council.

Role: The Council would not legislate (though it could forward proposals to the House); its

powers would only extend to protection of Vital National Interests, as defined constitutionally.

Definition of VNIs:

• Amendments to constitution

• Culture, religion, language, national holidays and monuments � Culture: only those elements subject to state-level competence; � Education: only where related to questions of culture, language, tradition and

religion.

Procedure:

• Laws, regulations or acts approved by the HoR, if they relate to a vital national interest as defined by the constitution will be sent to the Council, where a vote on the law has to be taken no later than 30 days upon receipt of the text of the law.

35

UNDP’s 2009 study on social capital in BiH, “The Ties That Bind,” available on www.undp.ba


40

• If the law, regulation or act is rejected by 3/5 of one of the caucuses, a Vital Interest Panel at the Constitutional Court of BiH shall be addressed to decide whether the law concerned threatens the vital national interest of one or more constituent people; or

• A majority of each caucus represented in the Council can decide to return the law to the HoR for amendment and re-submission to the Council, or decide on an amendment proposal; If the HoR rejects the proposed amendment or if it does not decide on amending the law within 45 days upon receiving the Council’s decision, the law is automatically addressed to the Constitutional Court’s Vital National Interest Panel.

A Vital National Interest Panel would be created at the Constitutional Court of BiH. Its

composition would follow that of the current Panels at the Entities’ Constitutional Court, adding

to it judges from the group of others/national minorities (taking into account the recent ECHR

ruling).

The Council could meet twice monthly during the legislative session of the Parliamentary

Assembly, with provisions for rapidly convening in emergency session if need be. Councilors

need not, therefore, be professional full-time politicians, but could be drawn from a far wider

pool. A small secretariat (with staff from each group) could be maintained to keep tabs on

proposed legislation and other government measures to facilitate the work of the Council.

Effects: In this system, citizens can effectively “split the ticket” – vote for a progressive, citizen-

oriented Representative who they believe will better cater to their interests and for a strong

“junkyard dog” who would resist attempts to disadvantage his/her group’s Vital National

Interests, preventing them from being “outvoted.”

B. Distribution of key political functions at State level:

Out of the following positions no more than two and no less than one may be filled by

representatives of any one constituent people or of the group of others:

1) Prime Minister 2) President 3) Speaker of the House of Representatives HoR 4) Speaker of the House of Municipalities (bicameral state legislature concept) resp.

President of the Association of Municipalities and Cities of BiH (unicameral concept)

5) Speaker of the Council of Peoples 6) President of Constitutional Court 7) President of Supreme Court 8) Chief Public Prosecutor


41

C. Council for Inter-Community Relations (CICR, Vijeće za međunacionalne odnose) /local

level:

Composition: Directly elected from the territory of the municipality/city as a whole, allowing all

members of constituent people and the group of Others/National Minorities to select those

who would represent their group rights in local government. Council members shall not be

members of any political party.

The Council would have five members of each constituent people which represents 5% or more

of the total population according to the upcoming census and five members of the group of

Others in case national minorities represent 3% or more of the total population.

For a period of 10 years/until the publication of the results of the next census (assumed 2020-

2021) a transitional provision will be in force that guarantees 5 members o a constituent people

which represents less than 5% according to the last census, but that did represent 5% or more

in the previous, 1991 census. It shall be replaced by a new legal arrangement, to be decided

upon by a joint committee of the Municipal/City Council and the Council for Inter-Community

Relations and approved by an absolute majority of both bodies (an absolute majority of the

members of each Council caucus). The transitional provision shall remain in force until the new

arrangement is approved.

Role: The Council would not legislate (though it could forward proposals to the House); its

powers would only extend to protection of Vital National Interests, as defined by municipal/city

statute.

Yet the Council would perform a strong watchdog role. It would review issues related to inter-

ethnic relations and provide opinions and proposals which must be reviewed by the

municipal/city assembly. It would mediate in conflicts between municipal/city authorities and

between the municipality/city and its sub-municipal territorial units and its institutions that are

related to ethnic relations.

Definition of VNIs: Amendments to municipal/city statute; decisions on establishing or

abolishing of Mjesne Zajednice or City Quarters, decisions on the territorial reorganization of

Mjesa Zjednice/City quarters; Culture, religion, language, national monuments, education: legal

regulations that touch aspects of culture, language, tradition and religion; local spatial planning.


42

Procedure: Legal regulations approved by the Municipal/City Council, if they relate to a vital

national interest will be sent to the Council, where a vote on the law has to be taken no later

than 30 days upon receipt of the text of the law.

- If the legal regulation is rejected by 3/5 of one of the caucuses, the law is sent back to the

municipal/city council and an attempt must be made to resolve the objection. In the event that

this proves unsuccessful, the issue will be adjudicated by the Constitutional Court’s specialized

VNI chamber. As with the state-level Council of Peoples, the Constitutional Court’s VNI

chamber’s ruling is final.

D. Proportional representation in public authorities:

Local level

Constituent peoples and members of the group of Other/National Minorities shall be

proportionately represented in public institutions on the municipal/city level across BiH.

Public institutions are the local public administration, local offices of police and judiciary, local

social welfare and health institutions, local educational and cultural institutions and local public

companies (because of the economic aspect of refugee return).

Such proportionate representation shall follow the most recent census, starting with the

upcoming census. However, given the recent history of ethnic cleansing an element of

affirmative action shall be added:

- If the proportion of one constituent group of the overall population in a municipality/city in the recent census differs from (is less than in) the 1991 census by more than 10% but less than 20%, an additional 5% shall be added to its representation in public institutions.

- If the proportion of one constituent group of the overall population in a municipality/city in the recent census differs from (is less than in) the 1991 census by more than 20%, an additional 10% shall be added to its representation in public institutions.

This provision shall be in force for a transitional period of 10 years until the results of the next

census (2011 or thereafter) are published. It shall be replaced by a new legal arrangement, to

be decided upon by a joint committee of the HoR, the CoP and the Association of municipalities

and cities of BiH (the House of Municipalities) and approved by an absolute majority of all three

bodies (an absolute majority of the members of each CoP caucus). The transitional provision

shall remain in force until the new arrangement is approved


43

Annual reports by local authorities have to be sent to the central state authorities in charge of

Local Self-Government, containing statistical data and measures undertaken to achieve

representation. A system of sanctions/reducing state grants will be in force to react on

insufficient efforts by local authorities.

State level

Employment in central state authorities (ministries and other institutions) shall be primarily

based on merit. Proportionate representation of constituent peoples and members of the

group of Others/National Minorities shall only apply in the sense of protection from overly

underrepresentation and overrepresentation, including domination: The representation of each

of the 4 groups should not deviate +/-10% or more. At the same time the representation of one

group shall not be 50% or more.

5. Revenue Sources for State and Municipal Governance

One of the many advantages of a two-layer state structure would be to allow for streamlining

government and administrative structures, thereby reducing aggregate public expenditure.

However, the functions of governance currently performed by entities (and cantons in the

Federation) would still need to be performed, and the size and competence of the state and

municipal governments would correspondingly expand. Each level will need considerably

greater resources to perform all the necessary governance functions.

As noted earlier, the centrally distributed resources will come from the Single Account (VAT and

Customs) and the Personal Income Tax (PIT). These will be the primary source of revenue for

both the state and the municipalities. However, each will also have “own revenues” as well. In

the case of municipalities, they can levy property taxes, “add on” levies to the PIT, as well as

charges and fees for local public services. The state will receive revenues from licensing the

electromagnetic spectrum. Both layers will be able to seek financing through bond issues and

borrowing on capital markets, but in the case of municipalities only for capital expenditures.

The full revenue structure with “before and after” analysis is included in the “Fiscal Implication

of Consolidation” section.


44

VI. Financial Analysis

Tony Levitas and Jasmina Djikić

The Fiscal Implications of Consolidating BiH’s Governance Structure

A. An Overview of the Major Components of the Analysis and the Assumptions Informing

Them.

This Note summarizes the fiscal implications of consolidating the governance structure of BiH in

line with the “Municipalization Model” originally devised by the Democratization Policy Council

in February 2010 and later adopted by Coalition 143. The comparison of the current structure

of government spending with the structure of spending under the Model was conducted in

three steps.

The first step was to aggregate all public spending in BiH by level of government, and by

economic and functional category as defined by COFOG norms.36 This was a challenging task, as

much of the data is poor and often incomplete, and because the notorious fragmentation of

BiH makes it difficult to determine what public function each of the over 500 “budgetary units”

in the country actually performs. The methodology we used to consolidate the budgets of all

these institutions, and to group them according to level of government, is described in greater

detail in the accompanying Methodological Note.

The second step of the analysis was to reallocate public spending by all current levels of

government in BiH in accordance with the two-level model developed by the Democratization

Policy Council. Or to put the matter more plainly, to reapportion the spending that is currently

made by the state, 2 entities, 1 special district, 10 cantons, 143 municipalities, and at least 27

distinct funds, across two levels of government; the State and Municipalities – and three

national funds for health, pensions, and unemployment benefits.37

To reallocate existing spending in accordance with the Model we had to make two different

sorts of assumptions. The first concerned to which level of government an existing function or

expenditure should be assigned. The second concerned whether the institutional consolidation

of expenditures associated with particular functions could be expected to yield overall savings

36

COFOG, (Classification of Functions of Government) is system for categorizing public spending that was developed by the United Nations and which has become an international standard for public accounting. For more information see http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4

37 The 27 Funds are: FBiH Pension fund, RS Pension Fund, FBiH Unemployment Fund, 10 Cantonal Unemployment Funds, RS

Unemployment Fund, BD Unemployment Fund, FBIH Health Fund, 10 Cantonal Health Funds and RS Health Fund.


45

in the cost of government. Both assumptions are discussed in greater detail in the

Methodological Note. But it is useful to describe their principal characteristics here.

The basic assumptions for allocating functions across levels of government result from the

Model itself and are straightforward:

• First, all expenditures related to the costs of financing and managing primary and

secondary schools are assigned to municipalities. Because these costs are considerable –

14% of government spending (9% of public spending –including the funds) – the transfer

of these responsibilities to local government increases their share of government

expenditure considerably.

• Second, most expenditures associated with land-use planning and development,

firefighting, culture, sports, and for the maintenance and improvement of public utilities

have also been assigned to municipalities, along with some of the costs for civil

protection.

• Third, all remaining public services have been assigned to the (consolidated) State of

BiH, or to (consolidated) health, pension and unemployment funds

The assumptions governing the size of the fiscal savings that we expect consolidation to

generate are more complicated. Here, we had to make individual and somewhat subjective

judgments about the financial savings that the consolidation of particular institutions and

functions should produce. These assumptions are listed in the Methodological Note. What must

be stressed here is that we have been very conservative in our forecasts of the financial savings

that consolidation would yield.

We have been conservative in projecting financial savings in order to create a state with the

resources and capacities necessary to meet the exigencies of EU integration on the one hand,

and to monitor and enforce the quality of public services in a decentralized environment on the

other. Equally importantly, we have projected little to no savings from the consolidation of a

number of very large areas of government spending. Thus, we assume that the direct costs of

providing public order (the judiciary and the police) and primary and secondary education

(teachers’ wages) remain at their current levels even after the consolidation. Similarly, we have

left the bulk of civil service employment intact, and only reduced wage and material costs in the

budgets of the ministries and government agencies that will administer these public services

after consolidation38. Finally, we maintain current levels of expenditure on transfer payments to

38

It is worth adding here that data on existing levels of public service employment is extremely poor, both with respect to government employees providing direct public services (teachers, police workers) and government employees working in ministries and the plethora of other “administrative” or “regulatory” institutions. As result, we have not attempted to project


46

veterans and refugees, as well as for all benefit payments currently being made from the

unemployment, health and pension funds.

In all these areas, there is ample room for further savings. Indeed, the very consolidation of the

now extremely dysfunctional state administration and the various funds associated with it, will

force a comprehensive review of many issues that will undoubtedly provide opportunities for

further savings. Nonetheless, by not projecting savings from either the reduction of

employment in the actual delivery of public services, or in the level of benefits made through

transfer payments we have left two important general questions open: How should the now

very different wages and benefits of public employees be standardized in a consolidated state?

And how should we standardize the different entitlement payments now made to BiH citizens

for health, pensions, and unemployment support?

The potential for savings in these areas is contingent on political decisions requiring research

and broad social support, and are beyond the scope of this analysis. But one thing is clear from

the data: Public spending on both government and funds is higher in the Federation than in the

RS. This means that the standardization of wages, benefits, and entitlements payments that

must come with consolidation can be achieved in one of three ways: Existing public spending

can be shifted away from citizens of BiH who now reside in the Federation towards citizens of

BiH who now reside in the RS (leveling down); total public spending can be increased so that all

citizens of BiH can receive entitlements and (public sector) wages at levels equal to those

currently obtaining in the Federation (leveling up); and total public spending – at least as a

share of GDP – can be held constant, but through a combination of other savings, and the

improved performance of the economy (and hence the budget), wages and entitlements can be

leveled up. The third option is most attractive. Moreover, we think it should be achievable in a

consolidated state. It is worth stressing that under all scenarios, the share of public spending

currently going to citizens of BiH residing in the RS would increase substantially.

Despite our conservative estimates, we find that consolidation yields a savings of about half a

billion (500 million) KM. Of this half billion, 417 million comes from consolidating general

government spending, and 83 million comes from the saving that will come from consolidating

the Funds. Together, this is equal to 2% of GDP; 4% of all Public Spending (including the 3

Funds); and 7% of all Government Spending. This is not a huge number for pure financial

savings, but it is nonetheless quite significant, especially since, again, our estimates were

conservative. Equally importantly, it was not the aim of the exercise to slash public spending

the decline in public sector employment that would come with consolidation. As already indicated, we have forecast no cuts in the employment of people directly engaged in provision of public services.


47

per se, but rather to expose the inefficiencies that come from the redundancy of too many

levels of government, and too many government agencies and institutions in a small country.

Many of these inefficiencies have less to do with the wages of government bureaucrats or to

the other operating costs of the institutions that they occupy than with the fact that most

government institutions try to maximize their discretionary spending. The fragmentation and

redundancy of government institutions in BiH today means that there are over 500 public

institutions making grants and transfer payments to other levels of government, to private

firms, and to individuals. This creates a great chain of grant making and grant taking that is not

only inefficient but rife with corruption, patronage and dependency. The real costs of this

corruption, patronage, and dependency are of course difficult to measure, either financially or

in terms of the quality of public services.

Similarly, we can assume that the fragmentation and redundancy of government institutions

acts as real drag on the entire economy: Overlapping and redundant government bureaucracies

not only attempt to maximize their discretionary spending, but to extend their administrative

domains. This means that the interface between “the government” and most economic agents

is confused and contorted. Firms are forced to dance with a hydra of institutions and agencies,

each demanding its own form of compliance for similar goods and services. Many firms collapse

from the effort while more are just drained of the energy and resources necessary for

expansion and creative pursuits. Needless, to say, all of this also discourages the foreign direct

investment that BiH so desperately needs. We have, however, left the quantification of these

losses in terms of either private sector employment or GDP growth to others more expert in

these matters than ourselves.

Nonetheless, we think three things should be clear: First, the real costs of administrative

redundancy are not so much in the wages and operating costs of government bureaucracies,

but in the overregulation and patronage that comes from having too many similar

bureaucracies giving out grants, licenses, and permits, and competing to control the same

regulatory space. Second, even a conservative approach to consolidation yields savings equal to

2% of GDP, a figure which sounds small but which is actually quite significant. After all, most

OECD countries spend somewhere between 3-5% of GDP on primary and secondary education.

And third, that both the immediate financial savings we project and the more intangible gains

that will come from reducing government grant making and overregulation will improve the

performance of the economy, and then again that of the state budget.

In consolidating government institutions across two levels of government – the state and

municipalities – we have also had to make assumptions about how the myriad of existing grants

and transfers between should be allocated to each level, and how much of the current


48

discretionary spending should be considered “pure savings.” Again, we have been relatively

conservative in projecting pure financial savings when consolidating discretionary spending.

Instead, we have either assigned this spending to the new consolidated state, or to

municipalities. Here, two things should be noted.

First, by leaving the new State with considerable, but nonetheless reduced discretionary

spending, we have opted for a relatively strong state. By this we mean a state that has the

capacity to maintain public order, make strategic interventions into the economy, create and

enforce the standards necessary to ensure quality public services in a decentralized

environment, and meet the exigencies of EU integration. How strong the state should be, is of

course a matter of “taste” and it is certainly possible to adjust our assumptions to generate a

more modestly sized central government.

Second, when we assigned new functions to local governments, we also assigned them most of

the grants and transfers that higher levels of government are spending on these functions

today. Thus, the current costs of most capital and operating grants and transfers to schools;

public utilities; land-use and land planning institutions; and some social welfare functions have

been shifted to municipal budgets, but as general revenues coming through either

unconditional transfers or other freely disposable revenues (shares in national taxes or own-

revenue). What this means is that while the Model undoubtedly strengthens the state, it also

makes local governments much more powerful and financial autonomous than they are

presently.

This brings us to the third and final step in the analysis, namely to broadly sketch out how the

intergovernmental finance system would work after consolidation, with only two levels of

government – the state and municipalities of BiH. Here we make two fundamental

assumptions.

First, the vast majority of the funding local governments will need to pay for the cost of primary

and secondary education will come to them through an earmarked, weighted, per-pupil grant

that is expressed as a percentage of the Single Account (known popularly as the VAT Fund).39

Designing the per-pupil financing system, developing new teaching standards and curricula, and

monitoring how local governments spend their education grants to improve the life chances of

children in BiH, would be the responsibility of the new Ministry of Education. At the same time,

local governments would become responsible for hiring and firing school teachers – including

39

The Single Account was created in 2006 when sales taxes throughout BiH were replaced by a single, state-level Value Added Tax or VAT. As a result the Single Account is often referred to as the VAT Fund or VAT Account. Technically, however this is a misnomer because all indirect taxes (e.g. excise taxes and customs duties), and not just VAT proceeds flow onto the Account.


49

school directors – for maintaining and improving school facilities, and for rationalizing school

networks.40

Second, money for other new functions assigned to municipalities will come primarily from a

combination of new, freely disposable revenues. These will include an expanded share of the

Single Account that currently goes to municipalities for general purposes, an expanded share of

Personal Income Taxes; and greater own revenue powers. Moreover, we assume that the

expanded share of the Single Account that will flow to municipalities for general purposes will

include stronger equalization provisions to ensure that all local governments – even those with

weak tax bases – will have the revenues necessary to provide quality public services to their

citizens.

B. Public Spending in BiH Today and After Consolidation

Table I below summarizes the major shifts in the composition of public expenditure for BiH as a

whole that would come with implementation of the Model using the assumptions that we have

outlined above. As can be seen from the Table, total public spending (including the Funds) as a

percentage of GDP declines from 47.1 percent (11.63 billion KM) today to 45 percent of GDP

(11.13 billion KM) after consolidation, a savings of roughly 500 million KM, or 2 percent of GDP.

Government spending declines from 30.2 percent of GDP to 28.5 percent of GDP, while

spending on the Funds declines from 16.9 percent to 16.5 percent of GDP.

Most importantly, from our point of view, however, are the shifts in funding presented in the

next to last two rows of the Table, and in the last column. Starting from the bottom, we can see

that Municipal Spending increases from 7 percent to 12.3 percent of GDP, a rise of 75 percent.

This is the hard evidence that the Model significantly increases the role and importance of local

governments in the new government system of BiH. At the same time, spending by all other

levels of government declines from 23.2 percent to 16.3 percent of GDP - a decrease of almost

30 percent. This is the hard evidence that while the Model significantly strengthens the state by

consolidating the current plethora of higher levels of government, it also significantly reduces

the discretionary powers of higher level government as a whole. It is this simultaneous

movement of placing more responsibility for the direct provision of public services closer to the

people through local governments and the reduction of the discretionary powers of the state

40

The Ministry of Education will establish common professional standards for primary and secondary-level educators. Also, under the Model, we assume that local governments will have control of a limited number of teaching hours for programs of their own design. This is theoretically the case even now, but this time has been reprogrammed for nationally-oriented curricula.


50

that will produce most of the (hard to measure) gains in economic vigor, accountability, and in

improved public services.

Table I

Comparison of Public Spending Before and After Consolidation (2008 KM)

Current After Consolidation

Mln KM % GDP Mln Km % GDP % Change

Total Public spending as % of GDP 11,633 47.1% 11,133 45.0% -4.3%

Government Spending as % of GDP 7,467 30.2% 7,050 28.5% -5.6%

Spending on Funds as % of GDP 4,165 16.9% 4,083 16.5% -2.0%

Government Spending without

Municipalities as % of GDP 5,913 23.2% 4,020 16.3% -30.0%

Municipal Spending as % of GDP 1,724 7.0% 3,030 12.3% 75.8%

Savings as % of GDP na na 500 2.0% na

Table II below compares government spending by level of government before and after

consolidation. As can be seen from the Table, total per capita spending by all levels of

government would decline from 1,943 KM per person to 1,830 KM per person after

consolidation. This reduction reflects the decline in the cost of government – without the funds

– of 417 million KM.

Table II

Costs of Governance by Level of

Government Today

Costs of Governance by Level of

Government after Consolidation

Mln KM %

GDP

Per

Capita Mln KM

%

GDP

Per

Capita

BD 170 0.7% 2,246 Municipalities 3,030 12.3% 789

RS 2,173 8.8% 1,511 BiH 4,020 16.3% 1,047

FBiH 4,300 17.4% 1,847 All levels of

Government 7,050 28.5% 1830

BiH 824 3.3% 214 Savings 417 1.7% 130

All Levels of

Government 7,480 30.3% 1,943

After consolidation, total government spending on BiH citizens who reside in the Federation

would stay about the same while government spending on those residing in the RS would

increase from 1,511 KM per capita to 1,830 KM per capita, an increase of 22%. Chart I

illustrates this.


51

Chart I

Table III below presents the same information for the Funds. The Table must be treated with

some caution because it does not capture the full value of unemployment and pensions funds

in Brčko District, and because it may underrepresent fund spending on unemployment in the

RS.41 Moreover, it must be remembered, that the payroll taxes used to finance the funds are

higher in the Federation than in the RS.

As can be seen from the Table we are forecasting that the consolidation of the funds will

generate 83 million KM in savings from administrative costs (not benefits). More importantly,

what the Table shows is that spending by the Funds is more than 60 percent higher per capita

(c. 500 KM) in the Federation, than it is in the RS42. After consolidation, and as we have already

discussed, these differences will have to be equalized, either by leveling-up or leveling down. In

the right hand side of the Table, we have assumed for the purposes of illustration that benefits

will be leveled down, meaning that after consolidation spending on health, pension and

unemployment benefits for citizens of BiH who currently reside in the Federation would

decrease 20 percent from 1,200 KM per capita to 1,062, while they would increase 30 percent

for those who reside in the RS, rising from 721 KM per capita to 1,062 KM. Benefits, however,

could also be leveled-up by putting new money into the Funds. The cost of bringing the benefit

levels of all citizens of BiH up to those currently obtaining in the FBiH would be approximately

700 million KM, or about 200 million KM more than the Model anticipates generating in

41

In the Model, we have included the RS Fund for Child Support (50 mln KM) in the costs of governance, and not as part of the Funds. This may be misleading, in as much as the bulk of these payments probably go to underemployed households and may rightfully be considered unemployment benefits. Similarly, we have included Veterans’ Benefits not in the funds, but in the costs of governance. Because veteran spending is higher in the Federation than in the RS in per capita terms, this inflates the difference in current per capita spending on governance by the entities in favor of the Federation. 42

See the Appendix for a discussion of the origins of the savings.


52

immediate financial savings. We are confident that this difference can be extracted from

potential savings, contingent on policymakers’ decisions.

Table III (Assuming Leveling-Down)

Cost of Funds by Level of Government Costs of Funds in a Consolidated BiH

Mln

KM

%

GDP Per Capita Mln

KM

%

GDP

Per

Capita

BD 16 0.0% 211 All

Funds 4,083 16.5% 1,062 RS 1,346 5.4% 721 Savings 83 .03% 13

FBiH 2,804 11.3% 1,204

All Funds 4,165 16.8% 1,081

Charts II and III on the next two pages present graphically the composition of public spending

before and after consolidation. Chart II significantly under-represents the degree of

fragmentation in BiH today because each Canton actually has its own Health, Pension and

Unemployment funds. Chart III slightly under-represents the degree of consolidation that is

achieved, since the financial savings produced by consolidation are included in the picture.


53

Chart II

BiH

824

7%

FBIH

1,496

13%

RS

1,431

12%

Cantons

1,992

17%

FBIH municipalities

812

7%

RS municipalities

742

7%

Brcko District

170

2%

FBiH Pension

1,544

13%

FBiH Health

1,003

9%

FBiH Unemployment

257

2%

RS Pension

821

7%

RS Health

494

4%RS

Unemployment

31

0%BD Health

13

0%

Other

4,165

35%

Composition of Public Spending in BiH in 2008(in mln KM) (7.4 bln Government, 4.2 bln Funds)


54

Chart III

Municipalities

3,030

26%

BiH

4,020

35%

Savings

500

4%

Health Fund

1,489

13%

Pension Fund

2,345

20%

Unemployment Fund

249

2%

Other

4,083

35%

Compostion of Public Spending in BiH after

Consolidation(in mln KM) (7.05 bln Government, 4.08 bln Funds, 0.5 bln Savings)


Table IV below shows the composition of government spending by level of government –

without the Funds – and by economic expenditure type in 2008. As can be seen from the Table,

the combined spending of the cantons and the Federation government on both wages and

material costs is more than twice that of the RS, despite the fact that the Federation has a

population that is only 60 percent larger than its smaller counterpart. Moreover, the vast

majority of expenditures on wages and material costs are being made by the cantons, which are

clearly the source of much of the redundancy of government institutions in BiH as a whole.

Even more striking is the fact that total investment spending (Capital Grants and Capital

investments) undertaken by the cantons and the Federation Government is 4.3 times higher

(350 million KM vs. 80 million KM) than in the RS. Similarly, the cantons and the Federation

government spend almost 2.7 times as much on current grants than the RS (1,310 million KM

vs. 485 million KM). This is partly because of the high level of transfer payments that are made

to veterans and refugees in the Federation, spending that we have left untouched in the Model,

but which would need to be equalized across the former entities after consolidation. In part,

however, both the higher capital spending and the higher spending on current grants reflect

the increase in discretionary spending that accompanies redundant institutions. So once again,

the reallocation of spending that will come with consolidation will shift what is currently

discretionary spending by the Federation and the cantons towards citizens of BiH who currently

reside in the RS.

Table IV

Composition of Government Expenditure in BiH by Level of Government in 2008 (mln KM)

BD Cantons FBiH RS RS

Local

Govs

FBIH

Local

Govs

BiH Total

Wages 62 1,044 242 596 160 196 550 2,849

Material costs 35 214 73 157 135 131 176 922

Current grants 44 521 789 485 131 176 31 2,177

Capital grants 0 79 69 1 11 160 0 321

Capital investment 21 115 82 78 267 141 66 770

Lending 8 7 5 25 14 1 0 59

Debt repayment 0 15 236 89 24 6 1 373

Total 170 1,995 1,496 1,431 742 812 824 7,470

% of Total Government Expenditure 2.3% 26.7% 20.0% 19.2% 9.9% 10.9% 11.0% 100.0%

But if spending by middle level governments is skewed strongly in favor of the Federation,

spending by local governments is skewed – though much less strongly – in favor of the RS.


56

Spending by RS municipalities on wages and current grants are respectively 20 and 25 percent

less than in the Federation, despite the fact that the population of the RS is an estimate 40

percent smaller. Even more striking, given the different population of the two entities, is the

fact that RS municipalities spend roughly the same amount of money on total investments

(capital grants plus capital investments) and material costs. As such, it should be clear that

municipalities in the RS are relatively better off financially than their counterparts in the

Federation.

Chart IV below presents the same data contained in the last two lines of Table IV in pictorial

form, while Chart V presents the composition of government spending by level of government

after consolidation. As can be seen from the Charts the share of municipal spending in total

government spending increases from 23% today (FBiH municipalities, RS municipalities, and

Brčko District) to 43% after consolidation. Or put another way, these Charts show the increased

importance of municipalities in the governance structure of BiH as reflected in their share of

government spending, as opposed to their share of spending as a percentage of GDP (Table I

above).

Chart IV

Chart V


57

BiH4,02057%

Municipalities3,03043%

Composition of Government Spending in

BiH After Consolidation (mln KM)

Chart VI below shows the shift in the basic composition of municipal revenues produced by

consolidation. But the Chart is really based on expenditures, meaning it shows the existing

municipal expenditures in terms of revenues, plus the new “revenues” municipalities will

receive for assuming expenditure assignments that are currently being performed by other

levels of government. As can be seen from the Chart, the lion’s share of the increase in

municipal revenues (expenditures) comes from their new responsibilities for the financing and

managing primary and secondary schools. Indeed, the assumption of new responsibilities in the

education sector will require 960 million KM in new revenues, and will account for 32% of all

municipal government expenditures of after consolidation (three-quarters of new municipal

revenue). Meanwhile, municipalities will receive another 347 million KM in revenues for other

expenditure responsibilities that have been assigned to them. As we have noted earlier, these

other new responsibilities fall primarily in the areas of urban land management and planning;

civil protection; and the operation, maintenance and improvement of local public utilities,

sports and culture.


58

Chart VI

Table V below, explains in somewhat greater detail what is actually going on. The first column

shows the existing composition municipal expenditures. This column is interesting because it

shows that 35 percent of all municipal spending is on Capital Investments and Capital Grants,

with the latter going mainly to public utilities. Another 20 percent is spent as Current Grants, in

the form of (operating) transfers to public utilities, NGOs and individuals. Only 24 percent of

municipal expenditures are currently spent on wages, and 17 percent on material costs.

Table V

Composition of Municipal “Revenues” and “Expenditures” Today and after Consolidation (mln KM)

Municipal

Expenditure

Today

% New

Education

Funds

%

New

Disposable

Income

% Post

Consolid. %

Wage bill 417 24% 788 82% 54 16% 1,259 42%

Material costs 301 17% 82 9% 36 10% 419 14%

Current Grants 352 20% 40 4% 99 29% 491 16%

Capital Grants 172 10% 18 2% 23 7% 212 7%

Capital Investment 429

25% 32

3% 135

39% 596

20%

Lending 14 1% 0 0% 0 0% 14 0%

Debt repayment 38 2% 0 0% 0 0% 38 1%

Total 1,724 100% 959 100% 347 100% 3,030 100%

percent of total 57% 32% 11% 100%


59

The second column shows the total amount of spending on wages and material costs that

higher level governments (cantons and entities) are currently spending on primary and

secondary schools, as well as almost all of the grants and capital spending that higher level

governments are currently devoting to pre-tertiary education. All the wage and material costs

for primary and secondary schools have been assigned to municipalities, but a small fraction of

the grants and capital expenditures that higher levels of government are currently spending on

education have been assigned to the state. This has been done to provide the state with a

limited amount of discretionary funding to pursue strategic objectives in the sector.

More than 90 percent of the expenditure responsibilities being asigned to municipalities for

primary and secondary education is for wages (788 million KM, 82%) and material costs (82

million KM, 8.6%). This means that realitively little of what is currently spent on the function by

higher level governments is spent as grants or capital invesments. In the Model, virtually all of

the grants and capital investments that higher level governments are currently spending on

primary eduction will now be transferred to municipalities (90 million, 10% of total education

funding) as part of an education transfer from the Single Account.

Municipalities will be required to spend their education transfers on education. But within the

educational sphere, they will be free to spend this transfer as they see fit, as well as to

contribute other municipal revenues towards the improvement of their school systems. As a

result, if a municipality spends less of its Education Transfer on wages because it has

consolidated classrooms and/or schools, it will have more to spend on improving facilities and

teaching conditions. Conversely, if a municipality chooses to maintain its current school

network and classroom sizes, it may find itself under pressure to contribute other revenues to

the support of its schools in order to maintain reasonable standards, or to keep up with the

standards being created by its neighbors.

The column in the Table labeled “New Disposable Income” is a composite of all the other

functions that under the Model have been assigned to municipalities. As can be seen from the

Table, 74 percent of the 347 million KM in new money being given to local governments is

currently being spent by higher levels of governments on grants and investments in functions

that will become entirely municipal, such as urban and land use planning, maintaining and

improving public utilities, and supporting local cultural institutions. Conversely, only 16 percent

of these new disposable funds are currently being spent on wages and only 10 percent on

material costs, mostly in the areas of civil protection and firefighting.


60

The last column in the Table shows that total municipal revenues will increase from 1.7 billion

to over 3 billion after consolidation. After consolidation, the combined share of municipal

expenditures on Current Grants, Capital Grants and Investments will decrease from 55 percent

of total spending (column 1) to 43 percent (column 4). Meanwhile spending on wages and

material costs will rise from 41 percent of municipal expenditures to 66 percent. The reason for

this increase is again the overwhelming financial significance of making local governments

responsible for teachers’ wages after consolidation.

Chart VI below compares the composition of government spending by level of government

before and after consolidation. As can be seen from the Chart, all categories of municipal

expenditure increase after consolidation, while all categories of spending by higher levels of

government – in this instance the new consolidated state – decrease. The most dramatic shift is

in expenditures on employment, due principally to the already discussed shifting of

responsibility for teachers’ wages from higher levels of government to municipalities. But a

similar and very important trend can be seen in discretionary spending. Before consolidation,

higher level governments controlled 2.2 billion KM of spending on investments and capital and

operating grants; after consolidation this figure drops by 400 million to 1.8 billion KM, a decline

of 18 percent. Conversely, before consolidation municipalities controlled 950 million KM of

spending on investments and capital and operating grants, while after consolidation this figure

increases by 350 million KM to 1.3 billion.


61

Chart VII

What this means is that consolidation has at once made the higher level of government leaner,

meaner and less discretionary, while putting more freely disposable money in the hands of

municipal governments to meet the needs of their citizens. The Model generates pure financial

savings equal to two percent of the GDP, radically reduces costly administrative fragmentation

and redundancy, limits the discretionary powers of higher level governments, and expands the

fiscal autonomy of municipalities.

C. An Outline of the Revenue Structure of a Municipalities in a Consolidated BiH

Table V below presents the revenues of municipalities in the RS and the Federation in 2008, as

well as the revenues of Brčko District. The data for the RS and the Federation are from the

annual budget execution statements that all levels of government are obliged to prepare (the

so-called GIB forms) while the data for Brčko District, are imputed because we did not have

revenue data for the District.43 The total revenues of the municipal sector (including Brčko

District) are about 136 million KM less than the total expenditures that were used as the basis

for the Model in the previous section of the report. While it is rare that revenues and

43

To derive imputed types of revenues for Brcko we have multiplied the total expenditures of the District –less spending on the Health Fund—by the share of each revenue type in the total revenues of FBiH and RS municipalities.


62

expenditures completely balance this difference – equal to 8.5% of total revenues – is on the

high side and not easily explained.44

Table VI

Structure of Municipal Revenues in 2008 (mln Km)

Revenue Type RS

2008

% of

Total

FBiH

2008

% of

Total

Brčko

2008

(imputed)

Total Muni

Revenues

in 2008

with Brčko

% of

Total

Shared Wage Tax 45.9 7% 74.1 10% 14.4 134.4 8%

Property & Other Taxes 31.5 5% 94.2 12% 12.7 138.5 9%

Single Account Revenues 317.0 50% 201.4 26% 62.2 580.7 37%

Asset Revenues 34.3 5% 95.1 12% 15.5 145.0 9%

Fees and Charges 147.1 23% 154.4 20% 34.7 336.2 21%

Operating grants 14.9 2% 123.2 16% 16.6 154.7 10%

Asset Sales 19.4 3% 14.8 2% 4.1 38.2 2%

Capital Grants 30.1 5% 19.3 2% 5.9 55.3 3%

Total 640.2 100% 776.6 100% 170.0 1,586.8 100%

The most significant differences in the composition of municipal revenues between the RS and

the Federation lie in the much higher share of (general) revenues RS municipalities derive from

the Single Account, and the much lower share of (earmarked) revenues they derive from

Operating Grants from higher levels of government. At least according to law (if not practice),

local governments in the RS currently have more financial autonomy than their counterparts in

the Federation.

As described earlier, the Model assumes that following consolidation municipalities will be fully

responsible financing and managing primary and secondary schools. It also assumes that in

order to finance this new responsibility, municipalities must be provided with the same amount

of funding that higher levels of government are currently spending on pre-tertiary education. In

2008, this amounted to about 960 million KM. Similarly, we assume in the Model that

education will remain – as it is in most countries – a shared function: The state government will

set standards and provide local governments with the vast majority of the funds they need to

run schools, but local governments will be free to contribute additional revenues to the sector

and to manage schools as they see fit, so long as they meet those standards.

44

It is probably explained in part by the notoriously poor reporting of some local government revenues including income carried over from the previous year and in part by expenditures that have been incurred but not paid for (payment arrears)


63

In line with these assumptions, local governments would receive an earmarked transfer from

the Single Account for Primary and Secondary Education. The total value of the transfer pool

would be set by law as a percentage of the Single Account, ensuring that funding for education

would increase with the economy as a whole. At the same time, the allocation of the transfer

pool created from the Single Account would be allocated to municipalities in accordance with a

formula. The basic driver of the formula would be the number of pupils attending school in a

given jurisdiction. But the formula would be weighted to take into account the different costs of

educating different types of pupils (e.g. the handicapped), in different types of schools (e.g.

primary, secondary, vocational) as well as in different types of demographic environments (e.g.

rural and urban). It is obviously, beyond the scope of this exercise to design this formula now,

but certain basic effects of the new system can be examined.

Table VI below presents current spending on primary and secondary by all higher levels of

government in the RS and the Federation today. The Table does not include spending on

education by local governments.45 As can be seen from the Table, higher level governments in

the Federation spends about 250 KM more per pupil on primary and secondary education than

the RS government does.

Table VII

Current Spending On Primary and Secondary Education

Expenditures on Primary and

Secondary Schools

Primary and Secondary

School Pupils

Per pupil

Expenditures

RS 257,601,922 162,928 1,581

FBiH 634,940,023 346,402 1,833

BiH 892,541,945 509,330 1,752

Table VIII below presents the basic dimensions of the new Education Transfer. The Transfer

would be set equal to 19.5 percent of the Single Account in order to yield not just the 892

million currently spent by higher level governments, but an additional 66 million of grants that

are currently spent on education by various education Ministries (together 959 million). Most

importantly, and has can be seen from the Table the basic per pupil norm (without weighting)

for education throughout BiH would increase from 1,752 (Table VII above) to 1,883 KM, an

increase of 50 KM over current levels in the Federation and of over more than 300 KM in the

RS.

45

In the RS, local governments are legally responsible for maintaining the facilitates of secondary schools but not primary schools; in the Federation, local governments in Cantons 7 and 8 pay for the maintenance of both primary and secondary schools, while in all other cantons, it is – at least in theory – the cantons who cover these costs.


64

Table VIII

Value of the Education Transfer as % of the Single Account & in Per Pupil Terms

% of Single Account Value in KM

Number of

Pupils Per Pupil Norm

BiH 19.5% 959,314,875 509,330 1,883

The Model also anticipates an increase of municipal revenues by an additional 347 million KM

in order to cover the costs of functions now being paid for by higher levels of government and

which will be transferred to local governments. It also assumes that many of the current grants

that local governments receive – primarily in the Federation – should be transformed from

earmarked grants into general revenues.

This however, raises the question of how these general revenues should be provided to local

governments. Our basic answer is that these additional general revenues should be assigned to

local governments in two ways: Through an increase in the municipal share of the statewide

yield of the Personal Income Tax (PIT); and through an expanded share of the general purpose

monies that they currently receive through the Single Account. For the purposes of the Model

we have assumed that all local governments will receive 50 percent of the PIT revenues

generated in their jurisdictions (up from 25 percent in the RS and 34.4 percent in the

Federation) and that half the amount of funds that local governments currently receive in

operating grants would be converted into general revenues. Table IX below shows the effects of

the changes in KM.

Table IX

Comparison of Municipal Revenues Before and After Consolidation (mln KM)

Revenue Type

Total Muni

Revenues in 2008

(with Brčko)

Municipal Revenue

After Consolidation

Consolidated

Municipalities

(differential with

2008)

Shared Wage Tax 134 202 +68

Property Taxes 119 119 0

Other Taxes 22 22 0

Single Account Revenues 581 937 +356

Asset Revenues 145 145 0

Fees and Charges 324 324 0

Other Non-Tax Revenue 14 14 0

Operating grants 155 77 -77

Asset Sales 38 38 0

Capital Grants 55 55 0

Transfer for Education 0 959 +959

Total 1,587 2,893 +1,306


65

Total local government revenues increase by 1.3 billion KM, of which 959 million comes from

the new Education Transfer, 347 million from the combined increase in the PIT and Single

Account share minus the operational grants that we have converted into general revenues to

reduce the discretionary powers of the state. We have however, left the current level of Capital

Grants untouched on the grounds that there will still be investments in the municipal sector

that local governments will need some support to realize. It is also worth noting that the own

revenues of local governments should also increase after consolidation, particularly in the

Federation, where land use and issuance of construction permits is often controlled by cantonal

authorities.

Table IX below compares the percentages of the Single Account municipalities – including Brčko

District – received in 2008 (5.80 billion KM) with the share they would receive after

consolidation and in line with the assumptions presented below. As can be seen from the Table,

the share of the Single Account that all municipalities would receive – including Brčko District –

would increase from 11.8 percent to 19 percent. This increase would raise the average per

capita general grant for local governments from its current level of 151 KM per person to 244

KM per person. For RS municipalities the average per capita increase would be about 24 KM per

person or 10% more than current levels. In the Federation, where local governments currently

get much more of their revenues from earmarked grants and much less of them from the Single

Account, the shift would be much more dramatic: per capita municipal revenues from the

general grant component of the Single Account will almost triple, rising from 87 KM to 244 KM

per capita.

Table IX

General Grant as a % of the Single Account

KM % of SA Per Capita

KM

RS 317,022,597 6.4% 220

FBiH 201,435,894 4.1% 87

Brčko (imputed*) 62,209,647 1.3% 16

Total Today (with Brčko) 580,668,138 11.8% 151

Total After Consolidation 937,120,244 19.0% 244

*Because we could not obtain the revenue numbers for Brčko District, its share of the Single Account has been imputed here. The amount in the Table understates the real value of Brčko’s share.

As with the per pupil education transfer, however, modeling the allocation of the general

transfer to individual local governments is beyond the scope of this exercise. This problem is

analogous to the problem of designing the specific coefficients used to weight the per pupil


66

formula we have discussed above. But here, the formula should take into consideration not just

the relative costs of providing different services in different jurisdictions, but above all the

relative wealth of the jurisdictions themselves. In other words – and as is done today in both

the Federation and the RS – the share of the Single Account that any particular jurisdiction

would receive would be adjusted by coefficients designed to ensure that poorer jurisdictions

got additional funding. The key consideration in designing this formula would be to ensure the

horizontal equalization of local government revenues so that poor jurisdictions and

underdeveloped regions have sufficient funds to provide adequate public services and develop

themselves.

Moreover, if the overall level of equalization achievable through the direct application of the

formula was deemed insufficient, some of the half billion KM in savings generated by the Model

could be set aside as distinct Infrastructure Development Fund for Underdeveloped

Municipalities. The purpose of this Fund would be to provide capital grants to municipalities

whose existing infrastructure endowments lagged considerably behind those of other

jurisdictions.


67

Appendix I

A Note on the Origin of the Savings Generated by the Model

As described in the Report and the accompanying methodological note, the Model generates

financial savings equal to 500 million KM. Of this amount, 83 million comes from the savings

that we project will come from the administrative consolidation of the funds. These savings will

come from consolidating the administrative costs of 27 distinct funds into 3 funds; a state

health fund, a state pension fund, and a state unemployment fund. Or put another way, none

of the savings we anticipate coming from the consolidation of the Funds, comes from reducing

money currently being spent on the actual delivery of health, pension, and unemployment

benefits.

The remain 417 million in savings represent the amount of money we think can be saved after

all existing government spending is allocated to either the state government or to

municipalities with consolidation. The Chart below presents this total amount of savings (with

the Funds) in relation to total government spending (without the funds) after consolidation.

The Table below presents the origin of the savings by economic expenditure type. This Table,

like Table V in the body of the report must be read with caution, particularly with respect to the

municipal columns. This is because the Table presents the amount of money we have taken

from different economic expenditures categories and given to the state and municipalities as

revenues, and to savings as savings. As such, the line items for the state and municipalities

should not be understood as revenue types. Indeed, under the Model, and as we have

explained in the text, the vast majority of the current grants, capital grants, and investment

monies that municipalities will receive will no longer be in the form of grants, but as part of

either formula-based transfers from the Single Account, or new revenues from a higher

personal income tax (PIT) share.


68

What the Table does clearly show is that 58 percent of all savings will come from reducing the

wage and material costs associated with redundant government institutions (34 percent wages,

24 percent material costs), and 42 percent of it will come from reducing the discretionary

spending associated with this redundandcy (current grants 22 percent, capital grants and

investments 20 percent)

The Origin of Savings by Economic Classification of Expenditures (mln

KM)

State Munis Total Savings % of

Savings

Wage bill 1,458 1,259 2,717 172 34%

Material costs 404 419 823 120 24%

Current grants 1,443 491 1,934 111 22%

Capital grants &

Investment 338 808 1,147 99 20%

Lending 34 22 56 0%

Debt repayment 342 30 373 0 0%

Total 4,020 3,030 7,050 501 100%

Percent of Total 57% 43% 100% 7%

Appendix II

Where to spend the savings?

The movement toward the model has yielded a certain amount of savings across different

sectors. The big question is how to best use the potential savings and what goals can be strived

toward using the opportunity this reform is offering. Here we list a few ideas that encourage

most efficient and productive use of the savings.

A drive for the decrease of the government sector – this approach implies going back to the

model and deciding which public revenues to decrease in order to lower the tax burden on

citizens and business and what goals would be achieved. For example introducing a VAT with

several rates could allow for lower tax burden on basic goods in theory leading to poorest

society members staying with more disposable income. Deciding to cut contributions, on the

other hand would lower the burden on employers and encourage more employment as the

labor force would thus become cheaper, possibly even making BiH more competitive when

attracting potential investors (both domestic and foreign).


69

Reform of the pension sector - BiH’s pension systems are still very much dependent on Pay as

you go model that with aging population and low employment led to a pension system that is

currently groaning under the weight of the number of pensioners that have to be supported by

the currently employed work force. Use of the savings to develop a program of support for the

transformation of the current system to a different one (whichever is selected) would enable a

transition period that would within a space of at least a decade move away from the solely Pay

as you go system.

Accelerated repayment of public debt - the public debt in BiH has dramatically increased during

the last year due to the effects of the international crisis and it has taken a substantial debt

from the IMF in order to cover the public expenditure needs in that period. The savings can be

used to lower the country’s debt burden and open space for debt for public investment projects

instead.

Reform of the Health care system – the system of public health care provision is widely deemed

a nightmare for any patient incautious enough to actually get sick and need those services. The

savings could be allocated to the endeavor of reforming the public health care systems and to

improve the quality of service that the citizens receive.

Severance programs for the laid off public workers – the savings are partially made through

laying off a number of public sector employees, and beyond the severance payments that they

are eligible for by the law, part of the savings could be used to fund short term programs to

help the newly laid off either start their own ventures or get them new skill sets for finding

work in different places. As well, a ploy similar to what was done during the decrease of the

Defense Ministries in Entities could be undertaken – a cash one off payment to everyone that

willingly leaves the public employment, coupled with programs that will provide some guidance

about how to use the funds to their best effect (IOM was heavily involved at that time and

provided expertise and assistance).

Public Investment programs – finally, the savings could be used to move faster on agreed

priorities in area of public investment, which demand significant funds. One of those examples

is the Corridor V-C, others can include such investments as the green technology use in public

sector, waste disposal and water supply investments across BiH.


70

Methodological notes

Gathering and organizing the information to develop the model was a lengthy process

consisting of several steps. Each had its own challenges and issues that needed to be resolved.

The country’s complicated structure made such issues inevitable. There are two official charts

of accounts being applied in the entities (the Federation of BIH – FBiH – and the Republika

Srpska – RS) and two unofficial (in Brčko District – BD and for the state of BiH) leading to

differences in accounting and presentation of information. This made data consolidation

difficult. One of the largest problems is a lack of transparency, which forced us to turn to third

party sources to obtain information about budget execution of different governments and

funds. While not our target in this exercise, we have documented these difficulties and

described them in greater detail in a separate annex.

Step 1 – data gathering

The sources of information were:

• the budget execution documents of individual governments analyzed,

• adopted FBiH budget, the annual budget execution reports for municipalities made by

entities Ministries of Finance,

• the Indirect Tax Authority’s Macroeconomic Analysis Unit’s consolidated reports for

2008,

• Central Bank reports on government finance and the reports published on websites of

entities health, pension and unemployment funds.

For statistical information (e.g., GDP estimates, numbers of pupils and citizens) we relied on the

BiH Statistics Agency and the entities’ statistical institutes.

The lack of information about expenditures for the off-budget funds (health, pensions,

veterans’ benefits, and unemployment) was among the most daunting problems we

encountered. While the Federation Health Fund published on its website detailed information

about its expenditures, and expenditures of the cantonal funds, the same cannot be said of any

other off-budget fund in the country. Their publicly available information was extremely poor.

In some cases, such as pension funds, these sources provided information about the pension

payouts, but nothing about the actual financial situation of the fund itself. For instance, the RS

Health Fund only provided information about expenditures, such as primary and secondary

health care. No higher level of detail about the fund itself, or specific allocation according to

economic codes, was made available.


71

In addition to going to the funds, we tried also through contacts with other international

organizations working in those fields (such as the World Bank) to obtain more detailed

information. We found out that the funds were no more forthcoming with information to them.

In the end, we relied on the information gathered by the Central Bank (obtained from the

World Bank) to discern the finances of the off-budget funds. Due to the poor quality (and

quantity) of data available, a more detailed analysis of their expenditures was impossible. The

use of BiH Central Bank data to plug the holes, while necessary, has a drawback. Capital

investment, debt and acquisition of non-financial assets (investment in companies’ shares, or

lending) are shown as a net value; it is not certain what the actual expenditure in these

categories is for the funds. For the purpose of data consistency, the Central Bank information

was used for all off-budget funds (pension, unemployment, health and the RS Children’s fund).

Besides this outright unavailability of data on the various funds, we were unable to find

sufficient information in certain areas in budget execution documents. Therefore, these data

gaps had to be leaped with a series of assumptions.

Information was completely lacking on the number of public employees in the RS (both budget-

funded institutions and RS Funds), Canton 1, Canton 3 and individual municipalities in both

entities.

To overcome this lack of data, we averaged out the number of employees (where we had

them), and picked an average for those governments that did not provide the information to try

and assess the number of employees.

While average wage is a way to determine the number of employees, this method is far from

ideal. Some functions within a government are better paid than others. Thus, we can assume

our numbers probably influence the number of teachers negatively (they are bound to have

lower wages) and positively the employees within ministries (who are usually better paid). This

will act as a distorting factor on any analysis done that takes as input the number of employees.

However, the distortion should not be too severe on average.

Step 2 – data organization and sorting

After gathering all the available data, a set of decisions was made – the municipal sector was

left untouched. All their current expenditures were simply carried over in the model and taken

in as part of the municipal sector expenditure. The BD budget was only affected in the very few


72

areas where the functions according to the model have to be centralized to be more efficient

and equal (e.g. health and pensions). All the other parts of the BD budget were treated the

same as the other municipalities (i.e., left untouched).

Reallocation was made from the state budget, entities, cantons and bits and pieces of the BD

budget into the two layers foreseen by the model – the municipalities and the state.

Each budget under analysis was first organized in the same manner – with the wage bill being

compressed to include net wages, contributions and all the benefits, to have a more accurate

wage bill per employee. Public administration frequently pays low wages, but often increases

employees’ take-home pay through benefits and compensation for committee work.

The contributions systems in entities differ. The way the entities presented the information

about the wage bill with all its components was not sufficient to distinguish actual wages from

contributions and benefits. The effect of this information gap is that we could not create a

single wage scale for the new institutions. Some areas may end up getting trimmed, while

others will need to be augmented to ensure proper delivery of public services.

The area of grants required several adjustments. First, the “other grants” code is actually used

to denote repayment of internal debt, including foreign currency savings and some other

material costs. The expenditures in that code were moved to debt repayment and / or material

costs. Secondly, the FBiH Budget execution report did not break down grant information by

code; it gave only totals. Thus the adopted budget was used to create estimates for grants

expenditures in the sense of breakdowns between different grant categories, as totals were

provided in the execution document. Finally, as we were aiming to consolidate all the public

expenditure information in one place, it was necessary to exclude grants to other levels of

government and funds in an effort to avoid double accounting. Below is a table with the

amounts of grants to other levels of government that were excluded in consolidation.

Government Current grants Capital grants

Republika Srpska 230,259,946 145,491

Federation 167,583,874 14,129,809.95

Canton 1 606,249 5,162,226

Canton 2 2,696,767

Canton 3 4,886,025 4,774,412


73

Canton 4 6,269,098 609,936

Canton 5 5,225,495 285,000

Canton 6 9,673,673.25

Canton 7 6,673,639 120.720

Canton 8 5,516,872 466,000

Canton 9 45,596,651 9,547,382

Canton 10 2,679,289 194,063

Brcko District 200,000

Total 487,867,578 35,314,441

Note: Some of the intergovernmental transfers were tracked as transfers to individuals or

NGOs. The codes did not match the descriptions (e.g., transfer to pension fund being coded as

transfer to individuals). In cases where we could identify through description a grant to other

level of government (as in the example), it was treated as such.

Step 3 – division of expenditures by function

Following such clean-up and consolidation of information within individual budgets, it was

necessary to try and divide the expenditures by function to have a clear picture of the amount

of public funds being spent on each particular function and institution. The division by function

was done following the COFOG (Classification of the Functions of Government), as published by

the United Nations Statistics Division in its Classifications Registry. The institutional set-up

followed the state budget institutions as a baseline within the division by function.

The division by function was challenging, in that every government lumped together functions

in different institutions. A judgment call was made about how to split them up, since there was

no information available regarding the actual work division within an institution. For example,

in situations where education was tied together with culture and sports, it was assumed a

higher proportion of the institution was devoting its time to education, and smaller shares were

allocated to culture and sports. The full list of how the institutions where divided is presented in

the Annex.


74

Step 4 – reshaping of functional expenditures to follow the model

After making that allocation across functions and institutions, the next step in the process was

to take a look at all the institutions that exist currently at different levels of government to see

how, within a certain function they can be merged to follow the two-layer governance model.

Once completed, we began merging and sorting out functions in institutions following the

model.

The institutions that were previously created at the central state level to deal with tasks for

which there was no ministry were merged in the new ministries for appropriate function or

deleted, and a certain number of institutions existing at lower levels previously were removed

as it was deemed their tasks will be done inside the new ministries. Finally, reorganization

within the functional setup was done following the model as some functions were merged

within one ministry.

When a function was to be moved up to or merged at at the state level, assessment of the

workload and potential savings was made based on the work load and the existence of current

structures in future. For example, the police function was shifted in full to the state level, and

no savings were assumed as this function would need to be carried in the same volume and the

regional infrastructure would be kept. In some cases, we refrained from making savings, given

the insufficient provision in that sector. For example, the Ministry of Health is keeping all the

current expenditures for its future work.

A number of institutions, such as the new Education and Culture Ministry, were dealt with in

three parts. A part was merged to perform the function at the state level – in this case coming

from the education part of the current expenditures. Reduced administrative capacity allowed

some of these funds to be allocated to savings., Finally, municipalities will receive funding for

their performance in the targeted area. In this case, a large proportion of the current culture

allocations will be allocated to municipalities.

However, when a function or institution was being moved up to the state-level to perform a

task that was considered to not require the aggregate volume of support (as with the Ministry

of Finance and Treasury), a certain amount of savings through efficiency gains was assumed. In

addition to simple efficiency gains, we also assessed whether a function in government was

sufficiently resourced. This implied that the task carried out by current institutions is similar

enough that there would be significant surplus administrative capacities when the function is


75

carried out in a more efficient manner. These institutions were the ones where we assumed

more significant savings.

If a certain function (or elements thereof) were to be fulfilled in the future by municipal

government, we assumed that no savings would be made in the proportion going down to

municipal level (for example, elementary and secondary education).

Grants and capital investments were assessed separately from administrative capacity. This was

again done function by function and institution by institution, bearing in mind the importance

of the function. In some cases, even when we knew there might be potential savings we did not

take those decisions. We are convinced that significant economies can be made within these

figures, contingent upon public policy decisions. But it is best left to publicly accountable policy

makers to decide how to address the numerous issues within certain functions.

The no-savings approach was taken in several areas. First and the biggest expense of public

budgets today is the area of social protection. Grants are provided to the veteran population

and for social protection purposes (protection of poor, pensioners, and families with children,

invalids etc.). The bulk of expenditures in grants in this area (about 1.3 billion KM annually)

were allocated for future grants without any savings at the state level. This sector demands

rationalization, so it can provide sufficient assistance to those in need, while weeding out

patronage exploitation.

In the area of environment no savings were made. However, grants and capital investment

made within this function were divided, with the greater share allocated to municipalities (as

the future more involved investors in this area), and the lesser share for overarching goals and

investment at the state level.

Small savings were made across different areas and functions, based on assessment of probable

duplication of grants. In some cases, the institutional reshuffle resulted in some institutions

being phased-out.

The most significant savings in the area of grants and capital investment were made within the

function of general public services. This includes institutions such as the Parliament,

government administration, common services, the Ministry of Finance, etc. The savings made

here amounted to 112 million KM annually. Each government has a pool of funds for

discretionary grants, which with administrative streamlining would not be required in same


76

amount. The simple reduction in the number of buildings to maintain would lead to significant

savings in capital investment.

Finally, in some areas we looked at capital investments and grants together, as it made sense to

combine them as discretionary funds within a particular function.

The Health, Pension and Unemployment Funds were not analyzed, as there was a severe lack of

information about their operations and expenditures that would enable analysis. We assumed

very minor savings due to efficiency gains in consolidation, but went no further than that. As

noted earlier, these functions require urgent and thorough reform to meet public need at

affordable cost. Adoption of the model’s governance system would make these hard decisions

easier – or at least possible.

This assessment surely leaves space to generate additional savings in the reshaping of the

public sector and reallocate from one sector to another in cases where the policy makers feel

there is underfunding to reach more efficient redistribution of public resources.

Step 5 – outlining the future revenue structure

The revenues presented a problem in the sense that there is a severe gap between 2008

revenues and expenditures, forcing deficits throughout BiH. Based on available information, it

appears that expenditures exceed revenues by 130 million KM.

Several different sources of information had to be used to construct a composite picture of

revenues, leading to disparities in the totals. The main sources used were the annual budget

execution reports made by entity governments for local level governments (GIB), and the

information provided by the Indirect Tax Authority Macroeconomic Analysis Unit (OMA).

As the information about Brčko District revenues was not available, the information was

determined from the expenditure side, and using the average shares in revenues of

municipalities in FBIH to determine the overall structure of revenues.

GIB data was used to determine the existing revenues for municipalities. Local governments

continue to receive all the funding they were previously allocated. In addition, several new

revenues are allocated to the municipal level to perform its new responsibilities. Largest

among these is the per-pupil weighted allocation for primary and secondary education, but

additional discretionary resources are also provided.


77

The first source of revenues adjusted was the share the municipalities receive from Personal

Income Tax (PIT), with the new share assumed at 50%. That share would amount to 202 million

KM, and presents an increase of some 68 million over the current PIT revenue.

New revenue for BiH municipalities based on the reshuffle of functions (without education)

should amount to 347 million KM. The amount of converted grants (money previously received

as grants, but now core revenue) to be added is 77 million KM, and finally from the total the

funds that will be received from increased share of PIT amounting to 68 million KM were

deducted. This amounted to 356 million KM of “fresh revenue” that needed to be added to

municipal revenue.

The current funds municipalities receive from the Single Account revenue (VAT, excise and

customs) amount to 581 million KM. We added to that the new 356 million KM and the total of

937 million KM was then expressed as a share of Single Account revenue, which amounted to

19%.

The funding of primary and secondary education, amounting to 959 million KM that is to be

shifted to local governments was as well expressed as a share of Single Account revenue, and

this amounts to 19.5% of the Single Account revenue. However, the reason for keeping this as a

separate stream is to first insure that these funds will only be used for education funding, and

no other purpose. Secondly, this also enables the revenue to be shared among local

governments based on criteria that will be more strongly tied to education sector in particular.

In total, the Single Account share that will belong to local governments will increase to 38.5%

and the new PIT share will amount to 50%. This is a radical shift in revenue streams in BiH,

allocating a significant portion of government revenue to local governments.


78

Problems and Inconsistencies Encountered in Financial Analysis

This is a short list of major inconsistencies, lacks of publicly available information and

accounting problems that we encountered while gathering and organizing data for our financial

analysis of the K-143governance model.

Lack of information

The first obstacle was a lack of information. Even after gathering information from different

sources, some gaps in information could not be closed and had to be extrapolated or assumed,

based on other information. In some cases, such as the health sector, the lack of information

was severe enough to impede any substantial analysis. The main information black holes were:

• The RS budget execution does not list data by school, but only aggregates for

elementary and secondary education.

• The RS does not list the number of employees within its budget execution, nor is this

available in any adopted budgets.

• The number of employees was also missing for two cantons and the Federation. For the

cantons, we extrapolated. For FBIH, we used the adopted budget numbers for

employees.

• It was impossible to get numbers for employees in the health sector. The actual cost of

the health care provision is buried within the costs of the health funds. Furthermore,

there is no presentation of the revenues the health sector makes from the citizens

paying for services (when uninsured), or participation for some services, and from

donations.

• Number of employees we had available for the health funds only reflected the fund’s

own employment, without the number of health care providers.

• FBIH Ministry of Finance only tracks revenues in the annual execution reports from the

funds. Expenditures are not required.

• The BD unemployment fund data was unavailable. The fund’s website could not be

located. It does indeed exist, according to news references. The source of information

for this fund was Central Bank data.


79

• There is no debt stock data available for all levels of government.

• Sarajevo Canton budget did not have information about where the high schools are

located, we used Google to find where the schools are located and allocated

accordingly.

Chart of Accounts issues

• FBiH budget and budgets of cantons do not have the breakdown between salaries and

compensation, and while RS does have that information, for the sake of consistency, it is

merged for RS as well.

• The code 614800, other grants in the FBIH Chart of Accounts is actually used to denote

repayment of internal debt, including arrears and foreign currency savings and material

costs tied to that debt. This is an accepted deviance in FBIH CoA, but it can be

misleading for the uninformed.

• In FBIH, the transfer to pension fund was tracked as transfer to individuals, due to it

being classified that way in CoA. This is generally considered transfer to other levels of

governments / funds, as the fund reports on grants given to individuals.

• RS has a 681000 category that was used for transfer of funds to other institutions within

the budget before treasury. They seem to be channeling a part of current grants from

here, even though those codes should not be used after treasury introduction.

Inconsistencies

• RS has an interesting category – “other budgetary expenditure” –containing material

costs and debt. This should be identified by organizational code to clarify what

institution was responsible for those expenditures.

• It looks as if the RS budget gives grants to its own budget users from the execution

documents. RS was listing the costs of work of parliamentary committees as grants to

non-profit organizations. It's not a grant. However, due to such accounting, there is no

breakdown of costs (materials, phones, support staff time, etc.).

• The FBIH is actually spending more per employee than the State, even though State has

nominally higher salaries. It can be presumed the difference is to be found in the

amount of benefits and payments for participation in committee work.


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• The use of Central Bank data to plug the holes, while beneficial, has a drawback. They

show capital investment, debt and acquisition of non-financial assets (investment in

companies shares, or lending) as a net value. The actual expenditure in these categories

for the users of public monies (especially funds) remains opaque.

• From the numbers on revenues and the execution of expenditures from the budgets, it

seems that most governments either went into debt, or finished 2008 with a deficit.

• The current reserve was often reported as a line item expenditure, while it should be

reallocated based on which economic category it was spent on in the reports. The Chart

of Accounts missed a category for public institutions created and largely funded by

government; there are not specific groups in CoA. One example of the results of such

structure can be found in Canton 7, where the grants for higher education and the

pedagogic institute are listed under grants to other levels of government. What this

means is that in case of consolidation, these funds would be omitted from the total,

making it actually lower than it is, as there is no other public budget where these funds

are recorded as received and thus accounted for.

• The budget execution documents for FBiH do not allow the segregation of grants, they

are reported on in consolidated manner without making clear the allocation by type,

affecting consolidation efforts (cannot make segregation between grants to other levels

of government and other types of grants).

• In the BiH budget, a part of expenditures is kept apart from any institution, like the

obligations on court cases, or investment in a new building. Such allocations make it a

bit more difficult to see who has responsibility for implementation of related activities.

• Brčko District has a more specific budget structure, in which sub-departments are listed.

However, capital expenditures are allocated based on departments, and it cannot be

easily deduced which capital expenditures were related to work of which particular sub-

department.

• BD was actually recording the debt repayment as material expenses, however they

included the information about reserve spending in the report, and thus we were able

to deduce from descriptions that it is debt, and not material expenses.

• Some parliamentary expenses seem to have the parliament members included in

number of employees, while some do not. This makes the costs per employee a

disputable number to use in such cases.


81

• It is unclear where from the Central Bank draws the information for BD health fund –

the Department of Health of the BD government has a bigger budget. The way the

budget execution report reads the health body is part of the BD budget and is not a

separate organization – thus the double accounting that the Central Bank seems to be

doing appears hard to explain.


82

ANNEX I:

Chart showing the distribution of competences between Municipalities and

State

Function Competent authority Type of competence

State Regional pooling

Municipality Exclusive Shared

General administration

Security, police46 x x

Fire protection x x x

Civil protection x x x

Justice x x

Civil status register x x

Statistical office x x

Electoral register x x

Education47

Pre-school education x x

Primary education x x

Secondary education x x

Vocational and technical x x

Higher education x x

Public health

Hospitals x x

Health protection48 x x x

Social welfare49

Family welfare services x x Welfare homes x x

Social security x x

Housing and town planning

Housing x x

Town planning x x

Spatial/ regional planning x (x) x x

46

The current areas of operation of police (5 RS public safety centers, cantonal in FBiH, Brčko District) would remain (as would

the congruent judicial institutions). These would receive budget allocations from the state and be under ultimate state

command and control, but local management. 47

Primary and secondary education will receive support through earmarked state grants, and be overseen (but not run) by a

BiH Ministry of Education in terms of curriculum. 48

Municipal restaurant inspection, water testing, etc. 49

A BiH Ministry of Social Welfare will take over and raise pension payments to an inflation-pegged, sufficient, and equitable

level statewide.


83

Function Competent authority Type of competence

State Regional

pooling Municipality Exclusive Shared

Environment,

public sanitation

Water & sewage x x Refuse collection & disposal x x

Environmental protection (including state parks and reserves)

x x x

Consumer protection x x x

Culture, leisure & sports50

Preservation of cultural heritage sites

x x

Theatres & concerts x x

Museums & libraries x x x

Parks & open spaces x x

Sports & leisure x x

Religious facilities51 x x x

Traffic, transport Roads x x x

Transport52 x x x

Urban road transport x x

Urban public transport x x

Airports x x

Economic services

Electricity x x

Gas x x

District heating x x

Water supply x

Agriculture (and veterinary inspection), forest, fishing

x x x

Economic promotion x x x

Trade & industry x x x

Tourism x x x

50

State support for cultural activities at the municipal level will be delivered in block grants, allowing local discretion on

spending. 51

Current public expenditures are not systematic. Common in Europe for pensions and health care contributions to be made

by the state. Municipalities often contribute on a project basis. Facilities may be deemed cultural heritage sites deserving of

public maintenance. 52

Municipalities will participate in the BiH-wide spatial and transport planning process.


84

ANNEX II:

Number of Seats in K-143 Model Parliamentary Assembly

Municipal Population (rounded to nearest hundred)

Municipality Population

No of seats

50.000 threshold

40.000 threshold

30.000 threshold

Brčko 93.000 2 3 4

Average population per representative

46.500 31.000 23.250

% of seats in the PA BiH

1,18% 1,63% 1,88%

FBiH 2.372.000 94 105 122


25.234 22.590 19.443

% of seats in the PA BiH

55,62% 57,07% 57,28%

Can

ton

1

Bihać 61.200 2 2 3

Bosanska Krupa 29.700 1 1 1

Bosanski Petrovac 7.900 1 1 1

Bužim 20.300 1 1 1

Cazin 69.400 2 2 3

Ključ 18.700 1 1 1

Sanski Most 47.400 1 2 2

Velika Kladuša 44.700 1 2 2

Can

ton

2

Domaljevac-Šamac 5.200 1 1 1

Odžak 21.300 1 1 1

Orašje 21.600 1 1 1

Can

ton

3

Banovići 23.400 1 1 1

Čelić 12.100 1 1 1

Doboj-Istok 10.900 1 1 1

Gračanica 48.400 1 2 2

Gradačac 41.800 1 2 2

Kalesija 36.700 1 1 2

Kladanj 13.000 1 1 1

Lukavac 46.700 1 2 2

Sapna 12.100 1 1 1

Srebrenik 42.800 1 2 2

Teočak 7.600 1 1 1

Tuzla 120.400 3 4 5

Živinice 61.200 2 2 3


85

Can

ton

4

Breza 14.600 1 1 1

Doboj-Jug 4.400 1 1 1

Kakanj 38.900 1 1 2

Maglaj 25.000 1 1 1

Olovo 10.600 1 1 1

Tešanj 46.100 1 2 2

Usora 7.600 1 1 1

Vareš 9.600 1 1 1

Visoko 41.400 1 2 2

Zavidovići 40.300 1 2 2

Zenica 115.100 3 3 4

Žepče 31.600 1 1 2

Can

ton

5

Foča-FBiH 2.200 1 1 1

Goražde 22.100 1 1 1

Pale-FBiH 1.000 1 1 1

Can

ton

6

Bugojno 34.600 1 1 2

Busovača 18.500 1 1 1

Dobretići 2.000 1 1 1

Donji Vakuf 14.700 1 1 1

Fojnica 13.000 1 1 1

Gornji Vakuf-Uskoplje 13.300 1 1 1

Jajce 30.800 1 1 2

Kiseljak 21.900 1 1 1

Kreševo 5.600 1 1 1

Novi Travnik 25.100 1 1 1

Travnik 57.500 2 2 2

Vitez 27.000 1 1 1

Can

ton

7

Čapljina 28.100 1 1 1

Čitluk 18.600 1 1 1

Mostar 113.200 3 3 4

Jablanica 10.600 1 1 1

Konjic 26.400 1 1 1

Neum 5.000 1 1 1

Prozor 16.300 1 1 1

Ravno 3.300 1 1 1

Stolac 14.900 1 1 1

Can

ton

8

Grude 17.900 1 1 1

Ljubuški 29.500 1 1 1

Posušje 20.700 1 1 1


86

Široki Brijeg 29.800 1 1 1

Can

ton

9

Centar Sarajevo 59.200 2 2 2

Hadžići 25.000 1 1 1

Ilidža 71.900 2 2 3

Ilijaš 20.500 1 1 1

Novi Grad Sarajevo 124.500 3 4 5

Novo Sarajevo 68.800 2 2 3

Stari Grad Sarajevo 38.900 1 1 2

Trnovo-FBiH 1.800 1 1 1

Vogošća 27.800 1 1 1

Can

ton

10

Bosansko Grahovo 3.100 1 1 1

Drvar 7.500 1 1 1

Glamoč 5.000 1 1 1

Kupres-FBiH 5.500 1 1 1

Livno 37.500 1 1 2

Tomislavgrad 33.000 1 1 2

RS 1.327.000 73 76 87


18.178 17.461 15.253

% of seats in the PA BiH 43,20% 41,30% 40,85%

Banja Luka 199.200 4 5 7

Bijeljina 114.700 3 3 4

Doboj 77.200 2 2 3

Istočno Sarajevo 65.000 2 2 3

Prijedor 97.600 2 3 4

Trebinje 31.000 1 1 2

Berkovići 2.300 1 1 1

Bileća 11.500 1 1 1

Bratunac 21.600 1 1 1

Brod 18.000 1 1 1

Čajniče 5.400 1 1 1

Čelinac 16.900 1 1 1

Derventa 30.200 1 1 2

Donji Žabar 4.000 1 1 1

Foča 19.800 1 1 1

Gacko 9.700 1 1 1

Gradiška 56.700 2 2 2

Han Pijesak 3.800 1 1 1

Istočna Ilidža 15.200 1 1 1

Istočni Drvar 100 1 1 1


87

Istočni Mostar 300 1 1 1

Istočni Stari Grad 1.200 1 1 1

Istočno Novo Sarajevo 11.500 1 1 1

Jezero 1.300 1 1 1

Kalinovik 2.200 1 1 1

Kneževo 10.400 1 1 1

Kostajnica 6.300 1 1 1

Kotor Varoš 22.000 1 1 1

Kozarska Dubica 23.100 1 1 1

Krupa na Uni 1.700 1 1 1

Kupres (RS) 300 1 1 1

Laktaši 36.900 1 1 2

Lopare 16.600 1 1 1

Ljubinje 3.800 1 1 1

Milići 12.300 1 1 1

Modriča 27.800 1 1 1

Mrkonjić Grad 18.100 1 1 1

Nevesinje 13.800 1 1 1

Novi Grad 28.800 1 1 1

Novo Goražde 3.400 1 1 1

Osmaci 6.200 1 1 1

Oštra Luka 3.000 1 1 1

Pale 22.300 1 1 1

Pelagićevo 7.300 1 1 1

Petrovac 400 1 1 1

Petrovo 7.000 1 1 1

Prnjavor 38.400 1 1 2

Ribnik 6.500 1 1 1

Rogatica 11.600 1 1 1

Rudo 8.800 1 1 1

Sokolac 12.600 1 1 1

Srbac 19.000 1 1 1

Srebrenica 15.200 1 1 1

Šamac 19.000 1 1 1

Šekovići 7.800 1 1 1

Šipovo 10.800 1 1 1

Teslić 41.900 1 2 2

Trnovo 2.200 1 1 1

Ugljevik 16.500 1 1 1

Višegrad 11.800 1 1 1


88

Vlasenica 12.300 1 1 1

Vukosavlje 5.400 1 1 1

Zvornik 63.700 2 2 3

BiH 3.792.000 169 184 213


22.438 20.609 17.803

Formulas:

50.000 population threshold

1-50.000: 1 seat

50.001-100.000: 2 seats

100.001-150.000: 3 seats

150.001-200.000: 4 seats

200.001-250.000: 5 seats


1-40.000: 1 seat

40.001-80.000: 2 seats

80.001-120.000: 3 seats

120.001-160.000: 4 seats

160.001-200.000: 5 seats

200.001-240.000: 6 seats


1-30.000: 1 seat

30001-60.000: 2 seats

60.001-90.000: 3 seats

90.001-120.000: 4 seats

120.001-150.000: 5 seats

150.001-180.000: 6 seats

180.001-210.000: 7 seats

Number of seats per Croat-majority

municipalities (Assume majority in Mostar,

not total. Split Bugojno, Travnik and Jajce

when multimember; none in RS)

50.000 threshold

40.000 threshold

30.000 threshold

27 seats

(16%)

27 seats

(15%)

31 seats

(15%)

Number of seats per Serb-majority

municipalities (RS less Srebrenica and Osmaci

+ Majority in Prijedor + 4 munis in FBiH)

50.000 threshold

40.000 threshold

30.000 threshold

74 seats

(44%)

77 seats

(42%)

87 seats

(41%)


89

ANNEX III:

European Examples of State-Local Allocations of Competences

I. general trends concerning decentralization in EU member states, EU principles and

structures affecting local government:

• Principle of subsidiarity: every state function should be assigned to the lowest level at

which it can be undertaken effectively. This is a powerful device to counter a natural

tendency towards centralization.

• EU has no formal legal authority in relation to the organization and management of

public administration in member states

• State functions which are normally decentralized:

A. functions fully under control of sub-national level (local and/or regional)

- development of local economy

- social housing

- public utilities: water, electricity and gas supply

- fire protection

- local planning (regional)

B. Functions frequently shared between the state and sub-national level - local

functions:

- police: wide variance, local/regional function in many Latin + Germanic countries

- health and social assistance: wide variance in organization/division of responsibilities

- education: primary education, sometimes secondary

- culture: libraries, museums, parks

- roads: local/regional – national

- transport: public transport, sometimes ports and river transport

- environmental protection

- tourism promotion

• Proportion of public expenditure for local/regional level: depending on degree of

decentralization, but in most cases over 70 % central level (new member states 70-

90%!), even Germany over 50%, in countries with active local/regional sector about

equal between central state and sub-national level(s)


90

• Revenues for local government: local taxes (income tax, property taxes etc.) very wide

range (4 – 70%)

Remainder from national funds, service charges

• Redistribution mechanisms: increasing allocation of resources to structural and cohesion

funds directed to poorer European regions, coordination/harmonization of national and

EU policy

• Decentralization trends: more efficiency and effectiveness in administration,

development of sub-national administrative structures contributes to improving

democratic control and responsiveness to citizens, EU-integration important for

developing greater local autonomy without endangering state integration; growing

interest and participation of regional authorities in policy-making at European level;

• Devolution of power and competencies from national to sub-national level(s)

� transfer of some functions from local to higher sub-national level (regional), because

of increasingly sophisticated demands of modern society, like in case of health systems,

that question the economic and efficiency capacities of local administration, → 2

alternative trends:

1. establishment (or strengthening of existing) regional tier of local government

2. pooling resources and expertise through voluntary associations of local

authorities

II. lessons from transformation in other post-socialist countries:

• timing of financial regulation is crucial to the extent of transformation/devolution of

power to the local level

• transformation of public administration crucial: a civil service system based on

professional criteria, ensure clear division between political and administrative

influence, regulate with great precision politico-administrative relations among higher

offices (mayor, chief administrative officer, staff), political neutrality of staff/ defense

from political pressure

• establishment of strictly regulated instruments to control legality of local government

activities, including financial auditing


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III. Local self-government country comparisons:

1. Latvia

Tiers: two-tier local self-government: with 26 districts (regions) and 530 local governments

(rural and town municipalities, amalgamated municipalities); 7 republican towns are

represented at both levels, with town districts having municipal status; districts no directly

elected representatives (council consisting of local council chairpersons)

Principles: subsidiary and correlation between responsibilities and financial resources

Size: extraordinary high number of small municipalities, with 90% only up to 5,000 inhabitants!

Fields of cooperation between central government and local governments: drafting laws and

regulations affecting local governments; determining grants allocated to local governments

each year; identifying financial sources for transfer of additional functions to local level

Municipal institutions: councils: 7-15 members. 7-9 members for municipalities with up to

5,000 inhabitants; 11 members for municipalities with up to 50.000 inhabitants, Riga city

council 60 deputies, council meetings public; council chairperson appointed by council, political

head, executive director head of administration, appointed by council on proposal by

chairperson

Electoral system: only council members directly elected, every 4 years, proportional

representation, voters’ associations play dominating role in local councils, with national party

only a marginal role (!)

Training administration staff: Project management and self-government Training center at

University of Latvia, Local Government Training Center and regional training centers


State: legislation and state administration, economic policy and employment; spatial planning

foreign affairs, defense and public order and law enforcement, social security, higher education

and scientific research, vocational and technical education; energy resources (electricity and


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gas), long-distance communication and transport (incl. ports and airports); consumer

protection;

Municipalities: water supply and sewage, heating, waste collection and disposal; local

communication, cemeteries, regulation of public forest and water use; local economic

development, local planning; education: primary and secondary education; social welfare:

social housing, nurseries, kindergartens, services for elderly and handicapped, welfare homes;

civil status register; local police (public order);

Divided responsibilities: public health; culture (museums, monuments, libraries); sports;

tourism; environmental protection;

Districts: public transport; regional planning; teacher training; representation of local

government in regional public health insurance fund; civil defense (shared with central state);

Forms of local government cooperation: Union of Local and Regional Governments of Latvia

(ULRLG): interest representation towards central state institutions and intl. institutions, annual

state budget negotiations with central government, promotion of local authority cooperation,

training of local staff, social protection of local employees;

voluntary establishment of common institutions by several municipalities, main fields: health

and social care, education water supply and waste, local/regional planning; contracting other

municipalities for certain functions (small, economically weak municipalities);

Financing: main revenues taxes, then grants and non-tax revenues; no local taxes, but shares of

state taxes, mainly personal income tax (72%), real estate tax (100%);

Local Government Financial Equalization Fund: system based on CoE recommendations and

Danish example, aimed at certain equalization effect to reduce difference between wealthy and

structurally underdeveloped municipalities, financed by central state contribution (15%) and

wealthier municipalities whose annual revenues are more then 10% above a calculated national

average;

Control mechanisms: control of legality by ministry of regional development and local

authorities; financial control by State Audit Office, annual financial audits by auditor company,

authorizing annual financial report;

2. Slovenia


93

Tiers: one tier, 210 municipalities (regions constitutionally foreseen, but not yet introduced),

organizational forms on sub-municipal level can be established;

Size: defined by size, at least 5.000 inhabitants (exceptionally 2.000), towns at least 20.000; yet

still half of municipalities below 5.000 inhabitants

Municipal institutions: council: 7-45 members according to size, mayor: political head and

executive body, directly elected, municipal secretary/director: heads of administration, a civil

servant, appointed by the mayor

Electoral system: system dependant on council size, up to 12 members majority vote, with

individual candidates running for office, each voter having as many votes as council seats;

above proportional system with candidate lists/party list, with mixed list-preferential voting; in

both systems facultative division of municipality into constituencies;


municipal functions: limited exclusive functions, education: only pre-school, primary and adult

as shared responsibility; health not exclusive; social welfare: kindergarten, family welfare (with

social security shared); housing, town and regional/spatial planning (except where of national

interest); waste disposal and cemeteries; heating and water supply;

additional functions performed by urban municipalities in urban public transport, urban

environment protection and housing;

Financing: principle of financing through own revenues, therefore local taxes whose tax rates

are assigned by the state, real estate tax, inheritance and gift taxes, tax on water vehicles, taxes

on profits from lotteries and games of chance; other revenues fees, fines, concession rates and

administrative revenues; municipalities allowed to take loans, but not from abroad, not

exceeding 20% if annual revenues;

Financial equalization system: system of additional financial aid to underdeveloped

municipalities for covering expenses, based on calculation of appropriate expenditure as

average amount of resources by inhabitant defined by the National Assembly for each fiscal

year, 90% of municipalities receive financial assistance, municipalities above this average freely

dispose of their surplus resources;


94

Control: financial control exerted by supervisory committees elected by municipal councils,

Court of Auditors at national level;

3. Finland

Tiers: one tier, 348 municipalities, called either municipalities or cities;

Size: one third 1.000-5.000 inhabitants, with the Helsinki Metropolitan Area 20% of population;

(5.3m population)

Municipal institutions: councils, 17-85 members, municipal executive board, responsible for

administration and financial management, municipal manager, civil servant, head of local

administration;

Electoral system: council members are elected by proportional representation on the principle

of “one person, one vote”

Division of functions: extraordinary number of functions completely decentralized to local

level: education all but higher education in municipal responsibility; public health exclusive

municipal function; public utilities exclusively; culture leisure and sport; electricity, gas, water

and heating;

Policing is an exclusively state function.

Advisory Board on Municipal Economy and Administration: joint institution by State ministries

and the Association of Finnish local and regional authorities, negotiates in budget draft

concerning transfer payment to municipalities and cost distribution between central

government and municipalities;

Financing: taxes, fees and sales incomes and state grants; taxes are all local taxes, main source

municipal income tax (86%), rate set independently by municipal councils, share of corporate

income tax determined by state parliament, and real estate tax, independently determined by

municipal councils;

Loans: municipal independence, both domestic and foreign borrowing;


95

Control: no regular control of municipal decisions and finances by state(!), annual municipal

reports to Statistics Finland, state administration control limited to legality check, and only

upon complaint;

Forms of local cooperation: stimulated by central government through grants

Pooling of functions: joint municipal authorities, single-task organizations, independent legal

public entities governed by municipal legislation, compulsory for special health care (20), care

of disabled (14), regional planning: regional spatial planning and management of strategic

regional development planning/EU structural funds’ projects (19 regional councils), for other

functions voluntary, overall 228 joint authorities, mainly in fields of health, education and social

service, its council members delegated by municipal councils, financed by municipalities

through user charges and separate contributions to investments;

Other forms: joint municipal civil servants (small municipalities); limited companies, co-

operative societies, foundations, contractual co-operation;

4. Denmark

Tiers: two – 98 localities (kommuner) with primary responsibility for a host of competences,

and five regional state administration offices with limited responsibility.

Size: Average size 55,000 inhabitants, some under 20,000 which didn´t wish to amalgamate into

to larger municipalities, but must cooperate with neighboring municipalities to meet

responsibility to deliver services.

Municipal Institutions: Municipal Councils of 25-31 members, keyed to population and elected

for 4-year terms on a proportional representation open list basis. Mayors elected by Councils.

Councils determine structure of local government, division of functions.

Regional Councils of 41 members, directly elected in 4-year terms, coincident with municipal

elections. Free to set-up structure at will to fulfill mandates responsibilities.

Note: “The local and regional council and the council´s Finance Committees are responsible for

the staff of the authorities. Staff are not appointed politically and are not replaced after an

election.”


96

Division of Functions: “Most citizen-related tasks” handled at the municipal level. Exclusive

competences include local utilities (water, sanitation, electricity, heating, gas), pre-school and

primary education, family welfare, social security, fire protection, local spatial planning, sports

and leisure. Municipalities also share competence with the state and regions on a host of

sectors (transport, health care, planning, environment, agriculture, employment, culture).

The state maintains exclusive control over policing, security and justice. It also operates

secondary and higher education.

The five regions exist to pool resources for regional issues, particularly health care (hospitals),

special education, and regional spatial and economic planning. To ensure coordination with the

municipalities, twice-annual sessions of the Contact Committee, including the chair of the

regional administration and the mayors of all the region´s municipalities, must be held.

Health care, for example, is financed 80% from state revenue, 20% from municipal revenue.

The state portion is based on both age distribution (77.5%) and socio-economic indicators

(22.5%).

Financing: Municipalities are finances through a combination of own revenues – both local

taxes and fees - (approximately >70% of total) and grants from the state (26%). Local taxes

include income tax (collected by the state) and land taxes (collected locally). Municipalities also

collect fees for services. State grants are both earmarked for specific purposes (full

reimbursement of old age pensions, partial reimbursement of early pensions, partial social

security reimbursement) and general purposes.

Financial Equalization System: Partial (up to 90%) equalization to ensure that municipalities

can deliver average quality services and close to average cost.

Supervision/Control: The Ministry of Social Welfare monitors the five state regions from a

legal point of view (e.g., cannot second-guess expediency of a decision), and can initiate

supervision in case of a serious breach or as a matter of principle. Sanctions can be applied to

municipal council members who have acted unlawfully or neglected their legal duties.

Decisions can be appealed through ordinary courts.

The Ombudsman oversees all public sector except courts of law, especially regarding questions

of good administrative practice. The Ombudsman determines whether a complaint gives

sufficient cause for investigation and can bring actions against authorities in question.


97

5. Iceland

Tiers: One – municipal level. There were 101 municipalities as of 2006, down from 229 in 1950.

There has been a long-term trend for mergers of municipalities to form larger units, better

capable of providing services. There is a detailed legal procedure for doing so – it is usually

voluntary, but can be compelled for municipalities having fewer than 50 inhabitants for three

years running.

Size: Varies widely, from 38 to ~114,000 inhabitants (Reykjavik). 68% of municipalities have

under 1,000 inhabitants; a further 23% fall between 1,000 and 5,000. Only 5% have above

10,000. Hence the increasing commonality of joint service provision.

Municipal Institutions: Local Councils, elected by PR every 4 years. The size varies within

parameters in law: 3-5 for municipalities of fewer than 200 inhabitants, up to 15-27.

The Councils can elect an executive board (if more than 200 residents) from among Council

members for a term of one year. The Council also selects a chair for a one-year term. The

Council may also decide to appoint a “municipal administrator” or mayor, whose duties are

determined by the Council. These persons usually serve for the Council’s first term. Unless this

person is a Council member, he/she can introduce topics but cannot vote.

Division of Functions: Principal local competences include pre-schools and primary schools,

water, sewage, waste collection, district heating, fire protection, spatial planning, local

environmental protection.

The Association of Iceland Municipal Authorities is the interlocutor with the state for local

interests.

Financing: The local share of public expenditure in 2001 was 33.3%. This is growing. Own

resources include real estate taxes (with rates set in bands by the state, determined locally) and

local income taxes (ranging from 11.24-13.03%). The former provide 11% or the total local

revenue base, the latter 61%. Fees for services and licensing provide approximately 18.5%.

Municipalities also receive grants from the Local Authorities Equalization Fund and grants (both

earmarked and block) from the state government.

Financial Equalization: This comes from the Local Authorities Equalization Fund, and four types

of funds are granted: fixed contributions, special contributions, equalization contributions, and


98

equalization contributions for primary schools. For municipalities with fewer than 2,000

residents, there are special contributions toward public utilities and primary education.

Supervision/Control: The Ministry of Social Affairs oversees local government matters (for

breaches of law and duty, not expediency). Auditing of accounts is legally required. Newly

elected councils must select two auditors (non-members).

Consortia to institutionalize cooperation to perform tasks of common interest also have legal

foundation, but are initiated voluntarily. There are also 8 federations of local authorities –

these are simply collectives for service delivery, and receive funding from the Local Authorities

Equalization Fund.

6. Macedonia

Tiers: one - 84 municipalities + city of Skopje.

Decentralization process based mainly on Ohrid Framework agreement and subsequent laws

(on local self-government, financing of LSG, City of Skopje, on inter-municipal cooperation),

process underway, began in 2005; represents a break in political culture of post-socialist era,

moving from the most highly centralized European state with only 1,6% of state budget goin to

the local level to a modern decentralized state;

Size: 2 million inhabitants, of which 500.000 in capital Skopje, 20% of municipalities below

5.000 inhabitants; 18% 5-10.000 inhabitants;

Municipal institutions: council 9-33 members (Skopje 45), mayor, directly elected,

Self-Government Units (Mjesne Zajednice): weakly developed sub-municipal institutions of

citizen’s participation, neighborhood self-government units/village councils (NSGU councils),

succeeding institution to socialist Mjesne zajednice, though have lost both their infrastructure

(staff) and competencies. Consultative in nature, mainly instrument for citizen interest

expression and communication with local authorities, in rural areas function of maintaining and

improving infrastructure through voluntary contribution;

Division of functions: municipal functions (when decentralizing reforms finished): local

economic development; urban/rural planning; public utilities: water and sewage, waste

collection; local roads and transport; cemeteries; education: primary and secondary; social


99

services: centers for pre-school children, orphans, and socially vulnerable people, homes for

the elderly and the disabled, child care; health care: primary health care and public health;

environmental protection; culture and sports; police: head of local police selected by council

(from Interior Ministry list); civil defense and firefighting;

Financing: decentralization of state functions not adequately accompanied by financial

resources; local revenue structure in flux because of ongoing decentralization process

accompanied by state financial aid: 2005 59% taxes, 3% non-tax revenues and 38% grants and

transfers, 2008 29% taxes, 6% non-tax revenues and 65% grants and transfers; extremely low

share of GDP by local government expenditures in comparison to EU-countries, 4,7% in 2008

(Latvia 10%, Slovenia 5%); revenue-structure: taxes both local and shares, non-tax revenues and

grants and transfers, taxes: local taxes, property taxes and taxes on specific services, rate set

locally within a centrally-determined range, local shares of national taxes, VAT is currently 3,4%,

Personal income tax (PIT) share of 3%; borrowing from both domestic and foreign sources

allowed;

Local cooperation: widespread and growing, main forms of cooperation joint planning for LED,

contractual buying of service provision from other municipality, joint administration;

Establishment of centers for balanced regional development planned to manage application for

EU funds;

Administration: human resource management units established at all state institutions,

including municipal administrations, manage human resources along with state administration

civil servants agency;

Annual training programs developed by municipalities, coordinated with Civil Servants Agency;

Ethnicity: in municipal councils like in national parliament principle of double majority voting,

means in defined fields (culture, use of language, education, use of symbols and personal

documentation[concerning use of different official languages on documents]) decisions on the

basis of majority of council members and of majority of votes of representatives of ethnic

groups which are not the majority ethnic group in the municipality, OSCE states that that

principle “encourages consensus-building among community representatives”; Equitable

representation of ethnic groups in administration, problem: no enforcement mechanisms;

Committees for Inter Community Relations (CICS): advisory board to mayor and council,

composed of equal number of representatives for all ethnic groups, 2-9 members, membership


100

voluntarily/ an honorary duty, committee discusses issues concerning inter-ethnic relations

(culture and language) and gives opinions and proposals to be reviewed by the municipal

council, decision-making by consensus;

performance since establishment in 2005 is low, not really active, majority of population not

aware of existence;

Main problems in decentralization process: overall problem is the speed of the introduction of

a threefold decentralization process (territorial reorganization, new legislation and transfer of

competencies),

Main individual problems: lack of financial resources, low administrative capacity of municipal

staff/level o of professionalization, lack of central government assistance;


101

ANNEX IV:

Brčko District: BiH’s Most Developed Example of Local Self-Government

Background: The municipality of Brčko, on the Sava River in northeastern Bosnia, was among the first to

be “ethnically cleansed” by Bosnian Serb forces in 1992, driving out its large Bosnian Muslim (Bosniak)

and Croat populations. It was a focal point during the conflict, as its position in the “Posavina Corridor”

linked the two halves of Republika Srpska, making it vital for the Bosnian Serbs to control and crucial for

the Army of BiH and HVO to cut. Reflecting Brčko’s strategic position, the negotiations in Dayton failed

to arrive at an agreement on its disposition. It was put up for binding arbitration for a tribunal chaired

by American State Department lawyer Roberts Owen, and placed under a US-run supervisory regime.

The prewar municipality, which has Serb, Croat and Bosniak-held areas, was not awarded to either

entity, but rather kept a territory apart under supervision. Brčko District (BD) was able to develop a

wide range of multiethnic institutions under the supervisory regime, which continues to this day, though

it rarely engages in the local political arena.

The District is by far the most self-governing of any of BiH’s 143 municipalities, with a direct proportion

(3.55%) of VAT revenue through the Indirect Taxation Authority (ITA), its own multiethnic police and

justice system, a separate education system, and other elements of governance that are handled at

higher levels in the two entities. All these are enumerated in the Brčko District Statute,53 which states

that BD is “a single administrative unit of local self-government existing under the sovereignty of Bosnia

and Herzegovina.” It is therefore a useful guidepost for a municipalized two-layer state structure.

Size: Brčko District is about three times the average sized BiH municipality, at roughly 90,000

inhabitants.54

Government Competences are listed in Article 8 of the Statute: - BD economy - social welfare - BD finances - judiciary and legal services - Public property - policing - Public services and infrastructure - housing - Culture - urban development and zoning - Education - “other competences necessary for the - Health care functioning of the District as a single - Environment administrative unit of local self-govt”

Government:

53

Available in full at www.ohr.int 54

Estimates of the resident population run between 80,000 and 100,000. Prior to BiH defense reform and an end to

conscription, BD held the attraction of being exempt from conscription into the entity militaries, drawing a number of young

men wishing to dodge the draft. This makes it more difficult to estimate the actual residents.


102

a) The Brčko District Assembly, which is defined in detail in Section B of the Statute, is elected for

four years and consists of 31 members, 2 of which represent the national minorities resident in

BD. The Assembly elects its Speaker by a 3/5 majority (the second-place finisher becomes the

Deputy Speaker).

The Assembly, and determines the general policy for BD, monitoring the Government and Public

Administration, especially management of revenue and expenditure. The Assembly also has the

authority to petition the BiH Constitutional Court under Article VI.4 of the Constitution (Annex 4

of the Dayton Peace Agreement).

Article 33 of the Statute defines those decisions for which there must be a qualified majority of

3/5 of Councilors present:

o Rules of procedure o District budget o Adoption and amendment of District laws o Election and dismissal of people elected by the Assembly, except Speaker/Deputy

Speaker and Mayor (special provisions apply for these) o Assembly consent to appoint or remove official in accordance with the Statute/law o Vetoes of appointments or removals of officials o Decisions to dismiss members of Steering Boards of public companies

3/5 of the total number of Councilors is required to:

o Remove the Speaker or Deputy Speaker o Remove the Mayor o Veto the appointment of the Mayor or Deputy Mayor

To amend the Brčko District Statute, ¾ of all the elected Councilors must vote in favor.

Article 33a of the Statute is titled Prevention of Outvoting

o The affirmative votes of at least 1/3 of Councilors from each constituent people present and voting is required for Assembly decisions related to:

� Adoption of amendments to the Statute � Adoption of amendments to the Assembly’s Rules of Procedure � The annual budget, spatial planning, education, religion, language and culture

(Art. 53 (1)) � National holidays and monuments

b) The Brčko District Government and Public Administration is defined by Section C of the Statute.

The Government consists of the Mayor, Deputy Mayor, Government Chief Coordinator, and the

Heads of Departments. The Public Administration consists of the Government Departments,


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the Mayor’s Office, the District Finance Directorate, the Office of Public Property, and the Office

for the Coordinator of Brčko District in the BiH Council of Ministers.

The Mayor is elected by the Assembly. The Mayor selects the Deputy Mayor, the Government

Chief Coordinator, and the Heads of Departments based on professional criteria, and these

appointments should reflect the composition of the population.

The District Finance Directorate (Art. 49) includes a separate Tax Administration and Treasury.

The Office for Public Property (Art. 49) administers public property in BD and conducts the

procedures of disposal of public property. Article 8 (5) of the Statute clearly defines what is to

be done with unneeded public property:

“All public property in the territory of the District on March 5, 1999 belonged to the District on

that date, and all legal rights in public property vested in the District with effect from that date.

The District shall privatize all public property not necessary for the performance of public

functions.”

The Office of the Coordinator for Brčko District in the Council of Ministers of BiH represents the

interests of the District before the institutions of BiH. The Coordinator reports to the Mayor.

Public Companies (to provide services to BD residents, or manage public funds or assets).

Steering Boards are accountable to the Assembly, but independent of Public Administration.

Brčko District has its own Police and Courts, Public Attorney’s Office, and Prosecutor’s Office,

defines in Chapters IV and V of the Statute. The BiH High Judicial and Prosecutorial Council

appoints the judges and prosecutors in the District.

Revenue: Brčko District presently receives a fixed 3.55% of the VAT intake from the ITA. This revenue

has leveled-off after a spike in revenue after introduction, and has taken a hit from the global economic

downturn as well. The District also recently introduced an annual land (property) tax at an initial rate of

0.6%. The BD Government has a land reform proposal that would privatize the public property holdings

not needed for governance purposes, which would bring in significant one-off revenues. The District’s

public companies charge for their services. The District may introduce an income tax in the future.

Other Noteworthy Features:

- Unlike any other municipality in BiH, Brčko District operates its own primary and secondary

school system.

- Chapter III, Article 20 of the Statute reads “Public Employment with the District shall be based

on professional merit and shall reflect the composition of the population.” This is based on the

1991 census.


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- Articles 21 and 28 contained detailed and thorough financial disclosure and conflict of interest

provisions for public officials.


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ANNEX V: Bibliography

Documents

- Bosnia and Herzegovina 2007 European Partnership, EU Commission, Brussels 2007 - Constitution of BiH - Constitution of the Federation of BiH - Constitution of the RS - Copenhagen Document, OSCE (then-CSCE), 1990 - Draft Joint Opinion on Amendments to the Election Law of BiH by Venice Commission

and OSCE/ODIHR, 2008

- Election Law of BiH - Law on Local Self-Government of the RS - Law on the Principles of Local Self-Government of the Federation BiH

Constitutional Court. 2000. “Constituent people’ Decision”. Case U/98, July 1, 2000, published on Službeni glasnik BiH, No. 23/00, 14 September 2000

- Statute of the Brčko District - Statut grada Zagreba - Statut grada Beograda - European Charter of Local Self-Government, Council of Europe 1985 - European Court of Human Rights, Case of Sejdić and Finci v. Bosnia and Herzegovina,

(Applications nos. 27996/06 and 34836/06) – Judgement (22.December 2009) - Parliamentary Assembly of the Council of Europe (PACE) Resolution 1701, The

functioning of democratic institutions in Bosnia and Herzegovina, 2010 - Parliamentary Assembly of the Council of Europe (PACE), Recommendation 1894, The

functioning of democratic institutions in Bosnia and Herzegovina, 2010 - Report on 2006 General Elections in Bosnia and Herzegovina, OSCE/ODIHR, Warsaw,

2007 - Structure and Operation of Local and Regional Democracy, country reports: Denmark,

Finland, Iceland, Latvia, Slovenia - Stabilisation and Association Agreement between the European Communities and their

member states and Bosnia-Herzegovina, Brussels 2007 - Venice Commission (of Council of Europe), Opinion on the Constitutional Situation in

(BiH) and the Powers of the High Representative, 2005 - Visa liberalisation with Bosnia and Herzegovina. Roadmap, EU Comission, Brussels 2008 - Bosnia and Herzegovina 2009 progress report, EU Comission, Brussels 2009

Enlargement strategy and main challenges 2009-2010, EU Comission, Brussels 2009 Ohrid Agreement

Literature

- Analytica Brief, Conceptualzing decentralizaion trends in Macedonia, Skopje, 2006


106

- Centri Civilnih Inicijativa (CCI), Načelnik i lokalna samouprava: liderstvo, demokratija, razvoj, Sarajevo December 2009

- CCI, Odnos nacelnika i skupština u BiH, Sarajevo October 2009 - Kenneth Davey (Ed.), Making Government Accountable. Local Government Audit in

Postcommunist Europe, Budapest 2009 - Decentralization and local democracy in the world. First global report by United Cities

and Local Governments, Barcelona 2009 - Decentralization: conditions for success. Lessons from Central and Eastern Europe and

the Commonwealth of Independent States, United Nations, New York 2000 - Decentralization Survey 2009, OSCE Spillover Monitor Mission to Skopje, Skopje 2009 - EDA Razvojna Agencija, Popravke ili prepravka? Analiza opcija razvoja lokalne

samouprave u BiH, Banja Luka May 2008 - EDA, Strateški plan razvoja lokalne samouprave u BiH, Banja Luka 2006 - Ekonomski institute B. Luka, Kreiranje i uvođenje modela raspolaganja i vlasništva nad

lokalnim resursima, B. Luka November 2007 - Foreign Policy initiative BiH (FPI BiH) The Role of civil society in BiH constitutional

reform, Policy Analysis 1/09, Sarajevo, July 2009 - FPI BiH, Monitoring of the BiH European integration processes, 2008 preliminary report,

Sarajevo 2009 - FPI BiH, Monitoring of the BiH European integration processes, 2009 first semi-annual

report, Sarajevo 2009 - FPI BiH, Strukture upravljanja državom u BiH, Sarajevo 2008 - Friedrich Ebert Stiftung Zagreb Office, Local Self Government and Decentralization

in South - East Europe, Zagreb 2001 - Friedrich Ebert Stiftung Zagreb Office, Decentralizing Government, Problems and Reform

Prospects in South-East Europe, Zagreb 2002 - Friedrich Ebert Stiftung Zagreb Office, Executive and Legislature at Local Level, Zagreb

2002 - Friedrich Ebert Stiftung Zagreb Office, Economic Development on the Local

and Regional Level, Zagreb 2003 - Friedrich Ebert Stiftung Zagreb Office, Reforming Local Public Administration, Zagreb

2003 - From Stability to Performance. Local Governance and Service Delivery in Bosnia and

Herzegovina, World Bank, Washington, January 2009 - Horvath, Tamas M. (ed), decentralization: experiments and reforms, Local governments

in Central and Eastern Europe Vol. 1, Budapest 2000 - Kandeva, Emilia (ed), Stabilization of local governments, Local governments in Central

and Eastern Europe Vol. 2, Budapest 2001 - Kapitanova, Guinka, Inter-municipal cooperation and decentralization in the Former

Yugoslav Republic of Macedonia, LSE and UNDP Development and Transition, Issue Nr. 12/2009


107

- Birgit Kunrath, The Role of Ethnic Voting in Bosnia and Herzegovina An Evaluation of Decision-Making between June 2008 and June 2009, Council of Europe, Field Office Sarajevo, July 2009

- Levitas, Tony, “A Tale of Two Entities: How Finance Reform Builds Democracy in Bosnia and Herzegovina“, DAIdeas democracy briefs, No.1, Washington, February 2007

- Bosnia and Herzegovina: Republika Srpska: Local self-government training needs assessment report, SIDA/UNDP July 2009

- Bosnia and Herzegovina: Federation of BiH: Local self-government training needs assessment report, SIDA/UNDP July 2009

- Münch, Claudia, Emanzipation der lokalen Ebene? Kommunen auf dem Weg nach Europa, Wiesbaden 2006

- Ostojić, Rajko, Zdravstveni system u Hrvatskoj, FES Zagreb 2009 - Pašalić-Kreso, Adila, Then constitution and education in BiH, Open Society Fund BiH,

Sarajevo, September 2004 - Pearson, Brenda Lee, An external review of training delivered to local government staff

2004-2007, OSCE Spillover Monitor Mission to Skopje, Skopje October 2008 - Pejanović, Mirko, Politički razvitak BiH u postdejtonskom periodu, Sarajevo 2005 - Ebd./Zlokapa/Zolić/Arnautović, Opštine/općine u BiH. Demografske, socijalne,

ekonomske I političke činjenice, Sarajevo 2006 - Ebd./Osmankovic, Jasmina, Euroregije i BiH, Sarajevo 2009 - Pension reform and social protection systems in BiH, UNDP in BiH, Sarajevo 2007 - Perry, Valery, Democratic ends and democratic means: Peace implementation stratgies

and international intervention options in Bosnia and Herzegovina, George Mason University 2006 (unpublished dissertation)

- Péteri, Gábor (Ed.), Mind Your Own Business! Community Governance in Rural Municipalities, Budapest 2008

- Reents/Krüger/Libbe, Dezentralisierung und Umweltverwaltungsstrukturen in Mittel- und Osteuropa, Deutsches Institut für Urbanistik 2002

- Šarčević, Edin Dejtonski Ustav: Karakteristike i karakteristični problemi, Konrad-Adenauer-Foundation in BiH, Sarajevo May 2009

- Sebastián Aparicio, Sofia, State building in deeply divided societies. Beyond Dayton in Bosnia, London School of economics October 2009 (unpublished dissertation)

- Shakarishvili, George (Ed.), Decentralization in health care, Budapest 2008 - Soos, Gabor/Zentai, Violetta (Ed.), Faces of Local Democracy, Budapest 2005 - Summary report on the findings of the survey on the implementation of the process of

decentralization, OSCE Spillover monitor mission to Skopje, Skopje 2006 - Tausz, Katalin (ed.), The Impact of Decentralization on Social Policy, Budapest 2002 - The Ties That Bind - Social Capital in BiH, UNDP in BiH, Sarajevo 2009 - Wollmann, Hellmut, Reformen in Kommunalpolitik und –verwaltung, Wiesbaden 2008


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ANNEX VI: BRIEF HISTORY OF MODEL AND CO-AUTHORS’ SHORT BIOGRAPHIES

The muncipalization model emerged following consultations with a host of BiH civil society

figures. Based on popular frustrations with the Dayton constitutional system and its lack of

representation, DPC – Kurt Bassuener and Bodo Weber, with expertise in grass-roots

democratization efforts – began a research and development process aimed at creating a

governance structure built around citizens’ needs and interests. Only with the direct election of

mayors beginning in 2004 was this need even partially met in postwar BiH. Tony Levitas and

Jasmina Djikić were sought out for their specialized knowledge on public expenditure and fiscal

decentralization to model the economic impact of adopting this model of local self-governance.

Coalition 143 assembled by BiH civil society actors following a long series of consultations and

modifications of the original model. It was adopted in its current form by K-143 members – the

Center for Civic Cooperation (CGS-Livno), the Center for Governance and Constitutional Studies

(CUUS), the European Research Center (EIC), and the Public Interest Advocacy Center (CPI) in

2014. K-143 began grassroots advocacy efforts in late 2013.

The model presented in this document was originally developed with the support of the Royal

Norwegian Embassy in BiH, the Heinrich Böll Stiftung BiH, and the Open Society Foundation BiH.

The model was supported by the Norwegian Embassy in 2009-2010, with Böll’s in-kind support.

OSF BiH sponsored the financial analysis in 2010. All three supported the coalition-building

effort which began in early 2011.

Kurt Bassuener is an independent policy analyst in Sarajevo, Bosnia-Herzegovina. He is co-

founder and Senior Associate of the Democratization Policy Council

(http://www.democratizationpolicy.org), a global initiative for accountability on democracy

promotion. He has worked on Bosnia policy since 1997 (Balkan Institute, Balkan Action Council,

US Institute of Peace, and Democratization Policy Institute) and resided in Sarajevo since 2005.

He served as Strategy Analyst at the Office of the High Representative in 2005-6. He also co-

authored (with Amb. Jeremy Kinsman) the Diplomat’s Handbook for Democracy and

Development Support, a project of the Community of Democracies, the third edition of which

was published in September 2013 (see http://www.diplomatshandbook.org). In his role as the

project’s Research Director, he authored, co-authored, or oversaw the research and writing of

the Handbook’s case studies. He has also contributed various analyses and opinion pieces to

The Washington Post, The Christian Science Monitor, The International Herald Tribune, and

other newspapers. He received his MA in European Studies at the Central European University


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in Prague in 1994, having previously earned his BA in International Relations at America

University’s School of International Service in 1991.

[email protected]

Bodo Weber is a Senior Associate of the Democratization Policy Council (DPC). He is a longtime analyst of international policy, Western Balkans policy and society and German foreign policy. He also works as a political consultant for political foundations and international organizations in Germany and the Balkans. In the 1990s, he worked as an editor with Perspektiven (Frankfurt/Main), a journal, and served as a board member of the Bosnien-

Büro Frankfurt. He has published numerous articles and analytical papers on politics and societies in the Balkans, on post-conflict peacebuilding, democratization and German foreign policy. He has published articles and OpEds in various journals and papers such as Die

Zeit, Internationale Politik, Democracy and Security in Southeast Europe et. al. and regularly appears as a commentator in Southeast European media such as Blic, Koha Ditore, BH

Oslobodjenje, Al Jazeera Balkan. He is the author of The crises of the Bosnian-Herzegovinian

universities and the perspectives of junior scholars, Friedrich-Ebert-Stiftung, Sarajevo 2007 and a co-author of the Bosnia security study “Assessing the potential for renewed ethnic violence in Bosnia-Herzegovina” (Sarajevo 2011). Weber has an MA in political science from the Johann-Wolfgang-Goethe-University in Frankfurt/Main. He lives in Berlin.

[email protected]

For the last twenty years, Tony Levitas has been providing analytical and political advice on

local government reform to elected officials and civil servants in post-communist Europe. In

general, he helps policy makers decide what responsibilities sub-national governments should

have and where they should get the money to pay for them. In particular, he provides support

in designing predictable, adequate, and equitable transfer systems; in developing sound rules

for local government taxation, budgeting, investment planning, and financial reporting; and in

creating and regulating municipal debt markets. He has also worked extensively on school

management and finance. Tony has been instrumental in developing and implementing local

government reform programs in Poland, Macedonia, Serbia, Bosnia and Herzegovina, and

Albania. He has also worked in Ukraine, Turkey, Mongolia, Georgia and Armenia. In Poland,

where has lived for most of the past two decades, he has been deeply involved with the

decentralization of primary and secondary education and until recently served as Research

Director of the Ministry of Education's Local Government School Management unit.

[email protected]


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Jasmina Djikić is a public finance expert with 15 years experience on public finance in BiH. She

currently is the Municipal Finance Advisor at the Growth-Oriented Local Development (GOLD)

project, funded by USAID. Her previous positions include being Long-Term Public Finance

Expert with Human Dynamics, Public Finance Expert for the Public Interest Advocacy Center

(CPI), Fiscal Policy Advisor with the USAID-SIDA-Netherlands-funded Government

Accountability Project (GAP) from 2005-2012, and Public Finance Consultant with SIGMA. She

received her Bachelor of Science in Economics from Moscow State University in 1996 and a

Master’s of International Management from Thunderbird in 1998.

[email protected]

.