DECENTRALIZATION AND FINANCING OF SERVICES Gordana Matković Sofia, July 2007

ON DECENTRALIZATION

Decentralization means… Transferring different functions to Lower levels of state administration Lower levels of state administration Non state institutions and stakeholders Non state institutions and stakeholders Non government organizations Non government organizations Private companies Private companies Citizens Citizens

Non- state institutions and stakeholders are included On the supply side/through service provision On the supply side/through service provision On the demand side/selection and purchasing of services On the demand side/selection and purchasing of servicesor Through participation in decision-making and representing the interests of different groups Through participation in decision-making and representing the interests of different groups

Motives for decentralization Slow changes, lack of efficiency, flexibility and innovation at central level Slow changes, lack of efficiency, flexibility and innovation at central level Local specificities and needs can be better identified and resolved at local level Local specificities and needs can be better identified and resolved at local level Decentralization also provides incentives for competition between: Decentralization also provides incentives for competition between: Local governments Local governments State and non-state actors in service provision State and non-state actors in service provision Decentralization facilitates citizens participation in decision-making which induces better quality services Decentralization facilitates citizens participation in decision-making which induces better quality services

There could also be OTHER MOTIVES Resolving political crises due to ethnic and religious conflicts Resolving political crises due to ethnic and religious conflicts EU integration process (the effect of empathy) EU integration process (the effect of empathy) Shifting responsibility to lower level government to avoid: Shifting responsibility to lower level government to avoid: Unpopular reform measures and Unpopular reform measures and Fiscal crises and deficit at central level Fiscal crises and deficit at central level

Limitations and Preconditions Adequate level of democratization Adequate level of democratization Differences in the level of development between LSG Differences in the level of development between LSG Control mechanisms adapted to a decentralized functioning of state and society Control mechanisms adapted to a decentralized functioning of state and society Adequate capacity at local level Adequate capacity at local level Clear division of mandates, responsibilities and funds Clear division of mandates, responsibilities and funds In transition countries reform mind-set more present at central than at local level In transition countries reform mind-set more present at central than at local level

Limitations arising from the specificity of social protection Social welfare beneficiaries, are as a rule, the least empowered in society: Social welfare beneficiaries, are as a rule, the least empowered in society: Insufficiently informed Insufficiently informed Disorganized Disorganized Do not have political power Do not have political power Needs are concealed Needs are concealed

Limitations arising from the specificity of social protection Local governments do not see their (political) interest in allocating funds for social protection Local governments do not see their (political) interest in allocating funds for social protection There are other big problems that affect a larger number of citizens / voters There are other big problems that affect a larger number of citizens / voters There is a greater chance that prejudice towards some groups is manifested There is a greater chance that prejudice towards some groups is manifested

What should be decentralized in social protection Cash benefits Cash benefits There is no convincing proof for decentralization THEORY THEORY Redistributive functions should largely remain in the mandate of the central level Redistributive functions should largely remain in the mandate of the central level Less developed municipalities/regions would not have sufficient funds for redistribution Less developed municipalities/regions would not have sufficient funds for redistribution The interests of specific vulnerable groups will be better protected if looked after at central level The interests of specific vulnerable groups will be better protected if looked after at central level

What should be decentralized in social protection EXPERIENCE EXPERIENCE In the majority of developed countries minimum rules and financing are at national level In the majority of developed countries minimum rules and financing are at national level In most cases experience in decentralizing cash benefits in transition countries is not positive In most cases experience in decentralizing cash benefits in transition countries is not positive Decentralized system can lead to differences in accessing assistance, thus disrupting horizontal equity that can hardly be justified Decentralized system can lead to differences in accessing assistance, thus disrupting horizontal equity that can hardly be justified

What should be decentralized in social protection Services Services Why should then the system be decentralized in the area of services? THEORY THEORY Dividing the roles of service purchaser and service provider corresponds to a decentralized government Dividing the roles of service purchaser and service provider corresponds to a decentralized government Local needs for services can be very specific due to demographic, economic and social specificities Local needs for services can be very specific due to demographic, economic and social specificities Inter-sectoral cooperation at local level is necessary in organizing services Inter-sectoral cooperation at local level is necessary in organizing services Decentralization also means inclusion of different stakeholders in service provision Decentralization also means inclusion of different stakeholders in service provision

What should be decentralized in social protection EXPERIENCE EXPERIENCE Are we really talking about devolution if at central level: Policies, legislation and national standards are defined Policies, legislation and national standards are defined Financing is secured through central government grants Financing is secured through central government grants Inspection and control functions are organized Inspection and control functions are organized Good practice guidebooks are produced… Good practice guidebooks are produced…

DECENTRALIZATION AND FINANCING OF SERVICES

I case - Financing of Residential Institutions (RIs) at national & alternative services at local level Weaknesses/Shortcomings Strong incentive for placement of children in RIs (at the expense of national budget) Strong incentive for placement of children in RIs (at the expense of national budget) The mere fact that RIs exist absolves local governments The mere fact that RIs exist absolves local governments The poorest LSG do not have resources to develop alternative services The poorest LSG do not have resources to develop alternative services In better-off municipalities/regions there are also many competing needs In better-off municipalities/regions there are also many competing needs

I case Weaknesses/Shortcomings Social welfare at local level often loses battle with education and health Social welfare at local level often loses battle with education and health It is more likely that financing of alternative services will be irregular It is more likely that financing of alternative services will be irregular Services, cost effective only when established for several municipalities, will not be created Services, cost effective only when established for several municipalities, will not be created More difficult to respect the principle money follows the client More difficult to respect the principle money follows the client

II case - Everything financed from national level Problems Creating budgetary space for transitional costs Creating budgetary space for transitional costs Non-responsiveness to specific needs of local communities Non-responsiveness to specific needs of local communities Citizen participation in decision making and advocacy are not possible and effective Citizen participation in decision making and advocacy are not possible and effective Dividing the role of service purchaser and service provider will not be efficient Dividing the role of service purchaser and service provider will not be efficient Lack of incentives for local level to choose the cheapest solution for social care Lack of incentives for local level to choose the cheapest solution for social care

III case - Both RIs and alternative services at local level Risks of decentralizing prior to reforms: Reform ideas are usually more present at central level Reform ideas are usually more present at central level Does not automatically lead to the selection of the cheapest and best care option Does not automatically lead to the selection of the cheapest and best care option In some CIT local level tends to keep RI due to : In some CIT local level tends to keep RI due to : Resistance of staff who are at the same time voters Resistance of staff who are at the same time voters More conservative professional attitudes towards alternatives More conservative professional attitudes towards alternatives In some countries only mandate is shifted, but not the funds In some countries only mandate is shifted, but not the funds

III case Risks of decentralizing prior to reforms: If resources are shifted to local level as well, it is less feasible to financially manage reforms from national level, that is: If resources are shifted to local level as well, it is less feasible to financially manage reforms from national level, that is: To maneuver with financial incentives for development of alternative services To maneuver with financial incentives for development of alternative services To use potential savings (from deinstitutionalization) for development of alternative services To use potential savings (from deinstitutionalization) for development of alternative services To obtain additional funds for poor LSG To obtain additional funds for poor LSG Problems of inter-municipal payments for services Problems of inter-municipal payments for services

What can we do? Do not opt for quick decentralization to lower level government, especially if: Do not opt for quick decentralization to lower level government, especially if: Regional level government does not exist Regional level government does not exist There are no control mechanisms There are no control mechanisms If there are large differences in LSG level of development If there are large differences in LSG level of development If LSG do not have adequate capacity If LSG do not have adequate capacity

What can we do? In some segments / under certain conditions - reforms should precede decentralization (e.g. foster care) In some segments / under certain conditions - reforms should precede decentralization (e.g. foster care) Examine the option of asymmetric decentralization with clearly defined responsibilities for development of alternative care Examine the option of asymmetric decentralization with clearly defined responsibilities for development of alternative care When implementing decentralization, financial resources must follow the shift of mandates When implementing decentralization, financial resources must follow the shift of mandates

What can we do? It should be noted that even services financed from national level and provided by non-state providers e.g. foster care, can be considered as decentralization It should be noted that even services financed from national level and provided by non-state providers e.g. foster care, can be considered as decentralization One option for overcoming the problem of resources captured in RIs, is to engage RIs staff in providing alternative services and/or in M&E One option for overcoming the problem of resources captured in RIs, is to engage RIs staff in providing alternative services and/or in M&E Financing from multiple sources (both national and local) is perhaps the best financing option for alternative services Financing from multiple sources (both national and local) is perhaps the best financing option for alternative services

What can we do? Transfers from the national level should be earmarked Transfers from the national level should be earmarked Securing funds at national level for sustainable financing, particularly for: Securing funds at national level for sustainable financing, particularly for: Services in small and undercapacitated municipalities Services in small and undercapacitated municipalities Services that are considered especially important by the national level and are not sufficiently recognized as important at local level Services that are considered especially important by the national level and are not sufficiently recognized as important at local level Covering transition costs in establishing services Covering transition costs in establishing services