LGI Call for Papers on LocalGovernance

crossposted from LGI List

Subject: CfP: Local government borrowing: regulations and practices

OPEN SOCIETY INSTITUTE
LOCAL GOVERNMENT AND PUBLIC SERVICE REFORM INITIATIVE
Nador utca 11, H-1051 Budapest, Hungary
Tel: (36 1) 327-3104,
Fax: (36 1) 327-3105,
[email protected]
http://lgi.osi.hu/


Call for proposals to write policy studies on
"Local government borrowing: regulations and practices"

under the "Local Government Policy Partnership" Program sponsored by the
Open Society Institute - Budapest, Local Government Initiative and the
Department for International Development

Deadline: July 31, 2002


The LGPP Program

The Local Government Policy Partnership Program (LGPP) is a joint program of
the Department for International Development (UK) and the Local Government
Initiative of the Open Society Institute-Budapest (LGI). The objective of
this co-operation is to produce comparative policy studies on selected local
government issues. Beneficiaries of the policy proposals are national
government ministries, local government associations, and research and
training institutions. The partner countries are the Czech Republic,
Hungary, Poland and Slovakia, but depending on the topics, more countries
may be involved in some projects. Information on the project and the
previous reports are available at: http://lgi.osi.hu/lgpp/
Analytical papers with policy proposals are produced by the participating
country teams under the professional co-ordination of the project manager
and editor. Country studies should respond to local problems, as the primary
target audiences are local policy makers. However, the country studies
should be comparable, thus providing information for general conclusions and
policy proposals for other countries in the Central Eastern European region.


LGPP plans to produce country reports and a comparative study on "Local
government borrowing: regulations and practices" in Central and Eastern
European countries during the period of August 2002- April 2003.

This document establishes the content and structure of the country reports.
The selection of countries and authors preparing national chapters will be
the result of a competitive bidding process. The editor, who is also the
professional manager of the project, will prepare the summary chapter. There
is an intention to publish all accepted reports by LGI.

Background

The decentralization reform introduced in most of the countries in the
region provided new opportunities for local government financing. Bank
credits and bond obligations are among these new opportunities.
With a slight risk of oversimplification we may say that from that point of
view countries of Central Eastern Europe fall into two categories. In some
countries local governments have been using credit instruments very
carefully, frequently not making use of  all opportunities created by
availability of new tools. On the other hand in some countries local
governments have been very eager to  borrow and some of them felt in a trap
of excessive indebtedness. For this reason the issues related to regulations
as well as to proper credit policies are very significant in both of these
groups of countries.
The theory of fiscal federalism suggests that borrowing should not be used
to finance operational spending but it is a recommended way to finance
capital investment projects. The arguments supporting this claim are both of
social (inter-generation and geographical equity arguments) and economic
(opportunity to stimulate local economic growth, stabilization of local tax
rates) nature.
Indeed, in several countries resources from borrowing provide a substantial
part of resources used for capital projects. In United States the typical
form of local borrowing is through bonds issuing, while in most of
West-European countries bank credits are more common. In some of them there
are institutions specializing in financing local government projects, while
in some others this role is played by "ordinary" commercial banks.
During the last decade the development of local capital markets in
Central-Eastern Europe has been supported by foreign advisors working for
USAID and - especially - World Bank projects. This has significantly
contributed to the development of relevant legal regulations as well as
development of technical skills of local administrations. The process of
local capital markets development has not been completed, the situation is
still very dynamic in most of countries in the region.
At the same time excessive borrowing may lead to excessive indebtedness with
serious micro (for individual local governments) and macroeconomic
consequences. That is why in several countries there are rules on the
control and/or limits for  taking loans by local governments and their
subsidiaries. The macroeconomic considerations caused imposing the overall
limit of public debt in the EU Maastricht treaty, and this regulation has to
be taken into account by candidate countries of the Central and Eastern
Europe.

Content of the policy paper

The national report is required to
(i) give an overview of the general situation on local government borrowing,

(ii) analyze local borrowing environment, by focusing on typical issues,
discussed below and
(iii) formulate policy proposals for applicant's own country.

The country paper is expected - but not limited - to consist of the
following parts:

I. Introduction

In this section authors should describe a brief history of decentralization
reforms during the last decade; present territorial division in their
country (number of tiers, size of local government units); basic political
mechanisms and provide basic data on functions' allocation. This description
should take into account the evolution since 1990.
The introductions should be limited to the brief presentation of the most
important issues and should not be longer than 2 pages.

II. Presentation of financing local government mechanisms

This section should provide basic data on financing local governments of
various tiers of government, as well as their evolution since 1990. The
section should cover - among others - the following topics:
· size of local spending in relation to GDP and general public spending
· structure of revenues (main own sources of local revenues, discretion in
deciding upon local tax rates, revenue sharing, general purpose and specific
grants),
· size of current and investment spending
· share of local government capital expenditure in total government capital
expenditure
· typical forms of funding local capital investments.
This section should specify the fiscal environment of local government
borrowing. Authors should focus on the most important issues, which might be
relevant for the discussion. The length of this section should not exceed 5
pages.

III. Analysis of issues related to local government borrowing

The analysis should cover both legal requirements (regulations) and lending
practices. Laws, national and local regulations on municipal borrowing,
administrative and management practices and on financial markets should be
presented. Beyond the description of the legal environment, the local
government practices should be in the focus of the country policy papers.

This analytical part of the policy study should discuss in particular
issues, like:


1. General regulations and practices of local borrowing

§ What has been a development of borrowing by local governments over the
last decade? How regulations have been changing?
§ What are the legal limits over the local borrowing (size of local debt)?
§ What are the administrative procedures and control mechanisms of municipal
borrowing (if the exist)?
§ What are methods of credit worthiness analysis? Does local government need
an approval (e.g. from a rating agency, auditing body) to borrow?
§ Is local government borrowing limited to capital projects only? If not,
which type of borrowing can be legally applied to current revenues?
§ Is it allowed to fund one loan from another (to borrow money in order to
re-pay the old loan)?
§ How accounting, auditing, fiscal planning and reporting practices support
municipal borrowing?
§ What are the legal regulations on local governments to issue guarantee?
§ Are there any emergency procedures for consolidating local governments and
their subsidiaries who have problems with their debts?
§ What are regulations on fiscal and public information about local
government debt?
§ What are the regulations on managing excessively indebted local
governments?

2. Scale of local indebtedness

§ What is a current debt ratio in local governments (in relation to total
public debt, GDP, local government revenues)? What is the structure of this
debt (short- term and long-term bank credits, bonds, guarantees, other
forms)?
§ How local indebtedness level varies across local governments (does it
depend on the size of jurisdiction, region, tier of local government)?,
§ How changes of macroeconomic situation (for example inflation rate) have
been influencing the development of local borrowing?
§ Were there any bankrupt local governments or municipal service
organizations?

3. Types of local borrowing

§ Are there any institutions specialising in loans for local governments?
§ Are there any preferential loans for local governments available? If so,
what sectors they cover and what is their influence on the market for
commercial borrowing?
§ What are forms and size of non-bank indebtedness (for example loans from
special funds - such as Environment Protection Funds in Poland, but also
arrears in payments by local governments as well as other forms of debt).
§ What is the relationship between bank credit and bond issuing?
§ Are there any local rating agencies?
§ Who are the typical underwriting organizations for local government bond
issue?

4. Local policies on borrowing and debt management

§ What has been the evolution of local governments attitudes towards
borrowing?
§ What is the ratio of borrowing to cover operational expenditures or to
solve cash management problems to overall borrowing by local governments?
§ What is the local attitude towards bank credits versus bond issuing?
§ How many local governments have gone through local and/or international
agency rating process?
§ What proportion of capital spending is financed through borrowing? How
often borrowing is applied to operational spending?
§ Which sectors are exposed most often to borrowing?
§ What is the internal variation of borrowing policies and what are the
factors explaining it? For example: are there differences between big cities
and small local governments or between local governments of different tiers?
§ Do local governments guarantee loans for service organizations or other
businesses?
§ Are there any innovative practices in local government borrowing?
§ What are the practices of managing non-payment? Were there any examples
of government bail-outs, liquidation of local governments or their service
organizations?

5. General issues

§ What are the major barriers for more efficient functioning of the
borrowing market? For example: legal regulations, macroeconomic obstacles,
weakness of local banks, lack of skills in local government administration,
lack of long-term strategic vision allowing for effective multi-year capital
investment planning?


IV. Conclusions and  possible policy recommendations

Recommendations should be formulated on the author's country. They might
include specific policy proposals both on general aspects of regulations on
borrowing and suggestions for policies implemented by local governments.

Format of national papers

Expected length of the country paper (excluding tables and charts) is
approximately 50 pages (12 points font, single space), however slightly
longer papers may be accepted in justified cases.

Required skills of a country team

Individual experts or teams are invited to submit their proposals. Preferred
participants should have:
· a good understanding of local government system and history in respective
country;
· proof understanding of basic issues related to inter-governmental finance
and economic aspects of local services;
· a good recognition of legal regulations related to local borrowing and
related issues (financial administration, financial supervision, practices
of financial institutions, etc.);
· an access to data bases on local government finance and local services and
be able to perform statistical analysis.


Reporting requirements

Country authors will report to the editor - Pawel Swianiewicz. First draft
of country papers will be sent to editor and LGI project manager, who will
make a decision upon their approval as well as suggest necessary revisions.
The final version will include revisions and supplementary analysis
suggested by the editor and LGI project manager.

Time-table

· July  31, 2002
Submission of applications to LGI..
· August 15, 2002
Selection of countries and authors to be involved in the project.
·  September 15, 2002
Selected authors make initial contact with Pawel Swianiewicz (e-mail:
[email protected], fax. (48 22) 8261654) and agree on the outline
of the study with the Editor.
· September 2002
Meeting of country teams to discuss the approaches and the country reports.
· December 20, 2002
Deadline to submit draft country reports.
· January 10, 2003
Comments to draft country reports from the editor and possibly from the
other participants
· February 10, 2003
Submission of revised country reports
· March 15, 2003
Submission of draft summary report, prepared by the editor.
· March 2003
One day working seminar to discuss the major findings of the project.
· April 2003
Publication, regional seminar to be organised by LGI

Expected content of bids

The bids may be submitted by individual authors or by teams (in the latter
case the leading author must be clearly identified). Submitted proposal
should:
· Highlight the most important issues related to local governments borrowing
and indebtedness in the country (3 pages).
· Present the methodological approach followed by the country report (2
pages)
· CV(s) of the author(s) with list of publication, indicating their
experience and skills required to perform  the study
· Proposed budget for the study .

Application procedures

Applications should be submitted to LGI via e-mail ([email protected], with
"LGPP Local government borrowing" in the subject line) and regular mail
(OSI/LGI; Nador utca 11, Room 310, Budapest, H-1051, Hungary).

Deadline: July 31, 2002

Preferred countries are Albania, Bosnia Herzegovina, Bulgaria, Czech
Republic, Croatia, Estonia, Hungary, Latvia, Lithuania, Macedonia, Moldova
Poland, Romania, Russia, Serbia and Montenegro, Slovakia, Slovenia, Ukraine.


Partners of the LGPP Program reserves the right to accept or to refuse
proposals and to limit the number of countries participating in the project.