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LEGAL FRAMEWORK (see Chapter 4 for details) |
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4.1.1. Establish a clear legal base and for shared services provision and concentrate the core regulations concerning the establishment and governance of municipal collaboration within the Law on Local Self-Government (LLSG).
4.1.2. Specify authorised forms of shared services provision with more precision. |
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The regulation of shared services provision is governed by multiple laws, resulting in a fragmented legal framework spread across various statutes (Chapter 2, Figure 2.5).
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Article 5 of the LLSG allows three forms of shared services provision. These alternatives are general and leave much of the practical aspects of establishing shared services provision in doubt.
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Overall, the current legal provisions fail to address the key practical issues involved in the establishment and operation of shared municipal services.
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Utilise the review of the current legal regulation made in this report, making sure that the mapping made in Figure 2.4 covers all existing relevant legal provisions for shared service provision.
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Start the legislative drafting for updating the LLSG to cover the gaps of legal provisions identified in this report.
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Abolish the three forms of shared service provision currently mentioned in the LLSG.
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Make sure that LLSG contains all the core legal regulation of shared municipal services provision and that the sectoral laws refer to it. Only in rare specific cases allow sectoral or other legislation contain legal provisions on municipal collaborative arrangements.
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Alter the other legislations (see the first step in this list of Actions) currently regulating shared services provision by reducing the provisions which have been moved to LLSG to avoid overlapping regulation.
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Benefits:
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Simplifies the legal framework for establishing shared service provision;
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Enhances legal clarity;
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Facilitates the process for municipalities to engage in shared municipal services provision.
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Enables municipalities to form both the soft and the more advanced cooperation in different sectors and for various purposes;
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Improves transparency of shared services provision;
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Provides flexibility and autonomy for municipalities to organise shared services provision based on local context and needs.
Challenges:
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Central government level. |
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4.1.3. Develop a clear legal base for municipal pilots |
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Establish a clear legal basis for municipal trials/pilots.
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Consider establishing a specific Act for public sector piloting schemes.
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Strengthen the capacity of municipal staff to conduct pilots.
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Establish a specific Piloting Act for public sector pilot schemes or introduce specific statutory provisions and/or exemption clauses in existing laws in Lithuania that allow for trials and piloting within the public sector:
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Establish legal provisions that allow temporarily relaxing existing legal provisions for the pilot experiment (e.g. flexibility in staffing, use of central government grants, tax revenue).
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Establish legal provision that ensures funding and resources to conduct pilots;
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Strengthen the capacity of municipal staff to conduct pilots:
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Develop and implement a comprehensive guide on the legal aspects of conducting municipal pilots:
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Definitions of different types of experiments.
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How to initiate and carry out a pilot experiment (applications and funding).
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How to evaluate the impacts of pilot experiments.
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How to utilise the information provided by the pilots.
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Provide training to municipal staff on the legal and aspects of municipal pilots on the above-mentioned aspects.
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Establish an expert network on public sector piloting, consisting of legal experts, researchers, administrators in central government and municipalities, to promote the exchange of knowledge and good practices to carry out successful pilots.
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Benefits:
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Providing a systematic legal framework for public sector piloting will enable and incentivise municipal experiments.
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Adding flexibility to preparing reforms.
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Boosting the culture of cooperation between municipalities.
Challenges:
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Central government |
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FISCAL FRAMEWORK (see section 4.2 for details) |
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4.2.1. Create an enabling funding model to encourage shared municipal service provision |
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Nearly 90% of municipal funding in Lithuania is derived from central government grants, with approximately 36% of this funding being earmarked.
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The earmarked grants for delegated functions form an obstacle for cross-sectoral shared services provision initiatives as they complexify administrative procedures.
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The requirement to return unsused funding weakens incentive for municipalities to engage in shared services provision for cost savings purposes.
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This structure constrains municipal fiscal autonomy, potentially dampening the motivation for bottom-up initiatives.
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Continue strengthening municipal fiscal autonomy by reducing their reliance on central government grants and allowing them to retain a greater share of locally generated revenue.
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Reduce the use of earmarked grants (i.e. the state subsidies for delegated functions).
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Provide temporary financial assistance to cover initial costs associated with establishing joint services or projects.
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Enhance municipal revenue autonomy:
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Reform the central government grant system:
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Revise the Law on Methodology of Determination of Municipal Budget Revenue and other relevant legal provisions for municipal revenue to prioritise general grants over earmarked grants (the state subsidies for delegated functions), giving municipalities flexibility in resource allocation and promoting shared services provision initiatives.
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Enable savings retention from shared municipal service provision:
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Initiate financial support for shared municipal service provision:
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Benefits:
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Increased municipal fiscal autonomy and more flexible use of funds;
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Supporting resource allocation that considers the local needs and circumstances;
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Promoting shared municipal services provision developed through bottom-up initiatives and needs;
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Encouraging efficiency improvements and cost reduction.
Challenges:
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Central government |
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4.2.2. Establish practical and transparent funding models for municipalities to establish shared municipal service provision |
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In order to define member municipality contributions to fund shared services provision, reliable information on costs based on solid accounting tools are needed for agreeing cost sharing.
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While the optimal cost sharing method depends on the type of public service and intensity of collaboration, and the eventual decision should be left with the participating municipalities, the following methods and principles (described in following columns) should be considered by Lithuania.
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Municipalities to consider and define clear cost-sharing methods and principles, depending on the type of public service and intensity of collaboration, based on full cost funding (both indirect and direct costs).
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First, develop a standardised method to define and present costs of municipal services, to enable well-informed and transparent shared services provision and fair cost-sharing (recommendations in section 4.3.2 and 4.3.3).
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Second, using the cost data, calculate and take into account all direct and indirect service costs of shared municipal service provision (i.e. the full cost method) as a basis for cost sharing.
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Thirdly, select a modle to share costs of shared services provision depending on service type and collaboration intensity (see Table 4.1 and Box 4.1):
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Matching principle: Costs are covered based on service use by residents, ideally aligning costs with benefits.
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Population-based cost sharing: Costs are shared based on each municipality's population, offering simplicity but potentially reducing cost control motivation.
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In specific cases, consider applying the following cost sharing methods:
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Equal share contribution: Each municipality pays an equal share. Suitable for evenly distributed benefits.
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Ability-to-pay contributions: Based on each municipality's fiscal capacity, with wealthier municipalities paying more.
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Hybrid model: Combines methods to suit specific shared services provision circumstances, allowing flexibility to meet diverse needs.
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Benefits:
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Systematic models for sharing costs between municipalities in shared services provision will facilitate fair contributions among member municipalities.
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Comprehensive cost coverage in shared services provision.
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Funding methods adaptable to diverse models of shared services provision.
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More effective and equitable municipal shared services provision.
Challenges:
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Some cost-sharing methods are easier to implement than others.
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The matching principle poses budgetary risks if municipalities initially under-budget their contributions or cannot control service usage.
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The population-based cost sharing principle can create limited motivation for cost control.
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Central government (Ministry of Finance, Ministry of Interior) |
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Fostering shared services provision with central government financial support |
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Central government financial support can play a role in encouraging municipalities to engage in shared municipal service provision.
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One potential cost-neutral method is to channel central government grants (in the Lithuanian case: the subsidies for delegated functions, or the funds based on shared income tax revenue) directly to collaborative entities rather than to individual municipalities.
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In case of most demanding shared municipal services, establish central government grants that are targeted directly to shared services provision bodies, instead of municipalities.
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Introduce a specific grant that is conditional on the collaboration and on the impact of the project. Combine funding and other support with strict impact evaluation.
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Modify the Law on Methodology of Determination of Municipal Budget Revenue and LLSG to enable measures described in the previous column.
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Develop clear guidelines and criteria for collaboration-based funding to ensure fair and transparent allocation.
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Create a support framework for administratively weak municipalities to ensure they are able to find partners for shared municipal service provision.
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Benefits:
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Supports shared services provision initiatives by making them financially appealing.
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Rewards municipalities with successful shared services provision outcomes.
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Encourages municipalities to form larger, more sustainable partnerships.
Challenges:
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Central government |
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4.2.3. Improve access to financing to better enable joint municipal investments |
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Municipalities are currently allowed to contract short-term and long-term loans (article 10 of the law on Budget Structure). Structure).
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However, they have low borrowing autonomy and are subject to stringent budget rules as defined in the law on Budget Structure and in the law on the Approval of the Financial Indicators of the State Budget and Municipal Budgets, compared to other EU countries (Chapter 2, Table 2.5).
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As discussed in detail in the OECD report “Raising Local Public Investment in Lithuania”, there is no pooled financing mechanism in Lithuania contrary to other EU countries. As a result, municipalities, especially the economically weakest ones, have limited access to financing for large projects.
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Lithuania establishes a pooled financing mechanism (e.g., credit institution owned by municipalities, such as in France, Sweden, Denmark or Finland) as a mean to increase cooperation between municipalities in large projects.
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Benefits:
Challenges:
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Central government |
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4.2.4. Ensure clear fiscal rules for shared services provision |
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Lithuanian municipalities are subject to various fiscal rules, including a balanced budget rule.
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Compliance with fiscal rules is monitored by the Ministry of Finance and by State Audit Office.
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Small and large municipalities are treated differently by the rules.
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If a municipality does not comply with the rules, the primary consequence is the loss of eligibility to receive central government grants for the co-financing of EU Structural Funds.
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While it appears that shared municipal service provision in Lithuania is governed with same fiscal rules as municipalities, the regulation could be clarified and amended.
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Ensure that a fiscal oversight mechanism applied for monitoring municipal finances is tailored to shared service provision, involving regular financial reporting, performance evaluations, and external audits, to ensure accountability and transparency.
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Joint municipal authorities and joint municipal companies should be allowed the legal right to borrow for investments.
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The borrowing rules applied to single municipalities should be tailored for joint municipal authorities, ensuring that the regulations do not create incentives to bypass the fiscal rules using the collaborative arrangements.
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Similarly, the borrowing rules for joint municipal companies should follow the same principles as those for municipal companies owned by a single municipality.
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Develop a tailored non-compliance financial rules management subprocess for collaborative bodies, focusing on early detection of financial distress.
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Ensure that there is clear framework for interventions by individual member municipalities to prevent financial crises. This could be done by requiring in the legal framework (LLSG) that the founding charters of municipal collaborative bodies should include a governance process to describe how the board of joint municipal authority organises negotiations with the member municipalities on financial matters. In other words, formalise the role of member municipalities in the founding charter in monitoring and supporting the financial stability of collaborative bodies, ensuring that early intervention mechanisms are in place.
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Make changes and amendment in the budget law to ensure that joint municipal bodies are regulated with same rules as municipalities.
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In the budget law, make legal provisions that allow the joint municipal bodies, when they are separate legal bodies (see recommendation for joint municipal authorities in section 4.1.1), to borrow for investments.
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Establish a protocol in LLSG for treating collaborative bodies that are in severe fiscal distress (Annex D).
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In the LLSG, mandate active involvement of member municipalities in the fiscal oversight of collaborative bodies, through structured monitoring and early intervention strategies to prevent financial instability.
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Benefits:
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Promotes fiscal transparency of shared services provision through regular financial reporting, audits, and performance evaluations.
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Helps ensure a consistent regulatory framework while acknowledges the distinct nature and operational requirements of shared services provision.
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Helps early detection of fiscal distress of shared services provisions.
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Encourages prudent fiscal management of shared services provision and municipalities.
Challenges:
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Central government |
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INSTITUTIONAL FRAMEWORK (see section 4.3 for details) |
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4.3.1. Reinforce the role of Central Project Management Agency (CPMA) in supporting municipal shared service provision |
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Lithuania would benefit from CPMA providing advisory services for municipal shared service initiatives, leveraging its existing mandate to support government bodies.
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Enhancements to CPMA's capabilities should include guaranteed funding for these roles, authority to provide technical, legal, and administrative assistance, and facilitating forums and networking events for shared services.
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From the municipal perspective, this support would simplify drafting founding charters, establishing cost-sharing mechanisms, and managing collaborative projects, with potential input from the competence network (Kompetencijų tinklas) for additional expertise.
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Empower CPMA to offer comprehensive technical support on financial and administrative aspects of shared services provision to municipalities initiating collaborative projects.
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Enable CPMA to assist in planning and negotiating the content of founding charters/basic agreements, focusing on service cost determination and the establishment of cost-sharing mechanisms (membership fees).
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Ensure regular funding for CPMA for being able to offer technical, legal and administrative support for municipalities for establishing shared service provision arrangements.
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Designate CPMA to organise forums facilitating dialogue among municipalities on shared services provision topics, to share success stories (e.g., national champions) and good practices, and to organise networking events.
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Empower CPMA to collaborate with other central government agencies, ministries, municipailities, ALAL, and the competence network (Kompetencijų tinklas) to ensure that shared services provision can be organised more effectively.
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Empower CPMA legally and financially to offer support to municipalities embarking on shared services provision projects. This support should include:
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Financial support: how to seek funding to kick-start shared services provision projects.
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Administrative assistance: guidance on administrative procedures and regulatory compliance.
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Technical assistance: expertise in project design, implementation, and evaluation.
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Assign CPMA to organise nationwide and local shared municipal services provision dialogue forums:
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Enable CPMA to assist municipalities in planning and negotiating the specifics of founding charters or basic agreements for shared services provision projects.
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Service cost determination and the establishment of cost-sharing mechanisms.
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Providing templates or model agreements for founding agreements (joint municipal authorities and joint municipal companies) and contracts (host municipality arrangements, shared HR resources).
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Authorise CPMA to hire or designate project managers whose primary responsibility is to ensure that municipal collaborations are effectively transformed from concept to practice.
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Empower CPMA to actively seek and facilitate collaborations with other central government agencies, ALAL and the municipalities, enabling shared vision on utilising shared municipal services provision.
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Benefits:
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Raise the quality and professionalism of collaborative arrangements.
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Promote a culture of cooperation and increase trust between municipalities.
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Ease the collaboration process and to solve the technical issues.
Challenges:
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Increasing the culture of cooperation and increasing trust among municipalities is a long-term process.
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CPMA will need more staff capacity and staff dedicated for shared services provision support/assistance.
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Central government |
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4.3.2. Establish standardised descriptions of municipal public services |
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In order to improve the comparability of municipal service costs and service usage, Lithuania should start a reform to develop a standardised classification and descrition of the municipal services.
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This would significantly enhance the municipal governance and would lead to improved data accuracy and reliability, which would allow for more accurate comparisons and benchmarking between municipalities.
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Initiate project
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Form steering committee: representatives from municipalities, ALAL, Statistics Lithuania, key ministries, CPMA, and other key stakeholders.
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Make research
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Feedback collection
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Pilot testing
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Implementation
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Finalise classification system:
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Set implementation timeline:
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Train and resource municipalities:
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Maintenance
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Benefits:
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Developing service descriptions is a first step in building better data on municipal services in Liuthuania.
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Builds base for the evidence-based establishment of shared services provision and costs-sharing models.
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Improves comparability across municipalities.
Challenges:
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Central government and municipalities |
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4.3.3. Improve the quality and reliability of data concerning municipal costs and service use to enable shared municipal service provision |
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The next step after developing standardised description of municipal services is to develop the data and indicators on municipal costs and service use.
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Lithuania could markedly enhance its database on municipal service costs, inputs, outputs, and service usage.
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Develop standardised classification and reporting guidelines. Adopting a standardised system for municipal accounting and reporting municipal of service costs would facilitate consistent financial reporting and analysis. This includes defining clear categories and content (which items should be taken into account) for services and costs, ensuring that data from different municipalities are comparable.
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Develop a platform for collecting, storing, and analysing data on municipal service costs and usage. Using an automated data collection technology would enable quicker data collection.
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Once the standardisation is finalised, Lithuania should build municipal capacity and train officials in municipalities and service providers to data collection and reporting techniques.
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Encourage experience sharing, comparing results and transparency among all stakeholders participating in the excecise.
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The other existing data sources containing data on municipal public services should be reviewed and a comprehensive system should be put in place combining different sources.
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Review regularly and improve data collection methods. Continuous evaluation by national statiscal authorities and other stakeholders involved in the data collection and reporting process is crucial. This includes regularly reviewing the relevance of collected data, the efficiency of data collection methods, and the quality of data analysis. Feedback from users of the data should be used to make iterative improvements to the system.
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Establish guidelines for municipalities regarding the calculation of costs associated with municipal services and enforce mandatory compliance to these regulations (see an example in Annex G).
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Develop a platform for collecting, storing, and analysing municipal service costs and usage data, ensuring standardised formats and indicators for consistency across municipalities and shared service provion units (see example in Annex F).
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Develop uniform accounting practices and mandate in the LLSG and the Accounting Law that all municipalities and joint municipal authorities adhere to these standardised practices.
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Train municipal officials and service providers on data collection, reporting and accounting standards, and data utilisation for service planning and improvement.
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Continuously evaluate and improve data collection and reporting processes, including regular reviews of data relevance, collection methods, and analysis quality, using feedback for system enhancements.
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Utilise modern IT solutions for efficient data collection, storage, and analysis, including developing or adapting software and platforms for municipal data needs.
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Benefits:
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Comparable and reliable data on municipal service costs and use are critical for well informed decision-making on public services at municipal and central government levels.
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Increases accountability to citizens.
Challenges:
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Central government and municipalities |
