This chapter assesses the main challenges of the Lithuanian legal, fiscal and institutional frameworks for municipal shared services provision. By analysing these three relevant aspects, this chapter provides the foundation for the policy assessment and recommendations in subsequent chapters. Main findings shows that the legal framework lacks specific guidance for municipalities, as well as for municipal pilots. Tight control from the central government on municipalities, scarce examples of municipal shared services provision to draw on and lack of reliable data on municipal service costs and service usage also sharply reduce initiatives for municipal shared services provision on the institutional side. These obstacles are reinforced by the limited spending and taxing autonomy of municipalities, the use of earmarked state subsidies for municipal state-delegated functions and tight fiscal regulation. The chapter also confirms that municipal shared services provision should be implemented gradually and carefully to limit potential drawbacks.
Enabling Inter‑Municipal Shared Service Provision in Lithuania
Abstract
2.1.1. Local self-government has strong legal foundations
The 1992 Constitution of Lithuania empowers local self-government through comprehensive legal frameworks and amendments, ensuring autonomy and independence for municipal administrations. The principle of local self-government is enshrined in the 1992 Constitution, which dedicates one full chapter to local self-government (Chapter X of the Constitution “Local Self-Government and Governance”) (Constitution of the Republic of Lithuania). Article 129 establishes the right of self-government to administrative units, while article 120 provides that municipalities shall act in a free and independent manner within their competences defined by the Constitution and laws. The Constitution also specifies the general legal framework for budgets, notably the independence of municipal and central government’s budgets. The Constitution is a robust and stable legal foundation for local governments, as it has been amended only a few times since its adoption (Vaidotas, 2014[1]). The main amendments that affected local governments were related to article 119, which extended the mandate of municipal councillors from two years to four years (1996, 2002) (Constitution of the Republic of Lithuania).
Beyond the Constitution, Lithuania's legal landscape for local governance is further enriched by the 1994 Law on Local Self Government (LLSG), which articulates the principles of local self-government, delineates municipal competences, and defines the status of municipal councillors and municipal finances (Law on Local Self-government)1. Furthermore, the Law on Territorial Administrative Units and their Boundaries (LTAUD), defines the boundaries of the territorial administrative units in Lithuania (Law on the Territorial Administrative Units of the Republic of Lithuania and their Boundaries), and the 1994 Law on Elections to Municipal Councils determines the procedures for election of municipal councils (Law on Elections to Municipal Councils). Other major legislations define central government and municipal budgets2. By contrast to the Constitution, the LSSG has been subject to several amendments that strengthened the principles of local self-government over the last decades (Box 2.1). Lithuania has also ratified the European Charter for Local Self-Government in 1999 and the Additional Protocol to the European Charter of Local Self-Government in 2012, which commit the country to align national legislation of local self-governance with the Charter’s norms and principles, such as local self-government (Brezovnik, Hoffman and Kostrubiec, 2021[2]).
The LSSG has been amended several times over the past decades with significant changes affecting the principles of local self-governments. As per the latest version of the law (article 4), self-governance is now grounded on the following main principles: (i) representative democracy, (ii) the independence of municipal activities in accordance with the Constitution and laws, (iii) the supremacy of the municipal council over accountable executive municipal institutions, (iv) accountability of executive municipal institutions to the municipal council, (v) responsibility before the municipal community, (vi) legality of municipal activities and decisions, (vii) adjustment of municipal and central government’s interests when managing municipal public affairs, (viii) adjustment of interests of the community and individual residents, (ix) participation of the residents of a municipality in the management of municipal affairs (e.g. preparing and debating draft decisions, organising surveys), (x) transparency of activities (e.g. access to drafts of municipal decisions), (xi) development and activity planning, (xii) responsiveness to the opinion of municipal residents, (xiii) respect of human rights and freedoms, (xiv) subsidiarity, and (xv) publicity.
Source: Law on Local Self-government and (Brezovnik, Hoffman and Kostrubiec, 2021[2]).
Municipalities have also the opportunity to engage in the legislative process, either independently or via the Association of Local Authorities in Lithuania (ALAL), by contributing to the drafting of laws concerning local self-governance or municipal functions, as well as submitting proposals and providing feedback on draft legislation.
2.1.2. The legal framework lacks specific provisions for municipal shared services provision and municipal pilots
While the LLSG (article 5) in Lithuania allows municipalities to enter into contracts to perform services jointly with other municipalities and to delegate services to other municipalities, it does not guide or steer municipalities to do this, nor does it provide for specific models of organisational arrangements for shared services provision. The law only mentions three general options for shared services provision: i) a joint agreement to achieve certain common objectives; ii) a joint procurement agreement for the purchase of services from non-municipal bodies; and iii) contracting out the implementation of a specific public service from one municipality to another municipality3(Law on Local Self-government).
Specific shared services provision legislation is crucial for fostering shared services provision as it guides municipalities on shared services provision initiation procedures and forms. It also signals central government support, enhances municipal trust in shared services provision bodies, and minimises dispute risks (Council of Europe, 2010[3]). While clear and specific rules can help municipalities to engage in collaborative arrangements, the legal framework should however remain flexible enough to allow different forms of shared services provision (e.g., contract or separate authority, single-purpose or multi-purpose, public or private law) and not be too complex, leaving municipalities the ability to organise shared services provision based on their local needs (Council of Europe, 2010[3]).
In some EU countries, such as in Finland and the other Nordic countries, while the legal regulation establishes the basic minimum framework, much decision-making is left to municipalities. In other countries (e.g., France), the legal framework for shared services provision is very detailed, leaving less discretionary power to municipalities to co-operate (Table 2.1). By comparison with legislation in EU countries, the Lithuanian legal framework does not contain the key elements on shared services provision in the LLSG, such as: i) the authorisation of shared services provision by law, ii) the allowed legal forms of shared services provision, iii) the procedures for creating shared services provision, iv) the legal status of shared services provision bodies, v) the organisation of shared services provision bodies, election or nomination procedures and general rules for operating, vi) rules on funding and financing, vii) the status of shared services provision staff, and ix) monitoring and evaluation (e.g., by external auditors, the central government, municipal councils, or citizens) (Council of Europe, 2010[3]). Examples of these core elements are provided in the recommendations for different possible forms of shared municipal services provision (e.g., joint decision-making bodies, joint public posts, joint agreements on the management of official duties, joint municipal authorities).
Note: Examples in the table are provided to show different legislation on shared services provision, from low regulated and highly regulated legislation, regardless of multi-level governance of the country.
Source: OECD elaboration based on the French General Law on Local Governments, the Finnish Municipal Act, the Joint Regulations Act of the Netherlands and (The Congress of Local and Regional Authorities, 2007[4]; OECD-UCLG, 2022[5]).
Lithuania also lacks a conducive legal framework for trials and pilot experiments in municipal public services provision. The lack of clear legal basis for municipal trials and pilots in public policy may reduce incentives for innovation and experimentation. By contrast, in Norway, the Pilot Schemes in Public Administration Act (Annex D) provides a safe environment for municipal trials and pilots by ensuring that pilot projects have clear objectives, governance structures and oversight mechanisms, while reducing risks related to legal uncertainties.
2.1.3. The legal framework on municipal shared services provision is scattered
While the LLSG does not specifically cover rules for municipalities working together, the guidance they need is instead spread out across several different laws (Figure 2.1). This fragmentation complicates the process for municipalities seeking to engage in collaborative efforts. The laws regulating shared services provision are various and listed in Figure 2.1, depending on the type of agreement that has been concluded (e.g., shared services provision contracts, shared services provision bodies, joint municipal companies). In the cases of joint procurement agreement and contracting-out, as currently referred in article 5 of the LLSG, the main laws include the Law on Public Procurement and the Law on Competition, among others (Figure 2.1). These general laws are also complemented by sectoral laws, depending on the sectors where municipal cooperation takes place, such as the the Law on Environmental Protection, the Law on Public Transport for agreements on local public transportation, the Waste Management Act for Regional Waste Management Centres, the Law on Public Health for Public Health Bureaus, etc. This complexity of the Lithuania’s legal framework may discourage municipalities to initiate co-operation.
Note: the terminology "Law on Public Institutions" used in the report is the same as "Law on Public Entities".
Source: OECD elaboration.
In many other EU countries, such as in Finland and the other Nordic countries, a more straightforward approach for regulating shared services provision has been chosen. In such cases, the Local Government Act usually provides the main legal steering for establishing and governing shared services provision, and specific laws are only applied when absolutely necessary (the Finnish legal framework is shown in Figure 2.2).
Note: *The law on specialised health care was abandoned in 2023 when the hospital services were transferred to wellbeing services counties.
Source: OECD elaboration.
2.1.4. Regulations on municipal companies have been gradually tightened
Regulations related to the establishment of municipally controlled companies have also been reinforced over the last decade. Since the amendment of the LLSG in 2017 and under the Law on Competition, municipalities can entrust the provision of public services to an existing provider or a new public services provider only if there is no other provider delivering the services with good quality and in a cost-effective manner. Prior to do so, they must obtain a permit from the national Competition Council since the provision of public services is considered as an economic activity under the Law on Competition4, which limits the ability of municipalities to decide the most appropriate way to organise for public services provision. Over the recent years, the central government has also gradually tightened regulations related to municipal transactions, including contracting-out provisions. In case of violation of the Law on Competition, a municipality may be required to terminate the in-house contract and select a public service provider through a competitive procedure. The municipality can also be fined (Law on Competition). Despite increased legal regulations, the largest share of municipal services remains provided by municipal companies in Lithuania.
2.2.1. Tight control by the central government complicates collaboration between municipalities
Lithuania’s municipalities have limited flexibility in organising services assigned to them, which makes it harder for them to engage in collaborative arrangements. Municipalities have more decision-making freedom with “independent functions”. Nevertheless, the high level of details in the description of municipal independent functions (e.g., waste management) has reduced municipalities’ discretion in implementation and, in some cases, generated a lack of human and financial resources to cope with the associated bureaucratic requirements. Such interferences from the central government have limited the capacity of municipalities to perform fully and exclusively their functions (Congress of Local and Regional Authorities, 2018). For state-delegated functions, the implementation of the functions by municipalities is highly restricted by the central government. The implementation is supervised by 13 ministries and several central government’s institutions, which formulate policies, establish procedures for the planning, use and reporting of state transfers to municipalities (Figure 2.3).
Note: Institutions are in blue boxes; legislation in the grey box and functions in white boxes.
Source: OECD elaboration based on (The Supreme Audit Institution of Lithuania, 2019[6])
There are currently 44 independent tasks and 36 state-delegated tasks5. Independent functions include, among others, the drafting and approval of municipal budget, setting and collecting local user fees and charges, the maintenance of municipal establishments, the compulsory education for children under 16 years old living within the municipality, etc. In addition, the independent functions include functions related to social services, child protection, primary healthcare, land planning, waste management, transportation, environment protection and culture. The state-delegated functions comprise civil protection, the organisation of pre-primary education, general education, vocational training and vocational counselling, the calculation and payment of most social benefits and compensations. State-delegated functions are also related to agriculture, rural development, healthcare, social care, municipal data set, etc. (Law on Local Self-government). Further details are provided in Table 2.2. The share of state-delegated functions has gradually increased, leaving less autonomy for municipalities, and less room for shared services provision (Burbulytė-Tsiskarishvili, Dvorak and Žernytė, 2018[7]).
Source: Authors’ elaboration based on articles 5 and 6 of the LLSG.
Despite recent political discussions to strengthen municipal autonomy and regional policy, administrative supervision from the central government on municipalities remains high in Lithuania. The National Audit Office (Valstybes Kontrole) assesses the compliance of municipalities with fiscal rules in Lithuania, while central government’s officers supervise the fulfilment and compliance of municipal tasks with national decision. Furthermore, a government representative, accountable to the Prime Minister, oversees municipalities in their region to make sure they adhere to the Constitution and national decisions.
According to the Local Autonomy Index (LAI) 6, Lithuania falls into the group of countries, including Estonia, Germany, Italy, Poland, Portugal, Slovakia, and others, where municipalities have medium autonomy. This is due to lower scores in areas like administrative supervision, financial transfer system, policy scope, and financial autonomy (Ladner et al., 2021[8]).
2.2.2. Sectoral fragmentation of governance hinders municipal shared services provision for LTC services
Sectoral fragmentation of governance is a key challenge for shared services provision. In Lithuania, such sectoral fragmentation applies to LTC services as they encompass both healthcare and social care services. The piloting of municipal shared services provision in Tauragė+ functional zone was decided to focus on these services (Chapter 5).
Municipalities are steered and monitored by two different ministries for LTC services, the Ministry of Health (MoH) and the Ministry of Social Security and Labour (MSSL), without effective coordination nor cross-sectoral strategy between them, leading to unnecessary administrative burden and inefficiencies (OECD, 2021[9]). Municipal functions related to healthcare and social care services are presented in Table 2.3 and the organisation of healthcare and social care services in Lithuania is depicted in Box 5.1 (chapter 5).
Note: The provision of public and secondary healthcare to pupils in pre-school, general education schools and vocational training schools located within the municipal territory is a municipal state-delegated function.
Source: Author’s own elaboration based on Law on Local Self-government and (OECD/European Observatory on Health Systems and Policies, 2021[10]; OECD, 2018[11]).
Lithuania is currently reforming healthcare and social care services. The reform focuses on better integrating these two services in order to enhance LTC efficiency and expand it to those in needs (e.g., elderly and residents with disabilities) with less waiting time for admission in hospitals. Reducing fragmentation across these two sectors will alleviate adverse impacts on municipal shared services provision for LTC.
2.2.3. There are a few instances of municipal shared services provision to draw on in Lithuania
In Lithuania, collaboration between municipalities for public service provision and infrastructure projects is fairly limited. This lack of interaction implies a deficit of guidance and accumulated experience in initiating municipal shared services provision. The sparse instances of shared services provision identified for Lithuania include inter-municipal agreements, inter-municipal bodies and joint municipal companies7. More detailed descriptions and examples of these forms of shared services provision are provided in Box 2.2.
Inter-municipal agreements: Urban and suburban municipalities mainly agree to provide public transportation services. For instance, the Klaipėda region's 2015-2018 regional transportation system, initiated by Klaipėda city and district municipalities, led to lower transport costs and improved customer satisfaction. However, Klaipėda city's decision-making dominance also caused dissatisfaction (Bučaitė-Vilkė, Civinskas and Lazauskienė, 2018[12]). Another example is the establishment of Municipal Health Centre´s (MHC) that will integrate several PHC services as part of the reform on the healthcare system8. Municipalities will have the possibility to sign co-operative agreements for specific services or to create a joint legal body to co-operate through these MHCs.
Inter-municipal bodies: These bodies cover mainly the provision of public utilities or healthcare services. One example is the public health bureaus. Municipalities organised 45 Public Health Bureaus, which are responsible for health promotion and prevention, population health monitoring, and planning and implementing local public health programmes (OECD, 2018[11]). The establishment of Municipal Health Centre (MHC) that will integrate several primary health care services as part of the reform on the healthcare system9 is also an example. Municipalities will have the possibility to sign co-operative agreements for specific services or to create a joint legal body to co-operate through these MHCs.
Joint municipal companies: There are about 250 municipal companies operating across 40 sectors, from energy supply to waste treatment and local public transport (OECD, 2020[13]). About 85% of companies under the supervision of municipalities are organised as private limited enterprises. While municipal companies are common in Lithuania, about three-quarters of municipal companies have only one owner or are administered by a single municipality, so joint municipal companies appear relatively rare.
Lithuania has also established 10 Regional Development Councils (RDCs), which are legal entities grounded in the Law on Regional Development (Law on Regional Development). Since the amendment of this law in 2020, RDCs have been established as supra-municipal institutions. Within their regions10, their roles are to coordinate and plan the measures to implement goals of the national regional development policy in their region (including to prepare the Regional Development Plans), to foster the socio-economic development of their region, to promote co-operation between the municipalities of their region, and to represent the region in various forums (Law on Regional Development).
The central government also established two projects that promote shared services provision on local investment (Tauragė+ and Šalčininkai+). Four municipalities participate in Tauragė+ functional zone (Chapter 5).
In comparison to other EU countries, Lithuania's repertoire of shared services provision forms is more limited. The forms primarily differ in their legal structure and organising bodies (Figure 2.4). As was discussed above, the complexity in Lithuania's legal foundation for shared services provision hinders a defined framework for collaboration, resulting in an unclear landscape of shared services provision.
Source: (OECD, 2019[14])
Contrastingly, the Netherlands possess five unique forms of shared services provision partnerships. These partnerships span a spectrum of engagement levels, from simpler arrangements like host municipality and joint body structures, to operational management entities and public bodies, and extending to the most comprehensive forms, as shown in Table 2.4. Finland and France, too, encompass a wide variety of clearly defined shared services provision forms. For instance, in France, the shared services provision bodies, also known as Public Establishment for Inter-communal Cooperation (EPCI), are granted taxing authority. Finland's approach is described in Chapter 3.
Enabling different types of models for shared services provision makes it easier for municipalities to engage in collaboration according to their local needs and the services to be delivered. Shared services provision can also be mandatory for certain services (e.g. regional development, regional planning in Finland) and voluntary for other services (e.g. infrastructure and public transport, education in Finland). In France, all municipalities must be part of an EPCI to cope with the high municipal fragmentation of the country (Table 2.4).
Note: *Until 2023 shared services provision was mandatory also in case of specialised health care (hospitals). ** Only for organising waste processing and landfilling, but not for waste collection. *** Section 3 describes the Finnish model in detail.
Source: OECD elaboration based on the French General Law on Local Governments, the Finnish Municipal Act, the Joint Regulations Act of the Netherlands and (The Congress of Local and Regional Authorities, 2007[4]; OECD-UCLG, 2022[5]).
2.2.4. Improving municipal data on service costs and service usage
Municipalities in Lithuania currently lack standardised data on the costs and usage of municipal services, which are essential at various stages of shared services provision. Comprehensive data encompassing current service levels, quality, accessibility, costs, available infrastructure and human resources are crucial for conducting feasibility studies prior to engaging in shared services provision. Such information allows municipalities to identify specific needs for customised cooperation, evaluate the availability of human and financial resources, infrastructure within each municipality, and formulate cost-benefit analyses for collaborative efforts. Additionally, these data play a vital role in joint strategic planning, ensuring that shared services provision initiatives are in sync with medium to long-term goals. They are also indispensable for establishing realistic performance metrics, monitoring shared services provision progress, and making necessary adjustments.
There is a lack of data collection on services use and costs at municipal level, which is underpinned by the absence of indicators to assess the quality and accessibility of municipal services. A standard definition of the content of services and a common approach to collect data would facilitate consistency and comparison between municipalities on service provisions. There are a few initiatives to collect municipal data in some sectors, but they are not centralised in one platform. Data on social services use, for instance, are split across different sources, the two main ones being the reporting tool in the Social Protection Information System (SPIS) and the national survey of social services. Data on the number of service users or target population are not comprehensive and up-to-date, which hinders the assessment of specific service needs and strategic planification (OECD, 2023[15]). There is also a lack of integration between municipal data with national data systems on health and social care services, leading to a fragmented view of service costs and use.
Enhancing municipal data collection and a uniform accounting system requires modern infrastructure IT systems for collecting and storing data, as well as training and guidelines for municipal staff. Examples of standardised municipal data reporting in Finland, Norway and Sweden are provided in Box 2.3.
In Finland, the Municipal Data Program (Kuntatieto-ohjelma) aims to standardise and automate municipal financial reporting, as well as providing a comprehensive database on municipal service costs. The program comprised the establishment of standards and guidelines on data reporting, training for municipal staff on data management and the development of appropriate IT infrastructure to support efficient data collection, storage and processing. The Aura Handbook (Aura-käsikirja), which is a financial reporting guide for municipalities managed by the Ministry of Finance, provides detailed instructions for automated financial reporting for municipalities. The Association of Municipalities (Kuntaliitto) had a major role in this process to incentivise high-quality reporting in municipalities, notably through voluntary comparisons between municipalities.
In Norway, Kostra (Kommune-State-Reporting) is a national reporting system that aims to standardise the reporting of financial and non-financial data from municipalities and counties. The Kostra reporting system is managed by Statistics Norway (SSB). Data about 95 municipal functions can be found by municipalities, from educational services and infrastructure, to culture, healthcare and social services, transport, waste and water treatments.
In Sweden, Kolada (Kommun-och Landstingsdatabasen) is the national database that include comparable data on demographics, finances, service costs and performance indicators at municipal and regional levels. Data are reported by municipalities and regions and managed by the Swedish Association of Local Authorities and Regions (SKR). Data comprises healthcare services, cultural activity, education and infrastructure, among others.
2.2.5. The reluctance for risk taking between municipalities does not support co-operation
Reluctance to take risk between municipalities poses a barrier to shared services provision in Lithuania11. This can be attributed to several factors. For instance, in the education sector, the allocation of subsidies from central government was based on the number of students, creating an environment of rivalry rather than collaboration between municipalities. The allocation is now determined by class-basket (with minimum and maximum requirements on the number of pupils per class).
Furthermore, municipalities often turn towards prioritising policies that foster local economic growth, such as attracting investment. If this takes precedence over the promotion of affordable, high-quality public services via shared services provision, mistrust amongst municipalities may be exacerbated. This realignment of priorities creates an obstacle to effective municipal shared services provision and serves to further deepen the trust deficit (Bučaitė-Vilkė, Civinskas and Lazauskienė, 2018[12]).
Establishing a municipal culture of co-operation is a long-term process. The establishment of shared services provision functional zones can facilitate it, such as in Tauragė+ functional zone where local officials have experience in co-operation and are willing to extend the co-operation to other public services12. The central government should therefore create a framework that facilitates municipal experiments in this direction (e.g., an Act on Municipal Experiments that allows more flexible cross sectoral co-operation).
2.3.1. Municipalities have a limited spending and taxing autonomy
The low degree of spending autonomy may not encourage municipalities to consider providing services together. Municipal spending responsibilities have expanded over the two last decades, but they have not been accompanied by higher revenue decision-making power. Total municipal expenditure has increased by about three times between 2000 and 2022 (Figure 2.5).
In current prices (euros, millions)
Note: Total expenditure in the blue line; subsidies (central government budgetary transfers) in the red dotted line.
Source: OECD elaboration based on OECD national accounts (OECD Statistics).
Looking at municipal expenditure by functional classifications (COFOG), the main municipal spending items are education, followed by healthcare services and, to a lesser extent, social protection. Education represented 35.7% of municipal expenditure and healthcare services accounted for 22.2% in 2021, well above the average of OECD unitary countries with one-tier of government (28.7% and 8.4%). Municipal spending in education, healthcare and social protection has also increased since 2010 due to the enlarged responsibilities transferred in these areas13. Despite large service responsibilities, municipalities have low spending autonomy since about half of their expenditure is funded by earmarked subsidies for delegated functions (central government budgetary transfers) (OECD, 2021[9]). This low spending autonomy is corroborated in Figure 2.5, which shows the strong correlation between municipal expenditure and central government budgetary transfers.
Municipalities in Lithuania have also very low fiscal autonomy, which limits their room for manoeuvre in both organising public service provision and developing investment initiatives. Municipalities in Lithuania largely rely on central government budgetary transfers14 (89.7%), the highest in OECD countries and well above the average of OECD unitary one-tier countries (52.4%), while taxes represented only 3.6% of their revenue in 2021 (Figure 2.6) (OECD-UCLG, 2022[5]; OECD, 2021[9]).
Source: OECD elaboration of OECD national accounts data.
Municipal transfers comprise a general central government budgetary transfer for independent functions and earmarked subsidies for state-delegated functions. The use of earmarked subsidies reduces municipalities’ discretion in the delivery of delegated functions. In addition, if municipalities do not use all earmarked transfers from the central government, they must return the excess to the central government’s budget (Law on the Budget Structure). This process clearly lowers the incentive for municipalities to engage in shared services provision for cost savings purposes. In general, given the financing structure, co-operation takes place for particular investment projects or the delivery of certain services for which municipalities see an advantage for acting together, as external funding (e.g., transfers, loans) is project-based. This is the case for example for road construction or waste management services.
The general central government budgetary transfer is based on the revenue from the personal income tax (PIT), which is a central government tax but the revenue is shared between state and municipalities. In 2020, municipalities received around 47% of the PIT collected (OECD-UCLG, 2022[5]; OECD, 2021[9]). The revenue from the PIT is then redistributed across municipalities through a fiscal equalisation mechanism, which is based on the municipality’s projected revenue from PIT per capita compared to the average projected PIT per capita of all municipalities. Municipalities below the average receive the full difference, whereas municipalities above are donors. In 2020, there were eight donor municipalities to the equalisation system (OECD-UCLG, 2022[5]; OECD, 2021[9]).
Municipalities’ rate-setting power is limited to property taxes (i.e., commercial real estate, land), which represented only 2.9% of their revenue in 2020. They have the power to set exemptions and rates within limits set by the central government on these existing taxes (i.e., between 0.5% and 3% of the taxable value for the real estate tax and between 0.01% to 4% of the taxable value for the land tax). Municipalities also receive tariffs and fees as own-source revenue, which account for a tiny share of their revenue (5.5% in 2020) (OECD-UCLG, 2022[16]).
2.3.2. Earmarked subsidies for state-delegated functions restrict motivation for cross-sectoral approaches
Municipalities receive sectoral earmarked subsidies for the implementation of their state-delegated functions from several different ministries. This creates administrative burden and makes it harder for municipalities to engage in shared services provision that encompasses cross-sectoral measures. In addition, as mentioned above for LTC, two ministries are responsible for transferring earmarked subsidies to municipalities (Box 5.1). Reducing the number of earmarked subsidies, which implies changing the state-delegated function system, and increasing the role of general transfers and municipal own revenues would help avoid unnecessary disincentives for shared services provision.
In Lithuania, the absence of a dedicated subsidy for joint municipality collaboration schemes means that there is a missed opportunity to incentivise shared services provision. Presently, the primary financial motivation for municipalities to collaborate stems from EU funds, which are particularly crucial for smaller municipalities. Although joining RDCs is voluntary, participation in an RDC allows municipalities to benefit from EU funding for regional development projects. Furthermore, the European Union's Integrated Territorial Investment (ITI) serves as a significant mechanism to enhance territorial development strategies and promote shared services provision, offering a strategic avenue for municipalities to work together on shared objectives. By contrast, various types of financial incentives have been introduced to promote shared services provision in many OECD countries. In France, for instance, the central government offers special grants15, which made IMC an attractive solution for municipalities with limited resources and strong competition between them. In Estonia and Norway, the government provides additional transfers for joint public investments, while in Galicia, Spain, EU regional funds are transferred in priority to investment projects that involve several municipalities (OECD, 2019[17]). In Slovenia, half of staff costs of joint management bodies is reimbursed since 2005, which sharply increased the number of such shared services provision bodies. In Portugal, EU funds for ITI were also provided to and managed by shared services provision and metropolitan areas through Pact for Territorial Development and Cohesion16. Poland is also progressively implementing financial incentives for shared services provision by providing subsidies to municipalities of functional areas with a joint strategic plan. These incentives can help overcome political and transaction costs related to shared services provision, especially when provided from the planning phase (OECD, 2023[18]).
2.3.3. There is no clear funding and financing model for municipal shared services provision
There is no specific model facilitating shared services provision funding and financing in Lithuania. As a general statement, shared services provision funding usually comprises central government budgetary transfers and/or municipal contributions, as defined in the funding contract between the municipalities involved. These revenues can be complemented by user charges and fees, EU funds (e.g., cohesion funds, thematic programmes) and international funds, as well as public-private partnerships (PPPs) in case of large infrastructure projects. As was discussed above, in Lithuania there is currently no central government budgetary transfer to shared services provision bodies. General and earmarked subsidies are transferred to member municipalities, which then decide how to allocate their budget between them. Shared services provision bodies do not have any taxing powers in Lithuania. Borrowing is authorised for municipal companies, within the limits set by law, since it has to be guaranteed.
Currently, there are no standardised guidelines or templates for funding contracts available for the provision of shared services among municipalities in Lithuania. Municipalities would greatly benefit from sharing best practices in this area and from enhanced support provided by consultancy services. Existing cost-sharing contracts are not easily accessible. As a good practice, these contracts should include the sharing of the initial investment costs between member municipalities, as well as the running and maintenance costs, which can be based on different cost sharing methods depending on the service. Contracts should however remain flexible to be tailored to local needs and adjusted if needed over time.
2.3.4. The design of fiscal rules does not promote shared services provision
The low borrowing autonomy of municipalities can also be an obstacle for municipalities to co-operate in large-scale infrastructure projects. A recent amendment to the constitutional law has however increased municipal capacity to borrow to implement investment projects co-financed by the EU (Ministry of Finance, 2022[19]).
Large municipalities must respect an annual structural balanced budget rule calculated on accrual basis, while smaller municipalities follow an annual nominal balanced budget rule in cash terms. Some exceptions apply, e.g. negative output gap, participation to the lending facility of the central government that was created in 2019 (OECD, 2021[9]). According to the Law on Financial Indicators of the State Budget and Municipal Budgets, the municipal debt ceiling is calculated on the basis of the municipality's projected budget revenue for the same fiscal year. The annual Budget Law sets an annual ceiling on municipal debt (60% in 2020)17. Municipalities are also subject to net borrowing limit as a share of municipal revenue (excluding earmarked subsidies from the central government for state-delegated functions), which varies on a yearly basis (Law on the Budget Structure). An escape clause exists to suspend fiscal rules for municipalities temporarily under exceptional circumstances (OECD-UCLG, 2022[5]; OECD, 2021[9]).
While municipalities are subject to various fiscal rules in many OECD countries, they often do not need approval from the central government to borrow (e.g. Finland, France, the Netherlands, Sweden). They also do not necessarily have to comply with annual borrowing limits and/or debt ceiling, as is the case for Lithuanian municipalities (Table 2.5). Moreover, municipalities are sometimes authorised to issue bonds, to finance any type of operations (e.g. Finland) or investment projects only (e.g. France). The existence of credit institutions owned by municipalities and the central government (e.g. MuniFin in Finland, Agence France Locale in France, the Municipal Bank of the Netherlands), which does not exist in Lithuania, is also an effective tool for municipalities to access external financing for large projects and to promote co-operation through the use of pooled financing mechanisms (Table 2.5).
Note: The ‘Golden Rule’ means that long-term borrowing is restricted to investment.
Source: OECD elaboration based on (OECD-UCLG, 2022[5]; OECD-UCLG, 2022[16]).
While Lithuanian municipalities face challenges to cooperate, they can greatly improve public service quality and accessibility through municipal shared services provision depending on services scale. We examine municipal responsibilities and research on economies of scale in public services to identify areas where shared provision could best enhance services delivery and efficiency in Lithuanian municipalities. We provide first a theoretical analysis on the topic, supported by experiences in EU countries, then applied to the Lithuanian context. We also explore potential drawbacks for municipal shared services provision at the end of the session.
2.4.1. Services with impacts beyond municipal borders would benefit the most from shared municipal services provision
The Table 2.6 lists a selection of public tasks linked with their optimal benefit area (national, regional, local). While services with mostly local effects, such as local infrastructure, sewage, local land use, housing, and basic education, are usually considered best suited for subnational government provision, municipalities are nevertheless often assigned tasks that have impacts beyond the municipal borders (OECD, 2019[14]). In such cases, shared services provision can provide a viable alternative to single municipality provision and production.18
Central governments have a key role in policy design and oversight to ensure equity. Therefore, central governments tend to retain responsibility for designing and planning the policy, setting the standards, and carrying out the oversight (the first column of Table 2.6). In case of services with mostly local or regional benefits, the lead responsibility of regions and local governments is justified (second column of Table 2.6), such as local and regional land use planning, water and sewage, solid waste, fire protection and police. Bodies providing shared services at regional scale should be responsible for services with region-wide benefits, such as regional economic development or transportation (OECD, 2019[14]).
Note: N = National, R = Regional, L = Local, P = Private or non-governmental.
Source: Author’s modification and extension of the material presented in (Bahl and Bird, 2018[20]).
In EU countries, healthcare, social services and public transport, are also sectors for which shared services provision is most frequently used (Table 2.7). Based on local context and priorities, some countries also developed shared services provision in specific areas, such as primary education in Luxembourg, psychological support and dental care services in Denmark, strategic planning in the United Kingdom, rescue services in Sweden or tourism promotion in Spain (Table 2.7).
2.4.2. The type of shared services provision arrangement depends on the nature of the services
The effectiveness of shared services provision arrangements also hinges on the nature of the services involved. For addressing straightforward local concerns, contractual agreements often suffice. As illustrated in Table 2.8, entities governed by private law, such as associations of municipalities or NGOs, are well-suited for managing non-bureaucratic services like cultural events and kindergartens, as seen in Chile. Conversely, municipal companies are more fitting for certain revenue-generating commercial activities – like water and sewage management, public transport, waste management, and heating plants – where they can leverage user fees as a source of income. The establishment of a single or multi-purpose public law authority represents the most formalised version of shared services provision, allowing municipalities to delegate competences – either optional or mandatory as defined by law – for comprehensive territorial collaboration.
2.4.3. Healthcare, social services and public transportation would benefit best from shared service provision in Lithuania
In Lithuania, municipalities are assigned independent functions with wider impacts than the boundaries of municipal areas, such as school transportation, provision of social services, non-formal education for children and adults, primary healthcare and public healthcare, health promotion measures, planning of infrastructure, implementation of regional development, organisation of municipal waste management, water and wastewater management, organisation of local passenger transportation (Table 2.2), which would benefit from shared services provision for municipalities to optimise cost allocation and mutualise resources.
The pilot experiment in the Tauragė+ functional zone therefore focuses on healthcare and LTC services, previously on public transportation, which would benefit the most from shared service provision. The pilot will provide relevant information for expanding shared services provision in other areas of the country depending on local contexts. The types of share services provision that would suit best (e.g., joint decision-making bodies, joint public posts, joint agreements on the management of official duties, joint municipal authorities) are discussed in the recommendations and in Chapter 6 of the report for the pilot in Tauragė+ functional zone.
2.4.4. Municipal shared services provision should be implemented gradually and carefully to limit potential drawbacks
Despite several advantages, shared services provision can also have several drawbacks, which requires careful and gradual implementation. The main disadvantage is that it adds an extra hierarchy layer, which may increase administration and monitoring costs. Shared service provision can also result in democratic deficit, as municipal shared services provision bodies are usually governed by representatives who are nominated by the member municipalities. This may reduce the accountability and transparency of local decision-making, compared with directly elected councils. This challenge can be partially addressed by appointing elected persons to the co-operation authorities (OECD, 2022[22]).
Another challenge is that member municipalities engaging in shared services provision inevitably have less power to affect the services than if the service was provided by their own municipality. Depending on the size of the common pool, monitoring shared services provision by member municipalities may be lower if common pool creates a disincentive to do so (Allers and van Ommeren, 2016[23]).
There is currently not much research evidence on the effects of voluntary shared services provision on municipal spending or service quality (the evidence of causal relationship is scarce or non-existent). Moreover, the results of existing studies are mixed (Allers and van Ommeren, 2016[23]). In France, a recent study found no effect of cooperation on the total spending of French municipalities (Frère, Leprince and Paty, 2013[24]). By contrast, in Spain, IMC enabled economies of scale, especially in the smallest municipalities, leading to lower costs for waste collection service. Co-operation also raised the collection frequency and improved the quality of the service in small towns (Bel and Mur, 2009[25]). In the Netherlands, inter-municipal associations paid higher interest rates for their loans compared with independent municipalities (Allers and van Ommeren, 2016[23]), suggesting that co-operative arrangements were considered inefficient, and therefore more risky, by creditors.
These different drawbacks illustrate that reforming the provision of services to foster municipal cooperation requires a gradual and place-based implementation to ensure balanced and equitable powers between members municipalities, effective resource and cost allocation across them, supported by a progressive change of culture from distrust to cooperation, for shared services provision to be fully effective.
2.5.1. Introduction
Lithuania has faced significant demographic challenges since 2000, including aging, population decline, and external and internal migration, which have impacted public service delivery and created territorial disparities. The nation has experienced a 20% decrease in population, with urban areas like Vilnius witnessing growth, in contrast to the significant losses in rural regions. These changes have strained healthcare and LTC services, increasing demand amidst an aging population. Despite the high number of healthcare professionals, access inequalities persist, particularly in rural areas, where LTC often relies on informal caregivers.
In response, Lithuania is planning strategic reforms to enhance public services, with a focus on better enabling municipal shared services. This initiative aims to address disparities, improve access to services and enhance public service quality. Yet, the efforts face considerable obstacles, including limited municipal autonomy, a scattered and unclear legal framework, alongside financial and institutional constraints. The report´s key findings of the Lithuanian framework are summarised in below, underlining the need for comprehensive reform to enable effective IMC.
2.5.2. Key findings
Legal framework
Underutilised potential of Law on Local Self-Government (LLSG) in guiding and regulating IMC
While the Law on Local Self-Government (LLSG) mentions three forms of shared municipal service provision, these categories are broadly defined, leading to uncertainty about the specifics of implementing municipal collaboration, particularly the practicalities of establishing collaborative agreements for shared objectives. This is in sharp contrast with practices in several other countries where similar laws to LLSG contain the bulk of the regulation concerning the establishment, management and governance of shared municipal service provision.
Insufficient legal framework for municipal pilots
Lithuania lacks a supportive legal framework for conducting trials and pilot projects within municipal public services. International examples show that a clear legal framework encourages innovation by providing a safe space for experimentation, minimising risks associated with legal uncertainties or liabilities. A well-defined legal framework ensures that pilot projects have clear objectives, governance structures, and oversight mechanisms.
Complex legal framework does not incentivise shared services provision
The legal framework for shared services provision in Lithuania is scattered across various laws, and lacks clear guidance for establishing collaboration. While some regulation already exists, the complexity of the framework can severely discourage municipalities from initiating cooperation. Comparatively, other EU countries have simpler, more direct regulations.
Institutional framework
Tight control from the central government reduces initiatives for municipal shared services provision
Municipalities’ decision-making power is heavily constrained by central government oversight, which disincentives voluntary municipal collaboration. While municipalities have some independence in managing their functions, they encounter significant restrictions with state-delegated tasks due to tight control from central entities. This oversight results in reduced autonomy for municipalities, complicating shared services provision efforts by emphasising compliance with national policies over local collaborative initiatives.
Sectoral fragmentation of governance diminishes opportunities for effective shared services provision for LTC services
To improve shared services provision in healthcare and LTC services in Lithuania, it's vital to address the issue of sectoral fragmentation. Currently, healthcare and social care services are managed by different ministries without effective coordination, leading to legal fragmentation and administrative inefficiencies. While Lithuania is currently working on reforms to integrate health and social services and to enhance LTC efficiency, municipalities are nevertheless restricted by the sectoral approach, having adverse impacts on shared services provision across sectors.
Few instances of municipal shared services provision to draw on
Collaboration between municipalities for public services provision and infrastructure projects is fairly limited in Lithuania, leading to a lack of guidance and accumulated experience to capitalise on for municipal shared services provision. The sparse instances of shared services provision identified for Lithuania include inter-municipal agreements, inter-municipal bodies and joint municipal companies.
Lack of reliable data on municipal service costs and service usage form an important limitation for establishing shared services provision
Lithuania's municipalities lack standardised data on service costs and usage, crucial for effective shared services provision. The absence of harmonised data collection and analysis systems complicates comparisons and strategic planning for shared services. Data on social services are scattered, hindering the assessment of needs.
Lack of trust between municipalities restricts co-operation
The trust deficit among Lithuanian municipalities hinders shared services provision, fostered by differing local priorities. Economic growth policies often override shared services provision efforts, exacerbating mistrust.
Fiscal framework
Limited spending and taxing autonomy restricts municipalities’ ability and desire to pursue shared services provision
Despite a tripling in municipal expenditure from 2000 to 2021, driven by increased responsibilities especially in education, healthcare, and social protection, revenue decision-making has not similarly increased. A significant portion of municipal spending is funded by grants from central government (general grant and state subsidies for delegated functions), limiting financial independence. This situation is intensified by insufficient central government funding for state-delegated functions, constraining municipalities’ own resources. Additionally, the limited municipal borrowing rights hinder service provision and investment initiatives through shared municipal service provision. These aspects have been discussed in detail in another OECD report (OECD, 2021[26]). It should be noted that many other countries have established municipally owned financial agencies which specialise in municipal lending (e.g. MuniFin in Finland, KommuneKredit in Denmark), in order to ease municipal borrowing for important infrastructure projects. In these countries, both single municipalities and joint municipal bodies can borrow from these institutions.
Use of earmarked state subsidies for delegated functions reduces motivation for cross-sectoral approaches
Earmarked state subsidies for delegated functions for delegated functions restrict municipalities' discretion, and unused funds must be returned, discouraging cost-saving shared services provision initiatives. This lack of flexibility restricts municipalities from reallocating funds to address emerging local needs or priorities. When municipalities collaborate, they often pool resources and jointly address common challenges. However, if earmarked state subsidies for delegated functions must be returned, municipalities may hesitate to engage in shared services provision due to the risk of losing funds they couldn’t fully utilise.
Tight fiscal regulation and lack of innovative funding limit shared services provision
In Lithuania, the sectoral approach for regulation and funding from different ministries creates administrative challenges for municipalities, hindering effective shared services provision across sectors. Lithuania does not use specific central government grants for joint municipal initiatives, missing opportunities to foster shared municipal service provision. Various OECD countries offer financial incentives to encourage shared services provision, showing diverse approaches to support municipal collaboration financially, highlighting the potential benefits of a more streamlined and incentivised funding model for promoting shared services provision in Lithuania.
The design of fiscal rules does not promote shared services provision
The fiscal rules in Lithuania limit municipalities' borrowing autonomy, hindering their ability to collaborate on large infrastructure projects due to constraints on borrowing and required own-finance contributions. The annual structural balanced budget rule for large municipalities and a nominal balanced budget rule for smaller ones, along with a debt ceiling and borrowing limits, restrict financial flexibility. While some OECD countries offer more autonomy for municipal borrowing and investment, Lithuanian municipalities face stricter controls, impacting their capacity for shared services provision and large-scale project financing.
References
[23] Allers, M. and B. van Ommeren (2016), “Intermunicipal cooperation, municipal amalgamation and the price of credit”, Local Government Studies, Vol. 42/5, pp. 717-738, https://doi.org/10.1080/03003930.2016.1171754.
[20] Bahl, R. and R. Bird (2018), Fiscal Decentralization and Local Finance in Developing Countries, Edward Elgar.
[25] Bel, G. and M. Mur (2009), “Intermunicipal cooperation, privatization and waste management costs: Evidence from rural municipalities”, Waste Management, Vol. 29/10, pp. 2772-2778, https://doi.org/10.1016/j.wasman.2009.06.002.
[2] Brezovnik, B., I. Hoffman and J. Kostrubiec (eds.) (2021), Local Self-Government in Europe, Institute for Local Self-Government Maribor, https://doi.org/10.4335/978-961-7124-00-2.
[12] Bučaitė-Vilkė, J., R. Civinskas and A. Lazauskienė (2018), “Uncoupling Inter-Municipal Cooperation Capacity: Lithuanian Municipalities’ Efforts To Sustain Services Provision”, Baltic Journal of Law & Politics, Vol. 11/2, pp. 32-60, https://doi.org/10.2478/bjlp-2018-0010.
[7] Burbulytė-Tsiskarishvili, G., J. Dvorak and A. Žernytė (2018), “Changes of Local Functions and Local Powers in Lithuania 1994–2016”, Public Policy And Administration, Vol. 17/3, pp. 399-420, https://doi.org/10.5755/j01.ppaa.17.3.21955.
[3] Council of Europe (2010), Inter-municipal co-operation toolkit.
[27] Council of European Municipalities and Regions (2022), The use of integrated territorial tools in cohesion policy - Implementation analysis from the perspective of municipalities, regions and their associations.
[21] Council of Europe, United Nations Development Programme and Local Government Initiative (2010), “Inter-municipal co-operation toolkit”.
[24] Frère, Q., M. Leprince and S. Paty (2013), “The Impact of Intermunicipal Cooperation on Local Public Spending”, Urban Studies, Vol. 51/8, pp. 1741-1760, https://doi.org/10.1177/0042098013499080.
[8] Ladner et al. (2021), “Local Autonomy Index in the EU, Council of Europe and OECD countries (1990-2020)”.
[28] Lithuanian Ministry of Health (2022), Development Program for Improving the Quality and Efficiency of Health Care for 2022 to 2030.
[19] Ministry of Finance (2022), The Seimas Approved Transformation, which Increases Financial Independence of Municipalities.
[18] OECD (2023), OECD Public Governance Reviews: Czech Republic: Towards a More Modern and Effective Public Administration, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/41fd9e5c-en.
[15] OECD (2023), Personalised Public Services for People in Vulnerable Situations in Lithuania: Towards a More Integrated Approach, OECD Publishing, Paris, https://doi.org/10.1787/e028d183-en.
[22] OECD (2022), Shrinking Smartly in Estonia: Preparing Regions for Demographic Change, OECD Rural Studies, OECD Publishing, Paris, https://doi.org/10.1787/77cfe25e-en.
[9] OECD (2021), Raising Local Public Investment in Lithuania Ensuring quality while maintaining financial sustainability.
[26] OECD (2021), Raising Local Public Investment in Lithuania Ensuring quality while maintaining financial sustainability, https://issuu.com/oecd.publishing/docs/raising-local-public-investment-in-lithuania-repor (accessed on 16 April 2024).
[13] OECD (2020), OECD Economic Surveys: Lithuania 2020, OECD Publishing, Paris, https://doi.org/10.1787/62663b1d-en.
[17] OECD (2019), Effective Public Investment across Levels of Government: Implementing the OECD Principles.
[14] OECD (2019), Making Decentralisation Work: A Handbook for Policy-Makers, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/g2g9faa7-en.
[11] OECD (2018), OECD Reviews of Health Systems: Lithuania 2018, OECD Reviews of Health Systems, OECD Publishing, Paris, https://doi.org/10.1787/9789264300873-en.
[10] OECD/European Observatory on Health Systems and Policies (2021), Lithuania: Country Health Profile 2021, State of Health in the EU, OECD Publishing, Paris, https://doi.org/10.1787/20b64b36-en.
[5] OECD-UCLG (2022), 2022 Report of the World Observatory on Subnational Government Finance and Investment - Country Profiles.
[16] OECD-UCLG (2022), 2022 Report of the World Observatory on Subnational Government Finance and Investment – Key Findings.
[4] The Congress of Local and Regional Authorities (2007), The Institutional Framework of Inter-Municipal Co-operation.
[6] The Supreme Audit Institution of Lithuania (2019), Does the system of functions performed by municipalities allow them to function effectively?.
[1] Vaidotas (2014), The Republic of Lithuania.
← 1. There are 10 counties in Lithuania, which are now administrative and statistical units of the country’s territory with no executive power. They do not constitute a level of subnational governments.
← 2. Major legislations on central government and municipal budgets are the 1990 Law on the Budget Structure, the 1997 Law on Methodology of Determination of Municipal Budget Revenue, which defines the source of municipal revenue, and the Law on Approval of the Financial Indicators of the State Budget and Municipal Budgets, which must be approved each year by the Parliament (Seimas) and determines central government’s transfers to municipalities, financial indicators that municipalities must follow in their budget preparation, municipal debt and net borrowing limits.
← 3. In case iii), the responsibility for the implementation of the functions remains under the municipality that contracts out the function.
← 4. The permit is required under certain cases that are specified by the LLSG.
← 5. The Lithuanian Ministry of Interior has developed a methodology that will be used to review municipal functions and to help reassign functions to the most appropriate governance level which could then lead in spending reallocations.
← 6. The LAI attempts to measure the degree of subnational government autonomy beyond fiscal indicators. It includes 57 countries, of which 36 are OECD countries and 27 are EU member states, and spans from 1990 to 2020. The LAI attributes a score of local autonomy based on seven dimensions (i.e. legal autonomy, organisational autonomy, policy scope, effective political discretion, financial autonomy, non-interference and access).
← 7. The report's description in previous pages refers to the forms described in the LSSG: (i) inter-municipal agreement, (ii) joint procurement agreement and (iii) contracting-out to another municipality. The different terminologies used here reflect practical examples of shared municipal services in Lithuania: (i) inter-municipal agreement, (ii) inter-municipal body, and (iii) joint municipal entity.
← 8. This is part of the recent reform on the healthcare system, launched in 2021 by the Ministry of Health, together with the national “Development Program for Improving the Quality and Efficiency of Health Care for 2022 to 2030” (Lithuanian Ministry of Health, 2022[28]). Five regional functional healthcare regions will be also developed for the secondary healthcare services.
← 9. This is part of the recent reform on the healthcare system, launched in 2021 by the Ministry of Health, together with the national “Development Program for Improving the Quality and Efficiency of Health Care for 2022 to 2030” (Lithuanian Ministry of Health, 2022[28]). Five regional functional healthcare regions will be also developed for the secondary healthcare services.
← 10. There are 10 counties in Lithuania, which are now administrative and statistical units of the country’s territory with no executive power. They do not constitute a level of subnational governments.
← 11. The main challenges identified for IMC by municipalities during mission discussions in Tauragė district were the lack of legal basis, competition between municipalities and the fear to make mistakes.
← 12. In Lithuania, 10 functional zone strategies have been adopted at end-August 2024 and one additional functional zone strategy shall be approved in September 2024. The model of functional areas has evolved based on the pilot approach to a formally regulated one. The framework is a description of the procedure for preparing and monitoring the implementation of sustainable urban development strategies and functional zone strategies. It is approved by order of the Minister of the Interior.
← 13. Pre-school and kinder-garden, educational support, and informal education for child and adults are independent functions of municipalities, while general education is a state-delegated function.
← 14. Since 2014, and the implementation of the SNA 2008 accountability system, personal income tax (PIT) proceeds redistributed by the central government to subnational governments are no longer considered to be tax revenue in the form of a shared tax but rather considered as transfers determined by a per-capita system and for fiscal equalisation purpose (OECD-UCLG, 2022[5]; OECD, 2021[9])
← 15. The grants for IMC bodies (EPCIs) in France and their allocation are described in articles L. 5211-28 to L. 5211-33 of the General Code of Local Self-Government (CGCT). The EPCIs receive a general grant (dotation globale de fonctionnement des EPCI), which comprises an inter-municipal grant and a compensation grant.
← 16. Eligible areas for ITI tools can be areas exceeding traditional administrative border of a municipality (e.g., urban neighbourhoods, urban and metropolitan areas, urban-rural and functional urban areas) (Council of European Municipalities and Regions, 2022[27]).
← 17. Vilnius has a higher ceiling (75%).
← 18. For example, in Finnish legislation, the production and provision of municipal services are differentiated from each other. All municipalities are legally obliged to provide certain basic services for their residents. The municipality can produce the services itself, through shared services provision or purchase them from private service providers or from other municipalities. For example, municipalities have an obligation to organize basic education. They can produce the education itself in its own school or buy education from a private schools or other municipalities. In this case, municipalities are still responsible for organizing education for their residents, even though they do not produce the service itself.