Inter-municipal cooperation has been a common method for organising municipal public services in Finland, especially in the case of the smallest and economically weakest municipalities. The voluntary cooperation spans various services, including basic health care, education, infrastructure, and public transport. While most inter-municipal cooperation is voluntary, it is mandatory in regional development and regional land use planning, where municipalities are required to form joint authorities known as "regional councils". Since 2022 the management of health and social services was transferred from municipalities to newly established wellbeing service counties. In Finland, the implementation of municipal collaboration has been facilitated and supported by a robust legal, fiscal, and institutional framework. This section will discuss these aspects in detail.
Enabling Inter‑Municipal Shared Service Provision in Lithuania
Abstract
Until 2023, Finland's two-tier public governance model consisted of the central government and municipalities. The central government set national policies and legislative frameworks, while municipalities delivered most public services. However, the 2023 wellbeing services county reform shifted responsibility for health, social services, and rescue operations from municipalities to 21 wellbeing services counties, with Helsinki as an exception since it retains its own social, health, rescue, and fire services and is not part of any county. Despite these changes, municipalities continue to manage crucial services including education, public utilities, and transportation.
Finland's municipal governance system, first established in the 1860s and 1870s, secured the right to levy taxes and was later recognised for its constitutional local self-governance in 1919. Legal provisions for inter-municipal cooperation were included into municipal legislation in 1932. By the 1950s, the Finnish governments began delegating statutory responsibilities to municipalities, including the management of hospitals and schools. This expansion of duties continued over the following decades until these days, with municipalities assuming significant roles in education, utilities, public transport, and social and health services, among others.
Due to the small population size of many municipalities and the demanding tasks assigned to them, inter-municipal cooperation has played a crucial role in the delivery of public services in Finland. National policies have actively encouraged voluntary collaboration among municipalities. Notably, the 2005 PARAS reform mandated that health service providers cover at least 20,000 residents, leading to the establishment of 67 new cooperative areas for more efficient service delivery. While the exact number of all municipal collaborative arrangements is not known, there are currently about 100 joint municipal authorities, about 250 joint municipal companies and several hundred contract based collaborative arrangements.
This section provides an overview of the structures, financial mechanisms, contractual arrangements, and oversight practices involved in shared services provision in Finland. It aims to shed light on both the effective and the less effective policies and practices encountered.
3.1.1. Joint municipal organisations (JMOs) are independent entities for collaborative service delivery
In Finland, the primary structures for JMOs include joint municipal authorities and joint municipal companies. This section explores the various forms of JMOs in detail.
Joint municipal authorities (JMAs): The cornerstone of inter-municipal cooperation in Finland
The most important organisational form of municipal cooperation in Finland is the joint municipal authority (JMA). Two or more local authorities can set up this kind of municipal authority to perform specific tasks. JMAs are public law bodies which means that they are independent legal entities with their own capacities and internal governance bodies. While municipalities are multi-purpose democratic institutions, JMAs don’t have similar general competence since their sphere of authority is limited. JMAs may own properties, sign contracts and contract debts without an authorisation from their owners. However, their member municipalities have the final responsibility of the financial and other commitments of their JMAs. Table 1.1 summarises the main forms of Finnish JMOs.
Source: OECD
The Municipal Act outlines the legal framework for the establishment, organisation, governance, and auditing of Joint Municipal Authorities (JMAs). While it sets the overarching principles, the Act allows municipalities the flexibility to manage the specific administrative details.
Municipalities are the owners of JMAs and their only legitimate member organisations. To establish a new JMA, municipalities must make uniform decisions. The councils of the member municipalities nominate their representative(s) to the highest decision-making body of a JMA depending on how many seats each municipality has been allocated. The share of the representatives is resolved in a founding charter of a JMA agreed by member municipalities. Typically, the more residents live in a local government, the more the municipality has its own representatives. Each representative may have one vote or voting rights may vary depending on how they are agreed on the basic contract. The chapter 8 of the Municipal Act defines three alternative governance models of a JMA as illustrated in Table 3.2.
Source: OECD.
The Municipal Act provides some flexibility to fine-tune the administrative terms of JMAs. First, the number of member municipalities of a JMA is not limited by the Municipal Act. Second, the membership is not necessarily a permanent arrangement since a member municipality may also be able to withdraw from JMAs. Third, instead of being a full member, a municipality can collaborate through a partial membership of a JMA. This makes it possible to select membership functions and responsibilities which a partial member prefers upon condition that other members of the JMA agree. Fourth, a JMA can also be established as an enterprise JMA which is a public law form not following the governance principles of JMCs. Since many municipal councilors and officers have experienced the ordinary JMAs somewhat sluggish having a bureaucratic reputation, the lawmakers have developed a slightly more streamlined version from the original form. The enterprise JMA is designed for business purposes suitable in the services such as facility management and water and sewage. It may be run by a single governance body (see Table 3.2) and the composition of this body does not have to be adjusted to correspond to the proportion of party and group votes in the local elections of its member municipalities.
Municipalities of the Turku region (Kaarina, Lieto, Naantali, Raisio, Rusko ja Turku) established a JMA (Turun kaupunkiseudun kuntayhtymä) in 2022. The newly established JMA aims to increase the vitality and competitiveness of the region. The main duties include shared planning and development projects and joint lobbying activities. The governance is based on the single body model: the board (seutuhallitus) supervises the interests of the JMA, represents the JMA, and makes contracts on JMA´s behalf. The JMA has an inspection committee and external auditor nominated by its member municipalities.
Source: OECD
Joint municipal companies (JMC): Balancing public purpose and market competition
When two or more municipalities or JMAs own or control a company, it is called a Joint Municipal Company (JMC)1. Though these companies are usually set up to make a profit, they can also choose other goals like a not-for-profit model. Private companies can also partner with JMCs by owning a part of the joint company. Joint municipal companies are particularly common in Finland in housing, energy, water and sewerage, education, support services for administration, and in waste management.
If municipalities want to engage in business activities within a competitive market, they need to create a separate legal entity known as a special purpose vehicle. This cannot be a public law body, so it's often established as a limited company, cooperative, association, or foundation, with the limited company model being the most preferred. This setup helps to ensure a level playing field between JMCs, other Joint Municipal Organisations (JMOs), and private companies, as required by EU state aid laws (Harjula and Prättälä, 2019[1]).
The usage of JMCs has witnessed a significant surge (52%) from 2016 to 2021, gradually outnumbering and replacing the JMAs. The new EU regulations, coupled with the Local Government Act of 2015, have mandated that municipal services, with a few exceptions, that compete with private entities must be either outsourced or corporatised. This trend is largely fueled by the agility and simplicity of decision-making processes within JMCs compared to the relatively complex and slow procedures within JMAs. However, a noteworthy downside to this increasing adoption of JMCs has been a decrease in transparency and political oversight of public decision-making.
Joint municipal waste management company with a PPP dimension
The Tampere Regional Solid Waste Management Ltd (https://pjhoy.fi/en/) is a joint municipal company that was established in 1994 and is owned by 17 municipalities. Its primary responsibility is managing waste services mandated by law on behalf of residents, housing companies, and municipalities within these 17 regions. The company serves a catchment area with a population of 447,000 individuals. The transportation of waste is entrusted to private transport companies, which are selected through competitive tendering processes. The company is accountable for organising waste collection through tendering and routing, as well as managing customer service and invoicing. It operates 22 waste stations across the municipalities.
In 2011, Tammervoima Oy (https://tammervoima.fi/voimalaitos/english/) was established as a collaborative initiative between Tampereen Sähkölaitos (Tampere Power Utility) and Pirkanmaan Jätehuolto. Its main purpose was to oversee the construction of a new waste burning plant in Tampere. This plant utilises a Public-Private Partnership and employs an efficient energy recovery approach for municipal solid waste (MSW). The collected waste originates from the 17 member municipalities amounting to a total of 130,000 tons per year. Additionally, 30,000 tons of waste are sourced from 150,000 residents in Central Finland. To ensure cost-effectiveness, the municipal waste management company in the Jyväskylä region was chosen to supplement waste collection in Tampere, allowing for the construction of a suitably sized facility for incineration purposes. Presently, the Tampere WtE (Waste-to-Energy) plant burns the MSW produced by 650,000 residents, in addition to handling small quantities of hospital waste and commercial waste lots. The maximum distance for waste transportation to the new plant is approximately 150 km.
Source: OECD
JMC can be legally considered an in-house entity, allowing them to sign contracts with municipalities without competitive tendering. This is possible if the following conditions are fulfilled: (1) local authorities exercise control over the JMC in the same way that they control their own municipal departments, and (2) if the JMC supplies an essential part of its operations to the controlling local authorities. The criterion of the essential part of the operations has been set at 80%. In other words, 20 per cent of JMC´s operations can be carried out at the competitive market. These regulations follow the EU legislation, although the EU member countries can set smaller percentual limits. Municipalities as the sole owners of a JMC classified as an in-house entity are entitled to procure commodities from the JMC without following the EU public procurement rules allowing them to sign contracts without competitive tendering (Ølykke and Fanøe Andersen, 2016[2]).
The scope of JMC is limited to certain service areas by interpretations of the Municipal Act made by the Supreme Administrative Court of Finland. For example, municipalities cannot be members nor establish JMCs for businesses based on purely speculative and profit-making objectives. While JMCs are allowed to compete with private and third sector organizations and make profits (within limits explained above), they generally cannot operate in industrial and commercial sectors (Harjula and Prättälä, 2019[1]).
Other joint municipal organisations
Municipalities have established some specific joint organisations, which are neither public law, nor company law organisations. These are typically associations and foundations which are regulated by corresponding laws. Legally it is also possible that municipalities become members of a co-operative.
The most famous and visible shared services provision association is the Finnish Association of Municipalities which promotes local self-government, advances the development of municipalities and lobbies municipal interests. The much less known but an important shared services provision body is the Municipal Guarantee Board which was established through a legislative action by an act of Parliament. Municipalities’ accession to the Board has been and still is voluntary for local governments but gradually all municipalities of the Finnish mainland (i.e., 294 municipalities) have become members. Once they become members, they cannot resign from the Guarantee Board. The Municipal Guarantee Board grants guarantees for funding collected by municipalities or institutions directly or indirectly owned or controlled by the municipal sector, enabling municipalities to borrow money by relatively good terms. (Hood et al. 2010).
3.1.2. Inter-municipal contractual collaboration
Inter-municipal service contracts
A collaborative service production or delivery contract between municipalities is a tempting alternative because the contracting parties do not need to establish a separate legal entity and invest capital funds. Such contracts are considered cost-effective because they enable municipalities to avoid some fixed costs typically associated with the governance of JMOs. However, the potential scope of a contract-based shared services provision has been limited over the years by special legislation requiring the compulsory usage of a JMA or JMC in certain service sectors.
Contractual cooperation is common in the areas of water supply, building inspection, consumer and debt counselling as some of these service sectors are regulated by special legislation imposing municipalities to collaborate through contracting. Collaborative service arrangements can also be found in waste management and educational services.
Inter-municipal contracts can be classified in many ways, but Table 3.3 categorises them as follows: joint committee, joint use service, municipal outsourcing, and joint civil servant contracts. Municipalities may establish a joint committee or corresponding organ through contracting, which is not a legal entity but a body which enables them to share political governance of a specified service produced for common good between the contracting parties. These joint committees are named as host municipality arrangements by the Municipal Act in force.
Municipal contracts enable arrangements where a municipal service is at the disposal of at least two municipalities either simultaneously or consecutively. A municipal joint use model represents a case of a reciprocal relationship between equal partners working actively together or by coordinated manners to create potential for synergy and mutual learning. An example of this arrangement is, for example, a Library-on-wheels of two or more neighboring municipalities.
In addition, inter-municipal contracts are used to hire joint municipal civil servants or employees. These contracts are typically used by small and rural local authorities. An example is a joint land use or zoning planner for two municipalities. The salary costs of joint civil servant are divided between the municipalities according to the agreed allocation of work amount.
Note: * In some cases, the outsourcing contracts are processed as public procurements
Source: OECD.
TREDU´s joint committee (host municipality) model of vocational education
Tampere Vocational College (TREDU) is an example of shared services provision implemented in the Pirkanmaa region of Finland to facilitate vocational education. It operates as a joint committee, where the city of Tampere serves as the host municipality, overseeing the governance of vocational schools. The participating municipalities have entrusted their authority to the host municipality, which acts as the decision-making body. Each municipality nominates a representative to be part of this governance structure.
Municipal members, including the City of Tampere, procure vocational education services from this centralized body. The host municipality is responsible for maintaining vocational facilities and managing separate budget planning, cost calculation, and financial accounting. The range of educational activities offered includes foundational degrees for various occupations, higher and specialized vocational degrees, as well as apprenticeship training for vocational qualifications.
Tredu operates 14 branch facilities across the region, strategically located within the city of Tampere and in seven other municipalities. This collaborative approach fosters economies of scale and scope, facilitating wide-ranging cooperation among municipalities. Additionally, this arrangement enhances Tredu's appeal as an employer in the field and a provider of vocational education services. It exemplifies the host-municipality model of shared services provision and creates a competitive advantage for the region in comparison to other areas operating in the same field.
Fostering student success: joint officers for student counselling initiatives
In Finland, collaborative initiatives involving joint officers for student counselling have gained popularity. An example of such cooperation is the partnership between the vocational joint authority of Savo region (Savo koulutuskuntayhtymä) and the city of Kuopio. Through this agreement, five student counsellors are financed to provide employment services in the region, benefiting students seeking guidance and support.
The collaborative mobile library: enhancing access to literature in Forssa and Tammela
Since 2022, the city of Forssa and the municipality of Tammela have joined forces to operate a shared municipal library-on-wheels. Tammela is the owner of the mobile library, while Forssa contributes by covering its portion of the ongoing and capital expenses. The book collection of the library-on-wheels is co-owned by both municipalities.
To ensure convenient access for residents, the mobile library serves Forssa and Tammela on alternating weeks. The library-on-wheels was acquired at a purchase price of 460,000 euros, but the state government granted a special subsidy of 117,500 euros to support the initiative. Prior to this collaboration, each municipality had its own separate mobile library service.
Source: OECD.
As municipalities are the owners of inter-municipal collaborative organisations and contracting parties of shared services provision services, they are obvious bodies to fund IMC. However, this is not necessarily always the case, because funding systems can also be separated from the ownership and governance of the shared services provision services. Figure 1.1 illustrates alternative main funding systems applied in shared services provision in Finland. The figure includes five illustrative models, which are used as examples to highlight the diversity of the funding of operative costs realised in IMC. Capital funding is excluded from the models.
Note: In beginning of 2023 all health care and social services were transferred from municipalities and IMC´s to the newly established wellbeing service counties.
Source: OECD.
The Model 1 is a case of a JMA on basic health care services. Such JMAs were often funded by their member municipalities even though they were also allowed to collect small service charges from the citizens who used their services. The municipal legislation has been relatively permissive allowing local governments to agree quite freely how they agree on their funding responsibilities of JMAs. In practice, municipalities have applied two main methods of full cost funding: (a) the matching principle and (b) the cost sharing method.
In this context, the matching principle refers to a model where collaborating municipalities cover all costs based on the use of services by their residents and the direct and indirect costs caused by such use of services. This funding method was applied extensively in social and health care services illustrated in the model 1.
The first cost sharing method is based on a per-capita-based system. In this method, the collaborating municipalities share the full costs of a service depending on the number of inhabitants in each municipality. The benefit of this funding method is its simplicity. It has been widely used in the services such as environmental health care, joint public procurements, and administration of sub-regional public transport services. The second cost sharing method is based on an ability-to-pay-principle. It provides a more egalitarian cost equalisation since municipalities cover the costs of shared services provision based on the proportional shares of their tax base. However, this funding method is very rarely applied.
Conceptually, full cost funding refers to service charges equal to what it costs to produce the service including direct costs (for instance, labor and material costs) and indirect costs (for instance, the appropriate portion of overheads and capital costs) (Local Government Association of South Australia, 2013[3]; Sipilä, 2003[4]). The full cost funding method is widely used charging standard both by national and local public authorities, but it is not an unproblematic method. Full costs can be calculated by following different principles and methods of cost accounting and this may result in different divisions of costs (Valkama and Bailey, 2019[5]; Arruñada, 2001[6]; Ellwood, 1996[7]). Full cost service charging can also lead to weak incentives to control the growth of costs because the financial benefits of efficiency measures and productivity improvements imposed by one party are shared and enjoyed also by passive parties (Valkama and Bailey, 2019[5]).
In Finland, the statutory JMAs have been fully dependent on their member municipalities buying their services and funding their budgets since the 1993 municipal grant system reform. Before the reform, JMAs received central government grants directly from the central government and invoiced only the costs net of central government grants incomes from their member municipalities (illustrated in Model 2 in Figure 3.1). From 1993 onwards, all central government grants have been allocated to municipalities to emphasise the ownership of member municipalities of the JMAs.
However, underbudgeting has been a problem in funding JMA. From a single municipality´s perspective, it may be easier to underbudget funding share for JMA than making savings in municipality´s own organization. As a result, member municipalities may, especially regarding their needs of special and basic health care, budget less money into buying services than is realistic or sufficient (in other than full cost funding models). Studies made in Finland suggest that municipalities hope that tight budgeting would result in joint authority solving the resulting funding problem via enhanced efficiency without endangering the service quality (Järvinen and Hyvönen, 2003[8]; Hyvönen and Järvinen, 2002[9]). The common practice among member municipalities to underbudget their special health care joint authorities service costs has undermined trust between the municipalities and their joint municipal authorities (JMAs) (Karila, Vakkuri and Lehto, 2020[10]). Despite this behavior, if the actual use of services exceeds the budgeted amount, the member municipality is required to pay the excess expenditure according to the Local Government Act’s stipulations regarding covering accrued deficits of their JMAs.
The Model 2 shows an example of JMAs providing vocational education. Public vocational schools are owned by municipalities and JMAs. In addition, there are also some privately owned vocational institutes. To provide a level of playing field to the vocational schools irrespective of their ownership, the central government (Ministry of Education and Culture) funds the vocational education through central government grants which are paid directly to the provider of the education. A key argument of the direct state funding (instead of paying central government grants to municipalities, as in Model 1) is that funding the providers directly makes it possible for citizens to select whichever educational institution they prefer. In case of JMA´s, the member municipalities may provide additional funding, for instance to enable schools to organise further training for the students or to develop their teaching methods.
Model 3 illustrates a host municipality contract, where one municipality produces services and hosts a joint committee. Other member municipalities (i.e., contractual partners) nominate their representative(s) to the joint committee which steers the service provision and the use of budget. In this model, the contracting municipal parties share the cost and fund the services based on the matching principle or the cost sharing principle. The central government grants are paid to the host municipality and partner municipalities. In the host municipality model, the hosting municipality has a risk of building an excessive service capacity, for example if it has made capital investments on buildings and devices, which it cannot effectively use after its contracting parties reduce their service consumption or totally withdraw from the IMC.
Model 4 illustrates an example of a joint municipal company (JMC). For example, all Finnish polytechnics (i.e., universities of applied sciences) are limited companies except those which are owned by the state government and the autonomous Åland Province. JMC´s providing the polytechnics receive their funding directly from the state as grants. If a JMC on polytechnics makes profits, the JMC is prohibited to pay dividends to its owners. Instead, the company must register possible surpluses into its balance sheet enabling it to cover some possible losses in the future. Because the central government grants are limited compared with the established activities of the polytechnics, the state funding forces the polytechnics to actively apply external and project-based research, development and innovation funding.
Finally, the model 5 is an example of pure municipal enterprise, in this case providing waste management services. Most of the JMCs operate like regular businesses, selling their services and charging user fees from their customers (companies are not entitled to central government grants). Many JMCs operate only on a full cost basis, but some of them are also profit-making enterprises. Other JMCs than the polytechnics are allowed to pay dividends to their municipal owners.
JMOs in Finland cannot collect tax revenues, but they may charge their customers such as individuals, families, and private organisations. JMAs typically collect service charges which are fees under the public law. In social and health services, these charges were relatively strictly regulated by Act on Client Charges in Social and Health Care Services. The educational services, regardless of whether education is provided by the municipal or state sector, is a clear exception as public schools do not collect tuition fees2. JMCs collect fees under the private law, but even JMAs may also collect minor private law charges if they have some small and temporary businesses or rental revenues. As the funding principles of shared services provision are important and sensitive, they are relatively often disputed by collaborative municipalities. Based on these experiences, municipalities entering a joint funding arrangement must carefully consider and skillfully design the mutual rules on how to keep accounts of incurred costs and how to fund shared services provision operations and investments.
It should be emphasised that JMOs are independent legal bodies with their own legally defined capacities. They are allowed to own movable (i.e., securities) and real properties, which they can privatise or otherwise sell to generate non-recurrent capital incomes. Both JMAs and JMCs are also allowed to borrow money from national and international financial institutions.
If municipalities decide to establish a JMA, they must prepare and agree on the founding charter of a JMA3. This requirement is stated in the Municipal Act representing the case of a public law type of a contract needed in the governance of statutory and voluntary JMAs. The Municipal Act’s Chapter 8 and Section 55 presented in the Appendix defines the minimum requirements on the terms this agreement must include. Municipalities may also include supplementary issues and conditions in the founding charter if they do not invalidate or collide with the minimum requirements set in the Municipal Act. The founding charters must be planned very carefully, because changing it afterwards requires a majority vote. The Association of Finnish Local and Regional Authorities has prepared a model charter for municipal decision-makers4.
When establishing a JMC, the municipalities must agree on the Memorandum and the Articles of Association. These are the minimum conditions based on the company law. The Memorandum of Association demonstrates how many shares each shareholder subscribes. According to the Company Law 2:1 §, “by signing the Memorandum of Association, a shareholder subscribes for a quantity of shares, as indicated in the Memorandum of Association. The subscription shall not be cancelled once all the shares have been subscribed for, unless otherwise agreed.” The Articles of Association is like a by-law of a company defining at least the name of a company, domicile, and line of business. Furthermore, the shareholders may also include some voluntary rules and regulations in the article within the permissible limits of the company law.
The Article of Association is not the only document municipalities can use to agree on how to govern a JMC. Another option is to sign a shareholders’ agreement. Shareholders’ agreements are commonly used by municipal owners, but they are not company law documents. Instead, the shareholder agreements are regulated by the principles of the law of contracts. The shareholders’ agreement provides a means to all or the willing shareholders to clarify and mutually agree their ownership policies and the priorities of the corporate governance. These agreements decrease the uncertainties related with general meetings of shareholders by giving a long-term predictability on how shareholders may vote (Davies, 2008[11]).
All JMAs are internally monitored by their own boards and management. The external monitoring of JMAs is done by the judicial court systems and by the state regional offices in their regions. The state regional offices (Aluehallintovirastot) implement administrative control mostly by examining the citizens´ complaints on services. Furthermore, the Certified Public Finance Auditors (CPFAs) audit the finances of JMAs.
There are two appeals that can also be seen as ways to monitor JMAs: A municipal appeal and an administrative appeal. Any inhabitant of the municipality can make a municipal appeal to the administrative court concerning the JMA´s decision. An administrative appeal is also made to the administrative court, but only the parties involved can make an administrative appeal.
The Municipal Act stipulates about the necessity to keep the JMA finances in a balance. Section 119 states that if a joint municipal authority has not covered the deficit in its balance sheet within the next planning period of four years, the financial assessment procedure by central government will be triggered. According to the law, the Ministry of Finance may, after hearing the views of the joint municipal authority and its member municipalities, designate an independent assessor with the task of drawing up proposals for an agreement between the joint municipal authority and its member municipalities concerning the balancing of the joint municipal authority’s finances. So far, no such cases have materialised. This is most likely because the member municipalities are by law responsible for covering any deficits of their IMCs.
External monitoring of municipal companies, associations, and funds etc., varies depending on whether the monitoring is regulated by the principles and procedures of private company law (Companies Act), law on associations (Associations Act), or foundations (Foundations Act).
Municipal companies, joint municipal associations and funds are monitored nationally based on specific laws such as the Electricity Market Act, Water Services Act, or Waste Act. Internally, they're overseen according to private company law, association law, or foundation law. For instance, many of these entities require an independent audit chosen by shareholders, though some small companies are exempt from mandatory audits.
3.5.1. The benefits of inter-municipal cooperation
Finnish municipalities have been notably small by population compared to their European counterparts and to their extensive spending assignments. Without resorting to collaborative arrangements, these municipalities wouldn't have been able to swiftly and extensively establish high-quality hospitals, health centers, educational institutions, waste treatment facilities, and similar entities. Given that Finland lacked regional democratic governance until 2023, shared services provision served as a substitute for regional government tier.
shared services provision has unified the political objectives of local communities and coordinated disparate efforts to shape a collective vision of the welfare state. This adaptive networking allowed municipalities to select preferred partners across most service sectors and negotiate collaborative contracts without need for state government approval.
The state government has broadly supported IMC, encouraging shared services among local authorities. While the Municipal Act offered municipal councils discretion over the governance of Joint Municipal Organizations (JMOs) and drafting of collaborative contracts, there have been periods where central governments provided special, fixed-term subsidies to promote collaboration.
Flexible voluntary inter-municipal contractual agreements (IMCAs) have successfully compensated for a municipal structure largely based on numerous small municipalities. This approach has reinforced local democracy and self-governance. Numerous studies indicate that the wide-reaching shared services provision system has been cost-efficient, particularly in public healthcare provision and rescue services. However, compared to other Nordic countries with stronger economies and more resources, Finland has struggled in certain areas, such as elderly care, where the quality of working life and services has been unsatisfactory (Kröger et al., 2018[12]).
3.5.2. The complexities and challenges of inter-municipal collaboration in Finland
shared services provision in Finland has developed unevenly due to the mixture of national targets and local public choices, which has led to short-term governance arrangements of shared services. Various challenges have emerged, including democratic deficit created by Joint Municipal Organisations (JMOs) and JMCs. These entities decrease the direct involvement of elected municipal bodies, leading to unequal citizens’ legal rights to influence public policies and services.
The use of different forms of shared services provision has resulted in inconsistent service arrangements across the country, leading to administrative differences particularly concerning local democracy and market competition. Empirical studies highlight a geographic centralisation of municipal services due to IMC, which affects access to services and generates out-migration from rural areas.
Tensions have also arisen between Joint Municipal Authorities (JMAs) and their member municipalities due to perceived distance from critical decision-making processes. This challenge is substantial as expenditures of JMAs up until recently made up nearly 30% of all municipal expenditures. Communication challenges also exist due to non-representative members from municipalities on the governance bodies of JMAs.
Furthermore, the rights of municipalities to procure hospital services from other organisations have been limited due to a lack of capable private hospitals, rendering special healthcare JMAs de facto monopolies. The 1970s and early 1980s saw a surge in JMAs, but by the late 1980s, it was recognised that many JMAs did not collaborate effectively, leading to new sectoral legislation and a decrease in the establishment of new JMAs.
The system and forms of shared services provision have been evolutionary and scattered. Specifically, non-statutory organisational structures, contractual arrangements, and inconsistent funding mechanisms for shared services provision services have created instability. This instability has subsequently led to difficulties in compiling statistics on municipal performances and public finances. The 1995 Local Government Act mandated consolidated financial statements for municipalities, but comparative reviews and municipal rankings are still challenged by uncertainties and data deficiencies.
3.5.3. Ways to avoid the main pitfalls when establishing IMC
Inter-municipal collaboration doesn't eliminate competition between municipalities. Instead, it may refocus it into governance bodies, potentially causing internal conflicts. To mitigate such risks, municipalities should maintain open communication, build trust, establish conflict resolution methods, and align their financial commitments.
The implementation of shared services provision includes legal preparations, financial commitments, and re-organisation of duties, which often results in the outsourcing of municipal duties to joint municipal organisations (JMOs). These entities, which operate outside direct municipal supervision, need to be kept accountable through good governance and clear administrative practices to prevent misuse of liberties. Good governance embodies accountability, fairness, transparency, and neutrality, and is achieved through measures like clear internal rules, external auditing, and precise contracts.
Statistical systems should be improved alongside the creation of shared services provision to provide accurate data for planning and control. Despite Finland's well-developed national and municipal statistics, the data on shared services provision activities remains insufficiently registered or collected.
Prior to 1993, the predominant funding method for specialised health service joint authorities was through unconditional central government grants (direct state funding). However, post-1993, the central government grants were redirected to municipalities, requiring them to purchase healthcare services from Joint Municipal Authorities (JMAs). This policy shift transferred the responsibility of cost containment from the collaborative entities to the individual municipalities. As a consequence, both the JMAs and municipalities have experienced challenges in controlling cost development.
Finnish IMC-related research provides several insights into the opportunities and challenges faced. It advises a balanced mix of compulsory and voluntary IMC, minimum standards for welfare state services, enough incentives for shared services provision members to monitor service quality, economic efficiency, and lawful public spending. It also calls for a careful planning of mandatory requirements, contractual terms, and geographical arrangements of IMC.
Notably, shared services provision enhances a horizontal sense of community, particularly when facilitated with two-way communication, staff rotation, shared policies, and joint training. This sense of community, alongside interaction between public employees and employers, is a prerequisite for successful organizational change. Moreover, experience of prior shared services provision and trust among stakeholders bolster decision-making capabilities. The potential to strengthen local community identities and the need for municipal mayors to enhance their community collaboration skills are other crucial insights from the research.
References
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← 1. A municipal company is, in general, a company established and owned by one municipality or by one joint municipal authority (JMA), but at present can only be established for solid waste processing purposes in Lithuania. A Joint municipal company (JMC) is a company owned by two or more municipalities, or two or more JMAs (Joint Municipal Authorities), also limited at present in Lithuania to solid waste processing.
← 2. An exception to this are students from a non-EU countries, who must pay tuition fees.
← 3. A municipal association is established when the councils of all founding municipalities have approved the founding charter.
← 4. A model contract for JMA is provided by Finnish Association of Municipalities (in Finnish): Kuntayhtymän perussopimusmalli | Kuntaliitto.fi.