This chapter examines how the Banská Bystrica region (BBSK) in the Slovak Republic can strengthen its multi-level governance frameworks, subnational public finances, and infrastructure investment to address significant demographic shifts. Ageing, youth outmigration, and population growth among Roma communities are placing growing pressure on local budgets and service delivery systems. The region continues to face challenges linked to a relatively recent and incomplete regionalisation process, municipal fragmentation, limited fiscal autonomy, and uneven vertical coordination - all of which can constrain effective policy responses. Through analysis of governance structures, fiscal dynamics, and investment strategies, this chapter offers recommendations to support inclusive, adaptive, and resilient regional development in BBSK.
Preparing for Demographic Change in the Banská Bystrica Region, Slovak Republic
Abstract
Banská Bystrica Region (BBSK) is experiencing major demographic shifts: population decline, youth outmigration, and ageing, alongside localised growth in southern areas due to higher birth rates among Roma communities (Chapter 2). These trends are straining local budgets, creating a “scissor effect” -- rising per capita costs (notably in education and elderly care) paired with falling revenues from personal income tax, among others. Adapting to these changes - and keeping the region attractive to families and workers, thanks to public transport, housing and social services, as well as to investors, while BBSK has untapped potential in tourism and industrial activities - requires enhancing the existing multi-level governance system and reforming the subnational finance framework. Addressing these challenges demands stronger vertical coordination, regional leadership, and municipal governance, given the high level of fragmentation. Intermunicipal collaboration exists but remains limited, and gaps in strategic planning and stakeholder engagement hinder effective responses.
This chapter explores the impacts of demographic change on multi-level governance, subnational public finance and investment in BBSK and provides policy recommendations to address these challenges. The first section analyses governance challenges posed by vertical coordination, regional governance, municipal fragmentation, strategic planning gaps, and still limited stakeholder engagement. The second section illustrates the fiscal scissor effect driven by demographic change, and the third part identifies investment gaps needed to mitigate outmigration and adapt to an ageing population. The chapter closes with policy recommendations on how the BBSK region can adapt public finances, infrastructure investment and governance to these challenges.
Demographic change in BBSK presents multi-level governance challenges that require governance reforms. The region faces increasing municipal fragmentation, financial and administrative constraints, and insufficient inter-governmental co-ordination in addressing demographic shifts, also resulting from a lack of strong regional governance. Additionally, ensuring inclusive stakeholder engagement - particularly for the Marginalised Roma Community (MRC) - is crucial for improving policy effectiveness. This section explores how governance structures can be adapted to these challenges by enhancing multi-level governance frameworks, fostering inter-municipal cooperation, improving policy alignment, and strengthening stakeholder engagement.
Despite positive developments, coordination across levels of government and civil society in the Slovak Republic still lags behind
Vertical coordination in the Slovak Republic is institutionally established, primarily through the Ministry of Interior and line ministries that exercise significant oversight and control over subnational governments. Despite this, in practice, coordination remains limited, with regional and local authorities often having a marginal role in national decision-making processes.
However, progress has been made with the creation of the Ministry of Investment, Regional Development and Informatisation (MIRRI), which has taken steps to engage more systematically with subnational governments in shaping regional development policy (Chapter 2). In addition, as previously highlighted, multi-level governance also takes place through the ZMOs (Association of Cities and Towns of Slovakia), UMS (Union of Cities of Slovakia) and the association of regions (SK8). In BBSK, 491 out of 516 municipalities are members of ZMOs, while nine are members of UMS (BBSK, 2022[1]). BBSK regional government has harnessed the existence of these organisations to co-ordinate advocacy measures, including on the sustainability of municipal finances, considering recent changes to the reform on financing kindergartens (ZMOs, 2024[2]). SK8, in which BBSK is active, is an important tool for coordinating, cooperating with and communicating between individual self-governing regions. It helps them solve common problems and defend their interests at national and international levels. SK8 provides a useful platform for sharing best practices, exchanging experiences and coordinating regional policies and projects.
In addition to these associations, progress has been made thanks to the EU Cohesion Policy and recovery funds that have acted as a catalyser for vertical coordination (Chapter 2). At the regional level, two new tools have also been established in BBSK to support coordination and cooperation between the region, local authorities and other stakeholders: the Regional Development Agency “Dobrý kraj” and the Partnership Council for the Integrated Territorial Development (Box 4.1).
Dobrý kraj (Development Agency of BBSK – “Good Region”) was officially established in 2018. This followed the approval by the regional council to create a non-profit organisation aimed at supporting regional development and employment initiatives. The agency operates as a non-profit entity providing general-benefit services, with BBSK serving as its sole founder. Its establishment was motivated by the need to enhance the region's capacity to access and manage European Structural and Investment Funds, as well as to implement regional development strategies more effectively. Since its inception, Dobrý kraj has been instrumental in coordinating regional development efforts, supporting innovation, promoting sustainable tourism, and facilitating social economy projects across the region. The agency also assists municipalities in preparing and implementing EU-funded projects, helping smaller local governments navigate complex administrative procedures. As a result of this co-operation, in 2022 the agency supported municipalities to write and submit 17 projects, with 103 projects developed from its inception. Furthermore, in an effort to improve access to healthcare in rural areas, Dobrý kraj has been instrumental in establishing a general practitioner outpatient clinic in Halíč and a cardiology outpatient clinic in Veľký Krtíš. Projects like these will be essential in attracting and retaining people through accessible public services and adapting to the increased demand for healthcare services as a result of ageing demographics in the region.
BBSK has established a Partnership Council for Integrated Territorial Development as part of its efforts to implement the Integrated Territorial Strategy (ITS) for the 2021–2027 programming period. It serves as a collaborative platform that brings together various stakeholders to guide and oversee the implementation of the ITS. Its primary objectives include strategic planning, project prioritisation for funding under the Integrated Territorial Investment (ITI) mechanism, stakeholder engagement and monitoring and evaluation. The Council comprises representatives from the BBSK administration, national government, municipalities, association of municipalities, civil society (NGOs and community groups), local enterprises and industry associations, academics. The Partnership Council has been instrumental in several key initiatives, including Ideathon events (see below), strategic projects (e.g. the Innovation Hub BB, aimed at boosting innovation and economic growth in the region) and capacity building to enhance the administrative and strategic capacities of local authorities to effectively manage and implement development projects. The Partnership Council of the Banská Bystrica Self-Governing Region also include SUDA’s Urban Cooperation Councils.
Source: (Dobrý Kraj, 2025[3]), (Dobrý Kraj, 2025[4]).BBSK Partnership council: https://www.bbsk.sk/rada-partnerstva-bbsk
Despite these efforts, decision-making remains centralised, and meaningful consultation and involvement of local and regional actors in the early stages of national policy design continue to be areas for improvement. Slovakia's current policy coordination between central and subnational governments often relies on project-specific needs, ad hoc temporary arrangements and voluntary initiatives with ministries or through the national associations ZMOS, SK8 and UMS, and therefore suffers from administrative fragmentation at the central government level (Council of Europe, 2023[5]).
The Slovak Republic has historically lacked formal, systematic platforms for regular coordination between national, regional, and local governments (OECD, 2016[6]; Council of Europe, 2023[5]). This lack of coordination can be explained by several factors.
First, the allocation of responsibilities across different levels of government is often unclear. Competences are vaguely defined in legislation, and tasks outlined in national strategic documents and action plans are not always clearly assigned. This is particularly evident in policy areas affected by demographic changes (ageing, youth migration, rural depopulation) such as social protection, education and health, where responsibilities are shared among national, regional, and local levels. For example, secondary education is under regional governments' purview, while curricula and teacher policies are centrally managed. This has led to coordination problems in responding to local labour market needs or demographic shifts (e.g. school closures in shrinking regions). This overlap of competences increases the need for strong coordination mechanisms to ensure effective policy design and implementation on the ground.
The second reason is the lack of strong regional governance. While significant steps have been taken to establish regional self-government, several structural and functional challenges persist, limiting the effectiveness of regional governance. The regional government is a recent development (24 years), created as “higher territorial units” (HTU) through a top-down process. Regional governments often face constraints in their competencies, fiscal independence and weak technical capacities. The decentralisation process has primarily focused on administrative aspects, with less emphasis on empowering regions with substantial decision-making authority and fiscal resources (Janas K. & Janoskova B., 2022[7]). According to the Regional Authority Index (RAI), the Slovak Republic’s overall score remains moderate compared to other European countries. This suggests that although regions have some degree of self-governance, their influence on national decision-making processes is limited (Liesbet Hooghe and Gary Marks, 2021[8]). Although the Slovak Republic’s adoption of a decentralised regional governance model has enabled greater regional autonomy in certain policy areas, challenges remain (OECD, 2022[9]). One such challenge is that there is still a notable asymmetry of influence and information between the national and regional levels (OECD, 2016[6]). Furthermore, there appears to be a general dissatisfaction among stakeholders with the status quo, coupled with a sense of untapped potential for socio-economic development at the regional level that has not yet been realised. Slovak regions, which became crisis management bodies during the COVID-19 pandemic, have proven their capacity to manage and coordinate a large range of stakeholders. According to observers, the performance of regional governments in Slovakia over the recent years is “a proof of the possible added value that entrepreneurial and properly equipped self-governments can bring to the Slovak society, notably when committing to shared objectives and outcomes” (Council of Europe, 2023[10]; Janas K. & Janoskova B., 2022[7]).
The third reason is the highly fragmented municipal landscape in the country, and particularly in BBSK. Most municipalities in the region are small and lack the necessary administrative and financial capacity (see below). This fragmentation makes it difficult to coordinate effectively with regional or national authorities, particularly in the absence of robust support structures, institutionalised coordination mechanisms and clear mandates. This weakens ownership and can result in poor implementation at the subnational level. Overall, the highly fragmented system of municipalities leads to inefficient coordination across the various levels of government, making it difficult to implement policies and investment projects (European Commission, 2024[11]).
Coordinating strategic planning at all levels of government is essential for addressing demographic challenges
National and regional strategies to address demographic change are being designed and implemented through Programmes, and progress has been made to foster coordination and alignment across all levels of government in the Slovak Republic (Box 4.2). However, there is still an opportunity to strengthen strategic planning coordination to enhance resource efficiency, policy coherence, and long-term impact, especially to address demographic challenges.
Several strategic documents highlight the demographic challenges at the national and subnational levels
At the national level, the Slovak central government has adopted both cross-sectoral and sectoral policy frameworks to address demographic pressures such as ageing, brain drain, and low workforce participation among vulnerable groups. Key national policies include:
Vision and Strategy for the Development of Slovakia until 2030: This document focuses on emigration of young people and ageing as key demographic trends in the country and seeks to “halt population decline”. To do so, the programme seeks to stabilise the life of young people, for example, through creating attractive job opportunities and harmonising education with labour market needs. It also suggests supporting families through targeted interventions such as increased affordable housing and infrastructure for families with children (MIRRI, 2021[12]).
The Strategy of the Slovak Republic for Youth (2021-2028): This plan strives to improve the quality of life for young people through employment, leisure time and digital education (European Commission, 2023[13]).
The National Strategy on equality, inclusion, and participation of Roma until 2030: This strategy seeks to improve education, housing, employment, and health outcomes of the Roma population, while combating discrimination (Office of the Plenipotentiary of the Government of the Slovak Republic for Roma Communities, 2021[14]).
Subnational-level governments also integrate demographic change into policies and strategic planning.
The BBSK Programme for economic and social development (Program hospodárskeho a sociálneho rozvoja Banskobystrického kraja or PHSR 2022-2030): Setting the long-term strategic vision for the entire region and required by Slovak law for each self-governing region (Act no. 302/2001 Coll.), the PHSR outlines a comprehensive, cross-sectoral development vision and objectives for the region - across economic, social, environmental, cultural and spatial dimensions. This programme acknowledges demographic challenges such as ageing and outmigration. It aims to mitigate population decline by investing in high-quality jobs and elderly care (BBSK, 2022[15]). The Integrated 2022-2027 Territorial Strategy of BBSK (Integrovaná územná stratégia - IÚS) is explicitly designed as a subset of the PHSR. The IÚS translates this vision into a spatially integrated, investment-oriented roadmap, aligning with EU Cohesion Policy tools like the ITIs (Chapter 2). Therefore, the IÚS is serves to operationalise the broader PHSR within the EU funding framework.
Regional Innovation Strategy of the Banská Bystrica Self-Governing Region 2023–2025 (BBSK, 2022[16]). The RIS 2023–2025 outlines concrete systemic solutions aimed at boosting the region’s innovation capacity and competitiveness through increased innovation capital. It emphasises the development of a robust regional innovation ecosystem by strengthening linkages between industry, research institutions, and government, fostering entrepreneurship, digital skills, and youth engagement under the framework of Slovakia's smart specialisation strategies
The Concept on the Development of Social Services in BBSK 2019-2025: This regional plan supports municipalities in establishing senior care networks and services for vulnerable populations, including those with disabilities and individuals in crisis situations (BBSK, 2019[17]).
The Strategy for the Development of Youth Work in BBSK: This strategy focuses on informal education and leisure programs to improve life for young people in the region. This can help improve the attractivity of the region and improve retention (BBSK, 2021[18]).
The Regional Action Plan for the Implementation of the Youth Guarantee in BBSK (May 2025). Developed through a participatory process involving four working groups composed of stakeholders working with NEET youth in the region - representatives of civic and youth organizations, the social services sector, the education sector, labour offices, and employers, the Regional Action Plan includes a set of measures aimed at increasing the employment of NEET youth in the region. The measures selected by the Regional Partnership Council for inclusion in the Action Plan reflect a shared and holistic approach to tackling regional unemployment and are based on broad consensus across the full spectrum of partners ( (BBSK, 2025[19]). BBSK has also published a Regional Analysis of Young People at Risk of or in a NEET (BBSK, 2025[20])
At the municipal level, one can cite:
The Urban Development Programme of the City of Banská Bystricia 2030: The urban development plan of the City of Banská Bystrica identifies ageing and a low birth rate as challenges to local development. It recognises the importance of retaining and attracting. Key areas to mitigate these trends include improved public services and increased job opportunities (Box 4.2) (Mesta Banská Bystrica, n.d.[21]).
Community Plans for Social Services: Municipalities are required to develop sector-specific plans related to demographic change. For example, they are required by Act 448/2008 to have a Community Plan for Social Services that aligns with national priorities, including on elderly care (Cangár, n.d.[22]).
Important efforts have been made to better align national and subnational regional development strategies in BBSK
Regional development plans are created at the regional, sub-regional and municipal levels. As outlined above BBSK’s regional development strategy corresponds to the Programme for economic and social development (Program hospodárskeho a sociálneho rozvoja Banskobystrického kraja or PHSR) (Box 4.2). At the sub-regional levels, plans are designed for both the Strategic Planning Regions (SPRs) and the Sustainable Urban Development Areas (SUDAs). The SPRs are partial territorial units used for planning at the sub-regional level and consist of groups of municipalities sharing common characteristics. In practice, these groups of municipalities are demarcated by district boundaries, for example, the SPR Stred is made up of the municipalities in the Zvolen, Detva and Krupina districts (BBSK, n.d.[23]). SPRs serve as a mid-level planning structure, helping bridge local municipalities with regional authorities and prepare each subregion for the integrated territorial Strategy. Their role is to enhance regional planning by ensuring that development strategies are tailored to subregional characteristics - demographic, economic, geographic, and infrastructural- facilitating stakeholder coordination and supporting EU funding absorption.
The SUDAs, on the other hand, are groups of municipalities that consist of the territory of a city and its hinterland municipalities. They are an EU-mandated instrument formally designated in the national programming documents. SUDAs are designated territories within the SPRs (often overlapping with the main cities and surrounding areas) that implement urban development projects through EU funds. They are intended to benefit from intensive inter-municipal co-operation to formulate and implement their own integrated spatial strategy. It is a form of SPR that is intended to benefit from intensive inter-municipal co-operation to formulate and implement its own integrated spatial strategy.
These strategies and programmes were developed following the Partnership approach (see above), meaning that various socio-economic partners were included to ensure broad acceptance of the strategy. The socio-economic partners included national ministries, municipal authorities as well as private sector stakeholders, educational institutions, and NGOs. Leveraging knowledge from local stakeholders and following central government directives has helped the region and the city to develop a plan that takes a balanced approach to demographic change including for example mitigating trends by boosting attractivity and by adapting to ageing by improving old-age care (BBSK, 2022[15]).
The Regional Development Strategy of the Slovak Republic is called the Vision and Strategy for the Slovak Republic until 2030. This plan is designed to achieve the economic, social, demographic, and environmental priorities of the county in line with programmes developed at lower levels of administration. The plan acknowledges demographic trends as a main challenge and seeks to mitigate these trends through creating job opportunities, improving education and increasing housing supply.
The plan at the central level serves as a basis for regional development plans for the self-governing regions, the Strategic Planning Regions (SPRs, see Box 4.12), Sustainable Urban Development Areas (SUDAs, see below) and large municipalities.
To help align national and subnational regional development strategies, MIRRI have produced a comprehensive methodological guide on how to design and implement regional, sub-regional and municipal “Programme for economic and social development” (PHSRs) complete with good practices for implementation and monitoring and evaluation (MIRRI, 2021[12]) (MIRRI, 2020[24])
Furthermore, the plan includes specific priorities based on local characteristics, for example urban regions as well as declining regions, which ensures a place-based approach in the development of subnational regional development strategies.
Source: OECD elaboration on Vision and Strategy for the Development of Slovakia until 2030. MIRRI (2021[12]), Návrh Vízie a stratégie rozvoja Slovenska do roku 2030 - dlhodobá stratégia udržateľného rozvoja Slovenskej republiky – Slovensko 2030 – nové znenie, https://mirri.gov.sk/wp-content/uploads/2021/01/Slovensko-2030.pdf, (accessed on 23 April 2025).
Like the national strategy, the regional strategy acknowledges the demographic challenges that the region will likely face and has addressed this in one of their four main priority areas. In priority area one, striving for a competitive and sustainable economy, it seeks to develop agriculture, forestry, traditional crafts, and services sustainability in order to create attractive job opportunities to slow outmigration. Furthermore, demographic change is cited as a main challenge for health and social services which the region is looking to address via the coordination of integrated social and health care facilities, in which local governments cooperate to provide services (BBSK, 2022[25]). Despite being a well-designed plan there is a lack of easily accessible evaluation of both the implementation and of previous programmes. This makes it hard to assess the efficacy of such interventions or to know if the PHSR has built on previous successes and failures.
Similarly, the city of Banská Bystrica’s strategy considers ageing and low birth rates as significant threats to local development. The city’s plan seeks to combat these trends in strategic area 2; human potential in which is strives to create conditions for the promotion, retention and attraction of talent. The plan targets this area through several objectives, including attracting investors and businesses in new economic sectors to create jobs in high value-added industries. Another way the city looks to create an attractive place to live is via improved public services and investments in the creative economy. Similarly, in strategic area 6; social services and health the city prioritises affordable housing which will also help boost the quality of life and attractivity (Mesta Banská Bystrica, n.d.[21]).
Coordinating demographic change policy can be fragmented
Across levels of government, there is no common definition of demographic change and alignment of policies can be weak. Cross-sectorial strategies refer to certain demographic challenges, such as youth outmigration, but a comprehensive definition incorporating ageing, declining birth rates, urban-rural disparities, and the growth of minority populations is still lacking. This reduces the efficacy of planning to tackle the diverse challenges that demographic changes pose. Furthermore, timing misalignments between national and subnational strategies can create implementation gaps. For example, the regional strategy for the development of social services (2019-2025) was developed when the only national strategy in force covered 2015-2020. This means that the regional objectives may have been based on outdated national objectives.
Despite efforts to align strategies, monitoring and evaluation remain limited, making it difficult to fully assess the effectiveness of this plan. The lack of readily available evaluation of policy strategies in the Slovak Republic makes it hard to assess whether the policies in place are effective in achieving their goals or have been modelled on past successes or failures. For example, the analytical section of BBSK’s PHSR states that the evaluation of its implementation should be undertaken annually; however, these reports are not widely accessible (BBSK, 2022[27]). Consequently, governments may develop plans that do not build on past lessons.
There is still potential to enhance stakeholder engagement to better reflect and address local needs
To better develop plans and policies that adapt to and mitigate ageing and outmigration, engagement with civil society (NGOs and community groups), the Marginalised Roma Community, local business associations and academics is a key lever. Consultations with civil society stakeholders can provide important insights on the challenges and needs of the local population and can help policy makers understand what makes BBSK a unique and attractive place to live. This is particularly pertinent in the context of outmigration. Discussions with citizens and local actors can help BBSK governments understand the reasons why they stay in the region and they can then take advantage of that knowledge to attract and retain more people. Furthermore, well-designed stakeholder engagement can foster a sense of ownership of critical policy decisions and increase trust in government (OECD, 2025[28]). In BBSK, several actions have already been taken to promote stakeholder engagement, particularly under the leadership of the regional government, but also the city of Banská Bystrica, aiming for more transparent, inclusive, and participatory governance. Stakeholder engagement is already used in the region, for example, through the partnership approach of the BBSK PHSR (Box 4.2) as well as through the city of Banská Bystrica’s Ideathon, which increased participation in their participative budget by nearly four-fold from 400 to 1 500 citizens. Through this process, six priorities were set, including municipal cooperation and active ageing and all proposed ideas will be used to inform the preparation of the 2030 City Development Programme (Open Source Politics, 2024[29]) (Bystricoviny, 2023[30]). Other initiatives include the Omama project (Box 4.3) and the SPACE centres (Box 4.4). Although stakeholder engagement in the Slovak Republic compares well with other OECD countries when it comes to engagement with businesses, gaps exist in engaging with civil society and in particular the Marginalised Roma Community, due to a lack of trust in local governments and public institutions (OECD, 2020[31]) (Bednarik, Hidas and Machlica, 2019[32]).
To improve the integration of the Marginalised Roma Community in the region, government institutions and social economy actors play a key role. NGOs are often the actors that engage most effectively with the Marginalised Roma Community. Since 2017, the Office of the Plenipotentiary of the Government of the Slovak Republic for Roma Communities has had its own advisory body made up of NGOs that ensure the implementation of the Strategy of the Slovak Republic for the Integration of Roma by 2030 (Office of the Plenipotentiary of the Government of the Slovak Republic for Roma Communities, n.d.[33]). To date, projects undertaken as part of this strategy have been successful, for example, by helping 2 500 members of the Marginalised Roma Community find employment (Office of the Plenipotentiary of the Government of the Slovak Republic for Roma Communities, 2025[34]). Furthermore, the collaboration between the regional government and NGOs is quite well established, as has been demonstrated through the partnership approach of the PHSR. Unfortunately, NGOs in the Slovak Republic often experience financial and organisational capacity constraints, making it hard for them to fulfil their role in the social economy effectively (Svidroňová, 2020[35]).
Municipal fragmentation combined with ageing challenges service delivery across the region
Municipal fragmentation is particularly high in BBSK, while small municipalities are ageing
Municipal fragmentation in the Slovak Republic is among the highest in the OECD alongside the Czech Republic and France. On average, municipalities had 1 900 inhabitants in 2022, with 84% having fewer than 2 000 inhabitants. Fragmentation is even higher in BBSK, where 91% of municipalities had fewer than 2 000 inhabitants, and 55% had fewer than 500 (Chapter 2).
This municipal fragmentation has remained largely unchanged in the last two decades, but its age composition has changed. Despite outmigration, since 2000, the share of municipalities with fewer than 500 inhabitants has remained steady, around 55% (Figure 4.2). Conversely, the age composition of the population has changed significantly. The share of people aged below 35 declined from 51% in 2000 to 37% in 2023. Meanwhile, the share of population above the age of 60 increased from 16% to 26% over the same period (Figure 4.2). This will likely lead to changes in demand for services, which may prove challenging for fragmented municipalities to provide.
Municipalities by population class size (panel A) and population by age group change (2000-2023) (panel B)
Source: Statistics Slovakia (2024[36]), Slovak Republic DATAcube – Age Groups – Municipalities, https://datacube.statistics.sk/#!/view/en/vbd_dem/om7006rr/v_om7006rr_00_00_00_en, (accessed on 26 September 2024).
This high level of fragmentation has resulted in a lack of financial and human resources to effectively carry-out municipal responsibilities. Throughout the Slovak Republic this has reduced the potential for high-quality and standardised provision of services (Council of Europe, 2023[37]). Furthermore, the lack of qualified staff challenges the execution of the increasingly complex tasks allocated to local governments, a common consequence of municipal fragmentation. For example, the smallest municipalities cannot even pay the salary of the mayor, who has to volunteer to serve without remuneration or for a very small amount of time. Furthermore, more than 82% of employees in municipalities earn less than the average wage in the national economy (Financial Policy Institute & Univerity in Economics in Bratislava, 2017[38]).
All municipalities are assigned the same responsibilities by the law, but many are too small to carry them out effectively
Under the current legal system, the Slovak Republic’s uniform decentralisation framework requires all municipalities to perform the same functions, regardless of their size, resources and capacity. This symmetric allocation of responsibilities is a major challenge as it results in inefficiencies, particularly in small municipalities, where fixed administrative costs consume most of their budget. To illustrate this point, in 2023, municipalities with fewer than 500 inhabitants allocated 55% of total expenditure to administrative costs compared to 13% for the largest municipalities (Figure 4.3). This limits the ability of these municipalities to invest in education, healthcare, and infrastructure (ZMOS, 2024[39]). Indeed, on average, they only allocated 14% of their budgets to education, compared to 42% in larger municipalities (Figure 4.3). This lower spending on education is due to lower education related costs, but also fewer resources to allocate towards education, among other reasons.
Expenditure by functional classification and municipal population class size (2023)
Source: OECD elaboration based on data shared by the Banská Bystrica Self-Governing Region
Intermunicipal co-operation exists in BBSK but is not widespread
In contexts of high municipal fragmentation, horizontal coordination offers a valuable means to achieve economies of scale. Yet in the Slovak Republic - and in BBSK in particular - this potential remains largely untapped. Inter-municipal cooperation (IMC) has emerged in many OECD countries as a vital tool for addressing many of the pressing challenges facing municipalities, such as shrinking and ageing populations, fiscal pressures, and increasing demands for efficient public service delivery. These have driven municipalities - particularly in rural and remote areas, but also in urban and metropolitan regions - to seek collaborative solutions. IMC enables municipalities to pool resources, share service costs, and jointly manage projects that would otherwise be difficult or inefficient to handle independently. By facilitating cooperation, Inter-municipal cooperation has the potential to enhance service delivery while maintaining local autonomy and ensuring cost efficiency (OECD, Forthcoming[40]; OECD, 2024[41]). Inter-municipal cooperation can also help facilitate joint municipal investment and procurement, which is essential to ensure that infrastructure projects are done at the right scale or deal with administrative and fiscal tasks such as tax collection and management (OECD, 2024[42]).
Inter-municipal cooperation exists in several forms in Slovakia (Chapter 2), but the most frequent ones are joint-municipal offices (JMOs) and micro-regions. Additionally, BBSK is experimenting with new models of cooperation. JMOs have been created to execute delegated tasks from the state administration, implementing co-ordination arrangements covering 21 different domains. Since JMOs carry out delegated tasks, they are funded directly through grants from the central government as well as municipal budgets. In 2021, there were 19 JMOs in BBSK, gathering up to 38 municipalities and servicing up to 70 000 people. The most common tasks undertaken by the JMOs in the region are building regulations with 19 listing this as a task, local communications with 18, water administration with 12, and nature and landscape protection at 11. Housing is undertaken by only one JMO (Ministry of the Interior of the Slovak Republic, 2024[43]). Generally, JMOs have had a positive impact on the performance of municipal competencies and more effective use of resources. However, they are limited by their focus on delegated competences, making them less flexible to address broader governance challenges, for example, in certain original competences like territorial planning. Furthermore, they rely too heavily on voluntary and impermanent agreements, leading to discontinuity in co-operation (Council of Europe, 2023[37]).
Unlike JMOs, micro-regions typically co-operate in the areas of development planning, project cooperation, environmental protection, and tourism. They are funded directly through municipal budgets, their own fundraising, and EU funds. They are generally associated with the use of EU Structural Funds. Among the 516 municipalities in the BBSK region, 51 are not members of one of the 55 microregions, which includes eight district towns (BBSK, 2022[15]). Some municipalities also participate in more than one micro-region. Micro-regions have proven to be a flexible way for municipalities to cooperate; however, a lack of targeted funds and reliance on voluntary cooperation mean that they are underutilised to provide services. Furthermore, the lack of participation from district towns significantly reduces the scale of service provision that could be achieved through this model. One new initiative that is using the micro-region IMC model is the National Project of the Integrated Care Agency, which will serve to develop social care for the rapidly ageing population in the area. Due to the success of this model, it will now be expanded to six other regions in the Slovak Republic (BBSK, 2023[44]).
The number of people in BBSK of retirement age exceeds 100 000, and the portion of the population over 65 years of age is significantly higher than the national average. Meanwhile, the number of places per capita in facilities for the elderly is the second lowest in the country. This shortage is in part because only 145 municipalities out of 516 have registered home care services. This challenge is particularly large in remote areas with many small municipalities that have insufficient capacity to provide these services.
As part of the Programme for economic and social development, funded through the ESF and the Operational Programme Effective Public Administration (OP EPA), BBSK is implementing integrated social and health centres at the micro-regional level. In this project, 21 micro-regions jointly finance and deliver social services which is expected to increase the efficiency of services and expand the coverage from 28% of the territory to 60%. The centres will provide nursing services, preventative monitoring, ICT health technology support as well as homecare services, amongst others. One micro-region that has used this platform to tackle demographic change is the Mikroregión pri Slanej. This micro-region has 15 member municipalities and has used Inter-municipal cooperation to develop an integrated care agency aimed at providing social services to the ageing community. This integrated model is intended to help ensure social care for the large portion of elderly people and to prepare for the ageing trends that exist in the region. Thanks to its success, there are plans to expand it throughout the country.
Despite making concrete steps to improving service delivery, these inter-municipal cooperative bodies in BBSK, like municipal governments, suffer from fragmentation. The voluntary nature of Inter-municipal cooperation in the Slovak Republic weakens continuity and effectiveness, as municipalities can opt in or out based on political priorities. Despite being regulated by the same law, different types of Inter-municipal cooperation in BBSK serve different purposes. For example, JMOs focus on delegated central government tasks while micro-regions and shared service centres aim to support municipalities across all functions. This lack of integration and clarity can create confusion over roles and responsibilities. It can also lead to potential duplication of services and inefficiencies in resource allocation and coordination. Additionally, micro-regions lack central government funding for joint municipal services, limiting incentives to sustain long-term cooperation to foster shared municipal service provision (OECD, 2024[46]).
Additionally, Inter-municipal cooperation is not only an option for rural areas, it is also particularly important in urban areas where the functional area of the settlement extends into surrounding municipalities, meaning that policy co-ordination is essential for them to fulfil the role of large and intermediary cities in regional development (OECD, forthcoming[47]). Today, there is no formal governance bodies to manage functional urban areas in BBSK, for example around Banská Bystrica, Zvolen, Lučenec and Rimavská Sobota for example.
New initiatives aimed at addressing demographic change and increasing the scale of local public services are gaining traction in the region. One pilot initiative is the Centres of Shared Services, which are to be created in the least developed districts of the country, including four in BBSK (ZMOS, 2024[39]) as part of the Recovery and Resilience Plan. Although similar to the JMOs in that municipalities may participate on an ad hoc basis, these go one step further by allowing municipalities to co-operate on their original competences as well as delegated ones (Pravda, 2025[48]). In 2023, the Ministry of the Interior and the ZMOS began collaborating to allocate EUR 13 million to create 22 shared services centres.
This is an innovative model of cooperation where municipalities share the human and technical resources needed for their operation. The so-called “shared service centers”, or “modern joint offices”, employ experts in specific areas under one roof, such as education, transport, the environment, social services, water management, building regulations, and spatial planning. It helps significantly reduce municipalities’ administrative and personnel costs. The aim of the pilot project is to create a single place for municipalities sharing the original competencies of several municipalities, as well as the transferred competencies of the state (Box 4.4).
The new Shared Services Centres are designed to provide services to several municipalities simultaneously, with four centres located in BBSK. The RRF funds, complemented by EU cohesion funds, are intended to pay for the capital expense associated with creating these centres, for example, construction work, renovations and computer equipment. To complement this initiative, BBSK has prepared seminars to support municipalities in implementing these centres. The aims of these seminars are to present an operating model of the centres and discuss the benefits associated with providing services in a collaborative way.
The first centre to open was located in Tornala in BBSK. This centre, inaugurated in March 2025, gathers 30 municipalities and will provide services in the areas of construction, social services, the environment, education and road transport. Another centre was inaugurated in April 2025 in Fiľakovo, with 19 participating municipalities. It will provide residents of these municipalities with a wide range of professional services in the areas of environment, education and building regulations.
Finally, specific EU Cohesion policy instruments have also significantly supported inter-municipal cooperation in Slovakia, including in BBSK, and often beyond municipalities by integrating other local actors. Various instruments have been deployed, including the Local Action Groups (LAGs) that implement Community-Led Local Development (CLLD) in rural areas, the Sustainable Urban Development Areas (SUDAs) in urban areas, the Interreg programmes (Box 4.5) and the Integrated Territorial Investments (see following section).
All these new instruments have significantly expanded the toolbox for intermunicipal cooperation. have been highly valuable in fostering a culture of cooperation among municipalities and encouraging integrated, place-based development. They provide critical financial incentives and strategic frameworks that help local actors experiment with joint planning, service delivery, and development initiatives. However, these instruments are often project-based, short-term, and administratively complex, which can limit their long-term impact and institutional sustainability. Relying solely on such tools risks treating cooperation as temporary and externally driven, rather than as a permanent feature of territorial governance. To truly embed inter-municipal cooperation, these instruments should be considered as a way to move toward more structured, institutionalised, legally anchored, sustainably funded and permanent intermunicipal cooperation.
To maximise their long-term impact, EU-funded cooperation initiatives such as ITIs, SUDAs, and CLLD could be better embedded within existing or emerging inter-municipal cooperation structures, giving them access to EU funding for inter-municipal projects. Promoting multi-fund strategies could help support integrated, durable cooperation rather than isolated, short-term projects. In the future, inter-municipal cooperation bodies could become intermediary bodies of EU cohesion funds.
The Local Action Groups (LAGs) are local partnerships that implement Community-Led Local Development (CLLD) under the EU’s LEADER programme. They cover mostly rural areas and are composed of municipalities, NGOs, businesses, and citizens. Their role is to implement local development strategies using EU rural development funds to fund projects related to tourism, entrepreneurship and small infrastructure. Partnerships with LAG status in BBSK currently bring together 393 municipalities with a membership ranging from 11 municipalities, the smallest – LAG Chopok Juh, to 43, the largest, LAG Malohont. Some projects that the LAG Malohont have undertaken are the renovation of a building to convert it to a public library and the construction of scenic lookouts. They also provide a platform for artisans to promote regional products like honey, ceramics and cheese.
Sustainable Urban Development Areas (SUDAs): implemented through Functional Urban Areas as part of Program Slovensko 2021-2027, the SUDAs serve a key platform for implementing Integrated Territorial Investments (ITI) at the scale of functional urban areas, centred around a city centre and its surrounding municipalities. There are four SUDAs in BBSK around the cities of Banská Bystrica, Zvolen, Lučenec, and Rimavská Sobota. Each SUDA has an Urban Cooperation Council (Rada partnerstva UMR) that selects and prioritises projects. Cooperation Councils are also part of the Partnership Council of the Banská Bystrica Self-Governing Region.
Operating under their own Integrated Territorial Strategy (IÚS), aligned with the broader regional strategy coordinated by BBSK, they foster cooperation among municipalities within each FUA to lead local strategies focusing on sustainable mobility, green infrastructure, and social inclusion.
Banská Bystrica; focuses on sustainable mobility, education, climate adaptation, and social infrastructure.
Zvolen: prioritises transport connectivity, housing, and urban services.
Lučenec: supports culture, local entrepreneurship, and revitalisation of public spaces.
Rimavská Sobota: targets social inclusion, employment services, and transition support (JTF eligible). For example, the SUDA of Rimavská Sobota has used the ITI to invest in tourism infrastructure, for example, a visitor centre for the Gothic Trail in Rimavská Bana.
Funding from ERDF and ESF+ is channelled through ITI calls, with joint decision-making between BBSK and local partners. SUDAs also help strengthen alignment between local, regional, and EU policy priorities. This model promotes multi-level governance, local ownership, and integrated urban-rural development. They support integrated investment in urban centres and their surrounding areas. Cities like Banská Bystrica, Zvolen, Lučenec, and Rimavská Sobota lead local strategies funded by ERDF and ESF+, focusing on sustainable mobility, green infrastructure, and social inclusion. SUDAs also foster cooperation among municipalities within each FUA and strengthen alignment between local, regional, and EU policy priorities. The SUDA of Rimavská Sobota has used the ITI to invest in tourism infrastructure, for example, a visitor centre for the Gothic Trail in Rimavská Bana.
The INTERREG programme, part of the EU’s cohesion policy, plays an important role in fostering inter-municipal and cross-border cooperation in BBSK. Through initiatives like INTERREG Slovakia–Hungary and Central Europe, municipalities in BBSK have partnered with counterparts across borders to implement joint projects in areas such as tourism, environment, mobility, and cultural heritage. These projects strengthen local capacities, build trust among municipalities, and promote shared solutions to regional challenges, particularly in BBSK’s southern and border areas.
As outlined in Chapter 2, decentralisation reforms introduced over the last three decades increased the competences and resources of subnational governments. More than 400 tasks and responsibilities were transferred to the municipal and regional levels. Today, there is a complex system of shared responsibilities as well as delegated and own responsibilities, which are all impacted by demographic change. For example, education is a shared responsibility across levels of government. Municipalities are in charge of primary education; regions are in charge of secondary education, and the central level is in charge of higher education. Similarly, tasks that will be essential for taking advantage of the region’s unique natural and industrial potential, like regional and economic development and tourism, are shared across levels. Furthermore, most responsibilities in the function of social protection are allocated to the regional and municipal level, for example, elderly and youth care.
Despite this transfer of responsibilities, the Slovak Republic still has a low level of expenditure decentralisation and the role of subnational governments in public investment remains limited compared to the EU average. Subnational governments’ revenues are also quite low and depend significantly on transfers and grants (which include PIT sharing); these transfers account for almost 80% of their revenues (Chapter 2). Such limited fiscal decentralisation restricts the ability of subnational governments to effectively meet public service and infrastructure demands. This situation may worsen in the context of demographic change.
Demographic change is decreasing the financial sustainability of municipal governments and the regional government in BBSK. Municipalities in the region face rising expenditure pressures while revenue sources decline, resulting in a scissor effect. On the expenditure side, in depopulating municipalities, a wide range of per capita costs tend to increase due to fixed costs being spread across fewer residents and growing demand for certain services. Meanwhile, on the revenue side, revenue from grants and subsidies, in particular, the redistribution of personal income taxes, declines with population decline. Other grants and subsidies and own-source revenues are insufficient to cover local needs and may also be affected by population decline. Municipalities with a large and growing Roma population face different challenges that also call into question their fiscal sustainability.
Education makes up the largest share of subnational expenditure
Education represents the largest expenditure category at both the municipal and regional levels. For both levels of subnational government, expenditure on education makes up about 40% of total expenditure (Figure 4.4). After education, the next two largest expenditure items for municipalities are general public services and economic affairs (including transportation). These two functions made up 21% and 10% of their total expenditure in 2023. At the regional level, economic affairs and general public services made up the second and third largest shares of expenditure at 27% and 17% respectively.
Real municipal and regional expenditure by functional classification (expenditure per capita, 2018-23)
Source: OECD elaboration based on data shared by the Banská Bystrica Self-Governing Region
Demographic change may increase per-capita costs for education, healthcare and social services.
The dominant share of education within local and regional budgets underscores its central role in service delivery and its growing vulnerability in the face of demographic change. Without targeted action, demographic change will significantly impact municipal and regional spending. It will be particularly notable for education expenditure (Box 4.6).
In Banská Bystrica, the number of children under 15 years of age has declined sharply from 209 000 in 2000 to 136 000 in 2023, and this trend is expected to continue. As a result, some municipalities, particularly in the north and the west of the region, will face declining pupil populations. This will lead to lower school enrolment and rising per-pupil costs due to lost scale (Chapter 5).
Education expenditure in shrinking municipalities is rising disproportionately, driven by declining pupil populations and diminishing economies of scale. An analysis of municipal spending suggests that for every one percentage point decline in municipal population aged 0-15, per capita pre-primary and primary school costs increased by approximately one percentage point (Figure 4.5). While this finding is based on a descriptive correlation rather than a causal analysis, it highlights a trend that warrants further investigation. This increase in per capita education is likely driven by diminishing economies of scale, as fixed costs (such as teacher salaries or school maintenance) are spread across fewer students. Without targeted policy responses, this inefficiency could lead to further financial pressures on municipalities. This is of particular concern for municipalities operating small and underutilised schools. While data constraints limit a similar analysis at the regional level, decreasing numbers of secondary school students are expected to lead to an increase in per-capita costs for education for the BBSK.
Municipal population under 15 years of age decrease and change in per capita pre-primary and primary school expenditure (2018-23)
Note: The x-axis, “Population decrease” represents the percentage decline in a municipality’s population over five years. Each dot represents one of the 274 municipalities that reported pre-primary and primary school expenditure in both periods. Fifteen outliers with increases in per capita cost exceeding 100% were excluded from the analysis.
Source: OECD elaboration based on data shared by the Banská Bystrica Self-governing Region.
In addition to education, demographic change may increase costs for healthcare and social services. Subnational governments are primarily responsible for providing social services, including care for the elderly. The ageing population necessitates increased spending on healthcare facilities, home-based care, assisted-living and age-friendly infrastructure. This trend is especially pronounced in areas facing high-levels of youth out-migration, where younger populations are migrating to urban centres or abroad, leaving behind a higher concentration of elderly residents. Without targeted action, subnational expenditure on social services may increase significantly due to the rapidly ageing population in the region.
Similarly, as populations shrink, per capita costs for administrative and other public services may also continue to rise. Administrative overheads (such as salaries, IT systems, office operations) and governance and compliance costs (budget preparation, reporting obligations, etc.) do not scale down easily. As a result, costs remain high even while the population declines. Furthermore, utilities (waste and water management, public lighting, etc.), green space maintenance, street cleaning and public transport, which require high fixed costs, may become financially burdensome as the population shrinks and fixed costs are spread amongst fewer people. Infrastructure upkeep, such as public buildings and road maintenance, adds further costs. Finally, public order and safety, such as fire protection and emergency responses, may become more expensive to operate in sparsely populated areas.
Uncompensated costs of providing services to non-resident population are a risk for some municipalities
In addition to increasing per-capita costs, some large municipalities may face uncompensated expenses due to hosting services and infrastructure for residents of other municipalities. Often, large municipalities in predominantly rural areas are hubs for local services that are used by residents outside of their municipal boundaries. This leads to increased costs to this “central” municipality. These increased costs may result in “centrality charges” if the central municipality is not properly compensated. Some municipalities in BBSK, including the City of Banksá Bystrica, already face these centrality charges and more may be at risk if the urban population continues to move to surrounding rural municipalities.
The same applies to tourism-focused municipalities, as well as those that have many secondary homes. Municipalities with high levels of tourism and secondary home inhabitants often face significant additional costs in delivering basic services without receiving corresponding resources. These temporary or non-permanent residents increase demand for essential services and infrastructure such as water supply, waste collection, road maintenance, public safety, and emergency services - particularly during peak seasons. However, because they are not officially registered as residents, they do not contribute proportionately to local tax revenues, which are often allocated based on permanent population figures. As a result, municipalities are left with the fiscal burden of servicing a population much larger than their official counts suggest, straining local budgets and reducing capacity for investment in long-term development. This is even more problematic in touristic municipalities which are losing permanent population, for example, in mountainous areas, ski resorts or spa towns.
Municipal and regional revenues are low and may decrease even more because of population decline
As indicated in Chapter 2, subnational governments in the Slovak Republic have low levels of revenue decentralisation. They accounted for 18.9% of total government revenue in 2022, i.e. 7.6% of GDP, compared with 36.9% and 17.1% of GDP, respectively, in the EU. Furthermore, they lack autonomy over their income as almost 79.6% of their revenues come from grants and subsidies, higher than in the EU on average (44.2%) (OECD, 2024[53]). The Personal Income Tax (PIT) allocation is one of the main intergovernmental transfers. Since 2016, 30% of total PIT receipts have been allocated to regions and 70% to municipalities, making this a significant source of revenue for both levels of subnational government. The PIT allocation accounts for almost half of total regional revenues and nearly one-third of municipal revenues. Other revenue sources include current and capital grants - most of which are earmarked to fund delegated responsibilities - as well as tax revenues, user charges and fees, and income from assets (Chapter 2).
In 2023, municipalities collected EUR 1 066 per person on average compared to 615 for the region (Figure 4.6). The two largest revenue items for the municipalities in that year were the PIT allocation and other current grants and subsidies, making up 32% and 30% of total revenues, respectively. Other revenues (for example, income from loans and repayable financial assistance, or other financial operations), capital grants, user charges and fees, and property tax revenues made up smaller shares of revenue. The two smallest items were other tax revenues (including the dog tax, vending machine tax, or accommodation tax, among others) and property income, accounting for 3% and 4% of total revenue, respectively.
Revenue sources for BBSK are less diverse. Unlike the municipal level, the region cannot collect tax revenue; therefore, it relies even more on transfers from the central government and EU funding. Three types of transfers revenue - the PIT allocation, current transfers and capital transfers - made up 75% of total revenues for the region in 2023 (Figure 4.6). The region also collected revenue from other revenues (20%) (made up of income from loans and repayable financial assistance and other financial operations) and user charges and fees (5%). This breakdown in revenue underscores the region’s limited fiscal autonomy and its vulnerability to macroeconomic and political shocks.
This low level of revenue decentralisation and limited fiscal autonomy at the municipal level, and even more at the regional level, may constrain the ability of subnational governments to effectively respond to the changing needs of the population, given demographic trends such as ageing and out-migration.
Municipal and regional revenue by category in EUR per capita (2023)
Source: OECD elaboration based on data shared by the Banská Bystrica Self-governing Region.
PIT allocations and most grants and subsidies decrease with population decline
As the population of BBSK declines and no adaptive measures are adopted, subnational revenues from grants and subsidies are at risk of declining.
The allocation of the PIT relies mostly on demographic variables, including the number of residents, the number of seniors and the number of young people (Box 4.7). As a result, this redistribution scheme is sensitive to population change and demographic decline is a key driver of lower PIT allocations. At the municipal level, the formula allocates more funds for pupils than for those aged above 62, meaning that a decline in the youth population, coupled with an increase in the senior population, could substantially reduce revenues from this source. Beyond this question, another issue is this strong dependence on one allocation whose source is very sensitive to macroeconomic conditions and labour market trends, influencing fluctuations in PIT revenues. This highlights the broader risks of reliance on PIT. These factors make reliance on PIT redistribution not only demographically sensitive but also economically volatile, posing long-term fiscal stability risks.
Revenues from personal income taxes are redistributed according to an allocation formula (see below), calculated on the basis of population and some additional factors that take into account specific needs. These transfers are for original competences (i.e., competences that are not transferred from the central level) and are not earmarked. Despite this, municipalities and regions are encouraged to spend the funds according to the formula. For example, the 5% designated for municipalities for the population aged over 62 is recommended to go towards old-age care.
Municipal coefficients that adjust these allocations are:
Primary school coefficient: Ranges from 0.2 for a child in a center of pedagogical-psycological counselling and prevention to 117 for a child in a re-education center.
Size coefficient: Ranges from 0.89 for municipalities with 1 000 inhabitants or fewer to 2.35 in Bratislava.
Altitude coefficient: Ranges from 0 (lowest municipality) to 2 (highest municipality).
Regional coefficients that adjust these allocations are:
The 9% allocation by region ranges from 1.25 in Bratislava to 0.93 in Kosice, with the coefficient for BBSK being the third lowest at 0.94)
Concretely, revenue from the PIT redistribution appears to be negatively related to population decline in BBSK. As outlined above, the formula to redistribute PIT in the Slovak Republic is based mostly on demographic variables. This means that population decrease, and ageing have a significant impact on regional and municipal government revenues. Furthermore, since this formula is used for all municipalities in the country, municipalities that are ageing and losing population more rapidly than others are at the highest risk of decreasing revenues. This is the case for many municipalities in BBSK. Empirical analysis suggests a negative relationship between population decrease and PIT transfers (Figure 4.7). For each percentage point of population decrease, PIT transfers decrease by 0.4 percentage points. This analysis is limited to the PIT revenues of municipalities; however, similar trends are expected as a result of population decline at the regional level, as well as other types of grants and subsidies.
Municipal population decrease and change in Personal Income Tax revenue (2018-2023)
Source: OECD elaboration based on data shared by the Banská Bystrica Self-governing Region.
Note: The x-axis, “Population decrease” is the rate at which a municipality is losing population, for example, 5% refers to a loss of 5% of the population over the five years. Each of the 510 dots represents a municipality, this data is limited to municipalities that had personal income tax revenues in both periods, while 6 outliers were excluded with increase in personal income tax revenues of over 100%.
Besides the PIT allocation, earmarked current and capital grants are becoming more important both for the region and the municipalities. During the period 2018-2023, the share of earmarked grants in total revenue has increased from 34% to 39% for municipalities and 34% to 45% for the region. This trend reflects a broader challenge: municipalities in BBSK face significant spending responsibilities but have limited financial autonomy. Meanwhile, earmarked transfers for delegated competences (e.g., transport, education and regional development) are often calculated on a per capita basis. This is the case for the educational normative grant, which is provided to municipalities and the region based on the number of pupils, similarly, grants for environmental protection are calculated on a per capita basis (Council of Europe, 2023[5]). Given ongoing ageing and outmigration in the region, municipal transfers tied to population are at risk of declining further, challenging service provision (Council of Europe, 2023[37]). This puts additional strain on municipalities already struggling with declining personal income tax (PIT) transfers due to demographic shifts and insufficient allocations.
While PIT allocation and other transfers are insufficient cover all municipal needs, the small size of many municipalities restricts their revenue-raising power and ability to attain economies of scale, thus decreasing their spending efficiency. For example, some small municipalities have less than EUR 2 400 annually to provide elderly care services (Box 4.8). Another example is construction activities: transfers often fall short of needs in small municipalities, as they are solely tied to population size and do not consider the fixed costs associated with such activities. Consequently, a large share (58%) of actual expenditure for construction-related activities is covered by municipalities through their own resources (OECD, 2024[42]; Supreme audit office, 2022[56]), which are very limited (see below).
Although revenues from the PIT allocation are not earmarked for a certain purpose, municipalities are recommended to use a certain amount (5%) for services for the elderly. However, due to the small size of many municipalities and the subsequent low PIT share, it is impossible for municipalities to fund social services on their own. For example, in the municipality of Lenka, with a population of 200, monthly PIT receipts amount to EUR 3 520 per month. Therefore, according to the formula for the redistribution of PIT, EUR 176 should be allocated to the provision of social services but this is not enough to pay for even a part-time employee.
As outlined above, transfer amounts depend on the population structure of the individual municipality, however, the case of Lenka is not unique, with another 66 municipalities (13% of all municipalities in the region), collecting less than EUR 3 520 per month from the PIT redistribution. There are many municipalities in the region that face these challenges and as the population ages and young people leave, not only will the demand for social services increase but the income from personal income taxes will likely decrease (Figure 4.7). To address this and potentially increase the quality-of-service provision for elderly people, municipalities could consider pooling their resources to hire homecare works or to fund the operating costs of providers of social services.
Source: (The World Bank, 2020[55]).
Regional governments have no taxing power while municipal tax revenues are very low
As mentioned in Chapter 2, the only tax levied by regional governments was the motor vehicle tax, which was recentralised in 2015. At the municipal level, the recurrent tax on immovable property is the main source of municipal tax revenues. It is followed by the accommodation tax and other minor taxes (dog tax, vending machine tax, tax on the use of public areas, etc).
Tax effectiveness at the municipal partly depends on the willingness of municipalities to impose local taxes as they are not mandated to do so. They have the discretion to decide whether to implement such taxes based on their local needs and policies. They also have the authority to set the tax rates within the limits prescribed by national legislation, and they can grant certain exemptions or reductions as permitted by national law.
The recurrent immovable property tax is the largest source of own-source taxes for municipalities. In BBSK, it accounts for 62.1% of municipal tax revenues and 5.3% of total municipal revenues. There are however high variations across municipalities, with lower shares in smaller towns and villages (Council of Europe, 2023[5]). Per capita municipal revenue from the property tax tends to be higher in the Western part of the Slovak Republic, with municipalities in the regions of Bratislava and Trnava recording the highest at EUR 96 and EUR 95 per person, respectively, in 2023 (Figure 4.8). Meanwhile, property tax revenues in BBSK were slightly lower than the average of EUR 67 per person, with municipalities in the region collecting EUR 66 per person in the same year. This regional pattern follows the differences in economic development and municipality size, as the Eastern and South-Eastern parts of the country, including BBSK, are less developed and have even more fragmented territorial organisation (Council of Europe, 2023[5]).
Municipal revenue from recurrent taxes on immovable property in EUR per capita for 2023
Source: OECD elaboration on data shared by the Banská Bystrica Self-governing Region.
While it is a major source of municipal revenue in the Slovak Republic and BBSK, there is room to make it more effective. Overall, subnational revenues from the property tax account for 0.4% of GDP compared to 0.9% on average in other EU countries and 1.5% in the OECD in 2023 (OECD, 2025[57]) (Figure 4.9) It is amongst the lowest in the OECD. This low level of revenue from this source is despite wide agreement that this tax is a highly appropriate source of tax revenue for local government, with many advantages including stability, visibility, accountability and limited risks of distortion, if well designed. It can also be a policy tool to achieve non-fiscal objectives, including adaptation and mitigation of demographic change (OECD-UCLG, 2022[58]). The mode of valuation of the recurrent property tax in the Slovak Republic largely explains the low productivity of the property tax. The valuation is not based on market or cadastral values, but on fixed area-based values set by national legislation. The Slovak Republic remains one of the very few OECD countries (together with Czechia, Israel and Poland) that bases recurrent taxes on immovable property on the area of the property rather than its estimated market value (OECD, 2024[42]; OECD, 2021[59]).
Subnational revenue from recurrent taxes on immovable property as a percentage of GDP for 2023 or latest year
Note: OECD38 refers to the weighted OECD average, OECD29 refers to the weighted OECD average for unitary countries. Data for Australia and Greece is from 2022
Source: OECD (2025[57]), Subnational Government Structure and Finance Database, https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/subnational-finance-and-investment/subnational-governments-infrastructure-finance-2024.pdf/_jcr_content/renditions/original./subnational-governments-infrastructure-finance-2024.pdf.
As a result of this area-based system, standard unit values are often outdated and do not reflect real property market conditions, particularly in urban areas where property values have risen significantly. The taxable value is thus significantly lower than the actual economic value, limiting revenue. Moreover, weak taxation of secondary homes further reduces revenue from this source. In addition, the discretion that municipalities have over rates and bases may result in conservative or minimal rates and narrowed bases. Underused rate-setting powers and optional exemptions/reductions may thus lead to limited revenue generation. Other challenges related to property taxes include the lack of resources and administrative and technical capacity of municipalities to collect and manage local taxes, as well as political resistance to increasing tax rates. Furthermore, property records and cadastral systems are not always fully updated or integrated with tax administration.
This property taxation system has additional drawbacks. It not only reduces the potential for local governments to raise more revenue but may also hamper equity - as it is less accurate in accounting for taxpayers’ housing wealth with factors such as quality or age of the home – as well as limits its effectiveness as a stabiliser of fluctuations in the housing market – as tax revenues are not responsive to changes in the housing cycle (OECD, 2024[42]). Overall, the Slovak Republic’s property taxation system is not conducive to mitigating housing demand and incentivising rentals (European Commission, 2024[11]). In a region experiencing high growth in property prices, reforming the property tax system could not only support revenues but also help address land fragmentation (Chapter 3), making the region more attractive for residents and investors.
In addition to property taxes, another local tax exists, the accommodation tax, which could further boost municipal revenues. This tax presents interesting opportunities in terms of revenue raising, but its effectiveness varies based on local conditions, as accommodation taxes are most appropriate in areas with high levels of tourism. It also depends on municipalities’ willingness and technical capacity to collect it. In 2023, 158 municipalities in the BBSK region collected revenue from this tax. Typically, this tax is set per person per night. In the city of Banská Bystrica, for example, the rate is EUR 2 and 1 per night (Mesto Banská Bystrica, n.d.[60]). One municipality that has used this source of funding well is the southern spa town of Dudince, which raised EUR 431 500 from the accommodation tax in 2023, or approximately EUR 314 per person.
Revenues from user charges and fees are low while at risk
User charges and fees differ from taxes in that they are levied in connection with a specific service or activity; however, the relation between the amount of the fee and the cost of the service may vary (OECD, 2024[61]). Regional and municipal governments in the Slovak Republic can levy user charges and fees on several items, for example, on waste collection and disposal, sewerage, public transport, education and cultural services, administrative services, or land development. They represented 4.7% of regional government revenue and 4.1% of municipal revenue in 2023. This share is the third lowest after municipalities in the region of Kosice and the region of Presov at the municipal level. At the regional level, it is the fourth lowest after the region of Kosice, the region of Bratislava, and the region of Presov, reflecting differences in economic activities, population density, and subnational capacity to collect such fees, but also the fact that they do not always reflect the real costs of public services. In BBSK in 2023, revenues such revenues municipalities collected 12% less from this source than other municipalities in the country. Meanwhile, the share of revenue from user charges and fees at the regional level has decreased significantly from 8.4% of revenues in 2013 to 4.7% in 2023 (INEKO, 2025[62]).
Demographic change risks further decreasing user changes and fees as people leave and demand fewer services. The change of age composition also has an impact, as inactive residents do not need such a volume of administrative services provided by the city, for which the city can collect fees.
The new local development fee works best in growing areas.
Since 2015, municipalities in the Slovak Republic have the right to levy development fees under Act No. 447/2015 Coll. This fee is levied on developers or individuals undertaking construction projects that require a building permit, with rates ranging from €3 to €35 per square metre of the above-ground floor area at the municipality's discretion. The collected funds are earmarked for capital expenditures such as building childcare facilities, schools, social housing, healthcare centres, local roads, and technical infrastructure. Since its introduction in 2017, the revenue from this fee has been on an upward trajectory, with municipalities collectively amassing over €30 million in recent years. Notably, smaller municipalities experiencing intensive residential construction have benefited significantly, with the fee accounting for approximately 14% of their capital expenditures. However, adoption varies across municipalities, including larger cities that have not yet adopted it, or very recently, and its impact remains limited. Many smaller municipalities refrain from implementing them due to concerns about disincentivising investment (Council of Europe, 2023[37]). While development fees may not be attractive for all municipalities in BBSK, they have the potential to diversify revenue streams, for instance, to finance tourist infrastructure and infrastructure for public services necessitated by new developments.
The high Roma population in some areas poses specific challenges to subnational finances
In addition to the fiscal challenges associated with ageing and outmigration, the growing share of the Roma population in BBSK may also place upward pressure on subnational spending, though for different underlying reasons. Roma communities are primarily concentrated in the southern districts of Krupina, Veľký Krtíš, Lučenec, Rimavská Sobota, and Revúca, with smaller populations present in northern districts such as Brezno. These communities often experience lower levels of employment and educational attainment than the general population and frequently lack access to basic infrastructure (Chapter 2). As the Roma population continues to grow in municipalities with high concentrations, the demand for adequate housing, essential infrastructure, education and training, and social support is expected to rise - placing additional pressure on municipal budgets, particularly in areas where revenue capacity is limited (Box 4.9).
On the expenditure side, significant pressures exist because these areas often have young, low-income populations with elevated needs in education and housing, among other areas. Children from Roma backgrounds tend to have worse educational outcomes than the general population, one way to improve this is to increase the availability of teaching assistants who speak the Romani language; however, this is not financially supported. Therefore, to improve educational outcomes for this group, especially as the population increases, increased expenditure is required. Similarly, settlements of the Marginalised Roma Community are sometimes located in hazardous places where inhabitants often live in illegal, makeshift dwellings. These informal settlements lack basic infrastructure, such as running water and sewerage, which drives up costs for these services and requires investment to build high-quality, affordable housing (Office of the Plenipotentiary of the Government of the Slovak Republic for Roma Communities, 2021[14]). Like with education and housing, demand for other services such as health care and social services are likely to increase as the share of Roma increases, further putting pressure on subnational public finances.
On the revenue side, income sources for municipalities do not compensate for the specific challenges associated with the Roma community. The allocation of PIT provides more funds for municipalities with more people, but does not take into account the higher levels of social exclusion and infrastructure deficits that exist in municipalities with a higher share of the Roma population. Moreover, the allocation of PIT for students only considers enrolled pupils, which, with the lower enrolment rates among Roma children (Chapter 2), can lead to reduced PIT revenues for municipalities with significant Roma populations. Additionally, property tax revenues in these municipalities are limited due to informal housing not registered in the tax base, while revenues from accommodation tax are very low. As a result, municipal fiscal capacity remains inadequate relative to their expenditure needs.
Finally, state transfers and EU funds have increased substantially to support inclusion and development; however, they still often fall short in practice. Accessing these funds requires navigating complex procedures and co-financing rules that many small municipalities struggle to meet because of a lack of capacity (The Greens/European Free Alliance in the European Parliament, 2021[63]). This underutilisation means that available financial support often fails to reach the most marginalized communities. Combined, these factors constrain the ability of municipalities to deliver adequate services and invest in long-term development.
Demographic trends in BBSK create a complex set of demands on public investment and infrastructure. On one hand, population ageing and decline require adapting services and infrastructure to a shrinking and older population. This includes increasing investment in health and social care for the elderly, improving accessibility, and rationalising or repurposing underused infrastructure such as schools or public buildings.
On the other hand, the region also needs to invest in ways that retain and attract people, particularly younger residents and families. This means continued or increased spending on education, housing, transport, and job-creating sectors like tourism or the green economy. These investments are essential not only to reverse outmigration but also to support long-term economic development.
In BBSK, a distinct and urgent dimension of demographic challenges is also the situation of the marginalised Roma community, who often face severe deficits in housing, basic services, and economic opportunities. These conditions require targeted investments that differ from those addressing ageing or shrinking populations, underscoring the need for differentiated and inclusive investment planning.
These contradictory pressures place a significant burden on public authorities, especially regional and local governments, which have become key public investors that must balance adaptation with revitalisation - often with limited financial and administrative capacity, in a governance system which remains largely centralised, top-down and fragmented, especially at the municipal level.
For public actors in BBSK, this requires a more strategic and selective approach to investment: prioritising projects that serve multiple objectives, leveraging external funding (especially EU funds), and strengthening coordination between levels of government to avoid fragmented or duplicative efforts. Emerging tools like Integrated Territorial Investments (ITI) show promise in fostering cooperation and pooling resources. To respond effectively to demographic shifts and social disparities, BBSK must further strengthen its capacity for place-based, inclusive, and forward-looking investment planning.
Regional and municipal governments are key public investors
Levels of public investment in the Slovak Republic are broadly aligned with EU averages but are more volatile. Public investment in the Slovak Republic fluctuated greatly from 2.7% of GDP in 2003 to a peak of 6.6% of GDP in 2015. A new increase in 2023 to 3.7% of GDP largely reflects changes in EU funding (Figure 4.10). As the 2014–2020 EU programming period approached its end, the Slovak Republic quickly absorbed its EU funds to avoid forfeiting them. This urgency led to a surge in public investments, particularly in infrastructure and regional development projects. In addition, in 2023, the Slovak Republic began drawing funds from its new EU allocation for the 2021–2027 programming period, further boosting public investment. Finally, public investment was also boosted by the implementation of Slovakia's National Recovery and Resilience Plan (NRRP), whose funds were directed toward various sectors, including infrastructure, energy, and digitalisation.
The share of subnational governments in public investment has also fluctuated over the last 20 years (Figure 4.10), with a notable increase in 2023. While still lower than in the EU on average, this share accounted for 47.4% of total public investment (1.8% of GDP), compared to 54.9% in the EU (1.9% of GDP). Fluctuations also reflect the availability of EU funds, including the increase in 2023, which results from a significant increase in EU funds targeted at subnational projects, and especially at the regional level (see below).
Direct investment by level of government, EU 27 and the Slovak Republic (2001-23)
Source: Eurostat (2024[64]), Government Finance Statistics Database, https://ec.europa.eu/eurostat/databrowser/product/view/gov_10a_main?category=gov.gov_gfs10.gov_10a,m, (accessed on December 3 2024).
Municipal investment is largely dedicated to economic affairs and housing. Between 2018 and 2023, municipal investment fluctuated, but it increased significantly in 2023 to reach EUR 160 per capita (Figure 4.11). During this period, economic affairs accounted for about 28% of municipal investment, with a growing share directed to mining, manufacturing and construction. This is in line with increased efforts to create industrial jobs. Furthermore, both investment in housing and community amenities (EUR 37 per person in 2023) and education (EUR 17 per person in 2023) have remained largely the same over the period. Meanwhile, social protection remains underfunded, with municipal investment amounting to only EUR 3 per capita in 2023.
Source: OECD elaboration based on data shared by the Banská Bystrica Self-governing Region.
Regional government investment increased even more than at the municipal level in BBSK over the period, with a significant increase in 2023. Investment grew from EUR 24 per person in 2018 to 165 per person in 2023, with a sharp rise between 2022 and 2023 (Figure 4.11). The large increase in total regional investment in 2023 was driven mostly by increased investment in general public services, accounting for 65% of regional investment (mainly for renovation of public buildings) and education for accounting for 26% (secondary education). The share of economic affairs/transport has significantly decreased compared to previous years, when it was predominant. Social protection makes up a larger share of regional investment compared to the municipal level, accounting for 5% of total investment in 2023. Of that, sickness, invalidity and severe disability accounted for 61% and old age accounted for 39%. Furthermore, investment in old age care has increased significantly from EUR 133 thousand to EUR 1.8 million over1 the period 2013-2023 (BBSK, 2020[65]).
As populations change, BBSK will need to align investment with future demand. The projected future decrease in school pupils of -27% between 2023 and 2050 will likely mean that demand for educational infrastructure will decline. Meanwhile, as outlined above, investment in education has remained the same at the municipal level and increased at the regional level. Furthermore, an increase in the elderly population by 42% will result in higher community needs in health and elderly care services. This increased need is highlighted by the sharp increase in investment for social protection from 2018 to 2023 at the regional level (Chapter 5). Additionally, the growing share of the Roma population in the south and east of the region will call for more investment in educational supports, social services and housing. These diverse trends mean that future investments in BBSK will still be needed in areas of increased demand (e.g., elderly care, housing, tourism, forestry, etc.) and to improve the quality of existing facilities, but at the same time some facilities in areas of reduced demand (e.g., education) may need to be adapted or downsized.
This poses a risk for subnational public investment as new infrastructure may be expensive to maintain compared to its societal value. One way to minimise this risk is to prioritise adaptive reuse projects and smart downsizing of infrastructure, such as repurposing existing infrastructure and reducing investments in shrinking areas where demand is already low. BBSK has been quite active in repurposing various public buildings, such as former schools and administrative structures, into community centres, libraries, and social service facilities. A prominent example is the transformation of the historic building of the First Slovak Literary Gymnasium in Revúca into the Litterra Cultural Centre. This initiative aims to create a modern, interactive museum promoting literature, theatre, and science, while also serving as a hub for creative industry professionals. The project received a EUR 2.4 million investment loan from Slovak Investment Holding, funded by the Integrated Regional Operational Programme (IROP 2014-2020). This type of projects often involve collaboration between local municipalities and regional authorities, leveraging EU funds and national programs aimed at regional development and cultural preservation.
Municipal investment is fragmented, but joint investments are emerging
In the Slovak Republic, and BBSK in particular, municipal fragmentation leads to small and insufficient investment budgets, limiting economies of scale and implementation efficiency. The investment budgets of municipalities in BBSK are exponentially related to size. The smallest municipalities with fewer than 500 inhabitants invest about EUR 39 000 per year, compared to about EUR 6.6 million for the largest municipalities (Figure 4.12). This may mean that they cannot invest in large-scale strategic projects, reducing their ability to invest in mitigating demographic change.
Log of average direct investment by municipal population size class (2023)
Source: OECD elaboration based on data shared by the Banská Bystrica Self-governing Region.
However, joint investments are increasingly being developed in BBSK through the “Integrated Territorial Investments” (ITI) mechanism, helping municipalities pool resources and coordinate strategic projects. Joint investment is already conducted in BBSK via the integrated territorial investments (ITI). The ITI brings municipalities together in Sustainable Urban Development Areas (SUDAs) to co-ordinate strategic investments. Four SUDAs exist in BBSK, in the cities of Banská Bystrica, Zvolen, Lucenec, and Rimanska Sobota. This is a good example of how municipalities may cooperate to invest strategically; however, it is limited to only four SUDAs and may miss opportunities to enhance scale by combining SUDAs that are close by, for example Banská Bystrica and Zvolen as has been done in Czechia (Box 4.10). Furthermore, expanding this model beyond the ITI could help foster broader inter-municipal investment, allowing municipalities across the region to pool resources more flexibly and align investment goals to mitigate and adapt to demographic change, for example, through investments in affordable housing or high-quality jobs.
The Integrated Territorial Investment (ITI) is an instrument that allows for investments under more than one priority of a country’s cohesion operational programme. Furthermore, it allows for managing authorities to delegate the implementation of funds to one body, for example a municipality or inter-municipal co-operative body (URBACT, 2025[66]).
One inter-municipal body that has used this instrument effectively over two programming periods is the Ústí-Chomutov agglomeration in north-western Czechia. The agglomeration began working through the ITI during the 2014-2020 programming period, bringing together 75 municipalities across an area of 1 543 km2 with a population of 522 000 inhabitants. Throughout the period the ITI implemented dozens of high impact projects such as the purchase of low-emission public transport vehicles, the modernisation of vocational training and purchase and renovation of social housing (ITI Ústecko-chomutovské aglomerace, n.d.[67]).
Thanks to the success of the ITI between 2014-2020, it was renewed in 2021, expanding the coverage area to include 132 municipalities, 2 317 km2 and 563 000 inhabitants. Although it is early in the period, some projects have already been completed with continued emphasis on investments that improve green transportation options and vocational skills (ITI Ústecko-chomutovské aglomerace, n.d.[68]).
The effectiveness of this instrument in the Ústí-Chomutov agglomeration has been strongly supported by buy-in from all levels of government, especially collaboration across municipalities. Furthermore, meaningful collaboration with NGOs, academia and the private sector has ensured that projects are well-aligned with local needs and informed by local expertise.
The Ústí-Chomutov agglomeration's effective use of the ITI instrument demonstrates how integrated, place-based investments can support regions in mitigating demographic change. By addressing key challenges such as workforce development and affordable housing, the agglomeration is better positioned to respond to shifting population dynamics.
Subnational investment relies heavily on capital grants, especially EU funds but absorption challenges persist
Local governments in the Slovak Republic rely heavily on grants to fund investment expenditure with a large share coming from the EU. In 2023, only 18% of investment was financed through own resources from subnational. Conversely, 34% came from EU cohesion funds and co-financing, 27% from the NRRP and VAT revenues, and 22% from the central budget (Figure 4.13).
Sources of funding for capital expenditure for subnational governments in the Slovak Republic (2019-2025)
Note: Years 2022-2025 are budgeted investment expenditure not actual investment expenditure.
Source: Ministry of Finance of the Slovak Republic (2023[69]), 2022 Investment Assessment Report, https://www.mfsr.sk/files/archiv/13/2022-Investment-Assessment-Report.pdf, (accessed on December 10 2024).
Reliance on capital grants limits subnational government autonomy, as investment decisions are driven by the availability of external funds and must align with national and EU priorities - often with a lack of minimal involvement or consultation of subnational authorities (although consultation has improved for the 2021-2027 programming period regarding EU funds, Chapter 2). This dependency also makes subnational investment vulnerable to economic cycles, fluctuations in funding availability, and shifts in political priorities and economics. This is of particular concern in BBSK, which is experiencing diverse long-term demographic trends such as population loss, ageing, but also growth amongst the Marginalised Roma Communities.
But one major challenge is the difficulty of absorbing these funds. While the Slovak Republic has access to EU funds equivalent to 14% of its 2023 GDP for the period 2024-2027, including both cohesion funds and the Recovery and Resilience facility, fund absorption rates are among the lowest in the EU. By the end of 2024, the Slovak Republic had decided on just 24% of available funds, compared to an EU average of 37% (Figure 4.14). Furthermore, at the end of 2022, only 65% of the allocated EU structural funds from the 2014-2020 period had been spent. The Slovak Republic's capacity to effectively implement investment projects and absorb EU funding significantly hinders the Slovak Republic's potential for innovation and economic diversification
This slow absorption can be partially attributed to a lack of capacity and know-how at all levels of government. Subnational governments in particular have limited administrative capacity to handle the administratively heavy processes to allocate funds (OECD, 2024[42]). These lengthy processes can be particularly challenging for the municipalities of BBSK, which are often small and experience capacity constraints. This results in a large administrative burden in the planning, preparation and implementation of EU projects. Furthermore, staff in these governments may not have the technical competencies to respond to calls (European Commission, 2024[11]). While significant progress has been made at the central government level in planning, preparing, and prioritising investment projects - thanks to the establishment of an Investment Authority (IA) within the Ministry of Finance - this progress has not extended to the regional level. Investment plans and prioritisation methodologies are developed centrally, with little or no adaptation for regional contexts, despite subnational governments accounting for nearly 50% of total public investment. As a result, the well-designed plans may not be fully realised, and subnational governments may struggle to allocate investment funds effectively to projects that enhance regional attractiveness and respond to demographic shifts (OECD, 2024[42]).
Absorption rate of EU funds for the 2021-2027 programming period
Source: European Commission, (2024[70]), Cohesion Open Data Platform, https://cohesiondata.ec.europa.eu/cohesion_overview/21-27, (accessed 10 December 2024).
The use of external financing and blended finance to cover investment needs remains limited
With accounting for 3% of GDP and 4.6% of public debt in 2022, regional and local government debt is well below the EU average. This low level of debt is the result of the Golden Rule (the possibility to borrow only to cover capital expenditure), additional debt prudential rules, and a system of penalties for non-compliance. While these legal limits on regional and municipal borrowing are necessary to promote fiscal discipline and responsibility, they may reduce flexibility for investment financing, including providing co-funding to EU funds for large-scale, capital-intensive and multi-year projects. They can also limit blended finance initiatives, unless accompanied by robust revenue sources or credit enhancements.
Despite this, BBSK has begun exploring innovative financing models, such as blended finance. A notable example is the city of Banská Bystrica, which successfully blended EU grant funding with a loan from the European Investment Bank (EIB) to implement a sustainable urban development programme (Box 4.11). This demonstrates that with strong project preparation and support from financial partners, blended finance is possible within the existing fiscal framework. It demonstrates how combining EU grants with institutional lending can scale investment, align with Cohesion goals, and support energy-efficient, socially inclusive infrastructure - providing a strong model for broader replication across BBSK, at the city level, but also as a potential basis for a regional investment platform animated by the BBSK region. BBSK could also use the option offered by the 3rd pillar of the Just Transition Mechanism – the Public sector loan facility or PSLF – to finance projects where BBSK is eligible for financing, for example, renewable energies, environmentally friendly and sustainable mobility, efficient district heating networks, social housing and economic diversification. Some member states – e.g. France, Sweden and the Czech Republic – have successfully utilised the blended financial instrument for public infrastructure projects.
A EUR 19.5 million framework loan was approved by the EIB in July 2023 to support a multi-annual municipal investment programme for the city of Banská Bystrica. The total projected investment value is approx. USD 69 million, with EIB loans complementing EU grant funding and local contributions
The EIB framework loan will support eligible schemes coherent with the City's development strategy. It will contribute to modernisation of municipal public infrastructure and services.
The Project will address a number of market failures that justify the use of public financing to address the investment gap. In particular the Project intervenes in provision of public goods and services (e.g. infrastructure for transport and active mobility, parks and open spaces, public buildings dedicated to education, social care, culture and administration) and is expected to generate numerous positive externalities (including energy savings and climate action), resulting in higher quality of services for citizens and businesses.
EIB's long-term financing with favourable terms such as long grace period and long availability period with flexible drawdowns will contribute to improving the City's financing structure and the affordability of the investments. EIB's involvement will also send a positive signal to the markets regarding the City's commitment to implement its investment programme.
BBSK Integrated Territorial Strategy (ITS) is an important step towards more localised and tailored investments, but implementation remains a critical issue for effectively carrying out regional investment strategies
These trends highlight the need for a more balanced and place-based approach to public investment - one that both responds to and mitigates the effects of demographic change while addressing the specific needs of different regions. To improve the place-based nature of EU funds, BBSK has developed an integrated strategy to help direct EU funds. The Integrated Territorial Strategy (ITS) is based on the region’s Programme for Economic and Social Development (BBSK, 2022[71]) (Box 4.12). The main objectives of this programme are to respond to three key challenges: the outflow of human capital from the region, the insufficient quality and coverage of public services, and the large number of small municipalities (BBSK, 2022[72]). The strategy prioritises an adaptation and mitigation approach to demographic change within the priorities set out by the EU and national-level plans. It does so by aiming to create more high-quality jobs, to protect and restore the environment, increase the educational and skills attainment of citizens, and to build and renew transportation infrastructure.
The Integrated Territorial Strategy (ITS) in BBSK represents a significant advancement towards implementing more place-based investments in the region. By aligning with EU Cohesion policy objectives and incorporating local development needs, the ITS aims to tailor investments to the unique characteristics of the region. However, the success of this strategy ultimately hinges on effective implementation and the ability to translate plans into tangible and measurable outcomes, which is not always the case. Furthermore, funds need to be allocated according to EU policy objectives which may not always align with needs in the region. Successful implementation of the strategy also depends on the administrative and technical capacities of local authorities and stakeholders is crucial. To support this, ZMOS has advocated for the inclusion of Self-Governing Regions as intermediary bodies in the management of public funds. However, this proposal has yet to be implemented. (ZMOS, 2020[73]).
The Integrated Territorial Strategy is a subset of the Programme for Economic and Social Development (BBSK, 2022[27]) and contains a collection of projects eligible for funding from Programme Slovakia (2021-2027). As such, they are required to align with the policy objectives set out in the 2021-2027 programming period. Beyond this, a second subset of projects has also been approved for the Integrated Territorial Investment.
The ITS takes a mitigation approach to addressing demographic change. It does this by aligning with objectives at the national level, in particular, “halting population decline and promoting growth in the proportion of the population that is economically active” (BBSK, 2022[72]). The programme seeks to increase employment of the long-term unemployed and vulnerable groups, improve the integration of the Roma community, and improve the performance of enterprises in high-tech, creative, agricultural, and tourism industries. Moreover, the programme seeks to boost attractiveness by prioritising improved water supply and sewerage for better housing quality. This plan is designed to boost attractiveness in the region, which may help mitigate certain demographic trends in the region, such as youth outmigration (Chapter 2).
An adaptation approach to some demographic trends is also outlined in the ITS. It seeks to improve the quality and sustainability of services for the ageing population, including ageing medical professionals. To address the challenge of ageing medical staff, BBSK will look to recruit new doctors both in faculties and abroad and invest in new ambulatory services. The region also intends to increase access to social services via the construction of new facilities and increasing capacities of field, outpatient, and residential services.
Improve the decentralisation framework and increase the efficiency of the multi-level governance system
The role of subnational governments in conducting public policies and in addressing demographic changes could be better acknowledged. Self-governing regions in particular could be better recognised as a key public actor for conducting place-based and comprehensive regional development policy. Regions are in a privileged position to co-ordinate various sectoral policies, build on local assets and knowledge, support urban-rural linkages, support smaller municipalities and facilitate dialogue across levels of government and stakeholders, including businesses and civil society. Recent initiatives in BBSK have confirmed this potential (OECD, 2022[9]; Council of Europe, 2023[10]; Janas K. & Janoskova B., 2022[7]). Local governance could also be improved, with cities better recognised as nodes for balanced regional development, while smaller municipalities could gain from more cooperation and consolidation in some cases. Finally, to make decentralisation work better, coordination mechanisms could be institutionalised to ensure better communication and policy alignment and avoid duplication of efforts or gaps in service delivery (OECD, 2019[74]).
Some key policy avenues are as follows. Several of these recommendations could be piloted in BBSK to test enhanced governance and fiscal mechanisms and inform a national model for replication.:
Clarify responsibilities across levels of government to reduce overlaps or policy fragmentation, especially those which are shared and related to demographic changes. The government could undertake, with the help of experts and in consultation with SK8, ZMOS and UMS, a review of government responsibilities and functions at all levels. The review could be accompanied by a normative common and shared document that clarifies, provides principles and guidance for all levels of government, including in view of reallocating responsibilities across levels of government.
Acknowledge the active role that regions can play in policy design and increase the regional government capacity in some areas of responsibility related to demographic change. Resulting from the review of competences (see above), regional competencies could be reinforced (e.g. in the areas of education, regional transport, economic development and social care) and regional governments could be provided with adequate funding and human resources to facilitate the provision of services and infrastructure of regional interest and the design of regional policies that can adapt and mitigate demographic changes (see below). The government could encourage SK8 to advocate for the creation of an intergovernmental working group tasked with assessing various decentralisation and regionalisation scenarios, especially those that would enhance the capacity of regional authorities to address demographic challenges.
Consider asymmetric decentralisation as a way to promote differentiated governance and reduce the administrative burden on small and shrinking municipalities. The central government could consider experimenting with different expenditure responsibilities or revenue-raising powers for municipalities based on their respective financial and administrative capacity and size. This can be done by allowing small municipalities to allocate burdensome tasks (for example, population registers) to larger, more efficient municipalities nearby. In Czechia, for example, small municipalities passed central government delegated functions to larger “municipalities with extended powers” (ORP), of which there are 205. These functions are associated with additional funding, and small municipalities can also delegate additional functions to the ORP if they do not want to provide or cannot provide them due to their lack of capacity. BBSK could experiment with an asymmetric decentralisation model to provide guidance, for example, on which functions can be transferred, how cost-sharing works and develop a list of potential “host” municipalities. It is also essential to have a mechanism to align funding and administrative capacity with responsibilities to avoid unfunded mandates.
Promote regional administrative city hubs to enhance efficiency in service delivery. Applying an asymmetric decentralisation approach could also help create “regional administrative hubs”, i.e reinforcing larger cities or functional urban areas that provide key services for surrounding small towns and villages, thus playing a critical role for regional development. In BBSK, only 3% of municipalities (18 in total) have more than 5 000 inhabitants, and 1% (4 cities in total), limiting the number of hubs capable of supporting services for surrounding areas. With adequate support, regional hubs could enhance access to essential services. The government could explore options to empower and strengthen the role of small and medium-sized cities in Slovakia, in particular in BBSK. It could establish a working group with the associations of municipalities (UMS and ZMOS) to review the allocation of responsibilities, financial resources, and governance mechanisms - especially those enabling cooperation at the functional urban area (FUA) level. The Sustainable Urban Development Areas (SUDAs) model represents a promising step in this direction and could serve as a foundation for broader collaborative approaches in BBSK.
Institutionalise and strengthen multi-level coordination mechanisms, especially to enhance planning, implementation, monitoring and evaluation of demographic change policies. Despite some progress, there is still room for further improvement concerning multi-level governance. All levels of government could benefit from a stronger institutionalisation of vertical coordination mechanisms. Slovakia could institutionalise regular platforms for dialogue, such as permanent intergovernmental committees or forums. These formal structures can facilitate consistent communication, negotiation and joint decision-making across all levels of government. The Slovak Republic could learn from other OECD countries that rely on a number of instruments for this purpose. For example, Poland has established a Joint Committee of the Government and Local Self-Government (KWRiST) of 24 members. Chaired by the Minister of Interior and Administration and composed of 11 other representatives of central government (appointed by the Prime minister) and 12 members representing subnational governments (2 persons from each of the six national associations of local and regional authorities), the Committee aims to systematically develop a common position between national and subnational governments on regional economic and social priorities, conduct reviews of legal and financial conditions of subnational governments and give opinions on draft legislation and strategic documents that impact subnational governments. Another interesting form of vertical coordination is contracts or formal agreements that can help align national objectives with regional/local priorities, clarify roles, and often mobilise co-financing, such as in France with the State-Region Planning Contracts (Contrats de Plan État-Région, CPER).
BBSK region could reinforce its role as a regional coordinator and integrator. BBSK region could innovate and pilot concrete actions that could foster stronger vertical and horizontal coordination within the region, especially to address cross-sectoral issues related to demographic changes (e.g., transport, healthcare access, education, etc.). These efforts could help align local development goals with national and regional priorities and enhance collaboration with municipalities and civil society. In this perspective, the BBSK region could leverage the tools it has already developed, such as the Regional Development Agency and the Partnership Council for Integrated Territorial development. BBSK could also expand the missions of its Regional Support Services or Regional Technical Assistance Unit BBSK (e.g. to support procurement, strategic planning, inter-municipal cooperation, etc.). BBSK could also formalise Partnership agreements or Memorandums of cooperation with national ministries and agencies (Council of Europe, 2025[75]).
Plan strategically to better co-ordinate responses to demographic change across levels of government and civil society
Demographic perspectives are increasingly reflected in national, regional, and municipal planning documents in the Slovak Republic, marking a positive step toward more inclusive and forward-looking governance. However, the depth and coherence of this integration vary, with national and regional levels generally showing more consistency than the municipal level. While a unified framework for addressing demographic change holistically has yet to be established, ongoing efforts provide a foundation for further alignment and coordination. Strengthening stakeholder engagement - particularly with civil society and the Marginalised Roma Community (MRC) – also presents a valuable opportunity to draw on local knowledge and enhance the development of coherent, long-term strategies to address population decline.
Some key policy avenues are as follows:
Develop a dedicated national framework specifically addressing population change and its impacts at regional and local levels to align strategies across levels of government. National and subnational governments could benefit from working together to develop a shared framework for understanding and responding to demographic change and integrating regional and local perspectives. One example of this is in the Netherlands, which had, until 2019, a Population Decline Action Plan where regions were divided into “shrinkage areas,” those already experiencing population decline and “anticipation areas,” those that should begin preparing for shrinking based on population projections. Municipalities were expected to develop locally specific policies which took into account the impacts of population decline on local finances and service provision into account. These policies were created by taking advantage of voluntary inter-municipal cooperation. Using the bottom-up design of this plan, local governments were able to experiment with policy, for example, setting up joint health centres and improving the housing stock. were divided into areas of “shrinkage” and areas of “anticipation” (Bontje M, 2024[76]). Another example is Germany, which has adopted a federal demographic strategy, with the strong involvement of the Länder and municipalities, using also the Demografie-Dialoge (demographic dialogues) to consult local actors. It has also developed a Demografieportal (Demographic Portal) as a central information platform on demographic policy that provides information on demographic policy in the federal and state governments, presents approaches to action from the municipalities and presents facts as a basis for political debates and decisions (https://www.demografie-portal.de/). The Slovak Republic could develop such a national framework with a regional and local perspective by using data on population projections, including ageing, outmigration, seasonal populations and population growth, including amongst the Marginalised Roma Community. Additionally, the framework could benefit from incorporating forecasts of the impact of demographic change on land-use patterns, subnational public finances, investment needs, governance frameworks, access to services and labour markets.
Support regions in the development of regional and local strategies and action plans to respond to demographic change. The national shared framework on demographic change outlined above could be used to drive the elaboration of dedicated regional strategies and inform sectoral and cross-sectoral plans with adaptation and mitigation measures tailored to each local context. BBSK could be inspired by the example of Japan and its “Comprehensive Strategy for overcoming population decline and revitalising local economies”, which requires every prefecture and municipality to develop its own “regional revitalisation plan”. The region of Castilla-La Mancha in Spain is an example of a region which has enacted a specific law aimed at tackling rural depopulation through a cross-sectoral, integrated approach (the Law "Economic, Social, and Tax Measures Against Depopulation and for the Development of Rural Areas" (Law 2/2021). It has created a classification of seven different demographic situations, ranging from urban areas to areas of extreme population decline (European Network for Rural Development, n.d.[77]). These regional strategies could then help prioritise and align investment under EU Cohesion Policy, particularly by guiding the design of Integrated Territorial Strategies (ITS) and Integrated Territorial Investments (ITIs). Such regional and local strategies could then also be used to better allocate EU funds to co-finance development and infrastructure projects (see below).
Continue BBSK regional and local efforts to strengthen civic engagement for demographic resilience. The systematic involvement of local and regional authorities, social partners, civil society and other relevant stakeholders remains essential in order to ensure broad ownership for the successful implementation of the PHSR and Integrated territorial strategy, and therefore EU funding instruments. BBSK regional and municipal actors should deepen their engagement with civil society (NGOs and community groups) and local business, including the social economy, to inform and co-create effective responses to demographic challenges. BBSK already has a good record. To effectively engage with local stakeholders, it is essential to first identify the appropriate stakeholders, for example, existing organisations such as the SPACE centres or the Omama project (Chapter 5). It is also important to design appropriate engagement activities such as workshops and townhalls. Additionally, it is sometimes necessary to pursue innovative activities for hard-to-reach stakeholders, as has already been done in the region, for example, via the City of Banská Bystrica’s Ideathon. Finally, stakeholder engagement should not be a one-off activity but also consist of follow-ups and monitoring and evaluation of engagement activities (OECD, 2017[78]). Building on these successes, BBSK should systematically identify relevant stakeholders - including marginalised groups such as Roma communities, youth, the elderly and social economy actors - and design accessible, innovative engagement formats such as workshops, town halls, co-creation labs, and digital platforms. Engagement should be continuous and transparent, with regular feedback loops and evaluation to build trust and ensure that local knowledge meaningfully shapes policy. Particular attention should be paid to strengthening the capacities and effectiveness of regional and local Partnership Councils. In particular, the BBSK region could reinforce its Partnership Council for Integrated Territorial Development, to enhance the inclusiveness and evidence-based nature of regional governance of demographic change. BBSK should ensure that all relevant stakeholders representing the civil society, local businesses and social economy actors are well represented and effectively engaged in a sustainable manner. The governance of demographic change in BBSK could benefit from the strengthening of the existing Partnership Council for Integrated Territorial Development as a formal advisory platform for dialogue and collaboration among key regional actors that ensures policy is responsive to shifting population dynamics and evolving needs. By incorporating a broad range of perspectives, the Council will be well-positioned to co-design strategies that address trends such as ageing, youth out-migration and growth amongst the MRC.
Increase service delivery in small, ageing and shrinking municipalities via inter-municipal co-operation (IMC)
The high level of municipal fragmentation in BBSK means that many municipalities in the region struggle with low fiscal and administrative capacity. Most of municipal expenditures are dedicated to administrative costs, reducing resources to deliver basic public services. IMC has been promoted in the Slovak Republic and BBSK in particular, through JMO, micro-regions and innovative new initiatives (see integrated social and health services and Shared Services Centres but more efforts can still be done in this area to change the game. Strengthened IMC could help respond to demographic decline, fiscal constraints, and service fragmentation (including in urban functional areas – see above), improve efficiency, capacity, and quality of local public services, and enhance territorial cohesion and regional competitiveness.
Some key policy avenues are as follows:
Conduct a mapping and diagnostic of existing inter-municipal cooperation structures in BBSK, including the number and forms of existing cooperating arrangements and bodies, their functions, staff and budgets as well as a mapping of service needs (waste, education, public transport, social services and healthcare, administrative and financial management, etc.) and potential duplication or gaps. This review, based on concrete cases, would also help assess the effectiveness of current legal and governance forms for IMC and provide recommendations for reforms. This inventory and assessment could form the basis of an action plan to strengthen inter-municipal cooperation in BBSK.
Incentivise voluntary intermunicipal cooperation through financial and non-financial incentives. The central government, but also BBSK, on its own budget, could provide fiscal incentives to support IMC. Financial incentives could include bonuses in transfer formulas for municipalities participating in a formal IMC structure, co-financing and subsidies for inter-municipal projects or shared service initiatives. In France, for example, to encourage municipalities to form a “public establishment for inter-municipal co-operation, the national government provides a basic grant plus an “inter-municipality grant” to discourage competition on tax rates between participating municipalities. EPCIs are funded via fiscal contributions from member municipalities and/or their own tax revenues. Fiscal incentives could be accompanied by more practical incentives like guidance/consulting, technical assistance, training, information sharing and peer-learning for mayors, elected officials and staff, as in many OECD countries (OECD, Forthcoming[40]; OECD, 2023[79]; OECD, 2024[41]). Guidance could include publishing advice on good use cases of the various models of IMC available in the Slovak Republic, alongside information on their particularities, as has already been done by BBSK in their seminars on the benefits and models of IMC. The central government could also provide technical assistance on how best to set up IMC in the country. One way to do this is to help municipalities share experts and civil servants or by creating a national or regional pool of municipal experts (OECD, 2022[80]). Several countries have also implemented new types of contracts and partnership agreements to encourage inter-municipal co-operation. The central government, as well as BBSK, could also explore the use of contracts and partnership agreements to encourage inter-municipal cooperation. Where voluntary collaboration proves insufficient, the government could consider mandating intermunicipal cooperation, especially in most depopulated areas and for basic services (utilities, waste management, safety, etc). It could also envisage incentivising municipal mergers in the case of very small municipalities
Leverage EU territorial instruments to progress toward institutionalised intermunicipal cooperation. The use by BBSK of EU territorial instruments - such as LEADER Local Action Groups, Community-Led Local Development (CLLD), INTERREG, and Integrated Territorial Investments (ITIs), including at the scale of functional urban areas through Sustainable Urban Development Areas (SUDAs) - represents a very positive step toward fostering collaboration among municipalities and with civil society. The establishment of new Integrated Social and Health Centres and Shared Services Centres, supported by both Cohesion Policy funds and the National Recovery and Resilience Plan, also acts as a driver and catalyst of inter-municipal cooperation by showing municipalities the benefits of cooperating, particularly in a context of demographic decline, to adapt services and even attract new residents. These instruments have significantly broadened the toolbox for intermunicipal cooperation and help shift the status quo towards more cooperative approaches. While they should be reinforced, they should also be seen as stepping stones toward more structured, institutionalised, and permanent forms of collaboration - ensuring that cooperation is not merely short-term or externally driven but embedded within long-term territorial governance. In the future, intermunicipal cooperation bodies could potentially serve as intermediary bodies for managing EU Cohesion Funds.
Use EU funding and conditionalities to promote inter-municipal cooperation. To foster more effective and sustainable inter-municipal cooperation, EU Cohesion Policy could integrate inter-municipal cooperation as a horizontal conditionality for selected funding priorities. This could include eligibility requirements for certain investment types, enhanced co-financing rates for joint municipal projects, or bonus criteria in the selection of proposals submitted by formalised municipal partnerships. In the future, intermunicipal cooperation bodies (e.g. JMOs) could potentially serve as intermediary bodies for managing EU Cohesion Funds.
Strengthen subnational government finance
Both the BBSK region and its municipalities face rising expenditure pressures alongside declining revenues, resulting in a growing fiscal gap. To strengthen fiscal autonomy and reduce reliance on the personal income tax (PIT) allocations and other intergovernmental transfers, subnational governments must be supported in expanding their own-source revenues, particularly through local taxes, user charges, and fees.
A major reform of the recurrent property tax is essential to transition to a system based on market value, thereby improving the productivity and fairness of this key local revenue source. At the same time, targeted measures must be considered for municipalities with large and growing Roma populations, as they face distinct challenges.
Since the subnational fiscal framework is largely shaped at the national level, most of the recommendations below are directed to the central government - particularly the Ministries of Finance and Interior. However, subnational governments, through their representative associations (SK8, SMOS, and UMS), should be actively involved in the reform process, and BBSK could serve as a pilot region for selected reforms.
Some key policy avenues are as follows:
Revise intergovernmental transfers (PIT allocation and other grants) to reflect demographic realities.
Regarding PIT allocation, the government could explore ways to reduce the over-reliance of the BBSK region and municipalities on the PIT allocation. Different options could be studied, such as establishing a stabilisation fund at the national level to buffer regions and municipalities against fluctuations in PIT revenues, providing more predictable funding. Another recommendation would be to broaden the shared revenue pool and create a joint fund for revenue sharing by including receipts from the Value Added Tax or the Corporate Income Tax (Council of Europe, 2023[5]).
In addition, the central government could reassess the PIT allocation formula to compensate for extra costs associated with an ageing population without creating incentives to attract an older population at the expense of attracting young talent and families. This could be done by increasing the allocation for the population over 62 years old. The formula could also consider the elderly share based on population projections, which can prevent municipalities from directly influencing grants by attracting an elderly population (OECD, 2022[80]). Another option is to compensate directly for expenditure needs by age cohort. Norway has done this via a “cost-matrix” which is based on publicly available data on variations in municipal expenditure. By using data on real costs of service provision, municipalities are disincentivised from attracting more elderly people, as the increase in costs will match the increase in grants (Government of Norway, 2022[81]). Other equalisation schemes that take into account demographic trends could also provide good practices to reform the Slovak system, for example, in Finland and Sweden. The BBSK region could be selected to pilot the new formula at the regional and municipal levels.
Social and poverty-related criteria could be integrated into the PIT allocation formula and other grant mechanisms to better address the needs of the MRC. communities in the Slovak Republic, and in BBSK, face systemic disadvantages, including high unemployment, low educational attainment, and limited access to public services, infrastructures and decent housing. Fiscal mechanisms, including PIT and grants’ allocations, could incorporate social criteria to effectively address these disparities.
The central government could reassess how state transfers to subnational governments are calculated for delegated competencies. They could be adjusted to compensate for population decline, e.g. a higher weight per resident in municipalities with population loss exceeding a threshold. They could also be calculated to guarantee basic levels of public service across municipalities (“minimum base allocation” or “minimum guaranteed transfer”). One way to do this is through average cost-based transfers, which use historical data on the cost-of-service provision for municipalities of a certain size to determine the transfers for those services. Another advantage of this method is that using historical costs can make the change more politically acceptable. Chile is one of the clearest examples of a legal framework that sets guaranteed minimum standards for public services, especially in healthcare and education. France also has a legal commitment to “égalité territoriale”, or equal access to public services. Finland also guarantees universal access to services like education, healthcare, and digital connectivity.
More generally, the government could consider introducing incentive-based intergovernmental transfersto incentivise recipients to improve the efficiency of service provision. To do so, a minimum service standard could be set that once met could result in additional funding. The minimum standards can include a diverse set of criteria for example, capital investments, higher quality, improved service management techniques, among others (Council of Europe, 2023[5]).
Adjustments to transfer allocations (PIT and other grants) for municipalities that host key services for non-resident populations, and touristic areas- while these users are not accounted for in the PIT transfer and other grants – could be introduced. The government could explore ways to incorporate adjustment factors to take into account centrality charges, touristic population and secondary homes in formula-based grants to municipalities to reduce the burden on local infrastructure and services they provide for users that are not counted in the official resident population. This can be done by, for example, using daytime population or commuter flows to reflect actual service burdens. Central municipalities could also benefit from additional capital transfers to support the maintenance and construction of infrastructure that is used by surrounding residents. In France, for example, through their Dotation de solidarité rurale, rural municipalities that have fewer than 10 000 inhabitants and fulfil certain criteria as “town centres” are targeted via a special grant to compensate for low tax resources (Collectivitiés Locales, n.d.[82]). This can further support small towns with regional functions in shrinking areas of BBSK.
Modernise local taxation to support a shifting population landscape.
An important reform of the recurrent tax on immovable property is needed to increase revenues from this source while increasing fairness. A reform could also help stabilise fluctuations in the housing market, slow down house price increases and serve as a deterrent for land fragmentation (Chapter 3). The property tax system could be reformed from an area-based system to a value-based system, using regularly updated market values. The tax design can make higher property taxes more politically acceptable, for example by introducing tax deferrals for poor households or some progressivity through tax exemptions or credits (OECD, 2024[42]). Several OECD countries offer strong examples that the Slovak Republic could draw inspiration from in reforming its property tax system to improve productivity and fairness, while helping to achieve higher levels of local revenue autonomy (Germany, Denmark, Ireland, Italy, etc.).
Such system would however require high-quality data and technical capacity to perform property appraisal, beyond the capacity of small municipalities. The government could explore the possibility of promoting inter-municipal cooperation in this area like in the United States (Joint municipal offices). Regional governments could also play a role in supporting small municipalities with limited administrative and financial capacity. This function could be also carried out at the central government level, like in the Netherlands (OECD, 2024[42]).
The government could also explore ways of encouraging municipalities to adopt higher rates in high-value areas and especially on secondary residences and vacant houses, which are less politically sensitive. It could be also considered introducing specific taxes on vacant dwellings, on top of regular property taxes, like in Germany following the reform of the property tax from 2025 onwards (see also previous section).
Optimising existing taxes and diversifying subnational taxes. Beyond the property tax, the government could encourage municipalities to make more and better use of their taxing powers, to better align local revenue with economic activity and service demand. This would apply in particular to the accommodation tax in high-impact tourism areas, like ski stations. The government could also enable broader taxing authority by amending the Act No. 582/2004 Coll.) to allow municipalities to introduce other local taxes, for example environmental levies, to apply variable rates to local business-related taxes (e.g., vending, waste services) and to encourage pilot programs for innovative local taxation mechanisms (e.g., green taxes, short-term rental surcharges). At the regional government level, to provide regions with more resources and incentives for regional economic and environmental policies, the government could explore reintroducing the motor vehicle tax (with a green component) or creating a regional business value tax (Council of Europe, 2023[5]).
Scale-up user charges and fees with equity and sustainability in mind.
User charges and fees are considered most efficient when the benefits of local public services and goods in question are spatially limited within the borders of the jurisdiction, and the exclusion principle can be applied in pricing. They can be the primary source of funding for public utilities like water, sewerage and public transportation. The government can help the BBSK region and municipalities in this effort by establishing national guidelines for full cost-recovery and by co-financing tariff-setting studies and digital billing systems to promote sustainable, affordable, and equitable pricing - especially in low-income areas.
In urban municipalities experiencing population growth, particularly where there is pressure to expand housing, transport, and basic infrastructure, municipalities could be encouraged to integrate the development fee into their long-term urban planning and investment strategies, ensuring revenues are transparently allocated to critical infrastructure and public service improvements. Additionally, national guidance or capacity-building support could help smaller or less experienced municipalities effectively design and manage the development fee, aligning it with local development needs while maintaining investor confidence.
Modernise revenue management systems to strengthen local capacity in the face of demographic change.
By investing in digital tools (e.g. shared platforms, e-payment systems, tourism activity trackers, and access to national databases such as vehicle registration and business registries), strengthening municipal capacity through targeted training and guidance in local finance, and promoting inter-municipal cooperation on shared revenue services - particularly in small municipalities or large functional urban areas - municipalities can improve efficiency and help alleviate revenue pressures associated with demographic change.
In BBSK, both regional and local governments could mobilise EU funding - such as from the Programme Slovakia or the Recovery and Resilience Facility (RRF) - to support investments and capacity-building efforts in revenue management systems.
Invest more effectively to support regional needs
Demographic shifts in BBSK pose complex investment challenges, combining population decline, ageing, and youth outmigration. Adapting infrastructure for an older, shrinking population must be balanced with investments to retain and attract younger residents. The situation of marginalised Roma communities adds a third, urgent dimension, requiring targeted interventions. Regional and local governments face these pressures with limited fiscal, human, and technical capacity, within a centralised and fragmented governance system that slows the absorption of EU funds. A strategic, inclusive, and coordinated approach to investment is essential, leveraging all EU Funds, including territorialised tools like ITI, JTF and Interreg, and expanding fiscal space for subnational governments.
Some key policy avenues are as follows:
Mandate that all major investment project proposals include a demographic relevance check - assessing their effect on population retention, service delivery, and local vitality. All projects could include demographic impact assessments to prioritise areas with the greatest need or opportunity and encourage multi-sectoral projects (e.g., combining mobility, social services, and education, for example).
Review the priorities of current EU programming instruments in BBSK to better integrate a demographic perspective. In BBSK, such priority areas for the allocation of EU funds have been identified (Chapter 5):
Supporting job creation and youth retention by investing in new economic sectors such as green manufacturing, circular economy, digital services, sustainable tourism, health, and care economies.
Requalification and upskilling programmes to support labour market reactivation, especially for workers displaced by industrial decline or long-term unemployment.
Community infrastructure, social services, and housing renovation in shrinking areas.
Mobility and accessibility, including public transport and digital infrastructures (including e-services) to tackle territorial isolation and adapt to low-density ageing communities.
And in line with the Slovak Republic’s Roma Integration Strategy and the EU Roma Framework 2021–2030, use the EU funds to prioritise Toma inclusion across multiple dimensions (education and childhood, employment and training, health, social services, housing, basic infrastructure, community development, and strengthening municipal and NGOs capacities to engage Roma communities.
While EU regulatory rules set boundaries on eligibility and co-financing, there is room for BBSK to experiment within EU programming choices, allocation criteria, and place-based tools to better support areas facing population challenges, including by targeting higher co-financing rates or tailored project selection criteria
Improve investment project preparation procedures and capacity to increase the absorption of EU funds. The central government could strengthen project preparation procedures and increase implementation capacity in the regional and municipal governments to absorb EU funds more quickly. This could be done by increasing capacity at the subnational level and by providing targeted training for subnational employees to improve their investment project preparation skills. It could also be done by continuing to reduce the administrative burden of applications for EU funds, which are heavy for small municipalities and by continuing to streamline processes at the Investment Authority, such as by increasing the threshold for investment projects that are only assessed once (OECD, 2024[42]).
Improve the governance of place-based allocation of EU funds to foster place-based investments and enhance regional attractiveness. The 2021–2027 programming period has increased the decision-making powers of the BBSK region and large functional urban areas (FUAs) in the allocation and use of EU funds through new place-based investment tools, such as Integrated Territorial Investments (ITIs), while also strengthening partnership-based cooperation. Building on this progress, more could be done to enhance the role of regional governments in shaping and implementing Cohesion Policy at the territorial level, in close collaboration with municipalities. In this context, the central government could consider progressively designating the self-governing regions as intermediary bodies for the implementation of EU funds. Intermediary bodies can prepare and carry out calls for proposals and select the appropriate projects. Using local knowledge of the region, the self-governing region can help allocate funds in a place-based way to adapt and mitigate demographic change. For the current period, self-governing regions, and BBSK in particular, could be consulted and help redirect funds towards local needs, for example, improving housing quality based on new priorities set out in the mid-term review of cohesion policy. The BBSK region should also be encouraged to strengthen its Partnership Council to select the projects and to serve as a formal and permanent advisory platform for dialogue and collaboration among key regional actors. For the next programming period, BBSK could be selected as a pilot region to pioneer such an approach, following the example of the Alsace region in France. Alsace stands as a flagship case of regional management of EU structural funds - from experimental transfer in 2003 to a full Managing Authority for ERDF by 2007 - eventually inspiring a national model under the 2014 MAPTAM law on decentralisation. This experience underscored clear benefits in responsiveness, absorption, innovation and territorial fit, while also highlighting institutional, operational and technical challenges, such as adaptation of IT systems and staff transfers. This experimentation was therefore particularly useful for the rollout to all regions of ERDF management from 2014.
Continue supporting Integrated Territorial Investment (ITI) to foster a collaborative approach to regional development and demographic adaptation and mitigation. Joint public investment can pool resources to attain economies of scale in investments, achieving savings and increased efficiency. More use of “Integrated Territorial Investment” can enhance the effectiveness of subnational public investment in BBSK. Using EU funds to implement integrated strategies that invest at the right scale and promote citizen engagement in BBSK can foster inclusive growth. In the short-term this can be achieved by using a flexible approach for the minimum project value and by increasing administrative capacity via technical assistance payments. In the long-term, this could be achieved by allocating a lump sum to BBSK while ensuring that the needs of the regions are well aligned with national-level goals. Another option is to establish a support system for project documentation preparation to improve the efficiency of EU fund implementation (DG REGIO, 2025[83]).
Use other territorialised instruments, like Just Transition Fund and Interreg as tools to support demographic adaptation and mitigation. While not originally designed for demographic policy, the JTF can serve as a transformative tool for BBSK if it focuses investments on inclusive economic diversification, job creation and youth retention, links climate transition with social cohesion, community infrastructure and public service renewal and coordinates with other funds (e.g. ESF+, LEADER, national schemes) to tackle demographic challenges holistically.
Prioritise maintenance, adaptive reuse projects, smart downsizing and soft infrastructure. To adapt to population decline but also reinforce attractiveness, governments at all levels may increasingly consider focusing on the maintenance and/or renovation of existing infrastructures, instead of new investment. They could also consider renovating or repurposing existing public infrastructure, such as former schools and administrative structures, into community centres, libraries, and social service facilities. This could be done by capital grant scoring (i.e., higher scores in grant evaluation for projects that favour rehabilitating existing buildings) and by using demographic projections for infrastructure planning to prioritise high-value-for-money investments. This could also be done using the EU funds, but it would involve greater flexibility in the use of traditional EU funds, such as ERDF or Cohesion Fund, to better support integrated projects. Today, these instruments often exclude maintenance and renovation works as well as soft investments which generally accompany hard infrastructure investment (for example, e.g. capacity-building, community development, adult training). They could be inspired by the Just Transition Fund, which allows both soft and hard measures, offering a more adaptable funding model. These limitations could be addressed in the negotiations for the next programming.
Use more broadly blended finance for place-based regional development where relevant. The positive role of cohesion funds can be vastly amplified if they successfully leverage private finance or are coupled with investment from development banks, like the European Investment Bank, and other institutional investors, as was done in the city of Banská Bystrica. BBSK has the potential to take a leading role in mobilising blended finance to support place-based regional development. By combining EU grants (such as ERDF or JTF) with loans, guarantees, or private investment, the region can scale up its impact on key priorities like energy efficiency, mobility, and social infrastructure. As a regional coordinator, BBSK can help aggregate smaller municipal projects into bankable investment packages, develop project pipelines, and work with financial partners to structure co-financing solutions. It can also strengthen technical assistance and shared services to support local actors in project preparation and implementation. With stronger governance and oversight capacities, BBSK could act as an intermediary actor or regional investment platform manager, structuring such blended operations systematically within Integrated Territorial Investments (ITIs) or other place-based tools such as the Public Sector Loan Facility under the JTF. BBSK could be inspired by some member states like France, Sweden and the Czech Republic, which have successfully utilised the blended financial instrument for public infrastructure projects under the PSLF (European Commission, 2025[84]).. In doing so, BBSK could position itself as a model region for innovative, results-driven Cohesion Policy delivery in the Slovak Republic.
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← 1. Data reported in real terms (2015 prices).