Revenue and Expenditure in Municipal Budget - Practical Solutions
by Alexander Mihailov,
Chief Expert, Prognoses and Analysis Department, Sofia Municipality
Over the last few years the Bulgarian municipalities are facing financial difficulties which considerably affect the performance of their duties and the implementation of the budget policy. Sofia Greater Municipality is trying to develop new strategies which aim at generating new income, reducing expenses and increasing the efficiency and quality of services.
The following notes are an attempt to describe some of the actions which may contribute to the achievement of those objectives although not every procedure recommended here is appropriate for every municipality. Following are listed some of the actions undertaken by Sofia Greater Municipality:
- Economy of Energy and Consumables
Main scopes of application: administrative activity, lighting, heating, fuel, centralization and decentralization of specific deliveries. Sofia municipality s practice in this field is controversial. On the one hand, positive decisions were made: restriction measures for using the phone services were adopted, transport and office supplies expenses were reduced. Savings were made, by deciding to provide three copies of the relevant documents of council meetings available in the Municipal Council office where metings are held. On the other hand, new approaches are lacking such as setting-up of an information system for monitoring the expenditures for office supplies and encouraging the staff with extra remuneration when such supplies have been spent sparingly. Assessments of costs of different non-market activities have not been made as for example the costs calculation of a print-out or of copying several pages in an administrative department. Energy efficiency is not among municipality s priorities. For example the position of Chief Municipal Power Engineer does not exist. Therefore, there is no information on the current status consequently the development and implementation of a rational policy is impossible. The main explanation is that there is no funds. Indeed, it is ridiculous that the introduction of new savings technologies is possible only if there are funds available and pay-back is guaranteed.
- Reducing Staff Expenses, reducing the number of positions and eliminating departments.
Reducing of staff directly relieves the budget. Of course, this is the most unpopular measure. World practice related to restructuring of administration is very extensive and shows that the main burden of restriction is borne by external consultants and by coordination with the representatives of the respective trade unions. If we take as an example Sofia Greater Municipality s administration, one is impressed with the large number of Deputy Mayors (6). Currently the staff reduction was made from below which, in fact, definitely blocks the process. It is possible to go back to the structure of only one Deputy Mayor, which would increase the importance of department heads. This would prompt the efficiency of the entire hierarchical structure. An important fact in this connection is the requirement that municipal budget be drafted not only in regards to revenue and expenditures but to the administration and more specifically to the administrative expenses. Then efficiency analysis of the administration activity will be much easier.
- Cash Management
It includes audit and direct management of funds available, so that all immediate liabilities be covered in a timely manner. The main steps are:
- Revenue Forecasting
The main problem arises from the legal basis, since tax administration is not included in the municipal system. Despite that fact, by using different methods the municipality may forecast at least its own revenue. Sofia Greater Municipality s work in this connection is hindered by the large scale of the municipality and the impossibility to update statistical data related to the number of employees, wages, efficiency of the regional economy, etc.
- Cash Flow Management
The main problem comes from the irregular budget cash inflow and in particular as far as state grants are concerned. The major drawback of Sofia Greater Municipality is the absence of a system for tracking the budget and comparing it with the statement of expenditures and balances. Therefore it is impossible to optimize the system and, consequently, to re-allocate funds on a regular basis to secondary and tertiary budget users.
- Improving the Relationship With the Banks
This is an activity which is been developing at the present moment. Sofia Greater Municipality s advantage is that it has its own municipal bank which provides additional, informal possibilities for municipal funds management and application of new methods in increasing the earnings from temporarily free funds such as interests on deposits, securities and stakes. A problem could arise in the future if the bank acts in accordance with its corporate interest and direct its policy at maximizing its profit and expand its activities.
- Improving the Investment Quality
The large share of uncompleted construction sites, the dynamic character of the budget and the absence of long-term investment program of the municipality result in bad quality management of funds designated for acquiring long-term assets. The biggest losses in regards to the municipality s funds flows are in this field and are due primarily to the great number of sites under construction, which takes years. It is a rare practice when the work is done on the basis of a specific financial and economic project, containing deadlines, anticipated costs and pay-back period. The absence of a long-term crediting policy also has a hindering impact and is an obstacle in the use of contemporary methods.
- Improving of Accountability
It can be concluded that negative results in this field are due to the insufficient financial knowledge at all levels of administration and municipal economy.??????????????? Different models for efficient accountability of the funds are known over the world. Following the selection of the appropriate model for the respective municipality, it is necessary to perform the required steps in order to make regulatory, administrative, structural, personnel and technical changes.
- Risk Management
It consists of specific actions performed by the municipality in order to get protected from losses through:
- revision and improvement of the contract terms and other legal documents for partnership in such a way that municipality s interests are protected:
- insurance of property against disaster
- Establishing of Funds and Joint Ventures the Activities of Which Are Based on the Private Enterpreneurial Business.
Sofia Grater Municipality initiated this process as early as in 1995 by setting up the Specialized Municipal Privatization Fund, Sofia Municipality Bank, Sofiiski Imoti Ltd. The process of creating economic entities continued with the establishment of the Municipal Insurance Company Ltd., the Municipal Security Company Egida , the Municipal Foreign-Trade Company Sofcommerce .
- Attracting Foreign Investments
This approach is one of the priority Sofia Grater Municipality. The analysis shows that achievements have been made in the scope of setting-up joint companies in the field of the utilities and engineering infrastructure of the municipality. Efforts are constantly made to improve advertising, information and marketing activities of the municipality aiming at promote its advantages and direct potential investors to municipality s property, activities and enterprises.