Romania - Reining in Local Government Spending

Abstract

Sub-national Governments play an
 important role in the Romanian public sector. In 2009,
 sub-national spending was equivalent to 8.5 percent of gross
 domestic product (GDP). Romania has frequently adjusted its
 system for financing sub-national government over the last
 decade. These changes reflect ongoing Government concerns
 over the performance of local governments as well as
 attempts to increase the transparency and stability of the
 intergovernmental fiscal relationship. The most recent
 reform proposals reflect a more immediate concern: the
 government deficit. In an effort to meet aggregate targets
 for cuts in spending, the Government has been debating
 measures to reduce the local wage bill, cut transfers to
 local governments, and restrain local arrears. The principal
 objective of this technical assistance has been to advise
 the Government on the design and implementation of such
 efforts, and to suggest directions for longer-term
 structural reforms. Romania has a two-tier structure of
 local government. The national territory is divided into 41
 counties (judets) and the city of Bucharest. These are then
 divided into various categories of second-tier local
 governments, hereafter referred to as localities. As of
 2008, there were 3,179 such jurisdictions, consisting of
 2,855 communes, 216 towns, 102 cities, and six Bucharest
 districts. Both counties and localities have elected
 councils and directly elected mayors/presidents. The budgets
 of sub-national governments are dominated by spending on
 education. Education accounted for 30 percent of
 sub-national expenditure in 2009. But the role of
 sub-national governments in education is limited. Localities
 act as paymasters for the ministry of education,
 distributing teachers' salaries on its behalf. These
 payments are financed from earmarked grants. Localities have
 no control over staffing numbers or wage levels in the
 education sector. They are, however, responsible for
 operating and maintaining school buildings, a function which
 they finance from discretionary revenues. In much the same
 respect, localities act as agents of centrally-financed
 social assistance programs, such as the guaranteed minimum income.