FC LTF =
Annex 3. The Economic Department of the Arad County Council Report on the recommended criteria for the distribution of the sums deducted from
the personal income tax and from the 17% share available to the County Council for 2004
In keeping with the State Budget Law for 2004, the distribution of the local budget equalization grants is done according to the provisions of the Emergency Government Ordinance No. 45/2003 on local public finances.
In keeping with Article 29, item 3 of the E.G.O. No. 45/2003, “a 25% share of the sums deducted from certain state budget revenues for local budget equalization purposes, approved annually by the State Budget Law, and of the 17% share available to the county council, is allocated to the county budget, and the difference is distributed to the communes, towns and municipalities according to a County Council Decision, after consulting with commune, town and municipal local governments and benefiting from the technical assistance provided by the General Public Finance Directorate, based on the following criteria
:a) the fiscal capacity determined on the basis of the income tax collected per inhabitant, in the amount of 30%
b) the local government unit surface area, in the amount of 30%
c) the local government unit population, in the amount of 25%
d) other activities determined by a County Council Decision, in the amount of 15%.
The application of the provisions in the E.G.O. No. 45/2003 to Arad county based on the sums distributed to Arad county by the State Budget Law for 2004 looks as follows:
UM = thousand ROL 1. sums deducted from the PIT for
equalization purposes 190.547.000
2. the 17% share from the PIT
for equalization purposes 190.600.000
TOTAL (1+2) 381.147.000
B. local councils (in communes,
towns, municipalities) 285.860.250 of which:
a). Ordinance-based criteria (85%) 242.981.220 of which:
- fiscal capacity (30%) 85.758.080 - local government unit
surface area (30%) 85.758.080 - local government unit
population (25%) 71.465.060 b). specific criteria approved by
the County Council (15%) 42.879.030 With regard to the above-mentioned situation, the following criteria are suggested for the distribution of the 15% from the sums deducted from the income tax and from the 17%
share available to the County Council:
Priority 1:
Criterion: “The proper operation of local councils and of their subordinate institutions”.
The distribution process according to this criterion involves the following steps:
1. an estimate of the potential local budget resources in 2004, made up of the following:
a) the own revenues excluding the special-purpose revenues. The estimate was done according to the own revenues produced over a period of 10 months in each local council, to which a 136.8% increase was applied. The 136.8% was calculated as follows:
- the basis 10
- the estimate for 2003 12
- 114% increase in 2004
(inflation rate + economic growth) 136,8
b) the 36% share available to the local councils. The estimated level for 2004 was also calculated on the basis of the 10-month revenues, the estimated level for 2003 and a
c) a) the 17% share from the income tax (85%) distributed to the local councils according to the criteria stipulated in Ordinance No. 45/2003.
The estimate of the above-mentioned indicators was done on the basis of the data supplied by the General Public Finance Directorate in Arad County and by its involvement in the completion of this step.
2. the definition of the scope of this criterion.
The expected functionality:
a)covering the staffing expenditure needs in 2004 for each local government unit, with respect to the number of payroll staff in October, given a 109% increase (the inflation rate) as well as covering all the salary payments provided by the legislation in force.
The 2004 substantiation was done for all the items of expenditure excluding item 57.02.
“education” which is financed from the sums deducted from the VAT.
b)covering the material expenditures (costs) relative to the operation of local councils and their subordinate institutions.
The estimate of the material expenditure needs associated to their operation was done for all the items of expenditure including “education”, by covering the needs of the following items of expenditure:
Article 21 “Social expenditures”
Article 24 “Operation and maintenance expenditures” with the following paragraphs:
- 01 “Heating”
- 02 “Lighting”
- 03 “Water, sewage, sanitation”
- 04 “Postal, telephone, telex, radio, telefax services”
- 05 “Office supplies”
- 06 “Cleaning supplies”
- 07 “Other materials/supplies and services”
A rticle 25 “Materials/supplies and services for functional purposes”
increase in 2004 as against the estimated level.
a)covering the subsidy needs in 2004 for all the public institutions (excluding the price- and charge-related differences).
b)covering the needs for 2004 consisting in transfers from the local (commune, town, municipality) budget, to support the child protection system. Given that the strict needs associated only to the functionality of local councils and their subordinate institutions do not cover yet other titles and items of expenditure, the total expenditure needs attached to the functionality for 2004, determined according to the above, were discounted by a 120% increase. If we consider that the resources allocated to the local councils for the 2004 budget are bigger than the ones allocated in 2003, we can estimate that the level of the sums to be allocated according to this criterion will not exceed 8 billion ROL as against the over 23 billion ROL allocated this year.
Priority 2
Criterion: “Town and commune local council participation to the co-financing of internationally-funded programs and projects, as well as to the financing of the engagements assumed according to the documents which prepare Romania's accession to the European Union.”
This criterion is also stipulated in the State Budget Law for 2004 and it is meant to generate incentives for the local councils whereby the latter can attract foreign funds provided they get county council support.
Priority 3
Criterion: “Health care and social protection institutions”
This criterion implies the provision of financial resources to cover the expenditures stipulated in the legislation, in relation to social and medical institutions, homes for the elderly and hospitals.
Priority 4
Criterion: “Education”
Resources shall be provided for the resolution of specific problems which exist in the public pre-university education system and also for the specialized training of the
teaching staff. Together with the School Inspectorate, the distribution needs shall be identified and the priorities shall be determined
Priority 5
Criterion: “Rural road maintenance and repair”
The maintenance of rural (commune) roads entails the provision of adequate resources, according to the works in progress, the condition and length of the roads.
Priority 6
Criterion: “Special situations”
This refers to special circumstances which cannot be included in any of the above-mentioned cases. Since according to criteria 2 6 the local councils get resources (funds) based on well-defined targets even if some of them have enough financing as it is, this criterion motivates the utilization of the allocated resources in accordance with the pre-defined targets.
models) Formula 6.1.
Formula 6.2.
Formula 6.3.
Formula 6.4.
n i
med
A
FC
/n
A
iFC
max
/n i
med
A
FC
/*
n
A
iFC max
/*
n i
med i med i
A A inh
PIT A
inh PIT
inh PIT A
inh PIT
1 /// 1 /
An A inh
PIT inh PIT
inh PIT
inh PIT
i i
i
max max
/ 1 /
/ 1 /
An A inh
PIT A
inh PIT
inh PIT A
inh PIT
i
med i med i
/
* 1 /
/
* 1 /
*
An A inh
PIT A
inh PIT
inh PIT A
inh PIT
i i
i
max max
/
* 1 /
/
* 1 /
*
Formula 6.5.
Formula 6.6.
Formula 6.7.
Formula 6.8.
n i n i
med
A U
FC
/
/n i n
i
U
A FC
max
/
/n i n
i
med
A U
FC
/*
/*
n i n
i
U
A
FC max
/*
/*
n i n i
med i med i
U U A A inh
PIT A
inh PIT
inh PIT A
inh PIT
1 /// 1 /
n i n i i
i
U U A
A inh
PIT inh PIT
inh PIT
inh PIT
max max
/ 1 /
/ 1 /
Un U An
A inh
PIT A
inh PIT
inh PIT A
inh PIT
i i
med i med i
* /
* 1 /
/
* 1 /
*
Un U An
A inh
PIT A
inh PIT
inh PIT A
inh PIT
i i
i i
* /
* 1 /
/
* 1 /
*
max
max
weight of the county surface area in the country's surface area =
county fiscal capacity, based on the maximum level of PIT per inhabitant =
county local government units number (LGU) units
in the total LGU number =
α,β,λ coefficients for, correspondingly, fiscal capacity,
surface area and number pf local government units (α+ β+ λ = 100%)
med
med i med i
inh PIT A
inh PIT
inh PIT A
inh PIT
/ 1 /
/ 1 /
n
Ai/
n i
A A
FCmax
max max
/ 1 /
/ 1 /
inh PIT
inh PIT
inh PIT
inh PIT
i i
n
Ui/
Un Ui
Formulas for allocation from county level to local level (simulated models) Formula 6.9.
Formula 6.10.
Formula 6.11.
O R Y
A
FClocmed i j i j i j 1
*
*
*
*
* / / /