LEGAL FRAMEWORK OF INTERMUNICIPAL COOPERATION A legal framework determines the way municipalities cooperate. While the first part of

3. LEGAL FRAMEWORK OF INTERMUNICIPAL COOPERATION

Regarding the cooperation in the framework of contracts signed for fulfillment of special tasks and formation of mutual legal entities, special laws based on the exact type of the contract or the established legal entity regulate the cooperation.

General requirements for the contracts are written form and approval of municipal councils of all involved municipalities before the signature of the contract. There is also specified compulsory content to each contract. Municipalities can jointly estab-lish various types of legal entities based on the relevant legislation (Vedral et al. 2008:

272–273), which lists these allowed types of legal entities: joint stock company, limited company, limited partnership, co-partnership, cooperative, not-for profit organization, and foundation.

3.2 Special Legal Entities: Voluntary Municipal Associations

The voluntary municipal association (VMA) is a special type of a legal entity intended for intermunicipal cooperation. A VMA is not a local government; however, some local government regulations apply (e.g., the Law on Budgetary Rules of Local Governments, 250/2000 Coll.).

A VMA can be founded by two or more municipalities that need not be neighbors.

One municipality can be a member of multiple VMAs. The VMA is established based on a contract that must be approved by the municipal councils of all participating municipalities. The VMA legally comes into being when the regional office registers it.

The VMA ends its existence based on an agreement, lapse of the designated period, or fulfillment of the task defined in the founding contract.

The activity of a VMA is guided by its status. The law on municipalities (128/2000 Coll., §50:2) defines these obligatory parts of the status: name and seat of the VMA and all member municipalities; the VMA’s area of activity; bodies of the VMA in-cluding their foundation, scope and decision-making process; property placed into the VMA’s care by the member municipalities; revenue resources; methods of profit division and sharing of loss; conditions for entry or leaving of the VMA; and the content and scope of the control provided by member municipalities. As the VMA’s status can be changed, it is necessary to define the rules for approval of its amend-ments (see Neumannová 2000).

There are no rules regarding VMA executive structures, i.e., VMA bodies. The decision-making mechanism and financing is regulated by the status of the VMA.

Neumannová (2000) suggests utilizing a supreme authority, an executive body and a control body, i.e., to use a structure common in other types of legal entities as well.

VMAs have three main financial sources: member contributions, non-tax revenues resulting from their own activity, and external resources such as grants (see Gavlasová et al. 2007a: 62). Member contributions (contributions from the member municipali-ties) usually include annual and entrance fees. The annual fee is mostly given as a per capita amount, while the entrance fee is a lump sum per municipality. In case of the

realization of an investment project, contributions are often calculated based on the cost principle (see the elaborated case study of Sdružení obcí-Plynofikace Pocidliní in section 10 of the Appendix to this chapter). In these cases citizens of the municipalities often pay, for example, a connection fee, which may be revenue either of the VMA or the municipality. Box 3.1 presents a typical example of the executive structure, decision-making, and financing of a VMA.

Citizens of the member municipalities are allowed to participate in a general nature at the meetings of the VMA bodies, to look into the records, to submit proposals to the budget, and view the VMA’s final account.

Based on the current legislation VMAs can found their own legal entities with the exception of a budgetary organization. Mockovčiaková (2003) prefers the foundation of a legal entity by the individual municipalities as a joint legal entity instead of a legal entity founded by the VMA, since the latter option may limit transparency. Mockovčiaková (2003) suggests including prohibition of the foundation of a legal entity by the VMA in the very status of the VMA.

The management of the VMA is regulated by the Law on Budgetary Rules of Local Governments (250/2000 Coll.), so the same regulation applies to municipalities, regions, and VMAs. This arrangement increases the transparency of VMA financial management.

A body of the VMA, which is assigned by its status declaration, prepares and approves its annual budget. The VMAs use the budget classification and their management is subject to an annual audit. The law on accounting (563/1991 Coll.) also applies to VMAs.

There are two major problems in the current legislation regarding the VMA: (1) fragmentations of the regulation as all the issues not directly regulated by the law on municipalities (128/2000 coll.) are regulated by the Civil Code (40/1964 Coll.) (see Ministry of Interior 2005), and (2) a VMA is not a local government; however, some-times the regulation of local governments applies and this creates ambiguity in the interpretation of the law for VMAs.

Many ambiguities arose when interpreting the law on budgetary rules of local governments (205/2000 Coll.) as it applies to local governments and it was not clear which arrangements are applicable to VMAs as well. A recent amendment to this law (477/2008 Coll., effective since April 1, 2009) should decrease this problem as it added the words “svazek obcí” to all the paragraphs that apply to VMAs.

One of the issues coming from the second legal problem is bankruptcy. Based on the law on bankruptcy (182/2006 Coll.) a local government cannot go bankrupt;

however, a VMA can. If one VMA were to declare bankruptcy, it would probably cause a loss of trust in many other cases. Guarantees are another matter of concern. The law on municipalities severely limits the power of a municipality to issue a guarantee for a private subject. This regulation, however, does not apply to VMAs, and thus VMAs can issue guarantees without any legal limitations. Resulting problems have not been reported in practice so far. Existing uncertainty could lead to choice of another legal format or limit cooperations as a whole.

Box 3.1

Executive Structure , Decision-Making, and Financing—The Case of Ladův Kraj

Ladu˚v kraj is a VMA that associates 24 mostly small municipalities at the southeast border of the capital city, Prague, and is active in the area of tourism.

The VMA’s highest body is an assembly of mayors, wherein each member municipality has a representative and each representative has one vote. The assembly of mayors decides on changes in status or membership, sets the volume of entrance or annual contributions, elects the chairman of the association, approves the annual budget and final account, and approves purchase or sale of property if its value exceeds CZK 40,000.

The chairman is the statutory body of the VMA and he calls together the assembly of mayors, directs the manager, acts on behalf of the VMA, ensures management of accounting and approves purchase or sale of property if its value exceeds CZK 10,000. In the case of absence, the chairman is substituted by the vice chairmen, who is also elected by the assembly of mayors.

The executive body of the VMA is a council with five members elected by the assembly of mayors. The council approves all activities of the VMA including the purchase or sale of property if its value exceeds CZK 10,001 but is less than CZK 40,000.

The association does not have any employees. The manager of the association works based on a contract. Accounting, preparation of the budget, and the final account are done by the financial department of the town Rˇícˇany, and is based on another contract. The seat of the association is in the information center of Rˇícˇany; the association does not pay rent, which is compensated through the voluntary work of the manager in the information center.

Each member municipality contributes CZK 25 ZK per person annually to the budget of the association. Refusal of payment of the contribution would lead, based on the contracted status, to exclusion of that municipality from the association. The entrance fee for a new municipality is CZK 3,000. The structure of revenues (in CZK thousands) is shown in the following table.

Table 3.4

Structure of Revenues in CZK Thousands

2001 2002 2003 2004 2005 2006 2007

Non-tax revenues 2 5 12 81 72 61 194

Member contributions 547 527 562 562 770 777 802

Transfers from the state budget 119 81

Transfers from EU funds 567

Transfers from the region 193 186 293 950

Total revenues 549 1,099 694 836 1,027 1,218 1,946

Source: Statutes of VMA Ladův kraj, ARIS.

An interesting issue is the regulation of the property of a VMA, as the law prohibits transfer of property from a municipality to a VMA. VMAs can only act as managers of this property. Despite this regulation a VMA can have property. Based on Vedral (2001) we can distinguish two sources of VMA property: property gained through the VMA’s own activity regardless of the time of acquisition, and property received from its member municipalities before 2001.

The regulation of VMA property may also complicate its activity. Vedral et al. (2008:

285) describe how the regulation of VMA property can limit the potential of the VMA.

For example, one municipality places property in the care of a VMA; according to the law the municipality remains the owner of that particular property. Then if the VMA appreciates this property through an investment, the municipality freely collects this appreciation from the costs of other partnering municipalities.

The monitoring and evaluation of VMA activities suffers the same problems as the monitoring and evaluation of municipal activities. The legal requirements ensure procedural control (i.e., legal compliance); however, the outcome-based control is missing. Especially regarding the VMA there remains an important element of external monitoring and evaluation realized by the grant providers, who require fulfillment of the conditions associated with a particular grant.

4. WHY, HOW, AND HOW MUCH CZECH MUNICIPALITIES COOPERATE