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Local Government Reform Historical Background Estonia has a long tradition of strong local government. Even before an independent Republic of Estonia was established in 1918, the country had a functioning system of local administration, consisting of 11 regions and close to 400 local administrative units. Local authorities were empowered by the Tsarist government to carry out certain functions, collect revenue and determine some expenditures. Administrative reform to improve the system of local government was introduced in the 1930s. The reform process was cut short by the imposition of the Soviet system in Estonia in 1940. The Soviet administration’s principle of overall centralisation effectively eliminated self government at the local level. Although village councils (or ‘soviets’) did exist, their powers were minimal. The role of regional centres was enhanced and local farming co-operatives were made responsible for social development. As a result of the ever-deepening centralisation process and the institutional re-organisations that accompanied it, whole villages disappeared and the rural population declined. When Estonia’s independence movement gained momentum in the late 1980s, it became increasingly clear that the local government structure must be re-organised. The general plan of economic self-management for Estonia (drawn up in 1987, towards the end of the Soviet regime) had as one of its main tenets a bottom-to-top administrative reform. As early as 1988, some rural communities started to put the principles of local self administration into practice, without waiting for a central decision. In 1989, work began on preparing the legal foundation for administrative reform. The Supreme Council (Soviet era parliament) of what was then the Estonian SSR adopted the Act on the Principles of Local Government which set forth the objectives of a radical reform on 10 November 1989. Specifically, it set up primary level local authorities in every town and rural district. The decision to reject an alternative model, which would have enhanced the powers of regional governments, was largely due to the experiences gained in pre-war Estonia and the strengthening links with the Nordic countries, especially Finland. The Local Government Act defines local government as popular decision-making, directly or through elected bodies, on matters concerning the community. Local government has to consider the interests of the population and the distinctive features affecting the development of the area. This law provided for a two-tier local authority system. Counties and so-called ‘republican towns’ formed the secondary level and towns, boroughs and rural districts the primary level. The function of primary level authorities was to ensure that matters of local importance were resolved in accordance with the interests of the population. The secondary level authorities were responsible for central administrative as well as some local governmental functions. The Presidium of the Supreme Council of the Estonian SSR decreed in 1989 that towns, boroughs and rural districts could achieve self-governmental status if they submitted a social-economic development programme and statutes. The object of the development programme was to evaluate the readiness of the administrative unit for a transition to self-government. Until such status was conferred, the functions of the primary level authorities were discharged and their property administered by the secondary level authorities. This decree is considered to be the beginning of administrative reform in Estonia. The Current System of Local Government Legal Basis In August 1991 Estonia regained independence. The provisions for local self government are given in the new Constitution adopted by a referendum on 28 June 1992:
The Local Government Organisation Act, enacted in June 1993, establishes the functions, jurisdiction, responsibilities and organisational structure of local authorities – council and government –, their relationship with other local bodies and with the national government. The major principle of local authority is ‘the independent and final resolution and regulation of local issues.’ Everything considered to be of local importance should be decided locally. The main responsibilities of primary-level authorities include: education, cultural activities, health care, social services, housing, transport, environmental protection, fire services, administration of central government reforms and maintenance of public facilities. Main Subdivisions Estonia is divided into counties, towns and rural municipalities. Until the local government elections of 17 October 1993, a two-tier local government system was in force. The regional level of local government included 15 counties and 6 republican cities: Tallinn, Tartu, Narva, Kohtla-Järve, Pärnu, and Sillamäe. By the County Administration Act, which came into force on election day, county governments lost their status as self-governing bodies. The single-tier basis of the local government system was further confirmed by the Government of the Republic Act adopted on 13 December 1995. According to this, the former county governments act as offices of the county governors, who represent the national government at regional level. Local self government is exercised (solely) at the municipal level. There are 254 units of local government, representing both rural and urban municipalities, and ranging in size from Tallinn with 427 500 inhabitants to Ruhnu with as few as 68. As over two-thirds of the municipalities have a population of under 3 000, many of them have found it advantageous to co-operate in providing services and carrying out administrative functions. The rights and responsibilities of local governments in different areas are determined by laws. While the basic concepts are provided by the Local Government Organisation Act, the tasks of local government are spelled out more specifically by special laws( for example, the Elementary and High School Act, the Social Welfare Act, etc.). In addition to the responsibilities assigned to them by law, local governments have the right to take on problems that have not been assigned, by legal measures, to any other party to regulate. The Organisation of Local and Regional Authorities At the local level, the following bodies carry out the functions of local government: 1) The council (volikogu) is a representative body elected by the residents of a municipality. The members of the council elect a chairman, who organises the council’s work and represents the municipality. The council may form permanent and temporary committees. 2) The government (valitsus) is an executive body formed by the council. It is headed by a mayor (linnapea in towns, vallavanem in rural municipalities), who is appointed for a three-year term. The mayor cannot be the chairman of the council. The municipal or town secretary is an ex-officio member of the local government. Other members are chosen by the mayor with the approval of the council. The county governor (maavanem) represents the central government at the regional level. According to the Government of the Republic Act, among the responsibilities of the county governor are co-ordination of the administrative functions of the central government in the county, management of state property, and the awarding, subject to the authorisation of the Government of the Republic, of administration contracts with municipalities for performance of state obligations. The governor leads also the governor’s office (maavalitsus), whose activities are funded by the central government. The county governor is accountable to the central government. Governors have supervisory and advisory functions in relation to local self government. The exact division of powers between central and local authority is regulated by special legislation. Co-operation Between Local Authority Units Local governments have the right to form associations and joint bodies with other local governments.In order to express, represent or promote common interests or to perform joint tasks, municipalities and towns may, on a contractual basis: 1) co-operate (municipalities and towns may sign a contract for setting up joint bodies for co-operative purposes); 2) form associations of local authority units for the purpose of carrying out functions which are beyond the powers of a single local government. The Association of Estonian Cities, the Estonian Association of Rural Municipalities and the Union of Estonian Associations of Local Authorities are examples of co-operative bodies at the national level which co-ordinate policies concerning the interests of local authorities. Local Authority Finance The increase of local government responsibilities has been hampered by a severe lack of finances. A greater degree of autonomy can only be achieved through financial independence. However, as the structure of local government was reformed, revenue collection remained centralised. Under Soviet administration, which had abolished local self government, financial independence and local income taxes had completely disappeared. In 1988, local budgets accounted for a mere two per cent of the national budget. Higher-ranking administrative bodies (in county centres and the main cities) had fixed incomes and expenditures for lower level districts. The 1989 Local Government Act made provisions for independent local government finance. In 1990 the first local authorities opened separate accounts and some districts introduced local income taxation. But financial problems increased as local authorities lacked incentives to increase revenue, since they would then be required to contribute to the central government’s funds and receive fewer state subsidies. Also at this time, no system of Government revenue support based on objective assessment existed. On 16 June 1993, the Municipal and Town Budgets Act was passed, followed shortly by the Relationship between Local and State Budget Act. The purpose of these laws was to strengthen the financial independence of local authorities and thus encourage them to increase revenue and limit spending. The laws also gave basic guidelines on how to prepare an independent, balanced budget, and outlined government allocations to municipal and town authorities. In 1994, local authorities still received their main income tax revenue through central government taxation of income and property. The Local Taxes Act, passed on 21 September 1994, provided local government councils with an authority to introduce nine kinds of local taxes (poll tax, boat tax, advertisement tax, tax for closing roads and streets, motor vehicle tax, domestic animal tax, entertainment tax), which rates the municipalities are entitled to determine independently in accordance with the law. However, locally collected taxes still account for only a small part of local revenue. In many rural districts they account for none at all. The Relationship between Local and State Budget Act of 13 December 1995, determined the shares from state taxes channelled to local budgets. Accordingly, local budgets receive 56 per cent of the individual income tax, while the proceeds from two other major taxes — sales tax (VAT) and corporate income tax — are channelled entirely to the state budget. Additional income to local budgets come from fees for the use of natural resources, and include 20 per cent for oil shale, surface and ground water, and 70 per cent for natural building materials. Another major source of income consists of subsidies from the state budget and loans. The allocations from the state budget to local governments include both general purpose and targeted subsidies. As the targeted subsidies are allocated for implementing certain specific functions of the central government delegated to local governments, their size and use are envisaged in the state budget. General-purpose subsidies are intended to cover the costs of the obligations that are imposed on the municipalities by the Local Government Organisation Act and other laws. These obligations include operation and maintenance of schools, kindergartens and sport facilities, maintenance of local road networks and town streets, providing all fire protection and emergency services, housing maintenance and communal services, etc. The general-purpose subsidies are appropriated to local governments through a subsidy fund. The size of the subsidy fund in the state budget bill, and its distribution among local governments is determined by an agreement between authorised representatives of local governments and their alliances and the central government. The size of the subsidy fund for 1996 was set at 727.6 million kroons. Out of this amount, 687.6 millions were distributed among local governments on the principle that the larger subsidies should go to local governments, whose per capita income ‘out of state taxes’ is relatively smaller State taxes, in this context, include individual income tax, land tax and gambling tax. The subsidy level coefficient is derived from the size of the subsidy fund and indicates how much per capita income from state taxes can be channelled to a local government budget, compared to Estonia’s average, to provide resources from the subsidy fund. In order to control the growth of the third main article of local government revenues - loans -,which made up ca 16 per cent of the total revenue in 1996, there are two restrictions imposed by the legislation. Firstly, municipalities are allowed to borrow, provided that the annual amount of refinancing the loans together with the amounts necessary for paying interest on the loans should not in any fiscal year exceed 20 per cent of the sum of projected receipts. Secondly, the total amount of loans should not exceed 70 per cent of the annual budget of any given municipality. Over the past few years, the principles for diverting state funds to local budgets have been changing constantly (as have the amounts collected), and this has made it difficult for local governments to plan their activities over a longer period of time. In spite of this a great many decisions are already being made at the local level and the road to democracy has been opened. Administrative reform in Estonia, like legislative and economic review, is an ongoing process. Tables Table
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