K-143 Municipalization Model (FULL Document ENG)

Coalition 143 (K-143)
MUNICIPALIZATION: A POPULAR GOVERNANCE MODEL FOR

BOSNIA AND HERZEGOVINA

REVISED MODEL

DRAFTED FEBRUARY 2010
REVISED JANUARY 2011 AND MAY 2013
PRESENTED JUNE 2014

K-143 Municipalization Model
2

TABLE OF CONTENTS

Executive Summary Page 4

Introduction and Background Page 9

I. BiHs International Obligations and Aspirations Page 12

II. Local Self-Governance in Europe Page 18

III. Brko District: A Domestic Example of Local Self-Government Page 20

IV. Why Municipalization? Page 22

V. The Municipalization Model Page 26

Guiding principles, methodological approach Page 26
1) Division of Functions Page 27
2) Governing Institutions Page 28
3) Regional Spatial and Strategic Development Councils Page 36
4) Ethnic Protection Mechanisms Page 37
5) Revenue Sources for State and Municipal Governance Page 43

VI. Financial Analysis Jasmina iki, Tony Levitas Page 44

Fiscal implications of consolidating BiHs governance structure Page 44
Methodological notes Page 70
Problems and inconsistencies Page 78

ANNEX I: Chart Showing the Distribution of Competences Page 82
between Municipalities and the State

ANNEX II: Number of Seats in K-143 Model Parliamentary Assembly Page 84

ANNEX III: European Examples of State-Local Allocations of Competences Page 89

ANNEX IV: Brko District: BiHs Most Developed Example of Local Self-Government Page 101

Bibliography Page 105
3

Brief History of Model and Co-Author Biographies Page 108

4

Executive Summary

Reform in Bosnia and Herzegovina (BiH) has hit a dead-end. Its top-heavy governance costs its
citizens dearly, while senior politicians are insulated from the fate of their constituents. They
have no interest in being agents of change, despite EU incentives.

The Council of Europe, the EU and NATO have all stated that constitutional reform is necessary
for BiH to integrate fully in to the latter two organizations. BiH is already not compliant with the
requirements of the Council of Europe and OSCE, a fact pointedly made in the December 2009
ruling by the European Court of Human Rights finding that BiHs Dayton constitution and
election law are discriminatory in their provisions for election to the Presidency and House of
Peoples, and must change.

Municipalization a BiH governance structure with only municipal and decentralized state
government would address both the functionality and accountability failings of the current
system. Unlike any other constitutional reform proposal brought up since Dayton, this state
model is the first one that holds real potential for change and popular buy-in.

Dayton Bosnias dysfunctionality is rooted in the fact that it has been built bottom up from an
uneven and ethnicized middle layer of government (entities, cantons). Constitutional reform
proposals have addressed the problem from two directions. The first approach has been to
territorially reorganize the middle layer through regionalization of Bosnia. The second has been
to incrementally change state institutions and/or institutional mechanisms (the 2006 April
package, the Butmir process). Both approaches had to fail. Regionalization would provoke
conflict around the territorialization of ethnicity. Institutional reform does not solve the basic
problem of the dominant political tradition of undermining state institutions from within based
on the ethnic ticket, a process that has led to internal ethnic division of state institutions and
opens space for systemic corruption.

Municipalization can solve both problems. It does not draw new borders, but builds on the
existing (municipal) ones and it builds the state from the local level bottom-up, the only level at
which strong ethnic affiliation and the de facto, but not formal, institutionalization of ethnicity
guarantee a substantial amount of social trust and do not neutralize popular demands for
citizen participation and accountability of government.

We have developed such a state model by linking this original idea with Bosnia-Herzegovinas
international obligations for Euro-Atlantic integration and the countrys recent and historical
5

experience and tradition of local self-governance. It made use of the experience of many other
European states with decentralization, drawing special attention to Scandinavian countries and
the transformation experiences of post-socialist East European states. In addition, it drew upon
the unique example of Bosnias Brko District as a guidepost to the sorts of competences
municipalities can handle if sufficiently empowered and resourced.

This uniquely decentralized two-layer state structure is based on several guiding principles:
removal of the middle layer and transfer of as many competencies as possible to the
local and as many as necessary to the state level;
clear-cut division of competencies and clear mechanism of decision-making between the
government layers, creating a state that is not vested in old-fashioned centralism, but
functions in a modern way with a strong emphasis on harmonization, standardization
and oversight
leaving as many institutional forms as possible intact and only changing their substance;
transforming the existing declared ethnic protection mechanisms into real functional
protection mechanisms by introducing the reality principle into the state structure,
which means to institutionally address the basic fears of all ethnic groups, but build the
state based on todays reality and not based on national narratives tied to the past.

Such a system would serve the citizens of BiH far better than the current structure, compelling
politicians to be genuinely representative at both levels, allowing for superior and more
equitable public services, and enabling the rationalization of a bloated public sector. The shift
would also allow for long overdue reforms of social services and veterans benefits to take place
that have long been stymied in the current system.

Proposed Governance Model:

Division of functions:
Municipalities would gain exclusive competences currently held at cantonal and entity levels in
a number of areas like education (through the secondary level) and culture, maintaining its role
in direct service provision to citizens with greater resource and staffing to fulfill these
responsibilities. Municipalities would gain substantial additional competencies in a wide range
of other areas (health care, civil protection, environmental protection, spatial planning,
transport, tourism, trade and industry, etc) in which it would share responsibility with the state.
Supervision of these competences to ensure legal compliance would be done by the relevant
state ministries. Many competences would be best served by cooperation agreements with
neighboring municipalities.
6

The State would gain exclusive competences currently held at entity and cantonal levels,
including: policing and justice (though maintaining the 16 current police and judicial units, and
including a new Supreme Court), internal security, agriculture/forestry/fisheries, hospitals,
higher education, finance and banking supervision. It would also gain additional revenue by
assuming the middle layers income tax authority.

Governance Structures:

Municipal Level: Local governments would maintain similar structures to those in operation
now, with directly-elected mayors and larger municipal councils and administrations. Sub-
municipal governance would be strengthened by giving the Mjesne Zajednice more authority
and certain autonomy. Where existing, city municipalities would lose their status as units of
local self-government. Financial audit mechanisms would be substantially strengthened and its
autonomy guaranteed.

Forms of voluntary cooperation would play a crucial role in securing the efficient management
of the large number of functions that fall under local competence, especially the pooling of
functions by several municipalities through the creation of collective, single-task organizations.
A specific role would be played here by the Regional Spatial and Strategic Development
Councils that would turn national spatial planning into a bottom-up process and provide for
access to large EU structural funds.

State Level: The state would comprise a government with a strong prime minister and a strong
parliament. There would also be a single President, elected indirectly in the Parliamentary
Assembly, by a three-fifths majority. This office would have purely representational functions.

This model proposes a unicameral BiH Parliamentary Assembly, which is radically different from
the current structure. It foresees a strong linkage of parliament to the local level and thus to
the citizens and to remove the ethnic protection function from the legislative by disassociating
the existing body (House/Council of Peoples) from parliament.

The unicameral parliamentary assembly would consist only of a House of Representatives
directly elected from the 143 municipal districts, with additional representatives for
municipalities with more than 50,000 inhabitants (in increments of 50,000). Based on the
preliminary municipal population figures from the 2013 census (which will likely be revised
down in 2015), this would yield a House of 169 Representatives. The citizens residing in the
7

municipalities in the current Republika Srpska would seat 44% of the assembly, citizens residing
in the present Federation would seat 55%, and Brko would have two seats, or roughly 1%. The
House would have sole legislative authority for all state competences. We have also calculated
the number of seats which would be allocated per municipality if the threshold for additional
seats was set at 40,000 or 30,000 inhabitants (see Annex II). Those thresholds would create a
House of Representatives composed of 184 or 213 seats, respectively.

Ethnic protection mechanisms:
The proposed state model includes a number of ethnic protection mechanisms that transform
the current system in order to institutionalize ethnicity into the state structure in a way that
does not impede state functionality. It aims to transform the current system of territorialized
ethnic protection mechanisms that enable groups and individuals to realize their private
interests through the political system by declaring to act on behalf of ethnic interests without
being forced to explain what these ethnic interests are and what they arent into real functional
ethnic protection mechanisms.

The governance model contains crucial protection mechanisms that are strong even without
being institutionalized: the decentralized state system is built upon a municipal level that is
dominated by one ethnic group in most localities in post-war Bosnia. The model includes the
establishment of strong institutional mechanisms that will lead to at least a substantial
weakening of local and regional disparities and underdevelopment.

Besides these indirect ethnic protection mechanisms, the proposed model offers a number of
direct ethnic protection mechanisms:

Council of Peoples:
Councils of Peoples will be established both at the state and the municipal level. Unlike the
current entity Council/Chamber they will consist of four equal caucuses of five councilors from
the three constituent peoples and Others and national minorities. They will be directly
elected, thus differentiated from the legislature and from political parties. They will ensure that
none of the clearly and constitutionally defined Vital National Interests are violated by
having the ability to veto legislation.

At the municipal level, Councils for Inter-Community Relations would take the lead role in
mediating between local institutions to prevent potential ethnic conflicts. When unsuccessful,
citizens will have the right of legal remedy through the Constitutional Court VNI chamber. The
state Council of Peoples would perform a parallel function, negotiating with the Parliamentary
8

Assembly on legislation that members determine would threaten a Vital National Interest of a
recognized constituency. When harmonization proves unsuccessful, the CoP would have the
right of appeal to the Constitutional Court, which will deliver a final ruling.

Proportionate ethnic representation on state level in the distribution of key political functions
and public authorities would be secured, but with considerable flexibility, linked to a future
census and not on the pre-war census. At the local level, proportionate representation in public
authorities would include certain affirmative action mechanisms that aim to balance the effects
of ethnic cleansing. This would be based on the choice of individual victims to return to their
pre-war municipalities and apply for a job in local institutions, and not based on pure statistics.
A system of sanctions would be applicable for active malfeasance by local authorities, not for
demographic disparities alone.

Institutions to curb regional disparities and underdevelopment:
Two major, modern institutional settings would guarantee to curb regional underdevelopment
und the local developmental disparities. This has been a key topic and a major policy failure
both in the socialist and in the post-socialist periods. These institutions would be Regional
Spatial and Strategic Development Councils and mechanisms to ensure local financial
equalization.

Sources of Revenue:

The simplification of BiHs governance will be reflected in governmental revenue structure.
With the elimination of the middle layers of government, their revenue sources can be
reallocated. The revenues from the single account (Value Added Tax and Customs) will only be
split two ways, with municipalities receiving additional allocations to cover their new
responsibility for primary and secondary education, as well as additional discretionary funds.
The Personal Income Tax will be divided 50/50 between the state and municipalities.
Municipalities will also levy charges and fees for provision of local services, and be enabled to
borrow for capital expenditures. The new revenue structure is explained in detail in the
financial analysis section.

9

Introduction and Background

The polarization built into the Dayton constitutional system may have been the high price of
peace in 1995, but the fact that it is fatally flawed has long been apparent. The system of
ethnic institutionalization and mobilization of fear (embodied de facto in the election law)
rewards nationalist efforts to leverage fear and employ fiscally reckless patronage at election
time (while hundreds of thousands of citizens are left with no way to demonstrate their
frustration other than by refusing to exercise their voting rights or going to the streets to
protest, as seen in February 2014).
1
In addition to its inherent instability
2
(only held in check by
the international High Representative and his military backup, now known as EUFOR), Dayton
BiH is absurdly over-governed for a country of an estimated four million inhabitants. While
providing ample patronage opportunities for the ruling parties, this does little for citizens who
are well aware they are overtaxed, overgoverned and underserved.
3
The failure of BiH to meet
the requirements for visa liberalization in 2009 was only the latest disappointment for a
population that continues to see salvation in integration with Europe, but whose politicians
operate with scant concern for the common good.
4

The international community, too, increasingly recognizes that BiHs constitutional order (and
its election law) hamstrings its functionality even survival as a state. The EU
5
, the Council of
Europes Venice Commission
6
and European Court for Human Rights
7
, and NATO
8
have all

1
See Kurt Bassuener How Bosnias protest movement can become truly transformative, February 23, 2014 at
http://www.democratizationpolicy.org/how-bosnia-s-protest-movement-can-become-truly-transformative See also Bodo
Weber and Kurt Bassuener EU Policies Boomerang Bosnia and Herzegovinas Social Unrest, DPC Policy Brief, February 2014,
at http://www.democratizationpolicy.org/pdf/briefs/DPC%20Policy%20Brief_Bosnia-Herzegovina's%20Social%20Unrest.pdf
2
See DPC and the Atlantic Initiatives Assessing the potential for renewed ethnic violence in Bosnia and Herzegovina: a security
risk analysis, published in October 2011, at http://www.democratizationpolicy.org/uimages/pdf/DPC-
AI_BiH%20Security_Study.pdf The UNDPs Annual Report 2008 aggregates the data from the four quarterly Early Warning
Surveys. The 2008 Political Stability Index was at its lowest point since the surveys began in 1999. See www.undp.ba
3
Ibid. The UNDP report noted that a clear majority (of respondents) are of the view that BiH institutions cost too much money
and timethey are expensive, time consuming, and of questionable efficiencythe public are not at all happy with the quality
and effectiveness of domestic institutions, which inflict direct and indirect costs upon citizens and business. Pages 33 and 34.
4
Ibid, page 10.
5
This has been articulated by senior officials in both the Council and the Commission. Evolution of the constitutional
framework will be essentialto ensure a functional and efficient state capable
of delivering on BiHs obligations in the EU accession process and as a potential future Member States [sic]. Javier Solana and
Olli Rehn, cover letter to Joint Report EUs policy in Bosnia and Herzegovina: the way ahead, letter and report to EU Foreign
Ministers obtained by DPC, 31 October 2008. Both bodies participated in the failed Butmir process in late 2009. Bosnia and
Herzegovina 2009 Progress Report was explicit on the problems of the current constitutional order, including entity voting.
Page 7-8, Progress Report.
6
The March 11, 2005 Venice Commission Opinion on the Constitutional Situation in Bosnia and Herzegovina and the Powers of
the High Representative is probably the most detailed critique of the Dayton constitutional model, and makes clear the country
has no chance of entering the EU with its current governing structure in its point #26. See
http://www.venice.coe.int/docs/2005/CDL-AD(2005)004-e.asp
10

stated the country needs constitutional reform to move forward with its integration processes.
They have yet to clarify in detail what changes will be required for BiH to meet its current
obligations or enable it to integrate effectively. Constitutional reform has thus become a
catchphrase both emptied of meaning and used as a political football. Elite-focused efforts to
find concord among ruling parties in the Butmir process in Fall 2009 on a package including
some modest constitutional reforms failed and were counterproductive.
9
Attempts to forge
agreement among the same protagonists on even sub-constitutional issues (as seen with the
stillborn so-called Prud Agreement) have also come to naught. Efforts to achieve agreement
on how to implement the European Court of Human Rights December 2009 Sejdi-Finci ruling,
which continued until February 2014, failed to deliver.
10
There is no reason to hope that yet
another attempt to jump-start a constitutional reform process based on agreement among the
same ethnocratic oligarchs will be any more successful. If agreement among these leaders were
to be forged, it would be almost guaranteed to be dysfunctional. None will be willing to
abandon their vested interests protected by the current system. These leaders know they need
not fear pressure from below under the current system, and operate accordingly. In the
meantime, BiH citizens see the likely date of their countrys entry into the EU receding further
than that of any other regional aspirant, including Kosovo: 2022, on average.
11
They are also by
far, according to all relevant polls, the most broadly pessimistic population in the region.

Bosnias dysfunction is apparently seen as so innate and intractable by both Bosnian citizens
and the international community that only incremental change from the current structure is
seen as possible. Attempts at a big bang change to a different system are often dismissed as
a utopian lost cause, or even dangerous. But the countrys instability cannot be cured by mere
scaffolding of an inherently shaky platform. It requires an entirely new operating system one
that has popular legitimacy, unlike the Dayton constitution.

We believe that there is a vast potential constituency for a governance structure that can work
for and is accountable to citizens. The spectrum of what might be popularly acceptable is
far wider than what the senior political leaders put on the menu, according to the 2007 UNDP

7
The ECHR ruled in December 2009 that BiHs Constitution and Election Law are discriminatory in their provisions for the
Presidency and House of Peoples. See Sejdi and Finci vs. Bosnia and Herzegovina at
http://www.unhcr.org/refworld/category,LEGAL,,,,4b44a28a2,0.html
8
NATO Wants Bosnia to Reform Constitution Scheffer, Reuters, July 16, 2009 at http://www.javno.com/en-world/nato-
wants-bosnia-to-reform-constitution-scheffer_270755
9
See Toby Vogel, Trying to appease the unappeasable, European Voice, December 18, 2009.
10
EU disappointment on lack of progress in Sejdic-Finci implementation, EU Delegation in BiH, February 17, 2014 at
http://europa.ba/News.aspx?newsid=6181&lang=EN
11
Gallup Balkan Monitor Insights and Perceptions: Voices of the Balkans. 2009 Summary of Findings, page 19. www.balkan-
monitor.eu
11

report The Silent Majority Speaks
12
and the results of the October 2008 municipal elections.
Popular dissatisfaction with established political elites, considerable even before the backsliding
seen since 2006, is very pronounced.
13
As US President Barack Obamas Chief of Staff Rahm
Emanuel said during the 2008 campaign, Never allow a crisis to go to waste. They are
opportunities to do big things.
14
The global economic crisis, combined with the deepening
political crisis, may provide the most opportune moment since Dayton to present the public
with creative new solutions.

The governance model outlined on the following pages is one which K-143 members believe
has great promise to gain traction with citizens throughout BiH. It is a highly decentralized
structure in which municipalities would have local ownership of the day-to-day administrative
and fiscal decisions, while the state-level government would be sufficiently empowered to
handle the functions it can perform at a comparative advantage, and perform an oversight role.
Institutions of the state could also be distributed to other urban centers, rather than being
concentrated in the capital.

12
Available at http://www.undp.ba/index.aspx?PID=3&RID=43 The study found, for example, that about eight in ten BiH
citizens identify with the state; only 14% profess not to. The poll also found wide aspiration for constitutional change and EU
membership among the citizens, along with a lack of trust for governing authorities, or indeed socially among citizens.
13
The sense of being represented by anyone or any party in the BiH political arena was 11% for Bosniaks, 18% for Croats, and
29% for Serbs. Gallup Balkan Monitor Insights and Perceptions: Voices of the Balkans. 2009 Summary of Findings, page 24-25.
www.balkan-monitor.eu
14
Jeff Zeleny, Obama Weighs Quick Undoing of Bush Policy, New York Times, November 9, 2008.
http://www.nytimes.com/2008/11/10/us/politics/10obama.html
12

I. BiHs International Obligations and Aspirations

Unmet Obligations

Council of Europe: Bosnia and Herzegovina undertook an obligation to bring its governance into
conformity with the European Convention on Human Rights (already integral to the Annex 4
Constitution) when it joined the Council of Europe in 2002. Ever since, provisions in the
Constitution and Election Law have been the target of criticism by the Council of Europes
Venice Commission, the Parliamentary Assembly of the Council of Europe (PACE), and the
Council itself.

The Venice Commissions Opinion on the Constitutional Situation in (BiH) and the Powers of the
High Representative in 2005
15
spelled out these problems in detail: the composition of the
Presidency and the House of Peoples ran counter to BiHs ratification of the Convention and
Protocol 12, which guarantees the enjoyment of any right set forth by law without
discrimination.
16

The European Court for Human Rights judgment in the Sejdi and Finci vs. Bosnia and
Herzegovina case
17
, given on December 22, 2009, was the culmination of all previous opinions
and recommendations given by the Council of Europe and its associated bodies on BiHs
constitutional structures and election law provisions, making changes to remedy these
problems mandatory. The Court found that the constitutional and electoral law restrictions for
others regarding the Presidency and House of Peoples to be in violation of the European
Convention of Human Rights (Article 1 of Protocol 12 for the applicants ineligibility for the
Presidency; Article14 taken in conjunction with Article 3 of Protocol No. 1 for the applicants
ineligibility for the House of Peoples).

In January 2010, the Parliamentary Assembly of the Council of Europe (PACE) passed Resolution
1701
18
, referring to the above ruling and calling on Bosnias political leaders to fully engage in
a meaningful and constructive dialogue about concrete proposals for amendments to the
Constitution, in line with the 2005 recommendations of the Venice Commission, with a view to
adopting a reform package in time for the 2010 parliamentary elections which should be
organized in accordance with the revised Constitution. PACE also passed the related

15
16
http://www.humanrights.coe.int/Prot12/Protocol%2012%20and%20Exp%20Rep.htm
17
See the judgment at http://www.unhcr.org/refworld/category,LEGAL,,,,4b44a28a2,0.html
18
http://assembly.coe.int/Main.asp?link=/Documents/AdoptedText/ta10/ERES1701.htm
13

Recommendation 1894
19
to (inter alia) (consider) launching a wide discussion, with the
participation of key domestic and international stakeholders, including the members of the
Peace Implementation Council and, in particular, the European Union institutions and Bosnia
and Herzegovinas neighbors, about the challenges Bosnia and Herzegovina currently has to
face on the road to Euro-Atlantic integration and the means to overcome them.

A 2008 joint opinion by the Venice Commission and OSCEs Office for Democratic Institutions
and Human Rights (ODIHR) on proposed amendments to the BiH election law
20
, repeated both
organizations criticism of the discriminatory provisions of the Bosnian Constitution, adding that
it contravened numerous international documents, including the International Covenant on
Civil and Political Rights, the European Convention on Human Rights and other commitments to
the Council of Europe, and the OSCE Copenhagen Document. It also noted that the
apportionment of seats in multimember constituencies did not appear to allow for equal
suffrage the equal weight of each vote. It referred to the OSCE/ODIHR Election Observation
Missions report on the 2006 general elections
21
, which also raises this point in its
recommendations.

In addition, BiH has signed the European Charter for Local Self-Government
22
, which stipulates
the following:

That public responsibilities shall be generally exercised by those authorities closest to
the citizens
That the principle of local self-government be recognized in domestic legislation, in the
constitution where possible
That the basic powers and responsibilities of local governance be prescribed by
legislation
That powers given to local authorities shall normally be full and exclusive
That administrative supervision of local authorities activities must be based on
legislation, and be limited to ensuring compliance with law and constitutional principles
(regarding tasks delegated by higher levels to be performed by local authorities),
interventions must be kept in proportion to the importance of the interests to be
protected
That local authorities be able to determine their own internal administrative structures,
limited only by general provisions

19
http://assembly.coe.int/Main.asp?link=/Documents/AdoptedText/ta10/EREC1894.htm
20
21
http://www.osce.org/documents/html/pdftohtml/23206_en.pdf.html
22
http://www.logincee.org/file/1027/library
14

These rights should be exercised by freely elected councils/assemblies and executive
organs
The right and ability of local authorities to regulate and manage a substantial share of
public affairs under their own responsibility, in the interest of the local population
That local authorities exercise full discretion to take initiative on any matter not
explicitly excluded from their competencies nor assigned to any other authority
That local authorities shall be consulted in planning and decision-making processes for
matters concerning them directly
That municipal borders cannot be changed without consultation with local communities,
ideally through a referendum
Local authorities have the right of recourse to judicial remedy to secure free exercise of
their powers and respect for the established principles of local self-government
That local authorities have the right to co-operate and form consortia with other local
authorities to carry out tasks of common interest
Local authorities have the right to belong to an association for protection and
promotion of common interest, and the right to belong to an international association
of local authorities

The Charter stated the following about municipal financial resources:

Local authorities are entitled to freely dispose of financial resources
The resources of local authorities shall be commensurate with their responsibilities
These resources shall at least partly derive from local taxes and charges, the rates of
which can be set at the local level
Local authorities shall be appropriately consulted on how on the method of allocation of
resources redistributed to them
Financial equalization procedures should be established to protect financially weaker
local authorities without diminishing their discretion
Grants to local authorities shall not be earmarked for the financing of specific projects
Local authorities should be able access national capital markets to borrow for capital
investment

OSCE: BiHs obligations as a member of the OSCE, stemming from the 1990 Copenhagen
Document,
23
require it to respect the right of citizens to seek political or public office,
individually or as representatives of political parties or organizations, without discrimination.
Persons belonging to national minorities have the right to exercise fully and effectively their
human rights and fundamental freedoms without any discrimination and in full equality before
the law...The participating States will respect the right of persons belonging to national

23
http://www.osce.org/documents/html/pdftohtml/13992_en.pdf.html
15

minorities to effective participation in public affairs, including participation in the affairs
relating to the protection and promotion of the identity of such minorities.

The term national minority carries a specific connotation in the post-Yugoslav countries, and
even more specific in BiH, with its three constituent peoples. Even after the BiH
Constitutional Courts constituent peoples decision in 2000 and the following impositions by
the then High Representative Wolfgang Petritsch, which called for all three peoples to be
constituent throughout BiH, others and national minorities remain an out group in the
Dayton system. The OSCE obligation, as articulated by ODIHR in 2006 and 2008, runs parallel to
the Council of Europes criticisms, through the Venice Commission and other bodies, and most
recently in the Sejdi and Finci verdict by the ECHR of December 2009.

Taken together, the Council of Europe and OSCE have stated repeatedly and for years running
that BiHs Dayton constitutional order is discriminatory. The December 2009 Sejdi and Finci
verdict by the ECHR has made changing these provisions a legal requirement, which remains
unmet as of June 2014.

Stunted Aspirations

The European Union: As noted in the introduction, the EU has called for constitutional reform
in BiH to ensure functional and sustainable institutions, including clear structures for
coordination between government layers (a so-called coordination mechanism).

This is critical, since as a signatory of a Stabilization and Association Agreement (SAA) and
aspirant candidate for membership, BiH has entered into an enormously complicated and
detailed contractual relationship with the EU, also spelled-out in phases in the Partnership
Document. Substantial legislative and structural change will be required.

In brief, the EU will demand the following from BiH, listed by sector:

Economy: Ensure a single economic space, meaning the free movement of goods, capital,
services and persons. Also:
establishment of free trade zone between EU and Bosnia
nationally harmonized regional planning (for accessing EU funds)
taxes: principles of the (ECs) Code of Conduct for business taxes; permanent
formula for allocation of indirect tax revenues between government layers
develop fiscal surveillance mechanisms: rules-based and coordinated between layers
of government, supreme audit institutions (central harmonization units for financial
management and control and for internal audit systems)
16

transfer of banking supervision to state level
A state-level Ministry of Agriculture, Food and Rural Development and the
development of a comprehensive state level agricultural strategy
Anti-trust policy: adequate legislation, Competition Council (central level)
WTO membership and subsequent obligations

Energy: adoption of a comprehensive energy strategy, meeting Energy Community Treaty
obligations;

Transport: implementation of recommendations of Memorandum of Understanding on
Development of SEE Core Regional Transport Network;

Policing: adherence to the three EU principles for police reform
24
; maintaining established
central-state agencies (SIPA; border police) and establish additional central states organs
defined by the police reform law prior to the signing of the SAA;

Anti-corruption policy: adherence to relevant international conventions and GRECO
recommendations (CoE Group of States against Corruption general guidelines, code of
conduct for public officials, rules on party and election financing);

Health system: the development of community-based services for mental health care;

Education: resolution of the fragmentation of the educational system, prevent ethnic
segregation in schools, implementation of Bologna process

Refugee return: proper funding, socio-economic integration, implementation of the Sarajevo
Declaration (securing conditions for the return of remaining refugees & IDPs)

Environmental protection: passage of a state-level law and the establishment of State
Environment Agency

Media and Information: strengthening the capacity and independence of the Communications
Regulatory Agency and establishment of national data protection agency.

The Commissions latest Progress Report, issued in November 2010, noted minimal progress in
terms of BiHs meeting most of the above conditions, and numerous others. The legislative
process is not even passing the necessary legislation, much less ensuring its implementation.

24
These were prevention of political influence, state-level command and budgetary control, and policing regions based on
functional criteria. They remain unimplemented. EU fudged its own conditionality to create the perception of forward
movement on the European path.
17

NATO: The Alliance has been the vaguest international organization on the constitutional
reform issue. In Fall 2009, it weighed in at the top, with outgoing Secretary General Jaap de
Hoop Scheffer stating that constitutional reform was necessary to join the Alliance. This was
reiterated by his successor, the incumbent Anders Fogh Rasmussen. But there has been
nothing in the way of official clarity on what this might mean. According to one NATO observer,
I have the impression that this is seen as EU-led and that NATO is just lending moral support.

From a technical point of view, NATOs constitutional issues are relatively few:

Deleting from the constitution the Standing Committee on Military Matters (SCMM),
which was to coordinate the (now-disbanded) entity militaries, to eliminate a potential
problem in the chain of command. This would also ensure that defense is controlled by
the Minister and the Parliamentary Assembly, with oversight by the Presidency as
Commander in Chief.
Clarity of chain of command on defense, security, and intelligence, with democratic
civilian control and oversight.

The SCMM issue may be a requirement for BiH to implement the Membership Action Plan
(MAP).
18

II. Local Self-Governance in Europe

There are a number of examples in Europe (including EU members) of two-layer governance
structures (such as Denmark, Finland and Slovenia), though the three-layer model is more
prevalent. In BiH, adopting such a system would mean drawing new lines of the map not a
promising prospect. An Annex compares a number of these countries in greater detail.

While the EU does not take a formal stance on the individual internal organization of its
members, it does call for subsidiarity: governance functions should be assigned to the lowest
level at which they can be undertaken effectively. A number of functions are commonly
handled at the local level throughout the Union: development of local economy, social housing,
public utilities (water, electricity and gas supply), fire protection, and local (or regional)
planning.

In addition, many functions are frequently shared or divided between the state and lower levels
of government, though there is wide variance among EU members at which level these are
vested: police, health and social assistance, education (usually primary, often secondary),
culture (libraries, museums, parks), roads and transport (public transport, sometimes ports and
river transport), environmental protection, and tourism promotion.

There is also wide variance in revenue allocation between the state and local levels, with new
members typically reserving more than 70% of revenues for the state level. In countries with
wider distribution of authority, it comes close to 50/50 between state and sub-state levels
(collectively). The source of these revenues also varies widely; from 4-70% of revenues used by
local governments is derived locally, from sources like property and income taxes.
Redistributive and equalization mechanisms based on objective criteria such as population
size, age distribution, and socio-economic indicators are a European norm, as is increasing
allocation of resources to structural and cohesion funds directed to poorer European regions,
and the coordination/harmonization of national and EU policy.

Competing governance trends are at play within the EU and Europe more broadly. While
decentralization allows for more responsive governance, some functions health care for
instance are moving up from lower levels to take advantages of economies of scale and to
ensure greater equality in service. Two competing trends are observable: One is for states with
a two-layer governing system to establish a third, regional layer of government (or for some
with a week mid-layer to strengthen it). The other trend is to keep the two-layer system but to
increase cooperation/pooling among municipalities to provide better and more efficient public
19

services. This latter approach maintains local control while ensuring maximal effectiveness and
efficiency in planning and service delivery.

Denmark illustrates a balance between these. Its 98 municipalities have primary responsibility
for a host of public services. An intermediate layer between local government and the state
exists mainly for health care provision. These five regions of state administration have limited
competence. Danish law encourages collaboration among municipalities to provide public
services, though this is voluntary local governments are legally responsible for delivering
these services to their citizens; how they do so is discretionary. The state has an equalization
fund to ensure comparable service provision at near to average cost. Oversight for adherence
to law is conducted by the state.

20

III. Brko District: A Domestic Example of Local Self-Government

Brko District, in northeastern BiH, was placed under international supervision after the Dayton
Accords (see Annex). It has the most expansive and well-resourced municipal government in
the country, and is also the most multiethnic. It is therefore an important reference point,
illustrating the extent of competences which can be handled at the local level.

Brko District (BD) is estimated to have 90,000 inhabitants, three times the BiH average. It also
has significant numbers of each of the three constituent peoples. It undertakes governance
functions and operates public services that are run at the entity and cantonal level elsewhere in
the country. The Districts competences, as defined by the Brko District Statute,
25
include:

- BD economy - social welfare
- BD finances - judiciary and legal services
- Public property - policing
- Public services and infrastructure - housing
- Culture - urban development and zoning
- Education (primary and secondary) - other competences necessary for the
- Health care functioning of the District as a single
- Environment administrative unit of local self-government

The main District Government institution is the Assembly, consisting of 31 members, including 2
representing national minorities, elected for a four-year term of office. Its Speaker is elected by
a 60% majority. The Assembly determines general policy and oversees public administration
and expenditure. Qualified majorities of 60% of members present are required for a number of
defined acts, including amending the rules of procedure, passing the budget, and amending
laws. 60% of total members must vote to remove the mayor. Amendment of the Statute can
only be done with a 75% majority of all members. There are detailed provisions to prevent
outvoting, requiring affirmative votes by at least 1/3 of members from each constituent people
to pass legislation to change the Statute, rules of procedure, the budget, and concerning
education, language, religion or culture. Unlike in the rest of the country, the Assembly elects
the Mayor, who selects his deputy. The Coordinator represents the District to the institutions
of state in Sarajevo. The Deputy Mayor, the Coordinator, and Heads of Departments are
selected by the Mayor based on professional competence, also reflecting the general

25
Available in full at www.ohr.int
21

composition of the population. The District also has a Finance Directorate and Office for Public
Property.

Revenues: The District receives 3.55% of the VAT proceeds. It also recently introduced a
property tax at the introductory rate of 0.6%. The BD Governments land reform proposal
would privatize public property holdings not needed for governance purposes, which would
bring in significant one-off revenues. The District may introduce an income tax in the future.

22

IV. Why Municipalization?

We devised municipalization strengthened municipalities with greater decision-making
powers as the foundation of popular governance, with the state also strengthened to perform
the functions that can only be handled at that level, as well as to meet the requirements of
Euro-Atlantic integration as the best hope of finding a modus vivendi among BiHs citizens.
The political downward spiral of the past eight years has only deepened our conviction that
efforts to forge consensus among BiHs political elites for incremental change to the Dayton
constitutional order are approaching the basic problem from the wrong direction. BiH will only
begin to function and reform itself under a system that has popular legitimacy: a majority of
each self-defined group in the country needs to conclude a given system can serve and protect
their interests. Coalition 143 (K-143) assembled around the municipalization model in the belief
that it could deliver this popular and effective governance, and has therefore pursued
development of a more detailed concept of how such a structure could work.

Local Self-Government has a long and strong tradition in Bosnia, as it does in Southeastern
Europe as a whole. Local governance was the basis of the state in Ottoman Bosnia, due to its
remote position in the empire and its mountainous geographical conditions.

The local level maintained an important role when society and state went through a
tremendous process of late modernization in the socialist era, from the mid-20
th
Century. When
Socialist Yugoslavia developed its system of self-management socialism as a more democratic
counter model to Stalins Soviet socialist system, decentralization was made the cornerstone of
the new system and the municipal layer of government took a key position in these
decentralizing efforts.

Many state functions were moved to the municipal level. The principle of local self-government
was further enhanced through establishment of units of sub-municipal government, the so-
called Mjesne Zajednice. It represented an additional institutional form of democratic
participation and important means of modernizing society. These built the basis for collective
work, of small communal activities on voluntary basis, like the building of roads in remote rural
settlements.

Yet what was intended to form an important part of a democratization effort developed a
number of dominating negative trends. They were the result of the structural contradiction of
decentralization in an authoritarian socialist system: of decentralization as a means of
democratization and the maintenance of the role of the Communist party as the ultimate
23

authority. This contradiction turned decentralization into a process of authoritarian
decentralization or decentralization in place of democratization. Its main features were:
control over local government institutions and local economy by the party through
informal and semi-formal means, undermining the normative functioning of local
governing institutions
making a mockery of the carefully built institutions of local democratic decision-making
and direct citizen participation
integration of local economies based on territorial, and not functional principles, totally
inadequate to modern economies, thus leading to
the territorialization of group concurrencies, aggravating a phenomenon known as
localism
the failure of local authorities to effectively manage transferred functions because of
the lack of an adequate financing system and the failure to build a professional and
skilled local administration
the failure to establish efficient institutions and mechanisms of oversight and control of
local authorities activities by upper layers of government, and their ultimate
breakdown
the failure to develop efficient mechanisms for territorial equalization, leading to the
failure to deliver on one of the key promises of Yugoslav socialism to achieve regional
equality and erase regional underdevelopment
turning planning and decision-making processes between the different layers of
government (federal, republican, local) into an informal/semi-formal bargaining process,
substantially damaging the development of the economy and
contributing heavily to the process of erosion of state institutions and the disintegration
of the state

In the ethnic breakdown of the socialist state and in takeover of government by newly formed
ethnic parties in the early 1990s the municipal level again played a crucial role. The ethnic
parties gaining of power at the first multiparty elections in Bosnia in 1990 was launched from
the local level. Nationalists understood the importance of the local level and paid tribute to it.
They exploited the motives of the previous socialist system connected with the local level,
pointing to the failure to achieve territorial equalization and highlighting the problem of
regional-municipal underdevelopment. It was not coincidental that the municipalities in which
conflicts between municipal authorities and Mjesne Zajednice had taken place were where
ethnicization of the political and public sphere first gained ground and the culturalization of
social conflicts could be observed.

24

The usurpation of the state by the ethnic parties in the prewar and war period built upon their
taking control over municipalities from the bottom-up. This was the precondition for physically
reshaping the structure of the local population and local elites.

Yet wartime efforts to centralize the established ethnic nationalist (proto)states were only
partly successful, showing the continuing tradition of strong local authorities based on their
proximity to the citizens. Ethnic regimes thus had to resort to some of the ruling techniques of
the previous system, such as informal bargaining with local elites.

That the traditional strength of local public authorities, based on their close geographical
connection to the citizens, can be used for democratic reform of the governing system can be
seen through various success stories of reform projects at the municipal level (VAT tax reform
to strengthen local revenue system, improving municipal service delivery, inter-entity
cooperation of municipalities). These were implemented in post-war Bosnia with the support of
mayors and municipal councilors despite their membership in the leading ethnic parties that
still dominate the Bosnian-Herzegovinian state and political system.

If BiH is to become a functional state, it must be built with the recognition of the importance of
the local layer of government in creating a modern and democratic state. But this can only
succeed if it takes into account the negative aspects of the history of decentralization and
developing mechanisms that will prevent their repetition. These include:

local governance based on democratic principles and the active participation of its
citizens,
the financial and administrative empowerment of local authorities to handle
decentralized functions,
a transparent and institutionalized decision-making process between the local
authorities and those of the upper layer(s) of government, an institutionalization of
oversight and control by upper layer authorities over the activities of local authorities
that is both efficient and respects the autonomy of local institutions, and
the establishment of modern democratic institutions to fight regional disparities and
underdevelopment.

A strong governance role for municipalities clearly has precedent in BiH. The underlying point
of the following model for municipalization is to change the incentives in the governance
system from being divisive to being integrative, and maximizing popular control.

25

Municipalities are the outer limits of popular trust in BiH; beyond that outer perimeter, social
trust fades altogether, even within ones own ethnic group.
26
This lack of trust, in interaction
with the divisive provisions in the Dayton Accords, creates an environment ideally suited to
ethnocratic political elites, allowing them to operate with little or no accountability to citizens.
A municipalized governance system would be built around the present reality of limited
integrative social capital, making localities the building blocks of the state governance structure.
Citizens would be able to expand control of the only level of government over which they can
exercise any discernable leverage, and lose nothing in the process. A two-level system would
deliver accountable governance and superior (and more equitable) public services for less
money, allowing space for economic development stifled by the bloated public sector.

A two-layer governance structure will also break the formal linkage between ethnic groups and
territory, which has often been specified as the Dayton Constitutions main flaw by Venice
Commission, and now by the ECHR in the Sejdi and Finci vs. Bosnia and Herzegovina ruling.
Ethnoterritorialism would effectively continue to exist at the local level in a demographic sense;
it did before the war as well in many municipalities (Drvar, Cazin and Posuje were
overwhelmingly Serb, Bosniak and Croat, respectively). But under a municipalized state
structure, there would be no legal reification of ethnoterritorialism, and ethnic protection
mechanisms would exist for all self-defined groups, beyond the three constituent peoples.

Such a system would allow for the rise of socioeconomic issues in politics which citizens and the
international community have long claimed to desire. There are common, cross-cutting
interests that are regularly ignored due the easy ability of nationalist elites to homogenize
populations through fear and patronage under the Dayton Constitution. There are different
interests among municipalities dominated by the same group: ones interests as a resident of
Oraje are quite distinct from those of someone residing in Kiseljak or Grude, for example.
They cannot be effectively represented by a system that assumes their interests are identical
and they are not. A state that can both reflect wide common interests where they exist and
give voice to differing interests within groups must be based on the local level, where those
interests are first manifested. To build-up a functioning BiH, it has to be broken down to the
elemental governmental unit.

26
See UNDPs fascinating 2009 study on social capital in BiH, The Ties That Bind, available on www.undp.ba
26

V. The Municipalization Model

Guiding principles, methodological approach:

Based on the rationale for a municipalized state model for Bosnia-Herzegovina, the
following model is developed along several guiding principles:

Move as many governing functions as possible to the local level. Keep or move up to the
state level only those functions where it is necessary for reasons of securing state
integration, maintenance of public security or where the efficient functioning of a
certain governing sector cannot be guaranteed when located at the local (or consensual
local pooling see below) level. Share competencies in these cases as much as possible.
Thus allocation of competencies to the central state level is undertaken with a strong
accent on state institutions role in harmonization, standardization and overview.

Create a clear-cut division of competencies and clear mechanisms (while at the same
time avoiding over-regulation) of decision-making between the two layers of
government. Avoid competence-overlap and reduce discretionary authority to a
minimum as both are one of the main sources of undemocratic bargaining and
authoritarian tendencies and of the growth of irrational and inefficient bureaucracies as
well as the flourishing of corruption in the current system.

Build the governance structure around the current reality, not competing visions of a
rewind to 1991 or completely ethnically clean national territories. No ethnic groups
should have to worry but at the same time, none can attain the dreams of its national
leaders.

No revolutionary approach: there should be no question of reinventing hot water as
the local phrase has it. This would provoke needless resistance to the model when
presented publicly, especially in connection with institutional settings that were the
object of fierce (ethno-)political debate since Dayton.

Leave the form intact as much as possible, but change the substance: The model
envisions maintenance of Vital National Interests and collective representation in a
Council of Peoples; keeping the current unevenly sized municipalities, including the
wartime-created small municipalities; maintenance of the territorial organization of
police (10 cantons, Brko District, and five RS police districts); existence of city
municipalities, etc. Yet in each case, the structure and context change considerably.

27

The methodological approach that resulted from the application of these principles is twofold:

1. Erase the entity and canton layers of government, move their competencies mainly
downwards and partly upwards.

2. Transform the current declared ethnic protection mechanisms into a system of real
protection mechanisms to prevent discrimination against any ethnic group, part of an
ethnic group or an individual on the basis of his/her declared ethnic affiliation.

This eliminates the potential to pursue individual/group interests under the cover of
ethnic protection, thus weakening the state and its institutions, its functioning and role
as a protector of and service delivery for its citizens, and thus slow down or prevent the
reforming and modernizing of state, society and economy of Bosnia-Herzegovina.

1. Division of functions

Municipal competencies:

In the proposed state model, a host of government competencies would be moved down to the
municipal/city level. The breadth of competencies falling under the authority of local self-
government units would be great even by European standards, given both the number of
exclusive and shared competencies.

Education would fall under almost exclusive municipal/city authority: pre-school, primary,
secondary and vocational/technical education. Only higher education would fall outside local
purview. Culture, leisure and sports would also almost completely be in the responsibility of
local authorities, as well as most of public utilities (water supply, sewage, refuse collection and
disposal).

Housing would be an exclusive municipal competence. In addition, local, urban and
regional/spatial planning would be competencies of the local self-government units, making
national spatial planning a bottom-up process in which the role of the central layer of
government would basically be reduced to national harmonization.

Municipalities/cities would also exercise authority in public transport and traffic, on a local (and
regional planning and coordination) level, as well as in public health and social welfare. They
would have the bigger share of competence in fire protection and civil protection.

28

Through shared competencies, local self-government units would play an important role in the
promotion of economy (local economic development), in industry and trade and in tourism
promotion.

Sharing competencies with the state level, municipalities and cities would have greater
authority over agriculture/forest/fishing, as well as play a key role in consumers protection and
environmental protection.

State competencies:

The two-level governance model proposed would be more decentralized than many European
systems, but there are precedents (Denmark, for example). While much is to be handled at the
local level, the state would gain a number of competences currently handled at the entity and
cantonal level. It would also share or divide a spectrum of competences with municipalities.

New or augmented state competences would include education (exclusive authority over
higher education; oversight over levels handled at municipal level), internal security/policing
(current policing structures will remain, but under central command and control), justice (as
with policing), health care (insurance and hospitals), social welfare, veterans affairs, energy,
environmental protection, transportation (for highways, rail, river traffic and air), agriculture
and forestry, and science and technology.

In the case of shared competences, the line ministries would perform oversight over
municipalities (for example, Ministry of Education for primary and secondary schooling), but
only to ensure compliance with legal obligations. Civil protection and firefighting, for example,
is a shared competence to ensure expeditious work to combat forest fires, deal with flooding,
etc.

2. Governing institutions

Municipal Level

Under the model the municipal level would be the only level of local self-government. Units of
local self-government would be (rural) municipalities and cities. The principles of local self-
government would be integrated in the State Constitution and spelled out in a Law on Local
Self-Government, based on the principles of the European Charter of Local Self-Government (as
is the case currently for the entity laws on LSG). At the same time with the strengthening of
29

local self-governance the institutional role of the Mjesna zajednica as a guarantor of sub-
municipal governance would be strengthened.

Governing institutions: Governing institutions as existing in both entities municipalities would
remain intact.

Mayor: The mayor is the head of the executive and the chief of the municipal/city
administration. He will be directly elected on majority vote. He can have one or more deputies
elected by the municipal/city council.

Municipal Council: Municipal/City Councils would undergo some additions compared to their
current structure. Along with the large number of (exclusive and shared) competencies moved
to the municipal level additional council committees would be formed.

Given this expansion the number of councilors, currently 11 to 31 based on the number of
registered voters in one municipality/city, would have to be expanded. Comparing it to councils
in other European countries with a comparable amount of competencies a size ranging from 17
to 45 Council members seems most reasonable. After the upcoming census, council size should
be linked to the number of inhabitants.

The current electoral system shall remain unchanged: a proportional electoral system, including
a regulation for the representation of minorities
27
that guarantees at least one mandate for
minorities which comprise more than 3% of population.

Ethnic protection: Certain institutions and mechanisms would be in force to secure the
protection against ethnic discrimination on municipal/city level. These include a Council for
Inter-Community Relations (Vijee za meunacionalne odnose/ CICR) and mechanisms for
proportionate representation in public authorities as described in detail in the separate section
4 on ethnic protection mechanisms.

Sub-municipal government: Units of sub-municipal government would be Mjesne Zajednice in
municipalities/cities and city municipalities.

Mjesna Zajednica: The establishment of local communities would be obligatory for all
municipalities and cities. An adequate part of responsibilities and competencies should be
transferred to the local communities. This would include a limited budget, the right to have

27
See Article 13.14 of the Election Law of BiH
30

property and the autonomous disposal of these assets in line with principles set by the
municipality/city. Competencies and authorities shall be comparable to those of Mjesni odbor
in the City of Zagreb
28
, including the right to plan small communal actions (mainly in the field
of infrastructure).

Cities: Cities would be exclusively defined as an urban, functional unit connected by the
everyday needs of its inhabitants. They would have the same competencies as (rural)
municipalities, along with exclusive competence over urban roads and public transport. City
council members would be elected by the same proportional representation system, and the
mayors directly elected by majority vote.

City municipalities: City municipalities with their governing institutions would remain in cities
where they already exist (Sarajevo, Istono Sarajevo) but would lose current status as units of
local self-government. Other cities of an adequate size (with a lower limit of inhabitants defined
by the Law on Local Self-Government) would be allowed to establish city municipalities. A
substantial part of responsibilities and competences should be transferred (in the case of
already existing municipalities: kept) to this unit of sub-municipal government. City
municipalities in the City of Belgrade and City Quarters in the City of Zagreb
29
would serve as
good models for the design of city municipalities, their institutions and authorities.

Brko District: Because of its specific history, Brko District would keep its special status and
retain its unique institutional setting as defined by the Districts statute (indirect election of
mayor, ethnic outvoting prevention mechanisms). Its competencies would remain untouched,
and the size of the district assembly unchanged.

Mostar: In 2012, the Federation Constitutional Court ruled that the Mostar Statute imposed by
High Representative Paddy Ashdown was unconstitutional, running contrary to basic
constitutional principles and principles of democratic representation.
30
The citys governance
remains gridlocked; citizens of all identities are increasingly frustrated at the poor service. The
City of Mostar would adopt the municipalization model, which would affect local government
structure and representation on the state level. The mayor would be elected directly, as is the
norm in the rest of BiH. Determining the districts for the citys three seats in the BiH
Parliamentary Assembly may well also prove contentious. The citys specific history will make
the CICR a particularly important institution. Adjustment of the distribution of councilors

28
Statut grada Zagreba, lanak 92-103
29
Statut grada Beograda, lanak 74-86 , Statut grada Zagreba, lanak 80-92
30
These violations have been confirmed by the Constitutional Court of the Federation of BiH.
31

among the city electoral units may be required, given the additional competencies gained by
the city authorities. The number of municipal council members would likely rise from the
current 35. The modalities of applying the municipalization model to Mostars specificities will
require detailed study by persons who know the city intimately.

Regional Pooling and other forms of municipal cooperation: In the proposed two-layer state
model with a very high degree of decentralization of governing functions, many municipalities
will structurally not be in a position to sufficiently perform all their new competences. It is
therefore crucial to enable different forms of municipal cooperation. These forms of
cooperation will be established on a voluntary basis, but they will be promoted by the state
through a grant system. Each municipality is free to decide whether it will enter into any form
of cooperation with other municipalities, as well as which municipalities it cooperates.

To ensure that municipal cooperation will not be misused for the de facto/informal re-
establishment of regional sub-national units (based on ethnicity) institutions formed will
exclusively be single-task service provision institutions, without governing functions.

Regional pooling: Regional pooling is probably the most promising form of cooperation. It
means the establishment of joint municipal authorities, single-task organizations that are
independent legal public entities governed by municipal legislation. Its council members would
be delegated by municipal councils. They would be financed by the participating municipalities
through user charges and separate contributions to investments. Regional pooling will be
especially attractive in the field of health, education and social welfare.
A special form of regional pooling would be the Regional Councils, joint authorities dealing with
regional spatial planning and management of strategic regional development planning and
access to EU structural funds. These will be described in a separate chapter (Chapter 3).

Other forms of municipal cooperation: Other forms allowed by the law would be: contracting
other municipalities for certain functions (small, economically weak municipalities), joint
municipal civil servants (small municipalities); establishing joint limited companies, co-operative
societies and foundations.

State Level

BiH Parliamentary Assembly

32

There has long been recognition of the need to considerably expand the House of
Representatives to allow for a more functional committee structure and member specialization.
The model posited below would achieve this aim. It would have a directly elected but non-
legislative Council of Peoples to serve as a watchdog for (defined) Vital National Interests, to be
explained in detail later in this papers section on Ethnic Protection Mechanisms.

Unicameral Parliamentary Assembly

The House of Representatives (a.k.a. Parliamentary Assembly, a title which currently
connotes both the House of Representatives and House of Peoples) would be the sole
legislative body for the state of Bosnia and Herzegovina.

One Representative would be elected for each of BiHs 143 municipalities (average of 28,000
inhabitants), plus one additional Representative for those municipalities with 50,000 or more
inhabitants, in step-increments of 50,000. According to the preliminary results of the BiH 2013
census, this would mean a House of Representatives of 169 members (average citizens per
Representative: 22,437). 19 municipalities would elect more than one Representative, and 6
would elect more than two: Banja Luka (4), Biha (2), Bijeljina (3), Bosanska Gradika (2), Brko
(2), Cazin (2), Centar Sarajevo (2), Doboj (2), Ilida (2), Istono Sarajevo (2), Mostar (3), Novi
Grad Sarajevo (3), Novo Sarajevo (2), Prijedor (2), Travnik (2), Tuzla (3), Zenica (3), ivinice (2),
and Zvornik (2).Election would be FPTP in single-member constituencies. In multimember
constituencies, divisions among roughly equal agglomerations of mjesne zajednice would
create single districts. Representatives would be required to maintain offices in their
constituencies, and would receive travel and housing stipends for this purpose.

Using current territorial divisions as a frame of reference (though the entities would cease to
exist), this would yield:
Municipalities in present RS would elect roughly 44% of Representatives (vs. 33% now)
Municipalities in present FBiH would elect roughly 55% of Representatives (vs. 66% now)
Brko District would elect roughly 1% of Representatives
Croat majority municipalities would elect roughly 15% of Representatives (slightly below
the 17% in the 1991 census).

A qualified majority would be required (3/5, 60%) for those issues that might likely trigger VNI,
as well as qualified majorities for Constitutional and Electoral Law amendments. In this way,
while the electoral units are not explicitly ethnic, it would be well-nigh impossible to outvote
on sensitive issues where there is intra-ethnic solidarity (at least in the case of the Serb fear of
Bosniaks+Croats vs. Serbs).
33

Municipal governments would represent their interests at the state level in much the same way
as Brko District does now, though official offices. A unified BiH Association of Municipalities
and Cities would represent the collective interests of municipalities.

Advantages over the current system:

Direct linkage of citizens to Representatives in BiH Parliament. The present party lists do
not allow citizens to monitor and hold to account their representative after elections.
No formal ethnic factor in electoral system OR the legislative process.
Allows for issue and interest-based alliances in the House, as opposed to the rigid top-
down rule of parties in the present system. This disaggregated structure would open
the door to a new sort of politics.
o Example: The interests of Croat-majority communities in, for example, Oraje,
Kislejak, Livno, Mostar and Grude are all distinct. But under the current system
their votes for HDZ get bundled to support party interests (centered in Mostar).
The same differentiation applies to Bosniak-majority communities of Biha,
Turbe, Zenica, Konjic, and Gorade, and Serb-majority communities in Bijeljina,
Drvar, Vlasenica, Foa, and Trebinje.
This model would cut into the power of the existing party machines, weakening their
grip on the overall process. Candidates, whatever their party affiliation, would have to
seek (and maintain) approval of a defined electoral base (unlike now, when voters cease
to be a cause for concern beyond the campaign and electoral cycle). This makes it more
likely that the public interest would trump party interests which usually are the
personal interests of the leadership clique.
No entities, so no entity voting, which effectively functions as a second ethnic vote for
the RS.
The larger membership (>4x as large as the current House) would allow for proper
committee and staff structures, and issue specialization of Representatives.
This system would come far closer to equalizing the number of citizens per
representative. The current system has been a criticized by the Venice Commission and
OSCE/ODIHR for its opacity and variation in representation. This system is easily
adjustable to population movement/decline/growth with census data.

BiH Government

The Head of Government in this model would be embodied in the Prime Minister. The
Parliamentary Assembly would elect the Prime Minister by a qualified majority of three-fifths
(60%) of members present and voting. Once elected, the Prime Minister would assemble a
34

Government
31
(Council of Ministers) to be confirmed by the Assembly, also by three-fifths of
members present and voting. Removal of the Prime Minister or individual Ministers can be
effected by three-fifths of total elected members.
32
There would also be a single President,
elected indirectly in the Parliamentary Assembly, also by a three-fifths majority. This office
would have purely representational functions, and be among the offices subject to the flexible
distributional key explained on page 38. Changes to the Rules of Procedure, amendment of
standing laws (including the Election Law), and passage of the budget shall also require three-
fifths of members present and voting. In addition, qualified majority votes will be required for a
certain number of issues that are of potential ethnic sensitivity. Amendment of the Constitution
would require two-thirds (67%) of total members to vote in favor. The rationale for these
requirements is to ensure that matters that might affect interethnic relations have substantial
majorities in favor (and reducing the likelihood of a VNI intervention by the Council of Peoples).

A single President would be elected indirectly within the House of Representatives by a 3/5
majority. The President would be head of state, but the office would have only representative
functions, as is common practice in many European countries.

Ministries

The State would maintain the competences it currently holds
33
, gaining additional ones from
the current entity and cantonal levels. The new government would encompass the following
ministries:

Ministry of Interior (Command and Control over regional police)
Ministry of Justice (w/ new Human Rights portfolio)
Ministry of Foreign Affairs
Ministry of Defense
Ministry of Finance
Ministry of Economy and Trade
Ministry of Health
Ministry of Social Welfare, Refugee, Labor
Ministry of Veterans Affairs,
Ministry of Education and Culture

31
A variation of the current vetting and public hearing system for ministerial candidates, adopted in late 2006, would be
maintained, amended to eliminate the role of the now nonexistent Presidency.
32
This is the same formula that applies in Brko District.
33
The Ministry of Human Rights and Refugees would be disbanded; its portfolio split between the Ministries of Justice (Human
Rights) and Social Welfare (Refugees). The Ministry for Civil Affairs portfolio would be subsumed into the new Ministry of
Interior.
35

Ministry of Agriculture, Forestry and Fisheries/Water Management
Ministry of Energy
Ministry for Environmental Protection and Tourism
Ministry of Science and Technology
Ministry of Transport and Communications, incl. Spatial Planning

The State would also have a number of new or augmented agencies, including:

Banking and Securities Supervision Agency
Anti-trust/Competition Council
OSA, reporting to the Prime Minister and overseen by a select parliamentary committee
State Statistics Bureau (augmented)
State Auditing Office (augmented to audit municipal accounts)
The BiH Civil Service Agency (augmented)
National Data Protection Office
Public Broadcasting System (regional studios having considerable autonomy)
A new Supreme Court, with a special division to handle administrative disputes

The two-layer governance model will considerably strengthen:

Municipal Governments and Administrations
The BiH Parliamentary Assembly
The BiH Government
The BiH Ombudsman
The Court of BiH
The BiH Constitutional Court

Policing and Justice

Many municipalities are unlikely to be able to support the full breadth of infrastructure
(training, vetting, etc) required, so would be compelled to enter into cooperative agreements
with other, neighboring municipalities. Rather than reinvent the wheel, this model would
maintain the current 16 policing regions (5 Public Safety Centers in RS, 10 at Cantonal level in
FBiH, and Brko District), subordinating them to state command and control through the
Ministry of Interior, providing each with an individual budget based on objective criteria. (This
is essentially the police reform deal that almost came into being, but was rejected by Haris
Silajdi in early 2007).

36

As with the policing regions, the current 16 judicial regions would be maintained. The Ministry
of Justice would oversee all courts in BiH. The HJPC would maintain its role of selecting and
disciplining judges and prosecutors. A new Supreme Court would be established to be the final
judicial authority, and it will maintain a chamber for administrative disputes between governing
authorities.

Distributing State Institutions throughout BiH

The centralization of governance functions presently generates resentment not only against
Sarajevo as the State Capital, but also against entity administrations, and within ethnic groups
as well as among them. Shifting to a two-layer state structure will require popular investment,
so it should not result in the total concentration of state-level functions in the Capital,
especially considering that the elimination of entity and cantonal administrations will free-up
premises for both state and municipal use. The new Ministries and agencies as envisioned
above could conceivably be located in Lukavica, Banja Luka, Mostar, and Tuzla (or elsewhere).
Their location should have a functional rationale; the state property inventory and an
assessment of premises currently occupied by middle-layer administrations could help identify
the most suitable sites.

3. Regional Spatial and Strategic Development Councils

Regional Spatial and Strategic Development Councils would represent a special form of regional
pooling of municipal authorities that has been described under municipal governing institutions
in Chapter 2.

Unlike all other forms of pooling, these would be double-task authorities. The reason for this
unique structure lies in the necessity for municipalities and cities to join in spatial planning on a
regional scale to turn national spatial planning into a bottom-up process. It is also necessary for
strategic development planning on a wider scale than the municipal/urban in order to access
EU structural funds in the process of EU-integration, and even more so afterward. Given, for
example, the fact that as of 2009 1.4 million inhabitants were estimated to be without access to
running water,
34
the importance of the access to these funds cannot be overstated. Strategic
regional development planning would be a bottom-up process too, leaving the state a role in
harmonization, as the system of the EUs structural funds are based on co-financing by central
grant systems.

34
This shocking statistic was drawn from the 2009 World Bank study From stability to performance. Local governance and
service delivery in Bosnia and Herzegovina, pg.11
37

Participation in Regional Spatial and Strategic Development Councils would be mandatory for
all municipalities and cities in the sense that all must be members of one regional council. How
municipalities and cities join into regional councils would be at their discretion, yet the
established planning regions would need to fulfill certain conditions.

In addition to territorial contiguity, these conditions would have to encompass the criteria set
by the European Union for the definition of statistical regions the so-called NUTS.

NUTS are statistical regions used as a tool by EUROSTAT, the EUs statistical office, to
systematize on a comparative basis the development of sub-national development in EU
member states. They are a key element for the distribution of the EU structural funds. NUTS
regions are normally defined through negotiations between EUROSTAT and the EU member
states and membership candidates. In Bosnia, no such an agreement has been reached due to
the politically complicated and uneven nature of sub-state units. An agreement between the
different layers of government in Bosnia on defining NUTS regions could not be reached. The
proposal made by the EU Regional economic development project EURED in 2004 to establish
five statistical regions was rejected by RS authorities (though mayors from both entities,
including in the RS, had accepted it).

One way to reconcile freedom of choice with the need to harmonize statewide and to fulfill EU
conditions could be to organize a negotiating process between the Bosnian-Herzegovinian
municipalities and cities and the responsible state authorities. If an agreement on the number
and composition of the regional councils cannot be reached in a set timeline, the Councils will
be established on the basis of the 5 statistical regions proposed by EURED and maintained until
an alternate arrangement is agreed.

4. Ethnic Protection Mechanisms

Current situation and rationale for change:

Given the traumas of BiHs 3 year war, a majority of citizens see ethnic safeguards as
necessary. Otherwise moderate or flexible citizens often feel compelled to vote for their
nationalists (fully cognizant of their flaws) out of fear as an ethnic protection measure, as they
need that perception of insurance and safety.
38

The problem with the Daytons state construct does not lie with the fact that ethnicity is
enshrined in the institutional setting and the political system as a whole as such, but in the way
how ethnicity is enshrined.

In the current system ethnic interest to a huge extent takes the character of a blanket clause
that serves group and individual interests, without the need to identify what the named ethnic
interest is and what it isnt. This is achieved through of a number of institutional regulations:
Through territorialization of ethnicity at the middle layer of government (entities and
cantons).
Through making this territorialization of ethnicity the main building principle of central
state authorities: Presidency, State Legislature (entity voting) etc.
Through institutionalizing Vital National Interest in entity/state legislature
(House/Council of Peoples) without precisely defining it.
through proportional representation in employment policy at state and middle layer
state institutions, catering to patronage, mediocrity and provincialism

The underlying problem of these institutional elements is that Dayton Bosnia has
institutionalized two competing narratives - the one of the (ethnically cleansed) wartime Bosnia
and the one of the pre-war (multiethnic) Bosnia. These two mutually exclusive narratives lock-
in the instability of the political system and prevent the reality principles entry into political
life.

The results of this highly problematic form of ethnic institutionalization are:
the distortion of all elements of the democratic political system: party system,
parliamentary system, electoral system, legal system, state administration, media and
civil society.
systemic corruption.
discrimination against the rights of national minorities and others
instigation of ethnic fears remains the most promising political means for parties to gain
and keep power, thus creating long-term insecurity and social instability
the prevention of state functionality and of socio-economic prosperity.
the prevention of Euro-Atlantic integration.

Indirect ethnic protection mechanisms:
The very model of a two-layer government system, in which ethnicity is already de facto
territorialized to a large extent in the municipalities (and cities) due to the results of the war,
represents a form of ethnic protection in itself. Yet the municipal level is the only existing
territorial level where ethnic identification does not prevent the citizens from demanding
39

political participation, accountability and the separation of ethnic from other life issues (socio-
economic, democratic et.al.)
35
.

Another element of ethnic protection against discrimination lies in the modern institutional
mechanisms to achieve (relative) territorial equality in (socio-economic) development (financial
equalization system, regional/spatial and economic development system) and equal territorial
representation (state legislature) that are part of the model.

In addition to these implicit, indirect protection mechanisms the direct ethnic protection
mechanisms must be designed in a way that they can provide real protection while avoiding the
negative aspects of the current system (especially blockage of decision-making processes).

Direct ethnic protection mechanisms:

A. Council of Peoples (CoP)/ State level

Composition: Directly elected from the territory of BiH as a whole, allowing all members of a
self-declared identity (Bosniaks, Croats, Serbs, and Others/National Minorities) to select those
who would represent their group rights in state government. Council members need/must not
be members of any political party; the top five vote earners in each group would be elected to
the Council.

Role: The Council would not legislate (though it could forward proposals to the House); its
powers would only extend to protection of Vital National Interests, as defined constitutionally.

Definition of VNIs:
Amendments to constitution
Culture, religion, language, national holidays and monuments
Culture: only those elements subject to state-level competence;
Education: only where related to questions of culture, language, tradition and
religion.

Procedure:
Laws, regulations or acts approved by the HoR, if they relate to a vital national
interest as defined by the constitution will be sent to the Council, where a vote on
the law has to be taken no later than 30 days upon receipt of the text of the law.

35
UNDPs 2009 study on social capital in BiH, The Ties That Bind, available on www.undp.ba
40

If the law, regulation or act is rejected by 3/5 of one of the caucuses, a Vital Interest
Panel at the Constitutional Court of BiH shall be addressed to decide whether the
law concerned threatens the vital national interest of one or more constituent
people; or
A majority of each caucus represented in the Council can decide to return the law to
the HoR for amendment and re-submission to the Council, or decide on an
amendment proposal; If the HoR rejects the proposed amendment or if it does not
decide on amending the law within 45 days upon receiving the Councils decision,
the law is automatically addressed to the Constitutional Courts Vital National
Interest Panel.

A Vital National Interest Panel would be created at the Constitutional Court of BiH. Its
composition would follow that of the current Panels at the Entities Constitutional Court, adding
to it judges from the group of others/national minorities (taking into account the recent ECHR
ruling).

The Council could meet twice monthly during the legislative session of the Parliamentary
Assembly, with provisions for rapidly convening in emergency session if need be. Councilors
need not, therefore, be professional full-time politicians, but could be drawn from a far wider
pool. A small secretariat (with staff from each group) could be maintained to keep tabs on
proposed legislation and other government measures to facilitate the work of the Council.

Effects: In this system, citizens can effectively split the ticket vote for a progressive, citizen-
oriented Representative who they believe will better cater to their interests and for a strong
junkyard dog who would resist attempts to disadvantage his/her groups Vital National
Interests, preventing them from being outvoted.

B. Distribution of key political functions at State level:
Out of the following positions no more than two and no less than one may be filled by
representatives of any one constituent people or of the group of others:
1) Prime Minister
2) President
3) Speaker of the House of Representatives HoR
4) Speaker of the House of Municipalities (bicameral state legislature concept) resp.
President of the Association of Municipalities and Cities of BiH (unicameral
concept)
5) Speaker of the Council of Peoples
6) President of Constitutional Court
7) President of Supreme Court
8) Chief Public Prosecutor
41

C. Council for Inter-Community Relations (CICR, Vijee za meunacionalne odnose) /local
level:

Composition: Directly elected from the territory of the municipality/city as a whole, allowing all
members of constituent people and the group of Others/National Minorities to select those
who would represent their group rights in local government. Council members shall not be
members of any political party.

The Council would have five members of each constituent people which represents 5% or more
of the total population according to the upcoming census and five members of the group of
Others in case national minorities represent 3% or more of the total population.

For a period of 10 years/until the publication of the results of the next census (assumed 2020-
2021) a transitional provision will be in force that guarantees 5 members o a constituent people
which represents less than 5% according to the last census, but that did represent 5% or more
in the previous, 1991 census. It shall be replaced by a new legal arrangement, to be decided
upon by a joint committee of the Municipal/City Council and the Council for Inter-Community
Relations and approved by an absolute majority of both bodies (an absolute majority of the
members of each Council caucus). The transitional provision shall remain in force until the new
arrangement is approved.

Role: The Council would not legislate (though it could forward proposals to the House); its
powers would only extend to protection of Vital National Interests, as defined by municipal/city
statute.

Yet the Council would perform a strong watchdog role. It would review issues related to inter-
ethnic relations and provide opinions and proposals which must be reviewed by the
municipal/city assembly. It would mediate in conflicts between municipal/city authorities and
between the municipality/city and its sub-municipal territorial units and its institutions that are
related to ethnic relations.

Definition of VNIs: Amendments to municipal/city statute; decisions on establishing or
abolishing of Mjesne Zajednice or City Quarters, decisions on the territorial reorganization of
Mjesa Zjednice/City quarters; Culture, religion, language, national monuments, education: legal
regulations that touch aspects of culture, language, tradition and religion; local spatial planning.

42

Procedure: Legal regulations approved by the Municipal/City Council, if they relate to a vital
national interest will be sent to the Council, where a vote on the law has to be taken no later
than 30 days upon receipt of the text of the law.

- If the legal regulation is rejected by 3/5 of one of the caucuses, the law is sent back to the
municipal/city council and an attempt must be made to resolve the objection. In the event that
this proves unsuccessful, the issue will be adjudicated by the Constitutional Courts specialized
VNI chamber. As with the state-level Council of Peoples, the Constitutional Courts VNI
chambers ruling is final.

D. Proportional representation in public authorities:

Local level
Constituent peoples and members of the group of Other/National Minorities shall be
proportionately represented in public institutions on the municipal/city level across BiH.

Public institutions are the local public administration, local offices of police and judiciary, local
social welfare and health institutions, local educational and cultural institutions and local public
companies (because of the economic aspect of refugee return).

Such proportionate representation shall follow the most recent census, starting with the
upcoming census. However, given the recent history of ethnic cleansing an element of
affirmative action shall be added:
- If the proportion of one constituent group of the overall population in a municipality/city in
the recent census differs from (is less than in) the 1991 census by more than 10% but less
than 20%, an additional 5% shall be added to its representation in public institutions.
- If the proportion of one constituent group of the overall population in a municipality/city in
the recent census differs from (is less than in) the 1991 census by more than 20%, an
additional 10% shall be added to its representation in public institutions.

This provision shall be in force for a transitional period of 10 years until the results of the next
census (2011 or thereafter) are published. It shall be replaced by a new legal arrangement, to
be decided upon by a joint committee of the HoR, the CoP and the Association of municipalities
and cities of BiH (the House of Municipalities) and approved by an absolute majority of all three
bodies (an absolute majority of the members of each CoP caucus). The transitional provision
shall remain in force until the new arrangement is approved

43

Annual reports by local authorities have to be sent to the central state authorities in charge of
Local Self-Government, containing statistical data and measures undertaken to achieve
representation. A system of sanctions/reducing state grants will be in force to react on
insufficient efforts by local authorities.

State level
Employment in central state authorities (ministries and other institutions) shall be primarily
based on merit. Proportionate representation of constituent peoples and members of the
group of Others/National Minorities shall only apply in the sense of protection from overly
underrepresentation and overrepresentation, including domination: The representation of each
of the 4 groups should not deviate +/-10% or more. At the same time the representation of one
group shall not be 50% or more.

5. Revenue Sources for State and Municipal Governance

One of the many advantages of a two-layer state structure would be to allow for streamlining
government and administrative structures, thereby reducing aggregate public expenditure.
However, the functions of governance currently performed by entities (and cantons in the
Federation) would still need to be performed, and the size and competence of the state and
municipal governments would correspondingly expand. Each level will need considerably
greater resources to perform all the necessary governance functions.

As noted earlier, the centrally distributed resources will come from the Single Account (VAT and
Customs) and the Personal Income Tax (PIT). These will be the primary source of revenue for
both the state and the municipalities. However, each will also have own revenues as well. In
the case of municipalities, they can levy property taxes, add on levies to the PIT, as well as
charges and fees for local public services. The state will receive revenues from licensing the
electromagnetic spectrum. Both layers will be able to seek financing through bond issues and
borrowing on capital markets, but in the case of municipalities only for capital expenditures.
The full revenue structure with before and after analysis is included in the Fiscal Implication
of Consolidation section.
44

VI. Financial Analysis
Tony Levitas and Jasmina Djiki

The Fiscal Implications of Consolidating BiHs Governance Structure
A. An Overview of the Major Components of the Analysis and the Assumptions Informing
Them.
This Note summarizes the fiscal implications of consolidating the governance structure of BiH in
line with the Municipalization Model originally devised by the Democratization Policy Council
in February 2010 and later adopted by Coalition 143. The comparison of the current structure
of government spending with the structure of spending under the Model was conducted in
three steps.
The first step was to aggregate all public spending in BiH by level of government, and by
economic and functional category as defined by COFOG norms.
36
This was a challenging task, as
much of the data is poor and often incomplete, and because the notorious fragmentation of
BiH makes it difficult to determine what public function each of the over 500 budgetary units
in the country actually performs. The methodology we used to consolidate the budgets of all
these institutions, and to group them according to level of government, is described in greater
detail in the accompanying Methodological Note.
The second step of the analysis was to reallocate public spending by all current levels of
government in BiH in accordance with the two-level model developed by the Democratization
Policy Council. Or to put the matter more plainly, to reapportion the spending that is currently
made by the state, 2 entities, 1 special district, 10 cantons, 143 municipalities, and at least 27
distinct funds, across two levels of government; the State and Municipalities and three
national funds for health, pensions, and unemployment benefits.
37

To reallocate existing spending in accordance with the Model we had to make two different
sorts of assumptions. The first concerned to which level of government an existing function or
expenditure should be assigned. The second concerned whether the institutional consolidation
of expenditures associated with particular functions could be expected to yield overall savings

36
COFOG, (Classification of Functions of Government) is system for categorizing public spending that was developed by the
United Nations and which has become an international standard for public accounting. For more information see
http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4
37
The 27 Funds are: FBiH Pension fund, RS Pension Fund, FBiH Unemployment Fund, 10 Cantonal Unemployment Funds, RS
Unemployment Fund, BD Unemployment Fund, FBIH Health Fund, 10 Cantonal Health Funds and RS Health Fund.
45

in the cost of government. Both assumptions are discussed in greater detail in the
Methodological Note. But it is useful to describe their principal characteristics here.
The basic assumptions for allocating functions across levels of government result from the
Model itself and are straightforward:
First, all expenditures related to the costs of financing and managing primary and
secondary schools are assigned to municipalities. Because these costs are considerable
14% of government spending (9% of public spending including the funds) the transfer
of these responsibilities to local government increases their share of government
expenditure considerably.
Second, most expenditures associated with land-use planning and development,
firefighting, culture, sports, and for the maintenance and improvement of public utilities
have also been assigned to municipalities, along with some of the costs for civil
protection.
Third, all remaining public services have been assigned to the (consolidated) State of
BiH, or to (consolidated) health, pension and unemployment funds
The assumptions governing the size of the fiscal savings that we expect consolidation to
generate are more complicated. Here, we had to make individual and somewhat subjective
judgments about the financial savings that the consolidation of particular institutions and
functions should produce. These assumptions are listed in the Methodological Note. What must
be stressed here is that we have been very conservative in our forecasts of the financial savings
that consolidation would yield.
We have been conservative in projecting financial savings in order to create a state with the
resources and capacities necessary to meet the exigencies of EU integration on the one hand,
and to monitor and enforce the quality of public services in a decentralized environment on the
other. Equally importantly, we have projected little to no savings from the consolidation of a
number of very large areas of government spending. Thus, we assume that the direct costs of
providing public order (the judiciary and the police) and primary and secondary education
(teachers wages) remain at their current levels even after the consolidation. Similarly, we have
left the bulk of civil service employment intact, and only reduced wage and material costs in the
budgets of the ministries and government agencies that will administer these public services
after consolidation
38
. Finally, we maintain current levels of expenditure on transfer payments to

38
It is worth adding here that data on existing levels of public service employment is extremely poor, both with respect to
government employees providing direct public services (teachers, police workers) and government employees working in
ministries and the plethora of other administrative or regulatory institutions. As result, we have not attempted to project
46

veterans and refugees, as well as for all benefit payments currently being made from the
unemployment, health and pension funds.
In all these areas, there is ample room for further savings. Indeed, the very consolidation of the
now extremely dysfunctional state administration and the various funds associated with it, will
force a comprehensive review of many issues that will undoubtedly provide opportunities for
further savings. Nonetheless, by not projecting savings from either the reduction of
employment in the actual delivery of public services, or in the level of benefits made through
transfer payments we have left two important general questions open: How should the now
very different wages and benefits of public employees be standardized in a consolidated state?
And how should we standardize the different entitlement payments now made to BiH citizens
for health, pensions, and unemployment support?
The potential for savings in these areas is contingent on political decisions requiring research
and broad social support, and are beyond the scope of this analysis. But one thing is clear from
the data: Public spending on both government and funds is higher in the Federation than in the
RS. This means that the standardization of wages, benefits, and entitlements payments that
must come with consolidation can be achieved in one of three ways: Existing public spending
can be shifted away from citizens of BiH who now reside in the Federation towards citizens of
BiH who now reside in the RS (leveling down); total public spending can be increased so that all
citizens of BiH can receive entitlements and (public sector) wages at levels equal to those
currently obtaining in the Federation (leveling up); and total public spending at least as a
share of GDP can be held constant, but through a combination of other savings, and the
improved performance of the economy (and hence the budget), wages and entitlements can be
leveled up. The third option is most attractive. Moreover, we think it should be achievable in a
consolidated state. It is worth stressing that under all scenarios, the share of public spending
currently going to citizens of BiH residing in the RS would increase substantially.
Despite our conservative estimates, we find that consolidation yields a savings of about half a
billion (500 million) KM. Of this half billion, 417 million comes from consolidating general
government spending, and 83 million comes from the saving that will come from consolidating
the Funds. Together, this is equal to 2% of GDP; 4% of all Public Spending (including the 3
Funds); and 7% of all Government Spending. This is not a huge number for pure financial
savings, but it is nonetheless quite significant, especially since, again, our estimates were
conservative. Equally importantly, it was not the aim of the exercise to slash public spending

the decline in public sector employment that would come with consolidation. As already indicated, we have forecast no cuts in
the employment of people directly engaged in provision of public services.
47

per se, but rather to expose the inefficiencies that come from the redundancy of too many
levels of government, and too many government agencies and institutions in a small country.
Many of these inefficiencies have less to do with the wages of government bureaucrats or to
the other operating costs of the institutions that they occupy than with the fact that most
government institutions try to maximize their discretionary spending. The fragmentation and
redundancy of government institutions in BiH today means that there are over 500 public
institutions making grants and transfer payments to other levels of government, to private
firms, and to individuals. This creates a great chain of grant making and grant taking that is not
only inefficient but rife with corruption, patronage and dependency. The real costs of this
corruption, patronage, and dependency are of course difficult to measure, either financially or
in terms of the quality of public services.
Similarly, we can assume that the fragmentation and redundancy of government institutions
acts as real drag on the entire economy: Overlapping and redundant government bureaucracies
not only attempt to maximize their discretionary spending, but to extend their administrative
domains. This means that the interface between the government and most economic agents
is confused and contorted. Firms are forced to dance with a hydra of institutions and agencies,
each demanding its own form of compliance for similar goods and services. Many firms collapse
from the effort while more are just drained of the energy and resources necessary for
expansion and creative pursuits. Needless, to say, all of this also discourages the foreign direct
investment that BiH so desperately needs. We have, however, left the quantification of these
losses in terms of either private sector employment or GDP growth to others more expert in
these matters than ourselves.
Nonetheless, we think three things should be clear: First, the real costs of administrative
redundancy are not so much in the wages and operating costs of government bureaucracies,
but in the overregulation and patronage that comes from having too many similar
bureaucracies giving out grants, licenses, and permits, and competing to control the same
regulatory space. Second, even a conservative approach to consolidation yields savings equal to
2% of GDP, a figure which sounds small but which is actually quite significant. After all, most
OECD countries spend somewhere between 3-5% of GDP on primary and secondary education.
And third, that both the immediate financial savings we project and the more intangible gains
that will come from reducing government grant making and overregulation will improve the
performance of the economy, and then again that of the state budget.
In consolidating government institutions across two levels of government the state and
municipalities we have also had to make assumptions about how the myriad of existing grants
and transfers between should be allocated to each level, and how much of the current
48

discretionary spending should be considered pure savings. Again, we have been relatively
conservative in projecting pure financial savings when consolidating discretionary spending.
Instead, we have either assigned this spending to the new consolidated state, or to
municipalities. Here, two things should be noted.
First, by leaving the new State with considerable, but nonetheless reduced discretionary
spending, we have opted for a relatively strong state. By this we mean a state that has the
capacity to maintain public order, make strategic interventions into the economy, create and
enforce the standards necessary to ensure quality public services in a decentralized
environment, and meet the exigencies of EU integration. How strong the state should be, is of
course a matter of taste and it is certainly possible to adjust our assumptions to generate a
more modestly sized central government.
Second, when we assigned new functions to local governments, we also assigned them most of
the grants and transfers that higher levels of government are spending on these functions
today. Thus, the current costs of most capital and operating grants and transfers to schools;
public utilities; land-use and land planning institutions; and some social welfare functions have
been shifted to municipal budgets, but as general revenues coming through either
unconditional transfers or other freely disposable revenues (shares in national taxes or own-
revenue). What this means is that while the Model undoubtedly strengthens the state, it also
makes local governments much more powerful and financial autonomous than they are
presently.
This brings us to the third and final step in the analysis, namely to broadly sketch out how the
intergovernmental finance system would work after consolidation, with only two levels of
government the state and municipalities of BiH. Here we make two fundamental
assumptions.
First, the vast majority of the funding local governments will need to pay for the cost of primary
and secondary education will come to them through an earmarked, weighted, per-pupil grant
that is expressed as a percentage of the Single Account (known popularly as the VAT Fund).
39

Designing the per-pupil financing system, developing new teaching standards and curricula, and
monitoring how local governments spend their education grants to improve the life chances of
children in BiH, would be the responsibility of the new Ministry of Education. At the same time,
local governments would become responsible for hiring and firing school teachers including

39
The Single Account was created in 2006 when sales taxes throughout BiH were replaced by a single, state-level Value Added
Tax or VAT. As a result the Single Account is often referred to as the VAT Fund or VAT Account. Technically, however this is a
misnomer because all indirect taxes (e.g. excise taxes and customs duties), and not just VAT proceeds flow onto the Account.
49

school directors for maintaining and improving school facilities, and for rationalizing school
networks.
40

Second, money for other new functions assigned to municipalities will come primarily from a
combination of new, freely disposable revenues. These will include an expanded share of the
Single Account that currently goes to municipalities for general purposes, an expanded share of
Personal Income Taxes; and greater own revenue powers. Moreover, we assume that the
expanded share of the Single Account that will flow to municipalities for general purposes will
include stronger equalization provisions to ensure that all local governments even those with
weak tax bases will have the revenues necessary to provide quality public services to their
citizens.
B. Public Spending in BiH Today and After Consolidation

Table I below summarizes the major shifts in the composition of public expenditure for BiH as a
whole that would come with implementation of the Model using the assumptions that we have
outlined above. As can be seen from the Table, total public spending (including the Funds) as a
percentage of GDP declines from 47.1 percent (11.63 billion KM) today to 45 percent of GDP
(11.13 billion KM) after consolidation, a savings of roughly 500 million KM, or 2 percent of GDP.
Government spending declines from 30.2 percent of GDP to 28.5 percent of GDP, while
spending on the Funds declines from 16.9 percent to 16.5 percent of GDP.
Most importantly, from our point of view, however, are the shifts in funding presented in the
next to last two rows of the Table, and in the last column. Starting from the bottom, we can see
that Municipal Spending increases from 7 percent to 12.3 percent of GDP, a rise of 75 percent.
This is the hard evidence that the Model significantly increases the role and importance of local
governments in the new government system of BiH. At the same time, spending by all other
levels of government declines from 23.2 percent to 16.3 percent of GDP - a decrease of almost
30 percent. This is the hard evidence that while the Model significantly strengthens the state by
consolidating the current plethora of higher levels of government, it also significantly reduces
the discretionary powers of higher level government as a whole. It is this simultaneous
movement of placing more responsibility for the direct provision of public services closer to the
people through local governments and the reduction of the discretionary powers of the state

40
The Ministry of Education will establish common professional standards for primary and secondary-level educators. Also,
under the Model, we assume that local governments will have control of a limited number of teaching hours for programs of
their own design. This is theoretically the case even now, but this time has been reprogrammed for nationally-oriented
curricula.
50

that will produce most of the (hard to measure) gains in economic vigor, accountability, and in
improved public services.
Table I
Comparison of Public Spending Before and After Consolidation (2008 KM)
Current After Consolidation
Mln KM % GDP Mln Km % GDP % Change
Total Public spending as % of GDP 11,633 47.1% 11,133 45.0% -4.3%
Government Spending as % of GDP 7,467 30.2% 7,050 28.5% -5.6%
Spending on Funds as % of GDP 4,165 16.9% 4,083 16.5% -2.0%
Government Spending without
Municipalities as % of GDP
5,913 23.2% 4,020 16.3% -30.0%
Municipal Spending as % of GDP 1,724 7.0% 3,030 12.3% 75.8%
Savings as % of GDP na na 500 2.0% na

Table II below compares government spending by level of government before and after
consolidation. As can be seen from the Table, total per capita spending by all levels of
government would decline from 1,943 KM per person to 1,830 KM per person after
consolidation. This reduction reflects the decline in the cost of government without the funds
of 417 million KM.
Table II
Costs of Governance by Level of
Government Today
Costs of Governance by Level of
Government after Consolidation
Mln KM
%
GDP
Per
Capita
Mln KM
%
GDP
Per
Capita
BD 170 0.7% 2,246 Municipalities 3,030 12.3% 789
RS 2,173 8.8% 1,511 BiH 4,020 16.3% 1,047
FBiH 4,300 17.4% 1,847
All levels of
Government 7,050 28.5% 1830
BiH 824 3.3% 214 Savings 417 1.7% 130
All Levels of
Government 7,480 30.3% 1,943

After consolidation, total government spending on BiH citizens who reside in the Federation
would stay about the same while government spending on those residing in the RS would
increase from 1,511 KM per capita to 1,830 KM per capita, an increase of 22%. Chart I
illustrates this.

51

Chart I

Table III below presents the same information for the Funds. The Table must be treated with
some caution because it does not capture the full value of unemployment and pensions funds
in Brko District, and because it may underrepresent fund spending on unemployment in the
RS.
41
Moreover, it must be remembered, that the payroll taxes used to finance the funds are
higher in the Federation than in the RS.
As can be seen from the Table we are forecasting that the consolidation of the funds will
generate 83 million KM in savings from administrative costs (not benefits). More importantly,
what the Table shows is that spending by the Funds is more than 60 percent higher per capita
(c. 500 KM) in the Federation, than it is in the RS
42
. After consolidation, and as we have already
discussed, these differences will have to be equalized, either by leveling-up or leveling down. In
the right hand side of the Table, we have assumed for the purposes of illustration that benefits
will be leveled down, meaning that after consolidation spending on health, pension and
unemployment benefits for citizens of BiH who currently reside in the Federation would
decrease 20 percent from 1,200 KM per capita to 1,062, while they would increase 30 percent
for those who reside in the RS, rising from 721 KM per capita to 1,062 KM. Benefits, however,
could also be leveled-up by putting new money into the Funds. The cost of bringing the benefit
levels of all citizens of BiH up to those currently obtaining in the FBiH would be approximately
700 million KM, or about 200 million KM more than the Model anticipates generating in

41
In the Model, we have included the RS Fund for Child Support (50 mln KM) in the costs of governance, and not as part of the
Funds. This may be misleading, in as much as the bulk of these payments probably go to underemployed households and may
rightfully be considered unemployment benefits. Similarly, we have included Veterans Benefits not in the funds, but in the
costs of governance. Because veteran spending is higher in the Federation than in the RS in per capita terms, this inflates the
difference in current per capita spending on governance by the entities in favor of the Federation.
42
See the Appendix for a discussion of the origins of the savings.
52

immediate financial savings. We are confident that this difference can be extracted from
potential savings, contingent on policymakers decisions.

Table III (Assuming Leveling-Down)
Cost of Funds by Level of Government Costs of Funds in a Consolidated BiH

Mln
KM
%
GDP Per Capita
Mln
KM
%
GDP
Per
Capita
BD 16 0.0% 211
All
Funds 4,083 16.5% 1,062
RS 1,346 5.4% 721
Savings 83 .03% 13
FBiH 2,804 11.3% 1,204
All Funds 4,165 16.8% 1,081

Charts II and III on the next two pages present graphically the composition of public spending
before and after consolidation. Chart II significantly under-represents the degree of
fragmentation in BiH today because each Canton actually has its own Health, Pension and
Unemployment funds. Chart III slightly under-represents the degree of consolidation that is
achieved, since the financial savings produced by consolidation are included in the picture.
53

Chart II
BiH
824
7%
FBIH
1,496
13%
RS
1,431
12%
Cantons
1,992
17%
FBIH municipalities
812
7%
RS municipalities
742
7%
Brcko District
170
2%
FBiH Pension
1,544
13%
FBiH Health
1,003
9%
FBiH Unemployment
257
2%
RS Pension
821
7%
RS Health
494
4%
RS
Unemployment
31
0%
BD Health
13
0%
Other
4,165
35%
Composition of Public Spending in BiH in 2008
(in mln KM) (7.4 bln Government, 4.2 bln Funds)

54

Chart III
Municipalities
3,030
26%
BiH
4,020
35%
Savings
500
4%
Health Fund
1,489
13%
Pension Fund
2,345
20%
Unemployment Fund
249
2%
Other
4,083
35%
Compostion of Public Spending in BiH after
Consolidation
(in mln KM) (7.05 bln Government, 4.08 bln Funds, 0.5 bln Savings)

Table IV below shows the composition of government spending by level of government
without the Funds and by economic expenditure type in 2008. As can be seen from the Table,
the combined spending of the cantons and the Federation government on both wages and
material costs is more than twice that of the RS, despite the fact that the Federation has a
population that is only 60 percent larger than its smaller counterpart. Moreover, the vast
majority of expenditures on wages and material costs are being made by the cantons, which are
clearly the source of much of the redundancy of government institutions in BiH as a whole.
Even more striking is the fact that total investment spending (Capital Grants and Capital
investments) undertaken by the cantons and the Federation Government is 4.3 times higher
(350 million KM vs. 80 million KM) than in the RS. Similarly, the cantons and the Federation
government spend almost 2.7 times as much on current grants than the RS (1,310 million KM
vs. 485 million KM). This is partly because of the high level of transfer payments that are made
to veterans and refugees in the Federation, spending that we have left untouched in the Model,
but which would need to be equalized across the former entities after consolidation. In part,
however, both the higher capital spending and the higher spending on current grants reflect
the increase in discretionary spending that accompanies redundant institutions. So once again,
the reallocation of spending that will come with consolidation will shift what is currently
discretionary spending by the Federation and the cantons towards citizens of BiH who currently
reside in the RS.
Table IV
Composition of Government Expenditure in BiH by Level of Government in 2008 (mln KM)
BD Cantons FBiH RS
RS
Local
Govs
FBIH
Local
Govs
BiH Total
Wages 62 1,044 242 596 160 196 550 2,849
Material costs 35 214 73 157 135 131 176 922
Current grants 44 521 789 485 131 176 31 2,177
Capital grants 0 79 69 1 11 160 0 321
Capital investment 21 115 82 78 267 141 66 770
Lending 8 7 5 25 14 1 0 59
Debt repayment 0 15 236 89 24 6 1 373
Total 170 1,995 1,496 1,431 742 812 824 7,470
% of Total Government
Expenditure 2.3% 26.7% 20.0% 19.2% 9.9% 10.9% 11.0% 100.0%

But if spending by middle level governments is skewed strongly in favor of the Federation,
spending by local governments is skewed though much less strongly in favor of the RS.

56

Spending by RS municipalities on wages and current grants are respectively 20 and 25 percent
less than in the Federation, despite the fact that the population of the RS is an estimate 40
percent smaller. Even more striking, given the different population of the two entities, is the
fact that RS municipalities spend roughly the same amount of money on total investments
(capital grants plus capital investments) and material costs. As such, it should be clear that
municipalities in the RS are relatively better off financially than their counterparts in the
Federation.
Chart IV below presents the same data contained in the last two lines of Table IV in pictorial
form, while Chart V presents the composition of government spending by level of government
after consolidation. As can be seen from the Charts the share of municipal spending in total
government spending increases from 23% today (FBiH municipalities, RS municipalities, and
Brko District) to 43% after consolidation. Or put another way, these Charts show the increased
importance of municipalities in the governance structure of BiH as reflected in their share of
government spending, as opposed to their share of spending as a percentage of GDP (Table I
above).
Chart IV

Chart V

57

BiH
4,020
57%
Municipalities
3,030
43%
Composition of Government Spending in
BiH After Consolidation (mln KM)

Chart VI below shows the shift in the basic composition of municipal revenues produced by
consolidation. But the Chart is really based on expenditures, meaning it shows the existing
municipal expenditures in terms of revenues, plus the new revenues municipalities will
receive for assuming expenditure assignments that are currently being performed by other
levels of government. As can be seen from the Chart, the lions share of the increase in
municipal revenues (expenditures) comes from their new responsibilities for the financing and
managing primary and secondary schools. Indeed, the assumption of new responsibilities in the
education sector will require 960 million KM in new revenues, and will account for 32% of all
municipal government expenditures of after consolidation (three-quarters of new municipal
revenue). Meanwhile, municipalities will receive another 347 million KM in revenues for other
expenditure responsibilities that have been assigned to them. As we have noted earlier, these
other new responsibilities fall primarily in the areas of urban land management and planning;
civil protection; and the operation, maintenance and improvement of local public utilities,
sports and culture.


58

Chart VI

Table V below, explains in somewhat greater detail what is actually going on. The first column
shows the existing composition municipal expenditures. This column is interesting because it
shows that 35 percent of all municipal spending is on Capital Investments and Capital Grants,
with the latter going mainly to public utilities. Another 20 percent is spent as Current Grants, in
the form of (operating) transfers to public utilities, NGOs and individuals. Only 24 percent of
municipal expenditures are currently spent on wages, and 17 percent on material costs.

Table V

Composition of Municipal Revenues and Expenditures Today and after Consolidation (mln KM)

Municipal
Expenditure
Today
%
New
Education
Funds
%
New
Disposable
Income
%
Post
Consolid.
%
Wage bill 417 24% 788 82% 54 16% 1,259 42%
Material costs 301 17% 82 9% 36 10% 419 14%
Current Grants 352 20% 40 4% 99 29% 491 16%
Capital Grants 172 10% 18 2% 23 7% 212 7%
Capital
Investment 429
25%
32
3%
135
39%
596
20%
Lending 14 1% 0 0% 0 0% 14 0%
Debt repayment 38 2% 0 0% 0 0% 38 1%
Total 1,724 100% 959 100% 347 100% 3,030 100%
percent of total 57% 32% 11% 100%

59

The second column shows the total amount of spending on wages and material costs that
higher level governments (cantons and entities) are currently spending on primary and
secondary schools, as well as almost all of the grants and capital spending that higher level
governments are currently devoting to pre-tertiary education. All the wage and material costs
for primary and secondary schools have been assigned to municipalities, but a small fraction of
the grants and capital expenditures that higher levels of government are currently spending on
education have been assigned to the state. This has been done to provide the state with a
limited amount of discretionary funding to pursue strategic objectives in the sector.

More than 90 percent of the expenditure responsibilities being asigned to municipalities for
primary and secondary education is for wages (788 million KM, 82%) and material costs (82
million KM, 8.6%). This means that realitively little of what is currently spent on the function by
higher level governments is spent as grants or capital invesments. In the Model, virtually all of
the grants and capital investments that higher level governments are currently spending on
primary eduction will now be transferred to municipalities (90 million, 10% of total education
funding) as part of an education transfer from the Single Account.

Municipalities will be required to spend their education transfers on education. But within the
educational sphere, they will be free to spend this transfer as they see fit, as well as to
contribute other municipal revenues towards the improvement of their school systems. As a
result, if a municipality spends less of its Education Transfer on wages because it has
consolidated classrooms and/or schools, it will have more to spend on improving facilities and
teaching conditions. Conversely, if a municipality chooses to maintain its current school
network and classroom sizes, it may find itself under pressure to contribute other revenues to
the support of its schools in order to maintain reasonable standards, or to keep up with the
standards being created by its neighbors.

The column in the Table labeled New Disposable Income is a composite of all the other
functions that under the Model have been assigned to municipalities. As can be seen from the
Table, 74 percent of the 347 million KM in new money being given to local governments is
currently being spent by higher levels of governments on grants and investments in functions
that will become entirely municipal, such as urban and land use planning, maintaining and
improving public utilities, and supporting local cultural institutions. Conversely, only 16 percent
of these new disposable funds are currently being spent on wages and only 10 percent on
material costs, mostly in the areas of civil protection and firefighting.


60

The last column in the Table shows that total municipal revenues will increase from 1.7 billion
to over 3 billion after consolidation. After consolidation, the combined share of municipal
expenditures on Current Grants, Capital Grants and Investments will decrease from 55 percent
of total spending (column 1) to 43 percent (column 4). Meanwhile spending on wages and
material costs will rise from 41 percent of municipal expenditures to 66 percent. The reason for
this increase is again the overwhelming financial significance of making local governments
responsible for teachers wages after consolidation.

Chart VI below compares the composition of government spending by level of government
before and after consolidation. As can be seen from the Chart, all categories of municipal
expenditure increase after consolidation, while all categories of spending by higher levels of
government in this instance the new consolidated state decrease. The most dramatic shift is
in expenditures on employment, due principally to the already discussed shifting of
responsibility for teachers wages from higher levels of government to municipalities. But a
similar and very important trend can be seen in discretionary spending. Before consolidation,
higher level governments controlled 2.2 billion KM of spending on investments and capital and
operating grants; after consolidation this figure drops by 400 million to 1.8 billion KM, a decline
of 18 percent. Conversely, before consolidation municipalities controlled 950 million KM of
spending on investments and capital and operating grants, while after consolidation this figure
increases by 350 million KM to 1.3 billion.


61

Chart VII

What this means is that consolidation has at once made the higher level of government leaner,
meaner and less discretionary, while putting more freely disposable money in the hands of
municipal governments to meet the needs of their citizens. The Model generates pure financial
savings equal to two percent of the GDP, radically reduces costly administrative fragmentation
and redundancy, limits the discretionary powers of higher level governments, and expands the
fiscal autonomy of municipalities.

C. An Outline of the Revenue Structure of a Municipalities in a Consolidated BiH
Table V below presents the revenues of municipalities in the RS and the Federation in 2008, as
well as the revenues of Brko District. The data for the RS and the Federation are from the
annual budget execution statements that all levels of government are obliged to prepare (the
so-called GIB forms) while the data for Brko District, are imputed because we did not have
revenue data for the District.
43
The total revenues of the municipal sector (including Brko
District) are about 136 million KM less than the total expenditures that were used as the basis
for the Model in the previous section of the report. While it is rare that revenues and

43
To derive imputed types of revenues for Brcko we have multiplied the total expenditures of the District less spending on the
Health Fundby the share of each revenue type in the total revenues of FBiH and RS municipalities.


62

expenditures completely balance this difference equal to 8.5% of total revenues is on the
high side and not easily explained.
44

Table VI
Structure of Municipal Revenues in 2008 (mln Km)
Revenue Type
RS
2008
% of
Total
FBiH
2008
% of
Total
Brko
2008
(imputed)
Total Muni
Revenues
in 2008
with Brko
% of
Total
Shared Wage Tax 45.9 7% 74.1 10% 14.4 134.4 8%
Property & Other Taxes 31.5 5% 94.2 12% 12.7 138.5 9%
Single Account Revenues 317.0 50% 201.4 26% 62.2 580.7 37%
Asset Revenues 34.3 5% 95.1 12% 15.5 145.0 9%
Fees and Charges 147.1 23% 154.4 20% 34.7 336.2 21%
Operating grants 14.9 2% 123.2 16% 16.6 154.7 10%
Asset Sales 19.4 3% 14.8 2% 4.1 38.2 2%
Capital Grants 30.1 5% 19.3 2% 5.9 55.3 3%
Total 640.2 100% 776.6 100% 170.0 1,586.8 100%

The most significant differences in the composition of municipal revenues between the RS and
the Federation lie in the much higher share of (general) revenues RS municipalities derive from
the Single Account, and the much lower share of (earmarked) revenues they derive from
Operating Grants from higher levels of government. At least according to law (if not practice),
local governments in the RS currently have more financial autonomy than their counterparts in
the Federation.
As described earlier, the Model assumes that following consolidation municipalities will be fully
responsible financing and managing primary and secondary schools. It also assumes that in
order to finance this new responsibility, municipalities must be provided with the same amount
of funding that higher levels of government are currently spending on pre-tertiary education. In
2008, this amounted to about 960 million KM. Similarly, we assume in the Model that
education will remain as it is in most countries a shared function: The state government will
set standards and provide local governments with the vast majority of the funds they need to
run schools, but local governments will be free to contribute additional revenues to the sector
and to manage schools as they see fit, so long as they meet those standards.

44
It is probably explained in part by the notoriously poor reporting of some local government revenues including income
carried over from the previous year and in part by expenditures that have been incurred but not paid for (payment arrears)


63

In line with these assumptions, local governments would receive an earmarked transfer from
the Single Account for Primary and Secondary Education. The total value of the transfer pool
would be set by law as a percentage of the Single Account, ensuring that funding for education
would increase with the economy as a whole. At the same time, the allocation of the transfer
pool created from the Single Account would be allocated to municipalities in accordance with a
formula. The basic driver of the formula would be the number of pupils attending school in a
given jurisdiction. But the formula would be weighted to take into account the different costs of
educating different types of pupils (e.g. the handicapped), in different types of schools (e.g.
primary, secondary, vocational) as well as in different types of demographic environments (e.g.
rural and urban). It is obviously, beyond the scope of this exercise to design this formula now,
but certain basic effects of the new system can be examined.
Table VI below presents current spending on primary and secondary by all higher levels of
government in the RS and the Federation today. The Table does not include spending on
education by local governments.
45
As can be seen from the Table, higher level governments in
the Federation spends about 250 KM more per pupil on primary and secondary education than
the RS government does.
Table VII
Current Spending On Primary and Secondary Education

Expenditures on Primary and
Secondary Schools
Primary and Secondary
School Pupils
Per pupil
Expenditures
RS 257,601,922 162,928 1,581
FBiH 634,940,023 346,402 1,833
BiH 892,541,945 509,330 1,752

Table VIII below presents the basic dimensions of the new Education Transfer. The Transfer
would be set equal to 19.5 percent of the Single Account in order to yield not just the 892
million currently spent by higher level governments, but an additional 66 million of grants that
are currently spent on education by various education Ministries (together 959 million). Most
importantly, and has can be seen from the Table the basic per pupil norm (without weighting)
for education throughout BiH would increase from 1,752 (Table VII above) to 1,883 KM, an
increase of 50 KM over current levels in the Federation and of over more than 300 KM in the
RS.

45
In the RS, local governments are legally responsible for maintaining the facilitates of secondary schools but not primary
schools; in the Federation, local governments in Cantons 7 and 8 pay for the maintenance of both primary and secondary
schools, while in all other cantons, it is at least in theory the cantons who cover these costs.

64

Table VIII
Value of the Education Transfer as % of the Single Account & in Per Pupil Terms
% of Single Account Value in KM
Number of
Pupils Per Pupil Norm
BiH 19.5% 959,314,875 509,330 1,883

The Model also anticipates an increase of municipal revenues by an additional 347 million KM
in order to cover the costs of functions now being paid for by higher levels of government and
which will be transferred to local governments. It also assumes that many of the current grants
that local governments receive primarily in the Federation should be transformed from
earmarked grants into general revenues.
This however, raises the question of how these general revenues should be provided to local
governments. Our basic answer is that these additional general revenues should be assigned to
local governments in two ways: Through an increase in the municipal share of the statewide
yield of the Personal Income Tax (PIT); and through an expanded share of the general purpose
monies that they currently receive through the Single Account. For the purposes of the Model
we have assumed that all local governments will receive 50 percent of the PIT revenues
generated in their jurisdictions (up from 25 percent in the RS and 34.4 percent in the
Federation) and that half the amount of funds that local governments currently receive in
operating grants would be converted into general revenues. Table IX below shows the effects of
the changes in KM.
Table IX
Comparison of Municipal Revenues Before and After Consolidation (mln KM)
Revenue Type
Total Muni
Revenues in 2008
(with Brko)
Municipal Revenue
After Consolidation
Consolidated
Municipalities
(differential with
2008)
Shared Wage Tax 134 202 +68
Property Taxes 119 119 0
Other Taxes 22 22 0
Single Account Revenues 581 937 +356
Asset Revenues 145 145 0
Fees and Charges 324 324 0
Other Non-Tax Revenue 14 14 0
Operating grants 155 77 -77
Asset Sales 38 38 0
Capital Grants 55 55 0
Transfer for Education 0 959 +959
Total 1,587 2,893 +1,306

65

Total local government revenues increase by 1.3 billion KM, of which 959 million comes from
the new Education Transfer, 347 million from the combined increase in the PIT and Single
Account share minus the operational grants that we have converted into general revenues to
reduce the discretionary powers of the state. We have however, left the current level of Capital
Grants untouched on the grounds that there will still be investments in the municipal sector
that local governments will need some support to realize. It is also worth noting that the own
revenues of local governments should also increase after consolidation, particularly in the
Federation, where land use and issuance of construction permits is often controlled by cantonal
authorities.
Table IX below compares the percentages of the Single Account municipalities including Brko
District received in 2008 (5.80 billion KM) with the share they would receive after
consolidation and in line with the assumptions presented below. As can be seen from the Table,
the share of the Single Account that all municipalities would receive including Brko District
would increase from 11.8 percent to 19 percent. This increase would raise the average per
capita general grant for local governments from its current level of 151 KM per person to 244
KM per person. For RS municipalities the average per capita increase would be about 24 KM per
person or 10% more than current levels. In the Federation, where local governments currently
get much more of their revenues from earmarked grants and much less of them from the Single
Account, the shift would be much more dramatic: per capita municipal revenues from the
general grant component of the Single Account will almost triple, rising from 87 KM to 244 KM
per capita.
Table IX
General Grant as a % of the Single Account

KM % of SA
Per Capita
KM
RS 317,022,597 6.4% 220
FBiH 201,435,894 4.1% 87
Brko (imputed*) 62,209,647 1.3% 16
Total Today (with Brko) 580,668,138 11.8% 151
Total After Consolidation 937,120,244 19.0% 244
*Because we could not obtain the revenue numbers for Brko District, its share of the Single Account
has been imputed here. The amount in the Table understates the real value of Brkos share.

As with the per pupil education transfer, however, modeling the allocation of the general
transfer to individual local governments is beyond the scope of this exercise. This problem is
analogous to the problem of designing the specific coefficients used to weight the per pupil

66

formula we have discussed above. But here, the formula should take into consideration not just
the relative costs of providing different services in different jurisdictions, but above all the
relative wealth of the jurisdictions themselves. In other words and as is done today in both
the Federation and the RS the share of the Single Account that any particular jurisdiction
would receive would be adjusted by coefficients designed to ensure that poorer jurisdictions
got additional funding. The key consideration in designing this formula would be to ensure the
horizontal equalization of local government revenues so that poor jurisdictions and
underdeveloped regions have sufficient funds to provide adequate public services and develop
themselves.
Moreover, if the overall level of equalization achievable through the direct application of the
formula was deemed insufficient, some of the half billion KM in savings generated by the Model
could be set aside as distinct Infrastructure Development Fund for Underdeveloped
Municipalities. The purpose of this Fund would be to provide capital grants to municipalities
whose existing infrastructure endowments lagged considerably behind those of other
jurisdictions.

67

Appendix I
A Note on the Origin of the Savings Generated by the Model
As described in the Report and the accompanying methodological note, the Model generates
financial savings equal to 500 million KM. Of this amount, 83 million comes from the savings
that we project will come from the administrative consolidation of the funds. These savings will
come from consolidating the administrative costs of 27 distinct funds into 3 funds; a state
health fund, a state pension fund, and a state unemployment fund. Or put another way, none
of the savings we anticipate coming from the consolidation of the Funds, comes from reducing
money currently being spent on the actual delivery of health, pension, and unemployment
benefits.
The remain 417 million in savings represent the amount of money we think can be saved after
all existing government spending is allocated to either the state government or to
municipalities with consolidation. The Chart below presents this total amount of savings (with
the Funds) in relation to total government spending (without the funds) after consolidation.

The Table below presents the origin of the savings by economic expenditure type. This Table,
like Table V in the body of the report must be read with caution, particularly with respect to the
municipal columns. This is because the Table presents the amount of money we have taken
from different economic expenditures categories and given to the state and municipalities as
revenues, and to savings as savings. As such, the line items for the state and municipalities
should not be understood as revenue types. Indeed, under the Model, and as we have
explained in the text, the vast majority of the current grants, capital grants, and investment
monies that municipalities will receive will no longer be in the form of grants, but as part of
either formula-based transfers from the Single Account, or new revenues from a higher
personal income tax (PIT) share.

68

What the Table does clearly show is that 58 percent of all savings will come from reducing the
wage and material costs associated with redundant government institutions (34 percent wages,
24 percent material costs), and 42 percent of it will come from reducing the discretionary
spending associated with this redundandcy (current grants 22 percent, capital grants and
investments 20 percent)
The Origin of Savings by Economic Classification of Expenditures (mln
KM)
State Munis Total Savings
% of
Savings
Wage bill 1,458 1,259 2,717 172 34%
Material costs 404 419 823 120 24%
Current grants 1,443 491 1,934 111 22%
Capital grants &
Investment 338 808 1,147 99 20%
Lending 34 22 56 0%
Debt repayment 342 30 373 0 0%
Total 4,020 3,030 7,050 501 100%
Percent of Total 57% 43% 100% 7%

Appendix II
Where to spend the savings?
The movement toward the model has yielded a certain amount of savings across different
sectors. The big question is how to best use the potential savings and what goals can be strived
toward using the opportunity this reform is offering. Here we list a few ideas that encourage
most efficient and productive use of the savings.
A drive for the decrease of the government sector this approach implies going back to the
model and deciding which public revenues to decrease in order to lower the tax burden on
citizens and business and what goals would be achieved. For example introducing a VAT with
several rates could allow for lower tax burden on basic goods in theory leading to poorest
society members staying with more disposable income. Deciding to cut contributions, on the
other hand would lower the burden on employers and encourage more employment as the
labor force would thus become cheaper, possibly even making BiH more competitive when
attracting potential investors (both domestic and foreign).

69

Reform of the pension sector - BiHs pension systems are still very much dependent on Pay as
you go model that with aging population and low employment led to a pension system that is
currently groaning under the weight of the number of pensioners that have to be supported by
the currently employed work force. Use of the savings to develop a program of support for the
transformation of the current system to a different one (whichever is selected) would enable a
transition period that would within a space of at least a decade move away from the solely Pay
as you go system.
Accelerated repayment of public debt - the public debt in BiH has dramatically increased during
the last year due to the effects of the international crisis and it has taken a substantial debt
from the IMF in order to cover the public expenditure needs in that period. The savings can be
used to lower the countrys debt burden and open space for debt for public investment projects
instead.
Reform of the Health care system the system of public health care provision is widely deemed
a nightmare for any patient incautious enough to actually get sick and need those services. The
savings could be allocated to the endeavor of reforming the public health care systems and to
improve the quality of service that the citizens receive.
Severance programs for the laid off public workers the savings are partially made through
laying off a number of public sector employees, and beyond the severance payments that they
are eligible for by the law, part of the savings could be used to fund short term programs to
help the newly laid off either start their own ventures or get them new skill sets for finding
work in different places. As well, a ploy similar to what was done during the decrease of the
Defense Ministries in Entities could be undertaken a cash one off payment to everyone that
willingly leaves the public employment, coupled with programs that will provide some guidance
about how to use the funds to their best effect (IOM was heavily involved at that time and
provided expertise and assistance).
Public Investment programs finally, the savings could be used to move faster on agreed
priorities in area of public investment, which demand significant funds. One of those examples
is the Corridor V-C, others can include such investments as the green technology use in public
sector, waste disposal and water supply investments across BiH.

70

Methodological notes

Gathering and organizing the information to develop the model was a lengthy process
consisting of several steps. Each had its own challenges and issues that needed to be resolved.

The countrys complicated structure made such issues inevitable. There are two official charts
of accounts being applied in the entities (the Federation of BIH FBiH and the Republika
Srpska RS) and two unofficial (in Brko District BD and for the state of BiH) leading to
differences in accounting and presentation of information. This made data consolidation
difficult. One of the largest problems is a lack of transparency, which forced us to turn to third
party sources to obtain information about budget execution of different governments and
funds. While not our target in this exercise, we have documented these difficulties and
described them in greater detail in a separate annex.

Step 1 data gathering
The sources of information were:
the budget execution documents of individual governments analyzed,
adopted FBiH budget, the annual budget execution reports for municipalities made by
entities Ministries of Finance,
the Indirect Tax Authoritys Macroeconomic Analysis Units consolidated reports for
2008,
Central Bank reports on government finance and the reports published on websites of
entities health, pension and unemployment funds.

For statistical information (e.g., GDP estimates, numbers of pupils and citizens) we relied on the
BiH Statistics Agency and the entities statistical institutes.

The lack of information about expenditures for the off-budget funds (health, pensions,
veterans benefits, and unemployment) was among the most daunting problems we
encountered. While the Federation Health Fund published on its website detailed information
about its expenditures, and expenditures of the cantonal funds, the same cannot be said of any
other off-budget fund in the country. Their publicly available information was extremely poor.
In some cases, such as pension funds, these sources provided information about the pension
payouts, but nothing about the actual financial situation of the fund itself. For instance, the RS
Health Fund only provided information about expenditures, such as primary and secondary
health care. No higher level of detail about the fund itself, or specific allocation according to
economic codes, was made available.

71

In addition to going to the funds, we tried also through contacts with other international
organizations working in those fields (such as the World Bank) to obtain more detailed
information. We found out that the funds were no more forthcoming with information to them.

In the end, we relied on the information gathered by the Central Bank (obtained from the
World Bank) to discern the finances of the off-budget funds. Due to the poor quality (and
quantity) of data available, a more detailed analysis of their expenditures was impossible. The
use of BiH Central Bank data to plug the holes, while necessary, has a drawback. Capital
investment, debt and acquisition of non-financial assets (investment in companies shares, or
lending) are shown as a net value; it is not certain what the actual expenditure in these
categories is for the funds. For the purpose of data consistency, the Central Bank information
was used for all off-budget funds (pension, unemployment, health and the RS Childrens fund).

Besides this outright unavailability of data on the various funds, we were unable to find
sufficient information in certain areas in budget execution documents. Therefore, these data
gaps had to be leaped with a series of assumptions.

Information was completely lacking on the number of public employees in the RS (both budget-
funded institutions and RS Funds), Canton 1, Canton 3 and individual municipalities in both
entities.

To overcome this lack of data, we averaged out the number of employees (where we had
them), and picked an average for those governments that did not provide the information to try
and assess the number of employees.

While average wage is a way to determine the number of employees, this method is far from
ideal. Some functions within a government are better paid than others. Thus, we can assume
our numbers probably influence the number of teachers negatively (they are bound to have
lower wages) and positively the employees within ministries (who are usually better paid). This
will act as a distorting factor on any analysis done that takes as input the number of employees.
However, the distortion should not be too severe on average.

Step 2 data organization and sorting

After gathering all the available data, a set of decisions was made the municipal sector was
left untouched. All their current expenditures were simply carried over in the model and taken
in as part of the municipal sector expenditure. The BD budget was only affected in the very few

72

areas where the functions according to the model have to be centralized to be more efficient
and equal (e.g. health and pensions). All the other parts of the BD budget were treated the
same as the other municipalities (i.e., left untouched).

Reallocation was made from the state budget, entities, cantons and bits and pieces of the BD
budget into the two layers foreseen by the model the municipalities and the state.

Each budget under analysis was first organized in the same manner with the wage bill being
compressed to include net wages, contributions and all the benefits, to have a more accurate
wage bill per employee. Public administration frequently pays low wages, but often increases
employees take-home pay through benefits and compensation for committee work.
The contributions systems in entities differ. The way the entities presented the information
about the wage bill with all its components was not sufficient to distinguish actual wages from
contributions and benefits. The effect of this information gap is that we could not create a
single wage scale for the new institutions. Some areas may end up getting trimmed, while
others will need to be augmented to ensure proper delivery of public services.

The area of grants required several adjustments. First, the other grants code is actually used
to denote repayment of internal debt, including foreign currency savings and some other
material costs. The expenditures in that code were moved to debt repayment and / or material
costs. Secondly, the FBiH Budget execution report did not break down grant information by
code; it gave only totals. Thus the adopted budget was used to create estimates for grants
expenditures in the sense of breakdowns between different grant categories, as totals were
provided in the execution document. Finally, as we were aiming to consolidate all the public
expenditure information in one place, it was necessary to exclude grants to other levels of
government and funds in an effort to avoid double accounting. Below is a table with the
amounts of grants to other levels of government that were excluded in consolidation.

Government
Current grants Capital grants
Republika Srpska
230,259,946 145,491
Federation
167,583,874 14,129,809.95
Canton 1
606,249 5,162,226
Canton 2
2,696,767
Canton 3
4,886,025 4,774,412

73

Canton 4
6,269,098 609,936
Canton 5
5,225,495 285,000
Canton 6
9,673,673.25
Canton 7
6,673,639 120.720
Canton 8
5,516,872 466,000
Canton 9
45,596,651 9,547,382
Canton 10
2,679,289 194,063
Brcko District
200,000
Total
487,867,578 35,314,441

Note: Some of the intergovernmental transfers were tracked as transfers to individuals or
NGOs. The codes did not match the descriptions (e.g., transfer to pension fund being coded as
transfer to individuals). In cases where we could identify through description a grant to other
level of government (as in the example), it was treated as such.

Step 3 division of expenditures by function

Following such clean-up and consolidation of information within individual budgets, it was
necessary to try and divide the expenditures by function to have a clear picture of the amount
of public funds being spent on each particular function and institution. The division by function
was done following the COFOG (Classification of the Functions of Government), as published by
the United Nations Statistics Division in its Classifications Registry. The institutional set-up
followed the state budget institutions as a baseline within the division by function.

The division by function was challenging, in that every government lumped together functions
in different institutions. A judgment call was made about how to split them up, since there was
no information available regarding the actual work division within an institution. For example,
in situations where education was tied together with culture and sports, it was assumed a
higher proportion of the institution was devoting its time to education, and smaller shares were
allocated to culture and sports. The full list of how the institutions where divided is presented in
the Annex.


74

Step 4 reshaping of functional expenditures to follow the model

After making that allocation across functions and institutions, the next step in the process was
to take a look at all the institutions that exist currently at different levels of government to see
how, within a certain function they can be merged to follow the two-layer governance model.
Once completed, we began merging and sorting out functions in institutions following the
model.

The institutions that were previously created at the central state level to deal with tasks for
which there was no ministry were merged in the new ministries for appropriate function or
deleted, and a certain number of institutions existing at lower levels previously were removed
as it was deemed their tasks will be done inside the new ministries. Finally, reorganization
within the functional setup was done following the model as some functions were merged
within one ministry.

When a function was to be moved up to or merged at at the state level, assessment of the
workload and potential savings was made based on the work load and the existence of current
structures in future. For example, the police function was shifted in full to the state level, and
no savings were assumed as this function would need to be carried in the same volume and the
regional infrastructure would be kept. In some cases, we refrained from making savings, given
the insufficient provision in that sector. For example, the Ministry of Health is keeping all the
current expenditures for its future work.

A number of institutions, such as the new Education and Culture Ministry, were dealt with in
three parts. A part was merged to perform the function at the state level in this case coming
from the education part of the current expenditures. Reduced administrative capacity allowed
some of these funds to be allocated to savings., Finally, municipalities will receive funding for
their performance in the targeted area. In this case, a large proportion of the current culture
allocations will be allocated to municipalities.

However, when a function or institution was being moved up to the state-level to perform a
task that was considered to not require the aggregate volume of support (as with the Ministry
of Finance and Treasury), a certain amount of savings through efficiency gains was assumed. In
addition to simple efficiency gains, we also assessed whether a function in government was
sufficiently resourced. This implied that the task carried out by current institutions is similar
enough that there would be significant surplus administrative capacities when the function is

75

carried out in a more efficient manner. These institutions were the ones where we assumed
more significant savings.

If a certain function (or elements thereof) were to be fulfilled in the future by municipal
government, we assumed that no savings would be made in the proportion going down to
municipal level (for example, elementary and secondary education).

Grants and capital investments were assessed separately from administrative capacity. This was
again done function by function and institution by institution, bearing in mind the importance
of the function. In some cases, even when we knew there might be potential savings we did not
take those decisions. We are convinced that significant economies can be made within these
figures, contingent upon public policy decisions. But it is best left to publicly accountable policy
makers to decide how to address the numerous issues within certain functions.

The no-savings approach was taken in several areas. First and the biggest expense of public
budgets today is the area of social protection. Grants are provided to the veteran population
and for social protection purposes (protection of poor, pensioners, and families with children,
invalids etc.). The bulk of expenditures in grants in this area (about 1.3 billion KM annually)
were allocated for future grants without any savings at the state level. This sector demands
rationalization, so it can provide sufficient assistance to those in need, while weeding out
patronage exploitation.

In the area of environment no savings were made. However, grants and capital investment
made within this function were divided, with the greater share allocated to municipalities (as
the future more involved investors in this area), and the lesser share for overarching goals and
investment at the state level.

Small savings were made across different areas and functions, based on assessment of probable
duplication of grants. In some cases, the institutional reshuffle resulted in some institutions
being phased-out.

The most significant savings in the area of grants and capital investment were made within the
function of general public services. This includes institutions such as the Parliament,
government administration, common services, the Ministry of Finance, etc. The savings made
here amounted to 112 million KM annually. Each government has a pool of funds for
discretionary grants, which with administrative streamlining would not be required in same

76

amount. The simple reduction in the number of buildings to maintain would lead to significant
savings in capital investment.

Finally, in some areas we looked at capital investments and grants together, as it made sense to
combine them as discretionary funds within a particular function.

The Health, Pension and Unemployment Funds were not analyzed, as there was a severe lack of
information about their operations and expenditures that would enable analysis. We assumed
very minor savings due to efficiency gains in consolidation, but went no further than that. As
noted earlier, these functions require urgent and thorough reform to meet public need at
affordable cost. Adoption of the models governance system would make these hard decisions
easier or at least possible.

This assessment surely leaves space to generate additional savings in the reshaping of the
public sector and reallocate from one sector to another in cases where the policy makers feel
there is underfunding to reach more efficient redistribution of public resources.

Step 5 outlining the future revenue structure

The revenues presented a problem in the sense that there is a severe gap between 2008
revenues and expenditures, forcing deficits throughout BiH. Based on available information, it
appears that expenditures exceed revenues by 130 million KM.

Several different sources of information had to be used to construct a composite picture of
revenues, leading to disparities in the totals. The main sources used were the annual budget
execution reports made by entity governments for local level governments (GIB), and the
information provided by the Indirect Tax Authority Macroeconomic Analysis Unit (OMA).

As the information about Brko District revenues was not available, the information was
determined from the expenditure side, and using the average shares in revenues of
municipalities in FBIH to determine the overall structure of revenues.
GIB data was used to determine the existing revenues for municipalities. Local governments
continue to receive all the funding they were previously allocated. In addition, several new
revenues are allocated to the municipal level to perform its new responsibilities. Largest
among these is the per-pupil weighted allocation for primary and secondary education, but
additional discretionary resources are also provided.


77

The first source of revenues adjusted was the share the municipalities receive from Personal
Income Tax (PIT), with the new share assumed at 50%. That share would amount to 202 million
KM, and presents an increase of some 68 million over the current PIT revenue.

New revenue for BiH municipalities based on the reshuffle of functions (without education)
should amount to 347 million KM. The amount of converted grants (money previously received
as grants, but now core revenue) to be added is 77 million KM, and finally from the total the
funds that will be received from increased share of PIT amounting to 68 million KM were
deducted. This amounted to 356 million KM of fresh revenue that needed to be added to
municipal revenue.

The current funds municipalities receive from the Single Account revenue (VAT, excise and
customs) amount to 581 million KM. We added to that the new 356 million KM and the total of
937 million KM was then expressed as a share of Single Account revenue, which amounted to
19%.

The funding of primary and secondary education, amounting to 959 million KM that is to be
shifted to local governments was as well expressed as a share of Single Account revenue, and
this amounts to 19.5% of the Single Account revenue. However, the reason for keeping this as a
separate stream is to first insure that these funds will only be used for education funding, and
no other purpose. Secondly, this also enables the revenue to be shared among local
governments based on criteria that will be more strongly tied to education sector in particular.

In total, the Single Account share that will belong to local governments will increase to 38.5%
and the new PIT share will amount to 50%. This is a radical shift in revenue streams in BiH,
allocating a significant portion of government revenue to local governments.

78

Problems and Inconsistencies Encountered in Financial Analysis

This is a short list of major inconsistencies, lacks of publicly available information and
accounting problems that we encountered while gathering and organizing data for our financial
analysis of the K-143governance model.

Lack of information
The first obstacle was a lack of information. Even after gathering information from different
sources, some gaps in information could not be closed and had to be extrapolated or assumed,
based on other information. In some cases, such as the health sector, the lack of information
was severe enough to impede any substantial analysis. The main information black holes were:
The RS budget execution does not list data by school, but only aggregates for
elementary and secondary education.
The RS does not list the number of employees within its budget execution, nor is this
available in any adopted budgets.
The number of employees was also missing for two cantons and the Federation. For the
cantons, we extrapolated. For FBIH, we used the adopted budget numbers for
employees.
It was impossible to get numbers for employees in the health sector. The actual cost of
the health care provision is buried within the costs of the health funds. Furthermore,
there is no presentation of the revenues the health sector makes from the citizens
paying for services (when uninsured), or participation for some services, and from
donations.
Number of employees we had available for the health funds only reflected the funds
own employment, without the number of health care providers.
FBIH Ministry of Finance only tracks revenues in the annual execution reports from the
funds. Expenditures are not required.
The BD unemployment fund data was unavailable. The funds website could not be
located. It does indeed exist, according to news references. The source of information
for this fund was Central Bank data.

79

There is no debt stock data available for all levels of government.
Sarajevo Canton budget did not have information about where the high schools are
located, we used Google to find where the schools are located and allocated
accordingly.

Chart of Accounts issues
FBiH budget and budgets of cantons do not have the breakdown between salaries and
compensation, and while RS does have that information, for the sake of consistency, it is
merged for RS as well.
The code 614800, other grants in the FBIH Chart of Accounts is actually used to denote
repayment of internal debt, including arrears and foreign currency savings and material
costs tied to that debt. This is an accepted deviance in FBIH CoA, but it can be
misleading for the uninformed.
In FBIH, the transfer to pension fund was tracked as transfer to individuals, due to it
being classified that way in CoA. This is generally considered transfer to other levels of
governments / funds, as the fund reports on grants given to individuals.
RS has a 681000 category that was used for transfer of funds to other institutions within
the budget before treasury. They seem to be channeling a part of current grants from
here, even though those codes should not be used after treasury introduction.

Inconsistencies
RS has an interesting category other budgetary expenditure containing material
costs and debt. This should be identified by organizational code to clarify what
institution was responsible for those expenditures.
It looks as if the RS budget gives grants to its own budget users from the execution
documents. RS was listing the costs of work of parliamentary committees as grants to
non-profit organizations. It's not a grant. However, due to such accounting, there is no
breakdown of costs (materials, phones, support staff time, etc.).
The FBIH is actually spending more per employee than the State, even though State has
nominally higher salaries. It can be presumed the difference is to be found in the
amount of benefits and payments for participation in committee work.

80

The use of Central Bank data to plug the holes, while beneficial, has a drawback. They
show capital investment, debt and acquisition of non-financial assets (investment in
companies shares, or lending) as a net value. The actual expenditure in these categories
for the users of public monies (especially funds) remains opaque.
From the numbers on revenues and the execution of expenditures from the budgets, it
seems that most governments either went into debt, or finished 2008 with a deficit.
The current reserve was often reported as a line item expenditure, while it should be
reallocated based on which economic category it was spent on in the reports. The Chart
of Accounts missed a category for public institutions created and largely funded by
government; there are not specific groups in CoA. One example of the results of such
structure can be found in Canton 7, where the grants for higher education and the
pedagogic institute are listed under grants to other levels of government. What this
means is that in case of consolidation, these funds would be omitted from the total,
making it actually lower than it is, as there is no other public budget where these funds
are recorded as received and thus accounted for.
The budget execution documents for FBiH do not allow the segregation of grants, they
are reported on in consolidated manner without making clear the allocation by type,
affecting consolidation efforts (cannot make segregation between grants to other levels
of government and other types of grants).
In the BiH budget, a part of expenditures is kept apart from any institution, like the
obligations on court cases, or investment in a new building. Such allocations make it a
bit more difficult to see who has responsibility for implementation of related activities.
Brko District has a more specific budget structure, in which sub-departments are listed.
However, capital expenditures are allocated based on departments, and it cannot be
easily deduced which capital expenditures were related to work of which particular sub-
department.
BD was actually recording the debt repayment as material expenses, however they
included the information about reserve spending in the report, and thus we were able
to deduce from descriptions that it is debt, and not material expenses.
Some parliamentary expenses seem to have the parliament members included in
number of employees, while some do not. This makes the costs per employee a
disputable number to use in such cases.

81

It is unclear where from the Central Bank draws the information for BD health fund
the Department of Health of the BD government has a bigger budget. The way the
budget execution report reads the health body is part of the BD budget and is not a
separate organization thus the double accounting that the Central Bank seems to be
doing appears hard to explain.


82

ANNEX I:
Chart showing the distribution of competences between Municipalities and
State

Function Competent authority Type of competence
State Regional
pooling
Municipality Exclusive Shared
General administration

Security, police
46
x x
Fire protection x x x
Civil protection x x x
Justice x x
Civil status register x x
Statistical office x x
Electoral register x x
Education
47

Pre-school education x x
Primary education x x
Secondary education x x
Vocational and technical x x
Higher education x x
Public health
Hospitals x x
Health protection
48
x x x
Social welfare
49

Family welfare services x x
Welfare homes x x
Social security x x
Housing and town planning
Housing x x
Town planning x x
Spatial/ regional planning x (x) x x

46
The current areas of operation of police (5 RS public safety centers, cantonal in FBiH, Brko District) would remain (as would
the congruent judicial institutions). These would receive budget allocations from the state and be under ultimate state
command and control, but local management.
47
Primary and secondary education will receive support through earmarked state grants, and be overseen (but not run) by a
BiH Ministry of Education in terms of curriculum.
48
Municipal restaurant inspection, water testing, etc.
49
A BiH Ministry of Social Welfare will take over and raise pension payments to an inflation-pegged, sufficient, and equitable
level statewide.

83

Function Competent authority Type of competence
State Regional
pooling
Municipality Exclusive Shared
Environment,
public sanitation

Water & sewage x x
Refuse collection & disposal x x
Environmental protection
(including state parks and
reserves)
x x x
Consumer protection x x x
Culture, leisure & sports
50

Preservation of cultural
heritage sites
x x
Theatres & concerts x x
Museums & libraries x x x
Parks & open spaces x x
Sports & leisure x x
Religious facilities
51
x x x
Traffic, transport
Roads x x x
Transport
52
x x x
Urban road transport x x
Urban public transport x x
Airports x x
Economic services
Electricity x x
Gas x x
District heating x x
Water supply x
Agriculture (and veterinary
inspection), forest, fishing
x x x
Economic promotion x x x
Trade & industry x x x
Tourism x x x

50
State support for cultural activities at the municipal level will be delivered in block grants, allowing local discretion on
spending.
51
Current public expenditures are not systematic. Common in Europe for pensions and health care contributions to be made
by the state. Municipalities often contribute on a project basis. Facilities may be deemed cultural heritage sites deserving of
public maintenance.
52
Municipalities will participate in the BiH-wide spatial and transport planning process.

84

ANNEX II:
Number of Seats in K-143 Model Parliamentary Assembly
Municipal Population (rounded to nearest hundred)

Municipality Population
No of seats

50.000
threshold
40.000
threshold
30.000
threshold

Brko 93.000 2 3 4

Average population per
representative
46.500 31.000 23.250

% of seats in the PA BiH

1,18% 1,63% 1,88%

FBiH 2.372.000 94 105 122

representative
25.234 22.590 19.443

% of seats in the PA BiH

55,62% 57,07% 57,28%
C
a
n
t
o
n

1

Biha 61.200 2 2 3
Bosanska Krupa 29.700 1 1 1
Bosanski Petrovac 7.900 1 1 1
Buim 20.300 1 1 1
Cazin 69.400 2 2 3
Klju 18.700 1 1 1
Sanski Most 47.400 1 2 2
Velika Kladua 44.700 1 2 2
C
a
n
t
o
n

2

Domaljevac-amac 5.200 1 1 1
Odak 21.300 1 1 1
Oraje 21.600 1 1 1
C
a
n
t
o
n

3

Banovii 23.400 1 1 1
eli 12.100 1 1 1
Doboj-Istok 10.900 1 1 1
Graanica 48.400 1 2 2
Gradaac 41.800 1 2 2
Kalesija 36.700 1 1 2
Kladanj 13.000 1 1 1
Lukavac 46.700 1 2 2
Sapna 12.100 1 1 1
Srebrenik 42.800 1 2 2
Teoak 7.600 1 1 1
Tuzla 120.400 3 4 5
ivinice 61.200 2 2 3

85

C
a
n
t
o
n

4

Breza 14.600 1 1 1
Doboj-Jug 4.400 1 1 1
Kakanj 38.900 1 1 2
Maglaj 25.000 1 1 1
Olovo 10.600 1 1 1
Teanj 46.100 1 2 2
Usora 7.600 1 1 1
Vare 9.600 1 1 1
Visoko 41.400 1 2 2
Zavidovii 40.300 1 2 2
Zenica 115.100 3 3 4
epe 31.600 1 1 2
C
a
n
t
o
n

5

Foa-FBiH 2.200 1 1 1
Gorade 22.100 1 1 1
Pale-FBiH 1.000 1 1 1
C
a
n
t
o
n

6

Bugojno 34.600 1 1 2
Busovaa 18.500 1 1 1
Dobretii 2.000 1 1 1
Donji Vakuf 14.700 1 1 1
Fojnica 13.000 1 1 1
Gornji Vakuf-Uskoplje 13.300 1 1 1
Jajce 30.800 1 1 2
Kiseljak 21.900 1 1 1
Kreevo 5.600 1 1 1
Novi Travnik 25.100 1 1 1
Travnik 57.500 2 2 2
Vitez 27.000 1 1 1
C
a
n
t
o
n

7

apljina 28.100 1 1 1
itluk 18.600 1 1 1
Mostar 113.200 3 3 4
Jablanica 10.600 1 1 1
Konjic 26.400 1 1 1
Neum 5.000 1 1 1
Prozor 16.300 1 1 1
Ravno 3.300 1 1 1
Stolac 14.900 1 1 1
C
a
n
t
o
n

8

Grude 17.900 1 1 1
Ljubuki 29.500 1 1 1
Posuje 20.700 1 1 1

86

iroki Brijeg 29.800 1 1 1
C
a
n
t
o
n

9

Centar Sarajevo 59.200 2 2 2
Hadii 25.000 1 1 1
Ilida 71.900 2 2 3
Ilija 20.500 1 1 1
Novi Grad Sarajevo 124.500 3 4 5
Novo Sarajevo 68.800 2 2 3
Stari Grad Sarajevo 38.900 1 1 2
Trnovo-FBiH 1.800 1 1 1
Vogoa 27.800 1 1 1
C
a
n
t
o
n

1
0

Bosansko Grahovo 3.100 1 1 1
Drvar 7.500 1 1 1
Glamo 5.000 1 1 1
Kupres-FBiH 5.500 1 1 1
Livno 37.500 1 1 2
Tomislavgrad 33.000 1 1 2

RS 1.327.000 73 76 87

representative
18.178 17.461 15.253

% of seats in the PA BiH 43,20% 41,30% 40,85%

Banja Luka 199.200 4 5 7

Bijeljina 114.700 3 3 4

Doboj 77.200 2 2 3

Istono Sarajevo 65.000 2 2 3

Prijedor 97.600 2 3 4

Trebinje 31.000 1 1 2

Berkovii 2.300 1 1 1

Bilea 11.500 1 1 1

Bratunac 21.600 1 1 1

Brod 18.000 1 1 1

ajnie 5.400 1 1 1

elinac 16.900 1 1 1

Derventa 30.200 1 1 2

Donji abar 4.000 1 1 1

Foa 19.800 1 1 1

Gacko 9.700 1 1 1

Gradika 56.700 2 2 2

Han Pijesak 3.800 1 1 1

Istona Ilida 15.200 1 1 1

Istoni Drvar 100 1 1 1

87

Istoni Mostar 300 1 1 1

Istoni Stari Grad 1.200 1 1 1

Istono Novo Sarajevo 11.500 1 1 1

Jezero 1.300 1 1 1

Kalinovik 2.200 1 1 1

Kneevo 10.400 1 1 1

Kostajnica 6.300 1 1 1

Kotor Varo 22.000 1 1 1

Kozarska Dubica 23.100 1 1 1

Krupa na Uni 1.700 1 1 1

Kupres (RS) 300 1 1 1

Laktai 36.900 1 1 2

Lopare 16.600 1 1 1

Ljubinje 3.800 1 1 1

Milii 12.300 1 1 1

Modria 27.800 1 1 1

Mrkonji Grad 18.100 1 1 1

Nevesinje 13.800 1 1 1

Novi Grad 28.800 1 1 1

Novo Gorade 3.400 1 1 1

Osmaci 6.200 1 1 1

Otra Luka 3.000 1 1 1

Pale 22.300 1 1 1

Pelagievo 7.300 1 1 1

Petrovac 400 1 1 1

Petrovo 7.000 1 1 1

Prnjavor 38.400 1 1 2

Ribnik 6.500 1 1 1

Rogatica 11.600 1 1 1

Rudo 8.800 1 1 1

Sokolac 12.600 1 1 1

Srbac 19.000 1 1 1

Srebrenica 15.200 1 1 1

amac 19.000 1 1 1

ekovii 7.800 1 1 1

ipovo 10.800 1 1 1

Tesli 41.900 1 2 2

Trnovo 2.200 1 1 1

Ugljevik 16.500 1 1 1

Viegrad 11.800 1 1 1

88

Vlasenica 12.300 1 1 1

Vukosavlje 5.400 1 1 1

Zvornik 63.700 2 2 3

BiH 3.792.000 169 184 213
representative
22.438 20.609 17.803

Formulas:

50.000 population threshold

1-50.000: 1 seat
50.001-100.000: 2 seats
100.001-150.000: 3 seats
150.001-200.000: 4 seats
200.001-250.000: 5 seats


1-40.000: 1 seat
40.001-80.000: 2 seats
80.001-120.000: 3 seats
120.001-160.000: 4 seats
160.001-200.000: 5 seats
200.001-240.000: 6 seats

1-30.000: 1 seat
30001-60.000: 2 seats
60.001-90.000: 3 seats
90.001-120.000: 4 seats
120.001-150.000: 5 seats
150.001-180.000: 6 seats
180.001-210.000: 7 seats

Number of seats per Croat-majority
municipalities (Assume majority in Mostar,
not total. Split Bugojno, Travnik and Jajce
when multimember; none in RS)
50.000
threshold
40.000
threshold
30.000
threshold
27 seats
(16%)
27 seats
(15%)
31 seats
(15%)

Number of seats per Serb-majority
municipalities (RS less Srebrenica and Osmaci
+ Majority in Prijedor + 4 munis in FBiH)
50.000
threshold
40.000
threshold
30.000
threshold
74 seats
(44%)
77 seats
(42%)
87 seats
(41%)

89

ANNEX III:
European Examples of State-Local Allocations of Competences

I. general trends concerning decentralization in EU member states, EU principles and
structures affecting local government:

Principle of subsidiarity: every state function should be assigned to the lowest level at
which it can be undertaken effectively. This is a powerful device to counter a natural
tendency towards centralization.

EU has no formal legal authority in relation to the organization and management of
public administration in member states

State functions which are normally decentralized:

A. functions fully under control of sub-national level (local and/or regional)
- development of local economy
- social housing
- public utilities: water, electricity and gas supply
- fire protection
- local planning (regional)

B. Functions frequently shared between the state and sub-national level - local
functions:
- police: wide variance, local/regional function in many Latin + Germanic countries
- health and social assistance: wide variance in organization/division of responsibilities
- education: primary education, sometimes secondary
- culture: libraries, museums, parks
- roads: local/regional national
- transport: public transport, sometimes ports and river transport
- environmental protection
- tourism promotion

Proportion of public expenditure for local/regional level: depending on degree of
decentralization, but in most cases over 70 % central level (new member states 70-
90%!), even Germany over 50%, in countries with active local/regional sector about
equal between central state and sub-national level(s)

90

Revenues for local government: local taxes (income tax, property taxes etc.) very wide
range (4 70%)
Remainder from national funds, service charges

Redistribution mechanisms: increasing allocation of resources to structural and cohesion
funds directed to poorer European regions, coordination/harmonization of national and
EU policy

Decentralization trends: more efficiency and effectiveness in administration,
development of sub-national administrative structures contributes to improving
democratic control and responsiveness to citizens, EU-integration important for
developing greater local autonomy without endangering state integration; growing
interest and participation of regional authorities in policy-making at European level;
Devolution of power and competencies from national to sub-national level(s)
transfer of some functions from local to higher sub-national level (regional), because
of increasingly sophisticated demands of modern society, like in case of health systems,
that question the economic and efficiency capacities of local administration, 2
alternative trends:
1. establishment (or strengthening of existing) regional tier of local government
2. pooling resources and expertise through voluntary associations of local
authorities

II. lessons from transformation in other post-socialist countries:
timing of financial regulation is crucial to the extent of transformation/devolution of
power to the local level
transformation of public administration crucial: a civil service system based on
professional criteria, ensure clear division between political and administrative
influence, regulate with great precision politico-administrative relations among higher
offices (mayor, chief administrative officer, staff), political neutrality of staff/ defense
from political pressure
establishment of strictly regulated instruments to control legality of local government
activities, including financial auditing

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III. Local self-government country comparisons:

1. Latvia

Tiers: two-tier local self-government: with 26 districts (regions) and 530 local governments
(rural and town municipalities, amalgamated municipalities); 7 republican towns are
represented at both levels, with town districts having municipal status; districts no directly
elected representatives (council consisting of local council chairpersons)

Principles: subsidiary and correlation between responsibilities and financial resources

Size: extraordinary high number of small municipalities, with 90% only up to 5,000 inhabitants!

Fields of cooperation between central government and local governments: drafting laws and
regulations affecting local governments; determining grants allocated to local governments
each year; identifying financial sources for transfer of additional functions to local level

Municipal institutions: councils: 7-15 members. 7-9 members for municipalities with up to
5,000 inhabitants; 11 members for municipalities with up to 50.000 inhabitants, Riga city
council 60 deputies, council meetings public; council chairperson appointed by council, political
head, executive director head of administration, appointed by council on proposal by
chairperson

Electoral system: only council members directly elected, every 4 years, proportional
representation, voters associations play dominating role in local councils, with national party
only a marginal role (!)

Training administration staff: Project management and self-government Training center at
University of Latvia, Local Government Training Center and regional training centers


State: legislation and state administration, economic policy and employment; spatial planning
foreign affairs, defense and public order and law enforcement, social security, higher education
and scientific research, vocational and technical education; energy resources (electricity and

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gas), long-distance communication and transport (incl. ports and airports); consumer
protection;

Municipalities: water supply and sewage, heating, waste collection and disposal; local
communication, cemeteries, regulation of public forest and water use; local economic
development, local planning; education: primary and secondary education; social welfare:
social housing, nurseries, kindergartens, services for elderly and handicapped, welfare homes;
civil status register; local police (public order);

Divided responsibilities: public health; culture (museums, monuments, libraries); sports;
tourism; environmental protection;

Districts: public transport; regional planning; teacher training; representation of local
government in regional public health insurance fund; civil defense (shared with central state);

Forms of local government cooperation: Union of Local and Regional Governments of Latvia
(ULRLG): interest representation towards central state institutions and intl. institutions, annual
state budget negotiations with central government, promotion of local authority cooperation,
training of local staff, social protection of local employees;
voluntary establishment of common institutions by several municipalities, main fields: health
and social care, education water supply and waste, local/regional planning; contracting other
municipalities for certain functions (small, economically weak municipalities);

Financing: main revenues taxes, then grants and non-tax revenues; no local taxes, but shares of
state taxes, mainly personal income tax (72%), real estate tax (100%);

Local Government Financial Equalization Fund: system based on CoE recommendations and
Danish example, aimed at certain equalization effect to reduce difference between wealthy and
structurally underdeveloped municipalities, financed by central state contribution (15%) and
wealthier municipalities whose annual revenues are more then 10% above a calculated national
average;

Control mechanisms: control of legality by ministry of regional development and local
authorities; financial control by State Audit Office, annual financial audits by auditor company,
authorizing annual financial report;

2. Slovenia

93

Tiers: one tier, 210 municipalities (regions constitutionally foreseen, but not yet introduced),
organizational forms on sub-municipal level can be established;

Size: defined by size, at least 5.000 inhabitants (exceptionally 2.000), towns at least 20.000; yet
still half of municipalities below 5.000 inhabitants

Municipal institutions: council: 7-45 members according to size, mayor: political head and
executive body, directly elected, municipal secretary/director: heads of administration, a civil
servant, appointed by the mayor

Electoral system: system dependant on council size, up to 12 members majority vote, with
individual candidates running for office, each voter having as many votes as council seats;
above proportional system with candidate lists/party list, with mixed list-preferential voting; in
both systems facultative division of municipality into constituencies;

municipal functions: limited exclusive functions, education: only pre-school, primary and adult
as shared responsibility; health not exclusive; social welfare: kindergarten, family welfare (with
social security shared); housing, town and regional/spatial planning (except where of national
interest); waste disposal and cemeteries; heating and water supply;
additional functions performed by urban municipalities in urban public transport, urban
environment protection and housing;

Financing: principle of financing through own revenues, therefore local taxes whose tax rates
are assigned by the state, real estate tax, inheritance and gift taxes, tax on water vehicles, taxes
on profits from lotteries and games of chance; other revenues fees, fines, concession rates and
administrative revenues; municipalities allowed to take loans, but not from abroad, not
exceeding 20% if annual revenues;

Financial equalization system: system of additional financial aid to underdeveloped
municipalities for covering expenses, based on calculation of appropriate expenditure as
average amount of resources by inhabitant defined by the National Assembly for each fiscal
year, 90% of municipalities receive financial assistance, municipalities above this average freely
dispose of their surplus resources;


94

Control: financial control exerted by supervisory committees elected by municipal councils,
Court of Auditors at national level;

3. Finland

Tiers: one tier, 348 municipalities, called either municipalities or cities;

Size: one third 1.000-5.000 inhabitants, with the Helsinki Metropolitan Area 20% of population;
(5.3m population)

Municipal institutions: councils, 17-85 members, municipal executive board, responsible for
administration and financial management, municipal manager, civil servant, head of local
administration;

Electoral system: council members are elected by proportional representation on the principle
of one person, one vote

Division of functions: extraordinary number of functions completely decentralized to local
level: education all but higher education in municipal responsibility; public health exclusive
municipal function; public utilities exclusively; culture leisure and sport; electricity, gas, water
and heating;
Policing is an exclusively state function.

Advisory Board on Municipal Economy and Administration: joint institution by State ministries
and the Association of Finnish local and regional authorities, negotiates in budget draft
concerning transfer payment to municipalities and cost distribution between central
government and municipalities;

Financing: taxes, fees and sales incomes and state grants; taxes are all local taxes, main source
municipal income tax (86%), rate set independently by municipal councils, share of corporate
income tax determined by state parliament, and real estate tax, independently determined by
municipal councils;

Loans: municipal independence, both domestic and foreign borrowing;


95

Control: no regular control of municipal decisions and finances by state(!), annual municipal
reports to Statistics Finland, state administration control limited to legality check, and only
upon complaint;

Forms of local cooperation: stimulated by central government through grants

Pooling of functions: joint municipal authorities, single-task organizations, independent legal
public entities governed by municipal legislation, compulsory for special health care (20), care
of disabled (14), regional planning: regional spatial planning and management of strategic
regional development planning/EU structural funds projects (19 regional councils), for other
functions voluntary, overall 228 joint authorities, mainly in fields of health, education and social
service, its council members delegated by municipal councils, financed by municipalities
through user charges and separate contributions to investments;

Other forms: joint municipal civil servants (small municipalities); limited companies, co-
operative societies, foundations, contractual co-operation;

4. Denmark

Tiers: two 98 localities (kommuner) with primary responsibility for a host of competences,
and five regional state administration offices with limited responsibility.

Size: Average size 55,000 inhabitants, some under 20,000 which didnt wish to amalgamate into
to larger municipalities, but must cooperate with neighboring municipalities to meet
responsibility to deliver services.

Municipal Institutions: Municipal Councils of 25-31 members, keyed to population and elected
for 4-year terms on a proportional representation open list basis. Mayors elected by Councils.
Councils determine structure of local government, division of functions.

Regional Councils of 41 members, directly elected in 4-year terms, coincident with municipal
elections. Free to set-up structure at will to fulfill mandates responsibilities.
Note: The local and regional council and the councils Finance Committees are responsible for
the staff of the authorities. Staff are not appointed politically and are not replaced after an
election.


96

Division of Functions: Most citizen-related tasks handled at the municipal level. Exclusive
competences include local utilities (water, sanitation, electricity, heating, gas), pre-school and
primary education, family welfare, social security, fire protection, local spatial planning, sports
and leisure. Municipalities also share competence with the state and regions on a host of
sectors (transport, health care, planning, environment, agriculture, employment, culture).

The state maintains exclusive control over policing, security and justice. It also operates
secondary and higher education.

The five regions exist to pool resources for regional issues, particularly health care (hospitals),
special education, and regional spatial and economic planning. To ensure coordination with the
municipalities, twice-annual sessions of the Contact Committee, including the chair of the
regional administration and the mayors of all the regions municipalities, must be held.
Health care, for example, is financed 80% from state revenue, 20% from municipal revenue.
The state portion is based on both age distribution (77.5%) and socio-economic indicators
(22.5%).

Financing: Municipalities are finances through a combination of own revenues both local
taxes and fees - (approximately >70% of total) and grants from the state (26%). Local taxes
include income tax (collected by the state) and land taxes (collected locally). Municipalities also
collect fees for services. State grants are both earmarked for specific purposes (full
reimbursement of old age pensions, partial reimbursement of early pensions, partial social
security reimbursement) and general purposes.

Financial Equalization System: Partial (up to 90%) equalization to ensure that municipalities
can deliver average quality services and close to average cost.

Supervision/Control: The Ministry of Social Welfare monitors the five state regions from a
legal point of view (e.g., cannot second-guess expediency of a decision), and can initiate
supervision in case of a serious breach or as a matter of principle. Sanctions can be applied to
municipal council members who have acted unlawfully or neglected their legal duties.
Decisions can be appealed through ordinary courts.

The Ombudsman oversees all public sector except courts of law, especially regarding questions
of good administrative practice. The Ombudsman determines whether a complaint gives
sufficient cause for investigation and can bring actions against authorities in question.


97

5. Iceland

Tiers: One municipal level. There were 101 municipalities as of 2006, down from 229 in 1950.
There has been a long-term trend for mergers of municipalities to form larger units, better
capable of providing services. There is a detailed legal procedure for doing so it is usually
voluntary, but can be compelled for municipalities having fewer than 50 inhabitants for three
years running.

Size: Varies widely, from 38 to ~114,000 inhabitants (Reykjavik). 68% of municipalities have
under 1,000 inhabitants; a further 23% fall between 1,000 and 5,000. Only 5% have above
10,000. Hence the increasing commonality of joint service provision.

Municipal Institutions: Local Councils, elected by PR every 4 years. The size varies within
parameters in law: 3-5 for municipalities of fewer than 200 inhabitants, up to 15-27.

The Councils can elect an executive board (if more than 200 residents) from among Council
members for a term of one year. The Council also selects a chair for a one-year term. The
Council may also decide to appoint a municipal administrator or mayor, whose duties are
determined by the Council. These persons usually serve for the Councils first term. Unless this
person is a Council member, he/she can introduce topics but cannot vote.

Division of Functions: Principal local competences include pre-schools and primary schools,
water, sewage, waste collection, district heating, fire protection, spatial planning, local
environmental protection.

The Association of Iceland Municipal Authorities is the interlocutor with the state for local
interests.

Financing: The local share of public expenditure in 2001 was 33.3%. This is growing. Own
resources include real estate taxes (with rates set in bands by the state, determined locally) and
local income taxes (ranging from 11.24-13.03%). The former provide 11% or the total local
revenue base, the latter 61%. Fees for services and licensing provide approximately 18.5%.
Municipalities also receive grants from the Local Authorities Equalization Fund and grants (both
earmarked and block) from the state government.

Financial Equalization: This comes from the Local Authorities Equalization Fund, and four types
of funds are granted: fixed contributions, special contributions, equalization contributions, and

98

equalization contributions for primary schools. For municipalities with fewer than 2,000
residents, there are special contributions toward public utilities and primary education.

Supervision/Control: The Ministry of Social Affairs oversees local government matters (for
breaches of law and duty, not expediency). Auditing of accounts is legally required. Newly
elected councils must select two auditors (non-members).

Consortia to institutionalize cooperation to perform tasks of common interest also have legal
foundation, but are initiated voluntarily. There are also 8 federations of local authorities
these are simply collectives for service delivery, and receive funding from the Local Authorities
Equalization Fund.

6. Macedonia

Tiers: one - 84 municipalities + city of Skopje.

Decentralization process based mainly on Ohrid Framework agreement and subsequent laws
(on local self-government, financing of LSG, City of Skopje, on inter-municipal cooperation),
process underway, began in 2005; represents a break in political culture of post-socialist era,
moving from the most highly centralized European state with only 1,6% of state budget goin to
the local level to a modern decentralized state;

Size: 2 million inhabitants, of which 500.000 in capital Skopje, 20% of municipalities below
5.000 inhabitants; 18% 5-10.000 inhabitants;

Municipal institutions: council 9-33 members (Skopje 45), mayor, directly elected,

Self-Government Units (Mjesne Zajednice): weakly developed sub-municipal institutions of
citizens participation, neighborhood self-government units/village councils (NSGU councils),
succeeding institution to socialist Mjesne zajednice, though have lost both their infrastructure
(staff) and competencies. Consultative in nature, mainly instrument for citizen interest
expression and communication with local authorities, in rural areas function of maintaining and
improving infrastructure through voluntary contribution;

Division of functions: municipal functions (when decentralizing reforms finished): local
economic development; urban/rural planning; public utilities: water and sewage, waste
collection; local roads and transport; cemeteries; education: primary and secondary; social

99

services: centers for pre-school children, orphans, and socially vulnerable people, homes for
the elderly and the disabled, child care; health care: primary health care and public health;
environmental protection; culture and sports; police: head of local police selected by council
(from Interior Ministry list); civil defense and firefighting;

Financing: decentralization of state functions not adequately accompanied by financial
resources; local revenue structure in flux because of ongoing decentralization process
accompanied by state financial aid: 2005 59% taxes, 3% non-tax revenues and 38% grants and
transfers, 2008 29% taxes, 6% non-tax revenues and 65% grants and transfers; extremely low
share of GDP by local government expenditures in comparison to EU-countries, 4,7% in 2008
(Latvia 10%, Slovenia 5%); revenue-structure: taxes both local and shares, non-tax revenues and
grants and transfers, taxes: local taxes, property taxes and taxes on specific services, rate set
locally within a centrally-determined range, local shares of national taxes, VAT is currently 3,4%,
Personal income tax (PIT) share of 3%; borrowing from both domestic and foreign sources
allowed;

Local cooperation: widespread and growing, main forms of cooperation joint planning for LED,
contractual buying of service provision from other municipality, joint administration;
Establishment of centers for balanced regional development planned to manage application for
EU funds;

Administration: human resource management units established at all state institutions,
including municipal administrations, manage human resources along with state administration
civil servants agency;

Annual training programs developed by municipalities, coordinated with Civil Servants Agency;

Ethnicity: in municipal councils like in national parliament principle of double majority voting,
means in defined fields (culture, use of language, education, use of symbols and personal
documentation[concerning use of different official languages on documents]) decisions on the
basis of majority of council members and of majority of votes of representatives of ethnic
groups which are not the majority ethnic group in the municipality, OSCE states that that
principle encourages consensus-building among community representatives; Equitable
representation of ethnic groups in administration, problem: no enforcement mechanisms;

Committees for Inter Community Relations (CICS): advisory board to mayor and council,
composed of equal number of representatives for all ethnic groups, 2-9 members, membership

100

voluntarily/ an honorary duty, committee discusses issues concerning inter-ethnic relations
(culture and language) and gives opinions and proposals to be reviewed by the municipal
council, decision-making by consensus;
performance since establishment in 2005 is low, not really active, majority of population not
aware of existence;

Main problems in decentralization process: overall problem is the speed of the introduction of
a threefold decentralization process (territorial reorganization, new legislation and transfer of
competencies),

Main individual problems: lack of financial resources, low administrative capacity of municipal
staff/level o of professionalization, lack of central government assistance;


101

ANNEX IV:
Brko District: BiHs Most Developed Example of Local Self-Government

Background: The municipality of Brko, on the Sava River in northeastern Bosnia, was among the first to
be ethnically cleansed by Bosnian Serb forces in 1992, driving out its large Bosnian Muslim (Bosniak)
and Croat populations. It was a focal point during the conflict, as its position in the Posavina Corridor
linked the two halves of Republika Srpska, making it vital for the Bosnian Serbs to control and crucial for
the Army of BiH and HVO to cut. Reflecting Brkos strategic position, the negotiations in Dayton failed
to arrive at an agreement on its disposition. It was put up for binding arbitration for a tribunal chaired
by American State Department lawyer Roberts Owen, and placed under a US-run supervisory regime.
The prewar municipality, which has Serb, Croat and Bosniak-held areas, was not awarded to either
entity, but rather kept a territory apart under supervision. Brko District (BD) was able to develop a
wide range of multiethnic institutions under the supervisory regime, which continues to this day, though
it rarely engages in the local political arena.
The District is by far the most self-governing of any of BiHs 143 municipalities, with a direct proportion
(3.55%) of VAT revenue through the Indirect Taxation Authority (ITA), its own multiethnic police and
justice system, a separate education system, and other elements of governance that are handled at
higher levels in the two entities. All these are enumerated in the Brko District Statute,
53
which states
that BD is a single administrative unit of local self-government existing under the sovereignty of Bosnia
and Herzegovina. It is therefore a useful guidepost for a municipalized two-layer state structure.
Size: Brko District is about three times the average sized BiH municipality, at roughly 90,000
inhabitants.
54

Government Competences are listed in Article 8 of the Statute:
- BD economy - social welfare
- BD finances - judiciary and legal services
- Public property - policing
- Public services and infrastructure - housing
- Culture - urban development and zoning
- Education - other competences necessary for the
- Health care functioning of the District as a single
- Environment administrative unit of local self-govt
Government:

53
Available in full at www.ohr.int
54
Estimates of the resident population run between 80,000 and 100,000. Prior to BiH defense reform and an end to
conscription, BD held the attraction of being exempt from conscription into the entity militaries, drawing a number of young
men wishing to dodge the draft. This makes it more difficult to estimate the actual residents.

102

a) The Brko District Assembly, which is defined in detail in Section B of the Statute, is elected for
four years and consists of 31 members, 2 of which represent the national minorities resident in
BD. The Assembly elects its Speaker by a 3/5 majority (the second-place finisher becomes the
Deputy Speaker).
The Assembly, and determines the general policy for BD, monitoring the Government and Public
Administration, especially management of revenue and expenditure. The Assembly also has the
authority to petition the BiH Constitutional Court under Article VI.4 of the Constitution (Annex 4
of the Dayton Peace Agreement).
Article 33 of the Statute defines those decisions for which there must be a qualified majority of
3/5 of Councilors present:
o Rules of procedure
o District budget
o Adoption and amendment of District laws
o Election and dismissal of people elected by the Assembly, except Speaker/Deputy
Speaker and Mayor (special provisions apply for these)
o Assembly consent to appoint or remove official in accordance with the Statute/law
o Vetoes of appointments or removals of officials
o Decisions to dismiss members of Steering Boards of public companies

3/5 of the total number of Councilors is required to:
o Remove the Speaker or Deputy Speaker
o Remove the Mayor
o Veto the appointment of the Mayor or Deputy Mayor

To amend the Brko District Statute, of all the elected Councilors must vote in favor.
Article 33a of the Statute is titled Prevention of Outvoting
o The affirmative votes of at least 1/3 of Councilors from each constituent people present
and voting is required for Assembly decisions related to:
Adoption of amendments to the Statute
Adoption of amendments to the Assemblys Rules of Procedure
The annual budget, spatial planning, education, religion, language and culture
(Art. 53 (1))
National holidays and monuments

b) The Brko District Government and Public Administration is defined by Section C of the Statute.
The Government consists of the Mayor, Deputy Mayor, Government Chief Coordinator, and the
Heads of Departments. The Public Administration consists of the Government Departments,

103

the Mayors Office, the District Finance Directorate, the Office of Public Property, and the Office
for the Coordinator of Brko District in the BiH Council of Ministers.
The Mayor is elected by the Assembly. The Mayor selects the Deputy Mayor, the Government
Chief Coordinator, and the Heads of Departments based on professional criteria, and these
appointments should reflect the composition of the population.
The District Finance Directorate (Art. 49) includes a separate Tax Administration and Treasury.
The Office for Public Property (Art. 49) administers public property in BD and conducts the
procedures of disposal of public property. Article 8 (5) of the Statute clearly defines what is to
be done with unneeded public property:
All public property in the territory of the District on March 5, 1999 belonged to the District on
that date, and all legal rights in public property vested in the District with effect from that date.
The District shall privatize all public property not necessary for the performance of public
functions.
The Office of the Coordinator for Brko District in the Council of Ministers of BiH represents the
interests of the District before the institutions of BiH. The Coordinator reports to the Mayor.
Public Companies (to provide services to BD residents, or manage public funds or assets).
Steering Boards are accountable to the Assembly, but independent of Public Administration.
Brko District has its own Police and Courts, Public Attorneys Office, and Prosecutors Office,
defines in Chapters IV and V of the Statute. The BiH High Judicial and Prosecutorial Council
appoints the judges and prosecutors in the District.
Revenue: Brko District presently receives a fixed 3.55% of the VAT intake from the ITA. This revenue
has leveled-off after a spike in revenue after introduction, and has taken a hit from the global economic
downturn as well. The District also recently introduced an annual land (property) tax at an initial rate of
0.6%. The BD Government has a land reform proposal that would privatize the public property holdings
not needed for governance purposes, which would bring in significant one-off revenues. The Districts
public companies charge for their services. The District may introduce an income tax in the future.
Other Noteworthy Features:
- Unlike any other municipality in BiH, Brko District operates its own primary and secondary
school system.
- Chapter III, Article 20 of the Statute reads Public Employment with the District shall be based
on professional merit and shall reflect the composition of the population. This is based on the
1991 census.

104

- Articles 21 and 28 contained detailed and thorough financial disclosure and conflict of interest
provisions for public officials.


105

ANNEX V: Bibliography

Documents
- Bosnia and Herzegovina 2007 European Partnership, EU Commission, Brussels 2007
- Constitution of BiH
- Constitution of the Federation of BiH
- Constitution of the RS
- Copenhagen Document, OSCE (then-CSCE), 1990
- Draft Joint Opinion on Amendments to the Election Law of BiH by Venice Commission
and OSCE/ODIHR, 2008
- Election Law of BiH
- Law on Local Self-Government of the RS
- Law on the Principles of Local Self-Government of the Federation BiH
Constitutional Court. 2000. Constituent people Decision. Case U/98, July 1, 2000,
published on Slubeni glasnik BiH, No. 23/00, 14 September 2000
- Statute of the Brko District
- Statut grada Zagreba
- Statut grada Beograda
- European Charter of Local Self-Government, Council of Europe 1985
- European Court of Human Rights, Case of Sejdi and Finci v. Bosnia and Herzegovina,
(Applications nos. 27996/06 and 34836/06) Judgement (22.December 2009)
- Parliamentary Assembly of the Council of Europe (PACE) Resolution 1701, The
functioning of democratic institutions in Bosnia and Herzegovina, 2010
- Parliamentary Assembly of the Council of Europe (PACE), Recommendation 1894, The
functioning of democratic institutions in Bosnia and Herzegovina, 2010
- Report on 2006 General Elections in Bosnia and Herzegovina, OSCE/ODIHR, Warsaw,
2007
- Structure and Operation of Local and Regional Democracy, country reports: Denmark,
Finland, Iceland, Latvia, Slovenia
- Stabilisation and Association Agreement between the European Communities and their
member states and Bosnia-Herzegovina, Brussels 2007
- Venice Commission (of Council of Europe), Opinion on the Constitutional Situation in
(BiH) and the Powers of the High Representative, 2005
- Visa liberalisation with Bosnia and Herzegovina. Roadmap, EU Comission, Brussels 2008
- Bosnia and Herzegovina 2009 progress report, EU Comission, Brussels 2009
Enlargement strategy and main challenges 2009-2010, EU Comission, Brussels 2009
Ohrid Agreement

Literature

- Analytica Brief, Conceptualzing decentralizaion trends in Macedonia, Skopje, 2006

106

- Centri Civilnih Inicijativa (CCI), Naelnik i lokalna samouprava: liderstvo, demokratija,
razvoj, Sarajevo December 2009
- CCI, Odnos nacelnika i skuptina u BiH, Sarajevo October 2009
- Kenneth Davey (Ed.), Making Government Accountable. Local Government Audit in
Postcommunist Europe, Budapest 2009
- Decentralization and local democracy in the world. First global report by United Cities
and Local Governments, Barcelona 2009
- Decentralization: conditions for success. Lessons from Central and Eastern Europe and
the Commonwealth of Independent States, United Nations, New York 2000
- Decentralization Survey 2009, OSCE Spillover Monitor Mission to Skopje, Skopje 2009
- EDA Razvojna Agencija, Popravke ili prepravka? Analiza opcija razvoja lokalne
samouprave u BiH, Banja Luka May 2008
- EDA, Strateki plan razvoja lokalne samouprave u BiH, Banja Luka 2006
- Ekonomski institute B. Luka, Kreiranje i uvoenje modela raspolaganja i vlasnitva nad
lokalnim resursima, B. Luka November 2007
- Foreign Policy initiative BiH (FPI BiH) The Role of civil society in BiH constitutional
reform, Policy Analysis 1/09, Sarajevo, July 2009
- FPI BiH, Monitoring of the BiH European integration processes, 2008 preliminary report,
Sarajevo 2009
- FPI BiH, Monitoring of the BiH European integration processes, 2009 first semi-annual
report, Sarajevo 2009
- FPI BiH, Strukture upravljanja dravom u BiH, Sarajevo 2008
- Friedrich Ebert Stiftung Zagreb Office, Local Self Government and Decentralization
in South - East Europe, Zagreb 2001
- Friedrich Ebert Stiftung Zagreb Office, Decentralizing Government, Problems and Reform
Prospects in South-East Europe, Zagreb 2002
- Friedrich Ebert Stiftung Zagreb Office, Executive and Legislature at Local Level, Zagreb
2002
- Friedrich Ebert Stiftung Zagreb Office, Economic Development on the Local
and Regional Level, Zagreb 2003
- Friedrich Ebert Stiftung Zagreb Office, Reforming Local Public Administration, Zagreb
2003
- From Stability to Performance. Local Governance and Service Delivery in Bosnia and
Herzegovina, World Bank, Washington, January 2009
- Horvath, Tamas M. (ed), decentralization: experiments and reforms, Local governments
in Central and Eastern Europe Vol. 1, Budapest 2000
- Kandeva, Emilia (ed), Stabilization of local governments, Local governments in Central
and Eastern Europe Vol. 2, Budapest 2001
- Kapitanova, Guinka, Inter-municipal cooperation and decentralization in the Former
Yugoslav Republic of Macedonia, LSE and UNDP Development and Transition, Issue Nr.
12/2009

107

- Birgit Kunrath, The Role of Ethnic Voting in Bosnia and Herzegovina An Evaluation of
Decision-Making between June 2008 and June 2009, Council of Europe, Field Office
Sarajevo, July 2009
- Levitas, Tony, A Tale of Two Entities: How Finance Reform Builds Democracy in Bosnia
and Herzegovina, DAIdeas democracy briefs, No.1, Washington, February 2007
- Bosnia and Herzegovina: Republika Srpska: Local self-government training needs
assessment report, SIDA/UNDP July 2009
- Bosnia and Herzegovina: Federation of BiH: Local self-government training needs
assessment report, SIDA/UNDP July 2009
- Mnch, Claudia, Emanzipation der lokalen Ebene? Kommunen auf dem Weg nach
Europa, Wiesbaden 2006
- Ostoji, Rajko, Zdravstveni system u Hrvatskoj, FES Zagreb 2009
- Paali-Kreso, Adila, Then constitution and education in BiH, Open Society Fund BiH,
Sarajevo, September 2004
- Pearson, Brenda Lee, An external review of training delivered to local government staff
2004-2007, OSCE Spillover Monitor Mission to Skopje, Skopje October 2008
- Pejanovi, Mirko, Politiki razvitak BiH u postdejtonskom periodu, Sarajevo 2005
- Ebd./Zlokapa/Zoli/Arnautovi, Optine/opine u BiH. Demografske, socijalne,
ekonomske I politike injenice, Sarajevo 2006
- Ebd./Osmankovic, Jasmina, Euroregije i BiH, Sarajevo 2009
- Pension reform and social protection systems in BiH, UNDP in BiH, Sarajevo 2007
- Perry, Valery, Democratic ends and democratic means: Peace implementation stratgies
and international intervention options in Bosnia and Herzegovina, George Mason
University 2006 (unpublished dissertation)
- Pteri, Gbor (Ed.), Mind Your Own Business! Community Governance in Rural
Municipalities, Budapest 2008
- Reents/Krger/Libbe, Dezentralisierung und Umweltverwaltungsstrukturen in Mittel-
und Osteuropa, Deutsches Institut fr Urbanistik 2002
- arevi, Edin Dejtonski Ustav: Karakteristike i karakteristini problemi, Konrad-
Adenauer-Foundation in BiH, Sarajevo May 2009
- Sebastin Aparicio, Sofia, State building in deeply divided societies. Beyond Dayton in
Bosnia, London School of economics October 2009 (unpublished dissertation)
- Shakarishvili, George (Ed.), Decentralization in health care, Budapest 2008
- Soos, Gabor/Zentai, Violetta (Ed.), Faces of Local Democracy, Budapest 2005
- Summary report on the findings of the survey on the implementation of the process of
decentralization, OSCE Spillover monitor mission to Skopje, Skopje 2006
- Tausz, Katalin (ed.), The Impact of Decentralization on Social Policy, Budapest 2002
- The Ties That Bind - Social Capital in BiH, UNDP in BiH, Sarajevo 2009
- Wollmann, Hellmut, Reformen in Kommunalpolitik und verwaltung, Wiesbaden 2008

108

ANNEX VI: BRIEF HISTORY OF MODEL AND CO-AUTHORS SHORT BIOGRAPHIES

The muncipalization model emerged following consultations with a host of BiH civil society
figures. Based on popular frustrations with the Dayton constitutional system and its lack of
representation, DPC Kurt Bassuener and Bodo Weber, with expertise in grass-roots
democratization efforts began a research and development process aimed at creating a
governance structure built around citizens needs and interests. Only with the direct election of
mayors beginning in 2004 was this need even partially met in postwar BiH. Tony Levitas and
Jasmina Djiki were sought out for their specialized knowledge on public expenditure and fiscal
decentralization to model the economic impact of adopting this model of local self-governance.
Coalition 143 assembled by BiH civil society actors following a long series of consultations and
modifications of the original model. It was adopted in its current form by K-143 members the
Center for Civic Cooperation (CGS-Livno), the Center for Governance and Constitutional Studies
(CUUS), the European Research Center (EIC), and the Public Interest Advocacy Center (CPI) in
2014. K-143 began grassroots advocacy efforts in late 2013.

The model presented in this document was originally developed with the support of the Royal
Norwegian Embassy in BiH, the Heinrich Bll Stiftung BiH, and the Open Society Foundation BiH.
The model was supported by the Norwegian Embassy in 2009-2010, with Blls in-kind support.
OSF BiH sponsored the financial analysis in 2010. All three supported the coalition-building
effort which began in early 2011.

Kurt Bassuener is an independent policy analyst in Sarajevo, Bosnia-Herzegovina. He is co-
founder and Senior Associate of the Democratization Policy Council
(http://www.democratizationpolicy.org), a global initiative for accountability on democracy
promotion. He has worked on Bosnia policy since 1997 (Balkan Institute, Balkan Action Council,
US Institute of Peace, and Democratization Policy Institute) and resided in Sarajevo since 2005.
He served as Strategy Analyst at the Office of the High Representative in 2005-6. He also co-
authored (with Amb. Jeremy Kinsman) the Diplomats Handbook for Democracy and
Development Support, a project of the Community of Democracies, the third edition of which
was published in September 2013 (see http://www.diplomatshandbook.org). In his role as the
projects Research Director, he authored, co-authored, or oversaw the research and writing of
the Handbooks case studies. He has also contributed various analyses and opinion pieces to
The Washington Post, The Christian Science Monitor, The International Herald Tribune, and
other newspapers. He received his MA in European Studies at the Central European University

109

in Prague in 1994, having previously earned his BA in International Relations at America
Universitys School of International Service in 1991.

kbassuener@democratizationpolicy.org

Bodo Weber is a Senior Associate of the Democratization Policy Council (DPC). He is a longtime
analyst of international policy, Western Balkans policy and society and German foreign policy.

He also works as a political consultant for political foundations and international organizations
in Germany and the Balkans. In the 1990s, he worked as an editor
with Perspektiven (Frankfurt/Main), a journal, and served as a board member of the Bosnien-
Bro Frankfurt. He has published numerous articles and analytical papers on politics and
societies in the Balkans, on post-conflict peacebuilding, democratization and German foreign
policy. He has published articles and OpEds in various journals and papers such as Die
Zeit, Internationale Politik, Democracy and Security in Southeast Europe et. al. and regularly
appears as a commentator in Southeast European media such as Blic, Koha Ditore, BH
Oslobodjenje, Al Jazeera Balkan. He is the author of The crises of the Bosnian-Herzegovinian
universities and the perspectives of junior scholars, Friedrich-Ebert-Stiftung, Sarajevo 2007 and
a co-author of the Bosnia security study Assessing the potential for renewed ethnic violence in
Bosnia-Herzegovina (Sarajevo 2011). Weber has an MA in political science from the Johann-
Wolfgang-Goethe-University in Frankfurt/Main. He lives in Berlin.

bweber@democratizationpolicy.org

For the last twenty years, Tony Levitas has been providing analytical and political advice on
local government reform to elected officials and civil servants in post-communist Europe. In
general, he helps policy makers decide what responsibilities sub-national governments should
have and where they should get the money to pay for them. In particular, he provides support
in designing predictable, adequate, and equitable transfer systems; in developing sound rules
for local government taxation, budgeting, investment planning, and financial reporting; and in
creating and regulating municipal debt markets. He has also worked extensively on school
management and finance. Tony has been instrumental in developing and implementing local
government reform programs in Poland, Macedonia, Serbia, Bosnia and Herzegovina, and
Albania. He has also worked in Ukraine, Turkey, Mongolia, Georgia and Armenia. In Poland,
where has lived for most of the past two decades, he has been deeply involved with the
decentralization of primary and secondary education and until recently served as Research
Director of the Ministry of Education's Local Government School Management unit.

tony.levitas@gmail.com

110

Jasmina Djiki is a public finance expert with 15 years experience on public finance in BiH. She
currently is the Municipal Finance Advisor at the Growth-Oriented Local Development (GOLD)
project, funded by USAID. Her previous positions include being Long-Term Public Finance
Expert with Human Dynamics, Public Finance Expert for the Public Interest Advocacy Center
(CPI), Fiscal Policy Advisor with the USAID-SIDA-Netherlands-funded Government
Accountability Project (GAP) from 2005-2012, and Public Finance Consultant with SIGMA. She
received her Bachelor of Science in Economics from Moscow State University in 1996 and a
Masters of International Management from Thunderbird in 1998.

jdjikic@hotmail.com
.

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MUNICIPALIZATION: A POPULAR GOVERNANCE MODEL FOR

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