DECENTRALIZATION AND DECENTRALIZATION AND FINANCING OF SERVICESFINANCING OF SERVICES

Gordana MatkoviGordana MatkoviććSofia, July 2007Sofia, July 2007

ON DECENTRALIZATIONON DECENTRALIZATION

Decentralization means…Decentralization means…

Transferring different functions toTransferring different functions to Lower levels of state administrationLower levels of state administration

Non state institutions and stakeholdersNon state institutions and stakeholders Non government organizationsNon government organizations Private companiesPrivate companies CitizensCitizens

Non- state institutions and stakeholders Non- state institutions and stakeholders are included are included

On the supply side/through service provisionOn the supply side/through service provision

On the demand side/selection and purchasing On the demand side/selection and purchasing of services of services

oror Through participation in decision-making and Through participation in decision-making and

representing the interests of different groups representing the interests of different groups

Motives for decentralizationMotives for decentralization Slow changes, lack of efficiency, flexibility and Slow changes, lack of efficiency, flexibility and

innovation at central levelinnovation at central level

Local specificities and needs can be better identified Local specificities and needs can be better identified and resolved at local leveland resolved at local level

Decentralization also provides incentives for Decentralization also provides incentives for competition between:competition between: Local governmentsLocal governments State and non-state actors in service provisionState and non-state actors in service provision

Decentralization facilitates citizens’ participation in Decentralization facilitates citizens’ participation in decision-making which induces better quality servicesdecision-making which induces better quality services

There could also be OTHER MOTIVES There could also be OTHER MOTIVES

Resolving political crises due to ethnic and Resolving political crises due to ethnic and religious conflictsreligious conflicts

EU integration process (the effect of empathy)EU integration process (the effect of empathy)

Shifting responsibility to lower level government Shifting responsibility to lower level government to avoid:to avoid: Unpopular reform measures Unpopular reform measures andand Fiscal crises and deficit at central levelFiscal crises and deficit at central level

Limitations and PreconditionsLimitations and Preconditions

Adequate level of democratizationAdequate level of democratization Differences in the level of development between Differences in the level of development between

LSGLSG Control mechanisms adapted to a decentralized Control mechanisms adapted to a decentralized

functioning of state and societyfunctioning of state and society Adequate capacity at local levelAdequate capacity at local level Clear division of mandates, responsibilities and Clear division of mandates, responsibilities and

fundsfunds In transition countries reform “mind-set” more In transition countries reform “mind-set” more

present at central than at local levelpresent at central than at local level

Limitations arisingLimitations arisingfrom the specificity of social protectionfrom the specificity of social protection

Social welfare beneficiaries, are as a rule, Social welfare beneficiaries, are as a rule, the least empowered in society:the least empowered in society: Insufficiently informedInsufficiently informed DisorganizedDisorganized Do not have political powerDo not have political power Needs are concealedNeeds are concealed

Limitations arisingLimitations arisingfrom the specificity of social protectionfrom the specificity of social protection

Local governments do not see their Local governments do not see their (political) interest in allocating funds for (political) interest in allocating funds for social protectionsocial protection

There are other big problems that affect There are other big problems that affect a larger number of citizens / votersa larger number of citizens / voters

There is a greater chance that prejudice There is a greater chance that prejudice towards some groups is manifestedtowards some groups is manifested

What should be decentralized What should be decentralized in social protectionin social protection

Cash benefitsCash benefitsThere is no convincing proof for decentralizationThere is no convincing proof for decentralization

THEORYTHEORY Redistributive functions should largely remain in the Redistributive functions should largely remain in the

mandate of the central levelmandate of the central level

Less developed municipalities/regions would not Less developed municipalities/regions would not have sufficient funds for redistributionhave sufficient funds for redistribution

The interests of specific vulnerable groups will be The interests of specific vulnerable groups will be better protected if looked after at central levelbetter protected if looked after at central level

What should be decentralized What should be decentralized in social protectionin social protection

EXPERIENCEEXPERIENCE In the majority of developed countries In the majority of developed countries

minimum rules and financing are at national minimum rules and financing are at national levellevel

In most cases experience in decentralizing In most cases experience in decentralizing cash benefits in transition countries is not cash benefits in transition countries is not positivepositive

Decentralized system can lead to differences Decentralized system can lead to differences in accessing assistance, thus disrupting in accessing assistance, thus disrupting horizontal equity that can hardly be justifiedhorizontal equity that can hardly be justified

What should be decentralized What should be decentralized in social protectionin social protection

ServicesServicesWhy should then the system be decentralized in the area of Why should then the system be decentralized in the area of

services?services? THEORYTHEORY

Dividing the roles of service purchaser and service Dividing the roles of service purchaser and service provider corresponds to a decentralized government provider corresponds to a decentralized government

Local needs for services can be very specific due to Local needs for services can be very specific due to demographic, economic and social specificitiesdemographic, economic and social specificities

Inter-sectoral cooperation at local level is necessary in Inter-sectoral cooperation at local level is necessary in organizing servicesorganizing services

Decentralization also means inclusion of different Decentralization also means inclusion of different stakeholders in service provisionstakeholders in service provision

What should be decentralized What should be decentralized in social protection in social protection

EXPERIENCEEXPERIENCEAre we really talking about devolution if at central Are we really talking about devolution if at central

level:level: Policies, legislation and national standards Policies, legislation and national standards

are definedare defined Financing is secured through central Financing is secured through central

government grants government grants Inspection and control functions are organized Inspection and control functions are organized Good practice guidebooks are produced…Good practice guidebooks are produced…

DECENTRALIZATION AND FINANCING DECENTRALIZATION AND FINANCING OF SERVICESOF SERVICES

I case - I case - Financing of Residential Institutions (RIs) at Financing of Residential Institutions (RIs) at national & alternative services at local levelnational & alternative services at local level

Weaknesses/ShortcomingsWeaknesses/Shortcomings Strong incentive for placement of children in RIs (at the Strong incentive for placement of children in RIs (at the

expense of national budget)expense of national budget) The mere fact that RIs exist absolves local governmentsThe mere fact that RIs exist absolves local governments The poorest LSG do not have resources to develop The poorest LSG do not have resources to develop

alternative servicesalternative services In “better-off” municipalities/regions there are also many In “better-off” municipalities/regions there are also many

competing needscompeting needs

I case I case

Weaknesses/ShortcomingsWeaknesses/Shortcomings Social welfare at local level often “loses battle” with Social welfare at local level often “loses battle” with

education and healtheducation and health It is more likely that financing of alternative services will be It is more likely that financing of alternative services will be

irregularirregular Services, cost effective only when established for several Services, cost effective only when established for several

municipalities, will not be createdmunicipalities, will not be created More difficult to respect the principle money follows the More difficult to respect the principle money follows the

clientclient

II case - Everything financed from national levelII case - Everything financed from national level

ProblemsProblems Creating budgetary space for transitional costsCreating budgetary space for transitional costs Non-responsiveness to specific needs of local Non-responsiveness to specific needs of local

communitiescommunities Citizen participation in decision making and advocacy are Citizen participation in decision making and advocacy are

not possible and effectivenot possible and effective Dividing the role of service purchaser and service provider Dividing the role of service purchaser and service provider

will not be efficientwill not be efficient Lack of incentives for local level to choose “the cheapest” Lack of incentives for local level to choose “the cheapest”

solution for social caresolution for social care

III case - Both RIs and alternative services at local levelIII case - Both RIs and alternative services at local level

Risks of decentralizing prior to reforms:Risks of decentralizing prior to reforms: Reform ideas are usually more present at central levelReform ideas are usually more present at central level Does not automatically lead to the selection of the Does not automatically lead to the selection of the

cheapest and best care optioncheapest and best care option In some CIT local level tends to keep RI due toIn some CIT local level tends to keep RI due to::

Resistance of staff who are at the same time votersResistance of staff who are at the same time voters More conservative professional attitudes towards alternativesMore conservative professional attitudes towards alternatives

In some countries only mandate is shifted, but not the In some countries only mandate is shifted, but not the fundsfunds

III caseIII case

Risks of decentralizing prior to reforms:Risks of decentralizing prior to reforms: If resources are shifted to local level as well, it is less If resources are shifted to local level as well, it is less

feasible to financially “manage” reforms from national feasible to financially “manage” reforms from national level, that is:level, that is:

To “maneuver” with financial incentives for development of To “maneuver” with financial incentives for development of alternative servicesalternative services

To use potential savings (from deinstitutionalization) for To use potential savings (from deinstitutionalization) for development of alternative servicesdevelopment of alternative services

To obtain additional funds for poor LSGTo obtain additional funds for poor LSG

Problems of inter-municipal payments for servicesProblems of inter-municipal payments for services

What can we do? What can we do?

Do not opt for quick decentralization to lower Do not opt for quick decentralization to lower level government, especially if:level government, especially if:

Regional level government does not exist Regional level government does not exist There are no control mechanisms There are no control mechanisms If there are large differences in LSG level of If there are large differences in LSG level of

development development If LSG do not have adequate capacity If LSG do not have adequate capacity

What can we do? What can we do?

In some segments / under certain conditions - In some segments / under certain conditions - reforms should precede decentralization (e.g. reforms should precede decentralization (e.g. foster care) foster care)

Examine the option of “asymmetric Examine the option of “asymmetric decentralization” with clearly defined decentralization” with clearly defined responsibilities for development of alternative responsibilities for development of alternative care care

When implementing decentralization, financial When implementing decentralization, financial resources must follow the shift of mandates resources must follow the shift of mandates

What can we do? What can we do?

It should be noted that even services financed It should be noted that even services financed from national level and provided by non-state from national level and provided by non-state providers e.g. foster care, can be considered as providers e.g. foster care, can be considered as decentralization decentralization

One option for overcoming the problem of One option for overcoming the problem of resources captured in RIs, is to engage RIs staff resources captured in RIs, is to engage RIs staff in providing alternative services and/or in M&E in providing alternative services and/or in M&E

Financing from multiple sources (both national and Financing from multiple sources (both national and local) is perhaps the best financing option for local) is perhaps the best financing option for alternative servicesalternative services

What can we do? What can we do?

Transfers from the national level should be Transfers from the national level should be earmarked earmarked

Securing funds at national level for sustainable Securing funds at national level for sustainable financing, particularly for: financing, particularly for:

Services in small and undercapacitated municipalities Services in small and undercapacitated municipalities Services that are considered especially important by the Services that are considered especially important by the

national level and are not sufficiently recognized as important national level and are not sufficiently recognized as important at local level at local level

Covering transition costs in establishing services Covering transition costs in establishing services