Croatia

Local Responsibilities and Public Services in Croatia: An Introduction

Dario Runtic, NALAS Network of Associations of Local Authorities of South-East Europe

Allocation of responsibilities among urban local governments (ULGs), rural local governments (RLGs) and regional governments in Croatia is set in Article 129(a) of the Constitution and further elaborated in the Organic Law on Local and Regional Governments and various sectoral laws. The key criteria for the allocation of responsibilities are the number of inhabitants and the level of sub-national government.

All local governments, whether urban or rural, carry out tasks referring to organization of settlement and housing; spatial and urban planning; utility services; child-care; primary health protection; social welfare; elementary education; culture, physical culture and sports; consumer protection; environment protection; fire and civil protection; maintenance of municipal roads and traffic management.

Large towns, above 30,000 inhabitants, and the towns in which a regional government has a seat, have additional responsibilities related to the maintenance of local public roads and construction permits, in addition to those listed above. The regional governments execute these functions on behalf of the smaller towns and municipalities.

In case of specific services there could be an additional limitation in place for provision of a specific service, such as minimum number of inhabitants for, e.g., management of elementary education.

The scope of counties’ responsibilities can be self-managing and entrusted (government affairs). Counties are tasked with performing the following tasks: general public administration services; primary and secondary education; healthcare; regional and urban planning; economic development; environmental protection; transport and traffic infrastructure; management of the network of educational, medical, social welfare, and cultural institutions; administration pertaining to agriculture, forestry, mining, and industry; management of road transport infrastructure; construction permitting, excluding the area of large towns and a county seat city.

Re-assignment of responsibilities between individual local and regional governments is allowed pending approval of the representative bodies of both government units. Certain restrictions apply such as the ability to fund a specific responsibility (in case of most of responsibilities).

Local governments can provide services themselves, through institutions established by local governments, through local government owned enterprises or by entrusting public services to private operators through public procurement contracts or concessions.

Local governments typically provide general services related to all responsibilities within the nationally imposed legal framework – organization of services, contracting, funding, planning and taxation. They also provide organization of settlement and housing, spatial planning services, construction permitting, business permitting and provision of social welfare benefits. Institutions established by local governments provide child care, health protection, social welfare services, elementary education, culture, and fire protection. Local government owned enterprises mostly perform utility services, environment protection and maintenance of roads and infrastructure. Public procurement contracts and concessions are mostly used for infrastructure construction and maintenance, waste management, public lighting, public transport, parking and green market management. Public-private contracts for public service provision have been implemented in areas of sport and education, however, this form of public service provision is not widespread due to downfalls of early public-private partnership (PPP) contracts.

Local governments are also allowed to carry out their responsibilities through various forms of inter-municipal cooperation, be it joint administrative departments, companies or institutions. The General Local Government Act enables voluntary inter-municipal cooperation, but leaves it up to participating local governments to set all terms of cooperation in a cooperation agreement. There are no mandatory inter-municipal cooperation arrangements in provision of services.

Although the Constitution defines responsibilities which are within autonomous scope of local governance, the sectoral legislation limits the extent to which local governments are autonomous in carrying out those functions. Local and/or regional governments are entrusted with partial responsibilities and often required to obtain approvals from other levels of governments. E.g. in primary education, local governments are responsible for capital investment, maintenance and operating expenses (insufficiently funded through grants for decentralized functions) while the government funds teachers’ wages. In terms of firefighting, local governments have broader responsibilities but are required to seek approval for the appointment of fire chief, fire protection plans, and other basic decisions from other levels of government. RLGs face broader restrictions than ULGs although the autonomous scope of ULG and RLG is basically the same. The gap between the constitutional provisions and the actual performance is caused by governmental centralization of most of the functions during the time of the 1990 Homeland War and structural fragmentation of local governments at the same time. Some responsibilities were partially decentralized in the 2000’s (education, firefighting, social welfare, healthcare) and 2008-2010 (road maintenance, construction permitting). The gap still remains due to high fragmentation of local government and government’s mostly unchallenged method of operation. Lately this principle has been tested before the Constitutional Court and, pending decision, may change the intergovernmental relations in future.

References to Scientific and Non-Scientific Publications

Legal Documents:

Constitution of the Republic of Croatia, 2014

Law no 98/2019 on Local and Regional Self-Government

Scientific and Non-Scientific Publications:

Kopric I, ‘Stanje Lokalne Samouprave u Hrvatskoj’ (2010) 10 Hrvatska javna uprava <https://iju.hr/HKJU-clanak.asp?c=521&a=Autor: Ivan Koprić>

Ministry of Administration of the Republic of Croatia, ‘Local and territorial (regional) Self-Government’ <https://uprava.gov.hr/o-ministarstvu/ustrojstvo/5-uprava-za-politicki-sustav-i-organizaciju-uprave-1075/lokalna-i-podrucna-regionalna-samouprava/842>

Pusić E, ‘Lokalna samouprava u Hrvatskoj’ (2000) 2 Hrvatska javna uprava <https://iju.hr/HKJU-clanak.asp?c=1026&a=Autor:%20Eugen%20Pusi%C4%87>

Local Financial Arrangements in Croatia: An Introduction

Dario Runtic, NALAS Network of Associations of Local Authorities of South-East Europe

Total local government revenue in Croatia equals to 12.1 per cent of GDP as reported to Eurostat with local governments units managing on their own only 7.3 per cent of GDP. The most important group of revenues is shared taxes which generate about 47 per cent of consolidated local government revenues.

The single most important source of revenue is the Personal Income Tax (PIT) which generates 41 per cent of consolidated local and regional government revenues. National government sets PIT rates, levels, exemptions and credits. Local governments are allowed to impose a surcharge of up to 18 per cent on the amount of PIT taxpayers owe to the government. The surcharge currently constitutes 10 per cent of all local PIT revenues.

Since the income tax is shared between local and regional governments and also used for funding two local government equalization schemes, frequent changes of tax rates undertaken by the national government significantly affect local budgets and the predictability of revenues. This in turn affects the local governments’ ability to provide uninterrupted services and demotivates any longer term planning.

About 31 per cent of local budgets come from own-sources. Most own-source revenue comes from Land Use Fees and Land Development Fees. Croatian local governments also derive a significant amount of own-revenue from the sale and rental of municipal assets and other local taxes. Fees are considered earmarked revenues, while taxes and proceeds from asset management are non-earmarked revenues. Both fees are mandatorily collected and enforced by the local government.

Local taxes include, but are not limited to: PIT surcharge, gift and inheritance tax, vehicle and vessels tax, amusement machines tax, real-estate transfer tax, second home tax, beverage sale tax, tax on use of public space, etc. Most of the taxes are either set or capped by national legislation, except for the Tax on Use of Public Space. PIT surcharge and amusement machines taxes are mandatorily collected by the National Tax Administration (NTA) and the other local taxes can be collected either by the NTA or the local government itself, pending local council decision. Croatia does not collect real-property tax, although the tax was introduced into the tax system in late 2016, but repealed by the government in September 2017, just three months shy of its effective date.

General and investment grants comprise the remainder of local government revenues. These include grants for decentralized functions, transfers of EU funds and intergovernmental transfers. Grants for decentralized functions are distributed to counties, large towns, seats of counties and a few other towns who have taken over some of the previous central government responsibilities. Grants are based on so-called minimal standards for service provision which are calculated according to measurable indicators related to service (e.g. number of pupils in school, etc.). Funding levels for decentralized functions are rather stable and incrementally increased over the past four years. Transfers of EU funds have increased tenfold from 2014.

Over the course of last ten years, in the aftermath of the financial crisis, local government revenues dropped from EUR 3.4 billion to 2.8 billion and steadily recovered to current 3.1 billion Euro. Due to budgetary and fiscal restrictions set by law, local governments had to manage their expenditures in line with the available funding, borrowing only for investment projects. In order to maintain stable relative levels of funding for specific functions, local governments reduced funding for Housing and Community Amenities while keeping stable or increasing funding levels for social protection and education.

Current local government expenditure structure is as follows: 8.5 per cent wages and benefits, 22.8 per cent material expenditures (38 per cent of which is current and capital maintenance), 4 per cent subsidies, 24,7 per cent current and investment grants, 5.3 per cent household grants, 17.9 per cent investments in long term assets and 16.8 per cent other expenditures.

Fiscal capacities of local governments vary significantly although most of local governments have equal or similar responsibilities in terms of service provision. Rural local governments therefore provide essential public services and urban local governments provide same or similar services but in a broader scope by establishing public institutions which provide advanced level of those services (e.g. libraries, museums, etc.). The government tried to address the disparity of fiscal capacities through a complex PIT sharing mechanism which essentially failed and was replaced with new fiscal equalization scheme in 2018.

References to Scientific and Non-Scientific Publications

Legal Documents:

Local Taxes Act no 115/2016 (Zakon o lokalnim porezima)

Law no 127/2017 on Financing of Local and Regional Self-Government Units (Zakon o financiranju jedinica lokalne i područne [regionalne] samouprave)

Scientific and Non-Scientific Publications:

Bajo A and M Bronić, ‘Fiskalna decentralizacija u Hrvatskoj: problemi fiskalnog izravnanja’ (2004) 28 Financijska teorija i praksa 445

Stafa E and others, ‘Fiscal Decentralization Indicators for South East Europe: 2006-2017’ (NALAS 2018)

The Structure of Local Government in Croatia: An Introduction

Dario Runtic, NALAS Network of Associations of Local Authorities of South-East Europe

Between the WWII and the Croatian independence, structure and number of subnational units changed frequently. A two-tier subnational government model dominated the era. The number of units varied from of 89 regional and 737 local governments in the 1950’s down to 11 regional and 102 local government units during the last decade of the Socialistic Republic of Croatia.

The number of local governments increased significantly since the 1990’s when Croatia declared its independence from former Yugoslavia. The 1992 Law on Territories of Counties, Cities and Municipalities laid out a new structure of subnational governments in the newly independent Republic of Croatia. Counties are regional governments, cities are urban local governments and municipalities are rural local governments. The 1992 Law established 20 counties, the City of Zagreb with dual city/county status, 68 cities and 405 municipalities. Over the course of years, fragmentation of local governments continued and currently rests at 20 regional, 555 local government units (127 cities and 428 municipalities) and the City of Zagreb with dual status.

The rationale for the 1992 fragmentation is frequently attributed to centralization of competencies and governance during war time. The legislative basis for such a territorial structure was established by the 1992 Law on Local Government and Administration. Both laws were published in the Official Gazette 90/1992 of December 30, 1992. The Law on Local Government and Administration stipulates that ‘a municipality is a local government unit composed of several settlements which represents natural, economic and social unity interlinked with common interests of population’, which basically provides grounds for broad fragmentation of the territory.

Both laws contain provisions related to voluntary amalgamation/border change and inter-municipal cooperation. The Law on Local Government and sectoral laws allow transfer of competencies between local, regional and even national authorities. Until 2015 the laws allowed representative bodies to change borders by mutual agreement of representative bodies and with prior consultation of citizens in case the border change affects inhabited settlement. Also, representative bodies or one third of the population can propose a change of territorial affiliation of the settlement or establishment of the new local government. As of 2015 the law was amended to provide for voluntary amalgamation of adjoining local governments. Representative bodies can decide to carry out amalgamation by majority vote of members of each representative body.  Representative bodies are required to consult with the residents prior to a decision. Consultations are carried out under referenda rules and are obligatory for the representative body. There are no fiscal or other incentives for voluntary amalgamation. So far there were no attempts at or cases of voluntary amalgamations of local governments. The lack of attempts at voluntary amalgamation could be attributed to the lack of external incentives and/or nationally driven initiatives for amalgamation. Limited resources coupled with the economies of scale should be one of the natural drives of change; however, major costs of public service provision (health, education, utilities) in lagging local governments are carried either by the regional government or neighboring local governments. Therefore, economies of scale do not seem to play a major role in voluntary amalgamation. External incentives may need to be used as a catalyst for voluntary amalgamation.

An alternative to amalgamation exists in a form of inter-municipal cooperation. Local governments are allowed to carry out their responsibilities through various forms of inter-municipal cooperation, be it joint administrative departments, companies or institutions. The Law on Local Government lays a broad foundation for voluntary inter-municipal cooperation and leaves it up to local governments to craft details of the cooperation through bi/multi-lateral agreements. There are no mandatory inter-municipal cooperation arrangements in provision of services. There are only a few examples of formal inter-municipal cooperation in Croatia and the subject area is not thoroughly researched. Therefore, the question remains why do local governments refrain from joint service delivery – be it lack of regulation, lack of incentives, political or other issues. In case of certain responsibilities that are provided by the regional government on behalf of smaller local governments (e.g. construction permitting), inter-municipal cooperation is limited because of legislative barriers. In case of some basic local government functions there may not be a sufficient economy of scale to encourage the change.

Joint local utility companies are a rather frequent form of service provision, although these are not considered voluntary cases of inter-municipal cooperation. These companies became ‘joint’ during the process of local government fragmentation in the 1990s – large local government were divided into several smaller local governments and each was given a share in the communal company. These companies primarily carry out water supply, wastewater and waste disposal services.

In terms of grassroots inter-municipal cooperation initiatives there are only a couple of examples in Croatia. One is the Kaštelir-Labinci, Sv. Lovreč and Vižinada joint Department for Finance and Legal Affairs in Istria. The other is a joint non-profit organization for international relations originally established by the municipalities of Tovarnik, Ilok, Nijemci, Tompojevci and Lovas.

References to Scientific and Non-Scientific Publications

Legal Documents:

Law no 110/2015 on Territories of Counties, Cities and Municipalities

Law no 98/2019 on Local and Regional Self-Government

Scientific and Non-Scientific Publications:

Antic T and Ivanovic M, Handbook for Inter-Municipal Cooperation (Association of Municipalities 2011)

Pigey J H and Tomašević V, ‘Inter-municipal Cooperation and Public Service Provision: International Practices, Case Studies in Croatia and Recommendations’ (The Urban Institute/USAID 2006)

Intergovernmental Relations of Local Governments in Croatia: An Introduction

Dario Runtic, NALAS Network of Associations of Local Authorities of South-East Europe

The Croatian intergovernmental legal framework contains a number of provisions related to distribution of competencies, local government autonomy, intergovernmental dialogue or consultation and legal remedies.

Croatia has ratified the European Charter for Local Self-Government in 1997 partially and 2008 fully. The Charter provides for full and exclusive transfer of competencies to the government level closest to the citizens, considering efficiency of service provision; adequate fiscal resources; consultation, supervision, right to associate, boundaries protection and legal protection.

The Constitution of the Republic of Croatia provides a general competencies framework for local government which is further elaborated in the Law on Local and Regional Government and detailed in sectoral legislation. Distribution of fiscal resources, supervision and legal remedies are prescribed in the same fashion. In addition to general and detailed provisions, legal protection of local governments is additionally prescribed in constitutional law on Constitutional Court. Constitutional laws can be passed and amended by 2/3 majority of the parliament. Consultations among government levels and with the public are also prescribed in aforesaid legislation and further elaborated in the Law on Access to the Information. The right to associate is defined in the Law on Local and Regional Government, allowing local governments to establish national associations of local or regional governments should more than half of local or regional governments decide to do so.

The Croatian governance system is a three-tier system – national, regional and local government. National level counterparts in broadest terms are central government, legislature and judiciary. Regional government counterparts are primarily counties and their budgetary users. Local level counterparts are two distinct types of local governments – urban and rural – and their budgetary users and utility companies.

Intergovernmental relations in Croatia take various forms both in terms of vertical or horizontal relations. Having a three-tier governance system, vertical relations come in various forms from national to subnational, national to local, national to regional or regional to local, and vice versa, among any and all of aforesaid counterparts.

Horizontal relations are primarily any of the inter-municipal cooperation formats – joint utility companies, joint budgetary users or joint municipal departments or recently developed project agglomerations.

Most common vertical intergovernmental relations take place within legislative process framework and execution of competencies. Over the course of past few decades, the legislative process had undergone major changes in its form and dynamics. Some fifteen years of Croatian independence, the legislative process was mostly a national governance affair with rather limited input from the general public, which started to change during the following decade. Opening towards public input was of limited effect due to the fact that national government and parliament had to ramp-up the legislative process in order to timely adopt, transpose and implement EU acquis communautaire. Upon completion of adoption of the acquis and joining the EU, the legislative process decreased in pace allowing for substantial input from the general public and interested parties. An important cornerstone of the legislative process is the Parliamentary Board for Local Governments which involves members of the parliament as well as local and regional governments in discussion with the representatives of the government.

Aforesaid legislative process coupled with centralistic governance and fragmented subnational government had created an intertwined and overlapping matrix of competencies of three distinct levels of governance in public service provision. Such complex distribution of competencies, sometimes bordering with or crossing local autonomy lines, inevitably leads to intergovernmental issues and inefficiencies in public service provision. In such cases concerned levels of government often call for amendments to the legislation or legal remedies.

Intergovernmental judiciary relations are infrequent but tend to change the intergovernmental landscape when successfully executed by the local governments.

References to Scientific and Non-Scientific Publications

Legal Documents:

Law no 4/2008 on Ratification of European Charter of Local Self-Government

The Constitution of the Republic of Croatia, 2014

Law no 85/2015 on Access to the Information

Law no 73/2017 on Referenda and Other Means of Personal Participation in State and Local Affairs

Law no 98/2019 on Local and Regional Self-Government

Scientific and Non-Scientific Publications:

Kopric I, ‘Widening the Scope of Local Self-Government Powers and Narrowing Central Government Supervision’ (2000) Hrvatska javna uprava 391

People’s Participation in Local Decision-Making in Croatia: An Introduction

Dario Runtic, NALAS Network of Associations of Local Authorities of South-East Europe

The Croatian governance system is rather centralized with limited scope of competencies and decision-making decentralized to local level. In recent years, the national legislative process became more open to general public input through an e-participation platform, open data portals launched and public participation in decision-making became formally obligatory.

The Constitution guarantees freedom of expression and access to the information, right to referenda, right to local governance and right to directly participate in decision-making at the local level for Croatian and EU citizens.

The right of access to the information is further prescribed in the national Law on Access to the Information which applies to all levels of government. The law defines the procedure of the access and reuse of the information, obligation of proactive publishing of the information, mandatory consultations with the public and open data. Public authorities are required by the law to disclose requested information to the citizens proactively by publishing key legislation, general acts, reports, etc. via their web site in electronic and machine readable formats. They are also required to respond within 15 days to any citizen requests for information using the most viable method of information delivery and citizens can use the obtained information freely.

All public authorities are required to consult the public during the legislative process or preparing general acts, strategic or planning acts which affect rights and interests of citizens and legal persons. The authorities are obligated to publish draft acts on the national e-consultation platform or their web pages for a period of 30 days with a request for public input. Failure to do so may result in courts rendering such acts null and void.

The right to referenda is defined in a national Law on Referenda and Other Means of Personal Participation in State and Local Affairs. Parliament can, at its own decision or at the request of 10 per cent of the voters, start national referenda on changes and amendments to the Constitution and legislation, including new legislation. The President, at the request of the government or jointly with the Prime Minister, can start referenda on changes of the Constitution or other issue of importance for independence and preserving of the Republic. The national referenda must be held in case of the Republic joining the unions with other states. Decision at the referenda is passed by the majority vote under condition majority of voters voted at the referenda.

Local referenda can be started on local legislative issues, termination of a mayor’s mandate or other issues within the scope of local government. Local referenda can be initiated by 1/3 of the members of the representative body, the majority of town quarters/neighborhood councils, the mayor or 20 per cent of voters. In all cases, except in the case of 20 per cent of voters, the representative body must discuss the proposal and may call a referendum by absolute majority vote within 30 days. In case 20 per cent of voters initiated the referendum, within 60 days the Ministry of Administration will verify whether the initiative complies with regulation and the local representative body will call a referendum within 30 days.

Advisory referenda can be called by the government to obtain opinion of the residents of one or several local or regional government units about the territorial-administrative structure of that area. Local governments can call an advisory referendum for issues within its competencies. Decision is passed by the majority vote unconditionally.

Citizens’ meetings can be organized by the neighborhood council to collect input on issues of local (neighborhood) relevance, discussion on needs and interest of the citizens or for resolving local issues. The process and voting process is defined by local statutes and bylaws. Voting is public unless participants decide differently. The decision of a citizens meeting is obligatory for neighborhood council or town quarter, but it is not obligatory for the representative body of the local government. Hence, the latter could overturn decisions adopted by the citizens meeting.

In general, the legislative framework is generally permissive for public participation in decision-making in Croatia at all government levels. A permissive legislative framework does not necessarily translate into an enabling or encouraging framework. Administrative fragmentation, three layers of government and overlapping competencies of different levels of government do not provide for broad coverage, individual responsibility, innovation and significant impact in governance which may be an additional reason why a limited number of citizens engage in decision-making process. Other reasons may be of historical nature – a significant number of the voters lived in a central government top-bottom authoritative or semi-authoritative era with limited incentives for participation in the decision-making process, which gradually changed over the last quarter of the century. Government entities, likewise, were used to operate without soliciting input of the public or plainly limiting public availability of drafts. The change of both governance procedures and public interest is supported by recent report findings. The Freedom of Information Commissioner 2018 Report notes that a number of inputs submitted via the national e-consultation platform nearly doubled compared to 2017 and the number of inputs that were accepted and shaped the new legislation or acts increased from 25.2 per cent in 2017 to 33 per cent in 2018. Although the exact number of individual participants is not disclosed, a total number of 11,739 inputs suggest the number of participants is still rather low. The increase in number of inputs is related to an increased acceptance and use of e-consultation platform by the state bodies. There were approx. 640 laws and regulations published at national e-consultation platform in 2017 and 980 laws and regulations in 2018. The increase of accepted inputs (inputs which were incorporated in draft legislation) is probably related to more proficient input offered by professional individuals or organizations who followed suit and joined the platform.

The non-encouraging legislative framework, slow and formal instruments of participation yielding limited results are nowadays being challenged by social media, digital platforms, on-line petitioning, virtual interest groups, instant think-thanks, etc.

Local governments are required by law to carry out public consultations in relation to local regulation and general acts using their web pages or national electronic system. At this point, access to a national electronic system is not available although it is being discussed between the state and national local government associations. Therefore, urban and rural local governments are using their web pages to enable public consultations, often by publishing an act and an offline form that can be submitted to the local government. There does not appear to be much difference in urban and rural practice. City of Rijeka seems to be attracting more substantial input and broader participation in its legislative and planning activities. The City of Rijeka launched an e-consultation platform in 2011, two years before consultations became a legal requirement and they seem to be the only one (or one of the few) to offer on-line submission of citizens’ inputs. Early start coupled with on-line form suggests long-term effort and frictionless participation may be the key to increased citizen participation. A growing number of mayors is present at social media platforms, personally manages their accounts and participates in on-line discussions. New models of public participation are being implemented at local level – be it e-consultation platforms, gamification of the planning process, crowdfunding platforms and campaigns for community projects or participatory budgeting at municipal and neighborhood levels and schools or sectoral discussion on spending priorities.

References to Scientific and Non-Scientific Publications

Legal Documents:

Law no 85/2015 on Access to the Information

Law no 73/2017 on Referenda and Other Means of Personal Participation in State and Local Affairs

Law no 98/2019 on Local and Regional Self-Government

Scientific and Non-Scientific Publications:

Bajok I and others, ‘Principles, Guidelines and Protocols for Citizens’ Participation in Decision Making’ (MDP Inicijative 2012)

City of Rijeka, ‘Savjetovanje s javnoscu’ (Grad Rijeka) <https://ekonzultacije.rijeka.hr/> accessed 2 April 2020

Krzysztof Chmura and others, ‘Citizen Participation Manual’ (The Urban Institute 2005)

Malatestinic I, ‘Lokalni proračun i uključivanje javnosti u proces njegovog donošenja’ (Croatian Association of Cities 2011)

Runtic D and Zulicek M, ‘Participatory Budgeting: Practical Guide’ (Croatian Association of Cities 2020)