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"The local government reform – In brief"
Chapter 1
Creation of the Local Government Reform
The last time Denmark implemented a local government reform was in 1970. In the following years the public sector gradually became more decentralised. Appointment of the Commission on Administrative Structure in October 2002 was the start of a new local government reform, a reform that consists of three main elements: A new map of Denmark including new municipalities, a new distribution of tasks and a new financing and equalisation system.
The local government reform in 1970 and in the following years
The foundation of the Danish local government (until 2007) was established with the local government reform in 1970. Before 1970, Denmark was divided into 86 boroughs and approx. 1300 parishes within 25 county council districts (see Box 1.1).
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Box 1.1 Local Government Reform in 1970: Why? The division into approx. 1300 parishes and 86 boroughs dates back to a time when the distinction between the city and the country was sharper. One of the most important reasons for the reform in 1970 was that buildings in the boroughs in many places had spread across the boundaries to the neighbouring municipalities. Another decisive factor for the reform was that the majority of the parishes were too small to solve tasks for the local citizens and therefore had to cooperate with other municipalities. This applied to for example schools. In many of the smaller parishes there were no employees to handle the actual administration and the work was performed by elected representatives. This situation restricted local autonomy and it also meant that the state paid for and decided more and more. |
With the local government reform in 1970, the number of counties was reduced to 14 and the number of municipalities to 275. This created the basis for restructuring the distribution of tasks and cost burdens from the state to the counties and municipalities.
First, municipalities and counties acquired more influence and more tasks within social services and health care. The transfer of tasks continued after 1970. In 1973, counties became responsible for local upper secondary schools and state upper secondary schools and courses were transferred to the counties in 1986. In 1999, the municipalities took over the responsibility for integration from the state. The period after 1970 was characterised by a smooth decentralisation of the public sector.
The continuous transfer of tasks to counties and municipalities should be seen in relation to a concurrent restructuring of the financial system between the state, counties and municipalities. Previously, the state mainly financed local government expenditure through reimbursements. After the local government reform in 1970, a major part of the reimbursements schemes were replaced by general state grants – the so-called block grants and financial equalisation schemes between the rich and the poor municipalities were expanded.
These changes provided a better correlation between the decision competence and the financial responsibility of municipalities and counties as they were in charge of the funds to finance any services that the district council or the county council decided.
After 1970, ongoing deliberations and activities were taken place to adapt the structure of the public sector to new demands and problems arising as a result of the development of the welfare society and the increased decentralisation. Various municipalities in Denmark worked on the possibilities of merging. On Bornholm, Langeland and Ærø, a decision was made on the basis of local referendums to have one municipality on each island (Bornholm from 1 January 2003, Ærø from 1 January 2006, Langeland from 1 January 2007).
The local government reform takes shape
On the basis of the increasing debate on the structure of the public sector, the government established a Commission on Administrative Structure in October 2002. The Commission on Administrative Structure consisted of representatives from local governments, ministries and people with a special expertise within the area. The Commission on Administrative Structure was charged with the task of assessing “advantages and disadvantages of alter-native models for the structure of the public sector and on this basis to make recommenda-tions for changes that would remain sustainable for a number of years” (the Commission’s Terms of Reference).
In January 2004, the Commission on Administrative Structure concluded that a reform of the structure of the public sector was required, cf. Box 1.2. The conclusion was partly based on the fact that the size of the counties and municipalities was insufficient for proper task performance and partly that the distribution of tasks in the public sector in various areas was inappropriate.
The Commission on Administrative Structure made six models for the structure of the public sector, describing advantages and disadvantages of the six models, but without recommending any specific model.
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Box 1.2 The Deliberations and Recommendations of the Commission on Administrative Structure “It is the Commission’s overall assessment that there is a need for a reform of the structure of the public sector. The weaknesses of the current structure are partly the size of the municipalities and counties and partly the distribution of tasks between the state, counties and municipalities.
The Commission recommends a total reform of the public sector, including a change of boundaries and transfer of tasks between the state, counties and municipalities. (Excerpt from the Recommendation of the Commission on Administrative Structure) |
After publication, the government submitted the recommendation of the Commission on Administrative Structure for a public hearing inviting everyone to express their opinion. Almost 500 organisations, counties, municipalities, associations and individuals made use of this opportunity.
In April 2004, the government (the Liberal Party and the Conservative Party) presented its proposal for a reform of the structure of the public sector ”The new Denmark – a simple public sector close to the citizen”, based on the analyses of the Commission on Administrative Structure and on the hearing of the recommendation. The proposal subsequently formed the basis for negotiations between the government and the other parties of the Folketing. In June 2004, these negotiations resulted in an agreement on a reform between the government and the Danish People’s Party (the structural reform), cf. Box 1.3.
The structural reform contained the criteria for a new division of municipalities and regions and a new distribution of tasks between municipalities, regions and the state. Finally, the agreement included a decision regarding a financing and equalisation reform.
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Box 1.3 The Purpose of the Local Government Reform “The purpose of the reform is to maintain and develop a democratically governed public sector with a sound basis for continued development of the Danish welfare society. Therefore, the decentralised public sector, which is a distinctive Danish feature, needs to be designed in such a way that it can meet future requirements by creating sustainable units with a clear responsibility to provide high quality welfare service to the Danish population. Larger municipalities can provide the basis for improved task solution where more welfare tasks are solved locally and democracy will be strengthened as more political decisions are made locally.” (Excerpt from the Agreement on a Structural Reform made by the government and the Danish People’s Party) |
On the basis of the Agreement on a Structural Reform, 50 bills were prepared during the autumn of 2004 (see Appendix 2). The bills were submitted for a public hearing on 1 December 2004 and the hearing resulted in 2300 responses.
The bills were submitted to the Folketing on 24 February 2005. During the debate in the Folketing in the spring of 2005, the ministries answered 1739 questions from committees regarding the 50 bills. At the final voting, about half of the bills were approved by the government (the Liberal Party and the Conservative Party) and The Danish People’s Party and by several of the other parties in the Folketing.
The bills become reality
From the adoption of the bills to the commencement of the local government reform on 1 January 2007, preparations will be made in the state, counties and municipalities to implement the new geographic division and distribution of tasks. Tasks must be organised within the new authorities, buildings and materials must be transferred and thousands of public employees will have new employers. The overall estimate is that public employees, approx. 170,000 full-time equivalents, will have a new employer as a result of the local government reform. However, only a minority of these people will physically have to move to another workplace.
Basically, the principle applies that buildings, material and public employees follow the task. In other words, employees, who are exclusively or mainly involved with one task, which is transferred to another authority, move to the authority in question. Buildings, equipment, etc. that are exclusively related to the performance of one task will likewise be transferred to the authority who will become responsible for the task in question as per 1 January 2007.
The same principles will apply to public expenditure. Changes in the distribution of tasks are made on the basis of the principle that the reform must be neutral in terms of expenditure and that funds follow the tasks (see Box 1.4.) This means that tasks are moved whilst maintaining the current service level. This also means that the expenditure of the counties, which will amount to approx. DKK 100 billion in 2006, will be distributed between the authorities that take over the responsibilities of the counties in connection with the reform, i.e. the municipalities, regions and the state.
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Box 1.4 Funds Follow the Tasks ”The parties agree that the reform should not result in higher taxes or increased public expenditure. Changes in distribution of tasks will be made based on the principle that the reform is neutral when it comes to expenditure and the funds follow the tasks. This should ensure that the authorities taking on new tasks will be compensated by the authorities giving up the tasks.” (Excerpt from the Agreement on a Structural Reform made by the government and the Danish People’s Party) |
The government, the National Association of Local Authorities and the Association of County Councils in Denmark have agreed on a distribution of county expenditure to the effect that DKK 12.5 billion go to the state, approx. DKK 59 billion to the regions and approx. DKK 29 billion to the municipalities.
Merging costs and synergy effects
The fact that the local government reform, in general, should be neutral in terms of expenditure does not mean that there are no costs involved in merging municipalities and creating new regions. But these costs very much depend on how the individual municipalities and regions plan the processes.
The municipalities have to bear the costs of the mergers. But they can keep whatever they gain from the synergy effect. In this way the local government reform encourages the municipalities to keep costs down and also to gain as many benefits from the synergy effect as possible (see Box 1.5).
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Box 1.5 What are the Benefits of the Synergy Effect? Benefits from the synergy effect are savings obtained from merging two units. The saving is a result of the fact that the same task does not have to be performed in two places – e.g. wage administration or customer service – or the possibility of economies of scale. It could – in a very simplified version – be compared with the situation when a couple moves into a flat or a house together and save money because they only need one subscription to the newspaper, one telephone and a joint insurance. The reduction of the number of local politicians alone will lead to a reduction of remuneration of local politicians amounting to approx. DKK 365 million annually from 2007. This saving alone can finance interest and payment over five years on loans amounting to approx. DKK 1.7 billion (with an interest rate of 3%). |
Naturally, it is difficult to assess the exact level of expenditure involved in implementation of the local government reform. In connection with the legislative process in the Folketing, the Ministry of the Interior and Health estimated costs for the municipalities at almost DKK
1.2 billion, including approx. DKK 750 million for IT adjustments, approx. DKK 175 million for relocation, approx. DKK 75 million for employee reorganisation and approx. DKK 175 million for remuneration of integration committees in 2006. This estimate is based on experience from the merger of municipalities on Bornholm.
As the non-recurrent expenditure falls due before it is possible to gain the benefits of the synergy effect, loan facilities of DKK 1 billion and DKK 500 million, respectively, have been made available for certain non-recurrent costs in municipalities and counties/regions in connection with the local government reform. This loan facility should be seen in relation to the restructuring funds that the municipalities and counties already have available for the implementation of the local government reform.
Integration and preparation committees in 2006
In order to ensure proper preparation of the merger of municipalities, the district councils elected in the merged municipalities as a result of the local government election on 15 November 2005 will act as integration committees in 2006. It is the responsibility of these committees to prepare the merger of municipalities, i.e. make decisions on the administration, service level, etc. of the merged municipality. Already prior to the local government election in November 2005, the municipalities have made a major effort in preparing the merger, but the final decisions will be made by the integration committees elected in November 2005.
In order to ensure continued operation in the municipalities included in mergers, the tenure of the district council in these municipalities will be prolonged by one year until the end of 2006. Any financial decisions exceeding a certain limit have to be approved by the integration committees.
The newly elected district councils in the municipalities that are not included in a merger will commence their tenure on 1 January 2006.
The same principles apply to the new regions. Here, the newly elected regional councils will act as preparation committees in 2006 with the responsibility of preparing establishment of the new regions. In order to ensure continued operation in the counties, the tenure of the current county councils will be prolonged by one year till the end of 2006. As is the case in the municipalities, financial decisions made by the acting county councils that exceed a certain limit have to be approved by the preparation committees or by the state.
The local government reform – from idea to implementation – is shown in Box 1.6.
| Box 1.6 Timeline of the Local Government Reform |
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Version 1.0 Februar 2006 • © The Ministry of the Interior and Health
Published by The Ministry of the Interior and Health, http://www.im.dk
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