Opinion of the Committee of the Regions on the 'Evaluation of the financial and administrative consequences for local and regional authorities of EU legislation` (96/C 126/01)

Background

On 5 December 1994 Subcommission l was authorized by the COR Bureau to draw up, on its own initiative, a Document of Principle on the evaluation of financial and administrative consequences of EU legislation, and appointed Mr Joakim Ollén as Rapporteur. Subcommission l was also instructed to draw up a Description of the administrative and financial structures at local and regional level in the Member States - work which is being carried out separately by a Study Group and will be of major importance as basis for the above Document of Principle.

THE COMMITTEE OF THE REGIONS,

Having regard to

- the Treaty establishing the European Union, in particular Article 198c thereof;

- the declarations to the Treaties on the European Community concerning the need to take account of costs and environmental impact;

- the EU Financial Regulation;

- the Council of Europe Charter on Local Self-government;

- its own Opinion of 21 April 1995 on the revision of the European Union Treaty,

Adopted the following Opinion at its 10th Plenary Session on 15 and 16 November 1995 (meeting of 15 November).

A. The COR endorses the criteria set out in the European Union Treaty and Article 3b relating to the subsidiarity principle.

B. Any burdens, whether financial or administrative, to be borne by the Community, national governments, local authorities, economic operators or citizens, should be minimized and proportionate to the objective to be achieved. Community measures should leave as much scope as possible for national decisions. EU standards should mostly be minimum standards and EU rules should be as simple as possible. Other things being equal, directives should be preferred to regulations and framework directives to detailed measures.

C. On the subject of costs and environmental impact, the Declarations to the Treaties state as follows: 'The Conference notes that the Commission undertakes, by basing itself where appropriate on any consultations it considers necessary and by strengthening its system for evaluating Community legislation, to take account in its legislative proposals of costs and benefits to the Member States' public authorities and all the parties concerned. The Conference notes that the Commission undertakes in its proposals, and that the Member States undertake in implementing those proposals, to take full account of their environmental impact and of the principle of sustainable growth.`

D. The EU Financial Regulation provides that EU legislation must include assessments of the impact on the EU's own budget. On the other hand, no systematic statement is required as regards the consequences for national, regional or local budgets.

E. On 21 April 1995 Commissioner Monica Wulf-Mathies told the Plenary Assembly that the Commission planned to strengthen the COR's advisory role by consulting it on some forty matters on the Commission work programme. Many of these fall outside the areas of mandatory COR consultation provided for in the EU Treaty.

F. The COR Plenary Assembly, on 21 April 1995, stated its position on the forthcoming revision of the EU Treaty. The proposals contained in this Opinion include mandatory consultation of the COR on a number of additional matters. It was also pointed out that EU measures with an obvious financial impact on local and regional authorities should be carefully assessed before implementation.

Introduction

1. EU legislation has a direct or indirect financial impact on local and regional authorities. This document suggests ways of taking account of such consequences before a decision is adopted by the EU's decision-making Institutions. Impact can take the following form:

- Many EU rules seek to ensure free movement of goods, persons, services and capital. They can have beneficial effects at regional and local level in the Member States;

- Public procurement rules requiring increased competition can cut local and regional authority expenses;

- Harmonization of rules decreases the need for different national rules and can facilitate simplification at local and regional level;

- In many cases national governments transfer practical responsibility for EU legislation to regional and local authorities, thereby possibly placing a direct financial burden on them;

- EU legislation may have an impact on regional and local authorities' administrative structures in the shape of procedural, reporting and other requirements;

- the EU's own administrative procedures may generate additional administrative costs for local and regional authorities.

2. Attainment of EU legislative goals often hinges on local and regional authorities' financial and administrative resources. It is vital to be able to translate EU decisions into practical action. There is therefore greater chance of success if the EU takes account of the consequences for local and regional authorities. In this way the quality of Community decisions improves and implementation and compliance are facilitated.

3. This document confines its attention to the impact at regional and local level - not at national level. It covers all EU legislation, viz both regulations and directives, but only those with significant financial and administrative consequences for local and regional authorities. Green Papers, White Papers and investment plans can also contain such proposals.

4. The EU is in a position, for instance via the Structural Funds, to support local and regional development in the Member States. The application of these programmes is not discussed in this context. In many cases application is based on direct liaison with local and regional authorities but in several Member States such liaison is not sufficiently developed. Here adjustments to the process need to be considered, e.g. EU provisions requiring local and regional representation on the Structural Fund monitoring committees. In the case of farm aid programmes, corresponding requirements should be included in the plans for individual projects.

5. This document does not cover the revision of existing EU legislation aiming to simplify application for regional and local authorities. This matter should be taken up by the COR in a special own-initiative study.

Some examples of financial and administrative consequences of EU legislation

6. In recent years EU legislation in a wide variety of fields has had a significant financial and administrative impact on local and regional authorities, which are responsible for a large proportion of services and jobs in many Member States. The following examples are by no means exhaustive. As indicated in the introduction, effects can be both positive and negative. A concise summary of each example is given below and a more detailed description can be found in the Appendix.

7. The public procurement directive can have a positive spin-off in the shape of lower costs generated by greater competition. However, competitive tendering can also increase red tape as a result of low threshold values and slow down public sector borrowing compared with normal commercial transactions. The selling-off of parts of publicly-owned companies can also be complicated.

8. The transfer of undertakings directive can make it more difficult to contract out work on sound business terms. The working conditions for part-time employees directive is expected to push up costs substantially. The technical aids in the home directive involves considerable extra costs. The import controls on foodstuffs directive introduces new formalities and measurement methods.

9. The bathing water directive, under the proposed new provisions, does admittedly simplify certain points but also requires new tests which are expensive to carry out and necessitate paperwork. The drinking water directive requires replacement of water supply systems. The substantial costs involved may make some form of Community funding necessary. These examples are described in greater detail in Appendix l.

Comments

Principles

10. EU legislation can facilitate regional and local authorities' public sector activities but also add to the expense and complicate implementation. In the COR's view, the Council and Commission should not take decisions without first ascertaining the consequences of these decisions.

11. There will be more Commission proposals in the future. In the COR's view, new EU working procedures must be introduced without delay so that the impact of new EU legislation at local and regional level is clearly specified.

12. Such clarification is necessary for three main reasons:

A. Firstly, it is desirable for local authorities to be able to carry out their duties effectively, i.e. not be hamstrung by over-detailed legislation, at either national or EU level;

B. Secondly, information on conditions at local and regional level needs to be improved so as to enhance the quality of Community decisions;

C. Thirdly, EU directives are more likely to be effectively implemented and respected if they have a sound grassroots base.

13. At present the financial impact of EU legislation frequently becomes apparent too late - only after it has been incorporated into national legislation or translated into practical action at local and regional level.

14. A change in working methods is desirable so as to clarify the impact of proposals at an early stage and make the Commission's work more effective. With this in mind, a statement of the proposal's impact on local and regional authorities should be forthcoming before a decision is taken.

15. It must be stressed that the impact of EU legislation will vary from one Member State to another, depending on their local authorities' differing responsibilities.

16. The number and size of regional and local authorities vary significantly in the Member States. There are around 80 000 local authorities and around 900 regional authorities.

17. The funding of local authorities also varies greatly. For instance, the share of local spending funded from sources of revenue under local control varies substantially.

18. The Member States' decentralized administrative structure means a considerable difference in local authorities' duties. The apportionment of responsibility among national, regional and local authorities varies from Member State to Member State, as do financial and administrative structures.

19. These differences must be respected and heeded when proposals for legislation are presented. Harmonization of local and regional activities, financing and duties is not desirable. Development within the EU must not impose on the Member States a straitjacket presupposing that local and regional authorities operate uniformly in all Member States.

20. The decision-making procedure should therefore be expanded to make the COR responsible for ensuring that consequences at regional and local level are satisfactorily clarified before proposals are dealt with in the Council.

Factors in assessing financial and administrative impact

21. To facilitate assessment of the financial and administrative impact on the Member States, the basis for decision should generally clarify the following factors. However, the factors requiring clarification must be specified in each individual case.

A. Higher costs directly resulting from the proposed directive at local and regional level in the countries concerned, expressed as total costs or in relation to the sections of the population concerned, in the form of changes in the obligation to provide services or production costs (e.g. for labour). Indirect cost increases involved in checks, accounting, reporting, etc;

B. Reduction in costs generated by streamlining of administrative, financial and legal provisions hampering the development and operation of local and regional activity (e.g. simpler monitoring systems, or checks carried out in another country);

C. Increased revenue in the form of a broader tax base, e.g. via higher employment, increased scope for charging, more reliable income due to improved procedures;

D. Drop in revenue as a result of a narrower tax base or reduced right to charge;

E. Environmental impact, in line with the Maastricht Treaty declaration that proposals must take account of such impact;

F. Barriers to competition. The formulation of certain rules can limit competition, with detrimental effects.

New EU working methods

22. The COR advocates that the new principles listed below be observed in compiling statements of the financial and administrative impact on regional and local authorities.

23. The COR reiterates its position that the COR should be given final responsibility for evaluating whether the financial and administrative impact on local and regional authorities has been satisfactorily and accurately specified in Commission proposals.

24. With this in mind, the following working procedure is proposed:

A. The Commission and the COR, in their annual dialogue on referrals to the COR during the year, should make special mention of matters with significant financial consequences at local and regional level.

B. The Commission should be responsible, during the preparatory stage, for specifying impact on regional and local authorities.

C. The Commission should be required to consult the COR on possible cooperation during the preparatory stage.

D. The COR should bear final responsibility for evaluating whether the impact has been satisfactorily and accurately stated to form a basis for decision.

E. If the COR deems that the impact has been significantly misstated, it must be granted an extension of the deadline, e.g. for purposes of consulting regional and local authority representatives in the Member States.

Programme of referrals

25. Further details of the proposed working procedure are set out below:

A. The Commission and the COR Bureau, in their annual dialogue, draw up a programme of referrals to the COR. This programme should specify exactly which matters require special scrutiny under the proposed new working procedure in order to specify the financial and administrative impact at local and regional level. This category should consist solely of matters with significant financial implications for local and regional authorities.

B. The COR should inform local and regional authority representatives in the Member States about the programme of referrals so that they have sufficient time to prepare their comments on those matters which are to be the subject of special scrutiny.

C. In discussing the programme of referrals, the COR and the Commission should agree on the extent to which COR representatives can assist in clarifying the impact at local and regional level at an early stage. This assessment should be done on a case-by-case basis. The Commission should be required to consult the COR on cooperation during the preparatory stage.

D. Here the COR insists that all regional and local authorities which participate financially in programmes resulting from Community funding must be involved in national procedures for use of these funds.

26. COR cooperation during the preparatory stage can operate in various ways:

A. The COR may place experts representing the local and regional authorities at the Commission's disposal. Such assistance can also be provided in the case of proposals on which the COR is not to be consulted but may nonetheless have a certain impact.

B. The COR may set up joint study groups with the Commission to carry out an impact assessment.

C. The COR may designate a representative to be placed at the Commission's disposal for early, in-depth consultation. In that case, the representative's actions should be closely anchored in the relevant COR commission since conditions differ in the Member States.

D. The COR may directly consult local and regional authorities in the Member States so as to obtain a more comprehensive, thorough assessment at an early stage of impact in the various countries.

E. The COR should be represented by delegates during the preparatory stage in the Commission. However, formal discussion of a matter in a COR commission or at a Plenary Assembly should wait until the Commission proposal is referred to the COR. To assist the rapporteurs in their work, they should be appointed as soon as the programme of referrals has been agreed. In each individual case it should be decided whether the rapporteur concerned should also represent the COR in the early, in-depth consultations with the Commission.

27. The Commission is generally responsible for seeing that the impact of its proposals is satisfactorily specified before the subsequent stages of the decision-making process in the EU Institutions. It should therefore be required to indicate all relevant aspects, including an assessment of the impact on local and regional authorities, during its preparation of proposals.

28. The COR should bear final responsibility for evaluating whether the financial and administrative impact at regional and local level is satisfactorily and accurately specified in Commission proposals prior to the Council's decision. The COR should therefore scrutinize the facts presented by the Commission and assess whether an additional report is necessary. Should that be so, the COR should be given an extended deadline. This is particularly necessary if additional information has to be obtained from the Member States' regional and local authorities, should this not have been done during the preparatory stage.

29. The time required for carrying out such assessments is the same irrespective of who requests the information and regardless of when this is done during preparation of the proposal. The COR should therefore bear final responsibility for ensuring that the right information is obtained from the Member States' regional and local authorities - if possible for the individual Member States.

30. The COR would point out that DG XXIII has been assigned special responsibility in dealing with all matters concerning small and medium-sized enterprises (SMEs). As the specific EU custodian of regional and local interests, the COR finds it natural to be given its proposed new special role.

Conclusions; proposals for changes in the decision-making procedure

31. The above proposals should be reflected in a number of changes in the Council's decision-making procedure. The COR therefore recommends that:

32. the principle of evaluating the impact of EU legislation on regional and local authorities be enshrined in Article 190 of the Treaty (provisions common to the EU Institutions);

33. the Financial Regulation establish the general principle whereby the financial and administrative consequences of EU legislation for local and regional authorities constitute one of the factors on which a decision is to be based;

34. the COR bear final responsibility for evaluating whether the financial and administrative impact at regional and local level has been satisfactorily and adequately specified to form a basis for decision. The Commission and the COR, in their annual dialogue, should agree on a programme of referrals and specify proposals with significant financial consequences;

35. the COR should be given the additional task to be added to Article 198c of the Maastricht Treaty) of specifying significant financial and administrative consequences for local and regional authorities in the Member States of proposals on which it is consulted by the Commission or Council or matters which the COR wishes to raise on its own initiative;

36. the Commission's Committee of Experts consult and involve representatives from regional and local authorities to a greater extent, through the intermediary of the COR;

37. the Commission and the COR adopt rules for specifying financial and administrative consequences for local and regional authorities on the basis of the factors described above, to be applied on a case by case basis.

Done at Brussels, 15 November 1995.

The Chairman of the Committee of the Regions

Jacques BLANC

APPENDIX

Some examples of financial and administrative consequences of EU legislation

Most EU decisions concern all or specific Member States and have an impact at local and regional level. Consequently the examples given below are by no means exhaustive. As indicated in the introduction, this impact can be both positive and negative.

Public procurement directive: Increased competition has been beneficial in bringing down costs of goods and services but these rules can also cause problems. The Directive's threshold value of 200 000 ECU seems low and can mean increased red tape since very few contracts for small amounts go to suppliers in other countries. Experience to date indicates that the Directive has little effect on cross-border trade. In addition, small contracts around the threshold value have been shown to involve a disproportionate amount of paperwork in connection with the tendering procedure and the detailed specifications. The administrative costs in a duly completed EU public procurement procedure may often exceed the potential savings. The rules provide that inter-municipal cooperation shall be open to competition. Often there is no market in the conventional sense for the mandatory tasks concerned. Further, public sector borrowing is also to be subject to competitive tendering, which does not allow the same speed as in normal commercial transactions. The rules also place restrictions on public sector employees wishing to start up their own firms since the new firms are to be treated in the same way as other entrepreneurs, i.e. via competitive tendering, which can complicate the selling off of parts of publicly-owned undertakings. The Directive's impact varies depending on the extent to which it is implemented in the individual Member States.

Transfer of undertakings directive: In the event of the transfer of an undertaking, staff employment agreements are to be honoured in their entirety by the purchaser. This can cause problems in contracting out work on sound business terms. For instance, if an activity reverts to the body originally responsible, e.g. on account of defective operation or quality, that body will then be required to take over both the staff who originally transferred to the entrepreneur and still work for him and staff employed by the entrepreneur himself for the work. On 21 April 1995 the COR delivered its Opinion on the Directive and stated that it shared the hesitations expressed by a number of local and regional authorities regarding the proposal to extend common obligations for contractual commitments on the grounds that this can place considerable burdens on local and regional authorities.

Working conditions for part-time employees directive: The Directive is expected to push up local and regional authority costs in certain Member States. A preliminary estimate of these increased costs is, for instance, around 70 million ECU in Sweden and around 62 million ECU in Denmark. In these countries regulation has been solved under collective agreements between local and regional authorities and trade unions.

Technical aids in the home directive: The Directive provides that disabled persons should be better provided with technical aids at home, in nursing homes, etc. In Denmark the resulting extra costs are estimated at almost 135 million ECU.

Import controls on foodstuffs directive: Local authorities with border checkpoints must introduce new formalities for veterinary inspections and new measurement methods, e.g. for salmonella. There is less scope for covering costs through charges. Local authorities are responsible for reporting on the treatment of foodstuffs which may be contaminated.

Bathingwater directive: The proposed Directive, which supersedes an earlier directive, establishes minimum standards for methods, frequency and times for taking samples and checking the quality of bathingwater. Tests are carried out by the local authorities. The COR delivered an Opinion on the proposed Directive on 27-28 September 1994 (). It expressed serious concern that certain tests were to become compulsory and stated that local and regional authorities would find it hard to carry out such tests in view of the costs and paperwork involved. The COR therefore urged the Commission to investigate the possibilities of greater flexibility for such tests. The Commission should also consider whether provision could be made for less expensive tests.

Drinkingwater directive: The proposal provides that pipework in lead or materials containing lead must be replaced. All together an estimated 20 million dwellings and 4 million water supply systems will be affected. The expense of implementing these standards is estimated at almost 40 million ECU and will have an impact on the cost of water for the consumer and on the budgets of the authorities concerned.

On 21 September 1995 the COR examined an Opinion on the proposed Directive (). This Opinion states that 'The COR feels that it is of benefit to public health to make the parametric values for lead more stringent but would also point out that the considerable cost involved in meeting the standard requires some form of Community funding.`() OJ No C 210, 14. 8. 1995, p. 53.

() OJ No C 100, 2. 4. 1996, p. 134.