Municipal Tasks and Financing

Table of Contents

1. Frontmatter

   Download PDF-version

2. Chapter 1. Tasks and Financing of Urban and Rural Local Governments: Four Issues in Focus

   • Open Access

   Martin Burgi, Francisco Velasco Caballero

   Abstract

   The laws regulating local government powers and services, as well as their financing, tend to be uniform within each country, paying no particular attention to the size of municipalities or the urban or rural nature of local governments. However, beneath this legal uniformity lies a very diverse practical reality. Only large urban municipalities can provide certain services (such as public transit) that require extensive infrastructure, high technical capacity and substantial funding. In addition, rural municipalities face great difficulties in the indirect management of services (through contracts with companies) due to their limited capacity to define contractual relationships and monitor compliance. This technical difficulty is particularly evident in public private partnerships (PPPs), which are unaffordable for rural municipalities. Similarly, although local financing laws usually offer a uniform system for all municipalities, in practice the financial sources of urban and rural municipalities are very diverse. Urban municipalities can obtain significant revenue from their own taxes and fees, with regional or state financial transfers playing a complementary role. In contrast, rural municipalities are more dependent on transfers. This explains why, in some countries, supra-local financial transfers include levelling or equalization instruments for the benefit of rural municipalities.

   Download PDF-version

3. Tasks of Urban and Rural Local Governments

   1. Frontmatter

   2. Chapter 2. Does One Size Fit All? Assigning Responsibilities to Local Governments

      • Open Access

      Laura Mähle, Daniel Wolff

      Abstract

      The mismatch between the responsibilities and capacities of local governments (“mismatch problem”) is a global problem that needs to be addressed. This chapter sketches out the status quo of responsibility allocation in different countries, with a focus on the differentiation of rural and urban areas, and analyzes the criteria used for assigning responsibilities. With the help of these insights, a new allocation framework based on the criteria of “balance”, “complexity”, and “flexibility” is introduced. By adding balance through criteria considering the challenges and the capabilities of municipalities, adding complexity by having a four-tier municipality system and adding flexibility by allowing the municipalities to make certain choices regarding responsibility allocation themselves, mismatch problems can be reduced in the future.

      Download PDF-version

   3. Chapter 3. Urban Pulse, Rural Resonance: Austrian Public Transport from a City-Regional Perspective

      • Open Access

      Alexandra Schantl

      Abstract

      Public transport in Austria is a service of basic general interest (Daseinsvorsorge) and is therefore provided and guaranteed by the state. Beyond its basic necessity, public transport plays a pivotal role in curbing greenhouse gas emissions, making it indispensable not only for meeting climate targets but also for broader climate protection efforts. Nevertheless, the intricate organization and funding of public transport pose significant challenges. This complexity is exacerbated by Austria’s federal system. Moreover, the availability and effectiveness of public transport vary widely between urban and rural areas with specific conditions for urban or rural local governments. This chapter examines the status quo of public transport in Austria, emphasizing the challenges and opportunities for bridging the urban-rural divide, with a territorial focus on Austria’s city regions.

      Download PDF-version

   4. Chapter 4. Governing Public Transit in Canada

      • Open Access

      Martin Horak

      Abstract

      This chapter provides a broad overview of the governance of public transit systems in Canada. Transit plays a relatively minor role in the overall Canadian transportation system, due to a combination of geographical and policy factors. Nonetheless, public transit is an important mode of transport in large Canadian cities. In legal terms, public transit is a responsibility of Canada’s provinces, but all provinces except for one in turn delegate this responsibility to municipal governments. This jurisdictional decentralization, together with the lack of general-purpose transit legislation in most provinces, means that the structure and governance of transit systems varies widely across cities. Transit operations depend heavily on fare box revenues, and the steep decline in ridership during the Covid-19 pandemic has produced a lingering operating revenue crisis. The capital funding situation is more positive, since all three levels of government have recently invested significant funds in expanding urban transit infrastructure. However, the vertical and horizontal fragmentation of transit governance in some city-regions has politicized, complicated and delayed the construction of new high-capacity transit lines. The chapter examines these issues and challenges with a specific focus on the three largest city-regions in Canada: Vancouver, Montreal and Toronto.

      Download PDF-version

   5. Chapter 5. Public Transport in Functional Urban Areas and Rural Areas of Spain

      • Open Access

      Jorge Castillo Abella

      Abstract

      Rural and urban areas face very different challenges in regard to public transport services. This chapter explores those challenges in the Spanish context against the backdrop of a fragmented local government map and a variety of governmental levels. The analysis sets out with the responsibilities allocated to these levels of government, with special attention to local governments, and their performance in carrying them out. Local autonomy and administrative collaboration are analysed, as well as more recent issues, developments or initiatives both in urban and in rural mobility. The contribution shows that rural and urban transport services face fundamentally different challenges and discusses the different trends to solve them.

      Download PDF-version

4. Ways of Public Service Provision by Urban and Rural Local Governments

   1. Frontmatter

   2. Chapter 6. Methods of Funding Service Provision by Australian Local Government

      • Open Access

      Carol Mills, D’Arcy Blaxell

      Abstract

      This chapter examines the intricate landscape of local government funding and service provision in Australia. Despite serving similar functions, local governments operate under distinct governance systems across the country, determined by their local state or territory jurisdiction. They also confront major resourcing variations—resulting from differences in population size, geography and economic capacity between councils. The sector has undergone significant change over the last 30 years, affected by factors such as forced amalgamations, broadening responsibilities and changing community expectations. Australian local government has progressively moved away from a traditional focus on “rates, roads, and rubbish” to offer more diverse services such as services in recreation, childcare, and community building. For many councils, however, this shift presents fundamental challenges. Financially, their capacity to generate revenue is often limited, commercial partnerships are difficult to secure, and many remain financially dependent on grants from federal and state governments.

      Download PDF-version

   3. Chapter 7. Ways of Public Service Provision by Urban and Rural Local Governments: Brazilian Experience and Challenges

      • Open Access

      Thiago Marrara

      Abstract

      After introducing the main aspects of the Brazilian federation, this chapter describes the evolution of the country’s municipalities and presents their competences regarding public services provision according to the 1988 Constitution. It also analyses if rural and urban divisions of the local territory through perimeter laws play any role when it comes to the competences of local governments. Based on that, the chapter presents three basic models for public services provision, i.e. standalone provision by each local government, associated provision involving inter-municipal cooperation and regionalized provision. Additionally, it describes the types of contractual partnerships used in Brazil and their limits with regard to different types of services (divisible and individiable). In conclusion, it points out how regionalization policies and the recognition of asymmetries between local governments are important to help them overcome problems related to public service provision.

      Download PDF-version

   4. Chapter 8. PPP and Public Enterprises in Germany

      • Open Access

      Christoph Krönke, Lisa Hagen

      Abstract

      The chapter addresses the provision of public services in Germany by the local government in cooperation with private individuals. After analyzing the legal framework for public enterprises on the federal, state and local level, it highlights the specific challenges this instrument faces in urban and especially in rural areas. Additionally, the importance of public private partnerships (PPPs) as well as administrative concessions and their respective legal challenges are being addressed. While the usage of PPPs seems to be preferred in urban areas, municipalities in rural areas predominantly refer to concession contracts which the authors attribute to their comparatively less complex legal structure.

      Download PDF-version

   5. Chapter 9. Legal Arrangements for the Provision of Local Public Services in Spain: Differences in Rural and Urban Environments

      • Open Access

      Silvia Díez Sastre

      Abstract

      The geographic distribution of the Spanish population is highly uneven. The provision of public services by local governments thus poses multifaceted challenges in rural and urban environments. However, the legal regime governing the management of these services does not take these differences into account: services can be provided directly by the local authority, or indirectly through third parties. This chapter contextualizes the provision of local public services in Spain, considering the existing gap between local government in rural and urban areas. To this end, I outline the main features of the current legal regime and use empirical data to identify the forms of public service management preferred in practice by rural and urban municipalities.

      Download PDF-version

5. Ways of Public Service Provision by Urban and Rural Local Governments

   1. Frontmatter

   2. Chapter 10. Equalization of Financing between Urban and Rural Local Governments: The case of Albania

      • Open Access

      Elton Stafa, Anthony Levitas

      Abstract

      This chapter discusses the Albanian model for the equalization of financial disparities between urban and rural municipalities, especially after the 2014 Territorial and Administrative Reform (TAR). This reform reduced the number of local governments, merging 373 rural and urban entities into 61 larger municipalities. It aimed to streamline and harmonize service provision across regions and municipalities, but challenges persist due to the limited financial resources of local governments. The chapter explores the country’s intergovernmental financial framework, including recent reforms, which enhanced municipal responsibilities and financing. Despite reforms Albanian municipalities are heavily reliant on intergovernmental transfers, with unconditional grants playing a crucial role in equalizing financial resources. While the stability and allocation of the unconditional grants has improved since 2017, rural municipalities still struggle due to higher service costs and lower fiscal capacity compared to urban centers. There are also major differences between larger urban areas and the capital, Tirana. The chapter concludes that while Albania has made strides in decentralization, further reforms are necessary to address the ongoing fiscal inequalities between urban and rural local governments, underscoring the need for more robust equalization and financing mechanisms to bridge the gap between urban and rural municipalities.

      Download PDF-version

   3. Chapter 11. Equalization of Financing Between Urban and Rural Local Governments: Canada

      • Open Access

      Enid Slack

      Abstract

      Federal and provincial/territorial transfers to municipalities in Canada account for about one fifth of municipal revenues, on average. The majority of these transfers come from the provincial/territorial governments, and most of them are earmarked for specific purposes. Nevertheless, many provinces/territories provide an equalization transfer to municipalities that is usually based on a measure of fiscal capacity. Two provinces share provincial sales tax revenues with municipalities and most provide unconditional transfers based on population, road kilometres, or other variables. Many provinces provide separate transfers to rural municipalities to reflect the challenges these communities face because they may be more sparsely developed, more remote, and experience colder weather. These challenges result in higher costs for heating, housing, and transportation, and the inability to achieve economies of scale in the provision of services. These municipalities are also likely to have smaller tax bases (and less ability to raise revenue). An implicit form of equalization also exists where urban and rural municipalities in Canada have been amalgamated into one municipality. Equalization transfers, transfers to rural municipalities, and municipal amalgamation all help smaller and rural municipalities provide a reasonable level of service by levying reasonable tax rates, although they do not fully achieve that goal.

      Download PDF-version

   4. Chapter 12. The Italian Way of Inter-municipal Equalization

      • Open Access

      Alice Valdesalici, Francisco Javier Romero Caro

      Abstract

      This chapter deals with the equalization mechanisms established in Italy to address horizontal imbalances among local entities, paying particular attention to inter-municipal redistribution schemes, emphasizing differences between urban and rural local governments. The strong constitutional asymmetry characterizing the regional scenario and the overall system of territorial organization is, among other things, also reflected in the system of local finance and, as such, in the related equalization schemes. Thus, this chapter first explores the local financing system in the ordinary regions, which is characterized by a high degree of centralization, paying special attention to the Municipal Solidarity Fund. It then deals with the special regions, that have their own systems of inter-municipal equalization. Finally, it also covers equalization in provinces and metropolitan cities.

      Download PDF-version

6. Special Fees and User Charges as Alternative Sources of Local Revenue

   1. Frontmatter

   2. Chapter 13. The Role of Municipal Fees in Croatian Local Service Provision: Balancing Benefits and Challenges

      • Open Access

      Dario Runtić

      Abstract

      This chapter explores the role of municipal fees as an alternative funding source for local service provision in Croatia. Through a review of relevant legislation, the analysis examines both the benefits and challenges associated with utilizing municipal fees, as well as the delicate balance between national regulation and local autonomy in setting specific fees and exemptions. The research explores the diverse types of municipal fees and critically evaluates their potential impact on equity, efficiency, and sustainability of local services. It further examines the challenges associated with fee implementation, including administrative complexity, transparency concerns and potential burdens on vulnerable populations, and it offers mitigation strategies for addressing the identified challenges. By analyzing the legal framework and its practical implications, this chapter aims to contribute to a more informed discussion on the effectiveness of municipal fees in supporting local service delivery and promoting balanced territorial development in Croatia.

      Download PDF-version

   3. Chapter 14. Fees as Alternative Sources of Local Revenue in South Africa

      • Open Access

      Thabile Chonco-Spambo

      Abstract

      The general statement that local government has extensive revenue-raising powers often hides the huge disparities in revenue generation among municipalities in South Africa and creates the perception that all municipalities are self-sufficient. The chapter looks at fees as an alternative source of revenue for local governments in South Africa. The chapter explores three primary ways of financing municipalities. It then discusses the financing of municipal services, with a focus on the importance of fees. Comparators of rural municipalities versus urban municipalities are used throughout the chapter to show how varied these two types of municipalities perform when raising their own revenue, are allocated their share of nationally raised revenue (the local government equitable share) and in how they receive financing for territorial actions. The comparators show that poor, rural municipalities get the shorter end of the stick across the fiscal framework. A descriptive research approach was used for this chapter, coupled with an evaluative conclusion. The latter argues in support of a bigger focus being given to assisting municipalities to leverage their revenue-raising powers, specifically that of collecting fees, as opposed to dependence on the equitable share as an equalization mechanism.

      Download PDF-version

   4. Chapter 15. Financing Municipal Services in Spain Through User Fees

      • Open Access

      Ester Marco Peñas

      Abstract

      The financing of municipal services through user fees has been particularly controversial in Spain. This controversy has primarily arisen due to determining the appropriate legal form for the intended pricing. The issue has been addressed by the establishment of three distinct categories of user fees, each governed by a significantly different legal framework. Municipalities have the freedom to decide whether to charge for the provision of their services. The only service where the power to charge or not to charge a fee does not exist is the waste collection service. As of April 2025, all Spanish municipalities must require a fee to ensure that this service is not in deficit. The chapter also delves into other topics, such as the suitability of fees for financing urban development and whether user fees should be linked to an individual’s ability to pay.

      Download PDF-version

   5. Chapter 16. Comparative Conclusions

      • Open Access

      Martin Burgi, Francisco Velasco Caballero, Philipp Sandmann

      Abstract

      In the comparative conclusions, the various facets of the urban–rural divide are examined from different perspectives. The analysis shows that this divide is not only real, but also recurs in similar ways across different countries and political systems. Building on this, potential solutions are compared and contrasted, whose relevance will remain significant in many countries in the coming years due to challenges such as climate change and demographic shifts.

      Download PDF-version

7. Backmatter

   Download PDF-version