Should Municipalities Prepare Investment Programmes?

Investment expenditure has reached a significant share of local government budgets. In 2016, investment accounted for approximately 35% of total local government budgets, around 40% in special provincial administrations and around 30% in municipalities. Including goods and services of an investment nature increases these shares further.

While special provincial administrations commonly prepare investment programmes during budget preparation, municipalities lack an institutionalised investment programming process within their budget cycle.

The primary legislation governing municipalities, metropolitan municipalities and special provincial administrations clearly provides for investment programmes. In municipalities, however, there is no established framework comparable to central government practice for preparing these programmes and linking them to strategic plans, performance programmes and budgets. In particular, the absence of standard provisions in the Local Government Budget and Accounting Regulation hinders consistent budget preparation.

The relevant legislative provisions include the following:

• Article 18 of Municipal Law No. 5393 lists the discussion and approval of strategic plans, investment and work programmes, and performance criteria for municipal activities and personnel among the council’s principal responsibilities. Law No. 5302 on Special Provincial Administrations contains the same provision.
• Both laws stipulate that external borrowing under Law No. 4749 on Regulating Public Finance and Debt Management may be undertaken solely to finance projects included in the investment programme. Bond issuance is likewise tied to financing projects in that programme under the relevant legislation.
• Article 7 of Metropolitan Municipality Law No. 5216 requires metropolitan municipalities to prepare their strategic plans, annual targets, investment programmes and corresponding budgets after consulting district municipalities.
• Article 8, concerning infrastructure services, provides for joint programmes and investment projects through the infrastructure coordination centre. Its principal purpose is to coordinate infrastructure investments in district municipalities’ investment programmes across metropolitan areas.
• Article 25 requires district budgets to be submitted to the metropolitan municipal council, which approves them, with or without amendments, to ensure coherence between investments and services. This includes adding the appropriations required for investments in the joint investment programme.
• Article 27, governing intermunicipal service relations and coordination, provides for metropolitan municipalities to develop joint projects and undertake investments with district municipalities. Subject to an appropriation and a ceiling of 10% of the latest finalised annual budget revenue, metropolitan municipalities may provide financial and in-kind assistance for projects in district investment programmes, upon the metropolitan mayor’s proposal and the council’s decision. Where an investment concerns the metropolitan municipality and one or more affiliated entities, and centralised implementation would reduce costs, the metropolitan council may assign implementation to one of those entities.

These provisions clearly establish the need for municipalities and special provincial administrations to prepare and implement investment programmes. Although a legal requirement, investment programming receives insufficient attention in practice. Under the metropolitan model introduced by Law No. 6360, its role as a functional tool for coordinating investments among municipalities at provincial level has become even more important.

Many municipalities do not prepare investment programmes. Many of those that do treat them as formal documents resembling Schedule G, which lists multi-year budget investments. This creates significant financing and efficiency problems in investment planning and budgeting. Preparing investment programmes is therefore both a legislative requirement and a consequence of modern financial management: it supports the economical, efficient and effective allocation and use of public resources envisaged by local government legislation and Public Financial Management and Control Law No. 5018.