Press release: Unsustainable solutions for the Old Royal Capital

Solutions proposed in the bill Law on the Old Royal Capital, proposed by the MPs of the Democratic Party of Socialists (DPS), related to the financing of the capital, are unsustainable and discriminatory to other local governments in Montenegro.

Draft Law foresees radical changes in the manner of financing the Old Royal Capital Cetinje and the establishment of a special Fund for development of Cetinje. Major argument justifying this new manner of financing is the first paragraph of this Bill, “The old royal capital is the city of all citizens of Montenegro”. On the other hand, it’s not clear how the citizens of other municipalities will benefit from the projects financed from this fund. This is particularly important because Cetinje’s Senate, which will manage the Fund, has no representatives from other municipalities. The bill Law even abolishes the participation of the representative of the Union of Municipalities in the Senate.

We do not see the logic in citizens from other municipalities giving money to Cetinje’s Development Fund. Majority of other municipalities are themselves in a difficult financial situation, with tens of millions of debt and blocked bank accounts, living of donations from the national budget and the Equalization Fund.

According to the existing legislation, Cetinje is in financial terms, already exempt from other local governments. When it comes to the tax on personal income, all municipalities receive 12% while Cetinje gets 16%. This is important considering the fact that it is one of the few municipal revenues that are somewhat collectable. Cetinje is levied substantial funds through Equalization Fund and from donations from the state budget. These kind of revenues have in the last three years comprised on average more than a third of Cetinje’s budget.

The bill law states that the assets of the Fund for the development of the Old Royal Capital “will amount to 10% of the projected capital budget of Montenegro”. If you take this year’s budget as an example, that makes more than six and a half million. On the other hand, the total budget of the Cetinje in 2013 amounted to nearly as much: 6,560,000 euros. In other words, proponents of the bill law, want to provide the Cetinje’s Senate with a fund that is almost equal to the overall budget of the capital.

On the other hand, Cetinje has certain patterns in managing its budget which do not appear rational and economical. Outstanding liabilities at the end of last year were almost as much as the entire budget of Cetinje, about six million. At the same time, despite the massive debt, Cetinje is a municipality that has for years in a row given the most loans to others.

Rationale accompanying the bill law is similar to solutions that precede it – unsatisfactory and weak. Instead of interpreting trends in the financing of the Old Royal Capital, figures, data and arguments for major changes in the system of local finance that are proposed, MPs of DPS resort to history and patriotism. Even though the bill law proposes establishing a new fund and moving certain institutions to Cetnje, the rationalle claims that no additional funds are required for its implementation.

Union of Municipalities has this year prepared an analysis of the financing of local governments and proposed specific solutions for providing more stable sources of funding for all municipalities in Montenegro. Instead of electoral manipulations and unsustainable, populist solutions, MPs should turn to solving the problems in local finances at the system level, adopting solutions that will help the sustainability of all municipalities in Montenegro.

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Policy Analyst

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