No. 36




How to achieve uniform quality of local public services – A view of municipal real estate

07 December 2017


RiTo No. 36, 2017

As a result of the administrative reform, in 2018, the number of local municipalities will decrease and bigger municipalities will presumably be better prepared to perform their functions. However, the municipalities will still need help with real estate maintenance in the future. The local municipalities own too many buildings and the floor plans of the buildings are inadequate. Over a half of these buildings are in a bad condition due to age and poor maintenance. In the new situation, the leaders of local municipalities have to decide which property is really needed by the locals and how to provide services as optimally as possible, so that the maintenance of superfluous and costly real estate wouldn’t become an objective in and of itself.

The aim of governmental and foreign subsidies is to reduce the developmental lag of local municipalities. However, according to the National Audit Office, during the last 10 years, the municipalities have not received enough subsidies, considering their financial capacity and their big, problematic real estate portfolios. Moreover, the subsidies have been assigned in a fragmented manner, i.e. as small sums for specific objects. Therefore, over a third of the buildings that have received subsidies are still in bad condition. Up until now only 20% of the subsidies has come from the state budget, while 80% has come from foreign sources. During the financial period 2020+, the EU aid to Estonia will probably decrease, and if the financing model of municipalities is not changed, their capacity for real estate maintenance will decrease even further. This can lead to reduced availability of services along with the fall in quality. Already now the municipalities consider it necessary to invest EUR 800 million to renovate the existing real estate. This figure exceeds the total amount of subsidies assigned during the last decade by more than 2.4 times.

The National Audit Office has recommended that government should cooperate with local municipalities to find out the real estate needs of justified local services, agree on the general objectives and conditions of subsidies and then allow the local municipalities to decide for themselves how to optimize their use of real estate via subsidies. With good planning it is possible to ensure adequate services with uniform quality in local municipalities.