Multi level Governance of Regional Policy

MULTI-LEVEL GOVERNANCE OF REGIONAL POLICY

Public investment and infrastructure

development

Seminar: "Inovácie a výzvy v manažmente regionálneho rozvoja“ Bratislava, Slovak Republic

Dorothée Allain-Dupré Senior Policy Analyst

Public Governance and Territorial Development Directorate OECD

What are the governance implications of effective regional policy and what

are the typical challenges?

Infrastructure provision

Policy responses

Human capital formation

Business environment

Innovation

Regional growth and convergence

at regional scale

When undertaken in isolation, infrastructure investment can yield poor results, and it seems to be subject to diminishing returns

Key OECD policy messages on regional policy

Public investment needs to differ across regions depending on their density, economic structure and distance from the productivity frontier ⇒ one size fits all or pure sectoral approaches to public investment are sub-optimal

Heterogeneity calls for differentiated investment strategies to tailor investment to local needs and the competitive advantages of regions ⇒ place-based approaches very demanding from a governance perspective

To generate such strategies, mechanisms and incentives are needed to prompt agents to reveal knowledge. This is likely to be local knowledge.

A match between top-down and bottom-up information and initiative is critical.

Public investment: a shared responsibility across levels of government – almost 60% of public investment done at the subnational level ⇒ Important governance implications

Public investment and regional policy

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Source: OECD national accounts

Share of public investment at subnational level (2014)

60% 59% 56% 55%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Subnational government Central government and social security

Public investment is a shared responsibility across levels of government

Coordination challenges

Across sectors (sectoral priorities dominate over integrated approaches)

Across national & subnational governments (information gaps, lack of data on local needs) [vertical coordination]

Across jurisdictions [horizontal coordination]

Capacity challenges

Often it is the main bottleneck for effective regional development

Most often concentrated in the planning/design phase: how to prioritise long-term investment needs? How to design a balanced investment mix that addresses local needs?

…but also financial capacity in a context of tight fiscal constraints

National framework conditions

Administrative burden and heavy procurement rules

Fiscal relations across levels of government (lack of subnational fiscal autonomy)

Unclear assignment of responsibilities (infrastructure)

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All countries face the same types of governance challenges

7 19%

21%

25%

24%

25%

25%

24%

26%

32%

35%

34%

36%

33%

33%

37%

42%

50%

53%

34%

35%

40%

42%

40%

42%

45%

44%

40%

40%

42%

41%

45%

46%

41%

42%

36%

37%

No relevant up-to-date data available at local level

Lack of adequate own expertise to design projects

Lack of long-term/strategic planning capacity

Ex-ante analyses/appraisals not consistently used in decision…

Insufficient involvement of civil society in the choice of projects

Monitoring not used as a tool for planning and decision making

Ex-ante analyses not adequately take into account the full life-…

Lack of (ex-post) impact evaluations

Multiple contact points (absence of a one-stop shop)

Lack of joint investment strategy with neighbouring SNGs

Lack of incentive to cooperate across jurisdictions

Lack of political will to work across different levels of government

Lack of coordination across sectors

Co-financing requirements for central government/EU are too high

Lack of long-term strategy at central level

Local needs are different from those given priority at central level

Lenghty procurement procedures

Excessive administrative procedures and red tape

Major challenge Somewhat of a challenge

Typical problems reported by subnational governments in 255 EU subnational governments (for public investment)

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Red tape and regulatory burden A large majority of respondents (90%) consider excessive administrative procedures,

lengthy procurement and red tape as a challenge Designing and planning infrastructure in a long-term perspective Lack of capacity to design long-term public investment strategies (65% SNGs) Lack of sufficient in-house expertise to design infrastructure projects (56%) Lack of coordination across sectors Coordination across levels of government & jurisdictions Mismatch between local/regional needs and those given priority at central level (84%). Absence of a joint investment strategy with neighbouring cities/regions (76%) Lack of incentives (such as financial incentives) to cooperate across jurisdictions Performance monitoring Though a monitoring system might exist, it is frequently pursued as an administrative

exercise and not used as a tool for planning and decision-making (66% of SNGs) Lack of (ex-post) impact evaluations (71%)

Typical problems reported by subnational governments in 255 EU subnational governments

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Large variation in the quality of subnational governance for public investment

Large variation across SNGs at the EU scale, for the quality of sub-national governance of public investment. For the entire EU, 16% of SNGs have a very high score of governance, while 16% get a low score and a 38% a medium score (below average)

Variations are also very important across SNGs within countries. For example, in Germany 27% of SNGs have a very high score, 40% a high score, 24% a medium score and 8% a low score.

⇒ Need to target the efforts to the different types of challenges met by cities and regions

10 Source: OECD –CoR Survey (2015)

26% 18% 12% 7%

39%

29% 22%

21%

18% 40%

17% 23%

18% 13%

50% 49%

0%10%20%30%40%50%60%70%80%90%

100%

Own revenues Grants Borrowing Private sectorfinancing of

infrastructure

Increase Stable Decrease No opinion

How have sources of infrastructure investment funding changed in your city/region since 2010?

Typical problems: limited involvement of private actors in financing infrastructure

What are the recommendations and good practices?

• Invest using an integrated strategy tailored to different places • Adopt effective co-ordination instruments across levels of government • Co-ordinate across SNGs to invest at the relevant scale

Pillar 1 Co-ordinate across

governments and policy areas

• Assess upfront long term impacts and risks • Encourage stakeholder involvement throughout investment cycle • Mobilise private actors and financing institutions • Reinforce the expertise of public officials & institutions • Focus on results and promote learning

Pillar 2 Strengthen capacities and promote policy learning

across levels of government

• Develop a fiscal framework adapted to the objectives pursued • Require sound, transparent financial management • Promote transparency and strategic use of procurement • Strive for quality and consistency in regulatory systems across levels of

government

Pillar 3 Ensure sound framework conditions at all levels of

government

OECD Recommendation on Effective Public Investment across levels of government

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15 important sub-national capacities that correspond to the main stages of the investment cycle

Planning & project selection

Financing and budgeting

Implementation

Evaluation

Effective strategic planning Cross-sectoral coordination

Cross-jurisdictional coordination Stakeholder involvement

Rigorous ex-ante appraisal

Linkage to multi-year budgeting Traditional & innovative financing

Private sector financing Competitive procurement Sound monitoring systems

Ex-post assessment Use of performance information

Risk management Coherent regulation across levels of government Professional and technical skills

Throughout

Capacity needs and bottlenecks differ from region to region

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Supporting countries in sharing good practices: OECD Toolkit

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Supporting vertical coordination across national and subnational governments

GOOD PRACTICES IN OECD COUNTRIES AND REGIONS

Canada’s regional development model of Regional Development Agencies has been in place for almost 30 years. RDAs are similar to small federal departments with their own enabling legislation and mandate. The agencies build a bridge between federal/national priorities and regional and local needs. Finland: as part of the new regional development planning system, growth agreements between state and major cities have been defined, on competitiveness and resilience. France, use of contractual arrangements across levels of government UK: urban policy has been centred on a growing number of City Deals that allow a degree of “tailored” devolution of responsibility to English cities. They are agreements between government and a city that give the city control to take charge and responsibility of decisions that affect their area

Why? To bridge a series of fiscal,

information, or policy gaps that may occur across levels of government

To identify joint investment priorities and minimise the potential for investments to work at cross-purposes

To draw coherent investment strategies at the national level

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Supporting horizontal coordination across jurisdictions

Why? To manage positive and negative

spillovers among neighbouring regions

To reduce duplication of unsustainable investments due to inter-jurisdictional competition

To promote economies of scale To pool resources and reduce

investment costs


• National level: Incentives provided by the national government : ex: Switzerland: one third of sub-national funding from the central government is reserved for inter-cantonal investment;

• Regional/local level: British Columbia (Canada)

• In France, SCOT set the main orientations of the organization of a group of adjacent communes (for a 10-year period. City plans, local urban transport plans, and housing plans must be compatible with SCOT in order to be valid and enforced. The SCOT consists of a diagnostic dimension and orientation report as well as a project of development and sustainable development

• Metropolitan level: London, Germany (Frankfurt), France 2014 law

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Assess upfront the long-term impacts and risks of public investment

Why? To identify social,

environmental and economic impacts and ensure value for money

To explore alternatives to investment and assess long-term operational and maintenance costs in infrastructure investment

To assess long-term investment risks


• Australia : The Sustainable Planning Act was adopted in 2014. Local governments are required to develop a Local Government Infrastructure Plan from 2018 onwards. The purposes of LGIPs are to coordinate infrastructure and land use policies, increase transparency, and estimate the long-term cost of infrastructure projects, to assist in long-term planning.

• Netherlands : The Ministry of Infrastructure and the Environment has several criteria for selecting infrastructure projects to be co-funded by national government. One of them is the National Market and Capacity Analysis (NMCA). The NMCA investigates infrastructural bottlenecks.

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Why? To address the increasingly

complex tasks linked to public investment

To develop institutional capacity and professional skills for better investment decisions, in particular in small sub-national governments

To enhance sub-national government access to skills and external support


• Chile : A specific body was created in Chile in 2007 to strengthen sub-national capacities (Academia de Capacitación Municipal y Regional). It aims to be a technical reference for sub-national staff and strengthen human resources (from both municipalities and regions) for a broad spectrum of knowledge of use to various territorial situations. It relies in particular upon strong ties with the academia. It provides free training for public servants, and relies on traditional classes as well as online training

• Latvia also introduced specific funds to attract specialists for planning regions, cities, towns, and counties, in order to increase planning capacities at the regional and local levels. By the end of 2014, more than 200 specialists had been recruited

Reinforce the expertise of public officials involved in public investment

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Focus on results and promote learning from experience across levels of government

.


In Portugal there is an increased emphasis on strategic monitoring. The Composite Index of Regional Development is published by Statistics Portugal on an annual basis since May 2009, with the aim of providing a tool for monitoring regional disparities. It is divided into three components which reflect broader sustainable development concerns: competitiveness, cohesion and environmental quality. In 2015, a new version of the index was released with a regional breakdown according to the new NUTS level 3 which are in compliance with the inter-municipal entities as the relevant groups of municipalities for the 2014-2020 programming period.

The Italian OpenCoesione web portal provides analysis and monitoring on the use of regional policy resources, offering information, accessible to anyone, on what is funded, who is involved and where. The web portal contains information about any single project carried out to implement regional development policy, and more specifically: funds used, locations and categories, subjects involved and implementation timeframes. Publication of data allows Italian citizens to evaluate if and how implementation projects meet their needs and whether financial resources are allocated effectively.

Why?

To focus on investment outcome goals and pursue them throughout the investment cycle at all levels of government

To promote learning from experience and previous mistakes

To monitor the implementation progress of projects

To allow for some flexibility and reconsideration of initial priorities, to adjust to evolving priorities and context throughout the investment implementation.

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Limit regulatory burden in the field of regional policy/infrastructure investment

RATIONALE: • Regulatory quality and coherence

are important for sub-national public investment. In many OECD countries, SNGs face inflationary regulation, overlapping/contradictory regulation across levels of gov’t

• Example: more than 55% of regulation applying to SNGs in France modified in <10 years


• Australia, Council of Australian Governments: common framework for benchmarking, measuring, and reporting regulatory burden across levels of government, and to set quantifiable targets for reducing red tape

• Canada: A Federal, Provincial and Territorial Working Group on Regulatory Reform has been created as a forum to help build a shared approach to regulatory reform. Its work includes developing common regulatory principles, developing a consistent approach to regulatory impact analysis and sharing best practices.

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More than 60 indicators to assess strengths and weaknesses of public investment capacity in a multi-

level perspective

Supporting countries in sharing good practices: OECD Toolkit

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Multilevel governance indicators: OECD average

Focus on the Slovak Republic: what are the key recommendations from

recent OECD work?

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Policies to reduce disparities with the east

Policy priorities are to promote labour mobility, better match skills with labour market needs, enhance educational outcomes/skills, and improve infrastructure ⇒ These factors need to be somehow connected and well integrated rather than operating in silos.

For Eastern Slovakia, the density and quality of much of the region’s hard

infrastructure lags behind other regions, creating bottlenecks to job creation and raising costs for firms that may wish to locate there.

Needs exist in terms of east-west connections to link Východné Slovensko and Bratislava, and north-south connections to link the region with Poland and Hungary.

Within VýchodnéSlovensko, Internet penetration is low in rural, mountainous and economically weak areas.

Eastern Slovakia has a relatively underdeveloped regional innovation system.

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Slovak Republic: a highly centralised country in OECD perspectives (measured by SNGs expenditure)

AUS

AUT

BEL

CAN

CHL

CZE

DNK

EST

FIN

FRA

DEU

GRC

HUN

ISL

IRL

ISR

ITA

JPN

KOR

LUX

MEX

NDL

NZL

NOR POL

PRT

SVK SVN

ESP SWE

CHE

TUR

GBR

USA

OECD34

OECD25

0

10

20

30

40

50

60

70

80

0 4 8 12 16 20 24 28 32 36

Subn

atio

nal e

xpen

ditu

re a

s a sh

are

of to

tal p

ublic

ex

pend

iture

(%)

Subnational expenditure as a share of GDP (%)

Subnational expenditure as a % of GDP and public expenditure in 2014 in the OECD

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2015 Implementation case study in Slovakia A focus on the eastern region

Slovakia: strongly affected by the fall of sub-national investment (compared to other expenditure items)

Source: OECD National Accounts

+0,2%

-5,8%

-19,5%

+33,3%

+3.6%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GDP Total expenditure Total public investment

Subnational direct investment Social expenditure Staff expenditure

Sub-national public investment

Social expenditure

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Municipal fragmentation in Slovakia is one of the highest in the OECD after France and the Czech Republic

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Indicators on MLG of public investment applied to Slovakia, with a focus on the eastern region

OECD (2015)

⇒ Majority of challenges linked to place-based approaches, coordination across sectors, levels of government, jurisdictions; engagement of private actors

1-Investment strategy tailored to places2-Vertical coordination3-Horizontal coordination4-Ex-ante appraisals5-Stackeholders' engagement6-Private sectors' involvement 7-Management capacities of SNGs8-Performance monitoring and evaluation9-Clear intergovernmental fiscal framework10-Transparent financial management at all levels11-Strategic use of procurement12-Regulatory coordination across levels

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Main governance challenges to address: selected examples of recommendations

(i) Top-down orientation of public investment ⇒ need to integrate regional differences and development priorities into national investment planning/subnational inputs

(ii) High local fragmentation ⇒ need to consider functional areas and introduce robust monitoring arrangements

(iii) Limited private sector engagement ⇒ need to strengthen subnational public procurement and reintroduce a national PPP unit

(iv) Weak sub-national administrative capacities ⇒ need to develop comprehensive training, differentiated according to regional needs

(v) Complex regulatory framework and procurement conditions ⇒ need to strengthen subnational public procurement and encourage greater uptake of e-government tools to enhance and standardize sub-national capacity

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Selected recent 2016 OECD publications on the topic

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Multi level Governance of Regional Policy

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