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The International Journal
of Not-for-Profit Law

Volume 3, Issue 4, March 2001

A publication of the International Center for Not-for-Profit Law

Table of Contents

Letter from the Editor

Symposium: NGO-Government Partnerships in Central and Eastern Europe and the former Soviet Union

Introduction
By Douglas B. Rutzen

Agenda

Cooperation in the Area of Social Services Delivery and Mechanisms of State Financing of NGOs (Sample Models)
By Radost Toftisova

The Role of the Budget in the Financing of Public Benefit Organizations in Hungary
By Dr. Posch Gabor

Guidelines for the Preparation of Compacts
By Daimar Liiv

Preliminary Study of the Legal Frameworks for Public Financing of NGO Activities in Bulgaria, Croatia, Hungary, Romania and Slovakia
By ICNL Staff

Links for Relevant Materials on NGO/Government Partnership

- - - - - - - - - -

Editorial Board

The Role of the Budget in the Financing of Public Benefit Organizations in Hungary

By Dr. Posch Gabor

Before the changes in the political system in Hungary in 1990., the humanitarian activities and the public and community tasks which are the distinctive features of a modern society were almost exclusively within the competence of the state through a centralized taking care off everything and everybody. In accordance with this external state role, the central new division has grown rapidly.

The arising social and economical changes in Hungary have created a surrounding in which it has become obvious that conditions for a three sector model (government sector, non-profit sector, enterprises) functioning need to be established. Also, it has become obvious that the public tasks which were before within the competence of the state are not capable off being executed completely or partly by the state authorities.

Changes in the role of the state regarding the public tasks required the establishment of non-profit organizations which would serve the public aims and through which the civil society would be able to gain a bigger role on a longer run regarding the satisfaction of its own public needs, the independent supply of some part of those public tasks which are exceeding and overloading the budget capacity of a state, in other words cooperation in the supply of the state tasks.

The 1993 changes in the Civil Code served the purpose of defining the basic institutions and definite organization types of a non-profit sector, the most fundamental functioning and operating principles of the institutions and in this way laid a foundation for the regulation of the non-profit sector. This regulating process was supplemented with an act on organizations of a public benefit, which was enacted by the Hungarian Parliament in 1997.

The law on public benefit organizations applies to the social organizations, foundations, public benefit associations and in reference public assemblies regardless whether their role is direct or indirect.

Public benefit organizations are usually functioning in such areas where the supplies of the tasks is possible through the government institutions as well. The government’s interest in financing the public benefit organizations from the budget can be explained by the fact that in the supplies of public benefits the social power sources, meaning the voluntary work too, can be involved directly to a great extent, and furthermore the prices of services rendered by these organizations are more flexible. The evident reason for this is the non-profit character of these organizations and their beneficial and thrifty operation.

The redistribution role of the state is done through the state budget system or the state budget subsystems. The state budget is a system composed of the sum of public monetary resources, the central government, the separated state monetary funds, the local governments and the financing operation system together with the state insurance tasks. The state’s task providing may occur within the state’s institution system or through the so-called budget transfers, through the organizations outside the state budget.

The central point of the state budget is composed of the central government’s budget. The public benefit organizations can benefit form these delegated central budget sources in several ways, so the financing of some organizations figures as a preliminary calculation in the budget (organizational type of aid), contrary to some sources which are reachable by contests, that is, for the performance of certain specified tasks the law gives the possibility to the organizations which are outside the state budget to use normative state contribution (support for, in the first place, specified tasks, but also of a mixed nature).

The following case study shows the direct budget financing of the public benefit organizations, with a special reference that this is the most important way of financing the civil organizations which take over the state’s role in performing the public tasks.

The support of the public benefit organizations which are cited in the Budget Act always appear in the preliminary estimates in that kind of budget section which is competent for the field of activity of the specified benefit organization. These organizations gain the authorization for the use of the preliminary estimates upon the decision of the parliament on this matter, and they are authorized pursuant to their external and internal regulations.

The access to the support and the way of reporting in the practice can be quite different than in some of the social organizations and foundations. The access can be realized differently depending whether it is within the framework of program financing or outside it. Financial resources can be provided automatically or based on the agreement between the section and the public benefit organization.

  1. In the case of program financing the public benefit organization has to prepare a program review, which has to be authorized by the head of the section or his representative. Upon the program review gains authorization, the Treasury pays the support.
  2. In cases which fall outside the program financing different methods are used. Those organizations which are mentioned in the section on Government’s presidency have to submit a time schedule plan for the usage of the preliminary estimates to the Treasury, the Ministry of Education signs a contract for the support, in which contract the parties – in harmony with the accepted tasks – have to determine the payment schedule and the accounting conditions at the Ministry of Social and Family Matters about the organization’s task, and depending on its activity they automatically transfer the amount or sing the contract, upon which the payment is done.

The supports which are shown as different preliminary estimates in the budget for the public benefit organizations are divided as follows depending on the type of the organization since the enactment of the law on public benefit organizations.

In Millions of Ft.

 

1997

1998

1999

2000

Foundations

3119,8

3.172,0

2.529,4

3.220,1

Social Foundations

7.145,0

10.729,1

5.260,5

10,704,4

Public Benefit Associations

300,0

418,0

_

1.306,0

Social organizations

1125,1

1277,8

8.055,7

9.955,8

Total :

11.689,9

15.596,9

15.845,6

25.186,3

Remark: In September, 2000. The exchange rate between USD/HUF was 1:203 .

It can be seen from the above mentioned preliminary estimates that the significance of the public task providing through the public benefit organizations, the amount of public financial resources set aside is growing every year. The differentiation between some types of organizations is the result of the task division.

The other way to access the budget resources is to use the possibilities of tenders. These types of supports have been contained in the 1997 budget as preliminary estimates in the amount of 3500 million forints.

The tender system is discordant respective of various sections and preliminary estimates and this is determined by the owner of the preliminary estimate which decision has to be within the boundaries determined by the law. It is a common distinctive that the delivery of these financial resources definitely occurs within the boundaries of the contract law, where the parties have the right of disposal about the conditions of settlement on the support.

An important element of the budget financing system is that the state budget law gives the possibility to the public benefit organizations that for the providing of the determined tasks which are in the area of responsibility of the affected organ, money assets can be delivered to the extent defined in the law. It is necessary to observe that these amounts played an insignificant role during the past few years, because they amounted 5-20 million forints per year.

The Hungarian state budget system does not make the difference concerning the so-called normative supports regardless of the fact who is the keeper of the organization which is performing the state tasks (for example, public education, social support). According to this, for the performance of these tasks the public benefit organizations are financed from the central budget as well as from the local governments. These supports are supplemented with the above mentioned sources form the tender system. (The local governments are giving each year increasing non-normative support to the public benefit organizations which are performing the state and local tasks for their more successful performance of these tasks).

All this can be seen in the forming of the public benefit organizations income.

The Non-Profit Sector According to its Income Sources in 1994-1995

Income sources

Income

 

Sum, in millions of Ft

Distribution, %

 

1994

1995

1994

1995

Normative budget support

3.617,6

3.707,8

2,5

1,9

Non-normative budget support

19.971,0

24.722,7

13,9

12,6

Support gained from the central base

-

6.003,3

-

3,1

Normative support from the local governments

433,2

590,7

0,3

0,3

Non-normative support from the local governments

5.738,2

5,889,1

4,0

3,0

Total support from the state

29,760,0

40,913,6

20,6

20,9

Total private support

30,587,2

43,414,5

21,2

22,2

Total income from the basic activities

33,883,8

55,284,2

23,5

28,3

Total income from the managing activities

43,151,0

53,8151

29,9

27,5

Total income

144.131,9

195.627,3

100,0

100,0

The Non-Profit Sector According to its Income Sources in 1997-1998

 

Income

Income sources

Sum, in millions of Ft

Distribution, %

 

1997

1998

1997

1998

Normative budget support

8.435,7

11.559,3

3,0

3,2

Non-normative budget support

25.667,8

32.394,1

9,0

9,0

1% of the personal income tax

1.770,1

2.362,1

0,6

0,7

Support gained from the central base

14.153,5

12.221,3

5,0

3,4

Normative support from the local governments

472,3

1.066,4

0,2

0,3

Non-normative support from the local governments

12,829,9

15.047,

4,5

4,2

Support from the budget institutions

..

4.857,6

..

1,4

Total support from the state

63.329,3

79.507,8

22,3

22,2

Support from business organizations

19.680,2

20.683,4

6,9

5,9

Support from population

6.568,8

7.272,6

2,3

2,0

Foreign support

16.299,5

20.569,3

5,7

5,7

Support from non-profit organizations

9.393,8

10.857,1

3,3

3,0

Total private support

51.942,3

59.382,4

18,2

16,6

Dues income from private persons

8.238,6

9.928,6

2,9

2,8

Dues income from legal persons

13.808,3

17.110,8

4,9

4,8

Basic activities price and dues income

64.091,0

91.565,7

22,5

25,3

Basic activities application income

9.352,2

15.776,2

3,3

4,4

Total income from the basic activities

95.490,1

134.381,3

33,6

37,3

Finance operations income

23.043,9

25.162,2

8,1

7,0

Managing income

46.878,2

50.365,7

16,5

14,1

Total income from managing activities

69.922,1

75.527,9

24,6

21,1

Obtainment of credits and loans

2.099,3

8.567,3

0,7

2,4

Other income

1.579,1

1.322,8

0,6

0,4

Total income

284.362,2

358.689,5

100,0

100,0

Source: KSH non-profit organizations in Hungary in 1995, 1998 year

In consideration of the fact that in the Central Bureau of Statistics’ assessment both the voluntary mutual insurance banks and the interest representations are present, and that the assessment cannot include the allowance system which is in connection to the individual support, further, the monetary assets which are distributed through the state foundations are shown in the individual support (accumulation), it is presumable that 25-30 % of the income of the organizations which are established for performing the public tasks originates form a state source. This is quite below to the Western-European scale where this proportion is 30-70 %.

The representative piece of proportion in the state support income structure is significantly differentiated certain, depending on the organizational form of the institution which are belonging to the sector. These proportions are more or less presenting the role of certain types of organizations in the performing of the public tasks.

The Division of the Non-Governmental Organizations’ Income According to the Income Sources and to the Legal Form of the Organizations in 1998 (%)

Organizational form

State support

Private support

Managing and other income

Basic activities income

Total

Public foundation

81

8

9

2

100

Non-profit organizations’ institution

54

14

5

27

100

Public benefit association

24

7

60

9

100

Foundation

16

44

30

10

100

Association

19

16

30

35

100

Trade union

1

12

37

50

100

Professional, employers’ organization

4

2

43

51

100

Public assembly

10

2

13

75

100

Insurance aid fund

0

10

5

85

100

The Division of the Non-Governmental Organizations’ Income According to the Income Sources and to the Legal Form of the Organizations in 1998(%)

Organizational form

State

Private

Base

Managing

Other

Total

 

support

activities income

 

Foundation

22,8

38,6

14,8

21,7

2,1

100,0

Public foundation

40,7

9,6

40,5

9,0

0,2

100,0

Association

22,7

14,9

33,5

25,7

3,2

100,0

Public assembly

19,1

3,0

69,4

7,4

1,1

100,0

Trade union

2,5

11,1

56,9

29,3

0,2

100,0

Professional, employers’ organization

6,9

6,7

60,6

25,0

0,8

100,0

Public benefit association

17,5

1,2

52,7

22,3

6,3

100,0

Non-profit organizations’ institution

62,1

9,2

24,5

4,1

0,1

100,0

Total:

22,2

16,6

37,3

21,1

2,8

100,0

Source: KSH Non-profit organizations in Hungary in 1995, 1998 years

The proportion of the state support between the income of the public benefit organizations which belong to various activity groups is different and it shows that in the case of traditional organizations which are based on the historical legacy, the dependence on the budget support is much lower than in other new activity groups (for example, legal protection, international agreements).

The Proportion of the State Support Between the Income of the Non-Profit Organizations which Belong to Various Activity Groups (%)

 

1995

1998

Activity group

Proportion of state support

Legal protection

75,2

69,8

International relations

59,6

50,3

Civil protection

54,3

53,2

Social supply

46,3

46,4

Culture

36,4

19,6

Public safety protection

34,2

36,0

Health care

27,2

29,1

Education

26,3

31,7

Politics

14,2

14,9

Religion

8,3

12,5

Source: KSH Non-profit organizations in Hungary in 1995, 1998 years

Everything what was said until now on the budget support of the public benefit organizations shows that the support
system of the public benefit organizations is very complex and contradictory, their role in providing the public tasks and therefore their relationship towards the state organs is not regulated appropriately. The practice in the distribution and the financial accounting is quite diverse, but is not satisfactory. The main reason for this is apparently that the distribution of the tasks between various organizations goes back only for a short time, i.e. for a period of 10 years. The common work and responsibility of the state and the public benefit organizations is to form the future steps, possibilities and conditions based on the experience.

 

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