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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

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Editorial Board

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

Introduction

This paper presents a preliminary study of the current legal frameworks governing public financing of NGOs activities in five countries of Central and Eastern Europe -- Hungary, Slovakia, Romania, Croatia, and Bulgaria.

“Public financing “ as used in this paper refers to any direct transfer of funds to NGOs from the central or local budgets or from public funds, either in return for goods or services delivered by NGOs or as general or programmatic support for their activities.

Public financing of NGOs, whether through central or local budgets, is common throughout the region and is an important source of revenue for NGOs. For example, in Romania, 45% of the sector’s revenue is attributable to public funding.[1] In other countries government funding makes up a smaller part of the third sector’s revenue. For example, in 1997, associations in Bulgaria received about 23% of their income from government sources.[2] In Hungary, funds from the public sector made up 27% of the sector’s revenues in 1999[3] Since public financing is an integral part of the relationship between government and NGOs, as well as a key source of income for NGOs, it is important to understand the mechanisms by which funds are transferred from the government to NGOs.

The paper examines several issues relating to financing of NGO projects: (1) whether intermediary institutions exist in the government (e.g. agencies formally authorized to collaborate with NGOs), or in the NGO sector (e.g., “umbrella” organizations) to facilitate relations with respect to publicly financed projects; and (2) the current rules governing public financing of NGOs’ activities, including the rules authorizing the forms and sources of public financing, and those establishing eligibility requirements for funding?

The issues considered are, of course, not the only ones pertinent to a comprehensive evaluation of the legal framework in a given country. However, they provide at least a preliminary basis for thinking about how the current frameworks in these countries promote or restrict opportunities for NGOs to obtain public financing of their activities, and what further steps might be undertaken to improve conditions for such financing.

Our findings are summarized in the attached tables.

I. Existence of Intermediary Institutions

One action a government can take to advance its ability to coordinate with the NGO sector on issues relating to, among other things, financing of projects carried out by NGOs, is to establish an institution to act as a liaison with the sector. Similarly, NGOs can designate intermediary institutions, usually associations of NGOs referred to as “umbrella” organizations, to serve as advocates and liaisons with governments. Through these institutions, consultation between the third sector and the government can be centralized and simplified. Below, we examine whether these intermediary institutions exist in the surveyed countries.

A. Has the Government Establishe an Office for Liason with NGOs?

In each of the surveyed countries, governments have established a central office to serve as an intermediary with NGOs. Responsibilities of these offices vary from country to country.

B. Is there at Least One NGO Umbrella Organization Representing the NGO Sector?

Existence of umbrella organizations for NGOs also can assist in fostering partnership between governments and NGOs. The existence of NGO umbrella organizations, and the extent of their activities, varies widely from country to country.

II. Public Financing of NGOs’ Activities

States and local governments provide financing for NGOs and their activities through a variety of mechanisms and institutions. , Here, we consider the typical forms of public financing available to NGOs in the five surveyed countries, as well as the sources of that financing.

A. Forms of Government Support

There are several forms of public financing commonly available to NGOs in almost every country, although there are subtle and distinct differences among countries in the way they implement public financing mechanisms. The following summary, while not comprehensive, illustrates the most common methods as they are employed in the five surveyed countries.

i. Subsidies – direct government funding, not linked to any particular project or activity, provided for the general support for the organization; most often provided for in the budget (central or local). In all countries covered by the survey, governments provide subsidies to certain civic organizations.

ii. Grants –are legal instruments used where the principle purpose is the transfer of money, property, services or anything of value to the recipient in order to accomplish a public purpose of support or stimulation authorized by statute and where substantial involvement by government is not anticipated.[16] Grants are usually used to pursue a certain policy goal, outlined by the government, through the implementation of a specific project (public purpose) that the NGO proposes to the government. Grants are provided through central government institutions, or through ministries or other governmental bodies. Grants, unlike subsidies, generally may not be used to cover general operating expenses, but rather are made if the activities of the NGO fit within a program area of the governmental organization providing the funding. In the countries surveyed, the most common grantors were state ministries and similar government institutions. In all surveyed countries, governments provide grants to NGOs engaged in public benefit activities.

iii. Procurement – government purchase of goods, works or services. NGOs are most likely to obtain funding from government procurements for delivery of social services.

iv. Reimbursement to NGOs for services to individuals – Governments may also provide monetary support to NGOs to provide services such as health care or education to individuals, with funding determined based on the services actually provided. Under this system, individuals have the right to choose their service provider, which may be an NGO, for, e.g. healthcare. The NGO may then seek reimbursement from the government for services actually provided. The amount of reimbursement may be limited to the amount that would have been allocated to government institutions to provide similar services.

v. Use of state or municipal property – most common in municipalities, government may permit NGOs to use office space, meeting halls, athletic facilities, or other facilities owned by the government. The use of such property allows the NGOs to use money that would have otherwise been spent on those items on other projects.

B. Sources of Government Support

i. Central budget

National governments provide funding for civil society organizations primarily in two ways: (a) Parliament directly funds civic organizations by naming them explicitly in the budget or earmarking funds for civil society, (b) the ministries of the state government provide grants, subsidies, or procurement contracts to NGOs that operate in the area of their competency.

a. Directly from Parliament

In each country surveyed, legislatures earmark funds for specified civic organizations in the state budget.

b. Through the Ministries

This appears to be the most common source of government funding for NGOs in the region. Funding through ministries is provided primarily in three ways.

ii. Municipal/Regional Budgets

In every country surveyed local governments have the opportunity and are sometimes encouraged to provide funding for civic organizations. Local governments are often best positioned to conclude agreements with NGOs as they may be closer to the individuals receiving services and may have better relations with the NGOs than the national government.

iii. Special Funds

Special funds are administered by the state (often by the competent ministry) to serve a specific policy purpose.

iv. Other Forms

a. Privatization Revenues

Privatization revenues maybe used to finance civil society organizations, by, for example, funding a foundation whose assets are invested to create income that maybe distributed to support NGO activities. The primary example in the region is the Czech Republic, where revenues from privatization were used to fund public foundations, which in turn finance NGO activity in the country.

b. Licenses

Governments frequently require legal entities and individuals to be licensed before they are allowed to perform certain activities in the fields, e.g., of health care, education, or care for the elderly.

c. Lottery Proceeds

·         In the remaining two surveyed countries, we have identified no instances of the use of lottery proceeds for the benefit of NGOs.

III. Legal Entities Eligible for Government Support

Rules governing eligibility for public financing may vary according to the form in which funding is provided, and the government sources of funding. Each type of funding may be governed by special rules, and each ministry or local government may have its own application and selection procedures. Eligibility requirements differ for each governmental source of funding, as well, and these rules frequently are not adequately publicized. Therefore, the survey will look only at the major differences in eligibility requirements between different forms of funding.

A. Forms

The differences between the eligibility requirements for each form of support can sometimes be confusing both for NGOs which are not sure if they qualify, and for government officials when trying to distribute the funds properly, justly, and according to the law.

i. Subsidies

ii. Grants -- are usually awarded based on a competitive application process, and specific criteria are set up for each grant distribution. Normally, an eligible NGO must be engaged in activities in a particular field in order to qualify for a grant in that field. No law in any surveyed country lays clear and specific criteria for government grant making. Rather, each individual grantor is left to determine its own procedures. In Slovakia, even though Act no. 303/1995 established Binding Guidelines for Awarding Grants to Civic Associations, Foundations, and Interest Based Associations of Legal Entities from the State Budget of the Slovak Republic through Central Offices Budgets, each ministry is allowed to set its own “conditions to take into consideration specifics of their ministry.”[38] Despite the existence of legal guidelines Slovakia has experienced difficulties because it lacks a transparent grant-making process and different government grantors use a wide variety of procedures (see II(A)(ii)). Romania has experienced similar problems.

iii. Procurement

One problem faced by NGOs is that the laws of certain countries exclude them from participation in the procurement process.

We do not have data on the eligibility of NGOs to participate in the procurement process in Croatia.

In some instances, laws strongly disadvantage NGOs in the procurement process. NGOs might be explicitly excluded from participating in the bidding process, as in Bulgaria. On the other hand, they might be eligible to bid for procurement contracts, but the laws forbidding them to take part in “unrelated economic activity” or from earning any type of profit prevent them from doing so.

Conclusion

It is clear that public financing of NGO activities has become an increasingly important source of revenues for NGOs in the region, and is a major element in the relationship between the NGO and Government sectors. All the countries surveyed have made considerable progress towards establishing a basic framework governing public financing of NGO activities:

As noted at the outset, this study is preliminary, and does not purport to cover comprehensively all issues raised with respect to public financing of NGO activities in the five countries. One exceedingly important area not considered, and requiring further study, is implementation. Even the most comprehensive and fair legal framework will not succeed if legal rules are not effectively implemented. Key questions with respect to implementation include:

We hope that this preliminary work will provoke debate about these and other questions relating to public financing of NGO activities.

Notes

[1] Salamon, Lester M., Helmut K. Anheier and Associates. The Emerging Sector Revisited: A Summary.Baltimore, MD: Center for Civil Society Studies Institute for Policy Studies, The Johns Hopkins University. 1999, p. 11.

[2] Nikolov, Stephan. The Benevolent Sector. Sofia, Bulgaria: Litera. 1999, p. 45.

[3] Salamon and Anheier, p. 11.

[4] Orgonasova, Maria. “A survey on the allocation of state budget subsidies for the activities of non-governmental organizations in the Slovak Republic in 1998.” unpublished paper: on file with ICNL. 1999,p. 5.

[5] Croatian Government Office for Cooperation with NGOs. “Financial Support for NGO Programs.” available at http://www.uzuvrh.hr/eng/fin.htm (last viewed March 27, 2001).

[6] Gueorguiu, Mihai. “NGOs and Public Administration: Romanian Legislation.” unpublished paper: on file with ICNL. 1999, p. 33.

[7] Csoka, Istvan. “The Relationship Between the Government and Civil Sectors in Hungary.” International Journal of Not-for-Profit Law 3, Is. 1(Sept. 2000), p. 5. Also available at http://www.icnl.org

[8] Slovak Academic Information Agency. “The Gremium of the Third Sector (G3S).” available at http://www.saia.sk/g3s/indexe.htm (last viewed March 25, 2001).

[9] Non-profit Information and Training Center Foundation (Soros-NIOK Office). “Annual Report.” Budapest: NIOK. 1997.

[10] Baric, Sanja. “Current Legislative Framework in Croatia Relating to Possibilities for Co-Operation Among NGOs and State and Local Administrations.” unpublished paper: on file with ICNL. 2000,p. 31.

[11] Gueorguiu, p. 14.

[12] Nastase, Pusa. “Direct Forms of State Support for the Non-Profit Organizations in Romania.” unpublished paper: on file with ICNL. 2001p. 1.

[13] Csoka, pp. 1-2.

[14] Orgonasova, p. 5.

[15] Slovak Academic Information Agency. “Facts on the Third Sector in Slovakia: NGO Financing from the State Budget, According to Ministries.” Bratislava: SAIA. 2000,p. 1.

[16] United States Agency for International Development. “Glossary of ADS Terms.” Washington, DC: USAID. 2001, p.81, also available at http://www.usaid.gov

[17] Slovak Academic Information Agency. “Facts About the Third Sector in Slovakia: NGO Financing from the State Budget, According to Ministries.” Bratislava: SAIA. 2000,p. 1.

[18] Nastase, p. 2.

[19] Croatian Government Office for Cooperation with NGOs, “Financial support for NGO programs,” available at http://www.uzuvrh.hr/eng/fin.htm (last viewed March 27, 2001)

[20] Nastase, p. 3.

[21] Gueorguiu, p. 19.

[22] Nastase, p. 3.

[23] Orgonasova, p. 2.

[24] Slovak Academic Information Agency. “Facts on the Third Sector in Slovakia: NGO Financing From State Resources.” Bratislava: SAIA. 2000,p.1.

[25] Csoka, p. 2.

[26] Dimitrova, Marieta. “Survey of the Current Legislative Framework for NGOs to Perform Social Services in Bulgaria.” unpublished paper: on file with ICNL. 2000,pp. 10-11.

[27] Gueorguiu, p. 19.

[28] Posch, Gabor. “The financing of public benefit organizations from the state budget in Hungary.” unpublished paper: on file with ICNL.2000, p. 4.

[29] Nastase, p. 2.

[30] Gueorguiu, p. 19.

[31] Nastase, p. 2.

[32] Cernejova, Alena and Viera Machalova. “Detailed survey of the current legislative regulation in the Slovak Republic, related to an option of co-operation between non-governmental organizations and State and self-administration. unpublished paper: on file with ICNL. 1999,pp 11-13.

[33] Gueorguiu,p. 20.

[34] Nastase, p. 3.

[35] Baric,p. 10.

[36] Csoka, p. 1.

[37] Act CLVI of 1997 on Public Benefit Organizations

[38] Slovak Academic Information Agency. “Facts on the Third Sector in Slovakia: NGO Financing From the State Budget, According to Ministries.” Bratislava: SAIA. 2000 p. 1.

 

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