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The International Journal
of Not-for-Profit Law

Volume 7, Issue 4, September 2005

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

Table of Contents

Letter from the Editor

The Middle East

NGO Laws in Selected Arab States
Kareem Elbayar

NGO Regulations in Iran
Negar Katirai

Arab Media: Tools of the Governments, Tools for the People?
United States Institute of Peace


A Comparative Analysis of European Policies and Practices of NGO-Government Cooperation
Nilda Bullain and Radost Toftisova

Assessing the Effects of Church and State on Organized Civil Society
Robert C. Lowry

Imagining Philanthropy: A Personal Commentary from a Part-Time Philanthropoid
Wilton S. Dillon


Generations of Giving: Leadership and Continuity in Family Foundation
By Kelin E. Gersick
Reviewed by Al Lyons

Democracy and Civil Society in Asia
Edited by Jayant Lele and Fahimul Quadir
Reviewed by Yuko Kawato

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Download this issue (PDF) | Editorial Board

A Comparative Analysis of European Policies and Practices of NGO-Government Cooperation

By Nilda Bullain and Radost Toftisova*


This article offers a European perspective on policies and practices regarding government-NGO cooperation in current EU member states, accession countries, and other Central and Eastern European countries. Specifically, it provides a comparative overview of three areas considered significant to the development of stronger NGO-government relations:

1. Policy documents and institutional mechanisms within government to facilitate civil society in different countries (best examples in Europe).

2. Government funding mechanisms at the national level and the local level for NGOs and public initiatives – including direct and indirect funding methods, grant-giving systems, subsidies, and financing of delegated public functions – with particular attention to the distinction between service organizations and advocacy organizations.

3. Government policies in Eastern Europe to involve NGOs in the EU at two levels: EU policy making (e.g., by giving NGOs a voice in formulating national positions, or by enabling domestic NGOs to work with other European organizations on influencing EU policy directly), and EU projects (by offering NGOs co-financing and pre-financing opportunities).

The article is structured in four chapters, which address (i) the overall policy framework of cooperation, (ii) the institutional framework, (iii) financing, and (iv) EU accession. It looks at best practices as well as instructive failures, innovative approaches as well as common ones. We generally include more information rather than less, so that the reader can cherry-pick within a subject of interest.

I. Policy Framework: Policy Documents on Cooperation (PDCs)

Civil society's capacity to help establish a stable welfare democracy has gained widespread official recognition during the past decade. As a formal expression of this recognition, public authorities in several European countries have adopted documents that set forth the mutual benefits of a more institutionalized relationship between the “first” and the “third” sectors.

I.1. What are policy documents on NGO-Government cooperation?

Policy documents on cooperation (PDCs) reflect an early developmental stage in the relationship between government and civil society organizations. They express the views of the public authority (government, Parliament, EU institution) on the role of civil society, and create a basis for constructive interaction with third-sector organizations. PDCs pursue two primary objectives: encourage public participation in political life, and establish mechanisms for cooperation that will ease the government’s burden in delivering public services.

To achieve these objectives, PDCs include general principles as well as specific plans.1 They typically recognize the nonprofit sector’s important role in societal development, articulate the principles of cooperation, and set forth broad intentions and then specific steps to be taken by the government and the civic organizations.

PDCs are usually the result of mutual efforts and negotiations. They include bilateral documents of the “agreement” type (U.K. Compacts), de facto agreements adopted as official programs by government (Croatian Program for Cooperation2 ) or Parliament (Estonian Civil Society Development Concept3 ), and unilateral statements expressing commitments by one side only (Hungarian Government Strategy towards the Civil Sector4 ).

I.2. Why are PDCs important?

These agreements or statements offer tangible benefits to third sector and public sector alike. PDCs give civic organizations a means to increase support for their work and thereby expand their activity in the interest of society. For the government, the agreements can help ensure more complete performance of governmental tasks.

A cooperation policy cannot succeed unless each side understands, respects, and trusts “the other’s roles and missions.”5 NGOs typically take the initiative to propose negotiations, but public authorities can also initiate the process and bring it to a successful conclusion, as was the case in Croatia and Hungary. Experts should be involved in drafting the text, and the discussion and consolidation stage should feature wide public participation.

Success, of course, requires much more than just a policy paper. Point 15 of the English Compact calls the document “a starting point not a conclusion.”6 As experience in the U.K. shows, indeed, the volunteer sector’s inadequate comprehension can impede implementation and effective observance by both sides.7

By the same token, we may emphasize“a process not a paper,” meaning that both sides can benefit even if negotiations do not produce a mutually agreeable text.8 Government and NGOs can achieve a stronger relationship and better communications through the negotiation process, with its frequent contacts, constructive discussions, active cooperation, compromises, and mutual concessions and understanding. Even when no policy paper is adopted (as in the Hungarian case, discussed below), the process can also exemplify public participation in political decision-making.

I.3. What is the scope of a PDC?

The title of such a document usually reflects its character as either unilateral or bilateral, and indicates the extent to which it is legally binding. The Agreement in Wales binds the government to fulfill particular commitments, whereas the English Compact represents only a “memorandum” on relations.9 The Estonian Concept for the Development of Civil Society, adopted by Parliament, sets forth values, principles, and procedures designed to increase citizens’ participation in state life.10 The Croatian Program expressly states that it is not legally binding but simply a framework for future cooperation.11

The EU Commission’s White Paper on European Governance, adopted on July 25, 2001, focuses on “the way in which the Union uses the powers given by its citizens.”12 In order to promote stronger interaction between civil society and both central and local governments, the White Paper sets forth five underlying principles (openness, participation, accountability, effectiveness, and coherence) as well as general intentions based on those principles (including dialogue, consultations, and partnerships).13 Significantly, the Commission also commits itself to undertake concrete measures: improving and clarifying European legislation, publishing guidelines, developing standards and criteria, organizing public debates, and developing a code of conduct on dialogue and consultations. 14

The Danish Charter for interaction, which Volunteer Denmark / Associations Denmark and the public sector concluded with the Danish government in 2001, emphasizes the importance of partnership between the two sectors for “the development of Danish democracy and the Danish welfare state.”15 The Charter recognizes the volunteer sector’s role, functions, and independence, and states the aim of serving as a “starting point for continuing dialogue on values, parameters and concrete opportunities for interaction.”16 The document envisages future measures – including the development of legislation – to ensure continuing support for NGOs’ activity without impinging on their autonomy and to provide resources “for the promotion and implementation of common initiatives.”17 The Charter, then, represents a framework that establishes a basis for concrete steps in the future. Although the Charter has no legal force, both government and the third sector have recognized its role in strengthening the volunteer sector and increasing citizens’ participation in public life.

Most Western European countries have adopted policy documents on NGOs’ participation in development aid. Although they concern only a part of the nonprofit sector, those NGOs involved in international development, these documents indirectly acknowledge the importance of civil society more broadly. For example, the Danish Strategy for Support to Civil Society in Developing Countries, adopted by the Ministry of Foreign Affairs, describes methods of cooperation with Danish NGOs and expressly recognizes their contributions to “the promotion of human rights and democracy.”18 The German government has adopted similar documents, based on the notion that promoting civil society represents a vital part of the country’s foreign development policy.19 In addition to outlining government policy, these documents can influence the funding of domestic NGOs active in international development aid.

I.4. What does a PDC cover?

Cooperation policy documents follow two main approaches. Some PDCs outline a general framework for future cooperation but leave details to be worked out in implementation (as in the U.K. and Denmark), whereas others specify both the particular aspects of future cooperation and the details of implementation (as in the Estonian Civil Society Development Concept).

Experience shows that the approach adopted does not affect the chances for effective implementation. Rather, ultimate success depends on the good will of both sides, the legislative and political mechanisms for fulfilling contractual obligations and political commitments, and the state of relations between governmental and nongovernmental sectors.

Whether in great detail or only in general terms, the document should set forth a few elements essential to forging a successful partnership. Almost all agreements, statements, charters, and strategies of this kind include the following sections:

Given their general and mostly non-binding nature, cooperation policy documents do not establish specific funding obligations. Rather, they envisage the development of funding policies and mechanisms that will ensure public support for the voluntary sector. The document should provide clear models of funding policies, including both the various types of funding mechanisms (in-kind support should not be overlooked) and the third sector’s obligations to establish accountability standards for the use of public money.

The specific content varies, depending on the legal nature of the document; the existing level of cooperation between the two sectors; the legislative, political, and social traditions in the country; and the public institution that adopts the agreement. A document may contain only cursory discussions of some topics, or even omit them altogether. Exhaustive detail is not essential. Even so, the chances for success increase when some aspects are addressed in detail, particularly the mechanisms for implementation.

I.5. How and by whom are PDCs “ratified”?

EU White Paper on Good Governance: By the EU Commission.23 In light of the pending enlargement of the EU, the Commission decided that the methods of EU governance require modernization, so that EU institutions can better use their powers, and so that EU citizens can better monitor these institutions, gain a fuller understanding of how they handle their responsibilities, and grant them a broader endorsement. The Paper also emphasizes the responsibilities of civil society.

To undertake preparatory work, 12 working groups were organized, covering six areas. Each group carried out external consultations, including public hearings and on-line public debates, and developed recommendations for proposals to be formulated in the Paper. In consultations, the NGOs demanded greater participation in the decision-making process before decisions are made, rather than mere announcements made afterward; reorganization of the consultation procedures to make them more effective; administrative focus on the importance of NGOs’ input by targeting all concerned sectors and institutions; and recognition of all relevant players instead of a limited number of organizations. The NGOs also urged the inclusion of a specific article in the EC Treaty on the civil society organizations’ involvement in the Commission’s consultative practices.

U.K. Compacts24: By representatives of both government and NGOs. The U.K. Compacts grew out of two documents: the Deakin Commission Report “The future of the Voluntary Sector” (July 1996), calling for a formal agreement between the government and the voluntary sector; and the Labour Party document “Building a Future Together – Labour’s Policies for Partnership between Government and the Voluntary Sector” (February 1997).In July 1997, a conference of the biggest NGO umbrella organizations confirmed the need for such an agreement. Participants at the conference established the Compact working group, which featured outstanding NGO experts and academics. In October and November 1998, after several months’ consultations, four National Compacts were signed with the governments of England, Wales, Scotland, and Northern Ireland – the first such documents ever signed. The National Compacts were followed by local agreements signed between the voluntary sector at the local level and local councils or other public bodies.

Estonian Concept (EKAK)25 : Adopted by Parliament on December 22, 2002. The process began with the efforts of the Estonian Center for Non-profit Associations and Foundations, through a project financed by the United Nations Development Program (UNDP). Representatives of Estonian umbrella organizations met with politicians and discussed possible strategies for launching the Concept. In December 1999, shortly after this meeting, a “Memorandum of Cooperation Between Estonian Political Parties and Third Sector Umbrella Organizations” was signed, establishing an outline for developing the Concept.26 Academics as well as NGO experts and politicians developed a draft, followed by public discussions that were both intensive and extensive. More than 3,000 organizations were invited to participate in preparing the final draft.

Croatian Program for Cooperation: Adopted by the government in December 2000 on the initiative of the Government Office for Cooperation with NGOs, whose officials believed strongly in the potential of the voluntary sector. The Program outlines principles and models for cooperation. It was based on the results of one national and four regional seminars on “Development of Civil Society in Croatia – Models of Cooperation between the State, Local Authorities and NGOs.” More than 16,000 NGOs were invited to participate in the preparation process. The working group involved NGO representatives, state officials, representatives of the local government, and representatives of international organizations in Croatia.

Hungarian Government Strategy: This document was not actually adopted by the government although it is being implemented. It was submitted for adoption in June 2003, as the result of a process begun in August 2002, soon after the new government was elected. This government made cooperation and communication with civil organizations a principal objective, in what some analysts interpreted as genuine good will and others deemed a mere public-relations effort resulting from popular support of the opposition party. Either way, the elaboration of the policy document and the consequent legislation were put on the fast track. By the end of October, the responsible ministry shared a full-fledged draft of the Government Strategy toward the Civil Sector with NGOs and the public. Comments from NGOs were considered and mostly integrated into the final document.

The government initially envisioned signing a true compact-type agreement with a group of individuals representing the NGO sector, but had to abandon the idea when civil society organizations maintained that no such group could possibly represent all NGOs in Hungary. However, the strategy still contemplates the possibility of a bilateral agreement.

The government did not finally adopt the strategy, proposing instead that the Parliament should adopt it as a resolution endorsed by all political forces. Nevertheless, government agencies have been working to implement it as though it had been adopted and so several elements of the strategy have already been realized.

The German Policy Papers on poverty reduction27: Adopted by the Federal Ministry for Cooperation and Development, on the initiative of German NGOs working in the field of international aid, and following discussions with those NGOs.

The Danish Charter for Interaction: Adopted by the government after a public debate. The Charter was initially drafted by a joint working group comprising representatives of the government (five ministers and local authority officers) and the voluntary sector, and then elaborated upon by the Minister of Social Affairs and the Minister of Culture.

I.6. What are learning points from the implementation of PDCs?

Generally, experience in implementing policy papers demonstrates the importance of (1) involving all players in the process – all state agencies concerned, a wide range of civil society organizations, and the public in general; (2) bringing in experts during drafting and discussion; (3) focusing on monitoring the implementation process and reporting on its results; (4) providing in the policy document a plan or outline for future activities with allocated responsibilities; (5) taking advantage of the momentum for implementation; and (6) making state agencies, NGOs, and the public more aware of the policy paper, its implementation, and its benefits.

Initial publication of the EC White Paper was followed by vast public consultations and then a report summarizing the conclusions.28 The processes of preparing, adopting, and implementing the document demonstrated the necessity for meaningful participation by civil society at each stage. The consultations took place before, during, and after adoption of the Paper, which produced a sharper formulation of the weak points in EU governance, particularly with regard to civil society involvement, and contributed to a more effective strategy for moving forward on the proposed measures. Although the Commission already had a consultation process, the public response to issues raised by the White Paper revealed the deficiencies of this process and helped improve it. As a result, the Commission developed new general principles and standards for consultation with interested parties.29

In the English Compact, specific implementation articles provide for the preparation of Codes of Practice on consultation, the annual review of implementation, and the rights and status of minority groups. The Compact working group drafted the Codes of Practice after consultations with the voluntary sector. The government published the first of these Codes (on funding and consultations) in May 2000, after a meeting between NGO representatives and the ministers. These annual meetings, usually held in April, review the process of implementation, examine the level of Compact awareness in government, and develop an outline of progress to be achieved during the following year.

In government, responsibility for implementing the Compact and coordinating with the voluntary sector lies with the Active Community Unit (ACU) within the Home Office, which works with Voluntary Sector Liaison Officers in each department. David Carrington (ACU)30 points out that one measure of success of the Compact is the number of local compacts that have been signed. He also cites the following as key factors affecting implementation:

Carrington advises creating a joint strategy that would take advantage of the strengths of both sides in working toward successful implementation of the Compact.

As for Central and Eastern Europe, the implementation of the Estonian Concept has already generated some learning points.31 The implementation process has proved slow and difficult to develop. But, on the plus side, politicians, ministries, and local governments refer to EKAK as the guidelines for civil society, and the government and the private sector alike recognize a greater potential role for the nonprofit sector than ever before.

Among the most significant lessons of the Estonian experience is that creating a working relationship takes time, effort, and commitment. The diversity of the third sector means that expectations varied greatly; different organizations saw the practical value of the Concept differently. In addition, many smaller NGOs were not fully familiar with the content, objectives, and importance of the Concept. All in all, the third sector in Estonia is not yet completely ready for open consultation on public policy matters; more capacity-building activities are needed to achieve sector-wide competence.

I.7. The importance of local policy documents

If the goal is to adopt a PDC with an eye toward future implementation at the local level, local government officials must participate from the very beginning. Along with influencing the content of the national PDC, they will gain experience that can prove valuable when they seek to establish local PDCs.

I.7.1. Adoption of local policy documents on the basis of national PDCs

The more traditional approach envisages transferring a central compact to the local level, as provided for by the English Compact. Indeed, “the localization of compacts” – that is, local implementation of a central PDC – can serve as a measure of the success of the national document.32 The statements, principles, and objectives of a national PDC are more easily interpreted and applied by partners at the local level. The local participants know one another better and generally communicate better; problems are clearer and easier to address when seen locally; and local negotiations and compacts tend to be more practical and less political than national ones.

Local compacts have had the following beneficial effects: (1) developing services tailored to community needs; (2) advancing a given organization's cause and objectives; (3) improving partnerships by working closely with local authorities; (4) using external funding more effectively; and (5) involving local groups in best-value social services delivery and community planning. These benefits have been demonstrated in England and Estonia.33

In England, special Local Compact Guidelines were published in July 2000 to assist local partners in their negotiations.34 As of the end of 2002, progress in developing local compacts in England had been registered in most of the 388 local-authority areas.35

In Estonia, we can observe signs of a similar tendency. Although local EKAKs have not been created, nonprofits and local governments in several of Estonia's 15 counties have formed roundtables to develop face-to-face working relationships, and six local councils and local NGOs in the northeast of the country have prepared a “compact” implementing the principles of the national Concept . The European Union accession process is playing a role as well. For the use of structural funds, the Estonia Enterprise Fund has created local county development centers based on its earlier business advisory centers. These development centers work with the Network of Estonian Nonprofit Organizations (NENO) and its resource and support centers, which provide assistance, counseling, and information for the joint activities of local governments, local nonprofits, and local businesses. In sum, several initiatives are fostering joint undertakings and common goal-setting in Estonia.

I.7.2. Adoption of local policy documents as a starting initiative

The city of Gdynia in Poland demonstrates another approach. The local process there started on its own, rather than following a national partnership effort. City authorities initiated the creation of a working group made up of representatives of local government and of NGOs operating in the area. The working group exchanged information about each sector’s activities, the major problems in the region, and potential ways to address those problems. Cooperation between local government and NGOs was considered one of the most effective ways to improve the community.

The working group went on to draft a Cooperation Program, which was approved by the City Council. The Program established an institutional structure for cooperation and set up funding forms and mechanisms. Cooperation is financed from the local budget, under competitive procedures and in compliance with requirements set forth in the Program.36

Whether a local PDC follows a national one or arises on its own, its content is generally similar to that of the national document. However, local PDCs tend to be more specific and practice-oriented. They may condense the sort of opening sections found in national documents, and focus instead on concrete funding mechanisms, institutional support for cooperation, and supervision and reporting mechanisms.

II. Analysis of the institutional framework regarding cooperation between NGOs and government

Here we consider the structures, agencies, and mechanisms that perform tasks related to the cooperation agreement, both centrally and locally. These institutional frameworks vary widely. Indeed, they are even more diverse, and more country- and context-specific, than the policy documents analyzed in the previous section.

Even the use of the word “framework” may be misleading, because a given country's institutions of cooperation rarely reflect any single plan or scheme. Instead, they have evolved over time – for decades, sometimes centuries, in the Western part of Europe, and for the past 10 to 15 years in the Eastern part.

In Western Europe, “sector consciousness” – that is, recognition of the thousands of nonprofit and nongovernmental organizations as elements of a single sector – is a relatively new phenomenon, one that has not yet taken root in some countries. The institutions of cooperation have typically developed in specific areas where the need was particularly evident, often social services, the environment, and international development aid. Now, though, some principles and practices emerging from specific fields have been elevated to a more general level and extended to include the whole NGO sector and even the wider civil society, as reflected in the policy documents described above. The overarching basic principles include subsidiarity, access to information, and consultation with interest groups through social dialogue.

In general, an institutional framework can be assessed from two perspectives. A functional perspective considers the tasks that must be performed, such as registering and monitoring NGOs, ensuring that NGOs participate in relevant decision-making, financing NGOs, and maintaining a flow of information between the two sectors. A structural perspective, by contrast, concentrates on the entities of public administration with responsibility or authority, such as a parliament, the central government administration, ministries, councils and joint committees, agencies, “quangos,” specific bodies, and local governments. In this section, we focus on the structural rather than the functional perspective.

II.1. Parliament

In parliaments, special committees dealing with NGO-related issues are typical. In Germany, for example, a subcommittee of the Committee for Family Affairs, Senior Citizens, Women and Youth (Subcommittee of Civil Engagement) was established in May 2003. It is assigned to help realize the recommendations of a major study of German civil society37 and to discuss related bills and initiatives.

In Hungary, a Parliamentary Committee for the Support of Civil Organizations has existed since the early 1990s. Originally, it granted budget subsidies to national associations. More recently, it has assumed responsibility for legislative policy concerning the sector. (Its grant-giving role will be transferred to the newly established National Civil Fund, as will be discussed below.)

Hungary also has a Civil Office of the Parliament that performs informational tasks. It maintains a database of NGOs, sends the Parliament’s legislative agenda on a particular topic to interested NGOs (for example, an NGO can sign up to receive legislative plans concerning the environment), answers inquiries from NGOs, and coordinates and arranges NGO participation in Committee meetings.

II.2. Central government

The government may assign responsibility for NGOs to a central department, independent from line ministries. Hungary in 1998 established the Department for Civil Relations in the Prime Minister’s Office, with responsibility for developing and coordinating policies affecting the nonprofit sector as a whole. The Department developed the Government Strategy towards the Civil Sector, a comprehensive strategy for supporting and developing the nonprofit sector (see Section I, above). The Department became part of the newly established Government Office for Equal Opportunities on January 1, 2004.

Croatia established the Government Office for Cooperation with NGOs in 1998 to foster cooperation. It coordinated working groups on legislative initiatives affecting NGOs and provided grant support to NGOs in all areas of work. More recently, the role of the Office has been modified. Now, in addition to earlier responsibilities, it also assists the Council for Civil Society, a governmental advisory body (to be discussed below).

Slovenia appointed a National Coordinator for Cooperation with NGOs under the Government Office for European Affairs. This appointment was part of an effort to develop a more coordinated, systematic governmental approach to working with NGOs (similar to what Latvia is currently considering).

We should also note the relationship between EU accession and the creation of these centralized offices. In both Hungary and Slovenia, the departments were created to help manage the required NGO involvement in the National Development Plan and to help ensure ministry-level implementation of the consultation principle (see Section IV, below).

II.3. Ministries

Line ministries represent the most common form of institutional cooperation with NGOs in both Western Europe and Central and Eastern Europe. An NGO whose mission corresponds to that of a given ministry naturally wants to ensure that policy and legislation reflect its views and the views of its constituents. It may also seek funding from the ministry. The ministry often finds cooperation useful as well – for example, NGOs may help implement national policies. As a result, many forms of cooperation have evolved between ministries and NGOs.

The different forms of cooperation reflect the multiple functions of ministries, including financing NGOs, ensuring their participation in policy development, and sometimes providing other type of support or services – the Hungarian Ministry of Children, Youth and Sports, for example, permits NGOs to introduce themselves and communicate on its website, so as to encourage cooperation among organizations working in the same areas. In many instances, the different departments of a ministry will each have someone assigned to deal with NGOs, with no coordination among them. Intra-ministerial coordination may prove necessary, and certain responsibilities, such as maintaining a database of NGOs whose work is relevant to the ministry, may need to be addressed at a higher level.

Furthermore, sometimes one ministry can be responsible for a task or program that affects the whole NGO sector. This is the case in Slovakia, where all NGOs are registered at the Ministry of Interior, and in Poland, where the Ministry of Labor and Social Affairs is responsible for implementing the Law on Public Benefit Organizations and Volunteerism adopted in June 2003.

II.4. Councils or joint committees

Another typical form of cooperation is a formal advisory body comprising government representatives and NGO representatives. Such councils or joint committees are usually formed at the ministry level, but governmental councils exist in the Czech Republic and Slovakia as well as Croatia.

Slovakia formed the Council of the Government of the Slovak Republic for Non-Governmental Non-Profit Organizations in 1999. This Council is a governmental advisory body to support the activities of nongovernmental nonprofit organizations. It can initiate and advise on policy and legislation affecting NGOs. It also cooperates with the bodies of public administration at all levels in devising methods of financing NGOs and forms of cooperation with them, and it maintains a public database of Slovak NGOs.

Croatia established a governmental advisory body, the Council for the Development of Civil Society, in 2002. It is composed of 10 representatives from ministries and 14 representatives from civil society, elected by civil society organizations. The Council concentrates on implementing the Program of Cooperation (see Section I, above), creating a Strategy for the Development of Civil Society, and harmonizing support from the State budget for financing NGO programs and projects.

More common are councils working with a line ministry , which provide strategic advice on a specific field of policy such as health or employment. A typical example is the Danish Committee on Volunteer Effort, set up by the Minister for Social Affairs in 1983. This is a political committee made up of representatives from public authorities and voluntary social organizations. Its aim is to bolster the opportunities for individuals, groups of citizens, and private associations and organizations to address problems in the social field. Alongside its principal function, advising the Minister for Social Affairs, the Committee compiles information about the field and submits proposals to both the public sector and the voluntary organizations.

By contrast to the longstanding councils in Western Europe, the relevance and effectiveness of such committees in CEE often depend on the political weight accorded the issues they represent. For example, when the Prime Minister of Hungary became honorary chair of the Council of Elderly Issues during the UN Year of the Elderly, the Council was able to push through a change in legislation. When issues affecting the elderly slipped off the political agenda, though, the Council lost its critical influence.

An interesting example is the Polish Council on Public Benefit Activities, established by the law on public benefit activities adopted in 2003. This Council which became operational in 2004, advises the Minister of Economy, Labor and Social Care, who is responsible for implementing the Law on public benefit activities. The Council will comprise 20 members, with half representing the government and local government administration, and half representing nongovernmental organizations and church charity institutions. The Council will monitor implementation of the public benefit law by, for example, commenting on issues that emerge in its application, commenting on legislative projects relevant to public benefit activity and volunteerism, and collecting and analyzing information about inspections of public benefit organizations. The Council will also mediate between organizations and public administration bodies should conflicts arise during implementation of the law.

II.5. Agencies and authorities

Agencies or authorities working under the aegis of a ministry are often important players in inter-sectoral cooperation. After reform in the National Health Service of the U.K., an assessment showed that where recommendations regarding community involvement in health care were implemented, the quality of service and user satisfaction both increased. The researchers point out, “It appears essential to recognize that community, voluntary and patient organizations are stakeholders in the formulation of community participation strategies, rather than just passive beneficiaries of statutory sector ‘inclusiveness.’ ”38 To foster community and user involvement in welfare services, it is indispensable for state agencies to cooperate actively with NGOs at the local level.

Among the few CEE examples in this field, the Hungarian Employment Centers in certain regions cooperate with NGOs that help people seeking employment, including those that concentrate on disabled people and others with special needs.

Agencies, of course, can also finance nonprofit organizations through grant programs. In Germany, for example, the Federal Bureau of Environment is providing support to environmental organizations, while the Federal Center for Political Education finances NGO youth-education programs.

II.6. Quangos

A nonprofit organization set up or funded by the government is often known as a quasi-NGO, or quango. Despite government ‘‘ownership,’’ these organizations are autonomously governed and, at least in principle, professionally independent of the political establishment. Their forms range widely, including fundraising and grant-making foundations (public foundations in Hungary and France), advocacy and service-providing organizations (associations of municipalities), and project-implementing nonprofit companies (public benefit companies in Hungary).

Quangos straddle the line between the state and organized civil society. If they are to succeed in promoting social development and cooperation between the two sectors, they must be truly independent of the state.

An example of a quango is the Volunteer Centre in Denmark. The Centre was established in 1992 as a self-governing, independent unit with its own supervisory board under the Ministry of Social Affairs. The Volunteer Centre provides services to voluntary social organizations and associations, including advisory and counseling services, courses, consultancy, and help in developing voluntary social work; disseminates knowledge to the Ministry of Social Affairs and other public authorities and cooperation partners; and serves as secretariat to the Committee on Volunteer Effort (discussed above).

CEE quangos include the so-called public foundations, which are usually foundations set up by law or government order. In Hungary, the Civil Code stipulates that Parliament and state authorities can set up only public foundations; they cannot be founders of private foundations. This distinction may sound obvious, but between 1989 and 1993, many state agencies set up foundations under the liberal rules then in force and “donated” the property of former so-called “social organizations” to them. In this way, public property that belonged to the state but was in the possession of party-governed social organizations (such as the National Women’s Council, the Pioneers, and the National Federation of Pensioners) became the private property of smart founders.

Public foundations were introduced in 1993, in part to end this abusive practice and in part to encourage additional inflow of capital into the public sector. It was hoped that companies and individuals would contribute to public foundations undertaking important social tasks, such as those supporting disabled children, disadvantaged women, the unemployed, and the homeless. Recent studies by the State Audit Office, however, reveal that this objective has not been achieved; further, the studies find that public foundations continue to lack transparency and accountability, even though they are subject to stricter regulations than private foundations.39

A more positive example may be the Croatian National Foundation for the Development of Civil Society . Established in 2003, the Foundation is a public, not-for-profit entity to serve and strengthen civil society in Croatia.40 It supports innovative programs developed by NGOs as well as informal, community-based initiatives. For funding, it receives half of the moneys collected through lottery games in Croatia.

The National Foundation is seen as a vital step toward improving the system of public financing for NGOs in Croatia. It marks a shift from a highly centralized system, in which the Office for NGOs played the critical role, to a more decentralized system. Through regional offices, the Foundation works to promote the sustainability of the sector, cross-sectoral cooperation, civic initiatives, philanthropy, and voluntarism. Its core activities include education and publications, grant-giving, public awareness campaigns, evaluation services, research, and regional development. The Foundation e is governed by a Management Board composed of three representatives from the government, one from local governments, and five from NGOs.

II.7. Specific bodies

Some institutional forms are so distinct as to resist categorization.

One such body is the Charity Commission in the U.K., established by law to register and regulate charities in England and Wales. Charities represent an essential part of societal life in the U.K., but they need to be regulated in order to ensure that they continue to meet the legal requirements for charitable status; are equipped to operate properly and within the law; are run for public benefit and not for private advantage; are independent, with trustees making decisions free of outside control or undue influence; and avoid serious mismanagement and abuse.

More specifically, the Commission secures compliance with charity law; helps charities develop more effective legal, accounting, and governance frameworks; keeps pace with pertinent developments in society, the economy, and the law; and promotes sound governance and accountability. It also provides information and advice on law and good practice, and on dealing with abuses; assists charities in registration; investigates potential violations of the law; cooperates with other regulators, such as police and prosecutors; and, when appropriate, intervenes to protect a charity’s assets. The CC is accountable: it reports annually to Parliament and the Home Secretary and publishes annual reports. However, it remains an independent body, acting in the public interest.

Another hybrid is a recently established entity in Hungary called the National Civil Fund Program. It is not a true quango, as it is not registered as a public foundation. Nevertheless, the Fund is overseen by an autonomous governing body, with a majority of members (12 of 17) elected by nonprofit organizations. 

The Hungarian government finances the Fund with an annual appropriation dependent on taxpayer designations under the 1% Law. The 1% Law permits every Hungarian taxpayer to designate 1% of his or her tax liability to a qualified NGO. Under the Civil Fund Law, the government will finance the Fund in an annual amount matching the year's actual tax designations, or 0.5% of personal income taxes collected, whichever is greater. Thus, the more money that taxpayers designate to NGOs, the more money that the government will contribute to the Fund.

At least 60 percent of the Fund’s resources each year must be dedicated to providing institutional support (core costs) to NGOs in Hungary. This is an important provision, as most government funds for NGOs have been dedicated to project financing. Fund money not devoted to institutional support and administrative costs can be used to foster development of the NGO sector, including through sector-wide events, festivals, international representation, research, education, and publications.

II.8. Local forms of cooperation

The Study Commission recommends that public authorities be made more citizen-oriented and that citizens no longer be looked upon merely as customers. They are also co-designers and co-producers of services.41

The above quotation could have come from any CEE country, but it is actually a recommendation of a special committee of the German Federal Parliament (Bundestag), issued in 2002. This report underscores the importance of active cooperation between the public and nongovernmental sectors at all levels, but – in keeping with the subsidiarity principle – especially at the local level. (As will be discussed further below, the subsidiary principle establishes a hierarchy based on proximity. Basically, it holds that a community's problems ought to be addressed by the community itself whenever possible.) The Report outlines the importance of two-sided efforts towards good cooperation. It recommends, on the one hand, that the local authorities acquire special skills in order to be more efficient in working with citizens, and on the other hand, that civic organizations should increase their participation in the decision-making process. Instruments like mediation and monitoring are also strongly encouraged.

The forms and practices of local cooperation generally reflect those at the national level. A committee or subcommittee in the Local Council may deal with local NGO issues. The tasks of communicating with NGOs may also be assigned to a special department in the mayor's office, or to a single person in the PR department who also bears other responsibilities.

For example, the municipality of Szczecin in Poland created an Office for NGOs in July 1997. Although it had only one employee until 1998, it became a clearinghouse for information about NGOs as well as an ombudsman for NGOs dealing with city authorities. For the first time, NGOs had a partner in the city government. One of the Office's true successes was the launch in 1997 of Small Subsidies, a program supporting short-term NGO initiatives. While continuing to support cooperation with NGOs, the Office currently handles various other tasks, including creating a database of NGOs operating in Szczecin, collecting publications and other information about grants and funds for NGOs, representing the city at NGO meetings, providing opinions on applications submitted by the organizations, supplying financial assistance under the Small Subsidy fund, and assisting NGOs in registering with the District Court.42

II.8.1. Innovative examples of local cooperation

Active in several European countries, Citizens Advice Bureaus represent a creative model for local governments and NGOs together to help people solve their problems.

In the U.K., the Citizens Advice Bureau Service offers free, confidential, impartial, and independent advice on any topic. First launched in 1939, it has evolved from an emergency wartime service into a professional national agency. CAB advice is available at more than 2,800 locations in England, Wales, and Northern Ireland.

Each Citizens Advice Bureau is an independent charity (NGO), with funding from statutory grants, local government, local businesses, charitable trusts, and individual donors. Relying mostly on volunteers, Citizens Advice Bureaus annually help solve nearly six million problems central to people’s lives, including debt and consumer issues, legal matters, and problems related to benefits, housing, employment, and immigration. Advisers help fill out forms, write letters, negotiate with creditors, and represent clients in court or tribunal.

Each bureau belongs to the national organization Citizens Advice, which sets standards for advice, training, equal opportunities, and accessibility; coordinates national social policy, media, publicity, and parliamentary work; promotes the service through a national Advice Week campaign each September; and uses its data on clients' problems to recommend changes in local and national services and policies. Citizens Advice has built a strong reputation for independent analysis.

The model has proved adaptable to Central and Eastern European countries. Citizens Advice Bureaus based on the U.K. model now operate in the Czech Republic, Lithuania, and elsewhere

Experts from the nonprofit Czech Association of Citizens Advice Bureaus help people understand their rights and duties as well as how to defend their interests. The system relies primarily on volunteers, as in Britain. Active since 1997, the Association now unites more than 20 bureaus.43

Citizens Advice Bureaus are also active in Lithuania. The Lithuanian CAB Union established a network of Bureaus by offering training and counseling; providing information on legal, social, and other relevant issues; and developing feedback on social policy. The Lithuanian government recognized that citizens today require more high-quality services and information than the state and local authorities can supply. Accordingly, the government has also provided support to this initiative.

The telecottage is an “infotheque” that aims to link rural communities with the rest of the world. By bringing IT equipment and skills to small communities, it offers a range of engagement and development opportunities to people who are otherwise isolated.

Telecottages first originated in Sweden about twenty years ago.44 The first telecottage was opened in a remote northern part of the country, and was credited with increasing employment by facilitating access to jobs and offering vocational training.45 The telecottage made modern telecommunications more widely available and improved skills of users. The benefits of the new institution were quickly appreciated and a few years later telecottages became well-known and widespread in Scandinavia.46 They even founded their own association – the Association of Nordic Telecottages – which fosters cooperation among them. 47

In Sweden and other Nordic and Western European countries, the telecottage “combines the functions of a training center, library, post office, telecom shop, and communications centre.”48 It offers courses on using computers and telecommunications equipment as well as advice on buying computers and software. As a service unit, the telecottage is able to assist local firms with such tasks as letter writing, bookkeeping, and translations; it can even function as an office for small businesses.49

The model was also successfully introduced in several CEE countries. For example, the Rapla County village movement created the first telecottage in Estonia in 1993.50 Two years later, in 1995 the number of telecottages throughout the country increased substantially, and the first Association of Rural Telecottages was formed. The number of its members continued to grow steadily – from 3 in 1993 to more than 30 in 1997. Similar to the Swedish model, the role of the Association was mainly to provide coordination and to foster cooperation among rural telecottages in Estonia -- the association supports “the movement of telecottages in Estonian villages by offering consultancy, research and exchange of know-how and information.”51

The primary successes of telecottages in Estonia have been the following52 :

The first Hungarian telecottage was established in 1993 as part of a community development program in the mountain community of Csákberény.53 By 2001, Hungary had more than 150 telecottages, with plans for the creation of about 50 more.54

Hungarian telecottages are founded as independent entities; however, they operate on the basis of the cooperation between the civil sector and local governments. Their assets are usually owned by a local NGO, or sometimes another private entity, and the local authorities provide office space, personnel, and financial resources, mainly through contracting out public services.55 “In some cases, the telecottage is based in a local library, school, or community centre… and the telecottage operator can be the NGO, a private company or an individual taking out a contract with the owner.”56

The Hungarian telecottage movement has been funded by the central government, domestic companies (both state and private), foreign companies, embassies, international organizations, and foundations.57 “The telecottages cover a portion of their operating expenses by contracting with government agencies and serving as micro-regional programme management centres, initiating development proposals and collecting regional development information.”58 Many centers also seek grants to support their work.

The close partnership between telecottages and NGOs has speeded the development of the facilities in Hungary. So, too, has the grassroots nature of the movement, with its emphasis on local needs and initiatives. But the Hungarian experience also demonstrates that without a local staff skilled in community outreach and development, a telecottage will remain unused and resources will be wasted.

National governments have played an important supporting role in both the Nordic and the CEE models. Though the Swedish telecottages generally can cover their operating costs through service fees, initial financing for the first ones came from the government, Swedish Telecom, and the local councils. In Hungary, the government has provided on-going support to the Hungarian Telecottage Association. T elecottages have become an integral part of the Hungarian approach to giving rural communities access to government information and services as well as opportunities for economic revitalization.

II.9. The question of NGO representation

How do NGOs elect representatives to a given body? The requirement that bodies include “representatives of the NGO sector elected by the NGOs themselves” is incorporated in law or policy in at least four CEE countries (Hungary, Poland, Slovakia, and Croatia), as well as in draft legislation (for example, in Latvia). However, the actual electoral process has been legislated only in Hungary. The Hungarian National Civil Fund represents the first attempt in CEE to implement a legally prescribed mechanism for electing NGO representatives.

A theoretical problem with NGO representation is that it is often confused with representation of the public as a whole. NGOs sometimes contend that their views should be given extra weight because they “represent the people,” in light of their wide membership base or their expertise in the problems of the disadvantaged. In reality, however, an NGO always represents a particular interest in society, even if that interest is very important, and oftentimes that interest is competing with the interests of other NGOs. For example, one NGO interested in youth may endorse the prohibition of recreational drug use, whereas another youth-focused NGO may advocate legalization.

NGOs are not elected bodies, and their legitimacy does not stem from their claim to represent the public interest. Rather, their legitimacy stems from their mission to address a genuine need in the community or society.59 Therefore, an NGO will be considered (morally) legitimate so long as it makes a true difference and achieves meaningful change.

With their capacity to effect social change, NGOs exemplify participatory democracy, but they do not exemplify representative democracy.60 Unfortunately, though, some who are dissatisfied with the workings of the political establishment view participation as a potential substitute for representation. In Hungary, for example, it has been suggested that NGOs should be guaranteed representation in the Parliament, through a second chamber or a similar mechanism. NGOs in Macedonia are going so far as to establish an NGO Parliament and even a shadow government.

Practical problems also arise in developing a mechanism for NGOs to select representatives. First, who should have the right to vote? All registered NGOs? Public benefit organizations only, or also informal networks and unregistered associations? What about autonomous branches of national organizations?

In the Slovak Council for Non-Governmental Organizations (see section II.4, above), 22 members represent “platforms” of NGOs. These “platforms” are formal or informal groupings of NGOs in certain areas of activity. However, official documents say nothing about what factors determine whether a given grouping constitutes a platform, and nothing about who decides such questions. In practice, platforms are whatever groupings the government and the existing group view as platforms; they were self-elected at the launch of the Council – which shows the difficulty of achieving consistency in applying the democratic procedures of a representative system to NGO participation.

Another practical problem is that an electoral process is, by its nature, a matter of procedure rather than substance. The distinction can hinder the effectiveness of the elected bodies. For example, the Hungarian National Civil Fund Law requires that the majority membership of regional grant-making bodies (the so-called colleges) be elected by NGOs at the local level. Of the more than 50 members elected members recently, only a handful have any experience in grant-making – and their main responsibility will be to distribute over 6 billion Hungarian forints during the coming year.

Despite these problems, NGO representation is increasingly common in Europe. Most governments expect some kind of grouping of NGO representatives as the “partner” to talk to. Even though many believe that a unified or centralized representation conflicts with the principle of diversity – one of the fundamentals of civil society – NGOs often find that networks, coalitions, or federations enable them to exert greater influence on decisions that affect them and their constituencies. These federations or umbrella groups are mostly organized by sector or policy area, such as women’s issues, the environment, and human rights.

In the European Commission, only federations, umbrella groups, or other recognized “representatives” are eligible to consult on policy documents or, in many cases, to receive funding. The Commission has acknowledged the challenges of setting criteria for choosing among NGOs at the European level: “Difficulties begin with the selection of participants. Given the large number and diversity of European NGOs in the EU alone, criteria for selection such as legitimacy or representative character are of vital importance.”61

In a background paper, the Commission articulates a three-pronged approach for determining the level of legitimacy of a potential NGO partner:

III. Government funding of NGOs and public initiatives

In almost all countries in Europe, the various forms of government funding represent a considerable portion of total NGO revenue. As of 2003, the percentage of the NGO sector's income received from government ranged from about 30 (Sweden, Norway) to over 70 (Belgium, Ireland) in Western Europe, and, in CEE countries, from about 20 (Slovakia) to 40 (Czech Republic).63

The European Commission provides direct funding of over 1 billion euros per year to NGO projects.64 The larger portion of the funding is paid to support NGO activities in the area of external relations (development cooperation, democracy programs, human rights, and humanitarian aid--400 million euros).65 The social, educational, and environmental sectors within the EU also receive substantial allocations (about 50-70 million euros each).66 NGOs in Europe and world-wide benefiting from EU funds number several hundreds. The Commission has noted that the financial support that it provides, supplemented by the EU public support to NGOs, highlights “ the continued importance of high levels of public support for the role of NGOs.”67

Government policies and attitudes toward financial relationships with NGOs are mainly determined by the role in the development of society and the implementation of government objectives that is attributed to the third sector. Financial support to NGOs may be a part of governmental policy reflecting the government’s position that NGOs are partners in achieving important political and social tasks. Normally, this policy is accompanied by a well-developed system for providing public support to the third sector determined either at a central political level by legislation, by a government policy document or a compact-type bilateral document (U.K.), or by acts of other public authorities, including government (Croatia) or ministry (Germany), or other institution.

Public funding support may take the form of payment for goods and services that fall within the competence of the public sector or the form of programmatic support for NGOs’ activities. It may also be delegated to local authorities (Hungary). The financial relationships with NGOs may be controlled directly by the government (Germany) or its agencies (the Swedish International Cooperation Agency, which administers bilateral development assistance programs and the country’s support to NGOs68 ) or through a specific institution (the newly established Croatian Foundation for Civil Society Development) established to coordinate the various aspects of the relations between organized civil society and the state.

III.1. General policy considerations in support to NGOs

There are two main types of government funding for NGOs:

Direct funding – Financial support assigned from the public budget at the central or local level to an NGO directly--i.e., it will represent a budget expense in the given financial year. This does not mean that the funding will go directly from the State Treasury bank account to the NGO’s bank account; usually the funds go through various governmental agencies, such as ministries, public foundations, and funds.

Indirect support – Indirect financial support does not include the direct transfer of money or property; rather, it represents a benefit granted to NGOs that lets them use assets to accomplish statutory goals rather than to cover other financial obligations. Such support will not appear in the public budget as a direct expense; rather, it represents foregone revenue. In the case of tax benefits, for instance, tax revenue that will not be collected, because of special treatment of NGOs, is considered indirect support.

The key criterion that governments use in order to determine whether and to what extent any NGO is qualified to receive public support is the “public good” served by the activity of the organization, rather than the type of activity conducted, e.g., service or advocacy activities. The degree to which NGOs support the public good, as reflected in “public benefit” legislation (or its functional equivalent in, for example, tax law), may entitle both service and advocacy organizations to receive direct and indirect public financing. Both service and advocacy NGOs can engage in public benefit activities that deserve government support, but in general, service-delivery is more likely to qualify as “public benefit activity” and to make the provider NGO eligible for financial support.

According to the public benefit criteria, there are generally two main types of NGOs:

The PBO/MBO distinction is generally the basis for determining the appropriate level of indirect support (e.g., tax benefits). In the case of direct support, the primary question is whether there is a legal basis prescribing what type of NGOs should receive what type of direct support. Lacking legal prescription, the state may decide on its own; it will often determine direct support based not on the NGO’s function (e.g., service, advocacy, self-help), but rather based on whether the NGO activities help to implement a state policy. With a view to such policy, the state may decide that an NGO is providing some activity worthy of support – for example, even self-help organizations such as Alcoholics Anonymous receive public funding in Hungary because they contribute to a more healthy society.

III.2. Policy considerations in providing direct support to NGOs

III.2.1. Service provision

From the funding policy perspective, there is a principal difference between public service functions that the state has a legal obligation to provide, and those for which the state has no such legal obligation. For example, in every European country, the state must ensure the primary education of children. By contrast, the state generally will not have an obligation to ensure that every child with a spine disease has access to horse therapy, one of the most effective ways to treat such diseases.

In many realms, however, the distinction is not so clear. For example, home-care for the elderly may be a legal obligation for local governments in one country but not in another. The extent of state obligations evolves over time, and in most CEE countries it changes even from year to year, as society develops.

For example, at the change of the system in Hungary (1989), companies closed their state-run workers’ hostels and thousands of people suddenly became homeless. As the state was not prepared to deal with so many homeless, hundreds froze to death during the first winter of the new democracy, and several NGOs were set up to shelter and help people on the streets. Because the problem was so visible and received media attention, Parliament reacted by making it obligatory for the local governments to provide shelters for the homeless. Since many NGOs, however, already ran such shelters, the local governments simply passed the budget money to the NGOs. Even today, practically all the homeless shelters in Hungary are run by NGOs and financed by the local governments.

Often a task becomes a state obligation because NGOs lobby for its inclusion in state legislation. For example, the social service NGOs that introduced meals-on-wheels service to the elderly in several districts of Budapest argued successfully that by solely providing lunch to the elderly in day-care centers, the local government was discriminating against those elderly unable to reach day-care centers. As a result, local legislation included the meals-on-wheels among the services entitled to state support.

Hospice care for the terminally ill, especially last-stage cancer patients, is still not part of the state-financed services in Hungary, despite repeated efforts by NGOs to demonstrate the value of the service in fulfilling the constitutional right of the ill person to human dignity. Therefore, if a hospital maintains a hospice department, it is usually run by a foundation that raises funds from elsewhere (e.g., from church or private donations).

The importance of the distinction between legally prescribed government tasks and those for which the government has no obligation is reflected in direct financing policies for NGOs. The fact that an NGO provides a state service does not in itself entitle it to receive state support. However, most European states have accepted legislative policies that assume the obligation of the state to finance such a service whether provided by government or a private entity. It is also becoming more common for governments in CEE to fund private providers for obligatory services for which the governments would have to pay anyway. This direct financing can take several forms, described below.

On the other hand, financing for services not included among the legal obligations depends entirely on the policies of the central or local government. In most European countries, certain policies related to social and economic development are determined as priorities for each ministry for a given year (e.g., for a ministry of labor, these may include the reduction in the number of Roma unemployed in a certain region, the increase of companies employing disabled persons, or the increase in part-time employment of women). Among other measures, such as legislation and supported employment, the ministry may decide to use a grant program for those NGOs that run programs addressing these state policies.

It is generally difficult in Europe to find services funded that are not considered priorities by the government on the central or local level. For example, if an NGO operating in a small town in Hungary identified a pressing need to address domestic violence issues in the early 1990s, the organization would not have been able to obtain government funding for such a program; domestic violence was not a priority at the national or local level. But the world is changing. Due in part to advocacy by women’s organizations and – mainly – to the pressures of European Union policies on gender equality, the Hungarian Ministry of Interior is currently headed by a woman and has launched a nation-wide program to train police forces on dealing with domestic violence. Today the same NGO in the same small town would have a range of government grant opportunities to finance its outreach to abused women. Meanwhile, though, NGOs providing shelters for stray dogs may continue to struggle for financing.

In summary, in many European countries that adopt the principle of subsidiarity (see below), the main criterion for receiving direct state support for service provision is whether the state is legally obligated to ensure the provision of pertinent services. Beyond legally required services, government policies on the national and local levels establish grant-making priorities. For NGOs seeking state funding for additional services, the outcome will depend substantially on the organizations' abilities to lobby, and thereby to raise the importance of the issues on the government’s agenda.

III.2.2. Principles and mechanisms for direct financing of services that the state should ensure

Governments have a range of principles and mechanisms available to determine exactly how to finance NGOs providing state services.

In CEE, a general problem is that the government has traditionally provided all public services. Existing government institutions want to ensure a stable income for their employees, and they find it threatening to consider NGOs “coming from nowhere” suddenly taking over “government” roles. Unfortunately, therefore, local governments often view NGOs more as competitors than partners in achieving community goals.

III.2.3. Advocacy organizations

In the case of advocacy organizations, their effectiveness depends chiefly on whether they can remain independent from state influence if they receive state funding. We may make two basic assumptions here:

Advocacy organizations ordinarily seek to protect or further the interests of a certain societal group. In order to do so, the organizations often challenge state policies, oppose planned legislation, or mobilize against a government action. Why, then, would the government support “its own enemies,” or in a more positive light, “its own challengers”?

The most important reason is the “enlightened self-interest” of the state to ensure that the electorate will be satisfied with policies that affect them. By ensuring means for participation and an opportunity to influence the decision-making process, the state can preempt potential dissatisfaction and unrest in society. In the case of the EU, “consultation with the interest groups” is considered an integral part of good governance, and legislative efforts by member states to implement the acquis communautaire have to be based on “social dialogue.”

Furthermore, governments gain access to inexpensive but high-quality policy expertise by ensuring avenues for participation. Advocacy NGOs that consider it their mission to achieve progressive change in legislation and state policy often have extensive experience in the field; their personnel are sometimes more knowledgeable than public sector or for-profit experts. For example, NGOs often have access to cutting-edge expertise through their international networks. By supporting them, governments can ensure that policy actions reflect a high professional quality that is consistent with international standards or best practices.

A constructive relationship between government and advocacy NGOs presupposes mutual respect and some degree of trust on the part of both parties, which is often still lacking in CEE countries. Unfortunately, in some cases a government has supported advocacy NGOs in order to gain control over a policy area or to create its own clientele. In such cases, political considerations override professional ones.

One helpful criterion that governments apply to determine advocacy organizations' entitlement to public support is whether they pursue public benefit or mutual benefit interests. This may relate to the kind of activity they engage in (e.g., sports or environmental protection), or the target group they serve. For example,

Once the government decides to support such organizations, it may be good practice to ensure that the decision-making mechanism remains independent from the political establishment. How to achieve this? One solution is to create a semi-autonomous decision-making body, which can be within the central administration system (e.g., a ministry establishes a grant-making advisory body), or in the form of a quango. Such bodies will usually consist of independent experts and representatives of all the parliamentary parties. (These kind of independent, multi-party bodies are also common in ministries giving grants to service-providing NGOs.)

As in the case of service provision, government policy development and implementation are a sound basis for supporting advocacy organizations, which can usually benefit from (programmatic) public support of their activities, mainly through subsidies and grants mechanisms (see below). However, certain limitations are possible – activities deemed to obstruct governmental policies, for example, may be considered as failing to contribute to the public good and therefore, as eligible for state financing.

III.3. Forms of direct government support

III.3.1. Subsidies

Subsidies are government funding providing general support to NGOs’ activities, not linked to a specific project.72 They can be used to cover overall operating expenses as well as specific project implementation and therefore serve as general support for NGOs that make considerable contributions to governmental policy implementation. Such funding may also serve to symbolize the public sector’s respect for civil society and its merits.

This form of financial support is most typical in the CEE countries, and its use is currently declining. There, direct budget subsidies are considered a remnant of the communist period: those organizations that lobbied successfully during the change of the system received a special position in the budget and became entitled to subsidies, such as the Red Cross (in almost every country), or the National Federations of Pensioners, the Pioneers, or the Blind. In Hungary, the Annual Budget Act allocates central subsidies to about 25 organizations listed in the annex to the Act, but only a few of them are involved in actual service-providing or other forms of activities to the benefit of the public.

However, this can still be a good solution for organizations that have not yet achieved financial sustainability, especially as foreign aid support is declining. Funding through subsidies is not open to all NGOs; potential beneficiaries usually include interest representation groups (see the examples above), service-providing organizations, and few if any advocacy organizations. Subsidies distributed through ministries or other governmental institutions normally go to NGOs working in the area of activity of the line ministry (e.g., the Ministry of Youth and Sports in Romania is authorized to allocate funds to organizations related to sports and youth), which could include advocacy organizations as well.

As a form of budgetary support, subsidies can be provided from central and local budgets, usually on the basis of a law. They can also be provided by the administrative decisions of public authorities. In Hungary, for example, the Parliament used to determine, upon the recommendations of the Parliamentary Commission on Civic Organizations, which NGO-applicants would receive a subsidy. The Slovak Parliament has adopted a special law setting guidelines for subsidizing NGOs73 ; the allocation of funds is executed through the separate ministries. Subsidies may also be directly distributed by a parliament in the Annual Budget Act (as in Bulgaria and Hungary).

Funds distributed as subsidies may also originate from other sources than the budget, such as privatization funds (Czech Republic, though this is a source of limited duration) or lottery proceeds (Croatia).

Subsidies are usually determined through a centralized process but can be allocated and distributed by the separate ministries (Romania, Bulgaria, Croatia, Hungary). The body that distributes the subsidies ordinarily supervises their expenditure as well.


According to the USAID Glossary of ADS Terms, a grant is “a legal instrument used where the principal 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 [the state] is not anticipated.”74

Grants are generally not used to cover operating expenses, but rather devoted to implementing particular projects that reflect the government’s programmatic objectives and therefore are considered to be of public value.75 However, core costs may also be supported via grants – as in Hungary, where the new National Civil Fund gives grants for operational costs, with the explicit aim of strengthening the NGO sector.

In Denmark, volunteer organizations may receive so-called “basic grants,” not destined to fund a specific project but rather distributed on the basis of objective criteria such as purpose, turnover, and self-generated funds.76 “The intention is to stimulate the voluntary organization’s autonomy and freedom to determine its own activities and to be capable of promoting the interests of others.”77 The other type of grant available to Danish NGOs active in the social field – the “project grant” – is awarded directly to specific projects or activities.78

Grants, unlike subsidies, are awarded through an open tender-type grant application process and not by the individual administrative decision of a central or local government officer or by a parliament. They may fund the delivery of social services (Germany, Croatia, the U.K.) or the implementation of programs from the country’s international development aid obligations (Sweden, Denmark, Germany). Funding to NGOs provided in the form of grants also demonstrates the government’s recognition of the third sector’s public role; often it is essentially compensation for their performance of tasks or pursuit of objectives that would otherwise have to be addressed by public authorities.

Grants may originate from the budget (central or local) or from special funds formed by income from alternative revenue sources: lottery proceeds, taxes, etc. For example, the “basic grants” fund in Denmark is formed from the so-called “Danish Football Pools and Lotto” funds in addition to budget sources. The “project grants” are distributed from the Grant Programme for Development of Voluntary Social Work, which is a central government budget source.

In Hungary, a range of central funds support NGOs financed by some sort of tax mechanism, e.g., the Cultural Fund from the tax on kitsch and pornography; the Employment Fund from contributions paid by employers and employees; the Environmental Fund from tax on gas, fines paid by polluters; and the Civil Fund (the newest), from 1% contributions (see Section III.5.4). These funds usually provide grants and loans not only to NGOs, but also to local governments as well as entrepreneurs in the given field.

Grants are often distributed either directly by the government or by a governmental agency. In the U.K., this function is assigned to the local offices of various government authorities (e.g., those for health, employment, education). This role can also be assigned to a special entity, as with the public foundations in Hungary or the single public foundation created for that purpose in Croatia. In Germany, the government provides support to the national umbrella organizations of NGOs, which in turn distributes the funds to their membership. In Poland, the local government is envisioned as the main body responsible for tendering and contracting out local services. The Danish Ministry of Social Affairs is responsible for distributing the “basic grants” to voluntary organizations working in the social field.79 Grant-making in the EU can also be channeled through the national or local authorities of the individual Member States, or be provided by the Commission or by special funds. The projects funded through this form should always be directed at achieving a precise objective in pursuit of a common EU policy.

Limitations on the eligibility of NGOs for access to grant competition procedures are possible – for example, only NGOs with public benefit status may be admitted to apply for funding. The organization’s area of activity may also impose a limitation on its access to contracts: for example, only NGOs operating in the area of health services may be permitted to bid for a grant for the delivery of such services. NGOs are mostly eligible for grants for social (human) services provision (health, social care, education, culture, etc.) and development aid. However, grant-making is in principle possible in all areas of government operation – e.g., the Ministry of Interior in Hungary provides grants to volunteer civic police forces, and the Ministry of Justice provides grants to NGOs that educate judges on domestic violence.

Grants are usually distributed on a competitive basis and after a selection process. Among the selection criteria are typically past activity of the organization, history of partnership, references, political and other activity unrelated to the competition but troubling the funder, technical quality of the proposal, professionalism of the staff, “package projects” (if the applicant has already won some related projects), reliability, managerial and financial competence, possibility of receiving cost-share funding, possibilities for establishing a mutually beneficial future partnership, time limits for implementation if they are not strictly specified in the announcement, etc.

The selection process involves – or should involve – several crucial safeguards to ensure appropriate levels of transparency and openness. Thus, there should be appropriate procedures to announce and advertise the available grants and specific criteria for awarding them. For example, all EU grants are posted on the Internet and categorized according to the area of activity and eligible recipients. The requirements for a fair and open selection process also include publicizing the award, the possibility for review of the decision, and the remedies available after a challenge of the award decision.

Funding through grants may be occasional, short-term, or long-term. Preference is usually for occasional or short-term funding, in part because the state administration may not commit itself to multi-year funding without knowing budget objectives for subsequent years, and also to prevent NGOs from becoming dependent on the grants. However, this short-term view often limits a developmental approach to public grantmaking.

Funding through grants is effectuated by signing a contract between the grant-making authority and the NGO recipient. Some provisions in the contract may be mandatory, as provided for by legislation or by the competition announcement. In terms of legal nature, content, and consequences, this contract should not be confused with a procurement contract to enable the funded NGO to provide works or services falling within the domain of the public authorities. The former provides terms and conditions for the use of the public funds, reporting, and supervision, while the latter also regulates specific conditions regarding service-delivery.

III.3.3. Procurement

Procurement is the public authorities' purchase of goods and services delivered by NGOs. Usually the legislative mechanism for procurement is established for all potential participants, including business entities and NGOs. The latter are most likely to be funded by the government for the delivery of social services. In Germany, indeed, NGOs are the default providers of social services. In the U.K., the second stage of the process of restructuring the welfare state (1980s-1990s) has resulted in the break-up of the previous public administration system, the introduction of management of social welfare, and “quasi-markets.”80 Under the new system, public services must be assigned as if by “economic markets,” so NGOs must compete on equal footing with for-profit institutions and public-sector institutions.81 In Croatia, local authorities have the authority to assign “public utility” services to natural and legal persons based on a written agreement.82 In Poland, NGOs have been given a chance to compete with public providers in the newly adopted Law on Public Benefit Activities.

In Sweden, volunteer organizations have access to competitive contracting for the delivery of social services (childcare, education, home-help). The municipality of Täby has introduced innovative and flexible models of contracting out services, by taking into account various aspects of this “privatization.” For example, they provide an “employment guarantee when it comes to a competitive tender. When a private provider is [awarded the contract], the employee has the right to choose if he or she wants to remain employed by the municipality or join the entrepreneur. But he or she also has a one-year option to return to the municipality.”83

The main problems that NGOs encounter in accessing this form of government funding is that the majority of projects open to procurement are high-value ones, and it is often difficult for NGOs to comply with the requirements placed on bidders. In addition, procurement is often considered inconsistent with the not-for-profit nature of NGOs. Indeed, very few procurement procedures allow for access and successful bids by nonprofits (essentially only smaller projects in the area of social services or local public benefit services). The Slovak Public Procurement Act of 1999 expressly excludes NGOs from the tenders for public services.

A potential solution is the Hungarian example – that is, a special form of contract called a public benefit contract. This may be executed with “outstanding public benefit organizations” for the provision of state services. Hungary has two categories, or two levels, of public benefit status: the “normal” public benefit organization and the outstandingpublic benefit organization. This second category describes organizations that have a special contract with a state agency commissioning them to provide public services. Such a contract entitles them to special public benefit status and additional tax and other benefits that accompany it. Though only 6 percent of NGOs possess such status, it represents an important development in the state/civil society relationship, because it provides a transparent legal form for NGOs to provide state services, when otherwise NGOs would have difficulty obtaining contracts under the procurement laws.

III.3.4. Normative support

The normative financial support to NGOs bears certain similarities to the system of procurement of social services. It is a reimbursement to NGOs that deliver services in areas such as healthcare or education, and the funding is determined on the basis of the services actually provided. Under this system, physical persons have the right to choose their service-provider, possibly an NGO, which then seeks reimbursement from the government.

Ordinarily, the normative funding is preceded by a contract with a public authority, and/or permission to operate issued by a public authority, which authorizes an NGO’s access to the funding mechanism.84 Such a system is established in Hungary, whereby an NGO may set up a social service institution on the basis of a contract with the respective ministry. The funding to which such an NGO may be entitled is limited to the amount of support granted to a state-run institution operating in the same area of activity, which is set in the Annual State Budget Act. A similar system functions in Croatia.85

III.3.5. Vouchers

The use of vouchers reflects the tendency toward modernization and market-oriented mechanisms in public services delivery. It has been particularly successful in the Scandinavian countries. Under this system, a municipality gives all citizens vouchers for the services that fall within the municipality's responsibilities, and the citizens then choose their provider. Such vouchers eliminate the dispute over which is the best service-provider by strengthening the role of citizens and by giving them the responsibility to select the service-provider.

Therefore, the process pursues two purposes: expanding the freedom of choice of the service-user, and raising the quality of the service through competition. Vouchers are an instrument to develop demand-driven service provision, in which the market rather than the state develops and offers services. The individual citizen, entitled by the state or the municipality to a subsidized service, is able to use this subsidy by means of a service voucher, which serves as the means of payment. Recipients of service vouchers can be all citizens or groups with particular needs.

In some municipalities, the predominant service-providers are private contractors, whereas in others they are voluntary organizations. Remuneration to the provider can be regulated by agreement between the provider and the public authority overseeing the operation, or directly between the customer and the provider. The system requires a certain degree of control by fixing or limiting the fees for the provided services.

Voucher systems are relevant – and have been introduced – in education, social welfare, and other individual services in Sweden. An example of good practice is found in the municipality of Täby in the Stockholm area, where a successful combination of competitive contracting and a voucher system under the motto “The best service is the one, one gets to choose by oneself” seems to be producing excellent results.86 Vouchers cover childcare, education, and home services for the elderly. This means, for example, that a day-care center or a school receives a fixed sum for every child enrolled (similar to the normative system).

Service-providers that have succeeded in attracting customers are thus primarily funded by revenues through the voucher system. The municipality exercises control over the providers by, among other means, establishing quality standards for the service delivery, requiring various proofs for the quality of the service, admission rules, taxes charged.87 The process starts with an application by the potential service-user to the social board. In response, the applicant is given a voucher that indicates the range of services to which the person is entitled. These services have been identified through an individual assessment conducted by the social board and a home help service secretary. The list may include various types of home personal help – nursing, purchases, cleaning, etc. Vouchers are provided monthly and cover a month of services. The person in need is entitled to the right to choose the service-provider from a list of providers accompanying the voucher. He or she can also choose to use the services provided by the municipality.88

III.4. Policy considerations in indirect support

III.4.1. Public benefit activities

The conceptual difference between the “public benefit” versus “mutual benefit” nature of NGOs exists across Europe. The legal and financial consequences of engaging in public benefit activities and eventually being granted public benefit status have proved considerable and justified the recent enactment of public benefit laws in a number of CEE countries (Hungary, Bulgaria – as part of the NGO law – and Poland, among others). These laws prescribe and determine when an NGO can qualify for public benefit status and thereby gain access to a wider range of tax benefits.

Public benefit recognition usually indicates (1) that an NGO provides services and activities that benefit the public at large or a special group in need; and (2) that the state provides special recognition for these activities through direct or indirect support.89

What activities qualify as public benefit is defined differently in every country where such legislation exists; usually there is a list of activities (e.g., in Hungary, a list of 22 types of activities including, among others, education, social services provision, preservation of cultural heritage or protection of the environment). The type of government support available to NGOs with public benefit status also varies. In Hungary, for example only PBOs may receive tax deductible donations; Poland is contemplating limiting the corporate income tax exemption to PBOs only. The entitlement to the 1% support (see below under Indirect funding) is another benefit that can be made available to PBOs only or to a wider circle of NGOs, depending on the government policy.

NGOs that aspire to obtain public benefit status and the resulting tax advantages must satisfy additional criteria. Most significantly, they have to comply with higher levels of transparency and accountability so as to ensure proper spending of public money. For example, they may have to prepare a yearly report or establish a supervisory board.

III.4.2. Tax benefits

Governments can provide indirect financial support to civic organizations in the form of tax benefits or exemptions, thus encouraging and supporting their general activities. Most legal systems acknowledge the contribution of nonprofit organizations to the public good and recognize this contribution by providing a range of tax benefits related to their activities.90 The main examples of such benefits include:

Because of the loss of tax revenue that could be collected, these forms of tax benefits are traditionally viewed as indirect government subsidies to the organizations and their donors.91 Tax revenue foregone constitutes an indirect means of support from the state, by contrast with direct government support to NGOs involving transfer of funds from the state to an NGO.

The level of indirect support through tax benefits can vary depending on the public benefit status of the organization or whether its activities are considered beneficial to the public. Public benefit NGOs naturally enjoy a wider range of exemptions and tax benefits. They are granted such benefits as the following:

NGOs that engage in public benefit activities may also be granted additional exemptions, including, for example, tax exemptions on the support they provide to individuals (e.g., scholarships) and benefits on the donations made to such organizations, which encourages private and corporate contributions to public benefit organizations. Such benefits are provided for in Estonia, Hungary (at a higher level for “prominent” public benefit NGOs), Poland, and Slovakia.

For mutual benefit organizations, tax benefits are usually limited. As a general encouragement to the development of democracy, governments may provide some minimum level of support to mutual benefit organizations (MBOs) as well.

III.5. Forms of indirect support

III.5.1. Use of public property at no cost or at reduced rates

Use of public property as a form of indirect support is widely used in CEE countries. Governments allow NGOs to use state or more often municipal property for their statutory activities, including, for example, as office space, meeting halls, and sports facilities. Usually this is done on the basis of a law and upon certain conditions.

For example, the Hungarian Act CXLII of 1997 authorizes the free use of state-owned property by civil society organizations, which may also acquire the right to own this property, with some restrictions, after a period of 15 years. To receive this form of support, an NGO cannot have outstanding public debts and cannot sell the property or establish a mortgage on it during the 15-year period. The law or the contract may impose certain limitations on the activities that can be conducted in the leased property, e.g., the organization can only engage in its statutory activities, or cannot use the property for political activities. In Croatia, the Social Care Act provides for the free use of state or municipal property only if the organization will use it to provide social welfare services. The lease on the public property is concluded either by the public institution that exercises the ownership rights (e.g., the municipality), or by a special body, such as the State Property Administrator in Slovakia.

III.5.2. Tax exemptions on income

In considering the tax treatment of NGOs in the CEE region, we find two approaches taken in most tax legislation: determining taxation and exemption based on (1) types of organizations and (2) categories of income. We consider each below.

Types of Organizations. The laws of some countries allow tax exemptions for not only foundations and associations but also any other legal form of not-for-profit legal entities. The only preconditions are prior registration and observance of the non-distribution constraint. Other countries provide such exemptions only to organizations that engage predominantly or exclusively in public benefit activities. As an extreme example, in a few countries tax exemptions on income are not granted to any type of NGOs and only limited tax benefits are available to organizations engaged in activities on behalf of the disabled.92

Tax exemption on income is granted to NGOs in general and not exclusively to public benefit organizations in a number of countries, for example, Czech Republic, Hungary, Latvia, Lithuania, Slovakia. In some of them, including Slovakia, this approach reflects the concept that NGOs are not public business entities, and therefore are not proper subjects of taxation, at least with respect to certain types of income.93 “More frequently, the laws treat NGOs as taxable legal entities, but permit them to claim exemption from the corporate income or profits tax” (Czech Republic). 94

Elsewhere, including Bulgaria and Slovenia, only public benefit organizations are exempt, and the laws list the activities that benefit the public and entitle the organization to claim the exemption.

“Sources of tax exempt income. Most countries treat income from grants, donations, fees and dues as tax exempt.”95 The income from economic activities (sales of goods or services) is treated differently. Economic activities are defined as “regularly pursued trade or business involving the sale of goods or services and not involving activities excluded under some distinct tradition.”96 Generally, this definition is understood to exclude the receipt of gifts and donations, certain passive investment income, occasional activities such as fundraising events, activities carried out using volunteer labor, and fees that are “intrinsically connected to the public benefit purposes of the organization” (e.g., tuition for an educational organization.)

Provided that NGOs are permitted to engage in economic activities (which is not always the case, e.g., certain types of NGOs in Lithuania must not do so), the following approaches are possible:

Lithuania exempts all nonprofit entities from profit tax; however, not all such entities may engage in economic activities.

Income from investment provides an essential source of revenue for NGOs. Many countries impose additional requirements and limitations on the distribution of income and the accumulation of capital by NGOs to ensure that such income is spent in pursuance of their public benefit objectives. The tax treatment of passive investment income varies according to the type of income and the type of NGO.98 Slovakia and Slovenia treat almost all investment income as taxable, although there are special reduced rates for taxes on certain investments.99 Hungary generally taxes all income but provides exemptions for public benefit organizations as long as they do not engage in business activities.100 In Poland, all investment income used for public benefit purposes is tax exempt.

III.5.3.Tax incentives for philanthropy

Indirect support provided through tax advantages to donors is frequently seen as an incentive to encourage NGO activity and private philanthropy. Traditionally, two main forms of tax benefits are seen as incentives for philanthropic behavior:

With tax deductions on charitable donations, the donor can deduct all or part of the money contributed to an NGO from the tax base upon which tax will be calculated. With tax credits for charitable donations, by contrast, the donor will be able to deduct part of the donated amount from tax liability (i.e., the tax due). In other words, a tax credit reduces the amount of tax owed, whereas a deduction reduces the amount of income subject to tax.101

Tax deductions may be claimed by business and individual donors; in some countries, the maximum deductible amount differs for the two categories (e.g., in Estonia it is 5% for individual donors and 3% for business donors). The limitation is usually a percentage of the taxable income. Hungary grants a tax credit and not a tax deduction on individual donations.102

However, the recipients of tax-benefited contributions are usually limited to organizations engaged in public benefit activities. For example, in Hungary as well as Estonia, charitable contributions entitle the donor to a tax deduction (up to a certain limit) only if it is made to a public benefit NGO on the list published by the government.103

III.5.4. The so-called “1%” tax designation mechanism

The central idea of percentage mechanism is that taxpayers may decide to designate a certain percentage of their income tax paid to a specific nonprofit, nongovernmental organization (NGO), and in some cases, other organizations, mainly churches.

The “percentage mechanism” was introduced in Central Europe, primarily with the purpose of supporting nonprofit organizations.104 The first such law was adopted in Hungary in 1996 and allowed taxpayers to designate 1% of their tax due to the civil society organization of their choice.105 Slovakia (2001), Lithuania (2002), and most recently Poland and Romania (2003) followed the Hungarian example and adopted similar legislation.106 “Taxpayers” includes natural persons in all four countries and also corporate taxpayers in Slovakia. Possible beneficiaries are nonprofit organizations that engage in public benefit activities plus trade unions (Lithuania), public institutions (Hungary and Lithuania), and churches (Hungary – designations for churches form another 1% of the tax). Certain additional conditions may also be imposed, such as the existence of the organization for a given period of time (Hungary), as well as reporting requirements.

The percentage legislation is based on the concept of “advancement of civil society through support of its organizations” as a part of government policy.107 Other rationales that justified and led to this policy include strengthening civil society through financial support and capacity-building, awareness-raising, development of philanthropic culture, and the provision of decentralized and depoliticized government support to civil society.108

Despite some disputes over the precise legal nature of “percentage philanthropy,” its impact has been fascinating. Apart from its contribution to increased citizen participation and taxpayer control over public funds, it has significantly augmented the financial resources made available to NGOs. In 2003, the Hungarian “1% law” resulted in 6.1 billion HUF (approximately 23.5 million EUR) worth of 1% designations by 1.4 million taxpayers.109 By comparison, in 1999 the amount was 3 billion HUF. Unfortunately, the percentage legislation has had a negative impact as well. Governments have wrongly perceived that percentage laws satisfy the needs for both public and private support of the third sector and have undertaken to eliminate other tax benefits for NGOs. Thus, tax-deductible donations have been abolished in Lithuania and in Slovakia, and similar measures are under consideration in Poland.110 Such tax reforms have proved (and will prove) to be quite detrimental to NGOs and are highly undesirable from a financial and moral point of view.

III.6. Summary recommendations on an “NGO funding guide”: What shall we consider in setting up a system for government financing of NGOs?

When developing a system for NGO financing, it is necessary to think through the underlying rationale and principles or assumptions on the part of the government. What is the role of NGOs in society? How is this role envisaged from the point of view of government? What roles and functions should government support and why?

Below is a chart reflecting one potential classification, based on the principles and approaches generally described in Section III. It needs to be understood that

Nonetheless, such a chart is helpful to think through the foundations and the framework of the financing system.

NGOs undertaking governmental tasks (e.g., those that are explicitly assigned to central or local government in laws)
Government should provide direct support to finance the service through the NGO (as well as ensure indirect support generally available for NGOs)
NGOs complementing governmental tasks (e.g., tasks not explicitly assigned to government but considered of public benefit by law or otherwise answering community needs)
Government should consider financing the service itself or provide indirect support
NGOs advocating for certain issues and interests (e.g., through influencing policy making and legislation)
Government may choose to offer direct financing to some activities; it should, however, ensure the independence of such NGOs; government should provide indirect support
NGOs enhancing citizen participation and social responsibility (e.g., any mutual benefit society, club, etc., as well as NGOs advocating with businesses, schools, and other institutions)
Government should encourage such NGOs through indirect support
NGOs raising/generating resources and contributing to the redistribution of private wealth
Government may consider supporting the creation of independent grantmakers in order to help the sector become more self-sustaining

What principles will the government apply?

Let’s take the first box: NGOs undertaking governmental tasks (e.g., those explicitly assigned to central or local government in laws). Let’s say the government believes that if an NGO undertakes a given task, it should be supported from the public budget because it is helping the government to do its job. How will it provide the support?

The government may here choose from a range of principle-based mechanisms described above, such as the subsidiarity principle (preferring NGOs) or the competitive principle (looking for best value) as well as the normative or the voucher system.

The questions of what types of costs and to what extent they will be covered are important, because if the government actually pays the whole cost to the NGO, it may not be worth privatizing the service in the first place. Experience in the U.K. and Germany shows that NGOs fully subsidized by the government for a longer period (5 to 10 years) essentially became too expensive, like government agencies.

Similarly, principles for each box should be well thought through. For NGOs in the second and third boxes, for example, the general principle may be that they will have the opportunity only to receive direct government funding if their current activities are in line with some specific government objective, and therefore supporting them will contribute to advance a government program.

However, indirect support can be envisaged for all categories of NGOs at varying levels. Usually, mutual benefit ones may enjoy only minimal support in recognition of their contribution to a democratic social model. This minimum could be the exemption on the corporate income tax for their statutory activities; it could, however, also include exemptions on duties and fees as well as property and other taxes (as in Hungary).

NGOs that are considered public benefit would then enjoy a wider scale of benefits, such as the ability to receive tax-deductible donations, tax benefits regarding the income from economic activities, customs exemptions, ability to provide tax-exempt scholarships/aid to individuals, etc.

In Hungary, two levels of PBOs enjoy additional benefits as “outstanding” PBOs; by contrast, in Bulgaria, MBOs do not even receive full exemption on the basic income tax (however, they do receive some tax exemptions – on grants and membership dues, for example).

Another issue is the 1% type tax allocation, which could be a benefit for all NGOs or just PBOs.

The issue of encouraging independent grantmaking has also proved to be an important one in CEE countries, because as foreign donors withdraw and the culture of philanthropic giving has not yet developed, NGOs are left in a funding vacuum, where the only major source of support becomes the government. In light of this threat to financial sustainability, the establishment of local grantmakers is one potential solution. In the Czech Republic, the state actually supported endowing such grantmakers, but if such direct support is not an option, there are still instruments to help develop this potential (e.g., through regulating endowments and investments).

III. Analysis of Eastern European government policies and practices to assist NGOs in the accession process

Eastern European nonprofits have demonstrated extraordinary achievements during the past 10 to 15 years. Starting “from scratch” – a legal framework that either prohibited their existence or turned them into government satellites – they have played a remarkable role in the democratic processes that followed the fall of communism in this part of the world. Moreover, their participation in civil society development was a major contribution to the achievements in the economic, political, social, and cultural changes that brought about the accession of the new Eastern European members to the European Union.

This, on the one hand, justified a “reward” on behalf of governments. It called for government to support NGOs in each country for a better participation in the Union civil societal life, in political decision-making, and in the access to new financial sources. NGO expectations were naturally directed toward their more active role in formulating national positions on EU matters. For that, NGOs needed to develop additional capacity and to acquire new skills appropriate to the new political circumstances, new funding requirements, and new partnership opportunities.

On the other hand, a continued and intensified involvement of the Third Sector in the various aspects of the accession process seemed only logical, because governments could benefit even further from civil society participation input. In addition to governments’ interest in such involvement, such an approach would be fully in line with the most recent European tendencies for expanding the mechanisms for social dialogue and public participation in EU decision-making.

NGOs had much to offer during the accession process; however, they had much to ask for as well, and their cooperation with national governments was challenged in new ways. These challenges did not always lead to improved cooperation. Certain positive actions were taken – for example, NGO representatives were invited to participate in consultative meetings with EU institutions (Estonia), or received training on EU funding access (Czech Republic). But not all available means were used to prepare national NGOs for EU public life and to support them in the new aspects of their struggle for a more active role or, in some cases, for existence and sustainability.

This section outlines the various possible aspects of governmental positions regarding NGO participation in the accession process. It examines government policies and practices to support NGOs during the accession process in three ways: involving NGOs in EU decision-making, helping NGOs access EU funds (and co-financing), and providing direct (financial and institutional) help to NGOs to increase their viability and wider participation in EU life.

IV.1. Was NGO empowerment part of policy development during the accession?

The government's general attitude toward the importance of NGOs in the accession process varies greatly from country to country. For example, the Estonian government was strongly aware of the need to enhance civil society development. In April 2002, the government formed the Estonian Joint Consultative Committee,111 whose primary responsibility was to assist the accession process and prepare civil society organizations to enter the European Union. The Committee had wide representation – its members were designated by trade and industry sectors (the Estonian Chamber of Commerce and Industry), employers (the Estonian Confederation of Employers (ETTK), trade unions (the Estonian Employees’ Unions’ Association (TALO), the Confederation of Estonian Trade Unions (EAKL)), farmers (the Estonian Farmers Federation), and the NGO sector (Network of Estonian Nonprofit Organizations (NENO). The Joint Committee fosters dialogue and cooperation on the economic and social aspects of implementation of the European Agreement.

Significantly less governmental assistance was extended to Polish nonprofits. Polish NGOs were disappointed to witness the government’s passive attitude in accessing funds that could later be distributed to organized civil society. It is the government’s responsibility to negotiate, apply for, and manage such funds, although the total amount will also depend on the third sector’s capacity as estimated by the EU fund-allocating institutions. Polish NGOs need to learn how to access these funds and how to identify partners for participation in major projects. This is even more urgent given the fact that EU funds will be less available for Polish NGOs after the accession. While NGOs did receive substantial help from EU institutions and from European nonprofit networks, they did not benefit significantly from their government’s support in capacity-building, learning, partner-search, and available funds.

Only in a few countries did the government actually document its commitment to involve NGOs in the preparation for accession in any substantial way. The Czech Republic offers a concrete and outstanding example.112 The accession process has given the Czech government an opportunity to develop a specific form of partnership as one of its policies. It is part of the national development program and sectoral operational programs for using the Structural Funds.113 Although the government does not co-finance the projects submitted under these funds and does not give advance grants, it has established an efficient political and institutional system which assists NGOs as beneficiaries of EU funds.

The NGO sector is involved in the process of economic and social cohesion through their representative in the Steering and Coordinating Committee – the leading coordinating body in that field. The NGO representative is nominated by the Governmental Council for Non-governmental Nonprofit Organizations. The National Development Plan is the fundamental document for all operational programs. The plan is developed under the auspices of the Ministry for Regional Development. The public participation in the drafting process is ensured through public discussions and workshops held on the separate chapters. The NGO sector is actively represented in and contributes to these discussions.114

On that basis, several operational programs have been drafted and implemented under the competence of the separate ministries. They permitted NGOs operating in a given area to participate in the preparation of the ministry’s “action plans” for the development of that area and to have improved access to EU funding provided for the same purpose.

For example, the Joint Regional Operational Programme (“JROP”) was drafted as a multi-fund program for the European Regional Development Fund and for the European Social Fund within the remit of the Ministry for Regional Development. The Commission for Regional Development was constituted as a basic coordinating body responsible for the preparation of measures concerning regional policies. The nonprofit sector has been represented in the Commission as well as in six of the eight working groups established by the Ministry that drafted the Program. The Program identifies several priority areas in which support should be provided to NGOs. These include “Local development of human resources; Improving the environment in municipalities and regions; Revival of rural areas; and Development of tourism in municipalities and regions.”115

Another operational Program, Objective 2 for the Prague Cohesion Region, was drafted under the competence of the Ministry for Regional Development for purposes of utilization of the European Regional Development Fund by the City of Prague. Under that document, support from the European Regional Development Fund is allocated to NGOs. At the same time, the cooperation principle is ensured through the participation of the civil sector in the Commission of the Prague Cohesion Region Council, following a mechanism similar to that applied under JROP.116

Following a similar pattern, NGOs have also been involved in preparing several other programs, which allow them to benefit from EU funds. Among these programs are the following:

During the preparation of the programmatic documents concerning the access to the Structural Fund, representatives of Czech NGOs drafted and submitted their comments. Fourteen regional roundtables were organized and NGOs working in the respective regions had the opportunity to comment on the documents. The roundtables served as an excellent potential source of feedback that reached the authors of the programming documents.120 However, the lack of a well-established, working mechanism for submitting comments and remarks posed a barrier that prevented the proper delivery and use of the comments.121 If such a system had been applied at the national level, it would have ensured that the necessary space for participation and consultation was provided to representatives of NGOs.122

IV.2. Government Support to NGOs

IV.2.1. Capacity building

It was widely recognized in accession countries that NGOs needed to strengthen their organizational capacities in order to be able to access pre-accession and especially post-accession financing sources. Strengthening organizational capacity may include training sessions on project planning and proposal writing as well as educating NGOs on how the EU works and how they can participate in EU-wide networks for policy advocacy. Moreover, government support for general organizational development, e.g., helping to introduce quality assurance systems for service-providing NGOs, was also a demonstrated need.

However, apart from the inclusion of such activities in the PHARE and other pre-accession grant mechanisms, governments have done little to increase the capacity of the NGO sector in comparison to the investment made in developing the capacity of enterprises. Where there have been such examples, they occurred as a result of the initiative of the individual government agencies or public officials and not as a consequence of a coordinated public policy. For example, NGOs in the Czech Republic have been trained on the procedures for application for EU funding; however, this effort was not part of the government’s global policy on EU accession or on civil society support and was realized through separate state agencies.

A more positive example could be cited from Hungary, where the government launched a so-called Proposal Preparation Fund, which provides technical assistance specifically to local governments, small-region associations, and nonprofit organizations. Those organizations that aim to apply to the EU Structural Funds were given the opportunity to send an idea to the Fund. The Fund then provided the necessary means to develop the awarded ideas into full-fledged project proposals, which stood greater chances of securing EU funding. In 2003, the Proposal Preparation Fund awarded close to 500 applicants, including local governments and civil organizations, technical assistance worth a total of 27 million Euros. For the 2003 round, the government and the PHARE program both contributed 50% to the Fund; based on the success of this initiative (they received more than 2,800 ideas), the government decided to launch the program again in 2004 at the same level of support, even without the PHARE contribution.

IV.2.2. Financial means

Not only are national financing and co-financing mechanisms essential for NGOs’ sustainability in general; they may also be a requirement for access to EU funds. The structure of these mechanisms has been used for the distribution of external funding. For example, in the Czech Republic, the pre-accession assistance provided by the EU under the Accession Partnerships and pre-accession financial mechanisms were administered under a separate Program of Civil Society Development and through the Foundation for Development of Civil Society. The Foundation was based in Prague and was established for this purpose on the initiative of the Czechoslovak Federal Government in 1992. A total of EUR 16,770,000 was distributed under the Program by the end of 2001.

The Estonian Joint Consultative Committee created in 2002 (see above) had concluded that Estonia needed to develop such financing mechanisms. They were necessary not only to improve the level of information regarding pre-accession issues and access to Structural Funds but also to establish a national co-financing system and to ensure NGO involvement in the discussion and adoption of funding solutions.

The Hungarian government chose another way of addressing the need to strengthen NGOs financially at the doorstep of the EU. While the role or importance of NGOs was not explicitly mentioned in the National Development Plan and the consequent policy papers, the Hungarian government emphasized the importance of supporting NGOs in the accession process in its Governmental Strategy Towards the Civil Sector (see Section I). The National Civil Fund, set up to strengthen the NGO sector (see Section II.7) has established a special college (grant-giving body) to support efforts of NGOs in positioning themselves and the sector in the accession process.

In addition, national efforts should be backed up by EU preparatory work. The European Commission should help not only civil servants but also civil society organizations to acquire knowledge of the Structural Funds. Civil society organizations should, for their part, make efficient use of Structural Funds resources in the future and carry out effective preparatory work so as to be ready for the co-financing and management of the projects concerned. The Commission provides support to a number of European-wide NGO networks in order to promote this function, which in turn reach out and educate NGOs in accession countries in European matters. Among these organizations are the European Citizen Action Service (ECAS, www.ecas.org), the European Council for Voluntary Organisations (CEDAG, www.cedag.net), and the TRIALOG project (www.trialog.or.at, which helps development NGOs from accession countries gain inclusion in CONCORD, the European NGO confederation for relief and development).

IV.3. Government efforts to apply EU principles on consultation and social dialogue

An important area of government action and an indication of meaningful recognition of the NGO sector is the extent to which governments apply the principles of public participation, consultation, and social dialogue in their legislation.

IV.3.1. Involving NGOs in decision-making

In that regard, there have been good initiatives in several accession countries. For example, the Hungarian government introduced the Open Legislation Program to improve the quality of legislation through increasing public participation. In the draft of a new Law on Legislation, several elements are reflected that represent cutting-edge practices in European legislative procedures, and often concern NGO participation as well (for example, prior and post-enactment impact assessments, publication of draft legislation, etc.). Recent legal initiatives affecting the NGO sector, such as the Law on the National Civil Fund Program and the Draft Law on Volunteering, have been widely circulated and discussed among the NGOs in Hungary and, perhaps more importantly, reflect the comments and considerations NGOs raised in the discussions.

In Poland, the government adopted a Regulation on Social Dialogue in October 2002. The preamble of this document acknowledges and emphasizes the importance of civil society and the organizations formed within civil society. The document defines three main categories of social partners: collective labor representatives, e.g., trade unions and employers’ organizations; organized citizens' initiatives, e.g., public benefit associations and foundations; and self-interest representation groups, e.g., professional and commercial associations, local government federations.

The regulation outlines the basic rules for cooperation between government and the named social partners, and it also prescribes rules for the conduct of government and public administration in their relationship with social partners. The regulation contains important and innovative procedures; for example, it obliges the ministries responsible for submitting a legal draft to Parliament not only to consult social partners on the draft, but also to summarize their comments and provide justification if the comments were rejected when submitting the draft to the Parliament.

IV.3.2. Assisting NGO representation in EU bodies

The efforts of NGOs have been directed at partnership on two levels: one, with EU institutions, and two, with EU nonprofit networks. Both have provided invaluable assistance in the preparation of the Accession countries’ third sectors for joining the Union. As the Polish NGOs declared at the conference on Building Partnerships between the Polish and the EU NGOs, “Polish non-governmental organizations are involved only partially in the activities at the EU level. They do not have the influence on the Community law regulations, which already affects their activities in different fields… The Polish non-governmental sector is not visible among the NGOs in the EU… The crucial barrier is the lack of funds as well as the lack of the Polish NGOs' representation…”123

The importance of representation is not only in being “close to the source,” i.e., having a more complete access to funding and other relevant information, but also in the possibilities for participation in decision-making, discussion, and consultation.

The Polish NGO Office in Brussels was founded with these considerations in mind. It is an initiative of more than a dozen major Polish nongovernmental organizations, foundations, and NGO networks working in a variety of sectors. Its aim is to prepare Polish NGOs for Poland’s membership in the EU. Part of the Office’s work consists of easing the entry of Polish NGOs into the various European networks of NGOs. The NGO Office in Brussels and Warsaw spends much of its time providing information on EU policies to Polish NGOs. The work of the Convention on the Future of Europe is one of the areas covered by the Office in its various news items and bulletins. The Polish NGO Office is currently the only NGO representation from a candidate country in Brussels.

Czech NGOs get involved in the European Union’s concrete policies (structural, regional, agricultural) by participating in formulating the policies (by making comments) based on the partnership policies elaborated above, and also by being the final beneficiaries or partners of grants and projects under these policies (mostly delivery of social services). Examples of such active NGOs include CpKP (Centre for Communitarian Work), Omega Liberec, SKOK (Standing Commission of the Sectoral Conference), Hnutí Duha (Rainbow Movement). Czech NGOs are also active in local branches of EU networks of NGOs, and some address issues linked to EU integration – however, they do so with their own financial resources.

Czech NGOs also monitor the Czech Republic's compliance with its obligations based on the introduction of the acquis communautaire into the Czech law. They do that primarily by monitoring the current status, issuing reports, engaging in advocacy campaigns and awareness raising, and cooperating in drafting implementing regulations. At present, several organizations engaged in such activities (such as the Czech Consumer Protection Association, the Rainbow Movement, Earth’s Children) are relatively weak and are often refused by state and public institutions. From the perspective of incorporation of the applicable acquis communautaire and further monitoring, however, their “watchdog” role is irreplaceable.


* Nilda Bullain is the Executive Director of the European Center for Not-for-Profit Law. Radost Toftisova is a consultant to the International Center for Not-for-Profit Law with expertise in the laws governing NGO/Government partnerships.

1 See Daimar Liiv, Guidelines for the Preparation of Compacts, IJNL, Volume 3, Issue 4, June 2001 <http://www.icnl.org/journal/vol3iss4/Guidelinesforcompactsprint.htm>.

2 http://www.uzuvrh.hr/pdf/program_suradnje.pdf (in Croatian only)

3 Decision of Estonian Parliament Approval of Estonian Civil Society Development Concept, 2002, http://www.ngo.ee/orb.aw/class=file/action=preview/id=3356/EKAK-eng.pdf .

4 http://www.nonprofit.hu.

5 Danish Charter for interaction between Volunteer Denmark / Associations Denmark and the public sector, December 2001, <http://www.frivillighed.dk/filecache/2716/1079696504/charter_for_interaction_between_volunteer_denmark.doc.doc>.

6 Compact on Relations between Government and the Voluntary and Community Sector in England, http://www.homeoffice.gov.uk/docs4/COMPACTcommandpaper.pdf (1998).  

7 See Daimler Liiv, Guidelines for the Preparation of Compacts, IJNL, Volume 3, Issue 4, June 2001 <http://www.icnl.org/journal/vol3iss4/Guidelinesforcompactsprint.htm>.

8 “The Paradox of Compacts: Monitoring the Impact of Compacts,” Home Office Online Report, February 2005, http://www.homeoffice.gov.uk/rds/pdfs05/rdsolr0205.pdf.

9 See Daimler Liiv, Guidelines for the Preparation of Compacts, IJNL, Volume 3, Issue 4, June 2001 <http://www.icnl.org/journal/vol3iss4/Guidelinesforcompactsprint.htm>.

10 Decision of Estonian Parliament Approval of Estonian Civil Society Development Concept, 2002, <http://www.ngo.ee/orb.aw/class=file/action=preview/id=3356/EKAK-eng.pdf >.

11 See Daimler Liiv, Guidelines for the Preparation of Compacts, IJNL, Volume 3, Issue 4, June 2001 <http://www.icnl.org/journal/vol3iss4/Guidelinesforcompactsprint.htm>.

12 EU Commission’s White Paper on European Governance, Brussels, 2001, <http://europa.eu.int/eur-lex/en/com/cnc/2001/com2001_0428en01.pdf>.

13 EU Commission’s White Paper on European Governance, Brussels, 2001, p. 10, <http://europa.eu.int/eur-lex/en/com/cnc/2001/com2001_0428en01.pdf>.

14 EU Commission’s White Paper on European Governance, Brussels, 2001, p. 19, <http://europa.eu.int/eur-lex/en/com/cnc/2001/com2001_0428en01.pdf>.

15 Danish Charter for interaction between Volunteer Denmark / Associations Denmark and the public sector, December 2001, <http://www.frivillighed.dk/filecache/2716/1079696504/charter_for_interaction_between_volunteer_denmark.doc.doc>.

16 Danish Charter for interaction between Volunteer Denmark / Associations Denmark and the public sector, December 2001, <http://www.frivillighed.dk/filecache/2716/1079696504/charter_for_interaction_between_volunteer_denmark.doc.doc>.

17 Danish Charter for interaction between Volunteer Denmark / Associations Denmark and the public sector, December 2001, <http://www.frivillighed.dk/filecache/2716/1079696504/charter_for_interaction_between_volunteer_denmark.doc.doc>.

18 Strategy for Danish Support to Civil Society in Developing Countries – including cooperation with Danish NGOs, October 2000, <http://www.una.dk/ffd/Godk_Nord_Regeringer/Strategy_for_Danish_Support.htm.>

19 The Federal Ministry for Cooperation and Development (BMZ) administers the funding for international development through a program called Development Projects in Developing Countries. See http://www.globenet.org/preceup/pages/fr/chapitre/etatlieu/acteurs/f/h.htm. The Ministry’s close work with German development NGOs in the early 1990s resulted in an initial policy paper, “Fighting poverty by promoting self-help,” which emphasized participation and self-help as fundamental principles. See http://www.euforic.org/projects/povcasde.htm. Four more policy papers on poverty reduction were elaborated and adopted during the 1990s, and Conception of development policy of BMZ,” published in October 1996, confirmed poverty reduction as the principal goal.

20 Danish Charter for interaction between Volunteer Denmark / Associations Denmark and the public sector, December 2001, <http://www.frivillighed.dk/filecache/2716/1079696504/charter_for_interaction_between_volunteer_denmark.doc.doc>.

21 EU Commission’s White Paper on European Governance, Brussels, 2001, <http://europa.eu.int/eur-lex/en/com/cnc/2001/com2001_0428en01.pdf>.

22 See Daimar Liiv, Guidelines for the Preparation of Compacts, IJNL, Volume 3, Issue 4, June 2001 <http://www.icnl.org/journal/vol3iss4/Guidelinesforcompactsprint.htm>.

23 EU Commission’s White Paper on European Governance, Brussels, 2001, <http://europa.eu.int/eur-lex/en/com/cnc/2001/com2001_0428en01.pdf>.

24 The Compact on relations between government and the voluntary and community sector, http://www.thecompact.org.uk/C2B/document_tree/ViewACategory.asp?CategoryID=22

25 Estonian Civil Society Development Concept, <http://www.emy.ee/eng/alusdokumendid/concept.html>.

26 See Daimar Liiv, Guidelines for the Preparation of Compacts, IJNL, Volume 3, Issue 4, June 2001 <http://www.icnl.org/journal/vol3iss4/Guidelinesforcompactsprint.htm>.

27 Promotion of Civil Society in Developing Countries: the Example of European Development Cooperation, German Development Institute, Briefing Paper 6/1999, <http://www.die-gdi.de/DIE_Homepage.nsf/0/79299BBD20A0B94AC12569F60065C013>; Eva Weidnitzer, German Aid for Poverty Reduction, Berlin: Deutsches Institut fürEntwicklungspolitik, <http://www.euforic.org/projects/povcasde.htm>.

28 Report from the Commission on European Governance, Office for Official Publications of the European Communities, Luxemburg, 2003, < http://europa.eu.int/comm/governance/docs/comm_rapport_en.pdf>.

29 Communication from the Commission of the European Communities, Brussels , November 12, 2002, p. 5, <http://europa.eu.int/comm/governance/docs/comm_standards_en.pdf>.

30 David Carrington, The Compact – the Challenge of Implementation, April 2002, <http://www.davidcarrington.net/articles/docs/ACU-Compact%20Summary.doc>.

31 Based on input from Kristina Mand, Director, Network of Estonian Nonprofit Organizations.

32 See Daimar Liiv, Guidelines for the Preparation of Compacts, IJNL, Volume 3, Issue 4, June 2001 <http://www.icnl.org/journal/vol3iss4/Guidelinesforcompactsprint.htm>.

33 See Daimar Liiv, Guidelines for the Preparation of Compacts, IJNL, Volume 3, Issue 4, June 2001 <http://www.icnl.org/journal/vol3iss4/Guidelinesforcompactsprint.htm>.

34 Local Compact Guidelines: Getting Local Relationships Right Together, published by NCVO on behalf of Working Group on Government Relations Secretariat and the Local Government Association, July 2000, <http://www.thecompact.org.uk/module_images/LocalCompactGuidelines.pdf>.

35 http://www.thecompact.org.uk/C2B/document_tree/viewAcategory.asp?categoryID=163.

36 Miuchal Guć, “Egyedül nem megy” (It is not possible alone), 1999, CSDF Hungary. Summary in English prepared for ICNL by Istvan Csoka.

37 Civic Activities: Towards a Civil Society with a Future, Summary of the Bundestag Study Commission’s Report, June 2002, <http://www.bundestag.de/parlament/kommissionen/archiv/enga/enga_stu.htm>.

38 Timothy Milewa, Stephen Harrison, George Dowswell, Partnerships and Public Accountability in British Health Care , <http://www.publicnet.co.uk/publicnet/fe031209.htm>.

39 Állami Számvevőszék: Jelentés a társadalmi szervezeteknek és köztestületeknek juttatott költségvetési támogatások ellenőrzéséről (State Audit Bureau, Report on the Control of Budget Support to Social Organizations and Public Societies), September 2002.

40 Croatia Enacts National Foundation for Civil Society Development Law, ICNL News Release, October 27, 2003, <http://www.icnl.org/PRESS/Articles/2003/20031027.htm>.

41 Civic Activities: Towards a Civil Society with a Future, Summary of the Bundestag Study Commission’s Report, June 2002, p. 9.

42 Material based on Szczecin Local Initiative Program, report prepared by John Driscoll (Unit for Housing and Urbanization, Harvard University Graduate School of Design), Pawel Szczyrski (Unit of Cooperation with Nongovernmental Organizations, City of Szczecin), and Janusz Szewczuk, 2001.

43 Alena Skodova, Association of Citizen Advice Bureaus celebrates five years of existence, report, May 30, 2001, <http://www.radio.cz/en/article/28493>.

44 Rural Telecottages in Sweden,<http://www.globalideasbank.org/site/bank/idea.php?ideaId=225

45 Rural Telecottages in Sweden,<http://www.globalideasbank.org/site/bank/idea.php?ideaId=225

46 Rural Telecottages in Sweden,<http://www.globalideasbank.org/site/bank/idea.php?ideaId=225>.

47 Rural Telecottages in Sweden,<http://www.globalideasbank.org/site/bank/idea.php?ideaId=225>.

48 Rural Telecottages in Sweden,<http://www.globalideasbank.org/site/bank/idea.php?ideaId=225>.

49 Rural Telecottages in Sweden,<http://www.globalideasbank.org/site/bank/idea.php?ideaId=225>.

50 Telecottages in Estonia, Center for Tele-information, Technical University of Denmark, 2001, <http://www.itu.int/ITU-D/univ_access/casestudies/estonia.html>.

51 Telecottages in Estonia, Center for Tele-information, Technical University of Denmark, 2001, <http://www.itu.int/ITU-D/univ_access/casestudies/estonia.html>.

52 Telecottages in Estonia, Center for Tele-information, Technical University of Denmark, 2001, <http://www.itu.int/ITU-D/univ_access/casestudies/estonia.html>.

53 Bill Murray, The Hungarian Telecottage Movement, Small World Connections, U.K., < http://www.col.org/Telecentres/chapter%2005.pdf>.

54 Bill Murray, The Hungarian Telecottage Movement, Small World Connections, U.K., p. 1, <http://www.col.org/Telecentres/chapter%2005.pdf>.

55 Bill Murray, The Hungarian Telecottage Movement, Small World Connections, U.K., p. 3, <http://www.col.org/Telecentres/chapter%2005.pdf>.

56 Bill Murray, The Hungarian Telecottage Movement, Small World Connections, U.K., p. 3, <http://www.col.org/Telecentres/chapter%2005.pdf>.

57 Bill Murray, The Hungarian Telecottage Movement, Small World Connections, U.K., p. 3, <http://www.col.org/Telecentres/chapter%2005.pdf>.

58 Bill Murray, The Hungarian Telecottage Movement, Small World Connections, U.K., p. 4, <http://www.col.org/Telecentres/chapter%2005.pdf>.

59 See Miklos Marschall, Legitimacy and Effectiveness: NGOs in Comparative Perspective, SEAL, Spring 2001.

60 “Civil society is about participation, while parliamentary democracy is about representation. The civic politics of citizen participation and the parliamentary 'party politics' of representation have a healthy dynamic of both complementarity and tension. It is important to understand that civil society is complementary, not a rival, to representative democracy, and participatory democracy goes hand in hand with representative democracy.” Id.

61 EU Development Ministers Seminar: The Role of European Nongovernmental Organizations in Promoting Civil Society in Developing Countries (Berlin, March 1999).

62 Id.

63 The difference is even more impressive when expressed in absolute figures. See data from the Comparative Nonprofit Sector Project the Center for Civil Society at the John Hopkins University, <http://www.jhu.edu/~cnp/pdf/comptable4.pdf>.

64 The Commission and Non-Governmental Organisations: Building a Stronger Partnership, Commission Discussion Paper, presented by President Prodi and Vice-President Kinnock, Brussels, January 18, 2000, p. 2, <http://europa.eu.int/eur-lex/en/com/wdc/2000/com2000_0011en01.pdf>.

65 The Commission and Non-Governmental Organisations: Building a Stronger Partnership, Commission Discussion Paper, presented by President Prodi and Vice-President Kinnock, Brussels, January 18, 2000, p. 2, <http://europa.eu.int/eur-lex/en/com/wdc/2000/com2000_0011en01.pdf>.

66 The Commission and Non-Governmental Organisations: Building a Stronger Partnership, Commission Discussion Paper, presented by President Prodi and Vice-President Kinnock, Brussels, January 18, 2000, p. 2, <http://europa.eu.int/eur-lex/en/com/wdc/2000/com2000_0011en01.pdf>.

67 The Commission and Non-Governmental Organisations: Building a Stronger Partnership, Commission Discussion Paper, presented by President Prodi and Vice-President Kinnock, Brussels, January 18, 2000, p. 2, <http://europa.eu.int/eur-lex/en/com/wdc/2000/com2000_0011en01.pdf>.

68 See more on the website of the Swedish International Development Cooperation Agency, <http://www.sida.se/Sida/jsp/polopoly.jsp?d=107.

69 The subsidiarity principle is also a generally adopted principle of the European Union, intended to ensure that decisions are made as closely as possible to the affected citizens. This means that the Union does not take action (except in the areas that fall within its exclusive competence) unless its action will be more effective than action taken at national, regional, or local level. <http://europa.eu.int/scadplus/glossary/subsidiarity_en.htm.>

70 The principle, as understood in the social policy context, originates in the Encyclicals of Pope Leo XIII (1891) and Pope Pius XI (1931), who first explained and elaborated upon the division of tasks between state and church, as well as communities, in improving social conditions. <http://www.ucc.ie/academic/appsoc/hdsp/Pius%20XI,%20Quadragesimo%20Anno%20(15-05-1931).htm>

71 With the exception that such organizations are sometimes included in the state budget on an annual basis, see Subsidies, Section III.3.1.

72 Preliminary study of the legal frameworks for public financing of NGO activities in Bulgaria, Croatia, Hungary, Romania and Slovakia, IJNL, Volume 3, Issue 4, June 2001, <http://www.icnl.org/journal/vol3iss4/prelimstudyprint.htm >.

73 Preliminary study of the legal frameworks for public financing of NGO activities in Bulgaria, Croatia, Hungary, Romania and Slovakia, IJNL, Volume 3, Issue 4, June 2001, <http://www.icnl.org/journal/vol3iss4/prelimstudyprint.htm >.

74 Glossary of ADS Terms, United States Agency for International Development, Washington, DC: USAID, 2001, p. 93, <http://www.usaid.gov/policy/ads/glossary.pdf>.

75 Preliminary study of the legal frameworks for public financing of NGO activities in Bulgaria, Croatia, Hungary, Romania and Slovakia, IJNL, Volume 3, Issue 4, June 2001, <http://www.icnl.org/journal/vol3iss4/prelimstudyprint.htm >.

76 The Voluntary Social Sector in Denmark, Ministry of Social Affairs, Denmark, 2001, p. 15. <http://www.frivillighed.dk/filecache/3484/1095353806/voluntarysocialwork.pdf>.

77 The Voluntary Social Sector in Denmark, Ministry of Social Affairs, Denmark, 2001, p. 15. <http://www.frivillighed.dk/filecache/3484/1095353806/voluntarysocialwork.pdf>.

78 The Voluntary Social Sector in Denmark, Ministry of Social Affairs, Denmark, 2001, p. 16. <http://www.frivillighed.dk/filecache/3484/1095353806/voluntarysocialwork.pdf>.

79 The Voluntary Social Sector in Denmark, Ministry of Social Affairs, Denmark, 2001, p. 16. <http://www.frivillighed.dk/filecache/3484/1095353806/voluntarysocialwork.pdf>.

80 Social Policy in the U.K., <http://www2.rgu.ac.uk/publicpolicy/introduction/uk.htm>.

81 Social Policy in the U.K., <http://www2.rgu.ac.uk/publicpolicy/introduction/uk.htm>.

82 Preliminary study of the legal frameworks for public financing of NGO activities in Bulgaria, Croatia, Hungary, Romania and Slovakia, IJNL, Volume 3, Issue 4, June 2001, <http://www.icnl.org/journal/vol3iss4/prelimstudyprint.htm >.

83 Arne Svensson, Redefining Public Services Through Market-oriented Mechanisms: Scandinavian Experiences & Best Practice, Professional Management AB Presentation at the International Workshop on Guarantor Government in Täby, Sweden, May 31-June 1, 2001, arranged by Bertelsmann Foundation/ Cities of Tomorrow, p. 10, < http://www.cities-of-tomorrow.net/Svensson.doc>.

84 Preliminary study of the legal frameworks for public financing of NGO activities in Bulgaria, Croatia, Hungary, Romania and Slovakia, IJNL, Volume 3, Issue 4, June 2001, <http://www.icnl.org/journal/vol3iss4/prelimstudyprint.htm >.

85 Preliminary study of the legal frameworks for public financing of NGO activities in Bulgaria, Croatia, Hungary, Romania and Slovakia, IJNL, Volume 3, Issue 4, June 2001, <http://www.icnl.org/journal/vol3iss4/prelimstudyprint.htm >.

86 Arne Svensson, Redefining Public Services Through Market-oriented Mechanisms: Scandinavian Experiences & Best Practice, Professional Management AB Presentation at the International Workshop on Guarantor Government in Täby, Sweden, May 31-June 1, 2001, arranged by Bertelsmann Foundation/ Cities of Tomorrow, p. 10, < http://www.cities-of-tomorrow.net/Svensson.doc>.

87 Arne Svensson, Redefining Public Services Through Market-oriented Mechanisms: Scandinavian Experiences & Best Practice, Professional Management AB Presentation at the International Workshop on Guarantor Government in Täby, Sweden, May 31-June 1, 2001, arranged by Bertelsmann Foundation/ Cities of Tomorrow, p. 14, < http://www.cities-of-tomorrow.net/Svensson.doc>.

88 Arne Svensson, Redefining Public Services Through Market-oriented Mechanisms: Scandinavian Experiences & Best Practice, Professional Management AB Presentation at the International Workshop on Guarantor Government in Täby, Sweden, May 31-June 1, 2001, arranged by Bertelsmann Foundation/ Cities of Tomorrow, p. 17, < http://www.cities-of-tomorrow.net/Svensson.doc>.

89 See more on this in the Guidelines for Laws Affecting Civic Organizations, prepared for the Open Society Institute in cooperation with the International Center for Not-for-Profit Law (ICNL), New York, 2004, pp. 103-104.

90 Tax benefits or tax incentives are means provided by the state to ease the tax burden on the taxpayer and/or possibly to create an incentive to achieve a state goal by encouraging the taxpayer to use the funds in a certain way.

91 Fishman and Schwarz: Nonprofit Organizations: Cases and Materials, Second Edition (2000), p. 332.

92 Survey on Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 10, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

93 Survey on Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 12, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

94 Survey on Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 12, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

95 Survey on Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 10, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

96 Economic Activities of Not-for-Profit Organizations, in Regulating Civil Society, conference report, ICNL, (Budapest: May 1996), pp. 6-7, available at http://www.icnl.org.

97 Survey on Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, pp. 18-22, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

98 Survey on Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 23, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

99 Survey on Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 23, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

100 Survey on Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 23, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

101 Section 9.2: Income tax deductions or credits for donations, in OSI Guidelines for Laws Affecting Civic Organizations, ICNL, 1997, pp. 78-79.

102 Survey of Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 36, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

103 Survey of Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 35, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

104 Nilda Bullain, Percentage philanthropy and law, NIOK and ECNL, 2004, pp. 3-4, <http://www.onepercent.hu/Dokumentumok/Chapter_2_ECNL.doc>.

105 Survey of Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 37, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

106 Survey of Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 37, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

107 Nilda Bullain, Percentage philanthropy and law, NIOK and ECNL, 2004, p. 6, <http://www.onepercent.hu/Dokumentumok/Chapter_2_ECNL.doc>.

108 Nilda Bullain, Percentage philanthropy and law, NIOK and ECNL, 2004, p. 14, <http://www.onepercent.hu/Dokumentumok/Chapter_2_ECNL.doc>.

109 The Percentage Philanthropy Project, <http://www.onepercent.hu/news.htm#10bill>.

110 Survey of Tax Laws Affecting NGOs in Central and Eastern Europe, ICNL, Second edition, 2003, p. 10, <http://www.icnl.org/programs/cee/pubs/taxsurvey/TaxSurvey2nded-1.pdf>.

111 Estonia on the road to accession: challenges and opportunities for civil society, speech by Liina Carr, EU Coordinator, at the seminar on Organized Civil Society in the Candidate Countries and the Future of Europe, Brussels, January 30-31, 2003.

112 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>.

113 Prepared on the basis of underlying documents provided by the Ministry of the Environment, the Ministry of Agriculture, the Ministry of Labour and Social Affairs, the Ministry for Regional Development, and representatives of NGOs on the working bodies related to the sectoral operational programs being drafted by these Ministries.

114 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, p. 2, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>.

115 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, p. 3, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>.

116 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, p. 4, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>.

117 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, p. 7, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>.

118 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, p. 7, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>.

119 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, p. 7, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>.

120 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, p. 10, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>.

121 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, p. 10, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>.

122 Information regarding the possibility of non-state non-profit organisations’ participation in the process of integration of the Czech Republic into the European Union, p. 10, <http://wtd.vlada.cz/files/rvk/rnno/nno_a_eu.pdf>. Similar systems are in place in EU member states (e.g., Finland) and recently also in Slovakia (pursuant to a governmental resolution), www.rokovania.sk. It is worth mentioning among the specific problems the issue of a more precise definition of applicants for a grant, final beneficiaries, and target groups (in the programming documents for the Structural Funds).

123 See materials of the Conference on Building Partnerships between the Polish and the EU NGOs, April 5-6, 2001, <http://www.fip.ngo.pl/fipeng/html/partnership.html>.


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