The International Journal
of Not-for-Profit Law

Volume 3, Issue 1, September 2000

By István Csóka

This report was made possible through support provided by the ENI/DGSR/CS, ENI, U.S. Agency for International Development, under the terms of Grant No. EE-A-00-98-00015-00. The opinions expressed herein are those of the author and do not necessarily reflect the views of the U.S. Agency for International Development.

Introduction

The Government manifests different roles in its relationship to the civil sector. It not only regulates and controls NGOs, but also supports and subsidizes them. Consequently, the relationship between the Government and the civil sector is rather complex and complicated.

This study does not undertake to present all facets of this relationship. Instead, it focuses on the financial and contractual relationships of the public and civil sectors. It consists of two parts. The first part examines the relationship between the central government and the civil sector, while the second part reviews this relationship at the local level.

1 Relationship Between the (Central) Government and the Civil Sector

1.1 Financial Governmental Support for the Civil Sector

Following the change of the political regime in 1989-90, not only the amount, but also the types of state support for the civil sector have changed radically. From 1990 through 1997 the total amount of state support increased from 5 billion HUF to 50 billion HUF. (See the income sources of the Hungarian civil sector in Appendix) Previously, the dominant form of support was general budgetary support granted for operational costs. In the 90’s, the support of different programs, and, in the field of education and social services, “normative”[1] budgetary support have also become widespread. In addition, more governmental institutions – and from 1997 the taxpayers themselves – have become involved in deciding on the “destinations” of public support.

The Government may provide financial support for the civil sector through the following main channels[2]:

1. support for operations from the public (state) budget,
2. “normative” support from the public (state) budget,
3. support from the Ministries and from Public Funds,
4. public foundations, and
5. 1% of personal income tax liability as designated by
   taxpayers.

1.1.1 Budgetary Support for Operational Costs

Each year the act on the state budget determines an amount that is granted to certain civil society and charitable organizations in order to cover operational costs. While the act determines the amount, the Parliament in a resolution – made on the basis of a proposal from the Parliamentary Committee of Civil Society Organizations – also decides on the distribution of this money between the medium-size and national organizations applying for this kind of support.

In addition to the distribution, the same Parliamentary Resolution also specifies the means of payment and use for this support. [3] Thus, civil society organizations receive this budgetary support from the State Treasury in one or two parts depending on the amount of the support. (If the amount does not exceed a certain amount – e.g. 500.000 HUF in 1999 – the entire amount is paid in one lump sum; otherwise, it is paid in two installments.) Civil society organizations may use this amount only for covering the costs of their non-profit activities. They are not allowed to transfer the money to another organization, except to a legal person who is a member of the organization and already in existence at the time of applying for the budgetary support.

The civil society organizations receiving this support must make a detailed written report and accounting to the Committee of Civil Society Organizations on the use of the support. The report and the accounting must be filed following the termination of the activity, or together with the application for this kind of budgetary support in the following year. If an organization does not wish to apply for budgetary support again, the deadline for submitting these documents is March 1 of the following year.

1.1.2 “Normative” Budgetary Support

Ecclesiastical legal entities, civil society organizations, foundations, public foundations, public benefit companies etc. establishing and maintaining social, healthcare, or educational (either in public, or in higher education) institutions on contractual basis are entitled to “normative” support. Though most social and educational services are provided by local and not national non-profit organizations, contracts entitling non-profit organizations to “normative” support are often concluded at the ministerial level. The “normative” support is granted based upon the number of sick persons whom are cared for, or the number of students who are studying in that particular institution. NGOs that maintain and operate the aforesaid social, healthcare, or educational institutions, receive the same amount of “normative” governmental support as given to similar governmental institutions. The amount of this “quota per head” is determined in the annual act on the state budget. In general, the provision of “normative” support itself also takes place on a contractual basis.

The budgetary act also determines the basic rules relating to granting support and reporting. For instance, in the field of public education NGOs may apply for “normative” budgetary support at the administrative offices having competence according to their registered office. (Administrative offices operate in the capital and in every county. They are regional/territorial organs of the Government.) The support is granted monthly. NGOs must submit a report on the use of the support to the administrative office by January 31 of the next year. The administrative office may supervise the legality of claiming and using this support on the spot. If the amount of “normative” support exceeds 30 million HUF in a budgetary year, the report must be “supported” by a statement from an independent auditor.

The conditions for establishing an institution undertaking social, healthcare, or educational duties, and the general rules on operation are regulated in the “sectoral” laws, such as in Act LXXIX of 1993 on Public Education, Act LXXX on Higher Education, or Act III of 1993 on Social Administration and Social Services

1.1.3 Support via Ministries and Public Funds

There are several possibilities for NGOs to receive financial support from the budgets of different Ministries. As is the case with NGOs receiving support from the Parliamentary budget, the largest (most prominent) NGOs (foundations, public foundations, civil society organizations) receive support for their operational costs from Ministries. They appear “by name” in the annual budget of the competent Ministry according to their field of activity, and receive a determined amount of public support. Thus, for instance, support for the World Association of Hungarians belongs to the budget of the Ministry of Foreign Affairs, and support for the Hungarian Red Cross belongs to the budget of the Health Ministry.

NGOs may receive budgetary support from separate public funds, and also from special budgetary appropriations and basic programs operating under the “wings” of the competent Ministers. Most of these basic programs and appropriations were previously public funds. They operate in this altered form only after 1998. [4] These “creations” operate mostly on similar principles, and support from them may be obtained in similar ways.

While the operation of separate public funds require separate financing within the state budget, such funds finance certain governmental (public) tasks partly from external (non-budgetary) sources. [5] Funds may be established only by an Act. The Act on establishment must determine the tasks and income sources of the fund, the type of expenses that may be funded the reform, and the Minister empowered with the right of disposal over the fund. An important condition of establishing a fund is that the performance of public tasks must be partly financed from extra budgetary sources, such as tax-like payments, contributions, or fines. [6] Currently, only two separate public funds remain: the Labor Market Fund [7] and the Central Nuclear Financial Fund. Taking the Labor Market Fund as an example, its tasks include the provision of services for the unemployed, support for the improvement of vocational training, and promoting the employment of persons who have undergone vocational rehabilitation. Among others, the income of the Fund consists of contributions of employers and employees, the contribution for rehabilitation and also annual support from the state budget. The Minister of Social and Family Affairs has the right of disposal over the Fund. He shares this power partly with a body composed of the representatives of the Government, the employers and employees, and also with the Minister on Education. The Fund has centralized and decentralized parts. The decentralized part may be used by the county (or the metropolitan) labor centers. The centralized part may be used for instance, for supporting centralized programs and research promoting employment, training, market labor integration, and employment rehabilitation, or for supporting public foundations that have the objective of employment and training, or employment rehabilitation. The decentralized part may be used for supporting public benefit organizations having as an objective defined in their founding documents the promotion of employment of persons permanently unemployed, or who have undergone vocational rehabilitation, or young unemployed persons starting out on their careers. Support from the decentralized part of the Fund may be obtained on the basis of a competition. It is provided on the basis of an agreement concluded by the labor center.

Similarly to receiving support from separate public funds, NGOs may receive budgetary support within the framework of a basic program, or an appropriation of a Ministry. An example of such a basic program is the National Cultural Basic Program, and of an appropriation, the Environmental Fund Appropriation. In both cases the competent minister – the Minister of National Cultural Heritage and the Minister of Environment – disposes of the funds necessary in order to accomplish the goals. The sources of income of the basic program are, for example, the cultural contribution (e.g. paid by the manufacturers of musical instruments, or the publishers of books), copyright fines, voluntary payments and other income. Similarly, the income sources of the aforesaid appropriation are the following: environmental fines, international aid, voluntary payments and budgetary and other support etc.

The management of the cited basic program belongs to the competence of a separate organ, the Board of Directors. The Minister may decide on the use of a maximum 50 % of the Program’s funds. The rest of the fund is distributed through competitions (applications). These competitions are announced and judged by professional boards. Half of the members of these professional boards are “invited” by the Minister; the other half are “appointed” by the competent civil society organizations. The state’s will always prevails, because the Minister’s consent (or that of his appointed “substitute”) is necessary to the boards’ decisions. In case consent is not given, a committee in which the Ministry’s representatives are a majority decides. Support may be obtained from the Program primarily through public competitions.

In case of the appropriation, the minister makes the decision to grant support. A committee – composed of representatives from different ministries and from environmental NGOs – can make only proposals. Some of the support is not reimbursable; another type is partly or wholly reimbursable. The management organ of the National Cultural Basic Program or the Minister of Environment (or his or her appointed substitute) concludes a contract with the winner of the competition and provides the support on contractual basis. The supported objectives for the basic program may be the following: the creation and preservation of national and universal cultural values and their domestic and foreign dissemination; cultural anniversaries and festivals; the national cultural participation on world exhibitions and international fairs etc. In the case of the appropriation, support is given for the realization of projects aimed at environmental protection (e.g. the prevention of air pollution, recycling of waste materials), the management of Hungarian national parks, programs serving the prevention of environmental damages, etc.

1.1.4 Public Foundations

An amendment to the Civil Code [8] – effective from January 1, 1994 – has created a hybrid form of organization, which belongs financially to the state and legally to the non-profit sector. The reason for introducing this form of organization standing on the borderline between the public and the civil sector was that the previous regulation allowed for the channeling of public money through foundations to the private sector. In addition to the objective of impeding abuses, the legislature also intended to create an organizational form in order to settle the transition of public duties from the state to the civil sector. “ These organizations provide institutional opportunities for an effective relationship – based on a mutual dependence on each other – between the governmental and the private sectors, while establishing a coherent system with the traditional organizations of civil society. Thereby, they contribute to the demolition of governmental forms of the non-profit institutional system and the greater undertaking of civil society in a way that may provide better opportunities for performing public duties on a higher level despite the decreasing state financial resources.”[9]

A public foundation is a special form of foundation which may be established only by the Parliament, the Government, or the representative body of local governments in order to ensure the continuous provision of public duties. [10] (Other persons and entities may only join an already existing public foundation if it is not excluded by law, and may be co-founders, indirectly.) In the case of public foundations, the public duty is a governmental or local governmental duty prescribed by law as such. (For instance, the Public Foundation of Hungarian Artists grants support in order to create works of a high standard in the field of Hungarian literature, fine arts, applied arts etc. and also assists in their domestic and foreign dissemination.) Public foundations are not required to perform public duties by themselves, but rather to organize the fulfillment of public services, to ensure the continuity of the service, to conclude the necessary contracts, or to arrange financing. (The tasks of the aforementioned public foundation, for instance, are the following: the operation and management of artist-houses, collective ateliers, the organization of exhibitions and sales, the advance payment for works, granting scholarships and awards, announcing artistic competitions, etc.) Public foundations do not take the place of the government, or local governments; they ensure the provision of public duties in their own names, but for the interest of the government, or local governments. The Parliament, the Government and the representative body of local governments are not entitled to establish foundations other than public foundations. In comparison with “normal” foundations, the Civil Code prescribes certain special rules concerning the establishment and management of public foundations (e.g. the publishing of the founding document in the official journal, or the supervision of the management by the Audit Office).

Public foundations receive annual budgetary support. Depending on the field of activity, each Ministry supports its “own” public foundation (established by the Government) operating in that particular field from its budget. For instance, the Public Foundation of Hungarian Artists appears in the budget of the Ministry of National Cultural Heritage. By their aforesaid characteristics, public foundations are capable of transforming public money legally to the civil sector and playing a re-distributing role among not-for-profit organizations.

1.1.5 1% of the Personal Income Tax Paid

Beginning in 1997, Hungarian taxpayers may designate 1 % of their personal income tax paid to a chosen not-for-profit organization and, beginning in 1998, an additional 1 % to a church [11] in accordance with Act CXXVI of 1996 on the Use of a Specified Portion of Personal Income Tax According to the Designation of the Taxpayer (hereinafter: 1 % Act).[12]

Though the 1 % is connected to the tax system, it is a peculiar type of indirect state support, rather than a tax benefit. Its ”source” is the tax revenue of the public budget, but its distribution is based on the taxpayers’ decisions, and not on a central (governmental) decision.

With regard only to the “secular” half of designations, the mechanism of the 1 % system is the following. Individual taxpayers may make their designation statements on a special form provided by the Office for Taxation and Financial Control, or a copy of this form. The only data taxpayers must indicate on the form in every case is the tax number of the beneficiary organization. Then taxpayers must put the completed forms into a standard size envelope, seal it and write their name, address and tax identification code on the envelope. They must place this envelope in their tax return package. In the event that the personal income tax is reported by the employer instead of in an individual tax return, the individual must give this envelope with the designation statement to the employer no later than March 25th. Through September 1st tax authorities instruct beneficiary organizations to certify that they do not have public debts due and they comply with other prescribed requirements of the 1 % Act (e.g. they modified their founding documents in order to prove that they are not engaged in prohibited political activity; they continuously pursue a public benefit activity). Beneficiary organizations may have public debts due, but then they must specify the order of paying these debts from the designation. Organizations have 30 days to submit these certificates. This deadline is strict, and if neglected, results in the loss of the designated funds. The Office for Taxation and Financial Control transfers the funds to the beneficiary civil organizations within 30 days after filing the required statements and certifications, but through October 31st at latest. Beneficiaries must publish a press release on the proper (targeted) use of the designated funds through October 31st of the next year. Tax authorities are entitled to control whether the designated funds transferred are used in accordance with public purpose activities.

The 1 % Act was criticized in different ways. The constitutionality of the Act itself, and some of its provisions was also challenged at the Constitutional Court.[13] The applicants alleged that on the basis of the Hungarian Constitution, only the Hungarian electors or the Parliament are entitled to decide on the use of taxes, and not a group of taxpayers. The Court maintained constitutionality stating that the Parliament in an Act may authorize individual taxpayers to participate in the financial management of the state (with a public benefit purpose).[14]

The constitutionality of that provision of the Act which grants the right to designate only to those taxpayers whose tax paid is over 10.000 HUF was also questioned. According to the applicants this regulation discriminates against taxpayers with low income. The Court said that the government has the right to take the existing differences between human beings into consideration when passing a law. The Constitution prohibits only discrimination (or restrictions) which violates a fundamental right, in particular human dignity, and which does not have any reasonable justification, and is thus arbitrary. In case of the 1 % Act, the justification for introducing a lower limit is that the cost of transfer to the beneficiary organizations would be disproportionately high in comparison with the amount of the designation.

The Constitutional Court also maintained the constitutionality of that provision of the Act which requires a minimum three-year registration and one-year public benefit operation in the case of foundations and civil society organizations in order to be eligible for designations. According to the Court, the government may set certain suitable requirements in order to determine the group of beneficiaries. When the state makes it possible for taxpayers to support not-for-profit organizations from their taxes paid, “it must act with special care.” Thus, the requirements of existence and effective operation prescribed by the Act are not unconstitutional.

The Constitutional Court decided in favor of the applicants only in one respect. The 1 % Act did not make it possible for taxpayers to ascertain whether their designation reached the beneficiary in practice. According to the Court, because the 1 % Act does not provide differently, the general rules of administrative procedure[15] apply. Thus, tax authorities must pass a resolution on designation, and taxpayers have the right to remedy against this resolution. Soon after this decision of the Constitutional Court, the Parliament amended § 7 of the Act. Now, if tax authorities do not notify taxpayers (or call for a supplement to the statements) before October 31st, their designation is regarded performed. If a designation is invalid because of the beneficiary (e.g. the beneficiary organization has not certified the amendment of the founding document in order to exclude prohibited political activity, or that it has no public debts due), tax authorities notify the tax payer in an informal letter (not with a formal resolution) without stating the reason of invalidity.[16]

Some participants of the non-profit sector criticize other aspects of the 1 % Act. According to them, the length of time between the preparation of designation statements and the destination of designations to the beneficiary organizations is too long – around six months in practice – and consequently should be reduced. Critics also suggest that the amount of invalid designations which do not reach the addressee for various reasons (e.g. incorrect tax numbers, or for instance, if the beneficiary has not operated for three years) should not be left in the state budget, but rather should be used for supporting the sector, either by increasing the amount which is actually distributed by the Civil Society Organization’s Committee of the Parliament, or by establishing an independent Civil Fund for the support of the operational costs of NGOs. Moreover, some suggest the state should renounce the 1 %, even if the taxpayer did not designate it. In this latter case, the non-designated 1 % sum may be distributed (reallocated) by local governments.

In 1997 the income of the Hungarian non-profit sector coming from the 1 % designations was 1,770 million HUF. This amount is only 0.6 percent of the total income of the sector and 3.5 percent of the total support the sector receives from the state budget. However, the significance of designations does not lie in the amount of income originating from them. More importantly, the beneficiary organizations receive state support through a decision-making mechanism, which is completely different from the traditional distribution procedures of public support, and completely independent of government authorities. Contrary to the “traditionally distributed” state support, 1 % designations are available to larger number of organizations. The introduction of the 1 % system almost doubled the number of organizations which receive support from the central budget. Public support became available also for those not-for-profit organizations which are far from the decision-making centers.

The 1 % system not only increased the number of beneficiary organizations, but also changed the composition of organizations receiving central budgetary resources. While organizations operating in the field of education, or performing health care and social services receive only half of the budgetary support traditionally distributed, they receive 75 % of the income coming from the 1 % designations. Statistical data also show that small local not-for-profit organizations are more successful in persuading citizens to support them than in raising other state support. They receive 16 % of the income coming from designations. While 95 % of the direct central government support goes to the largest not-for-profit organizations, they receive only one third of the 1 % designations. Similarly, the regional distribution of the 1 % income is somewhat more even than the other public support. Budapest, the capital, receives almost 75% of all budgetary support, and “only” 41 % of the 1 % income. More than half of the 1 % income is received by not-for-profit organizations operating in towns. Although the “share” of villages “in the 1 % cake” is very low, still they gain almost three times more funding from the 1 % designations than from central budgetary supports.

Thus, the conclusion that flows from the statistical data is that “the system of government funding has become slightly more equitable and significantly more democratic by the introduction of the 1 % scheme.”[17] In addition, the 1 % system makes the communication between the society and the non-profit sector more intensive. On the one hand, it draws the attention of taxpayers to not-for-profit organizations. On the other hand, it confronts NGOs with their own social support and reputation.

1.2 Civil Participation in the Public Decision-Making Process

Since the change of the political regime in 1990, a plan to introduce a bicameral Parliamentary system came up several times. According to this conception, the “members” of the second chamber would be the representatives of interest groups, churches or NGOs etc. Today, with a possible reduction of the number of representatives in the limelight, the introduction of a second camera does not appear very realistic.

The current regulation in force provides civil society organizations the right to express their opinions on legislative proposals that are going to be submitted to the Government.[18] In the case of ministerial decrees, the regulation requires the proposals be sent to civil society organizations concerned.[19] According to the current practice, each Ministry has a list of the larger and well-known civic organizations in the fields of their activity. Each Ministry sends the legislative proposals only to those organizations that are on the list. However, in urgent cases this part of the legislative process may be omitted. Because most of the ministerial decrees are urgent, civil society organizations often cannot use this right to express their opinions. Even in cases where their opinions are expressed, there is no guarantee they will be taken into consideration.

Recently, two representatives initiated a reform of this legislative process.[20] According to their proposal, the organs proposing legislation would be required to officially publicize the commencement of the work. Those national civil society organizations that are registered and interested in the subject matter of the legislation may express their opinions in writing within a certain period of time determined in the publication (not less than 15 days). The one proposing the legislation would have an obligation to provide the proposal and an explanatory memorandum on request to these organizations. This proposal to amend the rules regulating the legislative process had an ephemeral life: the competent parliamentary committee did not put it on its agenda; thus the Parliament declined to deal with it at all.

1.3 Government As a Coordinator

The Prime Minister’s Office, operating as the highest-level organization coordinating governmental activities, has a section dealing with not-for-profit organizations. After other institutional attempts a separate department is operating in the Prime Minister’s Office as of September 1998 – the Department of Civil Relations, which targets communication and cooperation with the civil sector. The most important tasks of this Department are the following:

• the development of an infrastructure necessary for the operation of the civil society and the harmonization of laws;
• the establishment and operation of an information network assisting the activity of not-for-profit organizations and the improvement of internet relations;
• the initiation of a “Civil House” program in every county center in order to support the relationship between local not-for-profit organizations and local governments;
• the organization of courses and educational programs targeting a better observation of operational rules relating to not-for-profit organizations;
•   undertaking research on the evolutionary processes of civil society and using the results in public administration.

2 Relationship Between Local Governments and Non-profit Organizations

Act LXV of 1990 on Local Governments contains only a general declaration that within the range of their public tasks, local governments assist the activity of “self-organizing communities” of the local population, and co-operate with them. [21] In practice, many of the same forms of cooperation were developed, but on a smaller scale than in the central government-not-for-profit relationship. With respect to the much closer contacts at the local level, relations are more “individual” and vivid

2. 1.  Financial Relationship Between Local Governments and Not-for-profit Organizations

2.1.1 Local Budgetary Suport

Similar to the budgetary support granted by the central government for operational costs in the annual budgetary act, local governments may designate a certain amount in their budgetary decrees every year to support local NGOs.

Local governments may support the local not-for-profit sector through a separate fund established for this purpose (for example in Csorna or Dombóvár). In this case they usually involve representatives from local NGOs in the distribution of the support.

Some other cities in the Western region of Hungary earmarked a part of their income from local taxes for local not-for-profit organizations.

2.1.2 Local “Normative” Support

If local NGOs undertake local public tasks on contractual basis in the social, healthcare or educational field, they can apply for “normative” support from local governments.

It is rather unfortunate that although the number is slowly increasing, only 11 % of local governments have contracted with not-for-profit organizations in order to provide public services,[22] in spite of the fact that this form of co-operation could guarantee secure, long-term co-operation for both parties. Local governments seem to be more generous in giving financial subsidies and more reluctant to enter into contracts. (In comparison, two-thirds of the municipalities were ready to provide ad hoc support for not-for-profit organizations.)

Without a (written) contract, not-for-profit organizations often find themselves in an uncertain situation, because in this case co-operation with local governments is founded on personal contacts. Thus, when an exchange of personnel occurs at local governments (for instance after a local election), the previous prospering relationship may suddenly end.

2.1.3 Public Foundations

According to the Act on Local Governments, the representative body of local governments may establish local institutions and other organizations (hereinafter together: institutions) in order to fulfill public services within the range of their activities, and may appoint the directors of these institutions.[23] In addition, the representative bodies of two or more local governments may agree on the collective maintenance and management of a local institution (not-for-profit organization), with or without establishing a joint decision-making body.[24] Local governments may perform both their mandatory and their voluntarily undertaken tasks through these institutions. Most of these institutions are budgetary organs. However, representative bodies may also establish certain forms of for-profit or not-for-profit organizations, such as public foundations. The power to establish an institution belongs to the “untransferable” competence of representative bodies (with the exception of a transfer of power to an association of local governments possessing legal personality.) The resolution on founding (or terminating) a local institution requires a decision by a qualified majority of local representatives.[25] The tasks and competence of local governments related to the direction and management of these institutions are regulated by separate “sectoral” Acts (already mentioned) depending on the field of activity.

Between 1990 and 1996, one-third of local governments founded alone or as a co-founder a public foundation (before 1994, a foundation). The objective of establishing these organizations is to solve local problems either directly or indirectly. In most cases, the established organizations only collect donations for local schools, libraries, museums, theatres, hospitals or the police. However, some of them directly provide social, or educational services, or organize cultural programs, exhibitions, festivals and summer camps. Yet others come forward with programs to protect the environment, to create more employment, or to improve the local municipality.

2.1.4 Not-for-Profit Support to Local Governments

Although in most of the cases local governments support not-for-profit organizations, this relation may be reversed. Monetary support given directly to local governments is relatively rare. Local public institutions more often rely on financial or in-kind support of associations and foundations, or the voluntary work of their members.

2.2 Non-Financial Local Governmental Support

In some cases local governments try to improve the conditions of operation of the local not-for-profit community as a whole without picking one or two organizations. For instance, they may provide buildings free of charge in order to create so-called “not-for-profit centers” (e.g. the House of Civil Communities in Pécs, or the House of Civil Organizations of the County of Bács-Kiskun in Kecskemét). The local government of Tatabánya has created a public data base on local not-for-profit organizations in order to improve the conditions of cooperation between them. Some municipalities (or the districts of Budapest) publish free newspapers or newsletters with reports on the activities of not-for-profit organizations in their territory. Usually in smaller cities or villages (e.g. Tiszaújváros), local governments provide legal and professional “aid” at the time of establishing a local non-profit organization for solving local problems. There are many other forms of non-financial support in practice, and the list of examples cited here is not exhaustive.

2.3 Participation of Civil Organizations in the Local Decision-Making Process

The Act on Local Government imposes on the representative body of local governments the duty to determine in their organizational and operational by-laws those not-for-profit organizations that will be given consultative status in the field of their activities and will participate in the meetings of the representative body and its committees.[26] The representative bodies may even invite representatives of local communities or organizations without this status to their meetings. With ad hoc authorization of the representative body, these organizations may also participate in the discussion of certain items on the agenda.

The Act also makes it the duty of representative bodies to determine in their organizational and operational by-laws those forums in which to involve local population and local civil society organizations in the preparation of decisions of high importance and also their direct information.[27]

By the second half of the 90s, nearly 20 % of local governments made it possible for local civil society organizations to participate in the decision making process. This participation takes the following forms:

1. The representatives of local NGOs are members of the permanent or ad hoc committees of the representative bodies.
2. In some municipalities the representatives of not-for-profit organizations participate as experts in the preparatory work of public decisions in the field of their activity.
3. More and more local government employ a civil rapporteur, counselor, or at least appoint an employee to be in charge of communicating with the local not-for-profit sector.
4. Many municipalities provide civil forums and roundtable discussions in an ad hoc or institutionalized form.

2.4 Local Governments as Members

Local governments not only as supporters, but also as members have relationships with the not-for-profit sector: 61 % of Hungarian municipalities are members of an association or union. Some of these organizations provide a forum for exchanging information and experience. Others perform interest representational activity by trying to influence Parliamentarian, or governmental decisions. Yet others attempt to solve regional problems, such as crime, pollution of the environment, or unemployment.

Summary

In comparison with other Western countries, the total public support for the Hungarian not-for-profit sector (including “normative” and other central and local budgetary support, plus the support from Ministries and funds) is substantially lower.[28] NGOs must obtain more income from private donations and from economic activities. The centralized system of state subsidies has changed radically in the 90’s: the decision-makers have multiplied and have gotten closer to the organizations in many cases. In addition, more forms of support have developed. Today, a small local NGO probably has better chances when applying for public support than ten years ago.

The relationship between local governments and the not-for-profit sector is considered to be at least as favorable as the relationship between the central government and the civil sector. Additionally, contacts on a local level may be closer, more frequent and intensive. Because both parties may feel dependent on each other, that dependency can increase their coexistence and cooperation. Local governments may use the information coming from not-for-profit organizations to provide benefits to those who are in real need. The provision of services by not-for-profit organizations may also increase the level of those services. In contrast to the often lavish and bureaucratic local governmental system, not-for-profit institutions may provide the same services in a cheaper way and more quickly. not-for-profit organizations seem to be more creative and innovative than their local governmental counterparts, and they know much better the expectations of the “clients”. not-for-profit organizations may perform a mediating role, making for a more fruitful relationship between citizens and the local government.

Appendix

	Amount of income	Division of income
Income sources of the  not-for-profit sector	(million HUF)	(%)
	1997	1997
“Normative” budgetary support	8435.7	3.0
Non-normative budgetary support	25667.8	9.0
1% of the personal income tax	1770.1	0.6
Support from public funds	14153.5	5.0
“Normative” support from local governments	472.3	0.2
Non-normative support from local gov.	12829.9	4.5
Total public (state) support	63329.3	22.3
Donations from corporations	19680.2	6.9
Donations from private individuals	6568.8	2.3
Foreign donations	16299.5	5.7
Donations from not-for-profit organizations	9393.8	3.3
Total donations	51942.3	18.2
Membership fees from private individuals	8238.6	2.9
Membership fees from legal persons	13808.3	4.9
Dues from basic activities	64091.0	22.5
Sales from basic activities	9352.2	3.3
Total income from basic activity	95490.1	33.6
Interest income	12717.1	4.5
Yield from financial investments	10326.8	3.6
Income from economic activities	46878.2	16.5
Total business income	69922.1	24.6
Extensions of credit	2099.3	0.7
Other income	1579.1	0.6
TOTAL INCOME	284362.2	100.0

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Egymás jobb megértése felé
Tanulmányok az állam, az önkormányzatok és a nonprofit szervezetek viszonyáról Magyarországon
A civil Társadalom Fejlődéséért Alapítvány, Budapest, 1997

Együttműködési lehetőségek civil szervezetek és a helyi önkormányzatok között
Kézikönyv civil szervezetek és önkormányzatok számára hálózat a Demokráciáért Program Democracy Network Hungary (USAID-UWI) 1999

Nonprofit szervezetek Magyarországon 1997 [NON-PROFIT ORGANIZATIONS IN HUNGARY 1997] Központi Statisztikai Hivatal, Budapest, 1999

1 % „Forintszavazatok” civil szervezetekre, Tanulmányok [1 % „FORINT VOTES” FOR CIVIL SOCIETY ORGANIZATIONS, Studies] Nonprofit  Kutatócsoport, Budapest, 2000

Act IV of 1959 on the Civil Code of the Republic of Hungary

Act CXXI of 1995 on the Budget 1996 of the Republic of Hungary

Act CXXIV of 1996 on the Budget 1997 of the Republic of Hungary

Act CXLVI of 1997 on the Budget 1998 of the Republic of Hungary

Act XC of 1998 on the Budget 1999 of the Republic of Hungary

Explanatory Report to Act XCII of 1993 on the Amendment of Certain Provisions of the Civil Code

Resolution of Parliament 34/1998. (March, 18) on the Distribution of Budgetary Support of Civil Society Organizations

Resolution of Parliament 40/1999. (May, 7) on the Distribution of Budgetary Support of Civil Society Organizations

Act LXV of 1990 on Local Governments

Act CXXVI of 1996 on the Use of a Specified Portion of Personal Income Tax According To the Designation of the Taxpayer

Decision 10/1998 (IV. 8.) of the Constitutional Court

Act XXIII of 1993 on the National Cultural Basic Program

Act XXXVIII of 1992 on the State Budget

Act IV of 1991 on the Promotion of Employment and the Provision of Services for Unemployed

Act XI of 1987 on Legislation

Notes

[1] This term refers to budgetary support given on a per capita basis to organizations maintaining institutions such as hospitals, schools etc.

[2] This paper deals only with direct means of public support, and not with indirect support, such as tax benefits.

[3] See for example 40/1999. (V. 2.) Parliamentary Resolution

[4] See § 66 and 128 of Act XC of 1998; effective from January 1, 1999

[5] § 4 of Act XXXVIII of 1992 on the State Budget

[6] § 54 of Act XXXVIII of 1992 on the State Budget

[7] Established by Act IV of 1991

[8] Act XCII of 1993

[9] Explanatory report to Act XCII of 1993

[10] § 74/G of the Civil Code contains the rules pertaining to public foundations

[11] Instead of churches “atheist taxpayers” may designate “their second 1 %” to a special budgetary objective defined in the Budgetary Act annually. For instance, in 2000, the budgetary objective is the support of programs related to canal-building and reconstructing and dam-building serving the purpose of prevention of flood damages. In 1999, this objective was the support of programs related to the celebration of the Hungarian state’s 1000-year existence; in 1998 the objective was the support of families, children and youth in social need.

[12] The designation of “the second 1 %” to churches has become possible after the amendment of the 1 % Act by Act CXXIX of 1997.

[13] Decision No. 10 of 1998 (IV. 8.) of the Constitutional Court

[14] Only one judge of the Constitutional Court held in his separate opinion that the 1 % Act as a whole is unconstitutional. According to Tamás Lábady, the tax paid is public money: it is public and not private property. On the basis of the Constitution, citizens possessing voting rights (constituent citizens) are entitled to decide on the use of public property. They transfer this power (as a budgetary power) to the Parliament. The Parliament cannot delegate this transferred power to a group of persons determined arbitrarily.

[15] Act IV of 1957

[16] § 7 par. (2) – (3) of the 1 % Act, as amended by Act LXII of 1998

[17] 1 %, “Forint votes” for civil society organizations, Studies p. 179

[18] § 27 of Act XI of 1987 on Legislation

[19] § 29 of Act XI of 1987 on Legislation

[20] T/1266 (1999, May)

[21] § 8 par. 5

[22] This data is from 1996. (Kuti, Hívjuk talán nonprofitnak… [LET’S CALL IT NONPROFIT…] p. 139)

[23] § 9 par. 4 of Act LXV of 1990

[24] § 7-9 of Act CXXXV of 1997 on Associations and Cooperation of Local Governments

[25] § 15 par. 1 and § 103 par. 1.c, of Act LXV of 1990

[26] § 8 par. 5

[27] § 18 par. 2

[28] Data is from Kuti, Hívjuk talán nonprofitnak… [LET’S CALL IT NONPROFIT…] p. 139