The International Journal
of Not-for-Profit Law

Volume 3, Issue 4, March 2001

Introduction

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

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

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

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

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

Our findings are summarized in the attached tables.

I. Existence of Intermediary Institutions

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

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

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

• In Slovakia, the position of “advisor for the third sector to the Deputy Prime Minister” was established in 1995, and in 1997 the independent position of “advisor for non-governmental organizations” was created at the Department of Intellectual and Social Development of the Office of the Government. In addition to these advisors at the national level, Slovakia has established a network of contact persons for NGOs at all regional and district offices of state administration. The network system, however, has so far failed to develop to the point where it is of much assistance to NGOs.[4]
• In Bulgaria, there is a special advisor to the President on NGO issues, and a similar advisor to Parliament. However, these positions are largely of symbolic value, and do not involve much substantive work.
• In Croatia the government has established the Office for Cooperation with NGOs, which is the central point for distributing funds to NGOs and soliciting from NGOs participation in the legislative process with respect to laws that affect them. In the year 2000 the Office funded 351 programs with approximately 20.565.740,86 HRK (app.€ 2.67 million). The funding covered a wide range of programs in the areas of environmental protection, computer science, education, culture, youth, health care, social welfare, volunteerism, care for the elderly, human rights and the development of local and self governments.[5]
• In Romania, the previous Government created an Office for Relations between the Government and NGOs charged with developing cooperation between local and central public administrations and NGOs.[6] The newly elected Government established in its place a new body — the Department for Social and Institutional Analysis – its responsibilities include, among other things, the promotion of partnerships between governments and NGOs, and the development of opportunities for government contracting with NGOs in new areas.
• In Hungary, the office that coordinates governmental activities with the third sector is the Department of Civil Relations in the Prime Minister’s Office. The office is authorized to develop the legal infrastructure and harmonize laws necessary for the development of civil society, to establish an information network to assist NGO activity, and to initiate a “Civil House” program in every county center to foster the relationship between local government and NGOs, and to organize courses and educational programs meant to ensure better compliance with laws governing NGOs.[7]

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

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

• Slovakia has a highly centralized NGO umbrella organization. Most NGOs belong to, and are represented in, the Gremium of the Third Sector. The Gremium operates as a representative body, with a board member elected to represent a specific sphere of civil society (e.g., a member for Health Care organizations, one for Education and Sports). Members are also elected to represent the various regions of Slovakia. The Gremium develops and lobbies for draft legislation affecting NGOs. The Gremium also deals with issues of third sector sustainability, including creating partnerships between the third sector and the government and business sectors, and the availability of multi-source funding of NGO activity.[8]
• In Romania, NGOs conduct annual local elections for their representatives, who then gather for the National NGO Forum. The Forum discusses issues of concern to the sector and adopts strategies for the sector’s activities for the following year. The Forum also elects the GIR – a group of approximately ten NGO leaders and experts who act as a task force in implementing the decisions of the Forum and representing the NGO sector. The GIR has a small but recognized place in Romanian society and politics. Its functions also include lobbying with legislative and executive authorities.
• Bulgaria has several NGOs that purport to be “umbrella” organizations and have indeed a membership network and engage in various activities intended to benefit their members. These include the Resource Center for NGOs, the Union of Bulgarian Foundations and Associations, the Open Society network, and others. However, no one group legitimately can claim the leadership of the entire sector
• In Hungary, the Nonprofit Information and Training Center (NIOK) serves as a national umbrella organization whose mission is to strengthen civil society. NIOK provides a variety of services aiming at building capacity of NGOs, and works to improve the legal environment for nonprofit organizations to exist and operate. However, NIOK acts more as a service center for NGOs than as a representative body.[9]
• Croatia: While Croatia does not have a national umbrella group for NGOs, the association known as the Center for Development of the Non-profit Organizations (CERANEO) began a pilot project in 1999 to create regional centers to increase cooperation between NGOs and local authorities. The project started in the city of Rijeka and since has been implemented in other regions of Croatia as well. Some of the activities of the regional centers include sponsoring workshops on proposal- writing and fundraising, developing approaches to cooperation with media, the adopting a “program of cooperation” between the City Council and NGOs, and developing social service programs.[10]

II. Public Financing of NGOs’ Activities

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

A. Forms of Government Support

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

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

• In Bulgaria, the State Budget Law allocates subsidies for certain NGOs specifically named in the law, such as the Red Cross and the Association of Invalids. However, this type of support is limited to the named organizations, and questions arise regarding the fairness of the process by which the named organizations are selected. For the year 2000, subsidies for the 19 non-governmental organizations on the list amounted to 1,812,550 BGL (app. € 1 million). In fact, almost all subsidies provided are for organizations active in the fields of healthcare and social assistance.The Local Budgets Law of Bulgaria does not provide explicitly for subsidies to NGOs; these can be included in the budget of a given municipality under the line “other expenses not prohibited by the law,” if there are available funds and the municipal council approves.
• Romanian Law #34/1998 provides for subsidies from the State budget, or from local budgets, to NGOs registered as legal persons in Romania that create and administer social assistance units (e.g., hospitals, orphanages, facilities for the elderly). These subsidies may not exceed the funds expended by State institutions on similar services. Romanian associations and foundations involved in social care activities for beneficiaries from several county districts, and having a contract with the Labor and Social Protection Ministry for these services, also may receive subsidies from the State budget.[11] The state budget for 2000 included 12.46 billion lei (app. € 661,195) to subsidize associations, and another 12.46 billion lei (app. € 661,195) for foundations.[12]Local budgets also allocate subsidies to Romanian associations and foundations involved in social care activities for beneficiaries from a single district, or from the Bucharest municipality, if they are under contract with the Local Councils to provide social care services.

• The Hungarian Parliament has a Parliamentary Commission on Civic Organizations, which receives applications from NGOs and makes recommendations to Parliament about which groups should receive subsidies to cover their operating expenses. The Parliament then votes on the recommendations and provides subsidies for those groups. NGOs must submit annual reports detailing their use of the funds before they may be funded again for the following year; the Commission is also responsible for analyzing these reports.[13]
• Slovakia: In Slovakia, Act no. 305/1995 sets out “binding guidelines for providing subsidies to civic associations, foundations and interest associations of legal persons from the state budget of the Slovak Republic through the budgets of the government bodies.”[14] The law allows institutions (for the most part ministries) that allocate funding to NGOs to set their own conditions for funding, taking into account the institution’s specific needs.[15] Each of four special state funds also has its own guidelines governing subsidies to NGOs. See infra section II.B.iii.
• Croatia: Subsidies are available from the ministries to organizations engaged in activities relevant to the ministry’s competency. For example, subsidies for associations of war veterans are distributed by the Ministry of War veterans, while subsidies to sports associations are distributed by the Ministry of Sports, etc. Subsidies are only available for groups “of special interest to the Republic of Croatia” as defined by Parliament.

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

• In Slovakia, five ministries and four state funds use grants as a means of funding projects. These activities are also governed by Act no. 303/1995. The system in Slovakia is hampered by a lack of publicity regarding the availability of funds and the requirements for obtaining grants, lack of clear criteria for grant awards, poor transparency in the selection process, and insufficient monitoring of the results of the financed programs.[17]
• In Romania, grants are also available, but there is not a strict grant-making policy, and the criteria as well as the procedures for obtaining grants are not uniform throughout the country. Romania experienced similar problems to those in Slovakia with respect to the grant making process. In some cases, the availability of funds was poorly advertised, and therefore many of the potential beneficiaries were unaware of the opportunities for funding. Ironically, although the amount of funds allotted from the state for NGOs is not very large, in some instances, not all the funds available were distributed due to the small number of applicants. Quite often there was no clear selection criteria and the distribution mechanism was considered to lack transparency.[18]
• In Croatia, all grants are handled through the Government Office for Cooperation with NGOs, or through the various ministries. In 2000, out of 667 applications for funding, the Croatian Government agreed to support with financial subsidies 351 programs totaling 20.565.740,86 HRK (app.€ 2.67 million), including 10 programs promoting computing science, 22 educational programs, 25 cultural program, 112 programs from the field of social welfare and humanitarian matters, 46 from the field of health care, 7 from the field of protection of youth, family, and children, 16 from the field of the protection of the environment and 49 programs from the field of the protection of human rights and the development of civil society.[19]
• In Bulgaria, ministries or other governmental institutions may distribute grants in order to achieve certain programmatic goals after a competition procedure. Such programs are primarily related to the country’s accession to EU, such as the Phare program. Sources of funding include not only public money but foreign funding, as well.
• In Hungary, as in Bulgaria, grant distribution is managed through individual ministries based on their programmatic needs.

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

• In Bulgaria, NGOs may not bid for procurement contracts directly, and social services are excluded from the scope of the Law on Procurement. However, NGOs may establish a separate commercial entity that is eligible to bid on procurement projects.
• Romania: Ordinance 26/2000 introduced the concept of ”public utility” organizations. In order to obtain “public utility” status, an organization must request a Government Decision acknowledging that it meets the established criteria. The ordinance gives “public utility” organizations the right to preferential access to funds available from the state and local budgets, and the right to conclude contracts with the state.[20] Article 77 of Law 69/1991 states that the Local and District Councils “may contract by their own will or sell by law, works and services of public interest, within the local and district budget limits or according to the public list…”[21] In addition to these general provisions, Government Ordinance 54/2000 permits state health care institutions to develop joint programs with NGOs.[22]
• Croatia: The Law on Public Utility Services (OG 36/95, 70/79 and 128/99) establishes a procurement mechanism at the local level for the delivery of some public services, for example, the maintenance of public grounds. A local government may assign the performance of public utility services financed from its own budget to natural and legal persons on the basis of a written agreement. The local government’s representative body defines what constitutes a “public utility” service, as well as the rules for public competitions and public tendering. NGOs may bid on such projects.
• Slovakia: Act no. 63/1999 on Public Procurement does not allow NGOs to compete in tenders for provisions of public services or other orders. However, contracts between the state administrations and NGOs may be concluded on the basis of public tenders for the supply of public benefit services. This type of procurement is covered by Act no. 213/1997 on Non-Profit Organization Providing Public-Benefit Services and Act no. 135/1992 on Provision of Social Services by Legal and Natural Persons.[23] Despite the existence of the legal framework, no contracts have been concluded. SAIA reports, “no suitable conditions have yet been created to finance such services from state resources.”[24]

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

• In Hungary “NGOs and other public benefit organizations (such as ecclesiastical legal entities) that establish and maintain social, healthcare, or educational institutions are entitled to “normative” support. Contracts entitling NGOs to normative support are often concluded at the ministerial level. NGOs that maintain and operate the aforesaid social, healthcare, or educational institutions, receive the same amount of support as a state-run facility would. The amount of this “quota per head” is determined in the annual act on the state budget. Recipients of normative support must submit a report on the use of funds by January 31 of the following year.”[25]
• A similar system exists in Croatia where schools, health care facilities and similar providers first get permission to operate from the relevant governing body and then conclude a contract with that body to provide services for citizens at no greater cost than the government subsidy to the individual for that service. The government subsidy to the individual is then paid to the NGO rather than to a state-run facility.
• In the rest of the countries covered by the survey, we have not identified uses of this form of public support.

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

• This and other types of non-financial assistance have become common in Hungarian municipalities. For example, the city of Pecs has created a “House of Civic Organizations.” In addition, under Act CXLII of 1997, if a civil society organization uses government-owned real property to operate, then it acquires the right to use this property as its owner, with certain restrictions, and after a period of fifteen years, to own the property outright. The conditions for receiving this benefit are that the organization must not have outstanding public debts, and during the 15-year period, it cannot sell the estate or establish a mortgage on it.
• In Bulgaria, a government (central or local) may allow NGOs to use certain types of property only for a 3-year period, and only under a regular lease, without accrual of any additional benefit to the NGO.[26]
• In Slovakia, NGOs may, pursuant to Section 29 (1) of the Non-Governmental Organizations Act, use a State or municipal property in accordance with special regulations. The State Property Administrator has authority to conclude leases or lending agreements with legal entities for the use of state owned property.
• In Romania, Law #69/1991, Article 78 allows Local and District Councils to assign “for free use, for definite periods of time, real estates to charity or public utility associations known to be juristic persons, having the purpose to carry out activities which meet the needs of citizens.”[27]
• In Croatia, the Law on Social Care allows a private organization to use a publicly owned building to provide social welfare services to meet the basic needs of the socially disadvantaged, the helpless, and other persons who are not able to meet those needs on their own because of unfavorable personal, economic, social, and other circumstances. These services may be performed in a building owned by a municipality or in one owned by the state under the jurisdiction of the Ministry of Labor and Social Welfare.

B. Sources of Government Support

i. Central budget

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

a. Directly from Parliament

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

• In Hungary civic organizations may apply to a Parliamentary commission for subsidies to cover their operating expenses. In 2000, financing for Public Benefit Organizations, which includes foundations, social foundations, public benefit associations, and social organizations, totaled HUF 25,186,000 (app.€ 97,393). Of that amount, HUF 1,306,000 (app. €5,050) was dedicated to public benefit associations.[28]
• The Romanian Parliament votes a specific budget line for associations and another for foundations. The state budget in 2000 includes 12.46 billion lei (app. € 661,195) for financing associations and another 12.46 billion lei (app. € 661, 195) for foundations.[29]
• In Slovakia, a budget line item allots funds for civic organizations; in 2000, the amount was 977.6 million SKK (app. € 23.5 million) or .48% of the budget. The funds are distributed through the competent ministries. However, the Parliament and the Government have been known to use some of their “reserve funds” to finance NGO activity.
• In Croatia, all government funds intended for NGOs are distributed through the Office for Cooperation with NGOs, unless a special regulation applies, e.g., the regulations allotting money for war veterans organizations or for volunteer fire brigades.
• Bulgaria singles out NGOs of particular importance, such as the Bulgarian Red Cross, for specific line items in the national budget.

b. Through the Ministries

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

• Specific NGOs may be listed explicitly in a ministry budget. For example, the Hungarian Ministry of Foreign Affairs has a line item in its budget for World Federation of Hungarians.
• In Bulgaria, the budget of each ministry is approved by the Council of Ministers. There is no specific budget line providing funding to NGOs. As mentioned above, funding through ministries is most often provided in the form of a grant from a program funded by a given ministry, and decisions about such funding are made on a case-by-case basis, not in the ministry’s annual budget.
• Ministries also designate funding for distribution to civic organizations in Slovakia, and in Croatia, where the determination of which NGOs are funded is based on a competitive process. The Romanian Ministry of Youth and Sports receives funds to distribute to organizations that are engaged in activities in the area of sports and youth.

ii. Municipal/Regional Budgets

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

• The Hungarian Law on Local Government explicitly encourages local authorities to promote civil society by providing, e.g., financial and many non-financial forms of support.
• In Bulgaria, the law provides that municipalities may allocate funds to NGOs in their annual budgets. However, the municipalities often have insufficient funds to allocate, and as a result, local NGOs cannot rely on the availability of local government funding.
• In Croatia, local governments independently determine which local activities to fund. (Law on Activities of Local Government and Administration (OG 29/00)). Most NGOs are active on the local level, and they frequently depend on receipt of funds from the budget of the local government and administration (the counties, the City of Zagreb, cities and municipalities). Distribution of these funds is subject to the same rules cited above requiring that recipient organizations be “of special interest to the Republic of Croatia.”
• Romania: Law #69/1991, Article 1 states: “The public administration in unity with administrative-territorial structures is based on the principles of local autonomy, decentralization of public services, the eligibility of local public administrative authorities, and consulting the citizens on matters of substantial local public interest.” [30] The law was intended to increase the independence of local authorities. However, despite the law, local authorities are still unable to manage independently some activities involving beneficial collaboration with NGOs for the community’s interest. Moreover, local governments often have so little money that they only partially finance most of the proposals submitted. Under these circumstances, none of the proposed projects receives sufficient funds, no matter how good or necessary the project.[31]
• In Slovakia, the Budgetary Rules Act allows subsidies and loans to be provided from a municipal budget to legal entities and natural persons (i.e., entrepreneurs) with a registered office or permanent domicile in the locality. These subsidies and loans are for specific projects or needs determined in municipal regulations.[32]

iii. Special Funds

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

• In Slovakia, there are four state-run funds: the State Cultural Fund, the Anti-Drug Fund, the State Fund for Physical Education, and the State Fund for the Environment. Each of these funds receives money from the state budget and distributes them in the form of competitive grants.
• In Hungary, there are two state-run funds: the Labor Market Fund and the Central Nuclear Financial Fund. The Labor Market Fund has been particularly active in providing funding to various NGOs in its field. There are also several public foundations. The state initially funds and writes the statutes of these foundations, although they are independently operated. The foundations distribute funds to NGOs and other groups according to their statutes with the goal of guaranteeing the continuous performance of public obligations. The foundations work in fields where the state has an obligation to provide services, and are used as a means of cooperation between the state and NGOs to ensure that the government’s obligations are met.
• Bulgaria attempted to create a special fund by authorizing the Social Assistance Fund. This fund was intended to be comprised of limited state subsidies, proceeds from licensing fees charged to organizations applying to receive support from the Fund, and donations from public and private donors. However, the state support turned out to be very insubstantial, and fees from licenses were very small due to problems with the licensing system (see II(B)(iv)(b)). Therefore, the fund has not been particularly successful as a source of financing for NGOs.
• Romania: In June 1998, the Romanian Government, under the auspices of a World Bank initiative, created a special fund to make financing available to poor and disadvantaged communities. The fund is designed to support several economic initiatives to ameliorate the economic difficulties generated by local underdevelopment, to improve or create community social services, and to initiate rural infrastructure projects. Community groups (consisting of at least 10 persons) or NGOs may apply for grants to conduct activities consistent with the Funds’ objectives.[33] In addition, in 2000, a special fund was created under the competence of the Ministry of Youth and Sports for sport and youth organizations.[34]
• We do not have information about similar special funds existing in Croatia.

iv. Other Forms

a. Privatization Revenues

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

• The Slovak Gremium is currently pushing for similar legislation in the Slovak Republic.
• No other examples for the use of privatization proceeds were found in the countries surveyed.

b. Licenses

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

• In Croatia concessions granting the right to perform public utility services are granted through the representative body of the local government unit on the basis of an open competition or public tender. This assists NGOs by providing a preference in the licensing process, allowing them to create a niche in certain service sectors.
• In Bulgaria licensing fees are used to finance the Social Assistance Fund (see II(B)(iii)). However, due to a flaw in the Law on Social Assistance (1998) the licensing scheme has not been effective. The function of the license, in this case, is not to grant permission for the NGO to engage in social services. Under the Law on Social Assistance (1998) any legal or natural person may engage in social services. The license fee must be paid only by those organizations applying for support from the Social Assistance Fund. In the first year and a half after the licensing procedure was introduced, only 30 organizations have paid the licensing fee of 10 BGL (€ 5).

c. Lottery Proceeds

• The Croatian government runs a national lottery whose proceeds are distributed annually in four parts: humanitarian aid (33.3%), sports subsidies (33.3%), technical culture subsidies (8.4%), and marketing promotion of the games (25%). The majority of distributions for humanitarian aid, sports, and technical culture are provided to NGOs that operate in those fields.
• In Romania, the redistribution of proceeds from lotteries or other games is not permitted.
• The Bulgarian National “Sport-Toto” lottery provides financial support to sports activities.

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

III. Legal Entities Eligible for Government Support

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

A. Forms

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

i. Subsidies

• In Croatia, subsidies may only be granted to organizations which are “of special interest to the Republic of Croatia,” as defined by law.[35]
• In Hungary organizations that receive subsidies must be either medium sized or national organizations.[36] Often the NGOs selected are “eminently public benefit” organizations. The Law on Public Benefit Organizations defines these as organizations that “perform[s] public duties which, by virtue of law or in accordance with the provisions of other legal regulations based on the authorization granted by law, are to be provided by a state agency or by a local government.”[37] Organizations that receive subsidies must present annual reports to Parliament detailing their activities and the use of government funds in order to receive funding for the following year.
• The new Bulgarian Law on Non-Profit Organizations establishes criteria for public benefit organizations, and declares that the state may provide financial and other forms of support to the organizations that meet these criteria. However, the law has only recently (January 1, 2001) become effective, and no laws providing such financial support have yet been enacted. Funding is still provided under the mechanism historically used — subsidies to selected NGOs.

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

iii. Procurement

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

• The Bulgarian Public Procurement Law allows only business entities to bid for procurement contracts. The new Bulgarian Law on Non-Profit Legal Entities of 2000 allows NGOs to engage in economic activities, directly or by establishing a business entity. Thus, NGOs may participate in the procurement process indirectly by establishing such business entities.
• In Slovakia, while Act no. 63/1999 on Public Procurement forbids NGOs from bidding for regular procurement projects, NGOs are permitted to bid in public tenders to be the supplier of a public benefit service or a social service (covered by Act no. 213/1997 and Act no. 135/1992). However, in actuality NGOs have not been awarded contracts in these areas (see II(A)(iii)).
• In Romania a recent ordinance (26/2000) created the concept of “public utility status.” Once an organization has applied to the government and obtained public utility status, it has a preferential right to funds from the state and local budgets, and the right to conclude contracts with the state (see II(A)(iii)).

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

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

Conclusion

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

• Both the governments and the NGO sectors in each country surveyed have made progress towards establishing bodies that can act as liaisons with the other. These intermediary institutions have proven more effective in some countries that in others. The existence of intermediaries raises a number of interesting questions, however, that deserve further consideration. On the government side, the examples examined in this survey demonstrate that the establishment of a liaison office can have a beneficial effect in promoting effective partnerships between governments and NGOs, and can be an efficient means of coordinating funding of NGO activities. On the other hand, where government liaisons lack a clear mandate, they may serve as little more than formal contacts that do not significantly advance relations between the sectors. On the NGO side, umbrella organizations can allow the NGO sector to speak with a single voice in advocating policy positions with regard to financing certain of the sector’s activities, among other things. Creating a NGO umbrella group that is truly representative of the sector can be difficult, however, and there is some danger that if governments work with and through a particular umbrella group, a significant number of NGOs that do not belong to that group will be marginalized. The conditions under which government liaison offices and umbrella groups can be used most effectively deserves further analysis.
• All countries surveyed provide some form of public financing to NGOs, although there are significant variations among the countries in the ways that financing is offered, and the amount of public resources available for NGO projects. The most common means by which government provides financing to NGOs among the five countries are grants and subsidies. Some of the governments, however, have used other mechanisms with success.

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

• Ensuring that legal rules and procedures regarding the availability of public funding are adequately publicized, so that all NGOs have the ability to take advantage of the funding opportunities available to them;
• Ensuring that both application and selection processes with respect to funding opportunities are fair and transparent;
• Ensuring sufficiently simple and harmonious application and selection rules among government financing sources so as to prevent confusion among NGOs.

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

Notes

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

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

[3] Salamon and Anheier, p. 11.

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

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

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

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

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

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

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

[11] Gueorguiu, p. 14.

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

[13] Csoka, pp. 1-2.

[14] Orgonasova, p. 5.

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

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

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

[18] Nastase, p. 2.

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

[20] Nastase, p. 3.

[21] Gueorguiu, p. 19.

[22] Nastase, p. 3.

[23] Orgonasova, p. 2.

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

[25] Csoka, p. 2.

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

[27] Gueorguiu, p. 19.

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

[29] Nastase, p. 2.

[30] Gueorguiu, p. 19.

[31] Nastase, p. 2.

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

[33] Gueorguiu,p. 20.

[34] Nastase, p. 3.

[35] Baric,p. 10.

[36] Csoka, p. 1.

[37] Act CLVI of 1997 on Public Benefit Organizations

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