Fiscal balance in Pará ("Equilíbrio Fiscal dos Municípios do Pará")

The initiative

Comunitas, a Brazilian civil society organisation, initiated the fiscal balance programme in the Brazilian State of Pará (North of Brazil), the second biggest state of Brazil in size to help achieve the goal of fiscal balance for the country's municipalities. The initiative started in August 2017 and is ongoing. The State government of Pará took on the role as a coordinator for the strengthening of the fiscal adjustment of its municipalities. The project was implemented under the scope of the Programme for sustainable municipalities (Programa Municípios Sustentáveis) which in turn is led by the Secretaria Extraordinária dos Municípios Sustentáveis (SEMSU). Comunitas in their work focused on two areas: the municipalities' compliance with obligations to the federal government and the organisation of the city's registrational records which are necessary for them to receive resources from the union.

Aiming at municipalities' sustainable finances, the programme led by Comunitas in partnership with the state government focused on fiscal adjustments while respecting different realities in each municipality. The State of Pará identified the main reasons why its municipalities are in debt and hence reliant on state and federal transfers. Once this analysis was done, municipal capacity was built through the optimisation of processes on two fronts:

• Resolve municipalities' debt through CAUC, on urgent cases first
• Monitor a municipality's revenue and expenses closely

To implement better results and to mitigates risks arising from the sheer geographic size of the state (see Feasibility section), the municipalities were divided into regional poles where specific project contents and attendants were defined and workshops with public servants and fiscal analyses took place.

The municipalities chose whom they wanted to send to attend these learning events; usually the respective Secretary of Finances and the Secretary of Administration attended (see Management section of this case study).

Implementation of the programme was then carried out in a mix of knowledge transfer between municipalities and the application of better management practices while the respective employees of each municipality were empowered so that the municipality is enabled to maintain its financial sustainability autonomously.

The challenge

Fiscal balance is a major challenge for Brazilian municipalities: 93% of the municipalities in Pará were experiencing a fiscal deficit and were unable to comply with the minimum requirements of the Brazilian Fiscal Responsibility Law. Up until today municipalities depend widely on transfers from the federal government. In Pará, out of 144 municipalities in the state 134 had debts and hence were unable to receive voluntary transfers from the federal government. The Firjan Fiscal Management Index of 2017 showed that 83% of municipalities are not able to generate at least 20% of their budget through tax collection, and only 1.6% of municipalities respect their payrolls through properly collected funds such as tax collections. In 2017, data from the National Treasury Secretariat showed that in 81.98% of municipalities throughout Brazil, federal and state transfers accounted for more than 75% of total budget. In the state Pará, dependency rates on federal and state funds varied between 25% and 50%. This great dependency is aggravated by the fact that with a country the size of Brazil, with 4600 municipalities, it is common to experience irregularities in the proper allocation of funds.

The public impact

In the course of implementation, 12 workshops were held, more than 50 follow-up visits were conducted and more than 300 municipal servers were trained. Of all 144 municipalities in Pará, the number of open debt cases at the CAUC was reduced significantly from 704 (August 2017) to 479 (March 2018).

The results achieved in the first months after implementation pointed towards the right direction: The intervention so far had led to a 32% increase in municipal compliance under the CAUC (the federal registration of compliance by federal entities); a R$ 15 million (approx. 3 mio £) reduction in the expenses of the municipalities; and more than 300 state and municipal public servants trained in the two project areas.

Within six months, the project achieved important results. From 65 participating municipalities, a reduction of debt of 32% was observed in January 2018. In numerical terms, data analysis demonstrated a total sum of R$ 15.875.416 (roughly 2.9 mio. £) as potential gains for the participating municipalities. This amount, for example, equals investments into the bituminisation of 195kms of public roads, the acquisition of 390 ambulances and the construction of 130 primary schools.

Castanhal, for example, a city that was in debt with 110% of its household, benefited greatly from the project, and was able to capture more than R$ 70 mio. (roughly 12,7 mio. £) for important infrastructure investments, such as the construction of hydraulic pumps that provide access to drinking water. The Castanhal Secretary of Finance, Karlan Caldeira explains the process: “We received the report with 29 pending payments to the CAUC. We fully resolved 28 cases through administrative management, which was basically organising accounts, paying priority debts that needed to be paid, prioritizing this also in the allocation of resources and pay in instalments those debts that could be paid in instalments.  For the mayor, the next step is now to increase own revenues and reduce the city's dependence on mandatory state transfers.”

Stakeholder engagement

Main stakeholders for the project come from three spheres: the Pará State, Comunitas and the municipalities. Stakeholders on state level include the state government of Pará, supported by the newly created Extraordinary Secretary for Sustainable Municipalities (Secretaria Extraordinária dos Municipíos Sustentáveis, SEMSU), and the Pará School of Governance (EGPA). A coordinating agent was also involved to align the Secretary, Comunitas and EGPA.

SEMSU was the main driver behind defining a strategy to put municipalities throughout the state into dialogue about the integrated planning, governance and technical assistance of the public finance project - and was therefore very supportive of the project

Comunitas initiated the programme and was aiming at initiating private investments into the social and economic development of Brazil as a country. With many diverse actors in society, Comunitas fosters joint, sustainable actions, in each municipality with a technical partner on the ground, usually in the form of a consulting firm. To enhance the dissemination of public management knowledge, Comunitas published parts of their insights from Pará and created the digital learning platform „Rede Juntos“ to enable knowledge transfer between public servants of Brazilian municipalities. [1]

The municipalities, as the main target of the project, had the responsibilities of sending two technicians, i.e. a project leader and a deployment coordinator to the workshops and in addition, had to provide the necessary data for the fiscal analyses, Comunitas carried out together with a consulting firm. The municipalities widely supported the programme, because they were struggling financially before and applying for financing was a bureaucratic process: Funds from the State and/or Federal government were never assigned to the municipalities directly according to local needs, but had to be applied for through parliament orders which were often delayed.

Political commitment

The state government showed commitment to the Programme and its aims through taking on the role as a coordinator for the strengthening of the fiscal adjustment of its municipalities. The project was also implemented under the scope of the Programme for sustainable municipalities (Programa Municípios Sustentáveis) which in turn is led by the Secretaria Extraordinária dos Municípios Sustentáveis (SEMSU).

Political commitment on a more local level however varied among municipalities. Some municipalities were able (or willing) to dedicate more resources to the initiative than others. Depending on the human resources available within each municipality, different levels of political commitment were achieved. “We only had two choices: Either, we settled for continuing federal transfers or we took steps forward, by doing our homework, and getting our municipality off the CAUC by looking for other sources of resources” [2].  Alexandre Lunelli, Mayor in Brasil Novo, decided to send both a project leader and a deployment coordinator to the workshops and learning events held by Comunitas.

Public confidence

Public confidence behind the initiative is difficult to assess. In interviews Comunitas conducted, many public servants they spoke with found it difficult to change their practices because “it has always been that way.” [1] According to Comunitas, in many cases it was necessary to confront these old belief systems and political agreements between different interest groups to enable change. To alleviate these prejudices, Comunitas strengthened the training of civil servants entrusted with the administration of the municipalities' fiscal matters across different government departments.

There is some indication of enhanced public engagement through the establishment of regional poles where actions took place. In total, the initiative reached over 24 million citizens in 11 cities. To respond to citizens' questions about the initiative and CAUC in particular, Comunitas developed a virtual assistant called Iara which responds to any queries within an hour.

Additionally, in 2018, workshops with the public were held across the state to inform the general public about the outcomes of the programme so far.

However, given the programme was concerned with increasing the state's ability to effectively tax citizens, it is likely that there may have been public push back but no further evidence could be found.

Clarity of objectives

Comunitas’ intervention for fiscal balance was created in a five-step approach. The initiative’s objectives were stated in the first phase of general brainstorming for the municipalities’ joint strategy. The main aim was to build institutional capacity to improve fiscal management in the municipalities across Pará, as Comunitas stated in their official presentation of the programme [Comunitas internal document].  The Municipalities work together with the so-called Auxiliary Information Service for Voluntary Transfers (Serviço Auxiliar de Informações para Transferências Voluntárias, CAUC). The system gathers information from the States, the Federal government and the municipalities throughout Brazil on the fulfilment of fiscal requirements necessary for the transfer of federal resources. [2] This system is aimed at strengthening the ties between the federal government and the municipalities by mapping and aligning their agendas regarding their budgets. The intervention’s ultimate goal was to revert the municipalities’ reliance on CAUC funds. This objective was the starting point for the initiative because municipalities were forced to reflect the root causes for their failure to balance their budgets.

Strength of evidence

Knowledge used to measure and improve fiscal performance was systematised by Comunitas’ team of experts based on reports and interviews with the stakeholders involved. The Fiscal Balance programme was based on experience and knowledge Comunitas gathered during the programme „Juntos“, a five-year-long public management programme which was successfully implemented in 15 different cities across Brazil. The learnings and the „Juntos“ governance model that includes many channels for information and knowledge exchange was then adopted to Para’s needs.[Comunitas internal document] For example, the governance model was expanded by so-called learning loops, which evaluated the insights gained from „Juntos“ and gave feedback to the implementing municipalities. [1]

Feasibility

Potential risks for the proper implementation were the size of the Pará State, the possibility of conflicting political interests in a scenario with many different municipalities and the lack of internet access across Pará. There was also a scarcity of skilled people with proper management skills and who were able to use the digital spreadsheet tools necessary for public management optimisation.

To make the approach more feasible in terms of resources, Comunitas decided to divide the municipalities into four regional poles, which strengthened the availability and engagement of the public servants who participated in the workshops that were held by CAUC and the State government. “We are talking about a giant state, where the logistics and movements of technicians are not easy. For example, moving technicians from Terra Santa to the State's capital Belém can be a two or three day undertaking“, says Izabela Jatene, Secretary of the Sustainable Municipality's Programme. The Pará State government assigned each of the regional pole a state consultant for technical implementation and knowledge transfer on fiscal issues, who was trained by the ESGP while respecting local particularities. These technicians played an important role in encouraging mayors and public servants to an effective participation in the programme.

For the rest of the implementation, civil servants were not transferred from their original departments, but rather worked in an alternating schedule: On Wednesdays they worked for the Fiscal Balance project full time while the other days of the week they continued to perform the usual tasks given by their original department.[Comunitas internal document]

Even though the consultants and the technical capacity building that came with them was critical for the implementation of better fiscal management in the municipality, it posed a human resource constraint for the municipalities: It became clear after the implementation started that eight hours per week were not sufficient to fully develop the project. [Comunitas internal document] An additional problem arose from the fact that in some municipalities no civil servants with relevant management skills were employed. These municipalities could hardly improve their fiscal balance since inexperienced newly assigned managers did not exhibit sufficient leadership skills nor autonomy in order to propose improvements or implement changes. [Comunitas internal document]

This low availability of human resources lead to delays and increased charges (costs) for their direct managers.

In terms of funding for the programme, this was fully funded by Private Social Investments.

Additionally however despite attempting to overcome many of the feasibility challenges in the programme design, a major concern for Comunitas was not knowing the exact institutional capacity of each municipality before the implementation. This information was not easily available and rather hard to obtain since available surveys were not accurate and varied from municipality to municipality.

Management

There were a strong level of management mechanisms put into place to ensure the programme delivered on its objectives.

Decision rights were assigned. The recurring learning events on state-level organised by the SEMSU were attended by high-ranking secretaries from the respective municipalities so that progress could be ensured throughout the process of optimising public financial management. „One of the major factors for the programme's success was that the participating public servants were assigned decision-making authority to push the project forward within their local teams“, says Karlan Caldeira, Secretary of Finance in Castanhal, a small municipality in Pará near Belém. Comunitas also then played the role of disseminator of the materials produced in the workshops with public servants and experts between municipalities while their content was also published online and in print to support managers and technicians to provide answers to recurring questions about CAUC.

Besides the municipal technicians and Comunitas consultants, experts in public management trained at the Pará School of Governance were also consulted. They held two-day-workshops where each municipality had to present their fiscal data and accounts which were then used for analysing and monitoring. Ultimately, a diagnostic report with monitoring parameters was created for each individual municipality. After these workshops, they had the task of elaborating possible action plans to pay off the debt at the CAUC. Strategies developed included the familiarisation with the various fiscal documents, records and reports produced by each municipality.

Some of the public servants on state and municipal level were dedicated full-time to the fiscal balance programme (and hence, left their previous departments) and those will thus be able to keep on transferring knowledge even after the initiative has ended.

Central actors in managing the initiative are the project leader and the deployment coordinator. Each municipality has both. The project leader should ensure the involvement of managers, technicians and teams, carry out planning in an assertive manner, ensuring knowledge of the technical part and the work methodology, as well as monitor and evaluate the project steps in the municipality minimizing the risks of delay. The deployment coordinator then should support the project leader in all his actions and promote the availability of data for analysis among municipalities to inform the approach over time.

Measurement

Comunitas's project team which jointly analysed and systemised fiscal data during workshops with servants from each municipality also had the task of monitoring the implementation of certain actions. Together, they defined parameters which the municipalities had to monitor, and where appropriate, suggested new actions on a monthly basis where meetings will be held. Once per week the project team at Comunitas checks back with the municipality via telephone to control implementation. Parameters to measure the effect of the policy were defined according to each individual municipality and then put into a state wide system to ensure the municipality's commitment to working towards the aim of balancing the budget.

Comunitas also evaluated the possible earnings and the return on investment of certain expenses and implemented feedback loops to inform the approach over time.

Alignment

The project model developed by Comunitas, together with the State government depended greatly on the technicians and consultants each municipality assigned for the improvement of fiscal management. Comunitas recognised that sustainable fiscal management in the affected municipalities could only be achieved with efficient internal management and clearly divided responsibilities. To ensure all actors required for the successful fiscal management are collaborating effectively, an online tool was created to map and monitor progress. In some cases, alignment between the State government and the consultants sent by the municipalities was hindered because not all the public servants believed in the project equally. This was due to the fact that some departments, especially in smaller municipalities, did not have the capacity to send someone off to learn about more efficient fiscal management [1]. This difficulty in human resources was later alleviated by each municipality clarifying and defining clear roles of specific public servants. Some municipalities even managed to shape a governance structure specifically for the project's execution with responsibilities and allocations defined as in a traditional project management office.

Additionally, the handing-out of awards for best practices across Pará further incentivised and motivated the mayor's efforts to work towards fiscal balance.

Bibliography

[1] https://wiki.redejuntos.org.br/system/files/2018-07/municipios-em-rede.pdf

[2] http://www.fazenda.gov.br/noticias/2017/junho/tesouro-nacional-lanca-nova-versao-do-cauc

Comunitas internal documents were also consulted as part of this research