dr Justyna Łukomska-Szarek

Częstochowa University of Technology

Assessment of investment activity in local self-government in Poland

Abstract: Transformations of economic system in Poland converged with an important system reform i.e. restitution of local government. The reform or local government which took place in nineties of past century established the local communities and enabled them to manage the community’s concerns. Decentralization of public government encountered several problems, civilization retardation, lack of entrepreneurship traditions, bureaucratic structures deep-rooted in previous system have not created the conditions favourable to local development. New phenomena which occur in gminas (Polish local government), limitation of resources and growing demands of local community require searching for new methods and financial instruments which influence local development. This paper considers test of investment grade in local government and shows the opportunities of initiatives and supporting the development process.

1. Local development and investment activity in local self-government

Each organization makes efforts to survive, which is conditioned by its sustainable growth and development. Economic sciences emphasize various concepts of growth and development, although they are closely connected and conditioned by each other. The growth is a quantitative category related to extension of scope of operation while development is a qualitative category connected with structural transitions within a particular organization as a result of necessity of adaptation to changes in its environment[1]. Local self-government is understood to mean initiatives taken by local self-governments and other business entities on the basis of reflections concerning valorisation of local resources with consideration of local specificity. This concept means a method of generating of development dynamics which uses all internal development potential with a different range among territorial society which are characterized by some degree of cohesion[2]. Local development can also be defined by description quoted by L. Wojtasiewicz who claims that ‘this means a process of positive transitions with quantitative and qualitative nature in terms of life quality for local society and conditions of operation for business entities with consideration of the needs, priorities and recognized systems of values of the inhabitants and entrepreneurs’. [3] Moreover, it should be emphasised that this process is supported by local and state government and often by international financial organizations. This results from its complexity since it encompasses a cycle of continuous changes within economy, politics, society and culture. It also requires proper planning, coordination and control. This enables creation of preconditions for complex and sustainable growth, which produces maximal social effects while satisfying process participants’ needs with appropriate and predictable individual results at the minimal risk of failure.[4] Driving force for development and progress in self-government sector entities are the investment projects. They extend the gminas potential (gmina is a principal unit (lowest level) of territorial division in Poland) and enable realization of tasks and implementation of innovative products and services and they optimize processes of management. Development in self-government sector is therefore not possible without pro-investment policies in local self-governments. Aware and consistent realization of the tasks in these entities is intimately connected with making decisions on realization of the planned investment, preparation and realization of investments and transferring the facilities to be used.[5] Investment choice concerns the reconversion needs and mainly development initiatives including frequently infrastructural projects. Owning large financial resources makes gminas to become a particularly interesting client in terms of goods, services and building works.[6] Investments realized by local self-governments impact life quality of inhabitants and through development of communal infrastructure they may encourage private sector investors to business initiatives within the region. On the other hand, increase in communal property leads to creation of structures which determine future forms of current operation of local self-government and communal businesses and extent of costs born on utilization of the created property. Due to this fact the self-governments should realize their investment initiatives in relation to long-term plans and on the basis of experience resulting from previous investment activity with consideration of analysis of structure and dynamics of investment expenditures, sources of financing and debt level.

2. Analysis and assessment of investment activity in local self-government in Poland

Level of investment expenditures by local self-government is on the one hand determined by financial opportunities and on the other – by the nature of the realized goals. Comparison of the level of local expenditures in Poland, including investment expenditures in 1991-2005 is presented in the Table 1. Analysis of the data contained in Table 1 indicates continuous growth in investment expenditures in gminas in 1991 – 1998 – investment expenditures grow respectively from PLN 1.16 billion in 1991 to ca. 10.66 billion in 1998. Polish self-governments, making up for underdevelopment from previous decades, since the early nineties have significantly intensified investment initiatives. Gminas’ investments in terms of communal infrastructure reached their peak value in 1997 – 1998 while since 1999 they started to drop gradually. This negative tendency also maintained in 2001 when with minimal increase in real revenue the investment expenditures dropped by more than ten percent. Another increase in investment expenditures took place in 2002 (from 5.7 billion they increased to ca. 6 billion), this tendency maintained also in next years (in 2003 – 6.17 billion, in 2004 – 7.4 billion and in 2005 – 8.2 billion).

Table 1. Local self-government expenditure in1991-2005

	Total [mln PLN]	Property expenditure [mln PLN]		Current expenditure [mln PLN]	Structure [%]
					Total	Property expenditure		Current expenditure
			Of which: investment expenditure				Of which: investment expenditure
1	2	3	4	5	6	7	8	9
1991	4479	1165,4	1157,9	3313,4	100	26,02	25,85	73,98
1992	6488	1522,1	1506,7	4965,8	100	23,46	23,22	76,54
1993	9583	2434,8	2405,7	7148,5	100	25,40	25,10	74,60
1994	14904	3363,5	3345,4	11540,4	100	22,57	22,44	77,43
1995	19828	4657,7	4614,3	15170,7	100	23,50	23,27	76,50
1996	31499	7056,3	6941,3	24442,7	100	22,40	22,03	77,60
1997	40504	9680,8	9523,9	30823,5	100	23,90	23,51	76,10
1998	47495	10937,4	10659,7	36557,7	100	23,03	22,44	76,97
1999	32.835	7256,5	7157,2	25578,5	100	22,32	21,80	77,68
2000	36210	7531,7	7453,6	28678,3	100	20,80	20,58	79,20
2001	32916	5834,8	5742,4	27081,3	100	17,73	17,44	82,27
2002	34950	6087,7	5994,8	28862,9	100	17,42	17,15	82,58
2003	36595	6251,1	6173,5	30344,2	100	17,08	16,87	82,92
2004	40941	7476,2	7391,5	33465,6	100	18,26	18,10	81,17
2005	45837	8354,9	8218,7	37482,6	100	18,20	17,90	81,80

Sources: Own calculations based on the GUS, RIO data.

Analysing a structure of expenditures in gminas in 1991-2005 on the basis of the data contained in Tab. 1 and the Chart 1 it can be assumed that ca. 70-80% of these expenditures were current expenditures. Their highest percentage in the structure of expenditures took place in 2000 – 2005 when it exceeded 80%, e.g. in 2003 the current expenditures accounted for ca. 83% of all gminas’ expenditures. The property expenditures in gminas in the investigated time period included mainly expenditures for investments.

Chart 1. Structure of local government expenditure in 1991-2005

Sources: Own calculations based on the Table1 data.

In 1999, after administrative reforms had been implemented, a significant increase in percentage of property expenditures in overall gminas’ expenditures was observed. They were caused by changes in structure of tasks performed by gminas – as a result of implementation of the reforms, bigger entities performed more current tasks than it had been before 1999. The process of property reconversions was also in progress, which resulted in privatized communal companies financed investments from non-budgetary resources. Gminas incurred most of expenditures for investments in 1997-1999 and 1999 was the first year when, since the times of reactivation of self-governments in the early nineties, investment expenditures were lower than expenditures born in previous year. Investment expenditures dropped despite significant increase in revenues; the reason for such a situation was a very rapid increase in expenditures for financing of current tasks[7]. In 1999 the percentage of investments realized by the towns decreased while the investments financed by rural gminas gained their importance. During six years of operation of local self-government on three levels of administrative division gminas realized on average ca. 50% of all investments. Their higher percentage in the structure of investment expenditures according to types of territorial self-government took place in 1999 when the gmina investments comprised 58.5% of investments realized by local self-governments in total. In 2000-2001 this percentage dropped first to 56.4%, and then to 41.7%, in 2002 it increased to 45.2%, and finally in 2003-2005 it reached again the value of ca. 50%.

Chart 2. Structure of gmina liabilities according to types of debt in 1999-2005

Sources: Own calculations based on the GUS, RIO data.

Analysis of structure of liabilities in gminas according to types of debt (Chart 2) indicates prevailing position of credits and loans which in 1999-2005 accounted for 80% of all liabilities while the highest number of such liabilities was born by gminas in 1999, 2004 and 2005. In 2005 their dynamics increased by 116% in comparison with 1999. The role of communal securities issued in order to realize gmina investments also increased as their 5% in 1999-2000 in all liabilities increased to over 10% in 2002-2005. This is also indicated by the analysis of dynamics of liability according to types of debt, since in comparison with 1999 the security issue percentage increased from 37.5% to 335.5% in 2005.

According to the abovementioned facts, a fundamental tool for debt incurred by local self-governments in order to finance communal investments are loans and debts, the role of debt securities which can be issued by these units with unlimited due date also increased. The distinct development in communal securities market in Poland was observed in the mid nineties. Since 1997 the percentage of communal securities in the structure of non-treasury debt securities was at the level of 7-8% while since 2000 it increased and in 2002-2005 it exceeded 12%. The segment of communal securities is third-biggest segment in non-treasury debt securities market. According to the information from RIO ca. 13.5% of investment expenditures are realized by gminas using foreign resources, including those obtained (or refunded) within the projects and programmes by the European Union (68.5% of these expenditures using resources from structural funds and Fundusz Spójności (Cohesion Fund), 28.3% from pre-accession funds). They included mainly investments connected with communal economy and environmental protection 38.3%, road investments 25,3% and investments connected with water supply and sewage systems 23,6%. Highest percentage of investment expenditures financed by foreign resources in investment expenditures was observed in gminas in Lubuskie Voivodeship 25.1%, Podlaskie Voivodeship 24.1%, Warmińsko-Mazurskie Voivodeship 24.0%. The lowest one in Mazowieckie Voivodeship 9.0% and Lodzkie Voivodeship 9.4%[8].

Summary

The performed analysis of investment activity shows that the local self-government in Poland has not used its full potential over last few years and the percentage of investment expenditures in expenditures in total comprised ca. 16-18%. The extent and rate of development processes in each gmina are precisely determined by the level of own revenues, owned property, opportunities to incur debts. The needs of an investment nature in the investigated time period have made gminas realize investment expenditures at the level higher than these units could allocate from obtained revenues, which impacted on the increase in their debt level, although this level if far from a statutory limits. A fundamental tool for debt incurred by local self-government in order to finance their investments were debts and loans, the role of debt securities non-treasury debt securities which can be issued by these units with unlimited due date also increased. Local self-government rarely used other, alternative financial instruments, e.g. public-private partnership, revenue bonds, communal leasing.

References:

1. Dylewski M., Filipiak B., Gorzałczyńska-Koczkodaj M.: Analiza finansowa w jednostkach samorządu terytorialnego. Municipium, Warszawa 2004.

2. Dziurbejko T.: Planowanie rozwoju gminy jako instrument pozyskiwania funduszy pomocowych Unii Europejskiej. Difin, Warszawa 2006.

3. Dziemianowicz W., Mackiewicz M., Malinowska E., Misiąg W., Tomalak M.: Wspieranie przedsiębiorczości przez samorząd terytorialny. Polska Fundacja Promocji i Rozwoju Małych i Średnich Przedsiębiorstw, Wydawnictwo PUB-Font s.c., Warszawa 2000.

4. Nowe zarządzanie publiczne w polskim samorządzie terytorialnym, A. Zalewski (ed.). Wydawnictwo Szkoły Głównej Handlowej, Warszawa 2005.

5. Parysek J.: Podstawy gospodarki lokalnej. Wydawnictwo Naukowe Uniwersytetu im. Adama Mickiewicza w Poznaniu, Poznań 2001.

6. Pietrzyk I.: Polityka regionalna Unii Europejskiej i regiony w państwach członkowskich. WN PWN, Warszawa 2006.

7. Sprawozdanie z działalności regionalnych izb obrachunkowych i wykonania budżetu przez jednostki samorządu terytorialnego w 2005 roku, Uchwała Nr 3/2006 Krajowej Rady Regionalnych Izb Obrachunkowych z dnia 12 czerwca 2006 roku. Część 2.

8. Wojciechowski E.: Zarządzanie w samorządzie terytorialnym. Difin, Warszawa 2003.

9. Wojtasiewicz L.: Czynniki rozwoju lokalnego – nowe ujęcia metodologiczne. [In:] Problematyka rozwoju lokalnego w warunkach transformacji systemowej, W. Maik (ed.). PAN KPZK, z. 177, Warszawa 1997.

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[1] Nowe zarządzanie publiczne w polskim samorządzie terytorialnym, A. Zalewski (ed.). Wydawnictwo Szkoły Głównej Handlowej, Warszawa 2005, p. 79.

[2] I. Pietrzyk: Polityka regionalna Unii Europejskiej i regiony w państwach członkowskich. WN PWN, Warszawa 2006, p. 32.

[3] L. Wojtasiewicz: Czynniki rozwoju lokalnego – nowe ujęcia metodologiczne. [In:] Problematyka rozwoju lokalnego w warunkach transformacji systemowej, W. Maik (ed.). PAN KPZK, z. 177, Warszawa 1997, p. 9.

[4] J. Parysek: Podstawy gospodarki lokalnej. Wydawnictwo Naukowe Uniwersytetu im. Adama Mickiewicza w Poznaniu, Poznań 2001, p. 123; T. Dziurbejko: Planowanie rozwoju gminy jako instrument pozyskiwania funduszy pomocowych Unii Europejskiej. Difin, Warszawa 2006, pp. 61-62.

[5] Dylewski M., Filipiak B., Gorzałczyńska-Koczkodaj M.: Analiza finansowa w jednostkach samorządu terytorialnego. Municipium, Warszawa 2004, p. 164.

[6] Wojciechowski E.: Zarządzanie w samorządzie terytorialnym. Difin, Warszawa 2003, p.46.

[7] Dziemianowicz W., Mackiewicz M., Malinowska E., Misiąg W., Tomalak M.: Wspieranie przedsiębiorczości przez samorząd terytorialny. Polska Fundacja Promocji i Rozwoju Małych i Średnich Przedsiębiorstw, Wydawnictwo PUB-Font s.c., Warszawa 2000, p. 67.

[8] Sprawozdanie z działalności regionalnych izb obrachunkowych i wykonania budżetu przez jednostki samorządu terytorialnego w 2005 roku, Uchwała Nr 3/2006 Krajowej Rady Regionalnych Izb Obrachunkowych z dnia 12 czerwca 2006 roku. Część 2, p. 189.