population and are where financial, economic and political resources are ... of its republican history Brazil has been marked by the persistence of deep-.
Brazil's System of Local Government, Local Finance and Intergovernmental Relations*
Celina Souza
Introduction The year of 1988 marked a profound change for Brazil's political institutions. A new constitution was passed, after more than 20 years under the aegis of a military regime. Restoring democracy meant, among other things, changing the balance of power within the federal system and a commitment to improving the role of local government and financial resources, together with the empowerment of local communities. The drawing up of the 1988 Constitution was met with enthusiasm and optimism for the country's future. For 20 months Congress and Brasília were the centre of Brazilian life, a visible exercise in democracy and political participation. Among the most powerful lobbies was one led by mayors demanding financial decentralisation. The mayors' plea had many supporters among the constitutional drafters given that 54% of the drafters had been previously either a mayor, a local councillor, a governor or a state deputy, hence their close ties with local and state constituencies (Souza, 1997). The decision to decentralise was an exercise of political and constitutional engineering and there were several reasons that lay behind this decision. Firstly, there were no doubts among participants in the constitutional assembly about the decision to weaken the federal government financially. The challenge was how to divide resources across a regionally highly uneven and diverse country. Secondly, there was a consensus on rejecting whatever had been done by the military regarding centralisation of resources, thus confronting the federal executive. Paradoxically, the federal executive did not react at that moment against its financial losses. Its reaction came only in the mid-1990s. Thirdly, economic issues such as public deficit and inflation control were not on the drafter's nor the
*
This paper is part of the EngKaR Research Projet 8070: Building Municipal Capacity for Finance and Budgeting. It has been commissioned by the International Development Departme nt of the School of Public Policy, University of Birmingham (UK).
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country's agenda due to the enthusiasm at the prospect of the restoration of democracy rather than on the economic realities that would confront the new democracy. Furthermore, local governments were regarded as the main locus for the exercise of the restored democracy (Souza, 2002). However, as argued elsewhere (Souza, 1997; 2002), the 1988 Constitution did not mark the beginning of fiscal and political decentralisation and a stronger commitment to local government. Several other measures and events prior to 1988 were signals that financial decentralisation would be one of the likely outcomes of the constitution. The importance of the 1988 Constitution rests on the fact that the decision to upgrade the financial and the political role of the municipalities was not taken by the government but by constitution-makers. This paper describes the Brazilian system of local government after the 1988 Constitution. It first analyses the structure of local finance, in particular the functioning of federal-state-local relations regarding the distribution of financial resources. It then analyses new policies introduced by the federal government in the 1990s that have created incentives or constraints for local governments in the provision of basic social services. Finally, the paper discusses new policies adopted by several local governments designed to empower local communities in the decision-making process. Local government: an overview Brazil is a federal country with a presidential system in which the municipalities are not a creation of the states, as in most federations, but part of the federation together with the states. All Brazilian municipalities enjoy the same legal status. The official definition of the municipality, the município, encompasses municipal and district areas, as well as rural and urban ones, although they vary enormously in every aspect. The official definition of urban places is merely administrative, including all municipal and district seats, regardless of their size. Using these criteria, Brazil's degree of urbanisation increased from 45% in 1960 to 81% in 2000. Among Brazil's 5,560 municipalities, 26 state capitals plus the Federal District are of major importance because they account for one-third of the country's population and are where financial, economic and political resources are concentrated. While the cities and the municipalities exhibit profound differences in their occupational, social and physical structures because of heterogeneity and uneven social and economic development, there is reasonable cultural and political unification. Investment in
2
transport and telecommunications since the 1960s has contributed to a widespread diffusion of urban values as regards lifestyle and consumption patterns, as well as political standards. The rules applied to local government, including those concerning its financial resources, are written in the constitution. This means that any change requires a difficult majority in Congress. Although Brazil is still under the aegis of the 1988 Constitution, promulgated as a result of the country's return to democracy, several constitutional amendments have been passed, in particular in the late 1990s, changing some important decisions taken by the 1988 constitutional drafters. As regards local government, constitutional amendments mainly concern the imposing of limits on local governments’ freedom to spend their resources, as a requirement of the federal policy of fiscal control, and the earmarking of specific resources to be spent on social services. During the years of the military regime public resources were centralised at the federal level. The 1988 Constitution made dramatic changes to the resources available to subnational governments, in particular to the municipalities: local governments increased their share of public revenue from 18.2% to 22.8% (or 3.5% of GDP). Brazilian municipalities are relatively well-off financially in comparison with their counterparts in the developing world: in 1996, for instance, federal constitutional transfers to the municipalities amounted to around US$ 6 billion and state transfers to around US$ 8 billion. As argued by Afonso and Araujo (2000) local governments have never had the financial importance they now enjoy vis-à-vis the public sector as a whole. As far as spending is concerned, in 1998 local government accounted for 19% of civil servants' payroll nationally, 39% of government spending on consumption and for half of the gross fixed capital formation, the latter an important variable for analysing spending because it shows not only the amount spent on investments but also future spending on current consumption. On the side of revenue, between the promulgation of the 1988 Constitution and 1998, own local revenue increased by 197%, and in 1998 local own revenue represented 1.6% of GDP, a higher amount than federal constitutional transfers.1 These figures show that the municipalities as a whole have made a great effort to raise their own revenue, contradicting one of the assumptions in literature on fiscal federalism which states 1
Data from Afonso and Araujo (2000: 37-38).
3
that subnational governments tend to relinquish own revenue collection when transfers are relatively high. In large and mid-size cities these increases are explained by the modernisation of the fiscal system, by new ways of evaluating property values and by the growth of the service activity vis-à-vis a decrease in industries and sales.2 In small towns, where constitutional transfers are the main source of local revenue, the increase in the collection of own revenue can be explained by the fact that local governments have only recently started collecting taxes, not always a common practice a decade ago. Furthermore, several federal laws passed in the late 1990s, among them the Fiscal Responsibility Law, creating mechanisms that force municipalities, including small ones, to levy own revenue. However, like many developing countries Brazil suffers from deep-rooted inequality, both socially and regionally. This inequality affects local resources as well as the municipality's organisational capability to implement policies, to run the towns and to increase local democracy. Brazil's fiscal system is bound by the country's regional inequality and it is important at this point to pause to show some figures to illustrate this inequality. From the beginning of its republican history Brazil has been marked by the persistence of deeprooted regional and social inequalities among regions, within regions and among social classes. The mechanism used to overcome these regional inequalities in a federalist state, i.e., fiscal transfers from economically better-off states and municipalities to worse-off ones, although important, have failed to do so. As an illustration, it is worth mentioning that in 1997 58.6% of GDP was concentrated in the South-East and 17.7% in the South, whereas the North-East had 13.1% and the North and the Centre-West regions had 4.4% and 6.2% respectively. 3 Regional GDP per capita also bears out the country's high degree of inequality. In the same year, Brazil's GDP per capita was US$ 5,037; in the South-East it was US$ 8,843 and the North-East US$ 3,085, three times smaller than that of the SouthEast. In contrast to the 1970s and 1980s when regional economic concentration decreased slightly the 1990s saw this trend reversed. South-East GDP, which had fallen between 1970 and 1985 from 65.5% to 59.1%, reached 59.6% at the end of 1998. North-East GDP, which had increased its share from 11.7% to 13.6% between 1970 and 1985, dropped in 1998 to 2
Charging services is mostly under local jurisdiction, sales under state jurisdiction and industrial products under federal jurisdiction. 3 Officially Brazil is divided into five regions: North, North-East, Center-West, South-East and South.
4
12.6% (Serra and Afonso, 1999). Therefore, despite the efforts made by the 1988 drafters to decrease economic concentration through the distribution of resources from better-off to worse-off regions through two federal funds, one for the states and the other for the municipalities, to be later detailed, economic concentration in the South-East has increased. Empirical studies show that in the North-East over 200 municipalities have no way in which they can expand their tax bases nor pay for anything other than their payroll of public employees (Bremaeker, 1994). These municipalities lack economic activity and are bound by the extreme poverty of their population. Almost 90% of the municipalities with 10,000 or fewer inhabitants depend on transfers for 90% or more of their revenue. In contrast to this, the municipality of São Paulo collects from local service tax, ISS, alone more than what 17 states collect from ICMS, a value-add tax (Afonso and Araujo, 2000). The hypothesis that decentralisation combined with regional inequality makes the adoption of interstate equalisation programmes more difficult, although not impossible, is assumed by the fiscal federalism literature. However, mature federations such as Australia, Canada and Germany have formal equalisation programmes and attempts to overcome regional inequality through fiscal mechanisms are found in Brazil, Colombia, India, Mexico, Nigeria and Pakistan (Bird, 1993; Shah, 2000). However, as argued by Shah (2000), the mechanisms used by developing countries combine conflicting objectives and lack explicit equalisation standards. It can also be argued, at least for Brazil, that more definitive solutions to regional inequality have never been on the political agenda and that fiscal mechanisms play a role in accommodating regional inequalities without addressing solutions to them. Even in countries like Brazil where there are schemes aimed at fiscal horizontal balance, these schemes are of little effect in redressing the balance, showing their limits in countries characterised by extreme regional inequalities (Souza, 2002). In 2000 Brazil had 5,560 municipalities and of these 1,586 new municipalities were created between 1980 and 2000 (Table 1)
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Table 1 - Number of municipalities by region, 1980-2000 Region
1980
1990
2000
North North-East South South-East Centre-West Brazil Source: www.ibge.gov.br
153 1 375 719 1 410 317 3 974
298 1 509 873 1 432 379 4 491
449 1 791 1 189 1 668 463 5 560
Increase rate (%) (1980-2000) 193 30 65 18 46 40
The reason for the creation of so many new municipalities, generally small ones, was that after re-democratisation, some local elites began to stimulate separatist movements in reaction to the strict and difficult requirements to create a municipality during the military regime. Their main aim was to obtain a share of federal transfers. However, as the amount transferred is pre-determined for each state, this movement had no impact on bringing extra resources to local inhabitants. In 1996 a Constitutional Amendment was passed imposing stricter rules for the emancipation of new municipalities because the federal government evaluated that the proliferation of municipalities was damaging the federal goal of fiscal adjustment. As well as social and economic differences, demographic differences among municipalities of Brazil's five regions are also striking. Table 2 displays these differences. Table 2 - Main demographic and economic characteristics of the municipalities by region, 2000 Region
Population
No. of Municip alities 449 12 893 561 North 1 791 47 693 253 North-East 1 189 25 089 783 South 1 668 South-East 72 297 351 463 Centre-West 11 616 745 5 560 Brazil 169 590 693 Source: Calculation based on IBGE data
Area Inhabitan (Km2) ts/Area 3 869 634 1 558 196 577 213 927 284 1 612 075 8 544 402
3.3 30.6 43.4 78.0 7.2 19.8
Inhabitants/ Municipality 28 716 26 629 21 100 43 343 25 090 30 500
Area(km2)/ GDP per Municipality capita - 1999 (US$) 1 889 8 618 1 493 870 3 844 485 4 384 555 3 030 3 481 1 536 3 208
Per capita own revenue calculated by region and population size, is shown in Table 3.
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Table 3 - Municipalities' per capita own revenue collection, by region and population size, 1996 Region North
Population size Per capita own revenue (R$) 3.6 Up to 20,000 5.5 20,000 - 50,000 14.9 50,000 - 100,000 7.4 100,000 - 300,000 10.7 More than 300,000 60.3 State capitals 30.0 Total 2.4 Up to 20,000 North-East 4.1 20,000 - 50,000 7.9 50,000 - 100,000 14.6 100,000 - 300,000 30.3 More than 300,000 69.0 State capitals 21.1 Total 24.4 Up to 20,000 South-East 43.2 20,000 - 50,000 63.3 50,000 - 100,000 84.2 100,000 - 300,000 102.3 More than 300,000 242.1 State capitals 115.0 Total 21.7 Up to 20.000 South 35.0 20,000 - 50,000 44.8 50,000 - 100,000 61.2 100,000 - 300,000 77.7 More than 300,000 167.3 State capitals 58.1 Total 16.4 Up to 20.000 Centre-West 22.2 20,000 - 50,000 27.2 50,000 - 100,000 28.7 100,000 - 300,000 98.2 More than 300,000 and state capitals 40.1 Total 14.6 Up to 20.000 Brazil 22.7 20,000 - 50,000 38.3 50,000 - 100,000 60.8 100,000 - 300,000 91.0 More than 300,000 165.0 State capitals 71.0 Total Source: Ministry of Finance apud Afonso and Araujo (2000) Notes: (1) In December 1996, R$1 was equivalent to US$1. (2) In 2001, the relationship between current revenue and population for the average of Brazil's municipalities, including own revenue and transfers, was R$ 498 per head (around US$ 214).
Data presented in Tables 2 and 3 show the disparities among municipalities in Brazil whatever the indicator used. However, diversity among municipalities is not fully explained by the inequalities among Brazil's five regions; there are also enormous
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differences inside each region and within each state. These differences are seen by the distribution of municipalities according to the number of inhabitants (Table 4). This is an important indicator because it affects the financial capability of the municipality. Table 4 - Municipal population distribution by group of inhabitants according to regions, 1999 Group of Inhabitants (Per 1,000)
Brazil
Region
North North-East South-East Total 5 507 449 1 187 1 666 840 662 190 2 727 Up to 10 344 588 112 1 392 10 |-- 20 267 395 103 908 20 |-- 50 106 96 30 279 50 |-- 100 98 37 12 174 100|-- 500 11 9 2 27 500 and more Source: IBGE apud IBAM (2001) Note: After 1999 new municipalities have been created, as shown in Table 1.
South 1 159 782 243 84 30 18 2
Centre-West 446 253 105 59 17 9 3
The most striking case regarding Brazil's uneven population distribution occurs in the North-East, Brazil's poorest region. In this region, the number of small municipalities with populations of between 10,000 and 20,000 is high. This signals the financial limitations of these municipalities because a) their population is very poor, meaning that there is little room to increase revenue collection locally and b) transfers from the state government are also limited because they are calculated according to the volume of sales in the locality. I return to the constitutional transfer system later. IBAM’s calculations (2001) show that municipalities with fewer than 10,000 inhabitants and those with between 10,000 and 20,000 make up 74.8% of the total number of municipalities in Brazil and that their average of own revenue represents 7% of the resources allocated to them. Furthermore, only in municipalities of 50,000 or more inhabitants total revenue and own revenue are above the average for the entire country. These municipalities represent only 9.5% of Brazilian municipalities (Table 5). Table 5 - Average distribution of revenue among municipalities according to their population (R$ thousand) 1998 Group of Inhabitants Total Revenue Own Revenue Constitutional Other revenue (Per 1,000) Transfers Total (Average) 12 514 2 721 7 700 2 093 Up to 10 2 919 188 2 122 609 10 |-- 20 5 160 398 3 941 821 20 |-- 50 9 785 1 172 7 198 1 415 50 |-- 100 23 878 4 107 16 568 3 163 100 |-- 500 92 372 23 876 57 413 11 083 More than 500 776 176 265 967 333 587 176 619 Source: IBAM (2001) Note: In December 1998, R$ 1,00 was equivalent to US$ 1,20870.
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As
for
local
jurisdiction,
the
1988
Constitution
emphasised
common
responsibilities, or concurrent powers, between the three levels of government; therefore, a significant number of functions are left under the common responsibilities of federal, state and local levels, as shown in Table 6. Table 6 - Concurrent and local spending assignment in Brazil Level of government Spending category Health and social welfare Federal-state-local (shared) Services for disabled persons Historic, artistic and cultural preservation Protection of the environment and natural resources Culture, education and science Forests, fauna and flora protection Agriculture and food distribution Housing and sanitation Combating poverty and social marginalisation Exploitation of minerals and hydroelectricity Traffic safety Small business improvement policies Tourism and leisure Mainly local
Pre-school and primary education Preventive health care Historic and cultural preservation
Only Local
Public transport (inner-city) Land use
As is discussed later, in practice local government has become the main provider of health care and is rapidly increasing its role in primary education, under pressure from either federal legislation or financial incentives. Politically, local government has always been of great importance, the mayors, in particular, play an important role. Every municipality holds local elections for mayors and municipal councils for a four-year term. The mayor can be re-elected once. In municipalities with more than 200,000 voters a second-run election has to be held should no candidate achieve a majority. As all other legislatures in Brazil, municipal councillors are elected through the system of open-list proportional representation. The number of councillors varies from a minimum of 9 to a maximum of 55, according to population size. After the promulgation of the 1988 Constitution the municipalities became entitled to issue their own constitution, known as Organic Law (Lei Orgânica). Local party politics also show the diversity among municipalities. In October 2000 over 92 million Brazilians, out of a total of over 109 million entitled to vote, went to the
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polls to vote for mayors and city councillors. The 2000 election was the fifth election since re-democratisation, the first in which re-election was introduced and the first in which the majority of the electorate voted electronically, meaning that a) there was less chance of electoral fraud and b) the results were known on the same day of the election. The results of the 2000 election show that there was an increase in the number of municipalities governed by the Workers' Party (PT), which is situated at the left of the political spectrum. No party holds as many large cities as the PT, now governing 17 out of the 62 largest municipalities, with an electorate of over 14 million. The centrist PMDB (Party of the Brazilian Democratic Movement) continues to be the party with the highest number of municipalities, followed by the PFL (Party of the Liberal Front), a party situated to the right, and the PSDB (Party of Brazilian Social Democracy), a centre-right party and the one which has held Brazil's Presidency for the last eight years. The 2000 local elections led to a more balanced distribution of political parties governing local communities compared to previous elections in which the PFL and the PMDB used to run most cities, except large ones. The results of the elections by gender show that women are still far behind, only 6% of them became mayors. However, one woman, Marta Suplicy, is governing Brazil's richest, largest and most complex city, São Paulo. Women performed better as city councillors: they represent 13%. Assessing the role played by Brazilian local governments in increasing or constraining local democracy and looking for patterns of management and policy implementation and delivery is not easy given the diversity among Brazilian municipalities mentioned above. However, one can say that since re-democratisation three "paradigms" of local administration have been followed in Brazil, often associated with a particular political party. The first "paradigm" follows the Anglo-Saxon path, more concerned with the efficient delivery of local services, in which policy results are more important than political processes. The PFL is close to this "paradigm", and its "demonstration effect" include the cities of Curitiba and Salvador. The second "paradigm" is associated with the PT. The main concern of the local administration is to introduce participatory policies, following the ideal of local self-government, in particular in budgeting. The case of Porto Alegre is the best known and widely praised by multilateral organisations and others. The third "paradigm", still alive in large and small cities, in wealthy and in poor communities,
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can be described as anti-democratic, marked by patron-client relationships and by vested interests. Although many mayors are still elected in this style, Brazil in general is experiencing a wave of social revolt against corruption and vested interests as regards public resources. The work of several parliamentary inquiries and Public Prosecutors, in particular at national and local levels, coupled with the role of the media in following these inquiries and even disclosing corruption cases has never been greater. The local elections of 2000 were proof of the fact that that Brazilians are demanding more governmental transparency, better administered cities and increased local participation. Local finance: structure and developments Local government revenues have always been guaranteed in Brazil's constitutions; seven since it became a republic and a federation in 1891. However, no constitution prior to 1988 had provided local governments with the amount of resources they now enjoy. These resources accrue from transfers from federal and state taxes and from taxes under the sole jurisdiction of local government. Table 7 shows the structure of local tax allocation after the 1988 Constitution and after the constitutional amendments passed after 1988. Table 7 - Local taxes and constitutional transfers to the municipalities Local Tax Federal Transfer State Transfer • Service tax (ISS) • 22.5% of income tax • 25% of value-added tax (ICMS) • Urban property tax (IPTU) • 50% of rural property tax • Frontage tax • 25% of the tax on industrial • 50% of motor vehicle registration tax (IPVA) products (IPI) • Property transfers (ITBI) • 70% of the tax on financial operations on gold (IPF/gold) Note: Municipalities that are producers of minerals, petrol and natural gas are entitled to a share of a tax collected by the federal government. Municipalities can also charge a) fees for their services and b) an improvement fee whenever a local public investment raises the value of a property in a specific area.
Despite uneven results accruing from inter- and intra-regional inequality, there is a consensus that Brazil is one of the most decentralised countries in the developing world and that financial decentralisation has favoured the municipalities to a greater extent than the states. Before the 1988 Constitution, the federal government held on to 44.6% of public revenue, this then decreased to 36.5%, representing 5.7% of GDP. The states share increased from 37.2% to 40.7%, around 6.3% of GDP, and the municipalities increased from 18.2% to 22.8% (3.5% of GDP). Local governments administered around 12.5% of the country's total public revenue, considering own revenue and main constitutional
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transfers in 2001. When federal grants are added, local governments has become accountable for 15.5% of total public revenue (Table 8). Table 8 - Distribution of public revenue by level of government, 1989-2001 (%) Own revenue Federal State
Year
Distribution of Public Revenue Available tax revenue (2) Available tax revenue + grants (3) Federal State Local Federal State Local
Revenue/ Total GDP (1) 10.9 23.9 65.2 27.6 72.4 21.93 100.0 June/89 13.7 26.9 59.4 12.1 25.7 62.2 28.2 71.8 27.00 100.0 June/97 14.2 26.8 59.0 12.5 25.2 62.3 26.8 73.2 26.69 100.0 June/98 15.5 25.7 58.8 12.7 24.2 63.0 25.6 74.4 28.74 100.0 June/99 15.2 25.1 59.7 12.6 23.9 63.4 25.8 74.2 29.97 100.0 June/00 15.5 26.2 58.3 12.9 24.9 62.2 27.1 72.9 30.92 100.0 June/01 Source: http://federativo.bndes.gov.br (1) It does not include municipalities' own revenue because federal and state own revenues are accountable for 90% of total own revenue. (2) Available tax revenue = direct taxation +/- main constitutional transfers. (3) Available tax revenue + grants = available tax revenue +/- main federal grants/negotiated transfers. Federal grants to municipalities are basically for health care and education programmes.
Constitutional transfers Federal constitutional transfers from income tax (IR) and from the tax on industrial products (IPI) make up a fund called FPM - Fundo de Participação Municipal (Municipal Participation Fund). The FPM transfers 10% to state capitals, 86.4% to municipalities in the interior and 3.6% to municipalities with more than 156,216 inhabitants. The formula, therefore, benefits less populous municipalities. The scheme of federal constitutional transfers, both to states and municipalities, aims to address the issue of fiscal balance in a country marked by regional inequality. However, this scheme, while important and strengthened after 1988, is still far from addressing the financial, economic and management capacity of many local governments. Federal transfers to the municipalities represent the main source of revenue for small and medium-sized municipalities, i.e. those that shelter the very poor and those in sparsely populated areas. State transfers from ICMS, value-added tax, represent the main source of revenue for economically better off municipalities. The states transfer 25% of ICMS to the municipalities. The transfer rate is ensured by the Constitution: each municipality receives 3/4 of the ICMS collected within its boundaries and the state government is free to determine the transfer criteria for the remaining 1/4, according to what has been determined by a state law. The states adopt varying criteria to allocate the remaining 1/4. Generally,
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there is a combination of different criteria such as incentives for municipalities to increase school attendance, to adopt environmental protection policies and to provide additional resources to dormitory towns. When the 1988 Constitution was promulgated, one of the main objectives of the constitutional framers regarding the subnational fiscal system was to leave subnational levels plenty of room to determine where and how to spend the resources transferred to them. The only restriction was a fixed 25% of revenue that municipalities had to spend on education. 4 However, after 1994, when the Real Plan was launched and succeeded in controlling Brazil's hitherto unstoppable inflation and the fiscal adjustment programme had become a priority, constitutional amendments were passed earmarking part of the transferred resources for specific allocation, in particular for health care and education programmes, and imposing limits on local government's freedom to spend. In 1996 Constitutional Amendment no. 14 created a fund earmarking existing resources from federal, state and local governments to be spent on primary education. The municipalities are obliged to earmark 15% of what they receive from ICMS and FPM transfers. This obligation expires in 2007. In 2002, Constitutional Amendment 29 followed the same path, this time earmarking federal, state and local resources for health care programmes. The municipalities have to allocate 15% of their own revenue and of constitutional transfers to health care programmes. The percentage earmarked by each level of government is to be reviewed every five years. These two policies and their impact on local government will be discussed later. A Fiscal Responsibility Law and a law imposing criminal and administrative charges on public sector financial managers if they do not meet the requirements of the Fiscal Responsibility Law were passed in 2000. The latter pulls together and strengthens many existing limits on spending and adds some new ones. It imposes limits on public sector debt and expenditure on payroll and prohibits the bailing out by the federal government of new debts contracted by subnational governments. The former imposes punishment that varies from three months to four years imprisonment. 4
The Constitution, however, was unclear about local government’s role in education, although it stated that it should be the main provider, with the technical and financial backing of state and federal government. It was also unclear how the above mentioned percentage should be calculated. It was not unusual to find local government investing in higher education and applying varying criteria to calculate the above mentioned percentage.
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An evaluation of the Fiscal Responsibility Law carried out by BNDES in 2001 shows that a) 94% of local administrations conformed with the law's fixed limit on payroll spending (60% of its current revenue); b) 58% of the municipalities had a budget surplus; c) 37.5% had no debt at all; d) 61% of those that had contracted debts, the debt was less than its annual current revenue. The problem, however, lies with large cities: in 2001, Brazilian municipalities had a debt amounting to R$ 38 billion (around US$ 16 billion) and the cities of São Paulo and Rio de Janeiro accounted for 56.5% of the total amount. The same study found that 27% of local revenue went on education and 22% on health care. Local own revenue Although federal and state transfers account for a large proportion of local resources, municipalities' own revenue, accrued from their own taxes mentioned in Table 7 - service tax, urban property tax, property transfers and frontage tax – represented 1.6% of GDP, i.e., 4.8% of the country's total tax revenue or R$ 19,324 million (around US$ 8,328 million as in December 2001) in 2001. The federal government levied 67.3% of total revenue, i.e., 22.9% of GDP, and the state government 27.9% or 9.5% of GDP. 5 However, Brazilian own local revenue is considered low when compared to that of other countries. As reported by Afonso and Araujo (2000) in 1997, Brazilian local governments were accountable for 5.4% of the country's own revenue, whereas in South Africa this figure was 8.8% in 1994 and in Bolivia 10.9% in 1993. Compared to industrialised countries, the Brazilian percentage is also low: in Sweden, it was 35.2% in 1993; Denmark, 30.3% in 1994 and in the USA, 16.3% in 1993. Of local taxes, service tax (ISS) is the most important in absolute terms, accounting, in 2001, for 1.8% of the country's main taxes and for 0.6% of the country's GDP, meaning R$ 7,213 million (around US$ 3,108 million as in December 2001). Service tax is levied on businesses, self-employed professionals or groups of professionals working in the same type of service (hospitals, private doctors' clinics, lawyers, estate agents etc). Not all services are liable to ISS; there is a list of around 100 types of service which are liable to ISS payment. Federal legislation also sets a maximum rate - 10% - that can be charged for the service provided. Each municipality is free to determine the rate to be charged, varying from 0.5% to 10% of the value of the service provided and the rates have to be approved by 5
Data from http://www.federativo.bndes.gov.br.
14
each municipal legislature. However, municipalities have got involved in what has become known as a "fiscal war" regarding ISS rates, mainly municipalities bordering on state capitals. These municipalities offer lower rates than the state capital to attract businesses and professionals away from the capital. Pressure from mayors of the state capitals has led to the federal executive to propose a new law to Congress, which was passed in 2002, setting not only a maximum rate but also a minimum of 2%. The tax on urban property - IPTU - is levied on urban real estate and it is the second most important local tax nation-wide. In 2001 it represented 0.5% of Brazil's GDP and 1.4% of the country's main taxes, meaning R$ 5,619 million (around US$ 2,452 as in December 2001). Municipalities are free to adopt varying formulas and apply their own criteria when calculating the rate charged on properties. Formulas, criteria and changes in the rates have to be approved by municipal law. The main criteria used are the value of the property, its location, the size and the type of the construction and its access to services and infrastructure. IPTU is the only local tax subject to progressive taxation, meaning that it can be progressive over time and subject to increases in the tax rate, according to the area where the property is located. Until 2002, many municipalities encountered resistance from local legislature and from the courts to the introduction of progressive taxation because the 1988 Constitution was not clear about how to apply the concept of progressiveness. Although the existence of different criteria can be introduced by local legislation, councillors would generally be resistant to accept charging a property progressively, i.e., proportional to the value of the property, its use and the area where it is located, together with the possibility of rising the rate every year. As for the courts, they would normally interpret progressiveness as legal only when applied to the value of the property in the market. The Constitutional Amendment no. 29, issued in 2000, made it clear that IPTU could be progressive over time and that different rates could be applied not only according to the value of the property, but also its location and current use. IPTU is the tax that is evaded the most. A survey carried out by IBGE with information from 81.3% of Brazilian municipalities found that in 1998 only 12.6% of the municipalities had been able to collect more than 80% of the bills issued; 20% collected between 60% and 80%; 24.4% collected between 40% and 60%; 22.8% collected between 20% and 40%; and 20.2% collected less than 20%. Therefore, most municipalities collected
15
only 50% of the bills issued. Municipalities with populations of over 100,000 inhabitants are those that performed better. By region, the best performance was in the South, followed by the South-East (IBAM, 2001). The local taxation system and local taxes present several limitations. Firstly, the tax system concentrates taxation heavily on production, sales and consumption, which are not under local government jurisdiction. Secondly, local taxes - urban property, services and property transfer taxes - require large registers which have to be regularly updated and the tax collector has to keep up with the property market; these taxes require the issuing of a great number of bills for its payment; and the ISS covers a wide array of service activities, in particular of small businesses. Thirdly, local taxes are not best suited for a country that home to a great number of poor people who do not have access to property and a country in which businesses are small and unstable. These features are particularly accentuated in small and mid-size municipalities. In trying to overcome some of these limitations, the federal government has launched a US$ 450 million programme, with a loan from the IDB, at subsidised interest rates, to support the modernisation of local fiscal administration. Borrowing Subnational debt was of major importance until the mid-1990s, when several federal measures were taken to address the issue, the states being the largest debtors. The debt problem was exacerbated by the Real Plan, which is heavily based on high interest rates, although there was also a lack of fiscal discipline on the side of subnational governments, in particular state governments and large municipalities. To be able to borrow either from the internal or the external market, local and state governments have to have a) the approval of their legislature; b) submit their request to the Central Bank for analysis which then issues a technical report which is sent to the Senate, recommending the approval or the rejection of the request; c) Senate's approval, which was easily obtained even when there was a negative recommendation from the Central Bank. 6 However, in 1996 a major scandal was disclosed involving some states and municipalities because they were making improper use of a 1988 Constitution mandate which allowed subnational governments to issue bonds to pay for debts contracted before 1988. The bonds could only be issued when the courts recognised the debt as pertinent. After the courts’
16
decisions, subnational governments had to ask for the Central Bank and the Senate’s authorisation to issue the bonds. Because of the high rates of inflation until 1994, politicians had over-estimated the amount to be paid and apparently used the resources for other purposes. All the cases which went for Senate approval were passed despite negative recommendation issued by the Central Bank. Five states and seven municipalities, six in São Paulo, including its capital, were involved in these scandals. As a result of this, the Senate set up a Parliamentary Inquiry Commission to investigate these cases, given that there were suspicions of two types. Firstly, subnational governments were using resources for purposes other than the payment of judicial awards, in particular to pay their bills with the building industry, a powerful lobby in Brazil. Secondly, the bonds were issued in the market by private financial institutions, with high profits. Although the Parliamentary Inquiry failed to punish governors, mayors and officials responsible for the misuse of these resources, there was one very important effect: several new rules and laws were passed restricting subnational debts and the very Senate issued a self-binding resolution delegating some of its powers to Central Bank and opening the way for the promulgation of the Fiscal Responsibility Law in 2000. Regarding borrowing, the Fiscal Responsibility Law prohibits the bailing out of subnational debt by the federal government Other federal transfers As well as constitutional transfers there are schemes of federal transfers to subnational governments to carry out national policies such as health care and primary education. These schemes were designed and implemented in the 1990s. 7 Table 9 displays the amount transferred by the federal government to states and municipalities in 2000. It also reveals that local governments have become the main provider of health care services.
6
According to Loureiro (2001), between 1989 and 1998 the Senate approved 205 requests from municipalities, the states being the largest borrowers. 7 There are also grants sent by the federal government to specific subnational governments known as negotiated grants. These grants were of great importance in the past but currently they account for less than 10% of the total federal transfers to other levels of government. These grants are highly conditioned by political criteria (Lima, 2002).
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Table 9 - Total transfers by the federal government to states and municipalities, 2000 (R$ million) Type of transfer State Municipality 12 839 573 843 15 735 280 117 Constitutional transfers 7 251 558 677 1 729 933 548 Health care 821 099 696 2 463 300 095 Compensation for the exemption of the ICMS (1) 2 820 963 476 3 046 696 710 Primary education 2 617 740 084 Federal District and former territories (2) 1 064 887 546 1 082 528 089 Compensation for the extraction of minerals, petrol and natural gas 3 032 290 603 3 631 898 005 Other transfers 27 830 373 841 30 307 367 648 Total Sources: Lima (2002: 7) Notes (1) This transfer is known as Lei Kandir (Kandir Law) and it was introduced in 1996 to compensate state and local governments from the loss of ICMS revenue from export products exempt from payment. The law is to expire in January 2003 (2) Five former territories were upgraded to the status of a state by the 1988 Constitutional but the federal government remained responsible for some of its spending, in particular civil servants' payroll. (3) In December 2000, US$ 1,00 was equivalent to RS 1,9573.
The increasing role of spending in the hands of local governments in the provision of social services is shown in Table 10. Table 10 - Social spending by level of government (%) 1980 1985 1992 1994
1995
1996
100 60 23 16
100 59 24 17
100 57 23 19
Social Spending Federal State Local Source: Oliveira (1999)
100 66 24 11
100 62 25 13
100 57 26 16
Average 1994/1996 100 59 24 18
Although the federal government remains the largest spender 65% of its resources for social programmes are spent on pensions. Social spending by region shows that less developed regions present per capita values sometimes twice as low as those in better-off regions. However, the shared effort of the three levels of government in the North-East is improving this situation steadily: per capita social spending reaches 30% of the region's GDP, compared with 19.5% in the North, 18.1% in the South-East, 17.8% in the South and 22% in the Centre-West (Draibe, 1999). Programmes targeting poverty have also been adopted by a few municipalities. The main programme is the payment of a minimum wage (R$ 200, around US$ 55 in October 2002) to poor families, mostly on the condition that their children attend school. By early 1999 20 municipalities had adopted this programme (Lavinas, 1999).
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Federal policies towards municipal decentralisation Contrary to what many analysts argue, Brazilian decentralisation is far from comprehensive. Decentralisation is concentrated in two domains: financial resources granted by the 1988 Constitution and the implementation of a few social programmes designed at the federal level. The latter is being achieved by the earmarking of public resources for policies designed, and most of the times financed, federally. This has created a complex system of incentives and constraints designed to attempt to make local governments accountable for policy implementation. Therefore, although decentralisation was one of the main aims of the 1988 Constitution, recent developments have demonstrated its implementation fiat rather than more freedom to decide where and how to invest resources. However, these changes have been approved by Congress, some of them by constitutional amendments, which require a qualified majority of 3/5 in both Houses of Congress. Despite the existence of great disparities among Brazilian municipalities, empirical evidence shows that local governments are replacing the federal government in some social functions, while others have remained in a governmental limbo either because of the federal policy of tight fiscal control or because the way the policy was designed fails to stimulate local government adherence. The role of local government in the provision of social services As mentioned above, Brazil's intra and inter-regional inequalities act against the provision of social services by local government. Attempts to readdress the financial and managerial limitations of local government have been made by the federal government by introducing new policy designs and financial schemes aiming at the municipalisation of two areas of responsibility: health care and primary education. The reason for municipalising these two policies with federal backing is to create a national minimum standard guaranteeing local citizens access to health care and education based on national programmes and standards. The 1988 Constitution has constantly been accused of having transferred financial resources but not responsibilities to subnational governments. However, what the Brazilian experience demonstrates is that responsibility transfer, in particular regarding social services, is not only a question of having more resources to be freely allocated by local government or to constitutional mandates. Instead, the most important variable to ensure
19
responsibility transfer seems to lie with policy design. The successful cases of responsibility transfer in quantitative terms - health care and primary education - should be credited to a policy conceived as a complex system of intergovernmental relations and transfers combining incentives and sanctions. This system made it attractive (and rational) for the municipalities to agree on implementing these policies. As demonstrated by Arretche (2000), responsibility transfer depends on inductive strategies designed to delegate the implementation of a given policy to another level of government, thus getting round some obstacles posed to decentralisation. These obstacles, according to Arretche, derive from structural or institutional factors - and I would also add managerial factors. The design of health care and education policies have been considered a nation-wide success in terms of decentralisation while sanitation, housing and social welfare have failed. This failure can be explained by the high costs of transferring the policy, either because there were no resources available (sanitation), or excessive accumulated past debt (housing) or no regular scheme of resource transfers (welfare). Furthermore, there were no political or financial sanctions levied against local governments if they did not adhere to the policy as these three policies had never been under local government jurisdiction. Although the federal government have introduced some initiatives, including legislation, aiming at decentralising housing, sanitation and welfare services, these initiatives did not contemplate the injection of "new" money, as in the case of health care, or the loss of money, as in the case of primary education. Municipalising housing and sanitation programmes depended on the indebtedness capacity of states and municipalities and they have been designed in such a way as to prepare them for later privatisation. Therefore, local government had neither financial nor political incentives, nor sanctions to accept the decentralisation of these three policies coupled with the fact that these policies came with requirements which were difficult for local government to fulfil.8 For these reasons, the introduction of these policies has been considered by local governments as having high costs and few benefits. In contrast, local government has responded very positively to the municipalisation of health care and primary education. The reasons being that the former injects greater additional resources into the local purse and the latter for penalising municipalities that fail 8
The argument that the transfer of certain services is constrained by private interests finds little support in the Brazilian experience, given that hospitals run by the private sector accounted, in 2001, for 35.2% of the service provided by the state health care system (www.datasus).
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to improve school attendance rates at primary level, and, at the same time, bringing extra resources to poor municipalities and supplementing teachers' salaries in poor communities. Table 11 shows the dramatic increase in the number of municipalities that have joined the municipalisation of health care. Municipalisation started in 1991, gaining momentum throughout the decade, reaching 98.96% of municipalities in 2000. With municipalisation, resources are directly transferred from federal to local government. Calculations by Costa, Silva and Ribeiro (1999: 45) show that 66% of Brazilian municipalities received more resources with the municipalisation of the health care, while for 22% the effect of municipalisation on financial resources was neutral. Table 11 - Municipalisation of health care - 1988-2000
Number of municipalities joining municipalisation Total number of municipalities % of municipalisation Source: www.datusus
1988 -
1993 670
1996 3 127
2000 5 450
4 973 62.87
5 507 98.96
Municipalisation of health care started in 1991 through several federal administrative measures. These measures established universal rules for federal transfers, therefore decreasing uncertainty, the degree of politicisation on the use of resources and the risks involved in taking part for a municipality. 9 Only in 2000, when the system was consolidated, did the federal government propose a constitutional amendment earmarking resources from the three levels of government for health care programme. 10 Despite a reduction in federal resources for social programmes because of the fiscal adjustment policy, Table 12 shows that, resources for health care have remained relatively constant. It also shows that there is a trend among state and local governments to invest own revenue in the programme.
9
The state health care system became universal with the 1988 Constitution, although in practice it is used by only half the population; the other half have either private insurance or buy their own health service directly (Arretche, 2002). 10 Many municipal Organic Laws passed in 1990 had already earmarked a percentage of local resources for health care.
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Table 12 - Health care spending by level of government as a percentage of GDP Year
Federal
Total amount of spending (1) State Local Total
Federal
3,9 2,1 0,9 0,9 1995 3,3 1,7 0,9 0,7 1996 3,7 2,0 0,9 0,8 1997 3,7 1,9 0,9 0,8 1998 3,7 1,9 0,9 0,8 1999(3) Source: BNDES (2001) (1) Spending financed by own revenue plus federal transfer. (2) Spending financed only by own revenue (3) Preliminary values
2,3 1,8 2,2 2,1 2,1
Spending financed by own revenue (2) State Local Total 0,5 0,6 0,5 0,6 0,6
1,0 0,8 1,0 1,0 1,0
3,0 3,3 3,7 3,7 3,7
The incentives designed by the federal government towards the municipalisation of primary education followed a different path from that of health care. There is little ‘new’ money, except for municipalities in poorer states. The distribution of resources is conditioned to attendance rates at state and municipal primary schools. Resources from the three branches of government are set aside in a specific fund, FUNDEF, and when a student moves from a state to a local government school, local government automatically receives more resources because, according to the rules of the fund, resources follow the student. Local government adherence to the programme was high, although not as high as in health care. In this case adherence was a result of the threat of sanctions rather than rewards. This is because a municipality has to contribute to FUNDEF whether it provides the service or not. Furthermore, 60% of FUNDEF's resources are for teachers' salaries, therefore there was pressure from teachers' unions in favour of municipalisation, in particular from poor states and municipalities where their salaries were very low. The purpose of the fund is also to stimulate a greater municipal share in primary education thus freeing the state government to be the main provider of secondary and technical education. 11 Attendance rates in municipal primary education have increased steadily over the years, despite strong resistance to municipalisation from some state governments, as is the case in São Paulo. In the North and in the North-East, municipal governments are now the main providers of primary education and by 2000 local governments had reached 51% attendance rates in primary education, whereas in 1997 it had been 40.7% (Table 13).
11
According to the 2000 School Census, there were 129,602 schools of primary education run by local government and 33,067 run by the state government.
22
Table 13 - Attendance rates in primary education by level of government, 1997-2000 Region 1997 State
Municipal
North 63.1 36.9 North-East 42.7 57.3 Centre-West 69.4 30.6 South-East 71.4 28.6 South 57.3 42.7 Brazil 59.3 40.7 Source: Ministry of Education
1998 State
52.0 37.6 66.6 64.9 56.2 53.3
Participation (%) 1999
Municipal
48.0 62.4 33.4 35.1 43.8 46.7
State
49.6 36.0 65.2 60.9 54.9 50.7
2000
Municipal
50.4 64.0 34.8 39.1 45.1 49.3
State
45.0 34.4 62.7 59.1 54.3 48.6
Municipal
55.0 65.6 37.3 40.9 45.7 51.4
FUNDEF was created in 1996 by Constitutional Amendment 14, regulated in 1997 and enacted in 1998. As with health care, the policy was based on clear and universal principles, valid for 10 years, making the assumption of municipal control rational and less of a risk. Furthermore, unlike the health care programme, primary education is partially addressing regional redistribution of public resources. This is because there is a minimum amount to be spent on each student annually (R$ 315, meaning US$ 87.5 in October 2002) and if the state and local earmarked revenues are not enough to achieve this, the federal government pays the difference. This is the case of states and municipalities in the NorthEast and in one state in the North. One important factor behind the success of these two programmes is that both Ministers were very close to the President, both belonging to the same party administering a coalition government. Not surprisingly, the Health Minister José Serra, appointed to the Ministry in 1998, became the government's presidential candidate in the 2002 national elections, and the Minister of Education, Paulo Renato de Souza, fought within his party, the PSDB, to be the government's presidential candidate but lost. Serra, however, failed to win the 2002 presidential race, losing to the Workers' Party candidate. To sum up, the Brazilian experience demonstrates that more than constitutional mandates, regulations, business interests or management capacity are required to implement decentralised policies. The design of the policy with rewards and sanctions, universal and steadfast rules and the support of the federal executive to regularly provide resources have shown to be the most important variables in the success of transferring implementation responsibilities to local government. These results also show that municipalisation in Brazil has not necessary meant the transfer of policy decision making to local governments, but rather it has delegated responsibility for implementation, not an easy task to thousands of
23
municipalities. The Brazilian experience also shows that intergovernmental relationships have evolved through a system which is lubricated by rewards and sanctions, therefore decreasing the degree of conflict between levels of government but, on the other hand, restricting spending and decision making freedom granted to local governments by the 1988 Constitution. Empowerment of local communities Municipalisation is not limited to the transfer of policy implementation to local governments, but it has also meant a transfer in a share of decision making responsibility to local communities. The 1988 Constitution provided several mechanisms to give grassroots movements access to participation in some decisions and to oversee public matters, especially at the local level. Brazilian local governments are carrying out several experiments in participation, ranging from community councils for several social policies, to implementing Participatory Budgeting (PB). The view of local government on what participation entails varies considerably. Despite the varying interpretations and great variety of experiments, local communities have been taking part in the decision-making process at the local level, ranging from a more restricted approach to participation such as greater voice for local citizens to a broader view of participation such as empowering people as a way to change social and political inequalities. There are two different paths followed by participatory policies. One is through community councils in which representatives of local inhabitants and/or service users have a seat. The other is through what has become known as Participatory Budgeting (PB). Community councils The constitution of community councils is required either by federal legislation or by multilateral organisations when they finance or transfer resources to a given programme. The role of community councillors is to take decisions about resource allocation and mainly to control the use of resources. For each social policy area a different council is required. There are two different types of community councils, one related to policy areas and the other to defend collective or individual rights. Among the former are councils for health care, primary education, employment, welfare services, rural development, environment,
24
urban management, drugs and poverty alleviation. Among the latter are councils for the rights of children and adolescents, blacks, women, disabled people and the elderly. Evaluations on community councils have become an important area of academic research. According to several works, the existence of a council is insufficient to make the councillors perform their role as policy-makers and as controllers of resource allocation. 12 Côrtes (2002) presents a typology of community councils based on empirical evidence. The first type is made up of those that have become real decision-making arenas and in which participants have an active role. The second type is those in whose members act as brokers of different demands and interests and in which the real decision-maker is the local government. The third type is dominated by pro-reform policy communities that voice their demands but have little room to make decisions, which are taken in other forums, either the government or business interest groups. Participatory Budgeting Contrary to community councils, Participatory Budgeting (PB) is not the result of federally or multilateral organisations' induced policy, but an initiative taken by local governments. However, as much as community councils, PB is a "top-down" governmental initiative, although decided locally. PB has been praised, both nationally and internationally, as an example of "good" local governance. The number of municipalities adopting some kind of PB scheme has been quite impressive: in the period 1986/1998, there were two experiences, in 1989/1992, 12, in 1993/1996, 36, and in 2000, PB had been introduced in 140 municipalities (FNPP, 2002). Out of these experiences, 80 started in 1998, when the first PB experience after re-democratisation, in Porto Alegre, started to gain national and international visibility. Although acquiring different formats, the main objective of PB is to put members of the local community together to participate in the budget writing process and to decide on the allocation of a given amount of resources, generally destined to infrastructure in poor areas. PB was first introduced in Porto Alegre in 1989, although some experiences in PB had been carried out during the military years. It became a hallmark of the Workers' Party (PT) when governing the cities. Currently, however, PB is no longer restricted to PT: nine 12
See Tendler (2000) for a critical analysis on the role of community councils and of demand-driven projects regarding the allocation of "social funds", a programme sponsored by multilateral organisations in developing countries. Tendler analyses the programme in Brazíl's North-East.
25
other political parties have adopted PB schemes, yet PT administrations are responsible for half of the experiences. Most experiences are being adopted by municipalities with between 10,000 and 100,000 inhabitants, although four cities with more than 1 million inhabitants have also adopted PB. By region, the South-East has the highest number of PB schemes 45.6% of current experiences -, followed by the South, with 37.9% (FNPP, 2002). A nation-wide survey into PB concluded that to accomplish its objectives PB depends on several factors, such as a) the kind of political party that implements it; b) society's level of organisation, mobilisation and politicisation; c) socio-economic features and population size; d) the administration’s technical skills and management capacity; e) the government's commitment; f) the financial situation of the municipality; and g) the method adopted to establish the relationship between the government and the community (FNPP, 2002). The survey also concluded that PB is a difficult and unstable experience: in the period analysed 23 administrations gave up on PB, a higher figure than that for administrations that introduced it over the same period, i.e., nine. 13 To sum up, participatory policies have been adopted in Brazil over the last two decades, with varying results. Stimulated by federal legislation, federal programmes, multilateral organisations or by local government, participatory forums are widespread in Brazil's local communities. However, the most successful experiences and the most innovative participatory and policy practices have been implemented by one political party, the PT. The implementation of participatory and innovative policies therefore shows that party matters in the Brazilian experience, in as much as federal government matters in creating incentives for increasing the role of local government in implementing social policies, as shown in previous sections. Furthermore, as Marques and Bichir (2002) demonstrate, based on evidence from the municipality of São Paulo, mayors who belong to centre-left parties do invest more in poor areas than those who belong to traditional or right-wing parties. The Brazilian experience of local government shows that as far as local administration is concerned, not only the federal government and multilateral organisations matter, but party and ideology too. After some very unsuccessful governing experiences in the early 1980s, PT has since developed a particular way of governing the cities and has
26
invested in training its militants to govern. PT also distinguishes itself from most parties in that it governs basically for the poor, involving the poor in the decision-making process and taxing those who can afford to pay. This does not mean, of course, that all PT administrations have succeeded in providing "good" government for the poor but that the party has built up a strategy to distinguish itself from traditional and right-wing parties through participatory policies and by prioritising spending in poorer areas. The Brazilian experience also shows that local governments are trying to reconcile two rival views on the role of local government. The first view sees local government as the main locus of service provision, in particular social services. The second view sees local government as a locus to practice democracy by pursuing a more equitable balance between those who decide and those who are affected by the decisions, therefore contributing to the creation of social capital. Final remarks As shown above, Brazilian federal, political and financial systems are characterised by the existence of multiple power centres, by a complex system of political and financial dependence among governmental spheres and by varying routes for delivering policies. Since re-democratisation, Brazil has witnessed several changes in the role played by local government and local communities. Despite several changes to the role of local government, in particular vis-à-vis what was designed by the 1988 Constitution, and despite the uneven capability of local governments to deliver social services and to increase local democracy through participatory forums, there is a consensus that progress has been made towards improved local governance. This paper has shown that local government's performance is bound by problems which were not addressed by previous political regimes, for example Brazil's historical regional inequalities. It has also shown that the capacity of local government to play an increased role in implementing social policies and in empowering society is not equal and that there are hundreds of municipalities unable to survive without federal help. Although local government is becoming more involved in tackling social policies, there are no guarantees that this trend will continue without federal backing. The Brazilian experience suggests that appropriate co-ordination between the federal and the local government is a 13
PB has been the object of several published articles. For an analytical view of PB's experience in Brazil, see
27
necessary precursor for policy implementation and to upgrade local government's role. It also suggests that empowering local communities is a "top-down" initiative that presents a wide variety of results and formats. It therefore requires great caution in its adoption and still lacks firm grounds for claiming its universal benefits.
Souza (2001) and for a criticism on the limits of participatory policies in general, see Kapoor (2002).
28
References Afonso, José Roberto and Araujo, Erika (2000) "A capacidade de gastos dos municípios brasileiros: arrecadação própria e receita disponível". In Gleisi Neves et al. (eds.) Os municípios e as eleições de 2000. São Paulo: Konrad Adenauer Stiftung. Arretche, Marta (2000) Estado federativo e políticas sociais: determinantes da descentralização. São Paulo: Ed. Revan. Arretche, Marta (2002) "The politics of health care reform in Brazil". In Kaufman, R. and J. Nelson (eds.) The politics of education and health sector reforms in Latin America, forthcoming. Bird, Richard (1993) "Threading the fiscal labyrinth: some issues in fiscal decentralization", National Tax Journal 46: 211-232. BNDES - Banco Nacional de Desenvolvimento Econômico e Social - (2001) "Municípios: os bons resultados orçamentários de 2000". Informe-se 33. Bremaeker, François (1994) Mitos e verdades sobre as finanças dos municípios brasileiros. Rio de Janeiro: IBAM. Côrtes, Soraya (2002) "Viabilizando a participação em conselhos de política pública municipais: arcabouço institucional, organização do movimento popular e policy communities", paper presented at the XXV ANPOCS' Annual Conference, Caxambu, MG. Costa, N. R., Silva, P. L. B. e Ribeiro, J. M. (1999) "A descentralização do sistema de saúde no Brasil", Revista do Serviço Público 50 (3): 33-56. Draibe, Sônia (1999) "Brasil, anos 90: as políticas sociais no marco das reformas estruturais". São Paulo, unpublished. FNPP - Fórum Nacional de Participaçãao Popular - (2002) "Experiências de orçamento participativo no Brasil: período 1997-2000". Rio de Janeiro, unpublished. IBAM - Instituto Brasileiro de Administração Municipal - (2001) Evolução do quadro municipal brasileiro no período entre 1980 e 2001. Rio de Janeiro: IBAM, Série Estudos Especiais nº 20. Kapoor, Ilan (2002) "The devil's in the theory: a critical assessment of Robert Chambers' work on participatory development", Third World Quarterly 23 (1): 101-117. Lavinas, Lena (1999) "Políticas sociais descentralizadas: limites dos programas de renda mínima e bolsa-escola", paper presented at the XXII ANPOCS' Annual Conference, Caxambu, MG. Lima, Edilberto C. P. (2002) Transferências da União para estados e municípios não originárias de repartição de receitas: para que se destinam e o que determina o montante. Brasília: IPEA. Loureiro, M. Rita (2001) "Instituições, política e ajuste fiscal: o Brasil em perspectiva comparada", Revista Brasileira de Ciências Sociais 16 (47): 75-95. Marques, Eduardo and Bichir, Renata (2002) "Clivagens ideológicas e empresa privada nos investimentos públicos urbanos - São Paulo 1978/1998", Revista Brasileira de Ciências Sociais 17 (48): 19-31. Oliveira, Fabrício de (1999) Evolução, determinantes e dinâmica do gasto social no Brasil: 1980/1996. Brasília: IPEA. Serra, José and Afonso, José R. (1999) "Federalismo fiscal à brasileira: algumas reflexões", Revista do BNDES 6: 12: 15:25. Shah, Anwar (2000) "Fostering responsive and accountable governance: lessons from decentralization experience", http://www.federativo.bndes.gov.br 29
Souza, Celina (1997) Constitutional engineering in Brazil: the politics of federalism and decentralization. Houndmills and London: Macmillan; New York: St. Martin's Press. Souza, Celina (2001) "Participatory budgeting in Brazilian cities: limits and possibilities in building democratic institutions", Environment&Urbanization 13 (2): 159-184. Souza, Celina (2002) "Brazil: the prospects of a center-constraining federation in a fragmented polity", Publius: The Journal of Federalism 32 (2): 23-48. Tendler, Judith (2000) “Why are social funds so popular?” In Yusuf, S. Wu, W., and Everett, S. (eds.) Local dynamics in the era of globalization. Oxford: Oxford University Press for the World Bank.
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