liabilities in CEE countries

Changing the intergovernmental administration system requires transferring assets from one tier of government to other tiers or entities with or without transfers of the attached liabilities. Local governments around the world often face great challenges in taking over assets and attached liabilities, whether because of financial, environmental, or social obligations.

Transfer actions often cause disputes between respective parties on takeover. Key issues include the following: (1) Is the takeover mandatory and unconditional, or voluntary? (2) Does the receiver have the right to reject the takeover entirely, for example, because the net value of a particular asset is negative due to high debts or large obligations attached (for example, environmental cleanup) that would cost more than the market value of the asset? (3) Is there an option to take over without obligations, which requires a third party (often the treasury) to cover liabilities? And finally, (4) who should be made responsible for the uninterrupted provision of services if assets are disputed, and the receiver (municipality) does not want to take them due to unmanageable obligations (for example, heavy debt)?

Table 1.2 summarizes the key characteristics of frameworks and procedures applied in transferring assets and liabilities in selected CEE countries. The general principles were to transfer service responsibilities, assets, and attached liabilities by law on a certain date, also known as big-bang devolution. But also, some laws mandated stakeholders (municipalities and ministries) to establish committees for dispute resolution (for example, in Hungary and Poland). An appeal framework supported not only fairness in the takeover system but also

TABLE 1.2 Summary of frameworks and procedures for transferring assets and liabilities in CEE countries

COUNTRIES TRANSFER FRAMEWORK ISSUES

Hungary By virtue of law (LG Act, Transfer Act, Civil Code) or through PTCs and commissions Land ownership, vacant land, and liabilities Disputes over value of public companies and their unused land

Latvia By virtue of law or through PTCs and commissions

Land ownership, vacant land, and liabilities Disputes over value of public companies and their unused land

DISPUTE RESOLUTION COVERING OBLIGATIONS

Right of refusal to accept, mandatory negotiations Ultimate authority through PTCs, court (civil code) in co-owned properties Negotiations or court if unwillingness to accept assets Final owner of asset

National government may transfer funds to cover cost of maintenance or clear debt

Court decisions obeyed

Poland By virtue of law, the voivod (chief of region) proposes transfers and approves takeover based on devolved functions

Appeals by municipalities or private individuals

Disputes over land ownership, vacant land, and liabilities Negotiation, if failed: National Enfranchisement Commission, Supreme Court, or Civil Court

Slovak Republic By virtue of law via subdistrict or district offices of national government, municipalities, and Privatization Commission Based on devolved functions

Disputes over value of assets and liabilities of public enterprises Negotiation and bottom-up order of decision power of following entities: national committees, district and regional offices of government, and municipalities

Source: Peteri 2003. Note: CEE = Central and Eastern Europe; LG = local governments; PTCs = property transfer committees. Local governments’ obligation to take over both assets and liabilities

Treasury may pay legal and administrative costs to clear a property’s legal status or provide earmarked grants to complete ongoing construction Liabilities transferred with properties up to the amount of value of transferred property No obligation to take over overdue suppliers’ credits or overdue tax, welfare, and health insurance liabilities