SLOVENIA

The Republic of Slovenia is a parliamentary republic, with a president as head of state, and a Prime Minister as head of government. The president is elected for a maximum of two five-year terms by direct elections. The country declared its independence from Yugoslavia in 1991, and the present constitution was adopted on 23 December 1991. Slovenia has a bicameral parliament which comprises the National Assembly (Državni zbor), composed of 90 deputies with legislative and electoral powers, and the National Council (Državni svet), composed of 40 members who represent social, economic, professional and local interests.

The country has a unitary system with a single-tier of subnational government, composed of municipalities and urban municipalities. The local self-government principle is enshrined in the 1991 Political Constitution (Art. 9 and Art. 138 to 144). In 1993, the Local Self-Government Act was adopted providing a new territorial organisation, based on self-governing municipalities, accompanied by the Local Elections Act and Financing of Municipalities Act.

Each municipality has a mayor and a municipal council, normally elected by proportional representation for a four-year mandate. The size of municipal council varies between 7 and 45 members, depending on the population size of the municipality. Each municipality has also a supervisory committee, which is responsible for supervising the management of municipal property, the use of budgetary funds and financial operations.

In September 2016, the government adopted the “Development Strategy for Local Self-Government in the Republic of Slovenia until 2020”, which aimed to strengthen local government and improve the quality of life of citizens through increased efficiency and enhanced citizen engagement at the local level. The strategy addressed the issues of regionalisation and inter-municipal cooperation. In 2019, the National Council of Slovenia supported an initiative to establish regions as a second tier of subnational governments in the country. A special working group formulated legislative proposals in this aim, which are being considered by the National Assembly.

Slovenia’s local self-government system has been monitored three times by the Congress of Local and Regional Authorities of the Council of Europe to assess its compliance with the principles of the European Charter of Local Self-Government.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
212 municipalities (Občine), including 12 urban municipalities (Mestne občine)
Average municipal size: 9 906 inhabitants
212			212

OVERALL DESCRIPTION: Slovenia has a single tier of local government consisting of 212 municipalities (Občine). Among municipalities, 12 municipalities have the special status of urban municipality (Mestne občine) in 2021.

According to article 16 of the the Local Self-Government Act, urban municipalities must have at least 20 000 inhabitants and 15 000 jobs, and be characterised as the economic, cultural and administrative centres of a wider area. They have a number of special features, such as vocational and secondary schools, a hospital, a local radio and television, local press, etc. The amendment of the Law on the establishment of municipalities and on the designation of their areas (ZUODNO-I) created the new urban municipality of Krško in 2021. Its municipal council is composed of 30 members. The urban municipality has around 26 200 inhbaitants and is the largest municipality of its region in terms of geographic size and population. Overall, the 12 urban municipalities account for around 36% of the total population.

MUNICIPAL LEVEL: While the municipal average size is close to the OECD and EU 27 averages (10 250 inhabitants in the OECD and 9 560 in the EU27), more than half of Slovenian municipalities had fewer than 5 000 inhabitants (51.4%) and 12.7% of municipalities had less than 2 000 inhabitants. According to the Capital City of the Republic of Slovenia Act, the urban municipality of Ljubljana has special status with specificities regarding its public finances and has 17 sub-municipal units (neighbourhoods) with neighbourhood councils as the main bodies. The city accounted for 294 500 inhabitants, or 14.0% of the population, in 2021.

In contrast to the pattern observed in many OECD countries, the number of municipalities in Slovenia has increased progressively from 147 in 1994 to 212 in 2015 and has remained stable since. In June 2010, an amendment to the Local Self-Government Act limited the fragmentation of municipalities by setting a threshold of 5 000 inhabitants for new municipalities.

Slovenia also has a structured sub-municipal level, where municipalities can establish village, local or neighbourhood communities. They can have elected councils and specific responsibilities and funding delegated by the municipality.

HORIZONTAL COOPERATION: In 2005 and 2018, amendments to the Financing of Municipalities Act provided financial incentives for voluntary joint municipal administration (internal audit, spatial planning, inspection, etc.), through reimbursing from 30% to 55% of the joint management bodies’ staff costs (if at least three municipalities join). The contribution from the central government amounted from EUR 0.5 million in 2005 to EUR 6 million in 2019. As a result, the number of joint bodies grew from five in 2005 to 51 in 2019 (concerning 202 municipalities over 212 in 2019). Legislation entered into force in 2018, with a transitional period until 2020, based on the “progression principle”, which implies that more duties at the subnational level shall be accompanied by a higher share of government co-financing.

Regionalisation reforms have been discussed for a long time as the Constitution provides for the establishment of self-governing regions by law (Art. 143). Several attempts and bills were prepared throughout the 1990s and 2000s. In particular, a draft bill creating 13 regions was rejected by referendum in 2008; however, voter turnout was low (10.9%). In 2009, the Prime Minister appointed a “Strategic Council for Regionalisation and Decentralisation”. In response to the council’s proposals, a new bill creating six regions was prepared but the project was abandoned in 2011 due to disagreements about the number, size, competences and financing of the regions. Since 2019, there is a new initiative of regionalisation in the country. Legislative proposals are being considered by the National Assembly (see above).

STATE TERRITORIAL ADMINISTRATION: The country is also divided into 58 administrative districts representing the state at the territorial level in charge of supervising municipalities.

The 1993 Local Self-Government Act, which has been amended more than 30 times, sets out municipal responsibilities. Municipalities can have three types of tasks: issues of local importance; delegated competences to municipalities by the central government via laws; and tasks delegated by the central government, carried out by municipalities under state supervision and financed by state resources (Art. 140). Urban municipalities have mainly competences in the fields of urban development, urban transport and housing.

The Capital City of the Republic of Slovenia Act, amended in 2010, sets a framework for cooperation between the central government and the urban municipality of Ljubljana, and for implementing common tasks and special “Capital City” tasks related to spatial planning and development.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Municipal level
1. General public services (administration)	Internal administration; Managing the municipality’s property
2. Public order and safety	Firefighting; Local police; Local public order; Civil protection
3. Economic affairs / transports	Local roads; Local public transport; Local economic development; Tourism; Promotion of agriculture; Urban transport (urban municipalities); Infrastructure for trade and industry
4. Environment protection	Sewerage; Waste management; Protection of natural resources; Protection of the environment
5. Housing and community amenities	Social housing; Urban and spatial planning; Utilities (water and power supply); Cemeteries; Urban development (for urban municipalities)
6. Health	Primary health care and pharmacies
7. Culture & Recreation	Libraries and sports facilities; Parks; Cultural infrastructure; Preservation of cultural heritage
8. Education	Pre-school; Primary school; Secondary, vocational and higher schools (urban municipalities) buildings and facilities;
9. Social Welfare	Elderly care, Rest homes; Social welfare for children and family, and for disabled people

Scope of fiscal data: municipalities and other local government institutions.

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: The Financing of Municipalities Act (2007), which was a substitute for the Act on Financing Municipalities (1998), sets the municipal financial framework. It introduced a general legal framework and a financial system in which financial resources of local authorities must be proportional to the “eligible expenditure” of a municipality. Costs that are taken into account when determining a municipality's eligible expenditure include spending that is directly related to carrying out the tasks that municipalities are required to perform according to the Constitution and relevant acts. Art. 142 of the Slovenia Constitution states that municipalities must raise their own revenue, and the Act on Local Self Government stipulates that local matters of public interest are to be financed by the municipality’s own resources, state budget and loans.

Subnational government expenditure by economic classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	3 594	9.0%	17.5%	100.0%
Inc. current expenditure	2 894	7.2%	15.5%	80.5%
Compensation of employees	1 786	4.5%	34.5%	49.7%
Intermediate consumption	699	1.7%	28.4%	19.4%
Social expenditure	180	0.5%	2.3%	5.0%
Subsidies and current transfers	216	0.5%	8.5%	6.0%
Financial charges	9	0.0%	1.4%	0.3%
Others	4	0.0%	16.7%	0.1%
Incl. capital expenditure	700	1.7%	37.3%	19.5%
Capital transfers	14	0.0%	9.1%	0.4%
Direct investment (or GFCF)	686	1.7%	39.8%	19.1%

EXPENDITURE: Slovenia ranks below the OECD average for unitary countries in terms of SNG expenditure share in GDP and total public spending (12.7% of GDP and 27.5% of total public spending on average in 2020), and below the EU27 average (18.3% of GDP and 34.3% of public expenditure). This reflects the relatively low level of decentralisation in Slovenia where municipalities carry out few responsibilities.

DIRECT INVESTMENT: The municipal share in public investment in Slovenia is below the average of OECD unitary countries (48.9% of public investment in 2020) and the EU27 average (54.4%). Subnational investment was supported by the EU Financial Framework 2014-2020, with the possibility to absorb funds until 2023, and by the Recovery and Resilience Facility funds since 2021. Most subnational investments are dedicated to economic affairs (34.7% in 2020), followed by education, housing and community amenities, recreation and culture, and environmental protection (between 11.2% and 12.7%). In contrast, SNGs invest very little in healthcare or social protection.

Municipalities can use public-private partnerships (PPPs) to finance investment projects, although it remains a limited practice. PPPs are implemented in various sectors, such as waste management, water management and kindergartens at the local level. To promote the use of PPPs at the subnational level, the government established mechanisms to build municipal capacity. The Ministry of Finance created a council of experts to advise municipalities on the negotiation and implementation of PPPs.

Subnational government expenditure by functional classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	3 463	8.4%	-	100.0%
1. General public services	329	0.8%	15.3%	9.5%
2. Defence	0	0.0%	0.0%	0.0%
3. Security and public order	57	0.1%	8.5%	1.6%
4. Economic affairs/transports	441	1.1%	22.5%	12.7%
5. Environmental protection	101	0.3%	34.3%	2.9%
6. Housing and community amenities	139	0.3%	75.0%	4.0%
7. Health	449	1.1%	10.2%	13.0%
8. Recreation, culture and religion	277	0.7%	47.1%	8.0%
9. Education	1282	3.1%	42.6%	37.0%
10. Social protection	389	0.9%	5.1%	11.2%

The largest SNG expenditure category is education (37.0%). Municipalities mainly provide resources for operational expenditure, student transport, infrastructure and facilities. SNGs also play a major role in community development and are responsible for 75.0% of total public expenditure in housing and community amenities. In fact, they are in charge of housing, urban and spatial planning and water infrastructure. Social protection, health and economic affairs/transport are other important spending items, with a similar weight in municipal expenditure (between 11.2% and 13.0%). However, since November 2020, the approved Financial Relief of Municipalities Act (ZFRO) provided that the financing of compulsory health insurance for unemployed persons from municipalities will be taken over by the state, which will reduce their spending in social protection.

Subnational government revenue by category
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	3 659	9.1%	20.9%	100.0%
Tax revenue	1 451	3.6%	17.6%	39.7%
Grants and subsidies	1 633	4.1%	-	44.6%
Tariffs and fees	516	1.3%	-	14.1%
Income from assets	13	0.0%	-	0.4%
Other revenues	45	0.1%	-	1.2%

OVERALL DESCRIPTION: The 2007 Financing of Municipalities Act introduced additional resources for municipalities in order to enlarge their financial autonomy and consolidate the system of vertical equalisation. SNG revenue remained below the OECD average for unitary countries in 2020 as a share of GDP (9.1% vs. 12.7%) and as a percentage of total public revenue (20.9% vs. 27.5%). The Capital City Act was passed in 2004 and is a special agreement with the central government that defines additional responsibilities and resources for Ljubljana.

TAX REVENUE: Municipal taxes comprise both shared taxation derived from the PIT and own-source taxes, mainly the property tax. The most important source of municipal financing comes from the sharing of the Personal Income Tax (PIT), which represented 78.0% of local tax revenue in 2020.

54 % of the the revenue derived from the PIT share paid in the year before last (i.e. two years ago) represents the main global source for financing municipalities. To finance its eligibile expenditure, an individual municipality is directly entitled to 70 % of the 54 % of PIT, while 30 % of the 54 % of PIT is allocated for the so-called Solidarity balancing, which is given to financially weaker municipalities (that cannot cover their expenditures from the 70 % of 54 % of PIT).

Municipal own taxes include a property tax, as well as other local taxes such as a tax on inheritance and gifts, a compensation for the use of building land, real estate transfer tax, a local tourist tax, a tax on gambling, etc. The property tax amounted to 14.3% of local tax revenue, 5.7% of total local revenue and 0.5% of GDP in 2020, well below the OECD average (1.0% of GDP). The attempts to introduce a market value-based real estate tax were held to be unconstitutional in 2014. A new reform was introduced through the Property Tax Act in 2017 in order to improve its efficiency and to provide for greater fiscal autonomy. The reform broadened the tax base through a new system of valuation of properties. The Act on mass property valuation entered into force in January 2019 and was effective since 2020. The property tax has two components: 1) a duty called “the charge for the use of building land” levied on vacant and constructed building land owned by legal persons and individuals. The charge is set by municipalities based on the area. 2) A property tax on buildings owned by individuals. The tax is levied at different progressive rates depending on the type and value of the premises. They range from 0.10% to 1%. Rates for properties used for business or recreational purposes are higher, at up to 1.5% of value.

GRANTS AND SUBSIDIES: Municipal financing is based on the principles of "adequate spending" and "adequate funding” that aims at equalising financial resources with the level of spending.

Income from the remaining 30% of municipal revenue derived from the 54 % of PIT share are used for equalisation. The PIT, reformed in 2007, is based on current municipal expenditure needs (without investment), in the form of a per capita amount required to finance municipalities’ statutory functions. The per capita amount is negotiated annually between the central government and the municipalities. In addition, with the amendment of the Capital City Act in 2009, it was decided that 0.73% of the PIT would go to the budget of the capital city to finance its specific functions.

In addition to a share of the PIT and to their own taxes, fiscal equalisation was developed in 2015 in the form of general grants to the municipalities. Municipalities can receive additional funds from central authorities in the form of equalisation transfers and from EU cohesion funds (in the 2014-2020 period, Slovenia received EUR 3.3 billion from the EU cohesion funds).

Overall, current grants made up 90.7% of total grants, while capital grants accounted for 9.3%. The Financial Relief of Municipalities Act (ZFRO), approved in 2020 following the pandemic, includes the provision of additional state funding for municipalities with Roma settlements and more flexibility for municipalities to use state investment transfers (as current transfers).

OTHER REVENUE: User charges and fees accounted for 14.1% of the local revenue in 2020, above the OECD average for unitary countries (9.1%). Municipalities may levy various fees as provided by law, including fees for the use of public spaces. A limited share of local revenue (less than 1%) comes from property income (i.e. deposits, rents for apartments and business premises, sale of assets, etc.).

Subnational government fiscal rules and debt
	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	1 199	3.0%	3.0%	100.0%	-
Financial debt	766	1.9%	2.1%	63.9%	100.0%
Currency and deposits	0	-	-	0.0%	0.0%
Bonds / debt securities	0	-	-	0.0%	0.0%
Loans	766	-	-	63.9%	100.0%
Insurance pensions	0	-	-	0.0%	-
Other accounts payable	433	-	-	36.1%	-

FISCAL RULES: Parliament approved in 2013 a balanced budget amendment to the constitution applying to municipalities that came into force in 2015. In 2012, the Fiscal Balance Act introduced several measures to reduce the general governments’ debt and deficit. In particular, limits were set in order to limit labour-related costs for public employees, including at the local level.

DEBT: Local government borrowing rights are regulated by the Public Finance Act (1999) and the Financing of Municipalities Act (2006). Municipalities have the right to borrow to finance certain types of investment projects (“Golden Rule”), such as housing, water networks, and sewerage. The 2020 Financial Relief of Municipalities Act (ZFRO) also allows municipalities to borrow for “soft” investment European projects. However, they must obtain prior consent from the Ministry of Finance. Amendments introduced in 2008 strengthened existing restrictions on debt service and outstanding debt. SNG indebtedness may not exceed 8% of the revenue generated by the municipality in the year prior to the year of borrowing. Municipalities incur debt mainly to finance schools and electricity-related projects. Until 2018, there were no special laws or guidance in the event of a municipality’s insolvency.

Municipal borrowing reached 3.0% of GDP in 2020, against 1.5% in 2010. This remains low compared to the OECD average for unitary countries (14.5% of GDP and 10.5% of public debt in 2020) and EU27 average (13.9% of GDP and 15.4% of public debt). Outstanding debt includes financial debt for 63.9% (exclusively composed of loans) and other accounts payable for 36.1%. Although no bond has been issued at the subnational level, municipalities are authorised to issue bonds for investment projects, after approval by the Ministry of Finance.

TERRITORIAL MANAGEMENT OF THE CRISIS: Municipalities were at the forefront of the pandemic during the first wave of COVID-19. Mayors were responsible for implementing stringent measures to deal with the crisis, going sometimes beyond the scope of their competences, as no harmonised guideline existed at the national level. This first bottom-up approach led to high variations among municipalities in their response to the pandemic, depending on the local epidemic situation and the commitment to react rapidly. Some common actions were identified, such as information sharing, the banning of the use of municipal facilities, as well as public gatherings.

In the later stage of the pandemic, the central government organised to take over the management of the crisis, together with a special government advisory group and the National Centre for Disease Control, and to support municipalities with clear guidelines. Most interventions were managed by the central government and the Ministry of Health, which restricted municipalities and municipal civil protection forces‘ role in the pandemic. They were mostly in charge of supporting and implementing national instructions rather than having a decision-making role in the crisis. The same pattern was observed with regard to vaccination. Successful management of the crisis at the municipal level depended on close cooperation with the central government.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The central government transferred development funds to municipalities in April 2020, which led to an increase of municipal financing by 6% (EUR 73 million). The Association of Urban Municipalities of Slovenia indicated that the resources deployed were not sufficient to cover municipal extra spending linked to the crisis, especially for urban municipalities. The financing was increased for 2021 and 2022. Additionally, the proposal for the Financial Relief of Municipalities Act was approved in November 2020, which stipulated that the state would take over the financing of mandatory health insurance from municipalities and that it would transfer additional funding to municipalities with Roma settlements. The Act also allows municipalities to borrow for „soft“ investment in European projects and to benefit from more flexilbity in their use of investment subsidies as for current transfers.

Municipalities were also active in supporting the local economy, especially SMEs in the most affected sectors (e.g. tourism, service, entertainment).

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The pandemic severely impacted Slovenia’s local economy, with unemployment rising to 8% in 2020 from 4.6% in 2019 after years of decline. Municipalities were affected with large disparities. The urban municipality of Ljubljana, the municipality of Bled and the municipalities of Piran, Maribor, Kranjska Gora and Rogaška Slatina were among the most affected SNGs in terms of employment and decline in tax revenue.

Municipal tax revenue increased by 4.9% between 2019 and 2020, despite losses from the tourist tax, the gambling tax and property sales. This reflects stable property tax and PIT proceeds during the pandemic. Similarly, grants and subsidies increased by 12.6%, due to higher transfers from the central government. By contrast, tariffs and fees decreased by 14.6% in 2020 as a result of restrictive measures and the closing of facilities. Overall, municipal revenue showed resistance in 2020 (+4.7%). According to NALAS, only 25% of Slovenian municipalities reported a drop in revenue mid-2020 compared to the preivous year. On the expenditure side, municipal spending increased by 2.0% between 2019 and 2020 due to extraordinary items linked to the pandemic. Staff expenditure recorded the highest increase in 2020 (+8.8%).

Subnational debt rose by 3.4% in 2020 compared to 2019, of which 2.4% was for financial debt and 7.2% was for other accounts payable. The increase of the financial debt was entirely funded by loans. No bond was issued to fund the crisis at the subnational level.

ECONOMIC AND SOCIAL STIMULUS PLANS: The central government established a national recovery and resilience plan (ROF) in line with the EU Recovery and Resilience Facility (RRF). Under the RRF, the country will receive EUR 2.5 billion between 2021 and 2026, comprised of EUR 1.8 billion in grants and EUR 705 million in loans. 42% of expenditure will support climate objectives and 21% digital transformation. The plan aims to significantly boost public investment at the central level and, to a lesser extent, at the local level.

The Slovene Export and Development Bank (SID Banka) also received an EUR 50 million loan from the Council of Europe Development Bank to improve building energy efficiency, the quality of public services and municipal infrastructure in both rural and urban areas. The loan addresses the priorities set in the Slovenian Development Strategy 2030 since the improvement of social infrastructure and the long-term financing of municipalities are essential components for the recovery from the pandemic.

Additionally, the government estbalished a list of 314 major investment projects under the Intervention Act of 2020 to promote economic recovery, to coordinate and speed the procedures for implementation. Investment projects are identified in key sectors for the recovery (e.g. construction sector) and harmonised by the Ministry of Environment and Spatial Planning.