Local Government Finance and Climate Change Note for

Local Government Finance and Climate Change Note for discussion World Urban Forum, Rio, March 2010 D Jackson UNCDF

Hypotheses n This presentation will discuss three hypotheses: n n n 2 DJ : UNCDF : 10/2009 That local level resources and decision making can be more efficient in responding to the challenges of CC That local level resources and decision making can be more effective in identifying these challenges and designing holistic solutions. However there are systemic constraints that prevent local government financing from performing this role. That providing resources locally would enable local institutions to ‘buy in’ the services and expertise of higher level institutions on a demand driven basis. Likewise it will facilitate the pooling of resources between affected local governments

Complex local reality (1) n n 3 DJ : UNCDF : 10/2009 Whilst the challenge of CC is global, the immediate effects are local. Just a few kilometres can separate the arid from the fertile or the disaster prone from the safe. Yet governments and development partners often respond by channelling resources into programmes covering large areas. These are sometimes inefficient and fail to recognise local specificity. Their effect can sometimes be counterproductive (for example to encourage to greater migratory pressure and conflict rather than dealing with problems at their source).

Complex local reality (2) n n DJ : UNCDF : 10/2009 These are multiple configurations that do not easily fit into sector or ministerial boxes. For example - whilst the skills and resources of the Ministry of Health may be relevant in one case, the skills of a different agency are needed elsewhere. Furthermore, whilst environmental agencies can identify these issues they do not always have the mandate to resolve them. n 4 Whilst there are common issues surrounding CC (managing the carbon cycle, for instance) its local reality is varied and highly specific. In some cases it requires a local disaster risk reduction / disaster management capacity, in other areas it requires new infrastructure such as small dams etc. In yet others it may require relocation of households. These challenges do not respect administrative boundaries. For example, they may affect three local government jurisdictions along a river bank, but not affect others on higher ground.

Definitions n Delegation– A local agency empowered to do n De-concentration-Staff and offices of an agency n Devolution– Power and authority given to a body There is an (almost) infinite variety of combinations that can be observed 5 DJ : UNCDF : 10/2009 something on behalf of a central agency. It takes decisions in the name of the central authority and the central authority remains accountable for its performance. are located away from its headquarters. They still belong to the central body, still report to it, but are located somewhere else. for specific areas of responsibility. In local government this normally means administrative and financial autonomy. The body is accountable for its actions.

Budget approval - how does this differ? Where is the majority of NECC expenditure in your country? De-concentration – budget approved centrally as part of allocation for local representation of central agency and managed by that local representation n DJ : UNCDF : 10/2009 Delegation – budget approved centrally as part of central agencies allocation but managed on central agency’s behalf either by local representations of that agency or by a local government with devolved responsibilities. n 6 n Devolution – budget approved locally by devolved authority. Resourced by own revenue and fiscal transfers from other levels of government

Budget methodologies n Zero sum – start from zero each year and reallocate according to what you now need with no attention paid to last years budget n Programme – allocate resources across and between agencies according to policy goals and objectives n Incremental / departmental - each budget unit prepares a proposal with the previous year as its starting point. Guess which is most common? 7 DJ : UNCDF : 10/2009 One of the above is ALMOST ALWAYS the model adopted in practice – though it may be “retrofitted” to fit in with other models

Expenditure and mandates n Mandates for CC are spread between a variety of central and local government agencies and operate at different levels. These include: n n n n n 8 DJ : UNCDF : 10/2009 Environmental Protection Energy Forestry, Minerals and Mining Land Use Planning Public Works Water and Sanitation Health Education Climate Change adaptation should not be seen as a “new” function. Expenditure on CC adaptation is possible and desirable under already assigned mandates. There is also scope for delegation of mandates from central government.

Three types of planning n n Strategic, “Where are we going” planning. often focuses on overall objectives and has a longer term horizon. n Draft for discussion: DJ 03/2010 Needs based, priority setting. Often focuses on individual projects or actions and chooses between them. Scenario, Asks the question “What would happen if? ” and requires a break from existing assumptions.

Some points n n Medium term financial frameworks (for local government), functional assignments and fiscal decentralisation will help move from needs based planning to more strategic planning. LGSP is moving in this direction. n Draft for discussion: DJ 03/2010 Needs based planningand strategic planning are often based on existing information. But scenario planning often requires the introduction of new information.

Planning for climate change adaption n n Is a long term process and therefore requires strategic planning. n A major challenge is providing the information for the “what if? ” n Draft for discussion: DJ 03/2010 Based on “what if? ” and therefore requires scenario based planning. Climate change is a global issue with extremely localised consequences

Mainstreaming Climate Change in Local Government n Some practical problems n n How to integrate the “what if? ” into mainstream organisations – not just environmental related organisations. n A clear assignment of functions between central and local governments and much greater coordination between agencies that is usual. n Draft for discussion: DJ 03/2010 Where to get the information for the “what if? ” Climate change adaptation does always require new institutions, it just requires that existing institutions require more resources (financial, technical, human).

Example of negative effect of needs based planning 13 Draft for discussion: DJ 03/2010

Difficulty in financing climate adaptation Capital Will Climate Proofing come from Core or Project? Core (normally incremental changes in resource envelope) Non - Capital Some air conditioners Teachers’ Salaries A new school building A consultancy to install a new software system Project 14 Draft for discussion: DJ 03/2010 (fluctuation in resource envelope, specific approval process, activities of finite duration)

Economic Classifier (3) Will Climate Proofing be politically popular under 3. 2? 15 DJ : UNCDF : 10/2009

Part two n Draft for discussion: DJ 03/2010 Local climate adaptation grant?

Local CCA response (1) The local holistic response may involve more than one local government Requires different agencies Local holistic response With different mandates To deliver smart response 17 Draft for discussion: DJ 03/2010 But coordinated locally

Local CCA response (2) n Some examples of good practice Hurricane Mitch – Honduras – 1998 n Local response saved lives n n Hurricane Katrina vs California Wildfires – USA 2005 & 2007 n Local response was better n 18 Draft for discussion: DJ 03/2010 Source: World Bank Source: Heritage Foundation

How to enable a holistic response? (1) n n In addition, NECC challenges are not evenly spread across a territory n DJ : UNCDF : 10/2009 Yet we have also examined the potential of local level planning to define holistic responses to the challenges of climate change and the environment n 19 The previous sections have shown how “sticky” local expenditure can be and how difficult it is to change long term expenditure patters It may be that specific measures are required to ensure resources are directed in its direction

How to enable a holistic response? n These measures could include: n n Specific grants / transfers attributed to the local government specifically for this purpose but not tied to any institution. n Draft for discussion: DJ 03/2010 A similar exercise with regard to the planning and programming for such expenditure n 20 Examination of where climate change adaptation expenditure would fit in to the existing expenditure classification system Mechanisms for the “matching” of these grants with the larger programmes of central government or with other local jurisdictions

How to enable a holistic response? (2) n These measures could include: n n Specific grants / transfers attributed to the local government specifically for this purpose but not tied to any institution. n DJ : UNCDF : 10/2009 A similar exercise with regard to the planning and programming for such expenditure n 21 Examination of NECC related expenditure within the budget classifiers with the objective of maximising the resources attributed to this function Mechanisms for the “matching” of these grants with the larger programmes of central government or with other local jurisdictions

Advantage of local knowledge n Local adaptation work is based on three premises: n n That local level resources and decision making can be more effective in identifying these challenges and designing holistic solutions n Draft for discussion: DJ 03/2010 That local level resources and decision making can be more efficient in responding to the challenges of climate change adaptation That providing resources locally will then enable these local institution to ‘buy in’ the services and expertise of higher level institutions on a demand driven basis. Likewise it will facilitate the pooling of resources between affected local governments

What could adaptation grants be used for? n LCF capital could be targeted towards a variety of areas – in accordance with the nature of the climate adaptation challenge and the decisions made by local communities – including: n n Local disaster proofing, disaster risk reduction and disaster management capacity, for example in an area prone to landslides following deforestation n Small scale relocation of communities and / or public infrastructure. n Draft for discussion: DJ 03/2010 Dams, dykes, drains and other water management infrastructure Insurance policies for local institutions