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Central government funding for counties and oversight of county finances

The central government will finance the operations of the counties and oversee the management of their finances. Universal funding of the counties is governed by the Act on the Financing of the Counties. Aside from universal funding, the counties will also receive specific funding. The plan is to create a model for managing county finances in a way that supports the counties in the performance of their duties and helps to curb the increase in social and healthcare costs.

 

The purpose of the Act on the Financing of the Counties is to regulate the provision of universal financing to the counties which would then determine the uses and allocation of the funds within their purview.

The objective is to establish a funding system that enables the counties to perform the tasks assigned to them under law. The differences between the counties in terms of the need for services and the conditions in which they are provided would be taken into consideration in the central government funding in order to ensure that each county is capable of organising the necessary services for the residents.

As the counties would have no right of taxation when the reform enters into force, their sources of income would therefore consist of central government funding, client and user charges and sales proceeds. The counties would not have any other significant sources of income.

Potential changes to the duties to be performed by the counties under law would be taken into account in the determination of the amount of central government funding. Short-term loans, state guarantees or additional discretionary funding could be extended to counties facing liquidity problems.

The Service Centre for Financial and Personnel Management would make automatic monthly payments under the central government transfers scheme without any specific application.

Regulation of county funding prepared in stages

On 2 March 2017, the Government presented to Parliament a proposal (HE 15/2017 vp) for an Act on the Financing of the Counties concerning universal funding to be granted to counties to finance the provision of social and healthcare, environmental healthcare and rescue services.

A supplementary proposal to amend the Act on the Financing of the Counties was given to Parliament on 18 May 2017. Specifically, the supplementary proposal concerns universal funding to be extended to counties for performing duties other than those listed above,  such as:

  • regional development and structural fund operations;
  • promotion of the regional economy;
  • land use management and planning;
  • agriculture and farmer support administration;
  • relief services for agricultural and fur farmers;
  • use and management of water resources;
  • management of water and sea areas;
  • oversight of construction;
  • management of cultural environments;
  • promotion of county identity and culture;
  • generation and sharing of environmental data;
  • other regional services assigned to counties under law.

The proposal for the Act on the Financing of the Counties and the supplementary proposal related to the same act constitute the entire framework for funding the services that the counties will assume responsibility for.

The Act on the Financing of the Counties due enter into force on 1 January 2019 includes provisions on the universal funding to be granted to counties for the performance of their duties.

Central government funding for counties at 2017 prices

All in all, universal financing for the counties would total approximately EUR 18.5 billion at 2017 prices.

Of this, financing based on social and healthcare, rescue and environmental healthcare services would account for approximately EUR 17.4 billion and the financing based on the counties’ other duties for approximately EUR 1.0 billion.

Additionally, counties would be allocated other ‘specific’ funding for the performance of said other duties. The amount of such funding would be approximately EUR 2.9 billion at 2017 prices. Specific funding would not be governed by the Act on the Financing of the Counties.

A description of the breakdown of county financing into universal and specific funding is provided in the preamble to the supplementary proposal to amend the Act.

Allocation of resources to counties

The Government sets targets for central government finances in the General Government Fiscal Plan and determines measures to achieve these targets. The central government spending limits decision is included in the General Government Fiscal Plan.

One of the objectives of the Prime Minister Juha Sipilä's Government Programme is to strengthen the long-term sustainability of public finances.  The goal is to control the growth of health and social services expenditure by approximately EUR 3 billion and so curb  the increase by 1.5 percentage points per year during the period 2020–2029.

The duties of the counties and their financing will be evaluated in connection with the preparation of the General Government Fiscal Plan.  Central government funding to counties will be reviewed annually. The key tools used by the central government to steer counties are the:

  • General Government Fiscal Plan:
  • state budget;  
  • legislation on counties.

The preparation and annual review of the General Government Fiscal Plan would be supported by negotiations between the central government and the counties. The negotiations to be conducted on a county basis would

  • assess the counties' finances, cost trends and any need for adjustment measures;   
  • address the counties’ investment plans.

Central government steerage will also extend to investments that are financially substantial or otherwise significant in scope in terms of shaping the service structure or organising the services of more than one county.  Aside from direct investments, the central government will also influence long-term commitments comparable to investments as well as investments implemented by the counties' joint service centres.

In the course of the evaluation, the central government and counties would assess the counties’ financial capacity to discharge the duties successfully.  The evaluation procedure is designed to encourage sound financial management on the part of the counties.

  • The Ministry of Finance would decide on the initiation of the evaluation procedure when the criteria set out in the Counties Act now being reviewed by Parliament are met.
  • The Ministry of Social Affairs and Health could submit an initiative to the Ministry of Finance on the commencement of the evaluation procedure if a county's capacity to organise social and healthcare services is clearly jeopardised.

Inquiries:

Budget Counsellor Virpi Vuorinen, Ministry of Finance, tel. +358 (0)295 530 557 (legislation)
Senior Financial Adviser Tanja Rantanen, Ministry of Finance, tel. +358 (0)295 530 338 (steerage of counties and calculations)
Ministerial Adviser Ville Salonen, Ministry of Finance, tel. +358 (0)295 530388 (specifically calculations concerning the financing of social and health and rescue services)
Special Adviser Miikka Vähänen, Ministry of Finance, tel. +358 (0)295 530465 (specifically calculations concerning the financing of the counties’ other duties and the financing of social and health and rescue services)
Ministerial Adviser Antti Väisänen, Ministry of Social Affairs and Health, tel. +358 (0)295 163044 (specifically calculations concerning the financing of social and health and rescue services)
Senior inspector Antto Korhonen, Ministry of Finance, tel. +358 (0)295 530 547