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Subnational Government FinanceOctober 13,1992 MIICROFICHE CopyEnergy and Infrastructure DivisionLatin America and Caribbean Regional Office LepPor t No. :o1 0 5 8 0--CH1 Tvpe: (1ErC)ritIe: SUBMATIOT NI L COV/ERNMEN1 FlNANCE

Author: VE-TTER, D.E>t. :36683P Rocm:16 128 Dept. :LA/4IU

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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EXCHAGE RATE

urrency Unit: Chilean Peso (Ch$)

Exchange Rate(Year-Average, Observed)

1987 Ch$ 219.41 = US$11988 ChS 245.01 = US$11989 Ch$ 266.95 = US$11990 Ch$ 304.90 = US$11991 Ch$ 349.22 = US$1

FISCAL YEAR

January 1 to December 31

FOR OMCIAL USE ONLY

This report is based on the findings of a sector mission that visitedChile in October 1991 and on subsequent reports prepared by its members. Themission includeds

David Vetter (Mission Leader, LA4IE);Mario Rothschild (LA41E);Tim Campbell (LATE);William Dillinger (INURD); andMate Anderson (consultant).

The sections on health and education are largely based on thepreliminary work of Donald Winkler's (LATPS) study on decentralization in LAC.Ahmad Jamshidi (consultant) prepared and analyzed the consolidated municipalaccounts. Benjamin Darche (consultant) analyzed the requirements for long-term borrowing by municipalities. The following Chilean consultants analyzedmunicipal financial data or conducted case studies: Nelson Herrera, IgnacioIrrarazabal, Carlos Lopez, and Patricia Veragnon.

Mr. Vetter prepared the final report based on this earlier work with theassistance of Omar Hayat, Illeana Kure, and Michael Tannen (consultants).

James F. HLcks (EMTIN) was peer reviewer. James Hanson (LA4DR) andHeywood Fleisig (LACCE) provided valuable comments.

We thank the national, regional, and municipal officials as well asrepresentatives of non-governmental entities who generously gave their timeand assistance during our mission.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

ii

GLOSSARY XOF ABBREVXIATONS AND ACRONYMS

,IP: Integrated Project BankBanco Integrado de Proyectos

AS: Social Action CommitteeComit6 de Acci6n S6cial

ASEN: Household Sample SurveyEncuesta de Caracterizaci6n Socioecon6mica

EM: Country Economic MemorandumESW: Country Economic and Sector WorkODECO: Municipal Development Council

Concejo Comunal de DesarrolloOREDE: Regional Development Council

Concejo Regional de DesarrolloIPRES: Ministry of Finance- Budget Representative

Ministro de Hacienda- Representante de PresupuestoL: Decree- Law

Decreto LeyKOS: Water Company of Santiago

Empresa Metropolitana de Obras Sanitarias4DR: National Regional Development Fund

Fondo Nacional de Desarrollo RegionalDSIS: Solidarity and Social Investment Fund

Fondo de Solidaridad e Inversi6n SocialDP: Gross Domestic Product

Producto Interno BrutoDB: Interamerican Development Bank

Banco Interamericano de Desarrollo.F: Municipal Common Fund

Fondo Comdn MunicipalES: Management Information SystemEDEPLAN: Planning and Cooperation Ministry

Ministerio de Planificaci6n y Cooperaci6nCNVU: Ministry of Housing and Urban Development

Ministerio de Vivienda y Desarrollo Urbano)P: Ministry of Public Works

Ministerio de Obras P6blicask: Santiago Metropolitan Region)EPLAN: National Planning Office

Oficina de Planificaci6n NacionalRegional Product

;REMI: Regional Office of Sectoral MinistrySecretaria Regional Ministerial

^-CPLAC: Communal or Municipal Planning SecretariatSecretaria Comunal de Planificaci6n

.RPLAC: Regional Secretary of PlanningSecretaria Regional de Planificaci6n y Coordinaci6n

:RVIU: Regional Office of MINVUServicio Regional de Vivienda y Urbanismo

'Mot Monthly Tax UnitsUnidades Tributarias Mensuales

iii

TABLLE OF CONTET8

PREFACE i .

',LC,2ARY OF ABBREVIATIONS AND ACRONYMS . .. . . . . . . . Li

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Chapter 1. INTRODUCTION . . . . . . .. .. . 1

A. Context, Issues, and Strategy . . . . . . . .. . . . . . . . . 1

1. Subnational Government Reform. 1

2 Main Issues . . . . . ........ ......... .. 1

B. Overview of the Subnational Public Sector . . .. 51. Government Structure and Sector Definition .5

2. Planning and Budgeting System .7

3. Municipal and Regional Diversity. o 11

Chapter 2. ASSIGNMENT OF RESPONSIBILITIES FOR PROVISION OF PUBLIC

SERVICES AT THE SUBNATIONAL LEVEL ... . . . . . . . . . . . .... 15

A. The Assignment of Responsibilities . . . .15

B. Existing Assignment of Responsibilities for Providing Public

Goods .. 16C. Interdependence among Municipalities and with the Central

Government ... . . . . . . . . . . ...... . . . . . . 17

D. Economies of Scale ... . . . . . . . . . . . . . . . . . .. 18E. Administration of the Assignment of Responsibilities. . 18

F. Clarifying the Administration of Assigned Responsibilities . 20

G.Recommendations ... 21

1. Clarify Assignment of Responsibilities for Provision and

Financing . . . ... .21

2. Resolve Problems of Interdependence .. 22

3. Reduce or Compensate for the Costs Imposed on

Municipalities by the Central C7overnment . .22

4. Facilitate Taking Advantage of Economies of Scale . . 22

Chapter 3. REVENUE ASSIGNMENT TO IMPROVE EFFICIENCY AND EQUITY WHILE

MAINTAINING FISCAL DISCIPLINE .. .27

A. Introduction ... 27B. Own-Source Revenues and Non-earmarked Revenue Sharing . . . 29

1. Real Estate Tax ... 312. Patente. ....... . 33

3. Vehicle License Tax ... . . . . . . . . . .. . . . . . 344. Fees and Charges . .... 35

5. The Municipal Colmon Fund (MCF) .. 35

C. Education and Health Subsidies . . .. . . . .. .... . 371 Education ... . . . . . . . . . . . . . . . . . . . . . 372. Primary Health ... . ... . . . . . . . . . . . . . . . 39

3. Increasing Municipal Payments for Health and Education 40

D. Financing Capital Investment .............. . * 42

1. Declining Capacity to Finance Infrastructure with Own

Resources . . . . . . . .... . . . . . . .. . .. .. 42

2. Growing Dependence on National Capital Grants . .42

iv

3. Allocation Criteria for National Transfers . . . . . . . . 44E. Recommendations . . . . . . . .. . .. . . 49

1. Increase Flexibility to Raise Own-Source Revenues . . . . 492. Resolve Problems in Financing Education and Health . . . . 50

Chapter 4. SANTIAGO METROPOLITAN REGION: INTER-GOVERNMENTAL DEPENDENCIESAND MANAGEMENT OF METROPOLITAN DEVELOPMENT . . . . . . . . . . . . 55A. Santiago Metropolitan Region . . . .. .. . . .. . .. . *. .* 55B. Functional Arrangements and Spending Responsibilities . . . . . S6C. Does MR Get an Unfair Share of National Government

Expenditures? . . . . . . . . . . . . 57D. Resource Mobilization and Transfers . . . . . . . . . . . . . 58

1. Revenues .... . . . . . . . . . . . . . . . . . . . . . 582. Tax Competition . . . .. .. * * * * **. . . . . . . *.. 58

E. Planning and Budgeting: Problems of Interdependence . . . . . . 591. Imposition of Costs on Subnational Governments by the

Central Government ..................

2. imposition of Costs on Central Government by SubnationalGovernments . . . . .. .. . . . . . .. . **. . . . 60

F. Improved Management of Metropolitan Problems . . . . . . . . .f . 60

Chapter 5. MANAGEMENT EFFICIENCY AND ACCOUNTABILITY . . . . . . . . . . 64A. Management Efficiency and the Information System . . . . . . . . 64

1. The Need to Improve Organization, Systems, andProcedures . . . . . . . . . . . . . . . . . . . . 64

2. The Need for a Management-oriented Information System . . 66B. Budgeting, Investment Planning, and Auditing . . . .. .. . . . . 67

1. National Priorities and Budget . . . . . . . . .. . . . . 672. Capital Budgeting in Regions and Municipalities . . . . . 68

C. Procedures for Public Participation in Decision Making . .*. .. 701. Planning in a Democratic Context . . . . . . . . . . . . 70

2. Auditing ... . . * *...... . . . . .* . . . ... . . 703. Communication Among Municipalities . . . . . . . . . . . . 71

D. Training for the Subnational Public Sector . . . . . . . . . . . 71E. Recommendations . . . . . . . . . . . . . . . . . . . . . . .*. 71

1. Improve Management Efficiency and the Information System . 712. Refine Budgoting and Auditing . .. . . . . . . . . . . . 743. Enhance Procedures for Public Participation in Decision

Making .... . . . . . . . . . . . . . * * 9 *...... 744. Strengthen Training for the Subnational Public Sector . . 75

Chapter 6. ELTENTS OF A STRATEGY .T.E.G. . . .......................... 76

Annex 1. METHODOLOGY AND COORDINATION WITH COUNTRY ECONOMIC AND SECTORWORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Annex 11. OUTLINE OF AN ACTION PLAN FOR A FINANCIAL MANAGEMENTINFORMATION SYSTEM . . . . . . . . . . . . . . . . . .. . . .*. . 84

COUWRY DATA - CHILE

mR POPULATION ENITY

Totrlg iS3mrw 13.1 *i ltln (1991) 7 r bnote of growth: 1.fl

POPULATION CHARACTERISTICS HEALTH

CrMu girth lot, (per lo0 199): 23.4 P"yceciwm per 1000 inhabitants (19M0): 1.6crude Death Rate, p 1000 1990): 6.3 Hospital bb per 1000 Iniobitants (1990): 3.27

Intent Nortality Rate (per 1000, 1990) 17.1Life Expectancy at lirtb (yrs 196): 72.0

IHNCO DISTRIEUTION M190 D)MOTRIUUTION Of LAND OWERSHIP

Share of lowest 20S hZowboldas 64.01 rg of farMa- below 5 ha

Acee to Water (1989) Acess to Electricity (198M)

X of population - urbn 96.3 5 of Poplation urban 9i.9- rural 77.0 * rural 42.0

NUTRITION EUCATIO

Per capita protein intalk (om/day)s 65 MAlt Illitoracy Rate, l9POCpa of 15 ;an over): 3.*Per capfto dally calorif Intak (1968)8 28 Enrolltmnt rates (1969)s Preschool Ca 2-5): 28.4

Primay Cag 6-13): 94.6econdry (ae 14-7: 81.6

WP pr capita in 1990s $1973.3

l0 NESTIC PRODUCT II 1990 AMML ORN RATES (197 PRICES)

of PXe 197S-60 1960-90 1989 1990....... ...... ....... ....... ....... .......

GOP at Market Prices 6477.9 100.0 3.7 3.2 10.0 2.1Oro mste Intmnt 1716.0 20.2 7.2 4.3 32.7 -2.6aros Natial Savinws 1461.6 17.5 4.2 20.8 17.4 -0.6Current Acomt latwe -251.3 -3.0 -3.7 6.9 S.1 22.8Exports of Goods & AFS 30W5.4 36.5 15.5 6.5 16.2 7.2ltportu of Goods , UPS m 25.2 L.8 7.3 1.9 23.2 0.6

TPUT. LAW N FORC AND POUCTIVITY IN 1990

VaIu Addd (197 Prim) L*o Fore VA pe oe

llii. PSa I ThowXos I moWs. of Pee

Awicuultnr 43.7 9.1 960.6 19.5 44.6InrAtry 174.6 36.3 1245.9 24.9 140.1Sevie 262.0 34.6 27.1 35.6 9.3

CDP 480.3 100.0 300I.6 100.0 96.1

4OWFINANCIAL PUSLIC SECTOt Blition Pesos As X of GDP-_____1987 1988 1989 1990 1987 198J 1989 1990

... .... .... .... ... ~. . .,

Current Revenue 1475.3 1048.8 2192.4 2512.2 35.5 34.2 32.3 29.6Current Expenditures 1221.8 1395.1 1573.2 1856.9 29.4 25.6 23.2 21.9Savings 253.5 '53.7 619.2 655.3 6.1 8.4 9.1 7.7Capital Account Balance -236.0 257.6 -257.8 -296.7 -5.7 4.8 -3.8 -3.5Overail Balance, Surplus/DOtfieit() 17.5 196.1 361.4 358.6 0.4 3.6 5.3 4.2

MONEY, CREDIT, AND PRICES 1985 1986 1987 1986 198v 1990. .. . .. . . . . .. . .... *.- ...... ... . *..

Money and Quasi Monoy 516.8 643.9 ff4.4 1328.3 1721.7 2205.9Total Domestie Credit 1139.7 ... ... ... ... ...

Pere ntage or Index Number

Money or Quasi Money as X of GDP 1J 19.8 22.9 24.5 25.4 26.1CPI t1989-100) 54.7 65.4 78.4 89.9 105.2 132.6Annual Percentage Change in:

Consumer Price Index 26.4 17.4 21.5 12.7 21.4 27.3Money and Quasi Money 31.6 24.6 48.2 39.2 29.6 28.1Total Domestic Credit 39.2 31.1 35.1 30.0 ...

AverageBOP (mill. SUS) 1987 1988 1989 1990 MERCHANDISE EXPORTS (SUS millions) 1989-90

Exports of Goods, NFS 606.0 86267.0 9617.0 10152.0 .Mining 4704Inports of Goods, NFS 5541.0 6690.0 8673.3 9364.2 o/w Copper 3908.2

- Agrl$ultural. Livestock nd SeaResource Balance 765.0 1577.0 943.7 787.8 Products 882.2

-Industrial 2608.2Net Factor Payments 1700.1 1917.7 1926.1 1811.2 o/w Ffshmeet A Other Food 1151.1Interest PaIlents 1664.1 1795.6 1779.9 1832.4 Paper, Celltjloes and Others 753.8Foreign Tronsfers 125.0 177.0 215.6 199.1 Others 703.3

......................... ..... . ............................ .......

Total Exports of Goods 8195.0Balace on Current Account -810.1 -163.7 -766.8 -824.3

Direct Foreign Investment 98.O 134.0 258.8 587.0 miltionMet MLT Borrowing 597.5 1232.1 671.2 1506.3 External Debt, December 31 1990 SUS

Publfc Sector 11767.0Total Disbursement 1087.9 1706.2 2365.1 3454.2 o/u Private Non-Gwurantead 2043.0Total AmortizatIons 310.0 651.6 821.5 765.9 Private Non-Gauranteed 5684.0Errors & Omfusfons -27.2 345.9 637.6 41.5 *------------- .......Change n Not Reserves 93.0 679.0 398.0 2409.5 Total 17451.0

Rate of Exchonge, 1990 DEBT SERVICE INDICATORS FOR 1990 X

SUS 1 a 304.9 (nnult oaverae) Debt Service*/Exports GNFS 8=0SU I * 337.1 (end of period) Debt Service/GDP 9.3

IORD LENDING (December 31 1990)

DOO *1059.6

; lS.

v

EXECUTIVE SW4MARY

Subnational Government Refor

_. On November 9, 1991, Chile's Congress enacted a major Constitutionalreform that will increase local political autonomy by reestablishing electionsfor municipal mayors and council members. It will also reinforce the role ofregional governments and institute elections for regional councilrepresentatives. These c6hanges represent a radical departure from the recentpast, during which mayors, municipal council members and regional representativeswere all appointed. Currently, Congress is debating specific legislation toimplement this reform.

2. In a joint effort, the government and the opposition enac Xlegislation necessary to permit municipal. elections in June 1992. Congress isalso debating reform of the Municipal Revenues Law to give municipalities greaterdiscretion in levying and collecting taxes and fees.

3. The new legislation will make subnational governments a much moreimportant part of Chile's consolidated public sector. In anticipation of this, acritical question is: What issues must be addressed in the design andimplementation of democratic reforms at the subnational level in order toincrease (or at least maintain) macroeconomic efficiency, equity, and fiscaldiscipline?

4. The legislation represents only the initial step in a much longerprocess of socio-political change. This process will involve defining and fine-tuning laws and administrative regulations, and developing and implementingprograms that prepare subnational institutions and officials to assume expandedresponsibilities within a new democratic context.

5. Chile has the advantage of embarking upon these reforms from a highlevel of institutional development. Although some problems exist, particularlyin the central government financing of education and health, the assignment ofactivities and revenues to subnational governments is generally efficient andequitable. Similarly, the current system of intergovernmental grants isefficient, although allocations for investment could be made more efficient andequitable. Subnational governments do not generate significant fiscal or quasi-fiscal deficits. The well-trained municipal government work force is small, butproductive and highly motivated. Municipalities have already privatized theproduction of many services.

6. Nevertheless, there is a real danger that Chile could "lose ground"in reaching these objectives unless the central government resolves the followingproblems:

(a) rapidly increasing municipal expenditures for primary health andprimary and secondary education to offset shortfalls in transfersfrom the central government, and limited autonomy in providing theseservices;

(b) undefined or ill-defined assignment of responsibility for provisionand financing of some municipal services, which currently must

vi

sometimes be negotiated on a case-by-case basis among variousgovernmental unitsl

(c) lack of flexibility in raising revenues or borrowing; and

(d) strong built-in dijincentives to achieving efficiency and fiscaldiscipline within the present system of capital transfero from thecentral to subnational governments.

7. Three general recommendations for resolving these issues are tos

(a) define more clearly who is responsible for providLng what serviceswith full consideration of the problems posed by miulti-juriedictionalinterdependence;

(b) improve the %seignment of revenues and transfers to givemunicipalities greater flexibility in meeting local demands, toresolve problems in education and health financing, and to increaseefficiency and equity in investment grants, while reducing centralgovernment interventions that impose costs on municipalities andlimit their autonomy in providing services; and

(c) increase the institutional capacity of subnational governments toassume their responsibilities in a democratic context.

8. The following three sections expand upon these recommendations.

lo ASSIoGNMET OF ReSPONSIBILITIES FOR PROVISION OF PUBLIC SERVICES AT TMESUBNATIONAL LEVL

9. The division of responsibilities for the provision of municipal goodsand services in Chile follows public finance principles reasonably well, and thusis efficient. While some problems related to spillovers and economies of scaleexist, the administration of assignments as defined and the clarification ofresponsibilities for provision are the main problems. Areas remain in whichassignments are not legally defined or are covered by very complex arrangementsnegotiated on a case-by-case basis among different government levels. Withoutclear assignment of responsibility, there can be no accountability, and noguarantee that services will be satisfactorily provided.

10. The main municipal functions as defined in the current Ley OrginlcaNunwclpal are: (a) urban street and r>ral feeder road paving; (b) drainage; (c)solid waste collection and disposal (.ncluding street sweeping and refusecollection from residential and industrial/commercial customers); (d) streetlighting; (e) open space and recreation; and (f) public cemeteries. In broadterms this assignment is efficient, as these activities mostly generate localexternalities.11. In most countries, public safety is a public good usually providedand financed at the local level. Public safety is provided quite efficiently inChile by the national police force-- the carablneros. In many countries,education and health services are provided and financed at the municipal level.In Chile, municipal governments are responsible for r-oviding primary andsecondary education and primary health care, but the central government islargely responsible for their financinu as it seeks to insure a minimum level of

vii

theme services. Higher education and higher level health care functions remainthe full responsibility of the central government. Access to health care isstructured as a hierarchy with the more specialized servlces offered at hlgherlevels. The most specialized and expensive equipment is found at regional ornational centers. This assignment is generally in accord wlth the principles ofpublic finance. The main issues regarding health and education relate to thelrfinancing and are discussed in paras. 32 to 37.

Xssues and R0coaMXndations

12. The following sections discuss the main issues concerning theassignment of functions and their administration, and present recommendations forresolving these issues.

1. Clarify Assionment of Responsibilities for Provision and Finan. lU

13. The major problems with the assignment of responsibilities are noteconomic, but administrative. They relate to omissions and contradictions inlaws and administrative regulations that define these responsibilities formunicipalities. For example, in practice, the responsibility for provision ofstorm sewers has not been assigned to the municipal or any other level ofgovernment. While the Ley Org&nica assigns to municipalities the responsibilityfor paving and maintaining urban streets and rural roads, in practice thisresponsibility is ambiguous and complex, and overlaps with some responsibilitiesassigned to other levels of government.

Reo2Mmendations

14. There is a need to clarify responsibilities for both provision andfinancing of public services provided by municipalities, including all stepsinvolved in project implementation and maintenance. According to the aboveprinciples, clear responsibility for the following functions should be assignedto municipalities: (a) street-related infrastructure, including street paving,curbs, sidewalks, street lighting, and storm sewers; (b) rural feeder roads; and(c) local environmental quality, including open spaces and solid waste disposal.All laws and administrative regulations relating to these functions should bemodified accordingly.

15. These are clearly municipal public goods and services that can beprovided and administered most efficiently at the local level, as the benefits godirectly to those living within the municipality. Smaller municipalities maywish to contract out all or some of these functions to an association ofmunicipalities or to the regior%l government to take advantage of economies ofscale (para. 21), for example 'j providing roads. Possible financing of ruralfee4er roads through user charges or concessions should be considered.

2. Resolve Problems of Interdependence

16. Problems such as pollution and transportation sometimes spill overthe boundaries of political jurisdictions, creating the need to move to a higherlevel of government or to form a new jurisdiction that encompasses severalcontiguous jurisdictions facing the same problem. The present institutionalmeans for controlling problems involving more than one municipality have been

viii

inadequate for resolving such environmental problems as solid waste, sewerage,air pollution, and conSestion.

RGommndattona

17. There is a need to develop efficient, equitable, and accountableintermediation to resolve the problems resulting from municipal interdependence.One alternative could be to create incentives (such as matching grants) to induceindividual municipalities to form limited purpose associations in such areas assolid waste and sewerage, urban growth planning, tourism and coastal zonemanagement. As discussed above, clarity in the division of labor among differentlevels of government is of utmost importance. This includes the supra-municipalresponsibilities in metropolitan areas. Regional governments could play animportant role in resolving these problems.

18. A fundamental decision rule is that organizational arrangementsshould cover the affected area (i.e., benefits jurisdiction). Further studiesmay be necessary to accurately define impact areas. Also, refinements in inter-governmental finance, particularly as regards own-source revenues, and thecomposition and distribution criteria of intergovernmental transfers, should takeinto account the financial needs of common services.

3. Reduce or Compensate for the Costs Imposed on Municipalities by the CentralaovernMent

19. Municipalities also experience problems due to interdependence withthe central government. In particular, policies of the central government (e.g.,resettlement of the in'.abitants of squatter settlements) have often imposed costson municipal governments, and vice versa. The central government also interfereswith the efficient assignment of public good responsibilities by: (a) imposingrestraints on the behavior of municipalities in both municipal andmunicipal/national functions; and (b) creating municipalities that are too smallto capture scale benefits and generate enough revenues to supply local publicgoods.

Recommendations

20. The central government should bear part of the cost of its spatialdispersion strategy, if it is continied. Certainly, it is unfair to impose thefull burden of these costs on the poorer municipalities. The policy ofsubdividing municipalities to maintain "medium" population size and socio-economic homogeneity should be abandoned. A new municipality should be formedonly when the new entity can demonstrate its financial capacity to providemunicipal functions efficiently. In some cases, "unsustainable" municipalitiescould be consolidated with a more viable one.

4. Facilitate Takina Advantage of Economies of Scale

21. Currently, there are insufficient institutional mechanisms to permitmunicipalities to form associations for exploiting economies of scale.

ix

Recommendation

22. Institutional mechanisms that permit municipalities to formassociations to take better advantage of economies of scale in the provision oflocal public goods should be improved.

II. REVENUE ASSIGNMENT TO IMPROVE XF!ICIENCY AND EOUITYMWILE MKINTAINING FISCAL DISCIPLINE

23. The assignment of Chile's subnational revenues is reasonablyefficient and equitable. The one significant problem in the area of own-sourcerevenues is that municipalities have only a limited capacity to raise taxes formeeting residents' demands for additional services. Furthermore, part of anyadditional tax revenue must be shared with other municipalities. High taxexemptions and lagging assessments for the real estate tax have furtherexacerbated the problem. Intergovernmental transfers for local functions are vianon-earmarked revenue sharing via the Municipal Common Fund (MCF). The MCFfollows public finance principles in that it provides some improvement in equity,while allowing flexibility of local choice, without greatly distorting demand forindividual public goods.

24. There are, however, pressing problems in financing the municipalhealth and education functions. Actual transfers from the central government formunicipal/national functions did not maintain their real value until recentchanges in the adjustment formula. Furthermore, the national government hasplaced restrictions on the administration of these programs. If left unresolved,these problems might generate a high level of demand for municipal "bail-outs" bythe central government. Consequently, they represent the only potential threatto the predictability and transparency of the current municipal revenue sharingsystem and to fiscal discipline.

25. Improvement in the administration of the investment grant programwould contribute to greater efficiency and equity. Changes in the present systemof national/municipal capital grants could improve cost recovery from localbenef;.ciaries. This would keep pressures off the central government forincreased transfers and boost the overall efficiency of the subnational publicsector by confronting beneficiaries with actual costs.

issues and Recouuendations

1. Own-Source Revenues

26. An important proposed reform would give municipalities greaterflexibility in setting local tax rates, thereby allowing them to finance greaterdemand for services with higher taxes. This should increase efficiency. Theproposed law stipulates property tax rates within the 1.1% to 1.9% range. oneadvantage of using a "band" or range is that it reduces the chances for taxcompetition, especially within urban agglomerations. Without such a range,municipalities might compete for industries with low demand for services bylowering or even eliminating the property tax.

27. While this proposed reform would increase tax flexibility, thecontribution to the MCF from the real estate tax should be calculated at the 1.6%

x

rate to prevent municipalities from lowering their contributions to the MCF bylowering the rate and also to prevent "taxing" of additional tax revenue formunLiLpalities charging above this rate.

28. Another proposed reform would correct the distortion in the currentlaw that forces local governments to subsidize garbage collection from generalrevenues by exempting garbage collection fees for properties that are exempt fromproperty taxes.

29. Some other proposed reforms would aggravate existing problems. Amajor problem with the current real estate tax law iu its high exemption rate.Sixty percent of the tax base (measured in value terms) li exempt from theproperty tax. The single most important exemption is on reeldential property-about US$ 7,000. This leaves a large number of Chilean municipalities without abroad property tax base on which to levy a significant tax, creating a highdegree of dependence on the current tax re-distribution system (i.e., MCF). Oneof the proposed reforms would make the exemption even larger. This would furthermagnLfy the problem.

30. Perhaps the most problematic element in Chile's subnational taxsystem is the patente, a local tax on net worth. This tax clearly has a highlyuncertain incidence that makes it undesirable as a source of local revenue. Thepresent celling on this tax limits this problem. However, current proposals toremove the ceiling on the patente could permit municipalities to raise thieinefflcient tax, thereby increasing the potential distortion.

Reomenatons

31. The revenue reforms should: (a) allow municipallties to raise realestate tax within the "band"; (b) calculate the contribution to the MCF from thisreal estate tax at the same rate for all municipalities so as not to encourage ordiscourage lower rates; (c) eliminate the exemption for the garbage collectiontax; (d) maintain or lower the exemption for the real estate tax in nominalterms; and (e) keep the current ceiling on the patents.

2. Resolve Problems ln Financinc Education and Health

32. Chlle's national government uses a modified voucher system forfLnancing the provision of primary and secondary education and health at thelocal level. This system has a number of beneZits in terms of efficiency and ieone of the most advanced in the world. However, there are some importantunresolved iesues regarding the financing of education and health services andcentral government constraints on the ability of municipalities to tax inresponse to local demand.

33. Rapidly rising payments for health and education by municipalitiesare reducing their flscal autonomy. Municipallties have had to increase theirtransfers for education and health significantly because the central governmenthas not maintained the subsidies in real terms.

34. The central government (vla the Estatuto Docente) also controlsteacher salaries in municipal schools and has recently granted large salaryLncreases, but has compensated municipalities for the additional cost. Havinglost students to private schools while not reducing the number of teachers,

xi

municipal schools are overstaffed. This reflects the high political cost ofdismislsng teachers and the unclear division of responaLbilities for staffing.In one senus, the municipalities have decided ng= to take the economicallyeffLeient but politically costly step of reducing the size of their teachingstaffs. On the other hand, the central government has a substantial role indetermining the number of teachers in municipal schools. In particular, the lowlevel of pensions (currently pensions are much lower than salaries for olderteacheko) discourages retirement and, thus, downsizing by attrition.Municipalities want the central government to raise pensions, which would reducethe number of public school teachers by encouraging many teachers eligible forretirement to leave. Retirement would lower costs more than proportionally, asolder teachers are normally the most highly paid. Leglilation to increaseteacher pensions io currently under consideration by Congress.

Rne-ommendations

35. Although Chile's education system is relatively effective inachieving its objectives, it can be further improved to ensure greaterefficiency, equity, and accountability. Recommendations are as follows:

(a) The existing system of per student subsidy (P8S) is transparent andpredictable. It permits municipal autonomy in resource use, andprovide5 choice to parents. Any increase in central governmenttransfers to schools should take the form of an increase in the baseP8 rather than introducing new discretionary programs. Ifmunicipalities wish to raise the total amount spent on education,they should increase the central government PS8 for both municipaland private subsidized schools to maintain the efficiency incentivesof this oystem.

(b) The problem of excess teachers in municipal schools should beresolved. This will entail an increase in pensions by the centralgovernment to encourage teachers past retirement age to retire, aswell as payments from both the municipalities and the centralgovernment to create incentives for teachers to take early retirementor transfer to private schools.

36. The subsidy system for primary health also needs to be revised tomake it automatic, transparent, and predictable. One very promising method thatshould be evaluated is to do the transfer on a per capita basis with someweighing for poverty.

37. There are also a number of recommendations for the centralgovernment's financing of education and health:

(a) The central government should avoid enacting regulations thatincrease municipal costs and reduce municipal autonomy andaccountability in providing education. If such regulations areenacted, transfers should be modified to compensate for the increasedcosts of their implementation.

(b) All schools and health posts receiving national subsidies should berequired to have annual external audits and performance evaluations.

xii

The results should be communicated to the Ministry of Education andmade readily available to the public.

(c) Transfers for capital investment should be made more transparent andequitable. Such transfers should be integrated with the per capitasubsidy system and paid to all publicly subsidized entities(including private schools that are eligible for PSS).Alternatively, investment funds could be established from whichentities eligibl& for per capita subsidies could borrow.

(d) To increase competition, the Ministries of Education and Healthshould issue annual reports giving information on key financial andperformance indicators for all public and private schools and forhealth posts, respectively.

3. Improve Incentives in CaRital Transfer System, and Permit Borrowina

38. Capital expenditures by municipalities can be financed from own-source revenues, revenue sharing transfers, and capital grants from the centralgovernment specifically for investment. Rising transfers to finance educationand health and limited flexibility in raising revenues and user fees have leftmunicipalities increasingly dependent on capital grants to finance investments.

39. Unfortunately, the allocation basis for capital transfers isexcessively influenced by territorial criteria, which often run counter toefficiency and interpersonal equity goals. Although funded projects are requiredto have a minimum rate of return, all projects exceeding that rate are notnecessarily funded. In fact, such an emphasis can be counterproductive topoverty alleviation. The problem is that there are many "poor familie0" livingin "rich" regions. Over half the population with an income level below thepoverty line lives in three "higher income" regions of the Central Zone (MR, V,and VI). Thus, territorially based transfers are inherently inefficient inreaching poor families. Furthermore, emphasis on territorial equity can mean thatfunds may not be available for projects that contribute directly to product andemployment growth, and which may have a higher potential for poverty alleviationthan territorially based transfers over the longer run.

40. A second problem is that capital transfers are grants and are madethrough a number of agencies. As a result, local officials are encouraged tomaximize their demands for capital funding at the expense of central governmentfinances. No rationing of projects is provided by cost.

41. Borrowing by municipalities is one way to increase the term overwhich capital investments must be financed, thereby decreasing the annual cost tousers. In other countries, however, such borrowing has sometimes led tomacroeconomic problems, especially if the central government guarantees municipalborrowing. Chilean municipalities currently face legal impediments to borrowing:Congress must approve all loans, and no municipal revenues or assets can be usedas loan guarantees.

Recommendations

42. Allowing increased flexibility in raising local revenues (para. 31)through taxes and user charges would increase efficiency. Local users would be

xiii

more accurately presented with project costs and would therefore ration demandbetter. Allowing increased flexibility in generating revenues would also relievesome of the fiscal pressure on the central government as well as on themunicipalities.

43. One possible strategy would be to hold the municipalities reeponsiblefor recovering the full costs of investment, operation, and maintenance of localinfrastructure serving middle and hicher income families via user charges orincreased current account savings from either increased tax revenues or lowerexpenditures. In the case of lower income families, a central government fundmight cover the full cost of an "up-front" subsidy needed to provide theoeservices affordably. This way, a national/municipal transfer would go to lowerincome families and not to the municipality as a whole. Such a system wouldimprove efficiency by more accurately presenting beneficiaries with the cost ofservices, and also by better targeting transfers to poor people. Those able topay would have to pay. The poor would be subsidized.

44. Improvements in municipal cost recovery could be encouraged in anumber of ways. One would be to condition capital transfers on municipalperformance in cost recovery as measured by planned versus actual performance.For example, one condition for all capital transfers could be d Financial Actionand Investment Plan (FAIP) that shows how the municipality or region wouldrecover both investment and maintenance and operating costs. Access to furthertransfers could then be conditioned on good performance in cost recovery as shownin the FAIP.

45. In order to give greater weights to productivity and number of poorpeople, change is needed in the regional allocation and eligibility criteria forcapital transfers for investment in local public goods. Ideally, the currentdistribution criteria for FNDR funds should be dropped entirely in favor ofallocations based on technical assessments of the total investment necessary tomeet infrastructure shortfalls (with some consideration to the number of poorpeople), less the capacity of municipalities to finance this investment withtheir own resources, as discussed above.

46. Such changes in regional distribution criteria may not be politicallyfeasible. At a minimum, more transparent and objective criteria stressingefficiency and fiscal performance could be applied within regions to allocateresources among municipalities. The main objective is that conditionality oftransfers provides incentives for more efficient and equitable resourceallocation. Beneficiaries who could pay would be confronted with the costs oftheir choices. Subsidies would be targeted to those who can't pay. For FNDR,the proposed changes would: (a) reduce territorial distribution in favor of welltargeted interpersonal distribution; and (b) permit financing of projectsbenefitting the non-poor provided there is full cost recovery.

47. For investments in health and education, which are provided bymunicipalities but financed by the central government, the allocation tomunicipalities might best be based on a capital investment program for each ofthe sectors designed to reach specific coverage targets for each area. Forexample, for schools, the regional and municipal allocations could be based onthe costs of meeting the need for school rooms, rather than on the distributionalcriteria currently used for the FNDR and other capital grants.

xiv

48. Regarding the issue of borrowing, creditworthy municipalities shouldbe allowed to borrow in private capital markets with no central governmentouarantee, implicit or explicit, on a gradual and selective basis. As long asthere is no central government guarantee, the private lender assumes the risk ofdefault. In countries where municipalities depend on long-term financing,responsible borrowing not only permits the matching of payment and benefitstreams, but also provides a strong incentive for good financial management:lower interest rates. Well-managed subnational governments get better creditratings and therefore pay lower interest rates. In addition to these incentivesfor municipalities to improve their financial management and thus their creditratings, long-term borrowing would be another investment for Chile's welldeveloped pension system.

Ilt. INCReASINo MANAGEMENT EFFICIENCY AND ACCOUNTABILITY

49. To allow successful implementation of the reforms for democraticgovernance, management efficiency and accountability need to be strengthened atthe subnational level. The process of improvement must encompass theinstitutions of subnational governments and their officials, including: (a)members of the elected executive bodies and officers (i.e., the regional andmunicipal councils, and the mayors); (b) key appointed executive officers (i.e.,the regional intendentes and the newly created positions of municipaladministrators-- Administrador Comunal); and (c) technical staff at both theregional and municipal levels. Efforts should cover the improvement of generalmanagement efficiency, the financial management information system, andaccountability.

50. The remainder of this section addresses steps for improvingmanagement efficiency and three key mechanisms for increasing accountability:auditing, budgetary oversight, and participatory procedures.

Recommendations

1. Improve Manacement Efficiency and the Information System

51. Improve Organization. Systems, and Procedures. The most importantand urgent element in improving management efficiency is the implementation of agood management-oriented information system (see the following section).However, this information system must be part of an overall effort to improvemanagement at the subnational level that would include improved organization andmethods, auditing, budgeting, procedures for public participation in decisionmaking, and training.

52. An overall management development program should be adopted coveringall the key resources of a municipality, including: (a) goods and servicesprovided; (b) financial resources; (c) human resources; (d) fixed assets (e.g.,buildings, equipment); and (e) contracts (with service providers).

53. Establish a Manaaement-oriented Information System. A moremanagement-oriented information system for municipalities should serve the needsof local decision makers as well as meet the statutory accounting requirements ofthe Contralorla. The objective is to have a system that helps manaoe moreeffectivelv and also produces data necessary for control and coordination by thecentral government entities (Contralorla, Interior, etc.). Municipalities should

xv

be provided with comparative information on their financial positions andperformance.

54. The importance of a complete, timely, and accurate set ofconsolidated public sector accounts for effective macroeconomic management willincrease hand-in-hand with the importance of the subnational public sector.

2. Refine Budaetina and Auditinq

55. Budgeting should be multiyear. Good projections related to capitalbudgeting and operating and maintenance costs associated with investments areneeded. Performance auditing (auditorfa de gesti6n) should be introduced. Onegood way of increasing accountability, as well as stimulating healthy competitionamong the municipalities, would be to produce and distribute an annual report ofkey municipal government performance indicators.

3. Enhance Procedures for Public Participation in Decision Makina

56. Planners and local officials need new tools to measure demand,including public hearings, public opinion research, policy analysis resources,and other procedures, the better to verify the willingness of beneficiaries topay, to gauge the capacity of local jurisdictions to maintain public facilitiesonce they are built, and to estimate current and long-term costs of programs andfacilities.

57. Municipalities and regional governments should develop a means ofcommunicating more effectively among themselves, by forming associations orsetting up an institute to study subnational institutions. This may be bestaccomplished via one of the existing NGOs working in this area, or byestablishing a new one.

4. Strengthen Training for the Subnational Public Sector

58. There is a consensus on the need to strengthen the management skillsof both elected and appointed subnational government officers (intendentes,municipal administrators and directors, mayors, and council members). Prioritieshave not been settled, however. Perhaps the highest priorities for traininginclude: the use of modern accounting and information technology; elements of thenew legal base for subnational governments; general management skills; andlong/medium-term financial planning.

IV * A STRATEGY FOR IMPIEM TATION

59. What are the options for implementing such a strategy (para. 7) inthe short-, medium-, and long-term? Reforms to reduce the rapidly growingmunicipal subsidies for health and education must be addressed in the short run.Failure to do so could render the system inviable. In the medium- and long-term,a two-stage strategy could be:

(a) Stage One: to define municipal responsibilities, improve incentivesfor better financial management, and provide the means for municipalitiesto respond to these incentives (i.e., training programs, managementinformation systems, etc.); and

xvi

(b) Stace Two: to permit "creditworthy" municipalities to borrow inprivate credit markets with no guarantees from the central government on agradual and selective basis.

60. By stimulating the mobilization of resources at the subnationallevel, such a strategy could keep pressures off the central government forincreased transfers and could increase the overall efficiency of the subnationalpublic sector. This could, in turn, increase overall economic productivity andcontribute to the resolution of environmental problems. In this sense, thestrategy would assist in the implementation of democratic reforms at thesubnational level which Increase (or at least maintain) macroeconomic efficiency,equity, and fiscal discipline.

1

Chapter 1. INTRODUCTION

a. Context. Issues, and Strate-,

1. Subnational Government Reform

1.1 Major reforms in the institutional structure and spendingresponsibilities of subnational governments in Chile are being enacted intolaw. These reforms will increase local and regional political autonomy byreestablishing elections for mayors and council members at the municipal leveland for council representatives at the regional level-- a radical departurefrom the present situation, in which mayors, municipal council members andregional representatives are appointed.

1.2 Constitutional reforms mandating elections were passed by Congresson November 9, 1991. More specific legislation (Leyes Orgdnicas) necessaryfor actual implementation of these reforma is currently under debate,including the rules for electing municipal government leaders. The governmentand the opposition agreed to enact all necessary legislation to permitmunicipal elections that were held in June 1992, and succeeded in so doing.

1.3 As a condition for allowing these elections, the oppositioninsisted upon greater power for regional governments. The previous governmentcreated the regions in 1974 to serve as decentralized entities of the centralgovernment. The law currently under consideration by Congress would giveregional governments the right to enter into legal agreements and to holdproperty. It would also increase the financial resources allocated to -and bythem. For example, the budgets of the national sectoral infrastructureministries would allocate significant resources to regional infrastructureprojects. Although the national ministries would continue to determine theregional allocation of these resources, each regional government wouldallocate them among its "regional projects" (i.e., those having an impactwholly within the region). The resources of the National Regional DevelopmentFund (FNDR), allocated by the regional governments, would be increased.

1.4 Congress is also debating reforming the Municipal Revenues Law togive municipalities greater diecretion in levying and collecting taxes andfees. Passage of this law, however, will take longer because it iscontroversial and of lower priority than the enabling legislation formunicipal elections.

2. Main Issues

1.5 The new legislation will make subnational governments a much moreimportant part of Chile's consolidated public sector. In anticipation ofthis, a critical question is:

What issues must be addressed in the design and implementation ofdemocratic reforms at the subnational level in order to increase (or atleast maintain) macroeconomic efficiency, equity, and fiscal discipline?

1.6 Central government officials want to know what must be done toachieve these objectives of macroeconomic efficiency, equity, and fiscal

2

discipline. Their planning horizon reaches far beyond establishing the legalbasis for immediate re'orma. Indeed, there is general agreement within thecentral government that the reforms currently under consideration by Congressrepresent only the initial step in a much longer process of socio-politicalchange. This process would involve defining and fLne-tuning laws andadministrative regulations, ard developing and implementing programs thatprepare subnational institutions and official. to assume expandedresponaibilities wlthin a new democratic context.

1.7 Having introduced a number of important institutional innovationsin recent years, Chile ha. the advantage of embarking upon these reforms froma very high level of institutlonal development (Bee Box 1.1).A/ The well-trained municipal government workforce is small, but productive and highlymotLvated. Municlpalities have already privatized the production of manyservices. The current system for intergovernmental grants is transparent andpredictable, and subnational governments do not generate significant fiscal orquasi-fiscal deficits. Indeed, attaining the fiscal discipline and efficlencyof Chile's subnational public sector would be an ambitious goal for most othercountries in the region. Glven this strong startlng position and the generalmacroeconomic stability, Chile could become a model for subnational publicsector reform, much as it has been for the national public sector.

1.8 Nevertheless, the following important problems remain to besolved:

(a) Assignment of responsibility for the provision and financing ofsome municipal services (e.g., storm sewers) that is undefined orill-defined, or which must sometimes be negotiated on a case-by-case basis among various governmental units (e.g., street paving).While this is not as prevalent in Chile as in some othercountries, it is still a significant problem: without clearassignment of responsib$iity, there can be no accountability.

(b) Lack of flexibility in raising revenues and borrowing. Under theexisting system, the most viable and attractive way for municipalgovernment officials to obtain funds is to pressure the centralgovernment for higher transfers, as they have little flexibilityin raising revenues, and cannot borrow. Mayors and other localofficers can avoid the political cost of lowering capitalexpenditures by getting grants from the central government.

(c) Strong built-in dis$ncentives to achieving efficiency and flscaldiscipline within the present system of capital transfers from thecentral to subnational governments. The current transfer systemprovides incentives for local officials to maximize funds from thecentral government bys (a) increasing the number of projectssubmitted for funding to any of a dozen central government sources(the only cost a munlcipality must bear is that of project

d;/ TLm Campbell et. al., Decentralization to Local Government in LACsNational Strateaies and Local Resoonse in Plannina. SDendina andManaaewent, Latin America and the Caribbean Technical Department.Regional Studies Program. Report No. 5, The World Bank, July 1991.

3

preparation, and land in some cases); (b) underestimating thecurrent costs of maintenance and operation to increase the chancesof project approval; and (c) submitting projects rejected by onecentral government entity to another.

(d) Rapidly increasing expenditures by municipalities for primaryhealth and primary and secondary education.

1.9 One problem with this "we spend they pay" system is that itprovides no incentive to mobilize municipal resources nor to ration the demandfor funding.2/ Allocation efficiency is most likely achieved whenindividuals and localities are burdened with the (initial and recurring) costsof their declsions, and when these economic and financial costs are reflectedin the local electoral process.3/ But the existing system ofnational/municipal capital transfers shifts the cost burden off municipalofficials and citizens, thus decreasing efficiency.

1.10 The democratic government of Chile must rely heavily onappropriate incentives to promote its objectives. Current incentives,however, are likely to suppress the mobilization of local resources, to havean adverse impact on efficiency, and to increase the demand for transfers fromthe central government, which could contribute to a consolidated public sectordeficit. Even with appointed mayors and council members, municipalities haveexerted great pressures on the central government for these transfers. Itwill not be nearly as easy for central government officials to "just say no"to democratically elected mayors and council members from 334 municipalitiesor to the elected officials of the thirteen regions. Thus, high priority mustbe given to establishing new incentives for local resource mobilization,efficiency, and fiscal discipline in subnational governments (or at least toeliminating disincentives).

1.11 Rapidly rising municipal subsidies for health and education reducethe fiscal autonomy of municipalities. Municipalities have had to greatlyincrease their transfers to municipal schools because: (a) the centralgovernment did not maintain the level of subsidies in real terms until 1990when the law was changed to allow adjustment at the same rate as the rest ofthe public sector; and (b) municipal schools are overstaffed, having loststudents to private subsidized schools while not reducing the number ofteachers. Municipal transfers for primary health have risen even morequickly.4/

1.12 Escalating municipal subsidies for education and health togetherwith the lack of flexibility for raising revenues and borrowing havecontributed to a shortage of capital for municipal investment. This shortage

2/ James Hicks, Local Government Pinancial Manaaement Durina9jPUstMent, Dissemination Note, World Bank, January 1991.

VI Campbell, op. cit., p. 15.

i/ A law currently under consideration would change the method ofcalculating these municipal subsidies for health.

4

Box 1.1Institutional Innovations of Municipal governmento in Chile

Following iL a summary of some of the most important recentinnovations in local government administration.

- Municioal and Comunitv Particioation in Poverty Assis*nae.Municipalities administer a questionnaire used to target social assistanceto the neediest families. The central government uses the results of theCAS questionnaire in determining eligibility for direct monetary transfers(e.g., old age and disability pensions, payments to pregnant women, etc.)and subsidies (e.g., housing and water-payments). Municipal governmentsmaintain social welfare departments to gather, update, and verify datawith household visits. Data from the CAS questionnaires are fed-into anational data base. Biannual national household sample surveys (CASEN)provide a basis for corroboration of the C8. reaults-. Since the 1980s,municipalities have administered assistance-- arranging.for directdelivery or contracting for pre-school meals, nutritLon supplements,- daycare and other poverty aid.

P Private and Market Modes of Local Social Servigcgs Starting inthe early 1980s, the Chilean government began to implement a comprehensive..program to transfer responsibilities for primary and secondary educationto municipalities and to permit competition between private subsidizedschools. See parae. 3-.44 to 3.57.

-Contractin. Municipalities in Chile contract a wide-range ofservices. Over 70% of the municipalities contract out for such services-as solid waste collection-and disposa-l and maintenance-of--street lights.Key to the widespread diffusion of.'contracting was the-promulgation tomunicipalLties of "rules of thumb,"-guidelines for -alcuiating-costs,model legal contracts- and legal assistance:.by the Ministry--of::Interior.-There is a proposal'to allow for contractinq employees for-natLonal publLc-entities under the:-laws governing-private-sector employment that could-also be applied at-the municipal level..

- .Strenothenin. Logal -Institutional"CaDacitvtY- Perhaps the most -striking feature of.municipal development in Chile -lsthe -transformation.of-municipalities from politically-influenced employers of£-low-productivity labor to' their present-day.-status as theo most highlyprofessionalized locaL governments in the region. Ovoer apOriod ofthirteen years, these-reforms.. increased significantly the proportion ofskilled professionals in.the municipalitles... At:th same time, the numberof government workers-per capLta dropped by twelve-percent. T1hese changesrequired reform of local government, civil service rules, career-serviceschemes, and salstry reforms.. For instance,, a lgal change in- 1976established equivalence-between municipal and central government employees...in-labor relations-under the Public Sector Administrative Statute. Asoo,the central government began large programs .to train nearly 3,000employees.

5

occurs at a time when there in great need for municipal infrastructure,especially urban street-related investments (paving, storm sewers, etc.),rural feeder roads, and improved local environmental quality (green spaces andsolid waste d'sposal).

1.13 The inability of municipalities to meet these needs is criticalbecause the resulting shortages represent:J/

(a) an important constraint on economic productivity and growth, andtherefore on the capacity to create jobs and increase incomes; forexample, there lo a lack of adequate feeder roads to transport theproducts of Chile's rapidly growing agriculture and forestryindustries, and to support tourism; and

(b) environmental degradation (e.g., air pollution from dust andincreased fuel consumption due to unpaved roads, and waterpollution from the inadequate collection and disposal of solidwastes).

B. Overvicw of the Subnational Public Sector

1. Government Structure and Sector Definition

1.14 Improving the efficiency of subnational governments is criticalbecause they are becoming increasingly important providers of public services.As spending by these governments increases, their growing relative importancein Chile's public sector will increasingly affect efficiency, equity andfiscal dincipline.6/

1.15 How much subnational governments actually spend is difficult todetermine because in some instances municipalities provide or allocate goodsand services, but are not responsible for financing them (see Chapter 2).Therefore, municipal control (direct and indirect) over resource allocation inthe public sector is much greater than appears so in municipal accounts. Theimportance of subnational governments in the consolidated public sector willgreatly increase if legal reforms presently under consideration are adopted.

1.16 Chile's unitary government structure has three levels ofsubnational government:

Rgaionals The 13 regional governments were created by decree in 1974.They are headed by Int.ndentes who are appointed directly by thePresident.

S/ For a review of the research documenting each of theme, see: UrbanPolicy and Economic Develoment: An Agenda for the 1990s, The WorldBank, Washington, D.C., 1991.

6/ As ln the CEN, "Fiscal dlscipline is defined as the existence of aninstitutional framework capable of preventing the generation of deficitsthat may become unsustainable but flexible enough to facilitateadjustment to changing conditions." World Dank, Chile: ConsolldatinagEconomic Growth, August 31, 1991, p. 69.

6

Prgvinclals The 51 previously eastablished provinces lout most of theirfunctione with the creation of regional governmentu, and there are noproposals to increase theLr importance. They are headed by governorswho are appointed by the President.

Municiinals There are 334 municipalities in Chile.

See Table 5.2 for the structure of subnational governments after the reforms.

1.17 Municipal governments always have a central administration orgestidn municipal (see Chapter 2 for its responsibilities). At both themunicipal and regional levels, there are decentralized entities with varyingdegree. of autonomy. Municipalities normally charge either a decentralizedadministration (departamentos) or a private corporation (corporacionesmunicipales) with providing services for health, education, and cemeteries.Municipal and regional corporations (e.g., the regional water and sewercorporations) are grivate entities over which the public entities exercisevarying degrees of control.

1.18 Because municipal governments exert indirect control over resourceallocation in some cases, subnational accounts do not reflect the fullimportance of these governments, as Box 1.2 shows. A more complete analysisshould cover resource allocation:

(a) over which municipalLties exercise direct control and which iscovered in their accounts (on-budget); and

(b) which is either directly administered by them or in which theyexercise considerable control, but which is no covered in themunicipal accounts (off-budget).

1.19 Table 1.1 shows that central and decentralized administrations ofmunicipal governments spent 2.3% of the Gross Domestic Product (GDP) in 1990(US$ 648 million, or 13% of total public sector expenditures).2/ But thisestimate grossly under-represents the importance of municipalities in Chile'spublic sector because it excludest (a) education and health expenditures bymunicipal corporations (US$ 110 million); and (b) investment projects thatmunicipalities initiate and sometimes execute but which are no entered intotheir accounts because they are funded by the National Regional DevelopmentFund (FNDR) (US$ 65 million). Adding these two off-budget expenditures wouldraise municipal government expenditures to US$ 824 million (2.9% of GDP).

1.20 This estimate, however, still excludes investments planned orexecuted jointly with the national sectoral ministries (US$ 469 million) andthe administration of interpersonal transfer programs (US$ 190 million). SeeTable 1.1. Under proposed legislation, the regional governments will selectspecific regional investment projects of the national sectoral ministries.Regional projects arm those whose impacts are wholly confined within the

1J Chilean pesos converted to US$ at the average rate for 1990: U8 S1 -304.903 Chilean pecos. In all cases in this report, pesos are firstconverted to average 1990 values and then into US$ using the above rateto avoid problems of double indexing.

7

Box 1. 2

Municipal Control Over PubIlg R2source Allocaticnadte uiia,Accounts

In Municival Accounts fon-budgett

Central Administration (Gestidn Municipal)* Own resources* Revenue sharing with other municipalities (Municipal Common

Fund-- MCF)Current transfers.

- to departments or corporationa. for education.-and-health..other

- Capital transfers (Neighborhood and Urban Betterment Programs,etc.)

Decentralized Administration*.- Department of Education-- Department of Health

* Other departments

Outside Ifunicival Acgounts with VarXing Degrees of HUnicinal Control (off-.

"Direct" Control of municipal corporations.-(CozporacloneJ* uniclpales).Negotiated-capital transfors and National Ministry expgnditures-Nationa1L Regional Development--Fund. (FNDR--Ministry of Housing-and: Urban Development (MINVU) for urban

street maintenanceMinistry of Public Works.'for road maintenanceOther.--Administration of-Poverty Programs.-

- Old age and disability pensions -H* ousing subsidies-

* Water and sewage tariff subsidy.:

region. The operational definition of regional and national lnvestments is,of course, difficult. In addition, municipalities designate the recipients ofinterpersonal transfers (old age and disability pensions, low-Lncoma familysupport, housing and water subsidies, etc.) in what many consider to be themost efficiently administered poverty programs in the reglon vla the CABsystem (see Box 1 1). These addLtional expenditures increase the previoustotal of municipal government expenditures to 5A3 of GDP. Figure 1.1 showson- and off-budget expenditures. Figure 1.2 shows the types of off-budgetexpenditures made.

2. Plannina and Budoetina System

1.21 This section describes the inter-governmental arrangements forcapital investment planning. The emphasis is on inter-governmental

8

1A*1 1: Cle. MuCIdpi and Regim lu pl _bru

ouo-aNW Off.udeI M1111ef IofType of EpdWe Usil (3) GDP

TOTAL 1483.7 5.3

la Municipal Accotun (oaNbudge) 648.3 2.3

Cetral Admnistration (GCaddn Munidpal) 434.1 1.6

Decentralized AdminIstabou (departmea) 214.2 0.8

Education 188.2 0.7

Health 22.7 0.1

Others 3.3 0.0

Outside Municipal Accouns (off-budget) 835.4 3.0

Municipal Corporations (direct municipal control) 110.S 0.4

National Regional Development Fund- FNDR 65.0 0.2

Regionalized Expenditures of National Ministries 469.9 1.7

Housing- MINVU (1) 222.5 0.8

Ministry of Public Works 236.4 0.9

Miaistry of Health 11.0 0.0

Poverty Progrm Administerd by Municipalities (2) 190.0 0.7(I) MmUy *I neams an uib Dwiaue for ub draftm IdWa Prmg by Mh&at ofdhe. d al ts Wu dwdb_ prem (DIGEDR). WiN bwmis FOSIS.(3) USS I - CS 3ca.5

1M ftre Cam GO_~ mI Mbols of Prbio Web, Huuug H=6 b^ md Pd

coordination of investments affectirg local governments, including: (a)central ministries; (b) the Interior Ministry's program of FNDRI and (c)municipal own-financed investments. The basic administrative components ofplanning and implementation of these investments are the central ministerialbureaucracies Ln Santiago,. their rbgional offices (known as SEREMIs) andexecuting agencies. Planning and spending of regional funds is organizedthrough the 13 regional and 334 municipal governments. For chief features ofthe national planning system, see Figure 1.3. As this figure compresses agreat deal of information into a single page, some interpretive comments arein order. The Chilean planning structure is grouped by major function (fromleft to right on the page in each of three columns, respectively) intos (a)technical evaluation; (b) governmental decisions; and (c) administrativeimplementation. Each of these functions is discharged by agencies arranged inhierarchical fashion (by row down the page) by territorial level: central,regional, and municipal.

1.22 The technical evaluation functions in the Chilean system haveemployed highly skilled personnel and sophisticated managerial tools, but havelacked channels for the popular expression of preferences and demand.Recently approved reforms in regional administration and planning will improve

9

Figure 1.1 On- and Off - Budget Municipaland Regional Expenditures 1990

Million, o U8S of 19901000

800 , . .

Goo

4000 -

200

0On-Budget Oflf -udget

Soue:or Table 1.1

Figure 1.2 Off- Budget Municipaland Regional Expenditures 1990

Millons of USS of 1990

400 -

300 _ -.. -

200 -_. . -

100

0Man. Corpoertlon PNOR Not. Ministtie Povwrty ProgM

Souroh Table 1.1

the process of incorporating citizen input into the deliberation of prioritiesat the local, provincial and regional levels (more detail is provided inChapter 5). At present, all investment projects over a threshold of US$340,000 are recorded ln a national computerized project data bank-- a trackingsystem known as SIP (Banco Lntegrado do Proyectos)-- and are supposed to besubject to systematic evaluation based on unusually detailed criteria codifiedin manuals. In theory, this technical ensemble-- Planning and CooperationMinistry (MIDEPLAN) (ODEPLAN until 1990) at the national level, together withits regional representatLves (SERPLACs)-- identifies, evaluates, and trackspublic sector investment projects. (The 1988 law on municipalLties exempts itfrom the obligation of registering municipal own-financed lnvestment projectsin the data bank.) In practice, many projects do not receive the scrutinythis system is intended to provide.

10

Figure 1. 333NOr PLANIIMS PUBLIC SEC!oft I -ST inM IN C11.

:.Territorial.:' TechnLcal | yaIernmental AdministratLonal

Level. (recommends) (decides) (executes)

'.a .aI nIa:Nationlal Treasury

~~~~~~IIi. .m mm nm | P u b l l c l mrn

.. MIDEPLAN inOteriors

~~MINE MEIR m fi-|ilHm. -rXmffl m

.ntndentes

Regional M l Ico

. . ~~~SERPL ACs COREDEs a ~_ r c or .

. . X . ~~~Mayors,

: f @ ~~~~~~~~~~Works:..... -.. :: .SllCPLACD O ODEGOa Dept .

..... ... .. .' g

.: . . . | N~~~~oLgh}>or-| .

. . . . | -I~hood Assoc. .

... .. ..... . . .. . ....

11

1.23 Although legal reforms currently under debate will modify theroles of these different entities, the entities themselves will continue toexist. The SERPLACs are to evaluate and coordinate planning with the regLonaloffices of the sectoral ministries (SEREMIe). Both are to be subordinate tothe Intendente, who, on the advice of the regional development council(COREDE), is to establish priorities for competing projects financed by theFNDR. Projects advanced by ministries and decentralized agencies are mostlycarried out independently of the Intendentes, although there are occasionswhen regional governments influence the timing, size or location of ministryinvestments. Zntendentes have enjoyed nearly total diecretion in prioritizingthe investment of regional development funds, but the reforms will give muchof this power to the COREDEs. See paras. 5.18 to 5.26 and Table 5.2 for amore detailed discussion of the structure and functions of subnationalgovernment after these reforms. Similarly, municipalities were empowered bythe 1988 reforms to invest in many sectors and are to be guided by a localdevelopment council (CODECO) which sets priorities. Local governments arerequired to prepare an annual investment plan and to have a general land useplan. Municipalities of over 100,000 citizens have the option of using theservices of technical groups known as SECPLACs to evaluate municipaldevelopment projects. Otherwise, municipal public works departments carry outthese functions.

3. Municical and Reaional Diversity

1.24 There is tremendous diversity in the administrative capacity,population size, and number of poor people among the subnational governmentsin Chile. An important challenge is to develop strategies for dealing withthis diversity in subnational governments.

1.25 Table 1.2 and Figure 1.4 show the distribution of municipalities,population, and poor people by population size group and poverty rank (most,middle, and least poor).A/ Of the 325 municipalities,I_ 200 (61%) havefewer than 19,999 people, but hold only 15% of the country's total population.Of these 200, 55 municipalities have fewer than 5,000 inhabitants and manyhave considerably fewer than 1,000. On the other hand, there are only 40municipalities (12% of the total) with more than 100,000 inhabitants, but 57%of the total population lives in them. Almost half of the municipalities withmore than 100,000 inhabitants are in the Santiago Metropolitan Region (MR),including 26.8% of Chile's total population.

S/ This stratification of municipalities was done using multivariatestatistical analysis on indicators of poverty and administrativecapacity. Sees $inisterio del Interior, Subsecretaria de DesarrolloRegional y Administrativo and Instituto Latinoamericano y del Caribe dePlanificaci6n Economica y Social (ILPBS), Una TaxonomLa Comunal:Reeultadoe Finales, Santiago, Chile, 1990, xerox.

9/ The recent creation of nine new municipalities in the MetropolitanRegion of Santiago (MR) brings this total to 334.

12

1.26 In terms of population of poor people,jQ/ almost half live inmunicipalities with more than 100,000 inhabitants, whereas lese than 11% livein municipalities with fewer than 20,000 inhabitants. More interestingly,almost a quarter (23%) of the poor. population lives in municipalities rankedas "least poor," with over 100,000 inhabitants.

1.27 The above facts concerning the poor population have manyimplications for the design of an institutional development program. For one,the needs and capacity of the smaller municipalities are limited, as is theirimportance in terms of population and poverty reduction. Thus, it probablywould not be cost-effective to have the same institutional development programfor all municipalities. For the overall success of reforms in macroeconomicterms and in terms of impact on poverty, the larger municipalities (largerthan 20,000) are extremely important, as they account for over 85% of thepopulation and a much larger component of total expenditures.

1.28 Table 1.3 and Figure 1.5 show the total population and demographicdensity of the 13 regions. In Region XI, about 80,000 people live in a109,025 km2 area, resulting in a density of only 0.7 person per km2. Four outof the ten municipalities in this region have fewer than 1,100 inhabitants andall but one have fewer than 20,000. This is in sharp contrast to the 5.1million inhabitants of the Metropolitan Region of Santiago (MR) which has adensity of 335 inhabitants per kam (see Chapter 4 for more details).

2Q/ This rough estimate is done by multiplying the projected populationin 1990 by the percentage of poor population from the "Mapa de ExtremaPobreza" of 1982. This estimate provides only the relative distributionof poor population by population size group and poverty rank.

13

Iah.lJa ChEss mwddpd, lopgsom "d Poo Pstwk*m,DY PovatY Rauk of Mhe Munidpdy and PopuAlutm Sue Gmp 1990

MunkipoMtb (2) PoW.Po Ru& (1) ropm _ Podmo )

Populdoa Sao Gp A_uo () (I) (

ToWa 325 100.0 100.0 100.0

Loua thao 10000 108 33.2 4.5 4.4

10000-19999 91 28.0 10.3 6.4

20000-49999 70 21.5 17.8 28.4

50000-99999 16 4.9 10.2 11.9

100000+ 40 12.3 57.2 48.9

Pooroa 145 44.6 26.2 35.8

Lw than 10000 53 16.3 2.4 3.8

10000-19999 62 19.1 7.0 10.1

20000-49999 20 6.2 4.6 6.2

50000-99999 1 0.3 0.6 0.6

100000+ 9 2.8 1I.5 15.1

Middle ISI 46.5 42.4 37.6

LeaM than 10000 S2 16.0 1.9 2.2

10000-19999 28 8.6 3.2 3.2

20000-49999 48 14.8 12.6 13.8

50000~99999 12 3.7 7.4 5.5

100000+ 11 3.4 17.3 13.0

a."n Poor 29 8.9 31.4 24.7

Laa aihn 10000 3 0.9 0.1 0.1

10000-19999 1 0.3 0.1 0.1

20000-49999 2 0.6 0.6 0.8

5000k-99999 3 0.9 2.2 0.8

1t9+ 20 6.2 28.4 22.9

(2) EmolUds ad _r 1owidm of MR0) 1bh ia ta& utims doby mm*bg th p_sW pWp~im i 90 by b, psropd p fo4m de's &wem.

aY^e R_ll gm~rA wt &a rkm _ b .C Et e b ad L of CMI.

Figure 1.4: DISTRIBUTION OFMUNICIPALITIES, POPULATION, AND POOR

POPULATION BY POPULATION SIZE GROUPSe ot National Total

60

60 _. -- ___.

30 _ _

20 -- -~ -.- ~ ~ l - ; 30

Le" 10.000 10.000- 20.000- 60.000- 100.000t Santiago190.0 4.0999 9.9199 MR

Population Size Groups

Varlablea

=Municolpalities IPopulation r PoorPopulatlon

Iourcei Tables t2, A.13. AtM. A.1t

14

TAb1.t ChUm. fbplas. ftP p y. md hi* d by Zam ad Rqloa

Amw ftpukdi

swas M.e P Ummlfi 34W Mbum _ immZ- Md 3 (kwn hPukdm tkw_ _ no MINIONS C_mdm Nedug

(3) 3R) Nmd Did 0) (4)

-TVrAL. ALL UGtO?S 75? W73.37334 17.411 652733 2.061.165 5.402745 16.90,

TOTAL- NOEI ZONE 33 1.431. 4.752 1.:59 191.39 537 2.5

I D T _illm 5s 33.0 4.101 1220 39.32 JAI" 66

n la AN1 32 3s 193.? lis1 t 3.536 44. 133" 1.I93

MDa Asm 74 197.3 2.413 30,13 24.715 3.35 44

IV D COM 43 41.4403 33.966 47,172 601.3 331.00 425

CIZNrEL ZO si WM 4a 7.23.3 1s5.m 30.932 94075 2.367 11,415

MR ImeIqo MWIUp1 radm Is 5.26.32 3413.55 169.676 65m75s5 111.43 3U27

CENTRAL ZONE "VA MR 33 201.,712 d2016 133.W 2 399.= 319.45 3.311

V 0 Va_p.b. Id 1331.94 3.5 75.707 1.3 3654 2.041

VI ta Llmue 0. 3.0. 16 643164 39,74 7"53 300.732 276.275 1.64

TOTAL.30tr3 ZONE 09 330.2 33.41 39116 759. 1,732.7 3.4

1 l Mink 30 30,457 27.73 55421 1297 363o 7W9

I Vm Dd 9, ", - 31 1.614 45.336 339,0 379,617 11mo0ls 13916

cC Do _ Anumok32 7mZ 24,M 14i.15 Z'ui 47, 0

TO1AbOrU7SUMZONB 3a 1.1t2.706 a774 71W I"m *4A4 1j5

X OD mLam 47 glue 1377 ,44O 177,609 421,907 gm

)( Ak. 64 Gm. Ca"m 1 091 at 2 736 13.65 3.600 1.143 91

Xl De_mlm by 1332V 359.dl5 1.211 671 7.O92 25.165 5493 A_mon CI

VI TM muNWR Ak. ((1) m 3 _0) 1bs_ fim 0A83 33? bp CDAL 3kH_ S Wu3 l m km C03N 3I? by AL- l am de (iWaka pWi).

(4) b_ Am CASW I3b CEb AL- hdmm am a ofW imk aum puhp (Am 500 gm to had).

Figure 1.5: DISTRIBUTION OFPOOR POPULATION BY POPULATION

SIZE GROUP AND POVERTY RANKING% of National Total

20 -- -IL-

LO" 10.000 10.000- 20.000- 50.000- 100.000*10.603 40.0 99.90.9

Population Size Groups

Povrty Ranking

m Poorat B Middle r Last Poor

otwars Tabe u

15

Chapter 2. M SIGNNM OF RESPONSIBZLITIRE FOR PROVISXON 0P PUlLICsERVCS8 aTE SUATINILEVEL

A. T-esAssicmueat of Responsibilities

2.1 Unlike most other countries, the division of responsibilities forthe provision of municipal goods and services in Chile follows public financeprinciples reasonably well, and thus is efficient. While some problemsrelated to spillovers and economies of scale also exist (Sections C and D),the administration of assignments as defined and the clarification ofresponsibilities for provision are the main problems (Section E). Areasremain where assignments are not legally defined or are covered by verycomplex arrangements negotiated on a case-by-case basis among differentgovernment levels. Without clear assignment of responsibility, there can beno accountability, and thus no guarantee that the service will besatisfactorily provided.

2.2 According to principles of public finance theory, the allocationof responsibility for provision and financing of public goods and servicesamong different levels should be guided by the following:

2.3 Economic Efficiency. As a general rule, public goods and quasi-public goods should be provided at the lowest level that best encompasses theexternalities. This improves the matching of demand for public goods with thewillingness to pay and thus permits a more efficient allocation of thesegoods. Allocation efficiency also improves when individuals and localitiesare confronted with the cost burdens (initial and recurring) of theirdecisions, and when these economic and financial consequences are reflected inthe local electoral process.ll/ Furthermore, in terms of administration,providing public goods at the lowest feasible level allows beneficiaries tohold local officials more accountable for their decisions. However, theassignment of functions must take into account economies of scale in theprovision of these public goods. More specialized functions with higher costthresholds should be supplied at higher levels of government. For example,only hospitals higher in the hierarchy of service provision should haveexpensive, less frequently used equipment.

2.4 Eaultv. The foregoing general principle of allocation efficiencymay conflict with equity considerations: governments may wish to assureminimum levels of public goods consumption and of national public merit goods(such as education and health) across local jurisdictions. This approach alsoreduces the incidence of migration as a means to benefit from better publicservices. The local government may provide goods for which a minimum supplyis desired with national financing via transfers, or the national governmentmay provide the good or service itself. However, the greater the earmarkedtransfers, the greater the possibility of a decrease in allocation efficiency,an direct beneficiaries will not be confronted with the costs of theirconsumption. Moreover, in provJiding mlnimum levels of such goods to all

11/ Campbell, op. cit., p. 15. For another summary of recent researchon fiscal federalism, see: Wallace F. Oates, Princioles of FiscalFederalisms A Survey of Recent Theoretical and Emoirical Research,University of Maryland, January 1991, xerox.

16

(including higher income families), overall equity may be reduced (see Chapter3 for further discussion of these issues).

A. Existina Assionment of Responsibilities for Providina Public goods

2.5 To analyze the assignment of responsibilities in light of theabove principles, it is useful to divide the present system of municipalpublic finance in Chile into two types of functions:

Municipal functions are local public goods or quasi-public goods forwhich the municipality is responsible for both provision and financingfrom own-source revenues (including unit cost charges) or revenuesharing;

Municipal/national functions are public goods or quasi-public goods thatthe municipality provides, but with full or partial financing from thecentral government.

2.6 The main municioal functions as defined in the current Leyorg&nlca Municipal are:

(a) urban street and rural feeder road paving;(b) drainage;(c) solid waste collection and disposal (including street sweeping and

refuse collection from residential and industrial/commercialcustomers)?

(d) street lighting;(e) open space and recreation; and(f) public cemeteries.

This assignment is generally in accord with the principles laid out in paras.2.3 and 2.4, as these functions mostly generate local externalities. Chapter3 analyzes the financing of these goods in detail. Basically, municipalitiescharge taxes and unit cost fees; an automatic revenue sharing of municipaltaxes provides un-earmarked resources for municipalities to help supportminimum levels of overall consumption; and the national government provides acomplex system of funds for capital expenditures.

2.7 Public safety is a public good usually provided and financed atthe local level. In Chile public safety is provided quite efficiently by thenational police force-- the carabineros. Given this efficiency, and the longtradition of central control of the police, thic function probably shouldremain at the national level.

2.8 Education and health services are provided at the municipal levelin many countries, but they are municigal/national functions in Chile.Municipal governments are responsible for providina public primary andsecondary education, and primary health care, but the central government islargely responsible for their financing as it seeks to insure a minimum levelof these services (para. 2.5). The municipalities, however, are responsiblefor paying for all educational services offered above this minimum level. Thecentral government remains responsible for higher education and higher levelhealth care. Access to health care is structured as a hierarchy with the morespecialized services offered at higher levels. The most specialized and

17

expensive equipment lu found at regional or national centers. This assignmentiu generally in accord with the principles outlined in paras. 2.2, 2.24. Themodified voucher system adopted for financing education and health services isone of the more interesting in Latin America. But there are some importantunresolved issues regarding the financing of education and health services andcentral government constraints on the ability of municipalities to tax inresponse to local demand. Theme are discussed in Chapter 3 (paras. 3.44 to3.57) because the major issues related to them are closely linked to financingissues.l2/

2.9 Until the recent reforms, regional governments (para. 1.16) werereally decentralized entities of the central government, but without soleresponsibility for direct provision and financing of services. The recentconstitutional amendment granted the regional governments greater politicalautonomy. However, neither this amendment nor the more specific legislation(Ley Orginica Reglonal) assigns responsibility for specific functions to thisnew level of government. Under proposed legislation, the regional governmentewould have a greater voice in the selection of regional projects (i.e.,projects for which all impacts are contained within the region). Thegovernment has, however, established that responsibilities will be transferredto regional governments in a gradual and selective manner in accord witheconomic principles (see paras. 2.3 and 2.4), once they develop theadministrative capacity to assume them.

C. InterdesEdence amona Nunicgiaities and with the Central Government

2.10 Problems such as pollution and transportation sometimes spill overthe boundaries of political jurisdictions, creating the need to move to a.higher level of government or to form a new jurisdiction that encompassesseveral contiguous jurisdictions facing the same problem. To date, thesolution for some of these "apillovere" in metropolitan municipalities ofChile has been handled either (a) unilaterally by the central governmentministries, acting sometimes in consultation with local governments, or (b) bylocal governments and agencies usually accountable to or coordinated bycentral authorities. The present institutional means of controlling problemsinvolving more than one municipality have been inadequate for resolving suchenvironmental problems as solid waste, sewerage, air pollution, andcongestion. Constitutional reforms presently under discussion propose moreautonomy for individual municipalLties to forge intergovernmental contractualand metropolitan arrangements. The Special Commission on Contamination of theMetropolitan Area (discussed in Chapter 4) might be a useful prototype forthese arrangements.

2.11 MunLeipalities also experience problems due to interdependencewith the central government. In particular, policies of the central

la/ Other municipal/national functions of much less importance infinancial terms are social interest housing and infrastructure andsocial assistance. Municipalities receive resources from the Ministryof Interior for urban and neighborhood betterment (see Box 1.2). Theyalso use the CAS questionnaire to target social assistance to theneediest families (see Box 1.1).

18

government (e.g., resettlement of the inhabitants of squatter settlements)have often imposed coots on municipal and regional governments, and viceversa. The central government also interferes with the efficient assignmentof public good responsibilities by: (a) imposing restraints on the behavior ofmunicipalities with respect to both municipal and municipal/nationalfunctions; and (b) creating municipalities that are too small to capture scalebenefits and generate enough revenue to supply local publlc goods. Revisionsin inter-governmental functional and spending assignments, includina those ofthe reagonal aovernments, will have to take these two-way "spillovers" intoaccount.

D. Economies of Scale

2.12 The new Ley Orgdnica Municipal provides institutional mechanismsto permit municipalities to form associations to reap economies of scale thatwere not available under the previous law. For example, several smallmunicipalities might join together to buy a road scrapper for maintenance (seepara. 5.29). Municipal governments might also contract with regionalgovernments to provide some local public goods.la/

B. Administration of the Assinment of Resuonsibilities

2.13 Major problems with the assignment of responsibilities are noteconomic, but administrative. They relate to omissions and contradictions inlaws and administrative regulations that define these responsibilities formunicipalities. For example, in practice, the responsibility for provision ofstorm sewers has not been assigned to the municipal or any other level ofgovernment. While the Ley OrganIca assigns municipalities the responsibilityfor paving and maintenance of urban streets and rural roads, in practice thisresponsibility is ambiguous and complex, and overlaps with responsibilitiesassigned to other levels of government (discussed below in paras. 2.14 to2.16). As a result, provision and financing of these two important functionsare often decided on a case-by-case basis. In summary, the assignment offunctions to municipalities is generally in accord with the above principles,but there are serious problems in implementation.

2.14 Street paving in urban areas illustrates well the existing overlapin inveetment responsibilities (see Box 2.1). While the municipal pavinglawl4/ assigns to the Ministry of Housing and Urban Development (MINVU)(through its Regional Service for Housing and Urban Development (SERVIUs)) theoverall responsibility for planning, paving and maintenance of all streets,the Ley Orghnica Hunicipal assigns this responsibility to municipalities, andanother lawlS/ holds municipalities responsible for the safety (i.e.,quality) of the streets. Due to this confusion and to MINVU's inability to do

13/ This is similar to the case with Lakewood Plan in California, wheremunicipalities can contract for services from the Los Angeles countygovernment.

14/ "Ley de Pavimentaci6n Comunal" (Ley 8.846).

IV "Ley de Tr&nsitow (Ley 18.290).

19

all necessary street maintenance, these responsibilities have been paztiallypassed on to the municipalities.

2.15 Highways and rural roads in Chile belong to one of the followingthree networks: (a) the primary network which connects all the main regionaland provincial centers; (b) the secondary network which connects the maincenters to other centers within regions and province.; and (c) the tertiarynetwork which consiste of "feeder road.". In theory, MOP is currentlyresponsible for all three levels. Except for "feeder roads," the assignmentfollows the above principles. "National" :oads of the primary network are theresponsibility of the MOP, as are those of the secondary network, which isadministered through MOP's regional offices. The problem is with the feederroads, which are local goods in the sense that their benefits jurisdictionusually lies within a municipality.

2.16 In practice, the responsibility for feeder roads has beenpartially municipal. There is a lot of confusion about who is responsible fortertiary roads, as this responsibility was transferred to municipalities butthen recentralized. In addition, MOP has not had sufficient resources tocarry out its responsibility for tertiary roads. As a result, it has manytimes either been unable to fulfill its obligations or has signed agreemesutswith municipalities to share in the financing.

2.17 The resulting lack of investment in and maintenance of these ruralfeeder roads has quite a negative impact on economic development. Forexample, road. are often inadequate to transport products of the rapidlygrowing forest and salmon farming industries, or to support increased tourism.The assignment is in fact close to the above principles in that municipalitiesare providing the financing and participating in the planning. Nonetheless,there is a pressing need to clarify the division of responsibilities for theserural roads so that the responsibility for provision is given tomunicipalities. As will be argued in Chapter 3, financing should come mainlyfrom benefit levies and user fees. The possibility of private concessionsshould also be examined. For recommendations, see paras. 2.2, 2.24.

2.18 Another area of some confusion is the responsibility for sewer andwater. Although the responsibility for provision and financing of sewer andwater has been recently assigned to regional water companies,l6/ theinterface between these companies and local governments has not yet been fullydefined. For example, in built-up areas, municipalities sometimes installsewer and water distribution lines on residential streets, hooking up to the"trunk" lines provided by the water companies. In new subdivisions, buildersare required to provide these sewer and water connections for all units. Itis also not clear how these projects are coordinated with street paving andother investments or how environmental impact is analyzed and controlled.

I~~~~~~~~~~~~~~~~~~~~~~~~~

II/ Although legally constituted as private corporations, the stock ispublically owned (99% by the Corporacidn de Fomento and 1% by thecentral government).

20

P. Clarifying the Administration of Agmicned Res2onsibilities

2.19 Administering the assigned responsibilities is complicated by thefact that provision of public goods and services involves a number of separatesteps. that can be assigned to different levels of government (e.g., national,regional, or municipal). For example, the steps for infrastructure are:

(a) Identification (i.e., determining which services are needed orshould be provided);

(b) PreDaratorv Studies (e.g., feasibility studies, preliminarydesigns);

(c) Evaluation of Proo2sed Proiects (e.g., of technical, economic, andfinancial aspects);

(d) Aooroval (including setting priorities and securing financing);

(e) Execution (bidding and contracting, supervision); and

(f) goeration and Maintenance.

2.20 Presently the responsibility for completing all these steps andproviding financing is often in the hands of a single agency or level ofgovernment. This can be inefficient, because different levels of governmentmay have different comparative advantages for each of the six steps.Responsibility for each of these steps should be assigned to governmententities in accord with the relative efficiency of each.

2.21 It is essential, however, that there be clear delineation ofresponsibilities among the different agencies involved in each step of theprocess. When more than one entity is assigned responsibility for the samefunction, nobody is really responsible when important matters are overlookedor otherwise go wrong. To ensure accountability, mechanisms need to beestablished to assure that each government institution meets agreed standardsfor the steps for which it is responsible.17/

2.22 Two questions affect the process through which municipal projectsare prepared and executed in Chile. These are (a) who is responsible forimplementing each of the required stages, and (b) who is responsible forfinancing each of these stages? The following actors are often involved inboth the implementation and the financing of a typical service provided at themunicipal level: (a) the municipalities themselves; (b) regional authorities;(c) central government ministries; (d) organized residents in the affectedneighborhood; and (e) other groups or entities (e.g., private developers,municipal corporations). While each of these entities can generate ideas forproposed projects, actual financing and implementation takes a variety ofoften complex forms. The results are not always in accordance with the

17/ As an example, there must be a means to assure that the entitybuilding a facility does so to appropriate standards and that the entityresponsible for maintenance and operation has the technical andfinancial wherewithal to carry out these functions.

21

efficient provision of public goods for either the region or the municipalityin question.

0. Recoinendations

1. Clarify Assioanment of Resoonsibilities for Provision and Financing

2.23 There is a need to clarify responsibilities for both provision andfinancing of public services provided by municipalities, including all stepsinvolved in project implementation and maintenance. To this end, it isessential to distinguish between municipal functions where municipalities areresponsible for both provision and financing, and municipal/national functionswhere municipalities provide the services but financing is provided largely bythe central government. According to the above principles, the followingshould be defined as municipal functione:

(a) street-related infrastructure, including street paving, curbs,sidewalks, street lighting, and storm sewerstl8/

(b) rural feeder roads; and

(c) local environmental quality, including open spaces and solid wastedisposal.

These are clearly municipal public goods and services that can be mostefficiently provided at the local level, as the benefits go directly to thoseliving within the municipality. For example, the municipality is best suitedto perform the vital coordlnation functions of assuring that newly pavedstreets do not have to be torn up to install pipes, etc. Smallermunicipalities, however, may wish to contract out all six of the above stepsto an association of municipalities or to the regional government to takeadvantage of economies of scale (see para. 2.19). An important question (thatwill be discussed in the next chapter) is whether municipalities could coverthe costs of these responsibilities via user charges and increased currentaccount savings.

2.24 one proposal currently being discussed by MOP would transferresponsibility for feeder (i.e., tertiary) roads to the municipalities.Municipalities could form associations using the mechanisms of the newmunicipal legislation to reap economies of scale in providing these roads orcould contract out to regional branches of MOP for services. In effect, thisis what is already being done, but in a much les than optimal way due tounclear definition. These rural feeder roads could be financed by usercharges. In the case of feeder roads in highly productive areas, concessionsto private firms could be analyzed as another possibility for financing.

2.25 Any eventual transfer of responsibilities for provision andfinancing to regional governments should follow the principles delineated atthe beginning of this chapter. These principles are clearly being followed in

la/ Clearly, these drainage problems can "spill over" to othermunicipalitLes in conurbations, particularly in the case of drainagecanals (see paras. 2.10-2.11).

22

the proposed legislation on the "regional assignment" of the resources of thenational sectoral ministries (including MOP) for regional projects (i.e.,those projects with impacts contained within a region).

2. Resolve Problem of Interde-oendence

2.26 There is a need to develop efficient, equitable, and accountableintermediation to resolve the problems resulting from municipalinterdependence. One alternative might be to create incentives (such asmatching grants) to induce individual municipalities to form limited purposeassociations in such areas as solid waste and sewerage, urban growth planning,tourism and coastal zone management. As discussed above (para. 2.1), clarityin the division of labor among governments is of utmost importance. Thisincludes the supra-municipal responsibilities in metropolitan areas. Regionalgovernments could play an important role in resolving these problems,especially in the case of the Santiago Metropolitan Region (see Chapter 4).

2.27 A fundamental decision rule is that organizational arrangementsshould cover the affected area (i.e., benefits jurisdiction). Further studiesmay be necessary to accurately define.impact areas. Also, refinements ininter-governmental finance, particularly as regards own-source revenues, andcomposition and distribution criteria for intergovernmental transfers, shouldtake into account the financial needs of common services.

3. Reduco or Compensate for the Costs Imposed on Municipalities by the Centralq2vernment

2.28 The central government should bear part of the cost of its spatialdispersion strategy, if it is continued. Certainly, it is unfair to imposethe full burden of these costs on the poorer municipalities. The policy ofsubdividing municipalities to maintain "medium" population size and socio-economic homogeneity should be reconsidered. A now municipality should beformed only when it can demonstrate its financial capacity to efficientlyprovide municipal functions. In some cases, "unsustainable" municipalitiescould be consolidated with fiscally stronger ones. The total impact of thisdispersion strategy, as well as the impact of the rapid growth of the lower-income municipalities on the periphery of Santiago, deserves further study.

4. Facilitate Takino Advantaae of Economies of Scale

2.29 Institutional mechanisms that permit municipalities to formassociations to take better advantage of economies of scale in the provisionof local public goods should be improved (see para. 5.42 for details). Onceagain, regional governments could play an important role in this.

23

Box 2.21

The Investment Progess for Urban Streets

_ The Identification Stace. As illustrated by Figure 2.1, theinvestment process starts with the Ldentification of a possible project(i.e., preparation of an initial project profile). As shown on the leftsection of the figure, this step can be initiated by any of the indicatedentitiest MINVU, the regional authorities, the residents o 'a neighborhood(usually through the municipality), the municipality itself, or others(e.g., private developers, or the Ministry of Public Works (MOP) in thecase of streets identified as part of the national highways system).. Thefinancing needs of this identification stage are usually small, and areusually absorbed by the entity generating the idea.

The Intearated Proiect Bank MRIP8. Once the profile for: an ideahas been prepared, the municipality must enter some. basic information intothe SIP. The BIP system was set up primarily to track all projects whichare submitted to or are executed with financing from central governmentfunds. A recent decision will also require municipalities to submit toDIP projects financed from their own resources. A -similar. requirement is.being considered for all projects undertaken by public enterprises.Projects entered in BIP are often at a very .prelimLnary stag.. The actualevaluation of a project is done after completion of the next stage.

Pre2aratorv StUdies. At this stage, feasibility studies,economic and financial.analyses, poverty impact analyses, or othernecessary studies are prepar.ed.. Because these studies are costlyjmunicipalities usually do-them only after a potential source.of.financinghas been obtained. As shown in Figure 2.1, the funds for the preparatorystudies of street paving can be from municipal, regional, xINWas or.. other.resources. Projects-which:usually have assured financing:.for this.stage.are those prepared,.financed. and executed by:..a single entity (e.g..,private developers, KINVU,: or MOP). However, many of the projects ofparticular interest .to:municipalities (and to specific neighborhoods) are.at- a. disadvantage, precisely becaus. of. the difficulty. in: predicting how:many resources will be...available to them for the.,actual.investments...(usually from the important FNDR or Neighborhood Improvmen t (Nejoramilentod.- Barrios) funds). In fact, because of:this uncertainty,.municipalitiesoften. prepare a: signifcantly:larger number of: projects than.areeventually approved.or .financing and implementation.

_ IzaZ3aLLDi.. All municipal investment projects ...financed with..central. government funds. need to be:.reviewed and evaluated.. The regional..SERPLACs review projects costing under U8S. 120.millon,. and:.MIDEPLAN..reviews those above this threshold, including all projects planned bysectoral ministries. (MINVU in this case). JMIDEPLAN also evaluates alL.-preparatory and any other: studies. (e.g., national.poverty analysees-dLagnoses of health or education issuesa administrative.reviews etc.) to.

24

be.f4nanced by central government funds (e.g., under FNDR or NeighborhoodImprovement programs), irrespective of the amounts involved. At thisstage proposals are also reviewed with respect to other conditions Lmposedon projects to be financed by special funds (e.g., the ?NDR orNeighborhood Improvement Programs).. During these reviews the SERPLACs andMID3PLAN determine which projects are eligible for and worthy of obtainingthe necessary financial resources (i.e., are "recommended"), which of themare rejected, and which are not yet acceptable but could be If somecomplementary information or analyaLs Le provided.

In parallel with this revlew, the SERPLACs determlne the LnitLalpriority of each project proposed in their regions under any of thevarious..decentralLied funds. Projects implemented:under the UrbanBetterment Program (Nejorawlento Urbano) are at present: prioritized by therespective provincial governors, but this responsibility.will, accordingto proposed new legislation, also be Lnvested in the Regional. Zntendentesand the respectLve Regional Development Councils (COREDEs). Projects andInvestments managed directly by the sectoral mLnLstries (e.g., HINVU) areprioritized by the respective ministries and only reviewed at a laterstage.(by the-"Comislidn Tripartita", of which MIDEPLAN is part). However,it is also expected that sectoral projects, Lf destined for.a particularregion, will be-reviewed and prioritized at the regLonal level (i.e., bythe Intendentes, SFRPLACs, and COREDEs).

The process of prLorLtizatLon by the SERPLACs is..conducted accordlngto.-an elaborate process defined in detailed instructions provided yearlyby MIDEPLAN as part of the government's Public rnvestments Planning:process..

- Ann-2rJLa2 The next stage involves reviow and approval byregional authorities, principally the COREDEs. Given that the recentreforms have made-the COREDEs the ultimate. decision-makers, they.reviewthe recommendatLons made-by.the SERPLACs and, if they..so..choose,..canchang .these priorities-- evens dropping high-priority projects from theSERPLAC4' 1Lit or addinq:new. ones to the list not prioritized by theSERPLACs. The:only .condition for.these changes-is.that.the projects movedup .have.. the necessary. approval.. in the SIP.:.

The revised list of: priority projects is then matched against theavatiable funds (e.g., FN-R, and neighborhood.and.. urban: improvement funds)and,.once..assgned.the.necessary .funds, a.project. is ready for execution.

*_.. *ncu tionand FinancLan. As can be seen.in Figure -2. 1, at least.three..entities can: execute. paving projects: the: municipaities, MINVU, and"others": (L.e., private. developers, or MOP). In turn,. financing for theseprojects.can ..come from regional funds (e.g,. FNDR, NMtWV or municipalfunds)::..or from a. number of combinations (e.g.., matching: munLicpal fundswith:: thos- of' reidents r...rgional..funds, or MINVU)*... At::present, which.specSfic .projects wil.I actually. be implemented during:.a ..planning period

25

cannot be properly determined by a munLeipality, as this depends on thedecisions of many actors over which lt has no control (e.g., MZNVU andFNDR), and on its abLlity to "influence" these actors. PUrthermore, rMNVUcan implement some of. it programs independently and without anyconsultation with the respective municipalities.. ThLi discretionary powercould theoretically lead to uncoordinated actions by MINVU. and nothing inthe present regulations formally prevents it.

It is worth mentioning that some. interestLig new programs haverecently been started through the initiative of particular municipalities,which are based on the direct financial participation of thebeneficiaries. For example, the municipality of Conchali (in the Santiagometropolitan area) has been paving neighborhood sidr.. streets through afinancing program which requires communities to contribute up to 25% ofthe total cost of the proposed project (through prior saving by theresidents). See Box 3.2.

The contracting of all paving project is carried out in accordancewLth standard procedures -set by MINVU and other regulations required bythe entity financing the project (e.g., Inter-American Development Bank orthe Bank). Furthermore, the execution of the works needs..to.- be doneaccording to standards set by MINVU, which also needs to certify andaccept the works on their completion.

_ Maintenae While street maintenance is formally theiresponsibility of MINVU,. municipalities have in fact assumed thisresponsibility in many.casesi Thus, while MINVU continue -to carry out(and finance) some street maintenance, most of.: it is: carried out. by themunicipalities with their own financLng, with regional funds (FNDR andneighborhood improvement), or with a combination of theise

Issues and Recomendatione6 The-above described process and theaccompanying background serve to illustrate the ambiguous definition ofresponsibilities and multiplicity of sources of funds available for streetpaving. Under these circumstances, and given the unpredictability of whatresources will be availAble -.to. municipalities for thes- tadks, theplanning and managing- of reasonable paving programs becomes verydifficult. Needless. to say, under these circumetancet ther are also noincentives for cost: recoveryj let alone repayment of ven part of thefunds received from outside sources. Rather,. the moat productive way fora mayor to... achieve result lis obviously to establish effective channels toinfluence decisions at the regional and MIWI--l-evel.

26

Fiqure 2.$.Dciision/tmplementation and Financing Responsibilitles for Stret Paving

Responaibilltiesstages.

DeciaLon/ FinancingrmplementatLon

.M NM. R M R 0 M M R4 M P_ 0'I r s UB T T r I RU E T.N D G N 8 H N D a N S HV z r I r r v I I x B

7 U ' P ' 0 .C D. ,R U P: 0 C D R

A 'P A PN NN- A T N A T

IL Is L S

(a) rdentificatlion (L.e....determining which serviogs are- - _ -

needed or should be provLded).

(b) Preoaratory Studies-,(e.g.,- ... feasibility studies,

.prelminary designs);. - - - -

(0) NvaluAtLon of Proksed .-.7: jgg (edt.lg., of technlcal,economlc, and. financial .. -. .

(d) aeol9~gj 1 .l(including:.settlng .prloritlis and.securing financLng) .- .

e6) Iaxection.CbLddLngand:...contracting, construction,superviidon); and. . -s -, s . O : -.

(f) Operatioti and. Maintenance..

-1h-- -- - -w*--th

1. e.g.., private developers, MOP.. * 2.; Usuallr ic::conjunctLon: withmunicipalfties.3*..y...the provLcnial. SURPLAC (of. projects valued at less than US$ 120 millLon)..4.:Only for projects they respectively fLnance.5:. Of:their respectivsprojectd. 6. 6.Off-streets usually executed by municipalities..

27

Chagt-r 3. REBEB A8819lIB TO XNP=OVR ZFIICNNC AND ZOVI_YWlIXL ArINTAINING FISCAL DS8CIXLXN3

A. IntroduVtion

3.1 Subpational governments must be able to raise revenue or receiverevenue transfers to meet the responsibilities assigned to them. In thlicontext, the following issues of efficiency and equity in flnancing must beaddressed:

(a) Is the system efficient ln allocating resources withln the publicsector (i.e., is it flexible enough to permit local governments torespond to their constLtuents' preferences, whlle confronting themwith the corresponding costu so demands are not distorted)?

(b) Is the syutem equitable in beneflt terms? Is it equitable lndividing the burden of public services among income groups?

3.2 To analyze the efficiency and equity of the revenue arrangementsin Chile, it is useful, as discussed in Chapter 2, to divide the presentsystem of municipal finance lnto two types of functions: municipal functionagand municiDal/national functlions (para. 2.5).

3.3 To finance munici2al functions, municipalities rely on own-sourcerevenues (local taxation and user fees) and transfers from higher levels ofgovernment. The assigned own-ource revenues provide reasonable efficiencyand equity (Section B). The only significant problem in this area is thatmunicipalities have only a limited capacity to raise taxes for meetingresidents' demands for additional services. Part of any addltional taxrevenue must be shared with other municipalities. High tax exemptions andlagging assessments have further exacerbated the problem.

3.4 Regarding transfers for municloal functions, a central governmentmay want to reduce (for equity reasons) the variations among municlpalities inwhat are basically local public goods. A central government's interest inmaintaining a "minimum" or "basic" level of a particular service is lesapparent, however. One reason is that it is diffLcult to determlne "minimum"or "basic" levels of consumption for such municipal functions as street pavingand open space. Moreover, specific transfere would distort the demand forthese services. Chile's use of non-earmarked revenue sharing for munlcipalfunctions follows thli approach, providing some improvement in equity andallowing flexibility of local choice, without greatly distorting the demandfor individual public goods.

3.5 For municgial/national functions that municlpal governmentsexecute on behalf of the central government (chiefly education and health),the financing structure reflects the central government's original intent toensure a basic standard of service delivery throughout the cousacry. However,in terms of actual transfers provided, the national government'sunderfinancing of municipal education and health expenditures, relative to itsoriginal intent, generates the main problem in municipal finance today(Section C). In addition, the national government has limited themunicipalities' ability to freely manage municipal schools, which contradicts

28

the original idea of using per capita payments to encourage efficiency in thesupply of education and has put additional stress on municipal finances.

3.6 For both municipal and municipal/national functions, capitalexpenditures can be financed from own-source revenues, revenue sharingtransfers, and grants specifically for investment. For reasons discussedbelow, the capacity of municipalities to finance capital investment via theirown revenue and automatic revenue sharing has declined in recent years.Furthermore, municipalities currently have very little flexibility for raisingzevenue and are prohibited from borrowing. The result has been an increasingdependence on capital grants from the central government for investment inmunicipal functions. Furthermore, the current system of investment grantsencourages "grantsmanship" and could be improved in terms of allocativeefficiency and equity considerations (Section D). Greater cost recovery viauser fees or permission for greater variation in local taxes to financepressing municipal infrastructure needs would also improve efficiency.

3.7 Regional governments currently have no own-source revenues and theproposed legislation does not contemplate giving them any. Thus, even underthe proposed reforms, they will serve primarily as channels for transfers ofthe central government. Therefore, regional governments are discussed in thischapter only in terms of carrying out capital transfers to the municipalities(Section D).

3.8 In sum, the assignment of Chile's subnational revenues meetsefficiency and equlty criteria reasonably well. Own-source revenues arereasonably efficient, except for the need for somewhat greater flexibility andresolution of some basically administrative problems. The structure ofintergovernmental transfers generally follows public finance principles assummarized by Oates:

"The economic analysis of intergovernmental grants thus points to asystem of transfers to lower level governments in which there is a setof open-ended matching grants for particular programs with benefitsreaching outside the individual subcentral jurisdictions and a set ofunconditional (lump-sum) grants which may be distributed by formula thatprovides more revenues per capita to fiscally disadvantagedaroas. "12/

Actual transfers from the central government for municipal/national functions(i.e., education and health), however, are insufficient to carry out theoriginal intent, particularly in light of the restrictions that the nationalgovernment has placed on the administration of these programs. Improvement inthe administration of the investment grant program would contribute to greaterefficiency and equity.

3.9 The next three subsections address in more detail the issues ofefficiency and equity with regard to financing for:

Section 3S own-source revenues and non-earmarked revenue sharing;Section C: education and health subsidies; and

IV/ Oates, op. cit., pp. 17-18.

29

Section Ds investments.

3.10 In addition to efficiency and equity considerations, there in thequestion of the impact of local finance on macroeconomic stability, which hasbeen a problem in other countries, such ao Argentina. Under the presentstructure of Chilean municipal finance, financial control is tight, taxevasion is low and year-to-year deficits are small and largely paid for frominternal cash reserves. The most pressing concern of the central governmentis whether this financial discipline will survive the upcoming transition todemocratically elected local governments. Problems in the system ofintergovernmental fiscal relations have been concealed by the "top down"controls of the previous government. A democratic regime will have to relymore on incentives than on controls to promote the objectives of fiscaldiscipline, efficiency and equity.

3.11 It does not appear likely that upcoming municipal elections willbe immediately followed by profligate, deficit-financed expenditures. This isboth because the Contralorla's tight control is likely to continue andbecause no entity, other than the Ministry of Finance itself, is likely toextend large amounts of credit to municipal governments. Since localgovernments cannot print money or compel banks to lend to them, their abilityto run deficits depends upon their ability to persuade suppliers to allowpayment over time or to delay payment to pension funds.2Q/ Hence,maintaining fiscal discipline would mostly require that the Ministry ofFinance hold the line, as it would be the main source of any deficit financingfor municipalities. The Ministry does, in fact, provide some deficitfinancing that is conditioned on measures to improve future fiscalperformance.

3.12 Democratization does, however, put immediate pressure on parts ofthe finance system that are most vulnerable to manipulation for politicalpurposes. As will be discussed below, the central government can reduce therisk of such occurrences, first, by going ahead with proposals to give mayorssome discretion over the real estate tax rate so that a mayor who wants to domore has the option of raising significant revenue from potentialbeneficiaries (without having to share it with other municipalities); second,by reforming the system used to allocate capital financing; and third, byaddressing the problems in financing education and health expenditures that,to a large extent, are due to the central government.

B. Own-Source Revonues and Mon-earmarked Revenue Sharing

3.13 Own-source revenues and revenue sharing should cover the costs ofmuniciial functions and the provision of public demand for municipal/nationalfunctions over the basic amounts covered by the earmarked central governmenttransfers. Chile's central government does not provide earmarked transfersfor current municipal functions, which would tend to distort allocation.However, it has set up a method for "evening out" differences in fiscalcapacity among municipalities.

20/ In other LDCs, public utilities are usually vulnerable tononpayment by municipalities, since they are all in the public sector.One would hope that the privatized Chilean utilities would not be.

30

3.14 Unlike most LatLn Amerlcan countrles, Chile does not have a eyetemof sharlng national taxes wlth subnatlonal governments. Instead, lt has acentrally mandated system for redistrLbutLng muniacLal tax revenues amonmuniclpal governments. Munlclpalitles retaln only part of the tax revenuecollected wLthin their jurisdictLons; the remaLnder is pooled ln the MunLcipalCommon Fund (MCF) or Pondo Coman Municipal, and then redlitrlbuted amongmunLcipalLtLes accordlng to transparent crLteria (sae para. 3.39). sixtypercent of all real estate taxes, 50% of vehlcle taxes, and varylng shares ofthe patent. tax collections ln SantLago, Las Condes and Providencia constitutethe MCF's dlstrlbutable pool. In aggregate, about 45% of all local taxes aresubject to redlotrlbutlon.

3.15 As shown ln Table 3.1, the bulk of municipal current revenues netof the MCF Ls derlved from three taxes. Real estate taxes are by far thelargest single source, accountLng for 33.8% of the total. A tax on businessactivLty contributes another 24.7% and a tax on motor vehLcles, 19.8%.VarLous charges-- the most important of whlch Ls for solid waste collection--comprLse the remaLnder.

Tab 3.1: Can Ow0ome Revaas of tbe GCu& MuuI*u: 1967-1990(illions of USS of 1990)

Abmolut Ave1_oen bsow

1967 1988 1989. 1990 1967-1990 1987.1990

1. CURRENT REVEam-Read Eas Tax $72.7 $70.0 S85.8 $67.0 (SS.7) -2.0%-Vcl Lies Tax 31.9 37.9 39.9 39.3 7.4 5.4%

-PSW 35.4 38.6 43.7 49.0 13.6 8S %

-Sold Waft Collecom F 9.2 8.8 8.8 9.1 (0.1) -0.3%-Oher Taxes Fees 29.5 30.4 33.2 34.0 4.5 3.6%

TarTAL QSRVUNTJ 117.-7 1135 R 124 19R.4 519J 256%

U. PRCBH OF TOTAL REVENUECURQ>TIEVEUVI:I

-Real Esta Tax 40.7% 37.7% 40.6% 33.8%

-Vebu la Tfx 17.9% 20.4% 18.9% 19.8%

-Paunse 19.8% 20.8% 20.7% 24.7%

-SolWast Colletion Fe 5.1% 4.8% 4.1% 4.6%

4OihrTansF& Fee 16.5% 16.4% 15.7% 17.1%

TOTAL REVENUE 100.0% 100.0% 100.0% 100.0%

31

3.16 Usually, the most significant 'ns in local tax yields and taxequity in developing countries can be achie,4A through better administration--by expanding coverage, increasing the accurac1 of assessments, and reducingevasion. In Chile, however, this is generally = the case. Some aspects oftax administration (i.e., assessments) could be improved, but overalladministration is reasonably good. There are some problems on the policyside, however. Flrst, the exemptlon level on real estate is fairly high-- lncombinatLon with the lag ln assessments and the current system of asseseLnguser charges, thli reduces the revenue base substantially. Second, theexistlng local tax system lacks flexiblity. Instead of allowlng municipalofficials to respond to local demand, the system dictates tax rates. Thls isbeing improved under the proposed legislatlon, but a major part of any highertaxes would still be siphoned off rather than going to meet the hlgher demandfor services ln an lndlvidual munlcipality. The followlng sections descrLbethese problems with respect to major taxes.

1. Real Estate Tax

3.17 The largest single source of munlclpal revenue is the real estatetax, accounting for 33.8% of gross current revenues.

3.18 Administration. The central government's Treasury Minlstryadministers thli tax. The last general survey of properties was ln 1977. Amajor resurvey of known propertles was conducted in 1989 in order to updatedata on the physlcal characterLstics of propertles on the rolls. While thepossLbillty exists that properties not on the rolls in 1989 are stlll notcovered by the tax, the number of such propertles is belleved to be small.

3.19 Valuations are derived through mass appraisal, a mechanical systembased on unlt costs.jj/ Because valuatlons (and the factors used to valuenew properties) are indexed to inflation, assessments as a g:oup have tendedto keep up wlth general changes ln the cost of llvlng. Absolute levels,however, are below prevaillng market values. Treasury acknowledges that acombination of under-valuatlon ln the base year and disparLty between itsinflatLon index and changes Ln real estate prlces has resulted ln assessedvalues that are only 45% of current market prices.

3.20 Collection rates are high by third world standards. Treasuryestimates collectlon efficlency at 70% (measured as the percentage of currentllabllities paid in the year due) wlth another 20% paid late.il/

21/ Although the quality of market data ln Chlle is much hlgher than lnmost countrles ln the region, the methodology used to convert these datato unit cost tables is not totally transparent. Bad market data ls oneof the usual causes of the fallure of these mass appralsal systems.

alJ Late payments are subject to lnflatlon lndexlng on the amount due,plus lnterest, but no penalty. In 1990, two unusual events affectedproperty tax ylelds. First, there was an amnesty for delLnquentaccounts from 1987-89 (lnterest and lnflatlon adjustments to orlginaltax liabilities were forgiven, although the originally tax llab$lity wasnot). Second, due to a controversy over valuation (descrLbed later),taxpayers were permitted to postpone maklng the fourth payment (normally

32

3.21 The only major problem in the administration of this tax is thefailure to reflect recent changes in the relativo value of properties. Theunit cost tables on which valuations are based were last calculated in 1977.As a result, relative values are distorted-- particularly on land that hasrecently been converted from agricultural to urban use. In 1989, afterseveral postponements in this updating of the assessed values, the previousgovernment instructed the Treasury to completely recalculate these unit costs.But results of this exercise, which included a substantial increase in totalvaluations and a relative shift in. burden toward higher income areas, sparkedsuch controversy that the central government had to rescind the new valuationsand return to the prior ones (adjusted for inflation). Current legislationcalls for the introduction of the 1989 factors in 1993 as part of an overallreform package. At present, however, some fairly substantial inequities inthe tax base exist, particularly in recently urbanized areas.

3 22 Polic. The main problem with the real estate tax is itsexemption policy. Under current law, sixty percent of the tax base (measuredin value terms) is exempt from real estate tax. The most important singleexemption is on residential property. All housing units (regardless of value,tenure, or structure type) are granted an exemption equal to about USS 7,000.According to 1989 figures, this reduced total residential liabilities bythree-quarters, and resulted in complete exclusion of two-thirds of allhousing units from the tax base.23/

3.23 This has an impact on the finances of municipal governments in thefollowing ways. First, it substantially reduces the aggregate value of thetax base, effectively reducing potential liabilities by 60%. It also reducesit unevenly. Because high value residential, commercial and industrialproperties all tend to be concentrated in particular jurisdictions, theexemption confines the bulk of the effective tax base to a relatively smallnumber of municipalities. This leaves a large number of Chileanmunicipalities without a broad real estate tax base on which to levy asignificant tax, creating very high dependence on the tax re-distributionsystem that presently exists (i.e., the MCF).

3.24 Proposed Chanoes. Increasing local control over the real estatetax rate is one very positive change under consideration. One proposal wouldgive local governments discretion over real estate tax rates (within a rangeof 1.1% to 1.9%). one advantage of using a "band" or range over complete

due in October) to December. The amnesty had little impact on yields.The changing of the due date, however, resulted in fourth quarterreceipts appearing to drop substantially. But this is only anaccounting anomaly: the receipts appear in municipal accounts in 1991,rather than 1990.

23/ There are number of reasons that explain this very high percentageof exclusions. One is that the property valuations are out of date.With the recently revised evaluations, the exemption would be almostdoubled. Another reason for the high percentage of units exempted isthat housing costs are low in Chile due to the efficiency of the housingindustry. Furthermore, each apartment is counted as a separate housingunit.

33

flexibility is that it reduces the chances for tax competition, especiallywithin urban agglomerations. Without such a range, municipalities mightcompete for industries which require low levels of services by lowering oreven eliminating the real estate tax.

3.25 One problem with this approach is that the MCF formula (ascurrently structured) would give a sharp disincentive to ratee above 1.6% andan incentive to rates under 1.6%. In effect, the MCF formula imposes a 60%tax on the difference between the revenue raised at the locally-determinedrate above 1.6% and the revenue that would be generated at the 1.6% rate.Municipalities could also reduce their contribution to the MCF by charging alower rate. The MCF formula should provide neither a disincentive to thehigher rates, nor an incentive to the lower ones. To accomplish this, MCFshould always be calculated based on a fixed rate (such as 1.6%). Oneproposal included this measure for the lower tax rates, but not for the higherones. Municipalities choosing to tax themselves at higher rates should not bepenalized.

3.26 One less positive proposal for real estate tax reform wouldincrease the level of real estate tax exemptions for residential property (inorder to offset the impact of introducing the new valuations), therebyexa_erbating all of the problems discussed above. Another issue is whether toabolish the 30 percent surtax on the real estate tax that initially went tothe national government. As this tax has been transferred back to themunicipalities for the last two years, its elimination would require muchhigher tax rates.

2. Patente

3.27 The patente-- a tax on industrial, commercial, professional, andservice activities--24/ is the second largest current revenue source andaccounts for 24.7% of the total local tax revenue. It is assessed andcollected by municipalities. Municipalities are allowed to keep 100% of theirpatent. collections, except in the cases of: Santiago which passes 45% of itspatents receipts to the MCF; and Providencia and Las Condes, which pass 65% oftheir receipts to it.

3.28 Administration. The administration of the patent. is reportedlygood. Coverage appears to be the tax's only weak point. Discovery isenforced by inspectors, but some municipalities report that their inability toemploy more inspectors has resulted in businesses missing from the tax rolls.To correct this problem, there is a proposal to refco.im the Municipal RevenuesLaw (Ley de Rentaa NunicipaleZ) to institute systematic cross referencing.

3.29 Assessment is based on the value of owner's equity (assets minusliabilities, with assets excluding intangibles), except for liberalprofessionals. Land and equipment must be revalued annually, removing a majorpotential problem from the basis of assessment. The calculation would seem

24/ Primary activities can also be taxed by municipalities if theyinvolve some of type of processing and are sold directly by theproducers. There is also a special patente on the sale of alcoholicbeverages.

34

burdensome, but it is derived from balance sheets that all fLrms are requiredto submit to the central government for income tax purposes. There is a smallindustry of consulting flrms that helps prepare these statements for smallbusinesses.

3.30 Roicy. Local governments are permitted to fix the rate ofpatente within a range of 0.25% to 0.5%. The maximum tax liability is limitedto 1000 Monthly Tax Units (UTM) (roughly US$ 40,000). This exemption onequity over US $40,000 is more generous than it might appear. The tax isassessed on the aggregate net worth of a firm rather than on the equityrepresented by an individual plant or branch office. So, the level of patentepaid by large multi-plant firms is relatively small. Patento revenues fromsuch firms are then apportioned among municipalities where each branch islocated, based on the distribution of the firm's employees.

3.31 Like the real estate tax, the patent. raises a polLcy question.The question is not simply the patente's exemption structure, but theexistence of the tax itself. Taxes on manufacturing are, in general, anundesirable means of financing municipal government. The chief attributesought in a municipal tax is localized incidence: a municipal tax shouldconfront local taxpayers with the costs of services they consume. Taxes onproduction tend to perform poorly according to this criterion, because theirincidence can be shifted forward in the form of higher pzices or backward inthe form of lower wages or lower returns on capital. The shifting ofincidence is far from clear and varies from good to good. One cannot assumethat all consumers, employees and stockholders live in the jurisdiction wherethe tax is imposed.

3.32 This incidence shifting is not currently a problem of greatsignificance. Due to the ceiling on maximum patento liabilities, the amountpaid by large firms is relatively small. Firms which dominate markets aremost capable of shifting the tax's incidence, but this is limited fortradeable goods by Chile's open economy. Indeed, increases in this tax forsuch goods would put them at a comparative disadvantage in relation toimported goods. Current proposals to remove the ceiling (as discussed below),however, could cause this issue to assume greater importance.

3.33 Proposed Chanae. One proposed change would remove the ceiling onthe patento, permitting the tax rate to be applied to firms regardless ofsize. As noted earlier, this change increases the extent ofinterjuriedictional tax shifting, permitting municipallties where largefactories are located to export the cost of local services to otherjurisdictions.

3. Vehicle License Tax

3.34 The vehicle license tax is the third largest source of municipaltax revenue, accounting for about 19.8% of total gross current revenues. Itis assessed and collected by municipal governments, at rates fixed uniformlyby the central government.

3.35 Adminintration. The tax is.assessed on the basis of a vehicle'smarket value, determined by the municipality using detailed tables publishedannually by the Ministry of Finance. In the past, the system of enforcement

35

relied on carabineros (the National Police Force)s municipalities had norecords for vehicles owned by their residents, and taxpayers had the option ofpaying in any municipality. Even so, compliance was high. More recently, asystem of cross-referencing has been introduced, in which the municipality isinformed by the Registro Civil when one of its resident acquires a car--further reduclng the likelihood of evasion. All evidence suggests that thistax is well administered.

3.36 Pollcy. The tax rate is steeply progreseive, ranging from onepercent for vehicles valued at less that 60 UTM (US$ 2300) to 5S for vehiclesvalued at over 400 UTM (USS 14,000). Steep progressivity often causesconflicts over assessments in other countries, but this is not reported to bea problem in Chile.

4. Fees and Charces

3.37 Municipalities also derive current revenues from a variety of feesand charges. The largest of these is for garbage collection. The present lawforces local governments to subs'dize this service. Under the municipalrevenue law, the level of garbage collection fees must be determinedmechanically by dividing total current costs of garbage collection by thenumber of properties served, and fixing the charge as the resulting average-cost-per-property. Properties exempted from the real estate tax, however, arealso exempted from the garbage collection fee, forcing a subsidy from generalrevenues.

3.38 Procosed Chanae. A very pooitive change being contemplated is topermit municipalities to impose garbage collection fees on properties exemptfrom real estate taxation-- a measure that would eliminate the forced subsidyfrom general revenues.

5. The MuniLo$al Common Fund IMCF)

3.39 The MCF supports municipal expenditures through un-earmarked,automatic intergovernmental transfers. It is an anomaly in Latin America.While a majority of Latln American transfer systems share central governmenttaxes with local governments, the MCF redistrLbutes local taxes amongmunicipal governments. The level of funds to be distributed is determined bya formula based on fixed percentages of the yields of the three major localtaxes. As noted earlier, sixty lercent of all real estate taxes, 50% ofvehicle taxes, and varying shares of the patente collectLons in Santiago, LasCondes and Provldencla constitute the MCF's distributable pool.

3.40 Ten percent of the pool is reserved for fiscal emergencies oflocal governments. The allocation of remaining MCF funds among individualmunicipalities is based on four factors: (1) base (i.e., an equal amount permunicLpality); (b) populatLon; (c) the municipality's share of propertiesexempt from the real estate tax; and (d) a factor representing a revenue gap,defined as the difference between a municipality's current revenue per capita(including own-shares of the three taxes, and MCF) and the average of allmunicLpalities' current revenues per capita.

3.41 Due to the dominance of the real estate tax in the generation ofMCF revenues, the princlpal impact of the formula is to take revenue from

36

municipalities with large numbers of taxable properties and shift it to thosewith fewer. As indicated in Table 3.2, the average per capita receipts frommunicipalities within the five main zones vary little. For example, theaverage per capita receipts ranged from US$ 9.78 in the central zone(excluding metro Santiago) to $11.60 in the extreme south. These variationsare not large enough to offset wider variations in the per capita tax revenuesafter contributions to the MCF (which range from US$ 7.74 in the south to USS15.08 in the metropolitan region). But the regional aggregates seem to hidesubstantial variations within regions. Figures for metropolitan Santiago, forinstance, suggest that MCF lowers per capita revenues in the three richestmunicipalities (Providencia, Santiago, and Las Condes) by seven to fourteenpercent, but raises per capita revenues in such large, lower incomemunicipalities as Conchali, La Florida, and La Cisterna, by 35%-50%. Insummary, although the MCF is highly redistributive among municipalities, itsregional impact is relatively low.

Table 3.2Per Capita Municipal Revenue, by Zones: 1990

(US$, 1990)

Zones

NORTH CENTRAL METRO SOUTH EXT SOUTH

Current RevenuesProperty tax 2.95 6.44 6.75 3.25 5.42Vohicle tax 2.41 3.67 3.85 2.10 2.17Patents 4.16 4.08 4.48 2.39 3.34subtotals taxes 9.52 14.19 15.08 7.74 10.93

Fees 3.16 3.93 4.03 1.99 2.57MCF 10.71 9.78 9.80 11.09 11.60Other current revenue 2.21 3.10 3.61 1.48 2.23Total 25.60 31.00 32.53 22.31 27.33

(1) Note: Excludes coauibutions 1o the MCF.

3.42 Pronosed Chances. Proposed changes to the MCF would slightlyincrease the volume of resources to be redistributed, and would increaae theredistributive impact of its allocation formula. One proposal is to increasethe pool of resources to be distributed by adding more municipalities to thenumber that must share patente revenues. Changes are also proposed in thedistribution formula. One such change would reduce the amount of MCFdistributed to large municipalities that have a mix of taxable and exemptproperties, and would increase the relative shares of emall municipalitieswhose bases are exempt in their entirety. Another proposal is to include anew factor to reflect relative poverty. Poverty would be calculated as theaverage of an indicator of the proportion of unschooled pregnant women and theproportion of undernourished children.

37

C. Education and Hsealti Subsidies

3.43 The issue of financing education and health i5 perhaps the mostimportant and difficult in municipal finance today. Municipalities provideprimary and secondary public education and primary health services, butfinancing is largely from the central government. Thus the issues involved infinancing the municipal/national functions of education and health differ fromthose for municipal functions. For health and education, the municipalgovernment clearly is an executing agent of the central government policy:the municipal government provides services directly in the case of municipalschools and health posts, but their financing is largely from the centralgovernment.

3.44 The central government's original objective in financing educationand health was to provide a basic level of these services to all Chileans. Ineducation, the transfer is, in effect, to individual users (see para. 3.43 fordetails). This is desirable, compared to the usual system of publicly-provided, free education, in that it encourages efficiency in servicedelivery. A minor drawback of this approach is that it subsidizes evenwealthy consumers. However, this is mitigated in Chile by the fact that manywealthy parents send their children to schools that are not eligible forgovernment transfers. However, the central government has interfered withservice provision in education (e.g., by controlling municipally hiredteachers' salaries and affecting employment), thereby reducing some of thebenefits that might be obtained from more efficient service delivery andputting pressure on municipal finances.

3.45 In health, the original intent was to provide free primary healthservices, with central government transfers based on the number and type oftreatments. However, this approach obviously increased demand. In 1983 thecentral government limited the transfers for health; since then,municipalities have been forced to "top-up" the central government transfersubstantially.

1. Education

3.46 Current municipal expenditures on primary and secondary educationare largely funded by earmarked, formula-driven transfers from the centralgovernment. The structure of this education funding reflects the educationalreform of the 1980s, aimed at forcing competition between public and privateschools. To encourage this competition, all eligible schools-- whethermunicipal or private-- receive a fixed subsidy per pupil from the centralgovernment. The amount of subsidy varies according to school characteristics,according to a formula intended to reflect differences in the cost ofdelivering an equivalent level of service (paras. 3.47, 3.50, 3.62) whichencourages efficiency in the delivery of the quasi-public merit good, byencouraging lowest cost delivery of the educational package desired by theconsumer. However, the transfer does not contribute to equity as it goes torich as well as poor students (see paras. 3.24, 3.44). Nonetheless, comparedto the usual alternative approachas to funding education, the Chilean systemseems among the best.

3.47 Municipalities can also spend their own-source revenues oneducation, if they so wish and if they have a sufficient tax base for so

38

doing. This could be done by "topping-up" the per pupil subsidy or, lesdesirably, by funding municipal schools. However, it is not for this"healthy" reason that municipalities have greatly increased their transfers toeducation in recent years. Rather, the municipalities have found themselvesforced to subsidize municipal schools because the readjustment formula used bythe central government until 1991 did not maintain the real level of thesenational subsidies. A change in the regulations in 1991 tied the readjustmentof these transfers directly to that of the public sector as a whole. Thecentral government compensates the municipalities for the impact of theEstatuto Docente on teacher salaries. Because of this and because subsidiesare now tied directly to changes in salaries, future increases inuncompensated costs would reflect overstaffing or non-salary costs (which arerelatively low).

3.48 A significant problem continues to be that the municipal schoolsare overstaffed, having lost students to private schools while not reducingthe number of teachers. This reflects not only union pressure against staffreduction but also the high political cost of dismissing teachers and theunclear division of responsibilities for staffing. On one hand, themunicipalities have decided not to take the economically efficient butpolitically costly step of reducing the size of their teaching staffs. On theother hand, the central government has a substantial role in determining thenumber of teachers in municipal schools. In particular, the low level ofpensions (currently pensions are much lower than salaries for older teachers)discourages retirement and, thus, downsizing by attrition. Municipalitieswant the central government to raise pensions, which would reduce the numberof public school teachers by encouraging many teachers eligible for retirementto leave. Retirement would lower costs more than proportionally, as olderteachers are normally the most highly paid ones. Although this would reducethe number of excess teachers in municipal schools, it would not resolve theproblem entirely. Proposals to raise these pensions are now underconsideration by Congress.

3.49 Another solution that has been tried with limited success is toprovide central government grants to upgrade the physical plant of themunicipal schools, thereby making them more attractive to students andreduclng excess capacity.

3.50 As a result of the above factors, municipal spendlng on educationincreased at an average annual rate of 24.2%, from US$ 14.1 million to US$33.5 million, between 1987 and 1990 (see Figure 3.1 and Table 3.3). In 1990,municipal transfers for education accounted for 10% of their total currentexpenditure and 9.1% of total current revenues, up from 5.1% and 4% in 1987.

3.51 Private schools (which also receive subeidies) have remainedprofitable, in part because they accept fees (although these are subject toheavy taxes), and because they are able to hire younger teachers at lowerwages. These private schools have also shown themselves to be more aggressiveln marketing by providing more attractive phyaical environments and uniforms,etc. Whether the quality of teaching is higher in private schools is thesubject of much debate. Test scores seem to be higher in private subsidizedschools than in municipal ones, but thie may be due to the socio-economiccharacteristics of students rather than to the quality of the teaching andlearning environment. More recent test scores show that the differences

39

between public and private subsidized schools have declined. The confttion

that supervision of public schools is often more lenient than for private

subsidized ones doeerves more rigorous study, as this may explain part of thedifference ln performance.

Figure 3.1: MUNICIPAL TRANSFERS FORHEALTH AND EDUCATION

(Millions of U8$ of 1990)

30

25 -

20

16

10

1987 1968 1969 1090

r Iducatlon Health

Seures Table A.

2. PrLmary Health

3.52 Llke educatlon, the primary health system Ls flnanced throughearmarked subsLdLes from the central government. The contral government lsnow consLderLng changes ln the system for determLnLng subsidies. Orlglnally,subeLdLes were based on the number and type of treatments provided by

munlclpal health posts, and the level of raimbursements was intended toreflect the full costs of each speclfic type of treatment.

3.S3 Not surprLsingly, this open-ended reimbursement system prompted a

high level of demand, whlch led to dramatic Lncreases Ln the level of

subsLdies. In 1983, the central government responded by imposing a celiLng on

the total level of health subsidLes allocated to each munLcipalLty. Th*

ceillng ls eomewhat arbitrary: lt reflects the level of reimbursements at the

time the celiLng went lnto effect.21/ Congress is currently debating a law

that attempts to address most of these problems by deflnlng new crlteria for

the allocation of resources to the munLcipalLtles-ZjI

2J1 Some discretLon exLsts Ln the system, arLsing from the fact that

not all munLcLpalLties receLve thelr ceillng. Som municLpalitLes'

current (vislt-based) billLngs are loss that their celiLng (refleoting,

inter alLa, the fact that the cost factors used to calculate

reLmbursements have lagged behind inflation). Any posLtive dLfference

between a municipalLty's ceillng and its actual billings is retained by

the regional government for dLitrLbution among the other munlcLpalLtLes.

2ll Provecto de L§vyd Sabre EStatuto d la Atenriyn 3 MIIBSJ,MLuinLsterio do Salud, Santiago, january 3, 1992.

40

3.54 As a result, municipal governments have been forced to increasethe level of health subsidies from their own revenues. From 1987 to 1990,municipal submidies to primary health increased at an average annual rate of60.7%, from US$ 2 million to US$ 13 million, and now constitute 3.9% ofmunicipal expenditure (Flgure 3.1 and Table 3.3). The proposed change in themethod of calculating the subsidies should reduce this problem (see para.3.53).

3. Increasina Municipal Payments for Health and Education

3.55 The failure of central government education and health subsidiesto maintain their original terms has several implications for municipalfinance. In financial terms, it forces an increasing reallocation ofmunicipal resources away from other current services and from capitalinvestment. The increase in municipal payments for education and health, andother current expenditures, absorbed the rise in current revenues between 198'and 1989. When revenues fell in 1990, a continued rise in the subsidiesresulted in a sharp decline in current account surpluses. The US$ 30.5million rise in health and education subsidies over the 1987/90 periodaccounted for almost half of the total increase in municipal currentexpenditures. Thus, as shown in Figure 3.2 and Table 3.3, the increased levelof subsidies to education and health since 1987 has been financed in part by acorresponding decrease in self-financed capital investment (i.e., currentaccount saving). As shown in Table A.4 in the Statistical Appendix, municipalreal investment (excluding land and buildings)27/ declined from US$ 106.8million in 1987 to USS 93 million in 1990, a drop of USS 13.8 million, or12.9%.

Figure 3.2: MUNICIPAL INVESTMENT(a) ANDTRANSFERS FOR HEALTH AND EDUCATION

(Millions of USS of 1gos)

120 -

100.X

so

so

40.

20

1967 1988 1989 1990

-i Investment *4 Health and Education

(aftEcudino land and buildingsSource Table A.4

3.56 The failure of subsidies to maintain their original terms willalso shift the pattern of expenditure on these services: the more their

j7. Land and buildings must be excluded because of the very largeimpact of the transfer of buildings from the central government to themunicipalities during this period.

41

Tabb: Cuma Revmmu, Famiw. ad Sayhg.of doe Gegn Mia u(h" I98-1990

_ (milaos of US of 1990

Absoute Aveage

1987 1988 1989 1990 1987-1990 I18.1990

A. TOTAL CURRENT REVENUES $351.8 $366.3 $4063 $366.6 $14.8 1.0%

B. CURRENT EPENDrrURES

1. Personnel $713 $80.6 $82.4 $80.4 $8.8 3.0%

2. Goods and services 140.6 155.4 1703S 173.7 33.1 5.4%

2. Debt service (inter payments) 0.2 0.1 0.1 0.1 (0.1) -22.1%

3. Current tmnsfers:

Pensions 0.6 0.6 0.6 0.3 (0.2) -12.3%

Education and Health 16.1 29.7 40.3 463S 30.3 30.5%

-Toul Education 14.1 25.1 32.1 33.5 19.4 24.2%

-To Co*poradones 6.4 12.1 14.6 15.1 8.6 23.8%

-To Department 7.7 13.1 17.5 18.4 10.8 24.5%

-To;al Healh 2.0 4.6 8.1 13.0 11.1 60.7%

-To Corporadone 0.8 1.8 3.4 6.0 5.2 66.1%

-To Depaenets 1.2 2.8 4.8 7.0 5.9 56.7%

Oher CurrentTrasfer 4S.0 37.1 363 35.0 (9.9) -6.0

TaOAL CURRENT $274.0 $303.7 $330.1 $336.1 $62.1 5.2%EXPENDnURESI

C. TOTAL CURRENT SAVINGS $7.9 $62.6 $76.2 $30.6 ($47.3) -20.8%

D. PERCENT OF TOTAL CURRENT EPENDffURES

CURRENT EXPENDITURES

1. Penonnel 26.1% 26.6% 24.9% 23.9%

2. Goods and services S13% 51.2% 51.6% 51.7%

2. Debt service (Inte payment) 0.1% 0.0% 0.0% 0.0%

3. Current trnfers:

Pensious 0.2% 0.2% 0.2% 0.1%

Education and Health 5.9% 9.8% 12.2% 13.8%

-Tota Education S.1% 8.3% 9.7% 10.0%

-To GCop,eruconn 2.36 4.0% 4.4X 4.3%

-To DePAmet 2.8% 4.3% 53X 5.5%-Total Healtb 0.7% 1.5% 2.5% 3.9%

-To Co,poradomn 0.3% 0.6% 1.0% 1.8%

-To Depaments 0.4% 0.9% 1.4% 2.1%

Other Curnent Tmrfen 16.4% 12.2% 11.0% 10.4%

TOTAL CURRENT 100.0% 100.0% 100.0% 100.0%EXPENDITURE

42

financing is dependent on payments from municipal budgets, the more theseservlies will reflect the relative strength of local accounts (and the excessof teachers in a system), rather than the delivery of a bauLc level of*ervices plus locally determined additlonal expenditures, as was orlglnallyLntended.

3.57 The breakdown of the subsLdy system could also have broadarpolltlcal impllcatLons. The need for increased subsidLes for health andeducation to pay for central government requLrements could glve rise tolegitlmate demands for lncreased transfers to munLcipalities. In the currentpolltical envlronment, such demands could become more dlfflcult to resist.Thus, municLpal fLnance problems could be transformed into pressures toLncrease central government expenditures.

D. Finanaina CaoLtal Investaent

3.58 The need for lncreased subsLdLes for health and education hasreduced the capaelty of municLpalLties to finance their own infrastructureinvestments, even for munLcLpal functions. Thli has rendered themunioicalitis more dependent on capital grants from the central government,as they are currently restricted in both raLiLng revenues and borrowing. TheerLterLa used to allocate these capital transfers favor "poorer" reglons over"richer" ones. Projects financed by the FNDR and the Neighborhood and UrbanBetterment Projects are directed toward lower income familles. The result ofthis emphasLs on territorLal and interpersonal equity ln light of the overalldrop ln municlpal inventment capacity is a reduced ablilty to invest inprojects for the "non-poor" and in the rlcher regions, even though there aremany more "poor" people living in the "rich" regions," and the economic returnon these projects mlght be higher.

-. Deelinno CCaonatv to Finance Infrastructure with Own Resources

3.59 Municipalities can finance capital investment via current accountsurpluses and capltal transfers from the central government. Municlpalgovernment revenues from taxes, charges, and MCF could ln theory permit thegeneration of current account surpluses, which would be available to financecapital works. Zn 1987, current account surpluses did, in fact, finance aslgniflcant level of capltal investment. But as shown in Table 3.4, the levelof capital lnvestment financed from current account surpluses has beendeclinLng, due ln part to the need of munlclpalltles to subsldize health andeducation (para& 3 55). Current account surpluses dropped from US$ 77 9mllion in 1987 to US$ 30.6 mllion in 1990, a decline of US$ 47.3 milllon or20.8%. Current account surpluses financed nearly 60% of the capital budget in1987, versus only 32.4% ln 1990.

2. Orowin Denendence on NaLtional CaniLtal grants

3.60 Due to their falling current account surpluses, munlcipalitleshave become increasingly dependent on capital transfers from the centralgovernment. only two of these transfers appear in the munlclpal budget: theneLghborhood betterment and urban development programs. OutsLde the municlpalaccounts (i.e., off-budget, see para. 1.18), there are at least twelve othersources of fundLng for municipal capital investment:

43

3-4 FIa oa Capld Iun_ hi Cs Mual4mh I9611990(mhlkim of US$ of t99M

AIsde Aw

193 196 196 1990 196.1499 196.1499

A. CURREN ACCOUNT $7.9 $62.6 $76.2 $30.6 ($47.3) .20.8%SURPLUS

B. CAPrrAL REVEUS

-Sellin of aete 7.6 13.8 16.7 8.3 0.7 2.2*

-bOdr mpigd revewz 8.7 7.9 9.6 10.7 2.0 5.3*

C. GRANTS

1. Bsouma ptogm

*Neghborhood $7.6 $23.4 $27.3 $30.2 S22.s 41.2%

-Urban 0.0 0.2 9.7 3.6 3.6

2. Oter 32.0 77.1 20.6 10.9 (21.1) -23.6%

a Sub.TI S39.6 10.?7 1S5.1 5144.7 S5.0 la1%

D. TarFAL FINANCUN0 $133.3 $185.0 $160.6 $943 ($39.6) (0.-1)

PPU1t'PT tOF TtaIs jA?jtlIJf

A. CURRENT ACCOUNr 58.2% 33.8% 47.4% 32.4%SURPLUS

B. CAPfrAL REVENUES

Sdling of u 5.7% 7.5% 10.4% 8.8%

-Other plital iuvom 63% 4.3% 6.0% 11.3%5uh.Tntnl 11.2% 11 7% 154% 2015

C. GRANTS

1. B3eames pwVram

-NeghboAhood loca 5.7% 12.6% 17.3% 32.0%

.Urban 0.0% 0.1% 6.0% 3.8%

2. Odber 23.9% 41.7% 12.8% 11.616

luh.TptnL ~20.6% 144 -15 A 47'4%JS

D. TarAL FINANCD40 100.0% 100.0% 100.0% 100.0%

44

Ministry of the Interior* FNDR

_ Traditional. IDB loan

Ministry of Housing and Urban Development (MINVU)* Paving* Housing* Stre-t construction

Ministry of EducationMinistry of HealthMinistry of Public WorksMinistry of JusticeMinistry of Defence (Sports and Recreation)Ministry of Planning (MIDEPLAN-- FOSIS)Special Fund of the President

3.61 Municipalities are highly dependent on these transfers and on thedirect expenditures of the national sectoral ministries. Municipal investmentfrom own sources in 1990 was US$ 53 million versus US$ 113 million intransfers from the Ministry of Interior alone-- more than twice the amountfrom municipal own sources. Total capital transfers and expenditures of thecentral government are many times higher than municipal investment from own-sources.28/ These transfers and direct ministerial capital expenditures ofthe central government serve as substitutes for municipal sources in general,even for financing investment in municipal functions (e.g., street paving).

3. Allocation Criteria for National Transfers

3.62 There are two main weaknesses in the way these capital transfersare allocated to municipalities and regions: (a) funding is sometimesallocated partially on the basis of geographic formulas that are unrelated toefficiency or equity criteria; and (b) the present system encourages localdecision makers to maximize the amount of grant money received, even when theprojects do not contribute to equity and efficiency. As these funds arestraight grants, no rationing of project demand is provided by cost.

3.63 1 The FNDR case is illustrative of both problems. Territorialcriteria such as the following have been proposed to allocate total resourcesamong regLons: (a) distance from Santiago; (b) the inverse of demographicdensity; and (c) the inver-s of per capita regional product. There is only alimited relation between these criteria and efficiency or equity (see nextpara.). Moreover, while criteria such as these determine the total amountgoing to each reaional government, the total amount received from the FNDR veach municioalitv depends on its ability to (a) prepare attractive projects,and (b) find supporters at the regional SERPLAC. Although all projecteproposed for funding must pass a minimum economic rate of return test,regional authoritles are free to chocs among all projects passing this testand do not fund all projects. In short, the amount a municipality receivesfrom the FNDR depends largely on the geographic rules for allocating resources

28/ Direct investment of the sectoral ministries, however, alsoincludes investments that are regional in scope, so the uncorrected dataexaggerate the dependence of municipalities.

45

among regions, and on its ability to obtain approval for projects submitted tothe regional government.29/

3.64 The criteria used to distribute the FNDR do not necessarily favorregions with the highest concentrations of poverty. Table 3.5 and Figure 3.3(a through c) show the percentage of the national total of FNDR funds going toeach region compared with its share of population, population in poverty (bythree different measures), and regional geographic product (RP). Note thatthe Santiago Metropolltan Region (MR) received only 19.4% of the FNDR in 1990,although it comprised 39.7% of the total population, 19.9% of the populationwith unsatisfied basic needs, and 34.4% of the population under the povertyline (measured by food and other consumption). The four regions of the NorthZone, meanwhile, received 255% of the resources of the FNDR but comprisedonly 10.9% of total national population, 10.4% of the population withunsatisfied basic needs, 10.7% of the population below the poverty line, and13.6% of the regional RP.

Ias 3 Cbi.. 'Me Rdadv. DiIbudsa of Rloallned lN,.m By the May f elatu,Poor Pbopldma ead PFed by Zoas md Regimn (1)

mink" at. 2a2Iw

Zoms SaWAWA

TOW leAoWms ro tAk

TOW 0) U,bm ftpiuha I0wwI ftpslsOm CwminpUo 0)

TOTAL- ALL RE_NS l00s . .0 200.0 la" I.0 200.0

TOTAL- NORTH ZONE 25J 27. 24.1 193 10.9 U3S 10.7

I Da Tow= 3.6 4.4 2.1 4.0 2.? l23 23

n DoAoSpm 9.2 0.4 8.2 4.7 3.0 3.23 2.5

m DP_ 73 7.5 78 3.2 1. 4.S 1.6

IV IDCD e.4 4.3 60 71 .7 t47 42

CeNrRAL ZONE ulb MR 30 xi 33.2 31.4 55.2 06 493

MR2 Smo1a.e bbium. Ram 2019.4 18.3 2112 19.7 _9.7 0.49 34.4

nflRAL ZONE WWIRK MR Il1 10.2 12.0 17.7 25. 0.74 4*

V DoVaipu*o 7.4 7.t 7# 102 20i 0.71 9.9

vI I2.2tJ2,admo 3.0 10 3.t 4.5 73 4.9 0.79 5.0

TOTAL. sov01 ZONs 2L.0 2W.7 27.8 3.4 2S.1 I.04 312

VD D2I Mob 7.0 7.2 6.9 63 6.4 2.20 .7

Vm Did Bbl I0.4 9.2 2l 1324 12.7 043 16.2

mX D L aA,m_ 8.6 3.3 9.1 8.6 6.0 1.42 .7

TOTAL. EXTREU so01un 17.7 19.7 14.9 14.7 2. 200 8JZONE

X De L Leon L1 8.2 9.5 83 .0 1.24 7.7

Xl Ak. di Go& Cate 4.3 5.8 2.2 2.9 0.6 7.13 03rk. dm C.e

Xll DosMawlmsyde 4.7 5.7 3.2 3J 2.2 3.3 O0Is Aaatm w 1k

(I) -02M" NAOW IaII~DUbasd ==M.u0) Fa ldo do D.. O_ A&

0) Sm 4 6o CUEN IW by CEPAL. b l. de taa . m Xbw SS 0

IV/ Many of these issues relating to regional goverAment are currentlybeing discussed by Congress in the debate over Provecto de Lev SobreGobierno v Administraci6n Regional.

46

Figure 3..3a: RELATIVE DISTRIBUTION OFINVESTMENT BY INTERIOR MINISTRY AND

POPULATION BY ZONES% of National Total

80

30

DO , |. _

10

North central Metropoltan Scuth htrmOewlo MA RIeion South

Zones

Total invoatment = Population

touela Table .4

Figure 3.3b: RELATIVE DISTRIBUTION OFINVESTMENT BY INTERIOR MINISTRY AND

UNSATISFIED BASIC NEEDS BY ZONES% ot National Tota

80

30 _

20 , _

North central Metropolltan Soth Intro.wlo MR Regaion South

Zones

Total Inwvtment Unuatls.U Bao Neos

Source Tabe. 3A A.O

Figure 3.3c: RELATIVE DISTRIBUTION OFINVESTMENT BY INTERIOR MINISTRY ANDFAMILIES BELOW POVERTY BY ZONES (*)% of Nalonal Total

40 -

1010

North central metrelolltan South entreeweo MR Reglon South

Zones

Total Investment = 1emiL below POerty

sode Tlam 3.nptbnSor. Table 3.4

47

3.65 The distribution of the total central goveriment investment(transfers from the Ministry of Interior and direct invostment of the SectoralMinistries) a*ho shows a high degree of territorial redistribution notnecessarily linked to povorty. Ftor example, Table 3.6 and Figures 3.4-3.5show that 26.2% of this total investment went to the Santlago MR which hadalmost 40% of the total population. On the other hand, the North Zonereceived 15.5% of the investment but contained only about 11% of thepopulation.

*TA bt CQUOI R1.w DIbulSRa ofRebmfld Inv.lt PNo hpdA&SmA fta ghr b Maby, Zan% ma R%W01i I1

TomE

TO" TOW T_ Tom |1mm .M P4sm laumimmE IUidsr ft~.Web so&ws as"b ftIS11.

TOT`AL- ALL BOIONS la" 300 300* 1OG to" I00.0 10

TOTAL- NORTH ZONE I5A 25 1332 12.1 0.0 10.9 1.42

| I Do T _ 4.0 3.6 1.7 2.7 0. 2.7 1.49

1D AAaWhf 4.0 92 1.6 35 0.0 3.0 134

m lbA3 3.1 73 2.2 IJ 0.0 I.5 2.0Z

IV PA- d 4.4 4.0 d.1 0o0 I 7 L17

CENrRAL ZONE 14ft 49 5 30J 51.4 53.4 33J 55.2 0.90

Ml Ewah.a 14mm MaIm R152 19.4 11 44.4 4.1 1.7 o. f

CUlNAL ZONE M&M 3M 2) 11.3 39. 14.0 29.2 15.4 1.51

V DeV_Ipmb 364 7.4 29S 13 29.2 lo0 lie

Vt lijilmlb_.mtO 6J *.o 94 37 00 o. o i37

TOTAL- SOUm ZONE 2L. 260 21.9 21.6 409 25.1 0.91

VD Da M 6.5 7. 5 63 43.A 6.4 3.0O

vm gmDa;** 30.2 I0.4 103 10.2 1.5 12.7 OM0

TOTAL- EXTRVISOUNi 12.2 17.7 133. L0 21.J J3 1.39ZONE

X DbLe.Agm 7.3 L7 9.1 4.6 21a 7.0 35

x) Ahbad306COW 23 4213. 3 0.0 U6 3.7

XDM l p1_b 2U 4.1 2.0 2.3 0.0 1.2 2.35

L49i NOI ROOM U.U .ADb*P"*Ah-Wmew.iadwPd0I I bweWM ?dlm NqioudIi (ould

3.66 Excessive emphasis on territorial equity in the criteria used inboth current transfers (including automatic revenue sharing (MCF) and capitaltransfers (FNDR)) can be counterproductive to poverty alleviation. Forexample, under existing criteria for the FNDR, not only do *poorer* regionsreceive more than Oricher* ones, but only projects directly serving lowerincome populations are funded. The problem is that there are many "poorfamilies" living in "richw regions. Table 1.3 shows that by the two measuresof poverty (L.e., below minimuim diet and below minimum consumption), almosthalf of the poor live in the three regions of the Central Zone (MR, V, andvr). over a third of the population with unsatisfied basic needs lives Ln theCentral Zone. Furthermore, over half of the poor families do not live in"poor" municipalities. Thus, ln Chile, territorially based transfers are

48

Figure 3.4: RELATIVE DISTRIBUTION OFINVESTMENT BY NATIONAL MINISTRIES ()

AND POPULATION BY ZONESS of Natlonal Totai

40 _....._- -

30

20

101 .---Nort Centtal Matroinllen South Stfee

w/o MR Region South

Zones

Total Investment O Populatlon

()Interior. Pubilc Works. Housing.HenithSourom Table 16

Figure 3.5: RELATIVE DISTRIBUTION OFINVESTMENT BY MINISTRIES (W) OTHER THAN

INTERIOR AND POPULATION BY ZONES% of National Total

50

40 ____--- _____=___

20

North Central Metropolltan Suth btemwla MR Reaon South

Zones

Total Investment = Population

(.)Publlo Works. Housing. Health.Souree, Table oo.

contly lnefficient Ln reaching poor famllies. Furthermore, this emphasisaritorLal equity can mean that funds may not be available for projectscontribute directly to product and employment growth, and which may wella. hlgher potential for poverty alleviation than territorially basedifers over the longer run.

49

3.67 The existing system of capital transfers also provides strongdisincentives for improved financial management, as noted in paras.3.47, 3.50, 3.62. tInder the current system, the mayor is given incentives to:(1) maximize the number of projects submitted for funding to any of the over adozen sources of funding for capital projects, as the only cost a municipalitymust bear is that of project preparation; (2) not fully evaluate the impact ofthe project on current costs of maintenance and operation (as this mightreduce the economic rate of return, thereby lowering the chances of projectapproval); and (3) submit projects rejected by one government source toanother, as there is often more than one national funding source for a givensector or area.

3.68 Paradoxically, financing is most difficult for more efficientinfrastructure projects for which cost recovery is potentially feasiblebecause of the: (a) current lack of flexibility for increasing revenues viadirect user charges or general taxes; (b) prohibition of borrowing that wouldpermit matching of cost and benefit streams; and (c) emphasis on territorialand interpersonal equity of the national capital transfer system. Inabilityto finance these projects can slow economic growth and reduce environmentalquality (see para. 1.13).

B. Recoumendations

1. Increase Flexibility to Raise own-Source Revenues

3.69 Given the nature of municipal functions in Chile, there is a goodcase for emphasizing allocative efficiency in asaigning revenue sources tolocal governments. Over the long term, emphasizing the efficiency objectiveimplies a tax structure that places emphasis on user charges and local/benefittaxes to finance both current and capital expenditures for munici.palfunctions.

3.70 This principle would suggest that the real estate tax could beimproved by a reduction in exemotions (which would also improve the system ofuser charges) and imoroved assesament. The patente has a highly uncertainincidence that makes it undesirable as source of local revenue. The presentceiling on this tax limits this problem. However, current proposals to removethe ceiling on the patents could permit municipalities to raise thisinefficient tax to higher levels. Thus, the ceiling on the patent. should beretained. Alternatives to the patente that could compensate municipalitiesfor the costs associated with industries and commerce without the distortionsof this particular tax include user fees and also the real estate tax, as longas it is not abused to export the tax burden (para. 3.33, 3.72).

3.71 This approach also implies that tax rates should be subiect to aareater dearee of local control, provided the incidence of taxes being imposedis localized. For example, local governments should (as proposed) havegreater control over the rate of the real estate tax. Moreover, thecontribution to the MCF should be calculated at the 1.6% rate to preventmunicipalities from lowering their contributions to the MCF by lowering therate and also to prevent "taxing" of additional tax revenue for municipalitiescharging above this rate.

so

3.72 The case for local control is strongest for the xmaidntial realestate tax rate (and user charges). Real estate taxes on commercial andindustrial property raise the same risks of tax exporting that now arise lnthe case of the patente. The new fiscal value assessments should beimplemented for the real estate tax. To maintain the efficiency of the realestate tax as a means of financing municipal functions, the level ofexemptions should be kept low. Allocative efficiency drops when localbeneficiaries are not confronted with the costs of their decisions. In theinterest of consistency and transparency, the 30% surcharge on the real estatetax should be eliminated and the lose of revenue compensated with higherrates.

3.73 There is probably little national interest in subsidizingindividual municinal functions, such as public lighting or garbage collectionin every poorer jurisdiction in the country. The system of non-earmarkedrevenue sharing with transparent and predictable criteria (i.e., MCF) shouldcontinue to be one of the main ways of equalizing consumption of local publicgoods among municipalitLes, while allowing them to choose the particularcombination of local public goods that meets their needs.

2. Resolve Problems in Financino Education and Health

3.74 Resolving the questions related to the financing of these socialsectors is urgent and essential to the overall fiscal balance in themunicipalities. Perhaps the only way that municipal finances could becomeunstable is if this question remains unresolved.

3.75 Although the Chilean education system is relatively effective inachieving its objectives, it can be further improved to ensure greaterefficiency, equity, and accountability. Recommendations are as follows:

(a) The existing system of per student subsidy (P8S) is transparentand predictable. It permits municipal autonomy in resource use andgrants choice to parents. Any increase in central governmenttransfers to schools should take the form of an increase in thebase PSS rather than introducing new discretionary programs. Ifthe central government wishes to raise the total amount spent oneducation, it should increase the central government PSS for bothmunicipal and private subsidized schools to maintain theefficiency incentives of this system.

(b) The problem of excess teachers in municipal schools should beresolved. This will entail an increase in pensions by the centralgovernment to encourage teachers past retirement age to retire,and payments from both the municipalities and the centralgovernment to create incentives for teachers to take earlyretirement or transfer to private schools.

3.76 The subsidy system for primary health also needs to be revised tomake it automatic, transparent, and predictable. One very promising methodthat should be evaluated would be to do the transfer on a per capita basisallowing a weight for poverty.

51

3.77 There are also a number of recommendations for the centralgovernment's financing of education and health:

(a) The central government should avoid enacting regulations thatincrease municipal costs (e.g., ii.creases in salaries) and reducemunicipal autonomy and accountability in the provision ofeducation. If such regulations are enacted, transfers should bemodified to compensate for the increased costs of theirimplementation, as has been done under the E8tatuto Docente.

(b) All schools and health posts receiving national subsidies shouldbe required to have annual external audits and performanceevaluations. The results should be communicated to the Ministryof Education and made readily available to the public.

(c) Transfers for capital investment should be made more transparentand equitable. St.ch transfers should be integrated with the percapita subsidy system and paid to all publicly subsidized entities(including private schools that are eligible for PSS).Alternatively, investment funds could be established from whichentities eligible for per capita subsidies could borrow.

(d) To increase competition, the Ministries of Education and Healthshould issue annual reports giving information on key financialand performance indicators for all public and private schools andfor health posts, respectively.

3. Imorove Incentives in Canital Transfer Syetem

3.78 As with current revenues, any attempt to reform the system ofcapital grants should distinguish between municipal and municipal/nationalfunctions (e.g., primary health and primary and secondary education). Thereason for this distinction is to ensure that transfers and direct ministerialcapital expenditures of the central government do not substitute forsubnational capital expenditures for mun$cioal functions.

3.79 Municioal Functions. For municipal functions, the conditions forfinancing different types of infrastructure to be provided and financed by themunicipal governments should be clearly defined. To improve allocationefficiency and mobilize resources, beneficiaries should be confronted with thecosts, although provisions should be made for:

(a) lowering the annual cost via financing over longer periods; and

(b) "lifeline" rates for lower income families unable to pay even thislower annual cost.

One possible strategy would be to hold the municipality responsible forrecovering the full costs of investment, operation, and maintenance forinfrastructure tor higher-income families via user charges or increasedcurrent account savLngs from either increased tax revenues or lowerexpenditures. For lower-income families, a fund of the central governmentmight be used to provide an "up front" subsidy to "top-up" payments and permitthees services to be provided at affordable levels. In this way, users would

52

be better confronted with the costs of services and the national/municipaltransfer would be to lower-income families and not to the municipality as awhole. Such a system would improve efficiency by confronting beneficiarieswith the cost of services, and would also target transfers to poor people.Those able to pay would have to pay. The poor would be subsidized. TheMunicipality of ConchalL has developed a program with some of thesecharacteristics for providing paving and street lighting (see Box 3.1).

3.80 The Social Action Committee (CAS) system could be used todetermine the eligibility of lower income families for subsidies. Othercriteria such as those used in the Municipality of Conchal. (see Box 3.1)might also be used in allocating these transfers.

3.81 The current system of capital grants favors municipalities in"poor" and "peripheral" regions. This approach runs against efficiency andequity criteria to some extent. First, it reduces the chances of fundingprojects in "rich, central" regions that may be more productive than those inpoor, peripheral regions. However, such projects might well contribute moreto the reduction of poverty over the long run than do direct attacks onpoverty, and therefore should be funded. Second, although the central regionscontain the majority of the poor, allocation criteria are biased against them.

3.82 To give greater weight to productivity and the number of poor, achange is needed in regional allocation and eligibility criteria for FNDR andMINVU transfers with regard to these municiDal functions. Ideally, thecurrent distribution criteria for FNDR funds would be dropped entirely infavor of allocations based on technical assessments of the total investmentnecessary to meet infrastructure shortfalls and with some consideration of thenumber of poor, less the capacity of municipalities to finance this investmentwith their own resources.

3.83 Such changes in regional distribution criteria may not bepolitically feasible, but, at a minimum, more transparent and objectivecriteria stressing efficiency and fiscal performance could be applied withinregions to allocate resources among municipalities. The main objective isthat conditionality of transfers provides incentives for more efficient andequitable resource allocation. Beneficiaries who could pay would beconfronted with the costs of their choices. Subsidies would be targeted tothose who can't pay. For FNDR, the proposed changes would: (a) reduceterritorial distribution in favor of well-targeted interpersonal distribution;and (b) permit financing for projects benefitting the non-poor with full costrecovery. (This would apply only to municipal functions, which representabout 20* of the total FNDR allocations.)

3.84 Improvements in municipal cost recovery could be encouraged in anumber of ways. One would be to make capital transfers conditional onmunicipal performance in relation to planned and actual performance on costrecovery. For example, one condition for all capital transfers could be aFinancial Action and Investment Plan (FAIP) that shows how the municipality orregion would recover both investment and current costs (i.e., maintenance andoperating costs). This financial analysis should accurately reflect the costsof operation and maintenance, and conditionality should clearly establish theresponsibility to assume these costs. Access to further transfers could,then, be made conditional on good performance in cost recovery as shown in the

53

Box 3.2

Street Pavina and Liahtina Programs in tho Municioalitv of Conchali

The Municipality..of Conchali (a..low-income community on theperiphery of the SantiagoNMetropolitan Region) has great need for streetpaving and lighting. Almost 250,000 e&of streets lack paving. Toprovide adequate street lighting,. Conchall needs to increase its existingstock of lights by..almost 4,000 (an increment of 30%). However, itsbudget did not permit lt to meot this need, oo it developed programs withcommunity involvement in both financing and construction.

The. Procem'Neighbors can form a "progress committee" (cowlto do adolanto) to

open a "savings" account into which its members can deposit funds to coverits. part of the cost of the desired-project. The minimum savings from thecommunity is 25% of total project coat, but the probability of projectapproval rises in direct proportion to the percentage of community savings(see para. 3.i8). The Progress Committee informs the Community PlanningSecretariat (SECPLAC) when.the account. for a specific project -i openedand when significant deposits are made.

Proiect Selection Crit-eria-The selection criteria.grant higher."grades* to projects:

with higher accumulated savings as a percentage of projectcost;

0- with more..beneficiaries;.* . : from committees that:.have been saving for longer periods as.. a.

reward for periseverance and-willingness in fund-raisingefforts.r.:

-* for the first project submitted by a committee .to encourageentry.into:the program; and

* from olderv-neighborhoods because they have been suffering fora longer. period...

Success of the Proaram;to Dat-..In fiv year,:.the municipality has completed paving work in

association with 45'difLferent block groups, and as of the date of themission, was working .with..20.additional neighborhood groups. In addition,the principles:of.the program. have been extended to street lighting,as..weil as to other areas. of. community improvement in accordance with localdesires. A derivative program has allocated two percent of.the municipal.budget for unrestrictet.duse by neighboriood juntas (provided spendingfalls within broad categoriesxof community need and municipalresponsibility).

54

Plan. In other words, municipalities not complying with their FAIP would notbe eligible for further transfers. Under this type of system, access totransfers would be conditioned on improved financial management.Municipalities could, therefore, begin to finance an increasing part of theirmunicipal functions.

3.85 Municipalities currently face legal $mpediments to borrowing,which could be uoed to bring forward needed projects and lengthen the termsover which projects must cover costs. The main impediments are that Congressmust approve all loans and no municipal revenues or assets can be used as loanguarantees. These restrictions eliminate the option of using real estate taxcollections or revenue sharing (MCF) as loan guarantees. However, in the longrun, as municipalities improve their ability to recover costs and as thequality of the information system improves to permit adequate evaluation oftheir creditworthiness, borrowing might be allowed in private capital markets.Chapter 6 provides a strategy for accomplishing this.

3.86 Municical/national Functions. For municipal/national functions(i.e., for those capital goods provided by municipalities but financed by thecentral government), the allocation to municipalities might best be based on acapital investment program for each of the sectors designed to reach specifictargets for coverage in each area. For example, for schools, the regional andmunicipal allocations could be based on the costs of meeting the need forschool rooms, rather than on the distributional criteria currently being usedfor the FNDR and other funds (see paras. 3.62 to 3.68).

55

ChaRter Jo SMINTIhG METROPOLXTN REGION: XHYER-GOUIANhDEPENDENCIRS MID NUNKEUNN 0r ME!ROPOLXTIN DEmtLOPNNP

4.1 Many of the measures meant to strengthen Chile's munlcipal andreglonal governments have unintentlonally created new problems or exacerbatedold ones in metropolitan areas. Thie chapter explores the specifics of theseproblems within the context of the SantLago Metropolitan Region. Santiago isby far the largest of Chile's five metropolitan arean,1Q/ but all shareproblems of intergovernmental dependencies in dealing with economic life,political relationships, environmental concerns, and planning.

A. Santiao M et2onolitaR RoGLOn

4.2 The Santiago Metropolitan Region (MR) Ls the political andcultural center of the country and the seat of national government. The MR iscurrently composed of 51 municipalities, up from 42 in 1990 due to thecreation of new municipalLties via the subdivision of existing ones. In 1990,5.2 million people (39.7% of the nation's 13.1 million) lived within the15,000 km2 of the MR. Table 4.1 shows the size distribution by population ofthe 42 municLpalities. The Metropolitan Area is the core area within the MR,consisting of 24 munieipalities in a built-up urban area covering about 1,000km2.31/ This Metropolitan Area is coterminous with the Provine- ofSantiago.

Table 4.1

Municlnalities in Santiago Metrooolitan Region by Siues 1970-1990

1112 12!2 1985 1990

Over 100,000 10 20 25 23

50,000-100,000 17 13 9 11

c50,000 10 6 7 8

Total Units 37 39 41 42'

Note: Dos not imclu tho new nwinpaliiea.Source: buduo Nacinal de Eutadi

4.3 While Santiago contains a large fraction of the productive wealthof the country, it also has proportLonately more than its share of the poor.In 1987, more than 1.8 million of the country's 4.2 million poor lived in the

lQ/ The others are Valparaiso, Concepci6n, Iquique, and Puerto Montt.

jJJ This is roughly equivalent in size and density to Bogot6, Colombia, andCuritiba, Brazil. The municipalities in the Metropolitan Area range inpopulation from under 20,000 to over 200,000. The MunicLpalLty of Santiago,(22 knm) had over 230,000 iphabitants in 1990.

56

MR../ The predominance of the MR in growth of population and income isalso on the wane, according to recent data. Population growth fell from anannual rate of 2.8% in the sixties to under 2.5% in the eighties. The MR'scontribution to Regional Product (RP) also decreaaed over this period, from45.8% in 1981 to 41.2% in 1986. In 1986, the per capita RP of Santiago wasless than 10% higher than the national average. Furthermore, four regionsoutside the Central Zones had per capita RPs significantly higher than that ofthe MR.

S. Functional Arranoements atnd Sneding Reanonsibilities

4.4 The supply, delivery, management, and maintenance ofinfrastructure, facilities and services are handled in Santiago much as theyare in most other cities in the country. The exceptions are solid waste,underground rail transportation, and an environmental comnission.u/Individual municipalities in the MR are jointly responsible for management ofmajor infrastructure and services-- water, power, major thoroughfares. Inpractice, regional water companies (EMOS in the case of Santiago Region)supply water and sanitation in the MR for all but two smll unicipalities(where private companies operate). Power is provided by a private regionalcompany and is connected through a national grid. Except for localneighborhood streets, paving and maintenance of streets is the responsibilityof MINVU or MOP; drainage responsibilities are often left in a no man's landand are subject to negotiation. Management of other, purely local servicesand facilities, as in most municipalities, is carried out directly or bycontract to private providers.34/

4.5 Mass transit is almost completely operated by private concernsunder service guidelines established by the Ministry of Transport. A privatecompany runs the underground rapid transit system. Municipalities prepareurban land use plans and submit them to MINVU for approval. However, MINVUitself is responsible for land use planning in an "outer ring,"n an expansionarea of some 60,000 hectares surrounding the Provincial core. As elsewhere inChile, urban land use planning and building controls are exercised bymunicipalities and approved by the central government (MINVU). However, in1979, Decree-Law (DL) 402 tripled the land area (adding 60,000 hectares to the30,000 then covered under planning regulations) in the metropolitan region inorder to provide broader controls over national housing efforts. Theincreased area, known as expansion territory, is under the control of MINVU inconsultation with municipalities.

ial Those with incomes below the "minimum consumption" or the poverty line.See Table 1.3.

13/ The discussion in these paragraphs mirrors the details and problems ofjurisdictional and functional responsibilities of Santiago discussed in paras.2.1 to 2.3.

I/ These include drainage (with a considerable grey area), street lights,cemeteries, markets, parks and public monuments, and the like. As mentionedearlier (para. 2.3), municipalities also manage the delivery of primary healthand education, but do not finance it.

57

4.6 Like other regionu in the country, the Santiago MR has anIntendence, COREDEs, SERSMIs and other customary features of regionaladministration. Santiago Province, however, does not have a provincialgovernor. In part, the propinquity of the national and local governmentsmakes sub-regional authorities leee necessary than in distant parts of thecountry. But this also means that private interest groups and municipalentities can communicate directly with central ministry officials,circumventing regional government in a way that is not possible in other partsof the country. The Intendento and regional government manage FNDR-financedinvestment, as elsewhere.

C. Does MR Got an Unfair, Share of National Gov* nen Eoenditures?

4.7 In 1990, nearly a quarter (23.3%) of total public investmentcarried out by the central ministries (mostly MINVU and Public Works) was inthe central region. Still, the MR got proportionally less in 1990 than itwould have if investments had been allocated on the basis of either totalpopulation or poor population. Investments for 1991 reinforced this trend.On a per capita basis, FNDR spending in the MR was only about half thenational average. Considerable variation exists among the 42 municipalitieswithin the region, but on average they invested more of their own money on aper capita basis (US$ 7.66), and received fewer FNDR funds (US$ 2.28) than thenational average (US$ 6.58 and US$ 4.24, respectively).I/

4.8 Per capita spending in 1991 by the central government ministriesin the MR reached USS 23.81 compared to a national average of US$ 47.40.Special investments or off-budget items (in the military and other utilities)are not necessarily favorable to the Santiago Region, either. For instance,water and sewerage investments planned over the next few years will depend onthe privatized water companies. However, the central government investment ofabout USS 100 million per year over four years on the now metro line willbring the metropolitan and national averages closer together. Thus, with theexception of the metro, the central region does not receive disproportionatecapital investment .36/

4.9 The MCF has in some years (especially the triennium 1987-89)steered a larger share of funds to the Santiago region than the region's sharein national population. This outcome has struck some observers asinconsistent with national decentralization goals (even though the region isstill a net loser when its share of benefits recelved is compared with itsshare of funding contributed). Upon closer scrutiny, one finds that thisdistribution pattern does not result from the main allocation formula.Rather, during the 1987-89 triennium, the municipality of Santiago convinced

35/ The range of per capita investment runs from US $60.79 in Region XI to US

$5.65 in Region IV.

36/ These investment patterns raise questions about the proper mix and levelsof spending, about the ability of local governments to join forces to captureeconomies of scale, and about measures needed to address negative spilloverswhich affect environmental quality in metropolitan areas. Such questionsdeserve further exploration, perhaps in the context of future sector work orlending operations.

58

authorities that it deserved special consideration in the distribution of the10% "special burden" funds, because of costs it had to incur in servicing alarge daytime commuter population. Thus, while in 1987-89 Santiago received avery largo share of the supplemental funds distributed under the MCF, in 1990-92 it will receive none, and the MR as a wh,le will receive a lower share oftotal MCF allocation. than its share based on population.

D. Resource Mobilization aad Transfers

1. Revenues

4.10 The local tax base which feeds municipal revenues is stronglywealth-based. The per capita value of the local tax base is more unequallydistributed than li per capita income throughout Chile, and extreme inequalityin this tax base is perhaps nowhere more apparent than in Santiago. Whilelocal tax base inequalities are found in all countries, the divergence isparticularly strong in Chile, especially in the MR. Per capita own-sourcerevenues va_y by a factor of more than 100 to 1 among municipalities of theMetropolitan Region. Property values, automobile registrations, and mediumand large business establishments (the three principal sources of local taxrevenues) are very highly concentrated in some municipalities of the MR. AsdLicussed in Chapter 3, the exemption. from the real estate tax worsen thisproblem.

4.11 The MCF succeeds in drawing resources from tax-rich communitles andin targeting its distributions to tax-poor communities, making the system as awhole highly redistributive. Within that region, the ratio of revenuesreceived to revenues contributed under the MCF varies, in the most extremecase, by a factor of almost 700. The three richest communities-- Providencia,Las Condes, and Santiago-- contribute some 68% of all MCF contributionsoriginating at the local level. All of the municipalLties with high ratios ofbenefits received to payments made have predominantly poor or working classfamilies. Table 4.2 illustrates the share of total local revenue accountedfor by MCF revenue sharing in selected communities.

Table 4.2Transfers froM the WCE As shar of TotalIoa Revenues. selected Municinpailies 11989b

p;liSloalitx MCF Share of Local Revenues

ConchalS 59%La Granja 60%Santlago 6%

Soutc: Mizsuy of HKcISA

2. Tax Comotition

4.12 Tax competition among municipalities and associated dietortions inreosurce allocatLon in local commerce and industry are not a problem becauseall rates are equal under the present Municipal Revenues Law. The proposedreforms Ln this law would allow variation of real estate tax rates, but only

59

within a relatively tlght "band* (see para. 3.24, 3.44) that should hold taxcompetLtion to a mLnimum. Unequal rates were abandoned recently ln GreatBrLtain because of fears that Ln the long run they would lead to dlitortlonsLn lndustrlal and manufacturLng decieions. Differentlal rates wero proposedln Chlle and withdrawn in 1988 for the same reason. The proposed ellmlnationof the ceLlLng on patente would permit a shifting of the tax burden but wouldnot Lnduce tax competltlon (para. 3.33, 3.72) as the rate would remaLnconstant for all munlcipalltles.

A. Plannina and sudaetLwas Probles oof Interdeoendaenae

4.13 The size and Lnterlocking nature of large metropolitan areas fostersmultlple overlapping externallties, some pooLtive, such as agglomerationeconomies, and others negatLve, such as pollutlon and congestLon. More than afew municipalities ln the metropolltan area have suffered sorlous econoic andfiscal losses (described ln sectlon 1 below) caused by the unllateral actlonsof the central government. Conversely, local governments contribute toenvironmental pressures (discussed in section 2) due to a lack of regulatorycontrol at the center. The lesue of balancing central-local relatlons lnurban development is illustrated ln these cases.

1. ImpoositLon of Costs on SubnatLonal Governments bX the Central Governmenit

4.14 In the late 1970., as part of the central government'sdecentralization strategy, some of the metropolltan populatlon was dispersedfrom large munLcipalities ln the central city area to lightly or sparselypopulated areas in a large peripheral doughnut around Santiago called "theexpansion zone". Over the past decade, MINVU relocated nearly 100,000 people,many in large housing projects located in municipalities in thie zone. ThemunicipalLty of Puente Alto, for instance, was summarlly informed that ahousing project of 5,000 unlts would be constructed under MINVU's sponsorshlpwithin its jurisdiction (but outeide the area of control ln lts urbandevelopment plan). Only 400 of the dwelling units would be assigned toresLdents of Puente Alto. Although the municipality is responslble forservices (street llghts, solld waste, soclal aselstance, and the like), themayor, council, and inhabitants had virtually no say in the overall Lnvestmentdeclslon.

4.15 A esmilar burden results from the central government's pollcy ofsubdlvlding munLcipalitLes to prevent them from becomlng "too large". In1981, the previous government ordained the creation of 16 new munLcLpalLtlesin the MR. A rationale for thie move was to malntaln munLcipalitLes of nomore than "medLum" populatlon eLze, for admlnistratlve convenlence andhomogeneous soclo-economlc makeup. One argument for the latter was thatgreater .ocLo-economLc homogeneity would increase the interpersonal equlty ofterritorial transfers, such as the MCF. But thle gave LnsuffLeLent attentLonto the fiscal and other economic costs that such a pollcy imposes on localgovernment. For inetance, several new municLpalities were created from thesquatter population of centrally located municipalLtLes, resultlng lnuniformly poor municlpalLtLes with no real chance for fiscal independence oreconomlc expansion. MunicipalitLes such as La Plntana and La Granja presentlyhave homogeneously poor populations on the order of 100,000 wLth vlrtually noeconomlc base and limlted prospects for commercLal actlvity. Although the MC?

60

can ameliorate these problems to some extent, it cannot be expected tocompensate for them entirely.

2. Imoosition of Costs on Central Government by Subnational Governments

4.16 At the same time, municipalities and individuals in the metropolitanarea generate environmental pressures in the form of solid waste, sewerage,air pollution, and congestion. Upwards of 1.2 million commuters cross intothe center of the city every day, and the resulting costs (i.e,, congestionand pollution) are born unevenly and unfairly by the population as a whole.Dust from unpaved urban streets contributes sLgnificantly to air pollutionthroughout the metropolitan area. Box 4.1 presents a proposal designed toreduce commuting in Santiago by eliminating imperfections in the urban landmarket that discourage people from living closer to their jobs.

4.17 There are no inatitutional mechanisms operating at the metropolitanlevel to induce local governments and individuals to internalize social costssuch as those placed on the metropolitan community. Similar environmentalproblems of an inter-governmental nature need to be addressed in solid wastedisposal, traffic congestion, growth management, and sewerage. For example,proposed sewerage collectors are estimated to cost USS 40 million and willserve a half dozen municipalities (along the Mapucho River), terminating intreatment plants to be located in Pudahu-l. In other metropolitan areas,tourism and coastal controls are also an issue.

r. AUnreved MansaaMat of Metrooolitan Problems

4.18 To date, problems of the metropolitan commons have been handledeither unilaterally, by central ministries acting sometimes in consultationwith local governments, or by local governments and agencies usuallyaccountable to, but not controlled or poorly coordinated by, centralauthorities. The most balanced of these arrangements is the SpecialCommission on Contamination of the Metropolitan Area, which has focusedlargely on the amelioration of negative environmental effects-- air and waterpollution. More effort needs to be made to capture economies of scale ininfrastructure and services, for instance in the treatment of solid waste.This may require fiscal incentives (such as matching grants) as well asinstitutional mechanisms for inter-municipal cooperation. Constitutionalreforms presently under discussion propose more autonomy for individualmunicipalities to forge inter-governmental contractual arrangements. Based onthese provisions, several proposals have been advanced in Congress regardingmetropolitan government. Clearly, some form of supra-municipal entity (e.g.,municipal associations, provincial or regional governments) with strongerpowers in limited spheres of action needs to be explored. Examples includethe power to implement planning, investment coordination, cost recovery insolid waste and sewerage, urban growth planning, tourism and coastal zonemanagement.

4.19 A starting point to address these problems is clarity in thedivision of labor among governments, with special attention to supra-municipalresponsibilities in metropolitan areas. The fundamental decision rule--defining benefits jurisdiction with matching organizational arrangements--should guide further investigation into these areas. Also, refinements ininter-governmental finance, particularly as regards own-source revenue and the

61

composition and distributional criteria of the MCF and FNDR, may requirespecial considerations to take into account the financial needs of commonservices.

62

Box 4.1

R*densification and Renewal of Western Santiaco

The Municipality of Santiago is actively promotingred4nsificatLon of 'lt western half. The effort is organized by a privatecorporation of the city, illustrating the autonomy given to cLties underpresent law. These- powers are to be expanded under proposed legislation.Th $city argUas that market failures in real estate and motorized accessto downtown are the chLef justifications for interventions-- mobilization,but not financing-- in the redensification of the western section ofSantiago. Around .1-200#000 people cross the downtown area every.day,creating congestion :andl contributing to poor air quality. In addition,the w otern cection haw. lost population but retains high quality, under-utilized infrastructure.- -

In the.195t0, when Santiago had a population of 670,000, thewestern section of the.city consisted mainly of middle income residencesand:.commercial areas, much of it subdivided from large estates dating tothe:turn of:the century. The western area has an overall surface area..of.40? hectares, 103 of whlch are in green spaces, streets, and sidewalks,and 332:of which are in vacant lots.. The population fell to 232,000$in1982,::d.erasing. the sefective density in Western Santiago (discounting'15.0hbtares of deteriorated buildings)- to about 70 inhabitant-,:per.hootarei out-migration was. spawned by.the availability of motorized. .Access to cheap, subsidized. land on the periphery. The. rminingpopulation $i:older than.th city average and still.mainly middle class.But:'though'many would .to leavoe thee. i's little market for smallindividual, pieces Qf.'property.

The cit. intention: is to:take advantage of the virtuallycomplete.infrastructure.. esrvice-- including water, waste system, drainage,.gas'ines, public lightin. and: t dephones, in addition: to public:-.spaces---to redensify:.the area and :-help reduce commuting pressures. Besides 'focusing attention bon the:possibilitieas-and intentions of.the city, therole of:th. municipalitey as:.interlocutor is to organize:..a property market::(Concurao ie Ofcztsa.:ixn :.th. land.market.by'carrying out:complementary.'actions. These inclade:. .:

.... ' -::' :E^na S^K=xt. : ... '. ...........:'.'-' ... ..... . . .. .... . .. . 6 k* . ,- ...

.. .... , , , ~ ~..: .:: .. . C.- .v-n . :

development o finventory: of land us* and. otherinformttibn about public space0, demolition orders,

-.... -.dntification ofUhistorically significant properties,.' .. ~etc.t .,

.. : ., organization: and publilcation of an offor for- the sale ofminimum:size land: packagess.

... :: .~ ~ ~ ~ ~~.. ... .-..:

.. ... .. . ..........

. .. .. ......

63

* . .. w .'.analystd: of price and availability of reopone.c and'package- prlority parcels, verification of titlecircumstances, and advising sellers of conclusions interms: of minimum price feasibility;

* . acting as auctioneer, based on minimum price andconditions for priority properties, and if necessary,brokering for properties:not sold within a stipulatedtime. The-. corporation will charge a 1 fee for servicesto finance its activitiese

* .Comleentarv Action&

.:::. .. setting the rules of the game, focusing on, rehabilitationof.historical"buildings.and integrity of design forcommercial and residential. developmentsr

_ financing detailed land use plans to ensure harmonioususes in adjacent sections;

commitment to upgrading and maintenance of public spaces;

.- _.arranging favorable financing though existing MINVUprogramsl

* :-....... designating the area as an Urban Renewal Zone qualifying*:' ' ......for speedy and special purpose regulations and permits.

This -illustrates one.strategy,of individual municipalLnAtiative to solve problems of urban development that often arise frompoor or::abNent.coordination between local and central governmentinvestments.

64

Chnpter 5. MANAGEMENT EFFICIENCY AND ACCOUTBILITY

5.1 The proposed reforms and those that have been enacted willdemocratize the subnational governments and expand the range of theirfunctions and responsibilities. There is a general consensus among centralgovernment officials that management efficiency and accountability need to bestrengthened at the subnational level to improve governance and to allowsuccessful implementation of these reforms.

5.2 The improvement process must encompass subnational governmentinstitutions and their officials, including: (a) members of elected executivebodies and officers (i.e., regional and municipal councils and mayors); (b)key appointed executive officers (i.e., regional Antend.ntes and the newlycreated positions of municipal administrators-- AdmIniatrador Comunal); and

(c) technical staff at both regional and municipal levels (i.e., SERPLACs,municipal directors, etc.). Efforts should cover the improvement of generalmanagement efficiency, the financial management information system, andaccountability.

5.3 Accountability, at its simplest, means holding public officialsresponsible for their actions. Until now, local governments have beenconcerned mainly with accountability to the central government. As Chilebecomes a decentralized democracy, the central government will need to addincentives to its prohibitions and penalties to strengthen fiscal and spendingcontrols. In addition, local governments will need new tools and techniquesto increase accountability in spending and conduct to the electorate.

5.4 There are five mechanisms to increase accountability. Three are"external" to local government (central government auditing, the regulatorysystem, and the judiciary system) and two are internal" (participation andbudgetary oversight). Regulatory mechanisms and the judicial system arebeyond the scope of this study. The remaining three-- auditing, budgetaryoversight, and participatory procedures-- are discussed below.

A. ManaaoMent Efficiengy n- the Information System

1. The Need to Improve Oraanization. Systems, and Procedures

5.5 Accountability is very much related to overall managementefficiency, especially to the efficacy of information systems essential forcontrol and management. An important and urgent step to improve thisefficiency is the implementation of a management-oriented information system(see the following section). This information systm must be part of anoverall effort to improve management at the subnational level, however. Theoverall program would also include improved organization and methods,auditing, budgeting, procedures for public participation in decision making,and training.

5.6 New demands on and expectations of local governments will requireseveral changes in their management practices in order to maintain governmentefficiency and credibility. Table 5.1 summarizes the key 4nfluencing factors,the requirements on local governments, and the means that can be applied ineach area.

65

Table S 1LOC_L GOVERNMENT MANAOEMENT PRACTICES

Environmental Changes New Requirments for Areas of ActionLocal Manaasment ___

Local. elections More. mphasis on the. Tools and. techniques fordialogue with the .-. public opinion studieselectorate in order to wpublic hearingsget policy, prioritles,and strategy

Now elected. and -appinted Revised, roles, Liaison processes betweenmunicipal positions, L.. respon&ibilities, and elected officials andnew managemeWt n tructure operatLng procedures technical staff (changes of* CODECOs,: CORZDC*. with. organization and procedures)formaL powprea* Municipal. Manager.(Administradoroe Com'mal) More focus on fiscal Management training for

discipline, efficiency, common frameworkand equity Formal quarterly budget

reviews

Expanded:responsibilities Seize opportunities for Multiyear financialand more focus on multijuridictional planningaccountability and funding initiativesbased on performance Strengthened budgetary

process

Definition of servicestandards and comparison ofthe service delivery and therelated costs

Supporting informationsystems and training

Increased local control, Increased focus on.the Financial analysis andover tax.: rates and expacted.: generation of own source planningincreased local tax revenuesIrevenues based on tax .Supporting.information.reforms ..................... . .systems and training

Distribution: ofiinvstment:: More-comprehensiva Refinec guidelines forfunds among. muniaLpalitie a project proposals to project specification:at a regional: leve. ensure effectiver

prioritLsation Tools for etimatingoperation andmaintenanco costs

More reporting requi$e nts Adkministrative. Related training. ; , ,,efficiency sR inid $nformation ystems

* : :: . . :~ ~ ~ ~~~~atnid-norato

66

2. The Need for a Management-oriented rnformation Svstem

5.7 Most municipalities currently have only a statutory controlaccounting system mandated by the Contralorls. A vast majority ofmunicipalities still do their accounting manually. only a few very largemunicipalities in metropolitan Santiago have significant systems support foraccounting, human resource management, revenue managemFnt, etc. Somemunicipalities, however, have installed a PC or similar equipment to managefiles on personnel, permits, and the CAS questionnaire.

5.8 A multitude of forms are filled out by municipal governments onrequest from various entities of the central government, particularly theMinistries of Finance, Interior, Planning, Health and Education.Municipalities submit mandatory accounting information to the Contralor1a eachmonth in standardized format. No significant management information isnormally produced beyond the standard accounting information regulated by theContralorfa.

S.9 All municipalities in Chile use the same accounting procedures andare subject to the same laws. This should considerably reduce the unit costof providing them with new software, as essentially the same system could beused by all. But it might be more efficient to have simpler systems for thenumerous small municipalities.

5.10 Although significant amounts of data on the subnational publicsector are already available at the central level, there is currently nooverall financial management information system for subnational governments tobring all this information together. Rather, individual systems (manual orautomated) have been developed for specific purposes and for specific usergroups at central government entities. For example, databases with similarmunicipal financial data exist at the Ministries of Finance, Interior, andPlanning (MIDEPLAN), and the Contralor£a.

5.11 These databases have significant gaps and redundancy, and they usedifferent standards for data storage and data access (reporting). Forexample, the Contralorla does not include information on municipalcorporations which, for all practical purposes, are part of the municipalsector (see paras. 32, 1.17). In 1990, municipal corporations managed USS110.5 million or about 15% of the total on-budget expenditures of themunicipal public sector.

5.12 Many municipalities have difficulty complying with reportingrequirements to the Contralor1a in a timely manner. As a result, the annualreport of the Contralorla does not include November and December data for manymunicipalities. Thus, the information on different expenditure categories maynot only be significantly underestimated, but also distorted.

5.13 Central level entities have traditionally collected information forcontrol and policy making purposes, and have given llttle consideration to

67

provldlng useful feedback to munlclpalities based on these data bases.37/Performance indlcators and general targets could be provided together withcomparative data on the fLnances of the municipalities. In addltLon, acategorLzatLon of the munLcLpalLties could be made in order to facilltate theuse of such data.

5.14 Currently, there ia no set of consolidated account. that covers theentlre publlc sector, Lncludlng thes (a) central administratLon; (b)decentralized consolLdated entLties; (c) public enterprLsese and (d)subnatlonal public sector (regLons and munLcipalitLes). See Table 1.1 ofAnnex I for a summary of the coverage of the accounts of different entities.Furthermore, accuracy of the data used in preparing these accounts variessubstantially, wlth that on municipalities beLng the least accurate for thereason mentioned above. The importance of a complete, timely, and accurateset of consolidated public sector accounts for effectLve macroeconomicmanagement should increase hand in hand with the increasing importance of thesubnatLonal public sector.

B. Budetina. Investmont Plannina. and AuditLna

5.15 The budgeting system should serve as a mechanism for selecting theends and means for policy implementation and accountabllity. It makesexpenditure priorities and the strategy for financing these prioritiestransparent. At the municipal level in Chile, financial planning ie currentlyrestricted to producing a basic annual budget. This budget normally undergoessignificant changes every month due to new activitles and updated estimates ofrevenues and expenses.

1. National Priorities and Budoet

5.16 National plans and priorities are formulated by the President andhis cabinet in consultation wlth political leaders. The MinLstry of FLnance(budget department-- DIPRES) formulates the annual investment budgets and setslevels of permitted indebtedness among public agencies. These decisions aresubmitted to Congress each year for passage into law.

5.17 This communication process enters a distinctly new phase onceregional allocations are decided. Upon approval of the national budget,DIPRES communicates the overall spendlng limits to each ministry andgovernmental agency, such as regional water and health services. These limitsprovide a rough sectoral breakdown of investments for Intendentea and mayors.The Ministry of Interior plays a role similar to DIPRES in allocating thenational regional de.alopment fund (FNDR). For a given regLon, the sectoraland regional breakdowns of DIPRES and Interlor form the overall envelope forpublic sector Lnvestment. It is important to reiterate, however, thatministry investment plans are not always transparent to Intendentes. Withinthese limits, agencles up and down the executive hierarchy propose projects inaccordance with the sectoral goals of the national minLstrLes. At theregional level, mLnistry investment proposals are sometimes discussed in

J3/ However, all regLonal offices and a few large municipal offices haveelectronlc access to the project database BIP (Banco Zntegrado de Proyectos)maintaLned at MIDEPLAN.

68

consultation with Intendentes and mayors, but often local officials are onlyadvised. For FNDR funds, rntendentes and mayors develop their own proposalsin consultation with their respective planning bodies.11/

2. Capital Budoetina in Reaions and Municipalities

5.18 Intendentes and mayors in theory have some latitude to manipulatethe spending limits by combining different sources of funds to meet localpriorities. For instance, besides the FNDR funds which are reserved largelyfor regional and local facilities and infrastructure, Intendentes (likemayors) may propose stand-alone projects, or may combine their proposals withregional ministry offices or services, some of which also have own-agencyfunds. In practice, however, the structure of the investment planning systemdoes not facilitate coordination of this kind. As a result, there is someefficiency loss, though not presently quantifiable, due to uncapturedeconomies of scale and disrupted implementation. For instance, the intendedcoordination function between regional offices of the Sectoral Ministries(SEREMIs) and regional planning bodies of the Zntendencla (SERPLACs) oftenfails to integrate national projects with regional and local activities. Thishappens despite the existence of computerized data banks on regional projectsand the discretion given to regional agencies to approve projects under US$380,000. Thus, priorities at the national level a-e garbled by the noiseentering at inter-agency and inter-regional levels.

5.19 In the existing system of regional administration that will bereformed as shown in Table 5.2, Intendentes play an adaptive role by meldinglocal with natie Al priorities, by lobbying and negotiating with agencies forprojects, and L, assigning priorities to projects proposed by regional agencydelegates and municipalities. Recently approved legislation formunicipalities and propoued legislation for regional governments would greatlyincrease local inputs and community involvement in the investment planningprocess and seek to improve resource allocation at the subnational level (seeTable 5.2).

5.20 Under the existing system, capital spending plans for municipalitiesare formulated under many crippling constraints. First, the largerdevelopmental picture for the region and municipality is formed more by anexecutive's understanding of the recent historical circumstances than by along-term capital investment strategy. It is thus very difficult to linkregional and municipal investment to the needs of private enterprise. Second,spending plans are mostly driven by the supply of categorical funds (13 wereidentified in the previous chapter). This makes resource allocation moresupply driven than oriented toward meeting the effective needs of the localpopulation. Third, budgeting is done on a project by project basis withoutthe benefit of programmatic orientation which, with a longer term view and amore strategic approach, would allow step-wise accomplishments to largergoals. Most important, much of the planning for capital investment isinfluenced by an executive's political judgment, sometimes with technicalinputs from planning secretaries (e.g., calculating the need for classroomsand health posts). Where municipalities have begun to systematically tap into

_W This process will be radically altered by the new legielation onregional government currently under consideration by Congress.

69

Table 5. 2

Institutional Structure After-the- Reforms by Government Level

Level of executive Legislative TechnicalGovernment

Regional Intendente, COREDEs, elected Regional Min.appointed by from municipal Secretaries (RMS)President' council members, delegated from

maintaining central ministries,proportional under instructions ofrepresentation of ministries toprovince* collaborate with

.____.___-_ Intendento

Provincial Governorg Consultative Provincialelected by Councils, elected DirectoratesProvincial Council from among local (delegated from RMSe,

organizations and above), underinterest groups Tntendente

Municipal Mayor, elected by CODECOC, elected ;ECPLACo under themunicipal voters at large in rough Mayor and CODECOs

- .. proportion to.: : ::party. strength

effective need, as in the case of Conchali, investment priorities have shifteddramatically, sometimes away from investment altogether.

5.21 Another problem is the apparent lack of predictable distributionmechanisms for some of the most important resources allocated tomunicipalities. For example, while distribution of FNDR funds among regionsis relatively predictable, the allocation of these resources within eachregion (i.e., to each municipality) is done annually through a "negotiated"process. Consequently, municipalLties have no way of determining ahead oftime the level of support they will get from this fund.

5.22 Furthermore, decisions to allocate FNDR funds within regions aremade with little direct participation by the municipalities. Thus, while theprevious government's centralized decision-making process has partly shiftedto regions, the past dependency of municipalities on central government hasbeen replaced by a similar dependency on regional authorities. This situationis worsened by the absence of an adequate budgetary management structure or asystem to assess properly the impact of capital investments on operatingexpenditures (and, in turn, on future municipal budgets). Finally, no seriouseffort is being made to encourage cost-recovery from end-beneficiaries, or therepayment of public funds transferred to municipalities for these services.Under these circumstances, both fiscal and political accountability arediluted, creating serious risks to both fiscal discipline and the stability of

70

the new and more representative political systems emerging at the municlpallevel.

5.23 Another lisue related to the present lnvestment selectlon processhas been the relative lsolation of reglonal and munilcipal bodies ln charge ofpreparlng and prlorltlzlng Lnvestments (L e , SERPLACa and SECPLACs,respectlvely) from the new, more complex politleal environment developing lnChlle. The present modus operandl of these offlco stlll reflects theprevlous government's declsion mechanismat they have been merely tochnlcaladvlsers to Zntendentes and Alcaldes, who have made thelr decLsLons primarllyon the basls of these technlcal recommendations.

5.24 SpecifLcally, CODECOs and COREDEs will play an increasLnglyimportant declsion-maklng role; in fact, they will have the ultlmate authorltyto decide what projects are given prlorlty and whlch, eventually, will obtainfinanclng. Thus, the changes will clearly curb some of the prevlouslndependence of the SERPLACs and SECPLACs. It wlll fall to the Zntendentes toforge links wlth new polltlcal representatlves at provlnclal and munlcipallevels on one hand, and wlth the regionalized mLnisterLal delegatlons on theother.

5.25 The outcome of new arrangements needs to be followed closely todetermine whether past problems-- poor coordinatlon, inequitable distributlon,ineffLcient resource allocation, and others-- can be amellorated, and whothernew problems of polltlcal arrangements crop up. At stake for localgovernments are the now tools to confront local electorates wlth the costs ofthelr preferences, and at an aggregated level, the potentlal for flocalirresponsLbility ln the short run. Potentially large inefficlencles may alsoarlse due to the costs of adjustment and transition to a new set ofinstltutional and polltlcal arrangements.

5.26 In terms of statutory audlting or control, Chile already has one ofthe most well developed auditlng arrangements in the region. ThemunicLpalitLes we vLiLted were vlrtually unanimous ln thelr begrudglngacknowledgement of effective auditing by the Contralor1a.

C. Procedures for Public Partici2ation in DRcision Makine

1. Plannina in a Democratic Context

5.27 At present, plae n ng offices are baoLcally technical advLsers toZntendentes and mayors. The reforms wlll glve the CODEOOs and COREDIs muchmore power and wlll introduce provlnclal council. as well. All theos willhave increased authorlty to prioritLze projects, to give final approval forfinancing, and to hold a mayor accountable for implementation. It is clearthat SERPLACs and SECPLACs wlll have to strengthen thelr llnks wlth newpolltical reprosentatives ln order to contlnue playing a useful role ln thefuture.

2. AudLitng

5.28 The current audits of munlclpallties are focusod on the control ofthelr financial accounts. In the future, however, more qualitative manag emnt

71

audits will also need to be conducted (e.g., a review of management actionspetc.).

3. Communication Amona kunicigalities

5.29 An most communication was "top down" in the previous government, noformal channels exist to allow the exchange of experiences amongmunicipalities or to identify opportunities for economies of scale (i.e.,horizontal communicatLon and organization). The munlcipalltles operate malnlyas isolated units. Much needs to be done to facliLtate the sharing ofexperiences among local governments and to strengthen national authoritLes,non-governmental organizations (NGOs) and prlvate sector groups in order todirect the information flow to local governments for improved decLsion-making.

D. Trainln for the Bubnational Public Sector

5.30 Contlnued decentralization of functlons and responsibliLties toregLonal and municipal levels creates additlonal demands on the staffs ofthese governments. Smaller and rural municipalitles, in partLcular, are notexpected to be adequately prepared for the emerging changes.

S. Reco*andations

Imorove Manaaement EfficLency and the Information Syst=m

5.31 General Imorovr ment of Organization, Systems, and Procedure. Manysteps must be taken to improve the organization, systems, and procedures usedby local governments. Emphasis should go to identifyLng and impl ementingprocedures that will provide services to the public in a faster, moreefficient, and more courteous manner.

S.32 One of the more Lmportant and urgent .of these steps is theimplementation of a management-oriented lnformation system (see the followingsection). Thli informatlon system must be part of an overall effort toimprove management at the subnational level, however. The overall programwould also lnclude improved organization and methods, audlting, budgetLng,procedures for public participatlon ln decision maklng, and tralnlng.

5.33 An overall management development program should be adopted coverLngall key resources of a municipality, includings

_ Goods and servLces provldedt

_ Flnanclal resources;

Human resources;

_ Fixed assets (e.g., buildLngs, equipment); and

Contracts (with servlce provLders).

A comprehensive management development program would include activltlesrelated to the management of each of these resources, and should createimprovements regardings

72

_ Organizational structure and distribution of personnel;

_ Guidelines and standards for planning processes and operationalactivities;

_ Information systems (manual as well am automated);

_ Manual procedures; and

_ Management capabilities (training).

Table 5.3 shows the activities related to the management of each of theseresources in the management development program.

5.34 Imolement a Management-oriented Information System. An importantelement of such a program in Chile is the implementation of a management-oriented information system that supplements the existing statutory accountingcontrol systems. Indeed, the structure of a unified national system and theresponsibilities for its maintenance by various entities at national andsubnational levels should be established as soon as possible. (See Annex Ifor a full discussion of this system.)

5.35 A management-oriented information system for municipalities willbetter serve the needs of local decision makers as well as meeting thestatutory accounting requirements of the Contralorfa. The objective is toimplement a system that helps manace more effectively and produces the datanecessary for control and coordination by the central government entities(Contralorla, and the Ministries of Interior, EducatLon, Health, Planning andFinance).

5.36 This system must be part of a larger effort at the subnational levelthat includes improved organization and methods, auditing, budgeting,procedures for public participation in decision making, and training(discussed later). It should provide a picture of the overall financialposition of the municipal sector to facilitate policy setting and economicanalysis. Development of a set of consolidated public sector accountsimproves the potential for effective macroeconomic management at the nationallevel (see Table 1.1 in Annex I). This development should include discussionof alternative definitions of the subnational public sector in order to reacha clearer understanding of what this sector administers and what it finances(i.e., what it actually does versus what enters into its accounts).

5.37 The system should increase the willingness and capacity ofmunicipalities to respond to the information needs of central entities. Tothis end, software should require that basic accounting data be entered onlyonce to produce reports needed to (a) improve local management efficiency, and(b) meet other reporting requirements (e.g., Contralorla, Interior,etc.). 2/ Data from municipal information systems could then be fed into aunified subnatlonal information system at the national level, thus avoidingthe current duplication of efforts and facilitating data access by users at

21/ For example, the system should be able to generate management reports onsuch questions as the total costs of: running the municipality's socialprograms; admlnistering the CAS system; providing street lighting, etc. SeAnnex I for a more detailed discussion of the current system and an actionplan for much an information system.

73

Table 5.3'ACTIVITIES RLATED TO MANAGEMENT OF XIY RESOURCES

Resources to be Managed Management ActivLties

GOODS AND SERVICES . Dialoguos..wlth:.the.constituencies

Setting.municipal and regional objectives(long/medium/short-term), dofiningstrategiL- and -setting priorlties

Performance measurement (accountability)

FINANCIAL RESOURCES financial .. action and investment'planning,long/medium.term capital investment

planning,. maintenance plnning, and-operational planning.:. short-term operational planning.

Budgeting

Ongoing.revenue:management (.including cash.management) and.-expense-control

Tracking:of approved lnveutment projects

.Financial.performance measurement' .

HUMAN RESOURCES Organization (d*finition of roles. and-respon&ibiLities) and allocation.of humanresources.

uHman resource pLanning-: reeruitment'. carer.planng..

. ' ',,. .....- train:ing plans, :, '

.,,.-.- Performance.:masurement of'personnel... . contributions...

.Maintenance of: municipal in¢entives syste

FIXED ASSETS .. "Acquisition and maintenance-pIannli.ng

COontract negotiation,

Performance measurement of service dli`very. "

74

different government levels. To increase transparency and accountabillty,those outside the government should also have access to thli information.

5.38 This unified system should provlde information on QLL transfersreceived from the central government, Lncludlng monetary transfers, subsidiesvla the CAB questLonnaire system, and transfers not covered ln munlcipalaccounts (e.U., those to FNDR and munlcipal corporatLons). MunicLpalitLeswould be provided with comparative informatlon on their financial posLtLonsand performance.

5.39 The Lmportawce of a complete, timely, and accurate set ofconsolldated publlc sector accounts for effective macroeconomic managementshould lncrease hand ln hand with the importance of the subnational publicsector. Currently, there is no set of consolidated accounts either in Chileor the IMF that covers the entlre public sector (including centraladminlatration, decentralLzed consolidated entLtLes, public enterprises, andthe subnatlonal public sector), as can be seen ln Table 1.1 of Annex I.Furthermore, accuracy of the data used in preparing these accounts varlessubstantLally, wlth that on municipalities being the least accurate for thereason mentLoned above.

2. Refine Budaetino and Auditino

5.40 Budgetlng should be multiyear. Projection and other techniques,especially those related to capltal budgeting and estimatLon of operating andmaintenance costs assoclated with Lnvestments, should be lmproved to increaseaccuracy (see para. 3.84)

5.41 However, there is room for expanding this role to one of performanceaudLtLng (Audleorla de gestl6n) as well as developlng an effective management-orLented lnformatlon system that helps achieve better control and moreeffLcient admLnLstration, as discussed above.

5.42 One good way of lncreaslng accountabllity, as well as stimulatinghealthy competltlon for lmprovement among the munLiLpalLties, would be toproduce and dLitrLbute an annual re2ort of kev municioal Performanceindica-tors.

3. Enhance Procedures for Public PartLcioa-tion Ln pecisLon Making

5.43 As argued in paras. 5.18 to 5.26, contemplated constitutionalreforms should serve as a basis for confronting constituents with the costs oftheir decLsions wherever possLble for munlclpal goods and servlces (e.g.,solld waste collection, lLghting, paving, and drainage). Howevr, plannersand local offlclals also need new "tools"-- including public hearings, publicopLnion research, policy analysis resources, and other procedures-- to measuredemand ln order to better verify the willlngness of beneficiaries to pay, togauge the capacity of local jurisdictions to maintain public facilltile once

75

they are built, and to estimate current and long-term costs of programs andfacilities 42/

5.44 Municipal and regional governments should develop a means ofcosaunicating more effectively among themselves, such as forming anassociation or setting up an institute to study subnational institutLons.ThiLe might best be accomplLshed by uoing an exlsting NCO worklng in this areaor by establishing a new one. This institution could facilitate generalcontacts and the exchange of experiences among munlclpallties to help in theevaluation and dlffusion of successful LnnovatLons. Such contacts mlght alsohelp munieLpalLties Ln ldentlfying potential opportunities for economies ofscale and formlng associatLons for realizing them.

4. Strenathen Trainlna for the Subnational Publlc Sector

5.45 Although the need for tralning is not disputed, conditlons andpriorlties have not been settled. There is, however, a consensus on the needto strengthen the management skills of elected as well as appointedsubnational government officers (intendentes, municipal admlnletrators anddLrectors, mayors, and council members) in such areas ast

- Use of modern accounting and information technology (probably thearea of greatest need);

_ Signlficance of the new legal base for subnatlonal governments lnterms of functions and responsibilities, and correspondingaccountabilLty to publlc and central government;General management sklle (setting objectLves and priorlties,planning, organlzatLon, and control);

- Long/medLum term fLnancial plannlng, including capital lnvestmentplanning and budgeting, cash management, revenue management, expensecontrol, etc.;

- Specific management topics related to education, health, and urbandevelopment;

_ EffectLve use of lnformatlon technology;_ Project trackLng; and

Teamwork.

5.46 Experlence suggests that short-term courses and intensive seminars,supported by good teachlng materials, are effective and approprlate means forintenelve tralnlng. Prlvate LnstLtutions such as unlverslties andtralning/research centers abound Ln Chile, although they are concentrated inSantlago. These institutlons are capable of responding to the trainLngguldellnes establlshed by the Mlnletry of Interior ln consultatlon withmunicipal leaders.

421 At present, infrastructure projects (e.g., landing ramps for rlver boats,landlng strips for alrplane, and local roads) are often provided by centralminLstries wlthout consultation with elther individual users or localgovernment agencLes concernLng willLngness to pay for at least the cost ofmaintenance and operation or even to assume the responsibliLty formalntenance.

76

Chpter 6. ULW=UNY8 Or A SYUATZGY

6.1 The preceding three chapters have discussed the issues that must beaddressed in the design and implementation of democratic reforms at thesubnational level in order to Lncrease (or at least maintain) macroeconomicefficlency, equity, and fLscal discLplne. These chapters providerecommendatlons fors

(a) definlng clearly who is responmible for providing and financlng what(lncludlng dealing with the problem of multljurisdictLonalinterdependence);

(b) provlding incentLves for subnatlonal governments to fulflll theseresponsibilities in an effieient, equitable, and flscallyresponsible manner; and

(c) increasing the institutional capacity of subnational governments toassume their responsibilities in a democratie context.

6.2 Seen as a strategy, the first two elements would create the demandfor subnatlonal governments to increase their lnstitutlonal capaclty. Inother words, clearer definitlon of responsibiLities and strong Lncentives forimproving fiscal performance would create a "felt need" in subnationalgovernments for improving their management effielency.

6.3 What are the options for implementing such a strategy in the short-,medium-, and long-term? Reforms to reduce the rapidly growing municipalsubsidies for health and education must be addressed in the short run.Failure to do so could render the system inviable. In the medium- and long-term, a two-stage strategy would be:

(a) Staoe-On.s to deflne municipal responsibilities, improve incentivesfor better financial management, and provide the means formunicipalLties to respond to these ineentives (i.e., trainingprograms, management lnformation systems, etc.); and

(b) Staae-Twot to permlt "credLtworthy" municipalities to borrow inprivate credlt markets wlth no guarantees from the centralgovernment on a gradual and selectLve basis.

6.4 Although the first stage would focus on institutional developmentand infrastructure investment, it would contribute significantly to thedevelopment of private capital markets. One purpose of creating a municipalcredit market is to maintain fiscal disoipllne, while at the same timereorganLzing municlpal fLnance to more closely match the payment of municipalservices to beneficiaries. In countrLes where subnatLonal governments mustborrow, private credit markets provide a strong Lncentive for good financialmanagement: lower lnterest rates. Better managed subnational governments willrecelve better credLt ratings and therefore will pay lower interest rates.The on-going review of munLcLpalitLes by a credlt agency (which may be anadjunct to the existLng credlt evaluatlon agency for the pension funds) willroquLre the municlpality to maintain flscal dlicipllne or suffer theconsequences of hlgher lnterest rates.

77

6.5 Both stages would then have to be designed to deal with the verygreat diversity in municipalities in terms of administrative and technicalcapacity, size, and poverty levele (see paras. 1.24 to 1.28). It would not becost-effective to have the same program for municipalities with both fewerthan 1,000 and more than 100,000 citizens.

6.6 By stimulating the mobilization of resources at the subnationallevel, such a strategy could keep pressures for increased transfers off thecentral government while increasing the overall efficiency of the subnationalpublic sector. This could, in turn, increase overall economic productivityand contribute to the resolution of environmental problems. In this sense,the strategy would assist in the implementation of democratic reforms at thesubnational level which increase macroeconomic efficiency, equity, and fiscaldiscipline.

78

ANNEX IPage 1 of 6

AnnX :. IEKQODOLOGY AND COORDINITION WITH COUN TRY 3CONOXIC 1MRECTOR WORK

A. Ilethodoloyz

1. Numerous interviews with researchers and government officials atnational and subnational levels provided the basis for this report.

2. Chile has more data on local governments than do other countries in

the region. There is, however, no integrated information system for storing

and retrieving these data and, therefore, very little analysis is

performed.j1/ The data analysis described later could be the first step in

establishing a more effective financial management information system for

subnational governments (see paras. 5.34 to 5.39).

3. The set of consolidated municipal government accounts developed for

this study uses International Monetary Fund (IMF) guLdelines.4j/ The

recently revised data from the Contralorfa General used in these accounts

cover 100% of the municipalities.43/ Other finance data cover a wide range

of expenditures over which subnational governments exert differLng levels of

control (but do na show in their accounts), including the very important

municipal corporations.

4. In-depth case studies done in four municipalltles (two large

munlclpallties ln Santiago and two small, isolated, rural municipalities)

provide a better understanding of the workings of municipal governments

(especially about the margin for improvement in municipal financial

management). These studies include simulations of admlnistrative and legal

reforms, includlng the proposed new Munlcipal Revenue Sharing Law, to help

assess their impact.

S. Finally, to convey the degree of dlverslty in municipalities, the

study provldes several indicators of fiscal performance and needs (based on

population size and level of poverty) for a typology of municipalities. This

analysis provides insight into the kind of interventlon needed for dlfferent

types of municipalities.

gU/ For example, there is much lnformation at the national level on all of

the municipal expenditures including those on education and health in the

ContralorU General de la RepthblZca (Government Accounting Office or

Controller General) and the MinistrLes of Health and Educatlon. However, the

information systems of these different national entitles are not integrated.

g/ 1?MF, Manual on Government Flnance Statietlcs.

]J/ Formerly, the Contraloria excluded data not received by a cutoff date,

resulting ln an underestimate of about 20% in total expenditures and serious

dLetortions in expenditure categories (i.e., transfers for health and

education).

79

ANNEX IPage 2 of 6

Local Goovernment Structure

6. Local governments include 334 munLcipalities in Chile. TheirorganisatLonal structure is as follows:

(a) Geatidn Municipal (Central Administration): handles the generalfunctional responsibilities of each municipality, and maintainssupervisory responsibility over individual departments.

(b) Departments: The Department of Education; the Department ofHealthl and others (i.e., the Cemetery Department). Eachdepartment is responsible for a specific service and issupervised by the Central Administration. The Department ofEducation and the Department of Health are found in themajority of municipalities, but in 60 municipalitieseducatlonal and health services are provided by privatecorporations in lieu of special departments, and are paid forby both the central government and the municipality.

7. Municipal corporations (corporaciones municipales) are not coveredby these accounts. They are private corporations with most of thecharacteristics of municipal public enterprises (e.g., the mayor is usuallythe president). However, as they are private entities, the ContralorlaGeneral does not collect data on them. The consolidated municipal accountdata of the Contralorfa General includes the revenues and expenditures of themunicipal departments, but not those of the mvnicipal corporations. Municipalaccounts show transfers from the municipal budget to these corporations forhealth and eduction, but ngt the transfers from the Ministries of Health andEducation to them. Data on transfers to the corporations can be obtained atthese Ministries, but information on their own-source revenues andexpenditures would have to be collected from the corporations themselves.

S. Infrastructure expenditures paid by the National RegionalDevelopment Fund (FNDR) also do not enter into the municipal accounts, eventhough the municipalities plan and execute the works.

9. Note that research done using these datL. sometimes does not clearlyspecify whether the analysis is of the Gestidn Municipal or of theconsolidated accounts. This is quite confusing, as the inferences can betotally different depending on the source.

Budueta=r and Accountina System

10. Municipal accounts are subdivided into the current account and thecapital account.

A. Current Account

Current account revenues and expenditures may be summarized by the followingalgebraic identity.

80

ANNEX IPage 3 of 6

(1) REVm + REV, + REVdw = EXPpf + EXPas + EXP, +EXP1+ SVG

11. The left hand side of this identity defines revenue sources, whilethe right hand side defines categories of expenditure. Note that currentrevenues comprise three sources of income: own-source revenue (REV.) (i.e.,local service taxes and fees); transfers (REV,); and other current revenues(REVh). Revenues are used to finance the current expenditures shown on theright hand side. These include expenditures on personnel (EXP-);expenditures on goods and services (EXP,M); interest payments (EXPhj; currenttransfers (EXP,); and savings (SVG).

B. CaRital Account

12. The capital account revenues and expenditures of each municipalitycan be described by the following identities:

(2a) SASS + KREV" + GRANTS - IREAL - IFIN - REXPQ,, = CAPDEF

(2b) CAPDEF = SVG + dBORR + dFIN

13. In identity (2a), capital account revenues arise from the sale ofassets (SASS), grants (GRANTS), and other capital revenue (KREV",), whilecapital expenditures consist of those on real investment (IREAL), financialinvestment (IFIN), and other capital transfers (K3XP",). The capital accountdeficit (CAPDEF) is defined as the difference between capital account revenuesand expenditures. Identity (2b) illustrates that any capital account deficitis financed by current account savings (SVG) together with borrowing (dBORR)and other financing (dFIN). Actual data on revenues and expenditures thatcorrespond to the entries in these formulas are discussed below.

14. The IMF's Government Statistics Manual states, "Statistics fortotal revenue and expenditure should be based on transactions as close to thepayment stage as possible." Since the municipalities lack the authority toborrow or finance a budget deficit other than by asking the central governmentfor grants on a random basis, it is appropriate for them to organize theirbudget statistics on a cash rather than accrual basis.

Shortcominaa of the Subnational Government Sector Accounts

15. The availability of a complete, timely and accurate set ofconsolidated public sector accounts (including those of municipal governments)is important for macroeconomic management. Table 1.1 shows that no singleentity presently reports data for the entire public sector. But separatesources of data on the finances of municipal government do in fact exist.

16. Two sets of accounts on the public sector in Chile are maintained atthe IMF. One at the Western Hemisphere Department (WHD) is used in the RecentEconomic Development (RED) report, while the other, at the Bureau ofStatistics, is used in Government Financial Statistics (GFS).

81

Hacienda ... ..... ...... .... N.....e .Grna'A1 ~ ... ... Ye.......................... .e... e. .... ..... N o.: : ", ... .

Department) Yes .~~~~~~~~~~~~~~~~~~~~~ Ye.... . ...... N....... o.1i0 ~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~...... .. .10ounts- , ...... .. ....... .......y. ........ .........t........................... .. .O .......

7..... In... the. RED...data..ba..e.(and. in...the . ...... dat base), covrag.fo.thpuli setrecopse b.. Loth. nfinancialpublicenterpise and general 1govern..'''..''men rllita oprtin. Th. aafrtennianilpbi.nepie

sector consist.............. of....... ......... ....a ..... cosoidte prese ntaio of.. dat forallentrprsesanseparate data for C0DEL~~~~~~~~~0 and CORFO. The general~~~~~Y gover.......ent.. data.... is... ......... .....

subdivided.. into............ two... main......................... co.....ponents.............(a).... govenmet.oeraion performed.bythe Treasury (Sit........... .i6 Fi.ca)..ad..b operation.performe by government -

autonmous nits ith teir on budets (natitoione). Th genealO.:government data consolidate operations reported..in the .. .i.i Fiscal and...those of the operation.. 411.0 unts..t.h.oert.n of .the local 4-verhe"t . .renot included. excevt for b~~~~~~~udat transfers.....to local............. . ....v.e..nm.e........

18. ~~~~~~~Th ...... data.. . ..... on.the.other.hand,,cove generl .go .rnmen operations. .... ..... ...includina those of local governments........ ....................

19.significant............ diffeence exist........ bewen.h.to.aa.ass,epeialin relation to~ non-ta revenue.... ...... Th.ifeece.r.poabyeplie.b hbroader coverage. of.... regarding...............local....... govenmen operations............ All.... government.....

grant tolca.ovrmnt.recasiid.scurnttasfr.i.ED nthese .transfers are .... I.................. .... .conistnty.lrge.i the. RE dat..I ....S these..............transfersareeliminated.. in. consolidatio and.... the... local....... government.

expenditures.. are..... broken down..in.wages.and.salaries,.purchase of g ,d nservices, and transfers.~~~~~~~~~~~~~~~~~~~~~~~~~~k-~E --- : ~.1:1:~I1:-..IW

ImDrovina the Subnational Public.... Sector.. Accounts. ..... ...... M:.,..-20 .... Te oloig.cioswol ser the... obeciv of providing....a

complete,............. t ..ely, and.. acuae.e.f osliae p i.sco.acut

82

ANNhXPage 5 of 6

(including those of munliypal governments), which iL vital for macroeconomicmanagement.

* ConsolidatLon of public sector accounts that includes all levels ofgovernment;

* Coverage of data for all municipalLties for all monthsc

* Resolution of the dLicrepancy between transform pald by the GestldnMunicipal and transfers received by departments;

* Development of a reliable set of accounts for the oorporaclonesmunialpales;

* Explanation of the discrepancy between the sources of funds paid bythe central government and what ls received by the municipalities asa whole; and

* Increasing the transparency of the flow of investment funds from thenational to local governments.

Strmcture of MuniclLal Account

21. The munlcipal accounts established in this work comprise threelevels: (a) Geastin Nunicipal, (b) departments, and (c) consolidated. Bachaccount is composed of a current account section and a capital accountsection. Due to a lack of deta, municipal corporations are not included inthe present analysis. See Tables A.1 to A.6 in the Statietical Appendix.

D. CoordinatLon with Co utry Economic and 8ecor Work IC5VI

22. This study extends previous sector work and was coordinated with theon-going C$SW. It addresses essentially the same 0ssues as the public sectorchapter in the Country Economic Memorandum (CNN), but focuses on thesubnational publlc sector rather than on the consolidated public sector. Thesector work will also prepare a set of accounts for subnational governmentsthat more adequately reflects their relative importance in the consolidatedpublic sector.

23. Many policy questions raised concernlng the health and educationsectors in Social Develoument Proaros in Ch$le are beLng pursued in healthand education loan projects that have been prepared or are under preparation,as well as in other research efforts in the Technical Department. This study,therefore, focuses on the capacity of municipalities to generate currentaccount surpluses that could be used for investments in infrastructure,educatlon, health, etc. Questions regarding decentralization of health andeducation are being addrecosed in the Technical Department's FLosaJDecentralization in Latin Amorica study. The Technical Department's report on

83

aMX IPage 6 of 6

D-esntraliaation to Local Government in- A identified key issues and problemsthat are pursued in greater depth in this study.49/

Sl op. cit.

84

ANNEX IIPage 1 of 3

annex II. OUTLINE OF AN ACTION PLAN FOR a FINANCIAL MNANAGMENTINFORNATION SYSTEN

1. The following initiatives would strengthen the financial managementinformation system within the subnational public sectors

- Develop a comprehensive definition of the information needs of thevarious organizations related to the administration of th'e subnationalpublic sector.

- Establish strategic information management policies for the subnationalpublic sector in Chile (guidelines, standards, etc.).

_ Establish a cohesive information and technology framework for theregional, provincial and municipal levels of government, based on whichindividual systems can be developed and enhanced in a cost-effective way.This would include:

- Defining information data requirements;

- Defining application requirements (accounting, costing, personnelmanagement, tax and service delivery management, etc.);

- Defining technology requirements (hardware, software, datacommunication facilities);

- Establishing common standards to facilitate information exchangewithin he subnational public sector (including data access andsecurity standards);

- Rationalizing investments in computer technology to make best use oflimited resources;

- Defining a plan for the development and implementation of:

* core central databases related to the administration of thesubnational public sector;

* core regional and municipal application systems; and

* a communication network between and within the various levelsof management for easy data access; and

- Ensuring implementation support in terms of user training anddocumentation.

2. Analytical Framework The management of the subnational publicsector in Chile requires adequate financial management information to assumeits responsibilities. Management information may be defined as theinformation required by a public official to enable him to plan and controlthe activities and resources for which he is responsible.

85

ANNEX IIPage 2 of 3

3. The information systems should be driven by the needs of managementobjectives and related activities, and not by the frequent temptation toconcentrate on the information that is readily available from existingsources. Critical succass factors and performance indicators may be used toguide the identification of the management information required to plan,monitor, and control these activities.

4. Objectives can be categorized as those which are aimed atcontrollina the activities of the municipality or region, and those which areaimed at enhancina service delivery. The objectives and performance measuresmust be ranked in terms of their importance to the success of the managementposition.

5. The management information system (MIS) can be used for: long-termplanning; short-term planning (e.g., one year); performance monitoring andcontrol (budgetary control); and on-going protection of fixed assets and humanresources.

6. For the management information to be effective, it should have thefollowing characteristics:

Relevance (i.e., relationship to an activity or a resource for whichthe recipient is responsible and which he is able to control orinfluence);

- Reliability, accuracy and credibility;

_ Timeliness (i.e., be received soon enough to allow effectivecorrective actions to be taken); and

_ Clear, simple presentation.

7. Guidina Princigles The information systems for the subnationalpublic sector should be structured as a whole. They should be designed on anintegrated basis, where possible, so that data need to be entered only once.This ensures the integrity of the data within the system.

8. It is usually appropriate to adopt a modular approach to4nlemenetationn so that individual sub-systems may be developed and modifiedindependently.

9. The focus should be on the data required, as opposed to the types ofreports desired. The data needs are normally very stable, while the use ofthe data may change periodically.

10. The responsibility for the development and control of the systemsmust be clearly defined to prevent duplicated efforts and ensure the integrityof the information.

86

UINP1X X IPage 3 of 3

11. A hierarcnical approach should be applied, such that a report at oneorganizational level (e.g., a region) is an aggregation and summary of reportsat a lower level (e.g., municipalities).

Anticipated S vtisg Amolications

12. The following list shows some of the anticipated databases andapplications of the system by the different government leveles

Centr&1J -ya 1

- Public sector accounts (currently in Contralorla, Ministry of Interlor,Ministry of Finance)

_ Demographic and socio-economic databases_ Education and health databases_ Project database (Banco Int.grado de Proyectos in MIDEPLAN)

Reaionl Lvel

- Investment planning3 Costing of investment projects- Management of individual investment projects_ Tracking of the investment decision processes (history file)

Kunicipal Level

- Statutory and management accounting- Accounting of funds under administration (Cuentas cowplementartas)_ Financial planning and budgeting_ Personnel management (salaries)- Contract management- Purchasing_ Service delivery management and user fee collection (e.g., garbage

collection and other municipal services)_ Tax and permit collection

* Real estate tax* Vehicle tax* Permits

. Social service administration, including the CAS questionnaire and filemanagement

- Project management_ Maintenance management (e.g., streets, sewers, buildings, etc.)

87

STA,4MA

88

CHIE

STATXST!CAL APPENpIX

TARLZ OP CONTENTS

A.1 Consolidated Municipal Accounts (Millions of Ch $ of 1990)A.2 Consolidated Municipal Accounts (Millaons of US $ of 1990)A.3 Gestion Municipal (Millions of Ch $ of 1990)A.4 Gestion Municipal (Millions of US S of 1990)A.5 Departments of Education, Health, and Cemetery (Millions of Ch 8 of

1990)A.6 Departments of Education, Health, and Cemetery (Million of US $ of

1J90)A.7 Investment by Municipality and Central Government by Ministry, Zone

and Region (Thousands of US $ of 1990)A.8 The Relative Distribution of Investment by Municipality and Central

Government by Ministry, Zone and RegionA.9 The Relative Distribution of Regionalized Investment by the

Ministry of Interior, Poverty Population and Product by Zone andRegion

A.10 The relative Distribution of Regionalized Investment, PovertyPopulation and Product by Ministry, Zone and Region

A.11 FNDR Resources Allocation by Region and Sector (Thousands of Ch $of 1990)

A.12 FNDR Resources Allocation by Region and Sector (Thousands of US $of 1990)

A.13 Number of Municipalities by Region, Poverty Rank of theMunicipality, and Population Size Groups 1990

A.14 Population by Region, Poverty Rank of the Municipality, andPopulation Size Groups 1990 (Thousands)

A.IS Total Poor Population by Region, Poverty Rank of the Municipality,and Population Size Groups 1990 (Thousands)

A.16 Total Regional Municipal Investment, Poverty Rank of theMunicipality and Population Size Groups 1990 (Millions of Ch S1990)

A.17 Total Regional Municipal Investment, Poverty Rank of theMunicipality and Population Size Groups 1990 (Thousands of US $1990)

A.18 Per-Capita Rec-anal Municipal Investment by Region, Poverty Rank ofthe Municipality and Population Size Groups 1990 (Ch $ of 1990)

A.19 Per-Capita Regional Municipal Investment by Region, Poverty Rank ofthe Municipal.ty and Population Size Groups 1990 (US $ of 1990)

A.20 Total Regional Municipal Investment by Poverty Rank of theMunicipality and Year (Millicus of Ch $ of 1990).

A.21 Total Regional Municipal Investment by Poverty Rank of theMunicipality and Year (Thousands of US S of 1990)

A.22 Per-Capita Regional Municipal Investment by Poverty Rank of theMunicipality and Year (Ch $ of 1990)

A.23 Per-Capita Regional Municipal investment by Poverty Rank of theMunicipality and Year (US $ of 1990)

A.24 Administrative Divisions and Representation in the NationalCongress by Region

89

Table Al1: CHILE Cansotidated unicipat Accounts (Coestion MiiIcfpal and Osprtments)(l4tilons of pesos of 1990) (1)

1987 198J 1989 1990,........................................................................................

1. CURRENT REVENUE 185,468.? 185,384.4 195,623.8 177,635.4a.MunicipOl sources 54,491.8 56,663.1 64,455.? 60,494.6

Real Estate Tam 22,171.6 21,344.4 26,161.2 20,428.7Vehicte licenses tax 9,727.8 11,568.9 12,171.9 11,990.3Patents 10,805.0 11, 779 .3 13,325.6 14,955.1SoLid waste cottection fee 2,792.7 2,693.5 2,672.1 2,762.?Other taxes & fats 8,994.7 9,277.0 10,120.9 10,357.8

b.Current aut@matic transfers 116,761.2 115,199.8 117,286.3 103,M.5Municipal Comnon Fund 43,093.1 44,870.8 48,039.4 40,504.0Min. of Education (Ed.) 66,049.6 61,464.1 60,970.3 54,7M7.0Mm. of Health ';,. 3,358.4 7,044.3 7,538.1 6,917.6other Transfers o EdUHS Copts 4,260.0 1,820.6 738.5 1,578.9

c.Other current revenues 14,215.7 13,52 .5 14,081.8 13,367.3

2 CURRENT EXPENOITURES 151,11S.6 154,603.2 161,954.7 159,026.8a.Personnel 92,092.7 . 91,44.8 93,211.3 88,834.1b.Loods and services 42,872.0 47,391.2 51,982.3 52,961.4c.Debt service (Interest payments) 68.7 44.5 38.5 25.4d.Curremt transfers 16,085.1 15,72.6 16,722.6 17,206.0Pensions 178.7 191.5 173.4 105.6For Education and Heslth 2,194.7 4,212.3 5,470.9 6,4;-6.3To corporaciones for EducatIon 1,954.8 3,675.0 4,446.1 4,591.7To corporaciones for Health 239.9 537.2 1,024.7 1,824.6

Other current transfers 13,711.7 11,318.9 11,076.3 10,684.2.......................................... CURRENT ACC. BAL.CSAVING)W(1 2) 34,350.1 30,781.2 33,869.1 18,608.6

. .................

3. CAPITAL REVENUES 4,960.9 6,615.5 8,038.1 f,,804.6ajo.lting of assets 2,311.6 4,202.5 5,093.6 2,533.2b.Other capital revenuss 2,649.3 2,413.0 2,939.5 3,271.5

4. GRANTS 12,096.0 30,703.7 17,692.2 13,621.0a.8ettermmeft 2,328.5 7,183.6 11,414.7 10,285.2Neighborhood 2,324.1 7,125.3 8,461.4 9,197.2Urban 4.5 58.2 2,953.3 1,08.0

b.Other 9,767.4 23,520.1 6,277.5 3,335.8

S. CAPITAL EXPENDITURES 39,112.8 63,146.0 4b,350.2 30,861.6a.Reat investment 36,524.6 62,783.8 43,863.3 30,225.2Reat investment wo tland S buiLdings 33,937.1 48,121.2 41,373.3 29,315.8Investment for operation 1,267.5 1,667.8 1,143.4 960.0Vehicles 1,176.7 1,060.7 1,271.0 1,069.8Land & buildings 2,587.6 14,662.7 2,488.0 909.4Investmnt studfes 392.5 623.9 551.4 328.9Regional Investment 29,585.1 42,202.1 36,971.1 25,892.0Other investment 132.4 148.6 163.6 98.6Rest Invest. by O pt'S 1,382.8 2,418.1 1,274.9 966.4

b.CapitaL transfers 357.4 39.4 29.8 9.7To private sector 31.7 12. h40.? 3.7To PuM-: sector 325.7 26.6 19.1 6.0

c.Financ I' invmetnt 2,230.8 322.8 457.2 626.7d.Other 0.0 0.0 0.0 0.0

.........................................It. CAPITAL ACC. UAL.:(3+4 . 5) (22,056.0) (25,826.8) (18,619.8) (11,436.0)............. ...................... ........

FINANCING OF DEFtCIT/SURPLUS:1.1ORROWING 12,069.1 4,627.1 14,8n2.3 6,822.82.FINANCING 220.0 327.2 377.0 349.83.Net Cash balanc. 0.0 0.0 0.0 0.0

................................

lit. OVERALL DEF 'SURPLUSCI - II) 12,294.1 4,954.C 15,249.2 7,172.6,.................................

.............................................................................................

(1) Catculated with GOP deflector bastun1WO.Source: Original data froa Contralorie Ceneral de ta Republica revised in 1991 to increasecoverage to 100X of expernditureo. LA4 estimates.

90

TbOe A.2: CHILI ConeoItdated fut otpa AGcouWnto Costfon c untIpai nd 0OM are ntA)(ittfOns of US9 of 1990) (1)

............... a................. ................................................

198? 1988 1989 9900...... .. . .. ............................... ........................ ***0

1. CURRINT REVENUE 608.3 608.0 642.2 582.6sjMuntcfpal soure 178.7 185.8 211.4 198.4

Re0t escate Tax 77.? 70.0 o85. 67.0Vetcft licenses tax 31.9 37.g 39.9 39.3Patents 35.4 38.6 '3.? 49.0lotfd wasmt cotoU.cton fee 9.2 8.3 8.8 9.1Othor taxes & fees 29.5 30.4 33.2 34.0

b.Current autontic transfors 382.9 3?7T8 384.? 340.3MunIcIpt Commn Fund 141.3 147.2 157.6 132.8Mtn. of Iducation (Id.) 216.6 201.6 200.0 179.6Min. of Neatch (Nt.) 11.0 23.1 24.? 22.?Other tranfor r to EdiNt Depts 14.0 6.0 2.4 S.2

c.Other current revenues 46.6 44.3 46.2 43.8

2. CURRENT IXPINDITURIS 495.6 507.1 531.2 521.6a.Persomet 302.0. 299.9 30!.? 291.4b.doods and servces 140.6 159.4 170.5 173. e.Oebt service (Interest psyments) 0.2 0.1 0.1 0.1d.Current tranfeors 52.8 51.6 o4.8 56.4

Persicns 0.6 0.6 0.6 0.3For education and Noatth 7.2 13.8 17.9 21.0To corporecfones for Idue acon 6.4 12.1 14.6 15.1To cor arclons for HNetch 0.8 1.8 3.4 6.0

Other current transfors 45.0 37.1 36.3 35.0

I. CUtRRENTACC. SAL.CSAVING)sCI * 2) 112.7 101.0 111.1 61.0........................................

3. CAPITAL REMENUES 16.3 21.? 26.4 19.0a.Setting of ssots 7.6 13.8 16.? 8.3b.Otner capItat revenues 8.7 7.9 9.6 10.7

4. s'TS 39.7 100.? 58.0 44.7.O.Ietuerftne-t 7.6 23.6 37.4 33.?

NeIghborhood 7.6 23.4 27.8 30.2Urban 0.0 0.2 9.? 3.6

b.Other 32.0 77.1 20.6 10.9

S. CAPtTAL WXPIQITURIS 125.3 207.1 145.5 101.2aRoOt Invostment 119.8 205.9 143.9 99. 1Ret fnvestment wt tand 4 butdfngs 111.3 157.5 135.7 96.1

Investment for operatfon 4.2 5.5 3.7 3.1Vehfltes 3.9 3.5 4.2 3.5Lnd & buftdfngs 8.5 48.1 8.2 3.0Investment scjdfes 1.3 2.0 1.8 1.1RegfoEt nvestment 97.0 138.4 121.3 84.9Other Inv eMnt 0.4 0.5 0.5 0.3Reat Invest. by 0ept's 4.5 7.9 4.2 3.2

b.Capittt transfef 1.2 0.1 0.1 0.0To pruvate sector 0.1 0.0 0.0 0.0To PPtltc setor 1.1 0.1 0.1 0.0

c.pfnncat tnvstnt 7.3 1.1 1.5 2.1d.Other 0.0 0.0 0.0 0.0

It. CAPITAL ACC. AL^.:C3.4 * 5) (72.3) (84.7) (61.1) (37.5)......................................... ..............................................

FtINCING Of 0EfCIt/UPLUSs1.loRRoWING 39.6 15.2 48.8 22.42.PI1ANCING * 0.7 1.1 1.2 1.1S.Not Cas latac 0.0 0.0 0.0 0.0

........................................ItS. OVERALL DIP./SUVLUWCI . II) 40.3 16.2 50.0 23.5~~~~~~~....................................................

(1) Eased on cable 1. Exchange rate Is US * 3 04.903 chfle anSource: orfginal data from Concralortre Geert d It Rtpo h ic revIsed In 1991 to Increasecoverage to 1001 of expendftures. LPA esinetes.

91

Tathe A.3: CHILE * Gesohtf ficipt.("ililons am Co h S of 1990) t1)

................................. 0..........................-*---...................-

1987 1988 1969 1990................ .................................. w... ....... w..............

1. CURRENT REVENUE 107,276.9 111,695.0 123,892.6 111,790.5a.Municfpal sources 54,491.8 56,663.1 64,455.7 60,494.6

Real Lsgate Tax 22,171.6 21,344.4 26,161.2 30,4t6.?Vo,hies, liconses tax 9,727.8 11,568.9 12,171.9 11,990.3Patmnte 10,805.0 11,779.3 13,325.6 14,951.1Solid waste collection foe 2,?72.7 2,693.5 2,6n1.1 2,762.?Other taxes a fees 8,994.7 9,277.0 10,120.9 10,357.8

b.Curront automatic transfers 43,093.1 44,870.8 48,039.4 40,504.0MunIcipal Common Purw 43,093.1 44,87o.6 48,039.4 40,504.0

c.Other current revenues 9,692.0 10,161.1 11,397.5 10,792.0

2. CURRENT EXPENDITURES 83,531.2 92,594.9 100,661.2 102,464.6a.Personn*l 21,806.2 24,589.3 25,112.8 24,500.7b.Goods and services 42,8?2.0 47,391.2 51,90.3 52,961.4c.Oebt servfco (interest payments) u8.7. 44.5 38.5 25.4d.Current transfers 18,784.2 20,569.8 23,527.6 24,097.3Pensons 178.7 191.5 175.4 105.6For Education nd Health 4,893.8 9,059.4 12,273.8 14,187.5To corporaciones for Educatfon 1,954.8 3,671.0 4,446.1 4,591.7To corporeeionee for health 239.9 537.2 1,024.7 1,824.6To departments of education 2,343.0 3,987.2 5,348.8 5,622.0To departments of health 356.1 860.0 1,456.2 2,149.3

Other current transfers 13,711.7 11,311.9 11,076.3 10,684.2

I. CURRENT ACCOUNT EAL.CSAVINO):C1 - 21 23,74S.7 19,100.2 23,231.4 9,325.9.........................................

3. CAPtTAL REVENUES 4,960.9 6,615.5 6,038.1 5,804.6e.seLting of assets 2,311.6 4,202.5 5,06.6 2,533.2b.Other capital revenues 2,649.3 2,413.0 2,939.5 3,271.

4. GRANTS 12,096.0 30,703.7 17,692.2 13,621.0a.s.tterment . 2,328.5 7,183.6 11,414.7 10,265.2

Neighborhood 2,324.1 7,125.3 6,461.4 9,197.2Urban 4.5 58.2 2,9.3 1,088.0

b.Other 9,767.4 23,520.1 6,277.5 3,335.8

S. CAPITAL EXPENDITURES 37,730.0 60,n7.9 43,075.3 29,895.2a.Reat fnvestment 35,141.8 60,365.8 42,563.4 29,258.7Rest Investment w/o tlnd 4 bul Wings 32,554.3Investment for operation 1,267.5 1,667.8 1,143.4 960.0Vehicles 1,176.7 1,060.7 1,271.0 1,069.Land & bufldIngs 2,587.6 14,662.7 2,418.0 909.4Investment studies 392.5 623.9 551.4 328.9Regional fnes tment 29,585.1 42,202.1 36,971.1 25,892.0Other investment 132.4 148.6 163.6 98.6

b.Capital tranfers 357.4 39.4 29.8 9.7To private sector 31.7 12.8 10.? 3.7to Pubtfe sector 325.7 I.26. 19.1 6.0

c.Financial ine stment 2,230.6 322.6 457.2 626.7d.Other 0.0 0.0 0.0 0.0

............ ......................... ..

II. CAPITAL ACCOUNT I AuNCE:(3*4 * 5) (20,673.2) (23,408.8) (17,345.0) (10,469.6).........................................

FINANCING OF OEFICtT/SURPWS:1.NET aORRaWtNG 9,37m.0 (220.0) 8,067.3 (98".)Z.fINANCING CUs. of Credft) 220.0 32.2 377.0 349.63.Met Cah altmce 0.0 0.0 0,0 0.0

tII. OVERALL kEFICIT/SURPLUS tt . II) 3,0on.5 (4,306.6) 5,886.4 (1,143.)

........................................................(1) Calculated with GOP deftlector bas1990.Soureo: Original data frm Contratoris General de La leplIfe revised in 1991 to increasecoverage to 100X of expendftures. LA4 estiute.

92

Table A.41 CHILE Gestion Mwunicipl("illions of USS of 1990) (1)

.............................. ...................................................................................

1987 1988 1989 1990~~~~................ .................................. ^...................

1. CURRENT REVENU 351.8 366.3 406.3 366.6a.Municipal sources 178.7 185.8 211.4 198.4

Reel Estate Tax 72.7 70.0 85.8 67.0Vehiclo licenses tax 31.9 37.9 39.9 39.3Pa ento 35.4 38.6 43.7 49.0SolId waste collection fee 9.2 8.8 8.8 9.1Other taxes & feet 29.5 30.4 33.2 34.0

b.Current automatic transfers 141.3 147.2 157.6 132.8Municipal Comwn Fund 141.3 147.2 157.6 132.8

c.Other current revwnues 31.8 133 37.4 35.4

2. CURRENT EXPENDITURES 274.0 303.7 330.1 336.1a.Personnel 71.5 80.6 82.4 80.4b.Goods and services 140.6 155.4 170.5 173.7c.Oebt service (tnterest payments) 0.2 0.1 0.1 0.1d.Current transfers 61.6 67.5 77.2 81.9Pensions 0.6 0.6 0.6 0.3For Edueation and Health 16.1 29.7 40.3 46.5To corporaciones for Ed-cation 6.4 12.1 14.6 15.1To corporsclones for health 0.8 1.8 3.4 6.0To departm nts of education 7.7 13.1 17.5 18.4To departments of health 1.2 2.8 4.8 7.0

Other current transfers 45.0 37.1 36.3 35.0

I. CURRENT ACCOUNT SAL.CSAVING):(1 2) 77.9 62.6 76.2 30.6.........................................

3. CAPITAL REVENUES 16.3 21.7 26.4 19.0a.Selling of assets 7.6 13.8 16.7 8.3b.Other capital revenues 8.7 7.9 9.6 10.7

4. GRANTS 3 9.7 100.7 58.0 44.7a.Betterment 7.6 23.6 37.4 33.7

Neighborhood 7.6 23.4 27.8 30.2Urban 0.0 0.2 9.7 3.6

b.Other 32.0 77.1 20.6 10.9

S. CAPITAL EXPENDITURES 123.7 199.2 141.3 98.0a.Real Investm nt 115.3 198.0 139.7 96.0Reel Investment w/o land & buildfngs 106.8 149.9 131.5 93.0Investment for operatfon 4.2 5.5 3.7 3.1Vehicles 3.9 3.5 4.2 3.5Land & bufldings 8.5 48.1 8.2 3.0Investm nt studies 1.3 2.0 1.8 1.1Regional investmont 97.0 138.4 121.3 84.9Other investment 0.4 0.5 0.5 0.3

b.Capital transfers 1.2 0.1 0.1 0.0To private sector 0.1 0.0 0.0 0.0To Public sector 1.1 0.1 0.1 0.0

c.Financial investment 7.3 1.1 1.5 2.1d.Other 0.0 0.0 0.0 0.0

I1. CAPITAL ACCOUNT 3ALANCE:C344 5) (67.8) (76.8) (56.9) (34.3).........................................

FINANCING OF OIFICIT/SIURPLUS1.NET BORROWING 30.7 (0.7) 26.5 (3.1)2.FINANCING CUss of Credit) 0.7 1.1 1.2 1.13.Net Cash g&lance 0.0 0.0 0.0 0.0

111. OVERALL OEFICIT/SURPLUS CI - tl) 10.1 (14.1) 19.3 (3.8)

(1) eased on table 2. Exchang rate Is I USSJ 8304.903 chileanSource: Origfnal data from Contraeorfa Geneal de a Repubtice revised In 191 to Increasecoverage to 1001 of expenditurs. LA4 estimetes.

93

Table A.5: CHILE Departments of Education, Heatth and Cemetery(Millions of Ch S of 1990)

..............................................................................

1987 1988 1989 1990

DEPARTMENT Of EDUCATION

CURRENT REVENUE 75,911.6 69,011.2 68,006.1 63,047.9Own Sources 3,357.7 1,930.5 1,226.7 1,221.4Transfers 72,553.9 67,080.8 66,779.4 61,826.5From Municipality 2,343.0 3,987.2 5,348.8 5,622.0FAP/MYn. of Education 66,049.6 61,464.1 60,970.3 54,773.0All Others 4,161.3 1,629.5 460.3 1,431.5

CURRENT EXPENDITURES 68,234.7 62,543.9 61,538.5 57,381.4Personnel 67,384.0 60,685.6 60,870.7 56,923.8Resl Investment 850.7 1,858.3 667.8 457.6

DefieIt/Surplus 7,676.9 6,467.3 6,467.6 5,666.5Financing:Other Exp. 7,271.0 6,867.1 6,461.5 5,751.8Cash Balance 405.9 (399.8) 6.1 (85.3)

,..........................

DEPARTMENT OF HEALTH

CURRENT REVENUE 3,942.6 8,331.2 9,556.2 9,429.2Own Sources 131.5 240.9 285.0 217.7Transfers 3,811.1 8,090.2 9,271.2 9,211.5From MunIcfpaLity 356.1 860.0 1,456.2 2,149.3FAP/Min. of health 3,358.4 7,044.3 7,538.1 6,917.6All Others 96.7 185.9 276.8 144.6

CURRENT EXPENDITURES 2,453.8 5,815.5 6,743.3 6,920.5PersonneL 2,357.5 5,554.4 6,521.5 6,722.1Resl Investment 96.3 261.1 221.8 198.4

Deficit/Surplus 1,488.8 2,515.6 2,812.9 2,508.7Financing:Other Exp. 1,237.6 2,483.4 2,752.3 2,s67.7Cash Balance 251.3 32.3 60.6 (59.0)

..........................

DEPARTMENT OF CEMETERY

CURRENT REVENUE 1,123.7 1,327.7 1,368.8 1,319.6Own Sources 1,034.6 1,188.9 1,172.6 1,136.2Transfers 89.1 138.8 196.1 183.4

From Mmicipelity 87.1 133.6 194.8 180.7All Others 2.1 5.2 1.3 2.7

CURRENT EXPENDITURES 980.8 914.2 1,091.6 997.9Personnel 545.0 615.5 706.3 687.5Real Investment 435.8 298.7 385.3 310.4

Defieit/Surplus 142.9 413.5 277.1 321.7Financing:Other Exp. . 205.7 336.8 234.7 289.7Cash Balance (62.8) 76.7 42.5 32.0

............................. .......................................................... 0--

Source: Orifgnal dats from Contralorie CGneral de ta Republie, revisedin 1991 to increase coverage to 100X of expenditures. LA4 estimates.

94

tabtl A.6 CILI * O- "tsumte of 1aed fon, lebtth wW C ter(N it lams of Use of 1990)

...................................... .... .................... 0................

196? 196 199 1990...... ......... --.------------- ................................................................- ,..

OPARTNIT OF EUCATION

cuEmllr IREmuIJ 249.0 226.3 223.0 206.8own Soures 11.0 6.3 4.0 4.0Trantfers 23.0 220.0 219.0 202.6Prom municfpafity 7.? 13.1 17.5 16.4FPAP/in. of Eductfon 216.6 201.6 200.0 179.6Alt Other 13.6 5.3 1.5 4.r

CURRENT lNlmJeI 22U.6 205.1 201.6 160.2Persosiet 221.0 9.O 199.6 166.?ResL Invltmmt 2.8 6.1 2.2 1.5

Doefcit/SurpLus 25.2 21.2 21.2 16.6FimneirgtOther LV. 23.8 2Z.5 21.2 16.9Cash Balance 1.3 (1.3) 0.0 (0.3)

..........................

OEPARtNNT OP HEALTH

cURlUl?T RNIUE 12.9 2.5 31.3 30.9Sourwes 0.4 0.6 0.9 0.?

Transfer 12.5 26.5 30.4 30.2Frm matisipality 1.2 2.6 4.6 7.0fAP/Win. of health 11.0 23.1 24.7 22.7At Othes 0.3 0.6 0.9 0.5

_URIUM EeUa tTUJS 6.0 19.1 22.1 22.7PersoeL 7.7 18.2 21.4 22.0Resl Investne 0.3 0.9 0.7 o.?

Deficit/Swupls 4.9 8.3 9.2 6.2Ffnamningsother Exp. 4.1 6.1 9.0 6.4cam Blt 0.8 0.1 0.2 (0.2)

i...........0..............

OEPARtNNT Of CETTERY

CURRENT REveN 3.7 4.4 4.5 4.3Own Soures 3.4 3.9 3.8 3.7Tranfers o.3 0.5 0.6 0.6From MunicipaLity 0.3 0.4 0.6 0.6All Othe 0.0 0.0 0.0 0.0

CURREIT EUniIuU 3.2 3.0 3.6 3.3Pesneml 1. 2.0 2.3 2.3

lost Investwit 1,4 1.0 1.3 1.0

DO fielT/ tlw 0.5 1.4 0.9 1.1finaning:Other ep. O 0.7 1.1 0.6 1.0Cash lat (0.2) 0.3 0.1 0.1

........... *...... .......... ................................

source: original dt frm Contreleris Gent de ta Is*tfa revisedin 1991 to inermn cora to 1001 of exPemitures. LA4 stfftes.

Table A.J: CHILE - INVEsrIENT BY SIMICIPALITT AND CENTRAL COVERUTNT BY MINISTRY, ZONE AND REGION(Thousas of US dllwars 1990)

Central GCvermn Ninistries

Total iun icipal ------------------------------------------------------------------------------------Zones nd own sources Total Interior Pubtic Rousing Health

lees' ------I---------------------------------- sorks

Totat FNDR 8etteramt

Neighborhood Urban............................ .............................................. I........................... .......................................................... ,;.................... .....

Total-All Region 669,267 86e655 582.612 112,626 64.991 39.819 7.816 236.390 222,563 11,033

TOTAL NORTH ZONE 91,051 10,957 80.094 28,730 17.606 9.600 1.525 27.012 24,352 0

I Do Tarapaca 24.969 4.012 20,957 4.011 2.857 843 312 11,433 5,513 0

.11 De Antofagasta 24.221 3.601 20,620 10,410 6.776 3.267 367 3.185 7,025 0

III Oce Atacama 18.137 1,978 16,159 8,212 4.8M4 3.099 249 4,339 3,608 0IV De Coquibo 23,724 1,366 22,358 6.097 3,109 2.391 597 8,055 8,206 0 %O

CENTRAL ZONE with MR 307.010 50,145 256,865 34,667 18,53? 13.207 2,922 103,161 117.654 1.384

HR Santiago Hetrop. Region 175,960 40,114 135.846 21.892 11.915 8,435 1,541 24.316 89,468 171

CENTRAL ZONE without KR 131.050 10,031 121.019 12,775 6.622 4,772 1,381 78.8KS 28.186 1.214

V De Valparaiso 91,577 5.510 86,067 8.376 4,611 2.971 794 59,750 16.727 1.214

VI Del Libertador Gen. 8.0 39,473 4,521 34,952 4,398 2,010 1,801 587 19,095 11.459 0

TOTAL - SOUTH ZONE 136,655 18.066 118,589 29.337 16.051 11,066 2,220 43,840 43.545 1,866

VI Delt NauM 38.286 4.318 33,968 7,921 4.677 2,739 505 11.623 12.620 1.804

Vit DOel Bioblo 60,274 7,178 53,096 11.755 6,008 4.700 1,046 20,620 20.659 62

IX De La Araucania 38,095 6,570 31,525 9,662 S.366 3,627 669 11,597 10.266 0TOTAL - EXTREME SOUTH ZONE 70,950 7,487 63,463 19.892 12,798 5,946 1.148 26,608 16.054 908

X Do Los Lagos 44,675 6,538 38,137 9,754 5,333 3.,M 646 18,281 9,193 908Xi Aisen del Gen. Carlos 12,433 639 11,794 4,897 3. M 892 230 4,228 2.670 0

ibane: dot CatpoXil De Nagalenes y de A.C. 13.842 310 13,532 5,241 3,690 1,279 272 4,100 4.191 0Not Regionally Distributed 63,601 0 63,601 0 0 0 0 35,769 20.957 6,874

(1) Source: Direccion de Presuquestos Ninisterio de Hacienda -Inversion PWlica Regionalizable Efectiva

Thousids of 1US 1990 (1USS=304.903)

Table A.A: CHILE - THE RELATIVE OISTRI8UTION OF INVESTMENT BY HUNICIPALITY AND CENTRAL GOVERNMENT, BY HINISTRY. ZONE MND REGION

............. .......................... ................... ......................................... .. ............. ........................ ...... ...... .......

Central Goverrwent Ninistries

Total Kunicipal ----------------------------------------- ---- ---- .. -.-.-..--

Zones and on sourees Total Interior Public Housing Health

Regions ..........................................- V-orks

Total fHDR Betterment

NeigJborhood Urban................... ........................................ ............................................ .................................................................... ................. ........................ ............

Total-All Regions 100.0 12.9 87.1 16.8 9.7 5.9 1.2 35.3 33.3 1.6

TOTAL - MORTH ZONE 100.0 12.0 88.0 31.6 19.3 10.5 1.7 29.7 26.7 0.0

I De Tarapaca 100.0 16.1 83.9 16.1 11.4 3.4 1.2 45.8 22.1 0.0

11 De Antofagasta 100.0 14.9 85.1 43.0 28.0 13.5 1.5 13.1 29.0 0.0

III Oe Ataeam 100.0 10.9 89.1 45.3 26.8 17.1 1.4 23.9 19.9 0.0

IV Be Coquimbo 100.0 5.8 94.2 25.7 13.1 10.1 2.5 34.0 34.6 0.0 %0

CENTRAL ZONE with NR 100.0 16.3 83.7 11.3 6.0 . 4.3 1.0 33.6 38.3 0.5

H Santiago Netrqp. Region 100.0 22.8 77.2 12.4 6.8 4.8 0.9 13.8 50.8 0.1

CENTRAL ZONE without NR 100.0 7.7 92.3 9.7 5.1 3.6 1.1 60.2 21.5 0.9

V go Valparaiso 100.0 6.0 94.0 9.1 5.0 3.2 0.9 65.2 18.3 1.3

VI Bet Llbertads GBen. 8.0 100.0 11.5 88.5 11.1 5.1 4.6 1.5 48.4 29.0 0.0

TOTAL - SOTL ZONE 100.0 13.2 86.8 21.5 11.7 8.1 1.6 32.1 31.9 1.4

VIl Oct Naute 100.0 11.3 B.7 20.7 12.2 7.2 1.3 30.4 33.0 4.7

VIII Del lIobio 100.0 11.9 88.1 19.5 10.0 7.8 1.7 34.2 34.3 0.1

IX De La Araucania 100.0 17.2 82.8 25.4 14.1 9.5 1.8 30.4 26.9 0.0

TOTAL - EXTREME SOUTH ZONE 100.0 10.6 89.4 28.0 18.0 8.4 1.6 37.S 22.6 1.3

X Do Los Ltgos 100.i 14.6 55.4 21.8 11.9 8.4 1.4 40.9 20.6 2.0

Xi Alisen del Gen. Carlos 100.4 5.1 94.9 39.4 30.4 7.2 1.8 34.0 21.5 0.0

lbae: del CpoXIl Doe Ngaltenes-y de A.C. 100.0 2.2 97.8 37.9 26.7 9.2 2.0 29.6 30.3 0.0

Not Regionally Distributed 100.0 0.0 100.0 0.0 0.0 0.0 0.0 56.2 33.0 10.8

............ .....................................................................................?...

Source; eased an Tobte A.r

97

Tsti 4.9: CHILg - TrU RElAIVE A OISR16U1UTON OF REAONAUZD INVESTM4TBY TnE MINISTRY Of INTEfON. POOR POPULATIONAN0 PRODUCT BY ZONE ANO REGION 19t0 (13

Zones and Msry f leidgter Poeaon tot ------ Pow Popaton-------- ReoniRagios ---- ----------. vmmr ------------ G.O.P.TOW fNOR Bedtowm UeWY at Unuabd Below Below Miimai (6)

-- ------------ Mlvrvti 96Sal Mlidmun Conwmo onNeghbood Utfbn Popiedo Nod (3) OIat(4) CS)

Total-Al Rens 1.to0 100.0 100.0 100.0 1o0o 1.00 laoo 100.0 ioo0. 100.0TOTAL- NORTH ZONE 23 - 27.1 24.1 1.9 10* 2.85 10.4. e.8 16.7 131

I OearTasoe 3.6 4.4 2I 4.0 Er 1.31 1.4 1.9 2.5 3.4n OaAntolagaga 9.2 10.4 8.2 47 3o 313 2. 23 LS 5.7III O Ataams 73 7.5 7.6 3.2 1.S 4.66 e. 1.2 1.6 2aN OsCoquimbo 6.4 4.6 6. 7.6 37 1.47 5.5s to 2 Z3CENTRAL ZONE weh MR 30SA 2JJ 33.2 37.4 S5.2 __ 0S. .35.8 45.3 *40.3 60.4

MR S lsMeli.Raow- 1.*- 18* 2t1Z 19T:-.. oa 0.-;w- 19Q 3T.4 a" A".CWITRA±ZON8Eilhoul MR t 10t.- 12* 1r.7.*T 16.4 _. .4.. 1S6 - 1..i 4.511 0.4

V OeVelpWaro 7.4 7.1 7.$ 10.2 108 0.71 6.9 9.1 0.0 10.7VI OlLibeutaorOon.0 to9 3.t 4.s tS 4.0 0.7r9 e.? 4. 5.0 6.23.6N 2.t-2 2r& ; .r -.t . .t5 I -1.S 17.7TOrAL..- 801111ZONE' L' 3vn Gal Matla 7.0 72 6s e.5 4.4 1.10 .s e.2 6.7 *.2vIuOS0SIobwe 10.4 9.2 11.8 13.4 Ii.? 0.U2 #S3 1s.2 16.2 10.1IX OeLa Aauoaisa 6.6 6.3 9.1 4.6 6.0 1.42 tr.o 12.0 6ot 3.3

TOTAL.- EXTREME SUIT)ZONE ITT 19.7 t19-- 148.7 -&- -: .. 84 at 6.S 1.2X OaLos Lago 6.7 1.2 9.6 0.3 7.0 1.24 to 6.5 7.r 5.0Xi AlsendolaGne CIos 4.8 5.6 2.2 to9 0.6 r.1 0.2 0.2 0.3

Ibana del Camp.XU OeUMagUalonyde 4.7 L. 3.2 s5 1.2 s.e3 0.1 0.3 0.S 29

Is Ar_MIS Chlil

- --------------------- -~~~~ e ------------

(I) Eztoudg Not RNgionally Dlsbributed asoui(2) Fondo Newont de OesWo Regkina(3) Eemates krmn CASEN 1667 by CEPA - Houasng and IdooeuUe(4) Estmatees from CASfN r107 by CEPAL - inero,o less n te cos ata d*_un dat (ab_oea pote if(5) Eamme fom CASE 11o1 by C(PAL - Inceloe thn lo. do ate imi bo o mw SemO piga (aaineS0% getoeood)() SEone Cantl de Chie Sowliona samme lor I9SM

98

T!AWA.10: CHU - ru RULAUW 011UUTMON1 RCGPON Io INvwrMmNr,Povumy POPUAT*ONAND PROCUOT ,V MI. M A * t0MUON(-): 1900

---------- ____---------------__-------------__------------ -----------_-__________

me. end T1om minim Populan ToW R I 1"NUNR_ln lnv, ----------------- ------- Im_ .lJ. R . OP

Tod PubHl Hoaging Hmel Mkulatur Works pap

_______-- --- __-___-__---- ---------- _---------------------------------_________.------

ToWl-AN Rege 100.0 100.0 100.0 100.0 100.0 100.0 1.00 100.0 1.tOTOAL - NOMrW . 16.4 25. t35 12.1 0.0 tO. $4A 13.0 t:i4

I DeTw,pa 4.0 3.6 5.7 2.7 0.0 27 1.4 3.4 1.1.It i Antftob 4.0 92 1.6 3.5 0.0 3.0 1.34 6.7 0.70III ODAbeam 3.1 7.3 22 1.8 0.0 1.5 2.T 22 1.30IV DeCoumnbIo 4.3 5.4 4.0 4.1 0.O 3.7 1.17 1 1.91CLVTRM ZONC W MR 40.5 30.1 51.4 55.4 33.3 A2 0.00 60.4 0.U2

MR SantlgsMel.Rq1mu 26.2" IA. 12.1 44.4 4.1 36.7 6.80 43 0.60CENMTA ZWINuWA IM 233 *t.3 39.3 140 262 15.4. . 1.51 1g" I=

V 0oVaIwaim 10.6 7.4 29.8 6.3 29.5 10. 1.56 10.7 1.55VI caIUbwlde m.U.O. 61.7 3.9 9.5 S.7 O.c 4.9 1.7 0.2 1.00TOrAL - SOUTHMIM 22* 20.0 21.0 31.0 4" 26t:. .. A9. t1. 1t20

Vll 0 MAUle 6.5 7.0 5.6 6.3 43.4 6.4 1.00 4.2 1.6Vill 0. lsbho 10.2 0.4 10.3 102 1.5 127 0.80 10.1 1.01IX OeLa Mau=* 0.1 8.6 5.6 6.1 0.0 0.0 t.Ot 3.3 t.aaToAL - CIEMSOUT ZW 12 .7.? 13.3 8.0 21.5 66 31 6. t.47

X Ose. Lagos 7.3 6.? 9.1 4.6 21.6 7.0 1.05 5.0 1.48XI Abmn dli G. Cobs 2.3 4.3 2.1 1.3 0.0 0.6 3.73 0.5 4.73

lbens dei CanpXi OlAtmplenmyvds 2.0 4.7 2.0 2.1 0.0 1.2 2tS 2Le 0.t0

1^Avbf Cl 6

( Eaudlig Not RAg * Olbil_d ac nowtSou.: Dreemioni dl PIaspumoms tblusdMs aalndl - Invmwsn PUIsC R.ognaiabf do a

Table A.11: CIILE- fI'MR IESUCES ALILOATION B REGION AMD SECTOR(JUONSAJID Of CHILEAN S Of 1990)

........................................................................................ ...................................................................................................................................... .......................................

Iinestt Sector

REGION fetal Basic Veaditinal Total Health Education Drinkable Seers Rual Urban Rural Ensineeringlegionat Studies Projects Miter goads Roads Electrification Design

Total alt 8egions 26,991.506 SM.171 5,540,410 20.582.927 5,378,494 6,295,092 1,149.693 1,610.989 1,979,630 3,046,266 B12.579 310,184TOTAL - N111 1ZONE 6.961.673 1S3.616 .1.440.641 5 367 416 1.275.618 1.627,513 368.403 513,356 445.202 1,027,124 27.920 82,280

1 De larepaca 1,664.627 66.649 257,050 1,340,928 259,427 383.744 98,484 42,640 117,297 395,970 11,866 31,500ll De Antolagasta 2,028.762 22,709 547.013 1 459,040 219,613 833,339 10,368 226,343 0 162,817 0 6,500Ill De Atacam- 1,694,784 30.539 268,228 1,396,017 589,402 217.594 104.594 84,583 20,436 379,408 0 0IV be Coquiubo 1.S73.500 33.719 368.350 1.171.431 2087176 192,836 154.957 159,790 307,469 88.869 16.054 44,280CENIRA ZONE with No 7,166.896 331,426 2,126.56U 4.701.902 1,309,725 1,638,058 121,801 378,215 792.161 346.017 70,050 52,875CENIRAl. ZONE without IR 3,678.266 76,749 522,361 3 079.156 864,137 654,370 89,562 335,028 730.384 84,047 70,050 51,578

V Oe Vlparaiso 1,884,379 69,729 290,508 1.524.142 522,454 493,483 74,637 187,723 25,730 218,537 0 1,578VI Del Libertaddr Gen B.O. 1,793,887 7,020 231.853 1,555,014 341,683 1608.87 14.925 147 305 704,654 65,510 70,050 SO,00mR Santiago Netropolitan 3,488,630 254,677 1,604,207 1,629,746 445,588 983,688 32,239 43,187 61,777 61,970 0 1,297

TOTAL - SOUH ZalE 6,160,7 165,838 709,971 5,284,969 1,720,438 1,722,588 415,318 591,518 246.896 139,80S 404,7"6 43,640VII Oct NIte 1,61S,"40 5.450 169,872 1,440,518 267,207 69,619 203,709 98,383 162,465 45,000 0 14,135Vill Del Sioblo 2 577,431 142,025 332,475 2.102.931 873,474 560,128 211,609 405 477 52,243 0 0 0IX De Li aucanin 1,967,507 18,363 207,624 1,741,520 579,757 S12 841 0 87,658 32.188 948G05 404,766 29,505TOTAL - EXTRENE SITUH ZONE 6,702,161 217,M 1,263,230 5,221,640 1,072,713 1,306,933 244,171 127,900 495 371 1,533,320 309,843 131,389

X De Los Lagos 2,897,023 123,793 761,175 2,012.355 672,996 738,307 22 38,OSO 116,237 174,878 218,065 53500DXi Aisen det Ce. Carlosr 1,428,812 11,916 227.983 1,188,913 287,170 229,655 40,000 74,189 360,157 122,871 26,778 48093

Iboane dot Co" XII de Slf.ans de 2,376,326 61,582 274,072 2,020,672 112,547 338,971 204,149 15,661 18,977 1,235,571 65,000 29,796

Ls Antartice Cllen........................................................................... ........................................ .................................................................................................................................

Souree: Ssecrtatela de Darotto RegionlI (Chile)

Table A.12: CHILE- FNDR RESOMCES ALLOCATION BY REGION AND SECTOR(TUOUSA.D OF Us S OF 1990) (1)

.. ...... ..................... ........ ............... . .... ... ... .. ... ........... .. ................. ............................... .. . .... ... ........... .................... ....... ............ ........ ............ .. .

Investaent Sector

Z0nes And Regional Basic fUR-TRADIC total Health Education Drinkable Sewers Rural Urban Rural Engineeringregions Total Studies Projects Water Roads Roads Electrification Oesign,....................................................................................................................................................

.. .... ... ... ... ................... ................................. .. .......

Total all Regions 88,s25 2,867 18.171 67,506 17,640 20,646 3,771 S,284 6.493 9,991 2.665 15017TOTAL - IN ZONE 22.832 504 4,725 17.604 4,184 5.338 1,208 1,684 1.460 3,369 92 270I De Tarapaca S.460 219 843 4,398 851 1,259 323 140 385 1,299 39 103II .e Antofagasta 6.6S4 74 1.794 4,785 720 2,733 34 742 0 534 0 21III De Atace 5558 100 880 4,579 1.933 714 343 277 67 1,244 0 0IV De Coqulimo 5.161 1tl 1.208 3 842 679 632 508 524 1.008 291 53 145CENTAL ZONE with HR 23.50f 1.087 6.97S 15,444 4.296 S.372 399 1,240 2,598 1,135 230 173CENTRAL ZONE mithout HR 12,064 252 1.713 10.099 2.834 2,146 294 1,099 2.395 932 230 169V 0D Vaiparalso 6.180 229 953 4.999 1.714 1,618 245 616 84 717 0 5Vl 0e Li ertador Gen 3.0. 5,883 23 760 5,100 1,121 528 49 483 2,311 215 230 164HR SantIago Netropolltan 11.442 835 5,261 5,345 1,461 3 226 106 142 203 203 0 4TOTAL - SOUTH ZONE 20.206 544 2.329 17,333 5,643 5650 1,362 1,940 810 459 1,328 143VIl I el Haul. 5.300 18 557 4.725 876 2,131 668 323 533 148 0 46VIII Oel Biablo 8,453 466 1,090 6,897 2,865 1,837 694 1,330 171 0 0 OIX De La Araucania 6,43 60 681 5,712 1,901 1,682 0 287 106 311 1,328 97TOTAL - EXTIREE SOUT ZONE 21.981 713 4,143 17,126 3,518 4,286 801 419 1,625 5,029 1,016 431X De Los Laos 9,501 406 2,496 6 599 2,207 2,421 0 125 381 574 7?S 175Xi Alsen del Gen. Carlos 4,686 39 748 3,899 942 753 131 243 1,181 403 88 158 -banea del Co"

XII dea gaptlas y de 7,794 268 899 6,627 369 1,112 670 51 62 4,052 213 9 OLa Antertica Chlilens~~~~~~~~~~~~~~~~~~~~~~~~~,.................................................................................... ... ........... .............................

(1) Exchopge rate Is I USS a 5304.903 chIleanSource: Subsecretarle de Omarrollo Regional (Chle)

101

Table A.13: CHILE h NUMBER Of MUNICIPALITIES BY REGION, POVERTY RANK OF THE MUNICIPALITY,AND POPULATION SIZE GROUPS 1990 Ct)

..................................................................................................

Poverty Rank Total I II [It IV V VI VII VIII IX X Xi XII MRPopulation Size Groups

................. ...AbsoLute

............................Total 325 10 9 9 15 37 33 29 49 30 42 10 10 42

Less than 10000 108 8 5 5 5 12 14 8 13 3 16 8 8 310000-19999 91 0 1 1 3 13 12 8 17 14 14 1 1 620000-49999 70 0 1 2 4 4 6 10 14 12 9 1 0 750000-99999 16 0 0 1 1 S 0 1 1 0 0 0 0 7100000 40 2 2 0 2 3 1 2 4 1 3 0 1 19

Poorest 145 5 2 1 8 18 19 13 28 17 21 2 0 11Less than 10000 53 5 2 1 3 2 9 5 11 3 10 2 0 010000-19999 62 0 0 0 3 12 8 6 12 11 9 0 0 120000-49999 20 0 0 0 2 3 2 2 5 3 2 0 0 150000-99999 1 0 0 0 0 1 0 0 0 0 0 0 0 0100000 9 0 0 0 0 0 0 0 0 0 0 0 0 9

Middle 151 3 5 7 5 15 14 14 17 12 16 7 9 27Less than 10000 52 3 3 4 2 7 5 3 2 0 6 6 8 310000-19999 28 0 1 1 0 1 4 2 5 3 4 1 1 520000-49999 48 0 1 2 2 1 4 8 9 9 6 0 0 650000-99999 12 0 0 0 1 4 0 1 1 0 0 0 0 5100000 . 11 0 0 0 0 2 1 0 0 0 0 0 0 8

Least Poor 29 2 2 1 2 4 0 2 4 1 5 1 1 4Less then 10000 3 0 0 0 0 3 0 0 0 0 0 0 0 010000-19999 1 0 0 0 0 0 0 0 0 0 1 0 0 020000-49999 2 0 0 0 0 0 0 0 0 0 1 1 0 050000-99999 3 0 0 1 0 0 0 0 0 0 0 0 0 2100000 20 2 2 0 2 1 0 2 4 1 3 0 1 a

.t1) txcludes new municipalities created in the Metropolitan Region CMR)Source: Ministry of the Interior

102

Tabte A.14s CHILE POPULATION BY REGION POVERTY RANK OF THE MUNICIPALITY,AND POPULATION SIZE GROUPS 1940 (THOUSANOS) (1)

............................................................................................................Poverty Rank Totat I it III IV V VI Vil Vill IX X Xl Xll MRPoputation Sizo Group........................ ...................................................... X.sv............-.................e-se

Absotute...................... ............. ...................................... ........................................................ -^.*

Totat 12,148 358 390 198 486 1,382 650 840 1,674 716 923 80 160 4,211Less than 10000 545 17 16 32 30 62 91 52 78 17 96 la 18 1910000-19999 1,254 0 16 13 38 173 162 113 239 191 19? 13 18 7920000-49999 2,166 0 21 74 102 128 202 321 432 342 252 50 0 24250000-99999 1,234 0 0 80. 85 313 0 71 76 0 0 0 0 610

100000 6,949 341 336 0 232 704 195 284 849 246 377 0 123 3,261Poorest 3,183 11 4 5 106 332 224 187 378 253 240 2 0 1,442

Less thmn 10000 294 11 4 5 16 14 56 35 66 17 68 2 0 010000-19999 853 0 0 0 38 160 106 90 170 144 126 0 0 1820000-499 558 0 0 0 52 82 62 62 143 92 45 0 0 2150000-99999 76 0 0 0 0 76 0 0 0 0 0 0 0 0

100000 1,402 0 0 0 0 0 0 0 0 0 0 0 0 1.402MiddLe 5,149 6 50 113 149 730 426 370 147 297 266 29 36 2.232

Less than 10000 236 6 13 27 13 34 35 17 12 0 28 16 18 1910000-19999 390 0 16 13 0 15 56 23 69 47 60 13 18 6120000-49999 1,529 0 21 74 SI 46 140 259 290 250 178 0 0 22050000-99999 893 0 0 0 85 237 0 71 76 0 0 0 0 425

100000 2,100 0 0 0 0 398 195 0 0 0 0 0 0 1,507Least Poor 3,816 341 336 80 232 320 0 284 849 246 417 50 123 537

Less then 10000 15 0 0 0 0 15 0 0 0 0 0 0 0 010000-19999 11 0 0 0 0 0 0 0 0 0 11 0 0 020000-49999 78 0 0 0 0 0 0 0 0 0 29 50 0 050000-99999 265 0 0 80 0 0 0 0 0 0 0 0 0 185

100000 3,447 341 336 0 232 305 0 284 849 246 377 0 123 353…...........................................................................................................

(1) Exctudes new municipatitios created in the Metropolitan Region CN4)source: Ministry of the Interior

103

Table A.15: CHILE - TOTAL POOR POPULAtION 1/ BY REGION, POVERTY RANK OF THE MNICIPALITY,AND POPULATION SIZE GROUPS 1990 (THOUSANOS)

Poverty Rank Total I 11 II IV V Vl VII Vill IX X Xi Xit 1MRPoputation Slze Groups.................... ............................................. w .... t................

Absolute.............................................................................................................

Total 1,804 37 47 48 9? 185 103 159 246 146 154 18 12 554Lese than 10000 79 2 5 12 5 12 9 8 4 0 11 6 2 410000.19999 116 0 1 3 0 3 19 8 23 14 22 4 2 1620000.49999 512 0 4 23 20 11 41 85 92 86 61 8 0 8250000.90099 214 0 0 9 40 47 0 18 13 0 0 0 0 87

100000 882 35 37 0 S3 111 34 40 114 46 59 0 a 83MPoorest 645 7 1 2 32 52 39 37 78 70 1 0 279

Les than 10000 68 7 1 2 6 2 10 7 14 4 13 1 0 010000-19999 182 0 0 0 12 28 19 16 37 41 26 0 0 320000.49999 112 0 0 0 14 11 10 13 26 25 10 0 0 350000-99999 10 0 0 0 0 10 0 0 0 0 0 0 0 0

100000 273 0 0 0 0 0 0 0 0 0 0 0 0 273M1idde 679 1 5 19 32 ."7 52 60 6 50 43 5 2 268

LesS than 10000 39 1 2 6 2 5 4 4 2 0 6 3 1 210000-19999 57 0 0 2 0 2 10 4 11 7 10 2 1 820000.49999. 249 0 2 12 10 5 20 42 46 43 27 0 0 4150000-99999 100 0 0 0 20 24 0 9 7 0 0 0 0 41

100000 235 0 0 0 0 41 17 0 0 0 0 0 0 176Lest Poor 446 35 37 9 33 30 0 40 114 46 68 8 8 18

Les than 10000 2 0 0 0 0 2 0 0 0 0 0 0 0 010000.19999 2 0 0 0 0 0 0 0 0 0 2 0 0 020000-49999 15 0 0 0 0 0 0 0 0 0 7 8 0 0S000)-99 is 15 0 0 9 0 0 0 0 0 0 0 0 0 6

100000 412 35 37 0 33 29 0 40 114 46 59 0 S 12.............................................................................................................I/ Estimated basd on the percentage of population in extrme poverty according to the map of extrem poertyfn 1982 by OGEPLANsource: Ministry of the Interior

104

Table A.16: CHtLE - TOTAL REGIONAL MUNICIPAL INVESTMENT BY REGION, POVERTY RANK OF THEMUNICIPALITY ANO POPULATION SIZE GROUPS 1990

(MILLIONS OP CHILEAN 5 OF 1"0)................................................................ .

Poverty Rank Total I II IlIl IV V VI VIl Vill IX X Xi Xll MRPopuLation Size Groups..............................................................................................................

Absolute..............................................................................................................

Totat 28,530 1,533 1,079 847 598 1,698 1,607 1,435 3,897 2,263 1,878 204 164 11,32tLess thain 10000 1,731 102 203 428 38 142 173 44 166 41 292 25 71 710000-19999 3,350 0 20 209 40 518 672 129 528 678 363 2 52 14020000-49999 4,947 0 143 209 115 82 530 422 1,448 824 590 178 0 40750000-99999 2,752 0 0 0 102 131 0 68 94 0 0 0 0 2 357

100000 15,750 1,431 713 0 303 826 232 771 1,662 721 634 0 41 8.415Poorest 6,077 36 14 3 134 588 699 1S3 960 602 511 3 0 2.375

Less than 10000 655 36 14 3 22 25 120 26 152 41 214 3 0 010000-19999 2,317 0 0 0 40 504 505 115 482 402 222 0 0 4620000-4999 754 0 0 0 71 33 7S 12 326 159 74 0 0 350000-99999 26 0 0 0 0 26 0 0 0 0 0 0 0 0

100000 2,326 0 0 0 0 0 0 0 0 0 0 0 0 2,326Middle 10,589 66 352 844 161 820 907 511 1,274 939 631 23 123 3,937

LeSs than 10000 1,033 66 189 426 1S 74 S3 19 14 0 77 22 71 710000-1999 993 0 20 209 0 T4 168 14 45 275 100 2 52 9420000-49999 3,954 0 143 209 43 49 455 410 1,121 664 454 0 0 40450000-99999 1,326 0 0 0 102 104 0 68 .94 0 0 0 0 957

100000 3,283 0 0 0 0 578 Z32 0 0 0 0 0 0 2,473Least Poor 11,864 1,431 713 0 303 291 0 771 1,6Z 721 736 178 41 5,016

Less than 10000 43 0 0 0 0 43 0 0 0 0 0 0 0 010000-19999 40 0 0 0 0 0 0 0 0 0 40 0 0 020000-49999 240 0 0 0 0 0 0 0 0 0 62 178 0 050000-99999 1,400 0 0 0 0 0 0 0 0 0 0 0 0 1,400

100000 10,141 1,431 713 0 303 248 0 771 1,662 721 634 0 41 3,616........................................... …, .Percentage of totat

….............................................................................................................TotaL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Less than 10000 6.1 6.6 18.8 50.6 6.3 8.4 10.7 3.1 4.3 1.8 15.5 12.1 43.4 0.110000-19999 11.7 0.0 1.8 24.7 6.7 30.5 41.8 9.0 13.5 2S.9 19.3 0.9 31.4 1.220000-49999 17.3 0.0 13.3 24.7 19.2 4.8 33.0 29.4 37.1 36.4 31.4 87.0 0.0 3.650000-9999 9.6 0.0 0.0 0.0 17.1 7.7 0.0 C.7 2.4 0.0 0.0 0.0 0.0 20.8

100000 55.2 93.4 66.1 0.0 50.7 48.6 14.4 53.7 42.6 31.9 33.8 0.0 25.1 74.3Poorest 21.3 2.4 .1.3 0.3 22.4 34.6 43.5 10.7 24.6 26.6 27.2 1.S 0.0 21.0

Less than 10000 2.3 2.4 1.3 0.3 3.8 1.5 7.4 1.8 3.9 1.8 11.4 1.5 0.0 0.010000;19999 8.1 0.0 0.0 0.0 6.7 29.7 31.4 8.0 12.4 17.8 11.8 0.0 0.0 0.420000-49999 2.6 0.0 0.0 0.0 11.9 1.9 4.7 0.8 8.4 7.0 3.9 0.0 0.0 0.050000-99999 0.1 0.0 0.0 0.0 0.0 1.S 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

100000 8.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20.5Middle 37.1 4.3 32.7 99.7 26.9 48.3 S6.5 35.6 32.7 41.5 33.6 11.4 74.9 34.8

Less than 10000 3.6 4.3 17.6 50.3 2.6 4.4 3.3 1.3 0.4 0.0 4.1 10.6 43.4 0.110000-19999 3.5 0.0 1.8 24.7 0.0 0.8 10.4 1.0 1.2 12.2 5.3 0.9 31.4 0.820000-49999 13.9 0.0 13.3 24.7 7.3 2.9 28.3 28.6 28.8 29.3 24.2 0.0 0.0 3.650000-99999 4.6 0.0 0.0 0.0 17.1 6.1 0.0 4.7 2.4 0.0 0.0 0.0 0.0 8.5

100000 11.5 0.0 0.0 0.0 0.0 34.0 14.4 0.0 J.0 0.0 0.0 0.0 0.0 21.8Least Poor 41.6 93.4 66. 1 0.0 50.7 17.1 0.0 53.7 42.6 31.9 39.2 87.0 25.1 44.3

Less then 10000 0.2 0.0 0.0 0.0 0.0 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.010000-19999 0.1 0.0 o.n 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.1 0.0 0.0 0.020000-49999 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.3 87.0 0.0 0.050000-9999 4.9 0.0 0.0 0.0 0.0' 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12.4

100000 35.5 93.4 66.1 0.0 50.7 14.6 0.0 53.7 42.6 31.9 33.8 0.0 25.1 31.9..............................................-................................................................

Source Ministry of the Interior

105

Table A.17: CHILE - TOTAL REGIONAL MUNICIPAL INVESTMENT aY REGION, POVERTY RANK OF THEMUNICIPALITY AND POPULATION SIZE GROUPS 1990

(THOUSAND OF US S OF 1990)

Poverty Rank Total I 11 III IV V VI VII VIII IX X Xi XIl MRPopulation Size Groups

Absolute............................................................................................................

Totat 93,570 5,029 3,539 2,777 1,960 5,570 5,270 4,705 12,780 7,422 6,160 669 538 37,149Less than 10000 5,678 334 666 1,404 124 465 566 146 544 133 957 81 234 24'000O-19999 10,986 0 65 686 131 1,699 2,204 423 1 731 2,222 1,189 6 169 45920000-49999 16,225 0 470 687 376 268 1,738 1,385 4,748 2,701 1,934 583 0 1,33650000-99999 9,026 0 0 0 336 429 0 223 307 0 0 0 0 7, 732100000 51,655 4,695 2,338 0 994 2,709 761 2,528 5,451 2,366 2,080 0 135 27,598

Poorest 19,932 119 45 8 438 1,928 2,294 502 3,150 1,975 1,675 10 0 7,788Less than 10000 2,147 119 45 8 74 81 392 84 497 133 703 10 0 010000-19999 7,598 0 0 0 131 1,653 1,655 378 1,582 1,319 730 0 0 15020000-49999 2,472 0 0 0 233 107 247 40 1,070 523 242 0 0 1050000-99999 86 0 0 0 0 86 0 0 0 0 0 0 0 0100000 7,629 0 0 0 0 0 0 0 0 0 0 0 0 7,629

Middle 34,729 215 1,156 2,769 528 2,688 2,976 1,67S 4,180 3,081 2,071 77 403 12,911Less than 10000 3,389 215 621 1,396 50 243 174 62 46 0 254 71 234 2410000-19999 3,256 0 65 686 0 47 550 45 149 903 328 6 169 30920000-49999 12,967 0 470 687 143 160 1,491 1,345 3,678 2,178 1,489 0 0 1,32750000-99999 4,348 0 0 0 336 342 0 223 307 0 0 0 0 3,140100000 10,768 0 0 0 0 1,896 761 0 0 0 0 0 0 8,111

Least Poor 38,909 4,695 2,338 0 994 955 0 2,528 5,451 2,366 2,415 583 135 16,450Less than 10000 141 0 0 0 0 141 0 0 0 0 0 0 0 010000-19999 132 0 0 0 0 0 0 0 0 0 132 0 0 020000-49999 786 0 0 0 0 0 0 0 0 0 203 583 0 050000-99999 4,592 0 0 0 0 0 0 0 0 0 0 0 0 4,592100000 33,259 4,695 2,338 0 994 814 0 2,528 5,451 2,366 2,080 0 135 11,859

...........................................................................................................Percentage of totaL............................................................................................................TotaL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Less than 10000 6.1 6.6 18.8 50.6 6.3 8.4 10.7 3.1 4.3 1.8 15.5 12.1 43.4 0.110000-19999 11.7 0.0 1.8 24.7 6.7 30.5 41.8 9.0 13,5 29.9 19.3 0.9 31.4 1.220000-49999 17.3 0.0 13.3 24.7 19.2 4.8 33.0 29.4 37.1 36.4 31.4 87.0 0.0 3.650000-99999 9.6 0.0 0.0 0.0 17.1- 7.7 0.0 4.7 2.4 0.0 0.0 0.0 0.0 20.8100000 55.2 93.4 66.1 0.0 50.7 48.6 14.4 53.? 42.6 31.9 33.8 0.0 25.1 74.3

Poorest 21.3 2.4 1;3 0.3 22.4 34.6 43.5 10.7 24.6 26.6 27.2 1.5 0.0 21.0Less than 10000 2.3 2.4 1.3 0.3 3.8 1.5 7.4 1.8 3.9 1.8 11.4 1.5 0.0 0.010000-19999 8.1 0.0 0.0 0.0 6.7 29.7 31.4 8.0 12.4 17.8 11.8 0.0 0.0 0.420000-49999 2.6 0.0 0.0 0.0 11.9 1.9 4.7 0.8 8.4 7.0 3.9 0.0 0.0 0.050000-99999 0.1 0.0 0.0 0.0 0.0 1.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0100000 8.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20.5

MiddLe 37.1 4.3 32.7 99.? 26.9 48.3 56.5 35.6 32.7 41.5 33.6 11.4 74.9 34.8Less than 10000 3.6 4.3 17.6 50.3 2.6 4.4 3.3 1.3 0.4 0.0 4.1 10.6 43.4 0.110000-19999 345 0.0 1.8 24.7 0.0 0.8 10.4 1.0 1.2 12.2 5.3 0.9 31.4 0.820000-4999 13.9 0.0 13.3 24.7 7.3 2.9 28.3 28.6 28.8 29.3 24.2 0.0 0.0 3.650000-99999 4.6 0.0 0.0 0.0 17.1 6.1 0.0 4.7 2.4 0.0 0.0 0.0 0.0 8.5100000 11.5 0.0 0.0 0.0 0.0 34.0 14.4 0.0 0.0 0.0 0.0 0.0 0.0 21.8

Least Poor 41.6 93.4 66.1 0.0 50.7 17.1 0.0 53.7 42.6 31.9 39.2 87.0 25.1 44.3Less than 10000 0.2 0.0 0.0 0.0 0.0 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.010000-19999 0.1 0.0 O.O 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.1 0.0 0.0 0.020000-49999 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.3 87.0 0.0 0.050000-99999 4.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12.4100000 35.5 93.4 66.1 0.0 50.7 14.6 0.0 53.? 42.6 31.9 33.8 0.0 25.1 31.9

............................................................................................................Source: Ministry of the Interior

106

tabte A.18: CHILE - PER CAPITA REGIONAL MUNICIPAL INVESTMENT BT REGION, POVERTY RANK OF tHEMUNICIPALITY AND PO ILATION SIZE GROUPS 1990

(CHILEAN S OF 1990)............................................................................................................

Poverty Rank Total I It III IV V Vl VIl Vitt IX X Xi XIl "RPopulation Site Groups

Absolute............................................................................................................

Totat 2,348 4,282 2,770 4,280 1,228 1,229 2,43 1,707 2,328 2,843 2,036 2,542 1.027 2.690Less than 10000 3178 6,066 12,445 13,588 1,274 2,271 1,898 856 2,131 2,390 3,046 1,384 3,939 38710000-19999 2,670 0 1,216 16,718 1,056 2,961 4,159 1,137 2,208 3,547 1,839 138 2,812 1,76120000-49999 2,284 0 6836 2,846 11,17 637 2,625 1,318 3,352 2,406 2,339 3,566 0 1,68450000-99999 2,230 0 0 0 1,210 418 0 964 1,227 0 0 0 0 3,867100000 2,2"6 4,194 2,121 0 1,307 1,174 1,189 2,714 1,"5 2,93S 1,680 0 334 2,580

poorest 1,909 3,242 3.785 537 1,259 1,R71 3,119 819 2,542 2,377 2,132 1,618 0 ,647LesS then 10000 2,227 3,242 3,785 537 1,369 1.760 2,121 n8 2,308 2,390 3,161 1,618 0 0mo019999 2,716 0 0 0 1,056 3,152 4,781 1,278 2,830 2,790 1,719 0 0 2,487

20000-49999 1,351 0 0 0 1,374 399 1,210 198 2.305 1,729 1,630 0 0 13850000-8.999 346 0 0 0 0 346 0 0 0 0 0 0 0 0100000 1,659 0 0 0 0 0 0 0 0 0 0 0 0 ,659

Nfddte 2.056 11,729 7,059 7,479 1,084 1,122 2,133 1,382 2,84 3,164 2,374 818 3,372 1,764Loss than 10000 4,37o ll,n9 14,9118 15,8% 1,157 2,194 1,536 1,123 1,168 0 2,67 1,356 3,939 3871000019999 2.543 0 1,216 16,718 0 943 2,989 591 661 ,873 1,676 138 2,812 1,54320000-4999 2,585 0 6,836 2,846 856 1,056 3,257 1,584 3,862 2,656 2,545 0 0 1,835s5ooo-ss9 9 ,485 0 0 01 ,210 44 0 964 1227 0 0 0 0 2,254100000 ,563 0 0 0 01 ,451 1,189 0 0 0 0 0 0 1,641

Least Poor 3,109 4,194 2,121 0 1,307 910 0 2,714 1,957 2,935 1,765 3,566 334 9,332Less thn 10000 ,n937 0 0 0 0 2,937 0 0 0 0 0 0 o 010000-19999 3,616 0 0 0 0 0 0 0 0 03,616 0 0 020000-49999 3,058 0 0 0 0 0 0 0 0 02,173 3,566 0 050000-99999 5,281 0 0 0 0 0 0 0 0 0 0 0 0 7,574100000 2,942 4,194 2,121 0 1,307 813 0 2,714 1,957 2,93s 1,680 0 334 10,253

............................................................................................................Sourceo: Minis"r of the interior

107

Table A.19: CHILE - PER CAPITA REGIOUL MUICIPAL INVESTMENT BY REGION, POVERTY RANK OF THEMUNICIPALITY ANO POPULATION SIZE GROUPS 190

(US S OF 1990)

Poverty Rank total t It tit IV V Vt VII Vill IX X Xi XII MRPopulation Size Groups..................... ................................................ @ @ w ws ............. ....................... ...

Absolute..................... ................................................ , ............ ..-..................

Totat 7.70 14.04 9.08 14.04 4.03 4.03 8.11 5.60 7.63 9.32 6.68 8.34 3.37 8.82Less than 10000 10.42 19.89 40.81 44.56 4.18 7.45 6.23 2.81 6.99 7.84 9.99 4.54 12.92 1.2710000-19999 8.76 0.00 3.99 54.83 3.46 9.71 13.64 3.73 7.24 11.63 6.03 0.45 9.22 5.7820000-49999 7.49 0.00 22.42 9.33 3.66 2.09 8.61 4.32 10.99 7.89 7.67 11.70 0.00 5.5250000o-9999 7.31 0.00 0.00 0.00 3.97 1.37 0.00 3.16 4.02 0.00 0.00 0.00 0.00 12.68100000 7.43 13.76 6.96 0.00 4.29 3.85 3.90 8.90 6.42 9.63 5.51 0.00 1.10 8.46

Poorest 6.26 10.63 12.41 1.76 4.13 5.81 10.23 2.69 8.34 7.80 6.99 5.31 0.00 5.40LOsS then 10000 7.30 10.63 12.41 1.76 4.49 5.77 6.96 2.39 7.57 7.84 10.37 5.31 0.00 0.0010000-19999 8.91 0.00 0.00 0.00 3.46 10.34 15.68 4.19 9.26 9.15 5.7? 0.00 0.00 8.1620000-49999 4.43 0.00 0.00 0.00 4.51 1.31 3.97 0.65 7.56 5.67 5.35 0.00 0.00 0.45s0ooo-99999 1.14 0.00 0.00 0.00 0.00 1.14 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

100000 5.4" 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.44MfddLe 6.74 38.47 23.15 24.5S3 3.56 3.68 6.99 4.53 9.34 10.38 7.78 2.68 11.06 S.9

Less then 10000 14.36 38.47 48.93 52.13 3.79 . 7.20 5.04 3.68 3.83 0.00 9.08 4.45 12.92 1.2710000-19999 8.34 0.00 3.99 54.83 0.00 3.09 9.80 1.94 2.17 19.27 5.50 0.45 9.22 5.0620000-49999 8.48 0.00 22.42 9.33 2.81 3.46 10.68 S.19 12.67 8. 71 8.35 0.00 0.00 6.0250000-99999 4.87 0.00 0.00 0.00 3.97 1.45 0.00 3.16 4.02 0.00 0.00 0.00 0.00 7.39100000 5.13 0.00 0.00 0.00 0.00 4.76 3.90 0.00 0.00 0.00 0.00 0.00 0.00 5.38

Least Poor 10.20 13.76 6.96 0.00 4.29 2.98 0.00 6.90 6.42 9.63 5.79 11.70 1.10 30.61Less then 10000 9.63 0.00 0.00 0.00 0.00 9.63 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.0010000-19999 11.86 o.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 11.86 0.00 0.00 0.0020000-49999 1o.o3 o.00 0.oo o.00 0.00 0.00 0.00 0.00 0.00 0.00 7.13 11.70 0.00 0.0050000-99999 17.32 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 24.84100000 9.65 13.76 6.96 0.00 4.29 2.67 0.00 8.90 6.42 9.63 5.51 0.00 1.10 33.63

........................................................................................................................Sourco: Ministry of the Interior

108

Table A.20: CHILE - TOTAL REGIONAL MUNICIPAL INVESTMENT(l) BY POVERtY RANKOF THE MUNICIPALITY AND YEAR(MtLLIONS OF CHILEAN S Of 1990)

...... .......... _.__......__. _...._.. ...................

Poverty Rank 1985 1986 l987 1988 1989 1990Population Size Groups,......................................... ................................................................ .......................

Absolute..........................................................................

Total 20,528 25,837 31 ,222 45,727 39,888 28,530Less than 10000 1,635 1,549 1,492 1,977 1,750 1,73110000-19999 2,018 2,539 3,126 3,90s 3,514 3,35020000-49999 3,046 4,028 4,998 6,001 6,283 4 94750000-99M9 2,736 4,020 4,429 7,152 4,450 2,752100000 11,092 13,700 17,175 26,690 23,892 15,750

Poorest 5,457 7,225 8,685 10,099 8,690 6,077Less than 10000 993 853 826 1,051 688 65510000-19999 1,464 1,902 2,191 2,423 2,256 2,31720000-49999 550 999 1,278 1,217 884 75450000-99999 41 90 34 253 75 26100000 2,109 3,383 4,356 5,156 4,787 2,326

MiddLe 7,781 9,745 11,108 17,813 14,086 10,589Less than 10000 625 668 625 869 1,001 1,03310000-19999 511 596 889 1,438 1,175 99320000-49999 2,132 2,959 3,570 4,371 4,886 3,95450000-99999 1,707 2,333 2,198 4,282 2,314 1,326100000 2,805 3,188 3,826 6,853 4,710 3,283

Least Poor 7,290 8,867 11,429 17,815 17,112 11,864Less than 10000 17 28 41 57 61 4310000-19999 43 41 47 46 83 4020000-49999 63 71 150 413 513 24050000-99999 989 1,597 2,197 2,617 2,060 1,400100000 6,178 7,129 8,993 14,681 14,395 10,141

..................................... _Percentage of totat........................ ...................................................Total 100.0 100.0 100.0 100.0 100.0 100.0

Less than 10000 8.0 6.0 4.8 4.3 4.4 6.110000-19999 9.8 9.8 10.0 8.5 8.8 11.720000-49999 14.8 15.6 16.0 13.1 15.8 17.350000-99999 13.3 15.6 14.2' 15.6 11.2 9.6100000 54.0 53.0 55.0 58.4 59.9 55.2

Poorest 26.6 28.0 27.8 22.1 21.8 21.3Less than 10000 4.8 3.3 2.6 2.3 1.7 2.310000-19999 7.1 7.4 7.0 5.3 5.7 8.120000-49999 4.1 3.9 4.1 2.7 2.2 2.650000-9999 0.2 0.3 0.1 0.6 0.2 0.11OOOG 10.3 13.1 14.0 11.3 12.0 8.2

Middle 37.9 37.7 35.6 39.0 35.3 37.1Less than 10000 3.0 2.6 2.0 1.9 2.5 3.610000-19999 2.5 2.3 2.8 3.1 2.9 3.520000-49999 10.4 11.5 11.4 9.6 12.2 13.950000-99999 8.3 9.0 7.0 9.4 5.8 4.6100000 13.7 12.3 12.3 15.0 11.8 11.5

Least Poor 35.5 34.3 36.6 39.0 42.9 41.6Less than 10000 0.1 0.1 0.1 0.1 0.2 0.210000-19999 0.2 0.2 0.2 0.1 0.2 0.120000-49999 0.3 0.3 0.5 0.9 1.3 0.850000-99999 4.8 6.2 7.0' 5.7 5.2 4.9100000 30.1 27.6 28.8 32.1 36.1 35.5

...........................................................................(1) Excludes land and buildingsSource: Ministry of the Interior

109

Table A.21: CHILE - TOTAL REGIONAL MUNtCIPAL INVESTMENT BY POVERTYRANK OF THE MUNICIPALITY AND YEAR

(THOUSANDS OF US S OF 1990)....................................................................

Poverty Rank 1985 1986 1987 1988 1989 1990Population Size Groups....................................................................Absoluto....................................................................TotaL 67,325 84,737 102,399 149,971 130,821 93,570

Less than 10000 5,363 5,080 4,894 6,484 5,740 5,67810000-19999 6,620 8,326 10,254 12,813 11,523 10,98620000-49999 9,989 13,212 16,392 19,681 20,606 16,22550000-99999 8,975 13,185 14,527 23,455 14,593 9,026100000 36,379 44,934 56,331 87,537 78,358 51,655

Poorest 17,897 23,696 28,485 33,122 28,500 19,932Less than 10000 3,257 2,796 2,709 3,446 2,256 2,14710000-19999 4,801 6,237 7,184 7 946 7,399 7,59820000-49999 2,788 3,275 4,193 3,990 2,900 2,47250000-99999 133 294 112 828 247 86100000 6,918 11,094 14,287 16,911 15,699 7,629

MiddLe 25,519 31,960 36,431 58,421 46,197 34,729LOSS than 10000 2,051 2,191 2,050 2,851 3,282 3,38910000-19999 1,677 1,956 Z,915 4,715 3,853 3,25620000-49999 6,993 9,704 11,709 14,335 16,024 12,96750000-99999 5,600 7,652 7,209 14,043 7,590 4,348100000 9,199 10,457 12,548 22,476 15,447 10,768

Least Poor 23,909 29,081 37,483 58,429 56,123 38,909Less than 10000 55 93 135 187 202 14110000-19999 142 133 155 152 271 13220000-49999 208 233 490 1,356 1,682 78650000-99999 3,242 5,239 7,207 8,584 6,756 4,592100000 20,262 23,383 29,496 48,150 47,212 33,259

..................................................................

Percentage of total................................ .......................................................

TotaL 100.0 100.0 100.0 100.0 100.0 100.0Less than 10000 8.0 6.0 4.8 4.3 4.4 6.110000-19999 9.8 9.8 10.0 8.5 8.8 11.720000-49999 14.8 15.6 16.0 13.1 15.8 17.350000-99999 13.3 15.6 14.2 15.6 11.2 9.6100000 54.0 53.0 55.0 58.4 59.9 55.2

Poorest 26.6 28.0 27.R 22.1 21.8 21.3Less than 10000 4.8 3.3 2.6 2.3 1.7 2.310000-19999 7.1 7.4 7.0 5.3 5.7 8.120000-49999 4.1 3.9 4.1 2.7 2.2 2.650000-99999 0.2 0.3 0.1 0.6 0.2 0.1100000 10.3 13.1 14.0 11.3 12.0 8.2

Middle 37.9 37.7 35.6 39.0 35.3 37.1Less than 10000 3.0 2.6 2.0 1.9 2.5 3.610000-19999 2.5 2.3 2.8 3.1 2.9 3.320000-49999 10.4 11.5 11.4 9.6 12.2 13.950000-99999 8.3 9.0 7.0 9.4 5.8 4.6100000 13.7 12.3 12.3 15.0 11.8 11.5

Least Poor 35.5 34.3 36.6 39.0 42.9 41.6Loss than 10000 0.1 0.1 0.1 0.1 0.2 0.210000-19999 0.2 0.2 0.2 0.1 0.2 0.120000-49999 0.3 0.3 0.5 0.9 1.3 0.850000-99999 4.8 6.2 7.0 51.7 5.2 4.9100000 30.1 27.6 28.8 32.1 36.1 35.5

....................................................................

(1) Excludes lnd and buildingsSource: Ministry of the Interior

110

Table A.23: CHtLE * PER CAPITA REGIONAL MUNICIPAL INVESTJ4ENT ByPOVERTY RANK OF ThE MUNICIPALITY AND YEAR

(US S Of 1990).........*s**X@ Z.s....................... .......................

Poverty Rank 1985 1986 1987 1988 1989 1990Populatfon Sfze Groups.....................................................................

Abolute.....................................................................

Total 5.54 6.98 8.43 12.35 10."7 7.7oLesS than 10000 9.85 9.33 8.9 11.91 10.54 10.4210000-1999 5.28 6.64 8.17 10.21 9.19 8.7620000-49999 4.61 6.10 7.57 9.09 9.51 7.49soooo-009s9 7.27 10.68 11.77 19.01 11.83 7.31

100000 5.23 6.47 8.11 12.60 11.28 7.43Poroest 5.62 7.44 8.95 10.41 8.95 6.26

LesS then 10000 11.08 9.51 9.21 1.n 7.67 7.3010000-1.9999 5.63 7.31 8.42 9.32 8.68 8.9120000-49999 5.00 5.87 7.51 7.15 5.20 4.4350000-99999 1.75 3.87 1.47 10.91 3.25 1.14

100000 4.93 7.91 10.19 12.06 11.20 S.44Nfddle 4.96 6.21 7.08 11.35 8.97 6.74

Less then 10000 8.69 9.29 8.69 12.08 13.91 14.3610000-19909 4.30 5.01 7.46 12.08 9.87 8.3420000-49999 4.57 6.34 7.66 9.37 10.48 8.4850000-99999 6.27 6.57 8.07 15.73 8.50 4.87

100000 4.38 4.98 5.97 10.70 7.35 5.13Leat Poor 6.27 7.62 9.82 15.31 14.71 10.20

Loss than 10000 3.76 6.34 9.22 12.n 13.74 9.6310000-19999 12.78 12.01 13.95 13.68 24.46 11.8620000-4999 2.65 2.97 6.26 17.30 21.47 10.030000-99999 12.23 19.76 27.19 32.38 25.49 17.32100000 5.88 6.78 8.56 13.97 13.70 9.65

....................................................................

Idol totat a 100,. .................... *...............................................

Toatl 100.0 100.0 100.0 100.0 100.0 100.0Less than 10000 177.7 133.7 106.6 96.4 97.9 135.310000-19999 95.2 95.2 97.0 82.7 85.3 113.720000-4999 83.2 87.5 89.8 73.6 88.3 97.350000-99999 131.2 153.2 139.7 454.0 109.8 95.0

100000 94.5 92.7 96.2 102.0 104.7 96.5Poorest 101.5 106.7 106.2 84.3 83.1 81.3

Less than 10000 199.9 136.4 109.3 94.9 71.3 94.810000-19999 101.6 104.8 99.9 75.5 80.6 115.720000-499 90.2 84.2 89.1 57.9 48.3 57.550000-99999 31.6 55.5 17.4 88.4 30.2 14.8

100000 89.0 113.4 120.9 97.7 104.0 70.6Mfddtl 89.4 89.0 83.9 91.9 83.3 87.6

Le than 10000 156.8 133.1 103.1 97.9 129.2 186.510000-1999 77.5 71.8 88.6 97.8 91.6 108.320000-49999 82.5 91.0 90.8 75.9 97.3 110.150000-99999 113.2 122.8 9".8 127.4 78.9 63.2100000 79.0 71.4 70.9 86.7 68.3 66.6

Lest Poor 113.1 109.3 116.5 124.0 136.6 13Z.4Loss than 10000 67.8 90.9 109.4 103.0 127.6 125.010000-1999 230.5 n.2 165.5 110.8 227.1 1S4.020000-499ss 47.9 42.5 74.2 140.1 199.3 130.250000-99999 220.7 283.3 322.5 262.3 236.7 224.9

100000 106.1 97.3 101.5 113.2 127.2 125.3.. *v............................ ?....** .... e......................

III

Table A.22: CHILE - PER CAPITA REGIONAL MUNICIPAL INVESTMENT BYPOVERTY RANK OF THE MUNICIPALITY AND YEAR

(CHILEAN S OF 1990)......... ................. .. .... -...............................

Poverty Rank 1985 1986 1987 1988 1989 1990PopuLation Size Groups

Abso'lute.......... ........... ....... .............. .. .................. .....

Total 1,690 2,127 2,570 3,764 3,283 2,348Less than 10000 3,002 2,844 2,740 3,630 3,213 3,17810000-19999 1,609 2,024 2,492 3,114 2,801 2,67020000-49999 1,406 1,860 2,308 2,771 2,901 2,28450000-99999 2,218 3,258 3,590 5,796 3,606 2,230

100000 1,596 1,972 2,472 3,841 3,438 2,266Poorest 1,714 2 270 2,729 3,173 2,730 1,909

Less than 10000 3,378 2,900 2,810 3,574 2,340 2,22710000-19999 1,716 2,230 2,568 2,841 2,645 2,71620000-49999 1,523 1,790 2,291 2,180 1,584 1,35150000-99999 535 1,180 448 3,326 991 346

100000 1,504 2,412 3,107 3,678 3,414 1,659MiddLe 1,511 1,892 2,157 3,459 2,736 2,056

Less than 1000 2,650 2,831 2,649 3,684 4,241 4,37910000-19999 1,310 1,527 2,276 3,682 3,009 2,54320000-49999 1,394 1,935 2,334 2,858 3,194 2,58550000-99999 1,912 2,613 2,462 4,795 2,592 1,485100000 1,335 1,518 1,822 3,263 2,243 1,563

Least Poor 1,910 2,324 2,995 4,668 4,484 3,109Less than 10000 1,146 1,932 2,813 3,878 4,190 2,93710000-19999 3,896 3,663 4,254 4,172 7,457 3,61620000-49999 809 905 1,908 5,274 6,545 3,05850000-99999 3,729 6,026 8,289 9,874 7,771 5,281

100000 1,792 2,068 2,609 4,259 4,176 2,942............................... ........................................

Base total u 100...................................................................

Total 100.0 100.0 100.0 100.0 100.0 100.0Less than 10000 177.7 133.7 106.6 96.4 97.9 135.310000-19999 95.2 95.2 97.0 82.7 85.3 113.720000-49999 83.2 87.5 89.8 73.6 88.3 97.350000-99999 131.2 153.2 139.7 154:0 109.8 95.0100000 94.5 92.7 96.2 102.0 104.7 96.5

Poorest 101.5 106.7 106.2 84.3 83.1 81.3Less than 10000 199.9 136.4 109.3 94.9 71.3 94.810000-19999 101.6 104.8 99.9 75.5 80.6 115.720000-49999 90.2 84.2 89.1 57.9 48.3 57.550000-99999 31.6 55.5 17.4 88.4 30.2 14.8100000 89.0 113.4 120.9 97.7 104.0 70.6

MiddLe 89.4 89.0 83.9 91.9 83.3 87.6Less than 1000 156.8 133.1 103.1 97.9 129.2 186.5

10000-19999 77.5 71.8 88.6 97.8 91.6 108.320000-49999 82.5 91.0 90.8 75.9 97.3 110.150000-99999 113.2 122.8 95.8 127.4 78.9 63.2

100000 79.0 71.4 70.9 86.7 68.3 66.6Least Poor 113.1 109.3 116.5 124.0 136.6 132.4

Less than 10000 67.8 90.9 109.4 103.0 127.6 125.010000-19999 230.5 172.2 165.5 110.8 227.1 154.020000-49999 47.9 42.5 74.2 140.1 199.3 130.250000-99999 220.7 283.3 322.5 262.3 236.7 224.9100000 106.1 97.3 101.5 113.2 127.2 125.3

...................................................................Source: Ministry of the Interior

table A.24: CHILE - ADNINISTRATIVE DIVISIONS AND REPRESENTATION IN THE NATIONAL CONGRESS By REGION..........................................................................................................................................

Total Regions

I 11 III IV V MR VI VIl Vill IX X Xi XII.. .......................... ......................................................... ... ..... .......................... ............................................ .... ........ ...........................Population (000's) (1) 13 173 358 390 198 486 1,382 5 236 650 840 1,674 796 923 80 160ElecIores (000's) (2) 7,558 188 233 124 270 816 2.985 393 476 973 438 524 44 95Municipalities

Provinces

Circunscripciones 19 1 1 1 1 2 2 1 2 2 2 2 1 1Distritos 60 2 2 2 3 6 16 4 5 7 5 6 1 1Total Senators 47Designed Senators 9Elected Senators 38 2 2 2 2 4 4 2 4 4 4 4 2 2Diputados 120 4 4 4 6 12 32 8 10 14 10 12 2 2First Circunscripcion 76 4 4 4 6 6 16 8 6 a 4 6 2 2Second circunscripcion 44 6 16 4 6 6 6

Population (000*s)/ 347 179 195 99 243 345 1,309 325 210 419 199 231 40 80Elected Senators.................. ..................................... .... ...... .. .... .... .................... ........................................... ........................ .............................................. .... .........(1) UProyecciones y Estimaciones de Poblacion por Sexo y Edad. Comunas 1980-1995." INE(2) Registro Electoral. Dicleabre 1989Source: Guia del Congreso Naclonal de Chile. P. 64-84

P~01Ilt~CIIM*..REGION 11002 RGO 114

A,ioo _ ~~~~~~~~VALPARAISO IOQ Z o tISEEINSET

Co0

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