02.05.2023 1

The Draft

Act of Financing of the Counties

Noora Heinonen 6 July 2016

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02.05.2023 2

The basic components of the Draft Act of the Financing of the Counties1) Act concerns only the financial flow between the state and the counties (= separate Act on Central

Government Transfers to Local Governments and legislation on the financing flows between a county and service providers)

2) The counties receive income only from the state funding and the client and user fees3) State funding is computational (= not fully based on actual expenditure)4) The state funding is not ear-marked; counties have self-rule (autonomy) to decide on the allocation of

the funding5) The counties have limited possibilities to obtain short-term loan either from the private market or from

the state 6) Possible changes in the counties statutory tasks will be taken into account in the funding7) Counties have the powers to charge client and user fees, which are set (= maximum amounts) in the

legislation 8) The level of the state funding is reviewed annually9) The basis/determination of funding is reviews at least every 4th year10) Financing of year 2019 is based on the actual expenditure by municipalities (based on the financial

statement of year 2016 in value of 2019)11) Transition period years 2020-2023: gradual shift from expenditure-based costs to computational costs12) The ceiling for the state funding is set on the basis of counties actual expenditure, which is annually

reviewed only by using a new county index, which then is added with 1 percentage unit in years 2020-2021 and with 0.5 percentage unit from year 2022 onwards

13) If a county face serious liquidity problem, and if a loan is not usable, the government can allocate a state subsidy. A review process will also be started by the state and the county.

14) The work is still ongoing for the design of counties’ other tasks (e.g. employment services, surveillance authority tasks, sectors of tansport and agriculture) new tasks, Act on financing will eventually also be reviewed (even before it enters into force 2019)

15) The state funding will be paid on a monthly basis to the county without an application.

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Share, %

Millions of € The basis/determination of funding

Social and health care services

Per capita 7,5 1 325,24 Maakunnan asukasmäärän ja sosiaali- ja terveydenhuollon asukaskohtaisen perushinnan tulo

Service needs and circumstances of the regions

   

Age groups 38,1 6 737,37 Maakunnan ikäryhmien asukasmäärien ja ikäryhmien perushintojen tulojen summa

Determinants/Reasons for the use of health and social care services

48,9 8 635,47 Maakunnan tarvekertoimen, maakunnan asukasmäärän ja tarpeen perushinnan tulo. THL laskee jokaiselle maakunnalle sosiaali- ja terveydenhuollon tarvekertoimen

Population density 1,0 176,70 Maakunnan asukastiheyskertoimen, maakunnan asukasmäärän ja asukastiheyden perushinnan tulo. Maakunnan asukastiheyskerroin lasketaan jakamalla koko maan keskimääräinen asukastiheys maakunnan asukastiheydellä.

Non-native Finnish or Swedish speaking residents

1,0 176,70 Maakunnan vieraskielisyyskertoimen, maakunnan asukasmäärän ja vieraskielisyyden perushinnan tulo. Maakunnan vieraskielisyyskerroin lasketaan jakamalla maakunnan vieraskielisten asukkaiden osuus vastaavalla koko maan keskimääräisellä vieraskielisten asukkaiden osuudella.

Promotion of wellbeing and health

1,0 176,70 Maakunnan hyte-kertoimen, maakunnan asukasmäärän ja hyvinvoinnin ja terveyden edistämisen perushinnan tulo.

Other services e.g. rescue services

   

Per capita 2,5 441,75 Maakunnan asukasmäärän ja muiden tehtävien asukaskohtaisen perushinnan tulo

In total 100 17 669,93 UNOFFICIAL TRANSLATION

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The key components of the Draft Act and how to achieve the 3 billion euro savings1) Shift in the state funding system from expenditure-based costs to computational costs

1) 5 years gradual transition period years 20(19)20-2023 (in 2019: 100 % expenditure, in 2020: 80 expenditure – 20 computational %, in 2021: 60 expenditure - 40 % computational …)

2) Computational costs: 90 % of funding based on (i) the needs of 9 age groups and (ii) the realization of service needs based on illnesses and socio-economic status

2) Annual ceiling for state funding from year 2020 onwards: 1) Counties’ expenditure level increase will be taken into account on the basis of a new county

index, which is composed from the consumer price index (0.40), wage-level index (0.45) and the change of counties’ employer social security fees (0.15)

2) The increase based on the change (increase) of the county index will be added in years 2020-2021 with 1 percentage point and from 2022 onwards on 0,5 percentage point

-- Actual costs/expenditure is annually taken into account, but not fully

---> The funding model leads to the savings of 2,8 billion euro by the year 2030

-- The funding system demands/challenges/empowers the counties to improve operational efficiency, manage better the provision of services and service needs as well as define (even to limit) the scope of publicly funded services

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The baseline scenario of the nominal health and social services expenditure growth in 2020-2029

2020 2021 2022 2023 2024 2025 2026 2027 2028 20290

1

2

3

4

5

6

SOME-mallin ennakoima sote-menojen vuotuinen kasvu, %

Tuotantokustannusten ennakoitu kasvu (tuottavuus 0 %, nimel-lisansiot 3 %)Palvelutarpeen kasvu (väestön ikärakenteen aiheuttama paine)3 mrd. tavoitteen mukainen kasvu

Nominal expenditure growth would be approximately 4,5 %

In order to achieve the set aim to decrease the 3 billion € of social and health care costs, the expenditure should be max. 3 % / year in 2020–2029

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The prediction/forecast of the nominal expenditure growth of social and health care in years 2019-2029

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 202918.0

20.0

22.0

24.0

26.0

28.0

30.0

Nimellisten sote-menojen kehitysMaakuntaindeksin ennuste 2,6 % (painot: ATI = 45 %, sotu-

maksut = 15 %, KHI = 40%)

Perusura: 1,5 % palvelutarve + 1 % reaalipalkat + 2 % inflaatioLakiesitys (reaalinen säästö 2,8 mrd.): Maakuntaindeksi + 1 % v. 2020-2021; Maakuntaindeksi + 0,5 % v. 2022-2029Tavoiteura (reaalinen 3 mrd. säästötavoite): Maakuntaindeksi + 0,5 % v. 2020-2029

Mrd

. eur

oa

3 mrd. säästö nykyrahassa = nimellisesti n. 3,7 mrd.

Blue = Baseline scenario of expenditure

Red = Draft Act on the financing of the counties

Yellow = The aim to achieve the 3 billion euro savings

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02.05.2023 7

Steering of the counties’ resource allocation

COUNTY

COUNTY GROUP

General Government Fiscal Plan- Set objectives for the counties economy- Assessment of the counties tasks and funding

State Budget

Steering the operations and performance

Provisions on economy in the Act on Counties (Section 13)• Balance of financial flows

on operations and investments

• County’s limited powers to take a loan

• The criteria for the review process are set on the county group

State funding• Computational• County’s autonomy in

using the funding

Negotiations between the State and the counties (Act on Counties 13 §)

State loans and security as well as possiblly state aids in special situations

Steering the investments

Counties’ joint service utilities

Sectoral specialized legislation• Act on organising

social and health care services

• Act on Client Fees

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