7. EURORAI-Congress in London on October 4, 2010 "Challenges of the economic crisis for administration and control in Upper Austria"

Transcription

1 7. EURORAI-Congress in London on October 4, 2010 "Challenges of the economic crisis for administration and control in Upper Austria" Elke Anast Martin Mühlbachler

2 I T a b l e of c o n t e n t s Upper Austria basic data... 1 Financial situation of Upper Austria... 1 Status quo of the budget situation... 1 Overall budget Development of the operating business in Development of social and health care spending... 3 Financial reserves and debts... 4 Measures of Upper Austria to overcome the crisis... 4 Programmes to reflate the economy... 4 Assumption of liabilities... 5 Structural reforms... 5 Task and administration oriented reform... 5 Health care and hospital reform... 6 The role of the Regional Court of Audit of Upper Austria... 6 Challenges for the Regional Court of Audit of Upper Austria... 7 Recommendations of the Regional Court of Audit of Upper Austria... 7 From the annual audit of the balance of accounts... 7 From other audits... 8

3 1 Upper Austria basic data Upper Austria is one of nine federal states of Austria. Upper Austria has a land area of about square kilometers. Upper Austria has about 1.4 million inhabitants. This represents one sixth of the population of Austria. With regard to the number of inhabitants Upper Austria is the third largest federal state of Austria (after Vienna and Lower Austria). Upper Austria is economically strong, mostly because of its large scale industry. Upper Austria's economic strength is heavily dependent on their capability to export. Due to the financial and economic crisis, Upper Austria was confronted with an aboveaverage increase of the unemployment rate. Within one year the normally low unemployment rate doubled, namely from 3.5 % to 6.9 %. In order to overcome the crisis Upper Austria as well as Austria was willing to increase spending of public means. The overall budget of Upper Austria is 5 billion Euro. Financial situation of Upper Austria Status quo of the budget situation Already before the financial and economic crisis Upper Austria spent more money than it earned. The balanced budget was only possible because of asset sales. For instance, in recent years mainly receivables respectively loans as well as shares in profitable companies were sold and this income was used to finance the annual budget deficits. The annual budget deficits of recent years resulted from continuously stagnating revenues and sharply increasing expenditures. In particular, the spending dynamic in the health care and social sector as well as high expenditures in investments and subsidies led to high annual expenditures in the budget. Although it has to be considered that during the last year investments and subsidies were mainly used to cope with the crisis. Overall, the financial room for manoeuvre is already very small since less and less means are available from tax receipts and the possibilities to sell further assets are very limited. Ten years ago Upper Austria was able to clear all of its debts due to asset sales. Since then, Upper Austria's financial policy was not to show any new debt in the debt statistic. Upper Austria followed the new trend and outsourced areas from the budget, such as hospitals and real estate management, and made new debts in these newly built companies or substituted debts by using special financing.

4 2 Overall budget The following figure shows the budget development of Upper Austria very clearly. The budget contains all revenues and expenditures from the operating business and asset business. The delta shows one-time revenues which were used to balance the budget. Budget development without one-time revenues for budget balancing (in million Euro) expenditures revenues Before the crisis the expenditures of the budget already were significantly above the revenues. In 2009 the tax income decreased significantly, whereas spending rose sharply also was an election year and therefore higher expenditures in almost every area were easily explained and justified. In the annual comparison 2008 and 2009 the budget deficit increased from million Euro to million Euro, basically it almost tripled. The negative budget result of 2009 means that every tenth Euro had to be financed from asset sales (reserves million Euro) or loans. In the future the sale of further assets or the appropriation of financial reserves will not be possible anymore. Within this short presentation about the budget and financial situation I will focus on: the results of the crisis on the development of revenues and of the budget from the operating business of Upper Austria the development of the financial reserves and debts. Development of the operating business in 2009 In Austria the federal administration mainly collects the taxes and in the next step allocates the means to the federal states according to specific proportions.

5 3 In 2009 Upper Austria faced decreasing revenues and sharply increasing expenditures. This led to financial problems within the operating business since too little means were earned in order to finance the continuously high level of investments in the budget and in the outsourced companies. Despite massive tax losses of about 165 million Euro continuous revenues only declined slightly in the annual comparison of 2008 and 2009 (0.1% respectively 4.8 million Euro) in Upper Austria. However, continuous expenditures increased between 5 and 8 per cent in almost every area, in total by 240 million Euro. Therefore, the tense budget situation does not exclusively result from tax losses due to the crisis but rather from the sharply increasing continuous expenditures. The negative development of revenues and expenditures caused the result from the operating business to decline sharply in The result halved compared to the previous year and amounted only to 254 million Euro. It also has to be considered that the bigger part of this amount has already been bound and therefore is not freely available anymore. In the future tax losses due to the crisis can happen again. Until 2015 tax losses amounting to 2.5 billion Euro are predicted. Therefore, Upper Austria is taking measures to cope with this problem, by making reforms, generating additional revenues and reducing expenditures. The financial room for manoeuvre from the operating business is called the "freie Finanzspitze", which is calculated from the operating business. The "freie Finanzspitze" is the amount of money of which Upper Austria disposes for investments, investment subsidies, loans and amortization of debts. This figure has declined gradually in recent years. From 2008 until 2009 this figure decreased sharply. From the continuous surplus in 2008 (498 million Euro) only million Euro were disposable, 2009 only 35.7 million Euro of 254 million Euro. In 2010 the "freie Finanzspitze" will be negative, which means that there will not be any room for manoeuvre left in order to finance investments or amortize debts. Basically, the scenario happened of which the Regional Court of Audit has warned for years. The result of the operating business has to be considered critical. The operating business of Upper Austria can not contribute anything to finance the continuously high level of investments. Development of social and health care spending As mentioned before, the development of expenditures in the health care and social sector represents a big problem for Upper Austria, but also for other countries. Since 1985 spending in the social sector has sextupled. Compared to this development all other expenditures within the budget only more than doubled. With regard to social spending Upper Austria has a top position compared to the rest of Austria. The spending dynamic of recent years is mostly due to increasing costs and higher standards in the caring and welfare of older people, of handicapped people and of young people.

6 4 Expenditures in health care are mainly caused by hospitals. Upper Austria has to finance the hospital business, since 1990 the amount has quadrupled. This means an increase by 300%. Compared to this development the other expenditures in the budget rose by 100%. Financial reserves and debts The financial capital from the budget reserve exclusively originate from asset sales in the amount of several billion Euro. However, these reserves have almost been used up. By the end of 2009 only 265 million Euro were left. This amount is not enough to cover the expected deficit of about 400 million Euro in Whereas financial reserves decline debts increase, especially outside the budget. For years Upper Austria's objective has been to have no debts, in order to be able to show no debts in the debt statistic. However, outside the budget and the debt statistic outsourced debts and special financing increased continuously. In 2009 it amounted to more than 900 million Euro. These are debts which have to be paid back from the budget. For the first time in years, in 2009 a real liability in the amount of 92 million Euro had to be entered, which has to be cleared with tax income. Additionally, Upper Austria has built up financial debts in the amount of 500 million Euro, which face concrete receivables. Ten years ago Upper Austria had debts in the amount of million Euro. This was before Upper Austria outsourced companies and before it had the financial objective of cero debts. Today Upper Austria has debts in the broader sense of 1.5 billion Euro. Only part of this amount has to be disclosed in the official debt statistic. These intransparent debts not only represent a big problem for the financial control but also because of its future burden which makes it difficult to cope with the crisis, since in good times no money was saved. Measures of Upper Austria to overcome the crisis The criteria for the selection of measures were their swift effectiveness on the labour market and their sustainability. Programmes to reflate the economy In December 2008 the parties of Upper Austria decided the first economic stimulus package in the range of 350 million Euro. In May 2009 it was raised to 1.4 billion Euro. Its objective was to secure and create jobs. With regard to labour market measures mostly investments were preponed. A main focus were thermal improvements. Also jobs in the public sector were staffed earlier

7 5 than planned. Several kinds of training were implemented, their effectiveness however is controversial. The implementation of the gratis kindergarten is a politically wanted measure, which also impacts the economy positively. Assumption of liabilities Half of the total liabilities assumed by Upper Austria (about 2 billion Euro) are available for companies which need loans. These loans can be used by companies to cope with the crisis after fulfilling certain criteria. By the end of 2009 Upper Austria effectively assumed liabilities for companies in the amount of 420 million Euro. It can not be said if and to which extent further liabilities are assumed from Upper Austria, since these liabilities also cost money for the companies. Upper Austria charges interest for its assumed liabilities. Until now, Upper Austria profited from these liabilities. Until now, Upper Austria did not have to effectively assume its liabilities. Structural reforms Task and administration oriented reform In 1993 Upper Austria implemented the first task reform, which until 2003 achieved savings with regard to the number of staff employed (reduction of 1300 posts) and to cost (cost reduction of 9.2 million Euro). In 2005 the second task reform was introduced. However, due to political disagreement it was not implemented. In May 2010 the government of Upper Austria decided in unison to introduce another task and administration oriented reform. Its objectives are: improvement in efficiency relief of expendable tasks considerable and lasting reduction of the administrative organization of Upper Austria sustainable cost reduction The reform's objective is not to reduce or eliminate useful services for the citizen. However, all services have to be examined with regard to their accuracy, their efficient performance and their necessity. The ideas for the reform originate from departments and project teams. All staff members as well as citizens have the possibility to post their ideas on the website of Upper Austria. Furthermore, discussions with all interest groups are made so that they can contribute their ideas and experience with the public administration of Upper Austria in the reform process.

8 6 An expert committee was established as well. It consists of top-managers of the public administration of Upper Austria. This expert committee reviews and coordinates the ideas. In the second part of the year 2011 politics will decide about the implementation of the assessed reform ideas. The measures decided are supposed to be considered and implemented in the annual plans and budgets of the years 2012 until Health care and hospital reform As presented before, health expenditures in Upper Austria have quadrupled since In order to reduce spending in hospitals, Upper Austria implemented the first hospital reform in The objective of this reform was to reduce the costs by annually 75 million Euro until The Regional Court of Audit of Upper Austria audited the implementation of this reform and only assessed a cost reduction of 15.3 million Euro. Since then spending on hospitals continuously increased. Based on the medical and demographic development as well as on the tight financial situation due to the economic crisis, Upper Austria started the second hospital reform in May This reform has the following objectives: ensuring the long-term financial feasibility of the health care system by tapping the full potential for cost reductions securing extensive, adequate and high quality health care for the people further development and adjustment of the medical services according to the demographic development optimization of the performed services from hospitals in Upper Austria by using all possible synergies avoiding all organizational costs, which do not provide any kind of benefit for the patient The aim is to achieve a cost reduction potential of at least 25% until A reduction of the number of hospitals or the dismissing of staff is not allowed. An expert committee was organized in order to make proposals. All staff members as well as citizens have the possibility to post their ideas on the website of Upper Austria. These proposals will be assessed by the expert committee. The expert committee has to present their reform ideas until June 2011 and in the next step politics will decide about their implementation. The role of the Regional Court of Audit of Upper Austria The project teams and expert committees which were established for the task and administration oriented reform and the hospital reform received the assignment by politics to consider all previous audit reports from the Regional Court of

9 7 Audit when making their proposals. The Regional Court of Audit of Upper Austria also actively informs the expert groups about its audit statements and recommendations. Furthermore, the Regional Court of Audit of Upper Austria is also available as a contact person. The involvement of the Regional Court of Audit of Upper Austria in the reform process shows that it is a competent contact person and that its expertise is appreciated. Because of its statutory independence it is important that the Regional Court of Audit of Upper Austria does not participate in the decision-making process but only takes an advisory part in the reform process. Thereby it is guaranteed that it can audit the implementation and effectiveness of the reform measures at a later date. Challenges for the Regional Court of Audit of Upper Austria Based on the present situation of Upper Austria the Regional Court of Audit faces the following challenges: focus on effect and sustainability cross-system perspective identify possibilities for structural change identify potential synergies process optimization increased communication and exchange of experiences with other audit organizations These topics always represent essential parts of the work of the Regional Court of Audit of Upper Austria. However, during financially hard times these topics become even more important and therefore need to be strengthened. Recommendations of the Regional Court of Audit of Upper Austria From the annual audit of the balance of accounts Within the annual audit of the balance of accounts the Regional Court of Audit of Upper Austria recommended to develop a strategy to restore budget equilibrium. This means that in the future the development of the budget needs to be well-directed and that the key financial figures (result of operating business, investments and debts) need to be at an appropriate rate to each other.

10 8 For years, the Regional Court of Audit of Upper Austria required reduced spending and structural reforms, mainly in the intransparent system of subsidies of the different administrative units and in the sharply increasing expenditures in the social and health sector. An anti-cyclical investment policy was also asked for repeatedly. This kind of policy serves as an argument for new investments during a crisis. However, in prospering times politics are reluctant to reduce the level of investments. The federal state of Upper Austria is also very reluctant to increase its own taxes. Compared to the rest of Austria, Upper Austria has the lowest tax income (annually about 18 million Euro). The Regional Court of Audit at least achieved that additional revenues are taken into account. In recent times the more and more complex becoming transfer relations between administrative units were also considered critically. It was recommended that this complexity is reduced by consolidating the task and responsibility resources again in one public authority. From other audits Within this context the following recommendations which originate from other audits need to be highlighted as well: push the objective and effect orientation of administrative behaviour Objective and effect orientation are significant principles of the concept of an effect-oriented administration, to which Upper Austria admits itself. The Regional Court of Audit of Upper Austria promotes this concept of an effect-oriented administration. Therefore, in every audit the questions about the objectives set and their intended effect are raised. fundamentally reform the hospital system and social system The hospital system and social system with the present structures can not be financed anymore in the future, mostly because of the demographic development. Therefore, the health and social sector have become strategic main topics for the Regional Court of Audit of Upper Austria, by making annual audits and by requiring more efficient and effective structures in these areas. reform the system of subsidies Subsidies are an important management tool for politics. Currently subsidies are granted without targeting. The Regional Court of Audit of Upper Austria believes that it is important to set priorities. professionalize the management of shareholdings Since more and more tasks are outsourced from the administration it becomes important to professionalize the management of shareholdings