ROMANIA

Romania is a parliamentary republic with a semi-presidential regime. Executive functions are shared between the President, the head of state who is directly elected for a five-year mandate, and the Government, which is headed by a Prime Minister, nominated by the President after consultation with the Parliament. The bicameral Parliament is composed of the Chamber of Deputies (Camera Deputatilor), which is composed of 329 deputies, and by the Senate (Senatul), which is composed of 136 senators. Members of the Parliament are elected for four-year terms by direct universal suffrage, according to the system of proportional representation. Romania joined the Council of Europe in 1993 and has been a member of the European Union since 2007.

Romania is a unitary state with two tiers of subnational government. The decentralisation process started with the first post-independence Constitution in 1991, which laid out the principles of local autonomy and the decentralisation of public services. Law no 189/1998 and Law no. 215/2001 added financial competences to local autonomy. In 2006, a new step towards decentralisation was taken with the adoption of the framework Law on decentralisation no 195/2006, which transferred new responsibilities to subnational governments, along with the Law no 273/2006 on local public finances and the Law no 51/2006 on Public Services. Currently the organisation and functioning of public administration authorities and institutions, the status of their staff, administrative responsibility, public services, as well as some specific rules regarding public and private property of the state and administrative-territorial units is regulated by the EOG no 57/2019 regarding the Administrative Code.

Subnational governments have self-governing bodies, namely county councils (Consiliul Judeţean) and local councils (Consiliul Local). According to the Law no. 67/2004 (amended in 2008), county councillors are directly elected in local elections for four-year terms and were responsible for electing the president of the county council. Currently, according to the Law no. 115/2015 (amended in 2019), the county councillors are elected by universal, equal, direct and secret party list suffrage and the president of the county council is elected by universal, equal, direct and secret uninominal suffrage. The communes, towns and cities each have their own local council (deliberative authority), also directly elected, and a mayor (executive authority), elected for a four-year term by universal, equal, direct and secret uninominal suffrage. In the city of Bucharest, there is a General Council of the city of Bucharest as well as a General Mayor of the capital, and each sector (administrative unit) of the city has its own local council and mayor.

The national government still exercises strong supervision over subnational governments, via the right to issue legal acts that are compulsory for the local authorities and the appointment of a prefect in each county, as a representative of the central government at the subnational level, with the mandate to control the legality of acts issued by the local authorities.

Decentralisation is a government priority in order to improve the quality of public services and to stimulate local development. In 2017, the government developed an action plan “General Strategy for Decentralisation” (the Government Decision no. 229/ 2017 regarding the approval of the General Decentralisation Strategy), under the monitoring of an Inter-ministerial Technical Committee for Decentralisation (CTID). The transfer of responsibilities, the capacity of subnational governments to manage them, the level of adequate budgetary resources necessary and the increase of local financial autonomy were assessed through a consultative process. Due to the COVID-19 pandemic, the deadlines for completing the decentralisation measures set in the Strategy have been postponed.

The government aims to establish a unitary legal framework for the central and local administration. Therefore, apart the Administrative Code, a Code of Administrative Procedure aiming to systematise, concentrate and streamline legislation regarding the main forms of achieving the competence/attributions established by law for the public authorities and institutions from central and local administration will be developed. A draft of this law was elaborated through the project “Systematising legislation, monitoring and assessing tools in public administration” (SIPOCA 59). The draft law will be subject for consultation with different stakeholders in the following period.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
102 cities (municipii) 216 towns (orase) 2 862 communes (comune)		41 counties (judete) + the city of Bucharest
Average municipal size: 6 944 inhabitants
3 180		42	3 222

Note: the city of Bucharest is counted as a county in the table.

OVERALL DESCRIPTION: According to Art. 3 of the Constitution, the territory of Romania is divided into counties at the regional level and cities, towns and communes at the local administrative level, without a subordinate relationship. Some towns are declared cities, according to legal provisions.

REGIONAL LEVEL: At the regional level, the Romanian territory is organised into 42 counties (including the city of Bucharest). Counties (judete) represent traditional administrative territorial units in Romania, depending on geographical, economic and social-political conditions. Counties average 457 200 inhabitants, ranging from 189 700 inhabitants in Tulcea to 1 823 500 inhabitants in the city of Bucharest. The city of Bucharest has a special dual status (both municipality and county) and is organised into six administrative sub-divisions, called sectors.

There are also eight development regions, created for statistical purposes, the elaboration and supervision of regional development policies and for the management of EU funds. Their regional councils are composed of the presidents of county councils and of one representative of each category of local councils (city, town and communal) of each county in the region. The Regional Development in Romania Act (no. 315/2004) establishes the institutional framework for regional development policy in Romania. In each development region, there is also a regional development agency, which is a public utility body, with legal personality, which operates in the field of regional development, with the role of management authority under the law.

MUNICIPAL LEVEL: The municipal level is comprised of 103 cities (municipii), 216 towns (orase) and 2 862 communes (comune). Towns play a large economic, social, political and cultural role and have administrative functions. Communes are established in rural areas and comprise one or more villages. There are more than 12 000 villages at the sub-municipal level.

Local governments are small. Their average size is around 6 900 inhabitants, above the EU27 average (5 960) but below the OECD average (10 250). The median size is about 3 000 inhabitants. About 75% of local governments have fewer than 5 000 inhabitants and 25% have fewer than 2 000 inhabitants.

STATE TERRITORIAL ADMINISTRATION: The central government established 42 prefectures, including Bucharest, which oversee the deconcentrated public services of the central public administration in each county.

On July 4^th, 2019, the provisions of the Government Emergency Ordinance no. 57/2019 regarding the Administrative Code came into force and thus the framework Law on decentralisation no. 195/2006 was repealed. The Administrative Code also stipulates that subnational responsibilities can be divided into three categories: exclusive, shared and delegated by the central government. The central government may decide to decentralise certain services based on geographical criteria. On June 30^th, 2022, the provisions of the Government Decision no. 800/202 for the organisation, operation and attributions of the Inter-ministerial Technical Committee for decentralisation and the working groups for the decentralisation of competences also came into force.

Local governments are generally responsible for the financing of the provision of public services, housing and community amenities, local transports, social welfare, most of the costs related to pre-school, primary and secondary education. Since 2010, new responsibilities have been devolved to local authorities, specifically in the areas of education, healthcare and local police. Increasingly, county councils are also in charge of the overall coordination of the efforts and actions of local councils.

Some public services are performed by state-owned companies, which constitute a majority of domestic firms in Romania, especially in the areas of energy and transport. By the end of 2018, 225 companies were owned by the central government and 1 231 by subnational governments. The majority of these companies are heavily indebted, have low profitability and score low on transparency. The companies generating high profits are in the energy sector, while those generating high losses are in the transport sector. The latter receive a large share of subsidies from the central and local governments but still display limited performance.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	Financial management of EU funds	Management of state domain; Population records (shared)
2. Public order and safety	County enforcement agencies	Public safety (shared)
3. Economic affairs / transports	Management of local airports; County roads; Country infrastructure network (shared)	Local public passenger transport; Local roads
4. Environment protection	Environment protection agencies	Waste management; Sewerage and treatment of wastewater and pluvial waters
5. Housing and community amenities		Urban planning and urbanism; Water supply; Public lightning; Sanitation; Building of social housing (shared)
6. Health	Public health units (primary and secondary healthcare)	Local public health units
7. Culture & Recreation	Cultural institutions	Local cultural institutions
8. Education	Special education (shared)	Pre-school and primary education; Secondary and adult education
9. Social Welfare	Child and disability allowances; Social services and specialised services for victims of domestic violence; Elderly and for the disabled (shared); Medical and social assistance (shared)	Social services and specialised services for victims of domestic violence; Child protection; Elderly; Medical and social assistance (shared)

Scope of fiscal data: counties, cities, town councils and communes, as well as local non-market public companies, and local organisations (schools, kindergartens, canteens, hospitals and thermal baths).

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: The Governmental Ordinance (GO) no. 15/1992 and law no. 27/1994 introduced the concept of local taxes and clarified the subnational government financing system. The “Law on Local Public Finance” enacted in 2006, further defined the intergovernmental transfer system, and particularly the equalisation grants, the shared taxation system and the local debt issues. It increased local government control over their own revenues and allowed local councils to administer their own taxes. In addition, councils receive financial investment resources from the national government and are responsible for distributing these resources to the regions, cities, towns and communes.

A framework for ensuring stability and predictability of income sources for subnational governments, including control standards for services to be decentralised, is being developed. A new Code for Local Public Finances, drafted in 2018, is subject to a new consultation process among subnational governments as the pandemic delayed its adoption. The Code aims to systematise, concentrate and streamline legislation on public finances.

Subnational government expenditure by economic classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	3 040	9.5%	22.6%	100.0%
Inc. current expenditure	2 214	6.9%	19.1%	72.8%
Compensation of employees	1 144	3.6%	29.4%	37.6%
Intermediate consumption	810	2.5%	41.9%	26.7%
Social expenditure	133	0.4%	3.1%	4.4%
Subsidies and current transfers	109	0.3%	10.9%	3.6%
Financial charges	16	0.1%	3.5%	0.5%
Others	2	0.0%	9.6%	0.1%
Incl. capital expenditure	826	2.6%	44.2%	27.2%
Capital transfers	35	0.1%	9.5%	1.2%
Direct investment (or GFCF)	791	2.5%	52.7%	26.0%

EXPENDITURE: The level of Romanian subnational government spending is low as a percentage of GDP and as a share of general government expenditure compared to the OECD average (17.1% and 36.6% in 2020) and EU27 average (18.3% of GDP and 34.3% of public expenditure). Local authorities often act as spending agents on behalf of the central government. The share of subnational government staff expenditure in total subnational expenditure is slightly above the OECD and EU27 averages (34.4% and 32.1% respectively), resulting from the fact that subnational governments are in charge of paying the salaries of nurses and doctors. This share, however, decreased in recent years as subnational governments have not been responsible for teacher salaries since 2018.

DIRECT INVESTMENT: In 2020, subnational government investment represented more than half of total public investment and 2.5% of GDP, in line with the averages of OECD countries (54.6% and 1.9% respectively) and of EU27 countries (54.4% and 1.8%). Investment is a key function of subnational governments in Romania, representing 26.0% of their expenditure (vs. 11.3% in OECD countries and 9.9% in the EU27 in 2029). This share increased by 6 percentage points between 2016 and 2020. Subnational government investment is primarily dedicated to transport and road infrastructure (45.6% of subnational government investment in 2020), followed by housing and community amenities (18.0%) and education (9.7%).

Despite having one of the highest investment ratios in the EU, the quality of investment in Romania remains poor. As a result, high public spending is not reflected in the country’s infrastructure. In order to increase the quality of infrastructure investment projects, the central government improved its legislative framework in 2019. The framework aims to ensure a closer monitoring of the quality of construction work in road and rail infrastructure and the provision of funding to compensate expropriation for reasons of public use. The Law No. 255/2010 on expropriation for public use, necessary for achieving works of national, county and local interest, was updated in 2020.

The central government lists prioritised investment projects annually in a Memorandum. It also established the EUR 86.9 million National Programme for Local Development (PNDL) in 2018, which aims to promote social and economic cohesion at the national and subnational levels. Under this programme, standard costs have been set for various types of construction work in order to help subnational governments assess the costs of their investment projects. By December 2021, 6 627 investment projects were completed under the PNDL.

Subnational governments also have the possibility to finance investment projects through public-private partnerships (PPPs), regulated by the Government Emergency Ordinance No. 39/2018. If a project is considered strategical by the central government, the PPP shall be contracted by the National Commission for Strategy and Prognosis. PPPs are mostly used to finance public infrastructure projects in the fields of transportation, energy and social infrastructure.

Subnational government expenditure by functional classification
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	2 718	8.4%	-	100.0%
1. General public services	338	1.1%	20.7%	12.4%
2. Defence	0	0.0%	0.0%	0.0%
3. Security and public order	44	0.1%	6.1%	1.6%
4. Economic affairs/transports	532	1.7%	19.1%	19.6%
5. Environmental protection	154	0.5%	65.6%	5.7%
6. Housing and community amenities	271	0.8%	48.8%	10.0%
7. Health	621	1.9%	25.9%	22.8%
8. Recreation, culture and religion	223	0.7%	67.0%	8.2%
9. Education	179	0.6%	15.1%	6.6%
10. Social protection	357	1.1%	9.3%	13.1%

The primary area of subnational government spending is health (22.8%), which has become a major subnational competence since the decentralisation of this responsibility in 2010. It is followed by economic affairs and transport (19.6%), especially in road and infrastructure, by social protection (13.1%) and by general public services (12.4%). The share of education sharply decreased in recent years from 23.8% in 2016 to 6.6% in 2020 since subnational governments are not responsible for teacher salaries since 2018. Expenditure in education is now comprised of the operation and maintenance of school facilities. In 2020, subnational governments were also responsible for 67.0% of expenditure in recreation and culture, for 65.6% of spending in environmental protection and for almost half of spending in housing and community amenities (in particular water supply).

Subnational government revenue by category
	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	2 947	9.2%	28.1%	100.0%
Tax revenue	256	0.8%	5.3%	8.7%
Grants and subsidies	2 499	7.8%	-	84.8%
Tariffs and fees	154	0.5%	-	5.2%
Income from assets	38	0.1%	-	1.3%
Other revenues	0	0.0%	-	0.0%

OVERALL DESCRIPTION: The 273/2006 Local Public Finances Act and Title IX of the Romanian Fiscal Code (Law 571/2003 and amendments) determine the assignment of revenue to local governments. Subnational government finances rely heavily on central government transfers, which constitute the bulk of their revenue, while own revenues, composed of taxes and fees, are still limited. Communes, towns and cities have more fiscal power and autonomy than counties.

Tax collection at the local level is still incipient, representing 8.7% of subnational government revenue, one of the lowest values among EU countries and well below the EU27 average (40.1% of subnational government revenue) in 2020. It is important to note that shared taxes (PIT, VAT), which were previously considered subnational government taxes, have been reclassified to the ‘transfers’ category with the new 2008 SNA methodology implemented in 2014.

TAX REVENUE: Subnational government tax revenue accounted for only 0.8% of GDP and 5.3% of public tax revenue in 2020. These were also among the lowest percentages in EU countries, and well below the 2020 EU27 average (7.2% of GDP and 27.1% of public tax revenue). Taxes are levied and collected both by county and local governments, although the latter have more taxing powers.

The main local taxes are the property tax on buildings and the land tax, which local governments charge on both legal entities and individuals. It increased from 37% of subnational government tax revenue and 3.8% of subnational government revenue in 2016 to 63.4% and 5.5% respectively in 2020, due to improved property evaluation and collection rates by counties in recent years. The property tax on buildings is calculated based on the location of the property, the type of building (residential or non-residential) and its value, with the minimum and maximum of the gross value of the property set by the tax code. The exact value is established by county and local councils where the property is situated. The tax on land is calculated based on the surface of the land, its location and its category as established by county and local councils. Reference rates are fixed by law, but as of 2016 each local or county council can adopt a rate up to 50% higher or lower than the reference rates (instead of 20% before 2016). However, both taxes amounted only to 0.5% of GDP in 2020, half of the OECD average (1.0% of GDP), which reflects the need to optimise the proceeds from these taxes. The central government is seeking to improve the collection of the tax and the quality of its cadastral system, notably in rural areas, by completing the systematic registration with the Integrated System of Cadastre and Land Book (SICCF). By March 2020, around 37.6% of property units estimated at the national level were registered in the SICCF. In 2020, the online payment services for individuals and businesses to obtain the land book and real-time positioning services were operational.

Other local taxes are the transport tax (close to 8%) and various taxes on stamps, transactions and issuance of certificates and licences.

GRANTS AND SUBSIDIES: The system of intergovernmental transfers in Romania is comprised of equalisation grants (within and across counties) and conditional and earmarked grants. It pursues several objectives: vertical and horizontal equalisation to compensate poorer subnational governments for their lower capacity to raise revenue; financing for delegated responsibilities; and contributions to local investment. Current grants accounted for 82.5% of total grants and subsidies in 2020, while capital grants accounted for 17.6%.

The two vertical and horizontal systems are based mainly on the sharing of the personal income tax (PIT). Vertical equalisation operates through the sharing of the PIT receipts (as defined by the decentralisation law, amended in 2011), of which the bulk is redistributed to communes, towns and cities, and, to a lesser extent, to counties, except in the area of Bucharest where the share is higher. It is complemented by a sectorial block grant from the state budget, notably for social services. Subnational governments do not receive grants for the payment of teacher salaries since they are not responsible for this since 2018. Individual allocation of the grants to local governments is determined at county level (sector block grants) and central level (subsidies), based on quantitative criteria (population, etc.). A small share of the corporate income tax (CIT) is also shared with county governments.

Horizontal equalisation is carried out at the county level and consists of 18.5% of the PIT collected in a given county. In addition, there is a horizontal equalisation grant funded from the state budget (particularly from VAT revenue), split between the county council and local governments according to a specific formula. The government determines the amount of the annual equalisation appropriation through the budget process and has control over the rate.

OTHER REVENUE: Other revenue for subnational governments includes local charges and fees (e.g., building fees and public transportation fees, etc.). With the decentralisation of hospitals in 2010, hospital fees from the National Health Insurance House and the Ministry of Health became an important source of own-revenue, earmarked for expenditure related to hospital care. However, user charges and fees accounted only for 5.2% of subnational revenue in 2020, well below the EU27 average (10.3%). Revenue from assets (housing and land rentals, asset sales) represents a small percentage of subnational government revenue (1.3%), slightly higher than the EU27 average (1.0%) for 2020. subnational governments receive dividends from the SOEs in which they are the majority shareholder. Since 2019, SOEs must pay dividends of 35% of the amount allocated to other reserves, as well as of the amounts dedicated to investments which have not been used.

Subnational government fiscal rules and debt
	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	1 054	3.3%	5.6%	100.0%	-
Financial debt	561	1.8%	3.4%	53.3%	100.0%
Currency and deposits	0	-	-	0.0%	0.0%
Bonds / debt securities	65	-	-	6.1%	11.5%
Loans	497	-	-	47.1%	88.5%
Insurance pensions	0	-	-	0.0%	-
Other accounts payable	493	-	-	46.7%	-

FISCAL RULES: The Local Public Finance Law 273 of 2006, and subsequently revised, includes provisions related to the planning, approval, execution, and reporting of local public finances. The Fiscal Responsibility Law, approved in March 2010 to strengthen fiscal discipline, introduced eight new fiscal rules applicable to the general government sector and covering the budget deficit, the primary deficit, total expenditure excluding financial assistance from the EU and other donors and personnel expenditure. These rules complement the budget balance and debt rules, which were applied to the local government level in the past. As of 2013, subnational government budgets, excluding loans to finance investment and debt refinancing, must be balanced. The Fiscal Responsibility Law also created a Fiscal Council as an independent authority, to support the Government and the Parliament in designing and implementing the fiscal policy and to promote the transparency and sustainability of public finances.

DEBT: Local governments are able to borrow by taking out loans or issuing bonds, subject to the approval of a committee appointed by the central government. Subnational government debt must not exceed 30% of the subnational government average revenue of the past three years. The Ministry of Finance oversees all the borrowing activities of subnational governments through an inter-ministerial commission that must authorise every operation.

Romanian subnational government debt remained low in 2020, at 3.3% of GDP. The financial debt represented 53.3% of local debt in 2020. Subnational government debt is split between loans (47.1%), bonds (6.1%), the first local bond having been issued in 2001. The remaining 46.7% of subnational government outstanding debt was made up of commercial debts and arrears. The local debt started increasing after 2004, in parallel with the increase of local authorities’ own expenditure. The relatively flexible legal framework encouraged local authorities to borrow or guarantee local loans in order to face subnational needs.

TERRITORIAL MANAGEMENT OF THE CRISIS: Healthcare is based on a compulsory social health insurance system, primarily managed at the central level. The Ministry of Health is responsible for the governance of the social health insurance system, while the National Health Insurance House administers and regulates the National Health Insurance Fund (NHIF). The Ministry and the National Health Insurance House are both represented at the subnational level by 42 county public health authorities and county health insurance funds. The latter purchase services from healthcare providers (e.g. doctors) at the subnational level. All these different levels were involved in the management of the pandemic.

At the outset of the COVID-19 crisis, the country adopted a centralised approach to manage the pandemic, where the central government had a decision-making role, and county-level representatives had an enforcement role to implement the measures locally. Several special crisis management bodies were established by the Prime Minister, including the National Committee for Special Emergency Situations, which created an expert scientific group to design an emergency action plan in response to the pandemic. After three months, the management of the crisis was decentralised to regional and county-level authorities. Nevertheless, a significant management issue was the lack of coordination among levels of government.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: Both the central and local governments supported companies and vulnerable households during the crisis. The central government provided allowances to self-employed persons and benefits to temporary unemployed employees, while subnational governments allowed several local tax deferrals in 2020 (e.g. building tax, land tax, transport tax). Rebates on shared taxes were also set, such as on the CIT (at 5% for large taxpayers and 10% for the remaining) and on the PIT for micro-enterprises.

Subnational governments received different financing support packages to cover their healthcare expenditure during the pandemic, which comprised around EUR 140 million from their own budget, EUR 86 million from the National Health Fund, EUR52 million from the central government and others from private donations and sponsors. Additionally, the central government provided counties with about EUR 175 million from the Budget Reserve Fund at end-2020 to cover their spending, including social services for the disabled and children.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The crisis had a large impact on local economies. The poorest counties were more affected by the pandemic (e.g. Vaslui county), while the wealthiest counties were more robust in terms of unemployment rate (e.g. Ilfov county and Bucharest).

Subnational revenue appeared resilient to the crisis in 2020 due to a high reliance on central government’s transfers. The drop in tax revenue (-5.5% between 2019 and 2020) and fees (-4.5%) was compensated by an increase in state transfers (+9.8%) to cover subnational revenue loss and extraordinary spending linked to the crisis. Additionally, some of the decrease in tax revenue and fees in 2020 is explained by the postponement of their payments during the state of emergency (e.g. for the land tax, the building tax, the transport tax), which was one of the support measures.

On the expenditure side, subnational spending increased by 8.4% in 2020 compared to 2019, mainly driven by high expenses in healthcare for the purchase of medical equipment in hospitals. The largest spending commitments for healthcare were estimated in Bucharest, followed by Iași, Bihor and Timiș counties. As a result, subnational debt rose by 7.5% between 2019 and 2020, but started from a low level.

ECONOMIC AND SOCIAL STIMULUS PLANS: Romania developed its national Recovery and Resilience plan with a focus on green and digitalisation projects, in line with the EU Recovery and Resilience Facility (RRF). The RRF is a key instrument of NextGenerationEU. Accordingly, the country will receive EUR 14.2 billion in grants and EUR 14.9 billion in loans over 2021 and 2026 to support investment projects and structural reforms, which involve all levels of governments. The national Recovery and Resilience plan is structured around four pillars: (i) green transition, (ii) digital transformation, (iii) smart, sustainable and inclusive growth, and (iv) social and territorial cohesion. The last pillar includes the establishment of a local fund for green and digital transition. To further foster local investment, a EUR 10 billion investment plan financed by the central government and directed to subnational governments is also being discussion, as well as an information system to co-ordinate EU-funded projects and to avoid fraud.

A Partnership Agreement between the European Commission and Romania was also adopted in July 2022. The Agreement of EUR31.5 billion from the Cohesion Policy for the period 2021-2027 will aim to promote the economic, social and territorial cohesion of regions, as well as their green and digital transition.