Organisation of local government funding is in conflict with Constitution
06.04.2010
On March 16th the Supreme Court declared the lack of laws, which would separate the local government funds meant for duties of the state from the funds meant for resolution of local issues, to be in conflict with the Constitution.
The Supreme Court en banc ruled that the Constitution requires laws to describe in detail which of the obligations assigned to rural municipalities, cities and towns are duties of the state and which of them are local duties. The expenses associated with the performance of duties of the state must be covered from the state budget. Laws must differentiate between the funds prescribed for performance of the duties of the state and the funds prescribed for resolution of local issues. This means that rural municipalities, towns and cities must be handed two separate pots of money for two different types of duties.
As the effective organisation of local government funding does not comply with these requirements, then the Supreme Court en banc declared it to be in contravention with the Constitution.
As a result of the Supreme Court's ruling, the Riigikogu has to pass laws that would allow differentiation between funds prescribed for performance of the duties of the state and the funds prescribed for resolution of local issues. These laws must guarantee that duties of the state are funded from the state budget and that local governments have sufficient funds for local duties. The Riigikogu must also clarify which duties assigned to local governments by law are duties of the state and which duties are local in their nature. Local governments must not spend the funds meant for local duties on the performance of the duties of the state. The state budget, which is adopted on the basis of laws that do not consider these requirements, may also prove to be in conflict with the Constitution.
In the same ruling, the Supreme Court en banc denied the petition of the Tallinn City Council to declare invalid the amendments made to the Income Tax Act, the Roads Act, the Occupational Health and Safety Act, the Rural Municipality and City Budgets Act and two regulations of the Government of the Republic. The petition was partially denied in respect of the proportion of income tax allocated to local governments as separate verification of its conformity with the Constitution is impossible due to the fact that the entire organisation of funding is in contravention with the Constitution.
This is the fiftieth and so far the most substantial ruling made by the Supreme Court as the highest court of Estonia.
Mari-Liis Lipstok
Executive Assistant to the Chief Justice