How does the European Commission assess the success of decentralization policies and local self-government activities, and what recommendations does it provide to enhance municipalities? 

On December 14, during a summit in Brussels, European leaders decided to initiate negotiations on Ukraine's accession to the EU. Earlier, on November 8, the European Commission (EC) published a report in which it assessed Ukraine's progress in European integration reforms from June 2022 to June 2023. The document contains an analysis of Ukraine's progress in European integration processes, focusing on six areas, particularly the performance of local self-government bodies (LSGB). 

The Transparent Cities program analyzed recommendations that have a substantial impact on the functioning of compulsory health insurance, specifically examining measures to be implemented in cities to expedite Ukraine's accession to the EU. 

Budget and political independence of local self-government bodies

First and foremost, the European Commission encourages the restoration of local self-governments in the liberated and frontline territories, provided the security situation allows for it.

In 2023 alone, approximately 50 military administrations were established in Ukraine through Presidential Decrees. In certain locations, such decisions were a compelled response to the inability to exercise local self-government due to destruction, shelling, or occupation, as observed in Enerhodar, Oleshky, and Kupyinsk settlements. However, the establishment of military administrations in Chernihiv and Sumy, where city councils could have continued to perform their direct functions, resulted in a confrontation between central and local authorities and the duplication of powers. 

“We see mutual understanding, respect and unity in Ukraine. It is also noticeable that the population of Ukraine is prepared for emergency measures during the war, such as the establishment of military administrations in certain territories. But these measures are perceived by them as short-term and not as a return to centralization because Ukrainians, both men, and women, remain committed to the idea of strong local self-government and expect the reform to continue,” convinces Daniel Popescu, head of one of the departments of the General Secretariat of the Council of Europe.

In the area of power distribution and decentralization, the European Commission observes limited progress in the implementation of institutions and regulations for monitoring LSGBs. But the EU recognizes the achievements and success of the decentralization reform, especially because municipalities became the mainstay of the state during the war, providing social services and assistance to internally displaced persons. 

In the area of fiscal policy and supervision, the European Commission expects the establishment of a reliable local fiscal base to prevent the financial vulnerability of municipalities. This can be achieved by distributing personal income tax among the municipalities where taxpayers actually reside, as well as by expanding the sources of local taxation. 

In addition, the European Commission records a weakening of budget transparency and openness in budget formation in Ukraine during martial law. This may be due to an erroneous interpretation of the provisions of Section VI of the Budget Code of Ukraine, which allegedly provides for the abolition of deadlines for submitting reports on the implementation of local budgets. However, the Law of Ukraine “On Amendments to Section VI “Final and Transitional Provisions” of the Budget Code of Ukraine and Other Legislative Acts of Ukraine” does not cancel the reporting of local self-government bodies. 

In its adapted methodology for assessing the transparency of cities during times of war, the Transparent Cities program insists that cities publish budget reports on their official websites. 

Human resources and humanitarian policy

In the area of personnel policy, the European Commission observes a regression in filling vacant positions in local governments. For the period of martial law, vacant positions in the LSGBs are filled without competitions by direct appointments. This undermines the competitiveness and independence of hiring process. At the same time, the closeness of personnel policy has increased to the extent that only 4 out of the 70 city councils we studied published information about individuals appointed through non-competitive processes. 

The Program's position on this issue remains unchanged – cities should ensure a transparent hiring process to the extent that wartime legislation allows it. The publication of lists of persons who were appointed directly will contribute to this.

The recently enacted Law “On Service in Local Self-Government Bodies,” scheduled to take effect no sooner than six months following the termination or lifting of martial law, is poised to contribute significantly to addressing personnel-related challenges. The European Commission positively assessed this document because it addresses the issue of competitive selection, introduces an annual assessment of the results of official activities of officials, and distinguishes between the status of employees and elected positions in the structure of local self-government bodies. At the same time, the National Agency of Ukraine on Civil Service has already conducted initial working sessions to develop legislative amendments in the system of service at LSGBs. 

In humanitarian policy, the European Commission notes limited opportunities for local authorities to integrate internally displaced persons (IDPs), primarily due to financial constraints In addition, Ukraine does not have a roadmap for bilateral cooperation with the European Union Agency for Asylum. Its activities aim to modernize the EU's measures for granting asylum and receiving refugees, particularly by providing assistance to Member States in this area. Russia's full-scale invasion triggered the largest migration crisis both in Ukraine (4.9 million people), and in Europe (approximately 6 million people). Centralized approaches to organizing work with refugees and IDPs will significantly strengthen the ability to respond to the challenges that have arisen. 

In conditions where local self-governments do not have enough funds for more comprehensive measures, the program recommends focusing on providing displaced persons with access to information. For example, on how to register, get temporary housing and get a job. And also involve them in decision-making. Among other things, by joining the councils on IDPs issues.

The European Commission also noted a weakening of opportunities for citizens and activists to monitor the work of the authorities, as well as a significant decrease in the number of public consultations, attributed to the security situation. 

The Transparent Cities program has incorporated into its adapted methodology the examination of municipalities' transparency status, encompassing indicators that include, among other things:

• use of tools for complaints, appeals, and petitions,
• disclosure of information about decisions made by city councils and their bodies, thereby enhancing the inclusion of residents in the political context,
• broadcast/publication of video recordings of meetings of city councils and their bodies,
• engaging the public in IDP Councils and commissions for compensation for damaged and destroyed property. 

Procurement and combating corruption

In the field of procurement, the European Commission emphasizes the need to increase the use of framework agreements and centralized procurement, especially at the regional and local levels. Framework agreement is a procurement method that involves long-term cooperation with 3 or more suppliers for up to 4 years. Instead, the centralization of procurement involves the creation of centralized procurement organizations (the CPOs). However, this process has certain reservations. 

Before establishing local CPOs, it is essential to address the current issues affecting their functionality. Now, according to Serhii Pavliuk, the project manager of BI Prozorro TI Ukraine, CPOs are scarcely effective in reducing costs and alleviating the burden on procuring entities.

Learn more about the anticipated changes in procurement as outlined by the European Commission in the dedicated material provided by the DOZORRO project.

In the fight against corruption, the EU recommends implementing the provisions of the state Anti-Corruption Program for 2023-2025 promptly and systematically. Since the document also contains requirements for local self-government bodies, municipalities should adopt their own anti-corruption programs and monitor their implementation. 

To discover further details about the European Commission's anti-corruption recommendations, please find additional information here. 

Competitiveness and inclusive development

In the coming year, Ukraine is tasked with developing regional smart specialization strategies. This obligatory component involves establishing development priorities at the national level, guided by the principles of smart specialization, and has been incorporated into the strategic planning for regional development through 2027. Smart specialization involves concentrating efforts on supporting a select number of economic activities in which a region holds the highest potential for ensuring competitiveness in global markets. For instance, the Vinnytsia region has identified a significant potential in medical tourism and agricultural technologies utilizing IT innovations. The Dnipropetrovsk region excels in establishing chemical and machine-building clusters by incorporating innovative, energy-saving, and environmentally friendly technologies. The recognized priorities of the Lviv region include bioeconomics, creative industries, high-value-added sectors, and medical tourism. Many regions have joined the European S3 Platform. 

At the level of urban communities, specific elements of smart specialization have been incorporated into the strategic documents of Kyiv (Development Strategies until 2035), Varash (Development Strategies until 2027), and Drohobych (Sustainable Development Strategies until 2030). However, the development and implementation of urban-level development strategies were disrupted by the war. Now, there is a need to reanalyze the factors influencing the development of territorial communities, taking into account its consequences. Building on this analysis, formulate intelligent strategies that consider local competitive advantages, emphasizing dynamism, flexibility, and inclusivity.

Energy-efficiency, eco-friendliness, and sustainable communication

The European Commission noted that Ukraine has made some progress in the energy sector. However, in the future, it will be necessary to revoke the measures implemented under martial law that have resulted in a decline in the transparency and independence of stakeholders. The EC also acknowledged significant progress in environmental and climate issues, particularly emphasizing advancements in the environmental domain over those in climate change. As for trans-European networks, energy and transport companies have demonstrated extreme resilience and the ability to repair damage in an emergency.

The analysis revealed that the Law of Ukraine “On Energy Efficiency” is largely in line with the EU Energy Efficiency Directive. The rules for energy planning and implementation of energy management systems by state and municipal authorities use the best practices of the EU. However additional policies and support measures are needed to promote efficient heating and cooling. For example, there is a need to reform and modernize urban district heating systems and to more extensively utilize renewable energy sources and waste heat in the industry. Ukraine has equipped 83% of homes connected to district heating with accurate heat meters. However, individual accounting and invoicing based on consumption is still a rarity. The European Commission also notes that Ukraine still needs to introduce a mandatory energy efficiency criterion for public procurement.

Ukraine must do more to consistently integrate climate considerations into all policy dimensions. Next year, the government plans to ensure the incorporation of environmental and climate considerations into recovery plans and establish a green reconstruction strategy for key sectors. The National Energy and Climate Plan (NECP), currently under preparation, is expected to put forward specific policies and measures, serving as a guiding document for the environmentally friendly restoration of war-affected territories.

There is also an urgent need to develop administrative capacity and expand the scope of project preparation for the restoration and development of transport networks. It is necessary to strengthen the divisions for the implementation of such projects in local self-government bodies. Investments in the transport network should be designed and implemented in accordance with environmental and social standards, as well as based on a benefits and costs analysis following EU best practices. 

Regional policy

The Russian invasion affected all regions of Ukraine, albeit in different ways. Therefore, the territorial imbalances that existed before 2022 have increased significantly. Amendments that were made to the Law of Ukraine “On the Principles of State Regional Policy,” laid the foundations for the restoration of war-affected regions. The document delineates four functional types of territories: areas earmarked for restoration, regional hubs of growth, zones with unique conditions for development, and areas dedicated to sustainable development. In addition, it updated the system of documents of state regional policy. The EU anticipates that Ukraine will now develop qualification criteria for territory types and corresponding lists of territories. Subsequently, there is an expectation to update interconnected and relevant strategic documents of urban communities. These encompass, among others, the community restoration and development plan, the city development strategy, the city's economic and social development program, and a comprehensive spatial development plan for the community's territory.

The adapted Transparent Cities methodology assesses whether a city council has formulated and disclosed a program for the economic and social development of the city, considering military and post-war challenges. The program will not check other strategic documents in 2023, because cities need a lot of time to develop or update them. 

Simultaneously, the European Commission observed that while the Law “On the Principles of State Regional Policy” presently emphasizes the regional development of Ukraine, there is a need for its gradual alignment with the EU regional policy, specifically regarding the nomenclature of territorial units for statistics (NUTS). According to the NUTS classification, the economic territory of the Member States is divided into territorial units. Each territorial unit is assigned a special code and name. The NUTS classification is hierarchical. In each Member State, territorial units are designated at the NUTS 1 level (with a population range of 3 to 7 million people), further subdivided into territorial units at the NUTS 2 level (ranging from 800 thousand to 3 million), which are then further divided into territorial units at the NUTS 3 level (with populations ranging from 150 to 800 thousand).

Cooperation with the European Union

The authors of the report recommend that Ukraine establish an official coordination structure involving authorities at both the national and subnational levels to facilitate the effective planning and management of EU funds. Regional and local stakeholders should be more systematically involved in the design, implementation and monitoring of these processes. Improving the availability of statistics at the local level is also recommended to ensure evidence-based decision-making.

As for digitalization, here the EC paid special attention to Digital Restoration Ecosystem for Accountable Management (DREAM). This is the sole channel through which city communities should submit projects initiated within the scope of comprehensive recovery programs. The European Commission is particularly interested in ensuring that the restoration takes place as transparently and efficiently as possible, as it partially finances it. 

The European Commission also drew attention to the need to disseminate information about the cross-border cooperation programme Interreg Europe, especially among local and regional authorities. As of the beginning of 2024, Ukraine is expected to join this program. Absolutely all regions and cities of the EU and Ukraine can take part in it. With a partner in any corner of the EU, the community can jointly apply for projects to exchange experience in six priority areas. The next open competition is expected in the first quarter of 2024, so we need to discuss project topics and establish a partnership right now. Additional cross-border cooperation opportunities for Ukraine's EU border regions encompass five programs: Poland – Ukraine, Hungary – Slovakia – Romania – Ukraine, Romania – Ukraine, and the Danube/Black Sea Basin Program.

The EC pointed out that there are no internal audits of local self-government in Ukraine. The Accounting Chamber does not have the authority to check local budgets, except for resources transferred from the state budget. This also poses a risk for the audit of Ukrainian beneficiaries receiving support under Interreg programs, which are implemented within the framework of joint management, mirroring the EU Cohesion Policy.

As observed, in Ukraine's journey toward European integration, substantial progress is anticipated not solely from executive authorities at various levels but also from local self-governments. In certain areas, it is crucial for cities to revert to pre-war practices and approaches in management, as well as to develop existing legislative and systemic advancements. At the same time, certain areas and even entire industries need to be fully implemented in the current political context. 

The approval by EU leaders to commence negotiations on Ukraine's accession to the EU may take place during the upcoming summit in Brussels in the coming days. This decision, like any other, requires the unanimous support of all 27 EU Member States. In accordance with the directives highlighted in the European Commission's report, it is imperative that these tasks are undertaken not merely as prerequisites for accession but also in the pursuit of inherent self-interest and to realize the following key objectives: 

• effective strategic planning based on EU best practices, 
• reconstruction of war-affected communities that would address territorial and financial imbalances, making them less likely to occur, and
• increasing transparency and openness to strengthen municipal capacity and receive further support from European partners. 

We are confronted with numerous challenges, yet each one presents an opportunity for improvement today. The Transparent Cities program is open to cooperation with municipalities and is ready to help them implement these changes.