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Central American University - UCA  
  Number 264 | Julio 2003



The Bankruptcy of Municipal Governments and the Swindle of Municipal Autonomy

On July 3, the National Assembly approved the transfer of 4% of the national budget to the municipal governments starting in 2004. Will this relative economic bonanza bring effective decentralization? For the outgoing mayors, tired of the municipal autonomy swindle, this important news comes after years of eluding bankruptcy.

William Grigsby

The municipal elections are still 16 months away, and already the pre-electoral winds are whipping through the country’s main political forces, sometimes reaching whirlwind strength, as in the case of the Sandinistas. Daniel Ortega, secretary general of the Sandinista National Liberation Front (FSLN) hastened to indicate his references for the Managua mayoral ticket before any aspirant unwilling to cater to his interests could make a move. The caudillo-anointed ticket for the powerful municipality corresponding to the country’s capital is Dionisio Marenco—guru of Ortega’s ambitions—for mayor and national boxing hero Alexis Argüello for deputy mayor. Although it is said that the FSLN’s upcoming “popular consultation” will now be a real primary election, Argüello’s candor with journalists was revealing: “Why do I want the angels’ blessing if I already have the Lord’s?” The winds are also whistling around the Liberals. Various candidates have already ventured out onto the field, the best known being Pedro Joaquín Chamorro, Jr. It only remains to be seen whether he is anointed by prisoner/caudillo Arnoldo Alemán.

A look at the last municipal elections

In the 1996 presidential elections, nearly four dozen parties ran either individually or in multi-party alliances for the presidency and National Assembly, and the choices for mayor and Municipal Council members were even greater because independents could run for those posts. Among the infamous elements of the pact agreed to between the respective leaders of the Constitutionalist Liberal Party (PLC) and the FSLN were exclusionary, anti-democratic reforms to the Constitution and a virtually new Electoral Law of the same stripe that eliminated most of the other parties as well as the very concept of independent municipal candidates. These changes assured that their authors could share the pie with no real competitors stealing up behind them.

Thus, only two other national parties—the Conservatives (PC) and the Christian Way (CC)—managed to worm their way onto the municipal ballot in 2000 alongside the PLC and FSLN, together with two small regional parties competing for municipalities in the Caribbean coast’s autonomous regions. Those municipal elections were the first ever to be held separately from the national ones, and hence were unclouded by the overwhelming tendency of voters to mark the party of their presidential choice across all ballots.

There are various ways to interpret those elections, which showed an interesting mix in the municipal will. Quantitatively, the PLC won with 41.6% of the votes and 94 of the 151 mayoral seats, compared to the FSLN’s 40.4% and 52 mayoral seats. The PC’s 13.3% of the vote was enough to win it the remaining 5 mayoral seats, while the CC only pulled 4.4% and the two regional parties the remaining 0.3%.

The Sandinistas won qualitatively, however, because they gained control of 11 of the 17 departmental capitals, including Managua, and will thus govern nearly 60% of the national population until 2004, compared to just over 37% for the PLC and 3% for the Conservatives. In socioeconomic terms, the urban centers and less poor municipalities preferred the FSLN, while the rural communities and poorest municipalities opted for the Liberals. And ideologically, if we assume the FSLN to be “leftist,” the electorate preferred the PLC by a hair and the Right in general by a somewhat larger measure since the Conservative Party and the Christian Way took votes from the PLC.

These results paint a good picture of how the country’s political reality overlays the central aspect of its economic reality—poverty—in that many of the 37% governed by the PLC for the past three-plus years are among the poorest and least educated. Both the size and relative clout of the Sandinista mayors’ 60% constituency amounts to a “co-government,” with political consequences not always contemplated in the analyses.

The PLC suffered its worst damage in Managua, where opposition to its pact with the FSLN was greatest. There the Conservatives came away with 25% of the votes—enough to prevent the PLC, which had controlled the Managua mayor’s office since 1990, from beating the FSLN. Just to cite the other most publicized examples, there was a similar story in Matagalpa, Juigalpa, San Carlos, Diriamba and Ciudad Sandino—the latter making its debut as a municipality.

Income disparities and the limitations of decentralization

The next elections ought to mark the political maturing of Nicaragua’s local government system. After an anguishing and careening 14-year period during which municipal autonomy has not exactly been synonymous with progress, the new municipal authorities will have a more complete legal framework and a better-organized administration this time. But there’s still a long way to go before reaching the levels obtained even in a country like Panama.

According to the UN’s 1999 State of the Region Report, there were 1,185 municipalities in Central America at the end of the nineties, with huge disparities in the average population per municipality. On average, for example, the municipal governments in Honduras and El Salvador attend nearly two-thirds fewer inhabitants than those in Costa Rica and Panama.

According to this report, one of Central America’s major problems is that the municipal demarcations have responded more to political convenience or patterns of territorial colonization than to land planning policies. As the report notes, one of the limitations of Central America’s decentralization process has been the slow growth of ordinary municipal income and the disparities among the different countries. In 1995, the region’s average municipal income barely exceeded US$12 per capita.

The municipalities corresponding to Central America’s capitals received 41.3% of the average ordinary income for their country’s municipalities as a whole in 1992, but that had dropped to 37.9% in 1995. Nicaragua, Panama and El Salvador were the exceptions to that drop. Managua’s 43.8% of Nicaragua’s total ordinary municipal income in 1992 climbed to 52.8% in 1995, despite the fact that only 23% of the country’s total population resided in the capital city that year. The reason for this is not that the city’s income grew, but rather that tax collection dropped substantially in the other municipalities. In Panama and El Salvador as well, the ordinary income of their respective capitals’ municipality accounted for about half of total municipal income while their populations never came anywhere close to half the total population.

The abyss between Managua and the rest of the country

Managua awakens the greed of politicians of all parties, and not just because of the vital political importance of the mayor’s post—in practice, the mayor of Managua is just one step below the President of the country on the political ladder—or even the social, economic and numerical importance of its residents. Even more attractive is the huge amount of resources that the municipality directly and indirectly generates. This year, for example, Managua’s municipal income was US$42 million, equal to 6.64% of the entire country’s ordinary income and 4.6% of the national budget. Put in other terms, it is just a little less than the combined budgets assigned to the Supreme Court, the Supreme Electoral Council and the Comptroller General’s Office.

That is Managua. In the rest of the country, the panorama is bleak, with only the high average per-capita income of Corn Island, the paradise Caribbean island just off the coast of Bluefields, catching one’s eye. The explanation is simple: tourism. In recent years, several hotels and other businesses linked to the tourist trade have set up shop there, and although they pay rock-bottom taxes, they have a noticeable impact on the municipal government’s finances.

As for the other municipalities, the differences compared to Managua are simply abysmal. The 2003 budget for Posoltega, which achieved tragic fame thanks to Hurricane Mitch, is its highest in 13 years, yet it is still under US$134,000. Seven of the eight municipalities located in a micro-zone between the departments of Masaya and Carazo—Niquinohomo, Tisma, Nandasmo, El Rosario, Diriá, La Conquista and La Paz de Carazo—have incomes of under US$27,000 each. The eighth, the pre-Colombian indigenous community of San Juan de Oriente, where the country’s best pottery is made, sold and increasingly exported, expects to collect under $8,700 this year. San José de Cusmapa and its neighbor, San Francisco del Norte, will collect under $6,700, which amounts to about $18 per day. With incomes like that, what public works can they possibly implement, what progress can they promote? Virtually none. Many municipal governments cannot even scrape together enough money to pay the mayor’s salary or the council members’ stipends. And the only income in a number of others comes from the transfers they receive from the central government, which are typically deferred as the last expenditure priority.

Mozonte, the poorest of the poor

According to the United Nations, the poverty line is what an individual must spend per month to obtain the minimum daily calorie requirement. In today’s Nicaragua, that line is set at 2,226 córdobas (just under US$150). That yardstick reveals a huge concentration of poverty and extreme poverty in the municipalities of the departments of Nueva Segovia, Madriz, Estelí, Carazo, Boaco, Chontales, Jinotega and Matagalpa. According to the 1993 living standard measurement survey, the monthly spending per person that year in Mozonte, the country’s poorest municipality, was 114.27 córdobas, which was 89% below the poverty line and equivalent to only US$206.64 a year.
A study by the PRODEMU–DANIDA program in 24 municipalities of the departments of Madriz, Estelí and Nueva Segovia revealed that in 2001, the local governments in the municipalities of Mozonte, Ciudad Antigua, Santa María and Macuelizo earmarked 70% of their income for hiring personnel and paying the municipal authorities. The programmed amounts for acquiring materials to provide municipal services in Santa María and Macuelizo were miniscule, under 1% of their total income, whereas Mozonte budgeted 5.8% and Ciudad Antigua 3.9%. In the end, the total estimated budget expenditures to cover operating costs exceeded the year’s income expectations, and only Mozonte ended up with a balance slightly in the black. According to the study, their financial situation was aggravated by pending obligations inherited from the previous government. In Santa María and Ciudad Antigua, the debts were close to the entire programmed income collection targets for that year.

Eight degrees of separation

The December 2002 reforms made to the Municipal Budget System Law passed a year and a half earlier recognize the poverty of the municipal governments. Article 10 established eight categories of municipalities by their annual ordinary income, in descending order. Category A: Managua. B: municipalities with income between 10 and 50 million córdobas. C: between 6 and 10 million. D: between 2.5 and 6 million. E: between 1 and 2.5 million. F: between 750,000 and 1 million. G: between 400,000 and 750,000. H: equal to or under 400,000. At current dollar equivalences, category H municipalities have an annual ordinary income of under $27,000 while category B municipalities have a maximum income of just over $3,333,000.

Political backdrop

To better understand Nicaragua’s municipal reality, it is worth taking a quick look at the political backdrop to its judicial framework. In 1999, the Frederich Ebert Foundation published an interesting study of Nicaraguan municipalities by Yader Baldizón, Martín Sandino and Nehemías López that summarizes the historic background: “The different development models promoted during different stages in Nicaragua’s history have left their mark on the country’s municipalities and have not necessary been linked to a development model with a municipal perspective. In colonial times, municipal policies were aimed at guaranteeing the extraction of wealth and exploitation of the indigenous labor force. This required a local organizational structure that could facilitate the provision of basic services and guarantee the Crown’s interests. With Nicaragua’s insertion into the world market through the production and export of first coffee and later cotton, the country assumed the role of providing raw materials to the developed countries. The economic mono-crop export model influenced the organization of the state and the national productive structure. Three macro-regions were consolidated in the national territory: the Pacific macro-region, with the greatest concentration of population, productive and social infrastructure, machinery, equipment and accessories; the central macro-region, with some extraction infrastructure; and the Atlantic Coast macro-region, virtually isolated from the rest of the territory. The differences among the municipalities of these macro-regions are quite sizable, regardless of whether they are dedicated to production. Any street in the capital city and some departmental capitals, with its aqueduct, sewage system, telephone lines, pavement, electricity, cable television, etc., has a greater investment in infrastructure than many entire municipalities in the interior of the country.”
Municipal expert Alejandro Bravo, legal adviser to the Association of Municipalities of Nicaragua (AMUNIC), sees municipal autonomy as a recent phenomenon in Nicaragua. During the 19th Century, he relates, “The rivalries between León and Granada were municipal rivalries. When Frutos Chamorro took office as President, he said: ‘Let’s stop thinking in terms of localities and start thinking as a state.’ It was hard for Nicaragua to become a state, to achieve centralism, but after that, we lived with the vice of centralism during the Somoza dictatorship and the Sandinista revolution, which despite having different ideologies were both highly centralizing governments. Municipal autonomy finally made its debut in 1990, and began to intensify in 1996.”

The history of municipal autonomy

Although municipal autonomy has appeared as a constitutional precept since it was included in the 1893 Constitution known as la Libérrima (the Most Free), it only began to be exercised in practice in 1990, when municipal councils were elected for the first time. In 1988, the National Assembly approved the first Municipalities Law (Law 40), whose article 18 established that “the government and the administration of the municipalities correspond to a Municipal Council, which has a deliberative, normative and administrative character. The Council will be presided over by a mayor elected from within.” Article 19 added: “The Municipal Council will be elected by the people through universal, equal, direct, free and secret suffrage in accord with the Electoral Law. The government of the municipalities shall enjoy autonomy, without detriment to the faculties of the central government.”
The constitutional reforms of 1995, however, radically changed the organization of the municipal governments by establishing the direct election of mayor and deputy mayors. Article 178 of the reformed Constitution established that “the Mayor, Deputy Mayor and Council Members will be elected by the people through universal suffrage… The Council Members will be elected by proportional representation, in accord with the electoral quotient.” Through this norm, the parties sought to avoid the kind of surprise sprung on the National Opposition Union (UNO) in Managua in 1990, when some of its 15 Council members allied with the 4 Sandinistas to elect then-unknown Arnoldo Alemán for mayor rather than the much more moderately anti-Sandinista Agustín Jarquín, a Social Christian and one of UNO’s founding leaders.

The Sandinista government made the mistake of delegating too much power to the presidential political commissars in the nine regions into which it had divided the country during the revolution; so much so that the mayors were completely subordinated to them. At best, the Sandinista government viewed mayors as the administrators of cemeteries and parks, except for Managua, where the mayor had a political rank equivalent to minister given the capital’s political importance. Mónica Baltodano, minister of the FSLN’s secretariat of municipal affairs at the time, recognizes that the creation of the nine regional governments relieved the municipalities of even the most elemental competencies. One example was that the municipal governments were obliged to deposit the taxes they collected “in an account belonging to the regional government, which later assigned the investment resources for each municipality. The presidential delegate in each region even paid the municipal government payroll,” she recalled.

Municipal autonomy mortgaged financially and politically

The current Constitution, passed in 1987 and reformed in 1995 and again in 2000, establishes three major parameters for municipal life. The municipality is the basic unit of the country’s political and administrative division, and its political, administrative and financial autonomy is recognized. The state is also obliged to earmark a sufficient percentage of the national budget for the municipalities, prioritizing those with less income-generating capacity. So far, the only aspect that has been fully met is the first one, while the proclaimed autonomy has been mortgaged on two fronts.

It is financially mortgaged because over half of the municipalities cannot even generate enough income to keep their local administration minimally functioning. This leaves them at the mercy of the central government, which traditionally uses the transfer of resources as a political lever to subject the mayors to its economic or political priorities. It is also politically mortgaged, since whether by tradition or loyalty, mayors are subordinated to their party’s interests, which distorts their work as a local government.
The Constitution states that “Autonomy neither exempts nor inhibits the executive branch or other state branches from their obligations and responsibilities to the municipalities.” And it adds, “Issues that influence the socioeconomic development of their circumscription fall under the competence of the municipal governments.” But in practice, they have neither money nor participation in their territory’s development. And although the majority of mayors have been obliging toward the priorities of their party and the government in office, this has not yet translated into more resources for their respective municipalities.

The central government’s stinginess

Each year the mayors submit a Municipal Investment Plan to their respective municipal councils, drawn up on the basis of four financing sources: the municipal budget (ordinary tax and non-tax revenues), outside donations (from multilateral agencies, governments and sister municipal partnerships), outside financing through bank credits (which virtually no municipalities have dared to seek) and central government transfers. In 2001 and 2002, the transfer from the national budget barely hit 1%. At the beginning of this year, thanks to the National Assembly’s political contradictions with the executive branch under Bolaños, it was increased to a little over 3%, a percentage still way below some other Latin American countries, such as Bolivia, where the municipalities are assigned 25%.

Shortly before a new law was passed allocating 4% of the budget to the municipalities starting next year, municipal expert Manuel Ortega Hegg, director of the Center for Socio-cultural Analysis (CASC), described Nicaragua’s situation as follows: “We are the only country in Central America whose transfers to the municipalities are not standardized by law. Guatemala has 10% and is debating whether to raise it to 12%. El Salvador has 6%, Honduras 5% and Costa Rica just approved 5%. In Nicaragua, 1% was approved in the past two years, for political reasons more than any other. In addition, it was approved with no legal backing. In other words, it has depended each year on the will of the political elite.”
The central government has been extremely mean-spirited toward the municipalities. The 2001 budget assigned the equivalent of just over US$7 million in transfers to the 151 municipalities, only 0.95% of the national budget. Even worse, the money had strings attached: 80% had to be invested in public works and only 20% towards covering administrative costs. In addition, the money was disbursed according to different schedules, with the money for works transferred every quarter and the budget for current expenses in five parts. As fiscal law expert Julio Francisco Báez summed it up, “The municipalities are prisoners of parliamentary vicissitudes. The assignation is made through the budget, and depends on the political and legislative situation.”
On Nicaragua’s Caribbean side, where the reality is markedly different due to the Autonomy Statute covering the two autonomous regions, Guillermo Espinoza, the mayor of Bilwi (Puerto Cabezas), demands differentiated treatment. “In percentage terms, the distribution has to be a bit higher for the autonomous regions than for the rest of the country,” he insists, “because in our municipalities we have the highest poverty rates, no big companies or sources of work, production for family consumption alone and we suffer from marginalization.”

INIFOM: A bloated bureaucracy

Each year the central government and the National Assembly approve a huge budget for the Nicaraguan Institute of Municipal Promotion (INIFOM), a generally inoperative bureaucratic apparatus whose main function is to allocate infrastructure works (schools, health centers, electrification, drinking water systems and the like), which it does according to party-based political criteria. In 2000, INIFOM had a budget line of 310 million córdobas (approximately US$24 million), nearly four times the amount received that year by all municipal governments combined. In 2001, budget cuts meant that INIFOM only got roughly $20 million, but it was still almost four times the combined municipal assignation.

The reason for this imbalance was political: President Arnoldo Alemán wanted to use INIFOM to sway the municipal elections in 2002. Political reasons are also behind the current inspiration of Sandinista and pro-Alemán Liberal legislators to cut INIFOM down to size or eliminate it altogether. This objective was frustrated this year because various cooperation institutions did not accept either its elimination or the reassigning to the municipal governments of already approved project funds in INIFOM’s name. Nonetheless, both legislative benches want to push through their idea in 2004 because it is an election year and they don’t want the resources assigned to INIFOM to be used to finance the candidates of the Liberal alliance recently cobbled together by Bolaños.

While the FSLN and PLC benches are figuring out how to eliminate INIFOM, municipal government income continues to shrink precisely due to decisions made by the very same National Assembly representatives and by the central government. The Tax Justice Law of 1997 reduced the collection of municipal sales tax from 2% to 1.5% as of 1998 and then to 1% as of 2000. “It was a vicious blow,” says Alejandro Bravo. “That’s why we went to fight about the transfer of state resources through the general budget in 2000. We want to see the approval of a general municipal tax law to improve municipal finances.”

Bolaños backs 4% and the Assembly passes the law

In early June of this year, President Enrique Bolaños made a formal agreement with the majority of the country’s 151 mayors: he would back the proposal of the National Assembly’s Municipal Affairs Commission to set the central government transfer to local governments at 4% of the general budget. Bolaños recognized that “up to now, it has been necessary to have the sympathy of some influential person or be of a particular political stripe to receive more resources.” He promised that this would end with his administration and came out in favor of loosening the party strings attached to local governments, declaring “enthusiastic” support for institutionalizing the annual budget transfers.
Of course, there is many a slip twixt cup and lip. Days before his speech, a furious and humiliated Bolaños had ordered Construction and Transport Minister Pedro Solórzano to suspend all infrastructure works planned for the municipality of Yalí, department of Jinotega. During a visit to inaugurate an electricity project there, the mayor and a sizable turnout of peasants had berated him for not keeping his electoral promises and had even voiced support for Bolaños’ Liberal nemesis, Arnoldo Alemán. Rumors also persisted that the real reason the highway to Jinotega City and the one linking the departments of Boaco and Chontales with Managua had not been repaired was that the Liberal mayors from those departments are all pro-Alemán.

Despite all that, within days the President’s pledge opened the doors to a consensus among all the political forces. On July 3, with no opposing vote, the legislators approved the 25 articles of the Budgetary Transfers bill, after 10 years of being shelved by the power groups. The law establishes that the municipalities will receive a progressive percentage of the national budget starting with 4% in 2004 and ultimately reaching 10% in 2010. It also determines that a percentage of each córdoba received as taxes will automatically go to the municipalities. The Treasury Ministry will disburse this percentage in three parts in 2004, in monthly parts in 2005 and in automatic transfers as of 2006.

The law establishes four criteria for distributing the funds among the municipalities: poverty, population, equality and self management. The poorest municipalities will receive a quarter of the transfers; another quarter will be distributed proportionately based on population; the third will be divided equally among the 151 municipalities, and the last will be distributed according to tax collection averages: in other words, the more they collect, the more they will receive. The law also creates a transfers commission, made up of representatives from the municipalities, the central government and the National Assembly to monitor the new legal precepts and guarantee correct distribution.

Ever less money and ever more responsibilities

It remains to be seen what will happen starting in 2004. The municipal governments are receiving this law after years of fighting against bankruptcy during which their income has gone down and their responsibilities have increased. Manuel Ortega Hegg—who is also a member of the Nicaraguan Network for Democracy and Local Development, which includes 51 municipal-oriented organizations from across the country—notes that the structural adjustments imposed on the country by international financial organizations have decentralized 14 responsibilities previously assumed by the central government, some in a regulated way and others “de facto.” According to Ortega, this decentralization, which includes responsibilities for water, transport and public safety services, has caused “the deterioration of the services that the municipality traditionally had to provide, as it was forced to channel part of its resources into covering new competencies and services.”
Dozens of municipal administrations have been forced into bankruptcy by the limited amount of income they collect and the meager central government transfers. In 2001, over a third of the mayors (52) closed up shop for two months, a crisis only resolved when the National Assembly approved an extraordinary budget line. But this patch job was not enough and the following year the serious imbalances again led to the closure of these mayor’s offices.

An additional problem for the 119 municipalities with ordinary income of under $167,000 is the 80-20 distribution. Liberal mayors proposed to their parliamentary representatives that the division should be 60% for capital expenditure and 40% for current expenditure, and there was legislative backing for the idea in principle. PLC legislator Wilfredo Navarro announced that his bench would also approve the distribution of 20% of the profits from the National Lottery among the poorest municipal governments, but the initiative never became law.

An inequitable and disputed distribution

Up to now, central government transfers have been distributed among the 151 municipalities as follows: 5% stays in Managua and 30% is equally distributed among the other 150 municipalities. Another 40% is assigned according to those who collect more property taxes and the remaining 25% to those who bring in the least revenue. The greatest share of this distribution has thus gone to those municipalities that collect most taxes. AMUNIC, which groups together all of the country’s mayors, has a different approach. In agreement with the World Bank and INIFOM, it proposed 5% for Managua, 10% to be shared out equally among all the other municipalities, 51% for the poorest municipalities or those with the greatest deficits and 34% to stimulate municipal tax collection. The National Assembly ultimately passed the version that shares out the budget in four equal portions, however.

Alberto Gaitán, an AMUNIC executive, is also mayor of El Castillo in the southeastern Nicaraguan department of Río San Juan. As he explained, “We first have to achieve horizontal equity, which means that municipalities with less tax income potential receive more transfers to fill the gap. Saying that they have less potential doesn’t mean they’re lazy when it comes to collection, but rather that the municipality lacks production and trade. There’s no contradiction between economic dependence and municipal autonomy, as stated in the proposal for political decentralization. Nobody has proved any such lack of autonomy. The poorest municipalities need larger transfers to strengthen their economy, production, trade and public administration over the long term. Nowhere in the world has a very poor municipality ever recovered without financial assistance.”
In Alejandro Bravo’s opinion, “The idea of the transfer is linked to the principle of the municipalities’ financial competence, both here and anywhere in the world. Even if the law gives them their own tax or the municipality is an excellent collector, there is always an imbalance between what is collected by the local entity and what is collected by the state. So to create a just distribution—because the two entities are acting in the same territory—local services must be publicly financed through transfers, subsidies or donations. It wasn’t until the 2000 Budget Law that the municipal sector was assigned 70 million córdobas [around $5.4 million], and it was quite an achievement that the state recognized the constitutional mandate.”

The serious problem of social security

One of the most difficult problems for almost all of the municipalities is the payment of social security; in fact, 98% of them are in arrears. They are legally obliged to deduct the employees’ contribution from their wages and then pay this to the Social Security Institute (INSS) along with their own quota as employer. The two quotas combined amount to about 25% of the payroll. The municipal administrations deduct the workers’ quota but do not pay it to INSS because they don’t have enough money to cover their own quota. As a result they have run up huge debts, and although at least 57 municipal governments have reached payment agreements with the INSS, another 88 have yet to do so, including nominally strong local governments such as Granada, Rivas and León. These 88 governments now owe a combined total of US$12.5 million, which it is impossible to settle.

The only possible solution is for the central government to earmark a specific budget line to settle the debt over a reasonable period, under the premise that each municipal government will then have to assume its own obligations fully. The employees face the most damaging consequences of this debt, as they do not have the right to medical attention in INSS-affiliated clinics, old-age or disability pensions or the milk granted to INSS contributors during their babies’ first six months of life, and had their part of the quota deducted to boot.

How can they collect more?

Former mayor of León and current parliamentary representative Rigoberto Sampson sees the main problem facing municipal governments as one of figuring out how to increase their income. But at the same time they have to deal with a number of other problems that only add to their financial difficulties, including institutional and organizational problems, weaknesses in the laws and a lack of coercive instruments that would enable them to charge residents more effectively. The charging of municipal taxes is included in the municipal tax plan, according to which all citizens must be up to date on their payments for garbage collection, cemetery lots, trade or business licenses, property tax, vehicle tax, registration of livestock brands, the 1% sales and services tax, the use of public thoroughfares and special contributions. But in very poor towns where over 80% of the population is unemployed or lives on under a dollar a day, it is hard for anyone to pay most of these taxes, while those who can, such as hacienda owners, show the least interest in doing so. For example, the Pellas family—the wealthiest in Central America—continues to evade payment of municipal taxes in Posoltega on the part of the sugar cane plantations surrounding its San Antonio refinery in the neighboring municipality of Chichigalpa that crosses the municipal border. In Nagarote, former President Alemán’s family refused to pay the property tax on its lavish La Chinampa hacienda, but in that particular case the municipal government sued and had the property embargoed.

The example of Nagarote and its mayor

Juan Gabriel Hernández Rocha, FSLN mayor of Nagarote, has provided an exceptional example of municipal management. When he took over the mayor’s office from his Liberal predecessor it had a budget equivalent to just under $334,000, but by 2002 it was bringing in just over $1.3 million, with an expenditure of $1.13 million. By also recovering $333,000 in tax arrears not contemplated in the budget, he was able to pay on the municipal debt, make a few other investments and still finish the year with a surplus of just over $67,000.

Meanwhile, property tax collection rose by 1,150% in two years as the updating of the cadastre increased the number of contributors from 2,500 to 5,000, including people who had never paid before and those who were in arrears. The number of those paying the 1% sales and services tax also increased by 30%, including privatized state companies, and the municipal government brought the payment of commercial license fees up to date. This year Nagarote has a planned budget of $1.73 million. Thanks to its extraordinary work, the United Nations classified Nagarote’s municipal government as one of the country’s four most efficient in administration and tax collecting terms, along with Managua, León and Estelí.

Mayor Hernández has invested the resources wisely and his municipality has noticeably improved the quality of the services provided, the organization of the municipal offices, customer service, the cleanliness of the streets, the collection and handling of solid waste, the maintenance of green areas, basic social infrastructure, the extension of the drinking water supply network and the collection of sewage. He recently announced the opening of an environmental office and the drafting of an ordinance aimed at improving the population’s conduct regarding the production of waste in the municipality. Nagarote is now the country’s second cleanest city. Hernández’ goal before handing over his post is to design the Nagarote Municipal Development Plan for 2020, to which end he has contracted 22 young professionals to conduct the field study and collect the relevant data. As Hernández said during the last town hall meeting, the urban plan they are drafting, which is valued at around $60,000 and has a modern cadastre unit with automated programs, “will be one of our legacies to the future municipal authorities.”

It is essential to have both a good mayor and a good team

It is not enough to have an honest, capable, aggressive, hardworking mayor to ensure effective municipal government. Equally essential is a solid team on both the political level (municipal councilors) and the institutional level (municipal officials). The problem is that municipal councilors are all too often party activists who ran for the post as the first step towards what they hope will be a political career that will guarantee them a stable income, influence and social status. Most have little interest or vision regarding municipal affairs, and if they are bitten by the bug they usually leave before really coming to grips with the issue, as few want or are allowed by their party to stand for reelection and are therefore limited to the mayor’s four-year stint.
In addition, municipal officials in key posts tend to lose their job when there is a change of elected authorities, either because they are from the wrong party or lack personal empathy with the incoming mayor. This is why the Municipal Administrative Career Law is so vital. This law should guarantee labor stability regardless of the periodic political changes, as well as establishing a policy for wages, incentives and promotion of municipal personnel, particularly those in management posts or those with more professional qualifications.

The need for stability

A recent poll of 92 mayors shows that less than 10% of the qualified personnel in the municipal institutions have been working there for over four years and fewer than 5% have been there longer than six years. Paradoxically, both the most important nongovernmental organizations working on municipal affairs and the central government, through agreements with multilateral organizations such as the World Bank, have concentrated their efforts on training local government personnel and organizing the municipal governments so they will function better. Hundreds, perhaps thousands, of administrators, accountants, auditors, heads of municipal services, tax collectors and legal advisers received dozens of different courses to improve their qualifications, but few of them have survived in the municipal governments.

There is a need for other legal norms to complete the municipal legal framework. The Municipalities Law was passed in 1988 during the Sandinista revolution, but its regulatory law was only published nine years later during the Alemán government. Then the law was completely reformed just 11 months later, in 1998, leading to the appearance of Law 261, which unsurprisingly has yet to be regulated. The Municipal Budget System Law was passed in March 2001, only to be reformed in December 2002, among other reasons to establish norms for calculating the wages and stipends to be paid to the mayors and municipal councilors. And finally, April 2003 saw the approval of the Municipal Solvency Law, which also remains to be regulated. Thus, the mayors are still waiting for the legislators to promulgate the Municipal Tax Code, regulations for the new municipalities, solvency and transfers legislation and laws on civic participation, the municipal administrative career and urban planning.

Very low wages

If forcefully applied, the Municipal Administrative Career Law could help provide stability to most of the personnel working in the municipal governments, who up to now have been subject to electoral vicissitudes, precarious wage policies and an unjust evaluation policy. With the exception of the 19 municipalities whose income exceeds 10 million córdobas, the rest cannot pay their officials what they deserve for the work they do. Apart from lawyers and sometimes the tax collectors, who earn by commission, the monthly wages of the personnel in at least half of Nicaragua’s municipal governments vary between $50 and $535.

This has led to a high turnover of qualified workers, who often migrate towards private companies in the country’s most important cities or are head-hunted by the “big” municipal governments that can afford to offer double or triple the wages. This has a negative result on the small local governments, which lose their most capable workers, in whom thousands of dollars worth of training have been invested, then see their administrative results rolled back by the loss.

Political vicissitudes: The case of Granada

This economic factor is compounded by a political factor. Each time there are elections, most municipal officials, including the most qualified, know they will probably be dismissed. Although this fear is generally less if the incoming mayor is of the same political party as the outgoing one, this is no guarantee that they will keep their jobs, particularly if there are any personal or party disputes between the two mayors.

In Granada, where the Conservative Party took over from the PLC in the last elections, incoming mayor Luis Chamorro Mora laid off the municipal manager and at least three other officials within six months of taking office, alleging that they had held posts of political trust with the outgoing Liberal mayor. Although the manager’s political sympathies were probably not the same as Chamorro’s, the fact remains that he had been trained in his job for years by different organizations and was held in high esteem in municipal circles. But he was not without work for long. Tipitapa’s new mayor, César Vásquez, a Sandinista, was an inflamed adversary of the Liberals in his own municipality but he did not hesitate to snap up the general manager, with what proved to be excellent results. Vásquez explained that he had seen the man’s capacity when the two participated in training seminars for municipal officials during Vásquez’ ten years as a municipal councilor.

Stability is not the same as quality

Other examples prove that stability does not necessarily mean quality. The most emblematic case is that of Managua, where Sandinista mayor Herty Lewites took office following two consecutive Liberal administrations, including that of Arnoldo Alemán, the corrupt PLC leader who kicked off the construction of his fabulous fortune by plundering the coffers of Managua’s local government. The Liberals took advantage of the two months between the elections and Lewites’ inauguration to pull one over on the incoming mayor. They bloated the local government payroll with 600 PLC activists who had no specific function, but were assigned exorbitant wages. They then signed a four-year collective bargaining agreement with Liberal-leaning unions that among other abuses protected these supernumeraries, rewarded inefficiency and provided lifetime pensions to all of these “political” personnel.

As a result, over 60% of the Lewites administration’s ordinary income was dedicated right from the start to paying the payroll, along with special benefits, social security and bonuses. In 2001, the local government collected an average monthly income amounting to $1.73 million, of which just over $933,000 was earmarked for paying a payroll of 2,700 workers. At least $400,000 more was spent on water, electricity and telephone charges, among other fixed costs, leaving very little for public works.

Lewites did not take this lying down. He fired over a hundred of the Liberal activists, tried to reduce some of the agreement’s benefits and threatened to annul the collective agreement. But Alemán, still President at the time, deflated Lewites’ ire by getting the Liberal unions to call a strike and the Ministry of Labor to ratify the collective bargaining agreement signed with the unions. The Sandinista mayor backed down and waited for a change of government to launch another attack, this time against the garbage collection mafia, many of whom have maintained their jobs since the Somoza dictatorship. They responded with another strike and Lewites was forced to reinstate almost all of those he had laid off, though he did manage to get rid of at least twenty who had headed the most corrupt group.

Thirty months after Lewites took office, one still finds a significant number of employees, including several self-termed “union leaders,” wandering through the corridors of the Managua municipal government buildings. They are pulling good wages without working on anything. They don’t even know how to do the nominal work for which they were contracted and cannot be laid off because it breaks the collective bargaining agreement.

Other bankruptcies have been linked to the corruption of outgoing authorities and the municipal officials they leave behind, even those from the same party. In one municipality in the department of León, which the FSLN has been governing for 24 years, the predecessor of the mayor who took over in 1997 left his most intimate collaborators in their posts, including the government manager. Within months, the new mayor detected signs of corruption in the handling of income and in many expenses with inadequate supporting documentation. One of the people directly involved was the manager, but to dismiss him, the mayor had to fight his own party’s structure, in which his predecessor had a decisive influence. As a result, the FSLN distanced itself from the administration of “its” new mayor and at one point even ordered its other two municipal councilors to ally with the three Liberals in an attempt to remove him from office.

Is municipal reelection a good idea?

Another issue that has been floating around in municipal circles for years now is the idea of reelecting mayors. Article 178 of the Constitution, reformed in 1995, establishes that “the mayor and deputy-mayor can only be reelected for one period. Reelection of the mayor and deputy-mayor cannot be for the immediately following term.” The parties that approved the reforms thus applied the same formula for mayors as they prescribed for the President. But the municipal sphere is not necessarily the same as the national one.

It is true that in both spheres the leadership is often contaminated with the vices of caciquismo (domination by local bosses) and caudillismo (domination by national bosses), with all of the misfortunes this drags along with it. But it is no less true that objective problems such as low educational levels (national illiteracy is now over 40%), emigration of the most qualified people and cultural factors that deform civic participation (including machismo and the feudal hangover that the master knows it all) make it difficult to form real community or municipal leaders. So reelecting any that do emerge would not necessarily be a bad thing.

There are several examples of excellent mayors who have been unable to continue their work mainly for this reason. In April 1990, armed counterrevolutionary groups stopped the elections from being held in the municipality of Tuma La Dalia and President Daniel Ortega was authorized to appoint the mayor. He named Jaime Aráuz, who was just 28 at the time. Aráuz had learned to read and write in the army, which he had joined voluntarily, and had only completed his primary education.

During his nearly seven years as the lead council member of that municipal government, he finished his high school education and managed to radically transform the municipality, as even Liberal sympathizers recognize. Due to the exceptional way in which he was named, he was legally entitled to stand in the 1996 elections and won with an absolute majority. During his second term in office, he graduated as a lawyer and the municipality continued to progress. When that term came to an end, he was no longer eligible for reelection, so Aráuz tried to run as a departmental parliamentary representative for Matagalpa, but Daniel Ortega’s supporters got even with him for his opposition to Ortega’s notorious pact with Arnoldo Alemán. Although he placed second in the FSLN’s “popular consultation,” or party primary, which should have given him the number-two spot on the party’s legislative slate for that department, he was eliminated entirely following a recount.

A similar case is that of Manuel Maldonado, the best mayor that Somoto, the departmental capital of Madriz, has ever had and now a parliamentary representative. The negotiation of foreign funds with five European and US cities linked to Somoto in sister city projects plus the public works he was able to implement as a result of that collaboration turned Somoto from a town to a city and laid the foundations for its medium-term development. Aráuz and Maldonado could now run again as candidates for a last term, if they can convince the respective local FSLN structures.

Ambition, opportunism and a dose of insanity

With certain exceptions, a vocation for public service tends to be just as lacking among most of the current mayors and municipal councilors as it is among our legislators. Worse still, politicians do not perceive this quality to be indispensable in the selection of a candidate for a public post. On the contrary, they seem more comfortable with ambition, opportunism, connections, money and a certain dose of insanity. Any citizens who combine these latter characteristics are virtually ensured a place among those the politicians pencil in as “good candidates” for municipal councilor or mayor.

No matter if they lack charisma, have a good or bad reputation, are competent for the post, want to help others or prefer to help themselves and/or have hitched up with a certain political party. Charisma and reputation can be bought, a vocation feigned and a party negotiated. At the end of the day, a post in any municipal government is just another piece of merchandise to be bargained for. And once they are in the post, they don’t have to answer to anyone. By scraping together a few pesos they can construct a small park or half-repair a couple of streets or get some charity institution to come to town and donate something, and that will be enough to fill up the public works file.

The insanity comes in handy to explain any sharp remarks or carelessness, particularly if some disloyal party colleague seeks revenge for being anti-democratically hindered from sharing the municipal spoils by tallying up indiscretions committed with foreign aid or bribes paid to record fees for registering cattle brands that were siphoned off before reaching the coffers.
And as politics always rewards good behavior, if they act with the required discretion and a sufficient dose of loyalty to the corresponding caudillo, they may get the chance after four years of “sacrifice” to climb further up the political ladder and become a legislator. This would not only increase their influence, it would also, more importantly, provide them with a disproportionate salary and a real shot at breaking into the world of big business.

The whats and hows of civic participation

Despite it all, experience has demonstrated in Nicaragua what the rest of the world already knows and enjoys: municipal governments are the most vigorous state instruments for resolving citizens’ problems and improving their standard of living. Another advantage is that voters can more easily oversee administrative and financial management on the municipal level, making it somewhat less vulnerable to corruption. It is also proven in Nicaragua, however, that civic participation is the Achilles heel of decentralizing to the municipal government level, because in addition to the weakness of the mechanisms, the population lacks information about its own surroundings, while political polarization discourages or excludes those of a certain party from participating in the other party’s local government administration.

Perhaps most importantly, it is also because the citizens’ social awareness is not sufficiently developed to be able to appropriate municipal affairs and thus oblige politicians to consider their opinions on what should be done and how the municipality should be administered. Civic participation is no longer just a banner of the Left; even the World Bank and the IMF have assumed it. The problem is what participation involves, and the key to this probably lies in the answer of how it should be achieved. Because in the kind of poor municipality found in most of Nicaragua the whats are clear—from strictly charitable actions to help the extremely poor who have been excluded from the system, right up to long-term urban development—while the how tends to vary according to a particular sector’s interests.
We already know all about the how applied by the IMF’s troops. The hard part is for locals to invent a how without having the resources to resolve people’s concrete problems in a different way, as Manuel Maldonado, Jaime Aráuz or Juan Gabriel Hernández Rocha have done. While these are good examples, they are the exceptions to the rule. 

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