CIDOB Report nº 9

Possibilities and limitations: Finnish municipalities in the EU recovery process

Publication date:
12/2022
Author:
Lotta-Maria Sinervo, Senior Lecturer, Faculty of Management and Business, Tampere University
Download

In Finland, the ageing population has diminished governmental financial resources for organising public services. Hence, the recovery plan from the pandemic builds on the idea of sustainable growth. For municipalities, the planning process of the plan was a collaborative and satisfactory experience identifying urban needs. The difficulties and limitations lay in the implementation via existing instruments scattered across various branches of the national government. There were also limitations on how municipalities could impact the final process. 

Finnish policy context lays the ground for recovery 

Finland, as a Nordic welfare state, has extensive publicly funded welfare services. However, its ageing population has already increased pension outlays over the past ten years and creates significant pressure on the sustainability of public finances over the longer term (Ministry of Finance [MoF], 2020). In particular, spending on social and health care services will increase, and the current total tax rate will not be sufficient in the future. Simultaneously, the working-age population, which finances public services and social security through its taxes, is shrinking. Thus, government financial resources for organising public services have decreased, resulting in a significant imbalance between tax revenues and public expenditure, in other words, a sustainability gap or deficit (MoF, 2022).  This structural imbalance between public service spending and tax funding posed a challenging context for Finland’s handling of the COVID-19 pandemic and recovery from the turbulent years. 

The starting point for the National Recovery and Resilience Plan (NRRP) is Finland’s national policy context. Long-term welfare and local and regional government reforms are coming into effect in the country in 2023. A historical change will hence take place in government responsibilities and finances, with the responsibility for organising public healthcare, social welfare and rescue services transferred to so-called county wellbeing services. The key objective of the health and social services reform is to improve the availability and quality of public services and secure adequate financial resources. Simultaneously, approximately €20 billion of tax money is circulating via a new route through state budgets to the counties (Korhonen and Vuorento, 2022). 

In Finland, the recovery process is planned through a NRRP which forms part of the Sustainable Growth Programme for Finland (Finnish Government, 2021). In the NRRP, the government has selected investment projects and reforms which aim to promote the structural adjustment of the economy through particular packages of measures. The preparatory work centres on four priorities (pillars): 1) Green transition, 2) Digitalisation, 3) Employment and skills and 4) Health and social services, with the idea of creating a significant impact rather than small and fragmented projects. 

Identifying urban needs – planning the national recovery process in Finland 

Finland’s NRRP sets national objectives to support sustainable growth. The plan promotes green and digital transitions, the development of employment and skills and improves the availability of health and social services. The starting points for the recovery planning process relate to sustainability of public finances, the cost-effectiveness of social and health services, development of services for the unemployed and those left outside labour markets and green investments. 

From the perspective of Finnish local governments, the recognition of their recovery needs in the plan was satisfactory. The main needs the municipalities and the Association of Finnish Municipalities pointed out were the importance of promoting and supporting the green transition, the accessibility of public services and digitalisation (Association of Finnish Municipalities, 2021). While companies are the focus of the practical actions, municipalities and cities play an integral role, for instance, in building environments that support innovations, ecosystem development and sustainable communities. Moreover, municipalities are key actors in activities to boost employment and social and welfare services. Therefore, there is also a need for direct funding for municipal and urban activities. 

The planning process of the recovery plan was orchestrated by the MoF in coordination with other ministries, regional and local actors, and the business and research sectors. Several consultation and stakeholder sessions were held during the planning phase. The collaborative preparation phase was satisfactory, and it provided fruitful ground for implementation.

Seeking urban solutions – implementing the national recovery process in Finland 

The planning of the NRRP has been firmly in the MoF’s hands. Although this created a clear point of departure and a division of responsibility for the planning phase, it has become an issue in later phases of implementation and evaluation. The beginning of the process, which featured shared understanding, was promising. However, from the municipalities’ viewpoint it looked like the final plan highlighted the already recognised development needs of the branches of national government. There were even disappointments concerning the final content of the NRRP. Municipalities expressed concerns that the recovery plan was used to promote and support activities that were already ongoing. For example, pillar 4 of the recovery plan is closely linked to the ongoing health and social services reform and is used as a significant driver for the reform and support mechanism for setting up the operations of the new counties. It seems that the plan is used to promote activities that should be promoted and financed from the government budget and it is fair to question whether the recovery funding is used to patch the gaps of the government budget. 

It soon became evident that, due to the tight schedule, existing instruments and systems were being deployed to allocate the funding, rather than new instruments being created. This meant that the funding would be allocated as government subsidies. Moreover, the funding was scattered across different branches of government. For instance, pillar 4 on health and social services was administrated by the Ministry of Social Affairs and Health and pillar 3 on employment and skills was administrated by the Ministry of Economic Affairs and Employment. For applicants, this created difficulties following current and upcoming calls for funding. The fragmented structure was challenging for municipalities. All the pillars in the plan had elements that affected municipalities but forming an overview of the totality of the funding possibilities was difficult. The result could be seen in how municipalities’ situations varied. Some municipalities had good resources and skills to apply for funding, while others had difficulties keeping up to date with the open calls. The municipality itself was responsible for keeping track of when the calls were open. 

In the planning phase, it had been suggested that if necessary new fund allocation models would be created. However, in the end, the tight time-span and the temporary nature of the funding instrument meant that there was no time to set up new instruments. As suggested above, the implementation of the plan was also fragmented and scattered across different branches of government. This created difficulties securing the awareness of municipalities, but it also made monitoring the completeness of the implementation challenging. Above all, this concerned whether the municipalities that needed the financial support were reached at the right time. In this context, regional councils played important roles in spreading the word on open calls towards municipalities, companies and other interested parties. 

Opportunities and limits of participation for Finnish municipalities 

The MoF is responsible for monitoring the recovery plan, but Finnish local government is unsure that implementation can be monitored successfully. For instance, the Association of Finnish Municipalities stated that in practice it is not possible to gather information on the use of recovery funding in municipalities. There are limited opportunities to monitor the numbers of applications and positive funding decisions and it would require more resources, as well as transparent and open ways of monitoring at the national level. There are further difficulties monitoring the impact and evaluation of the outcomes and effectiveness of the recovery plan and funding received and used. There are concerns that municipalities are left with the role of bystanders. 

Moreover, national legislation set some limitations for municipalities. One practical example municipalities experienced is the national programme to promote broadband networks to cover the different parts of the country more evenly. As the recovery plan leans on the potential benefits and cost savings of digitalisation, the broadband network has practical significance. Before the NRRP was accepted, an amendment was made in the legislation on the co-financing portions of the broadband investments, and the portions related to municipalities were increased. The result was that the co-financing is just as high in the Next Generation EU recovery funding instrument because the funding is allocated according to the national legislation. 

The constraints for municipalities to participate in the EU recovery process may be summarised as follows. The Next Generation EU-funding instrument in Finland has a relatively short time-span and the process was characterised by a rushed schedule and a temporary nature. Although the plan was orchestrated by the MoF and Finnish government, there was uncertainty in the division of responsibilities and work after the planning phase. The process could be seen as intra-governmental with multiple opportunities to collaborate in the planning phase but less in the implementation and evaluation phases. Municipalities found that they had limited possibilities to influence the process. Existing legislation set the framework for the implementation, and changes or amendments to the legislation were not possible in such a short period of time. The national recovery plan was thus linked to existing and upcoming reforms, boosting and financially supporting their coming into force. 

The evaluation phase has also raised concerns in municipalities. Mainly they relate to similar issues: whether the funding will be used, whether it will be used effectively, whether the funding will meet the needs of municipalities, how to monitor the whole, how to evaluate effectiveness, how to communicate effectiveness and overall impact, how to obtain up-to-date information, and how to ensure the best use of the one-time and temporary funding instrument. There are also limitations on more concrete participation: projectisation, project fatigue, skills, competences and resources for applying funding, keeping up-to-date with the various calls and the limited monitoring of the whole of the recovery plan. Furthermore, possibilities for applying for funding varied between municipalities. Generally, municipal employment and business support services are skilled in applying funding for development. However, applying for government subsidies is a different kind of process. 

Best practices and lessons learnt 

The participatory planning process of the NRRP got good attention, was time-appropriate and able to acknowledge global concerns. The idea of creating new mechanisms while recovering was accepted and shared, with urban needs recognised in a satisfactory manner. Yet, the possibilities for participating in the implementation and evaluation of the recovery process were not as visible as they were in the beginning. 

The lesson that can be learnt from Finland concerns the significance of adapting and adjusting the recovery plan to the national context. Although it is reasonable to take the advantage of the Next Generation EU instrument in promoting and boosting existing strategies, programmes and reforms, it is valid to question whether those activities should be financed through this instrument. At the same time, the tight scheduling created pressure to find optimal solutions for allocating the funds. Municipalities also experienced time pressure when applying for funding. In general, the fragmentary nature of the Finnish plan has resulted in difficulties monitoring and evaluating the whole of the process at other levels than national government. 

General recommendations for the effective delivery of the national recovery plan can thus be drawn as follows: clear divisions of responsibilities and work, breaking the silos of governmental branches, identifying the phases for participation of all sectors of society, avoiding the overly government-led approach, identifying the limitations of national legislation and the traceability of the effectiveness of the recovery process.

References 

Association of Finnish Municipalities. “Kuntaliiton näkemykset ohjelmasisällöstä”. Memorandum 14.4.2021, 423/03.00/2021 (2021).

Finnish Government. Sustainable Growth Programme for Finland: Recovery and Resilience Plan. Finnish Government: 2021 (online) https://julkaisut.valtioneuvosto.fi/handle/10024/163363

Korhonen, M. and Vuorento, R. Isot reformit ja kuntatalous. Kuntaliitto: 2022 (online)  https://www.kuntaliitto.fi/julkaisut/2022/2141-isot-reformit-ja-kuntatalous