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Budapest report calls for cities to directly access EU funds

3 November 2023

A major new study involving the city of Budapest has demonstrated the growing need for cities to have direct access to European Union funds, so they can play a leading role in achieving the EU’s common goals.

The Seizing an Unparalleled Opportunity report – developed by the research institute Political Capital in partnership with the Budapest municipality – says that cities are crucial to helping the EU deal with major crises, such as the wave of refugees from Ukraine and the ongoing economic impacts of Covid-19.

Cities are also a key means of achieving common EU objectives, including reaching the climate neutral objectives of the European Green Deal, supporting the digital switchover and strengthening innovation.

The report argues that cities need resources to deliver these tasks, but the gap between cities’ responsibilities under EU targets and the funding available to them is widening. Also, in many parts of Europe, including Hungary, political conflicts and open discrimination are hampering the use of EU funds by cities.

Therefore, the report argues, giving cities better access to EU funding will help the EU achieve its common objectives more quickly.

Co-author of the report, Benedek Jávor

The report presents several proposals to boost cities’ access to funding, from increasing direct subsidies to redistributing stuck EU money, to delegating decision-making on urban development funds to a lower level than national governments.

“Cities have an increasingly important role to play in achieving the EU’s joint goals in areas such as climate action, digitalisation and migration,” says co-author of the report, Benedek Jávor, head of Budapest’s representation in Brussels.

“However, in some EU member states, cities are targets of politically motivated discrimination when it comes to financing.

“Given this situation, it is essential to map the possibilities to improve their access to EU funding. The ongoing review of the EU budget and current discussions on the future of the EU Cohesion policy, offer a great opportunity to initiate an EU-level debate about the financing of cities.”

Cities require targeted solutions

The new report, which was recently presented at the Budapest Forum 2023, highlights the findings of the Eurocities Pulse survey, published in June 2023. This survey shows that more than 50% of city mayors believe that EU decision-making and funding schemes do not take sufficient account of cities’ specific needs and requirements. In the survey, mayors also said they are not consulted or involved in government decisions on how to allocate money.

“There are many good reasons for the EU to regard cities as strategic partners,” says Benedek Jávor. “According to Eurocities’ Pulse survey, perception of the EU as a constructive, cooperating partner is on a disappointingly low level among city leaders.

“They need much more targeted and tailor-made solutions, stronger involvement in decision-making and better access to EU funds to be able to efficiently contribute to joint EU goals.”

The report makes it clear that cities are responsible for more than three quarters of Europe’s carbon emissions, while a similar proportion of the EU’s 2030 climate targets depend on them. In total, 75% of the EU’s population now live in cities and they are responsible for driving innovation and the digital economy.

However, despite all of the actions taken at the local level, available EU funding is fragmented, not sufficiently reflective of cities’ concerns and priorities, and often allocated along political lines.

A serious funding crisis in Budapest

The clearest example outlined in the report of the distorting effect of politics is the city of Budapest.

According to the report, the political conflict between Budapest and the Hungarian government has resulted in a serious funding crisis. The government not only withholds national funds or reduces revenues, but also uses European funds as a means of political punishment, abusing the powers of the shared management system.

View from Gellert Hegy in Budapest – © Praczky Istvan

By the second quarter of 2023, Budapest found itself in such a critical financial situation that it is unlikely to be able to meet all its governmental obligations.

“Budapest is a clear example of how a member state government, based on political motivations, can undermine the stability of a city administration,” says Jávor.

“Since the election of Budapest’s new opposition leadership in the autumn of 2019, the Hungarian government has cut back heavily on the city’s own resources and tax revenues with legislative measures, increased fifteen-fold the city’s direct financial contribution to the state budget through a so called ‘solidarity tax’, and tried to exclude Budapest completely from the ERDF and RRF financing.”

Meanwhile, the report says Budapest has not only made tackling climate change a top priority, but has also successfully applied to participate in the 100 Climate Neutral Cities 2030 programme of the EU’s Horizon Europe Climate Neutral and Smart Cities Mission.

Jávor adds: “In this difficult situation, better access to EU funds is essential for the city to remain capable of investing in climate action, decarbonisation and other infrastructural developments.”

Redirecting EU financing to cities

The report makes several possible proposals to improve avenues for cities to access EU funding.

The first option is to make EU finances directly available to city municipalities. One of the proposals is to significantly expand the European Urban Initiative programme, so that it can provide significant investment support to European cities. Also presented as options are additional financial support for the 100 Climate Neutral Cities mission and the Strategic Technologies for Europe Platform (STEP).

“Based on our study, there are several possibilities to redirect EU financing to cities, setting up new, or enlarging existing directly managed funding streams, or improving cities’ participation in the decision-making and management of EU funds in their member states,” says Jávor.

“The obstacles are predominantly political and not technical. The challenge for cities now is to generate a political climate where their needs for stronger and more direct support from the EU could be positively received.”

Another option put forward, focusing on central Europe, is to give cities EU funds that are stuck in disputes between the EU and national governments or due to difficulties in absorption into direct funding channels. For example, disputes over the rule of law conditionality procedure or the Recovery Plans in Hungary and Poland could result in a permanent loss of funds, so the Commission could channel the undisbursed funds directly to cities administrations.

The report recognises that there will be the usual bureaucratic arguments made against using direct management channels, such as the Commission lacking the capacity to directly manage and distribute the funds. However, the report says the EU could outsource the management of these funds and entrust the management of tasks to professional organisations selected by tender.

“The dispute between some member states and the Commission risks the loss of available EU funds,” stresses Jávor. “Cities should not be punished for violations of EU rules by their governments.”

He adds: “The EU needs to develop alternative channels to distribute these funds to city municipalities so  they can continue to achieve the EU’s common goals on cohesion, climate action, digitalisation, migration or any other field.”

Strengthening the powers of local government

Rather than providing direct funding for cities, another proposal outlined in the report is to strengthen the participation, voice and powers of cities when it comes to decisions on resource allocation. The report says involving municipalities and other stakeholders in the preparation and implementation of programmes and plans is the duty of national governments, but this is often poorly implemented, if it is implemented at all.

It recommends addressing this problem by extending the powers of local and regional levels and increasing the amounts allocated to them or with their strong involvement.

Examples include devolving decisions on ‘sustainable urban development’ (SUD) programmes, which currently cover eight per cent of the European Regional Development Fund, from national governments to lower levels, and transferring the planning, management and control of how the money is spent to cities.

“According to the principles of subsidiarity, partnership and the prohibition of political discrimination, local stakeholders already should be involved in decision-making processes,” says Jávor. “In practice, this is not happening and municipalities are merely implementing changes presented at national level. This needs to changed and local government needs to be properly consulted.”

Influencing the post-2027 EU budget

To achieve all the proposals presented, the report stresses that the ongoing mid-term review of the EU’s seven-year budget is an important opportunity for changes to be made that reflect the importance of cities and local government. However, the planning for the EU’s post-2027 budget period will start shortly, and the reforms that have been mooted have a much greater chance of being implemented in this process.

“Our aim is to initiate a wide, extensive discussion at the EU level regarding the financing of cities, to show up opportunities and potential solutions,” Jávor makes clear.

“There are many diverging options and we want to test them, to find out how they meet cities’ interests and expectations and whether they are politically viable and realistic.

“We will look for allies among cities, European organisations such as Eurocities, MEPs and experts to further develop our ideas and to ensure that cities, including Budapest, receive the EU funding they need to develop green, prosperous liveable urban areas of the future.”

Contact

Andrew Kennedy Eurocities Writer

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