Regional Examples of Public Economics and Finance

*Public Economics and Finance*

2008;**154**:1-11

[35] Tugen K, Ozen A. Cinsiyete Duyarlı Bütçeleme Anlayışı. Maliye Dergisi.

[36] Gunluk-Senesen G. Toplumsal Cinsiyete Duyarlı Bütçeleme: Türkiye İçin Bir Değerlendirme. In: Bütçe Sürecinde Parlamentonun Değişen Rolü Sempozyumu (8-9 Ekim 2008) Kitabı;

Afyonkarahisar. 2008. pp. 1-13

[37] Gunluk-Senesen G. Toplumsal Cinsiyete Duyarlı Bütçeleme: Kapsam, Örnekler ve Türkiye İçin Öneriler. In: Altug F, Kesik A, Seker M, editors. Kamu Bütçesinde Yeni Yaklaşımlar. 1st ed. Ankara, Seckin; 2013. pp. 97-128

[38] Stotsky J. Gender Budgeting: Fiscal Context and Current Status. IMF Working Paper: WP/16/149. 2016

Bütçeleme ve Türkiye'ye İlişkin Öneriler.

[40] Isik A, Isik H. Sosyal Eşitsizliklerin Giderilmesinde Bir Çözüm Önerisi: Cinsiyet Esaslı Bütçeleme (Teori, Gelişim ve Uygulama). Sosyal Siyaset Konferansları Dergisi. 2010;**57**:167-211

[41] Rubin MM, Bartle JR. Integrating gender into government budgets: A new perspective. Public Administration

[39] Cansiz H. Cinsiyete Duyarlı

Ankara: Gazi Kitabevi; 2009

Review. 2005:259-272

**52**

Chapter 4

Abstract

Cameroon

and Lucie Yakana Agoume

development at the local level.

local development, resources

efficiency of the actions undertaken.

1. Introduction

55

Decentralized Territorial

Guy Yakana Yombi, Mounton Chouaïbou

Communities and Implementation

Cameroon's Constitutional Law of 18 January 1996 enshrined decentralization as a fundamental principle of the organization of state governance, and subsequent implementing legislation affirms the central government's commitment to transferring a number of powers to local authorities with a view to local management. Local and regional authorities then appear as an essential link in the implementation of public policies at the local level. Their genuine autonomy in financial and administrative matters is a necessary condition for achieving local development objectives. However, a review of the existing literature reveals that these communities do not have real autonomy in public policy decision-making, which is illustrated by mixed

The binomial "local-national" is not only old, but it is also probably inherent in any state regardless of what it is. This duality can be translated by imbalances and tensions, but it commits necessary relations between the central authority and the

The expression territorial community refers to the decentralization that is called the territorial; the expression "public policy," with respect to it, returns to the state. With regard to African countries, the debate around the decentralization, although old, has taken the magnitude toward the end of 90 years. The foundation of the accentuation of this debate has been the approximation of the government of the local actors for involvement of the latter in the decisions of public policy for a better

The achievement of the decentralization remains subject to the legal plan to the respect of three essential conditions: the existence of a sphere of specific skills for the benefit of the local communities; the taking in charge of local affairs by author-

ities at the base, independent of the central power both by their mode of

Keywords: public policy, decentralization, territorial communities,

local authorities, which is qualified of territorial community.

of Public Policies: The Case of

#### Chapter 4

## Decentralized Territorial Communities and Implementation of Public Policies: The Case of Cameroon

Guy Yakana Yombi, Mounton Chouaïbou and Lucie Yakana Agoume

#### Abstract

Cameroon's Constitutional Law of 18 January 1996 enshrined decentralization as a fundamental principle of the organization of state governance, and subsequent implementing legislation affirms the central government's commitment to transferring a number of powers to local authorities with a view to local management. Local and regional authorities then appear as an essential link in the implementation of public policies at the local level. Their genuine autonomy in financial and administrative matters is a necessary condition for achieving local development objectives. However, a review of the existing literature reveals that these communities do not have real autonomy in public policy decision-making, which is illustrated by mixed development at the local level.

Keywords: public policy, decentralization, territorial communities, local development, resources

#### 1. Introduction

The binomial "local-national" is not only old, but it is also probably inherent in any state regardless of what it is. This duality can be translated by imbalances and tensions, but it commits necessary relations between the central authority and the local authorities, which is qualified of territorial community.

The expression territorial community refers to the decentralization that is called the territorial; the expression "public policy," with respect to it, returns to the state. With regard to African countries, the debate around the decentralization, although old, has taken the magnitude toward the end of 90 years. The foundation of the accentuation of this debate has been the approximation of the government of the local actors for involvement of the latter in the decisions of public policy for a better efficiency of the actions undertaken.

The achievement of the decentralization remains subject to the legal plan to the respect of three essential conditions: the existence of a sphere of specific skills for the benefit of the local communities; the taking in charge of local affairs by authorities at the base, independent of the central power both by their mode of

designation; and the evaluation of their actions as for their revocation. The emphasis is on a sufficient autonomy of these local authorities in the management of their own affairs. Consequently, the decentralization assumes the existence and the accountability of the dismemberment of the state, spends the management of local affairs by officials and local elected representatives, and recognizes the relevance and the effectiveness of the management of proximity.

to do and what they are doing in reality [3]. Of this fact, they consist of a series of

These definitions emphasize the government actors (public authorities, political or administrative). They neglect the impact of other actors, members of political parties, electoral or administered populations, in the decision or the nondecision to make the public policies. It is to correct this failure that a definition involving all actors has appeared. As well, public policies are presented as the set of interrelated

Other definitions are a complement with the emphasis on the subject of public

When the object of public policy is defined in a precise way, the authors generally make a reference to the notions of problems or even to conflicts. These concepts allow you to make a clarification on the "stimuli," which seek to respond to the public policies. As well, public policies are actions or inactions in response to requirements [5]. It is also of actions oriented toward the settlement of a problem [6]. Another approach presents the public policies as a series of action or inaction that public authorities choose to adopt to solve a problem or an interlocking set of problems [7]. It is important to note that the stimuli to the origin of the public policies are internal or external to the system policy being, whereas the political

The purposes or the solutions sought are at the center of some of the definitions of public policies. In questioning the why of public policies, it appears that these are of the order of the project and includes values and practices sought [8]. The concept of purpose is also essential in the sense that public policies refer

to the selection of goals and the means to achieve, therefore, in search of

A public policy may be presented as a set of activities (or non-activities) of public authorities (central, regional, or local) to provide solutions to the problems of society. This response consists of actions/public interventions through legislation, regulation, taxation, transfers, and public expenditure to meet a request from

History allows you to raise the fields, actions, means, and objectives of public policies that were varied in time. These different variations can be used to draw up

The typologies of policies most used have been drawn up in the 1970s [9]. They combine two dimensions: the instruments of public action and the recipients. They are available through two parameters: the type of national (individual or collective) and the type of constraint (direct or indirect). The pooling of dimensions and

• Regulatory policies that target individuals by means of a direct constraint. They consist to enact mandatory rules which apply to any individual in a given

constraint. They are based on the allocation of permissions or specific benefits.

• The allocative policies which target individuals by means of an indirect

parameters allows to distinguish four typologies of public policy:

action or inaction, more than inactions or specific decisions.

Decentralized Territorial Communities and Implementation of Public Policies:…

decision, taken by an actor or a group of political actor [4].

2.1.2 Anchor on the problems and the solutions

DOI: http://dx.doi.org/10.5772/intechopen.80617

system can be the object of an economic policy.

policies.

solutions [4].

the community in a specific area.

2.2 Typology of public policies

the typology of public policies.

situation.

57

In the specific case of Cameroon, the decentralization has been endorsed by the Constitution of 1996 which made this country a unitary decentralized state. This implies the recognition of the existence of local communities and the maintenance of the unity of the state. Eight years later, a series of legal text have brought clarification on the objectives assigned to decentralization and the territorial communities whose emphasis is on the promotion of development at the local level. Furthermore, the laws of the decentralization of 2004 have redefined the relationship between the central government and the local authority in matters of public policy.

Entering an operational phase in 2010, the territorial communities are seen to transfer certain skills and the appropriate means to give impetus to the development at the local level through appropriate public policies. This article allows you to present the role played by the territorial communities in the implementation of public policies in the Cameroonian context. To achieve this, a documentary review is undertaken to identify the key concepts, present the characteristics of the decentralization of Cameroon, and state the role played by the territorial communities in the implementation of public policies.

#### 2. Public policy: response of the political actors to a problem of society

In a given society, any problem can become a policy since the question is to know by what mechanisms. It is safe, in any case, that the triggering of the public action is not linked to any threshold of the intensity of the problem. For example, the relationship between the onset of policies for the protection of the environment in the year 1970 and the pollution of the era of the industrial revolution cannot be established. Even if we suppose the question of the identification of the problem resolved (everyone agrees today to consider that there are problems of pollution, delinquency, or poverty), it remains to be determined from what threshold of intensity public action should be triggered.

#### 2.1 What is a public policy?

Public policies, the fact of the multiplicity of research work, are variously defined. However, these definitions are functions of the following elements: the actors and the activities as well as the problems and the solutions.

#### 2.1.1 Anchor on the actors and their activities

The specialists of this current perception of public policies see the public policy as activities or absences of activities on the part of actors defined more or less precisely.

The public policy is defined as everything that the public authorities decide to do or not to do [1]. In other words, public policies are the actions undertaken by the government [2]. Other authors present government policies such as this that the political and administrative authorities, legitimately constituted, decide to do or not

#### Decentralized Territorial Communities and Implementation of Public Policies:… DOI: http://dx.doi.org/10.5772/intechopen.80617

to do and what they are doing in reality [3]. Of this fact, they consist of a series of action or inaction, more than inactions or specific decisions.

These definitions emphasize the government actors (public authorities, political or administrative). They neglect the impact of other actors, members of political parties, electoral or administered populations, in the decision or the nondecision to make the public policies. It is to correct this failure that a definition involving all actors has appeared. As well, public policies are presented as the set of interrelated decision, taken by an actor or a group of political actor [4].

Other definitions are a complement with the emphasis on the subject of public policies.

#### 2.1.2 Anchor on the problems and the solutions

designation; and the evaluation of their actions as for their revocation. The emphasis is on a sufficient autonomy of these local authorities in the management of their own affairs. Consequently, the decentralization assumes the existence and the accountability of the dismemberment of the state, spends the management of local affairs by officials and local elected representatives, and recognizes the relevance

In the specific case of Cameroon, the decentralization has been endorsed by the Constitution of 1996 which made this country a unitary decentralized state. This implies the recognition of the existence of local communities and the maintenance of the unity of the state. Eight years later, a series of legal text have brought clarification on the objectives assigned to decentralization and the territorial communities whose emphasis is on the promotion of development at the local level. Furthermore, the laws of the decentralization of 2004 have redefined the relationship between the central government and the local authority in matters of public

Entering an operational phase in 2010, the territorial communities are seen to transfer certain skills and the appropriate means to give impetus to the development at the local level through appropriate public policies. This article allows you to present the role played by the territorial communities in the implementation of public policies in the Cameroonian context. To achieve this, a documentary review is undertaken to identify the key concepts, present the characteristics of the decentralization of Cameroon, and state the role played by the territorial communities in

2. Public policy: response of the political actors to a problem of society

In a given society, any problem can become a policy since the question is to know by what mechanisms. It is safe, in any case, that the triggering of the public action is not linked to any threshold of the intensity of the problem. For example, the relationship between the onset of policies for the protection of the environment in the year 1970 and the pollution of the era of the industrial revolution cannot be established. Even if we suppose the question of the identification of the problem resolved (everyone agrees today to consider that there are problems of pollution, delinquency, or poverty), it remains to be determined from what threshold of

Public policies, the fact of the multiplicity of research work, are variously defined. However, these definitions are functions of the following elements: the

The specialists of this current perception of public policies see the public policy

The public policy is defined as everything that the public authorities decide to do or not to do [1]. In other words, public policies are the actions undertaken by the government [2]. Other authors present government policies such as this that the political and administrative authorities, legitimately constituted, decide to do or not

as activities or absences of activities on the part of actors defined more or less

actors and the activities as well as the problems and the solutions.

and the effectiveness of the management of proximity.

Public Economics and Finance

the implementation of public policies.

intensity public action should be triggered.

2.1.1 Anchor on the actors and their activities

2.1 What is a public policy?

precisely.

56

policy.

When the object of public policy is defined in a precise way, the authors generally make a reference to the notions of problems or even to conflicts. These concepts allow you to make a clarification on the "stimuli," which seek to respond to the public policies. As well, public policies are actions or inactions in response to requirements [5]. It is also of actions oriented toward the settlement of a problem [6]. Another approach presents the public policies as a series of action or inaction that public authorities choose to adopt to solve a problem or an interlocking set of problems [7]. It is important to note that the stimuli to the origin of the public policies are internal or external to the system policy being, whereas the political system can be the object of an economic policy.

The purposes or the solutions sought are at the center of some of the definitions of public policies. In questioning the why of public policies, it appears that these are of the order of the project and includes values and practices sought [8]. The concept of purpose is also essential in the sense that public policies refer to the selection of goals and the means to achieve, therefore, in search of solutions [4].

A public policy may be presented as a set of activities (or non-activities) of public authorities (central, regional, or local) to provide solutions to the problems of society. This response consists of actions/public interventions through legislation, regulation, taxation, transfers, and public expenditure to meet a request from the community in a specific area.

#### 2.2 Typology of public policies

History allows you to raise the fields, actions, means, and objectives of public policies that were varied in time. These different variations can be used to draw up the typology of public policies.

The typologies of policies most used have been drawn up in the 1970s [9]. They combine two dimensions: the instruments of public action and the recipients. They are available through two parameters: the type of national (individual or collective) and the type of constraint (direct or indirect). The pooling of dimensions and parameters allows to distinguish four typologies of public policy:



2.3.2 The means of control of the public policies of the decentralized territorial

Decentralized Territorial Communities and Implementation of Public Policies:…

The political actors, like the decentralized territorial communities, use public policies as a means of control, to their advantage, for decisions adopted for the regulation of public affairs. The decisions matter to the political actors because they relate to their resources [10]. Furthermore, the power is shown by the capacity of the political actors to limit the scope of the decision to which does not threaten their

The resources, thus, constitute a means of control in the implementation of public policies. A categorization of resources can be made in the functions of the various strengths available in a territorial community to make its effective preferences about the various issues of public policy. The literature allows to highlight

• The normative resources, which correspond to the set of rules and values that the political actors use to serve as assets or that they seek to control the issues.

• The statutory resources, which refer to official or actual positions occupied by

• The action resources, which consist the levers of actions among the recipients

• The relational resources, which refer to the links established with other actors.

• The human resources that return to the workforce which has a political actor.

The resources, thus, appear as instruments of public policy; they can be enabling

This section will be allowed to review the concept of public policy. They can be presented as recurrent attempts of regulation of public affairs by actors who seek to control decisions on the occasion of the process of formulation or implementation. The process of monitoring of policies by some actors, like the decentralized territorial communities, gives rise on the basis of the resources available and of power relations with other actors. The following section will illustrate the relationship of the decentralized territorial communities in the implementation of public policies in

3. Places of the decentralized territorial communities in Cameroon in

Invoking the decentralized territorial communities in fact appeals to the decentralization policy implementation in a country. For the specific case of Cameroon, the decentralization process has been recognized as a pillar of the socioeconomic development in the Constitution of 18 January 1996 [12]. This section will review

• The informational resources, which refer to information that has a political

• The hardware resources that make reference to the material and financial

the actors. They constitute for the latter means of power.

actor and that it can use to influence public policy.

for some actors and binding for others.

the implementation of public policies

communities

DOI: http://dx.doi.org/10.5772/intechopen.80617

resources [11].

seven categories of resources:

of control.

resources.

Cameroon.

59

#### Table 1.

Typologies of public policy.


#### 2.3 Decentralized territorial communities and link of the implementation of public policies

Public policies are defined at the national level by the competent authorities, legislature and government, but they need a local anchor to realize that any policy could not be that territorialized. This "territorialization" is also done well with the services of the state at the local level than with the territorial communities. In fact, a unitary state cannot happen, our days, of a certain degree of decentralization. As well, the unitary decentralized state implies an association of territorial communities in the formulation of public policies decided at the national level.

#### 2.3.1 The criteria for the characterization of the decentralized territorial communities

The territorial communities are separate administrative structures of the administration of the state, which must support the interests of the population of a specific territory. According to the territorial extent, three types of community can be identified: the commons, departments, and regions. Whatever the type, three criteria are essential in the definition of territorial communities:


However, the territorial communities do not follow all the same rules of operation and do not have the same status.

Decentralized Territorial Communities and Implementation of Public Policies:… DOI: http://dx.doi.org/10.5772/intechopen.80617

#### 2.3.2 The means of control of the public policies of the decentralized territorial communities

The political actors, like the decentralized territorial communities, use public policies as a means of control, to their advantage, for decisions adopted for the regulation of public affairs. The decisions matter to the political actors because they relate to their resources [10]. Furthermore, the power is shown by the capacity of the political actors to limit the scope of the decision to which does not threaten their resources [11].

The resources, thus, constitute a means of control in the implementation of public policies. A categorization of resources can be made in the functions of the various strengths available in a territorial community to make its effective preferences about the various issues of public policy. The literature allows to highlight seven categories of resources:


The resources, thus, appear as instruments of public policy; they can be enabling for some actors and binding for others.

This section will be allowed to review the concept of public policy. They can be presented as recurrent attempts of regulation of public affairs by actors who seek to control decisions on the occasion of the process of formulation or implementation. The process of monitoring of policies by some actors, like the decentralized territorial communities, gives rise on the basis of the resources available and of power relations with other actors. The following section will illustrate the relationship of the decentralized territorial communities in the implementation of public policies in Cameroon.

#### 3. Places of the decentralized territorial communities in Cameroon in the implementation of public policies

Invoking the decentralized territorial communities in fact appeals to the decentralization policy implementation in a country. For the specific case of Cameroon, the decentralization process has been recognized as a pillar of the socioeconomic development in the Constitution of 18 January 1996 [12]. This section will review

• Redistributive policies which aim groups of individuals by means of a direct constraint. They operate transfers between groups, often in a logic of

Constraint

Public Individual Regulatory policy Allocative policy

Direct Indirect

Group Redistributive policy Constituent policy

• The procedural policies which aim groups of individuals by means of an indirect constraint. They lay down rules or procedures to follow that must

2.3 Decentralized territorial communities and link of the implementation of

Public policies are defined at the national level by the competent authorities, legislature and government, but they need a local anchor to realize that any policy could not be that territorialized. This "territorialization" is also done well with the services of the state at the local level than with the territorial communities. In fact, a unitary state cannot happen, our days, of a certain degree of decentralization. As well, the unitary decentralized state implies an association of territorial communi-

2.3.1 The criteria for the characterization of the decentralized territorial communities

The territorial communities are separate administrative structures of the administration of the state, which must support the interests of the population of a specific territory. According to the territorial extent, three types of community can be identified: the commons, departments, and regions. Whatever the type, three

• The moral personality, which enables him to act in justice. Allied to the decentralization, he makes the benefits for the territorial community of the administrative autonomy. It has its own personnel and its own budget.

• The specific skills, which are entrusted to it by the legislator (parliament). A territorial community is not a state within the state. It does not hold

representatives. Decisions are then implemented by the executive power's

However, the territorial communities do not follow all the same rules of opera-

sovereignty and cannot acquire, its sole initiative, new bodies.

• The power of decision, by deliberation within a council of elected

ties in the formulation of public policies decided at the national level.

criteria are essential in the definition of territorial communities:

respect the actors of public policies (Table 1).

solidarity.

Typologies of public policy.

Public Economics and Finance

Source: Ref. [9].

Table 1.

public policies

premises.

58

tion and do not have the same status.

the tasks assigned to the decentralization and the profile of the territorial communities as well as their missions and the state of things.

The territorial communities are involved in virtually all areas of the life of the populations: social, economic, health, and education. The specific responsibilities of

The regions The commons

• Provide support to the

social reintegration • Prepare the acts of civil status (copy and extract of the act of birth, marriage act, act of death) • Create, equip, manage, and maintain the health centers • Support the training of health and social issues that exist • Make quality controls in the structures of production, packaging, storage, and distribution of food entering the power supply of the populations • Ensure drinking water supply in areas not covered by the public network for the distribution of

the water

• Promote the agropastoral activities, fishery, and crafts • Create, develop, and maintain

• Build, equip, manage, and maintain markets, stations road,

as well as the garbage • Combat nuisance and pollution, including pollution of surface water and groundwater • Ensure the hygiene and the safety of public places • Plan and monitor the activities for the protection of the

• Plan and execute the communal

management of industrial waste,

• Improve access to drinking water • Organize and manage exhibitions of a commercial character • Promote and support the microprojects generators of revenue and creators of jobs

tourist sites

and abattoirs

investments • Monitor and control the

environment

maintenance and management of the centers for promotion and

• Promote the hygiene and safety as well as the measures for the prevention of diseases • Organize and manage the supply of drugs and other health

• Participate in the development of the health map of the region; create, equip, manage, and maintain the infrastructure of

• Support the health infrastructure

• Move the contracts/plans for the achievement of the objectives of development in partnership of

• Promote small- and mediumsized enterprises (SMES) • Organize fairs and exhibitions • Promote the crafts and the agropastoral activities • Promote the regional associations of economic operators • Promote the tourism

• Promote microprojects, revenue generators, and creators of jobs • Protect, maintain and manage

• Combat nuisance and pollution of waters; Create wood and

• Emergency planning and the prevention of risks • Develop and execute plans for regional development • Organize and manage the intercity public transport

the natural sites

protected areas

• Maintain and manage the training centers and social

each community in the different areas are reflected in Table 2.

Decentralized Territorial Communities and Implementation of Public Policies:…

Responsibilities

DOI: http://dx.doi.org/10.5772/intechopen.80617

products

health

that exists

reintegration • Organize and manage the assistance to needy layers • List the infrastructure of vocational training as well as the trades creation and maintenance of rural roads not classified, as well as the construction and management of trays of the

crossing

the state

Economique

61

Areas Social and health policy

#### 3.1 Decentralization according to the Cameroonian context

The constitutional revision of 18 January 1996 defines the legal regime and sets out the general principles of the decentralization in Cameroon. Also, Cameroon is a unitary state and decentralized. The law of orientation of the decentralization promulgated on 22 July 2004 is clarified in the institutional context of decentralization in Cameroon. In its second article, it defines the decentralization as a transfer by the state to the decentralized territorial communities of particular skills and appropriate means; this transfer obeys the principles of subsidiarity, progressivity, and complementarity [13].

For the Cameroonian legislature, decentralization must constitute the fundamental axis of promotion of development, democracy, and good governance at the local level. In the specific, it is question:


#### 3.2 The decentralized territorial communities in Cameroon: profile and responsibilities

The decentralized communities are defined as legal persons of public law, enjoying administrative and financial autonomy for the management of regional and local interests. The constitutional revision of 18 January 1996 defines two main decentralized communities: the regions and communes.

The commune is an old entity of the decentralization process in Cameroon initiated since 1974. The reforms of 2004 applicable to the commons specify the mission of the commons in the decentralization process. Those are the basic local communities which it returns the competence to manage local affairs under the guardianship of the state, in view of the social and cultural development of its people [15].

The region is the entity newly instituted by the Constitution of 1996. The reform of 2004 [16] devotes the missions identical to those of the commons. The only difference lies in the territorial coverage of the actions. The activities of the regions extend over the whole of the commons of its territorial jurisdiction which is not the case for the common whose activities do not limit that has its territory.

The territorial communities are involved in virtually all areas of the life of the populations: social, economic, health, and education. The specific responsibilities of each community in the different areas are reflected in Table 2.


the tasks assigned to the decentralization and the profile of the territorial commu-

The constitutional revision of 18 January 1996 defines the legal regime and sets out the general principles of the decentralization in Cameroon. Also, Cameroon is a unitary state and decentralized. The law of orientation of the decentralization promulgated on 22 July 2004 is clarified in the institutional context of decentralization in Cameroon. In its second article, it defines the decentralization as a transfer by the state to the decentralized territorial communities of particular skills and appropriate means; this transfer obeys the principles of subsidiarity, progressivity,

For the Cameroonian legislature, decentralization must constitute the fundamental axis of promotion of development, democracy, and good governance at the

• In the area of promotion of local development: the achievement (increase, improvement) of basic social infrastructure. It also induces the improvement of incomes of the population at the base, thanks in particular to the promotion and financing of income-generating activities, for an improvement in the

• In regard to the strengthening of local democracy: the designation, either by consensus or by vote, by local populations of their representatives in the

• With regard to the promotion of good governance at the local level: the organization and functioning of communities through the exercise of power and the involvement of all the local actors (NGOs, organizations at the base,

local population, etc.). The control of the local administration in the community of the inhabitants of the community is a pledge of the local

3.2 The decentralized territorial communities in Cameroon: profile and

The decentralized communities are defined as legal persons of public law, enjoying administrative and financial autonomy for the management of regional and local interests. The constitutional revision of 18 January 1996 defines two main

The commune is an old entity of the decentralization process in Cameroon initiated since 1974. The reforms of 2004 applicable to the commons specify the mission of the commons in the decentralization process. Those are the basic local communities which it returns the competence to manage local affairs under the guardianship of the state, in view of the social and cultural development of its

The region is the entity newly instituted by the Constitution of 1996. The reform

of 2004 [16] devotes the missions identical to those of the commons. The only difference lies in the territorial coverage of the actions. The activities of the regions extend over the whole of the commons of its territorial jurisdiction which is not the

case for the common whose activities do not limit that has its territory.

nities as well as their missions and the state of things.

and complementarity [13].

Public Economics and Finance

local level. In the specific, it is question:

decision-making bodies.

governance [14].

responsibilities

people [15].

60

quality of life of populations and of their being.

decentralized communities: the regions and communes.

3.1 Decentralization according to the Cameroonian context


3.3 State of the availability of resources of the decentralized territorial

Decentralized Territorial Communities and Implementation of Public Policies:…

on the financial plan, human, statutory, physical, and normative.

(although these are now "managed by the state")

3.3.1 State of financial resources

DOI: http://dx.doi.org/10.5772/intechopen.80617

• Resources from the treasury

intervention in local management

difficult to produce their management account [18].

following legal provisions:

development

3.3.2 Normative resources

63

communities of Cameroon for an implementation of optimal public policies

The text of law on the orientation of the decentralization stipulates that the state should transfer to the communities the skills and appropriate means. This transfer is in reality the resources granted to them for the implementation of public policies at the local level. The state of the resources available to the communities is presented

Financial resources should give local and regional authorities financial autonomy. This is also the basis for the transfer of financial resources by the state to local

authorities. Cameroonian municipalities manage three types of resources:

• Own resources derived from activities carried out on their territory

• Resources obtained within the framework of decentralized cooperation

• Equalization, which is the obvious manifestation of the guardianship's

• The power granted to the prefect to correct an unbalanced budget

• The financial controller's approval of any financial act by local authorities

It should be noted that according to the legal provisions [17], "authorizing officers are required to produce an administrative account showing the acts of their management and a performance report on programmes and projects." But only the approximate knowledge of the budgetary procedure by many municipal authorities leads them to budget deviations that are difficult to justify and to a low mobilization of their own resources, which are nevertheless necessary for the smooth running of services and the inclusive development of the commune. They would find it very

The normative resources are the bedrock of the administrative autonomy devolved to territorial communities by the legislator. However, the reading of the legal provisions and the observation of current practices allow raising the limits:

• All deliberations of the territorial communities must be approved by the tutorship.

However, the financial autonomy of local authorities is relative because of the

• Levying of 10% of the additional municipal fees by the state, which reduces the self-financing capacity of local authorities and, thus, compromises local

#### Table 2.

Responsibilities of the municipalities and regions in the framework of decentralization in Cameroon.

The reading of the legal framework and regulatory governing the decentralized territorial communities in Cameroon allows to raise that they have three essential criteria, namely, the moral personality, the specific skills, and the power of decision. It remains only to examine the effectiveness of the resources of those communities for the implementation of public policies.

#### 3.3 State of the availability of resources of the decentralized territorial communities of Cameroon for an implementation of optimal public policies

The text of law on the orientation of the decentralization stipulates that the state should transfer to the communities the skills and appropriate means. This transfer is in reality the resources granted to them for the implementation of public policies at the local level. The state of the resources available to the communities is presented on the financial plan, human, statutory, physical, and normative.

#### 3.3.1 State of financial resources

Financial resources should give local and regional authorities financial autonomy. This is also the basis for the transfer of financial resources by the state to local authorities. Cameroonian municipalities manage three types of resources:


However, the financial autonomy of local authorities is relative because of the following legal provisions:


It should be noted that according to the legal provisions [17], "authorizing officers are required to produce an administrative account showing the acts of their management and a performance report on programmes and projects." But only the approximate knowledge of the budgetary procedure by many municipal authorities leads them to budget deviations that are difficult to justify and to a low mobilization of their own resources, which are nevertheless necessary for the smooth running of services and the inclusive development of the commune. They would find it very difficult to produce their management account [18].

#### 3.3.2 Normative resources

The normative resources are the bedrock of the administrative autonomy devolved to territorial communities by the legislator. However, the reading of the legal provisions and the observation of current practices allow raising the limits:

• All deliberations of the territorial communities must be approved by the tutorship.

The reading of the legal framework and regulatory governing the decentralized territorial communities in Cameroon allows to raise that they have three essential criteria, namely, the moral personality, the specific skills, and the power of decision. It remains only to examine the effectiveness of the resources of those communities

Responsibilities of the municipalities and regions in the framework of decentralization in Cameroon.

for the implementation of public policies.

Responsibilities

habitat

Cultural life

Public Economics and Finance

Source: Authors.

Table 2.

62

The regions The commons

• Establish industrial zones • Manage, in partnership with the State and the region, the contracts and the plans of the commune in order to achieve the objectives of development • Plan and control the occupation of land by issuing the building permit, to subdivide, demolish

and implement

• Create, maintain the municipal roads and develop the related activities relating thereto • Develop and servicing the habitable space

• Name and address the streets, buildings and public spaces

• Create, equip, manage, and maintain schools, nursery, primary, and preschool • Recruit staff for these schools • Provide support to the

• Plan the insertion and the professional reintegration of

• Promote and animate sports activities and the youth • Create and manage municipal stages, swimming pools, sports courses, the areas of games, and

• Organize days and cultural events, traditional, literary and artistic works with competition • Support the cultural associations; in partnership with the region, promoting the national languages

of the schools • Support the creation and maintenance of the educational infrastructure and training

young people

the arenas

centers

management and administration

• Develop the regional plan of development of the territory • Coordinate the actions of development

• Support the plans and actions of communal urbanization and

• Create, equip, manage, and maintain the high schools and

• Recruit staff for these schools • Participate in the development of the school map of the region • Distribute and allocate aid and

• Support the commons for the acquisition of textbooks, school supplies, and teaching materials

• Promote the partnership schools-

• Promote, organize, and manage the sports activities • Put in place the infrastructure and equipment for the promotion of local cultures

public colleges

school grants

young people

companies

for training centers • Develop the school map related to technical and vocational education as well as the plans for the professional insertion of


#### 3.3.3 Statutory resources

The statutory resources refer to the operational organization and function of the territorial community. In practice, each organization should put to a specific position a person who can have control. In the framework of territorial communities in Cameroon, some employees are designated by the central administration:

4. Conclusion

public policies.

local management.

65

(facilitator, regulator, and developer).

DOI: http://dx.doi.org/10.5772/intechopen.80617

fragile to serve as a basis for local development.

The objective of this article was to gauge the weight of decentralized local authorities in the implementation of public policies in Cameroon and thus to assess the effectiveness of decentralization. The result was a mixed weight of decentralization on the local development front. This reflects the efforts required for local authorities to be genuinely involved in the formulation and implementation of local

Decentralized Territorial Communities and Implementation of Public Policies:…

Decentralization is not an innovation in Cameroon, but related practices do not always follow the existing legal framework. It is not enough just here to want but to give power and let the local authorities act. The state would come after to control and not to rule. Indeed, decentralized local authorities will only play their part perfectly if the strategic state/CTD partnership is backed by a clear legal and regulatory framework, lending little to variable geometric interpretations, and if the state improves its strategy for managing its triple function of the strategic state

On the normative level, the legal arsenal in Cameroon is well provided in terms of decentralization, and its implementation is necessary to achieve local development objectives. Its operationalization is manifested by the transfer of skills in several fields that are the social, economic, and cultural. However, a relevant analysis of the legal framework and the mechanisms for setting up effective decentralization in Cameroon shows that in reality, as things stand, local authorities have no financial autonomy and have very limited administrative autonomy. Beyond the technical capacities that they do not yet have, we note the weight of supervision that weighs on those responsible at the local level. The existence of so many shortcomings attests that decentralized local authorities are not always provided with adequate local services and personnel for the optimal exercise of their competences. This assessment is the marker of an administrative autonomy of the communes still

On the financial level, given that state allocations are largely insufficient to enable local authorities to develop, only local taxes can play a determining role in their financial empowerment. Public authorities should, therefore, review the distribution of local tax revenues in such a way that local authorities are able to finance themselves and reduce financial intermediation as regards the financial circuit of local taxes. One strategy could initially be to reduce the procedures for making financial resources available to local authorities and to strengthen the mechanism for monitoring the implementation by the latter of their program budgets. In statutory terms, the legitimacy of government delegates should be

guaranteed. Therefore, they should be chosen by municipal councilors from among elected mayors who demonstrate the will to assume these functions. Moreover, the state should put in place a strategy that would ensure that, in the long term, the municipal council can be the only body that controls the mayor's action at the local level and effectively plays the role that the National Assembly plays alongside the executive at the national level. Also, the municipal receiver and the mayor's secretary should be placed under the authority of the mayor in a vertical collaborative relationship in order to limit confrontations between these officials in matters of


#### 3.3.4 Human resources

The organic framework on decentralization provides that the territorial communities recruit and manage freely their human resources. However, some officials of the communities, as seen by examining the statutory resources, are appointed by the central administration. In addition to this, there is a tendency to neglect the recruitment of staff in particular with regard to the adequacy profile/employment and a lack of the texts of application on the local public service.

#### 3.3.5 Hardware resources

The limited nature of the financial resources available to the territorial communities is borne from their staffing in materials and equipment to fully play their role in the implementation of public policies. The case visible enough is that of the development of communal roads or the equipment of communal health centers. This state of things can be explained by the absence of a regulatory framework on the devolution to the commons of material means corresponding to the block of skills already transferred.

The review of the status of the resources available to the decentralized territorial communities allows to raise that these actors of public policies do not have real means of decisions on the implementation of public policies in Cameroon. In effect, the National Council of Decentralization noted that local development is still mixed in Cameroon and this is despite the advances made in the transfer of skills and resources in the House of Commons since 2010 [19]. Also, this local development remains focused essentially on the political and social dimensions and the detriment of the economic dimension.

Decentralized Territorial Communities and Implementation of Public Policies:… DOI: http://dx.doi.org/10.5772/intechopen.80617

#### 4. Conclusion

• The guardianship may suspend the municipal council, the dissolve.

Cameroon, some employees are designated by the central administration:

The statutory resources refer to the operational organization and function of the territorial community. In practice, each organization should put to a specific position a person who can have control. In the framework of territorial communities in

• The secretary-general of the town hall who is a servant placed at the disposal of the municipality by the department in charge of the decentralization and deals with the mayor in a relationship of a horizontal collaboration: he is not his

collaboration: he is not his subordinate and has no orders to receive from him.

• The delegate of the government who is an agent appointed by the state and has more weight than the elected representatives of the people that are the mayors.

The organic framework on decentralization provides that the territorial communities recruit and manage freely their human resources. However, some officials of the communities, as seen by examining the statutory resources, are appointed by the central administration. In addition to this, there is a tendency to neglect the recruitment of staff in particular with regard to the adequacy profile/employment

The limited nature of the financial resources available to the territorial communities is borne from their staffing in materials and equipment to fully play their role in the implementation of public policies. The case visible enough is that of the development of communal roads or the equipment of communal health centers. This state of things can be explained by the absence of a regulatory framework on the devolution to the commons of material means corresponding to the block of

The review of the status of the resources available to the decentralized territorial

communities allows to raise that these actors of public policies do not have real means of decisions on the implementation of public policies in Cameroon. In effect, the National Council of Decentralization noted that local development is still mixed in Cameroon and this is despite the advances made in the transfer of skills and resources in the House of Commons since 2010 [19]. Also, this local development remains focused essentially on the political and social dimensions and the detriment

and a lack of the texts of application on the local public service.

• The municipal tax collector who is an official of the ministry in charge of finance, which deals with the authorizing officer in a relationship of

• The mayor can be suspended by the guardianship.

3.3.3 Statutory resources

Public Economics and Finance

subordinate.

3.3.4 Human resources

3.3.5 Hardware resources

skills already transferred.

of the economic dimension.

64

The objective of this article was to gauge the weight of decentralized local authorities in the implementation of public policies in Cameroon and thus to assess the effectiveness of decentralization. The result was a mixed weight of decentralization on the local development front. This reflects the efforts required for local authorities to be genuinely involved in the formulation and implementation of local public policies.

Decentralization is not an innovation in Cameroon, but related practices do not always follow the existing legal framework. It is not enough just here to want but to give power and let the local authorities act. The state would come after to control and not to rule. Indeed, decentralized local authorities will only play their part perfectly if the strategic state/CTD partnership is backed by a clear legal and regulatory framework, lending little to variable geometric interpretations, and if the state improves its strategy for managing its triple function of the strategic state (facilitator, regulator, and developer).

On the normative level, the legal arsenal in Cameroon is well provided in terms of decentralization, and its implementation is necessary to achieve local development objectives. Its operationalization is manifested by the transfer of skills in several fields that are the social, economic, and cultural. However, a relevant analysis of the legal framework and the mechanisms for setting up effective decentralization in Cameroon shows that in reality, as things stand, local authorities have no financial autonomy and have very limited administrative autonomy. Beyond the technical capacities that they do not yet have, we note the weight of supervision that weighs on those responsible at the local level. The existence of so many shortcomings attests that decentralized local authorities are not always provided with adequate local services and personnel for the optimal exercise of their competences. This assessment is the marker of an administrative autonomy of the communes still fragile to serve as a basis for local development.

On the financial level, given that state allocations are largely insufficient to enable local authorities to develop, only local taxes can play a determining role in their financial empowerment. Public authorities should, therefore, review the distribution of local tax revenues in such a way that local authorities are able to finance themselves and reduce financial intermediation as regards the financial circuit of local taxes. One strategy could initially be to reduce the procedures for making financial resources available to local authorities and to strengthen the mechanism for monitoring the implementation by the latter of their program budgets.

In statutory terms, the legitimacy of government delegates should be guaranteed. Therefore, they should be chosen by municipal councilors from among elected mayors who demonstrate the will to assume these functions. Moreover, the state should put in place a strategy that would ensure that, in the long term, the municipal council can be the only body that controls the mayor's action at the local level and effectively plays the role that the National Assembly plays alongside the executive at the national level. Also, the municipal receiver and the mayor's secretary should be placed under the authority of the mayor in a vertical collaborative relationship in order to limit confrontations between these officials in matters of local management.

### Author details

Guy Yakana Yombi\*, Mounton Chouaïbou and Lucie Yakana Agoume Univerité of Yaoundé, SOA, Cameroon

\*Address all correspondence to: Guyyakana@yahoo.com

© 2019 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

References

46(4):1097-1116

[Doctoral thesis]; 1985

1970

1(1):51-77

Press; 1984

1992:1-29

298-310

67

[1] Dye TR. Party and policy in the States. The Journal of Politics. 1984;

DOI: http://dx.doi.org/10.5772/intechopen.80617

Decentralized Territorial Communities and Implementation of Public Policies:…

[12] Act No. 96/06 of 18 January 1996 on the Revision of the Constitution of 02 June 1972 in the Republic of Cameroon

[13] Act No. 2004-17 of 22 July 2004 in the Orientation of Decentralization in

[14] Mback CN. Decentralization in Africa: Issues and Prospects.

Contemporary Africa; 2001. pp. 95-114

[15] Act No. 2004/018 of 22 July 2004 Laying Down the Rules Applicable to the House of Commons in the Republic

[16] Act No. 2004/019 of 22 July 2004 Laying Down the Rules Applicable to the Regions in the Republic of

[17] Act No. 2009/011 of 10 July 2009 on the Financial Regime of Decentralized Territorial Authorities in the Republic of

[18] CAMERCAP-PARC Study with a View to Improving the Contribution of Decentralized Territorial Communities to Growth Through the Supply of Available Factors of Production; 2018

[19] National Council of Decentralization. Final Report of the Impact Evaluation Study of the Decentralization Policy on the Cameroonian populations since

the Republic of Cameroon

of Cameroon

Cameroon

Cameroon

2010; 2016

[2] Sharkansky I. Policy Analysis in Political Science. Markham Pub. Co;

[3] Bellavance M. The quebecois clergy and the Canadian Confederation in 1867

[4] Jenkins WI. Policy Analysis: A Political and Organizational Perspective.

[5] Rakoff SH, Schaefer GF. Politics, policy, and political science: Theoretical alternatives. Politics and Society. 1970;

[6] Anderson MH. Madison Avenue in Asia: Politics and Transnational Advertising. Fairleigh Dickinson Univ

[7] Pal LA. The political executive and

[8] Kaplan A. Power and Society: A Framework for Political Inquiry. New Haven: Yale University Press; 1950

[9] Lowi TJ. Four systems of policy,

Administration Review. 1972;32(4):

[10] Lemieux V. The Québec Public Administration: Sectoral Developments, 1960–1985. Bélanger Yves and Lepage Laurent (under the direction of) Sillery: The Presses of the University of Quebec;

1989. 226 p. Canadian Journal of Political Science. 1990;23(3):562-564

University Press; 1970

[11] Bachrach P, Baratz MS. Power and Poverty: Theory and Practice. Oxford

politics, and choice. Public

political leadership in Alberta. Government and Politics in Alberta.

London: Mr. Robertson; 1978

Decentralized Territorial Communities and Implementation of Public Policies:… DOI: http://dx.doi.org/10.5772/intechopen.80617

#### References

[1] Dye TR. Party and policy in the States. The Journal of Politics. 1984; 46(4):1097-1116

[2] Sharkansky I. Policy Analysis in Political Science. Markham Pub. Co; 1970

[3] Bellavance M. The quebecois clergy and the Canadian Confederation in 1867 [Doctoral thesis]; 1985

[4] Jenkins WI. Policy Analysis: A Political and Organizational Perspective. London: Mr. Robertson; 1978

[5] Rakoff SH, Schaefer GF. Politics, policy, and political science: Theoretical alternatives. Politics and Society. 1970; 1(1):51-77

[6] Anderson MH. Madison Avenue in Asia: Politics and Transnational Advertising. Fairleigh Dickinson Univ Press; 1984

[7] Pal LA. The political executive and political leadership in Alberta. Government and Politics in Alberta. 1992:1-29

[8] Kaplan A. Power and Society: A Framework for Political Inquiry. New Haven: Yale University Press; 1950

[9] Lowi TJ. Four systems of policy, politics, and choice. Public Administration Review. 1972;32(4): 298-310

[10] Lemieux V. The Québec Public Administration: Sectoral Developments, 1960–1985. Bélanger Yves and Lepage Laurent (under the direction of) Sillery: The Presses of the University of Quebec; 1989. 226 p. Canadian Journal of Political Science. 1990;23(3):562-564

[11] Bachrach P, Baratz MS. Power and Poverty: Theory and Practice. Oxford University Press; 1970

[12] Act No. 96/06 of 18 January 1996 on the Revision of the Constitution of 02 June 1972 in the Republic of Cameroon

[13] Act No. 2004-17 of 22 July 2004 in the Orientation of Decentralization in the Republic of Cameroon

[14] Mback CN. Decentralization in Africa: Issues and Prospects. Contemporary Africa; 2001. pp. 95-114

[15] Act No. 2004/018 of 22 July 2004 Laying Down the Rules Applicable to the House of Commons in the Republic of Cameroon

[16] Act No. 2004/019 of 22 July 2004 Laying Down the Rules Applicable to the Regions in the Republic of Cameroon

[17] Act No. 2009/011 of 10 July 2009 on the Financial Regime of Decentralized Territorial Authorities in the Republic of Cameroon

[18] CAMERCAP-PARC Study with a View to Improving the Contribution of Decentralized Territorial Communities to Growth Through the Supply of Available Factors of Production; 2018

[19] National Council of Decentralization. Final Report of the Impact Evaluation Study of the Decentralization Policy on the Cameroonian populations since 2010; 2016

Author details

Public Economics and Finance

66

Univerité of Yaoundé, SOA, Cameroon

provided the original work is properly cited.

Guy Yakana Yombi\*, Mounton Chouaïbou and Lucie Yakana Agoume

© 2019 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium,

\*Address all correspondence to: Guyyakana@yahoo.com

**69**

**Chapter 5**

Implications

*Pina Puntillo*

**1. Introduction**

phenomena.

**Abstract**

Financial Relationships Between

Public Enterprises: Theoretical

The objective of this study is to analyze the institutional and organizational structure of public service companies in Italy. After analyzing the various reforms of the Public Administration, research has focused on the crisis and the insolvency of publicly owned companies, as, for the first time and recently the legislator has organically regulated the consequences of the insolvency of the same, affirming their general submission to bankruptcy and insolvency proceedings. Still the norm also outlined the procedure for the adoption of preventive plans should aim to avoid insolvency in financial hardship cases, and to remedy the crisis of the investee companies. After having dealt with the issue of historical evolution and territorial distribution of the phenomenon of public enterprises in Italy, aspects of the legal framework of the object of study will be addressed. The next section analyzes the contents of the reform of public companies, recalling the reference standards and the important news concerning the coverage of losses of companies. The new discipline produces important repercussions on public budgets and therefore on the community: for this reason, the conclusions of the study will deal with this aspect.

The objective of this study is to analyze the institutional and organizational structure of public service companies in Italy. This structure was the subject of a profound reform generated by reasons of public finance protection. After analyzing the concept of the public sector and the object of this study, the theoretical framework of the analysis will be addressed, which will be carried out from a historicaltemporal perspective, with an interpretation of a company nature on observation

In this sense, recalling what is reported in national and international literature, we analyzed the different strands of research that characterized the various reforms of the public administration. Research areas have shifted the objectives of the studies toward conditions of greater efficiency and value of public

Public Administration and

Foundations and Practical

**Keywords:** public service companies, default, budget, Italy

#### **Chapter 5**

## Financial Relationships Between Public Administration and Public Enterprises: Theoretical Foundations and Practical Implications

*Pina Puntillo*

### **Abstract**

The objective of this study is to analyze the institutional and organizational structure of public service companies in Italy. After analyzing the various reforms of the Public Administration, research has focused on the crisis and the insolvency of publicly owned companies, as, for the first time and recently the legislator has organically regulated the consequences of the insolvency of the same, affirming their general submission to bankruptcy and insolvency proceedings. Still the norm also outlined the procedure for the adoption of preventive plans should aim to avoid insolvency in financial hardship cases, and to remedy the crisis of the investee companies. After having dealt with the issue of historical evolution and territorial distribution of the phenomenon of public enterprises in Italy, aspects of the legal framework of the object of study will be addressed. The next section analyzes the contents of the reform of public companies, recalling the reference standards and the important news concerning the coverage of losses of companies. The new discipline produces important repercussions on public budgets and therefore on the community: for this reason, the conclusions of the study will deal with this aspect.

**Keywords:** public service companies, default, budget, Italy

#### **1. Introduction**

The objective of this study is to analyze the institutional and organizational structure of public service companies in Italy. This structure was the subject of a profound reform generated by reasons of public finance protection. After analyzing the concept of the public sector and the object of this study, the theoretical framework of the analysis will be addressed, which will be carried out from a historicaltemporal perspective, with an interpretation of a company nature on observation phenomena.

In this sense, recalling what is reported in national and international literature, we analyzed the different strands of research that characterized the various reforms of the public administration. Research areas have shifted the objectives of the studies toward conditions of greater efficiency and value of public

performance while allowing to identify and analyze the evolution of the various systems of planning and control of public administration. In consideration of the pathological phenomena that have occurred with increasing frequency in recent years, research has focused on the crisis and the insolvency of publicly owned companies, as, for the first time and recently the legislator has organically regulated the consequences of the insolvency of the same, affirming their general submission to bankruptcy and insolvency proceedings. Still the norm also outlined the procedure for the adoption of preventive plans should aim to avoid insolvency in financial hardship cases and to remedy the crisis of the investee companies. After having dealt with the issue of historical evolution and territorial distribution of the phenomenon of public enterprises in Italy, aspects of the legal framework of the object of study will be addressed. This last topic is very controversial in doctrine; in fact, far from being a mere academic exercise, the qualification of the legal nature of such enterprises involves significant practical consequences on the *disciplinary* level*.* The next section analyzes the contents of the reform of public companies, recalling the reference standards and the important news concerning the coverage of losses of companies. The new discipline produces important repercussions on public budgets and therefore on the community: for this reason the conclusions of the study will deal with this aspect.

#### **2. What constitutes the public sector and the public entities: defining boundaries**

The public sector is traditionally constituted by all organizations owned and controlled by government, which provide utilities and services to the community [1].

Especially public complex and difficult to define, inputs are not being easily measured, and as a consequence, it is difficult to value the public sector efficiency [2].

Public entities differ from private sector organizations, but rather the delivery of outcomes to stakeholders [3].

Bossi et al. [4] have identified specific characteristics that define the public sector in relation to the private sector:


**71**

fashion [1].

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical…*

In general terms, we can point out that the public sector has experienced great processes of intense transformation which have been caused mainly by two factors: (1) financial and tax burdens, and as a result, the increasing importance of an efficient public sector management and (2) society's new demands to improve

The modern public sector management boasts public attention and service quality, which justifies the need to establish a series of initiatives to help efficiency and

The concepts related to innovation in the public sector can be included in new managerial view (or framework) of governmental administration called new public

According to the paradigm of NPM, the role of public entities is changed to the name of decentralization, increase in autonomy of public managers, competition, quality strategies, economy, efficiency and efficacy, citizen guidance, emphasis on

Since the new vision of public administration is the result of a process for the

whose main characteristics—defined by Hood [10], Olsen and Peters [11], and Hodges and Mellet [8]—include a wide variety of changes such as deregulation, decentralization, subcontracting, substitution of input control systems, management of results, responsibility assignment, and the introduction of different management techniques. The ultimate objective of these reforms is to improve the efficacy and effectiveness of public entities, surpassing bureaucratic problems and

NPM has brought about transformations in managing entities in public entities,

As a result of NPM, public entities better response to the needs of service users, emphasis on performance and result management, introduction of performance standards, better communication of results, decentralization and competence of financial and personal management, interest in market forces and the creation of internal markets, privatization of public companies, and application of private

These characteristics all justify the need to draw together in an easily understandable system to those elements that are differentiating the sources of competition and that will generate value for the administration, such as the focus on the

In order to achieve this task, we consider public funding, ownership and operation of services. These organizations may be part of two areas of activity: the other is those monopolies which supply services and utilities and which also charge their customers for their services. In the 1990, the policy of privatization has made it more difficult the identification of public sector, given the less direct links which

The provision of public services may be organized in a variety of ways and controls through different organizational and regulatory mechanisms. Public services might have some element of government funding, ownership, public direction, or regulation, in different combinations, but there is no longer a need for direct government ownership for the provision of these public services. This study includes some hybrid organizations, in which private sectors were used by the public sector

Public services are those activities that are enshrined within the public service

rather than the private provision through market. It is assumed these "public services" should be available for all members of the society provided in an equitable

management (NPM) [6] since public service quality improves.

guaranteeing transparency in entities and accounts renderings.

private sector management techniques, and performance indicators.

*DOI: http://dx.doi.org/10.5772/intechopen.80700*

effectiveness in the public function.

introduction of the principles of NPM [7–9].

sector management methods [12].

citizen, social responsibility, and professionalism.

now exist between organizations and government.

and public service organizations were urgent to be "commercial."

services [5].

#### *Financial Relationships Between Public Administration and Public Enterprises: Theoretical… DOI: http://dx.doi.org/10.5772/intechopen.80700*

In general terms, we can point out that the public sector has experienced great processes of intense transformation which have been caused mainly by two factors: (1) financial and tax burdens, and as a result, the increasing importance of an efficient public sector management and (2) society's new demands to improve services [5].

The modern public sector management boasts public attention and service quality, which justifies the need to establish a series of initiatives to help efficiency and effectiveness in the public function.

The concepts related to innovation in the public sector can be included in new managerial view (or framework) of governmental administration called new public management (NPM) [6] since public service quality improves.

According to the paradigm of NPM, the role of public entities is changed to the name of decentralization, increase in autonomy of public managers, competition, quality strategies, economy, efficiency and efficacy, citizen guidance, emphasis on private sector management techniques, and performance indicators.

Since the new vision of public administration is the result of a process for the introduction of the principles of NPM [7–9].

NPM has brought about transformations in managing entities in public entities, whose main characteristics—defined by Hood [10], Olsen and Peters [11], and Hodges and Mellet [8]—include a wide variety of changes such as deregulation, decentralization, subcontracting, substitution of input control systems, management of results, responsibility assignment, and the introduction of different management techniques. The ultimate objective of these reforms is to improve the efficacy and effectiveness of public entities, surpassing bureaucratic problems and guaranteeing transparency in entities and accounts renderings.

As a result of NPM, public entities better response to the needs of service users, emphasis on performance and result management, introduction of performance standards, better communication of results, decentralization and competence of financial and personal management, interest in market forces and the creation of internal markets, privatization of public companies, and application of private sector management methods [12].

These characteristics all justify the need to draw together in an easily understandable system to those elements that are differentiating the sources of competition and that will generate value for the administration, such as the focus on the citizen, social responsibility, and professionalism.

In order to achieve this task, we consider public funding, ownership and operation of services. These organizations may be part of two areas of activity: the other is those monopolies which supply services and utilities and which also charge their customers for their services. In the 1990, the policy of privatization has made it more difficult the identification of public sector, given the less direct links which now exist between organizations and government.

The provision of public services may be organized in a variety of ways and controls through different organizational and regulatory mechanisms. Public services might have some element of government funding, ownership, public direction, or regulation, in different combinations, but there is no longer a need for direct government ownership for the provision of these public services. This study includes some hybrid organizations, in which private sectors were used by the public sector and public service organizations were urgent to be "commercial."

Public services are those activities that are enshrined within the public service rather than the private provision through market. It is assumed these "public services" should be available for all members of the society provided in an equitable fashion [1].

*Public Economics and Finance*

**boundaries**

outcomes to stakeholders [3].

environment.

intangibles.

public funds.

tor in relation to the private sector:

• Less necessity to quantify.

performance while allowing to identify and analyze the evolution of the various systems of planning and control of public administration. In consideration of the pathological phenomena that have occurred with increasing frequency in recent years, research has focused on the crisis and the insolvency of publicly owned companies, as, for the first time and recently the legislator has organically regulated the consequences of the insolvency of the same, affirming their general submission to bankruptcy and insolvency proceedings. Still the norm also outlined the procedure for the adoption of preventive plans should aim to avoid insolvency in financial hardship cases and to remedy the crisis of the investee companies. After having dealt with the issue of historical evolution and territorial distribution of the phenomenon of public enterprises in Italy, aspects of the legal framework of the object of study will be addressed. This last topic is very controversial in doctrine; in fact, far from being a mere academic exercise, the qualification of the legal nature of such enterprises involves significant practical consequences on the *disciplinary* level*.* The next section analyzes the contents of the reform of public companies, recalling the reference standards and the important news concerning the coverage of losses of companies. The new discipline produces important repercussions on public budgets and therefore on the community: for this reason the conclusions of the study will deal with this aspect.

**2. What constitutes the public sector and the public entities: defining** 

The public sector is traditionally constituted by all organizations owned and controlled by government, which provide utilities and services to the community [1]. Especially public complex and difficult to define, inputs are not being easily measured, and as a consequence, it is difficult to value the public sector efficiency [2]. Public entities differ from private sector organizations, but rather the delivery of

Bossi et al. [4] have identified specific characteristics that define the public sec-

• Less incentive to adopt new management approaches, due to a non-competitive

• Intangible objectives are less linked with the market value and financial profit.

• Most public organizations provide services (education, health, etc.), that is,

• Inflexible management procedures and rigid structures—the bureaucratic

• Increase in external demand for accountability and transparency in the use of

• More importance is given to social and environmental responsibility.

• Intangibles—knowledge and human resources.

model does not facilitate new approaches.

**70**

Regime around it is a complex of domains of public services that relies on the perceived nature of the services. This is for several reasons. The main issue concerns the nature of public services and is widely used by the public services to be provided, that is, the boundary of public services is not fixed but varies from country to country. Thus, we use only the public services business (PBE) but not public institutional systems (PIS).

In light of this premise, the research field identifies which universe of companies on which the investigation is to be carried out partially or totally held directly or indirectly by public administrations, with the following legal form:


#### **3. Public companies in Italy: evolutionary profiles**

The reasons behind the latest reform of publicly owned companies are the need to simplify and rationalize an impressive number of public companies in Italy.

For the purposes of the analysis of the regulations contained in Legislative Decree 175/2016 laying down "*Consolidated Law on the subject of companies owned by the public administration,*" it is necessary to define a public entity, and therefore, it is necessary to start from the models of public bodies that have become known over time.

The administrative organization of *the liberal state* was simple and was characterized by few territorial entities: state, provinces, and municipalities. There were, also, very few other government-owned businesses by local authorities, who mostly were characterized by a structure-associated ativa.

This state was essentially concerned with controlling the internal public order and the defense of the territory from external enemies, leaving the market free to seek its equilibrium.

Toward the end of the nineteenth century and the beginning of the twentieth century, the state was strengthened, with the relative growth of the ministries and agencies that began to take care of public services.

This historical moment marks the start of the process of expansion of the original organizational structures of the state, with the creation, at the state level, of *autonomous companies* (entities included in the ministerial area with management autonomy and a different financial, accounting and controls), while at the local level, *municipalized companies* (as branches of the territorial bodies that carried out, at the levels closest to the citizen, the same functions of the autonomous companies), as well as with the multiplication of functional public bodies, which has led to a progressive differentiation and multiplication of public bodies. We pass, in this way, from one State controller to an "*interventionist*."

Following the crisis of 1929, as well as in the post-war period, there was a strong state intervention in the economy due to the consequential economic difficulties of these historical events.

In particular, the state started to take stock of private companies in difficulty in order to avoid bankruptcy (e.g., the purchase of shareholdings by IRI, an institute for industrial reconstruction).

**73**

**Figure 1.**

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical…*

With the entry into force of the Constitution, the panorama of public bodies has been enriched by another body: the region (public body endowed with legislative and statutory power in certain matters listed in Article 117 of the Constitution) and with the reform of the Title V administrative functions has been redistributed with

In the same perspective of the evolution of the group of public subjects, the law on parastato (L.70/1975) continued the work of transformation through an uncontrolled proliferation of necessary public bodies, qualified as parastatals. This framework has made it difficult to give a single definition of public administration, or we speak, in fact, of *pluralism of public administrations* or *public administrations* 

We have thus moved on to a model of State *entrepreneur* and lender.

• Pluralism of public authority (state, regions, and local authorities)

• Plurality of public bodies (i.e., organizations differentiated by public authorities in the strict sense and endowed with their own legal personality but linked to

Uniformity has given way to the diversification of models, envisaging a system of administration no longer revolving around the State-apparatus, but inspired by the principle of institutional pluralism, by virtue of which alongside the State, the public body par excellence and other subjects operate and are endowed, as well as of private juridical capacity, also of public juridical capacity, which pursue aims of

• Pluralism of the state organization (plurality of ministries)

them by more or less intense organizational ties)

*Public companies currently controlled by the Ministry of the Economy and Finance.*

*DOI: http://dx.doi.org/10.5772/intechopen.80700*

*with variable geometry*.

public interest.

a view to subsidiarity, differentiation, and adequacy.

This organizational pluralism is presented as:

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical… DOI: http://dx.doi.org/10.5772/intechopen.80700*

We have thus moved on to a model of State *entrepreneur* and lender.

With the entry into force of the Constitution, the panorama of public bodies has been enriched by another body: the region (public body endowed with legislative and statutory power in certain matters listed in Article 117 of the Constitution) and with the reform of the Title V administrative functions has been redistributed with a view to subsidiarity, differentiation, and adequacy.

In the same perspective of the evolution of the group of public subjects, the law on parastato (L.70/1975) continued the work of transformation through an uncontrolled proliferation of necessary public bodies, qualified as parastatals. This framework has made it difficult to give a single definition of public administration, or we speak, in fact, of *pluralism of public administrations* or *public administrations with variable geometry*.

This organizational pluralism is presented as:


Uniformity has given way to the diversification of models, envisaging a system of administration no longer revolving around the State-apparatus, but inspired by the principle of institutional pluralism, by virtue of which alongside the State, the public body par excellence and other subjects operate and are endowed, as well as of private juridical capacity, also of public juridical capacity, which pursue aims of public interest.

#### **Figure 1.**

*Public companies currently controlled by the Ministry of the Economy and Finance.*

*Public Economics and Finance*

institutional systems (PIS).

• Srl and SpA in cooperative form

• Srl and SpA

time.

to seek its equilibrium.

"*interventionist*."

these historical events.

for industrial reconstruction).

Regime around it is a complex of domains of public services that relies on the perceived nature of the services. This is for several reasons. The main issue concerns the nature of public services and is widely used by the public services to be provided, that is, the boundary of public services is not fixed but varies from country to country. Thus, we use only the public services business (PBE) but not public

In light of this premise, the research field identifies which universe of companies on which the investigation is to be carried out partially or totally held directly or

The reasons behind the latest reform of publicly owned companies are the need

The administrative organization of *the liberal state* was simple and was characterized by few territorial entities: state, provinces, and municipalities. There were, also, very few other government-owned businesses by local authorities, who mostly

This state was essentially concerned with controlling the internal public order and the defense of the territory from external enemies, leaving the market free

Toward the end of the nineteenth century and the beginning of the twentieth century, the state was strengthened, with the relative growth of the ministries and

This historical moment marks the start of the process of expansion of the original organizational structures of the state, with the creation, at the state level, of *autonomous companies* (entities included in the ministerial area with management autonomy and a different financial, accounting and controls), while at the local level, *municipalized companies* (as branches of the territorial bodies that carried out, at the levels closest to the citizen, the same functions of the autonomous companies), as well as with the multiplication of functional public bodies, which has led to a progressive differentiation and multiplication of public bodies. We pass, in this way, from one State controller to an

Following the crisis of 1929, as well as in the post-war period, there was a strong state intervention in the economy due to the consequential economic difficulties of

In particular, the state started to take stock of private companies in difficulty in order to avoid bankruptcy (e.g., the purchase of shareholdings by IRI, an institute

to simplify and rationalize an impressive number of public companies in Italy. For the purposes of the analysis of the regulations contained in Legislative Decree 175/2016 laying down "*Consolidated Law on the subject of companies owned by the public administration,*" it is necessary to define a public entity, and therefore, it is necessary to start from the models of public bodies that have become known over

indirectly by public administrations, with the following legal form:

• Consortium companies in the form of Srl or SpA

**3. Public companies in Italy: evolutionary profiles**

were characterized by a structure-associated ativa.

agencies that began to take care of public services.

**72**

**Figure 2.** *Number of public enterprises by year of establishment from 1990 to 2015.*

The penetrating intervention of the State in the economy has led to an uncontrollable increase in public debt, imposing a peculiar process of liberalization and privatization in order to reduce it. **Figures 1** and **2** show a quantitative analysis of the public investee companies in Italy, illustrating the public companies currently controlled by the Ministry of the Economy and Finance and the number of public companies established between 1990 and 2015.

#### **4. Legal profiles and disciplinary aspects of public enterprises**

With the privatization process, there have arisen problems of formal classification of the discipline; in fact, within the syntagma "public companies" can be, in practice, surrounded by deeply heterogeneous figures. It is for this reason that it cannot be further supported by a static concept of a public body, indeed, must give notice of the fact that recently the Stato Council (judgment no. 2660/20151 ) is oriented toward a "functional and iridescent notion of public body: the same subject may have the nature of public body for certain purposes and with respect to certain institutions and may, however, not have it for other purposes, preserving, respect to other institutions, and regulatory regimes of a private nature."

Far from being a merely classificatory matter, the public qualification of an institution involves significant practical consequences on the *disciplinary* level.

A first limit is found in the controls, of various kinds (on the deeds, on the management bodies, internal or external, accounting), which are the object of all public bodies, aimed at assessing the legitimacy of the institution's activity and compliance in the public interest.

A strong limitation is, moreover, by the absence of a complete and perfect negotiating freedom, characterized by a number of constraints, rules, and publicistic limits, aimed at transparent proceduralisation of a contractual choice, with regard to *an,* the content of the contract and the choice of the negotiating partner. It is

**75**

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical…*

therefore an activity that is always functional and not free, characterized, that is, by a teleological constraint susceptible of control and syndication in the jurisdictional

With regard to the configurability of public bodies to a corporate structure, the debate has polarized around the question of whether the public finalization of the corporate body and the alteration of the typical corporate model can lead to affirming the attraction of the so-called investee companies to the public sphere. This assimilation took place fundamentally for reasons of public finance protection, given that often the private module constitutes an elusive means of provisions that are undoubtedly binding on the (public) participating bodies but not also for the private entities constituted or participated by them. In general, it should be noted that nowadays there is a tendency to identify between public bodies and institutions included in the consolidated account of the public administration. The growing attention on the system of public investments, at central and territorial level, is a consequence of the previous use of the corporate instrument as a way of avoiding the constraints of public finance. In compliance with the new rules on budget balances, the legislator has set up a coherent system of measures, directed toward the common objective of restoring efficiency to companies in public participation, including through the strengthening of corporate governance and to consider the "public administration group" (GAP) in a unified manner, with particular reference to the effects on institutions of the results of the exercise of the investee organizations. The lack of homogeneity of the financial statements, determined by the phenomenon of outsourcing, involved an incomplete and not representative representation of the financial, economic, and equity situation of the GAP and the overall functions performed by the entity through its organizational structures, its instru-

With a view to greater transparency and accountability of the various levels of government, Legislative Decree June 23, 2011, n. 118, in harmonizing the accounting systems and financial statements of the regions, provinces, and local authorities, establishes the consolidation of the accounts between the institutions and their

The "centrality of the consolidated financial statements" is functional to compliance with the public finance constraints, since it allows to achieve the objective of "neutrality" of the budget with respect to the phenomenon of outsourcing and is approved by 30 September of the year following the reference year (accounting principle applied consolidated financial statements). The scope of consolidation extends to cases in which the dominant influence is exercised by virtue of particular contractual restrictions, even in the absence of participation. The obligation of consolidation, long postponed, from September 30, 2017, is mandatory for all institutions with a population of more than 5000 inhabitants. In force since 2018, the financial statements that present, for each of the three parameters (total assets, net assets, and total revenues), are less than 3% compared to the parent company's

The valuation of irrelevance must be formulated both with reference to the single entity or company and to the set of entities and companies considered to be scarcely significant, as the consideration of more modest situations could be of interest for consolidation purposes. It must be avoided that the exclusion of so many autonomously insignificant realities subtracts important information from the group budget. Consider, for example, the limit case of a corporate group consisting of a considerable number of institutions and companies, all of a small size such as to

Therefore, for the purposes of exclusion for irrelevance, starting from the financial year 2018, the sum of the percentages of the financial statements

*DOI: http://dx.doi.org/10.5772/intechopen.80700*

mental entities, and its investee companies.

participated bodies.

economic and financial position.

allow exclusion if considered individually.

seat.

<sup>1</sup> https://www.giustizia-amministrativa.it/cdsintra/cdsintra/AmministrazionePortale/Document Viewer/index.html?ddocname=7CQIJE5IDUT64IMHJ4XI75AXDE&q.

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical… DOI: http://dx.doi.org/10.5772/intechopen.80700*

therefore an activity that is always functional and not free, characterized, that is, by a teleological constraint susceptible of control and syndication in the jurisdictional seat.

With regard to the configurability of public bodies to a corporate structure, the debate has polarized around the question of whether the public finalization of the corporate body and the alteration of the typical corporate model can lead to affirming the attraction of the so-called investee companies to the public sphere.

This assimilation took place fundamentally for reasons of public finance protection, given that often the private module constitutes an elusive means of provisions that are undoubtedly binding on the (public) participating bodies but not also for the private entities constituted or participated by them. In general, it should be noted that nowadays there is a tendency to identify between public bodies and institutions included in the consolidated account of the public administration.

The growing attention on the system of public investments, at central and territorial level, is a consequence of the previous use of the corporate instrument as a way of avoiding the constraints of public finance. In compliance with the new rules on budget balances, the legislator has set up a coherent system of measures, directed toward the common objective of restoring efficiency to companies in public participation, including through the strengthening of corporate governance and to consider the "public administration group" (GAP) in a unified manner, with particular reference to the effects on institutions of the results of the exercise of the investee organizations.

The lack of homogeneity of the financial statements, determined by the phenomenon of outsourcing, involved an incomplete and not representative representation of the financial, economic, and equity situation of the GAP and the overall functions performed by the entity through its organizational structures, its instrumental entities, and its investee companies.

With a view to greater transparency and accountability of the various levels of government, Legislative Decree June 23, 2011, n. 118, in harmonizing the accounting systems and financial statements of the regions, provinces, and local authorities, establishes the consolidation of the accounts between the institutions and their participated bodies.

The "centrality of the consolidated financial statements" is functional to compliance with the public finance constraints, since it allows to achieve the objective of "neutrality" of the budget with respect to the phenomenon of outsourcing and is approved by 30 September of the year following the reference year (accounting principle applied consolidated financial statements). The scope of consolidation extends to cases in which the dominant influence is exercised by virtue of particular contractual restrictions, even in the absence of participation. The obligation of consolidation, long postponed, from September 30, 2017, is mandatory for all institutions with a population of more than 5000 inhabitants. In force since 2018, the financial statements that present, for each of the three parameters (total assets, net assets, and total revenues), are less than 3% compared to the parent company's economic and financial position.

The valuation of irrelevance must be formulated both with reference to the single entity or company and to the set of entities and companies considered to be scarcely significant, as the consideration of more modest situations could be of interest for consolidation purposes. It must be avoided that the exclusion of so many autonomously insignificant realities subtracts important information from the group budget. Consider, for example, the limit case of a corporate group consisting of a considerable number of institutions and companies, all of a small size such as to allow exclusion if considered individually.

Therefore, for the purposes of exclusion for irrelevance, starting from the financial year 2018, the sum of the percentages of the financial statements

*Public Economics and Finance*

**Figure 2.**

The penetrating intervention of the State in the economy has led to an uncontrollable increase in public debt, imposing a peculiar process of liberalization and privatization in order to reduce it. **Figures 1** and **2** show a quantitative analysis of the public investee companies in Italy, illustrating the public companies currently controlled by the Ministry of the Economy and Finance and the number of public

With the privatization process, there have arisen problems of formal classification of the discipline; in fact, within the syntagma "public companies" can be, in practice, surrounded by deeply heterogeneous figures. It is for this reason that it cannot be further supported by a static concept of a public body, indeed, must give

) is ori-

**4. Legal profiles and disciplinary aspects of public enterprises**

notice of the fact that recently the Stato Council (judgment no. 2660/20151

tution involves significant practical consequences on the *disciplinary* level.

other institutions, and regulatory regimes of a private nature."

Viewer/index.html?ddocname=7CQIJE5IDUT64IMHJ4XI75AXDE&q.

ented toward a "functional and iridescent notion of public body: the same subject may have the nature of public body for certain purposes and with respect to certain institutions and may, however, not have it for other purposes, preserving, respect to

Far from being a merely classificatory matter, the public qualification of an insti-

A first limit is found in the controls, of various kinds (on the deeds, on the management bodies, internal or external, accounting), which are the object of all public bodies, aimed at assessing the legitimacy of the institution's activity and compliance

A strong limitation is, moreover, by the absence of a complete and perfect negotiating freedom, characterized by a number of constraints, rules, and publicistic limits, aimed at transparent proceduralisation of a contractual choice, with regard to *an,* the content of the contract and the choice of the negotiating partner. It is

<sup>1</sup> https://www.giustizia-amministrativa.it/cdsintra/cdsintra/AmministrazionePortale/Document

companies established between 1990 and 2015.

*Number of public enterprises by year of establishment from 1990 to 2015.*

**74**

in the public interest.

considered as irrelevant must present, for each of the parameters indicated above, an incidence of less than 10% compared to the equity, economic, and financial management of the parent company. If these sums have a value equal to or greater than 10%, the parent company identifies the financial statements of the individually irrelevant entities to be included in the consolidated financial statements, until the sum of the percentages of the accounts excluded for irrelevance is reduced to less than 10%.

On the other hand, the entities and companies wholly owned by the parent company and the *in-house* companies and the investee entities holding direct assignment by the members of the group, irrespective of the shareholding, are considered significant.

In the case of direct assignment, the shareholdings of less than 1% of the investee company's capital are considered irrelevant and not subject to consolidation.

The amplitude of the scope of consolidation makes it possible to achieve a unitary economic result of the "public administration group," which takes into account both the result of the institution's exercise and the profits and losses of the investee organizations.

The proliferation of participating companies is now a phenomenon subject to attention by the Court of Auditors, which has identified the critical profiles of the use of the corporate instrument for the pursuit of the institutional goals of public bodies. The Autonomous Section of the Court of Auditors2 in resolution no. 24/2015 highlighted the fact that only 35.72% of the participated bodies operate in the local public services sector, with a clear predominance of *in-house* assignments *with* respect to assignments through public tenders. From the point of view of financial management, the Court of Auditors highlighted the strong prevalence of debts on loans in the relations between local authorities and investee companies.

The regulatory framework, in the field of public companies, presented a strong regulatory disorder that negatively characterized the regulation of corporate holdings held by public administrations.

In consideration of this, it was necessary to introduce a unitary discipline aimed at resolving the classification problems and legal regime of these subjects.

It is for this reason that the Parliament, with the law of August 7, 2015, has delegated the government to adopt a decree reforming the public administration as a whole.

The purpose of the reform, as stated by the Council of State in its opinion no. 968/20163 , is to "*simplify and rationalize the rules in force in this area, through the reorganization of national provisions and the creation of an organic general discipline*."

#### **5. The reform of public enterprises as an instrument for rationalizing public spending in Italy**

These are the essential points of the intervention delegated by the Madia reform:

• Firstly, limit the establishment of new public companies, make the financial statements of companies in public control transparent, reduce the number of public companies, and prevent the proliferation of unnecessary societies.

**77**

bodies, etc.).

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical…*

• Secondly, reduce the areas of intervention of public companies, eliminate or limit public companies that are not in economic equilibrium, redefine the personnel management system of publicly controlled companies, and ensure

that the activities of publicly owned companies are more efficient.

• Finally, improve the services provided to citizens and businesses, giving

This is the framework in which the Legislative Decree 175/2016 laying down *"*Consolidated Law on the subject of companies owned by the public administra-

The Consolidation Act is essentially divided into four types of intervention:

• Introductory provisions containing the indication of the object and scope of the TU, the formulation of definitions, and the identification of the types of

• Provisions aimed at establishing the conditions and limits of public shareholdings, as well as redefining the rules for the incorporation of companies or for the taking up or maintenance of shareholdings by public authorities and for the

• Provisions aimed at encouraging economic efficiency and efficiency through the introduction of procedures for periodic rationalization and extraordinary auditing, personnel management, specific financial rules for the local authorities'

The Consolidation Act draws the "perimeter" within which a public administra-

This is the so-called **restriction of purpose,** drawn up by the jurisprudence and implemented by the delegated legislator, which places a limit on the participation of the public administration in companies, so that they pursue a purpose compatible

Paragraph 2, of the Art. 4, also introduces an **activity constraint**: companies in which public administrations can participate and perform *"*exclusively*"* certain activities, strictly listed (e.g., production of a service of general interest, design and construction of a work published on the basis of a program agreement, self-production of goods or services instrumental to the participating institution or public

The most important aspects of Legislative Decree 175/2016 then amended by the

tion can decide to set up a company (in the forms, governed by the Civil Code, of joint-stock companies or limited liability companies), specifying in Art. 4, paragraph 1, that "le Public administrations cannot directly or indirectly constitute companies having as their object activities of production of goods and services not strictly necessary for the pursuit of its institutional purposes or acquire or to

• Provisions concerning the administrative and control bodies of publicly

greater credibility and transparency to the public administration and favoring the best use of public resources, through the efficient allocation of resources

*DOI: http://dx.doi.org/10.5772/intechopen.80700*

and the removal of waste sources.

sale of public holdings

controlled companies

tion," then amended by Legislative Decree, 100/2017.

companies in which public participation is admitted

subsidiaries and the promotion of transparency

maintain holdings, including minorities, in these companies*."*

Legislative Decree, 100/2017, are essentially concern with:

with the institutional purpose of the participating administration.

<sup>2</sup> http://www.corteconti.it/export/sites/portalecdc/\_documenti/controllo/sez\_autonomie/2015/ 20150720\_20150722\_Deln024\_FRG\_Organismi\_Partecipati\_Linkrelto.pdf.

<sup>3</sup> https://www.giustizia-amministrativa.it/cdsintra/cdsintra/Notiziasingola/Ilcodicedeicontratti pubblici/PareriresidalConsigliodiStato/Parere21aprile2016968/index.html.

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical… DOI: http://dx.doi.org/10.5772/intechopen.80700*


This is the framework in which the Legislative Decree 175/2016 laying down *"*Consolidated Law on the subject of companies owned by the public administration," then amended by Legislative Decree, 100/2017.

The Consolidation Act is essentially divided into four types of intervention:


The Consolidation Act draws the "perimeter" within which a public administration can decide to set up a company (in the forms, governed by the Civil Code, of joint-stock companies or limited liability companies), specifying in Art. 4, paragraph 1, that "le Public administrations cannot directly or indirectly constitute companies having as their object activities of production of goods and services not strictly necessary for the pursuit of its institutional purposes or acquire or to maintain holdings, including minorities, in these companies*."*

This is the so-called **restriction of purpose,** drawn up by the jurisprudence and implemented by the delegated legislator, which places a limit on the participation of the public administration in companies, so that they pursue a purpose compatible with the institutional purpose of the participating administration.

Paragraph 2, of the Art. 4, also introduces an **activity constraint**: companies in which public administrations can participate and perform *"*exclusively*"* certain activities, strictly listed (e.g., production of a service of general interest, design and construction of a work published on the basis of a program agreement, self-production of goods or services instrumental to the participating institution or public bodies, etc.).

The most important aspects of Legislative Decree 175/2016 then amended by the Legislative Decree, 100/2017, are essentially concern with:

*Public Economics and Finance*

organizations.

investee companies.

968/20163

ings held by public administrations.

**public spending in Italy**

evance is reduced to less than 10%.

considered as irrelevant must present, for each of the parameters indicated above, an incidence of less than 10% compared to the equity, economic, and financial management of the parent company. If these sums have a value equal to or greater than 10%, the parent company identifies the financial statements of the individually irrelevant entities to be included in the consolidated financial statements, until the sum of the percentages of the accounts excluded for irrel-

On the other hand, the entities and companies wholly owned by the parent company and the *in-house* companies and the investee entities holding direct assignment by the members of the group, irrespective of the shareholding, are considered significant. In the case of direct assignment, the shareholdings of less than 1% of the investee

The amplitude of the scope of consolidation makes it possible to achieve a unitary economic result of the "public administration group," which takes into account both the result of the institution's exercise and the profits and losses of the investee

The proliferation of participating companies is now a phenomenon subject to attention by the Court of Auditors, which has identified the critical profiles of the use of the corporate instrument for the pursuit of the institutional goals

tion no. 24/2015 highlighted the fact that only 35.72% of the participated bodies operate in the local public services sector, with a clear predominance of *in-house* assignments *with* respect to assignments through public tenders. From the point of view of financial management, the Court of Auditors highlighted the strong prevalence of debts on loans in the relations between local authorities and

The regulatory framework, in the field of public companies, presented a strong regulatory disorder that negatively characterized the regulation of corporate hold-

In consideration of this, it was necessary to introduce a unitary discipline aimed

It is for this reason that the Parliament, with the law of August 7, 2015, has delegated

, is to "*simplify and rationalize the rules in force in this area, through the reorganization of national provisions and the creation of an organic general discipline*."

at resolving the classification problems and legal regime of these subjects.

the government to adopt a decree reforming the public administration as a whole. The purpose of the reform, as stated by the Council of State in its opinion no.

**5. The reform of public enterprises as an instrument for rationalizing** 

These are the essential points of the intervention delegated by the Madia reform:

• Firstly, limit the establishment of new public companies, make the financial statements of companies in public control transparent, reduce the number of public companies, and prevent the proliferation of unnecessary societies.

<sup>2</sup> http://www.corteconti.it/export/sites/portalecdc/\_documenti/controllo/sez\_autonomie/2015/

<sup>3</sup> https://www.giustizia-amministrativa.it/cdsintra/cdsintra/Notiziasingola/Ilcodicedeicontratti

20150720\_20150722\_Deln024\_FRG\_Organismi\_Partecipati\_Linkrelto.pdf.

pubblici/PareriresidalConsigliodiStato/Parere21aprile2016968/index.html.

in resolu-

company's capital are considered irrelevant and not subject to consolidation.

of public bodies. The Autonomous Section of the Court of Auditors2

**76**


The main instrument through which the need to reduce public spending has been pursued is the obligation to periodically rationalize public holdings, to which the administrations are held annually.

The rationalization plans concern all public administrations and are designed to highlight the following situations:


The real novelty of the Consolidated Law consists in the provision of a periodic revision alongside the extraordinary one, providing that the public administrations carry out, annually (from 2018, by December 31) and the analysis of the investments held and prepare rationalization plans, according to the criteria enunciated by the aforementioned Art. 20.

To complete the reorganization procedure, the **Art. 24** of the disciplinary decree regulates the procedure for the extraordinary compulsory review of investments held, directly or indirectly, by public administrations, for the disposal or rationalization of certain types of companies.

The section of the autonomies, with resolution n. 19/SEZAUT/2017/INPR<sup>5</sup> issued guidelines aimed at favoring the correct fulfillment of the provisions,

**79**

libera\_333\_2016.pdf.

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical…*

underlining the obligatory nature of the recognition of the investments held, so that the recognition is always necessary and also to certify the absence of

• Decision of those not necessary for the pursuit of the corporate purpose.

The results of the survey are left to the discretion of the participating administrations, which are required to expressly motivate the choice made that may consist of a reorganization measure (alienation /rationalization/merger) and the maintenance of participation without intervention. In any case, a motivation is required,

In summary, the aforementioned regulation provides two dismissal obligations:

b.The prohibition to maintain companies, which are consistent with the institutional aims of the institution, are not indispensable for their prosecution (see Corte conti Lombardia Section control, resolution of May 13, 2015, No. 195; Corte conti-Basilicata Sez control, resolution of 14 June 2017, No. 40; Corte conti-Piemonte Control Section, Resolution No. 28 of January 28, 2016; and Court of Auditors-Emilia Romagna Control Section, Resolution

Among the fundamental principles that characterize the accounting harmonization reform, there is the recourse to adequate allocations to specific provisions for risks and charges (in the past often hidden among the residual liabilities) destined to safeguard the present and future balance of the financial statements. With this in mind, the provision for the investee loss provision is envisaged, in addition to the

First envisaged by Art. 1, cc. 550 et seq of Law 147/20 13 (2014 Stability Law) and, currently, governed by Art. 21, Legislative Decree no. 175/2016, the obligation is foreseen (which will come into force at full capacity from 2018 but provides for a transitional regime of first application already in the 3-year period 2015–2017) for local public administrations to set up a fixed fund to cover the losses of participated

The establishment of the captive fund to cover the losses of investee organizations will make it possible to include in the financial statements of local authorities the effects of losses incurred by these entities, and not immediately repaid. As

• Avoids, in the forecast budget, that the failure to take into account any losses reported by the body could have a negative impact on future budget balances.

<sup>6</sup> http://www.corteconti.it/export/sites/portalecdc/\_documenti/controllo/campania/pareri/2016/de

, the fund:

**6. The accounting tools for covering losses of public companies**

a.The prohibition of maintaining companies that are not consistent with their

*DOI: http://dx.doi.org/10.5772/intechopen.80700*

The rationalization plan includes:

• The recognition of holdings held.

12 January 2016, No. 4).

bodies not immediately cleared up.

emphasized by the Court6

tied multiyear fund and the doubtful loan fund.

both for dismissing and for maintaining the company.

institutional aims (principle of functionalization);

shareholdings.

<sup>4</sup> With the modification provided by the Art. 17, co. 1, lett. (f), Legislative Decree no. 100/2017, the turnover threshold, during the transition period, has been reduced to 500,000.00 euros. See Art. 26, co. 12-quinquies, Legislative Decree no. 175/2016: "For the purposes of applying the criterion referred to in Article 20, paragraph 2, letter (d), the first 3-year period is the 3-year period 2017–2019. Pending the first application of the aforementioned criterion for the 3-year period 2017–2019, the average turnover threshold not exceeding 500,000 euro applies for the 3 years preceding the entry into force of this decree for the purpose of adopting the extraordinary audit plans in Article 24 and for the 3-year periods 2015–2017 and 2016–2018 for the purposes of the adoption of the rationalization plans referred to in Article 20."

<sup>5</sup> http://www.corteconti.it/export/sites/portalecdc/\_documenti/controllo/sez\_autonomie/2017/ delibera\_19\_sezaut\_inpr\_2017\_e\_linee\_guida.pdf.

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical… DOI: http://dx.doi.org/10.5772/intechopen.80700*

underlining the obligatory nature of the recognition of the investments held, so that the recognition is always necessary and also to certify the absence of shareholdings.

The rationalization plan includes:

*Public Economics and Finance*

• Art 14 recapitalization

• Art 21 financial rules

• Art 20–24 rationalization plans

the administrations are held annually.

for the purposes of pursuing institutional goals.

average turnover not exceeding 1 million euro4

highlight the following situations:

company).

previous 5 years.

by the aforementioned Art. 20.

ization of certain types of companies.

delibera\_19\_sezaut\_inpr\_2017\_e\_linee\_guida.pdf.

The main instrument through which the need to reduce public spending has been pursued is the obligation to periodically rationalize public holdings, to which

The rationalization plans concern all public administrations and are designed to

a.Company shareholdings that are not included among those "indispensables"

b.Companies that do not have employees or have more directors than employees.

c.Investments in companies that perform similar activities to those carried out by other investee companies or by instrumental public bodies (the so-called dual

.

d.Investments in companies which, in the previous 3 years, have achieved an

f. Investments in companies with a need to contain operating costs.

permitted pursuant to Art. 4 (see Article 20, paragraph 2).

e.Investments in companies other than those established for the management of a service of general interest that has produced a negative result for four of the

g.Investments in companies that need to be aggregated regarding the activities

The real novelty of the Consolidated Law consists in the provision of a periodic revision alongside the extraordinary one, providing that the public administrations carry out, annually (from 2018, by December 31) and the analysis of the investments held and prepare rationalization plans, according to the criteria enunciated

To complete the reorganization procedure, the **Art. 24** of the disciplinary decree regulates the procedure for the extraordinary compulsory review of investments held, directly or indirectly, by public administrations, for the disposal or rational-

The section of the autonomies, with resolution n. 19/SEZAUT/2017/INPR<sup>5</sup> issued guidelines aimed at favoring the correct fulfillment of the provisions,

<sup>4</sup> With the modification provided by the Art. 17, co. 1, lett. (f), Legislative Decree no. 100/2017, the turnover threshold, during the transition period, has been reduced to 500,000.00 euros. See Art. 26, co. 12-quinquies, Legislative Decree no. 175/2016: "For the purposes of applying the criterion referred to in Article 20, paragraph 2, letter (d), the first 3-year period is the 3-year period 2017–2019. Pending the first application of the aforementioned criterion for the 3-year period 2017–2019, the average turnover threshold not exceeding 500,000 euro applies for the 3 years preceding the entry into force of this decree for the purpose of adopting the extraordinary audit plans in Article 24 and for the 3-year periods 2015–2017 and 2016–2018 for the purposes of the adoption of the rationalization plans referred to in Article 20." <sup>5</sup> http://www.corteconti.it/export/sites/portalecdc/\_documenti/controllo/sez\_autonomie/2017/

**78**


The results of the survey are left to the discretion of the participating administrations, which are required to expressly motivate the choice made that may consist of a reorganization measure (alienation /rationalization/merger) and the maintenance of participation without intervention. In any case, a motivation is required, both for dismissing and for maintaining the company.

In summary, the aforementioned regulation provides two dismissal obligations:


#### **6. The accounting tools for covering losses of public companies**

Among the fundamental principles that characterize the accounting harmonization reform, there is the recourse to adequate allocations to specific provisions for risks and charges (in the past often hidden among the residual liabilities) destined to safeguard the present and future balance of the financial statements. With this in mind, the provision for the investee loss provision is envisaged, in addition to the tied multiyear fund and the doubtful loan fund.

First envisaged by Art. 1, cc. 550 et seq of Law 147/20 13 (2014 Stability Law) and, currently, governed by Art. 21, Legislative Decree no. 175/2016, the obligation is foreseen (which will come into force at full capacity from 2018 but provides for a transitional regime of first application already in the 3-year period 2015–2017) for local public administrations to set up a fixed fund to cover the losses of participated bodies not immediately cleared up.

The establishment of the captive fund to cover the losses of investee organizations will make it possible to include in the financial statements of local authorities the effects of losses incurred by these entities, and not immediately repaid. As emphasized by the Court6 , the fund:

• Avoids, in the forecast budget, that the failure to take into account any losses reported by the body could have a negative impact on future budget balances.

<sup>6</sup> http://www.corteconti.it/export/sites/portalecdc/\_documenti/controllo/campania/pareri/2016/de libera\_333\_2016.pdf.

• Favors the progressive managerial accountability of the member bodies, through a stringent correlation between the economic-financial dynamics of the investee organizations and those of the entrusting members.

The obligation to create the fixed fund for the losses of the participated bodies concerns all local public administrations included in the ISTAT list referred to in Article 1, paragraph 3 of Law 196/09. Therefore, in addition to regions, provinces, and municipalities, the provision calls into question, among others, mountain communities, unions of municipalities, consortia between local authorities, chambers of commerce, and local health authorities.

The "participatory bodies" that the Art. 1, c. 5507 considers for the purpose of determining the provision to the fund are special companies, institutions, and investee companies. The financial intermediaries referred to Art. 106 of Legislative Decree 385/93 (Consolidated Law on Banking and Credit Law), as well as companies issuing financial instruments listed on regulated markets and their subsidiaries. It should also be noted that the provision is made if the investee organizations present, in the last available financial year, a financial result or a negative financial balance, not immediately paid by the participating entity (Article 1, paragraph 551).

Article 21 d. Legislative Decree 175/2016, as amended by Legislative Decree 100/2017, establishes that in the event that companies in which local public administrations have a negative operating result, the participating local public administrations, which adopt financial accounting, set aside subsequent year in an appropriate *restricted fund* an amount equal to the negative result, in proportion to the shareholding.

It should be noted that the Art. 21 of Legislative Decree. 175/2016 is also concerned with standardizing the cases in which the entities holding the loss-making interest are not in financial accounting but adopt a civil accounting system. In such cases, they adjust the value of the investment, during the following year, to the amount corresponding to the fraction of the equity of the investee company where the negative result is not immediately settled and constitutes a lasting loss in value.

For companies that prepare consolidated financial statements, the operating result to be considered is that relating to these financial statements.

The amount set aside returns to availability to the public administration budget, always in proportion to the participation fee, in the following cases:


Apart from these cases, the provision allocated to the budget is included in the statement of the share of the administrative result and therefore remains essentially unavailable for purposes of expenditure other than those for which it was established.

**81**

assessed.

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical…*

In the first application, for the years 2015, 2016, and 2017, the legislator has provided a transitional period in which the provision is gradually increasing, with an important distinction between the participation in bodies that, despite having reported a loss in last available budget, the accounts worsened and those that

The first situation includes the hypotheses of the bodies that recorded a loss after previous financial statements in profit or which reported a negative result above the average of the previous 3-year period. In these cases, the portion to be allocated in the 2015 financial statements of the participating entity is equal to 25% of the negative result achieved in the previous year by the body. The provisions will be set at 50% for 2016 and at 75% for 2017, again with reference to the losses reported by

If, on the other hand, the loss in the last available balance sheet is lower than the average of the previous 3 years (showing an improvement in the accounts), the provision in the 2015 estimated budget must be made equal to the difference between the result achieved in previous year and the 2011–2013 average result improved by 25% for 2014. In the following financial years, the amount should be calculated as a slide considering that the average result must be improved by 50% for 2015 and by

The Autonomy Section of the Court of Auditors, which with Resolution no. 4

with the provisions of the Italian Civil Code on the automatic dissolution of the company whose capital has fallen below the legal limit, which entitles the entity to decide, based on a prognostic judgment on the future profitability of the company, whether to provide for the reintegration of the share capital or to take note of the automatic liquidation of the body (Articles 2484, paragraph 1, No. 4

To be specific, the Art. 14 d. Decree 175/2016 establishes the prohibition for public authorities to carry out capital increases, extraordinary transfers, credit facilities, or issue guarantees in favor of subsidiaries, with the exception of listed companies and banks, who have registered for three consecutive financial statements and losses for the year or that have used reserves available for the settlement

• Only within the limits of its participation in the share capital and cannot provide

• Only if the financial intervention is compatible with the provisions of the

Local administrations will be able to intervene for losses only against companies

It should, however, be kept in mind that **the provision for losses** is a prudential

budget rule, so that the entities that have set aside resources cannot, however, freely repay the losses of the investee companies and must instead comply with the requirements indicated in the same paragraph 5 of the aforementioned article 14 of

<sup>8</sup> http://www.quotidianoentilocali.ilsole24ore.com/pa24.php?idDoc=16742623&idDocType=3.

Therefore, the local public administration can make the losses of an investee company with the resources set aside in the restricted fund, within the limits of its shareholding and only after the compatibility with the state aid legislation has been

The local partner institution can intervene in the area of losses:

responsible for the performance of the *service of general economic interest*.

highlights that provisions to the fund must be coordinated

improved them compared to the average of the previous 3 years.

*DOI: http://dx.doi.org/10.5772/intechopen.80700*

the investee in the previous year.

75% for 2016.

and 2447 CC).

of 17 February 2015,8

of losses also during the year.

additional resources.

Community law **on state aid**.

<sup>7</sup> Art. 1 c. 550 applies to special companies, institutions, and companies owned by local public administrations indicated in the list referred to in Art. 1, of Law 196/2009. Financial intermediaries pursuant to Art. 106 of the consolidated text referred to in d. lgs n. 385/1993, as well as companies issuing financial instruments listed on regulated markets and their subsidiaries.

#### *Financial Relationships Between Public Administration and Public Enterprises: Theoretical… DOI: http://dx.doi.org/10.5772/intechopen.80700*

In the first application, for the years 2015, 2016, and 2017, the legislator has provided a transitional period in which the provision is gradually increasing, with an important distinction between the participation in bodies that, despite having reported a loss in last available budget, the accounts worsened and those that improved them compared to the average of the previous 3 years.

The first situation includes the hypotheses of the bodies that recorded a loss after previous financial statements in profit or which reported a negative result above the average of the previous 3-year period. In these cases, the portion to be allocated in the 2015 financial statements of the participating entity is equal to 25% of the negative result achieved in the previous year by the body. The provisions will be set at 50% for 2016 and at 75% for 2017, again with reference to the losses reported by the investee in the previous year.

If, on the other hand, the loss in the last available balance sheet is lower than the average of the previous 3 years (showing an improvement in the accounts), the provision in the 2015 estimated budget must be made equal to the difference between the result achieved in previous year and the 2011–2013 average result improved by 25% for 2014. In the following financial years, the amount should be calculated as a slide considering that the average result must be improved by 50% for 2015 and by 75% for 2016.

The Autonomy Section of the Court of Auditors, which with Resolution no. 4 of 17 February 2015,8 highlights that provisions to the fund must be coordinated with the provisions of the Italian Civil Code on the automatic dissolution of the company whose capital has fallen below the legal limit, which entitles the entity to decide, based on a prognostic judgment on the future profitability of the company, whether to provide for the reintegration of the share capital or to take note of the automatic liquidation of the body (Articles 2484, paragraph 1, No. 4 and 2447 CC).

To be specific, the Art. 14 d. Decree 175/2016 establishes the prohibition for public authorities to carry out capital increases, extraordinary transfers, credit facilities, or issue guarantees in favor of subsidiaries, with the exception of listed companies and banks, who have registered for three consecutive financial statements and losses for the year or that have used reserves available for the settlement of losses also during the year.

The local partner institution can intervene in the area of losses:


Local administrations will be able to intervene for losses only against companies responsible for the performance of the *service of general economic interest*.

Therefore, the local public administration can make the losses of an investee company with the resources set aside in the restricted fund, within the limits of its shareholding and only after the compatibility with the state aid legislation has been assessed.

It should, however, be kept in mind that **the provision for losses** is a prudential budget rule, so that the entities that have set aside resources cannot, however, freely repay the losses of the investee companies and must instead comply with the requirements indicated in the same paragraph 5 of the aforementioned article 14 of

*Public Economics and Finance*

of commerce, and local health authorities.

entity (Article 1, paragraph 551).

the shareholding.

in value.

The "participatory bodies" that the Art. 1, c. 5507

• Favors the progressive managerial accountability of the member bodies, through a stringent correlation between the economic-financial dynamics of

of determining the provision to the fund are special companies, institutions, and investee companies. The financial intermediaries referred to Art. 106 of Legislative Decree 385/93 (Consolidated Law on Banking and Credit Law), as well as companies issuing financial instruments listed on regulated markets and their subsidiaries. It should also be noted that the provision is made if the investee organizations present, in the last available financial year, a financial result or a negative financial balance, not immediately paid by the participating

Article 21 d. Legislative Decree 175/2016, as amended by Legislative Decree 100/2017, establishes that in the event that companies in which local public administrations have a negative operating result, the participating local public administrations, which adopt financial accounting, set aside subsequent year in an appropriate *restricted fund* an amount equal to the negative result, in proportion to

It should be noted that the Art. 21 of Legislative Decree. 175/2016 is also concerned with standardizing the cases in which the entities holding the loss-making interest are not in financial accounting but adopt a civil accounting system. In such cases, they adjust the value of the investment, during the following year, to the amount corresponding to the fraction of the equity of the investee company where the negative result is not immediately settled and constitutes a lasting loss

For companies that prepare consolidated financial statements, the operating

The amount set aside returns to availability to the public administration budget,

• The investee companies, with their own resources, pay in full or in part the

Apart from these cases, the provision allocated to the budget is included in the statement of the share of the administrative result and therefore remains essentially unavailable for purposes of expenditure other than those for which it was

<sup>7</sup> Art. 1 c. 550 applies to special companies, institutions, and companies owned by local public administrations indicated in the list referred to in Art. 1, of Law 196/2009. Financial intermediaries pursuant to Art. 106 of the consolidated text referred to in d. lgs n. 385/1993, as well as companies issuing financial

result to be considered is that relating to these financial statements.

always in proportion to the participation fee, in the following cases:

• The participant is placed in liquidation.

instruments listed on regulated markets and their subsidiaries.

losses achieved in previous years.

• The participant body stores the loss or retires the participation.

The obligation to create the fixed fund for the losses of the participated bodies concerns all local public administrations included in the ISTAT list referred to in Article 1, paragraph 3 of Law 196/09. Therefore, in addition to regions, provinces, and municipalities, the provision calls into question, among others, mountain communities, unions of municipalities, consortia between local authorities, chambers

considers for the purpose

the investee organizations and those of the entrusting members.

**80**

established.

<sup>8</sup> http://www.quotidianoentilocali.ilsole24ore.com/pa24.php?idDoc=16742623&idDocType=3.

the single text, so any intervention in this sense can only take place within a restructuring plan that guarantees the future balance of the subsidiary's accounts.

Legislative Decree n. 100/2017, conforming to the indications given by the Council of State in its opinion, has also added a paragraph 3-bis to the aforementioned article 21 of d. lgs. n. 175/2016, under which the participating local public administrations can proceed to the level of the losses suffered by the investee company with the sum set aside, within the limits of their shareholding and in compliance with the principles and legislation of the European Union in terms of **state aid**. This means that, on the one hand, the local partner body (beyond the amount of amounts entrusted to an investee for the performance of certain services) can intervene in the level of losses only within the limits of its participation in the share capital and cannot provide additional resources and, on the other hand, that a local public administration can proceed only if the financial intervention is compatible with the provisions of the Community law on state aid: this compatibility is defined by the decision of the EU Commission of December 20, 2011, which codifies the principles established by the ruling judgment on the Altmark case to exclude that a public intervention is an improper aid, conflicting with Article 107 of the EU Treaty.

Consequently, local administrations will be able to intervene for losses only against companies responsible for the performance of the **service of general economic interest** (e.g., transport companies), to offset the service obligations imposed on them and only to condition that the four principles of the Altmark judgment are respected:


With regard to the methods for **hedging the financial resources** allocated to recapitalization and/or loss coverage of investee companies: Art. 3 paragraph 18 of the Budget Law 2004 stipulates that the bodies No *on can borrow to finance contributions aimed at the recapitalization of companies or companies aimed at covering of losses.*

The Court of Auditors9 (Regional section Abruzzo, sent. No. 1/08) stated that the costs of covering of losses and recapitalizations of participatory bodies should be considered **current expenditure**, and, as such, be taken into account in the calculation of the fund balances.

**83**

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical…*

The use of corporations by local administrations has been consolidated since the beginning of the nineties of the last century. Since the beginning of the twentieth century, the phenomenon of public intervention in the country's economy had spread, as the corporate phenomenon developed in public administrations, in the absence of specific rules, the belief that the joint-stock company as an organism governed by the civil code was exempted from the application of accounting rules

The results of the deductive phase have shown that the public investee companies are called to identify new methodologies to direct and control the action of

The provisions of Legislative Decree 175/2016 urge the governance bodies of the public investee companies to use the best and most adequate instruments for monitoring and evaluation with a view to promptly emerge the business crisis. From an economic-business point of view, it can be seen that insolvency can be ascertained mainly ex-post also from outside and through accounting and/or final data 91; on the contrary, the crisis, which has not yet crystallized, giving rise to insolvency, presupposes a vision that is no longer historical but prospective, aimed at identifying the incapacity in the future of fulfilling not only the obligations already assumed but also those foreseeable in the normal course of

This suggests considering the possibility of using accounting and/or historical data but with a view to their ability to signal future imbalances, since the accounting indicators examined individually are not very significant for this purpose, that is, without adequate spatial comparison, time and a joint analysis with *ratios,* and operating results in the multiple economic-financial-equity aspects of the investee

Consistently with what is outlined by the economic-business doctrine on the uncertainty that distinguishes the identification of an actual state of crisis, there is a need to always combine qualitative information with the most immediate accounting quantitative data and to accompany simple historical analysis, results with a thorough examination of the future action plans, and the related forecast financial

The analysis shows that the legislator has provided a fairly adequate instrumentation (fund for investee losses) only after the losses have been produced. Here it is considered that preference should be given to a prospective and planning perspective. Basically, only a medium-term planning can effectively detect a state of crisis, confirming its finality or anticipating the outcomes; therefore, the introduction of such an approach would give rise to an extremely useful planning logic for the

their actions in order to prevent company crises and reorganization.

*DOI: http://dx.doi.org/10.5772/intechopen.80700*

and public finance of public bodies.

**7. Conclusions**

business.

company.

and economic flows.

public investee companies.

<sup>9</sup> http://www.corteconti.it/export/sites/portalecdc/\_documenti/controllo/abruzzo/pronunce/2017/ delibera\_115\_2017\_e\_relazione.pdf.

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical… DOI: http://dx.doi.org/10.5772/intechopen.80700*

#### **7. Conclusions**

*Public Economics and Finance*

judgment are respected:

The Court of Auditors9

calculation of the fund balances.

delibera\_115\_2017\_e\_relazione.pdf.

the single text, so any intervention in this sense can only take place within a restruc-

a.The recipient undertaking must have been effectively entrusted with the fulfillment of public service obligations, and those obligations must be clearly defined.

b.The parameters on the basis of which the compensation is calculated must be

c.The compensation cannot exceed what is necessary to cover all or part of the costs arising from the fulfillment of the public service obligations, taking into

d.The choice of the company to be entrusted with the fulfillment of public service obligations must be made in the context of a public procedure that allows to select the candidate able to provide these services at the **lowest cost for the community**. If the choice of the company, in a specific case, takes place outside of such a procedure, the compensation must be determined on the basis of a cost analysis that should be borne by a medium-sized company, efficiently

managed and adequately equipped with means to carry out the service.

With regard to the methods for **hedging the financial resources** allocated to recapitalization and/or loss coverage of investee companies: Art. 3 paragraph 18 of the Budget Law 2004 stipulates that the bodies No *on can borrow to finance contributions aimed at the recapitalization of companies or companies aimed at covering of losses.*

the costs of covering of losses and recapitalizations of participatory bodies should be considered **current expenditure**, and, as such, be taken into account in the

<sup>9</sup> http://www.corteconti.it/export/sites/portalecdc/\_documenti/controllo/abruzzo/pronunce/2017/

(Regional section Abruzzo, sent. No. 1/08) stated that

established in advance in an objective and transparent manner.

account the relevant revenue and a reasonable profit.

turing plan that guarantees the future balance of the subsidiary's accounts. Legislative Decree n. 100/2017, conforming to the indications given by the Council of State in its opinion, has also added a paragraph 3-bis to the aforementioned article 21 of d. lgs. n. 175/2016, under which the participating local public administrations can proceed to the level of the losses suffered by the investee company with the sum set aside, within the limits of their shareholding and in compliance with the principles and legislation of the European Union in terms of **state aid**. This means that, on the one hand, the local partner body (beyond the amount of amounts entrusted to an investee for the performance of certain services) can intervene in the level of losses only within the limits of its participation in the share capital and cannot provide additional resources and, on the other hand, that a local public administration can proceed only if the financial intervention is compatible with the provisions of the Community law on state aid: this compatibility is defined by the decision of the EU Commission of December 20, 2011, which codifies the principles established by the ruling judgment on the Altmark case to exclude that a public intervention is an improper aid, conflicting with Article 107 of the EU Treaty. Consequently, local administrations will be able to intervene for losses only against companies responsible for the performance of the **service of general economic interest** (e.g., transport companies), to offset the service obligations imposed on them and only to condition that the four principles of the Altmark

**82**

The use of corporations by local administrations has been consolidated since the beginning of the nineties of the last century. Since the beginning of the twentieth century, the phenomenon of public intervention in the country's economy had spread, as the corporate phenomenon developed in public administrations, in the absence of specific rules, the belief that the joint-stock company as an organism governed by the civil code was exempted from the application of accounting rules and public finance of public bodies.

The results of the deductive phase have shown that the public investee companies are called to identify new methodologies to direct and control the action of their actions in order to prevent company crises and reorganization.

The provisions of Legislative Decree 175/2016 urge the governance bodies of the public investee companies to use the best and most adequate instruments for monitoring and evaluation with a view to promptly emerge the business crisis. From an economic-business point of view, it can be seen that insolvency can be ascertained mainly ex-post also from outside and through accounting and/or final data 91; on the contrary, the crisis, which has not yet crystallized, giving rise to insolvency, presupposes a vision that is no longer historical but prospective, aimed at identifying the incapacity in the future of fulfilling not only the obligations already assumed but also those foreseeable in the normal course of business.

This suggests considering the possibility of using accounting and/or historical data but with a view to their ability to signal future imbalances, since the accounting indicators examined individually are not very significant for this purpose, that is, without adequate spatial comparison, time and a joint analysis with *ratios,* and operating results in the multiple economic-financial-equity aspects of the investee company.

Consistently with what is outlined by the economic-business doctrine on the uncertainty that distinguishes the identification of an actual state of crisis, there is a need to always combine qualitative information with the most immediate accounting quantitative data and to accompany simple historical analysis, results with a thorough examination of the future action plans, and the related forecast financial and economic flows.

The analysis shows that the legislator has provided a fairly adequate instrumentation (fund for investee losses) only after the losses have been produced. Here it is considered that preference should be given to a prospective and planning perspective. Basically, only a medium-term planning can effectively detect a state of crisis, confirming its finality or anticipating the outcomes; therefore, the introduction of such an approach would give rise to an extremely useful planning logic for the public investee companies.

### **Author details**

Pina Puntillo Department of Business Administration and Law, University of Calabria, Cosenza, Italy

\*Address all correspondence to: pina.puntillo@unical.it

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

**85**

*Financial Relationships Between Public Administration and Public Enterprises: Theoretical…*

Reintroducing enterprise. The Learning Organization. 2004;**11**(4-5):380-392

management' in the 1980s: Variation on a theme. Accounting Organizations and

[10] Hood C. The new public

Society. 1995;**20**(2-3):93-109

University Press; 1996

1997;**9**(51):7-11

[12] EFQM. Common interest day workshops—Management of innovation. Quality Link.

[11] Olsen JP, Guy Peters B, editors. Lessons from Experience: Experiential Learning in Administrative Reforms in Eight Democracies. Oslo: Scandinavian

*DOI: http://dx.doi.org/10.5772/intechopen.80700*

[1] Broadbent J, Guthrie J. Changes in the public sector: A review of recent 'alternative' accounting research. Accounting, Auditing & Accountability

**References**

Journal. 1992;**5**(2):3-31

2017;**12**(3):197-217

Education; 1999

pp. 921-5)

[2] Puntillo P. Inter-municipal cooperation in service delivery and governance: Insights from Italy. International Journal of Business Governance and Ethics.

[3] Del Bello A. Intangibles and sustainability in local government reports: An analysis into an uneasy relationship. Journal of Intellectual

Capital. 2006;**7**(4):440-456

[4] Bossi A, Fuentes Y, Serrano C. Reflexiones en torno a la aplicacion del capital intelectual en el sector publico. Revista Espanola de Financiacion y Contabilidad. 2005;**XXXIV**(124):211-245

[5] Joyce P. Strategic Management for the Public Services. UK: McGraw-Hill

[6] Bossi A. La medicion del capital intelectual en el sector publico [doctoral dissertation]. Zaragoza: University of Zaragoza; 2003 (summary in Revista Espanola de Financiacion y Contabilidad, Vol XXXII No. 118,

[7] Carlin TM. Debating the impact of accrual accounting and reporting in the public sector. Financial Accountability & Management. 2005;**21**(3):309-336

[8] Hodges R, Mellet H. Testing the new public management: Accounting regulation and due process. Paper for presentation at The European Accounting Association Congress; 2002

[9] Mouritsen J et al. Intellectual capital and new public management: *Financial Relationships Between Public Administration and Public Enterprises: Theoretical… DOI: http://dx.doi.org/10.5772/intechopen.80700*

#### **References**

*Public Economics and Finance*

**84**

**Author details**

Pina Puntillo

Italy

provided the original work is properly cited.

\*Address all correspondence to: pina.puntillo@unical.it

© 2018 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium,

Department of Business Administration and Law, University of Calabria, Cosenza,

[1] Broadbent J, Guthrie J. Changes in the public sector: A review of recent 'alternative' accounting research. Accounting, Auditing & Accountability Journal. 1992;**5**(2):3-31

[2] Puntillo P. Inter-municipal cooperation in service delivery and governance: Insights from Italy. International Journal of Business Governance and Ethics. 2017;**12**(3):197-217

[3] Del Bello A. Intangibles and sustainability in local government reports: An analysis into an uneasy relationship. Journal of Intellectual Capital. 2006;**7**(4):440-456

[4] Bossi A, Fuentes Y, Serrano C. Reflexiones en torno a la aplicacion del capital intelectual en el sector publico. Revista Espanola de Financiacion y Contabilidad. 2005;**XXXIV**(124):211-245

[5] Joyce P. Strategic Management for the Public Services. UK: McGraw-Hill Education; 1999

[6] Bossi A. La medicion del capital intelectual en el sector publico [doctoral dissertation]. Zaragoza: University of Zaragoza; 2003 (summary in Revista Espanola de Financiacion y Contabilidad, Vol XXXII No. 118, pp. 921-5)

[7] Carlin TM. Debating the impact of accrual accounting and reporting in the public sector. Financial Accountability & Management. 2005;**21**(3):309-336

[8] Hodges R, Mellet H. Testing the new public management: Accounting regulation and due process. Paper for presentation at The European Accounting Association Congress; 2002

[9] Mouritsen J et al. Intellectual capital and new public management: Reintroducing enterprise. The Learning Organization. 2004;**11**(4-5):380-392

[10] Hood C. The new public management' in the 1980s: Variation on a theme. Accounting Organizations and Society. 1995;**20**(2-3):93-109

[11] Olsen JP, Guy Peters B, editors. Lessons from Experience: Experiential Learning in Administrative Reforms in Eight Democracies. Oslo: Scandinavian University Press; 1996

[12] EFQM. Common interest day workshops—Management of innovation. Quality Link. 1997;**9**(51):7-11

### *Edited by Bernur Açıkgöz*

To better understand the role and importance of government, it is important to try to comprehend all aspects of public economics and finance. This book covers many of these aspects and presents a core thesis that government is a fundamental instrument of the social welfare of communities. It provides the reader with a comprehensive overview of new era states, and answers the question, does the new era require new government policies? Over five chapters, authors from a variety of disciplines and methodological approaches cover topics such as welfare states and social policies, borrowing in the context of public debt theory, and new budgetary approaches. This volume is a valuable contribution to the field and will be appreciated by the global community of scholars.

Published in London, UK © 2019 IntechOpen © Kim Gorga / unsplash

Public Economics and Finance

Public Economics

and Finance

*Edited by Bernur Açıkgöz*