On Assignment of Local Government Tasks to the Private Sector in Estonia

Author:Kalle Merusk and Vallo Olle

1. Introduction - 2. The structure of public tasks performed by local governments - 3. Legal limits and forms of the delegation of local government tasks - 3.1. Local government guarantee and delegation - 3.2. Mandatory local tasks and the legal limits of delegation - 3.3. Delegation and reservation of law: Discretion or imperative - 4. Issues related to the procedure applied before entry into a... (see full summary)

1. Introduction

The assignment of public tasks to the private sector has been topical in Estonia since the 1990s, and practical solutions to this question cluster have been sought actively at both state and local level over the years. Today, local government units - rural municipalities (numbering 194) and cities (33) - provide an estimated 70% of all public services rendered to people. 2 Although this topic has not been overlooked by representatives of research in any of several fields, we have to agree with the opinion of the Chancellor of Justice that, unlike other countries, where the topic has been featured in numerous publications and judicial practice has provided necessary guidelines, Estonia has, thus far, shown a dearth of relevant theoretical discussions. 3 At the same time, assignment of public tasks to the private sector prompts various questions that require opinions from jurists.

If we are to understand the situation that has developed and the issues arising from the assignment of public tasks to persons in private law, it is impossible to ignore the wider social context in which the performance of public tasks by local governments has taken, and is taking, place. Thus, the one-level local government system existing in Estonia can be criticised with keywords like 'inadequate administrative capacity' (weak planning of investments and development; shortcomings in the areas of waste management, budgeting and accountancy, and information technology; irregular and secondary local government supervision in their areas of activity; etc.) 4 , 'weak and unevenly distributed revenue base' 5 , and 'scant legal competence'. 6 The recently emerging economic depression certainly fails to assist in the resolution of the problems that have accumulated over time. All of the above directly relates to the topic of this article.

The main objective of the authors of this article here is to provide a reasoned assessment of the legal and factual circumstances related to the performance of a group of local tasks by Estonian local governments. For this purpose, the sphere of public tasks performed by local government is firstly determined and constructed, proceeding from the requirements of the valid legal order. The legal limits of assigning public tasks to persons in private law and the different forms of such delegation are then discussed, and the substantive soundness (systematicity) of legal regulations established here by the legislator is examined. The focus of the analysis is then shifted to questions concerning competition procedures or public procurement procedures prior to delegation, for the performance of a public task under a contract in public law, and then to issues related to the performance of mandatory local tasks. The analysis thus makes use of the findings of a survey the authors conducted among local governments in the summer of 2008. 7

2. The structure of public tasks performed by local governments

On the basis of the principles of the legal order of Estonia, public tasks may legally be determined to be tasks assigned to administrative institutions directly by law or pursuant to law and tasks that have been derived from the relevant legal norm by way of interpretation. 8 Problems arising from the delegation of public tasks arise not only on the state level but also on the local government level. The situation that has arisen in Estonian legislation regarding the determination of public tasks is on the whole characterised as indefinable and unclear. 9 The Constitution of Estonia distinguishes between local issues (§ 154 (1)) and state issues ("duties of the state") (§ 154 (2)). In resolving and managing local issues, the local government has universal competence. 10 Assigned competence (state issues) is formed pursuant to the law (reservation of law) or pursuant to an agreement between the state and the local government (contract under public law). The differentiation between issues that are essentially local and national is characteristic of the dualistic theory of classifying public tasks.

Local tasks that essentially belong to the competence of a local government can be classified in various ways. 11 Their classification into voluntary and compulsory local tasks is the most important.

Voluntary local tasks are those tasks that the local government is not obliged to fulfil but which it can undertake to fulfil at any time (the so-called right of discovering tasks). In the case of a voluntary local task, the local government has the right to decide whether, when, and how the performance should be carried out. Voluntary local tasks include co-operation with other local government units, establishment of sporting facilities, various cultural tasks, creation of recreation opportunities for residents, etc.

Mandatory local tasks are such local tasks as the state requires local governments to perform on account of heightened public interest. The obligation to perform a task may be unconditional (that is, the task must be performed in any case) or conditional (the task must be performed if necessary, or under certain conditions). In principle, with regard to local tasks, the local government is free to decide only on how to complete a certain task, not whether to perform it at all. Mandatory local tasks have been set out, e.g., in § 6 (1) and (2) of the Local Government Organisation Act 12 (LGOA). It is thus provided in § 6 (1) of the LGOA that the functions of a local government include the organisation, in the rural municipality or city, of social assistance and services, welfare services for the elderly, youth work, handling of housing and utilities, the supply of water and sewerage, the provision of public services and amenities, waste management, physical planning, public transportation within the rural municipality or city, and the maintenance of rural municipality roads and city streets unless such functions are assigned by law to other persons. In addition to the above-mentioned functions, local governments also resolve, and organise response to, local issues assigned to them by other acts of law (LGOA § 6 (3)1)). These areas are also largely regulated by the relevant specific laws (the Social Welfare Act 13 , the Public Water Supply and Sewerage Act 14 , the Waste Act 15 , etc.), which have set out in greater detail how local governments should organise operations in a certain area.

Despite certain differences, both above-mentioned groups of local tasks belong to the scope of § 154 (1) of the Constitution, thus being subject to the provision of the said constitutional provision: "All local issues shall be resolved and managed by local governments, which shall operate independently pursuant to law."

3. Legal limits and forms of the delegation of local government tasks
3.1. Local government guarantee and delegation

The guarantee of local governments as institutions of objective law, set out in § 154 (1) and § 158 of the Constitution, provides local governments with exclusive competence to resolve and manage all local issues. Local governments have thus been given room for decision - whether and how to manage local issues, and henceforth also the liberty to choose organisational-legal forms, insofar as doing so is not restricted with a reservation of law. The freedom to choose organisational-legal forms applies primarily in the case of fulfilment of voluntary local tasks. The local government can fulfil such tasks itself in an organisational form through a structural unit or municipal agency; establish a legal person in private law and assign to it the performance of the task concerned; or assign the task to a natural person or a legal person in private law, established by persons in private law. Here, the state cannot provide for a requirement of delegation of tasks or prohibition thereof. The choice of the organisational-legal forms for fulfilling a task, in turn, depends on several economic and social factors and also on the capability of the local government itself to fulfil the given task. Upon delegation of a task, the capabilities of local governments to influence the quality of completion of the task are reduced.

3.2. Mandatory local tasks and the legal limits of delegation

The legal limits of the delegation of tasks imposed on local governments by law, both local and state tasks, do not proceed solely from the associated provision delegating authority but are also related to constitutional limits. This is particularly relevant in the case of tasks related to authorised powers. In the case of constitutional limits, what must be considered are the nature of the task, the legal status of the person fulfilling the task, and the potential intensity of interference with a person's fundamental rights - the intensity of infringement of fundamental rights. The legislator cannot grant authority to a local government to assign such tasks to a person in private law as are among the core tasks of the authority of the state. The Supreme Court has thus assumed the position that the delegation of misdemeanour procedure and the related penal power of the state to a legal person in private law is in contravention of §§ 3, 10, 13, and 14 of the Constitution, in conjunction with them. These provisions together establish the principle that the authority of the state must only be exercised pursuant to the Constitution and that exercise...

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