The draft amendments to the Law on Financing Local Self-Government introduce a new criterion in the distribution of money - the percentage of current revenues of that municipality in the total current revenues of all municipalities, i.e. municipalities that have a percentage of their current revenues above ten percent of total revenues lose the opportunity to receive money from the Equalization Fund.
Municipalities that submitted comments during the public debate on the draft are afraid that they will become developed and therefore will not receive money, or they are asking that their low level of underdevelopment be taken into account and not their belonging to the region, because that way they will receive more money. In other words, the municipalities themselves do not aim to become developed in order to "remove" themselves from this fund.
The Equalization Fund is a special account of the Ministry of Finance to which a portion of revenues, which used to be state revenues, is directed, and they are used as additional assistance to municipalities that have a below-average development rate.
According to data published by the Ministry of Finance with the report from the public hearing on the draft amendments to this law, only three municipalities in Montenegro have a percentage of their current revenues above ten percent of the total current revenues of all municipalities. These are Podgorica with a percentage of 25 percent, Budva with 12,96 percent and Bar with a percentage of 10,34 percent. Of these municipalities, only Bar is a beneficiary of the Equalization Fund and this year it received 3,1 million euros from this fund, out of a total of 51,7 million euros that the fund allocates, so it could be left without this income in the future.
The current revenues of the Municipality of Bar amount to 32,1 million euros, and according to this methodology, if it reduces its revenues by one million, it will receive three million from the Equalization Fund, or it will receive a reward from the state if it performs worse.
The Regional Development Strategy of Montenegro for the period 2023-2027, the analysis of the implementation of which is before the MPs, envisaged that underdeveloped municipalities would be allocated more money, as well as that more capital projects would be implemented in them, in order to reduce the number of underdeveloped municipalities. One of the measures of the success of this Strategy was the reduction in the number of municipalities using money from the Equalization Fund. The number of beneficiaries of the fund from 2022, when there were 13, was taken as the starting point, and it is planned that in 2027 ten municipalities would use this money for underdeveloped ones. However, this year the number of underdeveloped municipalities using this fund increased to 18, i.e. only seven municipalities do not receive money - Podgorica, Budva, Tivat, Herceg Novi, Kotor, as developed municipalities, then the Royal Capital of Cetinje because it directly receives one percent of the state budget, as well as the new municipality of Zeta, for which the development criteria will be determined only next year.
In explaining the need to amend the law, the Ministry of Finance cites the introduction of an additional criterion as the main reason for granting a municipality the right to use funds from the Equalization Fund, as this will allow municipalities with lower fiscal capacity (which collect less of their revenues) to receive more money from the fund.
The proposed changes abolish the advance payment of the Fund's funds, while the Ministry states that it will increase transparency, efficiency and shorten administrative procedures.
In its objections, the municipality of Ulcinj requests a change in the distribution of money from personal income tax, which mostly goes to municipalities, not the state, so that the level of underdevelopment is taken into account, rather than the fact that they belong to a developed coastal region.
The law now stipulates that 40 percent of the money from personal income tax goes to municipalities located in the central and coastal regions, while municipalities in the northern region, plus Tuzi and Zeta, receive 89 percent of the tax collected by the state on their territories. Ulcinj, of all coastal municipalities, has the lowest level of development, which is why it is requesting that the law be amended so that 40 percent of the money from tax goes to municipalities with a level of development above 100 percent of the average value, and 89 percent of the tax from its territory goes to those that are below the average. This amendment would increase the percentage of money Ulcinj receives from 40 to 89 percent.
The Ministry of Finance did not accept this proposal, stating that by distributing this tax they want to encourage the development of the northern underdeveloped region.
In its comments, the Municipality of Danilovgrad expresses concern that its level of development could be above average, or that it could move into the category of developed municipalities, because there is no information about future categorization or whether new regulations on calculating the level of development will be adopted soon.
The Ministry responds that the new methodology will be regulated by bylaws adopted in accordance with the Law on Regional Development.
The Municipality of Bar stated that the distribution of money from the Fund for 2026 should be carried out by the end of October 2025, according to data from 2024, but that the new text of the law stipulates that the act on the distribution of money for 2026 be adopted by the end of November 2025. They believe that this would mean losing the right to the distribution of money according to the criteria from 2024, or that they would lose their acquired rights because it introduces retroactivity of the law, which is unconstitutional.
In order to meet the required deadlines, they propose that the amendments to the law not enter into force on the day of enactment, but on the eighth day from the day of publication, which the Ministry accepted.
New municipalities claimed to be fiscally sustainable, but now they are running to the Equalization Fund
According to the Law on Territorial Organization, by which parts of municipalities can become independent municipalities, the condition, among other things, was to prove that these new municipalities would have sufficient fiscal capacity, which would be determined based on "the ability of the area for which territorial change is requested to provide continuous financing of activities of interest to the local population from available revenues."
That is, these future municipalities will have enough of their own revenues to finance themselves independently and will not be a burden on the state.
The initiators of the initiatives for the new municipalities of Gusinje, Petnjica, Tuzi and Zeta, during the period of seeking independence, proved that they could be financially independent, that is, that they would have sufficient fiscal capacity.
All three new municipalities, Gusinje, Petnjica and Tuzi, are now using money from the Equalization Fund because they do not have sufficient fiscal capacity, while the newest, Zeta, has already requested in statements from its leadership to be part of the Equalization Fund next year.
Tuzi now receives two million from that fund, Petnjica 1,14 million, and Gusinje 931 thousand.
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