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Education tax, how investments failed with and without PPP

2023-09-25 20:39:00, Denoncim CNA

Education tax, how investments failed with and without PPP

On September 11, on the occasion of the first day of school, the mayor Erion Veliaj addressed an open letter to the students, where he gave an overview of the investments of the municipality of Tirana for the educational infrastructure in the capital, emphasizing that it had built 40 schools of cloud.

"I am also convinced of the pride you must have felt when, together with guests from abroad, the road fell in front of your schools, especially the new ones, with spacious classrooms, library halls, gymnasiums, laboratories and sports fields," he wrote. Veliaj, while adding that there is no difference between Albanian students and their peers in Europe.

Some of the new schools in Tirana were built through a program funded by an education infrastructure tax, which was initially introduced as a temporary solution to raise money from families and businesses in order to avoid overcrowding and shift teaching. students.

In the "first phase" of temporary taxation for the past 7 years, the Municipality of Tirana collected about 4.8 billion lek or almost 45 million euros. Although she pushed the deadline to raise more money for another 3 years, it turns out that she failed to achieve the target of building 17 schools through a "Public Private Partnership" (PPP) scheme.

Local government experts complain that there is a lack of transparency from the municipality of Tirana on how tax revenues are spent on educational infrastructure.

"The municipality must make transparency for the families and businesses that pay this tax, why the initial plan was not realized. To clarify the financial impacts that have pushed him to extend the tax for another three years," said Aida Cacaj, local government expert at the Institute for Municipalities of Albania.

The example of the municipality of Tirana to increase the income for the educational infrastructure has been followed by at least 5 other municipalities. The municipalities of Kamëz, Kavajë, Dimal and Berat collect the income through fees, while the municipality of Gramsh through a temporary tax.

Similar to the municipality of the capital, other local government units do not make transparency about the expenditure of the income that comes from the fee or tax of the educational infrastructure.

Temporary tax?

Education tax, how investments failed with and without PPP

In the 2022/23 school year, Albania had 416,000 students enrolled in the pre-university education system, of which 366,000 were educated in public schools and another 50,000 in private ones.

The public education system has divided the responsibility for the smooth running of the lesson on two levels. The Ministry of Education and Sports (MAS) is responsible for the curriculum and teaching staff, while the local self-government units manage the buildings of kindergartens, 9-year schools and gymnasiums.

Tirana has the largest number of public and private pre-university education institutions. According to the Ministry of Education, Tirana has 15% of schools in the whole country. In the challenge to meet the expenses for the maintenance of existing buildings and the construction of new buildings, the Municipality of Tirana brought the scheme of a temporary tax.

At the end of 2015, the "tax on educational infrastructure" was approved in the Municipal Council of Tirana, which was described as temporary, even though with a 7-year term spanning the years 2016-2022.

Each family in Tirana pays 1,800 ALL per year, while businesses, non-profit organizations, institutions, free professions and the transport sector had progressive taxation from 4,000 ALL to 37,000 ALL per year.

The approval of the tax through decision number 59 of the Tirana City Council, on December 30, 2015, paved the way for a "Public Private Partnership" (PPP) scheme, which was part of the political vision of the mayor Erion Veliaj for the improvement of the educational infrastructure.

Almost a year later, in November 2016, the feasibility study entitled "Improving the educational infrastructure in the Municipality of Tirana" was presented.

While analyzing among many lines the aggravated situation in the capital's schools, embodied in two-shift teaching, the study proposed as the best scheme the construction of schools by private companies and their payment through installments, with the main source being the education tax that would be collected.

The feasibility study of 2016 found that in the Municipality of Tirana there were a total of 191 public schools, of which 17 separate high schools, 13 joint high schools, 40 lower cycle and 121 9-year schools.

"From the calculations made for this feasibility study, it results that 61 schools have more students than their maximum capacity, of which 10 are separate secondary schools, 2 are joint secondary schools and 49 are 9-year schools. 57 schools of conduct the lesson in two shifts...", wrote the feasibility study.

"A kindergarten in the capital serves an average of 198 children, while a school has an average of 819 students, while at the national level this ratio is 44 children per kindergarten and 276 students for each school," the feasibility study further explained.

The study envisaged the construction of 17 new schools to be erected by the concessionaires, which would be liquidated within 7 years of handing over the school and an additional annual interest of 6.28 percent of the construction cost would be paid.

From the analysis of the list of investments that the Municipality of Tirana sent through a request for information, it results that through the PPP scheme, 9 schools have been built, out of 17 that were foreseen, which were all completed in 2022, when the [first] deadline also ended. of the provisional tax.

The Municipality of Tirana last year decided to extend the temporary taxation, but this time defining a 3-year term (2023-2025), which is dictated by the 2017 law, "On Local Self-Government Finances".

Although the temporary education tax in the municipality of Tirana and other local government units has brought additional investments in recent years, the lack of transparency made them difficult to measure according to Aida Cacaj.

"It remains difficult to understand how these improvements are attributed to the temporary tax, this is mainly due to the reporting deficiencies of municipalities, not only institutional reporting, but also those to their communities," she said.

According to the head of the Chamber of Commerce and Industry in Tirana, Nikolin Jaka, the temporary tax imposed by the municipality of Tirana has exceeded the legal deadlines and may also be higher than what the law provides.

"There is the law on Local Self-Government, which says that a tax that is temporary cannot be more than three years," Jaka said. "There is another point, the tax cannot be more than 35% of the tax value of the building," he added.

Mixed results

Education tax, how investments failed with and without PPP

A few minutes away from the roundabout in the "Shqiponja" square at the entrance to Tirana, the 9-year-old "Andrea Stefani" school has been built, within which the kindergarten has also been integrated. Projected in the 2015 feasibility study as the "11/2" square, it was built through the PPP scheme and mainly serves the "Lapraka" area.

On the other side of the "Shqiponja" square, also in the "Astiri" area, it was planned that through the "6/6 square", a 9-year school would be added. But BIRN's observation reveals that it is one of the 7 schools that they are not yet built and in the privately owned square by the river Lana, you can only find parked vehicles.

"The area where I live is the area of ??Astir, this area has not had any changes, there is no school built in addition," says Suela Koçibellinj, mother of two children who study in the 9-year cycle of education.

"There is no impact of such a tax, there are as many businesses as you want here that have paid. Currently, because there is no state school in the Astir area, I am forced to take them to a private school. If there were otherwise, I would not take them to a private school," added Koçibellinj.

The municipality of Tirana managed to finalize only half of the schools planned through the PPP scheme, which was mainly served by the "extra" education tax. Out of 10 planned 9-year schools, only 6 have been built and out of 7 planned gymnasiums, 3 have been built.

For the year 2022, the Municipality of Tirana collected 759 million Lek or almost 7.2 million euros from the tax, 60% of which is collected from business.

The President of the Chamber of Commerce and Industry of Tirana, Nikolin Jaka, accused that there is a lack of transparency for the investments made with this tax and that the Chamber of Commerce was not included in the information meetings.

"It is important that the taxes are approved in accordance with the law and in the context of the investment plan, which must be transparent, by organizing public hearings beforehand," Jaka explained.

From the analysis of concessions of the "PPP" form for the construction of new schools in Tirana, it results that they were announced and canceled in at least 4 cases, with the reasoning that the offers presented did not comply with the technical requirements.

The estimated cost for the first and second PPP concession - for which the contracts were concluded, is almost 3.7 billion ALL or almost 35 million euros. While the income from the tax in the past seven years was almost 45 million euros. In the first two concessions, only 9 schools were completed, proving that the taxation scheme in the first phase was not sufficient for the construction of the other 7 schools or the construction costs were beyond the municipality's forecasts.

The Municipality of Tirana did not identify for BIRN the specific investments it had made through tax collection and in the list of investments in the years 2015-2020 it listed all the constructions and reconstructions of educational buildings, including investments with financing from foreign donors and from the reconstruction funds after earthquake of November 2019.

Jaka appealed to the municipality to publish information and increase transparency about the destination of the use of the tax, along with the list of objects where it has been invested, while emphasizing that infrastructure improvements are the result of other factors as well.

"We must clarify that in addition to the fund of local government units, the improvement of this infrastructure is also closely related to two important financial instruments after the 2019 earthquake," he said, listing the reconstruction program financed by the state budget, as well as the program "EU4Schools", implemented by UNOPS and financed by the European Union.

Taxes and fees for education

Education tax, how investments failed with and without PPP

When the Municipality of Tirana applied the "tax on educational infrastructure" in 2015, the law recognized it as the right to impose it but did not provide technical details about the process. In 2017, after the approval of Law No. 68/2017, "On the finances of local self-government", this legal gap was filled.

After the municipality of Tirana, a number of local government units imposed taxes or fees for investments in educational infrastructure.

The municipality of Kavajë together with Kamza decided to collect this income in the form of a fee. In addition to them, BIRN identified that the fee was also imposed by the municipalities of Berat and Dimal, while that of Gramsh applied it as a tax.

By collecting these revenues as a "fee" and not a "tax", small municipalities avoid some detailed procedures, which Law No. 68/2017, "On the finances of local self-government", dictates in the case of the imposition of temporary taxes.

"The Law on Local Finances is exhaustive in terms of the term during which a temporary tax can be imposed, the term is up to 3 years and there are no cases when this term can be postponed or not set," said Aida Cacaj from the Institute for Municipalities of Albania.

The Kamez municipality set the fee in 2018 and it turns out that by 2022, it will have collected 77 million ALL or almost 728 thousand euros. 22,179 families with a value of 500 ALL and 3,144 businesses pay the fee in Kamez municipality every year, which according to the annual turnover pay from 2,000 ALL to 10,000 ALL.

In response to a request for information, Kamez Municipality told BIRN that it has planned to extend this fee indefinitely, but it did not make available the list of investments made through this fee.

According to Aida Cacaj, in the legal definition the local fee is directly related to a service that the municipalities provide or to a right that is given to individuals, natural and/or legal persons and it is unclear what the businesses in Kamez benefit from the infrastructure fee educational.

Kavaje Municipality clarified in its official response that in its territory there are 31 9-year schools, 1 high school and 1 vocational secondary school.

She set the fee for 7 years, from 2017 to 2023, and managed to collect 21 million ALL or 200 thousand euros. The municipality of Kavajë explained to BIRN that only family members pay the fee, a category which numbers 12,116 taxpayers.

Local activists point out that this fee did not go towards improving the educational infrastructure in Kavaja.

"What has been done in Kavaje Municipality and in the four administrative units has been done by donor programs," said Mirjan Reçi, executive director of the Civil Society Development Center (CSDC) Durres.

"I don't think it's done by returning the fee to the public service," she added.

Reçi demanded that the municipality of Kavaja make transparent the manner of distribution of this fee, as he pointed out that serious problems of financial administration have appeared in this local government unit.

"Last year, the Municipality of Kavaja, together with the Municipality of Vora, were in self-bankruptcy, the Albanian government declared them as bankrupt municipalities, with the argument that they did not collect enough taxes and that it would pass them into government administration, she explained.

The municipality of Berat in 2020 established the fee in order to collect money for the improvement of the educational infrastructure and did not carry out any preliminary assessment of the situation and the necessary investments.

"There is no study on the feasibility of this fee. There have been no discussions on the establishment of this fee," Berat Municipality officially replied to BIRN.

Education tax, how investments failed with and without PPP

In addition to the lack of a feasibility study, Namir Lapardhaja, former member of the opposition in the Berat City Council, told BIRN that the imposition of this fee was not accompanied "neither then nor in the following years," with a concrete relationship and rumors determined why this fee will be invested.

With a long experience in education, he emphasized that Berat Municipality's investments remain at previous levels, focused on maintenance, and that the main investments belong to the Albanian government.

"Although the municipality can boast and justify the increase in local fees, even the establishment of the education fee with this investment, it is worth noting that the investment of the Albanian government does not affect and does not justify the increase and the establishment of new local fees," Lapardhaja said .

From 2,300 businesses and 27,569 families, Berat Municipality reported that in three years it managed to collect 24.5 million Lek or about 231 thousand euros through the fee.

"The duration of this fee will be a function of the condition of the educational institutions of the Municipality of Berat", explained the municipality of Berat through an official response.

The Municipality of Dimal, also part of the district of Berat, has applied a similar fee and, unlike any other municipality, has included in the obligation to pay the needy layers.

About 66 kilometers away from Berat, the municipality of Gramsh also started collecting money for education, but applying it as a tax and not as a fee. The municipality established the tax for 3 years, extending to the period 2020-2022. She decided not to apply the tax to families, but only to businesses, including hydropower plants in the area, and in total for three years she had collected 3.5 million ALL or 33 thousand euros.

Experts express concern that the lack of identification of specific investments by local government units creates uncertainty about how to manage the tax or fee for educational infrastructure.

"In my opinion, the reason is the lack of prior planning of interventions, which is not only a lack of efficiency in predicting investments, but also a lack of transparency towards their taxpayers, a situation that is undoubtedly in violation of the Law on Local Finances", said Aida Cacaj.

The Municipality of Tirana decided to extend the collection of the "Educational Infrastructure Tax" for another 3 years through decision no. 139 of the Tirana Municipal Council dated December 23, 2022.

The tariffs remained unchanged, except for the division of the payment level for businesses, free professions and transport entities into two categories; with a turnover of up to 2 million ALL and for those with a turnover of 2 million ALL up to 8 million ALL./ BIRN

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