Ostrow model of municipal management

Problem

Before the reform of administration was introduced in Poland, until 1989 and before the process of restructuring was started, the municipal economy of Ostrow Wielkopolski functioned in the form of budget companies allocated from the city budget. This did not encourage the rationalization of expenses, improve management methods or to undertake new financial-capital initiatives. The level of investments realized in the companies depended on the funds gained from the city budget. In turns city budget's revenues were set up by the state. So the central limitation of means had a negative influence on the amount of investments realized in the city.

There was a huge discrepancy between needs of inhabitants and possibilities of supplying those needs. Dependence of the city's revenues from the will of the central organs led to a big financial deficit. There was a threat of financial paralysis of the city.

Description

The enterprises financed from the city budget were replaced with new legal entities, having capability of independent operation and financing, using for this purpose all possible financial instruments. These entities started their activity acting on the basis of Civil Code. At present, several years since the beginning of the transformation, all the companies are joint stock companies or limited liability companies. They dispose their property more effectively, invest and gain profits.
Everything takes place without any allocation from the City Hall. It means that the taxpayers' money are not involved in the activity of the companies. Higher efficiency and significant improvement of communal services are the measures of these changes.

Approach

The enterprises financed from the city's budget were replaced with new legal entities, having capability of independent operation and financing, using for this purpose all possible financial instruments. In 1991 there was started the process of transforming enterprises on the basis of Civil Code. At present all the companies are either joint stock companies or limited liability companies and note an increase of market value and effectiveness. They dispose their property more effectively, invest and achieve profits.

It should be added that it takes place without any allocation from the city budget, so the taxpayers' money are not involved in the companies' activities. Companies' managers feel hosts in their own companies. It made them active and resulted in higher efficiency and significant improvement of communal services.

Effect of the transformation was establishing the first in Poland communal capital group - Holdikom S.A. Company. It possesses the stock capital established by bringing in shares and share capital of seven communal companies: These companies did not lose their legal and financial independency. Shares of four companies are noted in the public circulation CTO. HOLDIKOM, owing to the fact that it manages a powerful share capital, is a good and reliable partner in negotiations with financial institutions and possesses at this point much greater capabilities than the City itself.

Results

Process of transformations in the commune economy resulted in real effects both in the material and promotional sphere. Achieving founds from bonds' issue and designing them to improvement of technical infrastructure was an answer to the needs submitted by the inhabitants. Negligence in this area was enormous. The success was achieved not only in the promotional sphere but also in improving the quality of inhabitants' life, creating job market when realizing tasks connected with improvement of communication routes, water mains an heating system. The fact that inhabitants locate economic enterprises near newly built roads is also of importance.

Introduction of Ostrow's bonds into the public circulation had additional advantages. It makes clear and legible actions of the commune which is obliged to perform its information duties: informing about the most important events in the city and actions undertaken by the local government. Thanks to this the city's credibility increases. Ostrow is perceived as a city managed in the modern and over and above the average way.

Learning experiences

Ostrow's experience shows that when changing the approach to the municipal economy, after introducing modern managing methods and gaining abilities to achieve funds from the capital market, one can achieve an economic and promotional success. At the beginning of local governments' functioning, before 1990 negligence in the communal sphere was enormous. For instance, only 2,5 km of roads were hardened a year. This meant that housing estates' residents would have to wait for about 25 years for hardening their roads, assuming that that no new ones would appear.

The issue of communal bonds appeared to be an effective financial and promotional solution. Modernization of roads led to the that willingness of inhabitants to locate economic enterprises and build their houses nearby. So the value of areas near the modernized streets was increased and so was the quantity of newly established economic entities. It resulted in higher receipts to the city budget from the property taxes.

Beneficiaries

Residents of Ostrow, Poland

Financing

Communal bonds
Contact info
City of Ostrow Wielkopolski
P.O. Box: 63-400
63-400 Ostrow, Poland
Susta.info
Stanislaw Krakowski, tel. 0048 591 81 14

Project start date

1990

Cities

Ostrow Poland

Submitted by

Susta info