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How is IMC financed?

From Municipal Cooperation

Understanding IMC
When is IMC relevant?
What are the different areas of IMC?
What are the benefits of IMC?
How many municipal functions can be performed under IMC?
How many municipalities can be involved in IMC?
What are the different possible legislative contexts for IMC?
What are the most common legal forms of IMC in Western Europe?
How is IMC financed?
What are the potential negative side effects of IMC?

Municipal services, whether provided through IMC or not, rely on a standard range of revenue sources. The key issues under an IMC arrangement are how to ensure that the costs and benefits of IMC are distributed fairly between the partner municipalities and their citizens.

The financing of IMC depends on the service area, the type of revenue most appropriate for this area and the selected legal form. Certain types of services such as public utilities are financed by user fees. The issuance of permits or licences is also financed by fees. Other services such as education are financed by taxes, whether local taxes or national taxes channeled to the municipality through intergovernmental transfers (e.g. for delegated responsibilities).

For the services financed by user fees, the standard tariff setting rules should apply. However, under IMC, issues often arise concerning the pricing of services in the different partner municipalities due to differences in the costs of providing the services in each of them. As regards services financed from taxes, IMC always involves some mechanism for sharing costs among partner municipalities based on equal shares, population size, the fiscal resources of each municipality, or volume of services consumed by citizens.

In Western Europe, the establishment and operation of IMC are often subsidized by the central government and/or the IMC has privileged access to central government grant funding. The public law legal form is generally most likely to attract central government subsidies and grants. IMC can also attract private capital for public-private partnership initiatives between several municipalities and one or several private investors. Finally, IMC helps mobilize EU funds (Box 1).