Q: How did the worldwide trend of devolution affect municipal finance? A: Outside of the former Soviet Union and Eastern Europe, municipal finance was not significantly affected by devolution, though there has been a tendency for decentralization. Central governments hold the purse- strings and almost all local governments operate under legislation engendered by the national, or - in federal systems - state, governments. Local governments rarely have separate constitutional authority, although there are varying degrees of local autonomy.
In the former Soviet Empire, changes of systems and of attitudes were much more dramatic. Local government units, unlike under the former Soviet system, are not branches of the general government. They are separate corporate bodies, or legal persons. But in Russia, and in other former socialist countries, they have often been granted "de jure" (legal) independence but not full "de facto" (practical) autonomy.
There seems to be an unwillingness to accept that the two systems are intended to operate quite differently. What is good for a central government is not necessarily equally good for a local government unit. For example, the main purpose of local government is to provide public services, with only enough authority to perform them effectively. It is almost always the responsibility of a central or state government to enact and enforce the criminal and civil law. Local by-laws or ordinances are usually concerned only with minor matters and are subject to an enabling legislation. Moreover, they may prove to be "ultra vires" (beyond their powers) and, therefore, unconstitutional, or at least unenforceable.
It may be appropriate, under certain circumstances, for a central government to run budgetary deficits, whether caused by current or capital transactions. In local government units, there is almost always a necessity to distinguish between such transactions. Moreover, in most countries, local government units are required by law to have balanced budgets, without resort to borrowing to cover current deficits.
A corporate body (legal person), whether a private or a public sector entity, has a separate legal identity from the central government and from the members, shareholders, or electorate who own and manage it. It has its own corporate name. Typically, its formal decisions are by resolution of its managing body (board or council). Written documents are authenticated by its common seal. It may contract, sue and be sued in its own name. Indeed, unless specifically prevented by law, it may even sue the central government! It may also have legal relationships with its own individual members or with its staff. It is often said to have perpetual succession, meaning that it lives on, even though the individual members may die, resign or otherwise cease their membership.
While a corporation owes its existence to legislation, a local government unit is established, typically, under something like a "Local Government Organic Law".
Corporate status differs fundamentally from that of (say) government departments in a system of de-concentration.
Permanent closure or abolition of a municipal council, or indeed any change in its powers and duties, would almost always require formal legal action, typically national parliamentary legislation.
A local government unit makes its own policy decisions, some of which, especially the financial ones, often require approval by a central government authority. Still, the central government rarely runs, or manages, a local government unit on a daily basis. The relationship is at arms length and not hands on. A local government unit usually is empowered to own land and real estate. Sometimes, public assets - such as with roads or drainage systems - are deemed to be "vested in" the local authority because they cannot be owned in the same way as buildings are.
Q: Local authorities issue bonds, partake in joint ventures, lend to SME's - in short, encroach on turf previously exclusively occupied by banks, the capital markets, and business. Is this a good or a bad thing? A: Local governments are established to provide services and perform activities required or allowed by law! Normally, they won't seek or be permitted to engage in commercial activities, best left to the private sector.