MANUAL DEMOCRACY AND HUMAN RIGHTS ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 INSTITUTE OF PUBLIC AND PRIVATE POLICIES The local government has increased its role over the years through its contribution to the economy and in Gross Domestic Product. During the last years there have been improvements in the provision of services compared to year 2014 before TAR. September 2022 The total budget of municipalities compared to the national budget has increased significantly from year to year since implementation of Territorial Administrative Reform. 1

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 DEMOCRACY AND HUMAN RIGHTS ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 INSTITUTE OF PUBLIC AND PRIVATE POLICIES 2

TABLE OF CONTENTS Table of Contents I. EXECUTIVE SUMMARY ........................................................ 2 II. BACKGROUND/ CONTEXT ................................................. 3 III. BRIEF OVERVIEW OF THE“LOCAL SELF-GOVERNMENT IN ALBANIA” .................................. 9 IV. LEGAL AND REGULATORY FRAMEWORK OF LOCAL SELF-GOVERNMENT ........................................ 11 V. ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 2018-2021 TAKING 2014 AS THE BASELINE YEAR ........................................... 13 VI. CONCLUSIONS ......................................................................... 28 RECOMMENDATIONS ........................................................... 28 ANNEXES ................................................................................... 29 BIBLIOGRAPHY ........................................................................ 32 3

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 LIST OF FIGURES Table 1: Graph 1: Graph 2: Graph 3: Graph 4: Graph 5: Graph 6: Graph 7: Graph 8: Graph 9: Graph 10: Graph 11: Graph 12: Graph 13: Graph 14: Graph 15: Territorial administrative reforms in Europe since 2000............. 6 Specific weight of local budget revenues to state budget revenues and GDP,(2013-2021 in thousand ALL)......... 14 GDP during the years 2013-2021............................................. 15 Own revenues of the local budget and growth rate(ALL)......... 16 Local revenues/Total revenues................................................... 18 Revenues from taxes and fees/Total revenues............................ 19 General Unconditional Transfer/ Total revenues....................... 19 Unconditional sectoral transfer/Total revenues.......................... 20 Local municipal expenditures and personnel expenditures compared to the national budget........................ 20 Weight of expenses according to local government functions............................................................... 21 Number of employees in the municipal apparatus before and after RAT................................................................. 22 Expenditures for salaries and insurance of employees in the municipal apparatus before and after RAT...................... 24 Number of employees of transferred functions......................... 24 Investments during 2010-2021 in relation to GDP.................... 26 Capital expenditure/Total expenditure....................................... 27 Local government budget according to source of funding................................................................. 29 4

EXECUTIVE SUMMARY 1. EXECUTIVE SUMMARY Territorial reforms strive to combine local government units in order to improve the delivery of local public services; economies of scale result in lower unit costs, with diseconomies of scale happening in jurisdictions above.(Tavares, 2018). Territorial and Administrative Reform was one of the main priorities of the Government of Albania, aiming at the further democratization and strengthening of the governance in the territory and the encouraging of economic efficiency through an integrated planning in a more consolidated territory. The territorial reform that resulted with the reduction of local government units from 373 to 61 has brought dynamic developments, opportunities and challenges for the newly local government units. Within the time-frame of two mandates each municipality has had the possibility to deal with the larger and differently configured territories, changed constituencies, increased number of functions, and financial constraints. Following an evaluation of the Territorial Administrative Reform, the report serves as a baseline for comparison as the process unfolds in the future and understand whether, and to what extent, these expected outcomes have occurred in Albania. In particular, using findings from the desk study, the report examines if the newly formed communities have benefitted financially and have gained sufficient budget revenues for efficient self-governance. Given the new distribution of the population after the Territorial Administrative Reform as one of the main factors, there are significant differences between the distributions of local budgets by municipalities. The administrative-territorial reform has had a direct impact on the improvement and increase of the fiscal capacity of the municipalities for the collection of their local revenues and consequently the increase of the expenses for the local services. The revenues from Unconditional transfer have increased significantly from year to year, reaching 2% of GDP in 2021. Also based on documents and reports from the Ministry of Finance is projected to increase the level of unconditional transfer from year to year until 2025. The total budget of municipalities compared to the national budget has increased significantly from year to year since the implementation of the Territorial Administrative Reform by increasing the role of local government, by increasing the contribution to the economy and also to GDP. The analysis of the data shows an increase in total local budget revenues from year to year since the application of the TAR. The administrative-territorial reform has directly affected the improvement and increase of the fiscal capacity of the municipalities for the collection of their local revenues and consequently the increase of the expenses for the local services. 5

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 2. BACKGROUND/ CONTEXT Territorial reforms are the most radical and contested reorganisation of the subnational administration.(Ebinger, Kuhlmann&Bogumil, 2019, pg. 1). Territorial reforms strive to combine local government units in order to improve the delivery of local public services; economies of scale result in lower unit costs, with diseconomies of scale happening in jurisdictions above.(Tavares, 2018). Territorial reforms are among the most politically challenging steps. It is almost a law of local boundary restructuring, that there will be powerful forces intent on maintaining the status quo(Paddison, 2004, pg. 25). Institutional rigidity is part of the problem. According to Baldersheim& Rose(2010), once institutions are in place, they restrict future options. On a rational choice level, this resistance may be explicable. The number of available political positions, such as mayors and councillors, will Table 1. Municipal territorial reforms in Europe since 2000 Albania Armenia Austria – Styria Denmark Estonia Finland Georgia Greece Iceland Ireland Latvia Luxembourg Northern Macedonia Netherlands Norway Switzerland – Fribourg UK – England UK – Northern Ireland Average population size of municipality before (year- size) 2011- 10,840 2015- 3,445 2013- 2,254 2006- 20,027 2016- 6,343 2000- 11,441 2006- 4,358 2010- 10,573 2000- 2,281 2013- 167,466 2008- 4,326 2001- 3,747 1994- 16,444 2000- 29,542 2015- 12,070 2000- 994 2001- 139,572 After (year- size) 2016- 73,000 2019- 6,243 2015- 4,256 2007- 55,582 2017- 17,118 2018 2007 2011 2014 2014 2010 2018 2004 2018 2020 2017 - 17,721 - 67,489 - 33,241 - 4,401 - 183,166 - 17,819 - 5,902 - 24,389 - 45,213 - 15.078 - 2,315 2011- 163,589 2014- 70,788 2018- 171,058 Source: Swianiewicz 1 , 2021 1 https://decentralization.gov.ua/en/news/13582 6 Proportion of municipalities: below 1,000 before after 5% 0% 49% 26% 38% 6% 0% 0% 19% 4% 5% 24% 11% 75% 0% 39% 25% 4% 0% 6% 76% 5% 0% 4% 57% 0% 0% 1% 0% 0% 6% 38% 0% 0% below 10,000 before after 73% 5% 97% 92% 98% 95% 48% 4% 92% 59% 76% 96% 79% 96% 0% 95% 94% 58% 23% 73% 99% 68% 6% 25% 92% 0% 69% 90% 38% 6% 68% 98% 0% 0% 0% 0% 0% 0%

BACKGROUND/ CONTEXT be reduced under consolidation reform. Others may lose prestige or perhaps their jobs as a result. Although territorial reforms are politically very risky and difficult to implement, we can identify the European countries that have experienced changes in administrative boundaries due to the merger of local governments. All of these reforms were implemented top-down or at least created with incentives from the central government (Gendźwiłł, Kurniewicz,& Swianiewicz, 2021). Table 1 displays the proportion of variations in territorial configuration of individual European countries. The economic impacts of territorial reforms can be grouped into four groups. I. First group: Economy of scale: The primary goal of territorial reforms is to reduce production costs by leveraging economies of scale, scope, and density in the delivery of public goods and services.(Bourdin& Torre, 2021; Hofmann& Rother, 2019; Lima& Silveira Neto, 2018; Mat ě jová, Nemec, K ř ápek& Klimovský, 2017; Soukopová, Nemec, Matejová& Struk, 2014; Turley, McDonagh, McNena& Grzedzinski, 2018). Economies of scale exist not only in industrial production, but also in the services provided by local governments. “Economies of scale are considered the main underlying assumption driving local government amalgamation. A more recent trend is that of local governments also seeking economies of scale in specific services through joint production via intermunicipal cooperation”. (Blank& Niaounakis, 2021, pg. 4). The concept of economies of scale is based on the distinction between constant and variable costs of service. Due to the high percentage of constant costs, marginal costs can be minimized as production scales increase(Miyazaki, 2018). The literature and international practice confirm that the optimal size for achievement of the efficiency of public services(economies of scale) is when local units have a population of 25,000 to 250,000 inhabitants(Holzer, Fry, Charbonneau, Van Ryzin, Wang & Burnash, 2009). There is extensive literature on the economies of scale of local governments, but it is not definitive(Blank& Niaounakis, 2021). Therefore, it has proven difficult to provide guidelines and consistent recommendations for policy makers and public managers. II. Second Group: The institutional capacity of local governments. 1. First, this is related to the assumption that in large organizations the quality of staff will improve; will icrease the specialization, and, as a result, the performance of service delivery will improve(Keating 1995, Leland & Thurmaier, 2005; O’Toole& Meier, 1999; Walsh 1996; Walker& Andrews, 2013). According to Harjunen, Saarimaa& Tukiainen, 2021 the increasing of size makes more difficult the tailorising of local services to meet the preferences of citizens as result of the increasing of heterogeneity of the local government. 2. Second, a larger organizational capacity generally allows more functions to be allocated to local authorities, and indirectly the deeper functional decentralization(Pierskalla, Rodden& Wibbels, 2019). 3. Third group: The wider environment in which local governments operate. The territorial reforms may support local economic development, because a larger size may cover a wider territory enables complex, coherent planning and makes it easier to concentrate resources on expensive infrastructure projects, which are crucial for promoting economic growth(Swianiewicz, 2021). 4. Fourth Group: The temporary effects related to the local government’s behaviour in the period directly preceding the reform(so-called common pool problem). The‘common pool problem’ arises when the costs of an activity that bene fi ts a small group are shared among a larger group’(Jordahl& Liang, 2010, pg.157). Incumbent politicians are likely to allocate a larger amount of public spending to more populous areas and a smaller amount to less populous areas of the post-merger municipality in order to maximize their chances of reelection(Pickering, Tanaka& Yamada, 2020, pg.259). This is an economic outcome (or side effect) of the territorial reform. Territorial and Administrative Reform was one of the main priorities of the Government of Albania, aiming at the further democratization and strengthening of the governance in the territory and the encouraging of economic efficiency through an integrated planning in a more consolidated territory. Seven years have passed since the implementation of the Territorial and Administrative Reform in Albania (TAR). Territorial consolidation, as its initiators have been stating, aims to enhance the capacities and performance of local self-government bodies, enhance the quality and standards of local public services, proper development of territory by enabling greater human and financial resources and encourage public participation, as well as transparency and accountability of local authorities. 7

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 The territorial reform that resulted with the reduction of local government units from 373 to 61 has brought dynamic developments, opportunities and challenges for the newly local government units. Within the time-frame of two mandates each municipality has had the possibility to deal with the larger and differently configured territories, changed constituencies, increased number of functions, and financial constraints. It has been the forerunner for a number of local government reforms, such as decentralization that was finalized with the National Cross-cutting Strategy for Decentralization and Local Governance 2015-2020. In support of local government reform, the institutional, legal and regulatory framework has been further developed, such as: - The New Organic Law on Local Self-Government(including the transfer of a package of additional functions to local governments); - A new Law on Local Finances; - The revision of the Law on the Prefect; - STAR 1 project, which provided technical, operational and logistical support for the territorial reform process. - STAR 2 project was developed to continue the support in 61 Local Government Units(LGUs), aiming to strengthen their institutional and administrative capacities; service delivery transformation and modernization through One Stop Shop systems as well as improve local service delivery including quality, coverage, accessibility and inclusiveness for all men and women of Albania; enhance the efficiency and transparency of public institutions for an effective response to public expectations and fostering citizen-oriented governance and participatory decision making. - STAR 3 project is developed in Sustaining and Advancing Local Governance Reform. - The project“Municipalities to EU”, which aims not only to strengthen local capacity in relation to EU policies and programs, but also the establishment of structures, trainings, establishment of electronic systems for cooperation and exchange of information on EU related matters. - The establishment and functioning of a joint central/local government Consultative Council; - The completion of the legal framework regarding the new functions and social services; -“Strong Municipalities” project supports municipalities in improving services and increasing management orientation towards citizens, especially regarding waste management, preschool education, municipal performance and municipal councils. - The application of the Civil Service Law at the local level, among others; - Law no. 146/2014 On Public Notice and Consultation which aims to guarantee transparency and public participation in policy-making and decision-making processes - Recently, an Action Plan with key indicators for the implementation of the National Cross-cutting Strategy for Decentralization and Local Governance 2019-2022, is under development. Monitoring of the new legal framework implementation level is an important step for local self-government units in the coming years. - RELOaD program, a regional initiative aims to strengthen participating democracies and the EU integration process in the Western Balkans. - The USAID/ Planning and Local Government Project (PLGP) in Albania has contributed to both central and local policy levels to promote the decentralized governance principles and to disseminate and institutionalize practical methods and techniques for the administration of local government units. - The Decentralization and Local Development Program (DLDP) has contributed to various areas of decentralization reform and in particular to the field of financial planning and management at local, regional and national level. Local government reform has been supported by various donors, within the national development context and the country’s EU integration perspective. Local good governance remains a key challenge on the road to EU integration. In the period 2016-2020, a number of projects have been implemented in support of decentralization processes and municipalities, such as: -“LevizAlbania” Project supports the strengthening of local democracy through comprehensive decision-making; local government oversight; transparency; accountability; monitoring the delivery of public services. The administrative and territorial organization of the country is directly related to the quality of governance. 8

BACKGROUND/ CONTEXT Territorial administrative reform is defined as one of the most important reforms of the Albanian Government with the main goal of improving services for citizens and strengthening local government. TAR has also addressed a number of other issues such as the process of administrative and fiscal decentralization, which need to be analyzed on an ongoing basis. So, it is important to analyze if the expected benefits are achieved and the effectiveness of territorial and administrative reform. If we consider various documents that emphasize the importance of analyzing the progress of territorial reform, we can mention the EU Progress Report 2020. It emphasizes that Albania has continued to show its commitment to EU-oriented reforms and has achieved tangible and sustainable results, despite the challenges due to the Covid-19 pandemic. Regarding the territorialadministrative reform, it is emphasized that it should be further consolidated as part of a broader decentralization agenda. This is especially necessary to guarantee local fiscal autonomy and to empower municipalities in order to provide quality public services according to standards. Also, the EU Progress Report 2020 underlines that the new Legislation with an impact on local government has not been fully harmonized and implemented. While municipalities have been given greater policy-making powers, they still do not have sufficient financial resources and administrative capacity to exercise them effectively. The important question that arises is whether the expectations and objectives of the territorial reform have been met after 7 years that it has been implemented? The assessment serves as an important monitoring tool for tracking progress of the territorial reform implementation. It investigates the effects of the territorial reform in the period 2018-2021 taking 2014 as the baseline year. Monitoring is a continuing function that informs where a policy intervention stands at a certain point in time, relatively to its targets and objectives. The results of monitoring are an important precondition for proper evaluation of the success of reforms and their impact on economic and social development. Thus, monitoring can provide valuable information on the process as well as the results of the reform. METHODOLOGY The aim of the methodology is to monitor the efficiency of territorial reform implementation. This assessment will contribute by evaluating the changes on municipal efficiency stemming from a structural reform that reduced the number of administrative and local government units. The comparative analysis is used to analyze the situation of the former 373 local government units with the data of the current 61 municipalities. Through this comparison we defined if the goals of the reform have been achieved and if there were any negative “side effects”. This study uses a two-stage methodology to measure the impact of the reform on the municipality efficiency. PHASE 1: INCEPTION PHASE The first step was the preparation of a work plan. This document will act as basis on which definition of tasks and deadlines will be agreed with actors involved. In this phase will be identified the issues that need to be looked closely and require particular attention. PHASE 2: DEVELOPMENT PHASE The evaluation methodology consists of collecting data from secondary sources, comparative analysis and drafting the final assessment that will include findings and recommendations. Specifically, the development phase will focus on the analysis of the two main issues such as service delivery efficiency and local financial aspects . Information on public funds used in the provision of services to citizens, as well as information on revenues and expenditures according to legal provisions and information related to the service delivery are needed during the analysis phase. Using findings from data collection, the assessment will examine if the newly formed LGUs have benefitted financially and have gained sufficient budget revenues for efficient self-governance. 9

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 3. BRIEF OVERVIEW OF THE“LOCAL SELFGOVERNMENT IN ALBANIA” Decentralization is a broad concept that can refer to a variety of governing structures. Decentralization is the process of transferring power from the central government to local levels of government. This could include the planning and management of government functions, such as resources and funds. Decentralization is often praised for its favorable effects on local and national development, including poverty reduction. Decentralization, in a theoretical sense, is a governance system in which political, economic, and legal organization is based on the allocation of competencies from central to local government organizations. Albanian Local Government before the 1990s was in essence a de-concentrated governance, with limited self- government bodies(elected councils) within the framework of a highly centralized decision-making system in charge of managing the implementation of detailed economic planning(Hodaj, 2001, pg. 2). When municipal governments were first democrately elected in Albania in the early 1990s, decentralization of governance began. The 1992 changes established the framework for the establishment of democratic local governments, which gradually prepared to take on greater responsibilities and functions. The unconditional ratification of the European Cart on Local Self-Government(8548/1998) and the enactment of the Law on the Organization and Functioning of Local Government(8652/2000) indicate the second major step toward full administrative decentralization. One of the key goals of Albania’s decentralization reforms is for Local Government Units to be able to provide the functions that have been given to people. For this reason, as part of the decentralization reforms of the government, the Law on Territorial Administrative Separation of Local Government Units(8653/2000) was adopted. By integrating the administrative boundaries of districts, the administrative division of 2000 tries to retain the historical boundaries of municipalities, communes, districts, or prefectures(relating to the early twentieth century). This reform package, which established the basic foundation for decentralization in Albania, was based on the idea that local government units would use the given option if they were unable to provide the transferred tasks and responsibilities on their own. To supplement the framework of fiscal and administrative decentralization, laws and instructions were developed, and intergovernmental transfers and grants were designed until 2006. With a few exceptions, voluntary LGU mergers have not occurred during the 14 years of operation. In these circumstances, the discussion on territorial administrative reform was restarted in 2003, and a draft law on the country’s administrative-territorial reorganization was produced in 2004 based on a political paper issued by the Council of Europe. The draft law established a set of criteria aimed at achieving the stated goal for local government entities capable of earning income and performing the responsibilities stipulated by law efficiently. The proposed legislation did not find political consensus and as such was not approved by parliament. The year 2005 marks another turning point in the development of government decentralization, and with the change of government comes a shift in the strategic approach to fiscal decentralization. The system of intergovernmental transfer grant was overhauled, with nearly complete fiscal equalization introduced as a tool to help tiny and very small local entities generate revenue and offer services to inhabitants. This approach, justified by the need to maintain and improve governance democracy, actually caused misunderstanding about what the decentralization strategy identified as good and effective governance. Indeed, the challenge of forming larger local units that offer services more efficiently, better utilize financial resources, and respond to the desire for closer citizen participation(democratization of governance) is a difficult one. There are a number of other difficulties that the administrative-territorial reform addresses: 10

BRIEF OVERVIEW OF THE“LOCAL SELF-GOVERNMENT IN ALBANIA” 1. the country’s high fragmentation- 20 percent of Albania’s population lives in 232 LGUs, or over 75 percent of the total LGUs, with less than 5,000 inhabitants – which results in very high costs in providing basic services for citizens; 2. the limited human capacity often faced by small local units, resulting in the inability to exercise local functions, generate and accumulate revenue, and provide services; need for multi-level governance, including regional governance; etc. The administrative-territorial division in Albania has undergone changes, which have affected the historical, political, economic and social developments of the country. Transformations in administrative-territorial structures, during historical developments have corrected or identified problems of governance at the local level. 3. the process of administrative and fiscal decentralization has been abandoned, in part due to limited local capacity, but also due to frequent and chaotic interventions in the legislative basis, reduced fiscal autonomy, and non-financial coverage of mandates for joint functions; 4. unclear role of qarks as coordinators and supporters in the exercise of local functions; 5. the need for an internal regional development policy that meets the requirements of EU integration and the With the old division, the territory of Albania was organized administratively in 12 qarks, 65 municipalities and 308 communes. With the new administrativeterritorial reform, the governing units local have been consolidated into larger units. The Parliament approved the new administrative-territorial division with law no. 115, dated 31.07.2014,“On the administrative-territorial division of local government units in the Republic of Albania”. According to the law, the local government units in the Republic of Albania are 61 Municipalities and 12 Qarks. 11

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 4. LEGAL AND REGULATORY FRAMEWORK OF LOCAL SELF-GOVERNMENT Legal and regulatory framework of Local Self-Government, is devoted to the specifics of local governments functioning after the reform. This part also includes information on the main types of intergovernmental transfers allocated to the local level. In support of local government reform, the institutional, legal and regulatory framework has been further developed, such as: - The Cross-cutting Strategy on Decentralization and Local Governance(CSDLG) was approved by the Council of Ministers in 2015 and re-evaluated in 2018, defining the objectives of the decentralization process in Albania. In the framework of the implementation of the territorial reform and based on the National Cross-cutting Strategy for Decentralization and Local Government 2014-2020, several important legal acts have been adopted, such as the Law on Local Self-Government and the law on Local Self-Government Finance. One of the main objectives is fiscal decentralization, to create opportunities for local governments to have more financial resources, so that they can perform their functions and competencies effectively and sustainably. The main objectives of the strategy in this area are: Law 139/2015“On Local Self-Government” regulates the organization and functioning of local government by replacing the previous law. In this law, the first-tier units of local government are only municipalities, eliminating communes that became administrative units as part of new municipalities. Law 139/2015 essentially does not bring about radical changes in the internal organization of the municipalities, and the role of the mayor and council remains somewhat the same. Likewise, the relationship between the council and the mayor remains the same. But this dependence of the Mayor from the municipal council in adopting important decisions does not fit the Mayor’s mandate, which is now elected by a much larger number of voters compared to the previous division. Law 139/2015 introduced the concept of limiting the mayor’s mandates to three consecutive mandates with the right of re-election. This provision is currently a matter of debate for the upcoming local elections because there is uncertainty whether previous mandates will be considered or not. This law eliminated joint functions and expanded the range of municipal activities with some new or more expanded functions. Other important changes brought by this Law are the establishment of the Consultative Council, the concept of shared taxes, the establishment of community structures, etc. • To increase the local revenue capacity of LGUs to meet the financial needs, provision of more services; With the new legal framework, six new functions have been transferred to local government: • Improve the stability, simplicity and equity of the system transfers along with increased transparency; • Provide more capacity for LGUs to use borrowing and debt for financing capital investments; • Strengthen the public financial management system at the local level. o Forest and pasture management o Maintenance of rural roads o Irrigation and drainage o Fire protection and rescue o Management of social centers o Supporting staff for pre-university education systems Law 68/2017“On Finances of Local Government” The New Organic Law 139/2015 on Local SelfGovernment(including the transfer of a package of additional functions to local governments); Law no. 68/2017 aims to define the rules, principles and procedures for financing local self-government units, including its own revenues from local taxes and tariffs, 12

LEGAL AND REGULATORY FRAMEWORK OF LOCAL SELF-GOVERNMENT separate taxes, transfers from the State Budget, and revenues other provided by law; determining the basic rules for the size and distribution of central government transfers to local self-government units; defining rules for policies, instruments and procedures for public financial management at the local level; other important issues for the financing of local self-government functions. This law attempts to provide a method for funding local self-government units in conformity with the ideals of local autonomy enshrined in Albania’s Constitution, the European Charter of Local Self-Government, and the law on local self-government. It also attempts to ensure the fiscal sovereignty of local self-government groups by allowing them to levy and collect local taxes and levies. Ministers, at the regional level. This law regulates the relations of the prefect of the region with administrative bodies and institutions, state bodies, with bodies of local self-government units, territorial branches operating in the region and with other state institutions. The establishment and functioning of a joint central/local government Consultative Council; The Consultative Council was established by the decision of the Council of Ministers adopted on December 21, 2016. This new body serves as an institutionalized platform for consultation and dialogue with local and regional authorities, offering them the opportunity to increase the power of defending their interests and exercising their leadership role. Law 68/2017 establishes regulations for the distribution of local financial resources in accordance with local community strategic priorities and needsensures that the central government consults with local self-government units on a regular basis, using the stated instruments of consultation, to assess the sufficiency and stability of the local self-government units’ financial resources in order to realize the law’s purposes. The revision of the Law on the Prefect; The purpose of this law is to determine the role of the prefect of the region, his mission and competencies in fulfilling his duties, as a representative of the Council of Law no. 146/2014 On Public Notice and Consultation which aims to guarantee transparency and public participation in policymaking and decision-making processes This law regulates the process of notification and public consultation of the draft-laws, national and local strategic draft-documents and policies of high interest for the public. This law stipulates the procedural rules which shall be applied in order to ensure the public transparency and participation in the policy-making and decisionmaking processes from the public entities. It aims the encouragement of transparency, accountability and integrity of the public authorities. 13

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 5. ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 20182021 TAKING 2014 AS THE BASELINE YEAR Following a performance evaluation of Territorial Administrative Reform, the report serves as a baseline for comparison as the process unfolds in the future and understand whether, and to what extent, these expected outcomes have occurred in Albania. In particular, using findings from a desk study, the report examines if the newly formed communities have benefitted financially and have gained sufficient budget revenues for efficient self-governance. The desk study will address the basic question of what are the benefits(economic and others) of the consolidation process. has continued the same over the years resulting in a population number for the municipality of Pustec at 3859 inhabitants in 2019 as the smallest municipality in Albania, and a number of inhabitants 638,716 for Tirana as the largest municipality in Albania. The average population for the 61 municipalities of Albania is 54,282 inhabitants. Based on this average, we note that the highest percentage of Albanian municipalities, respectively 80% of them are below the national average of the population. Assessments will be made for the years 2018-2021 and 2014 as the baseline year for the data comparison (depending on the availability of data). Analysis of the population distribution in the territory based on the new administrative division; Graph 1: Specific weight of local budget revenues to state budget revenues and GDP,(2013-2021 in thousand ALL) In terms of population distribution across the territory, Albania is divided into 61 municipalities that include 369 administrative units, 58 cities and 2,998 villages. From this population distribution it results that municipalities are divided into small municipalities where their population varies up to 50,000 inhabitants, mediumsized municipalities with a population of 50,000-100,000 inhabitants and large municipalities with a population over 100,000 inhabitants. Small municipalities are 37 out of 61 municipalities and cover 26% of the population, medium municipalities are 13 out of 61 municipalities and cover 25% of the population and large municipalities are 10 out of 61 municipalities in Albania(without including Tirana) and consist of 49% of the total population of Albania. After the Territorial Administrative Reform, the distribution of the population in the 61 new municipalities in the country has had a large difference, resulting in the lowest number of population in Pustec to the largest number of population in the municipality of Tirana. This trend 600,000 500,000 400,000 300,000 3.31% 327,178 3.39% 366,721 379,206 3.09% 3.67% 200,000 100,000 0 0.80% 0.89% 10,825 2013 12,447 2014 % to total revenues 0.82% 11,700 2015 2 % to GDP Source: Ministry of Finance and Economy 14

ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 2018-2021 TAKING 2014 AS THE BASELINE YEAR Graph 2: GDP during the years 2013-2021 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 1,395,303 1,350,052 2013 2014 1,434,308 1,550,644 1,472,480 1,635,715 1,679,284 1,572,269 1,682,637 2015 2016 2017 GDP 2018 2019 2020 P/Budget 2021 Source: Ministry of Finance and Economy % 407,021 4.29% 430,397 4.86% 449,909 5.02% 460,349 5.16% 425,905 5.25% 6.00% 5.00% 484,106 4.00% 3.00% 1.02% 14,951 2016 1.19% 1.34% 18,447 2017 21,863 2018 Revenues of local budget 1.38% 1.40% 1.51% 2.00% 1.00% 23,102 2019 21,975 25,426 2020 P/Budget 2021 0.00% Total revenue of the state budget 15

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 The distribution of the population in the municipalities with a significant difference between them is followed by many other problems in terms of costs and the provision of local public services. The budgets of the municipalities in comparison to national budget In general terms we notice an increase in total local budget revenues from year to year since the application of TAR. The administrative-territorial reform has had a direct impact on the improvement and increase of the fiscal capacity of the municipalities for the collection of their local revenues and consequently the increase of the expenses for the local services. The total budget of the municipalities compared to the national budget has increased significantly from year to year since the application of the Territorial Administrative Reform by increasing the role of local government, by increasing the contribution to the economy and also to GDP. The ratio of own revenues to GDP has maintained a continuous growth trend of 0.89% in 2014 before TAR, reaching 1.34% in 2018, 1.38% in 2019, 1.4% in 2020 and 1.51% in 2021. Revenues from own sources compared to state budget Given the new distribution of the population after the Territorial Administrative Reform as one of the main factors, there are significant differences between the distribution of local budgets by municipalities. One of the most direct indicators for assessing fiscal decentralization and local autonomy are the own source revenues from the municipalities. Revenues from local taxes have had an increasing trend compared to each previous year, respectively 28% in 2016, 23% in 2017, 19% in 2018, 6% in 2019 and 1% in 2020. The year 2020 had a negative impact on all municipalities due to the COVID-19 pandemic. The increasing role of local government in terms of public services and the functions it exercises, has caused the ratio of own source revenues to total public revenues and gross domestic product to increase in recent years. Local government revenues, despite the decline in absolute value during 2020 as a result of the economic downturn as a whole from the pandemic, in relation to public revenues have increased from 5.02% in 2019 to 5.16% in 2020. From 2014, where the ratio of local revenues to public revenues was about 3.39%, the increase of the role and fiscal power of local government in 2018-2020 was accompanied by an increase of this ratio by about 1.47% in 2018, 1.63% in 2019 and reached at 2.07% in 2020 compared to 2014. Graph 3: Own revenues of the local budget and growth rate(ALL) 1.40 1.20 1.00 1.00 0.80 0.60 10,825 0.40 0.20 0.00 1.15 12,447 1.28 0.94 11,700 14,951 1.23 18,447 Own revenues 1.19 21,863 23,102 1.06 21,975 30,000 25,426 1.16 25,000 0.95 20,000 15,000 10,000 5,000 0 Growth rate Source: Ministry of Finance and Economy 16

ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 2018-2021 TAKING 2014 AS THE BASELINE YEAR On the other hand, local government has increased its role over the years through its contribution to the economy and Gross Domestic Product by changing the ratio from 0.89% of GDP in 2014 to 1.34% in 2018, 1.38% in 2019, 1.4% in in 2020, with an increase of 0.51% of GDP from 2014 to 2020. It is also projected that in 2021% of GDP will reach 1.51%. In quantitative terms, it is seen an increase in the level of revenues from its own sources in relation to GDP in recent years, reflecting a better level of local government, while to see the impact of this increase in each municipality it is needed a more detailed analysis in each municipality of Albania. If we analyze the percentages that occupy the local revenues to the total revenues according to 61 municipalities, we notice a marked disparity between the municipalities. This disparity is observed mainly in the low level of collection of own revenues from small municipalities where in the municipality of Has its own revenues were only 2.08% of the total revenues of the municipality and the highest percentage of its own revenues is occupied mainly by medium and large municipalities where specifically in the municipality of Vora 47.82% of the total revenues of the municipality is occupied by the local revenues and Tirana with 50.36% of the total revenues of the municipality. At the national level, we notice that 61 Municipalities have local revenues at an average of 15% of the total revenues of the municipality. Meanwhile, we note that a small number of municipalities have a local revenue level lower than 10% of total revenues. In the analysis of revenues from its own sources, there is an increase of the latter between municipalities. But this increase has a disproportionate distribution as a result of problems in collecting revenues from its own sources in some of the small municipalities. Also a high percentage of revenue from own sources is occupied by infrastructure impact tax from new construction. The increase in the percentage of revenues from the infrastructure impact tax has also had an impact on the implementation of the general local plans of the municipalities. The contribution of the infrastructure impact tax should be analyzed in more detail as this tax itself is unstable and depends on the activity of construction enterprises. The trend of collecting revenues from own sources and also the distribution of local budgets results in selective impact of decentralization reforms in a considerable number of municipalities. The low levels of revenue collection from own sources in some of the municipalities of Albania, where small municipalities are mainly evidenced, show that the changes and impacts of Territorial Administrative Reform so far in terms of decentralization have had limited impacts. As a result, the fact that small municipalities have a low fiscal capacity is evident, and as a result, fragmenting them even more would only worsen the situation. The increase in the level of revenues from its own sources has also increased due to the increase in the level of local taxes and fees and the improvement in their collection, mainly in urban areas. The increase of economic potential not only from its own revenues but also from those of the central budget are a very important factor in promoting the increase of the quality of local government services. Unconditional transfer is regulated by Law no. 68, dated 27.04.2017,“On Finances of Local Self-Government”, which determines the size and manner of allocation for Local Self-Government Units. As a general rule, unconditional transfer is intended to provide the local self-government units with the difference between the cost of performing the functions(expenditure needs) and the revenue they generate independently(fiscal capacity). As LGUs are different in terms of fiscal needs and capacity, in an efficient and fair system of unconditional transfer sharing, differences in both dimensions must be taken into account. Unconditional transfer as an important source of local government funding in years has undergone a significant increase. Transfers to the budget of local self-government units are: - Unconditional transfer which consists of: a) The General part resulting from the implementation of point 2 of article 23 of Law no. 68, dated 27.04.2017,“On Finances of Local Self-Government “, which stipulates that the size of the unconditional transferis not less than 1% of gross domestic product and not less than the previous year, b) Sectoral part as a result of the implementation of point 3 of article 95 of Law no. 139, dated 17.12.2015, “On Local Self-Government”, for the end of the transitional period for financing with specific transfers of decentralized functions by this law, and the implementation of point 4 of article 23 of Law 68 dated 27.04.2017“On Finances of Local Self-Government” which regulates the conversion of specific transfers for newly decentralized functions at the local level into unconditional sectoral transfers. 17

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 - Specific transfers for civil protection. This fund is distributed with a formula which is based on the specific weight that the budget of each municipality occupies to the total budget of all municipalities. The timely implementation and compliance with legal obligations of the local government revenue and expenditure plan is a critical aspect that contributes to the country’s promotion and economic growth. Local selfgovernment units should play an increasingly vital role in people’ well-being, and this protagonism should be emphasized with the skills that decentralization confers on them. Unconditional transfer income levels have increased significantly from year to year, reaching 2% of GDP in 2021. Also based on documents and reports from the Ministry of Finance is projected to increase the level of unconditional transfer from year to year until 2025. Unconditional transfer is of particular importance at the municipal level, given that a significant percentage of municipalities(mainly small municipalities) have unconditional transfer as their main source of income. This transfer accounts for over 40% of the total revenue available to these municipalities. The six new decentralized functions are funded by unconditional sectoral transfers that cover employee salaries, social and/ or health contributions and some running costs, and a small percentage of investment funds. The new administrative division not only changed the way municipalities were formed, but also had to give local government a transformation in terms of financial management and a culture of performance, both in the management of municipalities and in providing services to residents. The central government aims to reduce imbalances between municipalities through intergovernmental transfers, but in terms of local autonomy, this policy increases the support of municipalities by the central government. Local government expenditures have followed an increasing trend, concretizing over the years the consolidation of local government financial management. This trend is clearly identified not only in absolute value but also in relation to gross domestic product or public spending. Compared to a year ago, during 2020, local government expenditures in relation to GDP, have decreased slightly by 0.07% due to the COVID-19 pandemic. On the other hand, compared to 2014, local government expenditures in relation to GDP have increased year by year reaching an increase of 1% to GDP. Also, local government expenditures in relation to public expenditures have increased significantly year after Graph 4: Local revenues/Total revenues HAS KELCYRE PESHKOPI TEPELENE BULQIZE MEMALIAJ GRAMSH MIRDITE KURBIN KLOS PUKE MAT FUSHE ARREZ LIBRAZHD PUSTEC KUKES PRRENJAS KOLONJE DIVJAKE PEQIN LIBOHOVE MALIQ PERMET SELENICE TROPOJE VAU I DEJES POLICAN KONISPOL POGRADEC RROGOZHINE DIMAL DEVOLL BELSH CERRIK SKRAPAR ELBASAN AVERAGE FIER BERAT GJIROKASTER DELVINE KUCOVE MALESI E MADHE FINIQ SHKODER PATOS LUSHNJE KAVAJE MALLAKASTER LEZHE KORCE KRUJE DROPULL SARANDE VLORE HIMARE ROSKOVEC SHIJAK KAMEZ DURRES VORE TIRANE 2.08 3.98 4.21 4.68 5.34 5.65 5.66 6.08 6.47 6.5 6.64 6.99 7.56 7.57 7.76 7.89 7.94 8.26 8.68 9.28 9.74 10.02 10.39 11.43 11.68 12.93 13.03 13.24 13.67 13.75 14.55 14.56 14.68 15.08 15.08 15.26 15.3 15.36 16.17 16.17 16.56 16.87 17.23 18.18 18.8 19.32 20.04 20.77 21.23 21.64 22.97 23.7 23.75 25.73 26.5 27.43 27.76 30.56 31.36 33.44 47.82 50.5 Source: www.financatvendore.al& authors calculations 18

ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 2018-2021 TAKING 2014 AS THE BASELINE YEAR Graph 5: Revenues from taxes and fees/Total revenues HAS KELCYRE PESHKOPI KLOS TEPELENE BULQIZE MEMALIAJ GRAMSH MAT MIRDITE KURBIN PUKE KUKES FUSHE ARREZ LIBRAZHD PUSTEC PRRENJAS KOLONJE DIVJAKE PEQIN LIBOHOVE TROPOJE MALIQ PERMET VAU I DEJES SELENICE POLICAN KONISPOL POGRADEC RROGOZHINE CERRIK DEVOLL DIMAL BELSH SKRAPAR FIER ELBASAN AVERAGE GJIROKASTER BERAT DELVINE KUCOVE MALESI E MADHE FINIQ SHKODER PATOS LUSHNJE KAVAJE LEZHE MALLAKASTER KORCE KRUJE DROPULL SARANDE VLORE HIMARE ROSKOVEC SHIJAK KAMEZ DURRES VORE TIRANE 2.06 3.98 4.12 4.59 4.66 5.34 5.65 5.66 5.91 6.08 6.47 6.64 6.68 7.48 7.57 7.76 7.86 8.15 8.69 9.28 9.74 9.95 10.02 10.14 10.76 11.43 13.03 13.24 13.67 13.75 14.45 14.52 14.55 14.68 15.02 15.11 15.25 15.28 15.66 16.14 16.56 16.86 16.94 18.02 18.45 19.24 19.86 20.72 21.23 21.23 22.5 23.62 23.75 25.62 25.91 27.43 27.57 28.81 31.36 32.77 47.82 50.36 Source: www.financatvendore.al& authors calculations Graph 6: General Unconditional Transfer/ Total revenues TIRANE VORE ROSKOVEC SARANDE KONISPOL HIMARE KAVAJE DIVJAKE MALLAKASTER BELSH ELBASAN FIER DURRES KORCE DIMAL CERRIK RROGOZHINE SHIJAK VAU I DEJES PATOS KRUJE TEPELENE BERAT LIBRAZHD PRRENJAS LUSHNJE TROPOJE POGRADEC KAMEZ LEZHE AVERAGE KURBIN SKRAPAR DELVINE SHKODER PESHKOPI HAS PEQIN KELCYRE KLOS VLORE MIRDITE GJIROKASTER PERMET DROPULL MALIQ MALESI E MADHE MAT GRAMSH KUCOVE SELENICE KUKES KOLONJE POLICAN BULQIZE PUKE MEMALIAJ LIBOHOVE FUSHE ARREZ FINIQ DEVOLL PUSTEC 16.77 16.88 17.33 17.42 17.87 18.51 19.97 20.74 22.43 23.25 23.43 23.82 24.29 24.39 24.47 24.51 25.6 25.93 26.12 26.53 26.66 27.19 27.31 27.92 28.31 28.62 29.69 29.72 30.16 30.24 30.85 30.99 31.53 32.2 32.21 32.25 32.75 32.89 32.95 33.07 33.34 33.64 34.4 34.58 34.59 35 36.06 36.45 36.54 36.56 36.65 36.67 37.36 37.43 39.56 39.59 42.07 42.32 43.74 43.99 47.31 67.37 Source: www.financatvendore.al& authors calculations 19

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 Graph 7: Unconditional sectoral transfer/Total revenues HIMARE VORE TIRANE PUSTEC GJIROKASTER LIBOHOVE SKRAPAR ROSKOVEC KAVAJE PERMET BERAT KORCE DELVINE DROPULL DURRES FIER DIVJAKE KELCYRE RROGOZHINE DEVOLL POLICAN FINIQ KOLONJE DIMAL LUSHNJE VLORE KAMEZ PUKE KUCOVE AVERAGE SHIJAK KRUJE MALIQ PATOS LEZHE ELBASAN MALESI E MADHE TROPOJE MAT SHKODER TEPELENE FUSHE ARREZ MIRDITE BULQIZE CERRIK BELSH SELENICE LIBRAZHD MEMALIAJ SARANDE KONISPOL KUKES HAS MALLAKASTER GRAMSH POGRADEC PESHKOPI PEQIN VAU I DEJES KLOS KURBIN PRRENJAS 12.49 17.73 19.14 21.04 23.57 24.29 24.33 27.8 28.87 29 29.81 30.37 30.78 30.78 31.45 32.07 33.38 33.45 34.25 34.31 34.64 36.57 36.66 36.8 36.93 38.18 38.26 39 40.31 41.34 41.63 42.49 42.68 43.31 44.1 45.55 45.67 46.78 46.95 47.04 47.41 48.36 48.78 50.14 50.52 51.22 51.35 51.49 51.74 53.13 54.28 54.35 54.6 55.44 55.67 55.79 56.07 56.89 58.08 59.89 60.76 63.12 Source: www.financatvendore.al& authors calculations Graph 8: Local municipal expenditures and personnel expenditures compared to the national Specific weight of local budget expenditures to 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 438,849 7.52% 10.05% 437,408 7.79% 433,697 2.36% 2.38% 32,985 34,066 2014 2015 % to total expenses 2.96% 43,580 2016 % to G Source: Ministry of Finance and Economy year, comparing their percentage in 2014. Respectively, local government expenditures in relation to public expenditures were 7.52% in 2014 and have reached the level of 10.42% in 2018 and culminating in 2019 with 11.43% of total expenditures.While during 2020 they had a decrease of 1.8%. One of the main factors of reducing this level of the ratio of local to public expenditures, is the reduction of capital investments as a result of two natural disasters that plagued our country. Taking into account the expenses according to the economic accounts, it is concluded that the largest share of these expenses is occupied by the expenses for salaries and insurance which account for about 39% of total local expenditures, 27% occupy operating costs, 32% occupy investments and 3% other expenditures for 2019. Also, if we analyze the share of expenditures according to local government functions, we will notice that we have significant differences in% between the funds allocated to each function. Respectively during 2020, the local government has financed in most of the expenditures the functions of“General Public Services” and“Education”, respectively in the amount of 22% and 20% of the total local expenditures. 20

ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 2018-2021 TAKING 2014 AS THE BASELINE YEAR o state budget expenditures and GDP, years 2014-P/ Budget 2021(In thousand leke(ALL) 10.07% 461,410 10.42% 476,147 11.43% 491,897 536,279 9.63% 592,801 9.59% 3.00% 46,487 3.03% 49,615 3.35% 56,227 3.28% 51,626 3.38% 56,826 2017 GDP 2018 2019 Local budget expenditures 2020 P/Buxhet 2021 Total state budget expenditures 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Graph 9: Weight of expenses according to local government functions 2020 3% 20% 22% 4% 5% % 19% 8% 19% 2019 4% 19% 4% % 22% 21% 3% 24% 3% General Public Services Economic Issues Housing Entertainment, Culture and Religion Social Protection Source: Ministry of Finance and Economy 21 Public Order and Safety Environment Protection Health Education

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 Human Resources Analyzing the number of employees for the apparatus of all municipalities of Albania before and after the reform, we noticed a significant decrease in the number of employees resulting in a reduction of the total number of employees from 14,401 employees in 2014 to 9,585 employees in the municipal apparatus in 2021, reducing the total number of municipal administration employees by about 32%. A reduction in the number of employees is observed in most municipalities in significant numbers, with the exception of some small municipalities that have experienced a slight increase in the number of employees. The reduction of the number of municipal employees throughout Albania is in accordance with one of the main principles of the Administrative and Territorial Reform. Meanwhile, on the other hand, we notice an increase in the level of expenses for salaries and insurance of employees over the years as a result of: 1. The increase in the minimum salary, from 2014 to 2022 there is an increase in the level of the minimum salary. In 2014, the minimum salary was 22,000 ALL and currently it is in the amount of 32,000 ALL. This has had a direct impact on the increase in personal expenses in value for the employees of the municipal apparatus. 2. The salary level for the employees of the former communes was very low compared to the salary level in the municipality in 2014, while a significant part of the employees were part of the communes. As a result, the merging of the former communes into 61 municipalities, has also been accompanied by an increase in the salary level for the apparatus of the local self-government units. 3. For some functions that are also part of the municipal apparatus, their salaries have been increased(for example, preschool education salary increase as at the central level, etc.). 4. Many buildings and institutions have been built(schools, Graph 10: Number of employees in the municipal apparatus before and after RAT 1,800 1,602 1,600 1,498 1,400 1,200 1,000 800 707 600 509 496 387 403 380 399 379 386 400 261 297 266 277 304 210 192 186 196 167 200 153 124 129 128 132 219 158 168 181 152 140 116 115 140 126 154 13 98 62 5769 92 64 83 63 64 97 8039 37 82 9682 8782 25 48 111 60 0 Tiranë Belsh Berat Bulqizë Cërrik Delvinë Devoll Dibër Dimal Divjakë Dropull Durrës Elbasan Fier Finiq Fushë-Arrëz Gjirokastër Gramsh Has Himarë Kamëz Kavajë Këlcyrë Klos Kolonjë Konispol Korçë Krujë Kuçovë Kukës Source: Ministry of Finance and Economy 2014 22 2021-2022

ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 2018-2021 TAKING 2014 AS THE BASELINE YEAR kindergartens, health centers, dormitories, roads, social facilities, recreation buildings, etc.) from the budget of the municipalities and the state budget in the territories of the municipalities, which have required and require additional expenses for the operation of them and guaranteeing them to be providers of services to local communities. Regarding the number of employees for enterprises and other institutions that are directly related to the provision of services, there is a significant increase in the number of employees from 6,194 employees in 2014 to 27,179 in 2021. This increase in the number of employees mainly results from the transfer of functions from the central government to the local government. Accordingly, it results that a total of 9,414 employees(based on table no. 6 attached to the annex) have been transferred from the allocated functions. Among them, 7,035 employees are allocated from the preschool education function where 4,849 are preschool education employees and 2,186 support employees. The pre-university education support staff are in total 797. Another function allocated to the local government is the fire protection service where 993 employees have been transferred to the local government. In terms of forest administration, a total number of 261 employees have been transferred to the local government. Recently, 328 employees of the irrigation and drainage function have been transferred to the local government. As for the rest of the increased number of employees, it coincides with the opening and development of dependent institutions as well as self-financing enterprises that are monitored by municipalities, replacing services that were previously outsourced by municipalities, such as cleaning and greening function, etc. The change in the number of employees with an increase from 2014 to 2021, of the enterprises and institutions of the municipalities, which is directly related to the provision of services, is the result of: - Legal changes which brought the necessity for increasing human resources in order to fulfill the legal requirements for the exercise of new functions; 478 468 316 315 334 218 275 239 213 36 129 123 167171155 147 173 167 128 146 95 136 128 75 74 23 63 64 82 69 76 280 189 175 179 154 180210 147 148141 146 119 64 82 54 76 93 112 31 384 369 195 186 192 127 145 88 90 51 280 240261 Kurbin Lezhe Libohove Librazhd Lushnje Malësi e Madhe Maliq Mallakastër Mat Memaliaj Mirditë Patos Peqin Përmet Pogradec Poliçan Prrenjas Pukë Pustec Rogozhinë Roskovec Sarandë Selenicë Shijak Shkodër Skrapar Tepelenë Tropojë Vau Dejës Vlorë Vorë 23

Preschool education 24 Source: Ministry of Finance and Economy Fire protection service Pre-university education Belsh Berat Bulqize Cerrik Delvine Devoll Dibër Divjake Dropull Durres Elbasan Fier Finiq Fushe-Arrez Gjirokastër Gramsh Has Himare Kamëz Kavaje Kelcyre Klos Kolonjë Konispol Korçe Kruje Kuçove Kukes Kurbin Lezhe Graph 12: Number of employees of transferred functions 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Tiranë Belsh Berat Bulqizë Cërrik Delvinë Devoll Dibër Dimal Divjakë Dropull Durrës Elbasan Fier Finiq Fushë-Arrëz Gjirokastër Gramsh Has Himarë Kamëz Kavajë Këlcyrë Klos Kolonjë Konispol Korçë Krujë Kuçovë 587,967 34,820 85,021 107,825 113,465 77,133 87,220 54,570 42,300 28,558 51,400 76,435 56,489 118,662 137,500 61,953 46,300 253,510 137,000 31,137 52,370 291,566 319,014 274,169 335,580 304,923 204,933 68,234 107,363 45,958 42,608 86,782 88,414 99,691 73,500 30,403 22,032 72,885 67,042 216,766 224,245 132,995 108,961 27,763 28,150 48,562 13,834 43,911 35,516 34,275 53,253 139,351 121,487 109,183 89,535 65,118 27,094 1,445,655 FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 Graph 11: Expenditures for salaries and insurance of employees in the municipal apparatus before and after RATBurimi: Ministria e Financave dhe Ekonomisë 2014 2021-2022

Irrigation and drainage 25 Forest administration e(PMNZSH) Libohove Librazhd Lushnje Malësi e Madhe Maliq Mallakastër Mat Memaliaj Mirditë Patos Peqin Permet Pogradec Poliçan Prenjas Pukë Pustec Roskovec Rrogozhine Sarande Selenice Shijak Shkoder Skrapar Tepelene Tiranë Tropojë Dimal Vau Dejes Vlore Vore Kukës Kurbin Lezhe Libohove Librazhd Lushnje Malësi e Madhe Maliq Mallakastër Mat Memaliaj Mirditë Patos Peqin Përmet Pogradec Poliçan Prrenjas Pukë Pustec Rogozhinë Roskovec Sarandë Selenicë Shijak Shkodër Skrapar Tepelenë Tropojë Vau Dejës Vlorë Vorë 168,815 147,000 78,585 135,985 154,162 110,035 29,129 35,179 99,086 10,837 170,614 191,564 81,834 101,655 114,007 114,120 82,836 68,982 70,331 93,572 41,722 44,042 74,850 61,782 51,291 62,276 73,817 121,151 39,744 49,655 140,272 220,000 53,010 34,700 116,098 83,000 62,644 64,067 22,902 31,771 63,993 135,714 80,264 50,954 36,661 130,000 90,436 80,000 72,299 62,700 206,768 253,755 63,722 57,739 53,463 39,590 87,847 63,314 107,821 131,311 172,921 270,353 106,374 56,763 ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 2018-2021 TAKING 2014 AS THE BASELINE YEAR

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 - The transfer from the central level to the local level of the number of employees due to the addition of new functions financed by specific transfers such as Basic and Pre-School Education, Pre-University Education, Fire Protection, Forest Administration, Rural Road Management, Social Centers, Sports Centers, University Dormitory Corps, Irrigation and Drainage, etc. - The need to have specialized and dedicated people in the design and management structure of foreign projects, to absorb funds from foreign donors; - Expansion of services in number, quality(frequency of their provision) as well as in scope throughout the territory of the municipality. - Creation of new structures/enterprises depending on the municipality to increase the standard of service provision or for new services, for example units for the promotion of the city, sports centers, recreation parks agencies, etc.; - Increasing the number of functions that are currently offered by the municipalities for their communities, which is accompanied by the number of additional employees; - Due to the provision of public services by the municipalities themselves and not through contractors as they were realized before the administrative-territorial reform for services such as:(maintenance service of public cemeteries and funeral service, food service for children in nurseries, kindergartens, dormitories, structures dedicated to additional cleaning services in museum areas for the municipalities that have these areas, additions to the structure of tourism and activities, for coastal municipalities and those municipalities in which tourism is developed); Efficiency in service delivery Regarding the efficiency of the service delivery, from the data report on a national scale, an increase in the efficiency of the provision of public services is observed, mainly in large and medium-sized municipalities. This improvement is noted due to the increased professionalism of the staff and more negotiating power of the already larger municipalities after TAR. But on the other hand, small local units will always be associated with a lack of efficiency in the provision of public services. In the local self-government units with a very small number of population and with very limited resources and assets, in most cases, the inability to perform the functions and provide the public services defined by the legal framework, the lack of ability to generate revenue from local taxes and fees has been evidenced, misuse of budget revenues for administrative expenses and almost absolute dependence for most LGUs on central government financial transfers. Graph 13: Investments during 2010-2021 in relation to GDP 7% 6% 5% 5.4% 4% 3% 4.4% 4.8% 5.6% 5.3% 4.4% 2% 1.3% 1.4% 1.5% 1.4% 1.4% 1% 0.9% 0% 0.9% 0.89% 1% 0.8% 0.69% 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 Public Investments to GDP Source: www.financatvendore.al Total Municipal Investments to GDP Investments from own sources to GDP 26

ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 2018-2021 TAKING 2014 AS THE BASELINE YEAR Local public investments per capita in comparison with the national average; Graph 14: Capital expenditure/Total expenditure Capital Expenditures are a very important component not only for the fact that they constitute of a considerable part of the local budget, but also because these expenditures are those that directly affect the citizen. In the analysis of expenditures of each of the 61 municipalities, most of these expenditures are occupied by expenditures for salaries and insurance, followed by operating expenditures, and finally the lowest% in expenditures are occupied by investments. In recent years, the level of capital expenditures has fluctuated significantly, mainly influenced by the collection of revenues from the infrastructure impact tax. Based on the law 68/2017“On finances of local self-government” the revenues from this tax must exceed the financing of investments. In recent years there has been a decline in investment spending from year to year. Another factor in the decline of investment spending during 2020-2021 were the reallocations made by local government to cope with the COVID-19 pandemic but also the postponement of many procurement procedures. Respectively, the investments per capita made by the municipalities also turn out to have increased from 3,792 ALL in 2015, to an average of 6,080 ALL in 2017, and to an average of 5,400 ALL in 2019, including also intergovernmental transfers for capital expenditures. In general values, the percentage of investments in Albanian municipalities have increased compared to the period before TAR. Based on the available data, it is difficult to assess whether the increase in investment expenditures have been balanced between the central municipality and the administrative units. For this reason a more detailed analysis is needed in each municipality. During the last years there are seen considerable improvements in the management and operations of the new transferred functions to the municipalities. Specifically according to a study 1 in which were analyzed a couple of functions to the municipalities of Elbasan, Lezha and Shkodra, there were taken measures to improve supervision and regulation of forest operations. All the three municipalities developed the new forest managmenet plans. The municipality of Elbasan and Shkodra also allocated 10.5% and 32.5% of the functions’s budget for Capital investments. Waste management was another of the functions that was analysed and it was seen considerable progress in service coverage. The success was explained by improving the management of service delivery: better contract 1 Service Delivery at Sub-national Level in the Context of Decentralization and Weak Public Financial Management, A Case Study from Albania, February 2020 KUKES PRRENJAS SHKODER FINIQ POGRADEC VLORE GRAMSH KURBIN FUSHE ARREZ LEZHE KLOS PUSTEC PEQIN KUCOVE MEMALIAJ PESHKOPI DEVOLL MAT PATOS ELBASAN LUSHNJE POLICAN SHIJAK KAMEZ MIRDITE PUKE CERRIK KRUJE BELSH AVERAGE DELVINE MALIQ TROPOJE MALESI E MADHE DURRES BULQIZE FIER LIBRAZHD GJIROKASTER KOLONJE RROGOZHINE KORCE VAU I DEJES TIRANE HAS DROPULL SELENICE PERMET BERAT LIBOHOVE SARANDE SKRAPAR DIMAL KAVAJE MALLAKASTER TEPELENE KELCYRE VORE ROSKOVEC DIVJAKE KONISPOL 4.74 5.6 6.92 8.93 8.99 10.66 11.59 11.75 11.79 12.16 13.87 14.93 15.19 15.9 18.31 18.33 19.97 22.62 23.89 24.2 24.89 25.2 25.69 26.03 26.35 26.85 26.99 27.35 28.01 28.8 29.14 29.49 29.76 30.03 31.66 31.68 32.01 32.09 32.13 32.95 33.78 33.96 34.04 34.37 35.53 36.19 36.23 36.24 36.55 37.12 38.23 39.75 40.78 41.95 44.48 44.95 46.06 46.71 50.61 60.31 61.23 Source: www.financatvendore.al& authors calculations 27

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 management, improved monitoring, better maintenance of technical infrastructure used for waste collection(bins). Two reasons were given to explain the improvement of management, more professionalism of staff and more bargaining power of the now bigger municipalities after the TAR on the one side, technical and infrastructure support by donors on the other side. On the other hand it was seen a very small percentage in capital invesments for the waste management function. Munipality of Elbasan allocated 10% of the function’s budget for capital investments, whereas Lezha had 0% and Shkodra only 1 % of capital investments. During the last years there were seen service imrpovements compared to the years 2014 before TAR. The main reasons why service delivery have been improved according to studies are indicated as a greater sense of responsibility and the high professional motivation of local staff and also the higher accountability of the decentralized functions. In 2021, public investments financed by the municipalities themselves have increased by more than 3 times or 6.3 billion lek higher compared to 2015. But even in this case, there are deep differences in the individual performance of municipalities in terms of investments. Specifically, if we were to analyze the 61 municipalities of the country(excluding the municipality of Tirana), it turns out that, in about 24 municipalities, investment expenses account for 1% of the total expenses in municipalities such as: Delvinë, Devoll, Dibër, Shijak, Cërrik, Libohovë, Has. It is worth noting that almost the same municipalities are also presented with low fiscal capacity in collecting revenues from taxes and local tariffs. Local financial autonomy. Financial autonomy is the most important point of local autonomy. The main goal of fiscal decentralization is the increase of efficiencies for the provision of public services. In order for local governments to exercise their functions and competencies effectively and sustainably two aspects are crucial: on one hand, the guarantee of adequate own financial resources and, on the other, the competence to decide autonomously on the application of these funds. Consequently, the central government should create opportunities for local governments to have more financial resources to support further decentralization of public finances. The right to self-govern locally means that such governments must not only have adequate resources, but they should be entitled to such funds as their own resources to be used at their own responsibility. compared to the reference levels of 80% according to The World Bank(2018) and with significant differences between municipalities. Respectively, if we compare the level of own source revenues to the total revenues level and the level of state budget transfers to the total revenues of local government, we notice that these two indicators have doubled during the years 2018-2020 compared to 2014. However, on the other hand% of the level of own source revenues to the total revenues level and the level of state budget transfers to the total revenues of local government continues to remain at the same levels compared to 2014. It should be noted that the level of state budget transfers to the total local government revenues continue to be higher than the level of own source revenues to the total revenues level despite Territorial Administrative Reform. If we refer to the total of local revenues for 2021, the municipalities are grouped as follows: - With revenues in the amount of 4,000- 50,000 thousand lek, 19 municipalities are represented(Kolonje, Skrapar, Mirdita, Bulqiza, Kurbin, Konispol, Puke, Përmet, Delvina, Tropoja, Tepelena, Poliçan, Klos, Fushë-Arrëz, Has, Memaliaj, Këlcyrë, Libohova, Pustec). - With revenues in the amount of 50,000-100,000 thousand lek, 17 municipalities are represented(Mallakastër, Devoll, Cërrik, Kuçovo, Maliq, Divjakë, Dibër, Vau i Dejës, Mat, Malësi e Madhe, Selenicë, Belsh, Finiq, Prrenjas, Gramsh, Dropull, Peqin). - 18 municipalities with revenues in the amount of 100,000-500,000 lek(Kamez, Saranda, Lushnje, Himare, Kavaje, Berat, Lezhë, Vorë, Pogradec, Krujë, Patos, Roskove, Kukës, Gjirokastër, Shijak, Ura Vajgurore, Librazhd, Rug). - With revenues in the amount of>500,000 thousand ALL, 7 municipalities(Tirana, Durrës, Elbasan, Vlorë, Shkodër, Fier, Korçë) If we refer to the analysis according to the number of the population: - Municipalities with less than 50,000 inhabitants(37 municipalities) realized less than 1.3% of their local revenues, among which the municipalities of Vorë and Himarë 1% to 1.3%, and 35 municipalities realized less than 1% of their revenues. Considering what defines financial autonomy in terms of 61 municipalities and local government in Albania, we note that the level of local autonomy is estimated low - For municipalities with 50,000-100,000 inhabitants(13 municipalities) they realized 0.1-1.6% of their local revenues. 28

ANALYSIS OF THE EFFECTS OF THE TERRITORIAL REFORM IN THE PERIOD 2018-2021 TAKING 2014 AS THE BASELINE YEAR Graph 15: Local government budget according to source of funding Local government budget according to source of funding 60 30 56.2 25.6 50 24.2 24.2 51.6 25 49.9 20.3 43.4 40 20 16.8 35.9 30 13.8 27 13.1 25.5 29.3 15 24.4 21.9 26.1 20 18.1 10 12.1 11.3 10 1.1 1.1 1 5 1.2 1.3 1.3 1.3 0 2014 2015 2016 2017 2018 2019 0 2020 Own source revenues Unconditional transfer Divided taxes Total Budget Source: Ministry of Finance and Economy - For municipalities with 100,000-150,000 inhabitants(5 municipalities) they realized 1.18%-2% of their local revenues. - For the municipalities with more than 150,000 inhabitants(6 municipalities) they realized 2.47%-3.8% of their local revenues,(Vlora, Fier, Shkodër, Elbasan, Durrës), and - Only the municipality of Tirana with about 1 million inhabitants collected 57.4% of the total local revenues. Analyzing the indicators of financial autonomy by 61 municipalities in Albania, we notice that the level of local autonomy/ fiscal decentralization remains very low and in a very significant disproportion between the municipalities. 29

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 6. CONCLUSIONS • The total budget of municipalities compared to the national budget has increased significantly from year to year since the implementation of the Territorial Administrative Reform by increasing the role of local government, increasing the contribution to the economy and also to GDP. • The analysis of the data shows an increase in total local budget revenues from year to year since the application of the RAT. The administrative-territorial reform has directly affected the improvement and increase of the fiscal capacity of the municipalities for the collection of their local revenues and consequently the increase of the expenses for the local services. • The increasing role of local government in terms of public services and the functions it exercises, has led to the ratio of its own revenues to total public revenues and gross domestic product has increased in recent years. • On the other hand, local government has increased its role over the years through its contribution to the economy and Gross Domestic Product. • In quantitative terms we see an increase in the level of revenues from its own sources in relation to GDP in recent years reflecting a better level of local government, while to see the impact of this increase in each municipality, a more detailed analysis is needed in each municipality of Albania. • But this increase has a disproportionate distribution as a result of problems in collecting revenues from its own resources in some of the small municipalities. • Local tax revenues have had an increasing trend compared to every year before. On the other hand, the low levels of revenue collection from its own local sources in some of the municipalities of Albania, evidenced mainly in small municipalities, show that the changes and impacts of the Territorial Administrative Reform in terms of decentralization have had limited impacts. • The increase in the level of revenues from its own resources has also increased due to the increase in the level of local taxes and tariffs and the improvement in their collection, mainly in urban areas. • Increasing the economic potential not only from its own revenues but also from those of the central budget are a very important factor in promoting the increase of the quality of local government services. • Unconditional transfer levels have increased significantly from year to year reaching in 2021 2% of GDP. Also based on documents and reports from the Ministry of Finance is projected to increase the level of unconditional transfer from year to year until 2025. • The six new decentralized functions are financed by unconditional sectoral transfers that cover employee salaries, social and/ or health contributions and some running costs, and a small percentage of investment funds. • The new administrative division not only changed the way municipalities were formed, but also had to give local government a transformation in terms of financial management and orientation towards a culture of performance, both in the management of municipalities and also in providing services to residents. • The central government aims to reduce imbalances between municipalities through intergovernmental transfers, but in terms of local autonomy, this policy increases the support of municipalities by the central government. • Local government expenditures have followed an increasing trend, concretizing over the years the consolidation of local government financial management. This trend is clearly evident not only in absolute value, but also in relation to gross domestic product or public spending. • In recent years there has been a decline in investment spending from year to year. A key factor in the decline in investment spending during 2020-2021 were the reallocations made by the local government to cope with the COVID-19 pandemic but also the postponement of many procurement procedures. 30

CONCLUSIONS • In general values, the percentage of investments in Albanian municipalities has increased compared to the period before TAR. Based on the available data, it is difficult to assess whether the increase in investment expenditures has been balanced between the central municipality and the administrative units. For this reason a more detailed analysis is needed in each municipality. • In recent years there have been significant improvements in the management and operation of new functions transferred to the municipality. • In recent years there have been service improvements compared to 2014 before TAR. The main reasons why the provision of services improved according to studies are shown as a higher level of responsibility and high professional motivation of local staff and also the higher responsibility of decentralized functions. • It should be noted that the level of state budget transfers compared to total local government revenues continue to be higher than the level of revenues from its own sources to total revenues despite the Territorial Administrative Reform. • Analyzing the indicators of financial autonomy from 61 municipalities in Albania, we note that the level of local autonomy/ fiscal decentralization remains low and disproportionate between municipalities. 31

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 RECOMMENDATIONS Based on the conclusions it is necessary to make a selection of several pilot municipalities for a more detailed analysis using qualitative and quantitative data. Primary data will serve to examine public perceptions and attitudes toward local self-government bodies as well as community consolidation reforms in the pilot municipalities. 32

RECOMMENDATIONS ANNEXES Table 1: Population of 61 municipalities in 2017, 2018, 2019 No Municipalities 1 Tiranë 2 Berat 3 Bulqizë 4 Delvinë 5 Devoll 6 Dibër 7 Durrës 8 Shijak 9 Elbasan 10 Cërrik 11 Fier 12 Patos 13 Roskovec 14 Gramsh 15 Gjirokastër 16 Libohovë 17 Has 18 Kavajë 19 Rogozhinë 20 Kolonjë 21 Korçë 22 Krujë 23 Kuçovë 24 Kukës 25 Kurbin 26 Lezhë 27 Librazhd 28 Lushnje 29 Malësi e Madhe 30 Mallakastër 31 Mat 32 Mirditë 33 Peqin 34 Përmet 35 Pogradec 36 Pukë 37 Sarandë 38 Skrapar 39 Poliçan 40 Shkodër 41 Tepelenë 42 Memaliaj Source: Ministry of Finance and Economy Population no. 2017 646,483 72,760 34,137 11,278 31,815 67,094 221,608 33,873 164,253 33,848 14 6,334 29,479 25,231 28,182 36,117 4,744 18,360 54,114 28,750 13,751 93,699 68,118 39,014 51,813 55,615 79,969 36,110 98,609 38,402 32,257 30,949 27,054 30,500 13,538 71,541 12,850 33,313 14,354 13,236 158,761 11,284 13,886 33 Population no. 2018 634,366 71,712 33 ,814 10,967 31,153 66,274 218,322 33,140 162,467 33,420 145,056 28,938 24,832 27,584 35,676 4,658 18,186 52,916 27,981 13,360 92,321 66,427 38,434 51,084 54,666 79,015 35,390 97,320 37,823 31,414 30,513 26,390 30,064 13,276 70,358 12,463 32,856 13,925 12,848 156,747 11 ,053 13,501 Population no. 2019 638,716 71,983 33,974 10,940 31,275 66,322 219,604 33,518 163,000 33,503 145,823 29,077 25,035 27,565 35,680 4,690 18,284 53,145 28,160 13,413 92,269 66,641 38,614 51,585 54,853 79,648 35,444 97,656 38,249 31,357 30,551 26,410 30,169 13,267 70,581 12,448 32,963 13,880 12,817 157,532 11,027 13,498

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 Total Tropojë Vlorë Divjakë Belsh Prrenjas Kelcyrë Fushë- Arrëz Konispol Vau- Dejës Selenicë Himarë Vorë Kamëz Ura Vajgurore Maliq Finiq Dropull Pustec Klos 23,050 135,556 40,822 23,852 27,836 8,093 8,821 10,113 36,967 22,606 13,883 30,147 115,725 31,494 49,028 15,936 9,371 3,926 17,925 3,352,234 22,800 133,551 40,355 23,592 27,353 7,924 8,609 9,871 36,532 21,766 13,587 29,372 113,146 31,068 48,030 15,701 9,278 3,857 17,732 3,296,828 22,844 133,941 40,522 23,675 27,476 7,903 8,618 9,883 36,767 21,831 13,576 29,586 113,657 31,131 48,071 15,676 9,258 3,859 17,794 3,311,231 34

ANNEXES Table 2: Specific weight of revenues of local government to state budget revenues and GDP, 2013-2021 In thousand leke(all) In% of total revenue In% of GDP Revenues of local government budget Total state budget revenues 2013 2014 2015 2016 2017 2018 3.31% 0.80% 10,825 3.39% 0.89% 12,447 3.09% 0.82% 11,700 3.67% 1.02% 14,951 4.29% 1.19% 18,447 4.86% 1.34% 21,863 327,178 366,721 379,206 407,021 430,397 449,909 2019 5.02% 1.38% 23,102 P/budget 2020 2021 5.16% 1.40% 21,975 5.25% 1.51% 25,426 460,349 425,905 484,106 GDP 1,350,052 1,395,303 1,434,308 1,472,480 1,550,644 1,635,715 1,679,284 1,572,269 1,682,637 Table 3: Specific weight of local budget expenditures to state budget expenditures and GDP, years 2014-P/ Budget 2021 In thousand leke(all) % to total expenses % to GDP Local budget expenditures Total state budget expenditures GDP 2013 2014 2015 2016 7.56% 2.21% 29,787 394,118 7.52% 2.36% 32,985 438,849 7.79% 2.38% 34,066 437,408 10.05% 2.96% 43,580 433,697 2017 10.07% 3.00% 46,487 461,410 2018 10.42% 3.03% 49,615 476,147 2019 11.43% 3.35% 56,227 491,897 2020 P/budget 2021 9.63% 3.28% 51,626 536,279 9.59% 3.38% 56,826 592,801 1,350,053 1,395,305 1,434,307 1,472,479 1,550,644 1,635,715 1,679,284 1,572,269 1,682,637 Table 4: Own local budget revenues and their growth rate In thousand leke(all) Own revenues Growth rate 2013 10,825 1.00 2014 12,447 1.15 2015 11,700 0.94 2016 14,951 1.28 2017 18,447 1.23 2018 21,863 1.19 2019 23,102 1.06 2020 21,975 P/Budget 2021 25,426 0.95 1.16 Table 5: Local government budget according to the source of funding In billion leke Own source revenues Divided taxes Unconditional and Specific Transfer Total budget 2014 13.8 1.1 12.1 27 2015 13.1 1.1 11.3 25.5 2016 16.8 1 18.1 35.9 2017 20.3 1.2 21.9 43.4 2018 24.2 1.3 24.4 49.9 2019 25.6 1.3 29.3 56.2 2020 24.2 1.3 26.1 51.6 35

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 Table 6: The number of employees of the functions transferred to the local government Preschool education No. Name of the Institution 1 Belsh Municipality 2 Berat Municipality 3 Bulqize Municipality 4 Cerrik Municipality 5 Delvine Municipality 6 Devoll Municipality 7 Dibër Municipality 8 Divjake Municipality 9 Dropull Municipality 10 Durres Municipality 11 Elbasan Municipality 12 Fier Municipality 13 Finiq Municipality 14 F-Arrez Municipality 15 Gjirokastër Municipality 16 Gramsh Municipality 17 Has Municipality 18 Himare Municipality 19 Kamëz Municipality 20 Kavaje Municipality 21 Kelcyre Municipality 22 Klos Municipality 23 Kolonjë Municipality 24 Konispol Municipality 25 Korçe Municipality 26 Kruje Municipality 27 Kuçove Municipality 28 Kukes Municipality 29 Kurbin Municipality 30 Lezhe Municipality 31 Libohove Municipality 32 Librazhd Municipality 33 Lushnje Municipality 34 Malësi e Madhe Municipality 35 Maliq Municipality Total 31 194 80 59 33 69 195 64 3 309 368 275 11 45 139 98 41 18 195 114 12 40 46 13 248 126 102 165 125 163 8 97 217 36 61 94 Pre-school education (kindergartens), educators and employees in Children's Cultural Centers 30 114 61 49 23 63 136 61 3 208 252 192 10 25 89 80 35 17 153 80 9 29 35 12 161 94 65 102 89 108 7 78 156 55 88 Supporting staff 1 80 19 10 10 6 59 3 0 101 116 83 1 20 50 18 6 1 42 34 3 11 11 1 87 32 37 63 36 55 1 19 61 6 6 Pre-university education Number of employees (support) 2 20 0 8 3 4 14 2 2 32 57 18 0 8 10 6 5 1 17 10 5 3 7 0 32 6 10 8 24 18 2 5 19 9 16

ANNEXES Fire protection service (PMNZSH) Forest administration Number of employees Number of employees Irrigation and drainage Total Number of employees (excavators) Number of employees NP total specifics 0 1 2 1 1 36 31 5 5 1 4 255 14 7 3 1 2 104 9 1 4 1 3 81 14 2 2 1 1 54 9 4 4 1 3 90 21 6 4 1 3 240 14 1 13 2 11 94 0 3 2 0 2 10 48 3 20 2 18 412 31 9 5 1 4 470 30 4 26 5 21 353 14 2 6 1 5 33 9 9 1 0 1 72 30 6 3 0 3 188 14 8 2 1 1 128 14 7 2 1 1 69 14 5 2 1 1 40 14 0 2 0 2 228 17 1 8 1 7 150 9 2 2 1 1 30 0 6 1 0 1 50 14 9 3 1 2 79 0 1 3 1 2 17 31 10 25 3 22 346 14 6 7 1 6 159 14 1 3 1 2 130 42 8 2 0 2 225 14 2 9 1 8 174 30 7 12 1 11 230 0 2 1 0 1 13 14 7 3 1 2 126 14 2 27 3 24 279 37 14 9 5 1 4 98 0 4 21 3 18 135

12 Fier Municipality 13 Finiq Municipality 14 F-Arrez Municipality 15 Gjirokastër Municipality 16 Gramsh Municipality 17 Has Municipality 18 Himare Municipality 19 Kamëz Municipality 20 Kavaje Municipality 21 Kelcyre Municipality 22 Klos Municipality 23 Kolonjë Municipality 24 Konispol Municipality 25 Korçe Municipality No. Name of the Institution 26 Kruje Municipality 27 Kuçove Municipality 28 Kukes Municipality 29 Kurbin Municipality 30 Lezhe Municipality 311 LBiebloshhoMveunMicuipnaicliitpyality 322 LBiebrraatzhMduMnicuinpiacliiptyality 333 BLuuslqhinzjee MMuunniicciippaalliittyy 344 CMearlrëiksi Me uMnaicdiphaeliMtyunicipality 355 DMealvliiqneMMunuincipciaplaitlyity 366 MDeavlloalkl aMstuënricMipuanliitcyipality 377 MDiabtërMMunuinciicpiaplaitlyity 388 DMivejmakaeliaMj Munuicniipcaipliatylity 399 MDriordpiutëll Municipality 410 PDautrorsesMMuunniciicpipalaitliyty 411 PEelbqainsaMn uMnuicnipicaipliatylity 142 FPieerrmMeut nMicuipnaiclitpyality 143 FPiongiqraMdeucnMiciupnaliictiypality 414 FP-AolrirçeaznMMuunnicicipipaaliltityy 415 PGrjeirnojkaassMtëur nMicuipnaicliitpyality 146 GPurakmë MshuMniucinpiacilpitaylity 147 HPuassteMcuMniucnipicailpitaylity 148 HRoimskaoreveMc uMnuicnipicaipliatylity 419 RKraomgëozzhMinuenMiciupnaliictiypality 250 KSaarvaanjedeMMunuincipciaplaitlyity 251 KSeellecnyriceeMMuunnicicipipaaliltiyty 252 KShloijsakMMunuincipciapliatlyity 253 KShokloondjeërMMuunnicicipipaaliltityy 254 KSkornaipspaor lMMuunniciicpipaalitliyty 255 KTeoprçeeleMneuMnicuinpiacliiptyality 256 KTirruajneëMMuunnicicipipaaliltiyty 257 KTruoçpoovjeë MMuunniicciippaalliittyy 258 KUurakeVsaMjgurnoicreipMaliutynicipality 259 KVu.DrbeijnesMMuunnicicipipaaliltiyty 360 LVelozhreeMMuunniicciippaalliittyy 361 LViobroehMovuenMiciupnailcitipy ality 32 L T i o b t raz l hd Municipality 33 Lushnje Municipality 34 Malësi e Madhe Municipality 35 Maliq Municipality 36 Mallakastër Municipality 275 192 83 18 11 10 1 0 FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 45 25 20 8 139 89 50 10 98 80 18 6 41 35 6 5 18 17 1 1 195 153 42 17 114 80 34 10 12 9 3 Preschool education 40 29 11 Pre-un 5 iversity educ 3 ation 46 35 11 7 13 248 126 Total 102 165 125 12 Pre-school edu 1 c 6 a 1 tion (kinder 9 g 4 artens), educators and emplo 65 yees in Chi 1 ld 02 ren's Cultural Centers 89 1 87 Supp 3 o 2 rting st 3 a 7 ff 63 36 0 32 Number of 6 employees (sup 1 p 0 ort) 8 24 163 108 55 18 381 370 1 2 19974 17184 1890 250 28107 16516 6119 109 5691 4595 160 89 3934 2838 160 136 9619 603 361 140 19975 16306 3579 104 6446 6316 130 123 834 532 302 123 37029 24078 12051 362 35608 24512 1196 557 23745 12942 8130 178 11517 11403 114 106 415 295 1220 78 15349 8496 580 150 9587 8302 1285 162 471 375 60 50 138 1374 14 14 14975 13563 1412 147 17164 850 3246 150 1327 299 38 152 4505 2492 113 35 24463 13357 11016 473 163 1329 214 100 25438 13671 8176 362 1,122062 69844 53128 1561 16082 645 3273 160 15635 15032 603 82 14245 8494 306 244 136535 120284 15351 1581 583 479 14 27 7,09375 4,87489 2,11896 7957 217 156 61 19 61 55 94 38 88 6 9 6 16 91 60 31 10

30 14 9 30 14 14 14 14 17 Fire pro 9 tection service (PMN 0 ZSH) 14 0 31 Nu 1 m 4 ber of em 1 p 4 loyees 42 14 30 0 1341 14 194 104 194 1241 104 104 4184 391 3104 14 9 390 14 104 104 14 17 90 104 1345 104 3114 11146 14 4120 14 305 104 9 1 9 4 3 14 14 0 14 4 2 9 6 8 7 5 0 1 For 2 est admini 6 stration 9 1 10 Num 6 ber of emp 1 loyees 8 2 7 21 75 27 19 42 24 6 21 83 30 91 45 62 39 65 89 71 05 10 13 23 61 9 13 130 68 19 81 25 76 21 26 7 1 2 9 4 2 26 6 1 3 2 2 2 2 8 2 1 3 3 25 7 Total 3 2 9 12 12 35 237 45 221 34 24 113 32 230 52 226 36 1 32 21 21 32 2 82 23 12 134 32 215 75 31 25 95 127 12 32 3 8 27 5 21 3 5 1 0 0 1 1 1 0 1 1 Irrigation and drainage 0 1 1 3 Num 1 ber of employees (excav 1 ators) 0 1 1 01 1 13 1 13 1 1 02 10 12 1 51 1 0 01 10 10 01 10 10 1 0 12 1 30 12 10 02 1 12 01 611 3 1 39 3 1 21 5 1 3 1 1 1 2 7 1 1 2 2 22 Num 6 ber of emp 2 loyees 2 8 11 1 24 224 34 118 23 13 111 2 128 41 211 25 1 31 1 1 31 12 72 12 12 122 21 212 63 21 23 84 115 1 2627 24 4 18 2 353 33 ANNEXES 72 188 128 69 40 228 150 30 50 79 17 NP 34 t 6 otal specifics 159 130 225 174 230 1336 122565 120749 8918 15345 19200 122490 6924 11202 49152 46770 36523 13936 6712 17858 19238 699 450 26288 15003 3505 5707 37494 1972 37476 1,145892 19380 27215 17724 243604 1737 9,142164 279 98 135 120

FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 Table 7: The number of employees for municipalities before and after the reform, divided by the apparatus and by enterprises and other institutions Local Units[1] Tiranë Belsh Berat Bulqizë Cërrik Delvinë Devoll Dibër Dimal Divjakë Dropull Durrës Elbasan Fier Finiq Fushë-Arrëz Gjirokastër Gramsh Has Himarë Kamëz Kavajë Këlcyrë Klos Kolonjë Konispol Korçë Krujë Kuçovë Kukës Kurbin Lezhe Libohove Librazhd Lushnje Malësi e Madhe Maliq Mallakastër Mat Memaliaj Mirditë Patos Peqin Përmet Pogradec Poliçan Prrenjas Pukë Pustec Rogozhinë Roskovec 2014 According to SIFQ Number of Employees Salary and insurance expenses Apparatus 1,602 98 210 192 186 57 128 387 196 132 83 509 496 707 140 116 168 181 80 219 380 399 82 96 126 87 304 379 152 386 213 316 23 74 315 171 275 334 173 95 167 146 136 128 478 175 179 154 31 147 210 Other 2,447 10 196 45 10 0 0 34 14 0 0 733 285 413 0 0 143 10 64 0 0 28 0 0 52 0 245 9 75 0 41 11 0 0 148 0 0 46 33 0 77 130 0 56 71 225 0 0 0 0 0 Apparatus 587,967 34,820 107,825 77,133 54,570 28,558 76,435 118,662 61,953 253,510 31,137 291,566 274,169 304,923 68,234 45,958 86,782 99,691 30,403 72,885 216,766 132,995 27,763 48,562 43,911 34,275 139,351 109,183 65,118 168,815 78,585 154,162 29,129 99,086 170,614 81,834 114,007 82,836 70,331 41,722 74,850 51,291 73,817 39,744 140,272 53,010 116,098 62,644 22,902 63,99 4 3 0 80,264 Other 1,813,235 13,418 113,661 27,015 26,362 0 0 63,911 34,695 0 395 419,626 151,967 214,970 13,779 0 76,793 6,845 35,460 0 0 49,257 0 14,310 26,681 0 125,471 70,205 39,319 0 27,757 74,548 7,772 0 65,783 10,176 35,289 33,931 28,701 1,339 35,127 55,349 19,276 37,518 84,634 6,592 0 0 9,611 1,120 32,822 2021-2022 According to SIFQ and MBP Number of Employees Salary and insurance expenses Apparatus 1,498 153 124 129 62 69 92 261 64 167 63 297 403 266 158 64 115 97 39 37 277 140 25 82 48 82 154 111 60 136 218 129 75 123 167 155 147 63 128 64 69 82 239 76 280 64 189 82 54 180 76 Other 6,112 50 652 260 215 119 271 559 226 295 79 1,553 1,034 1,169 33 168 508 256 236 167 355 484 180 163 240 31 1,078 434 334 577 199 659 13 285 771 317 439 376 382 152 357 281 67 237 495 203 143 217 25 45 265 Apparatus 1,445,655 85,021 113,465 87,220 42,300 51,400 56,489 137,500 46,300 137,000 52,370 319,014 335,580 204,933 107,363 42,608 88,414 73,500 22,032 67,042 224,245 108,961 28,150 13,834 35,516 53,253 121,487 89,535 27,094 147,000 135,985 110,035 35,179 10,837 191,564 101,655 114,120 68,982 93,572 44,042 61,782 62,276 121,151 49,655 220,000 34,700 83,000 64,067 31,771 135,714 50,954 Other 4,546,732 38,828 374,068 153,665 147,398 59,892 153,293 370,116 139,170 127,651 37,725 900,044 678,684 663,700 27,872 83,838 298,376 163,662 146,971 57,324 271,081 291,556 65,117 129,451 125,489 21,557 530,820 272,318 212,878 311,561 123,403 363,825 22,556 231,988 388,087 145,299 225,502 190,090 198,990 80,365 202,634 156,900 64,419 116,324 265,873 97,257 112,279 107,883 15,754 51,850 142,469

Fier Finiq Fushë-Arrëz Gjirokastër Gramsh Has Himarë Kamëz Kavajë Këlcyrë Klos Kolonjë Konispol Korçë Krujë Kuçovë L K o u c k a ë l s Units[1] Kurbin LTeirzahneë BLiebloshhove BLiebrraatzhd BLuuslqhinzjëe MCëarlëriski e Madhe MDeallviqinë MDeavlloalkl astër MDiabtër MDiemmaal liaj MDiivrjdaiktë PDartoopsull PDeuqrirnës PEëlbramseatn PFioegr radec PFionliqçan PFurrsehnëja-As rrëz PGujikroëkastër PGursatmecsh RHoags ozhinë RHoimskaorëvec KSarmanëdz ë KSealveanjëicë KShëiljcaykrë KShloksodër KSkorlaopnajër KTeopneislepnoël KTroorpçëojë KVrauujëDejës KVuloçroëvë KVuokrëës Kurbin TOTAL Lezhe Libohove Librazhd Lushnje Malësi e Madhe Maliq Mallakastër Mat Memaliaj Mirditë Patos Peqin Përmet Pogradec Poliçan Prrenjas Pukë Pustec Rogozhinë Roskovec 707 413 304,923 214,970 140 0 68,234 13,779 116 0 45,958 0 168 143 86,782 76,793 181 10 99,691 6,845 80 64 30,403 35,460 219 0 72,885 0 380 0 216,766 0 399 28 132,995 49,257 82 0 27,763 0 96 0 48,562 14,310 126 52 43,911 26,681 87 0 34,275 0 304 245 139,351 125,471 379 2014 Accord9ing to S1I0FQ9,183 70,205 152 75 Number of Employees 386 0 Salar6y5a,1n1d8insuranc3e9,319 168e,x8p1e5nses 0 Appara 2 tu 1 s 3 Oth 4 er 1 App 7 a 8 r , a 5 t 8 u 5 s 2 O 7, t 7 h 5 e 7 r 1,630126 2,44171 155847,19627 1,81734,253458 2938 10 2394,18290 137,471782 21704 1960 10979,802856 113,6610 311952 1485 1707,611343 6257,708135 17816 10 8514,853740 1206,137662 27557 0 11248,050578 35,2890 313248 460 8726,84365 33,9310 137837 334 11780,636321 2683,79011 1965 140 461,792523 341,639359 13627 770 25734,58150 35,1270 14863 130 351,123971 55,34995 510396 7330 29713,586167 419,62276 419268 28556 27349,176494 15317,956178 740778 41731 310440,922732 2184,967304 14705 2250 6583,203140 136,757992 11769 0 11465,09958 0 16584 1430 8662,768424 76,7930 1831 10 9292,699012 69,864151 14870 640 3603,49093 351,41620 2190 0 7820,828654 32,8220 318109 1330 2136,76661 100,6870 319491 280 13920,949356 49,2570 14862 0 2772,726939 0 46986 1480 20468,75682 14114,53610 12965 521 463,971212 2367,68317 1287 0 3543,247653 15,720 310846 2450 13897,385417 12159,477218 317992 90 1097,188231 70,2050 135629 21715 17625,912118 14369,6319 328460 0 16086,831754 0 14,4 2 0 1 1 3 6,19 4 4 1 6,39 7 3 8 ,4 5 2 8 2 5 4,36 2 6 7 ,6 7 7 5 1 7 316 11 154,162 74,548 23 0 29,129 7,772 74 0 99,086 0 315 148 170,614 65,783 171 0 81,834 10,176 275 0 114,007 35,289 334 46 82,836 33,931 173 33 70,331 28,701 95 0 41,722 1,339 167 77 74,850 35,127 146 130 51,291 55,349 136 0 73,817 19,276 128 56 39,744 37,518 478 71 140,272 84,634 175 225 53,010 6,592 179 0 116,098 0 154 0 62,644 0 31 0 22,902 9,611 147 0 63,99 4 3 1 1,120 210 0 80,264 32,822 266 1,169 204,933 663,700 158 33 107,363 27,872 64 168 42,608 AN 83 N , E 8 X 3 E 8 S 115 508 88,414 298,376 97 256 73,500 163,662 39 236 22,032 146,971 37 167 67,042 57,324 277 355 224,245 271,081 140 484 108,961 291,556 25 180 28,150 65,117 82 163 13,834 129,451 48 240 35,516 125,489 82 31 53,253 21,557 154 1,078 121,487 530,820 2012111-2022 Acco4rd3i4ng to SIF8Q9,a5n3d5MBP 272,318 60 334 Number of Employees 136 577 Sala2ry7,a0n9d4insuran2c1e2,878 147e,x0p0e0nses 311,561 Appara 2 t 1 u 8 s Ot 1 h 9 e 9 r Ap 1 p 3 a 5 r , a 9 t 8 u 5 s 12 O 3, t 4 h 0 e 3 r 1,419289 6,161529 1,414150,60535 4,534663,783225 15735 1530 385,107291 2328,585268 1234 268552 1130,486357 233714,90868 16279 727610 19817,526240 318583,068675 15652 32175 10412,635050 1457,23998 14679 41319 11541,14200 22559,58092 6932 32761 6586,94829 19503,02903 122681 358529 13973,50702 139780,919106 6644 212562 464,300402 13890,137605 1679 239557 13671,070802 122072,65314 6832 28719 562,32706 15367,970205 29379 1,55637 311291,011541 90604,044149 40736 1,02347 33459,568505 617186,63824 26860 1,146995 20240,903030 62635,780703 15684 2033 10374,376030 297,827527 18694 16483 4823,60080 11823,287398 11852 520187 8684,401647 219087,387863 9574 25265 7331,570701 16135,676524 18309 23465 13252,701342 14561,987510 3776 12675 6570,094524 14527,436294 217478 325852 212340,204050 217319,068618 14903 41864 10880,906010 2971,525964 11225 128008 2682,17500 11665,413127 3842 16638 2513,785354 132998,405010 488 24704 3557,571369 12551,458994 8521 18381 5339,255930 2915,595679 15940 1,037082 12613,438174 513408,872009 11415 423448 13819,351315 21722,31780 2860 1,030324 27207,305934 251421,827287 123661 577 14576,070603 311613,50618 9,5 2 8 1 5 8 27,17 9 9 7,3 1 30 5 ,8 9 4 8 7 5 16,6 1 5 2 2 3 ,9 4 1 0 0 3 129 659 110,035 363,825 75 13 35,179 22,556 123 285 10,837 231,988 167 771 191,564 388,087 155 317 101,655 145,299 147 439 114,120 225,502 63 376 68,982 190,090 128 382 93,572 198,990 64 152 44,042 80,365 69 357 61,782 202,634 82 281 62,276 156,900 239 67 121,151 64,419 76 237 49,655 116,324 280 495 220,000 265,873 64 203 34,700 97,257 189 143 83,000 112,279 82 217 64,067 107,883 54 25 31,771 15,754 180 45 135,714 51,850 76 265 50,954 142,469

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FRIEDRICH-EBERT-STIFTUNG - ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 ABOUT THE AUTHOR IMPRINT The Institute of Public and Private Policies(IP3) is an independent non-profit organization based in Albania. IP3, since its creation in 2012, offers high quality consultancy and analysis in order to design and implement public and private policies in various fields and sectors. IP3 promotes the strengthening of local democracy through the contribution to territorial reform at the local and regional level, decentralization policies, public finance management and fiscal policies, efficiency in the provision of services through one-stop shop initiatives, ensuring transparency and broad participation in governance. Since its establishment, IP3 has provided technical assistance to local governments in Albania, assistance which has been useful in increasing the capacities and improving the skills of the municipal staff in public engagement, in improving the provision of services at the local level, institutional strengthening, drafting and implementation of sustainable public policies, in areas such as social support, research and training, evaluation of public administration, urban planning, architectural development and electronic government. Foundation“Friedrich Ebert”| St.“Kajo Karafili” Nd. 14, Entrance 2 1st floor| Tirana| Albania Responsible: Stine Klapper, Director of the“Friedrich Ebert” Foundation Tel: 00355 4 22 509 86 www.tirana.fes.de Program Manager: Jonida Smaja Publications of Friedrich-Ebert-Stiftung may not be used for commercial reasons without the written approval of FES. The opinions, conclusions and recommendations expressed in this publication do not necessarily reflect those of the Friedrich-EbertStiftung or organizations for which the authors work. 44

ANALYSIS OF THE IMPACT OF TAR DURING 2018-2021 The administrative- territorial reform has directly influenced the improvement and increase of the fiscal capacity of the municipalities for the collection of their local revenues and therefore the increase of expenses for local services. The increase of the economic potential not only from own revenues but also from those of the central budget are a very important factor in promoting the increase in the quality of local government services. The new administrative division not only changed the way municipalities were formed, but also had to give local government a new vitality in terms of financial management and orientation towards a culture of performance, as in the management of municipalities, as well as in the provision of services to residents. For more information: https://www.tirana.fes.de/al/publikime/ 45