The International Journal
of Not-for-Profit Law
Volume 3, Issue 3, March 2001
By Petr Pajas, First Consulting, p.b.c., Praha
Introduction
The aim of this presentation is to provide a short overview of recent decisions and actions taken by the Government of the Czech Republic with respect to the financing of activities of civil organizations. This includes: (a) revival of the full operational activity of the Council for Non-governmental Not-for-profit Organizations (b) distribution of privatization assets to active foundations, (c) detailed analytic research of Government donations to the civil sector, and (d) the very recent Government Regulation on Principles of Donation Policy from the Budget of the Czech Republic to Non-governmental Not-for-profit Organizations, based on the analysis mentioned above.
New Approach of the Czech Government Toward NGOs
In November 1997, the transitory government of Mr. Tošovský replaced the Government of Mr. Klaus. This was an event marking an important turn in the Czech society from a strictly economical and highly pragmatic approach to an approach that is more sensitive to issues of a free and active civil society. In 1998, this trend brought to power the minority government of Social Democrats. After seven years of permanent disputes regarding the role of civil society and its non-political organizations in modern democracy, one may observe the politicians changing their attitudes toward the civil sector from an arrogant disinterest to recognition and cooperation.
Several Remarkable Facts Illustrate this Change
In 1997 the Parliament finally approved the new Act on Foundations and Funds, which was another step toward creating a solid legal environment for the transparent activities of civil organizations established for public benefit purposes and exposed to public control. The first step in this direction had been taken in September 1995, when the Act on Public Benefit Corporations (non-membership centers providing public benefit services) was enacted.
During 1997 and 1998, even before the June elections, the Government revived the Council of Foundations, established in 1992, to deal with the project of providing 1% of privatization assets to foundations. The Council was restructured and renamed the “Council for Non-governmental Not-for-profit Organizations” (CNNO). The newly composed Council consisted of 15 representatives of NGOs, appointed upon the recommendation of the Minister without Portfolio, who chairs the CNNO. Another eight members were appointed to represent individual ministries of the Czech Government. The Government approved a new Statute for the CNNO, which became a regular advisory body to the Government. The CNNO covers a broad spectrum of issues related to cooperation and dialogue between the Government and representatives of civil society.
In 1998 the CNNO prepared, and the Government and Parliament approved, the first tender in which 37 Czech foundations obtained contributions to their permanent endowments of a total value of CZK 500,000,000–equivalent currently to about USD 13,000,000. During the year 2001 the endowed foundations will start to distribute the yield of the endowments estimated at about USD 650,000. It is a limited, but essentially permanently available, resource from which the activities of associations, public benefit corporations and the establishment of churches may be supported.
In 1999 the CNNO initiated and in 2000 the Government realized an analysis of the policy of distributing grants and donations from the State budget to mostly associations. The analysis has proved the inconsistence of the process with the development of the civil society after 1990 and its new needs and aspirations.
Since 1998, a very sophisticated discussion of a series of draft laws, which shall change the legal and fiscal environment for the provision of services in social care has been underway. However, this process is not yet finished and, therefore, it would be premature to discuss it here.
Finally, in January 2001 the Czech Government approved a new and important regulation, which provides for a systematic and much more just, open and transparent way of annually distributing a significant portion of the state budget (about CZK 2,000,000,000, equivalent to USD 53,000,000, i.e. about 0,3 percent of the national budget of the Czech Republic) to all legal forms of civil organizations, except foundations and funds, which are supposed to have their own resources or the ability to raise them from private donors.
All this represents an important development toward a legally well-defined cooperation between Government and civil society in the Czech Republic, regardless of the fact that in fall of 2000, the Czech Parliament refused to accept the Bill on Associations, which was drafted in cooperation with NGO experts in an attempt to create a legal environment for associations that is similar to that which exists for foundations, funds and public benefit corporations (service centers).
The Second Round of Privatization Assets Distribution to Foundations
In January 2001, following a year of preparatory work in CNNO working groups and many consultations with the Budget Committee of the Czech Parliament, the Czech Government approved Decision No. 12/2001 on the Procedure by which the Remaining Assets Set Aside for the Foundation Investment Fund shall be Distributed in the Second Stage (to Foundations). Actually, this represents an open tender, in which a special commission shall choose from registered and applying foundations those to which another portion (and probably the last one) of assets in the amount of about CZK 2,000,000,000 shall be distributed to become a part of their registered endowment and/or partially (not more the 15 percent of the contribution) directly redistributed according to current granting regulations of each foundation.
Between January 31 to April 30, 2001, any foundation registered according to the new law may apply to participate in the distribution process. It is expected that out of about 250 existing foundations some 80 percent may apply. The eligible foundation must prove that it exists and has been active at least since January 1, 1998; is registered in the Foundation Register and has made grants of a minimum CZK 100,000 to at least three subjects. Each application must be accompanied by a copy of annual reports (for 1998 and 1999) including balance of incomes and expenditures with the statement of an external auditor. The foundation must also provide its rules applied by it in granting procedures and it should declare the field of public benefit activities it is going to support from the yield generated annually from the allocated contribution to its endowment. It is expected that the foundation will prove that it allocated at least 25 percent of its grants to the field chosen. Foundations established by Government or foundations which were financed during 1998 and 1999 from State budget, are excluded.
The CNNO commission shall scrutinize the applications and allocate evaluation points (about 50 percent) related to each applicant foundation according to a set of criteria, chosen so as to reflect: (1) the ability of the foundation to raise assets by its own activity (from efficient use of its own property and by fundraising from donors abroad and in the country); (2) the ability to be a real financial resource for other civil organizations (showing the amount of assets provided to third persons in relation to total incomes, number of third persons granted and the highest individual giving); (3) the ability of the foundation to properly care for its assets and property (showing the value of its registered endowment and relative yields ). The commission shall allocate another portion of evaluation points (about 25 percent) according to the importance of the filed in the locality supported by its grantmaking program. The rest of the evaluation points would be assigned upon overall assessment of the activities of the foundation and its overall impact on Czech civil society .
The sum of allocated evaluation points shall be the main supportive evidence for the final recommendation of the plenary of the CNNO as regards the amount of assets to be allocated to a foundation or whether there shall be no allocation at all. It is assumed, that the minimal assignment should be CZK 10,000,000. In the case of too many applicants, this may limit the list of those who will be assigned a contribution. Accordingly, those foundations who did not receive enough evaluation points may not receive any funds. However, in general, this limit may support a reasonably uneven distribution among about 120 foundations. We must wait for the result of the tender to see if this is the case.
Parliament, upon the recommendation of the Government (which is based on the recommendation of CNNO), shall make the final decision on distribution.
Thus, starting in 2003, when the enhanced endowments will produce their first annual yields, Czech associations, public benefit corporations, churches and their establishments and some other not-for-profit legal entities may expect to receive in total about CZK 125,000,000 annually from Czech foundations.
Analysis of Financing NGOs from the State Budget
In September 2000, CNNO finalized the analysis of procedures related to provisions of donations and grants by individual ministries of the Czech Government to associations, establishments of churches and public benefit corporations.
The analysis has shown, that the procedure has been regulated by several decrees of Government or individual ministries, but it was not a systematic regulation at all, allowing for very different approach at many levels.
The existence of the chapter related to support of associations in the state budget of the Czech Republic has its roots in the pre-November 1989 political system. The Communists organized all “permitted” social life under their control. All political parties and associations were organized into an umbrella body called National Front (NF) (mind not to mix the NF with the political party in France!). In order to make the control effective, the Communists provided government money form the state budget, which was derived from completely nationalized industry and use of the property of churches, foundations, individuals, and dissolved legal bodies, which were confiscated in 1950 – 1955. The amounts available were sufficient to pay for the salaries of executive officers, priests and other persons or even to support some of the activities or maintain property. As a result, the subjects of the NF became very much dependent on the will and wish of the governing Party.
The system underwent many changes, but there are still some associations that are permanently on the list of supported bodies and are therefore in a more advantageous position compared to other associations. Until recently, public benefit corporations, as a new legal form, were mostly excluded from the donation policies of most of the ministries. Of course, there are still special relations between those organizations who are regularly receive donations and the donating ministry. These special relationships distort the situation in the civil sector as a whole.
Some concrete results of the analysis are presented in graphs below.
As you may see, the main bulk of money from public budgets comes from the Government level, being directly distributed by the ministries (Graph 1).
Seventy-one percent of all public money comes from this source. The remaining funds are distributed by district offices or statutory cities. In 1999, a total of about CZK 3,050,000,000, equivalent to USD 80,000,000, was distributed.
Graph 2 illustrates how these resources are distributed between the three main types of NGOs. More then 68% of distributed funds goes to associations; about 25% to public benefit corporations; and about 7% to establishments of churches, mostly represented by the Catholic Charity and the Evangelic (Protestant) Diacony (both of which provide social and health services to the handicapped, unemployed and homeless).
As it may be seen from Graph 3, there are three fields that receive the bulk of Government funds: cocial services (nearly 2 bilion Czech crowns in 1999); amatheur athletics (mostly sport clubs, but a lot also goes to support Czech representation in international tournaments); and health care for the handicapped. Care of groups in difficult situatuions (refugees) and support of culture and preservation of cultural heritage also deserve mention.
New donation policy of the Czech Government
Government decision No. 114/2001 from January 2001 approved the principles applied by Government to the way in which donations shall be provided to non-governmental organizations through the central bodies of the state administration. The principles regulate the provision of financial support, as well as the obtainment and maintenance of other assets and real property.
The principles explicitly declare that donations may be assigned to associations of citizens, public benefit corporations, and establishments of churches. The central body may also decide to provide the donation to other legal bodies that have been established for the purpose of provision of health, cultural, educational and social services (it is here that hospitals, universities and colleges, social care institutions, both private and public, enter the scene) and to the care for the legal and social protection of children. This includes also those l egal entities which receive mandatory public support from the budgets based on specific law (e.g.; Red Cross, professional chambers and similar organizations). However, in general, no one may claim the right to receive a donation.
The main procedural requirement is to announce public tenders on projects of public benefit, whose conditions must be made public. In the Czech Republic, Internet websites of ministries or other central governmental bodies are usually used for that purpose. It is important that the period in which NGOs may apply for donations has been shifted to September 30th of the year preceding the year for which the donation is required. As the principles require, the central body must decide on the donation not later than January 31st of the year in which the donation is to be used. This is a very important change. Up to now, it was possible that an NGO would plan a donation for year- long activities during the last months of the year and was obliged to use it regardless of a technical impossibility created by shortening the period of time in which it was available.
The governmental grant may cover up to 70% of the costs of the project, but in well-defined cases it is now possible to obtain even more. This was not possible until now. However, there may not be any profit calculated in the supported project and if used for salaries, it should reflect the regulations valid for salaries in the budgetary sphere. In addition, the donation may not be used for the salaries of executive officers of the organization or for other purposes explicitly stated in the terms of reference of the tender.
Every donation is purpose related and non-transferable to other purposes. Of course, the principles also deal with a set of legal conditions protecting the interest of the Government with respect to the proper use of the provided resources, transparency of accounting and reporting.
For the first time there are explicitly stated sanctions to be applied in those cases where the NGO does not cope with the conditions set in the decision of the state organ. These sanctions include the loss of right to apply for a donation in the following year, unless there was a full remedy of the faults, in which case the minister must make decision in person.
In order to minimize or exclude duplicate support, the Government keeps all information on allocated grants in a special public database (called CEDR – Central Evidence of Donations from State Budget).
The CNNO has been assigned a special new role by this Governmental decision. It is entitled to recommend annually to the Government a list of main fields into which the state donation policy should be concentrated in the following calendar year. It is also a place, where the individual ministries may effectively coordinate the announcements of tenders or solve problems related to individual projects.
Very recently, the CNNO started to discuss its own future. Many ideas were raised in these discussions, including converting the CNNO into
- a regular Governmental body subordinated to a Government Ministry,
- an independent registration body for NGOs, or
- a body that would have responsibilities similar to the Charity Commission of England and Wales.
- It is certain that the CNNO will be restructured before the end of 2002.
Conclusions
As described, the present Government of the Czech Republic takes the cooperation with civil sector and its role in the overall welfare of people very seriously.
It accepted the role of foundations as an organic part of the developed private sector. As a gesture of understanding and good will the state decided to fill the gap in the philanthropy sector caused by the war, occupation and following unnatural interruption of market economy development, all of which lasted for half a century and resulted in complete destruction of foundations. This is why the privatization funds are being distributed between foundations– not to be consumed, but to serve as registered and permanent endowments , from whose yield the foundations may support other civil organizations.
The Government also created a special advisory body, the CNNO, which not only plays the role of a forum for exchange of information and ideas between the state organs and NGOs, but it also initiates many other systematic changes and approaches to the common issues, the examples of which have been described above.
The present Government is open to further discussions and ideas. It is prepared to discuss amendments to the present laws and changes in regulations governing the fields in which the civil organizations are active and where the cooperation is in the public interest.
Acknowledgement
The author would like to thank Dr. Hana Frištenská, Executive Secretary of CNNO for her kind cooperation in preparation of this article and for all the data and materials provided.