Keywords

Introduction

The COVID-19 crisis raised important governance issues across many countries. Dealing with the consequences for families and businesses posed serious challenges to the coping and adaptation capacities of government. These challenges were particularly serious in multi-layered government settings with overlapping competencies (Chattopadhyay et al., 2022). Such was the case in Belgium, where cooperation between the federal (national), regional, provincial, and local levels was crucial in tackling the health crisis and the consequent economic crisis (Bursens et al., 2022). This book chapter offers an analysis of the financial dimension of the intergovernmental relations between the regional Flemish governments and the local governments during the COVID-19 crisis. As such it focusses on financial resilience in regional-local relations and on fiscal decentralisation as an element of IGR and crisis resilience in general.

In Belgium, the local governments played a vital role in the organisation of the crisis management system but needed a significant number of public resources from the regional level to implement the crisis and health response measures they were responsible for. Up to now only limited evidence is available on how the pandemic affected financial IGR across countries (Béland et al., 2020; Wortmann & Geissler, 2021). Our aim is to fill this gap by studying the formal decisions that were taken to improve the financial resilience of the local governments. The Flemish regional government injected the crisis funding for local governments in the form of twenty-two different grant programmes. By examining the formal legal framework of the grant programmes we were able to deconstruct the underlying political choices that were made during the crisis and answer our research question, whether the pandemic has altered the financial decentralisation trend to give municipalities more budget and spending autonomy by means of unconditional grant transfers, which as such can be seen as signalling a more mature, high-trust relation between the regional and local levels.

This chapter starts with a brief history of the COVID-19 policy response in Belgium from an Intergovernmental Relations (IGR) perspective. We use the analytical taxonomy of three types of contrasting IGR processes: (1) a predominantly multi-layer process involving limited conflict, (2) a centralised policy process in which the central government attempts to suppress conflict, and (3) a conflicted policy process where such attempts are contested and contribute to questionable policy outcomes (Bergström et al., 2022; Gawlowski, 2022).

Secondly, we introduce the formal financial IGR arrangement between the municipalities and the regional level in Flanders. Local governments needed adequate funding to fulfil their operational tasks in the COVID-19 crisis governance. The Flemish government established twenty-two COVID-19 grant programmes to improve the financial resilience of municipalities to enable them to manage their crisis tasks.

Thirdly, we present a case study of the grant programmes. By examining the legal framework of the grant programmes, we can deconstruct how the grant programmes were structured. The type of funding schemes that were chosen are indicators of the political choices that had to be made during the crisis. Finally, we assess the extent to which the COVID-19 grant programmes reflected a changing IGR-trend between the regional and local levels.

Belgium’s COVID-19 Response: Conflicted or United?

Belgium has a very divided federal structure and political system, which suggests that the country would be poorly equipped, compared to its federal counterparts, to develop an effective policy response to COVID-19. This assumption makes sense as the division of competences on health care between the federal state, the regions, and the communities is among Belgium’s most complicated IGR arrangements. At the start of the pandemic (March 2020) the National Security Council (NSC) became the key political decision-making body. The NSC includes just the federal prime minister, his vice-prime ministers, and the federal ministers for Justice, National Defense, Interior, and Foreign Affairs. This composition of the NSC was justified given the countrywide impact of the crisis and that hospitals’ intensive care unit capacity was a federal competency (Vansweevelt & Dewallens, 2020).

Consequently, the federal government was the decisive actor when it came to decisions on lockdowns, closure of borders, and suspending fundamental rights. Yet, as these actions had major implications for regional competencies, such as education, culture, economic affairs, and elderly care, intergovernmental relations (IGR) came under great strain (Popelier & Bursens, 2021). From October 2020 onwards, the five regional governments became official partners in crisis management as the new federal government transferred decision-making power from the NSC to the Concertation Committee (CC). The Concertation Committee is a multilateral body of federal and regional ministers that seek to negotiate solutions to conflicting policies. Before the pandemic, the CC was only used on an ad hoc basis during political and constitutional crises and had no permanent existence. After several months in crisis, the political leaders of the different governments (federal and regional) decided that the CC would be the most appropriate constitutional entity to coordinate the crisis. Nevertheless, tensions between the federal and regional levels persisted. Especially in the Flemish region, political leaders openly disagreed with the actions taken by the CC, although they participated in the decision-making process (Bursens et al., 2022). The poor coordination between the federal and regional levels, and the resulting contradictory announcements, affected the local communities that had to communicate and enforce crisis measures (Wayenberg et al., 2022).

Belgium was not the only country characterised by divergent views, contested measures, and communication problems. Bergström et al. (2022) identified similar problems in Spain, the UK, the Czech Republic, and Slovakia when examining the early phase in the governance of the crisis. Probably most countries went through a period of conflicted relationship, some of them temporarily, while others more structurally. The confusing announcements of the federal and regional governments over the crisis measures unsettled local governments in conducting their key role in communicating the measures to citizens and businesses and enforcing these measures. Accordingly, Wayenberg et al. (2022) classify the Belgian governance of the COVID-19 crisis as an example of a conflicted IGR policy process.

Other scholars have taken a different view and argued that Belgium’s policy response to COVID-19 was surprisingly united for such a divided, federal country. These authors argue that, although IGR competencies were very fragmented, the policy response was largely uniform and national, given the strong consensus among the political elite that measures should be the same over the entire country (Sinardet & Pieters, 2021). This leads us to conclude that IGR in the Belgian context are complex and multiple and that IGR can be perceived differently depending on the specific decisions, policy domains, and government levels that are analysed.

Apart from the federal government, the five regional governments were engaged in the crisis management together with the local governments. Therefore, it is important to look in more detail at the underlying relations between the regional and local levels. In addition, next to diverging views, contested measures, and communication problems in general, the success of the crisis governance also depends on the effectiveness of higher governments in safeguarding the financial resilience of the lower governments. For, as well as clear crisis communications about measures from higher levels, municipalities also require adequate funding to fulfil their operational role in the governance of the crisis (de Mello & Ter-Minassian, 2022). As Saliterer et al. (2021) argue, financial resilience or the financial ability of local governments to anticipate, absorb, and react to shocks is crucial in crisis management.

Regional-Local Relations in Flanders: The Financial Dimension

Intergovernmental Grants Reflect Political Choices

In the Flemish region, local governments have a crucial financial role in supporting investments in a wide range of infrastructure such as roads, elderly care, sports, environmental projects, local police networks, spatial development and urban planning projects, educational projects, youth development programmes, social housing policy, cultural activities, digitalisation projects, and many more (Belfius, 2022). Local governments’ wide-ranging local budgetary autonomy is embedded in the Belgian Constitution that allows municipalities to raise local taxes as long as the “non bis in idem” principle is not violated, which means different tax authorities can only levy taxes on the same matter once. On average, 49% of local governmental revenues are generated through local taxes and penalty fines, of which the local property tax and the local personal income tax (both surcharge taxes) are by far the most important ones. Intergovernmental grants are the second largest local revenue source, representing 40% of local financial revenues (Smolders, 2020). From a comparative perspective the Flemish case is not exceptional considering that intergovernmental grants for municipalities in OECD countries form on average 46% on their revenues (Santos, 2020).

Intergovernmental grants can be conditional or unconditional. This feature is important as directly relevant to the spending autonomy of the receiving governments and, as such, to effective fiscal decentralisation. As such unconditional grants might signal a more mature, high-trust relation between the regional and local levels. Unlike unconditional grants, conditional grants restrict municipalities to specific forms of spending that in many cases are related to specific policy objectives of the granting government (Oates, 1972; Bird & Smart, 2010). Furthermore, in most cases, conditional grants imply an administrative justification from the receiving governments. Whether municipalities receive this type of grant depends on how higher government actors decide to offer the grant on the one hand, and on administrative and political efforts of the local governments to receive the grants on the other hand (Volden, 2007). The following section gives a financial overview of the intergovernmental grants for the period 2014–2022.

Overview of Intergovernmental Grants: 2014–2022

In 2019, one year before the COVID-19 crisis, almost 70% of the intergovernmental grants to municipalities were classified as unconditional (3.4 billion euro); 78.6% of the unconditional grants derived from the Municipalities Fund, the distribution of which is based on criteria that unchanged since 2002. Since 2008 in total five other unconditional grants were added. These were created to compensate municipalities for the loss of energy dividends (2008), for costs related to specific labour statutes (2016) or to cover up extra spending needs in cities (2017).

Figure 4.1 shows that since 2014 the proportion of unconditional grants increased steadily. Next to the formerly discussed extra types of grants, this trend results from the Flemish internal state reform that was initiated in 2009, but in fact had a significant impact from 2015 onwards, given the redistribution of several larger grant programmes (Descamps & Smolders, 2022, 2023). Competencies formerly held at the provincial level were reallocated to the Flemish and the local levels. This resulted in additional grants in 2018. These were intentionally unconditional as the Flemish government wanted to reduce the bureaucratic costs of managing grants and to enhance local spending autonomy. Finally, the steady growth of unconditional grants also reflects how the main unconditional grant programme (Municipality Fund) is automatically indexed at a rate of 3.5% per year. In the low-inflation environment of the former decade, this provision automatically increased the proportion of funding given unconditionally to local budgets (Flemish Internal Administration Agency, 2019).

Fig. 4.1
A stacked bar graph of Flemish Intergovernmental Grants 2014 to 2022. The data is for unconditional and conditional grants, respectively. 2014, 52%, 48%. 2015, 58%, 45%. 2016, 60%, 44%. 2017, 61%, 39%. 2018, 65%, 35%. 2019, 69%, 31%. 2020, 62%, 38%. 2021, 61%, 39%. 2022, 73%, 27%.

Evolution of Flemish Intergovernmental Grants (2014–2021) (Source: Belfius, 2022, 2023)

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As for the Flemish conditional grants, there is no general register of the specific grants involved. However, a recent question by a member of the Flemish parliament revealed that over the period 2019–2021 more than 600 million euros were allocated by means of conditional grants (Vlaams Parlement, 2022). Each year more than fifty initiatives were launched independently by different Flemish ministers. These conditional grants are very scattered, create a lot of administrative burden, and show sharp deadlines. As a result, they are very unevenly distributed over the three hundred local communities: 40% of the resources are allocated to thirteen cities. The small number of applications by other municipalities is related to the lack of local administrative capacity to obtain the grants and conduct the work to effectively use the funds (VVSG, 2022). This empirical observation is not uncommon in the intergovernmental playing field of grants. Other studies have demonstrated that higher administrative capacity is associated with a higher likelihood of pursuing and obtaining grants (Manna & Ryan, 2011; Lowe et al., 2016) and an effective use in terms of the programme rollout (Shybalkina, 2023).

The Flemish COVID-19 Grants for Municipalities

As Flemish municipalities, apart from their own fiscal revenues, mainly rely on grants from the (regional) Flemish government, our focus is on how these grants were designed. We argue that the type of grants is an additional indicator of decentralisation or recentralisation and trust of higher governments in lower government levels (ACIR, 1978; Handley, 2008).

More specifically, unconditional grants imply maximum spending autonomy within the competencies of the local government and as such signal a more mature, high-trust relation between the regional and local levels. Conditional grants have a quite different nature. Typically, higher government levels designed them to ensure the implementation of their new policy initiatives. Different funding types are applied; some of these have a competitive nature, and receiving municipalities need to report on how the resources were spent. In general, when conditional grants are dominating the IGR funding schemes, these contexts are characterised by less fiscal decentralisation (Ladner et al., 2019; and as in England, see Laffin and Diamond, in this volume).

In Flanders, the share of unconditional grants directed to municipalities increased from 52% to 69% over the period 2014–2019. This evolution was in line with the successive Flemish coalition agreements that required local governments to be given greater spending autonomy and that the administrative burden related to grants should be reduced.

Methodology

During the COVID-19 crisis twenty-two grant programmes were launched channelling 319 million euros to the local governments. By analysing the formal legal framework of each supplementary subsidy, we can identify the underlying political choices made during the crisis. All grant programmes were categorised by their goal or department (e.g. childcare, contact tracing, vaccination centres, elderly care, culture, youth). As well as their conditional/unconditional nature, the following features of a grant’s design were identified:

  • The competitive nature: are all local governments applying for the grants awarded when they meet the criteria, or, due to budgetary restrictions, has the “first come first served” principle been adopted?

  • Is the distribution of the grants criteria-based or ad nominatim? The latter is referring to grants that are (politically) chosen by the regional government and allocated to specific municipalities.

  • Are the grants designed in collaboration with local governments?

The analysis is meant to give answers to the following research questions (Table 4.1):

Table 4.1 Framework case study content analysis
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Analysis of the COVID-19 Funding Schemes

Funding Schemes

The results are summarised in Table 4.2, which gives an overview of the characteristics of the twenty-two COVID-19 grants, seventeen of which were allocated in 2020. The typology of the different grants is explained in the legend of the table.

Table 4.2 Categorization of the Flemish COVID-19 programs
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Our analysis of the specific grant schemes reveals that the Flemish government used conditional grants for fifteen out of twenty-two programmes. Of these conditional grants, in ten out of fifteen cases the regional government opted for formula-based grant programmes. The allocation criteria in these formulas have always been based on the criteria of pre-existing funding (the Flemish municipality fund, the preventive health care policy funding, the health care infrastructure fund, the youth centre decree funding, etc.). The explanatory sections of the ministerial decrees indicate that the Flemish government has pragmatically chosen to use existing formulas and given adequate and timely support to the local level. The regional government unilaterally took decisions concerning which type of grant and method of distribution. Even so, the representative organisation of the local government, VVSG (Association of Flemish Cities and Municipalities), was given the role of the distributing organisation, an indication of an elevated level of trust in representative organisation of local councils.

Only three out of fifteen grants were distributed by the ad nominatim principle. These financing schemes related to the vaccination centres, the location of which was chosen by higher-level governments. Although ad nominatim grants might reflect political interference, the grant allocations reflect rather pragmatic choices based on demographic and infrastructural criteria when analysing the explanatory sections of the implementation decrees.

Unlike the regular conditional grant programmes, only two programmes were based on a competitive principle (one by “the first come first served” principle and one administered by an administrative jury). In one case, local government could apply for grants to support their cultural organisations to compensate them for lost income consequent to lockdown measures. Although the regional government gave a formal deadline for municipalities to apply, the minister had the discretionary power to extend the deadline. Consequently, the competitiveness of this grant programme was quite low. The second competitive grants programme was aimed to support local initiatives relating to the mental well-being of young adults resulting from COVID-19 (e.g. psychological consults or digital activities with the local youth council). The evaluation criteria for this grant programme call were easy to meet and there were four application calls within a reasonable time frame.

For the unconditional grants, the formula design principle was dominant as well (6/7). Only one grant programme for residential care was based on the ad nominatim principle when a localised outbreak occurred. There are no indications that the criteria used were the subject of political interference. Again, the Flemish government has fallen back on existing sectoral formulas, without formal bargaining with the local governments.

Classification of Policy Process

The analysis shows that fifteen out of twenty-two funding initiatives were designed as conditional grants. As such the Flemish approach converged with that in many other countries (Chattopadhyay et al., 2022). The grants can mostly be classified as formula-based grant programmes, the criteria of which were based on pre-existing funding schemes. Although no political bargaining with the municipalities was observed, a more cooperative approach was adopted as the pandemic lasted. Some formal advice was given by the Flemish local government representative organisation (VVSG) that also acted as the distributive actor for some of the grants towards municipalities. Overall, it seems that the grant distribution processes were mainly driven by the consideration of the speed of impact, rather than by the aim to suppress conflicts or to diminish the local spending power.

On the contrary, as was stated in the report of the Flemish parliamentary commission decentralisation (infra section “Larger IGR-Trend”), the swift and adequate actions taken by local governments during the crisis were an important factor for transferring more competencies to the local level in the future (Vlaamse overheid, 2022). The policy response to the pandemic is having a longer-term consequence, because the regional government suggests distributing more competencies to the local level given the way they operated during the crisis which increased the level of trust in the local level.

As a result, we conclude that the conflicting IGR during the first year of the crisis that affected the local level were mainly situated at the federal/regional level. Yet, when looking at the underlying relationship between the regional and local levels in later periods, and focussing explicitly on the grants allocated, we identified no conflicts, and estimate that the adoption of more conditional grants was prompted by pragmatic crisis spending motives. It would be questionable if the regional government would have distributed more unconditional grants in a crisis setting that demanded for more financial support in elderly and family care, etc. The crisis thus temporarily encouraged conditional spending.

In general, we conclude that the governance of supplementary funding during the COVID-19 crisis was clearly centralised at the regional level. Launching conditional grants, copying existing funding schemes, and adopting predominantly formula-based allocation criteria resulted from the urge to respond quickly to the challenges the local governments were facing. Importantly, no indications are present of conflicting views between the different public actors. This is confirmed when screening the official press on articles in which local politicians discussed the grant decision-making (Gopress, 2023).

Larger IGR-Trend

The overview shows a clear trend towards the greater use of conditional grants, in accordance with Fig. 4.1, based on local governments financial reports (Belfius, 2022, 2023). Before the COVID-19 outbreak IGR between the Flemish regional government and municipalities were characterised by a trend towards more unconditional grants and, as such, towards greater local spending autonomy. As most of the financing schemes during the crisis were conditional grants, this might signal a significant reversal of the former strategy, reflecting a return to tighten and supervise local governments, but this is not the case. Quite the contrary. In 2022, the municipal financial reports show that 73% of the grant programmes are unconditionally structured, which is the highest unconditionality ratio in our dataset.

After the pandemic, the Flemish government established a parliamentary commission on decentralisation with affiliates of the Flemish ministers and members of cabinet, administration, and local governments. Its final report concluded that “during several crises the last years the local governments have proven to be ready to take more responsibility. This is why we have chosen to develop a long list of policy measures to strengthen the decentralization trend in Flanders” (Vlaamse overheid, 2022, 27). Clearly, the regional government highly rated the local governments’ operational role during the crisis. Indeed, the Flemish regional government opened new pathways for decentralisation (see the statement by the Flemish minister of interior affairs in the Flemish Parliament [Vlaams Parlement, 2022]). Consequently, we do not consider that government’s shift to more conditional grants during the pandemic was an indication or a shift towards recentralisation. The most recent municipal financial reports confirm our findings, given the high unconditionality ratio in the grants local government received in 2022.

Conclusion

The COVID-19 pandemic governance in Belgium was characterised by a true patchwork of competences, not only because it involves series of policy domains, but also because competences are scattered across different government levels. Consequently, coping with the crisis was a challenging exercise, resulting in tense IGR.

Especially in the first year of the crisis, conflicts between the federal and regional governments resulted in confusing press statements by political leaders from different government levels about the crisis measures. This situation also affected local governments, which engaged in communicating and enforcing the adopted actions. This led scholars to classify the Belgian governance of the pandemic as an example of a conflicted IGR policy process. Other scholars have taken a different view and argued that Belgium’s policy response to COVID-19 was surprisingly united for such a divided, federal country. Although IGR competencies were very fragmented, the policy response was largely uniform and national, given the strong consensus among the political elite that measures should be the same over the entire country. This leads us to conclude that IGR in the Belgian context are complex and multiple and that IGR can be perceived differently depending on the specific decisions and policy domains that are analysed. Our analysis of the financial dimension of the intergovernmental relations between the regional Flemish governments and the local governments during the COVID-19 crisis confirms this observation.

The case study of the twenty-two COVID-19 grant programmes shows that a large majority of the schemes was designed as conditional grants, the distribution of which was predominantly criteria-based. This is in contrast with the period 2014–2019, when a clear tendency to more unconditional grants was present. Yet, the ministerial decrees’ explanatory sections revealed that relying on existing conditional funding schemes and distribution criteria was a rather pragmatic option to strengthen local financial resilience in an adequate and timely manner. The adoption of more conditional grants was prompted by pragmatic crisis spending motives. It would be questionable if the regional government would have distributed more unconditional grants in a crisis setting that demanded for more financial support in elderly and family care and in the setup of vaccination centres, etc. The crisis thus temporarily encouraged conditional spending.

Though decisions on which grant schemes to install and how to distribute them were highly centralised at the regional level, no tensions were reported between the distributing and receiving authorities. Moreover, the fact that local governments responded to the crisis challenges in a highly effective way was mentioned as one of the major rationales to increase decentralisation initiatives in the years to come. Consequently, we do not consider that government’s shift to more conditional grants during the pandemic was an indication or a shift towards recentralisation. The most recent municipal financial reports confirm our findings, given the high unconditionality ratio in the grant programmes that local government received in 2022. We therefore conclude that the IGR between the Flemish regional level and the local level should be classified as an example of a centralised governance process, but not as a conflicted one.