Council of European Municipalities and Regions (CEMR)
European section of United Cities and Local Governments

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Local and regional governments as employers

Public services - 17.02.2005

State aid and public service compensation report : CEMR calls on Parliament to drop compulsory tendering, to double financial threshold and to exempt social services
The Council of European Municipalities and Regions (CEMR) urges the European Parliament to amend MEP Sophie in't Veld draft report on state aid in form of public service compensation, in order to avoid unnecessary bureaucracy.

CEMR believes that some of the EP Economic and monetary affairs (ECON) committee's proposed changes completely destroy the whole purpose of the "Monti package" (on rules governing compensation for public services obligations). The European Commission's proposal includes a range of exceptions for public bodies which do no more than compensate for the actual costs of meeting public service obligations, where there has been no tendering.
By calling for compulsory tendering to be the exclusive criterion in order to be exempt from the state aid regime, the Parliament makes the European Commission's proposal totally meaningless since this proposal only aims to cover cases where no tender has taken place!

The Council of European Municipalities and Regions also firmly believes that the proposed financial ceiling up to which compensation does not need to be notified to the European Commission, is too low (the ceiling of compensation paid by a public authority to a company delivering a clearly defined public service). It should be doubled. The European Parliament's ECON Committee has suggested that the ceiling should be Euros 50m on the turnover of the company, and Euros 15m a year in relation to the amount of aid paid by the local government to that company.

These two figures are proposed by the European Commission, and are the existing ceiling up to which financial aid can be given to small and medium size enterprises (SMEs) without any need to inform the Commission. However, ceilings that apply to aid to private companies cannot be applied to compensations paid for the provision of public service obligations. These are two totally different issues. Unless the threshold for compensation is raised to Euros 100 millions on the turnover of the beneficiary company and Euros 30 millions for the amount of compensation for clearly defined public services paid in a year to that company, thousands of towns and municipalities would be faced with the unnecessary bureaucratic burden of having to inform the Commission of the payment of compensation. We believe that this would serve absolutely no public interest.

CEMR finally calls for social public services at local level to be exempted from the scope of the draft Decision, since they have no effect on the internal market. Under the present law, it is far from clear whether they are or not services of general economic interest (SGEIs); if yes, state aid rules should apply to them. To avoid thousands of purely social services delivered by local governments inappropriately falling in the category of services of general economic interest category, it is necessary to explicitly exclude them from the scope of the European Commission's draft Decision.
The Parliament's vote on the report is due to take place on Monday 21 February 2005.
Background information
  • The Commission proposes a Decision and a Community Framework:
    The Decision says that public governments are not required to report state aids under a defined financial ceiling - provided these aids do no more than compensate providers of services of general economic interest (SGEIs) for the costs of delivering public service obligations imposed on them by the local government or other public authorities.
  • The Community Framework states that there is a duty to report state aid provided above this financial ceiling; this aid is deemed compatible with the Internal market, provided again that it does no more than compensate for the cost of delivering the public service obligations.
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