Smart Functional Area financing – Oradea Metropolitan Area

FINANCIAL SUSTAINABILITY | METROPOLITAN FUND

Challenge

The main challenge is the limited financial capacity of the 11 communes in the Oradea Metropolitan Area for implementing projects. As with many rural settlements, many of these communes do not have the necessary cash-flow to cover feasibility studies, technical projects or the co-financing for EU projects, thus limiting local and metropolitan development. 

 

Solution

Financial sustainability of the IDA

The budget of the IDA is composed of contributions paid on a yearly basis by each associated local administrative unit. The municipality of Oradea, as the core city, has assumed its role to support metropolitan development and to reduce the discrepancies between the municipality and its neighboring localities. The largest financial contribution within the IDA is the Oradea Metropolitan Area, however there is an agreed approach to redirecting these funds towards the other member localities in the rural area. The annual contribution is of 1.5 euro / resident, a relatively high amount, compared to other metropolitan associations in Romania (often 1 RON / resident).

After establishing investment objectives within the General Assembly of the Metropolitan Association, the municipality of Oradea can decide to pay a suplimentary contribution to cover the costs of feasbility studies, exceeding the budget of the IDA.

Establishing a Metropolitan Fund

A metropolitan revolving fund has been established in 2015, initially offering a grant (non-reimbursable financial support) for member localities to finance various investments. Due to the high needs of the communities, the fund was turned into a revolving one, offering loans instead of grants.

The metropolitan fund was established through a partnership agreement, aimed at stimulating the socio-economic development of the Oradea Metropolitan Area by supporting investments that contribute to the improvement of the quality of basic public infrastructure and services.

The revolving fund allowed for reimbursable financial support of up to 100,000 euros in the form of an interest-free loan for a maximum of four months, offered to the localities following the vote of the council of directors of the MA association. Since 2020, the fund’s total value has been doubled to 200,000 euros, with two revolving funds managed by the IDA.

The funds can be used to cover expenses for feasibility studies/technical projects, project co-financing, cash flow for reimbursements, purchase of goods/equipment, etc). While the sums are not very large, the process of accessing the loan is a lot quicker than through a private bank loan. The Metropolitan Fund also allows a form of financial support for stringent needs of the localities, financed from the members’ contributions reserves following the council of directors’ vote.

Loans are accessed based on individual partnership agreements and the amounts may only be used for the purpose set out in the application. In order to benefit from this loan, the localities must submit an application for the investment for which they wish to obtain the co-financing / financial support and to express their firm commitment to complete investments already in progress. The financial support is granted to members under the following conditions:

  • For a period of four months and only once a year for each member
  • Within the limit of the Fund allocated by the counsel of directors;
  • In the order of the requests submitted and based on the vote of the council of directors;
  • Only to members who have paid their contribution up to date (at the time of filing the application for financial support);
  • The amount is returned in RON, by transfer, before the due date.

There was also a share of flexibility in terms of the timetable for reimbursements, which was also necessary during the pandemic context. Another success factor lies in debt optimization: in order to ensure efficient distribution of the financial burden for member localities, non-reimbursable EU projects are planned to overlap with the repayment period of the loan accessed through the Metropolitan Fund, reducing the pressure on the local budget.

Examples of projects financed though the metropolitan fund include the Oradea-Santandrei road, as well as a training center in the Paleu commune, currently in implementation, through the “Joint Development of Human Resources in Cross-Border Area”. The applicant was the commune of Paleu (situated at arund 10 km from Oradea), in partnership with the Oradea Metropolitan Area IDA, Derecske town in Hungary and the “Pro-career” Association in Oradea. The center will host the organization of counseling and training programmes to increase employability of participating target-groups.

Other best practices

  • Brno Metropolitan Area

  • West Athens

  • Brno Metropolitan Area