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Municipal Decentralization in Buenos Aires:

Creating the Municipality of Hurlingham

In June of 1995, Juan Jose Alvarez, a newly-elected mayor in suburban Buenos Aires, called together a team of experienced public officials to ask that they undertake a task with which none had had any experience: starting up a new municipal government. The municipality of Hurlingham-whose name reflected the cultural influence of British railway interests which had helped build the area more than a century before- had only been voted into existence by the legislature of the province of Buenos Aires in 1994. Alvarez had been elected its first mayor, or "intendente," only one month before, in May 1995. As difficult as it might be to start a new government from scratch for a municipality of 187,000 people, the team brought in by Alvarez was actually being asked to do something they believed was even harder. They would have to build the new government of Hurlingham largely by using employees and facilities they were inheriting from what had been a much larger municipality of which Hurlingham had previously been part. Hurlingham, and two other towns- Ituzaingo and "new" Moron-were being created from what had been a much larger town of "old" Moron, population 680,000. It was the job of Hurlingham team, in other words, to pick up the pieces left by the break-up and decentralization of the former municipality of Moron, and to use some of those pieces, and whatever approaches they could devise, to get the new municipality of Hurlingham up and running. They would have five months to establish their municipal structure, develop a budget and open for business.

It would be no easy task. Within the first month, the team of officials-an elite group borrowed from the Argentine federal govemment- would face, among other things, demands that it hire more than twice as many municipal employees as it believed Hurlingham could afford. Moreover, the team would have to devise a budget with no certainty as to how much revenue

This case was written by Howard HU50ck, Director, Case Program, Kennedy School of Government for proti:ssors John Donahue, Merilee Grindle, John Thomll5 Ilnd J(lY Walder. Special thanks 10 Dr. Jorge GOSIS. Governmental Administrators Office, Public Function Secretary, Republic of Argentina. Partial support provided bv the Municipality of Hurlingham. (0299)

Copyright © 1999 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 617-495-9523, fax 617-495-8878, email cp_sales@harvard.cdu, or write the Case Program Sales Office, John F. Kennedy School of Government, 79 John F. Kennedy Street, Cambridge, Mass. 02138. No part of this publication may be reproduced, revised, translated, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means-electronic, mechanical, photocopying, recording, or otherwise-without the written permission of the Case Program Sales Office at the John F. Kennedy School of Government

Municipal Decentralization in Buenos Aires C14-99-1493.0

could be expected. In a new town with multiple problems, it would, working with Intendente Alvarez, have to decide where to focus municipal spending. And municipal services would, apparently, have to be delivered by former employees of the old municipality of Moron, but without any certainty as to who those employees would be, whether they were good at their jobs or whether they even had the skills to do the jobs which needed to be done in Hurlingham.

"We knew almost nothing," recalls Luis Vasquez, a sociologist-turned-public official, the member of the Hurlingham team charged with responsibility for finance planning. "But there was so much to do."

The Origins of Buenos Aires Municipal Decentralization

That Hurlingham had come into existence at all was owed to a long series of events and fiscal pressures in the Argentine government.

Most broadly, these involved in the efforts of the administration of Argentine President Carlos Menern, elected in 1989, to reduce both the size of the country's public sector and its notoriously high inflation rate- which, at times in the late 1980s, had reached 30 percent per month. Both inflation and excessive public employment levels were attacked, successfully, at the federal level. The" dollarization" of the Argentine currency - through which the Argentine peso was pegged permanently to the value of one US dollar- broke Argentina's cycle of inflation by limiting the money supply; the downsizing of federal and provincial government agencies led to an historic downsizing of Argentine federal employment. Between 1989 and 1994, 45 federal administrative units were eliminated and 580,000 federal jobs cut (although, some were transferred to the state or local level). Major savings were realized through the privatization of public enterprises, whose employment declined from 347,000 to 67,000. At the same time, however, public employment at the municipal level continued at historically high levels- well beyond the financial resources of municipalities to support. The cause of such high municipal employment levels was generally viewed as political. Local election campaigns were often run by neighborhood units of national political parties, led by local ward bosses known as "punteros," each of whom expected some of his followers to be rewarded with jobs. Often there was little expectation that employees wuuld really do much work. This" populismo" (populism) led to deficit, the extent of which was not generally known until after they had been incurred. This, in turn, forced provincial governments to provide aid to municipalities to sustain the high levels of employment. Historically, the provinces had, in effect, relied on the dynamics of inflation to help pay the cost of employment, at least on paper, by borrowing on liberal terms from the federal government which, in effect relied un a central bank which "printed money" to cover the cost of public deficits.

The Menem government, through its strict anti-inflationary limit on the money supply, was famous for proclaiming that "the fiesta (party) is over." But, as one member of the Hurlingham team would later put it, at the municipal level, "the fiesta continued." As a result, provincial

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governments-such as that of the nation's most populous province, that of Buenos Aires - knowing they could no longer afford to pay municipal debts with hard currency, nor borrow from the federal government and risk setting off a new round of inflation-faced a new challenge: how to balance local costs and revenues.

It was 1992, when the team of_Luis Vasquez (finance) Liliana Banti (legal) and Jorge Gosis (public health and social services) -who would, in time, become the architects of the new municipal government of Hurlingham-first confronted this question, at the request of the viceGovernor of the province of Buenos Aires. As employees in the Government Administrators branch of the Secretary of Public Functions, the trio could be assigned - on loan, in effect- to provide technical assistance to various branches and various levels of Argentine government. It was at the request of Argentine Vice-President Eduardo Duahlde that the three set out to answer the question: how many employees per resident should an Argentine municipality ideally have? The results were indeterminate-especially because the types of services offered by Argentine municipalities varied greatly. But the experience with municipal budgets would, in time, serve the three analysts well, when they would be asked by Intendente Alvarez-for whom they'd previously worked, when he held other public positions- to develop the budget for the new municipality of Hurlingham, one of eight new municipalities carved, by special act of the Senate of the Province of Buenos Aires, from what had been three larger municipalities. Hurlingham was one of three municipalities created in what had been the municipality of Moron.

Behind this experiment in decentralization lay a variety of motives. Some were thought to be political. There were those who believed that the Buenos Aires provincial administration thought it could reduce the power of legislative political opponents in the provincial Senate if the size of those opponents' own home municipalities were reduced - even if the overall size of their districts remained the same. There was also speculation that some high-ranking provincial officials believed, perhaps cynically, that it was likely that a greater number of municipalities would mean a great number of public employees - and that high public employment levels, desirable for political reasons, could thereby be justified and sustained. Officially, however, municipal decentralization was justified as a means toward greater citizen involvement and oversight in local government. "Mas chico es mas control," it was said: smaUer means more control.

Related Reforms

The provincial government's decision, voted in December 1994, to increase the number of municipal governments in the "conurbano" (non-core Buenos Aires) was not a policy initiated in a vacuum, During 1994 and 1995, a series of related reforms was passed by the Senate and Chamber of Deputies of the province of Buenos Aires. Taken together, they appeared to be designed to limit the size of municipal budgets and to increase both the power and accountability of local authorities.

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First, new amendments to the basic, so-called "organic law" limited the spending of local legislatures-known as Deliberative Councils-to no more than three percent of a municipality's total spending. (It had not been unusual for the spending on the Council and staff alone in a municipality to top 10 percent of the local budget.)

Second, local deficits were prohibited, a prohibition linked to a strong sanction: the local mayor and finance secretary would be held personally liable for any deficit that was incurred -and would have to reimburse the public from their own pockets. The law gave prosecutors the right to take such cases to the Tribunal de Cuentas,_an auditing agency which could then make referrals to prosecutors.

Third, the provincial legislature passed what could be termed emergency management rights legisJation- based in a declaration of the "interest of the provincial government in reorganization of the administrative structures of municipalities and their decentralized entities. Law 11, 685, which set out the goal of "efficient use of human resources," gave municipal managers the right to layoff employees if their number exceeded what officials deemed to be that necessary for iI effective administrative function." This right to layoff workers -coupled, by law, with full payment of salary of one's month's severance pay for each year worked-contrasted sharply with tradition in the highly-unionized Argentine environment, where layoffs had been Virtually unknown and employees had powerful political patrons, themselves often holding high-ranking positions as departmental secretaries (directors) in municipal government. The layoff legislation was to stay in force for only one year, however. (Layoffs are not uncommon in the Argentine private sector, however.)

Finally, the very law creating the new municipalities of Hurlingham, Moron, and ltuzaingc, set out a number of goals for the new municipal governments. These included mandates for the" modernization of administrative technology," "de-bureaucratization," "functional and administrative decentralization," and the provision of "high quality neighborhood-based services."

Hurlingham and "Juanjo"

The town of Hurlingham, for which_the team of Vasquez, Banti and Gosis would have to design a government and prepare a budget, comprised three large neighborhoods. The largest, known as William Morris, was poor; its 12,800 real estate parcels for the most part included homes which housed a single-family unit but were sometimes informal- built by residents using available scrap materials. (Even these, however, were a step up from the urban and rural shantytowns of Buenos Aires, known as "villas miscrias," or towns of misery.) The second-largest neighborhood, Villa Tesei, was more middle-class and had 16,600 real estate parcels; a third - the core of Ilurlingham- was a wealthy enclave ofl 6,000, including some British-style homes with striking, formal landscaping. Some residents were members of the exclusive Hurlingham Club, a nationally famous tennis and polo club, where English spoken in British accents could still be heard and

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newspapers from London could be found. The town also had several major industrial employers, as well, including a plant owned by the US rubber products firm, Goodyear.

The advent of Hurlingham had provided a vehicle for a 42-year-old attorney named Juan Jose Alvarez to pursue a career in elected office. Alvarez, widely known as Juanjo by his political allies, had had a career as a successful corporate lawyer. During the early days of the administration of President Menem, Alvarez was named as National Border Superintendent, from which post he coordinated the activities of government agencies in charge of immigration law enforcement and border control - a position in which he first received assistance from the same team of "tecnicos" (technically-proficient career public officials) from the Secretariat of Public Functions who would later join him in Hurlingham.

Despite other important appointed positions - including a position on the board of directors of the state-controlled Provincial Bank of Buenos Aires, Alvarez was well aware that, despite his success in his appointed positions and in private life, that his future political ambitions rested on his ability to gain elected, not just appointed, office. To do so in his home town of Hurlingham, he would have to win two elections-the first a primary or so-called internal election within the Justice (justicialismo) party, generally referred to as Peronist because of its antecedents in the populist, left-wing government of its founder, former Argentine president Juan Peron; and a general election, in which the Justice party candidate would be opposed by candidates of three rival parties, whose strength was generally in more middle-class and affluent districts.

In the spring of 1995, he was able to win both elections, notwithstanding the fact that he was not the first choice of many traditional Peronists and local "punteros." The primary election was particularly close, with Alvarez defeating his closest rival by only six percent of the vote, 49 percent to 41 percent, compared to his closest rival. (Other candidates drew a combined 10 percent.) The man who would bring in Vasquez, Banti, and Gosis to Hurlingham believes he triumphed because of his willingness to meet voters personally, to use his personal funds to support campaign expenses, and, at least in part, to the fact that his step-grandfather had been a well-known star of tango movies (including one of the most famous ever made, "Mi Buenos Aires Querido," or "My Beloved Buenos Aires"). Although he lived in Hurlingham, Alvarez, as a Peronist, received his strongest support in the poorest parts of the municipality; he won 60 percent of the vote in William Morris, 50 percent of the vote in Villa Tesei, and just 36 percent of the vote in central Hurlingham. The latter vote was an improvement, however, for the Justice Party, which historically had garnered only 25 percent of the vote in affluent Hurlingham.

This first Hurlingham election turned mainly on personal followings and organization. But to the extent that there was a prominent campaign issue it was that of garbage collection. Voters, particularly in the wealthier parts of the municipality, complained about infrequent garbage collection (sometimes but once a month) and about heavily-littered streets. The issue was

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prominent in all three local newspapers, which circulated in Hurlingham. Alvarez had promised service improvement.

Taking Stock

Making good on the promise to improve trash collection - or any other service in I{urlingham-was, however, far-very far-from a simple matter. Although Hurlingham had elected its first intendente, legally, it did not yet exist. The legislation creating the new municipality specified that it could not take legal form-including the hiring of employees and any contracting for services-until December 11, 1995. Legislation that would have provided for a six-month lead time-that is, incorporating the new municipalities six months before they had to open for business-had been discussed but never was formally proposed. Hurlingham, therefore, was in a state of limbo. Its voters, for instance, might have worried about their trash but the only garbage collection being done within the borders of the municipality-to-be was being carried out by a private firm which held a contract with the municipality of Moron- to provide garbage trucks which were manned by Moron public employees.

For their part, in June of 1995, the team, which Alvarez asked for help- Vasquez, Banti and Cosis-set up shop in the municipal offices in the center of Moron. Although there was a small Hurlingham municipal building in which some Moron officials with duties related to Hurlingham were housed (these employees mainly coordinating public works functions, such as road paving), key financial and employee records were only available in Moron. The Hurlingham team began to develop a profile of the situation they faced.

Municipal Services

The services which Argentine municipalities were absolutely required to provide were relatively limited in scope. The major municipal services were informally referred to as the three "b's." basura (trash collection); bombitas (street lighting), and bacheo (street paving and repairs). These were the core, inviolate local responsibilities. Law enforcement was a provincial responsibility, though municipalities could pay for additional police equipment and for police overtime. In addition, many municipalities - including, prospectively, Hurlingham - provided publicly paid physicians to staff public health clinics operated by non-profit groups. Municipalities also provided sports and recreation programs. Schooling was, like law enforcement, a provincial responsibility, with some exceptions (pre-primary education was, if offered, a municipal function; municipalities could offer some services to schools, such as water tank cleaning). In addition, every municipality had to support its own central infrastructure: a City Council, purchasing, accounting and treasury departments, an archive of local records, as well as a range of top officials, including a financial secretary, and, at the discretion of each municipality, a range of other secretaries (department heads) for other services. Municipalities were not limited by law in their ability to

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contract with private vendors to provide services, although in the cases of established municipalities this could be difficult because of large existing staffs in areas such as public works and trash collection. Major capital projects were not generally financed through municipal bond offerings but, rather, through bank loan financed through the publicly-owned Bank of the Province of Buenos Aires.

Hurlingham arguably stood to inherit some elements of the Moron service structure, especially that of trash collection. Moron held a long-term contract with the private firm, which supplied trucks for household and commercial trash pickup. It was unclear whether that contract could be interpreted as remaining in force in the new municipalities created by the division of "old" Moron.

Revenue. Argentine municipalities did not assess a tax on property. They did, however, levy what they termed "fees" for a variety of local services, among them, street cleaning and lighting; garbage pick-up; commercial and industrial inspections, health inspections, documents processing, and cemetery plots. Property owners generally a General Services "fee" for street lighting, street cleaning and garbage-pick-up, and additional individual bills for other services. The General Services fee was not calculated on actual use but did, however, vary depending on the location of a property. Hurlingham had three property zones, ranging from low to high value; those with more highly-valued properties (in Zone 1), paid higher fees- at least in theory. Vasquez and his colleagues quickly learned, however, that the majority of fees were not being collected at all. Figures from Mor6n showed that no more than 40 percent of all fees owed to it by Hurlingham residents were actually being paid. The rate was no higher in wealthy neighborhoods than in poor ones. That meant that Hurlingham could - even if the collection rate were to rise as high as 50 percent- expect no more than $P19 million a year in fee revenue. The low collection rate was thought, in part, to be the result of Hurlingham's resentment toward what was viewed as an inefficient and distant administration in Moron. It was also difficult to make payment~; mad-in payment was virtually ruled out because, in Argentina, a cancelled check was not taken as proof of payment. Thus payments had to be made in person. Moron had a private vendor (Western Union) which handled its collection, and one make payment to a cashier at the Moron municipal or at several of "Easy Pay" sites, operated by Western Union. Several were already located within the boundaries of the municipality-to-be of Hurlingharn, although their only contract for service was with the municipality of Mor6n.

The fees Hurlingham collected would be supplemented by SP6 million in assistance it could expect from the provincial government. But that would still give it far less revenue than its potential costs. The overall budget of Moron, with its half-million residents, had been 112 million pesos. Hurlingham's costs - if the same operating assumptions were to prevail- would be $P29 million, far more than they could expect in revenue from all sources.

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\Vhat's more, lntendente Alvarez, in his campaign, had pledged neither to raise existing fees nor to propose that the City Council approve any new fees.

Existing Municipal Facilities

In surveying the Hurlingham landscape, the Hurlingham team learned that there were a number of Moron municipal facilities that would, in effect, be bequeathed to Hurlingham when it became independent. These included a municipal cemetery, a nursery, a sports and recreation facility, a day care center for children under five, and an after-school program for children aged six to 13. There was no sure way to know, however, how many people were actually working at these sites nor what jobs they were doing. Liliana Banti, member of the Hurlingham team and trained as a lawyer, had learned through a well-placed informant at the Moron municipal building that many job titles Significantly overstated the actual duties of employees (a chauffeur might be listed as an assistant manager, for instance), and that many employees were less than competent. (The informant was, in fact, in a position to know which employees were good at their jobs and were hard workers.)

The most extensive network of existing Hurlingham-based public facilities, however, was that of public health facilities. One hospital and 12 clinics offered preventive and primary care to poor residents of neighborhoods such as William Morris. These facilities -like the public day care center- were regarded as significantly inadequate, using outdated equipment and failing to meet standards of cleanliness. They represented an unusual marriage of the nonprofit and public sectors. Individual clinics were owned and operated by separate charitable groups, which were responsible for their day-to-day management and for their financial systems. Although intended to be a free service, a so-called "bono" (bonus) was often asked (some said coerced) of citizens requesting medical services; the fee helped support the operation of the health centers and to pay the salaries of some staff members, although the non-profit-organizations managers were volunteers. But the medical staff itself was comprised of municipal employees. Again, as with the other existing municipal facilities, there was no way to know from existing records exactly how many municipal employees worked at the clinics nor what work they did, This was true, as well, for another municipal social service organization, the Children's House (Casa del Nino), the after-school program children from troubled families.

Salary information for individual municipal employees was, however, available, as was an average salary figure for Mor6n municipal employees: 1,200 pesos per month. In order to control expenses in t he long run, those planning the new Hurlingham budget hoped to limit total municipal employment such that labor costs would not exceed 40 percent of the full budget.

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Municipal Structure

It was typical for Argentine municipalities-including Moron, from which Hurlingham would be carved - to have several layers of administration. Each aspect of local service and administration - such as recreation, health, public works, and finance - wou ld have its own secretary, typically a political appointee from the same party as the mayor. In Moron, there had been 10 such secretaries. Each municipal department, then, had its own secretary, sub-secretary, director-general and deputy director. Generally, it was the director who was most familiar with the day-to-day operation of the individual departments. It was widely expected that politically aligned secretaries, rather than career public officials, would be appointed in the new municipal governments, as well. In fact, Luis Vasquez, as head of the Hurlingham transition team's financial area, was already receiving proposals that he viewed as thinly veiled job requests. Among them was a letter from the head of EI Fortin, a local Justice Party political club, which proposed that Hurlingham create what amounted to its own fee collection department- with the implication that the letter-writer, an attorney, could head the new agency. Such pressures were common. Although the newly elected Intendente Alvarez had historically shown faith in "tecnicos" (technicallyproficient career officials) rather than "politicos" (politicians), he had not made publicly clear, as of June 1995, what his hiring policy would be. Hiring non-politicians or reducing the number of secretaries clearly could have potentially alienated Justice Party supporters who had expected some role in the new government.

Fiscal Background and Hiring Expectations

The municipality of Moron, Vasquez and his team knew, was both debt and deficit-ridden.

Its annual budget, as of 1995, was thought to be 112.6 million pesos- including an operating deficit of some 20 million. It employed at least 6,000 employees. Informally, the newly-elected mayor was being told by members of his party in the provincial government that he should be prepared to employ at least 1,300 former Moron workers-roughly in keeping with Hurlingham's population as a proportion of the old Moron: 25.4 percent. There was, however, no system established for how those employees would be assigned. It was generally expected that those who were working in facilities located in Moron would likely continue to work at these facilities. The provincial government had, in addition, retained a human resources specialist from a local university to assess the skills of individual employees and, potentially, match them to open positions. However, there was no guarantee that workers might not simply be assigned on the basis of residence- if they lived in Hurlingham they might be assigned to report for work in Hurlingham or assigned in a way influenced by recommendations of political patrons.

Observes Liliana Banti of the Hurlingham team: "We had no way of knowing who was going to be working for us." They were not sure how many employees they would require in the

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new municipality, but they were certain that 1,300 was more than Hurlingham would be able to afford.

Amidst this uncertainty, there was one certainty: Hurlingham was expected to be open for business on December 11, 1995-justsix months away.

Preparing for Business

In order to develop the first budget for the new municipality of Hurlingham, Vasquez, Santi and Gosis decided that they would need far more information, and far more accurate information, than was available from public records.

In order to find out exactly how many people were working at municipal facilities in Burlingham, they decided that they would, as a team, have to visit each facility-the nursery, the cemetery, all the health clinics. There, they counted the number of employees and recorded a description of each one's duties. They assessed the municipal services by physically visiting sites, counting workers and requesting job descriptions. Many times they found that employees with high-level positions and salaries were, in reality, serving as drivers or other types of aides for administrators. By this process, they developed a list of employees whom they would inherit:

Clinics: 127

School (municipally-paid aides): 40 Day Care Center: 32

Sports and Recreation: 16

Nursery: 20

Cemetery: 18

Next, the Alvarez team estimated how many employees would be needed to staff the core administrative services for the municipality-the finance department, purchasing, general health inspection, archives, information technology, planning- as well as the public works functions. They estimated costs of street-cleaning and street-lighting. Implicit in these estimates was the determination that there be far fewer high-level administrators than had traditionally been the case in Argentine local government. Rather than each functional department (e.g., planning, culture) having its own politically-appointed secretary, what had been ten departments, each with their own secretary, in Moron, were subsumed, in the new Hurlingham, into only three secretariats (finance, health and public works), with departments instead run by experienced directors only one management level removed from the Intendente (Mayor).

The budget estimates rested on two key assumptions: first, that the new municipality would be able to collect somewhat more-50 percent- of the fees owed by residents than had been the case (40 percent), and that no more than 40 percent of all of Hurlingham's expenditures would

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go to pay municipal employees-far less than the 80 percent which was believed to be the norm in Argentine municipal government. The revenue collection figure was based on the belief that improvement in local services would lead to residents being more willing to make payments. The decision to limit hiring was predicated on the willingness of Mayor Alvarez to resist pressure to hire a greater number-a decision he believed was both fiscally prudent and, ultimately, in his political interest. The remainder of the revenue would be spent to procure services from the private sector- a key example being trash collection. The budget planning team was determined to improve trash collection and believed it was their top priority-even higher than improving the deplorable conditions in Hurlingham's health clinics. Improving trash collection, they believed, would help increase the collection of fees from wealthier areas of the municipality - revenue tha t could, in turn, be used to improve services, such as public health, in poorer neighborhoods. This would require renouncing the politically-connected trash removal firm which had been collecting in Hurlingham-when it was part of Mor6n-and firing 40 trash collectors, under terms of the emergency management legislation. Ensuring that trash would continue to be collected, however, meant convincing a private firm to be prepared to serve Hurlingham beginning December l I. 1995-even though Hurlingham did not legally exist before than date and could not enter into contractual agreements. Similarly, the Alvarez team had to convince a core staff of 30 to come to work beginning that September-even though they would not be paid until more than two months later. In fact, in order to comply with an Argentine law requiring the payment of a Christmas bonus to all public employees, Luis Vasquez, through personal family connections, had to convince Western Union to be prepared to collect Hurlingham fees at the cashier locations throughout the municipality beginning December 11-so that the municipality would have revenue to meet obligations almost immediately.

During the period July through November, Liliana Banti had worked closely with her source in Moron municipal government to learn who the best employees were- and to request that these be assigned to Hurlingham. The Alvarez team was well aware, however, that it was likely that more former Moron employees would be told to report to work in Hurlingham than there were positions available. Indeed, by late November, it became clear than anyone whose residence was in Hurlingham would be told to report to work in Hurlingham. When the new rmmiri pa litv opened its doors, the Alvarez team, would have to deal with whomever showed up for work.

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