Explanatory Memorandum to COM(2009)384 - Amendment of Regulation (EC) No 1083/2006 concerning general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund as regards simplification of certain requirements and as regards certain provisions relating to financial management - Main contents
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| dossier | COM(2009)384 - Amendment of Regulation (EC) No 1083/2006 concerning general provisions on the European Regional Development Fund, the ... |
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| source | COM(2009)384  |
| date | 22-07-2009 |
· Reasons and objectives for the proposal
The current financial and economic crisis has created major challenges for the European Union. Therefore the Council of the European Union of 11 and 12 December 2008 agreed on a European Economic Recovery Plan (EERP), which envisages the initiation of priority action to enable European economies to adjust more rapidly to current challenges.
Whereas a number of important measures to counterbalance the negative effects of the crisis have already been taken both at the Community and national level, including amendments of the Community legislative framework governing Cohesion policy, the actual impact of the financial crisis on the real economy and on the labour market starts only now to make itself widely felt. On 3 June the Commission presented the Communication on A Shared Commitment for Employment in which additional measures were proposed in order to boost job creation and counter the effects of the crisis on jobs.
The pressure on national financial resources increases and necessitates taking further steps to alleviate this pressure through a better use of Community funding, and mobilisation and acceleration of all available Funds to tackle the crisis, in particular using the ESF for rapid recovery packages as outlined in the above-mentioned Communication.
In the context of the current crisis, ensuring a smooth implementation of Cohesion programmes is of particular relevance as they represent the most powerful and relevant lever for assisting the real economy. With total financial resources of 347 billion € for the 2007-2013 period, Cohesion policy provides a powerful support for both budgetary stability and public investment in the Member States and the regions of the European Union.
Experience shows that more effort is needed to facilitate the management of the Community funding in order to speed up the flow of the funding to the beneficiaries that are most affected by the economic downturn. The December European Council supported proposals for simplification of procedures and faster implementation of programmes financed by the Cohesion Fund, Structural Funds. The current proposal therefore includes further elements of simplification, with the overall objective to accelerate co-financed investments in Member States and regions and to increase the impact of the funding on the economy as a whole.
· General context
The current crisis is substantially affecting the real economy due to the difficulties encountered by the banks and due to the tightening of credit policy which could reduce household consumption as well as business investment, support to innovation, technological and industrial development with negative effects on GDP and employment.
The crisis is also having a negative impact on the budgets of Member States and the increase in unemployment outlined below is a significant factor in this. On the one hand, an increase in the number of persons entitled to receive benefits can automatically lead to a strain on budgetary resources. At the same time the need to implement active labour market measures in order to maintain people in employment or to get them back to work becomes more acute. Given the general budgetary constraints, severe cash-flow difficulties can arise for the sources of public finance in Member States for the implementation of active labour market measures. As a consequence, such measures may be delayed at a time when they are increasingly necessary, to the detriment of the citizens.
The Commission's most recent economic forecasts predict a marked reduction of growth in the European Union - which would fall to 1,4 % in 2008 (half of that achieved in 2007), 0,2 % in 2009 and 1,1 % in 2010. These poor economic prospects will probably weigh heavily on public finances. Assuming unchanged policies, budget deficits could increase from 1 % of GDP in 2007 to 2,6 % in 2010. Reliable forecasting on public finances - and particularly in the area of debt - is difficult, however, on account of the uncertainty surrounding the budgetary impacts of emergency measures already taken by governments.
It is in this context that the Commission has endeavoured to contribute to the debate currently taking place within the Union and with its international partners on how best to react to the current financial crisis and to its socio-economic consequences. In particular in the framework of its recovery package, the Commission proposed in December 2008 a number of regulatory changes to simplify the implementation rules for Cohesion Policy and to increase the pre-financing (advance payments) to ERDF and ESF programmes. The additional advance payments have provided an immediate cash injection of EUR 6.25 billion in 2009 to pre-finance investment, within the financial envelope agreed for each Member State for the 2007-2013 period. This amendment brings the total of advance payments in 2009 to EUR 11.25 billion. The Commission proposal was adopted by the Council in May 2009 and all advance payments now have been paid to Member States. The Commission has repeatedly encouraged Member States to transfer the additional advance payments to the bodies involved in project management to frontload expenditure to Cohesion Policy Projects.
· Provisions in force in the policy sphere of the proposal
The current serious economic repercussions in the European economy lead to the reduction of growth perspectives over the medium term and the marked slow-down in real growth in 2009 and 2010. According to the latest available forecasts, several national economies are in recession. These poor economic prospects have considerable negative impacts on the public finances of the Member States. Moreover the basic conditions for implementing cohesion policy – which requires public match-funding in order to mobilise Structural Funds – risk being seriously disrupted.
In addition, the latest data covering the first months of 2009 show that EU labour markets are now reacting even more strongly than expected to the current economic downturn, with companies announcing substantial job reductions in several sectors and business and consumer confidence continuing to drop. More than 20 million Europeans are unemployed, which is 4 million more than one year ago, and the trend is still upwards.
In order to further accelerate programmes implementation and provide help to overcome the difficulties mentioned earlier, an additional measure is proposed to alleviate the current pressures and allow the highest possible use of Community funding targeting particularly the actions necessary to fight the crisis where the added value for the citizens, especially the unemployed or those at risk to become unemployed, will be highest. This measure will require amendment of Council Regulation n° 1083/2006 on general provisions governing Cohesion policy, including, as proposed in the Communication A Shared Commitment for Employment a temporary change to the ways in which interim payments to programmes co-financed by the European Social Fund are calculated. This involves introducing a temporary option for Member States, where severe cash-flow difficulties exist for the financing of labour market measures necessary to combat the crisis, and which are eligible under the ESF, to request reimbursements made by the Commission at 100% during 2009 and 2010, thus obviating the need to provide national co-financing during this period. The aim is to increase the effectiveness of the important role assigned to the ESF in the above-mentioned communication in implementing active labour market measures, such as training in the context of short-time working arrangements, the anticipation and managing of restructuring, the upgrading of skills as well as the providing of high-quality apprenticeships for the young by the end of 2010. This proposal is presented together with a number of simplification measures that also imply amendments to the Council Regulation.
·
Not applicable.
· Consultation of interested parties
The proposed measures, in particular those linked to the simplification, derive from the discussions in the framework of a specific working group involving stakeholders from the Member States launched in 2008. Furthermore, the European Parliament and the European Court of Auditors have repeatedly expressed their wish to simplify the regulations governing the Funds.
· Procurement and use of expertise
Use of external expertise has not been necessary.
· Impact analysis
The present proposal completes a series of regulatory and non-regulatory adjustments which all seek to stimulate the implementation of cohesion programmes on the ground.
The proposal to provide Member States in the case of operational programmes co-financed by the ESF an option to reimburse interim payment claims at 100% for a limited period (up to the end of 2010), instead of applying the reimbursement rates established in the Operational Programmes will ensure that all certified expenditure of 2009 and 2010 can be paid back without creating a gap in national budgets, but in full respect of national co-funding obligations over the full lifetime of the programmes. Indeed, the 100% reimbursement will be based on the real implementation on the ground in 2009 and 2010. The temporary increase of the reimbursement will not alter the financial framework negotiated at the Council in December 2005.
Further simplification and clarification of rules governing cohesion policy will undeniably have a positive impact on the pace of programme implementation, particularly by providing national, regional and local authorities clearer and less bureaucratic rules that will allow more flexibility to adapt the programmes to the new challenges.
Contents
· Summary of the proposed measures
The proposed modifications can be divided into two groups:
Modification linked to the financial management rules with a view to further accelerate the implementation of ESF co-financed programmes on the ground. It concerns the following:
· The proposed modification of Article 77 concerning the calculation of interim payments for Operational Programmes co-financed by ESF seeks to facilitate and accelerate the implementation of anti crisis measures on the ground and to speed up the support towards the citizens, especially those who need it most, the unemployed or those at risk to become unemployed. It entails that up to the end of 2010, that is, in the period where because of the downturn national resources could be particularly scarce, interim payment claims be reimbursed at 100% of the public contribution to a priority axis, if a Member State expresses the wish to apply this option. The additional amount thus paid out to each programme will be taken into account in the calculation of the 95% threshold and at closure of the programme. In this way, the derogation does not alter the national co-funding obligations which apply to operational programmes over the programming period as a whole, nor does it change the financial framework for the funding period. Given the necessity to find a balance between the Community budgetary constrains and the importance to channel the Funds towards the citizens most affected by the crisis, it is proposed that this provision applies only to operational programmes co-financed by the ESF especially those including measures to fight the crisis. In fact the ESF is the main European tool for investing in citizens and for fighting the effects of the crisis on employment: approximately 9 million people benefit directly from ESF support every year. This support is nearly entirely devoted to the implementation of the Lisbon strategy and the European Employment strategy
Modifications linked to programme implementation with a view to facilitate, simplify and clarify the rules governing Cohesion policy. They concern the following provisions:
· The proposed modifications to Articles 39-41 are twofold. Because of the Fund-specific regulations, the ERDF and CF and, within the ERDF, the Convergence and Regional Competitiveness and Employment objectives include different definitions of what constitute 'environmental' and 'other' projects i. By consequence, the double threshold of Article 39 leads to arbitrariness: depending on the Fund and the objective the same project is subject to different thresholds. Therefore it is proposed to include in Article 39 a uniform threshold of 50 million € applicable to all major projects. Nevertheless, given the Community importance of the investments in environment as such, the Commission will ask Member States 1) to ensure an appropriate monitoring of all the investments, including those below the threshold provided in the Regulation and 2) to inform the Commission about the implementation progress in the annual reports on operational programmes.
· The second modification, in Article 39, 40 and Article 41 i and i, consists of creating the possibility that a single major project is co-financed by more than one programme. This is of particular relevance for projects of nation-wide scope or Community importance, which straddle several regions, and which in the absence of this possibility would have to be artificially separated in multiple projects.
· The proposed modification of Article 44 reflects the emphasis of the European Economic Recovery Plan on stimulating spending on energy efficiency and the use of renewable energy in the European Union. It creates the possibility to set-up dedicated financial engineering instruments in support of such actions, in addition to the already existing financial engineering instruments for other domains.
· The proposed amendment to Article 48 clarifies what type of document is required and what is the minimum information to be presented in the context of a revision of an operational programme, in order to avoid the necessity of an evaluation in case of circumstances of a nature which obviates the need of an evaluation.
· The proposed modifications to Article 55 on revenue-generating projects intend to simplify the monitoring of revenues and to align this with the overall life-cycle of programmes. Therefore, the duration of the provisions on monitoring revenue is now limited to the date of submission of the closure documents of a programme. On the one hand, this avoids situations in which such revenues would have to be monitored for years after the closure of a programme, thereby significantly reducing the administrative burden on authorities in the Member States and the Commission. On the other hand, it ensures that monies reimbursed to a programme because of higher than anticipated revenues, are not definitively lost but can be re-used within the programme. Furthermore in line with the principle of sound financial management and the applicable national rules, it is also recalled that in all the cases revenues generated by operations are to be taken into account when calculating the public contribution.
· The proposed amendment to Article 56, paragraph 3 aims at clarifying that it is only where a new category of expenditure is added at the moment of the revision of an operational programme that a new eligibility date applies to this new category of expenditure, whereas new expenditure within an already eligible category can be added at any moment without an immediate programme modification.
· The proposed modification of Article 57 intends to clarify the scope of the application of this article on the durability of operations. The current version of article 57 i only states at the end (clause (b)) that it applies to infrastructures and productive activities. This latter scope specification is now proposed for inclusion in the very first part of the paragraph. Secondly, for the ESF it is proposed to limit the provisions to operations that fall under the state aid rules with an obligation to maintain investment or jobs created for the time period foreseen in the applicable state aid rule. Furthermore, it is suggested to exclude the application of this provision to cases of non-fraudulent bankruptcy. Thereby, operations for which the managing authority or beneficiary cannot reasonably be expected to be able to guarantee the durability of operations, are excluded from the scope of the article.
· Article 67 is to be modified to clarify and simplify the information required for yearly reporting on financial implementation of an operational programme. The proposal suggests aligning the financial information required in the annual report on implementation of an operational programme with information to be provided in payment requests, and to make the financial information comparable to the information on the physical progress of the programme. This reduces the reporting burden on managing authorities, intermediary bodies and final beneficiaries, and provides the Commission with overall better comparable data on programme implementation.
· The proposed modification of article 78(2)(a) intends to clarify that in the context of advance payments on State aids admissible guarantees include guarantees by banks or other financial institutions, but also a facility provided for this purpose by public institutions and the Member States themselves. This takes better into account the various guarantee instruments that are used and the different institutional set-ups in the Member States.
· The proposed modification of Article 78, paragraphs i and i, follows directly from the above modification of Article 44 on the inclusion of financial engineering instruments related to energy efficiency and renewable energy. In addition, in paragraph 6(d) the modification will allow treating management fees as eligible expenditure. This reflects better a reality on the ground as in the financial engineering instruments management fees are normally part of the eligible expenditure of the contract.
· Article 88 concerns the partial closure of programmes, which is in itself an instrument with the potential of significantly reducing the administrative burden on Managing authorities, intermediate bodies and final beneficiaries by limiting the period for document retention. However Member States currently have little incentive to use partial closure: for the time being any financial corrections concerning operations subject to partial closure shall be net corrections, meaning that the amount is lost for the programme. This is perfectly logical in the case a correction is triggered by an audit from Commission, OLAF or Court of auditors, given that operations included in a partial closure have to be fully legal and regular. However in the case of irregularities detected by Member States it would be more consistent (as well as providing an incentive to use the system) to allow Member States to re-use the amounts they corrected on an operation included in a partial closure. The proposed amendment would allow Member States to re-use the amounts for irregularities they detected and corrected themselves on operations that were included in partial closure. In the case of an irregularity detected by an EU institution, the current situation would remain unchanged.
· The proposed modification of Article 94 intends to provide more flexibility for the calculation of the decommitment rule in case of major projects. Instead of calculating the period relevant for the decommitment from the date of the Commission decision on such a major project, the proposal suggests to apply the automatic decommitment rule for major projects from the date of the submission to the Commission of the major project application that fulfils all the requirements of the Regulation.
· Legal base
Council Regulation (CE) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999 defines the common rules applicable to the three Funds. Based on the principle of shared management between the Commission and the Member States, this regulation includes provisions for a new programming process as well as new arrangements for programme (including financial) management, monitoring, financial control and evaluation of projects.
· Subsidiarity principle
The proposal complies within the subsidiarity principle to the extent that it seeks to provide support to the Member States to diminish the negative effects of the current crisis through changes strengthening their role within the framework of shared management of the Funds.
· Proportionality principle
The proposal conforms to the proportionality principle for the following reasons:
The proposed amendment to the financial management rules is targeted in nature as it aims to stimulate the contribution of the ESF to measures to combat the crisis and thus underpin the European economic recovery without changing the principles governing the financial management of cohesion policy. The reimbursement of interim payments at 100% should be limited in time under the presumption that the peak of the crisis will cease by the end of 2010.
In order to allow Member States benefit from the simplified measures during the whole programming period it is necessary to apply certain provisions retroactively. Given that the modified Regulation No 1080/2006 i provides for the eligibility of expenditure on energy efficiency and the use of renewable energy in existing housing in all Member States, it is necessary to apply the amendments relating to Article 44 and 78 i from the date of the entry into force of that Regulation. Other measures should apply from the day following the day of publication in the Official Journal given their crucial role in helping Member States counterbalance the negative effects of the crisis.
· Choice of instruments
Proposed instrument: regulation.
Other instruments would not be appropriate for the following reasons:
The Commission has explored the scope for manoeuvre provided by the legal framework to accelerate projects for the benefit of the Member State economies and the citizens together with the possibilities to decrease an administrative burden to the beneficiaries. Alongside the recent amendments to the General Regulation and Fund-specific Regulations and together with the non-regulatory modifications presented in the Communications of 26 November 2008 and 3 June 2009, the Commission considers necessary, in the light of the experience up to now, to propose further modifications to the General Regulation. The objective of these revisions is to further facilitate the mobilisation of Community resources for the start-up of projects thereby accelerating both their implementation and the impact of such investments on the real economy.
There is no impact on commitment appropriations since no modification is proposed to the maximum amounts of ESF financing provided for in the Operational Programmes for the programming period 2007-2013.
Where Member States decide to make use of the option to request 100% reimbursements during 2009 and 2010 there will be an impact on payment appropriations.
The analysis of the Member States' payment forecasts and the payment appropriations available in the budget for 2009 and the Draft Budget for 2010 show that the maximum additional payment appropriations to be paid under the 100% reimbursement option in 2009 and 2010 for the ESF programmes would represent approximately EUR 6.6 billion. This will be compensated by a reduced need for payment appropriations later in the programming period.
The Commission will set up a monitoring tool to supervise closely the consumption of the additional credits for the European Social Fund. For the payment claims submitted as of 1 January 2011, the regular co-financing rate agreed in the programme decision will apply.
The Commission believes that the proposed measures to simplify the implementation may significantly increase the pace of expenditure on the ground and consequently accelerate the submission of interim payments to the Commission.