Handbook of territorial & local development strategies Chapter 5 - Funding and Finance

Introduction

Territorial strategies of non-urban territories can vary widely in terms of the size of populations covered and the type and themes addressed. Likewise, a similar variety exists in the financial size and complexity of these strategies and the funding instruments they use.

When designing their strategy, local stakeholders must make sure that the scope and focus of the strategy are in line with the available budget and the relevant funding rules. Managing an integrated strategy with external resources requires knowledge on funding instruments as well as skills and capacity to set up a selection process and monitor progress in line with the rules of the individual funds. Moreover, sufficient financial resources are usually needed to provide match funding for the supported projects, and such resources are often scarce, especially in remote rural areas. Therefore, a first challenge to resolve is to match the ambition of the strategy to the funding availability and capacity of the local actors to manage and access EU funds.

Managing public funding, especially from the EU, is normally associated with a number of administrative processes that must be followed. However, with multiple levels of governance these processes can become very complex – and even more so when multiple funding sources and programmes are used, each of them with distinct funding rules, procedures and timetables. It is therefore essential to look for ways to reduce this administrative complexity and make the tasks of the local actors and beneficiaries easier. This is the second challenge of this chapter.

For several decades EU funding for non-urban strategies consisted mainly of the European Agriculture Fund for Rural Development (EAFRD) for rural development, the European Maritime and Fisheries fund[1] (EMFF) for support to fisheries communities, the European Regional Development Fund (ERDF), the Cohesion Fund (CF) for infrastructure investments and European Social Fund (ESF)[2] for investment in skills and training. These funds are all implemented under shared management, which means that Member States and regions have a central role in their management through national or regional managing authorities.

Moreover, excluding the EAFRD, they all follows the same set of rules called Common Provisions Regulation (CPR). In addition, other European-wide funds such as LIFE for biodiversity or Horizon for research can support projects in non-urban areas based on a competitive procedure.

Over the last few years, as part of the European twin green and digital transitions and in response to the COVID-19 pandemic, even more funding opportunities have become available for non-urban strategies. The above mentioned funds will now be complemented with (a) the Recovery and Resilience Facility (RFF) to boost the investment capacity of Member States towards the green and digital transition and (b) the Just Transition Fund (JTF) to support territories that are most negatively impacted by the transition towards a low-carbon economy due to their economic structure. The JTF also uses the rules of the CPR.

Territorial strategies are likely to combine some of the above mentioned funds as well as national co-financing[3] and other sources. The third challenge addressed in this chapter will therefore be how to combine these different funding sources to achieve the greatest impact of the strategy.

As a last challenge, this chapter will explore supporting a territorial strategy with other funding sources besides grants. These can include financial instruments of the European Investment Bank, as well as commercial bank loans and participatory finance from citizens.

Challenge 1 : How to programme investments that match strategy ambition with the funding available and capacity of local actors ? 

When drafting the integrated territorial strategy, local actors sometimes try to address too many needs at once – as a result, their financial needs can be considerably higher than the available resources. Managing the funding of an integrated strategy can also be challenging, and the necessary knowledge, skills and resources are not always available at local level. Therefore it is important that in designing their territorial strategy, local actors match their strategy ambitions with their administrative capacity.

In practical terms, matching strategy to available funds and capacity involves two main aspects:

• Adjusting the strategy ambitions to the budget available (and – if necessary – searching for additional funding sources).

• Conducting a critical assessment of the implementation capacity in relation to the funding framework.

Challenge 2 : How to reduce the administrative burden for integrated territorial strategies ? 

EU funding is often associated with administrative complexity. This is partly due to the multiplicity of objectives and funding sources, combined with the need to ensure accountability and transparency of spending EU money. However, further complexity is often introduced at national or regional level, where managing authorities design eligibility rules that are more restrictive than those at the EU level, or complex procedures are put in place involving multiple checks for fear of an audit and control (this practice is sometimes called ‘gold plating’). With territorial instruments such as ITI or CLLD, there is also the additional complexity resulting from multiple levels of decision-making. On the other hand, beneficiaries of these territorial instruments, especially in non-urban areas, are often small-scale local actors (individual producers, SMEs, community associations) that can become discouraged or disorientated by detailed eligibility criteria and elaborate administrative procedures.

There are several opportunities to reduce the administrative burden when using European funding in the implementation of integrated territorial strategies. The cohesion policy regulations of the 2021–2027 period foresee a long list of simplifications. The Commission’s Simplification Handbook[8] lists no fewer than 80 simplification measures. Broadly speaking these measures cover the following: simplifications of the legal framework and the policy framework for easier programming; fewer, more strategic conditions; faster and more strategic programming; simpler territorial tools; simpler implementation; simpler and more proportionate management, control and audit; simpler financial instruments; streamlined monitoring and evaluation; and a single integrated framework for Interreg (European Commission, 2018).

Challenge 3 : How to combine different EU and national funds in an integrated strategy ? 

Since funds and programmes are generally set up to support a specific target community (for example EMFF for fisheries communities, EAFRD for rural communities) or type of investment (ERDF and CF for infrastructure and business support and ESF for training and inclusion), an integrated strategy may need a combination of programmes and funds[14].

Support from multiple funding sources has several advantages. It can enlarge the financial basis of a strategy. In other words, a strategy can be more ambitious if there is more funding. Given that funds have their own type of beneficiaries, including different funds can also increase the involvement of different stakeholders in the strategy.

However, combining various funds in one strategy can be challenging for both programme authorities and for local actors because it means different rules to adhere to, monitoring systems to set up and increased coordination between different government actors in decision making and implementation. More examples about coordination at different governance levels can be found in the Chapter 3, Governance.

Challenge 4 : How to benefit from other sources of support ? 

Next to grants for projects from EU and national/regional funds, there are other ways to support the implementation of a territorial strategy. This not only encompasses access to other sources of finance but also in-kind support[25].

To understand the availability of other sources in greater detail, this section takes a closer look at the following solutions:

1. Financing instruments of the European Investment Bank and the European Bank for Reconstruction and Development.
2. Commercial bank loans and private investments.
3. Specialised financial institutions and citizen-led investments via crowdfunding.

Recommendations

• Ensure that the budget and funding sources of a territorial strategy are determined primarily by the local needs and implementation capacity of the body in charge of the strategy.
  • Don’t try to address too many needs with your strategy – choose your priorities in line with the available funding and a realistic assessment of where you can make a difference. However, avoid strategies that are purely driven by the funding rules.
  • Be well aware of your own capacity and experience in choosing a specific funding option to support an integrated territorial strategy (local and regional authorities can use the ABC Self-Assessment Instrument to assess their own administrative capacity).
  • Use the opportunities of capacity building offered by specialised regional, national and EU bodies.
• Make use of the new EU cohesion policy options for a simplified support to integrated territorial strategies:
  • Use the specific objective under Policy Objective 5 to support integrated non-urban strategies also within a programme supported by a single fund.
  • Use the broad scope of other policy objectives to support integrated territorial strategies.
  • Use the available territorial tools to implement integrated strategies with the support of different funds and programmes.
• Make sure the local level benefits from the envisaged simplification measures; in particular.
  • Make use of a wide range of simplified cost options.
  • Consider the possibility of introducing other forms of simplification for local actors, for example umbrella projects, advance payments or payments in instalments.
  • In case of multi-funding, make use of the possibilities of the Lead Fund.
• When allocating funding for integrated territorial strategies, take into account the need for critical mass necessary to address needs and make a difference in the area. To reach this, managing authorities can also look beyond the EU cohesion policy.
  • EAFRD, the new JTF and the RFF may offer additional European funding opportunities.
  • Local, regional or national funding is normally used for co-financing EU projects, but may also be an option if needed investments fall outside of the scope of available EU funds, if the EU funds have limits on eligibility or if national programmes are easier to access.
  • Managing authorities should allocate national or regional public co-financing to the strategy as a whole, rather than on a project-by-project basis.
  • Where possible, managing authorities should facilitate access of local level actors to additional sources of funding (e.g. by providing guidance and technical support etc.).
• Partnerships of the EIB and commercial banks can effectively address the particular needs of regions by.
  • Intermediating smaller loans in simplified procedures.
  • Providing technical assistance in making projects bankable.
  • Combining EIB funding and commercial loans, lowering the administrative burden of finding and applying to support schemes.
• Local strategy owners shouldn’t limit their search for funding to the mainstream financial institutions – they can also involve micro-finance institutions, credit unions, cooperative banks, etc.
• Involving citizens in the finance of regional projects, for example via crowdfunding, can bring benefits by.
  • Effectively communicating projects and territorial strategies to their citizen and engaging them actively in the process.
  • Making local actors less dependent on bank loans and other commercial sources of finance.