Czech NGOs write to FinMin over co-financing of EU-funded social projects

Non-governmental, nonprofit organizations (NNOs) in the Czech Republic have written an open letter to Czech Finance Minister Andrej Babiš responding to materials published by the ministry entitled "Rules for co-financing of European Structural and Investment Funds for 2014-2020", which establish binding rules for the financing of projects from the ESIF and have recently undergone an inter-ministerial commenting process. The organizations criticize the ministry’s proposal that responsibility for up to 15 % of co-financing be mandatory for participation in ESIF projects.

Such a condition, according to the NNOs, will fundamentally restrict nonprofit activity in the social arena, as it will make it impossible for NNOs to draw on the financing. This will lead to the suppression or closure of quality programs and services that have been running for years and to the paralysis of much-needed development and innovation. 

News server Romea.cz publishes the open letter below in full translation:

Open Letter to Finance Minister Ing. Andrej Babiš on the Czech Finance Ministry’s "Rules for co-financing of European Structural and Investment Funds for 2014-2020"

Dear Mr Minister,

The material published by the Czech Finance Ministry entitled "Rules for co-financing of European Structural and Investment Funds for 2014-2020", which establishes binding rules for the financing of projects from the ESIF, has recently undergone an inter-ministerial commenting process. After reviewing this proposed material, we consider it necessary to warn you of the fact that it requires non-governmental non-profit organizations (hereinafter NNOs) to provide co-financing for ESIF-sponsored projects.

Such a condition will fundamentally restrict nonprofit activity in the social arena, as it will make it impossible for NNOs to draw on the financing. This will not only lead to the suppression or closure of quality programs and services that have been running for years, but also to the paralysis of much-needed development and innovation and, therefore, to the paralysis of any future effective solutions in the area of social work.

The ultimate victims of this, however, will not be nonprofit organizations, but the citizens of the Czech Republic who need social programs and services to compensate for their social disadvantages and to optimize their social situations. When the citizens are harmed, the state is harmed as well.  

The specific focus of our criticism is the condition proposed by the Finance Ministry that applicants be made responsible for up to 15 % of co-financing of ESIF-funded projects. While in the case of NNO applicants the co-financing is defined as a minimum of 5 %, given our long experience with the financing of NNO activity we consider that condition to be unfulfillable, especially for local and smaller-scale organizations. 

Currently it is not easy to arrange the needed financing for even the very best projects and their subsequent upkeep. We always view grant calls that require an obligatory percentage of co-financing for the projects submitted as highly risky, because we have a minimum of guarantees that we will succeed in raising the needed amounts from other sources.

Nonprofit organizations always manage funds that are earmarked for specific purposes and do not have financing available that is unrestricted in terms of use. Obligatory co-financing is usually such a fundamental barrier that organizations prefer not to respond to calls that include it, because we are aware that we have neither the opportunity nor the resources to meet the terms.   

If it is necessary to co-finance a smaller project that costs only tens (or even hundreds) of thousands of Czech crowns, the diversification of financial resources is not so difficult. However, the ESIF will also be calling on applicants to submit big, multi-year projects worth millions.

If a condition of receiving funding is that all applicants, including nonprofit organizations, small municipalities and other small-scale entities, be required to provide co-funding, then the total amount of co-financing needed for the ESIF funded projects will be on such a scale that it makes it difficult to imagine any funding source other than the state budget itself could meet those terms. This obligation to arrange for co-financing will probably lead to two results: 

1. Nonprofit organizations and other applicants will not succeed in arranging for co-financing, which means they will be a priori, de facto excluded from the grant procedure. During the program period that is now ending, nonprofit organizations were significant recipients of subsidies from the European Structural Funds (ESF) thanks to the fact that the ESF provided 100 % of the funding required for any project. Because of this, nonprofits were able to provide social inclusion and social work services, de facto substituting for local and state government being unable to provide such services to the extent needed, for example, in the social inclusion area. In the upcoming program period, for example, the Operational Programme Employment for Social Inclusion (OPZ) is planning to allocate only 30 % of the funds needed for any project, and that means there is a risk none of those funds will be applied for at all. The same goes for the allocation of the OPVVV (Operational Programme Research, Development and Education) and the Integrated Regional Operational Programme. These planned savings to the state budget, therefore, will ultimately lead to some of the ESIF monies not being used, and the Czech Republic will have to return them to the European Commission. 

2. The principle of equal access to ESIF funding will be violated. While the funds themselves, thanks to the system of open tenders and transparent rules for project selection, guarantee equal conditions for applicants, this obligatory co-financing renders that principle moot. All applicants will have to seek other resources for co-financing their projects. The available volume of those resources will not satisfy the demand, and the applicants will be forced to compete for donors’ attention. The key to success for any project, therefore, will not be its quality, but the subjective preferences of the co-financing donors. Will local, small-scale organizations win this co-financing, and therefore ESIF funding, for their functional, innovative ideas, or will the average-quality projects run by big organizations with good connections win? Will any municipality, given voter pressures, prefer to invest in upgrading the local square, or in wages for teaching assistants who are dedicated to working with children from socially excluded localities? Which target group of the needy will "get lucky" and which will not?  

For all of the above reasons, we are concerned about the financing and implementation of projects targeting social housing in particular, about the fate of preventive services and programs fighting poverty and social exclusion, about the implementation of educational projects intended for children with special educational needs, about a whole range of other projects and services targeting all kinds of disadvantaged persons from the majority and minority populations for which the state does not have its own capacity and for whom services are provided through experts from the nonprofit sector. The ultimate result will be that the clients of these services, people in need, will pay the price of this rule change. 

Bad experiences with this approach from new EU Member States (Romania and Slovakia) are a warning to us – those countries instituted obligatory co-financing during the previous program period. Their experience proves that introducing such conditions not only does not produce the anticipated effect, but also leads to a reduction in the number of services offered and increases complications with project accounting, administration and management because the NNOs and other types of funding recipients were ultimately not actually able to arrange for the required co-financing, and those problems subsequently led to an increased occurrence of irregularities, audits and the application of corrective measures.

Esteemed Mr Minister, we understand the need to approve the ESIF rules and the time pressure you are under. We do not want to artificially create obstacles here – on the contrary.  

We are prepared to meet with the various ministries about a more optimal co-financing system and to provide them with our experience from the previous implementation of the ESIF. We can contribute a proposal for flexible co-financing of between 0 and 15 % that is based on the kind of Operational Programme, the axis of priorities, the type of activity, and the nature of the applicant. 

It is definitely possible to imagine activities for which co-financing can realistically be expected, such as in the social entrepreneurship field, as well as activities where it is inappropriate. We hope the original rules proposed by the ministry were created inadvertently in a good-faith effort to find a new way to save the state money, and that they have simply underestimated the broad, adverse impact those rules will have on the ground, and we believe you will take this motion of ours and our new proposal into consideration.

The representatives of the NNOs listed below hereby ask you to consider our comments on the materials published by the ministry entitled "Rules for co-financing of European Structural and Investment Funds for 2014-2020", as it was submitted for comment. We hope you will incorporate our comments into the material. 

Respectfully yours,

Otevřená společnost, o.p.s. (Open Society)
Romodrom, o. s.
Platforma pro sociální bydlení (Platform for Social Housing)
Slovo 21, o.s.
Poradna pro občanství, občanská a lidská práva, o.s. (Counseling Center for Citizenship, Civil and Human Rights)
IQ Roma servis, o.s.
Vzájemné soužití, o. s (Life Together)