Act on the Financial and Burden Equalisation of Resident Municipalities - Scope (FILAG)

1. This law governs the financial equalization and burden-sharing among the municipalities.

2. It specifically regulates

a) the resource equalization by financially strong municipalities and the canton in favor of financially weak municipalities;

b) the geographic-topographic and sociodemographic burden-sharing, as well as the compensation for central functions by the canton.

1. The Financial and Burden Equalization Shall

a) strengthen the financial autonomy of municipalities;

b) reduce the differences in financial capacity and tax burden between municipalities;

c) maintain the tax competitiveness of municipalities in intra-cantonal and inter-cantonal relations;

d) ensure municipalities have a minimum provision of financial resources;

e) compensate for excessive financial burdens on municipalities due to their geographic-topographic or socio-demographic conditions.

1. This Act is guided by the following principles in regulating financial equalization and burden sharing

a) Separation of resources and burdens;

b) Transparency and effectiveness;

c) Economical and efficient fulfillment of tasks;

d) Behavior in accordance with guiding principles;

e) Promotion of inter-municipal cooperation.

1. The Executive Council periodically reviews, for the first time after three full years of implementation, the experiences and effects of this law. After reviewing and consulting with the Association of Solothurn Municipalities, it submits an effectiveness report to the Cantonal Council.

2. The effectiveness report includes at least the following areas

a) the financial and burden-sharing system;

b) primary education;

c) social security.

3. The report provides information on the achievement of the goals of financial and burden-sharing in the past period and discusses possible measures for the upcoming period.

1. Fiscal equalization reduces the disparities in the financial capacity of municipalities.

2. The redistributed funds are allocated to the municipalities without any specific purpose.

3. Instruments include disparity compensation and minimum provision.

1. Foundations for the Calculation of Resource Equalization are the State Tax Revenue and the Residential Population of the Municipality.

1. The State Tax Revenue (STR) of a municipality is the sum of the state taxes of natural and legal persons from this municipality at a tax rate of 100 percent.

2. The government council enacts regulations regarding the types of taxes and dues that fall under this category.

1. Governing is the resident population according to the civil law principle of domicile of the municipality in accordance with the cantonal population statistics.

1. The fiscal capacity of a municipality is the ratio of its state tax revenue to its population.

2. The fiscal capacity of the state is the ratio of the sum of the state tax revenues of all municipalities to the total population.

3. The Fiscal Capacity Index (FCI) of a municipality is the ratio of its fiscal capacity to the state's fiscal capacity, expressed as a percentage.

1. The Disparity Equalization reduces the differences in financial capacity among the municipalities. It is financed exclusively by the municipalities.

2. Municipalities with an SKI greater than 100 shall make a contribution.

3. Municipalities with an SKI less than 100 shall receive a grant.

4. The Disparity Equalization reduces the difference of a municipality's SKI to an SKI of 100 by 30 to 50 percent.

5. The Cantonal Council annually determines the applicable percentage according to Formula A of the Appendix.

1. **The Objective of Minimum Endowment**

The purpose of the minimum endowment is to provide the least resourceful municipalities with sufficient means so that they can fulfill their public duties economically and efficiently. It is funded by the canton.

2. **Entitlement to Minimum Endowment**

Municipalities that exhibit a Standardized Key Indicator (SKI) below a certain minimum level after disparity compensation are entitled to a minimum endowment.

3. **Compensation of SKI Deficiency**

The minimum endowment compensates for the difference between a municipality's SKI and the defined minimum level.

4. **Determination of Minimum SKI Level**

The Cantonal Council annually sets the relevant minimum level of the SKI within the range of 80 to 100.

5. **Calculation of Minimum Endowment**

The minimum endowment is calculated according to Formula B of the appendix.

1. Particularly burdened municipalities shall be compensated for the high structural financial expenditure with additional measures.

2. The following instruments shall be utilized for this purpose

a) Relief for municipalities with above-average costs of distance by taking into account the calculation of the geographical-topographical burden equalization (§ 13);

b) Relief for municipalities with above-average proximity costs by considering the calculation of the sociodemographic burden equalization (§ 14);

c) Lump-sum compensation for the central responsibilities of cities (§ 15).

1. Municipalities that are excessively burdened due to their geographic-topographic situation receive an annual compensation from the canton.

2. Indicators of a high burden include

a) an above-average area per inhabitant (below-average population density);

b) an above-average road length per inhabitant.

3. This compensation is calculated according to Formula C of the annex.

1. Municipalities that are excessively burdened due to their sociodemographic situation receive an annual compensation from the canton.

2. Indicators of a high burden include above-average percentages of

a) Recipients of supplementary benefits;

b) Foreign nationals.

3. The amount of the compensation is also based on the proportion of the young population in a municipality.

4. This compensation is calculated according to Formula D of the annex.

1. Cities receive an annual lump-sum compensation from the canton to partially cover their above-average central costs in the areas of culture and leisure.

2. The percentage shares of the individual cities are determined annually by the cantonal council.

1. The cantonal council annually determines the base contribution for the geographical-topographical and sociodemographic burden sharing, as well as for the compensation of central burdens. In doing so, it takes into account the results of the most recent effectiveness report pursuant to § 4.

2. The corresponding funds are allocated without earmarking.

1. Municipalities which suffer financial losses in terms of minimum endowment or financial equalization as a result of a merger shall have the difference compensated for a period of three years.

2. This compensation shall be provided if at least one of the municipalities involved in a merger has a SKI of less than 100.

3. If structurally weak municipalities are involved in a merger

a) Additional special contributions may be granted for project costs or preparatory work leading to a merger with another municipality or civic community;

b) Compensation according to paragraph 1 may be granted for a duration of six years.

4. The government council shall issue implementary regulations concerning the granting of these contributions.

5. There is no legal entitlement to the granting of these contributions.

6. The funding for these compensatory payments shall be drawn from the Financial and Burden Equalization Fund.

1. The foundations for the calculation of the financial and burden equalization are formed, in particular, by the data from the annual accounts of the municipalities, the average population figures of two base years, as well as all other statistical sources mentioned in this law.

2. The government council determines the data sources, the manner of data collection, the nature of the data, the deadlines, and the base years.

3. The municipalities are obligated to provide all necessary data.

1. The Financial and Burden Sharing Commission consists of eight members, who are elected by the Executive Council for the regular term of office. The head of the department serves as the chairperson.

2. The Association of Solothurn Residential Municipalities proposes four members.

1. The Finance and Equalization Commission provides opinions to the Government Council regarding the determination of controlling parameters in the resource and burden equalization, as well as on issues of finance and equalization submitted to the Commission by the Government Council or the Department.

1. The Financial and Burden Equalization Fund is used particularly for financing the contributions in the resource equalization according to § 5, in the burden equalization according to § 12, in mergers according to § 17, and to cover the administrative costs according to § 26.

2. The Financial and Burden Equalization Fund is financed by levies from the municipalities according to § 10 and levies from the canton according to § 11.

1. The Financial and Burden Equalization Fund shall, as of the end of the year, have a balance that generally does not exceed 25 percent of the average annual disbursements.

2. The fund shall bear interest.

1. The department calculates annually the disparity compensation, the minimum endowment, and the burden compensations according to the formulas in the appendix and communicates them to the municipalities.

2. The department carries out the calculations resulting from § 17 and communicates them to the municipalities.

1. The department is authorized to reduce the contribution it has calculated for a municipality or to increase the levy it has calculated for a municipality if the municipality

a) does not behave in accordance with the guidelines;

b) does not fulfill its tasks economically and efficiently; or

c) does not comply with the statutory provisions regarding the financial budget and accounting of the municipalities.

2. Before the department makes a decision according to paragraph 1, the Financial and Burden Equalization Commission must be consulted.

1. Contributions or levies that were determined and disbursed or demanded based on incorrect information or calculations shall be corrected by the Department and communicated to the municipalities.

2. The Department may reclaim or disburse any resulting differences from or to the municipalities with interest.

3. Such corrections shall be deposited into or withdrawn from the Financial Equalization Fund.

4. If the notification of a contribution or levy occurred more than five years ago, no further corrections shall be made.

1. The administrative costs incurred by the canton from the execution of the financial and burden equalization are charged to the financial and burden equalization fund based on the actual expenditure.

1. Amounts below an amount set by the Governing Council are neither paid out nor demanded in the financial equalization and burden sharing.

1. The municipalities may lodge an objection against decisions of the department.

2. The objection period is 30 days from the notification of the decision.

3. The objection must be submitted in writing to the department. It should contain a request and a justification. Section 33 paragraph 2 of the Act on Legal Protection in Administrative Matters (Administrative Procedural Law) of November 15, 1970, is applicable.

1. Municipalities may file an appeal with the Administrative Court against objection decisions.

2. The appeal period is 10 days from the delivery of the decision.

1. Additionally, the procedure is governed by the Administrative Procedure Act.

1. The Executive Council shall issue the necessary implementing ordinance.

1. The Cantonal Council determines all the values mentioned in the present law and the formula annex for the first year of enforcement at the time of its coming into force, which will subsequently be determined annually by the Council.

1. The funds of the Financial Equalization Fund of the Municipalities in accordance with Section 31 of the Law on Direct Financial Equalization (Financial Equalization Act) dated December 2, 1984, shall be transferred to the Financial and Burden Equalization Fund pursuant to Section 21 upon the enactment of the present law.

1. The Hardship Compensation provides a balance among municipalities to mitigate hardships arising from the transition from the previous to the new financial equalization system.

2. The Hardship Compensation is granted during the first four full years of implementation.

3. The municipalities exclusively finance the Hardship Compensation among themselves. Any shortfalls or surpluses are balanced through the Financial and Burden Equalization Fund.

4. The Executive Council establishes the implementing provisions, particularly the maximum relief and burden limits, as well as the gradation over the four years.

5. The calculation of the Hardship Compensation is performed according to Formula E of the Appendix.

6. The funds are allocated to the eligible municipalities without any specific purpose.

7. In reviewing the achievement of the minimum equipment target pursuant to § 11, the benefits from the Hardship Compensation are taken into account.

1. This entitlement regulation applies only to municipalities that, at the time of the enactment of the present law, were entitled to special contributions pursuant to §§ 30bis and 30ter of the Financial Equalization Act.

2. In addition to the compensatory payments under the present law, these municipalities shall receive the vested rights as a special contribution according to the former law. They shall receive this contribution for the duration of the entitlement period still applicable to them under the previous regulation.

1. Proceedings concerning investment contributions that are pending before the entry into force of this law shall be governed by the Fiscal Equalisation Act and the regulations issued thereunder. The competent authority for these decisions is the Financial and Burden Equalisation Commission.

2. The right to investment contributions under the previous law expires five years after the entry into force of the present law.

1. The Department shall carry out all calculations arising from the present transitional provisions.

**1. Municipalities that are disproportionately burdened due to tax revenue losses as a result of the implementation of the 2020 Tax Reform and AHV Financing (STAF 2020) will receive an annual compensation from the canton.**

**2. Indicators are:**

a) an above-average number of jobs, to be further specified by ordinance, in certain economic sectors of the second and third sectors per inhabitant;

b) an above-average number of corporations, limited liability companies, and cooperatives headquartered in the respective municipality per inhabitant.

**3. The Cantonal Council sets the basic contribution for the labor market compensation annually.**

**4. The labor market compensation is granted for the first eight full implementation years from the entry into force of the present partial revision.**

**5. This compensation is calculated according to Formula F in the annex. Exemptions from relief not to be granted under § 39 paragraph 7 are reserved.**

**6. The funds are disbursed to the entitled municipalities without any designated purpose.**

1. The hardship compensation provides an additional relief for municipalities to mitigate the burdens arising from the STAF 2020 in accordance with the municipality-specific tax losses.

2. The hardship compensation is granted during the first eight implementation years following the enactment of the present partial revision.

3. The determination of eligibility for a hardship compensation is conducted once, based on the hardship balance sheet.

4. In the hardship balance sheet, the adjusted tax losses for each municipality are shown for the first eight implementation years following the enactment of the present partial revision, and from these, for each implementation year, the contribution from the labor market burden equalization for the first implementation year following the enactment of the present partial revision is deducted, resulting in the remaining burden or relief in francs per municipality and per affected implementation year. The remaining burden or relief in francs is rounded to the nearest one hundred francs. Furthermore, for each municipality and each affected implementation year, the rounded remaining burden or relief in francs is shown as a percentage of the relevant state tax revenue according to the financial and burden equalization of the resident municipalities for the first implementation year following the enactment of the present partial revision.

5. The adjusted tax losses per municipality and per affected implementation year are calculated as follows

a) From the state taxes of legal entities according to the municipal tax rate decided by each municipality, a flat-rate deduction for predicted tax losses is subtracted for each affected implementation year

1. 33.89 percent for the first implementation year following the enactment of the present partial revision;

2. 30.86 percent for the second implementation year following the enactment of the present partial revision;

3. 34.71 percent for the third to eighth implementation year following the enactment of the present partial revision.

b) In cases of excessive relief or burden effects due to the proven impacts of the STAF 2020, the department may increase or decrease the flat-rate deduction for individual municipalities by up to 60 percentage points per base year and per affected implementation year. Based on such increases or decreases, the department can retroactively adjust the hardship balance sheet for the second to eighth implementation year. Such corrections must be communicated to the municipalities along with the financial and burden equalization of the year affected by the correction.

c) The department calculates the predicted tax losses of the individual municipalities per base year and per affected implementation year according to the provisions of subparagraphs a and b.

d) The basis for calculating the predicted tax losses is the average of three base years according to the approved annual accounts of the municipalities. The base years are three, four, and five years prior to the first implementation year following the enactment of the present partial revision for all affected implementation years.

6. Through the hardship compensation, the burdens of the municipalities arising from the STAF 2020 are reduced per affected implementation year up to a target value of the remaining burden percentage as per paragraph 4

a) 3 percent for the first to third implementation year following the enactment of the present partial revision;

b) 4 percent for the fourth and fifth implementation year following the enactment of the present partial revision;

c) 5 percent for the sixth to eighth implementation year following the enactment of the present partial revision.

7. Municipalities that show a relief in the hardship balance sheet for an affected implementation year will not be granted this relief.

8. The funds are allocated to the eligible municipalities without any specific purpose.

1. Funding for compensation to the municipalities due to tax losses as a result of STAF 2020 is provided during the first eight implementation years from the effective date of the present partial revision through a special state contribution of

a) 20.7 million Swiss francs for the first implementation year from the effective date of the present partial revision;

b) 18.85 million Swiss francs for the second implementation year from the effective date of the present partial revision;

c) 21.2 million Swiss francs each for the third to the eighth implementation year from the effective date of the present partial revision.

2. This special state contribution according to paragraph 1 may be used for labor market burden sharing as well as for all other financial and burden equalization instruments of the present law. The Cantonal Council may, within the framework of determining the control parameters for the second to the eighth implementation year from the effective date of the present partial revision, increase the special state contribution according to paragraph 1 by up to 100 percent.

3. The funding of the hardship compensation is carried out through non-payable reliefs according to § 39 paragraph 7, and furthermore through an additional corresponding state contribution.

1. The control parameters for the labor market burden adjustment in the fiscal and burden equalization of the municipalities for the year 2020 are determined as follows

a) The minimum deviation from the median value (mAM) for full-time equivalents in jobs from certain economic sectors of the secondary and tertiary sectors per inhabitant per municipality is 1.25;

b) The maximum deviation from the median value (maxAM) for full-time equivalents in jobs from certain economic sectors of the secondary and tertiary sectors per inhabitant per municipality is 3.00;

c) The minimum deviation from the median value (mAM) for taxable corporations, limited liability companies, and cooperatives headquartered in the respective municipality per inhabitant per municipality is 1.25;

d) The maximum deviation from the median value (maxAM) for taxable corporations, limited liability companies, and cooperatives headquartered in the respective municipality per inhabitant per municipality is 2.00;

e) The basic contribution for an above-average number of jobs from certain economic sectors of the secondary and tertiary sectors per inhabitant is 18,630,000 Swiss Francs;

f) The basic contribution for an above-average number of corporations, limited liability companies, and cooperatives headquartered in the respective municipality per inhabitant is 2,070,000 Swiss Francs.

2. The department shall carry out all calculations arising from the present transitional provisions.