Financial Equalization Law (FAG) (FAG)

**Subject Matter**

This Law governs financial equalization between the political municipalities, the school municipalities, and the Canton.

1 Financial equalization enables the communes to finance the fulfillment of their necessary tasks and ensures that communal tax rates do not deviate significantly from one another.

2 It is limited to reducing those differences in the financial circumstances of the communes that these cannot influence.

3 It is financed by the canton and by financially strong communes, as well as from funds of the road fund.

Principles

1. The financial equalization is designed in such a way that it

a. supports the lawful, economical, efficient, effective, and sustainable a. Content

use of funds available to municipalities for fulfilling their

necessary tasks,

b. strengthens municipal autonomy,

c. improves the planning capability of municipal tasks and their

financing,

d. promotes the conditions for fair competition among

municipalities,

e. adapts to changes in the financial framework, especially the

distribution of tasks and revenues between the Canton and

municipalities,

f. takes into account the financial capacity of municipalities and

intercantonal locational competition.

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132.1

Financial Equalization Act (FEA)

b. Sanctions

Relationship

to the new

federal financial

equalization

Offsetting,

trivial contributions

Inflation

adjustment

Definitions

2 Contributions are generally granted to municipalities without specific

earmarking; contributions in the cultural sector under § 28 para. 2

within the framework of center load equalization remain reserved.

3 Contributions may be tied to conditions.

1 If a municipality disregards the general principles of budgeting and accounting, thereby affecting the equalization payments concerning it, the Directorate shall set a deadline for remedying the deficiencies.

2 The Directorate may withhold payments until any conditions are fulfilled.

3 If the deficiencies cannot be remedied, the Directorate shall adjust the payments accordingly.

The Canton shall ensure an appropriate equalization of burdens among the municipalities. The municipalities shall have no claim to benefits resulting from the federal financial equalization and from intercantonal cooperation involving equalization of burdens.

1. Claims established between the Canton and a municipality by virtue of this Law are set-offable.

2. Contributions under CHF 1,000 shall neither be disbursed nor clawed back.

1 If this Law provides for an instrument of financial equalization

to be adjusted for inflation, this shall be done according to the national consumer

price index.

2 The decisive factor is the index level at the end of the second calendar

year preceding the equalization year. The basis is the index level at the

end of the second calendar year before this Law came into force.

In this Law

a. Equalisation year: The calendar year in which contributions are paid or

drawn.

b. Assessment year: The calendar year whose values are decisive for the

assessment of contributions.

c. Total tax rate of the municipality: The sum of the tax rates of the

political municipality and the school municipalities. If groups of taxpayers

exist within the same municipality for whom different tax rates apply, the

weighted average of the tax rates by absolute tax capacity is decisive.

d. Cantonal average of total tax rates: The weighted average of the total

tax rates of the municipalities by absolute tax capacity. The values of the

City of Zurich are not taken into account.

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Financial Equalisation Act (FAG) 132.1

e. Number of inhabitants: The population of a corporation at the end of the

calendar year.

f. Absolute tax capacity of a municipality: The revenue from general

municipal taxes, including supplementary taxes, converted to a tax rate

of 100%.

g. Relative tax capacity of a municipality: The absolute tax capacity of a

municipality divided by the number of inhabitants.

h. Cantonal average of relative tax capacity: The sum of the absolute tax

capacity of all municipalities divided by the number of inhabitants of the

canton. The values of the City of Zurich are not taken into account.

i. Tax rate index: The cantonal average of total tax rates in the assessment

year divided by the cantonal average of total tax rates in the second year

preceding the entry into force of this Law.

1. Financial Equalization is carried out by the Directorate of the Government Council (Directorate) responsible for municipalities.

2. The Directorate shall notify the political municipalities of the estimated contributions in due time for their inclusion in the budgets.

3. It shall pay out the contributions in the middle of the equalization year; subject to this are the grants and clawbacks of the resource equalization pursuant to §§ 13 and 16, and the contribution payments for the individual special burden equalization pursuant to § 26 Abs. 4.

4. Payments shall be made between the Canton and the political municipalities.

Competence and Procedure

Part 2: Instruments of Financial Equalization

Section 1: Resource Equalization

A. General Provisions

1 The resource equalisation aims to reduce the target and

differences between the overall tax rates of the municipalities. It instruments

ensures that the relative tax capacity is at least 95% of the cantonal

average (equalisation threshold).

2 It comprises resource grants to financially weak municipalities

and resource levies on financially strong municipalities.

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Financial Equalisation Act (FAG)

B. Resource Grant

Eligibility

Assessment

Disbursement

Obligation

Assessment

1. Political municipalities whose relative fiscal capacity falls below the equalization threshold are entitled to a resource grant.

2. School municipalities are entitled to a share of the resource grant from the political municipalities.

**1 Amount of the Resource Grant**

1 The amount of the resource grant depends on the difference between the relative tax capacity of the municipality and the equalisation threshold, and is proportional to the number of inhabitants as well as to the total tax rate. Formula 1 in Annex 1 to this Act is decisive.

2 The share of school municipalities is determined by the ratio of the school municipality's tax rate to the total tax rate of the municipality. If a school municipality does not cover the entire territory of the political municipality, the ratio of the absolute tax capacity of the school municipality within the territory of the political municipality to the absolute tax capacity of the political municipality is additionally taken into account. Formula 2 in Annex 1 to this Act is decisive.

3 The assessment year is the second calendar year preceding the equalisation year.

The Directorate pays the political municipalities the grants by the end of October of the equalization year.

C. Resource Deprivation

1 Resource extraction occurs in political communes whose relative tax capacity exceeds the cantonal average by more than 10% (extraction threshold).

2 Political communes have a claim against school communes for participation in resource extraction.

1 The amount of resource equalisation depends on the difference

between the relative fiscal capacity of the municipality and the equalisation

threshold, and is proportional to the number of inhabitants, the equalisation

rate of 70%, and the tax rate index. Formula 3 in Annex 1 to this Act is decisive.

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Financial Equalisation Act (FAG)

132.1

2 The share of school districts is determined by the ratio

of the school district's tax rate to the total tax rate of the municipality.

If a school district does not cover the entire area of the political municipality,

the ratio of the absolute fiscal capacity of the school district within the area of the political municipality

to the absolute fiscal capacity of the political municipality is additionally taken into account.

Formula 4 in Annex 1 to this Act is decisive.

3 The assessment year is the second calendar year preceding the equalisation year.

The Directorate collects the levies from the political municipalities annually by the end of September of the equalization year.

2. Section: Demographic Special Burden Equalization

**The Demographic Special Burden Equalization**

**Goal**

The demographic special burden equalization compensates political municipalities for special burdens resulting from a high proportion of residents under 20 years of age.

1 Entitled to claim are political municipalities in which the proportion of

residents under 20 years of age to the total number of residents

of the municipality exceeds the corresponding proportion in the canton by

1.1 times (claim threshold). The values for the City of Zurich are not taken

into account.

2 Municipalities whose total tax rate is 0.75 times the cantonal average or

less are not entitled to claim.

3 School municipalities are entitled to participate in the equalization payments

made to the political municipalities.

1 Political municipalities receive a lump sum of CHF 12,000 for the number of residents under 20 years of age that exceeds the entitlement threshold according to § 18 para. 1. This amount is adjusted annually for inflation.

2 Political municipalities with a total tax rate equal to or greater than 1.3 times the cantonal average receive the full contribution according to Formula 5a in Annex 1 to this Act.

3 Political municipalities with a total tax rate less than 1.3 times, but greater than 0.75 times the cantonal average, receive a linearly reduced contribution according to Formula 5b in Annex 1 to this Act.

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Financial Equalization Act (FEA)

4 The political municipality involves the school municipalities in the demographic special burden equalization according to the ratio of the number of pupils in the school municipality to the number of persons under 20 years of age in the political municipality. Formula 5c in Annex 1 to this Act is decisive.

5 The assessment year is the second calendar year preceding the equalization year.

Objective

Entitlement

Assessment

Section 3: Geographical-Topographical Special Burden Equalization

The geographically-topographical special burden equalization compensates

for the particular burdens of a political municipality due to its low

population density and its difficult topographical conditions.

**1 Eligible are political municipalities,**

a. whose population density is less than 150 persons per square

kilometer or

b. where more than 15% of the municipal territory has a slope inclination

of over 35% (slope index).

**2 Municipalities whose total tax rate is 0.75 times the cantonal

average or less are not entitled.**

1 The amount of the contribution is directly proportional to the slope

index and the population of the municipality and inversely proportional

to its population density. The contribution is adjusted annually for

inflation.

2 Political municipalities with a total tax rate equal to or

greater than 1.3 times the cantonal average receive the full contribution

according to formula 6a in Annex 1 to this Act.

3 Political municipalities with a total tax rate less than

1.3 times, but greater than 0.75 times the cantonal average receive

a linearly reduced contribution according to formula 6b in Annex 1 to

this Act.

4 The assessment year is the second calendar year preceding the

equalization year.

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Financial Equalization Act (FAG)

4th Section: Individual Equalization of Special Burdens

132.1

**Individual Special Burden Equalization** balances special burdens of a political municipality that

a. cannot be influenced by it, and

b. are not covered by either the demographic special burden equalization or the geo-

graphical-topographical special burden equalization.

1 Political communes that, in the entitlement compensation year, must set a total tax rate that is above the compensation tax rate, are entitled to make a claim.

2 The compensation tax rate corresponds to 1.3 times the cantonal average of the total tax rates of the second calendar year preceding the compensation year.

3 The cities of Zurich and Winterthur are not entitled to individual special burden compensation.

1 Equalization of burdens according to § 23 shall be provided insofar as they lead to assessable expenditures that exceed the equalization threshold.

2 Expenditures of a municipality exceed the equalization threshold if the municipality could not cover that part of the expenditures with the equalization tax rate according to § 24 Abs. 2.

3 The assessment year is the equalization year.

1 Political municipalities applying for contributions from the individual procedure for special burden equalization must itemize and substantiate the special burdens in detail. They submit all documents required for examination, along with the draft budgets, to the Directorate by no later than the end of August of the year preceding the equalization year.

2 The Directorate provisionally determines the amount of the contribution and pays it out to the municipality.

3 The final determination of the contribution is made after the examination of the municipal accounts. The Directorate submits the proposal for the determination to the expert advisory board for an opinion.

4 Payments and repayments according to para. 3 are made 30 days after the legal force of the corresponding decision enters into effect.

5 For extraordinary events during the equalization year, contributions can be claimed until the end of March of the year following the equalization year.

1 Expert Advisory Board advises the Executive Board on the execution of the individual special burden equalization.

Expert Advisory Board

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Financial Equalization Act (FAG)

2 The Government Council elects two representatives each from the Canton and the Municipalities.

3 The representatives elect an external, independent expert as Chair of the Board.

4 Insofar as the special burdens of the Municipalities concern the areas of responsibility of other Directorates of the Government Council, these are to be invited to comment.

Objective and

Design

Assessment

a. Zurich

b. Winterthur

5. Section: Center Burden Equalization for the Cities of Zurich and Winterthur

1 The equalization of central burdens aims at an appropriate,

lump-sum compensation for the special burdens and special services

provided by the cities of Zurich and Winterthur.

2 This is provided in the form of a non-earmarked general

contribution and an earmarked contribution for the cultural sector, the amount of which

corresponds to a percentage of the total contribution.

1 The equalization of central burdens for the City of Zurich amounts to

CHF 412.2 million. It is adjusted for inflation.

2 The earmarked cultural share amounts to 10.7%.

1. Compensation for Central Functions for the City of Winterthur

amounts to CHF 86 million. It will be adjusted for inflation.

2. The earmarked cultural share amounts to 6.9%.

Effectiveness Report

Part 3: Final and Transitional Provisions

1 The Cantonal Government shall submit a report to the Cantonal Council at least every four years on the implementation and effectiveness of this Act.

2 The report shall provide information on

a. the achievement of the goals of fiscal equalization in the past period,

b. changes in the distribution of public tasks between the Canton and the municipalities, as well as the resulting impacts on the municipalities’ room for manoeuvre and finances,

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Fiscal Equalization Act (FEA)

132.1

c. the development of municipal resources and their burden due to the fulfilment of necessary tasks.

3 If resource differences or the burden on municipalities have significantly changed, the Cantonal Government shall propose a revision of the Act to the Cantonal Council, taking into account the new circumstances.

The Law on State Contributions to Municipalities and

on Financial Equalization of September 11, 1966 is repealed.

The existing law is amended in accordance with Annex 2.

1 In the year of the entry into force of the new law (equalization year), tax capacity according to § 8 lit. f–h is determined based on the average of the fourth, third, and second calendar years preceding the equalization year.

2 The values of the fourth and third calendar years according to paragraph 1 are indexed to the second calendar year preceding the equalization year using the national consumer price index.

3 Subsequent taxes according to § 8 lit. f are not included.

Repeal of existing law

Amendment of existing law

Assessment of tax capacity in the year of entry into force

1. Transitional Equalization facilitates the transition for municipalities with particularly high tax burdens from the former to the new Financial Equalization Law, providing them sufficient time for the necessary adjustments.

2. The transitional equalization will be paid for six years from the entry into force of this law.

1 Entitlement to transitional equalisation payments is held by political communities that, despite contributions from the other instruments of this Act, would have to levy an overall tax rate exceeding the benchmark overall tax rate pursuant to paragraphs 2 and 3 (tax rate overhang) to balance their budget.

2 In the year this Act comes into force and in the following year, the benchmark overall tax rate corresponds to the maximum tax rate as determined under § 27 para. 2 of the Financial Equalisation Act of 11 September 19666 in its last year of validity.

3 For subsequent years, the benchmark overall tax rate is set as follows

a. from the beginning of the third year, to the cantonal average of overall tax rates increased by a factor of 1.25,

b. from the beginning of the fifth year, to the cantonal average of overall tax rates increased by a factor of 1.35.

4 The second calendar year preceding the equalisation year is decisive for the cantonal average.

5 The cities of Zurich and Winterthur are not entitled to transitional equalisation payments.

b. Entitlement

c. Calculation

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132.1 Financial Equalisation Act (FAG)

1 The full tax rate surplus is offset.

2 The municipality must undertake reasonable, own efforts to reduce

the current and future tax burden; these include in particular cooperation

or merger with other municipalities.

3 For expenditures and the waiver of revenues that contradict para. 2

or the principles according to § 3, § 4 shall apply.

4 The assessment year is the equalization year.

d. Procedure

Existing Funds

a. Investment

Funds

b. Equalization

Funds

Waiver of

Reductions

in Tax Equalization

The procedure for municipalities claiming contributions from the transitional equalization is governed mutatis mutandis by § 26 para. 1–4, however, without the involvement of the expert advisory board and without retroactive payment.

1 The Investment Fund according to §19 of the Financial Equalization Act

of September 11, 1966 shall be abolished in the year this

Act comes into force.

2 Payments of contributions already committed shall be charged to the State accounts

in the year of disbursement.

The resources of the Compensation Fund according to § 9 of the Financial Equalization Act of September 11, 1966º shall be used for financing the transitional equalization.

After this law comes into force, the reduction and clawback of equalization contributions under §§ 9-18 of the Financial Equalization Act of 11 September 19666 shall be waived.

1 OS 66, 747.

2 Entry into force: 1 January 2012.

3 ABI 2009, 172.

4 ABI 2010, 1015.

5 LS 131.1.

6 LS 132.1.

7 LS 132.2.

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Financial Equalization Act (FAG)

132.1

8 LS 412.100.

9 LS 440.1.

10 LS 700.1.

11 LS 711.1.

12 LS 722.1.

13 LS 722.2.

14 LS 724.11.

15 LS 730.1.

16 LS 810.1.

17 LS 851.1.

18 LS 852.1.

19 For text, see OS 66, 747.

20 Repealed (OS 66, 524).

21 Repealed (OS 65, 613).

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132.1

Appendix 1

Financial Equalization Act (FAG)

Formula 1

Resource Grant to Political Municipalities (§§ 10–13)

The resource grant Z to a political municipality i in the equalization year t is

Zi;t = (SKRkM;t−2 × 95% – SKRi;t−2) × Ei;t-2 × GSFi;t-2

Legend

Ei;t-2 Number of inhabitants of political municipality i in the reference year t–2

(§ 8 lit. b and e)

SKRi;t-2 Relative fiscal capacity of the political municipality i entitled to equalization

in the reference year t–2 (§ 8 lit. b and g)

SKRKM;t-2 Cantonal average of relative fiscal capacity in the reference year t–2 (§ 8

lit. b and h)

GSFi;t-2 Total tax rate of political municipality i in the reference year t-2 (§ 8 lit. b

and c)

Formula 2

Share of School Municipalities in the Resource Grant

(§§ 11 para. 2 and 12 para. 2)

The share of a school municipality u in the resource grant Z of a political municipality i

in the equalization year t is

Zu;t = Zi;t × (SFu;t-2 / GSFi;t−2) × (SKAu;t–2 / SKAi;t−2)

Legend

SKAi;t-2 Absolute fiscal capacity of political municipality i in the reference year t-2

(§ 8 lit. b and f)

SKAu;t-2 Absolute fiscal capacity of school municipality u in the territory of political

municipality i in the reference year t–2 (§ 8 lit. b and f)

GSFi;t-2 Total tax rate of political municipality i in the reference year t-2 (§ 8 lit. b

and c)

SFu;t-2 Tax rate of school municipality u in the reference year t–2 (§ 8 lit. b)

Zi;t Resource grant to political municipality i in the equalization year t (§ 8 lit. a)

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Financial Equalization Act (FAG)

132.1

Formula 3

Resource Clawback from Political Municipalities (§§ 14–16)

The resource clawback A from a political municipality i in the equalization year t is

Ai;t

= (SKRi;t-2 - SKRkM;t–2 × 110%) × 70% × Ei;t−2 × (GSFкм;t–2 / GSFKM;-2)

Legend

Ei;t-2

Number of inhabitants of political municipality i in the reference year t–2

(§ 8 lit. b and e)

SKRi;t-2

Relative fiscal capacity of the political municipality i subject to equalization

in the reference year t–2 (§ 8 lit. b and g)

SKRKM;t-2 Cantonal average of relative fiscal capacity in the reference year t–2 (§ 8

lit. b and h)

GSFKM;t-2 Cantonal average of total tax rates in the reference year t-2 (§ 8 lit. b, d

and i)

GSFKM;-2

Cantonal average of total tax rates in the second year preceding the entry

into force of this law (§ 8 lit. d and i)

Formula 4

Share of School Municipalities in the Resource Clawback

(§§ 14 para. 2 and 15 para. 2)

The share of a school municipality u in the resource clawback A of a political

municipality i in the equalization year t is

Au;t

= Ai;t × (SFu;t-2 / GSFi;t−2 ) × (SKAu;t−2 / SKAi;t−2)

Legend

Ai;t

Resource clawback from political municipality i in the equalization year t

(§ 8 lit. a)

SKAi;t-2

Absolute fiscal capacity of political municipality i in the reference year t-2

(§ 8 lit. b and f)

SKAu;t-2

Absolute fiscal capacity of school municipality u in the territory of political

municipality i in the reference year t–2 (§ 8 lit. b and f)

GSFi;t-2

Total tax rate of political municipality i in the reference year t-2 (§ 8 lit. b

and c)

SFu;t-2

Tax rate of school municipality u in the reference year t–2 (§ 8 lit. b)

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Financial Equalization Act (FAG)

Formulas 5a, 5b and 5c

Demographic Special Burden Equalization (§§ 17–19)

Formula 5a

The full contribution Bv of the demographic special burden equalization to a political

municipality i in the equalization year t is

Bvı;t = [(P–20i;t–2 / Ei;t–2) – (P–20K;t–2 / EK;t–2) × 110%] × Eı;t–2 × PP0 × (It–2 / I-2)

Formula 5b

The reduced contribution Bg of the demographic special burden equalization to a

political municipality i in the equalization year t is

Bgt;t = Bvt;t – Bvt;t × (GSFkm,t–2 × 1.3 – GSFi,t–2) / GSFkm,t–2 × 0.55

Formula 5c

The share of school municipality Bau in the contribution of the demographic special

burden equalization to political municipality i in the equalization year t is

Bau;t = Bvı;t × (Su;t-2 / P–20i;t-2)

Legend

Bi;t

Contribution to political municipality i for the demographic special burden

equalization in the equalization year t (§ 8 lit. a)

Eit-2

Number of inhabitants of political municipality i in the reference year t–2

(§ 8 lit. b and e)

Ekt-2

Number of inhabitants of the Canton excluding the City of Zurich in the

reference year t–2 (§ 8 lit. b and e)

GSFi,t-2

Total tax rate of political municipality i in the reference year t-2 (§ 8 lit. b

and c)

GSFKM,t-2 Cantonal average of total tax rates in the reference year t-2 (§ 8 lit. b and d)

It-2

Index of Consumer Prices at the end of the reference year t–2 (§ 8 lit. b

and § 7)

I-2

Index of Consumer Prices at the end of the second year preceding the

entry into force of this law (§ 7)

PPO

Flat rate per inhabitant under 20 years of age in the year this law comes

into force (§ 19 para. 1)

P-20i;t-2

Number of inhabitants (persons) under 20 years of age of political

municipality i in the reference year t–2 (§ 8 lit. b and e)

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Financial Equalization Act (FAG) 132.1

P-20K;t-2 Number of inhabitants (persons) under 20 years of age of the Canton

excluding the City of Zurich in the reference year t–2 (§ 8 lit. b and e)

Su;t-2 Number of pupils of the school municipality in the school year beginning in

the reference year t–2 (§ 8 lit. b)

Formulas 6a and 6b

Geographical-Topographical Special Burden Equalization (§§ 20–22)

Formula 6a

The full contribution B∨ of the geographical-topographical special burden equalization

of a political municipality i in the equalization year t is

Bvi;t = (400 - Di,t-2 + 15 × Si;t-2 × 100) × Ei;t−2 × (It-2 /1-2)

Formula 6b

The reduced geographical-topographical special burden equalization Bg of a political

municipality i in the equalization year t is

Bgi;t = Bvi;t - Bvi;t × (GSFkm,t–2 × 1.3 – GSFi,t–2) / GSFkm,t–2 × 0.55

Legend

Bvi;t Full contribution of the geographical-topographical special burden equalization

to political municipality i in the equalization year t (§ 8 lit. a)

Di,t-2 Population density of political municipality i in inhabitants per square kilometer

in the reference year t–2 (§ 8 lit. b)

Ei;t-2 Number of inhabitants of political municipality i in the reference year t–2

(§ 8 lit. b and e)

It-2 Index of Consumer Prices at the end of the reference year t–2 (§ 8 lit. b

and § 7)

I-2 Index of Consumer Prices at the end of the second year preceding the

entry into force of this law (§ 7)

Si;t-2 Share of the territory of political municipality i with a slope exceeding 35%

(slope index)

GSFi,t-2 Total tax rate of political municipality i in the reference year t-2 (§ 8 lit. b

and c)

GSFKM,t-2 Cantonal average of total tax rates in the reference year t-2 (§ 8 lit. b and d)

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Financial Equalization Act (FAG)

Appendix 2

Amendment of Existing Law (§ 33)

a. The Municipal Act of 6 June 19265 shall be amended as follows: . . .19

b. The State Contributions Act of 1 April 19907 shall be amended as follows: ...19

c. The Public School Act of 7 February 20058 shall be amended as follows: ...19

d. The Cultural Promotion Act of 1 February 19709 shall be amended as follows: ...19

e. The Spatial Planning and Public Building Law of 7 September 197510 shall be

amended as follows: . . .19

f. The Implementing Act to the Water Protection Act of 8 December 197411 shall be

amended as follows: . . .19

g. The Road Act of 27 September 198112 shall be amended as follows: ...19

h. The Implementing Act to the National Road Act of 24 March 196313 shall be

amended as follows: . . . 19

i. The Water Management Act of 2 June 199114 shall be amended as follows: ...19

j. The Energy Act of 19 June 198315 shall be amended as follows: . . .19

k. The Law on Health Care (Health Act) of 4 November 1962 (cf. Appendix to the

Health Act of 2 April 200716) shall be amended as follows:20

l. The Social Assistance Act of 14 June 198117 shall be amended as follows: ...19

m. The Youth Welfare Act of 14 June 198118 shall be amended as follows: ...19

n. The Law on State Contributions for Homes for the Elderly as well as Homes,

Integration Facilities and Workshops for the Disabled of 4 March 197321

16