Paraguay Usaid Proyecto de Financiación Municipal

IMPROVING MUNICIPAL
GOVERNANCE
Paraguay Municipal Finance Project Final Report
JANUARY 31, 2006

This publication was produced for review by the United States Agency for International Development.
It was prepared by Chemonics International Inc.
CHEMONICS / LUIS RODRGUEZ
A citizen enters the municipality of Santa Rita.
IMPROVING MUNICIPAL
GOVERNANCE
Paraguay Municipal Finance Project Final Report
Contract No.: PCE-I-03-99-00007-00
The authors views expressed in this publication do not necessarily reflect the views of the
United States Agency for International Development or the United States Government.

TOP: Construction of a municipal

warehouse in the municipality of
Coronel Bogado.
CENTER: Cleaning a road drainage

system in the municipality of
Presidente Franco.
BOTTOM: Youth in the playground
of the plaza of the municipality of
Coronel Bogado.
CONTENTS
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE MUNICIPAL FINANCE APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . 9
ACCOMPLISHMENTS FY 2002 - 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PROJECT ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
NEXT STEPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
CD ROM INDEX (ANNEXES) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
FRONT COVER: Constructing an entrance gate in a city plaza

(municipality of Coronel Bogado).
CONTENTS
iii
EXECUTIVE
SUMMARY
The Paraguay Municipal
Finance (MFP) project helped
municipalities better manage
their revenue sources to increase
the funds available for public
works and services in their communities. The project introduced mechanisms to promote
transparency and accountability
in tax administration and service
delivery, as well as citizen participation. By encouraging local
governments to respond more
effectively to public needs, the
project fostered greater confidence in the political system.
Key project results include:
Financial resources increased.
Property and commercial
tax collections increased by
over 50 percent in 24
municipalities.
Financial position improved.
Balanced or substantially
improved financial position
in 24 municipalities.
Public services improved. 261
public works or service projects completed in 23 municipalities, including roads,
bridges, schools, sanitation
infrastructure, and recreational areasall in compliance with environmental

regulations when applicable.
Local capacity strengthened.
24 municipalities received
training to increase local revenues and investments in
services, and to strengthen
citizen participation, transparency, accountability, and
integrity in municipal operations. Seven local subcontractors and NGOs were
involved in the project and
are now capable of providing
technical assistance to other
beneficiaries. Three departmental governments established municipal support
units to replicate the projects methodology in other
municipalities.
Transparency, accountability,
citizen participation, ethical
practices, and sustainability
promoted. Public outreach
mechanisms were implemented in 20 municipalities,
including public budget and
account rendering hearings,
transparency fairs, local gov-
EXECUTIVE SUMMARY
ees must be involved in the

process from the beginning.
ernment days, bulletin boards,

computerized information systems, and ethical codes.
A strong public information

campaign ensured broader
community participation,
acceptance, and sustainability.
To achieve broad-based support, citizen groups should be
informed of project objectives
before the project begins.
KEY CONCLUSIONS AND

RECOMMENDATIONS
The MFP achieved, and in
some cases exceeded, all targeted results in compliance
with the monitoring plan.
The updated cadastre system,
litigious module, and training
for municipal staff were the
cornerstones for improved
management of increased
financial resources.
Legal inconsistencies at the

national level should be
addressed. The Servicio
Nacional de Catastro (SNC)
needs to coordinate with
municipal governments to
determine how property values will be updated in its central database and when revised
property values may be
applied for taxation purposes.
Laws enacted prior to the
1992 Constitution relating to
the determination of city limits, property zoning, and assignation of property values
should be reviewed to ensure
that they are consistent with
the new Constitution.
The key to reforming municipal governance and improving

works and services was to first
provide tools to improve
financial resources.
Local commitment was essential to project success. The

mayor must demonstrate formal commitment to the project by signing a memorandum
of understanding and the city
council members and employ-
EXECUTIVE SUMMARY
Mayor Francisco Barboza explains a

community project to citizens in the
municipality of Presidente Franco.
INTRODUCTION
Recognizing the decades of dictatorship that Paraguay endured
until 1989 and the fragile
democracy that has since
emerged, USAID/Paraguays primary Strategic Objective is to
foster key democratic governance practices. This goal is
consistent with Paraguayan
trends toward greater local control of resources, accountability
to the public, popular participation, and citizens exercising their
rights and responsibilities. A
draft decentralization law was
first presented in 2001 to the
national Congress with the aim
of empowering local governments and ensuring that they
have the authority and resources
to grow democratically. USAIDs
Municipal Finance Project
(MFP), initiated at the beginning of FY 2002 to create more
effective and accountable local
governments, grew to be one of
the most important in
USAID/Paraguays democracy
and governance portfolio. This
report details the culmination of
4 years of technical assistance to
more than 20 local governments
in Paraguay.
PROJECT OBJECTIVE
In 2001, many Paraguayan communities were frustrated. Their
leaders promised change, but they
rarely acted on the publics
requests. Many municipalities
were in debt from prior administrations mismanagement, some
employees had not been paid in
months, and the municipalities
did not know where new funds
would come from or how to best
use their modest existing funds.
They did not realize the extent of
back taxes owed by property owners and commercial institutions,
nor did they realize that their
property information was outdated, rendering it impossible to
locate a business owner, property
owner, or even the property itself
at times. If the municipalities had
computer systems, they were often
old and needed to be replaced.
USAID/Paraguay worked with
16 municipalities under the
Sustainable Urban Management
(SUM) project to implement
more than 21 service delivery
projects prior to the end of FY
2003. While the SUM project
focused on the construction of
works and service projects,
INTRODUCTION
USAID intended for the MFP

project to complement the SUM
project by helping municipalities
access additional capital and
invest it in works and services in
a participatory, transparent,
accountable, ethical, and sustainable manner. As part of the program, participating local governments analyzed their finances,
determined which funding
sources they were most dependent upon, and chose a percentage
of public funds to invest in services and infrastructure. Once the
mayors and city councils were
comfortable with their financial
positions, they became more
open to discussing the budget
with the municipal employees
and the community.
The objective of the project was
not merely to increase revenues,
but also to help establish at least
two public service delivery projects in each community. This
included at least 10 components
that were meant to ensure that
both the public works and participatory processes were sustainable.
These components are discussed
in detail in Accomplishments.
EVOLUTION OF
THE PROJECT
The MFP project, originally
called the Municipal and Rural
Finance project, began in
September 2001. It was initially
designed to assist financial institutions and increase the ability of
rural and urban municipalities
and small businesses to access
commercial loans and other

financial services.
Within the first six months of
project implementation, however, the team discovered that the
municipalities were a long way
from accessing commercial loans
and had to first focus on alternative funding mechanisms. The
project decided to reevaluate the
process of collecting commercial
and property taxes.
In August 2003, USAID and
Chemonics narrowed the scope
to activities within municipal
governments, thus forgoing the
activities associated with rural
finance. It increased the budget
by approximately $5 million and
the period of performance by 33
months. The project now had 2
targets to implement 50 service delivery projects in 38
municipalities.1 The revised
scope of work more clearly articulated the Missions objectives
for the project, expanding upon
the expectations within the
municipalities, most specifically
by implementing new or
improved mechanisms for citizen
participation, transparency,
accountability, and integrity in
tax administration and service
delivery. These elements were
known together as TAPES.2
In November 2004, the project
completed its mid-term evaluation, which generated many concrete steps for 2005: these included shoring up the communitylevel work under TAPES in several
of the graduated municipalities
1 The results in the original task order referenced 10 service delivery projects in 6 municipalities, among other results associated with the rural
finance component.
2 Transparency, Accountability, Participation, Ethics, and Sustainability. TAPE means way or road in Guaran, the local indigenous language,
understood by 90 percent of Paraguayans.
INTRODUCTION
(municipalities in which the

MFP had completed its intensive
assistance), follow-up monitoring work with the earlier municipalities, and providing greater
attention to new Municipal
Support Units (Unidad de Apoyo
Municipal [UAM] established in
the governorships3) and national
policy-level discussions. At the
same time, for reasons unrelated
to the mid-term evaluation, Peter
Doty resigned as chief of party.
Miguel A. Rivarola was later
approved as COP.
However, in January 2005, 20
months before the expected end
of the project, USAID notified
the project that it would not
receive additional funds beyond
its then-current obligated
amount due to cuts in the
Economic Support Fund (ESF),
thus forcing the project to terminate activities ahead of schedule.
The project stopped all work
with potential new municipalities and canceled activities or
limited technical assistance in
the municipalities in which it
already worked. The targets were
cut from 38 municipalities to 20
municipalities with an associated
80 works and services. Although
the project did manage to reach
these targets, not all the municipalities received the technical
assistance necessary to address all
the thematic topics defined in
the master plan of activities,

which mostly affected the
TAPES components of the project, and the monitoring phase.4
EXPECTED RESULTS
The project was to accomplish
the following results:
1. At least 80 service delivery
projects in at least 20 local
governments or their private
partners funded with alternative financial mechanisms
including revenue enhancement in an effective, participatory, transparent,
accountable, integrity-oriented, and sustainable manner.
2. At least two regional entities
supported and strengthened in
providing technical assistance to
local governments as a means to
replicate successful practices and
ensure sustainability.
To achieve these results, the
MFP identified 10 components
in the 2004 work plan. In conjunction with the work plan, the
project developed a monitoring
plan with quantitative indicators
to measure the progress of each
component. Within each component, the project also defined
a series of activities to carry out
in the municipalities. The activities, mechanisms, indicators, and
components are discussed in
detail in Accomplishments.
3 Governorships were established in the 1992 Constitution to coordinate municipal and departmental activities within the central government.
4 There is significant crossover among the TAPES activities.The project was designed so that each component would reference specific indicators
and achievements separately. However, one activity often influences or contributes to more than one component. For example, a public hearing
has significant implications for accountability, but it also builds transparency and citizen participation.
INTRODUCTION
CHEMONICS / LUIS RODRIGUEZ
RIGHT: Constructing a path with

stones from the municipal quarry
in the municipality of Emboscada.
INTRODUCTION
LEFT: Mayor Blas Lanzoni converses

with Demetrio Gonzlez in the
municipality of emby.
MUNICIPAL FINANCE PROJECT

Geographic Area of Influence
This map shows the

locations of the 24
municipalities that
received technical
assistance from the
Municipal Finance
Project.
Paraguay
Asuncion
INTRODUCTION
SUCCESS STORY
Neighbor Collects From a Neighbor
An innovative strategy among neighbors helped the municipality of emby
increase tax collections by 120 percent, which allowed it to improve community services.
emby was immersed in a financial crisis at the end of 2002: the
municipality had large debts, civil servants pay was five months behind,
very little tax was collected, and few community services were offered.
The mayor, worried about the situation, signed an agreement with the
MFP project and summoned the citizens to unite forces in search of
change.
The project designed the Neighbor Collects from a Neighbor (Vecino

Cobra a Vecino) program to improve the collection of property taxes
through neighborhood committees.The program improves municipal
finances and ensures transparency by training citizens how to deliver tax
notifications to their neighbors.
Elvio Barrios in the playground of embys

central park.
The mayor offered to invest 30 percent of the taxes collected in public

works and services in the participating neighborhoods, according to
their needs and priorities.This incentive motivated the residents, who
enthusiastically implemented the program.
The program quickly produced results: in 11 months, property taxes
and license fees increased by 120 percent over the amount collected
the previous year.That facilitated new investments in public works and
services benefiting the community.
The residents of the Villa Anita neighborhood who had resisted paying
their taxes became the most enthusiastic proponents of complying with
the law, informing the community of its rights and obligations, and collecting taxes from other neighbors.Tax revenues were used to build a
playground, construct a wall, level the ground of a sports field, and
improve the neighborhood plaza. Thanks to the Neighbor Collects
from a Neighbor program, we all work together for our community,
says Agustn, a member of the neighborhood committee.
In the case of the Pa neighborhood committee, the additional tax
revenues were invested to repair the square and pave a street full of
potholes that was previously impassable. Rosa, a resident, said, The
paving of Mara Auxiliadora street is a blessing. For more than than 20
years, this street made us all suffer and nobody listened to our requests.
This achievement positively affects our lives.
CHAPTER 1
THE MUNICIPAL
FINANCE APPROACH
Once a municipality expressed
interest in working with the project, technical assistance typically
lasted 15 months. First, the objectives of the project were explained
and project staff requested information from the municipalities to
gauge their interest in and commitment to adopting the changes
suggested by the team. The
municipalities then signed a memorandum of understanding, agreeing to implement the projects recommendations and to dedicate
income to new works and services
selected in conjunction with the
community. The next stage initially focused on tax collection, then
shifted to implementation of
works and services, and ultimately
focused on strengthening civil
society. The final stage, after the
initial 15 months, was the monitoring period, wherein the project
viewed from a distance whether
municipalities were assuming
ownership of the changes.
The first step in increasing tax
collection was improving the
cadastre system. Project staff
explained the importance of
improving the tax collection sys-
tem to municipalities, and evaluated property values and applicable legal regulations. They then
guided the municipalities in
identifying the most indebted
taxpayers and notifying them of
their outstanding payments.
Targeting the major delinquent
taxpayers was the quickest way to
earn additional income while
demonstrating the seriousness of
the activity to the community.
The project also trained the
municipalities to invest in information technology (IT) and
administrative changes, from
updating the technology available
in the offices to implementing
electronic income information
systems and improving organizational structure and work flow.
The original focus of the MFP
was on increasing revenues.
Once the financial resources
were improved, the objective was
to utilize the resources to implement works and service delivery
projects while strengthening civil
society, citizen participation, and
municipal management. As the
municipalities became more
comfortable with their increased
THE MUNICIPAL FINANCE APPROACH
TRAINING
METHODOLOGY
In most cases, the consultants
brought the municipal staff
together for an introductory
workshop and followed up with
on-the-job training. The project
placed a consultant within each
municipality, who guided the
municipality through all tasks
aimed at implementing visible
and sustainable change. This
day-to-day, hands-on, on-the-job
training enabled the consultants
to witness municipal struggles,
gain trust, motivate employees,
change perspectives, and improve
work habits. The in situ knowledge transfer was also complemented by workshops such as
Efficient Communication, A
Question of Compromise, and
Legal Aspects, which ensured
that municipal employees had
the tools to implement cultural
and technical changes within
their municipalities.
revenues and the project shifted

its focus, the TAPES components were woven into all aspects
of the consultancy, from the
selection of works and services to
the implementation of workshops dedicated to ethical behavior. In retrospect, the TAPES
components should have
received greater attention from
the beginning.
The project team developed a standardized approach to work with

municipalities and assembled a
technical guide for the consultancy
assignments to streamline adaptations of the methodology and leave
a valuable written resource for
Paraguay. The guide was distributed in electronic format to all
municipalities that worked directly
with the project. This approach is
written in detail in Spanish in the
master technical guide, which was
available via the projects Web site
and should now be available from
the USAID library.
10
THE MUNICIPAL FINANCE APPROACH
Carlos Galarza and Victoria Meza,

members of the technical team of
the Environmental and Social
Studies Center (CEAMSO).
CHAPTER 2
ACCOMPLISHMENTS
FY 2002 - 2005
The following sections reflect
the 10 components listed in the
work plan, in the order that
each was addressed in each
municipality.
ILLUSTRATIVE RESULTS
Cumulative increase of $5.2
million in financial resources
in 24 municipalities.
20 cadastre systems updated.
4 new geographic
information systems
implemented.
9 basic geographic
information system tools
implemented to create
detailed maps.
14 satellite photos purchased.
FINANCIAL
RESOURCES
IMPROVEMENT
The first municipality to work
with the project was Coronel
Oviedo. Like many municipalities, Coronel Oviedo did not
understand its own property values and, hence, its financial status. In March 2002, when it
signed the partnering agreement,
the administration did not realize that its tax collection had
decreased by 25 percent in the
previous year. Nor did it realize
that of the 14,321 properties
registered, 40 percent had been
registered incorrectly: records
showed they were rural when in
fact they were urban, residences
when they were actually businesses, basic when they were luxurious, or single-level when they
had three levels. Moreover, at
least another 3,194 properties

had never been registered at all.
The project developed tools to
help local governments better
assess their financial condition,
including financial statements,
updated cadastre systems, litigious
processes, administrative reorganization, and improved IT systems.
FINANCIAL STATEMENTS
The project developed a financial

diagnostic tool that helps public
institutions review themselves as
a private business would do, and
better understand how to monitor and control sources of
income. Upon reviewing the
financial statements, the project
showed the municipalities that
they should not focus on granted
amounts such as royalties or
transfers, but rather on sources
that they can control, such as
property taxes.5
The project discovered that business owners in Coronel Oviedo
were likely to pay overdue taxes
more quickly than property owners, because the former depend
5 The national royalty transfers are subsidized funds that Brazil pays to Paraguay as compensation for part of Paraguays electricity generated by
the Itaipu binational hydroelectric dam.
ACCOMPLISHMENTS FY 2002 - 2005
11
on their businesses for their livelihoods. Therefore, the project

began incorporating a commercial tax component into work
plans with other municipalities,
in addition to its emphasis on
property taxes. This was an
important change in the projects
methodology.
UPDATED CADASTRE SYSTEMS
Another obstacle for Coronel

Oviedo was its outdated cadastre
system.6 Property values are

assigned by the Servicio Nacional
de Catastro (SNC), a central
cadastre based in Asuncin, with
information provided by property owners and the municipalities.
Once the SNC updates its official registers, the municipality has
the responsibility to verify the
information with the constituents, notify them of what
they owe the municipality, and
TAX COLLECTION SUMMARY
These are the cumulative

results of the projects work
$16,000
Property taxes
Commercial licenses
Other Taxes
$14,000
with 24 municipalities.The
Base Year is the year that
$12,000
US $ (Thousands)
each municipality began

$10,000
$8,929
receiving assistance, which

varied by municipality.
$8,000
$5,622
During the Paraguay
$6,000
Municipal Finance Project

$4,000
$3,108
$2,149
$2,000
$1,929
$983
$0
Base Year
During the Paraguay Municipal Finance Project
is defined as the subsequent

years that each municipality
participated in the project.
6 Cadastre systems are databases that include information about urban plans, city blocks, lists of property owners, and current property values.
12
then ensure that they pay.

Unfortunately, the SNC has been
strained for resources for many
years, and it rarely conducts site
visits or updates information.
Without updated information,
the municipalities charge taxes
based on old and incorrect property values and collect less than
what they should.
The project encouraged municipalities to update their own
cadastre systems and collect
taxes from the previous five
years, in accordance with the
Tributary Law (125/91).7 It
helped municipalities use different sources of information to
update their cadastre systems,
including satellite photos and
existing electronic databases
from different institutions. This
included connecting the databases to make the information
more accessible and user-friendly, purchasing and reviewing
satellite photos, developing
detailed maps of urban areas
according to the cadastre, and
traveling through the communities to verify the information.
Legally, there are two main steps
in updating the urban cadastre
databases: the issuance of an
executive decree defining the
urban area, and then updating
the detailed information on each

property in the SNC database.
Nearly all of the municipalities
that worked with the MFP have
the presidential decree properly
registered.8 However, not all
have their updated and verified
cadastre information properly
registered in the SNC database.
This could pose a threat to the
taxes collected should the
Supreme Court rule that the
SNC database must first be
updated before municipalities are
permitted to utilize the new
cadastre information and property values. USAID is aware of this
issue and is working with the
SNC to facilitate the registration
of updated property information.
This needs to be a more flexible
and less costly process, to ensure
that all municipalities will be
able to comply with resolution
60/04 or its modification.9
THE LITIGIOUS MODULE
Once a municipality had updated its property and tax information, the next challenge was to
confront delinquent taxpayers
and request payment of five years
in accumulated tax debt.10
The project hired a lawyer to
help the municipalities standardize their notification systems and
7 More information regarding the legal process and the connection with the updated cadastre records is provided below in the Litigious Module
section.
8 Municipalities that do not have an executive decree have applied the law of 1900, which defines the urban perimeter as a 1,000-meter radius
around the central churchs atrium.
9 Resolution 60/04 is the resolution from the central government regarding the scope and authority of the SNC.
10 In a recent court case, the comptroller ruled in favor of a taxpayer in the municipality of emby, stating that the citizen only had to pay back
taxes for the previous year, instead of the previous five years.The projects lawyer has filed for a reconsideration of the ruling. USAID should
monitor the outcome, as it may affect all municipalities working with the MFP. Coincidentally, all four lawyers consulted by the project believe
municipalities have the right to demand that citizens pay their correct taxes for the previous five years as stated in the tributary law.
13
apply it to all citizens, regardless

of their power in the community
or the risks of provoking hostility.
First, the municipality certified
the taxes owed by a property or
business owner. The project then
encouraged local governments to
identify the 20 individuals bearing the greatest tax debt and then
serve up to three written notices
over a period of 45 days. All
municipalities were advised to
block any extra-official payments.
If the delinquent taxpayers failed
to comply and their cases were
beyond the scope of the municipalitys administration, they were
turned over to the judicial system. The MFP lawyer and/or his
associates assisted in 226 court
cases, capturing US$1,290,785
in new resources.
The Constitution states that the
municipalities have political,
administrative, and normative
autonomy in addition to the
authority to collect and invest
their resources.11 The project
interpreted this to include the
authority to determine city limits, regulate property zones,
assign values, and collect taxes.
During its last year, the project
sought advice from three municipal lawyers who disagreed with
the projects initial interpreta-
tion. They argued that although

the municipalities are
autonomous, the Constitution
does not abrogate existing laws
giving explicit authority to the
SNC, nor does it provide
detailed guidance on how to collect and invest resources.12
However, the project never
explicitly advised the municipalities to ensure that their records
were updated in the SNC, but
rather advised the municipalities
to reassign values based upon
their own updated cadastre systems. If the municipalities had
waited for the SNC to update its
database, it is unlikely the project would have achieved the
same impressive results.
There is still great uncertainty over
the extent of municipal autonomy
established in the Constitution of
1992, and future Supreme Court
decisions may have a great impact
on project results.
ADMINISTRATIVE
REORGANIZATION
The MFP also promoted a number of simple structural changes

within each municipality. First,
the project insisted that the
mayor and the city council be
involved in the process, assume
responsibility, and demonstrate
11 National Constitution 1992, Article 156 (De la Estructura Poltica y Administrativa).

12 These include laws that provide guidance regarding municipal organization, functions, and responsibilities (Law 1294/87), tributary practices
regarding municipalities in the interior of the country (Law 620/76), the Tributary Law regarding taxes in Paraguay (Law125/91), the law that
updated the municipal tributary practices in the interior of the country (Law 135/91), the executive decree regulating the cadastre process (Law
51/52), and the resolution from the central government regarding the scope and authority of the SNC (Resolution 60/04).
14
SUCCESS STORY
Paying What Is Owed
A major business pays all of its taxes and the public reaps the benefits.
In early 2002, the municipality of Limpio was going through a financial

crisis and the mayor sought help from the MFP project. In order to
improve revenues, the mayor wanted to expedite the collection of
taxes from companies in the area. Experts from the MFP project
reviewed the tax collections database with municipal workers and discovered one case of tax evasion that stood out.The Rancher,* a large
meat vendor, had paid just $90 a year in taxes for several years, when it
was supposed to pay $1,500 for two large properties located in the districts most expensive area.
A resident of Limpio on the access road to

the city, arranged with the municipalitys
own funds.
The case was complex, because although The Rancher paid taxes regularly, the payments were minimal and inadequate. Because the law
authorized the municipality to recover up to five years in unpaid taxes,
local officials could charge The Rancher for the difference plus late fees
and penalties.
Project consultants and municipal employees reported the matter
immediately to the mayor, Optaciano Gmez, who said,
Gentlementhe taxpayer has to pay what he owes, no matter how
powerful he may be.
This was no simple task: the company controlled an economic empire,
and the situation called for creativity and determination. As soon as
negotiations began, problems appeared, including moments of high tension and nasty verbal confrontations.
In spite of this, thanks to training from the MFP and the persistence of
the authorities, an agreement was reached. Local leaders gave the company one year to reconcile its debt and the company proceeded to pay
five installments totaling $5,000.The mayor invested a large portion of
that money in paving streets downtown and others in more remote
areas. He also constructed a police precinct upon request from citizens.
Limpio proved that it is possible to become more efficient, increase revenues, and improve services for the community. With this achievement,
the vision and self-esteem of the authorities changed radically. It had an
impact on the community and it even changed The Ranchers attitude: it
now pays all of its taxes regularly.
* Not the actual name of the business.
interest in tax collection and its

subsequent impact in the community. The mayor and council
were expected to strengthen the
collections department by designating office space, appointing a
new director, or adding notifiers
and training them to follow
through with citizens.13
Likewise, local governments
implemented new monitoring
mechanisms to ensure that
municipal employees did not
misuse funds or tender favors to
friends or influential citizens.
Most municipalities established
collection committees consisting
of the mayor, the director of collections, the director of the
cadastre, the director of the
treasury, and members of the
municipal council, that met regularly to discuss progress. Its
principal objective was to provide oversight and plan the steps
necessary to maintain efficient
tax collection procedures.
INFORMATION TECHNOLOGY
IT systems are essential to tax

collection in the municipalities
and they deserve priority status.
Typically, municipal accounting
systems consisted of a box of
invoices and receipts, entered in
pencil into a notebook by someone on Saturdays as a secondary
job. Very few municipalities had
integrated computer networks
capable of quick, automated
information searches. If they did
have computers, they were usually too old to be of service.
At the outset, the project team

was not satisfied with the income
information systems available on
the market, so it helped develop
systems for the municipalities.
The project hired five IT specialists to rotate among the municipalities, train the employees in
Excel, guide them in upgrading
their software, set up the computer networks, and install new
systems for income, expenses,
and geographic information systems (GIS). Over the life of the
project, the team transferred system development and installation to five different firms. The
companies were required to
improve their systems in accordance with the demands of the
municipalities and the project,
and yet were given an opportunity to fairly compete for business
and specialize in tributary information systems and regulations.
By enhancing their market positions and refining their expertise,
the firms positioned themselves
to earn additional work supporting municipalities in the future.
All of the 24 municipalities and
2 governorships that received IT
guidance purchased new equipment, including 163 new computers; 21 implemented new
information systems; and 12
learned how to utilize GIS tools,
of which 4 implemented new systems provided by the project.14
The newly installed information
systems provided monitoring
mechanisms, ensured greater
13 Notifiers deliver the municipal notices to the citizens and explain how the tax values are assigned, why there are outstanding taxes from previous years, how the information was verified, and where the citizen needs to pay.
14 See Annex B: Cumulative Results.
16
transparency and accountability,

and automated the income systems and/or expense systems,
making them less prone to
human error and fraud. The
automated systems allowed the
mayor and city council to access
weekly reports on municipal
income and monitor the progress
of tax collections.
COMMUNICATIONS
CAMPAIGN
The project developed a communications campaign for the

municipalities, beginning with
municipal employees and elected
officials, and empowering them
to communicate directly with the
citizens. This is most effective
when the municipality is involved
in structuring the campaign,
developing the message, and facing the citizens directly. At first, it
was a novel and somewhat daunting practice for municipal representatives to converse in this
manner with the citizens, and
they did not communicate regularly or in an organized manner.
The MFP team learned that it
should have encouraged mayors
to develop effective communications campaigns in conjunction
with the municipality at the
beginning of each consultancy.
The communications campaign
should have explained to citizens
the importance of paying taxes
and its potential benefits to the

community, such as improved
public works, services, and inclusiveness. The campaign should
convey to citizens pertinent
budgetary information and
investment plans, and it should
establish a common ground
between authorities and municipal employees as well as open a
dialogue between citizens and
their local leaders. Effective tools
for communication include pamphlets, radio spots, neighborhood and town meetings, and
bulletin boards.
Two cases demonstrate the potential pitfalls of not having a strong
communications campaign. The
project had to pull out of two
communities because many citizens did not understand or appreciate the focus of the project and
were threatened by increased tax
collection. In San Estanislao, community members rioted outside the
municipal building while staff
members and the municipal council convened inside. In
Repatracin, the community held
a courteous town meeting but
demanded that project staff, and
staff from the governorship, leave
the community. These incidents
demonstrate that one cannot wait
for results to justify the project to
the community, but the project
must be explained and discussed
before and during implementation.
17
ILLUSTRATIVE RESULTS
261 service delivery expansions
in 23 municipalities. $2,897,283
invested in the 261 works
from royalties, municipal
revenues, and counterpart
contributions from
neighborhood commissions.
An environmental guide to
assess the feasibility of future
works and services and
comply with environmental
cer tification standards was
developed in conjunction
with Alter Vida to help all
municipalities establish
guidelines for the selection
and implementation of works
and services.
LESSON LEARNED
The project team should not
impose its own selection criteria on a municipality. As an outsider, one may see needs and
priorities differently than a
community and its municipal
leaders, but one must trust
project beneficiaries to define
their own selection criteria.
18
WORKS AND/OR
SERVICE DELIVERY
EXPANSION
Just as the MFP project worked
with governments to increase tax
revenues (money in), it also
helped them to present citizens
with concrete, tangible results in
the form of works and service
projects (money out).
Thanks to the increased financial
resources collected by the municipality, the president of one
neighborhood commission in
Villa Elisa proudly explained that
his community was able to communicate its needs and see a tangible response in the form of a
sanitary landfill, a request that
had been presented five years earlier. In addition to the sanitary
landfill, the community implemented 84 works and/or service
delivery projects, 4 of which
obtained the relevant environmental certifications.
The story of Villa Elisa is
echoed in 23 municipalities that
partnered with the MFP. The
municipalities held public meetings in which all neighborhood
commissions were invited to
present their requests for assistance. The municipalities then
formed commissions to prioritize the projects and select those
to be implemented first. Some
municipalities, like Villa Elisa
and Ciudad del Este, held smaller neighborhood meetings where
representatives from each neighborhood presented ideas for
works and services directly to
the mayor.
Some of the projects were small

in scale such as an additional
room for a school, a neighborhood playground, a plaza, a
bridge, the building of a cobblestone road, or the improvement
of a dirt road while others
were large infrastructure projects,
such as a sanitary landfill or
slaughterhouse. The larger projects usually received technical
assistance through a local organization subcontracted by the
MFP. Unfortunately, fewer of the
large service projects were implemented, due to the amount of
resources required.
The project helped municipalities adhere to environmental regulations on all types of works
and services that required environmental certification.
Municipal projects were funded
with municipal income, royalties, and governorship transfers,
while in kind contributions were
encouraged from the community
to leverage local resources and
solicit greater community participation and ownership. For
instance, citizens were required
to dedicate a given number of
hours to painting or other forms
of labor.
The project collaborated with
Ordenamiento Ambiental de
Zonas Urbanas (ORDAZUR) to
build three sanitary landfills in
Villarrica, Caaguaz, and
Coronel Oviedo. This inter-institutional coordination helped the
municipalities receive the technical support from a local subcontractor and the Federal Institute
for Geosciences and Natural
Resources (BGR), a German

assistance organization that
funded the ORDAZUR project
within the SEAM (the Secretaria
Ambiental or the Ministry of the
Environment). ORDAZUR
guided the local subcontractor,
CEAMSO, in technical matters.
ILLUSTRATIVE
RESULTS
20 municipalities
implemented public
murals/bulletin boards.
3 municipalities televised
municipal council meetings.
4 municipalities created
municipal magazines.
24 municipalities showed
proactive collection
techniques and taught
courteous contacts with
taxpayers, including careful
explanations of tax calculation
in the municipal offices and
on the street through
project-trained notifiers.
LESSON LEARNED
Municipalities should update,
systematize, and publicly post
information.
BEST PRACTICE
Dismissing fraudulent
employees. Corrupt employees
were identified and removed in
Villeta, Caazapa, Pedro Juan
Caballero, Coronel Oviedo,
Limpio, and Villarrica.
TRANSPARENCY
PRACTICES
Villarrica had not seen major
improvements to its streets in 60
years. Municipal salaries, the
municipal budget, and municipal expenditures had never been
disclosed to the public. Most
people suspected that their leaders lined their own pockets with
tax revenue without concern for
the community. Indeed, in 2003,
soon after the unveiling of a new
accounting information management system, a network of
municipal employees was discovered to have stolen more than
$32,000 from the municipality.
The suspects were fired and
remain under investigation.
Since collaborating with the
MFP, Villarrica has been dedicated to transparent practices.
Its mayor was the driving force
behind a transparency fair, the
first and only of its kind in
Paraguay. Due to the success of
the first fair, they held another
open house one year later to
focus on the accomplishments
and achievements of the previous year. Not all municipalities
are open to this type of public
review, but Villarricas upfront
approach shows other communities that greater transparency
is possible.
Another useful mechanism was

developed by the municipality of
emby. There, neighborhood
commissions notify residents of
the taxes they owe. The neighborhood commissions directly
benefit because a percentage of
the taxes collected are then utilized to build works and/or services in that neighborhood. The
methodology is transparent, it
uses social pressure, it involves
the community, and it helps
ensure that taxes will be paid
and invested in tangible works
and services.
Other mechanisms to promote
transparency are municipal bulletin boards and ordinances to
promote public access to information. The bulletin boards
publicize information like the
municipal budget, status of
income and expenditures,
salaries, the current bids open to
the public, and an organization
chart of the municipality.
ACCOUNTABILITY
PRACTICES
The municipality of Coronel
Bogado had never held a public
budget hearing of any sort and
the mayor and the municipal
council were leery of sharing
information about municipal
expenditures. In May 2003, the
mayor fled the country due to
personal debts he could not pay,
and the president of the municipal council, Wildo Alberto Giles,
assumed the position of mayor.
Mr. Giles was a prominent local
businessman who originally took
public office to assist in municipal management, never imagin-
19
SUCCESS STORY
Justice and Transparency
Paraguays first oral trial of dishonest civil servants created a model in the
fight against impunity in the municipalities.
Erwin Kaats, president of the

Commission For Villarrica.
In 2003, the municipality of Villarrica installed a custom-made computerized income information system under the guidance of the MFP project.
The system standardized and integrated municipal records on properties, property owners, and tax collections. Not long after the system
was introduced, local leaders and project consultants discovered that
dishonest civil servants had established a network that produced false
receipts and kept the institutions money for themselves, to the tune of
at least $32,000.
The mayor informed the townspeople of what had happened through
the municipalitys news media.The community was angry and demanded
justice.Two weeks later, the corrupt civil servants were indicted and for
the first time in Paraguayan history, a municipality took individuals to court
for a transparent, public, oral trial as part of the fight against municipal
corruption.The guilty parties have begun to repay the stolen money in
small increments.
This unfortunate incident was ultimately positive for the mayor and the
citizens. It created a precedent and reminded civil servants of their obligation to be honest when managing government property. It also bolstered
the citizens faith that they can correct government mismanagement and
bring people to justice.
The community, which once felt deceived, today assumes greater responsibility for its tax payments, demands honest public servants, and supports
transparent tax collection and public administration.
ILLUSTRATIVE
RESULTS
33 municipal account
rendering hearings.
2 governorship account
rendering hearings.
11 municipalities
implemented new revenue
information systems that
quickly identify fraudulent or
questionable practices and
guarantee accountability to
citizens and employees.
15 municipalities created
Development Funds.
ing that he would one day be

mayor. His humble leadership
and private sector background
helped propel greater levels of
citizen involvement by demonstrating that the municipality
was accountable to the public.
Today, neighborhood commissions praise Mr. Giles and the
council for asking about their
needs, building the requested
municipal works, providing
public lighting for the first
time, and showing them how
municipal funds were utilized.
Some neighborhood commissions regret not having taken
the first public budget hearing
more seriously, but they now
vow to participate in the future.
According to the leader of a
neighborhood commission in
Coronel Bogado, This was the
first time the municipality actually asked us what we needed,
and that was a welcome and
refreshing change. Others
pledge that they will not allow
this practice to end when the
next administration takes office.
With the assistance of the MFP,
21 municipalities in Paraguay
now convene an important pair
of public meetingsan initial
public budget hearing (Audiencia
Pblica de Presupuesto, APP) to
share the municipal budget and
solicit the neighborhoods priorities for works and services, and a
second meeting to explain what
was built with the funds in the
previous 6-12 months. While the
first meeting guarantees a degree
of popular participation, the second meeting, known as the
accounts rendering hearing

(Audiencia Pblica de Rendicin
de Cuentas), is the MFPs primary accountability mechanism.
The first MFP-sponsored public
budget hearings were held in
September 2003. The initial step
was to inform the neighborhood
commissions. They were taught
ahead of time how to present
their requests, including approximate costs, the number of beneficiaries, and their counterpart in
kind contribution. At the hearings, after the annual budget was
presented and explained, the
requests for works and services
were presented by a representative of the neighborhood commission and a written description was handed to the mayor
and/or municipal council. The
municipality then assigned a
committee to evaluate the solicitations. The committee normally
consisted of representatives from
neighborhood commissions,
municipal representatives such as
the public works director, and
municipal authorities like the
mayor or president of the
municipal council. Once all
requests were evaluated, the
committee prioritized them
based on the standard selection
criteria already developed by the
committee. The APP tool kit
developed by the project and distributed to project participants
describes this process in more
detail, and is available from
USAID/Paraguay.
The municipalities were advised
to temper citizens expectations
in public meetings. Although
21
neighborhood groups were

encouraged to identify their priorities in their presentations, the
municipality had the duty of
explaining that it may not be
possible to implement all of the
projects solicited at the hearing,
given budgetary constraints.
Cashier window operating with

new information system in the
municipality of Coronel Oviedo.
22
Other accountability mechanisms included financial management trainings, improved

accounting systems and standards, and integrated information systems. These information
systems allowed for cross-checking against the cadastre database,
fostering greater accountability,
accuracy, transparency, and
financial balance.
Consultant Kenneth Peoples suggested that municipalities create

separate accounts with their
increased tax revenues to implement works and services. Fifteen
municipalities created these
development funds, although,
ultimately, only 10 of the 15
used the funds for their intended
purposes. Some transferred 10
percent of all revenue to the
fund, while others transferred 35
percent of the increased revenue
generated from property and
commercial taxes after all salary
debts were paid. Regardless of the
methodology, the funds helped
the municipalities become less
dependent on royalties.
SUCCESS STORY
Dangerous Ditch Becomes a
Green Public Plaza
An agreement between the Oondivepa neighborhood commission and the
Villa Elisa municipal government solved three serious problems in the neighborhood of Mbocayaty:
A dangerous ditch is now covered
City Hall has disposed of a significant amount of solid waste
Green space and recreational areas are now available
Children walking home from school across

the Mandiyupecu bridge in the Mbocayaty
neighborhood (municipality of Villa Elisa).
In the heart of the heavily populated Mbocayaty neighborhood, in the

midst of a large, sandy quarry, an eight-meter-deep ditch had families
worried.The ditch had become an unsafe and unhealthy place, an improvised dump site for untreated garbage.The area was plagued with stray
animals, disease, and erosion that threatened the simple dwellings nearby.
At the same time,Villa Elisas mayor, Albino Gonzlez, was urgently seeking a place to dispose of the towns garbage. He and local leaders had
chosen many possible sites, but each time, residents blocked their plans.
So residents of Mbocayaty formed a neighborhood commission (calling
it Oondivepa, or all together in Guaran) and asked the mayor for
help in filling the ditch with earth, rubble, or waste that would be covered on a daily basis.
On the suggestion of the MFP project, which was advising the municipality
on taxation and public services, the mayor called a public hearing and the
people of Mbocayaty accepted his proposal to fill the ditch with urban
waste and soil.The project helped local leaders hire specialists to create a
sanitary landfill and the mayor purchased additional private land, planted
trees, expanded the recreational area, and built a town plaza. A garbage
collection company organized the relocation of the garbage. Local residents cooperated in the supervision of tasks, provided equipment and
games for the childrens park, and helped maintain the public space.
Today, to everyones delight, the landscape is different: children play on
top of the grass-covered and cement-sealed ditch, the garbage has disappeared, and gardens and trees are beginning to grow.
Amalia, a local resident, said, The nightmare is finally over. We mothers
are feeling better and our children can now play freely. The president
of the neighborhood commission added, We negotiated our needs.The
mayor was satisfied and we are very happy.
ILLUSTRATIVE RESULT
29 public budget hearings.
LESSONS LEARNED
Municipal employees and
officials should receive
training on how to
interpret and communicate
budgets to the community.
Municipalities need assistance
in designing investment
projects, as do the communities in soliciting them.
Neighborhood committees
and civil society organizations
need guidance and training
regarding citizen rights and
obligations.
PARTICIPATION
PRACTICES
When the MFP arrived in
Emboscada in 2003, the town
seemed paralyzed, frozen in time.
The citizens were indifferent and
doubtful. Weary of the inefficiencies of the municipality, few
people entered the municipal
building to request assistance.
When citizens did request
action, the authorities paid little
attention and few concrete
results were accomplished. Few
citizens paid taxes and scarcely
anyone expected the municipality to build infrastructure.
With training from the MFP,
Emboscada began a campaign to
deliver what the people request.
Employees approached the community with pointed questions
about their needs while explaining the importance of paying
taxes. The neighborhood commissions grew in strength and the
mayor reinvested a percentage of
neighborhood taxes into new
works and services.
Most MFP municipalities at one
time or another held large public
meetings to foster participation
from neighborhood groups all at
once in the same location, but
given that most people live in
rural areas, Emboscada engaged
citizens in small groups, organized
by neighborhood. The municipalities of Ciudad del Este and Villa
Elisa held government days, in
which the mayor and government
workers spoke with citizens in
their own communities for a day
on a rotating basis. In many cases,
they handed out medications,
24
explained the role of the municipality, discussed the obligations of

the citizens to pay taxes, and
received requests for works and
services improvements.
ETHICAL PRACTICES
Like most municipalities, Nueva
Italia did not purchase goods
and services in accordance with
any standard decision making
process, and the Ministry of
Finance had issued complaints
against the municipality for its
lack of procedures and standards.
To improve Nueva Italias situation, the MFP trained the
municipal council and four
employees in ethical practices.
One of the main sources of corruption in public institutions is
procurement, so the MFP delivered courses on the operational
acquisitions unit (Unidad
Operativa de Contrataciones,
UOC) in several municipalities
to encourage ethical behavior
and the standardization of procurement systems. Nueva Italia
was a pioneer in establishing
such a unit.
As project staff earned the trust
of the municipalities, they
moved beyond restructuring systems and focused on the conduct
of the people operating the systems. In addition to procurement procedures, they introduced integrity mechanisms such
as a sample code of ethics and
conduct. The project stressed
that a code should include definitions of acceptable and unacceptable conduct, sanctions
when the conduct is unethical,
ILLUSTRATIVE
RESULTS
11 Code of Ethics and
Conduct workshops.
11 municipalities received
training on the Unidad
Operativa de Contrataciones
(UOC) procedures.
and procedures to implement the

code, including lines of authority
to impose sanctions and protection for informants. For the code
to be effective, it must be more
than a piece of paper, but produced in a participatory manner
with support from the mayor
and the city council.
In Paraguay, there is little
emphasis on client satisfaction,
let alone the application of
ethics to business decisions. Yet,
there are movements sponsored
by organizations such as the
Organization of American
States and the United Nations
to promote international stan-
ILLUSTRATIVE
RESULTS
24 municipalities reflect an
operational surplus in FY 2004.
24 municipalities have
reduced their debt.
24 municipalities have paid
all unpaid salaries and the
majority of overdue payables.
LESSON LEARNED
The project would have benefited from additional resources
to provide technical assistance
on refinancing municipal debt
and train the municipalities on
how to project their financial
income and expenditures.
FINANCIAL
POSITION IMPROVED
At the end of FY 2003,
Carapeguas debt was $46,000
and it increased in 2004 due to a
loan taken against its expected
royalties. Service providers and
municipal employees were waiting for overdue payments. Most
of the debt was inherited from
prior administrations, and some
questioned whether the municipality should have to pay it.
The MFP started working with
the municipality in January 2004
to help it improve its financial
position. By the end of 2004,
Carapegua had an overall operational surplus and the municipal-
dards and the application of

ethics in business. The projects
initiatives were not completed
in a vacuum and hopefully will
stand as testaments to what can
be accomplished.
The project also developed
training videos for municipal
workers and city council members to promote discussion of
two stereotypical behaviors:
the lazy employee and the
bickering municipal council
member. The videos and ensuing discussions aimed to
improve cooperation and
encourage efficiency by recognizing common problems.
ity was up-to-date with 2004

payments to providers, salaries,
and transfer payments to the
governorship. It still had debts
from previous years, but it is
working to pay them by keeping
a balance sheet comparing
income against expenses. By July
2005, its debt was only $17,500.
The MFP developed a plan to
assist the municipalities in basic
accounting practices, including a
new table of accounts, an
accrued accounting methodology, and a systematic analysis of
cash flow. Unfortunately, the
project only had time to work
with six municipalities in this
area, including Carapegua. The
25
ANNUAL ORDINARY BUDGET SURPLUS (DEFICIT)

24 MUNICIPALITIES
1,500,000
20,000,000
18,000,000
Total current expenditures

Total current revenues
Ordinary surplus (deficit)
16,000,000
1,000,000
14,000,000
SURPLUS
US $
12,000,000
500,000
10,000,000
0
8,000,000
6,000,000
DEFICIT
4,000,000
-500,000
2,000,000
0
1997
1998
1999
2000
2001
2002
2003
2004
-1,000,000
six were selected based on the

fact that they had installed complete accounting systems and
were interested in additional
improvements. All six have
achieved budget operational surpluses and have improved their
net worth positions and credit
profile by canceling out or
reducing their outstanding debts.
ILLUSTRATIVE
RESULTS
7 local NGOs and organizations
were strengthened: CEAMSO,
GEASA, Lan Company, FG
Ware, AJE, Megasoft Informatica,
and Servicios Informaticos.
26
SUSTAINABILITY
The project measured sustainability in terms of the number of
local governments that implement the MFP methodology and
practices at the end of the project, in 2005. By that measure,
the project succeeded: 22 municipalities continue to collect taxes
and invest in services in a participatory and transparent manner.
The first municipality to work
with the project was Coronel
Oviedo. One consultant assisted
the municipality on a daily basis

for nearly two years, with the
support of other team members.
Then the team transitioned from
daily contact to periodic visits,
and the significant growth in
financial resources leveled off
and even declined. The largest
sums from delinquent taxpayers
naturally leveled off, but the
municipality also failed to adopt
a systematic process to monitor
income levels. In time, however,
the municipality took measures
to ensure sustainable collection
practices and wean themselves
from the project team by setting
their own systems of checks and
balances to detect when collections were dropping and why.
Communities now have a stronger,
more organized role in municipal
affairs. Before the project began,
there were 517 neighborhood
commissions within the 24
municipalities. By the end of the
LESSONS LEARNED
If local NGOs are viewed as
vehicles for sustainability,
they would benefit from
additional training in USAID
policies and procedures.
The resources, competence,
and level of implementation
of local NGOs are not the
same as those of a U.S.
contractor.
BEST PRACTICES
The MFP developed final
reports for each municipality,
detailing accomplishments
and the tools utilized so they
have a permanent reference
when questions arise.
A local NGO, IPC, financed
one professional from its
overhead funds to work in
conjunction with a second
IPC professional financed by
the MFP, expanding the
knowledge base and
professional capacity of
the NGO.
project, there were more than

1,000 neighborhood commissions,
and 12 municipalities have hired
neighborhood committee coordinators who facilitate communication between the local government
and the neighborhoods, and
strengthen the voice of the neighborhoods within the municipality.
The MFP also fostered sustainability through partnerships with
three local organizations Alter
Vida, IPC, and Mujeres por la
Democracia. Each was selected
in an open competition and subcontracted to work directly with
the project to implement the
projects methodology. The
organizations have the capacity
and desire to continue working
with the municipalities or on
other projects with similar technical objectives.
Municipalities are now in a better position to pay for technical
assistance, something that was
impossible prior to the project.
Not only did the project help
demonstrate with concrete
actions how democracy works,
but it also created the basis for
the municipal assistance industry
by showing the municipal clients
that investing in technical assistance is profitable. Now, municipalities are hiring lawyers to
assist them in collecting unpaid
taxes, and they are hiring some
of the project consultants to continue their valuable work.
The project also subcontracted
eight other local organizations.
It worked with one organization
specialized in municipal legal
matters and tax collection; one
architecture and engineering

firm specialized in designing
infrastructure projects that comply with local environmental certification requirements; and six
organizations specialized in
implementing information systems to monitor income and
expenses. All of these organizations are primed to respond to
the municipal clients once the
MFP project has ended.
Another encouraging sign is that
some municipalities offered their
services to sister municipalities.
Villa Elisa provided assistance to
Villeta in tax collection, notification, and acquisitions practices
without financial compensation
from the project, while emby
provided assistance to Carepegua
at the request of the project as an
innovative way to share technology. Through the FARA (Fixed
Amount Reimbursement
Agreement) contractual mechanism between the MFP and
emby, the project compensated
the municipal employees for
their transportation and meals,
and in return the project monitored their work with Carepegua.
Similar arrangements were made
between the municipalities of
Coronel Oviedo and the UAM
institutions created within the
governorship of Caaguaz.
These unique partnerships
helped the municipalities that
offered assistance as much as the
municipalities that received it. It
strengthened the trainers own
understanding of the issues and
their ability to communicate
27
their expertise, thereby enhancing

the sustainability of the project.
ILLUSTRATIVE RESULT
Increased public awareness of
the project through:
90 newspaper articles.
3 national television
appearances.
212 municipalities and 14
governorships received MFP
materials and news bulletins.
DISSEMINATION
The accomplishments of the
municipalities, mainly the implementation of public works and
services, appeared in at least 90
articles in the print media during
the life of the project. The mayors or municipal council members appeared on at least three
national television programs.
The minister of the interior, the
vice president, and even the president attended events and inaugurations, lauding the accomplishments of the municipalities
through the projects assistance.
Likewise, the U.S. ambassador,
and/or USAID officials from
Washington attended at least
seven events.15
The project made information
accessible by circulating the project bulletin, distributing training
guides, and launching the project
Web site. The Web site includes
the complete master technical
guide, all publications developed
by the project, and even sample
subcontracts and references to
regulations, ordinances, and the
tools utilized in the municipalities to implement the project.16
The project sponsored two
national conferences, one in conjunction with USAID, the GTZ
(Germany), and JICA (Japan);
and another specifically designed
for the municipalities that
worked directly with the project.
During the conferences, the project methodology was discussed in

addition to lessons learned and
recommendations for future
growth. Two regional workshops
provided additional interactive
training for municipal employees.
Mayors were also invited to
international conferences.
Twenty-five mayors and a project
consultant attended conferences
in Miami and in Rosario,
Argentina. The conferences highlighted innovations in local governments and municipal management and gave the mayor of
emby the opportunity to present two innovative practices
implemented with the assistance
of the project.
REPLICATION OF THE
MUNICIPAL FINANCE
METHODOLOGY
The project also worked with
three governorshipsCaaguaz
and Central, beginning in 2004,
and Concepcin starting in 2005.
The governorships realized they
would benefit if the municipalities
increased their revenues, because
municipalities are required by law
to transfer 15 percent of property
tax revenues to the governorships.
Previously, the governorships did
not receive the mandated transfer
from the municipalities because
the latter had such scarce
resources and the governorships
did not have the proper controls
or authority to demand them.
The objective of the work with
15 See Annex K: Dissemination Activities.

16 Several institutions expressed interest in managing the Web site. USAID has decided to award the Web site to Alter Vida.
28

TOP: Constructing a stone path in the

municipality of emby.
CENTER: Child playing in Villarricas plaza.
BOTTOM: Youths walking on a stone

pedestrian walkway in the municipality of
Santa Rosa del Mbutuy.
ILLUSTRATIVE RESULT
At least six municipalities were
assisted by Alter Vida and six
more were helped by the
governorships: Santa Rosa, J E
Estigaribbia, Juan Manual Frutos,
Guarambare, Nueva Italia, and
San Antonio.
BEST PRACTICE
Knowledge transfer to local
organizations. The MFP helped
three local organizations
Alter Vida, Mujeres por la
Democracia, and International
Project Centre develop the
capability to replicate technical
assistance in any municipality in
Paraguay.
30
the governorships was to strengthen their assistance towards the

municipalities, provide the municipalities with the means to
increase their revenues, and thus
strengthen both the municipalities
and the governorships.
The governorships signed FARAs
with the project, which provided
funds to the governorships for
the creation of UAMs. The governorships used the funds to hire
and train professionals to learn
the projects methodology and to
then directly assist municipalities. With the creation of these
units, the projects methodology
became more easily replicable
and sustainable, because in time
each UAM would gather enough
funds to continue its work independently after the project
ended. In Caaguaz, for example, the UAM has assisted three
municipalities and has signed or
is about to sign agreements with
three more municipalities to
work with them after the project
ends. The professionals assigned
to guide the UAMs developed a
parallel master technical assistance plan for the UAMs so that
they too have a written guide to
follow after the project stops.
The assistance provided to the
governorship of Concepcin was
signed during the last semester of
the project in collaboration with
Alter Vida, which will continue
to assist the UAM and the
municipalities after the project
closes using the master technical
plan developed from experiences
in Caaguaz and Central.
ACCOMPLISHMENTS FY 2002 - FY 2005
Just as emby provided technical assistance to Carapegua, the

municipality of Coronel Oviedo
provided assistance to the UAM
in Caaguaz. Through this
agreement, employees from
Coronel Oviedo worked with
three different municipalities in
the DepartmentSanta Rosa,
Repatracin, and Juan Manual
Frutos. All of the FARAs fostered
replicability of the MFP methodology insofar as they encouraged
project beneficiaries to systematically pass on what they learned
to their neighbors.
The MFP also fostered replicability by contracting local organizations to work alongside the consultants on a day-to-day basis,
with the aim that they be able to
continue after the project closes.
Three NGOs Alter Vida,
Mujeres por la Democracia
(MXD), and International
Project Center (IPC) have
developed the qualifications to
replicate the technical assistance
in any municipality in Paraguay.
At this point, only Alter Vida
will be paid to continue providing technical assistance, specifically to the governorship of
Concepcin, the municipalities
of Bella Vista, Horqueta, Yby
Yau, and several others yet to be
determined. Both IPC and MXD
have presented projects to
USAID, the Inter-American
Development Bank, and the
World Bank, seeking to continue
the methodology and best practices developed with the MFP.
CHAPTER 3
PROJECT
ADMINISTRATION
TEAM COMPOSITION
The project ultimately expended
a greater proportion of its budget
on local professional Level of
Effort (approximately 63.3 percent of total funding spent under
workdays ordered) than was originally anticipated (38.7 percent).
This was due to the availability
of seasoned experts in financial
and municipal management.
One of the projects greatest
strengths was that it tapped a
rich pool of local talent while
also building local capacity.
The project complemented its
predominantly local team with
strategic contributions from
short-term expatriate specialists
such as Ken Peoples, who generated the idea of a development
fund, and Maria Eugenia Vera,
who provided guidance on how
to promote citizen participation.
PERSONNEL
Professional personnel were
selected on the basis of their
financial backgrounds and understanding of financial statements
and auditing techniques. While 6
of the 21 had experience working
with municipalities, the project

did not expect them to be experts
in municipal finance or management. The project sought energetic leaders who were eager to
experiment with innovative ideas,
improve their analytic skills, train
others, and empower municipal
employees to instill change and
leadership in their communities.
This fresh, private sector perspective helped the team view the
project as a results-oriented initiative to increase resources that
also included civil society
strengthening.
The project also hired specialists
to attend to specific technical
needs across municipalities,
ensure standard applications,
apply the lessons learned from
one municipality to the next,
prevent the recurrence of technical errors, and encourage best
practices. The project hired five
IT specialists, three cadastre specialists, and one architect for the
oversight of works and services,
and it encouraged three trained
auditors to focus on tax regulationsone of whom became an
expert in commercial tax regula-
PROJECT ADMINISTRATION
31
Smoothing the concrete floor of the entrance to

a municipal warehouse under construction
(municipality of Coronel Bogado).
tions and applications. The

entire crew generally met on a
weekly basis to discuss the
progress in each municipality.
Together, the team developed a
methodology relevant for
Paraguay. The mix of a
Paraguayan staff, an expatriate
director, and a director who has
worked on multiple international
assignments provided sufficient
guidance to spark innovation. At
the same time, the fact that the
entire team developed the
methodology made it realistic,
very much influenced by the daily
interactions of the local consultants. During the weekly meetings,
the team solidified its methodology and shared lessons learned.
However, as the project grew, it
could not sustain these lengthy
meetings and the consultants
could not coordinate all the
activities and needs among
themselves. In September 2003,
in response to the growing size
of the project team, the COP
32
PROJECT ADMINISTRATION
installed a middle-management
tier to oversee their work and
facilitate steady communication.
The project promoted five coordinators, but they were not
truly empowered to develop
their teams or be held responsible for results until a new COP
arrived in late 2004. Even then,
they were scarcely adjusting to
their new roles when the project
received news of its early termination.
A field-based manager was provided during the final two years
of the project, with costs shared
by USAID and the contractor.
The position was deemed necessary to assist the original COP,
who was not as familiar with
USAID regulations or procedures, and had little managerial
support from the team, as they
constantly traveled to the municipalities. USAIDs acceptance of
a field-based project manager
was a success, and it should be
considered in future projects.
CHAPTER 4
NEXT STEPS
LEGAL TOPIC
DISCUSSIONS
GENERATED THROUGH
PROJECT ASSISTANCE
USAID/Paraguay should take
into account three unresolved
issues in Paraguays legal framework that fall beyond the scope
of the MFP:
1. The time limit in which taxes
can be claimed. The Mission
should monitor the outcome
of the ruling in emby (see
page 13), as it may affect all
municipalities.
2. National cadastre system. The
Mission should follow
through with the SNC to
facilitate registration of updated property information in its
central database. This should
be a more flexible and less
costly process, to ensure that
all municipalities will be able
to comply with resolution
60/04 or its modification.
3. Municipal law. In consideration of the legal opinions produced during the last year of
the project, in the absence of a
Constitutional ruling, the pri-
mary laws that describe the

scope and authority of the
municipalities should be followed. In addition, the
Mission should, through the
proper channels, either pursue
a Constitutional ruling or promote the cause of amending
national laws to better reflect
the spirit of the Constitution
of 1992.
ADDITIONAL
TECHNICAL ASSISTANCE
SOLICITED FROM THE
PROJECT
During the course of the project,
USAID and project staff identified important initiatives that
would have benefited from the
technical assistance of the projects experienced personnel.
Ideally, USAID or other donors
will follow through on some of
these suggestions in the near
future.
1. Political parties and municipal
elections. In light of the
upcoming municipal elections
in 2006, the projects longterm sustainability would be
buttressed if USAID were to
NEXT STEPS
33
INDERT, and the municipalities to update the rural cadastre system and transfer rural
properties within urban
boundaries to the local governments.
work with political parties to

identify how election funds
are collected and used, and
promote a national dialogue
about legislative proposals to
ensure transparency in political finances.
4. Real Estate Companies. USAID

should continue to monitor
the discussions between
Asociacin Paraguaya de
Empresas Loteadores (APEL),
SNC, and the municipalities
to guarantee that the companies follow through with their
agreements with the municipalities and ensure that the
municipalities receive accurate
tax income for the land within
their boundaries.
2. Municipal indicators. Given

the importance of municipal
indicators, the project respectfully suggests that USAID
continue to develop the program and work towards
implementing it at the national level.
3. Instituto de Desarrollo Rural y

Tierras (INDERT). USAID
should work with the SNC,
34
NEXT STEPS
A taxpayer solicits reports from a

municipal official in the municipality of
Ciudad del Este.
CHAPTER 5
CONCLUSIONS
USAID/Paraguays primary
Strategic Objective is to foster
key democratic governance
practices. The MFP project
strengthened the ability of local
governments to respond to citizens needs and improve public
services. Citizens now have more
confidence in their local leaders
because political institutions
have become more democratic,
transparent, and effective. And
citizens have begun learning how
democracy works by exercising
their rights and complying with
their responsibilities.
The additional income generated
by the municipalities
($5,213,197) is nearly equal to
the amount of money invested
by USAID in the project.17 At
the same time, the municipalities
have a chance to demonstrate
that the investment will continue
to grow after the project ends.
The real return a newfound
enthusiasm to improve municipal management and funds, and
the skills to do so is priceless.
The key to reforming municipal

governance and improving works
and services was to first provide
tools to improve financial
resources. The municipalities discovered how to improve their
own financial health through
more efficient tax collection. The
updated cadastre system, the litigious module, and training for
municipal staff were the cornerstones for improved management
of increased financial resources.
Participating municipalities
noted that the greatest attribute
of the MFP was the dedication
of the professional staff. The
team worked directly with the
municipalities and submitted
themselves to the daily grind in
the local governments, gaining
respect from the staff and elected
officials, and achieving realistic
and sustainable results.
Local governments strengthened
their relationships and professional ties by providing technical
assistance to neighboring municipalities, an innovative mecha-
17 See Annex C: Financial Resources Improved.
CONCLUSIONS
35
nism that promoted MFP activities, and built local capacity and
professional networks. Likewise,
the professional team that
worked with the MFP gained a
keen understanding of municipal
management and is available to
guide local governments in
future initiatives.
Laying cobblestone for a city road,

using materials produced in the
municipal factory (municipality of
Villarrica).
36
CONCLUSIONS
The MFP has left user-friendly

tools in the hands of the municipalities. From the master technical guide to the public budget
hearing tool kit, the environmental guide, and the municipal
credit manualall are easy-tofollow references accessible to
employees and citizens alike.
The significant improvements in

IT systems and networks allow
the municipalities to better organize internal information and easily
share it with the public.
The changes within the municipalities gained national attention. The project was a fine
example of what can be achieved
when citizens and municipalities
gain the tools to acquire more
resources and manage those
resources more effectively. The
momentum created through the
project should be embraced to
develop even more effective and
accountable local governments.

TOP: Taxpayer information system in the

municipality of Encarnacin.
CENTER: Laying stones on a city road, a
project of the Commission for Villarrica.
BOTTOM: Stone pedestrian walkway in the

municipality of Santa Rosa del Mbutuy.
CD ROM INDEX
Annex A: Financial Information, Project Expenditures
Annex B: Cumulative Results (Monitoring Plan)
Annex C: Financial Resources Improved
Annex D: Works and Services
Annex E: Transparency Practices
Annex F: Accountability Practices
Annex G: Development Fund
Annex H: Participation Practices
Annex I: Ethics Practices
Annex J: Operational Surplus
Annex K: Dissemination Activities
Annex L: Technical Deliverables
Annex M: Computer Equipment
IMPROVING MUNICIPAL
GOVERNANCE
PARAGUAY MUNICIPAL FINANCE
PROJECT FINAL REPORT
JANUARY 31, 2006 This publication was produced for review
by the United States Agency for International Development.
It was prepared by Chemonics International Inc.
BACK COVER: Highway entrance to the municipality of Santa Rita.
U.S. Agency for International Development

1300 Pennsylvania Avenue, NW
Washington, DC 20523
Tel: (202) 712-0000
Fax: (202) 216-3524
www.usaid.gov

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IMPROVING MUNICIPAL

JANUARY 31, 2006

CHEMONICS / LUIS RODRGUEZ

A citizen enters the municipality of Santa Rita.

CHEMONICS / LUIS RODRGUEZ

TOP: Construction of a municipal

CHEMONICS / LUIS RODRGUEZ

CENTER: Cleaning a road drainage

THE MUNICIPAL FINANCE APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . 9

ACCOMPLISHMENTS FY 2002 - 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

CD ROM INDEX (ANNEXES) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

FRONT COVER: Constructing an entrance gate in a city plaza

infrastructure, and recreational areasall in compliance with environmental

ees must be involved in the

ernment days, bulletin boards,

A strong public information

KEY CONCLUSIONS AND

Legal inconsistencies at the

The key to reforming municipal governance and improving

CHEMONICS / LUIS RODRGUEZ

Local commitment was essential to project success. The

Mayor Francisco Barboza explains a

USAID intended for the MFP

commercial loans and other

(municipalities in which the

the master plan of activities,

CHEMONICS / LUIS RODRIGUEZ

CHEMONICS / LUIS RODRGUEZ

RIGHT: Constructing a path with

LEFT: Mayor Blas Lanzoni converses

MUNICIPAL FINANCE PROJECT

This map shows the

CHEMONICS / LUIS RODRIGUEZ

The project designed the Neighbor Collects from a Neighbor (Vecino

Elvio Barrios in the playground of embys

The mayor offered to invest 30 percent of the taxes collected in public

THE MUNICIPAL FINANCE APPROACH

revenues and the project shifted

CHEMONICS / LUIS RODRIGUEZ

The project team developed a standardized approach to work with

THE MUNICIPAL FINANCE APPROACH

Carlos Galarza and Victoria Meza,

least another 3,194 properties

The project developed a financial

ACCOMPLISHMENTS FY 2002 - 2005

on their businesses for their livelihoods. Therefore, the project

Another obstacle for Coronel

system.6 Property values are

TAX COLLECTION SUMMARY

These are the cumulative

each municipality began

receiving assistance, which

During the Paraguay

Municipal Finance Project

During the Paraguay Municipal Finance Project

is defined as the subsequent

ACCOMPLISHMENTS FY 2002 - 2005

then ensure that they pay.

the detailed information on each

ACCOMPLISHMENTS FY 2002 - 2005

apply it to all citizens, regardless

tion. They argued that although

The MFP also promoted a number of simple structural changes

11 National Constitution 1992, Article 156 (De la Estructura Poltica y Administrativa).

ACCOMPLISHMENTS FY 2002 - 2005

CHEMONICS / LUIS RODRIGUEZ

In early 2002, the municipality of Limpio was going through a financial