As I write, just over 1,600 NGOs in Hungary have elected 12 civil society representatives to the Governing Council of the National Civil Fund (NCF). This is the first time NGOs have elected representatives in Hungary and it was through a government initiative. This ambiguity reflects the contradictions in the establishment of the NCF, a major government fund to support NGO development in Hungary. The aim is to strengthen the sector, but question marks hang over it.

The law on the NCF was passed in June 2003. The government’s stated intentions were that it should:

· increase state resources available for civil society;[2]

· strengthen NGOs institutionally so they can become reliable partners of the government in meeting society’s needs;

· do this in a way that respects NGOs’ independence and helps eradicate their political dependence.

In order to achieve these aims, the NCF takes a new conceptual approach. This has three main elements:

· NCF financing will be ensured through a budgetary mechanism independent of political will; government will match the amount taxpayers designate to NGOs.[3]

· Sixty per cent of the NCF’s financial resources should be spent on operational (institutional) support for NGOs.[4]

· Funding decisions should be made by NGOs themselves through elected representatives.[5]

But is this new conceptual approach adequate to achieve the stated aims?

The idea of using an ‘automatic’ budgetary mechanism is not new in itself – several major government funds already operate on such principles. But matching the amount designated by taxpayers from their personal income tax is a good way to provide an additional incentive for NGOs to reach out to taxpayers and communicate with their constituencies. On the other hand, establishing yet another central government fund may not be the best way to overcome NGO dependency. It is a basic development principle that one cannot bring dependency to an end with the same tool that has created it – and these major funds have contributed greatly to NGOs’ dependency on the state.

The concept of ‘institutional support’ is also problematic. NGOs have long complained that most government support is available only for projects and they cannot cover operational costs. This complaint is justified to an extent, but there are questions as to whether government subsidies are the best way to address it.

It is debatable whether it is appropriate for the state to provide institutional support for NGOs. State funding is acceptable when it finances a contract or when NGOs are helping implement state policy, but in other circumstances, state support necessarily involves value judgements in choosing between NGOs. It is also extremely difficult to measure the effectiveness of such funding and the state should be careful not to waste taxpayers’ money. Nor is the situation helped by the fact that the NCF law and implementing regulations do not define the term ‘institutional support’ and Council members are not required to have grantmaking experience.

Finally, having an NGO majority on the Governing Council and Regional Colleges stems from a wish for decision-making not to be unduly politicized, as was the case when politicians and bureaucrats appointed decision-makers. With the ‘civil nomination procedure’, ie elections by NGO representatives, the decision-making body is less likely to be politicized in terms of party politics. However, the process is unlikely to be free of political fights, given that NGOs are about to distribute €23 million among themselves. The processes of campaigning and lobbying Council members will inevitably be highly ‘political’. This is inherent in the nature of the system, which resembles the political electoral system where those elected are accountable to their constituencies.

This brings with it a danger that the stronger will prevail without consideration for the actual development needs of the sector. But this could surely not be the government’s intention? It is difficult to imagine this occurring in other areas of government spending. Picture, for instance, the government leaving the decision on a tender to build a new highway to the representatives of highway construction companies.

There is a great difference between survival and development that enables sustainability. NCF support may turn out to be wasted government funding if it helps the survival of certain NGOs but does not strengthen the sector as a whole. On the other hand, with commitment and hard work on the part of the newly elected Council members, it may help a range of NGOs become more sustainable and real partners to the government.

1 This article builds on a paper developed jointly with Balázs Sátor and Péter Nizák of CSDF Hungary in 2003: Developing the Civil Sector by the Means of the State – The National Civil Fund and its alternatives.

2 Civil society currently receives 34 per cent of its income from the state; government aims to increase this to 40 per cent by 2006.

3 Under the 1 per cent law, Hungarian taxpayers can designate 1 per cent of their tax liability each year to a qualified NGO of their choice. The government is committed to matching this amount, and will in any case contribute no less than 0.5 per cent of personal income taxes collected. In 2004, the NCF is expected to channel €23 million to Hungarian NGOs.

4 Once the NCF’s administration costs are met, remaining funds can be used to support various NGO sector development programmes, eg sector-wide events, festivals, international representation, research, education and publications.

5 The NCF Governing Council has 17 members, 12 of whom are elected by NGOs. Grant decisions will be made by regionally delegated Colleges.

Nilda Bullain is Program Director of the European Center for Not-for-Profit Law. She can be contacted at nilda@ecnl.org.hu

A longer version of this article can be found at http://www.ctf.hu

For further information see also http://www.ceetrust.org/news/43.html