Mexico - Municipal Strengthening Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5974-ME STAFF APPRAI'SL REPORT MEXICO KUNICIPAL STRENGTHENING PROJECT March 5, 1986 Urban Projects Division Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EOUIVALENTS Currency Unit - Mexican Peso (Mex.$) Calendar 1984 (Appraisal) Currency Unit Average August 03, 1985 December 30, 1985 US$1.00 = Mex S 167.8 Hex S246 Mex S 367 Nex $1.00 - US $ 0.006 Us S0.004 US $ 0.003 Hex $1,000 3 US $ 5.96 Us $4.07 US S 2.73 WEIGHTS AND MEASURES Metric system FISCAL YEAR January 1 - December 31 PRINCIPAL ABBREVIATIONS AND ACRONYHS BANOBRAS - Banco Nacional de Obras y Servicios Publicos (National Rank of Puhlic Works and Services) CECADE - Centro de Capacitacion para el Desarrollo (Center for Development Training) CEDADEM - Centro de Estudios, Documentacion v Asistencia para el Desarrollo Municipal (Center for Studies, Documentation and Assistance for Municipal Development) CNEM - Centro Nacional de Estudios Municipales (National Center for Municipal Studies) FORTAMUN - Programa de Fortalecimiento Municipal (Program for the Strengthening of Municipalities) FRR - Financial Rate of Return GIRA - General Interest Rate Agreement INAP - Instituto Nacional de Administracion Publica (National Institute of Public Administration) INCAFI - Instituto Nacional de Capacitacion Fiscal (de la Secretaria de Facienda y Credito Puhlico) (National Institute for Fiscal Training - belongs to the Secretariat of the Treasury and Public Credit) INDETFC - Instituto para el Desarrollo Tecnico de las Raciendas (Institute for Technical Development of Public Assets) IPADE - Instituto Panamericano de Alta Direccion de Empresa (Pan American Institute for Higher Management Training) MDF - Municipal Development Fund SEDUE - Secretaria de Desarrollo Urbano v Ecologia (Secretariat for Urban Development and Ecology) SC - Secretaria de Gobernacion (Secretariat of the Government) SHCP - Secretaria de Hacienda y Credito Publico (Secretariat of the Treasury and Public Credit) SPP - Secretaria de Programacion y Presupuesto (Secretariat of Programming and Budget) TS - Secretariado Tecnico (Technical Secretariat) TSTU - Unidad de Apoyo de Entrenamiento (Training Support Unit)  FOR OFFILIL USE ONLY MEXECO MUNICIPAL STRENGTHENING PROJECT Staff Appraisal Report Table of Contents Page No. I. LOAN AND PROJECT SUMMARY I................ 1 II. SECTOR AND PROJECT BACKGROUND ..................4...... 4 Government Objectives and Strategy ................... 4 Sector Organization ....*5 Municipal Finance ........ 7 Bank Sector Strategy, Past Experience and Rational for Bank Involvement ....... ...............7 III. THE PROJECT 9...........* 9 Project Objectives and Description ......9........-.. 9 Program Structure *.......9 Project Cost and Financing 12 Procurement and Disbursement 12 Accounts and Auditing .......... 13 Project Organization and Management 14 Implementation Schedule ..... 15 Monitoring and Reporting Requirements ............. 15 Local Finance and Cost Recovery 15 On-lending Terms and Procedures 16 Appraisal of Sub-borrowers ...........s.. 16 Subproject Appraisal . ............... 16 Subloan Agreements .. ....... ...*c 16 Matching Grants ...................................... 17 Justification and Benefits 17 Project Risks ....................... 18 IV. AGREEMENTS REACHED AND RECOMMENDATIONS ................... 18 This report is based on the findings of an appraisal mission which visited Mexico in August 1985. The mission comprised Messrs./Mmes. Braz Menezes, (Mission Leader), G. Yabrudy, LCPUR; K. Mera, WUD; R. Johnson and G. Howell, (Consultants). Mrs. Miriam Torres assisted in the produc- tion of fEe report. Thi document ha a tricd distfibutin and may be ud by rcpient only in therpfoance ofther officad duteL it contents my not otherwisbe dicied without Wodd Dank authoution.  -li- ANNXS ANNEX 1: Detailed Component Features 101 Human Resource Development and Organizational Strengthening at Municipal, State and Federal Levels 1.2 Decentralization of Federal Public Administration ANNEX 2: Distribution Data 2.1 Eligible Subprojects, Distribution of Investments, and Recommendations on Cost Recovery Mechanisms 2.2 Distribution of Municipality by Group type and Distribution of Subloans by Subsector 2.3 Flow of Funds Chart ANNEX 3: Implementation Aspects 3.1 Organizational Chart for Implementation 3.2 Selection of States for 7ear I, Numbers of Municipalities, and Administrative Calendar 3.3 Selection Criteria for Participation in Program 3.4 Allocation Criteria for Matching Grants ANNEX 4: Information System and Performance Monitoring 4.1 Monitoring and Evaluation System 4.2 Chart - Organization of Information Flows 4.3 Key Performance Indicators ANNEX 5: Excerpts from the Operational Manual 5.1 Implementation Procedure of the FORTAMUN program in each State 5.2 Proforma for Financial Appraisal of each Municipality 5.3 Proforms A - Pre-appraisal of Sub-borrower 5.4 Proforms B - Appraisal Request for Subprojects 5.5 Contents of the Operational Manual ANNEX 6: Financial Aspects 6.1 An Overview of Municipal Finance in Mexico 6.2 BANOBRAS Finances, Activities and Future Orientation 6.3 Matching Grants and Impact on the Fund (FORTAIMUN) ANNEX 7: Cost Tables and Disbursements Schedules 7.1 Detailed Cost Table (9 years) 7.2 Summry of Project Cost (5 years) 7.3 Detailed Table (5 years) 7.4 Disbursement Schedule (9 years) 7.5 Disbursement Schedule (5 years) ANNEX 8: Selected Documents on Project File MAP IBID No. 15553  mHXICO MATrICIPAL STRENGTi ENING PROJECT PART I: LOAN AND PROJECT SUMMARY Borrower : Banco Nacional de Obras y Servicios Publicos, S.N.C. (BANORRAS) Guarantor : United Mexican States Beneficiaries : Municipalities, and various federal and state agencies (Staff Development and Organizational Strengthening). Amount USS40.0 million equivalent Terms Fifteen years, including three years of grace at the standard variahle interest rate. Relending Terms: The Peso equivalent of about US$61 million would he relent. Subloans vould he made to cover at most 80% of subproject costs, at interest rates specified in the General Interest Rate Axreement (GIRA), and according to the following terms: (a) roads, sidewalks, drainage, parks and recreation areas - 5 years, including one year of grace or completion of construction, whichever is shorter; (b) water supply, solid waste infrastructure, municipal vehicle and equipment maintenance workshops - 15 years, including four years of grace or completion of construction; (c) municipal markets, slaughterhouses, public transport terminals and equipment - 10 years, including three years of grace or completion of cons- truction; and (d) solid waste equipment and vehicles and micro-computers and equipment - 5 years without a grace period. For the Staff Development and Organizational Strengthenipg components, and for Project Administra- tion, proceeds of the loan would be made available to the relevant implementing agencies on a grant basis. Project The Government's program objectives are to improve the Objectives and utilization of human and financial resources and streng- Description: then institutions, partic'ilarly at the municipal level, to increase the delivery of affordable and efficient urban services. Within these overall program object- ives, the proposed project would: (a) strengthen and coordinate federal and state agencies to become proinot- era for municipal development, through provision of financial resources and effective training programs; (b) strengthen the municipalities' organizational, adminis- trative and financial management systems and perform ance; and (c) assist municipalities in expanding and upgrading urban infrastructure.  The project objectives would be achieved through the implementation of the following components: (i) Munic- ipal Staff Development and Management Strengthening; (ii) Federal and State Staff Development and Institu- tional Strengthening; (iii) Infrastructure and Related Investment Fund for Municipal Development; and (iv) Project Administration. Project Benefits: The principal benefit of the proposed project would be the improved policy and financial environment for munic- ipal development which would he necessary for the imple- mentation of the Government's decentralization program. Rationalization of BANORRAS' policies, practices and procedures for provision of municipal credit, reinforce- ment of federal and state agencies' capacity to provide technical assistance to municipalities, and training programs would introduce a more rational planning and investment process, stimulate local resource generation and cost control measures and provide a reliable source of long-term financing for municipal development. The improvement of operational and financial management policies and rationalization of grant financing for municipal services would lead to reduced demands on the national budget through greater local resource mobiliza- tion. In addition to significant health and social benefits, the project would have a positive environment- al impact in subproject municipalities. Project Risks: The major profect risks are: (a) the inherent difficult- ies in coordination; (b) the capacity and willingness of BANOBRAS to make appropriate changes; and (c) the possible loss of political momentum. The estahlishment of an independent Technical Secretariat and Training Support Unit, and the definition of clear roles, respon- sibilities and procedures in the Operating Guidelines, are expected to reduce difficulties in coordination. Previous urban and water supply lending operations have been partially constrained by problems within BANOBRAS. However, the project addresses these issues. BANOBRAS' coordination of the project preparation effort and the degree and rapidity with which changes in policy have been processed have been exemplary and indicate the management's and SRCP's commitment to change. Finally; the Government will be encouraged to accelerate imple- mentation within the first five years to obtain a quick feedback, and also benefit from the momentum set in place by the present Administration.  - 3 - Table 1: Pro,tect Costs USS '000 Local Forelic Total A. Municipal Staff Development 1. Staff Training 5,123 103 5,226 2. Technical Assistance & Promotional Activities - 1,016 0 1,016 3. Equipment and Materials 296 1,183 1,479 SUB-TOTAL A 6,435 1,286 7,721 B. Federal and State Staff Development 1. Staff Training 1,051 0 1,051 2. Training of Trainers 21 0 21 3. Technical Assistance and Training 3,565 832 4,397 4. Information System and Studies 87 350 437 5. Equipment and Materials 40 162 202 SUB-TOTAL B 4,764 1,344 6,108 C. Infrastructure and Related Investments 45,750 15,250 61,000 D. Project Administration 2,097 0 2,097 TOTAL BASELINE COSTS 59,0 17,879 76,926 Physical Contingencies 65 134 200 Price Contingencies 2,569 306 2,874 TOTAL PROJECT COSTS 1/ 61,681 18,319 80,000 Financing Plan: Local Foreign Total ,uS ' 000) Government of M4exico 27,800 0 27,800 Municipalities 12,200 0 12,200 Bank 21,681 1R,319 40,000 Estimatec Disbursements: FY 1987 1988 1989 1990 1991 1992 1993 1994 1995 CUSS million) Annual 4.44 5.43 5.72 5.73 5.R5 5.03 3.59 2.53 1.68 Cumulative 4.44 9.87 15.59 21.32 27.17 32.20 35.79 38.32 40.00 Economic Rate of Return: N/A Staff Appraisal Report: Report No. 5974-ME, dated March 5, 1986 1/ Figures do not add due to rounding. The Droiect costs are net of duties and taxes.  -4- PART II - SECTOR BACKGROUND Government Objectives and Strategy 2.01 Mexico's outstanding spatial problems are the heavy concentration of economic activity, wealth and population in Mexico City, the lack of integration between urban and rural areas, and unbalanced inter-regional development. Population growth has declined from 3.2% p.a. in the early 1970s to 2.6Z p.a. at present. Approximately 68% of the country's 75 million people live in urban centers of more than 2,500 inhabitants, while about 26% of the population live in the three main metropolitan areas: Mexico City, Guadalajara and Monterrey. 2.02 Providing basic municipal services and improving the social well-being of all Mexicans has preoccupied successive Administrations. During the decade of the 70's and early 80's, the percentage of the popul- ation with access to piped water increased from 49 to 66Z and the percent- age connections to sewers or sanitation increased from 29 to 43%. However, the recent economic climate has led to a significant rise in services deficits nationwide and a deterioration in existing infrastructure through poor maintenance and lack of training. 2.03 Successive administrations have attempted to address the over concentration of people and economic activity in Mexico City (and to a lesser extent in Guadalajara and Monterrey) through major decentralization efforts. During the previous administration (1976-82) physical decentrali- zation was given priority through, inter alia: the enactment of the Law of Human Settlements, the creation of a new Ministry of Human Settlements and Public Works, the issuance of new federal-state institutional procedures and the creation of large federal programs and special incentive schemes to attract investments in pre-defined priority regions. 2.04 President Miguel de la Madrid's administration has again assigned high priority to decentralization efforts. The Government, as the first initiative towards establishing a base for its decentralization policies, in February 1983, modified Article 115 of the Constitution which governs municipal functions. This modification defined the legal responsibilities of municipalities to include the plAnning, financing, implementing, operat- ing and maintaining of basic municipal services. Through subsequent related decrees, the role of federal agencies were modified to conform to the municipalities' increased responsibilities. 2.05 The Government's decentralization strategy, is outlined in the Program for the Decentralization of the Federal Public Administration, published in January 1985. Unlike previous approaches which mostly concen- trated on physical decentralization (deconcentration), the present strategy emphasizes the delegation of responsibilities which were previously cen- tralized in federal government secretariats in Mexico City, to either federal agencies operating at the state level or to state and municipal  governments. This strategy will imply and require more state and local participation in programming and implementing investment decisions, greater coordination among central agencies and between federal, state and municipal governments, more state and local inputs into policy planning with federal agencies providing overall policy guidance, technical outreach support and overall evaluation of programs. 2.06 On September 19, 1985, Mexico was hit by one of the worst earth- quakes in its history, measuring 8.1 on the Richter scale. The earthquake and subsequent aftershocks caused severe damage in Mexico City and in the states of Jalisco, Michoacan, Colima, Guerrero and Mexico. In Mexico City alone, an estimated 60% of federal government buildings were destroyed or heavily damaged and need to be demolished. Instead of reconstructing office space in Mexico City, the Government has decided to accelerate the ongoing decentralization program. Staff and operations of various Secreta- riats are to be relocated to 20 cities which have been selected on the basis of, inter alia, their physical location, existing population and rate of growth, land availability, and capacity for expanding use of existing infrastructure. The Government's objective is to address the decentraliza- tion program in these 20 cities in an integrated manner in which, policy, financing and investments are coordinated at the federal level, with state and municipal plans and programs. The proposed project would finance studies for the development of detailed plans for decentralization in 20 priority cities as well as pilot municipal investments in two selected cities (Annex 1.2). Sector Organization 2.07 The Government structure in Mexico is highly centralized with the federal government selectively delegating power tc the 31 states and 2379 municipalities. Municipalities are the primary political and administrat- ive units of government. Municipal governments are headed by mayors which, together with approximately 10% of senior municipal officials, are elected for three-year terms and are not eligible for reelection. In accordance with the recent modifications to Article 115 of the Constitution, munici- palities are responsibile for the planning and delivery of various urban services including: water supply and sewerage, drainage, solid waste management, roads and streetlighting, retail and wholesale markets, slaugh- terhouses, parks and gardens, graveyards, traffic management and public security. Municipal governments have full authority to set and collect user charges and property taxes, to plan, finance and implement invest- ments, and to operate and maintain basic municipal services. However, the administrative, financial and managerial capabilities of municipalities vary substantially; only about 100 of the larger municipalities are capable of undertaking their legal responsibilities. The absence of both qualified technical staff and adequate access to technical assistance and training result in reduced mobilization of financial resources at the municipal level, slow implementation of projects and overall inefficiency in the pro- vision, operation and maintenance of basic municipal services. While municipalities have recently been given increased responsibilities, no  clear municipal training policy has been adopted by Federal and State governments; heretofore training of municipal staff has taken place infor- mally on the job or on an ad-hoc basis. Strengthening municipal management through intensive training programs in order to improve the provision of basic municipal services is, therefore, essential for the success of the Government's decentralization program. 2.08 At the federal level, various Government agencies are involved in overseeing policy in and providing technical assistance to municipalities. The Secretaria de Gobernacion (SG) is concerned with the jurisdiction, status and administration of local governments and their political relations with the Federal Government. The Secretaria de Hacienda y Credito Publico (SHCP) is responsible for revenue collection, for overseeing the financial management and revenue operations of local govern- ments, for determining sources of financing at the federal level, and for the operation and management (including credit operations) of the Govern- ment's financial agents. The Secretaria de Programacion y Presupuesto (SPP) reviews and subsequently evaluates state and local budgets to ensure their priorities are consistent with national and regional plans, programs and statutory requirements. SPP is also responsible for the allocation of federal budgetary al'locations to municipalities. The Secretaria de Desarrollo Urbana y Ecologia (SEDUE) is the principal normative authority responsible for water supply, sewerage, solid waste and other basic munici- pal services. SEDUE is responsible for advising on and reviewing of land use plans prepared by state and local governments and for providing techn- ical assistance and support for all municipal and urban services. All of the Secretariats have regional offices in each state. 2.09 BANOBRAS is a financial agent of the Government responsible for financing infrastructure (urban development, water supply, highway, etc.) investments (Annex 6.2). The federal goverament, through SHCP, controls BANOBRAS' policies and directs its borrowings and lending activities. BANOBRAS onlends funds to states and municipalities through various windows- on varying terms and conditions. However, in view of the intern- al organization requiring coordination among four divisions (External Credit, Planning, Operations and Training), as well as complex bureaucratic procedures for loan application and processing, and lack of promotion, BANOBRAS has not been a major source of funding to municipalities. A Government decree issued in July 1985, modifies the status of BANOBRAS to that of a National Credit Institution and Development Bank. In its expanded capacity, BANOBRAS is to become more actively involved in initiat- ing, preparing, appraising and supervising investment projects. In addition to headquarters in Mexico City, BANOBRAS has six regional branches. BANOBRAS has also under discussion a program for establishing branches at each state level, pari passu with project implementation, adequately staffed to carry out appraisals, loan processing and monitoring operations. In the meantime, BANOBRAS has undertaken to implement adminis- trative and operational measures at the regional and state levels as required for the efficient and timely implementation of the project, including mechanisms for the promotion of the Government 's Program for the Strengthening of Municipalities and for the provision of financial services required by eligible municipalities in connection with the execution of sub-projects.  2.10 In support of the Government's decentralization efforts, federal, state and municipal agencies have been instructed to create special intern- al units which would provide technical and financial assistance and train- ing to municipalities. There is, however, at present, no proper framework for coordinating the activities of these units and there is considerable ambiguity on the roles and responsibilities of the various agencies. The proposed project would assist the Government in addressing this issue on a pilot basis by developing the framework, direction and necessary technical and financial assistance so as to strengthen all municipalities over the next 10-15 years. Municipal Finance 2.11 An overview of Municipal Finance in Mexico is given in Annex 6.1 and summarized below. Althougt municipalities are now expected to provide a wide range of urban services, their finances and accounting records are generally weak and inadequat . Over the 1977-1982 period municipal revenues grew at an average annual rate of 18% in real terms, while expen- ditures grew at an average annual rate of 12% in real terms. Municipal borrowing remained at a constant 4% of revenues throughout this period. The revenues and borrowing capacity of municipalities are sufficient to support increased capital investment to improve the quality of municipal services and expand their coverage. The most striking trend, over that period, was the 33% average annual increase (in real terms) in transfers to municipalities through federal revenue sharing. These transfers increased from 25% of total revenues in 1977 to 42% in 1982. In addition to federal revenue sharing, federal and state subsidies to municipalities (excluding credit subsidies) increased at an average annual rate of 15% in real terms during this period. Total transfers (revenue sharing plus direct subsidies) grew as a proportion of total municipal revenues from 45% in 1977 to 59% in 1982. Municipally generated revenues, including borrowings,decreased from 55% of total revenues in 1977 to 41% in 1982. 2.12 Given domestic resource constraints, it is unlikely that munici- palities will, in the future, receive this increasing amount of federal government support. Municipal governments will need to generate consider- ably more resources to meet the needs of their growing population. Modifi- cation of Article 115 of the Constitution provides the legal instruments for substantial increases in municipal own-source revenues. Municipali- ties, which previously received 15Z of property taxes collected by states, are now responsible for collecting property taxes and retaining 80% of collections. Furthermore, municipalities now collect and retain all user charges for water, sewerage and drainage systems, solid waste services, markets and slaughterhouses, among other basic services. Finally, as municipalities have adopted conservative fiscal policies they have considerable potential for borrowing. Bank Sector Strategy, Past Experience and Rationale for Bank Involvement 2.13 Mexico's urbanization pattern and the inordinate growth of the Mexico City Region has been a recurrent subject of dialogue between the  Bank and Mexican authorities. Since 1978, the Bank has assisted the Government in projects aimed at addressing spatial decentralization through the development of alternative growth poles and deconcentration of the Mexico City Region. 2.14 The first urban project supported by the Bank in Mexico was the Lazaro Cardenas Conurbation Development Project (Loan No. 1554-ME of September 27, 1978). This project was an attempt to deal with a variety of urban and regional development issues in a priority region which had bten the subject of other Bank-supported projects. The Second Urban and Region- al Development Project (Loan No. 1990-ME of May 12, 1981), addressed similar issues in the oil-producing areas of Tabasco, Veracruz and Chiapas. Both projects were aimed at providing infrastructure, community facilities, low-cost housing and credits for productive enterprises to comr- plement expanding economic activity in growing peripheral regions. Imple- mentation of these projects was adversely affected by difficulties in institutional coordination, inadequate technical and financial capacity at the state and municipal level, and complex bureaucratic procedures. These issues would be addressed under the proposed project. The latter project has, in addition, been affected by reduced absorptive capacity in the project area, as well as, by recently revised administrative arrangements necessitated by the Government's decentralization program. The Deconcen- tration Program for the Mexico City Region (Loan No. 2194-iME of August 3. 1982) supports the preparation of a pre-investment stage of a deconcentra- tion program for the Mexico City region. A Low Income Housing Project (Loan No. 2612-ME of August 6, 1985), concentrating investments outside the Mexico City region, and addressing macro issues on housing finance, is in initial stages of implementation. 2.15 After an initial water supply project for the Mexico City region (Loan No. 909-ME of June 1973), three subsequent water supply projects have supported deconcentration efforts and more equitable regional distribution of benefits through assistance in medium-size cities. Through these pro- jects, the Bank has assisted the Government in significantly improving financial policies, planning and institutional capacities. The institu- tional arrangements under which these projects operate has been affected by modifications to Article 115 of the Constitution and some adjustments to account for the municipalities' increased responsibilities have been made. 2.16 The proposed project would provide timely support to the Govern- ment's decentralization policies on a pilot basis by establishing the institutional, organizational and financial management framework for the future. The proposed project is expected to: (i) help improve the overall municipal public sector management policy and consolidate the Government's decentralization program; (ii) improve the institutional and financial management of municipalities by gradually rationalizing the system of grant transfers, and strengthening municipal finances through application of a systematic methodology which would lead to appropriate pricing and cost recovery policies; (iii) reduce federal subsidies to states and municipalities by improving access to credit and improving local finance mobilization; and (iv) establish, at the federal and state levels, a coordinated and streamlined mechanism to provide financial and technical assistance and training to enable municipalities to discharge their assigned responsibilities.  - 9 - 2.17 Future Bank lending in both the Urban and Water Supply sectors will necessarily incorporate the revised institutional framework required as a result of the Government's decentralization policy. A series of pro- jects in Solid Waste Management (processed in parallel), Small Cities Water Supply, and Medium Cities Urban Transport are envisaged, to establish, at the federal level, the technical subsector expertise and relevant institu- tional coordination, required to provide municipalities with financial and technical assistance and training, within the framework established under the proposed project, to adequately discharge their responsibilities in these subsectors. PART III - THE PROJECT 3.01 The proposed project was identified in August, 1984 and appraised in August, 1985. Negotiations were held in Washington in February, 1986. The Mexican delegation was led by Mr. German Sandoval of BANOBRAS. Project Objectives and Description 3.02 The proposed project would support the Government's objectives to improve the utilization of human and financial resources and strengthen institutions, particularly at the municipal level, to increase the delivery of affordable and efficient urban services. Within these overall program objectives, the proposed project would: (a) strengthen the municipalities' organizational, administrative and financial management systems and performance; (b) strengthen federal and state agencies in the area of municipal development promotion, through provision of financial resources and effective training programs; and (c) assist municipalities in expanding and upgrading urban infrastructure. The project ob4ectives would be achieved through the implementation of the following components: (a) Municipal Staff Development and Organizational Strengthening; (b) Federal and State Staff Development and Organizational Strengthening; (c) Infras- tructure and Related Investment Fund for Municipal Development; and (d) Project Administration. 3.03 Program Structure. The project would emphasize a 'process' orientation that would represent a shift away from traditional single project analysis to an institutional appraisal focused on the municipality as an important agent of national economic development. The project is designed around an 'ntegrated set of mutually supportive activities. After carrying out a detailed institutional and financial appraisal, municipal- ities would have access to credit for municipal infrastructure subject to presenting subproject appraisals, participating in relevant training programs and implementing required financial measures. Because of the pilot nature of the project, emphasis has been placed on monitoring and evaluation for project management and subsequently for project performance evaluation. Specific indicators have been established for measuring the  - 10 - performance of institutions and of beneficiary municipalities, as well as the impact of the program as a whole. 3.04 The Government's Program for the Strengthening of Municipalities (FORTAMUN) would be formally established under a mandate from SHCP to BANOBRAS, as a condition of effectiveness. The mandate agreement authorizes BANOBRAS to control funding and establishes the basic structure of the program, including: (a) the establishment of a high-level ministe- rial Steering Committee; (b) the establishment of a Technical Secretariat for coordinating the various agencies and the program as a whole (paras. 3.14 and 3.15); (c) the establishment of a Training Support Unit responsi- ble for providing detailed technical support to training agencies; and (d) the formalization of the Operating Guidelines which detail the basis for the operation of FORTAMUN. The Operating Guidelines include: (a) project objectives; (b) participation criteria; (c) operating procedures; (d) procedures for inst4tutiocal and financial appraisal of municipalities; (e) procedures for financial, technical, and economic appraisal of subprojects; (f) model subloan agreements; (g) procurement guidelines; (h) recommenda- tion on cost recovery mechanisms; (i) accounting, auditing and reporting requirements; and (j) monitoring and evaluation procedures. The Operating Guidelines include a definition of concepts and data requirements relating to municipal finance, methodology for analysis of historic data and other indicators, as well as financial projection and impact techniques. BANOBRAS has agreed to follow policies and procedures as outlined in the Operating Guidelines, reviewed during negotiations, and to be acceptable to the Bank as a condition of effectiveness, and would not make any changes in the guidelines which would adversely affect the carrying out of the Project. 3.05 Municipal Staff Development and Organizational Strengthening. The Municipal Staff Development component would support a coordinated program to upgrade the administrative and financial capacity of selected municipalities through the training of: (a) about 14,350 senior municipal officials requiring structured orientation of Government priorities for municipal reform; (b) about 5,000 mid-level municipal officials responsible for the continued operation of services and programs across municipal administrations; and (c) about 260 trainers. The project would finance the cost of courses, travel and subsistence and required equipment and mate- rials. To the extent possible, existing facilities, courses and curricula would be utilized. The following six training themes would be provided to initiate the program: Program Priorities, Financial Management, Credit Management, Municipal Administration, Legal Aspects, and Technical Serv- ices. Training for mid-level officials would focus on specific skill training such as improving cadastres, accounting, inventory control, pricing of services, programming, project formulation, economic evaluation and project appraisal, and operation and maintenance. Additional training materials would be developed under the project. In addition, this compo- nent would include a program of technical assistance and fellowships to: (a) assist municipalities in implementing improved financial and adminis- trative management systems; (b) strengthen training agencies by contracting with national or foreign institutions for specialist staff; (c) provide for program planning and evaluation; and (d) provide study visits to assist in  - 11 - technical and pedagogical aspects of curriculum development, implementation of training courses and operational systems. A detailed description of the Training and Technical Assistance components for municipal, federal and state level staff is given in Annex 1.1. 3.06 Federal and State Staff Development and Organizational Strengthening. The Federal and State Staff Development component would provide for: training of staff of federal and state agencies providing outreach support to municipalities, including, SG, SHCP, SPP, SEDUE, BANOBRAS, their regio.lal branches, relevant state-level agencies and train- ing subsidiaries, as well as training the trainers. The project would finance the cost of courses, travel and subsistence, required equipment and materials, and related technical assistance and fellowships. This compo- nent would include technical assistance, training and studies to carry out preinvestment training and detailed feasibility studies for the 20 cities selected for the Government's decentralization (Annex 1.2), and a minicipal manpower training study. The SG, assisted by the Training Support Unit, would establish an itformation and data system to examine the characteris- tics of municipal manpower and prepare an assessment of training needs as a prerequisite to formulating a National Municipal Training Policy. Outline Terms of Reference for the studies have been agreed and would be submitted to the Bank in detail for review as a condition of disbursement against that sub-component. 3.07 Infrastructure and Related Investment Fund for Municipal Develop- ment. This component would support the establishment of a municipal development fund (MDF) within BANOBRAS to provide subloans to municipal- ities in respect of subproject investments in water supply, sewerage, roads, drainage, streetlighting, markets, slaughterhouses, etc. (Annex 2.1). Municipalities, depending on their financial needs, would receive partial subproject funding through matching grants (para. 3.25). In addition to channelling government budgetary support for municipal subpro- jects in conjunction with credit funds, the MDF would serve to demonstrate the simplification of subloan application procedures, reduction in subloan review period and improvements in BANOBRAS' appraisal process, including a -pre-appraisal- process through which a municipality would be prequalified for a line-of-credit based on its financial situation and debt-carrying capacity (para. 3.21). Two pilot subprojects would finance municipal infrastructure in cities targetted under the Government's decentralization program. With the exception of the pilot subprojects which would not individually exceed US$12.0 million, subprojects financed under the MDF would not exceed US$2.0 million. 3.08 Project Administration. The project would finance the salary of key full-time staff of the TS and TSU (paras. 3.14 and 3.15) as well as travel and subsistence costs, materials and equipment required for project administration.  - 12 - Project Cost and Financing 3.09 The total project cost, excluding taxes, but including physical and price contingencies, is estimated at US$80.0 million equivalent, with a foreign exchange cost of US$18.3 million. Costs for the training and tech- nical assistance components have been based on an analysis of similar recent expenditures by each of the executing agencies (para. 3.15). Approximately 1,475 staff months of consultants' services have been estimated to carry out training, technical assistance, studies and support activities. Physical contingencies of 10% have been allowed on the train- ing and technical assistance components. Similarly, price contingencies on the training and technical assistance components only, have been estimated according to a nine-year disbursement profile, on US dollar based values at 7% for 1986 and 1987, 7.5% for 1988, 7.7Z for 1989, 7.6% for 1990 and 4.5% for 1991 onwards. Base costs are expressed in December 1985 prices. A detailed cost table for a 9-year implementation period is shown in Table 7.1 (Annex 7). The Government intends however to complete the project in 5 years, in part to minimize risks over the possible loss of political momentum (para 3.27). This would result in the overall project costs being reduced by about 2%, or from US$80.0 million to US$78.3 million (Tables 7.2 and 7.3), and would increase the total number of possible subprojects. However, the annual provision of funds by the Government would be higher (Table 7.5). 3.10 The proposed Bank loan of US$40 million equivalent would finance 50% of project cost or the estimated foreign exchange component pls 35% of local cos ts. This is in line with recent Bank participation in social sector projects in Mexico, and is justified by the extensive expenditure in local currency, the training and technical assistance and pilot nature of the project. BANOBRAS would as a condition of effectiveness, enter into contractual arrangements, satisfactory to the Bank, with the Government providing for the transfer of funds to FORTAMUN and repayment of the loan by the Government. The Government would provide the required counterpart funds through annual budgetary allocations to FORTAMUN. For sub-project investments, municipalities would contribute the equivalent of US$12.2 million from their revenues. Part of the loan proceeds (US$9.5 million) would be channelled by the Government through the project account (para. 3.13), to the agencies implementing the training and technical assistance components and for project administration (Chart 2.3 of Annex 2). The remaining balance (US$30.5 million) would provide initial capital to the MDF to provide subloans and grants for subprojects to be implemented by municipalities on terms and conditions satisfactory to the Bank (para. 3.23). Principal and interest payments on subloans would be deposited iu the MD? and further onlent to municipalities under the same terms and conditions. Procurement and Disbursement 3.11 Mexico's construction industry is highly developed and capable of executing works at costs competitive with international bidders and none of the individual contracts would be large enough to attract foreign bidders. Therefore, most construction contracts would be awarded through local competitive bidding (LCB) procedures acceptable to the Bank, which would  - 13 - allow participation by foreign contractors. Civil works contracts estim- ated to cost less than US$100,000 and up to an aggregate of US$8.0 million would be contracted directly on the basis of at least three quotations. Works not exceeding in the aggregate US$5.0 million would be executed on the basis of force account procedures. This large amount of force account is required because of the large number of small works to be executed by municipalities, many of which have established work forces capable of carrying out works in the most economic and efficient manner. Most ecidip- ment and materials for subprojects, as well as for the training and insti- tutional strengthening components would be procured under LCB procedures. ICB procedures would be followed when the estimated cost of a single package exceeds US$250,000. Equipment and materials estimated to cost less than US$75,000 equivalent and up to an aggregate limit of US$7.0 million would be contracted directly through prudent local shopping on the basis of at least three quotations. Consultants' services for studies, training and technical assistance would be obtained in accordance with Bank guidelines. Because of the large number of small individual contracts, the Bank would review all awards on an ex-post basis. Prior Bank review would be required for contracts procured under ICB. 3.12 Disbursements would be made to cover: 50% of expenditures for training, (including fellowships and travel and subsistence cost of trainers), equipment and material for training, consultants' services and project administration and 100Z of amounts disbursed for civil works, materials and equipment under approved subloans and grants up to 50% of the subproject cost. All disbursements in respect of expenditures under sub- loans, training and project administration would be made against certified Statements of Expenditures. Supporting documentation for these expendi- tures would be retained in BANOBRAS, and made available for periodic review by Bank supervision missions. Retroactive financing in an amount not exceeding US$0.6 million equivalent would be provided for expenditures for preparation of promotional and training materials, and technical assistance incurred on or after September 1, 1985. To accelerate disbursements, BANOBRAS would establish and maintain under its control, a Special Account, with an initial deposit of US$2.0 million, which would be operated in accordance with terms and conditions satisfactory to the Bank. A 9-year disbursement schedule is shown in table 7.4 of Annex 7. Accounts and Auditing 3.13 Beneficiary municipalities would be required to maintain detailed subproject accounts which would be audited annually by auditors acceptable to BANOBRAS. The audit reports would be made available to the Bank for review upon request. BANOBRAS would when necessary, provide technical assistance to municipalities to assist in establishing an information base and accounting system as a condition of granting subloans. Other implementing agencies would be responsible for maintaining separate project accounts which would be forwarded to the TS for consolidation into a single project account. BANOBRAS would open and maintain a separate project account to reflect all project expenditures, including a separate sub-account to reflect all transactions under the MDF. The consolidated project account including the MDF would be audited annually by independent  - 14 - auditors acceptable to the Bank and the auditors' reports would be forwarded to the Bank no later than six months after the end of each fiscal year. The Special Account would be audited by BANOBRAS' independent auditors and their report would be submitted to the Bank not later than six months after the end of each fiscal year. Project Execution 3.14 Project Organization and Management. A Steering Committee (Comite Directivo), headed by the the Undersecretary of SHCP, and consist- ing of senior officials of SG, SPP, SEDUE and BANOBRAS would be appointed, to deal with overall policy matters. The TS, would centralize overall project management and would be responsible for coordinating, programming, managing and performance monitoring functions, including administering project finances. The TS, headed by an experienced administrator, would be supported Ly a number of staff trained in finance, programming, and administrative skills. The TS Director would function as ex-officio Secretary to the Steering Committee. 3.15 The TSU would be established, under the coordination of the TS, to coordinate, plan, program and promote the training and technical assist- ance components (paras. 3.05 and 3.06). The TSU would form the nucleus of a central national coordination centre for municipal training programs and would be staffed by representatives of SHCP, SPP, SG, SEDUE and BANOBRAS, assisted by training experts, as required. The Government has provided assurances that the TS and the TSU would be staffed at all times with qualified and experienced technical and administrative personnel. The training components would be implemented by SHCP, SPP, SG, SEDUE and BANOBRAS and their subsidiary Training Units (INDETEC, INCAFI, CNEM, and CEDADEM) assisted, as necessary, by external training institutions. 3.16 The State Development and Planning Committees (COPLADES) would participate actively in the promotion of the program. Subproject invest- ments would be implemented by municipalities who would plan and execute their program with the assistance of SEDUE and consultants, when neces- sary. BANOBRAS would be responsible for the appraisal of municipal subpro- jects, for all credit operations and monitoring and evaluation. 3.17 Selection criteria have been agreed and are incorporated in the Operating Guidelines. Priority for states selected take into account dates of changes in administration and the recent earthquake (Annex 3.2). Because of its pilot nature, priority will be given to those municipalities in each state that are likely to benefit quickly from the project and therefore serve as in-state demonstrative examples. Participation in the MDF or the training component would be on a self-selection basis. For the MDF specific criteria will include: (a) willingness to follow procedures set out in the Operating Guidelines (para. 3.04); (b) willingness to accept terms and conditions specified in subloan agreements (para. 3.23); and (c) compulsory participation in the training component (Annex 3.3). For participation in the training component, the municipality must comply with the procedures set out in the Operatirg Guidelines.  - 15 - 3.18 Implementation Schedule. The proposed project, which represents a first pilot phase of the Government's program, would be implemented over a nine-year period in accordance with the sector profile. All training under the project would be fully implemented by December 1990. The imple- mentation period of subprojects is estimated to average 11 months for the most complex subprojects. Loan funds under FORTAMUN would be committed by October 31, 1993. After allowing for the completion of final subprojects, the project would be completed by June 30, 1994 and the closing date would be December 31, 1994. 3.19 Monitoring and Reporting Requirements. Because of the pilot nature of the project, emphasis has been placed upon strengthening the capacity for monitoring and evaluation at the municipal, state and federal levels. The monitoring system for FORTAMUN would be detailed in the Operating Guidelines. The reporting system would have separate modules which would monitor: (a) activities relating to subloan requests, authorization, formalization, actual investment and cost recovery; (b) an inventory of municipal needs in the areas of financial management, institutional strengthening, and training; and {c) a register of training and funding programs to be implemented after the technical evaluation of each municipality (Annex 4). The TS would be responsible for monitoring and evaluation on the basis of quarterly progress reports prepared by municipalities and implementing agencies. Quarterly Implementation Summaries would be forwarded to the Steering Committee and to the Bank. The TS would forward an annual evaluation of progress in meeting financial, economic, technical and institutional objectives to the Bank not later than March 31 of each year. Local Finances and Cost Recovery 3.20 Through the institutional strengthening and training components, the project would significantly increase the capacity for resource mobiliz- ation at the municipal level, both by increasing local revenues through property taxes or general revenues and user charges, as well as by reducing expenditures through improved administration and maintenance. Capital and recurrent costs for improvements in roads, sidewalks, drainage, parks and recreation areas, and residential solid waste connections would be recov- ered through general surcharges levied on beneficiaries. User charges would be applied to recover debt service and operation and maintenance costs for revenue earning services such as water supply and sewerage, commercial solid waste infrastructure, utility network expansion, mnicipal vehicle and equipment maintenance workshops and cemeteries. Rents and fees would cover capital and recurrent costs of revenue earning investments such as markets, slaughterhouses, public transport terminals and equipment and vehicles. No change in existing laws or policies is required to implement cost recovery. Implementation of satisfactory cost recovery measures under proposed subprojects would be reviewed by BANOBRAS in the context of overall municipal finances during appraisal of individual subprojects. Subloan agreements would require full cost recovery of subproject invest- ments, with state and municipal governments determining specific mixes of user charges and general tax revenues.  - 16 - Onlending Terms and Procedures 3.21 Appraisal of Sub-borrower. Appraisal of individual subprojects would follow a two-step procedure - appraisal of the municipalities and then of specific subprojects. BANOBRAS would, on the basis of standard information supplied by municipalities and compiled in the monitoring sys- tem, appraise the overall financial, technical and institutional capacity of individual municipalities. On the basis of this general assessment, training and technical assistance requirements, as well as financial per- formance targets, cost recovery measures and borrowing ceilings would be agreed with the municipality as a precondition for borrowing from the MDF (Annex 5.2). 3.22 Subproject Appraisal. BANOBRAS would, as necessary, assist municipalities in preparing the technical, financial, economic and legal subproject information (Annex 5.3). Model technical design criteria and standards have been prepared by SEDUE and are incorporated in the Operating Guidelines. Economic rates of return would be prepared for all subprojects costing more than US$200,000 equivalent. Once a subproject has been approved by the Division of FOMENTO (Operations) in BMNOBRAS, a subloan agreement would be signed between the municipality and BANOBRAS. Individ- ual subprojects with an estimated total cost exceeding the equivalent of US$500,000 would be forwarded to the Bank for approval. Subproject docu- mentation for works in the two pilot cities (Annex 1.2) would include: (a) an institutional and financial appraisal of the Sub-borrower carried out in accordance with Pro Forma A of the Operating Guidelines; (b) the detailed capital investment plan in respect of the Decentralization Program for the municipality; (c) a financing plan; (d) a study of the impact of investment on the municipality's revenues; (e) institutional responsibilities for Lmplementation of complementary investments by federal and state agencies, and (f) details of subprojects for financing, in accordance with format as in Pro Forma B of the Operating Guidelines. 3.23 Subloan Ageents. Subloans would be approved by the Steering Committee (para. 3.14). A traf t model subloan agreement has been reviewed by the Bank and is incorporated in the Operating Guidelines (Annex 5.5). Subloans would be made to cover at mDst 80% of subproject costs, at interest rates specified in the General Interest Rate Agreement (GIRA), and according to the following terms: (a) roads, sidewalks, drainage, parks and recreation areas - 5 years, including one year of grace; (b) water supply and sewerage, solid waste infrastructure, municipal vehicle and equipment maintenance workshops - 15 years, including four years of grace or the end of construction, whichever is shorter; (c) municipal markets, slaughterhouses, public transport terminals and equipment - 10 years, including three years of grace or end of construction, if shorter; and (d) solid waste equipment and vehicles, and microcomputers and equipment - 5 years without a grace period. 3.24 GIRA is a master agreement, signed between Mexico and the Bank on August 7, 1984, which covers Interest rates in individual loans for credit progras. It provides for the linking of interest rates to a central reference rate (an index of average cost of funds to multi-purpose banks - ACF), a systematic accounting of subsidies, a gradual phasing out of  - 17 - remaining subsidies for most beneficiary categories, periodic adjustment of rates and a reduction in the dispersion of interest rates. As GIRA does not at present include a category for interest rates in respect of munici- pal infrastructure lending, the Government has agreed to an amendment to the GIRA providing for the inclusion of such category with the following target rates: 68Z of ACF as of January 1, 1986, and 80% of ACF for January 1, 1987 onwards. The effectiveness of this amendment to the GIRA would be a condition of effectiveness of the proposed loan. 3.25 Matching Grants. In order to induce municipalities (which had previously been accustomed to receive straight grants) to rely on credit for financing infrastructure investments, and to rechannel some current Gove-nment budgetary support to municipalities into a coordinated effort with credit funds, a formula of matching grants is proposed. For the purposes of establishing the proportion of matching grants, municipalities have been classified into five categories according to the following criteria: (i) size; (ii) deficiencies in provision of basic services; (iii) priority in the National Development Plan; and (iv) current reve- nues. Municipalities in categories one (most developed) through five (least developed) -would be eligible for 0%, 5%, 10%, 25% and 30Z grant (as a percentage of total financing), respectively. BANOBRAS has provided assurances that, in any given calendar year, the amount of grant funds dis- bursed from the MDF shall cot exceed 16% of total funds disbursed from the MDF in respect of subproject investments. BANOBRAS has further agreed to review the matching grant formula not later than March 31, 1988 and to exchange views with the Bank on the results of such review. A review of municipal finance in Mexico, a review of BANOBRAS' finances, activities and future operations, and a discussion on FORTAMJN, and the impact on the MDF of the proposed matching grants is attached in Annexes 6.1 to 6.3. Justification and Benefits 3.26 The principal benefit of the proposed project would be the improved policy and financial environment for municipal development which would be necessary for the implementation of the Government's decentraliza- tion program. Rationalization of BANOBRAS' policies, practices and proce- dures for provision of municipal credit, reinforcement of federal and state agencies' capacity to provide technical assistance to mnicipalities, and training programs would introduce a more rational planning and investment process, stimulate local resource generation and cost control measures and provide a reliable source of long-term financing for municipal develop- ment. The improvement of operational and financial management policies and rationalization of grant financing for municipal services would lead to reduced demands on the national budget through greater local resource mobilization. In addition to significant health and social benefits, the project would have a positive environmental impact in subproject municipal- ities. Economic rates of return (ERR) for similar investments financed by BANOBRAS have ranged from 11% to 30%, with an average of 16%. It is expected that subproject investments under the proposed project would yield at least comparable returns, particularly in light of lover cost technical solutions which will be incorporated in subloan agreements. ERRs would be  - 18 - calculated for all subprojects exceeding the equivalent of US$200,000. On the basis of a sample of municipalities selected by the Government for implementation in the first phase of the program, it is anticipated that about 90% of project costs under municipal strengthening components would finance investments in about 340 municipalities with a population of about 7 million of which 1.7 million or 25% are estimated to be within the poverty group. Project Risks 3.27 The major project risks are: (a) the inherent difficulties in coordination; (b) the capacity and willingness of BANOBRAS to make appro- priate changes; and (c) the possible loss of political momentum. The esta- blishment of an independent Technical Secretariat and Training Support Unit, and the definition of clear roles, responsibilities and procedures in the Operating Guidelines, would reduce difficulties in coordination. Previous urban and water supply lending operations have been partially constrained by problems within BANOBRAS. However, the project addresses these issues. BANOBRAS' coordination of the project preparation effort and the degree and rapidity with which changes in policy have been processed have been exemplary and indicate the management's and SHCP's commitment to change. Finally, the Government would be encouraged to accelerate imple- mentation within the first five years to obtain a quick feedback, and also benefit from the mDmentum set in place by the present Administration. PART IV. AGREEMENTS REACHED AND RECOMMENDATIONS 4.01 During Negotiations: Assurances were obtained from GOM that: (a) BANOBRAS would undertake to implement administrative and operational measures at the regional and state levels as required for the efficient and timely implementation of the project, including mechanisms for the promotion of FORTAMUN and for the provision of financial services required by eligible municipalities in connection with the execution of the subprojects (para. 2.09); (b) BANOBRAS will follow policies and procedures as outlined in the Operating Guidelines, and would not make any changes in the Guidelines which would materially or adversely affect the carrying out of the project (para. 3.04); (c) A Municipal Development Fund (MDF) would be established to provide subloans and grants for subprojects to be implemented by municipalities on terms and conditions satisfactory to the Bank. Principal and interest payments on subloans would be deposited in the MDF and further onlent to municipalities for the purposes of expanding FORTAMUN (para. 3.10).  - 19 - (d) In any given calendar year, the amount of grant funds disbursed from the MDF would not exceed 16Z of total funds disbursed from the MDF in respect of subproject investments. BANOBRAS has further agreed to review the matching grant formula not later than March 31, 1988 and to exchange views with the Bank on the results of such review (para. 3.25). 4.02 As a Condition of Effectiveness: (a) The Government and BANOBRAS shall have entered into the Mandate Agreement on terms acceptable to the Bank (para. 3.04); (b) The Operating Guidelines shall have been approved by the Government (Guarantor) and BANOBRAS (Borrower) on terms acceptable to the Bank (para. 3.04); (c) BANOBRAS would enter into contractual arrangements, satisfactory to the Bank, with the Government providing for the transfer of funds to FORTAMUN and repayment of the loan by the Government (para. 3.10). (d) The General Interest Rate Agreement (GIRA) shall have been amended so as to cover interest rates applicable to subloans as defined in the Project Agreement for the proposed project, and that such amendment is in full force and effect (para. 3.24). 4.03 Based on the agreements reached on the above, the project is suitable for a Bank loan of US$40.0 million.  - 20 - AN1 MEXICO NUNICIPAL STRENGTHENING PROJECT Detailed Component Features Munlcipal Staff Developrent and Management Strengthening Federal and State Staff Development and Instituticnal Strengthening Table of Contents Paragraph 1. Background and Selected Issues .................... . . 1-3 2. Training Objectives .4............................. 3. Training Strategy 5............................. 5 4. Municipal Staff Development and Management Strengthening ................ e................. 8-10 5. Federal and State Staff Development and Institutional Strengthening ...................... 11-12 6. Project Target Groups ............................ 13-15 7. Estimate of Costs ........ ........................ 16-17 8. Implementation of Training Programs ..... ......... 18-20 9. Special Ongoing and Recurrent Activities ......... 21 List of Tahles and Attachments: Attachments: Page No. 1.1 Principal Training Theues ....................... 31 1.2 Municipal Officials - Estimated Totals ..e ....... 34 1.3 Projected Training Events and Participants (municipalities) gee ............................. 36 1.4 Projected Training Events and Partipants (Federal and State Level Staff) ................. 37 1.5 Aggregated Cost/Participant/Day for Recurrent Costs .ce...............e..... 38 1.6 Institutional Responsibilities for Training by Themes e.ee..ee..eee....e.cgegeeeeee..e......e.... 39  - 21 - ARMUE 1.1 Page 1 of 10 MEXICO MUNICIPAL STRENGTPENING PROJECT Human Resources Development and Organizational Strengthening. at Municipal, State and Federal Levels Background 1. Under the Government's decentralization program, the municipalities have been given increased responsibilities (paras. 2.04-2.07). The administrative, financial and managerial capabilities of the municipalities, however, vary substantially with only about 100 of the large municipalities capable of undertaking their legal responsibilities. The absence of both qualified technical staff, and adequate access to technical assistance and training, result in slow Implementation of projects and overall inefficiency in the provislon, operation, and maintenance of basic urban services. 2. At the federal and state level, various government agencies will be involved in overseeing policy, and providing technical assistance to the municipalities, (paras. 2.08-2.10). They have been instructed to create special internal units which will provide technical and financial assistance and training to the municipalities. Developing a framework for coordinating the activities of these units, training their staff to provide the necessary outreach and support, and strengthening municipal management through intensive training programs, in order to improve the provision of basic municipal services is essential for the success of the government's decentralization program. 3. A number of issues in the development of human resources in the sector have been identified: a) Poliy Issues. No clear policy or objectives have been adopted by federal, state or municipal authorities for the training of their respective staff. Thus no coordination exists at an appropriately high level, of the objectives and efforts of the various agencies involved in training, resulting in an informal won the Job' or ad-hoc approach to training. b) Institutional and Financial. Responsibility for improving the performance of municipal officials has not previously been institutionally defined, leading to ambiguity on the roles and responsibilities, and often unnecessary duplication of effort and resources. Training needs at the municipal staff level have not been generally identified in a manner that relates training to staff's operational requirements or the staff's trainability. There is also at this time, inadequate knowledge of personnel administration and training. In the absence of a centralized coordination mechanism, there is a mismatch between training programs available and training required, and no formalized meansof bringing this information to the attention of appropriate officials or potential trainees. No agency of the federal or state government is equipped to assess overall staff development requirements, to evaluate the usefulness of any training  - 22 - ANNEX 1.1 Page 2 of 10 undertaken, to carry out appropriate "tracer' studies, or to suggest modifications to course curricula. In addition to these problems, all agencies have suffered financial cutbacks, consequently there is little attempt to aggresively promote training or to disseminate available information on training opportunities, etc. The municipalities do not have separate training budgets. c) Technical. There is the need to consolidate the number and diversity of available courses and make them more relevant to the demands of the municipalities. This implies a qualitative and quantitative improvement. The level of pedagogic skills and techniques differ considerably within agencies, as do the modes of delivery; there is a need to develop and upgrade training agencies with -state of the art' techniques and facilities. Most of all there is a need to concentrate on a structured program for the training of trainers, as adequate assistance and proper supervision is lacking, as is the availability of equipment and teaching materials. Training Objectives 4. Inspite of the problems listed, the existing programs in Mexico, do provide an adequate basis of experience and facilities, for developing an accelerated national training program to meet municipal needs under the proposed project. The GOM's long-term objective, is to build a permanent training capability in the sector. Specific objectives under the project include: a) Introduction of planning and integration, of existing and proposed training activities of federal and state agencies. b) Development of a more accurate and systematic definition of municipal training requirements as locally perceived, and determined in the light of operational needs. c) Implementation of appropriately designed training programs for selected mwnicipal officials. d) Development of a mechanism for coordinated inter-secretarial and state follow-up and evaluation leading to improvements in training design and delivery. e) Equipping municipal officials with the skills required to assign financial resources for municipal development including project identification and preparation; credit management; and improved financial management and administration. f) Equipping federal and state officials with the skills to plan and impart training under the municipal staff development program, and to provide appropriate supporting services. 5. Training StrategX. These objectives will be acnieved through a) for municifpalstarf: setting up a central coordinating institutional  -23 - ANNEX 1.1 Page 3 of 10 mechanism for the development, financing, administration, delivery, and evaluation of training; and b) for federal and state staff: provision of substantial technical assistance and training, to enable their coordinated and appropriate responses to the needs of the municipalities. 6. The need for some institutional coordination is critical to facilitate a technical and operational exchange of experiences, such as: the training of instructors, development of programs, preparation of teaching and learning materials (including audio-visual aids) etc.. At this time no single institution can automatically assume this coordinating role. Hence the evolution of the proposal for a Training Support Unit (TSU) to the Technical Secretariat (TS), as described in paras. 14 to 16. It is envisaged that the TSU will form the nucleus of a central national coordination centre for municipal training programs. Its eventual possible relocation from BANOBRAS, within the organization of training agencies, will be decided through experience under this project. 7. The central training coordinating agency's role would be: a) to compile an inventory of training facilities in each state; b) to identify and evaluate existing programs capable of improvement and extension; c) to promote integration of the various municipal training activities of Secretariats, Agencies and Institutions; d) to establish a sound and permanent form of finance for training; e) to allocate necessary resources and support for training of instructors, and for staff development; and, f) to insure the active commitment of all agencies (especially of municipalities through their cooperation), in the assessment of training needs, program design, selection of participants and evaluation of results; Detailed Description of Training Components. 8. Municipal Staff Development and Management Strengthening: This component will consist of: Training of Municipel Staff, Training of Trainers, Technical Assistance, Equipment and Teaching Materials, in a coordinated program to ;pgrade the administrative and financial capacity of municipalities. Training under the proposed project will utilize existing facilities and courses and curricula to the extent possible. This will be focussed at three levels of staff in particular: (i) senior officials of incoming municipal administrations (14,320 persons), who require require a quick, but structured orientation, or reorientation of the government's program priorities for municipal reform, to enable them to become immediately effective, instead of the current 'learning-on-the-job- approach; (ii) mid-level officials (4,940 persons) who are not subject to the same degree of mobility, and are thus responsible for the continuity of operation of services and programs; and (iii) Training of Trainers (about 270 persons), these are municipal staff who already are involved or will be, in training.  - 24 - ANNEX 1.1 Page 4 of 10 9. Following two separatel/ surveys, and discussions with experienced municipal officials, and training specialists of existing agencies, the project preparation team have listed material covered in about 60 courses (nearly 20% of available number) into 6 training themes: Program Priorities, Financial Management, Credit Management, Municipal Administration, Legal Aspects, and Technical Services. These are considered adequate to initiate the program. Training for mid-level officials will focus on specific skill training such as improving cadastres, accounting, inventory control, pricing of services, programming, project formulation, economic evaluation and project appraisal, and, operation and maintenance. Additional appropriate training materials would be developed under the project. 10. This project component will finance: (i) the training of municipal staff (cost e- courses and attendance expenses including travel and subsistence); (ii) the training of trainers (costs of courses, travel and subsistence); (iii) equipment and teaching materials (upgrading through replacement and additior. of existing printing and video production/replay facilities, audio visual and other training materials and equipment); and (iv) technical assistance and fellowships (a) to assist municipalities implement improved financial and administrative management systems; (b) for strengthening training agencies by contracting with national or foreign institutions for specialist staff; (c) program planning and evaluation, and (d) fellowships for study visits to assist in technical and pedagogic aspects of curriculum development, implementation of training courses and operational systems. II. Federal and State Staff Development, and Inatitutional Strengthening: This component will consist of: (i) training of staff of ederal and state agencies providing outreach support to the municipalities. (SG, SHCP, SPP, SEDUE, and BANOBRAS, their regional branches, relevant state-level agencies and training subsidiaries) (ii) Training of Trainers; (iii) Studies for formulating future policy and strengthening of relevant information systems in SHCP, SPP and SEDUE: ((a) the SG assisted by the Training Support Unit (para. 20) is to set up an information and data system, to study the characteristics of municipal manpower and complete an assessment of training needs, as a prerequisite to formulating a National Training Policy in the future); and (iv) Technical Assistance and Fellowships, Equipment and Materials. 12. This project component will finance (i) Training of Federal and State Officials (cost of courses and attendance expenses, including travel and subsistence); (ii) Training of Trainers (cost of courses, travel and subsistence); (iii) Cost of undertaking the above mentioned studies and strengthening of relevant information systems in SHCP, SPP and SEDUE; (iv) related technical assistance, fellowships, equipF2ent and materials. 1/ A questionnaire re-oriented survey of 81 municipallties by SPP, in September 1984; and an interview-oriented one in 14 municipalities (May 1985) by the project preparation team.  - 25 - ANNEX 1.1 Page 5 of 10 Project Target Groups 13. Of the estimated total of about 660,000 municipal staff and officials in Mexico2/, the project target group consists of 64,000 senior and middle level offncials. Of these, only 3% or nearly 19,520 (including instructors) will receive training under the project. Of the most senior elected officials, 14,320 or about 54% of the national total will take part in two-day seminars of 80 participants, focused cn program priorities (issues to be addressed under the municipal reform program, improving public participation, and strengthening of municipal management and development). About 5,200 middle-level officials will take part in 5-day long (average) training courses in groups of 20. Table 1.2 shows a) the estimated total of municipal officials in Mexico; b) the estimated number in the first group of 8 selected states, and c) the planned training coverage in 1986 by theme and category. Table 1.3 shows the total of municipal staff training events proposed under the project, and estimated total participants (1986-90) by training theme. 14. To keep the initial project manageable, training of police officials, technical and clerical staff, supervisors and operative personnel of technical services programs, will take place under special programs (SP) outside the scope of the project, and through existing facilities already catering for such groups. 15. Training will be given to 2,680 federal and state officials including instructors, from 1986 to 1990. They will participate in groups of 20 each in 134 training events focused on aforementioned themes. Programs will be organized within each participating agencies, and additional opportunities will be provided to study Mexican and foreign training institutions, and to undertake short study trips overseas. (Table 1.4 shows the total of training events and participants (1986-90)). Estimates of Costs 16. Costs for the Trainir.g and Technical Assistance components for municipal, federal and state staff, are based on an analysis of actual recent expenditures by eiach of the relevant agencies, and on estimates provided by the agencies during appraisal. A detailed cost estimate is shown on Table 7.1. Physical contingencies of 10% have been allowed for course materials and equipment. Price contingencies are included at 7% for 1986 and 87, 7.5% for 88, 7.7% for 89, 7.6 for 1990 and thereafter at 4.5%. Base costs are expressed in December 85 prices. 17. Estimates are based on the following: a) Municipal Training and Technical Assistance (i) Recurrent expenditure: 19,520 participants (including training of trainers) US$80 per day. (Table 1.5). This includes up to 14,320 participants on 2-day programs; and about 5,200 participants on 5-day programs; for a total cost of US$4,371,000. 2/ Mission estimate based on national total of 2,379 municipalities and surveys of selected municipalities during project preparation.  - 26 - ANNEX 1.1 Page 6 of 10 (ii) Technical and Promotional Activities Initially, the equivalent of 25 full time professional staff of the 5 participating agencies will be assigned to the project. Duties3/ attributable to the project will decline commencing 1988: US$ 000's 1986 25 man/yrs at US$ 7,360 184 1987 25 - - 184 1988 20 - 148 1989 15 " 111 1990 10 74 TOTAL US$70 (iii) The cost of preparing and publishing basic material for about 66 courses is estimated at US$1,008 per course or a total equivalent of US$71,000. Recurrent material for 439 course offerings during the project will cost US$556 per course or a total equivalent of US$244,000. (iv) Equipment: The sum of US$1,479,000 covers audio-visual equipment, video film making equipment, monitors, and miscellaneous training equipment and materials. Detailed requirements will be submitted for Bank review prior to procurement. Estimated total costs are as follows: Estimated cost of Equipment Required a/ US$ 000- 1986 1987 1988 1989 1990 TOTAL BANOBRAS/CEDADEM 57 - - - - 57 SEDUE 108 95 92 - - 295 SG 130 93 168 - - 391 SPP 72 72 - - - 144 SHCP (INCAFI) 592 - - - - 592 959 260 260 - - 1,479 a/ Estimates supplied by each Secretariat/Agency 3/ Staff duties will include collaboration with the TSU in the: identification of training needs; preparation of training materials; promotion of the municipal reform program among municipal, state and federal officials, follow-up and evaluation of training activities and technical assistance to the municipal development program; updating training programs following evaluation. Staff would also participate in the formulation of future municipal training programs.  - 27 - ANNEX 1.1 Page 7 of 10 b) Federal and State level Training (i) Recurrent Expenditure: About 2,680 participants (includiLng - 5% of trainers) @ US$80 per day, based on 5-day programs. (Table 1.5), for a total of US$1,051,000. (ii) Technical Assistance and Training: Services of locally based consultants have been estimated within a range or US$1,500 to US$7,0004/ per staff month, or approximately 200 staff months ror a budget of US$444,000. 26 foreign consultant staff months @ US$8,500 will be available to assist in educational planning and program evaluation at a total estimated cost of US$221,000. (iii) Fellowships for study tours for federal and state officials will be financed. These will include studie_ at universities and institutes in Mexico and visits to training institutions and municipal development programs in other countries on the following basis: Work/Months NATIONAL INTERNATIONAL 1986 48 12 1987 60 12 1988 60 8 168 32 at US$1 000 at US$4,500 USS168,000 US.51449000 (iv) Studies and Information Systems: A budget figure of US$312,000 has been included for specific studies and for strengthening information systems in SG, SHCP, SPP and SEDUE. (v) Equipment and Teaching Materials. The sum of US$202,000 covers miscellaneous audio-visual and other training equipment including up to 10 micro-computers for use by BANOBRAS in analyzing municipal finances and demonstrating use thereof to municipal staff. Micro-computers will be financed for use exclusively with programming and related project use by each of the key agencies, and for use of the TS and TSU. Detailed requirements will be submitted for Bank review prior to initiating procurement. 18. Implementation of Training Programs. Overall project organization, management and implementation is described in paragraphs 3.17 to 3.22. At the policy level the Comite Directivo (Steering Committee) will be headed by the Under Secretary, SHCP. The Director of an independent Technical Secretariat (TS) will be ex-officio Secretary to the Steering Committee and be responsible for overall project coordination, assisted specifically by a Training Support Unit (TSU) for the planning and coordination of the training program (para. 20). 4/ To eliminate discrimination between local and foreign consultants doing the same job.  - 28 - ANNEX 1.1 Page 8 of 10 19. The Training component would be implemented by SG, SHCP, SPP, SEDUE and BANOBRAS and their subsidiary training units (INDETEC, INCAFI, CEF, CECADE, CNEM, SEDUE and CEDADEM (see Attachment 1.6). Each of these already have developed subject specialization that reflect broadly the respective roles and responsibilities of their parent Secretariats. Some as in the case of SEDUE are currently fragmented and would benefit from a consolidation of the various training sub-units specializing In sub-sectors. During negotiations SEDUE submitted a satisfactory plan and timetable for consolidating its various training sub-unlts. Other private and seai-government training Institutions (INAP, IPADE, UNAM, and others) will, on the recomnendation of the Steering Comittee, assist government agencies in the delivery of training. 20. A Training Support Unit (TSU) has been formally established. It is coordinated by, and reports to the Steering Committee through the Technical Secretariat (TS). The TSU will coordinate, plan, program and promote the Training and Technical Assistance components. The TSU will be staffed by a core of key full-tlme staff, who would collaborate witb the representatives assigned from the key participating Secretariat. and BANOBRAS. Staff of the TSU and the TS would he selected and appointed by a consensus of participating agencies. The TSU will also be assisted by specialist professionals capable of providing a complete range of technlcal and operational support (training instructors, programming, learning material production, etc.). The modus-operandi for implementing the Training and Technical Assistance components in parallel with the Investment component has been outlined in the Activity List in Annex 5.1. Promotion and launching of the project in each state will be undertaken by a number of especially constituted and trained teams. The State Development and Planning Committee (COPLADES) will participate actively in the promotion of the program. Special On-going and Recurrent Activities 21. The TSU will coordinate the following: a) Development of each state's training program. Starting immediately, the TSU will formulate a draft course program for the first year for each of the eight states selected to participate during the first year of project implementation. The draft program for each state will result from discussions between the governor, state and municipal officials and members of the TSU. It will be formally approved by the Governor and the Steering Committee. In 1986 it will mainly consist of existing courses adapted to project requirements. Program content in subsequent years will reflect municipal requirements indicated by the response to particular courses during previous years. b) Development of Each Agency's Outline 3-Year Plan. The Steering Committee will assign responsibility for agreed training themes and course titles between participating agencies. The TSU will assist each agency to prepare an outline draft 3-year Training Plan to reflect anticipated project needs, against which each state's specific requirements will be matched. The plan will be adjusted every six months accordingly. Each agency will ident.fy detailed staff, equipment and other requirements (e.g. assistance by non-governmental agencies) to implement its program, and will  - 29 - ANNEX 1.1 Page 9 of 10 submit its proposals for discussion at the TSU prior to formal submission (thru the TS), to the Steering Committee. c) Development and Initiation of Federal and State Staff Training Program Each agency will prepare witb assistance from the TSU as necessary, its Staff Training Plan for Year 1, and every year thereafter, and related proposals for consideration by the Steering Committee for financing under the project. Proposals will reflect the agreed projlect responsibilities of each agency. d) Preparation of Job Descriptions and Assignment of Staff. Each agency will submit to the Steering Committee a list of the functions of existing staff to he assigned full time under the project and to he paid from project funds. On approval of the proposals, participating staff will be formally designated and will work in collaboration with the TSU. e) Preparation of Equipment Lists. Each agency should prepare detailed equipment lists to match their draft Training Plan for submission by the TSU to the Steering Committee and Bank prior review. f) Consultant Terms of Reference. Each agency should prepare the Terms of Reference (TORs) for national and for international consultants required for its agency during 1986 and subsequently for later years. These TORs will be reviewed and coordinated by the TSU who will assist In ensuring their consistency with the objectives of the program, specific identification of tasks, and measurable indicators for each TOR. The TORs will he approved by the Steering Committee. g) Study Programs. Each agency will prepare a 3-year draft training plan and program for its training staff and other key staff who will undertake study trips. The operating rules and regulations for staff undertaking study programs should be approved by the Steering Committee, based on recommendations of the TSU. b) Development of Key Indicators of Project Effectiveness. The TSU will, as part of prolect evaluation, develop a series of measurable indicators to evaluate the numerical and qualitative impact of the program. Indicators will Include: - Number of institutions participating In prolect; - No. of participants in training programs; - Unit Cost (USS cost/participant/day of training) - Rate of disbursement of project funds; - No. of consultants or experts participating in program; - No. of fellowships; - No. of instructors trained; - Operational improvements resulting from training programs; - No. of applications for successful applications from the Infrastructure Investment Fund. i) Design of a Tracer Stud Each agency will design appropriate tracer studies to track  - 30 - ANNEX 1. 1 Page 10 of 10 individual performance improvement and subsequent career development of participants on training programs assisted under the project. The TSU will prepare a generic study to follow up performance and impact of the project, on a consistent basis. J) Information System for Development of National Training Policy. The TSU will assist the CNEM in the SG to develop a detailed 3-year program of dat.# collection for the purposes of developing a National Training Policy. The study will set out the parameters and objectives for the information system to facilitate design of a follow-on project from 1989. It will also include preparatory studies for the development of a formalized municipal civil service career structure.  - 31 - ANNEX 1.1 Table 1.1 Page 1 of 3 MEXICO MUNICIPAL STRENGTHENING PROJECT Principal Training Themes PP: PROGRAm PRIORITIES PP.1 Overview of urban management PP.2 The municipality and community PP.3 The community role in public services and public works FM: FINANCIAL MANAGEMENT FM.1 Federal 'Participations" for states and municipalities FM.2 Costs and Tariffs of public works and services FM.3 Municipal Accounting FM.4 Municipal programming and Budgeting FM.5 Organization and introduction to 'cadastre- FM.6 Pricing of Municipal Services FM.7 Practical Municipal Finance FM.8 Mechanisms for Cost Recovery FM.9 Federal 'Participations' in financing municipal public works and services FM.10 Leasing principles and procedures FM.11 Municipal Financial Analysis and Forecasting FM.12 Improving Revenue Collection FM.13 Financial Appraisal of Projects CM: CREDIT MANAGEMENT CM.1 Municipal financial analysis CM.2 Use of credit funds CM.3 Financial appraisal CM.4 Economic evaluation CM.5 Credit procedures CM.6 Procurement CM.7 Loan processing CM.8 Pricing policies for municipal services CM.9 Project evaluation MA: MUNICIPAL ADMINISTRATION MA.1 National, State and Municipal planning system MA.2 Municipal Administration MA.3 Municipal Financial Administration MA.4 Administration of human resources MA.5 Administrative methods and techniques of Government systems MA.6 Municipal Records .4A.7 Administration of municipal services  - 32- ANNEX1.1 Table 1.1 Page 2 of 3 NA.8 Project Formulation MA.9 Administrative Simplification NA.IO Planning and Administration of urban development NA.11 Hanagement control NA.12 Organizatlonal, human, physical and financial requirements NA.13 Municipal audit MA.14 Inventory control NA.15 Organization and Administratlon of paramunicipal enterprises LA: LEGAL ASPECTS LA.1 Practical municipal law LA.2 Practical labor law LA.3 Practical fiscal law LA.4 Administrative organization of the iunicipality LA.5 Internal organization of the municipal council LA.6 Administrative organization LA.7 Organization of public services LA.8 Organization of commanity life LA.9 Municipal financial legislation TS: TECHNICAL SERVICES TS.1 Potable water services TS.2 Drainage and sewerage services TS.3 Markets and distribution centers TS.4 Slaughterhouse facilities TS.5 Public lighting services TS.6 Solid waste management TS.7 Municipal cleansing services TS.8 Cemeteries, Parks and Gardens TS.9 Waste water treatment TS.1O Control of uanicipal and lndustrial solid waste TS.11 Streets, sidewalk designs and maIntenance TS.12 Highway system Maintenance TS.13 Rural roads and paths TS.14 Maintenance of municipal public works TS.15 Architectural projects for mmicipal public works TS.16 Promotion and financing of housing TS.17 Land management TS.18 Operation and Maintenance of Equipment and Vehicles TS.19 Heavy transport centres TS.20 Municipal transport services SP: SPECIAL PROGRAMS (not included under this Project) Required for: Directors of Public Security Chiefs of Police Llectral registration officers Nass literacy officials Library staff Social workers Prison staff Forestry officials  - 33 - AMX 1.1 Table 1.1 Page 3 of 3 Maintenance officials Secretaries Typists Administratlve assistants Police officers Mechanics Caretakers Drivers Water supply plant operetives Gardeners Solid waste removal operatives Security guards Pensioners  - 34 - ANN 1.1 Table 1.2 Pme 1 of 2 MM=D IJCIPAL STRE1WnqNI 1mn= Ctmt A Mmicpal Officials: FstandE Totals1/ aM P1mwd nainin Coverae I Yea 1 by Prcipal TrahrLif Thu Tot Staff Total to Principl First Grop be TraIted TraifTd No. Titles of posts in the 1Muidpalities HexiC0 of 8 states2/ in Year I mms/ 1 HNLmcipal President 2,300 302 302 PP 2 Mayor 2,3D0 302 258 PP 3 Cirdiiun 16,000 2,718 1,840 PP 4 Secetaxy of the mirnc. go,wrnt 1,800 302 240 IA 5 Ciief clerkshp 2,000 302 240 MA 6 Tremrer ai/or Deputy Treagurer 2,300 302 240 FM 7 cqptroUler 350 60 40 (cm 8 mcmmtmit 950 100 40 FM 9 hAlitor 400 70 20 FM 10 Prograoidng and Budget Officer 2,500 320 40 FM 11 Officer Civil Pezstrar 2,500 350 20 TA 12 dijef Urban Dev. mad/or Odief and/or Dep. Chief Public Services ad Works 2,500 350 40 TS 13 Dixrector Niblic Security ad/or C2ief of Police 4,000 450 - (SP) 14 Market Mmamr 2,0000 250 40 cm 15 Sla*terhcuse Naner 2,000 250 20 ITS 16 Drainae and Seerage Mmer 1,ROO 2D0 20 t4 17 Qiltaral, Recreation and T auria activities Ma1ager F0D 100 20 IS 18 Director of Regdations 300 40 20 IA 19 Director of Ometeries 2,300 300 2) 15 2D Chief of Madeipal Cleanirt 1,800 250 2D TS 21 Permal and/or Private Secetary 1,500 200 - (SP) 22 Mandcipal Delegate 12,000 2,000 - (SP) 23 legal dvlsor 1,700 250 40 IA 24 Electoral RePistration Officer 2,500 350 - (SP) 25 CoordlrAtor ClEAMJN 1,500 2M0 2D MA 26 Tremrer' Aide 5,000 900 8D FM 27 Colector md/or Fiscal Ament 6,500 1,100 100 FM 28 Preident -of mmircipal settlements 1,800 200 40 PP 29 Preiddit ef Civil Czmcil 900 150 20 PP 30 m litera' officials 11,000 1,800 - (SP) ~btotal 84,300 12,668 3,780  - 35 - AN 1.1 Table 1.2 Pwe 2 of 2 Total Staff Total to Principal PFirst Grup be Trained TraiLurg No. Titles af posts In the Mncipalities Memo of 8 st"e2/ in Yewr I 3m/ 31 Libray Staff 2,000 300 - (SP) 32 Social Worker 4,500 800 - (SP) 33 Prison Staff 4,500 800 - (SP) 34 Forestry official 1,000 150 - (SP) 35 Public LI;AiLg official 8.50D 1,500 - (SP) 36 Maintenance and/or Aid official 14,500 2,500 - (SP) 37 Secretary 10,000 1,300 - (SP) 38 Datlogrpher 8,000 1,100 - (SP) 39 1!ypist 12,500 2,200 - (SP) 40 Adnirdstrative Assistant 8,500 1,500 - (SP) 41 Polic officers 350,000 45,000 - (SP) 42 mecaadc and/or asistat 20,000 3,500 - (SP) 43 Caretaker 6,000 900 - (SP) 44 Caretd.er of spor failities and/or mmicipal aLiitoritun official 4,00D 700 - (SP) 45 Driver 6,500 1,000 - (SP) 46 Water supply operativ 3,500 700 - (SP) 47 Gardener 17,500 3,000 - (SP) 48 Solid wste rwsval q,ratiws and adoers 65,000 12,000 - (SP) 49 Semrity g2ard 8,000 1,400 - (SP) 50 Plesioners 10,500 - - (SP) Subtotal 576,0OD 82,150 - (SP) IUrAL 660,300 94,818 5,248 - 1/ Estimted baied on national ttal of 2,379 m icipalities aId axvey of selected muixcpaUlties conduted by gDem tt Officials daring prepration of the project. 2/ EstLted totals for 8 priority states ected by govmient to comence the progrm in 1986: Qieretaro, Sonora, Collus, Qianjuato, San aiis Pbtosi, Tlaxcala, Nuevo Ieon, Catqeahe; with total of 302 cipaities. 3 Corresp to c ifiation: PP Progran Priorities (Prioridaiw del Progranm) FM Finnncial (agedenstron Finmiciera) a4 Credit M!gnmez inistrscin de Credito) MA Mimicipal AdnIstraticn (Adninistracion de Hbdcipios) IA legal Aspects (Aslctos Legales) TS Tecluical Services (Servicios Tecoieco) (SP) Special Programs Rquired (Program Especiales Requeridos) 4/ Posts ezwlndd fros trainipg covert under the project ramire special progra nirdicated a ,V.  - 36 - A31 1.1 ~1 .3 g g Total ~ ~ ~ 3, oanvet rifg ut d Pwlpmt. 196690 byPnpl2zifgwlin 1966 1987 1988 1989 L990 oa - - AN ~1IA EaW a. Senior Offas iIF 1/ 30 45 65 140 PYno M_t3 4 6 13 p.^l AiI8CD . ~3 4 6 13 L bgal AofPet3 3 4 6 13 S o986 57 983 19T 179 b. Sldarl Officals 2/ Progr PrlorIties 3 5 7 3 3 21 Finazi al _ 11 22 28 Mt 12 93 I Yudct 6 8 12 10 4 40 Prcg l dmilniemi 3 5 7 3 2 21) Legal Aspects 4 7 10 5 4 30 Tedbnical Services 6 10 20 15 5 56 Sub-Total 3i 57 84 56 30 260 TOtal 72 114 167 56 31 439 -r~CIPAtDS (lncln tranerst) a. Se-ior Officia 1/ Progr Priodties 2,400 3,600 5,2D0 11,20D Pl dM _m2t 240 320 48D 1,040 !b ial stratici 240 32D 480 1,040 Legal Aspet 240 32D 480 1,040 Sub9Tot.1 3.1 4,560 6,640 14,32D b. Qid-Iwl Officials 2/ Prog fPtiritie 60 100 140 60 60 42D Finmeis Kwai_eut 22D 440 560 400 240 1,860 Credit Nrnvmt 1m 160 240 20D 80 800 mf cipal Adzstraim 60 100 140 60 40 400 lAspets SD 140 200 100 80 60D Services 12D 200 400 300 100 1,120 SubilotaL 60 1,40 1,6D 1.1 600 5,200 Total 3,780 5,700 5,3X) I,Im mm 9,w I/ 1e-dqe os oD 1/Fieda e of 2)E pticipui 3/ sts "rW a fin 0.5 dqs to 10 dsp c uw% ad NW tdce the fdm of a uMdia, p nabp, cs, an-site tralzdrg, etc. lbe tim for P--cdxmi bu bur umod far buIpttkg axd jp3 hzb wpjapu rly.  - 37 - MNX1.1 Table 1.4 NEXW MUCIPAL TR -!UC PR0J CT Federal and State Staff Daveloymnat Total of Progect T i ents 37 and PartIcivant. (1986-90 YEAR 1986 1987 1968 1089 1990 TOTAL TIE I 1. TRAINING EVENTS I1 Program Priorities 10 8 6 2 - 26 Financial Management 9 7 5 2 - 23 Credit Management a 4 3 1 - 16 Municipal Administration i1 6 7 2 - 25 Legal Aspects 12 6 5 2 - 25 Technical Services 8 6 4 1 - 19 TOTAL 57 37 30 1n - 134 2. PARTICIPANTS 2/ (incl. 5Z Trainers) Program Priorities 200 160 120 40 _ 520 Financial Managerent 1an 140 100 40 460 Credit Management 160 80 60 20 - 320 Municipal Administration 200 120 140 40 - 500 Legal Aspects 240 120 100 40 - 500 Technical Services 160 120 g0 20 - 3Rn TOTAL 1,140 740 600 200 - 2,6Rn 1/ Estimated at 5 days average duration for 20 particivants. 2/ Mission estimates equivalent to 242 of total axency return. 3/ "Events' may range from 0.5 days to 10 days or wore, and may take the form of a seminar, Workshop, course, 0n -site training, ete. The tlme for events shown has been used for budgetting and planning purposes only.  - 38 - ANNEX 1.1 Table 1.5 MEXICO MUNICIPAL STRENGTHENING PROJECT AGGREGATED COST/DAY 5-day course of 20 participants US$ RE rA - training rooms at Mex.Ps. 300,000 92. - course equipment at Mex.Ps. 200,000 615 INSTRUCTORS - honoraria at Mex.Ps. 250,000 770 - travel at Mex.Ps. 68,000 210 - accommodation/subsistence at Mex.Ps. 140,000 430 PARTICIPANTS - travel at Mex.Ps. 13,000 x 20 800 - accommodation/subsistence at Mex.Ps. 70,000 per participant/week x 20 participants 4,310 8 060 Divided by 5 days and 20 participants: US$ Wp~fer day 2-day seminar of 80 participants USS RENTAL - training rooms at Mex.Ps. 300,000 925 - course equipment at Mex.Ps. 200,000 615 INSTRUCTORS - honoraria at Mex.Ps. 250,000 770 - travel at Mex.Ps. 68,000 210 - accommodation/subsistence at Mex.Ps. 56,000 180 PARTICIPANTS - travel at Mex.Ps. 13,000 x 80 3,200 - accommodation/subsistence at Mex.Ps. 28,000 per participant/seminar x 80 participants 6,900 12,800 Divided by 2 days and 80 participants: US$ 80 per day  ANNEX 1.1 Attachment 1.6 Page 1 of 4 MEXICO MUNICIPAL STRENGTHENING PROJECT Institutional Responsibilities by Training Themes 1. The grouping of main training themes has been carried out through an iterative process reflecting priorities expressed in surveys and interviews with municipal officials, other experts, the availability of existing course material, and the capacity of existing organizations. There will in practice be a number of overlapping and complementary courses offered by different institutions. Demand expressed in response from the municipalities is expected over time to reinforce specialization. A. Theme: PROGRAMME PRIORITIES (PP) 2. This series forms part of an overall orientation to the problems of municipal reform and financial management. All key agencies will therefore participate to a greater or lesser degree, assuming leading roles as appropriate. B. Theme: FINANCIAL MANAGEMENT (FM) 3. The Secretariat of Finance (SHCP) and its subsidiaries, INDETEC (para. 4), CEF (para. 5), INCAFI (para. 6) will be primarily responsible for this group, issisted by SPP and the successor to CECADE (para. 11). Secretariat of Finance (Hacienda y Credito Publico (SHCP) 4. The SHCP's participation in technical assistance and training for municipal development is directed to institutional and financial strengthening of municipal resources as a basis for economic and social improvement. The program provides an introduction to the Mexican financial system and the functions, organization and procedures of municipal finance. Training and technical assistance is given in fiscal coordination, financial programming, including municipal budgeting and management of public debt, identification and mobilization of credit resources, and price and tariff setting for mauncipal services. 5. The Institute for Technical Development of Public Finance (INDETEC) was established in 1973 as a 'government association' under a general assembly ccmposed of federal and state representatives. The Institute's program is wholly financed from government sources (40% federal, 60% states) and is staffed by a full time faculty of 35 who undertake studies into legislative and administrative aspects of state and municipal financial management. Study findings are used in the design of training programs, and are disseminated with other national and International material through 3 periodicals which the Institute publishes. In 1984, the Institute trained about 2,000 officials in 150 decentralized courses/seminars of an average 3-day duration. Courses are rin in the officials' own localities although this has been restricted by inadequate resources for travel. Some 2/3 month courses are run ce:zrlly. Course themes include municipal financial administration, incone budgetting, property taxation, municipal accounting, procedures, administration of municipal services and the role of the municipality in  - 40 - ANNEX 1.1 Attachment 1.6 Page 2 of 4 national fiscal coordination. The Institute provides advisory services to municipalities and state governments on request, currently about 10 assignments per year. INDETEC has developed a practical approach to training which uses case study material and role playing. Faculty members are aware of pedagogic as well as technical issues and this is reflected in imaginative training design. 6. The Centre for Financial Studies (CEF Eduardo Suarez-) was established within SHCP's Direccion General de Credito Publico, to provide specific on-the-job training and interchange of experience between practicing financial career employers at various levels of federal, state and municipal service, with the specific objective of building a specific cadre of financial career civil servants. The focus of training will be on financial planning and management within the constraints of the current economic and financial parameters facing Mexico. The Centre will be assisted by outside (government) Institutions (INAP, IPADE, [NAM, etc.) to develop a full time program of training. 7. The National Institute for Fiscal Training (INCAFI) was established in 1980 to initiate and support training programmes in internal revenue procedures. The Institute has 55 full time staff engaged in instruction, production of training materials (modules, videos), and publication of magazines and training aids. Modular materials have been developed for use in 12 courses. The Institute provides training for instructors in the use of video as an integral part of training programmes. The video library which has already been developed is an important resource for training of municipal staff. The video production team of 8 people has lost no staff in 5 years, and good material has been produced in restricted accommodation with very basic facilities. Lack of resources to obtain spares and replacement equipment has recently led to a reduction in studio output despite growing demand for training materials. C. Theme: CREDIT MANAGEMENT (CM) 8. In 1984, BANOBRAS established a Center for Studies, Documentation and Assistance for Municipal Development (CEDADEM). The Centre has been energetic during the preparation of the project, but it is inadequately staffed to deal with the broad program of assistance it originally intended to provide to municipalities. It is currently being reorganized, and it will in future focus on Credit Management and Operations (financial appraisal; Economic and Project Evaluations; Credit Procedures ad Loan Processing; Procurement, etc). Technical experienced staff would be recruited from within BANOBRAS' existing operating divisions and supplemented with specialist technical assistance as required. Final plans for CEDADEM's reorganization will be brought to negotiations. D. Theme: MUNICIPAL ADMINISTRATION (MA) and LEGAL ASPECTS (LA) 9. Strengthening municipal administration including legislation will be primarily the task of the SG, the SPP and their subsidiaries at the federal and state levels. In May 1984, the Secretariat of Government (SG) established a National Center for Municipal Studies (CNEM) to help accelerate the national municipal reform program. The Centre sponsors and undertakes studies in municipal organization, disseminates study findings  - 41 - ANNEX 1.1 Attachment 1.6 Page 3 of 4 and other information, and is a focal point in municipal administration improvements. Centres for municipal studies (CEED) have been established in each state, and legislation for a model municipal constitution has been drafted. The Centre's present professional staff of 20 will be increased to assist municipalities to adapt the model to specific requirements, and to develop corresponding operating procedures. The Centre will set up an information system at each state level, and will coordinate a study including data collection (with the assistance of the Training Support Unit) towards preparation of a national training policy for municipal development. 10. The Secretariat of Programming and Budget's (SPP) Directorate General for Regional Development works through a Directorate of Urban Planning which undertakes study programs on administrative decentralization and advisory services to states and municipalities in staff training and planning support. Training activities are currently being extended in cooperation with University faculties and include the development of modular training materials. There are plans for experienced former municipal presidents to participate in training programs under contract to the University or the SPP. I1. The SPP operates a Center of Training for Development (CECADE). In 1984, for example 354 officials from 24 states participated in training programs in budgeting, programming, state planning, project development and basic economics. Over 70% of participants were drawn from other Secretariats and para-statal and non-governmental organizations. Declining resources for training have led to the increasing concentration of programs in Mexico City. In August 1985, CECADE formally disappeared in a broader institutional cut-back of various Secretariats. It has since been re-established in SPP's Directorate of Regional Planning. Key Staff have been re-distributed to selected State level positions. E. Theme: TECHNICAL SERVICES (TS) 12. In 1982 the Secretariat of Urban Development and Ecology (SEDUE) assumed the former functions of the Secretariat of Human Settlements and Public Works (SAHOP), which between 1976 and 1982, trained 7,000 officials. SEDUE has responsibility for Housing, Urban Development, Potable Water and Sanitation, Pollution and Environment Protection. Training programs in these areas are supported by a full range of modular training packages and are regarded as central to the Secretariat's role. Available materials are not being fully utilized because of lack of adequate funds for training. Programs are offered for federal,state and municipal officials. Special emphasis is given to training of instructors which has a multiplier effect when they run training courses in their own Secretariats and Departments. Although SEDUE has adequate training materials and staff available, its training units are too fragmented to benefit from the technical assistance to be given to institutional staff for improving the quality (content and delivery) of training programs. SEDUE has undertaken to prepare a plan for consolidating their training units to this end, and to implement this consolidation during the -rly stages of the projects.  - 42 - ANNEX 1.1 Attachment 1.6 Page 4 of 4 Other Institutions 13. Mexico is not short of training institutions (including private or officially sponsored institutes specializing in public management training) that can be brought into active participation in the Government's decentralization program. In addition to academic institutions (higher level teaching institutions), many semi-autonomous organizations provide local training and bring together international expertise to Mexico for seminars, etc. Typical among these are INAP, IPADE and UNAM (paras. 14-16). 14. The National Institute of Technical Administration (INAP) is a semi autonomous organization financed from affiliation fees, charges for training and consultancy services, sale of publications, and a budgetary allocation from the Government. In 1983, the Institute established a Centre of Studies for Municipal Administration (CEDAM) to support the Government's municipal strengthening program. The Centre publishes an informative bi-monthly bulletin for distribution to states and municipalities. Special studies and a series of Technical Guides have been published, with further regular publications planned. The Centre's program includes intensive training for municipal officials. In 1984, for example 807 officials attended 2-day seminars and 35 representatives from 9 countries took part in a 3-week Latin American Seminar for Training of Instructors in Municipal Administration organized by CEDAM in Mexico City. The Centre is equipped and prepared to undertake sub-contracted training and research activities in municipal development as required by line ministries. 15. The Universidad Iberoamericana's Instituto Panamericano de Alta Direccion de Empresa (IPADE), specializes in executive training. It is one of the most advanced centres of management training in Latin American with top rated facilities in Mexico City; offers a diversified program and has an excellent faculty. It will be amongst other institutions which will be invited to improve the management of training institutions. 16. The Universidad Nacional Autonoma de Mexico's (UNAM's) Facultad de Contaduria y Administracion is also active in management training in the area of financial management and has offered a program on "Financial Information and Control Systems for Municipalities. 17. These and others, in addition to some outside mexico, will be brought in to assist with specific technical assistance during the implementation of the project.  - 43 - ANNEX 1.2 Page 1 of 7 MEXICO PHYSICAL DECENTRALIZATION OF FEDERAL PUBLIC ADMINISTRATION (PILOT COMPONENT) Note: This component was included after the Appraisal (August 1985) of the proposed Municipal Strengthening Project (FORTAMUN). It reflects the find- ings of an appraisal mission in November 1985 in connection with the Earth- quake Reconstruction Project, and is based on data brought to Washington (December 19-20, 1985) by a Mexican Government delegation with a specific request for assistance (see memc to files dated December 30, 1985). 1. Background. On September 19, 1985, Mexico was hit by one of the worst earthquakes in its history, measuring 8.1 in the Richter scale. The earthquake and subsequent aftershocks caused severe damage in Mexico City and in the States of Jalisco, Michoacan, Colima, Guerrero and Mexico. Financing for earthquake damages outside Mexico City will be addressed through amendments to existing loans and through proposed future opera- tions. These states have now been included in the list of priority states to be selected under the Municipal Strengthening Project (FORTAMUN) through whicb reconstruction of damaged municipal infrastructure will be financed (Annex 3.2). Additional funding, primarily for housing will be financed through the normal program of FONHAPO. 2. The proposed Reconstruction Project focuses on damage within Mexico City, and will finance primarily the reconstruction of shelter and selected amenities. In Mexico City alone, an estimated 60Z of federal Government buildings were destroyed or heavily damaged and need to be demolished. Instead of reconstructing office space in Mexico City, the Government has decided to accelerate the ongoing program for the physical Decentralization of Federal Public Administration (DPA). For practical and psychological reasons it is important that significant implementation of the decentralization program, move in parallel with the reconstruction effort in Mexico City. Various Secretariats have been instructed to relocate staff and operations to selected municipalities and states. The GOM proposed utilizing this opportunity to initiate a discreet pilot compo- nent under FORTAMUN to explore related issues, as a prerequisite to expanding the program. 3. Key Issues: In order to sustain the decentralization program beyond the initial stage a number of issues must be addressed: a) First, there is a need to strengthen the institutional coordina- tion at the federal and state le els to permit a coordinated and comprehensive capital budgeting and programming mechanism for complementary investments from different sources. Besides investment-, made directly by municipalities, there are a number of federal and state projects and subsector programs that normal- ly also finance related infrastructure and public services, for example, roads, telephone, trunk water supply, schools, housing for various income groups, etc. (Annex 6). Agencies and programs  - 44 - ANNEX 1.2 Page 2 of 7 include among others the SCT, the SSA, the SEP, FONHAPO, FOVI, INFONAVIT. A systematic institutional process in which policy, financing and investments are coordinated at the federal level and integrated with technical (physica'l and economic) development plans prepared by the municipality or state is critical. b) A more accurate assessment of likely resource requirements is a desirable prerequisite to expansion of the program. In documents prepared by SEDUE1/, it is estimated that earthquake-related reconstruction and decentralization will require about US$3 billion (Attachment 1). The immediate decentralization program alone for about 20 cities is estimated at approximately US$1.5 billion for the period 1986-88. This scale of public investment in 20 cities requires more careful evaluation of i) the utiliza- tion of existing resources through subsector budgetary alloca- tions; ii) its impact on the public investment program previously prepared, iII) its implications on the GOM's external borrowing; and iv) the programming of complementary sub-projects in an environment subject to fluctuating capital availability; c) there is the need to explore alternative financing, mobilizing additional local resources, particularly from the private sector to substitute or complement public expenditure. For example, could private sector finance companies, corporations or indivi- duals finance construction of public administration buildings in return for long-term land leases and/or in consideration of long-term rental agreements? Should the private sector be encouraged to construct more of the revenue-generating projects such as markets, abatoirs and other similar municipal services? Such policy shifts could, for example, reduce the demands on the public sector and increase revenues through property taxes and other fees, which in turn could be directed towards improved operation and maintenance; d) an accelerated investment program to support decentralization will include extensions to trunk infrastructure to accomodate future growth. The capital costs cannot always be fully recovered in the early phases of the subproject. The policy for deferring full capital cost recovery will have to be elaborated; e) a fundamental objective under the FORTANMUN addresses the issue of institutional and financial responsibility for operation and maintenance. Not all municipalities will have the managerial or financial capacity to assume immediate responsibility for the operation and maintenance of all infrastructure. Investment plans for specific cities should include strengthening their institutional and financial capacity under FORTAMUN. Such plans will also have to clearly define the institutional responsibi- lities for planning, implementing and maintaining (by agencies) respective services during this period, especially in cases where more than a single municipal jurisdiction may be involved; and 1/ Copy in Pioject File.  - 45 - ANNEX 1.2 Page 3 of 7 f) Finally, there is a need to strengthen the information and data recording systems in both the SPP and in SEDUE, to enable a quan- tification of the real costs and benefits of decentralization. A pilot component under FORTAMUN would provide an opportunity to immediate- ly explore these issues. 4. Objectives: The Government's objective through this component is to address the decentralization program in selected cities in an integrated manner, instead of through hitherto separate, and sometimes uncoordinated subsectoral investments. 5. Specific objectives under this subcomponent will be (a) to develop a -process' for implementing decentralization objectives (while deconcentrating Mexico City) in priority cities; (b) to identify typical minimum and realistic resource requirements from SPP for expanding the program, (c) to identify the implications and overall externa'l credit requirements of the program and its impact on the Public Investment Program; (d) to identify and implement policies in respect of responsibil- ities for operation and maintenance of completed infrastructure; (e) to develop efficient institutional coordination at the federal and state levels for capital budgeting and programming from a number of sources (for example: SCT, SSA, SEP, FIFAPA, FONHAPO, FOVI, INFONAVIT) and for expansion of such a program; (f) to identify potential investments by, and increase incentives for participation by the private sector; and (g) strengthening the information systems in SPP and SEDUE towards improved evaluation of the decentralization program. 6. Description: The project would additionally finance the four components under FORTAMUN as follows: a) the investment fund will be increased by US$25 millIon (US$12.5 million loan) which will be targetted specifically in at least two selected cities (para. 9), for municipal infrastructure investments necessitated under the decentralization effort, and for which no other resources (from the SPP or through sub-sector budgetary allocations) are available; b) the Municipal Staff Development and Management Strengthening component, the Federal and State Staff Devel- opment and Institutional Strengthening component, and the project adminis- tration component will be increased by a total of US$5.0 million (US$2.5 million loan) - This will provide for TA and Training and Studies to carry out pre-investment and municipal management training, detailed feasibility studies, for preparing a detailed follow-up project addressing the needs of the 20 priority cities (para. 9) and for project administration. Eligible subprojects for financing would include all municipal infrastructure (water supply, sewerage, roads, bridges, etc.) and special urban investments as listed in Annex 2.1. In addition under the DPA component trunk infrastruc- ture or shared inter-municipal infrastructure would also be eligible for financing subject to compliance with the specific conditions for disburse- ment as noted in para. 11, and satisfactory detailed subproject evaluation in accordance with the Operating Guidelines prepared for FORTAMUN.  - 46 - ANNEX 1.2 Page 4 of 7 Component Cost and Financing 7. General cost estimates have been prepared by SEDUE (Annex 1.2, Attachment 1). The amount allocated for the investment fund (US$25 miullion and TA and Training (US$5.0 million) subcomponents have been based on these estimates. The foreign exchange characteristics will be similar to typical investments already appraised under the FORTAMUN. Approximately 1200 staff-months of local consultants' services (US$ 3.6 million) and 50 staff months of foreign consultants' services (US$0.4 million) have been added to the FORTAMUN project as appraised. About US$1.0 million has been estimated for expansion of the municipal and institutional training components to accelerate training of "host" municipalities in the 20 cities, and federal and state institutions. Cost sharing,the flow of funds, cost recovery and other principles governing financial policy would be identical to those agreed under the FORTAMUN. Execution of the Component Organization, Management and Implementation 8. Four principal Government Secretariats (SG, SPP, SHCP and SEDUE) and BANOBRAS would be involved in the FORTAMUN. To initiate the project, the institutional structure (Steering Committee, Technical Secretariat, Training Support Unit, etc.) as designed for the 'core" participants in the FORTAMUN would be adopted. (see paras. 3.14 to 3.15 of main report). For the purposes of overall coordination of city-wide programming of capital investments however, a number of additional agencies would be also involved (for example: SCT, SEP, FONHAPO, etc.). Developing the framework for such coordination is the primary objective of this pilot component. Because of the importance the government attach to the decentralization program, the Steering Committee will assume overall responsibility for coordination of the pilot component delegating specific responsibilities as required to one or more (jointly) participating agencies. Selection of Pilot Cities for the Emergency Relocation Program 9. Approximately 60 medium-size cities have been identified by the GOM as being suitable. 20 of these (with an estimated absorptive capacity of up to 600,000 persons) have been designated for the emergency relocation program (starting 1986) and are thus given the highest priority. Selection criteria are pragmatic and focus on immediate absorptive capacity at the least cost. These criteria include inter-alia, physical location and the cities' priority in the national spatial strategy; existing population size, annual rate and potential of population growth; availability and suitability of land for expansion; relative deficits in service provision and constraints to expansion (water supply, sewerage, drainage, roads, postal and telecommunications, etc.); the expandable capacity of existing infrastructure; the availability of housing; and finally, exposure risk to natural disasters, (earthquake, flooding, etc.). A copy of the list of selected 20 cities, detailed analyses and final ranking is available in the Project File. The Steering Committee will select at least two cities for the pilot sub-component.  - 47 - ANNEX 1.2 Page 5 of 7 Compliance with Operating Guidelines under the FORTAMUN 10. All operating and implementing procedures for the component such as Procurement and Disbursements, Accounts and Auditing; Monitoring and Reporting Requirements, On-lending Terms and Procedures; Appraisal of Sub-borrowers; Appraisal of Sub-projects; Sub-loans Agreements; and application of matching grants, would be in accordance with the Operating Guidelines (Annex 5) for FORTAMUN. Status of Preparation 11. SEDUE in collaboration with other Secretariats and the selected municipalities has been preparing technical documents for the program. During negotiations, SEDUE through the Technical Secretariat (TS) submitted evidence of the advanced state of preparation for selected cities (Aguas Calientes, Ags.; Morelia, Mich.; Queretaro, Qro.; and the conurbations of TampicofAltamira/Murillo/Pueblo Viejo/Tamos. At least two among these will be selected. Some further work on the documents is required. Assurances were received that under this sub-component, a request to the Bank for approval of a subloan, would be accompanied by a) an institutional and financial appraisal of the Sub-borrower carried out in accordance with Pro- Forma A of the Operating Guidelines; b) the detailed capital investment plan in respect of the Decentralization Program for the eligible municipal- ity, including the appropriate technical, financial and administrative information on the implementation of such plan, and a description of the investments to be made by the federal or state government outside the scope of the subproject; and c) such other information as the Bank shall reasonably request. Terms of Reference for Main Studies 12. The outline scope of the Terms of Reference for two groups of studies under this subcomponent was also discussed. These are as follows: a) Overall Strategy for implementing the Physical Decentralization Program. The Consultants' Terms of Reference will include: (i) completing an up-dated assessment of the number of persons and functions (by agency), to be relocated out of Mexico City to the selected cities; ii) making an assessment of the program's capital cost requirements by subsector; iii) estimating in collaboration with SPP and SHCP the resource availability, the implications of the program on overall credit requirements, and its impact on the normal public investment program over the short and medium term; iv) making recommendations on financial policies relating to: a) the operation and maintenance of completed infra- structure; and b) the alternatives for financing urban services (private sector/vs. the public sector or both); v) making recommendations on institutional strengthening, policies at the federal and state levels, for example coordination, budgeting and programm.ng, physical planning, etc.) and finally vi) proposing a realistic timeframe for implementation of the program.  - 48 - ANNEX 1. 2 Page 6 of 7 b) City Specific Studies. In order to develop the overall strategy noted in para. 12 (a) above, it will be necessary for a number of city-related specific studies to be carried out In parallel with the main study. These studies would focus on i) an institutional and financial appraisal of the selected city (municipality or groups of adjacent uwnicipalities) in accordance with Pro Forma A of FORTAWNN as set out in the Operating Guidelines; ii) a review of a triannual capital investment plan assuaing a 'low' availability or a 'high' availability of funds; iii) an examuination of a financing plan which would incorporate public and private sector financed program and a review of the impact of the investment program on nunicipal revenues. (This sub-study would be a requisite for the development of appropriate recommendations for cost recovery of capital, operating and maintenance expenses); and finally vi) the institutional strategy based on the findings under related studies above, for inplementation, operation and maintenance responsibilities, and for strengthening the selected municipality 's mmageuent capacity. Draft Terms of Reference for the studies would be prepared and submitted to the Bank for reviw as a condition of disbursement against this subcomponent.  KNtCIAL sR .IM , cr Firezia1 Eathutes hAsaiiiw 20 Ifost Cities for Deostralization Resaorce Dastrlhtian tyr Fund Application of Resrosa O f wtdldi -_ EatInAtt for Cuaponents Total limdpul PabMlIty Civil fbod A Recontuc- Dt ontea- pilot Rescurm ITetltui;oml Studie snd Ftup.(Paaon. ton lizattin Cities (2) USt miolla Stueot1udng ealesin leoentmlt.) I Uq$ mdllion U villian U."$ miUlln I$ adllion US$ idUion 11$ dilion Total8 2,946 IR 47 2,881 1,479 1,467 146.2 1. Plamnirg and StreilthenliW Urlsn ?kiweunt 18 18 Is 2 2. FeasiblIty Studles, PrJect Deulgi an TA 47 47 15 2 3 3. Road Vorks ad related Tnfratimctue 319 319 319 32 a Paint 145 145 145 15 , (autn.ctton 174 174 4. IbHiu 1,877 1,877 1,246 631* 63* * Reaxutnittion 198 198 198 . Retternant 277 277 141 13 14 . Prpaliw 229 229 24 205 20 Fintied 1,125 1,125 835 29n. 29 * mltiau 48 48 48 5. Ilrbm i 1mrat 354 354 4 350 35 . Hlntiivl Infrutwture 316 316 316 32 . fulpment for Public Savio 34 34 34 3 . Rehabl.ltation of Historic 1ounents 4 4 6. Urtn Tra_port I .2 _ _ _ _ _.._ _ _ _ _ _ ._ _ ._ _ _ .._ . _ _ _ _ _ ,_ _ _ .__ _ _ _ _ r 7. Ilildiip for Publie Ahndstratimn 330 330 116 11 . amstructlin 315 315 116 X " . Dolition 15 15 . . *~lyinlaluas zusoumwi from MEIAP uid &Me~ Sawze: MM 12/85.  - 50 - 2.1 KU.bi* &hro1uM. 0-1dz Two, 1Vstr1h of Tzmtu. ad Ct bSr . &MwU DisrEutm owanm Team CmL-tbmy bdad~ lagpowe aabwJamet facr RWAWM of ___ _ _ _ _. NOWWWM= EmMft o t 1. . Nw b, 'mtm. fat tu, Ullks 1t of eP 5 1 T Aurur .n .Powezty D_dAI Prqt ax .Gwnx Natu.d mdr9>LI, *Umrt RePmmEw P~cu, qu fnd2ld ad Camt1M " Levmi U- 2. ft~EME 1 aILy aid _ai 65Z Z of @P 15 4 Y .Um d umr I Solid P iciztnvj aid fm ad fm _ aS ad f_ Wtiu omo _ai (ddtrck, gm) .2 3. L endiSw wdth POtfl S&n&z )zddum =does (Chlimul ad mtil.) 30 S of QP 10 3 Ym .PRnt .11t Sl aft .. ur dua_ Sa1 ti aa md Sue PDUI1/ ,-ku Sf -(oins TW P.ddre ]am ad .Cnul 1 mqr Ig 1_ I 11 A! Imurd3 mcmst. udd~l4tim il a I lo l z mtrdmofaltmS dspm bilhrntrv ei s. !p C:vil 1- admt a soUdut at V ad I 02 S of QPP S N~ -fotztm lm Vddl Irsalot wil thm b P-m wai wid d afriti malm oF dwabml laid, or eiao' am pe xfaq 1. U_mummt come ,n ami Mm s out #a=g In criaI at far Sold Wmtn. _th. Swvlam,6 E! a m Vddelm il ble iw3n in (ADty 2. f2 r on =wy I 0 w Sf  - 51 - ANNEX 2 Chart 2.3 MEMXCO MUNCIPAL STRENGTHENING PROJECT Row of Funds X . ~~~FORTWUN l L mMn-eI L~~~~~ GOM(SPPJ ~ ~ ~ ~ ~ ~ ~ ~~AMrsofo o ~~~~(T5J IJ) C- E E A _ tOE7E CEM 4 SEDLE- pLct r~f1 uSS million .w _ ^WVIc Bffk40.0 US$m. 12. 2 souacE2O G>OM-sub4oWowt5 40.0 . 0rA To?d 80.0 . *#AMMEW CFaOwtrgWfc0 n.dn TWUl & ConEOn Cost lR.caaV ' ,sbottmdow9i5wit SAflh1U 6.3 VI3t-3U@t  - 52 - ANE 3 Chart 3.1 ifg __ __ __ X,~~~~li n~~~~  - 53 - 3,2 )tICIPALPRW Selection of States for Year 1: N1hT of adldltle. co] A ti actoral B) No. of with Siecticm of Det of dws States ?zdciplitLe. mm tha 25,000 PrIority Sttm In az!nstrtton Pqnuatw1 for Yew I Naddp State Dlstrito Fedleral 16 - .kwm Calentes 9 4 BaJa Calfofna 4 4 Reja Cd] :fonia 01-11-6 01-11-69 Bala Caiifomla Sur 4 3 Cupede 8 4 Comiedie 01-12-R5 16-0985 CombUIa 38 13 collm 10 3 C0i1w* 01-12-65 01-12-65 111 24 QiChlua 67 16 DurW 38 11 Qunajuato 46 30 Guerrro 76 23 Qmerrerd Hidalgp 84 15 Jaltsa 124 27 Jais 01M-1-85 01-03-9 maxim21 49 1Ba1I Mdiboea 113 26 Mldama Morlos 32 10 Nayrit 19 8 Nayit 01-11-84 19-09-67 Nuv lem 52 13 Wivo I 01-12-85 01-08-85 'ca 570 10 Puebla 217 23 Oiezetaro 18 9 OQeretuzo 01-09-5 01-10-65 Otdntna too 7 3 Qo otam Io 6O7."87 05-08-7 San Luis Potci 56 16 San his Potoui 01-12-6 26-09-85 Simlm 17 13 Sonora 69 14 Soor 1349-65 13-09-65 Taleo 17 14 1b_w 01-12-65 01-0949 Mllie 43 13 Tlaxcal 44 6 Tlaxcala 15-1265 15-01-87 Veracruz 203 4 Yucatan 106 62 YUCin 01-12644 0102-8 Zacatecas 56 11 umL 2,379 Same: IARS Gezencla de Plseam 9eb1mmsda de Plazeacim Reomi Suffen in the Sepmber 195 e.rtludw.  54 - ANNEX 3.3 MEXICO MUNICIPAL STRENGTHENING PROJECT ALLOCATION AND SELECTION CRITERIA GENERAL 1. The project will tentatively cover about 340 municipalities (Annex 2.2) in all 31 states on a self-selection basis. Priority will therefore be given to those municipalities in each state, likely to benefit quickly from the project and thus serve as demonstrative examples within each state. As demand initially may be high, each state government will prepare a short-list from which, only those municipalities which meet with the specific criteria as set out in the Operating Guidelines (Annex 5), for participation in the Sub-Loan and Training components will be selected. During the first year states which (i) suffered earthquake damage; (ii) or are on the GOM's decentralization 'host" list, and (iii) will have new administrations, are given priority (see Annex 3.2). 2. Selection Criteria for Sub-loans through FORTAMUN. The proceeds from FORTAMUN, wolild be on-lent to municipalities which: (a) pass the minimum affordability test, in accordance with an assessment of their finances, as set out in Volume 2 of the Operating Guidelines (the Municipal Financial Handbook) prepared by BANOBRAS (Annex 5.2; and Pro Forma A, Annex 5.3); (b) submit subprojects presented in accordance with guidelines for their technical, financial, economic and social evaluation as specified in the Operating Guidelines (Pro Forma B, Annex 5.4); (c) are willing to accept the financial terms and conditions as specified in the Sub-loan Agreements betweeen BANOBRAS and the Borrower; and are willing to comply with Guidelines and Procedures including procurement, accounting, monitoring, etc. as set out in the Operating Guidelines (Annex 5.5); (d) participate in the Municipal Staff Trainirg and Technical Assistance component. 3. Municipal Staff Training and Technical Assistance Components. Participation only in the training and technical assistance program will be open to all municipalities which: (a) comply with procedures set out in the Operating Guidelines.  -55 - ANNEX 3.4 MEXICO MUNICIPAl. STRENGTHENING PROJECT Allocation of Matching Grants (a) For the purposes of allocating matching grants, all 2,379 municipalities outside Mexico City (Distrito Federal) were each ranked on the following criteria based on the 1980 census data: (i) size of population; (ii) deficiency in basic services; and (iii) priority in National Development Plan. (b) five groups (I-V) were identified, with Group I eligible for the minimum proportional grant and Group V, for the maximum. A copy of the document is in the Project File (Annex 8); (c) for every amount of sub-loan taken, an incentive matching grant will be apportioned in accordance with the specific category into which that municipality is classified. Nothing precludes a municipality from participating with their own additional resources, which would increase the volume of investments; such contributions would be considered as counterpart funds for the purposes of disbursement out of the Project Loan; (d) Three alternative scenarios for the matching grants, have been examined. These are illustrated in Table 3.4 below and discussed further in Annex 6.3. Table 3.4 No. of Group Municipalities X Z of Loans as Grants I 18 0.7 15 5 0 II 67 2.8 25 25 5 III 177 7.5 35 20 10 IV 597 25 50 25 15 V 1,520 64 75 65 30 Total 2,379 100 50 33 16  - 56 - ANNEX 4.1 MEXICO MUNICIPAL STRENGTHENING PROJECT MONITORING AND EVALUATION SYSTEMS 1. The project would strengthen the capacity for both monitoring and evaluation at the municipal state and federal levels. The monitoring system for the proposed project would provide regular information about project activities to all implementing units as well as a variety of reports on progress of implementation essential to adequate management by the Technical Secretariat and for fulfillment of Bank project monitoring requirements (Chart 4.2). 2* The monitoring system for FORTAMUN will be a separate module under the Information System for Credit and Development (SICREF) in BANOBRAS (see Project File for detailed description). In addition to the existing components which monitor all activities relating to loan request, authorization, formalization, actual investment and cost recovery, the system for FORTANUN wv1' have two other components to be implemented in the initial phase of the project: a) inventory of needs in the areas of financial managevient, institutional strengthening and training (data will be extracted from the Regional Information System on Municipalities (SIREG) in RANOBRAS which contains information on economic, socio-demographic, financial, access to services, political and administrative indicators, and will be supplemented by the survey of training needs conducted by implempnting agencies during the promotion phase of the project); and b) a register of training and funding programs to be implemented after the technical evaluation of each municipality vis-a-vis their needa, recorded in the component previously mentioned. 3. A proposed design of monitoring system and its expected output has been reviewed by tl-e Bank and an implementation schedule agreed to. The Technical Secretariat will be responsible for the monitoring and evaluation of the project. Ouarterly progress reports would be prepared by municipalities and implementing units and sent to the Technical Secretariat. They, in turn, would aggregate these and prepare the quarterly Implementation Summary to be sent to the Comite Directivo (Steering Committee) and the Bank. In addition, the Technical Secretariat will be responsible for preparing an annual evaluation to assess progress in all project areas towards meeting major project objectives and, if necessary, investigate any question or problems that would arise from analyses of both monitoring and evaluation data.  - 57 - AkMEX 4 Chart 4.2 ME)GCO MUNICIPAL STRENGTHENING PROJECT Row od Infonatlon ,iNB5JORY OF PROGRA REGEIER TRAINI&NG aAIWNG & EK IECHNrASST. REr. 0UONAL VWRJONAL SXGHNWG STENGTHG lErOGRAM EPROGRAM INFORMATION TO lECH SECRET. S UtiAARY I PROJECr FILE _ KEY VINDICATORS & PERFORM. MONITOQING QUARIERLY PROGRESS REPOR1S ANNUAL & PROJECr UPLEMEEW. Sj9AARY LOAN REOUCiT l l TO IBRD LOAN I REb Z LOAN CODON AUHRCTON &LOA RGSE e I~~~~~~~~~~~~RJC GKENERAL LOA REPAVMNT VVd Bar*-302WA  - 58 - AR 4.3 Table 1 KNICIPAL P EnumvU Paw= 1986 1987 19... A. TrairAig -xUpeors 1. Partidpatiia in and acuirdstratimn of trxning pzogzq 1: a) No. of par ng tis b) No. of eents offered c) No. of mmicipal aind federl staff trned per event d) Averq cost per pari pat per cmmse e) No. of Izstrctor trained f) No. of Fel1ashIps B. IA}rItrctur Investment in! 1. P tundr MoxitorLtg Indicators for hunicipalities: a) Debt service/total reimzes b) Capital erpsitures/total revesm c) Total e,eru/total revwues O De-bt service/arent eqpenditLur e) C nqxoitim of Revem (i.e. beneficnary bw, bettermnt levies, and gerel) co tnm indicators a) Paosirg tizm for loan applicain and disbrsemnt (bre*-down oE thme tdcen for e step Wby iespcaible pny involved) b) No. of lom applcatfons received and 2 approved c) Averasze of Sub-loam by GRP ao micpalities D. Cavera of Pro1ec.. a) No. of states, promtion comleted b) No. of dm plitks particit in tranigim c) No. of umidpalitias receiving FORIWIJN sub-louS d) No. af Regimal Offic of BaEAS e) No. of State Offices of EAS f) No. of " tt offaE of BA!I8AtAS  - 59 ' Aw 5.1 mmac% inmgcFo R _nm ati Pm pmhi, of tw MEW Pr in In web lE mm~WO STMZ Actlvtim Sdwhle I/ A PrCmoi. ColmuIctee is SoizAf (mat-I-UMMICY) Visit to di' tae Gomz,,ror Iduiatimi to H civ Pe wuida MutelpelIMMttLgWrnu.gr W! Egiiet,p. iwMIbit-ttoUA drtu4 tmrciv L o tthiulte, _tate (Qddei Rodl Prt P ) (Qlldm,lmwt .os Mid Prefrm) Nwd4wUlm raquer to 1 S %mlipallty pII j . ntet ot ROWS dtw seate oIUS n" idth capm ddrm to 1S dwos ete R4SI' to tie SectaaLt of G b wI to a(LMA1S z=p atiw sdth ow to (XLAs The TS tet sii= to the n;n foc rnd]t iuca pddliM cn tedmiml dat. Wb12 an eaiIntia the T finI roqturzmunts fo mud l n f e and iittitr- Support unit (TDo timul ualy.s (%=*xI ax sifrilp. Amiwlls. | asp~~~Chter 3) T.W acpoizm. I a Widonel Inf6rustion 1d mm?tdpsaity rledoiC c-3mmLth die Ttd3 t IR aid inz_ta im idmtim to'S W5 cmu te ft e fn. ete Ord flzunca anelyses (Profom A) ' anI cn T'S jzmte qpUfaxtIcu id _ Cmmhtia to the hwrvai W lialts ai oidi stee Ott (S:) reI ltivIt piwe. aid &hid