The financial model depends on what intentions have local governments had in establishing association. Therefore the choice of financial model continues problems mentioned above.

 

Already at the Founding Congress it was decided that finances are based on membership fees that are voluntary paid by members. No matter how tempting seems the introduction of mandatory fees; such policy would result in the danger that State Administration would gain more impact on the Association. Mandatory fees could be established by law or by MK rules arising from a law. If fees would be declared by MK, then inevitably it would mean the power over the management of LALRG.

 

At the Founding Congress, there was a separate voting about variable fees for variable groups of local governments. The vote was that payment rates could be different. At first, there were two payment schemes: in proportion to population (entrance fee) and in proportion to budget (annual membership fee).

 

The first scheme was not as good because earnings per capita have always been different. In 1994, the earning from two taxes (personal income tax and property tax) in the richest municipality were 27 times larger than in the poorest municipality. In 2007, the difference was only 7 times bigger. That shows that the fee based in proportion to population would not be successful resolution. Therefore, the payment of membership fee is based on earnings of municipality (not including State subsidies).

 

Already at the First Congress, the payment arrangements were specified by setting the membership fee rate at 0.04% of revenue. Gradually this norm was increased to 0.13%. Gradation was very important. It was important to convince members about the increase by proving that it has reasons; meaning that specific goals would be reached. It always took wide discussions in different levels of management following the decision approved at LALRG Congress.

 

The last increase of membership fee was associated with Latvia joining the EU. The decision about opening the LALRG representative in Brussels had to be made. Even minimal representation with only one agent is quite expensive. By making such decision, each local government was deciding if such representation is needed for common interests and would each local government benefit from it. The decision of representation was approved.

 

Each time there is an opposition to the increase of fees. Also, because of the last increase, one of the local governments withdrew from the LALRG, not approving activities in Europe. The chairman of the LALRG went to local deputies and argued the benefits and losses associated with representation and participation in EU Regional Committee and other activities in Brussels. After the meeting, the local government changed its position and decided to stay in the LALRG.

 

In order for the Association to be successful, it needs to be independent from State Administration. Also, it is important that none of the groups gets an upper hand. It might happen if one of the groups with its specific interests becomes the major donor of the Association. Therefore, there was a new suggestion to have such an order that the poor local government would pay more, but the biggest donor – Rīga – pays less (relatively to their budget). That way the investments to the LALRG from different government forms – city, county, and district – were in balance. One group is not able to dictate the conditions. Negativity of one group cannot destroy the basis of the LALRG finances. But it has to be noted that stability of the organization was achieved by stepping back from principle of social justice when rich pay more and poor pay less.

 

Gradually, it was established, that Riga held the maximum quote and other local governments held the minimum quote. In 2008, income of local governments was increasing and there was no minimal quote for any local government.

 

Riga and other major cities have better opportunity to protect their interests in comparison to smaller local governments. In the Parliament and in the Cabinet of Ministers, and in big local governments, the same political parties are represented. Big cities can promote their opinion with a deputy right in the Parliament. Therefore, smaller local governments are more interested in common opinion, and they are “gaining more” from the LALRG.

 

This payment reform has balanced financial influence. Riga and other big cities do not invest more than other towns. Also, towns invest almost as much as districts. Cities do not influence finances more than other local governments. There is no place for saying – the one who pays, orders the music. The basis for long-term stability of the LALRG lies in the ability to avoid making decisions that would permit to ignore interests of any other group.