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Success Stories Assistance Areas SEED Reports Contact Information Last updated: 43     Kopstein Report USAID ASSISTANCE PROGRAM TO POLAND IN LOCAL GOVERNMENT AND HOUSING SECTOR REFORM – A HISTORY AND ASSESSMENT FROM 1990 – 2000   Author: Ken Kopstein April 16, 2000   The Soviet Union’s influence in Central and Eastern Europe disintegrated in 1989 and Poland became a democratic state desiring to institute market-based reforms. USAID undertook a massive and significant program of technical assistance to Poland during the 1990 through 2000 period. Today, Poland is one of the success stories of Central Europe and the Poles can be lauded for accomplishing many difficult tasks in transforming their political and economic structure. The USAID program made substantial contributions to this Polish transition. The transition is not complete and will take many more years to fully develop, however, the past ten years have been marked with much progress. Table of Contents Background Highlights of USAID Accomplishments in Local Government and Housing in Poland USAID Assistance Program in Local Government and Housing Lessons Learned Conclusions BACKGROUND It is important to understand the context of Poland to appreciate how the USAID assistance program was conducted in this nation. Poland and the other nations of the former Soviet bloc of Central and Eastern European countries (CEE) have had long histories and traditions. These nations are categorized as "Second World" nations, with well-developed institutions and more advanced domestic capabilities than what is generally regarded as "Third World" or developing nations. USAID had extensive experience in Third World nations with assistance programs, however, Second World, Transition Economies, was a new experience for all multilateral and bilateral donor agencies. In other terms, Poland and the other CEE countries represented different challenges than had previously been addressed by USAID. Added to this learning curve was the political imperative mandated by the U.S. Congress to initiate a massive assistance program in a very short timeframe to strengthen the CEE countries in their transition to market based economies and democratic governance. This all began in Poland in 1989 with the rapid dismantling of the former Communist regime and the institution of a new democratically elected reform government. The sudden transition was also a learning curve experience for Poles to adopt to new systems of governance. The new leadership could define in general terms what they wanted to accomplish, but the inexperience of new leadership at both the national and local governmental levels resulted in a lack of clarity over specific technical assistance needs. In terms of the structure of local government that existed immediately prior to 1990, the following decade can be characterized as a period during which Polish society has been striving to find the right balance between the Unitary, centralized state that existed under the Communist regime and the degree and structure of decentralization that is still in transition. As evident in the USAID program, technical assistance evolved over time as both donor agencies and the Poles gained experience and could better define specific agendas. The following discussion focuses on conditions in Poland that impacted the USAID technical assistance agenda. 1. THE COMMUNIST ERA The legacy of the 45-year Communist era left many scars on the Polish society and significantly influenced the nature and form of reforms that were to follow. For that reason, it is beneficial to briefly describe the Communist era to comprehend many of the conditions affecting reforms in local government and housing. A. Unitary Form of Government After World War II, the USSR installed a Communist regime in Poland. By 1948, the Communist system was fully operational. It established a Unitary form of government, which meant that all decisions and finances were controlled by the Central Government. It was a hierarchical system, with all elements of government and the economy operating on direction, and under supervision, of the Central Government. There was little local decision-making. The economy, the major industries, the infrastructure, physical planning, social programs – in short, most aspects of life were controlled by Central Government. It was ideologically based, failing to marshall the resources of its citizens. The centralized economy was organized around major industries and settlements conformed to economic policies. There was little concern for the environment as industrial development took precedence over many environmental concerns. What was determined by mainly market conditions in the U.S. was transformed into social programs, such as housing, in Poland, often without regard for profitability or even cost recovery. This form of governance over the 40 years of Communist rule proved to be inefficient in meeting the needs of society and a series of political crises ensued over the years that increasingly called for reform. The Government financed a significant portion of its costs by borrowing and became highly indebted. It was this unsustainability of the Communist Unitary form of government that eventually led to its demise. B. Local Government During the Communist Regime Poland had a tradition of local government prior to World War II. The Communist regime eliminated local decision-making and transformed local officials into implementers of Central Government policy. The "chief architect" of local government reform in Poland, Jerzy Regulski, described the Communist structure: "The ideology-oriented state required an extremely centralized system of decision-making. Any institutional network was constructed as a hierarchial pyramid of bodies…with no place for local policies. Centrally set state policies did not consider local interests, needs and priorities." There were regional governments, established, again, as implementers of Central Government policy. The Local Government Act of 1950 eliminated local self-government, allowing local officials to represent the interests of local areas, but only in the context of implementing national policies and directives. Mayors were appointed by the Central Government; the councils were elected but from a slate of candidates proposed by the Communist party only and subject to Central Government approval. There were attempts at decentralization in the 1980s, as even Government realized the ineffectiveness of the centralized system, however, "these limited reforms did not change the doctrinal base of the centralist, Communist state and did not change the dominance of the Communist party in the local decision-making system, so they could hardly result in more democratic or effective local government." The local political system was non-responsive to local citizens. Municipal employees were employees of the State. State-owned industries provided many of the services for employees formerly provided by local government. "The system…ignored links with the place of residence, neighborhood, and the city or village." C. Housing Under the Communist Regime Under the Communist regime, housing became a social right, not a market-based economic enterprise. The State, through State-owned industry and large cooperatives, became the provider of much of the housing. By 1989, the State controlled about 60% of the housing stock. Individuals continued to construct homes, but from their own resources. By the end of the Communist era, about 40% of the housing stock was privately owned, much of which was in the rural areas. The State produced 7 million apartment units in the post-war period up to 1989. Much of the housing built by the State was in urban areas and was characterized by poor construction quality and suffered from lack of maintenance. There were central heating plants that were inefficient. Utilities were controlled by the State and operated on a non-economic basis. Housing received deep subsidies and residents became accustomed to paying much less than cost recovery for housing, far less than market value. The Communist regime produced more housing units than what was built after the transition because of the substantial subsidies provided to the sector. However, even the State production of housing was not sufficient to supply what was later to be perceived during the transition as adequate numbers of units for a growing population, which contributed to the perception that there was a substantial housing deficit or "gap" in the nation. 2. THE NEW SYSTEM OF REFORM In 1989, political pressures had forced the Communist regime to resign and a new, partially democratic-elected Government took power in September 1989. This had resulted from long, difficult grass-roots efforts emanating from the trade union movement led by Solidarity. Lech Walesa, the leader of Solidarity, was elected President in 1990 and the first completely democratic elections were held in 1991. The mandate for reform of the entire system of governance was thus established. The Communist regime left more than an unfortunate political legacy. The economy was in shambles. The Government was deeply in debt, there was hyper-inflation (in 1990 inflation was 718%!) and there were many difficult decisions to be made to effect transition to a market-based economy and democratic political system. Decisions made in 1990 were greatly influenced by the perceived need to "dismantle the apparatus of the old (Communist) regime." The new Government decided not to undertake gradual reforms, but, instead, initiate "shock therapy", i.e., institute major reforms immediately. This resulted in three years of recession in Poland’s economy. In spite of the difficulties, the new Government persisted with radical reforms. A. The Cooperation Form of Government The new Government is a parliamentary system. There are numerous political parties, who form coalitions to assume power. A President is separately elected. This parliamentary system results in sometimes rapid changes in Parliamentary political power and changes in governments even between elections. For example, one prominent official noted that in the early 1990s, she served under five different Ministers of Finance, resulting from shifting coalitions within the ruling government. The structure of government is still evolving, with responsibilities between Central Government and local governments being re-defined over time. The World Bank noted in a 1992 Country Report that relationship between a central government and local government in many nations evolves over decades and even centuries. The Cooperation form of government is designed to maintain a Unitary State, but with significant decentralization of major responsibilities to local government for public services and local financial decisions, while maintaining Central Government as the key resource mobilizer to finance local government and to assure "equalization" of resources available to local government. . The new local government structure conforms with the European Union’s principle of "Subsidiarity", which incorporates decentralization and deconcentration as guiding principles. As Michal Kulesza, one of the most prominent leaders in creating the form and structure of local government in Poland, defined it, "local government is independent, but part of the Unitary State; it has been granted expenditure autonomy, not revenue autonomy." By that he means that Central Government is the resource mobilizer and local governments the decision-maker on how those resources are expended. He also indicated that the two additional tiers of government, county (powiet) and regional (voivodship), as well as Central Government, were designed to compel local governments and Central Government to "cooperate" with one another, thus the term "Cooperation" form of government. This philosophical framework influences how many decisions are made regarding the structure and powers of local government. B. The Anti-Debt Culture and Emerging Bank Sector One of the legacies of the Communist regime was the anti-debt culture that emerged during the early years of the transition. The Communist regime had amassed substantial debt and local governments were adverse to incurring debt as a result. The general population had little experience with debt during the Communist era and the resulting uncertainties of transition and low incomes combined to establish a reluctance for individuals to incur debt. The banking sector, too, was in transition from large State banks to diverse, but small-sized private sector institutions. They were institutionally unprepared in the early years of transition to lend to local government or to engage in housing lending. Furthermore, the State financed local government and subsidized housing so these markets did not early on appear to be important. Macro-economic conditions were also unfavorable to lending to individuals for homeownership or to local governments. Over time, as the banking sector matured, foreign banks merged with domestic banks, macro-economic conditions improved and donors, such as USAID, helped prepare the banking sector, banks have become more capable of understanding the local government and housing sectors as business opportunities. C. Local Government in the Transition The imperative to "dismantle" the Communist regime led to rapid re-establishment of local government in Poland. Local government was viewed as essential for democratic institution building in the new government and to mobilize local human resources to effect economic and public service advancement. In 1990, re-establishing local government became a priority of the new Government to mark the transition and resulted in a Constitutional Amendment (March 8, 1990) recognizing local government, the Local Government Act of March 8,1990, Local Government Elections Act of March 8, 1990 and local elections on May 27, 1990. Thus, within a three-month period the legal structure of local government was created and the first municipal elections occurred. Over 146,000 candidates campaigned for 52,000 local government elected seats in over 2,400 municipalities. Democracy in local government had arrived. However, there was virtually no experience with political leadership at the local level and thus the elected leadership was very inexperienced. This inexperience brought both an enthusiasm for change, but little technical know-how on ways to accomplish this. This inexperience impacted USAID and other donor assistance to local government. USAID sought to establish a technical assistance program that was "demand-driven", that is defined by the local governments to be assisted, however, not having experience with options, local officials were not in a position to clearly articulate the specifics of technical assistance. Thus, general areas of assistance could be defined, such as improving infrastructure and management, but it was incumbent on USAID to define the specific applications. There are 2,489 municipalities in Poland, with an average size of 15,500 persons. There are only 20 municipalities above 200,000 population. The small size of most municipalities compounds the difficulties of increasing sophistication in governance and financing. A second tier of local government, the powiet (analogous to U.S. counties) was introduced in 1998. There are 373 powiets in Poland, with 65 of these powiets being municipalities given powiet status. The average population of powiets is only 103,000 persons. There are 16 regional governments, called voivodships, that combine elected representation and Central Government appointed leadership. Each level of local government has distinct responsibilities. All three levels are substantially dependent on Central Government transfers for revenues. Local government receives most of its financial resources from Central Government transfers, such as a portion of Personal Income Tax (PIT), Corporate Income Tax (CIT), general grants and specific grants for designated public services. In 1991, Central Government transfers amounted to almost 55% of local government revenues. By 1998, it represented almost 67% of local government revenues. Local government own-revenues are derived from taxes and fees, such as property taxes, taxes on vehicles and housing rents. The level of taxation and many of the service fees, such as housing rents, were determined by Central Government during much of the 1990s. Over the 10 years since transition began, more flexibility in local government revenues is beginning to emerge. Housing rents are now established by local government and there is a move to change the property tax system from a tax based on land area to an ad valorem tax based on property values. In the early years of reform, the de-control of local revenues was resisted because of the philosophical base of the Cooperation form of government. Local government was given many significant responsibilities under reform. For purposes of this report, it should be noted that these responsibilities included land use planning, infrastructure, utilities (e.g., central heating plants) and housing management, development and rehabilitation. State housing was transferred to local government. Economic development is a shared responsibility between municipalities and regional governments. These responsibilities largely framed USAID’s program of technical assistance. The poor condition, or non-existence, of proper infrastructure was a major concern of both local and Central governments. There was a severe lack of proper water, sewerage and solid waste treatment facilities. The lack of serviced land prevented more extensive housing development. Central Government established National and Regional Environmental Funds to finance infrastructure improvements, but local government often lacked the technical expertise to properly plan projects. The Communist system also left a legacy of inefficient management practices, exacerbated by a budgeting system that did not allow effective understanding of expenditures for particular service areas and made capital expenditures and service planning difficult for local officials to set agendas. In 1998, with the return to power of a post-Solidarity Government, a new round of devolution of public services proceeded. The result was more strain on local government budgets, even with an increasing level of Central Government transfers. Local government has enjoyed popular support and has been touted as receiving the highest level of public approval rating amongst all government institutions in Poland. According to surveys, local government approval ratings have improved over the past 10 years, rising from under 50% in 1992 to almost 60% in 2000. C. Housing in the Transition Housing had become a social right during the Communist era. This legacy had major impacts on the transition. The legal structure for a market-based housing system was not in place, such as the difficulty of recording property transfers, the lack of legal capacity to evict non-paying tenants or homeowners defaulting on mortgages and a Statutory Lien law, which placed the rights of the State ahead of lenders. It also impacted on the Central Government transferring to local government responsibility for rent increases on municipality-owned housing and on local government’s willingness to increase rents even when authority was finally devolved. Municipally-owned housing was subsidized, but as it was a relatively minor percentage of local government’s budgets, there was not the political imperative to incur the wrath of voters. As a percentage of local government budgets, it averaged only 5.6% in 1991. With rent reform and increased expenditures for education, this decreased by 1998 to averaging only 2.9% of local government budgets. State-owned and former State-owned enterprises were left with housing that became a liability, as they were also constrained from raising rents by Central Government policy. There was a perception throughout Poland that there was a substantial housing deficit, which was estimated at a need for 1.5 million new housing units. This perception of a substantial housing deficit formed the basic Government policy toward housing. There were also strong beliefs that the new Government had to dismantle the old regime and establish a market-based economy as fast as possible, i.e., the "shock therapy" approach, which translated into a request to the World Bank to provide a substantial loan to establish a market-based housing finance system. Government devoted attention to new construction, rather than rectifying the substantial deferred maintenance in the existing housing stock. The heavy subsidies provided by the State and the lack of awareness of "effective demand" (that is the ability of the population to afford new housing) was not understood because the State had built and subsidized so much of the housing stock during the Communist regime. Government provided significant tax incentives to encourage individuals and the private sector to build new housing. Government focused on providing new market-rate housing mortgage finance, yet continued to subsidize mortgage finance through the State bank until 1996. Thus, a dichotomy emerged between Government’s strategy to provide subsidies for new housing construction without resolving a) rent reform to bring existing public housing to market rents (which would have made new construction more appealing to those households able to afford purchase), b) removing State mortgage subsidies (available to only a relatively few households) which impeded private bank mortgage finance, c) resolving legal impediments to mortgage lending, d) facilitating local government serviced land development or e) understanding the "effective demand" for new housing, i.e., the ability of households to purchase new housing. The Communist regime had produced over 7 million new housing units, with an annual production in the 1970s of over 280,000 units per year. In the transition, completed housing units plummeted to 134,00 units in 1990, 129,000 units in 1991, 55,000 in 1996 and only gradually increasing to almost 77,000 units in 1997. This is a long way from the production targets needed to satisfy the perceived housing gap of 1 million to 1.5 million new units (depending on various estimates, with the Government’s estimate being the highest). The key difference was that new construction had been transferred largely to the private sector in the transition, which gradually became the dominant producer. The lack of serviced land to build new housing, the lack of extensive mortgage financing (and purchaser resistance toward debt) and the lack of experience in developer functioning, further constrained private sector development. Macro-economic conditions during the 1990s were not conducive for households to finance new housing through mortgages, even if there had been a more favorable attitude toward debt. Mortgage interest rates have remained high during the 1990s, reducing gradually (but still unaffordable to the vast majority of Polish households and very high relative to Western Europe and the U.S.) to nearly 17% by 1999. In the early to mid-1990s, private banks were also unprepared to provide significant mortgage finance for a number of reasons, including adverse macro-economic conditions, lack of long-term financing to fund mortgages (available funds were derived from short-term deposits), lack of experience with a modern mortgage system, legal impediments (such as the ability to evict and difficult property transfer procedures) and, most significantly, continued subsidies through the State bank for mortgages until 1996. The State bank, PKO BP still is the major housing mortgage lender in Poland (even without subsidies), but it’s dominance is reducing as private banks assume ever increasing mortgage production levels. By 1998, housing mortgage finance had gained acceptance and a market emerged in the banking sector. This was significantly aided by USAID. The other impediments to housing construction were also beginning to be addressed, but are not yet fully resolved. New housing production is increasing, but still remains below pre-1989 levels. Rent reform has become a priority. The private sector has gained significant experience as developer. If macro-economic conditions continue to stabilize or improve and Government continues its housing sector reforms, this portends well for expanding housing development and rehabilitation of the existing stock. D. Institutionalization of Associations Given the beginnings of the Solidarity government in the trade union movement, there was receptivity toward including associations in the governmental process. The transition period included emphasis on formation of associations and foundations to represent particular groups. By 1998 it was estimated that there were 5,000 foundations and some 21,000 associations in Poland and another observer indicated that this number is presently around 30,000. Jerzy Regulski, the chief architect of local government reform, noted that municipalities established and joined many diverse associations, including associations based on municipality size, functions and regional affiliations. He further indicated that reformers had considered a law making it compulsory to join a municipal union, but this was abandoned in favor of independent associations. The four major local government associations are recognized by Government and included in policy formulation. So, too, with the housing sector. When representative associations emerged, they were accorded access to Government policy makers through committees. Associations are an accepted institutional structure to incorporate special interests in policy-making in Poland. USAID recognized the opportunity for associations to perform a major role and its assistance strategy incorporated support for strengthening and forming associations to represent local government and the real estate sector. 3. THE U.S. GOVERNMENT RESPONSE TO LOCAL GOVERNMENT AND HOUSING TRANSITION The sudden collapse of the Soviet bloc left the Western governments little time to prepare to assist CEE countries with their transition from Communism to a market-based economy and democracy. The Solidarity Government took power in Poland in September 1989. The U.S. Congress enacted the Support for Eastern European Democracy (SEED) Act in November 1989 and authorized $ 1 billion for CEE assistance. USAID, as the U.S. aid agency, was given significant responsibilities to implement an assistance program immediately, in conjunction with the Department of State. There were an estimated 9 million Americans who identified their heritage as being Polish. This was a complex political as well as assistance effort. Local government and housing were only two program areas for USAID. There were a number of initiatives in other sectors as well, e.g., privatization of State-owned industries and small business development assistance. USAID established a unit in Washington to define an assistance strategy and initiate a program. A centrally-funded project was established in 1990, the Central and Eastern Europe Program Development Project, that enabled USAID to quickly field a team of consultants to CEE countries to assess assistance requirements and strategies in local government and housing. As part of the effort to assist in the transition of local government, the team visited local governments and Government officials in Poland to identify their priorities. The strategy was to define an assistance program that was "demand-driven", that is to respond to the Poles perceived needs for assistance. Broad areas of local government assistance, such as infrastructure development and public administration, were identified by the USAID assessment missions. The inexperience of local government officials in Poland (the first elections were just held in May 1990) led to the establishment of pilot projects to both demonstrate new techniques and to learn ways that U.S. assistance could evolve over time to be more effective. In 1991, specific counterpart local governments were identified and pilot projects defined. In the housing sector, the World Bank was responding in 1990 to a request from the then (and current) Minister of Finance to promote a market-based housing finance system. A $200 million sector loan was negotiated from the World Bank, and was to be matched by Government of Poland (GOP) funds, to establish a Mortgage Fund with $ 400 million in financing. The European Union later participated in the Mortgage Fund, replacing some of the GOP share of the funding. USAID identified an opportunity to leverage its assistance funds for the housing sector by supporting the World Bank/GOP Mortgage Fund. The World Bank does not usually include large-scale technical assistance grants to a sector and the USAID program could then make a significant contribution in augmenting the Mortgage Fund with technical assistance in policy and sector development. Thus, the USAID housing sector strategy was defined by this major initiative. USAID fielded consultants to identify policy issues to be addressed in the housing sector and real estate/local government counterparts to assist with initiating a housing development industry. In November 1991, the Regional Housing and Urban Development Office (RHUDO) was first staffed in USAID/Warsaw. By 1992, USAID had organized local government and housing technical assistance projects and competitively bid them for implementation. A Housing Guarantee loan was negotiated for $ 25 million to be added to the Mortgage Fund. Many of the projects were regional in scope, thus consultants were simultaneously initiating projects in Poland and other CEE countries, such as Hungary and Czechoslovakia. There was a mandate to get consultants into the field and rapidly begin technical assistance. There were multiple projects, multiple consultants and intense pressure to produce results for Congress. There were so many U.S. consultants that a special term was applied to them; they were referred to as the Marriott Brigade, stemming from the many consultants who stayed at the Marriott Hotel in Warsaw. There were also consultants from Western Europe. The multiple efforts were, at times, more assistance than the Polish counterparts could absorb and, even with many successes, some assistance was less than optimally effective. USAID technical assistance became more effective over time as the learning curve was overcome. For example, local government techniques at first mirrored applications in the U.S., but over time were adapted in the course of pilot programs to be more consistent with Polish systems and requirements. Another key example was the changing advice in housing policy. In the early 1990s, GOP officials emphasized the critical "housing gap" that required 1.5 million new housing units to satisfy. This resulted in the World Bank and USAID supporting the Mortgage Fund as the key housing strategy. Thus, USAID assistance focused on this perceived housing gap in the early years and approaches to increasing production based on market forces without Government subsidy. Over time, USAID analysis revealed that the housing gap was not as valid as previously assumed and macro-economic conditions were not favorable for housing finance. In the mid-1990s, USAID projects subsequently introduced more sophisticated analyses on effective demand, rehabilitation of the existing housing stock and an appropriate role for Government subsidies to promote housing production. The change in USAID assistance strategy also contributed to improved understanding by Polish officials of what a housing market was and ways to better assist the sector to achieve public objectives. The extensive USAID analyses, reports and conferences gained wide dissemination and demonstrated that a more balanced housing strategy was appropriate. By the end of 1999, the writer could identify 27 major USAID projects that impacted on local government and housing sectors in Poland. Not all USAID projects affecting these sectors were administered by the RHUDO. In particular, projects related to the banking sector and capital markets were to have benefits for municipal and housing finance. The contracts were conducted by consortia, which means that there were prime contractors with a number of sub-contractors in the major projects. At times, prime contractors, sub-contractors and individual consultants changed relative positions on different projects. A sub-contractor on one project may be the prime contractor on another project and vice-versa. What was particularly important was the fact that many individual consultants, both long-term and short-term consultants, worked in these sectors for many years; often on different projects and some with different firms. The importance of this long-term involvement must be underscored. By having this consistency in technical assistance, trust and confidence were built up with Polish counterparts and made the technical assistance over time more effective. This was confirmed during interviews conducted for this report. For example, one official in the Ministry of Finance gave an extensive description of how much they appreciated the contribution of one long-term consultant assigned to their Department of Local Government Finance. There were a number of U.S. consultants who remained in Poland at the termination of their USAID contract work and continued to add to the professional capabilities of the nation by forming private firms or assisting other donors with projects. Martha Sickles-Grabowska is an example of a professional who worked in New York City in cooperative housing development, joined the Peace Corps and was assigned to assist the City of Gydnia in Poland with housing, continued her contribution under the PADCO, Inc. project and, on conclusion of that project, formed a Polish company which is operative today, URBECON Sp. o.o., to provide technical assistance to municipalities on housing strategies. USAID assistance was conducted using several very effective techniques in addition to long-term and short-term advisors, such as: conducting extensive pilot projects to demonstrate recommended practices and techniques with real world applications, not merely studies and reports, local and regional conferences (which were praised by a number of interviewees for both the content and the opportunity to exchange information with other officials/practitioners), study tours to the U.S. and other European countries (particularly the U.S. study tours were cited by interviewees as gaining insight into how consultant recommendations were actually conducted in practice in the U.S. and building on-going relationships with U.S. organizations), local capacity building through training trainers, local consultants and technical institutes to carry on practices introduced by USAID; this included giving ever-increasing responsibilities to Polish professionals working on USAID projects for providing technical assistance, extensive information dissemination on USAID-introduced concepts, practices and techniques through the media, publishing manuals and reports, NGOs and the Internet, translating many technical materials into Polish, which greatly enhanced information dissemination, e.g., the Urban Institute Consortium Website has Web pages in both Polish and English, including translations of major reports, and using comparative analyses from other nations than the U.S. to expose Polish counterparts to options they may draw from several different nations (which they did). Institutionalizing local technical capability to sustain initiatives begun by USAID was a key strategy. Most projects emphasized building local capacity through giving increasing responsibility for technical assistance to Polish professionals on staff, the creation, or expansion, of local consulting and trade association capacity and introducing curricula into university, technical school and NGO training programs in housing, local government public administration and banking. For example, the Cooperative Housing Foundation project formed a Polish foundation that evolved in the administrators of the USAID project and became an independent entity at the conclusion of the project to carry-on activities begun with USAID assistance. USAID was the primary U.S. assistance agency, but there were others. The Peace Corps fielded a group of volunteers, a number working in local government and housing. In a somewhat unique process, USAID consultants and the Peace Corps worked together in many ways, with USAID consultants even providing training to volunteers. There were an estimated 35 U.S. Government agencies involved with assistance programs; e.g., the Department of Labor entered into a joint initiative that resulted in the formation of the Construction Training Center in Warsaw and the Treasury Department provided assistance to the Government on regulating the financial sector. The U.S. Government’s technical assistance response was massive in comparison to the usual assistance programs to Third World nations. Back to Top   HIGHLIGHTS OF USAID ACCOMPLISHMENTS IN LOCAL GOVERNMENT AND HOUSING IN POLAND 1. OVERALL ASSESSMENT Transition of a socialist system to a market-based economy and democratic state is a long-term, complex process. There was no precedent for assisting in such a radical transition of so many nations, such as those countries in the CEE, in such a short period of time. There was a learning curve for Polish Central and local government officials, for the private sector in Poland and for USAID. Over time, Polish counterparts became more experienced to better utilize USAID technical assistance and U.S. consultants learned to be more effective in tailoring assistance to fit the circumstances and traditions of Poland. There were some USAID projects that had a high degree of success. There were some USAID projects that were more effective than others. There were some elements of projects that did not fully meet objectives. However, the totality of USAID assistance proved valuable in supporting the Poles with effecting change. The Polish people, and their Central and local governments, have earned the credit for the success of Poland in transforming their country. However, by 2000, it became evident that the nearly 10-year USAID effort in local government and housing made significant contributions in assisting the Poles with formulating and implementing their reforms. 2. CENTRAL GOVERNMENT POLICY FORMULATION ASSISTANCE USAID assistance contributed to GOP policy development and understanding of options for reform in local government and housing. In the last four years, in particular, USAID advisors had significant influence in policy development. For example, the President of the State Office For Housing and Urban Development, the primary Government agency designated for housing and urban development policy, described the valued role of U.S. consultants in that agency’s formulation of the new "State Housing Policy in Poland for years 1999 – 2003". He went through the summary document and pointed out the many areas where U.S. consultants had direct input into the policies proposed and discussed proposed legislation that would result from this policy. He then went to his office and produced a stack of over 20 USAID reports that was used in this process. He particularly appreciated the USAID consultants providing examples from other nations than the U.S., so policy-makers could select the best options for Poland. He noted that real estate/bank associations assisted by USAID were integrated into the policy formulation process as part of standing committees and had a direct influence on policy considerations. Further, he produced a copy of proposed local government standards for the water supply, indicating that the proposed Act on Water Supply (now before Parliament) would not have been possible without USAID assistance. Once the Act is passed, the USAID-prepared standards will be promulgated as an Executive Order. Ministry of Finance and Central Bank of Poland officials during interviews indicated similar contributions from USAID consultants. 3. LOCAL GOVERNMENT ASSISTANCE The substantial USAID technical assistance efforts to local government had significant impact in changing the perceptions of local government officials about improving local government financial administration, urban revitalization, infrastructure and housing project planning, rent reform and housing allowances administration, economic development and debt financing. Local government officials were inexperienced after the transition to local control and USAID was in the position to introduce new techniques and practices to improve local governance. The extensive USAID pilot project strategy exposed numerous local governments to more sophisticated planning, management and financing techniques (not only in the pilot municipalities, but in many additional municipalities which learned of these techniques) and the conferences, training programs and manuals produced by USAID projects achieved wide dissemination throughout Poland. Many local government techniques have been institutionalized in universities, technical schools and local consulting firms for continued application after termination of the USAID assistance program in Poland. USAID can be recognized for major contributions in developing the municipal credit market and introducing local government to debt financing. In 1996, the City of Lublin received an award for Excellence in Improving the Living Environment at the United Nations Habitat II conference. It was one of only twelve such initiatives worldwide to receive such recognition. The award was for the municipality’s community planning process and establishment of a city / neighborhood partnership in revitalizing blighted, historic areas of the city; the revitalization process was significantly assisted under the USAID PADCO project. 4. HOUSING SECTOR ASSISTANCE USAID assistance greatly influenced the institutionalizing of a market-based, competitive housing / real estate finance system and assisted the banking sector to provide a modern lending system. In 1990, there was little concept of the role of a developer in housing production, as the State (through State-owned industry and cooperatives) had been the main producer of non-owner occupied housing during the Communist era. There was not even a term in Polish which described this function. Now the Poles use the English term "developer" as part of the Polish language. In 1992, USAID consultants conducted a conference that first introduced the concept of developer versus builder and defined the role of a developer in a market economy; this conference had significant effect in expanding understanding of the developer role in real estate production. USAID had several major projects assisting the real estate industry to promote development capacity and assisted in the formation of professional associations to represent the industry. These efforts resulted in, for example, the real estate appraisal industry being significantly influenced by USAID, with current practices based on Anglo-American standards and techniques. USAID technical assistance, under both housing and banking sectors assistance projects, resulted in banks adopting generally-accepted standards for home mortgage loan origination; this transformed the banking sector’s mortgage lending industry into a modern system. There was virtually no experience with construction lending in Poland and USAID is credited with introducing construction lending methodologies. One banker, who has experience with two major mortgage lenders, indicated that his present bank has based its mortgage lending procedures mainly on USAID manuals. He also stated that USAID was the only partner in Poland that promoted development of the housing sector and without USAID technical advisory services, there would not be such an advanced private mortgage system. The establishment of the Polish-American Mortgage Bank (PAMBank) in Poland was accomplished through USAID funding to the Polish-American Enterprise Fund; PAMBank introducing market-based mortgage lending in 1992 was one of the forerunners of private sector bank mortgage lending in Poland. One of USAID’s most significant contributions was to assist with Government policy formulation on housing, as described above in assistance to Central Government policy formulation. The same U.S. consultants also introduced housing market analysis to Poland, which expanded the perceptions of Poles on understanding market forces as they relate to housing. In addition, USAID introduced a process to prepare housing strategies in local government, which demonstrated how a coordinated approach to housing could be beneficial in resolving local housing needs. In 1994, USAID’s housing sector program was officially commended by the GOP with the RHUDO director receiving a Polish State honor for services to housing. In 1998, the Cooperative Housing Foundation’s local housing agency development program in Poland was recognized by receiving the Dubai International Award for Best Practices presented by the United Nations and was included in the UNCHS database for best practices in development. 5. BANKING SECTOR AND CAPITAL MARKETS ASSISTANCE USAID provided long-term assistance to the banking sector and in promotion of domestic capital markets. The banking sector assistance promoted a modern regulatory framework in the National Bank of Poland (NBP) that has instilled greater public confidence in the sector, resulting in rapidly escalating deposits, which currently provides the funding for both housing mortgages and municipal debt. The NBP’s regulatory system is viewed as a model for the region, with NBP receiving requests for technical assistance from other CEE and Newly Independent States in the region. As described above, USAID assistance to the banking sector has promoted a modern, competitive housing mortgage industry. Capital markets assistance promoted both equity and debt markets, with the promotion of debt markets including expansion of municipal debt. With USAID assistance, a credit rating agency, the Central European Credit Rating Agency, was established and strengthened; USAID assisted this agency to provide credit rating services for municipal debt. With USAID assistance, the first public offering of a municipal bond was issued. USAID assistance is now working on revisions to the Bond Law, which would permit municipalities and public corporations to issue revenue bonds. 6. NGO AND PRIVATE SECTOR DEVELOPMENT TO PROMOTE LOCAL GOVERNMENT AND HOUSING SECTOR REFORMS USAID assistance significantly strengthened the NGO sector to provide more effective associations representing local government, the banking sector and the real estate sector. USAID assisted four associations representing local government, providing them with assistance to build institutional capacity to represent local government interests with Central Government, introducing member education programs to promote better practices and established a local government information system that periodically gathers data on selected local governments for comparative analysis by local governments and to provide information for legislative / policy initiatives. USAID assistance to the Polish Banks Association (PBA) has resulted in the formation of the Housing Finance Committee to address banking sector interests and has institutionalized a number of training programs for the banking sector. Through USAID assistance, the PBA has established continuing relationships with U.S. associations and institutions, such as the U.S. Mortgage Bankers Association and the national and New York bank clearinghouses. Other USAID assisted associations also maintain on-going relationships with U.S. associations, such as the National Association of Realtors. A Polish Chapter of the Institute of Real Estate Management Certified Property Managers was established, with a Polish-led certification program continuing to give training to property managers on a self-sustaining basis. In the real estate sector, USAID assistance was particularly effective in forming new associations to represent broad-based interests in the sector. Under USAID assistance, four new real estate associations were formed and have become self-sustaining: the Polish Association of Home Builders, the Polish Real Estate Federation, the Polish Federation of Valuers and the Association of Polish Property Managers. The real estate-related associations have also introduced professional standards that serve as a model for ethics in Poland, a nation where corruption still is a concern. USAID assistance has institutionalized training programs in NGO training institutes, universities and technical schools that will continue to promote practices, techniques and concepts originated under the USAID program in Poland. Three banking institutes have curricula in mortgage finance and a number of universities have public administration curricula offering USAID introduced techniques and concepts. The Foundation for the Development of Local Democracies, an NGO with regional training institutes for local government throughout Poland, has two regional training centers offering programs based on USAID local government pilot programs. USAID projects promoted local capacity building so that the Poles could carry-on with the techniques and concepts introduced by USAID. A substantial number of private consulting firms were established, or strengthened, to provide continuing technical assistance to local governments and the housing sector. LEM S.C. is an excellent example. It is a consulting firm that was established under the USAID Research Triangle Institute Local Environmental Management (LEM) project and which adopted the name of the project as the firm’s name. LEM S.C. now provides continuing consulting expertise to local governments throughout Poland on water/sewerage/solid waste infrastructure development and has expanded its services to provide regional assistance to CEE countries. USAID assistance will be continued by Polish consulting firms and NGOs long after the formal USAID program in Poland terminates. The USAID-funded Polish-American-Ukraine Cooperation Initiative will utilize the expertise gained by Polish professionals, government agencies and NGOs to assist the Ukraine with its development programs. The Polish-American Freedom Foundation is an outgrowth of the USAID-funded Polish-American Enterprise Foundation and will be endowed with an estimated $ 180 million from profits earned by the Enterprise Foundation to continue to promote civil society in Poland (after returning $120 million to the U.S. Government provided by USAID for its initial capitalization). 7. INTRODUCING GREATER CITIZEN PARTICIPATION USAID incorporated citizen participation in many of its projects and supported NGOs to increase citizen public policy advocacy. The Polish system had not evolved traditions of citizen participation. A number of local governments participating in USAID projects indicated that USAID’s introduction of citizen participation had been a very positive experience and they intend to continue this practice in the future beyond USAID’s involvement, e.g., the Economic Development Committee in Nowa Deba is planning to form itself into an association to continue its activities and in Trzcianka it was stated that NGOs have moved from being non-active and dysfunctional to meeting and cooperating with municipal authorities. Other municipalities report less success in this area, which indicates that USAID citizen participation activities have introduced a process that will take many years of support to become widespread. Under the Democracy Network Project a number of NGO advocacy organizations were assisted to promote public interests, e.g., 60 environmental groups were assisted, 22 local groups were assisted to work on resolving development issues and the Academy for the Development of Philanthropy was established to carry-on assistance to NGOs after the USAID project. 8. COORDINATION WITH OTHER DONORS USAID coordinated its assistance program in Poland with other donor agencies to a greater extent than in many assisted countries. USAID’s support of the World Bank’s Mortgage Fund was the mainstay of USAID’s early assistance efforts to the housing sector. USAID also coordinated many activities with the European Union and the British Know How Fund (BKHF). For example, in designing an assistance program to the National Bank of the Economy (BGK) on initiating a loan program to assist in the development of non-profit affordable rental housing (Social Housing Program, known as TBS in Poland), USAID and the BKHF determined to divide up assistance responsibilities, with USAID assisting local governments and the private sector on development and the BKHF assisting the BGK with program administration. Another example occurred in 1993 when USAID, European Union and the World Bank collaborated with the Council of Ministers (analogous to the U.S. Cabinet), the Ministry of Finance and the Ministry of Spatial Economy and Construction (MOSEC) to design a program to promote institutional development and technical assistance to municipalities on municipal credit, resulting in the Municipal Credit Program and formation of the Municipal Development Authority. Back to Top   USAID ASSISTANCE PROGRAM IN LOCAL GOVERNMENT AND HOUSING This history of the USAID assistance program in local government and housing has been divided into three periods, representing changes in ruling government coalitions. The period 1989 – 1993 was governed by the Solidarity coalition. The period 1994 – 1997 was governed by the post-Communist coalition. And finally, the period 1998 – 2000 is represented by the return to power of the post-Solidarity government. The political situation marked distinct changes in the USAID program and are, thereby, good dividing points to discuss the history of program.   A. USAID ASSISTANCE PROGRAM - 1990 THROUGH 1993 With the SEED Act enacted by the U.S. Congress in November 1989, USAID was thrust into implementing a massive assistance program in Poland, as one of several countries in the CEE region to be assisted in their transition to democracy and market-based economies. The USAID strategy during this period focused on initiating a program that was demand-driven, i.e., responded to the needs expressed by Central and local government officials for assistance.  1. BACKGROUND a. Demise of the Communist government in 1989 led to the first free Parliamentary elections, resulting in the Solidarity coalition assuming power in September 1989. b. Solidarity government adopted policy of "shock therapy" to rapidly dismantle the Communist state and introduced extensive reforms to the economy and to local government. This resulted in dramatic changes to the economy and society. The guiding principle of rapid change had significant implications for the donor programs, e.g., a) in housing, the imperative to establish a market-based housing finance system concentrated attention on establishing a commercial housing mortgage market, and b) for local government, the immediate transformation of local government to local control led to multiple needs to support inexperienced local officials. c. Macro-economic conditions were extremely adverse, creating uncertainty amongst the population and economic hardship. These adverse economic conditions rendered market-rate mortgage lending unattractive for households and would undermine early attempts by the World Bank and USAID to establish a viable Mortgage Fund. Beginning in 1988, negative GDP growth started to occur and continued under the Solidarity government, -7% in 1991, -5% in 1992 and –1.5% in 1993. Inflation in 1990 was 718%. Although moderating thereafter, inflation remained high in the 1991-1993 period, 71% in 1991, 42% in 1992 and 35% in 1993. Real wages also declined substantially during this period, -24% in 1990, -1% in 1991, -3% in 1992 and –3% in 1993. d. Added to the difficult economic environmental was an anti-debt culture in Poland. Households were not only unaccustomed to borrowing under the Communist system, but the legacy of debt left by that regime made debt financing unappealing. e. Rapid transformation of local government to local control did not allow time for local officials to prepare for new leadership roles. On March 8,1990, a Constitutional Amendment was adopted recognizing local self-government and, on the same day, the Local Government Act and the Local Government Elections Act were adopted. Local elections occurred on May 27, 1990. Over a period of just three months, local self-government was established in law and local elections took place. 2,489 local governments were established, most being very small in population and lacking professional resources to undertake their new responsibilities. The old Communist system did not provide a good local administrative framework for efficient planning and management, as it was an extension of the Central Government and not locally-based. The rush to establish local government was recognized as leaving significant gaps and reforms continued to be planned over the 1991-1993 period, e.g., there were plans to establish a second tier of local government (powiets), analogous to U.S. counties, to provide more regional coordination amongst the many small municipalities. f. There was a rapid decline in the production of housing as the State extricated itself from the former Communist dominant role and the private sector lacked experience to fill the vacuum. From a production rate averaging over 280,000 housing units per year under the Communist regime, housing completions were only 134,000 units in 1990 and 129,000 in 1991. The Solidarity government wanted to make a clear break with the Communist system and so emphasized the role of the private sector to increase production, as with other areas of the economy (privatization of State-owned enterprises, for example, was also a priority), however, the private sector was ill-prepared to assume this role, there were adverse macro-economic conditions, legal impediments to private sector development and a lack of serviced land on which to construct new housing by the private sector. g. By 1993, there was a conservative backlash to the pressures of reform and a post-Communist government was elected in October 1993. There was a perception by Western governments that the post-Communist government would role back reforms and attempt to re-centralize government. This election was viewed with concern by the U.S. Government and marked a significant shift in USAID strategies in Poland. 2. USAID HOUSING SECTOR ASSISTANCE – 1990 THROUGH 1993 The USAID housing strategy principal objective was to promote "the emergence of a competitive, modern, market-based housing finance and production system." The initial USAID program was administered in Washington through a centrally-funded project, Eastern Europe Program Development. USAID had extensive world-wide experience in housing assistance and the Housing Guarantee (HG) loan program to implement a substantial housing initiative. This became a natural focus area for USAID assistance. In 1990, the major initiatives concentrated on assessments and project design. For example, PADCO, Inc. conducted a number of assessment missions to the CEE, including Poland, and the Cooperative Housing Foundation field assessments produced a report on Cooperative Housing In Poland: Issues and Potential, November 28, 1990. By 1991, a number of short-term projects were initiated with multiple consultant firms and individual consultants, usually under regional CEE projects. For example, PADCO, Inc. conducted a number of short-term projects beginning in 1991, e.g., a) Local Housing Construction Research Project (3.7 person months), which was an assessment of the housing construction sector, b) Residential Developer Assistance Project (14.5 person months), which sought to identify private developers and bankers for residential construction projects and to assess the feasibility of developing a private housing market, and 3) Technical Assistance to the National Bank of Poland Project (.5 person months), which was to assist the NBP in establishing a mortgage lending facility. Many other consultants were also contracted to conduct short-term projects, e.g., Harvard University provided technical assistance to the Gdansk Technical University School of Architecture in 1991 to develop an urban planning curriculum. In November 1992, USAID fielded a director for the Regional Housing and Urban Development Office. This commenced a concentrated period to begin a number of major projects. The World Bank had been conducting a program design in the housing sector since 1990. At the request of the then Minister of Finance, Leszek Balcerowicz, the World Bank focused on a $ 200 million loan to help establish a market-based housing finance system. The resulting program would establish the Mortgage Fund, with an additional $ 200 million in matching contributions from the GOP, to bring the total funding to $ 400 million. USAID identified this World Bank project as an opportunity to respond to GOP defined assistance needs and to leverage its own assistance funds. The Mortgage Fund became the main USAID housing program for Poland. In 1992, a $ 25 million HG loan agreement was signed and $ 10 million advanced in December 1993. This raised funding for the Mortgage Fund to $ 425 million. The Mortgage Fund became the dominant USAID housing sector activity and framed assistance to the sector through 1993 (continuing through 1997). Projects were designed to support the Mortgage Fund initiative. Technical assistance included housing market and policy analysis, as well as on-the-ground technical assistance to the private sector for promoting housing development, to banks to prepare them for accessing the Mortgage Fund and to local governments to assist them to develop housing projects for Mortgage Fund financing. The GOP had committed to ending mortgage subsidies given through the State bank, PKO BP, however, with the change in Governments in 1993, State subsidies continued until 1996. The adverse macro-economic conditions and continued State subsidies undermined the Mortgage Fund’s attempt to expand market-rate mortgage financing and the Mortgage Fund had disappointing results. In June 1992, a major real estate conference was held in Krakow, jointly sponsored by USAID and other sponsors, to convey an understanding of major principles of housing development in a market economy. In 1992, several major projects were designed and contracted. In the housing sector there were three major projects: a) PADCO, Inc. (projects are most often referred to by the name of the prime contractor rather than the more elaborate, unwieldy project names), which was formally under the Eastern European Regional Housing Project and had an extensive housing policy and assistance in housing development components, including technical support to the Mortgage Fund, private developers and municipalities to prepare housing projects for development and banks for instituting a modern mortgage finance system, b) the Cooperative Housing Foundation (CHF) project, Cooperative Housing in a Market Economy: A Replicable Model for Poland Project, focused on promoting establishment of local developer capacity in housing and c) the U.S. National Association of Realtors founded, in 1992, the Eastern European Real Property Foundation (EERPF), which undertook a major project focused on developing associations representing real estate brokers, appraisers (referred to as valuers in Poland) and property managers . Major projects often had a number of sub-contractors who conducted major components of the projects, e.g., the PADCO, Inc. project had Abt Associates conducting housing market and policy analysis, Harvard University undertaking local government urban revitalization projects and Research Triangle Institute undertaking economic development technical assistance to local governments. Over time, many of the individual consultants would change firms and be involved in subsequent projects under their new firms, e.g., Dr. Sally Merrill, who was the key housing policy consultant for Abt Associates (under the PADCO, Inc. project), later affiliated with the Urban Institute, which continued policy analysis as a prime and sub-contractor; she was involved throughout most of the 10-year USAID assistance program in Poland under various projects. Projects over-lapped the time divisions presented in this report, e.g., the initial CHF project concluded in 1994 and was extended as new projects until 2000. These projects focused on promoting a market-based housing system in Poland and concentrated activities in support of the Mortgage Fund, working with the private sector, the banking sector and Central Government to promote housing development. The CHF project delivered the first mortgages under the Mortgage Fund. All projects had a mandate to establish sustainability of technical capability and information dissemination mechanisms to inform a wider audience, e.g., the CHF project was designed to form local housing agencies throughout Poland which would continue housing development independent of USAID assistance. Another milestone during this period was the establishment of the Polish-American Mortgage Bank (PAMBank) in 1992 and its affiliated company, the Housing Development Company. PAMBank was capitalized by a majority investment by the Polish-American Enterprise Fund, which was endowed by USAID, with two minority interests held by Polish entities. PAMBank was the first private banking institution to provide mortgage financing, albeit mortgages were denominated in U.S. dollars. 3. USAID ASSISTANCE TO LOCAL GOVERNMENT – 1990 THROUGH 1993 In the 1990 – 1993 period, USAID housing sector assistance received the major focus, but there was significant activities directed toward assisting the new, inexperienced political leadership and municipal staffs to improve local administrative and planning practices. USAID’s strategy had the principal objective for local government assistance was to assist with "the transition to transparent and accountable governance through the strengthening of fiscal and managerial capabilities of local governments and local non-governmental institutions." As under the housing sector assistance, USAID concentrated early activities in 1990 and 1991 on conducting assessments, concluding arrangements with potential local government partners and designing projects. Under centrally-funded projects for the CEE region, International City/County Management Association (ICMA), PADCO, Inc. and Research Triangle Institute (RTI) were the primary contractors involved with local government in Poland. The effort resulted in three major projects to assist local government beginning in 1992. Each project focused on different areas to work with pilot municipalities to introduce new management, financing and project planning techniques and assistance with housing, infrastructure development, economic development and urban revitalization. For example, ICMA promoted new budgeting techniques, which later became known as Task Based Budgeting (TBB) and ad valorem property tax systems. The ICMA project also had a housing component, focusing on privatization and property management. PADCO, Inc. focused on housing-related matters in local government (such as rent reform and housing allowances, land management, property management and housing development), strategic planning, urban revitalization, e.g, the Lublin Community Redevelopment Project and assistance to a number of municipalities with capital improvements programming and economic development. Under the PADCO, Inc. project Central Government housing policy assistance was also provided, e.g., in formulation of housing allowances as a social safety net for initiating rent reform. RTI focused on pilot projects in local government to plan new water, sewerage and solid waste infrastructure. All projects had a mandate to establish sustainability and information dissemination mechanisms, which resulted in formation/expansion of local consulting capabilities and university/technical school/NGO institutionalization of training programs. Projects begun during this period extended beyond 1993 and were often transformed into new projects in later years. The early stages of municipal credit finance began in 1993, with banks extending only a modest PLN (Polish symbol for its currency, the Zloty) 132 million in short-term loans. Local governments were adverse to incurring debt to finance projects (except for concessionary loans given through donor and Government finance programs) and financed most capital projects out of current revenues. USAID understood the opportunity to assist and municipal credit became a focal point for assistance to local government. USAID, in tandem with the European Union and World Bank, met with the Council of Ministers, the Ministry of Finance and MOSEC to design a municipal credit program. These discussions resulted in formation of the Municipal Development Authority (MDA) to assist municipalities with project development eligible to receive external debt finance and a proposal for a World Bank infrastructure finance program. USAID would later provide financial and technical support for the MDA. Early support was given to increase local capacity to provide training for local governments in new management, financial administration and project planning techniques. For example, in 1991 and 1992, ICMA developed a series of training programs and trained trainers in two regional facilities of the Foundation in Support of Democracy (FSLD), a NGO that had a network of regional training facilities to assist local governments throughout Poland. 4. USAID NGO AND PRIVATE SECTOR DEVELOPMENT ASSISTANCE – 1990 THROUGH 1993 The positive attitude of the Poles toward associations led to a USAID strategy to support the formation of new associations to represent the emerging real estate industry. USAID’s strategy had the principal objective supporting "development of the legal and institutional framework for the functioning of a modern, market-based real estate market, including the creation of supporting professions." In 1992, the U.S. National Association of Home Builders Home Builders Institute undertook a project to form an association of home builders in Poland and the American-Polish Home Builder’s Institute (APHBI) was formed and supported through USAID. During the 1991 – 1993 period, the EERPF undertook another project that had an alternative strategy of promoting regional associations of real estate brokers and valuers that could eventually lead to national association formation and, by 1994, six regional real estate broker associations and seven regional valuer associations were formed. As described above, USAID projects emphasized institutionalization of training programs in universities, technical schools and NGOs to disseminate techniques and concepts introduced by USAID. From early on, USAID provided training programs for these institutions, e.g., in 1991, PADCO, Inc. provided assistance to the University of Gdansk in developing curricula in real estate and land planning and the ICMA early training programs described above.   B. USAID ASSISTANCE PROGRAM – 1994 THROUGH 1997 By 1994, the USAID program in local government and housing began an extensive expansion and the next four years experienced the peak of USAID activity in Poland. There were multiple projects, including extensions of projects began earlier and a wide range of new projects and contractors. The changing political situation, with a post-Communist government being elected to power, generated concerns that the decentralization reforms might be reversed and, thus, altered USAID’s strategy to focus on local governments and the NGO sector. 1. BACKGROUND a. Post-Communist coalition is elected to form the government in October 1993. Western governments, including the U.S., had concerns that the new government would discontinue reforms and attempt to re-centralize governmental functions. Although certain decentralization plans of the Solidarity government were halted, the new government allowed the then current governmental system to remain in effect. b. Macro-economic conditions began to stabilize in 1994 and improvements in GDP occurred, with GDP growth becoming positive, growing 3% in 1994, 7% in 1995, 6% in 1996 and 6.8% in 1997. Poland was surging forward economically. Real wage growth also turned around with positive growth beginning in 1994 and continuing throughout this period. Inflation moderated, but also remained high at 31% in 1994, 27% in 1995, 19% in 1996 and 15% in 1997. Interest rates moderated, but also remained high, e.g., in 1995, mortgage interest rates ranged between 21% and 25%. c. Consumer debt started to be accepted (e.g., car loans were becoming popular) and this attitude began to increase household willingness to incur home purchase mortgages. Municipalities also became more positive toward debt financing and began to pursue bank loans and municipal bond financing for project development. d. Housing production continued to decline, with only about 55,000 completed units in 1996. The one favorable aspect was that the private sector was becoming more evident in housing development. Housing finance was still dominated by the State bank providing subsidized mortgages, with little private sector bank mortgage production. With the end of State subsidized mortgages in 1996, private sector banks began to increase mortgage production. e. In 1994, the second local government elections occurred. There was a marked shift toward political parties entering into local elections; a change from the first elections when politics was minimal. This politicization was to have some impacts on USAID projects, as new administrations, in some instances, were not in agreement with USAID activities begun under the prior administrations. Municipal credit was beginning to emerge during this period, with banks becoming more willing to extend credit to municipalities and municipalities learning about the advantages of debt financing. Local government was given new responsibilities for elementary education, which put additional pressures on local budgets. f. In 1997, devastating floods occurred in southern Poland, which diverted local government attention and donor efforts to assist in restoration of affected communities. g. In October 1997, a post-Solidarity government was elected. 2. USAID LOCAL GOVERNMENT ASSISTANCE – 1994 THROUGH 1997 USAID strategy during the 1994 – 1997 period shifted to a greater emphasis on local government in response to the change in governments to a post-Communist coalition. After the new government did not move to dismantle decentralization, assistance to the Central Government continued. The USAID projects begun in 1992 continued. Some were extended and often with new components, e.g., a) the PADCO, Inc. project was transformed in 1994 into a major effort, with many additional objectives, and re-titiled, Housing Finance Technical Assistance and Municipal Advisory Program for Poland, b) the CHF project was expanded to include substantially more local housing company development, urban revitalization and flood relief and c) a second phase of the RTI project expanded to new municipalities for infrastructure development. Many of the management and project planning techniques introduced in the earlier years continued to be adapted and employed as the basis for USAID assistance. There was increased attention to capacity building amongst Polish professionals and NGO institutions in both the extended and new USAID projects, e.g., a) the four major municipal associations received increased financial and technical support, b) private consulting firms were assisted to form or expand, c) the work of the National Association of Home Builders to establish a Polish association continued, d) the EERPF continued to develop real estate professional associations and e) universities/technical schools/NGOs received more extensive support to prepare, and make self-financing, curricula for training to assist local governments. The media was enlisted to expand information dissemination. Citizen participation became a new focus for USAID and most of the projects had this element integrated into project components. Major new projects were added to USAID’s local government assistance program during this period, e.g., a) the Development Alternatives, Inc.(DAI) Democratic Governance and Public Administration in Poland Project, which initially focused on capacity building for the four major local government associations and expanded to include technical assistance to Central Government in local government policy formulation, b) the Cooperation Fund Urban Management Support Program was designed to expand dissemination of USAID-introduced local government management and planning techniques and promote citizen participation processes in partner local governments, c) support for the MDA through several USAID projects to strengthen their capacity to assist local governments with project planning and financing and d) Chemonics International, Inc. Environmental Action Programme Support Project – Poland, which introduced new energy conservation techniques to a number of pilot municipalities. Consistent with USAID’s focus on local government, most of these new projects concentrated on direct assistance to municipalities and NGOs, except for the DAI project, which later added major components assisting the Central Government. Many of the pilot projects with municipalities were culminating in successful transfers of knowledge and/or completion of specific developmental objectives, e.g., assistance was provided under the PADCO, Inc. project (with Harvard University as the lead consultants) to the City of Lublin on urban revitalization introducing a resident/city partnership process to achieve rehabilitation of a historic neighborhood; this project was only one of twelve projects worldwide to receive an award from the United Nations at the Habitat II conference in 1996 for "Excellence in Improving the Living Environment." Along with the successes, there were also some setbacks, e.g., with new local administrations resulting from the 1994 elections, some projects experienced changed attitudes for activities being conducted and, in some municipalities, projects were revised or even terminated. CEE regional and Polish conferences were major initiatives during this period and proved very effective in expanding the perceptions of Polish Central and local government officials about introducing new approaches to management, financing and project planning. For example, in June 1994, a regional conference was held on municipal credit and provided a venue for the exchange of information for representatives from CEE assisted countries and another conference on municipal bond financing for infrastructure development was held in Krakow in November 1994. Conferences were major launching pads for technical assistance. Following these conferences, USAID sponsored widespread efforts to assist municipalities and banks to structure credit for local government and to expand domestic capital markets (these efforts were conducted under a number of projects, including projects focused on the banking sector and capital markets development and not local government). For example, under a project designed to assist banking sector and capital markets development in Poland (First Washington Associates, Ltd. Bank System Development Project in Poland), the first publicly traded municipal bond was issued with USAID support. Under the PADCO, Inc. project the Gmina (municipal) Financial Analysis Model (GFAM) was introduced and served as a set of analytical tools to assess municipal creditworthiness for debt financing and was used by a number of municipalities to access bank financing. Municipal credit began to expand from PLN 132 million in 1993, reaching PLN 1.4 billion in 1997. Given Polish municipal officials early reluctance to incur debt, the efforts of USAID can be cited as a major element in changing attitudes and access to municipal credit. Information dissemination was a key strategy of USAID to convert the experiences of pilot projects into practical materials and information that could be used by the many non-partner municipalities. USAID projects produced numerous manuals that were distributed to municipalities and professionals, e.g., under the PADCO, Inc. project, 1,000 copies of a manual on municipal rent setting methodologies was sold to municipalities. Training curricula for municipal public administration was institutionalized in universities, technical schools and NGO training institutes, e.g., in the Lublin University School of Business introduced a curriculum based on USAID local government management techniques on a fee-paying basis. Numerous articles on pilot projects were published in the media and one local publisher, Municipium, began to publish and sell manuals produced under USAID local government projects. In 1997, USAID responded to the devastating floods in southern Poland by expanding several projects to assist with flood relief efforts, including the Urban Institute Consortium, Cooperation Fund and CHF projects. In 1996, USAID initiated the Urban Institute Consortium Pilot Local Government Partnership Program (Pilot LGPP), which was designed to build on the multiple technical assistance, training, information dissemination and local capacity building efforts conducted under previous and then current projects. The more extensive LGPP, planned for a 1997 implementation, was to become the culmination of USAID assistance in local government and was to institutionalize the progress made under USAID. There was a protest filed challenging selection of the winning contractor and that delayed the LGPP until 1998. 3. USAID HOUSING SECTOR ASSISTANCE – 1994 THROUGH 1997 The primary housing sector initiative during this period was to increase mortgage production under the Mortgage Fund. USAID recognized that local developers lacked experience in housing development and initiated extensive technical assistance in support of the Mortgage Fund to developers under extensions of the PADCO, Inc. and CHF projects. One CHF project (in Zory) produced the first mortgages financed by the Mortgage Fund. In addition to focusing on the private sector, USAID strategy changes to focus on local government resulted in much of the housing policy assistance shifting to local government in rent reform and housing allowances, housing strategies and assistance with development of new housing, including a new moderate-income rental housing program, TBS or Social Housing. Other initiatives also supported improving the environment for housing development, such as land management (Geographic Information Systems and Land Management Information Systems), analysis of legal impediments to housing development (land titling procedures, foreclosure problems and the Statutory Lien Law) and infrastructure development planning to support new housing initiatives. The USAID housing sector strategy was also to promote a competitive, market-based housing finance system. In the 1994 – 1997 period, the PADCO, Inc. project provided substantial technical assistance to the State bank administering the Mortgage Fund (Bud-Bank) and private commercial banks entering the mortgage field. Technical assistance included, a) direct on-site technical assistance to banks, b) preparation of mortgage origination and servicing manuals, c) preparation and presentation of numerous training courses, including institutionalizing a mortgage curriculum in three bank technical schools, and d) through companion USAID projects, introducing a system of bank regulatory and supervision procedures in the NBP. As there was virtually no experience in commercial banks with construction and mortgage lending, USAID has been credited with modernizing bank construction/mortgage origination and servicing systems, with many of the procedures introduced by USAID adapted and institutionalized by most of the commercial banks offering mortgage finance.One observer even noted during an interview that USAID defined the construction loan in Poland, which had not been separated out as a distinct lending procedure previously, and even to changing the name of housing finance from "housing loans" to mortgages. This same bank official opened a cabinet in his office and pointed to a number of USAID reports and manuals he used in developing the bank’s mortgage program. USAID also promoted the Dual Index Mortgage (DIM) mortgage program, originally introduced by the World Bank in Poland, to facilitate mortgage lending in high inflation/high mortgage interest rate environments. Beginning in 1990, there were no private commercial banks offering market-rate mortgages and, by the end of 1997, there were 20 banks offering these mortgages. Commercial bank mortgage lending began to rapidly expand after the State bank subsidies were terminated in 1996. Pekao Bank underwrote the first market-rate mortgage denominated in Zlotys in 1995 outside the Mortgage Fund. (PAMBank had been offering U.S. dollar-denominated mortgages since 1993 and three banks participated in the Mortgage Fund). In 1996 there were 21,500 mortgages originated, totaling PLN 663 million and, in 1997, this expanded to 42,500 mortgages, totaling PLN 1.5 billion. Banks found the Mortgage Fund too difficult to access and the level of Mortgage Fund production remained at low levels during these years; only three banks remained active in the Mortgage Fund. In 1997, the GOP terminated further loans for the Mortgage Fund from the World Bank and European Union. Policy assistance to the Central Government continued under the PADCO, Inc. project (largely through Abt Associates, Urban Institute and a number of individual consultants). For example, under this policy assistance, USAID had major input into the 1997 Mortgage Law, the Condominium Law and newly introduced Mortgage Bank and contract savings legislation. Under projects directed toward assistance to the banking sector, USAID began assistance to the NBP to initiate an effective bank regulatory and supervisory system, which would instill public confidence in the banking sector and contribute to resource mobilization through deposits in banks; the substantial liquidity in the banking sector contributed to increased interest by banks in both mortgage and municipal lending. The only new USAID housing sector project commenced during this period was the Urban Institute Consortium project, the Poland Housing Finance Project, begun in October 1996 to address national housing policy and market issues and to provide technical assistance to Central Government agencies. One of the most effective assistance contributions of USAID in the housing sector was the Urban Institute Consortium report "Building on Progress: The Future of Housing Finance in Poland" and subsequent conference held in April 1997 under the Urban Institute Consortium project. The conference brought together representatives of Government, the banking sector and the media to consider housing issues and policy proposals. The report and conference were well-covered by the media, engendered heightened interest in housing finance nationwide and assisted many professionals in the housing sector to improve their understanding of the housing market and finance. Assistance to organizing professional associations in the real estate sector continued under National Association of Home Builders and EERPF projects. In 1994, the Polish Association of Home Builders was founded (an outgrowth of the APHBI) and EERPF assisted in the formation of six regional real estate broker associations and 7 regional valuer associations. Deriving from the regional associations, national associations were formed, i.e., Polish Real Estate Federation and Polish Federation of Valuers. In this period, EERPF introduced the U.S. Institute for Real Estate Management (IREM) curriculum to certify property managers. Assistance to professional associations encompassed many aspects, including institution building, training curricula for members, conferences and, of great significance, introduction of professional standards. For example, the EERPF held a conference in Krakow in 1994 that introduced professional standards and practices for property valuers. This was followed by preparation of a manual in 1995 on professional standards for property valuers and training sessions. Prior to USAID involvement, there had been no property valuation system in Poland. Now the Anglo-American system of property valuation has become accepted practice in Poland. The Act on Real Estate Management recognizes property valuers meeting licensing standards introduced by USAID. USAID assistance directed toward the Polish Banks Association (PBA), under banking sector projects, had the also heightened interest in the PBA to consider housing finance issues during this period. PBA officials credit a USAID/Warsaw senior advisor with being the driving force for the formation of the Housing Finance Committee, which was established in 1997. The RHUDO director in USAID/Warsaw received a national honor from the GOP in 1994 for contributions to the housing sector. This honor was in recognition of USAID’s role in the housing sector.  4. USAID NGO AND PRIVATE SECTOR DEVELOPMENT ASSISTANCE – 1994 THROUGH 1997 USAID strategy shift from Central Government during this period included a new emphasis on the NGO and private sectors to institutionalize reform. Under USAID previously existing projects, PADCO, Inc. and CHF, there was an increased emphasis given to assisting the private sector to assume an increasing role in housing production. This included extensive assistance to private developers and banks. They also included components directed toward forming or expanding consulting firms to disseminate techniques introduced under USAID. The RTI project fostered the establishment of a consulting firm (LEM S.C.) founded by professionals working under the project. The PADCO, Inc. project led to the formation of several housing and real estate consulting firms by professionals working under the project, e.g., REAS Sp.z o.o. and URBECON. By 1996, the CHF project had established ten private sector local housing agencies. USAID began three new projects directed at the private sector and NGOs. The DAI project started in 1996 and had a major component designed to strengthen the four major local government associations in their role as policy advocates and professional development agencies. This project introduced the Local Self-Government Analysis System (SAS) to be conducted by the associations and included a variety of data-collection and analysis mechanisms intended to improve local budgeting and management and to provide information to support policy advocacy agendas. The Academy for Educational Development (AED) project, Democracy Network Project Poland, started in 1995 and was completed in 1997, and was designed to assist community-based organizations and NGOs to promote policy advocacy and to train local government officials in community participation. The Cooperation Fund project, started in 1995 and concluded in 1998, was designed to disseminate information on USAID-introduced techniques on local government and provide technical assistance to local government on institutionalizing these management tools. Information dissemination continued as a USAID priority. All projects contained information dissemination components. The Cooperation Fund project was primarily established to expand information dissemination from the collective experiences of USAID projects in local government. There was an expansion of efforts to institutionalize USAID-introduced local government and mortgage lending techniques in universities, technical schools and NGO training institutes. For example, the DAI project assisted three universities (Krakow Academy of Economics, the Szczecin School of Public Administration and Marie Currie Sklodowska University in Lublin) to institutionalize local government training programs in public finance, service delivery, economic development and personnel management. The Cooperation Fund project included developing a local government education program in the Budget Research Center in Krakow and supporting systematic dissemination of these technical training skills to educational institutes throughout Poland and to consulting firms. Citizen participation continued as a USAID priority focus. The AED project was specifically designed to promote citizen participation. Most USAID projects expanded citizen participation components in pilot municipalities, achieving some impressive demonstrations in effective community participation, such as the resident/city partnership in Lublin for community revitalization described above. Some municipalities embraced citizen participation and institutionalized it, others merely completed their obligations under the projects and did not integrate it into municipal planning and service delivery. USAID continued its emphasis on forming and strengthening associations to represent local government and the real estate sector. Advances during this period were discussed above under local government and housing assistance programs. Positive results from the assistance to trade associations was also well-received by Government, which has institutionalized association involvement in policy-related committees at the national level, so this intervention had particular benefit for Poland.   C. USAID ASSISTANCE PROGRAM – 1998 THROUGH 2000 The period 1998 – 2000 is when the USAID strategy was to consolidate advances promoted in the earlier years and to expand assistance to Central Government for policy development. It is also marked by the impending conclusion of the USAID Mission in Poland in 2000 and the desire to leave a legacy of accomplishment. 1. BACKGROUND a. In October 1997, a post-Solidarity government was elected. Beginning in 1998, a renewed effort at reform began and USAID devoted resources to support this effort. b. Macro-economic conditions continued to stabilize or improve in 1998 and 1999. Inflation declined to 12% in 1998 and to 9% in 1999. GDP growth continued, but at a lower level than previous three years, e.g., achieving positive growth of 4.8% in 1998. Similarly, positive wage growth continued, albeit at lower levels than in the previous three years, achieving a 5% increase in 1998. Interest rates remained high in comparison to interest rates in Western Europe and the U.S., with mortgage interest rates in 1999 ranging between 16.4% and 17.35%. c. Households begin to access more credit for consumer items and this changing attitude toward debt has increased demand for mortgage finance. By the end of 1998, more than 73,000 mortgages were originated, amounting to PLN 2.9 billion in mortgage funding. In the first half of 1999, 96,000 mortgages were originated, amounting to over PLN 3.9 billion. Mortgage lending for just the first half of 1999 represents an almost eight-fold increase in mortgage funding over the entire year 1996. d. Housing completions gradually begin to expand, but only reaches about 77,000 new units by 1997. The private sector continues to expand its role in housing production. New Government moderate-income rental subsidy program proves popular. Further analysis under a USAID project reveals that about one-third of housing units in the pipeline (started but not officially completed) are occupied and amount to over 200,000 units, which considerably adjusts numbers estimating the housing gap. e. Contract savings and mortgage bank legislation are enacted and create new housing finance mechanisms. The new finance systems compete with commercial bank mortgage financing. f. The third round of local elections take place in 1998. Local government is becoming more political, which has implications for some municipalities not continuing reforms begun under previous local administrations. Elementary education dominates local government budgets and leaves less flexibility to undertake other initiatives. g. A new tier of local government is adopted, powiets, which are analogous to U.S. counties, and commence operations in 1999. h. Capital markets expand. A new Over-The-Counter market emerges with USAID assistance, which will facilitate municipal bond public offerings . USAID also provides assistance for introducing private pension funds, which, at present, have restrictions on direct housing and municipal finance, but have significant future potential in these sectors. 2. USAID LOCAL GOVERNMENT ASSISTANCE – 1998 THROUGH 2000 USAID strategy during this period focuses on local government, with the only new projects in this period being the LGPP and the RTI Increasing Access To Municipal Capital Project. By 1998, most of the previous projects had been completed in local government. The LGPP is to consolidate advances accomplished under previous projects, focus on extensive pilot projects and information dissemination to expand local government access to the USAID-promoted techniques and promote sustainable technical resources in private sector consulting firms and education institutions to continue to provide assistance to local government after the close-out of the USAID Mission in Poland. The RTI project addresses improving access to municipal credit for municipalities, assistance to Central Government on a legislative/regulatory framework to expand municipal credit, e.g., introducing the concept of revenue bonds, and to assist Central Government with addressing water pricing policies and standards. The President of the State Office for Housing and Urban Development was particularly laudatory toward the RTI assistance on water policy and standards development and indicated that it could not have been accomplished without USAID assistance. Other short-term consultancies are still being undertaken to assist Central Government, such as conceptual design of a small municipal bond guarantee program. The DAI project was extended until the end of 1999 to provide additional assistance to the Ministry of Finance on a range of important policy and implementation issues, e.g., a) design and implementation of further decentralization, such as the new Powiet tier of local government, b) assistance to the Government’s Regional Auditing Agencies (RIO) to develop an automated data-collection system and c) assistance with planning for a new local government financing system, including consideration of introducing an ad valorem property tax system. The DAI project began to work intensively with the Ministry of National Education (MEN) in 1999 to design a new, unified system for the distribution of Central Government transfers to local government, including redesign of the formulas by which the education subsidy is allocated to local governments. This is a particularly vital assistance effort, as education budgets account for over 45% of larger municipality total annual expenditures and over 50% of medium to small municipality expenditures. Interviews with Ministry of Finance and State Office of Housing and Urban Development officials indicated that the USAID assistance was extremely vital to their efforts. The RTI and DAI projects continue to provide assistance and will conclude in 2000. The LGPP will be the one remaining major project in local government and it is scheduled to be completed in 2001. In 1999, USAID introduced the Development Credit Authority (DCA), a USAID loan guarantee program (providing a 50% U.S. Government guarantee on loans issued by commercial banks) that will leverage $300,000 of USAID budget authority to provide the equivalent of $10 million in domestic loans for environmental improvement projects, mainly to be borrowed by local governments. 3. USAID HOUSING SECTOR ASSISTANCE – 1998 THROUGH 2000 USAID re-focused its major housing sector activities on providing assistance to Central Government in this period and preparing for close-out of the USAID Mission in Poland. The PADCO, Inc. project ended in 1997 and was not replaced with a major new housing initiative in support of the Mortgage Fund. The Mortgage Fund continues to operate at a low level of activity and is to be transferred to BGK, the State bank responsible for administering national housing programs. The BGK will maintain the Mortgage Fund as a possible future resource to create a Fannie Mae-type secondary mortgage market facility if such a facility is needed. The CHF project expanded to establish 25 additional pilot projects and local housing agencies, achieving a total of 35 agencies nationwide, producing over 1,650 housing units by 1999(production continues without USAID assistance, with over 400 additional units completed or in the pipeline) and producing a successor foundation to continue developmental and information dissemination activities after completion of the USAID project. The mortgage finance industry is rapidly expanding, with about 30 banks providing mortgages by the end of 1999 and mortgage volume escalating rapidly, e.g., mortgage finance for the first half of 1999 was an eight-fold increase over mortgage funding in all of 1996. USAID-introduced construction loan and mortgage origination techniques have become generally-accepted practice in the banking sector. Mortgage banks were being formed, with two institutions receiving licenses and another five institutions with applications pending. A Polish contract savings program was implemented, incorporating recommendations provided under USAID projects; USAID analyses on proposed contract savings legislation (particularly on the proposed Kasy Budowlane legislation) led to significant revisions to the final program. USAID also introduced new concepts for future consideration by the banking sector and Government in Poland, e.g., mortgage default insurance. The DIM mortgage financing instrument has been adapted by a number of banks and is one of the major forms of mortgage lending in Poland. PAMBank was sold to the U.S. company GE Capital, which renamed it GE Mortgage Bank and continues to provide mortgage financing. The Urban Institute Consortium (UI) project became the main focal point of USAID assistance to the housing sector. Beginning with the report and conference "Building on Progress" in 1997, the UI project undertook very significant assistance on multiple housing policy issues until the end of 1999. UI consultants worked with the State Office for Housing and Urban Development and the NBP. Policy areas included: a) regulation and supervision of mortgage finance, b) analysis of mortgage markets, c) Polish system of mortgage banks and mortgage bonds, d) contract savings systems analysis, d) mortgage default insurance, e) continued rent reform and improving housing allowance program, f) assistance in institutionalizing property valuation standards and g) housing subsidy and income tax reform analysis and recommendations on restructuring subsidies and revisions to the personal income tax system. The resulting policy assistance contributed substantially to new legislative proposals and regulatory systems. The NBP was also assisted by other USAID projects (Barents Group, LLC and First Washington Associates, Ltd. projects) to establish a regulatory framework for the banking sector, which has become a model for CEE countries. The value of this policy assistance was well-appreciated by Government officials, as described above in the Background and Highlights sections. The TBS program, which provides subsidies to develop new middle-income rental housing, and which was assisted by USAID in its development and promotion under the PADCO, Inc. and CHF projects, has proven to be very popular, with 8,500 housing units completed by the end of 1999 and another 6,500 units in the pipeline. BGK, the program administrator, is now exploring approaches to entering the capital markets to raise additional financing for this program. By the end of 1999, most USAID housing sector activities were completed, except for final report and several technical reports preparation, which continued on into 2000. 4. USAID NGO AND PRIVATE SECTOR DEVELOPMENT ASSISTANCE – 1998 THROUGH 2000 Most of the projects assisting NGOs and the private sector were completed prior to, or in, 1998, except for the DAI project, which continued through 1999 assisting local government associations, and the on-going LGPP. USAID was winding down its program in Poland in anticipation of closing the Mission in 2000. The fruits of USAID assistance were clearly evident as NGO and private sector technical capacity to continue assistance to local governments and the housing sector have demonstrated capacity to be sustainable after close-out of the USAID Mission. For example: a) the four local government associations had been significantly strengthened and the SAS (local government data-collection system) was continuing and expanding, b) real estate trade associations formed with USAID assistance were expanding membership and had become self-sustaining, e.g., Polish Real Estate Federation, Polish Valuers Association, Polish Association of Home Builders and the Association of Polish Property Managers (including a IREM Polish Chapter of Certified Property Managers), and c) the PBA had institutionalized a Housing Finance Committee and is considering initiation of a municipal finance committee. Private sector consulting firms were engaged in providing technical assistance to local governments and the housing sector, e.g., REAS Sp. o.o. provided assistance to 40 TBS project sponsors since forming after the PADCO, Inc. project, URBECON assists local governments with housing strategies and LEM S.C. provides assistance to local governments in infrastructure development in Poland and now in the CEE countries. A number of universities, technical schools and NGO training institutes continue to provide education curricula and seminars on a fee-basis on USAID-introduced techniques for local government and banking sector professionals and officials. The Polish-American Freedom Foundation was an outgrowth of the Polish-American Enterprise Foundation and will eventually be endowed with an estimated $180 million to continue programs in Poland to promote civil society. The Foundation’s program is still in preparation, however, this prospectively will provide a continuing source of funding for some USAID-introduced initiatives in local government and the housing sector. The Poland-America-Ukraine Cooperation Initiative was created in 1999 to utilize the advances accomplished in Poland and the expertise of Polish professionals and government officials to assist the Ukraine to implement reforms and will receive $10 million in USAID financing over five years; USAID-assisted Polish private sector consulting firms, NGOs and government agencies are likely candidates to provide assistance under this program. USAID has centrally-funded projects which will continue to provide selective assistance to Poland and will continue to meet particularly effective assistance needs. Back to Top   LESSONS LEARNED There are a number of lessons learned, or confirmed, from the USAID assistance program to Poland in local government and the housing sector. Major lessons learned include: 1. DEMAND-DRIVEN TECHNICAL ASSISTANCE IS MOST EFFECTIVE USAID defined its program in the housing sector and local government based on assessment missions to Poland and expressed requests from officials there. This proved very effective in gaining partners for the conduct of pilot projects and for the introduction of concepts, techniques and policy recommendations. When USAID departed from this strategy, there was some resistance to the assistance provided, e.g., the one area where USAID assistance received some negative comments during interviews was in the requirement for adding citizen participation components in local government projects.On the other hand, Central Government officials were extremely complimentary toward advisors responding to their Government-defined policy agendas. 2. USAID FUNDING SHOULD BUILD GRADUALLY AND PROVIDE FOR SUSTAINABILITY AT COMPLETION The massive USAID assistance effort during the first five years in Poland, at times, was too extensive to be absorbed by counterparts and consultants, who both went through learning curves before being able to well-define assistance needs and fully utilize assistance provided. Over the last five years, USAID funding began to gradually decrease, just at the time when counterparts had established positive working relationships with U.S. and Polish advisors under USAID projects and assistance needs began to expand to accomplish work begun earlier. Although the Poles have made impressive strides in the transition, many interviewees expressed the opinion that in the next few years USAID assistance would be very beneficial to fully implement policies and reforms. A number of NGOs assisted will have to curtail valuable programs without further assistance. The Polish-American Freedom Foundation is an excellent example of how USAID assistance can be structured to continue assistance on a productive scale after the formal USAID Mission has closed and this long-term funding strategy could be applied in a number of assistance areas, if USAID had been given the opportunity by Congress to plan allocation of resources over the long-term and be permitted to establish endowment-type structures to provide for supervised activities after the close of the formal program. 3. LONG-TERM ADVISORS AND CONTINUITY OF SHORT-TERM ADVISORS ARE VITAL TO SUCCESSFUL ASSISTANCE EFFORTS There is a learning curve consultants need to overcome before technical assistance can be truly effective. Further, for counterparts to embrace technical assistance, they need to gain confidence in the advisors offering such assistance. USAID was fortunate to have committed advisors who were involved over many years with the Poland program. Many interviewees expressed their appreciation for the trust and confidence built up working with these long-term and short-term advisors who provided extended, periodic assistance over much of the ten years. The relationships created were often as important as the technical advice, because counterparts were more receptive to the advice from these long-term associates. Short-term consultants, who only provided one-time assistance, were characterized in somewhat disparaging terms, called the Marriott Brigade, and were viewed by counterparts as being less effective. There were exceptions to this general observation, as some short-term consultants did make valuable contributions, especially when teamed with long-term advisors, but, generally, long-term advisors and continuing short-term advisors were regarded much more highly by Polish counterparts. 4. GRADUAL TRANSFER OF TECHNICAL ASSISTANCE RESPONSIBILTIES TO LOCAL PROVIDERS BUILDS INSTITUTIONAL CAPACITY AND SUSTAINABILITY USAID focused on involving Polish professionals in projects as technical assistance providers and on building local institutional capacity in private consulting firms and educational and training institutions. This strategy was well-appreciated by Polish counterparts and built capacity in Poland to sustain USAID-introduced concepts and techniques after close-out of the formal USAID program in Poland. The concentration on forming and/or strengthening Polish associations was another effective strategy in institutionalizing many USAID initiatives. 5. U.S. MODELS REQUIRE ADAPTATION IN ASSISTED COUNTRIES AND COMPARATIVE MODELS FROM OTHER NATIONS ARE VALUABLE FOR IDENTIFYING THE MOST APPROPRIATE SOLUTIONS FOR ASSISTED COUNTRIES U.S. concepts, practices and techniques introduced into Poland were adapted over time to fit the Polish context. This process confirmed the need to adapt the U.S. experience for productive absorption in Poland. This may appear obvious on the surface, however, the effort to introduce U.S. systems into Poland did, at times, encounter difficulties until they could be transformed to suit Polish practices. In addition, some consultants (in particular, the Urban Institute Consortium) provided comparative models from other European and international experience, in addition to the U.S. experience, and this process was especially well-received by Poles, who could then determine which concepts and systems best addressed their needs and society. 6. MACRO-ECONOMIC AND POLITICAL CONDITIONS SIGNIFICANTLY IMPACT THE PACE OF REFORMS The adverse macro-economic conditions prevailing in the early 1990s, and the Polish societal aversion toward debt, undermined successful implementation of the Mortgage Fund. Macro-economic conditions also made development of new housing exceedingly difficult. USAID’s initial housing sector strategy was significantly impacted by macro-economic conditions, and only after conditions began to improve, and USAID focused its strategy on strengthening the banking sector and private sector development and to remove impediments to housing development, did the USAID strategy become truly effective. Local government elections impacted a number of USAID pilot projects, as some new administrations demonstrated less support for projects or even sought to reject techniques and practices introduced under USAID projects. The election of a post-Communist government in 1993 had significant impact on USAID’s program strategy. These examples represent the lesson learned that macro-economic and political conditions impact the pace of reforms and the effectiveness of technical assistance. Back to Top   CONCLUSIONS Initiating a massive program of technical assistance to a country where USAID had no prior experience is an awesome task, especially under the political imperatives and time pressures imposed by the sudden emergence of CEE countries seeking to create democratic institutions and market-based economies deriving from forty-five years of Communist rule. There was no prior experience with "second world" nations, where substantial expertise and capability existed and which had traditions dating back centuries. There was no time to undertake the usual program planning, no time to experiment with approaches; USAID had to have a full program up-and-running in less than two years. USAID accomplished this challenge. There was a learning curve that was overcome during the conduct of extensive projects and, by 2000, it was clear that USAID had met the objectives setout by the U.S. Congress in late 1989 and delivered an extensive and effective assistance program in Poland that was both appreciated by the Poles and will have continued positive impacts well beyond the completion of the USAID program. Back to Top

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