Chapter 2. Monitoring and evaluation of recommendations

Summary

This recommendation concerns the quality of education and the participation of students in Morelos. The OECD is concerned 1) that rural schools have more difficulties catching-up in terms of school quality and 2) that students continue to drop out of high school due to lack of financial means and/or lack of structured support to improve their performance. For these reasons, the set of sub-recommendations addresses the need to systematically collect data about students, to provide more structured assistance to low-performing students and to better define the conditions to access scholarships.

The Secretary for Education made limited progress in following the recommendations. For low-performing students, Morelos continues to adopt the same policies than before, whereas the OECD had recommended investing in more well-structured programmes. Nonetheless, the ongoing programmes to support lagging rural and Indigenous schools may improve school quality. The structure and objectives of the Beca Salario programme have not been altered. Yet, a diagnostic study is underway to assess the effectiveness of the programme, which may contribute to evidence-based policy change. The software to centralise data collection about students was designed but awaits implementation.

Detailed analysis

It is important that data is systematically collected in schools, in order to evaluate student performance and the education policies in place (sub-recommendation 1). Such system implies that all schools collect the same type of data, following similar categories and classifications, and that data can be easily shared with the Ministry for Education. For these purposes, data has to be anonymised, electronically processed and harmonised. Electronic systems can be fed remotely and regularly. Data collection is the first step to enable policy analysis and inform policy change.

For these reasons, the OECD had recommended the development of software to collect and manage information on schools and students, for all educational levels. The current system in Morelos is not systematised and standardised. Since 2016, Morelos has an electronic system to follow and evaluate student performance in basic education. Schools use this information to identify low-performing outcomes and offer them tutoring and counselling programmes to improve learning outcomes. It was adopted by half of schools as of December 2017. Completion by other schools is expected to follow when activities return to normal after the earthquake. High schools1 also collect information and evaluate student performance manually, but they do so in an independent manner.

Following the OECD recommendation, the Ministry for Education designed a proposal of integrated software and presented it before the state trust for funds in February 2018. This software will centralise and harmonise information, making it more accessible and useful than it is with the current system, which is fragmented. The software could generate statistics on enrolment rates, abandonment rates, graduation rates, student performance, scholarship beneficiaries and teaching staff. A subsequent step would be to apply the software in schools, to feed the data. The state should consider beforehand the need to offer training to teaching staff and school administration and to provide the necessary equipment to all schools.

The software would comprise information about students from primary education to high school education. As discussed in the Territorial Review, it is important that students have a dossier that follows them throughout their educational path. The dossier should be associated with a single number per student, in order to ensure that information is not lost if students move schools. The example of Netherlands, which uses a single number per student, the Personal Identification Number, is useful (OECD, 2017, p. 102[1]). With such dossier, the state could better understand how students shift from one level to another, for instance, if enrolment rates in high school are lower than completion rates from elementary school of the previous year.

The Beca Salario is a universal cash-transfer programme whose aim is to increase school participation. The OECD had recommended a better definition of the target population, together with close monitoring of the programme (sub-recommendation 3). The State of Morelos did not alter the design of Beca Salario. Any student enrolled in a public institution is entitled to the benefit, regardless of socioeconomic status. This redistributive design may look at odds with the programme’s objective of assisting low-income students at higher risk of dropping out for financial reasons. In practice, however, students that attend public school in Morelos have a lower socioeconomic status than those who attend private institutions. In this sense, the logic of the programme may be working, which is to be verified by rigorous research.

The State of Morelos is carrying out an evaluation of the programme’s effectiveness. It is part of the Multiannual Evaluation Programme 2017-19, and it derives from an agreement signed between the State Commission for Evaluation (COEVAL) and an independent centre of co-operation on education (CEFRAL). It is based on quantitative and qualitative methods, with semi-structured interviews and focus groups, as well as SWOT analysis.

The results of the evaluation may influence the decision to alter the programme’s design. One possible change would be in the objective of the programme to universal education coverage at the upper secondary level. This clarification should be made in the official documents of the programme and any divulgation material.2 The state should continue monitoring students’ attendance, as set in the agreement with COEVAL (OECD, 2017, p. 111[1]).

Alternatively, the state could consider other forms of assistance to students, such as public transport passes or meal tickets. Considering that the amount offered in the Beca Salario programme amounts to two bus tickets and one meal per day, the state could provide passes and tickets right away, eliminating the need to implement and monitor a new programme. This option could be less bureaucratic but as effective in reducing drop-out rates in Morelos’ public schools.

Sub-recommendation 2 conveys a concern with school abandonment, which is one of the main challenges of the Mexican public education system, at all levels. This challenge is multi-dimensional: it refers to the quality of education and learning but also schools’ infrastructure, poverty, health and family support. This sub-recommendation addresses the first aspect, on the quality of education and learning. Better quality can be a factor that prevents abandonment. In this sense, identifying students who are under-performing and offering them specialised assistance may be an effective measure to reduce abandonment rates. Currently, there is no monitoring system in place to identify and follow such students. To do so, the State of Morelos would benefit from developing the software of school data mentioned in sub-recommendation 1. Socioeconomic factors may be addressed by the Beca Salario programme mentioned in sub-recommendation 3, or similar financial aid and scholarship programmes.

After the identification of students, the next step would be providing specialised assistance. Morelos has programmes to train and qualify teachers, which could help. In addition to that, the state has to consider a more specific approach, for instance by developing tutoring programmes, after-school classes, or small sessions for homework. Extra-curricular activities such as cultural visits can contribute to making students more engaged and enthusiastic. A parallel course of action is to invest in the link with the students’ families, which can provide support and close accompaniment.

Moreover, another policy option to aid these students is to invest in the zones where they students concentrate. The State of Morelos implements two federal programmes in this direction. One programme provides extra resources to schools located in such areas, for infrastructure works, acquisition of materials, or training courses (Programa Escuelas de Excelencia para Abatir el Rezago Educativo).3 The Programme for Educational Inclusion and Equity (PIEE) seeks to increase school participation of students belonging to marginalised groups – Indigenous, migrants and those with disabilities. The main actions supported by the programme are capacitation and training of teachers. The multi-dimensional character of the challenge of school abandonment requires more than trained teachers. School infrastructure, educational materials in Indigenous languages and psychological and financial assistance to Indigenous families have to be considered, too.

Concerning Indigenous students, the State Programme for Indigenous Development 2013-28 (PEDI) foresees objectives related to education. One is to improve bilingual education in the state, which is related to the promotion of culture, and another one is to increase the quality of education in Indigenous schools. Yet, this programme does not reflect the concern with school abandonment. The indicator of school abandonment proposed in the national Special Programme for Indigenous Peoples 2014-18 is not reflected in the PEDI of Morelos, for instance.4 The PEDI does not contain any reference to the specific challenge of abandonment either.

In all, addressing the challenge of students and schools that are lagging behind is a complex task. Morelos has basic programmes that can provide extra resources to improve infrastructure and train teachers. Beyond that, data collection efforts need to be improved, and specific programmes of tutoring and counselling should be developed. The link with families should be fostered, and the special needs of marginalised groups need to be considered in a more holistic perspective.

Summary

This recommendation advises that, beyond increasing school participation, the State of Morelos should improve the responsiveness of educational training to the needs of the economy. The Territorial Review addresses how to solidify the vocational training system in tertiary and secondary education levels. The key aspects mentioned are involving more the private sector in the design of programmes, investing in effective counselling and job placement services and promoting entrepreneurial skills from the early ages.

The State of Morelos has progressed in this recommendation. The main changes are the creation of apprenticeship courses on tourism and gastronomy and the creation of youth entrepreneurship centre, together with the organisation of youth business innovation camps. In other areas, however, the situation remained the same, such as support to entrepreneurship for the self-employed and validation of previous learning. Adopting a monitoring and evaluation framework of labour market training programmes is another complex change that could not be advanced.

Detailed analysis

In the second half of 2016, apprenticeship-style education was implemented in the courses of gastronomy and tourism of the Technological University of the South of the State of Morelos (UTSEM). Given that the technical courses teach very practical skills, and that the goal of students is to enter this specific job market of hotels and restaurants, the apprenticeship system is well-suited.

The different stakeholders benefit from participating in this system. For UTSEM, the training offered is hands-on and connected to the needs of the market, which increases the employability of students and the level of satisfaction with the courses offered. Companies can properly train future employees on their production processes and business model. Students can practice their abilities and learn from experience. They are remunerated, which is an important factor to diminish drop-out rates in tertiary education. With companies and UTSEM being partners, a better match between skills taught at universities and those needed by companies is expected to take place in the sectors of tourism and gastronomy.

This system could be expanded to other sectors. UTSEM is considering the agricultural sector, by partnering up with the State Ministry for Agricultural Development (SEDAGRO). The state should continue dialogue with high education institutions that offer vocational education training (VET). Private VET institutions can use their expertise to help public institutions design programmes, and by doing so identify gaps in terms of the educational offer, to avoid duplication.

High-skill sectors such as ICT, renewable energy and automobile industry merit further consideration. The state could carry out an evaluation of the skills needed by employers in these strategic sectors. New training courses could then be designed, together with representatives of these business sectors. Moreover, the state could play the intermediary role of connecting students looking for internships with companies. The offer of high-skilled employees would support the development of high-skills sectors, generating a virtuous circle of human capital. This could help Morelos move out of the present low skills equilibrium.

On this matter, the involvement of the Council for Human Capital is advisable. The Council is conducting an initial diagnostic of the tertiary education offer and labour market needs in what concerns skills. The Council should also get involved in forecasting skills for the future. They can partner with higher education institutions to conduct such analyses. The aim is to have a roadmap of which skills are important for the State of Morelos in the long-run, and how to promote their acquisition.

The promotion of entrepreneurial skills among the youth is progressing. Albeit integration into the school curricula has proven to be difficult, instruments that do not require such structural change are being promoted. In 2017, the State of Morelos created a youth entrepreneurship centre (Casa del Emprendedor Poder Joven Morelos). The centre offers capacitation on entrepreneurial skills, technical assistance to create SMEs, and physical space to develop activities and meet people. Entrepreneurial skills can range from collaborative problem-solving to presentation skills and product development.

Secondly, these non-cognitive social and emotional skills can be taught in different types of activities, such as collective projects, arts ateliers, business camps, sciences fairs, and many others. One state action to be highlighted is the business innovation camp for youth Campamento Desafío Innova, organised together with Scotiabank and JA Mexico.5 Entrepreneurial skills can also be integrated into existing classes, as a teaching method. To illustrate, arts ateliers stimulate creativity, and collective projects foster collaboration and collective problem-solving. For older students, short internship programmes in companies could be interesting, as it occurs in France. After-school programmes tailored to banking and business accounting could be another option.6

In other topics, there is little observable change. The National Employment Service (SNE) offers different training courses and certificates to support labour insertion of the self-employed (OECD, 2017, p. 117[1]). The SNE continues to invest in the modality of capacitation for self-employment of the programme Bécate. The OECD emphasised in the Territorial Review the need to expand the capacitation offer, ranging from basic computer skills to advanced marketing strategy and online commerce. One strategy that may support the transition from informality is to ask entrepreneurs participating in capacitation of business development to formalise their activities.

Another issue in which progress was hard to assess is skills certification. The OECD had recommended that skills obtained in the informal sector could be revalidated as credit courses in technical education and certified. The regional centres of certification and evaluation of skills in Morelos, accredited by the national council CONOCER, could invest more strongly in this line of action.7 Obtaining certification from pre-acquired competencies is something that can support workers in transition to the formal sector. For instance, a carpenter could pass a test to validate carpentry skills, which would facilitate the acquisition of a technical degree certificate that would allow applying for jobs in the formal sector.

Lastly, the sub-recommendation on the monitoring framework stresses the importance of evidence-based policy-making. Improving the collection and use of data is the first step to improve policies. More precisely, the state should follow those who complete training and capacitation courses, to analyse the levels of job insertion after graduation. The SNE should monitor the Bécate programme more closely, as already suggested (OECD, 2017, p. 119[1]). The ICATMOR and the INEEA should also develop monitoring and evaluation frameworks to assess their capacitation, training and validation programmes. They could discuss methodologies and develop indicators in partnership with COEVAL.

Summary

This recommendation addresses the challenge of fostering an innovation system. More than generating patent applications and counting with high numbers of researchers, the State of Morelos needs to better connect innovation with the rest of the economy (OECD, 2017, p. 119[1]). This integration would mean that knowledge produced in universities can travel to the market and be used by companies, that companies have enough funds to invest in research, that the different sectors of the economy can incorporate innovation, even if non-technological and incremental, and that the skills of the workforce are put to the best uses.

The Ministry for Innovation, Sciences and Technology has made progress on this recommendation. The main area of progress was to improve the quality of business and legal advice given to companies, which was done by hiring new staff and by making an international agreement with a Dutch start-up incubator. The ministry has given continuity to programmes of seed money and has capacitated business owners and researchers on how to design joint innovative projects and apply for federal funds. Moving forward, the ministry should make efforts to institutionalise its network and facilitate direct connections between industry and academia. The ministry should also broaden its field of intervention beyond technological innovation, granted that resources and capacity to do so are provided. It should give more support for innovation to happen in organisational structures, production processes, human resource management, marketing strategies and other non-technological areas. Besides manufacturing, the ministry should foster innovation in firms in the services sector, too. There are different sets of policies that can be adopted by the ministry to progress further in this direction.

Detailed analysis

There has been progress in the legal and business advice offered to companies. For one, the Ministry for Innovation changed the professional profile of their staff in order to provide more structured and sound advice to companies. The advice may include product design, certification, branding, patenting, firm creation, accounting, follow-up during project execution, and linkage with research institutions. The ministry reported having routinely assisted around 300 companies and offered paid consultancy services to 10 companies since 2013. Secondly, the Ministry for Innovation signed, on behalf of the Government of Morelos, an agreement with the business incubator High Tech XL in Eindhoven, Netherlands. Within the terms of the agreement, the Dutch company assists start-ups from Morelos to launch new products, both by providing consultancy services and seed money. So far, three start-ups have been benefitted by the agreement. They are placed in a competitive position in the international market. More broadly, this agreement can help to place the State of Morelos in the international map of start-up innovation.

The Ministry for Innovation has not promoted changes in other areas since the last OECD evaluation. It has however given continuity to projects and programmes that go in the right direction, notably regarding access to seed money and links between industry and academia. The two main programmes for seed money are the InnovaTIC and the TecnoCemiTT. Through InnovaTIC, the ministry selects promising projects and meets with investing companies on their behalf. In total, these programmes have assisted in the creation of 32 companies since 2013. The ministry also provides collateral for credit to start-ups via the Programme Primer Impulso and proposes candidates for public funding through Fondo Morelos. Through TecnoCemiTT, the ministry provides seed money and capacitation for start-up companies to develop innovative products and launch them in the market. TecnoCemiTT, as a business incubator, has supported 5 companies so far.8

The link between industry and academia is being fostered by different strategies. The ministry had already signed several collaboration agreements with public research institutions, to foster collaborations with companies. They also resort to their vast database of researchers to match local job offers and hence promote the local job market. Furthermore, they offer capacitation on how to elaborate innovation projects to compete for federal funds. In 2017 they capacitated 59 business owners and 177 researchers to design joint innovation projects. As a result of this capacitation, in the 2018 call for projects of PEI CONACYT, 36 out of the 58 projects presented by Morelos’ businesses and research institutions were approved and will receive funding from the federal government.9 The approval rate went from 55% in 2016 to 62% in 2017 and 2018.

To continue making progress, two important factors can shape the policies of the Ministry for Innovation. One factor is the institutionalisation of the network cultivated by the ministry, to ensure continuity beyond electoral cycles. The other factor refers to the very notion of innovation being promoted by the ministry. By expanding the definition of how innovation can take place, they can diversify projects and support more firms.

The process of linking firms and research institutions has formed a vast network of contacts. Yet this process is dependent on interpersonal relations of the ministry’s current staff, which raises concerns about continuity in subsequent administrations. The ministry should invest in a digital platform to connect business needs and research profiles or start a newsletter or mailing list service. The platform could have a section with the curricula and contact information of researchers, and another section for business owners to post job offers or manifest interest in developing partnerships. Researches could access the area and read offers, in addition to receiving e-mails with specific offers.

The activities of the Ministry for Innovation, Sciences and Technology have focussed on technological innovation in the tradable sector. This can be justified by the mission of the ministry, which is to promote these three areas, as their title says. Moreover, it is true that regions with a higher share of the economic activity in the tradable sector are more productive, innovate more, have higher wages and grow faster (OECD, 2016[6]). Still, the ministry needs to expand its view of innovation, to support non-tradable sectors such as services, and to include forms of innovation that are not technological.

It is important to understand and measure innovation in the service sector. It can occur by generating new technologies or incorporating technologies that are already used in the manufacturing sector. For example, the adoption of information and communication technologies in service activities can make services more innovative and productive. Traditional mechanisms used in the manufacturing sector could also work here, among them promoting entrepreneurship, investing in research and development, offering specific assistance to SMEs and linking research centres with firms (Box 2.1).

Non-technological, incremental changes can also foster innovation in the service sector, for instance in the organisational structure, human resources management, marketing strategies, service customisation or problem-solving approaches. There are a number of ways to do so, such as by better matching workers to functions or by better organising the service delivery process. Counselling, capacitation, access to seed money, innovation vouchers and other programmes can support entrepreneurship. Leadership centres, workplace development agencies and awards for workplace innovation can support human resources management (Box 2.1). The state ministry would need broader capacity and resources in order to implement similar policies.

To conclude, moving forward the Ministry of Innovation could: support the institutionalisation of networks via the creation of chambers and committees; design a digital platform to allow direct contact between the offer and demand members of the innovation ecosystem; turn the local service sectors (tourism and commerce) into technology demanding sectors; and enhance the linkage between local tech companies and big Mexican companies via risk-sharing mechanisms, as InnovaTIC is doing. In addition, the ministry could experiment with policies to support innovation in the service sector through organisational and management processes which are not necessarily technological. The ministry would benefit from working together with the Human Capital Council to forecast skills for the future.

Summary

This recommendation concerns the structure and activities of the Human Capital Council (HCC). First of its kind in Mexico, the council is a regional body created under the leadership of the Secretary for Economy to address issues of human capital development and innovation with a cross-sectoral lens. It gathers representatives of different ministries, state agencies, academia, business and civil society. The Council is expected to act as a broker between the state and municipalities. It should also connect business interests with labour market agencies, technological universities and schools. The Council is in a privileged position to assess the current situation, forecast skills of the future, form partnerships and support joint programmes.

The Human Capital Council has made notable progress since the last evaluation. The Council better defined its structure, mission and objectives. The Council co-ordinator has a leading role in organising activities and reaching out to partners. The sectorial groups were redefined according to the strategic sectors of Morelos’ economy. The groups of Education and Research and Innovation were made transversal. The Council invited the employment agencies SNE and ICATMOR and businessmen from pharmaceutics and automotive sectors to join the discussions. To track progress in the short-term, the Council adopted nine indicators, as set in the strategic plans of the different groups. In all, a good organisational structure has been set, which should enable the Council to operate successfully. It is important that the HCC uses this formal structure as a catapult to reach more tangible results. The structure should not be too rigid as to prevent the Council from acting organically and cross-fertilising ideas. In the long run, the Council should foresee the need for monitoring and evaluation as well as look for independent funding sources.

Detailed analysis

The Council better defined its mission and structure. The initial structure (five working groups and nine sectorial technical groups) segmented activity into silos. Following the OECD advice (2017, p. 149[1]), the Council strategically reselected sectors, with basis on key economic areas for the state economy. The Council is now divided into 6 sectorial technical groups: automotive, renewable energy, tourism, agro-industry, construction and pharmaceutics. Each sectoral group has a strategic plan of action, with two or three short-term objectives, and indicators to monitor progress in meeting those objectives.

Another action taken to promote cross-fertilisation of activities was to design the group of Education as transversal. This means that the strategy of the Education group has to touch upon the needs of all other groups and that the other groups for their part have to engage in promoting the goals of the sector of education, too. The logic is that education policies should be more responsive to the needs of the industry, whereas employers should be more involved in such policies, too.

Following the model of the education group, the group of Research and Innovation was also reclassified as transversal. Indeed, research and Innovation is not a sector per se but a modus operandis that can inform the activities of all sectors. Innovation can and should take place in the agroindustry, the automotive, the renewable energy, the pharmaceutical and the tourism sectors, as innovation lies at the heart of competitiveness and productivity growth. All of these sectors strive for new products, or new applications for existing products, as well as better organisational processes and improved production systems.

An organisational change yet to be promoted is to involve the Ministry for Innovation, Science and Technology more closely in the activities of the Council. Given the importance of innovation for all economic areas, a representative of this ministry should partner up with the co-ordinators of each sectorial group. As a consequence, the Council could better align the projects with state-led policies, and good practices carried out by the ministry could be replicated in other sectors of the economy.

With the creation of the sectoral councils of Pharmaceutical, Automotive and Construction, more private-sector representatives have joined the council. The current composition of each of these groups is around 7-9 businessmen, 1 union representative, 1-2 state civil servants and 4-7 representatives of educational institutions. The increased participation of the private sector in these sectorial groups is welcomed. Still, the involvement of SMEs and start-ups remains under-developed. Representatives of small companies tend to be forward-driven and place-attached, hence motivated to engage in local projects.

The Council should strive for a more balanced composition of all sectorial groups, across type of activity, gender and geographical location. Private actors still have little involvement in the sectorial groups other than automotive, pharmaceutical and construction. Tertiary education institutions were more heavily involved than secondary and primary education ones (OECD, 2017, p. 147[1]). Tighter links with employment agencies, civil society and educational institutions of different levels are advisable. Sectorial groups should encourage women’s participation by asking institutions to send women as representatives. Regarding the geographical composition, the Council could have remote meetings, to facilitate the participation of stakeholders from small cities and rural areas. It was reported that some virtual meetings were already being conducted. The Council could also seize the momentum in which other meetings or events are taking place in Cuernavaca to hold meetings with actors from other parts of Morelos.

In all, the Council is well-structured and well-equipped to continue its activities. The leading role of the co-ordinator is welcomed. The Co-ordinator can reach out for business professionals to increase participation levels in the Council, as well as support for training and education projects that attend the needs of the market. As the Council expands, another co-ordinator may be necessary. This co-ordinator could assume a different strategic role, for instance, of liaising with municipalities and civil society.

The Council structure should enable it to operate organically. Structure should not mean rigidity; there should be enough room for flexibility and experimentation. The Council should strive to work organically across sectors, while also allowing each sectorial group to advance its own projects. Moving forward in this direction, the Council could: engage “front runners”, invest in mutual projects and secure resources.

Front-runners are decision-makers from companies, government and institutes that can assume responsibilities and lead projects in the Council. They can start new partnerships, bring in resources and enhance an overall climate of trust among stakeholders. As indicated in the Territorial Review, the Council need members that are engaged and that can assume the front lead of change (OECD, 2017, p. 147[1]).

Front-runners could launch mutual projects. A diagnostic of common challenges may be carried out by the Council to identify common challenges and objectives, for instance improving labour turnover (OECD, 2017, p. 149[1]). Once stakeholders share needs and interests, they will feel more motivated to act together. By investing time to address common needs, stakeholders could feel more connected to the Council as a whole. A shared sense of ownership and identity would strengthen the HCC as an institution.

Mutual projects could further mobilise a mixed funding structure, to which different stakeholders would contribute (OECD, 2017, p. 150[1]). This could make the Council less dependent from government funds while making projects more responsive to stakeholders’ needs. A balanced funding structure could better represent the different stakeholders and ensure the Council’s continuity, irrespectively of political changes.

Lastly, once the Council implements more activities, monitoring and evaluation will gain prominence. The different sectoral groups have short-term goals and a strategic plan of how to reach them. The groups also have 9 indicators to measure progress. Indicators refer to job creation, employment rate, skills certification and new programmes, projects and collaboration agreements, as in:

1. Number of graduates from educational institutions of upper and upper secondary education hired for a job;

2. Number of jobs generated for graduates of institutions of higher and upper secondary education.

3. Number of new programs or projects between academia and private sector.

4. Number of new programs or educational plans appropriate to the needs of the productive sector.

5. Number of collaboration agreements concluded with the sectors that are necessary for the fulfilment of the objectives of the Council.

6. Number of new high impact projects that will boost the economy of the sector.

7. Number of specialised training centres (transversal)

8. Number of people benefited by programs.

9. Number of people with skills certification.

There are some difficulties with the way that indicators were established. For one, it is unclear how indicators are distributed among the sectoral groups, or if all groups are expected to measure all indicators. Second, the indicators measure outputs of state policies. Yet the activities of the Council should not be mixed with the activities of the state. There is a difference between the Council contributing to the creation of a new government project and the Council appropriating from this result as an output of their actions. The Council should measure, for instance, how many mutual projects have been created by the members of the Council, or how many new state projects have benefitted from inputs by the Council. It is more nuanced than measuring the numbers of new state programmes per se. Furthermore, the sole focus on outputs, while easily measurable, does little to reflect the quality of the programmes implemented. For instance, the number of new educational plans adequate to the business sector does not mean that there is a better matching between skills and jobs. The number of recent graduates hired for a job in their area of expertise would be a more precise indicator. The focus on outputs is good for a short-term evaluation, but in relation to a long-term vision, outcome indicators can function better. In any event, there will be difficulties in establishing causality. For instance, it is hard to attribute a single action adopted by the Council to a higher tertiary education completion rate. Still, it could indicate that the Council is working with institutions to support that endeavour and the objectives of the Council are being met.

The Council should revise the indicators to better reflect the achievements of the Council, including for instance:

• A mix of output and outcome indicators;

• Indicators that can function as proxies for human capital levels, among them the number of graduates hired for a job in their area of expertise, number of people with skills certification and tertiary education completion rates;

• New programmes directly developed by the Council or to which the inputs from the Council have been decisive;

• New partnerships or agreements signed by the members of the Council;

In addition to this short-term planning, the Council needs to develop long-term goals. A long-term vision for the Council would better instruct how projects and funds are defined and allow to plan ahead. The Council should also develop a monitoring framework suited to the long-term goals that will be defined.

Summary

This recommendation refers to the system of land use planning in Morelos. The current system lacks an integrated vision of the territory and of urban development policies; harmonisation with federal laws; replication to municipalities; greater citizen participation; and accountability. These elements are complex and difficult to be developed in the short time period since the last OECD evaluation. In addition, all of them require co-ordinated action with other levels of government.

Bearing that in mind, the State of Morelos made progress in this area. The most significant change was the creation of the State Council for Spatial Planning (Consejo Estatal de Ordenamiento Territorial – CEOT) in 2017. This council, which replaces the old CEDU, has a leaner composition and stronger technical competencies. The creation of the Council is welcomed, but citizens and municipalities ought to have more active involvement in it. Building accountability has been limited to publicising documents and decisions in the government’s website Bitacora Ambiental, which is specific to the environmental dimension of spatial planning. Moreover, and in a more overarching manner, still pending is a solid framework for integrated territorial development.

Detailed analysis

The regulations and programmes are, for their part, divided into two main policy sectors, both under the responsibility of the Ministry for Sustainable Development. One is ecological land management (ordenamiento ecológico), as defined by the Law of Ecological Balance and Environmental Protection of the State of Morelos (LEEPAEM) and corresponding regulations. The diagnostic and the programmatic elements are detailed in the Regional Ecological Land Management Programme (POEREM). Different fields of intervention have their own programmes. For instance, the PROAIRE is the Management Programme for Improved Air Quality in Morelos (2018-27). Waste management is covered in the Solid Waste and Special Handling Plan. Water provision and maintenance of watersheds are predicted in the Waste Water Programme (2014-18). The issue of how to ensure continuity of ecological land management plans and programmes is addressed in the recommendation on sustainable development.

The second policy sector is spatial planning (ordenamiento territorial), as established by the General Law on Human Settlements, Territorial Planning and Urban Development (LGAHOTDU).10 This federal Law, enacted in 2016, has to be harmonised into Morelos’ legal framework. The state government had until 28 November 2017, to do so, according to the transitory article 3 of the General Law. Morelos intends to carry out the harmonisation in three stages: elaboration and approval of a new Law of Territorial Planning and Urban Development (LOTDUSEM), enactment of the corresponding set of rules (reglamento) and capacity-building of civil servants. The current LOTDUSEM dates from 2009 and is per consequent not aligned with the new legal framework established in the 2016 General Law. The harmonisation would allow for stronger state intervention and control in the matters of spatial planning and territorial development, reducing discretion and opacity.

The programmatic side of this policy sector will be addressed in the State Programme for Urban Development and Land Use Planning (PEOTyDUSEM). The current version of the programme refers to the period of 2007-12 and is thus outdated. A new version is being elaborated by the government. Public consultation forums were organised in December of 2017, during which citizens could receive information about the planning process and give inputs to the definition of the programme.11 Information was also made available online.12

Citizen participation could strengthen the accountability of Morelos’ planning system. Besides public consultation forums, which are sporadic, the State of Morelos could consider the creation of a permanent body to give input to territorial development issues (OECD, 2017, p. 182[1]). A Citizens’ Council with technical and academic representation could ask for clarifications, offer recommendations and monitor the development of the new land use planning framework, to be harmonised with the General Law LGAHOTDU. The example of Guadalajara can be illustrative in this sense (Box 2.2).

Another measure to improve accountability is the publication of documents, regulations and decisions. The Ministry for Sustainable Development has been publishing some projects and reporting violations in the website Bitacora Ambiental, only in the field of ecological land management. Data on budget, personnel and administrative procedures such as call for tenders are published directly in the state website Transparencia Morelos.13 Data requests should be treated within reasonable delays, following the same protocol of the Mexican federal Law of Access to Public Information.14

To assist on land use planning matters, the State Council for Spatial Planning (CEOT) was created in 2017. As defined by the LOTyDUSEM, this state body is composed of representatives from the state government, metropolitan council, associations of architects and urbanists, of the construction sector and municipalities. The attributions of the CEOT are to advise the competent authorities in the planning process of land use planning and sustainable urban development, to support the elaboration and implementation of the PEOTyDUSEM, and to serve as a channel for citizens’ proposals and comments. It is important that the CEOT has sufficient personnel to conduct activities and ensure that spatial planning is conducted according to the laws and guidelines.

The CEOT counts with a sub-technical committee to provide technical and legal support to its activities, which is a new institutional arrangement in Morelos. The CEOT replaced the State Council for Urban Development (CEDU), which did not count with such structure. The explanatory statement of the LOTyDUSEM affirms that the CEDU had trouble being operational, lacking a more specialised body to conduct studies and carry out technical tasks.15 As per the document of creation of the CEOT, the structure, composition and operational rules of the sub-technical committee remain to be defined.

To conclude the point of continuity, it is difficult to ensure continuity in a system that is in itself fragmented, short-sighted and divided into silos. To put it simply, Morelos does not have an integrated territorial development strategy, which is not only the state’s fault, as the state has to follow the national system. In point of fact, the strategic objectives are renewed every six years, with the enactment of a new Development Plan. The two main policy sectors remain largely sectorial: ecological land management deals with the environmental side of planning (protection of natural areas, pollution, waste, water treatment, etc.), while spatial planning concerns urban zones and human settlements. None of these two systems can substitute for a comprehensive policy of sustainable regional-territorial development.

Another aspect of continuity regards rule of law. The spatial planning system has to be implemented, monitored and evaluated. The state can have all the different plans and programmes, but it they are not followed continuity cannot be ensured. The state, particularly the Ministry for Sustainable Development, has insufficient staff to perform this task. Personnel is needed to conduct studies, elaborate plans, approve projects, supervise building codes and enforce regulations.

Furthermore, the system has to be harmonised by municipalities. Municipalities often lack financial and technical resources to update and implement plans. The state should incentivise municipalities to plan for urban development (OECD, 2017, p. 182[1]). Under the subsidiarity principle, the state could do the plans of some municipalities if sufficient personnel are made available. Alternatively, the state could provide technical and financial assistance to municipalities in producing an urban development plan, but again, in this case, more staff is needed. The state could require urban development plans to be periodically updated and approved as a condition for municipalities to apply for grants and assistance.

Summary

This recommendation refers to metropolitan policy-making and implementation. The co-ordinating agency of metropolitan areas is the Council for Metropolitan Development (CDM in Spanish). There is no metropolitan level of government as such in Mexico; the CDM is a state agency whose function is co-ordinating with the municipalities of the metropolitan area. Metropolitan areas are defined by population agglomeration levels of adjacent municipalities. In Morelos, the two metropolitan areas recognised by the national statistics office INEGI are Cuernavaca and Cuautla. The CDM of each one manages the allocation of resources from the federal Metropolitan Fund.

This recommendation instructs that metropolitan spatial planning is needed to back up the actions of the Council and the allocation of federal funds. Morelos should promote an integrated vision of metropolitan planning, and one that aligns land use governance and transportation development, based on a coherent view of the metropolitan territory. A metropolis is more than the sum of the municipalities that are part of it.

The State of Morelos has made progress in this area. On the positive side, the State Ministry for Mobility and Transport was included as a permanent member of the CDM. It is yet to be seen how the state ministry will be able to integrate its views and make its voice heard in the Council. A comprehensive urban development has not been adopted. Understandably, the elaboration of such plan would require long-term, structural changes that go beyond the timeframe of the Review. Still, this means that the Council lacks a long-term, integrated view of metropolitan development, and often allocates funds in a fragmentary manner, without a clear metropolitan dimension.

Detailed analysis

Metropolitan governance in Cuernavaca and Cuautla is co-ordinated by the correspondent Council for Metropolitan Development. The CDM is a decentralised state agency with three internal divisions. The main Council, whose president is the governor, has the attribution to define the objectives, priorities and strategies for metropolitan development. The council has to ensure that these are aligned with the National Development Programme (PND) and with Morelos’ development programmes. The Technical Committee is in charge of allocating resources from the federal Metropolitan Fund to municipal or inter-municipal projects. It is presided by the Ministry of the Treasury, with representatives of state ministries and municipalities. The projects chosen have to reflect the priorities defined by the Council and contain a real metropolitan dimension. The technical sub-committee is responsible for the studies that support the decisions of the technical committee.

Since the last evaluation, the state Ministry for Transport and Mobility was made a permanent member of the Technical Committee of the Council for Metropolitan Development of Cuernavaca. The ministry representative will get to deliberate on which projects to be funded. Continuing the activities of the Council, it is expected that the ministry assumes an active role in the committee and disseminates its view of metropolitan mobility into funding allocation decisions. It is fundamental that land use planning and transportation investments are aligned.

The two Councils for Metropolitan Development have funded projects in a piecemeal, fragmentary manner. Examples are infrastructure projects in one municipality, e.g. bridge construction or waste management plant. Even though these projects may improve the quality of the urban environment, it is less clear if they have a metropolitan dimension.

In addressing this matter, the Councils have to follow the guidelines of operation of the Metropolitan Fund, issued by the federal government in January 2018. The guidelines instruct that funds should be allocated to infrastructure projects that contribute to territorial development and have metropolitan interest, or to ex ante cost-benefit studies on the viability of regional and urban infrastructure projects.

One way to verify whether there is metropolitan interest is to analyse if the infrastructure project affects more than one municipality, or if it involves an issue that has to be addressed at the metropolitan scale. For instance, retaking the example of bridge construction, if the bridge connects two municipalities or is used for inter-municipal circulation, then the project would have metropolitan interest. The waste management plan of the previous example may be the object of a consortium between two municipalities. Another example is reducing air pollution: once pollutants travel across administrative borders, any project would have to involve more than one municipality.

For the funding process to become more coherent, it should be supported by a longer-term, integrated metropolitan development plan. It is not sufficient that the decisions are justified by an array of planning instruments (Cenecorta and Carroll, 2014, p. 15[8]). The State of Morelos should develop metropolitan plans for the zones of Cuernavaca and Cuautla. The plans should concern issues of territorial development, land use planning and environmental management. They should have a long-term vision for development, with corresponding objectives and target areas. With such planning instrument, the CDM could allocate funds to projects that have a clear metropolitan interest. It may be the case that different small projects have to be considered together to fulfil this broader interest.

Conurbation areas have land use plans, but conurbation areas and metropolitan areas do not correspond to the same territory. The metropolitan area of Cuernavaca, for instance, is larger than the conurbation of Cuernavaca and comprises a municipality in a different state (Ocuilan, State of Mexico). For this reason, metropolitan development plans should be broader than the existing conurbation land use plans. Furthermore, metropolitan plans should define objectives and long-term goals, establish a vision for the territory, and have a comprehensive environmental management strategy, that in addition to spatial planning.

Another issue is that federal and civil society actors should be more strongly involved in Metropolitan Councils. Research carried out across Mexican metropolitan zones found that decisions of the different Metropolitan Councils reflect the priorities of state actors, with little participation of civil society stakeholders and representatives of the federal government (Cenecorta and Carroll, 2014, p. 76[8]). For the Councils to become more effective and legitimate governance bodies, they should involve the different actors that have interest in metropolitan issues (Cenecorta and Carroll, 2014, p. 79[8]).

In addition, the state could consider creating a Metropolitan Planning Institute in Cuernavaca, in charge of developing the concept behind the metropolitan area, drafting metropolitan plans, promoting participatory planning, and processing geographical information and data. It should represent the metropolitan area in spatial planning matters, and it should be funded by all municipalities in the metro area and the state. The model of the IMEPLAN in Guadalajara, Mexico is interesting (Box 2.2).

To illustrate, in Guadalajara the metropolitan planning system is composed of three bodies – technical, social and political (Box 2.2). The technical body is responsible for the elaboration of a metropolitan development programme, a metropolitan land use plan, and the map of metropolitan risks. It is part of a broader governance system whose political body is the Metropolitan Co-ordination Board, an inter-municipal collegial organ. The Guadalajara system of metropolitan governance is further reported to count with the active involvement of civil society groups and NGOs, which includes but is not limited to participation via the Metropolitan Citizen Council (GIZ/UN-Habitat, 2015, p. 48[9]).

Summary

The OECD recommended the State of Morelos to invest in a multi-dimensional territorial approach to tourism. It means investing in several dimensions of the economy, such as infrastructure, service provision, business development, environmental protection and education for skills. Moreover, it requires looking at the potentialities of the State of Morelos, such as its pleasant climate, rich biodiversity, and a good offer of hotels and restaurants. Lastly, it refers to bringing different stakeholders to the table, including business owners, educational institutions, indigenous communities and municipalities, in order to develop a shared vision and establish common objectives for development.

The State of Morelos has made significant progress in this area. New routes of rural tourism are being developed, around premium products such as rice and avocado. Training courses in the fields of tourism and agriculture are being offered, and certificates of quality are being awarded. The eco-tourism programme of Indigenous villages, called Magical Towns programme, is getting international recognition and attracting visitors to the area. The brand Orgullo Morelos has been expanding and consolidating itself. Still, there is room for progress, and some suggestions in this direction are provided below.

Detailed analysis

The OECD had recommended the State of Morelos to invest in rural tourism. One of the strategies adopted by the Ministry for Tourism is the development of touristic routes. The route of the convents was already in place, but the historical buildings were significantly damaged during the 19 September earthquake. For the route to become operational again, these buildings need to be restored. Other routes are being developed, in relation to key agricultural products of the region: rice, avocado and goat cheese. These routes still have to be planned in more detail and implemented. One tool that could assist in this task is the Strategic Plan for Rural Tourism, also in preparation by the Ministry for Tourism as of the first quarter of 2018.

The development of touristic routes should be articulated with other policy dimensions. For instance, there should be a sufficient offer of hotels and amenities along the routes, as well as adequate road infrastructure. Local farmers should receive support to continue producing high-quality produce and to obtain certifications such as of organic production and sustainable farming practices. Food exports should be developed. The rice produced in Morelos, for instance, has received international awards and has the potential to reach broader international markets, e.g. the Asian one. The routes could also be combined with strategies to promote the local gastronomy, such as fairs and other events but also training and capacitation courses.

Another strategy to promote rural tourism is the federal programme Magical Towns (Pueblos Mágicos), to which Morelos is affiliated. The participating towns are Tepoztlán and Tlayacapan. This programme revalorises traditional heritage and indigenous cultures to promote sustainable tourism practices, thereby contributing to the long-term development of local communities. The State of Morelos won the international prize for Best Active Tourism Product in the 2017 edition of the International Tourism Trade Fair, in Madrid for the Tepoztlán Magical Town.16 The prize recognises the unique value of the 18 different cultural experiences offered under this programme, among them cycling routes, visit to convents, gastronomic experiences and hiking trails. In the 2017 edition of the National Fair of Magical Towns, a chef from Morelos won the prize of Traditional Gastronomy. This signals the potential of investing in Morelos’ traditional gastronomy.

Given the importance of professionalising the tourism sector in Morelos, the OECD had recommended renewed focus on training and capacitation. There have been considerable advances in this field. In 2017, 40 touristic establishments received training on Sustainable Tourism Practices and are in the process of being awarded the sustainability certificate (Distintivo S). Under the Programme of Capacitation and Touristic Competitiveness, 62 training courses were offered. Five companies were awarded the certificate of touristic competitiveness Moderniza Ecoturístico. The ministry plans to qualify 14 hotels and restaurants to obtain the certificate Tesoros de México, which is granted to touristic establishments that both promote the Mexican culture and offer a high standard of service excellence.

Moving forward, the Ministry for Tourism should continue to provide capacitation to workers and business owners and assist companies in obtaining certificates of excellence. The ministry should continue to work together with the Council of Human Capital in that endeavour and moving forward to identify tourism trends. Capacitation should also concern high-skilled activities, such as high-end gastronomy and language courses.

Investing in eco-tourism can be a strategy to attract diverse profiles of visitors, and for longer periods of time, as the example of Costa Rica indicates. Morelos has a year-round pleasant climate and many natural areas, including mountains and parks, which are conducive to hiking, trekking and cycling activities. The success of the Magical Towns programme signals the interest in cultural experiences related to indigenous cultures, too. Local communities should be directly involved in the promotion of eco-tourism.

The state is working to establish Economic Areas of Environmental Value (Unidades Económicas de Valor Ambiental, UEVA). Some areas which are currently defined as areas of environmental management (Unidades de Manejo Ambiental) will be reclassified as UEVAs. This change will allow the development of local economic activities in areas of high environmental value. Instead of a complete separation between natural areas and human activities, the UEVAs will contain a mix of activities, but at a scale that respects the ultimate goal of environmental preservation.

This change could benefit local communities, by allowing them to engage in productive activities. For that to happen, the state should support residents to become entrepreneurs, by providing training and capacitation. The state could also invest in a model of shared management of natural resources, in which the responsibility is divided between the environmental agency and representatives of local communities. Alternatively, the state could invest in a participatory model that engages local stakeholders in defining the uses of the territory and the desirable future activities. In addition, the impacts of new economic activities on the environment should be assessed ex ante.

Towards a territorial approach to tourism policy, the State of Morelos should work more closely with municipalities (OECD, 2017, p. 209[1]). Considering that different municipalities have different characteristics and potentials, they could provide different tourism attractions, in a complementary fashion. The logic here is to reinforce the potential of different areas in a harmonised way and avoid duplication of strategies.

Furthermore, and more generally speaking, the state should support entrepreneurship. This refers to different forms of assistance to business creation, including legal advice, facilitated bureaucratic procedures, information about licensing and regulation, assistance to design brands and marketing strategies, organisation of events to strengthen local networks, and facilitated access to credit. Support for business development in communities within the newly designated Economic Areas of Environmental Value and the Magical Towns should also be fostered.

The state should give special support to activities that can foster a local brand. The Orgullo Morelos brand was created with the goal of strengthening the value chain in Morelos. The programme helps products made in Morelos to reach the shelves of big supermarkets. It negotiates large distribution contracts that individual producers would lack sufficient scale to do so on their own. It also assists businesses with product design, branding and packaging.

The brand Orgullo Morelos, to become easily recognisable by consumers, has to invest in a distinctive view of the territory. The products should be related to characteristics of the State of Morelos, be its culture, gastronomy or natural assets. They should be artisanal or fabricated at small scale, so the place of production gains distinctiveness. Furthermore, local forums and public deliberation mechanisms should be promoted, in order to engage local stakeholders in brand-making and create a sense of shared ownership and local pride. The cases of the regional brand Produit en Bretagne in France and Cinque Terre in Italy could be a reference for the consolidation of the Orgullo Morelos brand (Box 2.3).

A territorial development approach to tourism and rural policy has yet to consider issues of infrastructure and service provision. Namely, better road infrastructure and broader networks of public transportation would increase the internal connectivity of Morelos. Touristic routes, regional products, natural areas, and the offer of hotel and restaurants will have limited impacts on tourism flows if visitors cannot easily reach these locations and travel around them. As Recommendation 8 instructs, improved internal connectivity should be a state priority. Enhanced connectivity would also contribute to a more distributed pattern of touristic activities, which today tend to concentrate in Cuernavaca and in the Magical Towns. It would also give a stimulus for visitors to stay longer periods, differently than the current pattern of short stays.

Service provision should attend both local residents and tourists. Besides health, public transportation and education, one service that merits consideration for an integrated rural policy is broadband connectivity. Businesses need a fast and reliable connection to run online commerce, process payments and orders and stay competitive in an increasingly digital economy. Making broadband accessible in areas with low population densities and for disadvantaged groups is a challenge but it the benefits are numerous (OECD, 2018[13]). It can increase productivity in an existing industry, such as agriculture, or attract individuals and new firms to locate in a small town or rural region, bringing employment opportunities. Start-up firms can invest in innovative production processes and more easily connect with service providers and clients. Anchor institutions, such as schools and hospitals, can better manage information systems. Social networks can promote local brands and facilitate access to information by tourists. Media and digital platforms can communicate about service provision and tourism activities. In all, assisting rural and remote communities to improve broadband access is critical to economic and social development (OECD, 2018[13]).

In summary, the State of Morelos should:

• Consolidate capacitation and training programmes for tourism and gastronomy: with special emphasis to eco-tourism, organic agriculture, traditional cuisine and sustainable tourism practices, further striking a balance between expanded offer and quality of certifications.

• Involve the Human Capital Council in the elaboration of capacitation and training programmes.

• Enact and implement the Strategic Plan for Rural Tourism.

• Develop an action plan for the routes of avocado, rice and goat cheese, giving consideration to associated hotels and restaurants, road infrastructure, broadband coverage, and enhanced quality of agricultural produce.

• Elaborate strategies to promote food exports and reach international markets, in relation to the touristic routes abovementioned.

• Restore the convents which are part of the heritage of the route of convents.

• Consolidate the Economic Areas of Environmental Value (UEVA), after diagnostic is complete.

• Support sustainable economic activities developed by local communities within the newly-consolidated UEVAs. These activities should aim at generating wealth for the local communities, promoting their collective well-being and preserving the environment.

• Continue supporting local gastronomy: It should promote traditional ingredients; organise culinary events; capacitate chefs; help restaurants obtain certificates of excellence and cultural representativeness, such as the Mexican Treasures; and promote Morelos’ products and chefs in international fairs.

• Consolidate the Orgullo Morelos brand.

• Support entrepreneurship: Offer legal advice to business formation; facilitate bureaucratic procedures; clearly inform about licensing; invest in programmes that support marketing and brand development; train eco-tourism guides.

• Improve road infrastructure.

• Invest in broadband connectivity in rural and remote areas.

Summary

This recommendation stresses the importance of infrastructure investments to capitalise on Morelos’ strategic location, close to Mexico City and on the routes to the Atlantic and Pacific Coasts. Infrastructure investments can bring three sets of benefits: improved mobility for state residents; better connectivity with the neighbouring states of Puebla, Mexico and Guerrero; and more accessibility to external markets via the coasts.

The recommendation should be understood in light of a broader policy framework. Infrastructure investments alone cannot make up for integrated economic development. Solid investments in human capital and innovation should be promoted, too (see section about Human Capital and Skills). The gains brought by infrastructure investments generate higher productivity growth if these two pillars are also enhanced (OECD, 2016[6]).

The State of Morelos has made progress in this area. The connectivity with Mexico City and to the coasts has particularly advanced, with the construction of the Highway XXI Century and the project of the railroad station in Cuautla. The goal of sustainable urban mobility received considerable attention from the government in the past year, and several different items were advanced. The internal connectivity of the State of Morelos, including rural areas and marginalised municipalities, was impaired by the earthquake damages, but still improved a little.

Detailed analysis

The issue of external connectivity is progressing considerably. Firstly, the inauguration of the Highway XXI Century, under construction since 2014, is expected for 2018. The highway will better connect Morelos to Puebla and international markets, via Acapulco to the Pacific and Veracruz to the Atlantic. The highway will reduce the cost and time of displacements between the Gulf and the Pacific. As these links move forward, Morelos should consider a joint initiative with Puebla and Guerrero to improve connectivity with the port of Lazaro Cadenas (OECD, 2017, p. 198[1]). This project could be important to approximate the economies of Morelos and its neighbouring states, as well as to improve the access to external markets, given that there is no commercial port in Acapulco.

Secondly, the project of reactivation of the railway station in Cuautla aims at improved transportation of goods and materials across the state. The project comprises the construction of a multimodal loading station in Cuautla and the rehabilitation of 103km of railroad, linking Cuautla to Chalco/La Paz, in the southeast of the Mexico City conurbation. The State of Morelos is building the station, and the railroad is being rehabilitated by the concessionaire Ferrosur. The agreement signed between Ferrosur and Morelos comprises a risk-sharing mechanism by which the state pays for the reconstruction, and Ferrosur pays back the state after a viability cap is reached. The cap was identified after a diagnostic study carried out by the Ministry for Economy. This issue is analysed in more detail in Chapter 4.

The issue of urban mobility is being addressed by the state. Among the changes promoted are the revision of the air quality programme PROAIRE, the creation of the council for territorial development CEOT, the enactment of Cuernavaca’s green zone, and conversion of taxis to natural gas. As much as these changes are welcome, the state needs to promote broader, more overarching actions in order to advance the topic of sustainable urban mobility in a more systematic, coherent way.

One organisational change was the creation of the State Council for Land Use Planning (CEOT), which has attribution to oversee urban planning issues, included mobility and sustainable development (see section about Spatial Planning). The Council can work with metropolitan areas to suggest mechanisms for spatial planning. As a technical advisory board, the Council can propose zoning, fiscal and legal instruments that could, among other functions, control growth, reduce pollution and preserve the environment. The Council should have a closer role in capacitating municipalities and assisting them in the development of ecological plans, as to include the dimension of sustainable urban mobility.

One legal change is the revision of the Management Programme for Improved Air Quality in Morelos (2018-27), the PROAIRE programme. The programme’s objective is to reduce and control polluting emissions and to promote the state capacity to do so. The programme identifies the need to develop and render public an Air Quality Index and to create an Atmospheric Environmental Contingency Plan. It also provides indications on how to improve the inventory of Pollutant Emissions to the Atmosphere. For the programme to be implemented, it is necessary to train the current personnel and hire specialists in the field of air quality (Morelos, 2018, p. 52[14]). The PROAIRE programme also indicates that municipalities should enact statutes regarding air quality and add this dimension in existing regulations of related policy areas.

With the creation of the green zone (ecozona) in Cuernavaca in 2015, the state has continuously invested in projects to turn downtown Cuernavaca into a low-emission zone. The projects range from mobility to environment to urban planning. State actions include a diagnostic of individual exposure to air pollutants, the creation of pedestrian zones, the requalification of historic buildings and sites, a partnership with the Policy Institute for Transport Development (ITDP) to promote cycling and others.

Under the framework of the green zone, some areas of downtown Cuernavaca have become exclusive for pedestrian traffic. This change was promoted after a viability study that signalled that 1) the fact that some streets are closed will not significantly impair automotive traffic and 2) residents of Cuernavaca are willing to walk regularly, and already do so for distances up to 1 km. The state could designate which streets serve which uses in the green zone, e.g. street commerce, residential, government offices. In addition, the state should continue investing in the quality of public spaces. Some actions needed are sidewalk maintenance, better signalling of pedestrian crossing, more street lighting, and adequate urban furniture.

The state partnered with SEMANART and the Megalopolis of Mexico to convert taxis to natural gas. With 3 000 taxis having participated, this programme can contribute to reducing air contamination in Morelos. It does not, however, replace the need for a sustainable public transportation model, since taxis are a public-like service that can improve mobility at the micro-transit level. Multi-modal strategies that comprise walking, cycling and collective transportation still need to be further advanced in the state.

In Cuernavaca, for instance, since the Bus Rapid Transit project Morebus was cancelled in 2017, another solution for public transportation needs to be developed. A diagnostic study should be carried out to identify needs and possible solutions. Non-car users need a reliable, sustainable transportation network. The Integral Plan for Sustainable Mobility of Cuernavaca Metropolitan Zone, enacted in 2016, can provide the basis for such model to be promoted (Morelos, 2018, p. 31[14]).

Lastly, since the earthquake impaired road conditions, internal connectivity has improved little in the state. The state launched a programme for rehabilitation of roads and streets damaged by the earthquake of 19 September (Fonden Carretero – 2017). Under this programme, 25 roads and 7 urban avenues are being rehabilitated in 12 municipalities. In addition, Morelos is implementing the State Road Plan (Plan Carretero Estatal), with the objective of paving dirt roads. An investment of approximately USD 15 000 is being made in a total of 51 km, distributed in 7 different roads, which will bring direct benefits to 20 municipalities. The percentage of paved roads in good conditions went up from 48% to 52% since the last evaluation. In the long-term, the state should continue pursuing an increase in the percentage of paved roads. Improved internal connectivity should become a state priority and be accounted for in the State Programme for Land Use Planning (PEOT) and in the Development Plans of municipalities.

By enhancing transport links and easing commuting, Morelos may have a more efficient, less costly business environment. The benefits to the state economy are obvious: with the improved circulation of people, goods and materials, economic activity is stimulated. However, improved internal connectivity may bring the unintended effect of firms and workers exiting the state. To avoid this risk of “leaking by linking”, infrastructural investments need to be pursued along with policies to foster human capital, promote innovation and enhance quality of life in the state (OECD, 2012[15]).

Summary

This recommendation addresses the issue of sustainable development under three aspects: comprehensive planning; co-ordination at national and international levels; and non-fossil fuelled transportation. These aspects suggest important directions but the state strategy for sustainable development is broader than that. The aspect of renewable energy, for instance, is addressed in the Territorial Review but not comprised here in the Review. Moreover, the fact that the recommendation is directed to the Ministry for Sustainable Development should not preclude sustainable development of being addressed by the different state ministries. That is, sustainable development is an objective shared amongst different policy sectors, from transportation to housing, tourism and agriculture.

The State of Morelos made modest progress in this implementing this recommendation. For one, implementation requires medium- and long-term actions, which the short-term period of the Review could not fully grasp. One good indication is that the state is revising and promoting different planning instruments, such as the PEGROTM, the PEOTyDUSEM and the PROAIRE. They will have to be aligned with the state law for ecological protection (LEEPAEM) and the correspondent programme for ecological land management (POEREM). On non-fossil fuelled transportation, the state supported the conversion of 3 000 taxis to natural gas, in partnership with SEMANART and the Mexico City Megalopolis. This action aligns with the OECD recommendation. The following step should be the transition to natural gas in public transportation modes such as buses and micro-buses. Lastly, the aspect of outreach and partnerships has seen modest advance. Continuation of existing projects seems to have prevailed over new partnerships, which is advisable in the short-term. In the long-term, the state could envision more strategic engagement, in alignment with the federal government’s actions.

Detailed analysis

The State of Morelos has been making significant investments in policies to mitigate climate change. These positive changes had been highlighted in the Territorial Review. For the first time, the Ministry for Sustainable Development counts with a General Directorate of Energy and Climate Change. The Directorate adopted in 2015 the State Programme of Actions against Climate Change (PEACCMOR), which is the main policy instrument to identify, promote and co-ordinate actions to reduce carbon emission and invest in mitigation and adaptation efforts.17 The ministry has also developed a management plan of carbon emissions, a state strategy for energy efficiency, created the green zone of Cuernavaca, and enacted the inter-ministerial commission against climate change to co-ordinate and align measures at the state level (CICCMOR).

Morelos counts with several environmental planning instruments. As advanced in a previous section, the state law for ecological protection (LEEPAEM), followed by its regulations, is further accompanied by the state programme POEREM. The state also has the climate change action plan (PEACCMOR). The programme to identify and manage risks is the State Programme for Risk Management (PEGROTM). The Risk Atlas is a technical risk assessment of the territory of Morelos and in this sense, it complements and supports the implementation of the PEGROTM (see discussion ). The different aspects of ecological land management, such as preservation of natural areas, waste treatment and water management are regulated by specific plans and programmes. The system is executed by the Ministry for Sustainable Development and in some of these issues advised by the State Council for Ecological Land Management (COET).

The environmental planning system in Morelos needs to be better integrated with urban development and human settlement matters. The Federal Strategy for Ecological Land Management 2013-18 established ten action lines, in accordance to the National Development Plan, and among those is to promote the integral planning of the territory, considering the ecological land management and the land use planning to achieve a sustainable regional and urban development.18^,19 This priority is partially reflected in Morelos’ plans and action lines. As expressed in the Strategic Plan 2013-18, the lines of action are to update the POEREM, which was done in 2014; to support the development of Municipal Environmental Land Management Plans; to organise urban areas and conurbations; to preserve natural areas; and to create a strategy to recover watersheds. Other important lines of action are to frame urban and housing development under the paradigm of sustainability and prevent real estate development in risky and endangered areas.

Moreover, the system should be incorporated at the municipal level, as the legal acts already indicate. Municipalities need technical and financial assistance to do so. The resort to international partnerships can be useful in this case. The elaboration of Municipal Climate Action Plans (PACMUN) in 31 out of the 33 municipalities, with funding from the United Kingdom’s Embassy and consultancy from ICLEI, is a good example in this direction. It also shows that there is room for the state level to launch initiatives without depending directly on federal efforts but aligned with them.

The metropolitan level could also benefit from such integrated view of sustainable development. The two federally-recognised metropolitan areas of Morelos, which are Cuernavaca and Cuautla, need comprehensive metropolitan planning systems. It could comprise development plans, a technical assistance body, and a citizens’ council, as it is in the metropolitan area of Guadalajara, Mexico.

The Ministry for Sustainable Development has 26 collaborative projects ongoing with 11 different countries on climate change and sustainable development. They have also participated in international fora such as the COP 13 for Biodiversity held in Cancun 2016. The participation in events and the alignment with international fora is much welcomed. Since the Territorial Review, Morelos did not engage in new partnerships, directing efforts to maintain and finalise existing projects, such as the abovementioned Municipal Climate Action Plans. This approach is advisable, as it ensures Morelos engages only to the limit of their capacity and that partnerships are well-structured.

Envisioning the long-term, the State of Morelos should consider international partnerships in a strategic manner, always in alignment with the federal government. This approach could, for instance, depart from a diagnostic of the main challenges regarding climate change mitigation, or from the action lines of the State Strategic Plan. Other state Ministries could be closely involved in this task. An indication that this type of strategic approach could work for Morelos is the portfolio of projects that the ministry has been developing. As of 2018, the ministry counts with around 15 projects that can be presented to other state ministries and to international stakeholders for funding. Most projects concern renewable energy and energy efficiency: hydroelectric power plant, solar panels, electric cars for the public administration and others. A few projects address the state’s own capacity to do studies and plans on this matter.

The last aspect addressed by the recommendation is the use of fewer contaminant fuels in public transportation. One remarkable action is the conversion of 3 000 taxis to natural gas, promoted by the state, with the support of Mexico City Megalopolis and SEMANART. The project of Bus Rapid Transit (BRT) in Cuernavaca, the Morebus, with buses fuelled with natural gas was however cancelled. The state should promote the adoption of electric buses or buses fuelled with natural gas. The bus system being run by concessionaires, the state should include the conversion to natural gas as a condition for concession renewal. Furthermore, the state should invest in non-motorised transportation modes, such as walking and cycling (see section about Connectivity and Mobility). A multi-modal public transportation strategy can bring health benefits to users, improve circulation and reduce fossil fuel emissions.

Summary

This recommendation seeks to address the issue of policy co-ordination across levels of government both vertically and horizontally. The first sub-recommendation puts emphasis on the benefits that the State of Morelos could reap from improving its co-ordination with other regions in improving public service provision, strengthening economic growth, building up administrative capacities and reinforcing its bargaining power vis-a-vis the central government. The second sub-recommendation focuses on strengthening the use and role of the COPLADES as co-ordinating mechanisms between the state and municipal levels in better aligning strategic planning objectives while providing enough room to adapt policies to the local context.

There has been modest progress in the two aspects of this recommendation, although potential for improvement remains high. Indeed, the co-ordinating role of the CONAGO has been maintained, but not strengthened, and little evolution has been made in enhancing relationships with neighbouring states although some inter-regional agreements of co-operation have been taken around scientific and tourism topics. As far as the co-ordination between the state and municipal levels is concerned, there has been a positive, but limited, evolution. The presence of state representatives in the COPLADEMUN has increased, seeking to inform and invite municipalities to align and adapt state-level policy priorities to their territory. This evolution is positive but remains limited in scope and struggles to foster bottom-up policy development.

Detailed analysis

The sub-recommendation 30 puts emphasis on the benefits that the State of Morelos could reap from improving its co-ordination with other regions as well as from forging economic development alliances and co-ordinating the provision of public services with neighbouring states. Working hand in hand with other states in the framework of the CONAGO would also give states more bargaining power when negotiating with the central government, pooling resources to enhance their strategic administrative capacities, while at the same time providing governors and secretaries from different states room to exchange on best practices. The CONAGO already plays that role but this forum could be further leveraged. There has been very little evolution on this matter over the analysed period.

The second part of this sub-recommendation encourages Morelos to create strategic economic alliances with neighbouring states and partnerships to improve public service provision. In doing so, it invites Morelos to take into account functional areas going beyond administrative boundaries on topics such as security, transport, health or education; but also, on economic development policies. Currently, the most advanced partnership remains the agreements developed within the megalopolis around transport policies. Some steps have been taken to develop scientific co-operation with the states of Queretaro, Guanajuato, Mexico City and Estado de Mexico. Also, in terms of tourism and agreement has been made with Mexico City to incentivise social tourism in Morelos and Mexico City

On public service provision, the Territorial Review provided concrete examples of possible co-operation such as finding agreements for information sharing and joint police actions with the state of Guerrero. It also showed how co-operation could enhance the quality of connectivity with policies allowing to make the most out of the recent investments in highways and railroads to access ports. On the economic development aspect, an economic alliance with the state of Puebla could contribute to the creation of a vibrant automobile industry cluster based on the development of integrated value chains and complementary human capital formation. Both Morelos and Puebla are active in that sector and suffer from strong competition from states located at the north of the megalopolis (the Bajio region).

The human capital council should contribute as a by-product of its action to create the basis for economic collaboration with neighbouring states by deepening the knowledge on economic sector and unveiling their strengths and weaknesses. The Council is also contributing to better organise the public sector, academia and business actors in a more collaborative dynamic thus forging a strong and united set of actors.

Much remains to be done to advance on this recommendation but the underlying conditions for the materialisation of such an alliance have improved. Nonetheless, the electoral period and changes in the different administration may reduce political willingness for compromise, at least for a period of time.

The distribution of competencies between the three levels of government in Mexico (OECD, 2016) and the adoption of a territorial approach requires strongly co-ordinated policy actions between the state and municipal governments. Recommendation 31 proposes to strengthen the COPLADES and the different COPLADEMUN, which despite their downfalls, are currently the most institutionalised form of co-ordination between the state and municipal level of government. As such, it is the institutional arrangement better placed to foster co-ordination. The recommendation of the review called for a strengthened co-operation between the state and the municipalities particularly in the alignment of their strategic planning objectives while providing enough room to adapt policies to the local context. This contributes to policy coherence and to ensuring that the state can benefit from policy complementarities and economies of scope and scale.

Since the review, representatives of the state government have increased their presence in the different COPLADEMUN. Their actions serve to better channel and explain policy objectives and priorities of the state government to municipal governments while providing them with advice on the best way to align their policies with those of the national and state level. These delegates can also advise municipal governments on spending priorities. For example, since the earthquake, particular emphasis has been put on the use of the funds from the FAIS for the development of a “Risk Atlas”, an instrumental tool for land use planning.

The stronger presence of government delegates is a significant improvement from the previous situation. Nonetheless, the recommendation also sought for a more bottom-up deliberation process, in the sense that the discussions of the COPLADEMUN would in return also serve to nourish the planning decisions made at the state level. This step would also be important to build trust between both levels of government. This second part has received much less attention despite being essential for the adoption of a place-based approach to policy making. The State of Morelos should also make sure that these co-ordination mechanisms do not lose their strategic component. Municipalities retain strong levels of own competencies; therefore, the state may need to further develop incentive mechanisms (fiscal or through the attribution of prices of recompenses) and naming and shaming mechanisms to guarantee the applications of public policies at the municipal level.

Summary

This recommendation refers to governance mechanisms that would: i) improve the quality of policies at short, medium and long term by developing a public service administration; ii) contribute to restoring trust in government by developing anti-corruption policies and fostering accountability in the use of resources; and iii) reinforcing the evaluation mechanisms of public policies with the inclusion of feedback loops in policy design.

Evolution on these three fronts has been mixed but overall significant, with some areas showing greater reforms than others. As far as the first element is concerned, some positive advancements have been made in terms of planning, namely through a legal reform that imposes the administration to develop short-, medium- and long-term planning. Despite this evolution, there has been little or no evolution on the development of a more stable civil service in the public administration, instrumental to ensure policy continuity. Reforms have also been undertaken to adapt the national anti-corruption regulation to state law, but some political frictions and legal suits are still preventing the approval of the law. In terms of accountability, no advancement has been made to provide a single-stop shop allowing citizens to navigate the myriad of available funds. Finally, the evaluation mechanisms for social policies have been strengthened with the provision of further funds and human resources to the COEVAL.

Detailed analysis

In the state Morelos, as it is the case in Mexico more widely, there is strong spoil system in the public administration. This tends to reduce capacities at the regional and local level and hamper policy continuity and institutional memory. This recommendation invites Morelos to develop, ideally with other states, a pool of well-trained and experienced public servants that could follow a public service career. These public administrators would be better protected from political changes and would have career development opportunities in the different states that would be willing to collaborate with the State of Morelos in this endeavour. Coupling such a system with the development of medium and long-term mechanisms of planning, and of evidence-based policy-making systems would contribute to better focusing public efforts towards clear objectives while giving continuity to public policies.

In this realm, the State of Morelos has presented a law to the State Congress rendering compulsory the introduction of short, medium and long-term objectives in the planning instruments. This new law connects long-term planning objectives in line with attaining the SDG objectives. Forty indicators have been assigned to monitor these long terms goals, and their evaluation has been set to take place every second year.

The establishment of this planning regulation for the state will mark an important step forward in the establishment of medium and long-term objectives for public policies. A proper implementation of this regulation will require both instruments to match planning with budgeting and special attention will have to be put on the types of indicators set in place, guaranteeing that the latter are outcome indicators rather than output indicators.

Evidence-based policy-making still remains a challenge that should be seen as going hand in hand with the different planning instruments, indeed an improved system of regional statistics, as well as a thorough evaluation of the policies in light of the established objectives, will be essential to adapt policies based on feedback loops. Advancements with regards to the role of COEVAL in the evaluation of public policies mark a significant positive sign on that matter.

Despite positive evolution on some aspects of this recommendation, little advancement has been made on the establishment of a public sector less reliant on the spoil system. This type of policy may indeed require some legal changes and political consensus but it does constitute a cornerstone for the establishment of efficient bureaucracies.

Restoring trust in the public administration, simplifying administrative procedures and providing the tools for enhanced accountability remains one the most pressing issues in Morelos, as it is the case in Mexico at large. Moving forward on this agenda is not only a democratic duty but also a means to improve government efficiency. The tool developed in partnership with the World Bank to improve the quality of indicators, administrative registries and open data signals a good direction.20

In that sense, the recommendations exhorted Morelos to adopt the regional anti-corruption system by adapting the national scheme and setting the required institutions and legal framework in place for its full implementation. Morelos has indeed made positive advances on this matter by adopting eight regulatory reforms. The anti-corruption scheme is comprised amongst other by a reform on investigative and sanctioning powers for corruption cases, the compulsory declaration of conflicts of interest, the reform of state-level public procurement by realising it through the national system Compranet, the creation of an ethics committee and the reinforcement of transparency mechanisms in public works. The whole scheme has almost fully been adopted, some laws are still being processed and one of them is pending a court decision. Setting up this framework is an important first step that needs to be complemented with strong and thorough enforcement mechanism which implies sufficiently resourced and independent control bodies. Some of the present reforms will be instrumental for enhanced transparency such as the realisation of the public procurement process through Compranet or the publication of the evolution of the process for public works.

Nonetheless, to be fully efficient as accountability mechanisms, information on public spending will have to be published in citizen friendly formats as well as in a more detailed and desegregated formats to be useful for researches and civil society organisations. Such accountability mechanisms must also include more qualitative elements, for example publishing spending and physical progress of public works will have limited utility if the only information provided relates to the percentage of the process accomplished. Here again, indicators used will have to be calibrated to evaluate outcomes rather than outputs or mere speed of implementation.

Another fold of this recommendation concerned the creation of a single-stop-shop compiling the myriad of available funds (including their rules of operation) to which municipalities, firms and citizens could apply. The provision of this information also requires timeliness in the delivery of information. Currently, the complexity of the processes, as well as the lack of timely information, often forces recipients to seek for support of external advisors. Unifying and simplifying the system would increase readability and improve coverage across the board while reducing the margin for discretion. No advancements have been made on this front.

As far as the business environment is concerned, Morelos has reformed its Constitution to include quality of regulation as one of the constitutional objectives. It has further passed a significant amount of the regulation required for the implementation that policy. These efforts have Morelos to be ranked, by a ranking established by the national Ministry of Economy, the Federal Commission for Regulatory Improvement, the Centre for Economic Research for the Private Sector, and the Union of Private Firms, as the state that has advanced the most in this process. Amongst the main achievements of this new legislative package is the reduction of time to open a “risk-free” business to 72 hours in the best performing municipalities. This achieved has been done hand in hand with municipal governments that have received a package that includes software to process these operations. Amongst the other relevant measures of the package are: a more thorough evaluation red tape imposed at different levels of government and the requirement for the three powers (executive, legislative and judicial) to carry out impact analysis of their decisions.

To continue moving forward on this avenue Morelos will need to strengthen the regional Commission for Regulatory improvement with the provision of sufficient human and financial resources. Improving regulation will also require adhesion from municipal governments given that they are competent for a significant amount of the administrative procedures impacting businesses. In that sense, the creation of an incentive structure rewarding mayors signing agreements with the state level to improve their regulation could be an important asset.

Finally, this recommendation sought to reinforce COEVAL in its role in public policy evaluation. In this realm, Morelos has shown significant improvements. Indeed, the budget of the institution has increased by 34% and the number of programmed policy evaluations has increased from 10 in 2015 to 24 in 2017. The work of the COEVAL in Morelos has been recognised by the National authorities as being in the top tier of the commissions across the country in terms of regulatory capacity of evaluation and for its technical capacities.

Going forward, COEVAL could be more active in the design of public policies building on its evaluation experience. Furthermore, it can focus on more long-term objectives with indicators based on outcomes. Such evolution of the role of the commission has to go hand in hand with the improvement of statistics at the subnational level. Both elements put together will allow the development of strong evidence-based policy making as well as the creation of essential feedback loops in the system contributing to improving public policies along the way.

Summary

This recommendation seeks to improve Morelos’ capacity to raise revenue and spend it efficiently. Morelos is the 12^th state with the lowest levels of own revenue collection as a share of all revenues. It only collects 6% of all its revenues. Morelos is also the 6^th from the bottom in the ranking of states with the lowest level of own revenue collected per capita. Other states have shown significantly better results, demonstrating that there is room for improvement. In that sense, the review recommended Morelos to undertake a broad audit of its taxing structure to identify opportunities for increased efficiency in tax collection, as well as opportunities to increase the tax base. The second component of the taxation measures lies in the capacity of municipalities to collect revenues from local public services and taxes. Morelos, as it is more generally the case in Mexico, has low levels of collection efficiency at the local level and public services tend to be structurally under-priced. The second part of the recommendation advocates for a reform of the transfer system to include a more incentive-based structure and an evaluation of productive investments based on outcomes. The latter part remains a difficult political reform and requires political consensus on the budget priorities.

In this sense, some positive reforms have been promoted to increase the tax base at the regional level. Agreements have been signed between some regional and municipal tax administrations to transfer coercive power to the regional tax administration in an effort to pull resources and increase administrative capacities. Training of municipal public servants specialised on the fiscal matter is also being undertaken. Measures have also been taken to improve the quality of public expenditure. Despite these efforts, some challenges remain. To face these challenges, a complex set of answers in the medium-term is required, as well as stronger political buy-in from the different stakeholders.

Detailed analysis

The State of Morelos has partially realised an evaluation of the taxation system and taken measures to improve revenue collection. The main reform measures include the inclusion of tourism intermediaries (such as marketplace platforms for touristic accommodation) as part of the taxable base. Prior to the reform, only hotels and directly rented accommodation were subject to the tax, while these platforms represent around one-third of the market share for touristic accommodation in the state. The other reform includes a depuration of the payroll registry; indeed, this should allow incorporating a wider share of the labour force within that registry. Finally, Morelos has pushed a reform allowing the finance minister to control the vehicle registry for taxation purposes, vehicular tax in the second biggest source of own revenues, thus being an important share of the stake.

Despite these positive evolutions, there is still margin for improvement. The reforms undertaken will have a limited impact on the overall collection. For example, the accommodation tax remains a relatively small share of the overall tax collection effort; therefore, this measure will have a limited impact on the overall accounts. On the contrary, the state has lost one of its main incomes with the removal of the tax on vehicle ownership. Morelos followed the same path as other states in a highly politically charged decision.

Other avenues to improve tax collection could be explored such as the current creation of an environmental tax in Zacatecas. In the case of tax collection, the state faces two strong challenges to increase tax collection; both require a wider approach to tackle them:

• First, enforcement capacity of the tax administration is low. This phenomenon, coupled with the prevalence of high levels of informality and low levels of willingness to pay, further reduces enforcement capacities in a vicious circle.

• Second, the current transfer system creates incentives to enter a blame-shifting game rather than increasing revenue collection. Such a mechanism tends to increase the political cost of tax increase, with is further increased by the need for co-ordination with other levels of government to raise tax rates and/or improve the base. The electoral system further reinforces these trends.

In the short term, own revenue collection should decrease despite the efforts of the administration, as a consequence of the earthquake. Indeed, the earthquake will hit revenue rising because of the destruction of a number of businesses and because of fiscal measures put in place to help business recover. These measures mostly take the form of transitory tax breaks.

At the municipal level, tax collection is an even more prevailing challenge. The lack of capacities (human and administrative), high levels of informality and political cost of tax collection tend to conduce to stagnant levels of tax collection. Morelos has undertaken training of municipal agents to increase collection of water and property. More regular and widespread charging of taxes can significantly raise collection.

The recommendations had proposed pooling resources to improve the administrative capacity of tax collection agencies and reducing the burden on individual municipalities. Two potential models were envisioned: i) collaboration between municipalities (horizontally) or ii) with the state government (vertically). Morelos has decided to bet for the second and has signed three agreements with municipalities to collect taxes. Under these agreements, the state tax administration is in charge of collecting taxes for the municipality, while the municipality only has to pay for the administrative cost of that function. If tax collection improves, municipalities gain from both higher levels of income as a direct effect but also indirectly from the incentive system created at the federal level to increase municipal tax collection. Despite these notable advantages, there is some resistance in the municipal chambers to vote for such agreements, mostly for political reasons, proof of it is the reduced number of municipalities that have been willing to sign such agreements.

Tax collection at the municipal level also remains structurally low because of the lack of an updated cadastre. This challenges revenue creation in the following way: i) the lack of actualised property value prevents municipal governments from collecting taxes on increasing property values; and ii) cadastres do not account for numerous informal settlements thus mechanically leaving an important fraction of land out of the taxing spectrum. The latter has a strongly negative impact on public finances: politically the municipal government is compelled to provide basic public infrastructure to informal settlements but does not receive income to do so, nor does it receive income based on the increase of property values induced by those investments. Co-operation with the state and national government on that front is ongoing, but the magnitude of the phenomenon requires a strong multi-sectoral approach involving the use of push and pull factors as well as a strengthened planning capacity.

Revenue collection from public service provision, such as water, garbage collection or public lighting, at the municipal level is also structurally low. The provision of such goods is not only priced significantly below market prices, but it is also subject to many exceptions and limited enforcement. The recommendation invited the state government to work and in hand with municipal governments in improving administrative and enforcement capacities to improve revenue collection. In that sense mechanisms such as the tax collection agreements signed between the state and the municipalities could also be envisioned for this type of revenues. The recommendations advocated for the support of the regional government in the creation of a transition fund that could finance a gradual increase in service prices without producing a shock of household expenditure. Increased revenues would have to be destined for improvement in public service provision to increase willingness to pay, thus creating a virtuous cycle.

The government of Morelos has been working in co-operation with the Instituto de Desarrollo y Fortalecimiento de Morelos to better train municipal public servants on the fiscal matter. It is also pushing forward an update in the price charged for local public services. In parallel, the state has offered to municipalities the option of co-payment of projects of water infrastructure. For each dollar invested by the municipality, the state would contribute with the same amount. This co-payment mechanism is an incentive for municipalities to invest in water and hydric infrastructure, hence improving the quality of the water provision service. This could lead to gradually increases of the price charged, bringing in more revenues to municipalities.

The Territorial Review of Morelos also recommended reforming the transfer formula of funds to the municipal government. Most of the challenges that arise from the transfer system mechanism do originate at the national level, but the state government has, although small, a margin to reform part of the transfer arrangements in their allocation to municipal governments within the current scheme. State governments must transfer to municipal governments at least 20% of the funds received through the revenue-sharing mechanism of the Fondo General de Participaciones (FGP). In the recent years, the State of Morelos has added or reduced this percentage, depending on political influences and informal negotiations with municipalities. After a recent reform in 2017, the State of Morelos now transfers the exact 20% to municipalities and leverages other percentages to 2 different funds. 1% is directed to the fund for municipal development, which is used to pay public debts, ensuring governability in municipalities with outstanding debts. 2% are directed to the fund for municipal infrastructure and administration, which is used to pay municipal staff and to support public works necessary after the earthquake of 19 September. These funds make the use of money from transfers more targeted and coherent to the needs of municipalities.

However, the application of these funds is not monitored by the state. There is no way of actually knowing how municipalities are spending the money, and if they are doing so effectively. This is definitely an issue to be addressed by the State of Morelos in the medium term. Another pending issue is how to create incentives for better using funds according to municipal plans. These extra percentage points could be distributed using a formula that attaches spending to municipal strategic priorities, as well as promoting projects that reduce gaps in public service provision, incentivises local governments to update cadastres and planning instruments or to improve tax collection.

Finally, the last recommendation concerned raising the efficiency of productive investments by building distribution formulas that integrate the use of outcome indicators and promote vertical and horizontal co-operation. The current administration has sought to raise the efficiency of productive investments by creating a Public Investment Unit which manages a portfolio of investment projects. Projects are conceived in co-ordination with municipalities and further evaluated by the Investment Unit. This is an important step forward in terms of co-ordination, prioritisation and evaluation.

To gain better efficiency, links between the work of this unit with the planning and budgeting instruments, as well as with the Human Capital Council have to be strengthened, and competitive mechanisms for resources could be reinforced. As discussed in the Review, a system such as the one put in place in Brandenburg, which reassigns resources annually based on the evaluation results, could be explored in the medium term.