Budget “decentralization” 2017

Looks like the success of fiscal decentralization and progress in the reform of local government have scared our government officials who decided by mean of the draft State Budget of Ukraine for 2017 to at least deprive local communities of the desire to unite, or to put an end to this line of reforming altogether.

Continuing to declare immutability and irreversibility of the basic terms of financial decentralization, the government at the same time transfers the burden of more than 3 billion hryvnias of expenditures, which are guaranteed by the state and have to be financed from the state budget, to the local governments.

In brief on the additional burden on local budgets in accordance with the government’s draft state budget for 2017:

25 state healthcare institutions, all health resorts for children and adolescents and patients with tuberculosis are transferred to the financing of the municipal budgets without provision of any compensations to local budgets (this is about 0.3 billion hryvnias)

it provides no covering for the losses of local budgets because of the electricity tariff for external lighting increased by 2.5 times (this is no less than 1.2 billion hryvnias)

once again no subsidy to compensate citizens’ subsidized transportation costs is provided (this is about 2.2 billion hryvnias)

educational subsidy is provided only for salaries of teaching staff, while all other employees of the educational sphere (librarians, psychologists, assistants, etc.) must be maintained at the expense of local budgets (this is about 9.2 billion hryvnias)

the state still does not plan to pay for the debts incurred in 2013-2015 by local authorities in connection with the national regulator’s establishing economically unjustified tariffs, which makes the local budgets repay these debts, which arose not by their fault, by means of their own working capitals. And today it is already 7.3 billion hryvnias. In addition, “Naftogaz” has already counted penalties and fines for this debt in the amount of 12 billion hryvnias (total 19.3 billion hryvnias).

However, the state is not only transferring additional costs onto the local budgets. It also trying to create conditions under which local governments will be dependent on the state power.

For example, no financial resources are provided for the budgets of the cities of regional subordinance, Kyiv, and associations of territorial communities (ATC) for the maintenance of education and health facilities (payments for energy and utilities). Subvention, which covers these expenses in the amount of 14.9 billion hryvnias, is only provided at the regional and district levels. This is a serious obstacle for continuation of the reform of associations of territorial communities, as well as for the existing territorial communities, since this provision make the cities of regional subordinance and the territorial communities dependent upon the leadership of the region or district.

In fact, this returns us to centralization of finances, because 6.2 billion hryvnias will be distributed by the decision of regional or district councils. It is also possible that in the end the local budgets will have to make all the payments for energy and utility services.

Other changes to the Budget Code of Ukraine (articles 1032 and 1034) deprive the local authorities of the right to spend the remains of the subvention (health and education one) on capital expenditure and optimization of the network of institutions (educational and medical ones). This leaves the local authorities with no incentive to carry out optimization activities, because the remains of subvention funds will be taken away anyway. Local councils won’t be able to fund the upgrading of the material and technical basis of educational institutions either.

The state’s “care” about the local government is clearly demonstrated by the sources defined for the “Regional Development State Fund” (RDSF) program. These sources are the confiscated assets and funds derived from the sale of property confiscated by the court decision in connection with corruption and corruption related offenses. Credibility of such funding for RDSF can be traced in the current budget execution plan, where the percentage of the confiscated to the budget assets is near zero.

In addition, by the already familiar practice of amending articles 91 and 102 of the Budget Code of Ukraine it is proposed to exclude from the government programs of social protection and to transfer to the local level a number of compensations and social benefits (e.g. communication services benefits, other benefits specified by legislation that are provided to veterans of war, veterans of labor; victims of Nazi persecution, veterans of military service, veterans of internal affairs agencies, veterans of the tax police, veterans of the state fire service, persons who were discharged from military service and became disabled during military service; rehabilitated citizens who have become disabled as a result of repressions or are pensioners; citizens affected by the Chornobyl disaster, etc.).

The last but not the least. Hardly a single day passes that we don’t hear about the importance of the associations of territorial communities, and about how much the state is doing for this. Well, direct inter-budget relations are provided only for 172 ATC (159 of them are the last year ones), that is only for 13 ATC out of 25, in which this year the first elections have been held. Moreover, the first elections are scheduled for December 11 this year in 41 more ATC, and December 18 – in 143 associations of territorial communities. And all this has to be provided for in the State Budget for the next year, which unfortunately is not so.

Lyubomyr Zubach
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Decentralization