2. Local Government Framework in Ukraine
Local communities have the right to independent resolution of issues of local
importance.
To exercise this right, they elect city mayors and city councils. The latter
establish their executive bodies.
The local government ‘s own mandate includes, in particular, ensuring stable
operation of life-sustaining systems in cities and their maintenance.
In addition, under the law, national government may delegate some of its
mandates to local governments in such areas as public education, culture,
healthcare, and social safety net.
Local governments use their local budget funds to implement these mandates.
To exercise its own mandates, local budgets receive revenues from local taxes
and fees.
National government ensures implementation of delegated mandates by (i)
designating certain revenues from national-level taxes to local budgets, and (ii)
through transfers from the National (State) Budget.
2
3. Key Achievements
in Restoring Local Governance in Ukraine
Local governance in Ukraine has a 800-year long tradition. This tradition
was interrupted by the communist regime, and was restored in 1990.
Since then, the country has rebuilt the system of local government
bodies, and developed its legal framework. The foundations of local
governance are defined by the Constitution of Ukraine.
In 1997, the Verkhovna Rada ratified the European Charter of Local
Governance.
Entities of local governance may organize themselves in local government
associations, one of which is the Association of Ukrainian Cities. The
status of local government associations is defined by a separate law.
3
4. Key Problem Issues of Cities
For most entities of local governance, lack of resources to adequately perform
their functions, as defined by the law, remains their main problem for the
following reasons:
1. Insufficient own resources in local budgets, which did not exceed 8.7% of
the budgets’ total revenues.
2. Persistent failure of the Government of Ukraine to fulfill its constitutional
obligation of providing full amount of financial support to implementation of
delegated mandates. Over the last three years, the national government covered
about 80% of that obligation at best.
4
5. Current Status and Future of Local Government Reform
Only the reform can ensure the adequate capacity of local governance. Almost
all experts agree on the necessity of such reform.
The reform implies optimization of budget expenditures through consolidation
of the territorial foundation of local governance of villages, townships and
cities, as well as by reducing the number of entities of local governance 8-10
times, and strengthening the financial foundations of local budgets by
introducing a local-level comprehensive property tax.
5
7. Share of local budgets (LBs) in the Consolidated
Budget of Ukraine (CBU), %
60,0
46,2 50,3 45,5
50,0 44,6
36,2 39,5
40,0 32,7 32,5
30,0 24,6 25,6
21,7 20,7
20,0
10,0 3,3 3,2 3,5 3,3
0,0
2009 2010 2011 2012
Share of LBs in CBU
Share of LBs without subventions in CBU
Share of LBs without transfers in CBU
Share of LB own resources in CBU
7
8. National Government’s Failure to Provide Financial
Support to Implementation of Delegated Mandates, and
Its Impact on Local Budgets
Financial support from national Share of local budgets’ own funds
government to implementation of channeled to implementation of delegated
delegated mandates, % mandates, %
8
9. Sources of Funds to Cover the Shortfall for Delegated
Mandates
A total of UAH 141.3 bln is needed to support
implementation of the mandates delegated by the
national government to local governments. The
shortfall constitutes UAH 27.3 bln.
Projected by the Ministry of
Finance 01.01.2012
Budget shortfall for delegated
authority and sources to cover it:
5 1
7.8 Atditional transfer during the year
Funds from Basket Two
27.3
Non-repaid mid-term loans.
6 December 01, 2012
Optimisation
114
7.5
Accounts payable, December 01
2012
Потреба на делеговані 9
10. Overall Structure of Local Budget Expenditures in
Ukraine, Slovakia and Poland, 2010, %
100%
6,7
15,5 17,9
80%
60% 52,9
55,5
84,6
40%
20%
31,6 26,6
8,7
0%
Ukraine Slovakia Poland
Own authority Delegated authority Staffing expenditures
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11. How National Government Blocks Own Funds
of Local Governance
Since the second half of 2012, in the context of severe National Budget
deficit, the State Treasury resorted to unprecedented withholding of funds from
the accounts of Local Councils (entities of local governance).
As of end December 2012, about UAH 4 bln remained blocked, resulting in
local governments’ inability to pay their contractors for works and services
already rendered.
Thus the national government succeeded in resolving its financial problems at
the expense of local budgets.
A significant portion of these funds has remained blocked until today.
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12. Key Problem Issues in the Housing and Utilities Sector
Local governments in cities are responsible for housing maintenance, solid
waste management, centralized water and heat supply, and sewage
disposal. The sector has deteriorated due to lack of resources.
In 2004 the country approved a National Housing and Utilities Reform Program;
however its implementation has been frustrated by the populist policy of the
(national) government.
As of today, the tariffs that are set at the national level cover only about 70
percent of the service cost.
The government is obliged to reimburse to local budgets their losses from low
tariff and service costs, however it has failed to do it in any regular manner.
As a result, total arrears of utility companies (primarily for natural gas and
electricity) are now in excess of UAH 17 bln .
The compensation funds the Cabinet of Ministers does provide are distributed
in a non-transparent manner, and with a considerable regional bias.
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13. Distribution of National Budget Subvention to Local Governments through
Regions to Compensate Tariff Offsets, June 2012
(UAH per capita in urban areas)
ci ty of Kyi v 1.76
Donetsk oblast 0.68
Luhansk obl ast 0.60
ci ty of Sevastopol 0.56
Dnipropetrovsk oblast 0.53
Kharkiv oblast 0.48
Kirovohrad oblast 0.40
Poltava oblast 0.38
Cri mea 0.36
Zhytomyr oblast 0.34
Kyiv obl ast 0.32
Khmelnytskyi obl ast 0.31
Vi nnytsya oblast 0.29
Violyn obl ast 0.28
Chernivts i oblast 0.25
Cherkasy oblast 0.25
Lvi v oblast 0.24
Ri vne oblast 0.23
Cherni hi v oblast 0.23
Odesa obl ast 0.22
Sumy oblast 0.19
Ternopiol oblast 0.19
Zapori zzhya obl as t 0.17
Kherson obl ast 0.16
Mykol aiv obl ast 0.15
Ivan-Frankivsk oblast 0.13
Zakarpattya oblast 0.10
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 13
14. Centralizing Instead of Decentralizing
Over the last 3 years, national government has taken steps towards
centralization of public authority. This policy has primarily affected local
governance, whose authority is being taken from the local level, and
transferred to state administrations and ministries.
Examples:
1. The Law On Regulation of Urban Development Activities , as approved in
2010, whereby, despite AUC protests, local governments were stripped of
their influence on development of populated areas.
2. Reforms in the health system, whereby local governments are stripped of
their influence on provision of in-patient care and emergency
assistance.
3. While local governments need to make inventories of real estate for
purposes of its local taxation, the right to do so has been taken away from
them.
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15. USAID DIALOGUE Project
A Ukraine-wide activity to provide a comprehensive support to local
governments across the country through:
- working with local government practitioners (Task Forces, AUC
Regional Offices),
- working with representatives of the central state executive,
- working with future local government lawyers, and
- working with the public at large.
Outcomes:
- Think tank capacity for policy development,
- Institutionalization of mechanisms for policy development and policy
dialogue,
- Specific results of policy dialogue.
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16. Relationships between the state executive
and local governments
The Tymoshenko Government introduced a practice for representatives of
local government associations to take part in the Cabinet of Ministers
sessions with the advisory vote. In 2010 this practice was suspended and was
resumed in November of 2012.
The Law of Ukraine “On Local Government Associations” envisions budget
consultations between the Cabinet of Ministers and local government
associations. In 2012, the Cabinet of Ministers violated this law and the State
Budget for 2013 was prepared and approved in a non-transparent way.
This law also envisions the concurrence of the associations with draft laws
related to local governance. The purpose of this move is to prevent the
approval of laws and regulatory documents harmful to local governments.
The trends in the number of documents submitted to AUC for its expert opinion
is shown on the next slide.
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18. Selected Improvements and Successes
in the Recent Years
At the national level , these include:
1. Introduction of local real estate tax.
2. Channeling 100 percent of land fee collections, and collections from
the unified business tax to development part of local budgets.
3. Simplified local borrowings.
4. Approval of the law on delineation of boundaries between state-
owned and communally-owned lands.
5. More transparent mechanism to allocate funds for road network
maintenance.
6. Legislation to streamline land sales.
7. Law on administrative services.
8. Law on access to public information.
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19. Selected Improvements and Successes
in the Recent Years
At the local level , these include:
• Launching the School Bus Program in the Vinnytsya oblast: private bus
companies take children from rural communities to schools,
• Implementation of the Clean Potable Water Program in the Kirovohrad
oblast,
• Sewerage network improvements in 3 cities in the Lviv oblast,
• 110 km of rural roads laid in the Rivne oblast,
• Implementation of the oblast level investment promotion program in the
Zaporizzhya oblast,
• 1.2 million UAH added to the Together for the Future Program in the
Kharkiv oblast to finance small communities,
• An Open Government Center opened in the Dnipropetrovsk oblast to
consolidate services of 35 licensing and permit offices in the oblast,
• Financial support for the construction of 3 landfills in the Poltava oblast.
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20. Financial capacity of local governments in Ukraine
Expenditures for the implementation
of the local government authority
proper, $ per capita,
2011
2500 2200
2000
1500
1000 563 700
500 25
0
Ukraine Lithuania Poland Sweden
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21. Immediate tasks to support local governance
1. Increasing the revenue part of local budgets to enable local
governments implement their own mandate.
2. Calculation of transfers to local budgets for the implementation of the
delegated mandate based on national standards.
3. Transparent distribution of subventions from the State Budget
between regions and communities.
4. Stop the practice of transferring the authority to resolve issues of
local importance to state executive agencies. Give the authority taken
from local governments back to them.
5. Departing from the national populist tariff policy and steps towards
real reforms in the housing and utilities sector.
6. Real delineation of boundaries between lands owned by
communities and by the state.
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