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LOCAL SELF-GOVERNANCE IN UKRAINE

2010-2012

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Local Government Framework in UkraineLocal 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 authority (proper) includes, in particular, ensuring stable operation of life-sustaining systems in cities and their maintenance.In addition to this, the law allows the state to delegate the authority to local governments in such areas as public education, culture, health care, and social protection.Local governments use their local budget funds to exercise these types of authority.To exercise the local government authority proper, local budget receive collections from local taxes ad fees.The state ensures the implementation of the delegated authority through assigning revenues from state taxes to local budgets, as well as through transfers from the State Budget.

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Main achievements in the restoration of local self-governance in Ukraine

Local self-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 re-constructed the system of local government bodies, and developed its legal foundations. The local government framework has been specified in the Constitution of Ukraine.In 1997, the Verkhovna Rada ratified the European Charter of Local Self-Governance.Local governments unite in local government associations, with the Association of Ukrainian Cities being one of them. The status of local government associations has been specified by a separate law.

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Key problem issues of cities

Insufficient resources of most of local government to adequately perform their functions specified by the law remains the main problem. Reasons:1. Insufficient local budget resources proper, which did not exceed 8.7% of the total revenues of local budgets.2. Constant failure of the Government of Ukraine to comply with its constitutional obligation to provide the complete financial support for the implementation of the delegated authority. Over the last three years the government of Ukraine performed this duty at about 80% at best.

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Current status and future of local government reform

Only the reform may ensure the adequate capacity of local governments. Almost all experts agree on the necessity of such reform. The reform implies the optimisation of budget expenditures through the consolidation of the territorial foundation of local self-governance of villages, towns and cities, as well as reducing the number of local government bodies 8-10 times, and strengthening the financial foundations of local budgets through the introduction of the comprehensive property tax.

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Implications of the consolidation of territorial foundations of local self-governance

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Share of local budgets (LBs) in the Consolidated Budget of Ukraine (CBU), %

44,645,550,346,2

32,532,739,536,2

20,721,725,624,6

3,33,53,23,30,0

10,0

20,0

30,0

40,0

50,0

60,0

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

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Failure of the state to provide the financial support for the implementation of the delegated authority and

related consequences for local budgetsFinancial support from the state for the delegated authority, %

Share of local budget own funds channeled to support the delegated authority, %

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Sources of funds to cover the shortfall for the delegated authority

1147.5

6

5 1 7.8

27.3

Projected by the Ministry ofFinance 01.01.2012

Budget shortfall for delegatedauthority and sources to cover it:

Atditional transfer during the year

Funds from Basket Two

Non-repaid mid-term loans.December 01, 2012

Optimisation

Accounts payable, December 012012

Потреба на делеговані

A total of 141.3 billion UAH needed to support the implementation of the authority delegated by the central government to local governments. The shortfall constitutes 27.3 billion UAH

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The overall structure of local budget expenditures in Ukraine, Slovakia and Poland in 2010, %

8,7

31,6 26,6

84,652,9

55,5

6,715,5 17,9

0%

20%

40%

60%

80%

100%

Ukraine Slovakia Poland

Own authority Delegated authority Staffing expenditures

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Central government blocks local government own funds

Starting with the 2nd half of 2012, in the context of severe State Budget shortfalls, the State Treasury resorted to the unprecedented withholding of funds local governments had on their accounts.As of late December, about 4 billion UAH remained blocked and local governments failed to pay their contractors for works and services already provided.Thus the central government managed to resolve its financial problems at the expense of local budgets.So far, a considerable part of these funds still remains blocked.

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Key problem issues in the Housing and Utilities SectorLocal governments in cities are responsible for housing maintenance, solid waste management, centralized water and heat supply, and sewerage. The sector has deteriorate due to lack of resources.In 2004 the country approved the National Housing and Utilities reform Program, however its implementation is undermined by the populist policy of the government.As of today, the tariffs set at the central level cover only about 70% of the service cost. The government is obliged to compensate local budgets their losses associated with the low tariff and service cost, however it fails to do it in a timely manner. Therefore, the total debt of utility companies (first of all gas and electricity debts) exceeds 17 billion UAH.The compensation funds the Cabinet of Ministers does provide are being distributed in a non-transparent manner and with the considerable regional bias.

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Distribution of the State Budget subvention to local governments in regions in June of 2012 to compensate the difference in tariffs

(UAH per capita in urban areas)

0.100.130.150.160.170.190.190.220.230.230.240.250.250.280.290.310.320.340.360.380.40

0.480.53

0.560.60

0.681.76

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

Zakarpattya oblast

Ivan-Frankivsk oblast

Mykolaiv oblast

Kherson oblast

Zaporizzhya oblast

Ternopiol oblast

Sumy oblast

Odesa oblast

Chernihiv oblast

Rivne oblast

Lviv oblast

Cherkasy oblast

Chernivtsi oblast

Violyn oblast

Vinnytsya oblast

Khmelnytskyi oblast

Kyiv oblast

Zhytomyr oblast

Crimea

Poltava oblast

Kirovohrad oblast

Kharkiv oblast

Dnipropetrovsk oblast

city of Sevastopol

Luhansk oblast

Donetsk oblast

city of Kyiv

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Centralization instead of decentralization

Over the last 3 years, the central government makes steps towards the centralization of public authority. First of all, this policy affects local governments whose authority is taken from the local level and transferred to state administrations and ministries.Examples:1. Law “On Regulation of Urban Development Activities” approved in 2010, whereby despite AUC protests local governments were stripped of their influence on the development of populated areas.2. Reforms in the medical system, whereby local governments are stripped of their influence on the provision of in-patient medical assistance and emergency assistance.3. The right to inventory of real property has been taken from local governments, although local government do need to keep it to perform the taxation of real property.

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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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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 self-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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Selected improvements and successes over last couple of years

At the national level these include:1. Introduction of the local tax on real property.2. Channeling 100% of land fee collections and collections from the unified business tax to the development part of local budgets.3. Simplified local borrowings.4. Approval of the law on the delineation of boundaries between state-owned and communally-owned lands.5. More transparent mechanism from allocation of 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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Selected improvements and successes over last couple of years

At the national 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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Financial capacity of local governments in Ukraine

Expenditures for the implementation of the local government authority

proper, $ per capita, 2011

25563 700

2200

0500

1000150020002500

Ukraine Lithuania Poland Sweden

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Immediate tasks to support local self-governance

1. Increasing the revenue part of local budgets to enable local governments implement their own authority. 2. Calculation of transfers to local budgets for the implementation of the delegated authority 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.