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Under the law, specifically p.5 of Article 28 of the Budget Code of Ukraine, a detailed report on the local budget implementation has to be made public by local self-government bodies not later than March 1 of the year following the reporting year. This provision is very convenient for the Kyiv City State Administration as it allows diverting public attention from the results of the financial activities of the city in 2010.
As a result, after the decision was made to adopt the 2011 city budget, the public and experts are going to focus their attention on this document while the report on the use of the public funds in the previous year (2010), which the city authorities have got used to making public in late February, draws marginally less attention. However, the practice suggests the city authorities do not take into account the realities of the implementation of the current city budget when preparing a draft budget of Kyiv for the coming year.
It is to be noted that the last successful implementation of the city budget was in 2006, the first not full year of Leonid Chernovetsky as Mayor of Kyiv. Since then, the situation with the budget implementation has been going from bad to worse with every year. While the 2007 city budget was 98% implemented, in 2008 the budget implementation dropped to 86%, and in 2009 to as low as 71%! The information analytical report on the city budget implementation in the 12 months of 2010 shows that the last year’s budget implementation rate is going to be the worst in the period from 2007-2010.
Same mistakes
According to the abovementioned report of the Main Financial Directorate of the Kyiv Administration, the city budget received only 11.3bln UAH out of the anticipated 17.7bln UAH (64.1% of the plan) in January-December 2010. A similar situation is with the budget expenditures – the city authorities spent 11.4bln UAH out of 18.3bln UAH (62.5%) in this period. In quantitative terms, the results of the implementation of the budget expenditures and revenues are almost identical to the same period of 2009. In January-December 2009, the revenues of the city budget made up 12.56bln UAH (63.5%) while the expenditures amounted to 14.7% (72.7%). The data on the budget revenues implementation have proved the opinion of experts saying that the public should not expect any significant improving of the financial situation in Kyiv in 2010 as compared to 2009 marred by recession. In fact, it became perfectly clear back in the early fall when the results of the collection of individual income tax proved somewhat lower than the revenues from individual incomes tax for the same period in 2009.
It is to be noted that the incomes from the collection of individual income tax make up about 70% of the city budget revenues. According to the information on the Kyiv budget implementation in the 12 months of 2010, this tax brought 7.75bln out of the anticipated 8.4bln UAH (91.8%) to the city budget (as compared, 8.35 out of 9.7bln UAH (86.3%) in 2009). The tax authorities of the capital failed to fulfill the individual income tax plan even though the planned amount was reduced by 800mln UAH against 2009.
Even the record high incomes ensured by the individual income tax in the amount of 850mln UAH in December didn’t help (as compared to 700mln UAH in November and 600mln UAH in October). Interestingly, last year the figures for the same period were almost identical. In December 2009, the city treasury received 900mln UAH of the individual income tax, while 700mln UAH in November, and just 600mln UAH in October.
But the amounts of the summer and, in particular, spring incomes in 2010 were significantly lower than those of 2009, which means that just like for 2009, the Main Financial Directorate of the Kyiv City State Administration made some serious mistakes planning the individual income tax revenues for 2010.
However, the situation with the revenues from land-related payments was somewhat better in 2010 than in 2009. In 2010, the city budget received 1.1bln UAH from the planned 1.4mln UAH (61.9%) of land-related payments, which is more than the land-related payments revenues in 2009 (952mln UAH with the planned 1.3mln UAH). Even though the revenues from land payments grew in 2010 as compared to 2009, not more than 38% of the annual plan of the revenues from land-related payments was actually implemented.
Similarly to 2008 and 2009, one of the major reasons for this significant difference between the planned and received budget revenues is the lack of the so-called ‘other revenues’. In 2010, the city budget received the incomes of 3% of the planned 2.6bln UAH of the other revenues! What’s more important, the city failed this plan in 2008 and 2009 too.
The new city authorities, in particular Oleksandr Popov, Head of the Kyiv City State Administration, made the same mistake as Mayor Leonid Chernovetsky’s team when they didn’t cut this rather vague income item (reviewing the whole 2010 city budget), which had a major negative impact on the implementation of the income item of the entire city budget. It was perfectly clear as early as the end of the summer 2010 that the annual income plan would not be fulfilled.
The transfers from the state budget managed to somewhat improve the situation with the implementation of the income item of the city budget. In 2010, the budget of Kyiv received 2.2bln UAH from the state budget, while in 2009 this figure was lower, 1bln UAH. Another rather important factor is that in 2010, the Cabinet was more supportive of the Kyiv administration, not only increasing the state subventions for the capital, but also reducing the planned amount to be paid to the state budget from 7.4bln UAH to 6.4bln UAH. Moreover, in 2010, the capital paid 0,6bln UAH less than the previous year to the state budget, i.e. 5.7bln UAH vs. 6.3bln UAH in 2009.
Just like the year before, in 2010, the Kyiv City State Administration did not succeed in fulfilling the plan of incomes in all income items of the budget. As a result, the city budget did not receive 4bln UAH, which had a negative impact on the funding of the expenditure item of the city budget.
Manipulating expenses
Last year, the Kyiv City State Administration spent public money mostly to finance welfare expenditures. In 2010, the biggest amounts were allocated to healthcare and social welfare in the city, 2.2bln UAH and 1.3bln UAH respectively. As a result, in 2010, the former was 99.3% implemented, the latter 92.7%, which is a great improvement as compared to 2009. Previous year, 1.8bln UAH was spent to fund the city healthcare sphere (89% of the annual plan) while social welfare received just 55% of the planned funds (1bln UAH out of the planned 1.8bln UAH). Despite significant improvement of the situation with welfare spending in the city, the Kyiv authorities did not manage to decrease the salary debt in the capital. According to the State Statistics Service of Ukraine, as of January 1, 2011, the total amount of the salary debt was 114mnl UAH as compared to 140mln UAH as of the beginning of 2010.
Kyiv, following Donetsk and Kharkiv oblasts, remains one of the three regions in the country with biggest salary debts (taking into account that 71% of the debts fall on economically active enterprises).
At the same time, the new Kyiv authorities have managed to improve the situation with funding transport, connection, telecommunication and information spheres. In 2010, 554mln UAH out of the planned 612mln UAH (90.5%) was allocated from the general and special funds of the Kyiv budget to develop these spheres. To compare, in 2009 the expenditures in these spheres amounted to 370mln UAH with the planned 526mln UAH (70%). In 2010, the city authorities spent on transport and connection more money than it had been planned to spent two years before. Such close attention to this sphere is quite understandable as the capital has to catch up with the preparations made for the Euro 2012 Championship supervised not by the city authorities, but directly by the Cabinet.
However, the Kyiv City State Administration has been in no hurry to finance capital construction projects so far. In 2010, the city allocated 483mnl UAH out of the planned amount of 1.1bln UAH (45.5%) for capital construction. To compare, in 2009, the Kyiv City State Administration provided almost a double amount – 905mln UAH out of 1.9bln UAH planned (47.4%) – for these purposes. But even such a humble amount was enough to launch three new metro stations of the Kurenivsko-Chervonoarmiyska metro line and resuming the Podilsko-Voskresensky bridge crossing construction works, as well as Moskovska Square reconstruction. These positive results were ensured mainly by the fact that the abovementioned metro stations were 96% completed at the start of the year, it took only 200mln UAH to open them for public use, which was done at the end of the year. At the same time, the construction of other objects is still in progress since it requires much more money to complete them. As a result, the 50% financing of the capital construction projects in the city cannot be seen as satisfactory.
The most interesting expenditure item of the 2010 Kyiv budget is probably the Housing and Public Utility Sector. Last year, the city authorities spent 240mln UAH with the planned 2.3bln UAH (10%) of the total expenditure funds. To compare, in 2009, the Kyiv administration allocated 1.4bln UAH out of the anticipated 2bln UAH (72.5%) for the needs of the Housing and Public Utility Sector. It can be explained not by the city authorities dismissing the needs of the Housing and Public Utility Sector, but by the manipulations with the budget implementation date. In the Decision on the 2010 Kyiv budget, the expenditures on the Housing and Utility Sector were first stipulated in the amount of 700mln UAH. But in October 2010, the Kyiv Council adopted amendments to the Decision on the 2010 Budget, under which the financing of the Housing and Utility Sector was increased by 2bln UAH as in October, the Kyiv City State Administration used 1.5bln UAH of credit funds to pay its debts to the Kyivenergo company and planned to use another 500mln UAH for the same purposes. The total made up 2bln UAH. The Kyiv administration received the announced 500mln UAH in November. But neither the information on the budget implementation in January-October 2010, nor the document on the budget implementation in January-December 2010 mentions the money transferred by the city to Kyivenergo’s accounts as part of the Housing and Utility Sector expenditure item in the city budget. Representatives of the Main Financial Directorate of the Kyiv City State Administration do not provide any comment. Presumably, the Kyiv City Administration is deliberately taking its time to record this amount in the expenditure item since in this case the deficit of the city budget as of January 1, 2011 would be not 515mln UAH as indicated in the information provided by the administration for the 12 months of 2010, but 2.5bln UAH, amounting to 20% of the total annual budget of the city of Kyiv! As a comparison, the year 2009, which was marked by the economic recession, was finished with the deficit of 2.1bln UAH (17%). Taking into account that the Kyiv City State Administration will have to mention the payment of the debt to Kyivenergo in the final report on the 2010 budget implementation, it seems logical that the city authorities are not eager to make this document public.
Conclusion
It is to be noted that today Ukraine in general, and Kyiv in particular, are facing a rather paradoxical situation when there is no monitoring of the effective and efficient implementation o the local budgets. The only control on the local level is checking the legality of the expenditures of the local budgets by the State Pay Corps of the Ministry of Finance. Territorial communities have too little information on the effective use of their money. The only way to improve the current situation is to introduce the practice of mandatory audit of the local budgets. To sum up, despite the already adopted 2011 city budget, the city authorities have to:
• to public report on the state of the implementation of the capital’s budget in 2010 to the city community;
• to provide explanation to the city community of the reasons for blunders in the Kyiv budget;
• to initiate the audit of the Kyiv city budget.
Experts of the Open Society Foundation: Lesya Shevchenko, Oleksandr Babanin, Petro Bilian, Andriy Liubych, Maksym Kamenev.
To be noted: NGO Open Society Foundation has initiated the public monitoring of acts, adopted by the Kyiv City Council and Kyiv City State Administration, which influence the amounts in the income and expenditure items of the 2010 Kyiv budget, its implementation and public reporting.
The project is supported by the International Renaissance Foundation.
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