The state takes away from a coal miners’ town a bigger part of its means for survival and development – such are the results of Ukraine’s first independent audit of city budgets

During February 2009 – beginning of January of 2010 specialists of the Center for Public Assessment carried out an independent audit of the budget of a territorial community and also an assessment of the municipal system of social protection and social security of the city of Kirovske in Donetsk Oblast.

Within the framework of the mentioned projects, the specialists of the Center for Public Assessment carried out for the first time in Ukraine a general audit of the city budget, analyzed main parameters of its social and economic development, researched the operation of the municipal system of social protection and social security, assessed the demographic situation in the city and also conducted a separate analysis of expenses for social protection and social security.

The project’s aim was to reveal the main problems and prospects to increase the income and optimization of the expenses of the city budget and also to assess the economic and demographic situation in the city on the basis of the conducted audit of incomes and expenses of the budget of the territorial community of the city of Kirovske. In addition, the project was focused on a more detailed research of the municipal system of social protection and social security and that was conducted for the following purpose: optimization of expenses for social protection and social security by enhancement of transparency and effectiveness of use of budgetary funds for social needs, assessment of operation of municipal institutions of social service for population, assessment of the needs of city residents for various measures of social security and their correspondence to those needs.

The conducted audit of the city budget of Kirovske showed that, under the conditions of the economic crisis and non-adoption of the state budget, cities-donors (a city that covers all the expenses, which the state delegated to it, by means of incomes of its local budget that are provided for these expenses; the city transfers its excess funds to the state budget) suffer more than those cities that are not capable to finance their main expenses for education, healthcare, social security etc. The explanation for that is the following: under the conditions of the economic crisis when incomes of local budgets fall and a state budget is not approved, cities-donors transfer not their excess funds to the state budget, but rather the funds they need themselves for provision of basic needs of residents of such cities.

Svitlana Yakymenko, Deputy City Mayor of Kirovske, noted, “Currently, the city budget of Kirovske experiences significant difficulties, related with non-adoption of the state budget for the year of 2010. So, the leadership of our city has to provide a transfer of excess incomes of the local budget to the state budget, within a standard amount that was effective in 2009. For the city of Kirovske, that amount is 749,200 UAH per month. Moreover, adoption of the Law of Ukraine “On amendments to some laws of Ukraine on prestige of coalminer’s labor” that provided a 5-percent decrease in the rate of a tax on incomes of coalminers, who carry out underground works on full-time basis, led to losses of the city budget in the amount of 795,000 UAH in February of 2010 alone. Such way, our city started the month of March of 2010 with accounts payable for energy resources and salaries in the amount of more than two million Hryvnia.”

Continuing this topic, Head of Economic Projects of the Center for Public Assessment Olha Romanyuk noted, “Small mono-structural cities, and Kirovske is one of them, suffer more than other cities under the conditions of economic crisis and non-adoption of the state budget: during the crisis, tax receipts, which provide income for the local budget, decrease while at the same time withdrawal of funds to the state budget remains on the level of the past year. This leads to that such cities as Kirovske do not have possibilities to finance all the expenses, delegated by the state to them.”

Speaking about the condition and priorities of the state social policy, Head of Administration of Social Protection and Social Security of Kirovske City Council Violeta Boyko noted, “Social protection and social security are the third budget item, in terms of volume of expenses of the budget of Kirovske, after expenses for education and healthcare and they constitute 17-22 percent of all expenses of the local budget. The burden under this category of expenses is especially notable under the conditions of the economic crisis (when incomes of local budget fall) since social protection and social security of citizens are, first and foremost, the responsibility of the state and not of the local self-government.”

Summing up what was said at the press conference, Head of the Board of the Center for Public Assessment Lyubomyr Chorniy noted, “Since social policy is defined by the government of Ukraine and such measures of social support as benefits, social assistance and social services have to be financed by delegated incomes and transfers from the state budget to the local budgets, bodies of local self-government actually serve as a technical instrument for transfer of funds and at the same time they are forced to bear all their responsibility to members of corresponding territorial communities.”

Specialists of the Center for Public Assessment hope that the following will be the main consequence of projects, similar to the current one: initiation of a broad public discussion regarding a necessity to reform the current budgetary system that makes bodies of local self-government directly dependent on the state budget, making them ‘hostages’ of a political situation in the country and limiting real capabilities of bodies of local self-government to impact the life of their communities, which is especially notable during the period of the economic crisis. At the same time experts state about ineffectiveness of the current state policy in the area of social protection and social security; despite that a necessity was stated to improve the situation so that various measures of social support of the population become more targeted and more transparent, the state policy in this area further remains to be focused only on introduction of new benefits and social payments.

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Five facts that characterize specifics of the budgetary sphere of the city of Kirovske

• As of the beginning of 2009, Kirovske is one of the 31 cities-donors.
• A part of funds, which are annually transferred by Kirovske to the state budget, constantly constitutes eight-nine percent of all the incomes of the local budget.
• A tax on incomes of physical persons is the main budget-forming tax of the city of Kirovske and it used to constantly provide 60-70 percent of all the incomes of the budget.
• The mono-structural economy of many cities in Donetsk Oblast leads to that their tax receipts directly depend on operation of enterprises that provide jobs for most residents of the cities. For example, such an enterprise for the city of Kirovske is Open Joint-Stock Company “Coalmine “Komsomolets Donbasu”.
• Expenses for social protection and social security are in the category of delegated expenses and constitute the third item of the budget of Kirovske, in terms of the amount of expenses, after expenses for education and healthcare.

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The aim of the project “Monitoring of the Social Security System and Social Budget of Cities”, which was carried out by the Center for Public Assessment under the support of the Civil Society Impact Enhancement Program of the International Renaissance Foundation, is to enhance affordability, quality and effectiveness of municipal services in the area of social protection and social security and also of budgetary funds that are directed on their financing, by means of monitoring of operation of municipal institutions for social security and conducting of an audit of the social budget of the city of Kirovske.

Contact person: Lyubomyr Chorniy, 093 246 02 46, Center for Public Assessment, city of Kyiv