Decentralization in Ukraine2014-15

Anatoliy Tkachuk

Expert and information support of the local self-government reform and territorial organization of authority in Ukraine

Formation of a present-day local self-government system in UkraineSpring 1990 – first democratic election to the local

councils and their activity in accordance with the USSR law of the Perestroika period

07.12.1990 – the first law “On the local councils of people’s deputies, local and regional self-government” was adopted

Changes on the level of districts and regions in 1991- 1996

28.06.1996 – the Constitution of Ukraine was adopted21.05.1997 – the law “On the local self-government in

Ukraine” was adopted

What happened on the regional/district levels1990-1992 – executive committees1992-1994 – President’s representatives1994-1995 – executive committees with elected

council chairpersons 1995 – 1996 – administrations with elected

chairpersons of local state administrations1996 – until now chairpersons of local state

administrationsWhy was it not effective? Because there was no basic

level of local self-government!

Formation of the administrative and territorial division (ATD)Present-day ATD had been formed by

1964, when the period of permanent changes of the Soviet-era ATD finished.

In 1990-1996, more than 1,000 new village councils were established which led to further fragmentation of the basic level of local self-government.

Ukraine

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Autonomous Republic of Crimea Regions

Cities with a special statusKyiv and Sevastopol

Cities of republican subordinance

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Cities of regional subordinance

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*Note: Sverdlovskyi district of Luhansk region is subordinate to Sverdlovsk city council, Krasnolymansk district of Donetsk region is subordinate to Krasnolymansk city council

Ukrainian reform of 1990

In 1990, Ukraine adopted the law on local and regional self-government which was actually as good as the Polish law. However, unlike Poland, Ukraine had no territorial basis required for a fully functional local self-government on a basic level – especially, village councils

Village councils were too small to fulfill their legal authorities. It is this incapability that has caused a situation, when more and more powers were delegated to the higher authorities, while real local self-government was developing only on the level of cities of regional subordinance.

Stages of discussions on the need to reform local self-government in Ukraine

2004 – preparation of the draft amendments to the Constitution of Ukraine (3207-1) as to ATD and the system of local self-government bodies.

2005 – introduction of the office of the Deputy Minister in charge of the reform and preparation of the reform.

2008-09 – development of the reform concept and action plan, preparation of basic draft laws.

2011-13 – abolition of resolutions approving the reform concept and action plan; further centralization of power.

Ukrainian reform in 2014-15

Ukraine is implementing not Polish, French, or Latvian reform model, but a Ukrainian one, considering the positive experience of other countries.

Unlike other countries, Ukraine is simultaneously implementing the reforms of local self-government, administrative and territorial division, and state regional policy.

Results of 2014-15

Reform concept was adopted;Law “On cooperation of territorial communities”Law “On voluntary amalgamation of

communities” Law “On fundamentals of state regional policy”A number of laws on urban development have

been amended Budget decentralization

Budget decentralization

What has changed?

EXTENSION OF GENERAL FUND RECEIPTSEXTENSION OF GENERAL FUND RECEIPTS

4

Transfer of the environmental tax (except for radioactive waste) from the special fund, with the crediting ratio increased to 80% (effective norm – 35%)

100 % of payments for administrative services

100 % of state dutyOut of the state budget

New payments Fee for retail sale of excisable goods with the rate of 2%-5% of the price of the sold product

10% of corporate income tax in the private economy sector

Transfer from the development

budget

Single tax

Tax on immovable commercial (non-residential) property (extension of the tax base of the real estate tax)

To local budgets

DISTRIBUTION OF THE INDIVIDUAL INCOME TAXDISTRIBUTION OF THE INDIVIDUAL INCOME TAX

5

Receipts in theterritories of the citiesof regional subordinance,districts,budgets of theunifiedterritorial communities

Receipts in the territoryof Kyiv

State budget

Regional budgets

Budgets of cities of regional

subordinance, district, unified

community

Budget of Kyiv

60%

25%

15%

60%

40%

Distribution of private entrepreneurs profit taxDistribution of private entrepreneurs profit tax

5

Receiptsin the territoriesof regions

Receiptsin the territory

of Kyiv

State budget

Regional budgets

Budget of Kyiv

90%

10%

90%

10%

HORIZONTAL ALIGNMENT MECHANISMHORIZONTAL ALIGNMENT MECHANISM

6

Budget level Type of receipts to be aligned regional budgets corporate income tax (10%)

individual income tax (15%) budgets of cities of regional subordinance and

districts budgets of unified territorial communities

individual income tax (60%)

Kyiv No alignment

0,9

1,1

Taxable capacity

index

Реверсна дотація

1,0

+ 80 %

- 50 %

Basic subsidy

Reforms: initial results

Dozens of agreements on cooperation between the territorial communities were adopted.

159 amalgamated communities were set up, and the election there was announced.

As a result of budget decentralization, revenue of the local budgets have increased from 20 to 40%.

For the first time the funds at the regional level have not been distributed ‘manually.’

Challenge: dissatisfaction with the reforms

Decentralization – understanding of the system

Election to voluntarily amalgamated territorial communities (VATC)On October 25, mayors and councils of 159 VATCs,

which unite more than 7% of all territorial communities of Ukraine, were elected.

Another 30 newly established VATCs were not allowed to participate in the election on far-fetched pretexts: these are communities around the cities of regional subordinance.

Unfortunately, political maneuvering of regional councils impeded election to VATCs in several regions.

State regional policy reform: achievements in 2014-15 Law of Ukraine “On the principles of state regional

policy” of February 5, 2015 No. 156-VIII; Budget Code of Ukraine in the version including

amendments introduced by the laws № 71-VIII від 28.12.2014; № 79-VIII від 28.12.2014; № 118-VIII від 15.01.2015; № 176-VIII від 10.02.2015.

Tax Code of Ukraine with amendments introduced by the laws № 71-VIII від 28.12.2014; № 72-VIII від 28.12.2014; № 206-VIII від 13.02.2015.

State strategy of regional development of Ukraine by 2020 of August 6, 2014 р. № 385(hereafter referred to as SSRD-2020).

Interim results

Ukraine is implementing a comprehensive reform in the sphere of decentralization and regional development.

Legislative framework for the formation of capable communities has been shaped, local self-government bodies have received budget resources, while the regions have got a fair distribution of funds for regional development.

Key challenges

Politicization of the reform on the eve of local election;

Excessive compromises during adoption of the normative-legal acts, including the Constitution of Ukraine;

Poor institutional capacity of all public agencies;Poor communication with the public regarding the

reform;No unitary center of reform;Poor coordination of donor programs.

New challenges in need of urgent response – weakening of regions

What comes next?

If the existing draft amendments to the Constitution of Ukraine are adopted, a new administrative and territorial division should be formed within two years.

If amendments to the Constitution are nor adopted, the process of voluntary amalgamation of communities will continue. There are incentives for that. However, in this case there would not be any changes on the level of districts and regions.

Major needs

To adopt the law on administrative and territorial division as soon as possible and to deal with the issues in districts;

To provide institutional and financial support for the newly established communities;

To provide trainings for the newly elected deputies and heads of the voluntarily amalgamated territorial communities;

To organize a public awareness campaign about the new paradigm of activity of the local self-government bodies.

Instead of a conclusion

For the first time since 1990, Ukraine has taken serious measures to create a fully functional and effective local self-government on the basic level – that of communities, and provided legislative and financial support of its activity.

This reform would have been impossible without contributions of independent experts and donors, especially the International Renaissance Foundation, DESPRO, the Council of Europe, and the EU that prepared a foundation for the reform despite the situation of total despair.