A Tricky Scenario: Expenditure Assignment

Even in the most centralized regimes, there are ways to delegate some managerial tasks to local councils. Regardless of the competencies of the elected bodies at sub-national levels, in most of the countries local administration is characterized by “duplicated sub-ordination.” The local administration is the agency that implements locally designed and approved political programs but, at the same time, the local administration is the local representative of the central government. (Ukraine is an unusually strange country in this respect as well, because the first of these two roles of local administration barely exists.)

The main issues of the social assistance of the City Executive Committee are low-income benefits, benefits for large families, targeted home-help for people living by themselves, and interment allowances for people living alone. In previous years, social assistance was allocated from the funds coming into the local budget from the rents in the so-called special fund. Depending on the income, the City Executive Committee could provide people with social assistance. According to the Law of Ukraine On Local Self-Government, article No. 34, clause No. 1: “additional guarantees of social protection from the local funds and charitable receipts should be established apart from those established by legislation.” In the year 2000, the City Executive Committee included the article “On social assistance” into the city budget.

The issue of budget distribution is a very difficult one for the city. In my opinion as Chairman, the budget should be formed on the basis of the level of social needs. “It is difficult to define the term ‘social needs’” —says the respondent—“there is no such legal definition.” The rayon govern-ment attempted to allocate the funds on a per capita basis of the total local budget (approximately UAH 45). Then this figure was multiplied by the number of citizens in a certain town or village and that was the budget. But this is obviously not the correct way because there are some structures that provide a service for the citizens of the whole rayon: procurator’s office, militia, rayon hospital, department of social protection, etc. This must be reflected in the city’s budget. Until this problem is solved there will be constant arguments between the rayon and the city.

S^OURCE: City Chairman, Ukraine.

If a local administration spends a lot of money, e.g. on social assistance, there is no clear-cut information available as to why they do so. This money may be based on the decisions of the local policy-makers themselves, or may be the result of initiatives at the central level of governance.

To justify our view that these expenditure assignments cannot be used as meaningful indicators of decentralization, we quote the IMF Government Statistics (Mercer Blackman 1997); these show what proportion of General Government Expenditure is spent by sub-national bodies.

Table 1.6

General Government Expenditure Spent by Sub-national Bodies

Ukraine 34%

Latvia 26%

Hungary 23%

This data creates the impression that local decision-making is responsible for a very small portion of local expenditure. In most countries, for example, it would make no

sense not to decentralize the pension system. In Ukraine—where the pension fund contributions can sometimes only be collected “in-kind,” and senior citizens receive their pensions in the form of natural goods—the system must be managed locally. It is possible to determine the exchange rate of pension-barters, or to organize the delivery of pensions (say in potatoes or bicycle parts), only at local level. In all three countries, it is fashionable to support “better targeting” of the locally managed social programs. As far as this idea is concerned, our judgement is very critical and the considerations of the Poverty Report of the World Bank in Hungary (1999) must be taken seriously. This report stated that a considerable proportion of locally managed cash benefit programs are misused and that, in spite of means testing, these programs did not reach the poor. All other types of cash transfers and social protection programs have demonstrated better targeting than the means-tested locally managed cash benefit programs.

As of 1 January 2000, a total of 45,025 unemployed persons were registered in Employment Centers; this number represents 0.89% of the total population of Kyiv.

Of these, 9,179 of them received unemployment benefits: 30.8% received over UAH 100 a month, 33.8%—UAH 25, 25.5% UAH 25-74 a month. The professional orientation services were used by 25,843 persons during the year; 3,847 unemployed persons were engaged in public works; 25.8% were provided with jobs (there are five unemployed people for one who is working in Kyiv).

Even so, these Employment Center statistics do not reflect the actual situation of unemployment in Kyiv (according to the data of the State Committee, the level of unemployment reached 13.2% in Kyiv). Thus it is possible to conclude that most people without jobs do not register at an Employment Center. They do not apply for a job or for assistance (which anyway does not cover the needs for living). That is why neither the City Employment Center nor the Unemploy-ment State Fund has anything to be proud of because 23.3% of the total sum of Fund expenses is spent on maintaining and improving the Fund itself.

SOURCE: Case study, Kyiv City Employment Center.

On the basis of the available data, there are no figures on the administrative costs of local social assistance programs. Concerning the very low level of average benefits received and the overly complicated testing and decision-making procedures, however, one can hypothesize that the efficiency of welfare expenditure assignment programs is very low.

There are additional problems with those programs where the administrative tasks are delegated only to the local level. If the local administration is provided with “technical”

administrative duties only, their perception on budgetary limitations will inevitably be “soft”;

they will not be interested in concentrating on the cost-effectiveness of the programs. More-over, in any case of “third party payments,” the problem of cost containment will occur.

This happens in “compensatory schemes,” but this is also the case in Hungary’s non-insurance based, social assistance financed disability schemes. In Ukraine, this problem occurs in the

form of the extremely extended magnitude of arrears among sub-national units. “As of 1 September 1997, accumulated local budget arrears were equivalent to nearly 40% of projected annual revenues for the entire year” (J. Dunn, D. Wetzel, World Bank 2000).