Georgia’s draft law “On Georgia’s State Budget of 2007” and local government

Professor MikheilJibuti

Georgia’s draft law “On Georgia’s State Budget of 2007” was submitted to the Georgian parliament on 29 September 2006. The initial procedures related to consideration of the draft law were over with its consideration at the meeting of the Finance and Budget Committee on 19 September 2006.

Georgia’s Control Chamber submitted its conclusion on Georgia’s draft law “On Georgia’s State Budget of 2007” to the Georgian parliament. Taking into account all the remarks and considerations, the Finance and Budget Committee made a conclusion on Georgia’s draft law “On Georgia’s State Budget of 2007” and it was submitted to the Georgian government.
The mentioned budget law is particularly important from the viewpoint of implementation of the local government reform in Georgia. The state budget of 2007 will be the first state budget in Georgia for enabling of the new law “On Local Government”, as well as for municipalities consolidated on the regional level on 5 October 2006 and the elected Sakrebulos of the towns that are not part of the regions.
The state budget of 2007 should give the first and the most important impetus to inculcation of real local government in Georgia. It should initiate the implementation of the task that was impossible in independent Georgia for fifteen years. With the initiation of inculcation of a real local government system, a logical distinction will be drawn between the stage of its legal preparation and the stage of its introduction. The latter will be possible only if, first of all, the financial support of the local government reform in the country proclaimed in the state budget of 2007 becomes possible, which will be then followed by a correct determination of local government’s own budgets on the basis of Georgia’s law “On the Budget of Local Government Units”.
It must be said from the beginning that the draft law “On the state budget of 2007” is not adequate to the wave of local government that started with ratification of the European Charter on Local Government by the Georgian parliament on 26 October 2004, continued with the President’s proclamation the local government reform as a priority, harmonious work of the State Commission for Effective Government System and Territorial Structure’s Reform set up under his direction, European Council, Georgian parliament, donors, , international organizations (USAID, UI, UNDP, GTZ) and nongovernmental organizations (National Association of Local Government, Association of Economists of Georgia, Association of Young Economists, etc) in accordance with the strategy founded on the formed legal base, and ended with the elections held on 5 October 2006.
In the draft, financial relations with municipalities and self-governing towns, like in the law “On State Budget of 2006”, are given to in the assignments of the Finance Ministry of Georgia, as a spending subject. In the draft of 2007 the item is called “Financial assistance to the budgets of territorial units”, in the law of 2006 it was called “Transfer to the budgets of territorial units”. In both cases the item (code 25.04) is represented in more detail as subsidies, subventions and current transfers “to the budgets of autonomous republics (code 25.04.01) and subsidies, subventions and current transfers “to the budgets of other territorial units” (code 25.04.02).
After drastic changes of legal norms in the process of the local government’s reformation, it is not clear what is implied under “the budgets of other territorial units”.
It is necessary to reflect the real changes in the Budget Law of 2007. “Self-governing units” should be singled out as a separate item, which will have a more distinct level – “municipalities” and “self-governing towns”. As to “financial assistance” – it should be differentiated: equalizing transfers, separate and separate purposeful and special transfers, with indication of the delegated functions and special purposes. In this case their presentation in the form of subsidies, subventions and current transfers does not reflect the provisions envisaged by the legislation. The entry existing in the draft does not reflect the reality, in particular the changes that took place in the country de jure and de facto in relation to local government.
If we assume that in the draft Budget Law of 2007 self-governing units are implied under the budgets “of other territorial units”, then budgetary allocations in the amount of 51.055.0 thousand GEL are determined for them instead of actual 118 423.4 thousand GEL in 2005 and planned 157 789.4 thousand GEL in 2006.
We have made this assumption because it is indicated after the table of allocations of the Finance Ministry that the sum of 51 055.0 thousand GEL represents the allocation for financing of the budgets of local government units. However, it must be said that “local government units” do not represent the remaining other territories, except for the territories of autonomous republics. Self-governing units are a part of the territory of the autonomous republics.
The necessity of classification is also seen from the fact that, according to code 25.09, 50 000 thousand GEL is allocated “for the projects to be implemented in Georgia’s regions” in 2007. Then it is vaguely explained what the mentioned sums will be spent on and that it represents the fund of municipal development and the unity of co-financing means. Accounting of expenses, their differentiation or who, how much and on what will spend is not explained, and the word “regions” is used in its common meaning. Introduction of other notions besides “the autonomous republics”, “self-governing units”, “municipalities” and “self-governing republics” is not justified and obscures the text, which is related to further complications of the control and fulfillment processes.
The information “projects implemented in the regions” is singled out in the information enclosed to the draft Budget Law of 2007, in which it is said that “50 000,0 thousand GEL is envisaged “in the state budget of 2007” that will be spent on the spot (? – M.J.) on rehabilitation of development (? – M.J.) of infrastructure sectors. Large-scale implementation of this kind of arrangements will considerably improve the appearance (? – M.J.) of the country’s inhabited localities, approach the European standards (? – M.J.) and attract tourists, which will contribute to the population’s employment and raise the living standard” (the style is observed – M. J.). This entry also shows that the issues of local government’s financing should be brought to conformity with the social-economic policy determined in the country both terminologically and factually. The essence of the mentioned 50 million investment projects can not be seen from the budget, which obscures the budget still more. It is written word by word in the draft law that these projects envisage the projects to be implemented by the Municipal Development Fund, the list of which is given: Aspindza (Dzveli-Chobareti water pipeline), Chkhorotsku (Napichkho bridge, Lesichine bridge), Mestia (Latala culture house, Tsvirmi community center, Mazeri school), Senaki (Gejeti school), Abasha (Ketilari school, Ontopo school), Martvili (Zeda Nagvazao public school, Teleri school), Oni (Parakheti road), Lentekhi (Chikhareshe electric power line, Zhakhundera schhol), Patara Liakhvi (Disevi kindergarten), Kvareli (Kvareli school, Eniseli school), Akhmeta (Akhmeta water pipeline), Sighnaghi (Anaga gas pipeline), Gori (Ditsa gas pipeline, Tirdznisi gas pipeline), Tetritskaro (Manglisi water pipeline), Didi Liakhvi (Kakhvi kindergarten, Kekhvi school), Lagodekhi (Lagodekhi water, Kabala school), Dmanisi (Dmanisi 1School, Dmanisi water, Mashavera gas), Kodory canyon (Omarishkhara school, Martskhena Ptishi school), Sulo (Abusaridze-Tbeli gymnasium, Skhalta bridge), Kobuleti (Shuaghele school, Chakhati school), Khoni (Gorda school, Akhalbediseuli school, Nakhakhulevi school, Patara Jikhashi school, Jvari water), Shuakhevi (Chvana school, Shubani school, Jabnieebi school), Khelvachauri (Agara bridge, Dzablaveti school), Tsageri (Ghvirishi school), Khobi (Sajijao school), Khibula school, Kariata school), Shua Khorga school, Vani Mtisdziri school), Lanchkhuti (Chochkhati school). Here not only the sum and on what it will be spent is unclear, but also what “Anaga gas pipeline”, “Akhmeta pipeline”, etc should mean.
It is determined in Article 40 of law “On Georgia’s State Budget of 2007” that “local government bodies, except for the local government bodies indicated in Paragraph 4 of this Article, are allowed to direct the funds received from the state taxes and dues for financing of the exclusive and delegated authority” (Paragraph 3) and “local government bodies of the towns: Tbilisi, Kutaisi, Rustavi, Poti, Akhmeta, Gurjaani, Lagodekhi, Dedoplistskaro, Telavi, Sagarejo, Kvareli, Chiatura, Sachkhere, Zestafoni, Zugdidi, Martvili, Senaki, Tsalenjikha, Khoni, Gori, Kaspi, Kurti, Kareli, Khashuri, Bolnisi, Gardabani, Tetritskaro, Marneuli, Tsalka, Lanchkhuti, Ozurgetu, Adigeni, Akhaltsikhe, Borjomi, Tianeti, Mtskheta, Kazbegi and Tsageri should first of all direct the funds received from the state taxes and dues for financing of the delegated authority”. (Paragraph 4). The mentioned provisions are at variance with the main idea of the local government reform: budgetary federalism and the local government’s independence within the limits envisaged by the law, in conclusion of a delegated authority agreement between them.
The mentioned provisions of the draft law are in collision and do not comply with Georgia’s law “On Local Government”, according to which “delegation of authority by the organs of state government to self-government units is allowed on the basis of Georgia’s legislative acts and also agreements, with handing over of corresponding material and financial resources” (Article 17). The mentioned provisions are also at variance with Georgia’s law “On Budget of Local Government Unit”, in accordance with which “independence of local government bodies in budget activities is guaranteed: by own incomes envisaged by the law and independent determination of expenses for implementation of exclusive authority; also within the limits of the law “On Delegated Authority”, with the right of taking independent decisions”. (Article 6, Paragraph 3). If the mentioned provisions of the law “On Georgia’s State Budget of 2007” are adopted without changes, they will have no legal force in view of the collision with the law that is higher in the hierarchy.
According to the draft law, the following authorities is related as the delegated one: (1) public healthcare and sanitary-hygiene services and programs; (2) preparation of conscripts for compulsory military service; (3) medical examination of citizens liable to calling up to Georgia’s armed forces; (4) minimal social package; (5) financing of the military department .(Article 40, Paragraph 2). The amount of expenses to be incurred should be given in the state budget in accordance with the authorities delegated to municipalities and local government bodies. One of the biggest novelties that is implemented within the framework of the local government reform is inculcation of the system of the so called equalizing transfers. After serious debates, the political will and consensus of the authorities reflected in Gergia’s law “On Local Government” and law “On Budget of Local Government Unit”. It was decided that the amount of the equalizing fund would be determined every year, while its distribution takes place according to the formula. Probably, in the near future, when the lobby of local government becomes stronger, the Georgian parliament will return to the issue of determination of the equalizing fund and, in my opinion, it will be possible to reflect a more fruitful position in the law, according to which, with the purpose of protection against conjuncture, the equalizing fund will be annually in advance determined by the law in the amount of a definite share of the state budget. The formula given in the adopted law is liable to changing. In our opinion, it is impossible to achieve practical results by application of this formula. At the same time, the fact is to the fore – distribution of the equalizing transfer taking into account municipalities and self-governing towns is given in the draft law “On Georgia’s State Budget of 2007”. The methods by means of which it was calculated are unknown to me, that is why I will not consider it concretely and return to this issue when it becomes known to the society how the so called “potential income”, on which the existing formula is based, was calculated by the Ministry of Finance. However, one thing can be said in any case: the sum of 13 233,0 allocated for equalization is beneath criticism. It is a good argument why this sum should be determined in percentage terms. How did the state get 13 million? It is also not known what the government expects from these 13 million. It is not indicated either in the explanatory card or in the information enclosed with the draft budget. According to the presented project, the equalizing transfer is distributed as follows: I. Ajara 4,555.0, self-governing city of Batumi 33.0, Kobuleti municipality 131.0, Khelvacjauri municipality 142.0, Kedi municipality 1,711.0, Shuakhevi municipality 1,883.0, Khulo municipality 655.0, II. self-governing city of Tbilisi 0, III. Kakheti region 268.0, Akhmeta municipality 0, Gujaani municipality 57,0, Lagodekhi municipality 51.0, Sagarejo municipality 0, Sighnaghi municipality 114.0, Kvareli municipality 43.0, IV. Imereti region 1,206,0, self-governing city of Kutaisi 0, Chiatura municipality 0, Tkibuli municipality 313,0, Tskaltubo municipality 67,0, Bahgdati municipality 120.0, Vani municipality 152.0, Terjola municipality 135.0, Samtredia municipality, Sachkhere municipality 167.0, Kharagauli municipality 113.0, Khoni municipality 139.0, V. Samegrelo and Zemo Svaneti region 793.0, Zugdidi municipality 144.0, Abasha municipality 131.0, Martvili municipality 206.0, Meskheti municipality 124.0, Ckhorotsku municipality 139.0, Tsalenjikha municipality 49.0, VI. Shida Kartli region 1,208.0, Gori municipality 78.0, Kurti municipality 459.0, Eredvi municipality 411.0, Kareli municipality 177.0, Tighvi municipality 83.0, VII. Kvemo Kartli region 1,377.0, self-governing town of Rustavi 0, Dmanisi municipality 77.0, Tetritskaro municipality 88.0, Marneuli municipality 26.0, Tsalka municipality 1,186.0, VIII. Guria region 223.0, Lanchkhuti municipality 69.0, Ozurgeti municipality 38.0, Chokhatauri municipality 116.0, IX. Samtskhe-Javakheti region 1,956.0, Adigeni municipality 632.0, Aspindza municipality 515.0, Akhalkalaki municipality 212.0, Akhaltsikhe municipality 110.0, Ninotsminda municipality 487.0, Mtskheta-Mtianeti region 756.0, Akhalgori municipality 0, Dusheti municipality 84.0, Tianeti municipality 672.0, XI. Racha Lechkhumi and Kvemo Svaneti region 891.0, Ambrolauri municipality 0, Lentekhi municipality 183.0, Oni municipality 172.0, Tsageri municipality 536.0, in all 13,233.0.
If the sum of 13 million is not increased considerably, by 2007 there can be a real danger to the political goal of local government’s formation. In thus case it will be difficult to explain why consolidation-enlargement of local government was carried out. There is no illusion that local governments will get opportunities for all-sufficient development only as a result of the enlargement process. Uniting of several paupers will not make them rich. Without active interference and, first of all, financial injection of the central authorities there will be a danger that instead of hundreds of fictitious local governments we shall get tens of fictitious local governments, which will contribute to the discredit of the idea of local government and increasing of nihilism towards it.
Thus, the local government reform that is being implemented in Georgia and the process of fiscal decentralization were insufficiently expressed in the draft law “On Georgia’s State Budget of 2007”. Moreover, care for the development of local government is not seen in it. Proceeding from the aforesaid, improvement of the presented draft in the indicated direction is necessary. It is desirable that the newly elected Sakrebulos should quickly go through the adaptation period and pay attention to the mentioned issues in order not to face the fact. There is still time to provide local governments with financial means as early as in 2007 for real fulfillment of their functions, taking the opportunities that decentralization of power gives and active inclusion of the population in the country’s government.
The projects of legislative changes related to local government issues and presented in the package with the draft law “On Georgia’s State Budget of 2007” are of no less importance, and we shall speak about them some other time.