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- A tighter regulation with respect to the provision of transfers from the budgets of municipal districts to the budgets of settlements or exclusion of such issue as the equalization of the levels of fiscal capacities of the settlements being in the composition of the municipal district at the expense of the financial resources of the budget of the municipal district from the list of issues of local importance for municipal districts;

- The return of the full amount of powers relating to the disposal of land and revenues generated by the lease of land to the level of settlements.

Other problems require a rather serious adjustment of the current approaches to the organization of functioning of local authorities and introduction of significant changes in the legislation, what should be a subject of a serious and comprehensive discussion. Among such problems there may be indicated the following:

- Organization of administration of local taxes;

- Determination of the composition of local taxes and the extent of independence of municipal entities as concerns the imposition thereof.

At the same time, there is a number of problems, the mechanisms of settlement of which are in principle not apparent, since such problems are originated by the conceptual approaches to the transformations in the sphere of local self-government, for instance:

- Significant differentiation of the economic situation, financial and human resources capacities, and the prospects of development of settlements in the situation they are assigned the single list of issues of local importance;

- Impossibility to ensure the division of issues of local importance between municipal districts and settlements, which would be efficient regardless of the conditions, under which this division would exist (density and pattern of the population, types of buildings and so on);

- Inevitable losses relating to the insufficient scale as concerns the resolution of issues of local importance at the level of settlements in the framework of the exiting system of population patterns, and the further deterioration of the quality and affordability of municipal services in the case it is attempted to administratively limit the expenditures for these purposes.

The limitation of tax revenues to the income tax exclusively was removed for the transition period until January 1, 2009; however, it remained in force for the period of full implementation of the municipal reform. The setting of tax rates for the medium term outlook is possible in the framework of the three year budget; however, it is not apparent that these rates will not be differentiated across years, what, from the standpoint of creation of incentives for mobilization of taxes, is undesirable.

RUSSIAN ECONOMY IN trends and outlooks 5.7. Legal Aspects of the Functioning of Development Institutions The year 2007 became a key period in the development of the financial and normativelegal base of development institutions, since it is then that they began to receive substantial financing. Besides, that year a number of fundamental federal laws were adopted, which were designed to regulate the procedure for their formation and functioning. Among these new laws, the following are noteworthy:

Federal Law of 17 May 2007 No. 82-FZ On the Bank for Development;

Federal Law of 19 July 2007 No. 139-FZ On the Russian nanotechnologies corporation;

Federal Law of 23 November 2007 No. 270-FZ On the public corporation Rostekhnologia; and other normative legal acts regulating the operation of such organizations;

Article 179.2 of the RF Budget Code (BC) The Investment Fund of the Russian Federation, which augmented the RF BC on the basis of Federal Law of 26 April 2007, No. 63FZ, On the introduction of changes into the Budget Code of the Russian Federation in the part of budgeting process regulation, and on bringing individual legislative acts of the Russian Federation in conformity with budgetary legislation of the Russian Federation.

Although the notion itself of development institutions received no legislative definition, this term has been widely applied in literature on economics and law161. It seems that, as the distinctive features of development institutions, the following specific attributes of their operation should be pointed out:

- Investment-oriented activity;

- performance-based results of their operation;

- an institutions functioning in the form of a juridical person;

- an institutions activity related to the socioeconomic policy of the Russian Federation;

- part of their funding being received from the federal budget of the Russian Federation;

- absence of the status of a budget-funded institutions, and operation on a basis other than budget.

These criteria are fully complied with by the following entities:

the Bank for Development (Vneshekonombank VEB);

the RF Investment Fund;

the Russian Venture Company (RVC);

the Russian Nanotechnologies Corporation (Rosnanotekh);

the Public Corporation Rostekhnologia;

the Agency for Housing Mortgage Crediting (AHMC).

The afore-listed development institutions should be distinguished from those development instruments that include various forms of direct financing and financial support of investment projects, which can be described as follows:

- federal and departmental target programs;

- a targeted investment program;

- concession agreements;

- non-program budget investments; and other instruments.

See, e.g., the approach to the terms definition applied by the Center for Strategic Research http://www.csr.ru/document/original_452.stm; Kudrin: 640 billion rubles will be allocated to development institutions. http://business.restate.ru/news/35607.html.

Section Institutional Problems Special economic zones (SEZ), from the point of view of law, are also an instrument rather than an institution for development, since they create conditions for improving investment climate. However, they do not act in their own name as public investors.

These development instruments can be used by applying the following forms of budget support for investment projects:

- subsidies;

- credits;

- guarantees;

- participation in the capital of juridical persons (investors), etc.

Below we are going to discuss briefly the main peculiarities and problems inherent in the functioning of each of these development institutions, established in 2007.

The Bank for Development (Vneshekonombank). At present, the main issues of the Banks functioning are regulated by the following normative acts:

1. Federal Law of 17 May 2007 No. 82-FZ On the Bank for Development;

2. The memorandum on the financial policy of the public corporation The Bank for Development and Foreign Economic Activity (Vneshekonombank), approved by Regulation of the Government of the Russian Federation as of 27 July 2007, No. 1007-r;

3. The provision on the Supervisory Board of the public corporation The Bank for Development and Foreign Economic Activity (Vneshekonombank).

As the Federal Law On the Bank for Development was adopted only as late as May 2007, the normative base for its operation is still being elaborated and therefore does not contain all the necessary normative and local acts.

With the enactment of the new law, Vneshekonombank changed both its organizationallegal form and the directions of its activity. While previously it had had the status of an ordinary credit institution, from the year 2007 onward it acquires that of a public corporation, while its operation was, in fact, placed outside of the sphere of control of the RF Central Bank. In particular, now its activity is not subject to regulation by legislation on banks and banking activity, which established the following procedures:

1. state registration of credit institutions;

2. licensing of banking operations;

3. liquidation and reorganization of credit institutions;

4. disclosure of information concerning the activity of credit institutions;

5. compliance with the requirements to stability and financial reliability of credit institutions, as well as compliance with other mandatory requirements and normative standards.

Besides, the activity of Vneshekonombank, after it acquired the status of a not-for-profit organization (NPO), is no more subject to the provisions regulating the procedure for effectuating control over the operation of NPO stipulated in Items 3, 5, 7, 10, and 14 of Article 32 of Federal Law of 12 January 1996, No. 7-FZ, On Not-For-Profit Organizations.

Thus, Vneshekonombank is not subordinated directly to the Central Bank and financial control agencies, and its activity is controlled only by the RF President and the Government of the Russian Federation. And, since neither legislation on banks, nor legislation on the securities market, let alone budget legislation, apply in full to the Bank for Developments activity, each of the Banks powers listed in the Law and Memorandum require, in fact, some additional regulation to be introduced. Thus, further elaboration is needed for:

- the mechanisms for internal and external control over Vneshekonombanks activity;

RUSSIAN ECONOMY IN trends and outlooks - the procedure for its interaction with federal and regional bodies of state authority, and with bodies of local self-government;

- the mechanisms for its interaction with other development institutions, credit institutions, and insurance organizations;

- the procedure for opening its affiliations in the territory of the Russian Federation and abroad, as well as other directions of its activity.

Besides, no distinct definition has been offered for the terms of which the projects to be granted financial support from Vneshekonombank are to be selected, or for the guarantees of absence of competition on the part of Vneshekonombank in respect of credit institutions162.

From a comprehensive interpretation of the Laws and Memorandums texts it follows that the projects receiving such support must be, on the one hand, profitable, and on the other, no other banks must aspire to be the source of their financing (the no competition principle). It is unclear, however, how these two conditions are expected to be complied with.

One more task requiring lawmakers attention is that of delineating more distinctly the areas of the Bank for Developments activity and those of the other development institutions functioning in the Russian Federation; of mapping the prospects for their interaction; and of finding a solution to the issue as to which directions of the national economys by branch development may be allocated support backed by the Banks resources (innovative only, or any). In accordance with Item 7 of the Memorandum, the main branch priorities of the Bank for Developments activity in the years 20072010 are as follows:

a) rocketry and space-systems complex;

b) shipbuilding;

c) electronics industry;

d) nuclear power industry, including nuclear power engineering;

e) machine-building for transport, special purposes and power engineering;

f) metallurgy (production of steels for special purposes);

g) woodwork industry;

h) the defense-industrial complex.

In this connection, it is not quite clear as to which individual branch development projects being implemented in the afore-listed areas can be covered by VEBs activity: only those involving support of innovative research and development, or the financial support of projects aimed at promoting a given branch as such.

The Public Nanotechnologies Corporation (Rosnanotekh). The procedure for the Corporations functioning is determined by:

1. Federal Law of 19 July 2007, No. 139-FZ, On the Russian Nanotechnologies Corporation;

2. Decree of the RF Government of 2 August 2007, No. 498, On the Federal Target Program "Development of infrastructure for the nanoindustry in the Russian Federation for the years 20082010;

A comprehensive interpretation of the norms stipulated in the Law and Memorandum has led to the conclusion that the granting of financial support from the Bank for Developments resources should be based on the results of a contest between projects and organizations. However, no terms of such a contest have been clearly defines for any of the areas to be supported.

Section Institutional Problems 3. Regulation of the RF Government of 25 August 2006, No. 1188-r, On the program for coordinating works in the field of nanotechnologies and nanometarials in the Russian Federation;

4. Regulation of the RF Government of 07 September 2007, No. 1175-r, On the composition of the Supervisory Board of the Russian Nanotechnologies Corporation;

5. Order of the RF Chief State Sanitary Physician of 23 July 2007, No. 54, On the supervision over the products obtained with the use of nanotechnologies and containing nanomaterials.

The Corporation, similarly to the other development institutions, has been created in order to support and promote primarily innovative infrastructures. However, in contrast to VEB, the Investment Fund and the SC Rostekhnologia, the Corporation, just as the RVC, has been assigned a relatively narrow field for investing in science and technologies the sphere of nanotechnologies.

On the whole, the Corporations organizational form and the forms of its activity resemble those of the other development institutions established in the form of a public corporation.

Similarly to the other development institutions, with the exception of the Investment Fund, the Corporation enjoys a broad range of rights and a high degree of independence in dealing with its day-to-day issues, including those relating to the investment of its funds163.

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