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Above mentioned shortcomings of the current model of social ser vice delivery arrangement press for its reorganization. Such reform process should be directed at dividing functions between suppliers and customers (consumers) of services, increasing the number of potential suppliers of services and mechanisms of their relations with the gov ernment (municipalities) including social service delivery funding mechanisms. To draw a dividing line between social services funding and the process of their delivery is important in order that budgetary funds are not assigned for the purposes of supporting subordinate in stitutions regardless of their performance efficiency.

Increasing the number of potential suppliers of services and diversi fication of mechanisms of their interaction with the state (municipalities) also results form the need to reduce the influence of subjective factors on the distribution of budgetary allocations. The weaker formal and in formal links, which exist between suppliers of services and managers of budget funds, the greater the importance of the objective characteris tics of services in distribution of budgetary appropriations. If nowadays social services are delivered either by government bodies (municipali ties) or by subordinate institutions, the reform envisages implementa tion of alternative arrangements for social service delivery, including:

Diversification of financing mechanisms for social service delivery by public institutions;

Creation by government bodies and municipalities other (aside from institutions) forms of organizations designed to deliver social services;

Creation by government bodies and local governments other (aside from institutions) partnerships with other levels of govern ment or with private persons for joint provision of services or joint creation of legal entities for service delivery;

Devolution on contractual basis of the right to deliver social ser vices to private organizations (non for profit and profit making ones).

The reform is aimed at introducing elements of market oriented re lations between the participants in social service delivery, above of all, elements of competition between the service providers. Competition should create incentives for reducing service delivery costs, improve ment of their quality and thus guarantee efficiency improvement of pub lic expenditures.

Next chapter will be devoted to the issues of modernization of fi nancing arrangements of social service delivery. That chapter will dem onstrate that implementation of performance based budgeting of the social service delivery arrangement is feasible within restrictions ap plied to public institutions. In certain areas social service delivery on contractual basis can be exercised by private organizations.

Moreover, possibilities for choosing optimal models of social service delivery arrangement in the current budget network structure are lim ited. The status of a public institution presupposes restrictions for profit making activity (regulation of expenses) and the lack of inde pendent responsibility for its liabilities. Moreover, these two features of a public institution legal status are closely interconnected. Independent profit making activity presupposes independent responsibility for pos sible liabilities. That is why a requirement for widening their commercial independence and softer control over public funds spending and, es pecially, extra budgetary income is linked with loosing control over vol umes of their accounts payable, for which the government is finally held liable. Contractual financing is not applicable to public institutions be cause a contract presupposes equality of the parties, which is impossi ble in the circumstances of subordination.

Wide scale implementation of performance based budgeting for social service delivery envisages restructuring of the budgetary system and diversification of organizational and legal statuses for the institu tions engaged in social service delivery.

In the report of the previous CEPRA project Increasing the Effi ciency of Budget Expenditure on Funding Public Institutions and Man agement of Public Unitary Enterprises91 we spoke about the reorgani zation of some sort of public institutions, which envisages their exclu sion from the budget law and establishing relations with them on civil and legal norms. This meant that the government was not responsible for guaranteeing estimate based financing of newly created organiza tions and is liable for their debts. It also meant that such organizations are independent in managing their income and that they have equal ac cess to budget funds with similar private organizations. Latter envis aged, on the one hand, that organizations created in the reorganization process have no advantages in relations with the government in com parison with similar private organizations, and on the other hand, the government as the customer of their services lacks advantages in com parison with other clients. So, for reorganization of public institutions it is envisaged to use provided by the civil legislation organizational and legal statuses of non profit organizations92, first of all, autonomous non profit organization.

However, while drafting Principles of Restructuring Budgetary Sec tor in 2004 and for the period through 2006 as a compromise between interested ministries and agencies it was decided to propose interme diate organizational and legal status for public institutions restructuring, which combines elements of legal status of subjects of private and budget law.

This political compromise was shaped in a packet of draft laws on implementation of the new organizational and legal statuses in the budgetary sector. RF Ministry of Economic Development and Trade is See: Improvement of the System of management and Financing of the Budgetary Insti tutions. Batkibekov S., Grebeshkova L., Dezhina I., Zolotareva A., Shishin S. and others.

Vol. 1, Moscow, IET, 2003.

In exceptional cases (when an institution for many years running lives mainly on extra budgetary funds and services rendered by it do not belong to socially important ones) reorganization of public institution into profit making organizations was allowed on the general rules of the state property privatization.

working on these draft bills from 2003. Nowadays this packet of draft bills includes drafts of federal laws On Autonomous Organizations, On State (Municipal) Autonomous Non profit Organizations, On In troducing Amendments Into Legislative Acts of Russian Federation Due to Adoption of the Federal Law On Autonomous Organizations and the Federal Law On State (Municipal) Autonomous Non profit Organiza tions, as well as in Order to Specify Legal Capacity of Public and Mu nicipal (Budgetary) Institutions.

These draft bills presuppose implementation of two alternative 9to public institution) organizational forms: autonomous organization (hereinafter AO) and public (municipal) autonomous non profit organi zation (hereinafter PANO)93. Both forms are being created for the pur poses of service delivery (carry out work) in the spheres of science, education, health care, culture, social safety net, employment, physical culture and sports. Procedure for creating AO and public autonomous non profit organization is the same. They can be founded and appear as a result of public institution reorganization on condition that such reorganization will not infringe the rights of citizens in sociocultural sphere, including the right for free medical assistance and free educa tion. Government bodies of the Russian Federation, government bodies of the subjects of the Russian Federation or local governments can be come founders of both organizational forms. Joint creation of AO and public autonomous non profit organizations is not allowed.

Common features of both organizational and legal statuses, which differ them from public institutions, are the following:

Performance based budgeting;

Independent disposal of any type of income (including budget funds) and purchased property.

Differences between AO and public autonomous non profit organi zations are the following:

a) In exercising the rights for the property assigned to them by the founder (stakeholder) Autonomous organization exercises property rights on operational management basis and has no right without the consent of the founder (stakeholder) to dispose of real assets and most valuable personal as In the previous version of the draft law the prototype of autonomous non profit organi zation was specialized public (municipal) non profit organization.

sets assigned to it by the founder (stakeholder) or purchased by an autonomous organization at the expense of target funds contributed by the founder (stakeholder). The rest of the property (including real as sets) autonomous organization can dispose independently.

Property of a public autonomous non profit organization, including property assigned to it by the founder (stakeholder) at its creation, be longs to PANO and the latter is its titleholder.

b) In management bodies arrangement Principal difference between public autonomous non profit organi zations and public institutions consists in the fact that founder (stake holder) exercises control over them not directly but through the Man agement Board94. Management Board consists of representatives from the founder (stakeholder), representatives from government bodies, which exercise state or municipal property management control, gen eral public and work collective of public autonomous non profit organi zations. Management Board decides all most important issues of public autonomous non profit organizations activity, including:

Introduces amendments and additions to the charter;

Exercises reorganization and liquidation of public autonomous non profit organizations;

Appoints and removes members from collective and (or) single executive body;

Upholds financial and economic plan and expenditure plan and no less than once in three months discusses the course of their exe cution;

Upholds annual report and annual accounting balance;

Approves internal documents, which regulate public autonomous non profit organizations activity and its bodies;

Reviews and approves proposals submitted by executive body re garding large transactions and transactions with conflict of interest (transactions with interest).

These features of management arrangement of public autonomous non profit organizations guarantee greater autonomy (in comparison In different versions of the law the highest management body of public autonomous non profit organization was called differently. For example, in previous versions of the law Management Board was called Board of Trustees and Supervisory Board.

with institutions) with respect to the founder and make it publicly super vised non profit organization.

In case of AO the founder exercises powers of highest management body. However, among management bodies are Supervisory Board, which if formed similarly to public autonomous non profit organizations Management Board. Supervisory Boards decisions on any consider able issue of AO activity are non obligatory for the founder (stake holder). Supervisory Board only approves proposals of AO director re garding large transactions and transactions with interest.

Powers of a single executive body of AO and public autonomous non profit organizations are similar to all organizational and legal statuses and envisage solution of all management issues except issues, which by law belong to the authority of other bodies.

c) Mandatory fulfillment of the founders assignments for social service delivery Autonomous organization provides social services according to founders assignment and in accordance with liabilities before insurer on compulsory health insurance.

Public autonomous non profit organization exercises the right to provide free or partly paid services (works), which are financed from corresponding budgetary funds by way of granting subventions, subsi dies and from other public extra budgetary funds or other not forbidden by law sources. This type of public autonomous non profit organiza tions activity is exercised on a competitive basis.

And so, principal difference between AO and public autonomous non profit organizations consists in the fact that PANO provides social services on a market competitive (contractual) basis, when AO provides services on compulsory basis, i.e. assignments of the owner.

Analysis of above mentioned draft bills allows us to state that on the whole their idea reflects the reform goals by envisaging liquidation of estimate based financing, economic independence and full responsi bility of such organizations for their liabilities. However, despite the qualities of those draft bills, implementation mechanism of new organ izational and legal statuses in the budgetary sector cannot be consid ered finally developed. Draft bills do not include regulatory mechanisms with respect to several fundamental issues. Without the solution of these issues real restructuring of the budgetary sector is not feasible, including:

Criteria and conditions for decision taking on reorganization of public institutions depending on the character and conditions of their activity, presence or lack of state guarantees for provision of free services for all in need;

List of cases when reorganization of public institutions into other organizational and legal status is impermissible;

Grounds for the choice of organizational and legal status for public institution undergoing reorganization;

Criteria for determining property selection, which can be assigned to public autonomous non profit organizations undergoing reor ganization or given to public autonomous non profit organizations on free use basis or leasehold;

Procedure for issuing orders on social service delivery;

Specific procedure for public autonomous non profit organiza tions and AO financing arrangements;

Procedure for meeting creditors demands regarding public insti tutions undergoing reorganization;


Principal draft bills shortcoming consist in the lack of clear cut cri teria for choosing organizational and legal status for reorganization of public institutions in the circumstance of obvious imbalance between public autonomous non profit organizations and AO in their legal status.

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