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The President of Russia in his decree of 16 February 2005 No. adopted an Exemplary form of an official contract for state civil service in the Russian Federation and on taking a position in the civil service in the Russian Federation. One of three options of payment to a civil ser vant is represented by special order of payment. In accordance with the Item 14 of Article 50 of the Federal law On State Civil Service in the Russian Federation this special order of payment envisages a monthly payment on condition that a civil servant meets performance objectives set out in the official contract.

In accordance with the Item 2 of the Decree chiefs of the govern ment bodies are obliged in the three months period to sign new per formance contracts (agreements) with civil servants. Thereby, in the near future an effective mechanism can be developed aimed at creating material incentives for the civil servants and which can be integrated into performance based budgeting arrangement.

3.5. Conclusions Analysis of performance measures, which characterize the federal budget recipients network demonstrate serious shortcomings in its or ganization, which reduce performance efficiency and lead to increase maintenance costs. In order to optimize budget network it is neces sary to resolve the following main tasks:

Bring budget network into line with the new division of expenditure responsibilities between the levels on the budget system;

Liquidation of practice according to which budget funds of one level of government are distributed by government authorities of another level;

Transfer to a single jurisdiction institutions, which carry out the same functions;

Those organizations, which have in their jurisdiction less than six public institutions, should stop being budget funds managers.

Those public institutions should be transferred into direct subordi nation of principal budgetary managers;

Reduction in the number of budget network levels, which ideally should be not more than three (principal budgetary manager budget funds manager budget recipient);

Writing into law division of authority between principal budgetary managers and budget funds managers regarding public institu tions;

Liquidation or merger of institutions, which have a small number of consumers.

In July September 2004 the Government commission on administra tive reform approved order of work on optimization of the network of subordinate to the federal executive bodies state unitary enterprises and institutions. However, a full scale reform in this sphere has not yet started.

At present in social service delivery are engaged exclusively institu tions, which are administratively subordinate to government bodies.

There financing is conducted on the estimate based system, which does not create incentives for performance efficiency improvement.

Budget network reform should be directed at the division of func tions between suppliers and contractors of the social services, widen ing of the circle of potential providers of services and mechanisms for the interaction with the state. The aim of the reform consists in the in troduction of market relations elements into the interaction between the subjects of the social service delivery system, first of all, competi tion between service providers. Competition should create incentives aimed at cutting costs on rendering services, improvement of their quality and, thus, guarantee efficiency improvement of the correspond ing budget expenditure.

The idea of widening the circle of social service providers was re flected in the draft laws on introduction of the new organizational and legal forms in budget sector. Mentioned draft laws envisage introduc tion of two alternative to the budget institution forms of organization:

autonomous organization (AO) and public (municipal) autonomous non profit organization (PANO).

Common features for both organizational and legal forms, which dif fer them from the budget institution, are:

Performance based budgeting arrangements;

Independent disposal of any (including those received from the budget) income and purchased property on that income;

Independent responsibility on liabilities;

Principal differences between PANO and AO are the following:

PANO delivers social services on a contractual basis, when AO provides social services on compulsory assignments from the owner;

AO receives state property into operational management and PANO receives state property in its ownership.

Moreover, draft laws are not well designed regarding regulation of some principle issues on the solution of which depends budget network restructuring. Their main shortcoming consists in the lack of clear cut criteria, which determine the choice of organizational and legal forms for reorganization of the public institutions. There are obvious advan tages in favour of PANO status. Draft laws actually allow free transfer of state property to PANO, when the latter has no obligations to render free of charge social services and the for under has no right to receive income from the use of that property. In the lack of a clear answer to a question in which cases public institution is subject to reorganization into AO and in which into PANO. There will always be a risk that the choice of the option for reorganization will be conducted on the basis of separate negotiations between budget institution and its founder.

Considering that budget sector restructuring directly affects the rights and interests of a wide category of employees as well as con sumers of social services, it is very risky to initiate the reform in the cir cumstances when the reform concept is unclear. In those circum stances it is expedient to choose one of two options:

1) Postpone introduction of the new organizational and legal forms in budget sector prior to finalization of the reform concept and adoption of the new federal laws in this sphere. Before starting a full scale budget network restructuring it is necessary to solve, in particular, the following issues:

Make more clear the grounds for choosing reorganization variant.

Counterbalance the situation regarding PANO and AO. In particular, it is necessary to provide that real property and movable property assigned to the public institutions can be transferred to PANO only on conditions of lease. It is necessary to provide differ ent lease conditions depending on PANOs participation in the state social order. This will exclude free of charge privatization of such property and successive alienation of property on PANOs debts.

Clearly define the circle of public institutions, which are not subject to reorganization. It is necessary to preserve institution in its cur rent form if it is a monopolist in the local market and services ren dered by it should be delivered regardless of costs. This condition is very true, first of all, of institutions of general, primary and sec ondary vocational education and health care.

Provide possibility for joint founding of AO and PANO by different government bodies (local authorities) and/or private persons.

2) Initiate partial introduction of the new organizational and legal forms into individual budget sector brunches on an experimental basis in the framework of current legislation, which allows reorganization of institutions into foundations and autonomous non profit organizations.

While choosing this strategy, it is necessary to observe above men tioned conditions of public institutions reorganization and the following conditions:

Select institutions subject to reorganization mainly from those, which have a high level of extra budgetary income because it dem onstrates their high level of readiness to function in market condi tions, first of all, it demonstrates solvent demand on their services.

In order to reduce opposition to the reform on the part of public institutions employees and exclude reorganization in the new or ganizational and legal forms of institutions, which do not possess administrative capacity necessary for independent economic activity. It is necessary re reduce to a minimum compulsory (i.e.

without taking into account the opinion of a work collective) reor ganization.

Apply mainly public control over organizations, which were founded during public institutions reorganization. This means that the key role in the management of the new organizations should play Boards of Trustees, which are formed with the participation of general public.

There is the following set of social service delivery financing ar rangements, which is alternative to the estimate based financing: nor mative target financing, contractual financing and subsidizing the con sumer.

Under normative targeted financing is understood reimburse ment social service delivery costs rendered to specific categories of consumers according to uniform norms of financial inputs, which are assigned in accordance with the administrative procedures. Assign ment of norm of financial inputs in accordance with administrative pro cedures signifies that they are approved unilaterally by the government bodies and are earmarked to the organizations, which have no right to refuse rendering services paid for according to these norms, i.e. they are assigned to public and autonomous institutions.

Depending on the social service brunch the norms of financial inputs can be common (i.e. unified for all consumers) or complex (i.e.

differentiated depending of the specifics of consumers, type and conditions of service delivery and other factors). Financing according to a single for all consumers norms usually means normative per capita financing. Normative per capita financing does not contradict the Budgetary Code of the Russian Federation and can be applied to the public institutions without the latter been subject to reorganization.

In case of consistent implementation the normative targeted financ ing allows excluding funding from the budget those costs incurred on commercial type activity of public institutions and cut budget expendi tures directed at unreasonable costs incurred by the service providers (because the norms are calculated parting from the average statistical costs incurred on the provision).

Normative targeted financings drawback consists in the fact that competition between the providers is limited by a number of factors. In case of administrative assignment of norms of financial inputs competi tion does not tell on the price of services and theoretically it helps sup porting norms at the overestimated level. In the circumstances of tough budget constraints it is more probable that administratively assigned norms of financial inputs will not cover reasonable requirements in funds needed to cover the costs of social service delivery. In that case real competition for the consumer does not arise because providers of higher quality services will strive not to increase but to cut the number of consumers who are serviced in the framework of the state social or der without additional payment by the consumers. This, in its turn, will limit the circle of social service providers and will maintain demand for the services of those providers who deliver low quality services.

Effective performance of normative targeted financing depends on one channel funding or on transparency of funds distribution via finan cial channels. Although normative targeted financing is being applied in CHI and GPEL so far it was used along with traditional estimate based financing. This fact considerably restricts competition between service providers because in the circumstances of the lack of transparency in the distribution of budget allocations norms of financial inputs for social service delivery are different for different institutions.

Theoretically normative targeted financing does not envisage exer cising control over the budget funds expenditure received as a com pensation for service delivery because this control will reduce economic independence of institutions, the level of its adaptability to changing market conditions and consumers demands and finally hampers costs reduction in the sphere of service delivery. That is why in the fu ture control over the budget funds expenditure received as a compen sation for service delivery should be replaced with control over the vol umes and quality of service delivery. At the present time norms written in the Budgetary Code hamper this. These norms envisage treasury control exercised over budget execution by public institutions and the lack of well regulated control procedures for the volumes and quality of service delivery.

Moreover, in transition to normative targeted financing under cur rent Budgetary Code it is possible to gradually reduce control over the budget funds expenses received as compensation for service delivery at the expense of enlarging expenditure lines and simplifying approval procedures and adjustment of estimates.

Under contractual financing or social order is understood financ ing of social service delivery under a contract signed between the gov ernment and service provider in case parties have free hand in signing corresponding contract. Contractual financing is applicable to PANO and private organizations In case of the social order competition between service providers is more pronounced in comparison with normative targeted financing, under which forced assignments and assignment of norms of financial inputs at the level, which does not cover service delivery costs, reduces providers incentives.

At the same time under contractual financing the cost of social ser vices resists administrative control exercised by the government. Com petition arrangement for placing social order should become an instru ment aimed at minimizing service delivery price. However, it becomes effective only in competitive markets. In the circumstances when on a certain territory there is only one provider of given services in case of alternative solvent demand such provider can dictate the price, which can be unacceptably high to the budget. This fact reduces implementa tion of the social order in those territories where the state is bound with obligations to provider free of charge services for all consumers, i.e.: in general primary and secondary vocational education as well as in health care.

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