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The first scenario suggests a relatively soft way of reforming, under which the number of budget research institutions is to be contracted by 50% by transforming them into other organizational and legal forms.

The other, more radical scenario suggests a substantial downsizing of the budget research institutions network, primarily by reforming the RAS system. According to this particular scenario, two thirds of such organizations are subject to reforming (including liquidation).

A promising reform line is integration of research institutions and universities, which, given the record of creation of TRCs and RECs, can form a main reform avenue for the academic sector.

The reform of FUEs on which the bulk of the budget financing falls appears particularly critical. It is intended to transform a part of them into joint stock companies with 100% government participation, while the remaining FUEs into PANOs.

4.4. Culture and fine arts 4.4.1. General avenues of institutional transformations in the sphere of culture At present public and municipal institutions of culture are financed on the basis of estimates. That seriously constrains their possibility for making independent economic decisions on spending the respective funds. Such a financing does not ensure a direct correlation between the amount of allocations and the organizations' performance.

It often happens that budget funds are provided to organizations of culture without strict obligations on their part and due control over their spending. The tender based earmarking of budget funds is practiced just occasionally, while its procedures are non transparent and give a rise to just claims, while there is practically no desire to employ well known overseas methods of co financing cultural projects and pro grams from budgets of different levels as well as cross financing of in dividual kinds of cultural activities127.

Corss financing means the government redistributing revenues immediately in the frame of the sphere of culture by means of marked tax or other revenues from certain kinds of activties carried out in this sphere or related ones. In some countries, such marked revenues are set in the form of fixed percentage of deductions from cinema thea tres proceeds, TV companies turnover, revenues generated by sales of goods and ser vices in the teritory of objects and organizations of culture, historical and cultural sites, etc.

The Program of socio economic development of the Russian Fed eration for the medium term (20032005)128 set the following main tasks that the government financing of the sphere of culture should solve in the foreseeable future:

- Ensuring government guarantees of realization of the citizens con stitutional rights for participation in the cultural life and use of insti tutions of culture, and access to cultural values;

- Maintaining and developing the nations cultural potential and heri tage;

- Maintaining the single cultural space of the country;

- Fostering those kinds of cultural activities that cannot survive under market conditions.

Fulfillment of the above tasks (given a guaranteed government sup port to culture) requires reforming the organizational and economic mechanism of the sector. Due to that, the noted medium term govern ment Program provides for development of measures on:

1) Efficient use of real estate owned by organizations of culture and arts of the federal significance;

2) Improvement of the contract based system of employment of and payment to creative staff of institutions of culture and arts;

3) Ensuring transparency of financial flows in the non for profit sec tor of culture, including the compulsory publication by manage ment bodies, public and municipal organizations of culture ac counts of spending budgetary and extra budgetary funds and holding competitions;

4) Modification of the system of financing culture, particularly by extending the attraction of extra budgetary funds and, accom plishing the transition from estimate based financing to targeted subsidies;

5) Optimization of the budget organizations network and institutions of culture and arts.

It is envisaged to accomplish in the medium term a transition to the program specific financing of organizations of culture that should be Decree of the RF Government of 15 August 2003 No. 1163 r On approval of the pro gram of socio economic development of the Russian Federation for the medium term (20032005).

carried out according to standards designed on the basis of volume indicators.

Another critical task is to develop mechanisms of co funding cultural projects from budgets of different levels ad extra budgetary sources.

It is also necessary to modify organizational and legal forms by means of encouraging the variety of organizational and legal forms for non for profit organizations of culture and fine arts with the participa tion of government agencies and local self governance bodies as their founders.

4.4.2. approaches to reforming the network of budget institutions of culture and arts It has become possible to identify the following reform avenues in the system of budget institutions of culture and arts.

1. Optimization of the current network of recipients of budget funds:

Reorganization of non profile institutions;

Reassignment of a part of federal institutions of culture under the competence of RF Subjects;

Liquidation of individual institutions of culture and arts with a consequent privatization of their property or their consolidation with other institutions.

2. Transformation of a part of public (municipal) institutions into other organizational and legal forms.

3. Separation of organizations that exercise cultural functions from those possessing and managing property complexes.

Optimization of the network of recipients of budget funds According to the RF Ministry of Finance, as of January 1, 2004, the RF Ministry of Culture controlled 203 non profile institutions, of which 66 were education organizations. As other ministries, the Ministry of Culture likewise is keen to keep to a maximum extent at the federal level its education institutions (particularly universities and secondary special educational institutions).

As concerns avenues of optimization of the existing network of re cipients of budget funds in the area of culture and arts, the following can be suggested:

1) Reassignment of non core federal institutions under control of profile ministries (for instance, education institutions to the Ministry of Education and Science of RF);

2) Transformation of a part of non core institutions under the RF Ministry of Culture into AI or PANO along with keeping their departmen tal attribution;

3) Reassignment of a part of federal institutions to the regional level, except for institutions of culture and arts of the federal signifi cance. It should be noted that the process of reassignment will be ex tremely complex, for it is very hard to develop universal formalized criteria of assignment of these particular institutions to the sub federal level (such as, for instance, the population coverage criterion em ployed for the health care sector). It is possible to suggest such a crite rion as the cultural significance of an institution (the federal or regional one), however, the criterion is subjective and its adequate employment appears fairly complex.

Transformation of a part of public (municipal) institutions of culture and arts into other organizational and legal forms As in the health care sector, in the sphere of culture and arts public non for profit organizations likewise exist in the solitary organizational and legal form that is, the one of public (municipal) institution. The increase of the efficacy of the budget sectors functioning, the use of resources and attraction of additional funds necessitates transforma tion of a part of public (municipal) institutions in the sphere of culture and arts into PANOs or AIs.

The possibility of transformation of a given institution of culture and arts into PANOs or AIs can be based on the following criteria:

1) The transformation may not affect the RF citizens' right for par ticipation in the cultural life, use of culture institutions and enjoy an ac cess to cultural values, as per Part 2 of Article 44 of the Constitution;

2) There should be no accounts payable overdue for more than months as of the date of making decision on the reorganization;

3) The possibility of carrying out financing on the basis of stan dards that depend on volume (performance based) indicators. It is not always possible to develop such standards in the sphere of culture, be cause it is hard to measure in quantitative terms a given institutions performance or its volume, which is true primarily with regard to ar chives, libraries and museums, the volume of the profile operations and performance of which (for instance, storing rarities) cannot always be adequately measured. Most likely the noted standards can be em ployed for the bulk of public (municipal) archives, museums and librar ies to fund just a part of their expenditures that are not associated with minimum expenditures on preserving their stock;

4) A high proportion of extra budgetary revenues in budgets of in stitutions of culture and arts. This criterion should loose its genuine substance under transition to the financing of culture on the basis of standards that depend on volume (performance) indicators (for in stance, standards associated with the service delivered), for the per formance based funding helps bridge the gap between private and public pools of funds.

Even under the noted standards the sphere of culture will still be funded both from the budget and private sources, i.e. it will be possible to divide incomes generated by the institutions of culture and arts into budget and extra budgetary ones. However, as noted above, due to the specificity of the cultural sphere, it is hard to have its funding based exclusively upon standards that depend on volume indicators of performance. In addition, as noted above, from the perspective of the structure of sources of fund ing, the system of institutions of culture appears very diverse.

The proportion of extra budgetary funds criterion could be useful as a genuine parameter that helps identify institutions of culture the possibility of transformation of which into other forms seems justified and is worth a detailed analysis.

At this juncture, it is also possible to apply a criterion analogous to the one suggested in the health care system: with the proportion of ex tra budgetary funds in the budget of a given organization under 20%, it remains a budgetary institution; if the respective share is within the range between 20 to 80%, it can be transformed into AI; finally, if the share is over 80%, it can be transformed into PANO.

We believe that the procedures of transformation of institutions into other organizational and legal forms analogous to those we suggested in regard to the health care sector can be applied to that for culture and fine arts. Thus, the transformation into AI or PANO can be both volun tary and compulsory, which allows the existence of two scenarios of such a transformation evolutionary and radical ones.

In the event of the radical scenario (compulsory transformation) with the application of the proportion of extra budgetary funds criterion, some 61.4% of institutions of culture that fall under the federal property would retain the form of budgetary institution, while another 35% would be transformed into AI, and the remaining 3.6% into PANO that would be financed by means of the mechanism of government order, rather than on the basis of the estimate. In the event of introduction of the fi nancing that would be based upon standards that depend on volume (performance) indicators, the proportion of organizations that would be funded in a manner other than on the basis of estimate may grow up to nearly 39% (thanks to the rise in the number of AIs).

As many as 44% of institutions that deal with construction and prop erty management (and as noted above, have the greatest rate of extra budgetary funds vis vis other institutions of culture) can be trans formed into PANOs, while the remaining ones into AIs. Similarly, the bulk of theatres and archives can also be transformed into AIs, while the vast majority of libraries, museums, concert organizations and educa tional organizations would remain public institutions.

Table Distribution of Organizations of Culture and Arts owned by the Federal Level by Organizational and Legal Forms (the Radical Transformation Scenario), as % Proportion of organi- Proportion of Proportion of Type of organization zations AIs PANOs Construction and property management 0 56 institution Research organization 14 86 Theatre 15 74 Archives 31 69 Concert organization 70 26 Museum 75 25 Education Institution 81 19 Library 89 11 On average 61.4 35 3.6.

Source: computed on the basis of data of the RF Ministry of Finance.

In the event of the evolutionary scenario (voluntary transformation), in the first years of the process the proportion of institutions of culture and arts that would be transformed into new organizational and legal forms should be significantly lower.

Let us note that museums should be transformed only into AIs. They have recently been raising significant extra budgetary funds by exhibit ing state owned objects of art. If the form of a given institution or AI does not allow to transform incomes from the organizations extra budgetary operations into real estate and equipment, an organization established in the PANO form does have this right, as the PANO has the right to be in full control over incomes and assets acquired thanks to them. Consequently, the danger is that once transformed into PANO, museums may be keen to transform their proceeds into real estate and equipment as their property, which may cause damage to cultural val ues, as they would be overly exploited to generate greater extra budg etary incomes.

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