This provision retains the possibility of existence of unfunded federal mandates in the form of different standards, which do not envisage direct expenditure of funds of lower level budgets. For instance, primary and secondary educations are the object under the shared ju risdiction of the Russian Federation and its subjects. At the same time, the setting of mandatory minimal standards of secondary education (in the form of a mandatory educational program) does not meet the requirements envisaging the obligatory allocation of subventions for the ex ercise of the delegated powers, however, it results in the formation of expenditure obligations of regional and local budgets. This example, on the one hand, illustrates that the new legislation has not completely freed the Russian budgetary system from unfunded mandates. On the other hand, this example demonstrates that the retention of certain priorities of the national policy (for instance, as concerns the provision of secondary education of certain quality to the population) does not permit to completely reject unfunded mandates without making some amendments to the Constitution currently in force.
As concerns the issues of local importance (defined in articles 14–16 of law No. 131 FZ), the general rule remains the same: normative and legal regulation, financial baking, and execution of expenditures are vested with the local government. At the same time, in ac cordance with item 3 of article 18 of law No. 131 FZ federal laws and laws of RF subjects “should not contain provisions determining the amounts of expenditures of local budgets” (items 2 – 3, article 18). This provision implies that in the case the Russian Federation and its subjects have the right to carry out normative regulation of the issues of local impor tance, what, from the point of view of the authors, somewhat contradicts to the concept of the reform. In accordance to item 1, article 18 of law No. 131 FZ, the list of issues of local importance can not be altered in any other way as by amendments made to this law. In other words, RF subjects have no right to expand the lists of issues of local importance.
Financial obligations arising in relation to the settlement of the problems of local impor tance are met at the expense of local budgets (with the exception of subventions granted from other levels of the budgetary system). In the cases and under the procedure set forth RUSSIAN ECONOMY in trends and outlooks by federal laws and laws of RF subjects, the said obligations may be additionally financed at the expense of financial resources of the federal budget, state extra budgetary funds, and budgets of RF subjects.
The expenditure powers delegated to local governments are also exercised at the expense of subventions. As concerns three powers of RF subjects relating to the objects under the shared jurisdiction of the Russian Federation and its subjects (organization of educational process in general education schools, provision of targeted housing subsidies to poor citizens, and granting of allowances for public transport fares), there was intro duced the regime of “mandatory delegation” of the powers of RF subjects to local govern ments (subparagraphs 13, 24, 25 of item 2 of article 26.3 envisage that the state authori ties of RF subjects should mandatory delegate the execution of expenditures associated with the said powers to local governments and provide the respective financial resources necessary for carrying out these activities).
In order the public authorities could exercise their powers in the framework of the set assignment of expenditure powers, each level of authority is assigned property.
In accordance with article 26.11 of law No. 95 FZ, RF subjects should have the right to own the following types of properties:
• property necessary to the state authorities of RF subjects in order to exercise their powers concerning the objects under their exclusive and shared jurisdictions (i.e. pow ers indicated in article 26.2 and items 2, 7, and 8 of article 26.3);
• property necessary to the state authorities of RF subjects to exercise certain powers concerning the objects under the jurisdiction of the Russian Federation (i.e. powers in dicated in article 26.5);
• property necessary for ensuring of activities of the state authorities of RF subjects, state civil employees of RF subjects, employees of state unitary enterprises of RF sub jects and employees of state institutions of RF subjects in accordance with the laws of RF subjects.
In accordance with item 1 of article 50 of law No. 131 FZ, municipal entities may own properties designated for:
• settlement of the problems of local importance;
• exercise of certain state powers delegated to local governments in the cases deter mined by federal laws and laws of RF subjects;
• ensuring of activities of local governments, officials of local governments, municipal employees, employees of municipal enterprises and institutions in accordance with normative legal acts approved by representative bodies of municipal entities.
In order to implement the said provisions, the RF Government determines the proce dures and terms of free transfer of property from the federal or municipal ownership to the ownership of RF subjects, as well as from ownership of RF subjects to federal or municipal ownership in accordance with the set division of powers.
Prior to January 1, 2005, laws of RF subjects should determine the lists of the types of property necessary for the exercise of the powers envisaged in articles 26.2 and 26.3 of law No. 95 FZ, as well as the property necessary to ensure the activities of the state au thorities of RF subjects, state civil employees of RF subjects, employees of state unitary enterprises of RF subjects and employees of state institutions of RF subjects (as concerns RF subjects, the relations envisaged by laws No. 95 FZ and No. 120 FZ were enacted on January 1, 2005).
Accordingly, prior to January 1, 2006, the state authorities of RF subjects should set forth the lists of properties designated for the settlement of the problems of local impor Section 2.
Monetary and budgetary spheres tance, which are in ownership of RF subjects and ensure the free transfer of such proper ties in municipal ownership (item 1, article 85 of law No. 131 FZ).
Local governments should set forth the lists of properties, which are in municipal ownership, but are designated for the exercise of the powers of the federal authorities and the authorities of RF subjects in accordance with the set division of powers and ensure the free transfer of such properties in federal ownership and ownership of RF subjects (item 8, article 85 of law No. 131 FZ) (as concerns municipal entities, the relations envisaged by laws No. 95 FZ and No. 120 FZ will be enacted on January 1, 2006).
On the whole, as it has been mentioned above, the new assignment of expenditure powers to the budgets of different levels to a significantly greater degree ensures inde pendence of budgets of different levels. At the same time, the adopted laws have certain flaws and in a number of cases there are observed rather substantial contradictions be tween these laws.
First, according to the new version of the articles of section 11 of the RF Budget Code the expenditure obligations of regional and local budgets may originate only in re spective regional and local normative acts and agreements, what creates an illusion of the complete liquidation of unfunded mandates. However, it is only an illusion, since the com plete liquidation of unfunded mandates is impossible in the framework of the Constitution currently in force. The process of division of expenditure powers among the levels of the budgetary system per se, which is exclusively vested with the Russian Federation, is the process of imposition of certain expenditure obligations on the subnational budgets. Be sides, according to item 2 of article 26.3 of the law “On the general principles of organiza tion of legislative (representative) and executive authorities of RF subjects” the Russian Federation has the right to regulate the procedures of execution of expenditures of re gional budgets with respect to certain objects under shared jurisdiction. At the same time, item 8 of article 26.3, as it has been noted above, permits to adopt at the federal level legislative acts setting expenditure obligations of RF subjects without granting subventions from the federal budget in the case such expenditure obligations are not too “burden some.” Therefore, laws No. 95 FZ and No. 131 FZ to a certain degree permitted the set ting of expenditure obligations of regional and local budgets by federal laws.
One of the most principal flaws of the preceding legislation was the substitution of di vision of functions for division of objects of ownership. The RF Budget Code did not assign such most important functional avenues of state expenditures as education, health care, and culture to the powers of a certain level of the budgetary system, however, it recog nized the maintenance of institutions and organizations being in jurisdiction of respectively the Federation, its subjects, or municipal entities to be in exclusive powers of the budgets of each level. At the same time, the RF Budget Code failed to indicate what institutions and organizations from the viewpoint of the functions they perform should be in the jurisdiction of each level of the public authorities. Following this logic, local governments, for instance, should participate in financing of education and health care only in the cases they had the respective institutions in their jurisdiction. So in the case a higher education establishment was under jurisdiction of a local government, it should be financed from the local budget.
The new legislation also failed to completely remove this flaw. In the sense of article 26.11 of law No. 95 FZ and article 50 of law No. 131 FZ, property should be in the owner ship of a level of authorities proceeding from the set assignment of expenditure powers.
However, this principle is sometimes not adhered to, and this is related to the fact that the issues of local importance listed in law 131 FZ often overlap with the powers of RF subjects as set forth in law 95 FZ. For instance, in accordance with subparagraph 18 of item 1 of article 26.3 of law No. 95 FZ, “organization and support of institutions of culture and arts (with the exception of federal state cultural and art institutions, the list of which should be RUSSIAN ECONOMY in trends and outlooks approved by the RF Government)” should be under jurisdiction of the state authorities of RF subjects. Law No. 131 FZ envisages that town okrugs and settlements also may own property designated for provision of services provided by cultural institutions to the resi dents of settlements (town okrugs) (pp. 2 and 4 of article 50). Therefore, it is admissible to finance the services rendered in the sphere of culture simultaneously from regional and local budgets. Each level of authority ensures that institutions of culture in its ownership could provide their services; however, there is no legislatively determined criterion of as signment of institutions involved in the same core activities to the ownership of different levels of authorities. In this situation, the granting to regions the right to transfer property “designated for the settlement of the problems of local importance” in municipal owner ship may result in vesting with municipal entities the responsibility to finance practically any institution of culture.
For the purposes of control and analysis of expenditure obligations, federal law No.
120 FZ introduced the term “registers of expenditure obligations” in the RF Budget Code.
According to article 87 of the RF Budget Code, the register of expenditure obligations is defined as the list of normative and legal acts, as well as agreements and contracts (indi vidual articles, items, subparagraphs, paragraphs of normative legal acts, contracts, and agreements) concluded by the state authorities (local governments) envisaging the gen eration of expenditure obligations subject to the execution at the expense of respective budgets. As it seems, the issue of accounting for expenditure obligations has not been settled yet due to the following reasons.
First, in accordance with p. p. 4 and 5 of article 87 of the RF Budget Code the regis ters of expenditure obligations of RF subjects and municipal entities should be maintained in accordance with the procedures set forth by the executive authority of the RF subject and local administration. Therefore, the determination of the procedure of drawing up of the list of expenditure obligations, which should be financed from regional and local budg ets, is vested with the same bodies, which are responsible for formation of the respective budget. This may permit the executive state authorities of RF subjects and local admini stration to avoid the inclusion in the register of the obligations, the financing of which they deem undesirable.
Second, the RF Budget Code not only fails to set forth the procedures for taking into account the register of expenditure obligations in the process of formation and approval of budgets, but also does not indicate the necessity of the use of the register for these pur poses. therefore, the amendments to the RF Budget Code do not prevent regions and mu nicipal entities to ignore the existing obligations in the process of formation and approval of the budget.
Among other innovations introduced in the RF Budget Code by federal law No. 120 FZ with respect to regulation of expenditures, there should be noted the exclusion of the no tion of minimal social standards. Earlier (prior to the adoption of law No. 120 FZ) the notion of “norms of financial expenditures per unit of services rendered by state institutions” was closely related to the concept of “minimal social standards.” It was envisaged that minimal social standards should be enacted by a respective federal law, while the financial norms elaborated on the basis of these standards by an executive authority would be minimally acceptable for all levels of the budgetary system. However, taking into account the fact that the amendments to the RF Budget Code introduced by law No. 120 FZ removed the notion of minimal social standards from the Code, the law on state minimal social stan dards and article 177 of the RF Budget Code setting the norms of financial costs associ Section 2.
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