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The measures on creation of incentives for improvement of the quality of the public and municipal finance management, especially in the part of intensification of the co financing of the priority social expenditures from the federal budget, ap pear fairly justified. The urgency of intensification of the role played by the co financing of the social expenditures is caused by a considerable vertical imbalance in favor of the federal budget, on the one hand, and the federal centers opting for its own expenditure obligations as a means of the vertical equalization. A notable increase in the federal budget expenditures and the national projects in progress prove the assumption. But with all its administrative and political attractiveness, this option suffers a number of defects. First, it took much time and a lot of efforts to complete the division of expenditure powers with the promulgation of federal acts No. 122 FZ and 199 FZ, the health care, education and the housing and public utili ties sectors now mostly falls under the regional authorities jurisdiction50. Today, the national projects have de facto revised the division in question. Secondly, one of the major pluses of federalism is delegation of expenditure powers to subnational authorities, aka the regional expenditure autonomy. It is possible to single out two major advantages of the assignment of implementation of social programs to the regional level:

- it is much easier to local authorities to take into consideration the local resi dents preferences (as the federal center cannot fully account them while one region displays the necessity of a wage rise for physicians, another one may be in a greater need for specialist doctors or medical centers);

- there exists room for innovations in the course of implementation of government programs by different regions (the federal center will always favor unification a perfect illustration is payment by the federal center of an equal rise in wages to all the physicians nationwide, without regard to regional peculiarities).

The only advantage of a federal expenditure program is that it guarantees an equal accessibility to public goods to all the citizens of a country.

Thus, the best way to regulate the vertical budgetary imbalance in Russia is to employ the mechanism of co financing of the priority social expenditures (to create See 1) Art.11.1 of Federal Act of Aug. 22, 2004, No. 122 FZ On introducing amendments to legal acts of the Russian Federation and recognition invalidity of some legislative acts of the Russian Fed eration due to the enactment of the federal acts On introducing amendments to the Federal Act On fundamentals of organization of legislative (representative) and executive bodies of state power of Subjects of the Russian Federation and On fundamentals of organization of local self governance in Russian Federation.

2) Chapter 3 of Federal Act of Oct 6, 2003, No. 131 FZ On fundamentals of organization of local self governance in Russian Federation.

3) Art. 26.3 pp. 13 and 21 of Federal Act of Oct. 6, 1999, No. 184 FZ On fundamentals of organization of legislative (representative) and executive bodies of the state power of Subjects of the Russian Federation.

4) Federal Act of Dec. 31, 2005, No. 199 FZ On introducing amendments to individual legislative acts of the Russian Federation due to the improvement of division of powers.

5) Art. 29 of Federal Act of July 10, 1992, No. 12 FZ On education.

Section Monetary and budgetary spheres a national analogue to CHST51), that is, a block transfer to the regions, which is aimed at the financing of the national priorities. It is the Federation that sets the volume of such a transfer and secures an equal access to the public goods for all the citizens. The volume of the transfer should be comparable with volumes of fi nancing provided by the national projects program. The block transfer should grow in the course of completion of the national projects after 2008 it is desirable to accomplish the transition towards financing the national priorities in the health care, education and housing areas (including the housing and public utilities sec tor) by means of the transfer. Meanwhile, the federal budget will have to allocate funds solely on interregional projects of national significance. Notwithstanding that proposed in the Concept measures on the co financing of the priority social ex penditures from the federal budget so far have not implied creation of such a block transfer, it can be asserted they form steps in the right direction.

Enhancing transparency of the regional and municipal finance The Concept pays a particular attention to the fact that presently there is no complete picture of modus operandi of the public finance sectors at the regional and municipal levels, nor there is a uniform methodological basis for collection, processing and provision of such information. The problem appears particularly pressing at the municipal level, with data on municipal entities both of settlement and district types being fairly poor.

To have municipal entities efficiently exercise their powers on formation and distribution of interbudgetary transfers, the Concept suggests expanding possibili ties for the use of tax reports and enhancing their quality and comprehensiveness by forming them by each municipal entity. Proceeding from that, the RF Ministry of Finance is going to design procedures of formation, running and dissemination of a single data base, which would characterize the state and quality of management of budgets of the RF Subjects and local budgets, and to ensure a free access to the base on the Internet. In addition, it is planned to develop uniform principles of com pilation of statistical data on all the levels of government to compile the regional and municipal socio economic performance indicators using a uniform methodol ogy and to ensure their harmony with the respective federal level indices.

The Concept emphasizes the need for introduction into practice of public an nual accounts of government bodies of the RF Subjects and local self governance bodies and for development of recommendations on their drafting and performance indicators in particular. Such public accounts should include reports on the govern ment bodies performance over the past period and plans to improve efficiency of the regional and municipal finance management in the forthcoming period.

The Concept assigns a special role in implementation of the budgetary reform and shift of focus in budgeting from budgetary resources (costs) management to results management to a non partisan evaluation of government bodies of the RF CHST (Canadian Health and Social Transfer) is the Canadian transfer on medical services and so cial insurance formed by subventions calculated proceeding from needs of a given province. De spite thus allocated funds are targeted, the Federation does not produce detailed conditions of their spending, which results in a great diversity of medical programs across Canadian provinces. see Harvey Lazar. Money, politics and health care. The Institute for Research on Public Policy, 2004.

RUSSIAN ECONOMY IN trends and outlooks Subjects and local self governance bodies performance. It is proposed to exercise the function not only with the help of accounting and control chambers, but by hir ing independent audit companies, which is fully consistent with the best interna tional practices.

Providing methodological and consulting assistance to the RF Subjects for the purpose of increase of the efficiency and quality of public municipal finance management and implementation of the local self governance re form The Concept suggests the following solutions to the problem:

- to continue developing model legal acts of the regional and municipal levels, and methodological recommendations;

- to improve the system of regional and municipal statistics that provide the nec essary informational base of socio economic performance indicators of differ ent territories;

- to carry out training and retraining of the respective specialists on the level of the RF Subjects and municipal entities, publication of textbooks and methodo logical manuals, and creation of a single data base on the progress with the mu nicipal reform, which will integrate and make available to the public at large necessary auxiliary materials and the best public and municipal finance man agement practices.

To implement the last of the aforementioned avenues, it is planned in the up coming three years to complete training programs of the municipal staff, primarily the federal cadres, which will be done particularly in the framework of the federal targeted program of state support of development of municipal entities and crea tion of conditions of implementation of the constitutional powers of local self governance.

In the transitional period of the reform implementation the RF Ministry of Fi nance will organize the work on sharing experiences between the RF Subjects in order to select an optimal way of the reform implementation.

To deliver the methodological assistance to the RF Subjects on increasing the manageability of the public and municipal finance, the RF Ministry of Finance will develop recommendations to the RF Subjects and municipal entities on the follow ing guidelines of the budgeting reform:

- increase of effectiveness of budgetary expenditures;

- improvement of the medium term financial planning;

- improvement of the system of the regional and municipal debt management;

- implementation of measures on preclusion from the rise of facts of the RF Sub jects insolvency.

2.4.5. New Methodology of Allocation of Subsidies on Equalization of Budget sufficiency of Subjects of the Federation With its Resolution of September 18, 2006, No. 580 the RF Government in troduced substantial modifications to the methodology of distribution of the FFSR subsidies. Accordingly, the 2007 subsidies from FFSR have been computed using Section Monetary and budgetary spheres the new methodology. One can single out the following novelties in the 2007 pro cedures vis vis the earlier ones:

1. While identifying a regions tax capacity, the procedures of calculation of value added have been modified. If the growth rate of the value of value added across the region is superior to the respective index averaged nationwide, the value of the value added by the given Subject of RF is calculated proceeding from the average nationwide level. This provision allows additional benefits for the most vig orously advancing regions, as the initially designed level of their tax capacity proves to be lower than the actual one.

Two modifications below mirror a gradual transition to 100% payment by the population for housing and public utilities services in the frame of the respective reform currently in progress in the country. As well, they reflect the eagerness of the RF Ministry of Finance to encourage regions to pursue the reform.

2. Specific weights employed to identify the budgetary expenditures index (BEI) have been modified. The proportion of expenditures on labor compensations (including charges on labor compensations and other expenditures influenced by the level of labor compensations) in BEI remained unchanged and accounts for 0.55, while the specific weight of other expenditures has grown from 0.2 to 0.35, because of a fall in the proportion of expenditures on the housing and public utili ties (and other costs whose formation is influenced by costs of the housing and public utilities services) from 0.25 to 0.10.

3. While calculating the coefficient of costs of the housing and public utilities services (which forms a part of the budgetary expenditures index) the marginal costs of the services in questions (including capital refurbishment costs) are sub stituted by costs computed on the basis of economically justified tariffs (still with account of the capital refurbishment costs). At this point, it should be noted that in the event the Federal Service for Tariffs introduces marginal indices of a maximum possible modification of the HPU tariffs, it is the very indices that should be used for computations.

4. Because of the aforementioned modifications in the methodology and in order to compensate for the regions respective losses, since 2007 there has been established the second, additional part of FFSR. The Fund now includes resources needed to bring the 2007 volume of subsidies from the Fund to its 2006 level. This particular part of FFSR is also allocated in two stages. At the first stage, one calcu lates the volume of subsidies due to the regions whose designed volume of subsi dies from the Fund for 2007 is lower than the 2006 volume of subsidies. At the sec ond stage, the rest of the funds available after calculating additional subsidies is distributed between those Subjects of RF whose growth rates in subsidies from FFSR for 2007 are greater than in 2006, but lower than the average nationwide level computed without regard to the additional subsidy (of the first stage). It should be noted that, while computing additional subsidies from the second part of FFSR, one employs an adjusting index of fulfillment of measures on lowering accounts payable and boosting revenues to the RF Subjects budget. This index comprises three components that take into consideration the dynamic of the change in the following parameters: the proportional weight of accounts payable in the Subjects budget RUSSIAN ECONOMY IN trends and outlooks revenues; the overall volume of accounts payable in the regional budget; and the total volume of budget revenues. The new methodology also contains the following provision: the overall volume of the 2007 subsidy to an RF Subject, with account of the additional subsidy earmarked at the first stage, may not exceed the volume of subsidies from the Fund provided for by the Federal Act On the 2006 federal budget. Given that, with account of an additional subsidy assigned at the second stage, the overall volume of the subsidy may not exceed the volume of the subsidy from the Fund provided for by the Federal Act On the 2006 federal budget in creased by the average nationwide level of growth of FFSR (without regard to the additional subsidy).

The regulations of distribution of the second part of FFSR entail breaching the principle of monotonousness, i.e. an RF Subject that enjoyed a greater level of budget sufficiency prior to the equalization does not retain its rank afterwards52.

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