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The most obvious way out of the above problem is to coordinate the actual situation in accordance with the Constitution norms, laws of local self-government, and the Budget Code, i.e. to delegate equal budget authorities to all municipal governments regardless of their size. But a direct implementation of the legal regulations within the current local self-government legislation proves to be irrational for the legislation itself is rather discrepant. On the one hand, it demands that all municipal governments have equal authorities, but, on the other hand, it assumes that one and the same territory be under the jurisdiction of two or more municipal governments and, consequently, their authorities can’t be equal a priori. Equal authorities could be provided for the municipal governments of comparatively equal size and population. For the practical implementation of such an approach, it will be necessary that territories with local self-government be endlessly divided so that they could be balanced with the smallest ones in size. The successive implementation of the settlement principle in self-governmental structure, i.e. its application within solid settlements qualified for any direct forms of self-government, might cause the reduction of self-governmental authorities, while some of responsibilities addressed to local self-government (e.g. health care, education) prove to be unreasonable from the economic perspective or just impossible to carry out due to the minor scale of such settlements. Being unable to exercise the authorities of such kind, municipal governments would readdress them to the appointed territorial representatives of the regional administration. Thus, at first sight, a democratic conception of delegating equal authorities to each municipal government regardless of its size would result in the reduction of local self-government competence. At last, the necessity to establish direct interbudgetary relations with minor municipal administrations could raise another considerable problem for regional authorities for minor municipal units within most subjects of the Russian Federation account for several hundreds.

The most promising decision can be assumed as a legislative confirmation of the fact that there exist two levels of local self-government. Then several variants of local self-governmental structure prove to be available:

1) The fixation of the current administrative division of the territory within the subject of the Federation along with the division of current municipal units into two categories: larger ones receive the status of municipal units of the first level, and smaller ones gain the status of municipal units of the second level. Alongside with that, the Federal subject legislation should contain universal principals concerning distribution of expenditure authorities as well as revenue sources between the municipal administrations of both levels. Then the principle of budget right equality (inclusive of the interbudgetary relations) takes its effect with the municipal authorities of the same level.

The problem whether it is possible that some of the authorities, inclusive of the interbudgetary authorities, be delegated by the subject of the Federation to the municipal administrations of the first level, proves to be more complicated for such delegation actually causes subordination between municipal administrations of the first and the second level. Taking into consideration that municipal units of the first level did not result from the desires of the people but were imposed on the administrative basis, the subordinate relations between the two levels must be assumed as inadmissible. The delegation of the authorities by the region to the municipal administration of the first level proves to be impossible unless no other but executive functions are delegated and regulative functions are still performed by the region, i.e. though the municipal administration of the fist level performs itself as a representative of the regional government, the essence and the implementation order of the functions delegated are firmly fixed by the regional legislation, while in dubious cases the municipal administrations of the second level have a right to appeal to the regional authorities. In general, such a solution is similar to the delegation of the given authorities to territorial units of the regional administration, the only difference being that in the latter case the territorial units don’t prove to be appointed but elected. But the regional authorities still face the problem of resolving inevitable conflicts between the municipal administrations of the first and the second level as long as only the second appear to be real subjects of the local self-government.

2) It can be assumed that in order to avoid such conflicts the most preferable way of local self-government system is to form larger municipal units by voluntary, associating smaller units based on the settlement principle. In this case the distribution of authorities and revenue sources between the municipal administrations of different levels is not performed by the legislation of the Federal subject but by the agreement between the municipal governments united in order to fulfill definite functions. Thus, the formation of the districts follows the opposite direction: it’s not downward but upward, and local self-government levels have their positions changed visa versa: settlements prove to be primary and their associations appear to be secondary. Alongside with that, the municipal organs of local self-government of the second level could not be elected directly by the population but by the bodies of local self-government comprising subject association. Considering the voluntary character of the intermediate local self-government level, formed according to this scheme, we can assume that it might not really exist. In this case the municipal administration of the first level must hold total control over the budget, and the functions of local self-government that it fails to perform due to some natural economic restrictions could be actualized through the system of appointed representatives of regional administration. At the same time, the formation of associations of local self-government, large in size and by population, must cause unconditional delegation of the authorities formerly exercised by the regional governments through their territorial representatives.

Although the second variant of local self-governmental system seems to be more preferable, it is reasonable that regional authorities should take the decision. Federal legislation on local self-government must only secure the minimum standard for budget authorities received by minor self-governmental units, and, in particular, avoid own-source reduction, which presupposes expenditure calculation principle of financing. For this purpose, it is necessary that minimum standards of expenditure and tax revenue authorities be fixed for municipal units of different levels in federal legislation. Besides, the Federation mustn’t allow the competence of local self-government to be reduced in the subjects of the Federation by means of delegating some of their functions to the appointed entities of regional administration, as long as there are some bodies of local self-government qualified to fulfill the respective functions. In case the subject of the Federation delegates the authority of financial aid redistribution between municipal constituents to municipal units of the first level, the Federal legislation should define transparent criteria of financial aid distribution in order to secure financial independence of minor municipal governments.

The principles of pursuing interbudgetary relations

Interbudgetary relations of different levels are based upon chapter 16

Issues of the Budget Code, which fixes the following principles of interbudgetary relations in the Russian Federation:

  • distribution and fixation of the budget expenditures between different levels of budget system in the Russian Federation;
  • distinguishing (fixing) on the permanent basis and distributing on the basis of temporary standards of regulative revenue between different levels of budget system in the Russian Federation;
  • the equality of budget rights for the RF subjects, the equality of budget rights for municipal units;
  • equalization of minimum budget supply level of the RF subjects, municipal units;
  • equality of all the budgets in the Russian Federation in their regard to federal budget, the equality of local budgets in their relations with the budget.

As it is generally recognized, standard principles do not perform any regulative function, but they are aimed at the conception integrity and inner homogeneity of the legislation. In our opinion, the list of interbudgetary relations principles fixed by the Budget Code fails to fulfill its function in full.

The principles of equality in budget rights among the participants of budget relations at the same level and their relations with budget of the upper level.

Among the principles of interbudgetary relations fixed in i.129 of BC, the principles of equality in budget rights among the participants of budget relations at the same level and their relations with budget of upper level prove to be of practical value. These principles have a dubious meaning. On the one hand, they deprive the Federation of the right to provide any individual budget benefits and, therefore, prevent some regions from discrimination if compared to other regions. But on the other hand, they generally limit the federal center competence in interbudgetary relations and, consequently, secure the independence of the regional budgets.

The possibility to nullify the agreements between the Russian Federation and those of its subjects that establish norms, which break common order of budgetary relations between the federal center and subjects of Russian Federation (p.2, i.132 of BC), manifests the principle of equality among all budgets of Russian Federation in their relations with the federal budget. The agreements on distribution of authorities and responsibilities concluded with the 13 subjects of Federation were supplemented by budget agreements defining special rules for distribution of revenues between the regional and the federal budgets. But only 3 of the 13 took effect: those concluded with the Republics of Tatarstan and Bashkortostan (concerning tax revenues delivered to the federal budget), and the Jakutia Republic (concerning the republican gold reserve). The agreement with Tatarstan, for instance, presupposed the delivery of total resource tax revenues and excise tax revenues to the republican budget, as well as a larger share of value-added tax revenues (if compared to other regions) received by the republican budget. The agreements took effect over 5 years (since 1993) and currently they are not in power. But some significant rules concerning the delivery of total resource tax revenues and excise tax revenues (fixed by the agreements on distribution of authorities without any expiry date) are still functioning. During the first years of the Russian Federation such agreements were used by the weak federal center in order to reduce separative tendencies on the part of the federal subjects. But very soon such policy turned to be of little benefit for the state and proved to have a negative impact upon the process of consolidation of the Federation, as it caused resentment of loyal regions, which held the majority. This fact being admitted, there appeared premises, which entailed the transition from individual agreements on interbudgetary relations concluded with separate regions to common rules for revenue regulation and the distribution of financial support amount on the basis of the criteria and calculations that have become formalized by that time and, consequently, more objective. In 2000, a political decision was made (formally initiated by Tatarstan and Bashkortostan leaders) on gradual unification of tax revenue distribution. It was agreed, that due to the higher rates in comparison to other regions, Tatarstan and Bashkortostan were obliged to provide financial support for some federal programs, which took effect on the territory of the republics.3 At the beginning of 2001 the President of Bashkortostan announced that the republic would transfer 50% of its total revenue to the federal budget (according to BC).

The Principle of revenue and expenditure distribution among different levels of budget system

The other principles of interbudgetary relations fixed in the Budget Code are less concrete. Thus, according to i.30 of BC the Principle of revenue and expenditure distribution among different levels of the budget system determines distribution of certain kinds of revenues (totally or partially) and expenditure authority among the federal government, governments of the federal subjects, and local self-government. In our opinion, for to date, this principle is absolutely unreasonable, since the revenue and expenditure distribution proves to be the actual process of interbudgetary relations rather than their feature of qualitative characteristics. This or that kind of distribution of revenues and expenditure authorities is inevitable for any budget system, and the degree of democracy of the latter is not determined by the fact of the distribution itself, but by the ways this distribution takes effect. That’s why it seems to be a must, that the contest of this principle be specified considering that revenue and expenditure distribution among different budget levels be based upon the necessity to provide the maximum balance between revenue sources of a certain budget and its expenditure responsibilities. The problem of revenue and expenditure distribution among different levels of budget system is viewed in detail in chapter 2 of the following report.

The principle of minimum fiscal capacity level equalization4 for the subjects of Russian Federation, and municipal units.

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