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Decentralization in Ukraine 2014-15: Reforming Local Self-Government

This article discusses the implementation of decentralization reforms in Ukraine from 2014-2015, focusing on the reform of local self-government and the territorial organization of authority. It explores the challenges faced and the changes made to the administrative and territorial division, as well as the results achieved in terms of budget decentralization.

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Decentralization in Ukraine 2014-15: Reforming Local Self-Government

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  1. Decentralization in Ukraine 2014-15Anatoliy Tkachuk Expert and information support of the local self-government reform and territorial organization of authority in Ukraine

  2. Formation of a present-day local self-government system in Ukraine Spring 1990 – first democratic election to the local councils and their activity in accordance with the USSR law of the Perestroika period 07.12.1990 – the first law “On the local councils of people’s deputies, local and regional self-government” was adopted Changes on the level of districts and regions in 1991- 1996 28.06.1996 – the Constitution of Ukraine was adopted 21.05.1997 – the law “On the local self-government in Ukraine” was adopted

  3. What happened on the regional/district levels • 1990-1992 – executive committees • 1992-1994 – President’s representatives • 1994-1995 – executive committees with elected council chairpersons • 1995 – 1996 – administrations with elected chairpersons of local state administrations • 1996 – until now chairpersons of local state administrations • Why was it not effective? Because there was no basic level of local self-government!

  4. Formation of the administrativeand territorial division (ATD) • Present-day ATD had been formed by 1964, when the period of permanent changes of the Soviet-era ATD finished. • In 1990-1996, more than 1,000 new village councils were established which led to further fragmentation of the basic level of local self-government.

  5. Ukraine Cities with a special status Kyiv and Sevastopol Autonomous Republic of Crimea Regions Districts Cities of republican subordinance Cities of regional subordinance Districts Districts in the city Village Settlement Village Village Village Settlement Town of district subordinance Settlement Settlement Town of district subordinance Village Settlement Town of district subordinance Districts* Town of district subordinance Town of district subordinance Districts in the cities Districts in the cities *Note: Sverdlovskyi district of Luhansk region is subordinate to Sverdlovsk city council, Krasnolymansk district of Donetsk region is subordinate to Krasnolymansk city council Vilage Settlement Settlement Village Town of district subordination Settlement

  6. Ukrainian reform of 1990 In 1990, Ukraine adopted the law on local and regional self-government which was actually as good as the Polish law.However, unlike Poland, Ukraine had no territorial basis required for a fully functional local self-government on a basic level – especially, village councils Village councils were too small to fulfill their legal authorities. It is this incapability that has caused a situation, when more and more powers were delegated to the higher authorities, while real local self-government was developing only on the level of cities of regional subordinance.

  7. Stages of discussions on the need to reform local self-government in Ukraine • 2004– preparation of the draft amendments to the Constitution of Ukraine (3207-1) as to ATD and the system of local self-government bodies. • 2005– introduction of the office of the Deputy Minister in charge of the reform and preparation of the reform. • 2008-09 – development of the reform concept and action plan, preparation of basic draft laws. • 2011-13 – abolition of resolutions approving the reform concept and action plan; further centralization of power.

  8. Ukrainian reform in 2014-15 • Ukraine is implementing not Polish, French, or Latvian reform model, but a Ukrainian one, considering the positive experience of other countries. • Unlike other countries, Ukraine is simultaneously implementing the reforms of local self-government, administrative and territorial division, and state regional policy.

  9. Results of 2014-15 • Reform concept was adopted; • Law “On cooperation of territorial communities” • Law “On voluntary amalgamation of communities” • Law “On fundamentals of state regional policy” • A number of laws on urban development have been amended • Budget decentralization

  10. Budget decentralization What has changed?

  11. EXTENSION OF GENERAL FUND RECEIPTS To local budgets 100 % of payments for administrative services 100 % of state duty Out of the state budget 10% of corporate income tax in the private economy sector Fee for retail sale of excisable goods with the rate of 2%-5% of the price of the sold product New payments Single tax Transfer from the development budget Tax on immovable commercial (non-residential) property (extension of the tax base of the real estate tax) Transfer of the environmental tax (except for radioactive waste) from the special fund, with the crediting ratio increased to 80% (effective norm – 35%) 4

  12. DISTRIBUTION OF THE INDIVIDUAL INCOME TAX Receipts in the territories of the cities of regional subordinance, districts, budgets of the unified territorial communities Receipts in the territoryof Kyiv State budget 25% 60% Regional budgets 15% Budgets of cities of regional subordinance, district, unified community 60% Budget of Kyiv 40% 5

  13. Distribution of private entrepreneurs profit tax Receiptsin the territoriesof regions Receiptsin the territoryof Kyiv State budget 90% 90% 10% Regional budgets Budget of Kyiv 10% 5

  14. HORIZONTAL ALIGNMENT MECHANISM Taxable capacity index Реверсна дотація - 50 % 1,1 1,0 0,9 Basic subsidy + 80 % 6

  15. Reforms: initial results • Dozens of agreements on cooperation between the territorial communities were adopted. • 159 amalgamated communities were set up, and the election there was announced. • As a result of budget decentralization, revenue of the local budgets have increased from 20 to 40%. • For the first time the funds at the regional level have not been distributed ‘manually.’

  16. Challenge: dissatisfaction with the reforms

  17. Decentralization – understanding of the system

  18. Election to voluntarily amalgamated territorial communities (VATC) • On October 25, mayors and councils of 159 VATCs, which unite more than 7% of all territorial communities of Ukraine, were elected. • Another 30 newly established VATCs were not allowed to participate in the election on far-fetched pretexts: these are communities around the cities of regional subordinance. • Unfortunately, political maneuvering of regional councils impeded election to VATCs in several regions.

  19. State regional policy reform: achievements in 2014-15 • Law of Ukraine “On the principles of state regional policy” of February 5, 2015 No. 156-VIII; • Budget Code of Ukraine in the version including amendments introduced by the laws № 71-VIII від 28.12.2014; № 79-VIII від 28.12.2014; № 118-VIII від 15.01.2015; № 176-VIII від 10.02.2015. • Tax Code of Ukraine with amendments introduced by the laws № 71-VIII від 28.12.2014; № 72-VIII від 28.12.2014; № 206-VIII від 13.02.2015. • State strategy of regional development of Ukraine by 2020 of August 6, 2014 р. № 385(hereafter referred to as SSRD-2020).

  20. Interim results • Ukraine is implementing a comprehensive reform in the sphere of decentralization and regional development. • Legislative framework for the formation of capable communities has been shaped, local self-government bodies have received budget resources, while the regions have got a fair distribution of funds for regional development.

  21. Key challenges • Politicization of the reform on the eve of local election; • Excessive compromises during adoption of the normative-legal acts, including the Constitution of Ukraine; • Poor institutional capacity of all public agencies; • Poor communication with the public regarding the reform; • No unitary center of reform; • Poor coordination of donor programs.

  22. New challenges in need of urgent response – weakening of regions

  23. What comes next? • If the existing draft amendments to the Constitution of Ukraine are adopted, a new administrative and territorial division should be formed within two years. • If amendments to the Constitution are nor adopted, the process of voluntary amalgamation of communities will continue. There are incentives for that. However, in this case there would not be any changes on the level of districts and regions.

  24. Major needs • To adopt the law on administrative and territorial division as soon as possible and to deal with the issues in districts; • To provide institutional and financial support for the newly established communities; • To provide trainings for the newly elected deputies and heads of the voluntarily amalgamated territorial communities; • To organize a public awareness campaign about the new paradigm of activity of the local self-government bodies.

  25. Instead of a conclusion • For the first time since 1990, Ukraine has taken serious measures to create a fully functional and effective local self-government on the basic level – that of communities, and provided legislative and financial support of its activity. • This reform would have been impossible without contributions of independent experts and donors, especially the International Renaissance Foundation, DESPRO, the Council of Europe, and the EU that prepared a foundation for the reform despite the situation of total despair.

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