Openness and Budget Literacy in the R egions of the Russian Federation

1. Openness and Budget Literacy in the Regions of the Russian Federation YuriiViktorovichBelousov, Candidate of economic sciences, senior researcher, Budget Policy Center, NIFI

2. History and Status of the Rating of Constituent Entities of the RF in Terms of Openness of Budget Data • For the first time rating of constituent entities of the RF was complied for year 2013 by an independent organization - “Center for Applied Economics” in partnership with the journal “Gosmanagement”. • The methodology for compiling ratings was developed by specialists of the Center for Applied Economics. It is based on the methodology of the international budget partnership, based on which the index of openness is determined for countries. • In 2014, the methodology for compiling ratings was approved by the working group of the MoF of Russia on development of the draft of Citizens’ Budget. • At the suggestion of the MoF of Russia, in accordance with the Decision of the Governmental Commission on coordination of open government activities, starting from 2015, rating is determined by the Financial Research Institute in cooperation with the Center for Applied Economics. • According to Order of the MoF of Russia as of December 03, 2010,No. 552, rating resultsare taken into account in the course of evaluating the quality of regional finance management (starting from 2015). • Methodology for monitoring and rating, source data and results of evaluation of regions are open for all interested users and are published on the site of NIFI(http://www.nifi.ru/ru/rating/2016/ methodology2016.html) and in the journal “Gosmanagement” («Госменеджмент»)(http://gosman.ru/?news=30139).

3. What is Evaluated in the Course of Compiling Ratings • 1. What budget data are publicly available at each stage of the budget process • including: • A possibility to find information • Convenience for re-use • Timeliness of information placement • Contents of information • 2. What arrangements are used for interaction with the general public and how actively is public involved in discussion of budget related issues

4. Legal Framework (main) • Budget Code of the Russian Federation • Federal Law as of 27.07.2006, No. 149-FZ “On Information, Information Technologies and on Protection of Information” • Federal Law as of 09.02.2009, No. 8-FZ “On Providing Access to Information About Activities of State Bodies and Local Self-Governing Bodies” • Federal Law as of 21.07.2014, No. 212-FZ “On the Basics of Public Control in of the Russian Federation” • Federal Law as of 06.10.1999, No. 184-FZ “On the General Principles of Organization of Legislative (Representative) and Executive State Power Bodies of Constituent Entities of the Russian Federation” • Federal Law as of 07.02.2011, No. 6-FZ “On the General Principles of Organization and Operation of Control and Accounting Bodies of Constituent Entities of the Russian Federation and of Municipal Formations”

5. Methodology for Compiling Ratings • Frequency: annually. Subjects of Evaluation: 85 constituent entities of the RF. • Questionnaire:9 areas of evaluation, about 100 questions. • Areas of evaluation: • Initially approved budget • Making changes in the Law on the Budget • Intermediary reporting • Annual report on execution of the budget • Draft budget and materials for it • Financial control • Information on performance of government agencies • Citizens’ budget • Public participation • A library of best practices is being created. • Evaluation method: the questionnaire is filled in by an independent expert (the rule is that one expert evaluates one and the same indicator for all regions). Selective control of performed evaluations is made. • Method of getting information: information that is publicly available on the Internet.

6. Blocks of questions in questionnaires of the International Budget Partnership and NIFIfor 2017

7. Top Rated for 2016 Rating Outsiders for 2016

8. Distribution of Constituent Entities of the RF by Groups Depending on the Level of Openness of Budget Data for 2014-2016.

9. The Level of Openness of Budget Data of Constituent Entities of the RF for 2016 in Comparison with the Maximal and Average Values

10. Indicators of Openness of Budget Data by Areas of Evaluation for 2016

11. Changes in Certain Indicators During the Period of Compiling Rating

12. Completeness of Data on the Official Site for Placement of Information on Public (Municipal) Institutions * All public budget and autonomous institutions of constituent entities of the RF, including medical institutions that can operate based on agreements with insurance organizations without state assignments were taken into consideration in calculations. ** Evaluation was not performed because of technical problems at the administrator of the site.

13. Reasons for missing open budget data

14. Problem: Instability of the Law on the Budget CONSEQUENCES • High labor intensity and unproductive expenses in executive power bodies, in the legislature and its administrative department in connection with preparation and approval of changes in the law on the budget nationwide. • The planning system is broken. In fact, the budget is not for three years, but for two months. Instead of systematic use of budget funds they are “spending” takes place. And motivation of officials is involved: they “have to spend” budget funds, otherwise next year they would not be included. • Control of quality of works and services performed at the expense of budget funds goes to the background. No time and no reason. • The role of the legislature in the budget process is minimized at all stages of the budget process. Actual lack of accountability of executive bodies to the legislative body. FACTS • 495 laws on making changes in laws on budgets of constituent entities of RF for 2016 were adopted, which in average is 6 laws as per one constituent entity of the RF. In 4 regions, the number of adopted laws on making changes in the budget comprised 12 and more. • In 46 constituent entities of the RF, changes in the law on the budget for 2016 were made less than 10 working days before the end of the fiscal year. • As a rule, the updated version of the law on the budget is not prepared by public governing bodies, it is done by non-public organizations in the framework of systems like ConsultantPlus. • A report on execution of the budget contains only specified budget assignments (at best, there can be only actual execution). • Draft laws on making changes in the law on the budget can be adopted by the legislature within 5 days starting from the date of introduction (and it is not an emergency situation but standard practice).

15. Foreign Experience • In the state of Kentucky (USA) a representative body is elected for a period of two years. Immediately after the election all its members work on a full-time basis in the course of 2-3 months. Their main task is to adopt the budget of the state for two years. After the budget is adopted the representative body does not meet again. • In 1998, in the state of Colorado the budget was exceeded in terms of revenues. Funds that were received in excess of those planned in the budget were returned to taxpayers. • The Methodology of the International Budget Partnership on drawing up the open budget index for countries pays attention to the issue of making changes in the budget only from the point of view whether such changes are authorized by the legislature.

16. Problem: the method of re-allocation of resources between budgets CONSEQUENCES • The planning system is disrupted at the regional level and at the level of municipal formations. High labor intensity and unproductive expenses related to changes in the laws (decisions) on the budget at the regional level and at the level of municipal formations. • Lack of methodologies for formalized allocation of subsidies and parliamentary control over execution – risk of corruption. • In connection with late allocation of subsidies among municipal formations – “spending” of budget funds instead of efficient usage, appearance of balances subject to be returned, which fact leads to unproductive expenses. FACTS • The number of subsidies from budgets of constituent entities of the RF to budgets of municipal formations is up to 70 types. • The amount of resources re-allocated through subsidies is about RUB 350 billion annually, or 5% of expenses of budgets of constituent entities of the RF. These resources comprise about 10% of expenditures of budgets of municipal formations. • Laws on the budget allocate between municipal formations less than 50% of the total amount of subsidies, including those according to formalized methodologies with open calculations – less than 15 % of the total amount of subsidies.

17. Problem: evaluation of effectiveness of tax incentives CONSEQUENCES • Resources are withdrawn from the budget system and are re-allocated in favor of certain categories of taxpayers who got advantages compared to other taxpayers, without economic justification of such withdrawal and re-allocation (standard practice). • In some cases even executive power bodies have no information about amounts of granted tax incentives. Question: HOW CAN YOU MANAGE SOMETHING YOU HAVE NO NOTION ABOUT? • Indefinite tax incentives continue to exist year after year, irrespective of obtained results. FACTS • The amount of granted tax incentives pursuant to decisions of state authorities of constituent entities of the RF is about RUB 250 billion annually. For example, it is 2.5 of the budget of Perm Krai, or 13 budgets of the Republic of Altai, or RUB 1706 as per one inhabitant of Russia. • 26 constituent entities of the RF made publicly available results of evaluation of effectiveness of tax incentives for 2015, and also source data for such evaluation. • For certain incentives granted pursuant to decisions of public governing bodies of constituent entities of the RF (in particular, those granted to individuals) there is no information about their amount by types of privileged categories of taxpayers. • Evaluation of effectiveness of tax incentives is performed according to methodologies that are developed and approved by executive power bodies of constituent entities of the RF independently without methodological support, based exclusively on their own idea of that. • For certain types of incentives, it is stated from the very beginning that they are efficient irrespective of the result.

18. Experience of South Korea The Ministry of Strategy and Finance of South Korea created a web site to collect information from the public on misuse of funds and on embezzlement. People receive financial rewards for their contribution if the results of presented information helped to increase revenues or to decrease expenditures. During the period from 1998 to 2013, citizens, including government officials, advised about 1922 cases of wasteful or illegal spending of budget funds. As a result of this, budget revenues increased by WON 13.5 trillion (about USD 11 billion); and the cost saving comprised WON 2.3 trillion (about USD 2 billion). The Government paid to citizens about WON 35 billion (about USD 31 million) in the form of rewards.

19. Results of the Survey Heads of financial bodies of constituent entities органов субъектов of the Russian Federationи (или) их заместители gave answers to the questionnaire: 107 persons from 56 constituent entities of the Russian Federation. May – June 2016.

20. Some Conclusions • Executive power bodies means hired managers whose work is (should be) controlled through representative authorities and also public control mechanisms (which become especially relevant in modern conditions). • Control can be exercised using modern control systems, which regulate activities of hired managers and minimize risks for owners. Such technologies penetrate the public sector very slowly. • Citizens are directly related to and have personal interest in preparation and use of a budget of a governmental unit, since through the budget collective needs of citizens are satisfied, and taxes are levied exactly for this purpose. • At present, among representatives of executive power bodies there are persistent misperceptions that : а) publicly available budget data is meant for “poorly educated” people, and b) it is needed for idle interest. • For public control mechanisms to start working, first of all, motivation should appear in executive power bodies to enhance efficiency of work (is missing as of now).