http://www.ewi.info/system/files/reports/Modernizing%20Municipal%20Finance%20of%20the%20Kaliningrad%

• The formation of new municipalities (at the level of settlements and municipal districts) presupposes the redistribution of powers, cash flows and property objects; all this will create an entirely new reality, to which local government is not prepared either financially, or organizationally, or in HR terms.

Advocacy of municipal interests requires political proof of the importance and feasibility of financing of municipal expenditures and their coherent description for any outsider. This can be accomplished in several ways: 1) through a description and economic evaluation of municipalities' certain standard 5 requirements (in practice these are often the existing financing levels); 2) through compilation of register and economic evaluation of the existing budget (expenditure) obligations.

3) through description of the minimum requirements of municipalities and their economic assessment.

Each of the above approaches has certain merits and shortcomings.

1) The first option makes it possible to substantiate financing at an acceptable level, but the essence of the standard-based approach requires the legislative formalization of financing standards, and also makes it difficult to differentiate standards between regions and municipalities. In earlier years of acute budget shortages the federal finance ministry strongly opposed the standard-based approach because it is fraught with the formation of an extremely inertial and lossmaking system, which makes it impossible to promptly modify (especially reduce) financing. In recent years the financial situation in the country has been greatly improving, and as a consequence the finance __________ 5 What is meant here is financial standards – standards of financing specific types of activities.

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