0w2010 01 RESUM EJECUTIVO 03 DEFcarta ang
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EXECUTIVE SUMMARY 38
United Cities and Local Governments
capital grants are allocated on a competitive basis, but clear provisions concerning capital grant allocation procedures are absent in budget legislation. At worst, their distribution is a result of lobbying on the part of individual municipalities. All countries in question exercise strict control over public expenditures funded by earmarked transfers. Borrowing powers are limited. For some countries, limitations are set as a percentage of annual local revenue, for others, as a share of local expenditure. In most countries (e.g. Russia, Kazakhstan, etc.), local governments’ capital expenditures are co-financed by higher level of governments.
Conclusions The main conclusions for the countries of Eurasia include the following: Clarification of the administrative-territorial division and the status of local governments. Local executive bodies should be accountable to local representative bodies and thus to the citizens. Local government bodies should not be subject to higher levels of government. Clear assignment of expenditure responsibilities. In some countries under observation, expenditure responsibilities need to be clarified, as responsibilities have been assigned to different levels of government with several cases of overlapping powers. In addition, clarification is necessary between state and local government powers operating at the local level. Elimination of unfunded mandates. Responsibilities should be delegated with adequate earmarked transfers and any reallocation of expenditures should be followed by reassignment of revenue. Expenditure autonomy of local governments should be increased. Local government should be free to establish the number of local staff and
the amount of money allocated to different local issues. Higher levels of government should not have the power to cancel the decisions of local government, and conflicts between central and local normative acts should be addressed in the courts. Revenue autonomy of local governments should be increased. For local self-governments to become more autonomous, it is necessary to enlarge the list of local taxes (specifically, in Russia, Kyrgyzstan, Georgia) or to assign, for long periods, those shared taxes whose sharing rates are currently established in budget laws (Kazakhstan, Kyrgyzstan, Belarus). Local real estate tax should be introduced instead of separate taxes on land and property. Personal income tax is a good source for local revenue if combined with flat rates and payments according to the residence principle (rather than in the workplace). Small business taxes are another good instrument if local governments could establish the tax base and the tax rates. Local tax administration and collection should be transferred to the local level. The experience of Armenia and Kyrgyzstan shows that delegation of the tax collection to the local level increases tax compliance and resulting revenues. Elimination of the negative incentives from the transfers’ allocation formula and increasing transparency in the allocation of earmarked grants. Incentives for local tax base development should be included in negative transfers. Transparent methodologies for earmarked transfers should be established. Access to capital markets should be provided for local governments. Limited borrowing rights hamper the ability of local authorities to fund capital expenditures. A more flexible legal framework needs to be developed to facilitate access for a responsible indebtedness for local governments.