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Local Government in the Russian Federation

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 Local Governments in the Russian Federation
(Draft to be published by the Open Society Institute)

Galina Kurlyandskaya,
Yelena Nikolayenko,
Natalia Golovanova

This paper was prepared for Local Government and Public Service Reform Initiative / Open Society Institute-Budapest.
The whole publication will be available on OSI/LGI website (http://lgi.osi.hu) and in print.
 About the Authors
Galina Kourliandskaia, Ph.D., is the director of the Center for Fiscal Policy*, Russian non-governmental
consulting group. Galina Kourliandskaia serves as an advisor to the RF Ministry of Finance and to a number of regional
governments. She is the author of a number of publications on intergovernmental relations in the Russian Federation.

Yelena Nikolayenko is Deputy-director and Senior Consultant of the Center for Fiscal Policy. Her experience is
with the development of intergovernmental relations between the federal and regional governments and also between
regional and local governments. She serves as an advisor to the RF Ministry of Finance, State Duma and a number of
regional governments.

Natalia Golovanova is a consultant at the Center for Fiscal Policy and former analyst with the Ministry of Finance
of Russian Federation. She is also an assistant professor in the Higher School of Economics where she works on her Ph.D.
thesis.

*Center for Fiscal Policy

121099 Moscow, Novinskiy boulevard, 11а
Phone (7 095) 205 35 36, (7 095) 777 65 82
Fax 777 65 83, (7 095) 205 29 02
E-mail fpcenter@fpcenter.org
Internet www.fpcenter.org

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 Table of Contents
1. General ..............................................................................................................................................................1
1.1 Federative state ..............................................................................................................................................1
1.2 Ethnic characteristics of the Russian Federation and its regions ...............................................................1
1.3 Territorial division of the regions .................................................................................................................1
1.4 Territories with special status .......................................................................................................................2
2. Overview of Local Government Reform ........................................................................................................3
2.1. The Soviet Period .........................................................................................................................................3
2.2. The Post-Soviet Period.................................................................................................................................4
3. Constitutional and other legal guarantees of local self-government .............................................................4
3.1. The Constitutional Foundations of Local Self-Governance ......................................................................4
3.2. General principles of local self-government organization .........................................................................5
3.3. Federal Guarantees of Forming of Local Self-government Elective Bodies ............................................6
3.4. Financial Foundations of Local Self-government ......................................................................................7
3.5. Latest Amendments to the Law on General Principles ..............................................................................8
3.6. Regional Legislation in the Field of Local Self-government ....................................................................8
3.7. Violations of Constitutional Principles and Federal Legislation Norms in Regional Laws ....................9
3.8. Protection of Constitutional Rights of Local Self-government ...............................................................10
4. Territorial levels of decentralization..............................................................................................................11
5. Local Politics, Decision Making ....................................................................................................................13
5.1 Local politics................................................................................................................................................13
5.2 Local elections .............................................................................................................................................14
5.3 Participation of Citizenry in Decision-making ..........................................................................................14
5.4 Ethnic Aspects of Local Self-government .................................................................................................15
5.5 Associations of Municipal Entities.............................................................................................................16
6. Functional Structure of Local Administration ..............................................................................................16
6.1 Representative Body of Local Self-government .......................................................................................17
6.2 Head of Municipality ..................................................................................................................................17
6.3 Organizational Structure of Bodies of Local Self-government ................................................................17
6.4 Local Administration...................................................................................................................................18
6.5 Bodies of local government in the City of Petrozavodsk: A Case Study ................................................21
6.6 Organization of Local Administrations by the Sectoral Principle............................................................24
7. Municipal Services and Municipal Property.................................................................................................24
7.1 Municipal services .......................................................................................................................................24
7.2 Methods of service delivery........................................................................................................................26
7.3 Involvement of Local Governments in Profit-Making Businesses ..........................................................28
7.4 Delineation of Functions between Local and Regional Governments .....................................................29
7.5 Municipal Property ......................................................................................................................................29
8. Local Finance ..................................................................................................................................................32
8.1 Expenditures ................................................................................................................................................32
8.2 Revenues ......................................................................................................................................................34
8.3 Methods of Intergovernmental Grants Allocation .....................................................................................37
8.4 Budget Process ............................................................................................................................................38
8.5 Budget Execution ........................................................................................................................................39
9. Relationships between Bodies of Local Self-government and Bodies of State Power ..............................39
9.1. Infringement of Regional Authorities upon Basic Legal Rights of Localities .......................................40
9.2. Relationships between State, Regional and Local Governments Arising in Provision of Public Services 40
9.3. Fiscal Relations between Regional and Local Authorities ......................................................................41
9.4. Local Governments and Local Agencies of Regional and Federal Authorities .....................................42
9.5 Control over Local Government Operations .............................................................................................42
10. Municipal Employees .....................................................................................................................................45
10.1 Fundamentals of municipal service ..........................................................................................................45
10.2 Persons holding Elective Offices .............................................................................................................46
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 10.3 Problems of Political Affiliation ..............................................................................................................47
10.4 Personnel Training ....................................................................................................................................47
11. Outlook for Development of Local Self-government in the Russian Federation .......................................48
APPENDIX .............................................................................................................................................................50
References ...............................................................................................................................................................70
Contacts for further information on Local Government in Russia ......................................................................72

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 Local Governments in the Russian Federation

1. General

1.1 Federative state

The Russian Federation consists of 89 member regions called Subjects of the Federation. For
purposes of statistical reporting, the regions are grouped into 12 economic zones, and for purposes of
political and administrative oversight 7 federal districts have recently been formed, which in all
likelihood will eventually replace the former division into 12 economic zones. The extent of economic
and demographic disparities across regions is huge, as can be seen from Table 1 (see Appendix).
Subjects of the Russian Federation include 21 republics, 6 krais, 49 oblasts, two federal cities,
one autonomous oblast and 10 autonomous districts. In spite of this diversity of categories, pursuant to
the 1993 Constitution of the Russian Federation all subjects of the Federation have equal status, even
though the Federative Treaty which is an integral part of the Constitution does allow for bilateral
agreements between the federal center and member regions providing for special rights and obligations
of the regions that are parties to such agreements. In fact, as of October 2000, 51 regions have concluded
47 agreements with the federal government. It is important to stress that whether a region is a republic,
a krai, or an oblast, the category name does not by itself say much about the status of the region in
question. More than anything else, these differences in names are explained by historic reasons, even
though among the regions that concluded bilateral agreements with the center the majority were
republics.
Having realized the risks of moving along the way of asymmetric federalism before it was too
late, the federal government eventually called off most of the privileges it granted to individual regions
earlier. Moreover, in 2000 the State Duma of the RF passed a law mandating that all regions bring their
legislation in conformity with the requirements of the federal legislation and the Constitution, which
signified a return to the policy of symmetric federalism1, even though in a country as huge and diverse
as Russia full symmetry is hardly attainable.

1.2 Ethnic characteristics of the Russian Federation and its regions

Russians form a majority of the population of the Russian Federation. With few exceptions
Russians also form the majority of population in most of republics and other ethnic autonomies in
Russia (see Tab. 2 in the Appendix).
After Russians, the most numerous ethnic groups are Tatars (3.7% of total population),
Ukrainians, and Chuvash (1,17%). No other ethnicity in Russia exceeds 1% of the total population2.

1.3 Territorial division of the regions

The territories of the subjects of the Federation are divided into rural areas called raions and
cities. This division is common to all Russian regions as it has been inherited from the former Soviet
Union, even though the borders of jurisdictions themselves in most cases were formed in a much more

1
As of October 2000, only republics of Bashkortostan and Tatarstan retained individual privileges not stipulated in the 1993
Constitution.
2
Goskomstat, 1994 census.
distant past. Raions, in their turn, are divided into smaller parcels, which can include sub-raion towns,
townships or villages, and rural districts. Rural districts cover several small rural settlements. Subraion
towns can include townships and rural districts. Therefore, the territorial division of RF subjects
generally has three or four levels (see Table 3 in the Appendix).
Prior to the reform, the hierarchy of territories reflected to the hierarchy of administrative
subordination. With the transition from the system of administrative subordination to a more
decentralized arrangement, settlements of all sizes were granted the right to set up local governments
and register as municipalities. All municipalities have equal status and subordination of one
municipality to another is not permitted. Therefore, the reform of local government in Russia implied a
transition from a three-tier hierarchy of jurisdictions within the regions to a two-tier system including
the regional government and local (municipal) governments, with no administrative subordination
between the two. Making this transition in practice proved to be difficult. The system of municipalities
had to be superimposed over the previous hierarchical structure which in many regions resulted in
peculiar organizational forms that combine subordination of municipalities with the coexistence of
former raions and tiny villages as single-tier municipalities.
More on the transitional types of local self-government organization that exist in Russia today
the reader will find in section “Territorial levels of decentralization”.
Since the breakdown of regional territories into municipalities has not been finalized yet,
federal agencies that have their branches in subnational territories are in no hurry to revise their internal
organization to bring it in line with the new municipal division.3 In particular, both the Ministry of Taxes
and Levies and the State Committee for Statistics (Goskomstat) continue to use the raion breakdown in
their reports, where the smallest units of territorial division are raions/cities, so wherever municipal
boundaries do not coincide with former raions and cities, data on municipalities is unavailable. Only
the total number of localities officially registered as municipalities can be obtained from federal sources,
because the federal Registration Chamber collects this information and includes in into its reporting,
but any data on the area of jurisdictions, demographic or economic characteristics available from
Goskomstat comes only in the old territorial breakdown.
Table 4 in the Appendix summarizes data on the traditional territorial division and
municipalities with elected authorities of the Russian federation. Table 5 contains data on urban and
rural settlements in the Russian Federation.

1.4 Territories with special status

Two of the Russian regions – federal cities of Moscow and St-Petersburg – enjoy special rights
with respect to local self-government. The governments of both cities are entitled to determine the
spending responsibilities, property and revenues sources of local governments at their own discretion.
The City of Moscow does not have any local governments inside its boundaries. The City of St-
Petersburg has more than 100 local governments. However, these enjoy very little autonomy.
There are also about 40 territories in Russia that enjoy a special status - these are the so-called
‘restricted access’ territories (‘zakrytye administrativno-territorialnye obrazovanya’ or ZATOs) that are
under the jurisdiction of the federal government (Ministry of Defense and Ministry of Nuclear Energy).
ZATOs can be urban or rural settlements. By federal law on ZATOs, their boundaries can cross the
boundaries of regions or sub-regional raions. The boundaries of ZATOs, their administrative
subordination and the rights and duties of regional governments with respect to ZATOs located in their
territories are determined by federal government. ZATOs receive their intergovernmental transfers only
from the federal government, which means that financially they are independent from the regional
governments. ZATO residents can form local governments. Generally speaking, all regional laws with

3
The only exception is the federal Ministry of Finance which gave up its regional, city and raion offices with the
transition to federal type of relations between the center and the regions and institualization of local governments.
All local branches of MoF were officially transformed into financial departments of subnational governments of
corresponding level.

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the exception of laws on fiscal matters, apply across the entire territory of the region, including ZATOs,
but in fiscal matters ZATOs are federal territories.
Until recently ZATOs were allowed to retain all taxes collected in their territories, including the
regional and federal shares. Starting from the year 2000, all ZATOs except two are mandated to remit
federal taxes, as well as levies that accrue to earmarked budgetary and extrabudgetary funds of the
federal and/or regional government, to the respective government and or fund in accordance with the
federal/regional legislation. Any financing gaps between ZATOs’ expenditure needs and revenues are
covered directly from the federal budget. At present discussions are under way in the Russian
Government of whether the number of ZATOs should be drastically reduced, and preferential tax
treatment that they so far enjoyed cancelled. If those plans come true, most of ZATOs will loose their
special status and become ordinary municipalities.

2. Overview of Local Government Reform4

2.1. The Soviet Period

The first step along the path of democratization of local government in Russia was made in the
end of 1980s when Russia was still a member of the Soviet Union. In the course of an experiment
conducted during the 1987 elections to local Soviets, some raions were allowed to have more candidates
than there were seats open for ballot. In all pilot raions taken together (about 5% of the total number of
raions), there were 26 thousand candidates competing for 4.7 thousand councilor seats.
In all other respects, local governments remained part of the same highly centralized
administrative hierarchy that was completely subordinate to the party apparatus. The pertinent features
of local governments in these early years of transition were:
1. lack of any distinction between the local and the state levels of government;
2. the jurisdictions of local governments exactly replicated the boundaries of the existing
administrative division of the territory;
3. subordination of local governments to state and party authorities.
The next important landmark was the introduction of amendments to the USSR Constitution
and to the Law On Elections of USSR People’s Deputies in 1988. For the evolution of the institute of
local self-governance, the most important amendments were those that established the direct right of
the voters to nominate candidates, set forth legal guarantees of the right of local Soviets to exercise
control over local state agencies and limited the term of the officials appointed by local Soviets.
The first law that used the term «local self-government» was the USSR Law On general
principles of local self- government and local enterprise in the USSR (April 9, 1990) that opened the
door to cardinal changes in the role of local government in the development of a civic society. Most
importantly, this law established:
1. guarantees that local authorities are autonomous, independent and elected by popular vote;
2. the scope of competencies of local Soviets;
3. the transfer of communal property to the disposal of local Soviets;
4. revenue sources of local Soviets, including fixed sharing rates of federal taxes and a list of own
taxes, levies and duties that local Soviets can introduce at their own discretion.
It should be noted that in that Law the requirement that local authorities be elected by popular
vote applied only to representative bodies. The primary territorial level of local self-government

4
Metrokhin (1999) contains a comprehensive review of local government reform history in Russia. This section draws heavily
on this study.

3
established by this law coincided with the bottom level of administrative division that existed at that
time in the USSR, which was a rural district, a township, a sub-raion town or a city district.
The first law on local self-government that came into force after the independence, was passed
on July 6, 1991 when Russia was still part of the Soviet Union. The main progressive feature of this
law was the requirement that not only representative bodies but also heads of local administrations be
democratically elected. This law also decreed the dissolution of the so-called executive committees, or
bottom level tiers in the hierarchy of state power.

2.2. The Post-Soviet Period

In the early years of independence the evolution of the legal framework of local self-governance
in Russia essentially consisted of changing and amending the 1991 Law On local self-government in
the RSFSR. The harmonization of this law with other legislative acts and most importantly with the Law
On the foundations of the tax system in the RF (Dec. 27 1991) resulted, however, in watering down the
gist of the law and limiting the revenue autonomy of local authorities.
The dissolution of the Supreme Council of the RF in the fall of 1993 and the enactment of the
new Constitution marked the beginning of a revolutionary phase in the development of local self-
government in Russia. The so-called «municipal revolution» originated in the center. It was fueled by
the desire to counterbalance the growing political opposition of the regional elite. New departments of
federal agencies were specifically commissioned to provide support to the bottom level tier in the
hierarchy of Russian statehood. The availability of an ally such as the body of autonomous local self-
government authorities and independence of local self-government leaders from the regional
administration played into the hands of the team of Russian reformers who had to implement often
unpopular policies of the federal government.
The 1993 Constitution was followed by a number of other laws initiated by the federal center
that established the procedures of forming local governments and set the rules for their operation. All
these laws were aimed at strengthening the autonomy of the bottom-level tier of public administration.
Having determined the relations between the central and the regional levels of government as those of
a federal state, the central government had at the same time curtailed the rights of the regions with
respect to local governments by replicating the federative relations between the center and the regions
at the subnational level, though in a somewhat weaker form.
The majority of regions had benefited from the federalization of their relations with the center,
but they were reluctant to give up any of their powers with respect to subregional territories. In contrast
to decentralization of power at the federal level, they preferred a paternalistic model of relations with
the local governments, and instead of making efficient use of the new levers of control – the legislative
initiative and law enforcement, they opted for the «re-institution of the vertical axis of executive
power».
One of the first actions undertaken by President Vladimir Putin following his inauguration on
December 31, 1999, was to dismiss one of the key advocates of local self-governance in the federal
administration from his position as head of the Department of Local Governments in Office of the
President. The Department itself was liquidated soon after.
The preferences of the governors for centralization were echoed in the policy of strengthening
the entire vertical of power from top to bottom conducted by President Putin from the very start of his
term in the office. The Office of the President became the source of legislative initiatives and
administrative decisions that led to reinforcement of administrative methods of control in the Russian
State at all levels of power.

3. Constitutional and other legal guarantees of local self-government

3.1. The Constitutional Foundations of Local Self-Governance

In the 1993 Constitution lists the institute of local self-government among the foundations of
the constitutional order of the Russian Federation, along with the institute of the state power, federative

4
organization of the state, republican form of rule and other provisions of Chapter I of the Main Law of
Russia.
In Chapter I of the Constitution, bodies of local self-government are listed among the
institutions through which the people exercise their rule (alongside with direct democracy and
democracy exercised via bodies of state power). This Chapter also provides for municipal ownership of
land.
Article 12 unequivocally determines that «bodies of local self-government do not form part of
the system of state power». The Constitution has replaced the administrative subordination of local
authorities to the regional ones with a legal regulation framework.
Chapter 8 of the Constitution is entirely devoted to local self-governance. The four articles of
this Chapter provide the following guarantees:
 independence of local communities in addressing issues of local importance;
 diversity of local self-government organization models;
 when determining the boundaries of local self-government jurisdictions, regional
authorities must take into account the preferences of local communities;
 financial autonomy (albeit limited) of local governments is achieved via discretional
management of municipal property and implementation of budgetary rights with respect to
local revenues and expenditures;
 provision of adequate funding for performing state functions, if such functions were
delegated to the local government by the decision of state (federal or regional) authorities;
 reimbursement of local governments for the costs of implementing federal mandates.
The Constitution establishes that establishment of general principles of local government
organization is a joint responsibility of the federal center and the regions.
To fulfill their part of this joint responsibility, federal authorities have passed a number of laws
that set the rules for local government organization. These include:
On general principles of local self-government organization in the Russian Federation, Aug. 28, 1995;
On ensuring the constitutional rights of the citizens of the Russian Federation to elect and be elected to
bodies of local self-government, Nov. 26, 1996;
On basic guarantees of electoral rights of the citizens of the Russian Federation, Sept.19, 1997;
On financial foundations of local self-government in the Russian Federation, Sept. 25, 1997;
A more detailed list of legal acts on local self-government in the Russian Federation is presented
in Table 6 in the Appendix.

3.2. General principles of local self-government organization

The law that lays down the fundamental principles of local self-government in Russia is the
federal Law On general principles of local self-government organization in the RF.
The most important distinction between this law and its predecessors from the soviet period lies
in the fact that this law establishes the general principles of local self-government, rather than the system
of local self-government bodies.
The law defines the domain of local self-government, or the municipality, as any populated
territory (city, town, township, a collection of these on a single territory, or any part thereof) to which
the following four conditions apply:
- it is self-governed;
- it has municipal property;

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 - it has a budget;
- it has elected bodies of local self-government.
In conformity with the Constitution, the law allows for the diversity of levels of territorial
division at which local self-government can be instituted. It permits to set up local self-government both
at the raion level, and at the level of any towns or villages irrespective of the size of their population.
This law has also established the main distinctive feature of the Russian model of local self-
government that consists in granting a uniform legal status to all local self-government entities. This
means that all local governments – be they raions, towns, townships of rural districts – enjoy the same
institutional and administrative rights. The law does not allow subordination of one municipality to
another.
Therefore, pursuant to the Law On general principles of local self-government organization,
the entire territory of the Russian Federation should be divided into non-overlapping jurisdictions
(territories) of municipalities or local self-government entities.
The proclaimed equality of municipalities distinguishes the Russian model of local self-
government both from the soviet model and from the models implemented in the majority of FSU
countries that chose to build the institute of local self-government upon the foundations that were laid
in the pre-reform period.
The law details the scope of authority of the regions with respect to local self-governance, and
lists the responsibilities of local governments. Most local responsibilities are stated in terms of
obligations of local governments to maintain social infrastructure facilities that were transferred into
municipal property in the course of segregation of property between the region and the localities, rather
than in terms of functions or public services that should be provided locally. Unlike many countries
with strong institute of local government, local governments in Russia are made responsible for the
delivery of such public services as education and healthcare. However, the law allows local
governments to limit service delivery to the capacity of the social infrastructure facilities that were
transferred to the property of municipality. Therefore, the assignment of expenditure responsibilities
between the regional and local governments depends on the delineation of property between these two
government levels
See also the section on public services and municipal property.

3.3. Federal Guarantees of Forming of Local Self-government Elective Bodies

One of the major objectives of the federal policy vis-à-vis the development of local self-
government was to induce regions to form a system of local self-government by adopting requisite
regional laws and holding municipal elections.
In late 1996, pursuant to the Law On General Principles, the federal Law On Ensuring the
Constitutional Rights of the Citizens of the Russian Federation to Elect and be Elected to Bodies of
Local Self-government had been passed to prevent a surge of regional resistance to the establishment of
local self-government.
In fact, the law on local elections was a form of federal intervention in affairs of the regions
that failed to comply with the federal legislation. Where regional administrations did nothing to organize
elections to bodies of local self-government, the right to convene such elections was assigned to courts.
The rules to be followed in holding elections were set in a special attachment to the Law.
A year later, in the fall of 1997 the federal Law On Basic Guarantees of Electoral Rights and
Right of the Citizens of the Russian Federation to Participate in Referendums was passed to guarantee
electoral rights of citizens to hold elections to bodies of local self-government even if there were no
regional laws to this effect. The guarantees made it possible to hold elections on the basis of the above
federal law.

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3.4. Financial Foundations of Local Self-government
Another important objective of federal authorities with regard to development of local self-
governance was to ensure financial autonomy of local budgets.
Sources of tax revenues of local budgets were determined in 1991 in the federal Law On
Foundations of the Tax System of the Russian Federation. However, local taxes and fees enumerated
therein as well as insignificant federal taxes assigned to localities on a permanent basis in most cases
did not cover more than 20 percent of local expenditure needs. The resulting financing gap had to be
covered with intergovernmental transfers from the regional government.
Vesting regional administrations with the authority to regulate local revenues made local
governments heavily dependent on regional authorities. The Law On Financial Foundations of Local
Self-government in the Russian Federation (hereinafter referred to as the Law On Financial
Foundations) sought to ensure stable revenues for local budgets by restricting the latitude of regional
administrations in disposing of the revenue sources assigned to them. The Law was passed in September
1997 after the President had overcome the veto of the Upper Chamber of the Russian Parliament
composed of governors and heads of representative bodies of Russian regions.
The Law On Financial Foundations has become an important milestone on the way to the
establishment of a full-fledged institution of local finances. This Law:
- establishes the foundations of the budget process in municipalities;
- establishes the maximum permissible levels of municipal debt;
- limits the involvement of local authorities in financial risks, from speculation in stock
markets to contributing local budget funds to authorized capitals of banks;
- establishes the right of municipalities to set up their own treasuries and tax administrations;
- establishes sharing rates of some federal taxes for local budgets that shall be complied with
«on the average» across all municipalities in the region;
- requires that intergovernmental transfers extended from the regional to municipal budgets
be computed in a formalized fashion and that a uniform methodology be applied to all
municipalities in calculation of variable sharing rates and allocation of equalization grants;
- prohibits reduction of transfers to municipalities whose actual tax collections from own
sources exceed the planned amounts.
With the huge revenue disparities that exist across the regions in Russia and across
municipalities within each region, the Law On Financial Foundations has unfortunately failed to ensure
financial autonomy for most of the municipal entities.
In drafting the law federal advocates of local self-government were seeking first and foremost
to ensure financial sovereignty of their main protégés – large cities, the mayors of which have a
significant political clout. The draft law that they proposed required that every local budget be assigned
the same fixed rate of shared federal taxes. But since the tax base is distributed unevenly across
municipalities, assignment of the same retention rates to all municipalities would have perpetuated the
existing inequality, and any fiscal equalization would have had to be conducted by the regional
governments from their own sources and at their own discretion. Eventually the vote was in favor of
the version of the law that fixed sharing rates to be complied with «on the average» for all municipalities
rather than for every individual municipality. The Law allows, inter alia, to set zero rates of federal
taxes for «rich» municipalities and let poor localities retain one hundred percent of the regional share
of federal taxes. Hence, budget revenues are equalized among municipalities through re-directing
financial revenues from rich to poor municipalities, while transfers from the regional budget are used
for narrowing the remaining disparity.
Furthermore, the Law sets no requirements with regard to distribution of federal grants
extended to the regions for equalization purposes from the regional budget to localities, although in
subsidized regions those resources may by far exceed total tax revenues raised in their jurisdictions.

7
 For more details see a later section on local finances.

3.5. Latest Amendments to the Law on General Principles

The passing of the federal Law On Foundations of Municipal Service in the Russian Federation
(see section on municipal employees) completed the establishment of the legislative framework of what
President Yeltsin's administration perceived to be local self-government. However, right after President
Putin came to power, in the summer of 2000 the fundamental Law On General Principles was
significantly amended. The core of the amendments was a reversion to the administrative methods of
management of the public sector from top to bottom.
The Law On General Principles as amended (Article 49) establishes that should the court find
decisions of bodies of local self-government incompatible with the Constitution, or federal or regional
legislation, and should the representative body or head of local self-government fail to call off the
contradictory legislative act or provisions thereof, head of the subject of the Federation or the Russian
President shall be entitled to dissolve the representative body of local self-government and discharge
the head of municipality from office, convene new elections and appoint an acting head of municipality
of his own choice for the interim period.
Prior to the introduction of the above amendments the Law did provide for dissolution of the
representative body of local self-government and dismissal of the head of local self-government, but
the previous procedure was more complicated and necessitated additional court proceedings.
Unfortunately, the new authorities have opted for strengthening of administrative levers instead of
trying to improve enforcement of court rulings.

3.6. Regional Legislation in the Field of Local Self-government

The principle of joint jurisdiction of the Federation and its subjects over issues of organization
of local self-government embodied in the Constitution implies that Subjects of the Federation will pass
regional laws to specify the relationships with localities in accordance with the existing federal
legislation in this field. The Law On General Principles sets out a list of issues that regional laws on
local self-government should regulate. It includes:
1. defining of the procedure for establishment of territories of municipal entities;
2. establishment of the procedure for holding municipal elections;
3. establishment of the procedure for registration of municipal charters;
4. establishment of the procedure for transfer of property to municipalities;
5. regulation of fiscal relations between the region and localities, equalization of fiscal
capacity of municipalities;
6. vesting bodies of local self-government with, and transfer of appropriate financial resources
to support the execution of, certain State powers;
7. passing of regional laws on municipal service and other issues.
The regions have been developing regional legislation on local self-government since 1996.
They have been passing laws on both general and particular issues of local self-government falling
within regional competence. The process is far from being completed. Different regions have shown
different degree of willingness to give up administrative methods of government.
Subject to their attitude to the reform of local self-government, Russian regions can
theoretically be broken down into three groups5.
Constructive Approach Group: It includes regions for which the implementation of the
constitutional concept of local self-government is a requirement subject to unconditional compliance.
Furthermore, they realize the advantages associated with the development of independent public

5
This classification was proposed in Zamotayev (1999).

8
administration at the local level. In most of those regions municipal elections had been held even before
the Federal Law on General Principles was passed. Their legislators have been very active in developing
laws on municipal issues, going in most cases ahead of the federal legislation.
This group of regions includes Leningrad, Tyumen, Vologda, Astrakhan, Irkutsk, Voronezh,
Nizhni Novgorod, Saratov, Pskov and Kaluga oblasts and Khanti-Mansi Autonomous Okrug.
Resistance Group: It includes regions where self-government is either non-existent or forced
out to the level of small townships, deprived of any legal basis. Issues of local importance assigned by
the federal legislation to the competence of local self-government are dealt with by territorial branches
of State power of Russian regions in cities and raions appointed by the central regional authorities. In
some cases heads of the executive authorities of cities and raions may be elected but anyhow are subject
to removal from office by the regional government that is also the primary authority in annulment of
their decisions. Legislation on municipal issues there is either still in its infancy or ridden with all sorts
of conflicts with the federal legislation. In some of those regions bodies of local self-government are
not only non-existent but even have not been provided for in the regional legislation.
Until recently this group of regions included Republic of Bashkortostan, Republic of Tatarstan,
Udmurt Republic, Republic of Komi, Ingush Republic, Karachai-Circassian Republic, Republic of
Kalmykia, Republic of Sakha, Republic of Khakassia, Republic of Tyva, Kursk Oblast, Novosibirsk
Oblast and Jewish Autonomous Oblast.
As can be seen from the list, most of the regions in the latter group are ethnic autonomies. Their
leaders avoid making any public avowals of refusal to comply with constitutional rules. Instead, they
would expand on the need to ensure controllability of territories, or argue that the population is not
prepared for a new organization of government or that localities are in lack of managerial personnel.
Wait-and-see Group: It is a group of regions that look upon local self-government as
inescapable evil. They refrain from committing any blunt violations of the federal legislation on local
self-government, but at the same time resort to all sorts of ploys to delay the process. It was not until
1997 that bodies of local self-government have been formed in their jurisdictions, the legislation still
being in the inception phase with most of its pieces borrowed from other regions, rather than being a
product of local effort.
It is a fairly large group of regions tending to break away and join one of the other two groups.
Because of this difference in attitudes of regional authorities to the issue of establishment of
municipal governments the quality of regional laws on local self-government in many subjects of the
Federation leaves much to be desired or they contain norms running counter to the Constitution and
federal legislation.

3.7. Violations of Constitutional Principles and Federal Legislation Norms in Regional Laws
The history of development of local self-government in Russia is that of frequent and grave
conflicts between regions and municipalities. The primary reasons for occurrence of conflicts between
regional authorities and local governments are:
- unwillingness of regional leaders to share their power and everything that secures it:
property, taxes and other financial resources, rights to decision-making in business and
economic areas;
- lack of regional administrative experience and government skills required under the
conditions of decentralized authority;
- contradictions arising within local self-government between interests of rich and poor
municipalities;
- traditions of subordination of lower level to higher level governments.
To resolve those contradictions to their advantage regions resort to both legal and illegal
methods. The most typical violations contained in acts of subjects of the Federation in the field of local
self-government are as follows:

9
 1. Restrictions of electoral rights of citizens with respect to local self-government through
introduction of residence qualification, age qualification and property qualification in
contradiction to the federal legislation, as well as through the ability of regional authorities
to discharge heads of local self-government.
2. Restrictions on independence of local self-government vis-à-vis matters outside regional
competence. The sorts of restrictions that can be encountered here are:
- establishment of an exhaustive list of municipalities that may be set up in the region;
- regulation of the structure and operation of bodies of local self-government;
- restrictions on disposal of municipal property;
- limiting local choices with regard to formulation and execution of local budgets.
3. Assigning powers of local self-government to bodies of State power of administrative-
territorial units of Russian regions.
4. Assignment of bodies of local self-government with some of the State powers not supported
by requisite financial resources.
5. Taking some of the territories out of the scope of legislation on local self-government
(establishment of the so-called «regional districts»)6.
6. Changing of boundaries of the territories within which local self-government is
implemented, without regard for public opinion.
7. Making one municipal entity subordinate to another, primarily in financial matters.
Violations set out above are in one form or another encountered in the legislation of the vast
majority of regions.
It should be noted in all fairness that numerous violations of the federal legislation occurring in
the course of development of regulatory and legislative framework of local self-government are to a
certain extent attributable to objective causes such as novelty of local self government problems for
Russia, centralist mentality of political leaders fostered during many decades of the Soviet system, and
lack of skilled experts in public law and public finance.
Inconsistencies within the federal legislation itself are another important contributory factor for
violations of the federal legislation by regional legislative acts. It is not infrequent when provisions of
one federal law on issues of local self-government are inconsistent with other laws. Furthermore, in one
and the same law (for instance, the basic law on General Principles) one article may run counter to
another.

3.8. Protection of Constitutional Rights of Local Self-government

In the Yeltsin era of the history of new Russian State there were a number of cases when rights
of local self-government had to be defended at the highest possible level: by the Russian Supreme Court
and Constitutional Court. Undoubtedly, it happened only when claims of local authorities were
recognized at the very top and made use of as a precedent for preventing the recurrence of similar
situations in the future, whereas in the vast majority of cases small municipalities find it extremely
difficult to uphold their rights before omnipotent regional bosses that even federal agencies operating
in regions often find themselves dependent on.
In what follows we will give a few examples of resolution of conflicts between local and
regional authorities at the federal level. One case in point is the dismissal in July 1994 by the governor
of Yaroslavl Oblast of a few heads of cities and raions superseded by other appointees. The governor's
actions were appealed against in court at the initiative of the regional branch of Democratic Russia, a
political movement of liberal creed. The Yaroslavl regional court found the complaint valid and satisfied
the claim for unlawfulness of governor's actions. The regional authorities lodged protest with the

6
For instance, in Saratov Oblast.

10
Russian Supreme Court against the ruling of the regional court, but the Supreme Court left the ruling
of the regional court unchanged.
The Udmurt law passed in April 1996 provided for replacement of local self-government by
the executive branch of State power, including the establishment of bodies of State power at the level
of cities, raions and below-raion level to be appointed by a higher level. In view of the unconstitutional
nature of the organization of subnational bodies of government prescribed by it, the law ended up in the
Constitutional Court. The compliance of the said republican law with the Constitution was questioned
by President Yeltsin and a group of State Duma deputies.
In January 1997 proceedings in the case resulted in the decision of the Constitutional Court
containing two provisions of fundamental importance for the development of local self-government:
1. Bodies of State power of administrative-territorial units (local bodies of State power)
cannot be assigned with powers of local self-government;
2. Bodies of State power of administrative-territorial units (local bodies of State power) shall
be set up on the basis of the same general principles by which State power in the Russian
Federation is organized, i.e. they shall be elected by the citizenry of a particular jurisdiction.
On the 15th of January, 1998, having considered other infringements by subjects of the
Federation on principles of establishment of the executive authority at the local level, the Constitutional
Court ruled that bodies of public power should be of either State or municipal nature. The nature of a
body of public power is determined by the scope of issues falling under its competence. Thus, the
Constitutional Court has once again confirmed that whatever name may be given to bodies of
government that form local budget, introduce local taxes and establish the procedure for management
of municipal property, they shall be recognized as bodies of local self-government and as such be
separated from bodies of State power and formed through elections by the population living within the
boundaries of a respective territory.

4. Territorial levels of decentralization

Before the reform of local government was launched, Russia had a very rigid administrative
hierarchy in which administrations of smaller territories were subordinate to administrations of larger
territories within the boundaries of which the former were located. Depending on their geographic size,
population size and density, and place within the administrative and territorial hierarchy, administrative-
territorial units making up regions would form the following hierarchy: region – raions and cities
subordinate to regions– cities subordinate to raions; townships, and rural districts (for more details, see
earlier section on territorial division of the regions). Municipalities that have come into existence in
recent years were formed in different regions at different tiers of the former administrative and territorial
hierarchy: in some regions they were set up at the level of former cities and raions; in others they were
established at the level of rural districts; still another alternative structure is when municipalities are
partially made up at the level of cities and raions and partially at the level of rural districts. In some
regions former raions were transformed into territorial branches of the regional administration, making
up a second tier of the State power of a subject of the Federation (region – raions and cities), while in
other regions what used to be raions was transformed into municipalities, not infrequently having a two-
tier structure (cities, raions – townships, rural districts). One can distinguish the following basic types
of local public administration currently in operation in different regions of Russia (Table 7 in the
Appendix):
Type I One-tier structure of State power of a subject of the Federation and one-tier structure
of municipal bodies of government (at the level of large cities and raions)
Local bodies of self-government are for the most part formed on the basis of large cities and
raions in the traditional administrative-territorial division. Municipalities enjoy the fiscal rights
determined by the federal legislation. Their fiscal relations with regional bodies of State power (amounts
of transfers and tax sharing) are designed by regional authorities. In a number of regions the single-tier
regional administration co-exists with municipalities formed on the basis of subraion cities and rural

11
districts. To the extent that the raion tier is missing, regional authorities have to deal with hundreds of
sub-raion municipalities formed on the basis of small villages.
Type II Two-tier structure of State power of a subject of the Federation and one-tier structure
of local government where local governments are deprived of some important rights
guaranteed by the federal legislation
This structure is similar to the previous one except that municipalities formed at below-raion
level are deprived of some rights and powers, budgetary ones in particular, established for them by the
federal legislation. The authority to set local taxes is vested in territorial branches of the regional
administration that have no elected bodies. Budgets of municipalities are incorporated in the regional
budget in the form of expenditure plans.

Type III One-tier structure of State power of a subject of the Federation and two-tier model
of local self-government where some local governments are subordinate to other
local governments in violation of the federal legislation
The first level of local government includes big cities and raions; the second level includes sub-
raion cities and other populated areas within cities or raions. Local residents elect both the first-level
and the second-level governments. Local governments of the first level engage in direct financial
relations with the regional authorities. Financial relations between localities of the second level and
regional authorities are indirect and go through local governments of the first level. Local governments
of the first level are responsible, inter alia, for the distribution of regional grants to localities of the
second level and for splitting the sharing rates of regional/federal shared taxes assigned by the regional
administration to the local level. First-tier local governments are in fact performing the functions of
bodies of State power of a region.
If the second-tier municipalities cover the entire territory in the jurisdiction of the first-tier
municipality, the latter is usually made responsible for maintenance of social infrastructure facilities
providing services to the entire population of the area. Local taxes in such cases are usually established
by the second-tier municipalities, but sometimes these smaller municipalities delegate their taxing
authority to the raion-level municipality, in which case the raion usually sets the uniform tax rates for
all municipalities located within its boundaries. If second-tier municipalities represent individual
inclusions in the territory of the first-tier locality, the latter is responsible for the performance of
functions of local self-government in the territory outside the jurisdiction of second-tier municipalities.
Local taxes in this case are established by local self-governments of both levels. This alternative was
dubbed “matrioshka-doll” structure.
The above forms of local self-government organization can make up different combinations in
different subjects: e.g. of 295 municipalities of Tyumen Oblast, 4 have been formed at the level of large
cities, 2 – at the level of raions with the rest set up at the level of small townships below raions. In
Vladimir Oblast, 18 municipalities set up at raion level have a «matrioshka-doll» structure with the
other 7 municipal entities having a one-tier type of organization. The second-tier municipalities in the
Vladimir Oblast are individual populated areas that have opted for local autonomy. However, regional
authorities are unwilling to recognize them as full-fledged participants in intergovernmental fiscal
relations7 and deal with them through the first-tier bodies of local self-government.
At present, there are about 29,500 local administrations in Russia, of which 12,2618 are
officially registered as municipal entities with only 11,691 having elected representative authorities 9,

7
In other words, they don’t set shares of regulating taxes for them nor do they directly distribute transfers to them.
8
«For ming Local Self-Governance in the Russian Federation», Goskomstat, September 2000
9
For instance, in the Ingush Republic heads of municipalities have been appointed by decrees of the Republican President.

12
only 11,209 municipalities are endowed with municipal property and only 4,500 have fully
independent10 budgets.

5. Local Politics, Decision Making

5.1 Local politics

With the exception of central regional cities where local politics are closely interwoven with
the regional ones, the political process at the local level is virtually non-existent and for most part
limited to holding local elections and referenda on forming or merging municipalities. Local units of
regional and federal parties are also virtually non existent and the same is true for local units of non-
government organizations (unions of veterans, single mothers, families with many children, the
disabled, etc. are all operating almost exclusively in regional capitals and are not represented at the
municipal level). All on-going policy issues are delt with by the mayor (head of local administration)
and the local council, and the main debates and controversies the outcomes of which shape local policies
occur between the local administration and the regional authorities, rather than between political parties
or local interest groups and the local administration. The explanation for this state of affairs is quite
obvious: financially, local governments in Russia are strongly dependent on governments of higher
levels, therefore for them it is much more important to please the regional bosses than their voters. The
lack of financial autonomy of local governments means, inter alia, that if a local government fails to
fulfill the promises it made to the local constituency during the elections, it can always put the blame at
the door of the regional administration that failed to provide adequate funding. The strength or weakness
of local policy makers is determined almost exclusively by their ability to negotiate with the region.
Moreover, since regional grants are traditionally allocated to localities for the purposes of
maintaining the existing social infrastructure facilities, such as schools or kindergartens, that were not
built by municipalities, but inherited from the old system, even when in dire financial circumstances
local bosses refuse to close down vacant or underused schools or kindergartens, because any cuts in the
number of social facilities that local governments have on their balance sheet deprives them of a very
strong argument in favor of increased regional grants in negotiations with the regional authorities. The
rules of the game are such that preservation of the existing objects of social infrastructure at any cost
becomes a single most important policy objective of local governments, (irrespective of whether the
services that require the use of these facilities are actually needed by local constituency) and this topic
becomes central at the times of election campaigns. In the period between the elections local officials
are accountable not so much to the voters, but to the regional authorities.
Apart from financial dependence of local governments on higher levels of authority, the reason
for weak interest in local politics on the part of voters lies in the lack of traditions of participating in
political life and forming interest groups at citizens’ own initiative, rather than on instructions from
above, as was the usual custom in the days of the party rule.
One of the problems stemming from the lack of firm political position on the part of the voters
is that it is almost impossible to dismiss mayors that did not live up to the expectations of the voters.
This becomes a serious problem in the regions where local governments are formed in small villages,
where the lack of expertise in public administration is most strongly felt, for instance, in the Tuyment
and Astrakhan oblasts. In the Astrakhan Oblast, the level of unemployment in many small villages is
nearly 100%, local tax collections are nil, so in order to ensure the right of all settlements to create local
governments, the oblast pays the salaries of local officials from the oblast budget. For unemployed
villagers this creates a very strong incentive to institute local government, as for them the availability
of local government means first and foremost the availability of jobs in the local administration.
Afterwards, villagers often become dissatisfied with their mayors, but find it easier to express their
dissatisfaction by writing complaints to the regional authority than by holding re-elections. Besides,
until recently regional authorities were not entitled to dismiss mayors elected by popular vote. Cases of

10
According to Goskomstat data, 11,809 municipalities have local budgets. However, the majority of them have no power to
introduce local taxes in their jurisdictions.

13
early dismissals of mayors by voters themselves are few, which is another indication of the fact that the
evolution of civic society and of the institute of local self-governance in Russia is still in its early stages.

5.2 Local elections

Legislative foundations of local election process are established by the federal laws On Basic
Guarantees of Electoral Rights and Right of the Citizens of the Russian Federation to Participate in
Referenda (1997) and On Ensuring Constitutional Rights of Citizens of the Russian Federation to Elect
and be Elected to Bodies of Local Self-government (1996).
Starting from 1994, local elections in different regions were held at different times. The dates
of the first elections would usually be set by regional governments, with the dates of subsequent
elections set in accordance with the municipal charters.
For local councils the office terms differ by region and municipality, and are usually set by
regional legislation. In most regions, the term of powers of all local councils is 4 years, but in some
regions it can be 4 years for most municipalities and 2 years for some municipalities (Republic of
Mordovia, Primorski Krai, Vladimir, Irkutsk, Kamchatka, Pskov and Tver Oblasts, and Koryak
Autonomous Okrug). In some localities of the Republic of Tatarstan, Stavropol Krai and Tver Oblast
the term of local councils is 5 years11.
Elections of deputies to local councils, or representative bodies of local self-government, in
most territories were held under the majority electoral system with one-mandate electoral districts. In
28 regions multi-mandate electoral districts were set up, while Krasnoyarsk Krai and Sverdlovsk Oblast
used a mixture of the two systems where some of the deputies were elected in accordance with a
proportionality system based on election of deputies from slates of electoral associations.
Associations of political parties do not play a big role at the local level. Most of candidates
belong to no party whatsoever or are party members, but run for their seats as independent candidates.
As was mentioned earlier, the presence of political parties and NGOs can only be felt at local elections
in regional capital cities, the most active being local branches of the Communist Party (CPRF) and
Liberal-Democratic Party of Russia (LDPR)12. There are no legal limitations for participation of
political parties in local elections, however, parties are more active in regional elections than in local
ones. Nevertheless, in some regions, including Voronezh, Rostov, and Saratov oblasts, political parties
make a strong presence at the local level. In Saratov Oblast, for instance, the political scene at all levels
is dominated by the administrative party of Governor Ayatskov, which in fact has absorbed the regional
branches of such nation-wide parties as Our Home is Russia, Russian National Congress, The
Democratic Choice of Russia. The only other party that won any seats in 1996 local elections in Saratov
Oblast was the CPRF (three seats in Saratov City Duma in December 1996 elections). In Rostov Oblast,
out of 55 municipalities one is headed by member of LDPR, tree mayors are members of CPRF. The
mayor of Rostov City was supported by Yabloko during the elections, though he himself is not a
member of Yabloko.
The main criteria for voters in electing members of local councils and heads of administration
are such personal characteristics of candidates as their occupation or availability of past experience of
work in administrative positions. Among candidates running for a seat in the representative branch of
government there are many teachers, medical doctors and directors of enterprises.

5.3 Participation of Citizenry in Decision-making

Article IV of the Law On General Principles describes forms in which citizens can directly
express their will. These include referenda and gatherings of the citizens. The procedure for convocation
and holding of a local referendum or a local gathering is established by the municipal charter in
accordance with laws of subjects of the Russian Federation.

11
Ovchinnikov (1999).
12
Luhterhandt-Mikhalyova (1999)

14
 According to Article 22(5) "a decision made at the local referendum does not require approval by
any bodies of State power, or State officials or bodies of local self-government. If for such a decision
to be implemented a regulatory act is required to be issued, a body of local self-government that has
competence over the issue in question shall pass such an act ".
Issues relating to holding of referenda are also addressed in the Law On Basic Guarantees of
Electoral Rights and Right of the Citizens of the Russian Federation to Participate in Referenda.
In addition, Article 25 of the Law On General Principles grants citizens the right to law-making
initiative on issues of local importance. "Bills on issues of local importance submitted by the citizenry
to bodies of local self-government are subject to mandatory consideration at open sessions attended by
representatives of the public, and the results of such consideration shall be made public."
But despite their statutory right to participate in decision-making, citizens very rarely display
legislative zeal. Besides, law-making attempts often run into administrative difficulties. For instance,
alternative municipal charters were drafted in at least 11 out of 41 municipalities in Saratov Oblast, but
none of these drafts came for an open discussion or was put to the vote.

5.4 Ethnic Aspects of Local Self-government

At present, there are two federal laws that regulate the rights of ethnicities in the Russian
Federation: (1) On Ethnic and Cultural Autonomy and (2) On Guarantees of Rights of Indigenous
Minorities in the Russian Federation. Both Laws are of a rather general declaratory nature, therefore
some subjects of the Federation13 adopt their own legislative acts on ethnic issues.
In Russia there are 2 forms of ethnic self-governance: exterritorial (ethnic cultural associations)
and territorial (local ethnic autonomies)14.
Ethnic cultural associations (ECA) are public associations of citizens regarding themselves as
part of a certain ethnic community, formed on the basis of self-organization and self-government. Some
of the subjects of the Federation (Republic of Bashkortostan, Republic of Tatarstan and Republic of
Komi) have passed their own laws on ECAs. The major focus of ECA activities is ethnic and cultural
issues and education (teaching of a national language, organization of centers of national culture and
handicraft, publishing newspapers in national languages).
Local ethnic autonomies are organized in places where scanty indigenous peoples (mostly
peoples of the North, Siberia and Far East) live in compact communities. Local ethnic autonomies are
usually instituted at the level of small villages or sub-raion rural districts that do not have the status of
municipalities, in which case these autonomies are called ‘units of territorial public self-government’
rather than units of local self-government. However, ethnic municipalities also exist in many regions,
like the ethnic Evenk Raion in the Republic of Buryat, Kalevala Raion and Vepsskaya Volost in the
Republic of Karelia, ethnic uluses in the Republic of Yakutia, etc.. The status of an ethnic self-
government is conferred to a village or a raion by the regional law.
Ethnic territorial autonomies may be granted certain privileges by regional laws, for example,
a lower tax burden, admittance to regional universities and colleges without competitive exams.
Primorski Krai government created reservations (called ‘life-support territories’) for scanty ethnic
groups.
Recent years have seen the rebirth of Cossack traditions. Cossack communities operate both as
ethnic cultural associations and in the form of territorial self-government. For example, in Rostov Oblast
Cossack groups act within the framework of a territorial public self-government units. In other regions
the Cossack movement has taken the form of an ex-territorial associations called the ‘Cossack
Battalions’.
The case of Chelyabinsk Oblast illustrates the lengths that regional administrations are willing
to go to keep the ethnic movements that are gaining political weight under control. In the summer of

13
E.g.: Karelia Republic, Buryat Republic, Sakha (Yakut) Republic, and Primorski Krai.
14
Grushin (1999).

15
2000, Chelyabinsk Oblast Administration attempted to dismiss the head of the regional Cossack
Battalion, ataman Loshankov, and appoint its own candidate. For this, the oblast administration
convened a conference of atamans of local Cossack units, even though the right to convene such
conferences, pursuant to the Charter of Cossack Associations, belongs exclusively to battalion atamans.
Not surprisingly, the atamans who attended the conference were loyal to the oblast administration, and
voted to dismiss Loshankov. Ataman Loshankov did not acknowledge his dismissal as legal and
appealed against the oblast decision to court, but the federal law on the Cossack movement has been
tabled in the State Duma for five years already, and without that law the courts are unable to deliver
any rulings that would be regarded as conclusive by the litigating parties. In the mean time, the oblast
administration has made another move to win full control over the Cossack movement in the region. It
has decreed that all local Cossack atamans will have to pass an attestation procedure or will be
dismissed, and that the attestation committee shall be appointed by the oblast government. The outcome
of that move was not yet known at the time of the writing, but the political fight between Loshakov and
supporters and the oblast administration was in full swing.

5.5 Associations of Municipal Entities

Pursuant to Article 10 of the Law On General Principles, "for coordinating activities and more
efficient exercise of their rights and interests, municipal entities shall have the right to set up societies
in the form of associations or unions that shall be subject to registration in accordance with the
procedure established for non-profit organizations. Associations and unions of municipal entities cannot
be assigned powers of bodies of local self-government."
Until 1998 there were three all-Russian organizations operating in Russia: the Union of Russian
Cities, the Union of Small Russian Cities and the Russian Union of Local Authorities. Besides there
were various associations set up on a territorial basis, a few cases in point being "Ural Cities" and
associations set up within regional boundaries (Association of Municipalities of the Orenburg Oblast).
In 1998 a Congress of Municipalities of the Russian Federation was established to become the
largest and most influential association of local governments in Russia today. The Congress was
founded by 39 unions and associations. The Congress participates in formulating draft federal budgets,
federal laws, federal programs, and other regulatory and legislative instruments on issues of local self-
government. Besides, the Congress takes part in sessions of the European Union Chamber of Local
governments.

6. Functional Structure of Local Administration

The definition to the constitutional term «body of local self-government» was given in the
Glossary of the Federal Law On General Principles:
«Bodies of local self-government means elected and other bodies empowered to solve issues of
local significance and not forming part of the system of bodies of State power».
The above definition is based on provisions of the 1993 Constitution that (1) local self-
government shall be exercised by citizens through their direct will and through elective and other bodies
of local self-government; (2) bodies of local self-government shall have the autonomy in managing the
municipal property and shall form, approve and execute their local budget, establish local taxes and fees
and decide on other issues of local importance; and (3) bodies of local self-government are not
incorporated into the system of bodies of State power.
Hence, bodies of local self-government can be elective and non-elective. Elective bodies of
local self-government include a representative body of local self-government (local council), the
presence of which is a mandatory requirement for a settlement to be recognized as a municipal entity,
or a territory within which local self-governance is exercised (federal Law On General Principles),
although it is permissible for powers of representative bodies to be exercised by gatherings of the
citizenry.
The charter of a municipal entity may provide for a position of Head of local administration –
an elected official directing the implementation of local self-governance in the municipal entity. There

16
is no federal legislation on non-elective (appointed) bodies of local self-government nor, in particular,
laws to regulate the issues of the internal organization of executive bodies of local self-government.
The 1993 Constitution assigns the establishment of general principles that will govern the
organization of a system of bodies of State power and local self-government to joint jurisdiction of the
Federation and subjects. Though somewhat vague, this wording is usually interpreted in the sense that
the regions and the Federation all have one system of bodies of State power, implicitly necessitating
reproduction of major features of the structure of federal bodies of State power in defining the structure
of regional bodies. No such unity of structure is required with respect to bodies of local self-government:
the Russian Constitution (Article 131) rules that the structure of bodies of local self-government shall
be determined at the discretion of the population. Thus, both federal and regional legislations (the
Federal Law on General Principles of the Organization of Local Self-government in the Russian
Federation and relevant regional laws) set only general principles of organization of local self-
government and not the structure of bodies thereof that may vary across the municipalities.

6.1 Representative Body of Local Self-government

A representative body of local self-government may have different names in different
municipalities: the Federal Law on General Principles provides that names of bodies of local self-
government shall be established by municipal charters in accordance with the laws of a respective
region, subject to ethnic, historical and local traditions. Common names of such bodies of government
are City (Raion) Duma, a Council of Representatives, and a Council of Deputies. A representative body
of local self-government consists of deputies elected on the basis of universal, equal, and direct suffrage
in accordance with federal and regional laws. The numerical strength of the representative body of local
self-government is specified in the charter of a municipality.
The following fall into exclusive jurisdiction of representative bodies of local self-government:
- adoption of local laws;
- approval of the local budget and report on execution of the same;
- adoption of plans and programs of local development and approval of reports on execution of the
same;
- establishment of local taxes and fees;
- establishment of the procedure for management and disposal of local property;
- auditing activities of local self-government bodies and officials.

6.2 Head of Municipality

The charter of a municipality may provide for a position of Head of municipality – an elected
official directing the implementation of local self-governance - as well as other elected officials of local
self-government. The Federal Law on General Principles stipulates that the Head of municipality may
be elected either by residents of municipality or by the representative body of local self-government
from among its members. In the former case the Head may be entitled under the municipal charter to
be a member of the representative body of local self-government and preside over its meetings. The
Head of municipality may be referred to differently (depending on the municipal charter), but, more
commonly, as Mayor or Head of local administration.
The scope of issues of local importance that fall under competence of the Head of municipality
is determined by the municipal charter, i.e. may differ among localities as may the terms of office of
heads of different municipalities. The Head of a municipality is accountable directly to the municipal
population and may also report to the representative body of local self-government if this is prescribed
in the charter.

6.3 Organizational Structure of Bodies of Local Self-government

The Federal Law on General Principles allows for the following types of local self-government
organization:

17
- local council– elected mayor who is not a member of the local council;
- local council – elected mayor who is a member of the local council;
- local council, the chairman of which is the mayor;
- local council, elected mayor who is not a member of the local council, and manager of municipality
hired by the mayor with the consent of the local council;
- local council and manager of municipality hired by the council on a contractual basis;
- gathering of citizens and elected seniorman;
- local council incorporating committees that oversee individual areas of executive activities, and no
mayor.
Setting of framework conditions for specifying the powers, procedure for establishment, term
of office, organization of activities, names of bodies, officials and elected persons of local self-
government is assigned by the federal Law On General Principles to the competence of regions. Hence,
a list of alternative structures of bodies of local self-government may differ from region to region.
However, there are not many forms of distribution of powers encountered in practice. Basically, all the
regions tend to apply «strong mayor – weak council» model, that in practice can take many forms. A
classic version of the this model is «an elected mayor, simultaneously chairing the local council». And
yet it can be also implemented in cases where the head is elected by and from among the local council
deputies. One case in point is Ozerni ZATO in the Tver Oblast, the mayor of which is a division
commander. Although elected by council deputies, he is undeniably a «strong» mayor. «Weak mayor –
strong council» is a less common pattern, encountered mostly in rural areas. «Gathering of citizens and
elected seniorman» variant is encountered only in rural settlements with a small population size, i.e. at
the level dominated rather by submunicipal entities than municipalities, although there are exceptions.
Hiring of managers on a contractual basis is a rare occurrence and is rather the exception than the rule,
whereas cases where mayors are to all intents and purposes appointed by regional governors are quite
frequent.
For instance, heads of municipalities in the Saratov Oblast are elected by local council deputies,
but nominated by the Governor. Not once have the deputies voted against candidates proposed by the
Governor. If at the time of elections a candidate is not a member of the council, he/she is appointed to
act as Head of the administration until council elections are held.
As of September 1, 2000 over 12,261 municipalities15 were registered in Russia. Only 11,691
municipalities have elected representative authorities.
In more than 7,000 municipalities Heads of local self-government were elected directly by the
citizenry by secret ballot. In more than 3,600 municipalities the Heads elected by the residents
simultaneously manage local administrations and are members of the local council, entitled to preside
over council sessions.
In 4,519 municipalities16 elected officials were elected from among local council deputies,
including nominees proposed by regional government administration.
In 89 municipalities of 5 subjects of the Federation17 Heads of municipalities are hired by the
council on a contractual basis.

6.4 Local Administration

By definition accepted in Russia, a body of local self-government is an agency exercising
powers within the territory of a city, urban or rural settlement or raion. Th term “local administration”
is not to be found in official documents but is quite common in practice and usually applies to non-

15
«Forming Local Self-Governance in the Russian Federation», Goskomstat, November 2000
16
E.g. in Saratov Oblast.
17
E.g. in some municipalities in Voronezh Oblast.

18
elective (appointed) bodies of the executive branch of local self-government, in other words, to organs
of municipal government that have been formed by elected bodies of local self-government - a council
or a mayor - for addressing issues of local importance that fall within the competence established
therefor by the municipal charter.
The federal legislation providing no guidelines on how the representative and executive powers
should be delineated at the local level, different regions address this problem in different ways (in most
cases leaving it to municipalities’ discretion). The most common arrangement is when an elected head
simultaneously heads a local (city or raion) administration, although there are cases when managers of
local administrations are hired on a contractual basis and when a representative body of local self-
government combines both representative and executive functions through its committees and
commissions, that is to say, when agencies of the executive branch are non-existent. Cases when the
only body of local self-government is a starosta (seniorman) elected by a gathering of the people are
also not uncommon, but only in small rural settelment18.
The design of the internal structure of local administrations (in municipalities that have local
administrations) is attributed by the federal legislation to matters of local importance to be handled by
local governments on their own. However, a list of departments (units, committees, etc.) in local
administrations across the country is for the most part made up in accordance with a single list
originating from the scope of local issues assigned nation-wide by the federal legislation to the
competence of local self-governments. Since the list of local functions is primarily determined by the
availability of objects of local infrastructure (such as schools or medical clinics) in the territory of
municipality, the lists of departments of local administration essentially replicates the list of municipal
property, but can also include departments that are responsible for non-mandatory functions that a
municipality has assumed at its own initiative.
The term “issues of local importance” used in the Constitution is more specifically defined in
the federal Law On General Principles setting out a list of 30 items in Article 6(2) (see section on local
services below). The Article states that “Issues of local importance shall mean issues of securing vital
activities of the population of a municipality defined as such by the charter of a municipality in
accordance with the Constitution of the Russian Federation, this Federal Law and laws of Subjects of
the Russian Federation”. Issues of local importance as established in the federal legislation can be
arbitrarily divided into 4 groups:
1. issues related to provision of life support to every citizen: health care, education, social and
consumer services, water and energy resources supply, etc.;
2. issues related to ensuring appropriate life conditions for the entire population: maintenance of
public order, information services, territory improvement and landscaping, and public transport
3. issues related to ensuring activities of the citizenry as a subjects of power: development of norms
equally binding for all natural and legal persons, bodies of government, and public organizations in
the municipality, including in regulation of social and economic development of the municipality,
establishment of the procedures for the use of natural resources, etc.
4. issues related to ensuring exercise of their property rights vis-à-vis municipal property by municipal
residents.
As the federal legislation assigns issues related to setting of universally binding rules and norms
(paras 3 and 4 above) to the exclusive competence of local councils, the competence of executive
bodies, or local administrations, if they are established, may include issues set out in 1 and 2 above as
well as the exercise of right to possess, use and dispose of municipal property on behalf of the whole
population, and drafting of resolutions (rules and norms) to be approved by the representative branch
(specifically, preparation of a draft local budget).

18
Morozhikhin and Morozhikhin (1999) describe the experience of the Tula Oblast where seniormen were recently elected in
most of the sub-raion sellements.

19
 Accordingly, the structure of the executive branch of local government, or local administration,
normally includes one or several departments ensuring the operation of local self-government in
general. It is usual for large municipalities (cities and raions) to have a budget (financial) department to
deal with formulation of the local budget and submission of the draft budget to the representative branch
for consideration; a legal department responsible for internal examination of all documents (draft
resolutions) prepared by the local administration; department for municipal property management;
economic department engaged in economic forecasting; department of capital investments responsible
for drafting and control over execution of economic development programs. Within the organizational
structure of some municipal administrations there are also departments of municipal contracts in charge
of designing conditions for and holding of, tenders among private sector companies for awarding
municipal contracts; and public relations departments.
In addition to the general departments in many local administrations there are also line
departments responsible for the organization of work along the functional lines of business of local self-
government: department of education, department of public transport, etc., depending on functions
performed by a particular municipal administration. The analysis of the expenditure structure of local
budgets has shown that the largest spending functions for localities in all Russian regions without
exception are education, health care, maintenance of housing and utilities, and welfare. Hence, the most
frequently encountered departments in local administrations are respective line departments.
The way issues of local importance are defined in the federal legislation is responsible for that
a list of functions performed by local self-government is largely dependent on the level of the territory
within which local self-government is set up. For instance, in the field of education issues of local
importance include establishment, maintenance and development of municipal pre-school, general and
vocational educational facilities rather than provision of pre-school, general and vocational educational
services to the local population. A wording for health care has been couched in similar terms:
maintenance of municipal health care facilities rather than the organization of provision of medical
services to the citizenry. The analysis of municipal practices has shown that where municipalities are
organized at a sub-raion level, that is to say, on the basis of small settlements the majority of which
have no health care facilities in their territories, health care is included into the list of issues of local
importance on a selective basis. In other words, whether it will be included in the list (and be funded
from the local budget) or not depends on whether a municipality has a health care facility in its territory.
With regions where municipalities are organized at the level of big cities and raions, the above
asymmetry in assignment of functions is not very much pronounced, since it is typical of the
traditionally existing infrastructure of raions to have health care institutions available in central cities
of raions. As school and pre-school institutions normally provide services to smaller segments of the
population than do hospitals and are more evenly distributed across the territory than health care
institutions, assignment of the education function to municipalities generally is unlikely to give rise to
any grave asymmetries, even if municipalities are organized at the sub-raion level. Specialized schools
servicing residents of several municipalities may give rise, though, to a certain asymmetry in the
distribution of functions.
One of the major functions of local governments, as evidenced by the costs it imposes on local
governments, is the execution of federal mandates. Federal mandates are federal laws establishing
specific social guarantees for certain population groups in the form of benefits and subsidies. Execution
of federal mandates is delegated by the federal legislation to the regional level that transfers it to
localities without funds to support it, even if such funds are extended to the region from the federal
center. The major cases in point are: child benefits that under the federal law on child benefits are to be
paid monthly to needy families with children; subsidies for disabled persons and war veterans.
It should be pointed out that the Federal Law On General Principles classifies provision of
social support to the local residents among issues of local significance. However, the case of child
benefits and other federal mandates is not the one where local governments have the discretion to
determine the target groups of recipients or the size of subsistence, as both the beneficiaries and the
entitlements are established by the federal legislation. Overall, the number of federal mandates imposed
upon local governments by the federal legislation exceeds one hundred, but the biggest costs for

20
subnational governments are associated with the execution of the above three laws. The issue of
assignment of respective expenditure responsibilities to the regional or local governments is handled
differently in different regions: in some regions these federal mandates are recognized by regional
authorities as regional responsibility, while in others they are delegated to the local level. While the
problem of unfunded federal mandates remains unresolved by the federal government, law suits from
the population keep piling up.
Depending on whether or not a municipality has a «matrioshka-doll» structure or whether it has
bodies of territorial public self-government (sub-municipal bodies of local self-government) operating
within its jurisdiction, the local administration may have departments within its organizational structure
responsible for dealings with sub-municipalities.
In recent years it has become increasingly common to contract out municipal service provision
to private sector enterprises, which induces local administrations to set up departments of municipal
contracts. Some municipalities have to address employment maintenance or job creation problems. To
this end they may set up departments of public works in their local administrations.
An important function for municipalities in Russia is that of setting prices and tariffs for
municipal services the costs of which have to be covered by the population in full or in part. It is
therefore not uncommon for city and raion administrations to have pricing and tariffs departments that
prepare proposals to be approved by the council. The prices most often regulated by regulated by local
governments are housing rent, water and sewer tariffs, heating fees, and public transport fares.

6.5 Bodies of local government in the City of Petrozavodsk: A Case Study

An example of organizational structure of local self-government bodies in the City of
Petrozavodsk (the capital of the Republic of Karelia) is presented in the chart below19. Local
government in Petrozavodsk follows the model “strong mayor – weak council”. The mayor is the Head
of local government and has the City Administration and four deputy-mayors subordinate to him.
The City Administration carries out general system functions (general office functions,
information and analysis, internal audit) and is also oversees the operation of local police, civil defense
and military draft boards. It should be noted that neither civil defense, not military draft are not
recognized as functions of local governments under the current federal legislation, but in real life the
federal Ministry of Defense delegates these functions to local governments, and local governments have
to provide the funding from their own budgets. Traditionally, regional and local police departments are
agencies of the federal Ministry of Interior and are not directly subordinate to local governments, but
the Republic of Karelia was a pilot region in the 1998 national experiment that had to do with
subordinating local police forces to local governments, and the police patrol function has been a local
responsibility in Petrozavodsk ever since that time (see section on local service provision).
Each of the deputy-mayors is responsible for a separate group of functions. The deputy on
charge of local economic growth is responsible for the operation of the budget department, the economic
department, the municipal property department which manages enterprises fully or partially owned by
the municipality, and the consumer department which defends consumer rights. The department for
trade, public catering and consumer services looks somewhat unusual as part of city administration,
since the provision of these services is normally a function of the private sector. Nevertheless, under
the current federal legislation local governments are responsible for ensuring that local residents have
access to these services, irrespective of whether they are provided by the private of public sector, hence
the presence of the respective line department in the City Administration of Petrozavodsk. The presence
of a foreign trade department testifies to the fact that the city has contacts with foreign investors. The
economic and legal framework in Russia is such that the primary aim of foreign investors is to establish
contacts with local administrations to secure all the necessary permissions and tax reliefs. The presence
of a tax department in the city administration is also unusual, because in Russia local tax inspectorates

19
City of Petrozavodsk Administration: http://www.petrozavodsk.ru

21
are agencies of the federal Ministry of Taxes and Levies and are not subordinate to local governments.
Even though heads of local tax inspectorates depend on local governments for housing, office space
and communal services and usually work in close contact with cities and raions, the inspectorates
themselves do not form part of either regional or local governments in Russia. The federal law On
financial foundations of local self-government granted the right to set up local tax offices to local
governments for the purpose of collecting local taxes, but local government seldom exercise that right
and prefer to rely on federal tax agencies for the collection of local taxes. The City of Petrozavodsk
offers a rare example of a municipality that has it own tax revenue unit for collecting local taxes.
Deputy-mayor in charge of urban infrastructure supervises the municipal housing department,
the department for communal services (water, central heating, electric power, gas. public transport,
parks). Some of the functions that have to do with municipal housing (housing maintenance, servicing
of TV aerials) have been privatized, and are provided by private companies on a contractual basis, hence
the presence of the service procurement department.
Deputy mayor in charge of social policies oversees departments and committees for education,
healthcare, culture, fiscal fitness and sports, social safety net, and sanitary control. All these are
functions assigned to local governments by the federal legislation. As for the Military Commissariat,
this is another example of unlawful delegation of federal functions to localities.
First deputy-mayor oversees departments of city planning and environmental control. The City
of Petrozavodsk is a participant of the World Bank project of divestment and municipalization of
housing previously owned by state enterprises. First deputy-mayor is in charge of coordination of local
efforts under this project.

22
 Bodies of local self-government in the City of Petrozavodsk, Republic of Karelia

City Council:
Chairman
Deputy-chairman
City Mayor Standing commissions
Office of the Council

City Administration: Deputy mayors:

General Office -First Deputy Mayor
Information and Analysis Department -Deputy Mayor in charge of city economy
Audit Department -Deputy Mayor in charge city infrastructure
Police Department -Deputy Mayor in charge of social policies
Civil Defence Department
Military Draft Department

First Deputy Mayor: Deputy mayor in charge of city infrastructure:

Department for city planning and land use Housing department
Land Committee Communal services department
WB project implementation unit Service procurement department
Department for environmental control
Administrative committee
Commission for coping with emergency situations

Deputy mayor in charge of social policies:

Department for education
Deputy mayor in charge of economy: Department for healthcare
Budget Department Department for culture
Economic Department Department for physical fitness and sports
Municipal property management Department Department for youth policies
Department for protection of consumer rights Department for social safety net
Trade, public catering, and consumer services department Military Commissariat
Foreign trade department Department for sanitary control
Labor department
Tax inspectorate
Trade and Industry Chamber

23
6.6 Organization of Local Administrations by the Sectoral Principle
Although the law provides that the choice of internal structure of local administration is a local
issue that shall be resolved by each municipality at its own discretion, in practice the prevailing model
of administrative organization both at the regional and local levels is the so-called sectoral, or line
departments, model that had taken shape back in the soviet times. The salient feature of this model is
that budget appropriations are remitted to the accounts of line departments of the local administration.
Every line department has its own share in the budget and is normally free to chose suppliers and
determine the contract terms. In a system where budgets are allowed to run deficits, heads of line
departments can be sure that the actual overall revenues will not cover all expenses that were approved
for the current year, and they go all the way out to conclude contracts for as big amount of work as
possible and put pressure on the administration to finance the already concluded contracts. Whether
funding will be provided or not depends on the negotiating skills of department heads. If he/she is a
strong negotiator, the concluded contracts will be financed at the expense of other departments and
programs. If not, the concluded contracts will remain unpaid resulting in the growth of deferred
payments. Funds that will be received in the following year will have to be spent first and foremost on
the repayment of overdue liabilities carried over from the previous year before anything can be spent
on the current budget expenditure needs, which will by that time exceed the remaining funds by far.
The sectoral model of government is cost-driven and inefficient. It creates disincentives for line
departments to cut down expenditures and improve management.
Transition to the system of centralized procurement prevents the line departments from
spending the appropriated funds without approval. In case of centralized procurement, each line
department submits a detailed request for funding to the procurement office of the local administration
which screens them for adequacy, needs, etc. Once all the requests are pooled into a consolidated plan,
commodity items of the same type will be grouped together and procured through tenders. The
experience of switching to the system of centralized procurement has shown that it allows local
authorities to save a sizeable amount of resources. For instance, the City of Omsk was able to save from
10 to 30 percent of previous-year expenditures on the same items. Other cities have had similar
experience, and the new system is gaining popularity with local governments in Russia, although
making such a transition it is not smooth sailing, the reform being confronted by the opposition of the
line departments.

7. Municipal Services and Municipal Property

7.1 Municipal services

Current federal legislation assigns local governments with the following responsibilities:
1. maintenance of municipal housing;
2. setting up and maintenance of municipal schools and pre-school education institutions;
3. setting up and maintenance of municipal health care and sanitary control institutions 20;
4. setting up and maintenance of municipal law enforcement bodies;
5. regulation of planning and development ;
6. organization, maintenance, and development of municipal power, gas, heating and water
supply and sewerage;
7. organization of subsidized fuel deliveries to households and municipal institutions;
8. construction and maintenance of local roads;

20
Healthcare is financed in part from municipal, regional or federal budget (depending on which of the three
levels has the authority over a healthcare institution), and also from the Fund of mandatory medical insurance.
This dual financing scheme generates difficulties in delineation of powers.

24
 9. land improvement and municipal parks;
10. waste disposal;
11. funeral services and graveyards;
12. setting up and maintenance of municipal archives;
13. public transport and communications;
14. creation of appropriate conditions for providing the population with trade, catering and
consumer services;
15. creation of appropriate conditions for the operation of cultural institutions;
16. conservation of historical and cultural monuments held in municipal ownership;
17. organization and maintenance of municipal information service;
18. creation of appropriate conditions for municipal mass media;
19. creation of appropriate conditions for the operation of physical fitness and sports
institutions;
20. social safety net and promotion of employment;
21. participation in the environment protection in the municipality;
22. provision of fire safety in the municipality and organization of municipal fire service.
As can be seen, municipalities are assigned with the responsibility to finance and deliver a fairly
wide range of public services. It should be stressed, however, that the above list of functions is not
mandatory for each and every municipality, since the basket of public services offered by local
governments in Russia traditionally depends on the availability of social infrastructure facilities needed
for delivering these services. The same applies to delineation of service provision functions between
the federal government, the regions, and local governments – for many functions, such delineation
depends on how property in social infrastructure facilities is divided between the tree levels of
government (see Table 8 in the Appendix).
At present, of the 12,261 municipalities registered in Russia, 11,209 own municipal property21,
of which, by type of property:
- 8,608 own municipal schools and kindergartens
- 7,694 have municipal healthcare institutions
- 7,859 own municipal housing and non-residential buildings
- 4,714 own municipal enterprises.
The remaining 1,052 municipalities do not have any municipal property and therefore should
not have been registered as municipalities under current federal legislation.
Since social infrastructure facilities are scattered unevenly across jurisdictions, different
municipalities deliver different sets of services. For instance, general and specialized hospitals are
usually located in regional and raion centers, and these hospitals de facto provide services to the
residents of neighboring municipalities, but are funded by the city where they are located. It should be
noted, though, that cities do not normally refuse to fund such facilities, as the size of grants they receive
from the regional budget is directly dependent of the number of public institutions supported from their
budget. The problem is that even though the size of grants depends on the number of hospitals, schools,
etc., the local government has to support, the grant itself is remitted as a general purpose grant with no
strings attached, meaning that the recipient government does not have to spend and fixed amounts on
medications or other supplies. In fact, it never purchases these in sufficient amounts, because that would
mean wasting local funds on cross-subsidizing residents of other municipalities, since in determining
the size of grant is the availability of an operating facility, not on the amount of services it delivers, that
counts. In some cases, when the failure of local governments to support service provision that crosses
municipal borders becomes too visible, regional governments take such inter-municipal facilities into
their own care and assume the funding responsibility. Table 9 in the Appendix offers some insight on

21
«Forming Local Self-Governance in the Russian Federation» Goskomstat, 2000.

25
the degree of public service decentralization in different regions of Russia. Note, that the share of local
budgets in consolidated regional-local expenditures on healthcare is noticeably higher than the average
in those regions where the fragmentation of local jurisdictions high. This is explained by the fact that
the bulk of healthcare expenditures falls on the maintenance and operation of hospitals, and because of
high fragmentation of localities, the endowment of municipalities with hospitals is highly asymmetric.
Therefore, regional governments often have to step in and assume the funding responsibility for
hospitals. This bias is less apparent in case of schools and cultural institutions, because these are more
evenly distributed across localities. See also section on expenditure assignment between regional and
local governments below.

7.2 Methods of service delivery

Public services are provided by municipal institutions, communal enterprises and by private
sector companies that were awarded municipal contracts.
Most of communal enterprises have been privatized and now formally belong to the private
sector. The property that remains in municipal ownership today essentially consists of municipal
institutions that provide free-of-charge or heavily subsidized services, such as schools, kindergartens,
hospitals and out-patient clinics, municipal housing stock, libraries and public conference halls. All
these are spending units, not earners of revenue. The privatized communal enterprises such as public
transport companies, customer services, public utilities – i.e. former municipal enterprises that charge
users for their services - also continue to depend on support of the local governments spite of their
privatization, and quite often local government subsidies are their main source of income. For instance,
public transport companies normally are able to cover only 30-40% of their costs with the fares they
collect, and the balance is covered by the local government. Those communal enterprises that have not
gone private and remain 100% publicly owned, usually exist somewhat separately from the local
administration and operate on a contractual basis. Neither the revenues, nor the costs of such unitary
municipal enterprises are shown in the local government budget. The revenues raised by municipal
enterprises are not considered to be those of the local government, but those of the enterprise itself, and
the same applies to expenditures. Local government budget shows only the subsidies allocated to
municipal enterprises to cover their financing gap. Cases when municipal enterprises are net revenue
earners are not very common. If they are, and if for some reason they have failed to hide their revenues
in extra-budgetary funds, their net revenues are shown under «Revenue from the use of state and
municipal property» in the municipal budget. For more details on local government involvement in
profit-making businesses see next section.
It would be an overstatement to say that services of municipal schools are provided today free
of charge. Gifts to teachers and “voluntary donations” of parents for school repairs and equipment
purchases have become common practice. Bribes solicited by directors of prestigious schools for
admittance of children are not uncommon either. Wages for teachers, although regulated by the federal
law, are normally paid from local budgets. Teachers’ strikes caused by local government failures to pay
wages have become a frequent occurrence.
The situation in the field of health care is no better. Lack of funds constraints the range of
medicines purchased by municipal hospitals. Most of medications, X-ray film, blood substitutes and
expensive imported preparations have to be bought by patients at their own expense. It has become
usual for hospitals to set up commercial departments, allegedly to earn some money for hospital
maintenance. And even though this extra money is earned using hospital facilities and equipment,
municipal authorities have no share in the profit and exercise no control over the targeted use of these
funds. Strapped for cash, local administrations leave hospitals to their own devices, letting them fend
for themselves.
One of the components of the housing and utilities reform included municipalization of
enterprise housing followed by privatization of municipal housing to tenants. However, even in the

26
privatized housing stock the basic rent remains low, preventing housing maintenance from becoming a
self-paying function, with local budgets continuing to bear the heavy burden of subsidizing both the
municipal and privatized housing.
At present the federal government is carrying out a reform of the housing and communal
utilities sector to gradually increase the share of housing costs covered by households and cut down the
share of costs covered by local governments. The ultimate goal of this reform is to have all costs related
to maintenance and repairs of housing, engineering service lines, and utility systems covered by
households. Thus, by subsidizing prices and tariffs for housing and utility services local governments
are implementing federal laws mandating them to maintain municipal housing, municipal power, gas,
heat and water supply systems and sewerage, and organize fuel provision to households, as well as
federal laws prescribing that the cost of those services shall not exceed a certain (though gradually
increasing) share of household income.
The user-fees for public utility services (gas, water, power and heat supply) are from time to
time increased. According to the Russian Government decree On Improvement of the System of Payment
for Housing and Utilities local governments approve rates and tariffs for housing and public utility
services, except for electricity and gas tariffs that are established by regional heat-and-power
commissions. Although prices for electricity and gas are regulated, local governments are also involved
in subsidizing those public goods, and cover the difference between regional and local tariffs from their
budgets. Since the level of households' income is low, the common practice is to establish lower tariffs
on those goods for residents and high tariffs for businesses, thus subsidizing residents to the detriment
of producers. This policy obviously weakens the competitive strength of local products and in the long
run undermines the revenue base of local budgets. Moreover, being consumers of gas and electricity
themselves, local governments have accrued excessive overdue liability to gas and power suppliers, this
resulting with increasing frequency in gas and power cuts to the point of disconnecting entire cities and
townships (Primorski Krai).
Local authorities could have saved sizeable amounts of resources if they refused to subsidize
housing and public utility services and started to provide targeted subsidies to users. However, targeted
subsidies to users (in replacement of subsidies to producers) so far have not been widely practiced in
Russia, which gives rise to ridiculous situations. For example, under the current system, the largest
housing and utility subsidies are paid to tenants of the biggest apartments in municipal houses. At the
same time less affluent families occupying smaller apartments receive much smaller subsidies, because
the size of subsidies depends on the floorspace of residence, provided the residence belongs to
municipal housing stock. Residents of rural areas where there is almost no municipal housing (as most
of the houses are privately owned) and where the level of households’ income is much lower than in
cities, receive no subsidies for housing maintenance and repairs whatsoever. They receive only fuel
(coal, wood and mazut) at subsidized prices, i.e. assistance in kind the size of which depends on the
number of eligible individuals (old age, veterans, etc.) instead of the floor area that needs heating.
Militia is by tradition a federal agency with local branches funded through the Federal Ministry
of the Interior, although municipalities are free to set up their own municipal law enforcement bodies.
In 1998 an experiment was conducted in a number of pilot municipalities to field-test the idea of
assigning local police to local governments. The experiment, which involved a total number of ten
regions (all municipalities in the oblasts of Novgorod, Saratov, and Republic of Karelia, and selected
municipalities – primarily in large cities – in other participating regions) was quite successful. Cities of
Volgograd, Omsk, and Perm have accumulated noteworthy experience in creating municipal police
forces. And even though this experiment was not extended to other regions because the Ministry of
Interior lobbied against it, some of the pilot regions still continue to protect public order through local
authorities. One case in point is Tyumen oblast where funds for support of local police officers were
transferred to local budgets, and now local administrations enter into contracts with regional police
headquarters on protection of public order in their jurisdictions.

27
 A new form of service delivery which has not yet become very common is when several
municipalities jointly support a service-providing facility that crosses municipal boarders. One example
is the Gatchina Raion of the Leningrad Oblast where there is a specialized medical center providing
services to more than one municipality. The Gatchina Raion administration concluded contracts with
neighboring municipalities on co-financing of this medical center.
Quality control of services is exercised, subject to the form of service delivery, either by
administrative methods, if the service is provided by a municipal enterprise, or as specified in a contract,
if the service is provided by a private enterprise. Traditionally, an important role in quality control of
public services is played by complaints lodged by individuals with local administrations.
Private companies are very interested in obtaining municipal contracts. Confronted by the
economic crisis and non-payments, enterprises view municipal contracts as a paying business even
though the actual payment may come with a big delay (see section on the organization of local self-
government by sector principle). Private sector enterprises awarded with a municipal contract enjoy no
tax benefits, although payment of taxes in kind is widely practiced, being a major lure for them.
Involved in the in-kind offset arrangements are not only enterprises that have a contract with the local
administration, but also suppliers of municipal enterprises and institutions. Enterprises go for in-kind
offsets because their products in the offset arrangements are priced not at market, but at agreed prices
often exceeding the market price for similar goods by far. Local authorities go for in-kind offsets to get
at least something from taxpayers and to show overstated expenditures in the budget execution report
in the hope of receiving a bigger transfer from the region in the following year.

7.3 Involvement of Local Governments in Profit-Making Businesses

The Federal Law on General Principles gives local self-governments the right to set up
enterprises, agencies and organizations for engaging in profit-making activities, and to deal with issues
of reorganization and liquidation of such enterprises. More and more local governments in Russia today
are setting up municipal companies purely for profit-making reasons. Local governments are usually,
their contribution to the stock often being just a permit for operation, but sometimes they set up such
companies entirely on their own. One case in point is the administration of Pryamitsino Township in
Kursk Oblast that set up mushroom growing and handicraft business. The income thus earned plus funds
raised from the citizenry were dedicated to building a local gas supply pipeline and housing repairs.
In the middle of the 1990s many municipalities were setting up municipal banks22. But, their
capital being small, and management leaving much to be desired, those banks couldn't survive the
increase of mandatory reserves required by the Central Bank after the August 1998 financial crisis in
Russia.
There is also a tendency for local administrations to contribute municipal property (land and/or
buildings) to the authorized capital of profit organizations. Organs of the Prosecutor’s Office stop such
attempts on grounds of their incompatibility with the federal legislation. For instance, in response to
public prosecutor's protest the Duma of Togliatti City called off its resolution whereby officials of local
administrations were allowed to include municipal property in contributions to authorized capitals of
new companies of various ownership and legal forms. In a number of cases criminal proceedings were
instituted against heads of local self-government for exceeding the authority and illegally participating
in entrepreneurial activities by way of contributing municipal property to the authorized capital of profit
organizations.

22
What is meant here is commercial banks set up with the help of municipal capital. One case in point is Dom-
bank currently operating in Domodedovo raion of Moscow region. The original share of the raion administration
in the authorized capital of the bank was small, making up only 1 percent. At present the administration and
committee for property management hold 52 percent, i.e. a controlling block of shares.

28
 It is not against the law for municipalities in Russia to be engaged in commercial activities
directly or through municipal enterprises, though with all the existing limitations this is quite difficult
to do without violating the law. Besides, municipalities stand to lose if they show revenues from those
activities in local budgets as this may lead to a reduction of financial transfers for them from the higher
level government. For hiding their commercial revenues localities would set up various extra-budgetary
funds not reflected in budget execution reports. That is why there is no reliable information about the
true range of commercial activities of local governments. Revenues shown under «Revenue from the
use of state and municipal property» normally do not exceed 1 to 5 percent of total local revenues.

7.4 Delineation of Functions between Local and Regional Governments

The problem of unclear division of powers between regions and localities has become a
pressing one in Russia. It is not infrequent when regional administrations intervene in what local self-
governments do and “trespass” on their lawful jurisdiction by narrowing for no good reason their field
of action relative to the scope of competencies established in the federal legislation or by depriving
them of powers and concurrently of financing associated therewith or, conversely, delegating state
functions to localities without supporting them with needed resources.
Where local governments exist at the sub-raion level, maintenance of municipal educational
institutions is considered to be a local function, whereas administration of education is traditionally
assigned to the raion level of educational authorities that provide methodological guidance in keeping
with the instructions of the federal Ministry of Education. Formally, such regional authorities are
subdivisions of the regional administration or territorial branches of the regional administration in
raions, but in practice they are a case of dual subordination to the regional government and the federal
Ministry of Education. The same is true of municipal health care institutions, except that funding of
hospital is more often than in case of schools assigned by the regional legislation to raion or regional
level.
It is only on rare occasions that regional and local administrations enter into contracts
establishing the liability of each of the parties for the delivery of services that come within their joint
jurisdiction. A municipality would, for instance, assume responsibility for the provision of premises for
a branch of the federal Ministry of Welfare, while the region will ensure timely payments of benefits to
eligible groups and wages to the employees of the local welfare office.
Most of regional experiments in voluntary or compulsory delegation of local powers to the
regional level are borne out of the regional desire to restore the vertical hierarchy of the executive
branch of government where the raion center and raion would have one and the same department of
education, department of social security, financial service and tax service. That attempts to do so are in
contradiction to the federal legislation on local government does not stop regional authorities.
See also the later Section on the Relationships between Bodies of Local Self-government and
Bodies of State Power.

7.5 Municipal Property

Municipal property is recognized as one of the forms of property that exists in the Russian
Federation by the 1993 Constitution of the Russian Federation. The Constitution establishes that owners
of municipal property are residents of the localities and that local government bodies operate and
manage municipal property on behalf of local residents.

Property rights in Russia are governed by the Civil Code of the Russian Federation (1994,
1995). The regulations established by the Civil Code apply to all forms of property, including the
property of municipalities. In addition to the Civil Code, municipal property rights are also governed

29
by the Federal Law On general principles of local self-government organization, since local public
property is one of the economic foundations of local self-governance.

Article 29 of the Federal Law On general principles ... contains an open list of the types of
objects that can be held in municipal property. These include local budget and extrabudgetary funds,
assets of local governments, municipal lands and natural resources held in municipal property,
municipal enterprises and organizations, municipal banks and other credit and loan institutions,
municipal residential and nonresidential stock, municipal institutions of education, healthcare, culture,
sports, and other movable and/or immovable property. Therefore, the legislation does not impose any
restrictions on the kind of property that municipalities can own.

Article 215.3 of the RF Civil Code states that municipal property can be either assigned to
municipal enterprises and/or institutions, or be operated by local government directly. Municipal
enterprises and institutions do not own the property that they operate and/or manage.

Article 124.2 of the RF Civil Code states that municipalities shall be governed by the same
regulations that apply to other legal entities, unless the law or special nature of local government as the
bearer of property rights require otherwise. Indeed, when acting in the capacity of economic agents,
local governments to have certain special features that make them different from other legal entities.
First, the owners of municipal property are local residents, therefore, local governments should not
engage in activities that put the locality at risk of insolvency. Second, local governments set the rules
that apply to all businesses in the locality, therefore thy can create conditions that create competitive
advantages for municipal enterprises. Therefore, the legislation does impose certain limitations on uses
of municipal property by local governments and on possibility to foreclose on municipal property.

Because of special significance of land an other natural resources, foreclosure on these types of
resources held in municipal property is permitted only in cases explicitly stated by law. Also, the Civil
Code distinguishes between municipal property managed directly by local governments and municipal
property assigned to legal entities founded by local governments. There are two types of legal entities
that municipalities can found. One is municipal enterprises created for the purpose of profit making and
not necessarily engaged in public service provision. These are unitary companies that operate under the
supervision of local government which oversees the targets use of funds and has a share in the profits.
The other type is municipal institutions which are spending organizations that provide public services
on a free-of-charge (or heavily subsidized) basis. If a local government defaults on its obligations, it
can be held liable only with the property that was not previously assigned to any other legal entity, be
it municipal enterprise or municipal institution. If a legal entity founded by the local government
defaults on its obligations, and this legal entity is a municipal enterprise, than the local government
cannot be held liable, and vice versa, the municipal enterprises cannot be held liable for the obligations
of the local government. If the legal entity is a municipal institution, it can be held liable only with the
money assets it has in its possession. If these assets do not suffice to meet the obligation, the subsidiary
liability is passed on to the local government.
Municipal institutions are often permitted to engage in profit making activities. Unlike the case
with municipal enterprises, any profit that they earn from these activities comes into their full
possession, in other words, they are not required to share it with the local government. Any property
that they may purchase from the profit thus earned becomes their own and is accounted for on a separate
balance sheet of the institution in question.

30
 To limit the engagement of local governments in private sector risks, Article 66 of the Civil
Code prohibits local governments to participate in joint-stock companies and partnerships, which means
that local governments cannot contribute municipal property to the capital of such companies. However,
the same article permits municipal enterprises or institutions to participate in joint-stock capital and
partnerships, provided that they have the permission of local governments and that the law does not
provide otherwise. In other words, the general rule is that municipal enterprises and/or institutions have
the right to contribute municipal property that they use or manage to the capital of private sector
companies, which permits local governments to engage in corporate profit making activities through
intermediaries that they themselves set up. See section on Involvement of Local Governments in Profit-
Making Businesses.
The above discussion applies to cases when municipalities already own municipal property.
However, to be able to come into possession of any property, the locality needs to be officially
registered as a municipality. Basically, such registration requires only the availability of a municipal
charter and an elected council. After the registration, the municipality has the right to create or acquire
property in any way permitted by law, like any other owner. With the ongoing transition from the unitary
system of state property to the coexistence of diverse forms of property, most of the property objects
that municipalities own today came to be in their possession trough transfers of federal and/or regional
property into municipal ownership. Article 5 of the Federal Law On general principles... stipulates that
transfers of federal property to municipalities is regulated by federal laws, and Article 5 of the same
law states that transfers regional property to municipalities is regulated by regional laws. However,
the transfer of property to municipalities started before the Law On general principles... was passed,
and these earlier transfers came under a different set of regulations, the most important of which were:

Resolution of the Supreme Soviet of the Russian Federation On Delineation of State Property in the
Russian Federation between the federal property, state property of federal republics, krais,
oblasts, autonomous oblast, autonomous okrug, cities of Moscow and St.-Petersburg, and
municipal property, 1991
Order of the President of the Russian federation On Approving the Statute on Determining the Object-
by-object Composition of Federal, State, and Municipal Property and the Procedure for
Property Right Registration, 1992
Resolution of the Government of the Russian Federation On the procedure of transferring cultural and
communal facilities held in federal property to the property of the subjects of Russian
Federation and Municipalities, 1955.

The above regulations were passed at the time when subordination of local governments was legally
permitted and local governments existed as multi-tier hierarchies. Property rights were transferred to
raion administrations as the first and highest level of local governments, putting subraion cities,
townships and rural districts at a disadvantage. Today, when all local governments enjoy equal rights,
many of these earlier property transfers need to be revised in line with the new assignment of spending
responsibilities. The case of Stavropol Krai can serve as an example of the kind of problems that arise
with the transfer of property that does not match the actual municipal division. In early 90s when the
bulk of property transfers occurred in Stavropol Krai, the property was transferred to raions. Later, local
governments were organized at subraion level, but most of the property remains in the ownership of
former raions, which a re now territorial branches of regional administration. Most of the poorer
municipalities that do not have the revenues to support these hospitals have agreed to assume property
rights, because the region then transfers the funding needed to support these facilities, but a few reach
municipalities have refused to accept schools and hospitals, because being rich they do not get any

31
support from the krai budget. See earlier sections on Municipal Services and Methods of Service
Delivery.

8. Local Finance
The principal law governing the financial system at the local level is the 1997 Law On Financial
Foundations of Local Self-government in the Russian Federation.
Development of local self-government in the Russian Federation was not matched by transfer
of genuine fiscal autonomy to the local level. Local governments form their own budgets, they revenue
autonomy is very limited. And yet in the majority of regions a sizeable portion of consolidated budget
expenditure has to be paid by localities (28 percent of Russia’s consolidated budget and 53 percent of
subnational budget in 1999, see Table 10 in the Appendix). As collections from local taxes and non-tax
revenues can cover only a small portion of local spending needs, the resulting vertical imbalance is
covered by the regional governments through assigning variable sharing rates of federal and regional
taxes to localities and allocating grants (Table 11). In 1999 about 24 percent of local budget
expenditures were financed with grants (transfers, subsidies, subventions and mutual settlements) from
higher level budgets (see Table 11), and grants and shared taxes at rates changed annually together
accounted for roughly 69 percent of local budgets (see Table 12). As the sharing rates keep changing
from year to year, local governments are unable to forecast the amount of revenue that will be available
to them, and in effect bear no responsibility either for how they form and execute their budgets, or for
the quality and quantity of services provided to the public.

8.1 Expenditures
Composition of Expenditures
The largest spending functions of local budgets are Housing and Utilities, Education and
Healthcare (Table 13).
Such heavy spending on housing and utilities is due to subsidized housing rents and utility
charges. As was mentioned earlier (see section of public services), the financing gap of housing and
utility companies is covered from local budgets. Since housing and utility subsidies only apply to
municipal housing, they are a big spending category only in large cities, whereas in rural areas where
the majority of houses are in private ownership the share of housing and utilities in total local spending
is much lower.
For rural municipalities the largest spending function (accounting for more than half of all
budget resources) is education.
Rural municipalities spend less on healthcare than other localities, as hospitals are for the most
part located in cities – raion or regional centers, while rural localities mostly provide paramedic and
obstetrical services.
Expenditure norms
Unlike in many other countries, Russian legislation, in particular the Budget Code, contains
references to federal expenditure norms that must be observed by all levels of government in forming
their budgets. But the system of such norms has not been approved nor even developed yet. Although
the Russian Ministry of Economy and sector ministries have not given up their attempts to develop such
a system, common sense suggests that it is hardly possible to develop a uniform system of expenditure
norms for as big a country as Russia. Actually only a few expenditure norms have so far been established
at the federal level, and but for a few exceptions they not mandatory spending standards, but reference
standards used by higher level government for determining the allocation of fiscal capacity equalization
transfers to localities.

32
 At present the only effective norm set at the federal level under the Russian Government Decree
is the Uniform Schedule of Wages for Workers of Budget Organizations. Workers of budget
organizations are employees of all institutions funded from the budget of any level, including the local
one, except for the administrative staff of governments.
Federal Mandates
The spending autonomy of local authorities is narrowly constrained by federal laws that entitle
various population groups to benefits and subsidies, in other words, by the so-called federal mandates.
Benefits and subsidies to eligible population groups are prescribed in more than 150 federal
legislative acts, of which 45 were passed before 1992, but still remain in effect. Local authorities are
mandated to pay 37 types of subsidies from local budgets, with eligible groups covering a sizable
portion of local citizenry, if not the entire population.
Responsibility for most of those entitlements and subsidies have been from the outset assigned
by federal laws to local governments. Funding requirements of federal mandates, if they are all
followed, are estimated to outrun all revenues, including transfers, of most localities. For instance,
according to the estimates made by the officials of the Kirovsky Raion, Leningrad Oblast, the funds
needed to finance the mandates would more than exhaust all budget revenues available of the
municipality. Reported budget revenues in 1997 were 16 percent less than the total estimated cost of
federal mandates.
The Law On Financial Foundations provides that “bodies of local self-government shall be
entitled to execute decisions of bodies of state power resulting in increase of expenditures or loss of
revenues of local budgets within resources made available to them by way of compensation”. However,
in the overwhelming majority of cases local authorities fail to prove inadequacy of funds transferred to
them “by way of compensation” because, strictly speaking, this can be proven only where funds are
transferred for particular purposes. In practice the amount of funds required for compensation is just
“taken into account” in establishing rates of shared taxes or in determining total transfer amounts.
Meanwhile, local authorities are sued by individuals for failure to pay the entitlements and often lose
such court cases.
Examples of federal mandates include:
- subsidies relating to payment for housing, utilities, electricity, and fuel
- subsidies for fuel purchases by disabled persons
- wages of teachers, doctors, and certain other categories of budget employees
- monthly cash compensation to teachers for the cost of book purchases
- provision of free medicine to certain population groups
- payment of monthly child benefits
- payment of benefits to persons having custody over children
- free meals in schools and hospitals
- free milk products for children under 2 years of age
- free prosthesis for disabled persons
- burial subsidies
- subsidies for payment for telecommunication, municipal transport and certain other
services for W.W.II veterans, old-age pensioners, families of W.W.II victims, victims of
the Chernobyl disaster, families with many children, heroes of the soviet union and heroes
of the socialist labor movement, blood donors, military servicemen, police officers,
customs officers, prosecutor’s office workers, court officers, tax police officers and traffic
police officers.

33
8.2 Revenues
The standard classification of government revenues and expenditures that is currently in effect
in Russia lists the following categories of local government revenues:
- local taxes and fees
- permanently assigned taxes and fees
- shared taxes (at rates changed annually)
- non-tax revenues
- grants from higher level budgets:
- transfers,
- subsidies,
- subventions,
- means transferred under the category of “mutual settlements”.
Local Taxes and Fees
Before 1998, when regions were authorized to introduce sales tax that replaced the majority of
local taxes, most Russian regions levied 23 local taxes (see Table 14). Revenues from local levies in
1999 amounted to 13 percent of all revenues for municipalities).
With their rates virtually legislated by the federal government, local taxes, despite being
numerous, failed to ensure fiscal autonomy for localities. Furthermore, the list of local taxes was
exhaustive, i.e. no new taxes could be added by localities at their own discretion. Local governments
could exercise some autonomy in setting the base and rates for a very limited number of taxes, such as
the tax on construction of manufacturing facilities in health resort areas, fee for the right to engage in
trade, fee for parking of motor vehicles, racecourse participation fee, fee for the right to shoot movies
and TV films, fee for street cleaning, and fee for setting up gambling businesses.
The ”fee for street cleaning” levied on gross sales of enterprises had become a significant source
of own budget revenue for a number of localities. In some cases revenues from the tax amounted to 25
percent of all tax collections, and, clearly, it was spent not only on street cleaning. In 2001 the Russian
Government is planning to repeal all turnover taxes, including this one, and compensate for resulting
revenue losses by assigning to municipalities 5 percent of collections from the enterprise profits tax.
The regional sales tax replaces 16 local taxes, including those with respect to which localities
exercised at least limited freedom in setting the tax base and tax rates. Instead, local governments are
assigned 60 percent of sales tax collections that, as the practice shows, often fail to compensate for the
loss of revenue from repealed local taxes.
Article 15 of the Russian Federation Tax Code that determines the list of local taxes and fees
has not been yet put into effect. However, it is suggestive of federal legislators’ intentions vis-à-vis
local taxes. Thus, a list of local taxes contained therein includes only 5 taxes:
 land tax,
 personal property tax,
 inheritance and gift tax,
 advertisement tax,
 local license fees.
The said Article establishes that once a subject of the Federation puts into effect the Immovable
Property Tax, the Land Tax and Personal Property Tax will cease to be levied for local governments in
its jurisdiction.
Non-tax Revenues
The main sources of local non-tax revenues are:

34
 revenues from uses of municipal property and activities,
 revenues from sales of municipal land and intangible assets.
These revenues are an independent source of local budget revenues. Starting from 1999, the
budget classification treats part of the revenues from sales of public property as a source of deficit
financing, because these revenue sources are not recurrent.
In addition to local tax and non-tax revenues mentioned above, the law On Financial
Foundations of Local Self-government in the Russian Federation allows local governments to collect
«lump-sum voluntary contributions from citizens in accordance with the municipal charter», or «self-
imposed charges». The budget classification, however, does not allow to estimate the share of these
charges in total revenues. If any municipalities collect these charges, they are probably used as a revenue
source for forming extrabudgetary funds, rather than as a source of budget revenues.
Federal and Regional Tax Revenues Permanently Assigned to Local Budgets
Tax revenue assigned to localities on a permanent basis under the Federal Law on Foundations
of the Tax System in the Russian Federation include:
 federal tax revenue from:
 royalty (a fixed share set for each type of payment for subsoil resources),
 stamp duty (100%),
 state fee (100%),
 inheritance and gift tax (100%),
 income tax on persons engaged in entrepreneurial activities without establishing a
legal entity (100%),
 regional tax revenues from:
 enterprise property tax (50%),
 sales tax (60%).
Assigned tax revenues in 1999 amounted to 13.7 percent of all revenue for localities.
Shared Taxes at Rates Changed Annually
Shared taxes are a principal tool of intergovernmental fiscal regulation at the regional level and
account for the largest amount of revenues distributed from regional budgets to localities.
Local revenues from shared taxes are general purpose grants extended from a higher level
budget on a gratuitous basis, just like subsidies or equalization transfers. Sharing rates for taxes that are
shared between the region and localities and a list of taxes that regions use for regulating fiscal capacity
of municipalities in their jurisdictions are set by regional governments.
Taxes that regions can choose to share with localities include:
 the following federal taxes that the federation shares with the regions:
- value added tax23,
- personal income tax,
- enterprise profits tax,
- excises assigned on share by the federal authorities to subjects of the Russian Federation;
 the following regional taxes:
- enterprise property tax (within 50-percent share assigned to the regional level),
- forest tax,
- payment for water,
- education tax,

23
Starting from 2001 it is planned to consolidate all VAT revenues in the federal budget.

35
 - sales tax (within 40-percent share assigned to the regional level).
Under the Law On Financial Foundations, the region can set different sharing rates of federal
taxes for different municipalities, but the share of all localities in total collections from a particular
federal tax that the region is allowed to retain in consolidated regional budget should not be less than a
certain minimum which varies by type of tax:
- 50 percent for the personal income tax,
- 5 percent (of total collections) of the enterprise profits tax24,
- 10 percent for VAT23,
- 5 percent for excises on alcoholic beverages,
- 10 percent for excises on other goods.
However, the above minimum requirements provide no guidelines to municipalities for
estimating their next year revenues from tax sharing, as the average sharing requirement can be met
with a wide range of local sharing rate combinations, including the ones where some municipalities are
allowed to retain 100% of shared taxes collected in their territories, and some are assigned 0 sharing
rates.
The Law On Financial Foundations requires that local sharing rates be formula-driven and that
shared taxes and equalization transfers be allocated to municipalities using a uniform methodology.
These requirements imply that both regional/local tax sharing and equalization transfers to localities
from the regional government are both general purpose regional grants, but transferred to localities
through different channels. In practice, however, these requirements are not enforced, and regional
authorities make no attempts to allocate those funds using a single equalization methodology.
Earmarked And General Purpose Grants
Grants to localities from the federal and regional budgets include equalization transfers
(subsidies), subventions and mutual settlements.
Equalization transfers are distributed to localities for the sole purpose of fiscal capacity
equalization, meaning that local governments are free to spend these revenues at their own discretion.
Revenue sources of the equalization fund within the regional budget and the size thereof are determined
by regional governments.
Under the Law On Financial Foundations, equalization transfers should be allocated across
municipalities using a fixed formula, the parameters of which include the population size, the share of
various age groups, such as pre-school and school age children as well as of pension-age individuals,
in total population of a municipality, the level of per capita fiscal capacity before equalization and other
local features. In practice in the majority of regions the distribution of equalization transfers is
negotiated rather than formula-driven.
Subventions mean financial resources allocated for designated purposes for a certain period of
time to municipalities from the federal or regional budget and subject to repayment to an appropriate
budget in case of failure to use the same for the intended purpose within the established time-limit. The
federal legislation sets neither the purpose for which regions should provide subventions to localities
nor the procedure for regions to follow in distributing subventions among localities.
Regions rarely use subventions as a channel for transfer of financial resources to localities as
this would immediately reveal inadequacy of amounts transferred. Instead, they try to get out of it with
lame excuses that funds for execution of federal and regional mandates were taken into account in
determining the size of equalizing transfers distributed to local budgets. When the are used, subventions

24
Starting from 2001 it is planned to assign to all municipalities collections from the enterprise profits tax at the rate of 5
percent.

36
from regional budgets are provided primarily for the execution of federal mandates25, and sometimes
for the executions of regional mandates26.
Another type of earmarked grants are “mutual settlements”. Mutual settlements are funds
transferred by regional governments to localities to reimburse the latter for their cost increases or
revenue losses brought about by decisions of the regional government made during the budget year, i.e.
after local budgets were approved. Under the category of “mutual settlements” local budgets mostly
receive funds for covering costs of maintenance of housing, utilities and other facilities transferred to
municipalities. Besides, under this category localities may receive additional earmarked assistance (not
provided for in the budget) for financing other types of spending as well as for writing off debts on
budget loans. There is no prescribed method of allocating those additional financial resources across
municipalities.

8.3 Methods of Intergovernmental Grants Allocation

Different regions use different approaches to allocating intergovernmental transfers to
localities.
Most regions estimate expenditure needs and revenue capacity of localities and allocate
transfers to cover the financing gap. These numbers are then negotiated between the region and
individual localities: localities would present different figures to claim expenditure needs that are higher
and anticipated revenue collections that are lower than regional estimates. In so doing both parties
usually refer to historic tax collections and expenditures or estimates derived from previous years' data.
This approach obviously discourages local tax efforts and prudent spending of local resources.
Moreover, it creates incentives for local authorities to hide revenues in extra-budgetary funds to avoid
reporting, and negotiate in-kind off-sets with potential taxpayers to boost spending. Soft budget
constraints permit local authorities to keep inefficient public facilities, overstaffed budget organizations
and use inefficient technologies of public service provision.
Another problem has to do with the use of regional expenditure norms for the estimation of
local expenditure needs by the regions for allocating equalization transfers. Several regions, including
the Leningrad, Sverdlovsk and Moscow oblasts, have established them in their laws. Rather than beings
standards for provision of public services to consumers, those norms are maintenance standards for
service providing institutions. For instance, these are not financing norms per student, but expenditure
norms per school that are applied regardless of whether a particular school is at all needed. Besides,
expenditure norms are demand driven, they disregard the actual affordability of norm-driven
expenditures. Hence, the expenditure needs based on norms often exceed the available resources, hence
regions eventually have to cut down expenditures borne out of a lengthy and labor-intensive calculation
procedure. The failure to comply with norms that were fixed as laws also creates social tensions.
Some of the regions have attempted to develop formal methodologies for distribution of
financial resources that instead of using historic data on previous years' actual expenditures and revenue
collections will determine local expenditure needs and revenue potential for the coming year on the
basis of certain objective criteria. However, unlike the federal government that had turned to the use of
transparent formulas for transfers allocation in 1994 and since then scored an impressive progress in
this area, governments of most regions either don't realize the need for formalization of

25
In Vladimir Oblast subventions from the Oblast budget in 1999 were provided first and foremost for payment of child
benefits to low-income families, while in Leningrad Oblast – for payment of subsidies to eligible groups for housing and
utilities and free medicines.
26
In Leningrad Oblast in 1999, subventions to local budgets were used to support the State Service of Medical and Social
Examination. In Altai Krai local budgets received subventions for maintenance of inter-raion budget agencies.

37
intergovernmental fiscal relations or, even if they do, are incapable of solving the problem on their own
for lack of expertise needed to develop an appropriate methodology.
In June 2000, the federal Ministry of Finance approved and circulated to financial departments
of subjects of the Federation a document called ‘Provisional Methodological Recommendations for RF
Subjects on Regulation of Intergovernmental Fiscal Relations’ (hereinafter referred to as
«Recommendations»). The Recommendations were developed by the RF Ministry of Finance in
cooperation with independent experts27 and based on the experience of formalization of
intergovernmental fiscal relations in advanced Russian regions (Leningrad oblast, Vladimir oblast), the
international practice of intergovernmental fiscal relations and a requirement to apply formal methods
in distributing fiscal grants as set out in the Law On Financial Foundations.
The Recommendations advise regional administrations to use the following guidelines for
allocating grants:
1. the principle of balancing the own revenues and “needs” of localities should be abandoned in favor
of a formula-based equalization of per capita fiscal capacity;
2. instead of past revenue collections, endowment of municipalities with taxable resources should be
used for estimating their revenue capacity;
3. in measuring per capita fiscal capacity, consideration should be given to objective differences in
demand for public services and costs of providing them such as the demographics of the population,
cost of living, duration of the heating season, population density, etc., while estimation of
expenditure needs based on the existing social infrastructure should be abandoned;
4. amounts of shared taxes and equalization transfers to go to municipalities should be estimated
within a single procedure.
There can be many ways of formalized distribution of financial assistance based on the above
principles, and each region is free to choose the one that will suit it best.
Using a formalized methodology of allocation of grants financial resources will ensure
predictability of transfer amounts, save time spent in agreeing local budget targets, create incentives for
local governments to raise more revenues and for more prudent use of budget resources.
It should be emphasized that under the current federal legislation regional governments are free
to choose the design of intergovernmental fiscal relations within their boundaries, while the federal
government cannot order, but can only advise. Nevertheless, many regions have shown interest in using
new methods and are planning to start using formula-driven allocations already in 2001.

8.4 Budget Process

In municipalities the responsibility for annual budget formulation is assigned to the executive
branch of government (local administration) and the responsibility for its approval is assigned to the
representative branch (local council).
Towns and townships that are part of larger municipal entities, being themselves independent
municipalities, have no own-source revenues and form expenditure requests that they submit to the
higher level government for approval. The approved expenditures are then financed from the budget of
the higher municipality.
During the year, local councils normally review the budget several times and adopt amendments
to the budget law. Usually, there is no formal calendar for such budget reviews.

27
Fiscal Policy Center, Georgia State University under the Fiscal Reform in Russia Project sponsored by United States Agency
for International Development.

38
 As local budget revenues are strongly dependent on shares of regulating taxes and transfers
from the regional budget, local budgets can be approved only after the approval of the regional budget.
As the budgets of subjects of the Federation are often approved after long delays local budgets are as
well often adopted late: at the end of Quarter I or even in Quarter II of the next budget year.

8.5 Budget Execution

There is no universal method of control over budget execution in Russia.
While local official officials generally acknowledge that local authorities are capable of
influencing levels of tax collections in their jurisdictions (albeit to a limited extent), there are no formal
levers available to them, since collection of taxes is in the hands of federal authorities 28 (tax
inspectorates in cities and raions), whose major concern is collection of federal taxes. Failure to execute
the revenue side of the budget leads to incomplete execution of the expenditure side. It is conducive to
manipulations with expenditures when some expenditure items are executed in full and some are not
executed at all. Untargeted use of budgetary and extra-budgetary funds is also a frequent occurrence.
Failure to execute the budget is fraught with no legal consequences whatsoever.
Another example of soft budgetary constraints is intergovernmental relations vis-à-vis
provision of financial assistance. Even in those regions where the budget law prescribes the use of a
formalized procedure for grants allocation, the actual appropriations often differ from the formula-based
amounts, or the formula is applied to some municipalities, but not to others. Furthermore, such budget
items as budget loans or ‘mutual settlements’ allow regional governments to distribute additional
financial resources at their own discretion and makes it possible for municipalities to receive additional
financial assistance depending on the negotiating skills of their mayors. The softness of budget
constraints creates incentives for overspending by accumulating deferred payments – a policy which
increases the chances of getting additional financial assistance from higher level budgets.
Pursuant to the provisions of the Budget Code, a single all-encompassing treasury system 29 of
budget execution shall be put in place starting from the year 2000. It is hoped that a transition to the
treasury system would automatically solve many problems originating from soft budgetary constraints,
but the creation of such a system is an expensive project which is likely to take several years to
accomplish.

9. Relationships between Bodies of Local Self-government and Bodies of State Power

As has been noted in an earlier section on legislative foundations of local self-government, the
1993 Constitution assigns the general principles of local self-government organization to the joint
competence of the Russian Federation and its subjects.
In addition to establishing a basic framework for local self-government organization, the federal
legislation sets out a list of competencies of local governments. However, in most cases local
competence is confined to delivering services, while the standards of service provision, including
quality standards, is for the most part retained in the competence of the federal level, with control over
local compliance with those standards is delegated to the regions.

28
One exception is the City of Togliatti in Samara Oblast. The municipality introduced a tax on imputed income (the tax was
in fact a property tax on small business), for collection of which a municipal tax service was set up. The service was operating
quite successfully but after implementation of the law on imputed income across the entire Federation the local tax on imputed
income was abolished, although its federal version was difficult to administer and inefficient. The municipal tax service had
to be dissolved.
29
Local bodies of power being independent of the State, one should speak about a single treasury system rather
than a single treasury set up as a federal entity.

39
 The Constitution assigns the responsibility of regulating many important issues of local self-
government institution building to regional authorities. Most of these issues have to do with putting in
place a legal framework for the development of local self-government within regional boundaries, such
as adoption of the law on local self-government, approval of boundaries of local jurisdictions,
establishment of rules for holding municipal elections, registration of charters, transfer of property, etc.
Regional authorities have no formal right to interfere with the operation of local governments, with the
exception of fiscal matters.

9.1. Infringement of Regional Authorities upon Basic Legal Rights of Localities

The most widespread forms of regional infringement upon the basic rights of local self-
governance are:
- establishment of territorial boundaries of municipalities without prior consent of the latter;
- adoption of a Model Charter of a Municipality as a regional law;
- establishing a requirement that heads of local self-government be elected only from among
candidates proposed by the regional governor;
- establishing a requirement that appointed heads of line departments of local administrations
be approved by regional governor of heads of respective regional departments.
In most subjects of the Federation local self-governance was formed in conformity with
preferences of regional authorities. Hence, a list of municipalities and their boundaries were established
at the pleasure of the regional authorities, and any attempts to set up new municipalities ‘from the
bottom’, without approval of regional authorities, are nipped in the bud.
See earlier section on the organizational structure of bodies of local self-government.

9.2. Relationships between State, Regional and Local Governments Arising in Provision of
Public Services
Pursuant to the federal legislation bodies of local self-government are free to decide on how
public services falling in their competence will be provided to the citizenry. The personnel policy with
respect to municipal employees and workers of budget organizations controlled by local authorities is
within the purview of localities, the only exception being heads of local line departments whose
appointment usually requires approval by officials of appropriate subdivisions in the regional
administration.
Salaries for municipal employees are established by local administrations within the limits
imposed by the regional law on municipal service. Salaries for employees of budget organizations are
set in accordance with the federal Uniform Schedule of Wages for Workers of Budget Organizations.
The sole exception is financial bodies of local self-government. Before the end of 1998 financial
bodies of all levels of government were to be part of a single vertical system of the federal Ministry of
Finance, with all salaries paid out of the federal budget. The Law On Financial Foundations empowered
municipal entities to pay their financial staff out of local budgets. Some wealthy municipalities did so
in their striving for independence. However, even after destruction of the vertical MoF system, the
majority of municipal financial bodies still remain on the payroll of regional authorities thus
perpetuating their heavy dependence on regional authorities. But from a formal point of view their
dependence is voluntary as their choice has been driven by the desire to save their own budget resources
(if a municipality relinquishes funds for financing of its financial bodies from the regional budget it is
formally entitled to no compensation therefor).
Another area where bodies of local self-government are dependent on regional authorities is
control over compliance with the federal service quality standards. As the local governments are

40
assigned the responsibility for ensuring the provision of basic public services guaranteed by the
Constitution, in performing school education functions, health care functions and providing a social
safety net to their citizenry local authorities must comply with the standards prescribed by federal laws.
The major objects of standardization are:
in the field of education –
- curriculum;
- number of school hours for each subject;
- number of students in a school class;
- teaching load in hours;
- sanitary standards for class-rooms;
- teachers’ salaries;
- accounting and reporting requirements;

in the field of health care –

- a set basic medical services;
- quality of medical services;
- medications;
- conditions of provision of medical aid;
- qualification requirements for medical personnel;
- salaries of medical personnel;
- accounting and reporting requirements.
Compliance with the above standards is monitored by appropriate line departments of regional
administrations.
Regional grants to localities earmarked for particular spending purposes also make it possible
for regional authorities to exercise control over local spending. Earmarked grants are usually
appropriated for the execution of state powers delegated to localities, target programs and/or capital
construction projects. Very often they are extended for paying wages, particularly teachers’ and doctors’
salaries, since local authorities often refuse to assume financing of that spending category on the
grounds that the local function of maintenance of educational/healthcare institutions does not include
wages, but means only the maintenance of premises and equipment.

9.3. Fiscal Relations between Regional and Local Authorities

As was mentioned earlier (see section on local finance), for many localities intergovernmental
transfers constitute the single most important revenue source, which puts local governments in the
position of financial dependence from the regional authorities. Although localities do have their own
local taxes and permanently fixed shares of a number of federal and regional taxes, a significant portion
of financial resources goes to local budgets in the form of intergovernmental transfers, whose size and
allocation are determined exclusively by regional authorities.
A survey of local budgets conducted in 199930 revealed only two localities that covered their
expenditure needs exclusively from local and permanently assigned revenues without any additional
financial support from the regional government (Kirishi Raion and City of Svetogorsk in the Leningrad
Oblast, both by no means the richest municipalities in Russia). That there are almost no self-sufficient
municipalities in Russia can be a result not only of insufficiency of local and assigned revenues, but
also of advantages that regional governments derive from having localities in a firm financial grip.

30
This study was undertaken by the Georgia State University under the Fiscal Reform in Russia Project sponsored
by United States Agency for International Development.

41
Besides, informal pressures put by local administrations on taxpayers to increase collections of the local
share of regional and federal taxes will automatically increase collections of the regional share of the
said taxes. For a more detailed description of fiscal relations between regional and local governments
see subsection on intergovernmental transfers in Local Finances.

9.4. Local Governments and Local Agencies of Regional and Federal Authorities
Since functional responsibilities are divided between regional and local authorities in
accordance with the division of property in social infrastructure facilities between the two levels, it is
quite common for municipalities to have territorial branches of the regional administration in their
territories responsible for particular projects or facilities. If there are no conflicts between regional and
local authorities on ownership of social infrastructure facilities, bodies of local self-government and
territorial branches of state power operate in parallel and autonomously.
Territorial branches of state power of Russian regions at raion level operate only in those
subjects of the Federation where local self-government is established at the below-raion level, in which
case the regional center delegates to those branches some of its powers vis-à-vis relations with bodies
of local self-government.
The picture is different where regional and federal authorities delegate the responsibilities for
partial maintenance of state agencies to local governments. Those agencies first and foremost include
registry offices and military registration and enlistment offices. Formally, both kinds of institutions are
a federal responsibility, but de facto local governments are also involved by sitting in conscription
commissions, arranging seeing-off ceremonies for draftees, wedding ceremonies, etc. The employees
of those agencies are usually on the payroll of a higher level budget while other operating costs are
covered from local budgets. Often localities have to cover a number of additional expenses, e.g.
transportation of draftees to the place of service. Furthermore, it is common for employees of those
agencies to be provided with housing from municipal housing stock.
Formally, delegation of such responsibilities to local governments must be accompanied by
transfer of appropriate funding. However, in most cases localities do not get any earmarked funding to
support these services. Instead, regional governments claim to have taken into account their additional
expenditure needs when allocating transfers. Local governments argue that funds thus provided are
inadequate and that in effect they are co-financing the above agencies.
Similar situations occur in relations between local governments and territorial agencies of other
federal ministries, such as the State Committee for Statistics, Ministry for Taxes and Duties, Ministry
of the Interior, courts, Office of Public Prosecutor, etc. In addition to the above-mentioned ways of co-
financing of those federal functions from local budgets and extra-budgetary funds, officials of these
federal agencies depend on local authorities for housing, fringe benefits, vehicles, office equipment,
etc. This creates a system of dual subordination which has many advantages for the local governments:
it allows them to induce greater tax efforts to increase collections from local taxes and fees and from
local shares of federal and regional taxes to the detriment of higher level budgets; collect additional
statistical information; influence decisions made by bodies of the interior, rulings of courts and public
prosecution offices.

9.5 Control over Local Government Operations

Administrative Oversight of Local Governments on the Part of Regional Administration
The 1993 Constitution introduced a fundamentally new type of relations between different
levels of government. A regulatory type of interaction replaced the administrative model of
subordination (of local to regional authorities and of regional to federal authorities). Direct
subordination of localities to regions made way for relations where oversight is possible only within the
framework of law. But many regional officials proved to be incapable of abandoning the administrative

42
approach in their relations with lower level governments which was manifest in a number of regions in
a fierce resistance to the very idea of local self-governance. Their authorities proved to be unable to
make use of new control levers that required focusing on law-making and enforcement of laws through
court action. For instance, in Yakutia bodies of local self-government are in fact non-existent (there are
no elected officials of local self-government). In Republic of Tatarstan local self-government is set up
only in rural areas and is not to be found in cities. It is the said resistance to the new model that explains
why governors are so fond of talking about “return to the vertical hierarchy of power” and support the
recently amended Law On General Principles that establishes broader rights to dissolve local councils
and dismiss heads of local self-government should legislative acts of local self-government be found
inconsistent with the Constitution, federal legislation or legislation of subjects of the Federation.
The above Law came into effect not long before this paper was written, therefore it would be
premature to discuss the effects it has had on local self-governance in Russia here. A recent (July 2000)
removal by the Bashkir President of the mayor of Ufa City should not be treated as an example of
application of the new law in practice. Like in Republic of Tatarstan, local self-government in
Bashkortostan is organized on the basis of sub-raion towns and villages, with cities and raions governed
by bodies of state power that are appointed and dismissed by the Republican Administration.
Otherwise, provisions of the Law On General Principles whereby local self-government bodies
are independent, i.e. accountable only to the law and their constituency, still continue to apply in Russia.
The amended law also entitles the federal government and regions to delegate certain federal and/or
regional powers to local governments, provided that this delegation is accompanied by the transfer of
necessary material and financial resources, and to monitor the execution of powers thus delegated.
Ryazan Oblast in 1996 passed a regional law that delegated the function of civil status registration to
local governments. Among other things, this law established conditions for regional oversight over the
execution of this function by local authorities. The case of the Ryazan Oblast, however, is rather
exceptional, as in the vast majority of regions delegation of regional functions to local governments
exists de facto, not de jure, and issues of administrative liability for undue performance of delegated
functions remain unresolved.
Although in the Law On General Principles federal legislators proclaimed an extensive local
autonomy, both financial and administrative, in recent years the trend has been to clamp down on local
autonomies. This is particularly the case with financial autonomy of municipalities, as with the adoption
of the new Tax Code the revenue pool of local taxes has been drastically reduced. At present, more than
70 percent of local budget revenues come from federal and regional shared taxes, and since the local
sharing rates of these taxes are established by regional governments, localities have in fact got into
complete financial and administrative dependence on regional authorities.
Financial Audit of Local Governments
The practice of independent financial audit of local authorities has not gained ground in Russia
yet. Until 1998, financial bodies of regions and municipalities were part of the Ministry of Finance
vertical hierarchy. Both regional and local finance departments have later been removed from under the
authority of the federal Ministry of Finance and are now subordinate only to the government of an
appropriate level. At the same time, regional administrations are part of the system of Russian State
power and as such must follow orders of the federal center, in particular, the instructions of the Russian
Ministry of Finance. Although regional budgets do not have to be approved by the federal government,
regions must submit their reports on the execution of consolidated (regional plus local) budgets to the
RF Ministry of Finance. Both the adoption and execution of local budgets is assigned by the federal
legislation to matters of local significance to be handled by municipalities on their own, without
reporting to anyone except the constituency. The regions, therefore, have to right to request that local
government send in their budget execution reports, even though the Ministry of Finance requires that
the regions consolidate local and regional budget execution data in their reports to the Ministry.

43
 However, the practice to file reports on execution of local budgets and draft budgets for the
new fiscal year with regional financial authorities has been continuing and applied across the board.
Besides local budget execution reports, the regions also require that local governments submit their
budget plans for coming year, because this information is needed for the allocation of equalization
grants from the regional budget to localities. The right of regions to request such information from local
governments is established in the federal Budget Code, but the Budget Code also states that local
governments that do not wish to compete for regional grants are not required to report their budget
information to regional authorities. Nevertheless, local governments seldom refuse to submit their
budget reports. One of the few exceptions is the Rostov Oblast, where a number of municipalities
refused to report their detailed budgets and under the pressure of the regional administration submitted
only aggregated totals. They argued that their autonomy allows them not to report such information and
that the federal Ministry of Finance has no legal right to request such information from the regions.
The Russian Budget Code stipulates the right of local councils to exercise financial control at
the stage of discussion, approval, and execution of local budgets. It also grants local councils the right
to set up auditing commissions for doing ‘external’ audits of local budgets. Local governments do create
such audit units, but it will be an exaggeration to call them ‘external’.
Sometimes local governments themselves initiate external audits and hire independent auditing
firms with a view to making their territories more attractive for foreign investors. Such cases are few
and far between, and typically occur in regional centers (Novgorod, Tver, Nizhni Novgorod, Samara,
St. Petersburg).
Under the Budget Code, regional authorities are entitled to monitor local spending only where
local governments are grant recipients, and this right only applies to the funds that local governments
receive from the regional budget. Their revenue pool being limited, most of the municipalities are
recipients of financial aid from the higher level budget. However, regional authorities seldomly exercise
any control over local spending even on such a limited scale.
Supervision of Local Governments by Public Prosecutors
The Public Prosecutor’s Office of Russia is a single federal system of bodies of State power
with territorial branches exercising control over correspondence of regulatory and legislative acts
passed by legislative bodies of State power of Russian regions and representative bodies of local self-
government with the effective federal legislation. Should it reveal any infringements on the federal
legislation, the Public Prosecutor’s Office will lodge protest with the infringer that specifies measures
to be taken and time limits therefor. Should the prescribed measures fail to be taken, organs of the
Prosecutor’s Office will apply to court.
Presently, the Public Prosecutor’s Office plays a fairly active role in ensuring compliance with
the legislation (federal one in the first place) on local governments. Causes of revealed violations are
often a product of imperfect federal and regional legislation delineating functions between federal,
regional authorities, raion branches of regional administrations and local governments. Many
infringements have to do with financial matters: distribution of proceeds from privatization of municipal
property, or funding of federal mandates, in particular child benefits. The litigation initiated by Tver
City Duma over funding of child benefits reached the Supreme Court of Russia that approved the
decision of the regional court stating that the benefits shall be financed from the regional budget through
earmarked transfers. However, the ruling of the Supreme Court failed to become a precedent to be used
in other cases dealing with the same issue because case law is virtually non-existent in Russia. Courts
pronouncing judgements against local governments is not an infrequent occurrence either. For instance,
Tver City Duma had to revoke its decision to cancel entitlements to free public transport services for
employees of a number of federal agencies on grounds of failure to receive any funds for that from the
federal budget.

44
 In Pskov oblast in 1998 prosecutors revealed cases of localities introducing local taxes and fees
not provided for in the federal legislation and thus violating the federal Law On General Principles. At
the same time it was found that in a number of municipalities in the region various organizations and
profit enterprises were exempt from payment of taxes and fees to local budgets for no lawful reason.
Heads of 12 municipalities issued regulations and orders to ban or restrict export of food products from
their municipalities. In Pskov oblast, raion and city prosecutors are regular participants in sessions of
local councils and meetings with heads of municipalities, and therefore can promptly make comments
and proposals on draft legal acts and issues under consideration.
Among the gravest infringements so far revealed by the Public Prosecutor's Office are attempts
made by some regions to abolish local self-government within their jurisdictions.
In the spring of 2000, an attempt was made in the Kursk Oblast to abolish all 511 municipalities
altogether and introduce state government in their stead on the condition of «voluntary waiver» of self-
government by the citizenry. For those localities that would choose to keep local self-government, the
procedure for mayor elections was supposed to be changed so that mayors, or heads of local
administration, be elected exclusively by and from among members of the local council and only from
among governor's nominees. All those unlawful decision were appealed against by the regional
prosecutor that made regional legislators to revoke their decisions, saving the prosecutor the trouble of
taking the matter to court.

10. Municipal Employees

10.1 Fundamentals of municipal service

Pursuant to Article 4 of the Law On General Principles the regulation of foundations of
municipal service falls under competence of bodies of State power of the Russian Federation in the field
of local self-government. Citizens of the Russian Federation have equal access to municipal service
(Article 3).
Despite local self-government being outside the framework of the system of state power, before
the adoption of the Law On Foundations of Municipal Service in the Russian Federation employees of
municipal bodies of government fell under the scope of the Federal Law On Foundations of the State
Service in the Russian Federation.
Adoption in early 1998 of the federal Law On Foundations of Municipal Service brought the
service in bodies of local self-government to the same high level in terms of benefits and social safety
net as the service in bodies of state power (the Law regulates the status of only hired and appointed
municipal employees). However, as there is no single register of positions for municipal employees it
may be difficult to establish correspondence between positions in municipal and State bodies of power
if an employee moves from the municipal to the State service.
Municipal employees fall into the following categories:
- persons holding elective offices:
- on a full-time basis
- on a part-time basis;
- appointed persons
- persons working for hire in the staff of local government bodies
- persons working in organizations financed from local budgets.

45
10.2 Persons holding Elective Offices
Elected officials of local governments mean primarily deputies of local councils and the head
of local administration. Although the law provides for the existence of other elected officials, in practice
other elective offices are rarely, if at all encountered. According to the effective federal legislation
elected local officials are not required to meet any professional qualifications. At least no such
requirement is contained in current federal laws, and in accordance with the Russian Constitution only
a federal law can establish restrictions on citizens’ rights. The only restriction imposed by the federal
legislation on elected local officials is that they cannot simultaneously perform the functions of
municipal hired or appointed employees. A ban on combining an elective local office with membership
in the regional legislative assembly is not provided for in the federal legislation. Some regions (Rostov
and Ryazan regions) have nevertheless introduced it in their jurisdictions.
An elected local government official can be elected to his/her position either by the citizenry or
by and from among, deputies of local council. In the federal Law On General Principles there is no ban
on one and the same person simultaneously holding several elective offices in local government.
Under the federal Law On General Principles, powers of a body of local self-government are
subject to early termination by regional authorities if a court finds a breach of law or provisions of
municipal charter. In practice cases of removal of elected local officials from their posts in accordance
with court rulings are few and far between. Even if a mayor is removed, it is usually done by the decision
of the regional governor who in effect had appointed the head of local administration. A supposed
relation between chances of local council deputies and heads of local administration to be re-elected for
a new term and their administrative performance has not been investigated, as in the majority of
municipalities new elections have not been held yet.
As regards the status of deputies, members of local councils can be either full-time deputies,
i.e. be in the pay of the government, or part-time deputies i.e. work as deputies without compensation
and continue working were they did before they were elected. It is usual for regional legislation to
establish deputy immunity that protects elected local officials from being prosecuted for law
infringements. For elected «full-time» officials there is commonly a ban on holding another office if it
generates income.
Laws of subjects of the Federation can establish additional social guarantees for elected local
government officials.
Appointed Persons
The Federal Law On General Principles provides the following definition: «the municipal
service shall be understood to mean full-time professional work in local self-government bodies for
exercise of their powers». Hence, work in municipal service applies only to work in the bodies of local
self-government, as opposed to other public institutions. Work in municipal service requires a certain
prescribed qualification. It is a full-time job paid for from the budget, though not necessarily from the
local budget. It is related to the exercise of local government powers as set out in the municipal charter
or other regulatory acts.
The federal Law On Foundations of Municipal Service also states that «legal regulation of
municipal service, including qualification requirements, municipal employee status, terms and
conditions of municipal service, and administration of municipal service shall be prescribed in the
municipal charter as required by laws of subjects of the Federation and federal laws. Regional laws
usually establish limitations on the level of wages for municipal employees. This is done because the
majority of municipalities are subsidized from the regional budget, and the regional government does
not want to see municipal employees earning more than their regional counterparts.

46
Employees in the Staff of Local Administration or Council
The status of a person working on a contract (labor contract) provides for employment of, and
performance by, such a person of his/her functions in accordance with the federal Labor Code and other
regulations governing activities of this category of employees. Hire of employees is the responsibility
of Personnel Departments of local administrations or councils, while professional requirements to such
employees are established in accordance with the municipal charter. Individuals working in local
administrations but providing technical support to activities of bodies of local self-government are not
considered to be municipal employees.
For ensuring the right of citizens to equal access to municipal service as prescribed in the federal
Law On Foundations of Municipal Service in the Russian Federation, vacant municipal positions must
be filled in through public announcement of a vacancy. The procedure for announcement of vacancies
should be established in the charter of a municipality.
Individuals working in budget institutions
Under the effective Russian legislation individuals employed by budget institutions do not fall
into the category of municipal employees. Terms of remuneration of their labor, social guarantees, etc.
are established in the federal Law On the Uniform Schedule of Wages for Workers of Budget
Organizations. Hence, the salaries that local governments pay to workers of budget institutions from
their budgets cannot be below the federal statutorily established level. However, local governments are
entitled to pay local fringe benefits to budget institution employees on top of their salaries. The federal
schedule of rates sets basic rates and allowances employees are entitled to if a budget organization is
located in the Far North or territory equated to it. Local authorities are entitled to pay local allowances
to employees of municipal budget institutions (primarily schools, outpatients' clinics and hospitals) in
addition to their wages, but rarely exercise their right for lack of financial resources.

10.3 Problems of Political Affiliation

The federal Law On Foundations of Municipal Service in the Russian Federation dictates that
municipal service employees shall belong to no parties. Under the Law, a municipal employee shall not
use his/her official position in the interests of any political party, nor shall he/she be entitled to set up
political party groups within local government bodies.
To date the problem of party struggle at the local level has not been looming large in Russia,
since even the possibility of elections to municipal bodies of power by party rolls is not provided for in
the legislation, with most elections in actuality held as non-party ones. Thus, it is usual that not only
hired workers of administrations but also elected officials of local self-governments represent no
political parties.

10.4 Personnel Training

The new role of local governments in the system of public government in Russia requires the
services of qualified personnel, the use of modern information technologies, new methods of work and
workflow organization.
The system of training and re-training of local government employees includes both traditional
state-owned educational establishments and new training institutions, such as colleges and long-
distance training and consulting centers.
Municipalities, regions and the federal government are all contributing to the creation of a pool
of information to assist local policy-makers. The outcome of these efforts include periodicals for local
governments, publishing houses that specialize in literature for local governments, dissemination of
software and information systems.

47
 For all their importance, these elements, however, are insufficient to form an integrated system
of professional training, information and methodological support for local governments.
State higher educational establishments training personnel for local self-government are
available only in 42 out of 89 regions, with no professional training of municipal personnel taking place
in the other regions.
The current situation with professional training and professional background of persons
employed in municipal service is described with the following figures:
The total number of persons employed in bodies of local self-government in Russia in the year
2000 was 386.3 thousand, of which 177.6 thousand were appointed and/or elected officials.
Of the elected officials (5% of total number of appointed and/or elected officials):
- 64.2% had higher education
- 33.6% had general school education
- 2.2% did not finish high school.
Of the appointed officials (94.5% of the total):
- 51.7% had higher education
- 46.0% had general school education
- 2.2% did not finish high school.
Of the total number of municipal officials with higher education, only 1.5% had been trained
in public administration.

11. Outlook for Development of Local Self-government in the Russian Federation

The Government of the new Russian President V.V. Putin elected in March 2000 approached
the State Duma with an initiative of amending the Federal Law On General Principles of the
Organization of Local Self-government in the Russian Federation.
The proposed amendments came down to the following:
1. enhancement of responsibility of the representative and executive branches of local self-
government and Heads thereof for violation of the Russian Constitution, federal and regional
legislation;
2. assignment to the federal level of regulation of the organization of local self-government not
only in territories near frontiers and closed administrative-territorial entities (ZATO), but also
in federal cities, capitals and administrative centers of subjects of the Federation, and cities with
a population over 50,000;
3. elimination of raions from the category of municipal entities.
Even though the State Duma turned down amendments 2 and 3, these provide an explicit
indication of the attitude of the new Presidential Administration to local self-government.
According to their initiators, the need for these amendments was explained by need to enhance
accountability of local governments for violation of the Russian Constitution and by desire to bring
local governments closer to the citizenry.
Pursuant to the approved amendment, the accountability of local governments is going to be
enhanced not through strengthening and improvement of the judicial system, but as a result of
enhancement of administrative responsibility of local heads to the regional administration.
Conferring a status of federal territories to administrative centers of subjects of the Federation,
and cities with a population over 50,000 people, similarly to ZATO, would have taken those cities out
of the jurisdiction of regional authorities. This would have resulted in withdrawal from consolidated

48
regional budgets of the largest and richest municipalities to a serious detriment of financial foundations
of regional administrations’ activities. Besides, this would have deprived subjects of the Federation of
funds for equalization of per capita fiscal capacity of municipalities in their jurisdictions.
Compulsory transfer of local self-government to the level below raions would have in fact lead
to elimination of local self-government, since lack of own-source revenue makes small cities and rural
districts fully dependent on raion and regional authorities. Therefore, the proposed amendment impaired
the constitutional right of citizens to local self-governance. Moreover, it comes into conflict with Article
131 of the Russian Constitution establishing that the boundaries of territories where local self-
government is implemented shall be determined with regard to the opinion of the public.
To all appearances, as long as Putin is in office, «strengthening of the power vertical» will be
a very popular slogan, while the development of local self-government and formation of a civil society
in Russia will be at risk.
At the same time, Development Strategy of the Russian Federation up to 2010, worked out by
Putin Government (the so-called ‘Gref Program’) contains a number of optimistic provisions for the
development of local self-government.
The Strategy is advocating:
- maximum development of, and gradual transfer of some of State powers to, local self-
government;
- decentralization of public administration functions and appropriate delineation of
budgetary sources and responsibilities;
- ensuring federal protection of rights and interests of local self-government; enhancement
of federal guarantees of local autonomy in addressing local issues;
- decentralization of Russia's budget system to ensure greater fiscal autonomy;
- financing of federal mandates from the federal budget;
- abandonment of the revenue tax sharing arrangement in favor of «to each budget its own
taxes» principle;
- finalizing of the reform of transfers allocation mechanism, conversion to a formula-driven
system.
It is hard to say now which of the two tendencies – centralization or decentralization - will
eventually prevail, for despite the growing public awareness, higher demands made of bodies of power
by the citizenry in recent years, and people ceasing to tremble with awe in front of «movers and shakers
of this world» in the person of state and local officials, the shoots of civil society in Russia are yet too
weak. Whether this institution will survive is fully dependent on the political course taken by federal
authorities.

49
 APPENDIX
31
Major General Indicators
Size of territory 17,075.4 thousand square kilometers
Population density 8.6 per square kilometer
Population 145,559.2 thousand
Number of students in general education schools 20,879.4 thousand
Major ethnic division (1994) Russians 83.0 percent
Tatars 3.8 percent
Ukranians 2.4 percent
Others32 11.0 percent
Per Capita GDP RUR 31,227.8 thousand
Inflation rate (consumer prices) 36.5 percent
Unemployment rate 12.6 percent

Source: «Russia: Statistical Yearbook», Goskomstat; 2000

«Social and Economic Situation in Russia», vol. 12, Goskomstat, 1999
«Russian Economic Trends», September 2000

31
All data on 1999 exept data on major ethnic division.
32
Every people takes less than 2 percent.

50
 Table 1. Main social and economic indicators of Russian regions

Number of Number of students Per capita Gross

Area, Population Population Unemployment,
old-age in general Regional
thousand sq. as of density 1998,
Region pensioners, education schools, Product *
kilometers 01.01.2000, 01.01.2000 % of active
1998, 1998/1999, 1998
thousands pers./sq. km population
thousands thousands RUR thousand

Russian Federation 17 075.4 145 559 8.5 38 410 21 429 13.3 16 353
North
Republic of Karelia 172.4 765 4.4 213 120 16.6 14 607
Republic of Komi 415.9 1 137 2.7 272 184 17.8 24 545
Arkhangelsk Oblast 410.7 1 414 3.4 388 217 14.9 14 641
Nenets AO 176.7 45 0.3 10 8 11.3 36 212
Vologda Oblast 145.7 1 319 9.1 365 197 12.7 18 052
Murmansk Oblast 144.9 1 001 6.9 233 156 21.0 23 646
North West
City of St.-Petersburg 1.4 4 661 3 329.3 1 252 553 11.3 18 947
Leningrad Oblast 84.5 1 666 19.7 462 228 15.0 12 591
Novgorod Oblast 55.3 727 13.1 220 103 15.4 12 757
Pskov Oblast 55.3 801 14.5 247 110 16.1 7 981
Center
Bryansk Oblast 34.9 1 438 41.2 447 209 15.7 8 137
Vladimir Oblast 29.0 1 604 55.3 470 216 12.0 9 831
Ivanovo Oblast 21.8 1 219 55.9 364 160 18.8 7 292
Kaluga Oblast 29.9 1 079 36.1 281 149 10.2 9 996
Kostroma Oblast 60.1 781 13.0 227 112 11.2 11 172
City of Moscow 1.1 8 537 7 912.0 2 315 1 056 4.8 42 009
Moscow Oblast 45.9 6 464 140.8 1 798 838 9.9 15 348
Oryol Oblast 24.7 897 36.3 271 120 13.2 11 316
Ryazan Oblast 39.6 1 285 32.4 417 168 7.1 10 899
Smolensk Oblast 49.8 1 128 22.7 329 158 16.4 10 615
Tver Oblast 84.1 1 595 19.0 482 211 11.3 10 908
Tula Oblast 25.7 1 740 67.7 606 217 11.6 10 718
Yaroslavl Oblast 36.4 1 412 38.8 422 186 11.1 15 623
Volga-Vyatka
Republic of Mari El 23.2 759 32.7 190 130 13.1 8 619
Republic of Mordovia 26.2 929 35.5 266 138 14.5 9 908
Chuvash Republic 18.3 1 359 74.3 342 226 13.9 8 917
Kirov Oblast 120.8 1 590 13.2 441 239 13.1 10 532
Nizhny Novgorod Oblast 76.9 3 663 47.6 1 063 475 9.1 14 295
Central Black Earth
Belgorod Oblast 27.1 1 495 55.2 439 221 11.3 13 178
Voronezh Oblast 52.4 2 455 46.9 765 335 9.5 9 638
Kursk Oblast 29.8 1 312 44.0 409 182 10.2 12 638
Lipetsk Oblast 24.1 1 240 51.5 367 174 11.1 13 673
Tambov Oblast 34.3 1 271 37.1 390 168 12.7 8 137
Volga River Basin
Republic of Kalmykia 76.1 315 4.1 67 61 30.8 5 382
Republic of Tatarstan 68.0 3 782 55.6 956 601 10.9 17 924
Astrakhan Oblast 44.1 1 016 23.0 239 159 15.9 10 485
Volgograd Oblast 113.9 2 677 23.5 727 379 14.7 11 458
Penza Oblast 43.2 1 530 35.4 429 217 18.1 7 202
Samara Oblast 53.6 3 295 61.5 855 458 8.6 21 962
Saratov Oblast 100.2 2 709 27.0 724 390 16.1 10 528
Ulianovsk Oblast 37.3 1 463 39.2 381 222 11.1 11 137
North Caucauses
Republic of Adygeya 7.6 448 58.9 126 67 16.0 7 519
Republic of Dagestan 50.3 2 142 42.6 439 461 30.0 4 104
Ingush Republic 19.3 315 16.3 55 53 51.1 3 338
Kabarda-Balkar Republic 12.5 431 34.5 179 149 22.4 8 067

51
52
 Population Number of Number of students Per capita Gross
Area, Population Unemployment,
density old-age in general education Regional
thousand sq. as of 1998,
Region 01.01.2000 pensioners, schools, Product *
kilometers 01.01.2000, % of active
pers./sq. 1998, 1998/1999, 1998
thousands population
km thousands thousands RUR thousand
Karachai-Circassian Republic 14.1 670 47.5 112 76 25.5 4 648
Republic of North Osetia 8.0 768 96.0 187 110 26.6 7 537
Chechen Republic 19.3 786 40.7 155 - - -
Krasnodar Krai 76.0 5 007 65.9 1 368 748 16.2 10 593
Stavropol Krai 66.5 2 660 40.0 708 405 16.3 10 646
Rostov Oblast 100.8 4 341 43.1 1 268 609 15.7 9 077
Urals
Republic of Bashkortostan 143.6 4 110 28.6 1 040 702 13.4 15 603
Udmurt Republic 42.1 1 629 38.7 389 266 13.1 12 233
Kurgan Oblast 71.0 1 096 15.4 290 170 13.1 8 767
Orenburg Oblast 124.0 2 219 17.9 573 363 13.4 12 904
Perm Oblast 127.7 2 806 22.0 722 417 13.0 19 327
Komi-Perm AO 32.9 150 4.6 42 27 17.4 5 978
Sverdlovsk Oblast 194.8 4 603 23.6 1 240 638 10.5 17 355
Chelyabinsk Oblast 87.9 3 667 41.7 968 546 12.4 12 793
West Siberia
Republic of Altai 92.6 204 2.2 48 40 18.5 8 050
Altai Krai 169.1 2 654 15.7 699 410 16.0 8 400
Kemerovo Oblast 95.5 2 982 31.2 808 443 12.5 15 136
Novosibirsk Oblast 178.2 2 740 15.4 699 407 13.7 12 809
Omsk Oblast 139.7 2 164 15.5 527 356 15.5 13 526
Tomsk Oblast 316.9 1 068 3.4 246 165 14.6 19 797
Tyumen Oblast 161.8 1 351 8.3 308 226 14.0 24 691
Khanty-Mansi AO 523.1 1 382 2.6 178 261 14.4 86 578
Yamal-Nenets AO 750.3 504 0.7 60 98 11.2 99 715
East Siberia
Republic of Buryatia 351.3 1 032 2.9 230 193 22.1 10 702
Republic of Tyva 170.5 311 1.8 72 69 20.9 5 950
Republic of Khakassia 61.9 579 9.4 139 96 9.6 14 040
Krasnoyarsk Krai 710.0 2 988 4.2 685 454 16.4 23 540
Tajmyr AO 862.1 44 0.1 8 8 15.5 12 399
Evenk AO 767.6 19 0.0 4 4 5.5 9 692
Irkutsk Oblast 745.5 2 599 3.5 622 419 13.7 19 511
Ust-Orda Buryat AO 22.4 143 6.4 33 33 8.4 9 741
Chita Oblast 412.5 1 177 2.9 252 198 20.4 10 725
Aginsk-Buryat AO 19.0 79 4.2 15 19 35.7 4 842
Far East
Republic of Sakha 3 103.2 989 0.3 201 194 13.6 33 526
Jewish AO 36.0 197 5.5 44 35 23.9 8 982
Chukotka AO 737.7 79 0.1 14 12 4.7 32 823
Primorski Krai 165.9 2 172 13.1 479 323 14.9 14 264
Khabarovsk Krai 788.6 1 506 1.9 346 232 12.4 19 528
Amur Oblast 363.7 998 2.7 205 159 16.9 14 464
Kamchatka Oblast 170.8 359 2.1 71 52 17.6 25 851
Koryak AO 301.5 30 0.1 6 6 8.4 57 881
Magadan Oblast 461.4 239 0.5 47 35 18.1 27 717
Sakhalin Oblast 87.1 599 6.9 144 91 17.1 21 335

Kaliningrad Oblast 15.1 948 62.8 218 135 16.7 9 144

Source: «Russia: Statistical Yearbook», Goskomstat, 1999; «Population of the Russian Federation: Towns, Townships and Raions»,
Goskomstat, 2000; «Social and Economic Situation in Russia», vol. 12, Goskomstat, 1998.

53
 Table 2. Major ethnic groups in Russian regions, 1989
Title ethnicity, % of
Regions Russians, % Other ethnicities
total population (*)

North
Republic of Karelia 10.0 73.6 16.4
Republic of Komi 23.3 57.7 19.0
Arkhangelsk Oblast 92.1 7.9
Nenets AO 11.9 65.8 22.3
Vologda Oblast 96.5 3.5
Murmansk Oblast 82.9 17.1
North West
City of St.-Petersburg 89.1 10.9
Leningrad Oblast 90.9 9.1
Novgorod Oblast 94.7 5.3
Pskov Oblast 94.3 5.7
Center
Bryansk Oblast 96.0 4.0
Vladimir Oblast 95.8 4.2
Ivanovo Oblast 95.8 4.2
Kaluga Oblast 93.8 6.2
Kostroma Oblast 96.3 3.7
City of Moscow 89.7 10.3
Moscow Oblast 93.5 6.5
Oryol Oblast 97.0 3.0
Ryazan Oblast 96.1 3.9
Smolensk Oblast 94.1 5.9
Tver Oblast 93.5 6.5
Tula Oblast 95.4 4.6
Yaroslavl Oblast 96.4 3.6
Volga-Vyatka
Republic of Mari El 43.3 47.5 9.2
Republic of Mordovia 32.5 60.8 6.7
Chuvash Republic 67.8 26.7 5.5
Kirov Oblast 90.4 9.6
Nizhny Novgorod Oblast 94.7 5.3
Central Black Earth
Belgorod Oblast 92.9 7.1
Voronezh Oblast 93.4 6.6
Kursk Oblast 96.9 3.1
Lipetsk Oblast 97.4 2.6
Tambov Oblast 97.2 2.8
Volga River Basin
Republic of Kalmykia 37.7 45.4 16.9
Republic of Tatarstan 48.5 43.3 8.2
Astrakhan Oblast 72.0 28.0
Volgograd Oblast 89.1 10.9
Penza Oblast 86.2 13.8
Samara Oblast 83.4 16.6
Saratov Oblast 85.6 14.4
Ulianovsk Oblast 72.8 27.2
North Caucauses
Republic of Adygeya 22.1 68.0 9.9
Republic of Dagestan 27.5 9.2 63.3
Ingush Republic 74.5 13.2 12.3
Kabarda-Balkar Republic 48.2 32.0 19.8
Karachai-Circassian Republic 31.2 42.4 26.4
Republic of North Osetia 53.0 29.9 17.1
Krasnodar Krai 86.7 13.3
Stavropol Krai 84.0 16.0
Rostov Oblast 89.6 10.4

54
 Title ethnicity, % of
Regions Russians, % Other ethnicities
total population (*)

Urals
Republic of Bashkortostan 21.9 39.3 38.8
Udmurt Republic 30.9 58.9 10.2
Kurgan Oblast 91.4 8.6
Orenburg Oblast 72.2 27.8
Perm Oblast 83.8 16.2
Komi-Perm AO 60.2 36.1 3.7
Sverdlovsk Oblast 88.7 11.3
Chelyabinsk Oblast 81.0 19.0
West Siberia
Republic of Altai 31.0 60.4 8.6
Altai Krai 89.5 10.5
Kemerovo Oblast 90.5 9.5
Novosibirsk Oblast 92.0 8.0
Omsk Oblast 80.3 19.7
Tomsk Oblast 88.2 11.8
Tyumen Oblast 72.6 27.4
Khanty-Mansi AO 1.6 66.3 32.1
Yamal-Nenets AO 6.1 59.2 34.7
East Siberia
Republic of Buryatia 24.0 70.0 6.0
Republic of Tyva 64.3 32.0 3.7
Republic of Khakassia 11.1 79.5 9.4
Krasnoyarsk Krai 87.6 12.4
Tajmyr AO 15.7 67.1 17.2
Evenk AO 15.3 67.5 17.2
Irkutsk Oblast 88.5 11.5
Ust-Orda Buryat AO 36.3 56.5 7.2
Chita Oblast 88.4 11.6
Aginsk-Buryat AO 54.9 40.8 4.3
Far East
Republic of Sakha 33.4 50.3 16.3
Jewish AO 4.2 83.2 12.6
Chukotka AO 9.8 66.1 24.1
Primorski Krai 86.9 13.1
Khabarovsk Krai 86.4 13.6
Amur Oblast 86.8 13.2
Kamchatka Oblast 81.0 19.0
Koryak AO 25.1 62.0 12.9
Magadan Oblast 75.2 24.8
Sakhalin Oblast 81.6 18.4

Kaliningrad Oblast 78.5 21.5

(*) Title ethnicity is the indigenous ethnicity of an ethnic autonomy which gave the name to the autonomy. Only for ethnic autonomies.
Source: «Russia: Statistical Yearbook», Goskomstat, 1999.

55
 Table 3. Territorial division of regions

Subject of RF

Cities Raions

City districts Sub-city townships Sub-raion towns Sub-raion townships Rural districts

Townships

56
 Table 4. Number of territorial units and Municipalities at different levels of sub-regional
territorial division hierarchy in the Russian Federation
Number of of territorial units registered as
Number of territorial units, 01.01.2000
municipalities, 01.09.2000
1st
Regions subregional 2nd subregional level:
level: city town- rural
cities raions towns
districts ships districts
city town- rural
cities raions towns
districts ships districts
Russian Federation 646 1867 329 446 1875 24 470 418 1442 136 174 525 9 566

North
Republic of Karelia 7 16 6 11 132 19
Republic of Komi 8 12 1 2 32 191 8 12 1
Arkhangelsk Oblast 7 20 9 6 36 224 6 20
Nenets AO 1 2 18 1 2 18
Vologda Oblast 4 26 11 13 371 2 26
Murmansk Oblast 13 5 3 3 16 17 13 5 1 4 1
North-West
City of St.-Petersburg 1 20 111
Leningrad Oblast 20 17 11 34 204 7 17 3 1 1
Novgorod Oblast 3 21 7 18 272 1 21
Pskov Oblast 2 24 12 14 248 2 24 2
Center
Bryansk Oblast 5 27 4 11 29 414 4 27 6 3 1
Vladimir Oblast 10 16 3 13 35 222 9 15 1 11 35 1
Ivanovo Oblast 6 21 4 11 31 205 7 20
Kaluga Oblast 4 24 3 15 11 328 2 17 6 6 14
Kostroma Oblast 7 24 5 8 275 6 24
City of Moscow 1 10 1 3 1
Moscow Oblast 56 39 18 111 472 29 39 5
Oryol Oblast 3 24 4 4 13 223 3 24 4 13 223
Ryazan Oblast 4 25 4 8 26 486 4 25
Smolensk Oblast 2 25 3 13 15 414 2 25
Tver Oblast 12 36 4 11 33 612 5 36 2
Tula Oblast 9 23 5 12 49 341 2 23 1
Yaroslavl Oblast 6 17 6 5 13 228 2 17
Volga-Vyatka
Republic of Mari El 3 14 1 17 179 3 14
Republic of Mordovia 3 22 3 4 19 420 1 22 3 4 19 420
Chuvash Republic 5 21 3 4 8 350 5 21
Kirov Oblast 5 39 4 13 54 573 5 39 1
Nizhny Novgorod Oblast 12 48 8 15 70 541 4 48 10 52 483
Central Black Earth
Belgorod Oblast 6 21 2 3 21 333 2 20
Voronezh Oblast 7 32 6 8 21 492 1 32 11 17 486
Kursk Oblast 5 28 3 5 23 478 5 5 23 477
Lipetsk Oblast 2 18 4 6 2 303 2 18 1 303
Tambov Oblast 7 23 3 1 12 309 7 23 1 12 309
Volga River Basin
Republic of Kalmykia 1 13 2 113 1 2 113
Republic of Tatarstan 13 43 7 7 21 900 7 21 906
Astrakhan Oblast 3 11 4 3 10 150 3 11 3 10 127
Volgograd Oblast 6 33 8 13 25 449 1 33 5
Penza Oblast 5 28 4 6 16 376 1 4 10 16 376
Samara Oblast 10 27 12 1 22 324 10 27
Saratov Oblast 13 38 6 5 30 607 2 38 1
Ulianovsk Oblast 3 21 4 3 33 325 3 21
North Caucauses
Republic of Adygeya 2 7 5 50 5 50
Republic of Dagestan 10 41 3 18 696 1 41 9

57
 Number of of territorial units registered as
Number of territorial units, 01.01.2000
municipalities, 01.09.2000
1st
Regions subregional 2nd subregional level:
level: city town- rural
cities raions towns
districts ships districts
city town- rural
cities raions towns
districts ships districts
Ingush Republic 3 4 6 32 6
Kabarda-Balkar Republic 2 9 5 4 112 2 9 5 13 107
Karachai-Circassian 2 8 2 7 79 2 1 4 78
Republic
Republic of North Osetia 1 8 4 5 7 96 1 8 5 7 93
Chechen Republic1) 5 16 4 3 174
Krasnodar Krai 15 38 11 11 23 388 15 33
Stavropol Krai 10 26 3 9 7 284 10 9 4 281
Rostov Oblast 16 43 8 7 25 447 16 39
Urals
Republic of Bashkortostan 21 54 7 41 941 40 943
Udmurt Republic 5 25 5 1 10 312 5 25 1
Kurgan Oblast 2 24 7 6 420 1 24 8 6 420
Orenburg Oblast 11 35 7 1 5 605 1 11 1 566
Perm Oblast 13 29 7 11 45 443 13 27 1 4
Komi-Perm AO 1 6 1 75 1 6
Sverdlovsk Oblast 34 30 12 13 97 431 28 29 6 9
Chelyabinsk Oblast 23 24 10 7 30 257 23 19 7 20 256
West Siberia
Republic of Altai 1 10 88
Altai Krai 11 60 5 1 14 723 11 60 1 7 687
Kemerovo Oblast 18 19 14 2 46 235 18 17 1
Novosibirsk Oblast 7 30 10 7 18 428 1 7 18 428
Omsk Oblast 6 32 5 24 359 1 32
Tomsk Oblast 6 16 4 1 177 4 16
Tyumen Oblast 5 22 3 8 317 4 2 4 285
Khanty-Mansi AO 14 9 2 24 70 14 8
Yamal-Nenets AO 7 7 9 42 7 6
East Siberia
Republic of Buryatia 2 21 3 4 29 226 2 21
Republic of Tyva 2 16 3 2 111 1
Republic of Khakassia 3 8 2 13 78 3 2 13 78
Krasnoyarsk Krai 17 42 7 7 44 469 15 42 7 41 469
Tajmyr AO 1 3 1 21 1 2 1
Evenk AO 3 1 22 3
Irkutsk Oblast 14 27 6 8 55 307 14 17
Ust-Orda Buryat AO 6 77 6
Chita Oblast 5 28 4 5 40 332 5 26 1
Aginsk-Buryat AO 3 4 34 4 35
Far East
Republic of Sakha 5 33 8 60 357 2
Jewish AO 1 5 1 12 47 1 5
Chukotka AO 1 8 2 14 45 1 8
Primorski Krai 12 24 5 46 226 12 22 5
Khabarovsk Krai 6 17 7 1 24 186 2 17 18 187
Amur Oblast 7 20 2 24 286 7 20 2 24 287
Kamchatka Oblast 3 7 1 6 26 2 7 1
Koryak AO 4 2 27 4 2 27
Magadan Oblast 1 8 1 28 31 1 6 1 29 27
Sakhalin Oblast 9 17 9 30 62 1 17 1

Kaliningrad Oblast 6 13 5 16 5 100 3 13 3 2 1

1) as of January 1, 1992.
Source: calculated by authors from «Population of the Russian Federation: Towns, Townships and Raions», Goskomstat, 2000 and
«Forming Local Self-Governance in the Russian Federation», Goskomstat, 2000.

58
 Table. 5. Number of settlements by population size categories
Urban settlements (cities, towns and townships), 01.01.1999
Number of residents Number of % of total Number of % of total
settlements residents
less than 3 000 559 18.6 980 0.9
3 000 - 5 000 443 14.7 1 743 1.6
5 000 - 10 000 716 23.8 5 086 4.8
10 000 - 50 000 949 31.6 20 265 19.0
50 000 - 100 000 174 5.8 11 972 11.2
100 000 - 1 000 000 152 5.1 41 921 39.3
more than 1 000 000 12 0.4 24 644 23.1
Total 3 005 100.0 106 611 100.0

Rural settlements, 1989

Number of residents Number of % of total Number of % of total
settlements residents
less then 1 000 144 534 94.5 20 415 52.3
1 000- 2 000 5 718 3.7 7 759 19.9
2 000- 5 000 2 069 1.4 6 127 15.7
more than 5 000 601 0.4 4 762 12.2
Total 152 922 100.0 39 063 100.0

Source: «Russia: Statistical Yearbook», Goskomstat, 1999.

59
Table 6. Main Federal Legislative Acts Governing Local Self-Governance In The Russian
Federation
Federal Law On general principles of local self-government organization in the Russian Federation,
Aug. 28, 1995
Federal Law On ensuring the constitutional rights of the citizens of the Russian Federation to elect and
be elected to bodies of local self-government, 1996
Federal Law On financial foundations of local self-government in the Russian Federation, 1997
Decree of the President of the Russian Federation On guarantees of local self-government in the Russian
Federation, 1993
Federal Law On foundations of Municipal Service in the Russian Federation, 1997
Federal Law On Foundations of the Tax System in the Russian Federation, 1991
The Tax Code of the Russian Federation, General Part, 1998
The Budget Code of the Russian Federation, 1998 (effective from Jan. 1, 2000)
Federal Law On basic guarantees of electoral rights of the citizens of the Russian Federation, Sept.19,
1997
Federal Law On ensuring the constitutional right of Russian Federation Citizen to elect and be elected
to bodies of local self-government, 1996.

Laws canceled in 2000:

Law On foundations of the budget system and budget process in the Russian Federation, 1991
Law On foundations of budgetary rights and rights to form and use extra-budgetary funds, 1993

60
 Table 7. Types of public government organization in the regions of Russia

I II III

Regional state power Regional state power Regional state power

authorities authorities authorities

Local (city, raion) branches

of Bodies of local (city, raion)
Bodies of local self- regional state power self-government
government authorities

Bodies of local (sub-raion) Bodies of local (subcity,

self-government subraion) self-governments

61
 Table 8. Competencies of local governments
Functions Local Regional Central Remarks
EDUCATION
Pre-school (Kindergartens) X
Primary X
Secondary X
Technical X X X The delineation of functions depends on the
Higher X X delineation of property in physical facilities
SOCIAL WELFARE
Welfare homes X
Personal services for elderly
and handicapped X
Special services (for homeless,
families in crisis, etc.) X
Social housing X
Social benefits and transfers Х Х Х The execution of federal mandates is delegated to the
regions. Some regions delegate it further to local
governments, some do not.
HEALTH SERVICES
Sanitary control X X X
Hospitals X X X The delineation of functions depends on the
Policlinics X X X delineation of property in physical facilities

Physical fitness X
CULTURE, LEISURE
Theaters X X* * Federal institutions
Museums X X X*
Libraries X
Parks X
Maintaining buildings for X
cultural events
HOUSING AND UTILITIES
Water supply X
Sewage X
Electricity X
Gas X
Central heating X
Refuse collection X
Refuse disposal X
Cemeteries X
Street cleaning X
Subsidies for housing and X
utilities
Environmental protection X X X
TRAFFIC, TRANSPORT
Roads X X X Depending on the status of roads (federal, regional, or
local)
Public lighting X
Public transport X X
URBAN DEVELOPMENT
District and town planning X
Local economic development X X
Tourism X

62
 Functions
GENERAL ADMINISTRATION
Authoritative functions
(licenses, etc.)
Other administrative matters
(electoral register, etc.)
Local police
Local fire brigades
Civil defense
Local Regional Central Remarks
X X X
X X X
X Ministry of Interior (police) is a federal agency, but
maintenance of law and order in communities is on the
list of local functions. Localities can set up their own
law enforcement divisions.
X Fire control is on the list of local functions, but fire
brigades are part of the federal Ministry of the Interior
X

63
Table 9. Degree of decentralization of the four main public services: regional and local
shares in total subnational expenditures on respective functions, 1999
HEALTH CARE
HOUSING AND CULTURE AND
EDUCATION AND PHYSICAL
UTILITIES ART
Region FITNESS
% % % % % % % %
regional local regional local regional local regional local
Russian Federation 26.3 73.7 24.1 75.9 43.3 56.7 42.4 57.6
North
Republic of Karelia 14.9 85.1 17.8 82.2 49.8 50.2 39.5 60.5
Republic of Komi 3.4 96.6 10.1 89.9 26.3 73.7 66.1 33.9
Arkhangelsk Oblast 7.5 92.5 8.1 91.9 28.9 71.1 35.7 64.3
Vologda Oblast 3.5 96.5 24.0 76.0 41.7 58.3 37.8 62.2
Murmansk Oblast 1.4 98.6 5.1 94.9 28.4 71.6 30.0 70.0
Nenets AO 34.2 65.8 41.7 58.3 49.0 51.0 82.1 17.9
North West
City of St.-Petersburg 97.9 2.1 99.4 0.6 99.0 1.0 99.4 0.6
Leningrad Oblast 2.1 97.9 11.5 88.5 30.4 69.6 47.3 52.7
Novgorod Oblast 14.5 85.5 9.9 90.1 16.2 83.8 50.9 49.1
Pskov Oblast 15.6 84.4 18.1 81.9 42.7 57.3 40.1 59.9
Center
Bryansk Oblast 8.4 91.6 9.8 90.2 28.5 71.5 44.7 55.3
Vladimir Oblast 1.3 98.7 4.3 95.7 19.1 80.9 25.0 75.0
Ivanovo Oblast 0.6 99.4 8.1 91.9 31.2 68.8 26.7 73.3
Tver Oblast 2.3 97.7 9.3 90.7 31.2 68.8 39.8 60.2
Kaluga Oblast 4.9 95.1 18.8 81.2 40.6 59.4 32.4 67.6
Kostroma Oblast 21.0 79.0 11.4 88.6 30.4 69.6 30.8 69.2
Moscow Oblast 5.5 94.5 11.9 88.1 14.9 85.1 19.0 81.0
Oryol Oblast 49.6 50.4 20.7 79.3 37.2 62.8 36.2 63.8
Ryazan Oblast 15.8 84.2 13.4 86.6 30.1 69.9 41.1 58.9
Smolensk Oblast 7.1 92.9 16.9 83.1 32.4 67.6 23.4 76.6
Tula Oblast 5.1 94.9 8.3 91.7 26.4 73.6 24.0 76.0
Volga-Vyatka
Yaroslavl Oblast 2.2 97.8 12.4 87.6 31.8 68.2 26.6 73.4
Republic of Mari El 7.9 92.1 25.0 75.0 40.4 59.6 30.9 69.1
Republic of Mordovia 22.7 77.3 15.7 84.3 39.8 60.2 32.4 67.6
Chuvash Republic 9.3 90.7 10.0 90.0 34.8 65.2 21.9 78.1
Nizhny Novgorod Oblast 3.3 96.7 14.1 85.9 18.1 81.9 10.4 89.6
Kirov Oblast 7.4 92.6 7.0 93.0 20.5 79.5 28.0 72.0
Center-Black Soil
Belgorod Oblast 14.3 85.7 19.5 80.5 31.2 68.8 38.9 61.1
Voronezh Oblast 7.3 92.7 10.9 89.1 22.8 77.2 27.3 72.7
Kursk Oblast 10.3 89.7 12.6 87.4 63.6 36.4 43.4 56.6
Lipetsk Oblast 2.5 97.5 9.3 90.7 29.0 71.0 33.7 66.3
Tambov Oblast 1.3 98.7 9.6 90.4 28.2 71.8 40.2 59.8
Volga River Basin
Republic of Kalmykia 50.2 49.8 10.6 89.4 33.1 66.9 77.2 22.8
Republic of Tatarstan 13.9 86.1 9.2 90.8 44.3 55.7 28.2 71.8
Astrakhan Oblast 10.2 89.8 18.2 81.8 45.1 54.9 34.4 65.6
Volgograd Oblast 6.0 94.0 13.5 86.5 30.8 69.2 16.8 83.2
Samara Oblast 3.3 96.7 40.6 59.4 28.8 71.2 75.9 24.1
Penza Oblast 16.2 83.8 44.1 55.9 56.9 43.1 55.7 44.3
Saratov Oblast 5.6 94.4 14.9 85.1 38.2 61.8 29.7 70.3
Ulianovsk Oblast 20.4 79.6 26.3 73.7 55.0 45.0 50.5 49.5
North Caucauses
Republic of Dagestan 21.7 78.3 14.9 85.1 35.1 64.9 81.0 19.0
Kabarda-Balkar Republic 53.5 46.5 24.7 75.3 40.8 59.2 40.6 59.4

64
 HEALTH CARE
HOUSING AND CULTURE AND
EDUCATION AND PHYSICAL
UTILITIES ART
Region FITNESS
% % % % % % % %
regional local regional local regional local regional local
Republic North Osetia 11.9 88.1 19.8 80.2 72.9 27.1 54.3 45.7
Ingush Republic 87.9 12.1 46.6 53.4 56.4 43.6 68.3 31.7
Krasnodar Krai 11.0 89.0 7.9 92.1 23.3 76.7 23.2 76.8
Stavropol Krai 35.6 64.4 15.3 84.7 23.1 76.9 24.3 75.7
Rostov Oblast 2.3 97.7 8.3 91.7 62.9 37.1 34.5 65.5
Republic of Adygeya 11.9 88.1 28.6 71.4 51.8 48.2 42.6 57.4
Karachai-Circassian 34.1 65.9 10.5 89.5 31.2 68.8 41.5 58.5
Republic
Urals
Republic of 50.4 49.6 26.2 73.8 58.8 41.2 38.0 62.0
Bashkortostan
Udmurt Republic 9.0 91.0 9.7 90.3 22.9 77.1 28.1 71.9
Kurgan Oblast 5.1 94.9 17.1 82.9 23.5 76.5 34.1 65.9
Orenburg Oblast 37.7 62.3 45.0 55.0 60.4 39.6 56.2 43.8
Perm Oblast 2.6 97.4 9.6 90.4 29.1 70.9 26.1 73.9
Sverdlovsk Oblast 2.0 98.0 19.0 81.0 29.6 70.4 44.6 55.4
Chelyabinsk Oblast 5.2 94.8 12.8 87.2 29.2 70.8 16.8 83.2
Komi-Perm AO 8.3 91.7 11.1 88.9 27.8 72.2 45.7 54.3
West Siberia
Altai Krai 5.9 94.1 8.9 91.1 26.1 73.9 21.7 78.3
Republic of Altai 30.3 69.7 21.8 78.2 24.0 76.0 55.7 44.3
Kemerovo Oblast 2.3 97.7 11.9 88.1 17.0 83.0 18.3 81.7
Novosibirsk Oblast 0.0 100.0 6.9 93.1 49.8 50.2 27.0 73.0
Omsk Oblast 32.9 67.1 42.1 57.9 61.1 38.9 46.3 53.7
Tomsk Oblast 3.9 96.1 19.5 80.5 30.9 69.1 39.5 60.5
Tyumen Oblast 19.3 80.7 19.9 80.1 50.7 49.3 62.1 37.9
Khanty-Mansi AO 12.1 87.9 9.5 90.5 8.6 91.4 14.2 85.8
Yamal-Nenets AO 1.5 98.5 13.8 86.2 21.8 78.2 34.6 65.4
East Siberia
Republic of Buryatia 3.9 96.1 9.0 91.0 39.3 60.7 37.7 62.3
Republic of Tyva 13.9 86.1 11.6 88.4 33.7 66.3 46.1 53.9
Republic of Khakassia 10.8 89.2 13.2 86.8 26.5 73.5 29.7 70.3
Krasnoyarsk Krai 5.3 94.7 8.3 91.7 25.6 74.4 17.1 82.9
Irkutsk Oblast 3.4 96.6 6.5 93.5 63.6 36.4 19.0 81.0
Chita Oblast 3.9 96.1 17.1 82.9 37.7 62.3 44.1 55.9
Aginsk-Buryat AO 17.2 82.8 12.7 87.3 67.4 32.6 90.2 9.8
Tajmyr AO 77.1 22.9 16.2 83.8 20.2 79.8 78.2 21.8
Ust-Orda Buryat AO 66.4 33.6 7.9 92.1 14.6 85.4 38.4 61.6
Evenk AO 6.3 93.7 27.4 72.6 50.7 49.3 60.4 39.6
Far East
Republic of Sakha 9.4 90.6 23.5 76.5 49.7 50.3 42.5 57.5
Primorski Krai 1.4 98.6 11.3 88.7 18.4 81.6 36.2 63.8
Khabarovsk Krai 25.5 74.5 8.4 91.6 32.6 67.4 33.8 66.2
Amur Oblast 0.0 100.0 23.3 76.7 14.0 86.0 32.9 67.1
Kamchatka Oblast 4.5 95.5 11.4 88.6 27.8 72.2 26.1 73.9
Magadan Oblast 6.2 93.8 8.9 91.1 36.4 63.6 38.6 61.4
Sakhalin Oblast 5.4 94.6 6.4 93.6 38.0 62.0 25.0 75.0
Jewish AO 9.7 90.3 11.8 88.2 17.5 82.5 76.6 23.4
Koryak AO 8.6 91.4 15.9 84.1 25.6 74.4 18.7 81.3
Chukotka AO 7.4 92.6 7.6 92.4 17.4 82.6 37.1 62.9
Kaliningrad Oblast 4.8 95.2 5.7 94.3 36.9 63.1 31.6 68.4
Source: authors’ calculations based on RF Ministry of Finance data.

65
 Table 10. Federal, regional and local shares in total budget expenditures, 1999*
Consolidated Federal government Local government
Subject of Federation
government expenditures as expenditures as
government expenditures
Year expenditures as percentage of percentage of
as percentage of
percentage of consolidated consolidated
consolidated expenditures
GDP expenditures expenditures
1997 32.5 44.6 23.8 31.7
1998 27.9 45.9 24.2 29.8
1999 27.7 48.0 24.5 27.5
* In Russia social insurance, unemployment, medical insurance funds are separate funds and are not incuded in budgets of any
level and are therefore not covered in this table
Source: authors’ calculations based on RF Ministry of Finance data.

Table 11. Composition of local government revenues in the Russian Federation, 1999
RUR
Revenue sources %
bln
Total Local Revenues (1+2+3+4+5) 346.3 100.0
of which:
1. Tax Revenues 245.9 71.1
1.1 - local taxes and fees 45.5 13.1
1.2 - permanently assigned shared taxes and fees1 47.4 13.7
1.3 - shared taxes at rates changed annually 153.0 44.2
2. Non-tax Revenues 12.4 3.6
3. Revenues of Earmarked Budgetary Funds 2.6 0.7
4. Intergovernmental Grants 84.0 24.3
4.1 - subsidies and transfers 54.2 15.7
4.2 - subventions 9.4 2.7
4.3 - other 20.4 5.9
5. Other Grants2 1.4 0.4
1
Tax revenues assigned to localities on a permanent basis under the Federal Law on Foundations of the Tax System
in the Russian Federation.
2
Grants from state extrabudgetary funds and public organisations
Source: authors’ calculations based on RF Ministry of Finance data.

Table 12. Local Government Revenues, 1997-1999

Shared taxes at rates
Own local tax revenues1,
Year changed annually and
%
grants2, %
1997 25.1 74.9
1998 30.3 69.7
1999 31.1 68.9
1
Own local tax revenues include local taxes and fees, permanently assigned shared taxes and fees, non-tax revenues and
revenues of earmarked budgetary funds.
2
Grants include intergovernmental grants and grants from state extrabudgetary funds and public organisations.
Source: authors’ calculations based on RF Ministry of Finance data.

66
 Table 13. Composition of local expenditures by function and type of settlement,
1998 and 1999.
1998 1999
Share of Share of
Function Rural function in total function in total
Cities Raions Towns Townships
districts subregional subregional
spending spending *
Public government 3.9 7.2 4.5 6.8 12.1 5.3 5.7
Law enforcement, public order 1.6 1.2 1.5 0.5 0.2 1.4 1.5
Industry, energy, construction 1.4 1.6 0.4 0.5 0.2 1.4 1.4
Agriculture and fishing 0.8 5.3 0.4 0.4 1.1 2.1 1.8
Public transport roads, 4.9 1.1 1.2 0.4 0.1 3.4 3.1
telecommunications
Housing and utilities 34.3 23.5 37.0 28.1 10.4 29.9 27.1
Education 24.3 28.9 35.8 45.5 56.6 27.8 27.8
Culture and art 1.6 3.0 1.4 2.5 8.1 2.3 2.5
Health care and physical fitness 15.6 14.6 10.7 9.9 8.8 14.8 15.6
Welfare 5.4 7.4 3.1 1.7 1.7 5.7 5.4
Other expenditures 6.4 6.0 3.9 3.9 0.8 5.9 4.2
Total expenditures 100.0 100.0 100.0 100.0 100.0 100.0 100.0

* Only aggregated data for all local governments are available for 1999.
Source: authors’ calculations based on RF Ministry of Finance data.

67
 Table 14. Own revenue sources of local governments in 2000
Tax Tax imposed Tax Base set by: Tax Rate set by: Payments accrue
by: to:
a)Personal property tax* Federal Federal Regional and local Local budget
Government Government authorities
for the entire
RF
b) Land tax* Federal Federal Regional and local Shared among
Government Government authorities federal, regional
for the entire and local
RF governments in
proportion of
30 : 20 : 50
c) Registration fee on Federal Regional and Regional and local Local budget
individuals engaged in government local authorities authorities
entrepreneurial activities for the entire
RF
d) Tax on construction of Local Local authorities Local authorities Local budget
manufacturing facilities in authorities
health resort areas****
e) Health resort fee Local Local authorities Local authorities Local budget
authorities
f) Fee for the right to engage Local Local authorities Local authorities Local budget
in trade** authorities
g) special purpose fees on Local Federal Local authorities within Local budget
individuals and businesses authorities Government (12 federal limits (0 - 3%)
for support of the police minimum
service, improvements of monthly wages)
territories, education and
other purposes
h) Advertisement tax Local Federal Local authorities within Local budget
authorities Government (cost federal limits (0 - 5%)
of services)
i) Tax on resale of motor Local Federal Local authorities within Local budget
vehicles, hardware and authorities Government federal limits (0 - 10%)
personal computers** (transaction
amount)
j) Charge on dog owners** Local Federal Local authorities within Local budget
authorities Government federal limits (0 - 14%
(minimum per annum)
monthly wage)
k) License fee for the right to Local Federal Federal Government Local budget
trade in wine and vodka authorities Government (2500 - 5000% per day
products** (minimum of trade)
monthly wage)
l) License fee for the right to Local Federal Local authorities within Local budget
hold local auctions and authorities Government federal limits (0 - 10%)
lotteries** (value of goods
put up for an
auction or an
issue amount of
lottery tickets)

* According to the General Part of the Tax Code, as soon as representative branches of regional governments put into effect
Immovable Property Tax in their jurisdictions, taxes referred to in a) and b) will cease to be levied.
** Pursuant to Federal Law No. 150 of July 31, 1998 as soon as representative branches of regional governments put into
effect Sales Tax in their jurisdictions, taxes referred to in d), f), i), j), k), l), m), n), o), p), q), r), s), t), u), v) will cease to be
levied

68
 Tax Tax imposed Tax Base set by: Tax Rate set by: Payments accrue
by: to:
m) Fee for issuance of an Local Federal Federal Government (0 - Local budget
authorization to a municipal authorities Government 75%)
apartment** (minimum
monthly wages)
n) Fee for parking of motor Local Local authorities Local authorities Local budget
vehicles** authorities
o) Fee for the right to use Local Federal Local authorities within Local budget
local symbols** authorities Government federal limits (0 - 0.5%)
(value of sold
products)
p) Racecourse participation Local Local authorities Local authorities Local budget
fee** authorities
q) Racecourse prize fee** Local Federal Local authorities within Local budget
authorities Government federal limits (0 - 5%)
(prize amount)
r) Charge on individuals Local Federal Local authorities within Local budget
participating in racecourse authorities Government federal limits (0 - 5%)
totalizators** (payment for
participation in
the game)
s) Fee on exchange Local Federal Local authorities within Local budget
transactions ** authorities Government federal limits (0 - 1%)
(transaction
amount)
t) Fee for the right to shoot Local Local authorities Local authorities Local budget
movies and TV films ** authorities
u) Fee for street cleaning** Local Local authorities Local authorities Local budget
authorities
v) Fee for setting up Local Local authorities Local authorities Local budget
gambling business** authorities
w) Housing and social Local Federal Local authorities within Local budget
infrastructure maintenance authorities Government federal limits (0 - 1.5%)
fee** (volume of sales)

69
References

Alekseyev, О., Trunov, S., Lapshev P., On Intergovernmental Relations And The Budget Process In The
Subjects Of The Russian Federation And Municipalities: Administrative Aspect. In: Local Government
Reform in the Regional Projection, Ryzhenkov, S., Vinnik, N. (eds), Moskovsky Obshestvenny Nauchny
Fond Publishing House, «Library of a municipal employee» series, Moscow, 1999 (in Russian).
Gilchenko, L.V. (ed.), Council for Local Self-Governance in the Russian Federation: Session Reports and
Official Documents. Council for Local Self-governance. Moskovsky Obshestvenny Nauchny Fond
Publishing House, «Library of a municipal employee» series, Moscow, 1999 (in Russian)
Grushin, D., Ethnicities And Local Government, in: Local Government Reform in the Regional Projection,
Ryzhenkov, S., Vinnik, N. (eds), Moskovsky Obshestvenny Nauchny Fond Publishing House, «Library
of a municipal employee» series, Moscow, 1999 (in Russian).
Interim Methodological Recommendations on Regulating Intergovernmental Relations in the Regions of the
Russian Federation, Ministry of Finance of the Russian Federation, Moscow, 2000 (in Russian)
http://minfin.park.ru/fvr
Kourliandskaya, G., Budgetary Pluralism Of Governments In Russia, publication of Institute of Economy in
Transition, 2000 (in Russian) http://www.iet.ru/publics/publics_r.htm
Forming local self-governance in the Russian Federation, Goskomstat, Moscow, 2000 (in Russian)
Kourliandskaya, G., Nikolayenko, Ye., Reform of Intergovernmental Relations in the Subjects of the Russian
Federation, Moscow, 2000 (in Russian) http://www.fpcenter.org/wp.html
Leksin, V., Shvetsov, A., Municipal Russia: Social and Economic Situation, Law, Statistics, Editorial URSS,
2000 (in Russian)
Luhterhandt-Mikhalyova, G., Political Parties in the Regions and at the Municipal Level, in: Local Government
Reform in the Regional Projection, Ryzhenkov, S., Vinnik, N. (eds), Moskovsky Obshestvenny Nauchny
Fond Publishing House, «Library of a municipal employee» series, Moscow, 1999 (in Russian)
Mitrokhin, S., Implementation Of The Municipal Project In Russia: Some Aspects Of The Federal Policy, in:
Local Government Reform in the Regional Projection, Ryzhenkov, S., Vinnik, N. (eds), Moskovsky
Obshestvenny Nauchny Fond Publishing House, «Library of a municipal employee» series, Moscow,
1999 (in Russian)
Morozikhin, S.I., Morozikhin D.S., Self-Governed Village. Moscow, Municipal Government Publishing House,
1999 (in Russian)
Municipal Economic Growth: Development Programs In Nizhny Novgorod, Saratov, Yaroslavl, Urban
Economy Foundation, Moscow, 1999 (in Russian)
On the status of local self-government in the Russian Federation, an unpublished memo prepared for the board
meeting of the Ministry for Federal Affairs, Ethnic and Migration Policies of the Russian Federation,
May 16, 2000.
Ovchinninkov, B., Municipal Elections: Tendencies And Patterns, in: Local Government Reform in the
Regional Projection, Ryzhenkov, S., Vinnik, N. (eds), Moskovsky Obshestvenny Nauchny Fond
Publishing House, «Library of a municipal employee» series, Moscow, 1999 (in Russian)
Pashentsev, V., Organization Of Local Government In Russian Regions, in: Local Government Reform in the
Regional Projection, Ryzhenkov, S., Vinnik, N. (eds), Moskovsky Obshestvenny Nauchny Fond
Publishing House, «Library of a municipal employee» series, Moscow, 1999 (in Russian)
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Postovoy, N., Municipal Law in Russia: Questions and Answers, Jurisprudence Publishing House, Moscow,
2000 (in Russian)

70
Regions of Russia: Statistical Yearbook, Goskomstat, Moscow, 2000 (in Russian)
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Economic Modernisation for the years 2000-2001, Center of Strategic Research Foundation, Moscow,
2000 (in English) http://www.csr.ru/english/action.html
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In The Development Of Local Government, in: "Local Government as Seen by Municipal Officials: A
Survey, Moskovsky Obshestvenny Nauchny Fond Publishing House, «Library of a municipal employee»
series, Moscow, 2000 (in Russian)
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Moscow, 1999 (in Russian)
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Aspect, in: Local Government Reform in the Regional Projection, Ryzhenkov, S., Vinnik, N. (eds),
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71
 Contacts for further information on Local Government in Russia

Office of the President of the Russian Federation

Department of Regional and Local Policies
Address: 4, Staraya Ploshad, 103132, Moscow, Russia
Phone: (7 095) 206 48 48
Fax: (7 095) 206 20 30

Ministry of Finance of the Russian Federation

Address: 9, Iliynka, 103097, Moscow, Russia
www: http://minfin.park.ru/IspSub/budj_exec.htm (Budget Execution Reports)

Ministry of Ethnicities and Migration Policy of the Russian Federation

Address: 19, Trubnikovskiy per., 121819, Moscow, Russia
Phone: (7 095) 203 10 88
Fax: (7 095) 202 44 90

Congress of Municipalities of the Russian Federation

Address: 21, Novy Arbat, 20 floor, 129090, Moscow, Russia
Phone: (7 095) 203 97 12, (7 095) 291 36 23
Fax: (7 095) 291 36 21
E-mail: komo@kmo.ru
www: http://www.kmo.ru/

Union of Russian Cities, Center for International Cooperation

Address: 22, Schepkina Str., Office 16, Moscow, 129090, Russia
Phone/ Fax: (7 095) 281-2379
E-mail: centre@urc.ru
www: http://www.urc.ru/sections/int_eng.htm

Center for Fiscal Policy

Address: 11a, Novinskiy boulevard, 121099, Moscow, Russia
Phone: (7 095) 777-6582, (7 095) 205-3536
Fax: (7 095) 777-6583
E-mail: fpcenter@fpcenter.org
www: http://www.fpcenter.org

72

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