Decentralization, progress, risks and role of the Ukrainian Parliament

For foreign experts and CSI followers.
Present interview of Mr. Anatoliy Tkachuk published in “Dzerkalo Tyzhnia” (Дзеркало тижня – Зеркало Недели) dated January 13, 2017.

On 1 April 2014, the new Government installed after the Revolution of Dignity adopted the Concept for the Reform of Local Self-Government and Territorial Set-Up of Power (by government decision No 333) that kick-started the reform that is crucial for Ukraine and better known as decentralization reform.
This was already the third attempt to embark on the much needed reform, following the first phase of revolutionary transformation of governance that took place back in 1990s when Ukraine adopted its first law on local councils, local and regional self-government.
The later attempts of 2005 and 2009 did not eventually prove to be successful. A policy framework for the reform and related draft law on administrative and territorial set-up in Ukraine drafted in 2005 were shelved somewhere in the Prime Minister’s office. The Deputy Prime Minister, who lead on the reform preparation but had no institutional capacity whatsoever to deliver, lost his office, and thus the reform was forgotten until 2008.
In 2008-2009, the established Ministry for Regional Development and Construction was quite earnest about setting out to prepare the reform, and eventually, on 29 July 2009, the Government approved the Concept for Local Self-Government Reform (by government decision No 900). But then something strange happened with its publication – the executive order appeared on the Government website, but without the text of the Concept as such.
Further on, things were even going from bad to worse. While the draft of 2005 got lost somewhere in the Prime Minister’s drawer, the document of 2009 disappeared in the maze of the Cabinet’s Secretariat. This, however, did not prevent the Ministry for Regional Development from furthering its work by preparing an implementation plan and a series of framework documents on building a system of re-training and in-service training of staff for local self-governments, development and implementation of regional policy as well as draft laws derived from these conceptual papers.
The period of 2010-2013 saw the setback in the reform efforts. The new Government cancelled the decision of its predecessor on the approved concept and related implementation plan, and the guiding documents setting forth the Government’s actions for 2010-2013 in terms of building a system of training, re-training and in-service training of staff for local self-governments were simply ignored.
Thus, at the onset of 2014 Ukraine was officially a very centralized country, but in reality it was very regionalized, with weak local governments and stark regional differences. The formal rigid vertical of the executive power embodied by local state administrations was a political vertical, and heads of local administrations were expressing the interests of regional elites rather than those of the state.
This explains the fact that in the turbulent days of February and March of 2014 the heads of local administrations took very different stands. Moreover, the Chair of the Crimean Council of Ministers, Head of Sevastopol Local Administration as well as Heads of Donetsk and Luhansk Regional Administrations were not just incapable of keeping the situation under control, but to a certain extent instigated separatist actions. During 25 years of Ukraine’s independence, the country has not managed to create a common, truly Ukrainian space across its entire sovereign territory and thus its regional diversity was used to weaken the country rather than strengthen Ukraine’s competitiveness.
With such legacy and context, it seemed that Russia’s aggression would be totally destructive for Ukraine and we had nothing to oppose this destruction.
However, in 2014 the Government took a series of steps that in the war context could appears as counter-intuitive and dangerous for the very existence of the state: it announced a broad decentralization of power and building of a new regional policy based on the European traditions and partnership between the state, regions and communities in regional development.
In fact, the period of 2014-2015 was the rapid launch of decentralization and regional policy reform. The sceptics used to joke: “The reform was announced on April 1. Do you really believe that this is serious?”

First accomplishments
In 2014-2015, the essential legal framework underlying voluntary amalgamation was approved, inter-budgetary relations were reformed, decentralization was implemented in the areas of construction oversight and administrative service delivery, the legislation on regional policy was developed, including the funding of regional development that is based not on lobbyism and loyalty to the ruling party, but on formula, approaches and best practices of the European Union.
It took less than six months in 2015 to create 159 amalgamated communities, followed by 198 more in 2016, thus at the beginning of 2017 we already have 367 amalgamated communities. It terms of the pace of voluntary consolidation of the lowest-level self-governments, Ukraine has shown very good results, admired by our European partners who, admitting honestly, got tired with the Ukrainian promises that were never eventually delivered.
As a result of budget decentralization, local self-governments considerably increased their budgets, and budgets of amalgamated communities increased several times versus simple sum of budgets of the communities that became part of a new amalgamated unit.
It looked like everything was moving forward quite successfully, and the reform is picking up. But still there are certain buts.

Reform challenges and setbacks
We are currently facing the situation that is familiar to anyone who has dealt with bringing something into life – support to the reform implementation and addressing the emergent problems.
In the reform process, it is quite normal to for some very specific problems to emerge that either were not anticipated in the planning process or arise out of political trade-offs in the adoption of legal acts, or resultant from incapacity of institutions or individual officials to work in the new environment under the new rules.
Therefore, the reform process should be accompanied by continuous monitoring of implementation, analysis of the emergent problems and identification and adoption of solutions for quick response.
In the first place, this should be the responsibility of an institution charged with reform implementation. Typically, in a country that carried out similar reforms the implementing agency was a specific ministry, and political and ideological steering and coordination of the reform was performed by a dedicated committee/commission/council chaired by Prime Minister. This body had the mandate to endorse all decisions essential for implementation in real time and to coordinate the activity of ministries and agencies to make sure that efforts in individual sectors to not tear apart the central, systemic reform.
Regretfully, Ukraine has not formed such political/ideological body. According to the distribution of responsibilities among ministries, it is the Ministry of Regional Development that should be tasked with implementation, but how this Ministry should take care of coordination among other bodies of central government remains unclear.
What is the outcome? There are multiple challenges but what is the response?

Urban amalgamated communities – how and when?
The National Strategy for Regional Development for the period up to 2020 (SRD 2020) brings forward a very sound idea of regional development – expanding the impact of cities on surrounding rural neighbourhoods. The methodology for building capable communities approved by government decision of 8 April 2015 No 214 contains a very solid provision: “6. Building of capable communities shall following the sequence below:
1) define as potential administrative centres cities of regional significance and settlements with the status of district centres and their accessibility areas.”
But in reality, cities of regional significance are excluded from the amalgamation process because of the position of the Central Election Commission that believes that establishment of an amalgamated community around a city of regional significance should be preceded by changes in the surrounding district boundaries! But in fact, there are boundaries of rural councils around a city and urban community borders on rural communities.
However, there is no one in position to influence the opinion of the Central Election Commission, and about 30 amalgamated communities established around cities of regional significance that could indeed have the best capabilities for SRD 2020 implementation in terms of expanding the positive impact of cities on surrounding rural neighbourhoods are incorporated only on paper.
This approach is very demotivating since hundreds of villages that could have improved their infrastructure and achieve better public service already in 2016 are left on the sidelines.
Several dozens more of amalgamated communities could not hold elections and lost development opportunities simply because they are established from rural councils officially located in different districts.
Because of such actions of the Central Election Commission and the way it chooses to interpret the law, hundreds of thousands of Ukrainian citizens have been unable to use the advantages offered by decentralization and their desire supported by all legally required decisions is being ignored.
How does the Government respond to this problem? It is probably not widely known that the legislative amendments offering a solution to this problem were proposed by Members of Parliament, not the Government, in the form of Draft Law No 4676 “On Amendments to some legislative acts of Ukraine concerning modalities for changing district boundaries in the process of voluntary amalgamation”. The Ukrainian Parliament voted down this piece of legislation on 6 December 2016, and the speed of its review was indeed ‘showcase’ for such a dynamic reform – the bill was registered in Parliament on 17 May and voted down on 6 December. It took seven months to consider the proposal decisive for the fate of hundreds of thousands of people who put their faith in the reform.
Having killed the Draft No 4676, Members of Parliament almost immediately, on 9 December 2016, registered a new bill – Draft Law No 5520 “On Amendments to some legislative acts of Ukraine concerning modalities of voluntary amalgamation of communities located in adjacent districts”. If its review turns out to be as ‘speedy’, we will not see any established amalgamated communities around cities of regional significance, likewise on district boundaries, in 2017. However, it is highly desirable that local elections in these long-established amalgamated communities take place in the first six months of 2017, so that from July they could live and work under budgetary relations new to rural areas.
Adoption of the law No 5520 is crucial for resolving the problems related to establishment of amalgamated communities around cities of regional significance and merging communities from adjacent districts. Its passing in the Ukrainian Parliament requires a coherent position of the Government as well as governmental and public support.

Consolidation of communities
Positive experience of amalgamated communities has influenced the views of many rural councils that used to be reluctant to merge with their neighbours, especially with urban communities. Now dozens of such rural councils turn to earlier merged communities with consolidation proposals. However, the amalgamated communities are not willing to enter into a new amalgamation process and hold new elections.
Some districts now find themselves in a strange situation: 80-90% of district population are consolidated in two or three amalgamated communities that show active growth, whereas several non-consolidated rural councils are the district ‘left-over’ with no possibility to set up a balanced network of public institutions because their finances are too meagre. This has caused allocation of additional subventions in the 2017 budget intended to balance such districts which again restrains the reform pace.
Therefore, it is essential to resolve the problem as soon as possible through introduction of a consolidation procedure that would require new elections not in the entire community but only in those rural councils that join the already established amalgamated community.
The corresponding legislative proposal – Draft Law No 4772 “On Amendments to some legislative acts of Ukraine (concerning voluntary amalgamation of communities)” – is registered in Parliament on 3 June 2016, again by Members of Parliament, not the Government. Adoption of this proposal is top priority, since it allows addressing the issues of many peripheral rural communities that initially rejected amalgamation but now face problems with financing even the activity of the council, let alone development objectives.

Expansion of the jurisdiction of local governments of amalgamated communities onto the territory of the entire community
The Concept for the Reform of Local Self-Government and Territorial Set-Up of Power stipulates expansion of the jurisdiction of local governments of amalgamated communities onto the territory of the entire community. Now amalgamated communities cover the territory of 100 to 400 sq. km, which is quite large even by the European standards. However, the local governments of amalgamated communities still have quite limited jurisdiction over its territory – they cannot perform planning for the entire territory because the system of urban planning documentation is designed in such a manner that councils of communities can commission and approve planning documentation only within settlements. Beyond settlements, design of urban planning documentation falls within the competency of district level authorities.
In 2016, this arrangement was particularly challenging for amalgamated communities that had launched infrastructure projects between settlements making up the community: they had to apply to district state administrations and district councils to commission planning documentation for the territory that belongs to the community but is located outside the settlement zone. Even such areas as amenities between settlements and sanctioning of those who damage the environment in the communities but beyond actual limits of settlements is not within the competency of amalgamated community.
Impossibility for amalgamated communities to design urban planning documentation for the entire space of the community is a serious constraint in the attempts to attract investors and manage land resources.
On 12 April 2016, Members of Parliament registered the Draft Law No 4390 “On Amending the Law of Ukraine “On Regulation of Urban Planning Activity” (extending types of urban planning documentation on local level)” introducing a new type of spatial planning documentation – a planning scheme of a territorial community. However, the line committee was able to review this proposal only towards the end of the year and decided to send it back to the drafting team for revision.
Later in the year, in October, Members of Parliament introduced yet another legislative proposal – Draft Law No 5253 “On Amendments to some legislative acts of Ukraine concerning expansion of mandate of local self-governments of communities onto the entire territory of respective rural or urban community” that extends the community’s mandate onto its territory and streamlines the system of planning documentation developed in the community. Its adoption is critical for implementation of the principle of ubiquity of local self-government, for spatial and strategic planning of development of amalgamated communities and empowering them to manage their land within the scope of their jurisdiction, both within and beyond settlements.

The 2017 Budget presenting problems for furthering of the reform
The above-mentioned emergent problems with facilitation of legislative amendments in the reform process were complemented by the new ones after adoption of the national budget for 2017. These additional challenges have the potential of not only slowing down but even derailing the reform. This became as a regretful results of political trade-offs between the Government and MPs primarily to do with the financing issues. By this we mean subventions that directly or indirectly influence the reform progress and determine the level of trust or distrust that communities vest in the Government and Parliament.
It is not a secret that such large number of newly formed amalgamated communities in 2016 was mainly due to the fact that people saw the degree of revitalization in communities that merged in 2015. The national budget subvention transferred in 2016 to local budgets for building the infrastructure of amalgamated communities (the so-called decentralization grant) stipulated by the Law “On Voluntary Amalgamation”, being an important tool for successful decentralization process, amounted to 1 billion UAH for 159 amalgamated communities and was fully allocated from the general fund of the budget. The newly merged communities constructed dozens of water supply networks, provided lighting in hundreds of rural settlements, procured substantial amount of equipment for utility companies, refurbished schools and kindergartens, and laid asphalt on dozens of kilometres of streets and roads.
In general, the Law “On Voluntary Amalgamation” stipulates a five-year term of government support to amalgamated communities and, understandably, corresponding proportional increase in the government subvention in relation to the increased number of newly established communities. This logic, derived from the legislation, was very persuasive as an argument for establishment of amalgamated communities in 2016. However, the national budget for 2017 allocates only 1.5 billion UAH for 159 amalgamated communities, of which only 0.5 billion is guaranteed allocation from the general fund.
In fact, the 2017 budget signals of a swing-back in the policy of public support to amalgamated communities, since there is no other explanation for the almost two-fold cut of the amount of decentralization grant offered for more than twice the number of communities entitled to claim the support.
At the same time, the 2017 budget stipulates a ‘political grant’ from the central budget to local budgets for activities to promote socio-economic development of certain territories that is not regulated by any basic law, with no legislated rules of allocation (indeed, it was used in different years solely for political purposes since it involves manually managed distribution, beyond any criteria, essentially decided on by MPs who choose how to use these funds at their own discretion). The total amount of this grant is 4 billion UAH, of which 1.5 billion is the guaranteed amount from the general fund of the national budget and 2.5 billion are to be allocated from the special fund. This is not a normal situation.
Funds for amalgamated communities that are allocated according to the rules and regulated by basic laws are three times less that those to be allocated manually, avoiding any rules, and channelled for PR campaigns of parliamentarians in their election districts – “I pushed this money for you!”
This is a bad signal for those who believed in the reform, because it turns out that what counts is amicability with a MP who would ‘solve’ the issue of funding rather than government guarantees out in the law.
An equally disturbing situation is with another “grant for regional consolidation of the state”, namely the State Regional Development Fund (SRDF) defined in the Law on Principles of State Regional Policy and Article 24-1 of the Budget Code. The pool of SRDF must be at least 1% of the general fund of the national budget (this year the amount should have totalled about 7.3 billion UAH). These funds are allocated on the basis of formula defined in Article 24-1 of the Budget Code and neither ministers nor MPs are in the position to influence the allocation.
SRDF should finance regional development projects derived from the regions’ development strategies that in their turn should align with the State Strategy of Regional Development of Ukraine 2020. Some of these projects are indeed the projects of amalgamated communities promoting their economic growth.
However, the 2017 budget allocation for SRDF is not 7.3 but only 3.5 billion UAH, with only 1 billion from the general fund. On top of this, two interesting (or strange) provisions have been added – the first regulates that at least 10% of funds received by a region from SRDF should finance sport facilities and energy efficiency, and the second requires that the more than half of the membership in the commission at the Ministry of Regional Development that officially reviews adequacy and eligibility of projects requesting SRDF funds and submitted by regions should be Ukrainian parliamentarians, members of the Budget Committee. The question is: why should anyone care to prepare regional development strategy, set priorities and design implementation plans, when priorities have been decided on and quotas are introduced for all regions on top government level, and MPs anyway have the final say?
These new developments appear to suggest that the plan for gradual transformation of SRDF into something like the EU structural fund only for Ukraine, using it to educate regional actors about project planning and to boost economic capacity of regions have been ruined by the 2017 budget.

Additional challenges the need to be addressed in 2017
Streamlining district set-up 
Establishment of amalgamated communities in districts strips the current districts of resource and the ultimate meaning of their existence as territorial base of district councils and district state administrations. Some districts are comprised of a single amalgamated community, but still retain both district council and district state administration, with unclear scope of mandate and no maintenance resources (especially regarding district councils). That is why in 2016 the district level was the main level governance blocking the reform. The 367 amalgamated communities established as of 1 January 2017 threaten to disintegrate dozens of districts and will inevitably lead to deeper discrepancies between leadership of amalgamated communities and district authorities. Without consolidation of districts it would be extremely difficult to balance the budget system in 2018, and generally the administrative system will lose its logic.
A new district set-up should be established in Ukraine by the end of 2017. This aim could be achieved in two ways: the fist one being systemic – via adoption of the Law on Principles of Administrative and Territorial Set-Up in Ukraine and further approval of a new district set-up; and the second one based on trade-off – phased approval of Parliamentary decisions on establishment of new districts through merger of neighbouring districts with amalgamated communities.
Establishing government oversight of decisions of local governments 
Decentralization, as it is currently being carrying out in Ukraine aiming to strengthen the base level of local self-government, namely territorial communities, is also intended to enhance unity of the national space. Direct relations between the national budget and community budgets consolidate the country. At the same time, decentralization involves the risk of adoption of unlawful decisions or even decisions that could jeopardize the state, by local authorities, especially on the regional level.
In 2016, seven regional councils adopted decisions that clearly are beyond their mandate and envisage establishment of “contractual relations in distribution of powers” between the state and the regions, which de facto means “federalization”, but in reality – disintegration of the state. Indeed, these decisions are null and void from their adoption, but they could be used for further rocking of the country’s boat.
The soonest possible implementation of part two of Article 144 of the Constitution – on establishment of procedures to cancel decisions of local governments due to their non-conformity with the Constitution or laws of Ukraine – should be on top of the agenda for the spring session of the Ukrainian Parliament.

Interim Conclusion
Despite good progress in the decentralization and regional policy reforms in 2014-2016, in 2016 the risks for their successful implementation became much more visible, especially in the second half of the year and during adoption of the 2017 budget.
It appears that responsibility for creating additional risks for successful implementation of the announced reforms lies with the Government and Parliament. The Government fell short on creating a system enabling prompt response to the emergent reform challenges and did not provide adequate facilitation of legislative proposals in Parliament, as needed for the reforms, and Parliament was sluggish to review the proposed drafts. Decisions adopted on subventions for 2017 to support amalgamated communities, development of territories and State Regional Development Funds are indeed contradictory to the concept of reforms, basic laws on voluntary amalgamation of communities and principles of state regional policy, and as such should be revisited.
The year of 2017 could become pivotal for these reforms. However, the turning could go both ways. Ukraine needs success, and the success of these reforms is just within arm’s reach: it is entirely possibly to adopt the above-mentions legislative proposals and wisely reconsider the earlier decisions concerning the 2017 budget during the first Parliamentary session in 2017 In order to avoid such problems in future, it is essential that the Government and Parliament set up a system of working dialogue on legislative support to the reform.

P.S. Currently Ukraine has all possibilities and huge resources made available by international donors to successfully complete the reform of local self-government and territorial set-up of governance. The only scarce resource is time. We either bring through rapid, effective reforms and pull out of chronic crises, or waste time and resources on mutual struggle and risk ending up as eternal losers. In the short time window we still have for reforms, we must do everything to use the available possibilities and resources. Decentralization seems to be the only reform in Ukraine that has clear ideology and has shown success of its first stage. We must not waste this success but use it as leverage for other reforms.
One key factor for our success is to adhere to the ideological framework of the reform on the highest level and to coordinate all sectoral reforms with decentralization and new regional policy that enhances unity of the state.

Anatoliy Tkachuk


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