The Cabinet allocated money to Kyiv, but it will not save the city from the budget sequester

Kyiv may count only on patching the holes in the budget and forget about major investment projects

Photo: Konstantin Melnitskiy

Yesterday, the Cabinet of Ministers approved the procedure for granting Kyiv subventions from the national budget for fulfillment of its capital functions. The city will have a total of UAH 1.8 bn, according to the government’s resolution (at Capital’s disposal). The lion’s share of the allocated funds will be provided to education and healthcare institutions – UAH 782 mn and UAH 339 mn, respectively. The housing and utilities sector will receive UAH 94.4 mn. City authorities were allowed to use almost a quarter of the total subvention – UAH 469.3 mn – for servicing the municipal debt.

Budget swings

The capital waited for subvention at the beginning of the year. “When the budget was enacted the money was not provided. Even though there were all legal grounds for that,” says analyst at the Association of Ukrainian Cities (AUC) Oleksandr Slobozhan. In July, after introduction of changes to the national budget 2014, the aforementioned UAH 1.8 bn was included for Kyiv’s capital functions. Kyiv Mayor Vitaliy Klitschko says the subvention will help “change the difficult situation in Kyiv and start implementation of the necessary reforms”. Yesterday, having published the report on the work done during 100 days of his tenure, Klitschko illustrated the difficult situation in the city with figures. He said the budget deficit of the capital was more than 20%. In addition, the city still has not received UAH 2.8 bn from the national budget for authorities delegated by the government, such as payment of salaries for budget employees. “These are cold hard facts, but behind them stands the ability to ensure the life of the city,” quotes the mayor’s press office.

Noteworthy, the forecast for Kyiv’s revenues planned in the city budget for this year and agreed with the Ministry of Finance was clearly overestimated. Earlier, Director of the Finance Department at the Kyiv City State Administration Volodymyr Repik said that based on the results of the first half of 2014 the growth of budget revenues compared to the same period last year was UAH 59.4 mn, while the plan envisaged UAH 667.4 mn. In the first eight months of this year, as evidenced by the recent data of the KCSA, the situation has not improved much. By September 1 Kyiv collected UAH 6.7 bn, which accounts for only 48.5% of the annual plan and is by more than 9% behind the schedule for January – August. At the same time, proceeds from one of the main sources of filling of the capital’s treasury – the personal income tax (PIT) – amounted to a bit more than UAH 5.1 bn. At present, the shortage of this tax is more than UAH 645 mn, according to the reports of the KCSA. Given that Kyiv transfers 50% of the PIT to the national budget, the situation for the city is becoming more complicated. For this reason it is likely that there will be no financing for construction of a number of infrastructure facilities, including bridges and road junctions. “If we freeze construction now, later its completion will cost us much more than if the money for its completion is allocated immediately. After all, the cost of consumables is growing, thus the total estimates increase,” said Slobozhan.

Correctional techniques

The revision of Kyiv’s budget is the most probable scenario, given the trend to shortfall in tax revenues. “On the one hand, we have to revise the budget because it was approved by the previous government. On the other hand, we are currently having major issues with the budget revenues,” said Klitschko the other day commenting on the subject. In connection with nonfulfillment of the budget program the mayor even threatened with layoffs of directors of the city’s municipal enterprises. Since August the mayor’s office has confined itself to the regime of austerity. The departments of the KCSA were forbidden to buy new vehicles, cell phones, laptops and appliances. Among other things travel expenses of officials were cut. Such fiscal discipline, according to the estimates of the mayor’s office, will save nearly UAH 260 mn and attract an additional UAH 800 mn to the budget. Equity contributions for maintenance of amenities from owners of vending stalls and kiosks are another source of filling of the city treasury, which, according to the city authorities, has not been given enough attention. Adviser to the Mayor Dmytro Bilotserkovtsev says this year's the expected proceeds from them is UAH 40 – 100 mn. Experts at the KCSA say the approximate annual turnover of 15,000 kiosks in Kyiv is UAH 8 bn (close to UAH 1.8 bn of net income). However, according to officials, the budget has received only UAH 7 mn this year from the operation of such vendors. “The main problems are corruption, forgery of documents and protection of illegal outlets by law enforcement officers,” says Klitschko’s report on his 100 days in office.