Transparent Budgeting: How to Spend Community Finances Right?

Every person pays a huge amount and number of taxes throughout their life. They are subtracted from the paycheck, rent or purchase of housing and land. Entrepreneurs pay a percentage of their profit into the treasury. Every time when we buy something in a store, get a haircut in a salon, go to a private clinic or eat out, we pay taxes.

Sometimes, it can be actually hard to control what part of our money ended up in the budget. But if you calculate carefully, you’ll find out that the amount is considerable. These are the contributions that shape the national and local budgets. Thus, the citizens have every right to know how their money is being spent and to influence these processes.

“As of now, Ukraine is undergoing the process of decentralization. It means that the budgets of certain cities have quadrupled or even quintupled. If the local authorities are not transparent and accountable, corrupt officials in those areas will just have more opportunities. We should not allow this. The local communities have to insist on transparent budgeting,” says the executive director of Transparency International Ukraine Yaroslav Yurchyshyn.

The chief manager of Institute of Political Education Oleksandr Solontay believes that the budgets grow faster than the transparency of their formation does. Thus, the role of deputies, the mayor, the executive committee, municipal enterprises and institutions grows considerably.

 “A considerable progress has been achieved in the transparency of budget expenses: there are some open data, schemes and maps of expenses have been made public, procurement has been reformed. Yet, in the area of formation of local budgets and allocation of future expenses, introducing changes to the budget, making decisions on allocation of the remnants, there has been hardly any improvement. Very few local councils have a budgeting procedure, an open algorithm of calculation of expenses. Budget hearings are formal, and the decisions on allocation of finances are made behind closed doors. Neither the community, nor even the deputies themselves take part in them, yet the latter vote for the budget anyway,” asserts Solontay. That is why, in his opinion, without a clear city strategy, the money is divided among hundreds of program goals and thousands of repair works. Overall, they end up neither delivering results nor showing a clear picture for tax payers.  

A Road to City Transparency Through… the Budget

According to the rating of transparency of 100 Ukrainian cities, the transparency of the budgeting process in the country overall reaches almost 38%. This domain comes fourth in transparency after access and participation, information on the activity of local authorities and issues with human resources. The rating has been created by the analysts of Ukrainian chapter of Transparency International in collaboration with the Institute of Political Education. 13 accountability areas of city authorities have been measured.

None of the cities received the maximum number of points on budget transparency. Among the leaders, there is Vinnytsia (7.2 points) as well as Zhytomyr, Nizhyn and Chernivtsi (7 points each). For instance, what allowed Nizhyn to end up among leaders was the integration with the open budget system.

The least transparent budgeting was demonstrated by Kolomyia, Myrnohrad and Dunaivtsi – they each received zero points. It means that the cities do not submit reports on budget implementation, cost sheets of maintenance of authorities, have not approved the budgeting procedure, do not provide a list of objects of state financing for the current year and do not invite the community to participate in the budgeting process.

The capital hardly serves as an inspiring example as well – it ended up on the 63th place in the rating of transparent budgeting. For instance, Kyiv does not have a habit of publishing information on allocation of budget expense by object, does not publish detailed information on budget expenses in general (compensation, municipal services, renovation, maintenance etc.). This situation with the budget did not allow Kyiv to end up among the three most transparent cities in the rating.

Transparency Recipes

The main ingredient of transparent budgeting is personal involvement. According to the expert of Partnership For Transparent Local Budgets Mykola Orlov, most managers of local self-government institutions care about the budget being accepted and implemented, preferably without too many questions. However, the budgets tend to gain transparency in those cities where representatives of city councils really cared about the city development, and the citizens demanded the authorities to report and follow budget legislation and vocally supported socially important projects.

The expert clarified that it is necessary to demand transparency of the budgeting process at every stage, including its preparation, consideration and acceptance, implementation as well as reporting.

Preparation of the Budget

 “At this stage, the problem is a lack of guaranteed integrity of the community’s own resources. Cities send only the added numbers of increase in the revenue to Kyiv. Communities complain that giving back the money to local councils, the capital sometimes adds new authorizations or obligations, sometimes spontaneously, in the middle of the financial year. For instance, for compensation of benefits introduced by the capital. This throws planned budgets off balance and requires spending own finances on unforeseen expenses,” explains Orlov. His believes communities need guarantees for their ability to manage their own resources for the medium term, or better yet, for the entire work term of the united self-government. This will allow communities to switch from the mode of “putting out fires” to the planned, predictable format of operation. Then, it will make sense to explain development priorities and strategic directions on a broad scale, and the notion of “development budget” will finally be actually applicable.

Another problem is the existence of two parallel forms of the budget: district budget and a cost sheet of amalgamated communities. If 4/5 of the district territory have united, it means that the district administration only serves the citizens of the remaining 1/5 of the territory. Thus, the expenses for the district administration do not correspond to the provided services. Decentralization has to complete the process as soon as possible to switch from the two parallel models to one single way.

Consideration and Acceptance

According to law, a proposed budget has to be published on the city council website at least 20 days before the respective session is held. It is done to enable the community to read the document and introduce modifications. Progressive cities have already learned how to present the budgets in an understandable way, visualize the data and make it clear – after all, openness and transparency are not only about access to information, but also about how clear this information is.

Mykola Orlov remarks that city councils often violate the deadlines required by the law and announce the budget session the day before it is held. There is no debate, and the “pro-mayor majority” quickly approves the document. The idea is that the fewer people know about the vote on the budget, the better. This tendency can be observed primarily in small cities and towns where the level of awareness of the deputies and activists leaves much to be desired. Big cities, on the other hand, make it much harder to hide budget votes.

One of the positive changes, though, is the possibility to approve local budgets regardless of whether the national budget has been approved. It means that all local budgets can and must be accepted by December 25. However, some city councils find it hard to forget the old habit to stall the budget, using the excuse that “they haven’t approved it in Kyiv yet.”

Implementation

Providing citizens with regular understandable information on budget expenses helps build mutual trust of the authorities and the community. “If a street has been repaired, there should be not just a picture of the street with asphalt, but also information on the commissioner, the contractor, the cost estimate, reasons for discrepancies, time frame, before, during and after pictures,” explains Orlov.  

Reporting

This stage is much broader than a two-hour speech in front of public sector employees in the local community center. It means a timely published and understandable report on the budget with an invitation to discuss it. The report has to provide insights for the budget proposal for the following year.

To City Dwellers with Love

There are certain types of budgets that indicate the progressive nature of city councils. Even though they are not described in the legislation, they show that the community wants to develop the city and take into account the citizens’ urgent needs.

The so-called participation budget is currently quite common in Ukraine. It is a tool for community involvement in the budget allocation. It means allocating part of the finances from the city budget for civic projects. The amount is usually from 0.5 to 2% of the city budget. The citizens have to develop socially important projects and promote them in the community. The projects that receive most votes from people who live in the city receive financing.

There are a few concerns about these budgets. Firstly, in case of lack of finances in the city budget, the authorities can use the money that would otherwise go to the participation budget. Thus, this progressive tool can be invalidated. Secondly, sometimes the citizens who have developed a successful project lack the energy to see it through. Still, it is an important tool of real community involvement in budget allocation.

Another type of advanced budgeting is gender-responsive budgeting. It is rare in Ukrainian cities, which is one of the reasons why not a single city gained the maximum number of points in the transparency rating. In most cases, this budgeting is not a feminist whim – it reflects real needs of the society, as gender-responsive budgeting allows to solve a range of local problems, from development of people’s potential to health improvement.  

For instance, the research Gender-responsive Budgeting in Ukraine reports that most employees of out-of-school education are women, while the managers of these institutions are mostly men, whose salary is 16% higher. To balance the gender situation in this area, it is necessary to analyze the job market demand and carry out career guidance of girls and boys in schools and allocate respective finances in city budgets. On the other hand, most tuberculosis patients are men, which means prevention measures should be primarily directed at them. If the state allocates the same amount of money for medical aid for men and women in this area, and it is mostly women who go through medical examinations, this allocation of finances turns out inefficient.

To sum up, since local budgets are financed by tax payers, both men and women, they have every right to use public services they have paid for to the fullest.

Iryna Rybakova, Transparency International Ukraine