Separating spending responsibility between various layers of Russian government

[The full text of this paper is in Russian language only.] This report analyzes the problem of the division of fiscal responsibility between the various levels of Russian government.

According to the study, a disproportionately large share of Russian governmental functions is carried out through a system of federal mandates. Under a federal mandate, a governmental function is administered at a local level, but is planned and controlled at the federal level. The function may or may not be financed from the federal budget.

According to the authors, one problem of such a system is the reduced responsibility of local officials before the voters. Another problem is that the division of responsibilities between the various levels of government often leads to conflicts.

Surveying a number of regional and local officials has shown that the causes of the majority of such conflicts include:

• the existing legislature, which does not provide a clear division of responsibilities between the various levels of local government for the execution and financing of federal acts
• the amount of obligations delegated upon the lower levels of government by the federal government that often exceeds the local government’s ability to pay
• federal governmental agencies often do not meet their own financial obligations
• there is no unified system of evaluating the cost of a warrant financed by the federal government; as a result, federal agencies tend to overestimate the cost, while local agencies underestimate it

The author then analyzed a number of legislative acts that define regulating, executing, and spending responsibilities at various levels of government. The analysis shows that:

• the budgets at all level are overloaded with obligations that can be carried out by the private sector
• legislative acts are often unconstitutional, mutually exclusive, and do not provide a clear distribution of responsibilities between federal and local branches of government
• the federal government is overloaded with regulating functions, while local governments are forced to finance many functions that are in the federal jurisdiction

The authors claim that the root of the problem lies in the tax structure of the Russian economy where over 90% of the Russian consolidated budget comes from federal tax revenues. It is then redistributed to the different regions. Under such a system regional authorities are only too happy to accept more federal mandates. Only through tax reform, the authors conclude, would all layers of Russian government be able to budget the governmental functions that they regulate.