Misbalance in Georgian Self-Governance
28 July, 2011

Self-governing bodies in Georgia suffer of misbalance and limited authority to dispose with their finances independently.

Budget monitoring of five self-governing cities of Georgia prompted Centre for Economic Problems Research (CEPR) this conclusion. CEPR has started project “Increase 2010 budget transparency and accountability of self-governing cities of Georgia through the monitoring” in June 2010 in order to ensure transparency of budgetary process and to support civil society participation in this process.

According to the CEPR monitoring, budgets of five cities duplicate key

defects of the central budget: frequent changes [that bespeaks of inaccurate planning], and non-transparency.  However the fault falls with central authority rather than local.

“There are about 13-14 changes in the budget after it is approved, but it is not a problem of self-governing bodies in fact, it is a repercussion of inaccurate planning of the central budget. It is central budget that makes frequent changes and as far as self-governing bodies financing depends on the central budget they have to reflect all the changes ultimately,” Shota Murghulia, an economic analyst with the CEPR, explained to Georgian Journal.

Endemic problem of self-governments [as the analysis of  cities made it clear] is that at average 70-80% of financing of cities is tied to the central budget, and that there is a vertical misbalance in financing of self-governments that diminishes their decision-making functions.

There are two kinds of self-governing units in Georgia: municipalities comprising a total of 64 units, and 5 self-governing cities including the capital Tbilisi, as well as its adjacent industrial city Rustavi, Kutaisi - key city in Imereti region where Georgian government plans to move parliament, Batumi and Poti – two Black Sea outlets of Georgia.

Granting of the status of a self-governing city envisages certain privileges. For example they can introduce local fees and enjoy equalization transfer formula benefits more than municipalities. In the forecast of growth of expenditures and non-financial assets redistributed between self-governing cities and municipalities cities make 72% and the remainder 28% is made by 64 municipalities.

Comparison of finances allocated to self-governing cities and municipalities during last three years makes misbalance between self-governing cities and municipalities obvious.

According to the 2008 data, approximately 57% of total revenues of self-governments were mobilized in five self-governing cities and the figure increases each year (2009 – 68%; 2010 – 72%).

The given reality counters to the declared decentralization-oriented policy of Georgia assumed against the EU community. On the other hand, it gives Georgian authority tools to manipulate with the regions during pre-election campaign.

The analysis of revenues received by the self-governing cities shows that the major revenues came to Tbilisi – 70-78% in 2008 and 2010 respectively.

Grants make 69% of 2008-2010 budgetary receipts of self-government that is an extremely high parameter and indicates at a high quality of dependence of the local budgets on the state budget. Per capita revenues received by self-governing cities in 2010 shows that Batumi [been government’s pet  project with allegedly high tourist potential] takes a leading place [by GEL 1. 305 thousand per capita] revenue that can basically be explained by the implementation of infrastructural projects during the last years. Densely populated Rustavi takes the last place [by GEL 0.203 thousand per capita]. The figure stands at GEL 0.622 thousand, GEL 0.525 thousand, and 0.313 thousand for Tbilisi, Kutaisi and Poti respectively.

Poti is leading by tax-based revenues. Irrespective it is the less populated  among five cities [Poti population equals 47700 that lags much behind other cities like Tbilisi with more than million population  and other monitored cities with population ranging between 119 500-192 500 ] the tax revenue per capita equals to GEL 0.124 thousand there. But the figure stands at GEL 0.036-0.081thousnad per capita in the four other cities.  That is largely explained by the port of Poti and the value of assets related to it.

Batumi takes lion’s share in grants. Grants received by this city per capita basis are approximately ten-fold more compared to the similar parameters of Rustavi and Poti.  Moreover, the major part of valuable property is concentrated in Tbilisi and Batumi. Approximately 45% of revenues that should be received by self-governments in 2010 as a result of planned decrease in nonfinancial assets come to five self-governing cities. The total amount of expenditures of these cities made 75% of the total amount of expenditures of all self-governments.

Irrespective the fact that Georgian law puts funding of a social sphere within the competence of the central authorities, local self-governments are still financing small-scale social programs of local importance. In 2010 Tbilisi authorities significantly interfered in the competences of the central authorities and financed additional pensions for the pensioners residing in Tbilisi. This action triggered dissatisfaction among the population of other self-governments. Situation is quite different in self-governing cities in terms of social assistance. Tbilisi spends 20-fold more per capita, than Kutaisi.

“Taking into consideration that it is the central authorities’ prerogative to solve social issues, such misbalance between self-governing cities becomes extremely unacceptable,” CEPR experts say.

Moreover, due to obscure definition of own receipts self-governments cannot claim the right to dispose with funds transferred to their budgets independently.