2009 is the year of municipal elections. The citizens of country should elect local self-governments for the third time. Due to objective and subjective reasons, in general Azerbaijani municipalities have not been able to realize themselves. Some attempts in the legislation to strengthen their authority, increase the responsibility did not yield any results. Therefore, searches are made for ways that would lead to the revitalization of the local governments.
The municipalities in Azerbaijan were established before country's entrance to the Council of Europe as a condition of membership. Totally 2,757 municipalities were established in various cities and regions of the republic and the first elections were held in 1999.
Let us look for what reasons the local authorities in Azerbaijan have been unable for a period of ten years of their existence to take a position in the country like their colleagues in Europe and some neighboring countries.
Budget of municipalities
The percentage of local revenues in the 2009 Public budget is very small (3.9 percent). According to the National Budget Group (NBG), the share of local revenues in the 2009 Public budget increased 53.8 percent or 167.6 million manat (about $207 million) compared to the previous year. Some 25.3 million manat ($31.2 million) of this growth will be achieved at the expense of Baku city. Thus, with the exception of the capital forecasts for the growth, the local revenues are projected at 142.3 million manat ($176 million).
Taking into consideration the growth of regional wages of workers of budgetary organizations, as well as tax payments within in the regional budget investment projects (primarily income taxes of physical entities, simplified tax and VAT), it is possible to say that the share of private sector in the growth of local revenues is small.
According to the Center for Economic Studies (CER), the total budget of the municipalities in Azerbaijan does not exceed 50 million manat, which is not more than 0.5 percent of the Public budget. However, in most transition countries, including the CIS, the share of local budgets in the structure of public budgets makes 10-15 percent.
For example, in 2008 the total revenues of local governments amounted to 43.077 million manat, which is 14 percent lower than the previous year. Nearly half of this amount (44 percent) accounts for the municipalities of Baku and Absheron Peninsula (Sumgait and Absheron region), where every municipality has earned averagely 275,000 manat. Nearly 15.5 million manats falls on 2,626 town and rural municipalities located in the regions of the country, i.e., 6,000 manat per each.
A significant share - 73.2 percent in the budgets of local governments accounts for non-tax revenues. Last year, sales of lands and properties remained the key source of revenue. In 2008, municipalities earned 14.4 million manats on this. State grants in 2008 amounted to 3.43 million manat. Municipalities received only 4,300 manats from international organizations.
With regards to the expenditure, of 47.528 million, 16.7 million manat or 35 percent was spent on the maintenance of municipalities. 21 million manat was spent to repair local roads and reconstruction of territories.
The financial weakness - taxes
Most of the municipalities in the country (due to limited local tax base) have a problem with the collection of local taxes. As known, municipalities are allowed to collect tax, property tax from physical entities, tax on production of local building materials (sand, gravel) and profit tax of municipal enterprises. The only non-replaceable source of revenue for municipal budgets in the country is the land tax, other charges may be collected, not all local governments.
For example, according to the Center for Economic Studies, only 7 municipalities of all existing local governments can collect tax revenue in Azerbaijan. Only 39 municipalities collect tax, not more than 244 - property tax from physical entities, 14 can earn money for advertising on their territory, about 12 - fee for the spa activities.
This dissociation in the collection of taxes is connected with the same objective and subjective factors. In the first case, the territorial division of municipalities plays a role, such as the absence or presence of industrial activities taxable in the territory of the municipalities. The subjective factor is the interference of local executive power in the collection of taxes. Thus, in some regions the Ministry of Ecology and Natural Resources do not allow municipalities to collect tax for the production of local construction materials, arguing that issue is in the disposal of the State.
Also there is a problem with municipal property taxation. According to the law, property tax on real estate can be collected only on the basis of inventory value of the facility determined by the State Real Estate Registry Service. The Service should indicate the inventory value of real estate in the documents confirming the right on property. But, in fact, in most cases, the documents do not indicate such a value, or the amount is determined at a level that is not subject to tax (under the Tax Code, property with a cost less than 5,000 manats is not taxable).
The taxes on land from physical entities form only 14 percent of the revenues of municipalities, the tax on property is only 1.9 percent (data from the State Real Estate Registry Service). If the municipalities would exercise their authority to collect taxes, their financial capacity will grow, which in turn will use these funds for the development of municipalities, solution of their problems.
Municipal taxes come to the municipality and should be spent for the improvement of subordinated territories and environment of citizens of the zone.
Financial weakness - state subsidy
State aid is allocated to municipalities in accordance with bases of financing municipalities. In particular, Article 8 of the law establishes that the executive power can allocate targeted transfer, or subvention to aid the municipalities. Ceiling of aid is defined by number of residents in the area of the given municipality, significance of the area in the formation of country's financial reserves and other factors. The government allocates subsidy to cover the expenses of municipality which it cannot repay.
However, the country does not have an experience of allotting subventions to local authorities (unpaid public budget targeted financing). Another form of public budget financing - subsidy, is allocated on the basis of a mechanism, which does not meet need of the municipalities. The government assigns financial aid to municipalities, based on the number of population. But it cannot be a sufficient to define sum of aid.
The Azerbaijani Finance Ministry occupies a very careful position in allotting subsidy to municipalities from the public budget. Many municipalities have serious problems in financial activities and it can be well seen from their financial reports, according to officials of the ministry. Therefore, the ministry carefully approaches increase of budget subsidy to municipalities. "Municipalities are based on self-financing and all their problems cannot be solved through the budget. We hold information about taxes collected to the municipal budgets. But we have no opportunity to control over use of revenues by municipalities," the ministry says. Only the municipalities, presenting reports on the ministry about the goals of appealing for budget funds and their use, can hope to receive public budget subsidy.
In 2009 amount of budget subsidy for municipalities will remain in the level of 2008 - 3.5 million manat, comprising 0.03 percent of the pubic budget.
Public budget transfer for municipalities comprises 65 percent of the budget in Italy, 55 percent in Germany, 81 percent in Estonia, 13 percent in Sweden. Some countries even have laws, establishing minimal level of state aid to municipalities. The government cannot allocate less than 4 percent of the public budget in Armenia. However, Laws on budget system and on Bases of financing municipalities do not contain such provisions.
"Financing municipalities is not an obligation of the government, but more probably goodwill," the Azerbaijani Finance Ministry said. Subsidizing has begun since introducing self-government bodies in the country. Since 2000 the municipalities have received 26.4 million manat in financial aid from the public budget. The government does not dictate the municipalities the terms of using aid, but only demands to spent money rationally and fairly. At the same time, the government retains a right to control over use of aid by the municipalities.
Financial weakness - external borrowing
The country has not developed the system of external financial borrowing for self-governments. According to the Center for Economic Studies, yet no municipality in Azerbaijan has been able to obtain loan funds from commercial banks for implementation of infrastructure projects. The reason is the limited financial resources of municipalities, because of which the banks do not give them credit. In most cases, banks offer loans to municipalities on commercial terms, but it should be noted that the municipality is not a commercial institution, so they can only borrow funds at preferential terms.
Weakness of authorities - intersection of interests
On the one hand, authorities of the municipalities are restricted. Some rights and obligations of local executive authorities and self-government bodies frequently intersect causing dissatisfaction of the latter on the other. In accordance with the European Charter, authorities of the municipalities should be exclusive. So, other executive bodies should not be granted with the same authorities.
One of major problems of the municipalities is linked with the legislation. Documents specifying status of local self-government bodies, in particular, law on Status of municipalities, do not put authorities of these organizations as their prerogative. Majority of them coincide with the functions of local executive bodies, especially in term of solving socio-economic and ecological problems.
Presently, local executive bodies or regional representations of different state bodies are dealing with all important problems existing in places, settlements and villages, ranging from recruitment and issue of reference to land improvement. An only function, fully or exclusively assigned to municipalities, is the content of roads of local significance, fixed in the law on Automobile roads and law on status of municipalities.
Weakness of authorities - status and property
Another important problem concerns status of municipalities, which is yet to be defined. They are not known as local authorities. The population accepts them as a non-governmental organization. Analysis of situation in this sphere in East Europe and Baltic countries shows the government transfers its authorities in the spheres of local economic administering, ecology, and culture to self-government bodies. In other words, all local issues are efficiently solved by municipal bodies funded by the government.
On the other hand, municipalities are still to be provided with appropriate administrative property. The legislation envisages providing municipalities with definite property, though this requirement remains unfulfilled. The Cabinet of Ministers determined a list of public property to be given to the municipalities in a decree issued in June, 2002. However, only 92 facilities have been given to local self-government bodies, so far. In fact only 62 of existing 2,757 municipalities could receive the public property allocated for them. The majority of local self-government bodies do not have administrative building even. The municipalities have poor computerization - only 1 percent.