The reform of public investments on a regional (municipal) level

In June 2004, the Institute for the Economy in Transition started to implement the project “Reform of Public  Investments on a Regional (Municipal) Level” within the contract with the Foundation for Restructuring Enterprises and Developing Financial Institutions within the frame of the Loan of the International Bank for Reconstruction and Development “Technical Assistance to Reform of the Budget System on a Regional Level”, provided to the Russian Federation for funding the financial reform measures on a regional level. Subcomponents of this loan are also the following projects implemented by IET: “Development of Federal and Regional Legislation for Interbudgetary Relations and Subnational Finance”, “Restructuring Public Sector on a Regional (Municipal) Level”. The pilot regions are: Vologda region, Republic Chuvashia and Chelyabinsk region.

The period for implementation of the subcomponent “Reform of Public  Investments” – 16 months.

Under this project IET renders to the Client (the Ministry of Finance and the Ministry of Economic Development and Trade of the RF) consulting services in the following directions:
  • General analysis of the investment activities of the public power bodies on regional and municipal levels and in-depth analysis in regions – Project participants;
  • analysis of the experience of use of the Management by Objectives method in investment activities of regional and local bodies of power;
  • developing approaches to form a computer-aided system of forecasting-analytical models for performance evaluation of investment policy as an instrument for substantiation of the investment activities of the bodies of regional public power;
  • developing proposals to improve the use of regional and municipal investment programs;
  • developing proposals and recommendations on reforming the investment activities of regional and municipal bodies of power and drafts of regulatory, legal and methodical instructions needed for pursuing this reform;
  • developing proposals for coordination of the work of the Fund of regional development and subfederal investment programs;
  • carrying out consultative activities and developing recommendations for federal bodies of power, according to federal legislation, on issues of regulation of investment activities of the bodies of public power on regional and municipal levels;
  • organization and conducting workshops and training trips.

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Component 1
General analysis of the investment activities of the bodies of public power on regional and municipal levels and in-depth analysis in regions – Project participants

Within the frame of this component iET made an analysis of existing practice and regulation mechanisms of investment activities of the bodies of public power and local self-government on the territory of the Russian Federation’s subjects and municipal formations, including capital investments in the budget-funded organizations, public and municipal unitary enterprises, and objects of entrepreneurial activity.

In analysis of the investment activity of the bodies of pubic power in pilot regions, special attention was given to the following issues:
  • Volume and relative share of capital costs in the budgets of pilot regions;
  • variance of actual capital costs on some investment projects in pilot regions with those planned, the facts of temporary shutdown of building projects for lack of budgetary financing;
  • applied (in each pilot region) financing arrangements for investment projects and their ratios;
  • ratios of budgetary investments in commercial and non-commercial objects in pilot regions;
  • ratio of expenditures for new construction and through repairs in the overall capital outlays of the budgets of pilot regions;
  • the share of irretrievable and non-repayable forms  of financing (subventions, subsidies) in the total volume budgetary financing of commercial investment projects in pilot regions;
  • he share of investment in commercial objects, allocated on competitive and single source basis in pilot regions;
  • presence in the budgets of the pilot regions of  the Municipal Formations Development Fund and methods of funds distribution from this Fund;
  • procedures to evaluate the efficiency of commercial and non-commercial projects as precondition for carrying out budget-funded investments, and also efficiency of the applied evaluation methods in pilot regions;
  • applicable budgetary credits rates on commercial investments projects in pilot regions;
  • statistics of return of return budgetary credits on commercial investments projects in pilot regions;
  • statistics of execution of obligations on government guarantees, the share of funds which can be collected from the primary debtor into the budget as a recourse in pilot regions;
  • volumes of tax expenditures of the budgets of pilot regions aimed at indirect budgetary support of investment activity (in the form of investment tax credits, deferments and installments in payment of taxes, and tax benefits).

Also, it is planned, under the IET Project, to determine  interregional distinctions in regulation of the investment activity, reveal causes of intraregional differences in efficiency of the investment activities out of the budgetary funds, and also to analyze the external factors  having an effect on carrying out public investments (the state of federal legislation, imperfection of the system of  budget planning, accounting and reporting in the field of budgetary expenditures for capital investments).

Component 2
Analysis of the experience of use of the Management by Objectives method in investment activities of  regional and local bodies of power

Within the frame of this component IET will analyze the experience of use of the Management by Objectives method in investment activities of  regional and local bodies of power. The following issues will be considered:
  • Mechanisms of coordinating the investments out of the budgets of different level, carried out on the same territory;
  • optimization of the investment activities of regional and local government under their own target program;
  • providing integrated planning and accounting of investment expenditures, carried out by means of programs and other method;
  • ensuring consistency in investment expenditures, , carried out by means of programs and other method;
  • ensuring the unified regulation of the procedure and terms of investment regardless of the form it is made;
  • perfecting the criteria of estimating the efficiency of target program realization (including their investment component) and their monitoring procedures;
  • comparative efficiency of investment financing in regional and municipal property objects under the federal target programs and the Regional Development Fund.

Component 3
Developing approaches to form a computer-aided system of forecasting-analytical models for performance evaluation of investment policy as an instrument for substantiation of the investment activities of the bodies of regional public power

Within the frame of this component IET develops general methods to form a computer-aided system of forecasting-analytical models for performance evaluation of investment policy. Such system will be directed to solve the following tasks:
  • Forming and systematization of the list of indicators proceeding from a large number of investment projects for their further use in analysis of investment projects, identifying the sources of information of such kind, studying the accumulated international experience of creation of investment project databases, with a view to use such information in future in model constructs;
  • developing the methods of analysis of the key parameters of investment projects, including effectiveness indices;
  • forming the technique for quantitative measuring the investment climate, and forming a respective indicator (or a system of indicators);
  • developing a system of criteria allowing to rank investments by their significance (criteria of socio-economic and budgetary efficiency);
  • forming the methods of analysis of regions’ economic development, which would allow, based on analysis of the current information, to receive arguments in favor of the choice of capital investments;
  • preparing proposals for the development of regional statistics and formation of the calculation charts of  the System of National Accounts ensuring adequate analysis, including the investment situation in regions;
  • formulating the requirements and methodology for the development of the system of models oriented to comprehensive analysis of the consequences of investment decisions taken;
  •   developing proposals and the methods for preparing an intersectoral dynamic model;
  • preparing an intersectoral dynamic model containing sectoral and regional segments, budgetary, foreign trade and balance of payments’ segments.

Component 4
Developing proposals to improve the use of regional and municipal investment programs

Within the frame of this component IET must develop proposals for introducing the method carried out by means of programs, as well as those aimed at perfection of planning, financing, accounting and control of public (municipal) investments made under the investment programs.

The proposals and recommendations must be developed in the following lines:
  • Procedure for drawing up and approval of programs;
  • structure and content of program components;
  • forming investment programs, including the use of tender mechanisms for commercial and non-commercial investment projects;
  • management of regional (municipal) programs and coordination of implementation of programs of different status (federal, regional, municipal) on the territory of the Federation’s subject;
  • mechanisms and terms for funding regional programs: direct budgetary investments, forms of budgetary support of private investments (credits, guarantees) and financial aid to the budgets of municipal formations (subsidies of the development fund of municipal formations);
  • long-term (short-term) planning of program funding;
  • developing quantitative and qualitative parameters of the efficiency and effectiveness of program;
  • procedures of monitoring and control over program realization;
  • financial accounting & reporting concerning program implementation;
  • analysis of implementation of investment non-commercial projects based on the “cost and benefit” method.

Component 5

Developing proposals and recommendations on reforming the investment activities of regional and municipal bodies of power and drafts of regulatory, legal and methodical instructions needed for pursuing this reform

Within the frame of this component IET develops proposals for reforming subfederal regulatory legal base on issues of investment policy of municipal formations and Federation’s subjects, including preparation of model  regulatory legal acts on the territory of municipal formation and the Russian Federation’s subject, and also regulatory and procedural guidelines necessary for implementation of proposals prepared in the context of Component 4.

Development of proposals must be carried out with account of the western experience, and also based on analysis of Russian experience and the regulatory and legal framework of investment activity of regional and local  government.

Within this component the following is to be prepared:
  • Analytical material “Foreign Experience of Participation of Regional and Local Bodies of Power in Investment Activity and – Lessons for Russia”;
  • the concept of improving the regional (municipal) regulatory legal base of investment policy on the territory of municipal formation and the Russian Federation’s subject;
  • the RF subject’s model Law on investment activity on the territory of the RF subject, and a respective model regulatory legal act of municipal formation;
  • procedure for estimation of the effectiveness of organizing the investment process in the RF (municipal formation) subject;
  • procedure for the development of budgetary investment projects (programs) (approved in pilot regions);
  • model norms in the budgetary legislation of the RF subject, aimed at perfection of planning, accounting and control of public (municipal) capital investments;
  • model amendments to the budgetary legislation of the RF subject required for realization of major directions of reform of investment programming in the subject (relationship between the long-term planning of programs’ funding and annual planning of budget expenditures, orientation of financing to the results of program implementation);
  • drafts of the normative legal base necessary for creation and functioning of municipal formation development funds designed for the support of local budgets in the form of subsidies for the development of local public infrastructure, including the procedure of projects‘ evaluation and selection, assessment of projects’ implementation efficiency and procedure of estimation of the mechanism of regional development funds of municipal formations;
  • model agreements (contracts) for implementation of joint investment programs (projects), including between regional and municipal bodies of power;
  • methodic recommendations to the RF subjects (municipal formations) on introducing the method using programs in the investment activity, including recommendations on:
    • drawing up and composition of programs major components, including recommendations on improvement of the Model Pattern of Program for Social and Economic Development, elaborated by the Ministry of Economic Development and Trade of the Russian Federation;
    • procedure for carrying out tenders of commercial and non-commercial investment projects;
    • procedure of monitoring and control of programs’ implementation;
    • procedure of analysis of non-commercial projects (programs) and assessment of their efficiency by means of “cost and benefit” method;
  • drafts amendments to the applicable federal legislation on issues of federal investment support of municipal formations and the Federation’s subjects, and also amendments to the normative legal acts containing the procedures and methods of distribution of resources of the Regional Development Fund, including in the following directions:
    • preparing an investment projects (programs) tender;
    • tender performing, including the procedure of selection and evaluation of projects;
    • procedure for financing from the Fund of regional development (FRD) of investment programs;
    • reflection of FRD resources in budgeting and budgetary reporting;
    • monitoring and control over the course of project implementation, including evaluation of the efficiency of their realization;
    • estimating the efficiency of the Fund of regional development and the Federal target program “Reducing Differences in the Socio-Economic Development of the RF Regions (2002-2010 and until the year 2015)”.

Component 6
Developing proposals for coordination of the work of the Fund of regional development and subfederal investment programs

Within the frame of this component IET develops proposals on coordination of the Fund of regional development and regional development programs, and renders technical assistance to the Ministry of Finance and the Ministry of Economic Development and Trade of the RF for implementation of new methods of distributing resources from the Fund of regional development, projects selection through tender and carrying out monitoring of realization of the Federal target program “Reducing Differences in the Socio-Economic Development of the RF Regions (2002-2010 and until the year 2015)”.

Also, IET participates in monitoring of realization of this program in 2003–2004, and also discussion and implementation of the developed recommendations on improving the procedure for formation and distribution of the resources of the Fund of regional development.

Component 7
Consultative activities on demand of the Ministry of Finance of the RF, the Ministry of Economic Development and Trade of the RF, other federal ministries and departments, the State Duma of the RF and the Federation Council of the RF on issues of regulation of investment activities of the bodies of public power and local government

Within the frame of this component, in the period of project implementation IET must, at the request of the federal bodies of power and administration, conduct consultations and examination of the methodic and regulatory documents, developed or reviewed in these public structures with regard to reforming the investment activities of regional and local authorities.

In addition, IET is to prepare Temporary methodical recommendations on investment activities of regional and local bodies of power with a complete and ready to introduction standard normative-methodical package, including on the use of the resources of  regional funds of municipal development.

Component 8
Organization and conducting workshops and training trips.

The IET organized and carried out a training trip abroad.

The training program will touch the following aspects of economic knowledge:
  1. Introduction (reviewing the course as a whole, and major subjects to be concerned with in the process of training).
  2. Basic principles of regional economic modeling (in this section main principles, methods and approaches will be touched short-term and long-term economic modeling and forecasting; the primary purpose will be explanation of basic aspects of methodologies of regional forecasting in the context of the market economy).
  3. Estimation of consequences of taking economic decisions (this part of training program will be concentrated on the methods of use of regional economic models for measuring the effect of exogenous and endogenous factors).
  4. Global Insight (Global Insight will be considered as one of examples of operating system of models, applied on a regular basis for description of regional trends and analysis of a wide spectrum of aspects of economic policy, including investment and budgetary policy).
  5. The use of regional economic analysis relative to Russia (in this part of the course of studies the use of regional economic modeling in conditions of the RF economy will be considered).

In addition, IET will conduct the 4 seminars of which:
  1. two seminars in pilot regions will be presented as induction course (presentation and discussing the interim results of sub-project);
  2. one seminar will be conducted to teach the officers of federal, regional and local authorities the principles developed as a result of sub-project;
  3. one seminar will be summarizing (completion of sub-project and presentation of its major findings).