Detailed project description

To achieve the Project goals and solve its tasks, interrelated activities are performed concerning the following components:

1. Analysis of the materials available, existing practice, and the legal base of restructuring the public sector and budget expenditure management.
2. Analysis of the proportion and mutual influence of public and private sector in the participating regions and representative municipal formations.
3. Analysis of possible directions and approaches to introduction at the regional local level of performance budgeting (targeted planning).
4. Institutional aspects of budget execution procedures and expenditure management.
5. Development of a Concept of restructuring the government and municipal sector and enhancing the efficiency of budget expenditures at the regional and local levels; development of proposals for improvement of the legal and methodical base of management of the expenditures of regional and local budgets.
6. Assisting to participating regions in carrying out measures aimed at enhancing the efficiency of budget expenditures, development of the mechanisms of monitoring the efficiency of expenditures and restructuring the public sector, introduction of a Concept of restructuring the government and municipal sector and enhancing the efficiency of budget expenditures at the regional and local levels; development of proposals for improvement of the legal and methodical base of management of the expenditures of regional and local budgets and their introduction in the participating regions and representative municipal formations.
7. Development of the Best Practice Code in the field of management of regional and local budgets’ expenditures.
8. Development of the population polls’ system.
9. Dissemination of results, organization of training programs and holding seminars.

It should be noted that a continuous dialogue is conducted during the project implementation with the administrations of the participating regions and representative municipal formations. And as the project is implemented, the schemes of work will be specified and made more particular.

Component 1
Analysis of the materials available, existing practice, and the legal base of restructuring the public sector and budget expenditure management in the participating regions

Under this component the generalization activities are made of:

• the international experience in restructuring the public sector and budget expenditure management;
• materials of financial state diagnostics and the quality of management of regional finances in the Russian Federation’s subjects;
• sectoral reviews of budget expenses of the municipal formations and the Russian Federation’s subjects;
• other materials prepared under the Project of technical assistance to the reform of the budget system at the regional level.

The goal of this work should be:

1. identification and generalization of typical problems of planning, expenditure funding, reporting, public control over the budget operations;
2. identification of standard trends and methods of restructuring and enhancing the efficiency of local budget expenditures, grouping the restructuring avenues and raising efficiency of local budgets’ expenditures according to deadline of expected effect, cost value and effectiveness;
3. recomputation of revenue and expenditure items of the participating regions’ budgets with the account of offered (in summary reports) measures to raise the efficiency of expenditures, and assessment of possibility of funding the expenditures fr om the budgets of participating regions.

During the work classification is made of the research performed, an international experience (complying to the subject of research of the technical assignment) is generalized, and methods are offered for assessing the efficiency of expenditures of the regional and local budgets, restructuring and budget expenditure management with regard to industries. The classification criteria are: the methods of enhancing the efficiency of the expenditures, possible expenses needed for putting into practice measures of such kind, possible deadlines for realization of the measures to raising efficiency of the expenditures of the territorial budgets, possible social and other costs on the offered typical areas and methods of enhancing the efficiency of the expenditures. Also, methods will be suggested to compensate social and other costs concerning the implementation of measures aimed at enhancing the efficiency of territorial budgets’ expenditures. The work to be performed will form the basis for the development of a Concept in the following components.

Within the frame of this component activities an analysis is made of the existing practice and legal base of restructuring the public sector and budget expenditure management and, specifically, in participating regions. In particular, we mean the following activities:

1. Review of the existing practice of restructuring and raising the efficiency of budget expenses with regard to items of economic classification of budget expenditures by industry:
   1. housing and utilities;
   2. education;
   3. health care;
   4. social security and social protection of population;
   5. public transport and road facilities;
   6. culture, recreation and leisure;
   7. industry, construction and agriculture;
   8. law enforcement;
   9. government and municipal administration.
2. identification and generalization of typical problems of planning, cost financing, reporting, public control over the budget operations.
   
   For each industry an analysis is made of the possibility, the line, expected dates, and efficiency of conducting restructuring and carrying out the program of enhancing the efficiency of budget expenses at the level of budgetary institutions, managers, and general managers. Under the agreement a quantitative research is made of redundancy (insufficiency) of a network of budgetary organizations and their staffing level in the above industries, expenses are estimated, according to an item of economic classification of budget expenditures, concerning duplication of the functions of the budgetary organizations and excessive costs admitted for the budgetary sphere. Also, proposals are developed for optimization of the number of employees and structure of budgetary institutions and organizations of the government and municipal sector, bringing to correspondence of the number of budgetary organizations and the scope of solved tasks.
   
   An analysis of a network of recipients of the budgetary funds includes defining principal managers of budgetary funds (PMBF):
   • not relating to subnational organs of power, which property is not a regional (municipal) level of power fr om which budget funds are allocated;
   • publicly (municipally) owned, but not being organs of power.
   • recipients of funds from PMBF, not relating to the core activities of PMBF.
   
   Also, additional information is collected of the budgets’ execution and budgeting in the period after carrying out diagnostics of the financial state and quality of regional finance management, industry surveys on budgetary expenditures of the Russian Federation’s subjects and municipal formations (for 2003 included), that will allow to make conclusions on maintenance, changing or emerging new trends and problems in the field of expenditure management, as well as the existing problems not identified in the course of diagnostics. In addition, the budgets of participating regions and representative municipal formations are analyzed from the point of view of coordination of the tasks and goals of social and economic policies and actual priorities of effecting expenditures.
   
   In so doing, the effectiveness is assessed of the implemented, or being implemented, plans and programs of public sector restructuring and enhancing the efficiency of expenditures.
3. An analysis of the legal base of the federal bodies of power and that of participating regions and representative municipal formations, regulating the issues of expenditure management at regional and municipal level, assessment of their efficiency, restructuring public sector
4. An analysis of the operating and capital expenditures of the budgets of the participating regions and those related to supporting entrepreneurial activity, by the example of the budgets during the last few years. The intention of this work is to identify the utilized criteria of spending budgets’ funds, and also those for assessing the efficiency of expenditures.
5. An analysis of possible lines of expansion of independence of the budgetary institutions in participating regions, concerning primarily the issues of planning the size of budgetary financing, planning expenditures of the budgetary institutions from all financing sources, volumes and quality of services. Here, an impact of such expansion is evaluated on raising efficiency of spending the territorial budgets’ funds, as well as the risks and possibility of financial abuses in different variants of independence expansion of budgetary institutions, and methods are offered for their compensation.
6. An analysis of federal and local legal base and practice of carrying out by the budgetary institutions of entrepreneurial activity with the use of reporting for 2001–2003 wherein the following issues are to be considered:
   • the use of human resources and material assets, procured by the budget, as a resource for running entrepreneurial activity, separate accounting management by the type of activity;
   • price difference for procured goods and services for the support of entrepreneurial activity between budgetary institutions, comparison of prices of procured goods and services for the support of entrepreneurial activity with prices of similar goods and services, procured by the budget;
   • price making mechanism for the products of the entrepreneurial activity of budgetary organizations, comparison of prices of products of the entrepreneurial activity of budgetary organizations with prices of similar products made by private enterprises, an analysis of the degree of market competitiveness;
   • payables and receivables of the budgetary organizations concerning entrepreneurial activity, temporary allocation of funds for purposes other than initially stipulated in the budget;
   • determining the share of goods and services on the market (by industry) produced by the budgetary organizations during their entrepreneurial activity;
   • payment for the labor of managers and employees of the budgetary organizations engaged in entrepreneurial activity;
   • planned product cost of entrepreneurial activity, profitability of entrepreneurial activity;
   • taxation on entrepreneurial activity;
   • areas of use of profits from entrepreneurial and other gainful activity;
   • accounting of fixed assets used in the course of entrepreneurial activity and their depreciation.
7. Estimating the expediency of running entrepreneurial activity (by industry and the type of budgetary institution) by budgetary institutions, its efficiency, and also practicability of allocating budgetary funds for funding these institutions and the necessity of changing their status (legal form).
8. An analysis of possibility to assign to private sector of services rendered by budgetary institutions and other organizations of the government and municipal sector on repayment basis, proceeding from the budget-holders registers, data on composition and structure of the government and municipal sector of economy. Assessing changes in the efficiency of budgetary funds spending according to the type of service.
9. An analysis of the situation in the sector of municipal and government (being in ownership of the Federation’s subjects) unitary enterprises.

Component 2
An analysis of the ratio mutual influence of the public and private sector in the participating regions and representative municipal formations

Under this component the following activities are performed:

• determining and analysis of quantitative and qualitative indicators of the production of public and private sector concerning basic industries and types of services, identification of major trends in changing the above indicators, determining factors having an effect on these trends;
• studying the programs and plans of the administration of the region and representative municipal formations, related to functioning of the enterprises of public and private sector (investment programs, programs of financial recovery, reorganization, privatization etc.);
• substantiation of the methods and approaches to enhancing the role of private sector in the spheres wh ere it is justified; in particular, what is meant here is assistance to the private sector in a greater volume of provided services in the branches which traditionally refer in Russia to public sector, namely, education, health care, culture, minimizing not quite transparent transactions between the public and private sector.

Also identified and analyzed are major “overlapping zones” between the public and private sector, their informal “interpenetration”, quantitative description of those zones is made, to which, it is possible, in particular, to refer:

• non-privatized government and municipal enterprises operating as standard commercial organizations;
• government and municipal enterprises, externally analogous to commercial organizations, but having a substantial “quasi-budgetary load”, i.e. carrying out operations by organizations of public or private sector in the interests and on the instructions of the bodies of government power, but not leading to creation of “official” revenues and expenditures of the budget;
• de jure private enterprises, which undergo severe regulation and control on the part of the state for carrying out quasi-budgetary activity, and, thereby, behaving on the market like government and municipal enterprises (for example, electric-power, communications, or gas-distributing companies);
• budgetary institutions providing standard commercial services (entrepreneurial activity of budgetary organizations);
• involvement of the private sector in public expenditure funding or the activities of budgetary institutions;
• unprofitable de jure private enterprises, traditionally supported by the state for political or social reasons (primarily agriculture);
• government participation in the capital of private commercial enterprises;
• the use by private sector of government and municipal assets free or on repayment basis;
• direct or indirect budgetary financing of private commercial enterprises.

For each “overlapping zone” of interests of private and public sector proposals are prepared aimed at:

• broadening the role of private sector in the economy of the district; comparative estimation of the efficiency of public and private sector in the economy of the participating regions;
• specifying boundaries and tasks of the government and municipal sector in the economy of the participating regions;
• enhancing transparency and efficiency of economic interaction of public and private sector.

Also, possibility is evaluated of establishing in the participating regions and representative municipal formations of competitive service markets, which traditionally are represented in Russia as organizations being in possession of government or municipal power, by industry or the type of social service, their possible volume, creation dates, possible costs of their establishment, influence on enhancing the efficiency of use of budgetary funds by the type of service. Some kind of attention is given to appraisal of possibility of privatization of the production or rendering these services (or introduction of the elements of the market mechanisms of production and providing public goods and services) in the existing legal base.

In performing activities under this component special attention is given to the public sector occupied by municipal and state enterprises (owned by the Federation’s subjects) unitary enterprises.

Component 3
An analysis of possible areas and approaches to introduction at regional and local levels of performance budgeting (targeted planning)

The activities to be performed under this component are aimed at preparing proposals for putting into practice management of regional and local public finances of performance budgeting.

In the course of work the IET shall:

1. identify examples of use of performance budgeting principles in the course of making and execution of regional and local budgets (including during development and implementation of regional and local target programs);
2. analyze practicality and workability of performance budgeting in each industry, for which a review of budgetary expenditures had been made within the frame of the Project of technical assistance to the reform of the budget system at a regional level;
3. describe and substantiate changes occurred at stages of planning and executing the budget in the use of performance budgeting as compared to traditional approach;
4. analyze the possibility of сcombining in the budget process the traditional approach and performance budgeting and identify problems, concerning switching to performance budgeting;
5. consider variants of introducing the performance budgeting in the budget process;
6. describe and substantiate the required changes in the system of collection and processing of the information used in budgeting, and indicate the steps need to be taken for switching to performance budgeting;
7. describe and substantiate changes in the Federal legislation needed for introduction at regional an local levels of performance budgeting, with submission of drafts of basic legal acts;
8. consider a possibility of introducing the elements of performance budgeting within the frame of the current Federal legislation;
9. analyze possibility and practicality of changing the structure and functions of the bodies of power of the participating regions and representative municipal formations in introduction of performance budgeting and indicate the steps needed for switching to it.

Component 4
Institutional aspects of the procedures of budget execution and cost management

The activities to be performed under this component are aimed at analyzing the institutional aspects of sectoral budgetary expenditures with the purpose of preparing recommendations on raising the quality of cost management and making an institutional assessment of the strengths and weaknesses of the existing process.

IET shall perform the following activities:

1. Analyze the following aspects of processes of management of sectoral budgetary expenditures and the mechanisms of allocation of budgetary funds in the public sector:
   • institutional capabilities for determination and planning of the procedures of funds spending by industry;
   • procedure and institutional capabilities for allocation of funds within each sector, paying special attention to procedures of allocation of additional resources and reduction of costs in a sector;
   • cooperation between the respective sectoral departments and ministries, financial body and administration in preparing the initial budget proposals, the role of legislative (representative) power during the discussion and changing the proposed funds distribution patterns, involvement in the discussion of civil society;
   • timely passing of information to decision-makers.
2. Analyze the following aspects of departmental programs on funds spending:
   • appropriate experience and capabilities for the development and carrying out monitoring of a long-term program for spending the sector funds (if any) in interested sectoral ministries;
   • the choice of strategic priorities of such programs in sector Х within the ministry;
   • planning procedures of the current and capital expenditures;
   • areas and structure of funds spending at regional and municipal levels;
   • availability of monitored indicators of achieving the posed tasks;
   • procedures for allocation of additional means and cuts in expenditures.
   
   Such work includes an evaluation of the extent to which the civil society is involved in the development and monitoring of sectoral ministries’ programs. In particular, the quality of analytical capabilities and discussions of motivation of the governmental regulation, size of public expenditures, the choice of the fields wh ere the funds are to be spent, must be assessed both within and outside of administrations.
   
   The role of all interested sectoral departments and ministries, the financial body and administration is to be clarified.
3. Analyze the following aspects of budget execution by industry:
   • review of procedures (formal and informal) and institutions managing budget execution;
   • funds’ release procedures;
   • mechanisms of preliminary and follow-up control;
   • audit;
   • procuring procedures;
   • administrative sanctions;
   • availability of information and reporting systems;
   • degree of funds’ spending decentralization and its influence on processes of reporting and control;
   • autonomy level of government services.
4. Establish if existing institutional conditions make for the enhancing of economic efficiency. The following aspects of raising the economic efficiency are analyzed:
   • financial accountability (financial information, efficient audit system, procurement procedures);
   • linkage between the costs and results (managers’ responsibility for the results, information, and reliable budget);
   • system’s weak points (mechanisms for prevention of corruption and ministries’ excessive spending).

Component 5
Development of a Concept of restructuring the government and municipal sector and raising the efficiency of budgetary funds at regional and local levels; developing proposals for improvement of the legal and methodical base of management of the costs of regional and local budgets

The IET faces the task to develop, under this component, the medium-term Concept of restructuring the government and municipal sector and enhancing the efficiency of budgetary expenditures, including the sphere of industry. One of the purposes of developing such a concept is to attract the attention of the public and the government and municipal bodies of power to problems of practicability and efficiency of budgets’ expenditures.

Developing the Concept must be accompanied by providing consultations on introduction at the regional and local levels of mechanisms (including drafts legal acts and methodical recommendations, detailed proposals for software support, material and human resources, as well as proposals for the support of these mechanisms at the federal level):

• allowing to assess the efficiency of expenditures;
• facilitating to switching to performance budgeting;
• stimulating the bodies of power to self-reliant carrying out reforming and restructuring in industries;
• stimulating the structural subdivisions of regional and local government to promote reforms in subordinate sectors and to raise the efficiency of budgetary expenditures;
• encouraging the organizations receiving funding from subnational budgets to its more rational use and to enhancing the quality of budgetary services (with clarification of issues concerning interaction of organizations with the managers of means of regional and local budgets, quality indices, organizations’ legal status, and, their independence etc.).

The Concept will contain individual programs describing in detail the purposes and objectives of reforming cost control in each of basic industries (sections of functional classification of expenditures). Among other things, the Concept will consider issues of raising the efficiency of budgetary expenditures, including expenditures for entrepreneurial activity of budgetary institutions, issues concerning restructuring, contracting, privatization of budgetary institutions and state enterprises. In developing the Concept the results of Reviews of industrial budgetary expenditures are taken into account, made under the Project, plans (programs) of reforming industries, compiled within the frame of those Reviews, the results of activities performed under subprojects of components 1,2 and 3 of the Project, and also other general or industrial regional and local programs and concepts, developed by the bodies of power or prepared within the frame of other projects of technical assistance.

In particular, the Concept will consider issues and describe in detail the methods of raising the efficiency of territorial budgets’ expenditures, among them the following:

• defining (specifying) the scope of authorities of the bodies of representative and executive power of territories for spending funds, including granting of guarantees (inclusion/exclusion of spending areas in the expenditure side of the budget);
• developing and introducing criteria of inclusion of some or other expenditures in the territorial budgets, evaluation criteria of the efficiency of expenditures, introducing performance budgeting;
• changing the structure, functions, and other essential conditions of functioning budgetary institutions, having an effect on enhancing the efficiency of expenditures of territorial budgets, centralizing of fulfilling some functions (accounting for budgetary institutions);
• expansion of independence of budgetary institutions and setting hard budget constraints for such institutions;
• unification and standardization of public services, introducing performance measurement standards for budgetary organizations, changing the number of employees of budgetary organizations, equalizing the levels of labor productivity;
• standardizing the expenditures of budgetary organizations;
• identification of unused or misused fixed assets of budgetary organizations and their reduction;
• creation of public service supplier market;
• changing the structure of rendered public services and adjusting it to their demand structure;
• estimate (in physical indicators) of the need of the population of the participating regions in public services;
• planning the cost of public service;
• reducing the cost of rendering public services;
• sakes of extra property, leasing of idle areas;
• commercialization and privatization of budgetary organizations and/or individual services provided by budgetary institutions;
• expansion of contraction;
• denial of granting benefits, replacing state benefits with monetary compensation of direct financing from the expenditure side of the budget;
• reducing unauthorized use of public services.

The concept is planned for 4–5-year term. The concept will substantiate the actions of territorial bodies of power leading to raising the efficiency of expenditures during 1–3 years, primarily due to organizational and administrative measures. Also, the bodies will be defined in the Concept to be responsible for its individual sections, as well as a set of numerical and formalized criteria and indicators allowing to control the success of Concept’s as a whole and with regard to bodies responsible for the implementation of its individual sections.

The Concept will be added by a package of legal acts regulating the work on enhancing the efficiency of expenditures and restructuring the public sector at regional and local level and ensuring its implementation. In case the Concept requires (for its implementation) changing of the current Federal legislation, the IET will provide the necessary draft amendments. The Concept will be discussed with the participating regions.

The Concept will have a general part, which is universal and is applicable for all industries and spheres of activity, and individual industrial subprograms, with identification in every one of them of regional and municipal level. Specific subprograms will be developed relative to the following spheres and industries:

• housing and utilities;
• education;
• health care;
• social security and social protection of population;
• public transport;
• culture, leisure, recreation;
• industry, construction and agriculture;
• law enforcement;
• government and municipal administration.

The above subprograms will be base on the principles of performance budgeting. In them, in particular, specific measures and mechanisms will be defined for implementation in budgeting of approaches ensuring the achievement of declared objectives in optimal use of budget recourses. Also, priorities and the dates of implementation of performance budgeting will be substantiated in the above industries.

Sectoral subprograms aimed first and foremost at creation of specific incentives for conducting reforms, forming and introduction of appropriate mechanisms, will be structurally divided into the following parts by the level of relation:

• regions – municipalities,
• municipalities – organizations and institutions under them,
• regions – organizations and institutions falling within their competence.

The concept will contain specific mechanisms for stimulating the enhancing of quality of expenditure management at both - the level of municipal formations and enterprises and budgetary institutions. The above mechanisms must include a system of assessments of quality of financial management and that of budgetary services, ratings of efficiency of use of budgetary funds and the system of budget incentives by means of establishing within the frame of regional and local budgets special funds, similar to, for example, of the Fund for Reforming of Regional Finances and The Fund for Co-financing of Social Expenditures under the Federal budget.

The Concept must reflect the following aspects of restructuring the government and municipal sector:

• an analysis of practicability of retaining in the list of Principle managers of budgetary funds of organizations not being regional (if funded from regional budgets), or municipal government bodies (if funded from local budgets);
• practicality of execution of the functions of managers of Federal budget funds by organizations other than government bodies or their established institutions;
• inventorying institutions, being the recipients of budgetary funds, with insignificant staff size, and practicability of their liquidation and delegation of powers to institutions, having the same administrative subordination, operating on this territory, or fulfilling similar functions and operating on neighboring territories;
• restructuring government organizations (with the same core activity) functioning in parallel, which have different administrative subordination and are included in registers of budget recipients of different principle managers (in particular, medical and educational institutions, and institutions of the sphere of culture);
• stoppage of practice of carrying out the functions of managing budgetary funds by organizations, which are related to other level of government (for example, when PMBF of regional budget have no territorial subdivisions (on the territory of a certain municipality) for managing the funds of regional budget, allocated for funding the recipients, being under their management on that territory);
• restructuring the budget network in execution of the federal laws “On General Principles of Organization of Local Government in the Russian Federation” and “On Insertion Changes and Additions to the Federal law “On General Principles of Organization of the bodies of legislative (representative) and executive power of the Russian Federation’s subjects”, in particular, development of procedure of transferring regional government institutions, which exercise the powers treated by respective laws as local issues, in management of the local government;
• setting a procedure and composition of movable and immovable property for newly established organizations;
• reorganization alternatives depending on the type of business of newly established legal entity and the composition of its founders.

In reorganizing of budgetary institutions into new legal forms, it is necessary to consider an issue of practicability of creating job security (in the newly established organizations) for a group of operating budgetary institutions, and also imposition within a certain period of time moratorium for reduction in the number of employees or a staff during reorganization and dismissal of the employees of the budgetary institution on the initiative of the administration.

In developing the Concept it is necessary to consider that even before introducing alterations to the Budgetary and Civil Code, it is possible to take a number of actions aimed at regulation of receiving and use of means from entrepreneurial or other revenue-producing activity. In order to create conditions for more efficient budget allocation, at the first stage it is necessary to pursue the policy of equalizing the legal regime of revenues of budgetary institutions from paid services and other revenue sources of the budget. To avoid reduction of revenue collections from paid services provided by budgetary institutions, in conditions of loosing by the latter of interest in their receipt, stimulating and controlling measures are to be taken. In particular, the principle managers of budgetary funds must develop a procedure of reassignment of funds between the subordinate recipients, received from entrepreneurial or other revenue-producing activity. It must be a usual practice to approve budgetary institutions’ estimates according to volume of revenues from entrepreneurial or other revenue-producing activity.

The Concept will consider possible measures for transition to new forms of financial support of government (municipal) services, including preconditions of implementation:

• performance-based budgeting;
• standard per capita funding;
• government (municipal) social assignment;
• other forms of financing (payment of medical services within the frame of compulsory medical insurance, voucher form of financing used by certain categories of population, in receiving free of charge or subsidized social services in welfare offices according to social service standards, granting subsidies to cover difference between charges for provision of services by social sphere organizations and their cost).

Under this component activities standard legal acts are developed complying to the Concept:

1. A package of standard regional laws, regulating a) payment for housing and communal services by veterans of labor, the labor front and disabled, b) allowances for families with children, c) trustees fees, d) guarantees to orphans and homeless, given by options within the frame of the program of social protection measures.
2. Standard procedure and the form of maintaining a register of expenditure obligations of region and municipality.
3. Standard procedure of monitoring the budget network and methodical recommendations for its maintaining.
4. Standard provision on the report of Principal managers of budgetary funds (PMBF).
5. Standard concept of reforming budgeting at regional and municipal levels.

The IET is preparing for the Ministry of Finance of Russia draft Temporary guidelines (methodical recommendations) on issues of restructuring budgetary sphere and raising the efficiency of expenditure of regional and local budgets, the basis for which will be the above listed 5 points. This document will reflect the main content of IET developments, serve as a basis for their further implementation and dialogue with the specialists in regions, setting for regions and municipalities the ways of reforming this sphere of public finance management.

In addition, the IET develops a procedure and methods of programs’ development and assessment, the methods of quality control of PMBF means, a provision on regional Fund for Co-financing of Social Expenditures.

The main result for the foregoing purpose will be development of a medium-term Concept of restructuring the government and municipal sector and raising the efficiency of budget expenditures.

Component 6
Assisting to participating regions in the implementation of measures aimed at raising the efficiency of budget expenditures, developing the mechanisms of monitoring the efficiency of expenditures and restructuring the public sector; introducing the Concept of restructuring the government and municipal sector and raising the efficiency of budget expenditures at regional and local levels; developing proposals for improvement of the legal and methodical base of management of expenditures of regional and local budgets, and their implementation in participating regions and representative municipal formations

Working on this component provides for introduction of the Concept of restructuring the government and municipal sector and raising the efficiency of budget expenditures and adaptation of the proposed standard legal acts in participating regions and representative municipalities.

The above task provides for carrying out the following activities:

1. The IET on the basis of analysis made and elaborated proposals on improvement of the legal and methodical base of management of expenditures of the budgets of participating regions:
   • adapts the Concept of restructuring the government and municipal sector and raising the efficiency of budget expenditures to the needs of participating regions in the context of budgeting these regions and representative municipalities, i.e. develops the Concept of restructuring raising the efficiency of budget expenditures for every participating region and every representative municipality, shortly characterizing the original state of affairs in this sphere and describing in detail the succession and business event content for every region and municipality;
   • develops for every participating region and representative municipality a package of regulatory documents, necessary for achievement of stated in the Concepts objectives, including:
     • adapts a standard legislative package of the Russian Federation's subjects, regulating a) payment of housing and communal services by veterans of labor, the labor front and disabled, b) allowances for families with children, c) trustees fees, d) guarantees to orphans and homeless;
     • adapts the standard procedure and the form of maintaining a register of expenditure obligations of region and municipality, formulate the task for creation of an appropriate program product;
     • adapts a standard procedure of monitoring the budget network and methodical recommendations for its maintaining;
     • adapts a standard provision on the reports of Principal managers of budgetary funds (PMBF);
     • adapts a standard concept of reforming budgeting at regional and municipal levels;
     • procedure and methods of programs’ development and assessment, the methods of quality control of PMBF means;
     • provision on regional Fund for Co-financing of Social Expenditures.
2. The IET participates in:
   • the development of draft annual forecasting plan of enhancing the quality of rendering basic budgetary services, financed from regional and local budgets, for 2005;
   • preparing a draft law about the regional budget for 2006 and accompanying documents in all participating regions with account of receiving and sale of the developed by Consultant proposals for putting into practice estimating the efficiency of incurred expenses, the elements of performance budgeting; preparing a draft program of management of government and municipal property in the participating regions, the development plan of the government and municipal sector of economy of the participating regions for 2006;
   • preparing a plan of rendering the government and municipal services of the participating regions in 2005, and developing such a plan for 2006.
3. The IET will submit for participating region and representative municipality a schedule of measures for implementation of the performance budgeting, modification of the budget process necessary for such implementation, optimization of the current system of state unitary enterprises and municipal unitary enterprises, preparing budgetary institutions to reorganization (including their grouping, reassignment), including description of activities, their executors, dates, with provision of draft legal acts or their detailed concepts. The schedule of measures considers dependence of the rates of reorganization of budgetary institutions on degree of government’s readiness to provide placement of service order, single source free of charge granting of which guarantees Constitution of the Russian Federation (medical aid, preschool, basic, general and high professional education).
4. The IET develops training programs for government agencies’ officers, related to estimating the efficiency of budget expenditures and performance budgeting, summarizing examples of use of best practices of managing expenditures of regional and local budgets.
5. The IET develops a detailed budget for implementation of regional and municipal Concepts (by expenditures and individual spending areas, according to budgetary classification), substantiating their economic efficiency, including expenditure “ceilings” for PMBF. Budgets of concepts will comprise budgets of programs including them. The revenue base of the concepts of budgets will largely be formed (especially at the following stages) without involvement of additional budgetary funds, only due to financial saving.
6. The IET develops for introduction into the monitoring system for Concept implementation, including mechanisms of monitoring the efficiency of public sector expenditures, in particular, indexes for assessment of the results of measures introduced within the frame of the project. For every base section of the budget classification the detailed indices’ system will be developed, allowing to estimate the efficiency of budget expenditures (degree of attainment of an optimal result with financial possibilities in the possession of authorities). Unity of the system of indicators will allow to conduct a comparison of efficiency between them.
7. The IET’s goal is to
   • to offer the system of indicators allowing to estimate the demand for public goods and services, produced or provided using regional and local budgets, in the medium-term;
   • estimate changing of demand for medium-term outlook on basic spending areas from regional and local budgets for participating regions and formulate recommendations concerning the budgetary policy of the participating regions for timely accounting future changing of demand;
   • in collaboration with the participating regions’ administrations, to organize reviewing and make a forecast of the number of consumers of individual goods and services financed from regional and local budgets according to (suggested by the Consultant) methods of estimating the efficiency of carried out budgetary expenditures and proposals for implementation of performance budgeting;
   • to assist regional and municipal administrations in developing a legal base allowing to introduce in the participating regions and their municipal formations medium-term economic planning in the form, procedure and terms in accordance with the task of introducing the performance-based budgeting.