ISSN 0798 1015

Vol. 39 (Number 39) Year 2018 • Page 13

Factors and trends in the development of local budgets of rural territories

Factores y tendencias en el desarrollo de los presupuestos locales de los territorios rurales

Elena B. DVORYADKINA 1; Elizaveta A. BELOUSOVA 2

Received: 06/04/2018 • Approved: 18/05/2018

Content

1. Introduction

2. Methodology

3. Results

4. Conclusions

Bibliographic references

1. Introduction

Studying the development of local budgets as components of economic basis of local self-government is traditionally considered to be highly relevant. Additionally, local budgets represent an interesting object of research, because that they mirror the financial state of very different types of municipalities existing in the Russian Federation, particularly:

– urban districts;

– urban districts with intra-urban division;

– intra-urban districts;

– municipal districts;

– urban settlements;

– rural settlements;

– intra-urban municipalities (in the cities of the federal importance, for instance, Moscow, Saint Petersburg).

Rural settlement is the most widespread type of municipality, the second most prevalent type of municipality is municipal district. Both types of municipalities refer to a two-level model of local self-government functioning in a rural area.

The issues of drawing up and executing local budgets are usefully explored in the works of modern economists. Directions of the Russian budgetary policy concerning local budgets, as well as financial results of the municipal reform are presented in the papers of Pronina (Pronina, 2015 and 2016). Levina examined the specifics of balancing local budgets in conditions of financial instability (Levina, 2015); Pinskaya and Ziganshina devoted their efforts to identifying problems and possible solutions in the field of ensuring balance of regional and local budgets (Pinskaya and Ziganshina, 2015); Mudrova characterized acute problems of yielding revenues to local budgets (Mudrova, 2014).

From the standpoint of the scope of problems of local self-government, including its territorial organization, it is worth mentioning the works of Adukova (Adukova, 2016) and Babun (Babun, 2016). Yurchenko (Yurchenko, 2010) and Voronina (Voronina, 2013) studied financial and budgetary aspects of sustainable development of rural territories.

The issues related to local budgets are investigated in the works on municipal government revenue structures (Carroll, 2009), local budgeting process (Anessi-Pessina E., Sicilia M. and Steccolini I., 2012), and intergovernmental fiscal transfers (Boex J. and Martinez-Vazquez J., 2006; Bessho Shun-ichiro, 2016; Zhang  G., 2013).  A number of important works on rural local governments’ budgets were written by American authors (Huddleston M. W. and Palley M. L., 1981; Sokolow A.D. and Honadle B.W., 1984; Kenneth M. J., Pelissero J. P.  et al., 1995; Felix A., Henderson J., 2010) who confirmed the specifics of local budgets in a rural area.

However, the analysis of publications on the topic of our study gives grounds to conclude that the issues of drawing up and executing local budgets of rural territories have not received sufficient attention as yet.

The present study aims to analyze and assess trends and factors in formation of local budgets of rural territories against the background of all local budgets

In the study, indicators of revenues, expenditures, as well as balances of local budgets of rural territories were examined by federal districts. This allowed not only generalizing about trends, but also presenting the findings taking into account the territorial structure. The study investigated local budgets of municipal districts and rural settlements of the Russian Federation with the main focus on trends and factors in formation of their revenues and expenditures. The choice of the research subject was determined by specific features of municipal districts and rural settlements as territories of local self-government resulting in a number of peculiarities of their budgets’ formation.

The data of the Federal State Statistics Service and municipalities’ regulations on approval and execution of local budgets constituted the main information sources of the study. The use of such methods as system-structural, causal methods, methods of case study and comparative analysis enabled the authors to initiate a comprehensive search to attain the stated objective.

The changes in the number of municipal districts and rural settlements in the Russian Federation are presented in Table 1.

Table 1
Changes in the number of municipal districts and
rural settlements in the Russian Federation

Generally, the data on the number of municipalities reflect a negative trend. In the considered period the number of municipalities went down by 1580 units, at this the decline was primarily due to rural settlements, which decreased by 1490 units. This trend results from the processes of transformation (merger) and liquidation of municipalities. In parallel, this period saw the work on delineating powers between local governments of different levels and government authorities and assigning those corresponding sources of revenues. The current version of the Federal law “On the General Principles of the Organization of the Local Self-Government in the Russian Federation” places 40 local issues under municipal district’s jurisdiction, and only 13 local issues under rural settlement’s jurisdiction.

Municipal districts and rural settlements unite approximately 150 thousand of rural localities. On average, one municipal district unites 10 rural settlements, 84 rural localities and 31.5 thousand inhabitants, and rural settlement covers eight rural localities with 1835 inhabitants. Population of more than a half of rural settlements varies from 500 to 2000 people, and population of a quarter of rural settlements amounts to 2000 and more people (Yurchenko, 2010).

The analysis of the practical activities of local governments in a rural area shows that small settlements often are not able to efficiently address local issues placed under their jurisdiction, because they do not have sufficient financial and human resources. In addition, this situation is complicated by extremely low involvement of citizens into the activities of local governments, and in this connection, we can speak about the trend of the so-called “public apathy”.

Therefore, in our opinion, a systemic problem of local self-government functioning in a rural area is the absence of necessary organizational, material, and technical conditions for dealing with local issues in the majority of municipal districts and rural settlements. Another systemic problem of rural territories’ development is a poorly developed infrastructure of all types, including a production, utility, public, and market infrastructure, what does not allow local governments to organize provision of corresponding services to rural population at satisfactory level.

Allowing for the systemic problems mentioned above, let us examine the trends in drawing up and executing local budgets of rural territories. It is important to highlight that in our view, the concept “budgets of rural territories” is a generic term, i.e. it takes into account modern approaches to municipal government and refers to budgets of municipal districts and budgets of rural settlements (Dvoryadkina, Belikova, and Aragilyan, 2015).

The place of rural territories’ budgets in the total indicators of revenues of local budgets remained relatively stable over the whole considered period, though one can see a small redistribution of budget revenues from rural settlements in favour of municipal districts. In absolute terms, in the specified period the indicators of revenues of local budgets demonstrated growth, which ranged from 139.1% in the Siberian Federal District to 161.7% in the Far Eastern Federal District (Table 2). However, the growth in revenues of rural settlements’ budgets was lower than growth in revenues of all local budgets.

Table 2
Revenues of local budgets in the federal
districts, 2010-2016, million rub.

According to the official reports, in 2015 the total volume of revenues received by local budgets amounted to 3,497.1 billion rub., what was less than in 2014 by 0.3% or 11.7 billion rub. At this, compared to 2014 the share of rural settlements in municipalities’ own revenues decreased by 0.4%, whereas the share of municipal districts went up by 0.8%. The decrease at the rural settlements’ level is connected with the transfer of parts of revenues from income tax and unified agricultural tax to the budgets of municipal districts, because of the redistribution of a number of local issues from the jurisdiction of rural settlements to the jurisdiction of municipal districts, as well as cuts in grants, subsidies and a fall in non-tax revenues, which declined by 35% or 13.9 billion rub.

It is noteworthy that over the considered period the trend of unequal distribution of the tax revenues between types of local budgets continued.  The reason behind this is high differentiation of rates of socioeconomic development in different types of municipalities, the so-called regional and local asymmetry. For instance, at the end of 2010, urban districts’ budgets accumulated 64.1% (517.3 billion rub.) of tax revenues, whereas municipal districts’ budgets received 26% (209.6 billion rub.) and rural settlements’ budgets got only 9.9 (79.9 billion rub.). In 2015, the distribution of tax revenues between types of municipalities looked as follows: urban districts’ budgets accumulated 57.1% (570.7 billion rub.) of tax revenues, municipal districts’ budgets – 28.3% (283.3 billion rub.), urban settlements’ budgets – 7.6% (75.5 billion rub.), and rural settlements’ budgets 7.0% (69.8 billion rub.). Thus, we can clearly observe a trend towards a decrease in the share of tax revenues of rural settlements’ budgets in the total volume of tax revenues of all local budgets.

During 2010–2016, in five federal districts the share of revenues of rural settlements’ budgets in total revenues of all local budgets was dropping: in the Northwestern Federal District it went down from 5.5 to 3.8%, in the Southern Federal District – from 7.3 to 5.8%, in the North Caucasian Federal District – from 7.8 to 5.7%, in the Volga Federal District – from 5.8 to 4.9%, in the Far Eastern Federal District – from 5.5 to 4.8%. Virtually this means that the presence of the rural settlements in this indicator is shrinking due to such factors as binding established norms of tax revenues and a level of socioeconomic development of a territory. 

In the structure of expenditures of local budgets, the situation remained generally unchanged. The indicators of expenditures of rural settlements’ budgets are given in Table 3. 

Table 3
Expenditures of local budgets in the
federal districts, 2010-2016, million rub.

In the structure of expenditures of local budgets in the Russian Federation the lion’s share is taken by expenditures on handling local issues, though at the moment it is decreasing: 73% in 2010, 76.1% in 2011, 72.0% in 2012, 72.5% in 2013, 66.0% in 2014, and finally 63.6% in 2015. The largest decrease occurred in urban and rural settlements due to the transfer of some local issues to another level.

In terms of groups of expenditures, structures of local budgets of municipal districts and rural settlements clearly differ. In rural settlements’ budgets, the share of expenditures on handling local issues can come up to 99%, whereas, for instance in 2015, in the structure of municipal districts’ budgets the share of expenditures on local issues amounted to 53.2%, expenditures on exercising some federal powers took 20.5%, expenditures on issues not related to as local issues accounted for 26.2%.

The expenditures of local budgets traditionally exceed their revenues, which logically results in the fact that local budgets are drawn up and executed with deficit. The analysis of revenues and expenditures of local budgets allows revealing a trend of the growing deficit of local budgets of rural territories. During 2010–2016, the total deficit of local budgets of municipal districts grew from 20,783 million rub. to 26,944 million rub., or by 29.6%, and the total deficit of local budgets of rural settlements increased from 2,810 million rub. to 8,293 million rub. or 2.95 times. The indicators of deficit of rural territories’ local budgets are shown in Table 4.

Table 4
Deficit of local budgets of rural territories in
the federal districts, 2010-2016, million rub.

It is worth noting that the deficit of municipal districts’ budgets in five federal districts widened in the considered period. The growth varies from 126.7% in the Central Federal District to 346.8% in the Siberian Federal District. In four federal districts (North Caucasian, Volga, Ural and Siberian) the growth of municipal districts’ local budgets’ deficits exceeded the growth of all local budgets’ deficit. The picture is even more dismal with the growth of deficit of rural settlements’ budgets. In all federal districts, the deficit of rural settlements’ budgets was increasing faster than the deficit of all local budgets and deficit of municipal districts’ budgets. Therefore, we can observe a trend when the growth of deficit of rural settlements’ budgets outstrips the growth of the deficit of local budgets of other types of municipalities.

Such systemic deficit of local budgets results, first and foremost, from discrepancy between revenue and expenditure powers of local authorities. Besides, we share other researchers’ opinion, according to which “…a serious barrier to achieving a balanced state of regional and local budgets is a lack of a uniform methodological basis of intergovernmental fiscal relations enabling to balance the amount of financial aid against actual need in it” (Pinskaya and Ziganshina, 2015, p. 94). In addition, a substantial barrier to solving the problem of balancing local budgets is that local budgets generally and municipal budgets and rural settlements particularly are predominantly oriented towards financing current expenditures.

The results of the study can expand economic knowledge about the trends and factors in formation and development of local budgets of municipal districts and rural settlements in the Russian Federation as a special type of municipalities and can be used by local governments to formulate plans of municipal socioeconomic development and adjust budget policies. In addition, the obtained findings may be in demand in the practical activities of regional authorities for the purposes of financial and budgetary regulation.

The suggested algorithm for analyzing trends in development of local budgets of rural territories is universal and can be applied in analytical procedures related to local budgets of other types of municipalities.

Overall, the findings of the study allow formulating a number of conclusions.

First, the place of rural territories’ budgets in total local budgets is relatively stable, no radical shifts in the period under consideration were identified.

Second, rural territories’ budgets are not balanced, expenditures keep on exceeding revenues, what makes it significantly more difficult for local authorities of municipal districts and rural settlements to handle local issues.

Third, in current conditions rural territories have no practical possibilities to build financial base that will support independence of local self-government. This is proved by the persistence of high amount of grants in the structure of rural territories’ budgets.

Fourth, rural settlements do not possess high potential for yielding non-tax revenues to their budgets. Economic activities are concentrated in large municipalities, to be more specific, in urban districts.

Fifth, budgets of rural territories are predominantly oriented towards financing current expenditures and this flatly contradicts the goal of sustainable development of rural territories. Independent formation of the development budgets at the level of rural territories proves to be a rather complicated assignment in modern conditions.

1. Ural State University of Economics, 620144, Russia, Ekaterinburg, 8 marta str., 62

2. Ural State University of Economics, 620144, Russia, Ekaterinburg, 8 marta str., 62