One trillion for local budgets and new terms for community funding in 2027

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The draft State Budget for 2027 allocates over UAH 1.05 trillion to local budgets. However, the document proposes reducing the share of personal income tax allocated to community budgets from 64% to 60%, provides for a targeted grant to compensate for differences in tariffs, UAH 60 billion for the implementation of Comprehensive Sustainability Plans for Regions and Individual Cities, as well as a range of subsidies and support programmes. For local self-government, not only the volume of funds but also the conditions for their allocation and use are crucial.

The draft State Budget for 2027 allocates more than UAH 1.05 trillion to local budgets. This sum includes the return of up to 60% of personal income tax to local budgets, targeted funding to cover differences in tariffs, UAH 60 billion for the resilience of regions and individual cities, and new subsidies. For local self-government, not only the amount of funding but also the conditions for receiving and using it are crucial.

Draft budget and resources of local budgets

Ihor Onyshchuk, an independent expert in public finance, has analysed the draft State Budget for 2027 and summarised the key indicators of local budget resources and state support for communities, highlighting the changes that local governments should take into account during budget planning.

The Draft Law “On the State Budget of Ukraine for 2027” was registered in the Verkhovna Rada on 15 September 2026 under No. 16000. As of September 17, it has been submitted to and is undergoing consideration by the Budget Committee. The figures and provisions set out below relate to the Government's initial draft and are subject to change during parliamentary debate.

The total volume of the state budget is UAH 5.65 trillion in revenue and UAH 7.27 trillion in expenditure.

In these conditions, local budget resources amount to UAH 1,056.5 billion: UAH 707.2 billion in revenue excluding inter-budgetary transfers and UAH 349.3 billion in transfers from the state budget. Therefore, approximately one in every three hryvnias of total resources will come from grants and subventions. These are aggregate figures for local budgets, including regional ones; they do not imply the same financial outcome for every community.

All amounts in the table are in billion hryvnias.

 

 

The share of transfers in total resources is rising from approximately 28.4% to 33.1%. This means that local budgets are becoming more dependent on central government decisions regarding the allocation and transfer of funds. For subventions, the intended purpose is of particular significance: funding for school meals or housing repairs cannot be arbitrarily redirected to meet other community needs. Therefore, the increase in total resources should be assessed in relation to changes in the revenue that the community can use to carry out its responsibilities.

 

 

PIT remains the main source of revenue for local budgets: UAH 407.1 billion is forecast for 2027. However, the calculations anticipate a reduction in the share of PIT allocated to local budgets from 64% to 60%, with the exception of a special arrangement for Kyiv and certain types of revenue. The total value of this four-percentage-point reduction is estimated at UAH 18.17 billion. Assuming the tax base remains unchanged, this means fewer tax revenues available for communities to set their own priorities.

At the same time, a subvention of the same amount – UAH 18.17 billion – has been allocated to compensate for the difference in tax rates. During consultations with associations, the Ministry of Finance explicitly linked these two decisions. For communities, the effects are different: PIT generates revenue for the general fund, whilst the subvention is earmarked and subject to allocation rules. Therefore, the fact that the total amounts are equal does not guarantee that every community will receive compensation exactly for its reduction in PIT. The accompanying documents also explain that this subvention is intended to cover the current difference in tariffs for 2027; settling the accumulated debts from previous years requires separate decisions.

The revenue-related changes also apply to certain administrative services. Article 62 proposes that 50% of the fees for specified services provided by the Ministry of Internal Affairs in road safety and the transportation of dangerous goods be allocated to a special fund of the state budget, whilst the remaining 50% be allocated to the general fund of community budgets. Article 26 provides for the transfer to the state budget of all PIT from the income of individuals – sellers – derived from reporting activities via digital platforms. These are specific revenue components that the financial authorities should verify in their own forecasts.

Horizontal equalisation

Under the equalisation scheme, UAH 32.12 billion in basic grants and UAH 21.95 billion in reverse grants are proposed. According to the calculations, 976 local budgets will receive basic grants, of which 961 are community budgets. Reverse grants will be paid by 224 budgets, of which 218 are community budgets.

Reverse subsidies will be transferred by 224 budgets, of which 218 are community budgets.

The calculation is based on expected revenue from the relevant taxes in 2026 and data on the population and internally displaced persons. It is important for communities to check the data on which their calculation is based. Separately, the draft mandates that information on declared and registered places of residence be updated by 1 April 2027 – to enable equalisation as early as 2028.

Horizontal equalisation will not be applied to 118 community budgets in temporarily occupied territories.

Support for frontline territories

An additional subsidy of UAH 30.38 billion has been allocated to support essential services in frontline or temporarily occupied territories. Of this amount, UAH 12.16 billion has already been allocated as set out in the annex, whilst UAH 18.22 billion remains unallocated. Thus, the total amount of the programme does not yet indicate how much each community will receive. For planning purposes, it is necessary to take into account separately the amount specified in the annex and any subsequent decisions by the Government.

Education

Education remains the largest transfer category. The education subsidy amounts to UAH 192.77 billion, with a further UAH 19.36 billion earmarked for providing meals to schoolchildren in general secondary schools. In the attached annex, the education subsidy has not yet been allocated to specific local budgets: under Article 51, this will be carried out by the Cabinet of Ministers. The explanatory note links the allocation to a full verification of student numbers as of 1 October 2026. For communities, the accuracy of educational data will directly affect the subsequent calculation of the subsidy.

A further UAH 10.1 billion in the General Fund is earmarked for educational investment subsidies: school buildings – UAH 3.7 billion, “New Ukrainian School” – 3 billion UAH, school buses – 2 billion UAH, school kitchens units– 1 billion UAH, workshops and laboratories at vocational and pre-higher education institutions – 0.4 billion UAH. For the first time, 768.7 million UAH has been earmarked separately for the accessibility and sustainability of pre-school education.

Regional resilience and public investment

One of the largest and most significant programmes for the territories is the allocation of UAH 60 billion for the implementation of Comprehensive Sustainability Plans for Regions and Individual Cities. The lead managing authority is the Ministry of Recovery, Infrastructure and Transport of Ukraine.

The investment component of the project includes another key priority. The project allocates UAH 111.8 billion in public investment, including loans backed by state guarantees, for 79 projects and programmes. According to the supporting documentation, 99.7% of these allocated funds are directed to ongoing projects and programmes, whilst 0.3% is earmarked for new ones. For communities, this is an argument for the quality preparation of projects already underway to ensure continued funding: up-to-date cost estimates, confirmed readiness, co-financing, and the capacity to complete the work. UAH 2 billion is earmarked for the State Fund of Regional Development.

Special wartime rules

Some of the special wartime rules are proposed to be retained. The military PIT will continue to be allocated to the national level. For the portion of the military PIT credited to the special fund, Article 36 maintains the following proportions: 60% to the Ministry of Defence, 30% to the State Special Communications Service, and 10% – via the chief administrators of the security and defence sector – to military units. Article 35 continues to allocate half of the local share of the tax on banks’ profits to the state budget for the purchase of passenger carriages. This is a continuation of mechanisms already in place; therefore, their impact should be distinguished from the proposal to reduce the share of standard PIT.

The draft also contains provisions that directly affect the planning of budget surpluses. Article 59 provides for the transfer to a special fund of the state budget of the balances of the regional budgets of Donetsk and Luhansk regions and the local budgets of the temporarily occupied territories, as recorded in treasury accounts as of 1 January 2027, for subsequent allocation, in accordance with decisions of the Cabinet of Ministers, to provide housing for internally displaced persons.

Roads, recovery, veterans, and IDPs

A subsidy for public roads of local importance, municipal roads, and streets is allocated to local budgets in the amount of UAH 8.5 billion. Under Article 53 of the draft, 95% of the total amount will be allocated among the relevant local budgets, excluding Kyiv, taking into account the length of local roads and specified territorial exceptions; 5% will go to the capital’s budget. At the same time, the State Road Fund, amounting to UAH 52.8 billion, also covers other areas, in particular debt servicing and national roads.

Separate financial instruments have been set aside for recovery. A total of UAH 14.5 billion has been earmarked for subsidies under the Ukraine Recovery Programme, the Ukraine Recovery Programme III and the Emergency Credit Programme for the Recovery of Ukraine. A further UAH 2.66 billion is allocated as a subsidy under the HOPE project – “Housing repairs to restore people’s rights and opportunities”. For the first time, a subsidy of UAH 169.9 million has also been allocated under the “Restoration of Water Supply and Sanitation in Ukraine” programme. All these amounts are included in the total volume of transfers, and access to them is subject to the conditions of the relevant programmes.

A subsidy of UAH 2.59 billion has been allocated to support the work of specialists providing assistance to veterans and related activities; UAH 6.90 billion has been allocated for the purchase of housing for the families of Ukraine’s defenders. UAH 1.5 billion has been allocated to establish housing funds for the temporary or supported accommodation of evacuees and internally displaced persons, and for measures to provide them with housing in rural areas. Separately, paragraph 16 of the Final Provisions provides for the mandatory transfer of funds via an inter-budgetary transfer in the event that a person is referred to another local level to receive social services due to an insufficient number of relevant facilities or the absence of certain social services in the community.

What communities should take into account

The expenditure part should take into account the proposed minimum wage of UAH 9,546, which will come into effect on 1 January 2027, and the funding requirements for local services. According to the explanatory note, the expenditure calculations also include the basic salary of an employee in pay grade I of the Unified Tariff System (ETS), amounting to UAH 3,819 from that date. For financial authorities, this provides grounds to update calculations of the wage bill and related payments. For investment projects, it is important to confirm sources of co-financing, implementation schedules and future maintenance costs for facilities. These calculations will provide communities with substantive arguments for discussing the draft budget prior to its adoption.