On 7 December 2017, the Verkhovna Rada of Ukraine adopted the State Budget of Ukraine. The process of completing the drafting of local budgets, that have to be approved by December 25th, is currently going on. Thus, in 2018 local budget draft decisions, local authorities will already take into account the amount of approved interbudgetary transfers - in contrast to the current year amounts, when the budget was approved at the end of December in previous years.

What are the peculiarities and differences of the 2018 budget in terms of local budgets? Halyna Markovych, Local Budgets Coordinator of the Project Office of Sectoral Decentralisation, told decentralisation.gov.ua about this.

First of all, the number of local budgets having a relationship with the state budget has increased by 299, and from 1 January 2018 there will be 1288 such budgets. In determining the amount of interbudgetary transfers, all budgets of the amalgamated hromadas whose local councils acquire powers according to the results of the first local elections held in 2017 (Article 29 of the Law on Budget, Supplement No 11 to the Law) are taken into account. Thus, as of 1 January 2018, there will be 665 budgets of amalgamated hromadas functioning in the country.

In the framework of the healthcare reform implementation, it is envisaged that beginning with 1 July 2018 funding of the primary healthcare expenditures will be provided from the state budget (Article 30 of the Law on Budget). Until this time, such expenditures will be financed from the local budgets at the expense of a healthcare subvention.

In the process of horizontal equalisation of fiscal capacity of local budgets, the number of registered internally displaced persons is taken into account as of 1 October 2017 (according to the data of the Ministry of Social Policy of Ukraine).

It is foreseen to establish the State Road Fund, 35% of which will be directed to local budgets in the form of subvention to finance construction, reconstruction, repair and maintenance of public roads of local importance, streets and roads of communal property in settlements (UAH 11.5 billion).

A stabilisation subsidy is foreseen. It should be noted that 2017 was the last year when such a subsidy could be planned. Taking into account that the process of hromadas’ amalgamation has not yet been completed, the amendments to the Budget Code of Ukraine were passed, and it is stipulated that the stabilisation subsidy will be planned until the amalgamation process is accomplished.

The mechanism functioning in 2017 to fund expenditures on granting privileges to certain categories of population is preserved (in the budget submitted for the first reading, it was proposed to transfer such expenditures to financing from local budgets without corresponding financial resources) – at the expense of the corresponding subvention from the state budget.

Changes were introduced to the mechanism of allocating:

- educational subvention. Since the subvention is a source of financing of educators’ labour remuneration with accruals, the basic parameters of the new formula for subvention’s allocation include the estimated number of educators’ positions, determined on the basis of the educational load and standard fill-up of classes, as well as teacher’s average salary in terms of 2018;

- additional subsidy for the implementation of expenditures transferred from the state budget for the maintenance of educational and healthcare facilities. Such a grant is provided for oblast budgets and 50% of it is allocated in proportion to the oblast’s population and 50% - in proportion to the adjusted index of relative fiscal capacity of the consolidated oblast budget. Allocation of the additional subsidy between local budgets of the oblast will be carried out in the manner determined by oblast state administrations.

Increase of the financial security level of local budgets will be assured by:

• entry of 5% of rent fee for the use of subsoil for extraction of oil, natural gas and gas condensate (including 3% to the budgets of amalgamated hromadas) to local budgets from 1 January 2018;
• preservation of the norm for the entry of 13.44% of the excise tax on fuel to local budgets;
• transfer of veterinary laboratories and veterinary hospitals to state budget funding.

From 1 January 2018, the Budget Code’s provision, suspended since 2015, on funding of expenditures for training specialists in state higher educational institutions of the I-II accreditation levels (a list of institutions transferred to funding from local budgets is defined in Supplement 10 to the Law, including institutions with a legal entity status) from regional budgets and Kyiv budget comes into force. At the same time, the resource for their financing is not transferred in full.

Part of the money is taken into account in the educational subvention (UAH 0.5 billion) – to ensure the costs of complete secondary education acquired by the students of such institutions.

There is also a provision on possible direction of additional subsidy to cover the costs of maintenance of these institutions.

In the process of horizontal equalisation of the fiscal capacity of local budgets, the parameters for calculating the reverse subsidy, defined in Articles 98-99 of the Budget Code of Ukraine, are preserved, namely the reverse subsidy is determined in the amount of 50% of the amount exceeding 1.1 - the value of the fiscal capacity index (in the draft budget prior to the first reading the percentage of 80% was proposed).

Thus, according to the horizontal equalisation results, the basic subsidy was set for 930 local budgets, and its volume amounted to UAH 8.2 billion, and reverse subsidy was established for 223 budgets, amounting to UAH 5.4 billion. 134 budgets (versus 103 in 2017) faced no equalisation, since the fiscal capacity index ranges from 0.9 to 1.1 of the average indicator in Ukraine.

It is planned to direct UAH 12.9 billion for state support of regional development, including:

• the State Fund for Regional Development – UAH 6.0 billion (UAH 4.0 billion – general fund, UAH 2.0 billion – special fund (due to proceeds from confiscated funds and funds from sale of property seized by court decision for committing corruption and corruption-related offenses);
• subvention for amalgamated hromadas’ infrastructure – UAH 1.9 billion;
• subvention for the implementation of socio-economic development measures of certain territories – UAH 5.0 billion.

In addition, the law on the budget for 2018 (point 15 of the Final Provisions of the draft law) envisages a norm for settling the issue of local government debts on medium-term loans – therefore, on the basis of the results of three quarters of 2018, the Cabinet of Ministers of Ukraine should submit the proposals for amendments to 2018 state budget to the Verkhovna Rada of Ukraine in the part of debt write-off on medium-term loans and interest-free loans granted to local budgets in 2009-2014 at the expense of the single treasury account, registered in the State Treasury of Ukraine.

In total, the resource of local budgets in 2018 will amount to UAH 553.4 billion, which is UAH 70.3 billion or 14.5% more compared to 2017.

Revenues of local budgets are projected at the level of UAH 249.7 billion, with the growth rate of 124.2% compared to 2017.