Direct democracy & local budgets

Economics
9 July 2018, 09:43

Fiscal decentralization is starting to bear fruit: local budgets are not only operating in the black but in some cases are not keeping up with spending. The State Treasury Service reports that local revenues to local budgets grew to UAH 192 billion over 2017 and left a surplus of UAH 54.4bn. In 2018, the Finance Ministry reports, revenues to the general funds of local budgets grew 25% over January-May, compared to the same period of 2017. In short, instead of a lack of funding, the first issue now is how to effectively manage local resources. One of these mechanisms is public budgeting, which was introduced in Ukraine in 2015.

The essence of this institution is that part of every local budget is set aside to implement projects that the local community proposes and supports. The pioneer in public budgeting was the Brazilian city of Porto Alegre, where this concept began to be applied in the late 1980s and was then expanded to more than 100 Brazilian cities in the following decade. Since then, the practice has spread across the world. By 2015, participatory budgets were the rule in nearly 1,500 local governments on all continents. One of the biggest participatory budgets in the world is that of Paris: in 2014, it was nearly €18mn, skyrocketing to almost €68mn in 2015, and jumping again, to just about €95mn, in 2016.

While the procedural aspects vary from locale to local, the same basic idea lies at its foundation: a community’s needs are best understood by its members, not officials or even representatives elected by the community. In Ukraine, participatory budgets were introduced with the support of Poland through the PAUCI foundation, a Polish-Ukrainian cooperation initiative. The first cities to pilot participatory budgets were Chernihiv, Cherkasy and Poltava. By 2017, the NUKMA’s Center for Innovations Development reported that participatory budgets had been introduced by 91 local governments in 74 cities, 14 UTCs or unified territorial communities, 1 county and 1 oblast. Among oblast centers, the biggest budgets are in Kyiv and Odesa, with  UAH 100mn each, Kharkiv with  UAH 50mn, and Lviv with UAH 26mn. Of course, the size of local budgets depends on the local financial situation and the will of the local government: for instance, Bila Tserkva’s 211,000 residents have a budget of UAH 7.2mn, whereas Vinnytsia’s 327,000 have only UAH 7.0mn.

In participatory budgeting, the distribution of funding is based on the principles of direct democracy. After drawing up a project, its authors have to gain a set number of signatures in its support, after which the project is submitted for expert evaluation. If it meets established criteria, the project is sent to be voted on by locals. In Kyiv, for example, people can vote for their preferred projects through an online system using the Kyiv-issued BankID card, using a digital signature, or through an Administrative Services Center. Those projects that collect enough votes are given funding and are expected to be implemented within a set timeframe.

Such projects can cover an almost unlimited range of ideas: initiatives can be about safety, roads and transport, energy efficiency, utilities, culture and tourism, the environment, education, healthcare, social security, sports, and even IT. So far, participatory budgeting has demonstrated that those projects related to urban development, education and sports are the most popular. For instance, projects that received funding from Kyiv’s 2017 participatory budget went to education, with 25% of the vote, sports with 20%, healthcare with 13%, and so on.

How objectively the results of voting on participatory budgets reflect the demands of the local community is an open question, as the procedure does not require an all-encompassing plebiscite. Typically, a relatively small portion of the population actively participates, as in municipal elections in many mature democracies. Even in Paris, it’s less than 10% of the local electorate. In Ukraine, it varies widely from city to city. In Kyiv, 50,813 locals voted on projects in the participatory budget over 2017, which is around 2% of the voting-age population. The next participatory budget saw more than double the locals get involved, at 131,449 votes—although it’s hard to call even this number, around 5%, representative. Similar proportions can be seen in many other cities. In Lviv, participation was a more substantial 12%, but in Chernivtsi it was 6% and in Sumy 5%, and in Rivne, barely 2%. This gives ammunition to those who are critical of the concept of participatory budgets, because the money is allocated de facto by a very small circle of residents. Still, such attacks are not really fair, given that opportunities to vote and to promote their own projects are open to all. Moreover these participatory budgets constitute a miniscule part of the total municipal budget, and so the consequences rarely affect the entire system.

The main problem with participatory budgets lies in a completely different aspect and is related to the untargeted use of this mechanism in the current circumstances, on the part of both community and state institutions. Take the projects financed from the Kyiv participatory budget for 2017. The open digital lab Fablab, bicycle parking near Metro stations or an underground museum at Poshtova Ploshcha are developments that all Kyivans can potentially make use of. But the participatory budget also went to a serious number of projects whose beneficiaries were individual institutions such as schools, hospitals, kindergartens, and so on. Analysis shows that 24% of Kyiv’s participatory budget went to state institutions and another 22% went to community entities. In this way, the lion’s share of funds allocated to citywide projects went to pay for computer classes for individual schools, to renovate local clubs, to replace windows in hospitals, and the like.

Nor is Kyiv the only city facing this problem. Over 2017-2018, one Lviv school got itself a playing field and replaced its windows and outside lighting with money from the participatory budget. Lviv activists say that schools and kindergartens “nabbed” as much as 90% of the participatory budget in 2017. In Cherkasy, of 11 winning projects, only 2 did not involve community and state institutions. Why these particular institutions are so active in their community is no secret, as schools and hospitals have no problems gathering several hundreds of votes from parents or patients.

To what extent this is deliberate abuse and how broadly administrative leverage is being applied would have to be investigated separately. Clearly, this kind of practice is against the spirit of participatory budgeting, which is that projects should be open to all. Moreover, it sets up a situation where funding is duplicated for public institutions that are already being served by the local or state budget. The necessary rules and restrictions need to be instituted at the local level to limit the risk that participatory budgets will turn into a competition among public institutions for supplementary funding. The rules for determining winning projects are also in critical need of revaluation: in a situation where participation is extremely low, participatory budgets can turn into an unexpectedly generous bonus. For instance, in Chernivtsi nearly UAH 200,000 went to equip a school’s multimedia class based on only 554 votes, and another nearly UAH 300,000 for a local shooting range was “won” by only 135 votes.

Still, these are eminently solvable problems: the process of accepting project submissions can be improved based on the local situation, while public participation, as practice has shown, will grow over time. In Paris, voter engagement in participatory budgets grew from 40,000 in 2014 to 93,000 in 2016. Based on this, Ukraine is actually demonstrating a very positive dynamic if the 50,913 Kyivans who voted in 2017 were already up to 131,449 in mid-2018. Lviv has shown an even stronger growth trend: the 21,215 locals who voted in 2016 more than tripled to 72,061 in 2017.

In the end, the main positive effect of participatory budgets is not even the project themselves, which could have been covered with foreign donor money, sponsors or even cloudfunding. The main thing is that participatory budgets are a training ground for direct democracy. Drawing up projects, searching for support among fellow residents, participating in the vote, and overseeing implementation—it would be hard to find a better school for civil self-government.

What’s more, participatory budgeting is how people can learn to lobby group interests through direct democracy. The fact that public schools and kindergartens have been more effective at using participatory budgets testifies not so much about the schools as about the state of civic society: that there is massive lack of participation in the lives of the local community. This is the sense in which participatory budgets have a far larger significance for the development of Ukraine’s democracy than for the development of individual urban areas. Studies of European practice have shown that the main results that can be anticipated from participatory budgeting are the establishment of local institutions, self-organization at the community level, and stronger public oversight—the very elements that are critically lacking in Ukraine today.

Translated by Lidia Wolanskyj

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