Local Self-government of the Communities and Their Independence

The realization of the local self-government system is one of the preconditions of the realization of democracy. According to the European charter of local self-government,  “self-government is the right and ability of local self-government bodies to regulate and control most part of the state issues (within the scopes of the law) with its own responsibility and hence for local people’s interests[i]”.

Armenia is a democratic country which manifests the above-mentioned state and local self-government properties. The basis of the formation of LSGB (local self-government body) is the Constitution admitted by the referendum in 1995. Afterwards, already in 1996, the law “On Local Self-Government” finally ratified the local self-government institution in the Republic of Armenia.

Laws on Local Self-Government (1996, 2002)

The Constitution and the law of 1996 formed an independent self-government community in the RA. However, the law in 1996 has “subtle issues” related to the utter autonomy. It is mentioned in the principles of self-government that the leader of the community has two directions of operational roles: autonomous governing body and representative of authority. As a representative of state authority, the leader depends on the central body, which provides an element of centralization within the local self-government system. As a result, this description has been removed from the text of the law of 2002 more closely complying with the European Convention. However, one more point which proves the centralization is the correlation between state and local self-government bodies, when the head of the community can be dismissed based on the claim  of the regional governor (mayor in Yerevan). In spite of this, the possibility of making an appeal in legal form exists as a counterbalance, which is also an element of central authority and correlates with the united governmental system.

European Charter of Local Self-Government

The next phase of development directly relates to the already mentioned “European charter of local self-government.” In 2002, confirming the European charter Armenia was committed to implement the provisions of the latter’s articles[ii].

The content and the logic of the confirmed provisions are seen in the law of 2002 and in the Constitution. However, let us take a look at the provisions which the RA has not ratified. Particularly the 5th article of the declaration provides the sovereignty of each community towards territorial changes, also with the implementation of the referendum, if applicable. The implementation of the consolidation concept should be held with the participation of local bodies and population. As the RA has not ratified this point, the expediency of territorial changes is out of the jurisdiction of the local self-government, which weakens the independence of the community and the integration of population in the solution of local problems.

A question may arise, whether local self-government bodies have enough knowledge for territorial changes and for making other kinds of decisions. The second point of the sixth article of the same declaration provides the LSGB’s personnel with the possibilities of improving the qualification, i.e., education, payment and promotion at work. Undoubtedly, such programs imply heavy expenses. In order to understand which resources to use for personnel reforms, it is necessary to review staff composition, the number of employees, the effectiveness of the latter’s work and the possible ways of reduction. As a result, it’ll become clear to which extent the qualification can be provided at the expense of inner resources. The above-mentioned point  is also not  ratified by the RA.

Constitution of the Republic of Armenia and Community Consolidation Concept

Recent constitutional reforms were one more step towards the development of the community’s economy. In particular, the 182nd article of the Constitution reads “community residents can directly participate in community affairs by solving public issues which have community importance by means of local referendum.” The basis of this are not only  the principles of democracy, but also the problem of increasing the effectiveness of the  governing system.

With the new concept of consolidation (2011) by the government, the local self-government model was finally ratified by the RA. It was aimed at sustaining the community economy, enlarging the financial and resource base through mergences and  using it more effectively. The following principles and indicators stand on the basis of the enlargement  – the distance of the communities from each other and from the nearby urban areas, the availability of transport infrastructures, their accessibility, ethnic peculiarities of each community, the degree and history of cooperation between communities. As a result, the local self-government system typically corresponds to a mixed-type model[iii], where communities have their authorizations and degree of independence, at the same time, they act inside the state system and are held accountable to the upper level.

Despite the legal prerequisites, which exist to raise the degree of independence of communities, the actual independence is very weak. Problems arise not in the process of drafting laws, but in the stage of the realization of the aforementioned rights and commitments. In this case, we face up to zero public awareness on the issues of community government. What refers to the involvement,  the residents are indifferent toward the above-mentioned issues. We can assume that these factors are interconnected and influence each other: the more the resident is indifferent, the less  the awareness is and vice versa. Besides, in some cases, community governing bodies (head of the community and counselor)  do not have relevant knowledge and skills to effectively manage the community’s economy, which causes additional obstacles.

Community Financing (Budgeting) Peculiarities

Nowadays, community budgeting is de jure under state control by means of the territorial government body, i.e., regional (marz) administration. Despite the fact that property tax and land tax are fully transferred to the community budget, the latter does not even cover half of the total expenditures. Local taxes provide 30-35%[iv] of the budget. Some of the reasons why   debts accumulate are overdue tax payments (both physical and legal), which can be interpreted as a result of wrong financial management. 

Large urban areas are somehow safe. These are the cities where the objects of taxation are concentrated, i.e., factories, billboards, commercial areas, etc. The latter, however, also have problems with state support. According to the law on equalization, granting subsidies is based on the following indicators:

• Income tax, land tax and property tax per capita
• The number of people
• The necessity of state priority support[vi]

In essence, the last factor carries a specification. Besides, there is a minimum subsidy threshold of 3.5 million AMD, below which the subsidy is provided in the amount of that threshold. The subsidy does not have a target field and is directed to the financing of the shortage of community budget.

There is also a possibility of providing subventions, which, unlike subsidies, have a predetermined aim and cannot be used for other needs. From the financial point of view, the delegated authorizations are limited, for the implementation of which the state is obliged to finance the community.

Besides local taxes and state grant programs, the law on state budget also envisages portioning out some types of taxes and their attribution to community budgets (income tax, profit tax), as well as determining local taxes. In the first case, every year, the amount subject to portioning out is defined by the law on the state budget of the RA, which is almost zero per year. The reason is again the high centralization of communities, especially compared to the capital and other settlements. For example, in case of local taxes, hotel tax does not have a precise legislative basis to serve as a source of considerable income. In addition to the latter, other local fees are also determined by the law, such as payments for construction, reconstruction and demolition, fees for implementing commercial activities within the area of community, etc.

Thus, summarizing two main aspects of communities’ activities, i.e., legislative and financial, we come to the following conclusion: despite the fact that at the community level, there are favorable legislative conditions both for the residents of the community and for community leaders from the point of view of solving local problems and satisfying the needs of the residents, we have great gaps in terms of their application. One can assume that one of the problems is the insufficient decentralization both from the financial and administrative points of view.

The financial independence of communities from state institutions is closely related to the application of legislative rights in communities. If the financial possibilities of the LSGBs were not so closely tied to the centralized system, then the management would be more efficient. The reason is that at the community level, it is easier to identify and satisfy the needs of the residents by receiving immediate feedback for further corrections in management.

The discovery of the potential of financial independence in communities can be considered a possible way for raising the degree of decentralization. The main emphasis must be put on increasing each separate community’s income through the efficient use of property and land. Besides, it is necessary to make some changes in the tax policy,  particularly in case of commercial companies, and to support not only the legal registration of the subject out of Yerevan, but also the implementation of its main activities in the regions.

Positive and Negative Sides of Decentralization

Summarizing the current situation, we come to the following conclusion: each community is independent in making administrative decisions, but financial support is left to the central authority. Besides, local authorities have a low level of motivation and are not interested in carrying  full responsibility in solving their own problems both in financial and administrative terms.

In order to understand the development prospects, let us compare the Armenian model with the local self-government policies of other countries. The 2014 research aimed at introducing new LSGB models of the European countries showed the following results.

In general, in the countries with the first four models, the communities enjoy the power of making both financial and administrative decisions (from the first model to the fourth, in descending order). In addition, the more independent the community is in implementing debt policy, the more extensive the scopes of the jurisdictions are. The last model, which includes Armenia and Azerbaijan, has a high financial and operational centralization.

If we maintain the current situation, we will have poorly developed, dependent communities, which will deepen the concentration in and around the capital. In addition, the centralized government apparatus will remain overloaded and less productive. The quickness of decision-making and the unanimity of decisions can be considered as the advantages of a centralized system. Partial decentralization, i.e., only administrative one, can also be considered an option, which, however, is not the best one, as a complete decision-making requires  an availability of financial resources.

Providing the communities with complete independence will enable them with the possibility of solving local problems and receiving a response from the population. This option is accompanied by corruption risks, as well as with the risk of insufficient competences of the mentioned community officials. The indifference of the population is another impediment to the establishment of a completely independent community.

The problem can be solved in the following way. Let us suppose that communities were given financial independence, and there is an opportunity to prioritize the problems. A third body must act as a counterbalance for pressing corruption risks. The body will represent the interests of the local population. Such subjects can be non-governmental organizations or community councils formed within the community, which will raise public awareness and protect their interests.

Author: Hakob Hakobyan © All rights are reserved.

Translator: Lusine Barkhoyan.