CASE STUDIES |
9. Slavutych, Ukraine: Reforming the Ownership and Use of Communal Property
The Problem
From 1998 through 2001, virtually the entire social infrastructure of the city of Slavutych was funded by the Chernobyl Nuclear Power Plant. Funding came from revenues of the nuclear power facility. The early decommissioning of the plant in 2001 created a serious problem for the city. The local authorities were forced to transfer ownership of the facilities to the local community and fund them through municipal revenues.
The city rapidly developed between 1989 and 1997, often with substandard construction practices, creating a number of problems in the city’s housing and utility sector. The most urgent tasks included reconstruction of the sewerage and wastewater treatment facilities, rehabilitation and partial replacement of the engineering networks, and support of the city’s socio-cultural and service facilities.
These factors created the need to reform Slavutych’s entire system of residential utility services. The reforms focused on the following areas:
- Designing and implementing an optimal rate-setting policy.
- Improving the efficiency of labor force management.
- Revising the structure and enhancing the management of the city’s economy.
- Seeking private businesses interested in providing utility services.
- Raising the funds needed to make a fast and optimal reform of the city housing and utility sector so that local households could be provided with high-quality services.
The Solution
Collaboration between the local authorities and the Ukrainian Parliamentary Committees resulted in amending the Law of Ukraine “On Transferring State and Communal Property” with regard to free transfer of the ownership of Chernobyl plant’s social facilities to the local community. This was an extremely important step toward the implementation of investment projects in Slavutych. The special economic area was targeted at creating of new jobs.
To keep the city’s social infrastructure in proper sanitary and technical condition, the City Council created five communal enterprises:
- KP “Fond Kommunalnoho Maina” (Communal Property Fund).
- KP “Slavutych-Chornobyltorh.”
- KP “Zhytlovo-Kommynalny Center” (Housing and Utility Center).
- KP “Upravlinnya z Rozvytky Phyzychnoi Kultury, Sportu ta Turyzmu” (Department for Developing Physical Culture, Sport, and Tourism).
- KP “Upravlinnya Zytlovo-Komunalnoho Hospodarstva” (Department for Housing and Utility Services).
In an effort to create a unified economic mechanism for the setting and collecting of rent for communal property, ensuring proper maintenance of social infrastructure facilities, and efficient use of communal property by leasing it out to businesses, the City Council approved two new regulatory acts, “Rent Setting Methodology” and “Regulation on Using Revenues from Leasing out Slavutych City Communal Property.” The adoption of these important decisions was preceded by numerous discussions held by the Public Advisory Council on City Development. Major stakeholders in this council included representatives of local entrepreneurs.
To increase municipal revenues and to create investor interest in existing enterprises operating in the Slavutych special economic area, the City Council, in accordance with the current Ukrainian legislation on privatization matters, approved the “Program for Privatizing Slavutych Communal Property and a List of Property Subject to Privatization in 2004 through 2006.” The adoption of these important documents is expected to create conditions to encourage potential investors, increase production, and create additional funding for the development of local industries.
The Results
1. Beginning in 2001, all revenues from the leasing of communal property have been used for the rehabilitation of the leased facilities. Due to this initiative, many facilities have been refurbished to sound sanitary and technical conditions.
In 2004, communal enterprises paid more than UAH 228,000 in rent for communal property. Seventy percent of this amount was spent for the repair and restructuring of the leased facilities; the remaining 30 percent replenished the capital funds of the city.
Once the Slavutych City Council had adopted the decision “On Utilizing Revenues from Leasing out Property,” the year 2004 became critical in terms of reforming the communal sector. Today, 30 percent of total revenues for leasing out communal property are used to rehabilitate leased facilities, 40 percent covers the cost of repairing city social infrastructure facilities, and 30 percent replenishes the city’s capital funds.
2. Following the adoption of the “Program for Privatizing Slavutych Communal Property,” the City Council approved a list of 12 communal properties that are subject to privatization. Vital municipal facilities such as boiler houses, water supplies, heat distribution, waste water systems, and city cable networks will remain in control of the City Council and will not be privatized.
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10. Lviv, Ukraine: Using GIS Technology for Developing a Database of Real Properties Based on a Electronic City Map
The Problem
In the years of 1994 and 1995, the Lviv City Council and its executive bodies faced a considerable problem with real estate registration.
During this period, the city was implementing administrative reforms that resulted in the abolition of district councils. Added to this, the first stage of communal property and housing privatization was approaching its completion. Finally, the oblast (regional) government agencies were increasingly trying to annex municipal property. Therefore, the city urgently needed to have reliable information about the status of city real properties. In addition, it became apparent that some leaseholders had never actually signed lease contracts with the city. Another burden was that reliable data, e.g.: documents kept by Housing Registration Bureaus and ZhEKs (housing maintenance offices), often differed in relation to the indicated floor space and other building information. These problems were causing considerable damage to the city budget. Informational confusion and a lack of transparency were some of the main causes of corruption among local officials. Another issue, superficially insignificant, compounded the problem: The early 1990s witnessed a large-scale street-renaming campaign in the city, which resulted in tremendous obstacles to obtaining reliable data, as archive materials often indicated extinct street names dating back to the times of Soviet, Polish, and sometimes even Austrian rule.
The need for a radical updating of the available database became imperative; the database had to be put in appropriate order and referenced against a single system of coordinates linked to the properties on the ground.
The Solution
First, the city authorities ordered a comprehensive registration of real property, the updating of hardcopy information, verification, if different sources contained discrepancies, and additional research when needed. A single computer database of municipal properties was designed; specialized software was developed, and introduced to explicitly serve this purpose. The product was developed with partial financial assistance from USAID.
At the outset, all street, avenue, lane, and other names were standardized, and the resulting database has become a mandatory reference guide for more than 300 computer network users. Nevertheless, in a city with more than 750,000 permanent residents, the project implementation and completion took almost two years, and it became clear that, for all its positive results, even the joint effort of several hundred people working with the same purpose could not make the process sufficiently transparent.
The city authorities opted to design and develop a software complex for computer registration of municipal properties as part of the unified Lviv information processing system. This data had to be linked to a digital city map (1:5,000 scale), which was being developed at that time at an accelerated pace.
The Results
GIS technologies, which rapidly evolved in the 1990s, made it possible to obtain some radically new information. The availability of the Lviv City Council computer network greatly facilitated the working team’s synergy, with information contributed by every individual member immediately becoming accessible to the rest of the management team.
GIS technology provided the possibility not only to accumulate data about municipal buildings and structures, their leaseholders, rent issues, etc. but also to collate this information with other geographical and topographical data (location, availability and total area of adjacent plots of land, transport and utility lines, etc.). Another great advantage of the GIS technology is the possibility to "superimpose” narrowly specialized data layers on any given area. It provides a unique opportunity to generate radically new views of information, creating views using many different specialized layers. The databases are essentially linked to real properties on the ground. A specific City Council executive department is in charge of specific layers and the reliability of related data. There emerged a real possibility to develop various cadastres based on this information.
Shown in Fig. 1 is a screenshot of the general view of the City digital map.
Note. This is a bird’s-eye view of the city; the boundaries between ZhEKs’ areas are marked in red. By clicking a button and entering the address or relevant information about an owner or lease-holder, users can find the real property they need and can look at the adjacent areas, utility lines, etc. The electronic “magnifying glass” enables the user to obtain a detail picture of any house by shifting from the bird’s-eye view to a specific object on the ground. Thus, the user is able to obtain both visual representation of the building/real property (photo) and its floor plans.
Shown in Fig.2 is another screenshot.
Note. The legend under the photo contains the building owner’s name, the year of construction, the standard construction series number, information about the building materials of walls and ceilings, the number of rooms/apartments, their floor space, the date of the last major repairs, etc.
Architectural monuments (about 1,400) have special registration forms.
Note. Floor plans provide very important supplementary information about the property.
The Web-based system developed and implemented in Lviv has several tiers of access to information. Not all of them are in the public domain. Some information is available only to the users of City Council intranet, where there is an additional access hierarchy, but every outside user of the City Council Web page (http://www.city-adm.lviv.ua ) is entitled to access essential data at www3.city-adm.lviv.ua/.
This information is useful, not just for entrepreneurs and potential investors, but also for all Lviv residents and visitors to the city.
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11. Berdyansk, Ukraine: Municipal Budget Revenue Generation through the Lease of Land
The Problem
The efficient use of land plots is a key to the dynamic development of a city, given that land is a local community’s key asset. The proceeds from lease payments present one of the main sources of municipal revenues, accounting for nearly a quarter of all revenues.
According to the Land Code of Ukraine, payers of land lease fees continue to include state-owned or municipal enterprises and organizations, as well as private businesses. Accordingly, the share of revenues from lease of land plots in municipal budgets will continue to grow. For example, the share of land lease proceeds accounted for 14 percent of Berdyansk municipal budget revenues in 2002, 18 percent in 2003, and 36 percent in 2004.
Leaseholders’ personal accounts were cancelled by the Tax Inspectorate as early as May 2001. Therefore, control over land rent payments was not implemented, and any information on the status of payments at the time of establishing the department was lost.
The Finance Directorate of the Executive Committee had no separate department that could analyze and control revenue to the budget. The city was missing opportunities to generate increased revenue through resource leases and was losing money as a result.
The Solution
To change the situation, a department for analysis and control of resource payments was established within the Finance Directorate of the Berdyansk City Council Executive Committee in 2002.
The newly established department was to be responsible for the accounting, control, and analysis of municipal budget revenues generated through the lease of municipal land. As the department started work, it became apparent that the work could not be done manually. A computer system for the analysis and the processing of land lease information was developed to include databases of all payers of land lease payments, as well as all land lease agreements executed, including those that had expired.
An inventory of lease agreements for municipal land was created, based on the information provided by the Land Resources Directorate (information about agreements executed) and Berdyansk Inter-District State Tax Inspectorate (information about remittance of land rent payments). After a full inventory of all agreements for lease of land plots was completed, it became apparent that there were considerable arrears in lease payments. A monthly conciliation with the Land Resources Directorate on new land lease agreements made it possible to quickly locate payers who had not registered and were defaulting on land lease payments.
Thanks to the introduction of the computer system, all department operations have been automated, including:
- Recordkeeping of land leaseholders.
- Recordkeeping of lease agreements.
- mproved calculations for land lease fees.
- Calculation of penalties and control over their remittance.
- Work on compulsory collection of arrears.
- Implementing an economic analysis of revenues from the lease of land plots, including by zone.
- The reduction of the time required for the calculation of lease agreement fees from 40 minutes to 12 seconds.
The department is constantly working with lease payers. During registration, a leaseholder is provided with calculations for the required land rent payments in the given year. A payer is constantly informed of changes in the indexation of rent, changes in budget accounts, and the amounts of fines charged in case of delayed payment.
To collect debts from defaulting payers, the Executive Committee set up a standing committee to assess and penalize leaseholders for damages inflicted to the city through violation of the land law.
Collaboration has been established with other executive agencies. Information on all payers of land leases is submitted on a monthly basis to the Tax Inspectorate. Files on debtors are handed over to the Prosecutor’s Office for conducting compulsory collection procedures through court proceedings.
Ongoing control is being executed over the use of land assessed at preferential rates for building and reconstruction projects, the expiration terms of agreements, and the charging of payments for the extension of lease agreements.
The Results
Thanks to the establishment of the Department for Analysis and Control over Remittance of Resource Payments within the Finance Directorate of the Executive Committee and the implementation of a monitoring system for leases, the city has managed to:
- Quickly and thoroughly study the existing problems with land leases, from complex territorial and economic problems to routine everyday matters.
- Quickly analyze and develop measures to address the problems in land relations facing the City Council.
This has resulted in significantly higher revenues for the city budget generated by leases.
Thanks to the new system, Berdyansk is now making timely arrangements for the repayment of tax arrears. A mechanism is in place to charge fines for late payments. Through constant reminders to debtors to make payments for the land they lease, the municipal budget has received an additional UAH 20,000 to 80,000 in debt payments every month.
The change in fines for late payments by year:
- 2002 – UAH 22,900.
- 2003 – UAH 25,600.
- 2004 – UAH 18,700.
A system dealing with land sale contracts with installment payments, including the charging of interest on the outstanding principal of loans, has also been implemented. This system has allowed the city to receive UAH 42,500 in interest earnings in 2002.
The total city earnings from sale of land have been:
- 2002 – UAH 1.78 million.
- 2003 – UAH 1.24 million.
- 2004 - UAH 0.5 million.
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12. Berdyansk, Ukraine: Municipal Budget Revenue Generation Through Effective Communal Property Management
The Problem
In 1999, the Berdyansk municipal budget received UAH 924,000 in proceeds from leased communal property and UAH 439,000 from privatization. There was neither an inventory nor a database of communal properties in the city at that time. Efforts to collect rent arrears were ineffective.
As a result, the municipal budget was constantly underperforming in terms of revenue generation. To change this situation, the Berdyansk City Council established a Communal Property Directorate, as an independent executive agency for the management of communal property within the city.
The Solution
The main goal of the Communal Property Directorate is to manage the city’s property with the aim of sound and effective use of the property.
The key activities in managing this property include:
- Keeping an inventory of communal properties.
- Alienating communal properties.
- Leasing communal properties.
- Accepting properties for communal ownership.
- Transferring communal properties into use free of charge.
First of all, a number of steps were taken:
1. An inventory of communal properties was compiled.
The city sent inquiries to municipal legal entities requesting their inventory data (inventory descriptions) regarding the value of built-in and attached premises and information about their use. Based on the returned information, a computer database of communal properties was developed.
2. A review of the existing property management methods was conducted, and their strengths and weaknesses were identified.
It was shown that the existing property management methods were inefficient due to a lack of systematic recordkeeping and the lack of normative documents regulating the procedures for the writing-off of property, the sale of property, and the transfer of communal property from one balance sheet into another, transfer and acceptance of property from other ownership formats, etc.
3. Ways were identified to use the municipal property more efficiently.
Computer records of communal properties helped to make information about the communal property more systematic and created a way to identify unrecorded and unused properties. Such properties could be used as additional assets to be leased or privatized.
4. Normative documents were drafted and approved to regulate the issues of communal property management in the city of Berdyansk (the existing legislation does not regulate these issues).
The “Regulations on the Procedure of Alienating Communal Properties Owned by the City of Berdyansk Local Community” describes the procedures for sale of property. These regulations provide a mechanism for transferring fixed assets from one balance sheet to another between municipal legal entities and a mechanism for the writing off of fixed assets, etc (selling and donating properties). The “Regulations on Accepting Social Assets into Communal Ownership” describe the procedures for acceptance and transfer of property to or from other forms of ownership at the local level (setting up committees, executing transfer and acceptance documents, etc.) in accordance with the existing legislation.
The Results
The steps undertaken have resulted in developing a database of communal properties. A software module for vector mapping system has also been developed. The database has been created with information on the fixed assets recorded on the balance sheets of 56 municipal legal entities, totaling 20,801 units, including 2,973 buildings. The value of communal fixed assets amounts to UAH 924.4 million.
The inventory database software is a computer application that allows the recording of inventory information by date but also allows the analysis of property movement due to various forms of alienation (networked with the Privatization and Lease applications) and the acceptance of property into municipal ownership. The database helps to control accumulation of both technical documentation and documents that account for the movement of fixed assets. The application has
various reports for all its functions and has multifunction capabilities (filters, search, indicators of acceptance and alienation, use, references tables, control of document flow, analysis of property movement by years, registers of documents, etc.). Shown in Fig.1 is a screenshot of the communal property database.
Fig. 1. Screenshot of Communal Properties Inventory Database
For the management of communal property, “Regulations on Acceptance of Properties into Communal Ownership” have been developed. From 1999 through 2004, the Berdyansk local community accepted into its communal ownership 445 properties worth UAH 135.1 million, including 193 residential properties with a total area of 460,500 sq m worth UAH 103.8 million.
Several ordinances dealing with the issues of leases, the calculation of rent, the arrangement of tenders, etc. have also been developed.
From 1999 through 2004, UAH 9.1 million were generated from lease of properties and remitted to the municipal budget. VAT to the state budget is also being paid.
The rent revenues are growing as demonstrated in Fig.2.
Fig. 2. Revenues from Lease of Communal Properties
In the area of communal property management, work has been started to conduct privatizations of communal properties in accordance with privatization laws. The growth of revenues generated by the leasing of communal properties is shown in Fig. 3.
Fig.3. Funds Generated Through Privatization of Communal Property
The privatized properties included these types: built-in, built-in and attached premises, nonresidential buildings, property complexes, integrated property complexes, and unfinished construction projects. The privatization revenues are remitted to the development budget and used for the renovation of socially important communal properties. Thanks to privatization, the city is completing unfinished construction projects, the services sector is developing extensively (consumer services such as repair shops and hairdressers), and the retail sector is growing. Tourist facilities are opening up for enjoyment of visitors to this resort town.
The performance indicators of the communal property privatization plan are constantly growing. For instance, this indicator increased 2.6 times from 2003 to 2004.
Innovations are being made in communal property management. For example, after new procedures for acquiring ownership of abandoned property were developed, 12 properties were included in the inventory. Also, processes are being implemented for acquiring ownership of expired heritage, providing for transfer of ownership through court proceedings.
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Effective Management of Territorial Community Property
The Law of Ukraine “On Local Self-Government” gave territorial communities the right to manage properties in their ownership. However, every city has its own peculiarities. That is why a Department of Communal Resources has been created in Donetsk. The chief of the department, Serhiy Bohachov, provides the following information.
Now that small-scale privatization has been completed, the field of activities of local departments of the State Property Fund of Ukraine is considerably narrowed. As a result, territorial communities may lose the body that solves matters related to privatization and divestiture of objects of communal property (including land), auction sales, lease agreements, etc.
At the end of 2003, the Donetsk City Council created a Department of Communal Resources. Its main functions include the analysis and estimation of financial and economic conditions concerning the management of land resources, objects of communal property, and communal enterprises, development of suggestions and recommendations on increase, replacement, and maintenance of communal resources in Donetsk.
At present, the program named “Effective Management of the Territorial Community Property (land, real assets, and other objects)” is being carried out. The program’s distinctive feature lies in that different transactors pay for land in different ways: Rent payments for land plots in producing sector are lower than for land in the nonproductive sphere.
This year, Donetsk plans to earn additional 6-8 million hryvnias for lease holding. The estimated income for land rent is 10 million hryvnias.
It is worth mentioning that cities with highly developed industrial and communal infrastructure will benefit from the switchover to the money value of land system. Kyiv and Dnipropetrovsk were the first in Ukraine to introduce this system, and, as a result, these cities’ revenues have been considerably increased.
Partnery’s comment: Programs of effective management of communal property have also been introduced in other cities of Donetsk Oblast — Mariupol and Kramatorsk. In Mariupol, lease payments depend on lease duration. If a land lease period is rather long, the interest rate does not exceed 2 percent. The interest rate for the lease period less than 5 years is up to 5 percent. In Mariupol, the a practice of temporary reservation of land plots for the period of time necessary for conducting exploration and surveying works, as well as for development of designs of general arrangement of buildings was introduced. Payments for land plot reservations equal 50 percent of land tax for the future land use. Payments for temporary use of land plots and buildings that are in communal ownership replenish revenues of the city budget.